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 No. 33-34989
DEAN WITTER DIVERSIFIED FUTURES FUND III L.P.
(Exact name of registrant as specified in its charter)
Delaware 13-3577501
(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 changed
since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
<PAGE>
<TABLE>
DEAN WITTER DIVERSIFIED FUTURES FUND III L.P.
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 DIVERSIFIED FUTURES FUND III L.P.
STATEMENTS OF FINANCIAL CONDITION
<CAPTION>
March 31, December 31,
1997 1996
$ $
(Unaudited)
ASSETS
<S> <C> <C>
Equity in Commodity futures trading accounts:
Cash 79,846,068 79,927,495
Net unrealized gain on open contracts 2,534,838 1,118,317
Total Trading Equity 82,380,906 81,045,812
Interest receivable (DWR) 297,702 274,540
Receivable from DWR 140,925 -
Total Assets 82,819,533 81,320,352
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Redemptions payable 756,881 938,829
Accrued brokerage commissions (DWR) 223,244 100,576
Accrued management fee (DWFCM) 208,046 204,690
Administrative expenses payable 112,763 97,983
Accrued transaction fees and costs 16,655 15,691
Total Liabilities 1,317,589 1,357,769
Partners' Capital
Limited Partners (49,445.160 and
52,062.498 Units, respectively) 79,882,978 78,452,540
General Partner (1,002.091 Units) 1,618,966 1,510,043
Total Partners' Capital 81,501,944 79,962,583
Total Liabilities and Partners' Capital 82,819,533 81,320,352
NET ASSET VALUE PER UNIT 1,615.59 1,506.89
The accompanying footnotes are an integral part
of these financial statements.
</TABLE>
<PAGE>
<TABLE>
DEAN WITTER DIVERSIFIED FUTURES FUND III L.P.
STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
For the Quarters Ended March 31,
1997 1996
$ $
REVENUES
<S> <C> <C>
Trading profit (loss):
Realized 5,890,942 (10,505,927)
Net change in unrealized 1,416,521 (250,991)
Total Trading Results 7,307,463 (10,756,918)
Interest Income (DWR) 828,678 885,634
Total Revenues 8,136,141 (9,871,284)
EXPENSES
Brokerage commissions (DWR) 1,508,305 2,068,908
Management fee (DWFCM) 646,282 689,636
Transaction fees and costs 115,756 178,600
Administrative expenses 27,000 19,000
Total Expenses 2,297,343 2,956,144
NET INCOME (LOSS) 5,838,798 (12,827,428)
NET INCOME (LOSS) ALLOCATION
Limited Partners 5,729,875 (12,622,231)
General Partner 108,923 (205,197)
NET INCOME (LOSS) PER UNIT
Limited Partners 108.70 (204.76)
General Partner 108.70 (204.76)
The accompanying footnotes are an integral part
of these financial statements.
</TABLE>
<PAGE>
<TABLE>
DEAN WITTER DIVERSIFIED FUTURES FUND III L.P.
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 63,355.961 $98,628,520 $1,585,062 $100,213,582
Net Loss - (12,622,231) (205,197) (12,827,428)
Redemptions (2,108.190) (3,048,868) - (3,048,868)
Partners' Capital
March 31, 1996 61,247.771 $82,957,421 $1,379,865 $84,337,286
Partners' Capital
December 31, 1996 53,064.589 $78,452,540 $1,510,043 $79,962,583
Net Income - 5,729,875 108,923 5,838,798
Redemptions (2,617.338) (4,299,437) - (4,299,437)
Partners' Capital
March 31, 1997 50,447.251 $79,882,978 $1,618,966 $81,501,944
The accompanying footnotes are an integral part
of these financial statements.
</TABLE>
<PAGE>
<TABLE>
DEAN WITTER DIVERSIFIED FUTURES FUND III L.P.
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) 5,838,798 (12,827,428)
Noncash item included in net income (loss):
Net change in unrealized (1,416,521) 250,991
(Increase) decrease in operating assets:
Interest receivable (DWR) (23,162) 77,058
Receivable from DWR (140,925) 72,422
Increase (decrease) in operating liabilities:
Accrued brokerage commissions (DWR) 122,668 (250,814)
Accrued management fee (DWFCM) 3,356 (41,043)
Administrative expenses payable 14,780 (79,574)
Accrued transaction fees and costs 964 (23,740)
Net cash provided by (used for) operating activities 4,399,958 (12,822,128)
CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in redemptions payable (181,948) (202,322)
Redemptions of units (4,299,437) (3,048,868)
Net cash used for financing activities (4,481,385) (3,251,190)
Net decrease in cash (81,427) (16,073,318)
Balance at beginning of period 79,927,495 95,976,883
Balance at end of period 79,846,068 79,903,565
The accompanying footnotes are an integral part
of these financial statements.
</TABLE>
<PAGE>
DEAN WITTER DIVERSIFIED FUTURES FUND III L.P.
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 Diversified Futures Fund III L.P. (the "Partnership")
was organized to engage in the speculative trading of commodity
futures and futures-related contracts, including forward
contracts on foreign currencies.
The General Partner for the Partnership is Demeter Management
Corporation ("Demeter"). The commodity broker is Dean Witter
Reynolds Inc. ("DWR"). The Trading Manager who makes all trading
decisions for the Partnership is Dean Witter Futures and Currency
Management, Inc. ("DWFCM"). Demeter, DWR, and DWFCM are all
wholly owned subsidiaries of Dean Witter, Discover & Co. ("DWD").
<PAGE>
DEAN WITTER DIVERSIFIED FUTURES FUND III L.P.
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. Management and incentive fees incurred by the
Partnership are paid to DWFCM.
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 DIVERSIFIED FUTURES FUND III L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Contract or Notional Amount
March 31, 1997 December 31, 1996
$ $
Exchange-Traded Contracts
Financial Futures:
Commitments to Sell 348,453,000 -
Commodity Futures:
Commitments to Purchase 55,782,000 13,206,000
Commitments to Sell 22,684,000 40,027,000
Foreign Futures:
Commitments to Purchase 23,563,000 43,199,000
Commitments to Sell 170,435,000 80,268,000
Off-Exchange-Traded
Forward Currency Contracts
Commitments to Purchase 118,558,000 220,399,000
Commitments to Sell 200,633,000 284,187,000
A portion of the amounts indicated as off-balance-sheet risk in
forward currency contracts is due to offsetting forward
commitments to purchase and 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 gain on open contracts is reported as a component
of "Equity in Commodity futures trading accounts" on the
Statement
<PAGE>
DEAN WITTER DIVERSIFIED FUTURES FUND III L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
of Financial Condition and totaled $2,534,838 and $1,118,317 at
March 31, 1997 and December 31, 1996, respectively. Of the
$2,534,838 net unrealized gain on open contracts at March 31,
1977, $4,537,918 related to exchange-traded futures contracts and
$(2,003,080) related to off-exchange-traded forward currency
contracts. Of the $1,118,317 net unrealized gain on open
contracts at December 31, 1996, $2,867,245 related to exchange-
traded futures contracts and $(1,748,928) related to off-exchange-
traded forward currency contracts.
Exchange-traded futures contracts held by the Partnership at
March 31, 1997 and December 31, 1996 mature through December 1997
and June 1997, respectively. Off-exchange-traded forward
currency contracts held by the Partnership at March 31, 1997 and
December 31, 1996 mature through May 1997 and February 1997,
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 non-performance. The credit risk associated with
these instruments is limited to the amounts reflected in the
Partnership's Statements of Financial Condition.
<PAGE>
DEAN WITTER DIVERSIFIED FUTURES FUND III L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 gains on all open futures contracts
which funds totaled $84,383,986 and $82,794,740 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 DIVERSIFIED FUTURES FUND III L.P.
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
For the quarters ended March 31, 1997 and December 31, 1996, the
average fair value of financial instruments held for trading
purposes was as follows:
March 1997
Assets Liabilities
$ $
Exchange-Traded Contracts:
Financial Futures 5,523,000 152,678,000
Commodity Futures 34,014,000 27,178,000
Foreign Futures 104,647,000 65,995,000
Off-Exchange-Traded Forward
Currency Contracts 134,053,000 216,677,000
December 1996
Assets Liabilities
$ $
Exchange-Traded Contracts:
Financial Futures 105,297,000 55,515,000
Commodity Futures 48,290,000 34,261,000
Foreign Futures 150,041,000 54,933,000
Off-Exchange-Traded Forward
Currency Contracts 254,647,000 280,645,000
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity - The Partnership's assets are on deposit in separate
commodity interest trading accounts with DWR, and are used by the
Partnership as margin to engage in commodity futures, forward
contracts on foreign currencies and other commodity interest
trading. 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, forward contracts on
foreign currencies and other commodity interests, it is expected
that the Partnership will continue to own such liquid assets for
margin purposes.
The Partnership's investment in commodity futures and forward
contracts and other commodity interests may be illiquid. If the
price for the 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
<PAGE>
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 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.
Capital Resources. The Partnership does not have, nor does it
expect to have, any capital assets. Redemptions of additional
Units in the future will impact the amount of funds available for
investments in commodity futures and forward 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 $8,136,141.
During the first quarter, the Partnership posted an increase in
Net Asset Value per Unit. The most significant trading gains
were recorded in the currency markets as a result of a
strengthening in the value of the U.S. dollar versus the Japanese
yen and most major European currencies during January and
February. A portion of these gains was offset by losses from
transactions involving the British pound, as well as the Canadian
and Australian dollars, during February and March. Gains were
also recorded in soft commodities from long coffee futures
positions as prices in this market trended steadily higher during
January and February, before reversing lower during March.
Additional trading gains were recorded in the metals markets from
short gold futures positions as gold prices, which began trending
lower during late 1996, continued to trend lower in January.
Gains were also recorded from long base metals futures positions
as copper and zinc futures prices increased from late January to
early March. Smaller gains were recorded in the agricultural
markets from long corn, soybean meal and soybean futures
<PAGE>
positions. A portion of the Partnership's overall gains was
offset by short-term volatile price movement in global interest
rate futures. Smaller losses were recorded in the energy markets
during January and March. Total expenses for the period were
$2,297,343, resulting in net income of $5,838,798. The value of
an individual Unit in the Partnership increased from $1,506.89 at
December 31, 1996 to $1,615.59 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 $9,871,284. During
the first quarter, the Partnership posted a loss in Net Asset
Value per Unit. The most significant trading losses during the
quarter were recorded in the currency and energy markets during
February. In the currency markets, a sudden and sharp trend
reversal in the downward move in the value of the Japanese yen
and most major European currencies, which had posted gains during
January, resulted in losses from short positions in the Japanese
yen, German mark, Swiss franc and British pound. Trading gains
recorded during March from transactions involving the Australian
dollar and Japanese yen offset a portion of the overall losses
experienced in the currency markets during February. Additional
losses were experienced in the energy markets due primarily to
<PAGE>
short-term volatile movement in gas and oil prices during
February. A portion of these losses was offset by gains in crude
oil during March. In the financial futures markets, losses were
recorded in most global interest rate and stock index futures as
these prices moved in a short-term volatile pattern during the
quarter. Trading gains in British long gilt, French bond and
U.S. Treasury note futures offset a portion of these losses.
Smaller losses were recorded in the agricultural markets from
trading soybean futures and in the soft commodities markets from
trading cotton and coffee futures. Total expenses for the period
were $2,956,144, resulting in a net loss of $12,827,428. The
value of an individual Unit in the Partnership decreased from
$1,581.75 at December 31, 1995 to $1,376.99 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, DWFCM, 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 enrichment, and conversion in
connection with the sale and operation of the various limited
<PAGE>
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.
<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 Diversified Futures
Fund III L.P. (Registrant)
By: Demeter Management Corporation
(General Partner)
May 13, 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 Diversified Futures Fund III L.P. and is qualified in its
entirety by references to such financial instruments.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 79,846,068
<SECURITIES> 0
<RECEIVABLES> 438,627<F1>
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 82,819,533<F2>
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 82,819,533<F3>
<SALES> 0
<TOTAL-REVENUES> 8,136,141<F4>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,297,343
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 5,838,798
<INCOME-TAX> 0
<INCOME-CONTINUING> 5,838,798
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,838,798
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>Receivables include interest receivable of $297,702 and receivable from
DWR of $140,925.
<F2>In addition to cash and receivables, total assets include net unrealized
gain on open contracts of $2,534,838.
<F3>Liabilities include redemptions payable of $756,881, accrued brokerage
commissions of $223,244, accrued management fees of $208,046, accrued
administrative expenses of $112,763 and accrued transaction fees and
costs of $16,655.
<F4>Total revenues include realized trading revenue of $5,890,942, net
change in unrealized of $1,416,521 and interest income of $828,679.
</FN>
</TABLE>
