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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 33-36656
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 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 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, or the average bid and asked
prices of such units, as of a specified date within 60 days prior
to the date of filing: $130,496,361.44 at January 31, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
(See Page 1)
DEAN WITTER PORTFOLIO STRATEGY 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 . . 7
Part II.
Item 5. Market for the Registrant's Partnership Units and
Related Security Holder Matters . . . . . . . . .
. . 8
Item 6. Selected Financial Data . . . . . . . . . . . . .
. . . 9
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . .
. 10-17
Item 8. Financial Statements and Supplementary Data. . . .
. . 17
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure. . . . . . . .
. . 17
Part III.
Item10. Directors, Executive Officers, Promoters and
Control Persons of the Registrant . . . . . . . .
. 18-22
Item11. Executive Compensation . . . . . . . . . . . . . .
. 22-23
Item12. Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . . .
. . 23
Item13. Certain Relationships and Related Transactions . .
. . 23
Part IV.
Item14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K . . . . . . . . . . . . . . .
. . 24
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. 33-36656) I and IV
Partnership's Registration Statement
on Form S-1 (File No. 333-24109) I and IV
December 31, 1997 Annual Report
for the Dean Witter Portfolio Strategy
II and IV
Fund L.P.
PART I
Item 1. BUSINESS
(a) General Development of Business. Dean Witter
Portfolio Strategy Fund L.P. (formerly Dean Witter Principal
Secured Futures 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 (collectively, "futures interests").
Units of limited partnership interest (Units) in the
Partnership were registered pursuant to a Registration
Statement on Form S-1 (File No. 33-36656) which became
effective on October 30, 1990. 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 1, 1991. 50,000 additional Units in
the Partnership were registered pursuant to the Registration
Statement on Form S-1 (File No. 333-24109) which became
effective on May 12, 1997.
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 $2,373.36, representing an increase
of 11.27 percent from the net asset value per unit of
$2,132.79 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 contracts 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 interests, pursuant to trading instructions provided
by John W. Henry & Company, Inc. ("JWH") its 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 May 12,
1997, filed as part of the Registration Statement on Form S-
1 (see "Documents Incorporated by Reference" Page 1), set
forth on the next page.
Facets of Business
1. Summary 1. "Summary of the
Prospectus"
(Pages 2-9).
2. Commodity Markets 2. "The Commodities
Markets"
(Pages 70-79).
3. Partnership's Commodity 3. "Trading Policies"
(Page Trading Arrangements
and 66). "The Trading Manager"
Policies (Pages 39-65 and
Appendix II).
4. Management of the Part- 4. "The Management
Agreement"
nership (Pages 69-70). "The
General Partner"
(Pages 32-34 and
Appendix I), "The
Commodity Broker" (Pages 66-
68) and "The
Limited Partnership
Agreement" Pages 81-84).
5. Taxation of the Partner- 5. "Federal Income Tax
ship's Limited Partners Aspects" and "State
and Local Income Tax
Aspects" (Pages 87-94).
(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 interest in limited
partnership commodity pools sold by DWR. Named defendants
include DWR, Demeter, Dean Witter Futures & Currency
Management Inc. ("DWFCM"), MSDWD (all such parties referred
to hereafter as the "Dean Witter Parties"), the Partnership
(under its original name), certain other limited partnership
commodity pools of which Demeter is the general partner, and
certain trading advisors (including JWH), to those pools.
On June 16, 1997, the plaintiffs in the above actions filed
a consolidated amended complaint, alleging, among other
things, that the defendants committed fraud, deceit,
negligent misrepresentation, various violations of the
California Corporations Code, intentional and negligent
breach of fiduciary duty, fraudulent and unfair business
practices, unjust enrichment, and conversion in the sale and
operation of the various limited partnership commodity
pools. 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 (including JWH)
on behalf of all purchasers of interests in various limited partnership
commodity pools, including the Partnership, 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 and the Partnership
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 or the
Partnership.
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 8,101. 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. 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) 21,459,210 28,663,110 26,524,038 3,634,209
28,311,393
Net Income (Loss) 10,733,401 18,393,949 18,457,838 (4,221,635)
18,092,489
Net Income (Loss)
Per Unit (Limited
& General Partners) 240.57 433.35
343.86 (77.55) 237.61
Total Assets 135,545,105 91,201,711 82,278,215
78,252,862 102,591,738
Total Limited
Partners' Capital 131,363,711 85,273,194 78,914,381 75,121,362
99,403,283
Net Asset Value Per
Unit of Limited
Partnership Interest 2,373.36 2,132.79 1,699.44 1,355.58
1,433.13
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity. The Partnership's assets are on deposit in
separate commodity interest trading accounts with DWR and
Carr, the commodity brokers, and are used by the Partnership
as margin to engage in commodity futures, forward contracts
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, forward contracts on foreign currencies 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, forward 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.
Either of these market conditions could result in
restrictions on redemptions.
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 a 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 the
partnerships 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 and
sales 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 $133,632,644, an increase of
$46,320,501 from the Partnership's total capital of
$87,312,143, at December 31, 1996. For
the year ended December 31, 1997, the Partnership generated
net income of $10,733,401, subscriptions aggregated
$43,029,509 and total redemptions aggregated $7,442,409.
For the year ended December 31, 1997, the Partnership's
total trading revenues including interest income were
$21,459,210. The Partnership's total expenses for the year
were $10,725,809, resulting in net income of $10,733,401.
The value of an individual unit in the Partnership increased
from $2,132.79 at December 31, 1996 to $2,373.36 at December
31, 1997.
As of December 31, 1996, the Partnership's total capital
was $87,312,143, an increase of $6,773,098 from the
Partnership's total capital of $80,539,045 at December 31,
1995. For the year ended December 31, 1996, the Partnership
generated net income of $18,393,949 and total redemptions
aggregated $11,620,851.
For the year ended December 31, 1996, the Partnership's
total trading revenues including interest income were
$28,663,110. The Partnership's total expenses for the year
were $10,269,161, resulting in
net income of $18,393,949. The value of an individual unit
in the Partnership increased from $1,699.44 at December 31,
1995 to $2,132.79 at December 31, 1996.
As of December 31, 1995, the Partnership's total capital
was $80,539,045, an increase of $4,121,747 from the
Partnership's total capital of $76,417,298 at December 31,
1994. For the year ended December
31, 1995, the Partnership generated net income of
$18,457,838 and total redemptions aggregated $14,336,091.
For the year ended December 31, 1995, the Partnership's
total trading revenues including interest income were
$26,524,038. The Partnership's total expenses for the year
were $8,066,200, resulting in net income of $18,457,838.
The value of an individual unit in the Partnership increased
from $1,355.58 at December 31, 1994 to $1,699.44 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 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,
1997, Demeter owned 956 Units of General Partnership
Interest representing a 1.70 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 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 commissions (paid
and accrued by the Partnership) of $4,200,892 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.
- Statements of Financial Condition as of
December 31, 1997 and 1996.
- Statements of Operations, Changes in Partners'
Capital, and Cash Flows for the years ended
December 31, 1997, 1996 and 1995.
- Notes to 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
PORTFOLIO STRATEGY 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. Limited Partnership Agreement of
the Partnership, dated as of
August 28, 1990. (1)
- -10. Form of Amended and Restated
Management Agreement among the
Partnership, Demeter and JWH
dated as of May 12, 1997. (2)
- -10. Form of Amended and Restated
Customer Agreement Between the
Partnership and DWR Inc. (2)
dated as of September 1, 1996.
- -13. December 31, 1997 Annual Report to Limited Partners. (3)
(1)
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).
(2)
Incorporated by reference to Exhibit 10.02 of the Partnership's
Registration Statement on Form S-1 (File No. 333-24109).
(3)
Filed herewith.
Portfolio
Strategy
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
DEAN WITTER PORTFOLIO STRATEGY FUND L.P.
(FORMERLY DEAN WITTER PRINCIPAL SECURED FUTURES FUND L.P.) ANNUAL REPORT
1997
Dear Limited Partner:
This marks the seventh annual report for the Dean Witter Portfolio Strategy
Fund L.P. (the "Fund"). Please note, as stated in the Fund's prospectus dated
May 12, 1997, effective with the closing of re-offering of the Fund on July 31,
1997, assets were allocated to the following five John W. Henry & Company Inc.
trading programs in equal increments (20% each): Original Investment Program,
Financial and Metals Portfolio, the World Financial Perspective, Global
Financial Portfolio, and International Currency and Bond Portfolio. The Fund
began the year trading at a Net Asset Value per Unit of $2,132.79 and increased
by 11.2% to $2,373.36 on December 31, 1997. Since its inception in 1991, the
Fund has increased by 137.3% (a compound annualized return of 13.3%).
In January, the Fund posted gains as the value of the U.S. dollar increased
relative to the Japanese yen and German mark. Additional gains were recorded
from short gold futures positions as prices declined to their lowest levels in
over three years. The Fund recorded small losses during February as gains from
a continued strengthening of the U.S. dollar were offset by losses from
trendless price movement in the global interest rate futures and metals
markets. During March, the Fund experienced losses from short positions in
energies due to a reversal higher in oil and gas prices early in the month.
Losses were also recorded from long positions in nickel futures as prices
decreased and from trading gold futures as
prices moved in a choppy pattern. Losses were also recorded from short
positions in the German mark.
During April, the Fund recorded losses from long positions in Japanese
government bond futures as prices in this market moved lower. Additional losses
were recorded from short U.S. interest rate futures positions as domestic bond
prices spiked higher during the last week of April after moving lower
previously. During May, the Fund experienced significant losses primarily from
trading the Japanese yen as its value moved without consistent direction.
Smaller losses were recorded from short-term volatile price movement in crude
oil and gold futures. The Fund recorded profits in June primarily from long
positions in Australian and U.S. interest rate futures as prices moved higher.
Additional gains were recorded from long positions in global stock index
futures as most global equity prices moved higher. Smaller gains were recorded
from short gold futures positions.
The Fund recorded significant gains during July from long global bond futures
positions as prices trended higher. Additional gains were recorded in the
currency markets from short German mark and Swiss franc positions as the value
of the U.S. dollar strengthened versus these currencies. A portion of July's
profits was given back during August as prices of most global interest rate
futures reversed lower. Additional losses were recorded in the energy markets
as oil prices moved without consistent direction. In September, the Fund
recorded small losses primarily from transactions involving the British pound
and Swiss franc, as the value of these currencies moved in a trendless pattern.
Additional losses were recorded in energies as oil prices moved without
consistent direction. A majority of these losses was offset by gains recorded
from an upward price move in international interest rate futures.
The Fund recorded gains in currencies during the month of October as a result
of a weakening of the British pound relative to the U.S. dollar. Additional
gains were recorded from long positions in both Japanese and U.S. interest rate
futures as prices in these markets trended upward. In November, the Fund
recorded gains from short Japanese yen positions as the yen's value weakened
versus the U.S. dollar on continued concerns regarding the Asian economic
crisis. Additional gains were experienced from short positions in gold futures
as prices dropped below $300 an ounce, their lowest level in twelve years.
Gains in December were experienced primarily from long silver futures positions
as prices increased on reports of declining inventories. Additional gains were
recorded from long positions in U.S. and European interest rate futures as
prices in these markets increased due to a "flight to quality" by investors in
lieu of the economic turmoil in Asia. Smaller gains were recorded from short
positions in crude oil futures.
Overall, the Fund recorded strong gains in 1997 from sustained price movements
in the currency markets during January and February, and then again in the
fourth quarter from short Japanese yen positions as the value of the U.S.
dollar increased versus the yen. Additional gains were also recorded from long
positions in global interest rate futures as prices in these markets trended
upward during June and July. These gains, coupled with John W. Henry & Company,
Inc.'s ability to limit losses during periods of short-term price volatility
and sharp trend reversals, contributed to the overall success of the Fund
during the year.
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 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. (formerly Dean Witter Principal Secured
Futures Fund L.P.) (the "Partnership") as of December 31, 1997 and 1996 and the
related 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 financial statements present fairly, in all material
respects, the financial position of Dean Witter Portfolio Strategy Fund L.P. as
of December 31, 1997 and 1996 and the results of its operations and its 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 PORTFOLIO STRATEGY FUND L.P.
STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31,
----------------------
1997 1996
----------- ----------
$ $
ASSETS
Equity in Commodity futures trading
accounts:
Cash 125,280,410 87,847,358
Net unrealized gain on open contracts 9,771,078 3,053,880
----------- ----------
Total Trading Equity 135,051,488 90,901,238
Interest receivable (DWR) 493,617 300,473
----------- ----------
Total Assets 135,545,105 91,201,711
=========== ==========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES
Incentive fee payable 801,115 2,587,891
Redemptions payable 583,707 688,115
Management fee payable 451,563 303,128
Accrued administrative expenses 76,076 158,510
Accrued brokerage commissions (DWR) -- 141,879
Accrued transaction fees and costs -- 10,045
----------- ----------
Total Liabilities 1,912,461 3,889,568
----------- ----------
PARTNERS' CAPITAL
Limited Partners (55,349.245 and 39,981.953 Units,
respectively) 131,363,711 85,273,194
General Partner (956 Units) 2,268,933 2,038,949
----------- ----------
Total Partners' Capital 133,632,644 87,312,143
----------- ----------
Total Liabilities and Partners' Capital 135,545,105 91,201,711
=========== ==========
NET ASSET VALUE PER UNIT 2,373.36 2,132.79
=========== ==========
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,
---------------------------------
1997 1996 1995
---------- ---------- ----------
$ $ $
REVENUES
Trading Profit (Loss):
Realized 10,456,265 26,235,502 23,275,553
Net change in unrealized 6,717,198 (567,233) 58,584
---------- ---------- ----------
Total Trading Results 17,173,463 25,668,269 23,334,137
Interest income (DWR) 4,285,747 2,994,841 3,189,901
---------- ---------- ----------
Total Revenues 21,459,210 28,663,110 26,524,038
---------- ---------- ----------
EXPENSES
Brokerage commissions (DWR) 4,200,892 3,416,583 2,700,065
Management fee 4,183,145 3,281,267 3,332,702
Incentive fee 1,927,512 3,278,840 1,587,389
Transaction fees and costs 368,260 233,900 231,876
Administrative expenses 46,000 27,000 108,000
Letter of credit fees -- 31,571 106,168
---------- ---------- ----------
Total Expenses 10,725,809 10,269,161 8,066,200
---------- ---------- ----------
NET INCOME 10,733,401 18,393,949 18,457,838
========== ========== ==========
NET INCOME ALLOCATION:
Limited Partners 10,503,417 17,979,664 18,129,110
General Partner 229,984 414,285 328,728
NET INCOME PER UNIT:
Limited Partners 240.57 433.35 343.86
General Partner 240.57 433.35 343.86
STATEMENTS 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 56,372.344 75,121,362 1,295,936 76,417,298
Net Income -- 18,129,110 328,728 18,457,838
Redemptions (8,980.804) (14,336,091) -- (14,336,091)
---------- ----------- --------- -----------
Partners' Capital, December
31, 1995 47,391.540 78,914,381 1,624,664 80,539,045
Net Income -- 17,979,664 414,285 18,393,949
Redemptions (6,453.587) (11,620,851) -- (11,620,851)
---------- ----------- --------- -----------
Partners' Capital, December
31, 1996 40,937.953 85,273,194 2,038,949 87,312,143
Offering of Units 18,765.082 43,029,509 -- 43,029,509
Net Income -- 10,503,417 229,984 10,733,401
Redemptions (3,397.790) (7,442,409) -- (7,442,409)
---------- ----------- --------- -----------
Partners' Capital,
December 31, 1997 56,305.245 131,363,711 2,268,933 133,632,644
========== =========== ========= ===========
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,
-------------------------------------
1997 1996 1995
----------- ----------- -----------
$ $ $
CASH FLOWS FROM
OPERATING ACTIVITIES
Net income 10,733,401 18,393,949 18,457,838
Noncash item included in net income:
Net change in unrealized (6,717,198) 567,233 (58,584)
(Increase) decrease in operating
assets:
Interest receivable (DWR) (193,144) (47,499) 22,726
Increase (decrease) in operating
liabilities:
Incentive fees payable (1,786,776) 2,267,853 320,038
Management fee payable 148,435 30,225 13,116
Accrued administrative expenses (82,434) (121,245) 68,263
Accrued brokerage
commissions (DWR) (141,879) 42,275 848
Accrued transaction fees and costs (10,045) 3,442 165
Bank fee payable -- (21,336) 21,336
----------- ----------- -----------
Net cash provided by operating
activities 1,950,360 21,114,897 18,845,746
----------- ----------- -----------
CASH FLOWS FROM
FINANCING ACTIVITIES
Offering of Units 43,029,509 -- --
Decrease in redemptions payable (104,408) (50,816) (520,160)
Redemptions of units (7,442,409) (11,620,851) (14,336,091)
----------- ----------- -----------
Net cash provided by (used for)
financing activities 35,482,692 (11,671,667) (14,856,251)
----------- ----------- -----------
Net increase in cash 37,433,052 9,443,230 3,989,495
Balance at beginning of period 87,847,358 78,404,128 74,414,633
----------- ----------- -----------
Balance at end of period 125,280,410 87,847,358 78,404,128
=========== =========== ===========
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. (formerly Dean Witter
Principal Secured Futures 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. 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 John W. Henry & Company, Inc. ("JWH") as the trading
manager of the Partnership.
Through July 31, 1997, the sole commodity broker for the Partnership's
transactions was Dean Witter 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 the General and Limited Partners
based upon their proportional ownership interests.
On July 31, 1996, with the Partnership's Net Asset Value above $1,000 per unit,
the letter of credit arrangement which assured investors who redeemed their
units on July 31, 1996 a minimum Net Asset Value of $1,000 per unit expired. On
August 1, 1996, the Partnership was renamed and continued trading in a non-
guaranteed format. Both the reduction of interest income of 1.125% per annum
for the letter of credit fee paid by DWR and the letter of credit fee of 1% of
new appreciation were eliminated effective August 1, 1996.
DEAN WITTER PORTFOLIO STRATEGY FUND L.P.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
OFFERING OF UNITS--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 prior to the August 1, 1997 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.
REVENUE RECOGNITION--Commodity futures 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. Prior to August 1, 1996, DWR paid the Partnership interest income based
upon 80% of the average daily Net Assets for the month that was allocated to
JWH's KT Diversified Program, Financial and Metals Portfolio, International
Foreign Exchange Program, and The World Financial Perspective at a rate equal
to the average yield on 13-week U.S. Treasury Bills issued during such month
less a monthly letter of credit fee paid by DWR. DWR paid Citibank, N.A.
("Citibank") on the twentieth day of each month a Letter of Credit fee of 3/32
of 1% per month of the amount available to be drawn under the Letter of Credit.
Such amounts for the period ended July 31, 1996 and the year ended December 31,
1995 were $306,187 and $586,638, respectively. Additionally, DWR paid the
Partnership interest income based upon 100% of the Partnership's average daily
Net Assets which were allocated to the InterRate(TM) trading program for the
month at a rate equal to the average yield on 13-week U.S. Treasury Bills
issued during such month. For purposes of such interest payments, Net Assets
did not include monies due the Partnership on forward contracts and other
commodity interests, but not actually received.
Effective August 1, 1996, DWR pays the Partnership monthly interest income
based upon 80% of the average daily Net Assets for the month at a prevailing
rate for U.S. Treasury Bills. For purposes of such interest payments, Net
Assets do not include monies due the Partnership 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
DEAN WITTER PORTFOLIO STRATEGY FUND L.P.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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. 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 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.
Prior to September 1, 1996 brokerage commissions were capped at 3/4 of 1% per
month of the Partnership's Net Assets as defined in the Limited Partnership
Agreement. Additionally, each trading program's brokerage commissions were
capped at 1% per month of the Net Assets allocated to such trading program.
Effective September 1, 1996, brokerage commissions and transaction fees
chargeable to the Partnership were capped at 13/20 of 1% per month of the
Partnership's month-end Net Assets (as defined in the Limited Partnership
Agreement) with such cap 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 Partnership's
average month-end Net Assets. 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. Prior to August 1, 1996, pursuant to a Letter of Credit and
Reimbursement Agreement with JWH and Citibank, the Partnership paid to Citibank
a quarterly Letter of Credit fee equal to 1% of the Partnerships's "New
Appreciation," as defined in the Letter of Credit and Reimbursement Agreement,
of the Partnership's Net Assets as of the end of each calendar quarter. Such
fee was accrued in each month in which "New Appreciation" occurred. In those
months in which "New Appreciation" was negative, previous accruals, if any,
during the quarter were reduced. Demeter and/or DWR bear all other operating
expenses, including expenses which would be incurred if the Partnership were
required to register as an investment company.
DEAN WITTER PORTFOLIO STRATEGY FUND L.P.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
REDEMPTIONS--Limited Partners may redeem some or all of their Units at 100% of
the Net Asset Value per Unit as of the end of the last day 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. Thereafter, Units
may be redeemed as of the end of any month upon five business days advance
notice by redemption form to Demeter. However, any Units redeemed at or prior
to the end of the twelfth, eighteenth or twenty-fourth full month following the
closing at which such person first becomes a limited partner, is subject to a
redemption charge equal to 3%, 2% or 1%, respectively, of the Net Asset Value
per Unit on the date of such redemption. Limited Partners who obtain their
units via an exchange from another DWR sponsored commodity pool are not subject
to the six months holding period or the redemption charges.
DISTRIBUTIONS--Distributions, other than on 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'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. Under its Customer Agreement with DWR, the
Partnership pays DWR brokerage commissions as described in Note 1.
3. TRADING MANAGER
Compensation to JWH consists of a management fee and an incentive fee as
follows:
MANAGEMENT FEE--The Partnership pays a monthly management fee equal to 1/3 of
1% per month of the Partnership's adjusted Net Assets, as defined in the
DEAN WITTER PORTFOLIO STRATEGY FUND L.P.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Limited Partnership Agreement, as of the last day of each month.
INCENTIVE FEE--The Partnership pays a quarterly incentive fee to JWH equal to
15% of the Partnership's "New Appreciation", as defined in the Limited
Partnership Agreement, of the Partnership's Net Assets as of the end of each
calendar quarter. 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 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 futures 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 231,632,000 65,197,000
Commitments to Sell 83,000,000 70,325,000
Commodity Futures:
Commitments to Purchase 20,890,000 5,005,000
Commitments to Sell 51,155,000 30,977,000
Foreign Futures:
Commitments to Purchase 198,296,000 42,509,000
Commitments to Sell 85,638,000 67,755,000
OFF-EXCHANGE-TRADED FORWARD
CURRENCY CONTRACTS
Commitments to Purchase 78,711,000 89,146,000
Commitments to Sell 126,515,000 38,531,000
A portion of the amounts indicated as off-balance-sheet risk in forward
currency contracts is due to offsetting 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.
DEAN WITTER PORTFOLIO STRATEGY FUND L.P.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The unrealized gains on open contracts are reported as a component of "Equity
in Commodity futures trading accounts" on the Statements of Financial Condition
and totaled $9,771,078 and $3,053,880 at December 31, 1997 and 1996,
respectively.
Of the $9,771,078 net unrealized gain on open contracts at December 31, 1997,
$9,025,112 related to exchange-traded futures contracts and $745,966 related to
off-exchange-traded forward currency contracts.
Of the $3,053,880 net unrealized gain on open contracts at December 31, 1996,
$3,465,469 related to exchange-traded futures contracts and $(411,589) related
to off-exchange-traded forward currency contracts.
Exchange-traded futures contracts held by the Partnership at December 31, 1997
and 1996 mature through December 1998 and December 1997, respectively. Off-
exchange-traded forward currency contracts held by the Partnership at December
31, 1997 and 1996 mature through March 1998 and March 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
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 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 and Carr,
as the futures commission merchants 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 totaled
$134,305,522 and $91,312,827 at December 31, 1997 and 1996, 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
DEAN WITTER PORTFOLIO STRATEGY FUND L.P.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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 years 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 164,149,000 101,742,000
Commodity Futures 21,882,000 32,801,000
Foreign Futures 101,980,000 48,040,000
OFF-EXCHANGE-TRADED FORWARD
CURRENCY CONTRACTS 116,463,000 112,657,000
1996
-----------------------
ASSETS LIABILITIES
----------- -----------
$ $
EXCHANGE-TRADED CONTRACTS:
Financial Futures 102,149,000 96,292,000
Commodity Futures 13,649,000 28,690,000
Foreign Futures 116,142,000 42,572,000
OFF-EXCHANGE-TRADED FORWARD CURRENCY CONTRACTS 113,353,000 134,819,000
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 and Currency Management Inc., MSDWD (all such parties
referred to hereafter as the "Dean Witter Parties"), the Partnership (under its
original name), certain other limited partnership commodity pools of which
Demeter is the general partner, and certain trading advisors (including JWH) to
those pools. On June 16, 1997, the plaintiffs in the above actions filed a
consolidated amended complaint alleging, among other things, that the
defendants committed fraud, deceit, negligent misrepresentation, various
violations of the California Corporations Code, intentional and negligent
breach of fiduciary duty, fraudulent and unfair business practices, unjust
enrichment, and conversion in the sale and operation of the various limited
partnership commodity pools.
DEAN WITTER PORTFOLIO STRATEGY FUND L.P.
NOTES TO FINANCIAL STATEMENTS--(CONCLUDED)
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 (including JWH) on
behalf of all purchasers of interests in various limited partnership commodity
pools, including the Partnership, 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 and the Partnership 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 or the Partnership.
DEAN WITTER REYNOLDS INC.
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