UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
AMENDMENT
[X] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [Fee Required]
For the fiscal year ended December 31, 1996 or
[ ] Transition report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934 [No Fee Required]
For the transition period from ________________to___________________
Commission File Number 33-36656
DEAN WITTER PORTFOLIO STRATEGY FUND L.P.
(Exact name of registrant as specified in its Limited Partnership Agreement)
DELAWARE 13-3589337
(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification No.)
c/o Demeter Management Corporation
Two World Trade Center, New York, N.Y. - 62nd Flr. 10048
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 392-5454
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest
(Title of Class)
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (section 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment of this Form 10K. [ X ]
State the aggregate market value of the Units of Limited Partnership Interest
held by non-affiliates of the registrant. The aggregate market value shall be
computed by reference to the price at which units were sold, or the average bid
and asked prices of such units, as of a specified date within 60 days prior to
the date of filing: $87,915,516.81 at January 31, 1997.
DOCUMENTS INCORPORATED BY REFERENCE
(See Page 1)
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<TABLE>
DEAN WITTER PORTFOLIO STRATEGY FUND L.P.
INDEX TO ANNUAL REPORT ON FORM 10-K
DECEMBER 31, 1996
<CAPTION>
Page No.
<S> <C>
DOCUMENTS INCORPORATED BY REFERENCE. . . . . . . . . . . . . . . . . 1
Part I .
Item 1. Business. . . . . . . . . . . . . . . . . . . . . . . 2-3
Item 2. Properties. . . . . . . . . . . . . . . . . . . . . . 4
Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . . . 4-5
Item 4. Submission of Matters to a Vote of Security Holders . . .5
Part II.
Item 5. Market for the Registrant's Partnership Units and
Related Security Holder Matters . . . . . . . . . . . . .6
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . .7
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . .8-13
Item 8. Financial Statements and Supplementary Data. . . . . . .13
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure. . . . . . . . . . .14
Part III.
Item 10. Directors, Executive Officers, Promoters and
Control Persons of the Registrant . . . . . . . . . 15-18
Item 11. Executive Compensation . . . . . . . . . . . . . . . . 18
Item 12. Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . . . . . .18
Item 13. Certain Relationships and Related Transactions . . . . 19
Part IV.
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K . . . . . . . . . . . . . . . . . . 20
</TABLE>
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<TABLE>
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference as
follows:
<CAPTION>
Documents Incorporated Part of Form 10-K
<S> <C>
Partnership's Registration Statement
On Form S-1, File No. 33-36656 I and IV
December 31, 1996 Annual Report
for the Dean Witter Portfolio Strategy II and IV
Fund L.P.
</TABLE>
<PAGE>
PART I
Item 1. BUSINESS
(a) General Development of Business. Dean Witter Portfolio Strategy
Fund L.P. (formerly Dean Witter Principal Secured Futures Fund L.P.) (the
"Partnership") is a Delaware limited partnership formed to engage in the
speculative trading of commodity futures contracts and other commodity
interests, including, but not limited to, forward contracts on foreign
currencies and options on futures contracts and physical commodities.
Units of limited partnership interest in the Partnership were
registered pursuant to a Registration Statement on Form S-1 (File No. 33-
36656) which became effective on October 30, 1990. The offering of units
was underwritten on a "best efforts" basis by Dean Witter Reynolds Inc.
("DWR"), a commodity broker and an affiliated corporation of the
Partnership's general partner, Demeter Management Corporation ("Demeter").
The Partnership commenced operations on February 1, 1991. The
Partnership's net asset value per unit, as of December 31, 1996, was
$2,132.79, representing an increase of 25.50 percent from the net asset
value per unit of $1,699.44 at December 31, 1995. For a more detailed
description of the Partnership's business see subparagraph (c).
(b) Financial Information about Industry Segments. The
Partnership's business comprises only one segment for financial reporting
purposes, speculative trading of commodity futures contracts and other
commodity interests. The relevant financial information is presented in
Items 6 and 8.
(c) Narrative Description of Business. The Partnership is in the
business of speculative trading in commodity futures contracts and other
commodity interests, pursuant to trading instructions provided by John W.
Henry & Company, Inc. ("JWH") its independent trading advisor. For a
<PAGE>
detailed description of the different facets of the Partnership's
business, see those portions of the Partnership's Prospectus, dated
October 30, 1990, filed as part of the Registration Statement on Form S-1
(see "Documents Incorporated by Reference" Page 1), set forth below:
Facets of Business
1. Summary 1. "Summary of the Prospectus"
(Pages 2-9).
2. Commodity Markets 2. "The Commodities Markets"
(Pages 70-79).
3. Partnership's Commodity 3. "Trading Policies" (Page 66).
Trading Arrangements and "The Trading Manager"
Policies (Pages 39-65 and Appendix
II).
4. Management of the Part- 4. "The Management Agreement"
nership (Pages 69-70). "The General
Partner" (Pages 32-34 and
Appendix I) and "The
Commodity Broker" (Pages
66-68). "The Limited
Partnership Agreement"
(Pages 81-84).
5. Taxation of the Partner- 5. "Federal Income Tax Aspects"
ship's Limited Partners and "State and Local Income
Tax Aspects" (Pages 87-94).
(d) Financial Information About Foreign and Domestic Operations and
Export Sales.
The Partnership has not engaged in any operations in foreign
countries; however, the Partnership (through the commodity broker) enters
into forward contract transactions where foreign banks are the contracting
party and futures contracts on foreign exchanges.
<PAGE>
Item 2. PROPERTIES
The executive and administrative offices are located within the
offices of DWR. The DWR offices utilized by the Partnership are located
at Two World Trade Center, 62nd Floor, New York, NY 10048.
Item 3. LEGAL PROCEEDINGS
On September 6, 10, and 20, 1996, similar purported class actions
were filed in the Superior Court of the State of California, County of Los
Angeles, on behalf of all purchasers of interest in limited partnership
commodity pools sold by DWR. Named defendants include DWR, Demeter, Dean
Witter Futures & Currency Management Inc., Dean Witter, Discover & Co.
("DWD") (all such parties referred to hereafter as the "Dean Witter
Parties"), the Partnership (under its original name), certain other
limited partnership commodity pools of which Demeter is the general
partner, and certain trading advisors (including JWH), the sole trading
advisor of the Partnership) to those pools. Similar purported class
actions were also filed on September 18 and 20, 1996, in the Supreme Court
of the State of New York, New York County, and on November 14, 1996 in the
Superior Court of the State of Delaware, New Castle County, against the
Dean Witter Parties and certain trading advisors (including JWH) on behalf
of all purchasers of interests in various limited partnership commodity
pools, including the Partnership, sold by DWR. Generally, these
complaints allege, among other things, that the defendants committed
fraud, deceit, misrepresentation, breach of fiduciary duty, fraudulent and
unfair business practices, unjust enrichment, and conversion in connection
with the sale and operation of the various limited partnership commodity
pools. The complaints seek unspecified amounts of compensatory and
punitive damages and other relief. It is possible that additional similar
actions may be filed and that, in the course of these actions, other
parties could be added as defendants.
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The Dean Witter Parties believe that they and the Partnership have strong
defenses to, and they will vigorously contest, the actions. Although the
ultimate outcome of legal proceedings cannot be predicted with certainty,
it is the opinion of management of the Dean Witter Parties that the
resolution of the actions will not have a material adverse effect on the
financial condition or the results of operations of any of the Dean Witter
Parties or the Partnership.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
Item 5. MARKET FOR THE REGISTRANT'S PARTNERSHIP UNITS AND RELATED
SECURITY HOLDER MATTERS
There is no established public trading market for the Units of
Limited Partnership Interest in the Partnership. The number of holders of
Units at December 31, 1996 was approximately 5,060. No distributions have
been made by the Partnership since it commenced trading operations on
February 1, 1991. Demeter has sole discretion to decide what
distributions, if any, shall be made to investors in the Partnership. No
determination has yet been made as to future distributions.
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<TABLE>
Item 6. SELECTED FINANCIAL DATA (in dollars)
<CAPTION>
For the Years Ended December 31,
<S> <C> <C> <C> <C> <C>
1996 1995 1994 1993 1992
Total Revenues
(including interest) 28,663,110 26,524,038 3,634,209 28,311,393 618,429
Net Income (Loss) 18,393,949 18,457,838 (4,221,635) 18,092,489 (8,527,508)
Net Income (Loss)
Per Unit (Limited
& General Partners) 433.35 343.86 (77.55) 237.61 (81.27)
Total Assets 91,201,711 82,278,215 78,252,862 102,591,738 99,173,707
Total Limited
Partners' Capital 85,273,194 78,914,381 75,121,362 99,403,283 93,147,079
Net Asset Value Per
Unit of Limited
Partnership Interest 2,132.79 1,699.44 1,355.58 1,433.13 1,195.52
</TABLE>
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Liquidity. The Partnership's assets are on deposit in separate
commodity interest trading accounts with DWR, the commodity broker, and
are used by the Partnership as margin to engage in commodity futures,
forward contracts and other commodity interest trading. DWR holds such
assets in either designated depositories or in securities approved by the
Commodity Futures Trading Commission ("CFTC") for investment of customer
funds. The Partnership's assets held by DWR may be used as margin solely
for the Partnership's trading. Since the Partnership's sole purpose is to
trade in commodity futures contracts, forward contracts on foreign
currencies and other commodity interests, it is expected that the
Partnership will continue to own such liquid assets for margin purposes.
The Partnership's investment in commodity futures contracts, forward
contracts and other commodity interests may be illiquid. If the price for
a futures contract for a particular commodity has increased or decreased
by an amount equal to the "daily limit", positions in the commodity can
neither be taken nor liquidated unless traders are willing to effect
trades at or within the limit. Commodity futures prices have occasionally
moved the daily limit for several consecutive days with little or no
trading. Such market conditions could prevent the Partnership from
promptly liquidating its commodity futures positions.
There is no limitation on daily price moves in trading forward
contracts on foreign currencies. The markets for some world currencies
have low trading volume and are illiquid, which may prevent the
Partnership from trading in potentially profitable markets or prevent the
Partnership from promptly liquidating unfavorable positions in such
markets and subjecting it to substantial losses.
<PAGE>
Either of these market conditions could result in restrictions on
redemptions.
Market Risk. The Partnership trades futures, options and forward
contracts in interest rates, stock indices, commodities and currencies.
In entering into these contracts there exists a risk to the Partnership
(market risk) that such contracts may be significantly influenced by
market conditions, such as interest rate volatility, resulting in such
contracts being less valuable. If the markets should move against all of
the futures interest positions held by the Partnership at the same time,
and if the Trading Advisor were unable to offset futures interest
positions of the Partnership, the Partnership could lose all of its assets
and the Limited Partners would realize a 100% loss. The Partnership has
established Trading Policies, which include standards for liquidity and
leverage which help control market risk. Both the Trading Advisor and
Demeter monitor the Partnership's trading activities on a daily basis to
ensure compliance with the Trading Policies. Demeter may (under terms of
the Management Agreement) override the trading instructions of the Trading
Advisor to the extent necessary to comply with the Partnership's Trading
Policies.
Credit Risk. In addition to market risk, the Partnership is subject
to credit risk in that a counterparty may not be able to meet its
obligations to the Partnership. The counterparty of the Partnership for
futures contracts traded in the United States and most foreign exchanges
on which the Partnership trades is the clearinghouse associated with such
exchange. In general, a clearinghouse is backed by the membership of the
exchange and will act in the event of non-performance by one of its
members or one of its member's customers, and as such, should
significantly reduce this credit risk. In cases where the Partnership
<PAGE>
trades on exchanges where the clearinghouse is not funded or guaranteed by
the membership, or where the exchange is a "principals' market" in which
performance is the responsibility of the exchange member and not the
exchange or a clearinghouse, or when the Partnership enters into off-
exchange member and not the exchange or a clearinghouse, or when the
Partnership enters into off-exchange contracts with a counterparty, the
sole recourse of the Partnership will be the clearinghouse, the exchange
member or the off-exchange contract counterparty, as the case may be. or
when the Partnership enters into off-exchange contracts with a
counterparty, the sole recourse of the Partnership will be the
clearinghouse or the counterparty, as the case may be. With respect to
futures contracts, DWR, in its business as an international commodity
broker, constantly monitors the creditworthiness of the exchanges and
clearing members of the foreign exchanges with which it does business for
clients, including the Partnership. DWR employees also from time to time
serve on supervisory or management committees of such exchanges. If DWR
believes that there was a problem with the creditworthiness of an exchange
on which the Partnership deals, it would so advise Demeter. With respect
to exchanges of which DWR is not a member, DWR acts only through clearing
brokers it has determined to be creditworthy. If DWR believed that a
clearing broker with which it deals on behalf of clients were not
creditworthy, it would terminate its relationship with such broker.
While DWR monitors the creditworthiness and risks involved in
dealing on the various exchanges (and their clearinghouses) and with other
exchange members, there can be no assurance that an exchange (or its
clearinghouse) or other exchange member will be able to meet its
obligations to the Partnership. DWR has not undertaken to indemnify the
Partnership against any loss. Further, the law is unclear, particularly
<PAGE>
with respect to trading in various non-U.S. jurisdictions, as to whether
DWR has any obligation to protect the Partnership from any liability in
the event that an exchange or its clearinghouse or another exchange member
defaults on its obligations on trades effected for the Partnership. See
"Financial Instruments" under Notes to Financial Statements - to the
Partnership's Financial Statements in its 1996 Annual Report to Partners,
incorporated by reference in this Form 10-K.
Although DWR monitors the creditworthiness of the foreign exchanges
and clearing brokers with which it does business for clients, DWR does not
have the capability to precisely quantify the Partnership's exposure to
risks inherent in its trading activities on foreign exchanges, and, as a
result, the risk is not monitored by DWR on an individual client basis
(including the Partnership). In this regard, DWR must clear its customer
trades through one or more other clearing brokers on each exchange where
DWR is not a clearing member. Such other clearing brokers calculate the
net margin requirements of DWR in respect of the aggregate of all of DWR's
customer positions carried in DWR's omnibus account with that clearing
broker. Similarly, DWR calculates a net margin requirement for the
exchange-traded futures positions of each of its customers, including the
Partnership. Neither DWR nor DWR's respective clearing brokers on each
foreign futures exchange calculates the margin requirements of an
individual customer, such as the Partnership, in respect of the customer's
aggregate contract positions on any particular exchange. With respect to
forward contract trading, the Partnership trades with only those
counterparties which Demeter, together with DWR, have determined to be
creditworthy. As set forth in the Partnership's Trading Policies, in
determining credit-worthiness, Demeter and DWR consult with the Corporate
Credit Department of DWR. Currently, the Partnership deals solely with
<PAGE>
DWR as its counterparty on forward contracts. While DWR and Demeter
monitor credit-worthiness and risk involved in dealing on the various
exchanges and with counterparties, there can be no assurance that an
exchange or counterparty will be able to meet its obligations to the
Partnership.
Capital Resources. The Partnership does not have, nor does it
expect to have, any capital assets. Redemptions of additional Units in
the future will impact the amount of funds available for investments in
commodity futures, forward contracts on foreign currencies and other
commodity interests in subsequent periods. As redemptions are at the
discretion of Limited Partners, it is not possible to estimate the amount
and therefore, the impact of future redemptions.
Results of Operations. As of December 31, 1996, the Partnership's
total capital was $87,312,143, an increase of $6,773,098 from the
Partnership's total capital of $80,539,045 at December 31, 1995. For the
year ended December 31, 1996, the Partnership generated net income of
$18,393,949 and total redemptions aggregated $11,620,851.
For the year ended December 31, 1996, the Partnership's total
trading revenues including interest income were $28,663,110. The
Partnership's total expenses for the year were $10,269,161, resulting in
net income of $18,393,949. The value of an individual unit in the
Partnership increased from $1,699.44 at December 31, 1995 to $2,132.79 at
December 31, 1996.
As of December 31, 1995, the Partnership's total capital was
$80,539,045, an increase of $4,121,747 from the Partnership's total
capital of $76,417,298 at December 31, 1994. For the year ended December
31, 1995, the Partnership generated net income of $18,457,838 and total
redemptions aggregated $14,336,091.
<PAGE>
For the year ended December 31, 1995, the Partnership's total
trading revenues including interest income were $26,524,038. The
Partnership's total expenses for the year were $8,066,200, resulting in
net income of $18,457,838. The value of an individual unit in the
Partnership increased from $1,355.58 at December 31, 1994 to $1,699.44 at
December 31, 1995.
As of December 31, 1994, the Partnership's total capital was
$76,417,298, a decrease of $24,434,876 from the Partnership's total
capital of $100,852,174 at December 31, 1993. For the year ended December
31, 1994, the Partnership incurred a net loss of $4,221,635 and total
redemptions aggregated $20,213,241.
For the year ended December 31, 1994, the Partnership's total
trading revenues including interest income were $3,634,209. The
Partnership's total expenses for the year were $7,855,844, resulting in
a net loss of $4,221,635. The value of an individual unit in the
Partnership decreased from $1,433.13 at December 31, 1993 to $1,355.58 at
December 31, 1994.
The Partnership's overall performance record represents varied
results of trading in different commodity markets. For a further
description of trading results, refer to the letter to the Limited
Partners in the accompanying 1996 Annual Report to Partners, incorporated
by reference in this Form 10-K. The Partnership's gains and losses are
allocated among its Limited Partners for income tax purposes.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item appears in the attached 1996
Annual Report to Partners and is incorporated by reference in this Annual
Report on Form 10-K.
<PAGE>
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
<PAGE>
PART III
Item 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS OF THE REGISTRANT
General Partner
Demeter, a Delaware corporation, was formed on August 18, 1977 to
act as a commodity pools operator and is registered with the CFTC as a
commodity pool operator and currently is a member of the National Futures
Association ("NFA") in such capacity. Demeter is wholly-owned by DWD and
is an affiliate of DWR. DWD, DWR and Demeter may each be deemed to be
"promoters" and/or a "parent" of the Partnership within the meaning of the
federal securities laws.
Dean Witter Reynolds Inc.
DWR is a financial services company which provides to its
individual, corporate and institutional clients services as a broker in
securities and commodity interest contracts, a dealer in corporate
municipal and government securities, an investment banker, an investment
adviser and an agent in the sale of life insurance and various other
products and services. DWR is a member firm of the New York Stock
Exchange, the American Stock Exchange, the Chicago Board Options Exchange,
and other major securities exchanges, and is a clearing member of the
Chicago Board of Trade, the Chicago Mercantile Exchange, the Commodity
Exchange Inc., and other major commodities exchanges.
DWR is registered with the CFTC as a futures commission merchant and
is a member of the NFA in such capacity. DWR is currently servicing its
clients through a network of 371 branch offices with approximately 9,080
account executives servicing individual and institutional client accounts.
<PAGE>
Directors and Officers of the General Partner
The directors and officers of Demeter as of December 31, 1996 are as
follows:
Richard M. DeMartini, age 44, is the Chairman of the Board and a
Director of Demeter. Mr. DeMartini is also the Chairman of the Board and
a Director of Dean Witter Futures & Currency Management Inc. ("DWFCM"), a
registered commodity trading advisor. Mr. DeMartini has served as
President and Chief Operating Officer of Dean Witter Capital, a division
of DWR since January 1989. From January 1988 until January 1989, Mr.
DeMartini served as President and Chief Operating Officer of the Consumer
Banking Division of DWD, and from May 1985 until January 1988 was
President and Chief Executive Officer of the Consumer Markets Division of
DWD. Mr. DeMartini currently serves as a Director of DWD and DWR, and has
served as an officer of DWR for the past five years. Mr. DeMartini has
been with DWD and its affiliates for 22 years.
Mark J. Hawley, age 53, is President and a Director of Demeter. Mr.
Hawley joined DWR in February 1989 and currently serves as Executive Vice
President and Director of DWR's Managed Futures and Precious Metals
Department. Mr. Hawley also serves as President of DWFCM. From 1978 to
1989, Mr. Hawley was a member of the senior management team at Heinold
Asset Management, Inc., a commodity pool operator, and was responsible for
a variety of projects in public futures funds. From 1972 to 1978, Mr.
Hawley was a Vice President in charge of institutional block trading for
the Mid-West at Kuhn Loeb & Co.
Lawrence Volpe, age 49, is a Director of Demeter and DWFCM. Mr.
Volpe joined DWR as a Senior Vice President and Controller in September
<PAGE>
1983, and currently holds those positions. From July 1979 to September
1983, he was associated with E.F. Hutton & Company Inc. and prior to his
departure, held the positions of First Vice President and Assistant
Controller. From 1970 to July 1979, was associated with Arthur Anderson
& Co. and prior to his departure he served as audit manager in the
financial services division.
Joseph G. Siniscalchi, age 51, is a Director of Demeter. Mr.
Siniscalchi joined DWR in July 1984 as a First Vice President, Director of
General Accounting. He is currently Senior Vice President and Controller
of the Dean Witter Financial Division of DWR. From February 1980 to July
1984, Mr. Siniscalchi was Director of Internal Audit at Lehman Brothers
Kuhn Loeb, Inc.
Laurence E. Mollner, age 55, is a Director of Demeter. Mr. Mollner
joined DWR in May 1979 as Vice President and Director of Commercial Sales.
He is currently Executive Vice President and Deputy Director of the
Futures Markets Division of DWR.
Edward C. Oelsner III, age 54, is a Director of Demeter. Mr.
Oelsner joined DWR in March 1981 as a Managing Director in the Corporate
Finance Department. He currently manages DWR's Retail Products Group
within the Corporate Finance Department. While Mr. Oelsner has extensive
experience in the securities industry, he has no experience in commodity
interests trading.
Robert E. Murray, age 36, is a Director of Demeter. Mr. Murray is
currently a Senior Vice President of the DWR Managed Futures Division and
is a Director and the Senior Administrative Officer of DWFCM. Mr. Murray
graduated from Geneseo State University in May 1983 with a B.A. degree in
Finance. Mr. Murray began at DWR in 1984 and is currently the Director of
Product Development for the Managed Futures Division and is responsible
<PAGE>
for the development and maintenance of the proprietary Fund Management
System utilized by Demeter and DWFCM for organizing information and
producing reports for monitoring investors' accounts.
Patti L. Behnke, age 36, is Vice President and Chief Financial
Officer of Demeter. Ms. Behnke joined DWR in 1991 as Assistant Vice
President of Financial Reporting and is currently First Vice President and
Director of Financial Reporting and Managed Futures Accounting in the
Capital Markets division of DWR. From August 1988 to September 1990, Ms.
Behnke was Assistant Controller of L.F. Rothschild & Co. and from
September 1986 to August 1988, she was associated with Carteret Savings
Bank as Assistant Vice President - Financial Analysis. From April 1982 to
September 1986, Ms. Behnke was an auditor at Arthur Andersen & Co.
Item 11. EXECUTIVE COMPENSATION
The Partnership has no directors and executive officers. As a
limited partnership, the business of the Partnership is managed by Demeter
which is responsible for the administration of the business affairs of the
Partnership but receives no compensation for such services.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Security Ownership of Certain Beneficial Owners - As of
December 31, 1996, there were no persons as beneficial owners of more than
5 percent of the Units of Limited Partnership Interest in the Partnership.
(b) Security Ownership of Management - At December 31, 1996,
Demeter owned 956 Units of General Partnership Interest representing a
2.34 percent interest in the Partnership.
(c) Changes in Control - None
<PAGE>
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Refer to Note 2 - "Related Party Transactions" of "Notes to
Financial Statements" in the accompanying 1996 Annual Report to Partners,
incorporated by reference in this Form 10-K. In its capacity as the
Partnership's retail commodity broker, DWR received commodity brokerage
commissions (paid and accrued by the Partnership) of $3,416,583 for the
year ended December 31, 1996.
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Listing of Financial Statements
The following financial statements and report of independent public
accountants, all appearing in the accompanying 1996 Annual Report to
Partners, are incorporated by reference in this Form 10-K:
- Report of Deloitte & Touche LLP, independent auditors, for the
years ended December 31, 1996, 1995 and 1994.
- Statements of Financial Condition as of December 31, 1996 and
1995.
- Statements of Operations, Changes in Partners' Capital, and
Cash Flows for the years ended December 31, 1996, 1995 and
1994.
- Notes to Financial Statements.
With the exception of the aforementioned information and the
information incorporated in Items 7, 8 and 13, the 1996 Annual Report to
Partners is not deemed to be filed with this report.
2. Listing of Financial Statement Schedules
No financial statement schedules are required to be filed with this
report.
(b) Reports on Form 8-K
No reports on Form 8-K have been filed by the Partnership during the
last quarter of the period covered by this report.
(c) Exhibits
Refer to Exhibit Index on Page E-1.
<PAGE>
SIGNATURES
Pursuant to the requirement of Sections 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
DEAN WITTER PORTFOLIO STRATEGY FUND L.P.
(Registrant)
BY: Demeter Management Corporation,
General Partner
March 25, 1997 BY: /s/ Mark J. Hawley
Mark J. Hawley, Director and
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Demeter Management Corporation.
BY: /s/ Mark J. Hawley March 25, 1997
Mark J. Hawley, Director and
President
/s/ Richard M. DeMartini March 25, 1997
Richard M. DeMartini, Director
and Chairman of the Board
/s/ Lawrence Volpe March 25, 1997
Lawrence Volpe, Director
/s/ Laurence E. Mollner March 25, 1997
Laurence E. Mollner, Director
/s/ Joseph G. Siniscalchi March 25, 1997
Joseph G. Siniscalchi, Director
/s/ Edward C. Oelsner III March 25, 1997
Edward C. Oelsner III, Director
/s/ Robert E. Murray March 25, 1997
Robert E. Murray, Director
/s/ Patti L. Behnke March 25, 1997
Patti L. Behnke, Chief Financial
Officer and Principal Accounting
Officer
<PAGE>
EXHIBIT INDEX
ITEM METHOD OF FILING
-3. Limited Partnership Agreement of
the Partnership, dated as of
August 28, 1990. (1)
- -10. Management Agreement among the
Partnership, Demeter and JWH
dated as of October 30, 1990. (2)
- -10. Customer Agreement Between the
Partnership and DWR Inc. (3)
dated as of October 30, 1990.
- -99. December 31, 1996 Annual Report to Limited Partners. (4)
(1) Incorporated by reference to Exhibit 3.01 and Exhibit 3.02 of the
Partnership's Registration Statement on Form S-1 File No. 33-36656.
(2) Incorporated by reference to Exhibit 10.02 of the Partnership's
Registration Statement on Form S-1 File No. 33-36656.
(3) Incorporated by reference to Exhibit 10.01 of the Partnership's
Registration Statement on Form S-1 File No. 33-36656.
(4) Filed herewith.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from Dean
Witter Portfolio Strategy Fund L.P. and is qualified in its entirety by
references to such financial instruments.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 87,847,358
<SECURITIES> 0
<RECEIVABLES> 300,473
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 91,201,711<F1>
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 91,201,711<F2>
<SALES> 0
<TOTAL-REVENUES> 28,663,110<F3>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 10,269,161
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 18,393,949
<INCOME-TAX> 0
<INCOME-CONTINUING> 18,393,949
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,393,949
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>In addition to cash and receivables, total assets include net unrealized
gain on open contracts of $3,053,880.
<F2>Liabilities include redemptions payable of $688,115, incentive fees
payable of $2,587,891, accrued brokerage commission of $141,879,
accrued transaction fees and costs of $10,045, accrued management fees
of $303,128 and common administrative expenses payable of $158,510.
<F3>Total revenues include realized trading revenue of $26,235,502, net
change in unrealized of ($567,233) and interest income of $2,994,841.
</FN>
</TABLE>
<PAGE>
Portfolio
Strategy
Fund
December 31, 1996
Annual Report
[LOGO]DEAN WITTER
<PAGE>
DEAN WITTER
Two World Trade Center
62nd Floor
New York, NY 10048
Telephone (212) 392-8899
DEAN WITTER PORTFOLIO STRATEGY FUND L.P.
(FORMERLY DEAN WITTER PRINCIPAL SECURED FUTURES FUND L.P.) ANNUAL REPORT
1996
Dear Limited Partner:
This marks the sixth annual report for the Dean Witter Portfolio Strategy Fund
L.P. (the "Fund"). Please note, effective July 31, 1996, the guarantee which
assured investors a minimum Net Asset Value per Unit of $1,000 for Dean Witter
Principal Secured Futures Fund matured. As of August 1, 1996, Dean Witter
Principal Secured Futures Fund L.P. was renamed Dean Witter Portfolio Strategy
Fund L.P. and began trading without a guarantee of initial principal. The Fund
began 1996 trading at a Net Asset Value per Unit of $1,699.44 and increased by
25.5% to close the year at $2,132.79. Since its inception in 1991, the Fund has
increased by 113.3% (a compound annualized return of 13.7%).
The Fund began the year by posting profits during January from short positions
in most major currencies as the value of these currencies declined versus the
U.S. dollar. Additional gains were recorded from long global financial futures
positions as prices moved higher. In February, losses were recorded as a result
of trend reversals in the currency markets, as the value of most major
currencies moved sharply higher versus the U.S. dollar, and in global interest
rate futures, as a sudden downward price move was experienced. The Fund
finished the first quarter by recording profits primarily from long Australian
dollar positions as its value moved higher versus other world currencies.
Additional gains were recorded from short Japanese yen positions, as its value
declined versus the U.S. dollar, as well as from trading financial and energy
futures.
<PAGE>
In April, the Fund recorded gains in currencies from short Swiss franc and
German mark positions as the value of these currencies moved lower versus the
U.S. dollar. Gains were also recorded from long positions in energy and
agricultural futures as prices in these markets increased. During May, the Fund
experienced losses due primarily to trendless price movement in global
financial futures. Smaller losses were recorded in the energy markets as a
portion of April's profits was given back due to a downward price move. In
June, the Fund recorded gains due primarily to short positions in metals as
prices declined during the month. Gains were also recorded from short Japanese
yen positions as its value moved lower versus the U.S. dollar.
The profits recorded during June were offset during July as losses were
recorded from short Japanese yen positions as its value increased sharply
relative to other world currencies. In August, small losses were experienced
due primarily to short-term volatility in the value of most major currencies
relative to the U.S. dollar. A majority of these losses were offset by gains
recorded from long Japanese and Australian interest rate futures positions as
prices moved higher. During September, the Fund recorded gains as long global
bond futures positions profited from an upward price move. Additional gains
were recorded from positions in energies, metals and agricultural commodities.
During the fourth quarter, the Fund profited significantly due primarily to
long global bond futures positions as prices continued to trend higher during
October and November. Additional gains were recorded in currencies from long
British pound positions as its value also moved higher. Smaller currency gains
were recorded from short Japanese yen and Swiss franc positions as the value of
these currencies declined versus the U.S. dollar. A portion of these gains were
offset by losses during December as a result of a
<PAGE>
sudden reversal lower in global bond futures prices early in the month. Losses
in this sector were relatively small compared to previous months' profits as
long positions in these markets (U.S., European and Japanese bond futures) had
been reduced in early December. Smaller losses were recorded from short-term
volatility in currencies.
During the calendar year 1996, the fund recorded strong profits due primarily
to price trends experienced in global interest rate futures and currencies late
in the year. These gains, coupled with John W. Henry & Company, Inc.'s, the
Fund's sole trading manager, ability to limit losses during periods of
trendless and sharply reversing price movement earlier in the year, contributed
to the Fund's overall success for 1996.
Should you have any questions concerning this report, please feel free to
contact Demeter Management Corporation at Two World Trade Center, 62nd Floor,
New York, NY 10048 or your Dean Witter Account Executive.
I hereby affirm, that to the best of my knowledge and belief, the information
contained in this report is accurate and complete.
Sincerely,
/s/ Mark J. Hawley
Mark J. Hawley
President
Demeter Management Corporation
General Partner
<PAGE>
DEAN WITTER PORTFOLIO STRATEGY FUND L.P.
INDEPENDENT AUDITORS' REPORT
The Limited Partners and the General Partner:
We have audited the accompanying statements of financial condition of Dean
Witter Portfolio Strategy Fund L.P. (formerly Dean Witter Principal Secured
Futures Fund L.P.) (the "Partnership") as of December 31, 1996 and 1995 and the
related statements of operations, changes in partners' capital, and cash flows
for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Partnership's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Dean Witter Portfolio Strategy Fund L.P. as
of December 31, 1996 and 1995 and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1996 in
conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
February 17, 1997
New York, New York
<PAGE>
DEAN WITTER PORTFOLIO STRATEGY FUND L.P.
STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1996 1995
---------- ----------
$ $
<S> <C> <C>
ASSETS
Equity in Commodity futures trading
accounts:
Cash 87,847,358 78,404,128
Net unrealized gain on open contracts 3,053,880 3,621,113
---------- ----------
Total Trading Equity 90,901,238 82,025,241
Interest receivable (DWR) 300,473 252,974
---------- ----------
Total Assets 91,201,711 82,278,215
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES
Incentive fee payable 2,587,891 320,038
Redemptions payable 688,115 738,931
Management fee payable 303,128 272,903
Accrued administrative expenses 158,510 279,755
Accrued brokerage commissions (DWR) 141,879 99,604
Accrued transaction fees and costs 10,045 6,603
Bank fee payable -- 21,336
---------- ----------
Total Liabilities 3,889,568 1,739,170
---------- ----------
PARTNERS' CAPITAL
Limited Partners (39,981.953 and 46,435.540 Units,
respectively) 85,273,194 78,914,381
General Partner (956 Units) 2,038,949 1,624,664
---------- ----------
Total Partners' Capital 87,312,143 80,539,045
---------- ----------
Total Liabilities and Partners' Capital 91,201,711 82,278,215
========== ==========
NET ASSET VALUE PER UNIT 2,132.79 1,699.44
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
DEAN WITTER PORTFOLIO STRATEGY FUND L.P.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS
ENDED
DECEMBER 31,
---------------------------------
1996 1995 1994
---------- ---------- ----------
$ $ $
<S> <C> <C> <C>
REVENUES
Trading Profit (Loss):
Realized 26,235,502 23,275,553 2,385,705
Net change in unrealized (567,233) 58,584 (1,311,896)
---------- ---------- ----------
Total Trading Results 25,668,269 23,334,137 1,073,809
Interest income (DWR) 2,994,841 3,189,901 2,560,400
---------- ---------- ---------
Total Revenues 28,663,110 26,524,038 3,634,209
---------- ---------- ---------
EXPENSES
Brokerage commissions (DWR) 3,416,583 2,700,065 2,712,291
Management fees 3,281,267 3,332,702 3,650,550
Incentive fees 3,278,840 1,587,389 1,106,885
Transaction fees and costs 233,900 231,876 204,327
Letter of credit fees 31,571 106,168 73,791
Administrative expenses 27,000 108,000 108,000
---------- ---------- ----------
Total Expenses 10,269,161 8,066,200 7,855,844
---------- ---------- ----------
NET INCOME (LOSS) 18,393,949 18,457,838 (4,221,635)
========== ========== ==========
NET INCOME (LOSS) ALLOCATION:
Limited Partners 17,979,664 18,129,110 (4,152,982)
General Partner 414,285 328,728 (68,653)
NET INCOME (LOSS) PER UNIT:
Limited Partners 433.35 343.86 (77.55)
General Partner 433.35 343.86 (77.55)
</TABLE>
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
UNITS OF
PARTNERSHIP LIMITED GENERAL
INTEREST PARTNERS PARTNER TOTAL
----------- ----------- --------- -----------
$ $ $
<S> <C> <C> <C> <C>
Partners' Capital,
December 31, 1993 70,372.131 99,403,283 1,448,891 100,852,174
Net Loss -- (4,152,982) (68,653) (4,221,635)
Redemptions (13,999.787) (20,128,939) (84,302) (20,213,241)
----------- ----------- --------- -----------
Partners' Capital, December
31, 1994 56,372.344 75,121,362 1,295,936 76,417,298
Net Income -- 18,129,110 328,728 18,457,838
Redemptions (8,980.804) (14,336,091) -- (14,336,091)
----------- ----------- --------- -----------
Partners' Capital, December
31, 1995 47,391.540 78,914,381 1,624,664 80,539,045
Net Income -- 17,979,664 414,285 18,393,949
Redemptions (6,453.587) (11,620,851) -- (11,620,851)
----------- ----------- --------- -----------
Partners' Capital, December
31, 1996 40,937.953 85,273,194 2,038,949 87,312,143
=========== =========== ========= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
DEAN WITTER PORTFOLIO STRATEGY FUND L.P.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS
ENDED
DECEMBER 31,
--------------------------------------
1996 1995 1994
----------- ----------- ------------
$ $ $
<S> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES
Net income (loss) 18,393,949 18,457,838 (4,221,635)
Noncash item included in net income
(loss):
Net change in unrealized 567,233 (58,584) 1,311,896
(Increase) decrease in operating
assets:
Interest receivable (DWR) (47,499) 22,726 (121,436)
Increase (decrease) in operating
liabilities:
Incentive fees payable 2,267,853 320,038 --
Accrued management fee 30,225 13,116 (81,222)
Accrued administrative expenses (121,245) 68,263 (2,097)
Accrued brokerage commissions (DWR) 42,275 848 27,880
Accrued transaction fees and costs 3,442 165 1,814
Bank fee payable (21,336) 21,336 --
----------- ----------- ------------
Net cash provided by (used for)
operating activities 21,114,897 18,845,746 (3,084,800)
----------- ----------- ------------
CASH FLOWS FROM
FINANCING ACTIVITIES
Increase (decrease) in redemptions
payable (50,816) (520,160) 149,625
Redemptions of units (11,620,851) (14,336,091) (20,213,241)
----------- ----------- ------------
Net cash used for financing
activities (11,671,667) (14,856,251) (20,063,616)
----------- ----------- ------------
Net increase (decrease) in cash 9,443,230 3,989,495 (23,148,416)
Balance at beginning of period 78,404,128 74,414,633 97,563,049
----------- ----------- ------------
Balance at end of period 87,847,358 78,404,128 74,414,633
=========== =========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
DEAN WITTER PORTFOLIO STRATEGY FUND L.P.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION--Dean Witter Portfolio Strategy Fund L.P. (formerly Dean Witter
Principal Secured Futures Fund L.P.) (the "Partnership") is a limited
partnership organized to engage in the speculative trading of commodity futures
contracts, commodity options contracts and forward contracts on foreign
currencies. The general partner for the Partnership is Demeter Management
Corporation ("Demeter"). The commodity broker is Dean Witter Reynolds Inc.
("DWR"). Both DWR and Demeter are wholly-owned subsidiaries of Dean Witter,
Discover & Co. ("DWD"). Demeter has retained John W. Henry & Company, Inc.
("JWH") as the trading manager of the Partnership.
Demeter is required to maintain a 1% minimum interest in the equity of the
Partnership and income (losses) are shared by the General and Limited Partners
based upon their proportional ownership interests.
On July 31, 1996, with the Partnership's Net Asset Value above $1,000 per unit,
the letter of credit arrangement which assured investors who redeemed their
units on July 31, 1996 a minimum Net Asset Value of $1,000 per unit expired. On
August 1, 1996, the Partnership was renamed and continued trading in a non-
guaranteed format. Both the reduction of interest income of 1.125% per annum
for the letter of credit fee paid by DWR and the letter of credit fee of 1% of
new appreciation were eliminated effective August 1, 1996.
BASIS OF ACCOUNTING--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts in the financial statements.
REVENUE RECOGNITION--Commodity futures contracts and forward contracts on
foreign currencies are open commitments until settlement date. They are valued
at market and the resulting unrealized gains and losses are reflected in
income. Prior to August 1, 1996, DWR paid the Partnership interest income based
upon 80% of the average daily Net Assets for the month that was allocated to
JWH's KT Diversified Program, Financial and Metals Portfolio, International
Foreign Exchange Program, and The World Financial Perspective at a rate equal
to the average yield on 13-week U.S. Treasury Bills issued during such month
<PAGE>
DEAN WITTER PORTFOLIO STRATEGY FUND L.P.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
less a monthly letter of credit fee paid by DWR. DWR paid Citibank, N.A.
("Citibank") on the twentieth day of each month a Letter of Credit fee of 3/32
of 1% per month of the amount available to be drawn under the Letter of Credit.
Such amounts for the period ended July 31, 1996 and the years ended December
31, 1995 and 1994 were $306,187, $586,638 and $721,257, respectively.
Additionally, DWR paid the Partnership interest income based upon 100% of the
Partnership's average daily Net Assets which were allocated to the
InterRate(TM) trading program for the month at a rate equal to the average
yield on 13-week U.S. Treasury Bills issued during such month. For purposes of
such interest payments, Net Assets did not include monies due the Partnership
on forward contracts and other commodity interests, but not actually received.
Effective August 1, 1996, DWR pays the Partnership monthly interest income
based upon 80% of the average daily Net Assets for the month at a rate equal to
the average yield on 13-week U.S. Treasury Bills issued during the month. For
purposes of such interest payments, Net Assets do not include monies due the
Partnership on forward contracts and other commodity interests, but not
actually received.
NET INCOME (LOSS) PER UNIT--Net income (loss) per Unit is computed using the
weighted average number of units outstanding during the period.
EQUITY IN COMMODITY FUTURES TRADING ACCOUNTS--The Partnership's asset "Equity
in Commodity futures trading accounts" consists of cash on deposit at DWR to be
used as margin for trading and the net asset or liability related to unrealized
gains or losses on open contracts. The asset or liability related to the
unrealized gains or losses on forward contracts is presented as a net amount
because the Partnership has a master netting agreement with DWR.
BROKERAGE COMMISSIONS AND RELATED TRANSACTION FEES AND COSTS--The Partnership
accrues brokerage commissions on a half-turn basis at 80% of DWR's published
non-member rates. Transaction fees and costs are accrued on a half-turn basis.
Prior to September 1, 199 brokerage commissions were capped at 3/4 of 1% per
month of the Partnership's Net Assets as defined in the Limited Partnership
Agreement. Additionally, each trading program's brokerage commissions were
capped at 1% per month of the Net Assets allocated to such trading program.
<PAGE>
DEAN WITTER PORTFOLIO STRATEGY FUND L.P.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Effective September 1, 1996, brokerage commissions and transaction fees
chargeable to the Partnership were capped at 13/20 of 1% per month of the
Partnership's month-end Net Assets (as defined in the Limited Partnership
Agreement) with such cap applied on a per trading program basis.
OPERATING EXPENSES--The Partnership bears all operating expenses related to its
trading activities, to a maximum of 1/4 of 1% annually of the Partnership's
average month-end Net Assets. These include filing fees, clerical,
administrative, auditing, accounting, mailing, printing, and other incidental
operating expenses as permitted by the Limited Partnership Agreement. In
addition, the Partnership incurs a monthly management fee and may incur an
incentive fee. Prior to August 1, 1996, pursuant to a Letter of Credit and
Reimbursement Agreement with JWH and Citibank, the Partnership paid to Citibank
a quarterly Letter of Credit fee equal to 1% of the Partnerships's "New
Appreciation," as defined in the Letter of Credit and Reimbursement Agreement,
of the Partnership's Net Assets as of the end of each calendar quarter. Such
fee was accrued in each month in which "New Appreciation" occurred. In those
months in which "New Appreciation" was negative, previous accruals, if any,
during the quarter were reduced. Demeter and/or DWR bear all other operating
expenses, including expenses which would be incurred if the Partnership were
required to register as an investment company.
REDEMPTIONS--Limited Partners are able to redeem some or all of their Units at
100% of the Net Asset Value per Unit at the last day of any month that is at
least six months after the closing at which a client first became a limited
partner, upon five business days, advance notice by redemption form to Demeter.
DISTRIBUTIONS--Distributions, other than on redemptions of Units, are made on a
pro-rata basis at the sole discretion of Demeter. No distributions have been
made to date.
INCOME TAXES--No provision for income taxes has been made in the accompanying
financial statements, as partners are individually responsible for reporting
income or loss based upon their respective share of the Partnership's revenues
and expenses for income tax purposes.
DISSOLUTION OF THE PARTNERSHIP--The Partnership will terminate on December 31,
2025 or at an earlier date if
<PAGE>
DEAN WITTER PORTFOLIO STRATEGY FUND L.P.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
certain conditions set forth in the Limited Partnership Agreement occur.
2. RELATED PARTY TRANSACTIONS
The Partnership's cash is on deposit with DWR in commodity trading accounts to
meet margin requirements as needed. DWR pays interest on these funds as
described in Note 1. Under its Customer Agreement with DWR, the Partnership
pays DWR brokerage commissions as described in Note 1.
3. TRADING MANAGER
Compensation to JWH consists of a management fee and an incentive fee as
follows:
MANAGEMENT FEE--The Partnership pays a monthly management fee equal to 1/3 of
1% per month of the Partnership's adjusted Net Assets, as defined in the
Limited Partnership Agreement, as of the last day of each month.
INCENTIVE FEE--The Partnership will pay a quarterly incentive fee to JWH equal
to 15% of the Partnership's "New Appreciation", as defined in the Limited
Partnership Agreement, of the Partnership's Net Assets as of the end of each
calendar quarter. Such incentive fee is accrued in each month in which "New
Appreciation" occurs. In those months in which "New Appreciation" is negative,
previous accruals, if any, during the incentive period will be reduced. In
those instances, in which a Limited Partner redeems an investment, the
incentive fee (if earned through a redemption date) is to be paid to JWH on
those redemptions in the month of such redemptions.
4. FINANCIAL INSTRUMENTS
The Partnership trades futures and forward contracts in interest rates, stock
indices, commodities, currencies, petroleum, and precious metals. Futures and
forwards represent contracts for delayed delivery of an instrument at a
specified date and price. Risk arises from changes in the value of these
contracts and the potential inability of counterparties to perform under the
terms of the contracts. There are numerous factors which may significantly
influence the market value of these contracts, including interest rate
volatility. At December 31, 1996 and 1995 open contracts were:
<PAGE>
DEAN WITTER PORTFOLIO STRATEGY FUND L.P.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
CONTRACT OR NOTIONAL AMOUNT
----------------------------
1996 1995
------------- --------------
$ $
<S> <C> <C>
EXCHANGE-TRADED CONTRACTS
Financial Futures:
Commitments to Purchase 65,197,000 107,229,000
Commitments to Sell 70,325,000 20,701,000
Commodity Futures:
Commitments to Purchase 5,005,000 14,171,000
Commitments to Sell 30,977,000 10,132,000
Foreign Futures:
Commitments to Purchase 42,509,000 125,880,000
Commitments to Sell 67,755,000 1,106,000
OFF-EXCHANGE-TRADED FORWARD
CURRENCY CONTRACTS
Commitments to Purchase 89,146,000 43,693,000
Commitments to Sell 38,531,000 82,529,000
</TABLE>
A portion of the amounts indicated as off-balance-sheet risk in forward
currency contracts is due to offsetting forward commitments to purchase and to
sell the same currency on the same date in the future. These commitments are
economically offsetting, but are not offset in the forward market until the
settlement date.
The unrealized gains on open contracts are reported as a component of "Equity
in Commodity futures trading accounts" on the Statements of Financial Condition
and totaled $3,053,880 and $3,621,113 at December 31, 1996 and 1995,
respectively.
Of the $3,053,880 net unrealized gain on open contracts at December 31, 1996,
$3,465,469 related to exchange-traded futures contracts and $(411,589) related
to off-exchange-traded forward currency contracts. Of the $3,621,113 net
unrealized gain on open contracts at December 31, 1995, $3,632,875 related to
exchange-traded futures contracts and $(11,762) related to off-exchange-traded
forward currency contracts.
Exchange-traded futures contracts held by the Partnership at December 31, 1996
and 1995 mature through December 1997 and December 1996, respectively. Off-
exchange-traded forward currency contracts held by the Partnership at December
31, 1996 and 1995 mature through March 1997 and January 1996, respectively.
The contract amounts in the above table represent the Partnership's extent of
involvement in the particular class of financial instrument, but not the credit
risk associated with counterparty nonperformance. The credit risk associated
with these instruments is limited to the amounts reflected in the Partnership's
Statements of Financial Condition.
<PAGE>
DEAN WITTER PORTFOLIO STRATEGY FUND L.P.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The Partnership also has credit risk because DWR acts as the futures commission
merchant or the sole counterparty, with respect to most of the Partnerships'
assets. Exchange-traded futures contracts are marked to market on a daily
basis, with variations in value settled on a daily basis. DWR, as the futures
commission merchant for all of the Partnership's exchange-traded futures
contracts, is required pursuant to regulations of the Commodity Futures Trading
Commission to segregate from its own assets, and for the sole benefit of its
commodity customers, all funds held by DWR with respect to exchange-traded
futures contracts including an amount equal to the net unrealized gains on all
open futures contracts, which funds totaled $91,312,827 and $82,037,003 at
December 31, 1996 and 1995, respectively. With respect to the Partnership's
off-exchange-traded forward currency contracts, there are no daily settlements
of variations in value nor is there any requirement that an amount equal to the
net unrealized gains on open forward contracts be segregated. With respect to
those off-exchange-traded forward currency contracts, the Partnership is at
risk to the ability of DWR, the counterparty on all of such contracts, to
perform.
For the years ended December 31, 1996 and 1995, the average fair value of
financial instruments held for trading purposes was as follows:
<TABLE>
<CAPTION>
1996
-----------------------
ASSETS LIABILITIES
----------- -----------
$ $
<S> <C> <C>
EXCHANGE-TRADED CONTRACTS:
Financial Futures 102,149,000 96,292,000
Commodity Futures 13,649,000 28,690,000
Foreign Futures 116,142,000 42,572,000
OFF-EXCHANGE-TRADED FORWARD CURRENCY CONTRACTS 113,353,000 134,819,000
</TABLE>
<TABLE>
<CAPTION>
1995
----------------------
ASSETS LIABILITIES
---------- -----------
$ $
<S> <C> <C>
EXCHANGE-TRADED CONTRACTS:
Financial Futures 80,726,000 48,675,000
Commodity Futures 6,335,000 23,473,000
Foreign Futures 63,976,000 29,814,000
OFF-EXCHANGE-TRADED FORWARD
CURRENCY CONTRACTS 50,560,000 99,829,000
</TABLE>
5. LEGAL MATTERS
On September 6, 10, and 20, 1996, similar purported class actions were filed in
the Superior Court of the State of California, County of Los Angeles, on behalf
<PAGE>
DEAN WITTER PORTFOLIO STRATEGY FUND L.P.
NOTES TO FINANCIAL STATEMENTS--(CONCLUDED)
of all purchasers of interests in limited partnership commodity pools sold by
DWR. Named defendants include DWR, Demeter, Dean Witter Futures and Currency
Management Inc., Dean Witter, DWD (all such parties referred to hereafter as
the "Dean Witter Parties"), the Partnership (under its original name), certain
other limited partnership commodity pools of which Demeter is the general
partner, and certain trading advisors (including JWH) to those pools. Similar
purported class actions were also filed on September 18 and 20, 1996, in the
Supreme Court of the State of New York, New York County, and on November 14,
1996 in the Superior Court of the State of Delaware, New Castle County, against
the Dean Witter Parties and certain trading advisors (including JWH) on behalf
of all purchasers of interests in various limited partnership commodity pools,
including the Partnership, sold by DWR. Generally, these complaints allege,
among other things, that the defendants committed fraud, deceit,
misrepresentation, breach of fiduciary duty, fraudulent and unfair business
practices, unjust enrichment, and conversion in connection with the sale and
operation of the various limited partnership commodity pools. The complaints
seek unspecified amounts of compensatory and punitive damages and other relief.
It is possible that additional similar actions may be filed and that, in the
course of these actions, other parties could be added as defendants. The Dean
Witter Parties believe that they and the Partnership have strong defenses to,
and they will vigorously contest, the actions. Although the ultimate outcome of
legal proceedings cannot be predicted with certainty, it is the opinion of
management of the Dean Witter Parties that the resolution of the actions will
not have a material adverse effect on the financial condition or the results of
operations of any of the Dean Witter Parties or the Partnership.
6. SUBSEQUENT EVENT
Demeter has determined to reopen the Partnership for additional investment and
will register with the Securities and Exchange Commission 50,000 Units to be
offered to investors for a limited time in a public offering.
<PAGE>
DEAN WITTER REYNOLDS INC.
Two World Trade Center
62nd Floor
New York, NY 10048
FIRST-CLASS MAIL
ZIP + 4 PRESORT
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PERMIT NO. 148
