UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended June 30, 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
<PAGE>
<TABLE>
DEAN WITTER PORTFOLIO STRATEGY FUND L.P.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
June 30, 1999
<CAPTION>
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements
Statements of Financial Condition
June 30, 1999 (Unaudited) and December 31, 1998.........2
Statements of Operations for the Quarters Ended
June 30, 1999 and 1998 (Unaudited)......................3
Statements of Operations for the Six Months Ended
June 30, 1999 and 1998 (Unaudited)......................4
Statements of Changes in Partners' Capital for the
Six Months Ended June 30, 1999 and 1998
(Unaudited).............................................5
Statements of Cash Flows for the Six Months Ended
June 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 ...............................21-33
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>
June 30, December 31,
1999 1998
$ $
(Unaudited)
ASSETS
<S> <C> <C>
Equity in futures interests trading accounts:
Cash 124,621,565 119,724,918
Net unrealized gain on open contracts 11,327,988 12,941,546
Total Trading Equity 135,949,553 132,666,464
Interest receivable (DWR) 378,559 366,700
Total Assets 136,328,112 133,033,164
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Incentive fees payable 1,541,384 305,087
Redemptions payable 1,199,470 1,065,454
Management fees payable 454,076 443,168
Accrued administrative expenses 112,390 85,003
Total Liabilities 3,307,320 1,898,712
Partners' Capital
Limited Partners (47,296.130 and
49,902.250 Units, respectively)131,420,279 129,638,096
General Partner (576 Units) 1,600,513 1,496,356
Total Partners' Capital 133,020,792 131,134,452
Total Liabilities and Partners' Capital 136,328,112 133
,033,164
NET ASSET VALUE PER UNIT 2,778.67 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 June 30,
1999 1998
$ $
REVENUES
<S> <C> <C>
Trading profit (loss):
Realized 6,993,609 5,564,067
Net change in unrealized 6,084,623 (8,394,261)
Total Trading Results 13,078,232 (2,830,194)
Interest Income (DWR) 1,125,512 1,283,889
Total Revenues 14,203,744 (1,546,305)
EXPENSES
Incentive fees 1,548,449 -
Brokerage commissions (DWR) 1,351,067 1,520,055
Management fees 1,326,417 1,248,472
Transaction fees and costs 91,363 99,652
Administrative expenses 26,000 24,000
Total Expenses 4,343,296 2,892,179
NET INCOME (LOSS) 9,860,448 (4,438,484)
NET INCOME (LOSS) ALLOCATION
Limited Partners 9,743,517 (4,361,087)
General Partner 116,931 (77,397)
NET INCOME (LOSS) PER UNIT
Limited Partners 203.01 (80.96)
General Partner 203.01 (80.96)
<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 Six Months Ended June 30,
1999 1998
$ $
REVENUES
<S> <C> <C>
Trading profit (loss):
Realized 15,412,575 10,362,591
Net change in unrealized (1,613,558) (13,044,665)
Total Trading Results 13,799,017 (2,682,074)
Interest Income (DWR) 2,206,529 2,639,442
Total Revenues 16,005,546 (42,632)
EXPENSES
Brokerage commissions (DWR) 2,859,406 2,861,922
Management fees 2,614,600 2,568,352
Incentive fees 1,548,449 -
Transaction fees and costs 202,256 205,860
Administrative expenses 52,000 51,000
Total Expenses
7,276,711 5,687,134
NET INCOME (LOSS) 8,728,835 (5,729,766)
NET INCOME (LOSS) ALLOCATION
Limited Partners 8,624,678 (5,630,374)
General Partner 104,157 (99,392)
NET INCOME (LOSS) PER UNIT
Limited Partners 180.83 (103.97)
General Partner 180.83 (103.97)
<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 Six Months Ended June 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 Loss - (5,630,374) (99,392)
(5,729,766)
Redemptions (2,747.340) (6,358,855) -
(6,358,855)
Partners' Capital,
June 30, 1998 53,557.905 $119,374,482 $2,169,541
$121,544,023
Partners' Capital,
December 31, 1998 50,478.250 $129,638,096 $1,496,356
$131,134,452
Net Income - 8,624,678 104,157
8,728,835
Redemptions (2,606.120) (6,842,495) -
(6,842,495)
Partners' Capital,
June 30, 1999 47,872.130 $131,420,279 $1,600,513
$133,020,792
<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 Six Months Ended June 30,
1999 1998
$ $
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income (loss) 8,728,835 (
5,729,766)
Noncash item included in net income (loss):
Net change in unrealized 1,613,558 1
3,044,665
(Increase) decrease in operating assets:
Interest receivable (DWR) (11,859) 54,211
Due from DWR - (
128,271)
Increase (decrease) in operating liabilities:
Incentive fees payable 1,236,297
(801,115)
Management fees payable 10,908
(41,857)
Accrued administrative expenses 27,387
35,057
Net cash provided by operating activities 11,605,126
6,432,924
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in redemptions payable 134,016 374,362
Redemptions of units (6,842,495)
(6,358,855)
Net cash used for financing activities (6,708,479)
(5,984,493)
Net increase in cash 4,896,647 448,431
Balance at beginning of period 119,724,918
125,280,410
Balance at end of period 124,621,565
125,728,841
<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 $11,327,988 and
$12,941,546 at June 30, 1999 and December 31, 1998, respectively.
Of the $11,327,988 net unrealized gain on open contracts at June
30, 1999, $11,122,347 related to exchange-traded futures
contracts and $205,641 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 June
30, 1999 and December 31, 1998 mature through June 2000 and
December 1999, respectively. Off-exchange-traded forward currency
contracts held by the Partnership at June 30, 1999 and December
<PAGE>
DEAN WITTER PORTFOLIO STRATEGY FUND L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
31, 1998 mature through September 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 $135,743,912 and $133,599,774 at June 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
in value nor is there any requirement that an amount equal to the
net unrealized gain on open forward contracts be segregated.
With respect to those off-exchange-traded forward currency
contracts,
<PAGE>
DEAN WITTER PORTFOLIO STRATEGY FUND L.P.
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
the Partnership is at risk to the ability of Carr, the sole
counterparty on all of such contracts, to perform. Carr's
parent, Credit Agricole Indosuez, has guaranteed to the
Partnership payment of the net liquidating value of the
transactions in the Partnership's account with Carr (including
foreign currency contracts).
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity - Assets of the Partnership are deposited with DWR as
non-clearing broker and Carr as clearing broker in separate
futures 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 Six Months Ended June 30, 1999
For the quarter ended June 30, 1999, the Partnership recorded
total trading revenues including interest income of $14,203,744
and posted an increase in Net Asset Value per Unit. The most
significant gains were experienced in the global interest rate
futures markets from long Japanese government bond futures
positions as prices rallied during April after the government
proposed no new economic spending plan. Investors continued to
chose higher yielding long-term debt instruments as opposed to
short-term Japanese interest rate investments during May thus
resulting in additional profits. Short positions in U.S. bond
<PAGE>
futures were also profitable during May as domestic interest rate
prices dropped sharply due to a rise in the Consumer Price Index
and Alan Greenspan's comments regarding the unlikely possibility
of continued U.S. economic expansion without significant
inflation. Additional gains were recorded in the currency
markets from short positions in the euro and the Swiss franc
during April and June as the value of these European currencies
weakened steadily versus the U.S. dollar due to the lack of
economic growth in the European community, the ongoing military
conflict in Kosovo and strong economic data out of the U.S. In
the energy markets, gains were recorded early in the quarter from
long crude oil futures positions as oil prices rallied to their
highest levels since December 1997 due to declining inventory
levels and growing confidence that oil-exporting countries are
cutting production. Oil prices jumped higher again in June on
unexpected declines in U.S. stockpiles and on news of refinery
outages. Smaller gains were experienced in the global stock
index futures markets from long Nikkei Index futures positions as
the Japanese benchmark index reached its highest level in more
that a year and a half during June encouraged by recent economic
growth data in Japan. These gains were partially offset by
losses in the soft commodities markets from long coffee futures
positions as prices declined amid late May forecasts for a cool-
pressure system in the major coffee producing regions, June's
warm weather in Brazil and ample warehouse supplies. Additional
losses were incurred in the metal markets from short silver
futures positions as silver prices were boosted higher during
April by perceptions of tightening supply levels and technically-
<PAGE>
driven buying. Total expenses for the three months ended June 30,
1999 were $4,343,296, resulting in net income of $9,860,448. The
value of a Unit increased from $2,575.66 at March 31, 1999 to
$2,778.67 at June 30, 1999.
For the six months ended June 30, 1999, the Partnership recorded
total trading revenues including interest income of $16,005,546
and posted an increase in Net Asset Value per Unit. The most
significant gains were recorded in the currency markets from
short euro and Swiss franc positions. The value of these
European currencies weakened versus the U.S. dollar throughout
the first six months of the year on the strength of the U.S.
economy, concerns pertaining to the economic health of Europe and
Japan and growing uncertainty about the military action in
Yugoslavia. Additional gains were recorded in the energy markets
from long crude oil futures positions as oil prices moved
significantly higher during March on news that both OPEC and non-
OPEC countries had agreed to cut total output beginning April
1st. Oil prices continued to climb during April on declines in
inventory levels and growing confidence in production cutbacks.
Smaller gains were recorded in the global stock index futures
positions 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 and on benign U.S. Consumer Price Index
figures. In the global interest rate futures markets, gains were
recorded from long Japanese bond futures positions during the
second quarter as prices moved higher due to no new economic
<PAGE>
spending plan. A portion of these gains was offset by losses in
the metals markets from long silver futures positions as prices
declined during mid-March after Berkshire Hathaway's annual
report failed to provide any new information on the company's
silver positions. Short silver futures positions held during
April were also unfavorable as prices were boosted higher by
perceptions of tightening supply levels and technically-driven
buying. Additional losses were recorded in the soft commodities
markets from short coffee futures positions as prices surged
during late March as options-related buying triggered waves of
buy-stops at several key resistance levels, attracting fund short-
covering and again during May due to cold weather in Brazil.
Total expenses for the six months ended June 30, 1999 were
$7,276,711, resulting in net income of $8,728,835. The value of
a Unit increased from $2,597.84 at December 31, 1998 to $2,778.67
at June 30, 1999.
For the Quarter and Six Months Ended June 30, 1998
For the quarter ended June 30, 1998, the Partnership recorded
total trading losses net of interest income of $1,546,305 and
posted a decrease in Net Asset Value per Unit. The most
significant losses were recorded in the financial futures and
currency markets. Losses were recorded from long global bond
futures positions as European and Australian interest rate
futures prices reversed lower in April. Additional losses were
experienced in June from long positions in Japanese and
Australian bond futures as prices in these markets suddenly moved
lower in response to the coordinated intervention by the U.S. and
<PAGE>
Japanese governments to halt the downward slide of the Japanese
yen. Long S&P 500 Index futures positions experienced smaller
losses during June. Transactions in the currency markets
resulted in losses for the quarter despite strong gains produced
in May from short Japanese yen positions as the value of the yen
fell to a seven and a half year low relative to the U.S. dollar.
Losses were recorded from long British pound positions as the
value of the pound weakened relative to the U.S. dollar in May.
Short British pound positions held in June also produced losses
as its value increased sharply relative to the U.S. dollar during
the third week of the month. Smaller currency losses were
recorded from short Swiss franc and German mark positions as the
value of these currencies increased versus the U.S. dollar during
the first half of the quarter. Losses were also recorded in the
metals markets from trading gold futures during May and June. A
portion of the Partnership's overall losses for the second
quarter was offset by gains in the energy markets as short crude
oil futures positions profited as prices moved lower in May and
June. Additional gains were recorded in the soft commodities
markets from short coffee futures positions as coffee prices also
declined for a majority of the quarter. Total expenses for the
three months ended June 30, 1998 were $2,892,179, resulting in a
net loss of $4,438,484. The value of a Unit decreased from
$2,350.35 at March 31, 1998 to $2,269.39 at June 30, 1998.
For the six months ended June 30, 1998, the Partnership recorded
total trading losses net of interest income of $42,632 and posted
a decrease in Net Asset Value per Unit. The most significant
<PAGE>
trading losses were recorded in the currency and metals markets.
Long British pound positions resulted in losses during May as the
value of the pound decreased versus the U.S. dollar. Short
British pound positions held during June also resulted in losses
as the value of the pound reversed higher during mid-June
relative to the U.S. dollar. Similarly, gold futures trading
during May and mid-June added to losses incurred during the first
quarter as a result of choppy price movement. These losses more
than offset the gains from short Japanese yen positions as the
value of the yen fell to a seven and a half year low versus the
U.S. dollar during May. Additional losses were experienced in
the financial futures markets from trading U.S. Treasury bond and
Australian bond futures, as well as Nikkei Index futures, as
prices in these markets experienced short-term volatility during
a majority of the first half of the year. Profits from long
German bond futures positions during the first six months of the
year were able to mitigate these losses. Smaller losses were
recorded in the agricultural markets from trading corn and
soybean oil futures. A portion of the Partnership's overall
losses during the first half of the year was offset by gains in
the energy markets 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 proceeded to
move lower during most of the second quarter. In the soft
commodities markets, trading in cotton and cocoa futures
contributed additional gains. Total expenses for the six months
ended June 30, 1998 were $5,687,134, resulting in a net loss of
<PAGE>
$5,729,766. The value of a Unit decreased from $2,373.36 at
December 31, 1997 to $2,269.39 at June 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
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.
<PAGE>
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.
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.
<PAGE>
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.
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
<PAGE>
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.
The Partnership's past performance is not necessarily indicative
of its future results. Any attempt at quantifying the
Partnership's market risk must be qualified by the inherent
uncertainty of its speculative trading, which may cause future
losses and volatility (i.e. "risk of ruin") far in excess of the
Partnership's experience to date and/or any reasonable
expectation premised upon historical changes in the fair value of
its market sensitive instruments.
Quantifying the Partnership's Trading Value at Risk
The following quantitative disclosures regarding the 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
<PAGE>
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
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")
<PAGE>
to which the portfolio is sensitive. In the case of the
Partnership's VaR, the historical observation period is
approximately four years. The Partnership's one-day 99% VaR
corresponds to the negative change in portfolio value that, based
on observed market risk factor moves, would have been exceeded
once in 100 trading days.
VaR models such as the Partnership's are continually evolving as
trading portfolios become more diverse and modeling techniques
and systems capabilities improve. It must also be noted that the
VaR model is used to quantify market risk for historic reporting
purposes only and is not utilized by either Demeter or the
Trading 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 June 30, 1999. As of June 30, 1999, the
Partnership's total capitalization was approximately $133
million.
Primary Market June 30, 1999
Risk Category Value at Risk
Interest Rate (1.75)%
Currency (2.43)
Equity (0.33)
Commodity (0.69)
Aggregate Value at Risk (2.73)%
<PAGE>
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 June 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 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 July 1,
1998 through June 30, 1999.
Primary Market Risk Category High Low Average
Interest Rate (2.24)% (1.50)% (1.86)%
Currency (2.88) (1.16) (2.08)
Equity (0.57) (0.33) (0.40)
Commodity (0.69) (0.60) (0.63)
Aggregate Value at Risk (3.42)% (2.27)% (2.77)%
<PAGE>
Limitations on Value at Risk as an Assessment of Market Risk
The face value of the market sector instruments held by the
Partnership is typically many times the applicable margin require-
ments, as such margin requirements generally range between 2% and
15% of contract face value. Additionally, due to the use of
leverage, the face value of the market sector instruments held by
the Partnership is typically many times the total capitalization
of the Partnership. The financial magnitude of the Partnership's
open positions thus creates a "risk of ruin" not typically found
in other investment vehicles. Due to the relative size of the
positions held, certain market conditions may cause the
Partnership to incur losses greatly in excess of VaR within a
short period of time. The foregoing VaR tables, as well as the
past performance of the Partnership, gives no indication of such
"risk of ruin". In addition, VaR risk measures should be
interpreted in light of the methodology's limitations, which
include the following: past changes 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.
<PAGE>
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 June 30, 1999 and for the end of the four
quarterly reporting periods from July 1, 1998 through June 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
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
88%) 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.
<PAGE>
Qualitative Disclosures Regarding Primary Trading Risk Exposures
The following qualitative disclosures regarding the Partnership's
market risk exposures - except for (i) those disclosures that are
statements of historical fact and (ii) the descriptions of how
the Partnership manages its primary market risk exposures -
constitute forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the
Securities Exchange Act. The Partnership's primary market risk
exposures as well as the strategies used and to be used by
Demeter and the Trading 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 June 30, 1999, by market sector. It may be
anticipated however, that these market exposures will vary
materially over time.
<PAGE>
Interest Rate. The primary market exposure in the Partner-
ship is in the interest rate sector. Exposure was 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 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 is
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
<PAGE>
political and general economic conditions influence these
fluctuations. The Partnership trades in a large number of
currencies, including cross-rates - i.e., positions between two
currencies other than the U.S. dollar. For the second quarter of
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 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 is to equity price
risk in the G-7 countries. The stock index futures traded by the
Partnership are by law limited to futures on broadly based
indices. As of June 30, 1999, the Partnership's primary
exposures were in the S&P 500 (U.S.), All Ordinaries (Australia)
and Nikkei (Japan) stock indices. The Partnership is primarily
exposed to the risk of adverse price trends or static markets in
the U.S. and Japanese indices. (Static markets would not cause
major market changes but would make it difficult for the
Partnership to avoid being "whipsawed" into numerous small
losses).
<PAGE>
Commodity.
Energy. On June 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 broken out of low
price ranges achieved in 1998, it is possible that volatility
will increase as well. Significant profits and losses have been
and are expected to 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. The
Trading Advisor's gold trading has been increasingly limited due
to the long-lasting and mainly non-volatile decline in the price
of gold over the last 10-15 years. However, silver prices have
remained volatile over this period, and the Trading Advisor has
from time to time taken substantial positions as perceived market
opportunities develop. Demeter anticipates that gold and silver
will remain the primary metals market exposure for the
Partnership.
Soft Commodities and Agriculturals. On June 30, 1999, the
Partnership had a reasonable amount of exposure in the
<PAGE> 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 June 30, 1999:
Foreign Currency Balances. The Partnership's primary foreign
currency balances are in euros, Japanese yen, British pounds,
Swiss francs and Canadian dollars. 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
<PAGE>
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:
With respect to the plaintiff's consolidated action in
California, on July 1, 1999, the Superior Court of the State of
California, ruling from the bench, denied the plaintiffs' motion
to have their lawsuit certified as a class action, stating, among
other things, that plaintiffs' lawsuit did not present common
questions of fact.
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)
August 13, 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 124,621,565
<SECURITIES> 0
<RECEIVABLES> 378,559<F1>
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 136,328,112<F2>
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 136,328,112<F3>
<SALES> 0
<TOTAL-REVENUES> 16,005,546<F4>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 7,276,711
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 8,728,835
<INCOME-TAX> 0
<INCOME-CONTINUING> 8,728,835
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,728,835
<EPS-BASIC> 0
<EPS-DILUTED> 0
<FN>
<F1>Receivables include interest receivable of $378,559.
<F2>In addition to cash and receivables, total assets include net
unrealized gain on open contracts of $11,327,988.
<F3>Liabilities include incentive fees payable of $1,541,384, redemptions
payable of $1,199,470, management fees payable of $454,076, and accrued
administrative expenses of $112,390.
<F4>Total revenues includes realized trading revenue of $15,412,575,
net change in unrealized of $(1,613,558) and interest income
of $2,206,529.
</FN>
</TABLE>
