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 quarterly period ended September 30, 1998 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. 0-19116
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 Corporation
Two World Trade Center, 62 Fl., New York, NY 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
September 30, 1998
<CAPTION>
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements
Statements of Financial Condition
September 30, 1998 (Unaudited) and December 31, 1997..2
Statements of Operations for the Quarters Ended
September 30, 1998 and 1997 (Unaudited)...............3
Statements of Operations for the Nine Months
Ended September 30, 1998 and 1997 (Unaudited).........4
Statements of Changes in Partners' Capital for the
Nine Months ended September 30, 1998 and 1997
(Unaudited)...........................................5
Statements of Cash Flows for the Nine Months Ended
September 30, 1998 and 1997 (Unaudited)...............6
Notes to Financial Statements (Unaudited)..........7-12
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations..13-22
Part II. OTHER INFORMATION
Item 1. Legal Proceedings.................................23
Item 6. Exhibits and Reports on Form 8-K..................23
</TABLE>
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
DEAN WITTER DIVERSIFIED FUTURES FUND III L.P.
STATEMENTS OF FINANCIAL CONDITION
<CAPTION>
September 30, December 31,
1998 1997
$ $
(Unaudited)
ASSETS
<S> <C> <C>
Equity in commodity futures trading accounts:
Cash 61,672,235 62,384,530
Net unrealized gain on open contracts 8,025,424 11,155,386
Total Trading Equity 69,697,659 73,539,916
Interest receivable (DWR) 208,155 230,391
Due from DWR - 3,839
Total Assets 69,905,814 73,774,146
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Redemptions payable 1,841,945 1,237,455
Accrued management fees (DWFCM) 175,652 185,798
Administrative expenses payable 156,566
91,265
Total Liabilities 2,174,163 1,514,518
Partners' Capital
Limited Partners (36,736.369 and
41,702.594 Units, respectively) 66,971,284 70,564,013
General Partner (417.091 and
1,002.091 Units, respectively) 760,367 1,695,615
Total Partners' Capital 67,731,651 72,259,628
Total Liabilities and Partners' Capital 69,905,814 73,774,146
NET ASSET VALUE PER UNIT 1,823.02 1,692.08
<FN>
The accompanying notes 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 September 30,
1998 1997
$ $
REVENUES
<S> <C> <C>
Trading profit:
Realized 6,889,323 1,345,880
Net change in unrealized 1,666,254 3,610,429
Total Trading Results 8,555,577 4,956,309
Interest Income (DWR) 624,599 740,867
Total Revenues 9,180,176 5,697,176
EXPENSES
Brokerage commissions (DWR) 961,334 1,264,802
Management fees (DWFCM) 502,281 555,911
Transaction fees and costs 75,373 101,714
Administrative expenses 33,000 32,000
Total Expenses 1,571,988 1
,954,427
NET INCOME 7,608,188 3,742,749
NET INCOME ALLOCATION
Limited Partners 7,408,593 3,664,124
General Partner 199,595 78,625
NET INCOME PER UNIT
Limited Partners 199.18 78.46
General Partner 199.18 78.46
<FN>
The accompanying notes 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 Nine Months Ended September 30,
1998 1997
$ $
REVENUES
<S> <C> <C>
Trading profit (loss):
Realized 10,714,962 4,684,660
Net change in unrealized (3,129,962) 3,537,873
Total Trading Results 7,585,000 8,222,533
Interest Income (DWR) 1,942,160 2,352,808
Total Revenues 9,527,160 10,575,341
EXPENSES
Brokerage commissions (DWR) 3,050,914 4,163,833
Management fees (DWFCM) 1,509,896 1,779,100
Transaction fees and costs 244,728 326,702
Administrative expenses 79,000 87,000
Total Expenses 4,884,538 6,356,635
NET INCOME 4,642,622 4,218,706
NET INCOME ALLOCATION
Limited Partners 4,511,403 4,138,194
General Partner 131,219 80,512
NET INCOME PER UNIT
Limited Partners 130.94 80.35
General Partner 130.94 80.35
<FN>
The accompanying notes 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 Nine Months Ended September 30, 1998 and 1997
(Unaudited)
<CAPTION>
Units of
Partnership Limited General
Interest Partners Partner Total
<S> <C> <C>
<C> <C>
Partners' Capital
December 31, 1996 53,064.589 $78,452,540 $1,510,043
$79,962,583
Net Income - 4,138,194 80,512
4,218,706
Redemptions (8,480.518) (13,415,851) -
(13,415,851)
Partners' Capital
September 30, 1997 44,584.071 $69,174,883 $1,590,555
$70,765,438
Partners' Capital
December 31, 1997 42,704.685 $70,564,013 $1,695,615
$72,259,628
Net Income - 4,511,403 131,219
4,642,622
Redemptions (5,551.225) (8,104,132) (1,066,467)
(9,170,599)
Partners' Capital
September 30, 1998 37,153.460 $66,971,284 $760,367
$67,731,651
<FN>
The accompanying notes 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 Nine Months Ended September 30,
1998 1997
$ $
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income 4,642,622 4
,218,706
Noncash item included in net income:
Net change in unrealized 3,129,962 (
3,537,873)
Decrease in operating assets:
Interest receivable (DWR) 22,236 42,727
Due from DWR 3,839 -
Increase (decrease) in operating liabilities:
Accrued management fees (DWFCM) (10,146) (23,225)
Administrative expenses payable 65,301 30,229
Accrued brokerage commissions (DWR)- 63,887
Accrued transaction fees and costs -
(2,622)
Net cash provided by operating activities 7,853,814
791,829
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in redemptions payable 604,490 8,873
Redemptions of units (9,170,599) (
13,415,851)
Net cash used for financing activities (8,566,109) (
13,406,978)
Net decrease in cash (712,295) (
12,615,149)
Balance at beginning of period 62,384,530 7
9,927,495
Balance at end of period 61,672,235 6
7,312,346
<FN>
The accompanying notes 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 of Dean Witter Diversified
Futures Fund III L.P. (the "Partnership"). The financial
statements and condensed notes herein should be read in
conjunction with the Partnership's December 31, 1997 Annual
Report on Form 10-K.
1. Organization
Dean Witter Diversified Futures Fund III L.P. is a limited
partnership organized to engage in the speculative trading of
commodity futures and futures-related contracts, including
forward contracts on foreign currencies (collectively, "futures
interests"). The general partner is Demeter Management
Corporation ("Demeter"). The non-clearing commodity broker is
Dean Witter Reynolds Inc. ("DWR"), an affiliate of Demeter. The
clearing commodity broker is Carr Futures Inc. ("Carr"),
providing clearing and execution services. The trading manager
who makes all trading decisions for the Partnership is Dean
Witter Futures & Currency Management, Inc. ("DWFCM" or the
"Trading Manager"), also an affiliate of Demeter. Demeter, DWR,
and DWFCM are wholly-owned subsidiaries of Morgan Stanley Dean
Witter & Co. ("MSDW").
<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 and Carr in futures
interest 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 and currencies. 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 September 30, 1998 and December 31, 1997,
open contracts were:
<PAGE>
DEAN WITTER DIVERSIFIED FUTURES FUND III L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Contract or Notional Amount
September 30, 1998 December 31,
1997
$ $
Exchange-Traded Contracts
Financial Futures:
Commitments to Purchase 151,211,000 21,796,000
Commitments to Sell 4,793,000 -
Commodity Futures:
Commitments to Purchase 8,887,000 2,964,000
Commitments to Sell 8,114,000 44,840,000
Foreign Futures:
Commitments to Purchase 414,592,000 143,405,000
Commitments to Sell 28,014,000 32,821,000
Off-Exchange-Traded
Forward Currency Contracts
Commitments to Purchase 317,236,000 144,840,000
Commitments to Sell 210,467,000 277,442,000
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 net unrealized gains on open contracts are reported as a
component of "Equity in Commodity futures trading accounts" on
the Statements of Financial Condition and totaled $8,025,424 and
$11,155,386 at September 30, 1998 and December 31, 1997,
respectively.
<PAGE>
DEAN WITTER DIVERSIFIED FUTURES FUND III L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Of the $8,025,424 net unrealized gain on open contracts at
September 30, 1998, $8,909,671 related to exchange-traded futures
contracts and $(884,247) related to off-exchange traded forward
currency contracts.
Of the $11,155,386 net unrealized gain on open contracts at
December 31, 1997, $4,510,208 related to exchange-traded futures
contracts and $6,645,178 related to off-exchange-traded forward
currency contracts.
Exchange-traded futures contracts held by the Partnership at
September 30, 1998 and December 31, 1997 mature through March
1999 and June 1998, respectively. Off-exchange-traded forward
currency contracts held by the Partnership at September 30, 1998
and December 31, 1997 mature through December 1998 and April
1998, respectively.
The contract amounts in the above table represent the
Partnership's extent of involvement in a 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 DWR and Carr act as
the futures commission merchants or the counterparties, 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. Each of DWR and
Carr, as a futures commission merchant for the Partnership's
exchange-traded futures contracts, are required, pursuant to
regulations of the Commodity Futures Trading Commission ("CFTC"),
to segregate from their own assets, and for the sole benefit of
their commodity customers, all funds held by them with respect to
exchange-traded futures contracts, including an amount equal to
the net unrealized gain on all open futures contracts, which
funds, in the aggregate, totaled $70,581,906 and $66,894,738 at
September 30, 1998 and December 31, 1997, 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 Carr, the sole
counterparty on all such contracts, to perform. Carr's parent,
Credit Agricole Indosuez, has guaranteed to the Partnership
<PAGE>
DEAN WITTER DIVERSIFIED FUTURES FUND III L.P.
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
payment of the net liquidating value of the transactions in the
Partnership's account with Carr (including foreign currency
contracts).
For the nine months ended September 30, 1998 and the year ended
December 31, 1997, the average fair value of financial
instruments held for trading purposes was as follows:
September 30, 1998
Assets Liabilities
$ $
Exchange-Traded Contracts:
Financial Futures 53,456,000 18,680,000
Commodity Futures 2,714,000 24,713,000
Foreign Futures 162,475,000 63,047,000
Off-Exchange-Traded Forward
Currency Contracts 271,890,000 297,310,000
December 31, 1997
Assets Liabilities
$ $
Exchange-Traded Contracts:
Financial Futures 21,847,000 73,460,000
Commodity Futures 29,351,000 34,585,000
Foreign Futures 89,567,000 52,168,000
Off-Exchange-Traded Forward
Currency Contracts 164,466,000 219,214,000
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity - Assets of the Partnership are deposited with DWR as
non-clearing broker and Carr as clearing broker in separate
futures interest trading accounts established for the Trading
Manager, and are used by the Partnership as margin to engage in
futures interest trading. Such assets are held in either non-
interest bearing bank accounts or in securities approved by the
CFTC for investment of customer funds. The Partnership's assets
held by DWR and Carr may be used as margin solely for the
Partnership's trading. Since the Partnership's sole purpose is
to trade in futures interests, it is expected that the
Partnership will continue to own such liquid assets for margin
purposes.
The Partnership's investment in futures interests may, from time
to time, be illiquid. Most United States futures exchanges limit
fluctuations in certain futures interest prices during a single
day by regulations referred to as "daily price fluctuations
limits" or "daily limits." Pursuant to such regulations, during
a single trading day no trades may be executed at prices beyond
the daily limit. If the price of a particular futures interest
has increased or decreased by an amount equal to the daily limit,
positions in such futures interest can neither be taken nor
liquidated unless traders are willing to effect trades at or
within the limit. Futures interests prices have occasionally
<PAGE>
moved the daily limit for several consecutive days with little or
no trading. Such market conditions could prevent the Partnership
from promptly liquidating its futures interests and result in
restrictions on redemptions.
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 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. Future redemptions and
exchanges of Units of Limited Partnership Interest will affect
the amount of funds available for investment in futures interests
in subsequent periods. Since they are at the discretion of the
Limited Partners, it is not possible to estimate the amount, and
therefore, the impact of future redemptions.
Results of Operations
For the Quarter and Nine Months Ended September 30, 1998
For the quarter ended September 30, 1998, the Partnership
recorded total trading revenues including interest income of
<PAGE>
$9,180,176 and posted an increase in Net Asset Value per Unit.
The most significant gains were recorded in the financial futures
markets during August and September as investors sought the
safety of fixed income investments in response to anticipated
interest rate cuts by the U. S. Federal Reserve and significant
volatility in the global financial markets. As a result, gains
were recorded from long global interest rate futures positions,
particularly U.S., Japanese and European bond futures. Smaller
gains were recorded from long positions in Australian interest
rate futures as prices in these markets also trended higher.
Additional gains were recorded during July and August in the
agricultural markets from short positions in corn and wheat
futures as grain prices continued their downward trend as
supplies remained abundant. These gains were partially offset by
losses recorded in the currency markets from long British pound
positions as its value moved lower in response to uncertainty
about economic developments and interest rate policy in that
country. These losses, coupled with additional currency losses
recorded from transactions involving the Australian dollar and
Swedish krona during September, more than offset gains from long
German mark positions. Additional losses were recorded during
July and September in the metals markets from short aluminum and
copper futures positions as base metals prices reversed higher
early in the quarter. Total expenses for the three months ended
<PAGE>
September 30, 1998 were $1,571,988, resulting in net income of
$7,608,188. The value of an individual Unit in the Partnership
increased from $1,623.84 at June 30, 1998 to $1,823.02 at
September 30, 1998.
For the nine months ended September 30, 1998, the Partnership
recorded total trading revenues including interest income of
$9,527,160 and posted an increase in Net Asset Value per Unit.
The most significant gains were recorded in the financial futures
markets during the first and third quarters from long European
interest rate futures positions. Additional profits were
recorded from long positions in U.S. and Japanese bond futures as
prices in these markets also trended higher during the third
quarter. Smaller gains were recorded in soft commodities from
short sugar futures positions as prices trended lower during
January, February and September. A portion of these gains was
offset by losses in the metals and currency markets. In metals,
losses were recorded during the first quarter from long silver
futures positions as silver prices reversed lower in late
February after rallying higher during January. In September,
additional losses were recorded from short silver futures
positions as precious metals prices moved higher due to
uncertainty in global stock markets and in the wake of reported
difficulties with several major hedge funds. During July,
smaller losses were recorded from short aluminum and copper
<PAGE>
futures positions as base metals prices reversed higher. In
currency trading, losses were recorded from transactions
involving the British pound as its value moved without consistent
direction during the first nine months of the year. Additional
currency losses were recorded during the first quarter due
primarily to short-term volatility caused by the economic
instability in the Far East. During January, the upward trend in
the value of the U.S. dollar reversed lower in response to the
Japanese government's proposed economic stimulus package, thus
resulting in losses for previously established short Japanese yen
positions. Additional currency losses were recorded in February
as the value of the yen moved without consistent direction.
Total expenses for the nine months ended September 30, 1998 were
$4,884,538, resulting in net income of $4,642,622. The value of
an individual Unit in the Partnership increased from $1,692.08 at
December 31, 1997 to $1,823.02 at September 30, 1998.
For the Quarter and Nine Months Ended September 30, 1997
For the quarter ended September 30, 1997, the Partnership
recorded total trading revenues including interest income of
$5,697,176 and posted an increase in Net Asset Value per Unit.
The most significant gains were recorded in financial futures due
primarily to an upward trend in global interest rate futures
prices during July and September. Smaller profits were recorded
in global stock index futures from short Nikkei Index futures
<PAGE>
during the quarter. In the currency markets, gains were recorded
during July from short German mark positions as the value of the
U.S. dollar increased versus the German mark. During August, the
value of the German mark increased versus the U.S. dollar,
resulting in losses for the Partnership. This upward price move
resulted in new long German mark positions, which profited during
September. Additional currency gains were recorded from
transactions involving the Malaysian ringgit, Australian dollar
and Swedish krona. A portion of these currency gains was offset
by losses experienced from transactions involving the British
pound and Japanese yen. In the energy markets, gains were
recorded from long natural gas positions as prices increased
during August and September. In metals, gains were recorded from
long zinc futures during July and long silver futures positions
during September. Gains were also recorded from short copper
futures positions during August and September. Trading losses in
aluminum futures during August offset a portion of these gains.
In soft commodities and agricultural markets, losses were
recorded as a result of short-term volatile price movement in a
majority of the markets traded, particularly, cocoa, cotton and
corn futures. Total expenses for the three months ended
September 30, 1997 were $1,954,427, resulting in net income of
$3,742,749. The value of an individual Unit in the Partnership
increased from $1,508.78 at June 30, 1997, to $1,587.24 at
September 30, 1997.
<PAGE>
For the nine months ended September 30, 1997, the Partnership
recorded total trading revenues including interest income of
$10,575,341 and 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 relative to most major currencies during the period
January through April. Additional currency gains were recorded
during the third quarter from transactions involving the German
mark, Malaysian ringgit, Swedish krona and Australian dollar. A
portion of these gains was offset by losses from transactions
involving the British pound and Canadian dollar during February,
March and May. In metals, gains experienced from short gold
futures positions in January and July from long zinc futures
positions in July and long silver futures positions in September
more than offset losses recorded from base metals futures during
the second quarter. A portion of the Partnership's overall gains
for the first nine months of the year was offset by losses from
trading energy futures as oil and gas prices moved without
consistent direction for a majority of the year. One exception
in the energy complex was natural gas futures prices, which
increased during the third quarter, thus resulting in gains from
long positions. In soft commodities, losses recorded from
trading cocoa, cotton and sugar futures during the third quarter
offset profits recorded during the first half of the year from
long coffee futures positions. In agricultural markets, losses
were recorded from trading corn futures during the third quarter
<PAGE>
and soybean oil during the first half of the year. In financial
futures, trading gains recorded from short Nikkei Index and long
global interest rate futures during the third quarter more than
offset the losses experienced in global interest rate futures as
a result of short-term price volatility during the first four
months of the year. Total expenses for the nine months ended
September 30, 1997 were $6,356,635, resulting in net income of
$4,218,706. The value of an individual Unit in the Partnership
increased from $1,506.89 at December 31, 1996 to $1,587.24 at
September 30, 1997.
Year 2000 Problem - Commodity pools, like financial and business
organizations and individuals around the world, depend on the
smooth functioning of computer systems. Many computer systems in
use today cannot recognize the computer code for the year 2000,
but revert to 1900 or some other date. This is commonly known as
the "Year 2000 Problem". The Partnership could be adversely
affected if computer systems used by it or any third party with
whom it has a material relationship do not properly process and
calculate date-related information and data concerning dates on
or after January 1, 2000. Such a failure could have a negative
impact on the handling or determination of futures trades and
prices and the services provided to the Partnership.
MSDW began its planning in response to the Year 2000 Problem in
1995 and currently has several hundred employees working on such
<PAGE>
response. It has developed its own Year 2000 compliance plan to
deal with the problem and had the plan approved by the company's
executive management, Board of Directors and Information
Technology Department. Demeter is coordinating with MSDW in
taking steps that both believe are reasonably designed to address
the Year 2000 Problem with respect to Demeter's computer systems
that relate to the Partnership. This includes hardware and
software upgrades, systems consulting and computer maintenance.
Beyond the challenge facing internal computer systems, the
systems failure of any of the third parties with whom the
Partnership has a material relationship - the futures exchanges
and clearing organizations through which it trades, Carr, or the
Trading Manager - could result in a material financial risk to
the Partnership. Regarding the futures exchanges, all U.S.
futures exchanges will be subject to the monitoring of the CFTC
for their Year 2000 preparedness and the major foreign futures
exchanges are also expected to be subject to market-wide testing
of their Year 2000 compliance during 1999. With respect to Carr
and the Trading Manager, Demeter intends to monitor their
progress throughout 1999 in their Year 2000 compliance and, where
applicable, to test its external interface with Carr and the
Trading Manager.
Finally, MSDW has begun developing various "contingency plans" in
the event that the systems of such third parties fail, and
<PAGE>
Demeter intends to consult closely with MSDW in implementing
those plans. MSDW has also recently reported that its
development of such contingency plans is proceeding on schedule.
Despite the best efforts of both Demeter and MSDW, however, there
can be no assurance that the above steps will be sufficient to
avoid any adverse impact to the Partnership, whether from
failures in their own computer systems or those of Carr, the
Trading Manager or any other third party.
Risks Associated with the Euro - On January 1, 1999, eleven
countries in the European Union intend to establish fixed
conversion rates on their existing sovereign currencies and
convert to a common single currency (the "euro"). During a three-
year transition period, the existing sovereign currencies will
continue to exist but only as a fixed denomination of the euro.
Conversion to the euro will prevent the Trading Manager from
trading in certain currencies and thereby limit its ability to
take advantage of potential market opportunities that might
otherwise have existed had separate currencies been available to
trade, and could result in losses with respect to those
positions.
<PAGE>
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Previously reported. See Form 10-Q for the quarter ended March
31, 1998.
Item 6. Exhibits and Reports on Form 8-K
Reports on Form 8-K. - No reports have been filed for the q
uarter ended September 30, 1998.
<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)
November 13, 1998 By: /s/ Lewis A. Raibley, III
Lewis A. Raibley, III
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 reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 61,672,235
<SECURITIES> 0
<RECEIVABLES> 208,155<F1>
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 69,905,814<F2>
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 69,905,814<F3>
<SALES> 0
<TOTAL-REVENUES> 9,527,160<F4>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,884,538
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 4,642,622
<INCOME-TAX> 0
<INCOME-CONTINUING> 4,642,622
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,642,622
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>Receivables include interest receivable of $208,155.
<F2>In addition to cash and receivables, total assets include net
unrealized gain on open contracts of $8,025,424.
<F3>Liabilities include redemptions payable of $1,841,945, accrued
management fee of $175,652 and accrued administrative expenses
payable of $156,566.
<F4>Total revenues includes realized trading revenue of $10,714,962,
net change in unrealized of $(3,129,962) and interest income of
$1,942,160.
</FN>
</TABLE>
