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, 1997 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, 1997
<CAPTION>
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements
Statements of Financial Condition
March 31, 1997 (Unaudited) and December 31, 1996...........2
Statements of Operations for the Quarters Ended
March 31, 1997 and 1996 (Unaudited)........................3
Statements of Changes in Partners' Capital for the
Quarters Ended March 31, 1997 and 1996 (Unaudited).........4
Statements of Cash Flows for the Quarters Ended
March 31, 1997 and 1996 (Unaudited)........................5
Notes to Financial Statements (Unaudited)...............6-11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................12-16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................17-18
Item 6. Exhibits and Reports on Form 8-K................... 19
</TABLE>
<PAGE>
<TABLE>
DEAN WITTER CORNERSTONE FUND III
STATEMENTS OF FINANCIAL CONDITION
<CAPTION>
March 31, December 31,
1997 1996
$ $
(Unaudited)
ASSETS
<S> <C> <C>
Equity in Commodity futures trading accounts:
Cash 42,206,365 40,587,011
Net unrealized gain on open contracts 2,575,303 2,580,803
Net option premiums (319,320) (291,412)
Total Trading Equity 44,462,348 42,876,402
Interest receivable (DWR) 155,758 138,367
Receivable from DWR 148,933 122,701
Total Assets 44,767,039 43,137,470
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Redemptions payable 723,282 680,730
Common administrative expenses payable 156,871 137,548
Accrued management fees 147,710 142,387
Accrued brokerage commissions (DWR) 140,147 129,098
Accrued transaction fees and costs 9,255 12,349
Total Liabilities 1,177,265 1,102,112
Partners' Capital
Limited Partners (14,409.835 and
15,097.603 Units, respectively) 42,463,770 40,997,752
General Partner (382.103 Units) 1,126,004 1,037,606
Total Partners' Capital 43,589,774 42,035,358
Total Liabilities and Partners' Capital 44,767,0394 3,137,470
NET ASSET VALUE PER UNIT 2,946.86 2,715.51
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,
1997 1996
$ $
REVENUES
<S> <C> <C>
Trading profit (loss):
Realized 4,228,547 (1,228,640)
Net change in unrealized (5,500) (4,275,770)
Total Trading Results 4,223,047 (5,504,410)
Interest Income (DWR) 453,531 433,617
Total Revenues 4,676,578 (5,070,793)
EXPENSES
Brokerage commissions (DWR) 586,097 875,286
Management fees 444,564 424,415
Transaction fees and costs 59,614 115,411
Common administrative expenses 19,322 4,533
Total Expenses 1,109,597 1,419,645
NET INCOME (LOSS) 3,566,981 (6,490,438)
NET INCOME (LOSS) ALLOCATION:
Limited Partners 3,478,583 (6,355,574)
General Partner 88,398 (134,864)
NET INCOME (LOSS) PER UNIT:
Limited Partners 231.35 (352.96)
General Partner 231.35 (352.96)
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, 1997 and 1996
(Unaudited)
<CAPTION>
Units of
Partnership Limited General
Interest Partners Partner Total
<S> <C> <C> <C> <C>
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
Partners' Capital
December 31, 1996 15,479.706 $40,997,752 $1,037,606 $42,035,358
Offering of Units 1.841 5,000 - 5,000
Net Income - 3,478,583 88,398 3,566,981
Redemptions (689.609) (2,017,565) - (2,017,565)
Partners' Capital
March 31, 1997 14,791.938 $42,463,770 $1,126,004 $43,589,774
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,
1997 1996
$ $
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income (loss) 3,566,981 (6,490,438)
Noncash item included in net income (loss):
Net change in unrealized 5,500 4,275,770
(Increase) decrease in operating assets:
Net option premiums 27,908 -
Interest receivable (DWR) (17,391) 29,909
Receivable from DWR (26,232) 19,923
Increase (decrease) in operating liabilities:
Common administrative expenses payable 19,323 (50,107)
Accrued management fees 5,323 (27,637)
Accrued brokerage commissions (DWR) 11,049 (60,350)
Accrued transaction fees and costs (3,094) (2,448)
Net cash provided by (used for) operating activities 3,589,367 (2,305,378)
CASH FLOWS FROM FINANCING ACTIVITIES
Offering of units 5,000 -
Increase (decrease) in redemptions payable 42,552 (104,917)
Redemptions of units (2,017,565) (1,695,667)
Net cash used for financing activities (1,970,013) (1,800,584)
Net increase (decrease) in cash 1,619,354 (4,105,962)
Balance at beginning of period 40,587,011 42,294,365
Balance at end of period 42,206,365 38,188,403
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, 1996 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 ("Demeter"). The commodity broker is Dean
Witter Reynolds Inc. ("DWR"). Both Demeter and DWR are wholly
owned subsidiaries of Dean Witter, Discover & Co. ("DWD"). The
trading advisors who make all trading decisions for the
Partnership are Abraham Trading Co., Welton Investment Systems
Corporation and Sunrise Captial Management.
<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, 1997 and
December 31, 1996, open contracts were:
<PAGE>
DEAN WITTER CORNERSTONE FUND III
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Contract or Notional Amount
March 31, 1997 December 31, 1996
$ $
Exchange-Traded Contracts
Financial Futures:
Commitments to Purchase 18,128,000 118,163,000
Commitments to Sell 147,078,000 59,405,000
Options Written 63,634,000 18,613,000
Commodity Futures:
Commitments to Purchase 58,905,000 17,683,000
Commitments to Sell 8,816,000 22,811,000
Options Written 31,481,000 18,407,000
Foreign Futures:
Commitments to Purchase 21,275,000 62,344,000
Commitments to Sell 35,764,000 22,390,000
Options Written 7,910,000 -
Off-Exchange-Traded
Forward Currency Contracts
Commitments to Purchase - 420,000
Commitments to Sell - 1,379,000
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
<PAGE>
DEAN WITTER CORNERSTONE FUND III
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Statement of Financial Condition and totaled $2,575,303 and
$2,580,803 at March 31, 1997. and December 31, 1996,
respectively. The net unrealized gain on open contracts at March
31, 1997, related entirely to exchange-traded futures contracts.
Of the $2,580,803 net unrealized gain on open contracts at
December 31, 1996, $2,589,289 related to exchange-traded futures
contracts and $(8,486) related to off-exchange-traded forward
currency con-tracts.
Exchange-traded futures contracts held by the Partnership at
March 31, 1997 and December 31, 1996 mature through September
1997 and June 1997, respectively. Off-exchange-traded forward
currency contracts held by the Partnership at December 31, 1996
mature through January 1997. 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 (CONTINUED)
The Partnership also has credit risk because DWR acts as the
futures commission merchant or the sole counterparty, with
respect to most of the Partnership's assets. Exchange-traded
futures contracts are marked to market on a daily basis, with
variations in value settled on a daily basis. DWR, 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 $42,206,365 and
$43,176,300 at March 31, 1997 and December 31, 1996 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.
<PAGE>
DEAN WITTER CORNERSTONE FUND III
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
For the period ended March 31, 1997 and for the year ended
December 31, 1996, the average fair value of financial
instruments held for trading purposes was as follows:
March 31, 1997
Assets Liabilities
$ $
Exchange-Traded Contracts:
Financial Futures 46,508,000 77,785,000
Options on Financial Futures - 35,169,000
Commodity Futures 41,854,000 15,456,000
Options on Commodity Futures 1,572,000 14,129,000
Foreign Futures 58,430,000 16,681,000
Options on Foreign Futures - 2,942,000
Off-Exchange-Traded Forward
Currency Contracts 302,000 585,000
December 31, 1996
Assets Liabilities
$ $
Exchange-Traded Contracts:
Financial Futures 105,128,000 74,480,000
Options on Financial Futures - 10,138,000
Commodity Futures 44,276,000 18,531,000
Options on Commodity Futures - 2,763,000
Foreign Futures 80,000,000 27,228,000
Options on Foreign Futures - 1,000
Off-Exchange-Traded Forward
Currency Contracts 233,000 354,000
<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
<PAGE>
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
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.
<PAGE>
Results of Operations
For the Quarter Ended March 31, 1997
For the quarter ended March 31, 1997, the Partnership's total
trading revenues including interest income were $4,676,578.
During the first quarter, the Partnership posted an increase in
Net Asset Value per Unit. The most significant gains were
recorded due to a strong upward trend in coffee prices during
January and February. In the agricultural markets, gains were
recorded during February and March from long soybean and corn
futures positions, as prices in these markets also trended
higher. Additional gains were recorded during January and
February in the currency markets as the value of the U.S. dollar
strengthened relative to most major European currencies, as well
as the Japanese yen. A portion of these gains was offset by
losses recorded from transactions involving the British pound, as
well as the Canadian and Australian dollars. During January,
gains were recorded from long base metals futures positions as
zinc and copper prices moved higher. A portion of the
Partnership's gains during the quarter was offset by losses
recorded in the energy markets during January and March as gas
and oil prices moved without consistent direction. Smaller
losses were experienced in the financial futures markets as gains
recorded during January in
<PAGE>
global stock index futures were offset by losses recorded from
choppy price movement in global interest rate futures during
February and March. Total expenses for the period were
$1,109,597, generating net income of $3,566,981. The value of an
individual Unit in the Partnership increased from $2,715.51 at
December 31, 1996 to $2,946.86 at March 31, 1997.
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 currencies versus the U.S. dollar.
Trendless price movement in several traditional commodities
markets, such as metals, soft
<PAGE>
commodities and energy futures, resulted in additional losses
during February. During March, the Partnership 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.
<PAGE>
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
On September 6, 10, and 20, 1996, and on March 13, 1997, 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"), the
Partnership,certain other 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 including the
Partnership,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
<PAGE>
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 and the Partnership
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 or the Partnership.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
A) Exhibits.
None.
B) Reports on Form 8-K. - None.
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 14, 1997 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.
<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-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 42,206,365
<SECURITIES> 0
<RECEIVABLES> 304,691<F1>
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 44,767,039<F2>
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 44,767,039<F3>
<SALES> 0
<TOTAL-REVENUES> 4,676,578<F4>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,109,597
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,566,981
<INCOME-TAX> 0
<INCOME-CONTINUING> 3,566,981
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,566,981
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>Receivables include interest receivable of $155,758 and receivable from
DWR pf $148,933.
<F2>In addition to cash and receivables, total assets include net unrealized
gain on open contracts of $2,575,303 and net option premiums of $(319,320).
<F3>Liabilities include redemptions payable of $723,282, accrued management
fees of $147,710, accrued borkerage commissions of $140,147, common
administrative expenses payable of $156,871 and accrued transaction
fees and costs of $9,255.
<F4>Total revenue includes realized trading revenue of $4,228,547, net
change in unrealized of $(5,500) and interest income of $453,531.
</FN>
</TABLE>
