UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended June 30, 1999 or
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
Commission File No. 0-18314
DEAN WITTER PRINCIPAL PLUS FUND L.P.
(Exact name of registrant as specified in its charter)
Delaware 13-3541588
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification
No.)
c/o Demeter Management Corporation
Two World Trade Center, 62 Fl., New York, NY 10048
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 392-5454
(Former name, former address, and former fiscal year, if changed
since last report)
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
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DEAN WITTER PRINCIPAL PLUS FUND L.P.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
June 30, 1999
<CAPTION>
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Consolidated Financial Statements
Consolidated Statements of Financial Condition
June 30, 1999 (Unaudited) and December 31, 1998............2
Consolidated Statements of Operations for the
Quarters Ended June 30, 1999 and 1998 (Unaudited).........3
Consolidated Statements of Operations for the Six
Months Ended June 30, 1999 and 1998 (Unaudited)............4
Consolidated Statements of Changes in Partners'
Capital for the Six Months Ended June 30, 1999 and
1998 (Unaudited).......................................... 5
Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 1999 and 1998
(Unaudited)................................................6
Notes to Consolidated Financial Statements
(Unaudited).............................................7-12
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations..................................... 13-22
Item 3. Quantitative and Qualitative Disclosures
about Market Risk...............................22-34
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................ 35
Item 6. Exhibits and Reports on Form 8-K........
.......... 35
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<TABLE>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
DEAN WITTER PRINCIPAL PLUS FUND L.P.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<CAPTION>
June 30, December 31,
1999 1998
$ $
(Unaudited)
ASSETS
<S> <C> <C>
Equity in futures interests trading accounts:
Cash 8,451,639 9,270,594
Net unrealized gain on open contracts 325,173
1,200,707
Net option premiums (180,000)
- -
Total Trading Equity 8,596,812 10,471,301
Investment in Zero-Coupon U.S. Treasury Securities 41,391,993
41,602,754
Unrealized gain (loss) on Zero-Coupon U.S.
Treasury Securities (172,656) 1,952,744
Interest receivable (DWR) 27,504 34,344
Total Assets 49,843,653
54,061,143
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Redemptions payable 842,497 956,163
Accrued administrative expenses 181,552 156,280
Accrued brokerage fees (DWR) 166,116 173,174
Accrued management fees 41,529 43,293
Incentive fee payable - 147,477
Total Liabilities 1,231,694 1,476,387
Minority Interest 266,603 320,591
Partners' Capital
Limited Partners (25,517.376 and
26,345.343 Units, respectively)47,768,777 51,660,212
General Partner (308 Units) 576,579 603,953
Total Partners' Capital 48,345,356 52,264,165
Total Liabilities and Partners' Capital 49,843,653 54,06
1,143
Total Partners' Capital 48,345,356 52,264,165
Less: Unrealized gain on Zero-Coupon
U.S. Treasury Securities - 1,952,744
NET ASSETS PER LIMITED PARTNERSHIP
AGREEMENT 48,345,356 50,311,421
NET ASSET VALUE PER UNIT 1,872.01 1,887.62
The accompanying notes are an integral part
of these consolidated financial statements.
</TABLE>
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<TABLE>
DEAN WITTER PRINCIPAL PLUS FUND L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
For the Quarters Ended June 30,
1999 1998
$ $
REVENUES
<S> <C> <C>
Trading profit (loss):
Realized 717 1,057,953
Net change in unrealized 70,575 (1,356,321)
Total Trading Results 71,292 (298,368)
Interest Income 668,086 726,433
Change in value of Yield Pool (1,013,163)
419,541
Total Revenues (273,785) 847,606
EXPENSES
Brokerage fees (DWR) 499,309 530,072
Management fees 124,827 132,518
Transaction fees and costs 24,357 21,466
Administrative expenses 13,000 24,000
Incentive fees - (6,068)
Total Expenses 661,493 701,988
INCOME (LOSS) BEFORE MINORITY INTEREST(935,278) 145,618
Minority interest in loss 18,867 27,713
NET INCOME (LOSS) (916,411) 173,331
NET INCOME (LOSS) ALLOCATION
Limited Partners (905,669) 169,725
General Partner
(10,742) 3,606
NET INCOME (LOSS) (916,411) 173,331
Less: Net change in unrealized gain
on Zero-Coupon U.S. Treasury Securities (840,507)
333,688
NET LOSS ALLOCATED TO PARTNERS
FOR TAX AND NET ASSET VALUATION (75,904)
(160,357)
Net Loss Allocation for Tax and Net Asset
Valuation
Limited Partners (74,999) (156,098)
General Partner
(905) (4,259)
Net Loss Per Unit for Tax and Net Asset
Valuation
Limited Partners (2.89) (5.44)
General Partner
(2.89) (5.44)
The accompanying notes are an integral part
of these consolidated financial statements.
</TABLE>
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<TABLE>
DEAN WITTER PRINCIPAL PLUS FUND L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
For the Six Months Ended June 30,
1999 1998
$ $
REVENUES
<S> <C> <C>
Trading profit (loss):
Realized 586,990 2,829,720
Net change in unrealized (875,534) (672,212)
Total Trading Results (288,544) 2,157,508
Interest Income 1,334,884 1,464,046
Change in value of Yield Pool (2,125,400)
544,120
Total Revenues (1,079,060) 4,165,674
EXPENSES
Brokerage fees (DWR) 1,005,217 1,081,963
Management fees 251,304 270,491
Transaction fees and costs 49,162 49,025
Administrative expenses 37,000 47,000
Total Expenses
1,342,683 1,448,479
INCOME (LOSS) BEFORE MINORITY INTEREST(2,421,743) 2
,717,195
Minority interest in (income) loss 53,988
(25,367)
NET INCOME (LOSS) (2,367,755) 2,691,828
NET INCOME (LOSS) ALLOCATION
Limited Partners (2,340,381) 2,624,622
General Partner (27,374) 67,206
NET INCOME (LOSS) (2,367,755) 2,691,828
Less: Net change in unrealized gain
on Zero-Coupon U.S. Treasury Securities (1,952,744)
333,688
NET INCOME (LOSS) ALLOCATED TO PARTNERS
FOR TAX AND NET ASSET VALUATION (415,011)
2,358,140
Net Income (Loss) Allocation for Tax and Net Asset
Valuation
Limited Partners (410,187) 2,298,799
General Partner
(4,824) 59,341
Net Income (Loss) Per Unit for Tax and Net Asset
Valuation
Limited Partners (15.61) 75.78
General Partner
(15.61) 75.78
The accompanying notes are an integral part
of these consolidated financial statements.
</TABLE>
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<TABLE>
DEAN WITTER PRINCIPAL PLUS FUND L.P.
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
For the Six Months Ended June 30, 1999 and 1998
(Unaudited)
<CAPTION>
Units of
Partnership Limited General
Interest Partners Partner Total
<S> <C> <C>
<C> <C>
Partners' Capital,
December 31, 1997 31,006.237 $51,607,436
$1,338,426 $52,945,862
Net Income - 2,624,622
67,206 2,691,828
Redemptions (2,758.389) (4,927,517)
- - (4,927,517)
Partners' Capital,
June 30, 1998 28,247.848 $49,304,541
$1,405,632 $50,710,173
Partners' Capital,
December 31, 1998 26,653.343 $51,660,212
$603,953 $52,264,165
Net Loss - (2,340,381)
(27,374) (2,367,755)
Redemptions (827.967) (1,551,054)
- - (1,551,054)
Partners' Capital,
June 30, 1999 25,825.376 $47,768,777
$576,579 $48,345,356
<FN>
The accompanying notes are an integral part
of these consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
DEAN WITTER PRINCIPAL PLUS FUND L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
For the Six Months Ended June 30,
1999 1998
$ $
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income (loss) (2,367,755) 2
,691,828
Noncash item included in net income (loss):
Net change in unrealized 875,534 672,212
Change in value of yield pool 2,125,400 (
333,688)
(Increase) decrease in operating assets:
Net option premiums 180,000 (
719,950)
Investment in Zero-Coupon U.S.
Treasury Securities 210,761 1
,429,279
Interest receivable (DWR) 6,840 909
Increase (decrease) in operating liabilities:
Accrued administrative expenses 25,272 47,000
Accrued brokerage fees (DWR) (7,058) (4,266)
Accrued management fee (1,764) (1,066)
Incentive fee payable (147,477)
- -
Net cash provided by operating activities 899,753
3,782,258
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in redemptions payable(113,666) 1
,479,945
Increase (decrease) in minority interest(53,988) 25,367
Redemptions of units (1,551,054)
(4,927,517)
Net cash used for financing activities (1,718,708)
(3,422,205)
Net increase (decrease) in cash (818,955) 360,053
Balance at beginning of period 9,270,594
8,956,497
Balance at end of period 8,451,639
9,316,550
<FN>
The accompanying notes are an integral part
of these consolidated financial statements.
</TABLE>
<PAGE>
DEAN WITTER PRINCIPAL PLUS FUND L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The financial statements include, in the opinion of management,
all adjustments necessary for a fair presentation of the results
of operations and financial condition of Dean Witter Principal
Plus Fund L.P. (the "Partnership"). The consolidated financial
statements and condensed notes herein should be read in
conjunction with the Partnership's December 31, 1998 Annual
Report on Form 10-K.
1. Organization
Dean Witter Principal Plus Fund L.P. is a limited partnership
organized to engage primarily in the speculative trading of
futures contracts, options on futures contracts and physical
commodities, forward contracts, and other commodity interests
(collectively, "futures interests"). The general partner for the
Partnership is Demeter Management Corporation ("Demeter"). The
non-clearing commodity broker is Dean Witter Reynolds Inc.
("DWR") and an unaffiliated clearing commodity broker, Carr
Futures Inc. ("Carr"), provides clearing and execution services.
Both Demeter and DWR are wholly-owned subsidiaries of Morgan
Stanley Dean Witter & Co. ("MSDW"). The Trading Manager to the
Partnership is RXR Inc. (the "Trading Manager").
2. Revenue Recognition
The yield pool is valued at cost plus accreted interest with the
<PAGE>
DEAN WITTER PRINCIPAL PLUS FUND L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
accumulated unrealized gain on the Zero-Coupon U.S. Treasury
Securities separately disclosed. The annual change in the yield
pool's market value is reflected in the Consolidated Statement of
Operations. The Consolidated Statements of Financial Condition
and the Consolidated Statements of Operations have been
reconciled to reflect Net Assets, Net Asset Value per Unit and
Net Income (Loss) in accordance with the terms of the Limited
Partnership Agreement. Prior year financials have been re-
formatted to conform to current year presentation. For the six
months ended June 30, 1999, $1,149,777 of interest income has
been accreted on the Yield Pool. At June 30, 1999, the cost of
the Yield Pool was $34,196,069 and the accreted interest
receivable thereon was $7,195,924. The market value of the Yield
Pool on June 30, 1999 is approximately $41,219,337.
3. Related Party Transactions
The Partnership's cash is on deposit with DWR and Carr in futures
interests trading accounts to meet margin requirements as needed.
DWR pays interest on these funds based on a prevailing rate on
U.S. Treasury bills. The Partnership pays brokerage fees to DWR.
<PAGE>
DEAN WITTER PRINCIPAL PLUS FUND L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
4. Financial Instruments
The Partnership trades futures contracts, options on futures
contracts and physical commodities, forward contracts, and other
commodity interests. Futures and forwards represent contracts
for delayed delivery of an instrument at a specified date and
price. Risk arises from changes in the value of these 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.
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activities"
effective for fiscal years beginning after June 15, 1999. The
Partnership elected to adopt the provisions of SFAS No. 133
beginning with the fiscal year that ended December 31, 1998.
SFAS No. 133 supersedes SFAS No. 119 and No. 105, which required
the disclosure of average aggregate fair values and
contract/notional values, respectively, of derivative financial
instruments for an entity which carries its assets at fair value.
The application of SFAS No. 133 does not have a significant
effect on the Partnership's financial statements.
<PAGE>
DEAN WITTER PRINCIPAL PLUS FUND L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The net unrealized gain on open contracts is reported as a
component of "Equity in futures interests trading accounts" on
the Consolidated Statements of Financial Condition and totaled
$325,173 and $1,200,707 at June 30, 1999 and December 31, 1998,
respectively.
Of the $325,173 net unrealized gain on open contracts at June 30,
1999, $353,057 related to exchange-traded futures and futures-
styled options contracts and $(27,884) related to off-exchange-
traded forward currency contracts.
Of the $1,200,707 net unrealized gain on open contracts at
December 31, 1998, $1,247,930 related to exchange-traded futures
and futures-styled options contracts and $(47,223) related to off-
exchange-traded forward currency contracts.
Exchange-traded futures and futures-styled options contracts held
by the Partnership at June 30, 1999 and December 31, 1998 mature
through December 1999 and March 1999, respectively. Off-exchange-
traded forward currency contracts held by the Partnership at June
30, 1999 and December 31, 1998 mature through September 1999 and
March 1999, respectively.
The Partnership is subject to the credit risk associated with
counterparty non-performance. The credit risk associated with
the
<PAGE>
DEAN WITTER PRINCIPAL PLUS FUND L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
instruments in which the Partnership is involved is limited to
the amounts reflected in the Partnership's Consolidated
Statements of Financial Condition. DWR and Carr act as the
futures commission merchants or the counterparties with respect
to most of the Partnership's assets. Exchange-traded futures and
futures-styled options contracts are marked to market on a daily
basis, with variations in value settled on a daily basis. Each of
DWR and Carr, as a futures commission merchant for all of the
Partnership's exchange-traded futures and futures-styled options
contracts, are required, pursuant to regulations of the Commodity
Futures Trading Commission ("CFTC") to segregate from their own
assets, and for the sole benefit of their commodity customers,
all funds held by them with respect to exchange-traded futures
and futures-styled options contracts, including an amount equal
to the net unrealized gain on all open futures and futures-styled
options contracts, which funds, in the aggregate, totaled
$8,804,696 and $10,518,524 at June 30, 1999 and December 31,
1998, 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,
<PAGE>
DEAN WITTER PRINCIPAL PLUS FUND L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONCLUDED)
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 to the
Partnership payment of the net liquidating value of the
transactions in the Partnership's account with Carr (including
foreign currency contracts).
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity - Assets of the Partnership are deposited with DWR as
non-clearing broker and Carr as clearing broker in separate
futures interests trading accounts. Such assets are held in
either non-interest bearing bank accounts or in securities
approved by the 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 futures interests, it is expected
that the Partnership will continue to own such liquid assets for
margin purposes.
The Partnership's investment in futures interests may, from time
to time, be illiquid. Most United States futures exchanges limit
fluctuations in certain futures interest prices during a single
day by regulations referred to as "daily price fluctuations
limits" or "daily limits". Pursuant to such regulations, during
a single trading day no trades may be executed at prices beyond
the daily limit. If the price for a particular futures interest
has increased or decreased by an amount equal to the daily limit,
positions in such futures interest can neither be taken nor
liquidated unless traders are willing to effect trades at or
within the limit. Futures interests 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 futures interests and result in
restrictions on redemptions.
<PAGE>
There is no limitation on daily price moves in trading forward
contracts on foreign currency. The markets for some world
currencies have low trading volume and are illiquid, which may
prevent the Partnership from trading in potentially profitable
markets or from promptly liquidating unfavorable positions,
subjecting it to substantial losses. Either of these market
conditions could result in restrictions on redemptions.
Capital Resources. The Partnership does not have, nor does it
expect to have, any capital assets. Future redemptions of Units
of Limited Partnership Interest ("Unit(s)") will affect the
amount of funds available for investment in futures interests in
subsequent periods. Since they 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 Quarter and Six Months Ended June 30, 1999
For the quarter ended June 30, 1999, the Partnership recorded a
total loss before expenses of $273,785 and posted a decrease in
Net Asset Value per Unit. Positive trading results and interest
income combined were more than offset by a negative $1,013,163
change in the Value of the Yield Pool. The most significant
trading gains were recorded in the stock index component of the
balanced portfolio from long S&P 500 Index futures positions as
the S&P 500 Index reached record highs during early April in
response to an interest rate cut by the European Central Bank
<PAGE>
aimed at boosting their region's economy and again during late
June as investors sensed that Wall Street's fears that the
Federal Reserve would launch a big rise in interest rates were
over-blown. In soft commodities, gains were recorded during
April from short sugar futures positions as prices fell to a new
13-year low in anticipation of a huge sugar crop amid declining
demand and an already large global surplus. These gains were
partially offset by losses recorded in the metals markets during
May from long positions in nickel and copper futures as base
metal prices fell amid a technical sell-off and as market
participants ran out of patience waiting for production cuts that
were widely expected but weren't delivered. During June,
additional losses were incurred in this market complex from short
positions in copper futures as prices increased due to a drop in
warehouse stocks. In the fixed income component, losses were
experienced during April and May from long positions in U.S.
Treasury note futures as prices dropped sharply in reaction to a
higher-than-expected rise in the Consumer Price Index and
comments by Federal Reserve Chairman Alan Greenspan that
continued economic expansion in the U.S. without significant
signs of inflation is unlikely. In the agricultural markets,
losses were recorded from long corn futures positions as prices
regressed early in April in reaction to reports by the USDA that
the expected corn surplus will be one of the biggest in years and
from declining demand from Asian markets. Later in April corn
prices fell due to aggressive selling by commodity investment
funds amid technical factors and on reports of favorable planting
<PAGE>
conditions. Total expenses for the three months ended June 30,
1999 were $661,493, resulting in a net loss before minority
interest of $935,278. The minority interest in such loss was
$18,867, resulting in a net loss of $916,411 for the Partnership.
The value of a Unit decreased from $1,874.90 at March 31, 1999 to
$1,872.01 at June 30, 1999.
For the six months ended June 30, 1999, the Partnership recorded
total trading losses net of interest income and change in value
of the yield pool of $1,079,060 and posted a decrease in Net
Asset Value per Unit. The most significant trading losses were
experienced during February, April and May in the fixed income
component of the balanced portfolio from long U.S. interest rate
futures positions as prices dropped in reaction to Federal
Reserve Chairman Alan Greenspan's warnings in Congressional
testimony in late February that a strong economy could reignite
inflation. Fears that the Federal Reserve could eventually boost
target interest rates pushed down domestic bond prices and forced
yields higher. Reactions to a higher-than-expected rise in the
Consumer Price Index and comments by Federal Reserve Chairman
Alan Greenspan that continued economic expansion in the U.S.
without significant signs of inflation also forced U.S. bond
prices lower. In the metals markets, losses were recorded from
short copper futures positions as prices moved significantly
higher in late March in response to a decline in warehouse stocks
and evidence that Japanese consumption has stabilized.
Additional losses were experienced during May from long positions
<PAGE>
in nickel and copper futures as base metal prices fell amid a
technical sell-off and during June from short positions in copper
futures as prices increased due to a drop in warehouse stocks.
These losses were partially offset by gains recorded in the stock
index component during January and March from long S&P 500 Index
futures positions as domestic equity prices increased in reaction
to Wall Street reaching a major milestone during March, as the
Dow Jones Industrial Average hit 10,000 for the first time.
During early April, additional profits were recorded as the S&P
500 Index reached record highs in response to an interest rate
cut by the European Central Bank aimed at boosting their region's
economy, strong sales at domestic retailers and optimism about
earnings from financial services companies. During late June,
domestic stocks received another boost as investors sensed that
Wall Street's fears that the Federal Reserve would launch a big
rise in interest rates were over-blown. In the energy markets,
gains were recorded during March from long positions in crude and
gas oil futures as prices moved significantly higher due largely
to the news that both OPEC and non-OPEC countries had reached an
agreement to cut total output by approximately two million
barrels a day beginning April 1st. Total expenses for the six
months ended June 30, 1999 were $1,342,683, resulting in a net
loss before minority interest of $2,421,743. The minority
interest in such loss was $53,988, resulting in a net loss of
$2,367,755 for the Partnership. The value of a Unit decreased
from $1,887.62 at December 31, 1998 to $1,872.01 at June 30,
1999.
<PAGE>
For the Quarter and Six Months Ended June 30, 1998
For the quarter ended June 30, 1998, the Partnership recorded
total revenues consisting of trading losses, interest income and
change in value of the Yield Pool of $847,606 and, after
expenses, posted a decrease in Net Asset Value per Unit. The
most significant net trading losses were recorded in the managed
futures component of the balanced portfolio from long positions
in Australian bond futures as prices moved lower during April and
June. In currencies, losses were recorded during April and June
from crossrate transactions involving the Japanese yen relative
to the Australian dollar as the value of Pacific Rim currencies
moved in a short-term volatile pattern in reaction to the
economic instability in that region. Additional currency losses
were recorded from short Singapore dollar positions as its value
moved higher relative to the U.S. dollar during June. These
losses were partially offset by gains from short nickel futures
positions as nickel prices declined during June. Additional
gains recorded during June from short positions in crude oil
futures and long positions in cotton futures helped to offset the
Partnership's overall losses. Trading in the stock index futures
component was slightly profitable for the quarter as gains
recorded from long S&P 500 Index futures positions during April
and June offset losses recorded in this same market during May.
Small profits were also recorded from long U.S. Treasury note
futures positions. Total expenses for the three months ended June
30, 1998 were $701,988, resulting in a net income before minority
interest of $145,618. The minority interest in such income was
$27,713,
<PAGE>
resulting in a net income of $173,331 for the Partnership. In
accordance with the Limited Partnership Agreement, the Unrealized
Gain of $333,688 on the Zero-Coupon U.S. Treasury Securities held
in the Yield Pool was not included in the Net Asset Value per
Unit, therefore, the value of a Unit decreased from $1,788.81 at
March 31, 1998 to $1,783.37 at June 30, 1998.
For the six months ended June 30, 1998, the Partnership recorded
total trading revenues including interest income and change in
value of the Yield Pool of $4,165,674 and posted an increase in
Net Asset Value per Unit. The most significant gains were
recorded from long S&P 500 Index futures positions in the stock
index portion of the balanced portfolio as domestic stock prices
climbed to record highs during the first quarter. Additional
gains were recorded in the managed futures component from short
crude oil futures positions during January and February, as oil
prices declined on news of a tentative agreement between the U.N.
and Iraq. Short crude oil futures positions also proved
profitable during June as oil prices declined following a move up
higher in March and April. Gains were also recorded from short
nickel futures positions as nickel prices moved lower during June
and from trading livestock futures during February. In the bond
futures component, small profits were recorded from long U.S.
Treasury note futures positions as prices finished the first half
of the year slightly higher. A portion of the Partnership's
overall gains for the first half of the year was offset by losses
experienced in the managed futures component of the balanced
portfolio from long positions in Australian bond futures as
<PAGE>
prices moved lower during April and June. Losses were also
experienced in the currency markets from crossrate transactions
involving the Japanese yen relative to the Australian dollar
during April and June. Smaller currency losses were recorded
from short Singapore dollar positions as its value moved higher
relative to the U.S. dollar during June. Total expenses for the
six months ended June 30, 1998 were $1,448,479, resulting in net
income before minority interest of $2,717,195. The minority
interest in such income was $25,367, resulting in a net income of
$2,691,828 for the Partnership. The value of a Unit increased
from $1,707.59 at December 31, 1997 to $1,783.37 at June 30,
1998.
Year 2000 Problem. Commodity pools, like financial and business
organizations and individuals around the world, depend on the
smooth functioning of computer systems. Many computer systems in
use today cannot recognize the computer code for the year 2000,
but revert to 1900 or some other date. This is commonly known as
the "Year 2000 Problem". The Partnership could be adversely
affected if computer systems used by it or any third party with
whom it has a material relationship do not properly process and
calculate date-related information and data concerning dates on
or after January 1, 2000. Such a failure could adversely affect
the handling or determination of futures trades and prices and
other services.
MSDW began its planning for the Year 2000 Problem in 1995, and
currently has several hundred employees working on the matter.
<PAGE>
It has developed its own Year 2000 compliance plan to deal with
the problem and had the plan approved by the company's executive
management, Board of Directors and Information Technology
Department. Demeter is coordinating with MSDW to address the Year
2000 Problem with respect to Demeter's computer systems that
affect the Partnership. This includes hardware and software
upgrades, systems consulting and computer maintenance.
Beyond the challenge facing internal computer systems, the
systems failure of any of the third parties with whom the
Partnership has a material relationship - the futures exchanges
and clearing organizations through which it trades, Carr, or the
Trading Manager - could result in a material financial risk to
the Partnership. All U.S. futures exchanges are subject to
monitoring by the CFTC of their Year 2000 preparedness and the
major foreign futures exchanges are also expected to be subject
to market-wide testing of their Year 2000 compliance during 1999.
Demeter intends to monitor the progress of Carr and the Trading
Manager throughout 1999 in their Year 2000 compliance and, where
applicable, to test its external interface with Carr and the
Trading Manager.
A worst case scenario would be one in which trading of contracts
on behalf of the Partnership becomes impossible as a result of
the Year 2000 problem encountered by any third parties. A less
catastrophic but more likely scenario would be one in which
trading opportunities diminish as a result of technical problems
resulting in illiquidity and fewer opportunities to make
<PAGE>
profitable trades. MSDW has begun developing various "contingency
plans" in the event that the systems of such third parties fail.
Demeter intends to consult closely with MSDW in implementing
those plans. Despite the best efforts of both Demeter and MSDW,
however, it is possible that these steps will not be sufficient
to avoid any adverse impact to the Partnership.
Risks Associated With the Euro. On January 1, 1999, eleven
countries in the European Union established fixed conversion
rates on their existing sovereign currencies and converted to a
common single currency (the "euro"). During a three-year
transition period, the sovereign currencies will continue to
exist but only as a fixed denomination of the euro. Conversion
to the euro prevents the Trading Manager from trading in certain
currencies and thereby limits its ability to take advantage of
potential market opportunities that might otherwise have existed
had separate currencies been available to trade. This could
adversely affect the performance results of the Partnership.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Introduction
The Partnership is a commodity pool engaged primarily in the
speculative trading of futures interests. The market sensitive
instruments held by the Partnership are acquired solely for
speculative trading purposes and, as a result, all or
substantially all of the Partnership's assets are subject to the
<PAGE>
risk of trading loss. Unlike an operating company, the risk of
market sensitive instruments is integral, not incidental, to the
Partnership's primary business activities.
The futures interests traded by the Partnership involve varying
degrees of related market risk. Such market risk is often
dependent upon changes in the level or volatility of interest
rates, exchange rates, and/or market values of financial
instruments and commodities. Fluctuations in related market risk
based upon the aforementioned factors result in frequent changes
in the fair value of the Partnership's open positions, and,
consequently, in its earnings and cash flow.
The Partnership's total market risk is influenced by a wide
variety of factors, including the diversification effects among
the Partnership's existing open positions, the volatility present
within the market(s), and the liquidity of the market(s). At
varying times, each of these factors may act to exacerbate or
mute the market risk associated with the Partnership.
The Partnership's past performance is not necessarily indicative
of its future results. Any attempt at quantifying the
Partnership's market risk must be qualified by the inherent
uncertainty of its speculative trading, which may cause future
losses and volatility (i.e. "risk of ruin") far in excess of the
Partnership's experience to date and/or any reasonable
expectation premised upon historical changes in the fair value of
its market sensitive instruments.
<PAGE>
Quantifying the Partnership's Trading Value at Risk
The following quantitative disclosures regarding the
Partnership's market risk exposures contain "forward-looking
statements" within the meaning of the safe harbor from civil
liability provided for such statements by the Private Securities
Litigation Reform Act of 1995 (set forth in Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange
Act of 1934). All quantitative disclosures in this section are
deemed to be forward-looking statements for purposes of the safe
harbor, except for statements of historical fact.
The Partnership accounts for open positions on the basis of mark-
to-market accounting principles. As such, any loss in the fair
value of the Partnership's open positions is directly reflected
in the Partnership's earnings, whether realized or unrealized,
and the Partnership's cash flow, as profits and losses on open
positions of exchange-traded futures interests are settled daily
through variation margin.
The Partnership's risk exposure in the various market sectors
traded by the Trading Manager is estimated below in terms of
Value at Risk ("VaR"). The VaR model employed by the Partnership
incorporates numerous variables that could impact the fair value
of the Partnership's trading portfolio. The Partnership
estimates VaR using a model based on historical simulation with a
confidence level of 99%. Historical simulation involves
constructing a distribution of hypothetical daily changes in
trading portfolio value. The VaR model generally takes into
<PAGE>
account linear exposures to price and interest rate risk. Market
risks that are incorporated in the VaR model include equity and
commodity prices, interest rates, foreign exchange rates, as well
as correlation that exists among these variables. The
hypothetical changes in portfolio value are based on daily
observed percentage changes in key market indices or other market
factors ("market risk factors") to which the portfolio is
sensitive. In the case of the Partnership's VaR, the historical
observation period is approximately four years. The
Partnership's one-day 99% VaR corresponds to the negative change
in portfolio value that, based on observed market risk factor
moves, would have been exceeded once in 100 trading days.
VaR models such as the Partnership's are continually evolving as
trading portfolios become more diverse and modeling techniques
and systems capabilities improve. It must also be noted that the
VaR model is used to quantify market risk for historic reporting
purposes only and is not utilized by either Demeter or the
Trading Manager in their daily risk management activities.
The Partnership's Value at Risk in Different Market Sectors
The following table indicates the VaR associated with the
Partnership's open positions as a percentage of total Net Assets
by market category as of June 30, 1999. As of June 30, 1999, the
Partnership's total capitalization was approximately $48 million.
<PAGE>
Primary Market June 30, 1999
Risk Category Value at Risk
Equity (0.16)%
Interest Rate (0.42)
Currency (0.28)
Commodity (0.14)
Aggregate Value at Risk (0.55)%
Aggregate value at risk represents the aggregate VaR of the
Partnership's open positions and not the sum of the VaR of the
individual categories listed above. Aggregate VaR will be lower
as it takes into account correlation among different positions
and categories.
The table above represents the VaR of the Partnership's open
positions at June 30, 1999 only and is not necessarily
representative of either the historic or future risk of an
investment in the Partnership. As the Partnership's sole business
is the speculative trading of primarily futures interests, the
composition of its portfolio of open positions can change
significantly over any given time period or even within a single
trading day. Such changes in open positions could materially
impact market risk as measured by VaR either positively or
negatively.
The table below supplements the quarter-end VaR by presenting the
Partnership's high, low and average VaR as a percentage of total
Net Assets for the four quarterly reporting periods from July 1,
1998 through June 30, 1999.
<PAGE>
Primary Market Risk Category High Low Average
Equity (1.34)% (0.16)% (0.73)%
Interest Rate (0.81) (0.33) (0.54)
Currency (0.28) (0.14) (0.23)
Commodity (0.16) (0.10) (0.14)
Aggregate Value at Risk (1.27)% (0.55)% (0.98)%
Limitations on Value at Risk as an Assessment of Market Risk
The face value of the market sector instruments held by the
Partnership is typically many times the applicable margin require-
ments, as such margin requirements generally range between 2% and
15% of contract face value. Additionally, due to the use of
leverage, the face value of the market sector instruments held by
the Partnership is typically many times the total capitalization of
the Partnership. The financial magnitude of the Partnership's open
positions thus creates a "risk of ruin" not typically found in
other investment vehicles. Due to the relative size of the
positions held, certain market conditions may cause the Partnership
to incur losses greatly in excess of VaR within a short period of
time. The foregoing VaR tables, as well as the past performance of
the Partnership, gives no indication of such "risk of ruin". In
addition, VaR risk measures should be interpreted in light of the
methodology's limitations, which include the following: past
changes in market risk factors will not always yield accurate
predictions of the distributions and correlations of future market
movements; changes in portfolio value in response to market
movements may differ from the responses implicit in a VaR model;
published VaR results reflect past trading positions while future
risk depends on future positions; VaR using a one-day time horizon
does not fully
<PAGE>
capture the market risk of positions that cannot be liquidated or
hedged within one day; and the historical market risk factor data
used for VaR estimation may provide only limited insight into
losses that could be incurred under certain unusual market
movements.
The foregoing VaR tables present the results of the Partnership's
VaR for each of the Partnership's market risk exposures and on an
aggregate basis at June 30, 1999 and for the end of the four
quarterly reporting periods from July 1, 1998 through June 30,
1999. Since VaR is based on historical data, VaR should not be
viewed as predictive of the Partnership's future financial
performance or its ability to manage and monitor risk and there can
be no assurance that the Partnership's actual losses on a
particular day will not exceed the VaR amounts indicated or that
such losses will not occur more than 1 in 100 trading days.
Non-Trading Risk
The Partnership has non-trading market risk on its foreign cash
balances not needed for margin. However, such balances, as well as
any market risk they may represent, are immaterial. The
Partnership also maintains a portion (approximately 13%) of its
available assets in cash at DWR. A decline in short-term interest
rates will result in a decline in the Partnership's cash management
income. This cash flow risk is not considered material.
The Partnership also has non-trading risk on the Zero-Coupon U.S.
Treasury Securities it hold to support the guaranteed Net Asset
<PAGE>
Value per Unit at the Guaranteed Redemption Date of August 31,
2003. The fair value of these securities is subject to interest
rate risk.
For non-trading securities, the Partnership measures its market
risk using sensitivity analysis. The sensitivity analysis
estimates the potential change in fair value based on a
hypothetical 10% change in interest rates. Based on the current
valuation of the Zero-Coupon U.S. Treasury Securities, such a
change in interest rates will cause an approximately 2.39% decline
in their fair value. Such a change will not have a material effect
on the Net Asset Value per Unit.
Materiality, as used throughout this section, is based on an
assessment of reasonably possible market movements and the
potential losses caused by such movements, taking into account the
leverage, optionality and multiplier features of the Partnership's
market sensitive instruments.
Qualitative Disclosures Regarding Primary Trading Risk Exposures
The following qualitative disclosures regarding the Partnership's
market risk exposures - except for (i) those disclosures that are
statements of historical fact and (ii) the descriptions of how the
Partnership manages its primary market risk exposures - constitute
forward-looking statements within the meaning of Section 27A of the
Securities Act and Section 21E of the Securities Exchange Act. The
Partnership's primary market risk exposures as well as the
strategies used and to be used by Demeter and the Trading Manager
for managing such exposures are subject to numerous uncertainties,
contingencies and risks, any one of which could cause the actual
<PAGE>
results of the Partnership's risk controls to differ materially
from the objectives of such strategies. Government interventions,
defaults and expropriations, illiquid markets, the emergence of
dominant fundamental factors, political upheavals, changes in
historical price relationships, an influx of new market
participants, increased regulation and many other factors could
result in material losses as well as in material changes to the
risk exposures and the risk management strategies of the
Partnership. Investors must be prepared to lose all or
substantially all of their investment in the Partnership.
The following were the primary trading risk exposures of the
Partnership as of June 30, 1999, by market sector. It may be
anticipated however, that these market exposures will vary
materially over time.
Equity. The primary market exposure in the Partnership is
in the stock index sector. The primary equity exposure is to
equity price risk in the G-7 countries. The stock index futures
traded by the Partnership are by law limited to futures on
broadly based indices. As of June 30, 1999, the Partnership's
primary exposures were in the S&P 500 (U.S.) and Nikkei (Japan)
stock indices. The Partnership is primarily exposed to the risk
of adverse price trends or static markets in the U.S. and
Japanese indices. (Static markets would not cause major market
changes but would make it difficult for the Partnership to avoid
being "whipsawed" into numerous small losses).
<PAGE>
Interest Rate. The second largest market exposure this
quarter is in the interest rate complex. Exposure was spread
across the U.S., European, Japanese, Spanish and Australian
interest rate sectors. Interest rate movements directly affect
the price of the sovereign bond futures positions held by the
Partnership and indirectly affect the value of its stock index
and currency positions. Interest rate movements in one country
as well as relative interest rate movements between countries
materially impact the Partnership's profitability. The
Partnership's primary interest rate exposure is generally to
interest rate fluctuations in the United States and the other G-7
countries. However, the Partnership also takes futures positions
in the government debt of smaller nations - e.g. Australia and
Spain. Demeter anticipates that G-7 and Australian interest
rates will remain the primary interest rate exposure of the
Partnership for the foreseeable future. The changes in interest
rates, which have the most effect on the Partnership, are changes
in long-term, as opposed to short-term, rates. Most of the
speculative futures positions held by the Partnership are in
medium-to-long term instruments. Consequently, even a material
change in short-term rates would have little effect on the
Partnership, were the medium-to-long term rates to remain steady.
Currency. The Partnership's currency exposure is to exchange
rate fluctuations, primarily fluctuations which disrupt the
historical pricing relationships between different currencies and
currency pairs. Interest rate changes as well as political and
general economic conditions influence these fluctuations. The
<PAGE>
Partnership trades in a large number of currencies, including
cross-rates - i.e., positions between two currencies other than
the U.S. dollar. For the second quarter of 1999, the
Partnership's major exposures were in the euro currency crosses
and outright U.S. dollar positions. (Outright positions consist
of the U.S. dollar vs. other currencies. These other currencies
include the major and minor currencies). Demeter does not
anticipate that the risk profile of the Partnership's currency
sector will change significantly in the future. The currency
trading VaR figure includes foreign margin amounts converted into
U.S. dollars with an incremental adjustment to reflect the
exchange rate risk inherent to the dollar-based Partnership in
expressing VaR in a functional currency other than dollars.
Commodity.
Soft Commodities and Agriculturals. On June 30, 1999, the
Partnership had a reasonable amount of exposure in the markets
that comprise these sectors. Most of the exposure, however, was
in the sugar, corn and soybean markets. Supply and demand
inequalities, severe weather disruption and market expectations
affect price movements in these markets.
Energy. On June 30, 1999, the Partnership's energy exposure
was shared by futures contracts in the oil and natural gas
markets. Price movements in these markets result from political
developments in the Middle East, weather patterns, and other
economic fundamentals. As oil prices have broken out of low
price ranges achieved in 1998, it is possible that volatility
will increase as well. Significant profits and losses have been
<PAGE> and
are expected to continue to be experienced in this market.
Natural gas, also a primary energy market exposure, has exhibited
more volatility than the oil markets on an intra-day and daily
basis and is expected to continue in this choppy pattern.
Metals. The Partnership's metals market exposure is to
fluctuations in the price of base and precious metals. The
Partnership aims to equally weight market exposure in metals as
much as possible, however base metals, during period of
volatility, will affect performance more dramatically than the
precious metals markets. Demeter anticipates that the base
metals will remain the primary metals market exposure of the
Partnership.
Qualitative Disclosures Regarding Non-Trading Risk Exposure
The following was the only non-trading risk exposure of the
Partnership as of June 30, 1999:
Foreign Currency Balances. The Partnership's primary foreign
currency balances are in Mexican pesos, Swiss francs, Singapore
dollars and euros. The Partnership controls the non-trading risk
of these balances by regularly converting these balances back
into dollars upon liquidation of the respective position.
Zero-Coupon U.S. Treasury Securities. It is the Partnership's
intention to hold the Zero-Coupon U.S. Treasury Securities until
their August 15, 2003 maturity date except as need to fund
quarterly redemptions. Consequently, the period to period interest
rate risk
<PAGE>
these securities are subject to is not considered material.
Qualitative Disclosures Regarding Means of Managing Risk Exposure
The means by which the Partnership and the Trading Manager,
severally, attempt to manage the risk of the Partnership's open
positions are essentially the same in all market categories traded.
Demeter attempts to manage the Partnership's market exposure by (i)
diversifying the Partnership's assets among different market
sectors and trading approaches, and (ii), monitoring the
performance of the Trading Manager on a daily basis. In addition,
the Trading Manager establishes diversification guidelines, often
set in terms of the maximum margin to be committed to positions in
any one market sector or market sensitive instrument.
Demeter monitors and controls the risk of the Partnership's non-
trading instruments, cash and Zero-Coupon U.S. Treasury Securities,
which are the only Partnership investments directed by Demeter,
rather than the Trading Manager.
<PAGE>
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The following supplements Legal Proceedings previously disclosed
in the Partnership's 1998 Form 10-K:
With respect to the plaintiff's consolidated action in
California, on July 1, 1999, the Superior Court of the State of
California, ruling from the bench, denied the plaintiffs' motion
to have their lawsuit certified as a class action, stating, among
other things, that plaintiffs' lawsuit did not present common
questions of fact.
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits - None.
(B) Reports on Form 8-K. - None.
<PAGE>
SIGNATURE
Pursuant to the requirements 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)
August 13, 1999 By: /s/ Lewis A. Raibley, III
Lewis a. Raibley, III
Director and Chief
Financial Officer
The General Partner which signed the above is the only party
authorized to act for the Registrant. The Registrant has no
principal executive officer, principal financial officer,
controller, or principal accounting officer and has no Board of
Directors.
<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
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 8,451,639
<SECURITIES> 41,391,993
<RECEIVABLES> 27,504
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 49,843,653<F1>
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 49,843,653<F2>
<SALES> 0
<TOTAL-REVENUES> (1,079,060)<F3>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,342,683
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,367,755)<F4>
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,367,755)<F4>
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,367,755)<F4>
<EPS-BASIC> 0
<EPS-DILUTED> 0
<FN>
<F1>In addition to cash, securities and receivables, total assets include
net unrealized gain on open contracts of $325,173, net option premiums
of $(180,000) and unrealized loss on Zero-Coupon U.S. Treasury Securities
of $172,656.
<F2>Liabilities include redemptions payable of $842,497, accrued
brokerage fee of $166,116, accrued administrative expenses of
$181,552 and accrued management fees of $41,529.
<F3>Total revenues includes realized trading revenue of $586,990, net
change in unrealized of $(875,534), interest income of $1,334,884 and
change in valuation of Yield Pool of $(2,125,400).
<F4>Income-Pretax, Income Continuing and Net Income includes minority
interest in income of $53,988.
</FN>
</TABLE>
