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 September 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
September 30, 2000
<CAPTION>
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Consolidated Financial Statements
Consolidated Statements of Financial Condition
September 30, 2000 (Unaudited) and December 31, 1999...... 2
Consolidated Statements of Operations for the
Quarters Ended September 30, 2000 and 1999 (Unaudited).....3
Consolidated Statements of Operations for the Nine
Months Ended September 30, 2000 and 1999 (Unaudited).......4
Consolidated Statements of Changes in Partners'
Capital for the Nine Months Ended September 30, 2000 and
1999 (Unaudited).......................................... 5
Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 2000 and 1999
(Unaudited)................................................6
Notes to Consolidated Financial Statements
(Unaudited).............................................7-13
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations......................................14-24
Item 3. Quantitative and Qualitative Disclosures
about Market Risk...............................24-38
PART II. OTHER INFORMATION
Item 1. Legal Proceedings..................................39
Item 6. Exhibits and Reports on Form 8-K................39-40
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<TABLE>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
DEAN WITTER PRINCIPAL PLUS FUND L.P.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<CAPTION> September 30, December 31,
2000 1999
$ $
(Unaudited)
ASSETS
<S> <C> <C>
Equity in futures interests trading accounts:
Cash 4,117,961 6,014,023
Net unrealized loss on open contracts (MSIL)(39,120) -
Net unrealized loss on open contracts (MS & Co.) (147,528)
-
Net unrealized gain on open contracts (Carr)_____-___ 380,736
Total net unrealized gain (loss) on open contracts (186,648)
380,736
Net option premiums (139,500) ______-___
Total Trading Equity 3,791,813 6,394,759
Investment in Zero-Coupon U.S. Treasury Securities 37,268,041
40,367,536
Interest receivable (DWR) 20,166 24,726
Unrealized loss on Zero-Coupon U.S.
Treasury Securities (185,918) (1,018,390)
Total Assets 40,894,102 45,768,631
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Redemptions payable 2,246,208 1,341,552
Accrued administrative expenses 172,749 121,844
Accrued brokerage fees (DWR) 136,358 155,551
Accrued management fees 34,089 38,888
Total Liabilities 2,589,404 1,657,835
Minority Interest 105,202 198,080
Partners' Capital
Limited Partners (20,606.783 and
23,879.732 Units, respectively) 37,636,954 43,352,757
General Partner (308 Units) 562,542 559,959
Total Partners' Capital 38,199,496 43,912,716
Total Liabilities and Partners' Capital40,894,102 45,7
68,631
NET ASSETS PER LIMITED PARTNERSHIP
AGREEMENT 38,199,496 43,912,716
NET ASSET VALUE PER UNIT 1,826.44 1,815.50
<FN>
The accompanying notes are an integral part
of these consolidated financial statements.
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<TABLE>
DEAN WITTER PRINCIPAL PLUS FUND L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
For the Quarters Ended September 30,
2000 1999
$ $
REVENUES
<S> <C> <C>
Trading profit (loss):
Realized 453,259 (215,533)
Net change in unrealized (677,910) (279,756)
Total Trading Results (224,651) (495,289)
Interest Income 586,880 669,552
Change in value of Yield Pool 327,844 (232,720)
Total Revenues 690,073 (58,457)
EXPENSES
Brokerage fees (DWR) 411,228 484,653
Management fees 102,807 121,163
Administrative expenses 24,000 9,000
Transaction fees and costs 14,522 21,910
Total Expenses 552,557 636,726
INCOME (LOSS) BEFORE MINORITY INTEREST137,516 (
695,183)
Less: Minority interest in income (loss)(30,595)
(39,366)
NET INCOME (LOSS) 168,111 (655,817)
NET INCOME (LOSS) ALLOCATION
Limited Partners 165,773 (648,004)
General Partner 2,338 (7,813)
NET INCOME (LOSS) ALLOCATED TO PARTNERS
FOR TAX AND NET ASSET VALUATION 168,111 (655,817)
Net Income (Loss) Allocation for Tax and Net Asset
Valuation
Limited Partners 165,773 (647,714)
General Partner 2,338 (8,103)
Net Income (Loss) Per Unit for Tax and Net Asset
Valuation
Limited Partners 7.60
(25.37)
General Partner 7.60
(25.37)
<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 Nine Months Ended September 30,
2000 1999
$ $
REVENUES
<S> <C> <C>
Trading profit (loss):
Realized (139,415) 371,457
Net change in unrealized (567,384) (1,155,290)
Total Trading Results (706,799) (783,833)
Interest Income 1,801,793 2,004,436
Change in value of Yield Pool 832,472 (2,358,120)
Total Revenues 1,927,466 (1,137,517)
EXPENSES
Brokerage fees (DWR) 1,284,977 1,489,870
Management fees 321,244 372,467
Administrative expenses 69,000
46,000 T
ransaction fees and costs 58,818 71,072
Total Expenses 1,734,039 1,979,409
INCOME (LOSS) BEFORE MINORITY INTEREST193,427 (
3,116,926)
Less: Minority interest in income (loss) (92,878)
(93,354)
NET INCOME (LOSS) 286,305 (3,023,572)
NET INCOME (LOSS) ALLOCATION
Limited Partners 283,722 (2,988,385)
General Partner 2,583 (35,187)
NET INCOME (LOSS) 286,305 (3,023,572)
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 286,305 (1,070,828)
Net Income (Loss) Allocation for Tax and Net Asset
Valuation
Limited Partners 283,722 (1,057,901)
General Partner 2,583
(12,927)
Net Income (Loss) Per Unit for Tax and Net Asset
Valuation
Limited Partners 10.94 (40.98)
General Partner
10.94 (40.98)
<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 CHANGES IN PARTNERS' CAPITAL
For the Nine Months Ended September 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
- (2,988,385) (35,187) (3,023,572)
Redemptions (1,726.667) (3,209,959)
- (3,209,959)
Partners' Capital,
September 30, 1999 24,926.676 $45,461,868
$568,766 $46,030,634
Partners' Capital,
December 31, 1999 24,187.732 $43,352,757
$559,959 $43,912,716
Net Income - 283,722 2,583
286,305
Redemptions (3,272.949) (5,999,525)
- (5,999,525)
Partners' Capital,
September 30, 2000 20,914.783 $37,636,954
$562,542 $38,199,496
<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 CASH FLOWS
(Unaudited)
<CAPTION>
For the Nine Months Ended September 30,
2000 1999
$ $
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income (loss) 286,305 (
3,023,572)
Noncash item included in net income (loss):
Net change in unrealized 567,384 1
,155,290
Change in value of yield pool (832,472) 2
,358,120
Decrease in operating assets:
Net option premiums 139,500
-
Investment in Zero-Coupon U.S.
Treasury Securities 3,099,495
332,878
Interest receivable (DWR) 4,560 6,484
Increase (decrease) in operating liabilities:
Accrued administrative expenses 50,905 34,272
Accrued brokerage fees (DWR) (19,193) (11,426)
Accrued management fees (4,799) (2,856)
Incentive fees payable
- (147,477)
Net cash provided by operating activities3,291,685
701,713
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in redemptions payable 904,656 702,742
Decrease in minority interest (92,878) (93,354)
Redemptions of Units (5,999,525)
(3,209,959)
Net cash used for financing activities(5,187,747)
(2,600,571)
Net decrease in cash (1,896,062) (
1,898,858)
Balance at beginning of period 6,014,023
9,270,594
Balance at end of period 4,117,961
7,371,736
<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 unaudited financial statements contained herein 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. Demeter, DWR, MS & Co. and MSIL
are wholly-owned subsidiaries of Morgan Stanley Dean Witter & Co.
<PAGE>
DEAN WITTER PRINCIPAL PLUS FUND L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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 nine months
ended September 30, 2000, $1,605,762 of interest income has been
accreted on the Yield Pool. At September 30, 2000, the cost of
the Yield Pool was $28,690,436 and the accreted interest
receivable thereon was $8,577,605. The market value of the Yield
Pool on September 30, 2000, was $37,082,123.
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,
2000, as amended by SFAS No. 137. The Partnership adopted the
provisions of SFAS No. 133 beginning with the fiscal year ended
December 31, 1998. SFAS No. 133 superceded SFAS Nos. 119 and
105, which required the disclosure of average aggregate fair
values and contract/notional values, respectively, of derivative
financial instruments for an entity that carries its assets at
fair value.
<PAGE>
DEAN WITTER PRINCIPAL PLUS FUND L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
SFAS No. 133 was further amended by SFAS No. 138, which clarifies
issues surrounding interest rate risk, foreign currency
denominations, normal purchases and sales and net hedging. The
application of SFAS No. 133, as amended by SFAS No. 137, did not
have a significant effect on the Partnership's financial
statements, nor will the application of the provisions of SFAS
No. 138 have a significant effect on the Partnership's financial
statements.
SFAS No. 133 defines a derivative as a financial instrument or
other contract that has all three of the following
characteristics:
1) One or more underlying notional amounts or payment
provisions;
2) Requires no initial net investment or a smaller initial net
investment than would be required relative to changes in market
factors;
3) Terms require or permit net settlement.
Generally derivatives include futures, forwards, swaps or option
contracts, or other financial instruments with similar
characteristics such as caps, floors and collars.
<PAGE>
DEAN WITTER PRINCIPAL PLUS FUND L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The net unrealized gain (loss) on open contracts is reported as a
component of "Equity in futures interests trading accounts" on
the consolidated statements of financial condition and totaled
$(186,648) and $380,736 at September 30, 2000 and December 31,
1999, respectively.
Of the $186,648 net unrealized loss on open contracts at
September 30, 2000, $176,517 related to exchange-traded futures
contracts and $10,131 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.
Exchange-traded futures contracts held by the Partnership at
September 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 September 30, 2000
and December 31, 1999 mature through December 2000 and March
2000, respectively.
<PAGE>
DEAN WITTER PRINCIPAL PLUS FUND L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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 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 (loss) on all open futures and futures-styled
options contracts, which funds, in the aggregate, totaled
$3,941,444 and $6,339,551 at September 30, 2000 and December 31,
1999, respectively. With respect to the Partnership's off-
exchange-traded forward currency contracts,
<PAGE>
DEAN WITTER PRINCIPAL PLUS FUND L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONCLUDED)
there are no daily settlements of variations in value nor is
there any requirement that an amount equal to the net unrealized
gain (loss) 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 quarters and nine
months ended September 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 Nine Months Ended September 30, 2000
For the quarter ended September 30, 2000, the Partnership
recorded total trading revenues including interest income and
change in value of the yield pool of $690,073 and posted an
increase in Net Asset Value per Unit. The most significant
trading gains of approximately 0.8% were attributed primarily to
an increase in the value of the Zero-Coupon U.S. Treasury
securities held in the guarantee portion of the Partnership.
Gains of approximately 0.2% were recorded in the global interest
rate futures markets primarily during July and August from long
positions in U.S. interest rate futures as domestic bond prices
rose amid signs that inflation in the U.S. remains in check and
<PAGE>
that the economy will experience a "soft landing". In the metals
markets, gains of approximately 0.1% were recorded primarily
during July and mid September from long positions in copper
futures as prices rose higher due to a rise in COMEX copper
stocks. In the energy markets, gains were produced during August
from long futures positions in gas and heating oil as prices
climbed higher due to a sharp decline in U.S. inventories and
concerns that OPEC would not increase production in the near
future. In the currency markets, small profits were recorded
from short positions in the New Zealand dollar as its value fell
to historic lows relative to the U.S. dollar after worse-than-
expected trade figures were released. In the agricultural
markets, small gains were recorded from short positions in corn
futures as prices declined on favorable U.S. crop weather
forecasts. A portion of the Partnership's overall gains was
partially offset by losses of approximately 0.6% recorded in the
global stock index futures markets primarily during late July and
September from long positions in S&P 500 Index futures as prices
declined due to jitters in the technology sector, a worrisome
spike in oil prices and re-emerging fears of inflation and higher
interest rates. In soft commodities, losses of approximately
0.2% were experienced primarily during July from short cotton
futures positions as prices moved higher amid fears that the
dryness and heat in Texas would slash the size of the U.S. crop.
Total expenses for the three months ended September 30, 2000 were
<PAGE>
$552,557, resulting in net income before minority interest of
$137,516. The minority interest in such income was $30,595,
resulting in net income of $168,111 for the Partnership. The
value of a Unit increased from $1,818.84 at June 30, 2000 to
$1,826.44 at September 30, 2000.
For the nine months ended September 30, 2000, the Partnership
recorded total trading revenues including interest income and
change in value of the yield pool of $1,927,466 and posted an
increase in Net Asset Value per Unit. The most significant
trading gains of approximately 4.3% were attributed primarily to
an increase in the value of the Zero-Coupon U.S. Treasury
securities held in the guarantee portion of the Partnership.
Gains of approximately 1.3% 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
due to volatility in the U.S. stock markets and as investors
shifted assets into U.S. Treasury notes from stocks. During
June, July and August, 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 trended higher, as data released by the American Gas
Association further confirmed fears that inventory levels
<PAGE>
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 and
August as oil prices surged in reaction to a decline in U.S.
inventories and concerns that OPEC would not increase production
in the near future. A portion of the Partnership's overall gains
was partially offset by losses of approximately 2.4% recorded in
the global stock index futures component primarily during April,
early May, late July and September from long positions in S&P 500
Index futures as U.S. equity prices declined due to jitters in
the technology sector, re-emerging fears of inflation and higher
interest rates. In the currency markets, losses of approximately
0.5% were recorded primarily during May and June from short euro
positions relative to the Australian and U.S. dollars as the
value of the euro reversed higher amid suggestions that
intervention to support the euro was a possibility, as well as
interest rate hikes in Europe. In the livestock markets, losses
of approximately 0.5% were recorded primarily 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. In soft commodities, losses of approximately 0.3% were
experienced primarily during July from short cotton futures
positions as prices moved higher amid fears that the dryness and
heat in Texas would slash the size of the U.S. crop. Total
expenses for the nine months ended September 30, 2000 were
<PAGE>
$1,734,039, resulting in net income before minority interest of
$193,427. The minority interest in such income was $92,878,
resulting in net income of $286,305 for the Partnership. The
value of a Unit increased from $1,815.50 at December 31, 1999 to
$1,826.44 at September 30, 2000.
For the Quarter and Nine Months Ended September 30, 1999
For the quarter ended September 30, 1999, the Partnership
recorded total trading losses net of interest income and change
in value of the yield pool of $58,457 and posted a decrease in
Net Asset Value per Unit. The most significant losses of
approximately 1.1% were recorded in the global stock index
component of the balanced portfolio primarily from long S&P 500
Index futures positions as domestic equity prices declined during
July and September amid interest rate concerns, the U.S. dollar's
weakness and inflationary concerns in the U.S. In the global
interest rate futures component, losses of approximately 1.0%
were experienced during July and August primarily from long U.S.
interest rate futures positions as domestic bond prices moved
lower after Federal Reserve Chairman Alan Greenspan commented
that central bankers must consider stock prices when setting
monetary policy and as economic reports added to concern that the
U.S. Federal Reserve will raise interest rates soon. In
agricultural markets, small losses of approximately 0.4% were
recorded primarily from short wheat futures positions as grain
prices increased significantly amid drier-than-expected weather
in the U.S.
<PAGE>
midwest, forecasts for very little rain and concerns about
shriveling production. These losses were partially offset by
gains of approximately 0.8% recorded in the energy markets
primarily from long crude and gas oil futures positions as oil
prices climbed higher after OPEC ministers confirmed that they
will uphold their global cutbacks until April of next year.
Reports of declining crude oil and gasoline inventories also
boosted prices in this market. Profits of approximately 0.3%
were also recorded in the metals markets during September
primarily from long nickel futures positions as prices moved
higher aided by perceptions of improving Asian demand and a drop
in LME warehouse stocks. In the currency markets, gains of
approximately 0.2% were recorded primarily from short euro
positions versus the Japanese yen as the value of the yen
strengthened versus the euro due to optimism regarding the
Japanese economy and Japanese investors selling euros looking to
hedge their investments. Additional gains were recorded from
long Japanese yen positions versus the U.S. dollar as the value
of the yen also strengthened versus the U.S. dollar due to
inflationary pressures in the United States and optimistic
prospects for economic growth in Japan. Total expenses for the
three months ended September 30, 1999 were $636,726, resulting in
a net loss before minority interest of $695,183. The minority
interest in such loss was $39,366, resulting in a net loss of
$655,817 for the Partnership. The value of a Unit decreased from
$1,872.01 at June 30, 1999 to $1,846.64 at September 30, 1999.
<PAGE>
For the nine months ended September 30, 1999, the Partnership
recorded total trading losses net of interest income and change
in value of the yield pool of $1,137,517 and posted a decrease in
Net Asset Value per Unit. The most significant losses of
approximately 3.1% were experienced during February, April and
May in the yield pool and in the fixed income component of the
balanced portfolio primarily 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 eventually could boost target
interest rates continued to push down domestic bond prices and
forced yields higher. Losses were also experienced during July
and August in this market complex after Federal Reserve Chairman
Alan Greenspan commented that central bankers must consider stock
prices when setting monetary policy and as reports on labor
costs, home sales, manufacturing and personal income added to
concern that the U.S. Federal Reserve will raise interest rates
soon. In the agricultural markets, losses of approximately 0.3%
were recorded primarily from long corn futures positions as
prices regressed in early 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 amid technical factors and on reports of
favorable planting conditions. These losses were partially
offset by gains of approximately 1.1% recorded in the energy
<PAGE>
markets during March primarily 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 beginning April 1st. Gains were
also recorded in this market complex during the third quarter
after OPEC ministers confirmed that they would uphold their
global cutbacks until April of next year. Reports of declining
crude oil and gasoline inventories also boosted oil prices during
the third quarter. In the currency markets, gains of
approximately 0.5% were recorded throughout a majority of the
first quarter primarily from short euro positions as the value of
the U.S. dollar trended upward during March versus the European
common currency due to 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
stock index component, gains of approximately 0.4% were recorded
during January and March primarily from long S&P 500 Index
futures positions as domestic equity prices increased in reaction
to Wall Street reaching a major milestone during March, as the
Dow Jones Industrial Average hit 10,000 for the first time.
During early April, additional profits were recorded as the S&P
500 Index reached record highs in response to an interest rate
cut by the European Central Bank aimed at boosting their region's
economy, strong sales at domestic retailers and optimism about
earnings from financial services companies. During late June,
domestic stocks received another boost as investors sensed that
<PAGE>
Wall Street's fears that the Federal Reserve would launch a big
rise in interest rates were over-blown. Total expenses for the
nine months ended September 30, 1999 were $1,979,409, resulting
in a net loss before minority interest of $3,116,926. The
minority interest in such loss was $93,354, resulting in a net
loss of $3,023,572 for the Partnership. The value of a Unit
decreased from $1,887.62 at December 31, 1998 to $1,846.64 at
September 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
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
<PAGE>
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
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-
<PAGE>
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
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
<PAGE>
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 table indicates the VaR associated with the
Partnership's open positions as a percentage of total Net Assets
by primary market risk category as of September 30, 2000 and
1999. At September 30, 2000 and 1999, the Partnership's total
capitalization was approximately $38 million and $46 million,
respectively.
<PAGE>
Primary Market September 30, 2000 September 30, 1999
Risk Category Value at Risk Value at Risk
Equity (0.31)% (0.24)%
Interest Rate (0.69) (0.55)
Currency (0.19) (0.22)
Commodity (0.16) (0.21)
Aggregate Value at Risk (0.77)% (0.63)%
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 September 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.
Any changes in open positions could positively or negatively
materially impact market risk as measured by VaR.
<PAGE>
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 October
1, 1999 through September 30, 2000.
Primary Market Risk Category High Low Average
Equity (0.59)% (0.25)% (0.37)%
Interest Rate (0.83) (0.14) (0.59)
Currency (0.29) (0.12) (0.21)
Commodity (0.21) (0.12) (0.16)
Aggregate Value at Risk (1.02)% (0.43)% (0.79)%
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
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.
<PAGE>
The VaR tables above, as well as the past performance of the
Partnership, give 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 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 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 September 30, 2000 and for the end of the four
quarterly reporting periods from October 1, 1999 through
September 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 be no assurance that the Partnership's actual losses on
<PAGE>
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. These balances and any market
risk they may represent are immaterial. At September 30, 2000
the Partnership's cash balance at DWR was approximately 7% 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 5.32%
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 September 30, 2000, by market sector. It may
be anticipated however, that these market exposures will vary
materially over time.
Equity. The primary market exposure in the Partnership at
September 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 September 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 September
30, 2000 was in the global interest rate complex. Exposure was
spread across the U.S., European and Japanese 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 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 September 30,
2000 was to exchange rate fluctuations, primarily fluctuations
<PAGE>
which disrupt the historical pricing relationships between
different currencies and currency pairs. Interest rate changes
as well as political and general economic conditions influence
these fluctuations. The 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 third 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 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 September 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
<PAGE>
been experienced in the past, are expected to continue to be
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.
Metals. The Partnership's metals market exposure at September
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.
Soft Commodities and Agriculturals. On September 30, 2000, the
Partnership had exposure in the markets that comprise these
sectors. Most of the exposure, however, was in the soybean oil,
livestock and cotton markets. Supply and demand inequalities,
severe weather disruption and market expectations affect price
movements in these markets.
Qualitative Disclosures Regarding Non-Trading Risk Exposure
The following were the only non-trading risk exposures of the
Partnership as of September 30, 2000:
Foreign Currency Balances. The Partnership's primary foreign
currency balances at September 30, 2000 were in British pounds.
The Partnership controls the non-trading risk of these balances
<PAGE>
by regularly converting these balances back into dollars upon
liquidation of respective positions.
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
<PAGE>
only Partnership investments directed by Demeter, rather than the
Trading Manager.
<PAGE>
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Please refer to Legal Proceedings previously disclosed in the
Partnership's Form 10-Q(s) for the quarters ended March 31, 2000
and June 30, 2000 and Form 10-K for the year ended December 31,
1999.
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 Dean Witter Reynolds Inc., 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 incorporated by reference
to Exhibit 10.06 of the Partnership's Quarterly Report
on Form 10-Q for the quarter ended June 30, 2000, (File
No. 0-18314).
(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)
November 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.