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, 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. 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 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
March 31, 1998
<CAPTION>
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements
Statements of Financial Condition
March 31, 1998 (Unaudited) and December 31, 1997......2
Statements of Operations for the Quarters Ended
March 31, 1998 and 1997 (Unaudited)...................3
Statements of Changes in Partners' Capital for the
Quarters ended March 31, 1998 and 1997 (Unaudited)....4
Statements of Cash Flows for the Quarters Ended
March 31, 1998 and 1997 (Unaudited)...................5
Notes to Financial Statements (Unaudited)..........6-10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations..11-14
Part II. OTHER INFORMATION
Item 1. Legal Proceedings..............................15-16
Item 6. Exhibits and Reports on Form 8-K..................17
</TABLE>
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DEAN WITTER DIVERSIFIED FUTURES FUND III L.P.
STATEMENTS OF FINANCIAL CONDITION
<CAPTION>
March 31, December 31,
1998 1997
$ $
(Unaudited)
ASSETS
<S> <C> <C>
Equity in Commodity futures trading accounts:
Cash 67,822,066 62,384,530
Net unrealized gain (loss) on open contracts (1,208,966) 11,155,386
Total Trading Equity 66,613,100 73,539,916
Interest receivable (DWR) 235,004 230,391
Due from DWR 72,818 3,839
Total Assets 66,920,922 73,774,146
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Redemptions payable 941,323 1,237,455
Accrued management fee (DWFCM) 168,279 185,798
Administrative expenses payable 101,452 91,265
Total Liabilities 1,211,054 1,514,518
Partners' Capital
Limited Partners (40,041.842 and
41,702.594 Units, respectively) 64,105,556 70,564,013
General Partner (1,002.091 Units) 1,604,312 1,695,615
Total Partners' Capital 65,709,868 72,259,628
Total Liabilities and Partners' Capital 66,920,922 73,77
4,146
NET ASSET VALUE PER UNIT 1,600.96 1,692.08
<FN>
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,
1998 1997
$ $
REVENUES
<S> <C> <C>
Trading profit (loss):
Realized 9,524,528 5,890,942
Net change in unrealized (12,364,352) 1,416,521
Total Trading Results (2,839,824) 7,307,463
Interest Income (DWR) 683,595 828,678
Total Revenues (2,156,229) 8,136,141
EXPENSES
Brokerage commissions (DWR) 1,044,454 1,508,305
Management fee (DWFCM) 520,826 646,282
Transaction fees and costs 91,637 115,756
Administrative expenses 21,000 27,000
Total Expenses 1,677,917 2,297,343
NET INCOME (LOSS) (3,834,146) 5,838,798
NET INCOME (LOSS) ALLOCATION
Limited Partners (3,742,843) 5,729,875
General Partner (91,303) 108,923
NET INCOME (LOSS) PER UNIT
Limited Partners (91.12) 108.70
General Partner (91.12) 108.70
<FN>
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, 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 - 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
Partners' Capital,
December 31, 1997 42,704.685 $70,564,013 $1,695,615
$72,259,628
Net Loss -(3,742,843) (91,303) (
3,834,146)
Redemptions (1,660.752)(2,715,614) -
(2,715,614)
Partners' Capital
March 31, 1998 41,043.933$64,105,556 $1,604,312
$65,709,868
<FN>
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,
1998 1997
$ $
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income (loss) (3,834,146) 5,838,798
Noncash item included in net income (loss):
Net change in unrealized 12,364,352 (1,416,521)
Increase in operating assets:
Interest receivable (DWR) (4,613) (23,162)
Due from DWR (68,979) (140,925)
Increase (decrease) in operating liabilities:
Accrued management fee (DWFCM) (17,519) 3,356
Administrative expenses payable 10,187 14,780
Accrued brokerage commissions (DWR)- 122,668
Accrued transaction fees and costs -
964
Net cash provided by operating activities 8,449,282 4,399,958
CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in redemptions payable (296,132) (181,948)
Redemptions of units (2,715,614) (4,299,437)
Net cash used for financing activities (3,011,746)(4,481,385)
Net increase (decrease) in cash 5,437,536 (81,427)
Balance at beginning of period 62,384,530 79,927,495
Balance at end of period 67,822,066 79,846,068
<FN>
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 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. 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 non-clearing commodity
broker is Dean Witter Reynolds Inc. ("DWR"), with an unaffiliated
broker, Carr Futures, Inc. ("Carr"), providing clearing and
execution services. 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 Morgan Stanley Dean Witter & Co.
("MSDW").
2. Related Party Transactions
The Partnership's cash is on deposit with DWR and Carr in
commodity trading accounts to meet margin requirements as needed.
DWR pays interest on these funds based on current 13-week U.S.
<PAGE>
DEAN WITTER DIVERSIFIED FUTURES FUND III L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Treasury Bill rates. Brokerage expenses incurred by the
Partnership are paid to DWR. Management and incentive fees (if
any) 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 March 31, 1998 and December 31, 1997, open
contracts were:
Contract or Notional Amount
March 31, 1998 December 31, 1997
$ $
Exchange-Traded Contracts
Financial Futures:
Commitments to Purchase 9,439,000 21,796,000
Commitments to Sell 64,527,000 -
Commodity Futures:
Commitments to Purchase 1,513,000 2,964,000
Commitments to Sell 20,483,000 44,840,000
Foreign Futures:
Commitments to Purchase 89,833,000 143,405,000
Commitments to Sell 69,261,000 32,821,000
Off-Exchange-Traded
Forward Currency Contracts
Commitments to Purchase 242,257,000 144,840,000
Commitments to Sell 284,998,000 277,442,000
<PAGE>
DEAN WITTER DIVERSIFIED FUTURES FUND III L.P.
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 to sell the same currency on the same
date in the future. These commitments are economically off-
setting, but are not offset in the forward market until the
settlement date.
The net unrealized gain (loss) on open contracts is reported as a
component of "Equity in Commodity futures trading accounts" on
the Statements of Financial Condition and totaled $(1,208,966)
and $11,155,386 at March 31, 1998 and December 31, 1997,
respectively.
Of the $(1,208,966) net unrealized loss on open contracts at
March 31, 1998, $1,227,070 related to exchange-traded futures
contracts and $(2,436,036) 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
March 31, 1998 and December 31, 1997 mature through December 1998
and June 1998, respectively. Off-exchange-traded forward
currency
<PAGE>
DEAN WITTER DIVERSIFIED FUTURES FUND III L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
contracts held by the Partnership at March 31, 1998 and December
31, 1997 mature through July 1998 and April 1998, 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.
The Partnership also has credit risk because either DWR or Carr
acts as the futures commission merchant or the 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 and Carr, as
the futures commission merchants for all of 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 (loss) on all open futures contracts
which funds totaled $69,049,136 and $66,894,738 at March 31, 1998
and December 31, 1997, respectively. With respect to the
Partnership's off-exchange-traded forward currency contracts,
there are no daily
<PAGE>
DEAN WITTER DIVERSIFIED FUTURES FUND III L.P.
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
settlements of variations in value nor is there any requirement
that an amount equal to the net unrealized gain (loss) 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 of such
contracts, to perform. Carr's Parent, Credit Agricole Indosuez,
has guaranteed Carr's obligations to the Partnership.
For the quarter ended March 31, 1998 and the year ended December
31, 1997, the average fair value of financial instruments held
for trading purposes was as follows:
March 1998
Assets Liabilities
$ $
Exchange-Traded Contracts:
Financial Futures 33,551,000 16,132,000
Commodity Futures 1,119,000 29,874,000
Foreign Futures 130,156,000 45,262,000
Off-Exchange-Traded Forward
Currency Contracts 216,271,000 288,616,000
December 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 - The Partnership's assets are on deposit in separate
commodity interest trading accounts with DWR and Carr, the
commodity brokers and are used by the Partnership as margin to
engage in commodity futures, forward contracts and other
commodity interest trading. DWR and Carr hold such assets in
either designated depositories 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 commodity futures contracts 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 contracts,
forward 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.
<PAGE>
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 of Limited Partnership Interest in the future will affect
the amount of funds available for investments in subsequent
periods. 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, 1998
For the quarter ended March 31, 1998, the Partnership's total
trading losses net of interest income were $2,156,229. During the
first quarter, the Partnership posted a loss in Net Asset Value
per Unit. The most significant losses were recorded in currency
markets 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.
This reversal resulted in losses for previously established short
<PAGE>
Japanese yen positions. Additional currency losses were recorded
in February as the value of the yen moved without consistent
direction. Smaller losses were recorded from transactions
involving the German mark, Australian dollar and British pound.
A small portion of these losses was offset by gains in March from
transactions involving the German mark, Swiss franc and Japanese
yen. In metals, losses were recorded from long silver futures
positions as silver prices reversed lower in February after
rallying higher during January. Smaller losses were recorded
from trading base metals futures during March. Additionally,
trendless movement in soybean futures prices during January and
March resulted in losses for the Partnership. A portion of the
Partnership's overall losses for the quarter was offset by gains
in financial futures trading. The most significant of these
gains were recorded from long European bond futures positions, as
well as from long S&P 500 Index futures positions, as prices in
these markets trended higher throughout a majority of the
quarter. In the soft commodities and energy markets, gains were
recorded from short sugar and crude oil futures positions as
prices trended lower during January and February before reversing
higher during March. Total expenses for the quarter were
$1,677,917, resulting in a net loss of $3,834,146. The value of
an individual Unit in the Partnership decreased from $1,692.08 at
December 31, 1997 to $1,600.96 at March 31, 1998.
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.
<PAGE>
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
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.
<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 interest in limited partnership commodity pools
sold by DWR. Named defendants include DWR, Demeter, DWFCM, MSDW
(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. On June 16, 1997, the
plaintiffs in the above actions filed a consolidated amended
complaint, alleging, among other things, that the defendants
committed fraud, deceit, negligent misrepresentation, various
violations of the California Corporations Code, intentional and
negligent breach of fiduciary duty, fraudulent and unfair
business practices, unjust enrichment, and conversion in the sale
and operation of the various limited partnership commodity 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. A consolidated and
amended complaint in the action pending in the Supreme Court of
the State of New York was filed on August 13, 1997, alleging that
the defendants committed fraud, breach of fiduciary duty, and
negligent
<PAGE>
misrepresentation in the sale and operation of the various
limited partnership commodity pools. On December 16, 1997, upon
motion of the plaintiffs, the action pending in the Superior
Court of the State of Delaware was voluntarily dismissed without
prejudice. 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 11, 1998 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 reference to such financial instruments.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 67,822,066
<SECURITIES> 0
<RECEIVABLES> 307,822<F1>
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 66,920,922<F2>
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 66,920,922<F3>
<SALES> 0
<TOTAL-REVENUES> (2,156,229)<F4>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,677,917
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (3,834,146)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,834,146)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,834,146)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>Receivables include interest receivable of $235,004 and receivable from
DWR of $72,818.
<F2>In addition to cash and receivables, total assets include net unrealized
loss on open contracts of $(1,208,966).
<F3>Liabilities include redemptions payable of $941,323, accrued management
fee of $168,279 and accrued administrative expenses of $101,452.
<F4>Total revenue includes realized trading revenue of $9,524,528, net
change in unrealized of $(12,364,352) and interest income of $683,595.
</FN>
</TABLE>
