UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended September 30, 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
September 30, 2000
<CAPTION>
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements
Statements of Financial Condition
September 30, 2000 (Unaudited) and December 31, 1999....2
Statements of Operations for the Quarters Ended
September 30, 2000 and 1999 (Unaudited).................3
Statements of Operations for the Nine Months Ended
September 30, 2000 and 1999 (Unaudited).................4
Statements of Changes in Partners' Capital for the
Nine Months Ended September 30, 2000 and 1999
(Unaudited).............................................5
Statements of Cash Flows for the Nine Months Ended
September 30, 2000 and 1999 (Unaudited).................6
Notes to Financial Statements (Unaudited) ...........7-12
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations.......................................13-23
Item 3. Quantitative and Qualitative Disclosures
about Market Risk ...............................23-35
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...................................36
Item 5. Other Information...................................36
Item 6. Exhibits and Reports on Form 8-K.................36-
37
</TABLE>
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
DEAN WITTER PORTFOLIO STRATEGY FUND L.P.
STATEMENTS OF FINANCIAL CONDITION
<CAPTION>
September 30, December 31,
2000 1999 $
$
(Unaudited)
ASSETS
<S> <C> <C>
Equity in futures interests trading accounts:
Cash 77,336,213 106,349,715
Net unrealized gain on open contracts (MSIL)36,523 -
Net unrealized gain (loss) on open contracts (Carr)(27,544)
5,114,349
Net unrealized loss on open contracts (MS & Co.)
(4,121,450) -
Total net unrealized gain (loss) on open contracts(4,112,471)
5,114,349
Total Trading Equity 73,223,742 111,464,064
Interest receivable (DWR) 334,775 383,707
Due from DWR
174,081 - _
Total Assets 73,732,598 111,847,771
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Redemptions payable 1,478,130 2,177,256
Management fees payable 245,294 372,503
Accrued administrative expenses 144,468 96,794
Total Liabilities 1,867,892 2,646,553
Partners' Capital
Limited Partners (37,364.976 and
44,552.639 Units, respectively) 70,773,694 107,807,427
General Partner (576 Units) 1,091,012 1,393,791
Total Partners' Capital 71,864,706 109,201,218
Total Liabilities and Partners' Capital73,732,598 111,8
47,771
NET ASSET VALUE PER UNIT 1,894.12 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 September 30,
2000 1999
$ $
REVENUES
<S> <C> <C>
Trading profit (loss):
Realized (2,211,418) 2, 667,394
Net change in unrealized (4,473,141) (9,068,839)
Total Trading Results (6,684,559) (6,401,445)
Interest Income (DWR) 1,007,333 1,205,901
Total Revenues (5,677,226) (5,195,544)
EXPENSES
Brokerage commissions (DWR) 1,104,091 1,450,549
Management fees 788,769 1,265,929
Transaction fees and costs 61,300 102,348
Administrative expenses 29,000 27,000
Total Expenses 1,983,160 2,845,826
NET LOSS (7,660,386) (8,041,370)
NET LOSS ALLOCATION
Limited Partners (7,547,515) (7,944,079)
General Partner (112,871) (97,291)
NET LOSS PER UNIT
Limited Partners (195.95) (168.91)
General Partner (195.95) (168.91)
<FN>
The accompanying notes are an integral part
of these financial statements.
</TABLE>
<PAGE>
<TABLE>
DEAN WITTER PORTFOLIO STRATEGY FUND L.P.
STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
For the Nine Months Ended September 30,
2000 1999
$ $
REVENUES
<S> <C> <C>
Trading profit (loss):
Realized (8,483,618) 18,079,969
Net change in unrealized (9,226,820) (10,682,397)
Total Trading Results (17,710,438) 7,397,572
Interest Income (DWR) 3,227,149 3,412,430
Total Revenues (14,483,289) 10,810,002
EXPENSES
Brokerage commissions (DWR) 3,813,180 4,309,955
Management fees 2,779,467 3,880,529
Transaction fees and costs 273,411 304,604
Administrative expenses 91,000 79,000
Incentive fees
- 1,548,449
Total Expenses
6,957,058 10,122,537
NET INCOME (LOSS) (21,440,347) 687,465
NET INCOME (LOSS) ALLOCATION
Limited Partners (21,137,568) 680,599
General Partner (302,779) 6,866
NET INCOME (LOSS) PER UNIT
Limited Partners (525.66) 11.92
General Partner (525.66) 11.92
<FN>
The accompanying notes are an integral part
of these financial statements.
</TABLE>
<PAGE>
<TABLE>
DEAN WITTER PORTFOLIO STRATEGY FUND L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
For the Nine Months Ended September 30, 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
- 680,599 6,866 687,465
Redemptions (3,570.742) (9,404,597)
- (9,404,597)
Partners' Capital,
September 30, 1999 46,907.508 $120,914,098 $1,503,222
$122,417,320
Partners' Capital,
December 31, 1999 45,128.639 $107,807,427
$1,393,791 $109,201,218
Net Loss - (21,137,568) (302,779)
(21,440,347)
Redemptions (7,187.663) (15,896,165)
- (15,896,165)
Partners' Capital,
September 30, 2000 37,940.976 $70,773,694
$1,091,012 $71,864,706
<FN>
The accompanying notes are an integral part
of these financial statements.
</TABLE>
<PAGE>
<TABLE>
DEAN WITTER PORTFOLIO STRATEGY FUND L.P.
STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
For the Nine Months Ended September 30,
2000 1999
$ $
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income (loss) (21,440,347) 687,465
Noncash item included in net income (loss):
Net change in unrealized 9,226,820 1
0,682,397
(Increase) decrease in operating assets:
Interest receivable (DWR) 48,932 (42,130)
Due from DWR (174,081)
(6,630)
Increase (decrease) in operating liabilities:
Management fees payable (127,209)
(31,694)
Accrued administrative expenses 47,674 37,705
Incentive fees payable
- (305,087)
Net cash provided by (used for) operating activities(12,418,211)
11,022,026
CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in redemptions payable (699,126) (
452,034) Redemptions of
Units (15,896,165) (9,404,597)
Net cash used for financing activities(16,595,291)
(9,856,631)
Net increase (decrease) in cash (29,013,502) 1
,165,395
Balance at beginning of period 106,349,715
119,724,918
Balance at end of period 77,336,213
120,890,313
<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 unaudited financial statements contained herein 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. Demeter, DWR,
MS & Co. and MSIL are wholly-owned subsidiaries of Morgan Stanley
Dean Witter & Co. John W. Henry & Company, Inc. (the "Trading
-
<PAGE>
DEAN WITTER PORTFOLIO STRATEGY FUND L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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,
2000, as amended by SFAS No. 137. The Partnership adopted the
<PAGE>
DEAN WITTER PORTFOLIO STRATEGY FUND L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
provisions of SFAS No. 133 beginning with the fiscal year ended
December 31, 1998. SFAS No. 133 superceded SFAS Nos. 119 and
105, which required the disclosure of average aggregate fair
values and contract/notional values, respectively, of derivative
financial instruments for an entity that carries its assets at
fair value. SFAS No. 133 was further amended by SFAS No. 138,
which clarifies issues surrounding interest rate risk, foreign
currency denominations, normal purchases and sales and net
hedging. The application of SFAS No. 133, as amended by SFAS No.
137, did not have a significant effect on the Partnership's
financial statements, nor will the application of the provisions
of SFAS No. 138 have a significant effect on the Partnership's
financial statements.
SFAS No. 133 defines a derivative as a financial instrument or
other contract that has all three of the following
characteristics:
1) One or more underlying notional amounts or payment
provisions;
2) Requires no initial net investment or a smaller initial net
investment than would be required relative to changes in market
factors;
<PAGE>
DEAN WITTER PORTFOLIO STRATEGY FUND L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3) Terms require or permit net settlement.
Generally derivatives include futures, forwards, swaps or option
contracts, or other financial instruments with similar
characteristics such as caps, floors and collars.
The net unrealized gains (losses) on open contracts are reported
as a component of "Equity in futures interests trading accounts"
on the statements of financial condition and totaled $(4,112,471)
and $5,114,349 at September 30, 2000 and December 31, 1999,
respectively.
Of the $4,112,471 net unrealized loss on open contracts at
September 30, 2000, $2,273,824 related to exchange-traded futures
contracts and $1,838,647 related to off-exchange-traded forward
currency contracts.
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.
<PAGE>
DEAN WITTER PORTFOLIO STRATEGY FUND L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Exchange-traded futures contracts held by the Partnership at
September 30, 2000 and December 31, 1999 mature through September
2001 and December 2000, respectively. Off-exchange-traded
forward currency contracts held by the Partnership at September
30, 2000 and December 31, 1999 mature through December 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,
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 (loss) on all open
<PAGE>
DEAN WITTER PORTFOLIO STRATEGY FUND L.P.
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
futures contracts, which funds, in the aggregate, totaled
$75,062,389 and $111,013,343 at September 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 (loss) 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 quarters and nine months
ended September 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 Nine Months Ended September 30, 2000
For the quarter ended September 30, 2000, the Partnership
recorded total trading losses net of interest income of
$5,677,226 and posted a decrease in Net Asset Value per Unit.
The most significant losses of approximately 4.9% were recorded
in the global interest rate futures markets primarily from short
Japanese bond futures positions as prices surged and long-term
interest rates dropped during mid September as investors sought
refuge from recent drops in U.S. and Japanese stock prices.
<PAGE>
Additional losses of approximately 3.5% were experienced in the
currency markets primarily from trading the Japanese yen during
August as the yen drew support from rising expectations that
Japan's second quarter gross domestic product data will show
convincing strength in the wake of surprisingly robust all-
industries figures. In the global stock index futures markets,
losses of approximately 2.4% were incurred primarily from short
positions in DAX (Germany) Index futures as prices moved in a
trendless pattern throughout a majority of the quarter. Smaller
losses of approximately 0.4% were recorded in the metals markets
primarily from long gold futures positions during July as gold
prices fell after the Bank of England announced the results of
its gold auction, which had concluded at a lower price than most
dealers expected. A portion of overall Partnership losses was
offset by gains of approximately 1.7% recorded in the energy
markets primarily from long futures positions during August with
Brent crude oil prices hitting 10-year highs and U.S. crude oil
coming within $1 of a new post-Gulf War record amid evidence of
historically low U.S. oil stocks. Additional gains of
approximately 0.1% were recorded in the agricultural markets
primarily from trading corn futures during July on expectations
for a very good harvest this year and further increases in the
amount of grain in storage. Total expenses for the three months
ended September 30, 2000 were $1,983,160, resulting in a net loss
of $7,660,386. The value of a Unit decreased from $2,090.07 at
June 30, 2000 to $1,894.12 at September 30, 2000.
<PAGE>
For the nine months ended September 30, 2000, the Partnership
recorded total trading losses net of interest income of
$14,483,289 and posted a decrease in Net Asset Value per Unit.
The most significant losses of approximately 12.9% 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 a rise in U.S. prices. Short Japanese bond
futures positions also contributed to losses in this complex as
prices surged and long-term interest rates dropped during mid-
September as investors sought refuge from recent drops in U.S.
and Japanese stock prices. Additional losses of approximately
8.0% 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 rate policy
and speculation that the Japanese government was considering an
economic stimulus package. Trading the Japanese yen during
August resulted in additional losses as the yen drew support from
rising expectations that Japan's second quarter gross domestic
product data would show convincing strength in the wake of
surprisingly robust all-industries figures. In the metals
markets, losses of approximately 3.3% were experienced primarily
from short gold futures positions as price spiked higher during
February following an announcement by a large producer that it
was suspending gold hedging activities. Newly established long
<PAGE>
positions resulted in additional losses as prices fell later in
the month from the weakness in the Australian dollar and the sale
of seven tons of gold by the Dutch central bank. In the global
stock index futures markets, losses of approximately 2.0% were
recorded 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. Long
positions in U.S. stock index futures also resulted in losses
during September as domestic stock prices declined due to jitters
in the technology sector, a worrisome spike in oil prices and re-
emerging fear of inflation and higher interest rates. A portion
of overall Partnership losses was offset by gains of
approximately 5.5% recorded in the energy markets primarily from
long futures positions in crude oil and its refined products as
oil prices powered to nine-year highs during the first quarter on
concerns about future output levels amid dwindling stockpiles and
increasing demand. Additional gains were recorded during August
with Brent crude oil prices hitting 10-year highs and U.S. crude
oil coming within $1 of a new post-Gulf War record amid evidence
of historically low U.S. oil stocks. Long natural gas futures
positions were also profitable as prices reached four-year highs
during May amid concerns about dwindling stockpiles and
increasing demand. Gains of approximately 0.4% were experienced
in the soft commodities markets primarily 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
<PAGE>
futures positions also resulted in gains during February as
prices plunged to a nine-month low on fears of a world glut.
Total expenses for the nine months ended September 30, 2000 were
$6,957,058, resulting in a net loss of $21,440,347. The value of
a Unit decreased from $2,419.78 at December 31, 1999 to $1,894.12
at September 30, 2000.
For the Quarter and Nine Months Ended September 30, 1999
For the quarter ended September 30, 1999, the Partnership
recorded total trading losses net of interest income of
$5,195,544 and posted a decrease in Net Asset Value per Unit. The
most significant losses of approximately 3.8% were experienced in
the global interest rate futures markets primarily during
September from short Japanese government bond futures positions
as prices rallied on the strength of the Japanese yen and
expectations that additional monetary easing in that country
would come. Losses were also recorded in U.S. interest rate
futures trading as domestic bond prices moved in an erratic
sideways pattern throughout September as the future direction of
U.S. interest rates remained in question. Additional losses of
approximately 3.1% were experienced in the metals markets
primarily during September from short gold futures positions as
gold prices, which had trended lower in previous months, reversed
sharply higher following the Bank of England's second gold
auction and an announcement of a plan by several European central
banks to restrict gold sales for five years. Short silver
futures
<PAGE>
positions resulted in losses during July as prices increased
after a fall in U.S. market reserves and the announcement of a
cutback in metal production. Newly established long positions in
this market held during August resulted in additional losses as
prices declined due to an increase in supplies. In the global
stock index futures markets, losses of approximately 1.4% were
recorded in the global stock index futures markets primarily from
long S&P 500 Index futures positions as prices declined during
July after Federal Reserve Chairman Alan Greenspan said that the
U.S. economy may be growing fast enough to warrant a second
interest rate increase. During August, short S&P 500 Index
futures positions resulted in losses as prices increased after
the Producer Price Index for July showed that inflation remained
under control. In the currency markets, losses of approximately
1.2% were incurred primarily from long positions in the euro and
the Swiss franc as the U.S. dollar rallied higher versus most
major currencies on August 23 amid a rally in U.S. stock prices
and on September 10 after an intervention by the Bank of Japan.
As a result, new short positions were established in the euro and
the Swiss franc only to result in additional losses as these
currencies strengthened versus the U.S. dollar during the latter
half of September. These losses were partially offset by gains
from long Japanese yen positions as the value of the yen climbed
to a 44-month high versus the U.S. dollar amid continued optimism
regarding the Japanese economy. A portion of the Partnership's
overall losses was offset by gains of approximately 3.3% recorded
<PAGE>
in the energy markets throughout the quarter primarily from long
crude oil futures positions as oil prices mounted higher during
July after a fall in U.S. oil inventories, production
difficulties in Nigeria and continued adherence to output
reductions from OPEC countries. Oil prices continued to climb
during August and September on increased demand, fears of
production problems and an announcement by OPEC ministers
confirming that they will uphold their global cutbacks until
April of next year. Total expenses for the three months ended
September 30, 1999 were $2,845,826, resulting in a net loss of
$8,041,370. The value of a Unit decreased from $2,778.67 at June
30, 1999 to $2,609.76 at September 30, 1999.
For the nine months ended September 30, 1999, the Partnership
recorded total trading revenues including interest income of
$10,810,002 and posted an increase in Net Asset Value per Unit.
The most significant gains of approximately 6.7% recorded in the
energy markets primarily from long crude oil futures positions as
oil prices climbed higher during April, June, August and
September amid tightening of supply and growing global demand.
Additional gains of approximately 3.9% were recorded in the
currency markets primarily from short positions in the euro as
the value of the U.S. dollar strengthened versus the euro
throughout a majority of the first half of the year on the
strength in the U.S. economy, concerns pertaining to the economic
<PAGE>
health of Europe and Japan, and ongoing military action in
Yugoslavia. A portion of the Partnership's overall gains was
offset by losses of approximately 4.9% recorded in the metals
markets primarily from long silver futures positions as prices
retreated during mid-March after Berkshire Hathaway's annual
report failed to provide any new information on the company's
silver positions. Additional losses were incurred in this market
during the second quarter as supply and demand concerns resulted
in short-term price volatility. In the global interest rate
futures markets, losses of approximately 3.6% were incurred
primarily during July and September from short Japanese
government bond futures positions as prices rallied on fears that
strength in the Japanese yen would slowdown that country's
budding recovery. In the global stock index futures markets,
losses of approximately 0.4% were experienced primarily from long
S&P 500 Index futures positions as prices declined during July
after Federal Reserve Chairman Alan Greenspan said that the U.S.
economy may be growing fast enough to warrant a second interest
rate increase. During August, short S&P 500 Index futures
positions resulted in losses as prices increased after the
Producer Price Index for July showed that inflation remained
under control. The losses in this market were partially offset
by gains from long Nikkei Index futures positions as Japanese
equity prices experienced a strong upward move during June on
news that Japan's gross domestic product had grown much more than
market expectations. Total expenses for the nine months ended
<PAGE>
September 30, 1999 were $10,122,537, resulting in net income of
$687,465. The value of a Unit increased from $2,597.84 at
December 31, 1998 to $2,609.76 at September 30, 1999.
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
<PAGE>
Partnership's open positions, the volatility present within the
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
<PAGE>
Partnership's open positions is directly reflected in the
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 table indicates the VaR associated with the
Partnership's open positions as a percentage of total Net Assets
by primary market risk category as of September 30, 2000 and
1999. As of September 30, 2000 and 1999, the Partnership's total
capitalization was approximately $72 million and $122 million,
respectively.
Primary Market September 30, 2000 September 30, 1999
Risk Category Value at Risk Value at Risk
Currency (2.38)% (2.26)%
Interest Rate (1.10) (1.57)
Equity (1.12) (0.42)
Commodity (1.71) (0.99)
Aggregate Value at Risk (3.22)% (2.83)%
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 September 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 October
1, 1999 through September 30, 2000.
Primary Market Risk Category High Low Average
Currency (2.38)% (1.37)% (1.81)%
Interest Rate (2.07) (0.86) (1.49)
Equity (1.12) (0.40) (0.73)
Commodity (1.71) (0.66) (1.27)
Aggregate Value at Risk (3.22)% (1.72)% (2.72)%
<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, give
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 September 30, 2000 and for the end of the four
quarterly reporting periods from October 1, 1999 through
September 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 September 30, 2000 the
Partnership's cash balance at DWR was approximately 87% of its
total Net Asset Value. A decline in short-term interest rates
<PAGE>
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 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
<PAGE>
result in material losses as well as in material changes to the
risk exposures and the risk management strategies of the
Partnership. Investors must be prepared to lose all or
substantially all of their investment in the Partnership.
The following were the primary trading risk exposures of the
Partnership as of September 30, 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
September 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 third 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 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
<PAGE>
adjustment to reflect the exchange rate risk inherent to the
dollar-based Partnership in expressing VaR in a functional
currency other than dollars.
Interest Rate. The second largest market exposure at September
30, 2000 was in the global interest rate complex. Exposure was
primarily spread across the Japanese, U.S. and European 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 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
<PAGE>
rates would have little effect on the Partnership, were the
medium- to long-term rates to remain steady.
Equity. The primary equity exposure at September 30, 2000 was
to equity price risk in the G-7 countries. The stock index
futures traded by the Partnership are by law limited to futures
on broadly based indices. As of September 30, 2000, the
Partnership's primary exposures were in the NASDAQ (U.S.), 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 September 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 at
September 30, 2000 was to fluctuations in the price of gold and
silver. Although certain Trading Advisors will, from time to
time, trade base metals such as copper, aluminum 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 continued to be 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 September 30, 2000, the
Partnership had exposure in the markets that comprise these
sectors. Most of the exposure, however, was in the sugar, corn
and cotton markets. Supply and demand inequalities, severe
weather disruption and market expectations affect price movements
in these markets.
Qualitative Disclosures Regarding Non-Trading Risk Exposure
The following was the only non-trading risk exposure of the
Partnership as of September 30, 2000:
<PAGE>
Foreign Currency Balances. The Partnership's primary foreign
currency balances at September 30, 2000 were in British pounds
and Canadian dollars. The Partnership controls the non-trading
risk of these balances by regularly converting these balances
back into dollars upon liquidation of the respective position.
Qualitative Disclosures Regarding Means of Managing Risk Exposure
The 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
Please refer to Legal Proceedings previously disclosed in the
Partnership's Form 10-Q(s) for the quarters ended March 31, 2000
and June 30, 2000 and Form 10-K for the year ended December 31,
1999.
Item 5. OTHER INFORMATION
Commencing December 1, 2000, the management fee paid by the
Partnership to the Trading Advisor will be reduced from a 4% to a
2% annual rate. Additionally, the quarterly incentive fee paid
by the Partnership to the Trading Advisor will be changed from
15% to 20% of trading profits, as determined from the end of the
last period in which an incentive fee was earned. No incentive
fee will be paid to the Trading Advisor unless the Trading
Advisor recoups all prior trading losses and has again achieved
net new high trading profits for the period.
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).
<PAGE>
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 incorporated by reference to Exhibit
10.06 of the Partnership's Quarterly Report on Form 10-Q for the
quarter ended June 30, 2000, (File No. 0-19046).
(B) Reports on Form 8-K. - None.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dean Witter Portfolio Strategy
Fund L.P. (Registrant)
By: Demeter Management Corporation
(General Partner)
November 14, 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.
