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 period ended March 31, 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
<PAGE>
<TABLE>
DEAN WITTER PRINCIPAL PLUS FUND L.P.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
March 31, 1999
<CAPTION>
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Consolidated Financial Statements
Consolidated Statements of Financial Condition
March 31, 1999 (Unaudited) and December 31, 1998......2
Consolidated Statements of Operations for the
Quarters Ended March 31, 1999 and 1998 (Unaudited)....3
Consolidated Statements of Changes in Partners'
Capital for the Quarters Ended March 31, 1999 and
1998 (Unaudited)......................................4
Consolidated Statements of Cash Flows for the
Quarters Ended March 31, 1999 and 1998(Unaudited).....5
Notes to Consolidated Financial Statements
(Unaudited)........................................6-11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations..12-19
Item 3. Quantitative and Qualitative Disclosures about
Market Risk . . . . . . . . . . . . . . . . . .19-31
Part II. OTHER INFORMATION
Item 1. Legal Proceedings.............................. 32
Item 6. Exhibits and Reports on Form 8-K..................32
</TABLE>
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
DEAN WITTER PRINCIPAL PLUS FUND L.P.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<CAPTION>
March 31, December 31,
1999 1998
$ $
(Unaudited)
ASSETS
<S> <C> <C>
Equity in futures interests trading accounts:
Cash 8,961,082 9,270,594
Net unrealized gain on open contracts 254,598 1,200,707
Total Trading Equity 9,215,680 10,471,301
Investment in Zero-Coupon U.S. Treasury Securities 41,401,322 41,602,754
Unrealized gain on Zero-Coupon U.S. Treasury Securities840,507 1,952,744
Interest receivable (DWR) 31,346 34,344
Total Assets 51,488,855 54,061,143
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Redemptions payable 708,556 956,163
Accrued administrative expenses 180,280 156,280
Accrued brokerage fee (DWR) 168,227 173,174
Accrued management fee 42,057 43,293
Incentive fee payable - 147,477
Total Liabilities 1,099,120 1,476,387
Minority Interest 285,470 320,591
PARTNERS' CAPITAL
Limited Partners (25,967.425 and
26,345.343 Units, respectively) 49,516,944 51,660,212
General Partner (308 Units) 587,321
603,953
Total Partners' Capital 50,104,265 52,264,165
Total Liabilities and Partners' Capital 51,488,855 54,061,143
Total Partners' Capital 50,104,265 52,264,165
Less: Unrealized gain on Zero-
Coupon U.S. Treasury Securities 840,507 1,952,744
NET ASSETS PER LIMITED
PARTNERSHIP AGREEMENT 49,263,758 50,311,421
NET ASSET VALUE PER UNIT 1,874.90 1,887.62
<FN>
The accompanying notes are an integral part
of these financial statements.
</TABLE>
<PAGE>
<TABLE>
DEAN WITTER PRINCIPAL PLUS FUND L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
For the Quarters Ended March 31,
1999 1998
$ $
REVENUES
<S> <C> <C>
Trading profit (loss):
Realized 586,273 1,771,767
Net change in unrealized (946,109) 684,109
Total Trading Results (359,836) 2,455,876
Interest Income 666,798 737,613
Change in value of Yield Pool (1,112,237) 124,579
Total Revenues (805,275) 3,318,068
EXPENSES
Brokerage fees (DWR) 505,908 551,891
Management fees 126,477 137,973
Transaction fees and costs 24,805 27,559
Administrative expenses 24,000 23,000
Incentive fees - 6,068
Total Expenses 681,190 746,491
INCOME (LOSS) BEFORE MINORITY INTEREST(1,486,465) 2
,571,577
Minority interest in income (35,121) (53,080)
NET INCOME (LOSS) (1,451,344) 2,518,497
NET INCOME (LOSS) ALLOCATION
Limited Partners (1,434,712) 2,454,897
General Partner (16,632) 63,600
NET INCOME (LOSS) (1,451,344) 2,518,497
Less: Net change in unrealized gain
on Zero-Coupon U.S. Treasury Securities 1,112,237
- -
NET INCOME (LOSS) ALLOCATED TO PARTNERS
FOR TAX AND NET ASSET VALUATION (339,107) 2,518,497
Net Income (Loss) Allocation for Tax and Net Asset
Valuation
Limited Partners (335,188) 2,454,897
General Partners (3,919) 63,600
Net Income (Loss) Allocation for Tax and Net Asset
Valuation
Limited Partners (12.72) 81.22
General Partner (12.72) 81.22
<FN>
The accompanying notes are an integral part
of these financial statements.
</TABLE>
<PAGE>
<TABLE>
DEAN WITTER PRINCIPAL PLUS FUND L.P.
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
For the Quarters Ended March 31, 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 - 2,454,897 63,600
2,518,497
Redemptions (1,523.105) (2,724,546) -
(2,724,546)
Partners' Capital
March 31, 1998 29,483.132 $51,337,787 $1,402,026
$52,739,813
Partners' Capital
December 31, 1998 26,653.343 $51,660,212 $603,953
$52,264,165
Net Loss - (1,434,712) (16,632)
(1,451,344)
Redemptions (377.918) (708,556) -
(708,556)
Partners' Capital
March 31, 1999 26,275.425 $49,516,944 $587,321
$50,104,265
<FN>
The accompanying notes are an integral part
of these financial statements.
</TABLE>
<PAGE>
<TABLE>
DEAN WITTER PRINCIPAL PLUS FUND L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
For the Quarters Ended March 31,
1999 1998
$ $
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income (loss) (1,451,344) 2
,518,497
Noncash item included in income (loss):
Net change in unrealized 946,109 (
684,109)
Change in value of yield pool1,112,237 (
124,579)
(Increase) decrease in operating assets:
Investment in Zero-coupon U.S. Treasury Securities201,432
1,927
Interest receivable (DWR) 2,998 (694)
Net option premiums - (
719,950)
Increase (decrease) in operating liabilities:
Accrued administrative expenses 24,000 23,001
Accrued brokerage fee (DWR) (4,947) 5,791
Accrued management fee (1,236) 1,448
Incentive fee payable (147,477)
6,068
Net cash provided by operating activities 681,772
1,027,400
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in redemptions payable(247,607) 2
,001,521
Minority interest (35,121) 53,080
Redemptions of units (708,556)
(2,724,546)
Net cash used for financing activities (991,284)
(669,945)
Net increase (decrease) in cash (309,512) 357,455
Balance at beginning of period 9,270,594
8,956,497
Balance at end of period 8,961,082
9,313,952
<FN>
The accompanying notes are an integral part
of these 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 in the speculative trading of commodity
futures contracts and other commodity interests, including, but
not limited to, forward contracts on foreign currencies and
physical commodities (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 (loss) 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
changed to conform to current year presentation. For the quarter
ended March 31, 1999, $571,560 of interest income has been
accreted on the Yield Pool. At March 31, 1999, the cost of the
Yield Pool was $34,687,733 and the accreted interest receivable
thereon was $6,713,589. The market value of the Yield Pool on
March 31, 1999 is approximately $42,241,829.
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 commodity futures contracts and other
commodity interests, including, but not limited to, forward
contracts on foreign currencies and physical commodities.
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 has elected to adopt the provisions of SFAS No. 133
beginning with the fiscal year 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 Statements of Financial Condition and totaled $254,598 and
$1,200,707 at March 31, 1999 and December 31, 1998, respectively.
Of the $254,598 net unrealized gain on open contracts at March
31, 1999, $274,313 related to exchange-traded futures contracts
and $(19,715) 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
contracts and $(47,223) related to off-exchange-traded forward
currency contracts.
Exchange-traded futures contracts held by the Partnership at
March 31, 1999 and December 31, 1998 mature through July 1999 and
March 1999, respectively. Off-exchange-traded forward currency
contracts held by the Partnership at March 31, 1999 and December
31, 1998 mature through June 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 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
$9,235,395 and $10,518,524 at March 31, 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 Ended March 31, 1999
For the quarter ended March 31, 1999, the Partnership recorded
total trading losses net of interest income and change in value
of the yield pool of $805,275 and posted a decrease in Net Asset
Value per Unit. The most significant losses were experienced
during February 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
<PAGE>
Greenspan's warnings in Congressional testimony late in February
that a strong economy could reignite inflation. Fears that the
Federal Reserve eventually could boost target interest rates
pushed down domestic bond prices and forced yields higher. In
the livestock markets, losses were recorded in January from short
positions in hog and cattle futures as prices in both markets
moved sharply higher on concerns that winter storms would hurt
supplies, on reports of an increase in demand and plans for
government aid programs to help struggling farmers. In soft
commodities, losses were experienced during March from short
cotton futures positions as prices increased to their highest
level since mid-December on technically motivated speculative
buying and rumors that an influential merchant turned bullish
early in March. 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 LME warehouse
stocks and evidence that Japanese consumption has stabilized.
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.
Overall, stock prices were boosted by widespread favorable
sentiment towards the U.S. economy and robust trading momentum.
In the currency markets, gains were recorded throughout a
majority of the quarter from short euro positions as the value of
<PAGE>
the U.S. dollar hit new highs during March versus the European
common currency on the strength of the U.S. economy, concerns
pertaining to the economic health of Europe and Japan and growing
uncertainty about the military action in Yugoslavia. 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.
In the agricultural markets, smaller gains were recorded in
January and February from short soybean oil futures positions as
prices declined to 23-year lows in reaction to a healthy South
American crop outlook, weak world demand and fears that Brazil
will flood the market in an effort to support their ailing
economy. Total expenses for the three months ended March 31,
1999 were $681,190 resulting in a net loss before minority
interest of $1,486,465. The minority interest in such loss was
$35,121, resulting in a net loss of $1,451,344 for the
Partnership. The value of a Unit decreased from $1,887.62 at
December 31, 1998 to $1,874.90 at March 31, 1999.
For the Quarter Ended March 31, 1998
For the quarter ended March 31, 1998, the Partnership recorded
total trading revenues, including interest income and change in
value of the Yield Pool of $3,318,068 and posted an increase in
Net Asset Value per Unit. The most significant gains were
<PAGE>
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 three months of 1998.
Additional gains were recorded in the managed futures component
from long European bond futures positions, particularly German
and French bond futures, as prices in these markets trended
higher during a majority of the quarter. In energy futures
trading, profits were recorded 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. Smaller
gains were recorded from livestock futures trading during
February. In the bond portion of the balanced portfolio, small
gains were recorded from long U.S. Treasury note futures
positions as prices finished the quarter slightly higher. These
gains were partially offset by losses experienced from short
cotton futures as cotton prices increased during March after
moving lower previously. Smaller losses were recorded in
currencies as the value of the Japanese yen moved in a short-term
volatile pattern during February. Total expenses for the three
months ended March 31, 1998 were $746,491 resulting in net income
before minority interest of $2,571,577. The minority interest in
such income was $53,080 resulting in net income of $2,518,497 for
the Partnership. The value of a Unit increased from $1,707.59 at
December 31, 1997 to $1,788.81 at March 31, 1998.
<PAGE>
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. 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
<PAGE> 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
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
<PAGE>
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
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.
<PAGE>
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.
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
<PAGE>
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
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
<PAGE>
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 March 31, 1999. As of March 31, 1999,
the Partnership's total capitalization was approximately $50
million.
<PAGE>
Primary Market March 31, 1999
Risk Category Value at Risk
Interest Rate (0.61)%
Currency (0.25)
Equity (0.81)
Commodity (0.16)
Aggregate Value at Risk (1.06)%
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 March 31, 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
<PAGE>
assets for the four quarterly reporting periods from April 1, 1998
through March 31, 1999.
Primary Market Risk Category High Low Average
Interest Rate (0.81)% (0.33)% (0.63)%
Currency (0.25) (0.10) (0.19)
Equity (1.34) (0.50) (0.81)
Commodity (0.16) (0.10) (0.14)
Aggregate Value at Risk (1.27)% (0.97)% (1.08)%
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
<PAGE>
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
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 March 31, 1999 and for the end of the four
quarterly reporting periods from April 1, 1998 through March 31,
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
<PAGE>
also maintains a portion (approximately 14%) 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
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 1.86% 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.
<PAGE>
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
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 March 31, 1999, by market sector. It may be
anticipated however, that these market exposures will vary
materially over time.
<PAGE>
Interest Rate. Interest rate risk is the principal market
exposure of the Partnership. Interest rate movements directly
affect the price of the sovereign bond futures positions held by
the Partnership and indirectly 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 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 interest rates will remain the primary market 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 future 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. These fluctuations are influenced by interest rate
changes as well as political and general economic conditions. The
Partnership trades in a large number of currencies, including cross-
rates - i.e., positions between two currencies other than the U.S.
<PAGE>
dollar. However, the Partnership's major exposures have typically
been in the dollar/euro, dollar/Swiss franc and dollar/yen
positions. Demeter does not anticipate that the risk profile of
the Partnership's currency sector will change significantly in the
future, although it is difficult at this point to predict the
effect of the introduction of the Euro on the Trading Manager's
currency trading strategies.
Equity. The Partnership's 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 March 31, 1999, the Partnership's primary
exposures were in the S&P 500 and Nikkei (Japan) stock indices.
Demeter anticipates little, if any, trading in non-G-7 stock
indices. The Partnership is primarily exposed to the risk of
adverse price trends or static markets in the major U.s., European
and Japanese indices. (Static markets would not cause major market
changes but would make it difficult for the Partnership to avoid
being "whipsawed" into numerous small losses).
Commodity.
Metals. The Partnership's primary metals market
exposure is to fluctuations in the price of base metals such as
nickel.
Soft Commodities and Agriculturals. The Partnership's
primary commodities exposure is to fluctuations in the price of
soft commodities and agriculturals, which are often directly
affected by severe or unexpected weather conditions. Corn, wheat
and sugar accounted for the substantial bulk of the Partnership's
commodities
<PAGE>
exposure as of March 31, 1999. The Partnership has market exposure
to live cattle and lean hogs. However, Demeter anticipates that
the Trading Manager will maintain an emphasis on corn, wheat, and
sugar, in which the Partnership has historically taken it's largest
positions.
Energy. The Partnership's primary energy market exposure is
to gas and oil price movements, often resulting from political
developments in the Middle East. Although the Trading Manager
trades natural gas to a limited extent, oil is by far the dominant
energy market exposure of the Partnership. Oil prices are
currently depressed, but they can be volatile and substantial
profits and losses have been and are expected to continue to be
experienced in this market.
Qualitative Disclosures Regarding Non-Trading Risk Exposure
The following were the only non-trading risk exposures of the
Partnership as of March 31, 1999:
Foreign Currency Balances. The Partnership's primary foreign
currency balances are in euros, Swiss francs, Mexican pesos and
Singapore dollars. The Partnership controls the non-trading risk
of these balances by regularly converting these balances back into
U.S. dollars at varying intervals, depending upon such factors as
size, volatility, etc.
<PAGE>
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 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 Item 3. of the Partnership's 1998 Form 10-K:
On April 12, 1999, the defendants filed a motion in the
California action to oppose certification by the court of the
class in the California litigation.
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)
May 17, 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 8,961,082
<SECURITIES> 41,401,322
<RECEIVABLES> 31,346
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 51,488,855<F1>
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 51,488,855<F2>
<SALES> 0
<TOTAL-REVENUES> (805,275)<F3>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 681,190
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,451,344)<F4>
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,451,344)<F4>
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,451,344)<F4>
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>In addition to cash, securities and receivables, total assets include
net unrealized gain on open contracts of $254,598 and unrealized gain
on zero-coupon U.S. Treasury Securities of $840,507.
<F2>Liabilities include redemptions payable of $708,556, accrued
brokerage fee of $168,227, accrued administrative fees of
$180,280, accrued management fee of $42,057 and incentive fees
payable of $0.
<F3>Total revenue includes realized trading revenue of $586,273, net
change in unrealized of $(946,109), interest income of $666,798 and
change in valuation of Yield Pool of $(1,112,237).
<F4>Income-Pretax, Income Continuing and Net Income includes minority
interest in income of $(35,121).
</FN>
</TABLE>
