UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
AMENDMENT
[X] Annual report pursuant to Section 13 or 15 (d) of the Securities Exchange
Act of 1934 [Fee Required]
For the fiscal year ended December 31, 1996 or
[ ] Transition report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934 [No Fee Required]
For the transition period from _____________ to _________________.
Commission file number 33-30891
DEAN WITTER PRINCIPAL PLUS FUND L.P.
(Exact name of registrant as specified in its Limited Partnership Agreement)
DELAWARE 13-3541588
(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification No.)
c/o Demeter Management Corporation
Two World Trade Center, New York, N.Y. - 62nd Flr. 10048
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 392-5454
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest
(Title of Class)
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (section 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment of this Form 10K. [ X ]
State the aggregate market value of the Units of Limited Partnership Interest
held by non-affiliates of the registrant. The aggregate market value shall be
computed by reference to the price at which units were sold, or the average bid
and asked prices of such units, as of a specified date within 60 days prior to
the date of filing: $51,558,003.09 at January 31, 1997.
DOCUMENTS INCORPORATED BY REFERENCE
(See Page 1)<PAGE>
<TABLE>
DEAN WITTER PRINCIPAL PLUS FUND L.P.
INDEX TO ANNUAL REPORT ON FORM 10-K
DECEMBER 31, 1996
<CAPTION>
Page No.
<S> <C>
DOCUMENTS INCORPORATED BY REFERENCE. . . . . . . . . . . . . . . . . . . 1
Part I .
Item 1. Business. . . . . . . . . . . . . . . . . . . . . . . . . 2-3
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. . . . . . . . . . . .8-13
Item 8. Financial Statements and Supplementary Data. . . . . . . . .14
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure. . . . . . . . . . . . .14
Part III.
Item 10. Directors, Executive Officers, Promoters and
Control Persons of the Registrant . . . . . . . . . . . . 15-18
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . 18
Item 12. Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . . . . . . . 18
Item 13. Certain Relationships and Related Transactions . . . . . . 19
Part IV.
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . 20
</TABLE>
<PAGE>
<TABLE>
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference as
follows:
<CAPTION>
Documents Incorporated Part of Form 10-K
<S> <C>
Partnership's Registration Statement
on Form S-1, File No. 33-95414 I and IV
December 31, 1996 Annual Report
for the Dean Witter Principal II and IV
Plus Fund L.P.
</TABLE>
<PAGE>
PART I
Item 1. BUSINESS
(a) General Development of Business. Dean Witter Principal Plus Fund
L.P. (the "Partnership") is a Delaware limited partnership formed to
engage in the speculative trading of commodity futures contracts and other
commodity interests, including, but not limited to, forward contracts on
foreign currencies and options on futures contracts and physical
commodities.
300,000 Units of limited partnership interest ("Units") in the
Partnership were registered pursuant to a Registration Statement on Form
S-1 (File No. 33-30891), which became effective on October 26, 1989. The
offering of units was underwritten on a "best efforts" basis by Dean
Witter Reynolds Inc. ("DWR"), a commodity broker and an affiliate of the
Partnership's General Partner, Demeter Management Corporation ("Demeter").
The Partnership commenced operations on February 14, 1990. 75,000
additional Units of interest in the Partnership were registered pursuant
to a Registration Statement on Form S-1 (File No. 33-95414) which became
effective November 8, 1995. The Partnership's net asset value per unit,
as of December 31, 1996, was $1,479.85, representing a decrease of 5.28
percent from the net asset value per unit of $1,562.26 at December 31,
1995. For a more detailed description of the Partnership's business see
subparagraph (c).
(b) Financial Information about Industry Segments. The
Partnership's business comprises only one segment for financial reporting
purposes, speculative trading of commodity futures and other commodity
interests. The relevant financial information is presented in Items 6 and
8.
<PAGE>
(c) Narrative Description of Business. The Partnership is in the
business of speculative trading in commodity futures contracts and other
commodity interests, pursuant to trading instructions provided by an
independent trading advisor. For a detailed description of the different
facets of the Partnership's business, see those portions of the
Partnership's Prospectus, dated November 8, 1995, filed as part of the
Registration Statement on Form S-1 (see "Documents Incorporated by
Reference" Page 1), set forth below.
Facets of Business
1. Summary 1. "Summary of the Prospectus"
(Pages 2-14).
2. Commodity Markets 2. "The Futures, Options and
Forwards Markets"
(Pages 51-56).
3. Partnership's Commodity 3. "Trading Policies" (Page
Trading Arrangements and 62) "The Trading Advisor"
Policies (Page 58-62). "The Yield
Pool" (Pages 63) "The
Trading Company" (Pages
63-64).
4. Management of the Part- 4. "The Management Agreement"
nership (Pages 66-67). "The General
Partner" (Pages 48-50) and
"The Commodity Broker"(Pages
64-65). "The Limited Partner-
ship Agreement" (Pages 70-73).
5. Taxation of the Partnership's 5. "Material Federal Income Tax
Aspects" and Limited
Partners "State and Local
Income Tax Aspects" (Pages
77-86).
(d) Financial Information About Foreign and Domestic Operations and
Export Sales.
The Partnership has not engaged in any operations in foreign
countries; however, the Partnership (through the commodity broker) enters
into forward contract transactions where foreign banks are the contracting
party and futures contracts on foreign exchanges.
<PAGE>
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, similar purported class actions
were filed in the Superior Court of the State of California, County of Los
Angeles, on behalf of all purchasers of interests in limited partnership
commodity pools sold by DWR. Named defendants include DWR, Demeter, Dean
Witter Futures and Currency Management, Inc. ("DWFCM"), Dean Witter,
Discover & Co. ("DWD") (all such parties referred to hereafter as the
"Dean Witter Parties"), certain limited partnership commodity pools of
which Demeter is the general partner, and certain trading advisors to
those pools. Similar purported class actions were also filed on September
18 and 20, 1996, in the Supreme Court of the State of New York, New York
County, and on November 14, 1996 in the Superior Court of the State of
Delaware, New Castle County, against the Dean Witter Parties and certain
trading advisors on behalf of all purchasers of interests in various
limited partnership commodity pools sold by DWR. Generally, these
complaints allege, among other things, that the defendants committed
fraud, deceit, misrepresentation, breach of fiduciary duty, fraudulent and
unfair business practices, unjust enrichment, and conversion in connection
with the sale and operation of the various limited partnership commodity
pools. The complaints seek unspecified amounts of compensatory and
punitive damages and other relief. It is possible that additional similar
actions may be filed and that, in the course of these actions, other
parties could be added as defendants. The Dean Witter Parties believe
that they have strong defenses to, and they will vigorously contest the
<PAGE>
actions. Although the ultimate outcome of legal proceedings cannot be
predicted with certainty, it is the opinion of management of the Dean
Witter Parties that the resolution of the actions will not have a material
adverse effect on the financial condition or the results of operations of
any of the Dean Witter Parties.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
<PAGE>
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, 1996 was approximately 3,814. No distributions have
been made by the Partnership since it commenced operations on February 14,
1990. Demeter has sole discretion to decide what distributions, if any,
shall be made to investors in the Partnership. No determination has yet
been made as to future distributions.
<PAGE>
<TABLE>
Item 6. SELECTED FINANCIAL DATA (in dollars)
<CAPTION>
For the Years Ended December 31,
<S> <C> <C> <C> <C> <C>
1996 1995 1994 1993 1992
Total Revenues
(including interest) (677,358) 12,663,471 (2,601,083) 14,004,384 11,900,854
Net Income (Loss) (3,646,323) 9,397,649 (6,379,229) 8,718,424 7,048,171
Net Income (Loss)
Per Unit (Limited
& General Partners) (82.41) 238.12 (124.78) 150.06 111.99
Total Assets 54,096,992 42,581,908 66,189,009 80,515,592 80,899,070
Total Limited
Partners' Capital 50,688,703 39,547,302 61,577,369 76,096,133 76,949,631
Net Asset Value Per
Unit of Limited
Partnership Interest 1,479.85 1,562.26 1,324.14 1,448.92 1,298.86
</TABLE>
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Liquidity. The Partnership's assets are deposited in separate
commodity trading accounts with DWR, the commodity broker, and are used by
the Partnership as margin to engage in commodity futures, forward
contracts on foreign currencies and other commodity interest trading. DWR
holds 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 may be
used as margin solely for the Partnership's trading. Since the
Partnership's sole purpose is to trade in commodity futures contracts and
other commodity interests, it is expected that the Partnership will
continue to own such liquid assets for margin purposes.
The Partnership's investment in commodity futures contracts and
other commodity interests may be illiquid. If the price for a futures
contract for a particular commodity has increased or decreased by an
amount equal to the "daily limit", positions in the commodity can neither
be taken nor liquidated unless traders are willing to effect trades at or
within the limit. Commodity futures prices have occasionally moved the
daily limit for several consecutive days with little or no trading. Such
market conditions could prevent the Partnership from promptly liquidating
its commodity futures positions.
There is no limitation on daily price moves in trading forward
contracts on foreign currencies. The markets for some world currencies
have low trading volume and are illiquid which may prevent the Partnership
from trading in potentially profitable markets or prevent the Partnership
from promptly liquidating unfavorable positions in such markets and
subjecting it to substantial losses.
<PAGE>
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, the Partnership is subject
to credit risk in that a counterparty may not be able to meet its
obligations to the Partnership. The counterparty of the Partnership for
futures contracts traded in the United States and most foreign exchanges
on which the Partnership trades is the clearinghouse associated with such
exchange. In general, a clearinghouse is backed by the membership of the
exchange and will act in the event of non-performance by one of its
member's or one of its members' customers, and as such, should
significantly reduce this credit risk. In cases where the Partnership
trades on exchanges where the clearinghouse is not funded or guaranteed by
the membership, or where the exchange is a "principals' market" in which
<PAGE>
performance is the responsibility of the exchange member and not the
exchange or a clearinghouse, or when the Partnership enters into off-
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.or
when the Partnership enters into off-exchange contracts with a
counterparty, the sole recourse of the Partnership will be the
clearinghouse or the counterparty as the case may be. With respect to
futures contracts, DWR, in its business as an international commodity
broker, constantly monitors the creditworthiness of the exchanges and
clearing members of the foreign exchanges with which it does business for
clients, including the Partnership. DWR employees also from time to time
serve on supervisory or management committees of such exchanges. If DWR
believed that there was a problem with the creditworthiness of an exchange
on which the Partnership deals, it would so advise Demeter. With respect
to exchanges of which DWR is not a member, DWR acts only through clearing
brokers it has determined to be creditworthy. If DWR believed that a
clearing broker with which it deals on behalf of clients were not
creditworthy, it would terminate its relationship with such broker.
While DWR monitors the creditworthiness and risks involved in
dealing on the various exchanges (and their clearinghouses) and with other
exchange members, there can be no assurance that an exchange (or its
clearinghouse) or other exchange member will be able to meet its
obligations to the Partnership. DWR has not undertaken to indemnify the
Partnership against any loss. Further, the law is unclear, particularly
with respect to trading in various non-U.S. jurisdictions, as to whether
DWR has any obligation to protect the Partnership from any liability in
<PAGE>
the event that an exchange or its clearinghouse or another exchange member
defaults on its obligations on trades effected for the Partnership.
Although DWR monitors the creditworthiness of the foreign exchanges
and clearing brokers with which it does business for clients, DWR does not
have the capability to precisely quantify the Partnership's exposure to
risks inherent in its trading activities on foreign exchanges, and, as a
result, the risk is not monitored by DWR on an individual client basis
(including the Partnership). In this regard, DWR must clear its customer
trades through one or more other clearing brokers on each exchange where
DWR is not a clearing member. Such other clearing brokers calculate the
net margin requirements of DWR in respect of the aggregate of all of DWR's
customer positions carried in DWR's omnibus account with that clearing
broker. Similarly, DWR calculates a net margin requirement for the
exchange-traded futures positions of each of its customers, including the
Partnership. Neither DWR nor DWR's respective clearing brokers on each
foreign futures exchange calculates the margin requirements of an
individual customer, such as the Partnership, in respect of the customer's
aggregate contract positions on any particular exchange. With respect to
forward contract trading, the Partnership trades with only those
counterparties which Demeter, together with DWR, have determined to be
creditworthy. As set forth in the Partnership's Trading Policies, in
determining creditworthiness, Demeter and DWR consult with the Corporate
Credit Department of DWR. Currently, the Partnership deals solely with
DWR as its counterparty on forward contracts. While DWR and Demeter
monitor creditworthiness and risk involved in dealing on the various
exchanges and with counterparties, there can be no assurance that an
exchange or counterparty will be able to meet its obligations to the
Partnership. See "Financial Instruments", under Notes to Financial
<PAGE>
Statements - to the Partnership's Financial Statements in its 1996 Annual
Report to Partners, incorporated by reference in this Form 10-K.
Capital Resources. The Partnership does not have, nor does it
expect to have, any capital assets. Redemptions of additional Units in
the future will impact the amount of funds available for investments in
commodity futures, forward contracts on foreign currencies and other
commodity interests 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. For the year ended December 31, 1996, the
Partnership's total capital was $51,848,813, an increase of $11,076,869
from the Partnership's total capital of $40,771,944 at December 31, 1995.
For the year ended December 31, 1996, the Partnership incurred a net loss
of $3,646,323 and total subscriptions aggregated $21,697,912, and total
redemptions aggregated $6,974,720.
For the year ended December 31, 1996, the Partnership's total
trading revenues net of interest income were $1,465,184. Losses recorded
on the Yield Pool totaled $2,142,542. The Partnership's total expenses
for the year were $3,061,681, resulting in a net loss before minority
interest of $3,739,039. The minority interest in such losses were
$92,716, resulting in a net loss of $3,646,323 for the Partnership. The
value of an individual unit in the Partnership decreased from $1,562.26 at
December 31, 1995 to $1,479.85 at December 31, 1996.
For the year ended December 31, 1995, the Partnership's total
capital was $40,771,944, a decrease of $21,842,276 from the Partnership's
total capital of $62,614,220 at December 31, 1994. For the year ended
December 31, 1995, the Partnership generated net income of $9,397,649 and
total redemptions aggregated $31,239,925.
<PAGE>
For the year ended December 31, 1995, the Partnership's total
trading revenues including interest income were $12,536,481, realized
gains on Yield Pool sales totals $126,990. The Partnership's total
expenses for the year were $3,099,818, resulting in net income before
minority interest of $9,563,653. The minority interest in such income was
$166,004, resulting in net income of $9,397,649 for the Partnership. The
value of an individual unit in the Partnership increased from $1,324.14 at
December 31, 1994 to $1,562.26 at December 31, 1995.
For the year ended December 31, 1994, the Partnership's total
capital was $62,614,220, a decrease of $14,756,965 from the Partnership's
total capital of $77,371,185 at December 31, 1993. For the year ended
December 31, 1994, the Partnership incurred a net loss of $6,379,229 and
total redemptions aggregated $8,377,736.
For the year ended December 31, 1994, the Partnership's total
trading losses net of interest income were $2,858,879, realized gains on
Yield Pool sales totaled $257,796. The Partnership's total expenses for
the year were $4,024,731, resulting in a loss before minority interest of
$6,625,814. The minority interest in such losses was $246,585, resulting
in a net loss of $6,379,229 for the Partnership. The value of an
individual unit in the Partnership decreased from $1,448.92 at December
31, 1993 to $1,324.14 at December 31, 1994.
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 1996 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.
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item appears in the attached 1996
Annual Report to Limited Partners and is incorporated by reference in this
Annual Report on Form 10-K.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
<PAGE>
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 DWD and
is an affiliate of DWR. DWD, 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.
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 banker, 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, and is a clearing member of the
Chicago Board of Trade, the Chicago Mercantile Exchange, the Commodity
Exchange Inc., and other major commodities exchanges.
DWR is registered with the CFTC as a futures commission merchant and
is a member of the NFA in such capacity. DWR is currently servicing its
clients through a network of 371 branch offices with approximately 9,080
account executives servicing individual and institutional client accounts.
<PAGE>
Directors and Officers of the General Partner
The directors and officers of Demeter as of December 31, 1996 are as
follows:
Richard M. DeMartini, age 44, is the Chairman of the Board and a
Director of Demeter. Mr. DeMartini is also the Chairman of the Board and
a Director of DWFCM, a registered commodity trading advisor. Mr.
DeMartini has served as President and Chief Operating Officer of Dean
Witter Capital, a division of DWR since January 1989. From January 1988
until January 1989, Mr. DeMartini served as President and Chief Operating
Officer of the Consumer Banking Division of DWD, and from May 1985 until
January 1988 was President and Chief Executive Officer of the Consumer
Markets Division of DWD. Mr. DeMartini currently serves as a Director of
DWD and DWR, and has served as an officer of DWR for the past five years.
Mr. DeMartini has been with DWD and its affiliates for 22 years.
Mark J. Hawley, age 53, is President and a Director of Demeter. Mr.
Hawley joined DWR in February 1989 and currently serves as Executive Vice
President and Director of DWR's Managed Futures and Precious Metals
Department. Mr. Hawley also serves as President of DWFCM. From 1978 to
1989, Mr. Hawley was a member of the senior management team at Heinold
Asset Management, Inc., a commodity pool operator, and was responsible for
a variety of projects in public futures funds. From 1972 to 1978, Mr.
Hawley was a Vice President in charge of institutional block trading for
the Mid-West at Kuhn Loeb & Co.
Lawrence Volpe, age 49, is a Director of Demeter and DWFCM. Mr.
Volpe joined DWR as a Senior Vice President and Controller in September
<PAGE>
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, was associated with Arthur Anderson
& Co. and prior to his departure he served as audit manager in the
financial services division.
Joseph G. Siniscalchi, age 51, is a Director of Demeter. Mr.
Siniscalchi joined DWR in July 1984 as a First Vice President, Director of
General Accounting. He is currently Senior Vice President and Controller
of the Dean Witter Financial Division of DWR. From February 1980 to July
1984, Mr. Siniscalchi was Director of Internal Audit at Lehman Brothers
Kuhn Loeb, Inc.
Laurence E. Mollner, age 55, is a Director of Demeter. Mr. Mollner
joined DWR in May 1979 as Vice President and Director of Commercial Sales.
He is currently Executive Vice President and Deputy Director of the
Futures Markets Division of DWR.
Edward C. Oelsner III, age 54, is a Director of Demeter. Mr.
Oelsner joined DWR in March 1981 as a Managing Director in the Corporate
Finance Department. He currently manages DWR's Retail Products Group
within the Corporate Finance Department. While Mr. Oelsner has extensive
experience in the securities industry, he has no experience in commodity
interests trading.
Robert E. Murray, age 36, is a Director of Demeter. Mr. Murray is
currently a Senior Vice President of the DWR Managed Futures Division and
is a Director and the Senior Administrative Officer of DWFCM. Mr. Murray
graduated from Geneseo State University in May 1983 with a B.A. degree in
Finance. Mr. Murray began at DWR in 1984 and is currently the Director of
Product Development for the Managed Futures Division and is responsible
<PAGE>
for the development and maintenance of the proprietary Fund Management
System utilized by Demeter and DWFCM for organizing information and
producing reports for monitoring investors' accounts.
Patti L. Behnke, age 36, is Vice President and Chief Financial
Officer of Demeter. Ms. Behnke joined DWR in 1991 as Assistant Vice
President of Financial Reporting and is currently First Vice President and
Director of Financial Reporting and Managed Futures Accounting in the
Capital Markets division of DWR. From August 1988 to September 1990, Ms.
Behnke was Assistant Controller of L.F. Rothschild & Co. and from
September 1986 to August 1988, she was associated with Carteret Savings
Bank as Assistant Vice President - Financial Analysis. From April 1982 to
September 1986, Ms. Behnke was an auditor at Arthur Andersen & Co.
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, 1996, there were no persons as beneficial owner of more than
5 percent of the units of Limited Partnership Interest in the Partnership.
(b) Security Ownership of Management - At December 31, 1996,
Demeter owned 783 Units of General Partnership Interest representing a
2.23 percent interest in the Partnership.
(c) Changes in Control - None
<PAGE>
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Refer to Note 2 - "Related Party Transactions" of "Notes to
Consolidated Financial Statements", in the accompanying 1996 Annual Report
to Partners, incorporated by reference in this Form 10-K. In its capacity
as the Partnership's retail commodity broker, DWR received commodity
brokerage fees (paid and accrued by the Partnership) of $2,270,318 for the
fiscal year ended December 31, 1996.
<PAGE>
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 1996 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, 1996, 1995 and 1994.
- Consolidated Statements of Financial Condition as of December
31, 1996 and 1995.
- Consolidated Statements of Operations, Changes in Partners'
Capital, and Cash Flows for the years ended December 31, 1996,
1995 and 1994.
- Notes to Consolidated Financial Statements.
With the exception of the aforementioned information and the
information incorporated in Items 7, 8 and 13, the 1996 Annual Report to
Partners is not deemed to be filed with this report.
2. Listing of Financial Statement Schedules
No financial statement schedules are included since they are not
required to be filed with this report or equivalent information has been
included in the financial statements or notes thereto.
(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.
<PAGE>
SIGNATURES
Pursuant to the requirement of Sections 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
DEAN WITTER PRINCIPAL PLUS FUND L.P.
(Registrant)
BY: Demeter Management Corporation,
General Partner
March 27, 1997 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 27, 1997
Mark J. Hawley, Director and
President
/s/ Richard M. DeMartini March 27, 1997
Richard M. DeMartini, Director
and Chairman of the Board
/s/ Lawrence Volpe March 27, 1997
Lawrence Volpe, Director
/s/ Laurence E. Mollner March 27, 1997
Laurence E. Mollner, Director
/s/ Joseph G. Siniscalchi March 27, 1997
Joseph G. Siniscalchi, Director
/s/ Edward C. Oelsner III March 27, 1997
Edward C. Oelsner III, Director
/s/ Robert E. Murray March 27, 1997
Robert E. Murray, Director
/s/ Patti L. Behnke March 27, 1997
Patti L. Behnke, Chief Financial
Officer and Principal Accounting
Officer
<PAGE>
EXHIBIT INDEX
ITEM METHOD OF FILING
- - 3. Amended and Restated Limited
Partnership Agreement of
the Partnership, dated as of
August 29, 1995.
(1)
- -10. Amended and Restated Management
Agreement among the
Partnership, Demeter Management
Corporation and RXR, Inc.
dated as of December 29, 1995. (2)
- - 10. Amended and Restated Customer
Agreement between the Partnership
and Dean Witter Reynolds Inc.,
dated as of December 29, 1995. (3)
- - 99. December 31, 1996 Annual Report to Limited Partners. (4)
(1) Incorporated by reference to Exhibit 3.01 and Exhibit 3.02 of the
Partnership's Registration Statement (File No. 33-95414) on Form S-1.
(2) Incorporated by reference to Exhibit 10.02 of the Partnership's
Registration Statement (File No. 33-95414) on Form S-1.
(3) Incorporated by reference to Exhibit 10.01 of the Partnership's
Registration Statement (File No. 33-95414) on Form S-1.
(4) Filed herewith.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from Dean
Witter Principal Plus Fund L.P. and is qualified in its entirety by
references to such financial instruments.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 6,625,325
<SECURITIES> 0
<RECEIVABLES> 26,628
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 54,096,992<F1>
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 54,096,992<F2>
<SALES> 0
<TOTAL-REVENUES> (677,358)<F3>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,061,681
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (3,646,323)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,646,323)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,646,323)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>In addition to cash and receivables, total assets include net unrealized
gain on open contracts of $197,384 and Investment in Zero Coupon U.S.
Treasury Securities of $47,247,655.
<F2>Liabilities include redemptions payable of $1,657,380, accrued
transaction fees and costs of $4,108 and accrued brokerage fee of
$186,774, accrued management fees of $46,698 and accrued administrative
expenses payable of $203,250.
<F3>Total revenues include realized trading revenue of (1,579,812), net change
in unrealized of ($590,345), interest income of $3,044,996 and change in
valuation of Yield Pool of ($2,142,542).
</FN>
</TABLE>
<PAGE>
Principal
Plus
Fund
December 31, 1996
Annual Report
[LOGO]DEAN WITTER
<PAGE>
DEAN WITTER
Two World Trade Center
62nd Floor
New York, NY 10048
Telephone (212) 392-8899
PRINCIPAL PLUS FUND
ANNUAL REPORT
1996
Dear Limited Partner:
This marks the seventh annual report for the Dean Witter Principal Plus Fund
L.P. (the "Fund"). The Fund began 1996 trading at a Net Asset Value per Unit of
$1,562.26 and decreased by 5.28% to close the year at $1,479.85. A review of
trading results for the year is provided in the Annual Report of the Trading
Manager located on the next page of this report.
Should you have any questions concerning this report, please feel free to
contact Demeter Management Corporation at Two World Trade Center, 62nd Floor,
New York, NY 10048 or your Dean Witter Account Executive.
I hereby affirm, that to the best of my knowledge and belief, the information
contained in this report is accurate and complete. Past performance is not a
guarantee of future results.
Sincerely,
/s/ Mark J. Hawley
Mark J. Hawley
President
Demeter Management Corporation
General Partner
<PAGE>
DEAN WITTER PRINCIPAL PLUS FUND L.P.
ANNUAL REPORT OF THE TRADING MANAGER
After more than five years of successful operation, the Principal Plus Fund
L.P. (the "Fund") was reopened in 1996. Its unique structure provides investors
both the safety of a fixed income vehicle and the growth opportunities of a
globally diversified portfolio.
The Fund started the year with meaningful positions in the long dated U.S.
Treasury bond contract, reduced exposure to the U.S. stock market, and
diversified holdings in the foreign exchange, international interest rate and
commodity sectors. This allocation served the portfolio well in 1995, enabling
each component to contribute equally to the total return. However, early in
1996, a shift in sentiment from the U.S. Federal Reserve Bank in favor of
tighter interest rates sent the U.S. bond market into a tailspin causing the
Fund to suffer losses during the first quarter.
Despite continued downward pressure in both the U.S. and international bond
markets, by April the portfolio began benefiting from its diversification in
the foreign currency sector, as the U.S. dollar made significant gains against
the German mark, British pound and French franc. The commodity sector also
improved as drought conditions throughout the Mid West and the United Nations
impasse with Iraq over the sale of oil for "humanitarian reasons" presented
profitable opportunities for the Fund.
After another setback in May, the Fund's value rose, shrugging off a 10%
correction in the U.S. equity market. The portfolio's capacity to produce the
profitable results when U.S. stock and bond prices are under pressure is
perhaps its greatest strength. Easing interest rates in Australia and Japan,
sharp spikes in the price of crude, home heating oil and natural gas and
relative stability in Italy all contributed to positive performance which
carried through into the fourth quarter of the year.
The Fund gained over 6% in the September through November period, driven by
strong performance across all sectors including U.S. equity, fixed income, and
international financial and commodity assets. December finished lower as the
U.S. and international stock and bond markets gave back a portion of their
gains. Weak performance in the financials coupled with erratic price behavior
in the commodity sector were all contributing factors.
Looking ahead into 1997, we remain cautious with respect to the overvalued
nature of U.S. stock prices and attracted to U.S. bond yields, particularly in
the context of the current low inflation environment.
<PAGE>
DEAN WITTER PRINCIPAL PLUS FUND L.P.
ANNUAL REPORT OF THE TRADING MANAGER--(CONCLUDED)
Exposure to the stock market remains unchanged at just 20% of the total
portfolio allocation. The balance of the assets are allocated to the U.S. fixed
income, international financial and commodity markets which should continue to
offer interesting investment opportunities.
The overall investment philosophy of the Principal Plus Fund L.P. is to provide
investors with diversified, absolute returns that are not solely dependent on
the U.S. stock market's continued strong performance, all within the safety of
a guaranteed minimum return structure. In today's equity oriented marketplace,
an alternative like Principal Plus Fund L.P. can be an effective tool for
building a more stable, long-term oriented investment strategy.
RXR, Inc.
<PAGE>
DEAN WITTER PRINCIPAL PLUS FUND L.P.
INDEPENDENT AUDITORS' REPORT
The Limited Partners and the General Partner:
We have audited the accompanying consolidated statements of financial condition
of Dean Witter Principal Plus Fund L.P. and subsidiary (the "Partnership") as
of December 31, 1996 and 1995 and the related consolidated statements of
operations, changes in partners' capital, and cash flows for each of the three
years in the period ended December 31, 1996. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Dean Witter Principal Plus Fund
L.P. and subsidiary as of December 31, 1996 and 1995 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
February 17, 1997
New York, New York
<PAGE>
DEAN WITTER PRINCIPAL PLUS FUND L.P.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1996 1995
---------- ----------
$ $
<S> <C> <C>
ASSETS
Equity in Commodity futures trading accounts:
Cash 6,625,325 8,897,293
Net unrealized gain on open contracts 197,384 787,729
---------- ----------
Total Trading Equity 6,822,709 9,685,022
Investment in Zero-Coupon U.S.
Treasury Securities 47,247,655 --
Interest receivable (DWR) 26,628 28,912
Investment in U.S. Treasury Bills -- 32,867,974
---------- ----------
Total Assets 54,096,992 42,581,908
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES
Redemptions payable 1,657,380 1,148,358
Accrued administrative expenses 203,250 240,726
Accrued brokerage fee (DWR) 186,774 141,131
Accrued management fees 46,693 35,283
Accrued transaction fees and costs 4,108 1,777
---------- ----------
Total Liabilities 2,098,205 1,567,275
---------- ----------
Minority interest 149,974 242,689
---------- ----------
PARTNERS' CAPITAL
Limited Partners (34,253.485 and 25,314.968 Units,
respectively) 50,688,703 39,547,302
General Partner (783 Units) 1,160,110 1,224,642
---------- ----------
Total Partners' Capital 51,848,813 40,771,944
---------- ----------
Total Liabilities and Partners' Capital 54,096,992 42,581,908
========== ==========
NET ASSET VALUE PER UNIT 1,479.85 1,562.26
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
DEAN WITTER PRINCIPAL PLUS FUND L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS
ENDED
DECEMBER 31,
----------------------------------
1996 1995 1994
---------- ---------- ----------
$ $ $
<S> <C> <C> <C>
REVENUES
Trading Profit (Loss):
Realized (989,467) 8,168,790 (6,909,783)
Net change in unrealized (590,345) 498,189 (1,184,045)
---------- ---------- ----------
Total Trading Results (1,579,812) 8,666,979 (8,093,828)
---------- ---------- ----------
Change in value of Yield Pool (2,142,542) 126,990 257,796
Interest income 3,044,996 3,869,502 5,234,949
---------- ---------- ----------
Total Revenues (677,358) 12,663,471 (2,601,083)
---------- ---------- ----------
EXPENSES
Brokerage fees (DWR) 2,270,318 2,326,127 2,873,223
Management fees 561,862 573,964 718,306
Transaction fees and costs 148,501 95,727 344,202
Administrative expenses 81,000 104,000 89,000
---------- ---------- ----------
Total Expenses 3,061,681 3,099,818 4,024,731
---------- ---------- ----------
INCOME (LOSS) BEFORE MINORITY INTEREST (3,739,039) 9,563,653 (6,625,814)
Minority interest in (income) loss 92,716 (166,004) 246,585
---------- ---------- ----------
NET INCOME (LOSS) (3,646,323) 9,397,649 (6,379,229)
========== ========== ==========
NET INCOME (LOSS) ALLOCATION:
Limited Partners (3,581,791) 9,209,858 (6,278,042)
General Partner (64,532) 187,791 (101,187)
NET INCOME (LOSS) PER UNIT:
Limited Partners (82.41) 238.12 (124.78)
General Partner (82.41) 238.12 (124.78)
</TABLE>
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994.
<TABLE>
<CAPTION>
UNITS OF
PARTNERSHIP LIMITED GENERAL
INTEREST PARTNERS PARTNER TOTAL
----------- ----------- --------- -----------
$ $ $
<S> <C> <C> <C> <C>
Partners' Capital, December
31, 1993 53,399.129 76,096,133 1,275,052 77,371,185
Net Loss -- (6,278,042) (101,187) (6,379,229)
Redemptions (6,112.565) (8,240,722) (137,014) (8,377,736)
----------- ----------- --------- -----------
Partners' Capital, December
31, 1994 47,286.564 61,577,369 1,036,851 62,614,220
Net Income -- 9,209,858 187,791 9,397,649
Redemptions (21,188.596) (31,239,925) -- (31,239,925)
----------- ----------- --------- -----------
Partners' Capital, December
31, 1995 26,097.968 39,547,302 1,224,642 40,771,944
Offering of Units 13,844.606 21,697,912 -- 21,697,912
Net Loss -- (3,581,791) (64,532) (3,646,323)
Redemptions (4,906.089) (6,974,720) -- (6,974,720)
----------- ----------- --------- -----------
Partners' Capital, December
31, 1996 35,036.485 50,688,703 1,160,110 51,848,813
=========== =========== ========= ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
DEAN WITTER PRINCIPAL PLUS FUND L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS
ENDED
DECEMBER 31,
-------------------------------------
1996 1995 1994
----------- ----------- -----------
$ $ $
<S> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES
Net income (loss) (3,646,323) 9,397,649 (6,379,229)
Noncash item included in net income
(loss):
Net change in unrealized 590,345 (498,189) 1,184,045
(Increase) decrease in
operating assets:
Investment in Zero Coupon U.S.
Treasury Securities (47,247,655) 60,143,331 700,900
Interest receivable (DWR) 2,284 (1,823) 21,894
Investment in U.S. Treasury Bills 32,867,974 (32,867,974) --
Net option premiums -- (186,000) (820,615)
Increase (decrease) in operating
liabilities:
Accrued administrative expenses (37,476) 40,302 (27,719)
Accrued brokerage fee (DWR) 45,643 (78,824) (47,592)
Accrued management fee 11,410 (19,706) (11,898)
Accrued transaction fees and costs 2,331 (373) (21,366)
Incentive fee payable -- -- (552,145)
----------- ----------- -----------
Net cash provided by (used
for) operating activities (17,411,467) 35,928,393 (5,953,725)
----------- ----------- -----------
CASH FLOWS FROM
FINANCING ACTIVITIES
Minority interest (92,715) 166,004 (246,585)
Offering of Units 21,697,912 -- --
Increase (decrease) in
redemptions payable 509,022 (1,872,228) 1,337,687
Redemptions of units (6,974,720) (31,239,925) (8,377,736)
----------- ----------- -----------
Net cash provided by (used for)
financing activities 15,139,499 (32,946,149) (7,286,634)
----------- ----------- -----------
Net increase (decrease) in cash (2,271,968) 2,982,244 (13,240,359)
Balance at beginning of
period 8,897,293 5,915,049 19,155,408
----------- ----------- -----------
Balance at end of period 6,625,325 8,897,293 5,915,049
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
DEAN WITTER PRINCIPAL PLUS FUND L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION--Dean Witter Principal Plus Fund L.P. (the "Partnership") is a
limited partnership organized to engage in the speculative trading of commodity
futures contracts, commodity options contracts and forward contracts on foreign
currencies. Prior to February 1, 1996 the Partnership's objective was to
achieve long-term appreciation while assuring investors at least a 4% compound
annual rate of return over approximately five and one-half years from February
14, 1990 (the "Guarantee Period"). The Partnership initially invested
approximately 80% of the Partnership's assets in zero-coupon U.S. Treasury
Securities (the "Yield Pool") to accomplish this objective. Subsequent to the
August 1995 maturity of the U.S. Treasury Zero Coupon Securities, the proceeds
were invested in U.S. Treasury Bills. In August 1995, the Guaranteed Yield was
extended through January 31, 1996 during which time additional Units of the
Partnership were registered and offered to the public (see Offering of Units).
Effective February 1, 1996 the Partnership's objective was changed to achieve
long-term appreciation while assuring investors at least a 3% compound annual
rate of return over approximately seven and one-half years from February 1,
1996 to August 31, 2003. At August 31, 2003, which is the Partnership's
"Guaranteed Redemption Date," the Net Asset Value is guaranteed to be at least
$1,961.00 per Unit. At the February 1, 1996 closing date of the Offering, the
Partnership again invested approximately 80% of its total assets in Zero-Coupon
U.S. Treasury Securities to accomplish this objective. The Partnership's
remaining assets have been contributed to its subsidiary, Dean Witter Principal
Plus Fund Management L.P. (the "Trading Company"), which was established solely
to trade in commodity interests on behalf of the Partnership.
The general partner in the partnership is Demeter Management Corporation
("Demeter") and the commodity broker is Dean Witter Reynolds Inc. ("DWR"). Both
DWR and Demeter are wholly-owned subsidiaries of Dean Witter, Discover & Co.
("DWD"). Demeter has retained RXR, Inc. ("RXR") as the trading manager of the
Trading Company.
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.
OFFERING OF UNITS--During the period from November 11, 1995 through January 31,
1996 additional Units
<PAGE>
DEAN WITTER PRINCIPAL PLUS FUND L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--
(CONTINUED)
were offered to the public at a price equal to 100% of the Net Asset Value as
of the close of business on the last day of the month immediately preceding the
February 1, 1996 closing date of the offering.
BASIS OF ACCOUNTING--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts in the financial statements.
PRINCIPLES OF CONSOLIDATION--The consolidated financial statements include the
accounts of the Partnership and the Trading Company. All intercompany balances
have been eliminated.
The ownership by Demeter in the Trading Company represents a minority interest
in the Partnership. Demeter's share of the Trading Company's profits and losses
is deducted from consolidated results of operations.
REVENUE RECOGNITION--The Yield Pool is valued at the lesser of cost plus
accreted interest or market value.
The following information pertains to the Yield Pool at December 31, 1996 and
1995:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
$ $
Year to Date Accreted Interest Income 2,726,002 3,470,058
Cost of Yield Pool at year-end 46,928,070 32,855,625
Accreted Interest Receivable at year-end 2,462,127 12,349
Market Value of Yield Pool at year-end 47,247,655 32,879,578
</TABLE>
Commodity futures contracts, commodity options contracts and forward contracts
on foreign currencies are open commitments until settlement date. They are
valued at market and the resulting unrealized gains and losses are reflected in
income.
Monthly, DWR pays interest income based upon 90% of the Trading Company's
average daily Net Assets for the month at a rate equal to the average yield on
13-week U.S. Treasury Bills issued during such month. For purposes of such
interest payments, Net Assets do not include monies due the Trading Company on
forward contracts and other commodity interests, but not actually received.
During December 1995, the Partnership entered into forward contracts to
purchase $26 million face value Zero-Coupon U.S. Treasury Securities on
February 1, 1996, the closing date for the offering of Units. This commitment
was made to ensure a minimum interest rate on the Yield Pool for the new
guarantee period which commenced on February 1, 1996. At December 31, 1995 the
market value of these forward contracts
<PAGE>
DEAN WITTER PRINCIPAL PLUS FUND L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--
(CONTINUED)
was greater than the cost of such contracts. Consistent with the Partnership's
policy of valuing the Yield Pool at the lower of cost plus accreted interest or
market, no revenue has been recognized on this transaction.
NET INCOME (LOSS) PER UNIT--Net income (loss) per Unit is computed using the
weighted average number of units outstanding during the period.
EQUITY IN COMMODITY FUTURES TRADING ACCOUNTS--The Partnership's asset "Equity
in Commodity futures trading accounts" consists of cash on deposit at DWR to be
used as margin for trading and the net asset or liability related to unrealized
gains or losses on open contracts and the net option premiums paid and/or
received. The asset or liability related to the unrealized gains or losses on
forward contracts is presented as a net amount because the Partnership has a
master netting agreement with DWR.
BROKERAGE FEES AND RELATED TRANSACTION FEES AND COSTS--The monthly brokerage
fee is equal to 1/3 of 1% per month of the Partnership's adjusted month-end Net
Assets. Transaction fees and costs are accrued on a half-turn basis. In 1996,
the brokerage fee charged was the equivalent of a roundturn commission charge
of approximately $49 per contract traded.
OPERATING EXPENSES--The Partnership bears all operating expenses related to its
trading activities. These include filing fees, clerical, administrative,
auditing, accounting, mailing, printing and other incidental operating expenses
as permitted by the Limited Partnership Agreement. In addition, the Partnership
incurs a monthly management fee and may incur an incentive fee. Demeter bears
all other operating expenses.
REDEMPTIONS--As of the last day of any calendar quarter, Limited Partners may
redeem some or all of their Units at 100% of the Net Asset Value per Unit upon
five business days advance notice by redemption form to Demeter.
During 1996 and 1995, the Partnership sold securities in the Yield Pool in
order to fund redemptions as detailed below:
<TABLE>
<CAPTION>
1996 1995
--------- ----------
$ $
<S> <C> <C>
Cost of Securities Sold 4,325,168 13,852,285
Interest Accreted on Securities Sold 130,978 2,831,588
Proceeds from Sale of Securities 4,140,685 16,810,864
</TABLE>
DISTRIBUTIONS--The Partnership will not make any distributions until after the
Guarantee Period, and thereafter will only make distributions on a pro-rata
basis at the sole discretion of Demeter.
<PAGE>
DEAN WITTER PRINCIPAL PLUS FUND L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--
(CONTINUED)
INCOME TAXES--No provision for income taxes has been made in the accompanying
consolidated financial statements, as partners are individually responsible for
reporting income or loss based upon their respective share of the Partnership's
revenues and expenses for income tax purposes.
DISSOLUTION OF THE PARTNERSHIP--The Partnership will terminate on December 31,
2025, or at an earlier date if certain conditions set forth in the Limited
Partnership Agreement occur.
The Trading Company may terminate operations if its Net Assets decline to 5% or
less of consolidated Partnership Net Assets, and will terminate operations if
its Net Assets decline to less than 3% of consolidated Partnership Net Assets.
At December 31, 1996 and 1995, the Trading Company had Net Assets of $6,216,269
and $7,263,874 respectively, which represented 12% and 18% respectively, of the
consolidated Partnership's Net Assets at the respective dates. If the
operations of the Trading Company ceased, the remaining Net Assets would be
returned to the Partnership and held until the end of the Guarantee Period,
when they would be distributed to the Limited Partners.
2. RELATED PARTY TRANSACTIONS
The Trading Company pays a monthly brokerage fee to DWR as described in Note 1.
The Partnership's and Trading Company's cash is on deposit with DWR in
commodity trading accounts to meet margin requirements as needed. The Yield
Pool is on deposit with DWR in a customer security account. DWR pays interest
on these funds as described in Note 1.
Pursuant to the Limited Partnership Agreement, Demeter initially invested
$200,000 of General Partnership Interest in the Trading Company.
3. TRADING MANAGER
Compensation to RXR as trading manager consists of a management fee and an
incentive fee as follows:
MANAGEMENT FEE--The Partnership pays a monthly management fee equal to 1/12 of
1% per month of the Partnership's adjusted Net Assets, as defined in the
Limited Partnership Agreement, as of the last day of each month.
INCENTIVE FEE--The Partnership will pay an annual incentive fee to RXR equal to
15% of the "New Appreciation", as defined in the Limited Partnership Agreement,
of the Trading Company's Net Assets as of the end of each annual incentive
period ending December 31. Such incentive fee is accrued in each month in which
"New Appreciation" occurs. In those
<PAGE>
DEAN WITTER PRINCIPAL PLUS FUND L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--
(CONTINUED)
months in which "New Appreciation" is negative, previous accruals, if any,
during the incentive period will be reduced.
4. FINANCIAL INSTRUMENTS
The Partnership trades futures, options and forward contracts in interest
rates, stock indices, commodities, currencies, petroleum, and precious metals.
Futures and forwards represent contracts for delayed delivery of an instrument
at a specified date and price. Risk arises from changes in the value of these
contracts and the potential inability of counterparties to perform under the
terms of the contracts. There are numerous factors which may significantly
influence the market value of these contracts, including interest rate
volatility. At December 31, 1996 and 1995, open contracts were:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
$ $
EXCHANGE-TRADED CONTRACTS
Financial Futures:
Commitments to Purchase 36,738,000 22,510,000
Commitments to Sell 19,776,000 2,464,000
Commodity Futures:
Commitments to Purchase 5,550,000 9,147,000
Commitments to Sell 5,879,000 2,210,000
Foreign Futures:
Commitments to Purchase 83,456,000 32,219,000
Commitments to Sell 6,403,000 147,000
OFF-EXCHANGE-TRADED
FORWARD CURRENCY CONTRACTS
Commitments to Purchase 11,219,000 13,874,000
Commitments to Sell 24,545,000 13,598,000
</TABLE>
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.
The unrealized gains and losses on open contracts are reported as a component
of "Equity in Commodity futures trading accounts" on the Consolidated
Statements of Financial Condition and totaled $197,384 and $787,729 at December
31, 1996 and 1995, respectively.
Of the $197,384 net unrealized gain on open contracts at December 31, 1996,
$302,539 related to exchange-traded futures contracts and $(105,155) related to
off-exchange-traded forward currency contracts. Of the $787,729 net unrealized
gain on open contracts at December 31, 1995, $860,800 related to exchange-
traded futures contracts and $(73,071) related to off-exchange-traded forward
currency contracts.
<PAGE>
DEAN WITTER PRINCIPAL PLUS FUND L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--
(CONTINUED)
Exchange-traded futures contracts held by the Partnership at December 31, 1996
and 1995, mature through June 1997 and March 1996, respectively. Off-exchange-
traded forward currency contracts held by the Partnership at December 31, 1996
and 1995 mature through January 1997 and January 1996, respectively. The
contract amounts in the above table represent the Partnership's extent of
involvement in the particular class of financial instrument, but not the credit
risk associated with counterparty nonperformance. The credit risk associated
with these instruments is limited to the amounts reflected in the Partnership's
Consolidated Statements of Financial Condition.
The Partnership also has credit risk because DWR acts as the futures commission
merchant or the sole counterparty, with respect to most of the Partnerships'
assets. Exchange-traded futures and options contracts are marked to market on a
daily basis, with variations in value settled on a daily basis. DWR, as the
futures commission merchant for all of the Partnership's exchange-traded
futures and options contracts, is required pursuant to regulations of the
Commodity Futures Trading Commission to segregate from its own assets, and for
the sole benefit of its commodity customers, all funds held by DWR with respect
to exchange-traded futures and option contracts including an amount equal to
the net unrealized gain on all open futures and option contracts, which funds
totaled $6,927,864 and $9,758,093 at December 31, 1996 and 1995, 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 gain on open forward
contracts be segregated. With respect to those off-exchange-traded forward
currency contracts, the Partnership is at risk to the ability of DWR, the
counterparty on all of such contracts, to perform.
For the year ended December 31, 1996 and 1995, the average fair value of
financial instruments held for trading purposes was as follows:
<TABLE>
<CAPTION>
1996
----------------------
ASSETS LIABILITIES
---------- -----------
<S> <C> <C>
$ $
EXCHANGE-TRADED CONTRACTS:
Financial Futures 48,280,000 20,650,000
Options on Financial Futures 717,000 4,639,000
Commodity Futures 6,775,000 3,814,000
Foreign Futures 51,243,000 17,579,000
OFF-EXCHANGE-TRADED FORWARD CURRENCY CONTRACTS 30,644,000 28,108,000
</TABLE>
<PAGE>
DEAN WITTER PRINCIPAL PLUS FUND L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--
(CONCLUDED)
<TABLE>
<CAPTION>
1995
----------------------
ASSETS LIABILITIES
---------- -----------
<S> <C> <C>
$ $
EXCHANGE-TRADED CONTRACTS:
Financial Futures 45,801,000 14,808,000
Commodity Futures 6,597,000 3,868,000
Foreign Futures 17,753,000 12,470,000
OFF-EXCHANGE-TRADED FORWARD CURRENCY CONTRACTS 12,040,000 13,125,000
</TABLE>
5. LEGAL MATTERS
On September 6, 10, and 20, 1996, similar purported class actions were filed in
the Superior Court of the State of California, County of Los Angeles, on behalf
of all purchasers of interests in limited partnership commodity pools sold by
DWR. Named defendants include DWR, Demeter, Dean Witter Futures & Currency
Management Inc., DWD, (all such parties referred to hereafter as the "Dean
Witter Parties"), certain limited partnership commodity pools of which Demeter
is the general partner, and certain trading advisors to those pools. Similar
purported class actions were also filed on September 18 and 20, 1996, in the
Supreme Court of the State of New York, New York County, and on November 14,
1996 in the Superior Court of the State of Delaware, New Castle County, against
the Dean Witter Parties and certain trading advisors on behalf of all
purchasers of interests in various limited partnership commodity pools sold by
DWR. Generally, these complaints allege, among other things, that the
defendants committed fraud, deceit, misrepresentation, breach of fiduciary
duty, fraudulent and unfair business practices, unjust enrichment, and
conversion in connection with the sale and operation of the various limited
partnership commodity pools. The complaints seek unspecified amounts of
compensatory and punitive damages and other relief. It is possible that
additional similar actions may be filed and that, in the course of these
actions, other parties could be added as defendants. The Dean Witter Parties
believe that they have strong defenses to, and they will vigorously contest,
the actions. Although the ultimate outcome of legal proceedings cannot be
predicted with certainty, it is the opinion of management of the Dean Witter
Parties that the resolution of the actions will not have a material adverse
effect on the financial condition or the results of operations of any of the
Dean Witter Parties.
<PAGE>
DEAN WITTER REYNOLDS INC.
Two World Trade Center
62nd Floor
New York, NY 10048
FIRST-CLASS MAIL
ZIP + 4 PRESORT
U.S. POSTAGE PAID
BROOKLYN, NY
PERMIT NO. 148
