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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 fiscal year ended December 31, 1997 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 33-30891
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 of organization)
Identification No.)
c/o Demeter Management Corporation
Two World Trade Center, New York, N.Y. - 62nd Flr.
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)
(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 10K. [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, or the average bid and asked
prices of such units, as of a specified date within 60 days prior
to the date of filing: $52,543,701.99 at January 31, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
(See Page 1)
DEAN WITTER PRINCIPAL PLUS FUND L.P.
INDEX TO ANNUAL REPORT ON FORM 10-K
DECEMBER 31, 1997
Page No.
DOCUMENTS INCORPORATED BY REFERENCE. . . . . . . . . . . . . . .
. . . . 1
Part I .
Item 1. Business. . . . . . . . . . . . . . . . . . . . . . .
. 2-4
Item 2. Properties. . . . . . . . . . . . . . . . . . . . . . .
. 5
Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . . .
. 5-6
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. . . . . . . . . .
. 9-16
Item 8. Financial Statements and Supplementary Data. . . . . .
. . 16
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure. . . . . . . . . .
. . 16
Part III.
Item10. Directors, Executive Officers, Promoters and
Control Persons of the Registrant . . . . . . . . . .
17-21
Item11. Executive Compensation . . . . . . . . . . . . . . . .
. 22
Item12. Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . . . . .
. . 22
Item13. Certain Relationships and Related Transactions . . . .
. 22
Part IV.
Item14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K . . . . . . . . . . . . . . . . . .
. 23
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by
reference as follows:
Documents Incorporated Part of Form 10-K
Partnership's Registration Statement
on Form S-1, File No. 33-95414 I and IV
December 31, 1997 Annual Report
for the Dean Witter Principal II and IV
Plus Fund L.P.
PART I
Item 1. BUSINESS
(a) General Development of Business. Dean Witter
Principal Plus Fund L.P. (the "Partnership") is a Delaware
limited partnership formed to engage in the speculative
trading of commodity futures contracts and other commodity
interests, including, but not limited to, forward contracts
on foreign currencies and options on futures contracts and
physical commodities.
300,000 Units of limited partnership interest ("Units")
in the Partnership were registered pursuant to a
Registration Statement on Form S-1 (File No. 33-30891),
which became effective on October 26, 1989. The offering of
units was underwritten on a "best efforts" basis by Dean
Witter Reynolds Inc. ("DWR"). The Partnership's General
Partner is Demeter Management Corporation ("Demeter"). DWR
and Demeter are wholly-owned subsidiaries of Morgan Stanley,
Dean Witter, Discover & Co. ("MSDWD"). The Partnership
commenced operations on February 14, 1990. 75,000 additional
Units of interest in the Partnership were registered
pursuant to a Registration Statement on Form S-1 (File No.
33-95414) which became effective November 8, 1995.
Through July 31, 1997, the sole commodity broker for
the Partnership's transactions was DWR. On July 31, 1997,
DWR closed the sale of its institutional futures business
and foreign currency trading operations to Carr Futures,
Inc. ("Carr"), a subsidiary of Credit
Agricole Indosuez. Following the sale, Carr became the
clearing commodity broker for the Partnership's futures and
futures options trades and the counterparty on the
Partnership's foreign currency trades. DWR serves as the
non-clearing commodity broker for the Partnerships with Carr
providing all clearing services for the Partnerships'
transactions.
The Partnership's net asset value per unit, as of
December 31, 1997, was $1,707.59, representing an increase
of 15.38 percent from the net asset value per unit of
$1,479.85 at December 31, 1996. For a more detailed
description of the Partnership's business see subparagraph
(c).
(b) Financial Information about Industry Segments.
The Partnership's business comprises only one segment for
financial reporting purposes, speculative trading of
commodity futures and other commodity 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 in
commodity futures contracts and other commodity interests,
pursuant to trading instructions provided by an independent
trading advisor. 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, filed
as part of the Registration Statement on Form S-1 (see
"Documents Incorporated by Reference" Page 1), set forth
below.
Facets of Business
1. Summary 1. "Summary of the
Prospectus"
(Pages 2-14).
2. Commodity Markets 2. "The Futures, Options
and
Forwards Markets"
(Pages 51-56).
3. Partnership's Commodity 3. "Trading Policies"
(Page
Trading Arrangements and 62). "The Trading
Advisor"
Policies (Page 58-62). "The
Yield
Pool" (Pages 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
On September 6, 10, and 20, 1996, and on March 13,
1997, similar 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 and Currency
Management, Inc. ("DWFCM"), MSDWD (all such parties referred
to hereafter as the "Dean Witter Parties"), certain limited
partnership commodity pools of which Demeter is the general
partner, 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 partnerships commodity
pools. 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 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. 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. The complaints seek
unspecified amounts of compensatory and punitive damages and
other relief. It is possible that additional similar
actions may be filed and that, in the course of these
actions, other parties could be added as defendants. The
Dean Witter Parties believe that they have strong defenses
to, and they will vigorously contest the actions. Although
the ultimate outcome of legal proceedings cannot be
predicted with certainty, it is the opinion of management of
the Dean Witter Parties that the resolution of the actions
will not have a material adverse effect on the financial
condition or the results of operations of any of the Dean
Witter Parties.
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
There is no established public trading market for the
Units of Limited Partnership Interest in the Partnership.
The number of holders of Units at December 31, 1997 was
approximately 3,394. 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. No determination has yet been made as to
future distributions.
Item 6. SELECTED FINANCIAL DATA (in dollars)
For the Years Ended December 31,
1997 1996 1995 1994
1993
Total Revenues
(including interest)10,461,123 (677,358)12,663,471 (2,601,083)
14,004,384
Net Income (Loss) 7,414,966 (3,646,323) 9,397,649 (6,379,229)
8,718,424
Net Income (Loss)
Per Unit (Limited
& General Partners) 227.74 (82.41) 238.12 (124.78)
150.06
Total Assets 54,294,132 54,096,99242,581,908 66,189,009
80,515,592
Total Limited Partners'
Capital 51,607,436 50,688,703 39,547,302 61,577,369
76,096,133
Net Asset Value Per
Unit of Limited
Partnership Interest 1,707.59 1,479.85 1,562.26 1,324.14
1,448.92
Item 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity. The Partnership's assets are deposited in
separate commodity trading accounts with DWR and Carr, the
commodity brokers, and are used by the Partnership as margin
to engage in commodity futures, forward contracts on foreign
currencies and other commodity interest trading. DWR and
Carr hold such assets in either designated depositories or
in securities approved by the Commodity Futures Trading
Commission ("CFTC") for investment of customer funds. The
Partnership's assets held by DWR and Carr may be used as
margin solely for the Partnership's trading. Since the
Partnership's sole purpose is to trade in commodity futures
contracts and other commodity interests, it is expected that
the Partnership will continue to own such liquid assets for
margin purposes.
The Partnership's investment in commodity futures
contracts and other commodity interests may be illiquid. If
the price for a futures contract for a particular commodity
has increased or decreased by an amount equal to the "daily
limit", positions in the commodity can neither be taken nor
liquidated unless traders are willing to effect trades at or
within the limit. Commodity futures prices have
occasionally moved the daily limit for several consecutive
days with little or no trading. Such market conditions
could prevent the Partnership from promptly liquidating its
commodity futures positions.
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.
Market Risk. The Partnership trades futures, options
and forward contracts in interest rates, stock indices,
commodities and currencies. In entering into these
contracts there exists a risk to the Partnership (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 futures interest
positions held by the Partnership at the same time, and if
the Trading Advisor were unable to offset futures interest
positions of the Partnership, the Partnership could lose all
of its assets and the Limited Partners would realize a 100%
loss. The Partnership has established Trading Policies,
which include standards for liquidity and leverage which
help control market risk. Both the Trading Advisor and
Demeter monitor the Partnership's trading activities on a
daily basis to ensure compliance with the Trading Policies.
Demeter may (under terms of the Management Agreement)
override the trading instructions of the Trading Advisor to
the extent necessary to comply
with the Partnership's Trading Policies.
Credit Risk. In addition to market risk, in entering
into futures, options and forward 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 of the Partnership
for futures contracts traded in the United States and most
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, and, as such,
should significantly reduce this credit risk. For example,
a clearinghouse may cover a default by (i) 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 (ii)
assessing its members. In cases where the Partnership
trades on a foreign exchange where the clearinghouse is not
funded or guaranteed by the membership or where the exchange
is a "principals' market" in which performance is the
responsibility of the exchange member and not the exchange
or a clearinghouse, or when the Partnership enters into off-
exchange contracts with a counterparty, the sole recourse of
the Partnership will be the clearinghouse, the exchange
member or the off-exchange contract counterparty, as the
case may be.
There can be no assurance that a clearinghouse,
exchange or other exchange member will meet its obligations
to the Partnership, and the Partnership is not indemnified
against a default by such parties from Demeter or MSDWD or
DWR. 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, clearinghouse or other exchange
member default on trades effected for the broker's
customers; any such obligation on the part of the broker
appears even less clear where the default occurs in a non-US
jurisdiction.
Demeter deals with these credit risks of all
partnerships for which it serves as General Partner in
several ways. First, it monitors each 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 each 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 each partnership's
potential margin liability, exchange by exchange. Demeter
is then able to monitor the individual 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, as discussed earlier, each partnership's
trading policies limit the amount of partnership Net Assets
that can be committed at any given time to futures contracts
and require, in addition, a certain 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 any
partnership to any single exchange and, historically, such
partnership exposure has typically amounted to only a small
percentage of its total Net Assets. On those relatively few
occasions where a partnership's credit exposure has climbed
above that level, Demeter has dealt with the situations on a
case by case basis, carefully weighing whether the increased
level of credit exposure remained appropriate. Demeter
expects to continue to deal with such situations in a
similar manner in the future.
Third, Demeter has secured, with respect to Carr acting
as the clearing broker for the partnerships, 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 each partnership's
account. As of December 31, 1997, Credit Agricole Indosuez'
total capital was over $3.25 billion and it is currently
rated AA2 by Moody's.
With respect to forward contract trading, the
partnerships trade with only those counterparties which
Demeter, together with DWR, have determined to be
creditworthy. At the date of this filing, the partnerships
deal only with Carr as their 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 1997 Annual Report to
Partners, incorporated by reference in this Form 10-K.
Capital Resources. The Partnership does not have, nor
does it expect to have, any capital assets. Redemptions of
additional Units of Limited Partnership Interest in the
future will affect the amount of funds available for
investments in subsequent periods. As redemptions are at
the discretion of Limited Partners, it is not possible to
estimate the amount and therefore the impact of future
redemptions.
Results of Operations. As of 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's
total trading revenues including interest income were
$8,529,013. Gains recorded on the Yield Pool totaled
$1,932,110. The Partnership's total
expenses for the year were $2,956,963, resulting in net
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 an
individual unit in the Partnership increased from $1,479.85
at December 31, 1996 to $1,707.59 at December 31, 1997.
As of December 31, 1996, the Partnership's total
capital was $51,848,813, an increase of $11,076,869 from the
Partnership's total capital of $40,771,944 at December 31,
1995. For the year ended December 31, 1996, the Partnership
incurred a net loss of $3,646,323, total subscriptions
aggregated $21,697,912, and total redemptions aggregated
$6,974,720.
For the year ended December 31, 1996, the Partnership's
total trading revenues net of interest income were
$1,465,184. Losses recorded on the Yield Pool totaled
$2,142,542. The Partnership's total expenses for the year
were $3,061,681, resulting in a net loss before minority
interest of $3,739,039. The minority interest in such
losses was $92,716, resulting in a net loss of $3,646,323
for the Partnership. The value of an individual unit in the
Partnership decreased from $1,562.26 at December 31, 1995 to
$1,479.85 at December 31, 1996.
As of December 31, 1995, the Partnership's total
capital was $40,771,944, a decrease of $21,842,276 from the
Partnership's total capital of $62,614,220 at December 31,
1994. For the year ended December
31, 1995, the Partnership generated net income of $9,397,649
and total redemptions aggregated $31,239,925.
For the year ended December 31, 1995, the Partnership's
total trading revenues including interest income were
$12,536,481 and realized gains on Yield Pool sales totaled
$126,990. The Partnership's total expenses for the year
were $3,099,818, resulting in net income before minority
interest of $9,563,653. The minority interest in such
income was $166,004, resulting in net income of $9,397,649
for the Partnership. The value of an individual unit in the
Partnership increased from $1,324.14 at December 31, 1994 to
$1,562.26 at December 31, 1995.
The Partnership's overall performance record represents
varied results of trading in different commodity markets.
For a further description of trading results, refer to the
letter to the Limited Partners in the accompanying 1997
Annual Report to Partners, incorporated by reference in this
Form 10-K. The Partnership's gains and losses are allocated
among its Limited Partners for income tax purposes.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item appears in the
attached 1997
Annual Report to Limited Partners and is incorporated by
reference in this Annual Report on Form 10-K.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
Item 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL
PERSONS OF THE REGISTRANT
General Partner
Demeter, a Delaware corporation, was formed on August
18, 1977 to act as a commodity pool operator and is
registered with the CFTC as a commodity pool operator and
currently is a member of the National Futures Association
("NFA") in such capacity. Demeter is wholly-owned by MSDWD
and is an affiliate of DWR. MSDWD, DWR and Demeter may each
be deemed to be "promoters" and/or a "parent" of the
Partnership within the meaning of the federal securities
laws.
On July 21, 1997, MSDWD, the sole shareholder of
Demeter, appointed a new Board of Directors consisting of
Richard M. DeMartini, Mark J. Hawley, Lawrence Volpe, Joseph
G. Siniscalchi, Edward C. Oelsner III, and Robert E. Murray.
Dean Witter Reynolds Inc.
DWR is a financial services company which provides to
its individual, corporate and institutional clients services
as a broker in securities and commodity interest contracts,
a dealer in corporate, municipal and government securities,
an investment adviser and an agent in the sale of life
insurance and various other products and services. DWR is a
member firm of the New York Stock Exchange, the American
Stock
Exchange, the Chicago Board Options Exchange, and other
major securities exchanges.
DWR is registered with the CFTC as a futures commission
merchant and is a member of the NFA in such capacity. As of
December 31, 1997, DWR is servicing its clients through a
network of approximately 401 branch offices with
approximately 10,155 account executives servicing individual
and institutional client accounts.
Directors and Officers of the General Partner
The directors and officers of Demeter as of December
31, 1997 are as follows:
Richard M. DeMartini, age 45, is the Chairman of the
Board and a Director of Demeter. Mr. DeMartini is also
Chairman of the Board and a Director of Dean Witter Futures
& Currency Management Inc. ("DWFCM"). Mr. DeMartini is
president and chief operating officer of MSDWD's Individual
Asset Management Group. He was named to this position in
May of 1997 and is responsible for Dean Witter InterCapital,
Van Kampen American Capital, insurance services, managed
futures, unit trust, investment consulting services, Dean
Witter Realty, and NOVUS Financial Corporation. Mr.
DeMartini is a member of the MSDWD management committee, a
director of the InterCapital funds, a trustee of the TCW/DW
funds and a trustee of the Van Kampen American Capital and
Morgan Stanley retail funds. Mr. DeMartini has been with
Dean Witter his entire career, joining the firm in 1975 as
an account executive. He
served as a branch manager, regional director and national
sales director, before being appointed president and chief
operating officer of the Dean Witter Consumer Markets. In
1988 he was named president and chief operating officer of
Sears' Consumer Banking Division and in January 1989 he
became president and chief operating officer of Dean Witter
Capital. Mr. DeMartini has served as chairman of the board
of the Nasdaq Stock Market, Inc. and vice chairman of the
board of the National Association of Securities Dealers,
Inc. A native of San Francisco, Mr. DeMartini holds a
bachelor's degree in marketing from San Diego State
University.
Mark J. Hawley, age 54, is President and a Director of
Demeter. Mr. Hawley is also President and a Director of
DWFCM. Mr. Hawley joined DWR in February 1989 as Senior
Vice President and is currently the Executive Vice President
and Director of DWR's Managed Futures Department. From 1978
to 1989, Mr. Hawley was a member of the senior management
team at Heinold Asset Management, Inc., a CPO, 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.
Lawrence Volpe, age 50, is a Director of Demeter and
DWFCM. Mr. Volpe joined DWR as a Senior Vice President and
Controller in September 1983, and currently holds those
positions. From July 1979 to September 1983, he was
associated with E.F. Hutton & Company Inc. and prior to his
departure, held the positions of First Vice President and
Assistant Controller. From 1970 to July 1979, he was
associated with Arthur Anderson & Co. and prior to his
departure served as audit manager in the financial services
division.
Joseph G. Siniscalchi, age 52, 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 55, is a Director of
Demeter. Mr. Oelsner is currently an Executive Vice
President and head of the Product Development Group at Dean
Witter InterCapital Inc., 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.
Robert E. Murray, age 37, is a Director of Demeter.
Mr. Murray is also a Director of DWFCM. Mr. Murray is
currently a Senior Vice President of DWR's Managed Futures
Department and is the Senior Administrative Officer of
DWFCM. Mr. Murray began his career at DWR in 1984 and is
currently the Director of Product Development for the
Managed Futures Department. He is responsible for the
development and maintenance of the proprietary Fund
Management System utilized by DWFCM and Demeter in
organizing information and producing reports for monitoring
clients' accounts. Mr. Murray currently serves as a
Director of the Managed Funds Association. Mr. Murray
graduated from Geneseo State University in May 1983 with a
B.A. degree in Finance.
Patti L. Behnke, age 37, is Vice President and Chief
Financial Officer of Demeter. Ms. Behnke joined DWR in
April 1991 as Assistant Vice President of Financial
Reporting and is currently a First Vice President and
Director of Financial Reporting and Managed Futures
Accounting in the Individual Asset Management Group. Prior
to joining DWR, Ms. Behnke held positions of increasing
responsibility at L.F. Rothschild & Co. and Carteret Savings
Bank. Ms. Behnke began her career at Arthur Anderson & Co.,
where she was employed in the audit division from 1982-1986.
She is a member of the AICPA and the New York State Society
of Certified Public Accountants.
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 -
As of December 31, 1997, there were no persons known to be
beneficial owners of more than 5 percent of the units of
Limited Partnership Interest in the Partnership.
(b) Security Ownership of Management - At December 31,
1996, Demeter owned 783 Units of General Partnership
Interest representing a 2.53 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 1997 Annual Report to Partners, incorporated by
reference in 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 $2,201,830 for the year ended December 31,
1997.
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 public accountants, all appearing in the
accompanying 1997 Annual Report to Partners, are
incorporated by reference in this Form 10-K:
- Report of Deloitte & Touche LLP, independent
auditors, for the years ended December 31, 1997,
1996 and 1995.
- Consolidated Statements of Financial
Condition as of December 31, 1997 and 1996.
- Consolidated Statements of Operations,
Changes in Partners' Capital, and Cash Flows for
the years ended December 31, 1997, 1996 and 1995.
- Notes to Consolidated Financial Statements.
With the exception of the aforementioned information
and the information incorporated in Items 7, 8 and 13, the
1997 Annual Report to Partners 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 requirement 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 24, 1998 BY: /s/ Mark J. Hawley
Mark J. Hawley, Director 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/ Mark J. Hawley March 24,
1998
Mark J. Hawley, Director and
President
/s/ Richard M. DeMartini March 24,
1998
Richard M. DeMartini, Director
and Chairman of the Board
/s/ Lawrence Volpe March 24,
1998
Lawrence Volpe, Director
/s/ Joseph G. Siniscalchi March 24,
1998
Joseph G. Siniscalchi, Director
/s/ Edward C. Oelsner III March 24,
1998
Edward C. Oelsner III, Director
/s/ Robert E. Murray March 24,
1998 Robert E. Murray, Director
/s/ Patti L. Behnke March 24,
1998
Patti L. Behnke, Chief Financial
Officer and Principal Accounting
Officer
EXHIBIT INDEX
ITEM METHOD
OF FILING
- -3. Amended and Restated Limited
Partnership Agreement of
the Partnership, dated as of
August 29, 1995.
(1)
- -10. Amended and Restated Management
Agreement among the
Partnership, Demeter and RXR, Inc.
dated as of
December 29, 1995. (2)
- -10. Amended and Restated Customer
Agreement between the Partnership
and DWR, dated as of December 29, 1995. (3)
- -13. December 31, 1997 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, 1997
Annual Report
[LOGO] DEAN WITTER
DEAN WITTER
Two World Trade Center
62nd Floor
New York, NY 10048
Telephone (212) 392-8899
PRINCIPAL PLUS FUND
ANNUAL REPORT
1997
Dear Limited Partner:
This marks the eighth annual report for the Dean Witter Principal Plus Fund
L.P. (the "Fund"). The Fund began 1997 trading at a Net Asset Value per Unit of
$1,479.85 and increased by 15.38% to close the year at $1,707.59. A review of
trading results for the year is provided 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
contact Demeter Management Corporation at Two World Trade Center, 62nd Floor,
New York, NY 10048 or your Dean Witter Account Executive.
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/ Mark J. Hawley
Mark J. Hawley
President
Demeter Management Corporation
General Partner
DEAN WITTER PRINCIPAL PLUS FUND L.P.
ANNUAL REPORT OF THE TRADING MANAGER
Encouraged by the U.S. economy's ability to walk the narrow tight rope of
sustainable growth with low inflation, Principal Plus Fund continued its record
of absolute returns, with performance totaling 11.2% on a mark to market basis
and 15.4% on a redemption value basis for 1997. Each of the Fund's major
sectors, including alternative equity, fixed income, and global futures
reported gains for the year.
The first quarter was marked by an abrupt reversal in the world's equity
futures markets, sharply higher interest rates, falling energy prices and
continued strength in the U.S. dollar against the world's major currencies. The
Fund maintained long U.S. dollar positions throughout much of the quarter which
contributed to positive performance, despite severe volatility in non-U.S.
fixed income futures markets in January and February. The energy and
agricultural components became active mid-way through the quarter, as an
unusually warm winter had trade hedgers jockeying for position. The Fund was
short crude oil and natural gas, and long corn and cattle contracts which
proved to be a profitable spread position.
In March, the Fund's return was daunted by sharp declines in both S&P 500 and
U.S. Treasury futures markets, but by month-end the Fund had recovered, gaining
over 1.9% for the quarter.
The Fund was rebalanced in April, reducing exposure in the currency sector due
to increased volatility and concerns that the dollar's strength may be waning.
The U.S. equity model turned positive mid-way through the quarter, setting the
stage for continued profitability from the Fund's long positions in S&P 500
futures. Advances in U.S. stock and bond prices, and strong performance in
Australian fixed income futures markets positively impacted performance late in
the second quarter. In the U.S., the economic data indicated continued growth
with no sign of inflation, propelling both stock and bond prices to new high
ground for the year. A round of interest rate cuts in Australia directly
benefited the Fund's long exposure in the 3 and 10 year Australian futures, as
well as the 90-day Bank bill futures.
With the exception of profitable short positions in corn and soybean futures,
most gains in the quarter came from the financial sector. Italian and Swiss
interest rate reductions and the resulting rise in bond futures prices added to
profitability, capping off a 2.4% advance for the quarter.
In July, each sector, including U.S. equity, fixed income, and global futures,
rallied sharply despite a
DEAN WITTER PRINCIPAL PLUS FUND L.P.
ANNUAL REPORT OF THE TRADING MANAGER--(CONCLUDED)
rate hike from the U.S. Federal Reserve Bank. With the economy's growth on
track and inflation data subdued, the U.S. equity and fixed income markets
moved sharply higher, the U.S. dollar strengthened and European interest rates
declined creating a plethora of profitable opportunities for the Fund. Although
some profits were given back in August, the month of September saw the Fund
regain its momentum, closing the quarter with a gain of 5.9%.
The start of the fourth quarter of 1997 was reminiscent of 1987, as the world's
equity markets sold off sharply in the face of a growing financial crisis in
Southeast Asia. Increased volatility negatively impacted performance, as short-
term hedging strategies were ineffectual. By year-end, the S&P 500 was back
near its all time highs. The bond component held five-year average maturity
throughout the period which added slightly to total performance as interest
rates continued to decline. The global futures component turned in a profitable
quarter, due mainly to short energy and long U.S. dollar positions. In total,
the Fund advanced 0.9% for the quarter.
At the start of the New Year, the Fund was partially hedged in its U.S. stock
index and bond futures component, and favors global fixed income futures
investments. In the foreign exchange and commodity sectors, the Fund was fully
invested and will continue to benefit from strength in the U.S. dollar and a
deflationary commodity price environment.
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, 1997 and 1996 and the related consolidated statements of
operations, changes in partners' capital, and cash flows for each of the three
years in the period ended December 31, 1997. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Dean Witter Principal Plus Fund
L.P. and subsidiary as of December 31, 1997 and 1996 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997 in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
February 17, 1998
New York, New York
DEAN WITTER PRINCIPAL PLUS FUND L.P.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31,
----------------------
1997 1996
---------- ----------
$ $
ASSETS
Equity in Commodity futures trading accounts:
Cash 8,956,497 6,625,325
Net unrealized gain on open contracts 779,432 197,384
Net option premiums (719,950) --
---------- ----------
Total Trading Equity 9,015,979 6,822,709
Investment in Zero-Coupon U.S. Treasury Securities 45,239,044 47,247,655
Interest receivable (DWR) 39,109 26,628
---------- ----------
Total Assets 54,294,132 54,096,992
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES
Redemptions payable 723,025 1,657,380
Accrued brokerage fee (DWR) 181,150 186,774
Accrued administrative expenses 159,640 203,250
Accrued management fee 45,287 46,693
Accrued transaction fees and costs -- 4,108
---------- ----------
Total Liabilities 1,109,102 2,098,205
---------- ----------
Minority interest 239,168 149,974
---------- ----------
PARTNERS' CAPITAL
Limited Partners (30,223.237 and 34,253.485 Units,
respectively) 51,607,436 50,688,703
General Partner (783 Units) 1,338,426 1,160,110
---------- ----------
Total Partners' Capital 52,945,862 51,848,813
---------- ----------
Total Liabilities and Partners' Capital 54,294,132 54,096,992
========== ==========
NET ASSET VALUE PER UNIT 1,707.59 1,479.85
========== ==========
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,
----------------------------------
1997 1996 1995
---------- ---------- ----------
$ $ $
REVENUES
Trading Profit (Loss):
Realized 4,948,081 (989,467) 8,168,790
Net change in unrealized 582,048 (590,345) 498,189
---------- ---------- ----------
Total Trading Results 5,530,129 (1,579,812) 8,666,979
---------- ---------- ----------
Interest income 2,998,884 3,044,996 3,869,502
Change in value of Yield Pool 1,932,110 (2,142,542) 126,990
---------- ---------- ----------
Total Revenues 10,461,123 (677,358) 12,663,471
---------- ---------- ----------
EXPENSES
Brokerage fees (DWR) 2,201,830 2,270,318 2,326,127
Management fee 547,058 561,862 573,964
Administrative expenses 110,000 81,000 104,000
Transaction fees and costs 98,075 148,501 95,727
---------- ---------- ----------
Total Expenses 2,956,963 3,061,681 3,099,818
---------- ---------- ----------
INCOME (LOSS) BEFORE MINORITY INTEREST 7,504,160 (3,739,039) 9,563,653
Minority interest in (income) loss (89,194) 92,716 (166,004)
---------- ---------- ----------
NET INCOME (LOSS) 7,414,966 (3,646,323) 9,397,649
========== ========== ==========
NET INCOME (LOSS) ALLOCATION:
Limited Partners 7,236,650 (3,581,791) 9,209,858
General Partner 178,316 (64,532) 187,791
NET INCOME (LOSS) PER UNIT:
Limited Partners 227.74 (82.41) 238.12
General Partner 227.74 (82.41) 238.12
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
UNITS OF
PARTNERSHIP LIMITED GENERAL
INTEREST PARTNERS PARTNER TOTAL
----------- ----------- --------- -----------
$ $ $
Partners' Capital, December
31, 1994 47,286.564 61,577,369 1,036,851 62,614,220
Net Income -- 9,209,858 187,791 9,397,649
Redemptions (21,188.596) (31,239,925) -- (31,239,925)
----------- ----------- --------- -----------
Partners' Capital, December
31, 1995 26,097.968 39,547,302 1,224,642 40,771,944
Offering of Units 13,844.606 21,697,912 -- 21,697,912
Net Loss -- (3,581,791) (64,532) (3,646,323)
Redemptions (4,906.089) (6,974,720) -- (6,974,720)
----------- ----------- --------- -----------
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
=========== =========== ========= ===========
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,
------------------------------------
1997 1996 1995
---------- ----------- -----------
$ $ $
CASH FLOWS FROM
OPERATING ACTIVITIES
Net income (loss) 7,414,966 (3,646,323) 9,397,649
Noncash item included in net income
(loss):
Net change in unrealized (582,048) 590,345 (498,189)
(Increase) decrease in
operating assets:
Net option premiums 719,950 -- (186,000)
Investment in Zero Coupon U.S. Treasury
Securities 2,008,611 (47,247,655) 60,143,331
Interest receivable (DWR) (12,481) 2,284 (1,823)
Investment in U.S. Treasury Bills -- 32,867,974 (32,867,974)
Increase (decrease) in
operating liabilities:
Accrued brokerage fee (DWR) (5,624) 45,643 (78,824)
Accrued administrative expenses (43,610) (37,476) 40,302
Accrued management fee (1,406) 11,410 (19,706)
Accrued transaction fees and costs (4,108) 2,331 (373)
---------- ----------- -----------
Net cash provided by (used
for) operating activities 9,494,250 (17,411,467) 35,928,393
---------- ----------- -----------
CASH FLOWS FROM
FINANCING ACTIVITIES
Minority interest 89,194 (92,715) 166,004
Offering of Units -- 21,697,912 --
Increase (decrease) in
redemptions payable (934,355) 509,022 (1,872,228)
Redemptions of units (6,317,917) (6,974,720) (31,239,925)
---------- ----------- -----------
Net cash provided by (used
for) financing activities (7,163,078) 15,139,499 (32,946,149)
---------- ----------- -----------
Net increase (decrease) in cash 2,331,172 (2,271,968) 2,982,244
Balance at beginning of
period 6,625,325 8,897,293 5,915,049
---------- ----------- -----------
Balance at end of period 8,956,497 6,625,325 8,897,293
========== =========== ===========
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. (the "Partnership") is a
limited partnership organized to engage in the speculative trading of commodity
futures contracts, commodity options contracts and forward contracts on foreign
currencies. Prior to February 1, 1996 the Partnership's objective was to
achieve long-term appreciation while assuring investors at least a 4% compound
annual rate of return over approximately five and one-half years from February
14, 1990 (the "Guarantee Period"). The Partnership initially invested
approximately 80% of the Partnership's assets in zero-coupon U.S. Treasury
Securities (the "Yield Pool") to accomplish this objective. Subsequent to the
August 1995 maturity of the U.S. Treasury Zero Coupon Securities, the proceeds
were invested in U.S. Treasury Bills. In August 1995, the Guaranteed Yield was
extended through January 31, 1996 during which time additional Units of the
Partnership were registered and offered to the public (see Offering of Units).
Effective February 1, 1996 the Partnership's objective was changed 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. At the February 1, 1996 closing date of the Offering, the
Partnership again invested approximately 80% of its total assets in Zero-Coupon
U.S. Treasury Securities to accomplish this objective. The Partnership's
remaining assets have been contributed to its subsidiary, Dean Witter Principal
Plus Fund Management L.P. (the "Trading Company"), which was established solely
to trade in commodity interests on behalf of the Partnership.
The general partner for the Partnership is Demeter Management Corporation
("Demeter"). Demeter is a wholly-owned subsidiary of Morgan Stanley, Dean
Witter, Discover & Co. ("MSDWD").
On May 31, 1997, Morgan Stanley Group Inc. was merged with and into Dean
Witter, Discover & Co. ("DWD"). At the time DWD changed its corporate name to
Morgan Stanley, Dean Witter, Discover & Co.
Demeter has retained RXR, Inc. ("RXR") as the trading manager of the Trading
Company.
Through July 31, 1997, the sole commodity broker for the Partnership's
transactions was Dean Witter
DEAN WITTER PRINCIPAL PLUS FUND L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--
(CONTINUED)
Reynolds Inc. ("DWR"), also a subsidiary of MSDWD. On July 31, 1997, DWR closed
the sale of its institutional futures business and foreign currency trading
operations to Carr Futures, Inc. ("Carr"), a subsidiary of Credit Agricole
Indosuez. Following the sale, Carr became the clearing commodity broker for the
Partnership's futures and futures options trades and the counterparty on the
Partnership's foreign currency trades. DWR will continue to serve as the non-
clearing commodity broker for the Partnership with Carr providing all clearing
services for the Partnership's transactions.
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.
OFFERING OF UNITS--During the period from November 11, 1995 through January 31,
1996 additional Units were offered to the public at a price equal to 100% of
the Net Asset Value as of the close of business on the last day of the month
immediately preceding the February 1, 1996 closing date of the offering.
BASIS OF ACCOUNTING--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts in the financial statements.
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 the lesser of cost plus
accreted interest or market value.
The following information pertains to the Yield Pool at December 31, 1997 and
1996:
1997 1996
---------- ----------
$ $
Year to Date Accreted Interest Income 2,605,588 2,726,002
Cost of Yield Pool at year-end 40,837,809 46,928,070
Accreted Interest Receivable at year-end 4,611,667 2,462,127
Market Value of Yield Pool at year-end 45,239,044 47,247,655
DEAN WITTER PRINCIPAL PLUS FUND L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--
(CONTINUED)
Commodity futures contracts, commodity options contracts and forward contracts
on foreign currencies are open commitments until settlement date. They are
valued at market and the resulting unrealized gains and losses are reflected in
income.
Monthly, DWR pays interest income based upon 90% of the Trading Company's
average daily Net Assets for the month at a rate equal to 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 forward contracts and other commodity
interests, but not actually received.
NET INCOME (LOSS) PER UNIT--Net income (loss) per Unit is computed using the
weighted average number of units outstanding during the period.
EQUITY IN COMMODITY FUTURES TRADING ACCOUNTS--The Partnership's asset "Equity
in Commodity futures trading accounts" consists of cash on deposit at DWR and
Carr to be used as margin for trading and the net asset or liability related to
unrealized gains or losses on open contracts and the net option premiums paid
and/or received. The asset or liability related to the unrealized gains or
losses on forward contracts is presented as a net amount in each period due to
master netting agreements.
BROKERAGE FEES AND RELATED TRANSACTION FEES AND COSTS--The monthly brokerage
fee is equal to 1/3 of 1% per month of the Partnership's adjusted month-end Net
Assets. Transaction fees and costs are accrued on a half-turn basis. In 1997,
the brokerage fee charged was the equivalent of a roundturn commission charge
of approximately $112 per contract traded.
OPERATING EXPENSES--The Partnership bears all operating expenses related to its
trading activities. These include filing fees, clerical, administrative,
auditing, 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.
DEAN WITTER PRINCIPAL PLUS FUND L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--
(CONTINUED)
During 1997 and 1996, the Partnership sold securities in the Yield Pool in
order to fund redemptions as detailed below:
1997 1996
--------- ---------
$ $
Cost of Securities Sold 6,090,263 4,325,168
Interest Accreted on Securities Sold 456,047 130,978
Proceeds from Sale of Securities 6,206,254 4,140,685
DISTRIBUTIONS--The Partnership will not make any distributions until after the
Guarantee Period, and thereafter will only make distributions on a pro-rata
basis 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, 1997 and 1996, the Trading Company had Net Assets of $8,571,018
and $6,216,269 respectively, which represented 16% and 12% respectively, of the
consolidated Partnership's Net Assets at the respective dates. If the
operations 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
commodity trading accounts to meet margin requirements as needed. DWR pays
interest on these funds as described in Note 1. The Yield Pool is on deposit
with DWR in a customer security account.
Pursuant to the Limited Partnership Agreement, Demeter initially invested
$200,000 of General Partnership Interest in the Trading Company.
DEAN WITTER PRINCIPAL PLUS FUND L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--
(CONTINUED)
3. TRADING MANAGER
Compensation to RXR as trading manager consists of a management fee and an
incentive fee as follows:
MANAGEMENT FEE--The Partnership pays a monthly management fee equal to 1/12 of
1% per month 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 Appreciation", as defined in the Limited Partnership Agreement,
of the Trading Company's Net Assets as of the end of each annual incentive
period ending December 31. Such incentive fee is accrued in each month in which
"New Appreciation" 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, options and forward contracts in interest
rates, stock indices, commodities, currencies, petroleum, and precious metals.
Futures and forwards represent contracts for delayed delivery of an instrument
at a specified date and price. Risk arises from changes in the value of these
contracts and the potential inability of counterparties to perform under the
terms of the contracts. There are numerous factors which may significantly
influence the market value of these contracts, including interest rate
volatility. At December 31, 1997 and 1996, open contracts were:
CONTRACT OR
NOTIONAL AMOUNT
---------------------
1997 1996
---------- ----------
$ $
EXCHANGE-TRADED CONTRACTS
Financial Futures:
Commitments to Purchase 56,150,000 36,738,000
Commitments to Sell 7,527,000 19,776,000
Commodity Futures:
Commitments to Purchase -- 5,550,000
Commitments to Sell 5,700,000 5,879,000
Foreign Futures:
Commitments to Purchase 50,112,000 83,456,000
Commitments to Sell 28,881,000 6,403,000
OFF-EXCHANGE-TRADED
FORWARD CURRENCY CONTRACTS
Commitments to Purchase 2,606,000 11,219,000
Commitments to Sell 11,542,000 24,545,000
A portion of the amounts indicated as off-balance-sheet risk in forward
currency contracts is due to offsetting
DEAN WITTER PRINCIPAL PLUS FUND L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--
(CONTINUED)
forward commitments to purchase and to sell the same currency on the same date
in the future. These commitments are economically offsetting, but are not
offset in the forward market until the settlement date.
The unrealized gains and losses on open contracts are reported as a component
of "Equity in Commodity futures trading accounts" on the Consolidated
Statements of Financial Condition and totaled $779,432 and $197,384 at December
31, 1997 and 1996, respectively.
Of the $779,432 net unrealized gain on open contracts at December 31, 1997,
$748,223 related to exchange-traded futures contracts and $31,209 related to
off-exchange-traded forward currency contracts.
Of the $197,384 net unrealized gain on open contracts at December 31, 1996,
$302,539 related to exchange-traded futures contracts and $(105,155) related to
off-exchange-traded forward currency contracts.
Exchange-traded futures contracts held by the Partnership at December 31, 1997
and 1996, mature through March 1998 and June 1997, respectively. Off-exchange-
traded forward currency contracts held by the Partnership at December 31, 1997
and 1996 mature through March 1998 and January 1997, respectively.
The contract amounts in the above table represent the Partnership's extent of
involvement in the particular class of financial instrument, but not the credit
risk associated with counterparty nonperformance. The credit risk associated
with these instruments is limited to the amounts reflected in the Partnership's
Consolidated Statements of Financial Condition.
The Partnership also has credit risk because either DWR or Carr acts as the
futures commission merchant or the counterparty, with respect to most of the
Partnerships' assets. Exchange-traded futures and options contracts are marked
to market on a daily basis, with variations in value settled on a daily basis.
DWR and Carr, as the futures commission merchants for all of the Partnership's
exchange-traded futures and options contracts, are required pursuant to
regulations of the Commodity Futures Trading Commission to segregate from their
own assets, and for the sole benefit of their commodity customers, all funds
held by them with respect to exchange-traded futures and option contracts
including an amount equal to the net unrealized gain on all open futures and
option contracts, which funds totaled $9,704,720 and $6,927,864 at December 31,
1997 and 1996, respectively. With respect to the Partnership's off-exchange-
traded forward currency contracts, there are
DEAN WITTER PRINCIPAL PLUS FUND L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--
(CONTINUED)
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. Carr's parent, Credit
Agricole Indosuez, has guaranteed Carr's obligations to the Partnership.
For the year ended December 31, 1997 and 1996, the average fair value of
financial instruments held for trading purposes was as follows:
1997
----------------------
ASSETS LIABILITIES
---------- -----------
$ $
EXCHANGE-TRADED CONTRACTS:
Financial Futures 61,485,000 17,437,000
Options on Financial Futures 2,226,000 4,442,000
Commodity Futures 5,800,000 4,475,000
Foreign Futures 37,032,000 32,469,000
OFF-EXCHANGE-TRADED FORWARD CURRENCY CONTRACTS 16,304,000 23,711,000
1996
----------------------
ASSETS LIABILITIES
---------- -----------
$ $
EXCHANGE-TRADED CONTRACTS:
Financial Futures 48,280,000 20,650,000
Options on Financial Futures 717,000 4,639,000
Commodity Futures 6,775,000 3,814,000
Foreign Futures 51,243,000 17,579,000
OFF-EXCHANGE-TRADED FORWARD CURRENCY CONTRACTS 30,644,000 28,108,000
5. LEGAL MATTERS
On September 6, 10, and 20, 1996, and on March 13, 1997, similar 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., MSDWD, (all such parties
referred to hereafter as the "Dean Witter Parties"), certain limited
partnership commodity pools of which Demeter is the general partner, 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
DEAN WITTER PRINCIPAL PLUS FUND L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--
(CONCLUDED)
breach of fiduciary duty, fraudulent and unfair business practices, unjust
enrichment, and conversion in the sale and operation of the various limited
partnerships commodity pools. 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 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. 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. The complaints seek
unspecified amounts of compensatory and punitive damages and other relief. It
is possible that additional similar actions may be filed and that, in the
course of these actions, other parties could be added as defendants. The Dean
Witter Parties believe that they have strong defenses to, and they will
vigorously contest, the actions. Although the ultimate outcome of legal
proceedings cannot be predicted with certainty, it is the opinion of management
of the Dean Witter Parties that the resolution of the actions will not have a
material adverse effect on the financial condition or the results of operations
of any of the Dean Witter Parties.
DEAN WITTER REYNOLDS INC.
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