UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended June 30, 2000 or
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to________________
Commission File No. 0-24035
MORGAN STANLEY DEAN WITTER SPECTRUM COMMODITY L.P.
(Exact name of registrant as specified in its charter)
Delaware 13-3968008
State or other jurisdiction of (I.R.S.
Employer
incorporation or organization) Identification
No.)
c/o Demeter Management Corporation
Two World Trade Center, 62 Fl., New York, NY 10048
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 392-5454
(Former name, former address, and former fiscal year, if changed
since last report)
Indicate by check-mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No___________
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MORGAN STANLEY DEAN WITTER SPECTRUM COMMODITY L.P.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
June 30, 2000
<CAPTION>
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements
Statements of Financial Condition June 30, 2000
(Unaudited) and December 31, 1999.................... 2
Statements of Operations for the Quarters Ended
June 30, 2000 and 1999 (Unaudited)................... 3
Statements of Operations for the Six Months Ended
June 30, 2000 and 1999 (Unaudited)....................4
Statements of Changes in Partners' Capital for the
Six Months Ended June 30, 2000 and 1999 (Unaudited)...5
Statements of Cash Flows for the Six Months Ended
June 30, 2000 and 1999 (Unaudited)....................6
Notes to Financial Statements (Unaudited)..........7-11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations..12-19
Item 3. Quantitative and Qualitative Disclosures about
Market Risk ...................................19-28
Part II. OTHER INFORMATION
Item 1. Legal Proceedings..............................29-30
Item 2. Changes in Securities and Use of Proceeds......30-33
Item 5. Other Information.................................33
Item 6. Exhibits and Reports on Form 8-K...............34-35
</TABLE>
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<TABLE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
MORGAN STANLEY DEAN WITTER SPECTRUM COMMODITY L.P.
STATEMENTS OF FINANCIAL CONDITION
<CAPTION>
June 30, December 31,
2000 1999
$ $
(Unaudited)
ASSETS
<S> <C> <C>
Equity in futures interests trading accounts:
Cash 22,110,122 23,430,137
Net unrealized gain (loss) on open contracts (MSIL) (123
,808) 643,258
Net unrealized loss on open contracts (MS & Co.) (222,888)
(100,830)
Total net unrealized gain (loss) on open contracts (346,696)
542,428
Total Trading Equity 21,763,426 23,972,565
Subscriptions receivable
280,364 - Interest receivable
(MS & Co.) 85,599
76,192
Total Assets 22,129,389 24,048,757
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Redemptions payable 230,907 269,545
Accrued brokerage fees (MS & Co. and MSIL)83,982 70,827
Accrued management fees (MSCM) 45,642 48,511
Service fees payable (Demeter) ______-__ 19,404
Total Liabilities 360,531 408,287
Partners' Capital
Limited Partners (2,793,320.622 and
3,062,471.522 Units, respectively)21,435,841 23,310,162
General Partner (43,395.648 Units) 333,017 330,308
Total Partners' Capital 21,768,858 23,640,470
Total Liabilities and Partners' Capital 22,129,389 24,0
48,757
NET ASSET VALUE PER UNIT 7.67 7.61
<FN>
The accompanying notes are an integral part
of these financial statements.
</TABLE>
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<TABLE>
MORGAN STANLEY DEAN WITTER SPECTRUM COMMODITY L.P.
STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
For the Quarters Ended June 30,
2000 1999
$ $
REVENUES
<S>
<C> <C>
Trading profit (loss):
Realized (50,397) (64,158)
Net change in unrealized 209,394 402,750
Total Trading Results 158,997 338,592
Interest Income (MS & Co.) 260,504 205,500
Total Revenues 419,501 544,092
EXPENSES
Brokerage fees (MS & Co. and MSIL)251,251 211,507
Management fees (MSCM) 136,549 144,867
Service fees (Demeter) _____-___ 57,947
Total Expenses 387,800 414,321
NET INCOME 31,701 129,771
NET INCOME ALLOCATION
Limited Partners 30,818 128,051
General Partner 883 1,720
NET INCOME PER UNIT
Limited Partners 0.02 0.04
General Partner 0.02 0.04
<FN>
The accompanying notes are an integral part
of these financial statements.
</TABLE>
<PAGE>
<TABLE>
MORGAN STANLEY DEAN WITTER SPECTRUM COMMODITY L.P.
STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
For the Six Months Ended June 30,
2000 1999
$ $
REVENUES
<S>
<C> <C>
Trading profit (loss):
Realized 1,344,767 (29,303)
Net change in unrealized (889,124) 1,198,761
Total Trading Results 455,643 1,169,458
Interest Income (MS & Co.) 517,218 414,095
Total Revenues 972,861 1,583,553
EXPENSES
Brokerage fees (MS & Co. and MSIL) 465,157 426,601
Management fees (MSCM) 283,060 292,192
Service fees (Demeter) 58,604 116,877
Total Expenses 806,821 835,670
NET INCOME 166,040 747,883
NET INCOME ALLOCATION
Limited Partners 163,331 738,006
General Partner 2,709 9,877
NET INCOME PER UNIT
Limited Partners 0.06 0.23
General Partner 0.06 0.23
<FN>
The accompanying notes are an integral part
of these financial statements.
</TABLE>
<PAGE>
<TABLE>
MORGAN STANLEY DEAN WITTER SPECTRUM COMMODITY L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
For the Six Months Ended June 30, 2000 and 1999
(Unaudited)
<CAPTION>
Units of
Partnership Limited General
Interest Partners Partner Total
<S> <C>
<C> <C> <C>
Partners' Capital,
December 31, 1998 3,788,464.700 $24,622,999 $285,317 $24,9
08,316
Net Income
- 738,006 9,877 747,883
Redemptions (448,037.865) (2,933,341)
- (2,933,341)
Partners' Capital,
June 30, 1999 3,340,426.835 $22,427,664 $295,194 $22
,722,858
Partners' Capital,
December 31, 19993,105,867.170 $23,310,162 $330,308 $23,64
0,470
Offering of Units105,748.916 803,735
- 803,735
Net Income
- 163,331 2,709 166,040
Redemptions (374,899.816) (2,841,387)
- (2,841,387)
Partners' Capital,
June 30, 2000 2,836,716.270 $21,435,841 $333,017 $21
,768,858
<FN>
The accompanying notes are an integral part
of these financial statements.
</TABLE>
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<TABLE>
MORGAN STANLEY DEAN WITTER SPECTRUM COMMODITY L.P.
STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
For the Six Months Ended June 30,
2000 1999
$ $
CASH FLOWS FROM OPERATING ACTIVITIES
<S>
<C> <C>
Net income 166,040 747,883
Noncash item included in net income:
Net change in unrealized 889,124 (1,198,761)
(Increase) decrease in operating assets:
Interest receivable (MS & Co.) (9,407) 12,353
Increase (decrease) in operating liabilities:
Accrued brokerage fees (MS & Co. and MSIL) 13,155
(14,159)
Accrued management fees (MSCM) (2,869) (9,699)
Service fees payable (Demeter) (19,404) (3,880)
Net cash provided by (used for) operating activities 1,036,639
(466,263)
CASH FLOWS FROM FINANCING ACTIVITIES
Offering of Units
803,735 -
Increase in subscriptions receivable
(280,364) -
Decrease in redemptions payable (38,638)(564,797)
Redemptions of Units (2,841,387)
(2,933,341)
Net cash used for financing activities (2,356,654) (3
,498,138)
Net decrease in cash (1,320,015) (3,964,401)
Balance at beginning of period 23,430,137 26,519,891
Balance at end of period 22,110,122 22,555,490
<FN>
The accompanying notes are an integral part
of these financial statements.
</TABLE>
<PAGE>
MORGAN STANLEY DEAN WITTER SPECTRUM COMMODITY L.P.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
The financial statements include, in the opinion of management,
all adjustments necessary for a fair presentation of the results
of operations and financial condition of Morgan Stanley Dean
Witter Spectrum Commodity L.P. (the "Partnership"). The
financial statements and condensed notes herein should be read in
conjunction with the Partnership's December 31, 1999 Annual
Report on Form 10-K.
1. Organization
Morgan Stanley Dean Witter Spectrum Commodity L.P. is a Delaware
limited partnership organized to engage primarily in speculative
trading of futures contracts in metals, energy and agricultural
markets (collectively, "futures interests"). The Partnership is
one of the Morgan Stanley Dean Witter Spectrum Series of funds,
comprised of the Partnership, Morgan Stanley Dean Witter Spectrum
Global Balanced L.P., Morgan Stanley Dean Witter Spectrum Select
L.P., Morgan Stanley Dean Witter Spectrum Strategic L.P., Morgan
Stanley Dean Witter Spectrum Technical L.P., and Morgan Stanley
Dean Witter Spectrum Currency L.P. (collectively, the "Spectrum
Series"). The Partnership's general partner is Demeter
Management Corporation ("Demeter"). The commodity brokers are
Morgan Stanley & Co. Incorporated ("MS & Co.") and Morgan Stanley
& Co.
<PAGE>
MORGAN STANLEY DEAN WITTER SPECTRUM COMMODITY L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
International Limited ("MSIL"), (collectively, the "Commodity
Brokers"). The trading advisor is Morgan Stanley Commodities
Management, Inc. ("MSCM" or the "Trading Advisor"). MSCM, the
Commodity Brokers and Demeter are all wholly-owned subsidiaries
of Morgan Stanley Dean Witter & Co.
2. Related Party Transactions
The Partnership's cash is on deposit with the Commodity Brokers
in futures interests trading accounts to meet margin requirements
as needed. MS & Co. pays interest on these funds based on a
prevailing rate on U.S. Treasury bills. The Partnership pays
brokerage fees to the Commodity Brokers, management fees and
incentive fees (if applicable) to MSCM, and service fees to
Demeter.
3. Financial Instruments
The Partnership trades futures interests in metals, energy and
agricultural markets. Futures interests represent contracts for
delayed delivery of an instrument at a specified date and price.
Risk arises from changes in the value of these contracts and the
potential inability of counterparties to perform under the terms
of the contracts. There are numerous factors which may
significantly influence the market value of these contracts,
including interest rate volatility.
<PAGE>
MORGAN STANLEY DEAN WITTER SPECTRUM COMMODITY L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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,
1999. In June 1999, the FASB issued SFAS No. 137, "Accounting
for Derivative Instruments and Hedging Activities - Deferral of
the Effective Date of SFAS No. 133," which defers the required
implementation of SFAS No. 133 until fiscal years beginning after
June 15, 2000. However, the Partnership had previously elected
to adopt the provisions of SFAS No. 133 beginning with the fiscal
year that ended December 31, 1998. SFAS No. 133 supersedes SFAS
No. 119 and No. 105, which required the disclosure of average
aggregate fair values and contract/notional values, respectively,
of derivative financial instruments for an entity which carries
its assets at fair value. The application of SFAS No. 133 does
not have a significant effect on the Partnership's financial
statements.
The net unrealized gain (loss) on open contracts are reported as
a component of "Equity in futures interests trading accounts" on
the statements of financial condition and totaled $(346,696) and
$542,428 at June 30, 2000 and December 31, 1999, respectively.
<PAGE>
MORGAN STANLEY DEAN WITTER SPECTRUM COMMODITY L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The $346,696 net unrealized loss on open contracts at June 30,
2000 and the $542,428 net unrealized gain on open contracts at
December 31, 1999 were related to exchange-traded futures
contracts.
Exchange-traded futures contracts held by the Partnership at June
30, 2000 and December 31, 1999 mature through December 2000 and
April 2000, respectively.
The Partnership has credit risk associated with counterparty non-
performance. The credit risk associated with the instruments in
which the Partnership is involved is limited to the amounts
reflected in the Partnership's statements of financial condition.
The Partnership also has credit risk because MS & Co. and MSIL
act as the futures commission merchants or the counterparties
with respect to most of the Partnership's assets. Exchange-
traded futures contracts are marked to market on a daily basis,
with variations in value settled on a daily basis. Each of MS &
Co. and MSIL, as a futures commission merchant for the
Partnership's exchange-traded futures contracts, are required,
pursuant to regulations of the Commodity Futures Trading
Commission ("CFTC"), to segregate from their own assets, and for
the sole benefit of their commodity customers, all funds held by
them with respect to
<PAGE>
MORGAN STANLEY DEAN WITTER SPECTRUM COMMODITY L.P.
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
exchange-traded futures contracts, including an amount equal to
the net unrealized gain (loss) on all open futures contracts,
which funds, in the aggregate, totaled $21,763,426 and
$23,972,565 at June 30, 2000 and December 31, 1999, respectively.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity - The Partnership deposits its assets with the
Commodity Brokers in separate futures trading accounts
established for the 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 and forwards, it is expected that the Partnership will
continue to own such liquid assets for margin purposes.
The Partnership's investment in futures and forwards 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 contract has
increased or decreased by an amount equal to the daily limit,
positions in that futures 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
<PAGE>
days with little or no trading. These market conditions could
prevent the Partnership from promptly liquidating its futures
contracts and result in restrictions on redemptions.
The Partnership has never had illiquidity affect a material
portion of its assets.
Capital Resources. The Partnership does not have, or expect to
have, any capital assets. Redemptions, exchanges and sales of
additional units of limited partnership interest ("Unit(s)") in
the future will affect the amount of funds available for
investment in futures interests in subsequent periods. It is not
possible to estimate the amount, and therefore, the impact of
future redemptions of Units.
Results of Operations
General. The Partnership's results depend on its Trading Advisor
and the ability of the Trading Advisor's trading program to take
advantage of price movements or other profit opportunities in the
futures and forwards markets. The following presents a summary
of the Partnership's operations for the quarter and six months
ended June 30, 2000 and 1999, respectively, 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
<PAGE>
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.
For the Quarter and Six Months Ended June 30, 2000
For the quarter ended June 30, 2000, the Partnership recorded
total trading revenues including interest income of $419,501 and
posted an increase in Net Asset Value per Unit. The most
significant gains of approximately 6.4% were 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 during May and June from long
futures positions in crude oil and its related products as the
previous upward movement in oil prices re-emerged amid rising
concerns regarding supplies and production levels. These gains
were partially offset by losses of approximately 4.2% recorded
primarily during April and June in the agricultural markets from
long positions in corn futures as prices dropped due to heavy
rain and cooler temperatures in the major corn producing regions.
In soft commodities, losses of approximately 0.9% were
<PAGE>
experienced throughout a majority of the quarter from long coffee
futures positions as prices decreased on technical factors.
Additional losses were experienced during June from long cotton
futures positions as prices moved lower, pressured downward by
heavy deliveries in July, benign weather forecasts for the U.S.
cotton belt and expectations that crop size was edging higher.
In the metals markets, losses of approximately 0.4% were incurred
primarily during May and June from long nickel futures positions
as prices moved lower. Total expenses for the three months
ended June 30, 2000 were $387,800, resulting in net income of
$31,701. The value of a Unit increased from $7.65 at March 31,
2000 to $7.67 at June 30, 2000.
For the six months ended June 30, 2000, the Partnership recorded
total trading revenues including interest income of $972,861 and
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
<PAGE>
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. Total expenses for the six months
ended June 30, 2000 were $806,821, resulting in net income of
$166,040. The value of a Unit increased from $7.61 at December
31, 1999 to $7.67 at June 30, 2000.
For the Quarter and Six Months Ended June 30, 1999
For the quarter ended June 30, 1999, the Partnership recorded
total trading revenues including interest income of $544,092 and
posted an increase in Net Asset Value per Unit. The Partnership's
long-only trading approach recorded its most significant gains of
approximately 2.7% in the metals markets primarily from long
<PAGE>
positions in base metal futures as nickel, copper and aluminum
prices increased during April and June. The rise in base metal
prices was largely attributed to strong producer demand,
tightening supply levels and reports that several major copper
producers would be reducing production. Gains were also recorded
in this market complex from long silver futures positions as
silver prices also moved higher during April and June amid
technically-driven buying spurred by the rally in base metals
prices, a decline in U.S. market reserves and the announcement of
a cutback in metal production. Additional profits of
approximately 2.3% were recorded in the energy markets primarily
during April and June from long positions in crude and heating
oil futures as oil prices rose on signs of better demand,
particularly from Asia, a decline in inventory levels and signs
that OPEC member states were respecting output cuts. A portion
of the Partnership's overall gains for the quarter was offset by
losses of approximately 2.1% experienced in the agricultural
markets primarily from long positions in wheat futures positions
as prices declined on a USDA report of higher-than-expected
supply levels and slumping U.S. exports. Additional losses of
approximately 0.9% were recorded in the soft commodities markets
primarily from long coffee futures positions as prices moved
lower during April and June on forecasts for warmer temperatures
in Brazil. Losses were also experienced from long positions in
cocoa futures during April and May, as well as from long cotton
futures positions during May and June. Total expenses for the
three months ended
<PAGE>
June 30, 1999 were $414,321, resulting in net income of $129,771.
The value of a Unit increased from $6.76 at March 31, 1999 to
$6.80 at June 30, 1999.
For the six months ended June 30, 1999, the Partnership recorded
total trading revenues including interest income of $1,583,553
and posted an increase in Net Asset Value per Unit. The most
significant gains of approximately 9.5% were recorded in the
energy markets primarily from long futures positions in crude oil
and its refined products, heating oil and unleaded gasoline, as
oil prices moved considerably higher during March, April and
June. The substantial recovery in oil prices during these months
was largely attributed to the news of a decline in inventory
levels that resulted from an agreement reached by both OPEC and
non-OPEC countries to cut total output. Additional gains of
approximately 1.5% were recorded in the metals markets primarily
during the second quarter from long positions in nickel, copper
and aluminum futures as base metal prices increased during April
and June due to strong producer demand, tightening supply levels
and reports that several major copper producers would be reducing
production. A portion of the Partnership's overall gains for the
year were offset by losses of approximately 3.1% experienced in
the soft commodities markets primarily from long positions in
cocoa and coffee futures as prices in these markets declined
throughout most of the year amid fears that economic turmoil in
Brazil would lead them to flood the market with increased exports
<PAGE>
and on forecasts for favorable growing weather in that region.
Losses of approximately 2.9% were also recorded in the
agricultural markets primarily from long positions in wheat,
soybean oil, soybean and corn futures as grain prices moved lower
on concerns regarding Brazil's economic status and higher-than-
expected supply levels. Total expenses for the six months ended
June 30, 1999 were $835,670, resulting in net income of $747,883.
The value of a Unit increased from $6.57 at December 31, 1998 to
$6.80 at June 30, 1999.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Introduction
The Partnership is a commodity pool involved in the speculative
trading of futures interests. The market-sensitive instruments
held by the Partnership are acquired solely for speculative
trading purposes only and, as a result, all or substantially all
of the Partnership's assets are at risk of trading loss. Unlike
an operating company, the risk of market-sensitive instruments is
central, not incidental, to the Partnership's main business
activities.
The futures interests traded by the Partnership involve varying
degrees of market risk. Market risk is often dependent upon
changes in the level or volatility of interest rates, exchange
rates, and prices of financial instruments and commodities.
Fluctuations in market risk based upon these factors result in
<PAGE>
frequent changes in the fair value of the Partnership's open
positions, and, consequently, in its earnings and cash flow.
The Partnership's total market risk is influenced by a wide
variety of factors, including the diversification among the
Partnership's open positions, the volatility present within the
markets, and the liquidity of the markets. At different times,
each of these factors may act to increase or decrease the market
risk associated with the Partnership.
The Partnership's past performance is not necessarily indicative
of its future results. Any attempt to numerically quantify the
Partnership's market risk is limited by the uncertainty of its
speculative trading. The Partnership's speculative trading may
cause future losses and volatility (i.e. "risk of ruin") that far
exceed the Partnership's experiences to date or any reasonable
expectations based upon historical changes in market value.
Quantifying the Partnership's Trading Value at Risk
The following quantitative disclosures regarding the
Partnership's market risk exposures contain "forward-looking
statements" within the meaning of the safe harbor from civil
liability provided for such statements by the Private Securities
Litigation Reform Act of 1995 (set forth in Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange
Act of 1934). All quantitative disclosures in this section are
deemed to be forward-
<PAGE>
looking statements for purposes of the safe harbor, except for
statements of historical fact.
The Partnership accounts for open positions using mark-to-market
accounting principles. Any loss in the market value of the
Partnership's open positions is directly reflected in the
Partnership's earnings, whether realized or unrealized, and cash
flow. Profits and losses on open positions of exchange traded-
futures interests are settled daily through variation margin.
The Partnership's risk exposure in the market sectors traded by
the Trading Advisor is estimated below in terms of Value at Risk
("VaR"). The VaR model used by the Partnership includes many
variables that could change the market value of the Partnership's
trading portfolio. The Partnership estimates VaR using a model
based upon historical simulation with a confidence level of 99%.
Historical simulation involves constructing a distribution of
hypothetical daily changes in the value of a trading portfolio.
The VaR model takes into account linear exposures to price and
interest rate risk. Market risks that are incorporated in the
VaR model include equity and commodity prices, interest rates,
foreign exchange rates, and correlation among these variables.
The hypothetical changes in portfolio value are based on daily
percentage changes observed in key market indices or other market
factors ("market risk factors") to which the portfolio is
<PAGE>
sensitive. The historical observation period of the
Partnership's VaR is approximately four years. The one-day 99%
confidence level of the Partnership's VaR corresponds to the
negative change in portfolio value that, based on observed market
risk factors, would have been exceeded once in 100 trading days.
VaR models, including the Partnership's, are continuously
evolving as trading portfolios become more diverse and modeling
techniques and systems capabilities improve. Please note that
the VaR model is used to numerically quantify market risk for
historic reporting purposes only and is not utilized by either
Demeter or the Trading Advisor in their daily risk management
activities.
The Partnership's Value at Risk in Different Market Sectors
The following tables indicates the VaR associated with the
Partnership's open positions as a percentage of total Net Assets
by primary market risk category as of June 30, 2000 and 1999. As
of June 30, 2000 and 1999, the Partnership's total capitalization
was approximately $22 million and $23 million, respectively.
Primary Market June 30, 2000 June 30, 1999
Risk Category Value at Risk Value at Risk
Commodity (1.70)% (1.87)%
The table above represents the VaR of the Partnership's open
positions at June 30, 2000 and 1999 only and is not necessarily
<PAGE>
representative of either the historic or future risk of an
investment in the Partnership. Because the Partnership's only
business is the speculative trading of futures interests, the
composition of its trading portfolio can change significantly
over any given time period, or even within a single trading day.
Any changes in open positions could positively or negatively
materially impact market risk as measured by VaR.
The table below supplements the quarter-end VaR by presenting the
Partnership's high, low and average VaR, as a percentage of total
Net Assets for the four quarterly reporting periods from July 1,
1999 through June 30, 2000.
Primary Market Risk Category High Low Average
Commodity (2.10)% (1.70)% (1.86)%
Limitations on Value at Risk as an Assessment of Market Risk
The face value of the market sector instruments held by the
Partnership is typically many times the applicable margin
requirements. Margin requirements generally range between 2% and
15% of contract face value. Additionally, the use of leverage
causes the face value of the market sector instruments held by
the Partnership to typically be many times the total
capitalization of the Partnership. The value of the
Partnership's open positions thus creates a "risk of ruin" not
typically found in other investments. The relative size of the
<PAGE>
positions held may cause the Partnership to incur losses greatly
in excess of VaR within a short period of time, given the effects
of the leverage employed and market volatility. The VaR tables
above, as well as the past performance of the Partnership, gives
no indication of such "risk of ruin". In addition, VaR risk
measures should be viewed in light of the methodology's
limitations, which include the following:
past changes in market risk factors will not always result
in accurate predictions of the distributions and correlations of
future market movements;
changes in portfolio value in response to market movements
may differ from those of the VaR model;
VaR results reflect past trading positions while future risk
depends on future positions;
VaR using a one-day time horizon does not fully capture the
market risk of positions that cannot be liquidated or hedged
within one day; and
the historical market risk factor data used for VaR
estimation may provide only limited insight into losses that
could be incurred under certain unusual market movements.
The VaR tables above present the results of the Partnership's VaR
for the Partnership's market risk exposure at June 30, 2000 and
for the end of the four quarterly reporting periods from July 1,
1999 through June 30, 2000. Since VaR is based on historical
<PAGE>
data, VaR should not be viewed as predictive of the Partnership's
future financial performance or its ability to manage or monitor
risk. There can be no assurance that the Partnership's actual
losses on a particular day will not exceed the VaR amounts
indicated above or that such losses will not occur more than 1 in
100 trading days.
Non-Trading Risk
The Partnership has non-trading market risk on its foreign cash
balances not needed for margin. These balances and any market
risk they may represent are immaterial. At June 30, 2000 the
Partnership's cash balance at MS & Co. was approximately 94% of
its total Net Asset Value. A decline in short-term interest
rates will result in a decline in the Partnership's cash
management income. This cash flow risk is not considered
material.
Materiality, as used throughout this section, is based on an
assessment of reasonably possible market movements and any
associated potential losses, taking into account the leverage,
optionality and multiplier features of the Partnership's market-
sensitive instruments.
Qualitative Disclosures Regarding Primary Trading Risk Exposures
The following qualitative disclosures regarding the Partnership's
market risk exposures - except for (A) those disclosures that are
<PAGE>
statements of historical fact and (B) the descriptions of how the
Partnership manages its primary market risk exposures -
constitute forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the
Securities Exchange Act. The Partnership's primary market risk
exposures as well as the strategies used and to be used by
Demeter and the Trading Advisor for managing such exposures are
subject to numerous uncertainties, contingencies and risks, any
one of which could cause the actual results of the Partnership's
risk controls to differ materially from the objectives of such
strategies. Government interventions, defaults and expro-
priations, illiquid markets, the emergence of dominant
fundamental factors, political upheavals, changes in historical
price relationships, an influx of new market participants,
increased regulation and many other factors could result in
material losses as well as in material changes to the risk
exposures and the risk management strategies of the Partnership.
Investors must be prepared to lose all or substantially all of
their investment in the Partnership.
The following were the primary trading risk exposures of the
Partnership as of June 30, 2000 by market sector. It may be
anticipated however, that these market exposures will vary
materially over time.
<PAGE>
Commodity.
Soft Commodities and Agriculturals. On June 30, 2000, the
Partnership had exposure in the corn, coffee, wheat and in the
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, 2000 was to fluctuations in the price of gold and
silver. The Partnership will, from time to time, trade base
metals such as aluminum, copper, zinc and nickel, however the
principal market exposures of the Partnership have consistently
been in precious metals, gold and silver and, to a much lesser
extent, platinum. Gold and silver prices have remained volatile
and the Trading Advisor has, from time to time, taken positions
as market opportunities developed. Demeter anticipates that gold
and silver will remain the primary metals market exposure for the
Partnership.
Energy. On June 30, 2000, 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
<PAGE>
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.
Qualitative Disclosures Regarding Non-Trading Risk Exposure
The following was the only non-trading risk exposure of the
Partnership as of June 30, 2000:
Foreign Currency Balances
The Partnership does not have foreign currency balances as of
June 30, 2000.
<PAGE>
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The following supplements Legal Proceedings previously disclosed
in the Partnership's Form 10-Q for the quarter ended March 31,
2000 and Form 10-K for the year ended December 31, 1999:
On October 25, 1996, the Market Surveillance Committee (the
"Committee") of the National Association of Securities Dealers
("NASD") filed a formal complaint against MS & Co. and seven
current and former traders, alleging violations of certain NASD
rules relating to manipulative and deceptive practices, locked
and crossed markets, and failure to supervise. Hearings were
held in June and July 1997. On April 13, 1998 the Committee
ruled that MS & Co. and the seven traders had engaged in
manipulative and deceptive practices and improperly locked or
crossed markets, but not that MS & Co. had failed to supervise
its traders. The Committee levied a fine of $1,000,000 on MS &
Co., a fine of $100,000 and a 90-day suspension on one of its
former traders, and fines of $25,000 and 30-day suspensions on
each of the remaining current and former traders. On January 18,
2000 the National Adjudicatory Council, which heard the appeal,
issued a ruling which upheld the Committee's April 1998 decision,
however, the National Adjudicatory Council reduced the firm's
fine to $495,000,
<PAGE>
reversed all previously imposed suspensions against the traders,
reduced the fine for each of six traders to $2,500 and dismissed
all charges against the seventh trader.
On January 11, 1999, the Securities and Exchange Commission
brought an action against 28 NASDAQ market makers, including MS &
Co., and 51 individuals, including one current and one former
trader employed by MS & Co., for certain conduct during 1994.
The core of the charges against MS & Co. concerns improper or
undisclosed coordination of price quotes with other broker-
dealers and related reporting, recordkeeping and supervisory
deficiencies in violation of Sections 15(b)(4)(E), 15(c)(1) and
(2) and 17(a) of the Securities Exchange Act and Rules 15c1-2,
15c2-7 and 17a-3 promulgated thereunder. Without admitting or
denying the charges, MS & Co. consented to the entry of a cease
and desist order and to the payment of a civil penalty of
$350,000, disgorgement of $4,170 and to submit certain of its
procedures to an independent consultant for review. In addition,
one current and one former trader employed by MS & Co. accepted
suspensions of less than two months each and were fined $25,000
and $30,000 respectively.
Item 2. CHANGE IN SECURITIES AND USE OF PROCEEDS
The Partnership registered 5,000,000 Units pursuant to a
Registration Statement on Form S-1, which became effective on
November 10, 1997 (the "Registration Statement") (SEC File Number
<PAGE>
333-33975). The Partnership, Demeter, MSCW and DWR extended the
offering period for unsold Units until no later than October 16,
1998 pursuant to Post Effective Amendment No. 1 to the
Registration Statement, which became effective on July 10, 1998.
The managing underwriter for the Partnership is DWR.
The offering originally commenced on November 10, 1997 with
5,000,000 Units registered and 4,045,503.483 Units sold through
April 1, 1998. The aggregate price of the offering amount
registered was $50,000,000 (based upon the initial offering price
of $10.00 per Unit) for the initial closing on January 2, 1998
(the "Initial Offering"). After the Initial Offering, Units were
sold at three closings held on February 2, March 2 and April 1,
1998, at a price equal to 100% of the Net Asset Value per Unit at
the close of business on the last day of the month immediately
preceding the closing. The aggregate price of the Units sold at
the four closings of the offering was $40,100,218 (based upon the
Net Asset Value per Unit of $10.00 at January 2, 1998, $10.13 at
February 2, 1998, $9.53 at March 2, 1998 and $9.54 at April 1,
1998 closings, respectively).
An additional 149,990.149 Units were sold at subsequent closings;
held on August 3, September 1 and October 1, 1998 at a price
equal to 100% of the Net Asset Value per Unit at the close of
business on the last day of the month immediately preceding the
closing.
<PAGE>
The aggregate offering price of the three subsequent closings was
$1,135,005 (based upon the Net Asset Value per Unit of $7.85 at
August 3, 1998, $7.23 on September 1, 1998 and $7.75 on October
1, 1998, respectively).
Subsequent to these closings, remaining unsold Units were de-
registered.
In conjunction with becoming part of the Spectrum Series on March
7, 2000, the Partnership registered an additional 7,000,000 Units
pursuant to another Registration Statement on form S-1, which
became effective on March 6, 2000 (SEC File Number 33-90483). As
part of the Spectrum Series, Units of the Partnership are now
sold monthly on a continuous basis at a price equal to 100% of
the Net Asset Value per Unit at the close of business on the last
day of each month.
Through June 30, 2000, 4,301,242.548 total Units of the
Partnership have been sold, leaving 6,894,251.084 Units unsold as
of June 30, 2000. The aggregate price of Units sold through June
30, 2000 is $42,038,958 at a price equal to 100% of the Net Asset
Value per Unit at the close of business on the last day of each
month.
Since no expenses are chargeable against proceeds, 100% of the
proceeds of the offering have been applied to the working capital
<PAGE>
of the Partnership for use in accordance with the "Investment
Program, Use of Proceeds and Trading Policies" section of the
prospectus included as part of the above referenced Registration
Statement.
Item 5. OTHER INFORMATION
Effective July 1, 2000, Lewis A. Raibley, III resigned as Chief
Financial Officer and a Director of Demeter and Dean Witter
Futures Currency Management Inc. Effective July 10, 2000,
Raymond E. Koch replaced Lewis A. Raibley, III as Chief Financial
Officer of Demeter.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits
3.01 Form of Amended and Restated Limited Partnership Agreement
of the Partnership, is incorporated by reference to
Exhibit A of the Partnership's Prospectus, dated March 6,
2000, filed with the Securities and Exchange Commission
pursuant to Rule 424(b)(3) under the Securities Act of
1933, as amended, on March 9, 2000.
3.02 Certificate of Limited Partnership, dated July 31, 1997, is
incorporated by reference to Exhibit 3.02 of the
Partnership's Registration Statement on Form S-1 (File No. 333-
33975) filed with the Securities and Exchange
commission on August 20, 1997.
3.03 Form of Amendment in Certificate of Limited Partnership,
dated as of March 7, 2000 is incorporated by reference to
Exhibit 3.1 of the Partnership's Form 8-K (File No. 0-
24035), filed with the Securities and Exchange Commission
on March 23, 2000.
10.01 Management Agreement, dated as of December 31, 1997, among
the Partnership, Demeter Management Corporation, and
Morgan Stanley Commodities Management Inc. is incorporated
by reference to exhibit 10.01 of the Partnership's Form 10-
K (File No. 0-24035) for fiscal year ended December 31,
1998.
10.02 Commodity Futures Customer Agreement, dated as of
December 31, 1997., between Morgan Stanley & Co. Incorporated
and the Partnership is incorporated by reference to Exhibit
10.02 of the Partnership's Form 10-K (File No. 0-24035) for
fiscal year ended December 31, 1998.
10.03 Customer Agreement, dated as of December 31, 1997,
among the Partnership, Morgan Stanley & Co. International
Limited and Morgan Stanley & Co. Incorporated is
incorporated by reference to Exhibit 10.03 of the
Partnership's Form 10-K (File NO. 0-24035) for fiscal year ended
December 31, 1998.
10.04 Subscription and Exchange Agreement and Power of
Attorney to be executed by each purchaser of Units is
incorporated by reference to Annex A of the Partnership's
Supplement to the Prospectus, dated March 6, 2000, filed with
the Securities and Exchange Commission pursuant to Rule
424(b)(3) under the Securities Act of 1933, as amended, on March
9, 2000.
<PAGE>
10.05 Escrow Agreement, dated October 14, 1998, among the
Partnership, Dean Witter Reynolds Inc., and Chemical Bank is
incorporated by reference to Exhibit 10.05 of the
Partnership's Form 10-K (File No. 0-24035) for fiscal year ended
December 31, 1998.
(B) Reports on Form 8-K. - None.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Morgan Stanley Dean Witter Spectrum
Commodity Fund L.P. (Registrant)
By: Demeter Management Corporation
(General Partner)
August 14, 2000 By:/s/Raymond E. Koch_____________________
Raymond E. Koch
Chief Financial Officer
The General Partner which signed the above is the only party
authorized to act for the Registrant. The Registrant has no
principal executive officer, principal financial officer,
controller, or principal accounting officer and has no Board of
Directors.
