-----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, J04ksKcqeRL6UQY9Px145i6RH9H1juG28Y9WplbohiK1pNwUOY2huNK3yHh+BGGf LK3fhx1ikHcM64jSdv/5ng== 0000873799-01-500005.txt : 20020410 0000873799-01-500005.hdr.sgml : 20020410 ACCESSION NUMBER: 0000873799-01-500005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MORGAN STANLEY 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-19511 FILM NUMBER: 1786898 BUSINESS ADDRESS: STREET 1: HARBORSIDE FINANCIAL CENTER PLAZA TWO CITY: JERSEY CITY STATE: NJ ZIP: 07311 BUSINESS PHONE: 2018764647 FORMER COMPANY: FORMER CONFORMED NAME: DEAN WITTER SPECTRUM SELECT LP DATE OF NAME CHANGE: 19980507 FORMER COMPANY: FORMER CONFORMED NAME: MORGAN STANLEY DEAN WITTER SPECTRUM SELECT LP DATE OF NAME CHANGE: 19990412 FORMER COMPANY: FORMER CONFORMED NAME: WITTER DEAN SELECT FUTURES FUND LP DATE OF NAME CHANGE: 19930328 10-Q 1 sell.txt SELECT UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended September 30, 2001 or [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ________________to_____________ Commission File Number 0-19511 MORGAN STANLEY SPECTRUM SELECT L.P. (Exact name of registrant as specified in its charter) Delaware 13-3619290 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) Demeter Management Corporation c/o Morgan Stanley Trust Company Attention: Managed Futures, 7th Fl., Harborside Financial Center Plaza Two Jersey City, NJ 07311-3977 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (201) 876-4647 Morgan Stanley Dean Witter Spectrum Select L.P. Two World Trade Center, 62nd Fl., New York, NY 10048 (Former name, former address, and former fiscal year, if changed since last report) Indicate by check-mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No MORGAN STANLEY DEAN WITTER SPECTRUM SELECT L.P. INDEX TO QUARTERLY REPORT ON FORM 10-Q September 30, 2001
PART I. FINANCIAL INFORMATION Item 1. Financial Statements Statements of Financial Condition as of September 30, 2001 (Unaudited) and December 31, 2000.....2 Statements of Operations for the Quarters Ended September 30, 2001 and 2000 (Unaudited)..................3 Statements of Operations for the Nine Months Ended September 30, 2001 and 2000 (Unaudited)................. 4 Statements of Changes in Partners' Capital for the Nine Months Ended September 30, 2001 and 2000 (Unaudited)............................................. 5 Statements of Cash Flows for the Nine Months Ended September 30, 2001 and 2000 (Unaudited)..................6 Notes to Financial Statements (Unaudited).............7-12 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.....13-22 Item 3. Quantitative and Qualitative Disclosures about Market Risk.......................................22-35 Part II. OTHER INFORMATION Item 1. Legal Proceedings....................................36 Item 2. Changes in Securities and Use of Proceeds........ 36-38 Item 6. Exhibits and Reports on Form 8-K..................39-41
PART I. FINANCIAL INFORMATION Item 1. Financial Statements MORGAN STANLEY DEAN WITTER SPECTRUM SELECT L.P. STATEMENTS OF FINANCIAL CONDITION
September 30, December 31, 2001 2000 $ $ (Unaudited) ASSETS Equity in futures interests trading accounts: Cash 232,798,306 196,555,362 Net unrealized gain on open contracts (MS & Co.) 18,247,704 26,063,382 Net unrealized gain (loss) on open contracts (MSIL) 3,561,006 (511,085) Total net unrealized gain on open contracts 21,808,710 25,552,297 Total Trading Equity 254,607,016 222,107,659 Subscriptions receivable 2,425,459 1,583,941 Interest receivable (Morgan Stanley DW) 518,978 889,954 Total Assets 257,551,453 224,581,554 LIABILITIES AND PARTNERS' CAPITAL Liabilities Redemptions payable 1,704,911 2,110,529 Accrued brokerage fees (Morgan Stanley DW) 1,429,151 1,231,479 Accrued incentive fees 729,435 - Accrued management fees 591,373 509,577 Total Liabilities 4,454,870 3,851,585 Partners' Capital Limited Partners (9,646,550.050 and 9,255,010.627 Units, respectively) 250,292,394 218,182,118 General Partner (108,076.600 Units) 2,804,189 2,547,851 Total Partners' Capital 253,096,583 220,729,969 Total Liabilities and Partners' Capital 257,551,453 224,581,554 NET ASSET VALUE PER UNIT 25.95 23.57 The accompanying notes are an integral part of these financial statements.
MORGAN STANLEY DEAN WITTER SPECTRUM SELECT L.P. STATEMENTS OF OPERATIONS (Unaudited)
For the Quarters Ended September 30, 2001 2000 $ $ REVENUES Trading profit (loss): Realized 12,195,344 4,510,744 Net change in unrealized 14,199,540 (1,437,816) Total Trading Results 26,394,884 3,072,928 Interest income (Morgan Stanley DW) 1,627,348 2,389,882 Total 28,022,232 5,462,810 EXPENSES Brokerage fees (Morgan Stanley DW) 4,200,339 3,501,652 Management fees 1,738,070 1,448,958 Incentive fees 729,435 - Total 6,667,844 4,950,610 NET INCOME 21,354,388 512,200 NET INCOME ALLOCATION Limited Partners 21,116,838 506,560 General Partner 237,550 5,640 NET INCOME PER UNIT Limited Partners 2.20 0.06 General Partner 2.20 0.06 The accompanying notes are an integral part of these financial statements.
MORGAN STANLEY DEAN WITTER SPECTRUM SELECT L.P. STATEMENTS OF OPERATIONS (Unaudited)
For the Nine Months Ended September 30, 2001 2000 $ $ REVENUES Trading profit (loss): Realized 39,633,323 1,133,230 Net change in unrealized (3,743,587) (8,830,498) Total Trading Results 35,889,736 (7,697,268) Interest income (Morgan Stanley DW) 6,120,690 7,045,029 Total 42,010,426 (652,239) EXPENSES Brokerage fees (Morgan Stanley DW) 12,579,812 11,155,768 Management fees 5,205,437 4,616,177 Incentive fees 1,435,897 - Total 19,221,146 15,771,945 NET INCOME (LOSS) 22,789,280 (16,424,184) NET INCOME (LOSS) ALLOCATION Limited Partners 22,532,942 (16,196,964) General Partner 256,338 (227,220) NET INCOME (LOSS) PER UNIT Limited Partners 2.38 (1.69) General Partner 2.38 (1.69) The accompanying notes are an integral part of these financial statements.
MORGAN STANLEY DEAN WITTER SPECTRUM SELECT L.P. STATEMENTS OF CHANGES IN PARTNERS' CAPITAL For the Nine Months Ended September 30, 2001 and 2000 (Unaudited)
Units of Partnership Limited General Interest Partners Partner Total $ $ $ Partners' Capital, December 31, 1999 9,716,887.432 210,877,519 2,928,155 213,805,674 Offering of Units 1,125,231.664 23,885,643 - 23,885,643 Net loss - (16,196,964) (227,220) (16,424,184) Redemptions (1,392,287.180) (28,865,465) (506,250) (29,371,715) Partners' Capital, September 30, 2000 9,449,831.916 189,700,733 2,194,685 191,895,418 Partners' Capital, December 31, 2000 9,363,087.227 218,182,118 2,547,851 220,729,969 Offering of Units 1,096,471.583 26,846,569 - 26,846,569 Net income - 22,532,942 256,338 22,789,280 Redemptions (704,932.160) (17,269,235) - (17,269,235) Partners' Capital, September 30, 2001 9,754,626.650 250,292,394 2,804,189 253,096,583 The accompanying notes are an integral part of these financial statements.
MORGAN STANLEY DEAN WITTER SPECTRUM SELECT L.P. STATEMENTS OF CASH FLOWS (Unaudited)
For the Nine Months Ended September 30, 2001 2000 $ $ CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) 22,789,280 (16,424,184) Noncash item included in net income (loss): Net change in unrealized 3,743,587 8,830,498 (Increase) decrease in operating assets: Interest receivable (Morgan Stanley DW) 370,976 (89,854) Net option premiums - 776,380 Increase (decrease) in operating liabilities: Accrued brokerage fees (Morgan Stanley DW) 197,672 (81,396) Accrued incentive fees 729,435 - Accrued management fees 81,796 (33,682) Net cash provided by (used for) operating activities 27,912,746 (7,022,238) CASH FLOWS FROM FINANCING ACTIVITIES Offering of Units 26,846,569 23,885,643 (Increase) decrease in subscriptions receivable (841,518) 2,182,000 Decrease in redemptions payable (405,618) (866,994) Redemptions of Units (17,269,235) (29,371,715) Net cash provided by (used for) financing activities 8,330,198 (4,171,066) Net increase (decrease) in cash 36,242,944 (11,193,304) Balance at beginning of period 196,555,362 207,251,012 Balance at end of period 232,798,306 196,057,708 The accompanying notes are an integral part of these financial statements.
MORGAN STANLEY DEAN WITTER SPECTRUM SELECT L.P. NOTES TO FINANCIAL STATEMENTS September 30, 2001 (UNAUDITED) The unaudited financial statements contained herein include, in the opinion of management, all adjustments necessary for a fair presentation of the results of operations and financial condition of Morgan Stanley Dean Witter Spectrum Select L.P. (the "Partnership"). The financial statements and condensed notes herein should be read in conjunction with the Partnership's December 31, 2000 Annual Report on Form 10-K. 1. Organization Morgan Stanley Dean Witter Spectrum Select L.P. is a Delaware limited partnership organized to engage primarily in the speculative trading of futures contracts, options on futures contracts, and forward contracts on physical commodities and other commodity interests, including, but not limited to, foreign currencies, financial instruments, metals, energy and agricultural products. The Partnership is one of the Morgan Stanley Dean Witter Spectrum Series of funds, comprised of the Partnership, Morgan Stanley Dean Witter Spectrum Commodity L.P., Morgan Stanley Dean Witter Spectrum Currency L.P., 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. MORGAN STANLEY DEAN WITTER SPECTRUM SELECT L.P. NOTES TO FINANCIAL STATEMENTS (CONTINUED) The general partner for the Partnership is Demeter Management Corporation ("Demeter"). The non-clearing commodity broker is Morgan Stanley DW Inc. ("Morgan Stanley DW"). The clearing commodity brokers are Morgan Stanley & Co., Inc. ("MS & Co.") and Morgan Stanley & Co. International Limited ("MSIL"). Demeter, Morgan Stanley DW, MS & Co. and MSIL are wholly-owned subsidiaries of Morgan Stanley Dean Witter & Co. The trading advisors to the Partnership are EMC Capital Management, Inc., Rabar Market Research, Inc., Sunrise Capital Management, Inc., and Northfield Trading L.P. (collectively, the "Trading Advisors"). 2. Related Party Transactions The Partnership's cash is on deposit with Morgan Stanley DW, MS & Co. and MSIL in futures, forwards and options trading accounts to meet margin requirements as needed. Morgan Stanley DW pays interest on these funds based on a prevailing rate on U.S. Treasury bills. The Partnership pays brokerage fees to Morgan Stanley DW. 3. Financial Instruments The Partnership trades futures contracts, options on futures contracts, and forward contracts on physical commodities and other commodity interests, including but not limited to foreign MORGAN STANLEY DEAN WITTER SPECTRUM SELECT L.P. NOTES TO FINANCIAL STATEMENTS (CONTINUED) currencies, financial instruments, metals, energy and agricultural 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 perform under the terms of the contracts. There are numerous factors which may significantly influence the market value of these contracts, including interest rate volatility. The Partnership accounts for its derivative investments in accordance with the provisions of Statement of Financial Accounting Standard No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 defines a derivative as a financial instrument or other contract that has all three of the following characteristics: 1) One or more underlying notional amounts or payment provisions; 2) Requires no initial net investment or a smaller initial net investment than would be required relative to changes in market factors; 3) Terms require or permit net settlement. MORGAN STANLEY DEAN WITTER SPECTRUM SELECT L.P. NOTES TO FINANCIAL STATEMENTS (CONTINUED) Generally derivatives include futures, forward, swaps or option contracts and other financial instruments with similar characteristics such as caps, floors and collars. The net unrealized gains (losses) on open contracts, reported as a component of "Equity in futures interests trading accounts" on the statements of financial condition, and their longest contract maturities were as follows: Net Unrealized Gains (Losses) on Open Contracts Longest Maturities Exchange- Off-Exchange- Exchange- Off-Exchange- Traded Traded Total Traded Traded Date Contracts Contracts Contracts Contracts Contracts $ $ $ Sept. 30, 2001 22,587,897 (779,187) 21,808,710 Sept. 2002 Dec. 2001 Dec. 31, 2000 23,901,575 1,650,722 25,552,297 Dec. 2001 March 2001 The Partnership has credit risk associated with counterparty non- performance. The credit risk associated with the instruments in which the Partnership is involved is limited to the amounts reflected in the Partnership's statements of financial condition. MORGAN STANLEY DEAN WITTER SPECTRUM SELECT L.P. NOTES TO FINANCIAL STATEMENTS (CONTINUED) The Partnership also has credit risk because Morgan Stanley DW, MS & Co. and MSIL act as the futures commission merchants or the counterparties with respect to most of the Partnership's assets. Exchange-traded futures and futures-styled options contracts are marked to market on a daily basis, with variations in value settled on a daily basis. Each of Morgan Stanley DW, MS & Co. and MSIL, as a futures commission merchant for the Partnership's exchange-traded futures and futures-styled options contracts, are required, pursuant to regulations of the Commodity Futures Trading Commission ("CFTC"), to segregate from their own assets, and for the sole benefit of their commodity customers, all funds held by them with respect to exchange-traded futures and futures-styled options contracts, including an amount equal to the net unrealized gains (losses) on all open futures and futures-styled options contracts, which funds, in the aggregate, totaled $255,386,203 and $220,456,937 at September 30, 2001 and December 31, 2000, respectively. With respect to the Partnership's off-exchange- traded forward currency contracts, there are no daily settlements of variations in value nor is there any requirement that an amount equal to the net unrealized gains (losses) on open forward contracts be segregated. With respect to those off-exchange- traded forward currency contracts, the Partnership is at risk to the ability of MS & Co., the sole counterparty on all of such MORGAN STANLEY DEAN WITTER SPECTRUM SELECT L.P. NOTES TO FINANCIAL STATEMENTS (CONCLUDED) contracts, to perform. The Partnership has a netting agreement with MS & Co. This agreement, which seeks to reduce both the Partnership's and MS & Co.'s exposure on off-exchange-traded forward currency contracts, should materially decrease the Partnership's credit risk in the event of MS & Co.'s bankruptcy or insolvency. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity - The Partnership deposits its assets with Morgan Stanley DW as non-clearing broker and MS & Co. and MSIL as clearing brokers in separate futures, forwards and options 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 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, 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 of limited partnership interest ("Unit(s)") in the future will affect the amount of funds available for investment in futures, forwards and options in subsequent periods. It is not possible to estimate the amount and therefore the impact of future redemptions of Units. Results of Operations General. The Partnership's results depend on its Trading Advisors and the ability of each Trading Advisor's 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 and nine month periods ended September 30, 2001 and 2000, 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. For the Quarter and Nine Months Ended September 30, 2001 For the quarter ended September 30, 2001, the Partnership recorded total trading revenues, including interest income, of $28,022,232 and posted an increase in net asset value per Unit. The most significant gains of approximately 6.5% were recorded throughout the majority of the quarter in the global stock index futures markets from short positions in DAX, Hang Seng, Nikkei and S&P 500 Index futures as the trend in equity prices continued sharply lower amid worries regarding global economic uncertainty. In the global interest rate futures markets, profits of approximately 6.2% were recorded throughout the majority of the quarter from long positions in U.S. and European interest rate futures as prices continued trending higher amid continued concerns for the sluggish global economy, interest rate cuts by the U.S. and European Central Banks and as investors sought a safe haven from declining stock prices. In the metals markets, gains of approximately 2.8% were recorded primarily during July and September from short positions in copper and aluminum futures as prices declined due to higher inventories and weak demand. These gains were partially offset by losses of approximately 2.9% recorded primarily during August in the currency markets from short positions in the Japanese yen as the value of the yen strengthened versus the U.S. dollar due to U.S. economic weakness. During late September, losses were recorded from long positions in the Japanese yen as its value weakened and the U.S. dollar strengthened amid newly released optimistic economic data and the Bank of Japan's surprise interventions. In the energy markets, losses of approximately 1.2% were experienced primarily during August from short positions in crude oil futures as prices rose amid declining inventories and growing tensions in the Middle East. During September, losses were recorded from long futures positions in crude oil and its refined products as the previous upward trend in oil prices reversed lower due to near- term concerns over the effects of a global economic slowdown on oil demand. Total expenses for the three months ended September 30, 2001 were $6,667,844, resulting in net income of $21,354,388. The net asset value of a Unit increased from $23.75 at June 30, 2001 to $25.95 at September 30, 2001. For the nine months ended September 30, 2001, the Partnership recorded total trading revenues, including interest income, of $42,010,426 and posted an increase in net asset value per Unit. The most significant gains of approximately 10.1% were recorded in the global interest rate futures markets primarily during August and September from long positions in short and intermediate term U.S. interest rate futures as prices continued trending higher following interest rate cuts by the U.S. and European central banks and as investors sought a safe haven from the decline in stock prices. Additional gains were recorded throughout the majority of the first quarter from long positions in Japanese government bond futures as prices moved higher on concerns regarding that country's economy. In the global stock index futures markets, profits of approximately 6.2% were recorded throughout a majority of the third quarter from short positions in DAX, Hang Seng, Nikkei and S&P 500 Index futures as the trend in equity prices continued sharply lower amid worries regarding global economic uncertainty. In the metals markets, gains of approximately 3.5% were recorded primarily during July and September from short positions in copper and aluminum futures as prices declined due to higher inventories and weak demand. These gains were partially offset by losses of approximately 2.3% recorded throughout the first nine months of the year from volatile price movements in crude oil futures and its related products as a result of a continually changing outlook for supply, production and demand. In the currency markets, losses of approximately 1.0% were recorded throughout the first nine months of the year from transactions involving the British pound, New Zealand and Australian dollar. Total expenses for the nine months ended September 30, 2001 were $19,221,146, resulting in net income of $22,789,280. The net asset value of a Unit increased from $23.57 at December 31, 2000 to $25.95 at September 30, 2001. For the Quarter and Nine Months Ended September 30, 2000 For the quarter ended September 30, 2000, the Partnership recorded total trading revenues, including interest income, of $5,462,810 and posted an increase in net asset value per Unit. The most significant gains of approximately 4.6% were recorded in the currency markets primarily during August and September from short positions in the New Zealand dollar as its value continued to fall to a historic low versus the U.S. dollar. Additional gains were recorded during August from short positions in the Swiss franc as its value weakened versus the U.S. dollar after the European Central Bank raised its key interest rates by 25 basis points, as expected. In the metals markets, gains of approximately 0.7% were recorded primarily during mid September from long positions in copper futures as prices rose higher due to a rise in COMEX copper stocks. Additional profits were recorded during July from short gold futures positions as gold prices fell after the Bank of England announced the results of its gold auction, which had concluded at a lower price than most dealers expected. In the agricultural markets, gains of approximately 0.2% were recorded primarily during late August from long positions in soybean meal futures as prices surged on expectations that the searing heat in the U.S. Delta will trim this year's production. These gains were partially offset by losses of approximately 1.8% recorded in the global stock index futures markets primarily during the first half of September from long positions in U.S. stock index futures as prices declined due to jitters in the technology sector and a worrisome spike in oil prices. In the energy markets, losses of approximately 1.5% were incurred primarily during July and September from long futures positions in crude oil as prices decreased amid growing conviction that Saudi Arabia will follow through with a pledge to boost production and after President Clinton ordered the release of 30 million barrels of oil in the U.S.'s emergency Strategic Petroleum Reserve. In the global interest rate futures markets, losses of approximately 0.8% were experienced primarily during August from long positions in Japanese government bond futures as prices were weighed down by growing hopes for higher interest rates and economic expansion in Japan. Additional downward price pressure occurred following the Bank of Japan's decision to raise interest rates, thus ending their zero-interest rate policy. During September, additional losses were recorded from short positions in Japanese government bond futures positions as prices surged and long-term interest rates dropped as investors sought refuge from falls in U.S. and Japanese stock prices. Offsetting gains were recorded during September from long positions in short-term U.S. interest rate futures as prices in these markets increased. In soft commodities, small losses of approximately 0.1% were recorded primarily during July from short positions in cotton futures as prices increased. Offsetting gains were recorded during July from long sugar futures positions as prices increased on forecasts that the world would shrink with smaller crops in 2000-2001. Total expenses for the three months ended September 30, 2000 were $4,950,610, resulting in net income of $512,200. The net asset value of a Unit increased from $20.25 at June 30, 2000 to $20.31 at September 30, 2000. For the nine months ended September 30, 2000, the Partnership recorded total trading losses, net of interest income, of $652,239 and posted a decrease in net asset value per Unit. The most significant losses of approximately 5.4% were recorded in the global interest rate futures markets primarily during late April and late September from long positions in U.S. interest rate futures as prices declined amid fears of higher interest rates and increasing oil prices. In the global stock index futures markets, losses of approximately 5.2% were incurred primarily during mid April from long positions in U.S. stock indices as domestic equity prices declined following the release of an unexpected jump in the Consumer Price Index. During the first half of September, additional losses were recorded from long positions in U.S. stock index futures as prices declined due to jitters in the technology sector and a worrisome spike in oil prices. In the metals markets, losses of approximately 2.3% were recorded primarily during June from short silver futures positions as prices increased on the heels of the increase in gold prices, in reaction to the U.S. dollar's weakness and the Federal Open Market Committee's decision to leave interest rates unchanged. In the agricultural markets, losses of approximately 0.9% were recorded primarily during April and May from long corn and soybean futures positions as prices moved lower due to forecasts for heavy rain in the U.S. growing regions. These losses were partially offset by gains of approximately 5.6% recorded in the currency markets primarily during January, March, April and August from short positions in the euro and the Swiss franc as the values of these currencies weakened versus the U.S. dollar due to skepticism about Europe's economic outlook and due to the European Central Bank's passive stance towards its currency and increasing concern that the European Central Bank should be more aggressive in combating inflation. In the energy markets, gains of approximately 3.9% were recorded primarily during May, August and September from long positions in natural gas futures as prices trended upward, amid supply and storage concerns. Additional gains were recorded primarily during January, February and August from long futures positions in crude oil and its refined products as oil prices increased on concerns about future output levels from the world's leading producer countries amid dwindling stockpiles and increasing demand. In the soft commodities markets, gains of approximately 0.2% were recorded primarily throughout the second quarter and during July from long positions in sugar futures as sugar prices trended higher due to strong demand and declining production from Brazil. Total expenses for the nine months ended September 30, 2000 were $15,771,945, resulting in a net loss of $16,424,184. The net asset value of a Unit decreased from $22.00 at December 31, 1999 to $20.31 at September 30, 2000. Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Introduction The Partnership is a commodity pool engaged primarily in the speculative trading of futures, forwards and options. 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, forwards and options traded by the Partnership involve varying degrees of related 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 experience 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 its cash flow. Profits and losses on open positions of exchange- traded futures, forwards and options 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 table indicates the VaR associated with the Partnership's open positions as a percentage of total net assets by primary market risk category at September 30, 2001 and 2000. At September 30, 2001 and 2000, the Partnership's total capitalization was approximately $253 million and $192 million, respectively. Primary Market September 30, 2001 September 30, 2000 Risk Category Value at Risk Value at Risk Interest Rate (1.46)% (1.18)% Currency (0.54) (1.16) Equity (0.32) (0.24) Commodity (0.65) (1.35) Aggregate Value at Risk (1.65)% (2.03)% 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 September 30, 2001 and 2000 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, forwards and options, 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 quarter-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 October 1, 2000 through September 30, 2001. Primary Market Risk Category High Low Average Interest Rate (2.33)% (0.76)% (1.50)% Currency (1.98) (0.54) (0.94) Equity (0.55) (0.32) (0.42) Commodity (0.73) (0.59) (0.66) Aggregate Value at Risk (2.65)% (1.65)% (2.07)% 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, give 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 caused by 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 September 30, 2001 and for the end of the four quarterly reporting periods from October 1, 2000 through September 30, 2001. 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 once 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. At September 30, 2001, the Partnership's cash balance at Morgan Stanley DW was approximately 91% of its total net asset value. 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, in relation to the Partnership's net assets. 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 expro- priations, 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 September 30, 2001, by market sector. It may be anticipated, however, that these market exposures will vary materially over time. Interest Rate. The primary market exposure of the Partnership at September 30, 2001 was to the global interest rate complex. The Partnership's exposure in the interest rate market complex was primarily spread across the U.S., European, Japanese and Australian interest rate sectors. Interest rate movements directly affect the price of the sovereign bond futures positions held by the Partnership and indirectly affect the value of its stock index and currency positions. Interest rate movements in one country as well as relative interest rate movements between countries materially impact the Partnership's profitability. The Partnership's primary interest rate exposure is generally to interest rate fluctuations in the United States and the other G-7 countries. The G-7 countries consist 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 speculative futures positions held by the Partnership may range from short to long-term instruments. Consequently, changes in short, medium or long-term interest rates may have an effect on the Partnership. Currency. The second largest market exposure at September 30, 2001 was to 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. At September 30, 2001, the Partnership's major exposures were to Japanese yen currency crosses and outright U.S. dollar positions. Outright positions consist of the U.S. dollar vs. other currencies. These other currencies include major and minor currencies. Demeter does not anticipate that the risk profile of the Partnership's currency sector will change significantly in the future. The currency trading VaR figure includes foreign margin amounts converted into U.S. dollars with an incremental adjustment to reflect the exchange rate risk inherent to the dollar-based Partnership in expressing VaR in a functional currency other than dollars. Equity. The primary equity exposure at September 30, 2001 was to equity price risk in the G-7 countries. The stock index futures traded by the Partnership are by law limited to futures on broadly-based indices. At September 30, 2001, the Partnership's primary exposures were to the S&P 500 (U.S.), Nikkei (Japan), Hang Seng (China) and DAX (Germany) 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. Commodity. Metals. The Partnership's metals exposure at September 30, 2001 was to fluctuations in the price of precious metals, such as gold and silver, and base metals, such as aluminum, copper, nickel, zinc and tin. Economic forces, supply and demand inequalities, geopolitical factors and market expectations influence price movement in these markets. The Trading Advisors have, from time to time, taken positions when market opportunities develop. Demeter anticipates that the Partnership will continue to be exposed to the precious and base metals markets. Energy. At September 30, 2001, the Partnership's energy exposure was shared primarily by futures contracts in crude oil and its related products, and natural gas. Price movements in these markets result from political developments in the Middle East, weather patterns and other economic fundamentals. It is possible that volatility will remain high. Significant profits and losses, which have been experienced in the past, are expected to continue to be experienced in these markets. Natural gas has exhibited volatility in prices resulting from weather patterns and supply and demand factors and may continue in this choppy pattern. Soft Commodities and Agriculturals. At September 30, 2001, the Partnership had exposure to the markets that comprise these sectors. Most of the exposure was to sugar, coffee, cocoa and cotton markets. Supply and demand inequalities, severe weather disruption and market expectations affect price movements in these markets. Qualitative Disclosures Regarding Non-Trading Risk Exposure The following was the only non-trading risk exposure of the Partnership at September 30, 2001: Foreign Currency Balances. The Partnership's primary foreign currency balances at September 30, 2001 were in Hong Kong dollars, euros, Australian dollars and Swiss francs. The Partnership controls the non-trading risk of these balances by regularly converting them back into U.S. dollars upon liquidation of their respective positions. 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. PART II. OTHER INFORMATION Item 1. LEGAL PROCEEDINGS Please refer to Legal Proceedings previously disclosed in the Partnership's Form 10-Q for the quarter ended June 30, 2001. Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS The Partnership initially registered 60,000 Units (prior to the 100 for one Unit conversion on April 30, 1998) pursuant to a Registration Statement on Form S-1, which became effective on May 17, 1991 (SEC File Number 33-39667), and 10,000 (pre-conversion) Units at a supplemental closing pursuant to a new Registration Statement on Form S-1, which became effective on August 23, 1991 (SEC File No. 33-42380). The offering commenced on May 17, 1991 and terminated as of August 31, 1991, with 60,853.334 Units sold. The aggregate price of the offering amount registered was $69,380,300, based upon the initial offering price of $1,000 per Unit and $938.03 per Unit at the supplemental closing (the initial closing and supplemental closing, hereinafter, the "Initial Offering"). The aggregate offering price of the Units sold during the Initial Offering was $60,268,482. The Partnership registered an additional 75,000 Units (pre- conversion) pursuant to a new Registration Statement of Form S-1, which became effective on August 31, 1993 (SEC File Number 33- 65072) (the "Second Offering"). The Second Offering commenced on August 31, 1993 and terminated as of September 30, 1993, with 74,408.337 Units sold. The aggregate price of the Second Offering amount registered was $102,744,000, based upon an initial offering price of $1,369.92. The aggregate price of the Units sold during the Second Offering was $116,617,866. The Partnership registered an additional 60,000 Units (pre-con- version) pursuant to another Registration Statement on Form S-1, which became effective on October 17, 1996 (SEC File Number 333- 1918), (the "Third Offering"). The Third Offering commenced on October 17, 1996 and terminated as of March 3, 1997, with 10,878.000 Units sold. The aggregate price of the Third Offering amount registered was $98,247,000, based upon an initial offering price of $1,637.45. The aggregate price of the Units sold during the Third Offering was $22,308,326. The Partnership registered an additional 1,500,000 Units pursuant to another Registration Statement on Form S-1, which became effective on May 11, 1998 (SEC File Number 333-47829). Commencing with the April 30, 1998 monthly closing, each previously outstanding Unit was converted into 100 Units. The Partnership registered an additional 5,000,000 Units pursuant to another Registration Statement on Form S-1, which became effective on January 21, 1999 (File No. 333-68773). The Partnership registered an additional 4,500,000 Units pursuant to another Registration Statement on Form S-1, which became effective on February 28, 2000 (SEC File Number 333-90467). The managing underwriter for the Partnership is Morgan Stanley DW. Units are being sold at monthly closings at a price equal to 100% of the net asset value of a Unit as of the last day of each month. Through September 30, 2001, 20,598,858.315 Units of the Partnership were sold, leaving 5,015,108.785 Units unsold. The aggregate price of the Units sold through September 30, 2001 is $336,509,603. 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 "Use of Proceeds" section of the Prospectus. Item 6. EXHIBITS AND REPORTS ON FORM 8-K (A) Exhibits 3.01 Form of Amended and Restated Limited Partnership Agreement of the Partnership, is incorporated by reference to Exhibit A of the Partnership's Prospectus, dated March 23, 2001, filed with the Securities and Exchange Commission pursuant to Rule 424(b)(3) under the Securities Act of 1933. 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. 333-47829) filed with the Securities and Exchange Commission on March 12, 1998. 3.03 Amended Certificate of Limited Partnership, dated April 28, 1998, is incorporated by reference to Exhibit 3.03 of the Partnership's Registration Statement on Form S-1 (File No. 333-68773) filed with the Securities and Exchange Commission on April 12, 1999. 3.04 Certificate of Amendment of Certificate of Limited Partnership, dated November 1, 2001, (changing its name from Morgan Stanley Dean Witter Spectrum Select L.P.) is incorporated by reference to the Partnership's Form 8-K (File No. 0-19511) filed with the Securities and Exchange Commission on November 1, 2001. 10.01 Amended and Restated Management Agreement, dated as of June 1, 1998, among the Partnership, Demeter, 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, 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, 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 Management Agreement, dated as of May 1, 2001, among the Partnership, Demeter, and Northfield Trading L.P., is incorporated by reference to Exhibit 10.01 of the Partnership's Form 8-K (File No. 0-19511) filed with the Securities and Exchange Commission on May 5, 2001. 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 March 23, 2001, filed with the Securities and Exchange Commission pursuant to Rule 424(b)(3) under the Securities Act of 1933. 10.10 Amended and Restated Escrow Agreement among the Partnership, Morgan Stanley Spectrum Strategic L.P., Morgan Stanley Spectrum Global Balanced L.P., Morgan Stanley Spectrum Technical L.P., Morgan Stanley Spectrum Currency L.P., Morgan Stanley Spectrum Commodity L.P., Demeter, Morgan Stanley DW Inc., and Chemical Bank is incorporated by reference to Exhibit 10.10 of the Partnership's Registration Statement on Form S-1 (File No. 333-90467) filed with the Securities and Exchange Commission on November 2, 2001. 10.11 Form of Subscription Agreement Update Form to be executed by purchasers of Units is incorporated by reference to Exhibit C of the Partnership's Prospectus, dated March 23, 2001, filed with the Securities and Exchange Commission pursuant to Rule 424(b)(3) under the Securities Act of 1933. 10.12 Amended and Restated Customer Agreement between the Partnership and Morgan Stanley DW Inc., dated as of October 16, 2000 is incorporated by reference to Exhibit 10.01 of the Partnership's Form 8-K (File No. 0-19511) filed with the Securities and Exchange Commission on November 1, 2001. 10.13 Commodity Futures Customer Agreement between Morgan Stanley & Co. Incorporated and the Partnership, and acknowledged and agreed to by Morgan Stanley DW Inc., dated as of June 6, 2000, is incorporated by reference to Exhibit 10.02 of the Partnership's Form 8-K (File No. 0- 19511) filed with the Securities and Exchange Commission on November 1, 2001. 10.14 Customer Agreement between the Partnership and Morgan Stanley & Co. International Limited, dated as of June 6, 2000, is incorporated by reference to Exhibit 10.04 of the Partnership's Form 8-K (File No. 0-19511) filed with the Securities and Exchange Commission on November 1, 2001. 10.15 Foreign Exchange and Options Master Agreement between Morgan Stanley & Co. Incorporated and the Partnership, dated as of April 30, 1999, is incorporated by reference to Exhibit 10.05 of the Partnership's Form 8-K (File No. 0-19511) filed with the Securities and Exchange Commission on November 1, 2001. 10.16 Management Agreement, dated June 1, 2001, among the Partnership, Demeter, and Northfield Trading L.P., is incorporated by reference to Exhibit 10.01 of the Partnership's Form 8-K (File No. 0-19511) filed with the Securities and Exchange Commission on November 1, 2001. 10.17 Securities Account Control Agreement among the Partnership, Morgan Stanley & Co. Incorporated, and Morgan Stanley DW Inc., dated as of May 1, 2000, is incorporated by reference to Exhibit 10.03 of the Partnership's Form 8-K (File No. 0-19511) filed with the Securities and Exchange Commission on November 1, 2001. (B) Reports on Form 8-K. - None. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Morgan Stanley Spectrum Select L.P. (Registrant) By: Demeter Management Corporation (General Partner) November 14, 2001 By: /s/ Raymond E. Koch Raymond E. Koch Chief Financial Officer The General Partner which signed the above is the only party authorized to act for the Registrant. The Registrant has no principal executive officer, principal financial officer, controller, or principal accounting officer and has no Board of Directors. -----END PRIVACY-ENHANCED MESSAGE-----