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, 1999 or
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
Commission File No. 0-19046
DEAN WITTER PORTFOLIO STRATEGY FUND L.P.
(Exact name of registrant as specified in its charter)
Delaware 13-3589337
(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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<TABLE>
DEAN WITTER PORTFOLIO STRATEGY FUND L.P.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
September 30, 1999
<CAPTION>
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements
Statements of Financial Condition
September 30, 1999 (Unaudited) and December 31, 1998....2
Statements of Operations for the Quarters Ended
September 30, 1999 and 1998 (Unaudited).................3
Statements of Operations for the Nine Months Ended
September 30, 1999 and 1998 (Unaudited).................4
Statements of Changes in Partners' Capital for the
Nine Months Ended September 30, 1999 and 1998
(Unaudited).............................................5
Statements of Cash Flows for the Nine Months Ended
September 30, 1999 and 1998 (Unaudited).................6
Notes to Financial Statements (Unaudited) ...........7-11
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations.......................................12-21
Item 3. Quantitative and Qualitative Disclosures
about Market Risk ...............................22-33
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................. 34
Item 6. Exhibits and Reports on Form 8-
K....................34
</TABLE>
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
DEAN WITTER PORTFOLIO STRATEGY FUND L.P.
STATEMENTS OF FINANCIAL CONDITION
<CAPTION>
September 30, December 31,
1999 1998
$ $
(Unaudited)
ASSETS
<S> <C> <C>
Equity in futures interests trading accounts:
Cash 120,890,313 119,724,918
Net unrealized gain on open contracts 2,259,149 12,941,546
Total Trading Equity 123,149,462 132,666,464
Interest receivable (DWR) 408,830 366,700
Due from DWR 6,630 -
Total Assets 123,564,922 133,033,164
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Redemptions payable 613,420 1,065,454
Management fees payable 411,474 443,168
Accrued administrative expenses 122,708 85,003
Incentive fees payable - 305,087
Total Liabilities 1,147,602 1,898,712
Partners' Capital
Limited Partners (46,331.508 and
49,902.250 Units, respectively)120,914,098 129,638,096
General Partner (576 Units) 1,503,222 1,496,356
Total Partners' Capital 122,417,320 131,134,452
Total Liabilities and Partners' Capital 123,564,922 133,0
33,164
NET ASSET VALUE PER UNIT 2,609.76 2,597.84
<FN>
The accompanying notes are an integral part
of these financial statements.
</TABLE>
<PAGE>
<TABLE>
DEAN WITTER PORTFOLIO STRATEGY FUND L.P.
STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
For the Quarters Ended September 30,
1999 1998
$ $
REVENUES
<S> <C> <C>
Trading profit (loss):
Realized 2,667,394 (6,711,476)
Net change in unrealized (9,068,839) 25,524,956
Total Trading Results (6,401,445) 18,813,480
Interest Income (DWR) 1,205,901 1,254,217
Total Revenues (5,195,544) 20,067,697
EXPENSES
Brokerage commissions (DWR) 1,450,549 1,381,577
Management fees 1,265,929 1,280,597
Transaction fees and costs 102,348 100,305
Administrative expenses 27,000 32,000
Incentive fees - 1,767,966
Total Expenses 2,845,826 4,562,445
NET INCOME (LOSS) (8,041,370) 15,505,252
NET INCOME (LOSS) ALLOCATION
Limited Partners (7,944,079) 15,223,733
General Partner (97,291) 281,519
NET INCOME (LOSS) PER UNIT
Limited Partners (168.91) 294.48
General Partner (168.91) 294.48
<FN>
The accompanying notes are an integral part
of these financial statements.
</TABLE>
<PAGE>
<TABLE>
DEAN WITTER PORTFOLIO STRATEGY FUND L.P.
STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
For the Nine Months Ended September 30,
1999 1998
$ $
REVENUES
<S> <C> <C>
Trading profit (loss):
Realized 18,079,969 3,651,115
Net change in unrealized (10,682,397) 12,480,291
Total Trading Results 7,397,572 16,131,406
Interest Income (DWR) 3,412,430 3,893,659
Total Revenues 10,810,002 20,025,065
EXPENSES
Brokerage commissions (DWR) 4,309,955 4,243,499
Management fees 3,880,529 3,848,949
Incentive fees 1,548,449 1,767,966
Transaction fees and costs 304,604 306,165
Administrative expenses 79,000 83,000
Total Expenses
10,122,537 10,249,579
NET INCOME 687,465 9,775,486
NET INCOME ALLOCATION
Limited Partners 680,599 9,593,359
General Partner 6,866 182,127
NET INCOME PER UNIT
Limited Partners 11.92 190.51
General Partner 11.92 190.51
<FN>
The accompanying notes are an integral part
of these financial statements.
</TABLE>
<PAGE>
<TABLE>
DEAN WITTER PORTFOLIO STRATEGY FUND L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
For the Nine Months Ended September 30, 1999 and 1998
(Unaudited)
<CAPTION>
Units of
Partnership Limited General
Interest Partners Partner Total
<S> <C> <C> <C>
<C>
Partners' Capital,
December 31, 1997 56,305.245 $131,363,711 $2,268,933
$133,632,644
Net Income - 9,593,359 182,127
9,775,486
Redemptions (4,564.246) (9,776,832) (974,271)
(10,751,103)
Partners' Capital,
September 30, 1998 51,740.999 $131,180,238 $1,476,789
$132,657,027
Partners' Capital,
December 31, 1998 50,478.250 $129,638,096 $1,496,356
$131,134,452
Net Income - 680,599 6,866 687,465
Redemptions (3,570.742) (9,404,597) -
(9,404,597)
Partners' Capital,
September 30, 1999 46,907.508 $120,914,098 $1,503,222
$122,417,320
<FN>
The accompanying notes are an integral part
of these financial statements.
</TABLE>
<PAGE>
<TABLE>
DEAN WITTER PORTFOLIO STRATEGY FUND L.P.
STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
For the Nine Months Ended September 30,
1999 1998
$ $
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income 687,465 9
,775,486
Noncash item included in net income:
Net change in unrealized 10,682,397 (
12,480,291)
(Increase) decrease in operating assets:
Interest receivable (DWR) (42,130) 84,829
Due from DWR (6,630) -
Increase (decrease) in operating liabilities:
Management fees payable (31,694) 4,368
Accrued administrative expenses 37,705
41,279
Incentive fees payable (305,087)
966,851
Net cash provided by (used for) operating activities 11,022,026
(1,607,478)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in redemptions payable(452,034) 1
,314,597
Redemptions of units (9,404,597)
(10,751,103)
Net cash used for financing activities (9,856,631)
(9,436,506)
Net increase (decrease) in cash 1,165,395 (
11,043,984)
Balance at beginning of period 119,724,918
125,280,410
Balance at end of period 120,890,313
114,236,426
<FN>
The accompanying notes are an integral part
of these financial statements.
</TABLE>
<PAGE>
DEAN WITTER PORTFOLIO STRATEGY FUND L.P.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
The financial statements include, in the opinion of management,
all adjustments necessary for a fair presentation of the results
of operations and financial condition of Dean Witter Portfolio
Strategy Fund L.P. (the "Partnership"). The financial statements
and condensed notes herein should be read in conjunction with the
Partnership's December 31, 1998 Annual Report on Form 10-K.
1. Organization
Dean Witter Portfolio Strategy Fund L.P. is a limited partnership
organized to engage primarily in the speculative trading of
futures and forward contracts on physical commodities and other
commodity interests (collectively, "futures interests"). The
general partner for the Partnership is Demeter Management
Corporation ("Demeter"). The non-clearing commodity broker is
Dean Witter Reynolds Inc. ("DWR") and an unaffiliated clearing
commodity broker, Carr Futures Inc. ("Carr"), provides clearing
and execution services. Both Demeter and DWR are wholly-owned
subsidiaries of Morgan Stanley Dean Witter & Co. ("MSDW"). John
W. Henry & Company, Inc. (the "Trading Advisor") is the trading
advisor to the Partnership.
<PAGE>
DEAN WITTER PORTFOLIO STRATEGY FUND L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. Related Party Transactions
The Partnership's cash is on deposit with DWR and Carr in futures
interests trading accounts to meet margin requirements as needed.
DWR pays interest on these funds based on a prevailing rate on
U.S. Treasury bills. Brokerage expenses incurred by the
Partnership are paid to DWR.
3. Financial Instruments
The Partnership trades primarily futures and forward contracts on
physical commodities and other commodity interests. Futures and
forwards represent contracts for delayed delivery of an
instrument at a specified date and price. Risk arises from
changes in the value of these contracts and the potential
inability of counterparties to perform under the terms of the
contracts. There are numerous factors which may significantly
influence the market value of these contracts, including interest
rate volatility.
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activities"
effective for fiscal years beginning after June 15, 1999. The
Partnership elected to adopt the provisions of SFAS No. 133
beginning with the fiscal year that ended December 31, 1998.
SFAS No. 133 supersedes SFAS No. 119 and No. 105, which required
the
<PAGE>
DEAN WITTER PORTFOLIO STRATEGY FUND L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
disclosure of average aggregate fair values and contract/notional
values, respectively, of derivative financial instruments for an
entity which carries its assets at fair value. The application
of SFAS No. 133 does not have a significant effect on the
Partnership's financial statements.
The net unrealized gain on open contracts is reported as a
component of "Equity in futures interests trading accounts" on
the Statements of Financial Condition and totaled $2,259,149 and
$12,941,546 at September 30, 1999 and December 31, 1998,
respectively.
Of the $2,259,149 net unrealized gain on open contracts at
September 30, 1999, $2,388,190 related to exchange-traded futures
contracts and $(129,041) related to off-exchange-traded forward
currency contracts.
Of the $12,941,546 net unrealized gain on open contracts at
December 31, 1998, $13,874,856 related to exchange-traded futures
contracts and $(933,310) related to off-exchange-traded forward
currency contracts.
Exchange-traded futures contracts held by the Partnership at
September 30, 1999 and December 31, 1998 mature through September
2000 and December 1999, respectively. Off-exchange-traded forward
<PAGE>
DEAN WITTER PORTFOLIO STRATEGY FUND L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
currency contracts held by the Partnership at September 30, 1999
and December 31, 1998 mature through December 1999 and March
1999, respectively.
The Partnership is subject to the 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 Statements of
Financial Condition. DWR and Carr act as the futures commission
merchants or the counterparties with respect to most of the
Partnership's assets. Exchange-traded futures contracts are
marked to market on a daily basis, with variations in value
settled on a daily basis. Each of DWR and Carr, as a futures
commission merchant for all of the Partnership's exchange-traded
futures 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 contracts, including an amount equal to the net
unrealized gain on all open futures contracts, which funds, in
the aggregate, totaled $123,278,503 and $133,599,774 at September
30, 1999 and December 31, 1998, respectively.
With respect to the Partnership's off-exchange-traded forward
currency contracts, there are no daily settlements of variations
<PAGE>
DEAN WITTER PORTFOLIO STRATEGY FUND L.P.
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
in value nor is there any requirement that an amount equal to the
net unrealized gain on open forward contracts be segregated.
With respect to those off-exchange-traded forward currency
contracts, the Partnership is at risk to the ability of Carr, the
sole counterparty on all of such contracts, to perform. Carr's
parent, Credit Agricole Indosuez, has guaranteed to the
Partnership payment of the net liquidating value of the
transactions in the Partnership's account with Carr (including
foreign currency contracts).
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity - Assets of the Partnership are deposited with DWR as
non-clearing broker and Carr as clearing broker in separate
futures interest trading accounts. Such assets are held in either
non-interest bearing bank accounts or in securities approved by
the CFTC for investment of customer funds. The Partnership's
assets held by DWR and Carr may be used as margin solely for the
Partnership's trading. Since the Partnership's sole purpose is
to trade in futures interests, it is expected that the
Partnership will continue to own such liquid assets for margin
purposes.
The Partnership's investment in futures interests may, from time
to time, be illiquid. Most United States futures exchanges limit
fluctuations in certain futures interest prices during a single
day by regulations referred to as "daily price fluctuations
limits" or "daily limits". Pursuant to such regulations, during
a single trading day no trades may be executed at prices beyond
the daily limit. If the price for a particular futures interest
has increased or decreased by an amount equal to the daily limit,
positions in such futures interest can neither be taken nor
liquidated unless traders are willing to effect trades at or
within the limit. Futures interests prices have occasionally
moved the daily limit for several consecutive days with little or
no trading. Such market conditions could prevent the Partnership
from promptly liquidating its futures interests and result in
restrictions on redemptions.
<PAGE>
There is no limitation on daily price moves in trading forward
contracts on foreign currency. The markets for some world
currencies have low trading volume and are illiquid, which may
prevent the Partnership from trading in potentially profitable
markets or from promptly liquidating unfavorable positions,
subjecting it to substantial losses. Either of these market
conditions could result in restrictions on redemptions.
Capital Resources - The Partnership does not have, nor does it
expect to have, any capital assets. Future redemptions of Units
of Limited Partnership Interest ("Unit(s)") will affect the
amount of funds available for investment in futures interests in
subsequent periods. Since they are at the discretion of Limited
Partners, it is not possible to estimate the amount and
therefore, the impact of future redemptions.
Results of Operations
For the Quarter and Nine Months Ended September 30, 1999
For the quarter ended September 30, 1999, the Partnership
recorded total trading losses net of interest income of
$5,195,544 and posted a decrease in Net Asset Value per Unit. The
most significant losses were experienced in the global interest
rate futures markets during September from short Japanese
government bond futures positions as prices rallied on the
strength of the Japanese yen and expectations that additional
monetary easing in that country would come. Losses were also
recorded in U.S. interest rate futures trading as domestic bond
prices moved in an erratic sideways pattern throughout September
as the future
<PAGE>
direction of U.S. interest rates remained in question.
Additional losses were experienced in the metals markets during
September from short gold futures positions as gold prices, which
had trended lower in previous months, reversed sharply higher
following the Bank of England's second gold auction and an
announcement of a plan by several European central banks to
restrict gold sales for five years. Short silver futures
positions resulted in losses during July as prices increased
after a fall in U.S. market reserves and the announcement of a
cutback in metal production. Newly established long positions in
this market held during August resulted in additional losses as
prices declined due to an increase in supplies. In the global
stock index futures markets, losses were recorded from long S&P
500 Index futures positions as prices declined during July after
Federal Reserve Chairman Alan Greenspan said that the U.S.
economy may be growing fast enough to warrant a second interest
rate increase. During August, short S&P 500 Index futures
positions resulted in losses as prices increased after the
Producer Price Index for July showed that inflation remained
under control. In the currency markets, losses were incurred
from long positions in the European common currency, the euro,
and the Swiss franc as the U.S. dollar rallied higher versus most
major currencies on August 23 amid a rally in U.S. stock prices
and on September 10 after an intervention by the Bank of Japan.
As a result, new short positions were established in the euro and
the Swiss franc only to result in additional losses as these
currencies strengthened versus the U.S. dollar during the latter
half of September. These losses were partially offset by gains
<PAGE>
from long Japanese yen positions as the value of the yen climbed
to a 44-month high versus the U.S. dollar amid continued optimism
regarding the Japanese economy. A portion of the Partnership's
overall losses was offset by gains recorded in the energy markets
throughout the quarter from long crude oil futures positions as
oil prices mounted higher during July after a fall in U.S. oil
inventories, production difficulties in Nigeria and continued
adherence to output reductions from OPEC countries. Oil prices
continued to climb during August and September on increased
demand, fears of production problems and an announcement by OPEC
ministers confirming that they will uphold their global cutbacks
until April of next year. Total expenses for the three months
ended September 30, 1999 were $2,845,826, resulting in a net loss
of $8,041,370. The value of a Unit decreased from $2,778.67 at
June 30, 1999 to $2,609.76 at September 30, 1999.
For the nine months ended September 30, 1999, the Partnership
recorded total trading revenues including interest income of
$10,810,002 and posted an increase in Net Asset Value per Unit.
The most significant gains were recorded in the metals markets
from long silver futures positions as prices retreated during mid-
March after Berkshire Hathaway's annual report failed to provide
any new information on the company's silver positions.
Additional losses were incurred in this market during the second
quarter as supply and demand concerns resulted in short-term
price volatility. In the global interest rate futures markets,
losses were incurred during July and September from short
Japanese government bond futures positions as prices rallied on
<PAGE>
fears that strength in the Japanese yen would slowdown that
country's budding recovery. In the global stock index futures
markets, losses were experienced from long S&P 500 Index futures
positions as prices declined during July after Federal Reserve
Chairman Alan Greenspan said that the U.S. economy may be growing
fast enough to warrant a second interest rate increase. During
August, short S&P 500 Index futures positions resulted in losses
as prices increased after the Producer Price Index for July
showed that inflation remained under control. The losses in this
market were partially offset by gains from long Nikkei Index
futures positions as Japanese equity prices experienced a strong
upward move during June on news that Japan's gross domestic
product had grown much more than market expectations. A portion
of the Partnership's overall losses was offset by gains recorded
in the energy markets from long crude oil futures positions as
oil prices climbed higher during April, June, August and
September amid tightening of supply and growing global demand.
Additional gains were recorded in the currency markets from short
positions in the European common currency, the euro, as the value
of the U.S. dollar strengthened versus the euro throughout a
majority of the first half of the year on the strength in the
U.S. economy, concerns pertaining to the economic health of
Europe and Japan and ongoing military action in Yugoslavia.
Total expenses for the nine months ended September 30, 1999 were
$10,122,537, resulting in net income of $687,465. The value of a
Unit increased from $2,597.84 at December 31, 1998 to $2,609.76
at September 30, 1999.
<PAGE>
For the Quarter and Nine Months Ended September 30, 1998
For the quarter ended September 30, 1998, the Partnership
recorded total trading revenues including interest income of
$20,067,697 and posted an increase in Net Asset Value per Unit.
The most significant gains were recorded during August and
September, and to a lesser extent during July, in the financial
futures markets from long positions in German, U.S. and Japanese
bond futures as prices in these markets were driven sharply
higher due to a "flight-to-quality" by investors seeking refuge
from the recent volatility in the global financial markets.
Smaller gains were recorded from long positions in British,
Italian and Spanish bond futures as prices in these European
markets also moved higher as investors sought a "safe haven" amid
the uncertainty in many of the world's economies. Additional
gains were recorded in the agricultural markets during July and
August from short corn futures positions as grain prices
increased due to reports of abundant supplies and decreasing
demand from overseas. These gains were partially offset by
losses incurred from transactions involving the British pound as
its value failed to move with consistent direction throughout a
majority of the quarter. Smaller currency losses were experienced
from short Japanese yen positions during September as the value
of the yen strengthened versus the U.S. dollar as a Japanese
finance official hinted that Japan was ready to intervene to
support the yen. Due to this upward move in the yen, new long
positions were established, only to experienced additional losses
later in the month as the Japanese government failed to unveil
<PAGE>
any initiatives towards economic reform. In metals, losses were
recorded during September from short silver futures positions as
precious metals prices were driven higher by the weakness in the
U.S. dollar. Smaller losses were recorded in the soft
commodities markets during July and in the energy markets during
September. Total expenses for the three months ended September
30, 1998 were $4,562,445, resulting in net income of $15,505,252.
The value of a Unit increased from $2,269.39 at June 30, 1998 to
$2,563.87 at September 30, 1998.
For the nine months ended September 30, 1998, the Partnership
recorded total trading revenues including interest income of
$20,025,065 and posted an increase in Net Asset Value per Unit.
The most significant trading gains were recorded in the global
bond futures markets as long positions in German, U.S. and
Japanese bond futures profited from an upward price trend during
the third quarter. This upward trend was due to a "flight-to-
quality" by investors seeking a safe haven from the recent
volatility plaguing many of the world's stock markets.
Additional profits were recorded from long positions in Italian,
British and Spanish bond futures as prices in these markets also
moved higher. In the energy markets, gains were recorded from
short crude oil futures positions as oil prices moved downward
for a majority of the first quarter. Following a spike higher in
late March, oil prices preceded to move lower during the second
quarter and early third quarter. Smaller gains were recorded
<PAGE>
during July and August in the agricultural markets from short
corn futures positions as prices increased due to rising supply
and declining demand. These gains were partially offset by
losses recorded in the currency markets from transactions
involving the British pound as its value moved in a trendless
pattern relative to the U.S. dollar during the second and third
quarters. Similarly, gold futures trading during May and mid-
June added to losses incurred during the first nine months of
1998 as a result of choppy price movement. Additional losses in
metals were recorded from short silver futures positions as
precious metals prices were pushed higher by a weakness in the
U.S. dollar during September. Total expenses for the nine months
ended September 30, 1998 were $10,249,579, resulting in net
income of $9,775,486. The value of a Unit increased from
$2,373.36 at December 31, 1997 to $2,563.87 at September 30,
1998.
Year 2000 Problem. Commodity pools, like financial and business
organizations and individuals around the world, depend on the
smooth functioning of computer systems. Many computer systems in
use today cannot recognize the computer code for the year 2000,
but revert to 1900 or some other date. This is commonly known as
the "Year 2000 Problem". The Partnership could be adversely
affected if computer systems used by it or any third party with
whom it has a material relationship do not properly process and
calculate date-related information and data concerning dates on
or after January 1, 2000. Such a failure could adversely affect
<PAGE>
the handling or determination of futures trades and prices and
other services.
MSDW began its planning for the Year 2000 Problem in 1995, and
currently has several hundred employees working on the matter.
It has developed its own Year 2000 compliance plan to deal with
the problem and had the plan approved by the company's executive
management, Board of Directors and Information Technology
Department. Demeter is coordinating with MSDW to address the Year
2000 Problem with respect to Demeter's computer systems that
affect the Partnership. This includes hardware and software
upgrades, systems consulting and computer maintenance.
Beyond the challenge facing internal computer systems, the
systems failure of any of the third parties with whom the
Partnership has a material relationship - the futures exchanges
and clearing organizations through which it trades, Carr, or the
Trading Advisor - could result in a material financial risk to
the Partnership. All U.S. futures exchanges are subject to
monitoring by the CFTC of their Year 2000 preparedness and the
major foreign futures exchanges are also expected to be subject
to market-wide testing of their Year 2000 compliance during 1999.
Demeter intends to monitor the progress of Carr and the Trading
Advisor throughout 1999 in their Year 2000 compliance and, where
applicable, to test its external interface with Carr and the
Trading Advisor.
<PAGE>
A worst case scenario would be one in which trading of contracts
on behalf of the Partnership becomes impossible as a result of
the Year 2000 problem encountered by any third parties. A less
catastrophic but more likely scenario would be one in which
trading opportunities diminish as a result of technical problems
resulting in illiquidity and fewer opportunities to make
profitable trades. MSDW has begun developing various "contingency
plans" in the event that the systems of such third parties fail.
Demeter intends to consult closely with MSDW in implementing
those plans. Despite the best efforts of both Demeter and MSDW,
however, it is possible that these steps will not be sufficient
to avoid any adverse impact to the Partnership.
Risks Associated With the Euro. On January 1, 1999, eleven
countries in the European Union established fixed conversion
rates on their existing sovereign currencies and converted to a
common single currency (the "euro"). During a three-year
transition period, the sovereign currencies will continue to
exist but only as a fixed denomination of the euro. Conversion
to the euro prevents the Trading Advisor from trading in certain
currencies and thereby limits its ability to take advantage of
potential market opportunities that might otherwise have existed
had separate currencies been available to trade. This could
adversely affect the performance results of the Partnership.
<PAGE>
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Introduction
The Partnership is a commodity pool engaged primarily in the
speculative trading of futures interests. The market-sensitive
instruments held by the Partnership are acquired solely for
speculative trading purposes and, as a result, all or
substantially all of the Partnership's assets are subject to the
risk of trading loss. Unlike an operating company, the risk of
market-sensitive instruments is integral, not incidental, to the
Partnership's primary business activities.
The futures interests traded by the Partnership involve varying
degrees of related market risk. Such market risk is often
dependent upon changes in the level or volatility of interest
rates, exchange rates, and/or market values of financial
instruments and commodities. Fluctuations in related market risk
based upon the aforementioned factors result in frequent changes
in the fair value of the Partnership's open positions, and,
consequently, in its earnings and cash flow.
The Partnership's total market risk is influenced by a wide
variety of factors, including the diversification effects among
the Partnership's existing open positions, the volatility present
within the market(s), and the liquidity of the market(s). At
varying times, each of these factors may act to exacerbate or
mute the market risk associated with the Partnership.
<PAGE>
The Partnership's past performance is not necessarily indicative
of its future results. Any attempt at quantifying the Partner-
ship's market risk must be qualified by the inherent uncertainty
of its speculative trading, which may cause future losses and
volatility (i.e. "risk of ruin") far in excess of the
Partnership's experience to date and/or any reasonable
expectation premised upon historical changes in the fair value of
its market-sensitive instruments.
Quantifying the Partnership's Trading Value at Risk
The following quantitative disclosures regarding the Partner-
ship's market risk exposures contain "forward-looking statements"
within the meaning of the safe harbor from civil liability
provided for such statements by the Private Securities Litigation
Reform Act of 1995 (set forth in Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of
1934). All quantitative disclosures in this section are deemed
to be forward-looking statements for purposes of the safe harbor,
except for statements of historical fact.
The Partnership accounts for open positions on the basis of mark-
to-market accounting principles. As such, any loss in the fair
value of the Partnership's open positions is directly reflected
in the Partnership's earnings, whether realized or unrealized,
and the Partnership's cash flow, as profits and losses on open
<PAGE>
positions of exchange-traded futures interests are settled daily
through variation margin.
The Partnership's risk exposure in the various market sectors
traded by the Trading Advisor is estimated below in terms of
Value at Risk ("VaR"). The VaR model employed by the Partnership
incorporates numerous variables that could impact the fair value
of the Partnership's trading portfolio. The Partnership
estimates VaR using a model based on historical simulation with a
confidence level of 99%. Historical simulation involves
constructing a distribution of hypothetical daily changes in
trading portfolio value. The VaR model generally takes into
account linear exposures to price and interest rate risk. Market
risks that are incorporated in the VaR model include equity and
commodity prices, interest rates, foreign exchange rates, as well
as correlation that exists among these variables. The
hypothetical changes in portfolio value are based on daily
observed percentage changes in key market indices or other market
factors ("market risk factors") to which the portfolio is
sensitive. In the case of the Partnership's VaR, the historical
observation period is approximately four years. The
Partnership's one-day 99% VaR corresponds to the negative change
in portfolio value that, based on observed market risk factor
moves, would have been exceeded once in 100 trading days.
VaR models such as the Partnership's are continually evolving as
trading portfolios become more diverse and modeling techniques
and systems capabilities improve. It must also be noted that the
<PAGE>
VaR model is used to quantify market risk for historic reporting
purposes only and is not utilized by either Demeter or the
Trading Advisor in their daily risk management activities.
The Partnership's Value at Risk in Different Market Sectors
The following table indicates the VaR associated with the
Partnership's open positions as a percentage of total Net Assets
by market category as of September 30, 1999. As of September 30,
1999, the Partnership's total capitalization was approximately
$122 million.
Primary Market September 30, 1999
Risk Category Value at Risk
Interest Rate (1.57)%
Currency (2.26)
Equity (0.42)
Commodity (0.99)
Aggregate Value at Risk (2.83)%
Aggregate value at risk represents the aggregate VaR of the
Partnership's open positions and not the sum of the VaR of the
individual categories listed above. Aggregate VaR will be lower
as it takes into account correlation among different positions
and categories.
The table above represents the VaR of the Partnership's open
positions at September 30, 1999 only and is not necessarily
representative of either the historic or future risk of an
investment in the Partnership. As the Partnership's sole
business
<PAGE>
is the speculative trading of primarily futures interests, the
composition of its portfolio of open positions can change
significantly over any given time period or even within a single
trading day. Such changes in open positions could materially
impact market risk as measured by VaR either positively or
negatively.
The table below supplements the quarter-end VaR by presenting the
Partnership's high, low and average VaR as a percentage of total
Net Assets for the four quarterly reporting periods from October
1, 1998 through September 30, 1999.
Primary Market Risk Category High Low Average
Interest Rate (1.95)% (1.50)% (1.69)%
Currency (2.88) (1.16) (2.18)
Equity (0.57) (0.33) (0.41)
Commodity (0.99) (0.60) (0.73)
Aggregate Value at Risk (3.42)% (2.27)% (2.81)%
Limitations on Value at Risk as an Assessment of Market Risk
The face value of the market sector instruments held by the
Partnership is typically many times the applicable margin require-
ments, as such margin requirements generally range between 2% and
15% of contract face value. Additionally, due to the use of
leverage, the face value of the market sector instruments held by
the Partnership is typically many times the total capitalization
of the Partnership. The financial magnitude of the Partnership's
open positions thus creates a "risk of ruin" not typically found
in other investment vehicles. Due to the relative size of the
<PAGE>
positions held, certain market conditions may cause the
Partnership to incur losses greatly in excess of VaR within a
short period of time. The foregoing VaR tables, as well as the
past performance of the Partnership, gives no indication of such
"risk of ruin". In addition, VaR risk measures should be
interpreted in light of the methodology's limitations, which
include the following: past changes in market risk factors will
not always yield accurate predictions of the distributions and
correlations of future market movements; changes in portfolio
value in response to market movements may differ from the
responses implicit in a VaR model; published VaR results reflect
past trading positions while future risk depends on future
positions; VaR using a one-day time horizon does not fully
capture the market risk of positions that cannot be liquidated or
hedged within one day; and the historical market risk factor data
used for VaR estimation may provide only limited insight into
losses that could be incurred under certain unusual market
movements.
The foregoing VaR tables present the results of the Partnership's
VaR for each of the Partnership's market risk exposures and on an
aggregate basis at September 30, 1999 and for the end of the four
quarterly reporting periods from October 1, 1998 through
September 30, 1999. Since VaR is based on historical data, VaR
should not be viewed as predictive of the Partnership's future
financial performance or its ability to manage and monitor risk
and there can be no assurance that the Partnership's actual
losses on a
<PAGE>
particular day will not exceed the VaR amounts indicated or that
such losses will not occur more than 1 in 100 trading days.
Non-Trading Risk
The Partnership has non-trading market risk on its foreign cash
balances not needed for margin. However, such balances, as well
as any market risk they may represent, are immaterial. The
Partnership also maintains a substantial portion (approximately
86%) of its available assets in cash at DWR. A decline in short-
term interest rates will result in a decline in the Partnership's
cash management income. This cash flow risk is not considered
material.
Materiality, as used throughout this section, is based on an
assessment of reasonably possible market movements and the
potential losses caused by such movements, taking into account
the leverage, optionality and multiplier features of the
Partnership's market sensitive instruments.
Qualitative Disclosures Regarding Primary Trading Risk Exposures
The following qualitative disclosures regarding the Partnership's
market risk exposures - except for (i) those disclosures that are
statements of historical fact and (ii) the descriptions of how
the Partnership manages its primary market risk exposures -
constitute forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the
Securities Exchange Act.
<PAGE>
The Partnership's primary market risk exposures as well as the
strategies used and to be used by Demeter and the Trading Advisor
for managing such exposures are subject to numerous
uncertainties, contingencies and risks, any one of which could
cause the actual results of the Partnership's risk controls to
differ materially from the objectives of such strategies.
Government interventions, defaults and expropriations, illiquid
markets, the emergence of dominant fundamental factors, political
upheavals, changes in historical price relationships, an influx
of new market participants, increased regulation and many other
factors could result in material losses as well as in material
changes to the risk exposures and the risk management strategies
of the Partnership. Investors must be prepared to lose all or
substantially all of their investment in the Partnership.
The following were the primary trading risk exposures of the
Partnership as of September 30, 1999, by market sector. It may
be anticipated however, that these market exposures will vary
materially over time.
Interest Rate. The primary market exposure in the
Partnership at September 30, 1999 was in the interest rate
sector. Exposure was primarily spread across the U.S., Japanese,
German, British and Australian interest rate sectors. Interest
rate movements directly affect the price of the sovereign bond
futures positions held by the Partnership and indirectly affect
the value of its stock index and currency positions. Interest
rate movements in one country as well as relative interest rate
<PAGE> movements
between countries materially impact the Partnership's
profitability. The Partnership's primary interest rate exposure
is generally to interest rate fluctuations in the United States
and the other G-7 countries. However, the Partnership also takes
futures positions in the government debt of smaller nations -
e.g. Australia. Demeter anticipates that G-7 and Australian
interest rates will remain the primary interest rate exposure of
the Partnership for the foreseeable future. The changes in
interest rates, which have the most effect on the Partnership,
are changes in long-term, as opposed to short-term, rates. Most
of the speculative futures positions held by the Partnership are
in medium-to-long term instruments. Consequently, even a
material change in short-term rates would have little effect on
the Partnership, were the medium-to-long term rates to remain
steady.
Currency. The second largest market exposure this quarter
was in the currency complex. The Partnership's currency exposure
is to exchange rate fluctuations, primarily fluctuations which
disrupt the historical pricing relationships between different
currencies and currency pairs. Interest rate changes as well as
political and general economic conditions influence these
fluctuations. The Partnership trades in a large number of
currencies. For the third quarter of 1999, the Partnership's
major exposures were in outright U.S. dollar positions.
(Outright positions consist of the U.S. dollar vs. other
currencies. These other currencies include the major and minor
currencies). Demeter does not anticipate that the risk profile
<PAGE>
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.
Equity. The primary equity exposure this quarter was to
equity price risk in the G-7 countries. The stock index futures
traded by the Partnership are by law limited to futures on
broadly based indices. As of September 30, 1999, the
Partnership's primary exposures were in the S&P 500 (U.S.), ASE
(Australia) and FT-SE (Britain) 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).
Commodity.
Energy. On September 30, 1999, the Partnership's energy
exposure was shared by futures contracts in the oil and natural
gas markets. Price movements in these markets result from
political developments in the Middle East, weather patterns, and
other economic fundamentals. As oil prices have increased about
100% this year, and, given that the agreement by OPEC to cut
production is approaching expiration in March 2000, it is
possible that volatility will remain on the high end.
Significant profits and losses have been and are expected to
<PAGE>
continue to be experienced in this market. Natural gas, also a
primary energy market exposure, has exhibited more volatility
than the oil markets on an intra-day and daily basis and is
expected to continue in this choppy pattern.
Metals. The Partnership's primary metals market exposure is
to fluctuations in the price of gold and silver. Although the
Trading Advisor will, from time to time, trade base metals such
as copper, the principal market exposures of the Partnership have
consistently been in precious metals, gold and silver. A
significant amount of exposure was evident in the gold market as
the price of gold increased dramatically following bullish
comments by the European Central Bank. Silver prices were also
volatile over this period, and the Trading Advisor has, from time
to time, taken substantial positions as perceived market
opportunities developed. Demeter anticipates that gold and
silver will remain the primary metals market exposure for the
Partnership.
Soft Commodities and Agriculturals. On September 30, 1999,
the Partnership had a reasonable amount of exposure in the
markets that comprise these sectors. Most of the exposure,
however, was in the coffee, sugar and corn 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 was the only non-trading risk exposure of the
Partnership as of September 30, 1999:
<PAGE>
Foreign Currency Balances. The Partnership's primary foreign
currency balances are in Japanese yen, British pounds, euros and
Swiss francs. The Partnership controls the non-trading risk of
these balances by regularly converting these balances back into
dollars upon liquidation of the respective position.
Qualitative Disclosures Regarding Means of Managing Risk Exposure
The means by which the Partnership and the Trading Advisor,
severally, attempt to manage the risk of the Partnership's open
positions are essentially the same in all market categories
traded. Demeter attempts to manage the Partnership's market
exposure by (i) diversifying the Partnership's assets among
different market sectors and trading approaches, and (ii),
monitoring the performance of the Trading Advisor on a daily
basis. In addition, the Trading Advisor 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 instrument, cash, which is the only Partnership
investment directed by Demeter, rather than the Trading Advisor.
<PAGE>
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The following supplements Legal Proceedings previously disclosed
in the Partnership's 1998 Form 10-K:
In the New York action, the motion to dismiss the amended
complaint with prejudice has been fully briefed and argued and
the Dean Witter Parties are awaiting the New York Supreme Court's
decision.
In the California action, on September 24, 1999, the Superior
Court in the State of California entered an order dismissing the
consolidated amended complaint without prejudice on consent.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits - None.
(B) Reports on Form 8-K. - None.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dean Witter Portfolio Strategy
Fund L.P. (Registrant)
By: Demeter Management Corporation
(General Partner)
November 12, 1999 By: /s/ Lewis A. Raibley, III
Lewis A. Raibley, III
Director and Chief Financial
Officer
The General Partner which signed the above is the only party
authorized to act for the Registrant. The Registrant has no
principal executive officer, principal financial officer,
controller, or principal accounting officer and has no Board of
Directors.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from Dean
Witter Portfolio Strategy Fund L.P. and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 120,890,313
<SECURITIES> 0
<RECEIVABLES> 415,460<F1>
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 123,564,922<F2>
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 123,564,922<F3>
<SALES> 0
<TOTAL-REVENUES> 10,810,002<F4>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 10,122,537
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 687,465
<INCOME-TAX> 0
<INCOME-CONTINUING> 687,465
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 687,465
<EPS-BASIC> 0
<EPS-DILUTED> 0
<FN>
<F1>Receivables include interest receivable of $408,830 and due from
DWR of $6,630.
<F2>In addition to cash and receivables, total assets include net
unrealized gain on open contracts of $2,259,149.
<F3>Liabilities include redemptions payable of $613,420, management
fees payable of $411,474, and accrued administrative expenses of $122,708.
<F4>Total revenues includes realized trading revenue of $18,079,969,
net change in unrealized of $(10,682,397) and interest income
of $3,412,430.
</FN>
</TABLE>
