-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, B6wHL3JP5M9kj7rdaw/fUKcgzz53VUuBXujMKSvgkgyC2QUQhPG+nu45ZNsYnPyT /eTCoFJ0i4PcLhEddDrX0A== 0000854915-01-000001.txt : 20010409 0000854915-01-000001.hdr.sgml : 20010409 ACCESSION NUMBER: 0000854915-01-000001 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010402 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WITTER DEAN PRINCIPAL PLUS FUND L P CENTRAL INDEX KEY: 0000854915 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 133541588 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-18314 FILM NUMBER: 1589719 BUSINESS ADDRESS: STREET 1: TWO WORLD TRADE CENTER 62ND FL STREET 2: C/O DEMETER MGMT CORP CITY: NEW YORK STATE: NY ZIP: 10048 BUSINESS PHONE: 2123925454 MAIL ADDRESS: STREET 1: C/O DEMETER MANAGEMENT CORP STREET 2: TWO WORLD TRADE CENTER 62ND FL CITY: NEW YORK STATE: NY ZIP: 10048 10-K 1 0001.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 [No Fee Required] For the year ended December 31, 2000 or [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 [No Fee Required] For the transition period from ________________to___________________ Commission File Number 0-18314 DEAN WITTER PRINCIPAL PLUS FUND L.P. (Exact name of registrant as specified in its Limited Partnership Agreement) DELAWARE 13-3541588 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) c/o Demeter Management Corporation Two World Trade Center, - 62nd Flr., New York, N.Y. 10048 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (212) 392-5454 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered None None Securities registered pursuant to Section 12(g) of the Act: Units of Limited Partnership Interest (Title of Class) 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 _____ Indicate by check-mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment of this Form 10-K. [X] State the aggregate market value of the Units of Limited Partnership Interest held by non-affiliates of the registrant. The aggregate market value shall be computed by reference to the price at which units were sold as of a specified date within 60 days prior to the date of filing: $38,214,958 at January 31, 2001. DOCUMENTS INCORPORATED BY REFERENCE (See Page 1) DEAN WITTER PRINCIPAL PLUS FUND L.P. INDEX TO ANNUAL REPORT ON FORM 10-K DECEMBER 31, 2000
Page No. DOCUMENTS INCORPORATED BY REFERENCE. . . . . . . . . . . . . . . . . 1 Part I . Item 1. Business. . . . . . . . . . . . . . . . . . . . . . . . 2-4 Item 2. Properties. . . . . . . . . . . . . . . . . . . . . . . . 4 Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . . . 4-5 Item 4. Submission of Matters to a Vote of Security Holders. . . .5 Part II. Item 5.Market for the Registrant's Partnership Units and Related Security Holder Matters. . . . . . . . . . . 6 Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . .7 Item 7.Management's Discussion and Analysis of Financial Condition and Results of Operations. . . . . . . . . . .8-20 Item 7A. Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . 20-33 Item 8. Financial Statements and Supplementary Data. . . . . . . .34 Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. . . . . . . . . . . .34 Part III. Item 10.Directors and Executive Officers of the Registrant. . 35-39 Item 11. Executive Compensation . . . . . . . . . . . . . . . . . .39 Item 12.Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . . . . . . . . . .39 Item 13. Certain Relationships and Related Transactions . . . . 39-40 Part IV. Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . 41 DOCUMENTS INCORPORATED BY REFERENCE Portions of the following documents are incorporated by reference as follows: Documents Incorporated Part of Form 10-K Partnership's Prospectus dated November 8, 1995 I Annual Report to Dean Witter Principal Plus Fund L.P. Limited Partners for the year ended December 31, 2000 II, III and IV PART I Item 1. BUSINESS (a) General Development of Business. Dean Witter Principal Plus Fund L.P. (the "Partnership") is a Delaware limited partnership organized to engage primarily in the speculative trading of futures contracts, options on futures contracts and physical commodities, forward contracts, and other commodity interests. The general partner for the Partnership is Demeter Management Corporation ("Demeter"). The non-clearing commodity broker is Dean Witter Reynolds Inc. ("DWR"). The clearing commodity brokers are Morgan Stanley & Co. Incorporated ("MS & Co.") and Morgan Stanley & Co. International Limited ("MSIL") which provide clearing and execution services. Prior to May 2000, Carr Futures Inc. provided clearing and execution services to the Partnership. Demeter, DWR, MS & Co. and MSIL are wholly-owned subsidiaries of Morgan Stanley Dean Witter & Co. ("MSDW"). The trading manager to the Partnership is RXR Inc. (the "Trading Manager"). The Partnership's net asset value per unit of limited partnership interest ("Unit(s)") at December 31, 2000, was $1,941.87, representing an increase of 6.96 percent from the net asset value per Unit of $1,815.50 at December 31, 1999. For a more detailed description of the Partnership's business see subparagraph (c). (b) Financial Information about Segments. For financial information reporting purposes, the Partnership is deemed to engage in one industry segment, the speculative trading of futures, forwards, and options. The relevant financial information is presented in Items 6 and 8. (c) Narrative Description of Business. The Partnership is in the business of speculative trading of futures, forwards, and options, pursuant to trading instructions provided by its Trading Manager. For a detailed description of the different facets of the Partnership's business, see those portions of the Partnership's prospectus, dated November 8, 1995 (the "Prospectus"), incorporated by reference in this Form 10-K, set forth below. Facets of Business 1. Summary 1. "Summary of the Prospectus" (Pages 2-14). 2. Commodity Markets 2. "The Futures, Options and Forward Markets" (Pages 51-56). 3. Partnership's Commodity 3. "Trading Policies" (Page Trading Arrangements and 62). "The Trading Advisor" Policies (Pages 58-62). "The Yield Pool" (Page 63). "The Trading Company" (Pages 63-64). 4. Management of the Part- 4. "The Management Agree- nership ment"(Pages 66-67). "The General Partner" (Pages 48-50) and "The Commodity Broker" (Pages 64-65). "The Partnership Agreement" (Pages 70-73). 5. Taxation of the Partner- 5. "Material Federal Income ship's Limited Partners Tax Aspects" and "State and Local Income Tax Aspects" (Pages 77-86). (d) Financial Information about Geographic Areas The Partnership has not engaged in any operations in foreign countries; however, the Partnership (through the commodity brokers) enters into forward contract transactions where foreign banks are the contracting party and trades in futures, forwards, and options on foreign exchanges. Item 2. PROPERTIES The executive and administrative offices are located within the offices of DWR. The DWR offices utilized by the Partnership are located at Two World Trade Center, 62nd Floor, New York, NY 10048. Item 3. LEGAL PROCEEDINGS Similar class actions were filed in 1996 in California and New York State courts. Each of these actions were dismissed in 1999. However, the New York State class action discussed below is still pending because plaintiffs appealed the trial court's dismissal of their case on March 3, 2000. On September 18 and 20, 1996, purported class actions were filed in the Supreme Court of the State of New York, New York County, on behalf of all purchasers of interests in limited partnership commodity pools sold by DWR. Named defendants include DWR, Demeter, MSDW, certain limited partnership commodity pools of which Demeter is the general partner and certain trading managers to these pools. A consolidated and amended complaint in the action pending in the Supreme Court of the State of New York was filed on August 13, 1997, alleging that the defendants committed fraud, breach of fiduciary duty, and negligent misrepresentation in the sale and operation of the various limited partnership commodity pools. The complaints sought specified amounts of compensatory and punitive damages and other relief. The New York Supreme Court dismissed the New York action in November 1998, but granted plaintiffs leave to file an amended complaint, which they did in early December 1998. The defendants filed a motion to dismiss the amended complaint with prejudice on February 1, 1999. By decision dated December 21, 1999, the New York Supreme Court dismissed the case with prejudice. However on March 3, 2000, plaintiffs appealed the trial court's dismissal of their case. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II Item 5. MARKET FOR THE REGISTRANT'S PARTNERSHIP UNITS AND RELATED SECURITY HOLDER MATTERS (a) Market Information There is no established public trading market for Units of the Partnership. (b) Holders The number of holders of Units at December 31, 2000 was approximately 2,347. (c) Distributions No distributions have been made by the Partnership since it commenced operations on February 14, 1990. Demeter has sole discretion to decide what distributions, if any, shall be made to investors in the Partnership. Demeter currently does not intend to make any distribution of Partnership profits.
Item 6. SELECTED FINANCIAL DATA (in dollars)
For the Years Ended December 31, 2000 1999 1998 1997 1996 . Total Revenues (including interest) 5,646,730 (1,332,776) 10,243,111 10,461,123 (677,358) Net Income (Loss) 3,386,012 (3,799,938) 7,203,198 7,414,966 (3,646,323) Net Income (Loss) Per Unit (Limited & General Partners) 126.37 (72.12) 180.03 227.74 (82.41) Total Assets 41,777,291 45,768,631 54,061,143 54,294,132 54,096,992 Total Limited Partners' Capital 38,861,681 43,352,757 51,660,212 51,607,436 50,688,703 Net Asset Value Per Unit 1,941.87 1,815.50 1,887.62 1,707.59 1,479.85
Item 7. 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, forwards, and options trading accounts established for the Trading Manager, 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 Commodity Futures Trading Commission ("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, forwards, and options, it is expected that the Partnership will continue to own such liquid assets for margin purposes. The Partnership's investment in futures, forwards, and options 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 or options contract has increased or decreased by an amount equal to the daily limit, positions in that futures or options 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 days with little or no trading. These market conditions could prevent the Partnership from promptly liquidating its futures or options contracts and result in restrictions on redemptions. There is no limitation on daily price moves in trading forward contracts on foreign currencies. 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 and 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 Units in the future will affect the amount of funds available for investments in futures, forwards, and options in subsequent periods. It is not possible to estimate the amount and therefore, the impact of future redemptions of Units. Results of Operations. General. The Partnership's results depend on its Trading Manager and the ability of the Trading Manager's trading programs to take advantage of price movements or other profit opportunities in the futures, forwards, and options markets. The following presents a summary of the Partnership's operations for the three years ended December 31, 2000 and a general discussion of its trading activities during each period. It is important to note, however, that the Trading Manager 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 Manager 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 Manager's trading activities on behalf of the Partnership and how the Partnership has performed in the past. At December 31, 2000, the Partnership's total capital was $39,470,347, a decrease of $4,442,369 from the Partnership's total capital of $43,912,716 at December 31, 1999. For the year ended December 31, 2000, the Partnership generated net income of $3,386,012, and total redemptions aggregated $7,828,381. For the year ended December 31, 2000, the Partnership recorded total trading revenues, including interest income, of $3,942,875 and posted an increase in net asset value per Unit. Unrealized gains recorded on the Yield Pool totaled $1,703,855. The Partnership's exposure to Australian, European, Japanese and North American fixed income markets added value to the global interest rate futures markets sector with gains of approximately 5.9%. The currency sector also recorded gains of approximately 0.9% aided by a strengthening euro and a weakening Japanese yen. The Partnership's exposure to the energy sector also performed well with profits of approximately 1.2%, taking advantage of falling crude oil inventories during the early part of the year and reactionary supply boosts later in 2000. Conversely, equity markets declined in all G4 economies, creating a subsequent flight-to-quality and driving nominal interest rates lower in most major money markets. The G4 economies are U.S., Japan, Germany and Britain. As a result, losses of approximately 3.2% were recorded in these markets. Exposure to agricultural commodities markets under-performed slightly reflecting non- directional price movement within the sector. The Partnership experienced a profitable first quarter, despite tremendous volatility in the U.S. stock market. The S&P 500 Index declined through February but rallied to post a positive quarter and enabled the hedged equity strategy to salvage a modest gain. The Federal Reserve Bank raised the overnight borrowing rate by 50 basis points during the quarter responding to a perceived inflationary threat. U.S. interest rates, however, continued to decline benefiting the hedged fixed income component. The global macro component also added value, enjoying most of its gains from long futures positions in Sweden's OMX Index as the market advanced throughout the quarter. The second quarter was a sluggish one for the Partnership. The Federal Reserve Bank decided to raise short-term rates by another 50 basis points at its May meeting, which proved to be the last proactive move made by the U.S. central bank in 2000. The hedged equity component underperformed as U.S. stocks endured a modest decline. Treasury bonds continued to strengthen and the hedged fixed income strategy helped to buffer the Partnership. The global macro component under-performed due to unexpected weakness in the U.S. dollar and simultaneous strength in the euro. Conversely, long futures positions in the crude oil complex performed well after OPEC failed to raise output in a timely fashion. The Partnership's performance was relatively flat for the third quarter. U.S. interest rates fell by an average of 15 basis points along the yield curve benefiting the hedged fixed income strategy. Rising energy prices prompted the Clinton Administration to release 30 million barrels of crude oil from the Strategic Petroleum Reserve prior to the winter months. Long futures positions in the energy sector were adversely affected by this decision as crude oil prices fell. Short positions in Australian financial futures also under-performed as the Reserve Bank of Australia failed to make good on an expected interest rate hike. The global macro component did enjoy gains from long positions in copper futures along with short positions in New Zealand dollar, South African rand and Australian dollar. The Partnership posted a profitable fourth quarter due primarily to performance in the global macro component. Interest rates fell throughout the world, supporting the Partnership's long positions in U.S., European and Australian financial futures. Long positions in the Swiss franc and euro versus most major currencies also added value. Long positions in natural gas futures were profitable as prices rose due to a severe inventory shortage, which was first noted in California and continued spreading throughout the country. The S&P 500, DAX 30, FTSE 100 and Nikkei 225 Index all posted losses for the fourth quarter and the year 2000. Total expenses for the year were $2,271,429, resulting in income before minority interest of $3,375,301. The minority interest in trading losses experienced outside the Yield Pool was $10,711, resulting in net income of $3,386,012 for the Partnership. The net asset value of a Unit increased from $1,815.50 at December 31, 1999 to $1,941.87 at December 31, 2000. At December 31, 1999, the Partnership's total capital was $43,912,716, a decrease of $8,351,449 from the Partnership's total capital of $52,264,165 at December 31, 1998. For the year ended December 31, 1999, the Partnership generated a net loss of $3,799,938, and total redemptions aggregated $4,551,511. For the year ended December 31, 1999, the Partnership recorded total trading revenues, including interest income, of $1,638,358 and posted a decrease in net asset value per Unit. Losses recorded on the Yield Pool totaled $2,971,134. Extreme price volatility in U.S. and Australian fixed income markets created losses, while the Partnership's exposure to the U.S. equity and energy markets and its net short exposure to European interest rate sector helped steady performance. The most significant losses of approximately 5.00% were experienced primarily during February, April and May in the fixed income component of the balanced portfolio from long U.S. interest rate futures positions as prices dropped in reaction to Federal Reserve Chairman Alan Greenspan's warnings in Congressional testimony in late February that a strong economy could reignite inflation. Fears that the Federal Reserve eventually could boost target interest rates continued to push down domestic bond prices and forced yields higher. Losses were also experienced in this market complex during July and August after Federal Reserve Chairman Alan Greenspan commented that central bankers must consider stock prices when setting monetary policy and as reports on labor costs, home sales, manufacturing and personal income added to concern that the U.S. Federal Reserve will raise interest rates soon. Mitigating gains of approximately 1.12% were recorded in the energy markets primarily during March from long positions in crude and gas oil futures as prices moved significantly higher due largely to the news that both OPEC and non-OPEC countries had reached an agreement to cut total output beginning April 1st. Gains were also recorded in this market complex during the third quarter after OPEC ministers confirmed that they would uphold their global cutbacks until April of 2000. Reports of declining crude oil and gasoline inventories also boosted oil prices during the third quarter. Total expenses for the year were $2,589,673, resulting in a net loss before minority interest of $3,922,449. The minority interest in such losses was $122,511, resulting in a net loss of $3,799,938 for the Partnership. The net asset value of a Unit decreased from $1,887.62 at December 31, 1998 to $1,815.50 at December 31, 1999. At December 31, 1998, the Partnership's total capital was $52,264,165, a decrease of $681,697 from the Partnership's total capital of $52,945,862 at December 31, 1997. For the year ended December 31, 1998, the Partnership generated net income of $7,203,198, and total redemptions aggregated $7,884,895. For the year ended December 31, 1998, the Partnership recorded total trading revenues, including interest income, of $8,079,935 and posted an increase in net asset value per Unit. Gains recorded on the Yield Pool totaled $2,163,176. The Partnership profited during 1998, primarily from gains of approximately 6.27% recorded in the global stock index futures markets. Long S&P 500 Index futures positions were profitable in the equity portion of the portfolio as stock prices reached record levels during the first half of the year, as well as closing the year with a move higher. The global interest rate futures markets were also key contributors to overall gains, recording gains of approximately 3.45% primarily from long global bond futures positions, especially U.S., European and Japanese bond futures. Bond prices benefited from a "flight-to-quality" during the third quarter amid the world's shaky financial system and global economic deterioration. Total expenses for the year were $2,958,490, resulting in income before minority interest of $7,284,621. The minority interest in such gains was $81,423, resulting in net income of $7,203,198 for the Partnership. The net asset value of a Unit in the Partnership increased from $1,707.59 at December 31, 1997 to $1,887.62 at December 31, 1998. The Partnership's overall performance record represents varied results of trading in different futures, forwards, and options markets. For a further description of 2000 trading results, refer to the letter to the Limited Partners in the accompanying Annual Report to Limited Partners for the year ended December 31, 2000, which is incorporated by reference to Exhibit 13.01 of this Form 10-K. The Partnership's gains and losses are allocated among its partners for income tax purposes. Credit Risk. Financial Instruments. The Partnership is a party to financial instruments with elements of off-balance sheet market and credit risk. The Partnership may trade futures, forwards, and options to gain long biased exposure to global stock markets and global bond markets, as well as long and short exposure to a component of managed futures contracts in agricultural commodities, energy products, foreign currencies, precious and base metals, and soft commodities. In entering into these contracts, the Partnership is subject to the market risk that such contracts may be significantly influenced by market conditions, such as interest rate volatility, resulting in such contracts being less valuable. If the markets should move against all of the positions held by the Partnership at the same time, and if the Trading Manager was unable to offset positions of the Partnership, the Partnership could lose all of its assets and investors would realize a 100% loss. In addition to the Trading Manager's internal controls, the Trading Manager must comply with the trading policies of the Partnership. These trading policies include standards for liquidity and leverage with which the Partnership must comply. The Trading Manager and Demeter monitor the Partnership's trading activities to ensure compliance with the trading policies. Demeter may require the Trading Manager to modify positions of the Partnership if Demeter believes they violate the Partnership's trading policies. In addition to market risk, in entering into futures, forwards, and options contracts there is a credit risk to the Partnership that the counterparty on a contract will not be able to meet its obligations to the Partnership. The ultimate counterparty or guarantor of the Partnership for futures contracts traded in the United States and the foreign exchanges on which the Partnership trades is the clearinghouse associated with such exchange. In general, a clearinghouse is backed by the membership of the exchange and will act in the event of non-performance by one of its members or one of its member's customers, which should significantly reduce this credit risk. For example, a clearinghouse may cover a default by drawing upon a defaulting member's mandatory contributions and/or non-defaulting members' contributions to a clearinghouse guarantee fund, established lines or letters of credit with banks, and/or the clearinghouse's surplus capital and other available assets of the exchange and clearinghouse, or assessing its members. In cases where the Partnership trades off-exchange forward contracts with a counterparty, the sole recourse of the Partnership will be the forward contracts counterparty. There is no assurance that a clearinghouse or exchange will meet its obligations to the Partnership, and Demeter and the commodity brokers will not indemnify the Partnership against a default by such parties. Further, the law is unclear as to whether a commodity broker has any obligation to protect its customers from loss in the event of an exchange or clearinghouse defaulting on trades effected for the broker's customers. Any such obligation on the part of a broker appears even less clear where the default occurs in a non-U.S. jurisdiction. Demeter deals with these credit risks of the Partnership in several ways. First, it monitors the Partnership's credit exposure to each exchange on a daily basis, calculating not only the amount of margin required for it but also the amount of its unrealized gains at each exchange, if any. The commodity brokers inform the Partnership, as with all their customers, of its net margin requirements for all its existing open positions, but do not break that net figure down, exchange by exchange. Demeter, however, has installed a system which permits it to monitor the Partnership's potential margin liability, exchange by exchange. As a result, Demeter is able to monitor the Partnership's potential net credit exposure to each exchange by adding the unrealized trading gains on that exchange, if any, to the Partnership's margin liability thereon. Second, the Partnership's trading policies limit the amount of its net assets that can be committed at any given time to futures contracts and require, in addition, a minimum amount of diversification in the Partnership's trading, usually over several different products. One of the aims of such trading policies has been to reduce the credit exposure of the Partnership to a single exchange and, historically, the Partnership's exposure to any one exchange has typically amounted to only a small percentage of its total net assets. On those relatively few occasions where the Partnership's credit exposure may climb above that level, Demeter deals with the situation on a case by case basis, carefully weighing whether the increased level of credit exposure remains appropriate. Material changes to the trading policies may be made only with the prior written approval of the limited partners owning more than 50% of Units then outstanding. Third, with respect to forward contract trading, the Partnership trades with only those counterparties which Demeter, together with DWR, have determined to be creditworthy. The Partnership presently deals with MS & Co. as the sole counterparty on forward contracts. See "Financial Instruments" under Notes to Financial Statements in the Partnership's Annual Report to Limited Partners for the year ended December 31, 2000, which is incorporated by reference to Exhibit 13.01 of this Form 10-K. Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Introduction The Partnership is a commodity pool involved in the speculative trading of futures, forwards, and options. 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, forwards, and options traded by the Partnership involve varying degrees of related 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 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 Partnership's market risk exposures contain "forward-looking statements" within the meaning of the safe harbor from civil liability provided for such statements by the Private Securities Litigation Reform Act of 1995 (set forth in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934). All quantitative disclosures in this section are deemed to be forward-looking statements for purposes of the safe harbor, except for statements of historical fact. The Partnership accounts for open positions using mark-to-market accounting principles. Any loss in the market value of the Partnership's open positions is directly reflected in the Partnership's earnings, whether realized or unrealized, and its cash flow. Profits and losses on open positions of exchange- traded futures, forwards, and options are settled daily through variation margin. The Partnership's risk exposure in the market sectors traded by the Trading Manager 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 Partnership'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. 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 Manager in their daily risk management activities. The Partnership's Value at Risk in Different Market Sectors The following table indicates the VaR associated with the Partnership's open positions as a percentage of total net assets by primary market risk category at December 31, 2000 and 1999. At December 31, 2000 and 1999, the Partnership's total capitalization was approximately $39 million and $44 million, respectively. Primary Market December 31, 2000 December 31, 1999 Risk Category Value at Risk Value at Risk Interest Rate (0.87)% (0.14)% Currency (0.35) (0.12) Commodity (0.15) (0.12) Equity (0.05) (0.33) Aggregate Value at Risk (0.91)% (0.43)% Aggregate Value at Risk represents the aggregate VaR of all the Partnership's open positions and not the sum of the VaR of the 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 December 31, 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, forwards, and options, 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 December 31, 2000 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 January 1, 2000 through December 31, 2000. Primary Market Risk Category High Low Average Interest Rate (0.87)% (0.68)% (0.77)% Currency (0.35) (0.19) (0.27) Commodity (0.21) (0.15) (0.17) Equity (0.59) (0.05) (0.30) Aggregate Value at Risk (1.02)% (0.77)% (0.91)% 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 usually 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; 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 December 31, 2000 and for the end of the four quarterly reporting periods during calendar year 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 December 31, 2000, the Partnership's cash balance at DWR was approximately 8% of its total net asset value. A decline in short-term interest rates will result in a decline in the Partnership's cash management income. This cash flow risk is not considered to be material. The Partnership also has non-trading risk on the zero-coupon U.S. Treasury Securities it holds to support the guaranteed net asset value per Unit at the Guaranteed Redemption Date of August 31, 2003. The fair value of these securities is subject to interest rate risk. For non-trading securities, the Partnership measures its market risk using sensitivity analysis. The sensitivity analysis estimates the potential change in fair value based on a hypothetical 10% change in interest rates. Based on the current valuation of the Zero-Coupon U.S. Treasury Securities, such a change in interest rates will cause an approximately (5.68)% decline in their fair value. Such a change will not have a material effect on the net asset value per Unit. 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 Manager 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 expropri- ations, illiquid markets, the emergence of dominant fundamental factors, political upheavals, changes in historical price relationships, an influx of new market participants, increased regulation and many other factors could result in material losses as well as in material changes to the risk exposures and the risk management strategies of the Partnership. Investors must be prepared to lose all or substantially all of their investment in the Partnership. The following were the primary trading risk exposures of the Partnership as of December 31, 2000, by market sector. It may be anticipated however, that these market exposures will vary materially over time. Interest Rate. The largest market exposure at December 31, 2000 was in the global interest rate complex. Exposure was primarily spread across the 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. 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 rates would have little effect on the Partnership, were the medium- to long- term rates to remain steady. Currency. The Partnership's currency exposure at December 31, 2000 was 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, including cross-rates - i.e., positions between two currencies other than the U.S. dollar. For the fourth quarter of 2000, the Partnership's major exposures were to the euro currency crosses and 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 adjustment to reflect the exchange rate risk inherent to the dollar-based Partnership in expressing VaR in a functional currency other than dollars. Commodity. Energy. On December 31, 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. Soft Commodities and Agriculturals . On December 31, 2000, the Partnership had exposure in the corn, cattle, and cotton markets. Supply and demand inequalities, severe weather disruption and market expectations affect price movements in these markets. Metals. The Partnership's metals market exposure at December 31, 2000 was to fluctuations in the price of base metals. During period of volatility, base metals will affect performance dramatically. Demeter anticipates that the base metals will remain the primary metals market exposure of the Partnership. Equity. The primary equity exposure at December 31, 2000 was to equity price risk in the G-7 countries. The G-7 countries consist of France, U.S., Britain, Germany, Japan, Italy and Canada. The stock index futures traded by the Partnership are by law limited to futures on broadly based indices. As of December 31, 2000, the Partnership's primary exposures were in the S&P 500 (U.S.) and Nikkei (Japan) stock indices. The Partnership is primarily exposed to the risk of adverse price trends or static markets in the U.S. and Japanese indices. Static markets would not cause major market changes but would make it difficult for the Partnership to avoid being "whipsawed" into numerous small losses. Qualitative Disclosures Regarding Non-Trading Risk Exposure The following were the only non-trading risk exposures of the Partnership at December 31, 2000: Foreign Currency Balances. The Partnership's primary foreign currency balances at December 31, 2000 were in Australian dollars, euros, Japanese yen and South African rands. The Partnership controls the non-trading risk of these balances by regularly converting these balances back into dollars upon liquidation of the respective position. Zero-Coupon U.S. Treasury Securities. It is the Partnership's intention to hold the Zero-Coupon U.S. Treasury Securities until their August 15, 2003 maturity date except as needed to fund quarterly redemptions. Consequently, the period to period interest rate risk these securities are subject to is not considered material. Qualitative Disclosures Regarding Means of Managing Risk Exposure The Partnership and the Trading Manager, 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 Manager daily. In addition, the Trading Manager 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 instruments, cash and Zero-Coupon U.S. Treasury Securities. Cash and Zero-Coupon U.S. Treasury Securities are the only Partnership investments directed by Demeter, rather than the Trading Manager. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Financial Statements are incorporated by reference to the Partnership's Annual Report, which is filed as Exhibit 13.01 hereto. Supplementary data specified by Item 302 of Regulation S-K: Summary of Quarterly Results (Unaudited) Net Income/ (Loss) Per Quarter Net Unit of Limited Ended Revenue Income/(Loss) Partnership Interest 2000 March 31 $ 1,328,247 $ 717,732 $ 29.67 June 30 (90,854) (599,538) (26.33) September 30 690,073 168,111 7.60 December 31 3,719,264 3,099,707 115.43 Total $ 5,646,730 $3,386,012 $126.37 1999 March 31 $ (805,275) $(1,451,344) $(12.72) June 30 (273,785) (916,411) (2.89) September 30 (58,457) (655,817) (25.37) December 31 (195,259) (776,366) (31.14) Total $(1,332,776) $(3,799,938) $(72.12) Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT There are no directors or executive officers of the Partnership. The Partnership is managed by Demeter. Directors and Officers of the General Partner The directors and officers of Demeter are as follows: Robert E. Murray, age 40, is Chairman of the Board, President and a Director of Demeter. Mr. Murray is also Chairman of the Board, President and a Director of Dean Witter Futures & Currency Management Inc. ("DWFCM"). Mr. Murray is currently a Senior Vice President of DWR's Managed Futures Department. Mr. Murray began his career at DWR in 1984 and is currently the Director of the Managed Futures Department. In this capacity, Mr. Murray is responsible for overseeing all aspects of the firm's Managed Futures Department. Mr. Murray previously served as Vice Chairman and a Director of the Managed Funds Association, an industry association for investment professionals in futures, hedge funds and other alternative investments. Mr. Murray graduated from Geneseo State University in May 1983 with a B.A. degree in Finance. Mitchell M. Merin, age 47, is a Director of Demeter. Mr. Merin is also a Director of DWFCM. Mr. Merin was appointed the Chief Operating Officer of Individual Asset Management for MSDW in December 1998 and the President and Chief Executive Officer of Morgan Stanley Dean Witter Advisors in February 1998. He has been an Executive Vice President of DWR since 1990, during which time he has been Director of DWR's Taxable Fixed Income and Futures divisions, Managing Director in Corporate Finance and Corporate Treasurer. Mr. Merin received his Bachelor's degree from Trinity College in Connecticut and his M.B.A. degree in Finance and Accounting from the Kellogg Graduate School of Management of Northwestern University in 1977. Joseph G. Siniscalchi, age 55, is a Director of Demeter. Mr. Siniscalchi joined DWR in July 1984 as a First Vice President, Director of General Accounting and served as a Senior Vice President and Controller for DWR's Securities Division through 1997. He is currently Executive Vice President and Director of the Operations Division of DWR. From February 1980 to July 1984, Mr. Siniscalchi was Director of Internal Audit at Lehman Brothers Kuhn Loeb, Inc. Edward C. Oelsner, III, age 59, is a Director of Demeter. Mr. Oelsner is currently an Executive Vice President and head of the Product Development Group at Morgan Stanley Dean Witter Advisors. Mr. Oelsner joined DWR in 1981 as a Managing Director in DWR's Investment Banking Department specializing in coverage of regulated industries and, subsequently, served as head of the DWR Retail Products Group. Prior to joining DWR, Mr. Oelsner held positions at The First Boston Corporation as a member of the Research and Investment Banking Departments from 1967 to 1981. Mr. Oelsner received his M.B.A. in Finance from the Columbia University Graduate School of Business in 1966 and an A.B. in Politics from Princeton University in 1964. Richard A. Beech, age 49, is a Director of Demeter. Mr. Beech has been associated with the futures industry for over 23 years. He has been at DWR since August 1984, where he is presently Senior Vice President and head of Branch Futures. Mr. Beech began his career at the Chicago Mercantile Exchange, where he became the Chief Agricultural Economist doing market analysis, marketing and compliance. Prior to joining DWR, Mr. Beech also had worked at two investment banking firms in operations, research, managed futures and sales management. Raymond A. Harris, age 44, is a Director of Demeter. Mr. Harris is currently Executive Vice President, Planning and Administration for Morgan Stanley Dean Witter Asset Management and has worked at DWR or its affiliates since July 1982, serving in both financial and administrative capacities. From August 1994 to January 1999, he worked in two separate DWR affiliates, Discover Financial Services and Novus Financial Corp., culminating as Senior Vice President. Mr. Harris received his B.A. degree from Boston College and his M.B.A. in finance from the University of Chicago. Anthony J. DeLuca, age 38, became a Director of Demeter on September 14, 2000. Mr. DeLuca is also a Director of DWFCM. Mr. DeLuca was appointed the Controller of Asset Management for MSDW in June 1999. Prior to that, Mr. DeLuca was a partner at the accounting firm of Ernst & Young LLP, where he had MSDW as a major client. Mr. DeLuca had worked continuously at Ernst & Young LLP ever since 1984, after he graduated from Pace University with a B.B.A. degree in Accounting. Raymond E. Koch, age 45, is Chief Financial Officer of Demeter. Effective July 10, 2000, Mr. Koch replaced Mr. Raibley as Chief Financial Officer of Demeter. Mr. Koch began his career at MSDW in 1988, has overseen the Managed Futures Accounting function since 1992, and is currently First Vice President, Director of Managed Futures and Realty Accounting. From November 1979 to June 1988, Mr. Koch held various positions at Thomson McKinnon Securities, Inc. culminating as Manager, Special Projects in the Capital Markets Division. From August 1977 to November 1979 he was an auditor, specializing in financial services at Deloitte Haskins and Sells. Mr. Koch received his B.B.A. in accounting from Iona College in 1977, an M.B.A. in finance from Pace University in 1984 and is a Certified Public Accountant. Lewis A. Raibley, III, age 38, served as Vice President, Chief Financial Officer, and a Director of Demeter and DWFCM until his resignation from MSDW on July 1, 2000. All of the foregoing directors have indefinite terms. Item 11. EXECUTIVE COMPENSATION The Partnership has no directors and executive officers. As a limited partnership, the business of the Partnership is managed by Demeter, which is responsible for the administration of the business affairs of the Partnership but receives no compensation for such services. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (a) Security Ownership of Certain Beneficial Owners - At December 31, 2000, there were no persons known to be beneficial owners of more than 5 percent of the Units. (b) Security Ownership of Management - At December 31, 2000, Demeter owned 308 Units of General Partnership Interest representing a 1.54 percent interest in the Partnership. (c) Changes in Control - None Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Refer to Note 2 - "Related Party Transactions" of "Notes to Consolidated Financial Statements", in the accompanying Annual Report to Limited Partners for the year ended December 31, 2000, which is incorporated by reference to Exhibit 13.01 of this Form 10-K. In its capacity as the Partnership's retail commodity broker, DWR received commodity brokerage fees (paid and accrued by the Partnership) of $1,683,956 for the year ended December 31, 2000. PART IV Item 14.EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) 1. Listing of Financial Statements The following financial statements and report of independent auditors, all appearing in the accompanying Annual Report to Limited Partners for the year ended December 31, 2000, are incorporated by reference to Exhibit 13.01 of this Form 10-K: - Report of Deloitte & Touche LLP, independent auditors, for the years ended December 31, 2000, 1999 and 1998. - Consolidated Statements of Financial Condition as of December 31, 2000 and 1999. - Consolidated Statements of Operations, Changes in Partners' Capital, and Cash Flows for the years ended December 31, 2000, 1999 and 1998. - Notes to Consolidated Financial Statements. With the exception of the aforementioned information and the information incorporated in Items 7, 8 and 13, the Annual Report to Limited Partners for the year ended December 31, 2000 is not deemed to be filed with this report. 2. Listing of Financial Statement Schedules No financial statement schedules are required to be filed with this report. (b) Reports on Form 8-K No reports on Form 8-K have been filed by the Partnership during the last quarter of the period covered by this report. (c) Exhibits Refer to Exhibit Index on Page E-1. SIGNATURES Pursuant to the requirements of Sections 13 or 15(d) 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 PRINCIPAL PLUS FUND L.P. (Registrant) BY: Demeter Management Corporation, General Partner March 30, 2001 BY: /s/ Robert E. Murray . Robert E. Murray, Director, Chairman of the Board and President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Demeter Management Corporation. BY: /s/ Robert E. Murray March 30, 2001 Robert E. Murray, Director, Chairman of the Board and President /s/ Mitchell M. Merin March 30, 2001 Mitchell M. Merin, Director /s/ Joseph G. Siniscalchi March 30, 2001 Joseph G. Siniscalchi, Director /s/ Edward C. Oelsner III March 30, 2001 Edward C. Oelsner III, Director /s/ Richard A. Beech March 30, 2001 Richard A. Beech, Director /s/ Raymond A. Harris March 30, 2001 Raymond A. Harris, Director /s/ Anthony J. DeLuca March 30, 2001 Anthony J. DeLuca, Director /s/ Raymond E. Koch March 30, 2001 Raymond E. Koch, Chief Financial Officer and Principal Accounting Officer EXHIBIT INDEX ITEM 3.01 Amended and Restated Limited Partnership Agreement of the Partnership, dated as of August 29, 1995 is incorporated by reference to Exhibit 3.01 and Exhibit 3.02 of the Partnership's Registration Statement (File No. 33-95414) on Form S-1. 10.01 Amended and Restated Management Agreement among the Partnership, Demeter and RXR, Inc. dated as of December 29, 1995 is incorporated by reference to Exhibit 10.02 of the Partnership's Registration Statement (File No. 33-95414) on Form S-1. 10.02 Amended and Restated Management Agreement between the Partnership and Dean Witter Reynolds Inc., dated as of December 29, 1995 is incorporated by reference to Exhibit 10.01 of the Partnership's Registration Statement (File No. 33-95414) on Form S-1. 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 10.03 of the Partnership's Quarterly Report on Form 10-Q for the quarter ended March 31, 2000, (File No. 0-18314). 10.04 Customer Agreement, dated as of December 1, 1997, among the Partnership, Carr Futures, Inc., and Dean Witter Reynolds 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. 0-18314). 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 10.05 of the Partnership's Quarterly Report on Form 10-Q for the quarter ended March 31, 2000, (File No. 0-18314). 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- 18314). 13.01 December 31, 2000 Annual Report to Limited Partners is filed herewith. Principal Plus Fund December 31, 2000 Annual Report MORGAN STANLEY DEAN WITTER Dean Witter Principal Plus Fund L.P. Historical Fund Performance Presented below is the percentage change in Net Asset Value per Unit from the start of each calendar year the Fund has traded. Also provided is the incep- tion-to-date return and the annualized return since inception for the Fund. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
Year Return ---- ------ 1990 (10 1/2 months) 7.5% 1991 10.4% 1992 9.4% 1993 11.6% 1994 -8.6% 1995 18.0% 1996 -5.3% 1997 15.4% 1998 10.5% 1999 -3.8% 2000 7.0% Inception-to-Date Return: 94.2% Annualized Return: 6.3%
Demeter Management Corporation Two World Trade Center 62nd Floor New York, NY 10048 Telephone (212) 392-8899 Principal Plus Fund L.P. Annual Report 2000 Dear Limited Partner: This marks the eleventh annual report for the Dean Witter Principal Plus Fund L.P. (the "Fund"). The Fund began the year at a Net Asset Value per Unit of $1,815.50 and increased by 7.0% to $1,941.87 on December 31, 2000. A review of trading results for the year is provided in the Annual Report of the Trading Manager located on the next page of this report. Should you have any questions concerning this report, please feel free to con- tact Demeter Management Corporation at Two World Trade Center, 62nd Floor, New York, N.Y. 10048 or your Morgan Stanley Dean Witter Financial Advisor. I hereby affirm, that to the best of my knowledge and belief, the information contained in this report is accurate and complete. Past performance is not a guarantee of future results. Sincerely, /s/ Robert E. Murray Robert E. Murray Chairman Demeter Management Corporation General Partner Dean Witter Principal Plus Fund L.P. Annual Report of the Trading Manager Principal Plus Fund's Net Asset Value gained in the year 2000. The Fund's ex- posure to Australian, European, Japanese and North American fixed income mar- kets added value, as did the currency sector aided by a strengthening euro and a weakening Japanese yen late in the year. The Fund's exposure to the energy sector also performed well, taking advantage of falling crude oil inventories during the early part of the year and reactionary supply boosts later in 2000. Conversely, equity markets declined in all G4 economies, creating a subsequent flight-to-quality and driving nominal interest rates lower in most major money markets. The G4 economies are U.S., Japan, Germany and Britain. Exposure to agricultural commodities markets under-performed, reflecting non-directional price movement within the sector. The Fund experienced a profitable first quarter, despite tremendous volatility in the U.S. stock market. The S&P 500 Index declined through February but ral- lied to post a positive quarter and enabled the hedged equity strategy to sal- vage a modest gain. The Federal Reserve Bank raised the overnight borrowing rate by 50 basis points during the quarter responding to a perceived infla- tionary threat. U.S. interest rates, however, continued to decline benefiting the hedged fixed income component. The global macro component also added val- ue, enjoying most of its gains from long futures positions in Sweden's OMX In- dex as the market advanced throughout the quarter. The second quarter was a sluggish one for the Fund. The Federal Reserve Bank decided to raise short-term rates by another 50 basis points at its May meet- ing, which proved to be the last proactive move made by the U.S. central bank in 2000. The hedged equity component under-performed as U.S. stocks endured a modest decline. Treasury bonds continued to strengthen and the hedged fixed income strategy helped to buffer the Fund. The global macro component under performed due to unexpected weakness in the U.S. dollar and simultaneous strength in the euro. Conversely, long futures positions in the crude oil com- plex performed well after OPEC failed to raise output in a timely fashion. The Fund's performance was relatively flat for the third quarter. U.S. inter- est rates fell by an average of 15 basis points along the yield curve benefit- ing the hedged fixed Dean Witter Principal Plus Fund L.P. Annual Report of the Trading Manager--(Concluded) income strategy. Rising energy prices prompted the Clinton Administration to release 30 million barrels of crude oil from the Strategic Petroleum Reserve prior to the winter months. Long futures positions in the energy sector were adversely affected by this decision as crude oil prices fell. Short positions in Australian financial futures also under-performed as the Reserve Bank of Australia failed to make good on an expected interest rate hike. The global macro component did enjoy gains from long positions in copper futures along with short positions in New Zealand dollar, South African rand and Australian dollar. The Fund posted a profitable fourth quarter due primarily to performance in the global macro component. Interest rates fell throughout the world, support- ing the Fund's long positions in U.S., European and Australian financial futures. Long positions in the Swiss franc and euro versus most major curren- cies also added value. Long positions in natural gas futures were profitable as prices rose due to a severe inventory shortage, which was first noted in California and continued spreading throughout the country. The S&P 500, DAX 30, FTSE 100 and Nikkei 225 Index all posted losses for the fourth quarter and the year 2000. We thank you for your continued support and look forward to serving your in- vestment needs in 2001. RXR, Inc. Dean Witter Principal Plus Fund L.P. Independent Auditors' Report The Limited Partners and the General Partner: We have audited the accompanying consolidated statements of financial condi- tion of Dean Witter Principal Plus Fund L.P. and subsidiary (the "Partner- ship") as of December 31, 2000 and 1999 and the related consolidated state- ments of operations, changes in partners' capital, and cash flows for each of the three years in the period ended December 31, 2000. These consolidated fi- nancial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these consolidated financial state- ments based on our audits. We conducted our audits in accordance with auditing standards generally ac- cepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the finan- cial statements are free of material misstatement. An audit includes examin- ing, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting princi- ples used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits pro- vide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the consolidated financial position of Dean Witter Princi- pal Plus Fund L.P. and subsidiary at December 31, 2000 and 1999 and the con- solidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2000 in conformity with account- ing principles generally accepted in the United States of America. /s/ Deloitte & Touche LLP New York, New York February 16, 2001 Dean Witter Principal Plus Fund L.P. Consolidated Statements of Financial Condition
December 31, ---------------------- 2000 1999 ---------- ---------- $ $ ASSETS Equity in futures interests trading accounts: Cash 3,417,831 6,014,023 Net unrealized gain on open contracts (MS&Co.) 1,655,071 -- Net unrealized loss on open contracts (MSIL) (25,107) -- Net unrealized gain on open contracts (Carr) -- 380,736 ---------- ---------- Total net unrealized gain on open contracts 1,629,964 380,736 Net option premiums 365,750 -- ---------- ---------- Total Trading Equity 5,413,545 6,394,759 Investment in Zero-Coupon U.S. Treasury Securities 35,655,852 40,367,536 Unrealized gain (loss) on Zero-Coupon U.S. Treasury Securities 685,465 (1,018,390) Interest receivable (DWR) 22,429 24,726 ---------- ---------- Total Assets 41,777,291 45,768,631 ========== ========== LIABILITIES AND PARTNERS' CAPITAL LIABILITIES Redemptions payable 1,828,856 1,341,552 Accrued brokerage fees (DWR) 136,573 155,551 Accrued administrative expenses 120,003 121,844 Accrued management fees 34,143 38,888 ---------- ---------- Total Liabilities 2,119,575 1,657,835 ---------- ---------- Minority interest 187,369 198,080 ---------- ---------- PARTNERS' CAPITAL Limited Partners (19,664.981 and 23,879.732 Units, respectively) 38,861,681 43,352,757 General Partner (308 Units) 608,666 559,959 ---------- ---------- Total Partners' Capital 39,470,347 43,912,716 ---------- ---------- Total Liabilities and Partners' Capital 41,777,291 45,768,631 ========== ========== Total Partners' Capital 39,470,347 43,912,716 Less: Excess of market value over amortized cost of Zero-Coupon U.S. Treasury Securities 685,465 -- ---------- ---------- NET ASSETS PER LIMITED PARTNERSHIP AGREEMENT 38,784,882 43,912,716 ========== ========== NET ASSET VALUE PER UNIT 1,941.87 1,815.50 ========== ========== The accompanying notes are an integral part of these consolidated financial statements.
Dean Witter Principal Plus Fund L.P. Consolidated Statements of Operations
For the Years Ended December 31, -------------------------------- 2000 1999 1998 --------- ---------- ---------- $ $ $ REVENUES Trading profit (loss): Realized 332,570 (190,005) 4,803,195 Net change in unrealized 1,249,228 (819,971) 421,275 --------- ---------- ---------- Total Trading Results 1,581,798 (1,009,976) 5,224,470 Interest income 2,361,077 2,648,334 2,855,465 Change in value of Yield Pool 1,703,855 (2,971,134) 2,163,176 --------- ---------- ---------- Total Revenues 5,646,730 (1,332,776) 10,243,111 --------- ---------- ---------- EXPENSES Brokerage fees (DWR) 1,683,956 1,953,687 2,125,259 Management fees 420,989 488,421 526,462 Administrative expenses 93,000 58,000 83,000 Transaction fees and costs 73,484 89,565 76,292 Incentive fee -- -- 147,477 --------- ---------- ---------- Total Expenses 2,271,429 2,589,673 2,958,490 --------- ---------- ---------- INCOME (LOSS) BEFORE MINORITY INTEREST 3,375,301 (3,922,449) 7,284,621 Minority interest in (income) loss 10,711 122,511 (81,423) --------- ---------- ---------- NET INCOME (LOSS) 3,386,012 (3,799,938) 7,203,198 ========= ========== ========== Net Income (Loss) Allocation: Limited Partners 3,337,305 (3,755,944) 7,063,946 General Partner 48,707 (43,994) 139,252 NET INCOME (LOSS) 3,386,012 (3,799,938) 7,203,198 Less: Change in excess of market value over amortized cost of Zero-Coupon U.S. Treasury Securities 685,465 (1,952,744) 1,952,744 --------- ---------- ---------- NET INCOME (LOSS) ALLOCATED TO PARTNERS FOR TAX AND NET ASSET VALUATION 2,700,547 (1,847,194) 5,250,454 ========= ========== ========== Net Income (Loss) Allocation For Tax and Net Asset Valuation Limited Partners 2,660,735 (1,824,381) 5,132,383 General Partner 39,812 (22,813) 118,071 Net Income (Loss) per Unit For Tax and Net Asset Valuation Limited Partners 126.37 (72.12) 180.03 General Partner 126.37 (72.12) 180.03 The accompanying notes are an integral part of these consolidated financial statements.
Dean Witter Principal Plus Fund L.P. Consolidated Statements of Changes in Partners' Capital For the Years Ended December 31, 2000, 1999 and 1998
Units of Partnership Limited General Interest Partners Partner Total ----------- ---------- --------- ---------- $ $ $ Partners' Capital, December 31, 1997 31,006.237 51,607,436 1,338,426 52,945,862 Net income -- 7,063,946 139,252 7,203,198 Redemptions (4,352.894) (7,011,170) (873,725) (7,884,895) ---------- ---------- --------- ---------- Partners' Capital, December 31, 1998 26,653.343 51,660,212 603,953 52,264,165 Net loss -- (3,755,944) (43,994) (3,799,938) Redemptions (2,465.611) (4,551,511) -- (4,551,511) ---------- ---------- --------- ---------- Partners' Capital, December 31, 1999 24,187.732 43,352,757 559,959 43,912,716 Net income -- 3,337,305 48,707 3,386,012 Redemptions (4,214.751) (7,828,381) -- (7,828,381) ---------- ---------- --------- ---------- Partners' Capital, December 31, 2000 19,972.981 38,861,681 608,666 39,470,347 ========== ========== ========= ========== The accompanying notes are an integral part of these consolidated financial statements.
Dean Witter Principal Plus Fund L.P. Consolidated Statements of Cash Flows
For the Years Ended December 31, ---------------------------------- 2000 1999 1998 ---------- ---------- ---------- $ $ $ CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) 3,386,012 (3,799,938) 7,203,198 Noncash items included in net income (loss): Net change in unrealized (1,249,228) 819,971 (421,275) Change in value of Yield Pool (1,703,855) 2,971,134 (2,163,176) (Increase) decrease in operating assets: Investment in Zero-Coupon U.S. Treasury Securities 4,711,684 1,235,218 3,846,722 Interest receivable (DWR) 2,297 9,618 4,765 Net option premiums (365,750) -- (719,950) Increase (decrease) in operating liabilities: Accrued brokerage fees (DWR) (18,978) (17,623) (7,976) Accrued management fees (4,745) (4,405) (1,994) Accrued administrative expenses (1,841) (34,436) (3,360) Incentive fee payable -- (147,477) 147,477 ---------- ---------- ---------- Net cash provided by operating activities 4,755,596 1,032,062 7,884,431 ---------- ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES Increase in redemptions payable 487,304 385,389 233,138 Increase (decrease) in minority interest (10,711) (122,511) 81,423 Redemptions of Units (7,828,381) (4,551,511) (7,884,895) ---------- ---------- ---------- Net cash used for financing activities (7,351,788) (4,288,633) (7,570,334) ---------- ---------- ---------- Net increase (decrease) in cash (2,596,192) (3,256,571) 314,097 Balance at beginning of period 6,014,023 9,270,594 8,956,497 ---------- ---------- ---------- Balance at end of period 3,417,831 6,014,023 9,270,594 ========== ========== ========== The accompanying notes are an integral part of these consolidated financial statements.
Dean Witter Principal Plus Fund L.P. Notes to Consolidated Financial Statements 1. Summary of Significant Accounting Policies Organization--Dean Witter Principal Plus Fund L.P. (the "Partnership") is a limited partnership organized to engage primarily in the speculative trading of futures contracts, options on futures contracts and physical commodities, forward contracts, and other commodity interests (collectively, "futures in- terests"). The Partnership's objective is to achieve long-term appreciation while assur- ing investors at least a 3% compound annual rate of return over approximately seven and one-half years from February 1, 1996 to August 31, 2003. At August 31, 2003, which is the Partnership's "Guaranteed Redemption Date," the Net As- set Value is guaranteed to be at least $1,961.00 per Unit. The Partnership in- itially invested approximately 80% of the Partnership's assets in Zero-Coupon U.S. Treasury Securities (the "Yield Pool") to accomplish this objective. The Partnership's remaining assets have been contributed to its subsidiary, Dean Witter Principal Plus Fund Management L.P. (the "Trading Company"), which was established solely to trade in futures interests on behalf of the Partnership. 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. Inter- national Limited ("MSIL") provide clearing and execution services. Prior to May 2000, Carr Futures Inc. ("Carr") provided clearing and execution services to the Partnership. Demeter, DWR, MS&Co. and MSIL are wholly-owned subsidiar- ies of Morgan Stanley Dean Witter & Co. ("MSDW"). The trading manager to the Partnership is RXR Inc. (the "Trading Manager"). Effective February 19, 1998, Morgan Stanley, Dean Witter, Discover & Co. changed its corporate name to Morgan Stanley Dean Witter & Co. Demeter is required to maintain a 1% minimum interest in the equity of the Partnership and income (losses) are shared by Demeter and the Limited Partners based upon their proportional ownership interests. Use of Estimates--The financial statements are prepared in accordance with ac- counting principles generally accepted in the United States of America, which require management to make estimates and assumptions that affect the reported amounts in the financial statements and related disclosures. Management be- lieves that the estimates utilized in the preparation of the financial state- ments are prudent and reasonable. Actual results could differ from those esti- mates. Dean Witter Principal Plus Fund L.P. Notes to Consolidated Financial Statements-- (Continued) Principles of Consolidation--The consolidated financial statements include the accounts of the Partnership and the Trading Company. All intercompany balances have been eliminated. The ownership by Demeter in the Trading Company represents a minority interest in the Partnership. Demeter's share of the Trading Company's profits and loss- es is deducted from consolidated results of operations. Revenue Recognition--The yield pool is valued at cost plus accreted interest with the accumulated unrealized gain (loss) on the zero-coupon U.S. Treasury Securities separately disclosed. The annual change in the yield pool's market value is reflected in the consolidated statements of operations. The consoli- dated statements of financial condition and the consolidated statements of op- erations have been reconciled to reflect Net Assets, Net Asset Value per Unit and Net Income (Loss) in accordance with the terms of the Limited Partnership Agreement. The following information pertains to the Yield Pool at December 31, 2000 and 1999:
2000 1999 ---------- ---------- $ $ Year to Date Accreted Interest Income 2,108,883 2,303,952 Cost of Yield Pool at year-end 27,062,738 32,415,109 Accreted Interest Receivable at year-end 8,593,114 7,952,427 Market Value of Yield Pool at year-end 36,341,317 39,349,146
Futures interests are open commitments until settlement date. They are valued at market on a daily basis and the resulting net change in unrealized gains and losses is reflected in the change in unrealized profit (loss) on open con- tracts from one period to the next in the consolidated statements of opera- tions. Monthly, DWR pays interest income on 90% of the Trading Company's average dai- ly Net Assets as defined in the Limited Partnership Agreement for the month at a prevailing rate on U.S. Treasury bills. For purposes of such interest pay- ments, Net Assets do not include monies due the Trading Company on futures in- terests, but not actually received. Net Income (Loss) per Unit--Net income (loss) per unit of limited partnership interest ("Unit(s)") is computed using the weighted average number of Units outstanding during the period. Equity in Futures Interests Trading Accounts--The Partnership's asset "Equity in futures interests trading accounts," reflected in the consolidated state- ments of financial condition, Dean Witter Principal Plus Fund L.P. Notes to Consolidated Financial Statements-- (Continued) consists of (A) cash on deposit with DWR, MS&Co. and MSIL to be used as margin for trading; (B) net unrealized gains or losses on open contracts which are valued at market, and calculated as the difference between original contract value and market value, and (C) net option premiums, which represent the net of all monies paid and/or received for such option premiums. The Partnership, in the normal course of business, enters into various con- tracts with MS&Co. and MSIL acting as its commodity brokers. Pursuant to bro- kerage agreements with MS&Co. and MSIL, to the extent that such trading re- sults in unrealized gains or losses, the amounts are offset and reported on a net basis on the Partnership's consolidated statements of financial condition. The Partnership has offset the fair value amounts recognized for forward con- tracts executed with the same counterparty as allowable under terms of the master netting agreement with MS&Co., the sole counterparty on such contracts. The Partnership has consistently applied its right to offset. Brokerage Fees and Related Transaction Fees and Costs--The monthly brokerage fee is equal to 1/3 of 1% per month (a 4% annual rate) of the Partnership's adjusted month-end Net Assets. Transaction fees and costs are accrued on a half-turn basis. In 2000, the brokerage fee charged was the equivalent of a roundturn commission charge of approximately $157 per contract traded. Operating Expenses--The Partnership bears all operating expenses related to its trading activities. These include filing fees, clerical, administrative, auditing, accounting, mailing, printing and other incidental operating ex- penses as permitted by the Limited Partnership Agreement. In addition, the Partnership incurs a monthly management fee and may incur an incentive fee. Demeter bears all other operating expenses. Redemptions--As of the last day of any calendar quarter, Limited Partners may redeem some or all of their Units at 100% of the Net Asset Value per Unit upon five business days advance notice by redemption form to Demeter. During 2000 and 1999, the Partnership sold securities in the Yield Pool in or- der to fund redemptions as detailed below:
2000 1999 --------- --------- $ $ Cost of Securities Sold 5,352,371 1,927,054 Interest Accreted on Securities Sold 1,468,197 610,556 Proceeds from Sale of Securities 6,700,824 3,549,406
Dean Witter Principal Plus Fund L.P. Notes to Consolidated Financial Statements-- (Continued) Distributions--The Partnership will not make any distributions until after the Guarantee Period, and thereafter will only make distributions on a pro-rata basis at the sole discretion of Demeter. Income Taxes--No provision for income taxes has been made in the accompanying consolidated financial statements, as partners are individually responsible for reporting income or loss based upon their respective share of the Partner- ship's revenues and expenses for income tax purposes. Dissolution of the Partnership--The Partnership will terminate on December 31, 2025, or at an earlier date if certain conditions set forth in the Limited Partnership Agreement occur. The Trading Company may terminate operations if its Net Assets decline to 5% or less of consolidated Partnership Net Assets, and will terminate operations if its Net Assets decline to less than 3% of consolidated Partnership Net As- sets. At December 31, 2000 and 1999, the Trading Company had Net Assets of $4,941,558 and $4,761,650 respectively, which represented 12% and 11% respec- tively, of the consolidated Partnership's Net Assets at the respective dates. If the operations of the Trading Company ceased, the remaining Net Assets would be returned to the Partnership and held until the end of the Guarantee Period, when they would be distributed to the Limited Partners. 2. Related Party Transactions The Trading Company pays a monthly brokerage fee to DWR as described in Note 1. The Partnership's and Trading Company's cash is on deposit with DWR, MS&Co., and MSIL in futures interests trading accounts to meet margin require- ments as needed. DWR pays interest on these funds as described in Note 1. The Yield Pool is on deposit with DWR in a customer security account. Pursuant to the Limited Partnership Agreement, Demeter initially invested $200,000 of General Partnership Interest in the Trading Company. 3. Trading Manager Compensation to RXR as trading manager consists of a management fee and an in- centive fee as follows: Management Fee--The Partnership pays a monthly management fee equal to 1/12 of 1% per month (a 1% annual rate) of the Partnership's adjusted Net Assets, as defined in the Limited Partnership Agreement, as of the last day of each month. Dean Witter Principal Plus Fund L.P. Notes to Consolidated Financial Statements-- (Continued) Incentive Fee--The Partnership will pay an annual incentive fee to RXR equal to 15% of the "New Appreciation", as defined in the Limited Partnership Agree- ment, of the Trading Company's Net Assets as of the end of each annual incen- tive period ending December 31. Such incentive fee is accrued in each month in which New Appreciation occurs. In those months in which New Appreciation is negative, previous accruals, if any, during the incentive period will be re- duced. 4. Financial Instruments The Partnership trades futures contracts, options on futures contracts and physical commodities, forward contracts, 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 in- fluence the market value of these contracts, including interest rate volatili- ty. In June 1998, the Financial Accounting Standards Board ("FASB") issued State- ment of Financial Accounting Standard ("SFAS") No. 133, "Accounting for Deriv- ative Instruments and Hedging Activities" effective for fiscal years beginning after June 15, 2000, as amended by SFAS No. 137. The Partnership adopted the 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 dis- closure of average aggregate fair values and contract/notional values, respec- tively, of derivative financial instruments for an entity that carries its as- sets at fair value. SFAS No. 133 was further amended by SFAS No. 138, which clarifies issues surrounding interest rate risk, foreign currency denomina- tions, normal purchases and sales and net hedging. The application of SFAS No. 133, as amended by SFAS No. 137 and SFAS No. 138, did not 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; (3) Terms require or permit net settlement. Dean Witter Principal Plus Fund L.P. Notes to Consolidated Financial Statements-- (Continued) 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 on open contracts are reported as a component of "Eq- uity in futures interests trading accounts" on the statements of financial condition and totaled $1,629,964 and $380,736 at December 31, 2000 and 1999, respectively. Of the $1,629,964 net unrealized gain on open contracts at December 31, 2000, $1,650,388 related to exchange-traded futures contracts and $(20,424) related to off-exchange-traded forward currency contracts. Of the $380,736 net unrealized gain on open contracts at December 31, 1999, $325,528 related to exchange-traded futures contracts and $55,208 related to off-exchange-traded forward currency contracts. Exchange-traded futures contracts held by the Partnership at December 31, 2000 and 1999 mature through June 2001 and June 2000, respectively. Off-exchange- traded forward currency contracts held by the Partnership at December 31, 2000 and 1999 mature through March 2001 and March 2000, respectively. The Partnership has credit risk associated with counterparty nonperformance. The credit risk associated with the instruments in which the Partnership is involved is limited to the amounts reflected in the Partnership's consolidated 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 and futures-styled options con- tracts 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 all of the Partnership's exchange-traded futures and futures-styled op- tions contracts, are required, pursuant to regulations of the Commodity Futures Trading Commission, 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 and futures-styled option contracts including an amount equal to the net unrealized gain on all open futures and futures-styled option contracts, which funds, in the aggregate, totaled $5,068,219 and $6,339,551 at December 31, 2000 and 1999, respectively. With respect to the Partnership's off-exchange-traded forward currency contracts, there are no daily settle- Dean Witter Principal Plus Fund L.P. Notes to Consolidated Financial Statements-- (Concluded) ments 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 re- spect 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 con- tracts, 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 insolven- cy. 5. Legal Matters Similar class actions were filed in 1996 in California and New York State courts. Each of the actions were dismissed in 1999. However, the New York State class action discussed below is still pending because plaintiffs ap- pealed the trial court's dismissal of their case on March 3, 2000. On September 18 and 20, 1996, purported class actions were filed in the Su- preme Court of the State of New York, New York County, on behalf of all pur- chasers of interests in limited partnership commodity pools sold by DWR. Named defendants include DWR, Demeter, Dean Witter Futures & Currency Management Inc., MSDW, certain limited partnership commodity pools of which Demeter is the general partner and certain trading managers to those pools. A consolidat- ed and amended complaint in the action pending in the Supreme Court of the State of New York was filed on August 13, 1997, alleging that the defendants committed fraud, breach of fiduciary duty, and negligent misrepresentation in the sale and operation of the various limited partnership commodity pools. The complaints sought unspecified amounts of compensatory and punitive damages and other relief. The New York Supreme Court dismissed the New York action in No- vember 1998, but granted plaintiffs leave to file an amended complaint, which they did in early December 1998. The defendants filed a motion to dismiss the amended complaint with prejudice on February 1, 1999. By decision dated Decem- ber 21, 1999, the New York Supreme Court dismissed the case with prejudice. However, on March 3, 2000 plaintiffs appealed the trial courts dismissal of their case. MORGAN STANLEY DEAN WITTER & CO. Two World Trade Center 62nd Floor New York, NY 10048 Presorted First Class Mail U.S. Postage Paid Brooklyn, NY Permit No. 529 EX-27 2 0002.txt
5 The schedule contains summary financial information extracted from Dean Witter Principal Plus Fund L.P. and is qualified in its entirety by reference to such financial statements. 12-MOS DEC-31-2000 DEC-31-2000 3,417,831 35,655,852 22,429 0 0 0 0 0 41,777,291 0 0 0 0 0 0 41,777,291 0 5,646,730 0 0 2,271,429 0 0 3,386,012 0 3,386,012 0 0 0 3,386,012 0 0 In addition to cash, securities and receivables, total assets include net unrealized gain on open contracts of $1,629,964, net option premiums of $365,750 and unrealized gain on Zero-Coupon U.S. Treasury Securities of $685,465. Liabilities include redemptions payable of $1,828,856, accrued brokerage fees of $136,573, accrued administrative fees of $120,003 and accrued management fees of $34,143. Total revenues include realized trading revenue of $332,570, net change in unrealized of $1,249,228, interest income of $2,361,077 and change in valuation of Yield Pool of $1,703,855. Income-Pretax, Income Continuing and Net Income includes minority interest in income of $(10,711).
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