0000912057-01-537601.txt : 20011112
0000912057-01-537601.hdr.sgml : 20011112
ACCESSION NUMBER: 0000912057-01-537601
CONFORMED SUBMISSION TYPE: POS AM
PUBLIC DOCUMENT COUNT: 4
FILED AS OF DATE: 20011105
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: POS AM
SEC ACT: 1933 Act
SEC FILE NUMBER: 333-90467
FILM NUMBER: 1774573
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
POS AM
1
a2062333zposam.txt
POS AM
As filed with the Securities and Exchange Commission on November 2, 2001
Registration No. 333-90467
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
POST-EFFECTIVE AMENDMENT NO. 3 TO
FORM S-1
REGISTRATION STATEMENT
under
THE SECURITIES ACT OF 1933
---------------------
MORGAN STANLEY SPECTRUM SELECT L.P.
(Exact name of registrant as specified in charter document)
Delaware 6799 13-3619290
(State of Organization (Primary Standard Industrial (I.R.S. Employer
of Issuer) Classification Code Number) Identification Number)
---------------------
c/o Morgan Stanley Trust Company
Managed Futures Department, 7th Floor
Harborside Financial Center, Plaza Two
Jersey City, New Jersey 07311
(201) 876-4647
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
Robert E. Murray
DEMETER MANAGEMENT CORPORATION
c/o Morgan Stanley Trust Company
Managed Futures Department, 7th Floor
Harborside Financial Center, Plaza Two
Jersey City, New Jersey 07311
(201) 876-4647
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
---------------------
Copies of communications to:
Edwin L. Lyon, Esq. Isaac Finkle, Esq.
Cadwalader, Wickersham & Taft Morgan Stanley DW Inc.
1201 F Street, N.W., Suite 1100 1221 Avenue of the Americas, 27th Floor
Washington, D.C. 20004 New York, New York 10020
(202) 862-2200 (212) 762-7825
---------------------
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration Statement.
---------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
---------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
Pursuant to Rule 429 of the Securities Act of 1933, the prospectus which is
a part of this Registration Statement is a combined prospectus and includes all
the information currently required in a prospectus relating to the securities
covered by Registration Statement Nos. 333-47829 and 333-68773 previously filed
by Registrant. This Registration Statement, which relates to 5,015,108.785
unsold Units of Limited Partnership Interest of the Registrant as of
September 30, 2001, also constitutes a Post-Effective Amendment to Registration
Statement Nos. 333-47829 and 333-68773.
---------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
MORGAN STANLEY SPECTRUM SELECT L.P.
CROSS REFERENCE SHEET
Item No. Registration Item Location in Prospectus
-------- ---------------------------------------------- -----------------------------------------
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus....... Facing Page; Front Cover Pages.
2. Inside Front and Outside Back Cover Pages of
Prospectus................................... Inside Front Cover Page; Table of
Contents.
3. Summary Information, Risk Factors, and Ratio
of Earnings to Fixed Charges................. Summary; Risk Factors; Description of
Charges; Use of Proceeds; The General
Partner; The Commodity Brokers.
4. Use of Proceeds............................... Use of Proceeds.
5. Determination of Offering Price............... Plan of Distribution.
6. Dilution...................................... Not Applicable.
7. Selling Security Holders...................... Not Applicable.
8. Plan of Distribution.......................... Plan of Distribution.
9. Description of Securities to be Registered.... The Limited Partnership Agreements.
10. Interests of Named Experts and Counsel........ Not Applicable.
11. Information with Respect to the Registrant
(a) Description of Business.................. Summary; Risk Factors; Use of Proceeds;
The Trading Advisors; The Futures,
Options and Forwards Markets; The
Limited Partnership Agreements.
(b) Description of Property.................. Not Applicable.
(c) Legal Proceedings........................ Litigation; The Trading Advisors.
(d) Market Price of and Dividends on the
Registrant's Common Equity and Related
Stockholder Matters..................... Risk Factors.
(e) Financial Statements..................... Independent Auditors' Reports.
(f) Selected Financial Data.................. Selected Financial Data.
(g) Supplementary Financial Information...... Selected Financial Data.
(h) Management's Discussion and Analysis
of Financial Condition and Results of
Operations.............................. Management's Discussion and Analysis of
Financial Condition and Results of
Operations.
(i) Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure.............................. Not Applicable.
(j) Quantitative and Qualitative Disclosures
About Market Risk....................... Quantitative and Qualitative Disclosures
About Market Risk.
(k) Directors and Executive Officers......... The General Partner.
(l) Executive Compensation................... Summary; Conflicts of Interest; Fiduciary
Responsibility; Description of Charges;
Risk Factors; The Trading Advisors; The
General Partner; The Commodity Brokers.
(m) Security Ownership of Certain Beneficial
Owners and Management................... The General Partner; Independent
Auditors' Reports.
(n) Certain Relationships and Related
Transactions............................ Summary; Conflicts of Interest; Fiduciary
Responsibility; Description of Charges;
Risk Factors; The Trading Advisors; The
General Partner; The Commodity Brokers.
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.................................. Fiduciary Responsibility.
EXPLANATORY STATEMENT
The Prospectus contained in this Registration Statement relates not only to
5,015,108.785 Units of Limited Partnership Interest of Morgan Stanley Spectrum
Select L.P. remaining unsold as of September 30, 2001 from Registration
Statement Nos. 333-47829, 333-68773, and 333-90467, but to:
(i) 6,558,059.256 Units of Limited Partnership Interest of Morgan Stanley
Spectrum Technical L.P. remaining unsold as of September 30, 2001 from
Registration Statement Nos. 33-80146, 333-00494, 333-3222, 333-47831, and
333-68779;
(ii) 7,166,081.471 Units of Limited Partnership Interest of Morgan Stanley
Spectrum Strategic L.P. remaining unsold as of September 30, 2001 from
Registration Statement Nos. 33-80146, 333-00494, 333-3222, and 333-90487;
(iii) 5,344,962.726 Units of Limited Partnership Interest of Morgan Stanley
Spectrum Global Balanced L.P. remaining unsold as of September 30, 2001 from
Registration Statement Nos. 33-80146, 333-00494, and 333-3222, and 333-90475;
(iv) 8,652,529.053 Units of Limited Partnership Interest of Morgan Stanley
Spectrum Currency L.P. remaining unsold as of September 30, 2001 from
Registration Statement No. 333-90485; and
(v) 6,508,964.718 Units of Limited Partnership Interest of Morgan Stanley
Spectrum Commodity L.P. remaining unsold as of September 30, 2001 from
Registration Statement No. 333-90483.
MORGAN STANLEY SPECTRUM SERIES
(FORMERLY, MORGAN STANLEY DEAN WITTER SPECTRUM SERIES)
MORGAN STANLEY SPECTRUM SELECT L.P.
MORGAN STANLEY SPECTRUM TECHNICAL L.P.
MORGAN STANLEY SPECTRUM STRATEGIC L.P.
MORGAN STANLEY SPECTRUM GLOBAL BALANCED L.P.
MORGAN STANLEY SPECTRUM CURRENCY L.P.
MORGAN STANLEY SPECTRUM COMMODITY L.P.
------------------
SUPPLEMENT
TO
PROSPECTUS DATED MARCH 23, 2001
You should read this supplement together with the prospectus dated
March 23, 2001. All page and section references in this supplement relate to the
prospectus, except references to pages preceeded by "S-", which relate to this
supplement.
------------------------
MORGAN STANLEY DW INC.
The date of this Supplement is November - , 2001
TABLE OF CONTENTS
PAGE
--------
Notice to Investors......................................... S-1
Summary..................................................... S-2
Risk Factors................................................ S-3
Use of Proceeds............................................. S-5
The Spectrum Series......................................... S-6
Selected Financial Data and Selected Quarterly Financial
Data...................................................... S-12
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. S-18
Quantitative and Qualitative Disclosures About Market
Risk...................................................... S-24
The General Partner......................................... S-31
The Trading Advisors........................................ S-33
Litigation.................................................. S-44
Where You Can Find More Information......................... S-44
Potential Advantages........................................ S-45
Supplemental Performance Information........................ S-51
Financial Statements........................................ S-84
(i)
NOTICE TO INVESTORS
PARTNERSHIP NAME CHANGES
On November 1, 2001, Morgan Stanley Dean Witter Spectrum Select L.P. changed
its name to Morgan Stanley Spectrum Select L.P., Morgan Stanley Dean Witter
Spectrum Technical L.P. changed its name to Morgan Stanley Spectrum Technical
L.P., Morgan Stanley Dean Witter Spectrum Strategic L.P. changed its name to
Morgan Stanley Spectrum Strategic L.P., Morgan Stanley Dean Witter Spectrum
Global Balanced L.P. changed its name to Morgan Stanley Spectrum Global Balanced
L.P., Morgan Stanley Dean Witter Spectrum Currency L.P. changed its name to
Morgan Stanley Spectrum Currency L.P., and Morgan Stanley Dean Witter Spectrum
Commodity L.P. changed its name to Morgan Stanley Spectrum Commodity L.P.
ADDRESS CHANGES
Effective September 12, 2001, the offices of each partnership and the
general partner have relocated to c/o Morgan Stanley Trust Company, Managed
Futures Department, Harborside Financial Center, Plaza Two, 7th Floor, Jersey
City, New Jersey 07311; telephone (201) 876-4647.
Effective September 12, 2001, the offices of Morgan Stanley DW Inc., the
selling agent and non-clearing commodity broker to each partnership, have
relocated to 1585 Broadway, New York, New York 10036.
S-1
SUMMARY
THE FOLLOWING UPDATES AND REPLACES THE BREAK EVEN ANALYSIS CONTAINED ON THE
COVER, PAGE 7, AND PAGE 12.
BREAK EVEN ANALYSIS
Following is a table that sets forth the fees and expenses that you would
incur on an initial investment of $5,000 in each partnership and the amount that
your investment must earn, after taking into account estimated interest income,
in order to break even after one year and after more than two years. The fees
and expenses applicable to each partnership are described on page 6.
SPECTRUM
SPECTRUM SPECTRUM SPECTRUM GLOBAL SPECTRUM SPECTRUM
SELECT TECHNICAL STRATEGIC BALANCED CURRENCY COMMODITY
-------- --------- --------- -------- -------- ---------
$ $ $ $ $ $
Management Fee...................... 150.00 137.50 150.00 62.50 100.00 125.00
Brokerage Fee....................... 362.50 362.50 362.50 230.00 230.00 230.00
Less: Interest Income (1)........... (100.00) (100.00) (100.00) (125.00) (100.00) (100.00)
Incentive Fee (2)................... -- -- -- -- -- --
Redemption Charge (3)............... 102.04 102.04 102.04 102.04 102.04 102.04
Amount of trading profits a
partnership must earn for you to
recoup your initial investment at
the end of one year after paying a
redemption charge................. 514.54 502.04 514.54 269.54 332.04 357.04
Trading profits as percentage of net
assets that a partnership must
earn for you to recoup your
initial investment at the end of
one year after paying a redemption
charge............................ 10.29% 10.04% 10.29% 5.39% 6.64% 7.14%
Amount of trading profits a
partnership must earn each year
for you to recoup your initial
investment after two years with no
redemption charge................. 412.50 400.00 412.50 167.50 230.00 255.00
Trading profits as percentage of net
assets that a partnership must
earn each year for you to recoup
your initial investment after two
years with no redemption charge... 8.25% 8.00% 8.25% 3.35% 4.60% 5.10%
---------
(1) The partnerships do not directly invest in interest-bearing instruments.
Instead, each partnership is paid interest by Morgan Stanley DW at the
blended rate Morgan Stanley DW earns on its U.S. Treasury bill investments
with all customer segregated funds, as if 80% (100% in the case of Spectrum
Global Balanced) of the partnership's average daily net assets for the month
were invested at that rate. The rate used in the calculations was estimated
based upon current rates of approximately 2.5%. Investors should be aware
that the break even analysis will fluctuate as interest rates fluctuate,
with the break even percentage declining as interest rates increase or
increasing as interest rates decline.
(2) Incentive fees are paid to a trading advisor only on trading profits on the
assets of the partnership managed by that trading advisor. Trading profits
are determined after deducting all partnership expenses attributable to the
partnership assets managed by the trading advisor, other than any
extraordinary expenses, and do not include interest income. Therefore,
incentive fees will be zero at the partnership's break even point on the
assets managed by the trading advisor. Further, there do not need to be
trading profits to cover the redemption charge because the interest earned
by the partnership during the year will exceed the redemption charge to the
investor. Note, however, that because one trading advisor to a partnership
could be profitable and earn an incentive fee while the other trading
advisors are unprofitable such that the partnership has an overall trading
loss, it is possible for a partnership to pay an incentive fee at a time
when it has incurred overall losses.
(3) Units redeemed at the end of one year from the date of purchase are
generally subject to a 2% redemption charge; after two years there are no
redemption charges.
S-2
RISK FACTORS
THE FOLLOWING UPDATES AND REPLACES THE FOLLOWING RISK FACTORS ON PAGES 9-11.
THE PARTNERSHIPS' TRADING IS HIGHLY LEVERAGED. The trading advisors for each
partnership use substantial leverage when trading, which could result in
immediate and substantial losses. For example, if 10% of the face value of a
contract is deposited as margin for that contract, a 10% decrease in the value
of the contract would cause a total loss of the margin deposit. A decrease of
more than 10% in the value of the contract would cause a loss greater than the
amount of the margin deposit.
The leverage employed by the partnerships in their trading can vary
substantially from month to month and can be significantly higher or lower than
the averages set forth below. As an example of the leverage employed by the
partnerships, set forth below is the average of the underlying value of each
partnership's month-end positions for the period September 2000 through August
2001, compared to the average month-end net assets of the partnership during
such periods, respectively. While the leverage employed on a trade will
accentuate the trading profit or loss on that trade, one partnership's overall
leverage as compared to another partnership's overall leverage does not
necessarily mean that it will be more volatile than the other partnership. This
can be seen by a review of the monthly rates of return for the partnerships on
pages S-7 to S-11.
Spectrum Select 15.5 times net assets
Spectrum Technical 13.4 times net assets
Spectrum Strategic 7.9 times net assets
Spectrum Global Balanced 6.9 times net assets
Spectrum Currency 2.8 times net assets
Spectrum Commodity 1.3 times net assets
OPTIONS TRADING CAN BE MORE VOLATILE THAN FUTURES TRADING. Each partnership
may trade options on futures. Although successful options trading requires many
of the same skills as successful futures trading, the risks are different.
Successful options trading requires a trader to accurately assess near-term
market volatility because that volatility is immediately reflected in the price
of outstanding options. Correct assessment of market volatility can therefore be
of much greater significance in trading options than it is in many long-term
futures strategies where volatility does not have as great an effect on the
price of a futures contract.
During the period September 2000 through August 2001, only Spectrum
Strategic and Spectrum Global Balanced engaged in any significant options
trading. Solely for the purpose of quantifying Spectrum Strategic's and Spectrum
Global Balanced's options trading as compared to their overall trading, the
general partner has calculated a margin level for such partnerships' month-end
options positions on a futures equivalent basis. During the period September
2000 through August 2001, Spectrum Strategic's average month-end margin level
for its options positions was 8.9% of its total average month-end margin
requirements for the period and Spectrum Global Balanced's average month-end
margin level for its options positions was 13.4% of its total average month-end
margin requirements for the period. You should be aware, however, that in the
future the other partnerships may engage in significant options trading and the
level of Spectrum Strategic's and Spectrum Global Balanced's options trading
could vary significantly.
TRADING ON FOREIGN EXCHANGES PRESENTS GREATER RISKS TO EACH PARTNERSHIP THAN
TRADING ON U.S. EXCHANGES.
- Each partnership trades on exchanges located outside the U.S. Trading on
U.S. exchanges is subject to CFTC regulation and oversight, including for
example minimum capital requirements for commodity brokers, regulation of
trading practices on the exchanges, prohibitions against trading ahead of
customer orders, prohibitions against filling orders off exchanges,
prescribed risk disclosure statements, testing and licensing of industry
sales personnel and other industry professionals, and record keeping
requirements. Trading on foreign exchanges is not regulated by the CFTC or
any other U.S. governmental agency or instrumentality and may be subject
to
S-3
regulations that are different from those to which U.S. exchange trading
is subject, provide less protection to investors than trading on U.S.
exchanges and may be less vigorously enforced than regulations in the U.S.
- Positions on foreign exchanges also are subject to the risk of exchange
controls, expropriation, excessive taxation or government disruptions.
- A partnership could incur losses when determining the value of its foreign
positions in U.S. dollars because of fluctuations in exchange rates.
Each partnership must deposit margin with respect to the partnership's
futures and options contracts on both U.S. exchanges and on foreign exchanges
and must deposit margin with respect to its foreign currency forward contracts
to assure the partnership's performance on those contracts. Set forth below for
each partnership is the average percentage of month-end margin requirements for
the period September 2000 through August 2001, that relate to futures and
options contracts on foreign exchanges as compared to the partnership's total
average month-end margin requirements. This information will provide you with a
sense of the magnitude of each partnership's trading on foreign exchanges, and,
therefore, the relevance of the risks described in the prior paragraph to each
partnership. You should be aware, however, that the percentage of each
partnership's margin requirements that relate to positions on foreign exchanges
varies from month to month and can be significantly higher or lower than the
percentages set forth below.
%
--------
Spectrum Select 52.5
Spectrum Technical 51.1
Spectrum Strategic 21.9
Spectrum Global Balanced 52.6
Spectrum Currency 100.0
Spectrum Commodity 15.5
THE UNREGULATED NATURE OF THE FORWARDS MARKETS CREATES COUNTERPARTY RISKS
THAT DO NOT EXIST IN FUTURES TRADING ON EXCHANGES. Unlike futures contracts,
forwards contracts are entered into between private parties off an exchange and
are not regulated by the CFTC or by any other U.S. government agency. Because
forwards contracts are not traded on an exchange, the performance is at risk to
the ability of the counterparty to the trade to perform on the forwards
contract. Because trading in the forwards markets is not regulated, there are no
specific standards or regulatory supervision of trade pricing and other trading
activities that occur in those markets. Because the partnerships trade forwards
contracts in foreign currency with Morgan Stanley, they are at risk to the
creditworthiness and trading practices of Morgan Stanley as the counterparty to
the trades. Spectrum Commodity will not trade foreign currency forwards.
As the counterparty to all of the partnerships' foreign currency forwards
contracts, Morgan Stanley requires the partnerships to make margin deposits to
assure the partnerships' performance on those contracts, just as Morgan Stanley
requires the partnerships to deposit margin on their futures contracts. Set
forth below for each partnership is the average percentage of month-end total
margin requirements for the period September 2000 through August 2001 that
relate to forwards contracts. This information will provide you with a sense of
the magnitude of each partnership's trading in the forwards contracts markets as
compared to its trading of futures and options contracts on regulated exchanges,
and, therefore, the relevance of the risks described in the prior paragraphs to
each partnership. You should be aware that the percentage of each partnership's
margin requirements that relate to forwards contracts varies from month to month
and can be significantly higher or lower than the percentages set forth below.
%
--------
Spectrum Select 11.1
Spectrum Technical 17.7
Spectrum Strategic 0.0
Spectrum Global Balanced 5.2
Spectrum Currency 100.0
Spectrum Commodity N/A
S-4
USE OF PROCEEDS
THE FOLLOWING UPDATES AND REPLACES THE TABLE PRESENTED ON PAGE 27.
At each monthly closing, the trading advisors for each partnership are
currently allocated the net proceeds from additional investments received by
that partnership, and redemptions from that partnership are allocated to them,
in the following proportions:
PERCENTAGE OF NET
ASSETS ALLOCATED TO
EACH TRADING
ADVISOR AS OF
SPECTRUM SELECT ADDITIONS REDEMPTIONS AUGUST 31, 2001
--------------- --------- ----------- -------------------
% % %
EMC Capital Management, Inc.............. 0 0 16
Northfield Trading L.P................... 33 1/3 33 1/3 15
Rabar Market Research, Inc............... 33 1/3 33 1/3 33
Sunrise Capital Management, Inc.......... 33 1/3 33 1/3 36
SPECTRUM TECHNICAL
-------------------------------------------
Campbell & Company, Inc.................. 33 1/3 25 33
Chesapeake Capital Corporation........... 33 1/3 25 21
John W. Henry & Company, Inc.
Original Investment Program............ 16 2/3 25 18
Financial and Metals Portfolio......... 16 2/3 25 28
SPECTRUM STRATEGIC
-------------------------------------------
Allied Irish Capital Management, Ltd..... 50 50 38
Blenheim Capital Management, L.L.C....... 0 0 33
Eclipse Capital Management, Inc.......... 50 50 29
SPECTRUM GLOBAL BALANCED
-------------------------------------------
RXR, Inc................................. 100 100 100
SPECTRUM CURRENCY
-------------------------------------------
John W. Henry & Company, Inc............. 50 50 52
Sunrise Capital Partners, LLC............ 50 50 48
SPECTRUM COMMODITY
-------------------------------------------
Morgan Stanley Commodities Management
Inc.................................... 100 100 100
S-5
THE SPECTRUM SERIES
THE FOLLOWING UPDATES AND REPLACES THE TABLE UNDER THE SUB-CAPTION
"--GENERAL" ON PAGE 29.
Following is a summary of information relating to the sale of units of each
partnership through August 31, 2001:
NUMBER NET
TOTAL GENERAL OF ASSET
UNITS UNITS AVAILABLE PROCEEDS PARTNER LIMITED VALUE
SOLD FOR SALE RECEIVED CONTRIBUTIONS PARTNERS PER UNIT
-------------- --------------- ------------ ------------- --------- --------
$ $ $
Spectrum Select*.............. 20,505,391.705 5,108,575.395 334,084,144 1,680,000 17,483 24.32
Spectrum Technical............ 26,290,645.923 6,709,354.077 356,123,284 2,511,984 24,828 15.14
Spectrum Strategic............ 11,802,316.880 7,197,683.120 129,885,302 831,000 10,362 9.93
Spectrum Global Balanced...... 5,618,256.600 5,381,743.400 77,216,211 533,234 7,198 15.83
Spectrum Currency............. 3,180,313.430 8,819,686.570 34,628,887 1,751,645 3,180 11.08
Spectrum Commodity............ 4,652,858.914 6,542,634.718 44,564,045 430,000 2,274 6.22
---------
* The number of units sold has been adjusted to reflect a 100-for-1 unit
conversion that took place on June 1, 1998, when Spectrum Select became part
of the Spectrum Series of partnerships.
S-6
THE FOLLOWING UPDATES, THROUGH AUGUST 31, 2001, AND REPLACES THE PERFORMANCE
CAPSULES UNDER THE SUB-CAPTION "--PERFORMANCE RECORDS" BEGINNING ON PAGE 33.
CAPSULE I
PERFORMANCE OF SPECTRUM SELECT
Type of pool: publicly-offered fund
Inception of trading: August 1991
Aggregate subscriptions: $335,764,144
Current capitalization: $236,549,018
Current net asset value per unit: $24.32
Worst monthly % drawdown past five years: (12.11)% (February 1996)
Worst monthly % drawdown since inception: (13.72)% (January 1992)
Worst month-end peak-to-valley drawdown past five years: (26.78)% (15 months,
June 1995-August 1996)
Worst month-end peak-to-valley drawdown since inception: (26.78)% (15 months,
June 1995-August 1996)
Cumulative return since inception: 143.20%
MONTHLY PERFORMANCE
------------------------------------------------------------------------------------------
MONTH 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991
----- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
% % % % % % % % % % %
January..................... 1.36 2.86 (2.90) 0.87 3.93 (0.38) (8.13) (11.67) 0.31 (13.72)
February.................... 1.93 (2.17) 5.45 2.16 4.75 (12.11) 9.61 (6.79) 14.84 (6.09)
March....................... 7.27 (2.08) (2.50) 0.23 0.31 (0.22) 20.58 12.57 (0.59) (3.91)
April....................... (6.93) (3.78) 3.70 (6.72) (5.46) 4.07 9.06 (0.95) 10.35 (1.86)
May......................... (0.53) 1.58 (4.38) 1.79 (1.18) (3.65) 11.08 6.84 1.95 (1.42)
June........................ (1.78) (4.44) 0.34 0.93 0.16 1.37 (1.70) 10.30 0.21 7.19
July........................ (0.13) (2.42) (4.40) (0.97) 9.74 (1.44) (10.61) (4.91) 13.90 10.72
August...................... 2.53 4.71 (0.44) 19.19 (6.22) (0.46) (4.81) (6.95) (0.95) 6.69 (6.20)
September................... (1.84) 1.69 6.24 0.93 3.34 (7.76) 1.25 (4.13) (5.24) 6.32
October..................... 0.44 (8.39) (5.14) (3.77) 13.30 (3.35) (4.78) (4.97) (3.17) (2.28)
November.................... 6.47 3.29 (4.16) 0.62 6.76 1.37 5.68 (1.30) 1.39 (2.93)
December.................... 8.52 1.62 1.19 3.35 (3.36) 11.19 (2.72) 8.14 (3.58) 38.67
Compound Annual/
Period Rate of Return..... 3.18 7.14 (7.56) 14.15 6.22 5.27 23.63 (5.13) 41.63 (14.45) 31.18
(8 (5
months) months)
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
S-7
CAPSULE II
PERFORMANCE OF SPECTRUM TECHNICAL
Type of pool: publicly-offered fund
Inception of trading: November 1994
Aggregate subscriptions: $358,635,268
Current capitalization: $256,572,782
Current net asset value per unit: $15.14
Worst monthly % drawdown past five years: (11.10)% (April 2001)
Worst monthly % drawdown since inception: (11.10)% (April 2001)
Worst month-end peak-to-valley drawdown past five years: (24.32)% (17 months,
May 1999-September 2000)
Worst month-end peak-to-valley drawdown since inception: (24.32)% (17 months,
May 1999-September 2000)
Cumulative return since inception: 51.40%
MONTHLY PERFORMANCE
-----------------------------------------------------------------------------
MONTH 2001 2000 1999 1998 1997 1996 1995 1994
----- ---- ---- ---- ---- ---- ---- ---- ----
% % % % % % % %
January................... (0.81) 1.21 (4.96) (1.16) 3.67 4.78 (1.84)
February.................. 1.94 (1.19) 2.48 0.41 1.13 (6.39) 5.10
March..................... 11.38 (1.54) (2.48) 1.31 (1.82) 1.24 10.21
April..................... (11.10) (4.02) 7.18 (4.62) (2.93) 4.82 3.60
May....................... (0.37) (0.43) (5.00) 3.28 (3.75) (3.84) 0.69
June...................... (3.62) (2.78) 5.13 (1.10) 0.69 3.21 (1.12)
July...................... (3.36) (3.96) (3.90) (0.98) 9.33 (4.80) (2.44)
August.................... 1.34 3.74 0.95 10.29 (5.97) (0.35) (0.63)
September................. (8.61) (1.51) 4.35 1.85 5.50 (3.33)
October................... 2.90 (9.96) (0.73) 0.36 9.92 (0.09)
November.................. 12.28 1.84 (6.17) 1.01 8.34 0.93 (0.90)
December.................. 12.06 3.83 5.98 4.57 (3.88) 6.09 (1.31)
Compound Annual/
Period Rate of Return... (5.85) 7.85 (7.51) 10.18 7.49 18.35 17.59 (2.20)
(8 months) (2 months)
CAPSULE III
PERFORMANCE OF SPECTRUM STRATEGIC
Type of pool: publicly-offered fund
Inception of trading: November 1994
Aggregate subscriptions: $130,716,302
Current capitalization: $67,906,985
Current net asset value per unit: $9.93
Worst monthly % drawdown past five years: (18.47)% (February 2000)
Worst monthly % drawdown since inception: (18.47)% (February 2000)
Worst month-end peak-to-valley drawdown past five years: (43.28)% (10 months,
January 2000-October 2000)
Worst month-end peak-to-valley drawdown since inception: (43.28)% (10 months,
January 2000-October 2000)
Cumulative return since inception: (0.70)%
MONTHLY PERFORMANCE
-----------------------------------------------------------------------------
MONTH 2001 2000 1999 1998 1997 1996 1995 1994
----- ---- ---- ---- ---- ---- ---- ---- ----
% % % % % % % %
January................................. (0.94) (1.96) (3.55) 5.32 (0.66) 3.71 (3.50)
February................................ 0.48 (18.47) 11.76 (3.37) 10.09 (10.29) 1.45
March................................... 1.04 (2.05) (3.45) 0.37 6.77 (0.97) 7.86
April................................... (1.69) (10.15) 2.00 (11.06) (6.90) 6.08 0.00
May..................................... (0.10) 10.13 (13.38) (7.40) 0.78 (3.05) (0.66)
June.................................... (3.34) (7.82) 21.85 (0.89) (1.63) (2.86) (6.38)
July.................................... (1.38) 3.71 (1.00) (5.26) 7.65 (4.91) (0.81)
August.................................. (0.60) (8.26) 5.31 11.82 (4.93) 1.14 4.00
September............................... (10.40) 13.27 19.03 (6.03) 5.11 (0.39)
October................................. (6.84) (9.55) 8.44 (6.24) 2.92 0.30
November................................ 6.56 4.85 (7.94) (2.22) 3.49 2.76 0.10
December................................ 10.75 9.39 2.76 5.62 (2.65) 6.24 0.00
Compound Annual/
Period Rate of Return................. (6.41) (33.06) 37.23 7.84 0.37 (3.53) 10.49 0.10
(8 months) (2 months)
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
S-8
CAPSULE IV
PERFORMANCE OF SPECTRUM GLOBAL BALANCED
Type of pool: publicly-offered fund
Inception of trading: November 1994
Aggregate subscriptions: $77,749,445
Current capitalization: $56,466,948
Current net asset value per unit: $15.83
Worst monthly % drawdown past five years: (7.92)% (February 1996)
Worst monthly % drawdown since inception: (7.92)% (February 1996)
Worst month-end peak-to-valley drawdown past five years: (10.64)% (4 months,
February 1996-May 1996)
Worst month-end peak-to-valley drawdown since inception: (10.64)% (4 months,
February 1996-May 1996)
Cumulative return since inception: 58.30%
MONTHLY PERFORMANCE
--------------------------------------------------------------------------------------
MONTH 2001 2000 1999 1998 1997 1996 1995 1994
----- ---- ---- ---- ---- ---- ---- ---- ----
% % % % % % % %
January........................ 0.55 (0.93) (0.06) 2.25 3.35 0.41 1.32
February....................... (3.36) 0.94 (0.06) 1.49 3.16 (7.92) 4.62
March.......................... 2.91 3.10 0.00 2.24 (2.50) (1.08) 2.88
April.......................... (0.31) (4.57) 4.13 (1.78) (1.65) 1.27 2.15
May............................ 0.25 (1.32) (4.99) (0.35) 1.68 (3.13) 4.38
June........................... (3.08) (0.26) 2.28 0.00 3.64 0.46 0.79
July........................... 0.00 (2.18) (1.67) (1.19) 11.89 0.83 (1.39)
August......................... 0.51 3.01 (0.19) 2.55 (5.92) (0.82) (1.41)
September...................... (3.94) (0.50) 5.11 3.26 2.30 1.61
October........................ 2.25 (1.77) 1.18 (1.69) 3.77 0.26
November....................... (0.52) 1.93 2.66 (0.37) 4.76 2.72 (0.50)
December....................... 5.79 1.96 1.27 3.07 (3.88) 2.99 (1.21)
Compound Annual/
Period Rate of Return........ (2.64) 0.87 0.75 16.36 18.23 (3.65) 22.79 (1.70)
(8 months) (2 months)
CAPSULE V
PERFORMANCE OF SPECTRUM CURRENCY
Type of pool: publicly-offered fund
Inception of trading: July 3, 2000
Aggregate subscriptions: $36,380,532
Current capitalization: $34,094,303
Current net asset value per unit: $11.08
Worst monthly % drawdown: (5.91)% (July 2001)
Worst month-end peak-to-valley drawdown: (7.52)% (2 months, June 2001-July 2001)
Cumulative return since inception: 10.80%
MONTHLY PERFORMANCE
-----------------------
MONTH 2001 2000
----- ---- ----
% %
January..... (1.07)
February.... (1.36)
March....... 8.44
April....... (2.88)
May......... 1.92
June........ (1.71)
July........ (5.91) 0.60
August...... 2.40 0.40
September... 1.39
October..... 7.32
November.... (1.64)
December.... 3.30
Compound
Annual/
Period
Rate of
Return... (0.81) 11.70
(8 months) (6 months)
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
S-9
CAPSULE V-A
PERFORMANCE OF CORNERSTONE IV
Type of pool: publicly-offered fund
Inception of trading: May 1987
Aggregate subscriptions: $168,095,656
Current capitalization: $94,448,313
Current net asset value per unit: $5,395.87
Worst monthly % drawdown past five years: (6.45)% (July 2001)
Worst monthly % drawdown since inception: (21.04)% (September 1989)
Worst month-end peak-to-valley past five years: (12.60)% (12 months, November
1998-October 1999)
Worst month-end peak-to-valley since inception: (45.21)% (3 months, July
1989-September 1989)
Cumulative return since inception: 453.42%
MONTHLY PERFORMANCE
-----------------------------------------------------------------------------------------------------------
MONTH 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992
----- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
% % % % % % % % % %
January.............. (0.92) 1.52 (2.37) (1.58) 5.34 3.19 (7.65) (1.12) (5.29) (9.64)
February............. (1.14) (1.70) 0.84 (3.16) 6.55 (5.78) 6.27 (2.75) 12.92 (7.40)
March................ 9.18 (0.55) 2.23 2.51 1.45 2.80 27.02 0.29 (2.55) 1.60
April................ (2.34) 6.91 1.19 (3.43) 1.23 2.97 2.39 (3.19) 0.03 (6.40)
May.................. 1.62 (0.12) (1.37) 4.89 (5.54) 1.19 (4.83) (3.65) 3.95 2.71
June................. (1.68) (4.60) (0.67) 11.31 1.36 (0.23) (0.62) 6.72 0.92 15.10
July................. (6.45) 0.40 (5.28) 0.38 8.45 (3.51) (1.06) (4.21) 5.87 7.47
August............... 2.86 0.38 1.27 0.78 2.68 (2.69) 5.49 (3.57) (5.57) 17.25
September............ 1.45 2.39 (3.11) 0.45 0.32 (0.06) 1.66 (2.10) (4.21)
October.............. 9.06 (3.77) 4.87 3.12 8.80 0.74 4.93 (7.48) (0.99)
November............. (1.20) 5.29 (4.24) 4.15 4.25 (2.57) (6.82) (7.50) 0.60
December............. 3.01 (0.42) (1.49) 4.38 1.76 (0.52) (2.73) (0.78) (2.40)
Compound Annual/
Period Rate of
Return........... (0.41) 14.74 (1.13) 6.80 38.41 12.97 22.96 (14.27) (9.12) 10.37
(8 months)
MONTHLY PERFORMANCE
------------------------------------------------------
MONTH 1991 1990 1989 1988 1987
----- ---- ---- ---- ---- ----
% % % % %
January.............. (10.12) 3.15 15.70 (18.14)
February............. (6.91) 1.37 (14.66) 0.93
March................ 26.00 6.09 3.41 5.07
April................ 1.83 3.01 1.84 3.41
May.................. 1.24 (8.53) 12.56 25.38 (11.20)
June................. 9.45 12.26 0.01 12.95 (0.75)
July................. (9.47) 23.25 (14.85) 6.93 (2.24)
August............... (8.50) 8.65 (18.51) 3.90 (12.61)
September............ 6.69 (3.02) (21.04) (4.54) (0.56)
October.............. (5.29) 11.07 4.47 1.55 13.71
November............. 5.26 (1.11) 11.40 8.72 11.80
December............. 27.40 (5.74) 14.97 (7.83) 13.39
Compound Annual/
Period Rate of
Return........... 33.52 57.77 (14.12) 37.51 10.61
(8 months)
CAPSULE V-B
PRO FORMA PERFORMANCE OF CORNERSTONE IV
Worst monthly % drawdown past five years: (6.52)% (July 2001)
Worst monthly % drawdown since inception: (20.25)% (January 1988)
Worst month-end peak-to-valley drawdown past five years: (11.04)% (12 months,
September 1998-October 1999)
Worst month-end peak-to-valley drawdown since inception: (46.06)% (3 months,
July 1989-September 1989)
Cumulative return since inception: 257.33%
MONTHLY PERFORMANCE
-----------------------------------------------------------------------------------------------------------
MONTH 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992
----- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
% % % % % % % % % %
January.............. (1.40) 1.65 (2.94) (1.79) 5.03 3.24 (7.40) (1.07) (6.01) (11.18)
February............. (1.63) (1.83) 0.81 (4.00) 5.16 (5.75) 6.37 (2.55) 14.13 (8.51)
March................ 9.76 (0.44) 2.62 2.82 0.05 2.76 26.63 0.54 (3.05) 2.13
April................ (3.03) 6.82 1.26 (4.19) 0.86 3.13 1.97 (3.15) 0.11 (6.35)
May.................. 1.71 (0.28) (1.76) 5.36 (5.52) 1.19 (4.93) (3.64) 3.81 3.21
June................. (1.61) (4.60) (0.51) 11.07 1.40 (0.12) (0.77) 7.06 0.31 17.76
July................. (6.52) 0.27 (5.23) 0.04 7.64 (3.47) (1.21) (4.18) 5.57 7.82
August............... 2.77 0.30 1.21 0.34 1.37 (2.67) 5.48 (3.47) (6.60) 15.49
September............ 1.55 2.54 (3.77) (0.93) 0.58 (0.14) 1.78 (1.91) (7.67)
October.............. 9.50 (3.83) 5.17 2.48 8.95 0.54 4.99 (7.18) (1.24)
November............. (1.67) 5.16 (5.22) 3.29 4.22 (2.74) (6.67) (7.11) 0.63
December............. 3.52 (0.18) (1.90) 2.74 1.86 (0.66) (2.66) (0.49) (2.62)
Compound Annual/
Period Rate of
Return............. (0.75) 14.93 (1.33) 2.67 25.53 13.91 21.28 (13.04) (10.03) 5.11
(8 months)
MONTHLY PERFORMANCE
------------------------------------------------------
MONTH 1991 1990 1989 1988 1987
----- ---- ---- ---- ---- ----
% % % % %
January.............. (10.90) 3.65 15.33 (20.25)
February............. (6.64) 1.37 (17.52) 1.06
March................ 27.47 5.86 3.31 5.89
April................ 1.60 2.95 1.70 3.86
May.................. 0.83 (7.87) 12.46 26.84 (10.59)
June................. 8.64 12.82 (1.97) 9.80 (0.25)
July................. (10.84) 21.34 (14.34) 6.55 (1.99)
August............... (8.24) 6.47 (17.71) 2.29 (12.15)
September............ 7.10 (6.30) (19.90) (6.28) (0.17)
October.............. (4.95) 10.59 4.94 1.70 13.69
November............. 5.45 (3.30) 11.67 8.11 10.51
December............. 28.00 (7.17) 15.75 (9.32) 11.86
Compound Annual/
Period Rate of
Return............. 32.66 43.03 (15.61) 25.71 7.74
(8 months)
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
S-10
CAPSULE VI
PERFORMANCE OF SPECTRUM COMMODITY
Type of pool: publicly-offered fund
Inception of trading: January 2, 1998
Aggregate subscriptions: $44,994,045
Current capitalization: $14,339,685
Current net asset value per unit: $6.22
Worst monthly % drawdown: (9.09)% (November 1998)
Worst month-end peak-to-valley drawdown: (38.59)% (13 Months, February
1998-February 1999)
Cumulative return since inception: (37.80)%
MONTHLY PERFORMANCE
-------------------------------------
MONTH 2001 2000 1999 1998
----- ---- ---- ---- ----
% % % %
January.................................................... (4.20) 3.02 (1.52) 1.30
February................................................... (1.20) (3.19) (3.86) (5.92)
March...................................................... (7.00) 0.79 8.68 0.10
April...................................................... 0.87 (3.01) 2.37 (2.41)
May........................................................ (3.73) 4.31 (5.92) (6.87)
June....................................................... (4.32) (0.90) 4.45 (3.23)
July....................................................... (0.31) (3.65) 0.44 (6.44)
August..................................................... (2.81) 4.74 6.15 (7.90)
September.................................................. (0.52) 4.55 7.19
October.................................................... (2.86) (2.77) (3.48)
November................................................... 3.74 0.54 (9.09)
December................................................... 1.16 2.70 (3.38)
Compound Annual/
Period Rate of Return..................................... (20.76) 3.15 15.83 (34.30)
(8 months)
THE FOLLOWING REPLACES THE INFORMATION UNDER THE SUB-CAPTION "--AVAILABILITY
OF EXCHANGE ACT REPORTS" ON PAGE 38.
The partnerships are required to file periodic reports with the SEC, such as
annual and quarterly reports and proxy statements. You may read any of these
filed documents, or obtain copies by paying prescribed charges, at the SEC's
public reference rooms located at 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, 233 Broadway, New York, New York 10279, and Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511.
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference rooms. The partnerships' SEC filings are also available to the public
from the SEC's Web site at "http://www.sec.gov." Their SEC file numbers are
0-19511 (Spectrum Select), 0-26338 (Spectrum Technical), 0-26280 (Spectrum
Strategic), 0-26340 (Spectrum Global Balanced), 0-31563 (Spectrum Currency), and
0-24035 (Spectrum Commodity).
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
S-11
SELECTED FINANCIAL DATA
AND SELECTED QUARTERLY FINANCIAL DATA
THE FOLLOWING UPDATES AND REPLACES THE INFORMATION CONTAINED ON
PAGES 39-44.
SPECTRUM SELECT
SELECTED FINANCIAL DATA
FOR THE SIX MONTHS
ENDED JUNE 30, FOR THE YEARS ENDED DECEMBER 31,
------------------------ ---------------------------------------------------------------
2001 2000 2000 1999 1998 1997 1996
----------- ----------- ----------- ----------- ----------- ----------- -----------
$ $ $ $ $ $ $
(UNAUDITED) (UNAUDITED)
REVENUES
Trading profit (loss):
Realized 27,437,979 (3,377,514) 6,845,291 (1,351,849) 36,087,729 15,940,851 26,876,393
Net change in unrealized (17,943,127) (7,392,682) 18,665,233 (1,547,990) (1,192,107) 3,149,167 (10,950,217)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total Trading Results 9,494,852 (10,770,196) 25,510,524 (2,899,839) 34,895,622 19,090,018 15,926,176
Interest income (Morgan
Stanley DW) 4,493,342 4,655,147 9,573,095 7,678,789 6,883,110 7,405,511 6,120,347
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total 13,988,194 (6,115,049) 35,083,619 4,778,950 41,778,732 26,495,529 22,046,523
----------- ----------- ----------- ----------- ----------- ----------- -----------
EXPENSES
Brokerage fees (Morgan Stanley
DW) 8,379,473 7,654,116 14,706,945 15,188,479 11,360,166 9,777,851 10,641,478
Management fees 3,467,367 3,167,219 6,085,629 6,284,885 5,202,158 5,239,533 4,583,197
Incentive fees 706,462 -- -- -- 1,832,021 49,989 175,796
Transaction fees and costs -- -- -- -- 625,327 1,370,439 1,104,011
Administrative expenses -- -- -- -- 64,000 114,000 128,000
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total 12,553,302 10,821,335 20,792,574 21,473,364 19,083,672 16,551,812 16,632,482
----------- ----------- ----------- ----------- ----------- ----------- -----------
NET INCOME (LOSS) 1,434,892 (16,936,384) 14,291,045 (16,694,414) 22,695,060 9,943,717 5,414,041
=========== =========== =========== =========== =========== =========== ===========
NET INCOME (LOSS) ALLOCATION:
Limited Partners 1,416,104 (16,703,524) 14,165,099 (16,455,697) 22,302,202 9,781,168 5,283,411
General Partner 18,788 (232,860) 125,946 (238,717) 392,858 162,549 130,630
NET INCOME (LOSS) PER UNIT:
Limited Partners 0.18 (1.75) 1.57 (1.80) 2.95 1.22 .98
General Partner 0.18 (1.75) 1.57 (1.80) 2.95 1.22 .98
TOTAL ASSETS AT END OF PERIOD 232,560,656 198,636,912 224,581,554 219,366,812 202,668,038 169,541,807 167,588,012
TOTAL NET ASSETS AT END OF
PERIOD 229,061,336 193,758,707 220,729,969 213,805,674 200,082,516 166,773,321 163,786,285
NET ASSET VALUE PER UNIT AT
END OF PERIOD
Limited Partners 23.75 20.25 23.57 22.00 23.80 20.85 19.62
General Partner 23.75 20.25 23.57 22.00 23.80 20.85 19.62
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
NET INCOME
(LOSS) PER
NET UNIT OF LIMITED
QUARTER ENDED REVENUE INCOME (LOSS) PARTNERSHIP INTEREST
------------- ------------ ------------- --------------------
2001
March 31 $ 30,525,016 $ 24,046,834 $ 2.55
June 30 (16,536,822) (22,611,942) (2.37)
------------ ------------ ------
Total $ 13,988,194 $ 1,434,892 $ 0.18
============ ============ ======
2000
March 31 $ 2,404,979 $ (3,137,046) $(0.32)
June 30 (8,520,028) (13,799,338) (1.43)
September 30 5,462,810 512,200 0.06
December 31 35,735,858 30,715,229 3.26
------------ ------------ ------
Total $ 35,083,619 $ 14,291,045 $ 1.57
============ ============ ======
1999
March 31 $ 4,868,442 $ (311,140) $(0.04)
June 30 4,296,288 (1,124,247) (0.12)
September 30 (1,323,973) (6,757,813) (0.76)
December 31 (3,061,807) (8,501,214) (0.88)
------------ ------------ ------
Total $ 4,778,950 $(16,694,414) $(1.80)
============ ============ ======
S-12
SPECTRUM TECHNICAL
SELECTED FINANCIAL DATA
FOR THE SIX MONTHS
ENDED JUNE 30, FOR THE YEARS ENDED DECEMBER 31,
------------------------ ---------------------------------------------------------------
2001 2000 2000 1999 1998 1997 1996
----------- ----------- ----------- ----------- ----------- ----------- -----------
$ $ $ $ $ $ $
(UNAUDITED) (UNAUDITED)
REVENUES
Trading profit (loss):
Realized 32,994,131 (1,902,412) 12,255,064 726,179 35,224,194 13,777,460 26,334,748
Net change in
unrealized (33,280,248) (11,694,953) 22,006,013 (872,972) 6,612,556 9,762,823 (1,552,659)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total Trading Results (286,117) (13,597,365) 34,261,077 (146,793) 41,836,750 23,540,283 24,782,089
Interest income (Morgan
Stanley DW) 5,359,206 5,752,462 11,613,896 9,593,178 8,103,423 5,987,304 3,242,977
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total 5,073,089 (7,844,903) 45,874,973 9,446,385 49,940,173 29,527,587 28,025,066
----------- ----------- ----------- ----------- ----------- ----------- -----------
EXPENSES
Brokerage fees (Morgan
Stanley DW) 9,946,605 9,498,674 17,835,223 19,176,380 15,543,787 11,617,770 6,997,531
Management fees 3,809,281 5,240,647 9,595,464 10,580,071 8,403,764 5,832,758 3,273,649
Incentive fees 1,630,613 54,486 166,085 430,097 3,191,252 369,975 1,852,569
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total 15,386,499 14,793,807 27,596,772 30,186,548 27,138,803 17,820,503 12,123,749
----------- ----------- ----------- ----------- ----------- ----------- -----------
NET INCOME (LOSS) (10,313,410) (22,638,710) 18,278,201 (20,740,163) 22,801,370 11,707,084 15,901,317
=========== =========== =========== =========== =========== =========== ===========
NET INCOME (LOSS)
ALLOCATION:
Limited Partners (10,194,218) (22,396,695) 18,053,408 (20,531,494) 22,571,217 11,589,197 15,737,852
General Partner (119,192) (242,015) 224,793 (208,669) 230,153 117,887 163,465
NET INCOME (LOSS) PER
UNIT:
Limited Partners (0.62) (1.27) 1.17 (1.21) 1.49 1.02 2.11
General Partner (0.62) (1.27) 1.17 (1.21) 1.49 1.02 2.11
TOTAL ASSETS AT END OF
PERIOD 265,338,274 246,734,332 273,695,028 274,233,195 258,673,911 184,769,817 114,822,056
TOTAL NET ASSETS AT END
OF PERIOD 260,908,535 240,393,273 268,133,092 268,755,718 255,101,434 181,950,507 112,985,629
NET ASSET VALUE PER UNIT
AT END OF PERIOD
Limited Partners 15.46 13.64 16.08 14.91 16.12 14.63 13.61
General Partner 15.46 13.64 16.08 14.91 16.12 14.63 13.61
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
NET INCOME
(LOSS) PER
NET UNIT OF LIMITED
QUARTER ENDED REVENUE INCOME (LOSS) PARTNERSHIP INTEREST
------------- ------------ ------------- --------------------
2001
March 31 $ 42,238,835 $ 33,867,655 $ 2.03
June 30 (37,165,746) (44,181,065) (2.65)
------------ ------------ ------
Total $ 5,073,089 $(10,313,410) $(0.62)
============ ============ ======
2000
March 31 $ 3,465,946 $ (4,179,439) $(0.23)
June 30 (11,310,849) (18,459,271) (1.04)
September 30 (14,646,896) (21,268,774) (1.22)
December 31 68,366,772 62,185,685 3.66
------------ ------------ ------
Total $ 45,874,973 $ 18,278,201 $ 1.17
============ ============ ======
1999
March 31 $ (5,812,374) $(12,927,525) $(0.81)
June 30 25,782,426 17,956,584 1.08
September 30 (4,572,563) (12,395,708) (0.73)
December 31 (5,951,104) (13,373,514) (0.75)
------------ ------------ ------
Total $ 9,446,385 $(20,740,163) $(1.21)
============ ============ ======
S-13
SPECTRUM STRATEGIC
SELECTED FINANCIAL DATA
FOR THE SIX MONTHS
ENDED JUNE 30, FOR THE YEARS ENDED DECEMBER 31,
------------------------ ---------------------------------------------------------------
2001 2000 2000 1999 1998 1997 1996
----------- ----------- ----------- ----------- ----------- ----------- -----------
$ $ $ $ $ $ $
(UNAUDITED) (UNAUDITED)
REVENUES
Trading profit (loss):
Realized 833,504 (23,162,078) (23,193,914) 32,274,037 7,945,575 1,297,824 4,980,402
Net change in
unrealized (1,755,801) (4,742,141) (7,577,681) 4,264,478 2,771,722 2,387,258 (1,679,048)
----------- ----------- ----------- ----------- ---------- ---------- ----------
Total Trading Results (922,297) (27,904,219) (30,771,595) 36,538,515 10,717,297 3,685,082 3,301,354
Interest income (Morgan
Stanley DW) 1,437,775 2,021,135 3,832,634 3,017,103 2,379,478 2,304,248 1,604,026
----------- ----------- ----------- ----------- ---------- ---------- ----------
Total 515,478 (25,883,084) (26,938,961) 39,555,618 13,096,775 5,989,330 4,905,380
----------- ----------- ----------- ----------- ---------- ---------- ----------
EXPENSES
Brokerage fees (Morgan
Stanley DW) 2,639,821 3,105,964 5,798,093 5,837,887 4,402,540 4,414,327 3,398,205
Management fees 1,143,762 1,613,245 2,880,999 3,137,509 2,342,447 2,212,788 1,587,213
Incentive fees -- 979,550 1,269,237 2,451,152 1,336,693 427,094 726,825
----------- ----------- ----------- ----------- ---------- ---------- ----------
Total 3,783,583 5,698,759 9,948,329 11,426,548 8,081,680 7,054,209 5,712,243
----------- ----------- ----------- ----------- ---------- ---------- ----------
NET INCOME (LOSS) (3,268,105) (31,581,843) (36,887,290) 28,129,070 5,015,095 (1,064,879) (806,863)
=========== =========== =========== =========== ========== ========== ==========
NET INCOME (LOSS)
ALLOCATION:
Limited Partners (3,231,547) (31,251,055) (36,503,461) 27,829,050 4,958,188 (1,054,657) (799,980)
General Partner (36,558) (330,788) (383,829) 300,020 56,907 (10,222) (6,883)
NET INCOME (LOSS) PER
UNIT:
Limited Partners (0.48) (4.53) (5.24) 4.30 .84 0.04 (.39)
General Partner (0.48) (4.53) (5.24) 4.30 .84 0.04 (.39)
TOTAL ASSETS AT END OF
PERIOD 70,722,731 83,169,544 76,427,098 109,444,028 71,445,333 61,010,043 47,089,676
TOTAL NET ASSETS AT END
OF PERIOD 69,418,151 81,393,435 74,234,449 107,692,521 70,421,775 59,095,581 45,118,877
NET ASSET VALUE PER UNIT
AT END OF PERIOD
Limited Partners 10.13 11.32 10.61 15.85 11.55 10.71 10.67
General Partner 10.13 11.32 10.61 15.85 11.55 10.71 10.67
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
NET INCOME
(LOSS) PER
NET UNIT OF LIMITED
QUARTER ENDED REVENUE INCOME (LOSS) PARTNERSHIP INTEREST
------------- ------------ ------------- --------------------
2001
March 31 $ 2,340,103 $ 404,464 $ 0.06
June 30 (1,824,625) (3,672,569) (0.54)
------------ ------------ ------
Total $ 515,478 $ (3,268,105) $(0.48)
============ ============ ======
2000
March 31 $(20,337,419) $(23,815,606) $(3.44)
June 30 (5,545,665) (7,766,237) (1.09)
September 30 (9,946,543) (12,125,396) (1.67)
December 31 8,890,666 6,819,949 0.96
------------ ------------ ------
Total $(26,938,961) $(36,887,290) $(5.24)
============ ============ ======
1999
March 31 $ 5,848,294 $ 2,884,387 $ 0.47
June 30 7,913,608 5,940,003 0.92
September 30 19,157,974 15,366,886 2.34
December 31 6,635,742 3,937,794 0.57
------------ ------------ ------
Total $ 39,555,618 $ 28,129,070 $ 4.30
============ ============ ======
S-14
SPECTRUM GLOBAL BALANCED
SELECTED FINANCIAL DATA
FOR THE SIX MONTHS
ENDED JUNE 30, FOR THE YEARS ENDED DECEMBER 31,
------------------------ ---------------------------------------------------------------
2001 2000 2000 1999 1998 1997 1996
----------- ----------- ----------- ----------- ----------- ----------- -----------
$ $ $ $ $ $ $
(UNAUDITED) (UNAUDITED)
REVENUES
Trading profit (loss):
Realized 2,150,604 (1,504,246) (2,091,009) 2,425,585 5,113,920 3,683,460 177,564
Net change in
unrealized (3,667,080) (179,099) 2,507,530 (1,157,073) 1,285,628 464,966 (175,835)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total Trading Results (1,516,476) (1,683,345) 416,521 1,268,512 6,399,548 4,148,426 1,729
Interest income (Morgan
Stanley DW) 1,365,988 1,594,762 3,275,958 2,385,751 1,642,542 1,145,033 891,897
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total (150,488) (88,583) 3,692,479 3,654,263 8,042,090 5,293,459 893,626
---------- ---------- ---------- ---------- ---------- ---------- ----------
EXPENSES
Brokerage fees (Morgan
Stanley DW) 1,296,763 1,316,886 2,558,008 2,387,515 1,591,467 1,124,531 1,030,310
Management fees 352,385 357,853 695,117 648,787 422,960 269,162 221,282
Incentive fees -- -- -- 215,651 449,775 300,250 --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total 1,649,148 1,674,739 3,253,125 3,251,953 2,464,202 1,693,943 1,251,592
---------- ---------- ---------- ---------- ---------- ---------- ----------
NET INCOME (LOSS) (1,799,636) (1,763,322) 439,354 402,310 5,577,888 3,599,516 (357,966)
========== ========== ========== ========== ========== ========== ==========
NET INCOME (LOSS)
ALLOCATION:
Limited Partners (1,778,976) (1,742,636) 433,786 397,258 5,518,127 3,561,537 (354,537)
General Partner (20,660) (20,686) 5,568 5,052 59,761 37,979 (3,429)
NET INCOME (LOSS) PER
UNIT:
Limited Partners (0.51) (0.51) .14 .12 2.25 2.12 (.44)
General Partner (0.51) (0.51) .14 .12 2.25 2.12 (.44)
TOTAL ASSETS AT END OF
PERIOD 56,949,084 56,137,697 56,740,136 58,807,588 46,317,786 25,923,024 19,620,770
TOTAL NET ASSETS AT END
OF PERIOD 56,013,754 55,201,385 55,879,750 57,864,012 45,913,872 25,683,236 18,706,255
NET ASSET VALUE PER UNIT
AT END OF PERIOD
Limited Partners 15.75 15.61 16.26 16.12 16.00 13.75 11.63
General Partner 15.75 15.61 16.26 16.12 16.00 13.75 11.63
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
NET INCOME
(LOSS) PER
NET UNIT OF LIMITED
QUARTER ENDED REVENUE INCOME (LOSS) PARTNERSHIP INTEREST
------------- ------------ ------------- --------------------
2001
March 31 $ 815,020 $ 322 $ 0.00
June 30 (965,508) (1,799,958) (0.51)
------------ ------------ ------
Total $ (150,488) $ (1,799,636) $(0.51)
============ ============ ======
2000
March 31 $ 2,648,486 $ 1,802,642 $ 0.50
June 30 (2,737,069) (3,565,964) (1.01)
September 30 (945,255) (1,747,363) (0.50)
December 31 4,726,317 3,950,039 1.15
------------ ------------ ------
Total $ 3,692,479 $ 439,354 $ 0.14
============ ============ ======
1999
March 31 $ 630,078 $ (53,009) $(0.02)
June 30 1,514,075 557,217 0.19
September 30 (497,147) (1,293,488) (0.38)
December 31 2,007,257 1,191,590 0.33
------------ ------------ ------
Total $ 3,654,263 $ 402,310 $ 0.12
============ ============ ======
S-15
SPECTRUM CURRENCY
SELECTED FINANCIAL DATA
FOR THE PERIOD FROM
JULY 3, 2000
(COMMENCEMENT OF
FOR THE SIX MONTHS OPERATIONS) TO
ENDED JUNE 30, 2001 DECEMBER 31, 2000
-------------------- -------------------
$ $
(UNAUDITED)
REVENUES
Trading profit (loss):
Realized 1,370,713 1,126,201
Net change in unrealized (225,688) 555,569
---------- ----------
Total Trading Results 1,145,025 1,681,770
Interest income (Morgan Stanley DW) 369,134 236,461
---------- ----------
Total 1,514,159 1,918,231
---------- ----------
EXPENSES
Brokerage fees (Morgan Stanley DW) 494,645 249,571
Incentive fees 241,946 188,423
Management fees 215,063 171,693
---------- ----------
Total 951,654 609,687
---------- ----------
NET INCOME 562,505 1,308,544
========== ==========
NET INCOME ALLOCATION:
Limited Partners 511,710 1,134,371
General Partner 50,795 174,173
NET INCOME PER UNIT:
Limited Partners 0.33 1.17
General Partner 0.33 1.17
TOTAL ASSETS AT END OF PERIOD 30,876,998 18,056,724
TOTAL NET ASSETS AT END OF PERIOD 30,596,055 15,707,232
NET ASSET VALUE PER UNIT AT END OF PERIOD
Limited Partners 11.50 11.17
General Partner 11.50 11.17
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
NET INCOME
(LOSS) PER
UNIT OF LIMITED
QUARTER ENDED REVENUE NET INCOME (LOSS) PARTNERSHIP INTEREST
------------- ------------ ----------------- --------------------
2001
March 31 $ 1,783,392 $ 1,250,137 $ 0.65
June 30 (269,233) (687,632) (0.32)
------------ ------------ ------
Total $ 1,514,159 $ 562,505 $ 0.33
============ ============ ======
2000
September 30 $ 422,969 $ 215,504 $ 0.24
December 31 1,495,262 1,093,040 0.93
------------ ------------ ------
Total $ 1,918,231 $ 1,308,544 $ 1.17
============ ============ ======
S-16
SPECTRUM COMMODITY
SELECTED FINANCIAL DATA
FOR THE FOR THE PERIOD FROM
FOR THE SIX MONTHS YEARS ENDED JANUARY 2, 1998
ENDED JUNE 30, DECEMBER 31, (COMMENCEMENT OF
------------------------- ------------------------- OPERATIONS) TO
2001 2000 2000 1999 DECEMBER 31, 1998
----------- ----------- ----------- ----------- -------------------
$ $ $ $ $
(UNAUDITED) (UNAUDITED)
REVENUES
Trading profit (loss):
Realized (2,729,842) 1,344,767 1,696,824 3,003,270 (11,870,063)
Net change in unrealized (537,297) (889,124) (567,711) 1,178,071 (635,643)
---------- ---------- ---------- ---------- -----------
Total Trading Results (3,267,139) 455,643 1,129,113 4,181,341 (12,505,706)
Interest income (Morgan Stanley DW) 357,268 517,218 1,047,350 864,383 1,265,793
---------- ---------- ---------- ---------- -----------
Total (2,909,871) 972,861 2,176,463 5,045,724 (11,239,913)
---------- ---------- ---------- ---------- -----------
EXPENSES
Brokerage fees (Morgan Stanley DW, Morgan
Stanley and Morgan Stanley
International) 411,912 465,157 949,310 852,484 1,176,024
Management fees (Morgan Stanley
Commodities Management) 223,865 283,060 546,187 583,893 805,496
Service fee (Demeter) -- 58,604 58,604 233,558 322,198
---------- ---------- ---------- ---------- -----------
Total 635,777 806,821 1,554,101 1,669,935 2,303,718
---------- ---------- ---------- ---------- -----------
NET INCOME (LOSS) (3,545,648) 166,040 622,362 3,375,789 (13,543,631)
========== ========== ========== ========== ===========
NET INCOME (LOSS) ALLOCATION:
Limited Partners (3,483,539) 163,331 612,086 3,330,798 (13,398,948)
General Partner (62,109) 2,709 10,276 44,991 (144,683)
NET INCOME (LOSS) PER UNIT:
Limited Partners (1.43) .06 .24 1.04 (3.43)
General Partner (1.43) .06 .24 1.04 (3.43)
TOTAL ASSETS AT END OF PERIOD 15,603,253 22,129,389 20,809,721 24,048,757 25,962,970
TOTAL NET ASSETS AT END OF PERIOD 15,251,508 21,768,858 20,199,981 23,640,470 24,908,316
NET ASSET VALUE PER UNIT AT END OF PERIOD
Limited Partners 6.42 7.67 7.85 7.61 6.57
General Partner 6.42 7.67 7.85 7.61 6.57
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
NET INCOME
(LOSS) PER
NET UNIT OF LIMITED
QUARTER ENDED REVENUE INCOME (LOSS) PARTNERSHIP INTEREST
------------- ------------ ------------- --------------------
2001
March 31 $ (2,026,724) $ (2,367,820) $(0.94)
June 30 (883,147) (1,177,828) (0.49)
------------ ------------ ------
Total $ (2,909,871) $ (3,545,648) $(1.43)
============ ============ ======
2000
March 31 $ 553,360 $ 134,339 $ 0.04
June 30 419,501 31,701 0.02
September 30 457,330 77,861 0.03
December 31 746,272 378,461 0.15
------------ ------------ ------
Total $ 2,176,463 $ 622,362 $ 0.24
============ ============ ======
1999
March 31 $ 1,039,461 $ 618,112 $ 0.19
June 30 544,092 129,771 0.04
September 30 2,962,971 2,553,417 0.78
December 31 499,200 74,489 0.03
------------ ------------ ------
Total $ 5,045,724 $ 3,375,789 $ 1.04
============ ============ ======
S-17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THE FOLLOWING UPDATES, FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000, AND
SUPPLEMENTS THE INFORMATION FOR EACH PARTNERSHIP (EXCEPT FOR SPECTRUM CURRENCY)
UNDER THE SUB-CAPTIONS "RESULTS OF OPERATIONS" ON PAGES 45-47, 48-49, 50-51,
52-53, 54, AND 54-56. SINCE SPECTRUM CURRENCY COMMENCED OPERATIONS JULY 3, 2000,
COMPARATIVE INFORMATION IS NOT AVAILABLE FOR THE SIX MONTHS ENDED JUNE 30, 2000.
SPECTRUM SELECT
FOR THE SIX MONTHS ENDED JUNE 30, 2001.
For the six months ended June 30, 2001, Spectrum Select posted an increase
in net asset value per unit. The most significant gains of approximately 3.7%
were recorded during January in the global interest rate futures markets from
long positions in Japanese government bond futures as prices moved higher on
concerns regarding that country's economy. During May and June, profits were
recorded from long positions in Japanese interest rate futures as prices rose in
response to the Japanese government's pledge for fiscal reform. Additional gains
were recorded throughout the majority of the first quarter from long positions
in eurodollar futures as prices rose amid a rattled stock market, shaky consumer
confidence, positive inflation data and interest rate cuts by the U.S. Federal
Reserve. In the currency markets, profits of approximately 2.0% were recorded
throughout a majority of the first quarter from short positions in the Japanese
yen as its value weakened relative to the U.S. dollar on continuing concerns for
the Japanese economy and in both anticipation and reaction to the Bank of
Japan's decision to reinstate its zero interest rate policy. In the metals
markets, gains of approximately 0.6% were recorded from short copper futures
positions as the slowdown in the U.S. economy and weak demand continued to drive
prices lower. These gains were partially offset by losses of approximately 1.2%
recorded throughout a majority of the first quarter in the energy markets from
long positions in natural gas futures as prices reversed the sharp upward trend
experienced in late 2000 amid bearish inventory data and forecasts for favorable
weather. In the agricultural markets, losses of approximately 0.3% were
experienced primarily during the first quarter from long corn futures positions
as prices moved lower due to favorable South American weather.
For the six months ended June 30, 2001, Spectrum Select recorded total
trading revenues, including interest income, of $13,988,194. Total expenses for
the six months ended June 30, 2001 were $12,553,302, resulting in net income of
$1,434,892. The net asset value of a unit increased from $23.57 at December 31,
2000 to $23.75 at June 30, 2001.
FOR THE SIX MONTHS ENDED JUNE 30, 2000.
For the six months ended June 30, 2000, Spectrum Select posted a decrease in
net asset value per unit. The most significant losses of approximately 4.6% were
recorded in the global interest rate futures markets during April from long
positions in U.S. interest rate futures as prices declined amid fears of higher
interest rates and a late month bounce in equity prices. In the global stock
index futures markets, losses of approximately 3.5% were incurred from long
positions in Hang Seng Index futures as most global equity prices reversed lower
in early January amid fears of interest rate hikes. During April, Japanese
equity prices, particularly technology issues, declined sharply following the
downward move of U.S. stock prices thus resulting in losses for long Nikkei
Index futures positions. Additional losses were experienced primarily during
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. In the metals markets, losses of approximately 3.1% were experienced from
long positions in copper and aluminum futures as prices reversed lower in
February. During May, most base metals prices declined amid technically based
selling, thus resulting in additional losses in these markets. In the
agricultural markets, losses of approximately 1.1% 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. corn and soy growing
regions. These losses were partially offset by gains of approximately 5.2%
recorded primarily during May in the energy markets from long positions in
natural gas futures as prices continued their upward trend, as data released by
the American Gas Association further confirmed fears that inventory levels
remain low. Adding to supply concerns were fears that the U.S. demand will
outstrip production this summer, when inventories are typically refilled for the
winter. Additional gains were recorded primarily during January and February
from long futures positions in crude oil and its refined products as oil prices
increased on
S-18
concerns about future output levels from the world's leading producer countries
amid dwindling stockpiles and increasing demand. In the currency markets, gains
of approximately 1.2% were recorded primarily during January and March 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. Additional gains were recorded during April from short
positions in the euro as its value dropped versus the U.S. dollar due to the
European Central Bank's ("ECB") passive stance towards its currency and
increasing concern that the ECB should be more aggressive in combating
inflation. In the soft commodities markets, gains of approximately 0.3% were
recorded from long positions in sugar futures as sugar prices trended higher due
to strong demand and declining production from Brazil.
For the six months ended June 30, 2000, Spectrum Select recorded total
trading losses, net of interest income, of $6,115,049. Total expenses for the
six months ended June 30, 2000 were $10,821,335, resulting in a net loss of
$16,936,384. The net asset value of a unit decreased from $22.00 at
December 31, 1999 to $20.25 at June 30, 2000.
SPECTRUM TECHNICAL
FOR THE SIX MONTHS ENDED JUNE 30, 2001.
For the six months ended June 30, 2001, Spectrum Technical posted a decrease
in net asset value per unit. The most significant losses of approximately 6.5%
were recorded in the energy markets throughout the first six months of the year
from crude oil futures and its related products as a result of volatility in oil
prices due to a continually changing outlook for supply, production and demand.
In the agricultural markets, losses of approximately 0.3% were experienced
primarily during January from long corn and soybean meal futures positions as
prices moved lower due to favorable South American weather. These losses were
partially offset by gains of approximately 4.4% recorded in the global interest
rate futures markets primarily 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 currency markets, profits of
approximately 3.3% were recorded throughout the majority of the first quarter
from short positions in the Japanese yen as the value of the yen weakened
relative to the U.S. dollar on continuing concerns for the Japanese economy and
in both anticipation and reaction to the Bank of Japan's decision to reinstate
its zero interest rate policy.
For the six months ended June 30, 2001, Spectrum Technical recorded total
trading revenues, including interest income, of $5,073,089. Total expenses for
the six months ended June 30, 2001 were $15,386,499, resulting in a net loss of
$10,313,410. The net asset value of a unit decreased from $16.08 at
December 31, 2000 to $15.46 at June 30, 2001.
FOR THE SIX MONTHS ENDED JUNE 30, 2000.
For the six months ended June 30, 2000, Spectrum Technical posted a decrease
in net asset value per unit. The most significant losses of approximately 9.1%
were recorded in the global interest rate futures markets primarily during April
and early May from long positions in U.S. interest rate futures as prices
declined amid fears of additional interest rate hikes by the U.S. Federal
Reserve to snuff out inflationary pressures. Newly established short positions
incurred additional losses later in May and during June as prices moved higher
amid signs that U.S. economic growth has slowed and the prospects of additional
interest rate hikes by the Federal Reserve were fading. This short-term
volatility in U.S. bond prices also resulted in losses being recorded from
trading longer-term European interest rate futures, particularly German interest
rate futures. In the metals markets, losses of approximately 3.9% were
experienced primarily from short gold futures positions as gold prices spiked
sharply higher on February 4, as short covering, rumored producer hedge
unwinding and fresh buying fueled panicky rallies. Newly established long
positions in gold futures produced additional losses later in February as gold
prices fell. In the agricultural markets, losses of approximately 1.3% were
incurred primarily during May and June from long positions in wheat and corn
futures as grain prices moved lower due to heavy rain in the key U.S. growing
regions. In the currency markets, losses of approximately 1.1% were incurred
primarily during April from long positions in the Japanese yen as the value of
the yen weakened versus the U.S. dollar amid fears of additional Bank of Japan
intervention. During May and June, losses were recorded from short positions in
the Japanese yen as its value reversed higher versus the U.S. dollar following
hints by Bank of Japan governor Hayami of the possible end of the zero interest
rate policy in Japan. The U.S. dollar continued to weaken versus the yen during
June due to the perception that interest rates in the U.S.
S-19
may have topped out. These losses were partially offset by gains of
approximately 9.5% recorded primarily during May from long positions in natural
gas futures as prices continued their upward trend, as data released by the
American Gas Association further confirmed fears that inventory levels remain
low. Adding to supply concerns were fears that the U.S. demand will outstrip
production this summer, when inventories are typically refilled for the winter.
Additional gains were recorded primarily during January and February 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, profits of approximately 0.6% were recorded primarily
during May and June from long sugar futures positions as prices moved higher due
to strong demand and declining production from Brazil.
For the six months ended June 30, 2000, Spectrum Technical recorded total
trading losses, net of interest income, of $7,844,903. Total expenses for the
six months ended June 30, 2000 were $14,793,807, resulting in a net loss of
$22,638,710. The net asset value of a unit decreased from $14.91 at
December 31, 1999 to $13.64 at June 30, 2000.
SPECTRUM STRATEGIC
FOR THE SIX MONTHS ENDED JUNE 30, 2001.
For the six months ended June 30, 2001, Spectrum Strategic posted a decrease
in net asset value per unit. The most significant losses of approximately 2.1%
were recorded in the metals markets throughout a majority of the first quarter
from long positions in copper and aluminum futures as prices moved lower,
pressured by the decline in the U.S. equity market and concerns over demand. In
the global stock index futures markets, losses of approximately 2.1% were
experienced throughout a majority of the first quarter from long positions in
U.S. stock index futures as U.S. stock prices continued to decline after
discouraging corporate earnings warnings, inflationary news and on worries of a
U.S. economic slowdown. In the agricultural markets, losses of approximately
1.8% were experienced primarily during May and June from long wheat futures
positions as prices declined amid favorable weather forecasts in the U.S.
Midwest and weak global demand. In the currency markets, losses of approximately
1.6% were recorded primarily from long positions in the New Zealand dollar as
its value weakened relative to the U.S. dollar following a decline in the
Australian dollar. Offsetting gains were recorded throughout a majority of the
first quarter from short positions in the Japanese yen as the value of the yen
weakened relative to the U.S. dollar on continuing concerns for the Japanese
economy and in both anticipation and reaction to the Bank of Japan's decision to
reinstate its zero interest rate policy. These losses were partially offset by
gains of approximately 3.9% recorded in soft commodities primarily during April
and May from long lumber futures positions as prices soared higher amid low
inventories combined with warmer weather in northern Canada. In the global
interest rate futures markets, gains of approximately 2.4% were recorded
throughout a majority of the first quarter from long positions in eurodollar
futures as proves rose amid a rattled stock market, shaky consumer confidence,
positive inflation data and interest rate cuts by the U.S. Federal Reserve.
For the six months ended June 30, 2001, Spectrum Strategic recorded total
trading revenues, including interest income, of $515,478. Total expenses for the
six months ended June 30, 2001 were $3,783,583, resulting in a net loss of
$3,268,105. The net asset value of a unit decreased from $10.61 at December 31,
2000 to $10.13 at June 30, 2001.
FOR THE SIX MONTHS ENDED JUNE 30, 2000.
For the six months ended June 30, 2000, Spectrum Strategic posted a decrease
in net asset value per unit. The most significant losses of approximately 13.1%
were recorded in the metals markets primarily from long positions in aluminum
and copper futures as prices reversed lower in early February due primarily to
technically based selling. In late February and late March, prices continued
lower, led downward by falling prices of other base metals and the softening of
oil prices. Additional losses were recorded during April, late May and early
June from long positions in aluminum and copper futures as prices declined on
technical factors. In the global stock index futures markets, losses of
approximately 11.6% were incurred from short positions in U.S. stock index
futures as domestic equity prices moved higher in early January on fears of an
interest rate hike and reports of a major corporate merger. Additional losses
were recorded during February from short positions in NASDAQ 100 Index futures
as the NASDAQ Index climbed higher on strength in computer-chip maker and
biotechnology companies. In
S-20
the global interest rate futures markets, losses of approximately 10.0% were
experienced from short positions in the U.S. Treasury bond futures as interest
rates at the longer end of the yield curve declined during the second half of
January, thus resulting in domestic bond prices being pushed higher. During
February, losses were incurred from short positions in German interest rate
futures as prices increased following a surge in U.S. bond prices. During April,
additional losses were recorded from long positions in U.S. interest rate
futures as prices declined amid fears of higher interest rates and a late month
bounce in equity prices. In the currency markets, losses of approximately 8.7%
were recorded primarily during April from long positions in the Japanese yen as
the value of the yen weakened versus the U.S. dollar amid fears of additional
Bank of Japan intervention. Losses were also recorded from short positions in
the Japanese yen as the value of the U.S. dollar weakened verses the yen during
May and June due primarily to the perception that interest rates in the U.S. may
have topped out. Additional losses were recorded during January and February
from long positions in the euro as the value of the European common currency
weakened versus the U.S. dollar due to skepticism regarding Europe's economic
outlook. In soft commodities, losses of approximately 5.5% were recorded during
January, February and early April from long coffee futures positions as coffee
prices declined in the wake of forecasts for a bumper crop in Brazil and on
technically based selling. These losses were partially offset by gains of
approximately 18.2% recorded primarily during January in the energy markets from
long futures positions in crude oil and its refined products as oil prices
increased on growing speculation that Organization of Petroleum Exporting
Countries ("OPEC") would extend production cuts beyond the deadline of March
2000. Additional gains were recorded during March from short positions in crude
oil futures as prices declined after OPEC effectively restored production levels
to their year-earlier level. Additional gains were recorded early in May from
long futures positions in crude oil as oil prices increased amid concerns over
tight gasoline supplies ahead of the peak driving summer season and after
comments from OPEC ministers who saw no need to raise supplies further. Profits
were also recorded primarily during May from long positions in natural gas
futures as prices continued their upward trend, as data released by the American
Gas Association further confirmed fears that inventory levels remain low.
For the six months ended June 30, 2000, Spectrum Strategic recorded total
trading losses, net of interest income, of $25,883,084. Total expenses for the
six months ended June 30, 2000 were $5,698,759, resulting in a net loss of
$31,581,843. The net asset value of a unit decreased from $15.85 at December 31,
1999 to $11.32 at June 30, 2000.
SPECTRUM GLOBAL BALANCED
FOR THE SIX MONTHS ENDED JUNE 30, 2001.
For the six months ended June 30, 2001, Spectrum Global Balanced posted a
decrease in net asset value per unit. The most significant losses of
approximately 3.5% were recorded in the global stock index futures markets
primarily during February, March, May and June from long positions in U.S.,
German and British stock index futures as global stock prices continued to trend
lower on worries that the U.S. economic slowdown will ignite a global downturn
and corporate earnings will suffer. In the energy markets, losses of
approximately 0.8% were experienced throughout the first six months of the year
from crude oil futures and its related products as a result of volatility in oil
prices due to a continually changing outlook for supply, production and demand.
In the agricultural markets, losses of approximately 0.3% were recorded
primarily during February and April from short positions in soybean oil futures
as prices increased on technically-based factors. These losses were partially
offset by gains of approximately 1.1% recorded in the soft commodities markets
throughout a majority of the first and second quarters from short cotton futures
positions as prices moved lower on weak export sales and low demand. In the
global interest rate futures markets, gains of approximately 0.6% were recorded
primarily during January from long positions in eurodollar futures as prices
moved higher due to a surprise interest rate cut by the U.S. Federal Reserve on
January 3 and the subsequent anticipation of an additional interest rate cut by
the U.S. Federal Reserve later in January. In the currency markets, gains of
approximately 0.4% were recorded throughout a majority of the second quarter
from long positions in the Mexican peso as its value strengthened relative to
the U.S. dollar.
For the six months ended June 30, 2001, Spectrum Global Balanced recorded
total trading losses, net of interest income, of $150,488. Total expenses for
the six months ended June 30, 2001 were $1,649,148, resulting in a net loss of
$1,799,636. The net asset value of a unit decreased from $16.26 at December 31,
2000 to $15.75 at June 30, 2001.
S-21
FOR THE SIX MONTHS ENDED JUNE 30, 2000.
For the six months ended June 30, 2000, Spectrum Global Balanced posted a
decrease in net asset value per unit. The most significant losses of
approximately 2.7% were recorded in the global stock index futures component
primarily during April and May from long positions in Nikkei Index futures as
Japanese equity prices declined due primarily to the weakness in most global
technology issues and political uncertainty in Japan. Additional losses were
recorded from long positions in FTSE Index futures as British stock prices
decreased. In the currency markets, losses of approximately 1.1% were recorded
primarily during May and June from short euro positions relative to the
Australian and U.S. dollars as the value of the euro reversed higher amid
suggestions that intervention to support the euro was a possibility and interest
rate hikes in Europe. In the livestock markets, losses of approximately 0.7%
were recorded during January from long positions in live cattle futures as
prices declined after the USDA raised its forecast for U.S. red meat production
in 2000. In the agricultural markets, losses of approximately 0.3% were
experienced from long corn futures positions as prices declined in late March
amid rainfall in the U.S. Midwest. Early in February, losses were incurred from
long positions in soybean oil as soybean prices moved lower following rains in
the growing region of South America, particularly Brazil. These losses were
partially offset by gains of approximately 1.9% recorded in the energy markets
primarily during May from long positions in natural gas futures as prices
continued their upward trend, as data released by the American Gas Association
further confirmed fears that inventory levels remain low. Additional gains were
recorded during February from long positions in crude oil futures as prices
increased due to a combination of cold weather, declining inventories and
increasing demand. Gains were also recorded during June as oil prices surged in
reaction to the dismissal by OPEC of a price setting mechanism and a promise of
a modest production increase.
For the six months ended June 30, 2000, Spectrum Global Balanced recorded
total trading losses, net of interest income, of $88,583. Total expenses for the
six months ended June 30, 2000 were $1,674,739, resulting in a net loss of
$1,763,322. The net asset value of a unit decreased from $16.12 at December 31,
1999 to $15.61 at June 30, 2000.
SPECTRUM CURRENCY
FOR THE SIX MONTHS ENDED JUNE 30, 2001.
For the six months ended June 30, 2001, Spectrum Currency posted an increase
in net asset value per unit. The most significant gains of approximately 4.9%
were recorded throughout the majority of the first quarter from short positions
in the Japanese yen as the value of the yen weakened relative to the U.S. dollar
on continuing concerns for the Japanese economy and in both anticipation and
reaction to the Bank of Japan's decision to reinstate its zero interest rate
policy. Profits of approximately 3.8% were also recorded from short positions in
the Singapore dollar as its value weakened versus the U.S. dollar on the heels
of the declining Japanese yen. Additional gains of approximately 1.3% were
recorded primarily during May from short positions in the euro and Swiss franc
as the value of these European currencies weakened relative to the U.S. dollar
following reports of weak European economic data. These gains were partially
offset by losses of approximately 2.7% recorded primarily during January from
long positions in the South African rand versus the U.S. dollar as the value of
the rand weakened and the U.S. dollar gained support as several officials of the
world's major central banks soothed fears of a hard economic landing in the U.S.
Additional losses were recorded throughout the second quarter from South African
rand positions. Losses of approximately 1.8% were experienced primarily during
May and early June from long positions in the British pound as its value
weakened relative to the U.S. dollar in reaction to reports that British Prime
Minister Blair will push for Great Britain's entry into the European Monetary
Union.
For the six months ended June 30, 2001, Spectrum Currency recorded total
trading revenues, including interest income, of $1,514,159. Total expenses for
the six months ended June 30, 2001 were $951,654, resulting in net income of
$562,505. The net asset value of a unit increased from $11.17 at December 31,
2000 to $11.50 at June 30, 2001.
SPECTRUM COMMODITY
FOR THE SIX MONTHS ENDED JUNE 30, 2001.
For the six months ended June 30, 2001, Spectrum Commodity posted a decrease
in net asset value per unit. The most significant losses of approximately 5.9%
were recorded throughout the six month
S-22
period in energy markets from long positions in natural gas futures as prices
reversed the sharp upward trend experienced in late 2000 amid reports of
increased inventories and forecasts for favorable weather. In the metals
markets, losses of approximately 4.6% were recorded primarily during February,
March, May and June from long positions in copper and aluminum futures as the
slowdown in the U.S. economy and weak demand drove prices lower. In the
agricultural markets, losses of approximately 4.4% were experienced primarily
during January, March and a majority of the second quarter from long positions
in corn and wheat futures as prices moved lower due to favorable weather
forecasts and on reports of declining demand. In soft commodities, losses of
approximately 3.0% were incurred throughout a majority of the period from long
cotton futures positions as prices moved lower on weak export sales and low
demand.
For the six months ended June 30, 2001, Spectrum Commodity recorded total
trading losses, net of interest income, of $2,909,871. Total expenses for the
six months ended June 30, 2001 were $635,777, resulting in a net loss of
$3,545,648. The net asset value of a unit decreased from $7.85 at December 31,
2000 to $6.42 at June 30, 2001.
FOR THE SIX MONTHS ENDED JUNE 30, 2000.
For the six months ended June 30, 2000, Spectrum Commodity posted an
increase in net asset value per unit. The most significant gains of
approximately 10.9% were recorded in the energy markets primarily during May
from long positions in natural gas futures as prices continued their upward
trend, as data released by the American Gas Association further confirmed fears
that inventory levels remain low. Additional gains were recorded during January
and February 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.
These gains were partially offset by losses of approximately 3.4% incurred in
the metals markets primarily from long aluminum and copper futures positions as
prices reversed lower earlier in February due primarily to technically based
selling. Losses were also recorded during March from long gold futures positions
as gold prices fell on fears that the French central bank could decide to sell
some of its reserves. In soft commodities, losses of approximately 3.3% were
recorded primarily during January and February from long coffee futures
positions as coffee prices declined in the wake of forecasts for a bumper crop
in Brazil. Additional losses were recorded throughout a majority of the second
quarter from long coffee futures positions as prices decreased on technical
factors. In the agricultural markets, losses of approximately 1.8% were recorded
primarily during April and June from long positions in corn futures as prices
dropped due to heavy rain and cooler temperatures in the major corn producing
regions.
For the six months ended June 30, 2000, Spectrum Commodity recorded total
trading revenues, including interest income, of $972,861. Total expenses for the
six months ended June 30, 2000 were $806,821, resulting in net income of
$166,040. The net asset value of a unit increased from $7.61 at December 31,
1999 to $7.67 at June 30, 2000.
S-23
QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
THE FOLLOWING UPDATES AND SUPPLEMENTS THE INFORMATION FOR EACH PARTNERSHIP
UNDER THE SUB-CAPTION "--EACH PARTNERSHIP'S VALUE AT RISK IN DIFFERENT MARKET
SECTORS" ON PAGES 58-60.
The following tables indicate the VaR associated with each partnership's
open positions, as a percentage of total net assets, by primary market risk
category as of June 30, 2001 and 2000.
SPECTRUM SELECT:
As of June 30, 2001 and 2000, Spectrum Select's total capitalization was
approximately $229 million and $194 million, respectively.
VAR
MARKET CATEGORY 2001 2000
--------------- -------- --------
% %
Currency.................................................... (1.98) (0.36)
Interest Rate............................................... (0.76) (0.87)
Equity...................................................... (0.32) (0.22)
Commodity................................................... (0.73) (1.45)
Aggregate Value at Risk..................................... (2.10) (1.68)
SPECTRUM TECHNICAL:
As of June 30, 2001 and 2000, Spectrum Technical's total capitalization was
approximately $261 million and $240 million, respectively.
VAR
MARKET CATEGORY 2001 2000
--------------- -------- --------
% %
Currency.................................................... (1.59) (0.93)
Interest Rate............................................... (1.25) (1.57)
Equity...................................................... (0.65) (0.47)
Commodity................................................... (0.63) (1.32)
Aggregate Value at Risk..................................... (2.06) (2.25)
SPECTRUM STRATEGIC:
As of June 30, 2001 and 2000, Spectrum Strategic's total capitalization was
approximately $69 million and $81 million, respectively.
VAR
MARKET CATEGORY 2001 2000
--------------- -------- --------
% %
Interest Rate............................................... (0.64) (0.29)
Currency.................................................... (0.32) (0.91)
Equity...................................................... (0.06) (0.18)
Commodity................................................... (0.98) (1.62)
Aggregate Value at Risk..................................... (1.18) (1.97)
S-24
SPECTRUM GLOBAL BALANCED:
As of June 30, 2001 and 2000, Spectrum Global Balanced's total
capitalization was approximately $56 million and $55 million, respectively.
VAR
MARKET CATEGORY 2001 2000
--------------- -------- --------
% %
Equity...................................................... (0.80) (1.06)
Interest Rate............................................... (0.66) (0.84)
Currency.................................................... (0.60) (0.46)
Commodity................................................... (0.32) (0.39)
Aggregate Value at Risk..................................... (1.34) (1.42)
SPECTRUM CURRENCY:
As of June 30, 2001, Spectrum Currency's total capitalization was
approximately $31 million.
VAR
MARKET CATEGORY 2001
--------------- ----
%
Currency.................................................... (2.63 )
Aggregate Value at Risk..................................... (2.63 )
SPECTRUM COMMODITY:
As of June 30, 2001 and 2000, Spectrum Commodity's total capitalization was
approximately $15 million and $22 million, respectively.
VAR
MARKET CATEGORY 2001 2000
--------------- -------- --------
% %
Commodity................................................... (1.58) (1.70)
Aggregate Value at Risk..................................... (1.58) (1.70)
Aggregate Value at Risk, listed above for each partnership, represents the
aggregate VaR of all of a partnership's open positions and not the sum of the
VaR of the individual market categories. Aggregate VaR will be lower as it takes
into account correlation among the different positions and categories.
The tables above represent the VaR of each partnership's open positions at
June 30, 2001 and 2000 only and are not necessarily representative of either the
historic or future risk of an investment in these partnerships. Because the only
business of each partnership is the speculative trading of futures, forwards,
and options, the composition of a partnership's 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 tables below supplement the June 30, 2001 VaR (set forth above) by
presenting each partnership's high, low, and average VaR, as a percentage of
total net assets, for the four quarterly reporting periods from July 1, 2000
through June 30, 2001.
SPECTRUM SELECT
MARKET CATEGORY HIGH LOW AVERAGE
--------------- -------- -------- --------
% % %
Currency............. (1.98) (0.58) (1.09)
Interest Rate........ (2.33) (0.76) (1.43)
Equity............... (0.55) (0.24) (0.40)
Commodity............ (1.35) (0.59) (0.83)
Aggregate Value at
Risk............... (2.65) (1.87) (2.17)
SPECTRUM TECHNICAL
MARKET CATEGORY HIGH LOW AVERAGE
--------------- -------- -------- --------
% % %
Currency.............. (1.80) (1.27) (1.49)
Interest Rate......... (3.03) (1.00) (1.87)
Equity................ (1.05) (0.56) (0.72)
Commodity............. (1.65) (0.57) (0.92)
Aggregate Value at
Risk................ (3.42) (2.06) (2.73)
S-25
SPECTRUM STRATEGIC
MARKET CATEGORY HIGH LOW AVERAGE
--------------- -------- -------- --------
% % %
Interest Rate........ (1.41) (0.25) (0.90)
Currency............. (0.78) (0.32) (0.55)
Equity............... (0.90) (0.06) (0.42)
Commodity............ (2.18) (0.98) (1.50)
Aggregate Value at
Risk............... (2.34) (1.18) (1.98)
SPECTRUM GLOBAL BALANCED
MARKET CATEGORY HIGH LOW AVERAGE
--------------- -------- -------- --------
% % %
Equity................ (0.80) (0.53) (0.65)
Interest Rate......... (1.16) (0.63) (0.88)
Currency.............. (0.67) (0.38) (0.54)
Commodity............. (0.32) (0.28) (0.31)
Aggregate Value at
Risk................ (1.62) (1.02) (1.36)
SPECTRUM CURRENCY
MARKET CATEGORY HIGH LOW AVERAGE
--------------- ---- --- -------
% % %
Currency............. (2.85) (2.12) (2.53)
Aggregate Value at
Risk............... (2.85) (2.12) (2.53)
SPECTRUM COMMODITY
MARKET CATEGORY HIGH LOW AVERAGE
--------------- ---- --- -------
% % %
Commodity............ (1.71) (1.57) (1.63)
Aggregate Value at
Risk............... (1.71) (1.57) (1.63)
THE FOLLOWING REPLACES THE INFORMATION UNDER THE SUB-CAPTION "--NON-TRADING
RISK" ON PAGE 60.
Each 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. Each partnership also maintains a substantial portion (approximately
89-94%) of its available assets in cash at Morgan Stanley DW. A decline in
short-term interest rates will result in a decline in a partnership's cash
management income. This cash flow risk is not considered to be 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 a
partnership's market sensitive instruments, in relation to the partnership's net
assets.
THE FOLLOWING UPDATES AND SUPPLEMENTS THE INFORMATION FOR EACH PARTNERSHIP
UNDER THE SUB-CAPTION "--QUALITATIVE DISCLOSURES REGARDING PRIMARY TRADING RISK
EXPOSURES" ON PAGES 61-66.
SPECTRUM SELECT
The following were the primary trading risk exposures of Spectrum Select as
of June 30, 2001, by market sector. It may be anticipated, however, that these
market exposures will vary materially over time.
CURRENCY. The primary market exposure of Spectrum Select at June 30, 2001
was to the currency sector. The partnership's currency exposure was 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 second quarter of 2001, the partnership's major exposures were to euro
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. The general partner 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.
INTEREST RATE. The second largest market exposure of the partnership at
June 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
S-26
Canada. However, the partnership also takes futures positions in the government
debt of smaller nations--e.g. Australia and Spain. The general partner
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 the 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. At June 30, 2001, the partnership's primary exposures were to the
DAX (Germany), Hang Seng (China) and S&P 500 (U.S.) stock indices. The stock
index futures traded by the partnership are by law limited to futures on
broadly-based indices. Historically, the partnership has been exposed to the
risk of adverse price trends or static markets in the U.S., European, and
Japanese indices, primarily the G-7 countries. Static markets would not cause
major market changes but would make it difficult for the partnership to avoid
being "whipsawed" into numerous small losses.
COMMODITY
METALS. The partnership's primary metals market exposure at June 30, 2001
was 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, lead and tin, the principal market exposures of the partnership
have consistently been to precious metals. Gold and silver prices continued to
be volatile during the quarter. The trading advisors, from time to time, take
positions when market opportunities develop.
ENERGY. At June 30, 2001, the partnership's energy exposure was shared
primarily by futures contracts in the crude oil and natural gas markets. 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 this
market. 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 June 30, 2001, the partnership had
exposure to the markets that comprise these sectors. Most of the exposure,
however, was to sugar, orange juice, soybeans and its related products markets.
Supply and demand inequalities, severe weather disruption, and market
expectations affect price movements in these markets.
SPECTRUM TECHNICAL
The following were the primary trading risk exposures of Spectrum Technical
as of June 30, 2001, by market sector. It may be anticipated, however, that
these market exposures will vary materially over time.
CURRENCY. The primary market exposure of Spectrum Technical at June 30,
2001 was to the currency sector. The partnership's currency exposure was 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 second quarter of 2001, the partnership's major exposures
were to euro 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. The general partner 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.
INTEREST RATE. The second largest market exposure at June 30, 2001 was in
the global interest rate complex. Exposure was primarily spread across the
European, U.S., 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 consist of France, U.S., Britain, Germany, Japan, Italy and
Canada. However, the partnership also takes futures positions in the
S-27
government debt of smaller nations--e.g. Australia. The general partner
anticipates that G-7 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 at June 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 June 30, 2001, the
partnership's primary exposures were to the NASDAQ (U.S.), DAX (Germany) and
FTSE (Britain) 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
ENERGY. At June 30, 2001, the partnership's energy exposure was shared
primarily by futures contracts in the crude oil and natural gas markets. 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 this
market. 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 June 30, 2001, the partnership had
exposure to the markets that comprise these sectors. Most of the exposure,
however, was to the sugar, corn, cocoa and livestock markets. Supply and demand
inequalities, severe weather disruption, and market expectations affect price
movements in these markets.
METALS. The partnership's primary metals market exposure at June 30, 2001
was 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, lead and tin, the principal market exposures of the partnership
have consistently been to precious metals, such as gold and silver. Market
exposure to precious metals was evident, as gold prices continued to be volatile
during the quarter. Silver prices remained volatile over this period as well.
The trading advisors' have, from time to time, taken positions as they have
perceived market opportunities to develop.
SPECTRUM STRATEGIC
The following were the primary trading exposures of Spectrum Strategic as of
June 30, 2001, by market sector. It may be anticipated, however, that these
market exposures will vary materially over time.
INTEREST RATE. At June 30, 2001, Spectrum Strategic's exposure in the
interest rate market complex was primarily spread across the U.S., European 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
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. The general partner anticipates that G-7 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.
CURRENCY. The partnership's currency exposure at June 30, 2001 was 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
S-28
between two currencies other than the U.S. dollar. For the second quarter of
2001, the partnership's major exposures were to outright U.S. dollar positions.
Outright positions consist of the U.S. dollar vs. other currencies. These other
currencies include major and minor currencies. The general partner 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 June 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 June 30, 2001, the
partnership's primary exposures were to the S&P 500 (U.S.), DAX (Germany), and
Nikkei (Japan) 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
ENERGY. The primary market exposure of the partnership at June 30, 2001 was
to the energy sector. At June 30, 2001, the partnership's energy exposure was
shared primarily by futures contracts in the crude oil and natural gas markets.
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 this
market. 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 June 30, 2001, the partnership had
exposure to the markets that comprise these sectors. Most of the exposure,
however, was to the wheat, soybeans and lumber markets. Supply and demand
inequalities, severe weather disruption, and market expectations affect price
movements in these markets.
METALS. The partnership's metals market exposure at June 30, 2001 was
primarily to fluctuations in the price of base metals. During periods of
volatility, base metals will affect performance dramatically. Certain trading
advisors will, from time to time, trade precious metals, such as gold. Market
exposure to the gold market was evident, as gold prices continued to be volatile
during the quarter. The general partner anticipates that the base metals will
remain the primary metals market exposure of the partnership.
SPECTRUM GLOBAL BALANCED
The following were the primary trading risk exposures of Spectrum Global
Balanced as of June 30, 2001, by market sector. It may be anticipated, however,
that these market exposures will vary materially over time.
EQUITY. The primary market exposure of Spectrum Global Balanced at
June 30, 2001 was to the global stock index complex. The primary equity exposure
was to equity price risk in the G-7 countries. The G-7 countries consist of
France, U.S., Britain, Germany, Japan, Italy and Canada. The stock index futures
traded by the partnership are by law limited to futures on broadly-based
indices. At June 30, 2001, the partnership's primary exposures were to the
S&P 500 (U.S.), DAX (Germany) and Nikkei (Japan) 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.
INTEREST RATE. The second largest market exposure at June 30, 2001 was in
the global interest rate complex. Exposure was primarily spread across the U.S.
and European interest rate sectors. Interest rate movements directly affect the
price of the sovereign bond futures positions held by the partnership and
indirectly affect the value of its stock index and currency positions. Interest
rate movements in one country as well as relative interest rate movements
between countries materially impact the partnership's profitability. The
partnership's primary interest rate exposure is generally to interest rate
fluctuations in the United States and the other G-7 countries. However, the
partnership also takes futures positions in the government debt of smaller
nations--e.g. Australia. The general partner anticipates that G-7 and Australian
S-29
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.
CURRENCY. The partnership's currency exposure at June 30, 2001 was 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 second quarter of 2001, the partnership's major exposures
were to 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 major and minor currencies. The general partner 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.
ENERGY. At June 30, 2001, the partnership's energy exposure was shared
primarily by futures contracts in the crude oil and natural gas markets. 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 this
market. 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 June 30, 2001, the partnership had
exposure to the markets that comprise these sectors. Most of the exposure,
however, was to the corn, sugar, and cotton markets. Supply and demand
inequalities, severe weather disruption, and market expectations affect price
movements in these markets.
METALS. The partnership's metals market exposure at June 30, 2001 was to
fluctuations in the price of base metals. During periods of volatility, base
metals will affect performance dramatically. The general partner anticipates
that the base metals will remain the primary metals market exposure of the
partnership.
SPECTRUM CURRENCY
The following was the primary trading risk exposure of Spectrum Currency as
of June 30, 2001. It may be anticipated, however, that market exposure will vary
materially over time.
CURRENCY. Spectrum Currency's currency exposure at June 30, 2001 was 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. For
the second quarter of 2001, the partnership's major exposures were to outright
U.S. dollar positions. Outright positions consist of the U.S. dollar vs. other
currencies. These other currencies include major and minor currencies. The
general partner 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.
SPECTRUM COMMODITY
The following were the primary trading risk exposures of Spectrum Commodity
as of June 30, 2001, by market sector. It may be anticipated, however, that
these market exposures will vary materially over time.
S-30
COMMODITY
SOFT COMMODITIES AND AGRICULTURALS. At June 30, 2001, the partnership had
exposure to the markets that comprise these sectors. Most of the exposure,
however, was to the cocoa, wheat, coffee and corn markets. Supply and demand
inequalities, severe weather disruption, and market expectations affect price
movements in these markets.
METALS. The partnership's primary metals market exposure at June 30, 2001
was to fluctuations in the price of gold and silver. Although the partnership
will, from time to time, trade base metals such as copper, aluminum, nickel,
zinc and lead, the principal market exposures of the partnership have
consistently been to precious metals, such as gold and silver (and, to a much
lesser extent, platinum). Market exposure to precious metals was evident, as
gold and silver prices were volatile during the quarter. The trading advisor,
from time to time, takes positions when market opportunities develop.
ENERGY. At June 30, 2001, the partnership's energy exposure was shared
primarily by futures contracts in the crude oil and natural gas markets. 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 this
market. Natural gas has exhibited volatility in prices resulting from weather
patterns and supply and demand factors and may continue in this choppy pattern.
THE FOLLOWING UPDATES AND SUPPLEMENTS THE INFORMATION FOR EACH PARTNERSHIP
UNDER THE SUB-CAPTION "--QUALITATIVE DISCLOSURES REGARDING NON-TRADING RISK
EXPOSURE" ON PAGE 66.
The following was the only non-trading risk exposure of each partnership at
June 30, 2001:
FOREIGN CURRENCY BALANCES. Each partnership's primary foreign currency
balances were in:
SPECTRUM SELECT SPECTRUM TECHNICAL SPECTRUM STRATEGIC
------------------------------- ------------------------------- -------------------------------
Australian dollars Australian dollars British pounds
Euros British pounds Euros
Hong Kong dollars Euros
Japanese yen Swedish kronas
SPECTRUM GLOBAL BALANCED SPECTRUM CURRENCY SPECTRUM COMMODITY
------------------------------- ------------------------------- -------------------------------
British pounds None None
Euros
Japanese yen
THE GENERAL PARTNER
THE FOLLOWING UPDATES AND REPLACES THE SECOND PARAGRAPH UNDER THE CAPTION
"THE GENERAL PARTNER" ON PAGE 66.
The general partner is or has been the general partner and commodity pool
operator for 35 commodity pools, including five other commodity pools which are
exempt from certain disclosure requirements pursuant to CFTC Rule 4.7. As of
August 31, 2001, the general partner had approximately $1.2 billion in aggregate
net assets under management, making it one of the largest operators of commodity
pools in the U.S. As of August 31, 2001, there were approximately 67,000
investors in the commodity pools managed by Demeter.
THE FOLLOWING UPDATES AND REPLACES THE CHART THERETO UNDER THE SUB-CAPTION
"--DESCRIPTION AND PERFORMANCE INFORMATION OF COMMODITY POOLS OPERATED BY THE
GENERAL PARTNER" ON PAGE 69. THE FOOTNOTES ON PAGE 70 ARE AN INTEGRAL PART OF
THE FOLLOWING CHART.
S-31
DEMETER MANAGEMENT CORPORATION
CAPSULE SUMMARY OF PERFORMANCE INFORMATION REGARDING COMMODITY POOLS OPERATED
(EXCEPT AS OTHERWISE INDICATED, BEGINNING JANUARY 1, 1996 THROUGH AUGUST 31,
2001)
CURRENT CURRENT CUMULATIVE
TOTAL NET ASSET RETURN
START CLOSE AGGREGATE NET ASSET VALUE PER SINCE
FUND TYPE/FUND(1) DATE(2) DATE(3) SUBSCRIPTION(4) VALUE(5) UNIT(6) INCEPTION(7)
----------------- ------- ------- --------------- ----------- --------- ------------
$ $ $ %
PUBLICLY-OFFERED FUNDS WITH ONE ADVISOR
WITHOUT "PRINCIPAL PROTECTION"
Columbia Futures Fund(11) Jul-83 N/A 29,276,299 7,951,004 3,027.61 208.94
DW Diversified Futures Fund L.P. Apr-88 N/A 206,815,107 85,303,292 1,245.08 393.67
DW Multi-Market Portfolio L.P.(12) Sep-88 N/A 252,526,000 8,384,403 1,415.20 41.52
DW Diversified Futures Fund II L.P. Jan-89 N/A 13,210,576 8,506,607 3,238.66 223.87
DW Diversified Futures Fund III L.P. Nov-90 N/A 126,815,755 47,160,523 2,054.16 105.42
DW Portfolio Strategy Fund L.P.(13) Feb-91 N/A 143,522,564 83,833,802 2,528.72 152.87
Morgan Stanley Dean Witter Charter DWFCM Mar-94 N/A 73,971,038 41,260,048 17.88 78.80
L.P.(14)
Morgan Stanley Dean Witter Charter Graham L.P. Mar-99 N/A 38,072,052 36,717,127 12.62 26.20
Morgan Stanley Dean Witter Charter Mar-99 N/A 40,445,599 31,053,730 9.93 (0.70)
Millburn L.P.
Morgan Stanley Dean Witter Charter Welton L.P. Mar-99 N/A 33,806,356 18,292,422 6.96 (30.40)
PUBLICLY-OFFERED FUNDS WITH MORE THAN ONE
ADVISOR WITHOUT "PRINCIPAL PROTECTION"
DW Cornerstone Fund II(15) Jan-85 N/A 65,653,270 22,484,442 4,189.18 329.66
DW Cornerstone Fund III(15) Jan-85 N/A 137,132,762 26,608,036 3,019.30 209.67
DW Cornerstone Fund IV(15) May-87 N/A 168,114,264 94,448,313 5,395.87 453.42
DW Global Perspective Portfolio L.P. Mar-92 N/A 67,424,535 11,248,804 1,036.23 3.62
DW World Currency Fund L.P. Apr-93 N/A 114,945,830 16,796,016 1,124.62 12.46
PUBLICLY-OFFERED FUNDS WITH ONE ADVISOR
WITH "PRINCIPAL PROTECTION"
DW Principal Plus Fund L.P.(16) Feb-90 N/A 109,013,535 36,355,020 1,946.05 94.61
PUBLICLY-OFFERED FUNDS WITH MORE THAN ONE
ADVISOR WITH "PRINCIPAL PROTECTION"
DW Principal Guaranteed Fund II L.P. Mar-89 Mar-96 162,203,303 4,966,449 1,056.55 5.66
PRIVATELY-OFFERED FUNDS WITH ONE ADVISOR
WITHOUT "PRINCIPAL PROTECTION"
Morgan Stanley Dean Witter/ Chesapeake L.P. Nov-94 N/A 40,429,530 23,411,410 1,784.14 78.41
Morgan Stanley Dean Witter/JWH Futures Feb-96 N/A 34,395,611 12,531,188 1,287.43 28.74
Fund L.P.
Morgan Stanley Dean Witter/Mark J. Walsh & May-01 N/A 5,335,000 5,261,638 985.25 (1.48)
Company LP.
PRIVATELY-OFFERED FUND WITH MORE THAN ONE
ADVISOR WITHOUT "PRINCIPAL PROTECTION"
Morgan Stanley Dean Witter/Market Street Futures Oct-98 N/A 26,823,988 13,229,326 877.44 (12.26)
Fund L.P.
Morgan Stanley Strategic Alternative Fund L.L.C. May-00 N/A 32,075,734 37,089,896 1,122.34 12.23
WORST WORST PEAK-
MONTHLY % TO-VALLEY
FUND TYPE/FUND(1) DRAWDOWN(8) DRAWDOWN(9)
----------------- ----------- -----------
% %
PUBLICLY-OFFERED FUNDS WITH ONE ADVISOR
WITHOUT "PRINCIPAL PROTECTION"
Columbia Futures Fund(11) (17.54) (48.63)
4/86 7/83-12/86
DW Diversified Futures Fund L.P. (12.85) (24.86)
5/90 5/95-6/96
DW Multi-Market Portfolio L.P.(12) (13.26) (29.84)
2/96 5/95-6/96
DW Diversified Futures Fund II L.P. (13.41) (25.62)
8/89 5/95-6/96
DW Diversified Futures Fund III L.P. (13.62) (27.00)
1/92 5/95-6/96
DW Portfolio Strategy Fund L.P.(13) (14.40) (31.83)
1/92 7/99-9/00
Morgan Stanley Dean Witter Charter DWFCM (12.87) (22.84)
L.P.(14) 1/95 7/94-1/95
Morgan Stanley Dean Witter Charter Graham L.P. (9.93) (17.06)
4/01 2/00-7/00
Morgan Stanley Dean Witter Charter (12.69) (23.11)
Millburn L.P. 10/99 7/99-7/00
Morgan Stanley Dean Witter Charter Welton L.P. (10.93) (34.40)
4/01 3/99-6/01
PUBLICLY-OFFERED FUNDS WITH MORE THAN ONE
ADVISOR WITHOUT "PRINCIPAL PROTECTION"
DW Cornerstone Fund II(15) (11.74) (32.70)
9/89 7/88-10/89
DW Cornerstone Fund III(15) (18.28) (32.35)
2/89 2/89-10/89
DW Cornerstone Fund IV(15) (21.04) (45.21)
9/89 7/89-9/89
DW Global Perspective Portfolio L.P. (12.10) (40.90)
10/99 8/93-1/95
DW World Currency Fund L.P. (9.68) (46.04)
5/95 8/93-1/95
PUBLICLY-OFFERED FUNDS WITH ONE ADVISOR
WITH "PRINCIPAL PROTECTION"
DW Principal Plus Fund L.P.(16) (7.48) (13.08)
2/96 2/96-5/96
PUBLICLY-OFFERED FUNDS WITH MORE THAN ONE
ADVISOR WITH "PRINCIPAL PROTECTION"
DW Principal Guaranteed Fund II L.P. (5.62) (14.69)
1/91 8/89-4/92
PRIVATELY-OFFERED FUNDS WITH ONE ADVISOR
WITHOUT "PRINCIPAL PROTECTION"
Morgan Stanley Dean Witter/ Chesapeake L.P. (17.34) (33.68)
5/99 9/98-10/00
Morgan Stanley Dean Witter/JWH Futures (9.62) (46.68)
Fund L.P. 10/99 7/99-9/00
Morgan Stanley Dean Witter/Mark J. Walsh & (4.60) (7.26)
Company LP. 5/01 5/01-6/01
PRIVATELY-OFFERED FUND WITH MORE THAN ONE
ADVISOR WITHOUT "PRINCIPAL PROTECTION"
Morgan Stanley Dean Witter/Market Street Futures (10.76) (31.12)
Fund L.P. 3/00 3/99-7/00
Morgan Stanley Strategic Alternative Fund L.L.C. (3.54) (3.54)
4/01 4/01
COMPOUND ANNUAL RATES OF RETURN(10)
---------------------------------------------------------------------
FUND TYPE/FUND(1) 2001 2000 1999 1998 1997 1996
----------------- ---------- ---------- ---------- ---------- --------- ----------
% % % % % %
PUBLICLY-OFFERED FUNDS WITH ONE ADVISOR
WITHOUT "PRINCIPAL PROTECTION"
Columbia Futures Fund(11) (4.30) 9.08 (8.54) 12.01 22.60 19.09
(8 months)
DW Diversified Futures Fund L.P. 5.95 22.00 (11.14) 6.22 11.96 (2.66)
(8 months)
DW Multi-Market Portfolio L.P.(12) 5.76 21.64 (8.77) 5.63 13.28 (6.76)
(8 months)
DW Diversified Futures Fund II L.P. 5.29 20.33 (9.50) 5.22 11.28 (4.83)
(8 months)
DW Diversified Futures Fund III L.P. 5.57 21.99 (10.56) 5.39 12.29 (4.73)
(8 months)
DW Portfolio Strategy Fund L.P.(13) (4.89) 9.87 (6.85) 9.46 11.28 25.50
(8 months)
Morgan Stanley Dean Witter Charter DWFCM 2.17 23.77 (9.21) 5.07 26.22 3.97
L.P.(14) (8 months)
Morgan Stanley Dean Witter Charter Graham L.P. 0.56 21.96 2.90
(8 months) (10 months)
Morgan Stanley Dean Witter Charter (4.52) 12.07 (7.20)
Millburn L.P. (8 months) (10 months)
Morgan Stanley Dean Witter Charter Welton L.P. (15.12) (8.17) (10.70)
(8 months) (10 months)
PUBLICLY-OFFERED FUNDS WITH MORE THAN ONE
ADVISOR WITHOUT "PRINCIPAL PROTECTION"
DW Cornerstone Fund II(15) (5.20) 11.46 (5.42) 12.54 18.05 11.47
(8 months)
DW Cornerstone Fund III(15) (0.60) (0.26) (6.78) 9.13 10.24 8.24
(8 months)
DW Cornerstone Fund IV(15) 0.41 14.74 (1.13) 6.80 38.41 12.97
(8 months)
DW Global Perspective Portfolio L.P. 3.07 3.63 (9.83) 11.25 11.16 9.26
(8 months)
DW World Currency Fund L.P. 6.42 6.36 2.65 (2.61) 39.35 12.97
(8 months)
PUBLICLY-OFFERED FUNDS WITH ONE ADVISOR
WITH "PRINCIPAL PROTECTION"
DW Principal Plus Fund L.P.(16) 0.22 6.96 (3.82) 10.54 15.39 (5.28)
(8 months)
PUBLICLY-OFFERED FUNDS WITH MORE THAN ONE
ADVISOR WITH "PRINCIPAL PROTECTION"
DW Principal Guaranteed Fund II L.P. 1.00
(3 months)
PRIVATELY-OFFERED FUNDS WITH ONE ADVISOR
WITHOUT "PRINCIPAL PROTECTION"
Morgan Stanley Dean Witter/ Chesapeake L.P. (16.44) 7.38 (3.48) 19.93 15.38 15.23
(8 months)
Morgan Stanley Dean Witter/JWH Futures 7.99 9.78 (22.29) 4.04 13.66 18.17
Fund L.P. (8 months) (11 months)
Morgan Stanley Dean Witter/Mark J. Walsh & (1.48)
Company LP. (6 months)
PRIVATELY-OFFERED FUND WITH MORE THAN ONE
ADVISOR WITHOUT "PRINCIPAL PROTECTION"
Morgan Stanley Dean Witter/Market Street Futures (4.83) (5.55) (2.63) 0.26
Fund L.P. (8 months) (3 months)
Morgan Stanley Strategic Alternative Fund L.L.C. 3.09 8.87
(8 months) (8 months)
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
S-32
THE TRADING ADVISORS
MORGAN STANLEY SPECTRUM SELECT L.P.
THE FOLLOWING UPDATES THE INFORMATION RELATING TO ASSETS UNDER MANAGEMENT
UNDER THE SUB-CAPTION "--1. EMC CAPITAL MANAGEMENT, INC." ON PAGE 73.
As of August 31, 2001, EMC managed approximately $46.2 million of client
assets pursuant to its Classic Program and approximately $49.7 million in all of
its programs. These figures include notional funds.
THE FOLLOWING UPDATES, THROUGH AUGUST 31, 2001, AND REPLACES THE CAPSULE
PERFORMANCE SUMMARIES UNDER THE SUB-CAPTION "--2. NORTHFIELD TRADING L.P." ON
PAGES 77-78. THE TEXT PRECEDING THE CAPSULES ON PAGE 76 AND THE FOOTNOTES ON
PAGES 77-78 ARE AN INTEGRAL PART OF THE FOLLOWING CAPSULE PERFORMANCE SUMMARIES.
CAPSULE A
NORTHFIELD TRADING L.P.
DIVERSIFIED PROGRAM
Name of commodity trading advisor: Northfield Trading L.P.
Name of program: Diversified Program
Inception of trading by commodity trading advisor: July 1989
Inception of trading in program: July 1989
Number of open accounts: 36
Aggregate assets overall: $92,140,324
Aggregate assets in program: $83,073,715
Largest monthly drawdown past five years: (4.9)%--(January 1999)
Largest monthly drawdown since inception: (11.6)%--(September 1992)
Worst peak-to-valley drawdown past five years: (12.1)%--(18 months, February
1997-July 1998)
Worst peak-to-valley drawdown since inception: (27.0)%--(14 months, December
1991-January 1993)
2001 year-to-date return: (2.30)% (8 months)
2000 annual return: 13.90%
1999 annual return: 13.50%
1998 annual return: 7.00%
1997 annual return: 2.50%
1996 annual return: 18.40%
CAPSULE A-1
NORTHFIELD TRADING L.P.
PRO FORMA OF AN ACCOUNT FROM CAPSULE A
DIVERSIFIED PROGRAM
Largest monthly drawdown past five years: (7.55)% - (January 1999)
Largest monthly drawdown since inception: (17.03)% - (September 1992)
Worst peak-to-valley drawdown past five years: (20.71)% - (17 months, March
1997 - July 1998)
Worst peak-to-valley drawdown since inception: (36.61)% - (6 months, August
1992 - January 1993)
2001 year-to-date return: (5.06)% (8 months)
2000 annual return: 17.99%
1999 annual return: 18.71%
1998 annual return: 8.91%
1997 annual return: 1.66%
1996 annual return: 28.39%
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
S-33
THE FOLLOWING UPDATES AND SUPPLEMENTS THE INFORMATION UNDER "--3. RABAR
MARKET RESEARCH, INC." ON PAGE 79.
Mr. Izenman is also a managing partner of BRI Partners LLC, a venture
capital firm for emerging hedge fund managers.
THE FOLLOWING UPDATES THE INFORMATION RELATING TO ASSETS UNDER MANAGEMENT BY
RABAR ON PAGE 79.
As of August 31, 2001 Rabar was managing approximately $140 million of
client assets pursuant to its trading program (notional funds included).
THE FOLLOWING UPDATES THE INFORMATION RELATING TO ASSETS UNDER MANAGEMENT BY
SUNRISE UNDER THE SUB-CAPTION "--4. SUNRISE CAPITAL MANAGEMENT, INC." ON
PAGE 82.
As of August 31, 2001 Sunrise Capital Management and Sunrise Capital
Partners collectively managed approximately $93.4 million of client assets
pursuant to the CIMCO Program and approximately $595.2 million of client assets
in all of its programs (notional funds excluded).
THE FOLLOWING PARAGRAPH IS ADDED AFTER THE SECOND PARAGRAPH ON PAGE 82.
While Sunrise Capital Management has traded foreign currencies in the
interbank forward market, it has not previously traded other commodities on a
forward basis. However, it may in the future also trade precious metals,
industrial metals, energies, and other commodities on a forward basis with
Morgan Stanley as the counterparty (in addition to trading these commodities on
futures exchanges). Any such trading would be on a limited basis and would be
done at the discretion of Sunrise Capital Management. The partnership will not
hold the actual physical commodities, because Sunrise Capital Management does
not intend to take delivery of the underlying commodities on the forward
contracts. As a result of these transactions, the risk factor "The unregulated
nature of the forwards markets creates counterparty risks that do not exist in
futures trading on exchanges" on page 11 should be read as applying not only to
forward trades of currencies but also to forward trades of precious metals,
industrial metals, energies, and other commodities. You should note that these
contracts will not qualify as Section 1256 contracts as described in "Material
Federal Income Tax Considerations--Gain or Loss on Trading Activity--
Mark-to-Market" on page 138.
THE FOLLOWING REPLACES THE FINAL PARAGRAPH UNDER THE SUB-CAPTION"--OTHER
TRADING PROGRAMS" OF SUNRISE ON PAGE 82.
Presently the Currency Options Program only follows options on Swiss francs,
British pounds, euros, and Japanese yen. Ongoing research will determine
additional markets to be traded in the future as part of this program as well as
a Diversified Options Program.
MORGAN STANLEY SPECTRUM TECHNICAL L.P.
THE FOLLOWING UPDATES THE INFORMATION RELATING TO ASSETS UNDER MANAGEMENT
UNDER THE SUB-CAPTION "--1. CAMPBELL & COMPANY, INC." ON PAGE 86.
As of August 31, 2001, Campbell was managing approximately $2.30 billion of
client assets pursuant to the Financial Metals & Energy Large Portfolio and
approximately $2.52 billion in all of its programs.
THE FOLLOWING REPLACES THE FIRST PARAGRAPH ON PAGE 87.
Campbell estimates that, based on the amount of margin required to maintain
positions in the markets currently traded, aggregate margin for all positions
held in a client's account will range between 5% and 30% of the account's net
assets. From time to time, margin commitments may be above or below these
ranges.
THE FOLLOWING UPDATES AND SUPPLEMENTS THE INFORMATION UNDER THE SUB-CAPTION
"--2. CHESAPEAKE CAPITAL CORPORATION" ON PAGE 87.
Braxton Glasgow, III is no longer a principal of Chesapeake.
Warren K. Coleman, is the Chief Financial Officer and a Managing Director of
Chesapeake. Mr. Coleman received a Master of Business in 1981 and Bachelor of
Business Administration in 1979 from James Madison University. Mr. Coleman
became a Certified Public Accountant in 1982 while working for
S-34
the public accounting firm of Ernst and Young. From February 1982 until March
1998, Mr. Coleman was employed by Philip Morris U.S.A. His job duties at Philip
Morris included Plant Controller, Senior Manager responsible for Capital
Evaluation and Financial Analysis and Senior Manager responsible for financial
software integration. Mr. Coleman joined the Advisor in March 1998 to direct its
financial operations as Chief Financial Officer. Mr. Coleman is registered with
the NFA as an associated person.
THE FOLLOWING UPDATES THE INFORMATION RELATING TO ASSETS UNDER MANAGEMENT BY
CHESAPEAKE ON PAGE 88.
As of August 31, 2001, Chesapeake was managing approximately $95 million of
customer funds in the Diversified 2XL Program (notional funds excluded) and
approximately $900 million of client assets (notional funds excluded).
THE FOLLOWING UPDATES AND SUPPLEMENTS THE INFORMATION UNDER THE SUB-CAPTION
"--3. JOHN W. HENRY & COMPANY, INC." ON PAGES 91-93.
Mr. John W. Henry is also a principal of JWH Investment Management, Inc.
Mr. E. Lyndon Tefft is also a principal of Global Capital Management
Limited.
Mr. Ted A. Parkhill is a principal of JWH.
THE FOLLOWING UPDATES THE INFORMATION RELATING TO ASSETS UNDER MANAGEMENT BY
JWH ON PAGE 93.
As of August 31, 2001, JWH was managing approximately $82.0 million of
client assets pursuant to its Original Investment Program, approximately
$265.8 million of client assets pursuant to its Financial and Metals Portfolio
and approximately $1.1 billion in all of its programs.
THE FOLLOWING UPDATES AND SUPPLEMENTS THE INFORMATION RELATING TO JWH UNDER
THE SUB-CAPTION "--OTHER INVESTMENT PROGRAMS OPERATED BY JWH" ON PAGES 96-98.
- MULTIPLE STYLE programs involve the selection and allocation of assets
among the other types of JWH investment programs on a discretionary basis.
The Strategic Allocation Program and the Currency Strategic Allocation
Program are the only programs offered in this category.
The International Currency and Bond Portfolio was closed on June 30, 2001.
THE CURRENCY STRATEGIC ALLOCATION PROGRAM. The Currency Strategic
Allocation Program combines JWH's currency programs as well as the models for
individual foreign exchange markets within JWH's non-currency programs to trade
a broadly diversified portfolio of world currencies. Its objective is reduction
of the volatility and risk of loss typically associated with investment in one
JWH currency only investment program. Allocations among programs and the
selection of models are made at the discretion of the Investment Policy
Committee in a manner generally similar to that applied to the Strategic
Allocation Program. However, the timing and methods used for allocations in this
program may not correspond to allocation changes in the Strategic Allocation
Program. Maximum exposure to any one currency market will be 30%; discretionary
adjustments to position size in relation to account equity can range from 50% to
200% of standard trading levels set annually by the Investment Policy Committee.
MORGAN STANLEY SPECTRUM STRATEGIC L.P.
THE FOLLOWING UPDATES AND SUPPLEMENTS THE INFORMATION UNDER THE SUB-CAPTION
"--1. ALLIED IRISH CAPITAL MANAGEMENT, LTD." ON PAGES 99-100.
Neil Ramsey is no longer a Director of Allied Irish.
John O'Donnell became a non-executive director of Allied Irish in March
2001. He is Head of Investment Banking in the Capital Markets Division of the
AIB Group, a position he was appointed to in March 2001. Prior to this
appointment he was Managing Director of AIB International Financial Services
Limited, a subsidiary of the AIB Group, from January 1994 to December 1996 and
was Managing Director of AIB Corporate Finance Limited, another subsidiary of
the AIB Group, from December 1996 to March 2001. Mr. O'Donnell is a Fellow of
both the Chartered Institute of Management Accountants and the Chartered
Association of Certified Accountants.
THE FOLLOWING UPDATES THE INFORMATION RELATING TO ASSETS UNDER MANAGEMENT BY
ALLIED IRISH ON PAGE 101.
As of August 31, 2001, Allied Irish was managing approximately $384 million
of client assets pursuant to the Worldwide Financial Futures Program and
approximately $570 million of client assets in all of its programs (including
notional funds).
S-35
THE FOLLOWING UPDATES, THROUGH AUGUST 31, 2001, AND REPLACES THE CAPSULE
PERFORMANCE SUMMARIES OF ALLIED IRISH ON PAGES 103-104. THE TEXT PRECEDING THE
CAPSULES ON PAGE 102 AND THE FOOTNOTES ON PAGES 103-104 ARE AN INTEGRAL PART OF
THE FOLLOWING CAPSULE PERFORMANCE SUMMARIES.
CAPSULE A
ALLIED IRISH CAPITAL MANAGEMENT, LTD.
WORLDWIDE FINANCIAL FUTURES PROGRAM
Name of commodity trading advisor: Allied Irish Capital
Management, Ltd.
Name of program: Worldwide Financial Futures Program
Inception of trading by commodity trading advisor: November 1993
Inception of trading in program: November 1993
Number of open accounts: 16
Aggregate assets overall (including notional funds): $570 million
Aggregate assets in program (including notional funds): $384 million
Largest monthly drawdown: (1.05%)--(November 1998)
Worst peak-to-valley drawdown: (1.25)%--(2 months, October 1998-November
1998)
2001 year-to-date return: 3.27% (8 months)
2000 annual return: 5.40%
1999 annual return: 4.55%
1998 annual return: 5.06%
1997 annual return: 8.86%
1996 annual return: 12.39%
CAPSULE A-1
ALLIED IRISH CAPITAL MANAGEMENT, LTD.
PRO FORMA OF AN ACCOUNT FROM CAPSULE A
WORLDWIDE FINANCIAL FUTURES PROGRAM
Largest monthly drawdown: (6.11)% - (February 2000)
Worst peak-to-valley drawdown: (21.54)% - (October 1998-October 2000)
2001 year-to-date return: (0.28)% (8 months)
2000 annual return: (4.55)%
1999 annual return: (3.64)%
1998 annual return: (0.96)%
1997 annual return: 15.05%
1996 annual return: 32.42%
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
THE FOLLOWING REPLACES THE INFORMATION CONTAINED IN THE FIRST PARAGRAPH
UNDER THE SUB-CAPTION
"--2. BLENHEIM INVESTMENTS, INC." ON PAGE 104.
Blenheim Capital Management, L.L.C. is a Delaware limited liability
corporation which was formed to provide commodity trading advisory services to
clients. Through a corporate reorganization in July 2001, Blenheim was merged
with Blenheim Investments, Inc., a New Jersey corporation. The ownership and
capitalization of Blenheim Capital are materially the same as those which
existed in Blenheim Investments. Additionally, Blenheim Capital succeeds to all
the assets and obligations of its predecessor. Blenheim Capital is registered
with the Commodity Futures Trading Commission as a commodity trading advisor and
commodity pool operator, effective March 2, 1989, and is a member of the
National Futures Association. Blenheim Capital's address and telephone number
are: Post Office Box 7242, Two Worlds Fair Drive, Somerset, New Jersey
08875-7242; (732) 302-0238.
THE FOLLOWING UPDATES THE INFORMATION RELATING TO ASSETS UNDER MANAGEMENT BY
BLENHEIM CAPITAL ON PAGE 105.
As of August 31, 2001, Blenheim was managing approximately $31 million of
client assets pursuant to its trading program.
S-36
THE FOLLOWING UPDATES THE INFORMATION RELATING TO ASSETS UNDER MANAGEMENT
UNDER THE SUB-CAPTION "--3. ECLIPSE CAPITAL MANAGEMENT, INC." ON PAGE 107.
As of August 31, 2001, Eclipse was managing approximately $289 million of
client assets pursuant to its trading program (notional funds included).
THE FOLLOWING UPDATES, THROUGH AUGUST 31, 2001, AND REPLACES THE CAPSULE
PERFORMANCE SUMMARIES FOR ECLIPSE ON PAGES 109-110. THE TEXT PRECEDING THE
CAPSULES ON PAGE 108 AND THE FOOTNOTES ON PAGES 109-110 ARE AN INTEGRAL PART OF
THE FOLLOWING CAPSULE PERFORMANCE SUMMARIES.
CAPSULE A
ECLIPSE CAPITAL MANAGEMENT, INC.
GLOBAL MONETARY PROGRAM
Name of commodity trading advisor: Eclipse Capital Management, Inc.
Name of program: Global Monetary Program
Inception of trading by commodity trading advisor: April 1986
Inception of trading in program: August 1990
Number of open accounts: 14
Aggregate assets overall (excluding notional): $267,453,804
Aggregate assets overall (including notional): $289,195,859
Aggregate assets in program (excluding notional): $267,453,804
Aggregate assets in program (including notional): $289,195,859
Largest monthly drawdown: (10.67)% - (April 1998)
Worst peak-to-valley drawdown: (23.93)% - (14 months, September 1999 -
October 2000)
2001 year-to-date return: (7.67)% (8 months)
2000 annual return: 4.51%
1999 annual return: 12.30%
1998 annual return: 5.03%
1997 annual return: 15.93%
1996 annual return: 30.68%
CAPSULE A-1
ECLIPSE CAPITAL MANAGEMENT, INC.
PRO FORMA OF CAPSULE A
GLOBAL MONETARY PROGRAM AT 150% LEVERAGE
Largest monthly drawdown: (16.38)% - (April 1998)
Worst peak-to-valley drawdown: (39.23)% - (13 months, October 1999 -
October 2000)
2001 year-to-date return: (16.15)% (8 months)
2000 annual return: (1.78)%
1999 annual return: 14.98%
1998 annual return: 2.88%
1997 annual return: 21.50%
1996 annual return: 44.63%
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
S-37
MORGAN STANLEY SPECTRUM GLOBAL BALANCED L.P.
THE FOLLOWING DISCLOSURE IS ADDED TO THE THIRD AND FOURTH PARAGRAPHS UNDER
THE SUB-CAPTION
"--RXR, INC." ON PAGE 110.
On May 31, 2001, SSARIS Advisors, LLC, a Delaware limited liability company,
acquired certain assets of RXR. SSARIS is a joint venture between State Street
Global Alliance LLC, a limited liability company which is majority owned by
State Street Global Advisors, Inc., and RTH Partners LLC, a limited liability
company owned by the principals of The RXR Group, Inc. State Street Global
Advisors, Inc. is a wholly-owned subsidiary of State Street Corporation. SSARIS
is affiliated with State Street Global Advisors, the investment management
division of State Street Bank and Trust Company, a wholly owned subsidiary of
State Street Corporation.
The management team of RXR will manage the day-to-day business and
operations of SSARIS. It is anticipated that SSARIS will begin acting as a
substitute trading advisor of Spectrum Global Balanced in the very near future.
SSARIS has acquired rights to RXR's trading program, and no change of strategy
is contemplated for Spectrum Global Balanced.
THE FOLLOWING UPDATES THE INFORMATION RELATING TO ASSETS UNDER MANAGEMENT BY
RXR ON PAGE 111.
As of August 31, 2001, RXR was managing approximately $260.9 million of
client assets pursuant to its Balanced Portfolio Program and approximately
$333.0 million in all of its programs.
MORGAN STANLEY SPECTRUM CURRENCY L.P.
THE FOLLOWING UPDATES, THROUGH AUGUST 31, 2001, AND REPLACES THE CAPSULE
PERFORMANCE SUMMARIES UNDER THE SUB-CAPTION "--1. JOHN W. HENRY & COMPANY, INC."
ON PAGES 112-115. THE TEXT PRECEDING THE CAPSULES ON PAGE 112 AND THE FOOTNOTES
ON PAGES 116-118 ARE AN INTEGRAL PART OF THE FOLLOWING CAPSULE PERFORMANCE
SUMMARIES.
JOHN W. HENRY & COMPANY, INC.
INTERNATIONAL FOREIGN EXCHANGE PROGRAM
Name of commodity trading advisor: John W. Henry & Company, Inc.
Name of program: International Foreign Exchange Program
Inception of client account trading by commodity trading advisor: October
1982
Inception of client account trading in program: August 1986
Number of open accounts: 5
Aggregate assets overall: $1.1 billion
Aggregate assets in program: $90.8 million
Largest monthly drawdown: (8.3)% - (May 1997)
Worst peak-to-valley drawdown: (19.0)% - (September 1998 - October 1999)
2001 year-to-date return: 3.1% (8 months)
2000 annual return: 16.5%
1999 annual return: (5.1)%
1998 annual return: 13.9%
1997 annual return: 71.1%
1996 annual return: 3.7%
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
S-38
JOHN W. HENRY & COMPANY, INC. PROGRAMS
JANUARY 1, 1996 - AUGUST 31, 2001
JWH BEGAN TRADING CLIENT CAPITAL IN OCTOBER 1982
GLOBAL
FINANCIAL AND ORIGINAL INVESTMENT DIVERSIFIED
METALS PORTFOLIO PROGRAM PORTFOLIO
NAME OF PROGRAM: ---------------- ------------------- ---------------
Inception of Client Account Trading in Program: October 1984 October 1982 June 1988
Number of Open Accounts: 17 11 3
Assets Managed in Program: 265,830,747 82,429,837 24,282,772
Assets Managed in JWH: $1.1 billion $1.1 billion $1.1 billion
(10.1)% (15.8)% (15.0)%
Worst Monthly Decline on an Individual Account Basis: (2/96) (4/01) (10/99)
(47.9)% (33.4)% (32.8)%
Worst Peak-to-Valley Decline on an Individual Account Basis: (10/98-9/00) (5/99-9/00) (8/99-10/00)
% % %
-------------- ----------------- ---------------
2001 Compound Period Return (8 months): 10.0 (14.7) (2.3)
2000 Compound Annual Rate of Return: 13.0 3.4 16.4
1999 Compound Annual Rate of Return: (18.7) (10.7) (11.9)
1998 Compound Annual Rate of Return: 7.2 10.8 23.5
1997 Compound Annual Rate of Return: 15.2 5.7 3.3
1996 Compound Annual Rate of Return: 29.7 22.6 26.9
JWH GLOBAL-
ANALYTICS-REGISTERED TRADEMARK-
GLOBAL FINANCIAL G-7 CURRENCY FAMILY OF
PORTFOLIO PORTFOLIO PROGRAMS*
NAME OF PROGRAM: ---------------- --------------- -------------------------------
Inception of Client Account Trading in Program: June 1994 February 1991 June 1997
Number of Open Accounts: 1 3 2
Assets Managed in Program: 6,457,718 22,445,468 30,987,783
Assets Managed in JWH: $1.1 billion $1.1 billion $1.1 billion
(10.6)% (10.1)% (8.2)%
Worst Monthly Decline on an Individual Account Basis: (11/98) (11/98) (4/01)
(26.6)% (16.0)% (13.1)%
Worst Peak-to-Valley Decline on an Individual Account Basis: (7/99-9/00) (5/00-11/00) (4/01-7/01)
% % %
--------------- --------------- -------------
2001 Compound Period Return (8 months): (2.7) 6.5 (3.8)
2000 Compound Annual Rate of Return: 25.0 8.1 22.7
1999 Compound Annual Rate of Return: 1.4 20.7 N/A
1998 Compound Annual Rate of Return: 9.9 (4.8) (3.6)
(5 mos.)
1997 Compound Annual Rate of Return: 4.9 21.0 17.6
(7 mos.)
1996 Compound Annual Rate of Return: 32.4 14.5 N/A
JWH
GLOBAL
ANALYTICS-REGISTERED TRADEMARK-
99**
NAME OF PROGRAM: -------------------------------
Inception of Client Account Trading in Program: March 1999
Number of Open Accounts: 0
Assets Managed in Program: 0
Assets Managed in JWH: $1.1 billion
(9.4)%
Worst Monthly Decline on an Individual Account Basis: (10/99)
(16.3)%
Worst Peak-to-Valley Decline on an Individual Account Basis: (7/99-4/00)
%
--------------
2001 Compound Period Return (8 months): N/A
2000 Compound Annual Rate of Return: 2.9
(9 mos.)
1999 Compound Annual Rate of Return: (7.5)
(10 mos.)
1998 Compound Annual Rate of Return: N/A
1997 Compound Annual Rate of Return: N/A
1996 Compound Annual Rate of Return: N/A
---------------------------
*This performance data is only through May 7, 1998. The program continues to
operate, but only as a portion of a special JWH multi-program trading strategy.
**In October 2000 the account had a large addition which increased its size to a
level consistent with the trading size of the Global Analytics Family of
Programs account.
The Notes to JWH's Programs on pages 116 to 118 are an integral part of this
table.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
S-39
JOHN W. HENRY & COMPANY, INC. PROGRAMS
JANUARY 1, 1996 - AUGUST 31, 2001 (CONT'D)
JWH BEGAN TRADING CLIENT CAPITAL IN OCTOBER 1982
DELEVERED YEN
DENOMINATED
THE WORLD FINANCIAL WORLDWIDE BOND FINANCIAL AND
PERSPECTIVE DOLLAR PROGRAM* PROGRAM* METALS PROFILE INTERRATE-TM- SAP
NAME OF PROGRAM: ------------------- --------------- -------------- -------------- -------------- -------------
Inception of Client October 1995; December 1988;
Account Trading in ceased trading ceased trading
Program: April 1987 July 1996 July 1996 12/96 7/96 7/96
Number of Open Accounts: 1 0 0 0 0 8
Assets Managed in
Program: $2,513,674 $0 $0 $0 $0 $589,917,887
Assets Managed in JWH: $1.1 billion $1.1 billion $1.1 billion $1.1 billion $1.1 billion $1.1 billion
Worst Monthly Decline on (10.8)% (8.4)% (3.8)% (3.2)% (2.3)% (9.8)%
an Individual Account (6/01) (5/97) (4/97) (2/96) (7/96) (4/01)
Basis:
Worst Peak-to-Valley (30.7)% (11.6)% (6.2)% (5.1)% (2.3)% 21.7%
Decline on an (5/99-7/00) (5/97-9/97) (12/96-5/97) (2/96-8/96) (7/96) (7/99-7/00)
Individual Account
Basis:
% % % % % %
----------------- -------------- -------------- -------------- -------------- -------------
2001 Compound Period
Return (8 months): (8.2) N/A N/A N/A N/A (0.6)
2000 Compound Annual
Rate of Return: 4.9 N/A N/A N/A N/A 20.3
1999 Compound Annual
Rate of Return
(11 months): (1.6) N/A N/A N/A N/A (1.5)
1998 Compound Annual (4.9) (0.4)
Rate of Return: 7.2 (5 mos.) (5 mos.) N/A N/A 17.0
1997 Compound Annual
Rate of Return: 10.4 6.8 9.5 N/A N/A 13.3
1996 Compound Annual 10.6 17.8 5.79 25.5
Rate of Return: 40.9 (6 mos.) (6 mos.) 9.4 (7 mos.) (6 mos.)
INTERNATIONAL CURRENCY
AND BOND PORTFOLIO***
NAME OF PROGRAM: ----------------------
Inception of Client
Account Trading in
Program: January 1993
Number of Open Accounts: 0
Assets Managed in
Program: 0
Assets Managed in JWH: $1.1 billion
Worst Monthly Decline on (12.7)%
an Individual Account (9/00)
Basis:
Worst Peak-to-Valley (28.5)%
Decline on an (7/99-9/00)
Individual Account
Basis:
%
--------------------
2001 Compound Period
Return (8 months): (1.9) (6 months)
2000 Compound Annual
Rate of Return: 5.6
1999 Compound Annual
Rate of Return
(11 months): 2.3
1998 Compound Annual
Rate of Return: 16.1
1997 Compound Annual
Rate of Return: 17.0
1996 Compound Annual
Rate of Return: 19.9
----------------------------------------------------
* This performance data is only through May 7, 1998.
The program continues to operate, but only as a
portion of a special JWH multi-program trading
strategy.
*** This performance data is only through 6/30/01 since
the program ceased trading upon that date.
The Notes to JWH's Programs on pages 116 to 118 are an
integral part of this table.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF
FUTURE RESULTS.
S-40
JOHN W. HENRY & COMPANY, INC. PROGRAMS
JWH BEGAN TRADING CLIENT CAPITAL IN OCTOBER 1982
YEN FINANCIAL PORTFOLIO
INCEPTION OF CLIENT ACCOUNT TRADING IN PROGRAM: JANUARY 1992
NUMBER OF OPEN ACCOUNTS: 0
ASSETS MANAGED IN PROGRAM: $0
ASSETS MANAGED BY JWH: $1.1 BILLION
AGGREGATE COMPOUND WORST WORST
INCEPTION OF ASSETS ANNUAL RATE MONTHLY PEAK-TO-VALLEY
ACCOUNT NO. TRADING AUGUST 31, 1999 OF RETURN DECLINE DECLINE
--------------------- ------------ --------------- ----------------- ------------ -----------------------
% % %
1 1/92 closed - 3/97 1997: (3.3) (3 mos.) (7.3) (7/95) (30.5) (4/95 - 7/96)
1996: (8.5)
2 1/93 closed - 1/97 1997: (0.1) (1 mo.) (6.9) (7/95) (29.0) (4/95 - 7/96)
1996: (9.9)
3 1/94 closed - 1/97 1997: (2.4) (1 mo.) (6.0) (7/95) (26.6) (4/95 - 7/96)
1996: (10.9)
4 6/94 closed - 3/97 1997: 1.4 (3 mos.) (6.5) (7/95) (22.3) (4/95 - 7/96)
1996: (0.6)
5 8/94 closed - 3/97 1997: (2.4) (3 mos.) (7.1) (7/95) (30.4) (4/95 - 7/96)
1996: (6.0)
6 1/95 closed - 3/97 1997: (3.7) (3 mos.) (7.5) (7/95) (35.5) (4/95 - 7/96)
1996: (13.5)
7 3/94 closed - 3/97 1997: 4.0 (3 mos.) (6.7) (7/96) (15.9) (2/96 - 7/96)
1996: 7.8
13 12/92 closed - 3/96 1996: (4.1) (3 mos.) (4.9) (7/95) (15.8) (12/93 - 1/95)
17 12/92 closed - 1/96 1996: 0.3 (1 mo.) (6.0) (7/95) (12.4) (4/95 - 10/95)
18 3/94 closed - 4/96 1996: (6.3) (4 mos.) (6.2) (7/95) (18.5) (4/95 - 4/96)
19 12/94 closed - 4/96 1996: (7.8) (4 mos.) (6.6) (7/95) (21.1) (4/95 - 4/96)
The Yen Financial Portfolio closed in March 1997.
---------
The Notes to JWH's programs on pages 116 to 118 are an integral part of this
table.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
S-41
THE FOLLOWING UPDATES THE INFORMATION RELATING TO ASSETS UNDER MANAGEMENT
UNDER THE SUB-CAPTION "--2. SUNRISE CAPITAL PARTNERS, LLC" ON PAGE 119.
As of August 31, 2001 Sunrise Capital Partners was managing approximately
$74.0 million of client assets pursuant to the Currency Program and
approximately $595.2 million of client assets in all of its programs (notional
funds excluded).
THE FOLLOWING UPDATES, THROUGH AUGUST 31, 2001, AND REPLACES THE CAPSULE
PERFORMANCE SUMMARIES FOR SUNRISE CAPITAL PARTNERS ON PAGES 120-121. THE TEXT
PRECEDING THE CAPSULES ON PAGE 119 AND THE FOOTNOTES ON PAGES 121-122 ARE AN
INTEGRAL PART OF THE FOLLOWING CAPSULE PERFORMANCE SUMMARIES.
SUNRISE CAPITAL PARTNERS
CURRENCY PROGRAM
(Calculations based on Fully-Funded Subset Method)
Name of commodity trading advisor: Sunrise Capital Partners
Name of program: Sunrise Currency Program
Inception of trading by commodity trading advisor: June 1980
Inception of trading in program: October 1985
Number of open accounts: 6
Aggregate assets overall: $595.2 million
Aggregate assets in program: $74.0 million
Largest monthly drawdown: (7.23)% - (February 1996)
Worst peak-to-valley drawdown: (18.54)% - (July 1997 - July 1999)
2001 year-to-date return: (2.3)% (8 months)
2000 annual return: 15.5%
1999 annual return: 6.3%
1998 annual return: (1.9)%
1997 annual return: 10.9%
1996 annual return: 20.2%
SUNRISE CAPITAL PARTNERS
CIMCO~DIVERSIFIED FINANCIAL PROGRAM
Name of commodity trading advisor: Sunrise Capital Partners
Name of program: Sunrise CIMCO~Diversified Financial Program
Inception of trading by commodity trading advisor: June 1980
Inception of trading in program: October 1990
Number of open accounts: 2
Aggregate assets overall: $595.2 million
Aggregate assets in program: $93.4 million
Largest monthly drawdown: (10.50)% - (2/96)
Worst peak-to-valley drawdown: (18.26)% - (October 1998 - July 2000)
2001 year-to-date return: 7.6% (8 months)
2000 annual return: 11.0%
1999 annual return: (0.6)%
1998 annual return: 7.7%
1997 annual return: (3.0)%
1996 annual return: 26.1%
SUNRISE CAPITAL PARTNERS
DIVERSIFIED PROGRAM
(Calculations based on Fully-Funded Subset Method)
Name of commodity trading advisor: Sunrise Capital Partners
Name of program: Sunrise Diversified Program
Inception of trading by commodity trading advisor: June 1980
Inception of trading in program: June 1980
Number of open accounts: 11
Aggregate assets overall: $595.2 million
Aggregate assets in program: $53.0 million
Largest monthly drawdown: (9.79)% - (February 1996)
Worst peak-to-valley drawdown: (21.65)% - (July 1999 - June 2000)
2001 year-to-date return: 13.0% (8 months)
2000 annual return: 12.6%
1999 annual return: 5.8%
1998 annual return: 16.9%
1997 annual return: 11.3%
1996 annual return: 21.7%
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
S-42
SUNRISE CAPITAL PARTNERS
EXPANDED DIVERSIFIED PROGRAM
(Calculations based on Fully-Funded Subset Method)
Name of commodity trading advisor: Sunrise Capital Partners
Name of program: Sunrise Expanded Diversified Program
Inception of trading by commodity trading advisor: June 1980
Inception of trading in program: January 1989
Number of open accounts: 15
Aggregate assets overall: $595.2 million
Aggregate assets in program: $374.8 million
Largest monthly drawdown: (8.20)% - (April 2001)
Worst peak-to-valley drawdown: (21.15)% - (October 1998 - July 2000)
2001 year-to-date return: 8.9% (8 months)
2000 annual return: 8.2%
1999 annual return: 4.4%
1998 annual return: 25.8%
1997 annual return: 20.7%
1996 annual return: 19.3%
SUNRISE CAPITAL PARTNERS
SHORT-TERM PROGRAM
Name of commodity trading advisor: Sunrise Capital Partners
Name of program: Short-Term Program
Inception of trading by commodity trading advisor: June 1980
Inception of trading in program: September 2000
Number of open accounts: 0
Aggregate assets overall: $595.2 million
Aggregate assets in program: $0 million
Largest monthly drawdown: (6.7)% - (January 2001)
Worst peak-to-valley drawdown: (6.7)% - (January 2001 - May 2001)
2001 year-to-date return: (1.8)% (5 months)
2000 annual return: 14.4% (4 months)
SUNRISE CAPITAL PARTNERS
CURRENCY OPTIONS PROGRAM
Name of commodity trading advisor: Sunrise Capital Partners
Name of program: Currency Options Program
Inception of trading by commodity trading advisor: June 1980
Inception of trading in program: September 2000
Number of open accounts: 3
Aggregate assets overall: $595.2 million
Aggregate assets in program: $78.0 million (notional funds included)
Largest monthly drawdown: (5.80)% - (September 2000)
Worst peak-to-valley drawdown: (5.80)% - (September 2000 - November 2000)
2001 year-to-date return: 3.0% (8 months)
2000 annual return: 3.2% (4 months)
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
MORGAN STANLEY SPECTRUM COMMODITY L.P.
THE FOLLOWING UPDATES AND SUPPLEMENTS THE INFORMATION UNDER THE SUB-CAPTION
"--MORGAN STANLEY DEAN WITTER COMMODITIES MANAGEMENT INC." ON PAGES 122-123.
Effective September 28, 2001, Morgan Stanley Dean Witter Commodities
Management Inc. changed its name to Morgan Stanley Commodities Management Inc.
Wayne D. Peterson is currently an Executive Director of Morgan Stanley.
S-43
LITIGATION
THE FOLLOWING UPDATES AND SUPPLEMENTS THE SECOND PARAGRAPH UNDER
"LITIGATION" ON PAGES 127-128.
In April 2001, the Appellate Division of New York State dismissed the class
action. Because plaintiffs did not exercise their right to appeal any further,
this dismissal constituted a final resolution of the case.
THE FOLLOWING IS ADDED BEFORE THE FIRST FULL PARAGRAPH ON PAGE 128.
On April 6, 2000, Morgan Stanley, along with 16 other firms, entered into an
industry-wide settlement with the SEC, IRS and the Department of Justice
(intervening on behalf of a QUI TAM plaintiff) to resolve litigation and
investigations relating to "yield burning" allegations. At the core of the
"yield burning" litigation and investigations were allegations that, from 1990
to 1994, escrow providers excessively marked up securities sold to escrow
accounts in connection with advance refunding transactions on behalf of
municipal bond issuers. The practice was alleged to benefit the escrow provider
to the detriment of either the United States Treasury or the municipal issuer.
The industry-wide settlement required 17 firms to pay a total of over
$139 million (over $120 million to the United States Treasury and over
$18 million directly to municipal issuers). Without admitting or denying any
wrongdoing, Morgan Stanley consented to the entry of an order directing that it
cease and desist from violating Sections 17(a)(2) and 17(a)(3) of the Securities
Act of 1933 and requiring it to pay $2.45 million to the United States Treasury.
No payment to municipal issuers was required.
On August 21, 2001 without admitting or denying any violation, Morgan
Stanley & Co. Incorporated consented to the entry of a conclusion that: the
Chicago Board of Trade Business Conduct Committee had reason to believe that the
firm had violated regulation 9B.11 by virtue of regulation 9B.07, in that Morgan
Stanley employees entered orders into the a/c/e trading platform without
inputting their own user ids; and regulation 480.10, in that Morgan Stanley
failed to ensure compliance by its employees with exchange regulation 9B.11. In
addition, Morgan Stanley paid a $20,000 fine to the Chicago Board of Trade.
WHERE YOU CAN FIND MORE INFORMATION
THE FOLLOWING REPLACES THE INFORMATION UNDER "WHERE YOU CAN FIND MORE
INFORMATION" ON PAGE 143.
The partnerships filed registration statements relating to the units
registered with the SEC. This prospectus is part of the registration statements,
but the registration statements include additional information.
You may read any of the registration statements, or obtain copies by paying
prescribed charges, at the SEC's public reference rooms located at 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549, 233 Broadway, New York, New
York 10279, and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. For further information on the public reference rooms,
please call the SEC at 1-800-SEC-0330. The registration statements are also
available to the public from the SEC's Web site at "http://www.sec.gov."
S-44
PART TWO
STATEMENT OF ADDITIONAL INFORMATION
POTENTIAL ADVANTAGES
NOTICE TO INVESTORS
The benchmark Public Managed Futures Funds Index used throughout this Part
Two was originally developed and compiled by Managed Account Reports LLC and was
sold, along with MAR's database operations, to Zurich Capital Markets Inc., on
March 22, 2001. Accordingly, the index formerly referred to as the MAR Index
will hereafter be referred to as the Zurich Index.
THE FOLLOWING TABLE UPDATES AND REPLACES THROUGH AUGUST 31, 2001, THE
"ANNUAL RETURNS OF VARIOUS ASSET CLASSES OVER TIME" TABLE ON PAGE 151. THE NOTES
ON PAGES 151-152 ARE AN INTEGRAL PART OF THE FOLLOWING TABLE.
ANNUAL RETURNS OF VARIOUS ASSET CLASSES OVER TIME
U.S. TREASURY PUBLIC
U.S. BONDS (LEHMAN U.S. CORPORATE NON-U.S. MANAGED MANAGED
STOCKS BROTHERS BONDS STOCKS GLOBAL STOCKS FUTURES FUTURES FUNDS
(S&P 500 TREASURY (SALOMON C DEG.ORP. (MSCI EAFE (MSCI WORLD (BARCLAY (MAR PUBLIC
INDEX) BOND INDEX) BOND INDEX) INDEX) INDEX) CTA INDEX) FUND INDEX)
-------- ------------- ------------------- ----------- ------------- ---------- -------------
% % % % % % %
1980...... 32.5 N/A (2.7) 24.4 27.7 63.7 N/A
1981...... (4.9) 1.1 (1.2) (1.0) (3.3) 23.9 N/A
1982...... 21.5 41.1 42.5 (0.8) 11.3 16.7 N/A
1983...... 22.6 1.8 6.3 24.6 23.3 23.8 N/A
1984...... 6.3 14.7 16.9 7.9 5.8 8.7 1.4
1985...... 31.7 32.0 30.1 56.7 41.8 25.5 21.9
1986...... 18.7 24.2 19.9 69.9 42.8 3.8 (14.4)
1987...... 5.3 (2.7) (0.3) 24.9 16.8 57.3 43.1
1988...... 16.6 9.1 10.7 28.6 23.9 21.8 7.3
1989...... 31.7 18.9 16.2 10.8 17.2 1.8 4.7
1990...... (3.1) 4.6 6.8 (23.2) (16.5) 21.0 14.2
1991...... 30.5 17.9 19.9 12.5 19.0 3.7 10.0
1992...... 7.6 7.8 9.4 (11.8) (4.7) (0.9) (1.4)
1993...... 10.1 16.4 13.2 32.9 23.1 10.4 10.7
1994...... 1.3 (6.9) (5.8) 8.1 5.6 (0.7) (7.7)
1995...... 37.6 30.7 27.2 11.6 21.3 13.7 13.9
1996...... 23.0 (0.4) 1.3 6.4 14.0 9.1 9.8
1997...... 33.4 14.9 11.6 2.1 16.2 10.9 7.6
1998...... 28.6 13.5 12.5 20.3 24.8 7.0 7.9
1999...... 21.0 (8.7) (6.6) 27.3 25.3 (1.2) (1.4)
2000...... (9.1) 20.1 10.7 (14.0) (12.9) 7.9 4.7
2001*..... (13.4) 5.8 9.8 (18.5) (15.9) 0.2 (1.7)
---------
* Through August 31, 2001
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
THE FOLLOWING CHARTS UPDATE AND REPLACE THROUGH AUGUST 31, 2001, THE
"CORRELATION ANALYSIS" CHARTS ON PAGES 153-155.
The following charts were prepared by the general partner to illustrate the
correlation of the performance results of each partnership to that of the
S & P 500 Index and the Salomon Corporate
Bond Index. A pro forma of the trading program for Spectrum Currency was used
rather than the actual performance results of the partnership because of that
partnership's limited operating history. The performance results of the pro
forma used for Spectrum Currency were based on the performance results of
Cornerstone IV, which is another currency-only fund operated by the general
partner and traded by
S-45
JWH and Sunrise, the same trading advisors that trade for Spectrum Currency. The
pro forma reflects adjustments made for the leverage employed by each trading
advisor, and for the actual interest income, brokerage, management, and
incentive fees payable by Spectrum Currency. Investors are cautioned that the
performance information set forth in the following charts is not necessarily
indicative of, and may have no bearing on, any trading results that may be
attained by a partnership in the future.
[CHART]
Data: 121 months of trading from August 1991 through August 2001
Monthly returns for the S&P 500 Index and the Salomon Corporate Bond
Index are provided by Thomson Financial Software Solutions (Boston,
MA).
[CHART]
Data: 82 months of trading from November 1994 through August 2001
Monthly returns for the S&P 500 Index and the Salomon Corporate Bond
Index are provided by Thomson Financial Software Solutions (Boston,
MA).
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
S-46
[CHART]
Data: 82 months of trading from November 1994 through August 2001
Monthly returns for the S&P 500 Index and the Salomon Corporate Bond
Index are provided by Thomson Financial Software Solutions (Boston,
MA).
[CHART]
Data: 82 months of trading from November 1994 through August 2001
*During one month the monthly returns of Spectrum Global Balanced and
the Salomon Corporate Bond Index were both unchanged.
Monthly returns for the S&P 500 Index and the Salomon Corporate Bond
Index are provided by Thomson Financial Software Solutions (Boston,
MA).
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
S-47
[CHART]
Data: 172 months of trading from May 1987 through August 2001
Monthly returns for the S&P 500 Index and the Salomon Corporate Bond
Index are provided by Thomson Financial Software Solutions (Boston,
MA).
[CHART]
Data: 44 months of trading from January 1998 through August 2001
Monthly returns for the S&P 500 Index and the Salomon Corporate Bond
Index are provided by Thomson Financial Software Solutions (Boston,
MA).
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
S-48
THE FOLLOWING CHART UPDATES AND REPLACES THROUGH AUGUST 31, 2001, THE
"MANAGED FUTURES VS. STOCKS" CHART ON PAGE 156. THE NOTES ON PAGE 157 ARE AN
INTEGRAL PART OF THE FOLLOWING CHART.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
MANAGED FUTURES VS. STOCKS
12-Month Holding Period Performance
RATES OF RETURN
MANAGED FUTURES STOCKS
Barclay's CYA Index S&P 500 Index
(Barclay Trading Group, Fairfield, IA) (Thomson Financial Software Solutions, Boston, MA)
Dec 80 32.52% 63.69%
Jan 81 19.54% 33.28%
Feb 81 21.57% 32.46%
Mar 81 40.01% 21.79%
Apr 81 31.31% 25.96%
May 81 25.32% 26.06%
Jun 81 20.70% 42.46%
Jul 81 13.03% 24.34%
Aug 81 5.42% 26.94%
Sep 81 -2.57% 22.86%
Oct 81 0.68% 18.68%
Nov 81 -5.32% 26.96%
Dec 81 -4.93% 23.90%
Jan 82 -2.06% 19.68%
Feb 82 -9.09% 22.38%
Mar 82 -13.02% 36.81%
Apr 82 -7.35% 34.16%
May 82 -10.76% 33.64%
Jun 82 -11.57% 22.58%
Jul 82 -13.34% 14.52%
Aug 82 3.13% 15.91%
Sep 82 9.75% 30.14%
Oct 82 16.10% 29.02%
Nov 82 15.99% 14.97%
Dec 82 21.34% 16.68%
Jan 83 27.49% 35.84%
Feb 83 38.16% 19.89%
Mar 83 43.99% 13.97%
Apr 83 48.68% 13.88%
May 83 52.53% 21.23%
Jun 83 60.89% 3.85%
Jul 83 58.92% 17.83%
Aug 83 43.89% 23.21%
Sep 83 44.18% 12.85%
Oct 83 27.76% 18.58%
Nov 83 25.42% 19.50%
Dec 83 22.47% 23.75%
Jan 84 17.39% 6.22%
Feb 84 10.73% 15.67%
Mar 84 8.60% 15.59%
Apr 84 1.55% 13.59%
May 84 -3.16% 7.70%
Jun 84 -4.74% 6.16%
Jul 84 -2.98% 24.90%
Aug 84 6.10% 5.36%
Sep 84 4.64% 9.35%
Oct 84 6.33% 2.87%
Nov 84 3.00% 4.15%
Dec 84 6.21% 8.74%
Jan 85 15.19% 9.78%
Feb 85 20.80% 16.02%
Mar 85 18.90% 12.57%
Apr 85 17.72% 13.21%
May 85 31.79% 10.18%
Jun 85 31.02% 16.27%
Jul 85 32.48% 9.21%
Aug 85 18.28% 16.78%
Sep 85 14.61% 3.67%
Oct 85 19.40% 15.37%
Nov 85 29.06% 24.49%
Dec 85 31.83% 25.50%
Jan 86 23.02% 24.64%
Feb 86 30.68% 35.92%
Mar 86 37.86% 45.10%
Apr 86 36.48% 38.81%
May 86 35.84% 31.60%
Jun 86 35.97% 36.26%
Jul 86 28.49% 23.46%
Aug 86 39.25% 31.90%
Sep 86 31.77% 34.95%
Oct 86 33.29% 21.01%
Nov 86 27.68% 13.05%
Dec 86 18.66% 3.82%
Jan 87 33.88% 12.63%
Feb 87 29.52% -0.72%
Mar 87 26.21% -2.84%
Apr 87 26.46% 26.48%
May 87 21.18% 29.26%
Jun 87 25.11% 26.93%
Jul 87 39.29% 28.75%
Aug 87 34.49% 20.42%
Sep 87 43.44% 28.42%
Oct 87 6.43% 34.78%
Nov 87 -4.59% 49.66%
Dec 87 5.40% 57.27%
Jan 88 -3.24% 39.63%
Feb 88 -2.58% 39.76%
Mar 88 -8.26% 30.57%
Apr 88 -6.41% 2.74%
May 88 -6.41% 13.99%
Jun 88 -6.77% 50.09%
Jul 88 -11.65% 31.52%
Aug 88 -17.70% 34.50%
Sep 88 -12.23% 34.61%
Oct 88 14.94% 36.00%
Nov 88 23.46% 28.51%
Dec 88 16.69% 21.76%
Jan 89 20.16% 25.93%
Feb 89 11.90% 20.71%
Mar 89 18.13% 29.56%
Apr 89 22.92% 31.52%
May 89 26.70% 35.10%
Jun 89 20.40% 7.40%
Jul 89 31.76% 15.00%
Aug 89 39.13% 7.71%
Sep 89 32.86% 3.61%
Oct 89 26.27% -3.91%
Nov 89 30.62% -4.21%
Dec 89 31.52% 1.80%
Jan 90 14.36% 1.86%
Feb 90 18.82% 6.36%
Mar 90 19.17% 5.71%
Apr 90 10.44% 13.34%
May 90 16.60% -4.29%
Jun 90 16.49% -4.34%
Jul 90 6.55% 2.83%
Aug 90 -4.94% 16.50%
Sep 90 -9.24% 23.49%
Oct 90 -7.47% 32.87%
Nov 90 -3.39% 29.27%
Dec 90 -3.01% 21.02%
1/91 8.53% 13.35%
2/91 14.85% 11.53%
3/91 14.62% 12.89%
4/91 17.80% 5.95%
May 91 11.90% 10.30%
Jun 91 7.50% 11.85%
Jul 91 12.89% 2.34%
Aug 91 27.04% -5.91%
Sep 91 31.31% -5.97%
Oct 91 33.55% -7.88%
Nov 91 20.38% -7.21%
Dec 91 30.46% 3.73%
1/92 22.58% 4.13%
2/92 15.84% 2.26%
3/92 10.97% -3.71%
4/92 13.96% -2.64%
5/92 9.81% -1.77%
6/92 13.38% -0.07%
7/92 12.73% 7.86%
8/92 7.89% 12.50%
9/92 11.07% 7.76%
10/92 9.97% 8.96%
11/92 18.45% 9.97%
12/92 7.60% -0.91%
1/93 10.56% 1.91%
2/93 10.67% 10.36%
3/93 15.19% 11.84%
4/93 9.25% 16.34%
5/93 11.65% 17.93%
6/93 13.69% 14.02%
7/93 8.77% 13.36%
8/93 15.21% 7.37%
9/93 12.93% 8.20%
10/93 14.96% 7.37%
11/93 10.07% 6.26%
12/93 10.07% 10.37%
1/94 12.91% 8.69%
2/94 8.34% 1.57%
3/94 1.44% 4.16%
4/94 5.29% -0.86%
5/94 4.16% 1.27%
6/94 1.25% 2.79%
7/94 5.01% -1.92%
8/94 5.32% -1.92%
9/94 3.62% 0.59%
10/94 3.72% 1.25%
11/94 1.00% 2.80%
12/94 1.30% -0.65%
1/95 0.51% 0.90%
2/95 7.33% 5.85%
3/95 15.64% 10.41%
4/95 17.47% 13.71%
5/95 20.24% 11.20%
6/95 26.16% 7.09%
7/95 26.16% 6.88%
8/95 21.55% 12.88%
9/95 29.77% 10.86%
10/95 26.47% 10.74%
11/95 36.97% 10.05%
12/95 37.51% 13.64%
Jan 96 38.58% 18.77%
Feb 96 34.58% 9.38%
Mar 96 31.97% 3.39%
Apr 96 30.17% 8.28%
May 96 28.42% 5.62%
Jun 96 26.03% 6.63%
Jul 96 16.64% 6.19%
Aug 96 18.73% 2.92%
Sep 96 20.33% 5.35%
Oct 96 24.19% 11.17%
Nov 96 28.00% 13.84%
Dec 96 23.10% 9.12%
Jan 97 26.43% 10.42%
Feb 97 26.31% 20.00%
Mar 97 19.93% 18.59%
Apr 97 25.25% 10.37%
May 97 29.52% 12.94%
Jun 97 34.81% 13.43%
Jul 97 52.30% 21.88%
Aug 97 40.81% 17.97%
Sep 97 40.68% 16.58%
Oct 97 32.33% 8.74%
Nov 97 28.64% 6.59%
Dec 97 33.50% 10.89%
Jan 98 27.09% 7.39%
Feb 98 35.15% 2.74%
Mar 98 48.12% 3.91%
Apr 98 41.13% 1.79%
May 98 30.76% 2.24%
Jun 98 30.26% 2.52%
Jul 98 19.28% -3.28%
Aug 98 8.04% 6.72%
Sep 98 8.96% 8.99%
Oct 98 21.80% 9.93%
Nov 98 23.55% 7.38%
Dec 98 28.53% 7.01%
Jan 99 32.47% 4.79%
Feb 99 19.74% 8.61%
Mar 99 18.49% 6.71%
Apr 99 21.89% 12.46%
May 99 21.02% 10.01%
Jun 99 22.65% 11.32%
Jul 99 20.17% 11.06%
Aug 99 39.85% 4.52%
Sep 99 27.89% 1.37%
Oct 99 25.76% -2.17%
Nov 99 20.90% 0.69%
Dec 99 21.01% -1.19%
Jan 00 10.33% 1.73%
Feb 00 11.69% -1.30%
Mar 00 17.92% -0.91%
Apr 00 10.09% -4.24%
May 00 10.43% -2.07%
Jun 00 7.29% -4.48%
Jul 00 8.95% -5.14%
Aug 00 16.29% -2.40%
Sep 00 13.18% -3.90%
Oct 00 6.05% 1.21%
Nov 00 -4.25% 1.98%
Dec 00 -9.13% 7.86%
1/01 -1.00% 6.34%
2/01 -8.26% 6.14%
3/01 -21.72% 11.78%
4/01 -13.00% 9.29%
5/01 -10.51% 9.08%
6/01 -14.79% 8.99%
7/01 -14.27% 9.58%
8/01 -24.36% 8.44%
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
S-49
THE FOLLOWING CHART UPDATES AND REPLACES THROUGH AUGUST 31, 2001, THE
"IMPROVED PORTFOLIO EFFICIENCY" CHART ON PAGE 157. THE NOTES ON PAGE 158 ARE AN
INTEGRAL PART OF THE FOLLOWING CHART.
IMPROVED PORTFOLIO EFFICIENCY
JANUARY 1980 THROUGH AUGUST 2001
U.S. STOCKS/BONDS/INTERNATIONAL EQUITIES/MANAGED FUTURES
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
STANDARD DEVIATION OF MONTHLY RETURNS AVERAGE MONTHLY RETURN
100% Stocks (S&P 500 Index) 4.4238% 1.2788%
100% Bonds (Salomon Corporate Bond Index) 2.7681% 0.9029%
100% International Equities (MSCI EAFE Index) 5.0144% 1.0513%
100% Managed Futures (Barclay CTA Index) 5.0854% 1.2236%
50% Stocks/50% Bonds 2.9588% 1.0909%
50% Stocks/30% Bonds/10% Int'l Eqs./10% Mgd. Futures 2.9341% 1.1378%
50% Stocks/40% Bonds/10% Mgd. Futures 2.8227% 1.1230%
60% Stocks/40% Bonds 3.1842% 1.1285%
60% Stocks/30% Bonds/10% Mgd. Futures 3.0738% 1.1605%
70% Stocks/30% Bonds 3.4516% 1.1661%
70% Stocks/20% Bonds/10% Mgd. Futures 3.3642% 1.1981%
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
S-50
SUPPLEMENTAL PERFORMANCE INFORMATION
THE FOLLOWING CHARTS UPDATE AND REPLACE THROUGH AUGUST 31, 2001, THE CHARTS ON
PAGES 162-173.
MORGAN STANLEY SPECTRUM SELECT L.P.
--------------------------------------------------------------------------------
All of the performance data below is through August 31, 2001.
SPECTRUM SELECT STATISTICS
------------------------------------------------
Trading Advisors: EMC Capital Management, Inc.
Northfield Trading L.P.
Rabar Market Research, Inc.
Sunrise Capital
Management, Inc.
Began Trading: August 1, 1991
Net Assets in Fund: $236.5 Million
Minimum Investment: $5,000 ($2,000/IRA)
Monthly Management Fee: 1/12 of 3.00% of Beg. Net Assets
Monthly Brokerage Fee: 1/12 of 7.25% of Beg. Net Assets
Monthly Incentive Fee: 15.00% of Trading Profits
Investment Style: Technical
RISK ANALYSIS
------------------------------------------------
Compounded Annual Rate of Return: 9.21%
Standard Deviation of Monthly Returns: 7.09%
Annualized Standard Deviation: 24.57%
Sharpe Ratio: 0.17
Sortino Ratio: 0.40
Largest Decline Period (6/95 - 8/96): -26.78%
Average Recovery (No. of months): 8.83
Average Monthly Loss: -4.03%
Standard Deviation of Monthly Loss: 3.07%
% of Losing Months: 49.59%
Average Monthly Gain: 5.89%
Standard Deviation of Monthly Gain: 6.46%
% of Winning Months: 50.41%
AVERAGE SECTOR PARTICIPATION
------------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
Foreign Exchange 23%
Interest Rates 39%
Stock Indices 12%
Agriculturals 3%
Energies 9%
Metals 12%
Softs 2%
TRADING STRATEGY
------------------------------------------------
Spectrum Select uses the technically-based, aggressive, trend-following trading
systems of EMC Capital Management, Inc., Northfield Trading L.P., Rabar Market
Research, Inc. and Sunrise Capital Management, Inc. to participate in a
diversified portfolio of futures and currency markets.
EMC uses an aggressive systematic trading approach that blends several
independent methodologies designed to identify emerging trends and follow
existing trends. This program seeks significant returns in favorable market
periods, while accepting a commensurate decline in unfavorable market cycles.
Northfield uses a purely technical approach utilizing price action itself as
analyzed by charts, numerical indicators, pattern recognition, or other
techniques designed to provide information about market direction.
Rabar uses a systematic approach with discretion, limiting the equity committed
to each trade, market, and sector. Rabar's trading program uses constant
research and analysis of market behavior.
Sunrise's investment approach attempts to detect a trend, or lack of a trend,
with respect to a particular market by analyzing price movement and volatility
over time. Sunrise's trading system consists of multiple, independent, and
parallel systems, each designed to seek out and extract different market
inefficiencies over different time horizons.
FUTURES MARKETS TRADED
------------------------------------------------
Markets traded may include, but are not limited to, the following:
AGRICULTURALS FOREIGN ENERGIES
Corn EXCHANGE Crude oil
Lean hogs Australian dollar Heating oil
Soybeans British pound Natural gas
Soybean meal Canadian dollar Unleaded gas
Soybean oil Euro SOFTS
Wheat Hong Kong dollar Cocoa
STOCK Japanese yen Coffee
INDICES Mexican peso Cotton
All Ordinaries New Zealand dollar Orange juice
CAC 40 Index South African rand Sugar
DAX Index Singapore dollar INTEREST
Dow Jones Swedish krona RATES
Industrial Index Swiss franc Australian Bank
FT-SE 100 Index U.S. Dollar Index Bill
Hang Seng Index METALS Australian T-Bonds
IBEX-35 Plus Index Aluminum British Short
NASDAQ 100 Index Copper Sterling
Nikkei 225 Index Gold British Long Gilt
S&P 500 Index Lead Canadian Bankers
Nickel Acceptances
Platinum Eurodollar
Silver Japanese Government
Tin Bonds
Zinc Spanish Government
Bonds
U.S. T-Bond
U.S. T-Note
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
S-51
SPECTRUM SELECT PERFORMANCE
--------------------------------------------------------------------------------
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
31.18% -14.45% 41.63% -5.13% 23.63% 5.27% 6.22% 14.15% -7.56% 7.14% 3.18%
(5 MONTHS) (8 MONTHS)
ROLLING 12-MONTH PERFORMANCE VS. ZURICH INDEX
--------------------------------------------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
SPECTRUM SELECT ZURICH INDEX
07/31/92 17.29% 10.82%
08/31/92 33.40% 20.71%
09/30/92 18.89% 13.91%
10/31/92 17.81% 14.62%
11/30/92 23.04% 15.01%
12/31/92 -14.45% -1.40%
01/31/93 -0.54% 5.66%
02/28/93 21.64% 15.85%
03/31/93 25.83% 15.98%
04/30/93 41.48% 22.42%
05/31/93 46.32% 22.74%
06/30/93 36.79% 17.48%
07/31/93 40.71% 14.79%
08/31/93 30.64% 8.84%
09/30/93 32.17% 9.38%
10/31/93 29.72% 8.75%
11/30/93 26.28% 6.98%
12/31/93 41.62% 10.74%
01/31/94 24.70% 7.66%
02/28/94 1.21% -1.18%
03/31/94 14.61% 1.65%
04/30/94 2.88% -3.13%
05/31/94 7.81% -1.70%
06/30/94 18.66% 0.13%
07/31/94 -0.93% -6.92%
08/31/94 -6.93% -8.75%
09/30/94 -1.70% -6.98%
10/31/94 -1.50% -5.24%
11/30/94 5.47% -3.91%
12/31/94 -5.12% -7.72%
01/31/95 -1.32% -8.09%
02/28/95 16.04% -0.20%
03/31/95 24.30% 7.71%
04/30/95 36.86% 13.02%
05/31/95 42.28% 13.48%
06/30/95 26.81% 8.31%
07/31/95 19.20% 7.93%
08/31/95 21.93% 12.11%
09/30/95 11.08% 8.67%
10/31/95 12.75% 7.38%
11/30/95 8.15% 7.98%
12/31/95 23.62% 13.89%
01/31/96 34.05% 22.29%
02/29/96 7.49% 7.63%
03/31/96 -11.05% -2.00%
04/30/96 -15.11% -0.53%
05/31/96 -26.37% -5.68%
06/30/96 -24.07% -3.39%
07/31/96 -16.27% -1.85%
08/31/96 -12.44% -2.71%
09/30/96 -1.90% 3.01%
10/31/96 15.00% 11.68%
11/30/96 21.11% 17.01%
12/31/96 5.27% 9.76%
01/31/97 9.82% 10.59%
02/28/97 30.88% 22.30%
03/31/97 31.58% 20.87%
04/30/97 19.53% 13.80%
05/31/97 22.60% 15.63%
06/30/97 21.13% 15.44%
07/31/97 34.86% 24.78%
08/31/97 27.06% 20.31%
09/30/97 24.09% 17.36%
10/31/97 5.40% 7.78%
11/30/97 -0.66% 3.00%
12/31/97 6.22% 7.62%
01/31/98 3.10% 4.09%
02/28/98 0.55% 0.69%
03/31/98 0.46% 1.49%
04/30/98 -0.88% -0.72%
05/31/98 2.08% 4.29%
06/30/98 2.87% 3.85%
07/31/98 -7.17% -3.46%
08/31/98 17.98% 8.24%
09/30/98 24.19% 11.53%
10/31/98 22.42% 12.61%
11/30/98 16.61% 8.10%
12/31/98 14.17% 7.92%
01/31/99 9.91% 5.55%
02/28/99 13.45% 8.33%
03/31/99 10.36% 7.04%
04/30/99 22.70% 16.27%
05/31/99 15.26% 8.96%
06/30/99 14.59% 11.26%
07/31/99 10.62% 9.55%
08/31/99 -7.60% 2.28%
09/30/99 -11.56% -1.35%
10/31/99 -14.59% -5.74%
11/30/99 -7.95% -0.98%
12/31/99 -7.56% -1.41%
01/31/00 -2.08% 1.29%
02/29/00 -9.15% -2.68%
03/31/00 -8.75% -2.54%
04/30/00 -15.34% -8.08%
05/31/00 -10.06% -5.03%
06/30/00 -14.34% -9.29%
07/31/00 -12.57% -9.40%
08/31/00 -8.04% -8.21%
09/30/00 -11.23% -12.41%
10/31/00 -2.67% -6.38%
11/30/00 0.32% -2.37%
12/31/00 7.14% 4.67%
1/31/01 5.57% 3.69%
2/28/01 9.98% 5.05%
3/31/01 20.48% 13.04%
4/30/01 16.54% 7.82%
5/31/01 14.11% 8.62%
6/30/01 17.28% 8.44%
7/31/01 20.04% 10.07%
8/31/01 17.54% 10.43%
HISTORICAL PERFORMANCE COMPARISON (7/31/91 = $10)
--------------------------------------------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
SPECTRUM SELECT ZURICH INDEX S&P 500 SALMON CORP. BOND INDEX MSCI EAFE INDEX
7/31/91 10.0000 10.0000 10.0000 10.0000 10.0000
8/31/91 9.3803 9.5650 10.2200 10.2700 9.8000
9/30/91 9.9733 9.9926 10.0463 10.5473 10.3586
10/31/91 9.7459 9.8097 10.1869 10.5895 10.5036
11/30/91 9.4608 9.8293 9.7692 10.7060 10.0204
12/31/91 13.1191 11.3745 10.8829 11.1771 10.5415
1/31/92 11.3197 10.4987 10.6979 10.9871 10.3201
2/28/92 10.6301 10.1123 10.8263 11.0970 9.9486
3/31/92 10.2145 10.0456 10.6206 11.0193 9.2920
4/30/92 10.0248 9.7704 10.9392 11.0413 9.3385
5/31/92 9.8825 9.7684 10.9720 11.3173 9.9642
6/30/92 10.5932 10.3486 10.8074 11.4984 9.4959
7/31/92 11.7290 11.0823 11.2613 11.8549 9.2585
8/31/92 12.5134 11.5455 11.0136 11.9616 9.8418
9/30/92 11.8575 11.3827 11.1458 12.0812 9.6548
10/31/92 11.4812 11.2438 11.2015 11.8879 9.1528
11/30/92 11.6406 11.3045 11.5711 11.9711 9.2443
12/31/92 11.2239 11.2152 11.7215 12.2464 9.2905
1/31/93 11.2587 11.0930 11.8270 12.5526 9.2905
2/28/93 12.9301 11.7153 11.9808 12.8790 9.5785
3/31/93 12.8531 11.6509 12.2324 12.9048 10.4118
4/30/93 14.1831 11.9608 11.9511 12.9693 11.4009
5/31/93 14.4599 11.9895 12.2499 12.9952 11.6403
6/30/93 14.4903 12.1574 12.2866 13.3721 11.4657
7/31/93 16.5044 12.7215 12.2497 13.5058 11.8670
8/31/93 16.3478 12.5663 12.7029 13.8975 12.5078
9/30/93 15.6726 12.4507 12.6013 13.9531 12.2326
10/31/93 14.8930 12.2278 12.8785 14.0229 12.6118
11/30/93 14.6995 12.0933 12.7368 13.7565 11.5146
12/31/93 15.8953 12.4198 12.8896 13.8528 12.3437
1/31/94 14.0396 11.9429 13.3407 14.1299 13.3929
2/28/94 13.0863 11.5774 12.9672 13.7201 13.3527
3/31/94 14.7308 11.8437 12.4096 13.1987 12.7785
4/30/94 14.5911 11.5867 12.5833 13.0667 13.3280
5/31/94 15.5894 11.7860 12.7720 12.9883 13.2480
6/30/94 17.1948 12.1738 12.4655 12.8844 13.4335
7/31/94 16.3510 11.8415 12.8893 13.2838 13.5678
8/31/94 15.2154 11.4673 13.4049 13.2439 13.8934
9/30/94 15.4054 11.5820 13.0698 12.8863 13.4627
10/31/94 14.6694 11.5866 13.3704 12.8219 13.9204
11/30/94 15.5030 11.6202 12.8757 12.8475 13.2522
12/31/94 15.0807 11.4610 13.0688 13.0531 13.3317
1/31/95 13.8543 10.9762 13.4217 13.3925 12.8251
2/28/95 15.1857 11.5546 13.9317 13.7809 12.7866
3/31/95 18.3108 12.7574 14.3497 13.9187 13.5922
4/30/95 19.9689 13.0955 14.7802 14.1553 14.1087
5/31/95 22.1808 13.3744 15.3566 15.0471 13.9394
6/30/95 21.8039 13.1858 15.7098 15.1675 13.7024
7/31/95 19.4896 12.7810 16.2439 15.0158 14.5657
8/31/95 18.5519 12.8564 16.2764 15.3311 14.0122
9/30/95 17.1124 12.5864 16.9600 15.5611 14.2924
10/31/95 16.5391 12.4417 16.9091 15.8412 13.9065
11/30/95 16.7660 12.5475 17.6362 16.2214 14.2959
12/31/95 18.6421 13.0532 17.9713 16.5945 14.8820
1/31/96 18.5719 13.4226 18.6003 16.6111 14.9415
2/29/96 16.3231 12.4360 18.7677 15.9965 15.0013
3/31/96 16.2873 12.5019 18.9554 15.7885 15.3163
4/30/96 16.9509 13.0257 19.2397 15.5359 15.7605
5/31/96 16.3321 12.6154 19.7207 15.5514 15.4768
6/30/96 16.5566 12.7390 19.7996 15.8158 15.5697
7/31/96 16.3186 12.5441 18.9284 15.8316 15.1182
8/31/96 16.2440 12.5077 19.3259 15.7208 15.1484
9/30/96 16.7868 12.9655 20.4082 16.1295 15.5574
10/31/96 19.0195 13.8951 20.9796 16.7102 15.4018
11/30/96 20.3051 14.6816 22.5531 17.1280 16.0179
12/31/96 19.6238 14.3278 22.1020 16.8026 15.8097
1/31/97 20.3951 14.8436 23.4723 16.7522 15.2564
2/28/97 21.3639 15.2088 23.6601 16.8025 15.5158
3/31/97 21.4307 15.1115 22.6900 16.4328 15.5779
4/30/97 20.2609 14.8229 24.0514 16.7286 15.6714
5/31/97 20.0226 14.5872 25.5185 16.9461 16.6900
6/30/97 20.0545 14.7054 26.6668 17.2681 17.6080
7/31/97 22.0071 15.6524 28.8001 18.1833 17.8897
8/31/97 20.6390 15.0482 27.1873 17.7469 16.5659
9/30/97 20.8314 15.2167 28.6826 18.1551 17.4936
10/31/97 20.0457 14.9763 27.7361 18.3911 16.1466
11/30/97 20.1704 15.1216 29.0120 18.5750 15.9851
12/31/97 20.8452 15.4195 29.5052 18.7608 16.1290
1/31/98 21.0270 15.4503 29.8298 19.0235 16.8709
2/28/98 21.4809 15.3143 31.9775 19.0045 17.9506
3/31/98 21.5295 15.3373 33.6084 19.0805 18.5071
4/30/98 20.0820 14.7161 33.9445 19.1759 18.6552
5/31/98 20.4400 15.2135 33.3674 19.5019 18.5619
6/30/98 20.6300 15.2713 34.7355 19.7359 18.7104
7/31/98 20.4300 15.1110 34.3534 19.9333 18.8975
8/31/98 24.3500 16.2881 29.3722 20.1127 16.5542
9/30/98 25.8700 16.9706 31.2550 20.9373 16.0510
10/31/98 24.5400 16.8654 33.7960 20.5395 17.7364
11/30/98 23.5200 16.3459 35.8576 21.0941 18.6410
12/31/98 23.8000 16.6401 37.9373 21.1152 19.3866
1/31/99 23.1100 16.3073 39.5307 21.3686 19.3284
2/28/99 24.3700 16.5894 38.3052 20.5139 18.8645
3/31/99 23.7600 16.4169 39.8374 20.5139 19.6568
4/30/99 24.6400 17.1097 41.3911 20.4729 20.4627
5/31/99 23.5600 16.5759 40.3977 20.1044 19.4191
6/30/99 23.6400 16.9903 42.6196 19.7827 20.1764
7/31/99 22.6000 16.5536 41.2984 19.5651 20.7817
8/31/99 22.5000 16.6595 41.0919 19.5064 20.8648
9/30/99 22.8800 16.7411 39.9824 19.6820 21.0734
10/31/99 20.9600 15.8973 42.5013 19.7607 21.8742
11/30/99 21.6500 16.1850 43.3513 19.8002 22.6398
12/31/99 22.0000 16.4051 45.9090 19.7210 24.6774
1/31/00 22.6300 16.5183 43.6136 19.6816 23.1227
2/29/00 22.1400 16.1450 42.7849 19.8587 23.7470
3/31/00 21.6800 15.9997 46.9778 20.0374 24.6731
4/30/00 20.8600 15.7277 45.5685 19.9573 23.3901
5/31/00 21.1900 15.7419 44.6116 19.8376 22.8287
6/30/00 20.2500 15.4113 45.7269 20.3335 23.7190
7/31/00 19.7600 14.9983 44.9953 20.5775 22.7228
8/31/00 20.6900 15.2923 47.7850 20.8450 22.9273
9/30/00 20.3100 14.6638 45.2524 20.9909 21.8268
10/31/00 20.4000 14.8823 45.0714 21.0749 21.3248
11/30/00 21.7200 15.8020 41.5108 21.3489 20.5358
12/31/00 23.5700 17.1705 41.7184 21.7972 21.2751
1/31/01 23.89 17.1276 43.1785 22.4075 21.2964
2/28/01 24.35 16.9597 39.2493 22.6092 19.6992
3/31/01 26.12 18.0858 36.7766 22.7449 18.3597
4/30/01 24.31 16.9572 39.6452 22.6539 19.6265
5/31/01 24.18 17.0996 39.9227 22.9031 18.9003
6/30/01 23.75 16.7114 38.9646 22.9947 18.1254
7/31/01 23.72 16.5092 38.575 23.6592 17.7973
8/31/01 24.32 16.8873 36.1448 23.936 17.3506
CORRELATION ANALYSIS (8/91 - 8/01)
--------------------------------------------------------------------------------
Note: The closer the value to zero, the lower the correlation to the indexes
compared.
Spectrum Select Zurich S&P SAL EAFE
--------------------------------------------------------------------------------------------------------------------
Spectrum Select 1.00 0.91 0.00 0.31 0.05
Zurich Index 1.00 0.05 0.35 0.07
S & P 500 Index 1.00 0.32 0.62
Salomon Corporate Bond Index 1.00 0.13
MSCI EAFE Index 1.00
The S&P 500 Index, Salomon Corporate Bond Index, and MSCI EAFE Index performance
data for stocks, corporate bonds, and international stocks, respectively, are
provided by Thomson Financial Software Solutions, Boston, MA. The Zurich Index
performance data for managed futures is provided by Zurich Capital Markets Inc.,
New York, N.Y.
Risk Considerations: Typically, managed futures investments are speculative,
involve a high degree of risk, have substantial charges, and are suitable only
for the risk capital portion of an investor's portfolio. Before investing in any
partnership and in order to make an informed decision, you should read the
Spectrum Series prospectus carefully for complete information, including
charges, expenses, and risks. Financial Advisors should also read the prospectus
before discussing managed futures with clients.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
S-52
MORGAN STANLEY SPECTRUM TECHNICAL L.P.
--------------------------------------------------------------------------------
All of the performance data below is through August 31, 2001.
SPECTRUM TECHNICAL STATISTICS
------------------------------------------------
Trading Advisors: Campbell & Company, Inc.
Chesapeake Capital Corporation
John W. Henry & Company, Inc.
Began Trading: November 1, 1994
Net Assets in Fund: $256.6 Million
Minimum Investment: $5,000 ($2,000/IRA)
Monthly Management Fee: 1/12 of 2.00% of Beg. Net Assets to
JWH, 1/12 of 3.00% of Beg. Net
Assets to Campbell, and 1/12 of
4.00% of Beg. Net Assets to
Chesapeake
Monthly Brokerage Fee: 1/12 of 7.25% of Beg. Net Assets
Monthly Incentive Fee: 19.00% of Trading Profits
to Chesapeake and 20.00% of
Trading Profits to each of
JWH and Campbell
Investment Style: Technical
RISK ANALYSIS
------------------------------------------------
Compounded Annual Rate of Return: 6.26%
Standard Deviation of Monthly Returns: 4.90%
Annualized Standard Deviation: 16.98%
Sharpe Ratio: 0.07
Sortino Ratio: 0.14
Largest Decline Period (5/99 - 9/00): -24.31%
Average Recovery (No. of months): 3.10
Average Monthly Loss: -3.16%
Standard Deviation of Monthly Loss: 2.60%
% of Losing Months: 50.00%
Average Monthly Gain: 4.41%
Standard Deviation of Monthly Gain: 3.53%
% of Winning Months: 50.00%
AVERAGE SECTOR PARTICIPATION
------------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
Foreign Exchange 35%
Interest Rates 32%
Stock Indices 10%
Agriculturals 4%
Energies 12%
Metals 5%
Softs 2%
TRADING STRATEGY
------------------------------------------------
Spectrum Technical is managed by Campbell & Company, Inc., Chesapeake Capital
Corporation and John W. Henry & Company, Inc. These three trading advisors
employ a combination of investment approaches.
Campbell uses a highly disciplined, systematic investment approach designed to
detect and react to price movements in the futures and forward markets.
Campbell's core systematic approach has been used successfully for over twenty
years.
The trading methodology employed by Chesapeake is based on the analysis of
interrelated mathematical and statistical formulas, including the technical
analysis of historical data, used to determine optimal price support and
resistance levels and market entry and exit points. This trading system was
designed in the 1980s and is continually updated based on research.
JWH's trading programs use disciplined systematic quantitative methodologies to
identify short- to long-term trends in both the financial and non-financial
futures markets. These programs are differentiated by a distinctive style,
timing, and market characteristic.
FUTURES MARKETS TRADED
------------------------------------------------
Markets traded may include, but are not limited to, the
following:
AGRICULTURALS FOREIGN STOCK
Corn EXCHANGE INDICES
Feeder cattle Australian dollar All Ordinaries
Lean hogs British pound CAC 40 Index
Live cattle Canadian dollar DAX Index
Pork bellies Euro Dow Jones
Soybeans Hong Kong dollar Industrial Index
Soybean meal Japanese yen FT-SE 100 Index
Soybean oil Mexican peso Hang Seng Index
Wheat New Zealand dollar IBEX-35 Plus Index
SOFTS Norwegian krone NASDAQ 100 Index
Cocoa Singapore dollar Nikkei 225 Index
Coffee South African rand S&P 500 Index
Cotton Swedish krona Swedish Index
Orange juice Swiss franc Taiwan Index
Sugar METALS Toronto Index
ENERGIES Aluminum INTEREST
Crude oil Copper RATES
Gas oil Gold Australian Bank
Heating oil Lead Bill
Natural gas Nickel Australian T-Bonds
Unleaded gas Platinum British Short
Silver Sterling
Tin British Long Gilt
Zinc Canadian Bankers
Acceptances
Euro Bonds
Eurodollar
Japanese Government
Bond
Spanish Government
Bond
Swiss Government
Bond
U.S. T-Bond
U.S. T-Note
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
S-53
SPECTRUM TECHNICAL PERFORMANCE
--------------------------------------------------------------------------------
1994 1995 1996 1997 1998 1999 2000 2001
-2.20% 17.59% 18.35% 7.49% 10.18% -7.51% 7.85% -5.85%
(2 MONTHS) (8 MONTHS)
ROLLING 12-MONTH PERFORMANCE VS. ZURICH INDEX
--------------------------------------------------------------------------------
[graphic omitted]
HISTORICAL PERFORMANCE COMPARISON (10/31/94 = $10)
--------------------------------------------------------------------------------
[graphic omitted]
CORRELATION ANALYSIS (11/94 - 8/01)
--------------------------------------------------------------------------------
Note: The closer the value to zero, the lower the correlation to the indexes
compared.
Spectrum Technical Zurich S&P SAL EAFE
--------------------------------------------------------------------------------------------------------------------------------
Spectrum Technical 1.00 0.94 -0.04 0.28 -0.01
Zurich Index 1.00 -0.02 0.34 0.00
S & P 500 Index 1.00 0.25 0.74
Salomon Corporate Bond Index 1.00 0.00
MSCI EAFE Index 1.00
The S&P 500 Index, Salomon Corporate Bond Index, and MSCI EAFE Index performance
data for stocks, corporate bonds, and international stocks, respectively, are
provided by Thomson Financial Software Solutions, Boston, MA. The Zurich Index
performance data for managed futures is provided by Zurich Capital Markets Inc.,
New York, N.Y.
Risk Considerations: Typically, managed futures investments are speculative,
involve a high degree of risk, have substantial charges, and are suitable only
for the risk capital portion of an investor's portfolio. Before investing in any
partnership and in order to make an informed decision, you should read the
Spectrum Series prospectus carefully for complete information, including
charges, expenses, and risks. Financial advisors should also read the prospectus
before discussing managed futures with clients.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
S-54
MORGAN STANLEY SPECTRUM STRATEGIC L.P.
--------------------------------------------------------------------------------
All of the performance data below is through August 31, 2001.
SPECTRUM STRATEGIC STATISTICS
------------------------------------------------
Trading Advisors: Allied Irish Capital Management,
Ltd.
Blenheim Capital Management, L.L.C.
Eclipse Capital Management Inc.
Began Trading: November 1, 1994
Net Assets in Fund: $67.9 Million
Minimum Investment: $5,000 ($2,000/IRA)
Monthly Management Fee: 1/12 of 3.00% of Beg. Net Assets
Monthly Brokerage Fee: 1/12 of 7.25% of Beg. Net Assets
Monthly Incentive Fee: 15.00% of Trading Profits
Investment Style: Fundamental/Technical
RISK ANALYSIS
------------------------------------------------
Compounded Annual Rate of Return: -0.10%
Standard Deviation of Monthly Returns: 7.01%
Annualized Standard Deviation: 24.27%
Sharpe Ratio: -0.21
Sortino Ratio: -0.36
Largest Decline Period (1/00 - 10/00): -43.28%
Average Recovery (No. of months): 4.67
Average Monthly Loss: -4.79%
Standard Deviation of Monthly Loss: 4.11%
% of Losing Months: 52.44%
Average Monthly Gain: 5.77%
Standard Deviation of Monthly Gain: 5.10%
% of Winning Months: 47.56%
AVERAGE SECTOR PARTICIPATION
------------------------------------------------
[graphic omitted]
TRADING STRATEGY
------------------------------------------------
Spectrum Strategic is managed by Allied Irish Capital Management, Ltd., Blenheim
Capital Management, L.L.C., and Eclipse Capital Management, Inc. All three
trading advisors employ an investment approach that evaluates key economic
indicators, such as supply and demand levels and geopolitical conditions, as
well as certain technical factors.
Allied Irish employs multiple investment professionals using a discretionary
trading approach. Several strategies are applied to investments in a broad range
of financial instruments.
Blenheim Capital's program has a strong global concentration using a
discretionary trading approach supplemented by a systematic and mathematical
investment process. Investments are made in markets in which the trading advisor
has a clear understanding of fundamental factors and geopolitical forces that
influence price behavior.
Eclipse employs a systemic trading approach using multiple trend-following and
macroeconomic driven models. A key characteristic of the Eclipse trading program
is the extensive diversification achieved by applying multiple trading models to
a wide variety of financial markets located throughout the world.
FUTURES MARKETS TRADED
------------------------------------------------
Markets traded may include, but are not limited to, the following:
AGRICULTURALS METALS STOCK
Corn Aluminum INDICES
Lean hogs Copper CAC 40 Index
Live cattle Gold DAX Index
Soybeans Nickel FT-SE 100 Index
Soybean meal Silver NASDAQ 100 Index
Soybean oil Zinc Nikkei 225 Index
Wheat ENERGIES S&P 500 Index
SOFTS Crude oil INTEREST
Cocoa Gas oil RATES
Coffee Heating oil British Short
Lumber Natural gas Sterling
Sugar Unleaded gas British Long Gilt
FOREIGN Euro bonds
EXCHANGE Eurodollar
Australian dollar Japanese Government
British pound Bond
Canadian dollar U.S. T-Bond
Euro U.S. T-Notes
Japanese yen
Swiss franc
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
S-55
SPECTRUM STRATEGIC PERFORMANCE
--------------------------------------------------------------------------------
1994 1995 1996 1997 1998 1999 2000 2001
0.10% 10.49% -3.53% 0.37% 7.84% 37.23% -33.06% -6.41%
(2 MONTHS) (8 MONTHS)
ROLLING 12-MONTH PERFORMANCE VS. ZURICH INDEX
--------------------------------------------------------------------------------
[graphic omitted]
HISTORICAL PERFORMANCE COMPARISON (10/31/94 = $10)
--------------------------------------------------------------------------------
[graphic omitted]
CORRELATION ANALYSIS (11/94 - 8/01)
--------------------------------------------------------------------------------
Note: The closer the value to zero, the lower the correlation to the indexes
compared.
Spectrum Strategic Zurich S&P SAL EAFE
--------------------------------------------------------------------------------------------------------------------------------
Spectrum Strategic 1.00 0.59 0.04 0.02 0.11
Zurich Index 1.00 -0.02 0.34 0.00
S&P 500 Index 1.00 0.25 0.74
Salomon Corporate Bond Index 1.00 0.00
MSCI EAFE Index 1.00
The S&P 500 Index, Salomon Corporate Bond Index, and MSCI EAFE Index performance
data for stocks, corporate bonds, and international stocks, respectively, are
provided by Thomson Financial Software Solutions, Boston, MA. The Zurich Index
performance data for managed futures is provided by Zurich Capital Markets Inc.,
New York, N.Y.
Risk Considerations: Typically, managed futures investments are speculative,
involve a high degree of risk, have substantial charges, and are suitable only
for the risk capital portion of an investor's portfolio. Before investing in any
partnership and in order to make an informed investment decision, you should
read the Spectrum Series prospectus carefully for complete information,
including charges, expenses, and risks. Financial advisors should also read the
prospectus before discussing managed futures with clients.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
S-56
MORGAN STANLEY SPECTRUM GLOBAL BALANCED L.P.
--------------------------------------------------------------------------------
All of the performance data below is through August 31, 2001.
SPECTRUM GLOBAL BALANCED STATISTICS
------------------------------------------------
Trading Advisor: RXR, Inc.
Began Trading: November 1, 1994
Net Assets in Fund: $56.5 Million
Minimum Investment: $5,000 ($2,000/IRA)
Monthly Management Fee: 1/12 of 1.25% of Beg. Net Assets
Monthly Brokerage Fee: 1/12 of 4.60% of Beg. Net Assets
Monthly Incentive Fee: 15.00% of Trading Profits
Investment Style: Technical
RISK ANALYSIS
------------------------------------------------
Compounded Annual Rate of Return: 6.96%
Standard Deviation of Monthly Returns: 2.90%
Annualized Standard Deviation: 10.06%
Sharpe Ratio: 0.19
Sortino Ratio: 0.31
Largest Decline Period (2/96 - 5/96): -10.64%
Average Recovery (No. of months): 3.57
Average Monthly Loss: -1.96%
Standard Deviation of Monthly Loss: 1.85%
% of Losing Months: 41.46%
Average Monthly Gain: 2.42%
Standard Deviation of Monthly Gain: 2.01%
% of Winning Months: 58.54%
AVERAGE SECTOR PARTICIPATION
------------------------------------------------
[graphic omitted]
TRADING STRATEGY
------------------------------------------------
Spectrum Global Balanced follows the tenets of Modern Portfolio Theory and
offers a balanced portfolio that participates in global stocks, global bonds,
and alternative investments within managed futures. Since the Spectrum Global
Balanced trading strategy is in part to gain exposure to the stock and bond
markets, it does not result in the same degree of non-correlation to the stock
and bond indices and in that way differs from the other managed futures funds
that Morgan Stanley DW offers.
Within global stock and global bond components of the fund, RXR, Inc. analyzes
various fundamental information, such as growth data, labor wage rates, central
bank interest rate policies and inflation, to determine its approaches to these
markets.
Within the global currency and commodity components of the Fund, RXR employs a
technical trend-following trading system to analyze price data, determine profit
and risk potential, and initiate trades overall.
RXR uses a computer-based model to reallocate assets among various market
sectors within each of the independent strategies.
The returns achieved by Spectrum Global Balanced will tend to be more highly
correlated to the performance of global stock and global bond markets than will
be the returns derived within other funds in the Spectrum Series.
FUTURES MARKETS TRADED
------------------------------------------------
Markets traded may include, but are not limited to, the
following:
AGRICULTURALS STOCK INTEREST
Corn INDICES RATES
Lean hogs DAX Index Australian Bank
Live cattle FT-SE 100 Index Bill
Soybean oil Nikkei 225 Index Australian T-Bonds
Wheat S&P 500 Index British Long Gilts
SOFTS FOREIGN British Short
Cotton EXCHANGE Sterling
Sugar Australian dollar Canadian Bankers
ENERGIES British pound Acceptances
Crude oil Canadian dollar Euro Bonds
Gas oil Euro Eurodollar
Natural gas Japanese yen Japanese
METALS Mexican peso Government
Copper New Zealand dollar Bonds
Nickel Singapore dollar Spanish
Zinc Swiss franc Government
Bonds
U.S. T-Bond
U.S. T-Notes
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
S-57
SPECTRUM GLOBAL BALANCED PERFORMANCE
--------------------------------------------------------------------------------
1994 1995 1996 1997 1998 1999 2000 2001
-1.70% 22.79% -3.65% 18.23% 16.36% 0.75% 0.87% -2.64%
(2 MONTHS) (8 MONTHS)
ROLLING 12-MONTH PERFORMANCE VS. ZURICH INDEX
--------------------------------------------------------------------------------
[graphic omitted]
HISTORICAL PERFORMANCE COMPARISON (10/31/94 = $10)
--------------------------------------------------------------------------------
[graphic omitted]
CORRELATION ANALYSIS (11/94 - 8/01)
--------------------------------------------------------------------------------
Note: The closer the value to zero, the lower the correlation to the indexes
compared.
Spectrum Global
Balanced Zurich S&P SAL EAFE
-----------------------------------------------------------------------------------------------------------------------------
Spectrum Global Balanced 1.00 0.69 0.46 0.60 0.35
Zurich Index 1.00 -0.02 0.34 0.00
S&P 500 Index 1.00 0.25 0.74
Salomon Corporate Bond Index 1.00 0.00
MSCI EAFE Index 1.00
The S&P 500 Index, Salomon Corporate Bond Index, and MSCI EAFE Index performance
data for stocks, corporate bonds, and international stocks, respectively, are
provided by Thomson Financial Software Solutions, Boston, MA. The Zurich Index
performance data for managed futures is provided by Zurich Capital Markets Inc.,
New York, N.Y.
Risk Considerations: Typically, managed futures investments are speculative,
involve a high degree of risk, have substantial charges, and are suitable only
for the risk capital portion of an investor's portfolio. Before investing in any
partnership and in order to make an informed investment decision, you should
read the Spectrum Series prospectus carefully for complete information,
including charges, expenses, and risks. Financial advisors should also read the
prospectus before discussing managed futures with clients.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
S-58
MORGAN STANLEY SPECTRUM CURRENCY L.P.
--------------------------------------------------------------------------------
All of the performance data below is a pro forma of Cornerstone IV based on the
Spectrum Currency fee structure and is through August 31, 2001.
SPECTRUM CURRENCY STATISTICS
------------------------------------------------
Trading Advisors: John W. Henry & Company, Inc.
Sunrise Capital Partners, LLC
Began Trading: July 3, 2000
Net Assets in Fund: $34.1 Million
Minimum Investment: $5,000 ($2,000/IRA)
Monthly Management Fee: 1/12 of 2.00% of Beg. Net Assets
Monthly Brokerage Fee: 1/12 of 4.60% of Beg. Net Assets
Monthly Incentive Fee: 20.00% of Trading Profits
Investment Style: Technical
RISK ANALYSIS
------------------------------------------------
Compounded Annual Rate of Return: 9.29%
Standard Deviation of Monthly Returns: 7.89%
Annualized Standard Deviation: 27.33%
Sharpe Ratio: 0.16
Sortino Ratio: 0.27
Largest Decline Period (6/95 - 8/96): -46.06%
Average Recovery (No. of months): 3.83
Average Monthly Loss: -5.01%
Standard Deviation of Monthly Loss: 4.58%
% of Losing Months: 45.35%
Average Monthly Gain: 6.06%
Standard Deviation of Monthly Gain: 6.40%
% of Winning Months: 54.65%
AVERAGE SECTOR PARTICIPATION
------------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
TRADING STRATEGY
------------------------------------------------
Spectrum Currency, managed by John W. Henry & Company, Inc. and Sunrise Capital
Partners, LLC, is structured to exclusively trade a portfolio of diverse world
currencies. Each trading advisor implements a technical, trend-following program
to participate in international currencies, primarily in the forward dealer
markets, futures contracts, and may also trade in spot (cash) currency markets.
JWH employs the International Foreign Exchange Program, which seeks to identify
and capitalize on intermediate-term price movements in a broad range of both
major and minor currencies primarily trading on the interbank market. Positions
are taken as outrights against the U.S. dollar, or non-dollar cross rates.
Sunrise's Currency Program follows approximately ten different major and minor
currency markets, which may include, but are not limited to, the Japanese yen,
British pound, Euro, Swiss franc, Canadian dollar, Australian dollar, Swedish
krona, New Zealand dollar, Singapore dollar, and South African rand. In order to
achieve adequate diversification for the Currency Program, major and minor
currencies are traded as cross-rates selectively against each other and/or as
outrights against the U.S. dollar.
FUTURES MARKETS TRADED
------------------------------------------------
Markets traded may include, but are not limited to, the following:
FOREIGN EXCHANGE
Australian dollar
British pound
Canadian dollar
Czech koruna
Danish kronor
Euro
Greek drachma
Hong Kong dollar
Japanese yen
Mexican peso
New Zealand dollar
Norwegian krone
Singapore dollar
South African rand
Swedish krona
Swiss franc
Thai baht
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
S-59
PRO FORMA FOR SPECTRUM CURRENCY PERFORMANCE
--------------------------------------------------------------------------------
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
7.74% 25.71% -15.61% 43.03% 32.66% 5.11% -10.03% -13.04% 21.28% 13.91% 25.53% 2.67% -1.33% 14.93% -0.75%
(8 MONTHS) (8 MONTHS)
ROLLING 12-MONTH PRO FORMA PERFORMANCE VS. ZURICH INDEX
--------------------------------------------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
PRO FORMA FOR SPECTRUM CURRENCY ZURICH INDEX
APR-88 -4.51% -1.22%
MAY-88 35.47% 7.84%
Jun-88 49.12% 26.45%
Jul-88 62.12% 15.67%
Aug-88 88.76% 21.13%
Sep-88 77.21% 23.80%
Oct-88 58.52% 25.14%
Nov-88 55.08% 17.59%
Dec-88 25.71% 7.26%
Jan-89 81.80% 19.88%
Feb-89 48.38% 11.23%
Mar-89 44.76% 16.74%
Apr-89 41.75% 17.87%
May-89 25.68% 22.71%
Jun-89 12.21% 6.35%
Jul-89 -9.79% 13.47%
Aug-89 -27.43% 6.40%
Sep-89 -37.97% 3.32%
Oct-89 -36.00% -3.07%
Nov-89 -33.89% -2.00%
Dec-89 -15.61% 4.68%
Jan-90 -24.16% 0.71%
Feb-90 -6.79% 7.36%
Mar-90 -4.49% 7.69%
Apr-90 -3.32% 12.99%
May-90 -20.80% -3.66%
Jun-90 -8.85% -2.20%
Jul-90 29.12% 1.07%
Aug-90 67.06% 11.28%
Sep-90 95.43% 16.17%
Oct-90 105.95% 22.75%
Nov-90 78.34% 20.62%
Dec-90 43.03% 14.23%
Jan-91 22.95% 7.28%
Feb-91 13.24% 6.80%
Mar-91 36.35% 9.85%
Apr-91 34.56% 5.39%
May-91 47.27% 10.61%
Jun-91 41.81% 9.53%
Jul-91 4.20% 2.06%
Aug-91 -10.19% -6.24%
Sep-91 2.65% -3.79%
Oct-91 -11.77% -6.22%
Nov-91 -3.79% -6.50%
Dec-91 32.66% 10.01%
Jan-92 32.24% 6.45%
Feb-92 29.60% 2.77%
Mar-92 3.83% -3.03%
Apr-92 -4.29% -5.17%
May-92 -2.03% -4.35%
Jun-92 6.19% 0.74%
Jul-92 28.42% 10.82%
Aug-92 61.63% 20.71%
Sep-92 39.34% 13.91%
Oct-92 44.77% 14.62%
Nov-92 38.16% 15.01%
Dec-92 5.11% -1.40%
Jan-93 11.22% 5.66%
Feb-93 38.75% 15.85%
Mar-93 31.71% 15.98%
Apr-93 40.80% 22.42%
May-93 41.61% 22.74%
Jun-93 20.63% 17.48%
Jul-93 18.11% 14.79%
Aug-93 -4.48% 8.84%
Sep-93 1.48% 9.38%
Oct-93 -4.62% 8.75%
Nov-93 -11.96% 6.98%
Dec-93 -10.03% 10.74%
Jan-94 -5.31% 7.66%
Feb-94 -19.14% -1.18%
Mar-94 -16.15% 1.65%
Apr-94 -18.88% -3.13%
May-94 -24.70% -1.70%
Jun-94 -19.64% 0.14%
Jul-94 -27.06% -6.92%
Aug-94 -24.61% -8.75%
Sep-94 -21.78% -6.98%
Oct-94 -11.52% -5.24%
Nov-94 -11.10% -3.91%
Dec-94 -13.04% -7.72%
Jan-95 -18.60% -8.09%
Feb-95 -11.15% -0.20%
Mar-95 11.90% 7.72%
Apr-95 17.82% 13.02%
May-95 16.24% 13.48%
Jun-95 7.74% 8.31%
Jul-95 11.08% 7.93%
Aug-95 21.38% 12.11%
Sep-95 19.09% 8.67%
Oct-95 14.04% 7.38%
Nov-95 18.84% 7.98%
Dec-95 21.28% 13.89%
Jan-96 35.22% 22.29%
Feb-96 19.81% 7.63%
Mar-96 -2.77% -2.00%
Apr-96 -1.67% -0.53%
May-96 4.66% -5.67%
Jun-96 5.35% -3.39%
Jul-96 2.94% -1.85%
Aug-96 -5.02% -2.71%
Sep-96 -4.33% 3.01%
Oct-96 3.67% 11.68%
Nov-96 11.09% 17.01%
Dec-96 13.91% 9.77%
Jan-97 15.88% 10.59%
Feb-97 29.30% 22.30%
Mar-97 25.89% 20.87%
Apr-97 23.12% 13.80%
May-97 14.95% 15.63%
Jun-97 16.70% 15.43%
Jul-97 30.13% 24.78%
Aug-97 35.54% 20.31%
Sep-97 33.50% 17.36%
Oct-97 25.57% 7.78%
Nov-97 24.45% 3.00%
Dec-97 25.53% 7.62%
Jan-98 17.38% 4.09%
Feb-98 7.15% 0.69%
Mar-98 10.12% 1.49%
Apr-98 4.61% -0.72%
May-98 16.65% 4.29%
Jun-98 27.78% 3.85%
Jul-98 18.75% -3.46%
Aug-98 17.55% 8.24%
Sep-98 14.18% 11.53%
Oct-98 17.18% 12.61%
Nov-98 7.52% 8.10%
Dec-98 2.67% 7.92%
Jan-99 1.46% 5.55%
Feb-99 6.55% 8.33%
Mar-99 6.34% 7.04%
Apr-99 12.39% 16.26%
May-99 4.79% 8.95%
Jun-99 -6.13% 11.26%
Jul-99 -11.08% 9.55%
Aug-99 -10.31% 2.28%
Sep-99 -4.42% -1.35%
Oct-99 -12.60% -5.74%
Nov-99 -3.03% -0.98%
Dec-99 -1.33% -1.41%
Jan-00 3.33% 1.29%
Feb-00 0.63% -2.68%
Mar-00 -2.37% -2.54%
Apr-00 2.99% -8.08%
May-00 4.54% -5.03%
Jun-00 0.24% -9.29%
Jul-00 6.06% -9.39%
Aug-00 5.11% -8.21%
Sep-00 4.09% -12.41%
Oct-00 18.52% -6.38%
Nov-00 10.82% -2.37%
Dec-00 14.93% 4.66%
1/31/01 11.48% 3.69%
2/28/01 11.71% 5.05%
3/31/01 23.15% 13.04%
4/30/01 11.80% 7.82%
5/31/01 14.03% 8.62%
6/30/01 17.60% 8.44%
7/31/01 9.64% 10.07%
8/31/01 12.34% 10.43%
HISTORICAL PRO FORMA PERFORMANCE COMPARISON (4/30/87 = $10)
--------------------------------------------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
PRO FORMA FOR SPECTRUM CURRENCY ZURICH INDEX S&P 500 INDEX SALMON CORP. BOND INDEX MSCI EAFE INDEX
APR-97 10.0000 10.0000 10.0000 10.0000 10.0000
MAY-87 8.9410 9.7460 10.0900 9.9500 10.0000
Jun-87 8.9186 9.5959 10.5945 10.0993 9.6800
Jul-87 8.7411 9.9404 11.1348 9.9781 9.6606
Aug-87 7.6791 9.5706 11.5468 9.8983 10.3851
Sep-87 7.6660 9.4060 11.2928 9.4826 10.2189
Oct-87 8.7155 9.4540 8.8648 9.9662 8.7883
Nov-87 9.6315 10.1763 8.1379 10.0958 8.8762
Dec-87 10.7738 10.8490 8.7564 10.3078 9.1425
Jan-88 8.5921 10.2469 9.1417 10.8438 9.3071
Feb-88 8.6832 10.3811 9.5531 10.9956 9.9307
Mar-88 9.1946 10.0946 9.2665 10.7867 10.5464
Apr-88 9.5495 9.8776 9.3777 10.6249 10.7046
May-88 12.1126 10.5098 9.4340 10.5612 10.3621
Jun-88 13.2996 12.1336 9.8680 10.9625 10.0927
Jul-88 14.1707 11.4978 9.8483 10.8419 10.4157
Aug-88 14.4952 11.5932 9.4938 10.8961 9.7387
Sep-88 13.5849 11.6442 9.9020 11.2557 10.1672
Oct-88 13.8158 11.8305 10.1892 11.5709 11.0416
Nov-88 14.9363 11.9666 10.0262 11.3742 11.7041
Dec-88 13.5442 11.6363 10.2067 11.4197 11.7743
Jan-89 15.6205 12.2844 10.9620 11.6481 11.9862
Feb-89 12.8838 11.5473 10.6770 11.4967 12.0461
Mar-89 13.3103 11.7840 10.9332 11.5657 11.8172
Apr-89 13.5366 11.6426 11.5127 11.8086 11.9236
May-89 15.2233 12.8965 11.9502 12.2573 11.2797
Jun-89 14.9234 12.9042 11.8904 12.7353 11.0879
Jul-89 12.7834 13.0461 12.9724 12.9645 12.4850
Aug-89 10.5195 12.3351 13.2059 12.7571 11.9232
Sep-89 8.4261 12.0304 13.1531 12.8081 12.4717
Oct-89 8.8423 11.4674 12.8506 13.1667 11.9728
Nov-89 9.8742 11.7277 13.0948 13.2589 12.5714
Dec-89 11.4294 12.1804 13.4091 13.2722 13.0365
Jan-90 11.8466 12.3716 12.5241 13.0200 12.5541
Feb-90 12.0089 12.3976 12.6619 13.0070 11.6753
Mar-90 12.7126 12.6902 13.0038 12.9940 10.4611
Apr-90 13.0876 13.1547 12.6917 12.7471 10.3774
May-90 12.0576 12.4246 13.8974 13.2442 11.5604
Jun-90 13.6034 12.6197 13.8140 13.5356 11.4564
Jul-90 16.5064 13.1851 13.7864 13.6710 11.6168
Aug-90 17.5744 13.7270 12.5318 13.2745 10.4900
Sep-90 16.4672 13.9755 11.9303 13.3940 9.0319
Oct-90 18.2111 14.0761 11.8945 13.5681 10.4409
Nov-90 17.6101 14.1465 12.6439 13.9480 9.8249
Dec-90 16.3475 13.9131 12.9979 14.1851 9.9919
Jan-91 14.5656 13.2717 13.5828 14.3979 10.3216
Feb-91 13.5984 13.2412 14.5336 14.5707 11.4260
Mar-91 17.3339 13.9403 14.8969 14.7310 10.7404
Apr-91 17.6112 13.8636 14.9416 14.9372 10.8478
May-91 17.7574 13.7430 15.5542 14.9969 10.9671
Jun-91 19.2916 13.8227 14.8543 14.9669 10.1665
Jul-91 17.2004 13.4564 15.5673 15.2213 10.6647
Aug-91 15.7831 12.8710 15.9098 15.6323 10.4514
Sep-91 16.9037 13.4463 15.6393 16.0544 11.0471
Oct-91 16.0670 13.2002 15.8583 16.1186 11.2018
Nov-91 16.9427 13.2266 15.2081 16.2959 10.6865
Dec-91 21.6867 15.3058 16.9418 17.0129 11.2422
Jan-92 19.2621 14.1273 16.6538 16.7237 11.0061
Feb-92 17.6229 13.6074 16.8536 16.8909 10.6099
Mar-92 17.9983 13.5176 16.5334 16.7727 9.9096
Apr-92 16.8554 13.1472 17.0294 16.8062 9.9591
May-92 17.3965 13.1446 17.0805 17.2264 10.6264
Jun-92 20.4861 13.9254 16.8243 17.5020 10.1270
Jul-92 22.0881 14.9127 17.5309 18.0446 9.8738
Aug-92 25.5095 15.5361 17.1452 18.2070 10.4958
Sep-92 23.5529 15.3170 17.3509 18.3891 10.2964
Oct-92 23.2608 15.1301 17.4377 18.0949 9.7610
Nov-92 23.4073 15.2118 18.0131 18.2216 9.8586
Dec-92 22.7940 15.0916 18.2473 18.6407 9.9079
Jan-93 21.4241 14.9271 18.4115 19.1067 9.9079
Feb-93 24.4513 15.7645 18.6508 19.6035 10.2150
Mar-93 23.7055 15.6778 19.0425 19.6427 11.1037
Apr-93 23.7316 16.0948 18.6045 19.7409 12.1586
May-93 24.6358 16.1334 19.0696 19.7804 12.4139
Jun-93 24.7122 16.3593 19.1268 20.3540 12.2277
Jul-93 26.0887 17.1184 19.0694 20.5575 12.6557
Aug-93 24.3668 16.9096 19.7750 21.1537 13.3391
Sep-93 23.9014 16.7540 19.6168 21.2383 13.0456
Oct-93 22.1853 16.4541 20.0484 21.3445 13.4500
Nov-93 20.6079 16.2731 19.8279 20.9390 12.2799
Dec-93 20.5069 16.7125 20.0658 21.0856 13.1641
Jan-94 20.2875 16.0707 20.7681 21.5073 14.2830
Feb-94 19.7702 15.5789 20.1866 20.8836 14.2402
Mar-94 19.8770 15.9372 19.3186 20.0900 13.6279
Apr-94 19.2509 15.5914 19.5891 19.8891 14.2139
May-94 18.5502 15.8596 19.8829 19.7698 14.1286
Jun-94 19.8598 16.3814 19.4057 19.6116 14.3264
Jul-94 19.0297 15.9342 20.0655 20.2196 14.4697
Aug-94 18.3694 15.4307 20.8681 20.1589 14.8170
Sep-94 18.6964 15.5850 20.3464 19.6146 14.3577
Oct-94 19.6294 15.5912 20.8144 19.5165 14.8459
Nov-94 18.3201 15.6364 20.0443 19.5555 14.1333
Dec-94 17.8328 15.4222 20.3450 19.8684 14.2181
Jan-95 16.5132 14.7698 20.8943 20.3850 13.6778
Feb-95 17.5651 15.5482 21.6883 20.9762 13.6368
Mar-95 22.2427 17.1668 22.3389 21.1860 14.4959
Apr-95 22.6809 17.6217 23.0091 21.5462 15.0467
May-95 21.5627 17.9970 23.9065 22.9036 14.8661
Jun-95 21.3967 17.7432 24.4563 23.0868 14.6134
Jul-95 21.1378 17.1985 25.2878 22.8559 15.5340
Aug-95 22.2962 17.3000 25.3384 23.3359 14.9437
Sep-95 22.2650 16.9367 26.4026 23.6859 15.2426
Oct-95 22.3852 16.7419 26.3234 24.1122 14.8310
Nov-95 21.7718 16.8842 27.4553 24.6909 15.2463
Dec-95 21.6281 17.5646 27.9770 25.2588 15.8714
Jan-96 22.3289 18.0617 28.9562 25.2841 15.9349
Feb-96 21.0450 16.7342 29.2168 24.3486 15.9986
Mar-96 21.6258 16.8229 29.5090 24.0321 16.3346
Apr-96 22.3027 17.5278 29.9516 23.6476 16.8083
May-96 22.5681 16.9757 30.7004 23.6712 16.5058
Jun-96 22.5410 17.1421 30.8232 24.0736 16.6048
Jul-96 21.7588 16.8798 29.4670 24.0977 16.1233
Aug-96 21.1778 16.8308 30.0858 23.9290 16.1555
Sep-96 21.3006 17.4468 31.7706 24.5512 16.5917
Oct-96 23.2070 18.6977 32.6602 25.4350 16.4258
Nov-96 24.1863 19.7560 35.1097 26.0709 17.0828
Dec-96 24.6362 19.2799 34.4075 25.5756 16.8607
Jan-97 25.8754 19.9740 36.5408 25.4989 16.2706
Feb-97 27.2106 20.4654 36.8331 25.5754 16.5472
Mar-97 27.2242 20.3344 35.3229 25.0127 16.6134
Apr-97 27.4583 19.9460 37.4423 25.4629 16.7131
May-97 25.9426 19.6289 39.7263 25.7939 17.7995
Jun-97 26.3058 19.7879 41.5140 26.2840 18.7785
Jul-97 28.3156 21.0622 44.8351 27.6771 19.0790
Aug-97 28.7035 20.2492 42.3243 27.0128 17.6672
Sep-97 28.4366 20.4760 44.6521 27.6341 18.6566
Oct-97 29.1418 20.1525 43.1786 27.9933 17.2200
Nov-97 30.1006 20.3480 45.1648 28.2732 17.0478
Dec-97 30.9254 20.7489 45.9326 28.5559 17.2012
Jan-98 30.3718 20.7904 46.4379 28.9557 17.9925
Feb-98 29.1569 20.6074 49.7814 28.9267 19.1440
Mar-98 29.9791 20.6383 52.3203 29.0424 19.7375
Apr-98 28.7230 19.8024 52.8435 29.1876 19.8954
May-98 30.2626 20.4717 51.9452 29.6838 19.7959
Jun-98 33.6127 20.5495 54.0750 30.0400 19.9543
Jul-98 33.6261 20.3337 53.4802 30.3404 20.1538
Aug-98 33.7404 21.9177 45.7256 30.6135 17.6547
Sep-98 32.4684 22.8361 48.6566 31.8687 17.1180
Oct-98 34.1470 22.6945 52.6124 31.2632 18.9154
Nov-98 32.3645 21.9955 55.8218 32.1073 19.8801
Dec-98 31.7496 22.3914 59.0595 32.1394 20.6753
Jan-99 30.8162 21.9436 61.5400 32.5251 20.6133
Feb-99 31.0658 22.3232 59.6323 31.2241 20.1186
Mar-99 31.8797 22.0910 62.0176 31.2241 20.9636
Apr-99 32.2814 23.0232 64.4363 31.1617 21.8231
May-99 31.7132 22.3049 62.8898 30.6008 20.7101
Jun-99 31.5515 22.8625 66.3487 30.1112 21.5178
Jul-99 29.9014 22.2749 64.2919 29.7800 22.1633
Aug-99 30.2632 22.4175 63.9704 29.6907 22.2520
Sep-99 31.0319 22.5273 62.2432 29.9579 22.4745
Oct-99 29.8434 21.3919 66.1645 30.0777 23.3285
Nov-99 31.3833 21.7791 67.4878 30.1379 24.1450
Dec-99 31.3268 22.0753 71.4696 30.0173 26.3181
Jan-00 31.8437 22.2276 67.8961 29.9573 24.6601
Feb-00 31.2610 21.7253 66.6061 30.2269 25.3259
Mar-00 31.1235 21.5298 73.1335 30.4989 26.3136
Apr-00 33.2461 21.1638 70.9395 30.3769 24.9453
May-00 33.1530 21.1828 69.4498 30.1946 24.3466
Jun-00 31.6280 20.7380 71.1860 30.9495 25.2961
Jul-00 31.7134 20.1822 70.0470 31.3209 24.2337
Aug-00 31.8085 20.5778 74.3899 31.7281 24.4518
Sep-00 32.3015 19.7321 70.4472 31.9502 23.2781
Oct-00 35.3701 20.0261 70.1654 32.0780 22.7427
Nov-00 34.7794 21.2637 64.6223 32.4950 21.9012
Dec-00 36.0036 23.1051 64.9454 33.1774 22.6896
1/31/01 35.4995 23.0473 67.2185 34.1064 22.7123
2/28/01 34.9209 22.8214 61.1016 34.4134 21.0089
3/31/01 38.3292 24.3367 57.2522 34.6199 19.5803
4/30/01 37.1678 22.8181 61.7179 34.4814 20.9313
5/31/01 37.8034 23.0098 62.1499 34.8607 20.1568
6/30/01 37.1948 22.4875 60.6583 35.0001 19.3304
7/31/01 34.7697 22.2154 60.0517 36.0116 18.9805
8/31/01 35.7328 22.7241 56.2684 36.4329 18.5041
CORRELATION ANALYSIS (5/87 - 8/01)
--------------------------------------------------------------------------------
Note: The closer the value to zero, the lower the correlation to the indexes
compared.
Pro Forma for
Spectrum Currency Zurich S&P SAL EAFE
-----------------------------------------------------------------------------------------------------------------------------
Pro Forma for Spectrum Currency 1.00 0.67 -0.10 0.07 -0.08
Zurich Index 1.00 0.02 0.27 -0.05
S&P 500 Index 1.00 0.28 0.57
Salomon Corporate Bond Index 1.00 0.10
MSCI EAFE Index 1.00
The S&P 500 Index, Salomon Corporate Bond Index, and MSCI EAFE Index performance
data for stocks, corporate bonds, and international stocks, respectively, are
provided by Thomson Financial Software Solutions, Boston, MA. The Zurich Index
performance data for managed futures is provided by Zurich Capital
Markets Inc., New York, N.Y.
Risk Considerations: Typically, managed futures investments are speculative,
involve a high degree of risk, have substantial charges, and are suitable only
for the risk capital portion of an investor's portfolio. Before investing in any
partnership and in order to make an informed decision, you should read the
Spectrum Series prospectus carefully for complete information, including
charges, expenses, and risks. Financial advisors should also read the prospectus
before discussing managed futures with clients.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
S-60
MORGAN STANLEY SPECTRUM COMMODITY L.P.
--------------------------------------------------------------------------------
All of the performance data below is through August 31, 2001.
SPECTRUM COMMODITY STATISTICS
------------------------------------------------
Trading Advisor: Morgan Stanley
Commodities Management Inc.
Began Trading: January 2, 1998
Net Assets in Fund: $14.3 Million
Minimum Investment: $5,000 ($2,000/IRA)
Monthly Management Fee: 1/12 of 2.50% of Beg. Net Assets
Monthly Brokerage Fee: 1/12 of 4.60% of Beg. Net Assets
Annual Incentive Fee: 17.50% of Trading Profits
Investment Style: Technical
RISK ANALYSIS
------------------------------------------------
Compounded Annual Rate of Return: -12.15%
Standard Deviation of Monthly Returns: 4.21%
Annualized Standard Deviation: 14.60%
Sharpe Ratio: -1.17
Sortino Ratio: -2.17
Largest Decline Period (2/98 - 2/99): -38.60%
Average Recovery (No. of months): N/A
Average Monthly Loss: -3.87%
Standard Deviation of Monthly Loss: 2.29%
% of Losing Months: 59.09%
Average Monthly Gain: 3.17%
Standard Deviation of Monthly Gain: 2.50%
% of Winning Months: 40.91%
AVERAGE SECTOR PARTICIPATION
------------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
Agriculturals 19%
Energies 29%
Metals 32%
Softs 20%
TRADING STRATEGY
------------------------------------------------
Spectrum Commodity features a long-only, broadly-diversified, actively-managed
portfolio of traditional commodities.
Its trading advisor, Morgan Stanley Commodities Management Inc., uses a
technical approach to investing that is unique in the marketplace. The trading
strategy seeks to benefit from supply and demand dynamics (based on consumer and
producer reactions to price movements) by over-weighting exposure to commodities
that are historically undervalued and showing signs of strengthening, and
under-weighting exposure to those markets that are historically overvalued and
showing signs of weakening.
FUTURES MARKETS TRADED
------------------------------------------------
Markets traded may include, but are not limited to, the following:
AGRICULTURALS METALS
Corn Aluminum
Feeder cattle Copper
Lean hogs Gold
Live cattle Nickel
Soybeans Platinum
Soybean meal Silver
Soybean oil Zinc
Wheat
SOFTS
Cocoa
Coffee
Cotton
Orange juice
Sugar
ENERGIES
Crude oil
Heating oil
Natural gas
Unleaded gas
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
S-61
SPECTRUM COMMODITY PERFORMANCE
--------------------------------------------------------------------------------
1998 1999 2000 2001
-34.30% 15.83% 3.15% -20.76%
(8 MONTHS)
ROLLING 12-MONTH PERFORMANCE VS. ZURICH INDEX
--------------------------------------------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
SPECTRUM COMMODITY ZURICH INDEX
12/31/98 -34.30% 7.92%
1/31/99 -36.13% 5.55%
2/28/99 -34.73% 8.33%
3/31/99 -29.14% 7.04%
4/30/99 -25.67% 16.27%
5/31/99 -24.91% 8.96%
6/30/99 -18.95% 11.26%
7/31/99 -12.99% 9.55%
8/31/99 0.28% 2.28%
9/30/99 -2.19% -1.35%
10/31/99 -1.47% -5.74%
11/30/99 8.97% -0.98%
12/31/99 15.83% -1.41%
1/31/00 21.17% 1.30%
2/29/00 22.03% -2.68%
3/31/00 13.17% -2.54%
4/30/00 7.23% -8.08%
5/31/00 18.89% -5.03%
6/30/00 12.79% -9.29%
7/31/00 8.20% -9.39%
8/31/00 6.76% -8.21%
9/30/00 1.58% -12.41%
10/31/00 1.49% -6.38%
11/30/00 4.72% -2.37%
12/31/00 3.15% 4.67%
1/31/01 -4.08% 3.69%
2/28/01 -2.11% 5.05%
3/31/01 -9.67% 13.04%
4/30/01 -6.06% 7.82%
5/31/01 -13.31% 8.63%
6/30/01 -16.30% 8.44%
7/31/01 -13.40% 10.08%
8/31/01 -19.64% 10.43%
HISTORICAL PERFORMANCE COMPARISON (12/31/97 = $10)
--------------------------------------------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
SPECTRUM COMMODITY ZURICH INDEX S&P 500 SALAMON CORP. BOND INDEX MSCI EAFE INDEX
12/31/97 10.00 10.00 10.00 10.00 10.00
1/31/98 10.13 10.02 10.11 10.14 10.46
2/28/98 9.53 9.93 10.84 10.13 11.13
3/31/98 9.54 9.95 11.39 10.17 11.47
4/30/98 9.31 9.54 11.50 10.22 11.57
5/31/98 8.67 9.87 11.31 10.40 11.51
6/30/98 8.39 9.90 11.77 10.52 11.60
7/31/98 7.85 9.80 11.64 10.63 11.72
8/31/98 7.23 10.56 9.95 10.72 10.26
9/30/98 7.75 11.01 10.59 11.16 9.95
10/31/98 7.48 10.94 11.45 10.95 11.00
11/30/98 6.80 10.60 12.15 11.24 11.56
12/31/98 6.57 10.79 12.86 11.25 12.02
1/31/99 6.47 10.58 13.40 11.39 11.98
2/28/99 6.22 10.76 12.98 10.93 11.70
3/31/99 6.76 10.65 13.50 10.93 12.19
4/30/99 6.92 11.10 14.03 10.91 12.69
5/31/99 6.51 10.75 13.69 10.72 12.04
6/30/99 6.80 11.02 14.44 10.54 12.51
7/31/99 6.83 10.74 14.00 10.43 12.88
8/31/99 7.25 10.80 13.93 10.40 12.94
9/30/99 7.58 10.86 13.55 10.49 13.07
10/31/99 7.37 10.31 14.40 10.53 13.56
11/30/99 7.41 10.50 14.69 10.55 14.04
12/31/99 7.61 10.64 15.56 10.51 15.30
1/31/00 7.84 10.71 14.78 10.49 14.34
2/29/00 7.59 10.47 14.50 10.59 14.72
3/31/00 7.65 10.38 15.92 10.68 15.30
4/30/00 7.42 10.20 15.44 10.64 14.50
5/31/00 7.74 10.21 15.12 10.57 14.15
6/30/00 7.67 10.00 15.50 10.84 14.71
7/31/00 7.39 9.73 15.25 10.97 14.09
8/31/00 7.74 9.92 16.20 11.11 14.22
9/30/00 7.70 9.51 15.34 11.19 13.53
10/31/00 7.48 9.65 15.28 11.23 13.22
11/30/00 7.76 10.25 14.07 11.38 12.73
12/31/00 7.85 11.14 14.14 11.62 13.19
1/31/01 7.52 11.11 14.63 11.94 13.20
2/28/01 7.43 11.00 13.30 12.05 12.21
3/31/01 6.91 11.73 12.46 12.12 11.38
4/30/01 6.97 11.00 13.44 12.08 12.17
5/31/01 6.71 11.09 13.53 12.21 11.72
6/30/01 6.42 10.84 13.21 12.26 11.24
7/31/01 6.40 10.71 13.07 12.61 11.03
8/31/01 6.22 10.95 12.25 12.76 10.76
CORRELATION ANALYSIS (1/98 - 8/01)
--------------------------------------------------------------------------------
Note: The closer the value to zero, the lower the correlation to the indexes
compared.
Spectrum Commodity Zurich S&P SAL
-------------------------------------------------------------------------------------------------------------------------
Spectrum Commodity 1.00 0.12 0.21 -0.01
Zurich Index 1.00 -0.30 0.13
S&P 500 Index 1.00 0.04
Salomon Corporate Bond Index 1.00
MSCI EAFE Index
EAFE
------------------------------------------------------------
Spectrum Commodity 0.21
Zurich Index -0.25
S&P 500 Index 0.81
Salomon Corporate Bond Index -0.11
MSCI EAFE Index 1.00
The S&P 500 Index, Salomon Corporate Bond Index, and MSCI EAFE Index performance
data for stocks, corporate bonds, and international stocks, respectively, are
provided by Thomson Financial Software Solutions, Boston, MA. The Zurich Index
performance data for managed futures is provided by Zurich Capital
Markets Inc., New York, N.Y.
Risk Considerations: Typically, managed futures investments are speculative,
involve a high degree of risk, have substantial charges, and are suitable only
for the risk capital portion of an investor's portfolio. Before investing in any
partnership and in order to make an informed decision, you should read the
Spectrum Series prospectus carefully for complete information, including
charges, expenses, and risks. Financial advisors should also read the prospectus
before discussing managed futures with clients.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
S-62
THE FOLLOWING CHARTS UPDATE AND REPLACE THROUGH AUGUST 31, 2001, THE "FUND
ASSET HISTORY" CHARTS ON PAGES 174-176
SPECTRUM SELECT
FUND ASSET HISTORY
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
MILLIONS SPECTRUM SELECT
Aug-91 $52.0
Dec-91* $80.7
Dec-92 $60.9
Dec-93** $199.2
Dec-94 $168.2
Dec-95 $176.4
Dec-96** $163.8
Dec-97 $166.8
Dec-98*** $200.1
Dec-99 $213.8
Dec-00 $220.7
Aug-01 $236.50
Year-end net assets (millions)
* Spectrum Select had multiple closings during initial offering
** Re-opening of fund in September 1993 and November 1996
*** Effective May 1998, Spectrum Select became part of the Spectrum Series.
SPECTRUM TECHNICAL
FUND ASSET HISTORY
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
MILLIONS SPECTRUM TECHNICAL
Nov-94 $8.0
Dec-94 $14.9
Dec-95 $59.3
Dec-96 $113.0
Dec-97 $182.0
Dec-98 $255.1
Dec-99 $268.8
Dec-00 $268.1
Aug-01 $256.6
Year-end net assets (millions)
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
S-63
SPECTRUM STRATEGIC
FUND ASSET HISTORY
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
MILLIONS SPECTRUM STRATEGIC
Nov-94 $6.7
Dec-94 $11.9
Dec-95 $32.5
Dec-96 $45.1
Dec-97 $59.1
Dec-98 $70.4
Dec-99 $107.7
Dec-00 $74.2
Aug-01 $67.9
Year-end net assets (millions)
SPECTRUM GLOBAL BALANCED
FUND ASSET HISTORY
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
MILLIONS SPECTRUM GLOBAL BALANCED
NOV-94 $2.5
Dec-94 $3.8
Dec-95 $14.8
Dec-96 $18.7
Dec-97 $25.7
Dec-98 $45.9
Dec-99 $57.9
Dec-00 $55.9
Aug-01 $56.5
Year-end net assets (millions)
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
S-64
SPECTRUM CURRENCY
FUND ASSET HISTORY
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
SPECTRUM CURRENCY
Jul-00 $6.332
Dec-00 $15.707
Aug-01 $34.094
Year-end net assets (millions)
SPECTRUM COMMODITY
FUND ASSET HISTORY
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
MILLIONS
Spectrum Commodity
Dec-97 $25.737
Dec-98 $24.908
Dec-99 $23.640
Dec-00 $20.200
Aug-01 $14.340
Year-end net assets (millions)
* Spectrum Commodity had multiple closings during its initial offering
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
S-65
THE FOLLOWING CHARTS UPDATE AND REPLACE THROUGH AUGUST 31, 2001, THE
"HISTORICAL PERFORMANCE COMPARISON" CHARTS ON PAGES 177-179. AS OF AUGUST 31,
2001, THERE WERE 77 PUBLIC MANAGED FUTURES FUNDS INCLUDED IN THE CALCULATION OF
THE ZURICH INDEX.
SPECTRUM SELECT VS. ZURICH INDEX
HISTORICAL PERFORMANCE COMPARISON
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
Net asset value per unit
ZURICH INDEX SPECTRUM SELECT
JUL-91 $10.00 $10.00
AUG-91 $9.57 $9.38
Sep-91 $9.99 $9.97
Oct-91 $9.81 $9.75
Nov-91 $9.83 $9.46
Dec-91 $11.37 $13.12
Jan-92 $10.50 $11.32
Feb-92 $10.11 $10.63
Mar-92 $10.05 $10.21
Apr-92 $9.77 $10.02
May-92 $9.77 $9.88
Jun-92 $10.35 $10.59
Jul-92 $11.08 $11.73
Aug-92 $11.55 $12.51
Sep-92 $11.38 $11.86
Oct-92 $11.24 $11.48
Nov-92 $11.30 $11.64
Dec-92 $11.22 $11.22
Jan-93 $11.09 $11.26
Feb-93 $11.72 $12.93
Mar-93 $11.65 $12.85
Apr-93 $11.96 $14.18
May-93 $11.99 $14.46
Jun-93 $12.16 $14.49
Jul-93 $12.72 $16.50
Aug-93 $12.57 $16.35
Sep-93 $12.45 $15.67
Oct-93 $12.23 $14.89
Nov-93 $12.09 $14.70
Dec-93 $12.42 $15.90
Jan-94 $11.94 $14.04
Feb-94 $11.58 $13.09
Mar-94 $11.84 $14.73
Apr-94 $11.59 $14.59
May-94 $11.79 $15.59
Jun-94 $12.17 $17.19
Jul-94 $11.84 $16.35
Aug-94 $11.47 $15.22
Sep-94 $11.58 $15.41
Oct-94 $11.59 $14.67
Nov-94 $11.62 $15.50
Dec-94 $11.46 $15.08
Jan-95 $10.98 $13.85
Feb-95 $11.55 $15.19
Mar-95 $12.76 $18.31
Apr-95 $13.10 $19.97
May-95 $13.37 $22.18
Jun-95 $13.19 $21.80
Jul-95 $12.78 $19.49
Aug-95 $12.86 $18.55
Sep-95 $12.59 $17.11
Oct-95 $12.44 $16.54
Nov-95 $12.55 $16.77
Dec-95 $13.05 $18.64
Jan-96 $13.42 $18.57
Feb-96 $12.44 $16.32
Mar-96 $12.50 $16.29
Apr-96 $13.03 $16.95
May-96 $12.62 $16.33
Jun-96 $12.74 $16.56
Jul-96 $12.54 $16.32
Aug-96 $12.51 $16.24
Sep-96 $12.97 $16.79
Oct-96 $13.90 $19.02
Nov-96 $14.68 $20.31
Dec-96 $14.33 $19.62
Jan-97 $14.84 $20.40
Feb-97 $15.21 $21.36
Mar-97 $15.11 $21.43
Apr-97 $14.82 $20.26
May-97 $14.59 $20.02
Jun-97 $14.71 $20.05
Jul-97 $15.65 $22.01
Aug-97 $15.05 $20.64
Sep-97 $15.22 $20.83
Oct-97 $14.98 $20.05
Nov-97 $15.12 $20.17
Dec-97 $15.42 $20.85
Jan-98 $15.45 $21.03
Feb-98 $15.31 $21.48
Mar-98 $15.34 $21.53
Apr-98 $14.72 $20.08
May-98 $15.21 $20.44
Jun-98 $15.27 $20.63
Jul-98 $15.11 $20.43
Aug-98 $16.29 $24.35
Sep-98 $16.97 $25.87
Oct-98 $16.87 $24.54
Nov-98 $16.35 $23.52
Dec-98 $16.64 $23.80
Jan-99 $16.31 $23.11
Feb-99 $16.59 $24.37
Mar-99 $16.42 $23.76
Apr-99 $17.11 $24.64
May-99 $16.58 $23.56
Jun-99 $16.99 $23.64
Jul-99 $16.55 $22.60
Aug-99 $16.66 $22.50
Sep-99 $16.74 $22.88
Oct-99 $15.90 $20.96
Nov-99 $16.19 $21.65
Dec-99 $16.41 $22.00
Jan-00 $16.52 $22.63
Feb-00 $16.15 $22.14
Mar-00 $16.00 $21.68
Apr-00 $15.73 $20.86
May-00 $15.74 $21.19
Jun-00 $15.41 $20.25
Jul-00 $15.00 $19.76
Aug-00 $15.29 $20.69
Sep-00 $14.66 $20.31
Oct-00 $14.88 $20.40
Nov-00 $15.80 $21.72
Dec-00 $17.17 $23.57
Jan-01 $17.13 $23.89
Feb-01 $16.96 $24.35
Mar-01 $18.09 $26.12
Apr-01 $16.96 $24.31
May-01 $17.10 $24.18
Jun-01 $16.71 $23.75
Jul-01 $16.51 $23.72
Aug-01 $16.89 $24.32
SPECTRUM TECHNICAL VS. ZURICH INDEX
HISTORICAL PERFORMANCE COMPARISON
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
Net asset value per unit
ZURICH INDEX SPECTRUM TECHNICAL
NOV-94 $10.00 $10.00
NOV-94 $10.03 $9.91
Dec-94 $9.89 $9.78
Jan-95 $9.47 $9.60
Feb-95 $9.97 $10.09
Mar-95 $11.01 $11.12
Apr-95 $11.30 $11.52
May-95 $11.54 $11.60
Jun-95 $11.38 $11.47
Jul-95 $11.03 $11.19
Aug-95 $11.10 $11.12
Sep-95 $10.86 $10.75
Oct-95 $10.74 $10.74
Nov-95 $10.83 $10.84
Dec-95 $11.27 $11.50
Jan-96 $11.58 $12.05
Feb-96 $10.73 $11.28
Mar-96 $10.79 $11.42
Apr-96 $11.24 $11.97
May-96 $10.89 $11.51
Jun-96 $10.99 $11.88
Jul-96 $10.83 $11.31
Aug-96 $10.80 $11.27
Sep-96 $11.19 $11.89
Oct-96 $11.99 $13.07
Nov-96 $12.67 $14.16
Dec-96 $12.37 $13.61
Jan-97 $12.81 $14.11
Feb-97 $13.13 $14.27
Mar-97 $13.04 $14.01
Apr-97 $12.79 $13.60
May-97 $12.59 $13.09
Jun-97 $12.69 $13.18
Jul-97 $13.51 $14.41
Aug-97 $12.99 $13.55
Sep-97 $13.13 $13.80
Oct-97 $12.93 $13.85
Nov-97 $13.05 $13.99
Dec-97 $13.31 $14.63
Jan-98 $13.33 $14.46
Feb-98 $13.22 $14.52
Mar-98 $13.24 $14.71
Apr-98 $12.70 $14.03
May-98 $13.13 $14.49
Jun-98 $13.18 $14.33
Jul-98 $13.04 $14.19
Aug-98 $14.06 $15.65
Sep-98 $14.65 $16.33
Oct-98 $14.56 $16.21
Nov-98 $14.11 $15.21
Dec-98 $14.36 $16.12
Jan-99 $14.07 $15.32
Feb-99 $14.32 $15.70
Mar-99 $14.17 $15.31
Apr-99 $14.77 $16.41
May-99 $14.31 $15.59
Jun-99 $14.66 $16.39
Jul-99 $14.29 $15.75
Aug-99 $14.38 $15.90
Sep-99 $14.45 $15.66
Oct-99 $13.72 $14.10
Nov-99 $13.97 $14.36
Dec-99 $14.16 $14.91
Jan-00 $14.26 $15.09
Feb-00 $13.93 $14.91
Mar-00 $13.81 $14.68
Apr-00 $13.57 $14.09
May-00 $13.59 $14.03
Jun-00 $13.30 $13.64
Jul-00 $12.94 $13.10
Aug-00 $13.20 $13.59
Sep-00 $12.66 $12.42
Oct-00 $12.84 $12.78
Nov-00 $13.64 $14.35
Dec-00 $14.82 $16.08
Jan-01 $14.78 $15.95
Feb-01 $14.64 $16.26
Mar-01 $15.61 $18.11
Apr-01 $14.64 $16.10
May-01 $14.76 $16.04
Jun-01 $14.42 $15.46
Jul-01 $14.25 $14.94
Aug-01 $14.58 $15.14
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
S-66
SPECTRUM STRATEGIC VS. ZURICH INDEX
HISTORICAL PERFORMANCE COMPARISON
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
Net asset value per unit
ZURICH INDEX SPECTRUM STRATEGIC
NOV-94 $10.00 $10.00
Nov-94 $10.03 $10.01
Dec-94 $9.89 $10.01
Jan-95 $9.47 $9.66
Feb-95 $9.97 $9.80
Mar-95 $11.01 $10.57
Apr-95 $11.30 $10.57
May-95 $11.54 $10.50
Jun-95 $11.38 $9.83
Jul-95 $11.03 $9.75
Aug-95 $11.10 $10.14
Sep-95 $10.86 $10.10
Oct-95 $10.74 $10.13
Nov-95 $10.83 $10.41
Dec-95 $11.27 $11.06
Jan-96 $11.58 $11.47
Feb-96 $10.73 $10.29
Mar-96 $10.79 $10.19
Apr-96 $11.24 $10.81
May-96 $10.89 $10.48
Jun-96 $10.99 $10.18
Jul-96 $10.83 $9.68
Aug-96 $10.80 $9.79
Sep-96 $11.19 $10.29
Oct-96 $11.99 $10.59
Nov-96 $12.67 $10.96
Dec-96 $12.37 $10.67
Jan-97 $12.81 $10.60
Feb-97 $13.13 $11.67
Mar-97 $13.04 $12.46
Apr-97 $12.79 $11.60
May-97 $12.59 $11.69
Jun-97 $12.69 $11.50
Jul-97 $13.51 $12.38
Aug-97 $12.99 $11.77
Sep-97 $13.13 $11.06
Oct-97 $12.93 $10.37
Nov-97 $13.05 $10.14
Dec-97 $13.31 $10.71
Jan-98 $13.33 $11.28
Feb-98 $13.22 $10.90
Mar-98 $13.24 $10.94
Apr-98 $12.70 $9.73
May-98 $13.13 $9.01
Jun-98 $13.18 $8.93
Jul-98 $13.04 $8.46
Aug-98 $14.06 $9.46
Sep-98 $14.65 $11.26
Oct-98 $14.56 $12.21
Nov-98 $14.11 $11.24
Dec-98 $14.36 $11.55
Jan-99 $14.07 $11.14
Feb-99 $14.32 $12.45
Mar-99 $14.17 $12.02
Apr-99 $14.77 $12.26
May-99 $14.31 $10.62
Jun-99 $14.66 $12.94
Jul-99 $14.29 $12.81
Aug-99 $14.38 $13.49
Sep-99 $14.45 $15.28
Oct-99 $13.72 $13.82
Nov-99 $13.97 $14.49
Dec-99 $14.16 $15.85
Jan-00 $14.26 $15.54
Feb-00 $13.93 $12.67
Mar-00 $13.81 $12.41
Apr-00 $13.57 $11.15
May-00 $13.59 $12.28
Jun-00 $13.30 $11.32
Jul-00 $12.94 $11.74
Aug-00 $13.20 $10.77
Sep-00 $12.66 $9.65
Oct-00 $12.84 $8.99
Nov-00 $13.64 $9.58
Dec-00 $14.82 $10.61
Jan-01 $14.78 $10.51
Feb-01 $14.64 $10.56
Mar-01 $15.61 $10.67
Apr-01 $14.64 $10.49
May-01 $14.76 $10.48
Jun-01 $14.42 $10.13
Jul-01 $14.25 $9.99
Aug-01 $14.58 $9.93
SPECTRUM GLOBAL BALANCED VS. ZURICH INDEX
HISTORICAL PERFORMANCE COMPARISON
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
i(8)-TM-art15.eps--01-Nov-2001 03:44:15art15_01nyc10052.ai--01-Nov-2001
03:43:51art15_01nyc10052.fh--01-Nov-2001
03:08:06art15_01nyc10052.xl--01-Nov-2001 03:43:13art15.eps--01-Nov-2001
03:44:15art15_01nyc10052.ai--01-Nov-2001
03:43:51art15_01nyc10052.fh--01-Nov-2001
03:08:06art15_01nyc10052.xl--01-Nov-2001 03:43:131 art15.eps--01-Nov-2001
03:44:15art15_01nyc10052.ai--01-Nov-2001
03:43:51art15_01nyc10052.fh--01-Nov-2001
03:08:06art15_01nyc10052.xl--01-Nov-2001
03:43:13Dart15.eps--01-Nov-2001 03:44:15art15_01nyc10052.ai--01-Nov-2001
03:43:51art15_01nyc10052.fh--01-Nov-2001
03:08:06art15_01nyc10052.xl--01-Nov-2001 03:43:13art15.eps--01-Nov-2001
03:44:15art15_01nyc10052.ai--01-Nov-2001
03:43:51art15_01nyc10052.fh--01-Nov-2001
03:08:06art15_01nyc10052.xl--01-Nov-2001 03:43:13art15.eps--01-Nov-2001
03:44:15art15_01nyc10052.ai--01-Nov-2001
03:43:51art15_01nyc10052.fh--01-Nov-2001
03:08:06art15_01nyc10052.xl--01-Nov-2001
03:43:13(9)
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
S-67
SPECTRUM CURRENCY VS. ZURICH INDEX
HISTORICAL PERFORMANCE COMPARISON
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
Net asset value per unit
ZURICH INDEX SPECTRUM CURRENCY
Jun-00 $10.00 $10.00
Jul-00 $9.73 $10.06
Aug-00 $9.92 $10.10
Sep-00 $9.51 $10.24
Oct-00 $9.66 $10.99
Nov-00 $10.25 $10.81
Dec-00 $11.14 $11.17
Jan-01 $11.11 $11.05
Feb-01 $11.00 $10.90
Mar-01 $11.74 $11.82
Apr-01 $11.00 $11.48
May-01 $11.10 $11.70
Jun-01 $10.84 $11.50
Jul-01 $10.71 $10.82
Aug-01 $10.96 $11.08
SPECTRUM COMMODITY VS. ZURICH INDEX
HISTORICAL PERFORMANCE COMPARISON
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
Net asset value per unit
ZURICH INDEX INDEX SPECTRUM COMMODITY
Dec-97 $10.00 $10.00
Jan-98 $10.02 $10.13
Feb-98 $9.93 $9.53
Mar-98 $9.95 $9.54
Apr-98 $9.54 $9.31
May-98 $9.87 $8.67
Jun-98 $9.90 $8.39
Jul-98 $9.80 $7.85
Aug-98 $10.56 $7.23
Sep-98 $11.01 $7.75
Oct-98 $10.94 $7.48
Nov-98 $10.60 $6.80
Dec-98 $10.79 $6.57
Jan-99 $10.58 $6.47
Feb-99 $10.76 $6.22
Mar-99 $10.65 $6.76
Apr-99 $11.10 $6.92
May-99 $10.75 $6.51
Jun-99 $11.02 $6.80
Jul-99 $10.74 $6.83
Aug-99 $10.80 $7.25
Sep-99 $10.86 $7.58
Oct-99 $10.31 $7.37
Nov-99 $10.50 $7.41
Dec-99 $10.64 $7.61
Jan-00 $10.71 $7.84
Feb-00 $10.47 $7.59
Mar-00 $10.38 $7.65
Apr-00 $10.20 $7.42
May-00 $10.21 $7.74
Jun-00 $10.00 $7.67
Jul-00 $9.73 $7.39
Aug-00 $9.92 $7.74
Sep-00 $9.51 $7.70
Oct-00 $9.65 $7.48
Nov-00 $10.25 $7.76
Dec-00 $11.14 $7.85
Jan-01 $11.11 $7.52
Feb-01 $11.00 $7.43
Mar-01 $11.73 $6.91
Apr-01 $11.00 $6.97
May-01 $11.09 $6.71
Jun-01 $10.84 $6.42
Jul-01 $10.71 $6.40
Aug-01 $10.95 $6.22
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
S-68
-------------------
THE FOLLOWING CHARTS UPDATE AND REPLACE THROUGH AUGUST 31, 2001, THE
"HISTORICAL PERFORMANCE COMPARISON (RATE OF RETURN)" CHARTS ON PAGES 180-182.
SPECTRUM SELECT VS. ZURICH INDEX
HISTORICAL PERFORMANCE COMPARISON (RATE OF RETURN)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
SPECTRUM SELECT ZURICH INDEX
ITD 9.21% 5.33%
5 YR. 8.41% 6.23%
3 YR. -0.04% 1.28%
1 YR. 17.54% 10.66%
YTD 3.18% -1.45%
QTD 0.58% -1.04%
Data: August 1, 1991 through August 31, 2001
All returns are annualized.
SPECTRUM TECHNICAL VS. ZURICH INDEX
HISTORICAL PERFORMANCE COMPARISON (RATE OF RETURN)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
SPECTRUM TECHNICAL ZURICH INDEX
ITD 6.26% 5.67%
5 YR. 6.08% 6.23%
3 YR. -1.10% 1.28%
1YR. 11.41% 10.66%
YTD -5.85% -1.45%
QTD -5.61% -1.04%
Data: November 1, 1994 through August 31, 2001
All returns are annualized.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
S-69
SPECTRUM STRATEGIC VS. ZURICH INDEX
HISTORICAL PERFORMANCE COMPARISON (RATE OF RETURN)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
SPECTRUM STRATEGIC ZURICH INDEX
ITD -0.10% 5.67%
5 YR. 0.28% 6.23%
3 YR. 1.63% 1.28%
1 YR. -7.80% 10.66%
YTD -6.41% -1.45%
QTD -5.25% -1.04%
Data: November 1, 1994 through August 31, 2001
All returns are annualized.
SPECTRUM GLOBAL BALANCED VS. ZURICH INDEX
HISTORICAL PERFORMANCE COMPARISON (RATE OF RETURN)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
SPECTRUM
GLOBAL BALANCED ZURICH INDEX
ITD 6.96% 5.67%
5 YR. 7.79% 6.23%
3 YR. 3.04% 1.28%
1 YR. 0.64% 10.66%
YTD -2.64% -1.45%
QTD -2.58% -1.04%
Data: November 1, 1994 through August 31, 2001
All returns are annualized.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
S-70
SPECTRUM CURRENCY VS. ZURICH INDEX
HISTORICAL PERFORMANCE COMPARISON (RATE OF RETURN)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
ITD 1 YEAR YTD QTD
Spectrum Commodity 9.17% 9.70% -0.81% -5.30%
Zurich Index 8.13% 10.66% -1.45% -1.04%
Data: July 3, 2000 through August 31, 2001
All returns are annualized.
SPECTRUM COMMODITY VS. ZURICH INDEX
HISTORICAL PERFORMANCE COMPARISON (RATE OF RETURN)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
ITD 3 YEAR 1 YEAR YTD QTD
Spectrum Commodity -12.16% -4.90% -19.64% -20.76% -7.30%
Zurich Index 2.51% 1.28% 10.66% -1.45% -1.04%
Data: January 2, 1998 through August 31, 2001
All returns are annualized.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
S-71
THE FOLLOWING CHARTS UPDATE AND REPLACE THROUGH AUGUST 31, 2001, THE
"HISTORICAL PERFORMANCE" CHARTS ON PAGES 183-191.
SPECTRUM SELECT
HISTORICAL PERFORMANCE
--------------------------------------------------------------------------------------------------
12 MO. 24 MO.
MONTHLY NAV/ QRTLY ANNUAL HOLDING HOLDING
MONTH RETURN UNIT RETURN RETURN PERIOD PERIOD
----- -------- -------- -------- -------- -------- --------
% $ % % % %
Beginning NAV
per unit 10.00
Aug-91 (6.20) 9.38
Sep-91 6.29 9.97
Oct-91 (2.21) 9.75
Nov-91 (2.97) 9.46
Dec-91 38.69 13.12 31.54 31.19
Jan-92 (13.72) 11.32
Feb-92 (6.10) 10.63
Mar-92 (3.95) 10.21 (22.14)
Apr-92 (1.86) 10.02
May-92 (1.40) 9.88
Jun-92 7.19 10.59 3.71
Jul-92 10.76 11.73 17.29
Aug-92 6.65 12.51 33.40
Sep-92 (5.20) 11.86 11.94 18.89
Oct-92 (3.20) 11.48 17.81
Nov-92 1.39 11.64 23.04
Dec-92 (3.61) 11.22 (5.34) (14.45) (14.45)
Jan-93 0.36 11.26 (0.54)
Feb-93 14.83 12.93 21.64
Mar-93 (0.62) 12.85 14.52 25.83
Apr-93 10.35 14.18 41.48
May-93 1.97 14.46 46.32
Jun-93 0.21 14.49 12.74 36.79
Jul-93 13.87 16.50 40.71 65.04
Aug-93 (0.91) 16.35 30.64 74.28
Sep-93 (4.16) 15.67 8.16 32.17 57.15
Oct-93 (4.98) 14.89 29.72 52.81
Nov-93 (1.28) 14.70 26.28 55.37
Dec-93 8.16 15.90 1.42 41.62 41.62 21.16
Jan-94 (11.70) 14.04 24.70 24.03
Feb-94 (6.77) 13.09 1.21 23.11
Mar-94 12.53 14.73 (7.33) 14.61 44.21
Apr-94 (0.95) 14.59 2.88 45.55
May-94 6.85 15.59 7.81 57.75
Jun-94 10.26 17.19 16.73 18.66 62.32
Jul-94 (4.89) 16.35 (0.93) 39.41
Aug-94 (6.91) 15.22 (6.93) 21.59
Sep-94 1.25 15.41 (10.41) (1.70) 29.92
Oct-94 (4.80) 14.67 (1.50) 27.77
Nov-94 5.66 15.50 5.47 33.18
Dec-94 (2.71) 15.08 (2.11) (5.12) (5.12) 34.36
Jan-95 (8.16) 13.85 (1.32) 23.05
Feb-95 9.68 15.19 16.04 17.44
Mar-95 20.54 18.31 21.42 24.30 42.46
Apr-95 9.07 19.97 36.86 40.79
May-95 11.07 22.18 42.28 53.40
Jun-95 (1.71) 21.80 19.08 26.81 50.47
Jul-95 (10.60) 19.49 19.20 18.09
Aug-95 (4.82) 18.55 21.93 13.48
Sep-95 (7.76) 17.11 (21.52) 11.08 9.19
Oct-95 (3.33) 16.54 12.75 11.05
Nov-95 1.39 16.77 8.15 14.06
Dec-95 11.15 18.64 8.94 23.62 23.62 17.28
Jan-96 (0.38) 18.57 34.05 32.28
Feb-96 (12.12) 16.32 7.49 24.73
Mar-96 (0.18) 16.29 (12.63) (11.05) 10.57
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
S-72
SPECTRUM SELECT
HISTORICAL PERFORMANCE
--------------------------------------------------------------------------------------------------
12 MO. 24 MO.
MONTHLY NAV/ QRTLY ANNUAL HOLDING HOLDING
MONTH RETURN UNIT RETURN RETURN PERIOD PERIOD
----- -------- -------- -------- -------- -------- --------
% $ % % % %
Apr-96 4.05 16.95 (15.11) 16.17
May-96 (3.66) 16.33 (26.37) 4.76
Jun-96 1.41 16.56 1.65 (24.07) (3.71)
Jul-96 (1.45) 16.32 (16.27) (0.20)
Aug-96 (0.49) 16.24 (12.44) 6.76
Sep-96 3.39 16.79 1.39 (1.90) 8.97
Oct-96 13.28 19.02 15.00 29.65
Nov-96 6.78 20.31 21.11 30.98
Dec-96 (3.40) 19.62 16.90 5.27 5.27 30.13
Jan-97 3.98 20.40 9.82 47.21
Feb-97 4.71 21.36 30.88 40.68
Mar-97 0.33 21.43 9.21 31.58 17.04
Apr-97 (5.46) 20.26 19.53 1.46
May-97 (1.18) 20.02 22.60 (9.73)
Jun-97 0.15 20.05 (6.42) 21.13 (8.02)
Jul-97 9.78 22.01 34.86 12.92
Aug-97 (6.22) 20.64 27.06 11.25
Sep-97 0.92 20.83 3.87 24.09 21.73
Oct-97 (3.74) 20.05 5.40 21.20
Nov-97 0.60 20.17 (0.66) 20.31
Dec-97 3.37 20.85 0.07 6.22 6.22 11.82
Jan-98 0.86 21.03 3.10 13.22
Feb-98 2.14 21.48 0.55 31.60
Mar-98 0.23 21.53 3.28 0.46 32.19
Apr-98 (6.73) 20.08 (0.88) 18.47
May-98 1.79 20.44 2.08 25.15
Jun-98 0.93 20.63 (4.18) 2.87 24.60
Jul-98 (0.97) 20.43 (7.17) 25.19
Aug-98 19.19 24.35 17.98 49.90
Sep-98 6.24 25.87 25.40 24.19 54.11
Oct-98 (5.14) 24.54 22.42 29.03
Nov-98 (4.16) 23.52 16.61 15.83
Dec-98 1.19 23.80 (8.00) 14.17 14.17 21.28
Jan-99 (2.90) 23.11 9.91 13.31
Feb-99 5.45 24.37 13.45 14.07
Mar-99 (2.50) 23.76 (0.17) 10.36 10.87
Apr-99 3.70 24.64 22.70 21.61
May-99 (4.38) 23.56 15.26 17.67
Jun-99 0.34 23.64 (0.51) 14.59 17.88
Jul-99 (4.40) 22.60 10.62 2.69
Aug-99 (0.44) 22.50 (7.60) 9.02
Sep-99 1.69 22.88 (3.21) (11.56) 9.83
Oct-99 (8.39) 20.96 (14.59) 4.56
Nov-99 3.29 21.65 (7.95) 7.34
Dec-99 1.62 22.00 (3.85) (7.56) (7.56) 5.54
Jan-00 2.86 22.63 (2.08) 7.62
Feb-00 (2.17) 22.14 (9.15) 3.07
Mar-00 (2.08) 21.68 (1.45) (8.75) 0.70
Apr-00 (3.78) 20.86 (15.34) 3.87
May-00 1.58 21.19 (10.06) 3.67
Jun-00 (4.44) 20.25 (6.60) (14.34) (1.84)
Jul-00 (2.42) 19.76 (12.57) (3.28)
Aug-00 4.71 20.69 (8.04) (15.03)
Sep-00 (1.84) 20.31 0.30 (11.23) (21.49)
Oct-00 0.44 20.40 (2.67) (16.87)
Nov-00 6.47 21.72 0.32 (7.65)
Dec-00 8.52 23.57 16.05 7.14 7.14 (0.97)
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
S-73
SPECTRUM SELECT
HISTORICAL PERFORMANCE
--------------------------------------------------------------------------------------------------
12 MO. 24 MO.
MONTHLY NAV/ QRTLY ANNUAL HOLDING HOLDING
MONTH RETURN UNIT RETURN RETURN PERIOD PERIOD
----- -------- -------- -------- -------- -------- --------
% $ % % % %
Jan-01 1.36 23.89 5.57 3.38
Feb-01 1.93 24.35 9.98 (0.08)
Mar-01 7.27 26.12 10.82 20.48 9.93
Apr-01 (6.93) 24.31 16.54 (1.34)
May-01 (0.53) 24.18 14.11 2.63
Jun-01 (1.78) 23.75 (9.07) 17.28 0.47
Jul-01 (0.13) 23.72 20.04 4.96
Aug-01 2.53 24.32 0.58 3.18 17.54 8.09
Compounded annual ROR: 9.21
Standard deviation of monthly returns: 7.09
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
S-74
SPECTRUM TECHNICAL
HISTORICAL PERFORMANCE
--------------------------------------------------------------------------------------------------
12 MO. 24 MO.
MONTHLY NAV/ QRTLY ANNUAL HOLDING HOLDING
MONTH RETURN UNIT RETURN RETURN PERIOD PERIOD
----- -------- -------- -------- -------- -------- --------
% $ % % % %
Beginning NAV
per unit
10.00
Nov-94 (0.90) 9.91
Dec-94 (1.31) 9.78 (2.20) (2.20)
Jan-95 (1.84) 9.60
Feb-95 5.10 10.09
Mar-95 10.21 11.12 13.70
Apr-95 3.60 11.52
May-95 0.69 11.60
Jun-95 (1.12) 11.47 3.15
Jul-95 (2.44) 11.19
Aug-95 (0.63) 11.12
Sep-95 (3.33) 10.75 (6.28)
Oct-95 (0.09) 10.74 7.40
Nov-95 0.93 10.84 9.38
Dec-95 6.09 11.50 6.98 17.59 17.59
Jan-96 4.78 12.05 25.52
Feb-96 (6.39) 11.28 11.79
Mar-96 1.24 11.42 (0.70) 2.70
Apr-96 4.82 11.97 3.91
May-96 (3.84) 11.51 (0.78)
Jun-96 3.21 11.88 4.03 3.57
Jul-96 (4.80) 11.31 1.07
Aug-96 (0.35) 11.27 1.35
Sep-96 5.50 11.89 0.08 10.60
Oct-96 9.92 13.07 21.69 30.70
Nov-96 8.34 14.16 30.63 42.89
Dec-96 (3.88) 13.61 14.47 18.35 18.35 39.16
Jan-97 3.67 14.11 17.10 46.98
Feb-97 1.13 14.27 26.51 41.43
Mar-97 (1.82) 14.01 2.94 22.68 25.99
Apr-97 (2.93) 13.60 13.62 18.06
May-97 (3.75) 13.09 13.73 12.84
Jun-97 0.69 13.18 (5.92) 10.94 14.91
Jul-97 9.33 14.41 27.41 28.78
Aug-97 (5.97) 13.55 20.23 21.85
Sep-97 1.85 13.80 4.70 16.06 28.37
Oct-97 0.36 13.85 5.97 28.96
Nov-97 1.01 13.99 (1.20) 29.06
Dec-97 4.57 14.63 6.01 7.49 7.49 27.22
Jan-98 (1.16) 14.46 2.48 20.00
Feb-98 0.41 14.52 1.75 28.72
Mar-98 1.31 14.71 0.55 5.00 28.81
Apr-98 (4.62) 14.03 3.16 17.21
May-98 3.28 14.49 10.70 25.89
Jun-98 (1.10) 14.33 (2.58) 8.73 20.62
Jul-98 (0.98) 14.19 (1.53) 25.46
Aug-98 10.29 15.65 15.50 38.86
Sep-98 4.35 16.33 13.96 18.33 37.34
Oct-98 (0.73) 16.21 17.04 24.02
Nov-98 (6.17) 15.21 8.72 7.42
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
S-75
SPECTRUM TECHNICAL
HISTORICAL PERFORMANCE
--------------------------------------------------------------------------------------------------
12 MO. 24 MO.
MONTHLY NAV/ QRTLY ANNUAL HOLDING HOLDING
MONTH RETURN UNIT RETURN RETURN PERIOD PERIOD
----- -------- -------- -------- -------- -------- --------
% $ % % % %
Dec-98 5.98 16.12 (1.29) 10.18 10.18 18.44
Jan-99 (4.96) 15.32 5.95 8.58
Feb-99 2.48 15.70 8.13 10.02
Mar-99 (2.48) 15.31 (5.02) 4.08 9.28
Apr-99 7.18 16.41 16.96 20.66
May-99 (5.00) 15.59 7.59 19.10
Jun-99 5.13 16.39 7.05 14.38 24.36
Jul-99 (3.90) 15.75 10.99 9.30
Aug-99 0.95 15.90 1.60 17.34
Sep-99 (1.51) 15.66 (4.45) (4.10) 13.48
Oct-99 (9.96) 14.10 (13.02) 1.81
Nov-99 1.84 14.36 (5.59) 2.64
Dec-99 3.83 14.91 (4.79) (7.51) (7.51) 1.91
Jan-00 1.21 15.09 (1.50) 4.36
Feb-00 (1.19) 14.91 (5.03) 2.69
Mar-00 (1.54) 14.68 (1.54) (4.11) (0.20)
Apr-00 (4.02) 14.09 (14.14) 0.43
May-00 (0.43) 14.03 (10.01) (3.17)
Jun-00 (2.78) 13.64 (7.08) (16.78) (4.82)
Jul-00 (3.96) 13.10 (16.83) (7.68)
Aug-00 3.74 13.59 (14.53) (13.16)
Sep-00 (8.61) 12.42 (8.94) (20.69) (23.94)
Oct-00 2.90 12.78 (9.36) (21.16)
Nov-00 12.28 14.35 (0.07) (5.65)
Dec-00 12.06 16.08 29.47 7.85 7.85 (0.25)
Jan-01 (0.81) 15.95 5.70 4.11
Feb-01 1.94 16.26 9.05 3.57
Mar-01 11.38 18.11 12.62 23.37 18.29
Apr-01 (11.10) 16.10 14.27 (1.89)
May-01 (0.37) 16.04 14.33 2.89
Jun-01 (3.62) 15.46 (14.63) 13.34 (5.67)
Jul-01 (3.36) 14.94 14.05 (5.14)
Aug-01 1.34 15.14 (5.61) (5.85) 11.41 (4.78)
Compounded annual ROR: 6.26
Standard deviation of monthly returns: 4.90
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
S-76
SPECTRUM STRATEGIC
HISTORICAL PERFORMANCE
--------------------------------------------------------------------------------------------------
12 MO. 24 MO.
MONTHLY NAV/ QRTLY ANNUAL HOLDING HOLDING
MONTH RETURN UNIT RETURN RETURN PERIOD PERIOD
----- -------- -------- -------- -------- -------- --------
% $ % % % %
Beginning NAV
per unit 10.00
Nov-94 0.10 10.01
Dec-94 0.00 10.01 0.10 0.10
Jan-95 (3.50) 9.66
Feb-95 1.45 9.80
Mar-95 7.86 10.57 5.59
Apr-95 0.00 10.57
May-95 (0.66) 10.50
Jun-95 (6.38) 9.83 (7.00)
Jul-95 (0.81) 9.75
Aug-95 4.00 10.14
Sep-95 (0.39) 10.10 2.75
Oct-95 0.30 10.13 1.30
Nov-95 2.76 10.41 4.00
Dec-95 6.24 11.06 9.50 10.49 10.49
Jan-96 3.71 11.47 18.74
Feb-96 (10.29) 10.29 5.00
Mar-96 (0.97) 10.19 (7.87) (3.60)
Apr-96 6.08 10.81 2.27
May-96 (3.05) 10.48 (0.19)
Jun-96 (2.86) 10.18 (0.10) 3.56
Jul-96 (4.91) 9.68 (0.72)
Aug-96 1.14 9.79 (3.45)
Sep-96 5.11 10.29 1.08 1.88
Oct-96 2.92 10.59 4.54 5.90
Nov-96 3.49 10.96 5.28 9.49
Dec-96 (2.65) 10.67 3.69 (3.53) (3.53) 6.59
Jan-97 (0.66) 10.60 (7.59) 9.73
Feb-97 10.09 11.67 13.41 19.08
Mar-97 6.77 12.46 16.78 22.28 17.88
Apr-97 (6.90) 11.60 7.31 9.74
May-97 0.78 11.69 11.55 11.33
Jun-97 (1.63) 11.50 (7.70) 12.97 16.99
Jul-97 7.65 12.38 27.89 26.97
Aug-97 (4.93) 11.77 20.22 16.07
Sep-97 (6.03) 11.06 (3.83) 7.48 9.50
Oct-97 (6.24) 10.37 (2.08) 2.37
Nov-97 (2.22) 10.14 (7.48) (2.59)
Dec-97 5.62 10.71 (3.16) 0.37 0.37 (3.16)
Jan-98 5.32 11.28 6.42 (1.66)
Feb-98 (3.37) 10.90 (6.60) 5.93
Mar-98 0.37 10.94 2.15 (12.20) 7.36
Apr-98 (11.06) 9.73 (16.12) (9.99)
May-98 (7.40) 9.01 (22.93) (14.03)
Jun-98 (0.89) 8.93 (18.37) (22.35) (12.28)
Jul-98 (5.26) 8.46 (31.66) (12.60)
Aug-98 11.82 9.46 (19.63) (3.37)
Sep-98 19.03 11.26 26.09 1.81 9.43
Oct-98 8.44 12.21 17.74 15.30
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
S-77
SPECTRUM STRATEGIC
HISTORICAL PERFORMANCE
--------------------------------------------------------------------------------------------------
12 MO. 24 MO.
MONTHLY NAV/ QRTLY ANNUAL HOLDING HOLDING
MONTH RETURN UNIT RETURN RETURN PERIOD PERIOD
----- -------- -------- -------- -------- -------- --------
% $ % % % %
Nov-98 (7.94) 11.24 10.85 2.55
Dec-98 2.76 11.55 2.58 7.84 7.84 8.25
Jan-99 (3.55) 11.14 (1.24) 5.09
Feb-99 11.76 12.45 14.22 6.68
Mar-99 (3.45) 12.02 4.07 9.87 (3.53)
Apr-99 2.00 12.26 26.00 5.69
May-99 (13.38) 10.62 17.87 (9.15)
Jun-99 21.85 12.94 7.65 44.90 12.52
Jul-99 (1.00) 12.81 51.42 3.47
Aug-99 5.31 13.49 42.60 14.61
Sep-99 13.27 15.28 18.08 35.70 38.16
Oct-99 (9.55) 13.82 13.19 33.27
Nov-99 4.85 14.49 28.91 42.90
Dec-99 9.39 15.85 3.73 37.23 37.23 47.99
Jan-00 (1.96) 15.54 39.50 37.77
Feb-00 (18.47) 12.67 1.77 16.24
Mar-00 (2.05) 12.41 (21.70) 3.24 13.44
Apr-00 (10.15) 11.15 (9.05) 14.59
May-00 10.13 12.28 15.63 36.29
Jun-00 (7.82) 11.32 (8.78) (12.52) 26.76
Jul-00 3.71 11.74 (8.35) 38.77
Aug-00 (8.26) 10.77 (20.16) 13.85
Sep-00 (10.40) 9.65 (14.75) (36.85) (14.30)
Oct-00 (6.84) 8.99 (34.95) (26.37)
Nov-00 6.56 9.58 (33.89) (14.77)
Dec-00 10.75 10.61 9.95 (33.06) (33.06) (8.14)
Jan-01 (0.94) 10.51 (32.37) (5.66)
Feb-01 0.48 10.56 (16.65) (15.18)
Mar-01 1.04 10.67 0.57 (14.02) (11.23)
Apr-01 (1.69) 10.49 (5.92) (14.44)
May-01 (0.10) 10.48 (14.66) (1.32)
Jun-01 (3.34) 10.13 (5.06) (10.51) (21.72)
Jul-01 (1.38) 9.99 (14.91) (22.01)
Aug-01 (0.60) 9.93 (5.25) (6.41) (7.80) (26.39)
Compounded annual ROR: (0.10)
Standard deviation of monthly returns: 7.01
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
S-78
SPECTRUM GLOBAL BALANCED
HISTORICAL PERFORMANCE
--------------------------------------------------------------------------------------------------
12 MO. 24 MO.
MONTHLY NAV/ QRTLY ANNUAL HOLDING HOLDING
MONTH RETURN UNIT RETURN RETURN PERIOD PERIOD
----- -------- -------- -------- -------- -------- --------
% $ % % % %
Beginning NAV
per unit
10.00
Nov-94 (0.50) 9.95
Dec-94 (1.21) 9.83 (1.70) (1.70)
Jan-95 1.32 9.96
Feb-95 4.62 10.42
Mar-95 2.88 10.72 9.05
Apr-95 2.15 10.95
May-95 4.38 11.43
Jun-95 0.79 11.52 7.46
Jul-95 (1.39) 11.36
Aug-95 (1.41) 11.20
Sep-95 1.61 11.38 (1.22)
Oct-95 0.26 11.41 14.10
Nov-95 2.72 11.72 17.79
Dec-95 2.99 12.07 6.06 22.79 22.79
Jan-96 0.41 12.12 21.69
Feb-96 (7.92) 11.16 7.10
Mar-96 (1.08) 11.04 (8.53) 2.99
Apr-96 1.27 11.18 2.10
May-96 (3.13) 10.83 (5.25)
Jun-96 0.46 10.88 (1.45) (5.56)
Jul-96 0.83 10.97 (3.43)
Aug-96 (0.82) 10.88 (2.86)
Sep-96 2.30 11.13 2.30 (2.20)
Oct-96 3.77 11.55 1.23 15.50
Nov-96 4.76 12.10 3.24 21.61
Dec-96 (3.88) 11.63 4.49 (3.65) (3.65) 18.31
Jan-97 3.35 12.02 (0.83) 20.68
Feb-97 3.16 12.40 11.11 19.00
Mar-97 (2.50) 12.09 3.96 9.51 12.78
Apr-97 (1.65) 11.89 6.35 8.58
May-97 1.68 12.09 11.63 5.77
Jun-97 3.64 12.53 3.64 15.17 8.77
Jul-97 11.89 14.02 27.80 23.42
Aug-97 (5.92) 13.19 21.23 17.77
Sep-97 3.26 13.62 8.70 22.37 19.68
Oct-97 (1.69) 13.39 15.93 17.35
Nov-97 (0.37) 13.34 10.25 13.82
Dec-97 3.07 13.75 0.95 18.23 18.23 13.92
Jan-98 2.25 14.06 16.97 16.01
Feb-98 1.49 14.27 15.08 27.87
Mar-98 2.24 14.59 6.11 20.68 32.16
Apr-98 (1.78) 14.33 20.52 28.18
May-98 (0.35) 14.28 18.11 31.86
Jun-98 0.00 14.28 (2.12) 13.97 31.25
Jul-98 (1.19) 14.11 0.64 28.62
Aug-98 2.55 14.47 9.70 33.00
Sep-98 5.11 15.21 6.51 11.67 36.66
Oct-98 1.18 15.39 14.94 33.25
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
S-79
SPECTRUM GLOBAL BALANCED
HISTORICAL PERFORMANCE
--------------------------------------------------------------------------------------------------
12 MO. 24 MO.
MONTHLY NAV/ QRTLY ANNUAL HOLDING HOLDING
MONTH RETURN UNIT RETURN RETURN PERIOD PERIOD
----- -------- -------- -------- -------- -------- --------
% $ % % % %
Nov-98 2.66 15.80 18.44 30.58
Dec-98 1.27 16.00 5.19 16.36 16.36 37.58
Jan-99 (0.06) 15.99 13.73 33.03
Feb-99 (0.06) 15.98 11.98 28.87
Mar-99 0.00 15.98 (0.12) 9.53 32.18
Apr-99 4.13 16.64 16.12 39.95
May-99 (4.99) 15.81 10.71 30.77
Jun-99 2.28 16.17 1.19 13.24 29.05
Jul-99 (1.67) 15.90 12.69 13.41
Aug-99 (0.19) 15.87 9.68 20.32
Sep-99 (0.50) 15.79 (2.35) 3.81 15.93
Oct-99 (1.77) 15.51 0.78 15.83
Nov-99 1.93 15.81 0.06 18.52
Dec-99 1.96 16.12 2.09 0.75 0.75 17.24
Jan-00 (0.93) 15.97 (0.13) 13.58
Feb-00 0.94 16.12 0.88 12.96
Mar-00 3.10 16.62 3.10 4.01 13.91
Apr-00 (4.57) 15.86 (4.69) 10.68
May-00 (1.32) 15.65 (1.01) 9.59
Jun-00 (0.26) 15.61 (6.08) (3.46) 9.31
Jul-00 (2.18) 15.27 (3.96) 8.22
Aug-00 3.01 15.73 (0.88) 8.71
Sep-00 (3.94) 15.11 (3.20) (4.31) (0.66)
Oct-00 2.25 15.45 (0.39) 0.39
Nov-00 (0.52) 15.37 (2.78) (2.72)
Dec-00 5.79 16.26 7.61 0.87 0.87 1.63
Jan-01 0.55 16.35 2.38 2.25
Feb-01 (3.36) 15.80 (1.99) (1.13)
Mar-01 2.91 16.26 0.00 (2.17) 1.75
Apr-01 (0.31) 16.21 2.21 (2.58)
May-01 (0.25) 16.25 3.83 2.78
Jun-01 (3.08) 15.75 (3.14) 0.90 (2.60)
Jul-01 0.00 15.75 3.14 (0.94)
Aug-01 0.51 15.83 (2.58) (2.64) 0.64 (0.25)
Compounded annual ROR: 6.96
Standard deviation of monthly returns: 2.90
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
S-80
SPECTRUM CURRENCY
HISTORICAL PERFORMANCE
--------------------------------------------------------------------------------------------------------
12 MO. 24 MO.
MONTHLY NAV/ QRTLY ANNUAL HOLDING HOLDING
MONTH RETURN UNIT RETURN RETURN PERIOD PERIOD
----- -------- -------- -------- -------- -------- --------
% $ % % % %
Beginning NAV
per unit................ 10.00
Jul-00.................. 0.60 10.06
Aug-00.................. 0.40 10.10
Sep-00.................. 1.39 10.24 2.40
Oct-00.................. 7.32 10.99
Nov-00.................. (1.64) 10.81
Dec-00.................. 3.33 11.17 9.08 11.70
Jan-01 (1.07) 11.05
Feb-01 (1.36) 10.90
Mar-01 8.44 11.82 5.82
Apr-01 (2.88) 11.48
May-01 1.92 11.70
Jun-01 (1.71) 11.50 (2.71) 15.00
Jul-01 (5.91) 10.82 7.55
Aug-01 2.40 11.08 (5.30) (0.81) 9.70
Compounded annual ROR: 9.17
Standard deviation of monthly returns: 3.83
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
S-81
SPECTRUM COMMODITY
HISTORICAL PERFORMANCE
--------------------------------------------------------------------------------------------------------
12 MO. 24 MO.
MONTHLY NAV/ QRTLY ANNUAL HOLDING HOLDING
MONTH RETURN UNIT RETURN RETURN PERIOD PERIOD
----- -------- -------- -------- -------- -------- --------
% $ % % % %
31-Dec-97 10.00
Jan-98 1.30 10.13
Feb-98 (5.92) 9.53
Mar-98 0.10 9.54 (4.60)
Apr-98 (2.41) 9.31
May-98 (6.87) 8.67
Jun-98 (3.23) 8.39 (12.05)
Jul-98 (6.44) 7.85
Aug-98 (7.90) 7.23
Sep-98 7.19 7.75 (7.63)
Oct-98 (3.48) 7.48
Nov-98 (9.09) 6.80
Dec-98 (3.38) 6.57 (15.23) (34.30) (34.30)
Jan-99 (1.52) 6.47 (36.13)
Feb-99 (3.86) 6.22 (34.73)
Mar-99 8.68 6.76 2.89 (29.14)
Apr-99 2.37 6.92 (25.67)
May-99 (5.92) 6.51 (24.91)
Jun-99 4.45 6.80 0.59 (18.95)
Jul-99 0.44 6.83 (12.99)
Aug-99 6.15 7.25 0.28
Sep-99 4.55 7.58 11.47 (2.19)
Oct-99 (2.77) 7.37 (1.47)
Nov-99 0.54 7.41 8.97
Dec-99 2.70 7.61 0.40 15.83 15.83 (23.90)
Jan-00 3.02 7.84 21.17 (22.61)
Feb-00 (3.19) 7.59 22.03 (20.36)
Mar-00 0.79 7.65 0.53 13.17 (19.81)
Apr-00 (3.01) 7.42 7.23 (20.30)
May-00 4.31 7.74 18.89 (10.73)
Jun-00 (0.90) 7.67 0.26 12.79 (8.58)
Jul-00 (3.65) 7.39 8.20 (5.86)
Aug-00 4.74 7.74 6.76 7.05
Sep-00 (0.52) 7.70 0.39 1.58 (0.65)
Oct-00 (2.86) 7.48 1.49 0.00
Nov-00 3.74 7.76 4.72 14.12
Dec-00 1.16 7.85 1.95 3.15 3.15 19.48
Jan-01 (4.20) 7.52 (4.08) 16.23
Feb-01 (1.20) 7.43 (2.11) 19.45
Mar-01 (7.00) 6.91 (11.97) (9.67) 2.22
Apr-01 0.87 6.97 (6.06) 0.72
May-01 (3.73) 6.71 (13.31) 3.07
Jun-01 (4.32) 6.42 (7.09) (16.30) (5.59)
Jul-01 (0.31) 6.40 (13.40) (6.30)
Aug-01 (2.81) 6.22 (7.30) (20.76) (19.64) (14.21)
Compounded annual ROR: (12.17)
Standard deviation of monthly returns: 4.21
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
S-82
INDEPENDENT AUDITORS' REPORT
To the Limited Partners and the General Partner of
Morgan Stanley Dean Witter Spectrum Commodity L.P.
(formerly, Morgan Stanley Tangible Asset Fund L.P.)
Morgan Stanley Dean Witter Spectrum Currency L.P.
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 Currency L.P. ("Spectrum Currency") as of
December 31, 2000 and of Morgan Stanley Dean Witter Spectrum Commodity L.P.
(formerly, Morgan Stanley Tangible Asset Fund L.P.) ("Spectrum Commodity"),
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, 2000 and 1999, and the related statements of
operations, changes in partners' capital, and cash flows for the period from
July 3, 2000 (commencement of operations) to December 31, 2000 for Spectrum
Currency, for the period from January 2, 1998 (commencement of operations) to
December 31, 1998 and the two years ended December 31, 2000 for Spectrum
Commodity, and for each of the three years in the period ended December 31, 2000
for the other above mentioned Partnerships. 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 auditing standards generally accepted
in the United States of America. 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 Currency
L.P. as of December 31, 2000 and of Morgan Stanley Dean Witter Spectrum
Commodity L.P., 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. as of
December 31, 2000 and 1999, and the results of their operations and their cash
flows for the period from July 3, 2000 (commencement of operations) to
December 31, 2000 for Spectrum Currency, for the period from January 2, 1998
(commencement of operations) to December 31, 1998 and the two years ended
December 31, 2000 for Spectrum Commodity, and for each of the three years in the
period ended December 31, 2000 for the other above mentioned Partnerships, in
conformity with accounting principles generally accepted in the United States of
America.
/s/ Deloitte & Touche
New York, New York
February 16, 2001
S-83
MORGAN STANLEY DEAN WITTER SPECTRUM SELECT L.P.
STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31,
JUNE 30, ---------------------------
2001 2000 1999
------------ ------------ ------------
$ $ $
(UNAUDITED)
ASSETS
Equity in futures interests trading accounts:
Cash 221,148,577 196,555,362 207,251,012
Net unrealized gain on open contracts (Morgan Stanley) 6,680,542 26,063,382 --
Net unrealized gain (loss) on open contracts (Morgan
Stanley International) 928,628 (511,085) --
Net unrealized gain on open contracts (Carr) -- -- 6,887,064
------------ ------------ ------------
Total net unrealized gain on open contracts 7,609,170 25,552,297 6,887,064
Net option premiums -- -- 776,380
------------ ------------ ------------
Total Trading Equity 228,757,747 222,107,659 214,914,456
Subscriptions receivable 3,215,510 1,583,941 3,730,051
Interest receivable (Morgan Stanley DW) 587,399 889,954 722,305
------------ ------------ ------------
Total Assets 232,560,656 224,581,554 219,366,812
============ ============ ============
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES
Redemptions payable 1,522,067 2,110,529 3,764,242
Accrued brokerage fees (Morgan Stanley DW) 1,398,545 1,231,479 1,270,975
Accrued management fees 578,708 509,577 525,921
------------ ------------ ------------
Total Liabilities 3,499,320 3,851,585 5,561,138
------------ ------------ ------------
PARTNERS' CAPITAL
Limited Partners (9,537,290.308, 9,255,010.627 and
9,583,810.732 Units, respectively) 226,494,697 218,182,118 210,877,519
General Partner (108,076.600, 108,076.600 and 133,076.700
Units, respectively) 2,566,639 2,547,851 2,928,155
------------ ------------ ------------
Total Partners' Capital 229,061,336 220,729,969 213,805,674
------------ ------------ ------------
Total Liabilities and Partners' Capital 232,560,656 224,581,554 219,366,812
============ ============ ============
NET ASSET VALUE PER UNIT 23.75 23.57 22.00
============ ============ ============
The accompanying notes are an integral part of these financial statements.
S-84
MORGAN STANLEY DEAN WITTER SPECTRUM TECHNICAL L.P.
STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31,
JUNE 30, ---------------------------
2001 2000 1999
------------ ------------ ------------
$ $ $
(UNAUDITED)
ASSETS
Equity in futures interests trading accounts:
Cash 254,619,046 231,502,090 251,443,755
Net unrealized gain on open contracts (Morgan Stanley) 6,085,862 41,877,552 --
Net unrealized gain (loss) on open contracts (Morgan
Stanley International) 676,199 (1,835,243) --
Net unrealized gain on open contracts (Carr) -- -- 18,036,296
----------- ----------- -----------
Total net unrealized gain on open contracts 6,762,061 40,042,309 18,036,296
Net option premiums -- -- (74,725)
----------- ----------- -----------
Total Trading Equity 261,381,107 271,544,399 269,405,326
Subscriptions receivable 3,273,974 1,087,585 3,926,914
Interest receivable (Morgan Stanley DW) 683,193 1,063,044 900,955
----------- ----------- -----------
Total Assets 265,338,274 273,695,028 274,233,195
=========== =========== ===========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES
Redemptions payable 2,179,439 3,432,384 3,057,593
Accrued brokerage fees (Morgan Stanley DW) 1,628,771 1,458,126 1,559,481
Accrued management fees 621,529 559,827 860,403
Accrued incentive fee -- 111,599 --
----------- ----------- -----------
Total Liabilities 4,429,739 5,561,936 5,477,477
----------- ----------- -----------
PARTNERS' CAPITAL
Limited Partners (16,684,693.465, 16,479,195.979 and
17,836,873.576 Units, respectively) 257,955,214 265,060,579 265,907,998
General Partner (191,022.517) 2,953,321 3,072,513 2,847,720
----------- ----------- -----------
Total Partners' Capital 260,908,535 268,133,092 268,755,718
----------- ----------- -----------
Total Liabilities and Partners' Capital 265,338,274 273,695,028 274,233,195
=========== =========== ===========
NET ASSET VALUE PER UNIT 15.46 16.08 14.91
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
S-85
MORGAN STANLEY DEAN WITTER SPECTRUM STRATEGIC L.P.
STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31,
JUNE 30, ---------------------------
2001 2000 1999
------------ ------------ ------------
$ $ $
(UNAUDITED)
ASSETS
Equity in futures interests trading accounts:
Cash 69,165,205 73,445,827 97,808,328
Net unrealized gain on open contracts (Morgan Stanley) 249,531 1,936,658 --
Net unrealized gain (loss) on open contracts (Morgan
Stanley International) (19,200) 58,457 --
Net unrealized gain (loss) on open contracts (Carr) -- (8,983) 9,563,813
----------- ----------- -----------
Total net unrealized gain on open contracts 230,331 1,986,132 9,563,813
Net option premiums 291,210 226,200 (11,653)
----------- ----------- -----------
Total Trading Equity 69,686,746 75,658,159 107,360,488
Subscriptions receivable 850,837 462,060 1,743,958
Interest receivable (Morgan Stanley DW) 185,148 306,879 339,582
----------- ----------- -----------
Total Assets 70,722,731 76,427,098 109,444,028
=========== =========== ===========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES
Redemptions payable 692,925 1,307,093 847,860
Accrued brokerage fees (Morgan Stanley DW) 432,634 409,292 590,001
Accrued incentive fee -- 289,687 --
Accrued management fees 179,021 186,577 313,646
----------- ----------- -----------
Total Liabilities 1,304,580 2,192,649 1,751,507
----------- ----------- -----------
PARTNERS' CAPITAL
Limited Partners (6,773,404.187, 6,919,445.814 and
6,723,390.378 Units, respectively) 68,644,379 73,433,119 106,542,362
General Partner (76,351.101, 75,507.615 and 72,581.141
Units, respectively) 773,772 801,330 1,150,159
----------- ----------- -----------
Total Partners' Capital 69,418,151 74,234,449 107,692,521
----------- ----------- -----------
Total Liabilities and Partners' Capital 70,722,731 76,427,098 109,444,028
=========== =========== ===========
NET ASSET VALUE PER UNIT 10.13 10.61 15.85
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
S-86
MORGAN STANLEY DEAN WITTER SPECTRUM GLOBAL BALANCED L.P.
STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31,
JUNE 30, --------------------------
2001 2000 1999
----------- ----------- ------------
$ $ $
(UNAUDITED)
ASSETS
Equity in futures interests trading accounts:
Cash 56,272,923 52,414,304 56,904,921
Net unrealized gain (loss) on open contracts (Morgan
Stanley) (482,014) 3,384,377 --
Net unrealized gain (loss) on open contracts (Morgan
Stanley International) 132,578 (66,733) --
Net unrealized gain on open contracts (Carr) -- -- 810,114
----------- ----------- ------------
Total net unrealized gain (loss) on open contracts (349,436) 3,317,644 810,114
Net option premiums (84,677) 192,500 --
----------- ----------- ------------
Total Trading Equity 55,838,810 55,924,448 57,715,035
Subscriptions receivable 926,388 530,634 847,954
Interest receivable (Morgan Stanley DW) 183,886 285,054 244,599
----------- ----------- ------------
Total Assets 56,949,084 56,740,136 58,807,588
=========== =========== ============
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES
Redemptions payable 654,824 602,490 667,741
Accrued brokerage fees (Morgan Stanley DW) 220,568 202,789 216,895
Accrued management fees 59,938 55,107 58,940
----------- ----------- ------------
Total Liabilities 935,330 860,386 943,576
----------- ----------- ------------
PARTNERS' CAPITAL
Limited Partners (3,516,519.325, 3,396,880.702 and
3,549,239.387 Units, respectively) 55,374,672 55,220,008 57,209,838
General Partner (40,584.304 Units) 639,082 659,742 654,174
----------- ----------- ------------
Total Partners' Capital 56,013,754 55,879,750 57,864,012
----------- ----------- ------------
Total Liabilities and Partners' Capital 56,949,084 56,740,136 58,807,588
=========== =========== ============
NET ASSET VALUE PER UNIT 15.75 16.26 16.12
=========== =========== ============
The accompanying notes are an integral part of these financial statements.
S-87
MORGAN STANLEY DEAN WITTER SPECTRUM CURRENCY L.P.
STATEMENTS OF FINANCIAL CONDITION
JUNE 30, DECEMBER 31,
2001 2000
----------- ------------
$ $
(UNAUDITED)
ASSETS
Equity in futures interests trading accounts:
Cash 27,805,647 14,391,541
Net unrealized gain on open contracts (Morgan Stanley) 329,881 555,569
---------- ----------
Total Trading Equity 28,135,528 14,947,110
Subscriptions receivable 2,675,963 3,054,150
Interest receivable (Morgan Stanley DW) 65,507 55,464
---------- ----------
Total Assets 30,876,998 18,056,724
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES
Redemptions payable 124,067 2,237,351
Accrued brokerage fees (Morgan Stanley DW) 109,338 55,245
Accrued management fees 47,538 24,020
Accrued incentive fee -- 32,876
---------- ----------
Total Liabilities 280,943 2,349,492
---------- ----------
PARTNERS' CAPITAL
Limited Partners (2,492,455.328 and 1,252,545.441 Units,
respectively) 28,669,442 13,988,414
General Partner (167,495.302 and 153,905.792 Units,
respectively) 1,926,613 1,718,818
---------- ----------
Total Partners' Capital 30,596,055 15,707,232
---------- ----------
Total Liabilities and Partners' Capital 30,876,998 18,056,724
========== ==========
NET ASSET VALUE PER UNIT 11.50 11.17
========== ==========
The accompanying notes are an integral part of these financial statements.
S-88
MORGAN STANLEY DEAN WITTER SPECTRUM COMMODITY L.P.
(FORMERLY, MORGAN STANLEY TANGIBLE ASSET FUND L.P.)
STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31,
JUNE 30, -------------------------
2001 2000 1999
----------- ----------- -----------
$ $ $
(UNAUDITED)
ASSETS
Equity in futures interests trading accounts:
Cash 15,971,244 20,529,979 23,430,137
Net unrealized loss on open contracts (Morgan Stanley
International) (238,342) (185,379) (100,830)
Net unrealized gain (loss) on open contracts (Morgan
Stanley) (324,238) 160,096 643,258
---------- ---------- ----------
Total net unrealized gain (loss) on open contracts (562,580) (25,283) 542,428
---------- ---------- ----------
Total Trading Equity 15,408,664 20,504,696 23,972,565
Subscriptions receivable 152,914 215,897 --
Interest receivable (Morgan Stanley DW and Morgan Stanley) 41,675 89,128 76,192
---------- ---------- ----------
Total Assets 15,603,253 20,809,721 24,048,757
========== ========== ==========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES
Redemptions payable 256,719 489,923 269,545
Accrued brokerage fees (Morgan Stanley DW and Morgan
Stanley) 61,566 77,628 70,827
Accrued management fees (Morgan Stanley Dean Witter
Commodities Management) 33,460 42,189 48,511
Service fee (Demeter) -- -- 19,404
---------- ---------- ----------
Total Liabilities 351,745 609,740 408,287
---------- ---------- ----------
PARTNERS' CAPITAL
Limited Partners (2,333,298.319, 2,530,392.671 and
3,062,471.522 Units, respectively) 14,973,033 19,859,397 23,310,162
General Partner (43,395.648 Units) 278,475 340,584 330,308
---------- ---------- ----------
Total Partners' Capital 15,251,508 20,199,981 23,640,470
---------- ---------- ----------
Total Liabilities and Partners' Capital 15,603,253 20,809,721 24,048,757
========== ========== ==========
NET ASSET VALUE PER UNIT 6.42 7.85 7.61
========== ========== ==========
The accompanying notes are an integral part of these financial statements.
S-89
MORGAN STANLEY DEAN WITTER SPECTRUM SELECT L.P.
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED FOR THE YEARS ENDED
JUNE 30, DECEMBER 31,
------------------------- ---------------------------------------
2001 2000 2000 1999 1998
----------- ----------- ----------- ----------- -----------
$ $ $ $ $
(UNAUDITED) (UNAUDITED)
REVENUES
Trading profit (loss):
Realized 27,437,979 (3,377,514) 6,845,291 (1,351,849) 36,087,729
Net change in unrealized (17,943,127) (7,392,682) 18,665,233 (1,547,990) (1,192,107)
----------- ----------- ---------- ----------- ----------
Total Trading Results 9,494,852 (10,770,196) 25,510,524 (2,899,839) 34,895,622
Interest income (Morgan Stanley DW) 4,493,342 4,655,147 9,573,095 7,678,789 6,883,110
----------- ----------- ---------- ----------- ----------
Total 13,988,194 (6,115,049) 35,083,619 4,778,950 41,778,732
----------- ----------- ---------- ----------- ----------
EXPENSES
Brokerage fees (Morgan Stanley DW) 8,379,473 7,654,116 14,706,945 15,188,479 11,360,166
Management fees 3,467,367 3,167,219 6,085,629 6,284,885 5,202,158
Incentive fees 706,462 -- -- -- 1,832,021
Transaction fees and costs -- -- -- -- 625,327
Administrative expenses -- -- -- -- 64,000
----------- ----------- ---------- ----------- ----------
Total 12,553,302 10,821,335 20,792,574 21,473,364 19,083,672
----------- ----------- ---------- ----------- ----------
NET INCOME (LOSS) 1,434,892 (16,936,384) 14,291,045 (16,694,414) 22,695,060
=========== =========== ========== =========== ==========
Net Income (Loss) Allocation:
Limited Partners 1,416,104 (16,703,524) 14,165,099 (16,455,697) 22,302,202
General Partner 18,788 (232,860) 125,946 (238,717) 392,858
Net Income (Loss) per Unit (Note 1):
Limited Partners 0.18 (1.75) 1.57 (1.80) 2.95
General Partner 0.18 (1.75) 1.57 (1.80) 2.95
The accompanying notes are an integral part of these financial statements.
S-90
MORGAN STANLEY DEAN WITTER SPECTRUM TECHNICAL L.P.
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED FOR THE YEARS ENDED
JUNE 30, DECEMBER 31,
------------------------- ---------------------------------------
2001 2000 2000 1999 1998
----------- ----------- ----------- ----------- -----------
$ $ $ $ $
(UNAUDITED) (UNAUDITED)
REVENUES
Trading profit (loss):
Realized 32,994,131 (1,902,412) 12,255,064 726,179 35,224,194
Net change in unrealized (33,280,248) (11,694,953) 22,006,013 (872,972) 6,612,556
----------- ----------- ---------- ----------- ----------
Total Trading Results (286,117) (13,597,365) 34,261,077 (146,793) 41,836,750
Interest income (Morgan Stanley DW) 5,359,206 5,752,462 11,613,896 9,593,178 8,103,423
----------- ----------- ---------- ----------- ----------
Total 5,073,089 (7,844,903) 45,874,973 9,446,385 49,940,173
----------- ----------- ---------- ----------- ----------
EXPENSES
Brokerage fees (Morgan Stanley DW) 9,946,605 9,498,674 17,835,223 19,176,380 15,543,787
Management fees 3,809,281 5,240,647 9,595,464 10,580,071 8,403,764
Incentive fees 1,630,613 54,486 166,085 430,097 3,191,252
----------- ----------- ---------- ----------- ----------
Total 15,386,499 14,793,807 27,596,772 30,186,548 27,138,803
----------- ----------- ---------- ----------- ----------
NET INCOME (LOSS) (10,313,410) (22,638,710) 18,278,201 (20,740,163) 22,801,370
=========== =========== ========== =========== ==========
Net Income (Loss) Allocation:
Limited Partners (10,194,218) (22,396,695) 18,053,408 (20,531,494) 22,571,217
General Partner (119,192) (242,015) 224,793 (208,669) 230,153
Net Income (Loss) per Unit:
Limited Partners (0.62) (1.27) 1.17 (1.21) 1.49
General Partner (0.62) (1.27) 1.17 (1.21) 1.49
The accompanying notes are an integral part of these financial statements.
S-91
MORGAN STANLEY DEAN WITTER SPECTRUM STRATEGIC L.P.
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED FOR THE YEARS ENDED
JUNE 30, DECEMBER 31,
------------------------- ---------------------------------------
2001 2000 2000 1999 1998
----------- ----------- ----------- ----------- -----------
$ $ $ $ $
(UNAUDITED) (UNAUDITED)
REVENUES
Trading profit (loss):
Realized 833,504 (23,162,078) (23,193,914) 32,274,037 7,945,575
Net change in unrealized (1,755,801) (4,742,141) (7,577,681) 4,264,478 2,771,722
---------- ----------- ----------- ---------- ----------
Total Trading Results (922,297) (27,904,219) (30,771,595) 36,538,515 10,717,297
Interest income (Morgan Stanley DW) 1,437,775 2,021,135 3,832,634 3,017,103 2,379,478
---------- ----------- ----------- ---------- ----------
Total 515,478 (25,883,084) (26,938,961) 39,555,618 13,096,775
---------- ----------- ----------- ---------- ----------
EXPENSES
Brokerage fees (Morgan Stanley DW) 2,639,821 3,105,964 5,798,093 5,837,887 4,402,540
Management fees 1,143,762 1,613,245 2,880,999 3,137,509 2,342,447
Incentive fees -- 979,550 1,269,237 2,451,152 1,336,693
---------- ----------- ----------- ---------- ----------
Total 3,783,583 5,698,759 9,948,329 11,426,548 8,081,680
---------- ----------- ----------- ---------- ----------
NET INCOME (LOSS) (3,268,105) (31,581,843) (36,887,290) 28,129,070 5,015,095
========== =========== =========== ========== ==========
Net Income (Loss) Allocation:
Limited Partners (3,231,547) (31,251,055) (36,503,461) 27,829,050 4,958,188
General Partner (36,558) (330,788) (383,829) 300,020 56,907
Net Income (Loss) per Unit:
Limited Partners (0.48) (4.53) (5.24) 4.30 .84
General Partner (0.48) (4.53) (5.24) 4.30 .84
The accompanying notes are an integral part of these financial statements.
S-92
MORGAN STANLEY DEAN WITTER SPECTRUM GLOBAL BALANCED L.P.
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED FOR THE YEARS ENDED
JUNE 30, DECEMBER 31,
------------------------- -----------------------------------
2001 2000 2000 1999 1998
----------- ----------- ---------- ---------- ---------
$ $ $ $ $
(UNAUDITED) (UNAUDITED)
REVENUES
Trading profit (loss):
Realized 2,150,604 (1,504,246) (2,091,009) 2,425,585 5,113,920
Net change in unrealized (3,667,080) (179,099) 2,507,530 (1,157,073) 1,285,628
---------- ---------- ---------- ---------- ---------
Total Trading Results (1,516,476) (1,683,345) 416,521 1,268,512 6,399,548
Interest income (Morgan Stanley DW) 1,365,988 1,594,762 3,275,958 2,385,751 1,642,542
---------- ---------- ---------- ---------- ---------
Total (150,488) (88,583) 3,692,479 3,654,263 8,042,090
---------- ---------- ---------- ---------- ---------
EXPENSES
Brokerage fees (Morgan Stanley DW) 1,296,763 1,316,886 2,558,008 2,387,515 1,591,467
Management fees 352,385 357,853 695,117 648,787 422,960
Incentive fees -- -- -- 215,651 449,775
---------- ---------- ---------- ---------- ---------
Total 1,649,148 1,674,739 3,253,125 3,251,953 2,464,202
---------- ---------- ---------- ---------- ---------
NET INCOME (LOSS) (1,799,636) (1,763,322) 439,354 402,310 5,577,888
========== ========== ========== ========== =========
Net Income (Loss) Allocation:
Limited Partners (1,778,976) (1,742,636) 433,786 397,258 5,518,127
General Partner (20,660) (20,686) 5,568 5,052 59,761
Net Income (Loss) per Unit:
Limited Partners (0.51) (0.51) 0.14 0.12 2.25
General Partner (0.51) (0.51) 0.14 0.12 2.25
The accompanying notes are an integral part of these financial statements.
S-93
MORGAN STANLEY DEAN WITTER SPECTRUM CURRENCY L.P.
STATEMENTS OF OPERATIONS
FOR THE PERIOD FROM
JULY 3, 2000
(COMMENCEMENT OF
FOR THE SIX MONTHS ENDED OPERATIONS) TO
JUNE 30, 2001 DECEMBER 31, 2000
------------------------ -------------------
$ $
(UNAUDITED)
REVENUES
Trading profit (loss):
Realized 1,370,713 1,126,201
Net change in unrealized (225,688) 555,569
--------- -----------
Total Trading Results 1,145,025 1,681,770
Interest income (Morgan Stanley DW) 369,134 236,461
--------- -----------
Total 1,514,159 1,918,231
--------- -----------
EXPENSES
Brokerage fees (Morgan Stanley DW) 494,645 249,571
Incentive fees 241,946 188,423
Management fees 215,063 171,693
--------- -----------
Total 951,654 609,687
--------- -----------
NET INCOME 562,505 1,308,544
========= ===========
Net Income Allocation:
Limited Partners 511,710 1,134,371
General Partner 50,795 174,173
Net Income Per Unit:
Limited Partners 0.33 1.17
General Partner 0.33 1.17
The accompanying notes are an integral part of these financial statements.
S-94
MORGAN STANLEY DEAN WITTER SPECTRUM COMMODITY L.P.
(FORMERLY MORGAN STANLEY TANGIBLE ASSET FUND L.P.)
STATEMENTS OF OPERATIONS
FOR THE PERIOD FROM
FOR THE SIX MONTHS ENDED FOR THE YEARS ENDED JANUARY 2, 1998
JUNE 30, DECEMBER 31, (COMMENCEMENT OF
------------------------- --------------------- OPERATIONS) TO
2001 2000 2000 1999 DECEMBER 31, 1998
----------- ----------- --------- --------- -------------------
$ $ $ $ $
(UNAUDITED) (UNAUDITED)
REVENUES
Trading profit (loss):
Realized (2,729,842) 1,344,767 1,696,824 3,003,270 (11,870,063)
Net change in unrealized (537,297) (889,124) (567,711) 1,178,071 (635,643)
---------- --------- --------- --------- -----------
Total Trading Results (3,267,139) 455,643 1,129,113 4,181,341 (12,505,706)
Interest income (Morgan Stanley DW
and Morgan Stanley) 357,268 517,218 1,047,350 864,383 1,265,793
---------- --------- --------- --------- -----------
Total (2,909,871) 972,861 2,176,463 5,045,724 (11,239,913)
---------- --------- --------- --------- -----------
EXPENSES
Brokerage fees (Morgan Stanley DW,
Morgan Stanley and Morgan Stanley
International) 411,912 465,157 949,310 852,484 1,176,024
Management fees (Morgan Stanley
Commodities Management) 223,865 283,060 546,187 583,893 805,496
Service fees (Demeter) -- 58,604 58,604 233,558 322,198
---------- --------- --------- --------- -----------
Total 635,777 806,821 1,554,101 1,669,935 2,303,718
---------- --------- --------- --------- -----------
NET INCOME (LOSS) (3,545,648) 166,040 622,362 3,375,789 (13,543,631)
========== ========= ========= ========= ===========
Net Income (Loss) Allocation:
Limited Partners (3,483,539) 163,331 612,086 3,330,798 (13,398,948)
General Partner (62,109) 2,709 10,276 44,991 (144,683)
Net Income (Loss) Per Unit:
Limited Partners (1.43) 0.06 .24 1.04 (3.43)
General Partner (1.43) 0.06 .24 1.04 (3.43)
The accompanying notes are an integral part of these financial statements.
S-95
MORGAN STANLEY DEAN WITTER SPECTRUM SERIES
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE SIX MONTHS ENDED JUNE 30, 2001 (UNAUDITED)
AND FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
UNITS OF
PARTNERSHIP LIMITED GENERAL
INTEREST PARTNERS PARTNER TOTAL
-------------- ------------ --------- ------------
NOTE 1 $ $ $
MORGAN STANLEY DEAN WITTER SPECTRUM
SELECT L.P.
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
Offering of Units 1,339,972.159 28,581,403 -- 28,581,403
Net income -- 14,165,099 125,946 14,291,045
Redemptions (1,693,772.364) (35,441,903) (506,250) (35,948,153)
-------------- ----------- --------- -----------
Partners' Capital, December 31, 2000 9,363,087.227 218,182,118 2,547,851 220,729,969
Offering of Units 734,266.480 17,962,145 -- 17,962,145
Net income -- 1,416,104 18,788 1,434,892
Redemptions (451,986.799) (11,065,670) -- (11,065,670)
-------------- ----------- --------- -----------
Partners' Capital, June 30, 2001 9,645,366.908 226,494,697 2,566,639 229,061,336
============== =========== ========= ===========
UNITS OF
PARTNERSHIP LIMITED GENERAL
INTEREST PARTNERS PARTNER TOTAL
-------------- ------------ --------- ------------
$ $ $
MORGAN STANLEY DEAN WITTER SPECTRUM
TECHNICAL L.P.
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, December 31, 1999 18,027,896.093 265,907,998 2,847,720 268,755,718
Offering of Units 2,110,290.038 29,668,693 -- 29,668,693
Net income -- 18,053,408 224,793 18,278,201
Redemptions (3,467,967.635) (48,569,520) -- (48,569,520)
-------------- ----------- --------- -----------
Partners' Capital, December 31, 2000 16,670,218.496 265,060,579 3,072,513 268,133,092
Offering of Units 1,165,148.369 18,902,996 -- 18,902,996
Net loss -- (10,194,218) (119,192) (10,313,410)
Redemptions (959,650.883) (15,814,143) -- (15,814,143)
-------------- ----------- --------- -----------
Partners' Capital, June 30, 2001 16,875,715.982 257,955,214 2,953,321 260,908,535
============== =========== ========= ===========
The accompanying notes are an integral part of these financial statements.
S-96
MORGAN STANLEY DEAN WITTER SPECTRUM SERIES
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE SIX MONTHS ENDED JUNE 30, 2001 (UNAUDITED)
AND FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
UNITS OF
PARTNERSHIP LIMITED GENERAL
INTEREST PARTNERS PARTNER TOTAL
-------------- ------------ --------- ------------
$ $ $
MORGAN STANLEY DEAN WITTER SPECTRUM
STRATEGIC L.P.
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, December 31, 1999 6,795,971.519 106,542,362 1,150,159 107,692,521
Offering of Units 1,467,043.314 17,566,488 35,000 17,601,488
Net loss -- (36,503,461) (383,829) (36,887,290)
Redemptions (1,268,061.404) (14,172,270) -- (14,172,270)
-------------- ----------- --------- -----------
Partners' Capital, December 31, 2000 6,994,953.429 73,433,119 801,330 74,234,449
Offering of Units 499,401.638 5,218,430 9,000 5,227,430
Net loss -- (3,231,547) (36,558) (3,268,105)
Redemptions (644,599.779) (6,775,623) -- (6,775,623)
-------------- ----------- --------- -----------
Partners' Capital, June 30, 2001 6,849,755.288 68,644,379 773,772 69,418,151
============== =========== ========= ===========
UNITS OF
PARTNERSHIP LIMITED GENERAL
INTEREST PARTNERS PARTNER TOTAL
-------------- ------------ --------- ------------
$ $ $
MORGAN STANLEY DEAN WITTER SPECTRUM GLOBAL
BALANCED L.P.
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
Offering of Units 568,088.752 8,983,545 -- 8,983,545
Net income -- 433,786 5,568 439,354
Redemptions (720,447.437) (11,407,161) -- (11,407,161)
-------------- ----------- --------- -----------
Partners' Capital, December 31, 2000 3,437,465.006 55,220,008 659,742 55,879,750
Offering of Units 347,920.945 5,604,026 -- 5,604,026
Net loss -- (1,778,976) (20,660) (1,799,636)
Redemptions (228,282.322) (3,670,386) -- (3,670,386)
-------------- ----------- --------- -----------
Partners' Capital, June 30, 2001 3,557,103.629 55,374,672 639,082 56,013,754
============== =========== ========= ===========
The accompanying notes are an integral part of these financial statements.
S-97
MORGAN STANLEY DEAN WITTER SPECTRUM SERIES
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE SIX MONTHS ENDED JUNE 30, 2001 (UNAUDITED)
AND FOR THE PERIOD FROM JULY 3, 2000 (COMMENCEMENT OF OPERATIONS) TO
DECEMBER 31, 2000
UNITS OF
PARTNERSHIP LIMITED GENERAL
INTEREST PARTNERS PARTNER TOTAL
------------- ----------- --------- -----------
$ $ $
MORGAN STANLEY DEAN WITTER SPECTRUM
CURRENCY L.P.
Partners' Capital, July 3, 2000 2.000 10 10 20
Initial Offering 633,152.332 4,886,888 1,444,635 6,331,523
Offering of Units 980,783.417 10,281,803 100,000 10,381,803
Net income -- 1,134,371 174,173 1,308,544
Redemptions (207,486.516) (2,314,658) -- (2,314,658)
------------- ----------- --------- -----------
Partners' Capital, December 31, 2000 1,406,451.233 13,988,414 1,718,818 15,707,232
Offering of Units 1,293,599.802 14,631,904 157,000 14,788,904
Net income -- 511,710 50,795 562,505
Redemptions (40,100.405) (462,586) -- (462,586)
------------- ----------- --------- -----------
Partners' Capital, June 30, 2001 2,659,950.630 28,669,442 1,926,613 30,596,055
============= =========== ========= ===========
FOR THE SIX MONTHS ENDED JUNE 30, 2001 (UNAUDITED)
AND FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 AND FOR THE PERIOD FROM
JANUARY 2, 1998
(COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1998
UNITS OF
PARTNERSHIP LIMITED GENERAL
INTEREST PARTNERS PARTNER TOTAL
------------- ----------- --------- -----------
$ $ $
MORGAN STANLEY DEAN WITTER SPECTRUM
COMMODITY L.P.
(FORMERLY, MORGAN STANLEY TANGIBLE ASSET
FUND L.P.)
Partners' Capital, January 2, 1998 200.000 1,000 1,000 2,000
Initial Offering 2,573,486.803 25,475,868 259,000 25,734,868
Offering of Units 1,665,202.477 15,758,355 170,000 15,928,355
Net loss -- (13,398,948) (144,683) (13,543,631)
Redemptions (450,424.580) (3,213,276) -- (3,213,276)
------------- ----------- --------- -----------
Partners' Capital, December 31, 1998 3,788,464.700 24,622,999 285,317 24,908,316
Net income -- 3,330,798 44,991 3,375,789
Redemptions (682,597.530) (4,643,635) -- (4,643,635)
------------- ----------- --------- -----------
Partners' Capital, December 31, 1999 3,105,867.170 23,310,162 330,308 23,640,470
Offering of Units 277,607.062 2,115,964 -- 2,115,964
Net income -- 612,086 10,276 622,362
Redemption (809,685.913) (6,178,815) -- (6,178,815)
------------- ----------- --------- -----------
Partners' Capital, December 31, 2000 2,573,788.319 19,859,397 340,584 20,199,981
Offering of Units 117,394.644 819,340 -- 819,340
Net loss -- (3,483,539) (62,109) (3,545,648)
Redemptions (314,488.996) (2,222,165) -- (2,222,165)
------------- ----------- --------- -----------
Partners' Capital, June 30, 2001 2,376,693.967 14,973,033 278,475 15,251,508
============= =========== ========= ===========
The accompanying notes are an integral part of these financial statements.
S-98
MORGAN STANLEY DEAN WITTER SPECTRUM SELECT L.P.
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED FOR THE YEARS ENDED
JUNE 30, DECEMBER 31,
--------------------------- ------------------------------------------
2001 2000 2000 1999 1998
------------ ------------ ------------ ------------ ------------
$ $ $ $ $
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) 1,434,892 (16,936,384) 14,291,045 (16,694,414) 22,695,060
Noncash item included in net income
(loss):
Net change in unrealized 17,943,127 7,392,682 (18,665,233) 1,547,990 1,192,107
(Increase) decrease in operating
assets:
Net option premiums -- 776,380 776,380 (776,380) --
Interest receivable (Morgan Stanley
DW) 302,555 (52,940) (167,649) (130,447) 46,346
Due from Morgan Stanley DW -- -- -- -- 1,097,517
Increase (decrease) in operating
liabilities:
Accrued brokerage fees (Morgan
Stanley DW) 167,066 (40,423) (39,496) 106,631 1,164,344
Accrued management fees 69,131 (16,727) (16,344) 44,124 58,124
Accrued administrative expenses -- -- -- -- (72,499)
----------- ----------- ----------- ----------- -----------
Net cash provided by (used for)
operating activities 19,916,771 (8,877,412) (3,821,297) (15,902,496) 26,180,999
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Offering of Units 17,962,145 18,238,832 28,581,403 51,589,367 30,297,590
(Increase) decrease in subscriptions
receivable (1,631,569) 1,557,079 2,146,110 2,291,656 (6,021,707)
Increase (decrease) in redemptions
payable (588,462) (625,783) (1,653,713) 2,824,861 (1,332,933)
Redemptions of Units (11,065,670) (21,349,415) (35,948,153) (21,171,795) (19,683,455)
----------- ----------- ----------- ----------- -----------
Net cash provided by (used for)
financing activities 4,676,444 (2,179,287) (6,874,353) 35,534,089 3,259,495
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash 24,593,215 (11,056,699) (10,695,650) 19,631,593 29,440,494
Balance at beginning of period 196,555,362 207,251,012 207,251,012 187,619,419 158,178,925
----------- ----------- ----------- ----------- -----------
Balance at end of period 221,148,577 196,194,313 196,555,362 207,251,012 187,619,419
=========== =========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
S-99
MORGAN STANLEY DEAN WITTER SPECTRUM TECHNICAL L.P.
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED FOR THE YEARS ENDED
JUNE 30, DECEMBER 31,
--------------------------- ------------------------------------------
2001 2000 2000 1999 1998
------------ ------------ ------------ ------------ ------------
$ $ $ $ $
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income (loss) (10,313,410) (22,638,710) 18,278,201 (20,740,163) 22,801,370
Noncash item included in net
income (loss):
Net change in unrealized 33,280,248 11,694,953 (22,006,013) 872,972 (6,612,556)
(Increase) decrease in operating
assets:
Net option premiums -- (74,725) (74,725) 74,725 --
Interest receivable (Morgan
Stanley DW) 379,851 (40,562) (162,089) (183,270) (60,123)
Increase (decrease) in operating
liabilities:
Accrued brokerage fees (Morgan
Stanley DW) 170,645 (57,145) (101,355) 120,330 341,957
Accrued management fees 61,702 (31,528) (300,576) 66,388 220,319
Accrued incentive fees (111,599) -- 111,599 -- (139,190)
----------- ----------- ----------- ----------- -----------
Net cash provided by (used for)
operating activities 23,467,437 (11,147,717) (4,254,958) (19,789,018) 16,551,777
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING
ACTIVITIES
Offering of Units 18,902,996 18,494,184 29,668,693 61,483,132 70,451,681
(Increase) decrease in
subscriptions receivable (2,186,389) 1,299,135 2,839,329 75,719 (1,037,012)
Increase (decrease) in
redemptions payable (1,252,945) 952,255 374,791 1,718,282 330,081
Redemptions of Units (15,814,143) (24,217,919) (48,569,520) (27,088,685) (20,102,124)
----------- ----------- ----------- ----------- -----------
Net cash provided by (used for)
financing activities (350,481) (3,472,345) (15,686,707) 36,188,448 49,642,626
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash 23,116,956 (14,620,062) (19,941,665) 16,399,430 66,194,403
Balance at beginning of period 231,502,090 251,443,755 251,443,755 235,044,325 168,849,922
----------- ----------- ----------- ----------- -----------
Balance at end of period 254,619,046 236,823,693 231,502,090 251,443,755 235,044,325
=========== =========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
S-100
MORGAN STANLEY DEAN WITTER SPECTRUM STRATEGIC L.P.
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED FOR THE YEARS ENDED
JUNE 30, DECEMBER 31,
------------------------- ---------------------------------------
2001 2000 2000 1999 1998
----------- ----------- ----------- ----------- -----------
$ $ $ $ $
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) (3,268,105) (31,581,843) (36,887,290) 28,129,070 5,015,095
Noncash item included in net income
(loss):
Net change in unrealized 1,755,801 4,742,141 7,577,681 (4,264,478) (2,771,722)
(Increase) decrease in operating
assets:
Net option premiums (65,010) (835,474) (237,853) 237,299 96,477
Interest receivable (Morgan Stanley
DW) 121,731 1,358 32,703 (134,335) 17,798
Increase (decrease) in operating
liabilities:
Accrued brokerage fees (Morgan
Stanley DW) 23,342 (149,786) (180,709) 184,395 45,565
Accrued incentive fees (289,687) -- 289,687 -- --
Accrued management fees (7,556) (93,912) (127,069) 94,670 30,719
---------- ----------- ----------- ---------- -----------
Net cash provided by (used for)
operating activities (1,729,484) (27,917,516) (29,532,850) 24,246,621 2,433,932
---------- ----------- ----------- ---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Offering of Units 5,227,430 12,519,628 17,601,488 16,946,544 16,742,471
(Increase) decrease in subscriptions
receivable (388,777) 234,818 1,281,898 52,093 (962,792)
Increase (decrease) in redemptions
payable (614,168) 268,300 459,233 448,884 (967,188)
Redemptions of Units (6,775,623) (7,236,871) (14,172,270) (7,804,868) (10,431,372)
---------- ----------- ----------- ---------- -----------
Net cash provided by (used for)
financing activities (2,551,138) 5,785,875 5,170,349 9,642,653 4,381,119
---------- ----------- ----------- ---------- -----------
Net increase (decrease) in cash (4,280,622) (22,131,641) (24,362,501) 33,889,274 6,815,051
Balance at beginning of period 73,445,827 97,808,328 97,808,328 63,919,054 57,104,003
---------- ----------- ----------- ---------- -----------
Balance at end of period 69,165,205 75,676,687 73,445,827 97,808,328 63,919,054
========== =========== =========== ========== ===========
The accompanying notes are an integral part of these financial statements.
S-101
MORGAN STANLEY DEAN WITTER SPECTRUM GLOBAL BALANCED L.P.
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED FOR THE YEARS ENDED
JUNE 30, DECEMBER 31,
------------------------- ---------------------------------------
2001 2000 2000 1999 1998
----------- ----------- ----------- ----------- -----------
$ $ $ $ $
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) (1,799,636) (1,763,322) 439,354 402,310 5,577,888
Noncash item included in net income
(loss):
Net change in unrealized 3,667,080 179,099 (2,507,530) 1,157,073 (1,285,628)
(Increase) decrease in operating
assets:
Net option premiums 277,177 85,400 (192,500) -- (458,150)
Interest receivable (Morgan Stanley
DW) 101,168 (25,270) (40,455) (77,458) (48,192)
Increase (decrease) in operating
liabilities:
Accrued brokerage fees (Morgan
Stanley DW) 17,779 (4,280) (14,106) 47,054 70,079
Accrued management fees 4,831 (1,164) (3,833) 12,787 20,703
Accrued incentive fees -- -- -- (69,730) 69,730
---------- ---------- ----------- ---------- ----------
Net cash provided by (used for)
operating activities 2,268,399 (1,529,537) (2,319,070) 1,472,036 3,946,430
---------- ---------- ----------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Offering of Units 5,604,026 5,778,868 8,983,545 16,319,278 17,637,965
(Increase) decrease in subscriptions
receivable (395,754) 286,048 317,320 315,143 (537,387)
Increase (decrease) in redemptions
payable 52,334 (1,820) (65,251) 549,551 3,614
Redemptions of Units (3,670,386) (6,678,173) (11,407,161) (4,771,448) (2,985,217)
---------- ---------- ----------- ---------- ----------
Net cash provided by (used for)
financing activities 1,590,220 (615,077) (2,171,547) 12,412,524 14,118,975
---------- ---------- ----------- ---------- ----------
Net increase (decrease) in cash 3,858,619 (2,144,614) (4,490,617) 13,884,560 18,065,405
Balance at beginning of period 52,414,304 56,904,921 56,904,921 43,020,361 24,954,956
---------- ---------- ----------- ---------- ----------
Balance at end of period 56,272,923 54,760,307 52,414,304 56,904,921 43,020,361
========== ========== =========== ========== ==========
The accompanying notes are an integral part of these financial statements.
S-102
MORGAN STANLEY DEAN WITTER SPECTRUM CURRENCY L.P.
STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM
JULY 3, 2000
FOR THE SIX MONTHS (COMMENCEMENT OF
ENDED OPERATIONS) TO
JUNE 30, 2001 DECEMBER 31, 2000
------------------ -------------------
$ $
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income 562,505 1,308,544
Noncash item included in net income:
Net change in unrealized 225,688 (555,569)
Increase in operating assets:
Interest receivable (Morgan Stanley DW) (10,043) (55,464)
Increase (decrease) in operating liabilities:
Accrued brokerage fees (Morgan Stanley DW) 54,093 55,245
Accrued management fees 23,518 24,020
Accrued incentive fees (32,876) 32,876
---------- ----------
Net cash provided by operating activities 822,885 809,652
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Initial offering -- 6,331,543
Offering of Units 14,788,904 10,381,803
(Increase) decrease in subscriptions receivable 378,187 (3,054,150)
Increase (decrease) in redemptions payable (2,113,284) 2,237,351
Redemptions of Units (462,586) (2,314,658)
---------- ----------
Net cash provided by financing activities 12,591,221 13,581,889
---------- ----------
Net increase in cash 13,414,106 14,391,541
Balance at beginning of period 14,391,541 --
---------- ----------
Balance at end of period 27,805,647 14,391,541
========== ==========
The accompanying notes are an integral part of these financial statements.
S-103
MORGAN STANLEY DEAN WITTER SPECTRUM COMMODITY L.P.
(FORMERLY, MORGAN STANLEY TANGIBLE ASSET FUND L.P.)
STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM
FOR THE SIX MONTHS FOR THE YEARS JANUARY 2, 1998
ENDED JUNE 30, ENDED DECEMBER 31, (COMMENCEMENT OF
------------------------- -------------------------- OPERATIONS) TO
2001 2000 2000 1999 DECEMBER 31, 1998
----------- ----------- ----------- ----------- -------------------
$ $ $ $ $
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income (loss) (3,545,648) 166,040 622,362 3,375,789 (13,543,631)
Noncash item included in net
income (loss):
Net change in unrealized 537,297 889,124 567,711 (1,178,071) 635,643
(Increase) decrease in operating
assets:
Interest receivable (Morgan
Stanley DW and Morgan
Stanley) 47,453 (9,407) (12,936) 2,530 (78,722)
Increase (decrease) in operating
liabilities:
Accrued brokerage fees (Morgan
Stanley DW, Morgan Stanley
and Morgan Stanley
International) (16,062) 13,155 6,801 (10,395) 81,222
Accrued management fees
(Morgan Stanley Commodities
Management) (8,729) (2,869) (6,322) (7,121) 55,632
Service fees payable (Demeter) -- (19,404) (19,404) (2,849) 22,253
---------- ---------- ---------- ---------- -----------
Net cash provided by (used for)
operating activities (2,985,689) 1,036,639 1,158,212 2,179,883 (12,827,603)
---------- ---------- ---------- ---------- -----------
CASH FLOWS FROM FINANCING
ACTIVITIES
Initial Offering -- -- -- -- 25,736,868
Offering of Units 819,340 803,735 2,115,964 -- 15,928,355
(Increase) decrease in
subscriptions receivable 62,983 (280,364) (215,897) -- --
Increase (decrease) in
redemptions payable (233,204) (38,638) 220,378 (626,002) 895,547
Redemptions of Units (2,222,165) (2,841,387) (6,178,815) (4,643,635) (3,213,276)
---------- ---------- ---------- ---------- -----------
Net cash provided by (used for)
financing activities (1,573,046) (2,356,654) (4,058,370) (5,269,637) 39,347,494
---------- ---------- ---------- ---------- -----------
Net increase (decrease) in cash (4,558,735) (1,320,015) (2,900,158) (3,089,754) 26,519,891
Balance at beginning of period 20,529,979 23,430,137 23,430,137 26,519,891 --
---------- ---------- ---------- ---------- -----------
Balance at end of period 15,971,244 22,110,122 20,529,979 23,430,137 26,519,891
========== ========== ========== ========== ===========
The accompanying notes are an integral part of these financial statements.
S-104
MORGAN STANLEY DEAN WITTER SPECTRUM SERIES
NOTES TO FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO 2001 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION--Morgan Stanley Dean Witter Spectrum Commodity L.P. ("Spectrum
Commodity"), Morgan Stanley Dean Witter Spectrum Currency L.P. ("Spectrum
Currency"), Morgan Stanley Dean Witter Spectrum Global Balanced L.P. (formerly
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
Strategic L.P.) ("Spectrum Strategic") and Morgan Stanley Dean Witter Spectrum
Technical L.P. (formerly known as Dean Witter Spectrum Technical L.P.)
("Spectrum Technical"), (individually, a "Partnership," or collectively, the
"Partnerships"), are limited partnerships organized to engage 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 (collectively, "futures interests").
The general partner for each Partnership is Demeter Management Corporation
("Demeter"). The non-clearing commodity broker is Morgan Stanley DW Inc.
("Morgan Stanley DW"). Morgan Stanley & Co., Inc. ("Morgan Stanley") and Morgan
Stanley & Co. International Limited ("Morgan Stanley International") provide
clearing and execution services. Prior to October 2000, Carr Futures Inc.
("Carr") provided clearing and execution services to Spectrum Global Balanced,
Spectrum Select, Spectrum Strategic and Spectrum Technical. Morgan Stanley
Commodities Management, Inc. ("Morgan Stanley Commodities Management") is the
trading advisor to Spectrum Commodity. Demeter, Morgan Stanley DW, Morgan
Stanley, Morgan Stanley International and Morgan Stanley Commodities Management
are wholly-owned subsidiaries of Morgan Stanley Dean Witter & Co. ("MSDW").
Spectrum Commodity became one of the Spectrum Series of funds effective
March 6, 2000.
Spectrum Currency commenced trading as of July 3, 2000.
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.
Effective February 19, 1998, Morgan Stanley, Dean Witter, Discover & Co. changed
its corporate name to Morgan Stanley Dean Witter & Co.
Effective April 2, 2001, Dean Witter Reynolds Inc. changed its name to Morgan
Stanley DW Inc.
Effective September 28, 2001, Morgan Stanley Dean Witter Commodities Management,
Inc. changed its name to Morgan Stanley Commodities Management Inc.
Effective November 1, 2001, Morgan Stanley Dean Witter Spectrum Select L.P.
changed its name to Morgan Stanley Spectrum Select L.P.
Effective November 1, 2001, Morgan Stanley Dean Witter Spectrum Technical L.P.
changed its name to Morgan Stanley Spectrum Technical L.P.
Effective November 1, 2001, Morgan Stanley Dean Witter Spectrum Strategic L.P.
changed its name to Morgan Stanley Spectrum Strategic L.P.
Effective November 1, 2001, Morgan Stanley Dean Witter Spectrum Global
Balanced L.P. changed its name to Morgan Stanley Spectrum Global Balanced L.P.
S-105
Effective November 1, 2001, Morgan Stanley Dean Witter Spectrum Currency L.P.
changed its name to Morgan Stanley Spectrum Currency L.P.
Effective November 1, 2001, Morgan Stanley Dean Witter Spectrum Commodity L.P.
changed its name to Morgan Stanley Spectrum Commodity L.P.
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
accounting principles generally accepted in the United States of America, which
require management to make estimates and assumptions that affect the reported
amounts in the financial statements and related disclosures. Management believes
that the estimates 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 profits
(losses) on open contracts from one period to the next in the statements of
operations. Monthly, Morgan Stanley DW 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
Technical, Spectrum Strategic, Spectrum Currency and Spectrum Commodity, 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 Morgan Stanley DW, Morgan Stanley
and Morgan Stanley International 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 Morgan Stanley and Morgan Stanley International acting as their
commodity brokers. Pursuant to brokerage agreements with Morgan Stanley and
Morgan Stanley International, 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 Morgan Stanley, the sole counterparty on such
contracts. The Partnerships have consistently applied their right to offset.
BROKERAGE AND RELATED TRANSACTION FEES AND COSTS--The brokerage fee for Spectrum
Global Balanced, Spectrum Currency and Spectrum Commodity is accrued at a flat
monthly rate of 1/12 of 4.6% (a 4.6% annual rate) of Net Assets as of the first
day of each month. Prior to April 1, 2000, brokerage fees for Spectrum Commodity
were accrued at a monthly rate of 1/12 of 3.65% of Net Assets (a 3.65% annual
rate) as of the first day of each month. Prior to June 1, 1998, brokerage fees
for Spectrum Global Balanced were accrued at 49/120 of 1% of Net Assets (a 4.9%
annual rate) as of the first day of each month.
Brokerage fees for Spectrum Select, Spectrum Technical and Spectrum Strategic
are accrued at a flat 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 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
S-106
7.8% maximum annual rate) of Spectrum Select's month-end Net Assets. Prior to
June 1, 1998, brokerage fees for Spectrum Technical and Spectrum Strategic were
accrued at 51/80 of 1% of the Net Assets (a 7.65% annual rate) 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.
SERVICE FEE--Prior to April 1, 2000, Spectrum Commodity paid Demeter a monthly
fee equal to 1/12 of 1% per month (a 1% annual rate) of the Partnership's Net
Assets as of the first day of each month.
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 Morgan Stanley DW 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.
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.
Morgan Stanley DW 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 Morgan Stanley DW.
Redemptions 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 Partnerships, and
the end of each month thereafter, Limited Partners may exchange their investment
among the Partnerships (subject to certain restrictions outlined in the Limited
Partnership Agreement) without paying additional charges.
DISSOLUTION OF THE PARTNERSHIP--Spectrum Commodity will terminate on
December 31, 2027, Spectrum Technical, Spectrum Strategic, Spectrum Global
Balanced and Spectrum Currency 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
The Partnerships pay brokerage fees to Morgan Stanley DW as described in Note 1.
Each Partnership's cash is on deposit with Morgan Stanley DW, Morgan Stanley and
Morgan Stanley International in futures interests trading accounts to meet
margin requirements as needed. Morgan Stanley DW pays interest on
S-107
these funds as described in Note 1. Spectrum Commodity paid Demeter a service
fee prior to April 2000 and pays management fees, and when applicable, incentive
fees to Morgan Stanley Commodities Management.
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 Select L.P.
EMC Capital Management, Inc.
Northfield Trading L.P.
Rabar Market Research, Inc.
Sunrise Capital Management, Inc.
Effective May 1, 2001, Northfield Trading L.P. was added as the Partnership's
fourth trading advisor.
Morgan Stanley Dean Witter Spectrum Technical L.P.
Campbell & Company, Inc. ("Campbell")
Chesapeake Capital Corporation ("Chesapeake")
John W. Henry & Company, Inc.
Morgan Stanley Dean Witter Spectrum Commodity L.P.
Morgan Stanley Commodities Management Inc.
Morgan Stanley Dean Witter Spectrum Strategic L.P.
Allied Irish Capital Management, Ltd. ("AICM")
Blenheim Capital Management, L.L.C. ("Blenheim")
Eclipse Capital Management, Inc. ("Eclipse")
Effective April 30, 1998, A. Gary Shilling & Co., Inc. ("Shilling") was
terminated as an advisor to the Partnership. The assets of the Partnership
previously allocated to Shilling were allocated to Stonebrook Capital Management
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.
Effective April 14, 2000, Willowbridge Associates Inc. ("Willowbridge") was
terminated as an advisor to the Partnership. The assets of the Partnership
previously allocated to Willowbridge were allocated to Eclipse, effective
June 26, 2000.
Morgan Stanley Dean Witter Spectrum Global Balanced L.P.
RXR, Inc.
Morgan Stanley Dean Witter Spectrum Currency L.P.
John W. Henry & Company, Inc. ("JWH")
Sunrise Capital Partners, LLC ("Sunrise")
Compensation to the trading advisors by the Partnerships consists of a
management fee and an incentive fee as follows:
MANAGEMENT FEE--The management fee for Spectrum Select 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). 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 agreement, as of the last day of each
month (a 3% annual rate).
The management fee for Spectrum Technical is accrued at the rate of 1/12 of 2%
of Net Assets allocated to JWH on the first day of each month, 1/12 of 3% of Net
Assets allocated to Campbell on the first day of each
S-108
month and 1/3 of 1% of Net Assets allocated to Chesapeake on the first day of
each month (annual rates of 2%, 3% and 4% respectively). Prior to December 1,
2000, the management fee was accrued to each trading advisor at the rate of 1/3
of 1% of Net Assets on the first day of each month (a 4% annual rate).
The management fee for Spectrum Strategic is accrued at the rate of 1/12 of 4%
per month of Net Assets allocated to Blenheim on the first day of each month,
and 1/12 of 3% per month of Net Assets allocated to AICM and Eclipse on the
first day of each month (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 Blenheim and Willowbridge on the first day of each month (a 4%
annual rate).
The management fee for Spectrum Global Balanced 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).
The management fee for Spectrum Currency is accrued at the rate of 1/12 of 2% of
Net Assets on the first day of each month (a 2% annual rate). Prior to December
1, 2000, the management fee was accrued at the rate of 1/3 of 1% of Net Assets
allocated to JWH on the first day of each month and 1/4 of 1% of Net Assets
allocated to Sunrise on the first day of each month (annual rates of 4% and 3%,
respectively).
The management fee for Spectrum Commodity is accrued at the rate of 5/24 of 1%
of Net Assets on the first day of each month (a 2.5% annual rate).
INCENTIVE FEE--Spectrum Select, Spectrum Strategic and Spectrum Global Balanced
each pay a monthly incentive fee equal to 15% of the trading profits experienced
with respect to each trading advisor's allocated Net Assets as of the end of
each calendar month. Prior to June 1, 1998, Spectrum Select paid a quarterly
incentive fee to each trading advisor equal to 17.5% of trading profits.
Spectrum Technical pays a monthly incentive fee equal to 20% of the trading
profits experienced with respect to the Net Assets allocated to Campbell and JWH
and 19% of trading profits experienced with respect to the Net Assets allocated
to Chesapeake as of the end of each calendar month. Prior to June 1, 1998,
Spectrum Technical paid an incentive fee equal to 15% of trading profits to
Chesapeake. Prior to December 1, 2000, Spectrum Technical paid an incentive fee
equal to 15% of trading profits to Campbell and JWH.
Spectrum Currency pays a monthly incentive fee equal to 20% of the trading
profits experienced with respect to each trading advisor's allocated Net Assets
as of the end of each month. Prior to December 1, 2000, Spectrum Currency paid a
monthly incentive fee equal to 15% of the trading profits.
Spectrum Commodity pays an annual incentive fee equal to 17.5% of Partnership
trading profits, as determined from the end of the last period in which an
incentive fee was earned. Prior to December 1, 2000, Spectrum Commodity paid an
annual incentive fee to MSCM equal to 20% of the trading profits.
Trading profits represent the amount by which profits from futures, forwards and
options trading exceed losses after brokerage and management fees are deducted.
Prior to June 1, 1998, trading profits for Spectrum Select represented the
amount by which profits from futures, forwards and options trading exceeded
losses, after brokerage commissions, management fees, administrative expenses
and transaction fees and costs were paid.
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 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. 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.
S-109
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standard ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities" effective for fiscal years beginning after
June 15, 2000, as amended by SFAS No. 137. The Partnership adopted the
provisions of SFAS No. 133 beginning with the fiscal year ended December 31,
1998. SFAS No. 133 superceded SFAS Nos. 119 and 105, which required the
disclosure of average aggregate fair values and contract/notional values,
respectively, of derivative financial instruments for an entity that carries its
assets at fair value. SFAS No. 133 was further amended by SFAS No. 138, which
clarifies issues surrounding interest rate risk, foreign currency denominations,
normal purchases and sales and net hedging. The application of SFAS No. 133, as
amended by SFAS No. 137, and SFAS No. 138 did not have a significant effect on
the Partnership's financial statements.
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.
Generally derivatives include futures, forwards, swaps or options contracts, and
other financial instruments with similar characteristics such as caps, floors
and collars.
The net unrealized gains (losses) on open contracts is reported as a component
of "Equity in futures interests trading accounts" on the statements of financial
condition and totaled at June 30, 2001, December 31, 2000 and 1999,
respectively, $7,609,170, $25,552,297 and $6,887,064 for Spectrum Select,
$6,762,061, $40,042,309 and $18,036,296 for Spectrum Technical, $230,331,
$1,986,132 and $9,563,813 for Spectrum Strategic, $(349,436), $3,317,644 and
$810,114 for Spectrum Global Balanced, and $(562,580), $(25,283) and $542,428
for Spectrum Commodity. For Spectrum Currency, the net realized gain totaled
$329,881 at June 30, 2001 and $555,569 at December 31, 2000.
For Spectrum Select, of the $7,609,170 net unrealized gain on open contracts at
June 30, 2001, $7,559,278 related to exchange-traded futures and futures-styled
options contracts and $49,892 related to off-exchange-traded forward currency
contracts. Of the $25,552,297 net unrealized gain on open contracts at
December 31, 2000, $23,901,575 related to exchange-traded futures and
futures-styled options contracts and $1,650,722 related to off-exchange-traded
forward currency contracts. 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.
For Spectrum Technical of the $6,762,061 net unrealized gain on open contracts
at June 30, 2001, $5,906,322 related to exchange-traded futures and
futures-styled options contracts and $855,739 related to off-exchange-traded
forward currency contracts. Of the $40,042,309 net unrealized gain on open
contracts at December 31, 2000, $37,170,209 related to exchange-traded futures
and futures-styled options contracts and $2,872,100 related to
off-exchange-traded forward currency contracts. Of the $18,036,296 net
unrealized gain on open contracts at December 31, 1999, $17,006,044 related to
exchange-traded futures and futures-styled options contracts and $1,030,252
related to off-exchange-traded forward currency contracts.
For Spectrum Strategic, the $230,331 net unrealized gain on open contracts at
June 30, 2001, the $1,986,132 net unrealized gain on open contracts at
December 31, 2000 and the $9,563,813 net unrealized gain on open contracts at
December 31, 1999 all related to exchange-traded futures and futures-styled
options contracts.
For Spectrum Global Balanced, of the $349,436 net unrealized loss on open
contracts at June 30, 2001, $312,670 related to exchange-traded futures
contracts and $36,766 related to off-exchange-traded forward currency contracts.
Of the $3,317,644 net unrealized gain on open contracts at December 31, 2000,
$3,374,178 related to exchange-traded futures contracts and $(56,534) related to
off-exchange-traded forward currency contracts. Of the $810,114 net unrealized
gain on open contracts at December 31, 1999, $669,640 related to exchange-traded
futures contracts and $140,474 related to off-exchange-traded forward currency
contracts.
S-110
For Spectrum Currency, the $329,881 net unrealized gain on open contracts at
June 30, 2001 and the $555,569 net unrealized gain on open contracts at
December 31, 2000 were related to off-exchange-traded forward currency
contracts.
For Spectrum Commodity, the $562,580 net unrealized loss on open contracts at
June 30, 2001, the $25,283 net unrealized loss on open contracts at
December 31, 2000 and the $542,428 net unrealized gain on open contracts at
December 31, 1999 all related to exchange-traded futures contracts.
Exchange-traded contracts and off-exchange-traded forward currency contracts
held by the Partnerships at June 2001 and December 2000 and 1999 mature as
follows:
2001 2000 1999
--------------- --------------- ---------------
SPECTRUM SELECT
Exchange-Traded Contracts June 2002 December 2001 December 2000
Off-Exchange-Traded Forward Currency Contracts September 2001 March 2001 March 2000
SPECTRUM TECHNICAL
Exchange-Traded Contracts June 2002 December 2001 December 2000
Off-Exchange-Traded Forward Currency Contracts September 2001 March 2001 March 2000
SPECTRUM STRATEGIC
Exchange-Traded Contracts September 2003 December 2001 December 2001
SPECTRUM GLOBAL BALANCED
Exchange-Traded Contracts December 2001 June 2001 June 2000
Off-Exchange-Traded Forward Currency Contracts September 2001 March 2001 March 2000
SPECTRUM CURRENCY
Off-Exchange-Traded Forward Currency Contracts September 2001 March 2001 --
SPECTRUM COMMODITY
Exchange-Traded Contracts December 2001 April 2001 April 2000
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 Morgan Stanley DW, Morgan Stanley
and Morgan Stanley International act as the futures commission merchants or the
counterparties, with respect to most of the Partnerships' 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, Morgan Stanley and Morgan Stanley International, 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 Commission 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
June 30, 2001 and December 31, 2000 and 1999 respectively, $228,707,855,
$220,456,937 and $214,186,052 for Spectrum Select, $260,525,368, $268,672,299
and $268,449,799 for Spectrum Technical, $69,395,536, $75,431,959 and
$107,372,141 for Spectrum Strategic, $55,960,253, $55,788,482 and $57,574,561
for Spectrum Global Balanced, and $15,408,664, $20,504,696 and $23,972,565 for
Spectrum Commodity. For Spectrum Currency, the amount totaled $27,805,647 at
June 30, 2001 and $14,391,541 at December 31, 2000. With respect to the
Partnerships' off-exchange-traded forward currency contracts, there are no daily
settlements of variations in value nor is there any requirement that an amount
equal to the net unrealized gain on open forward contracts be segregated. With
respect to those off-exchange-traded forward currency contracts, the
Partnerships are at risk to the ability of Morgan Stanley, the sole counterparty
on all of such contracts, to perform. Each Partnership has a netting agreement
with Morgan Stanley. These agreements, which seek to reduce both the
Partnerships' and Morgan Stanley's exposure on off-exchange-traded forward
currency contracts, should materially decrease the Partnerships' credit risk in
the event of Morgan Stanley's bankruptcy or insolvency.
S-111
5. LEGAL MATTERS
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.
In April 2001, the Appellate Division of New York State dismissed the class
action. Because plaintiffs did not exercise their right to appeal any further,
this dismissal constituted a final resolution of the case.
On September 18 and 20, 1996 purported class actions were filed in the Supreme
Court of the State of New York, New York County, on behalf of all purchasers of
interests in limited partnership commodity pools sold by Morgan Stanley DW.
Named defendants include Morgan Stanley DW, 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 and certain trading
advisors to those pools. 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 sought 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. However, on March 3, 2000 plaintiffs appealed the trial
court's dismissal of their case.
S-112
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Demeter Management Corporation
We have audited the accompanying statements of financial condition of Demeter
Management Corporation (the "Company"), a wholly-owned subsidiary of Morgan
Stanley Dean Witter & Co., as of November 30, 2000 and 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these statements of financial
condition based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the statements of
financial condition are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the statements of financial condition. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall statement of financial condition presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, such statements of financial condition present fairly, in all
material respects, the financial position of Demeter Management Corporation at
November 30, 2000 and 1999 in conformity with accounting principles generally
accepted in the United States of America.
/s/ Deloitte & Touche LLP
New York, New York
January 12, 2001
S-113
DEMETER MANAGEMENT CORPORATION
(WHOLLY-OWNED SUBSIDIARY OF MORGAN STANLEY DEAN WITTER & CO.)
STATEMENTS OF FINANCIAL CONDITION
AT AUGUST 31, 2001 (UNAUDITED) AND
NOVEMBER 30, 2000 AND 1999
AUGUST 31, NOVEMBER 30,
------------ ---------------------------
2001 2000 1999
------------ ------------ ------------
$ $ $
(UNAUDITED)
ASSETS
Investments in affiliated partnerships 24,259,470 22,094,121 17,825,316
Income taxes receivable 1,492,093 578,533 803,778
Receivable from affiliated partnerships 692 723 20,428
------------ ------------ ------------
Total Assets 25,752,255 22,673,377 18,649,522
============ ============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES:
Payable to Parent 18,981,307 17,082,188 13,033,208
Accrued expenses 15,600 451 29,293
------------ ------------ ------------
Total Liabilities 18,996,907 17,082,639 13,062,501
------------ ------------ ------------
STOCKHOLDER'S EQUITY:
Common stock, no par value:
Authorized 1,000 shares; outstanding 100 shares at
stated value of $500 per share 50,000 50,000 50,000
Additional paid-in capital 123,170,000 123,170,000 123,170,000
Retained earnings 6,605,348 5,440,738 5,437,021
------------ ------------ ------------
129,825,348 128,660,738 128,657,021
Less: Notes receivable from Parent (123,070,000) (123,070,000) (123,070,000)
------------ ------------ ------------
Total Stockholder's Equity 6,755,348 5,590,738 5,587,021
------------ ------------ ------------
Total Liabilities and Stockholder's Equity 25,752,255 22,673,377 18,649,522
============ ============ ============
The accompanying notes are an integral part of these statements of financial
condition.
S-114
DEMETER MANAGEMENT CORPORATION
(WHOLLY-OWNED SUBSIDIARY OF MORGAN STANLEY DEAN WITTER & CO.)
NOTES TO STATEMENTS OF FINANCIAL CONDITION
(INFORMATION WITH RESPECT TO 2001 IS UNAUDITED)
FOR THE PERIOD FROM DECEMBER 1, 2000 TO
AUGUST 31, 2001 (UNAUDITED) AND FOR THE YEARS ENDED NOVEMBER 30, 2000 AND 1999
1. INTRODUCTION AND BASIS OF PRESENTATION
Demeter Management Corporation ("Demeter") is a wholly-owned subsidiary of
Morgan Stanley Dean Witter & Co. ("MSDW" or "Parent").
Demeter manages the following commodity pools as sole general partner: Dean
Witter Cornerstone Fund II, Dean Witter Cornerstone Fund III, Dean Witter
Cornerstone Fund IV, Columbia Futures Fund, Dean Witter Diversified Futures Fund
Limited Partnership, Dean Witter Diversified Futures Fund II L.P., Dean Witter
Diversified Futures Fund III L.P., Dean Witter Multi-Market Portfolio L.P., Dean
Witter Principal Plus Fund L.P., Dean Witter Principal Plus Fund
Management L.P., Dean Witter Portfolio Strategy Fund L.P., Dean Witter Global
Perspective Portfolio L.P., Dean Witter World Currency Fund L.P., Morgan Stanley
Dean Witter Spectrum Currency L.P. ("Spectrum Currency"), Morgan Stanley Dean
Witter Spectrum Commodity L.P. (formerly, Morgan Stanley Tangible Asset
Fund L.P.) ("Spectrum Commodity"), Morgan Stanley Dean Witter Spectrum Global
Balanced L.P. (formerly, Dean Witter Spectrum Global Balanced L.P.), Morgan
Stanley Dean Witter Spectrum Strategic L.P. (formerly, Dean Witter Spectrum
Strategic L.P.), Morgan Stanley Dean Witter Spectrum Technical L.P. (formerly,
Dean Witter Spectrum Technical L.P.), Morgan Stanley Dean Witter Spectrum
Select L.P. (formerly, Dean Witter Spectrum Select L.P.), Morgan Stanley Dean
Witter/Chesapeake L.P. (formerly, DWR Chesapeake L.P.), Morgan Stanley Dean
Witter/JWH Futures Fund L.P. (formerly, DWR/JWH Futures Fund L.P.), Morgan
Stanley Dean Witter/Market Street Futures Fund L.P. (formerly, DWR/Market Street
Futures Fund L.P.), Morgan Stanley Dean Witter Charter DWFCM L.P. (formerly,
DWFCM International Access Fund L.P.) ("Charter DWFCM"), Morgan Stanley Dean
Witter Charter Graham L.P. ("Charter Graham"), Morgan Stanley Dean Witter
Charter Millburn L.P. ("Charter Millburn"), Morgan Stanley Dean Witter Charter
Welton L.P. ("Charter Welton"), Morgan Stanley Dean Witter Strategic
Alternatives Fund L.P. ("SAFLP") and Morgan Stanley Dean Witter/Mark J. Walsh &
Company, L.P.
Each of the commodity pools is a limited partnership organized to engage in the
speculative trading of commodity futures contracts, forward contracts on foreign
currencies and other commodity interests.
The financial statements are prepared in accordance with accounting principles
generally accepted in the United States of America, which require management to
make estimates and assumptions that affect the reported amounts in the financial
statements and related disclosures. Management believes that the estimates
utilized in the preparation of the financial statements are prudent and
reasonable. Actual results could differ from these estimates.
On July 15, 1998, Demeter entered into a limited partnership agreement as
general partner in the Morgan Stanley Dean Witter Charter Series. The three
partnerships that comprise the Charter Series are Charter Graham, Charter
Millburn and Charter Welton. On July 29, 1998, the Charter Series individually
registered with the SEC 3,000,000 units of Charter Graham, 3,000,000 units of
Charter Millburn and 3,000,000 units of Charter Welton to be offered to
investors in a continuing public offering. Charter Graham, Charter Millburn and
Charter Welton each commenced trading on March 1, 1999.
On February 3, 1999, DWR Chesapeake L.P. changed its name to Morgan Stanley Dean
Witter/Chesapeake L.P.
On February 3, 1999, DWR/JWH Futures Fund L.P. changed its name to Morgan
Stanley Dean Witter/JWH Futures Fund L.P.
On April 30, 1999, Dean Witter Spectrum Global Balanced L.P. changed its name to
Morgan Stanley Dean Witter Spectrum Global Balanced L.P.
S-115
DEMETER MANAGEMENT CORPORATION
(WHOLLY-OWNED SUBSIDIARY OF MORGAN STANLEY DEAN WITTER & CO.)
NOTES TO STATEMENTS OF FINANCIAL CONDITION (CONTINUED)
(INFORMATION WITH RESPECT TO 2001 IS UNAUDITED)
On April 30, 1999, Dean Witter Spectrum Select L.P. changed its name to Morgan
Stanley Dean Witter Spectrum Select L.P.
On April 30, 1999, Dean Witter Spectrum Strategic L.P. changed its name to
Morgan Stanley Dean Witter Spectrum Strategic L.P.
On April 30, 1999, Dean Witter Spectrum Technical L.P. changed its name to
Morgan Stanley Dean Witter Spectrum Technical L.P.
On May 4, 1999, Demeter entered into a limited partnership agreement as general
partner in Morgan Stanley Dean Witter Strategic Alternatives L.P. ("SAFLP").
SAFLP is the domestic vehicle for investment of client assets. Morgan Stanley
Dean Witter Strategic Alternatives Fund ("SAFFI"), is an umbrella unit trust,
which is the offshore investment vehicle for client assets. Together SAFLP and
SAFFI are members of and invest 100% of their proceeds into Morgan Stanley Dean
Witter Strategic Alternatives L.L.C. which is the investment vehicle organized
to engage in the speculative trading of futures interests which commenced
trading on May 4, 2000.
On July 6, 1999, DWR/Market Street Futures Fund L.P. changed its name to Morgan
Stanley Dean Witter/ Market Street Futures Fund L.P.
On March 7, 2000, Morgan Stanley Tangible Asset Fund L.P. changed its name to
Morgan Stanley Dean Witter Spectrum Commodity L.P. Spectrum Commodity registered
7,000,000 Units on March 6, 2000 and became open to new investment on a
continuous basis as of that date. Effective March 6, 2000, Spectrum Commodity
became part of the Morgan Stanley Dean Witter Spectrum Series of Funds.
On March 6, 2000, Demeter entered into a limited partnership agreement as
general partner in Morgan Stanley Dean Witter Spectrum Currency L.P. and
registered 12,000,000 Units to be offered to investors in a continuing public
offering. Spectrum Currency commenced trading on July 5, 2000.
On March 27, 2000, the Charter Series individually registered additional Units
with the SEC; 6,000,000 Units of Charter Graham, 6,000,000 Units of Charter
Millburn and 6,000,000 Units of Charter Welton to be offered to investors in a
continuing public offering.
Effective with the April 30, 2000 monthly closing, the exchange privilege among
the Cornerstone Funds (a "Series Exchange") was terminated.
On June 7, 2000, Demeter entered into a limited partnership agreement as general
partner in Morgan Stanley Dean Witter/Mark J. Walsh & Company, L.P. which
commenced trading on May 1, 2001.
On October 11, 2000, DWFCM International Access Fund L.P. changed its name to
Morgan Stanley Dean Witter Charter DWFCM L.P. ("Charter DWFCM"). Charter DWFCM
registered 1,750,000 Units on October 11, 2000 and became open to new investment
on a continuous basis starting November 1, 2000. Effective December 1, 2000,
Charter DWFCM became part of the Morgan Stanley Dean Witter Charter Series.
Effective April 2, 2001, Dean Witter Reynolds Inc. changed its name to Morgan
Stanley DW Inc. ("Morgan Stanley DW").
Effective September 28, 2001, Morgan Stanley Dean Witter Commodities Management,
Inc. changed its name to Morgan Stanley Commodities Management Inc.
Effective November 1, 2001, Morgan Stanley Dean Witter Spectrum Select L.P.
changed its name to Morgan Stanley Spectrum Select L.P.
S-116
DEMETER MANAGEMENT CORPORATION
(WHOLLY-OWNED SUBSIDIARY OF MORGAN STANLEY DEAN WITTER & CO.)
NOTES TO STATEMENTS OF FINANCIAL CONDITION (CONTINUED)
(INFORMATION WITH RESPECT TO 2001 IS UNAUDITED)
Effective November 1, 2001, Morgan Stanley Dean Witter Spectrum Technical L.P.
changed its name to Morgan Stanley Spectrum Technical L.P.
Effective November 1, 2001, Morgan Stanley Dean Witter Spectrum Strategic L.P.
changed its name to Morgan Stanley Spectrum Strategic L.P.
Effective November 1, 2001, Morgan Stanley Dean Witter Spectrum Global
Balanced L.P. changed its name to Morgan Stanley Spectrum Global Balanced L.P.
Effective November 1, 2001, Morgan Stanley Dean Witter Spectrum Currency L.P.
changed its name to Morgan Stanley Spectrum Currency L.P.
Effective November 1, 2001, Morgan Stanley Dean Witter Spectrum Commodity L.P.
changed its name to Morgan Stanley Spectrum Commodity L.P.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INCOME TAXES The results of operations of Demeter are included in the
consolidated federal income tax return of MSDW. Income taxes are computed on a
separate company basis and are due to MSDW.
3. INVESTMENTS IN AFFILIATED PARTNERSHIPS
The limited partnership agreement of each commodity pool requires Demeter to
maintain a general partnership interest in each partnership, generally in an
amount equal to, but not less than 1 percent of the aggregate capital
contributed to the partnership by all partners.
The total assets, liabilities and partners' capital of all the funds managed by
Demeter at August 31, 2001, November 30, 2000 and 1999 were as follows:
AUGUST 31, NOVEMBER 30,
------------- -----------------------------
2001 2000 1999
------------- ------------- -------------
$ $ $
(UNAUDITED)
Total assets................................... 1,358,130,736 1,244,513,096 1,355,594,817
Total liabilities.............................. 24,152,599 27,380,688 28,406,267
Total partners' capital........................ 1,333,978,137 1,217,132,408 1,327,188,550
Demeter's investments in such limited partnerships are carried at market value.
4. PAYABLE TO PARENT
The Payable to Parent is primarily for amounts due for the purchase of
partnership investments, income tax payments made by MSDW on behalf of Demeter
and the cumulative results of operations.
5. NET WORTH REQUIREMENT
At August 31, 2001, November 30, 2000 and 1999, Demeter held non-interest
bearing notes from its Parent that were payable on demand. These notes were
received in connection with additional capital contributions aggregating
$123,070,000 at November 30, 2000 and 1999.
The limited partnership agreement of each commodity pool requires Demeter to
maintain its net worth at an amount not less than 10% of the capital
contributions by all partners in each pool in which Demeter is the general
partner (15% if the capital contributions to any partnership are less than
$2,500,000, or $250,000, whichever is less).
S-117
DEMETER MANAGEMENT CORPORATION
(WHOLLY-OWNED SUBSIDIARY OF MORGAN STANLEY DEAN WITTER & CO.)
NOTES TO STATEMENTS OF FINANCIAL CONDITION (CONTINUED)
(INFORMATION WITH RESPECT TO 2001 IS UNAUDITED)
In calculating this requirement, Demeter's interests in each limited partnership
and any amounts receivable from or payable to such partnerships are excluded
from net worth. Notes receivable from Parent are included in net worth for
purposes of this calculation.
6. LITIGATION
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.
In April 2001, the Appellate Division of New York State dismissed the class
action. Because plaintiffs did not exercise their right to appeal any further,
this dismissal constituted a final resolution of the case.
On September 18 and 20, 1996, purported class actions were filed in the Supreme
Court of the State of New York, New York County, on behalf of all purchasers of
interests in limited partnership commodity pools sold by Dean Witter Reynolds
Inc. ("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 and certain trading
advisors to those pools. 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 sought 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. However, on March 3, 2000 plaintiffs appealed the trial
court's dismissal of their case.
S-118
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION
NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE MATTERS DESCRIBED
HEREIN, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER BY ANY PERSON WITHIN ANY JURISDICTION IN WHICH SUCH OFFER IS NOT
AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER IS NOT QUALIFIED TO DO SO,
OR TO ANY PERSON TO WHOM SUCH OFFER WOULD BE UNLAWFUL. THE DELIVERY OF THIS
PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF ITS ISSUE.
UNTIL 90 DAYS FROM THE DATE OF THIS PROSPECTUS, ALL DEALERS THAT EFFECT
TRANSACTIONS IN THESE SECURITIES, OR NOT PARTICIPATING IN THIS OFFERING, MAY BE
REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS OBLIGATION
TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
MORGAN STANLEY SPECTRUM SELECT L.P.
MORGAN STANLEY SPECTRUM TECHNICAL L.P.
MORGAN STANLEY SPECTRUM STRATEGIC L.P.
MORGAN STANLEY SPECTRUM GLOBAL BALANCED L.P.
MORGAN STANLEY SPECTRUM CURRENCY L.P.
MORGAN STANLEY SPECTRUM COMMODITY L.P.
SUPPLEMENT TO PROSPECTUS DATED MARCH 23, 2001
The prospectus dated March 23, 2001 is supplemented by a supplement dated
November - , 2001. You should read the supplement together with the
prospectus.
November - , 2001
MORGAN STANLEY DEAN WITTER SPECTRUM SERIES
NET
MAXIMUM ASSET
AVAILABLE VALUE
UNITS PER UNIT
-------------- ---------
$
MORGAN STANLEY DEAN WITTER SPECTRUM SELECT L.P. ............ 6,111,580.368 23.57
MORGAN STANLEY DEAN WITTER SPECTRUM TECHNICAL L.P. ......... 8,328,397.160 16.08
MORGAN STANLEY DEAN WITTER SPECTRUM STRATEGIC L.P. ......... 7,884,728.947 10.61
MORGAN STANLEY DEAN WITTER SPECTRUM GLOBAL BALANCED L.P. ... 5,851,746.747 16.26
MORGAN STANLEY DEAN WITTER SPECTRUM CURRENCY L.P. .......... 10,539,968.043 11.17
MORGAN STANLEY DEAN WITTER SPECTRUM COMMODITY L.P. ......... 6,722,392.938 7.85
Each partnership trades futures, forwards and options contracts pursuant to
trading programs employed by the trading advisors for that partnership. You may
purchase units as of the last day of each month. The price you pay for each unit
will equal 100% of the net asset value per unit on the date of purchase. The
total number of units available and the net asset value per unit for each
partnership as of December 31, 2000 is set forth above.
Minimum Initial Purchase...................... $5,000 or $2,000 (for IRAs only)
in one or more partnerships
Minimum Per Partnership....................... $1,000
Minimum Purchase for Existing Investors....... $500
Before you invest you will be required to represent and warrant that you meet
applicable state minimum financial suitability standards. You are encouraged to
discuss your investment with financial, legal and tax advisors before you
invest.
Your subscription funds will be held in escrow at The Chase Manhattan Bank, New
York, New York until they are transferred to the partnership whose units you
have purchased.
THESE ARE SPECULATIVE SECURITIES. YOU COULD LOSE ALL OR SUBSTANTIALLY ALL OF
YOUR INVESTMENT IN THE PARTNERSHIPS. READ THIS PROSPECTUS CAREFULLY AND CONSIDER
THE "RISK FACTORS" SECTION BEGINNING ON PAGE 9. IN PARTICULAR, YOU SHOULD BE
AWARE THAT:
- Each partnership's futures, forwards and options trading is speculative and
trading performance has been, and is expected to be, volatile.
- Each partnership's trading is highly leveraged, which accentuates the
trading profit or trading loss on a trade.
- Past performance is not necessarily indicative of future results.
- You may not redeem your units until you have been an investor for at least
six months.
- If you redeem units within 24 months after they are purchased, you will pay
a redemption charge except in defined circumstances.
- Units will not be listed on an exchange and no other secondary market will
exist for the units.
- The fixed expenses of each partnership will require the partnership to earn
annual net trading profits, after taking into account estimated interest
income, of the following percentages of average annual net assets:
Without a With a 2%
Redemption Charge Redemption Charge
----------------- -----------------
% %
Spectrum Select............................ 6.25 8.29
Spectrum Technical......................... 6.00 8.04
Spectrum Strategic......................... 6.25 8.29
Spectrum Global Balanced................... 0.85 2.89
Spectrum Currency.......................... 2.60 4.64
Spectrum Commodity......................... 3.10 5.14
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE COMMODITY FUTURES TRADING COMMISSION HAS NOT PASSED UPON THE MERITS OF
PARTICIPATING IN ANY ONE OF THESE POOLS NOR HAS THE COMMISSION PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS DISCLOSURE DOCUMENT.
MORGAN STANLEY DW INC.
March 23, 2001
COMMODITY FUTURES TRADING COMMISSION
RISK DISCLOSURE STATEMENT
YOU SHOULD CAREFULLY CONSIDER WHETHER YOUR FINANCIAL CONDITION PERMITS YOU
TO PARTICIPATE IN A COMMODITY POOL. IN SO DOING, YOU SHOULD BE AWARE THAT
FUTURES AND OPTIONS TRADING CAN QUICKLY LEAD TO LARGE LOSSES AS WELL AS GAINS.
SUCH TRADING LOSSES CAN SHARPLY REDUCE THE NET ASSET VALUE OF THE POOL AND
CONSEQUENTLY THE VALUE OF YOUR INTEREST IN THE POOL. IN ADDITION, RESTRICTIONS
ON REDEMPTIONS MAY AFFECT YOUR ABILITY TO WITHDRAW YOUR PARTICIPATION IN THE
POOL.
FURTHER, COMMODITY POOLS MAY BE SUBJECT TO SUBSTANTIAL CHARGES FOR
MANAGEMENT, AND ADVISORY AND BROKERAGE FEES. IT MAY BE NECESSARY FOR THOSE POOLS
THAT ARE SUBJECT TO THESE CHARGES TO MAKE SUBSTANTIAL TRADING PROFITS TO AVOID
DEPLETION OR EXHAUSTION OF THEIR ASSETS. THIS DISCLOSURE DOCUMENT CONTAINS A
COMPLETE DESCRIPTION OF EACH EXPENSE TO BE CHARGED TO EACH POOL BEGINNING AT
PAGE 19 AND A STATEMENT OF THE PERCENTAGE RETURN NECESSARY TO BREAK EVEN, THAT
IS TO RECOVER THE AMOUNT OF YOUR INITIAL INVESTMENT, AT PAGE 7.
THIS BRIEF STATEMENT CANNOT DISCLOSE ALL THE RISKS AND OTHER FACTORS
NECESSARY TO EVALUATE YOUR PARTICIPATION IN THESE COMMODITY POOLS. THEREFORE,
BEFORE YOU DECIDE TO PARTICIPATE IN ANY OF THESE COMMODITY POOLS, YOU SHOULD
CAREFULLY STUDY THIS DISCLOSURE DOCUMENT, INCLUDING A DESCRIPTION OF THE
PRINCIPAL RISK FACTORS OF THIS INVESTMENT, BEGINNING AT PAGE 9.
YOU SHOULD ALSO BE AWARE THAT EACH OF THESE COMMODITY POOLS MAY TRADE
FOREIGN FUTURES OR OPTIONS CONTRACTS. TRANSACTIONS ON MARKETS LOCATED OUTSIDE
THE UNITED STATES, INCLUDING MARKETS FORMALLY LINKED TO A UNITED STATES MARKET,
MAY BE SUBJECT TO REGULATIONS WHICH OFFER DIFFERENT OR DIMINISHED PROTECTION TO
THE POOL AND ITS PARTICIPANTS. FURTHER, UNITED STATES REGULATORY AUTHORITIES MAY
BE UNABLE TO COMPEL THE ENFORCEMENT OF THE RULES OF REGULATORY AUTHORITIES OR
MARKETS IN NON-UNITED STATES JURISDICTIONS WHERE TRANSACTIONS FOR EACH POOL MAY
BE EFFECTED.
-------------------
TABLE OF CONTENTS
PART ONE
DISCLOSURE DOCUMENT
PAGE
--------
Summary................................... 1
Risk Factors.............................. 9
Trading and Performance Risks........... 9
The partnerships' trading is
speculative and volatile............ 9
The partnerships' trading is highly
leveraged........................... 9
Options trading can be more volatile
than futures trading................ 9
You should not rely on the past
performance of a partnership in
deciding to purchase units.......... 10
Spectrum Commodity is subject to
greater risk of loss during periods
of low inflation.................... 10
Market illiquidity may cause less
favorable trade prices.............. 10
Trading on foreign exchanges presents
greater risks to each partnership
than trading on U.S. exchanges...... 10
The unregulated nature of the forwards
markets creates counterparty risks
that do not exist in futures trading
on exchanges........................ 11
The partnerships are subject to
speculative position limits......... 11
The partnerships could lose assets and
have their trading disrupted if a
commodity broker or others become
bankrupt............................ 12
Partnership and Offering Risks.......... 12
Each partnership incurs substantial
charges............................. 12
Incentive fees may be paid by a
partnership even though the
partnership sustains trading
losses.............................. 12
Restricted investment liquidity in the
units............................... 12
Each partnership's structure has
conflicts of interest............... 12
An investment in units may not
diversify an overall portfolio...... 13
Trading Advisor Risks................... 13
Reliance on the trading advisor(s) to
trade successfully.................. 13
Market factors may adversely influence
the trading programs................ 13
PAGE
--------
Possible consequences of using
multiple trading advisors for
Spectrum Select, Spectrum Technical,
Spectrum Strategic, and Spectrum
Currency............................ 13
Spectrum Global Balanced and Spectrum
Commodity are single-advisor funds
and lack the diversity of a
multi-advisor fund.................. 13
Increasing the assets managed by a
trading advisor may adversely affect
performance......................... 13
Limited partners will not be aware of
changes to trading programs......... 13
Limited term of management agreements
may limit access to a trading
advisor............................. 14
The annual incentive fee paid by
Spectrum Commodity can create
certain distortions regarding the
share of the incentive fee borne by
each investor....................... 14
Taxation Risks.......................... 14
Even though the partnerships do not
intend to make distributions, you
will be liable for taxes on your
share of any trading profits and any
other income of the partnerships in
which you have invested............. 14
The partnerships' tax returns could be
audited............................. 14
Conflicts of Interest..................... 14
Fiduciary Responsibility and Liability.... 17
Description of Charges.................... 19
Use of Proceeds........................... 26
The Spectrum Series....................... 29
Selected Financial Data and Selected
Quarterly Financial Data................ 39
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.............................. 45
Quantitative and Qualitative Disclosures
About Market Risk....................... 57
The General Partner....................... 66
The Trading Advisors...................... 71
(i)
PAGE
--------
Exchange Right............................ 123
Redemptions............................... 124
The Commodity Brokers..................... 125
Litigation................................ 127
The Limited Partnership Agreements........ 128
Plan of Distribution...................... 131
Subscription Procedure.................... 134
Purchases by Employee Benefit Plans--
ERISA Considerations.................... 135
Material Federal Income Tax
Considerations.......................... 136
State and Local Income Tax Aspects........ 142
Legal Matters............................. 143
Experts................................... 143
Where You Can Find More Information....... 143
PART TWO
STATEMENT OF
ADDITIONAL INFORMATION
The Futures, Options, and Forwards
Markets................................. 145
Potential Advantages...................... 149
Supplemental Performance
Information............................. 161
Glossary of Terms......................... 193
PAGE
--------
Financial Statements...................... F-1
Exhibit A - Form of Amended and
Restated Limited Partnership
Agreements............................ A-1
Annex A - Request for Redemption...... A-23
Exhibit B - Specimen Form of
Subscription and Exchange Agreement
and Power of Attorney................. B-1
Exhibit C - Specimen Form of
Subscription Agreement
Update Form........................... C-1
(ii)
THE DATE OF THIS PROSPECTUS IS MARCH 23, 2001.
SUMMARY
Because this is a summary, it does not contain all of the information that
may be important to you. You should read this entire prospectus and its exhibits
before you decide to invest.
MORGAN STANLEY DEAN WITTER SPECTRUM SERIES
The Morgan Stanley Dean Witter Spectrum Series consists of six continuously
offered limited partnerships, each organized in the State of Delaware:
PARTNERSHIPS DATE ORGANIZED
------------ --------------------
Spectrum Select March 21, 1991
Spectrum Technical April 29, 1994
Spectrum Strategic April 29, 1994
Spectrum Global Balanced April 29, 1994
Spectrum Currency October 20, 1999
Spectrum Commodity July 31, 1997
The offices of each partnership are located at Two World Trade Center, 62nd
Floor, New York, New York 10048, telephone (212) 392-8899.
Each partnership provides the opportunity to invest in futures, forwards,
and options contracts managed by an experienced, professional trading
advisor(s). Since each partnership's assets are traded by different trading
advisors, each employing a different trading program, you should review the
specific information relating to each partnership and its trading advisors to
better understand how a partnership may fit into your overall investment plan.
If you decide to invest in more than one partnership, you may allocate your
investment among any one or more of the partnerships and, after an initial six
month holding period, you may shift your investment among one or more of the
other Spectrum Series partnerships.
A futures contract is an agreement to buy or sell a fixed amount of a
commodity or other underlying product, instrument or index at a predetermined
price at a specified time in the future. In order to secure its obligation to
make or take delivery under a futures contract, the trader must deposit funds,
referred to as margin, with the commodity broker through which it trades. An
option on a futures contract gives the buyer of the option, in exchange for a
one-time payment known as premium, the right, but not the obligation, to buy or
sell a futures contract at a specified price within a specified period of time.
The seller of an option on a futures contract receives the premium payment and
has the obligation to buy or sell the futures contract at the specified price
within the specified period of time. Futures contracts and options on futures
contracts are traded on U.S. and foreign exchanges. A forward contract is an
agreement directly between two parties to buy or sell a fixed amount of an
underlying product at an agreed price at an agreed date in the future. Forward
contracts are not traded on exchanges, but rather are traded in the dealer
markets. A partnership may take long positions in futures, forwards, and options
contracts in which the partnership is obligated to take delivery of the
underlying commodity, product, instrument or index. A partnership also may take
short positions in those contracts in which the partnership has an obligation to
deliver the underlying commodity, product, instrument or index. Futures,
forwards, and options contracts are traded in a number of commodities, products,
instruments, and indices, including foreign currencies, financial instruments,
precious and industrial metals, energy products, agricultural commodities, stock
indices and "soft" commodities like cotton and cocoa. For additional information
on the futures, options, and forwards markets, see "Statement of Additional
Information" beginning on page 145.
The investment objective of each partnership is to achieve capital
appreciation and, to a lesser extent in the case of Spectrum Global Balanced, to
provide investors with the opportunity to diversify a portfolio of traditional
investments consisting of stocks and bonds. While the partnerships have the same
overall investment objective, and many of their trading advisors trade in the
same futures, forwards, and options
1
contracts, each trading advisor and its trading programs trades differently.
Each partnership has a different mix of trading advisors and trading programs.
You should review and compare the specifics of each partnership, its terms, and
its trading advisors before selecting one or more partnerships in which to
invest.
MORGAN STANLEY DEAN WITTER SPECTRUM SELECT L.P.
Commencing May 1, 2001, this partnership will allocate its assets among four
trading advisors: EMC Capital Management, Inc., Northfield Trading L.P., Rabar
Market Research Inc., and Sunrise Capital Management, Inc. Prior to May 1, 2001,
this partnership's assets were traded by three trading advisors: EMC, Rabar, and
Sunrise. The trading advisors employ proprietary trading programs that seek to
profit through the analysis of technical market information, such as analyzing
actual daily, weekly and monthly price fluctuations, volume variations and
changes in open interest. The trading advisors collectively 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.
MORGAN STANLEY DEAN WITTER SPECTRUM TECHNICAL L.P.
This partnership currently allocates its assets among three trading
advisors: Campbell & Company, Inc., Chesapeake Capital Corporation and John W.
Henry & Company, Inc. The trading advisors employ proprietary trading programs
that seek to identify and follow short to long-term trends through the analysis
of technical market information. The trading advisors collectively 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.
MORGAN STANLEY DEAN WITTER SPECTRUM STRATEGIC L.P.
This partnership currently allocates its assets among three trading
advisors: Allied Irish Capital Management, Ltd., Blenheim Investments, Inc., and
Eclipse Capital Management, Inc. The trading advisors collectively employ
discretionary and systematic trading approaches that seek to profit through the
analysis of fundamental and technical market information. The trading advisors
collectively trade futures, forwards, and options in a portfolio of agricultural
commodities, energy products, foreign currencies, interest rates, precious and
base metals, stock indices, and soft commodities.
MORGAN STANLEY DEAN WITTER SPECTRUM GLOBAL BALANCED L.P.
This partnership currently allocates its assets to a single trading advisor,
RXR, Inc. RXR offers a balanced portfolio trading approach using futures,
forwards, and options to gain long biased exposure to global stock markets and
global bond markets, as well as long and short exposure to a component of
managed futures contracts in agricultural commodities, energy products, foreign
currencies, precious and base metals, and soft commodities.
MORGAN STANLEY DEAN WITTER SPECTRUM CURRENCY L.P.
This partnership currently allocates its assets between two trading
advisors: John W. Henry & Company, Inc. and Sunrise Capital Partners, LLC. The
trading advisors employ proprietary trading programs that seek to identify
favorable price relationships between and among various global currency markets
through the analysis of technical market information. The trading advisors
collectively trade world currencies primarily in the forward dealer markets, but
also in the futures and options markets.
MORGAN STANLEY DEAN WITTER SPECTRUM COMMODITY L.P.
This partnership currently allocates its assets to a single trading advisor,
Morgan Stanley Dean Witter Commodities Management Inc. The trading advisor
employs a proprietary trading approach that seeks to identify increasing price
trends through the disciplined analysis of technical market information. The
trading advisor trades futures and may trade forwards in a portfolio of
agricultural commodities, precious and base metals, soft commodities, and energy
products.
2
WHO MAY SUBSCRIBE
INVESTMENT CONSIDERATIONS
You should purchase units in a partnership only if you understand the risks
involved in the investment and only if your financial condition permits you to
bear those risks, including the risk of losing all or substantially all of your
investment in the partnership. You should invest in the units only with the risk
capital portion of your investment portfolio.
MINIMUM INVESTMENT
If you are a new investor in the Spectrum Series of partnerships, you must
invest at least $5,000, unless you are investing through an IRA, in which case
your minimum investment is $2,000. You may allocate your investment among any
one or more of the partnerships in the Spectrum Series, but you must invest at
least $1,000 in a partnership. Once you become an investor in any Spectrum
Series partnership, you may increase that investment with an additional
contribution of at least $500.
If you are an investor in another limited partnership for which Demeter
Management Corporation serves as the general partner and commodity pool
operator, you may redeem your interest in that other partnership and use the
proceeds to invest in any one or more of the Spectrum Series of partnerships.
The general partner may, in its sole discretion, reject any subscription in
whole or in part.
FINANCIAL SUITABILITY
Unless otherwise specified in the subscription agreement under "State
Suitability Requirements," you must have either: a net worth of at least
$75,000, exclusive of home, furnishings, and automobiles; or both a net worth of
at least $30,000, exclusive of home, furnishings, and automobiles, and an annual
income of at least $30,000. You should be aware, however, that certain states
impose more restrictive suitability and/ or higher minimum investment
requirements. Before you invest you will be required to represent and warrant
that you meet the applicable state minimum financial suitability standard set
forth in the subscription agreement, which may also require a greater minimum
investment.
LIMITED REVOCATION RIGHT
After you subscribe for units in any Spectrum Series partnership, you will
have limited rights to revoke your subscription. You may only revoke a
subscription and receive a full refund of the subscription amount, plus any
accrued interest, within five business days after execution of the subscription
agreement or no later than 3:00 P.M., New York City time, on the date of the
applicable monthly closing, whichever comes first, by delivering written notice
to your Morgan Stanley financial advisor.
THE OFFERING OF UNITS
THE SPECTRUM SERIES CONTINUOUS OFFERING
Each partnership is continuously offering units of limited partnership
interest for sale at monthly closings held as of the last day of each month. You
can purchase units at a price equal to 100% of a partnership's month-end net
asset value. The general partner calculates each partnership's net asset value
per unit on a monthly basis by dividing the partnership's month-end net assets
by the number of its month-end outstanding units. A partnership's net assets is
its assets minus its liabilities.
ESCROW TERMS
During each partnership's continuous offering, your subscription will be
transferred to, and held in escrow by, The Chase Manhattan Bank, New York, New
York. Subscription funds held in escrow will be invested in the escrow agent's
money market account and will earn interest at the rate then paid by the bank on
that money market account. If the general partner accepts your subscription, the
escrow agent will pay the subscription amount to the appropriate partnerships
and pay any interest earned on those funds to Morgan Stanley DW Inc., the
non-clearing commodity broker for each partnership. In turn, Morgan Stanley DW
will credit your customer account with the interest. If the general partner
rejects a subscription, your account will be credited in an amount equal to the
rejected subscription amount, together with any interest earned on those funds
while held in escrow.
3
SUMMARY OF RISK FACTORS YOU SHOULD CONSIDER
- These are speculative securities.
- You could lose all or substantially all of your investment in the
partnerships.
- Past performance is not necessarily indicative of future results.
- Each partnership's futures, forwards and options trading is speculative
and trading performance has been, and is expected to be, volatile.
- Each partnership's trading is highly leveraged, which accentuates the
trading profit or loss on a trade.
- You may not redeem your units until you have been an investor for at least
six months.
- If you redeem units within 24 months after they are purchased, you will
pay a redemption charge except in defined circumstances.
- Units will not be listed on an exchange and no other secondary market will
exist for the units.
- Each partnership pays substantial charges and fees and must earn
substantial trading profits in order to pay these expenses.
- Profits earned by a partnership will be taxable to an investor even though
the general partner does not intend to make any distributions.
MAJOR CONFLICTS OF INTEREST
- Because the general partner, Morgan Stanley DW, Morgan Stanley, Morgan
Stanley International, and Morgan Stanley Dean Witter Commodities
Management are affiliates, the fees and other compensation received by
those parties and the other terms relating to the operation of the
partnerships and the sale of units were not negotiated by an independent
party.
- Because your Morgan Stanley financial advisor receives a portion of the
brokerage fees paid by the partnerships, your financial advisor has a
conflict of interest in advising you in the purchase or redemption of
units.
- The trading advisors, commodity brokers and general partner may trade
futures, forwards and options for their own accounts and, thus, they may
compete with a partnership for positions. Also, the other commodity pools
managed by the general partner and the trading advisors compete with the
partnerships for positions. These conflicts can result in less favorable
prices on the partnerships' transactions.
THE GENERAL PARTNER
The general partner of each partnership is Demeter Management Corporation, a
Delaware corporation. The general partner is or has been the general partner of
35 commodity pools and currently operates 21 other commodity pools. As of
December 31, 2000, the general partner managed approximately $1.4 billion of
client assets. The general partner's main business office is located at Two
World Trade Center, 62nd Floor, New York, New York 10048, telephone (212)
392-8899.
THE COMMODITY BROKERS
The commodity brokers for the partnerships are responsible for holding the
partnerships' funds deposited with them as margin for trades. If the commodity
broker is also a clearing broker, it will also be responsible for assuring that
the partnerships' trades are properly processed and recorded or "cleared" by the
clearinghouse affiliated with the exchange on which the trade took place.
Morgan Stanley DW Inc. is the non-clearing commodity broker for each
partnership. As non-clearing commodity broker, Morgan Stanley DW Inc. holds each
partnership's funds and provides margin funds to the clearing commodity brokers
for the partnership's futures, forwards and options positions.
Morgan Stanley & Co. Incorporated, an affiliate of the general partner,
serves as the clearing commodity broker for each partnership, with the exception
of trades on the London Metal Exchange, which are cleared by Morgan Stanley &
Co. International Limited, also an affiliate of the general partner. In
addition, Morgan Stanley & Co. Incorporated acts as the counterparty on all of
the foreign currency forward trades for the partnerships.
4
ORGANIZATIONAL CHART
Following is an organizational chart, which shows the relationships among
the various parties involved with this offering. Except for the tradings
advisors for Spectrum Select, Spectrum Technical, Spectrum Strategic, Spectrum
Global Balanced, and Spectrum Currency, all parties are affiliates of Morgan
Stanley Dean Witter & Co.
Morgan Stanley Dean
Witter & Co.
wholly-owned wholly-owned
23 other commodity
Morgan Stanley DW Demeter pools*
general
partnership
Selling Agreement interest
SELLING AGENT AND
NON-CLEARING COMMODITY
BROKER GENERAL PARTNER
general partnership
Customer Agreement interest Management Agreements
Spectrum Select
Spectrum Technical
Spectrum Strategic
Customer Agreement Spectrum Global Balanced
Customer Agreement Management Agreements
F/X Agreement
Trading Advisors
Carr Futures
CLEARING COMMODITY
BROKER
---------
* Demeter presently serves as general partner for 21 other commodity pools.
Morgan Stanley DW acts as the non-clearing commodity broker for all of the
pools. Morgan Stanley acts as clearing commodity broker for all but one of
the pools, and Morgan Stanley International serves as the clearing commodity
broker for trades of such pools that take place on the London Metal
Exchange. Morgan Stanley DW also serves as selling agent for all of the
pools managed by Demeter. All of the pools, including the partnerships, are
managed and traded independently of one another.
5
FEES TO BE PAID BY THE PARTNERSHIPS
The partnerships pay the following monthly fees:
MANAGEMENT FEE BROKERAGE FEE
(ANNUAL RATE) INCENTIVE FEE(1) (ANNUAL RATE)
-------------- ---------------- -------------
% % %
Spectrum Select 3 15 7.25
Spectrum Technical 2 or 3 or 4(2) 19 or 20(3) 7.25
Spectrum Strategic 3 15 7.25
Spectrum Global Balanced 1.25 15 4.60
Spectrum Currency 2 20 4.60
Spectrum Commodity 2.5 17.5 4.60
---------
(1) Each partnership pays its trading advisors a monthly incentive fee, except
Spectrum Commodity pays its trading advisor an annual incentive fee.
(2) JWH receives a monthly management fee at a 2% annual rate. Campbell receives
a monthly management fee at a 3% annual rate. Chesapeake receives a monthly
management fee at a 4% annual rate.
(3) Chesapeake receives a monthly incentive fee equal to 19% of any trading
profits. Campbell and JWH each receive a monthly incentive fee equal to 20%
of any trading profits.
The management fee payable to each trading advisor and the brokerage fee
payable to Morgan Stanley DW are based on a percentage of net assets and will be
paid monthly regardless of a partnership's performance. Each partnership pays
its trading advisor(s) an incentive fee only if trading profits are earned on
the portion of net assets managed by the trading advisor. Trading profits
represent the amount by which profits from futures, fowards, and options trading
exceed losses after brokerage, management, and incentive fees have been paid.
You should understand that, except in the case of Spectrum Global Balanced and
Spectrum Commodity, each of which has only one trading advisor, a trading
advisor may receive an incentive fee even though the partnership as a whole is
not profitable.
Neither you nor the partnerships will pay any selling commissions or
continuing offering expenses in connection with the offering of units by the
partnerships. Morgan Stanley DW will pay all costs incurred in connection with
the continuing offering of units of each partnership and will pay the ordinary
administrative expenses of each partnership. Each partnership will pay any
extraordinary expenses it may incur.
6
BREAK EVEN ANALYSIS
Following is a table that sets forth the fees and expenses that you would
incur on an initial investment of $5,000 in each partnership and the amount that
your investment must earn, after taking into account estimated interest income,
in order to break even after one year and after more than two years. The fees
and expenses applicable to each partnership are described above.
SPECTRUM
SPECTRUM SPECTRUM SPECTRUM GLOBAL SPECTRUM SPECTRUM
SELECT TECHNICAL STRATEGIC BALANCED CURRENCY COMMODITY
-------- --------- --------- -------- -------- ---------
$ $ $ $ $ $
Management Fee...................... 150.00 137.50 150.00 62.50 100.00 125.00
Brokerage Fee....................... 362.50 362.50 362.50 230.00 230.00 230.00
Less: Interest Income (1)........... (200.00) (200.00) (200.00) (250.00) (200.00) (200.00)
Incentive Fee (2)................... -- -- -- -- -- --
Redemption Charge (3)............... 102.04 102.04 102.04 102.04 102.04 102.04
Amount of trading profits a
partnership must earn for you to
recoup your initial investment at
the end of one year after paying a
redemption charge................. 414.54 402.04 414.54 144.54 232.04 257.04
Trading profits as percentage of net
assets that a partnership must
earn for you to recoup your
initial investment at the end of
one year after paying a redemption
charge............................ 8.29% 8.04% 8.29% 2.89% 4.64% 5.14%
Amount of trading profits a
partnership must earn each year
for you to recoup your initial
investment after two years with no
redemption charge................. 312.50 300.00 312.50 42.50 130.00 155.00
Trading profits as percentage of net
assets that a partnership must
earn each year for you to recoup
your initial investment after two
years with no redemption charge... 6.25% 6.00% 6.25% 0.85% 2.60% 3.10%
---------
(1) The partnerships do not directly invest in interest-bearing instruments.
Instead, each partnership is paid interest by Morgan Stanley DW at the
blended rate Morgan Stanley DW earns on its U.S. Treasury bill investments
with all customer segregated funds, as if 80% (100% in the case of Spectrum
Global Balanced) of the partnership's average daily net assets for the month
were invested at that rate. The rate used in the calculations was estimated
based upon current rates of approximately 5.00%.
(2) Incentive fees are paid to a trading advisor only on trading profits on the
assets of the partnership managed by that trading advisor. Trading profits
are determined after deducting all partnership expenses attributable to the
partnership assets managed by the trading advisor, other than any
extraordinary expenses, and do not include interest income. Therefore,
incentive fees will be zero at the partnership's breakeven point on the
assets managed by the trading advisor. Further, there do not need to be
trading profits to cover the redemption charge because the interest earned
by the partnership during the year will exceed the redemption charge to the
investor. Note, however, that because one trading advisor to a partnership
could be profitable and earn an incentive fee while the other trading
advisors are unprofitable such that the partnership has an overall trading
loss, it is possible for a partnership to pay an incentive fee at a time
when it has incurred overall losses.
(3) Units redeemed at the end of one year from the date of purchase are
generally subject to a 2% redemption charge; after two years there are no
redemption charges.
7
REDEMPTION CHARGES INCURRED BY YOU
You will pay a redemption charge of 2% of the net asset value of the units
redeemed if you redeem within the first twelve months after the units were
purchased, and 1% if you redeem units within the thirteenth through
twenty-fourth months after the units were purchased. Units are not subject to a
redemption charge after you have owned them for more than 24 months.
You will not incur a redemption charge if you redeem units during the first
24 months after they were issued in the following circumstances:
- If you purchase at least $500,000 of units.
- If you redeem units immediately following notice of an increase in
brokerage, management or incentive fees.
- If you redeem units in connection with an exchange for units in another
Spectrum Series partnership.
- If you acquire units with the proceeds from the redemption of interests in
a non-Spectrum Series partnership for which Demeter serves as the general
partner, you will not be subject to a redemption charge on those units
when they are redeemed.
- If you previously redeemed units and paid a redemption charge or held
those units for at least 24 months, you will not have to pay a redemption
charge on subsequently purchased units provided they are purchased within
12 months of the redemption of the old units and the purchase price of the
new units does not exceed the net proceeds received from the prior
redemption.
REDEMPTIONS
Once you have been an investor in any Spectrum Series partnership for more
than six months, you are permitted to redeem any part of your investment, even
if subsequent purchases have been held for less than six months. However, you
will pay a redemption charge of 2% of the net asset value redeemed if your
redeemed units were purchased within 12 months of the date of redemption, and 1%
if purchased within 13 to 24 months of the date of redemption. You will not be
subject to a redemption charge after you have owned your units for more than 24
months. Unless you are redeeming your entire interest in a partnership,
redemptions may only be made in whole units, with a minimum of 50 units required
for each redemption.
EXCHANGE RIGHT
You may redeem units in any partnership after you have been an investor for
six months and use the proceeds to purchase units in one or more of the other
partnerships in the Spectrum Series at a price equal to 100% of the net asset
value per unit, without incurring any redemption or other charge on the
transaction.
DISTRIBUTIONS
The general partner currently does not intend to make any distribution of
partnership profits.
TAX CONSIDERATIONS
Even though the general partner currently does not intend to make
distributions, your allocable share of the trading profits and other income of
the partnerships in which you invest will be taxable to you.
The trading activities of each partnership, in general, generate capital
gains and loss and ordinary income. 40% of any trading profits on U.S.
exchange-traded contracts are taxed as short-term capital gains at your ordinary
income tax rate, while 60% of such gains are taxed at your long-term capital
gains tax rate. We expect that each partnership's trading gains from other
contracts will be primarily short-term capital gains. This tax treatment applies
regardless of how long you hold your units.
You may deduct losses on units against capital gains income. You may deduct
losses in excess of capital gains against ordinary income only to the extent of
$3,000 per year. Consequently, you could pay tax on a partnership's interest
income even though you have lost money on your units.
8
RISK FACTORS
This section includes all of the principal risks that you will face with an
investment in the partnerships. Each risk factor applies equally to each
partnership, except where specifically noted.
TRADING AND PERFORMANCE RISKS
THE PARTNERSHIPS' TRADING IS SPECULATIVE AND VOLATILE. The rapid
fluctuations in the market prices of futures, forwards and options makes an
investment in the partnerships volatile. Volatility is caused by changes in
supply and demand relationships; weather; agricultural, trade, fiscal, monetary
and exchange control programs; domestic and foreign political and economic
events and policies; and changes in interest rates. If a trading advisor
incorrectly predicts the direction of prices, large losses may occur. As can be
seen from the information in the performance capsules for the partnerships on
pages 33 to 37, each partnership has experienced volatility in its performance
on both a monthly and an annual basis.
THE PARTNERSHIPS' TRADING IS HIGHLY LEVERAGED. The trading advisors for
each partnership use substantial leverage when trading, which could result in
immediate and substantial losses. For example, if 10% of the face value of a
contract is deposited as margin for that contract, a 10% decrease in the value
of the contract would cause a total loss of the margin deposit. A decrease of
more than 10% in the value of the contract would cause a loss greater than the
amount of the margin deposit.
The leverage employed by the partnerships in their trading can vary
substantially from month to month and can be significantly higher or lower than
the averages set forth below. As an example of the leverage employed by the
partnerships, set forth below is the average of the underlying value of each
partnership's month-end positions for the period January 2000 through December
2000, and, in the case of Spectrum Currency, for the period from its inception
of trading in July 2000 through December 2000, compared to the average month-end
net assets of the partnership during such periods, respectively. While the
leverage employed on a trade will accentuate the trading profit or loss on that
trade, one partnership's overall leverage as compared to another partnership's
overall leverage does not necessarily mean that it will be more volatile than
the other partnership. This can be seen by a review of the monthly rates of
return for the partnerships on pages 33 to 37.
Spectrum Select 13.3 times net assets
Spectrum Technical 12.6 times net assets
Spectrum Strategic 7.7 times net assets
Spectrum Global Balanced 7.1 times net assets
Spectrum Currency 3.3 times net assets
Spectrum Commodity 1.4 times net assets
OPTIONS TRADING CAN BE MORE VOLATILE THAN FUTURES TRADING. Each partnership
may trade options on futures. Although successful options trading requires many
of the same skills as successful futures trading, the risks are different.
Successful options trading requires a trader to accurately assess near-term
market volatility because that volatility is immediately reflected in the price
of outstanding options. Correct assessment of market volatility can therefore be
of much greater significance in trading options than it is in many long-term
futures strategies where volatility does not have as great an effect on the
price of a futures contract.
During the period January 2000 through December 2000, only Spectrum
Strategic and Spectrum Global Balanced engaged in any significant options
trading. Solely for the purpose of quantifying Spectrum Strategic's and Spectrum
Global Balanced's options trading as compared to their overall trading, the
general partner has calculated a margin level for such partnerships' month-end
options positions on a futures equivalent basis. During the period January 2000
through December 2000, Spectrum Strategic's average month-end margin level for
its options positions was 4.6% of its total average month-end margin
requirements for the period and Spectrum Global Balanced's average month-end
margin level for its
9
options positions was 6.3% of its total average month-end margin requirements
for the period. You should be aware, however, that in the future the other
partnerships may engage in significant options trading and the level of Spectrum
Strategic's and Spectrum Global Balanced's options trading could vary
significantly.
YOU SHOULD NOT RELY ON THE PAST PERFORMANCE OF A PARTNERSHIP IN DECIDING TO
PURCHASE UNITS. Since the future performance of a partnership is unpredictable,
each partnership's past performance is not necessarily indicative of future
results.
SPECTRUM COMMODITY IS SUBJECT TO GREATER RISK OF LOSS DURING PERIODS OF LOW
INFLATION. During periods of low or no commodity price inflation, Spectrum
Commodity is more likely to experience losses because it is a long-only
commodity fund. As a long-only commodity fund, the partnership will not be
profitable unless some commodity prices increase. For example, Spectrum
Commodity experienced losses during its initial year of trading, as 1998 was a
year characterized by a deflationary environment with respect to the commodities
traded by the partnership, except orange juice.
MARKET ILLIQUIDITY MAY CAUSE LESS FAVORABLE TRADE PRICES. Although the
trading advisors for each partnership generally will purchase and sell actively
traded contracts where last trade price information and quoted prices are
readily available, the prices at which a sale or purchase occur may differ from
the prices expected because there may be a delay between receiving a quote and
executing a trade, particularly in circumstances where a market has limited
trading volume and prices are often quoted for relatively limited quantities. In
addition, most U.S. futures exchanges have established "daily price fluctuation
limits" which preclude the execution of trades at prices outside of the limit,
and, from time to time, the CFTC or the exchanges may suspend trading in market
disruption circumstances. In these cases it is possible that a partnership could
be required to maintain a losing position that it otherwise would execute and
incur significant losses or be unable to establish a position and miss a profit
opportunity.
TRADING ON FOREIGN EXCHANGES PRESENTS GREATER RISKS TO EACH PARTNERSHIP THAN
TRADING ON U.S. EXCHANGES.
- Each partnership trades on exchanges located outside the U.S. Trading on
U.S. exchanges is subject to CFTC regulation and oversight, including for
example minimum capital requirements for commodity brokers, regulation of
trading practices on the exchanges, prohibitions against trading ahead of
customer orders, prohibitions against filling orders off exchanges,
prescribed risk disclosure statements, testing and licensing of industry
sales personnel and other industry professionals, and record keeping
requirements. Trading on foreign exchanges is not regulated by the CFTC or
any other U.S. governmental agency or instrumentality and may be subject
to regulations that are different from those to which U.S. exchange
trading is subject, provide less protection to investors than trading on
U.S. exchanges and may be less vigorously enforced than regulations in the
U.S.
- Positions on foreign exchanges also are subject to the risk of exchange
controls, expropriation, excessive taxation or government disruptions.
- A partnership could incur losses when determining the value of its foreign
positions in U.S. dollars because of fluctuations in exchange rates.
Each partnership must deposit margin with respect to the partnership's
futures and options contracts on both U.S. exchanges and on foreign exchanges
and must deposit margin with respect to its foreign currency forward contracts
to assure the partnership's performance on those contracts. Set forth below for
each partnership is the average percentage of month-end margin requirements for
the period January 2000 through December 2000, and, in the case of Spectrum
Currency, for the period from its inception of trading in July 2000 through
December 2000, that relate to futures and options contracts on foreign exchanges
as compared to the partnership's total average month-end margin requirements.
This information will provide you with a sense of the magnitude of each
partnership's trading on foreign exchanges, and, therefore, the relevance of the
risks described in the prior paragraph to each partnership.
10
You should be aware, however, that the percentage of each partnership's margin
requirements that relate to positions on foreign exchanges varies from month to
month and can be significantly higher or lower than the percentages set forth
below.
%
---------
Spectrum Select 33.3
Spectrum Technical 34.9
Spectrum Strategic 31.0
Spectrum Global Balanced 51.3
Spectrum Currency 0.0
Spectrum Commodity 14.2
THE UNREGULATED NATURE OF THE FORWARDS MARKETS CREATES COUNTERPARTY RISKS
THAT DO NOT EXIST IN FUTURES TRADING ON EXCHANGES. Unlike futures contracts,
forwards contracts are entered into between private parties off an exchange and
are not regulated by the CFTC or by any other U.S. government agency. Because
forwards contracts are not traded on an exchange, the performance of those
contracts is not guaranteed by an exchange or its clearinghouse and the
partnership is at risk to the ability of the counterparty to the trade to
perform on the forwards contract. Because trading in the forwards markets is not
regulated, there are no specific standards or regulatory supervision of trade
pricing and other trading activities that occur in those markets. Because the
partnerships trade forwards contracts in foreign currency with Morgan Stanley,
they are at risk to the creditworthiness and trading practices of Morgan Stanley
as the counterparty to the trades. Spectrum Commodity will not trade foreign
currency forwards.
As the counterparty to all of the partnerships' foreign currency forwards
contracts, Morgan Stanley requires the partnerships to make margin deposits to
assure the partnerships' performance on those contracts, just as Morgan Stanley
requires the partnerships to deposit margin on their futures contracts. Set
forth below for each partnership is the average percentage of month-end total
margin requirements for the period January 2000 through December 2000, and, in
the case of Spectrum Currency, for the period from its inception of trading in
July 2000 through December 2000, that relate to forwards contracts. This
information will provide you with a sense of the magnitude of each partnership's
trading in the forwards contracts markets as compared to its trading of futures
and options contracts on regulated exchanges, and, therefore, the relevance of
the risks described in the prior paragraphs to each partnership. You should be
aware that the percentage of each partnership's margin requirements that relate
to forwards contracts varies from month to month and can be significantly higher
or lower than the percentages set forth below.
%
-
Spectrum Select 11.1
Spectrum Technical 11.3
Spectrum Strategic 0.0
Spectrum Global Balanced 4.8
Spectrum Currency 100.0
Spectrum Commodity Not Applicable
THE PARTNERSHIPS ARE SUBJECT TO SPECULATIVE POSITION LIMITS. The CFTC and
U.S. futures exchanges have established speculative position limits on the
maximum number of futures and options positions that may be held or controlled
by any one person or group. Therefore, a trading advisor may have to reduce the
size of its futures position in order to avoid exceeding position limits, which
could adversely affect the profitability of a partnership.
11
THE PARTNERSHIPS COULD LOSE ASSETS AND HAVE THEIR TRADING DISRUPTED IF A
COMMODITY BROKER OR OTHERS BECOME BANKRUPT. The partnerships' assets could be
lost or impounded and trading suspended if a commodity broker, an exchange or a
clearinghouse becomes insolvent or involved in lengthy bankruptcy proceedings.
PARTNERSHIP AND OFFERING RISKS
EACH PARTNERSHIP INCURS SUBSTANTIAL CHARGES. Each partnership must pay
substantial charges and must earn significant trading profits just to pay those
expenses. The general partner estimates the percentage of partnership net assets
that must be earned each year in order for each partnership to break-even
without accounting for a redemption charge to be:
%
----
Spectrum Select................. 6.25
Spectrum Technical.............. 6.00
Spectrum Strategic.............. 6.25
%
----
Spectrum Global Balanced........ 0.85
Spectrum Currency............... 2.60
Spectrum Commodity.............. 3.10
For actual past performance results relating to each partnership, including
when a partnership did not break-even, see each partnership's performance
capsule on pages 33 to 37.
INCENTIVE FEES MAY BE PAID BY A PARTNERSHIP EVEN THOUGH THE PARTNERSHIP
SUSTAINS TRADING LOSSES. Each partnership pays each of its trading advisors an
incentive fee based upon partnership trading profits earned by that trading
advisor. These trading profits include unrealized appreciation on open
positions. Accordingly, it is possible that a partnership will pay an incentive
fee on trading profits that do not become realized. Also, each trading advisor
will retain all incentive fees paid to it, even if the assets of a partnership
managed by the trading advisor incur a subsequent loss after payment of an
incentive fee. Because incentive fees are paid monthly by all of the
partnerships, except Spectrum Commodity in which incentive fees are paid
annually, it is possible that an incentive fee may be paid by such partnerships
to a trading advisor during a year in which the assets allocated to the trading
advisor suffer a loss for the year. Because each trading advisor for a
partnership receives an incentive fee based on the trading profits earned by it
for the partnership, the trading advisor may have an incentive to make
investments that are riskier than would be the case in the absence of such an
incentive fee.
For all of the partnerships, except Spectrum Global Balanced and Spectrum
Commodity, each of which has only one trading advisor, it is also possible that
one trading advisor for a partnership may generate trading profits on which it
has earned an incentive fee, while the other trading advisors simultaneously
incur losses such that the partnership is paying an incentive fee when it has
sustained an overall trading loss.
RESTRICTED INVESTMENT LIQUIDITY IN THE UNITS. There is no secondary market
for units and you are not permitted to redeem your units until you have been an
investor in the Spectrum Series of partnerships for at least six months. After
the initial six-month period, you may redeem your units at any month-end, but
you may have to pay a redemption charge if you redeem units during the first
twenty-four months after they were purchased. Your right to receive payment on a
redemption is not absolute and is dependent upon the partnership having
sufficient assets to pay its liabilities on the redemption date, and the general
partner receiving your request for redemption at least five business days before
the redemption date.
EACH PARTNERSHIP'S STRUCTURE HAS CONFLICTS OF INTEREST.
- The general partner, Morgan Stanley DW, Morgan Stanley, Morgan Stanley
International, and Morgan Stanley Dean Witter Commodities Management are
affiliates. As a result, the fees and other compensation received by these
parties and other terms relating to the operation of the partnerships and
the sale of the units have not been independently negotiated. In addition,
the management fee paid by Spectrum Commodity to its trading advisor and
the terms of its management agreement have not been independently
negotiated.
12
- Employees of Morgan Stanley DW receive a portion of the brokerage fees
paid by the partnerships. Therefore, those employees have a conflict of
interest in advising you in the purchase or redemption of units.
- The trading advisors, commodity brokers, and general partner may trade
futures, forwards and options for their own accounts, and thus, they may
compete with a partnership for positions. Also, the other commodity pools
managed by the general partner and the trading advisors compete with the
partnerships for positions. These conflicts can result in less favorable
prices on the partnerships' transactions.
AN INVESTMENT IN UNITS MAY NOT DIVERSIFY AN OVERALL PORTFOLIO. Because
futures, forwards, and options have historically performed independently of
traditional investments, the general partner believes that managed futures funds
like the partnerships can diversify a portfolio of stocks and bonds. However,
the general partner cannot assure you that any of the partnerships will perform
with a significant degree of non-correlation to your other investments in the
future. Spectrum Global Balanced, in particular, will have greater correlation
to the performance of stocks and bonds. Information showing the monthly
correlation comparison of each partnership, or, in the case of Spectrum
Currency, of the past performance of Dean Witter Cornerstone IV, which is
another currency only fund operated by the general partner and traded by the
same trading advisors, adjusted for Spectrum Currency's fees and expenses, to
the S&P 500 Index and to the Salomon Corporate Bond Index is provided on
pages 153 to 155.
TRADING ADVISOR RISKS
RELIANCE ON THE TRADING ADVISOR(S) TO TRADE SUCCESSFULLY. The trading
advisors are responsible for making all trading decisions for the partnerships.
The general partner cannot assure you that the trading programs employed by the
trading advisors will be successful.
MARKET FACTORS MAY ADVERSELY INFLUENCE THE TRADING PROGRAMS. Often, the
most unprofitable market conditions for the partnerships are those in which
prices "whipsaw," moving quickly upward, then reversing, then moving upward
again, then reversing again. In these conditions, the trading advisors may
establish positions based on incorrectly identifying both the brief upward or
downward price movements as trends when in fact no trends sufficient to generate
profits develop.
POSSIBLE CONSEQUENCES OF USING MULTIPLE TRADING ADVISORS FOR SPECTRUM
SELECT, SPECTRUM TECHNICAL, SPECTRUM STRATEGIC, AND SPECTRUM CURRENCY. Each of
Spectrum Select, Spectrum Technical, Spectrum Strategic, and Spectrum Currency
has more than one trading advisor, and each trading advisor will make trading
decisions independent of the other trading advisors. As a result, it is possible
that the trading advisors for a partnership could hold opposite positions in the
same or similar futures, forwards or options, thereby offsetting any potential
for profit from these positions for the partnership. It is also possible that
the trading advisors for a partnership may hold similar positions in the same or
similar futures, forwards or options, thereby compounding a potential losing
position.
SPECTRUM GLOBAL BALANCED AND SPECTRUM COMMODITY ARE SINGLE-ADVISOR FUNDS AND
LACK THE DIVERSITY OF A MULTI-ADVISOR FUND. Spectrum Global Balanced and
Spectrum Commodity are each managed by a single trading advisor. Therefore, the
partnerships lack the potential benefit of trading advisor diversification
employed by each of the other partnerships.
INCREASING THE ASSETS MANAGED BY A TRADING ADVISOR MAY ADVERSELY AFFECT
PERFORMANCE. The rates of return achieved by trading advisors may diminish as
the assets under their management increase. This can occur for many reasons,
including the inability of the trading advisor to execute larger position sizes
at desired prices and because of the need to adjust the advisor's trading
program to avoid exceeding speculative position limits. These are limits
established by the CFTC and the exchanges on the number of speculative futures
and option contracts in a commodity that one trader may own or control. You
should know that the trading advisors have not agreed to limit the amount of
additional assets that they will manage.
LIMITED PARTNERS WILL NOT BE AWARE OF CHANGES TO TRADING PROGRAMS. Because
of the proprietary nature of each trading advisor's trading programs, limited
partners generally will not be advised if adjustments are made to a trading
advisor's trading program in order to accommodate additional assets under
management or for any other reason.
13
LIMITED TERM OF MANAGEMENT AGREEMENTS MAY LIMIT ACCESS TO A TRADING
ADVISOR. When the management agreement with a trading advisor expires, the
general partner may not be able to enter into arrangements with that trading
advisor or another trading advisor on terms substantially similar to the
management agreements described in this prospectus. Currently, most of the
management agreements with each partnership have one-year terms, which renew
annually unless terminated by the general partner or the trading advisor.
THE ANNUAL INCENTIVE FEE PAID BY SPECTRUM COMMODITY CAN CREATE CERTAIN
DISTORTIONS REGARDING THE SHARE OF THE INCENTIVE FEE BORNE BY EACH
INVESTOR. Spectrum Commodity pays its trading advisor an annual incentive fee.
If the partnership has new trading profits as of the end of a month that is not
the end of a year, the net asset value of each unit will be reduced by the
amount of an accrued (but not paid) incentive fee. If new units are issued at
that month-end, the net asset value of the new units will reflect the accrued
incentive fee. If an investor redeems units at the end of a month when there is
an accrued incentive fee, the value of the units redeemed will reflect (be
reduced by) the amount of the accrued incentive fee and the fee with respect to
those units will be paid to the trading advisor, even if the partnership
subsequently experiences a trading loss during the remainder of the calendar
year. If the partnership subsequently experiences a trading loss during the
remainder of the calendar year, any accrued incentive fee would be reversed with
respect to the remaining units, thereby causing an increase in the net asset
value per unit. Because all units have the same net asset value, any reversal of
an incentive fee accrual would be spread over all outstanding units, including
units issued after the profits resulting in the accrued incentive fee, thereby
diluting the "benefit" of the accrual reversal.
TAXATION RISKS
EVEN THOUGH THE PARTNERSHIPS DO NOT INTEND TO MAKE DISTRIBUTIONS, YOU WILL
BE LIABLE FOR TAXES ON YOUR SHARE OF ANY TRADING PROFITS AND ANY OTHER INCOME OF
THE PARTNERSHIPS IN WHICH YOU HAVE INVESTED. For U.S. federal income tax
purposes, if a partnership in which you own units has taxable income for a year,
that income will be taxable to you in accordance with your allocable share of
income from the partnership, whether or not any amounts have been distributed to
you. The general partner presently does not intend to make distributions from
the partnerships. Accordingly, it is anticipated that you will incur tax
liabilities as a result of being allocated taxable income from a partnership
even though you will not receive current cash distributions with which to pay
the taxes.
THE PARTNERSHIPS' TAX RETURNS COULD BE AUDITED. The IRS could audit a
partnership's tax return. If an audit results in an adjustment to a
partnership's tax return, you could be required to file an amended tax return.
CONFLICTS OF INTEREST
While the general partner, Morgan Stanley DW, Morgan Stanley, Morgan Stanley
International, Morgan Stanley Dean Witter Commodities Management, and their
affiliates will seek to avoid conflicts of interest to the extent feasible and
to resolve all conflicts that may arise equitably and in a manner consistent
with their responsibilities to the partnerships, no specific policies regarding
conflicts of interest have been or are intended to be adopted by the general
partner or the partnerships. The following are actual and potential conflicts of
interest that do and may continue to exist with respect to the partnerships.
THE BROKERAGE ARRANGEMENTS WITH AFFILIATES OF THE GENERAL PARTNER WERE NOT
NEGOTIATED AT ARM'S-LENGTH OR REVIEWED BY ANY INDEPENDENT PARTY FOR FAIRNESS
The general partner, Morgan Stanley DW, Morgan Stanley, and Morgan Stanley
International are wholly-owned subsidiaries of Morgan Stanley Dean
Witter & Co. Morgan Stanley DW is the non-clearing commodity broker for each
partnership and receives a monthly brokerage fee for effecting transactions for
each partnership. Morgan Stanley, as the clearing commodity broker, will receive
a portion of the monthly brokerage fee payable to Morgan Stanley DW for
effecting transactions for the partnerships. Morgan Stanley International will
serve as the commodity broker for each partnership's trades on the London Metal
Exchange; however, Morgan Stanley International's fees will be paid by Morgan
Stanley and not by the partnerships. Because the general partner is an affiliate
of Morgan Stanley DW and Morgan Stanley, the flat-rate brokerage fees charged to
each partnership have not been negotiated at arm's-length. Moreover, the general
partner has a conflict of interest in managing the partnerships for your
benefit, obtaining favorable brokerage fees for Morgan Stanley DW, and retaining
Morgan Stanley DW, Morgan Stanley, and
14
Morgan Stanley International as commodity brokers. In addition, the brokerage
fees generated by the partnerships are used by Morgan Stanley DW as a factor in
determining the salaries and bonuses of Morgan Stanley DW's employees who are
also officers and directors of the general partner. Customers of Morgan
Stanley DW who maintain commodity trading accounts of over $1,000,000 pay
commissions at negotiated rates that may be less than the rate paid by each
partnership.
THE GENERAL PARTNER HAS A DISINCENTIVE TO REPLACE THE COMMODITY
BROKERS. The general partner has a disincentive to replace Morgan Stanley DW,
Morgan Stanley, and Morgan Stanley International as the partnerships' commodity
brokers because they are affiliates of the general partner and receive
compensation for serving as the partnerships' commodity brokers. In connection
with this conflict of interest, you should understand that Morgan Stanley DW
receives a monthly flat-rate brokerage fee from each partnership for serving as
the partnership's non-clearing commodity broker. From its brokerage fee, Morgan
Stanley DW pays or reimburses each partnership for the transaction fees and
costs charged by Morgan Stanley and Morgan Stanley International for acting as
the partnership's clearing commodity brokers. Also, Morgan Stanley, as the
counterparty on each partnership's foreign currency forward trades, will attempt
to earn a mark-up, spread, or other profit on each foreign currency forward
contract trade which is separate from the flat-rate brokerage fees paid by the
partnership to Morgan Stanley DW.
While each partnership has the right to seek lower commission rates from
other commodity brokers at any time, the general partner believes that the
customer agreements and other arrangements between each partnership and the
commodity brokers are fair, reasonable and competitive, and represent the best
price and services available, considering the following factors. Morgan
Stanley DW pays the expenses of organizing the partnerships, offering the units,
and the partnerships' ordinary administrative expenses. None of these expenses
would ordinarily be paid by an independent commodity broker, and these expenses
would otherwise have to be borne by the partnerships. Further, the general
partner provides ongoing services to the partnerships, including administering
the redemption and exchanges of units, and the general partner has financial
obligations as the general partner of the partnerships. The general partner is
not reimbursed or otherwise compensated by the partnerships for these services
or obligations.
The general partner reviews the brokerage and foreign currency forward
counterparty arrangements annually to ensure that they are fair, reasonable and
competitive, and that they represent the best price and services available,
taking into consideration the size and trading activity of each partnership and
the services provided, and the costs, expenses, and risk borne, by Morgan
Stanley DW, Morgan Stanley, Morgan Stanley International, and the general
partner.
THE TERMS OF THIS OFFERING WERE NOT SUBJECT TO INDEPENDENT DUE DILIGENCE
The partnerships, Morgan Stanley DW, Morgan Stanley, Morgan Stanley
International, Morgan Stanley Dean Witter Commodities Management, and the
general partner are represented by a single counsel. Therefore, the terms of
this offering relating to those parties were not negotiated at arm's-length. In
addition, no independent due diligence has been conducted with respect to this
offering.
EMPLOYEES OF MORGAN STANLEY DW ARE COMPENSATED BASED UPON YOUR INVESTMENT AND
REDEMPTION DECISIONS
Morgan Stanley DW pays a significant portion of the brokerage fees it
receives from each partnership to its employees for providing continuing
assistance to limited partners. Therefore, because Morgan Stanley DW employees
are directly compensated based on your decision to purchase and retain units in
a partnership, they have a conflict of interest when advising you to purchase or
redeem units in a partnership.
THE SELECTION OF A TRADING ADVISOR MAY BENEFIT MORGAN STANLEY DW
The general partner is responsible for selecting and replacing, if
necessary, each trading advisor. However, since selecting trading advisors who
engage in a high volume of trades will increase Morgan Stanley DW's costs as
non-clearing commodity broker, without necessarily increasing revenue, the
general partner has an incentive to select trading advisors who trade less
frequently.
15
THE GENERAL PARTNER HAS A DISINCENTIVE TO REPLACE THE TRADING ADVISOR FOR
SPECTRUM COMMODITY BECAUSE IT IS AN AFFILIATE OF THE GENERAL PARTNER
Morgan Stanley Dean Witter Commodities Management is the trading advisor for
Spectrum Commodity and receives a monthly management fee and a possible annual
incentive fee. Because the general partner and Morgan Stanley Dean Witter
Commodities Management are both wholly-owned subsidiaries of Morgan Stanley Dean
Witter & Co., they are affiliates and, as such, the terms of the management
agreement, including the management and incentive fees, have not been negotiated
at arm's-length. Further, the general partner has a disincentive to remove and
replace Morgan Stanley Dean Witter Commodities Management as trading advisor.
AFFILIATES OF THE GENERAL PARTNER, THE TRADING ADVISORS, AND THE COMMODITY
BROKERS MAY TRADE FOR THEIR OWN ACCOUNTS IN COMPETITION WITH THE PARTNERSHIPS
The general partner does not trade futures, forwards or options for its own
account, but officers, directors and employees of the general partner, the
commodity brokers, and the trading advisors and their affiliates, principals,
officers, directors and employees, may trade futures, forwards and options for
their own proprietary accounts. Their trading records will not be available to
you. As a result, you will not be able to compare the performance of their
trading to the performance of the partnerships.
Morgan Stanley and Morgan Stanley International are large futures commission
merchants, handling substantial customer business in physical commodities and
futures, forwards, and options. Thus, Morgan Stanley and Morgan Stanley
International may effect transactions for the account of a partnership in which
the other parties to such transactions are employees or affiliates of the
general partner, a trading advisor, Morgan Stanley, Morgan Stanley
International, or customers or correspondents of Morgan Stanley and Morgan
Stanley International. These persons might also compete with a partnership in
bidding on purchases or sales of futures, forwards and options without knowing
that the partnership is also bidding. It is possible that transactions for these
other persons might be effected when similar trades for one or more partnerships
are not executed or are executed at less favorable prices.
THE TRADING ADVISORS MANAGE OTHER ACCOUNTS THAT WILL COMPETE WITH THE
PARTNERSHIPS
- Each trading advisor manages other accounts trading futures, forwards and
options, in addition to the partnership's accounts. Each trading advisor
must aggregate futures and options positions in other accounts managed by
it with futures and options positions in the applicable partnership's
account for speculative position limits purposes. This may require a
trading advisor to liquidate or modify positions for all of its accounts,
which could adversely affect the partnership's performance.
- Each trading advisor currently manages accounts that pay fees higher than
the fees paid by the partnerships. A trading advisor will have a conflict
of interest in rendering advice to a partnership because the compensation
it receives for managing another account exceeds the compensation it
receives for managing the partnership's account.
- If a trading advisor makes trading decisions for other accounts and a
partnership's account at or about the same time, the partnership may be
competing with those other accounts for the same or similar positions.
- The trading advisors' records for these other accounts will not be made
available to you. As a result, you will not be able to compare the
performance of these accounts to the performance of the partnerships.
THE LACK OF DISTRIBUTIONS INCREASES THE FEES PAID TO AFFILIATES OF THE GENERAL
PARTNER
The general partner is responsible for determining whether and when to
distribute trading profits earned by a partnership. Since the general partner
currently does not intend to distribute trading profits, Morgan Stanley DW will
receive increased brokerage fees, because these fees are based upon the net
asset value of a partnership, and net asset value will increase by retaining a
partnership's trading profits.
16
CUSTOMER AGREEMENTS WITH THE COMMODITY BROKERS PERMIT ACTIONS WHICH COULD RESULT
IN LOSSES OR LOST PROFIT OPPORTUNITY
Under each customer agreement for a partnership, all funds, futures,
forwards, options, and securities positions, and credits carried for the
partnership, are held as security for its obligations to the commodity broker;
the margins necessary to initiate or maintain open positions will be established
by the commodity broker from time to time; and the commodity broker may close
out positions, purchase futures, forwards and options, or cancel orders at any
time it deems necessary for its protection, without the consent of the
partnership. For example, a commodity broker may determine to take any of these
actions if prices in the futures markets are moving rapidly against a
partnership's positions and the commodity broker is concerned that potential
losses could exceed the partnership's assets such that the commodity broker
would be left to incur the loss. While not a likely occurrence, it is possible
for the trading advisors to believe that market conditions will change and that
existing positions or trades they wish to make would be profitable, such that
the actions of the commodity broker preclude the partnership from engaging in
profitable transactions or avoiding losses.
Each commodity broker or the general partner, or the investors in each
partnership by majority vote, may terminate the brokerage relationship upon
prior written notice.
FIDUCIARY RESPONSIBILITY AND LIABILITY
You should be aware that the general partner has a fiduciary duty under the
limited partnership agreements and the Delaware Revised Uniform Limited
Partnership Act to exercise good faith and fairness in all dealings affecting
the partnerships. The limited partnership agreements do not permit the general
partner to limit, by any means, the fiduciary duty it owes to investors. In the
event that you believe the general partner has violated its responsibilities,
you may seek legal relief under the Partnership Act, the Commodity Exchange Act,
as amended, applicable federal and state securities laws, and other applicable
laws. Each trading advisor also has a fiduciary duty under applicable law to
each partnership it advises.
The limited partnership agreements, the customer agreements, and the selling
agreement provide that the general partner, the commodity brokers, Morgan
Stanley DW (as selling agent), any other firm selling units, and their
affiliates shall not be liable to a partnership or its investors for any act or
omission by or on behalf of the partnership which the general partner, the
commodity brokers, Morgan Stanley DW (as selling agent), or any additional
seller, as applicable, determines in good faith to be in the best interests of
the partnership, unless the act or omission constituted misconduct or
negligence.
Under the limited partnership agreements, the customer agreements, and the
selling agreement, each partnership has agreed to indemnify and defend the
general partner, the commodity brokers, Morgan Stanley DW (as selling agent),
any additional seller, and their affiliates, against any loss, liability,
damage, cost or expense (including attorneys' and accountants' fees and
expenses) they incur which arise from acts or omissions undertaken by or on
behalf of the partnership, including claims by investors. These indemnities
apply where the general partner, the commodity brokers, Morgan Stanley DW (as
selling agent), any additional seller, or their affiliates as applicable, has
determined, in good faith, that the act or omission was in the best interests of
the partnership, and the act or omission was not the result of misconduct or
negligence. Payment of any indemnity by a partnership would reduce the net
assets of that partnership. The partnerships do not carry liability insurance
covering such potential losses or indemnification exposure.
No indemnification of the general partner, the commodity brokers, Morgan
Stanley DW (as selling agent), any additional selling agent, or their affiliates
by a partnership is permitted for losses, liabilities, or expenses arising out
of alleged violations of federal or state securities laws unless a court has
found in favor of the indemnitee on the merits of the claim, or a court has
dismissed the claim with prejudice on the merits, or a court has approved a
settlement on the claim and found that the indemnification should be made by the
partnership. Where court approval for indemnification is sought, the person
claiming indemnification must advise the court of the views on indemnification
of the SEC and the relevant state securities administrators. It is the opinion
of the SEC that indemnification for liabilities arising under the Securities Act
of 1933, as amended, for directors, officers or controlling persons of a
partnership or the general partner is against public policy and is therefore
unenforceable. The CFTC has issued a statement of policy relating to
indemnification of officers and directors of a futures commission merchant, such
as
17
the commodity brokers, and its controlling persons under which the CFTC has
taken the position that whether such an indemnification is consistent with the
policies expressed in the Commodity Exchange Act will be determined by the CFTC
on a case-by-case basis.
Each management agreement generally provides that the trading advisor and
its affiliates will not be liable to the partnership or the general partner or
their partners, officers, shareholders, directors or controlling persons. The
trading advisor is, however, liable for acts or omissions of the trading advisor
or its affiliates if the act or omission constitutes a breach of the management
agreement or a representation, warranty or covenant in the management agreement,
constitutes misconduct or negligence, or is the result of such persons not
having acted in good faith and in the reasonable belief that such actions or
omissions were in, or not opposed to, the best interests of the partnership.
Each partnership has agreed to indemnify and defend its trading advisor(s) and
their affiliates against any loss, claim, damage, liability, cost and expense
resulting from a demand, claim, lawsuit, action, or proceeding (other than those
incurred as a result of claims brought by or in the right of the indemnified
party), relating to the trading activities of the partnership, if a court finds,
or independent counsel renders an opinion, that the action or inaction giving
rise to the claim did not constitute negligence, misconduct or a breach of the
management agreement or a representation, warranty or covenant of the trading
advisor in that agreement, and was done in good faith and in a manner the
indemnified party reasonably believed to be in, or not opposed to, the best
interests of the partnership.
Each partnership will also indemnify its trading advisors and their
affiliates against any loss, claim, damage, liability, cost and expense, arising
under the federal securities laws, the Commodity Exchange Act, or the securities
or Blue Sky law of any jurisdiction, in respect of the offer or sale of units.
This indemnification will be made for liabilities resulting from a breach of any
representation, warranty or agreement in the management agreement relating to
the offering, or an actual or alleged misleading or untrue statement of a
material fact, or an actual or alleged omission of a material fact, made in the
registration statement, prospectus or related selling material, so long as the
statement or omission does not relate to the trading advisor or its principals,
was not made in reliance upon, and in conformity with, information or
instructions furnished by the trading advisor, or does not result from a breach
by the trading advisor of any representation, warranty or agreement relating to
the offering.
The foregoing involves a rapidly developing and changing area of the law and
if you have questions concerning the duties of the partnerships, the general
partner, the commodity brokers, the selling agent, any additional seller or the
trading advisors, you should consult with your attorney.
18
DESCRIPTION OF CHARGES
CHARGES TO EACH PARTNERSHIP
Each partnership is subject to substantial charges, all of which are
described below.
SPECTRUM SELECT
ENTITY FORM OF COMPENSATION AMOUNT OF COMPENSATION
------------------------------------------ ------------------------------------------ ------------------------------------------
The trading advisors...................... Monthly management fee. 1/12 of 3% of the net assets allocated to
each trading advisor.
Monthly incentive fee. 15% of the trading profits experienced
with respect to the net assets allocated
to each trading advisor.
The commodity brokers..................... Monthly brokerage fee to Morgan Stanley 1/12 of 7.25% of the partnership's net
DW. assets.
Financial benefit to Morgan Stanley DW The compensating balance and excess net
from interest earned on the partnership's interest benefit to Morgan Stanley DW is
assets in excess of the interest paid to estimated at less than 2% of the partner-
the partnership and from compensating ship's annual average month-end net
balance treatment in connection with its assets. The aggregate of the brokerage fee
designation of a bank or banks in which payable by the partnership and net excess
the partnership's assets are deposited. interest and compensating balance benefits
to Morgan Stanley DW (after crediting the
partnership with interest) will not exceed
14% annually of the partnership's average
month-end net assets during a calendar
year.
Morgan Stanley generally will earn a Bid/ask spreads to Morgan Stanley on for-
spread, markup, or other profit on the eign currency forward trades.
foreign currency forward contract trades
it executes with the partnership.
19
SPECTRUM TECHNICAL
ENTITY FORM OF COMPENSATION AMOUNT OF COMPENSATION
------------------------------------------ ------------------------------------------ ------------------------------------------
The trading advisors...................... Monthly management fee. 1/12 of 2% of the net assets allocated to
JWH, 1/12 of 3% of the net assets
allocated to Campbell, and 1/12 of 4% of
the net assets allocated to Chesapeake.
Monthly incentive fee. 19% of the trading profits experienced
with respect to the net assets allocated
to Chesapeake and 20% with respect to the
net assets allocated to each of Campbell
and JWH.
The commodity brokers..................... Monthly brokerage fee to Morgan Stanley 1/12 of 7.25% of the partnership's net
DW. assets.
Financial benefit to Morgan Stanley DW The compensating balance and excess net
from interest earned on the partnership's interest benefit to Morgan Stanley DW is
assets in excess of the interest paid to estimated at less than 2% of the partner-
the partnership and from compensating ship's annual average month-end net
balance treatment in connection with its assets. The aggregate of the brokerage fee
designation of a bank or banks in which payable by the partnership and net excess
the partnership's assets are deposited. interest and compensating balance benefits
to Morgan Stanley DW (after crediting the
partnership with interest) will not exceed
14% annually of the partnership's average
month-end net assets during a calendar
year.
Morgan Stanley generally will earn a Bid/ask spreads to Morgan Stanley on for-
spread, markup, or other profit on the eign currency forward trades.
foreign currency forward contract trades
it executes with the partnership.
20
SPECTRUM STRATEGIC
ENTITY FORM OF COMPENSATION AMOUNT OF COMPENSATION
------------------------------------------ ------------------------------------------ ------------------------------------------
The trading advisors...................... Monthly management fee. 1/12 of 3% of the net assets allocated to
each trading advisor.
Monthly incentive fee. 15% of the trading profits experienced
with respect to the net asset allocated to
each trading advisor.
The commodity brokers..................... Monthly brokerage fee to Morgan Stanley 1/12 of 7.25% of the partnership's net
DW. assets.
Financial benefit to Morgan Stanley DW The compensating balance and excess net
from interest earned on the partnership's interest benefit to Morgan Stanley DW is
assets in excess of the interest paid to estimated at less than 2% of the partner-
the partnership and from compensating ship's annual average month-end net
balance treatment in connection with its assets. The aggregate of the brokerage fee
designation of a bank or banks in which payable by the partnership and net excess
the partnership's assets are deposited. interest and compensating balance benefits
to Morgan Stanley DW (after crediting the
partnership with interest) will not exceed
14% annually of the partnership's average
month-end net assets during a calendar
year.
Morgan Stanley generally will earn a Bid/ask spreads to Morgan Stanley on for-
spread, markup, or other profit on the eign currency forward trades.
foreign currency forward contract trades
it executes with the partnership.
SPECTRUM GLOBAL BALANCED
ENTITY FORM OF COMPENSATION AMOUNT OF COMPENSATION
------------------------------------------ ------------------------------------------ ------------------------------------------
The trading advisor....................... Monthly management fee. 1/12 of 1.25% of the partnership's net
assets.
Monthly incentive fee. 15% of the trading profits.
The commodity brokers..................... Monthly brokerage fee to Morgan Stanley 1/12 of 4.60% of the partnership's net
DW. assets.
Financial benefit to Morgan Stanley DW The compensating balance and excess net
from interest earned on the partnership's interest benefit to Morgan Stanley DW is
assets in excess of the interest paid to estimated at less than 1% of the partner-
the partnership and from compensating ship's annual average month-end net
balance treatment in connection with its assets. The aggregate of the brokerage fee
designation of a bank or banks in which payable by the partnership and net excess
the partnership's assets are deposited. interest and compensating balance benefits
to Morgan Stanley DW (after crediting the
partnership with interest) will not exceed
14% annually of the partnership's average
month-end net assets during a calendar
year.
Morgan Stanley generally will earn a Bid/ask spreads to Morgan Stanley on for-
spread, markup, or other profit on the eign currency forward trades.
foreign currency forward contract trades
it executes with the partnership.
21
SPECTRUM CURRENCY
ENTITY FORM OF COMPENSATION AMOUNT OF COMPENSATION
------------------------------------------ ------------------------------------------ ------------------------------------------
The trading advisors...................... Monthly management fee. 1/12 of 2% of the net assets allocated to
each trading advisor.
Monthly incentive fee. 20% of the trading profits experienced
with respect to the net assets allocated
to each trading advisor.
The commodity brokers..................... Monthly brokerage fee to Morgan Stanley 1/12 of 4.60% of the partnership's net
DW. assets.
Financial benefit to Morgan Stanley DW The compensating balance and excess net
from interest earned on the partnership's interest benefit to Morgan Stanley DW is
assets in excess of the interest paid to estimated at less than 2% of the partner-
the partnership and from compensating ship's annual average month-end net
balance treatment in connection with its assets. The aggregate of the brokerage fee
designation of a bank or banks in which payable by the partnership and net excess
the partnership's assets are deposited. interest and compensating balance benefits
to Morgan Stanley DW (after crediting the
partnership with interest) will not exceed
14% annually of the partnership's average
month-end net assets during a calendar
year.
Morgan Stanley generally will earn a Bid/ask spreads to Morgan Stanley on for-
spread, markup, or other profit on the eign currency forward trades.
foreign currency forward contract trades
it executes with the partnership.
SPECTRUM COMMODITY
ENTITY FORM OF COMPENSATION AMOUNT OF COMPENSATION
------------------------------------------ ------------------------------------------ ------------------------------------------
The trading advisor....................... Monthly management fee. 1/12 of 2.5% of the partnership's net
assets.
Annual incentive fee. 17.5% of trading profits.
The commodity brokers..................... Monthly brokerage fee to Morgan Stanley 1/12 of 4.60% of the partnership's net
DW. assets.
Financial benefit to Morgan Stanley DW The compensating balance and excess net
from interest earned on the partnership's interest benefit to Morgan Stanley DW is
assets in excess of the interest paid to estimated at less than 2% of the partner-
the partnership and from compensating ship's annual average month-end net
balance treatment in connection with its assets. The aggregate of brokerage fees
designation of a bank or banks in which payable by the partnership, and net excess
the partnership's assets are deposited. interest and compensating balance benefits
to Morgan Stanley DW (after crediting the
partnership with interest) will not exceed
14% annually of the partnership's average
month-end net assets during a calendar
year.
22
TRADING ADVISORS
Each partnership pays each of its trading advisors a monthly management fee,
whether or not the assets of the partnership as a whole or the assets allocated
to such trading advisor are profitable. In addition, each partnership pays each
of its trading advisors an incentive fee if trading profits are earned on the
net assets allocated to such trading advisor.
MONTHLY MANAGEMENT FEE. Each partnership pays each of its trading advisors
a monthly management fee based on the net assets under management as of the
first day of each month, at the rate set forth in the above chart. The monthly
management fee compensates the trading advisor for the services performed in
connection with the net assets under management.
Following is an example of the management fee payable by a partnership. If
the net assets of Spectrum Select equaled $200,000,000 as of the first day of
each month during the fiscal year, the trading advisors would receive an
aggregate monthly management fee for the year of $6,000,000 ( 1/12 of 3% of
$200,000,000 per month, or $500,000 times 12). The management fee payable to the
trading advisors in the foregoing example would be divided among them based on
the portion of the $200,000,000 in net assets allocated to each such trading
advisor at the beginning of each month.
INCENTIVE FEE. Each partnership pays an incentive fee to each of its
trading advisors if trading profits are experienced with respect to allocated
net assets, at the rate set forth in the above chart. Trading profits means the
net futures, forwards, and options profits (realized and unrealized) earned on
the trading advisor's allocated net assets, decreased by monthly management fees
and brokerage fees that are chargeable to the trading advisor's allocated net
assets, with such trading profits and items of decrease determined from the end
of the last period in which an incentive fee was earned by the trading advisor.
Extraordinary expenses of the partnership, if any, are not deducted in
determining trading profits. An extraordinary expense would result from an event
that is both unusual in nature and infrequent in occurrence, such as litigation.
No incentive fee is paid on interest earned by any partnership.
In the case of Spectrum Commodity, whose trading advisor is eligible to
receive an annual incentive fee, any accrued incentive fees with respect to
units of Spectrum Commodity that are redeemed during the year will be deducted
and paid to the trading advisor at the time of redemption, even though it may
not qualify for an incentive fee at year-end.
If incentive fees are paid to a trading advisor and the partnership fails to
earn trading profits for any subsequent period, the trading advisor will retain
the incentive fees previously paid. However, no subsequent incentive fees will
be paid to the trading advisor until the trading advisor has again earned
trading profits. If a trading advisor's allocated net assets are reduced or
increased because of redemptions, additions or reallocations that occur at the
end of or subsequent to an incentive period in which the trading advisor
experiences a trading loss, the trading loss which must be recovered will be
adjusted pro rata.
Following is an example of the incentive fee payable by a partnership. If a
trading advisor for Spectrum Select earns trading profits of $1,000,000 for the
period ended January 31, 2001, the trading advisor will receive an incentive fee
of $150,000 for that period (15% of $1,000,000). If, however, the trading
advisor experiences realized and/or unrealized trading losses, or fees offset
trading profits, so as to result in a $250,000 loss for the period ended
February 28, 2001, an incentive fee will not be paid to the trading advisor for
that period. In order for the trading advisor to earn an incentive fee in the
following period ending March 31, 2001, the trading advisor will have to earn
trading profits exceeding $250,000 for that period, since the incentive fee is
payable based upon trading profits measured from the last period for which an
incentive fee was paid (I.E., January 31), and not from the immediately
preceding period. The foregoing example assumes no redemptions or reallocations
or additional purchases of units during the periods in question, which would
require adjustments as described above.
COMMODITY BROKERS
BROKERAGE FEES. Commodity brokerage fees for futures, forwards, and options
trades are typically paid on the completion or liquidation of a trade and are
referred to as "roundturn commissions," which cover both the initial purchase
(or sale) of a futures interest and the subsequent offsetting sale (or
purchase).
23
However, pursuant to the customer agreements with the commodity brokers, the
partnerships pay a monthly flat-rate brokerage fee based on their net assets as
of the first day of each month, at the rate set forth in the above chart,
irrespective of the number of trades executed on a partnership's behalf.
Following is an example of the brokerage fee payable by a partnership. If
the net assets of Spectrum Select equaled $200,000,000 as of the first day of
each month during the fiscal year, Morgan Stanley DW would receive an aggregate
monthly brokerage fee for the year of $14,500,000 ( 1/12 of 7.25% of
$200,000,000 per month, or $1,208,333, times 12).
From the flat-rate brokerage fees received from the partnerships, Morgan
Stanley DW pays or reimburses the partnerships for all fees and costs charged or
incurred by the clearing commodity broker(s) for executing trades on behalf of
the partnerships, including floor brokerage fees, exchange fees, clearinghouse
fees, National Futures Association fees, "give up" fees, any taxes (other than
income taxes), any third party clearing costs incurred by the clearing commodity
broker(s), and costs associated with taking delivery of futures, forwards, and
options contracts.
Morgan Stanley DW also pays, from the brokerage fees it receives, the
ordinary administrative and continuing offering expenses of each partnership.
Ordinary administrative expenses include legal, accounting and auditing
expenses, printing and mailing expenses, and filing fees incurred in preparing
reports, notices and tax information to limited partners and regulatory bodies.
The continuing offering expenses of each partnership include legal, accounting
and auditing fees, printing costs, filing fees, escrow fees, marketing costs
(which include costs relating to sales seminars and the preparation of customer
sales kits and brochures), and other related fees and expenses.
While each partnership pays a flat-rate brokerage fee, rather than
"roundturn commissions" on each trade, it is estimated, based upon the trading
advisors' historical trading, that such flat-rate brokerage fee would
approximate roundturn commissions ranging from approximately:
$40-50 for Spectrum Select
$40-50 for Spectrum Technical
$25-35 for Spectrum Strategic
$45-55 for Spectrum Global Balanced
$45-55 for Spectrum Currency
$65-75 for Spectrum Commodity
You should note that the approximate roundturn commissions set forth above
include administrative, offering, and other expenses, for which Morgan Stanley
DW is responsible, but are typically paid separately from roundturn commissions.
The foregoing estimates are based on past results and may vary in the future.
FINANCIAL BENEFITS. Each partnership deposits all of its assets with the
commodity brokers in connection with the partnership's futures, forward, and
options trading. Morgan Stanley DW then pays each partnership the rate that
Morgan Stanley DW earns on its U.S. Treasury bill investments with all customer
segregated funds, as if 80% (100% in the case of Spectrum Global Balanced) of
the partnership's average net assets for the month were invested at that rate.
The commodity brokers, as they are permitted under CFTC regulations, invest
a portion of the partnerships' funds in CFTC specified securities and other
instruments and retain any interest earned on those investments. Instead of
investing a partnership's funds, Morgan Stanley DW may choose to deposit the
funds in non-interest-bearing bank accounts at various banks (currently four
banks), in exchange for which the banks offer Morgan Stanley DW affiliates
advantageous interest rates on loans up to the amount of the deposits. This is
known as compensating balance treatment. The benefit to Morgan Stanley DW and
its affiliates from this compensating balance treatment is the difference
between the lending rate they would have received without the deposits and the
rate they receive by reason of the deposits. The benefit to Morgan Stanley DW
from this compensating balance arrangement and the investment of the
partnerships' funds will vary depending upon market conditions. The approximate
benefit to Morgan Stanley DW currently for each partnership is set forth in the
"--Charges To Each Partnership" table beginning on page 19. For more information
regarding Morgan Stanley DW's interest crediting arrangements with the
partnerships and the investment of customer funds by the commodity brokers. See
"Use of Proceeds--Interest Credits" on page 27.
24
Morgan Stanley, as the counterparty on foreign currency forward trades for
each partnership, except Spectrum Commodity which does not trade foreign
currency forwards, will attempt to earn a markup, spread, or other profit as
part of the transaction price on each foreign currency forward contract trade,
which is separate from the flat-rate brokerage fees paid by the partnerships to
Morgan Stanley DW. See "Conflicts of Interest" beginning on page 14.
EXTRAORDINARY EXPENSES
Each partnership is obligated to pay any extraordinary expenses it may
incur. Extraordinary expenses will be determined in accordance with accounting
principles generally accepted in the United States of America, which generally
include events that are both unusual in nature and occur infrequently, such as
litigation.
EXPENSE LIMITATIONS
The general partner may permit an increase, subject to state limits
described below, in the management, incentive and brokerage fees payable by a
partnership only on the first business day following a redemption date. Prior to
any such increase, the following conditions must be satisfied:
- notice of the increase must be mailed to investors at least five business
days prior to the last date on which a "request for redemption" must be
received by the general partner;
- the notice must describe investors' redemption and voting rights; and
- investors must not be subject to any redemption charges if they redeem
units at the first redemption date following the notice.
Each partnership's fees and expenses are subject to limits imposed under
guidelines applied by state securities regulators, as set forth in Section 7(e)
of the limited partnership agreement, including the limitation that the
aggregate of the brokerage fees payable by the partnership to any commodity
broker and the net excess interest and compensating balance benefits to any
commodity broker, after crediting the partnership with interest, shall not
exceed 14% annually of the partnership's average month-end net assets during the
calendar year. The general partner will pay any fees and expenses in excess of
any such limits.
REDEMPTION CHARGES
You may redeem all or part of your investment in any partnership at any
month-end once you have been an investor in that partnership for at least six
months, regardless of when your units were actually purchased.
Units redeemed on or before the last day of the twelfth month after they
were purchased, are subject to a redemption charge equal to 2% of the net asset
value of a unit on the redemption date. Units redeemed after the last day of the
twelfth month and on or before the last day of the twenty-fourth month after
they were purchased are subject to a redemption charge equal to 1% of the net
asset value of the units on the redemption date. If you redeem units after the
last day of the twenty-fourth month after they were purchased, you will not be
subject to a redemption charge. All redemption charges will be paid to Morgan
Stanley DW and will not be shared with the financial advisor or additional
selling agent who sold the units.
The following is an example of a redemption charge that may be payable by
you to Morgan Stanley DW. If you redeem $5,000 worth of units in Spectrum Select
after the sixth month and on or before the last day of the twelfth month after
the units were purchased, you will be subject to the full 2% redemption charge.
In that case, an aggregate redemption charge equal to $100 (2% of $5,000 will be
deducted from the proceeds of your redemption).
25
USE OF PROCEEDS
Each partnership engages in the speculative trading of futures, forwards,
and options contracts. The proceeds received by each partnership from the sale
of its units and the continuing capital contributions made by the general
partner to each partnership will be deposited in separate commodity trading
accounts established by the commodity brokers for each of the trading advisors.
All of the funds in a partnership's trading accounts will be used to engage in
trading futures, forwards, and options contracts.
The partnerships' assets held by the commodity brokers will be segregated or
secured in accordance with the Commodity Exchange Act and CFTC regulations. The
partnerships' trading on various U.S. futures exchanges is subject to CFTC
regulation and the rules of the exchanges. The partnerships' trading on foreign
futures exchanges is subject to regulation by foreign regulatory authorities and
the rules of the exchanges.
Each partnership's margin commitments with respect to its U.S. commodity
futures and forwards positions have ranged, and are anticipated to range,
between 10% and 40% of net assets (except Spectrum Select, which has ranged, and
is anticipated to range, between 20% and 40% and Spectrum Commodity, which has
ranged and is anticipated to range, between 5% and 20%). However, a
partnership's margin levels could deviate substantially from that range in the
future.
The partnerships may trade on one or more of the following foreign futures
exchanges and, from time to time, may trade on other foreign exchanges:
- Deutsche Terminborse/Eurex
- Hong Kong Futures Exchange Ltd.
- International Petroleum Exchange of London Ltd.
- Italian Derivatives Market
- London International Financial Futures Exchange Ltd.
- London Commodity Exchange
- London Metal Exchange
- London Securities and Derivatives Exchange
- Marche a Terme International de France
- MEFF Renta Fija
- MEFF Renta Variable
- Montreal Exchange
- New Zealand Futures and Options Exchange
- Osaka Securities Exchange
- Singapore International Monetary Exchange
- Swiss Options and Financial Futures Exchange AG
- Sydney Futures Exchange
- Tokyo Commodity Exchange
- Tokyo Grain Exchange
- Tokyo International Financial Futures Exchange
- Tokyo Stock Exchange
- Winnipeg Commodity Exchange
In connection with foreign futures and options contracts, the partnerships'
assets may be deposited by the commodity brokers in accounts with non-U.S. banks
and foreign brokers that are segregated on the books of those banks or brokers
for the benefit of their customers. All non-U.S. banks and foreign brokers will
be qualified depositories pursuant to relevant CFTC Advisories. All non-U.S.
banks will be subject to the local bank regulatory authorities, and the foreign
brokers will be members of the exchanges on which the futures and option trades
are to be executed and will be subject to the regulatory authorities in the
jurisdictions in which they operate.
26
At each monthly closing, the trading advisors for each partnership are
currently allocated the net proceeds from additional investments received by
that partnership, and redemptions from that partnership are allocated to them,
in the following proportions:
PERCENTAGE OF NET
ASSETS ALLOCATED TO
EACH TRADING
ADVISOR AS OF
SPECTRUM SELECT ADDITIONS REDEMPTIONS DECEMBER 31, 2000
--------------- --------- ----------- -------------------
% % %
EMC Capital Management, Inc........... 0 0 14.6
Northfield Trading L.P.*.............. N/A N/A N/A
Rabar Market Research, Inc............ 50 50 44.9
Sunrise Capital Management, Inc....... 50 50 40.5
SPECTRUM TECHNICAL
----------------------------------------
Campbell & Company, Inc............... 33 1/3 25 31.1
Chesapeake Capital Corporation........ 33 1/3 25 23.4
John W. Henry & Company, Inc.
Original Investment Program......... 16 2/3 25 20.4
Financial and Metals Portfolio...... 16 2/3 25 25.1
SPECTRUM STRATEGIC
----------------------------------------
Allied Irish Capital Management,
Ltd................................. 50 50 35.8
Blenheim Investments, Inc............. 0 0 33.3
Eclipse Capital Management, Inc....... 50 50 30.9
SPECTRUM GLOBAL BALANCED
----------------------------------------
RXR, Inc.............................. 100 100 100
SPECTRUM CURRENCY
----------------------------------------
John W. Henry & Company, Inc.......... 50 50 51.0
Sunrise Capital Partners, LLC......... 50 50 49.0
SPECTRUM COMMODITY
----------------------------------------
Morgan Stanley Dean Witter Commodities
Management Inc...................... 100 100 100
---------
* Northfield will be added as a trading advisor effective May 1, 2001.
Commencing May 1, 2001, the net assets allocated to each trading advisor
shall be approximately: EMC (15%), Northfield (15%), Rabar (35%), and
Sunrise (35%). In addition, additions and redemptions shall be allocated as
follows: EMC (0%), Northfield (33 1/3%), Rabar (33 1/3%), and Sunrise
(33 1/3%).
In the future, the proceeds from each monthly closing and redemptions may be
allocated in different proportions. Further, the general partner may adjust the
portion of a partnership's assets traded by a trading advisor through
reallocations of assets among the partnership's trading advisors.
The assets of the partnerships are not commingled with the assets of one
another or any other entity. Margin deposits and deposits of assets with a
commodity broker do not constitute commingling.
INTEREST CREDITS
The partnerships' funds held by the commodity brokers will either be held
and invested together with other customer segregated or secured funds of the
commodity brokers, or will be held in non-interest-bearing bank accounts. In
either case, Morgan Stanley DW will credit each partnership with interest income
at each month-end at the rate earned by Morgan Stanley DW on its U.S. Treasury
bill investments with customer segregated funds as if 80% (100% in the case of
Spectrum Global Balanced) of each partnership's average daily net assets for the
month were invested in U.S. Treasury bills at such rate. For purposes of these
interest credits, daily funds do not include monies due a partnership on or with
respect to futures, forwards or options contracts which have not been received.
Morgan Stanley DW retains any interest earned in excess of the interest credited
by Morgan Stanley DW to the partnerships.
27
To the extent the partnerships' funds are held by the commodity brokers in
customer segregated accounts relating to trading in U.S. exchange-traded futures
and options, those funds, along with segregated funds of other customers in the
accounts, may be invested by the commodity brokers, under applicable CFTC
regulations, in obligations of, or fully guaranteed by, the U.S., general
obligations of any state or any political subdivision thereof, general
obligations issued by any agency sponsored by the U.S., certificates of deposit
issued by a bank as defined in the Exchange Act or a domestic branch of a
foreign bank insured by the FDIC, commercial paper, corporate notes, general
obligations of a sovereign nation, and interests in money market mutual funds,
subject to conditions and restrictions regarding marketability, investment
quality, and investment concentration. In addition, such investments may be
bought and sold pursuant to designated repurchase and reverse repurchase
agreements. To the extent the partnerships' funds are held by the commodity
brokers in secured accounts relating to trading in futures or options contracts
on non-U.S. exchanges or in forward contracts, such funds may be invested by the
commodity brokers, under applicable CFTC regulations, in the instruments
described above for customer segregated funds, in equity and debt securities
traded on established securities markets in the U.S., and in commercial paper
and other debt instruments that are rated in one of the top two rating
categories by Moody's Investor Service, Inc. or Standard & Poor's Ratings
Services, a Division of The McGraw-Hill Companies, Inc. A significant portion of
the partnerships' funds held by Morgan Stanley DW will be held in secured
accounts and will be invested in short-term or medium-term commercial paper
rated AAA or the equivalent or in other permitted debt instruments rated AAA or
the equivalent.
To the extent that the partnerships' funds are held in non-interest-bearing
bank accounts, Morgan Stanley DW or its affiliates will benefit from
compensating balance treatment in connection with Morgan Stanley DW's
designation of a bank or banks in which the partnership's assets are deposited,
meaning that Morgan Stanley DW or its affiliates will receive favorable loan
rates from such bank or banks by reason of such deposits. To the extent that any
excess interest and compensating balance benefits to Morgan Stanley DW or its
affiliates exceed the interest Morgan Stanley DW is obligated to credit to the
partnerships, they will not be shared with the partnerships.
28
THE SPECTRUM SERIES
GENERAL
The Spectrum Series presently consists of six limited partnerships each
formed under the laws of Delaware: Spectrum Select, Spectrum Technical, Spectrum
Strategic, Spectrum Global Balanced, Spectrum Currency, and Spectrum Commodity.
DATE PARTNERSHIP DATE PARTNERSHIP
WAS FORMED BEGAN OPERATIONS
---------------- ------------------
Spectrum Select............................. March 21, 1991 August 1, 1991
Spectrum Technical.......................... April 29, 1994 November 2, 1994
Spectrum Strategic.......................... April 29, 1994 November 2, 1994
Spectrum Global Balanced.................... April 29, 1994 November 2, 1994
Spectrum Currency........................... October 20, 1999 July 3, 2000
Spectrum Commodity.......................... July 31, 1997 January 2, 1998
Each partnership calculates its net asset value per unit independently of
the other partnerships. Each partnership's performance depends solely on the
performance of its trading advisor(s).
Each partnership is continuously offering its units for sale at monthly
closings held as of the last day of each month. The purchase price per unit is
equal to 100% of the net asset value of a unit as of the date of the monthly
closing at which the general partner accepts a subscription.
Following is a summary of information relating to the sale of units of each
partnership through December 31, 2000:
NUMBER NET
TOTAL GENERAL OF ASSET
UNITS UNITS AVAILABLE PROCEEDS PARTNER LIMITED VALUE
SOLD FOR SALE RECEIVED CONTRIBUTIONS PARTNERS PER UNIT
-------------- --------------- ----------- ------------- -------- --------
$ $ $
Spectrum Select*..............
4,888,419.632 6,111,580.368 309,663,034 1,680,000 16,091 23.57
Spectrum Technical............ 24,671,602.840 8,328,397.160 330,393,586 2,511,984 24,067 16.08
Spectrum Strategic............ 11,115,271.053 7,884,728.947 122,790,176 822,000 10,801 10.61
Spectrum Global Balanced...... 5,148,253.253 5,851,746.747 69,683,966 533,234 6,978 16.26
Spectrum Currency............. 1,460,031.957 10,539,968.043 15,168,701 1,544,645 1,260 11.17
Spectrum Commodity............ 277,607.062 6,722,392.938 43,351,187 430,000 2,537 7.85
---------
* The number of units sold has been adjusted to reflect a 100-for-1 unit
conversion that took place on June 1, 1998, when Spectrum Select became part
of the Spectrum Series of partnerships.
INVESTMENT OBJECTIVES
The investment objective of each partnership is to achieve capital
appreciation and, to a lesser extent in the case of Spectrum Global Balanced, to
provide investors with the opportunity to diversify a portfolio of traditional
investments consisting of stocks and bonds. While each partnership has the same
overall investment objective and many of the trading advisors for the various
partnerships trade in the same futures, forwards, and options contracts, each
trading advisor has developed its own trading programs and trades futures,
forwards, and options in a different manner. Each partnership has a different
mix of trading advisors and trading programs. You should review and compare the
specifics of each partnership, its terms, and its trading advisors before
selecting one or more partnerships in which to invest.
29
MORGAN STANLEY DEAN WITTER SPECTRUM SELECT L.P.
Spectrum Select currently utilizes three trading advisors, but commencing
May 1, 2001, Northfield will be added as a fourth trading advisor. Each trading
advisor will employ systematic, technical trading models. EMC uses an aggressive
systematic trading approach that blends several independent methodologies
designed to identify emerging trends and follow existing trends. This program
seeks significant trends in favorable periods, while accepting a corresponding
decline in unfavorable market cycles. Northfield uses a purely technical
approach, utilizing price action itself as analyzed by charts, numerical
indicators, pattern recognition, or other techniques designed to provide
information about market direction. Rabar uses a systematic approach with
discretion, limiting the equity committed to each trade, market, and sector.
Rabar's trading program uses constant research and analysis of market behavior.
Sunrise's investment approach attempts to detect a trend, or lack of a trend,
with respect to a particular market by analyzing price movement and volatility
over time. Sunrise's trading system consists of multiple, independent and
parallel systems, each designed to seek out and extract different market
inefficiencies over different time horizons. For a more detailed discussion of
the Spectrum Select trading advisors and their various programs see "The Trading
Advisors--Morgan Stanley Dean Witter Spectrum Select L.P." beginning on
page 71.
MORGAN STANLEY DEAN WITTER SPECTRUM TECHNICAL L.P.
Spectrum Technical currently uses three trading advisors, each of whom
employs technically based trading models to achieve its objective. Campbell uses
a highly disciplined, systematic approach designed to detect and react to price
movements in the futures and forwards markets. Campbell's core systematic
approach has been used for over 20 years. The trading methodology employed by
Chesapeake is based on the analysis of interrelated mathematical and statistical
formulas, including the technical analysis of historical data, used to determine
optimal price support and resistance levels and market entry and exit points in
various futures, forwards and options markets. This trading system was designed
in the 1980s and is continually updated based on research. JWH's trading
programs use disciplined systematic quantitative methodologies to identify
short- to long-term trends in both the financial and non-financial futures
markets. These programs are differentiated by a distinctive style, timing and
market characteristic. For a more detailed discussion of the Spectrum Technical
trading advisors and their various programs see "The Trading Advisors--Morgan
Stanley Dean Witter Spectrum Technical L.P." beginning on page 84.
MORGAN STANLEY DEAN WITTER SPECTRUM STRATEGIC L.P.
Spectrum Strategic currently utilizes three trading advisors, each of whom
employ discretionary and systematic trading approaches that seek to profit
through the analysis of fundamental and technical market information. Allied
Irish employs multiple investment professionals using a discretionary approach.
Several strategies are applied to investments in a broad range of financial
instruments. Blenheim's program has a strong global concentration, using a
discretionary approach supplemented by a systematic and mathematical investment
process. Investments are made in markets in which Blenheim has a clear
understanding of fundamental factors and geopolitical forces that influence
price behavior. Eclipse employs a systematic trading approach using multiple
trend-following and macroeconomic driven models. A key characteristic of the
Eclipse trading program is the extensive diversification achieved by applying
multiple trading models to a wide variety of financial markets located
throughout the world. For a more detailed discussion of the Spectrum Strategic
trading advisors and their various programs see "The Trading Advisors--Morgan
Stanley Dean Witter Spectrum Strategic L.P." beginning on page 99.
MORGAN STANLEY DEAN WITTER SPECTRUM GLOBAL BALANCED L.P.
Spectrum Global Balanced utilizes one trading advisor that trades a
multi-strategy portfolio of futures forwards and options, consisting of world
equity, global bonds, currency, and commodity markets. Within the long biased
global stock and global bond components of the fund, RXR, Inc. analyzes various
fundamental information. Within the long and short global currency and commodity
components of the fund, RXR employs a technical trend-following trading system.
RXR uses a computer-based model to reallocate assets among various market
sectors within each of the independent strategies. For a more detailed
discussion of RXR, the sole trading advisor for Spectrum Global Balanced, and
its trading program, see "The Trading Advisors--Morgan Stanley Dean Witter
Spectrum Global Balanced L.P." beginning on page 110.
30
MORGAN STANLEY DEAN WITTER SPECTRUM CURRENCY L.P.
Spectrum Currency will utilize two trading advisors, each of whom employs
proprietary trading models that seek to identify favorable price relationships
between and among various global currency markets through the disciplined
analysis of technical market information. JWH employs the International Foreign
Exchange Program, which seeks to identify and capitalize on intermediate-term
price movements in a broad range of both major and minor currencies primarily
trading on the interbank market. Positions are taken as outrights against the
U.S. dollar, or non-dollar cross rates. Sunrise Capital Partners' Currency
Program follows approximately ten different major and minor currency markets,
which may include, but are not limited to, the Japanese yen, British pound,
Euro, Swiss franc, Canadian dollar, Australian dollar, Swedish krona, New
Zealand dollar, Singapore dollar, and South African rand. In order to achieve
adequate diversification for the Currency Program, major and minor currencies
are traded as crossrates selectively against each other and/or as outrights
against the U.S. dollar. For a more detailed discussion of the Spectrum Currency
trading advisors see "The Trading Advisors--Morgan Stanley Dean Witter Spectrum
Currency L.P." beginning on page 112.
MORGAN STANLEY DEAN WITTER SPECTRUM COMMODITY L.P.
Spectrum Commodity utilizes one trading advisor to engage in the long-only
speculative trading of a diverse mix of tangible commodity futures, including
metals, energy, food, fiber and agricultural markets. As its primary focus is
tangible commodities, Spectrum Commodity does not participate in financial
markets, such as interest rate, stock index, or currency futures and options.
The trading program seeks to benefit from supply and demand dynamics, based on
consumer and producer reactions to price movements, by over-weighting exposure
to commodities that are historically undervalued and showing signs of
strengthening, and under-weighting exposure to those markets that are
historically overvalued and showing signs of weakening. For a more detailed
discussion of the trading advisor for Spectrum Commodity and its trading
program, see "The Trading Advisor--Morgan Stanley Dean Witter Spectrum Commodity
L.P." beginning on page 122.
TRADING POLICIES
Material changes to the trading policies described below may be made only
with the prior written approval of limited partners owning more than 50% of
units of the relevant partnership then outstanding. The general partner will
notify the limited partners within seven business days after any material change
in the partnership's trading policies so approved by the limited partners.
The trading advisors will manage the funds allocated to them in accordance
with the following trading policies.
TRADING POLICIES FOR ALL PARTNERSHIPS:
- The partnership will not employ the trading technique commonly
known as "pyramiding," in which the speculator uses unrealized profits on
existing positions in a given futures interests due to favorable price
movement as margin specifically to buy or sell additional positions in the
same or a related futures interest. Taking into account the partnership's
open trade equity (I.E., the profit or loss on an open futures interest
position) on existing positions in determining generally whether to acquire
additional futures interest positions on behalf of the partnership will not
be considered to constitute "pyramiding."
- The partnership will not under any circumstances lend money to
affiliated entities or otherwise. The partnership will not utilize
borrowings except if the partnership purchases or takes delivery of
commodities. If the partnership borrows money from the general partner or
any "affiliate" thereof (as defined in Section 14(c) of the limited
partnership agreement), the lending entity in such case (the "lender") may
not receive interest in excess of its interest costs, nor may the lender
receive interest in excess of the amounts which would be charged the
partnership (without reference to the general partner's financial abilities
or guarantees) by unrelated banks on comparable loans for the same purpose,
nor may the lender or any affiliate thereof receive any points or other
financing charges or fees regardless of the amount. Use of lines of credit
in connection with its forward trading does not, however, constitute
borrowing for purposes of this trading limitation.
31
- The partnership will not permit "churning" of the partnership's
assets. Churning is the unnecessary execution of trades so as to generate
increased brokerage commissions.
TRADING POLICY FOR ALL PARTNERSHIPS EXCEPT SPECTRUM COMMODITY:
- The partnership will trade currencies and other commodities in the
interbank and forward contract markets only with banks, brokers, dealers,
and other financial institutions which the general partner, in conjunction
with Morgan Stanley DW, has determined to be creditworthy. In determining
the creditworthiness of a counterparty to a forward contract, the general
partner and Morgan Stanley DW will consult with the Corporate Credit
Department of Morgan Stanley DW.
TRADING POLICIES FOR ALL PARTNERSHIPS EXCEPT SPECTRUM GLOBAL BALANCED, SPECTRUM
CURRENCY, AND SPECTRUM COMMODITY:
- The trading advisors will trade only in those futures interests
that have been approved by the general partner. The partnership normally
will not establish new positions in a futures interest for any one contract
month or option if such additional positions would result in a net long or
short position for that futures interest requiring as margin or premium more
than 15% of the partnership's net assets. In addition, the partnership will,
except under extraordinary circumstances, maintain positions in futures
interests in at least two market segments (I.E., agricultural items,
industrial items (including energies), metals, currencies, and financial
instruments (including stock, financial, and economic indexes) at any one
time.
- The partnership will not acquire additional positions in any
futures interest if such additional positions would result in the aggregate
net long or short positions for all futures interests requiring as margin or
premium for all outstanding positions more than 66 2/3% of the partnership's
net assets. Under certain market conditions, such as an abrupt increase in
margins required by a commodity exchange or its clearinghouse or an
inability to liquidate open positions because of daily price fluctuation
limits, or both, the partnership may be required to commit as margin amounts
in excess of the foregoing limit. In such event, the trading advisors will
reduce their open positions to comply with the foregoing limit before
initiating new positions.
- The trading advisors will not generally take a position after the
first notice day in any futures interest during the delivery month of that
futures interest, except to match trades to close out a position on the
interbank foreign currency or other forward markets or liquidate trades in a
limit market.
TRADING POLICY FOR SPECTRUM SELECT AND SPECTRUM COMMODITY ONLY:
- The partnership will not purchase, sell, or trade securities
(except securities approved by the CFTC for investment of customer funds).
TRADING POLICIES FOR SPECTRUM GLOBAL BALANCED ONLY:
- The trading advisor will trade only in those futures interests that
have been approved by the general partner. In addition, the partnership
will, except under extraordinary circumstances, maintain positions in
futures interests in at least two market segments (I.E., agricultural items,
industrial items (including energies), metals, currencies, and financial
instruments (including stock, financial, and economic indexes)) at any one
time.
- The trading advisors will not generally take a position after the
first notice day in any futures interest during the delivery month of that
futures interest, except to match trades to close out a position on the
interbank foreign currency or other forward markets or liquidate trades in a
limit market. The partnership may, with the general partner's prior
approval, purchase "cash" stocks and bonds, or options on stock or bond
indices, on a temporary basis under unusual circumstances in which it is not
practicable or economically feasible to establish the partnership's stock
index or bond portfolios in the futures markets, and may acquire "cash"
instruments in its short-term interest rate futures component.
32
PERFORMANCE RECORDS
A summary of performance information for each partnership from its
commencement of operations through December 31, 2000 is set forth in Capsules I
through VI below. All performance information has been calculated on an accrual
basis in accordance with accounting principles generally accepted in the United
States of America. You should read the footnotes on pages 37 to 38, which are an
integral part of the following capsules.
Since Spectrum Currency has a limited trading history, Capsules V-A and V-B
below are presented to show the actual and pro forma annual and year-to-date
performance information for Dean Witter Cornerstone IV, which is another
currency-only fund operated by the general partner and traded by JWH and
Sunrise, the same trading advisors that trade for Spectrum Currency. JWH and
Sunrise trade for Spectrum Currency using the same trading strategies that they
employ for Cornerstone IV.
You are cautioned that the information set forth in each capsule is not
indicative of, and has no bearing on, any trading results that may be attained
by any partnership in the future. Past results are not a guarantee of future
results. We cannot assure you that a partnership will be profitable or will
avoid incurring substantial losses. You should also note that interest income
may constitute a significant portion of a partnership's total income and may
generate profits where there have been realized or unrealized losses from
futures, forwards, and options trading.
CAPSULE I
PERFORMANCE OF SPECTRUM SELECT
Type of pool: publicly-offered fund
Inception of trading: August 1991
Aggregate subscriptions: $311,343,034
Current capitalization: $220,729,969
Current net asset value per unit: $23.57
Worst monthly % drawdown past five years: (12.11)% (February 1996)
Worst monthly % drawdown since inception: (13.72)% (January 1992)
Worst month-end peak-to-valley drawdown past five years: (26.78)% (15 months,
June 1995-August 1996)
Worst month-end peak-to-valley drawdown since inception: (26.78)% (15 months,
June 1995-August 1996)
Cumulative return since inception: 135.70%
MONTHLY PERFORMANCE
--------------------------------------------------------------------------------
MONTH 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991
----- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
% % % % % % % % % %
January..................... 2.86 (2.90) 0.87 3.93 (0.38) (8.13) (11.67) 0.31 (13.72)
February.................... (2.17) 5.45 2.16 4.75 (12.11) 9.61 (6.79) 14.84 (6.09)
March....................... (2.08) (2.50) 0.23 0.31 (0.22) 20.58 12.57 (0.59) (3.91)
April....................... (3.48) 3.70 (6.72) (5.46) 4.07 9.06 (0.95) 10.35 (1.86)
May......................... 1.58 (4.38) 1.79 (1.18) (3.65) 11.08 6.84 1.95 (1.42)
June........................ (4.44) 0.34 0.93 0.16 1.37 (1.70) 10.30 0.21 7.19
July........................ (2.42) (4.40) (0.97) 9.74 (1.44) (10.61) (4.91) 13.90 10.72
August...................... 4.71 (0.44) 19.19 (6.22) (0.46) (4.81) (6.95) (0.95) 6.69 (6.20)
September................... (1.84) 1.69 6.24 0.93 3.34 (7.76) 1.25 (4.13) (5.24) 6.32
October..................... 0.44 (8.39) (5.14) (3.77) 13.30 (3.35) (4.78) (4.97) (3.17) (2.28)
November.................... 6.47 3.29 (4.16) 0.62 6.76 1.37 5.68 (1.30) 1.39 (2.93)
December.................... 8.52 1.62 1.19 3.35 (3.36) 11.19 (2.72) 8.14 (3.58) 38.67
Compound Annual/
Period Rate of Return..... 7.14 (7.56) 14.15 6.22 5.27 23.63 (5.13) 41.63 (14.45) 31.18
(5
months)
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
33
CAPSULE II
PERFORMANCE OF SPECTRUM TECHNICAL
Type of pool: publicly-offered fund
Inception of trading: November 1994
Aggregate subscriptions: $332,905,570
Current capitalization: $268,133,092
Current net asset value per unit: $16.08
Worst monthly % drawdown past five years: (9.96)% (October 1999)
Worst monthly % drawdown since inception: (9.96)% (October 1999)
Worst month-end peak-to-valley drawdown past five years: (24.32)% (17 months,
May 1999-September 2000)
Worst month-end peak-to-valley drawdown since inception: (24.32)% (17 months,
May 1999-September 2000)
Cumulative return since inception: 60.80%
MONTHLY PERFORMANCE
----------------------------------------------------------------
MONTH 2000 1999 1998 1997 1996 1995 1994
----- ---- ---- ---- ---- ---- ---- ----
% % % % % % %
January.............................. 1.21 (4.96) (1.16) 3.67 4.78 (1.84)
February............................. (1.19) 2.48 0.41 1.13 (6.39) 5.10
March................................ (1.54) (2.48) 1.31 (1.82) 1.24 10.21
April................................ (4.02) 7.18 (4.62) (2.93) 4.82 3.60
May.................................. (0.43) (5.00) 3.28 (3.75) (3.84) 0.69
June................................. (2.78) 5.13 (1.10) 0.69 3.21 (1.12)
July................................. (3.96) (3.90) (0.98) 9.33 (4.80) (2.44)
August............................... 3.74 0.95 10.29 (5.97) (0.35) (0.63)
September............................ (8.61) (1.51) 4.35 1.85 5.50 (3.33)
October.............................. 2.90 (9.96) (0.73) 0.36 9.92 (0.09)
November............................. 12.28 1.84 (6.17) 1.01 8.34 0.93 (0.90)
December............................. 12.06 3.83 5.98 4.57 (3.88) 6.09 (1.31)
Compound Annual/
Period Rate of Return.............. 7.85 (7.51) 10.18 7.49 18.35 17.59 (2.20)
(2 months)
CAPSULE III
PERFORMANCE OF SPECTRUM STRATEGIC
Type of pool: publicly-offered fund
Inception of trading: November 1994
Aggregate subscriptions: $123,612,176
Current capitalization: $74,234,449
Current net asset value per unit: $10.61
Worst monthly % drawdown past five years: (18.47)% (February 2000)
Worst monthly % drawdown since inception: (18.47)% (February 2000)
Worst month-end peak-to-valley drawdown past five years: (43.28)% (10 months,
January 2000-October 2000)
Worst month-end peak-to-valley drawdown since inception: (43.28)% (10 months,
January 2000-October 2000)
Cumulative return since inception: 6.10%
MONTHLY PERFORMANCE
----------------------------------------------------------------
MONTH 2000 1999 1998 1997 1996 1995 1994
----- ---- ---- ---- ---- ---- ---- ----
% % % % % % %
January................................. (1.96) (3.55) 5.32 (0.66) 3.71 (3.50)
February................................ (18.47) 11.76 (3.37) 10.09 (10.29) 1.45
March................................... (2.05) (3.45) 0.37 6.77 (0.97) 7.86
April................................... (10.15) 2.00 (11.06) (6.90) 6.08 0.00
May..................................... 10.13 (13.38) (7.40) 0.78 (3.05) (0.66)
June.................................... (7.82) 21.85 (0.89) (1.63) (2.86) (6.38)
July.................................... 3.71 (1.00) (5.26) 7.65 (4.91) (0.81)
August.................................. (8.26) 5.31 11.82 (4.93) 1.14 4.00
September............................... (10.40) 13.27 19.03 (6.03) 5.11 (0.39)
October................................. (6.84) (9.55) 8.44 (6.24) 2.92 0.30
November................................ 6.56 4.85 (7.94) (2.22) 3.49 2.76 0.10
December................................ 10.75 9.39 2.76 5.62 (2.65) 6.24 0.00
Compound Annual/
Period Rate of Return................. (33.06) 37.23 7.84 0.37 (3.53) 10.49 0.10
(2 months)
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
34
CAPSULE IV
PERFORMANCE OF SPECTRUM GLOBAL BALANCED
Type of pool: publicly-offered fund
Inception of trading: November 1994
Aggregate subscriptions: $70,217,200
Current capitalization: $55,879,750
Current net asset value per unit: $16.26
Worst monthly % drawdown past five years: (7.92)% (February 1996)
Worst monthly % drawdown since inception: (7.92)% (February 1996)
Worst month-end peak-to-valley drawdown past five years: (10.64)% (4 months,
February 1996-May 1996)
Worst month-end peak-to-valley drawdown since inception: (10.64)% (4 months,
February 1996-May 1996)
Cumulative return since inception: 62.60%
MONTHLY PERFORMANCE
-------------------------------------------------------------------------
MONTH 2000 1999 1998 1997 1996 1995 1994
----- ---- ---- ---- ---- ---- ---- ----
% % % % % % %
January.................................... (0.93) (0.06) 2.25 3.35 0.41 1.32
February................................... 0.94 (0.06) 1.49 3.16 (7.92) 4.62
March...................................... 3.10 0.00 2.24 (2.50) (1.08) 2.88
April...................................... (4.57) 4.13 (1.78) (1.65) 1.27 2.15
May........................................ (1.32) (4.99) (0.35) 1.68 (3.13) 4.38
June....................................... (0.26) 2.28 0.00 3.64 0.46 0.79
July....................................... (2.18) (1.67) (1.19) 11.89 0.83 (1.39)
August..................................... 3.01 (0.19) 2.55 (5.92) (0.82) (1.41)
September.................................. (3.94) (0.50) 5.11 3.26 2.30 1.61
October.................................... 2.25 (1.77) 1.18 (1.69) 3.77 0.26
November................................... (0.52) 1.93 2.66 (0.37) 4.76 2.72 (0.50)
December................................... 5.79 1.96 1.27 3.07 (3.88) 2.99 (1.21)
Compound Annual/
Period Rate of Return.................... 0.87 0.75 16.36 18.23 (3.65) 22.79 (1.70)
(2 months)
CAPSULE V
PERFORMANCE OF SPECTRUM CURRENCY
Type of pool: publicly-offered fund
Inception of trading: July 3, 2000
Aggregate subscriptions: $16,713,346
Current capitalization: $15,707,232
Current net asset value per unit: $11.17
Worst monthly % drawdown: (1.64)% (November 2000)
Worst month-end peak-to-valley drawdown: (1.64)% (1 month, November 2000)
Cumulative return since inception: 11.70%
MONTHLY
PERFORMANCE
-----------
MONTH 2000
----- ----
%
January.....
February....
March.......
April.......
May.........
June........
July........ 0.60
August...... 0.40
September... 1.39
October..... 7.32
November.... (1.64)
December.... 3.30
Compound
Annual/
Period
Rate of
Return... 11.70
(6 months)
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
35
CAPSULE V-A
PERFORMANCE OF CORNERSTONE IV
Type of pool: publicly-offered fund
Inception of trading: May 1987
Aggregate subscriptions: $168,095,656
Current capitalization: $99,618,555
Current net asset value per unit: $5,373.69
Worst monthly % drawdown past five years: (5.78)% (February 1996)
Worst monthly % drawdown since inception: (21.04)% (September 1989)
Worst month-end peak-to-valley past five years: (37.85)% (18 months, August
1993-January 1995)
Worst month-end peak-to-valley since inception: (45.21)% (3 months, July
1989-September 1989)
Cumulative return since inception: 451.15%
MONTHLY PERFORMANCE
----------------------------------------------------------------------------------------------
MONTH 2000 1999 1998 1997 1996 1995 1994 1993 1992
----- ---- ---- ---- ---- ---- ---- ---- ---- ----
% % % % % % % % %
January...................... 1.52 (2.37) (1.58) 5.34 3.19 (7.65) (1.12) (5.29) (9.64)
February..................... (1.70) 0.84 (3.16) 6.55 (5.78) 6.27 (2.75) 12.92 (7.40)
March........................ (0.55) 2.23 2.51 1.45 2.80 27.02 0.29 (2.55) 1.60
April........................ 6.91 1.19 (3.44) 1.23 2.97 2.39 (3.19) 0.03 (6.40)
May.......................... (0.12) (1.37) 4.89 (5.54) 1.19 (4.83) (3.65) 3.95 2.71
June......................... (4.60) (0.67) 11.31 1.36 (0.23) (0.62) 6.72 0.92 15.10
July......................... 0.40 (5.28) 0.37 8.45 (3.51) (1.06) (4.21) 5.87 7.47
August....................... 0.38 1.27 0.78 2.68 (2.69) 5.49 (3.57) (5.57) 17.26
September.................... 1.45 2.39 (3.11) 0.45 0.32 (0.06) 1.66 (2.10) (4.21)
October...................... 9.06 (3.77) 4.86 3.12 8.80 0.74 4.93 (7.48) (0.99)
November..................... (1.20) 5.29 (4.24) 4.15 4.25 (2.57) (6.82) (7.50) 0.60
December..................... 3.01 (0.42) (1.49) 4.38 1.76 (0.52) (2.73) (0.78) (2.40)
Compound Annual/
Period Rate of Return....... 14.74 (1.13) 6.80 38.41 12.97 22.96 (14.27) (9.12) 10.37
MONTHLY PERFORMANCE
------------------------------------------------------
MONTH 1991 1990 1989 1988 1987
----- ---- ---- ---- ---- ----
% % % % %
January...................... (10.12) 3.15 15.72 (18.14)
February..................... (6.91) 1.37 (14.64) 0.93
March........................ 26.00 6.09 3.44 5.06
April........................ 1.83 3.01 1.84 3.41
May.......................... 1.24 (8.53) 12.56 25.38 (9.60)
June......................... 9.45 12.26 0.01 12.95 (0.75)
July......................... (9.47) 23.25 (14.85) 6.93 (2.23)
August....................... (8.50) 8.65 (18.51) 3.96 (12.61)
September.................... 6.69 (3.02) (21.04) (4.46) 0.00
October...................... (5.29) 11.07 4.47 1.56 13.82
November..................... 5.26 (1.11) 11.40 8.77 11.80
December..................... 27.40 (5.74) 14.97 (7.80) 13.39
Compound Annual/
Period Rate of Return....... 33.52 57.77 (14.12) 37.51 10.61
(8 months)
Capsule V-B below is a pro forma of Capsule V-A, adjusted to reflect the
actual brokerage, management, and incentive fees paid by Spectrum Currency,
rather than those which were paid by Cornerstone IV. The footnotes following
Capsule V-B are an integral part of Capsule V-B.
You are cautioned that the performance information set forth in the
following capsule performance summary is not indicative of, and has no bearing
on, the performance results that may be attained by Spectrum Currency in the
future. Past results are not a guarantee of future results. We cannot assure you
that Spectrum Currency will be profitable or will avoid incurring substantial
losses. You should also note that interest income may constitute a significant
portion of Spectrum Currency's total income and may generate profits where there
have been realized or unrealized losses from futures, forwards, and options
trading.
CAPSULE V-B
PRO FORMA PERFORMANCE OF CORNERSTONE IV
Worst monthly % drawdown past five years: (7.40)% (January 1995)
Worst monthly % drawdown since inception: (20.25)% (January 1988)
Worst month-end peak-to-valley drawdown past five years: (36.70)% (18 months,
August 1993-January 1995)
Worst month-end peak-to-valley drawdown since inception: (46.06)% (3 months,
July 1989-September 1989)
Cumulative return since inception: 260.04%
MONTHLY PERFORMANCE
----------------------------------------------------------------------------------------------
MONTH 2000 1999 1998 1997 1996 1995 1994 1993 1992
----- ---- ---- ---- ---- ---- ---- ---- ---- ----
% % % % % % % % %
January...................... 1.65 (2.94) (1.79) 5.03 3.24 (7.40) (1.07) (6.01) (11.18)
February..................... (1.83) 0.81 (4.00) 5.16 (5.75) 6.37 (2.55) 14.13 (8.51)
March........................ (0.44) 2.62 2.82 0.05 2.76 26.63 0.54 (3.05) 2.13
April........................ 6.82 1.26 (4.19) 0.86 3.13 1.97 (3.15) 0.11 (6.35)
May.......................... (0.28) (1.76) 5.36 (5.52) 1.19 (4.93) (3.64) 3.81 3.21
June......................... (4.60) (0.51) 11.07 1.40 (0.12) (0.77) 7.06 0.31 17.76
July......................... 0.27 (5.23) 0.04 7.64 (3.47) (1.21) (4.18) 5.57 7.82
August....................... 0.30 1.21 0.34 1.37 (2.67) 5.48 (3.47) (6.60) 15.49
September.................... 1.55 2.54 (3.77) (0.93) 0.58 (0.14) 1.78 (1.91) (7.67)
October...................... 9.50 (3.83) 5.17 2.48 8.95 0.54 4.99 (7.18) (1.24)
November..................... (1.67) 5.16 (5.22) 3.29 4.22 (2.74) (6.67) (7.11) 0.63
December..................... 3.52 (0.18) (1.90) 2.74 1.86 (0.66) (2.66) (0.49) (2.62)
Compound Annual/
Period Rate of Return....... 14.93 (1.33) 2.67 25.53 13.91 21.28 (13.04) (10.03) 5.11
MONTHLY PERFORMANCE
------------------------------------------------------
MONTH 1991 1990 1989 1988 1987
----- ---- ---- ---- ---- ----
% % % % %
January...................... (10.90) 3.65 15.33 (20.25)
February..................... (6.64) 1.37 (17.52) 1.06
March........................ 27.47 5.86 3.31 5.89
April........................ 1.60 2.95 1.70 3.86
May.......................... 0.83 (7.87) 12.46 26.84 (10.59)
June......................... 8.64 12.82 (1.97) 9.80 (0.25)
July......................... (10.84) 21.34 (14.34) 6.55 (1.99)
August....................... (8.24) 6.47 (17.71) 2.29 (12.15)
September.................... 7.10 (6.30) (19.90) (6.28) (0.17)
October...................... (4.95) 10.59 4.94 1.70 13.69
November..................... 5.45 (3.30) 11.67 8.11 10.51
December..................... 28.00 (7.17) 15.75 (9.32) 11.86
Compound Annual/
Period Rate of Return....... 32.66 43.03 (15.61) 25.71 7.74
(8 months)
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
36
CAPSULE VI
PERFORMANCE OF SPECTRUM COMMODITY
Type of pool: publicly-offered fund
Inception of trading: January 2, 1998
Aggregate subscriptions: $43,781,187
Current capitalization: $20,199,981
Current net asset value per unit: $7.85
Worst monthly % drawdown: (9.09)% (November 1998)
Worst month-end peak-to-valley drawdown: (38.60)% (13 Months, February
1998-February 1999)
Cumulative return since inception: (21.50)%
MONTHLY PERFORMANCE
------------------------
MONTH 2000 1999 1998
----- ---- ---- ----
% % %
January..................................................... 3.02 (1.52) 1.30
February.................................................... (3.19) (3.86) (5.92)
March....................................................... 0.79 8.68 0.10
April....................................................... (3.01) 2.37 (2.41)
May......................................................... 4.31 (5.92) (6.87)
June........................................................ (0.90) 4.45 (3.23)
July........................................................ (3.65) 0.44 (6.44)
August...................................................... 4.74 6.15 (7.90)
September................................................... (0.52) 4.55 7.19
October..................................................... (2.86) (2.77) (3.48)
November.................................................... 3.74 0.54 (9.09)
December.................................................... 1.16 2.70 (3.38)
Compound Annual/
Period Rate of Return...................................... 3.15 15.83 (34.30)
FOOTNOTES TO CAPSULES I THROUGH VI
"Aggregate subscriptions" represent the total amount received for all units
purchased by investors since the partnership commenced operations.
"Drawdown" is the decline in the net asset value per unit.
"Worst month-end peak-to-valley drawdown" is the largest decline experienced
by a partnership, determined in accordance with CFTC Rule 4.10(1) and represents
the greatest cumulative percentage decline from any month-end net asset value
per unit that occurs without such month-end net asset value per unit being
equaled or exceeded by a subsequent month-end net asset value per unit. For
example, if the net asset value per unit of a partnership was $15 and declined
by $1 in each of January and February, increased by $1 in March and declined
again by $2 in April, a "peak-to-valley drawdown" analysis conducted as of the
end of April would consider that "drawdown" to be still continuing and to be $3
in amount because the $15 initial month-end net asset value per unit had not
been equaled or exceeded by a subsequent month-end net asset value per unit,
whereas if the net asset value of a unit had increased by $2 in March, the
January-February drawdown would have ended as of the end of February at the $2
level because the $15 initial net asset value per unit would have been equaled
in March. Such "drawdowns" are measured on the basis of month-end net asset
values only, and do not reflect intra-month figures.
"Monthly Performance" is the percentage change in net asset value per unit
from one month to another.
"Compound Annual/Period Rate of Return" is calculated by multiplying on a
compound basis each of the monthly rates of return and not by adding or
averaging such monthly rates of return. For periods of less than one year, the
results are year-to-date.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
37
FOOTNOTES TO CAPSULE V-B PRO FORMA PERFORMANCE SUMMARY
Capsule V-B above is a pro forma of Cornerstone IV. These rates of return
are the result of the general partner making pro forma adjustments to the actual
past performance record of Cornerstone IV, which results are set forth in
Capsule V-A. The pro forma adjustments are an attempt to reflect the interest
income, brokerage, management, and incentive fees that would have been paid or
received by Spectrum Currency, as opposed to the actual fees and expenses
applicable to Cornerstone IV.
The pro forma calculations are made on a month-to-month basis, I.E., the pro
forma adjustment to brokerage, management and incentive fees in one month do not
affect the actual figures that are used in the following month for making the
similar pro forma calculations for that period. Accordingly, the pro forma table
does not reflect on a cumulative basis the effect of the differences between the
fees paid by Spectrum Currency and the fees paid by Cornerstone IV.
Furthermore, you must be aware that pro forma rates of return have inherent
limitations: (A) pro forma adjustments are only an approximate means of
modifying historical records to reflect certain aspects of the economic terms of
a commodity pool, constitute no more than mathematical adjustments to actual
performance numbers, and give no effect whatsoever to such factors as possible
changes in trading approach that might have resulted from the different fee
structure, interest income, and other factors; and (B) there are different means
by which the pro forma adjustments could have been made.
While the general partner believes that the information set forth in Capsule
V-B is relevant to evaluating an investment in Spectrum Currency, no
representation is or could be made that the capsule presents what the
performance results would have been in the past or are likely to be in the
future. Past results are not a guarantee of future results.
ADDITIONAL PARTNERSHIPS
In the future, additional partnerships may be added to the Spectrum Series
of partnerships and units of limited partnership interest of such partnerships
may be offered pursuant to a separate prospectus or an updated version of, or
supplement to, this prospectus. Such partnerships will generally have different
trading advisors and may have substantially different trading approaches or fee
structures. You should carefully review any such separate prospectus, updated
version of, or supplement to, this prospectus before making the decision to
purchase units in any new Spectrum Series partnership.
AVAILABILITY OF EXCHANGE ACT REPORTS
The partnerships are required to file periodic reports with the SEC, such as
annual and quarterly reports and proxy statements. You may read any of these
filed documents, or obtain copies by paying prescribed charges, at the SEC's
public reference rooms located at 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549; 7 World Trade Center, Suite 1300, New York, New York
10048; and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference rooms. The partnerships' SEC filings are
also available to the public from the SEC's Web site at "http://www.sec.gov."
Their SEC file numbers are 0-19511 (Spectrum Select), 0-26338 (Spectrum
Technical), 0-26280 (Spectrum Strategic), 0-26340 (Spectrum Global Balanced),
0-31563 (Spectrum Currency), and 0-24035 (Spectrum Commodity).
38
SELECTED FINANCIAL DATA
AND SELECTED QUARTERLY FINANCIAL DATA
The following are the results of operations and selected quarterly financial
data for each partnership for the periods indicated. Per unit results for
Spectrum Select have been adjusted to reflect a 100-for-1 unit conversion that
became effective on June 1, 1998.
SPECTRUM SELECT
SELECTED FINANCIAL DATA
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------------------------
2000 1999 1998 1997 1996
----------- ----------- ----------- ----------- -----------
$ $ $ $ $
REVENUES
Trading Profit (Loss):
Realized 6,845,291 (1,351,849) 36,087,729 15,940,851 26,876,393
Net change in unrealized 18,665,233 (1,547,990) (1,192,107) 3,149,167 (10,950,217)
----------- ----------- ----------- ----------- -----------
Total Trading Results 25,510,524 (2,899,839) 34,895,622 19,090,018 15,926,176
Interest income (Morgan
Stanley DW) 9,573,095 7,678,789 6,883,110 7,405,511 6,120,347
----------- ----------- ----------- ----------- -----------
Total Revenues 35,083,619 4,778,950 41,778,732 26,495,529 22,046,523
----------- ----------- ----------- ----------- -----------
EXPENSES
Brokerage fees (Morgan Stanley
DW) 14,706,945 15,188,479 11,360,166 9,777,851 10,641,478
Management fees 6,085,629 6,284,885 5,202,158 5,239,533 4,583,197
Incentive fees -- -- 1,832,021 49,989 175,796
Transaction fees and costs -- -- 625,327 1,370,439 1,104,011
Administrative expenses -- -- 64,000 114,000 128,000
----------- ----------- ----------- ----------- -----------
Total Expenses 20,792,574 21,473,364 19,083,672 16,551,812 16,632,482
----------- ----------- ----------- ----------- -----------
NET INCOME (LOSS) 14,291,045 (16,694,414) 22,695,060 9,943,717 5,414,041
=========== =========== =========== =========== ===========
NET INCOME (LOSS) ALLOCATION:
Limited partners 14,165,099 (16,455,697) 22,302,202 9,781,168 5,283,411
General partner 125,946 (238,717) 392,858 162,549 130,630
NET INCOME (LOSS) PER UNIT:
Limited partners 1.57 (1.80) 2.95 1.22 .98
General partner 1.57 (1.80) 2.95 1.22 .98
TOTAL ASSETS AT END OF PERIOD 224,581,554 219,366,812 202,668,038 169,541,807 167,588,012
TOTAL NET ASSETS AT END OF
PERIOD 220,729,969 213,805,674 200,082,516 166,773,321 163,786,285
NET ASSET VALUE PER UNIT AT
END OF PERIOD
Limited partners 23.57 22.00 23.80 20.85 19.62
General partner 23.57 22.00 23.80 20.85 19.62
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
NET INCOME
(LOSS) PER
NET UNIT OF LIMITED
QUARTER ENDED REVENUE INCOME (LOSS) PARTNERSHIP INTEREST
------------- ------------ ------------- --------------------
2000
March 31 $ 2,404,979 $ (3,137,046) $(0.32)
June 30 (8,520,028) (13,799,338) (1.43)
September 30 5,462,810 512,200 0.06
December 31 35,735,858 30,715,229 3.36
----------- ------------ ------
Total $35,083,619 $ 14,291,045 $ 1.57
=========== ============ ======
1999
March 31 $ 4,868,442 $ (311,140) $(0.04)
June 30 4,296,288 (1,124,247) (0.12)
September 30 (1,323,973) (6,757,813) (0.76)
December 31 (3,061,807) (8,501,214) (0.88)
----------- ------------ ------
Total $ 4,778,950 $(16,694,414) $(1.80)
=========== ============ ======
39
SPECTRUM TECHNICAL
SELECTED FINANCIAL DATA
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------------------------
2000 1999 1998 1997 1996
----------- ----------- ----------- ----------- -----------
$ $ $ $ $
REVENUES
Trading Profit (Loss):
Realized 12,255,064 726,179 35,224,194 13,777,460 26,334,748
Net change in
unrealized 22,006,013 (872,972) 6,612,556 9,762,823 (1,552,659)
----------- ----------- ----------- ----------- -----------
Total Trading Results 34,261,077 (146,793) 41,836,750 23,540,283 24,782,089
Interest income (Morgan
Stanley DW) 11,613,896 9,593,178 8,103,423 5,987,304 3,242,977
----------- ----------- ----------- ----------- -----------
Total Revenues 45,874,973 9,446,385 49,940,173 29,527,587 28,025,066
----------- ----------- ----------- ----------- -----------
EXPENSES
Brokerage fees (Morgan
Stanley DW) 17,835,223 19,176,380 15,543,787 11,617,770 6,997,531
Management fees 9,595,464 10,580,071 8,403,764 5,832,758 3,273,649
Incentive fees 166,085 430,097 3,191,252 369,975 1,852,569
----------- ----------- ----------- ----------- -----------
Total Expenses 27,596,772 30,186,548 27,138,803 17,820,503 12,123,749
----------- ----------- ----------- ----------- -----------
NET INCOME (LOSS) 18,278,201 (20,740,163) 22,801,370 11,707,084 15,901,317
=========== =========== =========== =========== ===========
NET INCOME (LOSS)
ALLOCATION:
Limited partners 18,053,408 (20,531,494) 22,571,217 11,589,197 15,737,852
General partner 224,793 (208,669) 230,153 117,887 163,465
NET INCOME (LOSS) PER
UNIT:
Limited partners 1.17 (1.21) 1.49 1.02 2.11
General partner 1.17 (1.21) 1.49 1.02 2.11
TOTAL ASSETS AT END OF
PERIOD 273,695,028 274,233,195 258,673,911 184,769,817 114,822,056
TOTAL NET ASSETS AT END
OF PERIOD 268,133,092 268,755,718 255,101,434 181,950,507 112,985,629
NET ASSET VALUE PER UNIT
AT END OF PERIOD
Limited partners 16.08 14.91 16.12 14.63 13.61
General partner 16.08 14.91 16.12 14.63 13.61
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
NET INCOME
(LOSS) PER
NET UNIT OF LIMITED
QUARTER ENDED REVENUE INCOME (LOSS) PARTNERSHIP INTEREST
------------- ------------ ------------- --------------------
2000
March 31 $ 3,465,946 $ (4,179,439) $ 0.23)
June 30 (11,310,849) (18,459,271) (1.04)
September 30 (14,646,896) (21,268,774) (1.22)
December 31 68,366,772 62,185,685 3.66
------------ ------------ ------
Total $ 45,874,973 $ 18,278,201 $ 1.17
============ ============ ======
1999
March 31 $ (5,812,374) $ 12,927,525) $(0.81)
June 30 25,782,426 17,956,584 1.08
September 30 (4,572,563) (12,395,708) (0.73)
December 31 (5,950,804) (13,373,514) (0.75)
------------ ------------ ------
Total $ 9,446,685 $(20,740,163) $(1.21)
============ ============ ======
40
SPECTRUM STRATEGIC
SELECTED FINANCIAL DATA
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------------------------
2000 1999 1998 1997 1996
----------- ----------- ----------- ----------- -----------
$ $ $ $ $
REVENUES
Trading Profit (Loss):
Realized (23,193,914) 32,274,037 7,945,575 1,297,824 4,980,402
Net change in
unrealized (7,577,681) 4,264,478 2,771,722 2,387,258 (1,679,048)
----------- ----------- ---------- ---------- ----------
Total Trading Results (30,771,595) 36,538,515 10,717,297 3,685,082 3,301,354
Interest income (Morgan
Stanley DW) 3,832,634 3,017,103 2,379,478 2,304,248 1,604,026
----------- ----------- ---------- ---------- ----------
Total Revenues (26,938,961) 39,555,618 13,096,775 5,989,330 4,905,380
----------- ----------- ---------- ---------- ----------
EXPENSES
Brokerage fees (Morgan
Stanley DW) 5,798,093 5,837,887 4,402,540 4,414,327 3,398,205
Management fees 2,880,999 3,137,509 2,342,447 2,212,788 1,587,213
Incentive fees 1,269,237 2,451,152 1,336,693 427,094 726,825
----------- ----------- ---------- ---------- ----------
Total Expenses 9,948,329 11,426,548 8,081,680 7,054,209 5,712,243
----------- ----------- ---------- ---------- ----------
NET INCOME (LOSS) (36,887,290) 28,129,070 5,015,095 (1,064,879) (806,863)
=========== =========== ========== ========== ==========
NET INCOME (LOSS)
ALLOCATION:
Limited partners (36,503,461) 27,829,050 4,958,188 (1,054,657) (799,980)
General partner (383,829) 300,020 56,907 (10,222) (6,883)
NET INCOME (LOSS) PER
UNIT:
Limited partners (5.24) 4.30 .84 0.04 (.39)
General partner (5.24) 4.30 .84 0.04 (.39)
TOTAL ASSETS AT END OF
PERIOD 76,427,098 109,444,028 71,445,333 61,010,043 47,089,676
TOTAL NET ASSETS AT END
OF PERIOD 74,234,449 107,692,521 70,421,775 59,095,581 45,118,877
NET ASSET VALUE PER UNIT
AT END OF PERIOD
Limited partners 10.61 15.85 11.55 10.71 10.67
General partner 10.61 15.85 11.55 10.71 10.67
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
NET INCOME
(LOSS) PER
NET UNIT OF LIMITED
QUARTER ENDED REVENUE INCOME (LOSS) PARTNERSHIP INTEREST
------------- ------------ ------------- --------------------
2000
March 31 $(20,337,419) $(23,815,606) $(3.44)
June 30 (5,545,665) (7,766,237) (1.09)
September 30 (9,946,543) (12,125,396) (1.67)
December 31 8,890,667 6,819,949 0.96
------------ ------------ ------
Total $(26,938,960) $(36,887,290) $(5.24)
============ ============ ======
1999
March 31 $ 5,848,294 $ 2,884,387 $ 0.47
June 30 7,913,608 5,940,003 0.92
September 30 19,157,974 15,366,886 2.34
December 31 6,635,742 3,937,794 0.57
------------ ------------ ------
Total $ 39,555,618 $ 28,129,070 $ 4.30
============ ============ ======
41
SPECTRUM GLOBAL BALANCED
SELECTED FINANCIAL DATA
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------------------------
2000 1999 1998 1997 1996
----------- ----------- ----------- ----------- -----------
$ $ $ $ $
REVENUES
Trading Profit (Loss):
Realized (2,091,009) 2,425,585 5,113,920 3,683,460 177,564
Net change in
unrealized 2,507,530 (1,157,073) 1,285,628 464,966 (175,835)
---------- ---------- ---------- ---------- ----------
Total Trading Results 416,521 1,268,512 6,399,548 4,148,426 1,729
Interest income (Morgan
Stanley DW) 3,275,958 2,385,751 1,642,542 1,145,033 891,897
---------- ---------- ---------- ---------- ----------
Total Revenues 3,692,479 3,654,263 8,042,090 5,293,459 893,626
---------- ---------- ---------- ---------- ----------
EXPENSES
Brokerage fees (Morgan
Stanley DW) 2,558,008 2,387,515 1,591,467 1,124,531 1,030,310
Management fees 695,117 648,787 422,960 269,162 221,282
Incentive fees -- 215,651 449,775 300,250 --
---------- ---------- ---------- ---------- ----------
Total Expenses 3,253,125 3,251,953 2,464,202 1,693,943 1,251,592
---------- ---------- ---------- ---------- ----------
NET INCOME (LOSS) 439,354 402,310 5,577,888 3,599,516 (357,966)
========== ========== ========== ========== ==========
NET INCOME (LOSS)
ALLOCATION:
Limited partners 433,786 397,258 5,518,127 3,561,537 (354,537)
General partner 5,568 5,052 59,761 37,979 (3,429)
NET INCOME (LOSS) PER
UNIT:
Limited partners .14 .12 2.25 2.12 (.44)
General partner .14 .12 2.25 2.12 (.44)
TOTAL ASSETS AT END OF
PERIOD 56,740,136 58,807,588 46,317,786 25,923,024 19,620,770
TOTAL NET ASSETS AT END
OF PERIOD 55,879,750 57,864,012 45,913,872 25,683,236 18,706,255
NET ASSET VALUE PER UNIT
AT END OF PERIOD
Limited partners 16.26 16.12 16.00 13.75 11.63
General partner 16.26 16.12 16.00 13.75 11.63
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
NET INCOME
(LOSS) PER
NET UNIT OF LIMITED
QUARTER ENDED REVENUE INCOME (LOSS) PARTNERSHIP INTEREST
------------- ------------ ------------- --------------------
2000
March 31 $ 2,648,486 $ 1,802,642 $ 0.50
June 30 (2,737,069) (3,565,964) (1.01)
September 30 (945,255) (1,747,363) (0.50)
December 31 4,726,317 3,950,039 1.15
------------ ------------ ------
Total $ 3,692,479 $ 439,354 $ 0.14
============ ============ ======
1999
March 31 $ 630,078 $ (53,009) $(0.02)
June 30 1,514,075 557,217 0.19
September 30 (497,147) (1,293,488) (0.38)
December 31 2,007,257 1,191,590 0.33
------------ ------------ ------
Total $ 3,654,263 $ 402,310 $ 0.12
============ ============ ======
42
SPECTRUM CURRENCY
SELECTED FINANCIAL DATA
FOR THE PERIOD FROM
JULY 3, 2000
(COMMENCEMENT OF
OPERATIONS) TO
DECEMBER 31, 2000
-------------------
REVENUES
Trading Profit:
Realized 1,126,201
Net change in unrealized 555,569
----------
Total Trading Results 1,681,770
Interest income (Morgan Stanley DW) 236,461
----------
Total Revenues 1,918,231
----------
EXPENSES
Brokerage fees (Morgan Stanley DW) 249,571
Incentive fees 188,423
Management fees 171,693
----------
Total Expenses 609,687
----------
NET INCOME 1,308,544
==========
NET INCOME ALLOCATION:
Limited partners 1,134,371
General partner 174,173
NET INCOME PER UNIT:
Limited partners 1.17
General partner 1.17
TOTAL ASSETS AT END OF PERIOD 18,056,724
TOTAL NET ASSETS AT END OF PERIOD 15,707,232
NET ASSET VALUE PER UNIT AT END OF PERIOD
Limited partners 11.17
General partner 11.17
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
NET INCOME
PER UNIT OF LIMITED
QUARTER ENDED REVENUE NET INCOME PARTNERSHIP INTEREST
------------- ------------ ------------ --------------------
2000
September 30 $ 422,969 $ 215,504 $ 0.24
December 31 1,495,262 1,093,040 0.93
------------ ------------ ------
Total $ 1,918,231 $ 1,308,544 $ 1.17
============ ============ ======
43
SPECTRUM COMMODITY
SELECTED FINANCIAL DATA
FOR THE FOR THE PERIOD FROM
YEARS ENDED JANUARY 2, 1998
DECEMBER 31, (COMMENCEMENT OF
------------------------- OPERATIONS) TO
2000 1999 DECEMBER 31, 1998
----------- ----------- -------------------
$ $ $
REVENUES
Trading Profit (Loss):
Realized 1,696,824 3,003,270 (11,870,063)
Net change in unrealized (567,711) 1,178,071 (635,643)
---------- ---------- -----------
Total Trading Results 1,129,113 4,181,341 (12,505,706)
Interest income (Morgan Stanley DW) 1,047,350 864,383 1,265,793
---------- ---------- -----------
Total Revenues 2,176,463 5,045,724 (11,239,913)
---------- ---------- -----------
EXPENSES
Brokerage fees (Morgan Stanley DW) 949,310 852,484 1,176,024
Management fees (Morgan Stanley Dean Witter
Commodities Management) 546,187 583,893 805,496
Service fee (Demeter) 58,604 233,558 322,198
---------- ---------- -----------
Total Expenses 1,554,101 1,669,935 2,303,718
---------- ---------- -----------
NET INCOME (LOSS) 622,362 3,375,789 (13,543,631)
========== ========== ===========
NET INCOME (LOSS) ALLOCATION:
Limited partners 612,086 3,330,798 (13,398,948)
General partner 10,276 44,991 (144,683)
NET INCOME (LOSS) PER UNIT:
Limited partners .24 1.04 (3.43)
General partner .24 1.04 (3.43)
TOTAL ASSETS AT END OF PERIOD 20,809,721 24,048,757 25,962,970
TOTAL NET ASSETS AT END OF PERIOD 20,199,981 23,640,470 24,908,316
NET ASSET VALUE PER UNIT AT END OF PERIOD
Limited partners 7.85 7.61 6.57
General partner 7.85 7.61 6.57
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
NET INCOME
NET PER UNIT OF LIMITED
QUARTER ENDED REVENUE INCOME (LOSS) PARTNERSHIP INTEREST
------------- ------------ ------------- --------------------
2000
March 31 $ 553,360 $ 134,339 $ 0.04
June 30 419,501 31,701 0.02
September 30 457,330 77,861 0.03
December 31 746,272 378,461 0.15
------------ ------------ ------
Total $ 2,176,463 $ 622,362 $ 0.24
============ ============ ======
1999
March 31 $ 1,039,461 $ 618,112 $ 0.19
June 30 544,092 129,771 0.04
September 30 2,962,971 2,553,417 0.78
December 31 499,200 74,489 0.03
------------ ------------ ------
Total $ 5,045,724 $ 3,375,789 $ 1.04
============ ============ ======
44
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
MORGAN STANLEY DEAN WITTER SPECTRUM SELECT L.P.
LIQUIDITY
The partnership deposits its assets with the commodity brokers in separate
futures, forwards, and options 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 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 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 currency. The markets for some world currencies have low trading volume
and are illiquid, which may prevent the partnership from trading in potentially
profitable markets or 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 in the future will affect
the amount of funds available for investments in futures, forwards, and options
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 advisor's trading program 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, 2000 and a general discussion of its trading
activities during each period. Spectrum Select has restated all per unit amounts
to reflect the 100-for-1 unit conversion that took place on June 1, 1998. 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.
2000 RESULTS. Spectrum Select recorded a net profit during 2000. The most
significant gains of approximately 9.3% were recorded in the global interest
rate futures markets primarily during August, November, and December from long
positions in U.S. interest rate futures as prices climbed higher amid a drop in
stock prices and as fears of an economic slowdown drew investors to the
perceived safety of government securities. Additional gains were recorded during
December from long positions in European and Australian interest rate futures as
prices in these markets rose amid the speculation that the U.S. Federal Reserve
would lower interest rates in the near future following their decision to switch
to an easing policy bias. In the currency markets, gains of approximately 8.2%
were recorded primarily during January, March, April, and October from short
positions in the euro and the Swiss franc as the value of
45
these European currencies weakened relative to the U.S. dollar amid skepticism
about Europe's economic outlook. In the energy markets, gains of approximately
4.0% were recorded primarily during May, August, September, November, and
December from long positions in natural gas futures as prices trended upward,
amid supply and storage concerns. A portion of the partnership's overall gains
was partially offset by losses of approximately 4.9% recorded in the global
stock index futures markets primarily during mid-April from long positions in
U.S. stock index futures 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
3.5% were experienced from long positions in copper and aluminum futures as
prices moved lower during February, May, October, and December, after concerns
mounted that demand would weaken amid a cooling of the U.S. economy.
For the year ended December 31, 2000, Spectrum Select recorded total trading
revenues, including interest income, of $35,083,619. Total expenses for the year
were $20,792,574, resulting in net income of $14,291,045. The net asset value of
a unit increased from $22.00 at December 31, 1999 to $23.57 at December 31,
2000.
1999 RESULTS. Spectrum Select recorded a net loss during 1999. The global
interest rate futures markets experienced losses of approximately 3.27%,
particularly from short-term price volatility in U.S. and European interest rate
futures. Losses of approximately 2.07% were recorded during September from short
positions in Australian bond futures as prices spiked higher on technically
based buying and short covering. Losses were also recorded from short Japanese
government bond futures 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 Masaru Hayami that he expected interest rates in Japan to rise
over time. In the metals markets, losses of approximately 1.33% were experienced
primarily from long silver futures positions, as prices declined during March
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 the
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 losses. 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.
For the year ended December 31, 1999, Spectrum Select's total trading
revenues, including interest income, were $4,778,950. Total expenses for the
year were $21,473,364, resulting in a net loss of $16,694,414. The net asset
value of a unit in Spectrum Select decreased from $23.80 at December 31, 1998 to
$22.00 at December 31, 1999.
1998 RESULTS. Spectrum Select recorded net profits during 1998. The
partnership experienced the majority of the gains, approximately 18.62%, in the
global interest rate futures markets, particularly 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-to-quality" into the global fixed income
markets. The subsequent volatility in the global financial markets and worldwide
economic deterioration continued to drive these profitable trades through
September, more than offsetting losses of approximately 4.82% experienced in
metals futures.
For the year ended December 31, 1998, Spectrum Select's total revenues,
including interest income, were $41,778,732. Total expenses for the year were
$19,083,672, resulting in net income of $22,695,060. The net asset value of a
unit in Spectrum Select increased from $20.85 at December 31, 1997 to $23.80 at
December 31, 1998.
46
To enhance the foregoing comparison of operations from year to year, you
should examine, line by line, the partnership's Statements of Operations and
Statements of Financial Condition. See "Selected Financial Data and Selected
Quarterly Financial Data" and "Independent Auditor's Report and Financial
Statements of Morgan Stanley Dean Witter Spectrum Series" contained in this
prospectus.
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 and
options in interest rates, stock indices, commodities, currencies, petroleum and
precious metals. 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, each trading advisor
must comply with the trading policies of the partnership. The trading policies
include standards for liquidity and leverage with which the partnership must
comply. The trading advisors and the general partner monitor the partnership's
trading activities to ensure compliance with the trading policies. The general
partner may require a trading advisor to modify positions of the partnership if
the general partner 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 U.S. 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
forwards contracts with a counterparty, the sole recourse of the partnership
will be the forward contracts counterparty. For a list of the foreign exchanges
on which the partnership trades, see "Use of Proceeds" on page 26. FOR AN
ADDITIONAL DISCUSSION OF THE CREDIT RISKS RELATING TO TRADING ON FOREIGN
EXCHANGES SEE "RISK FACTORS--TRADING AND PERFORMANCE RISKS--TRADING ON FOREIGN
EXCHANGES PRESENTS GREATER RISKS TO EACH PARTNERSHIP THAN TRADING ON U.S.
EXCHANGES" ON PAGE 10.
There is no assurance that a clearinghouse, exchange, or other exchange
member will meet its obligations to the partnership, and the general partner and
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.
The general partner 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. The general partner, however, has
installed a system which permits it to monitor the partnership's potential
margin liability, exchange by exchange. As a result, the general partner 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
47
been to reduce the credit exposure of the partnership to a single exchange and,
historically, the partnership's exposure to 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 that level,
the general partner 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, with respect to forward contract trading, the partnership trades with
only those counterparties which the general partner, together with Morgan
Stanley DW, have determined to be creditworthy.
The partnership presently deals with Morgan Stanley as the sole counterparty
on forward contracts.
Inflation has not been a major factor in the partnership's operations.
MORGAN STANLEY DEAN WITTER SPECTRUM TECHNICAL L.P.
LIQUIDITY
See the discussion under "--Morgan Stanley Dean Witter Spectrum Select
L.P.--Liquidity" on page 45, which discussion is equally applicable to Spectrum
Technical.
CAPITAL RESOURCES
See the discussion under "--Morgan Stanley Dean Witter Spectrum Select
L.P.--Capital Resources" on page 45, which discussion is equally applicable to
Spectrum Technical.
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 years ended December 31, 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.
2000 RESULTS. Spectrum Technical recorded a net profit during 2000. The
most significant gains of approximately 14.1% were recorded in the energy
markets primarily during May from long positions in natural gas futures as
prices trended higher, as data released by the American Gas Association further
confirmed fears that inventory levels remain low. During August, September,
November, and December, additional gains were recorded from long positions in
natural gas futures as prices climbed to all-time highs amid supply and storage
concerns. Additional gains were recorded primarily during January, February,
August, October, and November 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 currency markets, gains of approximately 6.1% were
recorded primarily during January, April, and October from short positions in
the euro and the Swiss franc as the value of these European currencies weakened
relative to the U.S. dollar amid skepticism about Europe's economic outlook.
Additional gains were recorded during December from long positions in the euro
and Swiss franc as their respective values reversed upward versus the U.S.
dollar as a result of new confidence in the European economy and an overall
skepticism regarding the U.S. economy. A portion of the partnership's overall
gains was partially offset by losses of approximately 5.1% recorded in the
metals markets primarily from short gold futures positions as gold prices spiked
sharply higher in early February. Newly established long positions in gold
futures produced additional losses later in February as gold prices fell. During
mid-July, additional losses were recorded from long 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. During
October, additional losses were incurred from long positions in copper and
aluminum futures as prices declined after concerns mounted that demand would
weaken amid a cooling of the U.S. economy.
48
For the year ended December 31, 2000, Spectrum Technical recorded total
trading revenues, including interest income, of $45,874,973. Total expenses for
the year were $27,596,772, resulting in net income of $18,278,201. The net asset
value of a unit increased from $14.91 at December 31, 1999 to $16.08 at
December 31, 2000.
1999 RESULTS. Spectrum Technical recorded a net loss during 1999. The
global interest rate futures markets experienced losses of approximately 6.67%,
particularly from short-term price volatility in U.S. and European interest rate
futures. Losses were recorded early in the first quarter from short Japanese
government bond futures positions, as prices surged higher in response to the
Bank of Japan's aggressive easing of monetary policy. Additional losses were
experienced later in the first quarter from newly established long positions, as
prices retreated following comments by Bank of Japan Governor Masaru Hayami that
he expected interest rates in Japan to rise over time. During September, losses
were recorded from short positions in Japanese government bond futures, as
prices rallied on the strength of the Japanese yen and expectations that
additional monetary easing in that country will come. In the metals markets,
losses of approximately 5.14% were recorded particularly during the month of
March from long silver futures positions, as prices declined during mid-month
after Berkshire Hathaway's annual report failed to provide any new information
on the company's silver positions. Losses were also experienced during October
and November from long gold futures positions as gold prices reversed lower
after previously climbing higher after Kuwait proposed to loan its gold, thereby
easing supply tightness. Additional losses were recorded during October from
long silver futures positions, as prices decreased following the decline in gold
prices. Gains of approximately 8.86% recorded in the energy markets helped to
mitigate losses. 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. In the currency markets, gains of approximately
4.42% were recorded during August, September, October and November from long
Japanese yen positions, as the value of the yen increased versus the U.S. dollar
due to positive economic data out of that country and optimism over Japan's
economic recovery.
For the year ended December 31, 1999, Spectrum Technical's total trading
revenues, including interest income, were $9,446,385. Total expenses for the
year were $30,186,548, resulting in a net loss of $20,740,163. The net asset
value of a unit in Spectrum Technical decreased from $16.12 at December 31, 1998
to $14.91 at December 31, 1999.
1998 RESULTS. Spectrum Technical experienced a profitable year in 1998. The
partnership recorded net gains during the year due primarily to long positions
in global interest rate futures positions. The most significant gains, totaling
approximately 19.35%, were experienced from long German, U.S. and Japanese bond
futures positions during August and September, as investors flocked to "safe
haven" investments amid the political and economic turmoil in Russia, Asia and
Latin America. Short positions in crude oil futures also contributed profits of
approximately 2.79%, as oil prices fell throughout a majority of the year on
reports of a supply surplus, despite tensions in the Middle East. These gains
were partially offset by losses experienced from short-term price volatility in
the metals markets and the stock indices, resulting in losses of approximately
4.93% and 1.97%, respectively, as investors shifted investment capital from
market to market amid global economic uncertainty.
For the year ended December 31, 1998, Spectrum Technical's total trading
revenues, including interest income, were $49,940,173. Total expenses for the
year were $27,138,803, resulting in net income of $22,801,370. The net asset
value of a unit in Spectrum Technical increased from $14.63 at December 31, 1997
to $16.12 at December 31, 1998.
To enhance the foregoing comparison of operations from year to year, you
should examine, line by line, the partnership's Statements of Operations and
Statements of Financial Condition. See "Selected Financial Data and Selected
Quarterly Financial Data" and "Independent Auditors' Report and Financial
Statements of Morgan Stanley Dean Witter Spectrum Series" contained in this
prospectus.
FINANCIAL INSTRUMENTS
See the discussion under "--Morgan Stanley Dean Witter Spectrum Select
L.P.--Financial Instruments" on page 47, which discussion is equally applicable
to Spectrum Technical.
49
MORGAN STANLEY DEAN WITTER SPECTRUM STRATEGIC L.P.
LIQUIDITY
See the discussion under "--Morgan Stanley Dean Witter Spectrum Select
L.P.--Liquidity" on page 45, which discussion is equally applicable to Spectrum
Strategic.
CAPITAL RESOURCES
See the discussion under "--Morgan Stanley Dean Witter Spectrum Select
L.P.--Capital Resources" on page 45, which discussion is equally applicable to
Spectrum Strategic.
RESULTS OF OPERATIONS
GENERAL. The partnership's results depend on its trading advisors and the
ability of each trading advisor's trading program 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, 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.
2000 RESULTS. Spectrum Strategic recorded a net loss during 2000. The most
significant losses of approximately 16.0% were recorded in the global stock
index futures markets from short positions in U.S. stock index futures as
domestic equity prices moved higher in early January on fears of an interest
rate hike and reports of a major corporate merger. Additional losses were
recorded during February from short positions in NASDAQ 100 Index futures as the
NASDAQ Index climbed higher on strength in computer-chip and biotechnology
companies. During the first half of September and November, additional losses
were incurred 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 14.6% were incurred primarily from
long positions in aluminum and copper futures as prices moved lower in February
and March due primarily to technically based selling, falling prices of other
base metals, and the softening of oil prices. Additional losses were recorded
during April, late-May, early-June, and October from long positions in aluminum
and copper futures as prices declined after concerns mounted that demand would
weaken amid a cooling of the U.S. economy. In soft commodities, losses of
approximately 11.5% were experienced primarily during June, throughout a
majority of the third quarter, and December from long positions in lumber
futures as prices declined amid weak demand and abundant supplies. Additional
losses were experienced during January, February, and early-April from long
coffee futures positions as coffee prices declined in the wake of forecasts for
a bumper crop in Brazil and on technically based selling. In the currency
markets, losses of approximately 8.9% were recorded primarily during January,
February, and July from long positions in the euro as the value of the European
common currency weakened versus the U.S. dollar due to skepticism regarding
Europe's economic outlook. During mid-September, additional losses were
experienced from short positions in the euro as its value reversed sharply and
suddenly higher versus the U.S. dollar after the world's major central banks
carried out coordinated intervention to buy euros. Losses were also experienced
during April from long positions in the Japanese yen as the value of the yen
weakened versus the U.S. dollar amid fears of additional Bank of Japan
intervention. During May and June, losses were recorded from short positions in
the Japanese yen as the value of the U.S. dollar weakened versus the yen due
primarily to the perception that interest rates in the U.S. may have topped out.
A portion of the partnership's overall losses was partially offset by gains of
approximately 18.9% recorded primarily during January in the energy markets from
long futures positions in crude oil and its refined products as oil prices
increased on growing speculation that OPEC would extend production cuts beyond
the deadline of March 2000. Additional gains were recorded during March from
short positions in crude oil futures as prices declined after OPEC effectively
restored production levels to their year-earlier level. Additional gains were
recorded early in May from long futures positions in crude oil as oil prices
increased amid concerns over tight gasoline supplies and after comments from
OPEC ministers who saw no need to raise supplies further. Profits were also
recorded primarily during May from long positions in natural gas futures as
prices continued their upward trend, as data released by
50
the American Gas Association further confirmed fears that inventory levels
remain low. During August, November, and December, additional gains were
recorded from long positions in natural gas futures as prices moved higher amid
supply and storage concerns.
For the year ended December 31, 2000, Spectrum Strategic recorded a total
trading loss, net of interest income, of $26,938,961. Total expenses for the
year were $9,948,329, resulting in a net loss of $36,887,290. The net asset
value of a unit decreased from $15.85 at December 31, 1999 to $10.61 at
December 31, 2000.
1999 RESULTS. Spectrum Strategic, whose managers use fundamental analyses
in an attempt to forecast future price moves, produced performance results
substantially different than the other Spectrum Series partnerships based on
three primary themes: energy prices would rise from their low levels of January;
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. In the energy
markets, significant gains of approximately 34.71% were recorded primarily from
long futures positions in crude oil and its refined products, unleaded gas,
heating oil, and gas oil, as prices climbed higher during March following an
agreement reached by both OPEC and non-OPEC countries to cut total output
beginning April 1st. Oil prices continued to move higher throughout the third
quarter due to declining supplies, increasing demand, and evidence that output
cuts were being adhered to. In the metals markets, gains of approximately 25.06%
were recorded primarily 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. Additional gains of
approximately 1.06% were recorded from long copper futures positions, as copper
prices soared during mid-April on a wave of fund buying and during June on news
that a major U.S. producer would cut back production. Copper prices also moved
higher during August and September resulting in profits for the partnership's
long positions. Not all forecasts for Spectrum Strategic managers came to
fruition last year. Losses of approximately 14.70% were recorded in the currency
markets during January, primarily from long Japanese yen positions after an
intervention by the Bank of Japan boosted the U.S. dollar against the yen and
helped ease concerns about the impact of a strong yen on Japanese exports.
Losses were also recorded during March from short Japanese yen positions, as the
value of the yen increased versus the U.S. dollar amid new signs that Japan's
economy may be on the mend. Losses were recorded from short Japanese yen
positions during June and July, as its value reached a 5 1/2 month high versus
the U.S. dollar due to inflationary pressures in the U.S. and optimistic
prospects for economic growth in Japan.
For the year ended December 31, 1999, Spectrum Strategic's total trading
revenues, including interest income, were $39,555,618. Total expenses for the
year were $11,426,548, resulting in net income of $28,129,070. The net asset
value of a unit in Spectrum Strategic increased from $11.55 at December 31, 1998
to $15.85 at December 31, 1999.
1998 RESULTS. Spectrum Strategic posted a net gain in 1998. The partnership
recorded profits of approximately 43.58% from long positions in global interest
rate futures, as the increased volatility in the global financial markets and
worldwide economic deterioration drove investors to a variety of "safe haven"
investments throughout August and September. Long positions in U.S., German,
British, and Japanese bond futures were the key contributors to these gains.
Additional gains of approximately 1.16% were recorded in the currency markets in
early October from long German mark positions, as the mark's value increased
relative to the U.S. dollar. This weakness in the U.S. dollar was mainly caused
by an unanticipated interest rate cut by the Federal Reserve and the continuing
possibility, and subsequent reality, of presidential impeachment hearings. A
portion of these gains was offset by losses of approximately 10.60% and 9.74%,
respectively, in the energy and soft commodities markets, primarily during the
fourth quarter from long positions in crude oil and cocoa futures.
For the year ended December 31, 1998, Spectrum Strategic's total trading
revenues, including interest income, were $13,096,775. Total expenses for the
year were $8,081,680, resulting in net income of $5,015,095. The net asset value
of a unit in Spectrum Strategic increased from $10.71 at December 31, 1997 to
$11.55 at December 31, 1998.
To enhance the foregoing comparison of operations from year to year, you
should examine, line by line, the partnership's Statements of Operations and
Statements of Financial Condition. See "Selected Financial Data and Selected
Quarterly Financial Data" and "Independent Auditors" Report and Financial
Statements of Morgan Stanley Dean Witter Spectrum Series" contained in this
prospectus.
51
FINANCIAL INSTRUMENTS
See the discussion under "--Morgan Stanley Dean Witter Spectrum Select
L.P.--Financial Instruments" on page 47, which discussion is equally applicable
to Spectrum Strategic.
MORGAN STANLEY DEAN WITTER SPECTRUM GLOBAL BALANCED L.P.
LIQUIDITY
See the discussion under "--Morgan Stanley Dean Witter Spectrum Select
L.P.--Liquidity" on page 45, which discussion is equally applicable to Spectrum
Global Balanced.
CAPITAL RESOURCES
See the discussion under "--Morgan Stanley Dean Witter Spectrum Select
L.P.--Capital Resources" on page 45, which discussion is equally applicable to
Spectrum Global Balanced.
RESULTS OF OPERATIONS
GENERAL. The partnership's results depend on its trading advisor and the
ability of such trading advisor's trading program 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, 2000, and a general discussion of its trading
activities during each period. It is important to note, however, that the
trading advisor trades 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 advisor 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 advisor's trading activities on behalf of the
partnership as a whole and how the partnership has performed in the past.
2000 RESULTS. Spectrum Global Balanced recorded a net profit during 2000.
The most significant gains of approximately 5.3% were recorded in the global
interest rate futures markets primarily during March, August, November, and
December from long positions in U.S. interest rate futures as prices climbed
higher amid a drop in stock prices and as fears of an economic slowdown drew
investors to the perceived safety of government securities. Additional gains
were recorded during December from long positions in European and Australian
interest rate futures as prices in these markets rose amid speculation that the
U.S. Federal Reserve would lower interest rates in the near future following
their decision to switch to an easing policy bias. In the energy markets,
profits of approximately 2.3% were recorded primarily during May from long
positions in natural gas futures as prices continued their upward trend, as data
released by the American Gas Association further confirmed fears that inventory
levels remain low. During December, additional gains were recorded from long
positions in natural gas futures as prices moved higher amid supply and storage
concerns. In the currency markets, gains of approximately 2.0% were recorded
primarily during April, May, September, and October from short South African
rand positions as its value weakened relative to the U.S. dollar due to
instability in the Middle East and Zimbabwe and higher oil prices. A portion of
the partnership's overall gains was partially offset by losses of approximately
7.6% recorded in the global stock index futures component during April, May,
late-July, September, October, and December from long positions in Nikkei Index
futures as Japanese equity prices declined due primarily to the weakness in
global technology issues and economic uncertainty in Japan. Additional losses
were recorded primarily during the second quarter, September, and November from
long positions in FT-SE Index futures as most European stock indices sagged
after the European Central Bank's aggressive interest rate hike in early June
and during September and November on concerns about costly crude oil and a weak
euro.
For the year ended December 31, 2000, Spectrum Global Balanced recorded
total trading revenues, including interest income, of $3,692,479. Total expenses
for the year were $3,253,125, resulting in net income of $439,354. The net asset
value of a unit increased from $16.12 at December 31, 1999 to $16.26 at
December 31, 2000.
1999 RESULTS. Spectrum Global Balanced produced small gains during 1999.
Gains of approximately 5.92% were recorded from long positions in the global
stock index futures component, particularly long German stock index futures
during the fourth quarter, due to the temporary strength of the U.S. equity
market and in relief that the interest rate hikes by the European Central Bank
and Bank of England were as expected. Additional gains of approximately 2.24%
were recorded in the energy markets from long
52
positions in crude and gas oil futures as oil prices surged higher attributed to
the news that both OPEC and non-OPEC countries had reached and adhered to an
agreement to cut total output. Losses of approximately 5.04% were experienced in
the fixed income component, primarily during February, April, and May from long
U.S. interest rate futures positions, as prices dropped in reaction to Federal
Reserve Chairman Alan Greenspan's warnings that a strong economy could reignite
inflation. Fears that the Federal Reserve eventually could boost target interest
rates pushed down domestic bond prices during the first and second quarters and
forced yields higher. During July and August, long U.S. interest rate futures
positions resulted in losses, as domestic bond prices moved temporarily lower
after Federal Reserve Chairman Alan Greenspan commented that central bankers
must consider stock prices when setting monetary policy and as economic reports
added to concern that the U.S. Federal Reserve will raise interest rates.
For the year ended December 31, 1999, Spectrum Global Balanced's total
trading revenues, including interest income, were $3,654,263. Total expenses for
the year were $3,251,953, resulting in net income of $402,310. The net asset
value of a unit in Spectrum Global Balanced increased from $16.00 at
December 31, 1998 to $16.12 at December 31, 1999.
1998 RESULTS. Spectrum Global Balanced experienced a profitable year in
1998. The partnership profited during the year primarily from long positions in
the global stock index futures component of the balanced portfolio. The most
significant gains were recorded from long S&P 500 Index futures positions,
resulting in gains of approximately 12.08%, as equity prices reached record
levels during the first half and final quarter of the year. Additional gains
were recorded from long positions in European stock index futures, with a
majority of the gains experienced during the fourth quarter amid the recovery of
the U.S. stock markets. The global interest rate futures markets were also key
contributors to overall gains, adding approximately 6.38%, as long global bond
futures positions benefited from a "flight-to-quality," given the global
economic uncertainty prevalent during the third quarter.
For the year ended December 31, 1998, Spectrum Global Balanced's total
trading revenues, including interest income, were $8,042,090. Total expenses for
the year were $2,464,202, resulting in net income of $5,577,888. The net asset
value of a unit in Spectrum Global Balanced increased from $13.75 at
December 31, 1997 to $16.00 at December 31, 1998.
To enhance the foregoing comparison of operations from year to year, you
should examine, line by line, the partnership's Statements of Operations and
Statements of Financial Condition. See "Selected Financial Data and Selected
Quarterly Financial Data" and "Independent Auditors' Report and Financial
Statements of Morgan Stanley Dean Witter Spectrum Series" contained in this
prospectus.
FINANCIAL INSTRUMENTS
See the discussion under "Morgan Stanley Dean Witter Spectrum Select
L.P.--Financial Instruments" on page 47, which discussion is equally applicable
to Spectrum Global Balanced.
MORGAN STANLEY DEAN WITTER SPECTRUM CURRENCY L.P.
LIQUIDITY
See the discussion under "--Morgan Stanley Dean Witter Spectrum Select
L.P.--Liquidity" on page 45, which discussion is equally applicable to Spectrum
Currency.
CAPITAL RESOURCES
See the discussion under "--Morgan Stanley Dean Witter Spectrum Select
L.P.--Capital Resources" on page 45, which discussion is equally applicable to
Spectrum Currency.
RESULTS OF OPERATIONS
GENERAL. The partnership's results depend on its trading advisors and the
ability of such 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 period from July 3, 2000 (commencement of operations) to December 31, 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
53
mean that such market will be actively traded by the trading advisor 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.
RESULTS OF OPERATIONS
FOR THE PERIOD FROM JULY 3, 2000 (COMMENCEMENT OF OPERATIONS) THROUGH
DECEMBER 31, 2000. Spectrum Currency recorded a net profit during the period
from July 3, 2000 (commencement of operations) through December 31, 2000. The
most significant gains of approximately 7.6% were recorded primarily during
August and October from short positions in the euro and Swiss franc as the value
of these European currencies weakened relative to the U.S. dollar amid continued
skepticism regarding the European economy. Additional gains were recorded during
December from long positions in the euro and Swiss franc as their respective
values reversed upward versus the U.S. dollar as a result of new confidence in
the European economy and an overall skepticism regarding the U.S. economy.
During December, profits of approximately 3.7% were recorded from short
positions in the Japanese yen as the value of the yen declined versus most major
currencies on further signs of weakness in the Japanese economy. Gains of
approximately 2.8% were also recorded primarily during October and November from
short South African rand positions as its value weakened versus the U.S. dollar,
while moving in sympathy with other emerging market currencies. A portion of the
partnership's overall gains was partially offset by losses of approximately 1.2%
recorded primarily during October and November from long British pound positions
as its value weakened versus the U.S. dollar on disappointing economic data out
of the U.K. Additional losses were recorded during December from short positions
in the British pound as its value strengthened versus the U.S. dollar on fresh
evidence that the U.S. economy is cooling down.
For the period from July 3, 2000 (commencement of operations) through
December 31, 2000, Spectrum Currency recorded total trading revenues, including
interest income, of $1,918,231. Total expenses for the period from July 3, 2000
(commencement of operations) through December 31, 2000 were $609,687, resulting
in net income of $1,308,544. The net asset value of a unit increased from $10.00
at July 3, 2000 (commencement of operations) to $11.17 at December 31, 2000.
To enhance the foregoing discussion of operations, you should examine, line
by line, the partnership's Statement of Operations and Statement of Financial
Condition. See "Selected Financial Data and Selected Quarterly Financial Data"
and "Independent Auditors' Report and Financial Statements of Morgan Stanley
Dean Witter Spectrum Series" contained in this prospectus.
FINANCIAL INSTRUMENTS
See the discussion under "--Morgan Stanley Dean Witter Spectrum Select
L.P.--Financial Instruments" on page 47, which discussion is equally applicable
to Spectrum Currency except that the partnership only trades currencies.
MORGAN STANLEY DEAN WITTER SPECTRUM COMMODITY L.P.
LIQUIDITY
See the discussion under "--Morgan Stanley Dean Witter Spectrum Select
L.P.--Liquidity" on page 45, which discussion is equally applicable to Spectrum
Commodity.
CAPITAL RESOURCES
See the discussion under "--Morgan Stanley Dean Witter Spectrum Select
L.P.--Capital Resources" on page 45, which discussion is equally applicable to
Spectrum Commodity.
RESULTS OF OPERATIONS
GENERAL. The partnership's results depend on its trading advisor and the
ability of its trading advisor's trading program to take advantage of price
movements or other profit opportunities in the futures markets. The following
presents a summary of the partnership's operations for the three years ended
December 31, 2000 and a general discussion of its trading activities during each
period. It is important to note, however, that the trading advisor trades 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
advisor or
54
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
advisor's trading activities on behalf of the partnership as a whole and how the
partnership has performed in the past.
2000 RESULTS. Spectrum Commodity recorded a net profit during 2000. The
most significant gains of approximately 16.4% were recorded in the energy
markets primarily during May from long positions in natural gas futures as
prices trended higher, as data released by the American Gas Association further
confirmed fears that inventory levels remain low. During August, November, and
December, additional gains were recorded from long positions in natural gas
futures as prices climbed to all time highs amid supply and storage concerns.
Additional gains were recorded during January and February 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. A portion of the Partnership's
overall gains was partially offset by losses of approximately 5.6% recorded in
the metals markets throughout a majority of the year from long silver futures
positions as silver prices declined on technically-based factors. Additional
losses were incurred from long aluminum and copper futures positions as prices
moved lower during February and October due primarily to technically based
selling. In soft commodities, losses of approximately 4.6% were experienced
primarily during January and February from long coffee futures positions as
coffee prices declined in the wake of forecasts for a bumper crop in Brazil.
Additional losses were recorded throughout a majority of the second and fourth
quarters from long coffee futures positions as prices decreased.
For the year ended December 31, 2000 Spectrum Commodity recorded total
trading revenues, including interest income, of $2,176,463. Total expenses for
the year were $1,554,101, resulting in net income of $622,362. The net asset
value of a unit increased from $7.61 at December 31, 1999 to $7.85 at
December 31, 2000.
1999 RESULTS. During 1999, commodity market price behavior returned to the
more normal pattern of some commodities gaining in price, while other
commodities declined in price. Of the seventeen components of the Commodity
Research Bureau, 10 increased in price during 1999, while the remaining seven
declined in price. This was noticeably different from 1998, when all but one of
the components of the Commodity Research Bureau declined in price. Energy
markets, which had been the worst performing sector during 1998, rebounded
strongly to become the best performing commodity sector in 1999, resulting in
gains of approximately 13.35%. OPEC, which had suffered economically as their
late 1997 decision to expand production coincided with the onset of economic
difficulties in virtually all of the world's emerging economies, cooperated with
other major global oil producing countries to rein in production and allow for
the drawing down of inventories that had grown steadily throughout 1998. Crude
oil, its refined products, and natural gas all benefited from the improving
global demand for energy and the decreased supply of crude oil. Base metals
markets also improved in price during 1999, resulting in gains of approximately
8.55%. Historically, copper has been referred to by some as "the world's
economist", rising in price as economic activity improves and falling in price
when economic difficulties are encountered. During both 1998 and 1999, copper
served as an accurate barometer of global economic health. Additionally, copper
producers' decisions to curtail production in the short-term helped support
prices. Perhaps more importantly for the long-term, the consolidation of major
mining companies in both copper and aluminum bodes well for less over-expansion
during future periods of elevated prices, likely leading to "higher highs" and
"higher lows" in future price cycles. Precious metals prices also improved
modestly during 1999. After several years of lower gold prices, with central
banks continuing to sell despite the lower prices, an announcement by a group of
European central banks abruptly reversed the price slide and caught many
short-sellers off guard. For 1999, gold was up in price by less than 1%, while
silver and platinum, which have significant industrial demand, fared much
better. Grain markets continued to suffer in price during 1999, resulting in a
loss of approximately 5.37%. Despite an early summer scare caused by dry
weather, overall conditions were favorable for another good harvest. As the year
drew to a close, improved demand finally surfaced, perhaps signaling an end to
multi-decade low prices.
For the year ended December 31, 1999, Spectrum Commodity's total trading
revenues, including interest income, were $5,045,724. Total expenses for the
year were $1,669,935, resulting in net income of $3,375,789. The net asset value
of a unit in Spectrum Commodity increased from $6.57 at December 31, 1998 to
$7.61 at December 31, 1999.
1998 RESULTS. Spectrum Commodity recorded net losses during 1998. Spectrum
Commodity adheres to a long-only approach to trading traditional commodity
markets. This approach encountered significant
55
difficulty during the entire year, resulting in a total loss of 34.30%, given
the magnitude and unrelenting nature of declines in a broad-based majority of
commodities markets. The major factors impacting the commodity markets in 1998
were the emerging market economies, global economic instability, and unusual
weather patterns. Demand for almost every commodity was negatively impacted by
the downturn in virtually all of the world's emerging economies, as currency
woes quickly spread worldwide. The ultimate contractions in demand for
commodities (from affected economies) had a severe negative impact in the supply
increases being provided by the world's producers, particularly within the
energy and metals markets.
For the year ended December 31, 1998, Spectrum Commodity's total trading
loss, net of interest income, was $11,239,913. Spectrum Commodity's total
expenses for the year were $2,303,718, resulting in a net loss of $13,543,631.
The net asset value of a unit in Spectrum Commodity decreased from $10.00 at
inception of trading on January 2, 1998 to $6.57 at December 31, 1998.
To enhance the foregoing discussion of operations, you should examine, line
by line, the partnership's Statements of Operations and Statements of Financial
Condition. See "Selected Financial Data and Selected Quarterly Financial Data"
and "Independent Auditors' Report and Financial Statements of Morgan Stanley
Dean Witter Spectrum Series" contained in this prospectus.
FINANCIAL INSTRUMENTS
Spectrum Commodity trades futures and may trade forwards in metals, energy,
and agricultural markets. 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 credit risk associated with the instruments in which the partnership is
involved is limited to the amounts reflected in the partnership's Statement of
Financial Condition.
Spectrum Commodity also has credit risk because Morgan Stanley DW, Morgan
Stanley, and Morgan Stanley International act as commodity brokers with respect
to Spectrum Commodity's assets. Exchange-traded futures contracts are marked to
market on a daily basis, with variations in value settled on a daily basis. Each
of Morgan Stanley DW and Morgan Stanley, as commodity brokers for Spectrum
Commodity's exchange-traded futures contracts, are required, pursuant to
regulations of the 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 contracts, including an amount equal to the net
unrealized loss on all open futures contracts.
The discussion of credit risks relating to foreign exchanges under "--Morgan
Stanley Dean Witter Spectrum Select L.P.--Financial Instruments" on page 47 is
equally applicable to Spectrum Commodity.
56
QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
INTRODUCTION
Each partnership is a commodity pool engaged primarily in the speculative
trading of futures, forwards, and options. The market sensitive instruments held
by each partnership are acquired for speculative trading purposes only and, as a
result, all or substantially all of each partnership's assets are at risk of
trading loss. Unlike an operating company, the risk of market sensitive
instruments is central, not incidental, to each partnership's main business
activities.
The futures, forwards, and options traded by each 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 each partnership's
open positions, and, consequently, in its earnings and cash flow.
Each partnership's total market risk is influenced by a wide variety of
factors, including the diversification among each 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 a partnership.
Each partnership's past performance is not necessarily indicative of its
future results. Any attempt to numerically quantify a partnership's market risk
is limited by the uncertainty of its speculative trading. A 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 EACH PARTNERSHIP'S TRADING VALUE AT RISK
THE FOLLOWING QUANTITATIVE DISCLOSURES REGARDING EACH 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.
Each partnership accounts for open positions using mark-to-market accounting
principles. Any loss in the market value of a 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.
Each 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 each partnership includes many variables that could change the market
value of a partnership's trading portfolio. Each 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 to which the portfolio is
sensitive. The historical observation period of each partnership's VaR is
approximately four years. The one-day 99% confidence level of each 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 partnerships', 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 the general partner or the trading advisors in their daily risk
management activities.
57
EACH PARTNERSHIP'S VALUE AT RISK IN DIFFERENT MARKET SECTORS
The following tables indicate the VaR associated with each partnership's
open positions, as a percentage of total net assets, by primary market risk
category as of December 31, 2000 and 1999.
SPECTRUM SELECT:
As of December 31, 2000 and 1999, Spectrum Select's total capitalization was
approximately $221 million and $214 million, respectively.
VAR
MARKET CATEGORY 2000 1999
--------------- -------- --------
% %
Commodity................................................... (0.59) (0.40)
Equity...................................................... (0.55) (0.48)
Currency.................................................... (0.58) (0.37)
Interest Rate............................................... (2.33) (0.27)
Aggregate Value at Risk..................................... (2.65) (0.85)
SPECTRUM TECHNICAL:
As of December 31, 2000 and 1999, Spectrum Technical's total capitalization
was approximately $268 million and $269 million, respectively.
VAR
MARKET CATEGORY 2000 1999
--------------- -------- --------
% %
Commodity................................................... (0.82) (0.70)
Equity...................................................... (0.63) (0.85)
Currency.................................................... (1.30) (1.00)
Interest Rate............................................... (3.03) (0.72)
Aggregate Value at Risk..................................... (3.42) (1.69)
SPECTRUM STRATEGIC:
As of December 31, 2000 and 1999, Spectrum Strategic's total capitalization
was approximately $74 million and $108 million, respectively.
VAR
MARKET CATEGORY 2000 1999
--------------- -------- --------
% %
Commodity................................................... (1.53) (1.49)
Equity...................................................... (0.90) (2.15)
Currency.................................................... (0.67) (0.87)
Interest Rate............................................... (1.41) (0.35)
Aggregate Value at Risk..................................... (2.34) (2.97)
SPECTRUM GLOBAL BALANCED:
As of December 31, 2000 and 1999, Spectrum Global Balanced's total
capitalization was approximately $56 million and $58 million, respectively.
VAR
MARKET CATEGORY 2000 1999
--------------- -------- --------
% %
Commodity................................................... (0.28) (0.22)
Equity...................................................... (0.53) (0.38)
Currency.................................................... (0.67) (0.22)
Interest Rate............................................... (1.16) (0.20)
Aggregate Value at Risk..................................... (1.62) (0.58)
58
SPECTRUM CURRENCY:
As of December 31, 2000, Spectrum Currency's total capitalization was
approximately $16 million.
VAR
MARKET CATEGORY 2000
--------------- ----
%
Currency.................................................... (2.12 )
Aggregate Value at Risk..................................... (2.12 )
SPECTRUM COMMODITY:
As of December 31, 2000 and 1999, Spectrum Commodity's total capitalization
was approximately $20 million and $24 million, respectively.
VAR
MARKET CATEGORY 2000 1999
--------------- -------- --------
% %
Commodity................................................... (1.64) (1.41)
Aggregate Value at Risk..................................... (1.64) (1.41)
Aggregate Value at Risk, listed above for each partnership, represents the
aggregate VaR of all of a partnership's open positions and not the sum of the
VaR of the individual market categories. Aggregate VaR will be lower as it takes
into account correlation among the different positions and categories.
The tables above represent the VaR of each partnership's open positions at
December 31, 2000 and 1999 only and are not necessarily representative of either
the historic or future risk of an investment in these partnerships. Because the
only business of each partnership is the speculative trading of futures,
forwards, and options, the composition of a partnership's 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 tables below supplement the December 31, 2000 VaR (set forth above) by
presenting each partnership's high, low, and average VaR, as a percentage of
total net assets, for the four quarterly reporting periods from January 1, 2000
through December 31, 2000.
SPECTRUM SELECT
MARKET CATEGORY HIGH LOW AVERAGE
--------------- -------- -------- --------
% % %
Commodity............ (1.45) (0.59) (1.04)
Equity............... (0.78) (0.22) (0.45)
Currency............. (1.16) (0.36) (0.81)
Interest Rate........ (2.33) (0.58) (1.24)
Aggregate Value at
Risk............... (2.65) (1.68) (2.06)
SPECTRUM TECHNICAL
MARKET CATEGORY HIGH LOW AVERAGE
--------------- -------- -------- --------
% % %
Commodity............. (1.65) (0.82) (1.26)
Equity................ (1.55) (0.47) (0.93)
Currency.............. (1.80) (0.93) (1.40)
Interest Rate......... (3.03) (1.00) (1.76)
Aggregate Value at
Risk................ (3.42) (2.25) (2.86)
SPECTRUM STRATEGIC
MARKET CATEGORY HIGH LOW AVERAGE
--------------- -------- -------- --------
% % %
Commodity............ (2.18) (1.53) (1.86)
Equity............... (0.90) (0.18) (0.58)
Currency............. (0.95) (0.43) (0.74)
Interest Rate........ (1.41) (0.25) (0.74)
Aggregate Value at
Risk............... (2.49) (1.97) (2.28)
SPECTRUM GLOBAL BALANCED
MARKET CATEGORY HIGH LOW AVERAGE
--------------- -------- -------- --------
% % %
Commodity............. (0.39) (0.28) (0.32)
Equity................ (1.28) (0.53) (0.86)
Currency.............. (0.67) (0.38) (0.51)
Interest Rate......... (1.16) (0.63) (0.84)
Aggregate Value at
Risk................ (1.67) (1.02) (1.43)
59
SPECTRUM CURRENCY
MARKET CATEGORY HIGH LOW AVERAGE
--------------- ---- --- -------
% % %
Currency............. (2.85) (2.12) (2.49)
Aggregate Value at
Risk............... (2.85) (2.12) (2.49)
SPECTRUM COMMODITY
MARKET CATEGORY HIGH LOW AVERAGE
--------------- ---- --- -------
% % %
Commodity............ (2.10) (1.64) (1.79)
Aggregate Value at
Risk............... (2.10) (1.64) (1.79)
LIMITATIONS ON VALUE AT RISK AS AN ASSESSMENT OF MARKET RISK
The face value of the market sector instruments held by each 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 each
partnership to typically be many times the total capitalization of a
partnership. The value of a partnership's open positions thus creates a "risk of
ruin" not usually found in other investments. The relative size of the positions
held may cause a 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
partnerships, give no indication of this "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 data used for VaR estimation may provide
only limited insight into losses that could be incurred under unusual
market movements.
The VaR tables above present the results of each partnership's VaR for each
partnership's market risk exposures and on an aggregate basis at December 31,
2000 and 1999 and for the end of the quarter periods from January 1, 2000
through December 31, 2000. Since VaR is based on historical data, VaR should not
be viewed as predictive of a partnership's future financial performance or its
ability to manage or monitor risk. There can be no assurance that a
partnership's actual losses on a particular day will not exceed the VaR amounts
indicated above or that losses will not occur more than once in 100 trading
days.
NON-TRADING RISK
Each 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. Each partnership also maintains a substantial portion (approximately
83-92%) of its available assets in cash at Morgan Stanley DW. A decline in
short-term interest rates will result in a decline in a partnership's cash
management income. This cash flow risk is not considered to be 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 a
partnership's market sensitive instruments.
QUALITATIVE DISCLOSURES REGARDING PRIMARY TRADING RISK EXPOSURES
THE FOLLOWING QUALITATIVE DISCLOSURES REGARDING EACH PARTNERSHIP'S MARKET
RISK EXPOSURES--EXCEPT FOR (A) THOSE DISCLOSURES THAT ARE STATEMENTS OF
HISTORICAL FACT AND (B) THE DESCRIPTIONS OF HOW A 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. EACH PARTNERSHIP'S PRIMARY MARKET RISK EXPOSURES AS WELL AS THE
STRATEGIES USED AND TO BE USED BY THE GENERAL PARTNER AND THE TRADING ADVISORS
FOR MANAGING SUCH EXPOSURES ARE SUBJECT TO NUMEROUS UNCERTAINTIES, CONTINGENCIES
AND
60
RISKS, ANY ONE OF WHICH COULD CAUSE THE ACTUAL RESULTS OF EACH 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
EACH PARTNERSHIP. INVESTORS MUST BE PREPARED TO LOSE ALL OR SUBSTANTIALLY ALL OF
THEIR INVESTMENT IN A PARTNERSHIP.
MORGAN STANLEY DEAN WITTER SPECTRUM SELECT L.P.
The following were the primary trading risk exposures of Spectrum Select as
of December 31, 2000, by market sector. It may be anticipated, however, that
these market exposures will vary materially over time.
INTEREST RATE. The primary market exposure of Spectrum Select is 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 Britain, Canada, Germany, Italy, France, Japan, and the U.S. However,
the partnership also takes futures positions in the government debt of smaller
nations--e.g. Australia and Spain. The general partner 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.
CURRENCY. The second largest market exposure on December 31, 2000 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.
The partnership's major currency exposure was to Euro 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.
The general partner 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 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. As of December 31, 2000, the partnership's
primary exposures were to the DAX (German), S&P 500 (U.S.), and Nikkei (Japan)
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. Spectrum Select's primary metals market exposure is to fluctuations
in the price of gold and silver. Although certain trading advisors will from
time to time trade base metals such as aluminum, copper, zinc, nickel, tin, and
lead, the principal market exposures of the partnership have consistently been
to precious metals, such as gold and silver. Market exposure to precious metals
was evident, as gold prices continued to be volatile during the quarter. Silver
prices remained volatile over this period as well. The trading advisors' have
from time to time taken positions as they have perceived market opportunities to
develop.
61
ENERGY. On December 31, 2000, Spectrum Select's energy exposure was shared
primarily by futures contracts in the crude oil and natural gas markets. 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 this
market. 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. On December 31, 2000, Spectrum Select
had exposure to the markets that comprise these sectors. Most of the exposure,
however, was to corn, soybeans, soybean meal, coffee, and cotton markets. Supply
and demand inequalities, severe weather disruption, and market expectations
affect price movements in these markets.
MORGAN STANLEY DEAN WITTER SPECTRUM TECHNICAL L.P.
The following were the primary trading risk exposures of Spectrum Technical
as of December 31, 2000, by market sector. It may be anticipated, however, that
these market exposures will vary materially over time.
INTEREST RATE. The primary market exposure of Spectrum Technical is to the
global interest rate complex. Exposure was primarily spread across the German,
European, U.S., 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.
However, the partnership also takes futures positions in the government debt of
smaller nations--e.g. Australia. The general partner anticipates that G-7
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.
CURRENCY. The second largest market exposure on December 31, 2000 was to
the currency sector. Spectrum Technical'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.
The partnership's major currency exposure was to Euro 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.
The general partner 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 is to equity price risk in the G-7
countries. The stock index futures traded by Spectrum Technical are by law
limited to futures on broadly based indices. As of December 31, 2000, the
partnership's primary exposures were to the DAX (Germany), NASDAQ (U.S.), S&P
500 (U.S.), and FT-SE (Britain) 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
ENERGY. On December 31, 2000, Spectrum Technical's energy exposure was
shared primarily by futures contracts in the crude oil and natural gas markets.
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
62
the past, are expected to continue to be experienced in this market. Natural gas
has exhibited volatility in prices resulting from weather patterns and supply
and demand factors and may continue in this choppy pattern.
METALS. Spectrum Technical's primary metals market exposure is to
fluctuations in the price of gold and silver. Although certain trading advisors
will from time to time trade base metals such as aluminum, copper, nickel, tin,
lead, and zinc, the principal market exposures of the partnership have
consistently been to precious metals, such as gold and silver (and, to a much
lesser extent, platinum). Market exposure to precious metals was evident, as
gold prices continued to be volatile during the quarter. Silver prices remained
volatile over this period as well. The trading advisors' have from time to time
taken positions as they have perceived market opportunities to develop.
SOFT COMMODITIES AND AGRICULTURALS. On December 31, 2000, Spectrum
Technical had exposure to the markets that comprise these sectors. Most of the
exposure, however, was to the corn, soybean and its related products, and sugar
markets. Supply and demand inequalities, severe weather disruption, and market
expectations affect price movements in these markets.
MORGAN STANLEY DEAN WITTER SPECTRUM STRATEGIC L.P.
The following were the primary trading exposures of Spectrum Strategic as of
December 31, 2000, by market sector. It may be anticipated, however, that these
market exposures will vary materially over time.
INTEREST RATE. Spectrum Strategic's exposure in the interest rate market
complex was primarily spread across the U.S., European, 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. However, the partnership also takes futures positions in
the government debt of smaller nations - e.g. Australia. The general partner
anticipates that G-7 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 Spectrum Strategic are by law
limited to futures on broadly based indices. As of December 31, 2000, the
partnership's primary exposure was in the NASDAQ (U.S.), S&P 500 (U.S.), 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.
CURRENCY. Spectrum Strategic'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.
The partnership's major exposures were to outright U.S. dollar positions.
Outright positions consist of the U.S. dollar vs. other currencies. These other
currencies include major and minor currencies. The general partner 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
ENERGY. The primary market exposure of Spectrum Strategic is to the energy
sector. On December 31, 2000, the partnership's energy exposure was shared
primarily by futures contracts in the crude oil and
63
natural gas markets. 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 this market. 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. On December 31, 2000, Spectrum
Strategic had exposure to the markets that comprise these sectors. Most of the
exposure, however, was to the cotton, soybean and its related products, and
lumber markets. Supply and demand inequalities, severe weather disruption, and
market expectations affect price movements in these markets.
METALS. Spectrum Strategic's metals market exposure is primarily to
fluctuations in the price of base metals. During periods of volatility, base
metals will affect performance dramatically. Certain trading advisors will from
time to time trade precious metals, such as gold. Market exposure to the gold
market was evident, as gold prices continued to be volatile during the quarter.
The general partner anticipates that the base metals will remain the primary
metals market exposure of the partnership.
MORGAN STANLEY DEAN WITTER SPECTRUM GLOBAL BALANCED L.P.
The following were the primary trading risk exposures of Spectrum Global
Balanced as of December 31, 2000, by market sector. It may be anticipated,
however, that these market exposures will vary materially over time.
INTEREST RATE. The primary market exposure of Spectrum Global Balanced is
to the global interest rate complex. Exposure was primarily spread across the
U.S., German, British, and European interest rate sectors. Interest rate
movements directly affect the price of the sovereign bond futures positions held
by the partnership and indirectly affect the value of its stock index and
currency positions. Interest rate movements in one country as well as relative
interest rate movements between countries materially impact the partnership's
profitability. The partnership's primary interest rate exposure is generally to
interest rate fluctuations in the United States and the other G-7 countries.
However, the partnership also takes futures positions in the government debt of
smaller nations - e.g. Australia. The general partner 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 second largest market exposure this quarter is in the global
stock index complex. The primary equity exposure is to equity price risk in the
G-7 countries. The stock index futures traded by Spectrum Global Balanced are by
law limited to futures on broadly based indices. As of December 31, 2000, the
partnership's primary exposures were to the S&P 500 (U.S.), FT-SE (Britain), 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. Spectrum Global Balanced'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 2000, the partnership's major exposures were to 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
major and minor currencies. The general partner 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.
64
COMMODITY
ENERGY. On December 31, 2000, Spectrum Global Balanced's energy exposure
was shared primarily by futures contracts in the crude oil and natural gas
markets. 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
this market. 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. On December 31, 2000, Spectrum Global
Balanced had exposure to the markets that comprise these sectors. Most of the
exposure, however, was to the corn, cotton, and livestock markets. Supply and
demand inequalities, severe weather disruption, and market expectations affect
price movements in these markets.
METALS. Spectrum Global Balanced's metals market exposure is to
fluctuations in the price of base metals. During periods of volatility, base
metals will affect performance dramatically. The general partner anticipates
that the base metals will remain the primary metals market exposure of the
partnership.
MORGAN STANLEY DEAN WITTER SPECTRUM CURRENCY L.P.
The following was the primary trading risk exposure of Spectrum Currency as
of December 31, 2000. It may be anticipated, however, that market exposure will
vary materially over time.
CURRENCY. Spectrum Currency'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. On
December 31, 2000, the partnership's major exposures were to outright U.S.
dollar positions. Outright positions consist of the U.S. dollar vs. other
currencies. These other currencies include major and minor currencies. The
general partner 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.
MORGAN STANLEY DEAN WITTER SPECTRUM COMMODITY L.P.
The following were the primary trading risk exposures of Spectrum Commodity
as of December 31, 2000, by market sector. It may be anticipated, however, that
these market exposures will vary materially over time.
COMMODITY
ENERGY. On December 31, 2000, Spectrum Commodity's energy exposure was
shared primarily by futures contracts in the crude oil and natural gas markets.
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 and that significant profits and losses, which
have been experienced in the past, are expected to continue to be experienced in
this market. 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 AGRICULTURAL. On December 31, 2000, Spectrum Commodity
had exposure to the markets that comprise these sectors. Most of the exposure,
however, was to the corn, coffee, cocoa, and livestock markets. Supply and
demand inequalities, severe weather disruption, and market expectations affect
price movements in these markets.
METALS. Spectrum Commodity's primary metals market exposure is to
fluctuations in the price of gold and silver. Although, the partnership will
from time to time trade base metals such as copper, aluminum, zinc, and nickel,
the principal market exposures of the partnership have consistently been to
precious metals, such as gold and silver (and, to a much lesser extent,
platinum). Market exposure to
65
precious metals was evident, as gold prices continued to be volatile during the
quarter. Silver prices remained volatile over this period as well. The trading
advisor has from time to time taken positions as it has perceived market
opportunities to develop.
QUALITATIVE DISCLOSURES REGARDING NON-TRADING RISK EXPOSURE
The following was the only non-trading risk exposure of each partnership at
December 31, 2000:
FOREIGN CURRENCY BALANCES. Each partnership's primary foreign currency
balances were in:
SPECTRUM SELECT SPECTRUM TECHNICAL SPECTRUM STRATEGIC
------------------------------- ------------------------------- -------------------------------
Australian dollars Australian dollars Australian dollars
Euros British pounds Euros
Japanese yen Euros Japanese yen
SPECTRUM GLOBAL BALANCED SPECTRUM CURRENCY SPECTRUM COMMODITY
------------------------------- ------------------------------- -------------------------------
Australian dollars None None
Euros
South African rands
Each partnership controls the non-trading risk of these balances by
regularly converting these balances back into U.S. dollars upon liquidation of
the respective position.
QUALITATIVE DISCLOSURES REGARDING MEANS OF MANAGING RISK EXPOSURE
Each partnership and the trading advisors, separately, attempt to manage the
risk of a partnership's open positions in essentially the same manner in all
market categories traded. The general partner attempts to manage each
partnership's market exposure by seeking to have each partnership diversify its
assets among different trading advisors in a multi-advisor partnership, 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.
The general partner monitors and controls the risk of each partnership's
non-trading instrument, cash. Cash is the only partnership investment directed
by the general partner, rather than the trading advisors.
THE GENERAL PARTNER
The general partner and commodity pool operator of each partnership is
Demeter Management Corporation, a Delaware corporation formed on August 18, 1977
to act as a commodity pool operator. Effective in 1977, the general partner
became registered with the CFTC as a commodity pool operator and is currently a
member of the National Futures Association in such capacity. The general
partner's main business office is located at Two World Trade Center, 62nd Floor,
New York, New York 10048, telephone (212) 392-8899. The general partner is an
affiliate of Morgan Stanley DW in that they are both wholly-owned subsidiaries
of Morgan Stanley Dean Witter & Co., which is a publicly-owned company subject
to the reporting requirements of the Securities Exchange Act of 1934. Morgan
Stanley Dean Witter & Co.'s SEC file number is 1-11758.
The general partner is or has been the general partner and commodity pool
operator for 35 commodity pools, including five other commodity pools which are
exempt from certain disclosure requirements pursuant to CFTC Rule 4.7. As of
December 31, 2000, the general partner had approximately $1.4 billion in
aggregate net assets under management, making it one of the largest operators of
commodity pools in the U.S. As of December 31, 2000, there were approximately
67,000 investors in the commodity pools managed by Demeter.
The general partner is required to maintain its net worth at an amount equal
to at least 10% of the total contributions to each limited partnership for which
it acts as a general partner. Morgan Stanley Dean Witter & Co. has contributed
to the general partner the capital necessary to permit the general partner to
meet its net worth obligations as general partner of each partnership and
intends to continue to do so. The general partner's minimum net worth
requirements may be modified by the general partner at its option
66
without notice to or the consent of the limited partners, provided the
modification does not adversely affect the partnership or the limited partners.
The general partner and its principals are not obligated to purchase units but
may do so.
According to Morgan Stanley Dean Witter & Co.'s 2000 annual report, Morgan
Stanley Dean Witter & Co. had total shareholders' equity of $19,271 million and
total assets of $98,997 million as of November 30, 2000 (audited). Additional
financial information regarding Morgan Stanley Dean Witter & Co. is included in
the financial statements filed as part of that annual report. Morgan Stanley
Dean Witter & Co. will provide to you, upon request, copies of its most recent
Forms 10-K, 10-Q and 8-K, as filed from time to time with the SEC. These reports
will be available from the SEC, in the same manner described under "The Spectrum
Series--Availability of Exchange Act Reports" on page 38, or will be available
at no charge to you by writing to Morgan Stanley Dean Witter & Co. at 1585
Broadway, New York, New York 10036 (Attn: Investor Relations).
Because of their relationship to the partnerships and each other, Morgan
Stanley Dean Witter & Co., Morgan Stanley DW, and the general partner may have
liability as a promoter or parent of the partnerships if any violations of the
federal securities laws occur in connection with the offering of units.
DIRECTORS AND OFFICERS OF THE GENERAL PARTNER
Robert E. Murray, age 40, is Chairman of the Board, President and a Director
of the general partner. Mr. Murray is also Chairman of the Board, President and
a Director of Dean Witter Futures & Currency Management Inc. Mr. Murray is
currently a Senior Vice President of Morgan Stanley DW. Mr. Murray began his
career at Morgan Stanley DW 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 previously
served 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 47, is a Director of the general partner. Mr. Merin
is also a Director of Dean Witter Futures & Currency Management Inc. Mr. Merin
was appointed the Chief Operating Officer of asset management for Morgan Stanley
Dean Witter & Co. 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 Morgan Stanley DW since 1990, during which time he
has been Director of Morgan Stanley DW'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 55, is a Director of the general partner.
Mr. Siniscalchi joined Morgan Stanley DW in July 1984 as a First Vice President,
Director of General Accounting and served as Senior Vice President and
Controller for Morgan Stanley DW's Securities Division through 1997. He is
currently Executive Vice President and Director of the Operations Division of
Morgan Stanley DW. From February 1980 to July 1984, Mr. Siniscalchi was Director
of Internal Audit at Lehman Brothers Kuhn Loeb, Inc.
Edward C. Oelsner III, age 59, is a Director of the general partner. Mr.
Oelsner is currently an Executive Vice President and head of the Product
Development Group at Morgan Stanley Dean Witter Advisors. Mr. Oelsner joined
Morgan Stanley DW in 1981 as a Managing Director in Morgan Stanley DW's
Investment Banking Department specializing in coverage of regulated industries
and, subsequently, served as head of the Morgan Stanley DW Retail Products
Group. Prior to joining Morgan Stanley DW, 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.
Richard A. Beech, age 49, is a Director of the general partner. Mr. Beech
has been associated with the futures industry for over 23 years. He has been at
Morgan Stanley DW since August 1984, where he is presently Senior Vice President
and head of Branch Futures. Mr. Beech began his career at the Chicago
67
Mercantile Exchange, where he became the Chief Agricultural Economist doing
market analysis, marketing and compliance. Prior to joining Morgan Stanley DW,
Mr. Beech also had worked at two investment banking firms in operations,
research, managed futures and sales management.
Raymond A. Harris, age 44, is a Director of the general partner. Mr. Harris
is currently Executive Vice President, Planning and Administration for Morgan
Stanley Dean Witter Asset Management and has worked at Morgan Stanley DW or its
affiliates since July 1982, serving in both financial and administrative
capacities. From August 1994 to January 1999, he worked in two separate Morgan
Stanley DW 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.
Anthony J. DeLuca, age 38, is a Director of the general partner. Mr. DeLuca
is also a Director of Dean Witter Futures & Currency Management. Mr. DeLuca was
appointed the Controller of Asset Management for Morgan Stanley Dean Witter in
June, 1999. Prior to that, Mr. DeLuca was a partner at the accounting firm of
Ernst & Young LLP, where he had Morgan Stanley Dean Witter as a major client.
Mr. DeLuca had worked continuously at Ernst & Young LLP ever since 1984, after
he graduated from Pace University with a B.B.A. degree in Accounting.
Raymond E. Koch, age 44, is Chief Financial Officer of the general partner.
Mr. Koch began his career at Morgan Stanley Dean Witter in 1988, has overseen
the Managed Futures Accounting function since 1992, and is currently First Vice
President, Director of Managed Futures and Realty Accounting. From November 1979
to June 1988, Mr. Koch held various positions at Thomson McKinnon Securities,
Inc. culminating as Manager, Special Projects in the Capital Markets Division.
From August 1977 to November 1979 he was an auditor, specializing in financial
services at Deloitte Haskins and Sells. Mr. Koch received his B.B.A. in
accounting from Iona College in 1977, an M.B.A. in finance from Pace University
in 1984 and is a Certified Public Accountant.
The general partner and its officers and directors may, from time to time,
trade commodity interest contracts for their own proprietary accounts. The
records of trading in such accounts will not be made available to you for
inspection.
As of the date of this prospectus, Robert E. Murray, Chairman of the Board,
President and a Director of the general partner, owns 81.169 units of Spectrum
Select, 132.538 units of Spectrum Technical, 209.644 units of Spectrum
Commodity, and 180.995 units of Spectrum Currency, which amounts are less than
1% of the outstanding units of each partnership. As of the date of this
prospectus, Mr. Murray did not beneficially own units of any other partnership,
and none of the other directors or executive officers of the general partner
beneficially owned units of any partnership.
DESCRIPTION AND PERFORMANCE INFORMATION OF COMMODITY POOLS OPERATED BY THE
GENERAL PARTNER
The following table summarizes information relating to each of the other
commodity pools operated by the general partner, except those commodity pools
exempt from disclosure under CFTC Rule 4.7.
While each of these commodity pools has essentially the same
objective--appreciation of assets through speculative trading--the structure,
including fees, interest income arrangements, and trading advisors, and the
performance of these pools varies widely. There are significant differences
between the partnerships and the commodity pools described below. For example,
some of the commodity pools have principal protection features to protect
investors against the loss of their investment principal, and none of these
other commodity pools has the same mix of trading advisors, trading strategies,
and fee structures as those employed by the partnerships.
All summary performance information is current as of December 31, 2000. In
reviewing the following summary performance information, you should understand
that performance is calculated on an accrual basis in accordance with generally
accepted accounting principles and is "net" of all fees and charges, and a more
complete presentation of the performance of the futures funds operated or
managed by the general partner and/or its affiliates is available without charge
upon request to the general partner.
Past performance is not necessarily indicative of future results and
material differences exist between the commodity pools described in the chart
and the partnerships. There is no assurance that the partnerships will perform
in a manner comparable to any of the commodity pools described below. You should
also note that interest income may constitute a significant portion of a
commodity pool's total income and may generate profits where there have been
realized or unrealized losses from futures, forwards, and options trading.
68
DEMETER MANAGEMENT CORPORATION
CAPSULE SUMMARY OF PERFORMANCE INFORMATION REGARDING COMMODITY POOLS OPERATED
(EXCEPT AS OTHERWISE INDICATED, BEGINNING JANUARY 1, 1996 THROUGH DECEMBER 31,
2000)
CURRENT CURRENT CUMULATIVE
TOTAL NET ASSET RETURN
START CLOSE AGGREGATE NET ASSET VALUE PER SINCE
FUND TYPE/FUND(1) DATE(2) DATE(3) SUBSCRIPTION(4) VALUE(5) UNIT(6) INCEPTION(7)
----------------- ------- ------- --------------- ----------- --------- ------------
$ $ $ %
PUBLICLY-OFFERED FUNDS WITH ONE ADVISOR
WITHOUT "PRINCIPAL PROTECTION"
Dean Witter Commodity Partners Jan-81 Dec-88 9,648,397 739,757 488.29 (51.37)
Columbia Futures Fund(11) Jul-83 N/A 29,276,299 8,504,237 3,163.59 222.82
DW Diversified Futures Fund L.P. Apr-88 N/A 206,815,107 86,745,966 1,175.17 365.95
DW Multi-Market Portfolio L.P.(12) Sep-88 N/A 252,526,000 8,336,668 1,338.12 33.81
DW Diversified Futures Fund II L.P. Jan-89 N/A 13,210,576 8,347,840 3,075.90 207.59
DW Diversified Futures Fund III L.P. Nov-90 N/A 126,815,755 48,335,974 1,945.81 94.58
DW Portfolio Strategy Fund L.P.(13) Feb-91 N/A 143,522,564 95,289,891 2,658.72 165.87
Morgan Stanley Dean Witter Charter DWFCM Mar-94 N/A 68,459,271 37,382,312 17.50 75.00
L.P.(14)
Morgan Stanley Dean Witter Charter Graham L.P. Mar-99 N/A 27,332,830 28,771,158 12.55 25.50
Morgan Stanley Dean Witter Charter Mar-99 N/A 34,557,217 29,782,599 10.40 4.00
Millburn L.P.
Morgan Stanley Dean Witter Charter Welton L.P. Mar-99 N/A 31,235,810 22,309,441 8.20 (18.00)
PUBLICLY-OFFERED FUNDS WITH MORE THAN ONE
ADVISOR WITHOUT "PRINCIPAL PROTECTION"
DW Cornerstone Fund I Jan-85 Dec-91 19,122,276 281,303 456.80 (53.15)
DW Cornerstone Fund II(15) Jan-85 N/A 65,653,270 24,687,691 4,419.13 353.24
DW Cornerstone Fund III(15) Jan-85 N/A 137,132,762 28,391,065 3,037.53 211.54
DW Cornerstone Fund IV(15) May-87 N/A 168,114,264 99,618,555 5,373.69 451.15
Morgan Stanley Dean Witter Spectrum Select L.P. Aug-91 N/A 311,343,034 220,729,969 23.57 135.70
DW Global Perspective Portfolio L.P. Mar-92 N/A 67,424,535 11,661,054 1,005.36 0.54
DW World Currency Fund L.P. Apr-93 N/A 114,945,830 16,913,166 1,056.80 5.68
PUBLICLY-OFFERED FUNDS WITH ONE ADVISOR
WITH "PRINCIPAL PROTECTION"
DW Principal Plus Fund L.P.(16) Feb-90 N/A 109,013,535 38,784,882 1,941.87 94.19
PUBLICLY-OFFERED FUNDS WITH MORE THAN ONE
ADVISOR WITH "PRINCIPAL PROTECTION"
DW Principal Guaranteed Fund II L.P. Mar-89 Mar-96 162,203,303 4,966,449 1,056.55 5.66
PRIVATELY-OFFERED FUNDS WITH ONE ADVISOR
WITHOUT "PRINCIPAL PROTECTION"
Morgan Stanley Dean Witter/Chesapeake L.P. Nov-94 N/A 38,717,530 31,879,697 2,135.25 113.53
Morgan Stanley Dean Witter/JWH Futures Feb-96 N/A 33,770,611 13,176,730 1,192.14 19.21
Fund L.P.
PRIVATELY-OFFERED FUND WITH MORE THAN ONE
ADVISOR WITHOUT "PRINCIPAL PROTECTION"
Morgan Stanley Dean Witter/Market Street Futures Oct-98 N/A 24,482,412 13,223,282 922.01 (7.80)
Fund L.P.
DWR Strategic Alternative Fund L.L.C. May-00 N/A 27,100,493 29,501,391 1,088.68 8.87
WORST WORST PEAK-
MONTHLY % TO-VALLEY
FUND TYPE/FUND(1) DRAWDOWN(8) DRAWDOWN(9)
----------------- ----------- -----------
% %
PUBLICLY-OFFERED FUNDS WITH ONE ADVISOR
WITHOUT "PRINCIPAL PROTECTION"
Dean Witter Commodity Partners (34.48) (64.23)
7/88 4/86-12/88
Columbia Futures Fund(11) (17.54) (48.63)
4/86 7/83-12/86
DW Diversified Futures Fund L.P. (12.85) (24.86)
5/90 5/95-6/96
DW Multi-Market Portfolio L.P.(12) (13.26) (29.84)
2/96 5/95-6/96
DW Diversified Futures Fund II L.P. (13.41) (25.62)
8/89 5/95-6/96
DW Diversified Futures Fund III L.P. (13.62) (27.00)
1/92 5/95-6/96
DW Portfolio Strategy Fund L.P.(13) (14.40) (31.83)
1/92 7/99-9/00
Morgan Stanley Dean Witter Charter DWFCM (12.87) (22.84)
L.P.(14) 1/95 7/94-1/95
Morgan Stanley Dean Witter Charter Graham L.P. (8.00) (17.06)
3/99 2/00-7/00
Morgan Stanley Dean Witter Charter (12.69) (23.11)
Millburn L.P. 10/99 7/99-7/00
Morgan Stanley Dean Witter Charter Welton L.P. (7.70) (29.10)
3/99 3/99-9/00
PUBLICLY-OFFERED FUNDS WITH MORE THAN ONE
ADVISOR WITHOUT "PRINCIPAL PROTECTION"
DW Cornerstone Fund I (20.88) (64.47)
8/91 4/86-8/91
DW Cornerstone Fund II(15) (11.74) (32.70)
9/89 7/88-10/89
DW Cornerstone Fund III(15) (18.28) (32.35)
2/89 2/89-10/89
DW Cornerstone Fund IV(15) (21.04) (45.21)
9/89 7/89-9/89
Morgan Stanley Dean Witter Spectrum Select L.P. (13.72) (26.78)
1/92 6/95-8/96
DW Global Perspective Portfolio L.P. (12.10) (40.90)
10/99 8/93-1/95
DW World Currency Fund L.P. (9.68) (46.04)
5/95 8/93-1/95
PUBLICLY-OFFERED FUNDS WITH ONE ADVISOR
WITH "PRINCIPAL PROTECTION"
DW Principal Plus Fund L.P.(16) (7.48) (13.08)
2/96 2/96-5/96
PUBLICLY-OFFERED FUNDS WITH MORE THAN ONE
ADVISOR WITH "PRINCIPAL PROTECTION"
DW Principal Guaranteed Fund II L.P. (5.62) (14.69)
1/91 8/89-4/92
PRIVATELY-OFFERED FUNDS WITH ONE ADVISOR
WITHOUT "PRINCIPAL PROTECTION"
Morgan Stanley Dean Witter/Chesapeake L.P. (17.34) (33.68)
5/99 9/98-10/00
Morgan Stanley Dean Witter/JWH Futures (9.62) (46.68)
Fund L.P. 10/99 7/99-9/00
PRIVATELY-OFFERED FUND WITH MORE THAN ONE
ADVISOR WITHOUT "PRINCIPAL PROTECTION"
Morgan Stanley Dean Witter/Market Street Futures (10.76) (31.12)
Fund L.P. 3/00 3/99-7/00
DWR Strategic Alternative Fund L.L.C. (1.91) (2.18)
7/00 6/00-7/00
COMPOUND ANNUAL RATES OF RETURN(10)
---------------------------------------------------------
FUND TYPE/FUND(1) 2000 1999 1998 1997 1996
----------------- ---------- ---------- ---------- --------- ----------
% % % % %
PUBLICLY-OFFERED FUNDS WITH ONE ADVISOR
WITHOUT "PRINCIPAL PROTECTION"
Dean Witter Commodity Partners
Columbia Futures Fund(11) 9.08 (8.54) 12.01 22.60 19.09
DW Diversified Futures Fund L.P. 22.00 (11.14) 6.22 11.96 (2.66)
DW Multi-Market Portfolio L.P.(12) 21.64 (8.77) 5.63 13.28 (6.76)
DW Diversified Futures Fund II L.P. 20.33 (9.50) 5.22 11.28 (4.83)
DW Diversified Futures Fund III L.P. 21.99 (10.56) 5.39 12.29 (4.73)
DW Portfolio Strategy Fund L.P.(13) 9.87 (6.85) 9.46 11.28 25.50
Morgan Stanley Dean Witter Charter DWFCM 23.77 (9.21) 5.07 26.22 3.97
L.P.(14)
Morgan Stanley Dean Witter Charter Graham L.P. 21.96 2.90
(10 months)
Morgan Stanley Dean Witter Charter 12.07 (7.20)
Millburn L.P. (10 months)
Morgan Stanley Dean Witter Charter Welton L.P. (8.17) (10.70)
(10 months)
PUBLICLY-OFFERED FUNDS WITH MORE THAN ONE
ADVISOR WITHOUT "PRINCIPAL PROTECTION"
DW Cornerstone Fund I
DW Cornerstone Fund II(15) 11.46 (5.42) 12.54 18.05 11.47
DW Cornerstone Fund III(15) (0.26) (6.78) 9.13 10.24 8.24
DW Cornerstone Fund IV(15) 14.74 (1.13) 6.80 38.41 12.97
Morgan Stanley Dean Witter Spectrum Select L.P. 7.14 (7.56) 14.15 6.22 5.27
DW Global Perspective Portfolio L.P. 3.63 (9.83) 11.25 11.16 9.26
DW World Currency Fund L.P. 6.36 2.65 (2.61) 39.35 12.97
PUBLICLY-OFFERED FUNDS WITH ONE ADVISOR
WITH "PRINCIPAL PROTECTION"
DW Principal Plus Fund L.P.(16) 6.96 (3.82) 10.54 15.39 (5.28)
PUBLICLY-OFFERED FUNDS WITH MORE THAN ONE
ADVISOR WITH "PRINCIPAL PROTECTION"
DW Principal Guaranteed Fund II L.P. 1.00
(3 months)
PRIVATELY-OFFERED FUNDS WITH ONE ADVISOR
WITHOUT "PRINCIPAL PROTECTION"
Morgan Stanley Dean Witter/Chesapeake L.P. 7.38 (3.48) 19.93 15.38 15.23
Morgan Stanley Dean Witter/JWH Futures 9.78 (22.29) 4.04 13.66 18.17
Fund L.P. (11 months)
PRIVATELY-OFFERED FUND WITH MORE THAN ONE
ADVISOR WITHOUT "PRINCIPAL PROTECTION"
Morgan Stanley Dean Witter/Market Street Futures (5.55) (2.63) 0.26
Fund L.P. (3 months)
DWR Strategic Alternative Fund L.L.C. 8.87
(8 months)
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
69
FOOTNOTES TO DEMETER MANAGEMENT CORPORATION PERFORMANCE INFORMATION
1. "Publicly-offered" funds are pools offered to the public.
"Privately-offered" funds are pools offered in private placements exempt
from registration. Funds with "principal protection" are pools with an
investment feature that guarantees the return of the amount originally
invested, generally within 5 to 7 years. Funds without "principal
protection" do not guarantee the return of an investor's investment.
2. "Start Date" is the month and year that the pool began trading.
3. "Close Date" is the month and year that the pool liquidated its assets and
stopped doing business.
4. "Aggregate Subscriptions" is the aggregate of all amounts contributed to the
pool, including investments that were later redeemed by investors.
5. "Current Total Net Asset Value" is the net asset value of the pool as of
December 31, 2000, or, in the case of liquidated pools, the net asset value
of the pool on the date of liquidation.
6. "Current Net Asset Value per Unit" is calculated by dividing the current
total net asset value by the total number of units outstanding as of
December 31, 2000, or, in the case of liquidated pools, the date of
liquidation.
7. "Cumulative Return Since Inception" is the percentage change in the net
asset value of a unit from its Start Date through December 31, 2000, or, in
the case of liquidated pools, from its Start Date through the date of
liquidation.
8. "Worst Monthly Drawdown" means losses experienced in the net asset value per
unit over the specified period and is calculated by dividing the net change
in the net asset value per unit by the beginning net asset value per unit
for the relevant period. "Drawdown" is measured on the basis of monthly
returns only, and does not reflect intra-month figures. The month in which
the worst monthly drawdown occurred during the history of the pool is set
forth under "Worst Monthly Drawdown."
9. "Worst Peak-to-Valley Drawdown" is the largest percentage decline in the net
asset value per unit over the history of the fund. This need not be a
continuous decline, but can be a series of positive and negative returns
where the negative returns are larger than the positive ones. The months
during which the worst peak-to-valley drawdown occurred are set forth under
"Worst Peak-to-Valley Drawdown."
10. "Compound Annual Rates of Return" are calculated annually by multiplying on
a compound basis each of the monthly rates of return during the year (not
shown), and not by adding or averaging such monthly rates of return. For the
year in which a pool commenced operations and for 2000, "Compound Annual
Rates of Return" reflect the compounded monthly rates of return (not shown)
from the Start Date for, or the beginning of, such partial year.
11. Columbia was a publicly-offered fund with more than one advisor from its
inception in July 1983 through January 1988, at which point it became a
publicly-offered fund with one advisor.
12. Multi-Market was a publicly-offered fund with more than one advisor with
principal protection from its inception in September 1988 through September
30, 1993, at which point it was changed to a publicly-offered fund with one
advisor without principal protection.
13. Portfolio Strategy was a publicly-offered fund with one advisor with
principal protection from its inception in February 1991 through July 31,
1996, at which point it was changed to a publicly-offered fund with one
advisor without principal protection.
14. Charter DWFCM's net asset value per unit was split 100-to-1 after the close
of business on December 1, 2000. All investors in Charter DWFCM prior to
December 1, 2000 had their units increased by a corresponding amount to
reflect this revaluation and all return calculations in the table have been
adjusted accordingly.
15. Subscriptions for interests in Cornerstone II, Cornerstone III, and
Cornerstone IV included an up-front 7.625% of net asset value selling
commission and continuing offering expense charge until sales to new
investors were terminated on September 30, 1994. Because sales occurred
throughout the year and, therefore, the amount of the net asset value-based
charge varied among investors, it was not practicable to include the
up-front charge in determining the Cornerstone Funds' annual return for
1994.
16. The performance record of Principal Plus includes the performance of Dean
Witter Principal Plus Fund Management L.P., an affiliated pool.
70
THE TRADING ADVISORS
MANAGEMENT AGREEMENTS
Each trading advisor has entered into a management agreement with a
partnership and the general partner. Each management agreement for Spectrum
Select, except the management agreement with Northfield which will commence
May 1, 2001 and expire April 30, 2004, will expire on May 1, 2001. Each
management agreement for Spectrum Technical will expire on November 30, 2001.
The management agreement for Spectrum Strategic with Allied Irish, Blenheim, and
Eclipse will expire on December 31, 2002, November 30, 2001, and June 30, 2002,
respectively. The management agreement for Spectrum Global Balanced will expire
on November 30, 2001. Each management agreement for Spectrum Currency will
expire on December 31, 2002. The management agreement for Spectrum Commodity
will expire on December 31, 2001. Each of the foregoing management agreements
will renew annually unless otherwise terminated by the general partner or the
trading advisor. The trading advisor is responsible for directing the investment
and reinvestment in futures, forwards, and options of the partnership's assets
allocated to such trading advisor. Each management agreement will terminate if
the partnership terminates, and may be terminated by the partnership at any
month-end upon five days' prior written notice to the trading advisor. Each
partnership may also terminate its management agreements immediately for events
that the general partner believes would have an immediate adverse effect on the
partnership, such as a violation of a partnership's trading policy. Each
management agreement may also be terminated by the trading advisor for events
that it deems would have a material adverse effect on its abilities to perform
under the management agreement, such as the implementation of a new trading
limitation not agreed to by the trading advisor.
INTRODUCTION TO TRADING ADVISOR DESCRIPTIONS
The biographies of the principals and brief summaries of the trading
program(s) of the trading advisor(s) for each partnership are set forth below.
The success of each partnership is dependent upon the collective success of its
trading advisor(s) in their trading for the partnership. However, in evaluating
these descriptions, an investor should be aware that the trading advisors'
trading methods are proprietary and confidential, the trading advisor(s)
selected for a partnership may change over time, and even if the same trading
advisor(s) continue(s) to trade for a partnership, they may make substantial
modifications to their trading programs. Investors generally will not be made
aware of when a trading advisor makes a modification to its trading program.
The descriptions of the trading advisors, their trading programs and their
principals are general and are not intended to be exhaustive. It is not possible
to provide a precise description of any trading advisor's trading program.
Furthermore, the trading advisors may refer to specific aspects of their trading
programs, which aspects may also be applicable to other trading advisors that
did not choose to make specific reference to these aspects of their own trading
programs. As a consequence, contrasts in the following descriptions may not, in
fact, indicate a substantive difference between the different programs involved.
However, all non-proprietary information about a trading program that the
trading advisor believes to be material has been included.
A trading advisor's registration with the CFTC or its membership in the
National Futures Association should not be taken as an indication that any such
agency has recommended or approved the trading advisor.
Except as noted below, the trading advisors and their principals have no
affiliation with any future commission merchant, introducing broker, or
principal thereof, and do not and will not participate in brokerage commissions,
directly or indirectly. Morgan Stanley Dean Witter Commodities Management is the
only trading advisor affiliated with the general partner, Morgan Stanley DW,
Morgan Stanley, and Morgan Stanley International, but does not directly
participate in the brokerage commissions charged by Morgan Stanley DW.
MORGAN STANLEY DEAN WITTER SPECTRUM SELECT L.P.
Currently three trading advisors trade the net assets for Spectrum Select.
Commencing May 1, 2001 Northfield will be added as a fourth trading advisor.
71
1. EMC CAPITAL MANAGEMENT, INC.
EMC is an Illinois corporation, registered with the CFTC as a commodity
trading advisor and commodity pool operator. EMC was incorporated in January
1988 for the purpose of acting as a commodity trading advisor, and was
registered with the CFTC as a commodity trading advisor in May of 1988 and as a
commodity pool operator in February 1991. Ms. Elizabeth A. Cheval is EMC's
Chairman, sole principal, sole director and beneficial owner. EMC and
Ms. Cheval are also members of the National Futures Association. EMC's business
address is 2201 Waukegan Road, Suite West 240, Bannockburn, Illinois 60015.
PRINCIPAL
Ms. Elizabeth A. Cheval is the Chairman, sole principal, and sole Director
of EMC. In 1984, Ms. Cheval was selected with a select group of other
individuals by Richard J. Dennis, Jr., a speculative investor in futures and
options, to invest for his personal account. As his employee, Ms. Cheval
received extensive training from Mr. Dennis, who personally supervised her
investment activities. In 1986, she became self-employed and continued to invest
for accounts of family members of Mr. Dennis until May of 1988 when Mr. Dennis
elected to discontinue his trading program. Prior to working with Mr. Dennis,
Ms. Cheval worked with A.G. Becker, a Chicago-based brokerage firm, on the floor
of the Chicago Board of Trade. Ms. Cheval has invested in futures since 1983,
when she began trading financial futures for her own account. Ms. Cheval
received a B.A. in Mathematics from Lawrence University in 1978.
At this time, neither EMC nor Ms. Cheval trades for its or her own account,
but each reserves the right to do so in the future. If either EMC or Ms. Cheval
engage in such trading, you will not be able to inspect such records. You should
also be aware that EMC is currently the commodity pool operator and commodity
trading advisor of the EMC Premier Fund, L.P., a commodity pool for which EMC
acts as the general partner. Ms. Cheval is currently a limited partner in a
commodity pool for which EMC is a trading advisor.
THE EMC TRADING PROGRAMS
EMC currently trades its Classic Program for Spectrum Select. In the near
future, EMC may trade a portion of its allocated Spectrum Select assets pursuant
to EMC's New Program. The exact nature of EMC's investment programs is
proprietary and confidential. The following descriptions of the Classic Program
and New Program are, by necessity, general and not exhaustive.
EMC's investment strategies are technical rather than fundamental in nature.
In other words, they are developed from analysis of patterns of actual monthly,
weekly, and daily price movements and are not based on analysis of fundamental
supply and demand factors, general economic factors or anticipated world events.
EMC relies on historical analysis of these price patterns to interpret current
market behavior and to evaluate technical indicators for trade initiations and
liquidations.
EMC's investment strategies used in each program are trend-following. This
means that initiation and liquidation of positions in a particular market are
generally in the direction of the price trend in that market, although at times
counter-trend elements also may be employed.
In both programs EMC employs an investment strategy which utilizes a blend
of systems (or, stated another way, a number of systems simultaneously). The
strategies are diversified in that each program follows a number of futures
interests and often invests in more than ten different interests at one time.
The specific types of contracts to be traded through both programs will vary
over time. These may include futures contracts, options on futures contracts,
and cash commodities. Examples of futures, forwards, and options traded by EMC
include precious and base metals, U.S. and foreign financial instruments, stock
indices, foreign currencies, grains and grain products, energy products such as
crude oil, and soft commodities such as cocoa, orange juice, sugar, and coffee.
EMC may invest in other futures interests in the future.
EMC also may trade in currency forward contracts on the foreign exchange
markets and engage in transactions in physical commodities, commonly known as an
"exchange for physical" or "EFP."
72
As of December 31, 2000, EMC managed approximately $40.9 million of client
assets pursuant to its Classic Program and approximately $44.3 million in all of
its programs. These figures include notional funds.
The futures interest contracts in both programs typically have been chosen
for reasons which include their historical performance and for their customary
liquidity. EMC may frequently invest, however, in less liquid markets. EMC
generally commits approximately 15% to 35% of an account's equity as margin on
open positions although this percentage can vary.
EMC believes that the development of a futures investment strategy is a
continual process. As a result of on-going research and development, EMC has
made enhancements and modifications in the specifics of its trading method. It
is likely that EMC will make similar enhancements and modifications in the
future. This means that the methods that EMC may use in the future might differ
from those presently used. Because EMC's methods are proprietary and
confidential, the general partner may not be aware of such changes in EMC's
investment methods.
EMC's risk management largely will be dictated by the amount of EMC's
allocated share of Spectrum Select's net assets. However, as profits are
generated or losses are incurred, the risk management techniques that EMC
employs for Spectrum Select will be modified.
If possible within existing market conditions, EMC adheres to the
requirements of a money management system which determines and limits the equity
committed to each position and sets optimal stop-losses for each position and
each account. The level of liquidation determined by this money management
system can override liquidations determined by technical indicators, especially
when an account has not generated profits or is experiencing losses.
Under EMC's investment method, profits, if any, are generated by only a
small percentage of the total number of trades placed. As a result, Spectrum
Select's net assets allocated to EMC will experience times of substantial
drawdowns. These drawdowns may be as high as 50% or more of the amount of funds
initially allocated to EMC. In addition, EMC may experience drawdowns well in
excess of 50% from peak levels of account performance. Substantial drawdowns do
not, however, necessarily indicate a failure in the investment strategies, but
rather are to be expected under the EMC programs. Prospective investors must,
therefore, be prepared to withstand these periods of unprofitable trading.
COMPARISON OF PROGRAMS
As noted above, the Classic Program and the New Program share some common
elements. Each program utilizes a diversified technical trend-following approach
and invests in a number of global markets. Each program also utilizes a blend of
systems and employs proprietary money management principles designed to control
risk within the portfolio.
The programs do, however, differ from one another in a number of significant
respects. First, the blend of systems utilized in the Classic Program generally
invests more aggressively than the blend utilized in the New Program. Second,
the New Program may make use of countertrend elements more frequently than the
Classic Program. Also of significance is the fact that the degree of leverage
utilized in the Classic Program is typically higher than in the New Program.
Finally, the specific money management principles employed also may differ.
The Classic Program is designed to achieve a higher potential return and is
likely to experience greater drawdowns and higher volatility over the long run.
The New Program is likely to have a lower return, smaller drawdowns and lower
volatility over the long run. Since past performance is not necessarily
indicative of future results, there can be no assurance that the programs will
perform in this manner either on a relative or absolute basis.
2. NORTHFIELD TRADING L.P.
Northfield is a Delaware limited partnership with its principal place of
business at 3609 S. Wadsworth, Suite 250, Denver, Colorado 80235-2110.
Northfield began operations in August 1990. The limited partnership was formed
to use emerging computer technology to develop systematic approaches to
73
trading. Northfield became registered in March 1990 as a commodity trading
advisor and in November 1990 as a commodity pool operator with the CFTC, and is
a member of the National Futures Association in such capacities.
PRINCIPALS
Douglas Bry is the President of Northfield. Mr. Bry has an extensive
history, dating from 1972, in analyzing and understanding complex databases
through the use of computerized statistical approaches. In January 1987,
Mr. Bry and Philip Spertus formed Technical Trading Strategies, Inc., an
Illinois corporation of which Mr. Bry is the President. In conjunction with
Mr. Spertus and through Technical Trading Strategies, Mr. Bry developed and
marketed the "Volatility Breakout System," a trading methodology that was
offered for sale to the public. Technical Trading Strategies ceased offering to
sell the Volatility Breakout System in March of 1990. Technical Trading
Strategies obtained registration as a CTA in June 1987 and withdrew its
registration in October 1990. Technical Trading Strategies never directed or
guided the trading of customer accounts.
In December 1987, Douglas Bry and Philip Spertus formed Northfield Trading
Company, an Illinois corporation of which Mr. Bry is the President. Northfield
Trading Company, which became registered as a futures commission merchant with
the CFTC in April 1988, withdrew its registration in October 1990. Northfield
Trading Company's primary business was to provide brokerage services to
customers by introducing their accounts to clearing firms on a commission basis.
Northfield also provided discretionary trading advice to customers, and licensed
proprietary trading software to introducing brokers and commodity trading
advisors.
Mr. Bry, an attorney, graduated from Beloit College in 1974 with a B.A. in
Philosophy and Sociology and obtained his J.D. from the University of Colorado
in 1978. From September 1978 until June 1982, he was a trial attorney with the
Defender Association of Philadelphia, and from June 1982 through January 1987,
he was a Senior Trial Deputy with the Colorado State Public Defender. Mr. Bry
began trading futures for his own account in 1985 and became registered with the
CFTC as a commodity trading advisor in 1986. In January, 1997, Mr. Bry was
elected to the National Futures Association Board of Directors in the Commodity
Trading Advisor category and currently serves on its Executive Committee. In
September, 1999, Mr. Bry completed his second two-year term on the Board of
Directors of the Managed Funds Association. During the four years that he was on
the Managed Funds Association's Board, he was Chairperson of the Emerging Trader
Council, during the last two years he served on the Executive Committee, and
during the last year he was Vice Chairman of the Managed Funds Association.
Philip Spertus is Vice President of Northfield. Mr. Spertus graduated from
the Massachusetts Institute of Technology in 1956. From 1979 to 1992,
Mr. Spertus served in various senior capacities, including the positions of
Chairman and President, with Intercraft Industries, Inc., a multinational
manufacturer of picture frames and related products. In 1992, Intercraft
Industries was sold to Newell Corporation and Mr. Spertus assumed the position
of Vice President with Newell until late 1993. Mr. Spertus owned a special seat
and was a registered Broker/Dealer and member of the Chicago Board Options
Exchange from August 1984 through February 1986. He has traded futures for his
own account since 1983.
DESCRIPTION OF TRADING PROGRAMS
Northfield will only trade the Diversified Program for Spectrum Select.
Trading for Spectrum Select will be at 1.5 times the leverage Northfield
normally applies for the Diversified Program.
THE DIVERSIFIED PROGRAM
The Diversified Program was conceived, tested and refined by Douglas Bry and
Philip Spertus. The approach is fully computerized and nondiscretionary. Money
management principles are a critical element in the Diversified Program and have
been carefully constructed and are rigorously applied to minimize risk exposure
and to protect asset appreciation. Since the trading methods to be utilized by
Northfield in the Diversified Program are proprietary and confidential, the
discussion that follows is of a general nature and is not intended to be
exhaustive.
74
The Diversified Program embodies the following features:
1. EXCLUSIVE EMPHASIS ON TECHNICAL ANALYSIS. Northfield's Diversified
Program is purely technical. A technical approach utilizes prices action itself
as analyzed by charts, numerical indicators, pattern recognition, or other
techniques designed to provide information about market direction. Since
sustained price moves offer the greatest opportunity for profit with the least
amount of risk, Northfield has focused on studying the characteristics of
"random" versus "non-random" market behavior. The resulting systems used in the
Diversified Program are highly sensitive to changes in price direction and
volatility, and are designed to detect non-random behavior before a trend is
obvious.
2. TRADING LOGIC BASED ON EXTENSIVE MARKET SIMULATIONS. In order to
validate the trading methodology, extensive testing is conducted on historical
data in more than 50 markets worldwide.
3. SIMILAR TRADING ACROSS MARKETS. Northfield is very sensitive to the
risk of "curve-fitting" results to particular markets or time periods, and, as a
result, utilizes a similar approach in each market or group of markets that are
traded with a particular system in the Diversified Program. The decision to
subject markets to similar trading rules has led to the identification of
techniques that work independent of the markets to which they are applied.
4. A COMPLETELY AUTOMATED AND NON-DISCRETIONARY APPROACH. Northfield
implements its Diversified Program systems via proprietary software that
generates and print orders, monitors the markets in real time and keeps track of
position. The selection of trades is not subject to intervention by Northfield's
principals. No override of the Diversified Program will take place absent
extraordinary circumstances which Northfield believes threaten the customer's
capital, such as an outbreak of war, a major natural disaster, or a threat to
the integrity of an exchange clearing system.
5. ONGOING RESEARCH AND DEVELOPMENT. A full-time staff of computer
programmers work with the principals of Northfield to refine existing systems
and develop new ones for use in the Diversified Program.
DESCRIPTION OF COMMODITIES TRADED
Northfield's Diversified Program trades a diverse portfolio of commodity
interests across over 50 markets. The highly diversified mix of markets includes
interest rates, currencies, stock index futures, grains, meats, energy products,
metals (both precious and base), and soft commodities such as coffee, cotton and
cocoa. Market liquidity is a critical factor in the decision whether to
participate in a new market; Northfield may enter new domestic and non-United
States markets for the Diversified Program as contract liquidity develops.
The selection of markets is totally within the discretion of Northfield
which may add or delete markets as it deems appropriate. The markets traded and
position sizes in each market are a function of the trading methodology
developed by Northfield. Multiple time frames are tracked in each market and, at
any time and depending on market factors as assessed by Northfield, an account
using the Diversified Program may be holding positions in all markets traded by
the Diversified Program, some markets, or be out of all markets entirely.
MONEY MANAGEMENT PRINCIPLES
While volatility and leverage can produce healthy gains, they can also lead
to substantial losses. The development of trading methods and the selection of
markets are components of a complete portfolio strategy that also includes money
management. The money management principles discussed below have been designed
to minimize the probability of an equity drawdown while leaving intact the
profit potential associated with investing in commodity interests.
1. VOLATILITY DETERMINED, RISK EQUATED AMONG MARKETS. Each market traded
by the Diversified Program is monitored to determine its dollar volatility, that
is, how many contracts can be traded in a given market without risking more than
a set percentage (usually less than 1/2 of 1%) of an account's equity. In this
way, the trading exposure is equalized across all markets. Therefore, risk is
similar in all markets although the number of contracts traded in each market
may vary considerably.
2. USE OF STOPS. Northfield generally uses protective stops for the
Diversified Program, that is, setting the point at which to enter or exit the
market in order to protect gains or minimize losses.
75
Furthermore, in an attempt to control slippage, that is, the difference between
the desired entry price and the actual execution price, Northfield may impose a
limit on the fill prices it is willing to accept when entering trades. As a
consequence, the size of a position may be smaller than desired.
3. THE DEGREE OF LEVERAGE USED. Managers frequently provide the
margin-to-equity ratio as a measure of the risk associated with a particular
trading program. For Northfield's Diversified Program, the margin-to-equity
ratio, which is estimated to be usually less than 15% is far less meaningful
than a measure of the funds that would be lost if all the open trades were
exited at their prospective stops (the "Aggregate Risk to Stop"). While no
assurance can be given that actual drawdowns will not exceed the Aggregate Risk
to Stop, it provides a useful measure of exposure to loss. The Aggregate Risk to
Stop percentage typically will not exceed 20% and generally ranges between 5%
and 15% of an account.
4. DIVERSIFICATION Northfield further attempts to control risk exposure of
a Diversified Program account through broad diversification. Over 50 markets
worldwide are included in the portfolio research, although the number of markets
traded within the portfolio at any one time may vary. While some markets and
groups of markets have performance characteristics that are correlated,
portfolio theory, experience and numerous simulations have established that
portfolio diversification produces more consistent returns.
5. ACCOUNT ACTIVITY. Northfield's short-term Diversified Program systems
may trade as frequently as once a day or more often, while long-term systems may
take positions just a few times a year.
The trading methods, selection of markets, money management principles, and
implementation techniques described herein are general factors upon which
Northfield will base its investment decisions for the Diversified Program. No
assurance is given that consideration of any of these factors will lessen the
risk of loss or increase the potential for profit. Northfield will continue to
test and refine its trading methods for the Diversified Program and, therefore,
reserves the right to change any technique or strategy, including the technical
trading factors used, the commodity interests traded, or the money management
principles applied for the Diversified Program. Northfield does not consider
changes to the markets traded or systems being traded to be material for the
Diversified Program and expects to make such changes on an ongoing basis.
PAST PERFORMANCE OF NORTHFIELD
The past performance information for the program traded by Northfield for
Spectrum Select is set forth below. Northfield trades the net assets of Spectrum
Select allocated to it pursuant to its Diversified Program at 1.5 times the
leverage normally employed by that program. Capsule A-1 is a pro forma of an
account from Capsule A, adjusted for the increased leverage employed by
Northfield for Spectrum Select, and also adjusted for the interest income,
brokerage, management, and incentive fees applied to Spectrum Select. The
footnotes following Capsule A are an integral part of the Capsule.
You are cautioned that the performance information set forth in the
following capsule performance summary is not indicative of, and may have no
bearing on, any trading results which may be attained by Northfield or Spectrum
Select in the future, since past performance is not a guarantee of future
results and other trading advisors will be investing funds of Spectrum Select.
In addition, Northfield trades the net assets allocated to it at 1.5 times the
leverage it normally applies to the Diversified Program, which will
significantly increase volatility as well as profits and losses. The general
partner cannot assure you that Northfield or the partnership will make any
profit or will be able to avoid incurring substantial losses. You should also
note that interest income may constitute a significant portion of a commodity
pool's total income and may generate profits where there have been realized or
unrealized losses from futures interests trading.
76
CAPSULE A
NORTHFIELD TRADING L.P.
DIVERSIFIED PROGRAM
Name of commodity trading advisor: Northfield Trading L.P.
Name of program: Diversified Program
Inception of trading by commodity trading advisor: July 1989
Inception of trading in program: July 1989
Number of open accounts: 27
Aggregate assets overall: $54,090,057
Aggregate assets in program: $54,090,057
Largest monthly drawdown past five years: (4.9)%--(January 1999)
Largest monthly drawdown since inception: (11.6)%--(September 1992)
Worst peak-to-valley drawdown past five years: (12.1)%--(18 months, February
1997-July 1998)
Worst peak-to-valley drawdown since inception: (27.0)%--(14 months, December
1991-January 1993)
2000 annual return: 13.90%
1999 annual return: 13.50%
1998 annual return: 7.00%
1997 annual return: 2.50%
1996 annual return: 18.40%
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
FOOTNOTES TO NORTHFIELD CAPSULE A PERFORMANCE SUMMARY
"Inception of trading by commodity trading advisor" is the date on which
Northfield began trading client accounts.
"Inception of trading in program" is the date on which Northfield began
trading client accounts pursuant to the program shown.
"Number of open accounts" is the number of accounts directed by Northfield
pursuant to the program shown as of December 31, 2000.
"Aggregate assets overall" is the aggregate amount of assets in
non-proprietary accounts under the management of Northfield as of December 31,
2000 and does not include notional equity.
"Aggregate assets in program" is the aggregate amount of assets in the
program specified as of December 31, 2000 and does not include notional equity.
"Largest monthly drawdown" is the largest loss experienced by a single
account in the program in any calendar month during the most recent five
calendar years and year-to-date expressed as a percentage of the total equity in
the account and includes the month and year of such drawdown.
"Worst peak-to-valley drawdown" is the largest calendar month to calendar
month loss experienced by a single account in the program during the most recent
five calendar years and year-to-date expressed as a percentage of total equity
in the account and includes the months and years in which it occurred. For
example, a worst peak-to-valley drawdown in an account of "(10)%-(1/96-8/96)"
means that the peak-to-valley drawdown was 10% and lasted from January 1996 to
August 1996.
"Annual and year-to-date return" is computed on a compounded monthly basis
assuming reinvestment of accrued profits. The rate of return is computed by
reference to total equity in the program. These numbers represent the composite
performance of all accounts in the program, not the performance of any specific
account.
77
CAPSULE A-1
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
NORTHFIELD TRADING L.P.
PRO FORMA OF AN ACCOUNT FROM CAPSULE A
DIVERSIFIED PROGRAM
Largest monthly drawdown past five years: (7.55)% - (January 1999)
Largest monthly drawdown since inception: (17.03)% - (September 1992)
Worst peak-to-valley drawdown past five years: (20.71)% - (17 months, March
1997 - July 1998)
Worst peak-to-valley drawdown since inception: (36.61)% - (6 months, August
1992 - January 1993)
2000 annual return: 17.99%
1999 annual return: 18.71%
1998 annual return: 8.91%
1997 annual return: 1.66%
1996 annual return: 28.39%
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
FOOTNOTES TO NORTHFIELD CAPSULE A-1 PRO FORMA PERFORMANCE SUMMARY
Capsule A-1 above reflects pro forma rates of return, which are the result
of the general partner and Northfield making pro forma adjustments to the actual
past performance record of a client account managed pursuant to the Diversified
Program, the trading program employed for Spectrum Select by Northfield. The pro
forma adjustments are an attempt to reflect the current brokerage, management,
and incentive fees, and historical interest income, and the degree of leverage
applied for the portion of Spectrum Select's net assets traded by Northfield, as
opposed to the actual fees, expenses, and interest income, and leverage
applicable to the account.
Capsule A-1 must be read in conjunction with the description of Northfield
and its trading program above. Furthermore, you must be aware that pro forma
rates of return have inherent limitations: (A) pro forma adjustments are only an
approximate means of modifying historical records to reflect aspects of the
economic terms of a commodity pool, constitute no more than mathematical
adjustments to actual performance numbers, and give no effect whatsoever to such
factors as possible changes in trading approach that might have resulted from
the different fee structure, interest income, leverage, and other factors
applicable to Spectrum Select as compared to Northfield's actual trading; and
(B) there are different means by which the pro forma adjustments could have been
made.
While the general partner believes that the information set forth in
Capsule A-1 is relevant to evaluating an investment in Spectrum Select, no
representation is or could be made that the capsule presents what the
performance results of the portion of Spectrum Select's net assets traded by
Northfield would have been in the past or are likely to be in the future. Past
results are not a guarantee of future results.
3. RABAR MARKET RESEARCH, INC.
Rabar is an Illinois corporation and is registered with the CFTC as a
commodity trading advisor and a commodity pool operator. It is a member of the
National Futures Association in such capacities. Rabar, originally named Rainbow
Market Research, Inc. when it was incorporated in November 1986, adopted its
present name in January 1989. It was registered as a commodity trading advisor
and a commodity pool operator in June 1988. Rabar has managed accounts
continuously since July 1988. The business address of Rabar is 10 Bank Street,
Suite 830, White Plains, New York 10606-1933.
PRINCIPALS
Paul Rabar, President of Rabar, first traded commodity futures in 1980. He
worked as an account executive at E.F. Hutton from 1981 to 1983 and then at
Clayton Brokerage until 1984. In 1985, Mr. Rabar
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was selected by Richard J. Dennis, Jr., a speculative trader of futures and
options, to participate in Mr. Dennis' commodity futures trading program.
Mr. Rabar participated in that program in 1985 and 1986, managing an account for
Mr. Dennis, and in 1987 and 1988 managed an account for another speculative
trader of futures and options. He traded his own account from May 1988 until
January 1989, when he invested in a futures fund to which Rabar is one of the
advisors. Mr. Rabar is a graduate of the New England Conservatory of Music. He
did additional work--primarily in science and mathematics--at Harvard
University, and in 1979 and 1980 was an assistant instructor of physics there.
Jeffrey Izenman is the Executive Vice President of Rabar, having joined the
firm in that capacity in November 1998. Prior to that, from September 1994
through October 1998, he was the President of EMC where he was responsible for
business development, client relations and various administrative and
operational aspects of the firm. Mr. Izenman is also the Chairman and a member
of the Board of Directors of the Managed Funds Association and is also a member
of the Business Conduct Committee of the National Futures Association. Prior to
joining EMC, Mr. Izenman was a partner in the law firm of Katten Muchin & Zavis
from October 1988 through August 1994, and an associate with that firm from
September 1982 through September 1988. There he specialized in the
representation of commodity trading advisors (including Rabar) and commodity
pool operators, as well as securities investment advisers and hedge fund
operators. Mr. Izenman received his JD degree from the University of Michigan
Law School in May 1982 and a B.S. in Accountancy from the University of Illinois
in May 1979.
Rabar is the commodity pool operator and trading advisor to Rabar Futures
Fund, L.P., a private commodity pool. Rabar is also the trading advisor to Rabar
International Futures Fund, Ltd., a commodity pool organized in the Cayman
Islands, which is not open to U.S. investors.
It should be noted that Rabar and/or Mr. Rabar currently, and Rabar,
Mr. Rabar, and Mr. Izenman may in the future, invest in commodity pools that are
advised by Rabar. Any of these pools may be beneficially owned solely or
primarily by Mr. Rabar.
Rabar does not currently trade an account for itself, and Mr. Izenman does
not currently trade an account for himself, but either may do so in the future.
Mr. Rabar, however, currently trades a personal account. Such trading occurs
only in markets which are considered too illiquid to trade on behalf of clients,
although Mr. Rabar may trade in other markets in the future. Records of Rabar's,
Mr. Rabar's, and Mr. Izenman's personal trading will not be open to inspection
by you.
THE RABAR TRADING PROGRAM
Rabar's objective is to achieve appreciation of Spectrum Select's assets
which it is allocated through speculative trading of futures interests,
including but not limited to domestic and foreign futures contracts and options
on futures contracts, forward contracts and spot contracts, and cash
commodities. Rabar primarily trades futures contracts for its existing clients.
The specific futures interests will be selected from time to time by Rabar on
the basis discussed below. Examples of futures contracts now traded by Rabar
include, but are not necessarily limited to, futures contracts on currencies,
U.S. and non-U.S. financial instruments, precious and base metals, U.S. and
non-U.S. stock indices, energy products, grains, and soft commodities. Rabar may
also engage in exchange for physicals transactions. At times, Rabar may trade
futures, forwards, and options for some clients which it does not trade for
Spectrum Select. As of December 31, 2000 Rabar was managing approximately $176
million of client assets pursuant to its trading program (notional funds
included).
Rabar's trading strategies have been internally researched and developed.
They are technical rather than fundamental in nature, I.E., they are developed
from the research and analysis of patterns of monthly, weekly, and daily price
movements, and of such indicators as volume and open interest. Rabar does,
however, consider the effects of some key fundamental factors, especially for
the purpose of controlling risk.
Rabar's risk management techniques include diversification, I.E., Rabar
commits equity to many markets and to a number of trading strategies. Also, the
trading program at all times adheres to the requirements of a money management
system which determines and limits the equity committed to each trade, each
market, each commodity complex, and each account. Furthermore, the risk assumed
and, consequently, the potential for profit experienced by a particular account
at different times, and by different accounts at the same time, vary
significantly according to market conditions, the size of a given
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account, the percentage gained or lost in that account, and the perceived risk
aversion of that account's owner. Consequently, you should not expect the same
performance as any other account traded previously, simultaneously, or
subsequently by Rabar or Mr. Rabar.
Rabar's trading program also emphasizes current and ongoing research and
analysis of market behavior in order to continue to develop strategies for
profiting from the changing character of that behavior. Rabar believes that the
development of a commodity trading strategy is a continual process. As a result
of further analysis and research into the performance of Rabar's methods,
changes have been made from time to time in the specific manner in which these
trading methods evaluate price movements in various commodities. It is likely
that similar revisions will be made in the future. As a result of such
modifications, the future trading methods that may be used by Rabar might differ
from those presently being used. The general partner may not be aware of such
changes in Rabar's trading methods.
The markets typically traded by Rabar have been chosen for their historical
performance, and for their customary liquidity. However, from time to time Rabar
may trade in newer or less liquid markets. There can be no assurance of
liquidity.
Rabar's methods are proprietary and confidential. The foregoing description
is general and is not intended to be exhaustive. As stated, trading decisions
require the exercise of judgment by Rabar. The decision not to trade certain
commodities or not to make certain trades may result at times in missing price
moves and hence profits of great magnitude, which other trading advisors who are
willing to trade these commodities may be able to capture. There is no assurance
that the performance of Rabar will result in profitable trading.
You should anticipate substantial losses of the portion of Spectrum Select's
assets allocated to Rabar over long periods of time since profits, if any, are
usually generated by only a few trades. Even more substantial losses of profits
may occur because all profits are subjected to ever-increasing risk by Rabar and
because large portions of unrealized profits in particular are usually given
back before Rabar determines that trend reversals against its positions have
occurred.
4. SUNRISE CAPITAL MANAGEMENT, INC.
Sunrise Capital Management is a California corporation with offices at 990
Highland Drive, Suite 303, Solana Beach, California 92075-2472. Sunrise Capital
Management (formerly known as Sunrise Commodities, Inc.) was organized in 1983
and continues the business of Sunrise Commodities, a California sole
proprietorship organized in 1982, and its predecessor firms. Sunrise Capital
Management was registered in February 1983 as a commodity trading advisor and in
April 1990 as a commodity pool operator with the CFTC and is a member of the
National Futures Association in such capacities. In January 1995, Sunrise and
Commodity Monitors, Inc. organized Sunrise Capital Partners, LLC, a California
limited liability company. Sunrise Capital Partners is wholly-owned by Sunrise
Capital Management and Commodity Monitors and was registered in February 1995 as
a commodity trading advisor and commodity pool operator with the CFTC and is a
member of the National Futures Association in such capacities. Commodity
Monitors is a California corporation organized in October 1977, and is the
successor to the partnership of Harris & Slaughter. Commodity Monitors was
registered in November 1977 with the CFTC as a commodity trading advisor and is
a member of the National Futures Association in such capacity. Sunrise Capital
Partners and CMI are also located at the address of Sunrise Capital Management
set forth above. Sunrise Capital Management and Sunrise Capital Partners
currently operate five commodity pools.
PRINCIPALS
Mr. Martin P. Klitzner is President of Sunrise Capital Management and a
Managing Director of Sunrise Capital Partners. In 1967 and 1968, Mr. Klitzner
received a B.A. and an M.B.A, respectively, from the University of Michigan. He
did post graduate work in economics at the University of California, Los
Angeles, from 1968 to 1971. Mr. Klitzner joined Sunrise Capital Management in
December 1982. Prior to joining Sunrise Capital Management, Mr. Klitzner was a
planner in the public sector, a private businessman, and an investor.
Mr. Richard C. Slaughter is a Managing Director of Sunrise Capital Partners
and is responsible for research and trading systems development. In 1974, he
received a B.S. in finance from San Diego State University. He has pursued
graduate studies in finance at the State University and in systems management
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at the University of Southern California. Mr. Slaughter has been a Professor of
Finance, instructing M.B.A. candidates in securities analysis and portfolio
management. Mr. Slaughter, a co-founder of Commodity Monitors in 1977, serves as
its President. He was responsible, along with Dr. Forrest, for the development
of Commodity Monitors' current trading systems. Mr. Slaughter began trading
commodities on a full-time basis in 1975 for his own account and as a commodity
trading advisor.
Dr. Gary B. Davis is the Chairman of the Board of Sunrise Capital
Management. In 1968 and 1970, Dr. Davis received a B.S. and Medical degree,
respectively, from the University of Michigan. From 1980 to 1990, Dr. Davis
served on the faculty of the University of California, San Diego as an Associate
Professor of Radiology. Dr. Davis has studied and traded the commodity futures
markets since 1979. Dr. Davis currently concentrates his efforts in research and
trading systems development activities for Sunrise Capital Partners.
Dr. John V. Forrest engages in research and trading systems development on
behalf of Sunrise Capital Partners. In 1962, he received a B.A. from Notre Dame
and in 1966 received a Medical Degree from the State University of New
York--Downstate Medical Center. Dr. Forrest retired in September 1997 as a
Professor of Radiology at the University of California, San Diego, where he has
served on the faculty since 1976. Dr. Forrest joined Commodity Monitors in
September 1991 and is a co-developer, with Mr. Slaughter, of Commodity Monitors'
current trading systems. He was President and sole shareholder of Cresta
Commodities, a commodity trading advisor, from September 1981 to August 1989.
Dr. Forrest began trading the commodity markets in 1975.
Mr. Martin M. Ehrlich is Vice President-Marketing of Sunrise Capital
Partners. His academic background includes studies at the University of
Cincinnati where he majored in business administration. Mr. Ehrlich joined
Sunrise Capital Management in 1986 after having been a long-time investor with
Sunrise Capital Management. Prior to assuming responsibilities for marketing and
public relations for Sunrise Capital Management, Mr. Ehrlich was an independent
businessman and investor.
Ms. Marie Laufik is Vice President-Trading of Sunrise Capital Partners. Ms.
Laufik is head trader and is responsible for supervising trading and back-office
operations. In 1973, Ms. Laufik received a Master's degree in Economics from the
University of Prague. Ms. Laufik worked for a Czechoslovakian import/ export
company for nine years before immigrating to the United States. Mrs. Laufik was
a commodity trader for Cresta Commodities from 1986 until she joined Sunrise
Capital Management in August 1988.
Elissa Davis is a principal of Sunrise Capital Management and Sunrise
Capital Partners by virtue of her role as a Trustee of the Davis Family Trust.
Mrs. Davis is not active in the management of either Sunrise Capital Management
or Sunrise Capital Partners and has not been involved in any other business
activities during the past five years.
The Davis Family Trust, dated October 12, 1989, is a director and the sole
shareholder of Sunrise Capital Management; Gary B. Davis and his wife, Elissa
Davis, are trustees and the sole beneficiaries of this Trust.
Sunrise Capital Management, Sunrise Capital Partners, their principals and
their affiliates intend to trade or to continue to trade commodity interests for
their own accounts. You will not be permitted to inspect the personal trading
records of Sunrise Capital Management, Sunrise Capital Partners, their
principals, or their affiliates, or the written policies relating to such
trading.
DESCRIPTION OF TRADING PROGRAMS
Sunrise Capital Management utilizes a long-term technical trend-following
system on behalf of the partnership, trading a wide continuum of time windows.
Most of these time frames are decidedly long-term by industry standards.
Pro-active money management strategies are designed to protect open profits and
to minimize exposure to non-directional markets.
Sunrise Capital Management and Sunrise Capital Partners currently offer six
programs for investment, all of which are traded in accordance with the trading
methodologies described below.
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In providing commodity trading advice, Sunrise Capital Management trades the
CIMCO Program for Spectrum Select.
The CIMCO--Diversified Financial Program was designed by Sunrise Capital
Management to participate exclusively in the highly liquid financial markets.
This program trades the major currencies as outrights against the U.S. dollar
and selectively against each other. Interest rate futures, both long and short
term (including U.S. and foreign bonds, notes, and euro products), stock
indices, (including S&P 500, DAX, IBEX 35, and Nikkei 225) precious and
industrial metals (including aluminum, gold, silver, and copper), natural gas,
and crude oil are also traded in this program. These commodity interests are
traded on futures exchanges but may also be traded in the interbank or cash
markets when appropriate.
As of December 31, 2000 Sunrise Capital Management and Sunrise Capital
Partners collectively managed approximately $96 million of client assets
pursuant to the CIMCO Program and approximately $485 million of client assets in
all of its programs (notional funds excluded).
OTHER TRADING PROGRAMS
The Currency Program is discussed under "Morgan Stanley Dean Witter Spectrum
Currency L.P. - 2. Sunrise Capital Partners, LLC" on page 119.
The Diversified Program may follow approximately twenty-five different
markets. These markets may include, but are not limited to, precious and
industrial metals, grains, petroleum products, soft commodities, domestic and
foreign interest rate futures, stock indices (including S&P 500), currencies and
their crossrates.
The Expanded Diversified Program gives clients further diversification than
in the standard Diversified Program. Additional commodity interests may include,
but are not limited to, industrial metals, minor currency markets, foreign
interest rate futures, and stock indices (DAX, IBEX-35, and Nikkei 225). Given
liquidity constraints in certain of these additional commodity markets, the
trading advisor may restrict money under management for this program.
The Short-Term Program follows major currencies which include, but are not
limited to, Japanese yen, British pound, euro, and Swiss franc, highly liquid
interest rate markets (U.S. Treasury bonds, Eurodollars, Euro government bonds,
Japanese government bonds, Euro-BOBL, and LT gilt), precious and industrial
metals markets (gold, copper, aluminum, and zinc), energy markets (crude oil,
natural gas, heating oil, and unleaded gas), and equities (DAX, FT-SE, NASDAQ,
and Nikkei 225).
Presently the Currency Options Program only follows options with a duration
of one week or more on Swiss francs, British pounds, euros, and Japanese yen.
Ongoing research will determine additional markets to be traded in the future as
part of this program as well as a Diversified Options Program.
TRADING METHODOLOGIES
Relying on technical analysis, Sunrise Capital Management believes that
future price movements in all markets may be more accurately anticipated by
analyzing historical price movements within a quantitative framework rather than
attempting to predict or forecast changes in price through fundamental economic
analysis. The trading methodologies employed by Sunrise Capital Management are
based on programs analyzing a large number of interrelated mathematical and
statistical formulas and techniques which are quantitative, proprietary in
nature and which have been either learned or developed by Dr. Davis,
Dr. Forrest, and/or Mr. Slaughter. The profitability of the trading programs
traded pursuant to technical analysis emphasizing mathematical and charting
approaches will depend upon the occurrence in the future, as in the past, of
major trends in some markets. In the absence of these trends and relationships,
the trading programs are likely to be unprofitable.
Sunrise Capital Management's long-term, trend-following program attempts to
detect a trend, or lack of a trend, with respect to a particular futures,
forward, or option by analyzing price movement and volatility over time. This
program consists of multiple, independent, and parallel systems, each designed
and tested to seek out and extract different market inefficiencies on different
time horizons. These systems will generate a signal to sell a "short" contract
or purchase a "long" contract based upon their
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identification of a price trend in the particular futures, forward, or option.
If the systems do not detect a price trend, a "neutral" trading signal will be
generated. While this neutral signal is designed to filter out high-risk
"whipsaw" markets, it is successful on only a limited basis. Successful
speculative futures interests trading employing trend-following techniques, such
as Sunrise Capital Management's system, depends to a large degree upon not
trading non-directional markets. Accordingly, to the extent that this neutral
trading signal is not generated during a non-trending market, trading would
likely be unprofitable.
Long-term trend-following trading systems, such as those employed by Sunrise
Capital Management, will seldom effect market entry or exit at the most
favorable price in the particular market trend. Rather, this type of trading
system seeks to close out losing positions quickly and to hold portions of
profitable positions for as long as the trading system determines that the
particular market trend continues to offer reasonable profit potential. The
number of losing transactions may exceed substantially the number of profitable
transactions. However, if the approach is successful, these losses should be
more than offset by gains. In using this trading methodology, it is anticipated
that Sunrise Capital Management will commit to margin between 5%-30% of assets
managed. Margin requirements may from time to time exceed this range.
While Sunrise Capital Management relies on mechanical technical trading
systems in making investment decisions, the overall strategy does include the
latitude to depart from this approach if market conditions are such that, in the
opinion of Sunrise Capital Management, execution of trades recommended by the
mechanical systems would be difficult or unusually risky. There may occur the
rare instance in which Sunrise Capital Management will override the system to
decrease market exposure. Any modification of trading instructions could
adversely affect the profitability of an account. Among the possible
consequences of such a modification would be (1) the entrance of a trade at a
price significantly worse than a system's signal price, (2) the complete
negation of a signal which subsequently would have produced a profitable trade,
or (3) the premature termination of an existing trade. Sunrise Capital
Management is not under any obligation to notify clients, the general partner,
or you of this type of deviation from its mechanical systems, since it is an
integral part of its overall trading method.
A technical trading system consists of a series of fixed rules applied
systematically. However, the system still requires Sunrise Capital Management to
make subjective judgments. For example, the trading advisor must select the
markets it will follow and futures interests it will actively trade, along with
the contract months in which it will maintain positions. Sunrise Capital
Management must also subjectively determine when to liquidate positions in a
contract month which is about to expire and initiate a position in a more
distant contract month.
Sunrise Capital Management engages in ongoing research that may lead to
significant modifications from time to time. Sunrise Capital Management will
notify the general partner if modifications to its trading systems or portfolio
structure are material.
Sunrise Capital Management believes that the development of a commodity
trading strategy is a continual process. As a result of further analysis and
research into the performance of Sunrise Capital Management's methods, changes
have been made from time to time in the specific manner in which these trading
methods evaluate price movements in various futures interests, and it is likely
that similar revisions will be made in the future. As a result of such
modifications, the trading methods that may be used by Sunrise Capital
Management in the future might differ from those presently being used.
Sunrise Capital Management has discretionary authority to make all trading
decisions, including upgrading or downgrading the trading size of the net assets
of Spectrum Select it manages to reflect additions, withdrawals, trading
profits, and/or trading losses, without prior consultation or notice. In
addition, Sunrise Capital Management may from time to time adjust the leverage
applicable to the assets allocated to it; PROVIDED, HOWEVER, any such
adjustments will be consistent with the leverage parameters described herein and
in the overall investment objectives and trading policies of the account it
manages for Spectrum Select. Such adjustments may be in respect of certain
markets or in respect of the overall CIMCO investment portfolio. Factors which
may affect the decision to adjust leverage include: inflows and outflows of
capital, ongoing research, volatility of individual markets, risk
considerations, and Sunrise
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Capital Management's subjective judgement and evaluation of general market
conditions. Adjustments to leverage may result in greater profits or losses. No
assurance can be given that any leverage adjustment will be to your financial
advantage.
MORGAN STANLEY DEAN WITTER SPECTRUM TECHNICAL L.P.
1. CAMPBELL & COMPANY, INC.
Campbell is a Maryland corporation organized in April 1978 as a successor to
a partnership originally organized in January 1974. Campbell has been registered
with the CFTC as a commodity trading advisor since May 1978 and is a member of
the National Futures Association in such capacity. Campbell's principal place of
business is located at 210 W. Pennsylvania Ave., Suite 770, Towson, MD 21204.
PRINCIPALS
Ms. Theresa D. Becks serves as the Chief Financial Officer, Treasurer,
Secretary and a Director. Ms. Becks joined Campbell in June 1991. In addition to
her role as Chief Financial Officer, Ms. Becks also oversees administration and
compliance at Campbell. From December 1987 to June 1991, she was employed by
Bank of Maryland Corp, a publicly held company. When she left she was
Vice-President and Chief Financial Officer. Prior to that time, she worked with
Ernst & Young. Ms. Becks is a C.P.A. and has a B.S. in Accounting from the
University of Delaware. Ms. Becks is registered as an associated person of
Campbell.
Mr. Richard M. Bell serves as a Senior Vice-President--Trading. Mr. Bell
began his employment with Campbell in May 1990. His duties include managing
daily trade execution of the assets under Campbell's management. From September
1986 through May 1990 Mr. Bell was the managing general partner of several
partnerships registered as broker-dealers involved in market making on the floor
of the Philadelphia Stock Exchange and Philadelphia Board of Trade. From July
1975 through September 1986 Mr. Bell was a stockholder and Executive
Vice-President of Tague Securities, Inc., a registered broker-dealer. Mr. Bell
graduated from Lehigh University with a B.S. in Finance. Mr. Bell is registered
as an associated person of Campbell.
Mr. D. Keith Campbell has served as Chairman of the Board since it began
operations and was President until January 1, 1994, and Chief Executive Officer
until January 1, 1998. Mr. Campbell is the majority stockholder. From 1971
through June 1978 he was a registered representative of a futures commission
merchant. Mr. Campbell has acted as a commodity trading advisor since January
1972 when, as general partner of Campbell Fund, a limited partnership engaged in
commodity futures trading, he assumed sole responsibility for trading decisions
made on behalf of Campbell Fund. Since then he has applied various technical
trading systems to numerous discretionary commodity trading accounts over which
Campbell has discretionary trading authority. Mr. Campbell is registered with
the CFTC as a commodity pool operator and is a member of the National Futures
Association in such capacity. He is also registered as an associated person of
Campbell.
Mr. William C. Clarke, III joined Campbell in June 1977. He is an Executive
Vice-President and a Director. Mr. Clarke holds a B.S. in Finance from Lehigh
University where he graduated in 1973. Mr. Clarke currently oversees all aspects
of research which involves the development of proprietary trading models and
portfolio management methods. Mr. Clarke is registered as an associated person
of Campbell.
Mr. Bruce L. Cleland joined Campbell in January 1993. Mr. Cleland serves as
President, Chief Executive Officer, and a Director. From May 1986 through
December 1992 Mr. Cleland served in various principal roles with the following
firms; President, Institutional Brokerage Corp., a floor broker; President,
Institutional Advisory Corp., a commodity trading advisor and commodity pool
operator; President, F&G Management, Inc., a commodity trading advisor;
President, Hewlett Trading Corporation, a commodity pool operator. Prior to
this, Mr. Cleland was employed by Rudolf Wolff Futures, Inc., a futures
commission merchant, where he served as President until April 1986. Mr. Cleland
graduated in 1969 from Victoria University in Wellington, New Zealand where he
received a Bachelor of Commerce and Administration degree. Mr. Cleland is
registered as an associated person of Campbell.
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Xiaohua Hu serves as a Vice President--Research. Mr. Hu has been employed by
Campbell since 1994 in the Research Department, where he has a major role in the
ongoing research and development of Campbell's trading systems. From 1992 to
1994, Mr. Hu was employed in Japan by Line System as a software engineer, where
he participated in the research and development of computer software, including
programs for production systems control and software development. Mr. Hu
received his B.A. in Manufacturing Engineering from Changsha University of
Technology in China in 1982. He went on to receive an M.A. and Ph.D. in Systems
and Information Engineering from the Toyohashi University of Technology, in
Japan, in 1987 and 1992 respectively. During his studies at Toyohashi, Mr. Hu
was also a Visiting Researcher in Computer Science and Operations Research and
published several research papers.
Phil Lindner, serves as Vice President--Information Technology. Mr. Lindner
has been employed by Campbell since October 1994, became the IT Director in
March 1996, and Vice President in January 1998. Mr. Lindner oversees Campbell's
computer and telecommunications systems, including a staff of programmers that
program proprietary applications for Campbell's trading, fund administration,
and accounting functions, and provide complete computer systems support to all
Campbell employees. Prior to joining Campbell, Mr. Lindner worked as a
programmer and manager for Amtote, a provider of race-track computer systems.
Mr. James M. Little serves as Executive Vice-President/Marketing and as a
Director. Mr. Little holds a B.S. in Economics and Psychology from Purdue
University. Mr. Little joined Campbell in April 1990. From March 1989 through
April 1990 Mr. Little was a registered representative of A.G. Edwards &
Sons, Inc. Prior to that, from January 1984 through March 1989, he was the Chief
Executive Officer of James Little & Associates, Inc., a registered commodity
pool operator and registered broker-dealer. Mr. Little is the co-author of THE
HANDBOOK OF FINANCIAL FUTURES, and is a frequent contributor to investment
industry publications. Mr. Little is registered as an associated person of
Campbell.
V. Todd Miller serves as a Vice President--Research. Mr. Miller has been
employed by Campbell since 1994 in the Research Department, where he has a major
role in the ongoing research and development of Campbell's trading systems. From
1993 to 1994, Mr. Miller was an assistant professor in the department of
Computer Information Science at the University of Florida, where he taught
classes in object oriented programming, numerical analysis, and programming in
C, C++ and LISP. Mr. Miller holds a variety of degrees from the University of
Florida, beginning with an Associates degree in architecture. He followed that
in 1986 with a B.A. in Business with a concentration in computer science. In
1988, he received his M.A. in Engineering with a concentration in artificial
intelligence. He completed his education in 1993 with a Ph.D. in Engineering
with a concentration in computer simulation.
Albert Nigrin serves as a Vice President--Research. Mr. Nigrin has been
employed by Campbell since 1995 in the Research Department, where he has a major
role in the ongoing research and development of Campbell's trading systems. From
1991-1995, Mr. Nigrin was an assistant professor in the department of Computer
Science and Information Systems at American University in Washington D.C., where
he taught classes in artificial intelligence, computer programming and
algorithms to both graduate and undergraduate students. While teaching, he also
wrote and published NEURAL NETWORKS FOR PATTERN RECOGNITION. Mr. Nigrin received
a B.A. in Electrical Engineering in 1984 from Drexel University. He then
proceeded directly to a Ph.D. program and received his degree in Computer
Science in 1990 from Duke University, where his doctoral studies concentrated in
the areas of artificial intelligence and neural networks.
Markus Rutishauser serves as Vice President--Trading, and has been employed
by Campbell since October 1993. Prior to joining Campbell, Mr. Rutishauser
worked two years at Maryland National Bank in Baltimore as an Assistant Vice
President in foreign exchange trading. Prior to that, Mr. Rutishauser was
employed by Union Bank of Switzerland, spending four years in their Zurich
office and another four years in their New York office, in the Foreign Exchange
Department. Mr. Rutishauser graduated from the University of Fairfield with a
degree in Finance. He subsequently completed his MBA at the University of
Baltimore in January 1996. Mr. Rutishauser is registered as an associated person
of Campbell.
Mr. C. Douglas York has been employed by Campbell since November 1992. He is
a Senior Vice President--Trading. His duties include managing daily trade
execution for foreign exchange markets. From
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January 1991 through October 1992, Mr. York worked for Black & Decker as Global
Foreign Exchange Manager. He holds a B.A. in Government from Franklin and
Marshall College. Mr. York is an associated person of Campbell.
Any principal of Campbell may trade futures interests for his or her own
accounts. In addition, Campbell manages proprietary accounts for its deferred
compensation plan and principals. Campbell has written procedures that govern
proprietary trading by principals. Trading records for proprietary trading
accounts are available for review by clients upon reasonable notice. Such trades
may or may not be in accordance with the Campbell trading program described
below.
THE CAMPBELL TRADING PROGRAM
Campbell trades the assets allocated to it by the partnership pursuant to
its Financial, Metal & Energy Large Portfolio, which trades exclusively in
futures, options and forward contracts, including foreign currencies, precious
and base metals, energy products, stock market indices, and interest rate
futures. As of December 31, 2000, Campbell was managing approximately $2.03
billion of client assets pursuant to the Financial Metals & Energy Large
Portfolio and approximately $2.26 billion in all of its programs.
Campbell makes trading decisions using proprietary technical trading models,
which analyze market statistics. There can be no assurance that the trading
models currently being used will produce results similar to those produced in
the past. Campbell's trading models are designed to detect and exploit
medium-term to long-term price changes, while also applying proven risk
management and portfolio management principles.
Campbell believes that utilizing multiple trading models for the same client
account provides an important level of diversification, and is most beneficial
when multiple contracts of each market are traded. More or fewer trading models
than are currently used may be used in the future. Every trading model may not
trade every market. It is possible that one trading model may establish a long
position while another trading model establishes a short position in the same
market. Since it is unlikely that both positions would prove profitable, in
retrospect one or both trades will appear to have been unnecessary. It is
Campbell's policy to follow trades signaled by each trading model independent of
what the other models may be recommending.
Over the course of a long-term trend, there are times when the risk of the
market may not appear to be justified by the potential reward. In such
circumstances some of Campbell's trading models may exit a winning position
prior to the end of a price trend. While there is some risk to this method (for
example, being out of the market during a significant portion of a price trend),
Campbell's research indicates that this is well compensated for by the decreased
volatility of performance which may result.
Campbell's trading models may include trend-following trading models,
counter-trend trading models, and trading models that do not seek to identify or
follow price trends at all. Campbell expects to develop additional trading
models and to modify models currently in use and may or may not employ all such
models for all clients' accounts. The trading models currently used by Campbell
may be eliminated from use if Campbell ever believes such action is warranted.
While Campbell normally follows a disciplined systematic approach to
trading, on occasion it may override the signals generated by the trading
models. Such action may not be beneficial to the results achieved.
Campbell applies risk management and portfolio management strategies to
measure and manage overall portfolio risk. These strategies include portfolio
structure, risk balance, capital allocation, and risk limitation. One objective
of risk and portfolio management is to determine periods of relatively high and
low portfolio risk, and when such points are reached, Campbell may reduce or
increase position size accordingly. It is possible, however, that during periods
of reduction in position size the return that would have been realized had the
account been fully invested would be reduced.
Campbell may, from time to time, increase or decrease the total number of
contracts held based on increases or decreases in an account's assets, changes
in market conditions, perceived changes in portfolio-wide risk factors, or other
factors which may be deemed relevant.
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Campbell estimates that, based on the amount of margin required to maintain
positions in the markets currently traded, aggregate margin for all positions
held in a client's account will range between 20% and 40% of the account's net
assets. From time to time, margin commitments may be above or below these
ranges.
The number of contracts that Campbell believes can be bought or sold in a
particular market without undue adverse price movement may at times be limited
because of illiquidity. In such cases a client's portfolio would be influenced
by liquidity factors because its positions in such markets might be
substantially smaller than its positions in other markets which offer greater
liquidity.
2. CHESAPEAKE CAPITAL CORPORATION
Chesapeake was incorporated under the laws of the Commonwealth of Virginia
in February 1988 for the purpose of offering advisory and investment portfolio
management services to both retail and institutional investors in trading
commodity futures contracts, options on futures contracts and commodities, spot
and forward currency contracts and swap and other derivative contracts traded in
U.S. and non-U.S. markets. On August 19, 1991, Chesapeake was merged into
Chesapeake Capital Corporation, an Illinois corporation formed on August 13,
1991. References herein to "Chesapeake" refer to the Virginia corporation prior
to August 19, 1991 and the Illinois corporation on and after August 19, 1991.
Chesapeake has been registered with the CFTC as a commodity trading advisor and
as a commodity pool operator since June 20, 1988 and May 8, 1991, respectively,
and has also been a member of the National Futures Association since June
20,1988. Chesapeake's principal place of business is located at 500 Forest
Avenue, Richmond, Virginia 23229. All business records will be kept at
Chesapeake's principal place of business.
PRINCIPALS
R. Jerry Parker, Jr. is the Chairman of the Board of Directors, the Chief
Executive Officer, and a member of the Executive Committee of Chesapeake.
Mr. Parker has overseen Chesapeake's operations and its trading since its
inception. Mr. Parker received a Bachelor of Science degree in Commerce, with an
emphasis in Accounting, from the University of Virginia in January 1980.
Mr. Parker worked in the accounting field for four years after graduating from
college and became a licensed Certified Public Accountant in Virginia in 1982.
From November 1983 until January 1987, Mr. Parker was employed as an exempt
commodity trading advisor by Mr. Richard J. Dennis, a principal and shareholder
of Richard J. Dennis & Company, a Chicago-based commodity trading advisor and a
commodity pool operator registered with the CFTC, in his "Turtle" training
program. From January 1987 until February 1988, Mr. Parker traded for
Mr. Thomas Dennis as an exempt commodity trading advisor. From November 1983
through February 1988, Mr. Parker had complete discretionary trading authority
over a futures portfolio of U.S. $1 million to U.S. $1.5 million. In February
1988, Mr. Parker ceased trading for Mr. Thomas Dennis and formed Chesapeake,
which, as of January 31, 2001, managed approximately U.S. $1.06 billion
(notional funds included) of client funds.
John M. Hoade is the President, the Secretary, and a member of the Executive
Committee of Chesapeake. Mr. Hoade received a Bachelor of Science degree in
Business Administration from Lynchburg College in 1978. From September 1976
through December 1990, Mr. Hoade was employed by Thurston Metals, Inc., located
in Lynchburg, Virginia, in sales, marketing, and general management. Mr. Hoade
joined Chesapeake in December 1990 to direct its operations and marketing
efforts.
Braxton Glasgow, III is the Executive Vice President, Director of Marketing,
and a member of the Executive Committee of Chesapeake. Mr. Glasgow received a
Bachelor of Science degree in Accounting from the University of North
Carolina--Chapel Hill in 1975 and is a Certified Public Accountant. Prior to
joining Chesapeake in May 1995, where he is responsible for Marketing, Sales,
and New Product Development, Mr. Glasgow was President of Shoe Factory, Inc. in
Richmond, Virginia from January 1992 through May 1995, Executive Vice President
of Intershoe, Inc. in Millersburg, Pennsylvania from November 1989 through
January 1992, and Managing Director of Signet Investment Banking Company in
Richmond, Virginia from September 1986 through November 1989, where he
specialized in merger and acquisition taxation.
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Robert S. Parker, Jr. is the General Counsel and a member of the Executive
Committee of Chesapeake. Mr. Parker received his Bachelor of Science degree in
Commerce, with an emphasis in Accounting, from the University of Virginia in
1965. Mr. Parker worked in the accounting field for two years and became a
Certified Public Accountant in Virginia. He then attended law school at the
College of William and Mary where he received a Juris Doctor degree in 1970.
Mr. Parker has been engaged in the practice of law since then, with an emphasis
in tax and business matters, including 13 years with Hunton & Williams, where
Mr. Parker was a partner. Mr. Parker has been General Counsel of Chesapeake
since February 1996.
Chesapeake and its principals may, from time to time, trade futures,
forwards, and options contracts and securities for their own proprietary
accounts. Such trades may or may not be in accordance with the Chesapeake
trading program described below. Records for these accounts will not be made
available to Spectrum Technical.
THE CHESAPEAKE TRADING PROGRAMS
Prior to June 1, 1998, the assets allocated to Chesapeake by Spectrum
Technical were traded pursuant to its Diversified Program and its Financial and
Metals Program. Since June 1, 1998, the assets of Spectrum Technical allocated
to Chesapeake have been traded pursuant to its Diversified 2XL Program. The
Diversified 2XL Program emphasizes a wide range of diversification with a global
portfolio of commodity futures contracts, options on futures contracts and
commodities, spot and forward currency contracts and swap and other derivative
contracts traded in U.S. and non-U.S. markets, including, but not limited to,
agricultural products, precious and industrial metals, currencies, financial
instruments, and stock, financial, and economic indices. Chesapeake will not
trade cash commodities or swap contracts for the partnership without the general
partner's consent. Chesapeake may trade on U.S. and non-U.S. exchanges and
markets. The decision to add or subtract markets from this program periodically
shall be at the sole discretion of Chesapeake.
Chesapeake utilizes a variety of trading strategies and programs for its
clients' private accounts and for Chesapeake-sponsored investment funds. The
programs offered generally by Chesapeake to its clients to trade commodity
futures contracts, options on futures contracts and commodities, spot and
forward currency contracts and swap and other derivative contracts for their
private accounts (i.e., to those clients other than Chesapeake-sponsored
investment funds) are the Diversified Program and the Diversified 2XL Program
(the "Diversified Trading Programs"). The Diversified Program commenced trading
in February 1988. The Diversified Program emphasizes a wide range of
diversification by utilizing a global portfolio of commodity futures contracts,
options on futures contracts and commodities, spot and forward currency
contracts and swap and other derivative contracts traded in U.S. and non-U.S.
markets including, but not limited to, agricultural products, precious and
industrial metals, currencies, financial instruments, and stock, financial, and
economic indices. These futures interest contracts are traded on a highly
leveraged basis. The Diversified 2XL Program, which Chesapeake trades for
Spectrum Technical, began trading in April 1994. The Diversified 2XL Program
employs the same trading system as the Diversified Program, except that the
Diversified 2XL Program is generally traded on an increased exposure basis
generally equal to approximately two times the exposure or trading level
typically applied to a fully-funded Diversified Program account (although at
times a different level may be used and the partnership's returns may vary
significantly from a 2:1 ratio with the gross returns of private accounts
trading the Diversified Program). Ultimately, the appropriate exposure or
trading level to be employed by the partnership in its trading, as determined at
the sole discretion of Chesapeake, will be determined by the performance factors
associated with the partnership and the partnership only, regardless of the
intended performance relationship of the partnership to other accounts trading
in other programs that may utilize more or less exposure. Since Chesapeake's
trading strategies and programs are proprietary and confidential, the discussion
below is of a general nature and it is not intended to be exhaustive.
As of December 31, 2000, Chesapeake was managing approximately $119 million
of customer funds in the Diversified 2XL Program (notional funds excluded) and
approximately $1.01 billion of client assets (notional funds excluded).
In general, Chesapeake analyzes markets, including price action, market
volatility, open interest, and volume as a means of predicting market
opportunity and discovering any repeating patterns in past historical prices.
Chesapeake generally employs a computerized analysis of a large number of
interrelated statistical and mathematical formulas and techniques--based on an
extensive proprietary and confidential
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database of prices, volume, open interest, and various other market
statistics--to search for patterns in data and to develop, use, and monitor
trading strategies. Chesapeake places primary emphasis on technical analysis in
assessing market opportunities.
Chesapeake's trading decisions are based on a combination of its systems,
its market timing techniques, its trading discretion, judgment, and experience
and on market opportunities. Chesapeake's trading methodology is both systematic
and strategic. Trading decisions require the exercise of strategic judgment by
Chesapeake in evaluating its technical trading methods, in their possible
modification from time to time, and in their implementation.
Chesapeake is free to use its discretion whether to follow any trading
signals or parameters generated by its technical trading strategies and its
Diversified Trading Programs. The decision not to trade certain markets or not
to make certain trades indicated by Chesapeake's systems can materially affect
performance. Under no circumstances is Chesapeake compelled to follow any of the
trading indications generated by the Diversified Trading Programs.
Chesapeake has the right to employ any form or method of technical analysis
that it deems appropriate in trading its Diversified Trading Programs. By way of
example, the technical trading strategies and programs utilized by Chesapeake
may be significantly revised from time to time by Chesapeake as a result of
ongoing research and development, which seeks to devise new trading strategies
and programs, as well as test its current technical strategies and programs.
Chesapeake will not notify clients, such as the partnership, of such revisions
or changes to its Diversified Trading Programs as they may occur.
Exchanges on which transactions may take place will include, but are not
limited to, all exchanges in the United States, as well as non-U.S. exchanges
which include, but are not limited to, the Belgian Futures and Options Exchange,
the London International Financial Futures and Options Exchange Ltd., the
International Petroleum Exchange of London Ltd., the London Metal Exchange, the
London Commodity Exchange, the Italian Derivatives Market, the Marche a Terme
International de France, the Mercado Espanol de Futuros Financieros, the Eurex
Deutschland, the Hong Kong Futures Exchange Ltd., the Montreal Exchange, the
Tokyo Commodity Exchange, the Tokyo International Financial Futures Exchange,
the Tokyo Stock Exchange, the Singapore International Monetary Exchange, the
Sydney Futures Exchange Ltd., and the Winnipeg Commodity Exchange. In addition,
Chesapeake continually monitors numerous markets, both U.S. and non-U.S., and
initiates trades at any point it determines that a market is sufficiently liquid
and tradable using the methods employed by Chesapeake.
Chesapeake renders advice regarding transactions in physical commodities,
including exchange of futures for physicals transactions. An exchange of futures
for physicals transaction is a transaction permitted under the rules of many
futures exchanges in which two parties exchange a cash market position for a
futures market position (or vice versa) without making an open, competitive
trade on the exchange. The prices at which such transactions are executed are
negotiated between the parties.
Chesapeake does not currently, but may in the future, utilize swaps on
behalf of the partnership with the general partner's consent. A swap transaction
is an individually negotiated, non-standardized agreement between two parties to
exchange cash flows (and sometimes principal amounts) measured by different
interest rates, exchange rates, indices, or prices, with payments generally
calculated by reference to a principal amount or quantity. Chesapeake may enter
into swap transactions involving or relating to interest rates, currencies,
commodities or indices. Swaps may be utilized for a number of reasons, including
to achieve greater exposure to markets in which Chesapeake is constrained by
speculative position limits from taking additional positions in exchange-traded
contracts, to access markets not accessible through exchange-traded instruments,
and to allow customization of positions. Chesapeake may also trade other types
of over-the-counter derivative contracts.
Chesapeake generally uses between 10% and 30% of the equity in a fully
funded account as original margin for trading in the Diversified Program, but at
times the margin-to-equity ratio can be higher. The low margin normally required
in futures trading permit an extremely high degree of leverage; margin
requirements for futures trading being in some cases as little as 2% of the face
value (or "exposure") of the contracts traded. Therefore, the gross value of
positions held in an account may be several times the value of such account.
Consequently, even a slight movement in the prices of open positions in an
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account could result in immediate and substantial losses to the investor. The
Diversified 2XL Program generally trades at approximately double the Diversified
Program exposure requiring the use of double of the portion of equity Chesapeake
generally uses as margin, which results in approximately double the ratio of the
gross value of positions in relation to the value of an account.
The risk assumed and, consequently, the potential for profit experienced by
a particular account at different times, and by different accounts at the same
time, vary significantly according to the program(s) traded, the market
conditions, the percentage gained or lost in such account, the size of such
account, the brokerage commissions, the management fees and the incentive fees
charged to such account, the contracts, if any, excluded from such account by
the client, and when such account commenced trading. Accordingly, no investor
should expect to achieve the same performance as that of any other account
traded previously, simultaneously, or subsequently by Chesapeake.
Programs that exclude or emphasize certain markets often perform differently
than programs utilizing different markets. On programs that differ in terms of
leverage or exposure only (E.G., the Diversified Trading Programs), Chesapeake
generally attempts to manage accounts in such programs such that the gross
returns (before fees), positive or negative, are a multiple of each other based
on the leverage differential (e.g., the Diversified 2XL Program gross returns,
positive or negative, are generally intended to be approximately double those of
the Diversified Program on an annual or year to date basis). However, many
factors can, sometimes significantly, impact account performance and these
performance relationships, including but not limited to, differences in the
timing of additions and withdrawals and the resulting adjustment trades, varying
fills, changes in position size to reduce risk during losing periods by
Chesapeake that impact an account in one program but not other account(s) in
other programs that use proportionately higher or lower exposure, differences in
brokerage commissions, and other factors. Accordingly, every program will
underperform or overperform the anticipated multiple or fraction of a
differently leveraged program.
ADDITIONS AND REDEMPTIONS IN POOL ACCOUNT
Investors in investment fund accounts generally make additions or redeem
units at net asset value per unit as of the opening of business on the first
business day of each month. In order to provide the appropriate market exposure
commensurate with a fund's equity after giving effect to net additions/
redemptions, Chesapeake's general practice is to adjust positions as soon as
possible after the close of business on the last trading date of the month.
Market conditions may dictate the time period over which these trades can be
effected. The performance of a fund account relative to the performance of other
accounts trading in the same program or to accounts trading within programs that
should perform at a level proportionately higher or lower than such account may
be significantly different as a result of these adjustment trades. Furthermore,
there may be changes in net asset value per unit as a result of such adjustments
trades. Based on the level of net additions/redemptions and Chesapeake's
determination of liquidity or other market conditions, Chesapeake may also
decide to make adjusting trades before the close of business on the last
business day of the month. No assurance is given that Chesapeake will be able to
avoid the performance discrepancies and the changes described above in
connection with pool equity level changes. The use of discretion by Chesapeake
in the application of this procedure may affect performance positively or
negatively. Further, effecting trades prior to the close of business on the last
business day of the month may cause brokerage commissions to be incurred and
allocated in the month prior to the month in which the investors making
additions participate in pool profits and losses.
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3. JOHN W. HENRY & COMPANY, INC. (JWH-REGISTERED TRADEMARK-)
John W. Henry & Company began managing assets in 1981 as a sole
proprietorship and was later incorporated in the state of California as John W.
Henry & Co., Inc. to conduct business as a commodity trading advisor. In 1997,
JWH reincorporated in the state of Florida. JWH's offices are at 301 Yamato
Road, Suite 2200, Boca Raton, Florida. JWH's registration as a commodity trading
advisor became effective in November 1980. JWH is a member of the National
Futures Association in this capacity. "JWH" is the registered trademark of
John W. Henry & Company, Inc. The John W. Henry Trust, dated July 27, 1990, is
the sole shareholder of JWH.
PRINCIPALS
Mr. John W. Henry is chairman of the JWH Board of Directors and is trustee
and sole beneficiary of the John W. Henry Trust dated July 27, 1990. He is also
a member of the JWH Investment Policy Committee. In addition, he is a principal
of Westport Capital Management Corporation, Global Capital Management Limited,
and JWH Financial Products, Inc., all affiliates of JWH. Mr. Henry currently
concentrates his activities at JWH on portfolio management, research and new
system development, day-to-day decisions involving the strategic direction and
business of the firm and frequent dialogue with trading supervisors. He is the
exclusive owner of trading systems licensed to Elysian Licensing Corporation, a
corporation wholly owned by Mr. Henry, and sublicensed by Elysian Licensing
Corporation to JWH and utilized by JWH in managing investor accounts.
Mr. Henry has served on the Board of Directors of the Futures Industry
Association, the National Association of Futures Trading Advisors, and the
Managed Futures Trade Association, and has served on the Nominating Committee of
the National Futures Association. He has also served on a panel created by the
Chicago Mercantile Exchange and the Chicago Board of Trade to study cooperative
efforts related to electronic trading, common clearing, and issues regarding a
potential merger. Since the beginning of 1987, he has devoted, and will continue
to devote, considerable time to activities in businesses other than JWH and its
affiliates, including acting as chairman of the Florida Marlins Baseball Club
LLC, which continues to be operated by professional baseball staff.
Mr. Mark H. Mitchell is vice chairman, counsel to the firm and a member of
the JWH Board of Directors. His duties include the coordination and allocation
of responsibilities among JWH and its affiliates. He is also vice chairman and a
director of JWH Financial Products, Inc. Prior to joining JWH in January 1994,
he was a partner at Chapman and Cutler in Chicago, where he headed the law
firm's futures law practice from August 1983 to December 1993. He also served as
general counsel of the MFA and general counsel of the National Association of
Futures Trading Advisors. Mr. Mitchell is currently a member of the National
Futures Association commodity pool operator/commodity trading advisor Advisory
Committee. In addition, he has served as a member of the National Futures
Association Special Committee for the Review of a Multi-tiered Regulatory
Approach to National Futures Association Rules, the MFA Government Relations
Committee, and the Executive Committee of the Futures Industry Association Law
and Compliance Division. In 1985, Mr. Mitchell received the Richard P. Donchian
Award for Outstanding Contributions to the Field of Commodity Money Management.
He received an A.B. with honors from Dartmouth College and a J.D. from the
University of California at Los Angeles, where he was named to the Order of the
Coif, the national legal honorary society.
Mr. Verne O. Sedlacek is the president and chief operating officer and a
member of the JWH Investment Policy Committee. He is responsible for the
day-to-day management of the firm. Mr. Sedlacek is also a principal of Westport
Capital Management Corporation, JWH Investment Management Inc., Global Capital
Management Limited, and JWH Financial Products, Inc. Prior to joining JWH in
July 1998, he was the executive vice president and chief financial officer of
Harvard Management Company, Inc., a wholly owned subsidiary of Harvard
University which, at the time of his departure, managed approximately
$14 billion of University-related funds. At Harvard Management Company, he was
responsible for managing the areas of personnel, budgets, systems, performance
analysis, contracts, credit, compliance, custody, operations, cash management,
securities lending and market risk evaluation; he joined Harvard Management in
March 1983.
Mr. Sedlacek currently serves on the Boards of Directors of the National
Futures Association, the Futures Industry Association, Commonfund Capital, Inc.,
and the Chicago Mercantile Exchange, and is a member of the Global Markets
Advisory Committee of the CFTC. He is also a member of the National
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Futures Association/Futures Industry Institute Best Practices Study End User
Expert Panel. He received an A.B. in Economics from Princeton University, and an
M.B.A. in Accounting from New York University and was certified as a C.P.A. by
the State of New York in 1978.
Dr. Mark S. Rzepczynski is a senior vice president, research and trading and
a member of the JWH Investment Policy Committee. He is also a principal of JWH
Financial Products, Inc. Prior to joining JWH in May 1998, he was vice president
and director of taxable credit and quantitative research in the fixed income
division of Fidelity Management and Research from May 1995 to April 1998, where
he oversaw credit and quantitative research recommendations for all Fidelity
taxable fixed income funds. From April 1993 to April 1995, he was a portfolio
manager and director of research for CSI Asset Management, Inc., a fixed-income
money management subsidiary of Prudential Insurance. Dr. Rzepczynski has a B.A.
CUM LAUDE, Honors in Economics from Loyola University of Chicago, and an A.M.
and Ph.D. in Economics from Brown University.
Mr. E. Lyndon Tefft is a senior vice president and the chief financial
officer. He is also a principal of Westport Capital Management Corporation, JWH
Financial Products, Inc., and JWH Securities, Inc. Prior to joining JWH in
October 1998, Mr. Tefft was the Director of MIS and a vice president at Harvard
Management Company, Inc. where he was responsible for directing the design,
development, and operation of global equity, bond, and derivative trading,
accounting, and settlement systems beginning in May 1994. Mr. Tefft received a
B.S. in Industrial Management from Purdue University, and an M.B.A. from Wharton
School of Business at the University of Pennsylvania.
Mr. David M. Kozak is a senior vice president, general counsel and secretary
to the corporation. He is also a principal of JWH Financial Products, Inc., JWH
Investment Management, Inc., and Westport Capital Management Corporation. Prior
to joining JWH in September 1995, he had been a partner at the law firm of
Chapman and Cutler, where he concentrated in commodity futures law with an
emphasis on commodity money management.
Mr. Kozak is currently the secretary and a director of the MFA and is a
member of that organization's Executive Committee and chairman of its Government
Relations Committee. He is also a member of the Special Committee on CPO/CTA
Disclosure Issues and the Special Committee for the Review of Multi-tiered
Regulatory Approach to National Futures Association Rules, both of the National
Futures Association. He has served as chairman of the subcommittee on commodity
trading advisor and commodity pool operator issues of the Futures Regulation
Committee of the Association of the Bar of the City of New York. He received a
B.A. from Lake Forest College, an M.A. from The University of Chicago, and a
J.D. from Loyola University of Chicago.
Mr. David I. Ginsberg is a member of the JWH Board of Directors and special
advisor to the chairman. Mr. Ginsberg joined JWH in October 1999. He is also a
principal of JWH Investment Mangement, Inc. He served as the managing director
of the Multi-Manager Group at Global Asset Management from its inception in
September 1989 until July 1995. This GAM group was, and continues to be, one of
the largest multi-advisor groups specializing in hedge funds. Since leaving GAM,
Mr. Ginsberg has been a private investor and consultant. Mr. Ginsberg received a
M.B.A. with a concentration in Finance from Boston University and a B.A. from
Kenyon College. Mr. Ginsberg is a member of the board of directors of GAM
Diversity, Inc., a global multi-advisor hedge fund with assets in excess of $1.4
billion that specializes in hedge funds, and a director of the Adelphi Europe
Fund, a hedge fund specializing in European equities. He is also vice chairman
of the Florida Marlins Baseball Club LLC.
Mr. Kevin S. Koshi is a senior vice president, proprietary trading, and a
member of the JWH Investment Policy Committee. He is responsible for the
implementation and oversight of the firm's proprietary strategies and
investments. Mr. Koshi joined JWH in August 1988 as a professional in the
finance department, and since 1990 has held positions of increasing
responsibility in the trading department. He received a B.S. in Finance from
California State University at Long Beach.
Mr. Matthew J. Driscoll is a vice president, trading, and chief trader and a
member of the JWH Investment Policy Committee. He is responsible for the
supervision and administration of all aspects of order execution strategies and
implementation of trading policies and procedures. Mr. Driscoll joined JWH in
March 1991 as a member of the trading department. Since joining the firm, he has
held positions of
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increasing responsibility as they relate to the development and implementation
of JWH's trading strategies and procedures; he has played a major role in the
development of JWH's 24-hour trading operation. He attended Pace University.
Mr. Edwin B. Twist is a director of JWH. He is also a director of JWH
Financial Products, Inc. and JWH Investment Management, Inc. Mr. Twist joined
JWH as internal projects manager in September 1991 and has been a director since
August 1993. His responsibilities include assisting with the day-to-day
administration and internal projects of JWH.
Mr. Julius A. Staniewicz is a vice president, senior strategist and a member
of the JWH Investment Policy Committee. He is also a principal of JWH Financial
Products, Inc. He joined JWH in March of 1992. Mr. Staniewicz received a B.A. in
Economics from Cornell University.
The following is a list of additional principals of JWH: Mr. Andrew D.
Willard, vice president, information technology; Mr. Paul D. Braica, C.P.A.,
vice president, analytics; Ms. Florence Y. Sofer, vice president, marketing;
Mr. Robert B. Lendrim, vice president, investor services; Ms. Wendy B. Goodyear,
vice president, investor services; and Mr. Kenneth S. Webster, vice president,
investment support.
THE JWH-REGISTERED TRADEMARK- INVESTMENT PROGRAMS
JWH specializes in managing institutional and individual capital in the
global futures, swaps, and forwards markets. JWH currently operates 12
investment programs.
JWH utilizes the Original Investment Program and the Financial and Metals
Portfolio for Spectrum Technical.
THE ORIGINAL INVESTMENT PROGRAM. The Original Investment Program began
trading client capital in October 1982 and was the first program offered by JWH.
The Original Investment Program seeks to capitalize on long-term trends in a
broad spectrum of worldwide financial and non-financial futures markets
including interest rates, non-U.S. stock indices, currencies, metals, energies,
and agricultural markets. This program always maintains a position--long or
short--in every market traded.
In 1992, a broad research effort was initiated to enhance the risk/reward
ratios of the Original Investment Program without changing its trading
philosophy. Global markets were added; sector allocations were shifted, with
increased weighting given to financial markets; and some contracts were
eliminated. The quantitative model underlying the program was not changed.
Beginning in October 1995 the position size in relation to account equity in
this program was reduced 25%. Today, the Original Investment Program is one of
JWH's largest and historically best-performing programs, manifesting lower
volatility since the above changes were implemented in 1992.
THE FINANCIAL AND METALS PORTFOLIO. The Financial and Metals Portfolio,
which began trading client capital in October 1984, is JWH's second longest
running program. The program seeks to identify and capitalize on
intermediate-term price movements in four worldwide market sectors: interest
rates, currencies, non-U.S. stock indices, and metals. This program takes a
position when trends are identified but may take a neutral stance or liquidate
open positions in nontrending markets. Beginning in August 1992 the position
size in relation to account equity in this program was reduced 50%. The
quantitative model underlying the program was not changed. Since the changes
were implemented in 1992 the Financial and Metals Portfolio has experienced
lower volatility.
As of December 31, 2000, JWH was managing approximately $118 million of
client assets pursuant to its Original Investment Program, approximately
$365.8 million of client assets pursuant to its Financial and Metals Portfolio
and approximately $1.2 billion in all of its programs.
INVESTMENT PHILOSOPHY AND METHODOLOGY.
The JWH investment philosophy is based on the premise that market prices,
rather than market fundamentals, are the key aggregator of information necessary
to make investment decisions. The firm maintains that changes in market prices
initially reflect human reactions to new or emerging information or events that
will cause trends, but that prices eventually reflect all relevant information.
The price adjustments process takes time, however, since reactions of market
participants to changing market dynamics initially may be inefficient; that is,
investors may not react immediately to information because
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of differing abilities to process and evaluate data, differing levels of risk
tolerance, or uncertainty. Gradual price adjustments manifest themselves in
long-term trends, which themselves can influence the course of events and from
which profit opportunities can arise. JWH believes that such market
inefficiencies can be exploited through a combination of trend detection and
risk management.
There is strong economic and statistical evidence to suggest that trends do
exist in most markets although they may be difficult to identify. Since the
firm's founding, JWH has employed analytical methods to identify short- to
long-term trends. Comprehensive research undertaken by the firm's founder,
John W. Henry, led to the development of disciplined systematic quantitative
models. JWH's computer models examine market data for systematic price behavior
or relationships which will characterize a trend. When price trends are
identified, the JWH trading system generates buy and sell signals for
implementing trades. The strict application of these signals is one of the most
important aspects of JWH's investment process.
DURATION OF POSITIONS HELD.
JWH's historical performance demonstrates that, because trends often last
longer than most market participants expect, significant returns can be
generated from positions held over a long period of time. Therefore, market
exposure to profitable positions is not changed based on the time horizon of the
trade; positions held for two to four months are not unusual, and positions have
been held for more than one year. Losing positions are generally pared
relatively quickly, with most closing within a few days or weeks. However, if
the JWH system detects a profitable underlying trend, a position trading at a
loss may be retained in order to capture the potential benefits of participating
in that trend. Throughout the investment process, risk controls designed to
reduce the possibility of an extraordinary loss in any one market are
maintained.
DISCRETIONARY ASPECTS.
JWH at its sole discretion may override computer-generated signals and may
at times use discretion in the application of its quantitative models, which may
affect performance positively or negatively. This could occur, for example, when
JWH determines that markets are illiquid or erratic, such as may occur
cyclically during holiday seasons, or on the basis of irregularly occurring
market events. Subjective aspects in JWH's application of its quantitative
models also include the determination of position size in relation to account
equity, timing of commencement of trading an account, the investment of assets
associated with additions, redemptions, and reallocations, contracts and
contract months traded, and effective trade execution.
PROGRAM MODIFICATIONS.
Proprietary research is conducted on an ongoing basis to refine the JWH
investment strategies. While the basic philosophy underlying the firm's
investment methodology has remained intact throughout its history, the potential
benefits of employing more than one investment methodology, or in varying
combinations, is a subject of continual testing, review, and evaluation.
Extensive research may suggest substitution of alternative investment
methodologies with respect to particular contracts; this may occur, for example,
when the testing of a different methodology has indicated that its use might
have resulted in different historical performance. In addition, risk management
research and analysis may suggest modifications regarding the relative weighting
among various contracts, modifying the style and/or timing used by an investment
program to trade a particular contract, the addition or deletion of particular
contracts for an investment program, or a change in position size in relation to
account equity. However, most investment programs maintain a consistent
portfolio composition to allow opportunities in as many major market trends as
possible.
All cash in a JWH investment program is available to be used to trade in a
JWH program, although the amounts committed to margin will vary from time to
time. As capital in each JWH investment program increases, additional emphasis
and weighting may be placed on markets which historically have demonstrated the
greatest liquidity and profitability. Furthermore, the weighting of capital
committed to various markets in the investment programs is dynamic, and JWH may
vary the weighting at its discretion as market conditions, liquidity, position
limit considerations and other factors warrant. Spectrum Technical
will generally not be informed of such changes.
94
OVERSIGHT OF TRADING POLICIES.
The JWH Investment Policy Committee is a senior-level advisory group,
broadly responsible for evaluating and overseeing trading policies. The
Investment Policy Committee provides a forum for shared responsibility, meeting
periodically to discuss issues relating to implementation of JWH's investment
process and its application to markets, including research on new markets and
strategies in relation to JWH trading models. Typical issues analyzed by the
Investment Policy Committee include liquidity, position size, capacity,
performance cycles, and new product and market strategies. The Investment Policy
Committee also makes the discretionary decisions concerning investment program
selection, asset allocation, and leverage levels for the Strategic Allocation
Program, a multi-program asset allocation methodology. Composition of the
Investment Policy Committee, and participation in its discussions and decisions
by non-members, may vary over time. The Chairman participates in Investment
Policy Committee meetings and decisions. The Investment Policy Committee does
not make day-to-day trading decisions.
ADJUSTING THE SIZE OF POSITIONS TAKEN.
Adjustments in position size in relation to account equity have been and
continue to be an integral part of JWH's investment strategy. At its discretion,
JWH may adjust the size of a position in relation to equity in the account that
is taken in markets or entire investment programs. Such adjustments may be made
at certain times for some investment programs but not for others. Factors which
may affect the decision to adjust the size of a position in relation to account
equity include ongoing research, program volatility, current market volatility,
risk exposure, subjective judgment and evaluation of these and other general
market conditions. Such decisions to change the size of a position may
positively or negatively affect performance and will alter risk exposure for an
account. Adjustments in position size relative to account equity may lead to
greater profits or losses, more frequent and larger margin calls, and greater
brokerage expense. No assurance is or can be given that such adjustments will
result in profits for client accounts. JWH reserves the right to alter, at its
sole discretion and without notification to Spectrum Technical, its policy
regarding adjustments in position size relative to account equity.
ADDITION, REDEMPTION AND REALLOCATION OF CAPITAL FOR COMMODITY POOL OR FUND
ACCOUNTS.
Investors purchase or redeem units at net asset value on the close of
business on the last business day of the month. In order to provide market
exposure commensurate with the fund's equity on the date of these transactions,
JWH may, in its sole discretion, adjust its investment of assets associated with
additions and redemptions as near as possible to the close of business on the
last trading date of the month. The intention is to provide for additions and
redemptions at a net asset value that will be the same for each of these
transactions, and to eliminate possible variations in net asset values that
could occur as a result of inter-day price changes if, for example, additions
were calculated on the first day of the subsequent month. Therefore, JWH may, at
its sole discretion, adjust its investment of the assets associated with the
addition or redemption as near as possible to the close of business on the last
business day of the month to reflect the amount then available for trading.
Based on JWH's determination of liquidity or other market conditions, JWH may
decide to commence trading earlier in the day on, or before, the last business
day of the month, or at its sole discretion, delay adjustments to trading for an
account to a date or time after the close of business on the last day of the
month. No assurance is given that JWH will be able to achieve the objectives
described above in connection with fund equity level changes. The use of
discretion by JWH in the application of this procedure may affect performance
positively or negatively.
PHYSICAL AND CASH COMMODITIES.
JWH may trade in physical or cash commodities for immediate or deferred
delivery, including specifically gold bullion, as well as futures, options,
swaps, and forward contracts when it believes that cash markets offer comparable
or superior market liquidity or ability to execute transactions at a single
price. In addition, the CFTC does not comprehensively regulate cash
transactions, which are subject to the risk of counterparty failure, inability,
or refusal to perform with respect to such contracts. JWH will not trade
physical or cash commodities for the Spectrum Series, other than in connection
with exchange of futures for physical transactions, without the general
partner's consent.
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EQUITY DRAWDOWNS.
Historically, only thirty to forty percent of all trades made pursuant to
JWH's programs have been profitable. Large profits on a few trades in positions
that typically exist for several months have produced favorable results overall.
The greatest cumulative percentage decline in daily net asset value that JWH has
experienced since inception in any single program on a composite basis was
nearly sixty percent. You should understand that similar or greater drawdowns
are possible in the future.
LEGAL CONCERNS.
There neither now exists nor has there previously ever been any material
administrative, civil or criminal action against JWH or its principals.
JWH and Mr. Henry may engage in discretionary trading for their own
accounts, and may trade for the purpose of testing new investment programs and
concepts, as long as such trading does not amount to a breach of fiduciary duty.
In the course of such trading, JWH and Mr. Henry may take positions in their own
accounts which are the same or opposite from investor positions, due to testing
a new quantitative model or program, a neutral allocation system, and/or trading
pursuant to individual discretionary methods. In addition, Mr. Ginsberg may
engage in discretionary trading for his own account pursuant to his own personal
trading approach as long as such trading does not amount to a breach of
fiduciary duty; Mr. Ginsberg's trades may be the same as or opposite to
positions that JWH takes for client accounts. Trades for the accounts of JWH,
Mr. Henry and Mr. Ginsberg may on occasion receive better fills than Spectrum
Technical's accounts. Records for these accounts will not be made available to
Spectrum Technical.
Employees and principals of JWH (other than Messrs. Henry and Ginsberg) are
not permitted to trade in futures, options on futures or forward contracts.
However, such principals and employees may invest in investment vehicles that
trade futures, options on futures, or forward contracts, when an independent
trader manages trading in that vehicle, and in the JWH Employee Fund, L.P., for
which JWH is the trading advisor. Records for these accounts will not be made
available to Spectrum Technical.
Principals of JWH serve on the boards of directors and committees of various
organizations, both in and outside of the managed futures industry. In such
capacities, these individuals have a fiduciary duty to the other organizations
they serve, and they are required to act in the best interests of those
organizations, even if those actions were to be adverse to the interest of JWH
and its clients.
OTHER INVESTMENT PROGRAMS OPERATED BY JWH.
In addition to the Original Investment Program and the Financial and Metals
Portfolio, JWH currently operates 10 other investment programs in four
categories for U.S. and non-U.S. investors, none of which are used by JWH for
Spectrum Technical. Each program is operated separately and independently.
- BROADLY DIVERSIFIED programs invest in a broad spectrum of worldwide
financial and nonfinancial futures and forward markets including
currencies, interest rates, non-U.S. stock indices, metals, energies, and
agricultural commodities. Investment choices include a program that always
maintains a position--long or short--in a market (two-phase investment
style), a program that takes a position when trends are identified but may
take a neutral stance or liquidate open positions in nontrending markets
(three-phase investment style), and a program that uses a combination of
the two-phase and three-phase investment styles (five-phase investment
style) to invest in both long- and short-term price trends.
- FINANCIAL programs invest in worldwide financial futures and forward
markets including currencies, interest rates, and stock indices in
addition to the metals and energies markets. The range of investment
choices includes diversified financial programs, sector-focused programs,
and a program that takes positions from several currency perspectives.
Some programs use a two-phase investment style while others use a
three-phase investment style. Another program uses a combination of the
three-phase investment style and the three-phase forex investment style
described below.
- FOREIGN EXCHANGE programs invest in a wide range of world currencies
primarily traded on the interbank market. Investment choices include a
program that trades a range of major and minor
96
currencies, a program focused on major currencies only, and a program that
trades major currencies against the U.S. dollar. Programs use either the
three-phase investment style or a slight variation called three-phase
forex which incorporates specialized intra-day volatility filters.
- MULTIPLE STYLE programs involve the selection and allocation of assets
among the other types of JWH investment programs on a discretionary basis.
The Strategic Allocation Program is the only program offered in this
category.
THE GLOBAL DIVERSIFIED PORTFOLIO. The Global Diversified Portfolio, which
began trading client capital in June 1988, seeks to capitalize on
intermediate-term price movements in a broad spectrum of worldwide financial and
non-financial markets including interest rates, non-U.S. stock indices,
currencies, metals, energies, and agricultural commodity markets. This program
uses the three-phase investment style.
JWH GLOBALANALYTICS-REGISTERED TRADEMARK- FAMILY OF PROGRAMS. Introduced in
June 1997 as the firm's most broadly diversified investment program, JWH
GlobalAnalytics-Registered Trademark- Family of Programs is the result of
extensive research and testing by the firm. Unlike other JWH programs, which
invest in intermediate- or long-term price movements, JWH
GlobalAnalytics-Registered Trademark- invests in both long- and short-term price
movements. The program invests in a broad spectrum of worldwide financial and
non-financial markets including interest rates, non-U.S. stock indices,
currencies, metals, energies, and agricultural commodity markets. This program
uses a five-phase investment style.
THE WORLD FINANCIAL PERSPECTIVE. The World Financial Perspective, which
began trading client capital in April 1987, seeks to capitalize on long-term
price movements in five worldwide market sectors: interest rates, global stock
indices, currencies, metals, and energies. Rather than concentrating on the
profit potential available solely from the point of view of one country, the
program trades from different vantage points. The program holds positions from
several currency perspectives, including the British pound, Canadian dollar,
euro, Japanese yen, Swiss franc, and U.S. dollar. This program uses the
two-phase investment style. JWH modified The World Financial Perspective in
January 1993 by adding new markets to enhance overall diversification. The
quantitative model underlying the program was not changed.
THE GLOBAL FINANCIAL PORTFOLIO. The Global Financial Portfolio, which began
trading client capital in June 1994, seeks to identify and capitalize on
long-term price movements in five worldwide market sectors: interest rates,
global stock indices, currencies, metals, and energies. This program uses the
two-phase investment style. Beginning in April 1995 the position size in
relation to account equity in this program was reduced 50%. Since the change was
implemented in 1995 the Global Financial Portfolio has experienced lower
volatility. In 1997 the sector allocation for the program was expanded to
include metals. The quantitative model underlying the program was not changed.
THE INTERNATIONAL CURRENCY AND BOND PORTFOLIO. The International Currency
and Bond Portfolio, which began trading client capital in January 1993, seeks to
identify and capitalize on intermediate-term price movements in the currency and
interest rate markets. The International Currency and Bond Portfolio targets
currencies and the long-term portion of interest rate markets of major
industrialized nations. Currency positions are held both as outrights--positions
taken in foreign currencies versus the U.S. dollar--and cross rates--foreign
currencies traded against each other. This program uses both types of the
three-phase investment styles. Beginning in May 1998 the position size in
relation to account equity in this program was increased 20% and commencing in
March 2000 through July 2000, additional increases totaling 30% were made. Since
inception, changes in position size represent an overall position size increase
of 65%. The quantitative model underlying the program was not changed.
THE INTERNATIONAL FOREIGN EXCHANGE PROGRAM. The International Foreign
Exchange Program, which began trading client capital in August 1986, seeks to
identify and capitalize on intermediate-term movements in a broad range of both
major and minor currencies primarily trading on the interbank market. Positions
are taken as outrights against the U.S. dollar, or non-dollar cross rates. This
program uses the three-phase forex investment style.
THE WORLDWIDE BOND PROGRAM. The Worldwide Bond Program, which began trading
client capital in July 1996, seeks to capitalize on intermediate-term trends by
investing in the long-term portion of the worldwide interest rate markets.
Although the Worldwide Bond Program concentrates in one sector, diversification
is achieved by trading the interest rate markets of major industrialized
countries. This program uses the three-phase investment style. Due to the
limited number of markets traded, the Worldwide Bond Program may be less
diversified than other JWH financial programs. Beginning in March
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2000, the position size in relation to account equity was increased
approximately 25% and was increased an additional 20% in June 2000. These two
changes represent an over all position size increase of 50% since March 2000.
The quantitative model underlying the program was not changed.
THE G-7 CURRENCY PORTFOLIO. The G-7 Currency Portfolio, which began trading
client capital in February 1991, seeks to identify and capitalize on
intermediate-term price movements in the highly liquid currencies of major
industrialized nations. These currencies allow for trading outrights against the
U.S. dollar or non-dollar cross rates. With the advent of the European Union
single currency of 11 countries, the currency exposures formerly traded for
Germany, France, and Italy are now executed in the euro. This program uses the
three-phase forex investment style. Beginning in May 1998 the position size in
relation to account equity in this program was increased 50%. The quantitative
model underlying the program was not changed.
THE DOLLAR PROGRAM. The Dollar Program, which began trading client capital
in July 1996, seeks to identify and capitalize on intermediate-term price
movements in the currency markets, trading major currencies against the U.S.
dollar. This program uses the three-phase investment style. Due to the limited
number of markets traded in the Dollar Program, the program may be less
diversified than other JWH foreign exchange programs.
THE STRATEGIC ALLOCATION PROGRAM. The Strategic Allocation Program is JWH's
largest program. Its objective is capital appreciation with the reduction of the
volatility and risk of loss that typically would be associated with an
investment in any one JWH investment program. JWH currently operates 11 other
investment programs; any and all of them may be included in the Strategic
Allocation Program. JWH, through its Investment Policy Committee, allocates
assets among different combinations of its investment programs which each have
distinctive style, timing, and market characteristics. The allocation of the
Strategic Allocation Program's assets among the investment programs, as well as
the selection of the programs used for the Strategic Allocation Program, is
dynamic, changing at the discretion of the Investment Policy Committee. While
JWH's individual investment programs are technical, trend-following programs,
the selection of programs as well as the allocation of assets among the programs
in the Strategic Allocation Program are entirely discretionary. JWH is under no
obligation to include any particular investment program in the Strategic
Allocation Program. Generally, the maximum allocation to an individual program
will not exceed 25% of an account's assets.
The Investment Policy Committee also monitors and adjusts on an ongoing
basis the position size in relation to account equity at which the Strategic
Allocation Program trades. Factors which may affect the decision to adjust
position size include: ongoing program and portfolio research, portfolio
volatility, recent market volatility, perceived risk exposure and subjective
evaluation of general market conditions. Position size can range from 50% to
150% of standard trading levels. The Strategic Allocation Program has been
trading client capital since July 1996.
InterRate-TM- began trading client capital in 1988 and closed in 1996. This
program was designed to enhance returns available in U.S. treasury bills to
provide both secure income and collateral for a portfolio of interbank forward
and exchange-traded futures contracts. The Yen Financial Portfolio, which began
trading client capital in 1992 and closed in 1997, offered investors access to a
select group of Japanese financial futures markets. The program was designed to
capitalize on intermediate- and long-term price movements and attempted to exit
the markets during periods when sustained trends were not identified. The
Delevered Yen Financial and Metals Profile, which began trading client capital
in 1995 and closed in 1996, was opened at the request of a client. This program
was traded at approximately one half of the position size in relation to account
equity of the traditional Financial and Metals Portfolio and was traded from the
perspective of the Japanese yen.
98
MORGAN STANLEY DEAN WITTER SPECTRUM STRATEGIC L.P.
1. ALLIED IRISH CAPITAL MANAGEMENT, LTD.
Allied Irish is an Irish corporation registered with the CFTC as a commodity
trading advisor since January 1994 and is a member of the National Futures
Association in that capacity. Allied Irish's business office is located at
85 Pembroke Road, Ballsbridge, Dublin 4.
As a commodity trading advisor, Allied Irish specializes in trading interest
rate, currency, and equity index futures contracts, as well as foreign exchange
on the interbank cash market. The primary focus of Allied Irish's futures
trading is on the U.S., European, and Japanese futures exchanges with some
participation in other markets. Foreign exchange trading covers the major
currencies.
Allied Irish began trading for Spectrum Strategic in May 1999.
PRINCIPALS
Colm Doherty became a non-executive Director of Allied Irish in
January 1994. He joined AIB Group in September 1989 and in January 1994 he
became Head of Investment Banking in the Capital Markets Division. In August
1999, he became Group General Manager of AIB Capital Markets. He is responsible
for AIB's investment banking, international treasury and corporate lending
businesses. Mr. Doherty formerly worked with First Chicago, a commercial bank,
from July 1984 as Vice President and General Manager and prior to that he had a
career in Industrial Credit Corporation as a senior lending executive.
Dr. Eileen Fitzpatrick became a non-executive Director of Allied Irish in
August 1997. She is the Managing Director and Chief Investment Officer of AIB
Investment Managers Limited, an investment advisor and subsidiary of AIB Group,
a position she has held since April 2000. She was previously Investment Director
of AIB Investment Managers Limited from September 1996. She had previously
worked as Head of International Equity Sales in Goodbody Stockbrokers, a
securities brokerage firm, from March 1995 to September 1996, and in the same
capacity at NCB stockbrokers, a securities brokerage firm, from November 1993 to
February 1995. Before that she had worked with AIB Investment Managers as Head
of International Equity Management from October 1988 to October 1993.
Gerry Grimes is Managing Director of Allied Irish, an associated person of
Allied Irish and a member of the Institute of Bankers. He became registered as
an associated person of Allied Irish in January 1994. For 10 years up to
March 1988, Mr. Grimes was employed by the Central Bank of Ireland in the
following investment management positions: Chief Dealer, Money Market Division;
Chief Dealer, Management of Official External Reserves; and Chief Forex Dealer.
He represented Ireland on sub-committees of the European Central Bank Governors
Committee in Basle. He has experience in liquidity and interest rate management,
investment of external reserves ($5 billion) and their currency allocation and
the management of the Irish pound in the European Exchange Rate Mechanism.
Mr. Grimes joined Gandon Securities as a trader in March 1988 where he traded a
range of interest rate contracts, and was appointed a Director in October 1990.
He was an associated person with Gandon Fund Management from July 1991 to
September 1993. From mid 1991, he was responsible for the development of Gandon
Fund Management's activities including the marketing and development of managed
futures programs. He left Gandon Securities and Gandon Fund Management in
September 1993 and joined Allied Irish that month. Mr. Grimes was a founding
member of Allied Irish and is now responsible for the overall management,
development, and control of Allied Irish's activities.
Ian Kelly became Company Secretary of Allied Irish in August 1997. He is a
member of the Institute of Chartered Accountants of Ireland. He is Chief
Operating Officer of Allied Irish and is responsible for financial control,
compliance, and the back-office operations of the company. He joined Allied
Irish in August 1997. Prior to joining Allied Irish, he worked from July 1994 to
August 1997 in Financial Control in AIB Capital Markets Plc., an investment
bank, and before that he worked with Coopers & Lybrand, an accountancy firm,
from 1987 to June 1994.
Maeliosa O'hOgartaigh became a non-executive Director of Allied Irish in
August 1997. Mr. O'hOgartaigh is a member of the Institute of Chartered
Accountants Ireland and is currently Financial Controller of AIB Capital Markets
Plc., a position he has held since March 1995. He became a principal of Allied
Irish in
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May 1995 when he was appointed Company Secretary to Allied Irish, a position now
held by Mr. Ian Kelly. Prior to joining AIB in November 1989, Mr. O'hOgartaigh
worked with Arthur Andersen & Co., an accountancy firm.
John Parsons became a Director of Allied Irish in January 1995. He graduated
from Queen's University, Belfast with a B.Sc. in Computer Science and Statistics
in 1986, and went on to obtain a Master of Business Administration degree from
Cardiff University, in 1987. Before joining Allied Irish, Mr. Parsons worked for
SBC Warburg in London as a proprietary trader in the Fixed Interest & Treasury
Division. Prior to that, he worked with the Bank of Ireland Group from
January 1989 to March 1993, initially as a Portfolio Manager with the Bank's
fund management group and ultimately as Head of European Government Bonds with
the Bank's Treasury operation. Mr. Parsons trades a portion of the Worldwide
Financial Futures Program and he is the sole trader of the Equity Program
offered by Allied Irish.
Neil Ramsey became a non-executive Director of Allied Irish in
November 1997. He is Chairman and Chief Executive Officer of Ramsey Quantitative
Systems Inc., an investment adviser based in Kentucky, where he is responsible
for the leadership of quantitative strategies development and directing the
investments of all outside client capital allocated to the company. He is also
the founder and President of Ramsey Financial Inc., a Kentucky corporation which
is registered with the CFTC as a commodity pool operator, commodity trading
advisor and introducing broker, and is a member of the National Futures
Association. Ramsey Financial is engaged in the management of proprietary and
client investment capital through the allocation of funds to independent money
managers as well as managing a portion of the funds on a discretionary basis.
Prior to joining RFI he was a consultant with Boston Consulting Group where he
worked with domestic and foreign multinationals in developing corporate
strategies.
Michael Swift joined Allied Irish in August 1998 and is a Director of Allied
Irish. Mr. Swift is involved in product and market research. In 1984 he
graduated from University College, Galway, with a Bachelor of Commerce degree
and joined the Bank of Ireland Group in July 1984 where he worked in a number of
investment positions until July 1998. From June 1997 to July 1998 he held the
position of Head of Foreign Exchange and Euro Interest Rate Trading. Between
September 1994 and May 1997 he was Treasurer in the Bank's New York office,
where he was responsible for trading foreign exchange and US interest rate
markets. Prior to this he was Head of the Bank's Irish pound interest rate
trading desk from May 1993. Mr. Swift traded a portion of the Worldwide
Financial Futures Program between August 1998 and August 1999.
David Tease is a Director of Allied Irish and an associated person. He
became registered as an associated person of Allied Irish in January 1994. In
1975 he obtained a masters degree in agricultural economics from Queen's
University, Belfast. Initially, Mr. Tease worked as an Economist with the
Northern Ireland Department of Agriculture and then joined the Agricultural
Credit Corporation (now known as ACC Bank) a semi-state financial institution.
He became Treasury Manager there in 1984. In September 1985, Mr. Tease obtained
a Master of Business Administration degree from University College, Dublin. From
October 1986, he was employed by Citicorp Investment Bank, Dublin and was Vice
President in charge of trading Irish pound, UK pound, and US dollar government
bonds. In June 1988 he was appointed Director of International Bond Trading with
Bank of Ireland Group Treasury where he was in control of the international bond
desk trading a range of international interest rate markets. In April 1989, he
joined Gandon Securities as Executive Director involved with securities trading.
Subsequently, Mr. Tease was made responsible for trading in international fixed
interest rate markets and strategic positioning in short-term interest rates and
currencies. He acted as an associated person with Gandon Fund Management from
July 1991 to September 1993. He was responsible for a team of interest rate
traders and during his last two years he was the major trader in Gandon Fund
Management's Global Financial program. He left Gandon Securities and Gandon Fund
Management in September 1993 and joined Allied Irish that month. Mr. Tease was a
founding member of Allied Irish and trades a portion of the Worldwide Financial
Futures Program.
Allied Irish and its principals may, from time to time, trade futures,
forwards, and options contracts for their own proprietary accounts.
100
ALLIED IRISH'S TRADING STRATEGIES
Allied Irish offers three trading programs, but will only trade the
Worldwide Financial Futures Program for Spectrum Strategic. Trading for Spectrum
Strategic will be at four times the leverage Allied Irish normally applies for
the Worldwide Financial Futures Program. The two other trading programs offered
by Allied Irish are the Foreign Exchange Program and the Equity Index Program.
WORLDWIDE FINANCIAL FUTURES PROGRAM
The Worldwide Financial Futures Program is designed to provide returns using
a multi-trader trading approach on a broad range of financial instruments. The
capital is sub-allocated to a range of trading styles, including a portion
traded by two individual traders, Mr. Tease and Mr. Parsons. The allocation of
capital to the individual traders may be altered at the discretion of Allied
Irish. A portion is traded using a systematic approach. Diversification is
enhanced because no overall house view is imposed on the traders in the program,
and this independence of operation is viewed as a key strength.
Over several years Mr. Tease has established a knowledge of the main
industrial economies and their financial markets. This has been achieved by a
process of studying these economies through an ongoing review of relevant
research and by building up a substantial network of contacts with market
economists and opinion formers. Against this background understanding of the
main economies, Mr. Tease looks for trading opportunities which fit with his
fundamental view of where interest rates should be headed versus their current
levels. Account is taken of market technicals, especially momentum as expressed
in stochastic analysis, for the timing of trade execution, while resistance and
support levels as defined by congestion patterns help with appropriate entry and
exit points. Mr. Tease prefers to establish trades that prevail over a 1-3 week
time-frame, but this can depend on market conditions. Trades that produce a
substantial proportion of the expected return in a short time are usually
exited.
Mr. Parsons' approach to trading markets is based on a fundamental analysis
of economic, fiscal, and monetary developments in the world's major economies.
The majority of his trading activity is European-based. He believes that the key
to successful trading in Europe is a clear understanding of German monetary
developments. Having compiled a set of expectations for the major interest rate,
equity, and foreign exchange markets, Mr. Parsons then looks for significant
levels of divergence relative to the market's expectations as a signal to enter
a particular position. He uses technical analysis to help identify trends and
trend changes as well as to seek to improve entry and exit levels. Mr. Parsons
sets profit/loss parameters for each trade on entry and adopts a two week view
to positioning in normal market conditions.
A portion of the Worldwide Financial Futures Program is traded using a
technical trading system. The system has been developed to be consistent with
Allied Irish's investment approach to financial markets. The system differs from
most trend following trading systems in that a profit objective is built into
the trade from inception and this has created a historical return profile
similar to Allied Irish's. The system utilizes a break-out oriented approach
that attempts to initiate trading at low risk entry points where the market has
a higher probability than average of participating in a medium- to long-term
trend. The concept of the system is to allow for participation in a market when
the volatility conditions of the market allow for the highest pre-conditional
probability of trend persistence.
The futures contracts currently traded in the Worldwide Financial Futures
Program include U.S., European, and Asian interest rate, currency, and stock
index contracts. For most contracts, options may also be used from time to time.
Options may be either bought or sold in this program.
It should be noted that in relation to currency futures on both the Chicago
Mercantile Exchange and the financial derivatives division of the New York
Cotton Exchange, Allied Irish may convert spot transactions to futures contracts
using the exchange for physicals mechanism.
As of December 31, 2000, Allied Irish was managing approximately
$451 million of client assets pursuant to the Worldwide Financial Futures
Program and approximately $633 million of client assets in all of its programs
(including notional funds).
FOREIGN EXCHANGE PROGRAM
The Foreign Exchange Program specializes in trading the inter-bank foreign
exchange market. A fundamental assessment of market information is the main
factor underlying the trading approach. To this end an assessment of the
fundamental economic policy forces at work in different countries is first made.
101
This is related to socio-political factors in play. A judgment is then made on
how much of the economic and political influences are priced in following a
review of international capital flows. In this regard consultation is made with
a network of experts in the world's currency markets. Finally the price levels
are examined in detail to determine appropriate trade parameters.
EQUITY INDEX PROGRAM
The objective of the Equity Index Program is to achieve value added of 10%
and to maintain a Sharpe ratio of greater than one. This low-risk approach is
designed to minimize correlations with major global equity returns. The
underlying investment approach is broadly similar to that taken in Allied
Irish's other two programs in that the main inputs are an analysis of
macroeconomic and global political trends. For the Equity Index Program
additional analysis is conducted in terms of an extended equity valuation
framework. That framework involves a number of distinct steps.
RISK MANAGEMENT
The management of risk positions takes place at two levels within the
programs--at the overall program level by the trading controller and at the
position taking level where each trader uses his individual money management
skills.
Given that the programs involve a multi-trader approach, a program
controller role is adopted. Mr. Grimes is the trading controller for all three
programs. This role involves the following: assessing the performance and risk
of the programs from an overall level as distinct from a trader level;
monitoring the traders' adherence to the risk parameters for each program as set
out below; allocating equity between the individual traders of a program;
ensuring that the programs' overall objectives and those of individual traders
are compatible; controlling the operations of the order desk and ensuring the
positions are agreed between traders, order desk, back office, and counterparty;
and liaising with clients and conveying their views, wishes, and concerns to the
trading team.
To control the levels of exposure a daily end-of-day position report
including contract open positions, margin utilized by contract, and margin
utilized by trader is produced for the Worldwide Financial Futures and Equity
Index Programs. The report for the Foreign Exchange Program looks at positions
in equivalent U.S. dollar amount versus underlying U.S. dollar equity invested.
For the Worldwide Financial Futures and Equity Index Programs, margin to
equity is used to control position size while in the Foreign Exchange Program a
gearing of equity is used to limit position size. Given the nature of the
programs offered and the experience of the trading team, a limit of 6% margin to
equity is normally applied for the Worldwide Financial Futures and Equity Index
Programs and a gearing of 3 times equity for the Foreign Exchange Program.
PAST PERFORMANCE OF ALLIED IRISH
The past performance information for the program traded by Allied Irish for
Spectrum Strategic is set forth below. Allied Irish trades the net assets of
Spectrum Strategic allocated to it pursuant to its Worldwide Financial Futures
Program at four times the leverage normally employed by that program.
Capsule A-1 is a pro forma of an account from Capsule A, adjusted for the
increased leverage employed by Allied Irish for Spectrum Strategic, and also
adjusted for the brokerage, management, and incentive fees applied to Spectrum
Strategic. The footnotes following Capsule A are an integral part of the
Capsule.
You are cautioned that the performance information set forth in the
following capsule performance summary is not indicative of, and may have no
bearing on, any trading results which may be attained by Allied Irish or
Spectrum Strategic in the future, since past performance is not a guarantee of
future results and other trading advisors will be investing funds of Spectrum
Strategic. In addition, Allied Irish trades the net assets allocated to it at
four times the leverage it normally applies to the Worldwide Financial Futures
Program, which will significantly increase volatility as well as profits and
losses. Spectrum Strategic cannot assure you that Allied Irish or the
partnership will make any profit or will be able to avoid incurring substantial
losses. You should also note that interest income may constitute a significant
portion of a commodity pool's total income and may generate profits where there
have been realized or unrealized losses from futures interests trading.
102
CAPSULE A
ALLIED IRISH CAPITAL MANAGEMENT, LTD.
WORLDWIDE FINANCIAL FUTURES PROGRAM
Name of commodity trading advisor: Allied Irish Capital
Management, Ltd.
Name of program: Worldwide Financial Futures Program
Inception of trading by commodity trading advisor: November 1993
Inception of trading in program: November 1993
Number of open accounts: 23
Aggregate assets overall: $633 million
Aggregate assets in program: $451 million
Largest monthly drawdown past five years: (1.05%)--(November 1998)
Largest monthly drawdown since inception: (2.11)%--(May 1994)
Worst peak-to-valley drawdown past five years: (1.25)%--(2 months,
October 1998-November 1998)
Worst peak-to-valley drawdown since inception: (2.11)%--(1 month, May
1994)
2000 annual return: 5.40%
1999 annual return: 4.55%
1998 annual return: 5.06%
1997 annual return: 8.86%
1996 annual return: 12.39%
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
FOOTNOTES TO ALLIED IRISH CAPSULE A PERFORMANCE SUMMARY
"Inception of trading by commodity trading advisor" is the date on which
Allied Irish began trading client accounts.
"Inception of trading in program" is the date on which Allied Irish began
trading client accounts pursuant to the program shown.
"Number of open accounts" is the number of accounts directed by Allied Irish
pursuant to the program shown as of December 31, 2000.
"Aggregate assets overall" is the aggregate amount of assets in
non-proprietary accounts under the management of Allied Irish as of
December 31, 2000 and includes notional equity. Notional equity represents the
additional amount of equity that exceeds the amount of equity actually committed
to Allied Irish for management.
"Aggregate assets in program" is the aggregate amount of assets in the
program specified as of December 31, 2000 and includes notional equity.
"Largest monthly drawdown" is the largest loss experienced by a single
account in the program in any calendar month during the most recent five
calendar years and year-to-date expressed as a percentage of the total equity in
the account and includes the month and year of such drawdown.
"Worst peak-to-valley drawdown" is the largest calendar month to calendar
month loss experienced by a single account in the program during the most recent
five calendar years and year-to-date expressed as a percentage of total equity
in the account and includes the months and years in which it occurred. For
example, a worst peak-to-valley drawdown in an account of "(10)%-(1/96-8/96)"
means that the peak-to-valley drawdown was 10% and lasted from January 1996 to
August 1996.
"Annual and year-to-date return" is computed on a compounded monthly basis
assuming reinvestment of accrued profits. The rate of return is computed by
reference to total equity in the program. These numbers represent the composite
performance of all accounts in the program, not the performance of any specific
account.
103
CAPSULE A-1
ALLIED IRISH CAPITAL MANAGEMENT, LTD.
PRO FORMA OF AN ACCOUNT FROM CAPSULE A
WORLDWIDE FINANCIAL FUTURES PROGRAM
Largest monthly drawdown: (6.11)% - (February 2000)
Worst peak-to-valley drawdown: (21.54)% - (October 1998-October 2000)
2000 annual return: (4.55)%
1999 annual return: (3.64)%
1998 annual return: (0.96)%
1997 annual return: 15.05%
1996 annual return: 32.42%
FOOTNOTES TO ALLIED IRISH CAPSULE A-1 PRO FORMA PERFORMANCE SUMMARY
Capsule A-1 above reflects pro forma rates of return, which are the result
of the general partner and Allied Irish making pro forma adjustments to the
actual past performance record of a client account managed pursuant to the
Worldwide Financial Futures Program, the trading program employed for Spectrum
Strategic by Allied Irish. The pro forma adjustments are an attempt to reflect
the current brokerage, management and incentive fees, and historical interest
income, and the degree of leverage applied for the portion of Spectrum
Strategic's net assets traded by Allied Irish, as opposed to the actual fees,
expenses, and interest income, and leverage applicable to the account.
Capsule A-1 must be read in conjunction with the description of Allied Irish
and its trading programs above. Furthermore, you must be aware that pro forma
rates of return have inherent limitations: (A) pro forma adjustments are only an
approximate means of modifying historical records to reflect aspects of the
economic terms of a commodity pool, constitute no more than mathematical
adjustments to actual performance numbers, and give no effect whatsoever to such
factors as possible changes in trading approach that might have resulted from
the different fee structure, interest income, leverage, and other factors
applicable to Spectrum Strategic as compared to Allied Irish's actual trading;
and (B) there are different means by which the pro forma adjustments could have
been made.
While the general partner believes that the information set forth in
Capsule A-1 is relevant to evaluating an investment in Spectrum Strategic, no
representation is or could be made that the capsule presents what the
performance results of the portion of Spectrum Strategic's net assets traded by
Allied Irish would have been in the past or are likely to be in the future. Past
results are not a guarantee of future results.
2. BLENHEIM INVESTMENTS, INC.
Blenheim is a New Jersey corporation which was formed in 1988 to provide
commodity trading advisory services to clients. Blenheim has been registered
with the CFTC as a commodity trading advisor and commodity pool operator since
March 1989, and is a member of the National Futures Association in such
capacities. Blenheim's address is Post Office Box 7242, Two Worlds Fair Drive,
Somerset, New Jersey 08875-7242.
PRINCIPALS
Mr. Willem Kooyker is the Chief Executive Officer, Chairman and sole
shareholder of Blenheim. He is registered with the CFTC as an associated person
of Blenheim and a member of the National Futures Association in that capacity.
He is a former member of the Board of Directors of the NY Coffee, Sugar and
Cocoa Exchange, a former president of the NY Cocoa Clearing Association, and a
former member of the NY Mercantile Exchange. He received a BA CUM LAUDE in
Economics from Baruch College in New York and an MBA in International Finance
and Economics from New York University.
Mr. Kooyker began his trading career in the international commodities
business in 1964 with Internatio-Muller in Rotterdam, The Netherlands, where
eventually he became managing director of the International Trading Group. He
stayed in this position until 1981, when he joined Commodities
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Corporation, Princeton, New Jersey, where he became President. At the time,
Commodities Corporation was an active fund management company, operating
predominantly in the futures markets. In October 1984, Mr. Kooyker started a new
company, Tricon Holding Company, Ltd., a joint venture between Commodities
Corporation and a group of Middle Eastern investors, which was a trading and
consulting company in the futures as well as the physicals markets predominantly
directed towards energy and industrial commodities. Tricon currently remains
only active in the forest products industry, where it operates two sawmills in
the western states of the United States. In January 1989, Mr. Kooyker started
Blenheim, an independent fund management company and an advisor to several
investment funds.
Concurrent, but separate from Blenheim, Mr. Kooyker is a majority owner, but
not an officer, of Derivatives Portfolio Management, L.L.C., a Delaware limited
liability company formed in 1993 to provide administrative, risk management, and
consulting services to institutions, commodity pool operators, and individual
fund managers engaged in the financial instruments, securities, and futures
markets as well as the cash trading business. Derivatives Portfolio Management,
L.L.C. is registered with the CFTC as a commodity pool operator, effective
January 26, 1994, and is a member of the National Futures Association in that
capacity. Derivatives Portfolio Management, L.L.C. is not currently managing any
commodity pools. Derivatives Portfolio Management, L.L.C. has a wholly-owned
subsidiary named DPM Brokerage, LLC, a Delaware limited liability company formed
in 1999 to provide introduction and execution services to individual clients and
private investors. DPM Brokerage, LLC is registered with the CFTC as an
introducing broker, effective August 16, 1999 and is a member of the National
Futures Association in that capacity.
Mr. Kooyker is also sole shareholder and President of Gauss Mathematica
Corporation, a New Jersey corporation that develops and leases futures trading
systems. Blenheim and Gauss have entered into a license agreement that allows
Blenheim to use Gauss computerized trading systems for its clients.
In 1996, Mr. Kooyker became a 50% shareholder in The Thornton Group, L.L.C.,
a consulting company to entrepreneurial startup enterprises. Thornton performs
various investment banking functions.
Guy J. Castranova, has been the Secretary of Blenheim and Gauss since their
inceptions. Mr. Castranova is the President and Chief Operating Officer of DPM,
as well as a Vice President and Controller of Tricon. Mr. Castranova has been
with Tricon since October 1986 and is responsible for the risk management of all
physicals trading as well as the administration of all general and consolidation
accounting. Prior to joining Tricon, Mr. Castranova was an accountant with two
energy firms.
In 1980 Mr. Castranova graduated from Saint Joseph's University, with a BS
degree in Accounting. He is registered as an associated person and Principal of
Blenheim, Tricon, and DPM, and is a member of the National Futures Association
in those capacities.
Blenheim and its principals may, from time to time, trade futures, forwards,
and options contracts for their own proprietary accounts. Such trades may or may
not be in accordance with the Blenheim trading program described below.
THE BLENHEIM TRADING PROGRAM
Blenheim's trading program was developed by Mr. Kooyker. The objective of
Blenheim's Global Markets Strategy, which is employed on behalf of Spectrum
Strategic, is to capture substantial profits through the establishment of
strategic primary investment positions in a variety of markets, with an emphasis
in global fixed income, currency, stock indices, energy, and other commodity
markets. Blenheim concentrates in those markets which, in its judgment and
discretion, have a high degree of liquidity and a wide spectrum of historical
price movement relative to other markets. Blenheim may, however, trade to a
limited extent in illiquid instruments for which market quotations are not
readily available. Diversification in an account's portfolio is a major
consideration in Blenheim's trading program. While many of its trades are made
on a short-term basis, Blenheim's basic strategy is to attempt to participate in
long-term major price movements.
As of December 31, 2000, Blenheim was managing approximately $30 million of
client assets pursuant to its trading program.
105
Blenheim relies primarily on its experience in trading, and utilizes
fundamental, geopolitical, and technical factors in its analysis and evaluation
of the markets. Blenheim has a team of economists, financial analysts, and
traders that regularly monitor world-wide economic and political trends in order
to identify and evaluate possible market and price imbalances. Operating within
a global framework, long-term macroeconomic indicators are assessed on a
multinational, country-by-country and market specific basis. Factors such as
fiscal/monetary policies and capital flows across international borders are
evaluated for their potential impact on the equity, fixed income, currency, and
commodity markets. Additionally, Blenheim's trading group utilizes the
econometric signals as well as numerous other market sentiment factors in an
effort to take advantage of short-term trading opportunities.
Within the realm of technical analysis, Blenheim has developed and will
continue to develop a series of systematic processes of investing that will
supplement the discretionary trading efforts. In the future, Blenheim may place
a greater emphasis on its non-discretionary technical analysis than on its
discretionary trading efforts. The goal of the system's strategy is to achieve
maximum risk adjusted profit potential. The strategy is driven not by one, but a
series of trading systems, that are traded in conjunction with one another.
Various techniques are employed in managing the portfolio and position
volatility. Blenheim generally initiates medium size positions at a market entry
level determined by it, rather than initially taking a larger position while
waiting to see the direction in which the market actually moves. This initial
position, generally considered the core strategic position, is typically
initiated upon Blenheim's determination of an unsustainable level of market
disequilibrium that has not been reflected in the current market price.
In addition to managing the individual positions, Blenheim will also
evaluate the positions within the context of an account's portfolio. Separate
strategic positions are evaluated for direct and indirect correlation
characteristics in order to further anticipate and manage portfolio volatility.
Despite these precautions, Blenheim's trading program may be extremely volatile
at times.
The trading strategy of Blenheim has evolved and will continue to do so
based on on-going research, testing of data and trading experience. Prior to
1991, Blenheim traded almost exclusively in the commodity markets, with a
particular emphasis on energy products. Since then, Blenheim has become quite
active in the global fixed income and currency markets. Blenheim may in its sole
discretion add to the portfolio additional commodity interests or cease trading
particular items. On rare occasions, Blenheim may withdraw from all markets.
Blenheim's diversified portfolio of approximately thirty-five markets are
actively traded on domestic and foreign markets through the use of futures,
forwards, options on futures, and over-the-counter transactions. Through
mid-1995, approximately 30% to 45% of equity, including notional funds, was
generally committed to margin. Recently the percentage has been between 25% and
30%. In the future the percentage committed may, from time to time, be
substantially higher or lower.
Blenheim may leverage the account of Spectrum Strategic differently than the
standard account using the Global Market Strategy, but will not leverage the
account at more than 50% above the leverage of a standard account.
3. ECLIPSE CAPITAL MANAGEMENT, INC.
Eclipse is a Delaware corporation organized in July 1983. Eclipse's main
business address is 7700 Bonhomme, Suite 500, St. Louis, Missouri 63105. Eclipse
has been registered with the CFTC as a commodity trading advisor since August
1986 and is a member of the National Futures Association in such capacity.
Eclipse began trading for Spectrum Strategic in June 2000.
PRINCIPALS
Thomas W. Moller, the sole shareholder of Eclipse, has served as its
President, CEO, and sole director since founding the firm. Mr. Moller received
an undergraduate degree in Business and Economics from Vanderbilt University and
a graduate degree in Accounting from the University of Kentucky. He was a
106
Certified Public Accountant and has a background in financial planning and
investment management. In 1980, as chief financial officer of a privately held
company, he designed and implemented one of the first variable rate loan hedge
programs using interest rate futures contracts. In 1982, he formed Interest Rate
Management, Inc., another commodity trading advisor which provided
interest-rate-hedging advisory and management services. Since 1986, Mr. Moller
has devoted his time exclusively to Eclipse and is primarily involved in the
areas of trading, research, and product development.
James R. Klingler, JD is Senior Vice President, Corporate Secretary and
General Counsel. Mr. Klingler has a BA in Economics from Vanderbilt University
and a JD from Vanderbilt University School of Law. He previously worked as an
associate with the St. Louis law firm of Thompson Coburn (formerly Coburn &
Croft) and as a staff attorney with Mercantile Bancorporation, also in
St. Louis. From January 1991 to December 1997, he was Compliance Counsel and,
subsequently, Associate Vice President with A.G. Edwards & Sons, Inc.
Mr. Klingler joined Eclipse in January 1998.
Ronald R. Breitigam is Vice President--Trading with primary responsibility
for the implementation of the firm's trading strategies. After graduating from
Pacific Union College in 1982, Mr. Breitigam became an independent floor trader
at the Mid-America Commodity Exchange. He served as an institutional broker with
Thomson McKinnon (1984-1985) and PaineWebber (1986) and, in 1986, formed his own
trading company to work full time implementing various proprietary futures and
options trading strategies. Mr. Breitigam joined Eclipse in May 1989.
James W. Dille, PhD is Vice President--Research and Technology with
responsibility for computer-based research, development, and operations.
Dr. Dille has undergraduate and graduate engineering degrees from the University
of Virginia. He also received a master's and doctorate from Harvard University
in Applied Sciences, specializing in the areas of Decision and Control Theory
and Computer Science. From 1987 through 1993, he worked for the Boeing Company
(formerly McDonnell Douglas) in the Training Systems and Flight Simulation
divisions, where he was responsible for research in the areas of computer
architectures and networking. He is an affiliate professor at Washington
University in St. Louis, teaching courses in numerical analysis and the
simulation and analysis of complex systems. Dr. Dille joined Eclipse in January
1994.
TRADING PROGRAMS
Eclipse currently offers one trading program, the Global Monetary Program.
The program is designed primarily for institutions, commodity pools and certain
other qualified investors. The Global Monetary Program employs a systematic
trading approach, using multiple trend-following and fundamentally driven
models.
GLOBAL MONETARY PROGRAM: This "financial, metals and energy" program
requires a minimum investment of $5 million and trades a global portfolio of
futures and options on futures on interest rate instruments, currencies, stock
indices, precious and base metals, and energy products, as well as interbank
spot and forward currency markets. A key characteristic of this program is the
extensive diversification achieved by applying multiple trading models to a wide
variety of financial markets located throughout the world.
As of December 31, 2000, Eclipse was managing approximately $387 million of
client assets pursuant to its trading program (notional funds included).
TRADING APPROACH
The trading program of Eclipse is systematic and its strategies are either
fundamental or trend-following in nature, with the objective of capitalizing on
intermediate- and long-term price trends. Eclipse makes all trading decisions
pursuant to its proprietary trading, capital allocation, and risk management
models. The Eclipse program makes use of multiple models to accentuate overall
diversification. Fundamental models generate trading signals through the
quantitative analysis of environmental, macroeconomic, and intermarket data.
Trend identification models use various technical and statistical analysis
techniques to identify and evaluate price trends. Capital allocation models
determine the percentage of trading capital allocated to various markets and
trading models.
107
Eclipse's risk management models were developed with the objective of
limiting losses, capturing profits, and conserving capital in choppy, sideways
markets. The risk management principles which Eclipse employs include:
- using stop orders to exit trades when markets are moving against an
established position (although, depending on market circumstances, such
"stop-loss" orders may be difficult or impossible to execute);
- diversifying positions among several different markets, futures, and/or
futures groups to limit exposure in any one area;
- using multiple entry and exit points;
- limiting the assets committed as margin, generally within a range of 5% to
20% of assets managed, at minimum exchange margin requirements, but
possibly above or below that range at certain times; and
- prohibiting the use of unrealized profits in a particular futures contract
as margin for additional contracts in the same or a related futures
contract.
Decisions whether to trade a particular futures contract are based upon
various factors, including liquidity, significance in terms of desired degrees
of concentration, diversification, and profit potential, both historical and at
a given time. These decisions are based upon output generated by a proprietary
risk management program, but require the exercise of judgment by principals of
Eclipse. The decision not to trade specific contracts for certain periods or to
reduce the number of contracts traded may result at times in missing significant
profit opportunities which otherwise would be captured by technical strategies.
The specific contracts traded in each portfolio have been selected based on
liquidity, historical volatility, and the degree of past directional movement.
The actual number of contracts held at any particular point in time depends on a
number of factors, including evaluation of market volatility and potential risk
versus return. There are occasions when a trading model may indicate that no
position is appropriate in a particular contract or contract group.
In addition to technical trading in futures contracts, Eclipse may also
employ trading techniques such as spreads and straddles and may buy or sell
futures options. Eclipse may alter its trading programs, including, without
limitation, its trading strategies, commodity interests, and markets traded and
trading principles if Eclipse determines that such change is in the best
interest of the accounts which it manages.
PAST PERFORMANCE OF ECLIPSE
The past performance information for Eclipse's Global Monetary Program, the
program to be traded by Eclipse for Spectrum Strategic, is set forth in
Capsule A below. Eclipse will trade the net assets of Spectrum Strategic
allocated to it pursuant to the Global Monetary Program at 1.5 times the
leverage normally employed by that program. Capsule A-1 is a pro forma of the
composite performance presented in Capsule A, adjusted for the increased
leverage to be employed by Eclipse for Spectrum Strategic, and also adjusted for
the brokerage, management, and incentive fees applied to Spectrum Strategic. The
footnotes following Capsules A and A-1 are an integral part of those Capsules.
You are cautioned that the performance information set forth in the
following capsule performance summaries is not indicative of, and may have no
bearing on, any trading results which may be attained by Eclipse or Spectrum
Strategic in the future, since past performance is not a guarantee of future
results. In addition, Eclipse trades the net assets allocated to it at 1.5 times
the leverage it normally applies to the Global Monetary Program, which will
significantly increase volatility as well as profits and losses. Spectrum
Strategic cannot assure you that Eclipse or Spectrum Strategic will make any
profit or will be able to avoid incurring substantial losses. You should also
note that interest income may constitute a significant portion of a commodity
pool's total income and may generate profits where there have been realized or
unrealized losses from futures, forwards, and options trading.
108
CAPSULE A
ECLIPSE CAPITAL MANAGEMENT, INC.
GLOBAL MONETARY PROGRAM
Name of commodity trading advisor: Eclipse Capital Management, Inc.
Name of program: Global Monetary Program
Inception of trading by commodity trading advisor: April 1986
Inception of trading in program: August 1990
Number of open accounts: 20
Aggregate assets overall (excluding notional): $356,556,031
Aggregate assets overall (including notional): $387,505,425
Aggregate assets in program (excluding notional): $356,556,031
Aggregate assets in program (including notional): $387,505,425
Largest monthly drawdown: (10.67)% - (April 1998)
Worst peak-to-valley drawdown: (23.93)% - (October 1999 - October
2000)
2000 annual return: 4.51%
1999 annual return: 12.30%
1998 annual return: 5.03%
1997 annual return: 15.93%
1996 annual return: 30.68%
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
FOOTNOTES TO ECLIPSE CAPSULE A PERFORMANCE SUMMARY
"Inception of trading by commodity trading advisor" is the date on which
Eclipse began trading client accounts.
"Inception of trading in program" is the date on which Eclipse began trading
client accounts pursuant to the program shown.
"Number of open accounts" is the number of accounts directed by Eclipse
pursuant to the program shown as of December 31, 2000.
"Aggregate assets overall" is the total actual equity, including cash and
cash equivalents, deposited in the accounts at the carrying futures commission
merchant plus committed funds shown with and without notional equity as of
December 31, 2000. Notional equity represents the additional amount of equity
that exceeds the amount of equity actually committed to Eclipse for management.
"Aggregate assets in program" is the aggregate amount of assets in the
program specified as December 31, 2000.
"Largest monthly drawdown" is the largest monthly loss experienced by the
program on a composite basis in any calendar month during the most recent five
calendar years and year-to-date expressed as a percentage of the total equity in
the program and includes the month and year of such drawdown.
"Worst peak-to-valley drawdown" is the largest calendar-month-end to
calendar-month-end loss experienced by the program on a composite basis during
the most recent five calendar years and year-to-date expressed as a percentage
of total equity in the program and includes the months and years in which it
occurred. For example, a worst peak-to-valley drawdown of "(23.93)%-(October
1999 - October 2000)" means that the peak-to-valley drawdown was 23.93% and
lasted from October 1999 to October 2000.
"Annual return" is computed on a compounded monthly basis assuming
reinvestment of accrued profits. The rate of return is computed by reference to
total equity in the program. These numbers represent the composite performance
of all accounts in the program, not the performance of any specific account.
109
CAPSULE A-1
ECLIPSE CAPITAL MANAGEMENT, INC.
PRO FORMA OF CAPSULE A
GLOBAL MONETARY PROGRAM AT 150% LEVERAGE
Largest monthly drawdown: (16.38)% - (April 1998)
Worst peak-to-valley drawdown: (39.23)% - (13 months, October 1999 -
October 2000)
2000 annual return: (1.78)%
1999 annual return: 14.98%
1998 annual return: 2.88%
1997 annual return: 21.50%
1996 annual return: 44.63%
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
FOOTNOTES TO ECLIPSE CAPSULE A-1 PRO FORMA PERFORMANCE SUMMARY
Capsule A-1 above reflects pro forma rates of return, which are the result
of the general partner and Eclipse making pro forma adjustments to the actual
past performance record of client accounts managed pursuant to the Global
Monetary Program, the trading program employed for Spectrum Strategic by
Eclipse. The pro forma adjustments are an attempt to reflect the current
brokerage, management and incentive fees, and historical interest income, and
the degree of leverage applied for the portion of Spectrum Strategic's net
assets traded by Eclipse, as opposed to the actual fees, expenses and interest
income and leverage applicable to the account.
Capsule A-1 must be read in conjunction with the description of Eclipse and
its trading programs above. Furthermore, you must be aware that pro forma rates
of return have inherent limitations: (A) pro forma adjustments are only an
approximate means of modifying historical records to reflect aspects of the
economic terms of a commodity pool, constitute no more than mathematical
adjustments to actual performance numbers, and give no effect whatsoever to such
factors as possible changes in trading approach that might have resulted from
the different fee structure, interest income, leverage, and other factors
applicable to Spectrum Strategic as compared to Eclipse's actual trading; and
(B) there are different means by which the pro forma adjustments could have been
made.
While the general partner believes that the information set forth in
Capsule A-1 is relevant to evaluating an investment in Spectrum Strategic, no
representation is or could be made that the capsule presents what the
performance results of the portion of Spectrum Strategic's net assets traded by
Eclipse would have been in the past or are likely to be in the future. Past
results are not a guarantee of future results.
MORGAN STANLEY DEAN WITTER SPECTRUM GLOBAL BALANCED L.P.
RXR, INC.
RXR, a New York corporation, was organized in June, 1983. RXR's address is
Financial Centre, 695 East Main Street, Suite 102, Stamford, Connecticut 06901.
RXR has been registered as a commodity trading advisor since July 1984 and as a
commodity pool operator since 1983, and is a member of the National Futures
Association in such capacities.
RXR is a wholly-owned subsidiary of The RXR Group Inc., a Delaware
corporation, which acts as a holding company, also holding all of the stock of
RXR Securities Inc. and RXR Capital Management Inc. RXR Securities is registered
with the CFTC as an introducing broker and is also registered as a securities
broker/dealer with the SEC. RXR Securities is a member of the NASD and of the
National Futures Association. RXR Capital is registered with the CFTC as a
commodity trading advisor and commodity pool operator, is a member of the
National Futures Association in such capacities, and is registered as an
investment adviser with the SEC.
PRINCIPALS
Mr. Mark Rosenberg is the founder of RXR. He is also Chairman and Chief
Investment Officer of RXR and its affiliates.
110
RXR and RXR Capital were founded in 1983 and 1985, respectively, with the
goal of establishing a money management company that would utilize futures,
options, and derivatives in the development of innovative investment and risk
management programs for both institutional and fund clients.
Mr. Rosenberg serves as a member of the Board of Directors of the Futures
Industry Association. He is an arbitrator for the National Futures Association
and a member of the Financial Advisory Boards of both the Chicago Mercantile
Exchange and New York's Commodity Exchange, Inc.. Mr. Rosenberg is also a
Director of the Foundation of Finance and Banking Research. Prior to forming RXR
in 1983, Mr. Rosenberg spent 14 years in the securities and futures industry,
most of those years with Merrill Lynch, Pierce, Fenner & Smith Incorporated, and
later at Prudential-Bache Securities, Inc., where he headed a group that
specialized in institutional hedging and alternative asset management.
Mr. Peter A. Hinrichs is the Chief Financial Officer, Treasurer, and a
Director of RXR, RXR Capital, RXR Group and RXR Securities. He has been with RXR
since its founding in 1983. Mr. Hinrichs is a member of the Investment Policy
Committee and has responsibilities for Administration, Operations, Information
Technology, Human Resources, and Facilities Management for RXR and its
affiliates. Prior to joining RXR, Mr. Hinrichs spent several years in trading,
operations, and administration at Merrill Lynch Futures Inc. and later at
Prudential Bache Securities.
Mr. Hinrichs graduated from Curry College in 1981 with a Bachelor of Science
degree in business management. He is a member of the Board of Directors of
Fountain House Inc., a non-profit rehabilitation center for the mentally ill and
is an active fund raiser for a number of charitable organizations.
Mr. James F. Tomeo is Executive Vice President and is a Director of the RXR
and its affiliates. He has been with the firm since 1986. Mr. Tomeo is Senior
Portfolio Manager and is responsible for the firm's strategic planning and
project development. He is the former Chairman of the International Committee of
the Managed Funds Association and is the U.S. representative to the Education
and Research Committee of the Alternative Investment Management Association
based in Europe. Before joining RXR, Mr. Tomeo worked for Donaldson, Lufkin and
Jenrette as an alternative investment consultant and for the LTV Corporation in
New York. Mr. Tomeo graduated from Bucknell University in 1980 with a Bachelor
of Science degree in business administration, the University of Hartford in 1987
with a Master of Business Administration degree, and the Institute of
International Studies and Training (Japanese business study program) in 1988. He
also studied international finance and corporate markets at New York University.
Principals and employees of RXR are not permitted to trade futures, options
on futures, or forward contracts for their own accounts. Principals and
employees are, however, permitted to invest in funds traded by RXR.
RXR'S INVESTMENT PHILOSOPHY
RXR uses a global macro investment philosophy which has its roots in Modern
Portfolio Theory and the design of efficiently allocated portfolios. In the
global equity and fixed income areas, RXR analyzes various fundamental
information from the world economies such as growth data, labor wage rates,
central bank interest rate policy, and inflation to determine its approach to
the markets. In the foreign exchange and commodity components, RXR analyzes
price data to determine profit and risk potential. A proprietary asset
allocation model is used to adjust exposure among approximately 40 markets so
that no one market or sector can dominate performance. The trading program
utilized for Spectrum Global Balanced was designed to provide investors with a
global investment alternative. Through the controlled use of futures and forward
contracts, RXR manages both U.S. and non-U.S. capital markets, currency, and
commodity exposure in a single, integrated portfolio.
As of December 31, 2000, RXR was managing approximately $281.1 million of
client assets pursuant to its Balanced Portfolio Program and approximately
$338.6 million in all of its programs.
RESEARCH AND DEVELOPMENT
Research and development calls on the talents of personnel from several
areas within the company. Under the leadership of Mark Rosenberg, the process
begins with research. RXR has developed macro-economic and technical models that
can detect price dislocations resulting from daily market activity and major
changes in global business cycles. Using this information, portfolio managers
construct investment portfolios that address the specific actuarial assumptions
of their clients.
111
The development of the trading program utilized for Spectrum Global Balanced
stems from RXR's work managing multi-asset portfolios for its institutional
clients. In 1986, RXR began managing a portfolio called the Institutional
Balanced Portfolio Program, composed of U.S. stock, bond, and non-U.S. financial
and commodity interests. Its objective was capital appreciation with controlled
volatility, a concept pioneered by Professor John Lintner of Harvard University,
who conducted research on the addition of managed futures to portfolios of U.S.
stocks and bonds. Effective June 1, 1998, RXR broadened the hedged equity and
fixed income components to include participation in the world's major developed
capital markets.
No representation is made and no guarantee is given that Spectrum Global
Balanced's objective will be realized or that RXR will achieve any particular
level of performance or amount of profits in its trading for Spectrum Global
Balanced's account. Losses incurred in the global and tangible assets component
could cause Spectrum Global Balanced's account to substantially underperform
accounts managed by asset allocation systems which do not include a managed
futures component. In addition, because the general partner has instructed RXR
to manage Spectrum Global Balanced's account at 1.4 times the amount of leverage
it would normally apply in managing the actively managed component of an IBP
Program account, the performance results achieved for Spectrum Global Balanced
by RXR may be more volatile than an IBP Program account concurrently managed by
RXR and its affiliates.
Prospective investors must recognize not only that the foregoing discussion
attempts to present only the most basic framework describing the trading program
employed for Spectrum Global Balanced, but also due to the proprietary and
confidential nature of all trading approaches, any description will inevitably
be general in nature. Furthermore, RXR's trading methods are continually
evolving, as are the markets themselves.
MORGAN STANLEY DEAN WITTER SPECTRUM CURRENCY L.P.
1. JOHN W. HENRY & COMPANY, INC. (JWH-REGISTERED TRADEMARK-)
JWH makes trading decisions for Spectrum Currency pursuant to the
International Foreign Exchange Program. The International Foreign Exchange
Program, which began trading client capital in August 1986, seeks to identify
and capitalize on intermediate-term movements in a broad range of both major and
minor currencies primarily trading on the interbank market. Positions are taken
as outrights against the U.S. dollar, or non-dollar cross rates. This program
uses the three-phase forex investment style. For a detailed description of JWH,
its principals, and trading systems, including the International Foreign
Currency Program, see "The Trading Advisors--Morgan Stanley Dean Witter Spectrum
Technical--3. John W. Henry & Company, Inc." on page 91.
PAST PERFORMANCE OF JWH
The following are the capsule performance records of all accounts managed by
JWH and JWH Investments, Inc., an affiliate of JWH which has ceased operations.
All performance information is current as of December 31, 2000. The notes on
pages 116 to 118 are an integral part of these capsules.
JOHN W. HENRY & COMPANY, INC.
INTERNATIONAL FOREIGN EXCHANGE PROGRAM
Name of commodity trading advisor: John W. Henry & Company, Inc.
Name of program: International Foreign Exchange Program
Inception of client account trading by commodity trading advisor: October
1982
Inception of client account trading in program: August 1986
Number of open accounts: 5
Aggregate assets overall: $1.2 billion
Aggregate assets in program: $84.4 million
Largest monthly drawdown: (15.3)% - (January 1992)
Worst peak-to-valley drawdown: (35.9)% - (September 1992 - January 1995)
2000 annual return: 16.53%
1999 annual return: (5.1)%
1998 annual return: 13.9%
1997 annual return: 71.1%
1996 annual return: 3.7%
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
112
JOHN W. HENRY & COMPANY, INC. PROGRAMS
JANUARY 1, 1996 - DECEMBER 31, 2000
JWH BEGAN TRADING CLIENT CAPITAL IN OCTOBER 1982
GLOBAL
FINANCIAL AND ORIGINAL INVESTMENT DIVERSIFIED
METALS PORTFOLIO PROGRAM PORTFOLIO
NAME OF PROGRAM: ---------------- ------------------- ---------------
Inception of Client Account Trading in Program: October 1984 October 1982 June 1988
Number of Open Accounts: 19 12 3
Assets Managed in Program: $385,820,242 $118,209,582 $26,415,667
Assets Managed in JWH: $1.2 billion $1.2 billion $1.2 billion
(10.1)% (14.2)% (15.0)%
Worst Monthly Decline on an Individual Account Basis: (2/96) (11/98) (10/99)
(30.5)% (18.5)% (24.1)%
Worst Peak-to-Valley Decline on an Individual Account Basis: (6/94-1/95) (5/99-10/99) (6/95-10/95)
% % %
-------------- ----------------- ---------------
2000 Compound Annual Rate of Return: 13.03 3.42 16.41
1999 Compound Annual Rate of Return: (18.7) (10.7) (11.9)
1998 Compound Annual Rate of Return: 7.2 10.8 23.5
1997 Compound Annual Rate of Return: 15.2 5.7 3.3
1996 Compound Annual Rate of Return: 29.7 22.6 26.9
1995 Compound Annual Rate of Return: 38.5 53.2 19.6