<PAGE>
 
Principal 
Plus 
Fund


December 31, 1996 
Annual Report

                                                               [LOGO]DEAN WITTER
<PAGE>
 
DEAN WITTER
Two World Trade Center
62nd Floor
New York, NY 10048
Telephone (212) 392-8899
 
PRINCIPAL PLUS FUND
ANNUAL REPORT
1996
 
Dear Limited Partner:
 
This marks the seventh annual report for the Dean Witter Principal Plus Fund
L.P. (the "Fund"). The Fund began 1996 trading at a Net Asset Value per Unit of
$1,562.26 and decreased by 5.28% to close the year at $1,479.85. 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
contact Demeter Management Corporation at Two World Trade Center, 62nd Floor,
New York, NY 10048 or your Dean Witter Account Executive.
 
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/ Mark J. Hawley
    Mark J. Hawley
    President
    Demeter Management Corporation
    General Partner
<PAGE>
 
DEAN WITTER PRINCIPAL PLUS FUND L.P.
ANNUAL REPORT OF THE TRADING MANAGER
 
After more than five years of successful operation, the Principal Plus Fund
L.P. (the "Fund") was reopened in 1996. Its unique structure provides investors
both the safety of a fixed income vehicle and the growth opportunities of a
globally diversified portfolio.
 
The Fund started the year with meaningful positions in the long dated U.S.
Treasury bond contract, reduced exposure to the U.S. stock market, and
diversified holdings in the foreign exchange, international interest rate and
commodity sectors. This allocation served the portfolio well in 1995, enabling
each component to contribute equally to the total return. However, early in
1996, a shift in sentiment from the U.S. Federal Reserve Bank in favor of
tighter interest rates sent the U.S. bond market into a tailspin causing the
Fund to suffer losses during the first quarter.
 
Despite continued downward pressure in both the U.S. and international bond
markets, by April the portfolio began benefiting from its diversification in
the foreign currency sector, as the U.S. dollar made significant gains against
the German mark, British pound and French franc. The commodity sector also
improved as drought conditions throughout the Mid West and the United Nations
impasse with Iraq over the sale of oil for "humanitarian reasons" presented
profitable opportunities for the Fund.
 
After another setback in May, the Fund's value rose, shrugging off a 10%
correction in the U.S. equity market. The portfolio's capacity to produce the
profitable results when U.S. stock and bond prices are under pressure is
perhaps its greatest strength. Easing interest rates in Australia and Japan,
sharp spikes in the price of crude, home heating oil and natural gas and
relative stability in Italy all contributed to positive performance which
carried through into the fourth quarter of the year.
 
The Fund gained over 6% in the September through November period, driven by
strong performance across all sectors including U.S. equity, fixed income, and
international financial and commodity assets. December finished lower as the
U.S. and international stock and bond markets gave back a portion of their
gains. Weak performance in the financials coupled with erratic price behavior
in the commodity sector were all contributing factors.
 
Looking ahead into 1997, we remain cautious with respect to the overvalued
nature of U.S. stock prices and attracted to U.S. bond yields, particularly in
the context of the current low inflation environment.
<PAGE>
 
DEAN WITTER PRINCIPAL PLUS FUND L.P.
ANNUAL REPORT OF THE TRADING MANAGER--(CONCLUDED)
 
Exposure to the stock market remains unchanged at just 20% of the total
portfolio allocation. The balance of the assets are allocated to the U.S. fixed
income, international financial and commodity markets which should continue to
offer interesting investment opportunities.
 
The overall investment philosophy of the Principal Plus Fund L.P. is to provide
investors with diversified, absolute returns that are not solely dependent on
the U.S. stock market's continued strong performance, all within the safety of
a guaranteed minimum return structure. In today's equity oriented marketplace,
an alternative like Principal Plus Fund L.P. can be an effective tool for
building a more stable, long-term oriented investment strategy.
 
RXR, Inc.
<PAGE>
 
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 condition
of Dean Witter Principal Plus Fund L.P. and subsidiary (the "Partnership") as
of December 31, 1996 and 1995 and the related consolidated statements of
operations, changes in partners' capital, and cash flows for each of the three
years in the period ended December 31, 1996. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
 
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
 
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Dean Witter Principal Plus Fund
L.P. and subsidiary as of December 31, 1996 and 1995 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
 
/s/ Deloitte & Touche LLP
February 17, 1997
New York, New York
<PAGE>
 
DEAN WITTER PRINCIPAL PLUS FUND L.P.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
 
<TABLE>
<CAPTION>
                                                        DECEMBER 31,
                                                    ---------------------
                                                       1996       1995
                                                    ---------- ----------
                                                        $          $
<S>                                                 <C>        <C>
                                 ASSETS
Equity in Commodity futures trading accounts:
 Cash                                                6,625,325  8,897,293
 Net unrealized gain on open contracts                 197,384    787,729
                                                    ---------- ----------
 Total Trading Equity                                6,822,709  9,685,022
Investment in Zero-Coupon U.S. 
 Treasury Securities                                47,247,655         --
Interest receivable (DWR)                               26,628     28,912
Investment in U.S. Treasury Bills                          --  32,867,974
                                                    ---------- ----------
 Total Assets                                       54,096,992 42,581,908
                                                    ========== ==========
                    LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES
 Redemptions payable                                 1,657,380  1,148,358
 Accrued administrative expenses                       203,250    240,726
 Accrued brokerage fee (DWR)                           186,774    141,131
 Accrued management fees                                46,693     35,283
 Accrued transaction fees and costs                      4,108      1,777
                                                    ---------- ----------
 Total Liabilities                                   2,098,205  1,567,275
                                                    ---------- ----------
Minority interest                                      149,974    242,689
                                                    ---------- ----------
PARTNERS' CAPITAL
 Limited Partners (34,253.485 and 25,314.968 Units,
   respectively)                                    50,688,703 39,547,302
 General Partner (783 Units)                         1,160,110  1,224,642
                                                    ---------- ----------
 Total Partners' Capital                            51,848,813 40,771,944
                                                    ---------- ----------
 Total Liabilities and Partners' Capital            54,096,992 42,581,908
                                                    ========== ==========
NET ASSET VALUE PER UNIT                              1,479.85   1,562.26
                                                    ========== ==========
</TABLE>
 
  The accompanying notes are an integral part of these consolidated financial
                                  statements.
<PAGE>
 
DEAN WITTER PRINCIPAL PLUS FUND L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
 
<TABLE>
<CAPTION>
                                                 FOR THE YEARS
                                                     ENDED
                                                  DECEMBER 31,
                                        ----------------------------------
                                           1996        1995        1994
                                        ----------  ----------  ----------
                                            $           $           $
<S>                                     <C>         <C>         <C>
REVENUES
Trading Profit (Loss):
 Realized                                 (989,467)  8,168,790  (6,909,783)
 Net change in unrealized                 (590,345)    498,189  (1,184,045)
                                        ----------  ----------  ----------
  Total Trading Results                 (1,579,812)  8,666,979  (8,093,828)
                                        ----------  ----------  ----------
Change in value of Yield Pool           (2,142,542)    126,990     257,796
Interest income                          3,044,996   3,869,502   5,234,949
                                        ----------  ----------  ----------
  Total Revenues                          (677,358) 12,663,471  (2,601,083)
                                        ----------  ----------  ----------
EXPENSES
Brokerage fees (DWR)                     2,270,318   2,326,127   2,873,223
Management fees                            561,862     573,964     718,306
Transaction fees and costs                 148,501      95,727     344,202
Administrative expenses                     81,000     104,000      89,000
                                        ----------  ----------  ----------
  Total Expenses                         3,061,681   3,099,818   4,024,731
                                        ----------  ----------  ----------
INCOME (LOSS) BEFORE MINORITY INTEREST  (3,739,039)  9,563,653  (6,625,814)
Minority interest in (income) loss          92,716    (166,004)    246,585
                                        ----------  ----------  ----------
NET INCOME (LOSS)                       (3,646,323)  9,397,649  (6,379,229)
                                        ==========  ==========  ==========
NET INCOME (LOSS) ALLOCATION:
Limited Partners                        (3,581,791)  9,209,858  (6,278,042)
General Partner                            (64,532)    187,791    (101,187)
NET INCOME (LOSS) PER UNIT:
Limited Partners                            (82.41)     238.12     (124.78)
General Partner                             (82.41)     238.12     (124.78)
</TABLE>
 
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994.
 
<TABLE>
<CAPTION>
                              UNITS OF
                             PARTNERSHIP    LIMITED     GENERAL
                              INTEREST     PARTNERS     PARTNER      TOTAL
                             -----------  -----------  ---------  -----------
                                               $           $           $
<S>                          <C>          <C>          <C>        <C>
Partners' Capital, December
31, 1993                      53,399.129   76,096,133  1,275,052   77,371,185
Net Loss                             --    (6,278,042)  (101,187)  (6,379,229)
Redemptions                   (6,112.565)  (8,240,722)  (137,014)  (8,377,736)
                             -----------  -----------  ---------  -----------
Partners' Capital, December
31, 1994                      47,286.564   61,577,369  1,036,851   62,614,220
Net Income                           --     9,209,858    187,791    9,397,649
Redemptions                  (21,188.596) (31,239,925)       --   (31,239,925)
                             -----------  -----------  ---------  -----------
Partners' Capital, December
31, 1995                      26,097.968   39,547,302  1,224,642   40,771,944
Offering of Units             13,844.606   21,697,912        --    21,697,912
Net Loss                             --    (3,581,791)   (64,532)  (3,646,323)
Redemptions                   (4,906.089)  (6,974,720)       --    (6,974,720)
                             -----------  -----------  ---------  -----------
Partners' Capital, December
31, 1996                      35,036.485   50,688,703  1,160,110   51,848,813
                             ===========  ===========  =========  ===========
</TABLE>
 
  The accompanying notes are an integral part of these consolidated financial
                                  statements.
<PAGE>
 
DEAN WITTER PRINCIPAL PLUS FUND L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
<TABLE>
<CAPTION>
                                                FOR THE YEARS
                                                    ENDED
                                                DECEMBER 31,
                                     -------------------------------------
                                        1996         1995         1994
                                     -----------  -----------  -----------
                                          $            $            $
<S>                                  <C>          <C>          <C>
CASH FLOWS FROM
  OPERATING ACTIVITIES
Net income (loss)                     (3,646,323)   9,397,649   (6,379,229)
Noncash item included in net income
  (loss):
 Net change in unrealized                590,345     (498,189)   1,184,045
(Increase) decrease in
  operating assets:
 Investment in Zero Coupon U.S.
   Treasury Securities               (47,247,655)  60,143,331      700,900
 Interest receivable (DWR)                 2,284       (1,823)      21,894
 Investment in U.S. Treasury Bills    32,867,974  (32,867,974)         --
 Net option premiums                         --      (186,000)    (820,615)
Increase (decrease) in operating
  liabilities:
 Accrued administrative expenses         (37,476)      40,302      (27,719)
 Accrued brokerage fee (DWR)              45,643      (78,824)     (47,592)
 Accrued management fee                   11,410      (19,706)     (11,898)
 Accrued transaction fees and costs        2,331         (373)     (21,366)
 Incentive fee payable                       --           --      (552,145)
                                     -----------  -----------  -----------
Net cash provided by (used
  for) operating activities          (17,411,467)  35,928,393   (5,953,725)
                                     -----------  -----------  -----------
CASH FLOWS FROM
  FINANCING ACTIVITIES
Minority interest                        (92,715)     166,004     (246,585)
Offering of Units                     21,697,912          --           --
Increase (decrease) in
  redemptions payable                    509,022   (1,872,228)   1,337,687
Redemptions of units                  (6,974,720) (31,239,925)  (8,377,736)
                                     -----------  -----------  -----------
Net cash provided by (used for)
  financing activities                15,139,499  (32,946,149)  (7,286,634)
                                     -----------  -----------  -----------
Net increase (decrease) in cash       (2,271,968)   2,982,244  (13,240,359)
Balance at beginning of
  period                               8,897,293    5,915,049   19,155,408
                                     -----------  -----------  -----------
Balance at end of period               6,625,325    8,897,293    5,915,049
                                     ===========  ===========  ===========
</TABLE>
  The accompanying notes are an integral part of these consolidated financial
                                  statements.
<PAGE>
 
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 in the speculative trading of commodity
futures contracts, commodity options contracts and forward contracts on foreign
currencies. Prior to February 1, 1996 the Partnership's objective was to
achieve long-term appreciation while assuring investors at least a 4% compound
annual rate of return over approximately five and one-half years from February
14, 1990 (the "Guarantee Period"). The Partnership initially invested
approximately 80% of the Partnership's assets in zero-coupon U.S. Treasury
Securities (the "Yield Pool") to accomplish this objective. Subsequent to the
August 1995 maturity of the U.S. Treasury Zero Coupon Securities, the proceeds
were invested in U.S. Treasury Bills. In August 1995, the Guaranteed Yield was
extended through January 31, 1996 during which time additional Units of the
Partnership were registered and offered to the public (see Offering of Units).
 
Effective February 1, 1996 the Partnership's objective was changed to achieve
long-term appreciation while assuring 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 Asset Value is guaranteed to be at least
$1,961.00 per Unit. At the February 1, 1996 closing date of the Offering, the
Partnership again invested approximately 80% of its total assets in Zero-Coupon
U.S. Treasury Securities 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 commodity interests on behalf of the Partnership.
 
The general partner in the partnership is Demeter Management Corporation
("Demeter") and the commodity broker is Dean Witter Reynolds Inc. ("DWR"). Both
DWR and Demeter are wholly-owned subsidiaries of Dean Witter, Discover & Co.
("DWD"). Demeter has retained RXR, Inc. ("RXR") as the trading manager of the
Trading Company.
 
Demeter is required to maintain a 1% minimum interest in the equity of the
Partnership and income (losses) are shared by the General and Limited Partners
based upon their proportional ownership interests.
 
OFFERING OF UNITS--During the period from November 11, 1995 through January 31,
1996 additional Units
<PAGE>
 
DEAN WITTER PRINCIPAL PLUS FUND L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--
(CONTINUED)
 
were offered to the public at a price equal to 100% of the Net Asset Value as
of the close of business on the last day of the month immediately preceding the
February 1, 1996 closing date of the offering.
 
BASIS OF ACCOUNTING--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts in the financial statements.
 
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 losses
is deducted from consolidated results of operations.
 
REVENUE RECOGNITION--The Yield Pool is valued at the lesser of cost plus
accreted interest or market value.
 
The following information pertains to the Yield Pool at December 31, 1996 and
1995:
<TABLE>
<CAPTION>
                                             1996       1995
                                          ---------- ----------
<S>                                       <C>        <C>
                                              $          $
Year to Date Accreted Interest Income      2,726,002  3,470,058
Cost of Yield Pool at year-end            46,928,070 32,855,625
Accreted Interest Receivable at year-end   2,462,127     12,349
Market Value of Yield Pool at year-end    47,247,655 32,879,578
</TABLE>
 
Commodity futures contracts, commodity options contracts and forward contracts
on foreign currencies are open commitments until settlement date. They are
valued at market and the resulting unrealized gains and losses are reflected in
income.
 
Monthly, DWR pays interest income based upon 90% of the Trading Company's
average daily Net Assets for the month at a rate equal to the average yield on
13-week U.S. Treasury Bills issued during such month. For purposes of such
interest payments, Net Assets do not include monies due the Trading Company on
forward contracts and other commodity interests, but not actually received.
 
During December 1995, the Partnership entered into forward contracts to
purchase $26 million face value Zero-Coupon U.S. Treasury Securities on
February 1, 1996, the closing date for the offering of Units. This commitment
was made to ensure a minimum interest rate on the Yield Pool for the new
guarantee period which commenced on February 1, 1996. At December 31, 1995 the
market value of these forward contracts
<PAGE>
 
DEAN WITTER PRINCIPAL PLUS FUND L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--
(CONTINUED)
 
was greater than the cost of such contracts. Consistent with the Partnership's
policy of valuing the Yield Pool at the lower of cost plus accreted interest or
market, no revenue has been recognized on this transaction.
 
NET INCOME (LOSS) PER UNIT--Net income (loss) per Unit is computed using the
weighted average number of units outstanding during the period.
 
EQUITY IN COMMODITY FUTURES TRADING ACCOUNTS--The Partnership's asset "Equity
in Commodity futures trading accounts" consists of cash on deposit at DWR to be
used as margin for trading and the net asset or liability related to unrealized
gains or losses on open contracts and the net option premiums paid and/or
received. The asset or liability related to the unrealized gains or losses on
forward contracts is presented as a net amount because the Partnership has a
master netting agreement with DWR.
 
BROKERAGE FEES AND RELATED TRANSACTION FEES AND COSTS--The monthly brokerage
fee is equal to 1/3 of 1% per month of the Partnership's adjusted month-end Net
Assets. Transaction fees and costs are accrued on a half-turn basis. In 1996,
the brokerage fee charged was the equivalent of a roundturn commission charge
of approximately $49 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 expenses
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 1996 and 1995, the Partnership sold securities in the Yield Pool in
order to fund redemptions as detailed below:
<TABLE>
<CAPTION>
                                        1996       1995
                                      --------- ----------
                                          $         $
<S>                                   <C>       <C>
Cost of Securities Sold               4,325,168 13,852,285
Interest Accreted on Securities Sold    130,978  2,831,588
Proceeds from Sale of Securities      4,140,685 16,810,864
</TABLE>
 
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.
<PAGE>
 
DEAN WITTER PRINCIPAL PLUS FUND L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--
(CONTINUED)
 
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 Partnership'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 Assets.
At December 31, 1996 and 1995, the Trading Company had Net Assets of $6,216,269
and $7,263,874 respectively, which represented 12% and 18% respectively, 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 in
commodity trading accounts to meet margin requirements as needed. The Yield
Pool is on deposit with DWR in a customer security account. DWR pays interest
on these funds as described in Note 1.
 
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
incentive fee as follows:
 
MANAGEMENT FEE--The Partnership pays a monthly management fee equal to 1/12 of
1% per month of the Partnership's adjusted Net Assets, as defined in the
Limited Partnership Agreement, as of the last day of each month.
 
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 Agreement,
of the Trading Company's Net Assets as of the end of each annual incentive
period ending December 31. Such incentive fee is accrued in each month in which
"New Appreciation" occurs. In those
<PAGE>
 
DEAN WITTER PRINCIPAL PLUS FUND L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--
(CONTINUED)
 
months in which "New Appreciation" is negative, previous accruals, if any,
during the incentive period will be reduced.
 
4. FINANCIAL INSTRUMENTS
 
The Partnership trades futures, options and forward contracts in interest
rates, stock indices, commodities, currencies, petroleum, and precious metals.
Futures and forwards represent contracts for delayed delivery of an instrument
at a specified date and price. Risk arises from changes in the value of these
contracts and the potential inability of counterparties to perform under the
terms of the contracts. There are numerous factors which may significantly
influence the market value of these contracts, including interest rate
volatility. At December 31, 1996 and 1995, open contracts were:
 
<TABLE>
<CAPTION>
                            1996       1995
                         ---------- ----------
<S>                      <C>        <C>
                             $          $
EXCHANGE-TRADED CONTRACTS
Financial Futures:
 Commitments to Purchase 36,738,000 22,510,000
 Commitments to Sell     19,776,000  2,464,000
Commodity Futures:
 Commitments to Purchase  5,550,000  9,147,000
 Commitments to Sell      5,879,000  2,210,000
Foreign Futures:
 Commitments to Purchase 83,456,000 32,219,000
 Commitments to Sell      6,403,000    147,000
OFF-EXCHANGE-TRADED
FORWARD CURRENCY CONTRACTS
 Commitments to Purchase 11,219,000 13,874,000
 Commitments to Sell     24,545,000 13,598,000
</TABLE>
 
A portion of the amounts indicated as off-balance-sheet risk in forward
currency contracts is due to offsetting forward commitments to purchase and to
sell the same currency on the same date in the future. These commitments are
economically offsetting, but are not offset in the forward market until the
settlement date.
 
The unrealized gains and losses on open contracts are reported as a component
of "Equity in Commodity futures trading accounts" on the Consolidated
Statements of Financial Condition and totaled $197,384 and $787,729 at December
31, 1996 and 1995, respectively.
 
Of the $197,384 net unrealized gain on open contracts at December 31, 1996,
$302,539 related to exchange-traded futures contracts and $(105,155) related to
off-exchange-traded forward currency contracts. Of the $787,729 net unrealized
gain on open contracts at December 31, 1995, $860,800 related to exchange-
traded futures contracts and $(73,071) related to off-exchange-traded forward
currency contracts.
<PAGE>
 
DEAN WITTER PRINCIPAL PLUS FUND L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--
(CONTINUED)
 
Exchange-traded futures contracts held by the Partnership at December 31, 1996
and 1995, mature through June 1997 and March 1996, respectively. Off-exchange-
traded forward currency contracts held by the Partnership at December 31, 1996
and 1995 mature through January 1997 and January 1996, respectively. The
contract amounts in the above table represent the Partnership's extent of
involvement in the particular class of financial instrument, but not the credit
risk associated with counterparty nonperformance. The credit risk associated
with these instruments is limited to the amounts reflected in the Partnership's
Consolidated Statements of Financial Condition.
 
The Partnership also has credit risk because DWR acts as the futures commission
merchant or the sole counterparty, with respect to most of the Partnerships'
assets. Exchange-traded futures and options contracts are marked to market on a
daily basis, with variations in value settled on a daily basis. DWR, as the
futures commission merchant for all of the Partnership's exchange-traded
futures and options contracts, is required pursuant to regulations of the
Commodity Futures Trading Commission to segregate from its own assets, and for
the sole benefit of its commodity customers, all funds held by DWR with respect
to exchange-traded futures and option contracts including an amount equal to
the net unrealized gain on all open futures and option contracts, which funds
totaled $6,927,864 and $9,758,093 at December 31, 1996 and 1995, respectively.
With respect to the Partnership's off-exchange-traded forward currency
contracts, there are no daily settlements of variations in value nor is there
any requirement that an amount equal to the net unrealized gain on open forward
contracts be segregated. With respect to those off-exchange-traded forward
currency contracts, the Partnership is at risk to the ability of DWR, the
counterparty on all of such contracts, to perform.
 
For the year ended December 31, 1996 and 1995, the average fair value of
financial instruments held for trading purposes was as follows:
 
<TABLE>
<CAPTION>
                                                         1996
                                                ----------------------
                                                  ASSETS   LIABILITIES
                                                ---------- -----------
<S>                                             <C>        <C>
                                                    $           $
EXCHANGE-TRADED CONTRACTS:
 Financial Futures                              48,280,000 20,650,000
 Options on Financial Futures                      717,000  4,639,000
 Commodity Futures                               6,775,000  3,814,000
 Foreign Futures                                51,243,000 17,579,000
OFF-EXCHANGE-TRADED FORWARD CURRENCY CONTRACTS  30,644,000 28,108,000
</TABLE>
<PAGE>
 
DEAN WITTER PRINCIPAL PLUS FUND L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--
(CONCLUDED)
 
<TABLE>
<CAPTION>
                                                         1995
                                                ----------------------
                                                  ASSETS   LIABILITIES
                                                ---------- -----------
<S>                                             <C>        <C>
                                                    $           $
EXCHANGE-TRADED CONTRACTS:
 Financial Futures                              45,801,000 14,808,000
 Commodity Futures                               6,597,000  3,868,000
 Foreign Futures                                17,753,000 12,470,000
OFF-EXCHANGE-TRADED FORWARD CURRENCY CONTRACTS  12,040,000 13,125,000
</TABLE>
 
5. LEGAL MATTERS
 
On September 6, 10, and 20, 1996, similar purported class actions were filed in
the Superior Court of the State of California, County of Los Angeles, on behalf
of all purchasers of interests in limited partnership commodity pools sold by
DWR. Named defendants include DWR, Demeter, Dean Witter Futures & Currency
Management Inc., DWD, (all such parties referred to hereafter as the "Dean
Witter Parties"), certain limited partnership commodity pools of which Demeter
is the general partner, and certain trading advisors to those pools. Similar
purported class actions were also filed on September 18 and 20, 1996, in the
Supreme Court of the State of New York, New York County, and on November 14,
1996 in the Superior Court of the State of Delaware, New Castle County, against
the Dean Witter Parties and certain trading advisors on behalf of all
purchasers of interests in various limited partnership commodity pools sold by
DWR. Generally, these complaints allege, among other things, that the
defendants committed fraud, deceit, misrepresentation, breach of fiduciary
duty, fraudulent and unfair business practices, unjust enrichment, and
conversion in connection with the sale and operation of the various limited
partnership commodity pools. The complaints seek unspecified amounts of
compensatory and punitive damages and other relief. It is possible that
additional similar actions may be filed and that, in the course of these
actions, other parties could be added as defendants. The Dean Witter Parties
believe that they have strong defenses to, and they will vigorously contest,
the actions. Although the ultimate outcome of legal proceedings cannot be
predicted with certainty, it is the opinion of management of the Dean Witter
Parties that the resolution of the actions will not have a material adverse
effect on the financial condition or the results of operations of any of the
Dean Witter Parties.
<PAGE>
 
 
 
 
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