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 period ended March 31, 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
March 31, 1999
<CAPTION>
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements
Statements of Financial Condition
March 31, 1999 (Unaudited) and December 31, 1998.........2
Statements of Operations for the Quarters Ended
March 31, 1999 and 1998 (Unaudited)......................3
Statements of Changes in Partners' Capital for the
Quarters Ended March 31, 1999 and 1998 (Unaudited).......4
Statements of Cash Flows for the Quarters Ended
March 31, 1999 and 1998 (Unaudited)......................5
Notes to Financial Statements (Unaudited) ............6-10
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations....................................11-17
Item 3. Quantitative and Qualitative Disclosures
about Market Risk . . . . . . . . . . . . . . 18-29
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................. 30
Item 6. Exhibits and Reports on Form 8-K........
.........30
</TABLE>
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
DEAN WITTER PORTFOLIO STRATEGY FUND L.P.
STATEMENTS OF FINANCIAL CONDITION
<CAPTION>
March 31, December 31,
1999 1998
$ $
(Unaudited)
ASSETS
<S> <C> <C>
Equity in futures interests trading accounts:
Cash 122,498,124 119,724,918
Net unrealized gain on open contracts 5,243,365 12,941,546
Total Trading Equity 127,741,489 132,666,464
Interest receivable (DWR) 369,926 366,700
Total Assets 128,111,415 133,033,164
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Redemptions payable 1,483,965 1,065,454
Management fee payable 426,750 443,168
Accrued administrative expenses 86,390 85,003
Incentive fee payable - 305,087
Total Liabilities 1,997,105 1,898,712
Partners' Capital
Limited Partners (48,387.820 and
49,902.250 Units, respectively) 124,630,728 129,638,096
General Partner (576 Units) 1,483,582 1,496,356
Total Partners' Capital 126,114,310 131,134,452
Total Liabilities and Partners' Capital 128,111,415 133,0
33,164
NET ASSET VALUE PER UNIT 2,575.66 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 March 31,
1999 1998
$ $
REVENUES
<S> <C> <C>
Trading profit (loss):
Realized 8,418,966 4,798,524
Net change in unrealized (7,698,181) (4,650,404)
Total Trading Results 720,785 148,120
Interest Income (DWR) 1,081,017 1,355,553
Total Revenues 1,801,802 1,503,673
EXPENSES
Brokerage commissions (DWR) 1,508,339 1,341,867
Management fees 1,288,183 1,319,880
Transaction fees and costs 110,893 106,208
Administrative expenses 26,000 27,000
Total Expenses 2,933,415 2,794,955
NET LOSS (1,131,613) (1,291,282)
NET LOSS ALLOCATION
Limited Partners (1,118,839) (1,269,287)
General Partner (12,774) (21,995)
NET LOSS PER UNIT
Limited Partners (22.18) (23.01)
General Partner (22.18) (23.01)
<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 Quarters Ended March 31, 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 - (1,269,287) (21,995)
(1,291,282)
Redemptions (1,272.373) (2,994,666) -
(2,994,666)
Partners' Capital
March 31, 1998 55,032.872 $127,099,758 $2,246,938
$129,346,696
Partners' Capital
December 31, 1998 50,478.250 $129,638,096 $1,496,356
$131,134,452
Net Loss - (1,118,839) (12,774)
(1,131,613)
Redemptions (1,514.430) (3,888,529) -
(3,888,529)
Partners' Capital
March 31, 1999 48,963.820 $124,630,728 $1,483,582
$126,114,310
<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 Quarters Ended March 31,
1999 1998
$ $
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net loss (1,131,613)
(1,291,282)
Noncash item included in net loss:
Net change in unrealized 7,698,181 4
,650,404
(Increase) decrease in operating assets:
Interest receivable (DWR) (3,226) 56,083
Due from DWR - (68,371)
Increase (decrease) in operating liabilities:
Management fee payable (16,418) (16,093)
Accrued administrative expenses 1,387 11,057
Incentive fee payable (305,087)
(801,115)
Net cash provided by operating activities 6,243,224
2,540,683
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in redemptions payable 418,511 275,029
Redemptions of units (3,888,529)
(2,994,666)
Net cash used for financing activities (3,470,018)
(2,719,637)
Net increase (decrease) in cash 2,773,206 (
178,954)
Balance at beginning of period 119,724,918
125,280,410
Balance at end of period 122,498,124
125,101,456
<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 has elected to adopt the provisions of SFAS No. 133
beginning with the fiscal year ended December 31, 1998. SFAS No.
133 supersedes SFAS No. 119 and No. 105, which required the
<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 $5,243,365 and
$12,941,546 at March 31, 1999 and December 31, 1998,
respectively.
Of the $5,243,365 net unrealized gain on open contracts at March
31, 1999 $4,320,541 related to exchange-traded futures contracts
and $922,824 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
March 31, 1999 and December 31, 1998 mature through March 2000
and December 1999, respectively. Off-exchange-traded forward
currency contracts held by the Partnership at March 31, 1999 and
December
<PAGE>
DEAN WITTER PORTFOLIO STRATEGY FUND L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
31, 1998 mature through June 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 $126,818,665 and $133,599,774 at March 31,
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 Ended March 31, 1999
For the quarter ended March 31, 1999 the Partnership recorded
trading revenues including interest income of $1,801,802 and
posted a decrease in Net Asset Value per Unit. The most
significant losses were recorded in the global interest rate
futures markets. During January and February, losses were
recorded from short Japanese bond futures positions as prices
increased sharply due to an announcement by the Japanese Ministry
of Finance that they would resume outright purchases of JGBs and
on growing speculation that the Bank of Japan may underwrite
Japanese government bonds. Fears that the recent rise in
<PAGE>
Japanese bond yields would lead many Japanese money managers to
repatriate assets from foreign investments to yen-denominated
debt also pushed prices higher. Losses were also experienced
from long Japanese government bond futures positions as bond
prices dropped during mid-March as bond yields rose following
comments by Bank of Japan Governor Masaru Hayami that he expected
interest rates in Japan to rise over time. Offsetting gains were
recorded during February from short positions in U.S. interest
rate futures as domestic bond prices moved lower due to strong
economic data and the subsequent possibility of inflation. In
the metals markets, losses were recorded 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. Additional losses were recorded
from short gold futures positions as prices rose to a 2-month
high early in March on short-covering by speculative investment
funds. In soft commodities, losses were recorded during March
from short coffee futures positions as prices surged in late-
March as options-related buying triggered waves of buy-stops at
several key resistance levels, attracting fund short-covering. A
majority of these losses was offset by gains recorded throughout
the quarter in the currency markets from short euro positions as
the value of the U.S. dollar hit new highs versus the European
common currency 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. In the
energy markets, gains were recorded from long crude and heating
oil futures positions as oil prices moved significantly higher
<PAGE>
amid a substantial recovery in oil prices during March that was
largely attributed to the news that both OPEC and non-OPEC
countries had reached an agreement to cut total output by
approximately two million barrels a day beginning April 1st. In
the global stock index futures markets, gains were recorded
during March from long positions in ASE All Ordinaries Index
futures as Australian stock prices increased in response to the
historic price levels reached by U.S. equities and on growing
optimism regarding the economic well being of the Pacific Rim.
Interest income decreased by approximately $275,000 for the three
months ended March 31, 1999 as compared to the same period in
1998 primarily due to declines in interest rates on U.S. Treasury
bills. Total expenses for the three months ended March 31, 1999
were $2,933,415 resulting in a net loss of $1,131,613. The value
of a Unit decreased from $2,597.84 at December 31, 1998 to
$2,575.66 at March 31, 1999.
For the Quarter Ended March 31, 1998
For the quarter ended March 31, 1998, the Partnership recorded
total trading revenues including interest income of $1,503,673
and posted a decrease in Net Asset Value per Unit. The most
significant losses were recorded in the metals markets as a
result of choppy price movement in gold futures during the
quarter, as well as from long silver futures positions during
March, as silver prices reversed lower after trending higher
previously. In currencies, losses recorded from short positions
in the Japanese yen as its value increased versus the U.S. dollar
<PAGE>
during January and early February more than offset gains from
short positions in the Swiss franc and German mark during March.
In the agricultural markets, losses were experienced from short
corn futures positions during January and March. Additional
losses were recorded in global stock index futures from trading
Nikkei Index futures during January and March as Japanese equity
prices moved in a choppy pattern as the stability of the Japanese
economy remained in question. A portion of the Partnership's
overall losses was offset by gains recorded in the energy markets
from short positions in crude oil futures as oil prices moved
downward throughout a majority of the quarter despite a potential
conflict in the Persian Gulf during February. In financial
futures, gains recorded from long positions in German and French
interest rate futures more than offset losses from trading
Japanese and U.S. interest rate futures during the quarter.
Total expenses for the three months ended March 31, 1998 were
$2,794,955, resulting in a net loss of $1,291,282. The value of a
Unit decreased from $2,373.36 at December 31, 1997 to $2,350.35
at March 31, 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
<PAGE>
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.
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
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
Partnership's market risk exposures contain "forward-looking
statements" within the meaning of the safe harbor from civil
liability provided for such statements by the Private Securities
Litigation Reform Act of 1995 (set forth in Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange
Act of 1934). All quantitative disclosures in this section are
deemed to be forward-looking statements for purposes of the safe
harbor, except for statements of historical fact.
The Partnership accounts for open positions 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.
<PAGE>
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
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.
<PAGE>
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 March 31, 1999. As of March 31, 1999,
the Partnership's total capitalization was approximately $126
million.
Primary Market March 31, 1999
Risk Category Value at Risk
Interest Rate (1.50)%
Currency (2.88)
Equity (0.57)
Commodity (0.63)
Aggregate Value at Risk (3.42)%
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 March 31, 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
<PAGE>
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 April 1,
1998 through March 31, 1999.
Primary Market Risk Category High Low Average
Interest Rate (2.24)% (1.50)% (1.97)%
Currency (2.88) (1.16) (1.97)
Equity (0.57) (0.34) (0.41)
Commodity (0.83) (0.60) (0.67)
Aggregate Value at Risk (3.42)% (2.27)% (2.87)%
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
<PAGE>
"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 March 31, 1999 and for the end of the four
quarterly reporting periods from April 1, 1998 through March 31,
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
<PAGE>
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.
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
<PAGE>
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 March 31, 1999, by market sector. It may be
anticipated however, that these market exposures will vary
materially over time.
Interest Rate. Interest rate risk is the principal market
exposure of the Partnership. Interest rate movements directly
affect the price of the sovereign bond futures positions held by
the Partnership and indirectly 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 to interest rate
fluctuations in the United States and the other G-7 countries.
However, the Partnership also takes futures positions in the
government debt of smaller nations - e.g. Australia. Demeter
anticipates that G-7 interest rates will remain the primary
market 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
<PAGE>
Partnership are in medium-to-long term instruments.
Consequently, even a material change in short-term rates would
have little effect on the Partnership were the medium-to-long
term rates to remain steady.
Currency. The Partnership's currency exposure is to exchange
rate fluctuations, primarily fluctuations which disrupt the
historical pricing relationships between different currencies and
currency pairs. These fluctuations are influenced by interest
rate changes as well as political and general economic
conditions. The Partnership's major exposures have typically been
in the dollar/yen, dollar/pound, dollar/euro and dollar/Swiss
francs positions. Demeter does not anticipate that the risk
profile of the Partnership's currency sector will change
significantly in the future, although it is difficult at this
point to predict the effect of the introduction of the Euro on
the Trading Advisor's currency trading strategies.
Equity. The Partnership's 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 March 31, 1999, the Partnership's primary
exposures were in the Nikkei (Japan), ASE (Australia) and S&P 500
stock indices. The Partnership is primarily exposed to the risk
of adverse price trends or static markets in the major U.S.,
European 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.
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 the 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. The Partnership's
primary commodities exposure is to fluctuations in the price of
soft commodities and agriculturals, which are often directly
affected by severe or unexpected weather conditions. Coffee,
corn, sugar and cotton accounted for the substantial bulk of the
Partnership's commodities exposure as of March 31, 1999. The
Partnership has market exposure to live cattle. However, Demeter
anticipates that the Trading Advisors will maintain an emphasis
on coffee, corn, sugar and cotton in which the Partnership has
historically taken it's largest positions.
Energy. The Partnership's primary energy market exposure is
to gas and oil price movements, often resulting from political
developments in the Middle East. Although the Trading Advisor
<PAGE>
trades natural gas to a limited extent, oil is by far the
dominant energy market exposure of the Partnership. Oil prices
are currently depressed, but they can be volatile and substantial
profits and losses have been and are expected to continue to be
experienced in this market.
Qualitative Disclosures Regarding Non-Trading Risk Exposure
The following was the only non-trading risk exposure of the
Partnership as of March 31, 1999:
Foreign Currency Balances. The Partnership's primary foreign
currency balances are in Japanese yen, British pounds, euros,
Swiss francs, and German mark. The Partnership controls the non-
trading risk of these balances by regularly converting these
balances back into U.S. dollars at varying intervals, depending
upon such factors as size, volatility, etc.
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 Item 3. of the Partnership's 1998 Form 10-K:
On April 12, 1999, the defendants filed a motion in the
California action to oppose certification by the court of the
class in the California litigation.
With respect to JWH, the New York Supreme Court complaint was
dismissed with prejudice when the plaintiffs failed to replead
against JWH in December, 1998. Further, JWH has been dismissed
as a defendant in the California actions without prejudice
pursuant to a tolling agreement with plaintiffs executed in
January, 1999.
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)
May 14, 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 122,498,124
<SECURITIES> 0
<RECEIVABLES> 369,926<F1>
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 128,111,415<F2>
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 128,111,415<F3>
<SALES> 0
<TOTAL-REVENUES> 1,801,802<F4>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,933,415
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,131,613)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,131,613)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,131,613)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>Receivables include interest receivable of $369,926.
<F2>In addition to cash and receivables, total assets include net
unrealized gain on open contracts of $5,243,365.
<F3>Liabilities include redemptions payable of $1,483,965, management
fees payable of $426,750, and accrued administrative expenses of $86,390.
<F4>Total revenues includes realized trading revenue of $8,418,966,
net change in unrealized of $(7,698,181) and interest income
of $1,081,017.
</FN>
</TABLE>
