Back to GetFilings.com
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, 2000 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 0-19046
DEAN WITTER PORTFOLIO STRATEGY FUND L.P.
(Exact name of registrant as specified in its Limited Partnership
Agreement)
DELAWARE 13-3589337
(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: $93,459,240 at January 31,
2001.
DOCUMENTS INCORPORATED BY REFERENCE
(See Page 1)
DEAN WITTER PORTFOLIO STRATEGY FUND L.P.
INDEX TO ANNUAL REPORT ON FORM 10-K
DECEMBER 31, 2000
Page No.
DOCUMENTS INCORPORATED BY REFERENCE. . .. . . . . . . . . . . . .
. . 1
Part I .
Item 1.Business. . . . . . . . . . . . . . . . . . . . . . . .
.2-4
Item 2.Properties. . . . . . . . . . . . . . . . . . . . . . .
. .4
Item 3.Legal Proceedings. . . . . . . . . . . . . . . . . . .
. 4-5
Item 4.Submission of Matters to a Vote of Security Holders. .
. ..5
Part II.
Item 5. Market for the
Registrant's Partnership Units
and Related Security Holder Matters. . . . . . . . . .
. ..6
Item 6.Selected Financial Data . . . . . . . . . . . . . . . .
. .7
Item 7.Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . .
8-18
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk. . . . . . . . . . . . . . . . . . . . . .
18-31
Item 8. Financial Statements and Supplementary Data. . . . . .
. .32
Item 9.Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure. . . . . . . . . .
. .32
Part III.
Item 10.Directors and Executive Officers of the Registrant. .
33-37
Item 11. Executive Compensation . . . . . . . . . . . . . . . .
. 37
Item 12.Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . . . .
. .37
Item 13. Certain Relationships and Related Transactions . . .
..37-38
Part IV.
Item 14. Exhibits,
Financial Statement Schedules, and
Reports on Form 8-K. . . . . . . . . . . . . . . . .
. .39
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
May 12, 1997 I
Annual Report to Dean Witter
Portfolio Strategy Fund L.P.
Limited Partners for the year
ended December 31, 2000 II, III and IV
PART I
Item 1. BUSINESS
(a) General Development of Business. Dean Witter Portfolio
Strategy Fund L.P. (formerly, Dean Witter Principal Secured Fund
L.P.) (the "Partnership") is a Delaware limited partnership
organized to engage primarily in the speculative trading of
futures and forward contracts on physical commodities and other
commodity interests.
The general partner for the Partnership is Demeter Management
Corporation ("Demeter"). The non-clearing commodity broker is
Dean Witter Reynolds Inc. ("DWR"). The clearing commodity
brokers are Morgan Stanley & Co. Inc. ("MS & Co.") and Morgan
Stanley & Co. International Limited ("MSIL") which provide
clearing and execution services. Demeter, DWR, MS & Co. and MSIL
are wholly-owned subsidiaries of Morgan Stanley Dean Witter & Co.
("MSDW"). John W. Henry & Company, Inc. (the "Trading Manager")
is the trading manager to the Partnership.
The Partnership's net asset value per unit of limited partnership
interest ("Unit(s)") as of December 31, 2000, was $2,658.72,
representing an increase of 9.9 percent from the net asset value
per Unit of $2,419.78 at December 31, 1999. For a more detailed
description of the Partnership's business see subparagraph (c).
(b) Financial Information about Segments. For financial
information reporting purposes the Partnership is deemed to
engage in one industry segment, the speculative trading of
futures and forwards. 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 and forwards, 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 May 12, 1997 (the "Prospectus"), incorporated by reference
in this Form 10-K, set forth below:
Facets of Business
1. Summary 1. "Summary of the Prospectus"
(Pages 1-12 of the
Prospectus).
2. Futures, Options and 2. "Futures, Options and
Forwards Markets Forwards Markets" (Pages
48-52 of the Prospectus).
3. Partnership's Commodity 3. "Investment Programs,
Trading Arrangements and Use of Proceeds, and
Policies Trading Policies" (Page
66 of the Prospectus)
and "The Trading Advisor"
(Pages 55-74 of the
Prospectus).
4. Management of the 4. "The Management
Agreement"
Partnership (Pages 76-77 of the
Prospectus). "The
General Partner" (Pages
45-47 of the Prospectus),
"The Commodity Brokers"
(Page 75 of the
Prospectus) and "The
Limited Partnership
Agreement" (Pages 79-82
of the Prospectus).
5.Taxation of the Partner- 5. "Material Federal Income
ship's Limited
Partners Tax
Considerations" and
"State and
Local Income
Tax
Aspects" (Pages 88-96
of the
Prospectus).
(d) Financial Information about Geographic Areas.
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
Similar class actions were filed in 1996 in California and New
York State courts. Each of these actions were dismissed in 1999.
However, the New York State class action discussed below is still
pending because plaintiffs appealed the trial court's dismissal
of their case on March 3, 2000.
On September 18 and 20, 1996, purported class actions were filed
in the Supreme Court of the State of New York, New York County,
on behalf of all purchasers of interests in limited partnership
commodity pools sold by DWR. Named defendants include DWR,
Demeter, MSDW, the Partnership (under its original name), certain
limited partnership commodity pools of which Demeter is the
general partner and certain trading managers to those pools. A
consolidated and amended complaint in the action pending in the
Supreme Court of the State of New York was filed on August 13,
1997, alleging that the defendants committed fraud, breach of
fiduciary duty, and negligent misrepresentation in the sale and
operation of the various limited partnership commodity pools. The
complaints sought unspecified amounts of compensatory and
punitive damages and other relief. The New York Supreme Court
dismissed the New York action in November 1998, but granted
plaintiffs leave to file an amended complaint, which they did in
early December 1998. The defendants filed a motion to dismiss
the amended complaint with prejudice on February 1, 1999. By
decision dated December 21, 1999, the New York Supreme Court
dismissed the case with prejudice. However, on March 3, 2000,
plaintiffs appealed the trial court's dismissal of their case.
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 the Units in
the Partnership.
(b) Holders
The number of holders of Units at December 31, 2000 was
approximately 5,517.
(c) Distributions
No distributions have been made by the Partnership since it
commenced trading operations on February 1, 1991. 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,
2000 1999 1998 1997
1996
Total Revenues
(including interest) 15,787,350 4,487,760 24,626,159 21,459,210
28,663,110
Net Income (Loss) 6,757,737 (8,217,948) 11,471,105 10,733,401
18,393,949
Net Income (Loss)
Per Unit (Limited
& General Partners) 238.94 (178.06) 224.48 240.57
433.35
Total Assets 97,229,865 111,847,771 133,033,164 135,545,105
91,201,711
Total Limited
Partners' Capital 93,758,471 107,807,427 129,638,096 131,363,711
85,273,194
Net Asset Value Per
Unit 2,658.72 2,419.78 2,597.84
2,373.36 2,132.79
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 MS & Co. and MSIL as clearing brokers in
separate futures and forwards 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 and forwards, it is expected that the
Partnership will continue to own such liquid assets for margin
purposes.
The Partnership's investment in futures and forwards may, from
time to time, be illiquid. Most U.S. futures exchanges limit
fluctuations in prices during a single day by regulations
referred to as "daily price fluctuations limits" or "daily
limits". Trades may not be executed at prices beyond the daily
limit. If the price for a particular futures contract has
increased or decreased by an amount equal to the daily limit,
positions in that futures contract can neither be taken nor
liquidated unless traders are willing to effect trades at or
within the limit. Futures prices have occasionally moved the
daily limit for several consecutive days with little or no
trading. These market conditions could
prevent the Partnership from promptly liquidating its futures
contracts and result in restrictions on redemptions.
There is no limitation on daily price moves in trading forward
contracts on foreign currency. The markets for some world
currencies have low trading volume and are illiquid, which may
prevent the Partnership from trading in potentially profitable
markets or prevent the Partnership from promptly liquidating
unfavorable positions in such markets, subjecting it to
substantial losses. Either of these market conditions could
result in restrictions on redemptions.
The Partnership has never had illiquidity affect a material
portion of its assets.
Capital Resources. The Partnership does not have, or expect to
have, any capital assets. Redemptions of Units in the future
will affect the amount of funds available for investments in
futures and forwards 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 and forwards markets. The following presents a summary
of the Partnership's operations for the three years ended
December 31, 2000 and a general discussion of its trading
activities during each period. It is important to note, however,
that the Trading 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 as a whole and how the
Partnership has performed in the past.
At December 31, 2000, the Partnership's total capital was
$95,289,891, a decrease of $13,911,327 from the Partnership's
total capital of $109,201,218 at December 31, 1999. For the year
ended December 31, 2000, the Partnership generated net income of
$6,757,737, and total redemptions aggregated $20,669,064.
For the year ended December 31, 2000, the Partnership recorded
total trading revenues, including interest income, of $15,787,350
and posted an increase in net asset value per Unit. Overall,
three major themes developed during the year; the rise in energy
prices, the decline and revival of the euro, and the bond rally
caused by expectations of the central banks easing in the face of
an economic slowdown. All were interrelated and display how
different trends will feed on each other to create continual or
rotating opportunities across sectors. Energy positions were the
primary driver of performance, with gains of approximately 9.4%
in year to date performance for the Partnership. The price rise
in crude oil futures was due to a shortage of production to meet
the unexpected high demand around the world. The demand side of
the equation was the main driver of price. Futures positions in
global stock indices, currencies and interest rates also fared
well for the year. Positions in interest rate futures benefited
when, from a level of 4.75% in May of 1999, the Federal Reserve
Bank increased the target rate six times, reaching a high of 6.5%
in May of 2000. Given the lagged relationship between changes in
money and real economic activity and inflation, the impact of the
tightening was not fully realized until the fourth quarter. All
this upheaval created profitable opportunities in the fourth
quarter with a stock market sell-off matched by a tremendous bond
rally. Currencies benefited from the strong trend in the euro,
but the deterioration of the yen during the last two months of
2000 from the economic problems in Japan was a key boost to this
sector. Metals and agricultural commodity futures ended the year
unprofitable. Metals primarily suffered from positions in gold
futures and agricultural commodities from cotton futures. Total
expenses for the year were $9,029,613, resulting in net income of
$6,757,737. The net asset value of a Unit increased from
$2,419.78 at December 31, 1999 to $2,658.72 at December 31, 2000.
At December 31, 1999, the Partnership's total capital was
$109,201,218, a decrease of $21,933,234 from the Partnership's
total capital of $131,134,452 at December 31, 1998. For the year
ended December 31, 1999, the Partnership generated a net loss of
$8,217,948, and total redemptions aggregated $13,715,286.
For the year ended December 31, 1999, the Partnership recorded
total trading revenues, including interest income, of $4,487,760
and, after expenses, posted a decrease in net asset value per
Unit. The most significant losses, approximately 10.36%, were
recorded from global interest rate futures trading as the
volatile and choppy price movement experienced during the year
limited the ability to capitalize on trends. During the fourth
quarter, most global bond markets dropped on a resurgence of
inflation and interest rate fears initiated by consistently
strong U.S. economic data, evidence of rising inflation in
Germany, and increases in oil prices. Additional losses of
approximately 8.64% were recorded in metals, primarily from
trading silver and gold futures as supply and demand concerns
resulted in short-term volatility later in the year. In the
global stock index futures markets, the reversal and whipsaw
conditions that prevailed during the fourth quarter also resulted
in losses of approximately 1.38% for the Partnership. A portion
of the Partnership's overall losses was offset by gains of
approximately 8.29% recorded in the energy markets primarily from
long crude oil futures positions as oil
prices trended higher throughout a majority for the year.
Additional gains of approximately 6.93% were recorded in the
currency markets due primarily to the re-emergence of the upward
momentum in the U.S. dollar relative to the euro and Swiss franc,
as well as the continued strength of the Japanese yen versus
other major currencies during November. Total expenses for the
year were $12,705,708, resulting in a net loss of 8,217,948. The
net asset value of a Unit decreased from $2,597.84 at December
31, 1998 to $2,419.78 at December 31, 1999.
At December 31, 1998, the Partnership's total capital was
$131,134,452, a decrease of $2,498,192 from the Partnership's
total capital of $133,632,644 at December 31, 1997. For the year
ended December 31, 1998, the Partnership generated net income of
$11,471,105, and total redemptions aggregated $13,969,297.
For the year ended December 31, 1998, the Partnership recorded
total trading revenues, including interest income, of $24,626,159
and posted an increase in net asset value per Unit. The
Partnership profited during 1998, primarily from gains of
approximately 17.55% recorded in the global interest rate futures
markets. Long futures positions in Japanese government bonds
were profitable as prices moved steadily higher during the first
half of the year in reaction to declining interest rates in
Japan. Later in the year, profits were recorded in this same
market from
short positions as prices moved lower following a sharp spike
higher in Japanese bond yields during December. Additional gains
were recorded from long positions in European interest rate
futures, particularly German bond futures, as prices increased as
investors flocked to the safety of fixed income investments amid
the economic turmoil in Asia and emerging nations. Gains of
approximately 3.33% were recorded in the energy markets,
primarily from short positions in crude oil futures as oil prices
fell throughout a majority of the year, despite tensions in the
Middle East, on reports of a supply surplus. Total expenses for
the year were $13,155,054, resulting in net income of
$11,471,105. The net asset value of a Unit increased from
$2,373.36 at December 31, 1997 to $2,597.84 at December 31, 1998.
The Partnership's overall performance record represents varied
results of trading in different futures and forwards markets.
For a further description of 2000 trading results, refer to the
letter to the Limited Partners in the accompanying Annual Report
to Limited Partners for the year ended December 31, 2000, 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 and forwards in a
portfolio of agricultural commodities, energy products, foreign
currencies, interest rates, precious and base metals, soft
commodities and stock indices. 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 and forwards
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 forwards contracts with a
counterparty, the sole recourse of the Partnership will be the
forwards contract 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, with respect to forward contract trading, the Partnership
trades with only those counterparties which Demeter, together
with DWR, have determined to be creditworthy. The Partnership
presently deals with MS & Co. as the sole counterparty on 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, 2000, which is incorporated by reference
to Exhibit 13.01 of in this Form 10-K.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Introduction
The Partnership is a commodity pool involved in the speculative
trading of futures and forwards. 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 and forwards traded by the Partnership involve
varying degrees of related market risk. Market risk is often
dependent upon changes in the level or volatility of interest
rates, exchange rates, and prices of financial instruments and
commodities. Fluctuations in market risk based upon these
factors result in frequent changes in the fair value of 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 Partner-
ship'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 and forwards 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 table indicates the VaR associated with the
Partnership's open positions as a percentage of total net assets
by primary market risk category as of December 31, 2000 and 1999.
As of December 31, 2000 and 1999, the Partnership's total
capitalization was approximately $95 million and $109 million,
respectively.
Primary Market December 31, 2000 December 31, 1999
Risk Category Value at Risk Value at Risk
Interest Rate (3.41)% (0.86)%
Currency (2.21) (1.37)
Equity (0.70) (0.40)
Commodity (1.04) (0.66)
Aggregate Value at Risk (4.30)% (1.72)%
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, 2000 and 1999 only and is not
necessarily representative of either the historic or future risk
of an investment in the Partnership. Because the Partnership's
only business is the speculative trading of futures and forwards,
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 December 31, 2000 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, 2000 through December 31, 2000.
Primary Market Risk Category High Low Average
Interest Rate (3.41)% (1.10)% (2.13)%
Currency (2.38) (1.73) (2.02)
Equity (1.12) (0.67) (0.81)
Commodity (1.71) (1.04) (1.36)
Aggregate Value at Risk (4.30)% (2.85)% (3.36)%
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
usually found in other investments. The relative size of the
positions held may cause the Partnership to incur losses greatly
in excess of VaR within a short period of time, given the effects
of the leverage employed and market volatility. The VaR tables
above, as well as the past performance of the Partnership, give
no indication of such "risk of ruin". In addition, VaR risk
measures should be viewed in light of the methodology's
limitations, which include the following:
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, 2000 and 1999 and for the end of
the four quarterly reporting periods during calendar year 2000.
Since VaR is based on historical data, VaR should not be viewed
as predictive of the Partnership's future financial performance
or its ability to manage or monitor risk. There can be no
assurance that the Partnership's actual losses on a particular
day will not exceed the VaR amounts indicated above or that such
losses will not occur more than once in 100 trading days.
Non-Trading Risk
The Partnership has non-trading market risk on its foreign cash
balances not needed for margin. These balances and any market
risk they may represent are immaterial. At December 31, 2000, the
Partnership's cash balance at DWR was approximately 83% of its
total net asset value. A decline in short-term interest rates
will result in a decline in the Partnership's cash management
income. This cash flow risk is not considered to be material.
Materiality, as used throughout this section, is based on an
assessment of reasonably possible market movements and any
associated potential losses taking into account the leverage,
optionality and multiplier features of 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 as of December 31, 2000, by market sector. It may be
anticipated however, that these market exposures will vary
materially over time.
Interest Rate. The primary market exposure of the Partnership at
December 31, 2000, was in the global interest rate complex.
Exposure was primarily spread across the European, Japanese, and
U.S. 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 that have the most effect on the Partnership are
changes in long-term, as opposed to short-term rates. Most of
the speculative futures positions held by the Partnership are in
medium- to long-term instruments. Consequently, even a material
change in short-term rates would have little effect on the
Partnership, were the medium- to long-term rates to remain
steady.
Currency. The second largest market exposure at December 31,
2000, was in the currency sector. The Partnership's currency
exposure is to exchange rate fluctuations, primarily fluctuations
which disrupt the historical pricing relationships between
different currencies and currency pairs. Interest rate changes
as well as political and general economic conditions influence
these fluctuations. The Partnership trades in a large number of
currencies. For the fourth quarter of 2000, the Partnership's
major exposures were to outright U.S. dollar positions. Outright
positions consist of the U.S. dollar vs. other currencies. These
other currencies include major and minor currencies. 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
U.S. dollars.
Equity. The primary equity exposure at December 31, 2000 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. As of December 31, 2000, the
Partnership's primary exposures were to the NASDAQ (U.S.), DAX
(Germany), and S&P 500 (U.S.) 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.
Commodity.
Energy. At December 31, 2000, the Partnership's energy exposure
was shared primarily by futures contracts in the crude oil and
natural gas markets. Price movements in these markets result
from political developments in the Middle East, weather patterns,
and other economic fundamentals. It is possible that volatility
will remain high. Significant profits and losses, which have
been experienced in the past, are expected to continue to be
experienced in this market. Natural gas has exhibited volatility
in prices resulting from weather patterns and supply and demand
factors and may continue in this choppy pattern.
Metals. The Partnership's primary metals market exposure at
December 31, 2000 was to fluctuations in the price of gold and
silver. Although the Trading Manager will, from time to time,
trade base metals such as copper and aluminum, the principal
market exposures of the Partnership have consistently been in
precious metals, such as gold and silver. Gold prices continued
to be volatile during the quarter. Silver prices remained
volatile over this period as well and the Trading Manager has,
from time to time, taken positions as market opportunities
developed. Demeter anticipates that gold and silver will remain
the primary metals market exposure for the Partnership.
Soft Commodities and Agriculturals. At December 31, 2000, the
Partnership had exposure to the markets that comprise these
sectors. Most of the exposure, however, was to the sugar, corn,
and cotton 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 was the only non-trading risk exposure of the
Partnership at December 31, 2000:
Foreign Currency Balances. The Partnership's primary
foreign currency balances at December 31, 2000 were in
Australian dollars and euros. The Partnership controls the
non-trading risk of these balances by regularly converting
these balances back into dollars upon liquidation of the
respective position.
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 instrument, cash. Cash is the only Partnership
investment 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:
Summary of Quarterly Results (Unaudited)
Net
Income/
(Loss) Per
Quarter Net Unit of Limited
Ended Revenue Income/(Loss)
Partnership Interest
2000
March 31 $ 393,845 $ (2,256,999) $ (53.10)
June 30 (9,199,908) (11,522,962) (276.61)
September 30 (5,677,226) (7,660,386) (195.95)
December 31 30,270,639 28,198,084 764.60
Total $15,787,350 $ 6,757,737 $ 238.94
1999
March 31 $ 1,801,802 $ (1,131,613) $ (22.18)
June 30 14,203,744 9,860,448 203.01
September 30 (5,195,544) (8,041,370) (168.91)
December 31 (6,322,242) (8,905,413) (189.98)
Total $ 4,487,760 $ (8,217,948) $(178.06)
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 40, is Chairman of the Board, President and
a Director of Demeter. Mr. Murray is also Chairman of the Board,
President and a Director of Dean Witter Futures & Currency
Management Inc. ("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 previously served as Vice
Chairman and a Director of the Managed Funds Association, an
industry association for investment professionals in futures,
hedge funds and other alternative investments. Mr. Murray
graduated from Geneseo State University in May 1983 with a B.A.
degree in Finance.
Mitchell M. Merin, age 47, is a Director of 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, an affiliate of DWR, 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 55, 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 59, is a Director of Demeter. Mr.
Oelsner is currently an Executive Vice President and head of the
Product Development Group at Morgan Stanley Dean Witter Advisors.
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.
Richard A. Beech, age 49, 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.
Raymond A. Harris, age 44, 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.
Anthony J. DeLuca, age 38, became a Director of Demeter on
September 14, 2000. Mr. DeLuca is also a Director of DWFCM. Mr.
DeLuca was appointed the Controller of Asset Management for MSDW
in June 1999. Prior to that, Mr. DeLuca was a partner at the
accounting firm of Ernst & Young LLP, where he had MSDW as a
major client. Mr. DeLuca had worked continuously at Ernst &
Young LLP ever since 1984, after he graduated from Pace
University with a B.B.A. degree in Accounting.
Raymond E. Koch, age 45, is Chief Financial Officer of Demeter.
Effective July 10, 2000, Mr. Koch replaced Mr. Raibley as Chief
Financial Officer of Demeter. Mr. Koch began his career at MSDW
in 1988, has overseen the Managed Futures Accounting function
since 1992, and is currently First Vice President, Director of
Managed Futures and Realty Accounting. From November 1979 to
June 1988, Mr. Koch held various positions at Thomson McKinnon
Securities, Inc. culminating as Manager, Special Projects in the
Capital Markets Division. From August 1977 to November 1979 he
was an auditor, specializing in financial services at Deloitte
Haskins and Sells. Mr. Koch received his B.B.A. in accounting
from Iona College in 1977, an M.B.A. in finance from Pace
University in 1984 and is a Certified Public Accountant.
Lewis A. Raibley, III, age 38, served as Vice President, Chief
Financial Officer, and a Director of Demeter and DWFCM until his
resignation from MSDW on July 1, 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, 2000, 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, 2000,
Demeter owned 576 Units of General Partnership Interest
representing a 1.61 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
Financial Statements", in the accompanying Annual Report to
Limited Partners for the year ended December 31, 2000, 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 commissions (paid and accrued by the
Partnership) of $5,075,941 for the year ended December 31, 2000.
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 or the year ended December 31, 2000, 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, 2000, 1999 and 1998.
- - Statements of Financial Condition as of December 31, 2000
and
1999.
- - Statements of Operations, Changes in Partners' Capital, and
Cash Flows for the years ended December 31, 2000, 1999 and 1998.
- - Notes to 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, 2000, 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 PORTFOLIO
STRATEGY FUND L.P.
(Registrant)
BY: Demeter Management
Corporation,
General Partner
March 30, 2001 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, 2001
Robert E. Murray, Director,
Chairman of the Board and
President
/s/ Mitchell M. Merin March 30, 2001
Mitchell M. Merin, Director
/s/ Joseph G. Siniscalchi March 30, 2001
Joseph G. Siniscalchi, Director
/s/ Edward C. Oelsner III March 30, 2001
Edward C. Oelsner III, Director
/s/ Richard A. Beech March 30, 2001
Richard A. Beech, Director
/s/ Raymond A. Harris March 30, 2001
Raymond A. Harris, Director
/s/ Anthony J. DeLuca March 30, 2001
Anthony J. DeLuca, Director
/s/ Raymond E. Koch March 30, 2001
Raymond E. Koch, Chief
Financial Officer and Principal
Accounting Officer
EXHIBIT INDEX
ITEM
3.01 Limited Partnership Agreement of the Partnership, dated as
of August 28, 1990 is incorporated by reference to Exhibit
3.01 and Exhibit 3.02 of the Partnership's Registration
Statement on Form S-1 (File No. 33-36656).
10.01 Form of Amended and Restated Management Agreement
among the Partnership, Demeter and JWH dated as of May 12, 1997
is incorporated by reference to Exhibit 10.02 of the
Partnership's Registration Statement on Form S-1 (File No. 333-
24109).
10.02 Form of Amended and Restated Customer Agreement
Between the Partnership and DWR Inc. dated as of September 1,
1996 is incorporated by reference to Exhibit 10.02 of the
Partnership's Registration Statement on Form S-1 (File No. 333-
24109).
10.03 Amended and Restated Customer Agreement dated as of
December 1, 1997, between the Partnership and Dean Witter
Reynolds Inc. is incorporated by reference to Exhibit 10.02 of
the Partnership's Quarterly Report on form 10-Q for the quarter
ended March 31, 2000, (File No. 0-19046).
10.04 Customer
Agreement dated as of December 1, 1997, between the
Partnership, Carr Futures, Inc., and Dean Witter
Reynolds Inc. is incorporated by reference to Exhibit 10.03
of the Partnership's Quarterly Report on Form 10-Q for the
quarter ended March 31, 2000, (File No. 0-19046).
10.05
International Foreign Exchange Master Agreement dated as
of August 1, 1997, between the Partnership and Carr
Futures, Inc. is incorporated by reference to exhibit 10.04
of the Partnership's Quarterly Report on Form 10-Q for the
quarter ended March 31, 2000, (File No. 0-19046).
10.06 Customer
Agreement, dated as of May 1, 2000, between Morgan
Stanley & Co. Incorporated, the Partnership and Dean Witter
Reynolds Inc. is incorporated by reference to Exhibit 10.06
of the Partnership's Quarterly Report on Form 10-Q for the
quarter ended June 30, 2000, (File No. 0-19046).
10.07 Amendment to Amended and Restated Management Agreement
between the Partnership and John W. Henry & Company, Inc.,
dated November 30, 2000, is incorporated by reference to
the Partnership's Form 8-K, filed with the Securities and
Exchange Commission on January 3, 2001.
13.01 Annual Report to Limited Partners for the year ended
December 31, 2000 is filed herewith.
Portfolio
Strategy
Fund
December 31, 2000
Annual Report
MORGAN STANLEY DEAN WITTER
Dean Witter Portfolio Strategy Fund L.P.
Historical Fund Performance
Presented below is the percentage change in Net Asset Value per Unit from the
start of each calendar year the Fund has traded. Also provided is the incep-
tion-to-date return and the annualized return since inception for the Fund.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
Year Return
---- ------
1991 (11 months) 27.7%
1992 -6.4%
1993 19.9%
1994 -5.4%
1995 25.4%
1996 25.5%
1997 11.2%
1998 9.5%
1999 -6.9%
2000 9.9%
Inception-to-Date
Return: 165.9%
Annualized Return: 10.4%
Demeter Management Corporation
Two World Trade Center
62nd Floor
New York, NY 10048
Telephone (212) 392-8899
Dean Witter Portfolio Strategy Fund L.P.
Annual Report
2000
Dear Limited Partner:
This marks the tenth annual report for the Dean Witter Portfolio Strategy Fund
L.P. (the "Fund"). The Fund began the year trading at a Net Asset Value per
Unit of $2,419.78 and increased by 9.9% to $2,658.72 on December 31, 2000. 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 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 Portfolio Strategy Fund L.P.
Annual Report of the Trading Manager
Overall, three major themes developed during the year; the rise in energy
prices, the decline and revival of the euro, and the bond rally caused by ex-
pectations of the central banks easing in the face of an economic slowdown.
All were interrelated and display how different trends will feed on each other
to create continual or rotating opportunities across sectors. Energy positions
were the primary driver of performance for the Fund. The price rise in crude
oil futures was not a traditional supply shock as much as a shortage of pro-
duction to meet the unexpected high demand around the world. The high demand,
especially in the U.S., precipitated a price spike which now has started to
affect overall economic production and consumer behavior around the world.
OPEC potentially can increase production to meet most demand, but currently it
is expected to drop production in order to stabilize price. The demand side of
the equation has been the main driver of price. Futures positions in global
stock indices, currencies and interest rates also fared well for the year. Po-
sitions in interest rate futures benefited when, from a level of 4.75% in May
of 1999, the Fed increased the target rate six times, reaching a high of 6.5%
in May of 2000. Given the lagged relationship between changes in money and
real economic activity and inflation, the impact of the tightening was not
fully realized until the fourth quarter. All this upheaval created profitable
opportunities in the fourth quarter with a stock market selloff matched by a
tremendous bond rally. Currencies benefited from the strong trend in the euro,
but the deterioration of the yen during the last two months from the economic
problems in Japan was a key boost to this sector. Metals and agricultural com-
modity futures trading ended the year unprofitable. Metals primarily suffered
from positions in gold futures and agricultural commodities suffered from
trading cotton futures.
John W. Henry & Co., Inc.
Note: Investors are cautioned that past results are not necessarily indicative
of future results.
Dean Witter Portfolio Strategy Fund L.P.
Independent Auditors' Report
The Limited Partners and the General Partner:
We have audited the accompanying statements of financial condition of Dean
Witter Portfolio Strategy Fund L.P. (the "Partnership") as of December 31,
2000 and 1999 and the related statements of operations, changes in partners'
capital, and cash flows for each of the three years in the period ended Decem-
ber 31, 2000. These financial statements are the responsibility of the Part-
nership's management. Our responsibility is to express an opinion on these fi-
nancial statements based on our audits.
We conducted our audits in accordance with auditing standards generally ac-
cepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the finan-
cial statements are free of material misstatement. An audit includes examin-
ing, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting princi-
ples used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits pro-
vide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material re-
spects, the financial position of Dean Witter Portfolio Strategy Fund L.P. at
December 31, 2000 and 1999 and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2000 in
conformity with accounting principles generally accepted in the United States
of America.
/s/ Deloitte & Touche LLP
New York, New York
February 16, 2001
Dean Witter Portfolio Strategy Fund L.P.
Statements of Financial Condition
December 31,
-----------------------
2000 1999
---------- -----------
$ $
ASSETS
Equity in futures interests trading
accounts:
Cash 79,569,551 106,349,715
Net unrealized gain on open contracts (MS&Co.) 17,317,039 --
Net unrealized loss on open contracts (MSIL) (73,456) --
Net unrealized gain on open contracts (Carr) -- 5,114,349
---------- -----------
Total net unrealized gain on open contracts 17,243,583 5,114,349
---------- -----------
Total Trading Equity 96,813,134 111,464,064
Interest receivable (DWR) 370,732 383,707
Due from DWR 45,999 --
---------- -----------
Total Assets 97,229,865 111,847,771
========== ===========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES
Redemptions payable 1,683,288 2,177,256
Management fees payable 161,622 372,503
Accrued administrative expenses 95,064 96,794
---------- -----------
Total Liabilities 1,939,974 2,646,553
---------- -----------
PARTNERS' CAPITAL
Limited Partners (35,264.577 and
44,552.639 Units, respectively) 93,758,471 107,807,427
General Partner (576 Units) 1,531,420 1,393,791
---------- -----------
Total Partners' Capital 95,289,891 109,201,218
---------- -----------
Total Liabilities and
Partners' Capital 97,229,865 111,847,771
========== ===========
NET ASSET VALUE PER UNIT 2,658.72 2,419.78
========== ===========
The accompanying notes are an integral part of these financial statements.
Dean Witter Portfolio Strategy Fund L.P.
Statements of Operations
For the Years Ended
December 31,
----------------------------------
2000 1999 1998
---------- ---------- ----------
$ $ $
REVENUES
Trading profit (loss):
Realized (586,022) 7,743,552 16,456,361
Net change in unrealized 12,129,234 (7,827,197) 3,170,468
---------- ---------- ----------
Total Trading Results 11,543,212 (83,645) 19,626,829
Interest income (DWR) 4,244,138 4,571,405 4,999,330
---------- ---------- ----------
Total Revenues 15,787,350 4,487,760 24,626,159
---------- ---------- ----------
EXPENSES
Brokerage commissions (DWR) 5,075,941 5,623,369 5,432,337
Management fees 3,475,062 5,010,318 5,143,609
Transaction fees and costs 351,610 391,572 388,815
Administrative expenses 127,000 132,000 115,000
Incentive fees -- 1,548,449 2,075,293
---------- ---------- ----------
Total Expenses 9,029,613 12,705,708 13,155,054
---------- ---------- ----------
NET INCOME (LOSS) 6,757,737 (8,217,948) 11,471,105
========== ========== ==========
Net Income (Loss) Allocation:
Limited Partners 6,620,108 (8,115,383) 11,269,411
General Partner 137,629 (102,565) 201,694
Net Income (Loss) per Unit:
Limited Partners 238.94 (178.06) 224.48
General Partner 238.94 (178.06) 224.48
Statements of Changes in Partners' Capital
For the Years Ended December 31, 2000, 1999 and 1998
Units of
Partnership Limited General
Interest Partners Partner Total
----------- ----------- --------- -----------
$ $ $
Partners' Capital,
December 31, 1997 56,305.245 131,363,711 2,268,933 133,632,644
Net income -- 11,269,411 201,694 11,471,105
Redemptions (5,826.995) (12,995,026) (974,271) (13,969,297)
---------- ----------- --------- -----------
Partners' Capital,
December 31, 1998 50,478.250 129,638,096 1,496,356 131,134,452
Net loss -- (8,115,383) (102,565) (8,217,948)
Redemptions (5,349.611) (13,715,286) -- (13,715,286)
---------- ----------- --------- -----------
Partners' Capital,
December 31, 1999 45,128.639 107,807,427 1,393,791 109,201,218
Net income -- 6,620,108 137,629 6,757,737
Redemptions (9,288.062) (20,669,064) -- (20,669,064)
---------- ----------- --------- -----------
Partners' Capital,
December 31, 2000 35,840.577 93,758,471 1,531,420 95,289,891
========== =========== ========= ===========
The accompanying notes are an integral part of these financial statements.
Dean Witter Portfolio Strategy Fund L.P.
Statements of Cash Flows
For the Years Ended
December 31,
-------------------------------------
2000 1999 1998
----------- ----------- -----------
$ $ $
CASH FLOWS FROM
OPERATING ACTIVITIES
Net income (loss) 6,757,737 (8,217,948) 11,471,105
Noncash item included in net income
(loss):
Net change in unrealized (12,129,234) 7,827,197 (3,170,468)
(Increase) decrease in operating
assets:
Interest receivable (DWR) 12,975 (17,007) 126,917
Due from DWR (45,999) -- --
Increase (decrease) in operating
liabilities:
Management fees payable (210,881) (70,665) (8,395)
Accrued administrative expenses (1,730) 11,791 8,927
Incentive fees payable -- (305,087) (496,028)
----------- ----------- -----------
Net cash provided by (used
for) operating activities (5,617,132) (771,719) 7,932,058
----------- ----------- -----------
CASH FLOWS FROM
FINANCING ACTIVITIES
Increase (decrease) in redemptions
payable (493,968) 1,111,802 481,747
Redemptions of Units (20,669,064) (13,715,286) (13,969,297)
----------- ----------- -----------
Net cash used
for financing activities (21,163,032) (12,603,484) (13,487,550)
----------- ----------- -----------
Net decrease in cash (26,780,164) (13,375,203) (5,555,492)
Balance at beginning of period 106,349,715 119,724,918 125,280,410
----------- ----------- -----------
Balance at end of period 79,569,551 106,349,715 119,724,918
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
Dean Witter Portfolio Strategy Fund L.P.
Notes to Financial Statements
1. Summary of Significant Accounting Policies
Organization--Dean Witter Portfolio Strategy Fund L.P. (the "Partnership") is
a limited partnership organized to engage primarily in the speculative trading
of futures and forward contracts on physical commodities 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"). Morgan Stanley & Co., Inc. ("MS&Co.") and Morgan Stanley & Co. Inter-
national Limited ("MSIL") provide clearing and execution services. Prior to
May 2000, Carr Futures Inc. ("Carr") provided clearing and execution services
to the Partnership. Demeter, DWR, MS&Co. and MSIL are wholly-owned subsidiar-
ies of Morgan Stanley Dean Witter & Co. ("MSDW").
John W. Henry & Company, Inc. ("JWH") is the trading manager of the Partner-
ship.
Effective February 19, 1998, Morgan Stanley, Dean Witter, Discover & Co.
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 ac-
counting principles generally accepted in the United States of America, which
require management to make estimates and assumptions that affect the reported
amounts in the financial statements and related disclosures. Management be-
lieves that the estimates utilized in the preparation of the financial state-
ments are prudent and reasonable. Actual results could differ from those esti-
mates.
Revenue Recognition--Futures interests are open commitments until settlement
date. They are valued at market on a daily basis and the resulting net change
in unrealized gains and losses is reflected in the change in unrealized profit
(loss) on open contracts from one period to the next in the statements of op-
erations. Monthly, DWR pays the Partnership interest income based upon 80% of
the average daily Net Assets for the month at a prevailing rate for U.S. Trea-
sury bills. For purposes of such interest payments, Net Assets do not include
monies due the Partnership on futures interests, but not actually received.
Net Income (Loss) per Unit--Net income (loss) per Unit is computed using the
weighted average number of Units outstanding during the period.
Dean Witter Portfolio Strategy Fund L.P.
Notes to 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, MS&Co. and MSIL to
be used as margin for trading; and (B) net unrealized gains or losses on open
contracts which are valued at market, and calculated as the difference between
original contract value and market value.
The Partnership, in the normal course of business, enters into various con-
tracts with MS&Co. and MSIL acting as its commodity brokers. Pursuant to bro-
kerage agreements with MS&Co. and MSIL, to the extent that such trading re-
sults 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
master netting agreement with MS&Co., the sole counterparty on such contracts.
The Partnership has consistently applied its right to offset.
Brokerage Commissions and Related Transaction Fees and Costs--The Partnership
accrues brokerage commissions on a half-turn basis at 80% of DWR's published
non-member rates. Transaction fees and costs are accrued on a half-turn basis.
Brokerage commissions and transaction fees are capped at 13/20 of 1% per month
(a 7.8% maximum annual rate) of the Partnership's month-end Net Assets applied
on a per trading program basis.
Operating Expenses--The Partnership bears all operating expenses related to
its trading activities, to a maximum of 1/4 of 1% annually of the Partner-
ship's average month-end Net Assets. These include filing fees, clerical, ad-
ministrative, auditing, accounting, mailing, printing and other incidental op-
erating expenses as permitted by the Limited Partnership Agreement. In addi-
tion, the Partnership incurs a monthly management fee and may incur an incen-
tive fee. Demeter and/or DWR bear all other operating expenses, including ex-
penses which would be incurred if the Partnership were required to register as
an investment company.
Redemptions--Limited Partners may redeem some or all of their Units at 100% of
the Net Asset Value per Unit as of the last day of any month that is six
months after the closing at which a person becomes a Limited Partner, upon
five business days advance notice by redemption form to Demeter.
Dean Witter Portfolio Strategy Fund L.P.
Notes to Financial Statements--(Continued)
Distributions--Distributions, other than redemptions of Units, are made on a
pro-rata basis at the sole discretion of Demeter. No distributions have been
made to date.
Income Taxes--No provision for income taxes has been made in the accompanying
financial statements, as partners are individually responsible for reporting
income or loss based upon their respective share of 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.
2. Related Party Transactions
The Partnership pays brokerage commissions to DWR as described in Note 1. The
Partnership's cash is on deposit with DWR, MS&Co. and MSIL in futures inter-
ests trading accounts to meet margin requirements as needed. DWR pays interest
on these funds as described in Note 1.
3. Trading Manager
Compensation to JWH consists of a management fee and an incentive fee as fol-
lows:
Management Fee--The Partnership pays a monthly management fee equal to 1/6 of
1% per month (a 2% annual rate) of the Partnership's adjusted Net Assets, as
defined in the Limited Partnership Agreement, as of the last day of each
month. Prior to December 1, 2000, the management fee was equal to 1/3 of 1%
per month (a 4% annual rate).
Incentive Fee--The Partnership pays a quarterly incentive fee equal to 20% of
the Partnership's new appreciation of its Net Assets as of the end of each
calendar quarter. Prior to December 1, 2000, the quarterly incentive fee was
equal to 15% of the Partnership's new appreciation of its Net Assets as of the
end of each calendar quarter. New appreciation represents the amount by which
Net Assets are increased by profits from futures, forwards and options trading
that exceed losses after brokerage commissions, management fees, transaction
fees and costs and administrative expenses are deducted. Such incentive fee is
accrued in each month in which new appreciation occurs. In those months in
which new appreciation is negative,
Dean Witter Portfolio Strategy Fund L.P.
Notes to Financial Statements--(Continued)
previous accruals, if any, during the incentive period are reduced. In those
instances in which a Limited Partner redeems an investment, the incentive fee
(if earned through a redemption date) is paid to JWH on those redemptions in
the month of such redemptions.
4. Financial Instruments
The Partnership trades primarily futures and forward contracts on physical
commodities and other commodity interests. Futures and forwards represent con-
tracts 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 in-
ability 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 Deriv-
ative Instruments and Hedging Activities" effective for fiscal years beginning
after June 15, 2000, as amended by SFAS No. 137. The Partnership adopted the
provisions of SFAS No. 133 beginning with the fiscal year ended December 31,
1998. SFAS No. 133 superceded SFAS Nos. 119 and 105, which required the dis-
closure of average aggregate fair values and contract/notional values, respec-
tively, of derivative financial instruments for an entity that carries its as-
sets at fair value. SFAS No. 133 was further amended by SFAS No. 138, which
clarifies issues surrounding interest rate risk, foreign currency denomina-
tions, normal purchases and sales and net hedging. The application of SFAS No.
133, as amended by SFAS No. 137 and SFAS No. 138, did not have a significant
effect on the Partnership's financial statements.
SFAS No. 133 defines a derivative as a financial instrument or other contract
that has all three of the following characteristics:
(1) One or more underlying notional amounts or payment provisions;
(2) Requires no initial net investment or a smaller initial net investment
than would be required relative to changes in market factors;
(3) Terms require or permit net settlement.
Generally derivatives include futures, forwards, swaps or option contracts, or
other financial instruments with similar characteristics such as caps, floors
and collars.
The net unrealized gains on open contracts are reported as a component of "Eq-
uity in futures interests trading accounts" on
Dean Witter Portfolio Strategy Fund L.P.
Notes to Financial Statements--(Continued)
the statements of financial condition and totaled $17,243,583 and $5,114,349
at December 31, 2000 and 1999, respectively.
Of the $17,243,583 net unrealized gain on open contracts at December 31, 2000,
$14,793,592 related to exchange-traded futures contracts and $2,449,991 re-
lated to off-exchange- traded currency contracts.
Of the $5,114,349 net unrealized gain on open contracts at December 31, 1999,
$4,663,628 related to exchange-traded futures contracts and $450,721 related
to off-exchange- traded forward currency contracts.
Exchange-traded futures contracts held by the Partnership at December 31, 2000
and 1999 mature through December 2001 and December 2000, respectively. Off-ex-
change-traded forward currency contracts held by the Partnership at December
31, 2000 and 1999 mature through March 2001 and March 2000, respectively.
The Partnership has credit risk associated with counterparty nonperformance.
The credit risk associated with the instruments in which the Partnership is
involved is limited to the amounts reflected in the Partnership's statements
of financial condition.
The Partnership also has credit risk because DWR, MS&Co. and MSIL act as the
futures commission merchants or the counterparties with respect to most of the
Partnerships' assets. Exchange-traded futures contracts are marked to market
on a daily basis, with variations in value settled on a daily basis. DWR,
MS&Co. and MSIL each, as a futures commission merchant for the Partnership's
exchange-traded futures 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 contracts, including an amount equal
to the net unrealized gains on all open futures contracts, which funds, in the
aggregate, totaled $94,363,143 and $111,013,343 at December 31, 2000 and 1999,
respectively. With respect to the Partnership's off-exchange-traded forward
currency contracts, there are no daily settlements of variations in value nor
is there any requirement that an amount equal to the net unrealized gains 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 MS&Co., the sole counterparty on all of such contracts, to perform. The
Partnership has a netting agreement with MS&Co. This agreement, which seeks to
reduce both the Partnership's and MS&Co.'s exposure on off-exchange-traded
forward currency contracts, should materially decrease the Partnership's
credit risk in the event of MS&Co.'s bankruptcy or insolvency.
Dean Witter Portfolio Strategy Fund L.P.
Notes to Financial Statements--(Concluded)
5. Legal Matters
Similar class actions were filed in 1996 in California and New York State
courts. Each of the actions were dismissed in 1999. However, the New York
State class action discussed below is still pending because plaintiffs ap-
pealed the trial court's dismissal of their case on March 3, 2000.
On September 18 and 20, 1996, purported class actions were filed in the Su-
preme Court of the State of New York, New York County, on behalf of all pur-
chasers of interests in limited partnership commodity pools sold by DWR. Named
defendants include DWR, Demeter, Dean Witter Futures and Currency Management
Inc., MSDW, the Partnership (under its original name), certain limited part-
nership commodity pools of which Demeter is the general partner and certain
trading managers to those pools. A consolidated and amended complaint in the
action pending in the Supreme Court of the State of New York was filed on Au-
gust 13, 1997, alleging that the defendants committed fraud, breach of fidu-
ciary duty, and negligent misrepresentation in the sale and operation of the
various limited partnership commodity pools. The complaints sought unspecified
amounts of compensatory and punitive damages and other relief. The New York
Supreme Court dismissed the New York action in November 1998, but granted
plaintiffs leave to file an amended complaint, which they did in early Decem-
ber 1998. The defendants filed a motion to dismiss the amended complaint with
prejudice on February 1, 1999. By decision dated December 21, 1999, the New
York Supreme Court dismissed the case with prejudice. However, on March 3,
2000, plaintiffs appealed the trial court's dismissal of their case.
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. 529