UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the period ended March 31, 1996 or
[ ] Transition report pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the transition period from ________________to_____________
Commission File Number 0-13299
DEAN WITTER CORNERSTONE FUND III
(Exact name of registrant as specified in its charter)
New York 13-3190919
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
c/o Demeter Management Corp.
Two World Trade Center, New York, NY 62 Fl. 10048
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 392-5454
(Former name, former address, and former fiscal year, if changes
since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
<PAGE>
<TABLE>
DEAN WITTER CORNERSTONE FUND III
INDEX TO QUARTERLY REPORT ON FORM 10-Q
March 31, 1996
<CAPTION>
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements
Statements of Financial Condition
March 31, 1996 (Unaudited) and December 31, 1995...........2
Statements of Operations for the Quarters Ended
March 31, 1996 and 1995 (Unaudited)........................3
Statements of Changes in Partners' Capital for the
Quarters Ended March 31, 1996 and 1995 (Unaudited).........4
Statements of Cash Flows for the Quarters Ended
March 31, 1996 and 1995 (Unaudited)........................5
Notes to Financial Statements (Unaudited)................6-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..............10-13
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K................... 14
</TABLE>
<PAGE>
<TABLE>
DEAN WITTER CORNERSTONE FUND III
STATEMENTS OF FINANCIAL CONDITION
<CAPTION>
March 31, December 31,
1996 1995
$ $
(Unaudited)
ASSETS
<S> <C> <C>
Equity in Commodity futures trading accounts:
Cash 38,188,403 42,294,365
Net unrealized gain on open contracts 1,302,524 5,578,294
Total Trading Equity 39,490,927 47,872,659
Interest receivable (DWR) 129,771 159,680
Receivable from DWR 104,533 124,456
Total Assets 39,725,231 48,156,795
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Redemptions payable 534,432 639,349
Common administrative expenses payable 171,929 222,036
Accrued management fees 130,993 158,630
Accrued brokerage commissions (DWR) 105,778 166,128
Accrued transaction fees and costs 18,530 20,978
Total Liabilities 961,662 1,207,121
Partners' Capital
Limited Partners (17,599.592 and
18,332.818 Units, respectively) 37,939,860 45,991,101
General Partner (382.103 Units) 823,709 958,573
Total Partners' Capital 38,763,569 46,949,674
Total Liabilities and Partners' Capital 39,725,231 48,156,795
NET ASSET VALUE PER UNIT 2,155.72 2,508.68
<FN>
The accompanying footnotes are an integral part
of these financial statements.
</TABLE>
<PAGE>
<TABLE>
DEAN WITTER CORNERSTONE FUND III
STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
For the Quarters Ended March 31,
1996 1995
$ $
<S> <C> <C>
REVENUES
Trading profit (loss):
Realized (1,228,640) 3,833,272
Net change in unrealized (4,275,770) 145,188
Total Trading Results (5,504,410) 3,978,460
Interest Income (DWR) 433,617 526,023
Total Revenues (5,070,793) 4,504,483
EXPENSES
Brokerage commissions (DWR) 875,286 1,221,133
Management fees 424,415 452,182
Transaction fees and costs 115,411 115,690
Common administrative expenses 4,533 21,158
Total Expenses 1,419,645 1,810,163
NET INCOME (LOSS) (6,490,438) 2,694,320
NET INCOME (LOSS) ALLOCATION:
Limited Partners (6,355,574) 2,648,170
General Partner (134,864) 46,150
NET INCOME (LOSS) PER UNIT:
Limited Partners (352.96) 120.78
General Partner (352.96) 120.78
<FN>
The accompanying footnotes are an integral part
of these financial statements.
</TABLE>
<PAGE>
<TABLE>
DEAN WITTER CORNERSTONE FUND III
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
For the Quarters Ended March 31, 1996 and 1995
(Unaudited)
<CAPTION>
Units of
Partnership Limited General
Interest Partners Partner Total
<S> <C> <C> <C> <C>
Partners' Capital
December 31, 1994 23,887.701 $46,250,611 $751,842 $47,002,453
Offering of Units 21.629 40,000 - 40,000
Net Income - 2,648,170 46,150 2,694,320
Redemptions (1,515.278) (2,968,543) - (2,968,543)
Partners' Capital
March 31, 1995 22,394.052 $45,970,238 $797,992 $46,768,230
Partners' Capital
December 31, 1995 18,714.921 $45,991,101 $958,573 $46,949,674
Net Loss - (6,355,574) (134,864) (6,490,438)
Redemptions (733.226) (1,695,667) - (1,695,667)
Partners' Capital
March 31, 1996 17,981.695 $37,939,860 $823,709 $38,763,569
<FN>
The accompanying footnotes are an integral part
of these financial statements.
</TABLE>
<PAGE>
<TABLE>
DEAN WITTER CORNERSTONE FUND III
STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
For the Quarters Ended March 31,
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income (loss) (6,490,438) 2,694,320
Noncash item included in net income (loss):
Net change in unrealized 4,275,770 (145,188)
Decrease in operating assets:
Interest receivable (DWR) 29,909 8,920
Receivable from DWR 19,923 97,305
Increase (decrease) in operating liabilities:
Common administrative expenses payable (50,107) 21,158
Accrued brokerage commissions (DWR) (60,350) (32,874)
Accrued management fees (27,637) 1,926
Accrued transaction fees and costs (2,448) 14,139
Net cash provided by (used for) operating activities (2,305,378) 2,659,706
CASH FLOWS FROM FINANCING ACTIVITIES
Offering of units - 40,000
Increase (decrease) in redemptions payable (104,917) 811,876
Redemptions of units (1,695,667) (2,968,543)
Net cash used for financing activities (1,800,584) (2,116,667)
Net increase (decrease) in cash (4,105,962) 543,039
Balance at beginning of period 42,294,365 42,884,780
Balance at end of period 38,188,403 43,427,819
<FN>
The accompanying footnotes are an integral part
of these financial statements.
</TABLE>
<PAGE>
DEAN WITTER CORNERSTONE FUND III
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
The financial statements include, in the opinion of management, all
adjustments necessary for a fair presentation of the results of
operations and financial condition. The financial statements and
condensed notes herein should be read in conjunction with the
Partnership's December 31, 1995 Annual Report on Form 10-K.
1. Organization
Dean Witter Cornerstone Fund III (the "Partnership") is a limited
partnership organized to engage in the speculative trading of
commodity futures contracts and forward contracts on foreign
currencies. The Partnership is one of the Dean Witter Cornerstone
Funds, comprised of Dean Witter Cornerstone Fund II, Dean Witter
Cornerstone Fund III, and Dean Witter Cornerstone Fund IV. The
General Partner for the Partnership is Demeter Management
Corporation (the "General Partner"). The commodity broker is Dean
Witter Reynolds Inc. ("DWR"). The trading advisors who make all
trading decisions for the Partnership are Computerized Commodity
Advisory, Inc. and Sunrise Capital Management. Both the General
Partner and DWR are wholly owned subsidiaries of Dean Witter,
Discover & Co.
<PAGE>
DEAN WITTER CORNERSTONE FUND III
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. Related Party Transactions
The Partnership's cash is on deposit with DWR in commodity trading
accounts to meet margin requirements as needed. DWR pays interest
on these funds based on current 13-week U.S. Treasury Bill rates.
Brokerage expenses incurred by the Partnership are paid to DWR.
3. Financial Instruments
The Partnership trades futures 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 March 31, 1996, open contracts were:
Contract or
Notional Amount
$
Exchange-Traded Contracts
Financial Futures:
Commitments to Purchase 17,420,000
Commitments to Sell 139,377,000
Commodity Futures:
Commitments to Purchase 67,656,000
Commitments to Sell 2,751,000
Foreign Futures:
Commitments to Purchase 34,992,000
Commitments to Sell 49,953,000
<PAGE>
DEAN WITTER CORNERSTONE FUND III
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
A portion of the amounts indicated as off-balance-sheet risk in
forward currency contracts is due to offsetting forward commitments
to purchase and 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 gain on open contracts is reported as a component
of "Equity in Commodity futures trading accounts" on the Statement
of Financial Condition and totaled $1,302,524 at March 31, 1996 and
related entirely to exchange-traded futures contracts.
Exchange-traded futures contracts held by the Partnership at March
31, 19965 mature through December 1996. 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 Statements of Financial Condition.
<PAGE>
DEAN WITTER CORNERSTONE FUND III
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
The Partnership also has credit risk because the sole counterparty,
with respect to most of the Partnership's assets is DWR. Exchange-
traded futures 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 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 contracts
including an amount equal to the net unrealized gain on all open
futures contracts, which funds totaled $39,490,927 at March 31,
1996.
For the quarter ended March 31, 1996, the average fair value of
financial instruments held for trading purposes was as follows:
Assets Liabilities
$ $
Exchange-Traded Contracts:
Financial Futures 142,334,000 78,196,000
Commodity Futures 99,478,000 10,049,000
Foreign Futures 104,658,000 38,521,000
<PAGE>
Item 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
Liquidity. The Partnership's assets are deposited in separate
commodity trading accounts with DWR and are used by the Partnership
as margin to engage in trading commodity futures contracts and
forward contracts on foreign currency. DWR holds such assets in
either designated depositories or in securities approved by the
Commodity Futures Trading Commission for investment of customer
funds. The Partnership's assets held by DWR may be used as margin
solely for the Partnership's trading. Since the Partnership's sole
purpose is to trade in commodity futures contracts and forward
contracts on foreign currency, it is expected that the Partnership
will continue to own such liquid assets for margin purposes.
The Partnership's investment in commodity futures contracts and
other commodity interests may be illiquid. If the price for a
futures contract for a particular commodity has increased or
decreased by an amount equal to the "daily limit," positions in the
commodity can neither be taken nor liquidated unless traders are
willing to effect trades at or within the limit. Commodity futures
prices have occasionally moved the daily limit for several
consecutive days with little or no trading. Such market conditions
could prevent the Partnership from promptly liquidating its
commodity futures positions.
There is no limitation on daily price moves in trading forward
contracts on foreign currency. The markets for some world
currencies have low trading volume and are illiquid, which may
<PAGE>
prevent the Partnership from trading in 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.
Capital Resources. The Partnership does not have, nor does it
expect to have, any capital assets. Redemptions and exchanges of
Units in the future will impact the amount of funds available for
investments in commodity futures contracts and other commodity
interests. As redemptions are at the discretion of Limited
Partners, it is not possible to estimate the amount and therefore,
the impact of future redemptions.
Results of Operations
For the Quarter Ended March 31, 1996
For the quarter ended March 31, 1996 the Partnership's total
trading losses net of interest income were $5,070,793. During the
first quarter, the Partnership posted a loss in Net Asset Value per
Unit. The most significant losses were recorded in global interest
rate futures and currency trading during February. In financial
futures, long positions in U.S., European and Australian bond
futures, which had been profitable for the Partnership during
January, experienced losses as global bond futures prices moved
sharply lower. Losses were also recorded in the currency markets
during February as short positions in the Japanese yen, Swiss
franc, German mark and British pound experienced losses due to a
sudden increase in the value of the yen and most major European
<PAGE>
currencies versus the U.S. dollar. Trendless price movement in
several traditional commodities markets, such as metals, soft
commodities and energy futures, resulted in additional losses
during February. During March, the Fund recorded small losses as
short-term price volatility was experienced in global financial and
base metals futures. A portion of these losses was offset by
profits recorded during January from long global bond futures
positions, as interest rate futures prices increased, and from
short positions in the Japanese yen, as the value of the yen
decreased relative to the U.S. dollar. Additional trading gains
were recorded from long positions in corn futures as corn prices
moved higher during February and March. Total expenses for the
period were $1,419,645, resulting in a net loss of $6,490,438. The
value of an individual Unit in the Partnership decreased from
$2,508.68 at December 31, 1995 to $2,155.72 at March 31, 1996.
For the Quarter Ended March 31, 1995
For the quarter ended March 31, 1995, the Partnership's total
trading gains including interest income were $4,504,483. During
the first quarter, the Partnership posted a gain in Net Asset Value
per Unit. The most significant gains were recorded during February
and March as a result of trading in the currency markets as the
value of the U.S. dollar decreased versus most world currencies,
specifically the German mark, Japanese yen and Swiss franc.
Additional gains were recorded in the financial futures markets as
a result of trading Japanese and European interest rate futures
during the quarter. Smaller profits were experienced from trading
cotton as prices moved higher during February. Smaller trading
<PAGE>
losses were experienced in the metals markets from trading gold,
aluminum and nickel in March and in the international markets from
trading sugar, coffee and cocoa during the quarter. Additional
losses recorded from trading soybean products and heating and crude
oil offset a portion of overall Fund gains during the quarter.
Total expenses for the period were $1,810,163, resulting in a net
gain of $2,694,320. The value of an individual Unit in the
Partnership increased from $1,967.64 at December 31, 1994 to
$2,088.42 at March 31, 1995.
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
A) Exhibits.
None.
B) Reports on Form 8-K. - None.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dean Witter Cornerstone Fund III
(Registrant)
By: Demeter Management Corporation
(General Partner)
May 8, 1996 By: /s/ Patti L. Behnke
Patti L. Behnke
Chief Financial Officer
The General Partner which signed the above is the only party
authorized to act for the Registrant. The Registrant has no
principal executive officer, principal financial officer,
controller, or principal accounting officer and has no Board of
Directors.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from Dean
Witter Cornerstone Fund III and is qualified in its entirety by reference
to such financial instruments.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 38,188,403
<SECURITIES> 0
<RECEIVABLES> 234,304<F1>
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 39,725,231<F2>
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 39,725,231<F3>
<SALES> 0
<TOTAL-REVENUES> (5,070,793)<F4>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,419,645
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (6,490,438)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,490,438)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,490,438)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>Receivables include interest receivable of $129,771 and receivable from
DWR of $104,533.
<F2>In addition to cash and receivables, total assets include net unrealized
gain on open contracts of $1,302,524.
<F3>Liabilities include redemptions payable of $534,432, accrued management
fees of $130,993, accrued brokerage commissions of $105,778, common
administrative expenses payable of $171,929 and accrued transaction fees
and costs of $18,530.
<F4>Total revenue includes realized trading revenue of $(1,228,640), net
change in unrealized of $(4,275,770) and interest income of $433,617.
</FN>
</TABLE>
