-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NTnKVRHpJWBWzAKK6wIrf//kCUiwgbnfuoX6GflmAIk3n0c+34kfVyqQm6JD1ERU yi5kCTXEV7WNINT7bOiM0w== 0000873799-00-000003.txt : 20000331 0000873799-00-000003.hdr.sgml : 20000331 ACCESSION NUMBER: 0000873799-00-000003 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MORGAN STANLEY DEAN WITTER SPECTRUM SELECT LP CENTRAL INDEX KEY: 0000873799 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 133619290 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-19511 FILM NUMBER: 584857 BUSINESS ADDRESS: STREET 1: TWO WORLD TRADE CNTR - 62ND FLR STREET 2: C/O DEMETER MANAGEMENT CORP CITY: NEW YORK STATE: NY ZIP: 10048 BUSINESS PHONE: 2123928899 MAIL ADDRESS: STREET 1: C/O DEMETER MANAGEMENT CORP STREET 2: TWO WORLD TRADE CENTER CITY: NEW YORK STATE: NY ZIP: 10048 FORMER COMPANY: FORMER CONFORMED NAME: DEAN WITTER SPECTRUM SELECT LP DATE OF NAME CHANGE: 19980507 FORMER COMPANY: FORMER CONFORMED NAME: WITTER DEAN SELECT FUTURES FUND LP DATE OF NAME CHANGE: 19930328 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 [No Fee Required] For the year ended December 31, 1999 or [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 [No Fee Required] For the transition period from ________________to___________________ Commission File Number 0-19511 MORGAN STANLEY DEAN WITTER SPECTRUM SELECT L.P. (Exact name of registrant as specified in its Limited Partnership Agreement) DELAWARE 13- 3619290 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) c/o Demeter Management Corporation Two World Trade Center, - 62nd Flr., New York, N.Y. 10048 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (212) 392-5454 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered None None Securities registered pursuant to Section 12(g) of the Act: Units of Limited Partnership Interest (Title of Class) 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 Indicate by check-mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment of this Form 10-K. [X] State the aggregate market value of the Units of Limited Partnership Interest held by non-affiliates of the registrant. The aggregate market value shall be computed by reference to the price at which units were sold as of a specified date within 60 days prior to the date of filing: $216,881,637 at January 31, 2000. DOCUMENTS INCORPORATED BY REFERENCE (See Page 1) MORGAN STANLEY DEAN WITTER SPECTRUM SELECT L.P. INDEX TO ANNUAL REPORT ON FORM 10-K DECEMBER 31, 1999
Page No. DOCUMENTS INCORPORATED BY REFERENCE. . . . . . . . . . . . . . . . . . . . . . . . 1 Part I . Item 1. Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2-5 Item 2. Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . .. . 6-7 Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . 8 Part II. Item 5. Market for the Registrant's Partnership Units and Related Security Holders . . . . . . . . . . . . . . . . . . . . . 9-10 Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . 11 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. . . . . . . . . . . . .. . . 12-24 Item 7A. Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24-37 Item 8. Financial Statements and Supplementary Data. . . . . . . . . . . . . .37 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. . . . . . . . . . . . . . . . . .37 Part III. Item 10. Directors and Executive Officers of the Registrant . . . . .. . . .38-42 Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . .. . . . . 42 Item 12. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . . . . . . . . . . . . . . . .42 Item 13. Certain Relationships and Related Transactions . . . . . . . . . . 43 Part IV. Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . 44
DOCUMENTS INCORPORATED BY REFERENCE Portions of the following documents are incorporated by reference as follows: Documents Incorporated Part of Form 10-K Partnership's Prospectus dated January 21, 1999 I Partnership's Supplement to the Prospectus dated April 30, 1999 I Annual Report to Morgan Stanley Dean Witter Spectrum Series Limited Partners for the year ended December 31, 1999 II, III and IV PART I Item 1. BUSINESS (a) General Development of Business. Morgan Stanley Dean Witter Spectrum Select L.P. (formerly, Dean Witter Spectrum Select L.P.) (the "Partnership") is a Delaware limited partnership organized to engage primarily in the speculative trading of futures and forward contracts, options on futures contracts, physical commodities and other commodity interests, including, but not limited to foreign currencies, financial instruments, metals, energy and agricultural products (collectively, "futures interests"). The Partnership is one of the Morgan Stanley Dean Witter Spectrum Series of funds, which is 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 Technical 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"). The trading advisors to the Partnership are EMC Capital Management, Inc., Rabar Market Research, Inc. and Sunrise Capital Management, Inc. (collectively, the "Trading Advisors"). The Partnership became one of the Spectrum Series of funds on June 1, 1998. Each outstanding unit of limited partnership interest ("Unit(s)") in the Partnership was converted into 100 Units and its name changed from Dean Witter Select Futures Fund L.P. The number of Units outstanding, Net Income (Loss) per Unit and Net Asset Value per Unit in the accompanying financial statements have been adjusted for all reporting periods to reflect this conversion. The Partnership registered 5,000,000 additional Units pursuant to a Registration Statement on Form S-1 (SEC File No. 333-68773), which became effective January 21, 1999. Units are offered at monthly closings at a price equal to 100% of the Net Asset Value per Unit at the close of business on the last day of each month. The managing underwriter for the Spectrum Series is DWR. The Partnership's Net Asset Value per Unit at December 31, 1999 was $22.00, representing a decrease of 7.56 percent from the Net Asset Value per Unit of $23.80 at December 31, 1998. For a more detailed description of the Partnership's business, see subparagraph (c). (b) Financial Information about Industry Segments. For financial information reporting purposes, the Partnership is deemed to engage in one industry segment, the speculative trading of futures interests. The relevant financial information is presented in Items 6 and 8. (c) Narrative Description of Business. The Partnership is in the business of speculative trading of futures interests, pursuant to trading instructions provided by the Trading Advisors. For a detailed description of the different facets of the Partnership's business, see those portions of the Partnership's prospectus, dated January 21, 1999 (the "Prospectus") and the Partnership's Supplement to the Prospectus dated April 30, 1999 (the "Supplement"), incorporated by reference in this Form 10-K, set forth below. Facets of Business 1. Summary 1. "Summary of the Prospectus" (Pages 1-6 of the Prospectus and Pages S-1 to S-2 of the Supplement). 2. Futures, Options and 2. "The Futures, Options and Forward Markets Forward Markets" (Pages 83-87 of the Prospectus). 3. Partnership's Trading 3. "Investment Programs, Use Arrangements and of Proceeds and Trading Policies Policies" (Pages 20- 25 of the Prospectus and Page S-4 of the Supplement). "The Trading Advisors" (Pages 49-79 of the Prospectus and Pages S-21 to S-32 of the Supplement). 4. Management of the Part- 4. "The Trading Advisors - nership The Management Agree- ments" (Page 49 of the Prospectus). "The General Partner" (Pages 47-48 of the Prospectus and Page S- 20 of the Supplement), "The Commodity Brokers" (Page 82 of the Prospectus) and "The Limited Partnership Agreements" (Pages 87- 91 of the Prospectus). 5. Taxation of the Partner- 5. "Material Federal Income ship's Limited Partners Tax Considerations" and "State and Local Income Tax Aspects" (Pages 96- 102 of the Prospectus). (d) Financial Information About Foreign and Domestic Operations and Export Sales. The Partnership has not engaged in any operations in foreign countries; however, the Partnership (through the commodity brokers) enters into forward contract transactions where foreign banks are the contracting party and trades in futures interests on foreign exchanges. Item 2. PROPERTIES The executive and administrative offices are located within the offices of DWR. The DWR offices utilized by the Partnership are located at Two World Trade Center, 62nd Floor, New York, NY 10048. Item 3. LEGAL PROCEEDINGS The class actions first filed in 1996 in California and in New York State courts were each dismissed in 1999. However, in the New York State class action, plaintiffs appealed the trial court's dismissal of their case on March 3, 2000. On September 6, 10, and 20, 1996, and on March 13, 1997, purported class actions were filed in the Superior Court of the State of California, County of Los Angeles, on behalf of all purchasers of interests in limited partnership commodity pools sold by DWR. Named defendants include DWR, Demeter, Dean Witter Futures & Currency Management Inc. ("DWFCM"), MSDW, the Partnership (under its original name, "Dean Witter Select Futures Fund L.P."), certain limited partnership commodity pools of which Demeter is the general partner (all such parties referred to hereafter as the "Morgan Stanley Dean Witter Parties") and certain trading advisors to those pools. On June 16, 1997, the plaintiffs in the above actions filed a consolidated amended complaint, alleging, among other things, that the defendants committed fraud, deceit, negligent misrepresentation, various violations of the California Corporations Code, intentional and negligent breach of fiduciary duty, fraudulent and unfair business practices, unjust enrichment, and conversion in the sale and operation of the various limited partnership commodity pools. The complaints seek unspecified amounts of compensatory and punitive damages and other relief. The court entered an order denying class certification on August 24, 1999. On September 24, 1999, the court entered an order dismissing the case without prejudice on consent. Similar purported class actions were also filed on September 18 and 20, 1996, in the Supreme Court of the State of New York, New York County, and on November 14, 1996 in the Superior Court of the State of Delaware, New Castle County, against the Morgan Stanley Dean Witter Parties and certain trading advisors on behalf of all purchasers of interests in various limited partnership commodity pools, including the Partnership, sold by DWR. A consolidated and amended complaint in the action pending in the Supreme Court of the State of New York was filed on August 13, 1997, alleging that the defendants committed fraud, breach of fiduciary duty, and negligent misrepresentation in the sale and operation of the various limited partnership commodity pools. The complaints seek unspecified amounts of compensatory and punitive damages and other relief. The New York Supreme Court dismissed the New York action in November 1998, but granted plaintiffs leave to file an amended complaint, which they did in early December 1998. The defendants filed a motion to dismiss the amended complaint with prejudice on February 1, 1999. By decision dated December 21, 1999, the New York Supreme Court dismissed the case with prejudice. In addition, on December 16, 1997, upon motion of the plaintiffs, the action pending in the Superior Court of the State of Delaware was voluntarily dismissed without prejudice. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II Item 5. MARKET FOR THE REGISTRANT'S PARTNERSHIP UNITS AND RELATED SECURITY HOLDER MATTERS (a) Market Information There is no established public trading market for Units of the Partnership. (b) Holders The number of holders of Units at December 31, 1999 was approximately 16,182. (c) Distributions No distributions have been made by the Partnership since it commenced trading operations on August 1, 1991. Demeter has sole discretion to decide what distributions, if any, shall be made to investors in the Partnership. Demeter currently does not intend to make any distribution of Partnership profits. (d) Use of Proceeds Units are sold at monthly closings as of the last day of each month at a price equal to 100% of the Net Asset Value per Unit as of the date of such monthly closing. Through December 31, 1999, 18,162,414.573 Units were sold, leaving 2,951,552.527 Units unsold as of December 31, 1999. The aggregate price of the Units sold through December 31, 1999 was $281,081,631. Since no 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 and Supplement. Item 6. SELECTED FINANCIAL DATA (in dollars)
For the Years Ended December 31, 1999 1998 1997 1996 1995 Total Revenues (including interest) 4,778,950 41,778,732 26,495,529 22,046,523 69,299,562 Net Income (Loss) (16,694,414) 22,695,060 9,943,717 5,414,041 39,054,115 Net Income (Loss) Per Unit (Limited & General Partners) (1.80) 2.95 1.22 .98 3.56 Total Assets 219,366,812 202,668,038 169,541,807 167,588,012 179,342,999 Total Limited Partners' Capital 210,877,519 196,915,644 163,999,307161,174,820 173,965,425 Net Asset Value Per Unit 22.00 23.80 20.85 19.62 18.64 Note: Net Income (Loss) per Unit and Net Asset Value per Unit have been restated for all periods to reflect the 1998 one to 100 Unit conversion.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity - The Partnership deposits its assets with DWR as non- clearing broker and Carr as clearing broker in separate futures trading accounts established for each Trading Advisor, which assets are used as margin to engage in trading. The assets are held in either non-interest-bearing bank accounts or in securities and instruments permitted by the Commodity Futures Trading Commission ("CFTC") for investment of customer segregated or secured funds. The Partnership's assets held by the commodity brokers may be used as margin solely for the Partnership's trading. Since the Partnership's sole purpose is to trade in futures, forwards, and options, it is expected that the Partnership will continue to own such liquid assets for margin purposes. The Partnership's investment in futures, forwards, and options may, from time to time, be illiquid. Most U.S. futures exchanges limit fluctuations in prices during a single day by regulations referred to as "daily price fluctuations limits" or "daily limits". Trades may not be executed at prices beyond the daily limit. If the price for a particular futures or options contract has increased or decreased by an amount equal to the daily limit, positions in that futures or options contract can neither be taken nor liquidated unless traders are willing to effect trades at or within the limit. Futures prices have occasionally moved the daily limit for several consecutive days with little or no trading. These market conditions could prevent the Partnership from promptly liquidating its futures or options contracts and result in restrictions on redemptions. There is no limitation on daily price moves in trading forward contracts on foreign currencies. 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 prevent the Partnership from promptly liquidating unfavorable positions in such markets and subjecting it to substantial losses. Either of these market conditions could result in restrictions on redemptions. The Partnership has never had illiquidity affect a material portion of its assets. Capital Resources. The Partnership does not have, or expect to have, any capital assets. Redemptions, exchanges and sales of additional Units in the future will affect the amount of funds available for investments in futures interests in subsequent periods. It is not possible to estimate the amount and therefore, the impact of future redemptions. Results of Operations. General. The Partnership's results depend on its Trading Advisors and the ability of each Trading Advisors' trading programs to take advantage of price movements or other profit opportunities in the futures, forwards, and options markets. The following presents a summary of the Partnership's operations for the three years ended December 31, 1999 and a general discussion of its trading activities during each period. It is important to note, however, that the Trading Advisors trade in various markets at different times and that prior activity in a particular market does not mean that such market will be actively traded by the Trading Advisors or will be profitable in the future. Consequently, the results of operations of the Partnership are difficult to discuss other than in the context of its Trading Advisors' trading activities on behalf of the Partnership as a whole and how the Partnership has performed in the past. At December 31, 1999, the Partnership's total capital was $213,805,674, an increase of $13,723,158 from the Partnership's total capital of $200,082,516 at December 31, 1998. For the year ended December 31, 1999, the Partnership generated a net loss of $16,694,414, total subscriptions aggregated $51,589,367 and total redemptions aggregated $21,171,795. For the year ended December 31, 1999, the Partnership recorded total trading revenues, including interest income, of $4,778,950 and posted a decrease in Net Asset Value per Unit. The Partnership recorded a net loss during 1999 with losses of approximately 3.27% being experienced primarily in the global interest rate futures markets, particularly from short-term price volatility in U.S. and European interest rate futures. Losses were recorded during September from short positions in Australian bond futures as prices spiked higher on technically based buying and short covering. Losses of approximately 2.07% were also recorded from Japanese government bond futures primarily from short positions early in the first quarter 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 Hayami that he expected interest rates in Japan to rise over time. In the metals markets, losses of approximately 1.33% were experienced, particularly during the month of March from long silver futures positions as prices declined after Berkshire Hathaway's annual report failed to provide any new information on the company's silver positions. During October, additional losses were recorded from long silver futures positions as prices decreased following a reversal lower in gold prices. Offsetting gains were recorded from long positions in gold futures as gold prices soared during September following the Bank of England's second gold auction and an announcement by several European central banks stating that they were to restrict the sales of gold reserves for five years. Gains of approximately 3.11% recorded in the energy markets helped to mitigate overall Partnership losses for the year. Long futures positions in crude oil and its refined products proved profitable as oil prices trended significantly higher largely attributed to the news that both OPEC and non-OPEC countries had reached and adhered to an agreement to cut total output. Total expenses for the year were $21,473,364, resulting in a net loss of $16,694,414. The value of a Unit decreased from $23.80 at December 31, 1998 to $22.00 at December 31, 1999. At December 31, 1998, the Partnership's total capital was $200,082,516, an increase of $33,309,195 from the Partnership's total capital of $166,773,321 at December 31, 1997. For the year ended December 31, 1998, the Partnership generated net income of $22,695,060, total subscriptions aggregated $30,297,590 and total redemptions aggregated $19,683,455. For the year ended December 31, 1998, the Partnership recorded total trading revenues, including interest income, of $41,778,732 and posted an increase in Net Asset Value per Unit. 1998 was a profitable year for the Partnership with the majority of the gains of approximately 18.62% being recorded in the global interest rate futures markets primarily from long positions in European, particularly German and French, U.S. and Japanese bond futures. Bond prices rallied in late August as global stock prices plunged, especially after Russia's decision to halt trading in foreign currencies paralyzed that country's banking system and set off a flight into the safest investments. Substantial gains in the financial futures markets carried further throughout September as volatility in the global financial markets and worldwide economic deterioration continued to drive investors to these "safe havens". Total expenses for the year were $19,083,672, resulting in net income of $22,695,060. The value of a Unit increased from $20.85 at December 31, 1997 to $23.80 at December 31, 1998. At December 31, 1997, the Partnership's total capital was $166,773,321, an increase of $2,987,036 from the Partnership's total capital of $163,786,285, at December 31, 1996. For the year ended December 31, 1997, the Partnership generated net income of $9,943,717, total subscriptions aggregated $12,056,614 and total redemptions aggregated $19,013,295. For the year ended December 31, 1997, the Partnership recorded total trading revenues including interest income of $26,495,529 and posted an increase in Net Asset Value per Unit. The Partnership recorded net profits during 1997. Gains of approximately 5.11% were recorded in the currency markets primarily as a result of a strengthening in the value of the U.S. dollar versus the Japanese yen and most major world currencies throughout the year. Additional gains were recorded from long global interest rate futures positions as U.S., Australian and European interest rate futures trended higher in July. A portion of these gains was offset by losses of approximately 4.12% experienced primarily from sharp trend reversals and short-term volatile price movement in global bond futures during April and August. Overall, the Partnership's ability to capture profits in the currency and financial futures complexes more than offset smaller losses incurred from trendless price movement in most traditional commodities, particularly energy, approximately 2.19%, livestock, approximately 0.36% and agricultural markets, approximately 0.06%. Total expenses for the year were $16,551,812, resulting in net income of $9,943,717. The value of a Unit increased from $19.62 at December 31, 1996 to $20.85 at December 31, 1997. Note: All periods prior to May 31, 1998 have been restated to reflect the one to 100 Unit conversion. The Partnership's overall performance record represents varied results of trading in different futures interests markets. For a further description of 1999 trading results, refer to the letter to the Limited Partners in the accompanying Annual Report to Limited Partners for the year ended December 31, 1999, which is incorporated by reference to Exhibit 13.01 of this Form 10-K. The Partnership's gains and losses are allocated among its partners for income tax purposes. Credit Risk. Financial Instruments. The Partnership is a party to financial instruments with elements of off-balance sheet market and credit risk. The Partnership may trade futures, forwards, and options in a portfolio of agricultural commodities, energy products, foreign currencies, interest rates, precious and base metals, soft commodities, and stock indices. In entering into these contracts, the Partnership is subject to the market risk that such contracts may be significantly influenced by market conditions, such as interest rate volatility, resulting in such contracts being less valuable. If the markets should move against all of the positions held by the Partnership at the same time, and if the Trading Advisors were unable to offset positions of the Partnership, the Partnership could lose all of its assets and investors would realize a 100% loss. In addition to the Trading Advisors' internal controls, the Trading Advisors must comply with the trading policies of the Partnership. These trading policies include standards for liquidity and leverage with which the Partnership must comply. The Trading Advisors and Demeter monitor the Partnership's trading activities to ensure compliance with the trading policies. Demeter may require the Trading Advisors to modify positions of the Partnership if Demeter believes they violate the Partnership's trading policies. In addition to market risk, in entering into futures, forwards, and options contracts there is a credit risk to the Partnership that the counterparty on a contract will not be able to meet its obligations to the Partnership. The ultimate counterparty or guarantor of the Partnership for futures contracts traded in the United States and the foreign exchanges on which the Partnership trades is the clearinghouse associated with such exchange. In general, a clearinghouse is backed by the membership of the exchange and will act in the event of non-performance by one of its members or one of its member's customers, which should significantly reduce this credit risk. For example, a clearinghouse may cover a default by drawing upon a defaulting member's mandatory contributions and/or non-defaulting members' contributions to a clearinghouse guarantee fund, established lines or letters of credit with banks, and/or the clearinghouse's surplus capital and other available assets of the exchange and clearinghouse, or assessing its members. In cases where the Partnership trades off- exchange forward contracts with a counterparty, the sole recourse of the Partnership will be the forward contracts counterparty. There is no assurance that a clearinghouse or exchange will meet its obligations to the Partnership, and Demeter and the commodity brokers will not indemnify the Partnership against a default by such parties. Further, the law is unclear as to whether a commodity broker has any obligation to protect its customers from loss in the event of an exchange or clearinghouse defaulting on trades effected for the broker's customers. Any such obligation on the part of a broker appears even less clear where the default occurs in a non-U.S. jurisdiction. Demeter deals with these credit risks of the Partnership in several ways. First, it monitors the Partnership's credit exposure to each exchange on a daily basis, calculating not only the amount of margin required for it but also the amount of its unrealized gains at each exchange, if any. The commodity brokers inform the Partnership, as with all their customers, of its net margin requirements for all its existing open positions, but do not break that net figure down, exchange by exchange. Demeter, however, has installed a system which permits it to monitor the Partnership's potential margin liability, exchange by exchange. As a result, Demeter is able to monitor the Partnership's potential net credit exposure to each exchange by adding the unrealized trading gains on that exchange, if any, to the Partnership's margin liability thereon. Second, the Partnership's trading policies limit the amount of its Net Assets that can be committed at any given time to futures contracts and require, in addition, a minimum amount of diversification in the Partnership's trading, usually over several different products. One of the aims of such trading policies has been to reduce the credit exposure of the Partnership to a single exchange and, historically, the Partnership's exposure to any one exchange has typically amounted to only a small percentage of its total Net Assets. On those relatively few occasions where the Partnership's credit exposure may climb above such level, Demeter deals with the situation on a case by case basis, carefully weighing whether the increased level of credit exposure remains appropriate. Material changes to the trading policies may be made only with the prior written approval of the limited partners owning more than 50% of Units then outstanding. Third, Demeter has secured, with respect to Carr acting as the clearing broker for the Partnership, a guarantee by Credit Agricole Indosuez, Carr's parent, of the payment of the "net liquidating value" of the transactions (futures, options and forward contracts) in the Partnership's account. With respect to forward contract trading, the Partnership trades with only those counterparties which Demeter, together with DWR, have determined to be creditworthy. At the date of this filing, the Partnership deals only with Carr as its counterparty on forward contracts. The guarantee by Carr's parent, discussed above, covers these forward contracts. See "Financial Instruments" under Notes to Financial Statements in the Partnership's Annual Report to Limited Partners for the year ended December 31, 1999, which is incorporated by reference to Exhibit 13.01 of this Form 10-K. Year 2000. Commodity pools, like financial and business organizations and individuals around the world, depend on the smooth functioning of computer systems. The Year 2000 issue arose since many of the world's computer systems (including those in non-information technology systems) traditionally recorded years in a two-digit format. If not addressed, such computer systems may have been unable to properly interpret dates beyond the year 1999, which may have led to business disruptions in the U.S. and internationally. Such disruptions could have adversely affected the handling or determination of futures trades and prices and other services for the Partnership. Accordingly, Demeter has fully participated in a firmwide initiative established by MSDW to address issues associated with the Year 2000. As part of this initiative, MSDW reviewed its global software and hardware infrastructure for mainframe, server and desktop computing environments and engaged in extensive remediation and testing. The Year 2000 initiative also encompassed the review of agencies, vendors and facilities for Year 2000 compliance. Since 1995, MSDW prepared actively for the Year 2000 issue to ensure that it would have the ability to respond to any critical business process failure, to prevent the loss of workspace and technology, and to mitigate any potential financial loss or damage to its global franchise. Where necessary, contingency plans were expanded or developed to address specific Year 2000 risk scenarios, supplementing existing business policies and practices. In conjunction with MSDW's Year 2000 preparations, Demeter monitored the progress of Carr and each Trading Advisor throughout 1999 in their Year 2000 compliance and, where applicable, tested its external interfaces, with Carr and the Trading Advisors. In addition, Demeter, the commodity brokers, the Trading Advisors and all U.S. futures exchanges were subjected to monitoring by the CFTC of their Year 2000 preparedness, and the major foreign futures exchanges engaged in market-wide testing of their Year 2000 compliance during 1999. MSDW and Demeter consider the transition into the Year 2000 successful from the perspective of their internal systems and global external interactions. Over the millennial changeover period, no material issues were encountered, and MSDW, Demeter and the Partnership conducted business as usual. 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 those sovereign 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 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Introduction The Partnership is a commodity pool involved in the speculative trading of futures interests. The market-sensitive instruments held by the Partnership are acquired for speculative trading purposes only and, as a result, all or substantially all of the Partnership's assets are at risk of trading loss. Unlike an operating company, the risk of market-sensitive instruments is central, not incidental, to the Partnership's main business activities. The futures interests traded by the Partnership involve varying degrees of market risk. Market risk is often dependent upon changes in the level or volatility of interest rates, exchange rates, and prices of financial instruments and commodities. Fluctuations in market risk based upon these 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 among the Partnership's open positions, the volatility present within the markets, and the liquidity of the markets. At different times, each of these factors may act to increase or decrease the market risk associated with the Partnership. The Partnership's past performance is not necessarily indicative of its future results. Any attempt to numerically quantify the Partnership's market risk is limited by the uncertainty of its speculative trading. The Partnership's speculative trading may cause future losses and volatility (i.e. "risk of ruin") that far exceed the Partnership's experiences to date or any reasonable expectations based upon historical changes in market value. Quantifying the Partnership's Trading Value at Risk The following quantitative disclosures regarding the Partnership's market risk exposures contain "forward-looking statements" within 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 using mark-to-market accounting principles. Any loss in the market value of the Partnership's open positions is directly reflected in the Partnership's earnings, whether realized or unrealized, and cash flow. Profits and losses on open positions of exchange traded- futures interests are settled daily through variation margin. The Partnership's risk exposure in the market sectors traded by the Trading Advisors is estimated below in terms of Value at Risk ("VaR"). The VaR model used by the Partnership includes many variables that could change the market value of the Partnership's trading portfolio. The Partnership estimates VaR using a model based upon historical simulation with a confidence level of 99%. Historical simulation involves constructing a distribution of hypothetical daily changes in the value of a trading portfolio. The VaR model takes into account linear exposures to price and interest rate risk. Market risks that are incorporated in the VaR model include equity and commodity prices, interest rates, foreign exchange rates, and correlation among these variables. The hypothetical changes in portfolio value are based on daily percentage changes observed in key market indices or other market factors ("market risk factors") to which the portfolio is sensitive. The historical observation period of the Partnership's VaR is approximately four years. The one-day 99% confidence level of the Partnership's VaR corresponds to the negative change in portfolio value that, based on observed market risk factors, would have been exceeded once in 100 trading days. VaR models, including the Partnership's, are continuously evolving as trading portfolios become more diverse and modeling techniques and systems capabilities improve. Please note that the VaR model is used to numerically 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 tables indicates the VaR associated with the Partnership's open positions as a percentage of total Net Assets by primary market risk category at December 31, 1999 and 1998. At December 31, 1999 and 1998, the Partnership's total capitalization was approximately $214 million and $200 million, respectively. Primary Market December 31, 1999 December 31, 1998 Risk Category Value at Risk Value at Risk Interest Rate (.27)% (1.06)% Currency (.37) (.51) Equity (.48) (.37) Commodity (.40) (.91) Aggregate Value at Risk (.85)% (1.28)% Aggregate Value at Risk represents the aggregate VaR of all the Partnership's open positions and not the sum of the VaR of the individual Market 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 December 31, 1999 and 1998 only and is not necessarily representative of either the historic or future risk of an investment in the Partnership. Because the Partnership's only business is the speculative trading of futures interests, the composition of its trading portfolio can change significantly over any given time period, or even within a single trading day. Any changes in open positions could positively or negatively materially impact market risk as measured by VaR. The table below supplements the year end VaR by presenting the Partnership's high, low and average VaR, as a percentage of total Net Assets for the four quarterly reporting periods from January 1, 1999 through December 31, 1999. Primary Market Risk Category High Low Average Interest Rate (1.61)% (.27)% (.71)% Currency (1.52) (.37) (1.04) Equity (.82) (.31) (.54) Commodity (1.48) (.40) (.88) Aggregate Value at Risk (2.83)% (.85)% (1.80)% 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 requirements. Margin requirements generally range between 2% and 15% of contract face value. Additionally, the use of leverage causes the face value of the market sector instruments held by the Partnership to typically be many times the total capitalization of the Partnership. The value of the Partnership's open positions thus creates a "risk of ruin" not typically found in other investments. The relative size of the positions held may cause the Partnership to incur losses greatly in excess of VaR within a short period of time, given the effects of the leverage employed and market volatility. The VaR tables above, as well as the past performance of the Partnership, gives no indication of such "risk of ruin". In addition, VaR risk measures should be viewed in light of the methodology's limitations, which include the following: past changes in market risk factors will not always result in accurate predictions of the distributions and correlations of future market movements; changes in portfolio value in response to market movements may differ from those of the VaR model; 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 VaR tables above present the results of the Partnership's VaR for each of the Partnership's market risk exposures and on an aggregate basis at December 31, 1999 and for the end of the four quarterly reporting periods during calendar year 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 or monitor risk. There can be no assurance that the Partnership's actual losses on a particular day will not exceed the VaR amounts indicated above 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. These balances and any market risk they may represent are immaterial. The Partnership also maintains a substantial portion (approximately 92%) 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. Materiality, as used throughout this section, is based on an assessment of reasonably possible market movements and any associated potential losses, 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 (A) those disclosures that are statements of historical fact and (B) 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. The following were the primary trading risk exposures of the Partnership at December 31, 1999, by market sector. It may be anticipated however, that these market exposures will vary materially over time. Interest Rate. The Partnership's exposure in the interest rate market complex was spread across the U.S., European, Australian and Japanese 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. The G-7 countries consists of France, U.S., Britain, Germany, Japan, Italy and Canada. 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. Equity. The primary equity exposure is 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. At December 31, 1999, the Partnership's primary exposures were in the NASDAQ 100 (U.S.), Hang Seng (China) and DAX (German) stock indices. The Partnership is primarily exposed to the risk of adverse price trends or static markets in the U.S., European 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). Currency. The primary market exposure in the Partnership is in the currency sector. 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 fourth 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. 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 copper, aluminum, zinc, nickel and lead, the principal market exposures of the Partnership have consistently been in precious metals, gold and silver. A reasonable amount of exposure was evident in the gold market as the price of gold retreated during the fourth quarter. Silver prices have remained volatile over this period and the Trading Advisors from time to time, took substantial positions as perceived market opportunities developed. Demeter anticipates that gold and silver will remain the primary metals market exposures for the Partnership. Soft Commodities and Agriculturals. On December 31, 1999, the Partnership had a reasonable amount of exposure in the markets that comprise these sectors. Most of the exposure, however, was in the soybeans, corn and cotton markets. Supply and demand inequalities, severe weather disruption and market expectations affect price movements in these markets. Energy. On December 31, 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 approximately 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. 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, exhibited more volatility than the oil markets on an intra-day and daily basis and is expected to continue in this choppy pattern. Qualitative Disclosures Regarding Non-Trading Risk Exposure The following was the only non-trading risk exposure of the Partnership as of December 31, 1999: Foreign Currency Balances. The Partnership's primary foreign currency balances are in euros and Hong Kong 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 Partnership and the Trading Advisors, separately, attempt to manage the risk of the Partnership's open positions in essentially the same manner in all market categories traded. Demeter attempts to manage market exposure by diversifying the Partnership's assets among different Trading Advisors, each of whose strategies focus on different market sectors and trading approaches, and monitoring the performance of the Trading Advisors daily. 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. Demeter monitors and controls the risk of the Partnership's non- trading instrument, cash. Cash is the only Partnership investment directed by Demeter, rather than the Trading Advisors. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Financial Statements are incorporated by reference to the Partnership's Annual Report, which is filed as Exhibit 13.01 hereto. Supplementary data specified by Item 302 of Regulation S-K (selected quarterly financial data) is not applicable. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACOUNTING AND FINANCIAL DISCLOSURE None. PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT There are no directors or executive officers of the Partnership. The Partnership is managed by Demeter. Directors and Officers of the General Partner The directors and officers of Demeter are as follows: Robert E. Murray, age 39, is Chairman of the Board, President and a Director of Demeter. Mr. Murray is also Chairman of the Board, President and a Director of DWFCM. Effective as of the close of business on January 31, 2000, Mr. Murray replaced Mr. Hawley as Chairman of the Board of Demeter and DWFCM. Mr. Murray is currently a Senior Vice President of DWR's Managed Futures Department. Mr. Murray began his career at DWR in 1984 and is currently the Director of the Managed Futures Department. In this capacity, Mr. Murray is responsible for overseeing all aspects of the firm's Managed Futures Department. Mr. Murray currently serves as Vice Chairman and a Director of the Managed Funds Association, an industry association for investment professionals in futures, hedge funds and other alternative investments. Mr. Murray graduated from Geneseo State University in May 1983 with a B.A. degree in Finance. Mitchell M. Merin, age 46, is a Director of Demeter. Mr. Merin is also a Director of DWFCM. Mr. Merin was appointed the Chief Operating Officer of Individual Asset Management for MSDW in December 1998 and the President and Chief Executive Officer of Morgan Stanley Dean Witter Advisors in February 1998. He has been an Executive Vice President of DWR since 1990, during which time he has been director of DWR's Taxable Fixed Income and Futures divisions, Managing Director in Corporate Finance and Corporate Treasurer. Mr. Merin received his Bachelor's degree from Trinity College in Connecticut and his M.B.A. degree in finance and accounting from the Kellogg Graduate School of Management of Northwestern University in 1977. Joseph G. Siniscalchi, age 54, is a Director of Demeter. Mr. Siniscalchi joined DWR in July 1984 as a First Vice President, Director of General Accounting and served as a Senior Vice President and Controller for DWR's Securities Division through 1997. He is currently Executive Vice President and Director of the Operations Division of DWR. From February 1980 to July 1984, Mr. Siniscalchi was Director of Internal Audit at Lehman Brothers Kuhn Loeb, Inc. Edward C. Oelsner, III, age 57, is a Director of Demeter. Mr. Oelsner is currently an Executive Vice President and head of the Product Development Group at Morgan Stanley Dean Witter Advisors, an affiliate of DWR. Mr. Oelsner joined DWR in 1981 as a Managing Director in DWR's Investment Banking Department specializing in coverage of regulated industries and, subsequently, served as head of the DWR Retail Products Group. Prior to joining DWR, Mr. Oelsner held positions at The First Boston Corporation as a member of the Research and Investment Banking Departments from 1967 to 1981. Mr. Oelsner received his M.B.A. in Finance from the Columbia University Graduate School of Business in 1966 and an A.B. in Politics from Princeton University in 1964. Lewis A. Raibley, III, age 37, is Vice President, Chief Financial Officer and a Director of Demeter. Mr. Raibley is also a Director of DWFCM. Mr. Raibley is currently Senior Vice President and Controller in the Individual Asset Management Group of MSDW. From July 1997 to May 1998, Mr. Raibley served as Senior Vice President and Director in the Internal Reporting Department of MSDW and prior to that, from 1992 to 1997, he served as Senior Vice President and Director in the Financial Reporting and Policy Division of Dean Witter Discover & Co. He has been with MSDW and its affiliates since June 1986. Richard A. Beech, age 48, is a Director of Demeter. Mr. Beech has been associated with the futures industry for over 23 years. He has been at DWR since August 1984, where he is presently Senior Vice President and head of Branch Futures. Mr. Beech began his career at the Chicago Mercantile Exchange, where he became the Chief Agricultural Economist doing market analysis, marketing and compliance. Prior to joining DWR, Mr. Beech also had worked at two investment banking firms in operations, research, managed futures and sales management. Ray Harris, age 43, is a Director of Demeter. Mr. Harris is currently Executive Vice President, Planning and Administration for Morgan Stanley Dean Witter Asset Management and has worked at DWR or its affiliates since July 1982, serving in both financial and administrative capacities. From August 1994 to January 1999, he worked in two separate DWR affiliates, Discover Financial Services and Novus Financial Corp., culminating as Senior Vice President. Mr. Harris received his B.A. degree from Boston College and his M.B.A. in finance from the University of Chicago. Mark J. Hawley, age 56, served as Chairman of the Board and a Director of Demeter and DWFCM throughout 1999. Mr. Hawley joined DWR in February 1989 as Senior Vice President and served as Executive Vice President and Director of DWR's Product Management for Individual Asset Management throughout 1999. In this capacity, Mr. Hawley was responsible for directing the activities of the firm's Managed Futures, Insurance, and Unit Investment Trust Business. From 1978 to 1989, Mr. Hawley was a member of the senior management team at Heinold Asset Management, Inc., a commodity pool operator, and was responsible for a variety of projects in public futures funds. From 1972 to 1978, Mr. Hawley was a Vice President in charge of institutional block trading for the Mid-West at Kuhn Loeb & Company. Mr. Hawley resigned effective January 31, 2000. All the foregoing directors have indefinite terms. Item 11. EXECUTIVE COMPENSATION The Partnership has no directors and executive officers. As a limited partnership, the business of the Partnership is managed by Demeter which is responsible for the administration of the business affairs of the Partnership but receives no compensation for such services. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (a) Security Ownership of Certain Beneficial Owners - As of December 31, 1999, there were no persons known to be beneficial owners of more than 5 percent of the Units. (b) Security Ownership of Management - At December 31, 1999, Demeter owned 133,076.700 Units of General Partnership Interest representing a 1.37 percent interest in the Partnership. (c) Changes in Control - None Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Refer to Note 2 - "Related Party Transactions" of "Notes to Financial Statements", in the accompanying Annual Report to Limited Partners for the year ended December 31, 1999, which is incorporated by reference to Exhibit 13.01 of this Form 10-K. In its capacity as the Partnership's retail commodity broker, DWR received commodity brokerage fees of $15,188,479 for the year ended December 31, 1999. PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) 1. Listing of Financial Statements The following financial statements and reports of independent auditors, all appearing in the accompanying Annual Report to Limited Partners for the year ended December 31, 1999 are incorporated by reference to Exhibit 13.01 of this Form 10-K: - - Report of Deloitte & Touche LLP, independent auditors, for the years ended December 31, 1999, 1998 and 1997. - - Statements of Financial Condition as of December 31, 1999 and 1998. - - Statements of Operations, Changes in Partners' Capital, and Cash Flows for the years ended December 31, 1999, 1998 and 1997. - - Notes to Financial Statements. With the exception of the aforementioned information and the information incorporated in Items 7, 8, and 13, the Annual Report to Limited Partners for the year ended December 31, 1999 is not deemed to be filed with this report. 2. Listing of Financial Statement Schedules No financial statement schedules are required to be filed with this report. (b) Reports on Form 8-K No reports on Form 8-K have been filed by the Partnership during the last quarter of the period covered by this report. (c) Exhibits Refer to Exhibit Index on Page E-1. SIGNATURES Pursuant to the requirements of Sections 13 or 15(d) 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 SELECT L.P. (Registrant) BY: Demeter Management Corporation, General Partner March 30, 2000 BY: /s/ Robert E. Murray Robert E. Murray, Director, Chairman of the Board and President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Demeter Management Corporation. BY: /s/ Robert E. Murray _________ March 29, 2000 Robert E. Murray, Director, Chairman of the Board and President /s/ Joseph G. Siniscalchi __________ March 29, 2000 Joseph G. Siniscalchi, Director /s/ Edward C. Oelsner III __________ March 29, 2000 Edward C. Oelsner III, Director /s/ Mitchell M. Merin _______ March 29, 2000 Mitchell M. Merin, Director /s/ Richard A. Beech _______ March 29, 2000 Richard A. Beech, Director /s/ Ray Harris ______ March 29, 2000 Ray Harris, Director /s/ Lewis A. Raibley, III __________ March 29, 2000 Lewis A. Raibley, III, Director, Chief Financial Officer and Principal Accounting Officer EXHIBIT INDEX ITEM 3.01 Form of Amended and Restated Limited Partnership Agreement of the Partnership, dated as of May 31, 1998, is incorporated by reference to Exhibit A of the Partnership's Prospectus, dated January 21, 1999, filed with the Securities and Exchange Commission pursuant to Rule 424(b)(3) under the Securities Act of 1933, as amended, on January 26, 1999. 3.02 Certificate of Limited Partnership, dated March 21, 1991, is incorporated by reference to Exhibit 3.02 of the Partnership's Registration Statement on Form S-1 (File No. 33-39667) filed with the Securities and Exchange Commission on March 27, 1991. 3.03 Amended Certificate of Limited Partnership, dated April 28, 1998, is incorporated by reference to Exhibit 3.03 of the Partnership's Form 10-K (File No. 0-19511) for fiscal year ended December 31, 1998. 10.01 Amended and Restated Management Agreement, dated as of June 1, 1998, among the Partnership, Demeter Management Corporation, and Rabar Market Research, Inc. is incorporated by reference to Exhibit 10.01 of the Partnership's Form 10-K (File No. 0-19511) for fiscal year ended December 31, 1998. 10.02 Amended and Restated Management Agreement, dated as of June 1, 1998, among the Partnership, Demeter Management Corporation, and EMC Capital Management, Inc. is incorporated by reference to Exhibit 10.02 of the Partnership's Form 10-K (File No. 0-19511) for fiscal year ended December 31, 1998. 10.03 Amended and Restated Management Agreement, dated as of June 1, 1998, among the Partnership, Demeter Management Corporation, and Sunrise Capital Management, Inc. is incorporated by reference to Exhibit 10.03 of the Partnership's Form 10-K (File No. 0-19511) for fiscal year ended December 31, 1998. 10.04 Amended and Restated Customer Agreement, dated as of December 1, 1997, between the Partnership and Dean Witter Reynolds Inc. is incorporated by reference to Exhibit 10.04 of the Partnership's Form 10-K (File No. 0-19511) for fiscal year ended December 31, 1998. 10.05 Customer Agreement, dated as of December 1, 1997, among the Partnership, Carr Futures, Inc., and Dean Witter Reynolds Inc. is incorporated by reference to Exhibit 10.05 of the Partnership's Form 10-K (File No. 0-19511) for fiscal year ended December 31, 1998. 10.06 International Foreign Exchange Master Agreement, dated as of August 1, 1997, between the Partnership and Carr Futures, Inc. is incorporated by reference to Exhibit 10.06 of the Partnership's Form 10-K (File No. 0-19511) for fiscal year ended December 31, 1998. 10.07 Subscription and Exchange Agreement and Power of Attorney to be executed by each purchaser of Units is incorporated by reference to Exhibit B of the Partnership's Prospectus, dated January 21, 1999, filed with the Securities and Exchange Commission pursuant to Rule 424(b)(3) under the Securities Act of 1933, as amended, on January 26, 1999. 10.08 Escrow Agreement, dated September 30, 1994, among Dean Witter Spectrum Strategic L.P., Dean Witter Spectrum Global Balanced L.P., Dean Witter Spectrum Technical L.P., Demeter Management Corporation, Dean Witter Reynolds Inc., and Chemical Bank is incorporated by reference to Exhibit 10.08 of the Partnership's Form 10-K (File No. 0-19511) for fiscal year ended December 31, 1998. 10.09 Amendment to the Escrow Agreement, dated May 11, 1998, among the Partnership, Demeter Management Corporation, Dean Witter Reynolds Inc., and Chemical Bank is incorporated by reference to Exhibit 10.09 of the Partnership's Form 10-K (File No. 0-19511) for fiscal year ended December 31, 1998. 13.01 December 31, 1999 Annual Report to Limited Partners is filed herewith. Morgan Stanley Dean Witter Spectrum Series [GRAPHIC] December 31, 1999 Annual Report MORGAN STANLEY DEAN WITTER Demeter Management Corporation Two World Trade Center 62nd Floor New York, NY 10048 Telephone (212) 392-8899 Morgan Stanley Dean Witter Spectrum Series Annual Report 1999 Dear Limited Partner: This marks the sixth annual report for Morgan Stanley Dean Witter Spectrum Global Balanced, Spectrum Strategic and Spectrum Technical and the ninth an- nual report for Morgan Stanley Dean Witter Spectrum Select. The Net Asset Value per Unit for each of the four Morgan Stanley Dean Witter Spectrum Funds as of December 31, 1999 were as follows:
Funds N.A.V. % change for year ----- ------ ----------------- Spectrum Global Balanced $16.12 0.7% Spectrum Select $22.00 -7.6% Spectrum Strategic $15.85 37.2% Spectrum Technical $14.91 -7.5%
Since their inception in November 1994, Spectrum Global Balanced has increased by 61.2% (a compound annualized return of 9.7%), Spectrum Strategic has in- creased by 58.5% (a compound annualized return of 9.3%) and Spectrum Technical has increased by 49.1% (a compound annualized return of 8.0%). Since its in- ception in August 1991, Spectrum Select has increased by 120.0% (a compound annualized return of 9.8%). Overall, Spectrum Global Balanced produced small gains during 1999 primarily from long positions in the global stock index futures component, particularly long German stock index futures. Additional gains were recorded in the energy markets from long positions in crude and gas oil futures as oil prices surged higher on reports and adherence to OPEC production cuts. Both Spectrum Select and Spectrum Technical recorded a net loss during 1999 with losses being expe- rienced primarily in the global interest rate futures markets, particularly from short-term price volatility in U.S. and European interest rate futures. Gains recorded in the energy markets help to mitigate losses for both Spectrum Select and Spectrum Technical. Long futures positions in crude oil and its refined products proved profitable as oil prices trended significantly higher largely attributed to the news that both OPEC and non-OPEC countries had reached and adhered to an agreement to cut total output. Spectrum Strategic, whose managers use funda- mental analyses in an attempt to forecast future price moves, produced perfor- mance results substantially different than the other Spectrum funds based on three primary themes: energy prices would rise from their low levels of Janu- ary; gold would substantially increase in value late in the third quarter; and global stock indices would appreciate during the fourth quarter. Based on these themes, the managers in Spectrum Strategic emphasized exposure to long energy, gold and stock index futures positions appropriately throughout 1999. Not all forecasts for Spectrum Strategic managers came to fruition last year. For example, losses were generated in the Japanese yen and partially offset gains produced in the market segments mentioned previously. While we are disappointed that both Spectrum Select and Spectrum Technical had a difficult year in 1999, we remind investors that managed futures funds such as the Spectrum Series are designed to provide diversification and non-corre- lation, that is, the ability to perform independently, of global equities and bonds. Managed futures have historically performed independently of tradi- tional investments, such as stocks and bonds. This is referred to as non-cor- relation, or the potential for managed futures to perform when traditional markets such as stocks and bonds may experience difficulty performing. Of course, managed futures funds will not automatically be profitable during un- favorable periods for these traditional investments and vice versa. The degree of non-correlation of any given managed futures fund will vary, particularly as a result of market conditions, and some funds will have significantly lesser degrees of non-correlation (i.e., greater correlation) with stocks and bonds than others. 1999 proved to be another strong year for equities, due in large part to continued growth and stability in most major world economies ac- companied by low inflation. This environment, while strong for equities, provided few major sustained price trends in the world's futures and currency markets, and as such, proved to be a difficult trading environment for money managers in Spectrum Select and Spectrum Techni- cal whose trading strategies rely on the existence of longer-term price trends for trading opportunities. Nevertheless, we remain confident in the role that managed futures investments play in the overall investment portfolio, and we believe this confidence is well-founded based on the longer-term diversified non-correlated returns of this alternative investment. Demeter Management Cor- poration, as General Partner to the funds, has been and continues to be an ac- tive investor with more than $18 million invested among the 24 managed futures funds to which we act as General Partner. Effective May 1, 1999, Spectrum Strategic added Allied Irish Capital Manage- ment, Ltd. ("AICM") as a Trading Advisor, and allocated to AICM the assets previously managed by Stonebrook Capital Management, Inc. ("Stonebrook"), ap- proximately $6.8 million. AICM is paid the same management and incentive fees as Stonebrook. Should you have any questions concerning this report, please feel free to con- tact Demeter Management Corporation at Two World Trade Center, 62nd Floor, New York, N.Y. 10048 or your Morgan Stanley Dean Witter Financial Advisor. I hereby affirm, that to the best of my knowledge and belief, the information contained in this report is accurate and complete. Past performance is not a guarantee of future results. Sincerely, /s/ Robert E. Murray Robert E. Murray Chairman Demeter Management Corporation General Partner Morgan Stanley Dean Witter Spectrum Series Independent Auditors' Report To the Limited Partners and the General Partner of Morgan Stanley Dean Witter Spectrum Global Balanced L.P. Morgan Stanley Dean Witter Spectrum Select L.P. Morgan Stanley Dean Witter Spectrum Strategic L.P. Morgan Stanley Dean Witter Spectrum Technical L.P.: We have audited the accompanying statements of financial condition of Morgan Stanley Dean Witter Spectrum Global Balanced L.P., Morgan Stanley Dean Witter Spectrum Select L.P., Morgan Stanley Dean Witter Spectrum Strategic L.P. and Morgan Stanley Dean Witter Spectrum Technical L.P., (collectively, the "Partnerships"), as of December 31, 1999 and 1998 and the related statements of operations, changes in partners' capital, and cash flows for each of the three years in the period ended December 31, 1999. These financial statements are the responsibility of the Partnerships' management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of Morgan Stanley Dean Witter Spectrum Global Balanced L.P., Morgan Stanley Dean Witter Spectrum Select L.P., Morgan Stanley Dean Witter Spectrum Strategic L.P. and Morgan Stanley Dean Witter Spectrum Technical L.P. at December 31, 1999 and 1998 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999 in conformity with generally accepted accounting principles. /s/ Deloitte & Touche LLP February 7, 2000 (March 3, 2000 as to Note 6) New York, New York Morgan Stanley Dean Witter Spectrum Global Balanced L.P. Statements of Financial Condition
December 31, --------------------- 1999 1998 ---------- ---------- $ $ ASSETS Equity in futures interests trading accounts: Cash 56,904,921 43,020,361 Net unrealized gain on open contracts 810,114 1,967,187 ---------- ---------- Total Trading Equity 57,715,035 44,987,548 Subscriptions receivable 847,954 1,163,097 Interest receivable (DWR) 244,599 167,141 ---------- ---------- Total Assets 58,807,588 46,317,786 ========== ========== LIABILITIES AND PARTNERS' CAPITAL LIABILITIES Redemptions payable 667,741 118,190 Accrued brokerage fees (DWR) 216,895 169,841 Accrued management fee 58,940 46,153 Incentive fee payable -- 69,730 ---------- ---------- Total Liabilities 943,576 403,914 ---------- ---------- PARTNERS' CAPITAL Limited Partners (3,549,239.387 and 2,836,946.985 Units, respectively) 57,209,838 45,399,750 General Partner (40,584.304 and 32,126.520 Units, respectively) 654,174 514,122 ---------- ---------- Total Partners' Capital 57,864,012 45,913,872 ---------- ---------- Total Liabilities and Partners' Capital 58,807,588 46,317,786 ========== ========== NET ASSET VALUE PER UNIT 16.12 16.00 ========== ==========
Statements of Operations
For the Years Ended December 31, ------------------------------- 1999 1998 1997 ---------- --------- --------- $ $ $ REVENUES Trading profit (loss): Realized 2,425,585 5,113,920 3,683,460 Net change in unrealized (1,157,073) 1,285,628 464,966 ---------- --------- --------- Total Trading Results 1,268,512 6,399,548 4,148,426 Interest income (DWR) 2,385,751 1,642,542 1,145,033 ---------- --------- --------- Total Revenues 3,654,263 8,042,090 5,293,459 ---------- --------- --------- EXPENSES Brokerage fees (DWR) 2,387,515 1,591,467 1,124,531 Management fee 648,787 422,960 269,162 Incentive fees 215,651 449,775 300,250 ---------- --------- --------- Total Expenses 3,251,953 2,464,202 1,693,943 ---------- --------- --------- NET INCOME 402,310 5,577,888 3,599,516 ========== ========= ========= Net Income Allocation: Limited Partners 397,258 5,518,127 3,561,537 General Partner 5,052 59,761 37,979 Net Income per Unit: Limited Partners .12 2.25 2.12 General Partner .12 2.25 2.12
The accompanying notes are an integral part of these financial statements. Morgan Stanley Dean Witter Spectrum Select L.P. Statements of Financial Condition
December 31, ----------------------- 1999 1998 ----------- ----------- $ $ ASSETS Equity in futures interests trading accounts: Cash 207,251,012 187,619,419 Net unrealized gain on open contracts 6,887,064 8,435,054 Net option premiums 776,380 -- ----------- ----------- Total Trading Equity 214,914,456 196,054,473 Subscriptions receivable 3,730,051 6,021,707 Interest receivable (DWR) 722,305 591,858 ----------- ----------- Total Assets 219,366,812 202,668,038 =========== =========== LIABILITIES AND PARTNERS' CAPITAL LIABILITIES Redemptions payable 3,764,242 939,381 Accrued brokerage fees (DWR) 1,270,975 1,164,344 Accrued management fees 525,921 481,797 ----------- ----------- Total Liabilities 5,561,138 2,585,522 ----------- ----------- PARTNERS' CAPITAL Limited Partners (9,583,810.732 and 8,274,690.051 Units, respectively) 210,877,519 196,915,644 General Partner (133,076.700 Units) 2,928,155 3,166,872 ----------- ----------- Total Partners' Capital 213,805,674 200,082,516 ----------- ----------- Total Liabilities and Partners' Capital 219,366,812 202,668,038 =========== =========== NET ASSET VALUE PER UNIT 22.00 23.80 =========== ===========
Statements of Operations
For the Years Ended December 31, ----------------------------------- 1999 1998 1997 ----------- ---------- ---------- $ $ $ REVENUES Trading profit (loss): Realized (1,351,849) 36,087,729 15,940,851 Net change in unrealized (1,547,990) (1,192,107) 3,149,167 ----------- ---------- ---------- Total Trading Results (2,899,839) 34,895,622 19,090,018 Interest income (DWR) 7,678,789 6,883,110 7,405,511 ----------- ---------- ---------- Total Revenues 4,778,950 41,778,732 26,495,529 ----------- ---------- ---------- EXPENSES Brokerage fees (DWR) 15,188,479 11,360,166 9,777,851 Management fees 6,284,885 5,202,158 5,239,533 Incentive fees -- 1,832,021 49,989 Transaction fees and costs -- 625,327 1,370,439 Administrative expenses -- 64,000 114,000 ----------- ---------- ---------- Total Expenses 21,473,364 19,083,672 16,551,812 ----------- ---------- ---------- NET INCOME (LOSS) (16,694,414) 22,695,060 9,943,717 =========== ========== ========== Net Income (Loss) Allocation: Limited Partners (16,455,697) 22,302,202 9,781,168 General Partner (238,717) 392,858 162,549 Net Income (Loss) per Unit (Note 1): Limited Partners (1.80) 2.95 1.22 General Partner (1.80) 2.95 1.22
The accompanying notes are an integral part of these financial statements. Morgan Stanley Dean Witter Spectrum Strategic L.P. Statements of Financial Condition
December 31, ----------------------- 1999 1998 ----------- ---------- $ $ ASSETS Equity in futures interests trading accounts: Cash 97,808,328 63,919,054 Net unrealized gain on open contracts 9,563,813 5,299,335 Net option premiums (11,653) 225,646 ----------- ---------- Total Trading Equity 107,360,488 69,444,035 Subscriptions receivable 1,743,958 1,796,051 Interest receivable (DWR) 339,582 205,247 ----------- ---------- Total Assets 109,444,028 71,445,333 =========== ========== LIABILITIES AND PARTNERS' CAPITAL LIABILITIES Redemptions payable 847,860 398,976 Accrued brokerage fees (DWR) 590,001 405,606 Accrued management fees 313,646 218,976 ----------- ---------- Total Liabilities 1,751,507 1,023,558 ----------- ---------- PARTNERS' CAPITAL Limited Partners (6,723,390.378 and 6,031,262.407 Units, respectively) 106,542,362 69,671,636 General Partner (72,581.141 and 64,937.294 Units, respectively) 1,150,159 750,139 ----------- ---------- Total Partners' Capital 107,692,521 70,421,775 ----------- ---------- Total Liabilities and Partners' Capital 109,444,028 71,445,333 =========== ========== NET ASSET VALUE PER UNIT 15.85 11.55 =========== ==========
Statements of Operations
For the Years Ended December 31, -------------------------------- 1999 1998 1997 ---------- ---------- ---------- $ $ $ REVENUES Trading profit: Realized 32,274,037 7,945,575 1,297,824 Net change in unrealized 4,264,478 2,771,722 2,387,258 ---------- ---------- ---------- Total Trading Results 36,538,515 10,717,297 3,685,082 Interest income (DWR) 3,017,103 2,379,478 2,304,248 ---------- ---------- ---------- Total Revenues 39,555,618 13,096,775 5,989,330 ---------- ---------- ---------- EXPENSES Brokerage fees (DWR) 5,837,887 4,402,540 4,414,327 Management fees 3,137,509 2,342,447 2,212,788 Incentive fees 2,451,152 1,336,693 427,094 ---------- ---------- ---------- Total Expenses 11,426,548 8,081,680 7,054,209 ---------- ---------- ---------- NET INCOME (LOSS) 28,129,070 5,015,095 (1,064,879) ========== ========== ========== Net Income (Loss) Allocation: Limited Partners 27,829,050 4,958,188 (1,054,657) General Partner 300,020 56,907 (10,222) Net Income (Loss) per Unit: Limited Partners 4.30 .84 .04 General Partner 4.30 .84 .04
The accompanying notes are an integral part of these financial statements. Morgan Stanley Dean Witter Spectrum Technical L.P. Statements of Financial Condition
December 31, ------------------------ 1999 1998 ----------- ----------- $ $ ASSETS Equity in futures interests trading accounts: Cash 251,443,755 235,044,325 Net unrealized gain on open contracts 18,036,296 18,909,268 Net option premiums (74,725) -- ----------- ----------- Total Trading Equity 269,405,326 253,953,593 Subscriptions receivable 3,926,914 4,002,633 Interest receivable (DWR) 900,955 717,685 ----------- ----------- Total Assets 274,233,195 258,673,911 =========== =========== LIABILITIES AND PARTNERS' CAPITAL LIABILITIES Redemptions payable 3,057,593 1,339,311 Accrued brokerage fees (DWR) 1,559,481 1,439,151 Accrued management fees 860,403 794,015 ----------- ----------- Total Liabilities 5,477,477 3,572,477 ----------- ----------- PARTNERS' CAPITAL Limited Partners (17,836,873.576 and 15,660,041.764 Units, respectively) 265,907,998 252,455,045 General Partner (191,022.517 and 164,158.204 Units, respectively) 2,847,720 2,646,389 ----------- ----------- Total Partners' Capital 268,755,718 255,101,434 ----------- ----------- Total Liabilities and Partners' Capital 274,233,195 258,673,911 =========== =========== NET ASSET VALUE PER UNIT 14.91 16.12 =========== ===========
Statements of Operations
For the Years Ended December 31, ---------------------------------- 1999 1998 1997 ----------- ---------- ---------- $ $ $ REVENUES Trading profit (loss): Realized 726,179 35,224,194 13,777,460 Net change in unrealized (872,972) 6,612,556 9,762,823 ----------- ---------- ---------- Total Trading Results (146,793) 41,836,750 23,540,283 Interest income (DWR) 9,593,178 8,103,423 5,987,304 ----------- ---------- ---------- Total Revenues 9,446,385 49,940,173 29,527,587 ----------- ---------- ---------- EXPENSES Brokerage fees (DWR) 19,176,380 15,543,787 11,617,770 Management fees 10,580,071 8,403,764 5,832,758 Incentive fees 430,097 3,191,252 369,975 ----------- ---------- ---------- Total Expenses 30,186,548 27,138,803 17,820,503 ----------- ---------- ---------- NET INCOME (LOSS) (20,740,163) 22,801,370 11,707,084 =========== ========== ========== Net Income (Loss) Allocation: Limited Partners (20,531,494) 22,571,217 11,589,197 General Partner (208,669) 230,153 117,887 Net Income (Loss) per Unit: Limited Partners (1.21) 1.49 1.02 General Partner (1.21) 1.49 1.02
The accompanying notes are an integral part of these financial statements. Morgan Stanley Dean Witter Spectrum Series Statements of Changes in Partners' Capital For the Years Ended December 31, 1999, 1998 and 1997
Units of Partnership Limited General Interest Partners Partner Total ------------- ----------- --------- ----------- $ $ $ Morgan Stanley Dean Witter Spectrum Global Balanced L.P. Partners' Capital, December 31, 1996 1,609,108.931 18,499,873 206,382 18,706,255 Offering of Units 505,325.179 6,507,261 20,000 6,527,261 Net income -- 3,561,537 37,979 3,599,516 Redemptions (246,149.269) (3,149,796) -- (3,149,796) ------------- ----------- --------- ----------- Partners' Capital, December 31, 1997 1,868,284.841 25,418,875 264,361 25,683,236 Offering of Units 1,205,176.553 17,447,965 190,000 17,637,965 Net income -- 5,518,127 59,761 5,577,888 Redemptions (204,387.889) (2,985,217) -- (2,985,217) ------------- ----------- --------- ----------- Partners' Capital, December 31, 1998 2,869,073.505 45,399,750 514,122 45,913,872 Offering of Units 1,019,759.235 16,184,278 135,000 16,319,278 Net income -- 397,258 5,052 402,310 Redemptions (299,009.049) (4,771,448) -- (4,771,448) ------------- ----------- --------- ----------- Partners' Capital, December 31, 1999 3,589,823.691 57,209,838 654,174 57,864,012 ============= =========== ========= =========== Units of Partnership Limited General Interest Partners Partner Total ------------- ----------- --------- ----------- (Note 1) $ $ $ Morgan Stanley Dean Witter Spectrum Select L.P. Partners' Capital, December 31, 1996 8,346,327.700 161,174,820 2,611,465 163,786,285 Offering of Units 573,746.700 12,056,614 -- 12,056,614 Net income -- 9,781,168 162,549 9,943,717 Redemptions (919,522.800) (19,013,295) -- (19,013,295) ------------- ----------- --------- ----------- Partners' Capital, December 31, 1997 8,000,551.600 163,999,307 2,774,014 166,773,321 Offering of Units 1,310,353.729 30,297,590 -- 30,297,590 Net income -- 22,302,202 392,858 22,695,060 Redemptions (903,138.578) (19,683,455) -- (19,683,455) ------------- ----------- --------- ----------- Partners' Capital, December 31, 1998 8,407,766.751 196,915,644 3,166,872 200,082,516 Offering of Units 2,238,093.744 51,589,367 -- 51,589,367 Net loss -- (16,455,697) (238,717) (16,694,414) Redemptions (928,973.063) (21,171,795) -- (21,171,795) ------------- ----------- --------- ----------- Partners' Capital, December 31, 1999 9,716,887.432 210,877,519 2,928,155 213,805,674 ============= =========== ========= ===========
The accompanying notes are an integral part of these financial statements. Morgan Stanley Dean Witter Spectrum Series Statements of Changes in Partners' Capital For the Years Ended December 31, 1999, 1998 and 1997
Units of Partnership Limited General Interest Partners Partner Total -------------- ----------- --------- ----------- $ $ $ Morgan Stanley Dean Witter Spectrum Strategic L.P. Partners' Capital, December 31, 1996 4,229,101.851 44,645,423 473,454 45,118,877 Offering of Units 1,956,789.313 22,377,135 150,000 22,527,135 Net loss -- (1,054,657) (10,222) (1,064,879) Redemptions (668,003.709) (7,485,552) -- (7,485,552) -------------- ----------- --------- ----------- Partners' Capital, December 31, 1997 5,517,887.455 58,482,349 613,232 59,095,581 Offering of Units 1,610,245.841 16,662,471 80,000 16,742,471 Net income -- 4,958,188 56,907 5,015,095 Redemptions (1,031,933.595) (10,431,372) -- (10,431,372) -------------- ----------- --------- ----------- Partners' Capital, December 31, 1998 6,096,199.701 69,671,636 750,139 70,421,775 Offering of Units 1,300,877.987 16,846,544 100,000 16,946,544 Net income -- 27,829,050 300,020 28,129,070 Redemptions (601,106.169) (7,804,868) -- (7,804,868) -------------- ----------- --------- ----------- Partners' Capital, Decem- ber 31, 1999 6,795,971.519 106,542,362 1,150,159 107,692,521 ============== =========== ========= =========== Units of Partnership Limited General Interest Partners Partner Total -------------- ----------- --------- ----------- $ $ $ Morgan Stanley Dean Witter Spectrum Technical L.P. Partners' Capital, December 31, 1996 8,300,169.234 111,852,280 1,133,349 112,985,629 Offering of Units 5,034,287.188 69,082,458 600,000 69,682,458 Net income -- 11,589,197 117,887 11,707,084 Redemptions (899,755.684) (12,424,664) -- (12,424,664) -------------- ----------- --------- ----------- Partners' Capital, December 31, 1997 12,434,700.738 180,099,271 1,851,236 181,950,507 Offering of Units 4,731,996.876 69,886,681 565,000 70,451,681 Net income -- 22,571,217 230,153 22,801,370 Redemptions (1,342,497.646) (20,102,124) -- (20,102,124) -------------- ----------- --------- ----------- Partners' Capital, December 31, 1998 15,824,199.968 252,455,045 2,646,389 255,101,434 Offering of Units 3,976,153.731 61,073,132 410,000 61,483,132 Net loss -- (20,531,494) (208,669) (20,740,163) Redemptions (1,772,457.606) (27,088,685) -- (27,088,685) -------------- ----------- --------- ----------- Partners' Capital, Decem- ber 31, 1999 18,027,896.093 265,907,998 2,847,720 268,755,718 ============== =========== ========= ===========
The accompanying notes are an integral part of these financial statements. Morgan Stanley Dean Witter Spectrum Global Balanced L.P. Statements of Cash Flows
For the Years Ended December 31, ---------------------------------- 1999 1998 1997 ---------- ---------- ---------- $ $ $ CASH FLOWS FROM OPERATING ACTIVITIES Net income 402,310 5,577,888 3,599,516 Noncash item included in net income: Net change in unrealized 1,157,073 (1,285,628) (464,966) (Increase) decrease in operating assets: Interest receivable (DWR) (77,458) (48,192) (33,466) Net option premiums -- (458,150) 458,150 Increase (decrease) in operating liabilities: Accrued brokerage fees (DWR) 47,054 70,079 7,615 Accrued management fee 12,787 20,703 4,507 Incentive fee payable (69,730) 69,730 -- ---------- ---------- ---------- Net cash provided by operating activities 1,472,036 3,946,430 3,571,356 ---------- ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES Offering of Units 16,319,278 17,637,965 6,527,261 (Increase) decrease in subscriptions receivable 315,143 (537,387) (434,141) Increase (decrease) in redemptions payable 549,551 3,614 (686,849) Redemptions of Units (4,771,448) (2,985,217) (3,149,796) ---------- ---------- ---------- Net cash provided by financing activities 12,412,524 14,118,975 2,256,475 ---------- ---------- ---------- Net increase in cash 13,884,560 18,065,405 5,827,831 Balance at beginning of period 43,020,361 24,954,956 19,127,125 ---------- ---------- ---------- Balance at end of period 56,904,921 43,020,361 24,954,956 ========== ========== ==========
The accompanying notes are an integral part of these financial statements. Morgan Stanley Dean Witter Spectrum Select L.P. Statements of Cash Flows
For the Years Ended December 31, ------------------------------------- 1999 1998 1997 ----------- ----------- ----------- $ $ $ CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) (16,694,414) 22,695,060 9,943,717 Noncash item included in net income (loss): Net change in unrealized 1,547,990 1,192,107 (3,149,167) (Increase) decrease in operating assets: Net option premiums (776,380) -- 18,205 Interest receivable (DWR) (130,447) 46,346 (105,144) Due from DWR -- 1,097,517 (688,191) Increase (decrease) in operating liabilities: Accrued brokerage fees (DWR) 106,631 1,164,344 (491,315) Accrued management fees 44,124 58,124 19,815 Accrued administrative expenses -- (72,499) (50,844) Incentive fees payable -- -- (348,459) Accrued transaction fees and costs -- -- (64,595) ----------- ----------- ----------- Net cash provided by (used for) operating activities (15,902,496) 26,180,999 5,084,022 ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Offering of Units 51,589,367 30,297,590 12,056,614 (Increase) decrease in subscriptions receivable 2,291,656 (6,021,707) 5,365,420 Increase (decrease) in redemptions payable 2,824,861 (1,332,933) (97,843) Redemptions of Units (21,171,795) (19,683,455) (19,013,295) ----------- ----------- ----------- Net cash provided by (used for) financing activities 35,534,089 3,259,495 (1,689,104) ----------- ----------- ----------- Net increase in cash 19,631,593 29,440,494 3,394,918 Balance at beginning of period 187,619,419 158,178,925 154,784,007 ----------- ----------- ----------- Balance at end of period 207,251,012 187,619,419 158,178,925 =========== =========== ===========
The accompanying notes are an integral part of these financial statements. Morgan Stanley Dean Witter Spectrum Strategic L.P. Statements of Cash Flows
For the Years Ended December 31, ----------------------------------- 1999 1998 1997 ---------- ----------- ---------- $ $ $ CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) 28,129,070 5,015,095 (1,064,879) Noncash item included in net income (loss): Net change in unrealized (4,264,478) (2,771,722) (2,387,258) (Increase) decrease in operating assets: Net option premiums 237,299 96,477 (367,448) Interest receivable (DWR) (134,335) 17,798 (59,402) Increase in operating liabilities: Accrued brokerage fees (DWR) 184,395 45,565 36,599 Accrued management fees 94,670 30,719 31,436 ---------- ----------- ---------- Net cash provided by (used for) operating activities 24,246,621 2,433,932 (3,810,952) ---------- ----------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES Offering of Units 16,946,544 16,742,471 22,527,135 (Increase) decrease in subscriptions receivable 52,093 (962,792) (168) Increase (decrease) in redemptions payable 448,884 (967,188) (124,372) Redemptions of Units (7,804,868) (10,431,372) (7,485,552) ---------- ----------- ---------- Net cash provided by financing activities 9,642,653 4,381,119 14,917,043 ---------- ----------- ---------- Net increase in cash 33,889,274 6,815,051 11,106,091 Balance at beginning of period 63,919,054 57,104,003 45,997,912 ---------- ----------- ---------- Balance at end of period 97,808,328 63,919,054 57,104,003 ========== =========== ==========
The accompanying notes are an integral part of these financial statements. Morgan Stanley Dean Witter Spectrum Technical L.P. Statements of Cash Flows
For the Years Ended December 31, ------------------------------------- 1999 1998 1997 ----------- ----------- ----------- $ $ $ CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) (20,740,163) 22,801,370 11,707,084 Noncash item included in net income (loss): Net change in unrealized 872,972 (6,612,556) (9,762,823) (Increase) decrease in operating assets: Net option premiums 74,725 -- 328,955 Interest receivable (DWR) (183,270) (60,123) (275,721) Increase (decrease) in operating liabilities: Accrued brokerage fees (DWR) 120,330 341,957 320,941 Accrued management fees 66,388 220,319 197,331 Incentive fees payable -- (139,190) 139,190 ----------- ----------- ----------- Net cash provided by (used for) operating activities (19,789,018) 16,551,777 2,654,957 ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Offering of Units 61,483,132 70,451,681 69,682,458 (Increase) decrease in subscriptions receivable 75,719 (1,037,012) 2,151,502 Increase in redemptions payable 1,718,282 330,081 325,421 Redemptions of Units (27,088,685) (20,102,124) (12,424,664) ----------- ----------- ----------- Net cash provided by financing activities 36,188,448 49,642,626 59,734,717 ----------- ----------- ----------- Net increase in cash 16,399,430 66,194,403 62,389,674 Balance at beginning of period 235,044,325 168,849,922 106,460,248 ----------- ----------- ----------- Balance at end of period 251,443,755 235,044,325 168,849,922 =========== =========== ===========
The accompanying notes are an integral part of these financial statements. Morgan Stanley Dean Witter Spectrum Series Notes to Financial Statements 1. Summary of Significant Accounting Policies Organization--Morgan Stanley Dean Witter Spectrum Global Balanced L.P. (for- merly known as Dean Witter Spectrum Global Balanced L.P.) ("Spectrum Global Balanced"), Morgan Stanley Dean Witter Spectrum Select L.P. (formerly known as Dean Witter Spectrum Select L.P.) ("Spectrum Select"), Morgan Stanley Dean Witter Spectrum Strategic L.P. (formerly known as Dean Witter Spectrum Strate- gic L.P.) ("Spectrum Strategic") and Morgan Stanley Dean Witter Spectrum Tech- nical L.P. (formerly known as Dean Witter Spectrum Technical L.P.) ("Spectrum Technical"), (individually, a "Partnership," or collectively, the "Partner- ships"), are limited partnerships organized to engage in the speculative trad- ing of futures and forward contracts, options on futures contracts, physical commodities and other commodity interests, including, but not limited to for- eign currencies, financial instruments, metals, energy and agricultural prod- ucts (collectively, "futures interests"). The general partner for each Partnership 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"). Spectrum Select became one of the Spectrum Series of funds effective June 1, 1998. Each outstanding unit of limited partnership interest ("Unit(s)") in Dean Witter Select Futures Fund L.P. was converted into 100 Units of Spectrum Select. The number of Units outstanding, net income or loss per Unit and Net Asset Value per Unit have been adjusted for all reporting periods to reflect this conversion. On May 31, 1997, Morgan Stanley Group Inc. was merged with and into Dean Wit- ter, Discover & Co. ("DWD"). At that time, DWD changed its corporate name to Morgan Stanley, Dean Witter, Discover & Co. ("MSDWD"). Effective February 19, 1998, MSDWD changed its corporate name to Morgan Stanley Dean Witter & Co. Demeter is required to maintain a 1% minimum interest in the equity of each Partnership and income (losses) are shared by Demeter and the Limited Partners based upon their proportional ownership interests. Use of Estimates--The financial statements are prepared in accordance with generally accepted accounting principles, which require management to make es- timates and assumptions that affect the reported amounts in the Morgan Stanley Dean Witter Spectrum Series Notes to Financial Statements--(Continued) financial statements and related disclosures. Management believes that the es- timates utilized in the preparation of the financial statements are prudent and reasonable. Actual results could differ from those estimates. Revenue Recognition--Futures interests are open commitments until settlement date. They are valued at market on a daily basis and the resulting net change in unrealized gains and losses is reflected in the change in unrealized profit (loss) on open contracts from one period to the next in the statements of operations. Monthly, DWR pays each Partnership interest income based upon 80% of its average daily "Net Assets" (as defined in the limited partnership agreements) for the month in the case of Spectrum Select, Spectrum Strategic and Spectrum Technical, and 100% in the case of Spectrum Global Balanced. The interest rate is equal to a prevailing rate on U.S. Treasury bills. For purposes of such interest payments, Net Assets do not include monies due the Partnership on futures interests, but not actually received. Net Income (Loss) per Unit--Net income (loss) per Unit is computed using the weighted average number of Units outstanding during the period. Equity in Futures Interests Trading Accounts--The Partnerships' asset "Equity in futures interests trading accounts," reflected in the statements of financial condition consists of (A) cash on deposit with DWR and Carr to be used as margin for trading; (B) net unrealized gains or losses on open contracts, which are valued at market and calculated as the difference between original contract value and market value, and (C) net option premiums, which represent the net of all monies paid and/or received for such option premiums. The Partnerships, in their normal course of business, enter into various contracts with Carr acting as their commodity broker. Pursuant to brokerage agreements with Carr, to the extent that such trading results in unrealized gains or losses, these amounts are offset and reported on a net basis on the Partnerships' statements of financial condition. The Partnerships have offset the fair value amounts recognized for forward contracts executed with the same counterparty as allowable under terms of the master netting agreements with Carr, the sole counterparty on such contracts. The Partnerships have consistently applied their right to offset. Brokerage and Related Transaction Fees and Costs-- Prior to July 31, 1997, brokerage fees for Spectrum Global Balanced were accrued at a monthly rate of 11/24 of 1% of Net Assets (a 5.5% annual rate) as of the first day of each month. From August 1, 1997 to May 31, 1998, brokerage fees were accrued at 49/120 of 1% of Net Assets (a 4.9% annual rate) as of the first day of each month. Morgan Stanley Dean Witter Spectrum Series Notes to Financial Statements--(Continued) Effective June 1, 1998, brokerage fees were reduced to 1/12 of 4.60% of Net Assets (a 4.60% annual rate) as of the first day of each month. Prior to June 1, 1998, brokerage commissions for Spectrum Select were accrued on a half-turn basis at 80% of DWR's published non-member rates and transaction fees and costs were accrued on a half-turn basis. Brokerage commissions and transaction fees and costs combined were capped at 13/20 of 1% per month (a 7.8% maximum annual rate) of Spectrum Select's month-end Net Assets. Effective June 1, 1998 brokerage fees for Spectrum Select were reduced to a monthly rate of 1/12 of 7.25% (a 7.25% annual rate) of Net Assets as of the first day of each month. Prior to July 31, 1997, brokerage fees for Spectrum Strategic and Spectrum Technical were accrued at a monthly rate of 33/48 of 1% of Net Assets (an 8.25% annual rate) as of the first day of each month. From August 1, 1997 to May 31, 1998, brokerage fees were accrued at 51/80 of 1% of the Net Assets (a 7.65% annual rate) as of the first day of each month. Effective June 1, 1998, brokerage fees for Spectrum Strategic and Spectrum Technical were reduced to 1/12 of 7.25% (a 7.25% annual rate) of Net Assets as of the first day of each month. Such brokerage fees currently cover all brokerage commissions, transaction fees and costs and ordinary administrative and continuing offering expenses. Operating Expenses--The Partnerships incur monthly management fees and may incur incentive fees. All common administrative and continuing offering expenses including legal, auditing, accounting, filing fees and other related expenses are borne by DWR through the brokerage fees paid by the Partnerships (effective June 1, 1998 for Spectrum Select with its change to a flat rate brokerage fee). Prior to June 1, 1998, Spectrum Select was charged all operating expenses related to its trading activities to a maximum of 1/4 of 1% annually of Spectrum Select's average month end Net Assets. Demeter was responsible for operating expenses in excess of the cap. Income Taxes--No provision for income taxes has been made in the accompanying financial statements, as partners are individually responsible for reporting income or loss based upon their respective share of each Partnership's revenues and expenses for income tax purposes. Distributions--Distributions, other than redemptions of Units, are made on a pro-rata basis at the sole discretion of Demeter. No distributions have been made to date. Morgan Stanley Dean Witter Spectrum Series Notes to Financial Statements--(Continued) Continuing Offering--Units of each Partnership are offered at a price equal to 100% of the Net Asset Value per Unit as of the close of business on the last day of the month. No selling commissions or charges related to the continuing offering of Units will be paid by the Limited Partners or the Partnership. DWR will pay all such costs. Redemptions--Limited Partners may redeem some or all of their Units at 100% of the Net Asset Value per Unit as of the end of the last day of any month that is at least six months after the closing at which a person becomes a Limited Partner, upon five business days advance notice by redemption form to Demeter. Thereafter, Units redeemed on or prior to the last day of the twelfth month after such Units were purchased will be subject to a redemption charge equal to 2% of the Net Asset Value of a Unit on the date of such redemption. Units redeemed after the last day of the twelfth month and on or prior to the last day of the twenty-fourth month after which such Units were purchased will be subject to a redemption charge equal to 1% of the Net Asset Value of a Unit on the date of such redemption. Units redeemed after the last day of the twenty- fourth month after which such Units were purchased will not be subject to a redemption charge. The foregoing redemption charges will be paid to DWR. Re- demptions must be made in whole Units, in a minimum amount of 50 Units, unless a Limited Partner is redeeming his entire interest in a Partnership. Exchanges--On the last day of the first month which occurs more than six months after a person first becomes a Limited Partner in any of the Partner- ships, and the end of each month thereafter, Limited Partners may exchange their investment among the Partnerships (subject to certain restrictions out- lined in the Limited Partnership Agreement) without paying additional charges. Dissolution of the Partnership--Spectrum Global Balanced, Spectrum Strategic and Spectrum Technical will terminate on December 31, 2035 and Spectrum Select will terminate on December 31, 2025 regardless of financial condition at such time, or at an earlier date if certain conditions occur as defined in each Partnership's Limited Partnership Agreement. 2. Related Party Transactions Each Partnership pays brokerage fees to DWR as described in Note 1. Each Part- nership'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 as described in Note 1. Morgan Stanley Dean Witter Spectrum Series Notes to Financial Statements--(Continued) 3. Trading Advisors Demeter, on behalf of each Partnership, retains certain commodity trading advisors to make all trading decisions for the Partnerships. The trading advisors for each Partnership are as follows: Morgan Stanley Dean Witter Spectrum Global Balanced L.P. RXR, Inc. Morgan Stanley Dean Witter Spectrum Select L.P. EMC Capital Management, Inc. Rabar Market Research, Inc. Sunrise Capital Management, Inc. Morgan Stanley Dean Witter Spectrum Strategic L.P. Blenheim Investments, Inc. ("Blenheim") Allied Irish Capital Management, Ltd. ("AICM") Willowbridge Associates Inc. ("Willowbridge") Effective April 30, 1998, A. Gary Shilling & Co., Inc. ("Shilling") was ter- minated as an advisor to the Partnership. The assets of the Partnership pre- viously allocated to Shilling were allocated to Stonebrook Capital Manage- ment Inc., ("Stonebrook"), effective June 1, 1998. Effective March 4, 1999, Stonebrook was terminated as an advisor to the Partnership. The assets of the Partnership previously allocated to Stonebrook were allocated to AICM, effective June 1, 1999. Morgan Stanley Dean Witter Spectrum Technical L.P. Campbell & Company, Inc. ("Campbell") Chesapeake Capital Corporation ("Chesapeake") John W. Henry & Company, Inc. ("JWH") Compensation to the trading advisors by the Partnerships consists of a management fee and an incentive fee as follows: Management Fee--The management fee is accrued at the rate of 5/48 of 1% per month of Net Assets on the first day of each month (a 1.25% annual rate) for Spectrum Global Balanced. The management fee is accrued at the rate of 1/4 of 1% per month of Net Assets allocated to each trading advisor on the first day of each month (a 3% annual rate) for Spectrum Select. Prior to June 1, 1998, the management fee was accrued at the rate of 1/4 of 1% of the Partnership's adjusted Net Assets, as defined in its limited partnership agreements, as of the last day of each month (a 3% annual rate). The management fee is accrued at the rate of 1/12 of 4% per month of Net Assets allocated to each of Blenheim Morgan Stanley Dean Witter Spectrum Series Notes to Financial Statements--(Continued) and Willowbridge on the first day of each month, and 1/12 of 3% per month of Net Assets allocated to AICM on the first day of each month for Spectrum Stra- tegic (annual rates of 4% and 3%, respectively). Prior to June 1, 1998, the management fee was accrued at the rate of 1/3 of 1% of Net Assets allocated to each trading advisor on the first day of each month (a 4% annual rate). The management fee is accrued at the rate of 1/3 of 1% per month of Net Assets allocated to each trading advisor on the first day of each month (a 4% annual rate) for Spectrum Technical. Incentive Fee--Spectrum Global Balanced, Spectrum Select and Spectrum Strate- gic each pay a monthly incentive fee equal to 15% of the trading profits expe- rienced with respect to each trading advisor's allocated Net Assets as of the end of each calendar month. Trading profits represent the amount by which profits from futures, forwards and options trading exceed losses after broker- age and management fees are deducted. Prior to June 1, 1998, trading profits for Spectrum Select represented the amount by which profits from futures, for- wards and options trading exceed losses, after brokerage commissions, manage- ment fees, administrative expenses and transaction fees and costs were paid. Prior to June 1, 1998, Spectrum Select paid a quarterly incentive fee to each trading advisor equal to 17.5% of the trading profits. Spectrum Technical pays a monthly incentive fee equal to 15% of the trading profits experienced with respect to the Net Assets allocated to Campbell and JWH and 19% of the Trading profits experienced with respect to the Net Assets allocated to Chesapeake as of the end of each calendar month. Trading profits represent the amount by which profits from futures, forwards and options trad- ing exceed losses after brokerage and management fees are deducted. Prior to June 1, 1998, Spectrum Technical paid an incentive fee equal to 15% of trading profits to all trading advisors. For all Partnerships when trading losses are incurred, no incentive fee will be paid in subsequent months until all such losses are recovered. Cumulative trading losses are adjusted on a pro-rata basis for the net amount of each months subscriptions and redemptions. 4. Financial Instruments The Partnerships trade futures and forward contracts and options on futures contracts and on physical commodities, in interest rates, stock indicies, com- modities, currencies, precious and industrial metals and energy products. 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 Morgan Stanley Dean Witter Spectrum Series Notes to Financial Statements--(Continued) perform under the terms of the contracts. There are numerous factors which may significantly influence the market value of these contracts, including inter- est rate volatility. In June 1998, the Financial Accounting Standards Board ("FASB") issued State- ment of Financial Accounting Standard ("SFAS") No. 133, "Accounting for Deriv- ative Instruments and Hedging Activities" effective for fiscal years beginning after June 15, 1999. In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities--Deferral of the Effective Date of SFAS No. 133," which defers the required implementation of SFAS No. 133 until fiscal years beginning after June 15, 2000. However, the Partnership had previously elected to adopt the provisions of SFAS No. 133 beginning with the fiscal year ended December 31, 1998. SFAS No. 133 superscedes SFAS No. 119 and No. 105, which required the disclosure of average aggregate fair values and contract/notional values, respectively, of derivative financial instru- ments for an entity which carries its assets at fair value. The application of SFAS No. 133 does not have a significant effect on the Partnerships' financial statements. The net unrealized gains on open contracts are reported as a component of "Eq- uity in futures interests trading accounts" on the statements of financial condition and totaled at December 31, 1999 and 1998, respectively, $810,114 and $1,967,187 for Spectrum Global Balanced, $6,887,064 and $8,435,054 for Spectrum Select, $9,563,813 and $5,299,335 for Spectrum Strategic, and $18,036,296 and $18,909,268 for Spectrum Technical. For Spectrum Global Balanced, of the $810,114 net unrealized gain on open con- tracts at December 31, 1999, $669,640 related to exchange-traded futures con- tracts and $140,474 related to off-exchange-traded forward currency contracts. Of the $1,967,187 net unrealized gain on open contracts at December 31, 1998, $2,044,752 related to exchange-traded futures contracts and $(77,565) related to off-exchange-traded forward currency contracts. For Spectrum Select, of the $6,887,064 net unrealized gain on open contracts at December 31, 1999, $6,935,040 related to exchange-traded futures and futures-styled options contracts and $(47,976) related to off-exchange-traded forward currency contracts. Of the $8,435,054 net unrealized gain on open con- tracts at December 31, 1998, $8,982,276 related to exchange-traded futures contracts and $(547,222) related to off-exchange-traded forward currency con- tracts. For Spectrum Strategic, the $9,563,813 net unrealized gain on open contracts at December 31, 1999 and the $5,299,335 net unrealized gain on open contracts at December 31, 1998 all related to exchange-traded futures and futures-styled options contracts. Morgan Stanley Dean Witter Spectrum Series Notes to Financial Statements--(Continued) For Spectrum Technical, of the $18,036,296 net unrealized gain on open contracts at December 31, 1999, $17,006,044 related to exchange-traded futures and future-styled options contracts and $1,030,252 related to off-exchange- traded forward currency contracts. Of the $18,909,268 net unrealized gain on open contracts at 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 contracts and off-exchange-traded forward currency contracts held by the Partnerships at December 1999 and 1998 mature as follows:
1999 1998 ------------- ------------- Spectrum Global Balanced Exchange-Traded Contracts June 2000 March 1999 Off-Exchange-Traded Forward Currency Contracts March 2000 March 1999 Spectrum Select Exchange-Traded Contracts December 2000 December 1999 Off-Exchange-Traded Forward Currency Contracts March 2000 March 1999 Spectrum Strategic Exchange-Traded Contracts December 2001 March 2000 Spectrum Technical Exchange-Traded Contracts December 2000 December 1999 Off-Exchange-Traded Forward Currency Contracts March 2000 March 1999
The Partnerships have credit risk associated with counterparty nonperformance. The credit risk associated with the instruments in which the Partnerships are involved is limited to the amounts reflected in the Partnerships' statements of financial condition. The Partnerships also have credit risk because DWR and Carr act as the futures commission merchants or the counterparties, with respect to most of the Part- nerships' 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 each Partnership's exchange-traded futures and futures-styled options contracts, are required, pursuant to regulations of the Commodity Futures Trading Commis- sion to segregate from their own assets, and for the sole benefit of their commodity customers, all funds held by 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 at December 31, 1999 and 1998 respec- tively, $57,574,561 and $45,065,113 for Spectrum Global Balanced, $214,186,052 and $196,601,695 for Spectrum Se- Morgan Stanley Dean Witter Spectrum Series Notes to Financial Statements--(Continued) lect, $107,372,141 and $69,218,389 for Spectrum Strategic and $268,449,799 and $254,651,022 for Spectrum Technical. With respect to the Partnerships' off-ex- change-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 Partnerships are at risk to the ability of Carr, the sole counterparty on all of such contracts, to perform. Each Partnership has a netting agreement with Carr. These agree- ments, which seek to reduce both the Partnerships' and Carr's exposure on off- exchange-traded forward currency contracts, should materially decrease the Partnerships' credit risk in the event of Carr's bankruptcy or insolvency. Carr's parent, Credit Agricole Indosuez, has guaranteed to the Partnerships payment of the net liquidating value of the transactions in the Partnerships' accounts with Carr (including foreign currency contracts). 5. Legal Matters The class actions first filed in 1996 in California and in New York State courts were each dismissed in 1999. On September 6, 10, and 20, 1996, and on March 13, 1997, purported class actions were filed in the Superior Court of the State of California, County of Los Angeles, on behalf of all purchasers of interests in limited partnership commodity pools sold by DWR. Named defendants include DWR, Demeter, Dean Witter Futures & Currency Management Inc., MSDW, Spectrum Select (under its original name, "Dean Witter Select Futures Fund L.P.") and certain other limited partnership commodity pools of which Demeter is the general partner (all such parties referred to hereafter as the "Morgan Stanley Dean Witter Parties") and certain trading advisors to those pools. On June 16, 1997, the plaintiffs in the above actions filed a consolidated amended complaint, alleging, among other things, that the defendants committed fraud, deceit, negligent misrepresentation, various violations of the Califor- nia Corporations Code, intentional and negligent breach of fiduciary duty, fraudulent and unfair business practices, unjust enrichment, and conversion in the sale and operation of the various limited partnership commodity pools. The complaints seek unspecified amounts of compensatory and punitive damages and other relief. The court entered an order denying class certification on August 24, 1999. On September 24, 1999, the court entered an order dismissing the case without prejudice on consent. Similar purported class actions were also filed on September 18 and 20, 1996, in the Supreme Court of the State of New York, New York County, and on November 14, 1996 in the Superior Court of the State of Delaware, New Castle County, against the Morgan Stanley Dean Witter Spectrum Series Notes to Financial Statements--(Concluded) Morgan Stanley Dean Witter Parties and certain trading advisors on behalf of all purchasers of interests in various limited partnership commodity pools, including Spectrum Select, sold by DWR. A consolidated and amended complaint in the action pending in the Supreme Court of the State of New York was filed on August 13, 1997, alleging that the defendants committed fraud, breach of fiduciary duty, and negligent misrepresentation in the sale and operation of the various limited partnership commodity pools. The complaints seek unspeci- fied amounts of compensatory and punitive damages and other relief. The New York Supreme Court dismissed the New York action in November 1998, but granted plaintiffs leave to file an amended complaint, which they did in early Decem- ber 1998. The defendants filed a motion to dismiss the amended complaint with prejudice on February 1, 1999. By decision dated December 21, 1999, the New York Supreme Court dismissed the case with prejudice. In addition, on December 16, 1997, upon motion of the plaintiffs, the action pending in the Superior Court of the State of Delaware was voluntarily dismissed without prejudice. 6. Subsequent Event On March 3, 2000, the plaintiffs in the New York action referred to in Note 5 filed an appeal of the order dismissing the consolidated complaint. MORGAN STANLEY DEAN WITTER & CO. Two World Trade Center 62nd Floor New York, NY 10048 Presorted First Class Mail U.S. Postage Paid Brooklyn, NY Permit No. 148 EX-27 2
5 The schedule contains summary financial information extracted from Morgan Stanley Dean Witter Spectrum Select L.P. and is qualified in its entirety by reference to such financial statements 12-MOS DEC-31-1999 DEC-31-1999 207,251,012 0 4,452,356 0 0 0 0 0 219,366,812 0 0 0 0 0 0 219,366,812 0 4,778,950 0 0 21,473,364 0 0 (16,694,414) 0 (16,694,414) 0 0 0 (16,694,414) 0 0 Receivables include interest receivable of $722,305 and subscriptions receivable of $3,730,051. In addition to cash and receivables, total assets include net unrealized gain on open contracts of $6,887,064, and net option premiums of $776,380. Liabilities include redemptions payable of $3,764,242, accrued brokerage fees of $1,270,975 and accrued management fees of $525,921. Total revenue includes realized trading revenue of $(1,351,849), net change in unrealized of $(1,547,990) and interest income of $7,678,789.
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