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, 2000 or
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period _________________to__________ ______
Commission File Number 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, 2000
<CAPTION>
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements
Statements of Financial Condition
June 30, 2000 (Unaudited) and December 31, 1999.........2
Statements of Operations for the Quarters Ended
June 30, 2000 and 1999 (Unaudited)......................3
Statements of Operations for the Six Months Ended
June 30, 2000 and 1999 (Unaudited)......................4
Statements of Changes in Partners' Capital for the
Six Months Ended June 30, 2000 and 1999
(Unaudited).............................................5
Statements of Cash Flows for the Six Months Ended
June 30, 2000 and 1999 (Unaudited)......................6
Notes to Financial Statements (Unaudited) ...........7-11
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations.......................................12-22
Item 3. Quantitative and Qualitative Disclosures
about Market Risk ...............................22-34
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................35-36
Item 5. Other Information...................................36
Item 6. Exhibits and Reports on Form 8-
K....................37
</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,
2000 1999 $
$
(Unaudited)
ASSETS
<S> <C> <C>
Equity in futures interests trading accounts:
Cash 85,464,391 106,349,715
Net unrealized gain on open contracts (MS & Co.)
594,675 -
Net unrealized loss on open contracts (MSIL)
(31,675) -
Net unrealized gain (loss) on open contracts (Carr) (202,330)
5,114,349
Total net unrealized gain on open contracts 360,670 5,
114,349
Total Trading Equity 85,825,061 111,464,064
Interest receivable (DWR) 336,161 383,707
Due from DWR 142,659 ______-____
Total Assets 86,303,881 111,847,771
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Redemptions payable 1,737,665 2,177,256
Management fees payable 287,227 372,503
Accrued administrative expenses 135,845 96,794
Total Liabilities 2,160,737 2,646,553
Partners' Capital
Limited Partners (39,682.444 and
44,552.639 Units, respectively)82,939,261 107,807,427
General Partner (576 Units) 1,203,883 1,393,791
Total Partners' Capital 84,143,144 109,201,218
Total Liabilities and Partners' Capital 86,303,881 111,8
47,771
NET ASSET VALUE PER UNIT 2,090.07 2,419.78
<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,
2000 1999
$ $
REVENUES
<S>
<C> <C>
Trading profit (loss):
Realized (4,804,552) 6,993,609
Net change in unrealized (5,465,497) 6,084,623
Total Trading Results (10,270,049) 13,078,232
Interest Income (DWR) 1,070,141 1,125,512
Total Revenues (9,199,908) 14,203,744
EXPENSES
Brokerage commissions (DWR) 1,276,823 1,351,067
Management fees 915,286 1,326,417
Transaction fees and costs 102,945 91,363
Administrative expenses 28,000 26,000
Incentive fees _______-___ 1,548,449
Total Expenses 2,323,054 4,343,296
NET INCOME (LOSS) (11,522,962) 9,860,448
NET INCOME (LOSS) ALLOCATION
Limited Partners (11,363,636) 9,743,517
General Partner (159,326) 116,931
NET INCOME (LOSS) PER UNIT
Limited Partners (276.61) 203.01
General Partner (276.61) 203.01
<FN>
The accompanying notes are an integral part
of these financial statements.
</TABLE>
<PAGE>
<TABLE>
DEAN WITTER PORTFOLIO STRATEGY FUND L.P.
STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
For the Six Months Ended June 30,
2000 1999
$ $
REVENUES
<S>
<C> <C>
Trading profit (loss):
Realized (6,272,200) 15,412,575
Net change in unrealized (4,753,679) (1,613,558)
Total Trading Results (11,025,879) 13,799,017
Interest Income (DWR) 2,219,816 2,206,529
Total Revenues (8,806,063) 16,005,546
EXPENSES
Brokerage commissions (DWR) 2,709,089 2,859,406
Management fees 1,990,698 2,614,600
Transaction fees and costs 212,111 202,256
Administrative expenses 62,000 52,000
Incentive fees ______-___ 1,548,449
Total Expenses
4,973,898 7,276,711
NET INCOME (LOSS) (13,779,961) 8,728,835
NET INCOME (LOSS) ALLOCATION
Limited Partners (13,590,053) 8,624,678
General Partner (189,908) 104,157
NET INCOME (LOSS) PER UNIT
Limited Partners (329.71) 180.83
General Partner (329.71) 180.83
<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, 2000 and 1999
(Unaudited)
<CAPTION>
Units of
Partnership Limited General
Interest Partners Partner Total
<S>
<C> <C> <C>
<C>
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
Partners' Capital,
December 31, 1999 45,128.639 $107,807,427 $1,393,791 $109,201,218
Net Loss
- (13,590,053) (189,908) (13,77
9,961)
Redemptions (4,870.195) (11,278,113)
- (11,278,113)
Partners' Capital,
June 30, 2000 40,258.444 $82,939,261 $1,203,883
$84,143,144
<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,
2000 1999
$ $
CASH FLOWS FROM OPERATING ACTIVITIES
<S>
<C> <C>
Net income (loss) (13,779,961) 8
,728,835
Noncash item included in net income (loss):
Net change in unrealized 4,753,679 1
,613,558
(Increase) decrease in operating assets:
Interest receivable (DWR) 47,546 (11,859)
Due from DWR (142,659)
-
Increase (decrease) in operating liabilities:
Management fees payable (85,276)
10,908
Accrued administrative expenses 39,051 27,387
Incentive fees payable _____-___
1,236,297
Net cash provided by (used for) operating activities (9,167,620)
11,605,126
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in redemptions payable(439,591) 134,016
Redemptions of Units (11,278,113)
(6,842,495)
Net cash used for financing activities (11,717,704)
(6,708,479)
Net increase (decrease) in cash (20,885,324) 4
,896,647
Balance at beginning of period 106,349,715
119,724,918
Balance at end of period 85,464,391
124,621,565
<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, 1999 Annual Report on Form 10-K.
1. Organization
Dean Witter Portfolio Strategy Fund L.P. is a Delaware 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"). Morgan Stanley & Co., Inc.
("MS & Co.") and Morgan Stanley & Co. International Limited
("MSIL") provide clearing and execution services. Prior to June
2000, Carr Futures Inc. provided clearing and execution services.
Demeter, DWR, MS & Co. and MSIL are wholly-owned subsidiaries of
Morgan Stanley Dean Witter & Co. John W. Henry & Company, Inc.
<PAGE>
DEAN WITTER PORTFOLIO STRATEGY FUND L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(the "Trading Advisor") is the trading advisor to the
Partnership.
2. Related Party Transactions
The Partnership's cash is on deposit with DWR, MS & Co., and MSIL
in futures interests trading accounts to meet margin requirements
as needed. DWR pays interest on these funds based on a prevailing
rate on U.S. Treasury bills. The Partnership pays brokerage
commissions 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 ("FASB")
issued Statement of Financial Accounting Standard ("SFAS") No.
133, "Accounting for Derivative Instruments and Hedging
Activities" effective for fiscal years beginning after June 15,
<PAGE>
DEAN WITTER PORTFOLIO STRATEGY FUND L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1999. In June 1999, the FASB issued SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of SFAS No. 133," which defers the required
implementation of SFAS No. 133 until fiscal years beginning after
June 15, 2000. However, the Partnership had previously 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 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 are reported as a
component of "Equity in futures interests trading accounts" on
the statements of financial condition and totaled $360,670 and
$5,114,349 at June 30, 2000 and December 31, 1999, respectively.
Of the $360,670 net unrealized gain on open contracts at June 30,
2000, $923,048 related to exchange-traded futures contracts and
$(562,378) related to off-exchange-traded forward currency
contracts.
<PAGE>
DEAN WITTER PORTFOLIO STRATEGY FUND L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Of the $5,114,349 net unrealized gain on open contracts at
December 31, 1999, $4,663,628 related to exchange-traded futures
contracts and $450,721 related to off-exchange-traded forward
currency contracts.
Exchange-traded futures contracts held by the Partnership at June
30, 2000 and December 31, 1999 mature through June 2001 and
December 2000, respectively. Off-exchange-traded forward
currency contracts held by the Partnership at June 30, 2000 and
December 31, 1999 mature through September 2000 and March 2000,
respectively.
The Partnership has credit risk associated with counterparty non-
performance. The credit risk associated with the instruments in
which the Partnership is involved is limited to the amounts
reflected in the Partnership's statements of financial condition.
The Partnership also has credit risk because DWR, MS & Co., and
MSIL act as the futures commission merchants or the
counterparties, with respect to most of the Partnership's assets.
Exchange-traded futures contracts are marked to market on a daily
basis, with variations in value settled on a daily basis. DWR,
MS & Co., and MSIL each as a futures commission merchant for the
Partnership's exchange-traded futures contracts, are required,
<PAGE>
DEAN WITTER PORTFOLIO STRATEGY FUND L.P.
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
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 $86,387,439 and
$111,013,343 at June 30, 2000 and December 31, 1999,
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, the Partnership is at risk to the ability of
MS & Co., the sole counterparty on all of such contracts, to
perform. The Partnership has a netting agreement with MS & Co.
This agreement, which seeks to reduce both the Partnership's and
MS & Co.'s exposure on off-exchange-traded forward currency
contracts, should materially decrease the Partnership's credit
risk in the event of MS & Co.'s bankruptcy or insolvency.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity - The Partnership deposits its assets with DWR as non-
clearing broker and MS & Co. and MSIL as clearing brokers in
separate futures trading accounts established for the Trading
Advisor, which assets are used as margin to engage in trading.
The assets are held in either non-interest-bearing bank accounts
or in securities and instruments permitted by the CFTC for
investment of customer segregated or secured funds. The
Partnership's assets held by the commodity brokers may be used as
margin solely for the Partnership's trading. Since the
Partnership's sole purpose is to trade in futures and forwards,
it is expected that the Partnership will continue to own such
liquid assets for margin purposes.
The Partnership's investment in futures and forwards, may, from
time to time, be illiquid. Most U.S. futures exchanges limit
fluctuations in prices during a single day by regulations
referred to as "daily price fluctuations limits" or "daily
limits". Trades may not be executed at prices beyond the daily
limit. If the price for a particular futures contract has
increased or decreased by an amount equal to the daily limit,
positions in that futures contract can neither be taken nor
liquidated unless traders are willing to effect trades at or
within the limit. Futures prices have occasionally moved the
daily limit for several consecutive
<PAGE>
days with little or no trading. These market conditions could
prevent the Partnership from promptly liquidating its futures
contracts and result in restrictions on redemptions.
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 prevent the Partnership from promptly liquidating
unfavorable positions in such markets, subjecting it to
substantial losses. Either of these market conditions could
result in restrictions on redemptions.
The Partnership has never had illiquidity affect a material
portion of its assets.
Capital Resources - The Partnership does not have, or expect to
have, any capital assets. Redemptions of additional units of
limited partnership interest ("Unit(s)") in the future will
affect the amount of funds available for investment in futures
interests in subsequent periods. It is not possible to estimate
the amount and therefore, the impact of future redemptions of
Units.
<PAGE>
Results of Operations
General. The Partnership's results depend on its Trading Advisor
and the ability of the Trading Advisor's trading programs to take
advantage of price movements or other profit opportunities in the
futures and forwards markets. The following presents a summary
of the Partnership's operations for the quarter and six months
ended June 30, 2000 and 1999, respectively, and a general
discussion of its trading activities during each period. It is
important to note, however, that the Trading Advisor trades in
various markets at different times and that prior activity in a
particular market does not mean that such market will be actively
traded by the Trading Advisor or will be profitable in the
future. Consequently, the results of operations of the
Partnership are difficult to discuss other than in the context of
its Trading Advisor's trading activities on behalf of the
Partnership as a whole and how the Partnership has performed in
the past.
For the Quarter and Six Months Ended June 30, 2000
For the quarter ended June 30, 2000, the Partnership recorded
total trading losses net of interest income of $9,199,908 and
posted a decrease in Net Asset Value per Unit. The most
significant losses of approximately 6.8% were recorded in the
global interest rate futures markets primarily from short German
bond futures positions, particularly during May, as prices were
pushed higher by a rise in U.S. bond prices. U.S. interest rate
<PAGE>
futures, long- and short-end of the yield curve, were also
unprofitable early in the quarter as inflation concerns drove
bond prices downward. Short U.S. interest rate futures positions
incurred additional losses later in the quarter as U.S. interest
rate future prices rallied after a 50 basis point rate hike by
the Federal Reserve. Additional losses of approximately 5.7%
were experienced in the currency markets primarily from short
Japanese yen positions as the value of the yen appreciated during
May and June due to signals that an end is near to Japan's 16-
month old zero interest rate policy and speculation that the
Japanese government was considering a stimulus package after the
G8 summit meeting in late July. In the metals markets, losses of
approximately 0.7% were incurred primarily from long silver
futures positions during late June as prices declined on fund
selling and the climb in the U.S. dollar against the euro and
other major currencies. Short gold futures positions were also
unprofitable during June as prices increased in reaction to the
U.S. dollar's weakness and the Federal Open Market Committee's
decision to leave interest rates unchanged. A portion of overall
Partnership losses was offset by gains of approximately 0.5%
recorded in the energy markets primarily from long natural gas
futures positions as prices trended higher during May, reaching
four-year highs, amid concerns that dwindling storage levels
could result in a tight market during the peak demand months of
winter. Additional gains of approximately 0.4% were recorded in
<PAGE>
the soft commodities markets primarily from short coffee futures
positions throughout the quarter with prices falling during June
to their lowest levels since October 22 amid continued pressure
from bearish technical factors and large warehouse supplies.
Long sugar futures positions were also profitable as prices
trended to 22-month highs during June due to strong demand and
declining production from Brazil. In the global stock index
futures markets, gains of approximately 0.4% resulted primarily
from short DAX Index futures positions as prices dropped on
profit-taking due to weakness in U.S. stock prices. Total
expenses for the three months ended June 30, 2000 were
$2,323,054, resulting in a net loss of $11,522,962. The value of
a Unit decreased from $2,366.68 at March 31, 2000 to $2,090.07 at
June 30, 2000.
For the six months ended June 30, 2000, the Partnership recorded
total trading losses net of interest income of $8,806,063 and
posted a decrease in Net Asset Value per Unit. The most
significant losses of approximately 9.2% were recorded in the
global interest rate futures markets primarily from short German
bund futures positions, particularly during May, as prices were
pushed higher by the rise in U.S. prices. Additional losses of
approximately 5.3% were experienced in the currency markets
primarily from short Japanese yen positions as the value of the
yen appreciated during May and June due to indications of strong
first-quarter growth, signals of an end to Japan's zero interest
<PAGE>
rate policy and speculation that the Japanese government was
considering a stimulus package after the G8 summit meeting in
late July. In the metals markets, losses of approximately 3.0%
resulted primarily from short gold futures positions as prices
spiked higher during February following an announcement by a
large producer that it was suspending gold hedging activities.
Newly established long positions resulted in additional losses as
gold prices fell in February from the weakness in the Australian
dollar and the sale of seven tons of gold by the Dutch central
bank. Short gold futures positions were also unprofitable during
June as prices increased in reaction to the U.S. dollar's
weakness and the Federal Open Market Committee's decision to
leave interest rates unchanged. Smaller losses of approximately
0.1% were recorded in the global stock index futures markets
primarily from long S&P 500 Index futures positions as most
global equity prices reversed lower during January amid fears of
interest rate hikes and investors' profit-taking. These losses
were partially offset by gains recorded from short DAX Index
futures positions as prices dropped on profit-taking and due to
weakness in U.S. stock prices. A portion of overall Partnership
losses was offset by gains of approximately 4.2% recorded in the
energy markets primarily from long natural gas futures positions
as prices reached four-year highs during May amid concerns about
dwindling storage levels ahead of the peak demand months of
winter. Long futures positions in crude oil and its refined
products were also profitable as oil prices powered to nine-year
highs during the first quarter on
<PAGE>
concerns about future output levels amid dwindling stockpiles and
increasing demand. Additional gains of approximately 0.4% were
experienced in the soft commodities markets from long sugar
futures positions as prices trended to 22-month highs during June
due to strong demand and declining production from Brazil. Short
sugar futures positions also resulted in gains during February as
prices plunged to a nine-month low on fears of a world glut.
Short coffee futures positions were profitable as prices fell
during June to their lowest levels since October 22 amid
continued pressure from bearish technical factors and large
warehouse supplies. Total expenses for the six months ended June
30, 2000 were $4,973,898, resulting in a net loss of $13,779,961.
The value of a Unit decreased from $2,419.78 at December 31, 1999
to $2,090.07 at June 30, 2000.
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 of approximately 4.8% were experienced in the
global interest rate futures markets primarily from long Japanese
government bond futures positions as prices rallied during April
after the government proposed no new economic spending plan.
Investors continued to choose higher yielding long-term debt
instruments as opposed to short-term Japanese interest rate
investments during May thus resulting in additional profits.
<PAGE>
Short positions in U.S. bond 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 of
approximately 2.5% were recorded in the currency markets
primarily 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 of approximately 1.8% were recorded
primarily from long crude oil futures positions early in the
quarter 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
of approximately 0.7% were experienced in the global stock index
futures markets primarily from long Nikkei Index futures
positions as the Japanese benchmark index reached its highest
level in more than a year and a half during June encouraged by
recent economic growth data in Japan. These gains were partially
offset by losses of approximately 0.4% in the soft commodities
markets primarily from long coffee futures positions as prices
<PAGE>
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 of approximately
0.4% were incurred in the metal markets primarily from short
silver futures positions as silver prices were boosted higher
during April by perceptions of tightening supply levels and
technically-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 of approximately 5.1% were recorded in the
currency markets primarily 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 of
approximately 3.3% were recorded in the energy markets primarily
from long crude oil futures positions as oil prices moved
significantly higher during March on news that both OPEC and non-
<PAGE>
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 of approximately 1.1% were recorded in the global
stock index futures positions primarily 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 of approximately 0.4% were recorded
primarily from long Japanese bond futures positions during the
second quarter as prices moved higher due to no new economic
spending plan. A portion of these gains was offset by losses of
approximately 1.8% in the metals markets primarily 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 of
approximately 0.5% were recorded in the soft commodities markets
primarily 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
<PAGE>
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.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Introduction
The Partnership is a commodity pool involved in the speculative
trading of futures interests. The market-sensitive instruments
held by the Partnership are acquired for speculative trading
purposes only and, as a result, all or substantially all of the
Partnership's assets are at risk of trading loss. Unlike an
operating company, the risk of market-sensitive instruments is
central, not incidental, to the Partnership's main business
activities.
The futures interests traded by the Partnership involve varying
degrees of market risk. Market risk is often dependent upon
changes in the level or volatility of interest rates, exchange
rates, and prices of financial instruments and commodities.
Fluctuations in market risk based upon these factors result in
frequent changes in the fair value of the Partnership's open
positions, and, consequently, in its earnings and cash flow.
The Partnership's total market risk is influenced by a wide
variety of factors, including the diversification among the
Partnership's open positions, the volatility present within the
<PAGE>
markets, and the liquidity of the markets. At different times,
each of these factors may act to increase or decrease the market
risk associated with the Partnership.
The Partnership's past performance is not necessarily indicative
of its future results. Any attempt to numerically quantify the
Partnership's market risk is limited by the uncertainty of its
speculative trading. The Partnership's speculative trading may
cause future losses and volatility (i.e. "risk of ruin") that far
exceed the Partnership's experiences to date or any reasonable
expectations based upon historical changes in market value.
Quantifying the Partnership's Trading Value at Risk
The following quantitative disclosures regarding the 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 using mark-to-market
accounting principles. Any loss in the market value of the
Partnership's open positions is directly reflected in the
<PAGE>
Partnership's earnings, whether realized or unrealized, and cash
flow. Profits and losses on open positions of exchange-traded
futures interests are settled daily through variation margin.
The Partnership's risk exposure in the market sectors traded by
the Trading Advisor is estimated below in terms of Value at Risk
("VaR"). The VaR model used by the Partnership includes many
variables that could change the market value of the Partnership's
trading portfolio. The Partnership estimates VaR using a model
based upon historical simulation with a confidence level of 99%.
Historical simulation involves constructing a distribution of
hypothetical daily changes in the value of a trading portfolio.
The VaR model takes into account linear exposures to price and
interest rate risk. Market risks that are incorporated in the
VaR model include equity and commodity prices, interest rates,
foreign exchange rates, and correlation among these variables.
The hypothetical changes in portfolio value are based on daily
percentage changes observed in key market indices or other market
factors ("market risk factors") to which the portfolio is
sensitive. The historical observation period of the Partner-
ship's VaR is approximately four years. The one-day 99%
confidence level of the Partnership's VaR corresponds to the
negative change in portfolio value that, based on observed market
risk factors, would have been exceeded once in 100 trading days.
<PAGE>
VaR models, including the Partnership's, are continuously
evolving as trading portfolios become more diverse and modeling
techniques and systems capabilities improve. Please note that
the VaR model is used to numerically quantify market risk for
historic reporting purposes only and is not utilized by either
Demeter or the Trading Advisor in its daily risk management
activities.
The Partnership's Value at Risk in Different Market Sectors
The following tables indicates the VaR associated with the
Partnership's open positions as a percentage of total Net Assets
by primary market risk category as of June 30, 2000 and 1999. As
of June 30, 2000 and 1999, the Partnership's total capitalization
was approximately $84 million and $133 million, respectively.
Primary Market June 30, 2000 June 30, 1999
Risk Category Value at Risk Value at Risk
Currency (1.75)% (2.43)%
Interest Rate (2.07) (1.75)
Equity (0.67) (0.33)
Commodity (1.46) (0.69)
Aggregate Value at Risk (2.85)% (2.73)%
Aggregate Value at Risk represents the aggregate VaR of all the
Partnership's open positions and not the sum of the VaR of the
<PAGE>
individual Market Categories listed above. Aggregate VaR will be
lower as it takes into account correlation among different
positions and categories.
The table above represents the VaR of the Partnership's open
positions at June 30, 2000 and 1999 only and is not necessarily
representative of either the historic or future risk of an
investment in the Partnership. Because the Partnership's only
business is the speculative trading of futures interests, the
composition of its trading portfolio can change significantly
over any given time period, or even within a single trading day.
Any changes in open positions could positively or negatively
materially impact market risk as measured by VaR.
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,
1999 through June 30, 2000.
Primary Market Risk Category High Low Average
Currency (2.88)% (1.73)% (2.20)%
Interest Rate (2.07) (1.50) (1.81)
Equity (0.75) (0.33) (0.58)
Commodity (1.46) (0.63) (1.01)
Aggregate Value at Risk (3.42)% (2.73)% (3.02)%
<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
requirements. Margin requirements generally range between 2% and
15% of contract face value. Additionally, the use of leverage
causes the face value of the market sector instruments held by
the Partnership to typically be many times the total
capitalization of the Partnership. The value of the
Partnership's open positions thus creates a "risk of ruin" not
typically found in other investments. The relative size of the
positions held may cause the Partnership to incur losses greatly
in excess of VaR within a short period of time, given the effects
of the leverage employed and market volatility. The VaR tables
above, as well as the past performance of the Partnership, gives
no indication of such "risk of ruin". In addition, VaR risk
measures should be viewed in light of the methodology's
limitations, which include the following:
past changes in market risk factors will not always result
in accurate predictions of the distributions and correlations of
future market movements;
changes in portfolio value in response to market movements
may differ from those of the VaR model;
VaR results reflect past trading positions while future risk
depends on future positions;
<PAGE>
VaR using a one-day time horizon does not fully capture the
market risk of positions that cannot be liquidated or hedged
within one day; and
the historical market risk factor data used for VaR
estimation may provide only limited insight into losses that
could be incurred under certain unusual market movements.
The VaR tables above present the results of the Partnership's VaR
for each of the Partnership's market risk exposures and on an
aggregate basis at June 30, 2000 and for the end of the four
quarterly reporting periods from July 1, 1999 through June 30,
2000. Since VaR is based on historical data, VaR should not be
viewed as predictive of the Partnership's future financial
performance or its ability to manage or monitor risk. There can
be no assurance that the Partnership's actual losses on a
particular day will not exceed the VaR amounts indicated above or
that such losses will not occur more than 1 in 100 trading days.
Non-Trading Risk
The Partnership has non-trading market risk on its foreign cash
balances not needed for margin. These balances and any market
risk they may represent are immaterial. At June 30, 2000 the
Partnership's cash balance at DWR was approximately 85% of its
total Net Asset Value. A decline in short-term interest rates
will result in a decline in the Partnership's cash management
<PAGE>
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 any
associated potential losses, taking into account the leverage,
optionality and multiplier features of the Partnership's market-
sensitive instruments.
Qualitative Disclosures Regarding Primary Trading Risk Exposures
The following qualitative disclosures regarding the Partnership's
market risk exposures - except for (A) those disclosures that are
statements of historical fact and (B) the descriptions of how the
Partnership manages its primary market risk exposures -
constitute forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the
Securities Exchange Act. The Partnership's primary market risk
exposures as well as the strategies used and to be used by
Demeter and the Trading 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
<PAGE>
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, 2000, by market sector. It may be
anticipated however, that these market exposures will vary
materially over time.
Currency. The primary market exposure in the Partnership at June
30, 2000 was in the currency sector. 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 second quarter of 2000, 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
<PAGE>
Partnership in expressing VaR in a functional currency other than
dollars.
Interest Rate. The second largest market exposure at June 30,
2000 was in the global interest rate complex. Exposure was
primarily spread across the Japanese, U.S., European 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. The G-7 countries consist of France, U.S., Britain,
Germany, Japan, Italy and Canada. 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
<PAGE>
Partnership, were the medium- to long-term rates to remain
steady.
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, 2000, the Partnership's primary
exposures were in the DAX (Germany) and S&P 500 (U.S.) 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 June 30, 2000, the Partnership's energy exposure was
shared primarily by futures contracts in the crude oil and
natural gas markets. Price movements in these markets result
from political developments in the Middle East, weather patterns,
and other economic fundamentals. It is possible that volatility
will remain high. Significant profits and losses, which have
been experienced in the past, are expected to continue to be
experienced in this market. Natural gas has exhibited volatility
in prices resulting from weather patterns and supply and demand
factors and may continue in this choppy pattern.
<PAGE>
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 aluminum, copper and nickel, the principal market exposures of
the Partnership have consistently been in precious metals, gold
and silver. Exposure was evident in the gold market as gold
prices were volatile during the quarter. Silver prices have
remained volatile over this period, and the Trading Advisor has,
from time to time, taken positions as they have perceived market
opportunities to develop. Demeter anticipates that gold and
silver will remain the primary metals market exposure for the
Partnership.
Soft Commodities and Agriculturals. On June 30, 2000, the
Partnership had 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 June 30, 2000:
Foreign Currency Balances. The Partnership's primary foreign
currency balances are in the Japanese yen and euros. The
<PAGE>
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 Partnership and the Trading Advisor, separately, attempt to
manage the risk of the Partnership's open positions in
essentially the same manner in all market categories traded.
Demeter attempts to manage market exposure by diversifying the
Partnership's assets among different market sectors and trading
approaches, and monitoring the performance of the Trading Advisor
daily. 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. Cash 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 Form 10-Q for the quarter ended March 31,
2000 and Form 10-K for the year ended December 31, 1999:
On October 25, 1996, the Market Surveillance Committee (the
"Committee") of the National Association of Securities Dealers
("NASD") filed a formal complaint against MS & Co. and seven
current and former traders, alleging violations of certain NASD
rules relating to manipulative and deceptive practices, locked
and crossed markets, and failure to supervise. Hearings were
held in June and July 1997. On April 13, 1998 the Committee
ruled that MS & Co. and the seven traders had engaged in
manipulative and deceptive practices and improperly locked or
crossed markets, but not that MS & Co. had failed to supervise
its traders. The Committee levied a fine of $1,000,000 on MS &
Co., a fine of $100,000 and a 90-day suspension on one of its
former traders, and fines of $25,000 and 30-day suspensions on
each of the remaining current and former traders. On January 18,
2000 the National Adjudicatory Council, which heard the appeal,
issued a ruling which upheld the Committee's April 1998 decision,
however, the National Adjudicatory Council reduced the firm's
fine to $495,000, reversed all previously imposed suspensions
against the traders, reduced the fine for each of six traders to
<PAGE>
$2,500 and dismissed all charges against the seventh trader.
On January 11, 1999, the Securities and Exchange Commission
brought an action against 28 NASDAQ market makers, including MS &
Co., and 51 individuals, including one current and one former
trader employed by MS & Co., for certain conduct during 1994.
The core of the charges against MS & Co. concerns improper or
undisclosed coordination of price quotes with other broker-
dealers and related reporting, recordkeeping and supervisory
deficiencies in violation of Sections 15(b)(4)(E), 15(c)(1) and
(2) and 17(a) of the Securities Exchange Act and Rules 15c1-2,
15c2-7 and 17a-3 promulgated thereunder. Without admitting or
denying the charges, MS & Co. consented to the entry of a cease
and desist order and to the payment of a civil penalty of
$350,000, disgorgement of $4,170 and to submit certain of its
procedures to an independent consultant for review. In addition,
one current and one former trader employed by MS & Co. accepted
suspensions of less than two months each and were fined $25,000
and $30,000 respectively.
Item 5. OTHER INFORMATION
Effective July 1, 2000, Lewis A. Raibley, III resigned as Chief
Financial Officer and a Director of Demeter and Dean Witter
Futures Currency Management Inc. Effective July 10, 2000,
Raymond E. Koch replaced Lewis A. Raibley, III as Chief Financial
Officer of Demeter.
<PAGE>
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits
3.01 Limited Partnership Agreement of the Partnership, dated as
of August 28, 1990 is incorporated by reference to Exhibit 3.01
and Exhibit 3.02 of the Partnership's Registration Statement on
Form S-1 (File No. 33-36656).
10.01 Form of Amended and Restated Management Agreement among
the Partnership, Demeter and JWH dated as of May 12, 1997 is
incorporated by reference to Exhibit 10.02 of the Partnership's
Registration Statement on form S-1 (File No. 333-24109).
10.02 Form of Amended and Restated Customer Agreement between
the Partnership and DWR Inc dated as of September 1, 1996 is
incorporated by reference to Exhibit 10.02 of the Partnership's
Registration Statement on form S-1 (File No. 333-24109).
10.03 Amended and Restated Customer Agreement dated as of
December 1, 1997, between the Partnership and Dean Witter
Reynolds Inc. is incorporated by reference to Exhibit 10.02 of
the Partnership's Quarterly Report on Form 10-Q for the quarter
ended March 31, 2000, File No. 0-19046.
10.04 Customer Agreement dated as of December 1, 1997,
between the Partnership, Carr Futures, Inc., and Dean Witter
Reynolds Inc. is incorporated by reference to Exhibit 10.03 of
the Partnership's Quarterly Report on Form 10-Q for the quarter
ended March 31, 2000, File No. 0-19046.
10.05 International Foreign Exchange Master Agreement dated
as of August 1, 1997, between the Partnership and Carr Futures,
Inc. is incorporated by reference to Exhibit 10.04 of the
Partnership's Quarterly Report on Form 10-Q for the quarter ended
March 31, 2000, file No. 0-19046.
10.06 Customer Agreement, dated as of May 1, 2000 between
Morgan Stanley & Co. Incorporated, the Partnership and Dean
Witter Reynolds Inc. is filed herewith.
(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 11, 2000 By:/s/Raymond E. Koch __________
Raymond E. Koch
Chief Financial Officer
The General Partner which signed the above is the only party
authorized to act for the Registrant. The Registrant has no
principal executive officer, principal financial officer,
controller, or principal accounting officer and has no Board of
Directors.
