UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended September 30, 1999 or
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
Commission File No. 0-26338
MORGAN STANLEY DEAN WITTER SPECTRUM TECHNICAL L.P.
(Exact name of registrant as specified in its charter)
Delaware 13-3782231
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification
No.)
c/o Demeter Management Corporation
Two World Trade Center, 62 Fl., New York, NY 10048
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 392-5454
(Former name, former address, and former fiscal year, if changed
since last report)
Indicate by check-mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
<PAGE>
<TABLE>
MORGAN STANLEY DEAN WITTER SPECTRUM TECHNICAL L.P.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
September 30, 1999
<CAPTION>
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements
Statements of Financial Condition
September 30, 1999 (Unaudited) and December 31, 1998.......2
Statements of Operations for the Quarters Ended
September 30, 1999 and 1998 (Unaudited)....................3
Statements of Operations for the Nine Months Ended
September 30, 1999 and 1998 (Unaudited)....................4
Statements of Changes in Partners' Capital for the
Nine Months Ended September 30, 1999 and 1998
(Unaudited)............................................... 5
Statements of Cash Flows for the Nine Months Ended
September 30, 1999 and 1998 (Unaudited)................... 6
Notes to Financial Statements (Unaudited).............. 7-
11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations...... 12-22
Item 3. Quantitative and Qualitative Disclosures about
Market Risk ....................................... 22-34
Part II. OTHER INFORMATION
Item 1. Legal Proceedings..................................... 35
Item 2. Changes in Securities and Use of Proceeds.......... 35-37
Item 6. Exhibits and Reports on Form 8-K...................... 37
</TABLE>
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
MORGAN STANLEY DEAN WITTER SPECTRUM TECHNICAL L.P.
STATEMENTS OF FINANCIAL CONDITION
<CAPTION>
September 30, December 31,
1999 1998
$ $
(Unaudited)
ASSETS
<S> <C> <C>
Equity in futures interests trading accounts:
Cash 267,595,299 235,044,325
Net unrealized gain on open contracts12,647,582 18,909,268
Net option premiums (1,483,429) -
Total Trading Equity 278,759,452 253,953,593
Subscriptions receivable 3,927,284 4,002,633
Interest receivable (DWR) 902,182 717,685
Total Assets 283,588,918 258,673,911
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Accrued brokerage fees (DWR) 1,699,097 1,439,151
Redemptions payable 1,570,058 1,339,311
Accrued management fees 937,433 794,015
Total Liabilities 4,206,588 3,572,477
Partners' Capital
Limited Partners (17,651,240.742 and
15,660,041.764 Units, respectively) 276,499,328 25
2,455,045
General Partner (184,045.888 and
164,158.204 Units, respectively) 2,883,002 2
,646,389
Total Partners' Capital 279,382,330 255,101,434
Total Liabilities and Partners' Capital 283,588,918 258
,673,911
NET ASSET VALUE PER UNIT 15.66
16.12
<FN>
The accompanying notes are an integral part
of these financial statements.
</TABLE>
<PAGE>
<TABLE>
MORGAN STANLEY DEAN WITTER SPECTRUM TECHNICAL L.P.
STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
For the Quarters Ended September 30,
1999 1998
$ $
REVENUES
<S> <C> <C>
Trading profit (loss):
Realized 864,430 (4,813,089)
Net change in unrealized (8,011,531) 40,764,560
Total Trading Results (7,147,101) 35,951,471
Interest Income (DWR) 2,574,538 2,165,631
Total Revenues (4,572,563) 38,117,102
EXPENSES
Brokerage fees (DWR) 5,041,583 3,910,830
Management fees 2,781,562 2,157,699
Incentive fees - 2,443,972
Total Expenses 7,823,145 8,512,501
NET INCOME (LOSS) (12,395,708) 29,604,601
NET INCOME (LOSS) ALLOCATION
Limited Partners
(12,268,803) 29,303,559
General Partner
(126,905) 301,042
NET INCOME (LOSS) PER UNIT
Limited Partners
(0.73) 2.00
General Partner
(0.73) 2.00
<FN>
The accompanying notes are an integral part
of these financial statements.
</TABLE>
<PAGE>
<TABLE>
MORGAN STANLEY DEAN WITTER SPECTRUM TECHNICAL L.P.
STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
For the Nine Months Ended September 30,
1999 1998
$ $
REVENUES
<S> <C> <C>
Trading profit (loss):
Realized 14,704,626 13,007,107
Net change in unrealized (6,261,686) 26,421,207
Total Trading Results 8,442,940 39,428,314
Interest Income (DWR) 6,954,549 6,008,143
Total Revenues 15,397,489 45,436,457
EXPENSES
Brokerage fees (DWR) 14,393,049 11,107,075
Management fees 7,940,992 5,955,922
Incentive fees 430,097 2,653,466
Total Expenses 22,764,138 19,716,463
NET INCOME (LOSS) (7,366,649) 25,719,994
NET INCOME (LOSS) ALLOCATION
Limited Partners (7,293,262)
25,458,926
General Partner
(73,387)
261,068
NET INCOME (LOSS) PER UNIT
Limited Partners
(0.46) 1.70
General Partner
(0.46) 1.70
<FN>
The accompanying notes are an integral part
of these financial statements.
</TABLE>
<PAGE>
<TABLE>
MORGAN STANLEY DEAN WITTER SPECTRUM TECHNICAL L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
For the Nine Months Ended September 30, 1999 and 1998
(Unaudited)
<CAPTION>
Units of
Partnership Limited General
Interest Partners Partner Total
<S> <C> <C> <C>
<C>
Partners' Capital,
December 31, 1997 12,434,700.738 $180,099,271 $1,851,236
$181,950,507
Continuous Offering 3,755,829.080 54,600,215 385,000
54,985,215
Net Income - 25,458,926 261,068
25,719,994
Redemptions (1,094,116.386) (16,157,325) -
(16,157,325)
Partners' Capital,
September 30, 1998 15,096,413.432 $244,001,087 $2,497,304
$246,498,391
Partners' Capital,
December 31, 1998 15,824,199.968 $252,455,045 $2,646,389
$255,101,434
Continuous Offering3,096,204.722 48,485,453 310,000
48,795,453
Net Loss - (7,293,262) (73,387)
(7,366,649)
Redemptions (1,085,118.060) (17,147,908) -
(17,147,908)
Partners' Capital,
September 30, 1999 17,835,286.630 $276,499,328 $2,883,002
$279,382,330
<FN>
The accompanying notes are an integral part
of these financial statements.
</TABLE>
<PAGE>
<TABLE>
MORGAN STANLEY DEAN WITTER SPECTRUM TECHNICAL L.P.
STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
For the Nine Months Ended September 30,
1999 1998
$ $
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income (loss) (7,366,649) 2
5,719,994
Noncash item included in net income (loss):
Net change in unrealized 6,261,686
(26,421,207)
(Increase) decrease in operating assets:
Net option premiums 1,483,429 -
Interest receivable (DWR) (184,497) (74,352)
Increase in operating liabilities:
Accrued brokerage fees (DWR) 259,946 309,743
Accrued management fees 143,418 202,545
Incentive fees payable -
607,032
Net cash provided by operating activities 597,333
343,755
CASH FLOWS FROM FINANCING ACTIVITIES
Continuous offering 48,795,453 5
4,985,215
(Increase) decrease in subscriptions receivable 75,349
(2,233,770)
Increase in redemptions payable 230,747
606,274
Redemptions of units (17,147,908)
(16,157,325)
Net cash provided by financing activities 31,953,641
37,200,394
Net increase in cash 32,550,974 3
7,544,149
Balance at beginning of period 235,044,325
168,849,922
Balance at end of period 267,595,299
206,394,071
<FN>
The accompanying notes are an integral part
of these financial statements.
</TABLE>
<PAGE>
MORGAN STANLEY DEAN WITTER SPECTRUM TECHNICAL L.P.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
The financial statements include, in the opinion of management,
all adjustments necessary for a fair presentation of the results
of operations and financial condition of Morgan Stanley Dean
Witter Spectrum Technical L.P. (the "Partnership"). The
financial statements and condensed notes herein should be read in
conjunction with the Partnership's December 31, 1998 Annual
Report on Form 10-K.
1. Organization
Morgan Stanley Dean Witter Spectrum Technical L.P. is a limited
partnership organized to engage primarily in the speculative
trading of futures, forward and options contracts on physical
commodities and other commodity interests, including foreign
currencies, financial instruments, precious and industrial
metals, energy products and agriculturals (collectively, "futures
interests"). The Partnership is one of the Morgan Stanley Dean
Witter Spectrum Series of funds, comprised of the Partnership,
Morgan Stanley Dean Witter Spectrum Global Balanced L.P., Morgan
Stanley Dean Witter Spectrum Strategic L.P. and Morgan Stanley
Dean Witter Spectrum Select L.P. The general partner is Demeter
Management Corporation ("Demeter"). The non-clearing commodity
broker is Dean Witter Reynolds Inc. ("DWR"), and an unaffiliated
clearing commodity broker, Carr Futures Inc. ("Carr"), provides
clearing and execution services. Both Demeter and DWR are wholly-
owned subsidiaries of Morgan Stanley Dean Witter & Co. ("MSDW").
<PAGE>
MORGAN STANLEY DEAN WITTER SPECTRUM TECHNICAL L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The trading advisors to the Partnership are Campbell & Company,
Inc., Chesapeake Capital Corporation, and John W. Henry &
Company, Inc., (collectively, the "Trading Advisors").
2. Related Party Transactions
The Partnership's cash is on deposit with DWR and Carr in futures
interests trading accounts to meet margin requirements as needed.
DWR pays interest on these funds based on a prevailing rate on
U.S. Treasury bills. The Partnership pays brokerage fees to DWR.
3. Financial Instruments
The Partnership trades futures, forward and options contracts on
physical commodities and other commodity interests, including
foreign currencies, financial instruments, precious and
industrial metals, energy products and agriculturals. Futures
and forwards represent contracts for delayed delivery of an
instrument at a specified date and price. Risk arises from
changes in the value of these contracts and the potential
inability of counterparties to perform under the terms of the
contracts. There are numerous factors which may significantly
influence the market value of these contracts, including interest
rate volatility.
<PAGE>
MORGAN STANLEY DEAN WITTER SPECTRUM TECHNICAL L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activities"
effective for fiscal years beginning after June 15, 1999. The
Partnership elected to adopt the provisions of SFAS No. 133
beginning with the fiscal year that ended December 31, 1998.
SFAS No. 133 supersedes SFAS No. 119 and No. 105, which required
the disclosure of average aggregate fair values and
contract/notional values, respectively, of derivative financial
instruments for an entity which carries its assets at fair value.
The application of SFAS No. 133 does not have a significant
effect on the Partnership's financial statements.
The net unrealized gain on open contracts is reported as a
component of "Equity in futures interests trading accounts" on
the Statements of Financial Condition and totaled $12,647,582 and
$18,909,268 at September 30, 1999 and December 31, 1998,
respectively.
Of the $12,647,582 net unrealized gain on open contracts at
September 30, 1999, $10,872,297 related to exchange-traded
futures and futures-styled options contracts and $1,775,285
related to off-exchange-traded forward currency contracts.
Of the $18,909,268 net unrealized gain on open contracts at
<PAGE>
MORGAN STANLEY DEAN WITTER SPECTRUM TECHNICAL L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998, $19,606,697 related to exchange-traded futures
contracts and $(697,429) related to off-exchange-traded forward
currency contracts.
Exchange-traded futures and futures-styled option contracts held
by the Partnership at September 30, 1999 and December 31, 1998
mature through September 2000 and December 1999, respectively.
Off-exchange-traded forward currency contracts held by the
Partnership at September 30, 1999 and December 31, 1998 mature
through December 1999 and March 1999, respectively.
The Partnership is subject to the credit risk associated with
counterparty non-performance. The credit risk associated with
the instruments in which the Partnership is involved is limited
to the amounts reflected in the Partnership's Statements of
Financial Condition. DWR and Carr act as the futures commission
merchants or the counterparties with respect to most of the
Partnership's assets. Exchange-traded futures and futures-styled
options contracts are marked to market on a daily basis, with
variations in value settled on a daily basis. Each of DWR and
Carr, as a futures commission merchant for all of the
Partnership's exchange-traded futures and futures-styled options
contracts, are required, pursuant to regulations of the Commodity
Futures Trading Commission ("CFTC") to segregate from their own
assets, and for the sole benefit of their commodity customers,
all funds held by
<PAGE>
MORGAN STANLEY DEAN WITTER SPECTRUM TECHNICAL L.P.
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
them with respect to exchange-traded futures and futures-styled
options contracts, including an amount equal to the net
unrealized gain on all open futures and futures-styled options
contracts, which funds, in the aggregate, totaled $278,467,596
and $254,651,022 at September 30, 1999 and December 31, 1998,
respectively.
With respect to the Partnership's off-exchange-traded forward
currency contracts, there are no daily settlements of variations
in value nor is there any requirement that an amount equal to the
net unrealized gain on open forward contracts be segregated.
With respect to those off-exchange-traded forward currency
contracts, the Partnership is at risk to the ability of Carr, the
sole counterparty on all of such contracts, to perform. Carr's
parent, Credit Agricole Indosuez, has guaranteed to the
Partnership payment of the net liquidating value of the
transactions in the Partnership's account with Carr (including
foreign currency contracts).
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity - Assets of the Partnership are deposited with DWR as
non-clearing broker and Carr as clearing broker in separate
futures interest trading accounts. Such assets are held in either
non-interest bearing bank accounts or in securities approved by
the CFTC for investment of customer funds. The Partnership's
assets held by DWR and Carr may be used as margin solely for the
Partnership's trading. Since the Partnership's sole purpose is
to trade in futures interests, it is expected that the
Partnership will continue to own such liquid assets for margin
purposes.
The Partnership's investment in futures interests may, from time
to time, be illiquid. Most United States futures exchanges limit
fluctuations in certain futures interest prices during a single
day by regulations referred to as "daily price fluctuations
limits" or "daily limits". Pursuant to such regulations, during
a single trading day no trades may be executed at prices beyond
the daily limit. If the price for a particular futures interest
has increased or decreased by an amount equal to the daily limit,
positions in such futures interest can neither be taken nor
liquidated unless traders are willing to effect trades at or
within the limit. Futures interests prices have occasionally
moved the daily limit for several consecutive days with little or
no trading. Such market conditions could prevent the Partnership
from promptly liquidating its futures interests and result in
restrictions on redemptions.
<PAGE>
There is no limitation on daily price moves in trading forward
contracts on foreign currency. The markets for some world
currencies have low trading volume and are illiquid, which may
prevent the Partnership from trading in potentially profitable
markets or from promptly liquidating unfavorable positions,
subjecting it to substantial losses. Either of these market
conditions could result in restrictions on redemptions.
Capital Resources. The Partnership does not have, nor does it
expect to have, any capital assets. Future redemptions,
exchanges and sales of additional Units of Limited Partnership
Interest ("Unit(s)") will affect the amount of funds available
for investment in futures interests in subsequent periods. Since
they are at the discretion of Limited Partners, it is not
possible to estimate the amount and therefore, the impact of
future redemptions, exchanges or sales of additional Units.
Results of Operations
For the Quarter and Nine Months Ended September 30, 1999
For the quarter ended September 30, 1999, the Partnership
recorded total trading losses net of interest income of
$4,572,563 and posted a decrease in Net Asset Value per Unit.
The most significant losses were recorded in the global stock
index futures markets from long positions in ASE All Ordinaries
Index futures as Australian stock prices moved lower during July
on inflationary concerns in the U.S. During August, losses were
experienced from short positions in this market index as prices
<PAGE>
increased due to a surge on Wall Street and on Australian job
figures that showed the lowest rate of unemployment in that
country in nine years. In the global interest rate futures
markets, losses were recorded during September from short
positions in Japanese government bond futures as prices rallied
on the strength of the Japanese yen and expectations that
additional monetary easing in that country will come. Additional
losses were experienced during August from short U.S. interest
rate futures positions as U.S. Treasury prices moved higher on
benign inflation data, a successful corporate bond offering and
the Federal Reserve anticipated decision to raise interest rates.
Offsetting gains in this market complex were recorded during
September from short German bond futures positions as most
European bond prices decreased on signs of a resurgence in that
region's economy. In the metals markets, losses were experienced
from short gold futures positions as prices skyrocketed due to
the results of the Bank of England's second gold auction on
September 21 and the announcement of a plan by several European
central banks to restrict sales of their gold reserves for five
years. In the currency markets, losses were recorded during July
from short positions in the Swiss franc and the euro as the value
of these currencies strengthened versus the U.S. dollar due to a
better-than-expected German business sentiment survey and a
record U.S. trade deficit. Additional losses were recorded from
long positions in these currencies as the value of the U.S.
dollar rallied higher versus most major currencies on Monday,
August 23 amid a rally in U.S. stock prices and on September 10
as an intervention by the Bank of Japan temporarily strengthened
the
<PAGE>
dollar. As a result, new short positions were established in the
European common currency and the Swiss franc only to result in
additional losses as these currencies strengthened versus the
U.S. dollar during the latter half of September after the July
U.S. trade figures reflected a record deficit. Offsetting
currency gains were recorded during August and September from
long Japanese yen positions as the value of the yen increased
versus the U.S. dollar due to positive economic data out of that
country and optimism over Japan's economic recovery. A portion
of the Partnership's overall losses for the quarter was offset by
gains recorded in energy markets from long positions in crude oil
futures and its refined products, unleaded gas, heating oil and
gas oil, as oil prices climbed higher during August and September
due to a perceived tightness in the gasoline market and an
announcement by OPEC ministers stating that they would continue
to adhere to agreed-upon output cuts through the first quarter of
2000. Total expenses for the three months ended September 30,
1999 were $7,823,145 resulting in a net loss of $12,395,708. The
value of a Unit decreased from $16.39 at June 30, 1999 to $15.66
at September 30, 1999.
For the nine month ended September 30, 1999, the Partnership
recorded total trading revenues including interest income of
$15,397,489 and, after expenses, posted a decrease in Net Asset
Value per Unit. The most significant losses were recorded in the
global stock index futures markets from long positions in German
stock index futures as European equity prices moved lower
throughout the first quarter amid rising global bond yields and
<PAGE>
skepticism regarding the stability of emerging market economies.
Losses were also incurred during late-July from long German stock
index futures positions as prices declined as investors reacted
to the strengthening euro by selling auto maker and export-
dependent stocks. In the metals markets, losses were recorded
particularly during the month of March from long silver futures
positions as prices declined during mid-month after Berkshire
Hathaway's annual report failed to provide any new information on
the company's silver positions. Additional losses were
experienced in the soft commodities markets from long coffee
futures positions as prices dropped during January on fears
spurred by the collapse of the Brazilian real and during June
amid abundant supplies and warmer temperatures in Brazil. In the
global interest rate futures markets, losses were recorded early
in the first quarter from short Japanese government bond futures
positions as prices surged higher in response to the Bank of
Japan's aggressive easing of monetary policy. Additional losses
were experienced later in the first quarter from newly
established long positions as prices retreated following comments
by Bank of Japan Governor Masaru Hayami that he expected interest
rates in Japan to rise over time. During September, losses were
recorded from short positions in Japanese government bond futures
as prices rallied on the strength of the Japanese yen and
expectations that additional monetary easing in that country will
come. These losses were partially offset by gains recorded in
the energy markets from long positions in crude oil futures and
<PAGE>
its refined products, unleaded gas, heating oil and gas oil, as
prices climbed higher during March following an agreement reached
by both OPEC and non-OPEC countries to cut total output beginning
April 1st. Oil prices continued to move higher throughout the
third quarter due to declining supplies and increasing demand.
In the currency markets, gains were recorded from short positions
in the Swiss franc and the European common currency as the value
of these currencies declined versus the U.S. dollar throughtout
the first half of the year. The weakness in these European
currencies relative to the U.S. dollar was largely attributed to
concerns regarding European economic growth and potentially
widening interest rate differentials between Europe and the U.S.
Additional currency gains were recorded during August and
September from long Japanese yen positions as the value of the
yen increased versus the U.S. dollar due to positive economic
data out of that country and optimism over Japan's economic
recovery. Total expenses for the nine months ended September 30,
1999 were $22,764,138, resulting in a net loss of $7,366,649.
The value of a Unit decreased from $16.12 at December 31, 1998 to
$15.66 at September 30, 1999.
For the Quarter and Nine Months Ended September 30, 1998
For the quarter ended September 30, 1998, the Partnership
recorded total trading revenues including interest income of
$38,117,102 and posted a gain in Net Asset Value per Unit. The
most significant gains were recorded in financial futures during
August and September from long global interest rate futures
positions. Long U.S. bond futures were especially profitable in
September as
<PAGE>
domestic bond prices moved higher in anticipation of an interest
rate cut by the Federal Reserve, the release of President
Clinton's grand jury testimony and on reports of losses by
several major hedge funds. Long European, particularly German,
and Japanese interest rate futures positions also provided gains
as the prices in these markets moved higher in response to global
economic uncertainty. Additional profits were recorded in the
agricultural markets throughout the quarter from short corn and
livestock futures positions as agricultural prices moved lower on
continued reports of abundant supplies and decreasing demand. A
portion of the Partnership's overall gains for the quarter was
offset by losses in the metals markets from short silver futures
positions held during September as precious metals prices were
pushed higher by the weakness in the U.S. dollar. As a result,
previous gains in this market resulting from a significant
decline in silver prices during August were returned. Additional
losses were experienced in the currency markets from short
British pound and Japanese yen positions as the value of these
currencies increased versus the U.S. dollar during August. This
weakness in the U.S. dollar was attributed to fears over the
White House scandal, the effect of the Latin American markets on
the U.S. economy, and the direction of U.S. interest rates.
These currency losses offset gains recorded from trading in the
Swiss franc throughout the quarter. Smaller losses were recorded
in the soft commodities markets from short coffee futures
positions as coffee prices reversed sharply higher in late July.
These losses offset gains from short sugar futures positions held
during August as sugar prices decreased due to lower demand and
growing supplies
<PAGE>
amid economic turmoil in emerging markets worldwide. Total
expenses for the three months ended September 30, 1998 were
$8,512,501, resulting in net income of $29,604,601. The value of
a Unit increased from $14.33 at June 30, 1998 to $16.33 at
September 30, 1998.
For the nine months ended September 30, 1998, the Partnership
recorded total trading revenues including interest income of
$45,436,457 and posted an increase in Net Asset Value per Unit.
The most significant gains were recorded in the financial futures
markets from long German bond futures positions as prices trended
higher during a majority of the first nine months, particularly
during the third quarter. Other long European and U.S. interest
rate futures positions contributed additional gains, primarily
during the last quarter, as a result of economic and political
instability worldwide. The agricultural markets provided gains
from short corn futures positions as grain prices moved lower
during a majority of the last quarter as supplies grew. The
energy markets recorded year-to-date gains from short crude oil
futures positions as oil prices declined during January and early
February as tensions eased in the Middle East. A portion of the
Partnership's overall gains was offset by losses in the metal
markets from long gold futures positions as gold prices moved
lower during a majority of the second quarter, adding to
January's losses from short gold futures positions as prices
moved higher during that month. Additional losses in metals
resulted from short silver futures positions during September as
precious metals prices pushed higher due to the weak U.S. dollar
and long
<PAGE>
copper futures positions during May as prices in this market
moved lower. The currency markets experienced additional losses
primarily from transactions involving the British pound as its
value moved without consistent direction during the first half of
the year. These losses continued during the third quarter as
short British pound positions proved unfavorable against the
weakening U.S. dollar. Total expenses for the nine months ended
September 30, 1998 were $19,716,463, resulting in net income of
$25,719,994. The value of a Unit increased from $14.63 at
December 31, 1997 to $16.33 at September 30, 1998.
Year 2000 Problem. Commodity pools, like financial and business
organizations and individuals around the world, depend on the
smooth functioning of computer systems. Many computer systems in
use today cannot recognize the computer code for the year 2000,
but revert to 1900 or some other date. This is commonly known as
the "Year 2000 Problem". The Partnership could be adversely
affected if computer systems used by it or any third party with
whom it has a material relationship do not properly process and
calculate date-related information and data concerning dates on
or after January 1, 2000. Such a failure could adversely affect
the handling or determination of futures trades and prices and
other services.
MSDW began its planning for the Year 2000 Problem in 1995, and
currently has several hundred employees working on the matter.
It has developed its own Year 2000 compliance plan to deal with
the problem and had the plan approved by the company's executive
<PAGE>
management, Board of Directors and Information Technology
Department. Demeter is coordinating with MSDW to address the Year
2000 Problem with respect to Demeter's computer systems that
affect the Partnership. This includes hardware and software
upgrades, systems consulting and computer maintenance.
Beyond the challenge facing internal computer systems, the
systems failure of any of the third parties with whom the
Partnership has a material relationship - the futures exchanges
and clearing organizations through which it trades, Carr, or the
Trading Advisors - could result in a material financial risk to
the Partnership. All U.S. futures exchanges are subject to
monitoring by the CFTC of their Year 2000 preparedness and the
major foreign futures exchanges are also expected to be subject
to market-wide testing of their Year 2000 compliance during 1999.
Demeter intends to monitor the progress of Carr and the Trading
Advisors throughout 1999 in their Year 2000 compliance and, where
applicable, to test its external interface with Carr and the
Trading Advisors.
A worst case scenario would be one in which trading of contracts
on behalf of the Partnership becomes impossible as a result of
the Year 2000 problem encountered by any third parties. A less
catastrophic but more likely scenario would be one in which
trading opportunities diminish as a result of technical problems
resulting in illiquidity and fewer opportunities to make
profitable trades. MSDW has begun developing various "contingency
plans" in the event that the systems of such third parties fail.
<PAGE>
Demeter intends to consult closely with MSDW in implementing
those plans. Despite the best efforts of both Demeter and MSDW,
however, it is possible that these steps will not be sufficient
to avoid any adverse impact to the Partnership.
Risks Associated With the Euro. On January 1, 1999, eleven
countries in the European Union established fixed conversion
rates on their existing sovereign currencies and converted to a
common single currency (the "euro"). During a three-year
transition period, the sovereign currencies will continue to
exist but only as a fixed denomination of the euro. Conversion
to the euro prevents the Trading Advisors from trading in certain
currencies and thereby limits their ability to take advantage of
potential market opportunities that might otherwise have existed
had separate currencies been available to trade. This could
adversely affect the performance results of the Partnership.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Introduction
The Partnership is a commodity pool engaged primarily in the
speculative trading of futures interests. The market-sensitive
instruments held by the Partnership are acquired solely for
speculative trading purposes and, as a result, all or
substantially all of the Partnership's assets are subject to the
risk of trading loss. Unlike an operating company, the risk of
market-sensitive instruments is integral, not incidental, to the
Partnership's primary business activities.
<PAGE>
The futures interests traded by the Partnership involve varying
degrees of related market risk. Such market risk is often
dependent upon changes in the level or volatility of interest
rates, exchange rates, and/or market values of financial
instruments and commodities. Fluctuations in related market risk
based upon the aforementioned factors result in frequent changes
in the fair value of the Partnership's open positions, and,
consequently, in its earnings and cash flow.
The Partnership's total market risk is influenced by a wide
variety of factors, including the diversification effects among
the Partnership's existing open positions, the volatility present
within the market(s), and the liquidity of the market(s). At
varying times, each of these factors may act to exacerbate or
mute the market risk associated with the Partnership. The
Partnership's past performance is not necessarily indicative of
its future results. Any attempt at quantifying the Partnership's
market risk must be qualified by the inherent uncertainty of its
speculative trading, which may cause future losses and volatility
(i.e. "risk of ruin") far in excess of the Partnership's
experience to date and/or any reasonable expectation premised
upon historical changes in the fair value of its market-sensitive
instruments.
Quantifying the Partnership's Trading Value at Risk
The following quantitative disclosures regarding the
Partnership's market risk exposures contain "forward-looking
statements" within
<PAGE>
the meaning of the safe harbor from civil liability provided for
such statements by the Private Securities Litigation Reform Act
of 1995 (set forth in Section 27A of the Securities Act of 1933
and Section 21E of the Securities Exchange Act of 1934). All
quantitative disclosures in this section are deemed to be forward-
looking statements for purposes of the safe harbor, except for
statements of historical fact.
The Partnership accounts for open positions on the basis of mark-
to-market accounting principles. As such, any loss in the fair
value of the Partnership's open positions is directly reflected
in the Partnership's earnings, whether realized or unrealized,
and the Partnership's cash flow, as profits and losses on open
positions of exchange-traded futures interests are settled daily
through variation margin.
The Partnership's risk exposure in the various market sectors
traded by the Trading Advisors is estimated below in terms of
Value at Risk ("VaR"). The VaR model employed by the Partnership
incorporates numerous variables that could impact the fair value
of the Partnership's trading portfolio. The Partnership
estimates VaR using a model based on historical simulation with a
confidence level of 99%. Historical simulation involves
constructing a distribution of hypothetical daily changes in
trading portfolio value. The VaR model generally takes into
account linear exposures to price and interest rate risk. Market
risks that are incorporated in the VaR model include equity and
<PAGE>
commodity prices, interest rates, foreign exchange rates, as well
as correlation that exists among these variables. The
hypothetical changes in portfolio value are based on daily
observed percentage changes in key market indices or other market
factors ("market risk factors") to which the portfolio is
sensitive. In the case of the Partnership's VaR, the historical
observation period is approximately four years. The Partnership's
one-day 99% VaR corresponds to the negative change in portfolio
value that, based on observed market risk factor moves, would
have been exceeded once in 100 trading days.
VaR models such as the Partnership's are continually evolving as
trading portfolios become more diverse and modeling techniques
and systems capabilities improve. It must also be noted that the
VaR model is used to quantify market risk for historic reporting
purposes only and is not utilized by either Demeter or the
Trading Advisors in their daily risk management activities.
The Partnership's Value at Risk in Different Market Sectors
The following table indicates the VaR associated with the
Partnership's open positions as a percentage of total Net Assets
by market category as of September 30, 1999. As of September 30,
1999, the Partnership's total capitalization was approximately
$279 million.
<PAGE>
Primary Market September 30, 1999
Risk Category Value at Risk
Interest Rate (1.31)%
Currency (1.84)
Equity (0.39)
Commodity (1.07)
Aggregate Value at Risk (2.57)%
Aggregate value at risk represents the aggregate VaR of the
Partnership's open positions and not the sum of the VaR of the
individual categories listed above. Aggregate VaR will be lower
as it takes into account correlation among different positions
and categories.
The table above represents the VaR of the Partnership's open
positions at September 30, 1999 only and is not necessarily
representative of either the historic or future risk of an
investment in the Partnership. As the Partnership's sole
business is the speculative trading of primarily futures
interests, the composition of its portfolio of open positions can
change significantly over any given time period or even within a
single trading day. Such changes in open positions could
materially impact market risk as measured by VaR either
positively or negatively.
The table below supplements the quarter-end VaR by presenting the
Partnership's high, low and average VaR as a percentage of total
Net
<PAGE>
Assets for the four quarterly reporting periods from October 1,
1998 through September 30, 1999.
Primary Market Risk Category High Low Average
Interest Rate (2.11)% (1.25)% (1.48)%
Currency (2.58) (0.68) (1.87)
Equity (1.15) (0.39) (0.75)
Commodity (1.07) (0.60) (0.84)
Aggregate Value at Risk (3.80)% (1.60)% (2.78)%
Limitations on Value at Risk as an Assessment of Market Risk
The face value of the market sector instruments held by the
Partnership is typically many times the applicable margin require-
ments, as such margin requirements generally range between 2% and
15% of contract face value. Additionally, due to the use of
leverage, the face value of the market sector instruments held by
the Partnership is typically many times the total capitalization of
the Partnership. The financial magnitude of the Partnership's open
positions thus creates a "risk of ruin" not typically found in
other investment vehicles. Due to the relative size of the
positions held, certain market conditions may cause the Partnership
to incur losses greatly in excess of VaR within a short period of
time. The foregoing VaR tables, as well as the past performance of
the Partnership, gives no indication of such "risk of ruin". In
addition, VaR risk measures should be interpreted in light of the
methodology's limitations, which include the following: past
changes in market risk factors will not always yield accurate
predictions of the distributions and correlations of future market
movements;
<PAGE>
changes in portfolio value in response to market movements may
differ from the responses implicit in a VaR model; published VaR
results reflect past trading positions while future risk depends on
future positions; VaR using a one-day time horizon does not fully
capture the market risk of positions that cannot be liquidated or
hedged within one day; and the historical market risk factor data
used for VaR estimation may provide only limited insight into
losses that could be incurred under certain unusual market
movements.
The foregoing VaR tables present the results of the Partnership's
VaR for each of the Partnership's market risk exposures and on an
aggregate basis at September 30, 1999 and for the end of the four
quarterly reporting periods from October 1, 1998 through September
30, 1999. Since VaR is based on historical data, VaR should not be
viewed as predictive of the Partnership's future financial
performance or its ability to manage and monitor risk and there can
be no assurance that the Partnership's actual losses on a
particular day will not exceed the VaR amounts indicated or that
such losses will not occur more than 1 in 100 trading days.
Non-Trading Risk
The Partnership has non-trading market risk on its foreign cash
balances not needed for margin. However, such balances, as well as
any market risk they may represent, are immaterial. The
Partnership also maintains a substantial portion (approximately
82%) of its available assets in cash at DWR. A decline in short-
term interest rates will result in a decline in the Partnership's
cash management income. This cash flow risk is not considered
material.
<PAGE>
Materiality, as used throughout this section, is based on an
assessment of reasonably possible market movements and the
potential losses caused by such movements, taking into account the
leverage, optionality and multiplier features of the Partnership's
market sensitive instruments.
Qualitative Disclosures Regarding Primary Trading Risk Exposures
The following qualitative disclosures regarding the Partnership's
market risk exposures - except for (i) those disclosures that are
statements of historical fact and (ii) the descriptions of how the
Partnership manages its primary market risk exposures - constitute
forward-looking statements within the meaning of Section 27A of the
Securities Act and Section 21E of the Securities Exchange Act. The
Partnership's primary market risk exposures as well as the
strategies used and to be used by Demeter and the Trading Advisors
for managing such exposures are subject to numerous uncertainties,
contingencies and risks, any one of which could cause the actual
results of the Partnership's risk controls to differ materially
from the objectives of such strategies. Government interventions,
defaults and expropriations, illiquid markets, the emergence of
dominant fundamental factors, political upheavals, changes in
historical price relationships, an influx of new market
participants, increased regulation and many other factors could
result in material losses as well as in material changes to the
risk exposures and the risk management strategies of the
Partnership. Investors must be prepared to lose all or
substantially all of their investment in the Partnership.
<PAGE>
The following were the primary trading risk exposures of the
Partnership as of September 30, 1999, by market sector. It may
be anticipated however, that these market exposures will vary
materially over time.
Interest Rate. The primary market exposure at September 30,
1999 in the Partnership was in the interest rate sector.
Exposure was primarily spread across the U.S., German, Japanese,
British and Australian interest rate sectors. Interest rate
movements directly affect the price of the sovereign bond futures
positions held by the Partnership and indirectly affect the value
of its stock index and currency positions. Interest rate
movements in one country as well as relative interest rate
movements between countries materially impact the Partnership's
profitability. The Partnership's primary interest rate exposure
is generally to interest rate fluctuations in the United States
and the other G-7 countries. However, the Partnership also takes
futures positions in the government debt of smaller nations -
e.g. Australia. Demeter anticipates that G-7 and Australian
interest rates will remain the primary interest rate exposure of
the Partnership for the foreseeable future. The changes in
interest rates, which have the most effect on the Partnership,
are changes in long-term, as opposed to short-term, rates. Most
of the speculative futures positions held by the Partnership are
in medium-to-long term instruments. Consequently, even a
material change in short-term rates would have little effect on
the Partnership, were the medium-to-long term rates to remain
steady.
<PAGE>
Currency. The second largest market exposure this quarter
was in the currency complex. The Partnership's currency exposure
is to exchange rate fluctuations, primarily fluctuations which
disrupt the historical pricing relationships between different
currencies and currency pairs. Interest rate changes as well as
political and general economic conditions influence these
fluctuations. The Partnership trades in a large number of
currencies, including cross-rates - i.e., positions between two
currencies other than the U.S. dollar. For the third quarter of
1999, the Partnership's major exposures were in the euro currency
crosses and outright U.S. dollar positions. (Outright positions
consist of the U.S. dollar vs. other currencies. These other
currencies include the major and minor currencies). Demeter does
not anticipate that the risk profile of the Partnership's
currency sector will change significantly in the future. The
currency trading VaR figure includes foreign margin amounts
converted into U.S. dollars with an incremental adjustment to
reflect the exchange rate risk inherent to the dollar-based
Partnership in expressing VaR in a functional currency other than
dollars.
Equity. The primary equity exposure at September 30, 1999
was to equity price risk in the G-7 countries. The stock index
futures traded by the Partnership are by law limited to futures
on broadly-based indices. The Partnership's primary exposures
were in the S&P 500 (U.S.), FT-SE (Britain) and ASE (Australia)
stock indices. The Partnership is primarily exposed to the risk
of adverse price trends or static markets in the U.S., European
<PAGE>
and Japanese indices. (Static markets would not cause major
market changes but would make it difficult for the Partnership to
avoid being "whipsawed" into numerous small losses).
Commodity.
Metals. The Partnership's primary metals market exposure is
to fluctuations in the price of gold and silver. Although
certain Trading Advisors will, from time to time, trade base
metals such as aluminum, copper, nickel and zinc, the principal
market exposures of the Partnership have consistently been in
precious metals, gold and silver (and, to a much lesser extent,
platinum). A significant amount of exposure was evident in the
gold market as the price of gold increased dramatically following
bullish comments by the European Central Bank. Silver prices
have also been volatile over this period, and the Trading
Advisors have, from time to time, taken substantial positions as
perceived market opportunities developed. Demeter anticipates
that gold and silver will remain the primary metals market
exposure for the Partnership.
Energy. On September 30, 1999, the Partnership's energy
exposure was shared by futures contracts in the oil and natural
gas markets. Price movements in these markets result from
political developments in the Middle East, weather patterns, and
other economic fundamentals. As oil prices have increased about
100% this year, and, given that the agreement by OPEC to cut
production is approaching expiration in March 2000, it is
possible that volatility will remain on the high end.
<PAGE>
Significant profits and losses have been and are expected to
continue to be experienced in this market. Natural gas, also a
primary energy market exposure, has exhibited more volatility
than the oil markets on an intra-day and daily basis and is
expected to continue in this choppy pattern.
Soft Commodities and Agriculturals. On September 30, 1999,
the Partnership had a reasonable amount of exposure in the
markets that comprise these sectors. Most of the exposure,
however, was in the sugar, soybeans, coffee and livestock
markets. Supply and demand inequalities, severe weather
disruption and market expectations affect price movements in
these markets.
Qualitative Disclosures Regarding Non-Trading Risk Exposure
The following was the only non-trading risk exposure of the
Partnership as of September 30, 1999:
Foreign Currency Balances. The Partnership's primary foreign
currency balances are in Japanese yen, British pounds, Swiss
francs, euros and Australian dollars. The Partnership controls
the non-trading risk of these balances by regularly converting
these balances back into dollars upon liquidation of the
respective position.
Qualitative Disclosures Regarding Means of Managing Risk Exposure
The means by which the Partnership and the Trading Advisors,
severally, attempt to manage the risk of the Partnership's open
positions are essentially the same in all market categories traded.
<PAGE>
Demeter attempts to manage the Partnership's market exposure by (i)
diversifying the Partnership's assets among different Trading
Advisors, each of whose strategies focus on different market
sectors and trading approaches, and (ii), monitoring the
performance of the Trading Advisors on a daily basis. In addition,
the Trading Advisors establish diversification guidelines, often
set in terms of the maximum margin to be committed to positions in
any one market sector or market-sensitive instrument. One should
be aware that certain Trading Advisors treat their risk control
policies as strict rules, whereas others treat such policies as
general guidelines.
Demeter monitors and controls the risk of the Partnership's non-
trading instrument, cash, which is the only Partnership investment
directed by Demeter, rather than the Trading Advisors.
<PAGE>
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The following supplements Legal Proceedings previously disclosed
in the Partnership's 1998 Form 10-K:
In the New York action, the motion to dismiss the amended
complaint with prejudice has been fully briefed and argued and
the Dean Witter Parties are awaiting the New York Supreme Court's
decision.
In the California action, on September 24, 1999, the Superior
Court in the State of California entered an order dismissing the
consolidated amended complaint without prejudice on consent.
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
The Partnership, Morgan Stanley Dean Witter Spectrum Strategic L.P.
("Spectrum Strategic") and Morgan Stanley Dean Witter Spectrum
Global Balanced L.P. ("Spectrum Global Balanced") , collectively
registered 10,000,000 Units of Limited Partnership Interest
pursuant to a Registration Statement on Form S-1, which became
effective on September 15, 1994 (SEC File Number 33-80146). While
such Units were not allocated to the Partnership, Spectrum
Strategic and Spectrum Global Balanced at that time, they were
subsequently allocated for convenience purposes as follows: the
Partnership 4,000,000, Spectrum Strategic 4,000,000 and Spectrum
Global Balanced 2,000,000. The Partnership, Spectrum Strategic and
Spectrum Global Balanced collectively registered an additional
20,000,000 Units
<PAGE>
pursuant to a new Registration Statement on Form S-1, which became
effective on January 31, 1996 (SEC File Number 333-00494); such
units were allocated as follows: the Partnership 9,000,000,
Spectrum Strategic 6,000,000 and Spectrum Global Balanced
5,000,000. The Partnership, Spectrum Strategic and Spectrum Global
Balanced collectively registered an additional 8,500,000 Units
pursuant to another Registration Statement on Form S-1, which
became effective on April 30, 1996 (SEC File Number 333-3222); such
Units were allocated to the Partnership, Spectrum Strategic and
Spectrum Global Balanced as follows: the Partnership 5,000,000,
Spectrum Strategic 2,500,000 and Spectrum Global Balanced
1,000,000.
The Partnership registered an additional 5,000,000 Units pursuant
to another Registration Statement on Form S-1, which became
effective on May 11, 1998 (SEC File Number 333-47831).
The Partnership registered an additional 10,000,000 Units pursuant
to another Registration Statement on Form S-1, which became
effective January 21, 1999 (SEC File Number 333-68779).
The managing underwriter for the Partnership is DWR.
Units are being sold at monthly closings as of the last day of each
month at a price equal to 100% of the Net Asset Value of a Unit as
of the date of such monthly closing.
<PAGE>
Through September 30, 1999, 21,688,340.422 Units were sold, leaving
11,311,659.578 Units unsold as of September 30, 1999. The
aggregate price of the Units sold through September 30, 1999 is
$288,137,213.
Since DWR has paid all offering expenses and no other expenses are
chargeable against proceeds, 100% of the proceeds of the offering
have been applied to the working capital of the Partnership for use
in accordance with the "Investment Programs, Use of Proceeds and
Trading Policies" section of the Prospectus included as part of
each Registration Statement.
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits - None.
(B) Reports on Form 8-K. - None.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Morgan Stanley Dean Witter Spectrum
Technical L.P. (Registrant)
By: Demeter Management Corporation
(General Partner)
November 12, 1999 By: /s/ Lewis A. Raibley, III
Lewis A. Raibley, III
Director and Chief Financial
Officer
The General Partner which signed the above is the only party
authorized to act for the Registrant. The Registrant has no
principal executive officer, principal financial officer,
controller, or principal accounting officer and has no Board of
Directors.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from
Morgan Stanley Dean Witter Spectrum Technical L.P. and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 267,595,299
<SECURITIES> 0
<RECEIVABLES> 4,829,466<F1>
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 283,588,918<F2>
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 283,588,918<F3>
<SALES> 0
<TOTAL-REVENUES> 15,397,489<F4>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 22,764,138
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (7,366,649)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,366,649)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,366,649)
<EPS-BASIC> 0
<EPS-DILUTED> 0
<FN>
<F1>Receivables include subscriptions receivable of $3,927,284 and
interest receivable of $902,182.
<F2>In addition to cash and receivables, total assets include net
unrealized gain on open contracts of $12,647,582 and net option
premiums of $(1,483,429).
<F3>Liabilities include redemptions payable of $1,570,058,
accrued brokerage fees of $1,699,097 and accrued management fees of
$937,433.
<F4>Total revenues include realized trading revenue of $14,704,626,
net change in unrealized of $(6,261,686) and interest income of
$6,954,549.
</FN>
</TABLE>
