THIS DOCUMENT IS A COPY OF THE FORM 10-Q FILED ON AUGUST 14, 2000
PURSUANT TO A RULE 201 TEMPORARY HARDSHIP EXEMPTION.
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, 2000 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 number 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, 2000
<CAPTION>
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Consolidated Financial Statements
Consolidated Statements of Financial Condition
June 30, 2000 (Unaudited) and December 31, 1999............2
Consolidated Statements of Operations for the
Quarters Ended June 30, 2000 and 1999 (Unaudited)..........3
Consolidated Statements of Operations for the Six
Months Ended June 30, 2000 and 1999 (Unaudited)............4
Consolidated Statements of Changes in Partners'
Capital for the Six Months Ended June 30, 2000 and
1999 (Unaudited).......................................... 5
Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 2000 and 1999
(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...............................22-35
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...............................36-37
Item 5. Other Information..................................38
Item 6. Exhibits and Reports on Form 8-K................38-39
</TABLE>
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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
June 30, December 31,
2000 1999
$ $
<CAPTION> (Unaudited)
ASSETS
<S>
<C> <C>
Equity in futures interests trading accounts:
Cash 4,252,927 6,014,023
Net unrealized gain on open contracts (MS & Co.)
538,252 -
Net unrealized loss on open contracts (MSIL)
(22,185) -
Net unrealized gain (loss) on open contracts (Carr)
(24,805) 380,736
Total net unrealized gain on open contracts
491,262 380,736
Net option premiums
(213,500) ______-___
Total Trading Equity 4,530,689 6,394,759
Investment in Zero-Coupon U.S. Treasury Securities 37,857,317
40,367,536
Interest receivable (DWR) 20,115 24,726
Unrealized loss on Zero-Coupon U.S.
Treasury Securities (513,763) (1,018,390)
Total Assets 41,894,358 45,768,631
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Redemptions payable 1,145,822 1,341,552
Accrued administrative expenses 159,109 121,844
Accrued brokerage fees (DWR) 140,830 155,551
Accrued management fees 35,207 38,888
Total Liabilities 1,480,968 1,657,835
Minority Interest 135,797 198,080
Partners' Capital
Limited Partners (21,836.612 and
23,879.732 Units, respectively) 39,717,389 43,352,757
General Partner (308 Units) 560,204 559,959
Total Partners' Capital 40,277,593 43,912,716
Total Liabilities and Partners' Capital 41,894,358
45,768,631
NET ASSETS PER LIMITED PARTNERSHIP
AGREEMENT 40,277,593 43,912,716
NET ASSET VALUE PER UNIT 1,818.84 1,815.50
<FN>
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,
2000 1999
$ $
REVENUES
<S>
<C> <C>
Trading profit (loss):
Realized (168,087) 717
Net change in unrealized (851,720) 70,575
Total Trading Results (1,019,807) 71,292
Change in value of Yield Pool 754,207
(1,013,163)
Interest Income 174,746 668,086
Total Revenues (90,854) (273,785)
EXPENSES
Brokerage fees (DWR) 421,390 499,309
Management fees 105,347 124,827
Administrative expenses 23,000 13,000
Transaction fees and costs 22,714 24,357
Total Expenses 572,451 661,493
LOSS BEFORE MINORITY INTEREST (663,305) (935,278)
Minority interest in loss 63,767 18,867
NET LOSS (599,538) (916,411)
NET LOSS ALLOCATION
Limited Partners (591,430) (905,669)
General Partner (8,108)
(10,742)
NET LOSS (599,538) (916,411)
Less: Net change in unrealized gain
on Zero-Coupon U.S. Treasury Securities
- (840,507)
NET LOSS ALLOCATED TO PARTNERS
FOR TAX AND NET ASSET VALUATION (599,538)
(75,904)
Net Loss Allocation for Tax and Net Asset
Valuation
Limited Partners (591,430) (74,999)
General Partner (8,108)
(905)
Net Loss Per Unit for Tax and Net Asset
Valuation
Limited Partners (26.33) (2.89)
General Partner (26.33)
(2.89)
<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 OPERATIONS
(Unaudited)
<CAPTION>
For the Six Months Ended June 30,
2000 1999
$ $
<S>
<C> <C>
REVENUES
Trading profit (loss):
Realized (592,674)
586,990 Net
change in unrealized 110,526 (875,534)
Total Trading Results (482,148) (288,544)
Change in value of Yield Pool 922,751 (2,125,400)
Interest Income 796,790 1,334,884
Total Revenues 1,237,393 (1,079,060)
EXPENSES
Brokerage fees (DWR) 873,749 1,005,217
Management fees 218,437 251,304
Administrative expenses 45,000 37,000
Transaction fees and costs 44,296 49,162
Total Expenses 1,181,482 1,342,683
INCOME (LOSS) BEFORE MINORITY INTEREST55,911 (2,421,743)
Minority interest in income (loss) 62,283
53,988
NET INCOME (LOSS) 118,194 (2,367,755)
NET INCOME (LOSS) ALLOCATION
Limited Partners 117,949 (2,340,381)
General Partner 245 (27,374)
NET INCOME (LOSS) 118,194 (2,367,755)
Less: Net change in unrealized gain
on Zero-Coupon U.S. Treasury Securities_______-___
(1,952,744)
NET INCOME (LOSS) ALLOCATED TO PARTNERS
FOR TAX AND NET ASSET VALUATION 118,194
(415,011)
Net Income (Loss) Allocation for Tax and Net Asset
Valuation
Limited Partners 117,949 (410,187)
General Partner 245
(4,824)
Net Income (Loss) Per Unit for Tax and Net Asset
Valuation
Limited Partners 3.34 (15.61)
General Partner
3.34 (15.61)
<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 CHANGES IN PARTNERS' CAPITAL
For the Six Months Ended June 30, 2000 and 1999
(Unaudited)
<CAPTION>
Units of
Partnership Limited General
Interest Partners Partner Total
<S> <C>
<C> <C> <C>
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
Partners' Capital,
December 31, 1999 24,187.732 $43,352,757 $559,959
$43,912,716
Net Income
- 117,949 245 118,194
Redemptions (2,043.120) (3,753,317)
- (3,753,317)
Partners' Capital,
June 30, 2000 22,144.612 $39,717,389
$560,204 $40,277,593
<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,
2000 1999
$ $
CASH FLOWS FROM OPERATING ACTIVITIES
<S>
<C> <C>
Net income (loss) 118,194 (
2,367,755)
Noncash item included in net income (loss):
Net change in unrealized (110,526) 875,534
Change in value of yield pool (504,627) 2
,125,400
Decrease in operating assets:
Net option premiums 213,500 180,000
Investment in Zero-Coupon U.S.
Treasury Securities
2,510,219 210,761
Interest receivable (DWR) 4,611 6,840
Increase (decrease) in operating liabilities:
Accrued administrative expenses 37,265 25,272
Accrued brokerage fees (DWR) (14,721) (7,058)
Accrued management fees (3,681) (1,764)
Incentive fees payable ______-__
(147,477)
Net cash provided by operating activities 2,250,234
899,753
CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in redemptions payable (195,730) (
113,666)
Decrease in minority interest (62,283) (53,988)
Redemptions of Units (3,753,317)
(1,551,054)
Net cash used for financing activities (4,011,330)
(1,718,708)
Net decrease in cash (1,761,096) (
818,955)
Balance at beginning of period 6,014,023
9,270,594
Balance at end of period 4,252,927
8,451,639
<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, 1999 Annual
Report on Form 10-K.
1. Organization
Dean Witter Principal Plus Fund L.P. is a Delaware 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 is Demeter Management Corporation
("Demeter"). The non-clearing commodity broker is Dean Witter
Reynolds Inc. ("DWR"). Morgan Stanley & Co., Inc. ("MS & Co.")
and Morgan Stanley & Co. International Limited ("MSIL") provide
clearing and execution services. Prior to June 2000, Carr
Futures Inc. provided clearing and execution services. Demeter,
DWR, MS & Co. and MSIL are wholly-owned subsidiaries of Morgan
Stanley
<PAGE>
DEAN WITTER PRINCIPAL PLUS FUND L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Dean Witter & Co. 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
accumulated unrealized gain (loss) on the Zero-Coupon U.S.
Treasury Securities separately disclosed. The year-to-date
change in the yield pool's market value is reflected in the
consolidated statements 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. For the six months
ended June 30, 2000, $1,080,101 of interest income has been
accreted on the Yield Pool. At June 30, 2000, the cost of the
Yield Pool was $29,560,073 and the accreted interest receivable
thereon was $8,297,244. The market value of the Yield Pool on
June 30, 2000, was approximately $37,343,554.
3. Related Party Transactions
The Partnership's cash is on deposit with DWR, MS & Co., and MSIL
in futures interests trading accounts to meet margin requirements
as needed. DWR pays interest on these funds based on a prevailing
<PAGE>
DEAN WITTER PRINCIPAL PLUS FUND L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
rate on U.S. Treasury bills. The Partnership pays brokerage fees
to DWR.
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 ("FASB")
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. In June 1999, the FASB issued SFAS No. 137, "Accounting
for Derivative Instruments and Hedging Activities - Deferral of
the Effective Date of SFAS No. 133," which defers the required
implementation of SFAS No. 133 until fiscal years beginning after
June 15, 2000. However, the Partnership had previously elected
to
<PAGE>
DEAN WITTER PRINCIPAL PLUS FUND L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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.
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
$491,262 and $380,736 at June 30, 2000 and December 31, 1999,
respectively.
Of the $491,262 net unrealized gain on open contracts at June 30,
2000, $493,018 related to exchange-traded futures contracts and
$(1,756) related to off-exchange-traded forward currency
contracts.
Of the $380,736 net unrealized gain on open contracts at December
31, 1999, $325,528 related to exchange-traded futures contracts
and $55,208 related to off-exchange-traded forward currency
contracts.
<PAGE>
DEAN WITTER PRINCIPAL PLUS FUND L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Exchange-traded futures contracts held by the Partnership at June
30, 2000 and December 31, 1999 mature through December 2000 and
June 2000, respectively. Off-exchange-traded forward currency
contracts held by the Partnership at June 30, 2000 and December
31, 1999 mature through September 2000 and March 2000,
respectively.
The Partnership has credit risk associated with counterparty non-
performance. The credit risk associated with the instruments in
which the Partnership is involved is limited to the amounts
reflected in the Partnership's consolidated statements of
financial condition.
The Partnership also has credit risk because DWR, MS & Co., and
MSIL act as the futures commission merchants or the
counterparties, with respect to most of the 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. DWR, MS & Co., and MSIL each 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
<PAGE>
DEAN WITTER PRINCIPAL PLUS FUND L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONCLUDED)
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 $4,745,945 and
$6,339,551 at June 30, 2000 and December 31, 1999, respectively.
With respect to the Partnership's off-exchange-traded forward
currency contracts, there are no daily settlements of variations
in value nor is there any requirement that an amount equal to the
net unrealized gain on open forward contracts be segregated.
With respect to those off-exchange-traded forward currency
contracts, the Partnership is at risk to the ability of MS & Co.,
the sole counterparty on all of such contracts, to perform. The
Partnership has a netting agreement with MS & Co. This
agreement, which seeks to reduce both the Partnership's and MS &
Co.'s exposure to off-exchange-traded forward currency contracts,
should materially decrease the Partnership's credit risk in the
event of MS & Co.'s bankruptcy or insolvency.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity - The Partnership deposits its assets with DWR as non-
clearing broker and MS & Co. and MSIL as clearing brokers in
separate futures trading accounts established for the Trading
Manager, which assets are used as margin to engage in trading.
The assets are held in either non-interest-bearing bank accounts
or in securities and instruments permitted by the CFTC for
investment of customer segregated or secured funds. The
Partnership's assets held by the commodity brokers may be used as
margin solely for the Partnership's trading. Since the
Partnership's sole purpose is to trade in futures, forwards, and
options, it is expected that the Partnership will continue to own
such liquid assets for margin purposes.
The Partnership's investment in futures, forwards, and options
may, from time to time, be illiquid. Most U.S. futures exchanges
limit fluctuations in prices during a single day by regulations
referred to as "daily price fluctuations limits" or "daily
limits". Trades may not be executed at prices beyond the daily
limit. If the price for a particular futures or options contract
has increased or decreased by an amount equal to the daily limit,
positions in that futures or options contract can neither be
taken nor liquidated unless traders are willing to effect trades
at or within the limit. Futures prices have occasionally moved
the daily limit for several consecutive days with little or no
<PAGE>
trading. These market conditions could prevent the Partnership
from promptly liquidating its futures or options contracts and
result in restrictions on redemptions.
There is no limitation on daily price moves in trading forward
contracts on foreign currencies. The markets for some world
currencies have low trading volume and are illiquid, which may
prevent the Partnership from trading in potentially profitable
markets or prevent the Partnership from promptly liquidating
unfavorable positions in such markets, subjecting it to
substantial losses. Either of these market conditions could
result in restrictions on redemptions.
The Partnership has never had illiquidity affect a material
portion of its assets.
Capital Resources - The Partnership does not have, or expect to
have, any capital assets. Redemptions of additional units of
limited partnership interest ("Unit(s)") in the future will
affect the amount of funds available for investment in futures
interests in subsequent periods. It is not possible to estimate
the amount and therefore, the impact of future redemptions of
Units.
Results of Operations
General. The Partnership's results depend on its Trading Manager
and the ability of the Trading Manager's trading programs to take
<PAGE>
advantage of price movements or other profit opportunities in the
futures, forwards and options markets. The following presents a
summary of the Partnership's operations for the quarter and six
months ended June 30, 2000 and 1999, respectively, and a general
discussion of its trading activities during each period. It is
important to note, however, that the Trading Manager trades in
various markets at different times and that prior activity in a
particular market does not mean that such market will be actively
traded by the Trading Manager or will be profitable in the
future. Consequently, the results of operations of the
Partnership are difficult to discuss other than in the context of
its Trading Manager's trading activities on behalf of the
Partnership as a whole and how the Partnership has performed in
the past.
For the Quarter and Six Months Ended June 30, 2000
For the quarter ended June 30, 2000, the Partnership recorded
total trading losses net of interest income and change in value
of the yield pool of $90,854 and posted a decrease in Net Asset
Value per Unit. The most significant losses of approximately
1.8% were recorded primarily during April and early May in the
global stock index component from long positions in S&P 500 Index
futures as U.S. equity prices declined sharply during mid April
following the release of an unexpected jump in the Consumer Price
Index. Fears of inflation and concerns that the Federal Reserve
may need to raise interest rates more aggressively further
panicked an already weary market and forced prices lower. In the
<PAGE>
currency markets, losses of approximately 0.8% were recorded
primarily during May and June from short euro crossrate positions
relative to the Australian and U.S. dollars as the value of the
euro reversed higher due to suggestions that intervention to
support the euro was a possibility and interest rate hikes in
Europe. The U.S. dollar, which had strengthened earlier in the
second quarter, weakened during early June due primarily to the
perception that interest rates in the U.S. may have topped out in
the near term and data suggested that economic growth may finally
be slowing. In the global interest rate component, losses of
approximately 0.4% were recorded primarily during April and May
from long positions in Australian interest rate futures as prices
declined, following U.S. prices lower, as continued uncertainty
surrounding the U.S. economy and whether the previous interest
rate increases by the Federal Open Market Committee had resulted
in an economic "slowdown". In the metals markets, losses of
approximately 0.3% were experienced throughout the majority of
the quarter from trading copper futures as prices moved
inconsistently on technically based factors. These losses were
partially offset by gains of approximately 1.0% recorded in the
agricultural markets primarily during June from short soybean oil
futures positions as grain prices declined. In the energy
markets, gains of approximately 0.9% were recorded primarily
during May from long positions in natural gas futures as prices
continued their upward trend, as data released by the American
Gas Association further confirmed fears that inventory levels
<PAGE>
remain low. Adding to supply concerns were fears that the U.S.
demand will outstrip production this summer, when inventories are
typically refilled for the winter. Total expenses for the three
months ended June 30, 2000 were $572,451, resulting in a net loss
before minority interest of $663,305. The minority interest in
such loss was $63,767, resulting in a net loss of $599,538 for
the Partnership. The value of a Unit decreased from $1,845.17 at
March 31, 2000 to $1,818.84 at June 30, 2000.
For the six months ended June 30, 2000, the Partnership recorded
total trading revenues including interest income and change in
value of the yield pool of $1,237,393 and posted an increase in
Net Asset Value per Unit. The most significant gains of
approximately 1.0% were recorded in the global interest rate
component primarily during February and March from long positions
in U.S. interest rate futures as prices moved higher followed by
volatility in the U.S. stock markets as investors shifted assets
into U.S. Treasury notes from stocks. During June, gains were
recorded from long positions in U.S. interest rate futures as
prices moved higher amid signs that U.S. economic growth has
slowed and the prospects of additional interest rate hikes by the
Federal Reserve were fading. In the energy markets, gains of
approximately 1.0% were produced primarily during May from long
positions in natural gas futures as prices continued their upward
trend, as data released by the American Gas Association further
<PAGE>
confirmed fears that inventory levels remained low. Additional
gains were recorded during February from long positions in crude
oil futures as prices increased due to a combination of cold
weather, declining inventories and increasing demand. Gains were
also recorded during June as oil prices surged in reaction to the
dismissal by OPEC of a price setting mechanism and a promise of a
modest production increase. These gains were partially offset by
losses of approximately 1.8% recorded in the global stock index
component primarily during April and early May from long
positions in S&P 500 Index futures as U.S. equity prices declined
sharply during mid April following the release of an unexpected
jump in the Consumer Price Index. In the currency markets,
losses of approximately 0.6% were recorded during May and June
from short euro crossrate positions relative to the Australian
and U.S. dollars as the value of the euro reversed higher due to
suggestions that intervention to support the euro was a
possibility and the interest rate hikes in Europe. In the
livestock markets, losses of approximately 0.4% were recorded
during January from long positions in live cattle futures as
prices declined after the USDA raised its forecast for U.S. red
meat production in 2000. Total expenses for the six months ended
June 30, 2000 were $1,181,482, resulting in net income before
minority interest of $55,911. The minority interest in such
income was $62,283, resulting in net income of $118,194 for the
Partnership. The value of a Unit increased from $1,815.50 at
December 31, 1999 to $1,818.84 at June 30, 2000.
<PAGE>
For the Quarter and Six Months Ended June 30, 1999
For the quarter ended June 30, 1999, the Partnership recorded
total trading losses net of interest income and change in value
of the yield pool 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
of approximately 1.0% were recorded primarily 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 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 of
approximately 0.1% were recorded primarily 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 of approximately 0.4% recorded in the metals markets
primarily 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
<PAGE>
drop in warehouse stocks. In the fixed income component, losses
of approximately 0.4% were experienced primarily 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 of approximately 0.1% were recorded
primarily 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
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 of
approximately 2.1% were experienced primarily during February,
<PAGE>
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 of approximately 0.5% were recorded
primarily 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 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 of
approximately 1.4% recorded in the stock index component
primarily 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
<PAGE>
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 of approximately 0.3% were recorded primarily 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.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Introduction
The Partnership is a commodity pool involved in the speculative
trading of futures interests. The market-sensitive instruments
held by the Partnership are acquired for speculative trading
purposes only and, as a result, all or substantially all of the
Partnership's assets are at risk of trading loss. Unlike an
<PAGE>
operating company, the risk of market-sensitive instruments is
central, not incidental, to the Partnership's main business
activities.
The futures interests traded by the Partnership involve varying
degrees of market risk. Market risk is often dependent upon
changes in the level or volatility of interest rates, exchange
rates, and prices of financial instruments and commodities.
Fluctuations in market risk based upon these factors result in
frequent changes in the fair value of the Partnership's open
positions, and, consequently, in its earnings and cash flow.
The Partnership's total market risk is influenced by a wide
variety of factors, including the diversification among the
Partnership's open positions, the volatility present within the
markets, and the liquidity of the markets. At different times,
each of these factors may act to increase or decrease the market
risk associated with the Partnership.
The Partnership's past performance is not necessarily indicative
of its future results. Any attempt to numerically quantify the
Partnership's market risk is limited by the uncertainty of its
speculative trading. The Partnership's speculative trading may
cause future losses and volatility (i.e. "risk of ruin") that far
<PAGE>
exceed the Partnership's experiences to date or any reasonable
expectations based upon historical changes in market value.
Quantifying the Partnership's Trading Value at Risk
The following quantitative disclosures regarding the
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 using mark-to-market
accounting principles. Any loss in the market value of the
Partnership's open positions is directly reflected in the
Partnership's earnings, whether realized or unrealized, and its
cash flow. Profits and losses on open positions of exchange-
traded futures interests are settled daily through variation
margin.
The Partnership's risk exposure in the market sectors traded by
the Trading Manager is estimated below in terms of Value at Risk
("VaR"). The VaR model used by the Partnership includes many
variables that could change the market value of the Partnership's
<PAGE>
trading portfolio. The Partnership estimates VaR using a model
based upon historical simulation with a confidence level of 99%.
Historical simulation involves constructing a distribution of
hypothetical daily changes in the value of a trading portfolio.
The VaR model takes into account linear exposures to price and
interest rate risk. Market risks that are incorporated in the
VaR model include equity and commodity prices, interest rates,
foreign exchange rates, and correlation among these variables.
The hypothetical changes in portfolio value are based on daily
percentage changes observed in key market indices or other market
factors ("market risk factors") to which the portfolio is
sensitive. The historical observation period of the
Partnership's VaR is approximately four years. The one-day 99%
confidence level of the Partnership's VaR corresponds to the
negative change in portfolio value that, based on observed market
risk factors, would have been exceeded once in 100 trading days.
VaR models, including the Partnership's, are continuously
evolving as trading portfolios become more diverse and modeling
techniques and systems capabilities improve. Please note that
the VaR model is used to numerically quantify market risk for
historic reporting purposes only and is not utilized by either
Demeter or the Trading Manager in its daily risk management
activities.
The Partnership's Value at Risk in Different Market Sectors
The following tables indicates the VaR associated with the
<PAGE>
Partnership's open positions as a percentage of total Net Assets
by primary market risk category as of June 30, 2000 and 1999. At
June 30, 2000 and 1999, the Partnership's total capitalization
was approximately $40 million and $48 million, respectively.
Primary Market June 30, 2000 June 30, 1999
Risk Category Value at Risk Value at Risk
Interest Rate (0.83)% (0.42)%
Equity (0.25) (0.16)
Currency (0.25) (0.28)
Commodity (0.21) (0.14)
Aggregate Value at Risk (0.96)% (0.55)%
Aggregate Value at Risk represents the aggregate VaR of all the
Partnership's open positions and not the sum of the VaR of the
individual Market Categories listed above. Aggregate VaR will be
lower as it takes into account correlation among different
positions and categories.
The table above represents the VaR of the Partnership's open
positions at June 30, 2000 and 1999 only and is not necessarily
representative of either the historic or future risk of an
investment in the Partnership. Because the Partnership's only
business is the speculative trading of futures interests, the
composition of its trading portfolio can change significantly
over any given time period, or even within a single trading day.
<PAGE>
Any changes in open positions could positively or negatively
materially impact market risk as measured by VaR.
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,
1999 through June 30, 2000.
Primary Market Risk Category High Low Average
Interest Rate (0.83)% (0.42)% (0.64)%
Equity (0.81) (0.16) (0.45)
Currency (0.29) (0.25) (0.27)
Commodity (0.21) (0.14) (0.17)
Aggregate Value at Risk (1.06)% (0.55)% (0.90)%
Limitations on Value at Risk as an Assessment of Market Risk
The face value of the market sector instruments held by the
Partnership is typically many times the applicable margin
requirements. Margin requirements generally range between 2% and
15% of contract face value. Additionally, the use of leverage
causes the face value of the market sector instruments held by
the Partnership to typically be many times the total
capitalization of the Partnership. The value of the
Partnership's open positions thus creates a "risk of ruin" not
typically found in other investments. The relative size of the
<PAGE>
positions held may cause the Partnership to incur losses greatly
in excess of VaR within a short period of time, given the effects
of the leverage employed and market volatility.
The VaR tables above, as well as the past performance of the
Partnership, gives no indication of such "risk of ruin". In
addition, VaR risk measures should be viewed in light of the
methodology's limitations, which include the following:
past changes in market risk factors will not always result
in accurate predictions of the distributions and correlations of
future market movements;
changes in portfolio value in response to market movements
may differ from those of the VaR model;
VaR results reflect past trading positions while future risk
depends on future positions;
VaR using a one-day time horizon does not fully capture the
market risk of positions that cannot be liquidated or hedged
within one day; and
The VaR tables above present the results of the Partnership's VaR
for each of the Partnership's market risk exposures and on an
aggregate basis at June 30, 2000 and for the end of the four
quarterly reporting periods from July 1, 1999 through June 30,
2000. Since VaR is based on historical data, VaR should not be
viewed as predictive of the Partnership's future financial
performance or its ability to manage or monitor risk. There can
<PAGE>
be no assurance that the Partnership's actual losses on a
particular day will not exceed the VaR amounts indicated above or
that such losses will not occur more than 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. At June
30, 2000 the Partnership's cash balance at DWR was approximately
6% of its total Net Asset Value. A decline in short-term
interest rates will result in a decline in the Partnership's cash
management income. This cash flow risk is not considered
material.
The Partnership also has non-trading risk on the Zero-Coupon U.S.
Treasury Securities it holds 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 5.13%
decline
<PAGE>
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 any
associated potential losses, taking into account the leverage,
optionality and multiplier features of the Partnership's market-
sensitive instruments.
Qualitative Disclosures Regarding Primary Trading Risk Exposures
The following qualitative disclosures regarding the Partnership's
market risk exposures - except for (A) those disclosures that are
statements of historical fact and (B) the descriptions of how the
Partnership manages its primary market risk exposures -
constitute forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the
Securities Exchange Act. The Partnership's primary market risk
exposures as well as the strategies used and to be used by
Demeter and the Trading Manager for managing such exposures are
subject to numerous uncertainties, contingencies and risks, any
one of which could cause the actual results of the Partnership's
risk controls to differ materially from the objectives of such
strategies. Government interventions, defaults and
expropriations, illiquid markets, the emergence of dominant
fundamental factors, political upheavals, changes in historical
price relationships, an influx of new market participants,
increased regulation and many other factors could
<PAGE>
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, 2000, by market sectors. It may be
anticipated however, that these market exposures will vary
materially over time.
Equity. The primary market exposure in the Partnership at June
30, 2000 was in the global stock index sector. The primary
equity exposure is to equity price risk in the G-7 countries.
The G-7 countries consist of France, U.S., Britain, Germany,
Japan, Italy and Canada. The stock index futures traded by the
Partnership are by law limited to futures on broadly based
indices. As of June 30, 2000, 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 at June 30,
2000 was in the global interest rate complex. Exposure was
spread across the U.S., European, Japanese 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.
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 at June 30, 2000
was to exchange rate fluctuations, primarily fluctuations which
disrupt the historical pricing relationships between different
<PAGE>
currencies and currency pairs. Interest rate changes as well as
political and general economic conditions influence these
fluctuations. The Partnership trades in a large number of
currencies, including cross-rates - i.e., positions between two
currencies other than the U.S. dollar. For the second quarter of
2000, 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.
Energy. On June 30, 2000, the Partnership's energy exposure was
shared primarily by futures contracts in the crude oil and
natural gas markets. Price movements in these markets result
from political developments in the Middle East, weather patterns,
and other economic fundamentals. It is possible that volatility
will remain high. Significant profits and losses, which have
been experienced in the past, are expected to continue to be
<PAGE>
experienced in this market. Natural gas has exhibited volatility
in prices resulting from weather patterns and supply and demand
factors and may continue in this choppy pattern.
Soft Commodities and Agriculturals. On June 30, 2000, the
Partnership had exposure in the markets that comprise these
sectors. Most of the exposure, however, was in the corn,
livestock and soybean oil markets. Supply and demand
inequalities, severe weather disruption and market expectations
affect price movements in these markets.
Metals. The Partnership's metals market exposure at June 30,
2000 was to fluctuations in the price of base metals. During
periods of volatility, base metals will affect performance
dramatically. 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 were the only non-trading risk exposures of the
Partnership as of June 30, 2000:
Foreign Currency Balances. The Partnership's primary foreign
currency balances were in the Japanese yen, South African rands
and Swedish kronas. The Partnership controls the non-trading
risk of these balances by regularly converting these balances
back into dollars upon liquidation of the respective position.
<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 needed 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 Partnership and the Trading Manager, separately, attempt to
manage the risk of the Partnership's open positions in
essentially the same manner in all market categories traded.
Demeter attempts to manage market exposure by diversifying the
Partnership's assets among different market sectors and trading
approaches, and monitoring the performance of the Trading Manager
daily. In addition, the Trading Manager establishes
diversification guidelines, often set in terms of the maximum
margin to be committed to positions in any one market sector or
market-sensitive instrument.
Demeter monitors and controls the risk of the Partnership's non-
trading instruments, cash and Zero-Coupon U.S. Treasury
Securities. Cash and Zero-Coupon U.S. Treasury Securities 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 Form 10-Q for the quarter ended March 31,
2000 and Form 10-K for the year ended December 31, 1999:
On October 25, 1996, the Market Surveillance Committee (the
"Committee") of the National Association of Securities Dealers
("NASD") filed a formal complaint against MS & Co. and seven
current and former traders, alleging violations of certain NASD
rules relating to manipulative and deceptive practices, locked
and crossed markets, and failure to supervise. Hearings were
held in June and July 1997. On April 13, 1998 the Committee
ruled that MS & Co. and the seven traders had engaged in
manipulative and deceptive practices and improperly locked or
crossed markets, but not that MS & Co. had failed to supervise
its traders. The Committee levied a fine of $1,000,000 on MS &
Co., a fine of $100,000 and a 90-day suspension on one of its
former traders, and fines of $25,000 and 30-day suspensions on
each of the remaining current and former traders. On January 18,
2000 the National Adjudicatory Council, which heard the appeal,
issued a ruling which upheld the Committee's April 1998 decision,
however, the National Adjudicatory Council reduced the firm's
fine to $495,000,
<PAGE>
reversed all previously imposed suspensions against the traders,
reduced the fine for each of six traders to $2,500 and dismissed
all charges against the seventh trader.
On January 11, 1999, the Securities and Exchange Commission
brought an action against 28 NASDAQ market makers, including MS &
Co., and 51 individuals, including one current and one former
trader employed by MS & Co., for certain conduct during 1994.
The core of the charges against MS & Co. concerns improper or
undisclosed coordination of price quotes with other broker-
dealers and related reporting, recordkeeping and supervisory
deficiencies in violation of Sections 15(b)(4)(E), 15(c)(1) and
(2) and 17(a) of the Securities Exchange Act and Rules 15c1-2,
15c2-7 and 17a-3 promulgated thereunder. Without admitting or
denying the charges, MS & Co. consented to the entry of a cease
and desist order and to the payment of a civil penalty of
$350,000, disgorgement of $4,170 and to submit certain of its
procedures to an independent consultant for review. In addition,
one current and one former trader employed by MS & Co. accepted
suspensions of less than two months each and were fined $25,000
and $30,000 respectively.
<PAGE>
Item 5. OTHER INFORMATION
Effective July 1, 2000, Lewis A. Raibley, III resigned as Chief
Financial Officer and a Director of Demeter and Dean Witter
Futures Currency Management Inc. Effective July 10, 2000 Raymond
E. Koch replaced Lewis A. Raibley, III as Chief Financial Officer
of Demeter.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits
3.01 Amended and Restated Limited Partnership Agreement of
the Partnership, dated as of August 29, 1995 is inc
orporated by reference to Exhibit 3.01 and Exhibit 3.02
of the Partnership's Registration Statement (File
No. 33-95414) on Form S-1.
10.01 Amended and Restated Management Agreement among the
Partnership, Demeter and RXR, Inc. dated as of December
29, 1995 is incorporated by reference to Exhibit 10.02 of
the Partnership's Registration Statement (File No. 33-
95414) on Form S-1.
10.02 Amended and Restated Customer Agreement between the
Partnership and DWR, dated as of December 29, 1995 is
incorporated by reference to Exhibit 10.01 of the
Partnership's Registration Statement (File No. 33-95414)
on Form S-1.
10.03 Amended and Restated Customer Agreement, dated as of
December 1, 1997, between the Partnership and Dean Witter
Reynolds Inc. is incorporated by reference to Exhibit 10.03 of
the Partnership's Quarterly Report on Form 10-Q for the quarter
ended March 31, 2000, File No. 0-18314.
10.04 Customer Agreement, dated as of December 1, 1997, among
the Partnership, Carr Futures, Inc., and Dean Witter Reynolds
Inc. is incorporated by reference to Exhibit 10.04 of the
Partnership's Quarterly Report on Form 10-Q for the quarter ended
March 31, 2000, File No. 0-18314.
<PAGE>
10.05 International Foreign Exchange Master Agreement,
dated as of August 1, 1997, between the Partnership and
Carr Futures, Inc. is incorporated by reference to
Exhibit 10.05 of the Partnership's Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2000, File No. 0-18314.
10.06 Customer Agreement, dated as of May 1, 2000 between
Morgan Stanley & Co. Incorporated, the Partnership and
Dean Witter Reynolds Inc. is filed herewith.
(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 14, 2000 By:/s/ Raymond E. Koch ________
Raymond E. Koch
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.
