UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended September 30, 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___________
<PAGE>
<TABLE>
MORGAN STANLEY DEAN WITTER SPECTRUM COMMODITY L.P.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
September 30, 2000
<CAPTION>
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements
Statements of Financial Condition September 30, 2000
(Unaudited) and December 31, 1999........................ 2
Statements of Operations for the Quarters Ended
September 30, 2000 and 1999 (Unaudited)................... 3
Statements of Operations for the Nine Months Ended
September 30, 2000 and 1999 (Unaudited)....................4
Statements of Changes in Partners' Capital for the
Nine Months Ended September 30, 2000 and 1999
(Unaudited)..5
Statements of Cash Flows for the Nine Months Ended
September 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 ........................................20-29
Part II. OTHER INFORMATION
Item 1. Legal Proceedings......................................30
Item 2. Changes in Securities and Use of Proceeds...........30-32
Item 5. Other Information......................................32
Item 6. Exhibits and Reports on Form 8-K....................33-34
</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>
September 30, December 31,
2000 1999
$ $
(Unaudited)
ASSETS
<S> <C> <C>
Equity in futures interests trading accounts:
Cash 21,889,321 23,430,137
Net unrealized gain (loss) on open contracts (MSIL)(78,730)
643,258
Net unrealized loss on open contracts (MS & Co.) (216,412)
(100,830)
Total net unrealized gain (loss) on open contracts (295,142)
542,428
Total Trading Equity 21,594,179 23,972,565
Subscriptions receivable
191,733 - Interest receivable
(MS & Co.) 88,898 76,192
Total Assets 21,874,810 24,048,757
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Redemptions payable 412,633 269,545
Accrued brokerage fees (MS & Co. and MSIL)82,977 70,827
Accrued management fees (MSCM) 45,096 48,511
Service fees payable (Demeter)
- 19,404
Total Liabilities 540,706 408,287
Partners' Capital
Limited Partners (2,725,496.725 and
3,062,471.522 Units, respectively)20,999,744 23,310,162
General Partner (43,395.648 Units) 334,360 330,308
Total Partners' Capital 21,334,104 23,640,470
Total Liabilities and Partners' Capital 21,874,810 24,
048,757
NET ASSET VALUE PER UNIT 7.70 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.
STATEMENT OF OPERATIONS
(Unaudited)
<CAPTION>
For the Quarters Ended September 30,
2000 1999
$ $
REVENUES
<S> <C> <C>
Trading profit (loss):
Realized 142,2462,955,995
Net change in unrealized 51,554 (214,540)
Total Trading Results 193,800 2,741,455
Interest Income (MS & Co.) 263,530 221,516
Total Revenues 457,330 2,962,971
EXPENSES
Brokerage fees (MS & Co. and MSIL)245,853 209,073
Management fees (MSCM) 133,616 143,201
Service fees (Demeter)
- 57,280
Total Expenses 379,469 409,554
NET INCOME 77,861 2,553,417
NET INCOME ALLOCATION
Limited Partners 76,5182,519,551
General Partner 1,343 33,866
NET INCOME PER UNIT
Limited Partners 0.03 0.78
General Partner 0.03 0.78
<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 Nine Months Ended September 30,
2000 1999
$ $
REVENUES
<S> <C> <C>
Trading profit (loss):
Realized 1,487,013 2,926,692
Net change in unrealized (837,570) 984,221
Total Trading Results 649,443 3,910,913
Interest Income (MS & Co.) 780,748 635,611
Total Revenues 1,430,191 4,546,524
EXPENSES
Brokerage fees (MS & Co. and MSIL) 711,010 635,674
Management fees (MSCM) 416,676 435,393
Service fees (Demeter) 58,604 174,157
Total Expenses 1,186,290 1,245,224
NET INCOME 243,901 3,301,300
NET INCOME ALLOCATION
Limited Partners 239,849 3,257,557
General Partner 4,052 43,743
NET INCOME PER UNIT
Limited Partners 0.09 1.01
General Partner 0.09 1.01
<FN>
The accompanying notes are an integral part
of these financial statements.
</TABLE>
<PAGE>
<TABLE>
MORGAN STANLEY DEAN WITTER SPECTRUM COMMODITY L.P.
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
For the Nine Months Ended
September 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
- 3,257,557 43,743 3,301,300
Redemptions (562,772.336) (3,749,893)
- (3,749,893)
Partners' Capital,
September 30, 1999 3,225,692.364 $24,130,663 $329,060 $24,
459,723
Partners' Capital,
December 31, 1999 3,105,867.170$23,310,162 $330,308$23,640,470
Offering of Units201,296.295 1,530,081
- 1,530,081
Net Income
- 239,849 4,052 243,901
Redemptions (538,271.092) (4,080,348)
- (4,080,348)
Partners' Capital,
September 30, 2000 2,768,892.373 $20,999,744 $334,360 $21
,334,104
<FN>
The accompanying notes are an integral part
of these financial statements.
</TABLE>
<PAGE>
<TABLE>
MORGAN STANLEY DEAN WITTER SPECTRUM COMMODITY L.P.
STATEMENT OF CASH FLOWS
(Unaudited)
<CAPTION>
For the Nine Months Ended September 30,
2000 1999
$ $
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income 243,901 3,301,300
Noncash item included in net income:
Net change in unrealized 837,570 (984,221)
(Increase) decrease in operating assets:
Interest receivable (MS & Co.) (12,706) 2,259
Increase (decrease) in operating liabilities:
Accrued brokerage fees (MS & Co. and MSIL) 12,150
(9,540)
Accrued management fees (MSCM) (3,415) (6,534)
Service fees payable (Demeter) (19,404) (2,614)
Net cash provided by operating activities 1,058,096 2,300,650
CASH FLOWS FROM FINANCING ACTIVITIES
Offering of Units
1,530,081 -
Increase in subscriptions receivable
(191,733) -
Increase (decrease) in redemptions payable143,088(705,436)
Redemptions of Units (4,080,348) (3,749,893)
Net cash used for financing activities (2,598,912) (
4,455,329)
Net decrease in cash (1,540,816) (2,154,679)
Balance at beginning of period 23,430,137 26,519,891
Balance at end of period 21,889,321 24,365,212
<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 unaudited financial statements contained herein include, in
the opinion of management, all adjustments necessary for a fair
presentation of the results of operations and financial condition
of Morgan Stanley Dean Witter Spectrum 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 Dean Witter
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, through March 2000,
paid 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,
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, did not have a significant effect on the Partnership's
financial statements, nor will the application of the provisions
of SFAS No. 138 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:
<PAGE>
MORGAN STANLEY DEAN WITTER SPECTRUM COMMODITY L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 option
contracts, or other financial instruments with similar
characteristics such as caps, floors and collars.
The net unrealized gain (loss) on open contracts is reported as a
component of "Equity in futures interests trading accounts" on
the statements of financial condition and totaled $(295,142) and
$542,428 at September 2000 and December 31, 1999, respectively.
The $295,142 net unrealized loss on open contracts at September
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
September 30, 2000 and December 31, 1999 mature through March
2001 and April 2000, respectively.
<PAGE>
MORGAN STANLEY DEAN WITTER SPECTRUM COMMODITY L.P.
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
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 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
$21,594,179 and $23,972,565 at September 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 nine months
ended September 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
<PAGE>
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.
For the Quarter and Nine Months Ended September 30, 2000
For the quarter ended September 30, 2000, the Partnership
recorded total trading revenues including interest income of
$457,330 and posted an increase in Net Asset Value per Unit. The
most significant gains of approximately 1.6% were recorded in the
energy markets primarily during August from long positions in
natural gas futures as prices moved higher amid supply and
storage concerns. Additional gains were recorded from long
positions in crude oil futures and its related products as prices
increased as ongoing supply concerns outweighed signals from OPEC
kingpin Saudi Arabia that it would seek a suitable production
increase to ease the crunch. In the metals markets, gains of
approximately 0.2% were recorded throughout a majority of the
quarter from long positions in copper futures as prices increased
on technically based buying and declines in copper supplies. In
the livestock markets, gains of approximately 0.1% were recorded
primarily during September from long positions in cattle futures
as livestock prices increased. In soft commodities, gains of
approximately 0.1% were produced primarily during July and
<PAGE>
August from long cotton futures positions as prices moved higher
amid fears that the dryness and heat in Texas would slash the
size of the U.S. crop. These gains were partially offset by
losses of approximately 1.1% recorded in the agricultural markets
primarily during July from long positions in corn and wheat
futures as prices declined on favorable U.S. crop weather
forecasts. Total expenses for the three months ended September
30, 2000 were $379,469, resulting in net income of $77,861. The
value of a Unit increased from $7.67 at June 30, 2000 to $7.70 at
September 30, 2000.
For the nine months ended September 30, 2000, the Partnership
recorded total trading revenues including interest income of
$1,430,191 and posted an increase in Net Asset Value per Unit.
The most significant gains of approximately 12.7% 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. During August,
additional gains were recorded from long positions in natural gas
futures as prices moved higher 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
<PAGE>
and increasing demand. These gains were partially offset by
losses of approximately 3.4% recorded in the soft commodities
markets 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 metals markets, losses of approximately 3.2%
were incurred primarily 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. During mid July,
additional losses were incurred 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. In the agricultural markets, losses
of approximately 2.9% were recorded primarily during April, June
and July 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 nine months ended
September 30, 2000 were $1,186,290, resulting in net income of
$243,901. The value of a Unit increased from $7.61 at December
31, 1999 to $7.70 at September 30, 2000.
For the Quarter and Nine Months Ended September 30, 1999
For the quarter ended September 30, 1999, the Partnership
recorded total trading revenues including interest income of
$2,962,971 and
<PAGE>
posted an increase in Net Asset Value per Unit. The
Partnership's long-only trading approach recorded its most
significant gains of approximately 6.8% in the metals markets
primarily from long positions in zinc futures as zinc prices
pushed higher during August on speculation that consumers were
under-hedged and looking to lock in prices at current levels.
Additional gains were recorded throughout a majority of the
quarter from long copper futures positions as copper prices
increased amid improved demand from Asia and a decline in London
Metal Exchange warehouse stocks. In the energy markets, gains of
approximately 4.8% were recorded primarily from long futures
positions in crude oil and its refined products, unleaded gas and
heating oil, as oil prices climbed higher during August and
September due to a perceived tightness in the gasoline market and
an announcement by OPEC ministers stating that they would
continue to adhere to agreed upon output cuts through the first
quarter of 2000. In the livestock markets, gains of
approximately 1.5% were recorded primarily from long positions in
feeder cattle futures as prices increased early in July on a
decline in corn prices. During September, additional gains were
recorded from long positions in feeder and live cattle futures as
cattle prices moved higher due to an increase in cash prices and
beef demand. These gains were partially offset by losses of
approximately 0.7% recorded in the agricultural markets primarily
from long positions in corn futures as prices dropped in early
July on reports of favorable crop weather in the U.S. corn belt
and during September amid signs that the crop suffered less
<PAGE>
damage than expected from a dry spell just before the harvest
began in most states. In soft commodities, losses of
approximately 0.7% were experienced during July and September
primarily from long coffee futures positions as prices slid lower
due to increased supplies, diminishing fears of impending frost
damage to Brazilian plantations and on predictions of record
harvests in Brazil next year. Total expenses for the three
months ended September 30, 1999 were $409,554, resulting in net
income of $2,553,417. The value of a Unit increased from $6.80 at
June 30, 1999 to $7.58 at September 30, 1999.
For the nine months ended September 30, 1999, the Partnership
recorded total trading revenues including interest income of
$4,546,524 and posted an increase in Net Asset Value per Unit.
The most significant gains of approximately 14.2% were recorded
in the energy markets primarily from long futures positions in
crude oil and its refined products, unleaded gas and heating 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 adherence to the agreed-upon output cuts.
In the metals markets, gains of approximately 8.4% were recorded
during April, June, August and September primarily from long
positions in nickel, copper and aluminum futures as base metal
prices increased due to strong producer demand, tightening supply
<PAGE>
levels and reports that several major copper producers would be
reducing production. In the livestock markets, gains of
approximately 1.5% were recorded primarily from long positions in
feeder cattle futures as prices increased early in July on a
decline in corn prices. During September, additional gains were
recorded from long positions in feeder and live cattle futures as
cattle prices moved higher due to an increase in cash prices and
beef demand. These gains were partially offset by losses of
approximately 3.8% recorded in the soft commodities markets
primarily from long positions in cocoa and coffee futures as
prices in these markets declined during the first half of the
year amid fears that economic turmoil in Brazil would lead them
to flood the market with increased exports and on forecasts for
favorable growing weather in that region. During the third
quarter, losses were experienced from long coffee futures
positions as prices slid lower due to increased supplies,
diminishing fears of impending frost damage to Brazilian
plantations and on predictions of record harvests in Brazil next
year. In the agricultural markets, losses of approximately 3.6%
were recorded primarily from long positions in corn, wheat and
soybean futures as grain prices moved lower on concerns regarding
Brazil's economic status, higher-than-expected supply levels and
on reports of favorable crop weather. Total expenses for the
nine months ended September 30, 1999 were $1,245,224, resulting
in net income of $3,301,300. The value of a Unit increased from
$6.57 at December 31, 1998 to $7.58 at September 30, 1999.
<PAGE>
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
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.
<PAGE>
The Partnership's past performance is not necessarily indicative
of its future results. Any attempt to numerically quantify the
Partnership's market risk is limited by the uncertainty of its
speculative trading. The Partnership's speculative trading may
cause future losses and volatility (i.e. "risk of ruin") that far
exceed the Partnership's experiences to date or any reasonable
expectations based upon historical changes in market value.
Quantifying the Partnership's Trading Value at Risk
The following quantitative disclosures regarding the
Partnership's market risk exposures contain "forward-looking
statements" within the meaning of the safe harbor from civil
liability provided for such statements by the Private Securities
Litigation Reform Act of 1995 (set forth in Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange
Act of 1934). All quantitative disclosures in this section are
deemed to be forward-looking statements for purposes of the safe
harbor, except for statements of historical fact.
The Partnership accounts for open positions using mark-to-market
accounting principles. Any loss in the market value of the
Partnership's open positions is directly reflected in the
Partnership's earnings, whether realized or unrealized, and cash
flow. Profits and losses on open positions of exchange traded-
futures interests are settled daily through variation margin.
<PAGE>
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
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
<PAGE>
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 table indicates the VaR associated with the
Partnership's open positions as a percentage of total Net Assets
by primary market risk category as of September 30, 2000 and
1999. As of September 30, 2000 and 1999, the Partnership's total
capitalization was approximately $21 million and $24 million,
respectively.
Primary Market September 30, 2000 September 30, 1999
Risk Category Value at Risk Value at Risk
Commodity (1.71)% (2.04)%
The table above represents the VaR of the Partnership's open
positions at September 30, 2000 and 1999 only and is not
necessarily representative of either the historic or future risk
of an investment in the Partnership. Because the Partnership's
only business is the speculative trading of futures interests,
the composition of its trading portfolio can change significantly
over any given time period, or even within a single trading day.
Any changes in open positions could positively or negatively
materially impact market risk as measured by VaR.
<PAGE>
The table below supplements the quarter-end VaR by presenting the
Partnership's high, low and average VaR, as a percentage of total
Net Assets for the four quarterly reporting periods from October
1, 1999 through September 30, 2000.
Primary Market Risk Category High Low Average
Commodity (2.10)% (1.41)% (1.73)%
Limitations on Value at Risk as an Assessment of Market Risk
The face value of the market sector instruments held by the
Partnership is typically many times the applicable margin
requirements. Margin requirements generally range between 2% and
15% of contract face value. Additionally, the use of leverage
causes the face value of the market sector instruments held by
the Partnership to typically be many times the total
capitalization of the Partnership. The value of the
Partnership's open positions thus creates a "risk of ruin" not
typically found in other investments. The relative size of the
positions held may cause the Partnership to incur losses greatly
in excess of VaR within a short period of time, given the effects
of the leverage employed and market volatility. The VaR tables
above, as well as the past performance of the Partnership, give
no indication of such "risk of ruin". In addition, VaR risk
measures should be viewed in light of the methodology's
limitations, which include the following:
<PAGE>
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 September 30, 2000
and for the end of the four quarterly reporting periods from
October 1, 1999 through September 30, 2000. Since VaR is based
on historical data, VaR should not be viewed as predictive of the
Partnership's future financial performance or its ability to
manage or monitor risk. There can be no assurance that the
Partnership's actual losses on a particular day will not exceed
the VaR amounts indicated above or that such losses will not
occur more than 1 in 100 trading days.
<PAGE>
Non-Trading Risk
The Partnership has non-trading market risk on its foreign cash
balances not needed for margin. These balances and any market
risk they may represent are immaterial. At September 30, 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
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
<PAGE>
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 September 30, 2000, by market sector. It may
be anticipated however, that these market exposures will vary
materially over time.
Commodity
Soft Commodities and Agricultural. On September 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.
<PAGE>
Metals. The Partnership's primary metals market exposure at
September 30, 2000 was to fluctuations in the price of gold and
silver. The Partnership will, from time to time, trade base
metals such as copper, aluminum, zinc and nickel, but 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.
Energy. On September 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
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 September 30, 2000:
<PAGE>
Foreign Currency Balances. The Partnership did not have foreign
currency balances as of September 30, 2000.
Qualitative Disclosures Regarding Means of Managing Risk Exposure
The Partnership and the Trading Advisor, separately, attempt to
manage the risk of the Partnership's open positions in
essentially the same manner in all market categories traded.
Demeter attempts to manage market exposure by diversifying the
Partnership's assets among different market sectors and trading
approaches, and monitoring the performance of the Trading Advisor
daily. In addition, the Trading Advisor establishes
diversification guidelines, often set in terms of the maximum
margin to be committed to positions in any one market sector or
market-sensitive instrument.
Demeter monitors and controls the risk of the Partnership's non-
trading instrument, cash. Cash is the only Partnership
investment directed by Demeter, rather than the Trading Advisor.
<PAGE>
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Please refer to Legal Proceedings previously disclosed in the
Partnership's Form 10-Q for the quarter ended March 31, 2000 and
Form 10-K for the year ended December 31, 1999.
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
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,
<PAGE>
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.
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
<PAGE>
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 September 30, 2000, 4,396,789.927 total Units of the
Partnership have been sold, leaving 6,798,703.705 Units unsold.
The aggregate price of Units sold through September 30, 2000 is
$42,765,303 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
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
Commencing December 1, 2000 the annual incentive fee rate paid by
the Partnership to its Trading Advisor will change to 17.5% of
its trading profits.
<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)
November 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.
