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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 [No Fee Required]
For the year ended December 31, 1999 or
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 [No Fee Required]
For the transition period from _____________ to
_________________.
Commission file number 0-18314
DEAN WITTER PRINCIPAL PLUS FUND L.P.
(Exact name of registrant as specified in its Limited Partnership
Agreement)
DELAWARE 13-
3541588
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)
c/o Demeter Management Corporation
Two World Trade Center, - 62nd Flr., New York, N.Y.
10048
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code
(212) 392-5454
Securities registered pursuant to Section 12(b) of the Act:
Name of each
exchange
Title of each class
on which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest
(Title of Class)
Indicate by check-mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check-mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K (section 229.405 of this
chapter) is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of
this Form 10-K or any amendment of this Form 10-K. [X]
State the aggregate market value of the Units of Limited
Partnership Interest held by non-affiliates of the registrant.
The aggregate market value shall be computed by reference to the
price at which units were sold as of a specified date within 60
days prior to the date of filing: $42,597,382 at January 31,
2000.
DOCUMENTS INCORPORATED BY REFERENCE
(See Page 1)
DEAN WITTER PRINCIPAL PLUS FUND L.P.
INDEX TO ANNUAL REPORT ON FORM 10-K
DECEMBER 31, 1999
Page No.
DOCUMENTS INCORPORATED BY REFERENCE. . . . . . . . . . . . . . .
. . . . . . . 1
Part I .
Item 1. Business. . . . . . . . . . . . . . . . . . . . . . . .
. . . 2-4
Item 2. Properties. . . . . . . . . . . . . . . . . . . . . . .
. . . . 4
Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . . .
. . . .4-6
Item 4. Submission of Matters to a Vote of Security Holders .
. . . . . 6
Part II.
Item 5. Market for the Registrant's Partnership Units and
Related Security Holder Matters . . . . . . . . . . . .
. . . 7
Item 6. Selected Financial Data . . . . . .. . . . . . . . . .
. . . . 8
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . .
. . . . . 9-21
Item 7A. Quantitative
and Qualitative Disclosures About
Market Risk . . . . . . . . . . . . . . . . . . . . . .
. . 21-34
Item 8. Financial Statements and Supplementary Data. . . . . .
. . . . 34
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure. . . . . . . . . .
. .. . . 34
Part III.
Item10. Directors and Executive Officers of the Registrant .
. . . . 35-39
Item11. Executive Compensation . . . . . . . . . . . . . . . .
. . . . 39
Item12. Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . . . . .
. . . . . 39
Item13. Certain Relationships and Related Transactions . . .
. . . . . 39-40
Part IV.
Item14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K . . . . . . . . . . . . . . . . . .
. . . . 41
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by
reference as follows:
Documents Incorporated Part of Form 10-K
Partnership's Prospectus dated
November 8, 1995 I
Annual Report
to Dean Witter
Principal Plus
Fund L.P.
Limited
Partners for the year
ended December
31, 1999 II, III and IV
PART I
Item 1. BUSINESS
(a) General Development of Business. Dean Witter Principal Plus
Fund L.P. (the "Partnership") is a Delaware limited partnership
organized to engage primarily in the speculative trading of
futures, options on futures contracts and physical commodities,
forward contracts, and other commodity interests (collectively,
"futures interests").
The general partner for the Partnership is Demeter Management
Corporation ("Demeter"). The non-clearing commodity broker is
Dean Witter Reynolds Inc. ("DWR") and an unaffiliated clearing
commodity broker, Carr Futures Inc. ("Carr"), provides clearing
and execution services. Both Demeter and DWR are wholly-owned
subsidiaries of Morgan Stanley Dean Witter & Co. ("MSDW"). The
Trading Manager to the Partnership is RXR Inc. (the "Trading
Manager").
The Partnership's Net Asset Value per unit of limited partnership
interest ("Unit(s)") at December 31, 1999, was $1,815.50,
representing a decrease of 3.82 percent from the Net Asset Value
per Unit of $1,887.62 at December 31, 1998. For a more detailed
description of the Partnership's business see subparagraph (c).
(b) Financial Information about Industry Segments. For
financial information reporting purposes the Partnership is
deemed to engage in one industry segment, the speculative trading
of futures interests. The relevant financial information is
presented in Items 6 and 8.
(c) Narrative Description of Business. The Partnership is in
the business of speculative trading of futures interests,
pursuant to trading instructions provided by its Trading Manager.
For a detailed description of the different facets of the
Partnership's business, see those portions of the Partnership's
Prospectus, dated November 8, 1995, (the "Prospectus"),
incorporated by reference in this Form 10-K, set forth below.
Facets of Business
1. Summary 1. "Summary of the
Prospectus"
(Pages 2-14).
2. Commodity Markets 2. "The Futures, Options
and
Forward Markets"
(Pages 51-56).
3. Partnership's Commodity 3. "Trading Policies"
(Page
Trading Arrangements and 62). "The Trading
Advisor"
Policies (Pages 58-62). "The
Yield
Pool" (Page 63). "The
Trading Company"
(Pages
63-64).
4. Management of the Part- 4. "The Management
Agreement"
nership (Pages 66-67). "The
General Partner" (Pages
48-50) and "The
Commodity
Broker"(Pages 64-65). "The Limited
Partnership
Agreement" (Pages 70-73).
5. Taxation of the
Partnership's 5.
"Material Federal
Income
Limited Partners
Tax Aspects" and
"State and Local
Income Tax
Aspects" (Pages 77-
86).
(d) Financial Information About Foreign and Domestic Operations
and Export Sales.
The Partnership has not engaged in any operations in foreign
countries; however, the Partnership (through the commodity
brokers) enters into forward contract transactions where foreign
banks are the contracting party and trades in futures interests
on foreign exchanges.
Item 2. PROPERTIES
The executive and administrative offices are located within the
offices of DWR. The DWR offices utilized by the Partnership are
located at Two World Trade Center, 62nd Floor, New York, NY
10048.
Item 3. LEGAL PROCEEDINGS
The class actions first filed in 1996 in California and in New
York State courts were each dismissed in 1999. However, in the
New York State class action, plaintiffs appealed the trial
court's dismissal of their case on March 3, 2000.
On September 6, 10, and 20, 1996, and on March 13, 1997,
purported class actions were filed in the Superior Court of the
State of California, County of Los Angeles, on behalf of all
purchasers of interests in limited partnership
commodity pools sold by DWR. Named defendants include DWR,
Demeter, Dean Witter Futures & Currency Management Inc.
("DWFCM"), MSDW, certain limited partnership commodity pools of
which Demeter is the general partner (all such parties referred
to hereafter as the "Morgan Stanley Dean Witter Parties") and
certain trading advisors to those pools. On June 16, 1997, the
plaintiffs in the above actions filed a consolidated amended
complaint, alleging, among other things, that the defendants
committed fraud, deceit, negligent misrepresentation, various
violations of the California Corporations Code, intentional and
negligent breach of fiduciary duty, fraudulent and unfair
business practices, unjust enrichment, and conversion in the sale
and operation of the various limited partnership commodity pools.
The complaints seek unspecified amounts of compensatory and
punitive damages and other relief. The court entered an order
denying class certification on August 24, 1999. On September 24,
1999, the court entered an order dismissing the case without
prejudice on consent. Similar purported class actions were also
filed on September 18 and 20, 1996, in the Supreme Court of the
State of New York, New York County, and on November 14, 1996 in
the Superior Court of the State of Delaware, New Castle County,
against the Morgan Stanley Dean Witter Parties and certain
trading advisors on behalf of all purchasers of interests in
various limited partnership commodity pools sold by DWR. A
consolidated and amended complaint in the action pending in the
Supreme Court of the State of New York was filed on August 13,
1997, alleging that the defendants committed fraud,
breach of fiduciary duty, and negligent misrepresentation in the
sale and operation of the various limited partnership commodity
pools. The complaints seek unspecified amounts of compensatory
and punitive damages and other relief. The New York Supreme
Court dismissed the New York action in November 1998, but granted
plaintiffs leave to file an amended complaint, which they did in
early December 1998. The defendants filed a motion to dismiss
the amended complaint with prejudice on February 1, 1999. By
decision dated December 21, 1999, the New York Supreme Court
dismissed the case with prejudice.
In addition, on December 16, 1997, upon motion of the plaintiffs,
the action pending in the Superior Court of the State of Delaware
was voluntarily dismissed without prejudice.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
Item 5. MARKET FOR THE REGISTRANT'S PARTNERSHIP UNITS AND
RELATED SECURITY HOLDER MATTERS
(a) Market Information
There is no established public trading market for Units of the
Partnership.
(b) Holders
The number of holders of Units at December 31, 1999 was
approximately 2,781.
(c) Distributions
No distributions have been made by the Partnership since it
commenced operations on February 14, 1990. Demeter has sole
discretion to decide what distributions, if any, shall be made to
investors in the Partnership. Demeter currently does not intend
to make any distribution of Partnership profits.
Item 6. SELECTED FINANCIAL DATA (in dollars)
For the Years Ended December 31,
1999 1998 1997 1996
1995
Total Revenues
(including interest) (1,332,776)10,243,111 10,461,123 (677,358)
12,663,471
Net Income (Loss) (3,799,938)7,203,1987,414,966 (3,646,323)
9,397,649
Net Income (Loss)
Per Unit (Limited
& General Partners) (72.12)180.03 227.74 (82.41)
238.12
Total Assets 45,768,631 54,061,143 54 ,294,132 54,096,992
42,581,908
Total Limited
Partners' Capital 43,352,75751,660,21251,607,436 50,688,703
39,547,302
Net Asset Value Per
Unit 1,815.501,887.62 1,707.59 1,479.85
1,562.26
Item 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity. The Partnership deposits its assets with DWR as non-
clearing broker and Carr as clearing broker in separate futures
trading accounts established for the Trading Manager, which
assets are used as margin to engage in trading. The assets are
held in either non-interest-bearing bank accounts or in
securities and instruments permitted by the Commodity Futures
Trading Commission ("CFTC") for investment of customer segregated
or secured funds. The Partnership's assets held by the commodity
brokers may be used as margin solely for the Partnership's
trading. Since the Partnership's sole purpose is to trade in
futures, forwards, and options, it is expected that the
Partnership will continue to own such liquid assets for margin
purposes.
The Partnership's investment in futures, forwards, and options
may, from time to time, be illiquid. Most U.S. futures exchanges
limit fluctuations in prices during a single day by regulations
referred to as "daily price fluctuations limits" or "daily
limits". Trades may not be executed at prices beyond the daily
limit. If the price for a particular futures or options contract
has increased or decreased by an amount equal to the daily limit,
positions in that futures or options contract can neither be
taken nor liquidated unless traders are willing to effect trades
at or within the limit. Futures prices have occasionally moved
the daily limit for several consecutive days with little or
no trading. These market conditions could prevent the
Partnership from promptly liquidating its futures or options
contracts and result in restrictions on redemptions.
There is no limitation on daily price moves in trading forward
contracts on foreign currencies. The markets for some world
currencies have low trading volume and are illiquid, which may
prevent the Partnership from trading in potentially profitable
markets or prevent the Partnership from promptly liquidating
unfavorable positions in such markets and subjecting it to
substantial losses. Either of these market conditions could
result in restrictions on redemptions.
The Partnership has never had illiquidity affect a material
portion of its assets.
Capital Resources. The Partnership does not have, or expect to
have, any capital assets. Redemptions of Units in the future
will affect the amount of funds available for investments in
futures interests in subsequent periods. It is not possible to
estimate the amount and therefore, the impact of future
redemptions of Units.
Results of Operations.
General. The Partnership's results depend on its Trading Manager
and the ability of the Trading Manager'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, 1999 and a general discussion of its trading
activities during each period. It is important to note, however,
that the Trading Manager 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
Manager 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 Manager's trading
activities on behalf of the Partnership and how the Partnership
has performed in the past.
At December 31, 1999, the Partnership's total capital was
$43,912,716, a decrease of $8,351,449 from the Partnership's
total capital of $52,264,165 at December 31, 1998. For the year
ended December 31, 1999, the Partnership generated net loss of
$3,799,938, and total redemptions aggregated $4,551,511.
For the year ended December 31, 1999, the Partnership recorded
total trading revenues, including interest income, of $1,638,358
and posted a decrease in Net Asset Value per Unit. Losses
recorded on the Yield Pool totaled $2,971,134. The Partnership's
Net Asset Value declined in 1999. Extreme price
volatility in U.S. and Australian fixed income markets created
losses, while the Partnership's exposure to the U.S. equity and
energy markets and its net short exposure to European interest
rate sector helped steady performance. The most significant
losses of approximately 5.00% were experienced primarily during
February, April and May in the fixed income component of the
balanced portfolio from long U.S. interest rate futures positions
as prices dropped in reaction to Federal Reserve Chairman Alan
Greenspan's warnings in Congressional testimony in late February
that a strong economy could reignite inflation. Fears that the
Federal Reserve eventually could boost target interest rates
continued to push down domestic bond prices and forced yields
higher. Losses were also experienced in this market complex
during July and August after Federal Reserve Chairman Alan
Greenspan commented that central bankers must consider stock
prices when setting monetary policy and as reports on labor
costs, home sales, manufacturing and personal income added to
concern that the U.S. Federal Reserve will raise interest rates
soon. Mitigating gains of approximately 1.12% were recorded in
the energy markets primarily during March from long positions in
crude and gas oil futures as prices moved significantly higher
due largely to the news that both OPEC and non-OPEC countries had
reached an agreement to cut total output beginning April 1st.
Gains were also recorded in this market complex during the third
quarter after OPEC ministers confirmed that they will uphold
their global cutbacks until April of 2000. Reports of declining
crude oil and gasoline inventories also boosted oil prices during
the third quarter. Total expenses for the year were
$2,589,673, resulting in a net loss before minority interest of
$3,922,449. The minority interest in such losses was $122,511,
resulting in a net loss of $3,799,938 for the Partnership. The
value of a Unit decreased from $1,887.62, at December 31, 1998 to
$1,815.50 at December 31, 1999.
At December 31, 1998, the Partnership's total capital was
$52,264,165, a decrease of $681,697 from the Partnership's total
capital of $52,945,862 at December 31, 1997. For the year ended
December 31, 1998, the Partnership generated net income of
$7,203,198, and total redemptions aggregated $7,884,895.
For the year ended December 31, 1998, the Partnership recorded
total trading revenues, including interest income, of $8,079,935
and posted an increase in Net Asset Value per Unit. Gains
recorded on the Yield Pool totaled $2,163,176. The Partnership
profited during 1998, primarily from gains of approximately 6.27%
recorded in the global stock index futures markets. Long S&P 500
Index futures positions were profitable in the equity portion of
the portfolio as stock prices reached record levels during the
first half of the year, as well as closing the year with a move
higher. The global interest rate futures markets were also key
contributors to overall gains, recording gains of approximately
3.45% primarily from long global bond futures positions,
especially U.S., European and Japanese bond futures. Bond prices
benefited from a "flight-to-quality" during the third quarter
amid the world's shaky
financial system and global economic deterioration. Total
expenses for the year were $2,958,490, resulting in income before
minority interest of $7,284,621. The minority interest in such
gains was $81,423, resulting in net income of $7,203,198 for the
Partnership. The value of a Unit in the Partnership increased
from $1,707.59, at December 31, 1997 to $1,887.62 at December 31,
1998.
At December 31, 1997, the Partnership's total capital was
$52,945,862, an increase of $1,097,049 from the Partnership's
total capital of $51,848,813, at December 31, 1996. For the year
ended December 31, 1997, the Partnership generated net income of
$7,414,966 and total redemptions aggregated $6,317,917.
For the year ended December 31, 1997, the Partnership recorded
total trading revenues, including interest income, of $8,529,013
and posted an increase in Net Asset Value per Unit. Gains
recorded on the Yield Pool totaled $1,932,110. Overall, the
Partnership recorded strong performance during 1997. Gains of
approximately 6.66% were recorded in the currency markets
primarily due to a strengthening in the value of the U.S. dollar
relative to most world currencies. In the global stock index
component, gains of approximately 3.56% were recorded primarily
due to the continued bullish trend in U.S. equity prices, which
resulted in profits for the Partnership's long positions in S&P
500 Index futures. Additional gains of approximately 2.18% were
recorded in the fixed income component primarily from long
positions in Australian bond
futures during the second and third quarters and from trading
U.S. Treasury bond and Treasury note futures. Total expenses for
the year were $2,956,963, resulting in income before minority
interest of $7,504,160. The minority interest in such gains was
$89,194, resulting in net income of $7,414,966 for the
Partnership. The value of a Unit increased from $1,479.85 at
December 31, 1996 to $1,707.59 at December 31, 1997.
The Partnership's overall performance record represents varied
results of trading in different futures interests markets. For a
further description of 1999 trading results, refer to the letter
to the Limited Partners in the accompanying Annual Report to
Limited Partners for the year ended December 31, 1999, which is
incorporated by reference to Exhibit 13.01 of this Form 10-K.
The Partnership's gains and losses are allocated among its
partners for income tax purposes.
Credit Risk.
Financial Instruments. The Partnership is a party to financial
instruments with elements of off-balance sheet market and credit
risk. The Partnership may trade futures, forwards, and options
to gain long biased exposure to global stock markets and global
bond markets, as well as long and short exposure to a component
to managed futures contracts in agricultural commodities, energy
products, foreign currencies, precious and base metals, and soft
commodities. 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 Manager was
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 Manager's internal controls, the
Trading Manager must comply with the trading policies of the
Partnership. These trading policies include standards for
liquidity and leverage with which the Partnership must comply.
The Trading Manager and Demeter monitor the Partnership's trading
activities to ensure compliance with the trading policies.
Demeter may require the Trading Manager to modify positions of
the Partnership if Demeter believes they violate the
Partnership's trading policies.
In addition to market risk, in entering into futures, forwards,
and options contracts there is a credit risk to the Partnership
that the counterparty on a contract will not be able to meet its
obligations to the Partnership. The ultimate counterparty or
guarantor of the Partnership for futures contracts traded in the
United States and the foreign exchanges on which the Partnership
trades is the clearinghouse associated with such exchange. In
general, a clearinghouse is backed by the membership of the
exchange and will act in the
event of non-performance by one of its members or one of its
member's customers, which should significantly reduce this credit
risk. For example, a clearinghouse may cover a default by
drawing upon a defaulting member's mandatory contributions and/or
non-defaulting members' contributions to a clearinghouse
guarantee fund, established lines or letters of credit with
banks, and/or the clearinghouse's surplus capital and other
available assets of the exchange and clearinghouse, or assessing
its members. In cases where the Partnership trades off-exchange
forward contracts with a counterparty, the sole recourse of the
Partnership will be the forward contracts counterparty.
There is no assurance that a clearinghouse or exchange will meet
its obligations to the Partnership, and Demeter and the commodity
brokers will not indemnify the Partnership against a default by
such parties. Further, the law is unclear as to whether a
commodity broker has any obligation to protect its customers from
loss in the event of an exchange or clearinghouse defaulting on
trades effected for the broker's customers. Any such obligation
on the part of a broker appears even less clear where the default
occurs in a non-U.S. jurisdiction.
Demeter deals with these credit risks of the Partnership in
several ways. First, it monitors the Partnership's credit
exposure to each exchange on a daily basis, calculating not only
the amount of margin required for it but also the amount of its
unrealized gains at each exchange, if any. The
commodity brokers inform the Partnership, as with all their
customers, of its net margin requirements for all its existing
open positions, but do not break that net figure down, exchange
by exchange. Demeter, however, has installed a system which
permits it to monitor the Partnership's potential margin
liability, exchange by exchange. As a result, Demeter is able to
monitor the Partnership's potential net credit exposure to each
exchange by adding the unrealized trading gains on that exchange,
if any, to the Partnership's margin liability thereon.
Second, the Partnership's trading policies limit the amount of
its Net Assets that can be committed at any given time to futures
contracts and require, in addition, a minimum amount of
diversification in the Partnership's trading, usually over
several different products. One of the aims of such trading
policies has been to reduce the credit exposure of the
Partnership to a single exchange and, historically, the
Partnership's exposure to any one exchange has typically amounted
to only a small percentage of its total Net Assets. On those
relatively few occasions where the Partnership's credit exposure
may climb above that level, Demeter deals with the situation on a
case by case basis, carefully weighing whether the increased
level of credit exposure remains appropriate. Material changes
to the trading policies may be made only with the prior written
approval of the limited partners owning more than 50% of Units
then outstanding.
Third, Demeter has secured, with respect to Carr acting as the
clearing broker for the Partnership, a guarantee by Credit
Agricole Indosuez, Carr's parent, of the payment of the "net
liquidating value" of the transactions (futures, options and
forward contracts) in the Partnership's account.
With respect to forward contract trading, the Partnership trades
with only those counterparties which Demeter, together with DWR,
have determined to be creditworthy. At the date of this filing,
the Partnership deals only with Carr as its counterparty on
forward contracts. The guarantee by Carr's parent, discussed
above, covers these forward contracts.
See "Financial Instruments" under Notes to Financial Statements
in the Partnership's Annual Report to Limited Partners for the
year ended December 31, 1999, which is incorporated by reference
to Exhibit 13.01 of this Form
10-K.
Year 2000. Commodity pools, like financial and business
organizations and individuals around the world, depend on the
smooth functioning of computer systems. The Year 2000 issue
arose since many of the world's computer systems (including those
in non-information technology systems) traditionally recorded
years in a two-digit format. If not addressed, such computer
systems may have been unable to properly interpret dates beyond
the year 1999, which may have led to business disruptions in the
U.S. and internationally. Such disruptions
could have adversely affected the handling or determination of
futures trades and prices and other services for the Partnership.
Accordingly, Demeter has fully participated in a firmwide
initiative established by MSDW to address issues associated with
the Year 2000. As part of this initiative, MSDW reviewed its
global software and hardware infrastructure for mainframe, server
and desktop computing environments and engaged in extensive
remediation and testing. The Year 2000 initiative also
encompassed the review of agencies, vendors and facilities for
Year 2000 compliance.
Since 1995, MSDW prepared actively for the Year 2000 issue to
ensure that it would have the ability to respond to any critical
business process failure, to prevent the loss of workspace and
technology, and to mitigate any potential financial loss or
damage to its global franchise. Where necessary, contingency
plans were expanded or developed to address specific Year 2000
risk scenarios, supplementing existing business policies and
practices. In conjunction with MSDW's Year 2000 preparations,
Demeter monitored the progress of Carr and the Trading Manager
throughout 1999 in their Year 2000 compliance and, where
applicable, tested its external interfaces, with Carr and the
Trading Manager. In addition, Demeter, the commodity brokers,
the Trading Manager and all U.S. futures exchanges were subjected
to monitoring by the CFTC of their Year 2000 preparedness, and
the major foreign futures exchanges engaged in market-wide
testing of their Year 2000 compliance during 1999.
MSDW and Demeter consider the transition into the Year 2000
successful from the perspective of their internal systems and
global external interactions. Over the millennial changeover
period, no material issues were encountered, and MSDW, Demeter
and the Partnership conducted business as usual.
Risks Associated With the Euro. On January 1, 1999, eleven
countries in the European Union established fixed conversion
rates on their existing sovereign currencies and converted to a
common single currency (the euro). During a three-year
transition period, the sovereign currencies will continue to
exist but only as a fixed denomination of the euro. Conversion
to the euro prevents the Trading Manager from trading those
sovereign currencies and thereby limits its ability to take
advantage of potential market opportunities that might otherwise
have existed had separate currencies been available to trade.
This could adversely affect the performance results of the
Partnership.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Introduction
The Partnership is a commodity pool involved in the speculative
trading of futures interests. The market-sensitive instruments
held by the Partnership are acquired for speculative trading
purposes only and, as a result, all or substantially all of the
Partnership's assets are at risk of trading loss. Unlike an
operating company, the risk of market-sensitive instruments is
central, not incidental, to the Partnership's main business
activities.
The futures interests traded by the Partnership involve varying
degrees of market risk. Market risk is often dependent upon
changes in the level or volatility of interest rates, exchange
rates, and prices of financial instruments and commodities.
Fluctuations in market risk based upon these factors result in
frequent changes in the fair value of the Partnership's open
positions, and, consequently, in its earnings and cash flow.
The Partnership's total market risk is influenced by a wide
variety of factors, including the diversification among the
Partnership's open positions, the volatility present within the
markets, and the liquidity of the markets. At different times,
each of these factors may act to increase or decrease the market
risk associated with the Partnership.
The Partnership's past performance is not necessarily indicative
of its future results. Any attempt to numerically quantify the
Partnership's market risk is limited by the uncertainty of its
speculative trading. The Partnership's speculative trading may
cause future losses and volatility (i.e. "risk of ruin") that far
exceed the Partnership's experiences to date or any reasonable
expectations based upon historical changes in market value.
Quantifying the Partnership's Trading Value at Risk
The following quantitative disclosures regarding the
Partnership's market risk exposures contain "forward-looking
statements" within the meaning of the safe harbor from civil
liability provided for such statements by the Private
Securities Litigation Reform Act of 1995 (set forth in Section
27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934). All quantitative disclosures in
this section are deemed to be forward-looking statements for
purposes of the safe harbor, except for statements of historical
fact.
The Partnership accounts for open positions using mark-to-market
accounting principles. Any loss in the market value of the
Partnership's open positions is directly reflected in the
Partnership's earnings, whether realized or unrealized, and its
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 Manager is estimated below in terms of Value at Risk
("VaR"). The VaR model used by the Partnership includes many
variables that could change the market value of the Partnership's
trading portfolio. The Partnership estimates VaR using a model
based upon historical simulation with a confidence level of 99%.
Historical simulation involves constructing a distribution of
hypothetical daily changes in the value of a trading portfolio.
The VaR model takes into account linear exposures to price and
interest rate risk. Market risks that are incorporated in the
VaR model include equity and commodity prices, interest rates,
foreign exchange rates, and correlation among these variables.
The hypothetical changes in portfolio value are based on daily
percentage changes observed in key market indices or other market
factors ("market risk factors") to which the portfolio is
sensitive. The historical observation period of the
Partnership's VaR is approximately four years. The one-day 99%
confidence level of the Partnership's VaR corresponds to the
negative change in portfolio value that, based on observed market
risk factors, would have been exceeded once in 100 trading days.
VaR models, including the Partnership's, are continuously
evolving as trading portfolios become more diverse and modeling
techniques and systems capabilities improve. Please note that
the VaR model is used to numerically quantify market risk for
historic reporting purposes only and is not utilized by either
Demeter or the Trading Manager in its daily risk management
activities.
The Partnership's Value at Risk in Different Market Sectors
The following tables indicates the VaR associated with the
Partnership's open
positions as a percentage of total Net Assets by primary market
risk category at December 31, 1999 and 1998. At December 31,
1999 and 1998, the Partnership's total capitalization was
approximately $45 million and $50 million, respectively.
Primary Market December 31, 1999
December 31, 1998
Risk Category Value at Risk Value at
Risk
Interest Rate (.14)% (.33)%
Equity (.33)
(1.34)
Currency (.12)
(.14)
Commodity (.12)
(.15)
Aggregate Value at Risk (.43)%
(1.27)%
Aggregate Value at Risk represents the aggregate VaR of all the
Partnership's open positions and not the sum of the VaR of the
individual Market Categories
listed above. Aggregate VaR will be lower as it takes into
account correlation among different positions and categories.
The table above represents the VaR of the Partnership's open
positions at December 31, 1999 and 1998 only and is not
necessarily representative of either the historic or future risk
of an investment in the Partnership. Because the Partnership's
only business is the speculative trading of futures interests,
the composition of its trading portfolio can change significantly
over any given time period, or even within a single trading day.
Any changes in open positions could positively or negatively
materially impact market risk as measured by VaR.
The table below supplements the year end VaR by presenting the
Partnership's high, low and average VaR, as a percentage of total
Net Assets for the four quarterly reporting periods from January
1, 1999 through December 31, 1999.
Primary Market Risk Category High Low
Average
Interest Rate (.61)% (.14)% (.43)%
Equity (.81) (.16)
(.39)
Currency (.28) (.12) (.22)
Commodity (.21) (.12) (.16)
Aggregate Value at Risk (1.06)% (.43)% (.67)%
Limitations on Value at Risk as an Assessment of Market Risk
The face value of the market sector instruments held by the
Partnership is typically many times the applicable margin
requirements. Margin requirements generally range between 2% and
15% of contract face value. Additionally, the use of leverage
causes the face value of the market sector instruments held by
the Partnership to typically be many times the total
capitalization of the Partnership. The value of the
Partnership's open positions thus creates a "risk of ruin" not
typically found in other investments. The relative size of the
positions held may cause the Partnership to incur losses greatly
in excess of VaR within a short period of time, given the effects
of the leverage employed and market volatility. The VaR tables
above, as well as the past performance of the Partnership, gives
no indication of such "risk of ruin". In
addition, VaR risk measures should be viewed in light of the
methodology's limitations, which include the following:
past changes in market risk factors will not always result
in accurate predictions of the distributions and correlations of
future market movements;
changes in portfolio value in response to market movements
may differ from those of the VaR model;
VaR results reflect past trading positions while future risk
depends on future positions;
VaR using a one-day time horizon does not fully capture the
market risk of positions that cannot be liquidated or hedged
within one day; and
the historical market risk factor data used for VaR
estimation may provide only limited insight into losses that
could be incurred under certain unusual market movements.
The VaR tables above present the results of the Partnership's VaR
for each of the Partnership's market risk exposures and on an
aggregate basis at December 31, 1999 and for the end of the four
quarterly reporting periods during calendar year 1999. Since VaR
is based on historical data, VaR should not be viewed as
predictive of the Partnership's future financial performance or
its ability to manage or monitor risk. There can be no assurance
that the Partnership's actual losses on a particular day will not
exceed the VaR
amounts indicated above or that such losses will not occur more
than 1 in 100 trading days.
Non-Trading Risk
The Partnership has non-trading market risk on its foreign cash
balances not needed for margin. These balances and any market
risk they may represent are immaterial. The Partnership also
maintains a substantial portion (approximately 11%) of its
available assets in cash at DWR. A decline in short-term
interest rates will result in a decline in the Partnership's cash
management income. This cash flow risk is not considered
material.
The Partnership also has non-trading risk on the zero-coupon U.S.
Treasury Securities it holds to support the guaranteed Net Asset
Value per Unit at the Guaranteed Redemption Date of August 31,
2003. The fair value of these securities is subject to interest
rate risk.
For non-trading securities, the Partnership measures its market
risk using sensitivity analysis. The sensitivity analysis
estimates the potential change in fair value based on a
hypothetical 10% change in interest rates. Based on the current
valuation of the Zero-Coupon U.S. Treasury Securities, such a
change in interest rates will cause an approximately 2.80%
decline in their fair value. Such a change will not have a
material effect on the Net Asset Value per Unit.
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 Manager for managing such exposures are
subject to numerous uncertainties, contingencies and risks, any
one of which could cause the actual results of the Partnership's
risk controls to differ materially from the objectives of such
strategies. Government interventions, defaults and
expropriations, illiquid markets, the emergence of dominant
fundamental factors, political upheavals, changes in historical
price relationships, an influx of new market participants,
increased regulation and many other factors could result in
material losses as well as in material changes to the risk
exposures and the risk management strategies of the Partnership.
Investors must be prepared to lose all or substantially all of
their investment in the Partnership.
The following were the primary trading risk exposures of the
Partnership at December 31, 1999, by market sector. It may be
anticipated however, that these market exposures will vary
materially over time.
Interest Rate. The primary market exposure in the Partnership is
in the interest rate sector. Exposure was spread across the
U.S., European, Japanese and Australian interest rate sectors.
Interest rate movements directly affect the price of the
sovereign bond futures positions held by the Partnership and
indirectly affect the value of its stock index and currency
positions.
Interest rate movements in one country as well as relative
interest rate movements between countries materially impact the
Partnership's profitability. The Partnership's primary interest
rate exposure is generally to interest rate fluctuations in the
United States and the other G-7 countries. The G-7 countries
consist of France, U.S., Britain, Germany, Japan, Italy and
Canada. However, the Partnership also takes futures positions in
the government debt of smaller nations - e.g. Australia. Demeter
anticipates that G-7 and Australian interest rates will remain
the primary interest rate exposure of the Partnership for the
foreseeable future. The 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 at December 31, 1999
was in the global stock index complex. The primary equity
exposure 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 December 31, 1999, the
Partnership's primary exposures were in the 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. and Japanese indices. (Static markets would not cause
major market changes but would make it difficult for the
Partnership to avoid being "whipsawed" into numerous small
losses).
Currency. The Partnership's currency exposure is to exchange
rate fluctuations, primarily fluctuations which disrupt the
historical pricing relationships between different currencies and
currency pairs. Interest rate changes as well as political and
general economic conditions influence these fluctuations. The
Partnership trades in a large number of currencies, including
cross-rates - i.e., positions between two currencies other than
the U.S. dollar. For the fourth quarter of 1999, the
Partnership's major exposures were in the euro currency crosses
and outright U.S. dollar positions. (Outright positions consist
of the U.S. dollar vs. other
currencies. These other currencies include the major and minor
currencies). Demeter does not anticipate that the risk profile
of the Partnership's currency sector will change significantly in
the future. The currency trading VaR figure includes foreign
margin amounts converted into U.S. dollars with an incremental
adjustment to reflect the exchange rate risk inherent to the
dollar-based Partnership in expressing VaR in a functional
currency other than dollars.
Commodity.
Energy. On December 31, 1999, the Partnership's energy exposure
was shared by futures contracts in the oil and natural gas
markets. Price movements in these markets result from political
developments in the Middle East, weather patterns, and other
economic fundamentals. As oil prices have increased
approximately 100% this year, and, given that the agreement by
OPEC to cut production is approaching expiration in March 2000,
it is possible that volatility will remain on the high end.
Significant profits and losses have been and are expected to
continue to be experienced in this market. Natural gas, also a
primary energy market exposure, has exhibited more volatility
than the oil markets on an intra day and daily basis and is
expected to continue in this choppy pattern.
Metals. The Partnership's metals market exposure is to
fluctuations in the price of base metals. During periods of
volatility, base metals may affect
performance dramatically. Demeter anticipates that the base
metals will remain the primary metals market exposure of the
Partnership.
Soft Commodities and Agriculturals. On December 31, 1999, the
Partnership had a reasonable amount of exposure in the markets
that comprise these sectors. Most of the exposure, however, was
in the wheat, cotton and soybean oil markets. Supply and demand
inequalities, severe weather disruption and market expectations
affect price movements in these markets.
Qualitative Disclosures Regarding Non-Trading Risk Exposure
The following were the only non-trading risk exposure of the
Partnership at December 31, 1999:
Foreign Currency Balances. The Partnership does not have foreign
currency balances at December 31, 1999.
Zero-Coupon U.S. Treasury Securities. It is the Partnership's
intention to hold the Zero-Coupon U.S. Treasury Securities until
their August 15, 2003 maturity date except as needed to fund
quarterly redemptions. Consequently, the period to period
interest rate risk these securities are subject to is not
considered material.
Qualitative Disclosures Regarding Means of Managing Risk Exposure
The Partnership and the Trading Manager, 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 Manager
daily. In addition, the Trading Manager 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 instruments, cash and Zero-Coupon U.S. Treasury
Securities. Cash and zero-coupon U.S. Treasury Securities are
the only Partnership investments directed by Demeter, rather than
the Trading Manager.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements are incorporated by reference to the
Partnership's Annual Report which is filed as Exhibit 13.01
hereto.
Supplementary data specified by Item 302 of Regulation S-K
(selected quarterly financial data) is not applicable.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
There are no directors or executive officers of the Partnership.
The Partnership is managed by Demeter.
Directors and Officers of the General Partner
The directors and officers of Demeter are as follows:
Robert E. Murray, age 39, is Chairman of the Board, President and
a Director of Demeter. Mr. Murray is also Chairman of the Board,
President and a Director of DWFCM. Effective as of the close of
business on January 31, 2000, Mr. Murray replaced Mr. Hawley as
Chairman of the Board of Demeter and DWFCM. Mr. Murray is
currently a Senior Vice President of DWR's Managed Futures
Department. Mr. Murray began his career at DWR in 1984 and is
currently the Director of the Managed Futures Department. In this
capacity, Mr. Murray is responsible for overseeing all aspects of
the firm's Managed Futures Department. Mr. Murray currently
serves as Vice Chairman and a Director of the Managed Funds
Association, an industry association for investment professionals
in futures, hedge funds and other alternative investments. Mr.
Murray graduated from Geneseo State University in May 1983 with a
B.A. degree in Finance.
Mitchell M. Merin, age 46, is a Director of Demeter. Mr. Merin
is also a Director of DWFCM. Mr. Merin was appointed the Chief
Operating Officer of Individual Asset Management for MSDW in
December 1998 and the President and Chief Executive Officer of
Morgan Stanley Dean Witter Advisors in February 1998. He has
been an Executive Vice President of DWR since 1990, during which
time he has been director of DWR's Taxable Fixed Income and
Futures divisions, Managing Director in Corporate Finance and
Corporate Treasurer. Mr. Merin received his Bachelor's degree
from Trinity College in Connecticut and his M.B.A. degree in
finance and accounting from the Kellogg Graduate School of
Management of Northwestern University in 1977.
Joseph G. Siniscalchi, age 54, is a Director of Demeter. Mr.
Siniscalchi joined DWR in July 1984 as a First Vice President,
Director of General Accounting and served as a Senior Vice
President and Controller for DWR's Securities Division through
1997. He is currently Executive Vice President and Director of
the Operations Division of DWR. From February 1980 to July 1984,
Mr. Siniscalchi was Director of Internal Audit at Lehman Brothers
Kuhn Loeb, Inc.
Edward C. Oelsner, III, age 57, is a Director of Demeter. Mr.
elsner is currently an Executive Vice President and head of the
Product Development Group at Morgan Stanley Dean Witter Advisors,
an affiliate of DWR. Mr. Oelsner joined DWR in 1981 as a Managing
Director in DWR's Investment Banking
Department specializing in coverage of regulated industries and,
subsequently, served as head of the DWR Retail Products Group.
Prior to joining DWR, Mr. Oelsner held positions at The First
Boston Corporation as a member of the Research and Investment
Banking Departments from 1967 to 1981. Mr. Oelsner received his
M.B.A. in Finance from the Columbia University Graduate School of
Business in 1966 and an A.B. in Politics from Princeton
University in 1964.
Lewis A. Raibley, III, age 37, is Vice President, Chief Financial
Officer, and a Director of Demeter. Mr. Raibley is also a
Director of DWFCM. Mr. Raibley is currently Senior Vice
President and Controller in the Individual Asset Management Group
of MSDW. From July 1997 to May 1998, Mr. Raibley served as
Senior Vice President and Director in the Internal Reporting
Department of MSDW and prior to that, from 1992 to 1997, he
served as Senior Vice President and Director in the Financial
Reporting and Policy Division of Dean Witter Discover & Co. He
has been with MSDW and its affiliates since June 1986.
Richard A. Beech, age 48, is a Director of Demeter. Mr. Beech
has been associated with the futures industry for over 23 years.
He has been at DWR since August 1984, where he is presently
Senior Vice President and head of Branch Futures. Mr. Beech
began his career at the Chicago Mercantile Exchange, where he
became the Chief Agricultural Economist doing market analysis,
marketing and compliance. Prior to joining DWR, Mr. Beech also
had
worked at two investment banking firms in operations, research,
managed futures and sales management.
Ray Harris, age 43, is a Director of Demeter. Mr. Harris is
currently Executive Vice President, Planning and Administration
for Morgan Stanley Dean Witter Asset Management and has worked at
DWR or its affiliates since July 1982, serving in both financial
and administrative capacities. From August 1994 to January 1999,
he worked in two separate DWR affiliates, Discover Financial
Services and Novus Financial Corp., culminating as Senior Vice
President. Mr. Harris received his B.A. degree from Boston
College and his M.B.A. in finance from the University of Chicago.
Mark J. Hawley, age 56, served as Chairman of the Board and a
Director of Demeter and DWFCM throughout 1999. Mr. Hawley joined
DWR in February 1989 as Senior Vice President and served as
Executive Vice President and Director of DWR's Product Management
for Individual Asset Management throughout 1999. In this
capacity, Mr. Hawley was responsible for directing the activities
of the firm's Managed Futures, Insurance, and Unit Investment
Trust Business. From 1978 to 1989, Mr. Hawley was a member of
the senior management team at Heinold Asset Management, Inc., a
commodity pool operator, and was responsible for a variety of
projects in public futures funds. From 1972 to 1978, Mr. Hawley
was a Vice President in charge of institutional block trading for
the Mid-West at Kuhn Loeb & Company. Mr. Hawley resigned
effective January 31, 2000.
All of the foregoing directors have indefinite terms.
Item 11. EXECUTIVE COMPENSATION
The Partnership has no directors and executive officers. As a
limited partnership, the business of the Partnership is managed
by Demeter which is responsible for the administration of the
business affairs of the Partnership but receives no compensation
for such services.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
(a) Security Ownership of Certain Beneficial Owners - At
December 31, 1999, there were no persons known to be beneficial
owners of more than 5 percent of the Units.
(b) Security Ownership of Management - At December 31, 1999,
Demeter owned 308 Units of General Partnership Interest
representing a 1.28 percent interest in the Partnership.
(c) Changes in Control - None
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Refer to Note 2 - "Related Party Transactions" of "Notes to
Consolidated Financial Statements", in the accompanying Annual
Report to Limited Partners for the year ended December 31, 1999,
which is incorporated by reference to
Exhibit 13.01 of this Form 10-K. In its capacity as the
Partnership's retail commodity broker, DWR received commodity
brokerage fees (paid and accrued by the Partnership) of
$1,953,687 for the year ended December 31, 1999.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) 1. Listing of Financial Statements
The following financial statements and report of independent
auditors, all appearing in the accompanying Annual Report to
Limited Partners for the year ended December 31, 1999, are
incorporated by reference to Exhibit 13.01 of this Form 10-K:
- - Report of Deloitte & Touche LLP, independent auditors, for the
years ended December 31, 1999, 1998 and 1997.
- - Consolidated Statements of Financial Condition as of December
31, 1999 and 1998.
- - Consolidated Statements of Operations, Changes in Partners'
Capital, and Cash Flows for the years ended December 31, 1999,
1998 and 1997.
- - Notes to Consolidated Financial Statements.
With the exception of the aforementioned information and the
information incorporated in Items 7, 8 and 13, the Annual Report
to Limited Partners for the year ended December 31, 1999 is not
deemed to be filed with this report.
2. Listing of Financial Statement Schedules
No financial statement schedules are required to be filed with
this report.
(b) Reports on Form 8-K
No reports on Form 8-K have been filed by the Partnership during
the last quarter of the period covered by this report.
(c) Exhibits
Refer to Exhibit Index on Page E-1.
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
DEAN WITTER PRINCIPAL
PLUS FUND L.P.
(Registrant)
BY: Demeter Management
Corporation,
General Partner
March 30, 2000 BY: /s/ Robert E. Murray
Robert E. Murray, Director,
Chairman of the Board and
President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.
Demeter Management Corporation.
BY: /s/ Robert E. Murray ____ March 30, 2000
Robert E. Murray, Director,
Chairman of the Board and
President
/s/ Joseph G. Siniscalchi ___ March 30, 2000
Joseph G. Siniscalchi, Director
/s/ Edward C. Oelsner III ___ March 30, 2000
Edward C. Oelsner III, Director
/s/ Mitchell M. Merin _______ March 30, 2000
Mitchell M. Merin, Director
/s/ Richard A. Beech _______ March 30, 2000
Richard A. Beech, Director
/s/ Ray Harris __ March 30, 2000
Ray Harris, Director
/s/ Lewis A. Raibley, III ___ March 30, 2000
Lewis A. Raibley, III, Director, Chief
Financial Officer and Principal
Accounting Officer
EXHIBIT INDEX
ITEM METHOD
OF FILING
3.01 Amended and Restated Limited
Partnership Agreement of
the Partnership, dated as of
August 29, 1995.
(1)
10.01 Amended and
Restated Management
Agreement among the
Partnership, Demeter and RXR, Inc.
dated as of
December 29, 1995. (2)
10.02 Amended and
Restated Customer
Agreement between the Partnership
and DWR, dated as of December 29, 1995. (3)
13.01 December
31, 1999 Annual Report to Limited Partners. (4)
(1) Incorporated by reference to Exhibit 3.01 and Exhibit 3.02
of the Partnership's Registration Statement (File No. 33-
95414) on Form S-1.
(2) Incorporated by reference to Exhibit 10.02 of the
Partnership's
Registration Statement (File No. 33-95414) on Form S-1.
(3) Incorporated by reference to Exhibit 10.01 of the
Partnership's
Registration Statement (File No. 33-95414) on Form S-1.
(4) Filed herewith.
Principal
Plus
Fund
December 31, 1999
Annual Report
MORGAN STANLEY DEAN WITTER
Demeter Management Corporation
Two World Trade Center
62nd Floor
New York, NY 10048
Telephone (212) 392-8899
Principal Plus Fund L.P.
Annual Report
1999
Dear Limited Partner:
This marks the tenth annual report for the Dean Witter Principal Plus Fund L.P.
(the "Fund"). The Fund began 1999 trading at a Net Asset Value per Unit of
$1,887.62 and decreased by 3.8% to close the year at $1,815.50. The Fund has
increased by 81.6% since it began trading in February 1990 (a compound
annualized return of 6.2%). A review of trading results for the year is provid-
ed in the Annual Report of the Trading Manager located on the next page of this
report.
Should you have any questions concerning this report, please feel free to con-
tact Demeter Management Corporation at Two World Trade Center, 62nd Floor, New
York, NY 10048 or your Morgan Stanley Dean Witter Financial Advisor.
I hereby affirm, that to the best of my knowledge and belief, the information
contained in this report is accurate and complete. Past performance is not a
guarantee of future results.
Sincerely,
/s/ Robert E. Murray
Robert E. Murray
Chairman
Demeter Management Corporation
General Partner
Dean Witter Principal Plus Fund L.P.
Annual Report of the Trading Manager
Principal Plus Fund's Net Asset Value fell modestly in 1999. Extreme price vol-
atility in U.S. and Australian fixed income markets created losses while the
Fund's exposure to the U.S. equity and energy markets and its net short expo-
sure to European interest rate sector helped steady performance.
The Fund experienced a small decline in the first quarter, as it was influenced
negatively by rising interest rates. Early in the year, interest rates were ex-
pected to fall due to increasing deflationary pressures. However, the Federal
Reserve refused to cut interest rates at the pivotal February FOMC meeting,
causing the fixed income market to lose confidence. The Fund's Net Asset Value
was supported by the global macro component, which enjoyed strong performance
in U.S. financials and currencies. The global macro component profited from
short positions in U.S. interest rates and the euro, and long positions in the
Japanese yen and Singapore dollar as pressures on Asian economies began to
ease.
Principal Plus Fund produced its best performance of the year in the second
quarter. The Federal Reserve decided to raise short-term interest rates by 25
basis points at its June meeting, spurred by continued growth in GDP and an
economy operating at near full employment. The global asset overlay benefited
from short positions in U.S., European and Japanese financials as these markets
suffered continued weakness in the wake of the Fed move. OPEC finally came to
an agreement on production cuts, sending crude oil prices to their highest lev-
els since the third quarter of 1998. Long positions in the energy sector were
profitable, but partially offset by short positions in agricultural commodities
that rose in anticipation of higher inflation.
The third quarter was a sluggish one for Principal Plus fund. The Federal Re-
serve raised interest rates again at its August meeting while maintaining a
neutral bias. The current account deficit continued to grow at a mind bending
pace causing the dollar to fall against the Japanese yen. U.S. stock
Dean Witter Principal Plus Fund L.P.
Annual Report of the Trading Manager--(Concluded)
and bond markets declined, hurting the Fund's performance in the hedged equity
and hedged fixed income components. Long positions in financials, especially in
U.S., Japan and Australia, hurt the global macro component. The Fund, however,
did benefit from rallies in the energy markets, industrial metals and the Japa-
nese yen.
A late year rally in U.S. stocks and steady performance from the global macro
component helped offset continued weakness in the U.S. debt markets, leading to
a relatively flat fourth quarter. The Federal Reserve decided to leave short-
term interest rates unchanged at year-end. Stock markets around the world fin-
ished on a strong note, especially in the U.S. and Germany. The global macro
component saw its best performance in agricultural commodities. Short positions
in corn and wheat added to performance as grain prices retreated to near histo-
ric lows. Long positions in the energy markets were profitable late in the
quarter as crude oil prices finished strong, fueling fear of inflation.
As the Fund enters the new year, the Swedish OMX Index, heating oil,
euro/British pound, South African rand and Goldman Sachs Commodity Index are
being added to the Fund's portfolio. We believe that the return potential of
these markets along with their non-correlated characteristics will aid perform-
ance. The Fund has shifted its core exposure away from U.S. stocks in favor of
intermediate term U.S. Treasury notes. Our relative value models suggest, that
in the short run, equities do not offer the same risk adjusted value their debt
counterparts do. The fixed income component has moved down the yield curve due
to the model's expectation of higher interest rates and inflation. The Fund's
global macro component remains short world debt and commodities markets, and
long energy markets and the Japanese yen.
As always, we thank you for your continued support.
RXR, Inc.
Dean Witter Principal Plus Fund L.P.
Independent Auditors' Report
The Limited Partners and the General Partner:
We have audited the accompanying consolidated statements of financial condition
of Dean Witter Principal Plus Fund L.P. and subsidiary (the "Partnership") as
of December 31, 1999 and 1998 and the related consolidated statements of opera-
tions, changes in partners' capital, and cash flows for each of the three years
in the period ended December 31, 1999. These consolidated financial statements
are the responsibility of the Partnership's management. Our responsibility is
to express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of materi-
al misstatement. An audit includes examining, on a test basis, evidence sup-
porting 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 pre-
sentation. We believe that our audits provide a reasonable basis for our opin-
ion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the consolidated financial position of Dean Witter Principal
Plus Fund L.P. and subsidiary at December 31, 1999 and 1998 and the consolidat-
ed results of their operations and their cash flows for each of the three years
in the period ended December 31, 1999 in conformity with generally accepted ac-
counting principles.
/s/ Deloitte & Touche LLP
February 14, 2000
(March 3, 2000 as to Note 6)
New York, New York
Dean Witter Principal Plus Fund L.P.
Consolidated Statements of Financial Condition
December 31,
----------------------
1999 1998
----------- ----------
$ $
ASSETS
Equity in futures interests trading accounts:
Cash 6,014,023 9,270,594
Net unrealized gain on open contracts 380,736 1,200,707
----------- ----------
Total Trading Equity 6,394,759 10,471,301
Investment in Zero-Coupon U.S. Treasury Securities 40,367,536 41,602,754
Unrealized gain (loss) on Zero-Coupon U.S. Treasury
Securities (1,018,390) 1,952,744
Interest receivable (DWR) 24,726 34,344
----------- ----------
Total Assets 45,768,631 54,061,143
=========== ==========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES
Redemptions payable 1,341,552 956,163
Accrued brokerage fee (DWR) 155,551 173,174
Accrued administrative expenses 121,844 156,280
Accrued management fee 38,888 43,293
Incentive fee payable -- 147,477
----------- ----------
Total Liabilities 1,657,835 1,476,387
----------- ----------
Minority interest 198,080 320,591
----------- ----------
PARTNERS' CAPITAL
Limited Partners (23,879.732 and 26,345.343 Units,
respectively) 43,352,757 51,660,212
General Partner (308 Units) 559,959 603,953
----------- ----------
Total Partners' Capital 43,912,716 52,264,165
----------- ----------
Total Liabilities and Partners' Capital 45,768,631 54,061,143
=========== ==========
Total Partners' Capital 43,912,716 52,264,165
Less: Excess of market value over amortized cost of
Zero-Coupon U.S. Treasury Securities -- 1,952,744
----------- ----------
NET ASSETS PER LIMITED PARTNERSHIP AGREEMENT 43,912,716 50,311,421
=========== ==========
NET ASSET VALUE PER UNIT 1,815.50 1,887.62
=========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
Dean Witter Principal Plus Fund L.P.
Consolidated Statements of Operations
For the Years Ended
December 31,
----------------------------------
1999 1998 1997
---------- ---------- ----------
$ $ $
REVENUES
Trading profit (loss):
Realized (190,005) 4,803,195 4,948,081
Net change in unrealized (819,971) 421,275 582,048
---------- ---------- ----------
Total Trading Results (1,009,976) 5,224,470 5,530,129
Interest income 2,648,334 2,855,465 2,998,884
Change in value of Yield Pool (2,971,134) 2,163,176 1,932,110
---------- ---------- ----------
Total Revenues (1,332,776) 10,243,111 10,461,123
---------- ---------- ----------
EXPENSES
Brokerage fees (DWR) 1,953,687 2,125,259 2,201,830
Management fee 488,421 526,462 547,058
Transaction fees and costs 89,565 76,292 98,075
Administrative expenses 58,000 83,000 110,000
Incentive fee -- 147,477 --
---------- ---------- ----------
Total Expenses 2,589,673 2,958,490 2,956,963
---------- ---------- ----------
INCOME (LOSS) BEFORE MINORITY INTEREST (3,922,449) 7,284,621 7,504,160
Minority interest in (income) loss 122,511 (81,423) (89,194)
---------- ---------- ----------
NET INCOME (LOSS) (3,799,938) 7,203,198 7,414,966
========== ========== ==========
Net Income (Loss) Allocation:
Limited Partners (3,755,944) 7,063,946 7,236,650
General Partner (43,994) 139,252 178,316
NET INCOME (LOSS) (3,799,938) 7,203,198 7,414,966
Less: Change in excess of market value
over amortized cost of Zero-Coupon U.S.
Treasury Securities (1,952,744) 1,952,744 --
---------- ---------- ----------
NET INCOME (LOSS) ALLOCATED TO PARTNERS
FOR TAX AND NET ASSET VALUATION (1,847,194) 5,250,454 7,414,966
========== ========== ==========
Net Income (Loss) Allocation For Tax and
Net Asset Valuation
Limited Partners (1,824,381) 5,132,383 7,236,650
General Partner (22,813) 118,071 178,316
Net Income (Loss) per Unit For Tax and Net
Asset Valuation
Limited Partners (72.12) 180.03 227.74
General Partner (72.12) 180.03 227.74
The accompanying notes are an integral part of these consolidated financial
statements.
Dean Witter Principal Plus Fund L.P.
Consolidated Statements of Changes in Partners' Capital
For the Years Ended December 31, 1999, 1998 and 1997
Units of
Partnership Limited General
Interest Partners Partner Total
----------- ---------- --------- ----------
$ $ $
Partners' Capital, December
31, 1996 35,036.485 50,688,703 1,160,110 51,848,813
Net income -- 7,236,650 178,316 7,414,966
Redemptions (4,030.248) (6,317,917) -- (6,317,917)
----------- ---------- --------- ----------
Partners' Capital, December
31, 1997 31,006.237 51,607,436 1,338,426 52,945,862
Net income -- 7,063,946 139,252 7,203,198
Redemptions (4,352.894) (7,011,170) (873,725) (7,884,895)
----------- ---------- --------- ----------
Partners' Capital, December
31, 1998 26,653.343 51,660,212 603,953 52,264,165
Net loss -- (3,755,944) (43,994) (3,799,938)
Redemptions (2,465.611) (4,551,511) -- (4,551,511)
----------- ---------- --------- ----------
Partners' Capital,
December 31, 1999 24,187.732 43,352,757 559,959 43,912,716
=========== ========== ========= ==========
The accompanying notes are an integral part of these consolidated financial
statements.
Dean Witter Principal Plus Fund L.P.
Consolidated Statements of Cash Flows
For the Years
Ended
December 31,
----------------------------------
1999 1998 1997
---------- ---------- ----------
$ $ $
CASH FLOWS FROM
OPERATING ACTIVITIES
Net income (loss) (3,799,938) 7,203,198 7,414,966
Noncash item included in net
income (loss):
Net change in unrealized 819,971 (421,275) (582,048)
Change in value of Yield Pool 2,971,134 (2,163,176) (1,932,110)
(Increase) decrease in
operating assets:
Investment in Zero-Coupon U.S. Treasury
Securities 1,235,218 3,846,722 3,940,721
Interest receivable (DWR) 9,618 4,765 (12,481)
Net option premiums -- (719,950) 719,950
Increase (decrease) in
operating liabilities:
Accrued brokerage fee (DWR) (17,623) (7,976) (5,624)
Accrued administrative
expenses (34,436) (3,360) (43,610)
Accrued management fee (4,405) (1,994) (1,406)
Incentive fee payable (147,477) 147,477 --
Accrued transaction fees and
costs -- -- (4,108)
---------- ---------- ----------
Net cash provided by operating activities 1,032,062 7,884,431 9,494,250
---------- ---------- ----------
CASH FLOWS FROM
FINANCING ACTIVITIES
Increase (decrease) in
redemptions payable 385,389 233,138 (934,355)
Increase (decrease) in minority interest (122,511) 81,423 89,194
Redemptions of Units (4,551,511) (7,884,895) (6,317,917)
---------- ---------- ----------
Net cash used for
financing activities (4,288,633) (7,570,334) (7,163,078)
---------- ---------- ----------
Net increase (decrease) in cash (3,256,571) 314,097 2,331,172
Balance at beginning of
period 9,270,594 8,956,497 6,625,325
---------- ---------- ----------
Balance at end of period 6,014,023 9,270,594 8,956,497
========== ========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
Dean Witter Principal Plus Fund L.P.
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Organization--Dean Witter Principal Plus Fund L.P. is a limited partnership or-
ganized to engage primarily in the speculative trading of futures contracts,
options on futures contracts and physical commodities, forward contracts, and
other commodity interests (collectively, "futures interests").
The Partnership's objective is to achieve long-term appreciation while assuring
investors at least a 3% compound annual rate of return over approximately seven
and one-half years from February 1, 1996 to August 31, 2003. At August 31,
2003, which is the Partnership's "Guaranteed Redemption Date," the Net Asset
Value is guaranteed to be at least $1,961.00 per Unit. The Partnership initial-
ly invested approximately 80% of the Partnership's assets in Zero-Coupon U.S.
Treasury Securities (the "Yield Pool") to accomplish this objective. The Part-
nership's remaining assets have been contributed to its subsidiary, Dean Witter
Principal Plus Fund Management L.P. (the "Trading Company"), which was estab-
lished solely to trade in futures interests on behalf of the Partnership.
The general partner for the Partnership is Demeter Management Corporation
("Demeter"). The non-clearing commodity broker is Dean Witter Reynolds Inc.
("DWR"), and an unaffiliated clearing commodity broker, Carr Futures Inc.
("Carr"), provides clearing and execution services. Both Demeter and DWR are
wholly-owned subsidiaries of Morgan Stanley Dean Witter & Co. ("MSDW"). The
Trading Manager to the Partnership is RXR Inc. (the "Trading Manager").
On May 31, 1997, Morgan Stanley Group Inc. was merged with and into Dean Wit-
ter, Discover & Co. ("DWD"). At that time DWD changed its corporate name to
Morgan Stanley, Dean Witter, Discover & Co. ("MSDWD"). Effective February 19,
1998, MSDWD changed its corporate name to Morgan Stanley Dean Witter & Co.
Demeter is required to maintain a 1% minimum interest in the equity of the
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 gen-
erally accepted accounting principles, which require management to make esti-
mates and assumptions that affect the reported amounts in the financial state-
ments and related disclosures. Management believes that the estimates utilized
in the preparation of the financial statements are prudent and reasonable. Ac-
tual results could differ from those estimates.
Dean Witter Principal Plus Fund L.P.
Notes to Consolidated Financial Statements--
(Continued)
Principles of Consolidation--The consolidated financial statements include the
accounts of the Partnership and the Trading Company. All intercompany balances
have been eliminated.
The ownership by Demeter in the Trading Company represents a minority interest
in the Partnership. Demeter's share of the Trading Company's profits and losses
is deducted from consolidated results of operations.
Revenue Recognition--The yield pool is valued at cost plus accreted interest
with the accumulated unrealized gain (loss) on the zero-coupon U.S. Treasury
Securities separately disclosed. The annual change in the yield pool's market
value is reflected in the consolidated statements of operations. The consoli-
dated statements of financial condition and the consolidated statements of op-
erations have been reconciled to reflect Net Assets, Net Asset Value per Unit
and Net Income (Loss) in accordance with the terms of the Limited Partnership
Agreement. Prior financial statements have been changed to conform to current
presentation.
The following information pertains to the Yield Pool at December 31, 1999 and
1998:
1999 1998
---------- ----------
$ $
Year to Date Accreted Interest Income 2,303,952 2,418,337
Cost of Yield Pool at year-end 32,415,109 35,343,722
Accreted Interest Receivable at year-end 7,952,427 6,259,032
Market Value of Yield Pool at year-end 39,349,146 43,555,498
Futures interests are open commitments until settlement date. They are valued
at market on a daily basis and the resulting net change in unrealized gains and
losses is reflected in the change in unrealized profit (loss) on open contracts
from one period to the next in the consolidated statements of operations.
Monthly, DWR pays interest income on 90% of the Trading Company's average daily
Net Assets as defined in the Limited Partnership Agreement for the month at a
prevailing rate on U.S. Treasury bills. For purposes of such interest payments,
Net Assets do not include monies due the Trading Company on futures interests,
but not actually received.
Net Income (Loss) per Unit--Net income (loss) per unit of limited partnership
interest ("Unit(s)") is computed using the weighted average number of Units
outstanding during the period.
Dean Witter Principal Plus Fund L.P.
Notes to Consolidated Financial Statements--
(Continued)
Equity in Futures Interests Trading Accounts--The Partnership's asset "Equity
in futures interests trading accounts," reflected in the statements of finan-
cial condition, consists of (A) cash on deposit with DWR and Carr to be used as
margin for trading; (B) net unrealized gains or losses on open contracts, which
are valued at market, and calculated as the difference between original con-
tract 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 Partnership, in the normal course of business, enters into various con-
tracts with Carr acting as its commodity broker. Pursuant to brokerage agree-
ments with Carr, to the extent that such trading results in unrealized gains or
losses, the amounts are offset and reported on a net basis on the Partnership's
statements of financial condition.
The Partnership has offset the fair value amounts recognized for forward con-
tracts executed with the same counterparty as allowable under terms of the mas-
ter netting agreement with Carr, the sole counterparty on such contracts. The
Partnership has consistently applied its right to offset.
Brokerage Fees and Related Transaction Fees and Costs--The monthly brokerage
fee is equal to 1/3 of 1% per month (a 4% annual rate) of the Partnership's ad-
justed month-end Net Assets. Transaction fees and costs are accrued on a half-
turn basis. In 1999, the brokerage fee charged was the equivalent of a
roundturn commission charge of approximately $124 per contract traded.
Operating Expenses--The Partnership bears all operating expenses related to its
trading activities. These include filing fees, clerical, administrative, audit-
ing, accounting, mailing, printing and other incidental operating expenses as
permitted by the Limited Partnership Agreement. In addition, the Partnership
incurs a monthly management fee and may incur an incentive fee. Demeter bears
all other operating expenses.
Redemptions--As of the last day of any calendar quarter, Limited Partners may
redeem some or all of their Units at 100% of the Net Asset Value per Unit upon
five business days advance notice by redemption form to Demeter.
During 1999 and 1998, the Partnership sold securities in the Yield Pool in or-
der to fund redemptions as detailed below:
1999 1998
--------- ---------
$ $
Cost of Securities Sold 1,927,054 5,494,084
Interest Accreted on Securities Sold 610,556 770,973
Proceeds from Sale of Securities 3,549,406 6,376,190
Dean Witter Principal Plus Fund L.P.
Notes to Consolidated Financial Statements--
(Continued)
Distributions--The Partnership will not make any distributions until after the
Guarantee Period, and thereafter will only make distributions on a pro-rata ba-
sis at the sole discretion of Demeter.
Income Taxes--No provision for income taxes has been made in the accompanying
consolidated financial statements, as partners are individually responsible for
reporting income or loss based upon their respective share of the Partnership's
revenues and expenses for income tax purposes.
Dissolution of the Partnership--The Partnership will terminate on December 31,
2025, or at an earlier date if certain conditions set forth in the Limited
Partnership Agreement occur.
The Trading Company may terminate operations if its Net Assets decline to 5% or
less of consolidated Partnership Net Assets, and will terminate operations if
its Net Assets decline to less than 3% of consolidated Partnership Net Assets.
At December 31, 1999 and 1998, the Trading Company had Net Assets of $4,761,650
and $9,829,000 respectively, which represented 11% and 19% respectively, of the
consolidated Partnership's Net Assets at the respective dates. If the opera-
tions of the Trading Company ceased, the remaining Net Assets would be returned
to the Partnership and held until the end of the Guarantee Period, when they
would be distributed to the Limited Partners.
2. Related Party Transactions
The Trading Company pays a monthly brokerage fee to DWR as described in Note 1.
The Partnership's and Trading Company's cash is on deposit with DWR and Carr in
futures interests trading accounts to meet margin requirements as needed. DWR
pays interest on these funds as described in Note 1. The Yield Pool is on de-
posit with DWR in a customer security account. Pursuant to the Limited Partner-
ship Agreement, Demeter initially invested $200,000 of General Partnership In-
terest in the Trading Company.
3. Trading Manager
Compensation to RXR as trading manager consists of a management fee and an in-
centive fee as follows:
Management Fee--The Partnership pays a monthly management fee equal to 1/12 of
1% per month (a 1% annual rate) of the Partnership's adjusted Net Assets, as
defined in the Limited Partnership Agreement, as of the last day of each month.
Incentive Fee--The Partnership will pay an annual incentive fee to RXR equal to
15% of the "New Apprecia-
Dean Witter Principal Plus Fund L.P.
Notes to Consolidated Financial Statements--
(Continued)
tion", as defined in the Limited Partnership Agreement, of the Trading
Company's Net Assets as of the end of each annual incentive period ending De-
cember 31. Such incentive fee is accrued in each month in which New Apprecia-
tion occurs. In those months in which New Appreciation is negative, previous
accruals, if any, during the incentive period will be reduced.
4. Financial Instruments
The Partnership trades futures contracts, options on futures contracts and
physical commodities, forward contracts, and other commodity interests. 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 con-
tracts 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.
In June 1998, the Financial Accounting Standards Board ("FASB") issued State-
ment of Financial Accounting Standard ("SFAS") No. 133, "Accounting for Deriva-
tive Instruments and Hedging Activities" effective for fiscal years beginning
after June 15, 1999. In June 1999, the FASB issued SFAS No. 137, "Accounting
for Derivative Instruments and Hedging Activities--Deferral of the Effective
Date of SFAS No. 133," which defers the required implementation of SFAS No. 133
until fiscal years beginning after June 15, 2000. However, the Partnership had
previously elected to adopt the provisions of SFAS No. 133 beginning with the
fiscal year ended December 31, 1998. SFAS No. 133 supercedes 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 consolidated finan-
cial statements.
The net unrealized gains on open contracts are reported as a component of "Eq-
uity in futures interests trading accounts" on the statements of financial con-
dition and totaled $380,736 and $1,200,707 at December 31, 1999 and 1998, re-
spectively.
Of the $380,736 net unrealized gain on open contracts at December 31, 1999,
$325,528 related to exchange-traded futures contracts and $55,208 related to
off-exchange-traded forward currency contracts.
Of the $1,200,707 net unrealized gain on open contracts at December 31, 1998,
$1,247,930 related to exchange-traded futures contracts and $(47,223) related
to off-exchange-traded forward currency contracts.
Dean Witter Principal Plus Fund L.P.
Notes to Consolidated Financial Statements--
(Continued)
Exchange-traded futures contracts held by the Partnership at December 31, 1999
and 1998, mature through June 2000 and March 1999, respectively. Off-exchange-
traded forward currency contracts held by the Partnership at December 31, 1999
and 1998 mature through March 2000 and March 1999, respectively.
The Partnership has credit risk associated with counterparty nonperformance.
The credit risk associated with the instruments in which the Partnership is in-
volved is limited to the amounts reflected in the Partnership's statements of
financial condition.
The Partnership also has credit risk because DWR and Carr act as the futures
commission merchants or the counterparties, with respect to most of the Part-
nership's assets. Exchange-traded futures and futures-styled options contracts
are marked to market on a daily basis, with variations in value settled on a
daily basis. Each of DWR and Carr, as a futures commission merchant for all of
the Partnership's exchange-traded futures and futures-styled options contracts,
are required, pursuant to regulations of the Commodity Futures Trading Commis-
sion, to segregate from their own assets, and for the sole benefit of their
commodity customers, all funds held by them with respect to exchange-traded
futures and futures-styled option contracts including an amount equal to the
net unrealized gain on all open futures and futures-styled option contracts,
which funds, in the aggregate, totaled $6,339,551 and $10,518,524 at December
31, 1999 and 1998, respectively. With respect to the Partnership's off-ex-
change-traded forward currency contracts, there are no daily settlements of
variations in value nor is there any requirement that an amount equal to the
net unrealized gain on open forward contracts be segregated. With respect to
those off-exchange-traded forward currency contracts, the Partnership is at
risk to the ability of Carr, the sole counterparty on all of such contracts, to
perform. The Partnership has a netting agreement with Carr. This agreement,
which seeks to reduce both the Partnership's and Carr's exposure on off-ex-
change-traded forward currency contracts, should materially decrease the Part-
nership's credit risk in the event of Carr's bankruptcy or insolvency. Carr's
parent, Credit Agricole Indosuez, has guaranteed to the Partnership payment of
the net liquidating value of the transactions in the Partnership's account with
Carr (including foreign currency contracts).
5. Legal Matters
The class actions first filed in 1996 in California and in New York State
courts were each dismissed in 1999. On September 6, 10, and 20, 1996, and on
March 13, 1997,
Dean Witter Principal Plus Fund L.P.
Notes to Consolidated Financial Statements--
(Concluded)
purported class actions were filed in the Superior Court of the State of Cali-
fornia, County of Los Angeles, on behalf of all purchasers of interests in lim-
ited partnership commodity pools sold by DWR. Named defendants include DWR,
Demeter, Dean Witter Futures & Currency Management Inc., MSDW, certain limited
partnership commodity pools of which Demeter is the general partner (all such
parties referred to hereafter as the "Morgan Stanley Dean Witter Parties") and
certain trading advisors to those pools. On June 16, 1997, the plaintiffs in
the above actions filed a consolidated amended complaint, alleging, among other
things, that the defendants committed fraud, deceit, negligent misrepresenta-
tion, various violations of the California Corporations Code, intentional and
negligent breach of fiduciary duty, fraudulent and unfair business practices,
unjust enrichment, and conversion in the sale and operation of the various lim-
ited partnership commodity pools. The complaints seek unspecified amounts of
compensatory and punitive damages and other relief. The court entered an order
denying class certification on August 24, 1999. On September 24, 1999, the
court entered an order dismissing the case without prejudice on consent. Simi-
lar purported class actions were also filed on September 18 and 20, 1996, in
the Supreme Court of the State of New York, New York County, and on November
14, 1996 in the Superior Court of the State of Delaware, New Castle County,
against the Morgan Stanley Dean Witter Parties and certain trading advisors on
behalf of all purchasers of interests in various limited partnership commodity
pools sold by DWR. A consolidated and amended complaint in the action pending
in the Supreme Court of the State of New York was filed on August 13, 1997, al-
leging that the defendants committed fraud, breach of fiduciary duty, and neg-
ligent misrepresentation in the sale and operation of the various limited part-
nership commodity pools. The complaints seek unspecified amounts of compensato-
ry and punitive damages and other relief. The New York Supreme Court dismissed
the New York action in November 1998, but granted plaintiffs leave to file an
amended complaint, which they did in early December 1998. The defendants filed
a motion to dismiss the amended complaint with prejudice on February 1, 1999.
By decision dated December 21, 1999, the New York Supreme Court dismissed the
case with prejudice.
In addition, on December 16, 1997, upon motion of the plaintiffs, the action
pending in the Superior Court of the State of Delaware was voluntarily dis-
missed without prejudice.
6. Subsequent Event
On March 3, 2000, the plaintiffs in the New York action referred to in Note 5
filed an appeal of the order dismissing the consolidated complaint.
MORGAN STANLEY DEAN WITTER & CO.
Two World Trade Center
62nd Floor
New York, NY 10048
Presorted
First Class Mail
U.S. Postage Paid
Brooklyn, NY
Permit No. 148