UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
AMENDMENT
[X] Annual report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934 [Fee Required]
For the fiscal year ended December 31, 1996 or
[ ] Transition report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934 [No Fee Required]
For the transition period from ___________to_______________
Commission File Number 33-90360
DEAN WITTER DIVERSIFIED FUTURES FUND LIMITED PARTNERSHIP
(Exact name of registrant as specified in its Limited
Partnership Agreement)
DELAWARE 13-3461507
(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification No.)
c/o Demeter Management Corporation
Two World Trade Center, New York, N.Y.-62nd Fl. 10048
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 392-5454
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest
(Title of Class)
(Title of Class)
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (section 229.405 of this chapter) is not contained
herein,and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment of this Form 10K. [ X ]
State the aggregate market value of the Units of Limited Partnership Interest
held by non-affiliates of the registrant. The aggregate market value shall be
computed by reference to the price at which units were sold, or the average bid
and asked prices of such units, as of a specified date within 60 days prior to
the date of filing: $171,957,929.57 at January 31, 1997.
DOCUMENTS INCORPORATED BY REFERENCE
(See Page 1)
<PAGE>
<TABLE>
DEAN WITTER DIVERSIFIED FUTURES FUND Limited Partnership
INDEX TO ANNUAL REPORT ON FORM 10-K
DECEMBER 31, 1996
<CAPTION>
Page No.
<S> <C>
DOCUMENTS INCORPORATED BY REFERENCE. . . . . . . . . . . . . . . . . 1
Part I .
Item 1. Business. . . . . . . . . . . . . . . . . . . . . . . 2-4
Item 2. Properties. . . . . . . . . . . . . . . . . . . . . . 4
Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . . . 4-5
Item 4. Submission of Matters to a Vote of Security Holders . . .5
Part II.
Item 5. Market for the Registrant's Partnership Units and
Related Security Holder Matters . . . . . . . . . . . . 6
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . 7
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . 8-13
Item 8. Financial Statements and Supplementary Data. . . . . . 13
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure. . . . . . . . . . 13
Part III.
Item 10. Directors, Executive Officers, Promoters and
Control Persons of the Registrant . . . . . . . . . 14-17
Item 11. Executive Compensation . . . . . . . . . . . . . . . 17
Item 12. Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . . . . 17
Item 13. Certain Relationships and Related Transactions . . . 18
Part IV.
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K . . . . . . . . . . . . . . . . . 19
</TABLE>
<PAGE>
<TABLE>
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference as follows:
<CAPTION>
Documents Incorporated Part of Form 10-K
<S> <C>
Partnership's Registration Statement I and IV
on Form S-1, File No. 33-90360
December 31, 1996 Annual Report II and IV
for the Dean Witter Diversified
Futures Fund Limited Partnership
</TABLE>
<PAGE>
PART I
Item 1. BUSINESS
(a) General Development of Business. Dean Witter Diversified Futures
Fund Limited Partnership (the "Partnership") is a Delaware limited
partnership formed to engage in the speculative trading of commodity
futures contracts and other commodity interests, including, but not
limited to, forward contracts on foreign currencies and options on futures
contracts and physical commodities.
The Partnership was organized as a limited partnership on November
25, 1987 and initially offered 2,500 units at $1,000 per unit through a
private placement resulting in 1,659.244 limited partnership units being
accepted and issued on April 14, 1988. The Partnership commenced trading
on April 14, 1988 with the proceeds of this initial closing, and a capital
contribution from the Partnership's general partner, Demeter Management
Corporation ("Demeter"), of $20,000 (20 units).
Additional units of limited partnership interest in the
Partnership were registered in a public offering pursuant to a
Registration Statement on Form S-1 (File No. 33-90360) which became
effective on June 30, 1995. Additional Units of limited partnership
interest in the Partnership were registered pursuant to a Registration
Statement on Form S-1 (File No. 33-95624) which became effective on August
11, 1995. The offering of units was underwritten on a "best efforts"
basis by Dean Witter Reynolds Inc. ("DWR"), a commodity broker and an
affiliated corporation Demeter. The Partnership's net asset value per
unit, as of December 31, 1996, was $911.49 representing a decrease of 2.7
percent from the net asset value per unit of $936.41 at December 31, 1995.
For a more detailed description of the Partnership's business, see
subparagraph (c).
<PAGE>
(b) Financial Information about Industry Segments. The
Partnership's business comprises only one segment for financial reporting
purposes, speculative trading of commodity futures contracts and other
commodity interests. The relevant financial information is presented in
Items 6 and 8.
(c) Narrative Description of Business. The Partnership is in the
business of speculative trading in commodity futures contracts and other
commodity interests, pursuant to trading instructions provided by Dean
Witter Futures & Currency Management Inc. ("DWFCM"), a wholly-owned
subsidiary of Dean Witter, Discover & Co. ("DWD"), and an affiliate of DWR
and Demeter. For a detailed description of the different facets of the
Partnership's business, see those portions of the Partnership's
Prospectus, dated June 30, 1995, filed as part of the Registration
Statement on Form S-1 (see "Documents Incorporated by Reference" Page 1),
set forth below:
Facets of Business
1. Summary 1. "Summary of the Prospectus"
(Pages 2-10).
2. Commodity Markets 2. "The Futures, Options and
Forwards Markets" (Pages
55-60).
3. Partnership's Commodity 3. "Trading Policies" (Pages
Trading Arrangements and 52-53) "The Trading
Policies Advisor" (Pages 42-51).
4. Management of the Part- 4. "The Management Agreement"
nership (Pages 54-55). "The General
Partner" (Pages 37-39) and
"The Commodity Broker"(Pages
53-54). "The Limited Part-
nership Agreement" (Pages
61-65).
5. Taxation of the Partner- 5. "Material Federal Income Tax
ship's Limited Partners Consideration" and "State and
Local Income Tax Aspects"
(Pages 69-77).
<PAGE>
(d) Financial Information About Foreign and Domestic Operations and
Export Sales.
The Partnership has not engaged in any operations in foreign
countries; however, the Partnership (through the commodity broker) enters
into forward contract transactions where foreign banks are the contracting
party and futures contracts on foreign exchanges.
Item 2. PROPERTIES
The executive and administrative offices are located within the
offices of DWR. The DWR offices utilized by the Partnership are located
at Two World Trade Center, 62nd Floor, New York, NY 10048.
Item 3. LEGAL PROCEEDINGS
On September 6, 10, and 20, 1996, 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, 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
<PAGE>
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.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
<PAGE>
PART II
Item 5. MARKET FOR THE REGISTRANT'S PARTNERSHIP UNITS AND RELATED
SECURITY HOLDER MATTERS
There is no established public trading market for the Units of
Limited Partnership Interest in the Partnership. The number of holders of
Units at December 31, 1996 was approximately 16,824. No distributions
have been made by the Partnership since it commenced operations on April
14, 1988. Demeter has sole discretion to decide what distributions, if
any, shall be made to investors in the Partnership. No determination has
yet been made as to future distributions.
<PAGE>
<TABLE>
Item 6. SELECTED FINANCIAL DATA (in dollars)
<CAPTION>
For the Years Ended December 31,
<S> <C> <C> <C> <C> <C>
1996 1995 1994 1993 1992
Total Revenues
(including interest) 12,331,871 (4,886,349) 849,508 1,005,425 1,304,624
Net Income (Loss) (6,535,424) (13,153,506) 313,523 297,550 651,624
Net Income (Loss)
Per Unit (Limited
& General Partners) (24.92) (44.80) 69.98 56.83 122.24
Total Assets 167,301,602 195,491,703 2,973,987 4,823,939 4,741,152
Total Limited
Partners' Capital 161,609,600 192,029,423 2,836,167 4,587,461 4,438,708
Net Asset Value Per
Unit of Limited
Partnership Interest 911.49 936.41 981.21 911.23 854.40
</TABLE>
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Liquidity. The Partnership's assets are deposited in separate
commodity interest trading accounts with DWR, the commodity broker, and
are used by the Partnership as margin to engage in commodity futures
contract trading. DWR holds such assets in either designated depositories
or in securities approved by the Commodity Futures Trading Commission
("CFTC") 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 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 and
other commodity interests may be illiquid. If the price for a futures
contract for a particular commodity has increased or decreased by an
amount equal to the "daily limit", positions in the commodity can neither
be taken nor liquidated unless traders are willing to effect trades at or
within the limit. Commodity futures prices have occasionally moved the
daily limit for several consecutive days with little or no trading. Such
market conditions could prevent the Partnership from promptly liquidating
its commodity futures positions.
There is no limitation on daily price moves in trading forward
contracts on foreign 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.
<PAGE>
Either of these market conditions could result in restrictions on
redemptions.
Market Risk. The Partnership trades futures, options and forward
contracts in interest rates, stock indices, commodities and currencies.
In entering into these contracts there exists a risk to the Partnership
(market risk) that such contracts may be significantly influenced by
market conditions, such as interest rate volatility, resulting in such
contracts being less valuable. If the markets should move against all of
the futures interest positions held by the Partnership at the same time,
and if the Trading Advisor were unable to offset futures interest
positions of the Partnership, the Partnership could lose all of its assets
and the Limited Partners would realize a 100% loss. The Partnership has
established Trading Policies, which include standards for liquidity and
leverage which help control market risk. Both the Trading Advisor and
Demeter monitor the Partnership's trading activities on a daily basis to
ensure compliance with the Trading Policies. Demeter may (under terms of
the Management Agreement) override the trading instructions of the Trading
Advisor to the extent necessary to comply with the Partnership's Trading
Policies.
Credit Risk. In addition to market risk, the Partnership is subject
to credit risk in that a counterparty may not be able to meet its
obligations to the Partnership. The counterparty of the Partnership for
futures contracts traded in the United States and most foreign exchanges
on which the Partnership trades is the clearinghouse associated with such
exchange. In general, a clearinghouse is backed by the membership of the
exchange and will act in the event of non-performance by one of its
members or one of its member's customers, and as such, should
significantly reduce this credit risk. In cases where the Partnership
<PAGE>
trades on exchanges where the clearinghouse is not funded or guaranteed by
the membership, or where the exchange is a "principals' market" in which
performance is the responsibility of the exchange member and not the
exchange or a clearinghouse, or when the Partnership enters into off-
exchange contracts with a counterparty, the sole recourse of the
Partnership will be the clearinghouse, the exchange member or the off-
exchange contract counterparty, as the case may be. With respect to
futures contracts, DWR, in its business as an international commodity
broker, constantly monitors the creditworthiness of the exchanges and
clearing members of the foreign exchanges with which it does business for
clients, including the Partnership. DWR employees also from time to time
serve on supervisory or management committees of such exchanges.If DWR
believed that there was a problem with the creditworthiness of an exchange
on which the Partnership deals, it would so advise Demeter. With respect
to exchanges of which DWR is not a member, DWR acts only through clearing
brokers it has determined to be creditworthy. If DWR believed that a
clearing broker with which it deals on behalf of clients were not
creditworthy, it would terminate its relationship with such broker.
While DWR monitors the creditworthiness and risks involved in
dealing on the various exchanges (and their clearinghouses) and with other
exchange members, there can be no assurance that an exchange (or its
clearinghouse) or other exchange member will be able to meet its
obligations to the Partnership. DWR has not undertaken to indemnify the
Partnership against any loss. Further, the law is unclear, particularly
with respect to trading in various non-U.S. jurisdictions, as to whether
DWR has any obligation to protect the Partnership from any liability in
the event that an exchange or its clearinghouse or another exchange member
defaults on its obligations on trades effected for the Partnership.
<PAGE>
Although DWR monitors the creditworthiness of the foreign exchanges
and clearing brokers with which it does business for clients, DWR does not
have the capability to precisely quantify the Partnership's exposure to
risks inherent in its trading activities on foreign exchanges, and, as a
result, the risk is not monitored by DWR on an individual client basis
(including the Partnership). In this regard, DWR must clear its customer
trades through one or more other clearing brokers on each exchange where
DWR is not a clearing member. Such other clearing brokers calculate the
net margin requirements of DWR in respect of the aggregate of all of DWR's
customer positions carried in DWR's omnibus account with that clearing
broker. Similarly, DWR calculates a net margin requirement for the
exchange-traded futures positions of each of its customers, including the
Partnership. Neither DWR nor DWR's respective clearing brokers on each
foreign futures exchange calculates the margin requirements of an
individual customer, such as the Partnership, in respect of the customer's
aggregate contract positions on any particular exchange. With respect to
forward contract trading, the Partnership trades with only those
counterparties which Demeter, together with DWR, have determined to be
creditworthy. As set forth in the Partnership's Trading Policies, in
determining creditworthiness, Demeter and DWR consult with the Corporate
Credit Department of DWR. Currently, the Partnership deals solely with
DWR as its counterparty on forward contracts. While DWR and Demeter
monitor creditworthiness and risk involved in dealing on the various
exchanges and with counterparties, there can be no assurance that an
exchange or counterparty will be able to meet its obligations to the
Partnership. See Note 3, "Financial Instruments" - to the Partnership's
Financial Statements in its 1996 Annual Report to Partners, incorporated
by reference in this Form 10-K.
<PAGE>
Capital Resources. The Partnership does not have, nor does it
expect to have, any capital assets. Redemptions of Units in the future
will impact the amount of funds available for investments in commodity
futures, forward contracts on foreign currencies and other commodity
interests in subsequent peri of the Partnership's
Registration Statement on Form S-1 (File No. 33-90360).
(4) Filed herewith.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from Dean
Witter Diversified Futures Fund L.P. and is qualified in its entirety by
references to such financial instruments.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 166,737,088
<SECURITIES> 0
<RECEIVABLES> 574,678
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 167,301,602<F1>
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 167,301,602<F2>
<SALES> 0
<TOTAL-REVENUES> 12,331,871<F3>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 18,867,295
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (6,535,424)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,535,424)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,535,424)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>In addition to cash and receivables, total assets include net unrealized
loss on open contracts of $10,164.
<F2>Liabilities include redemptions payable of $2,811,995, accrued management
fees of $455,428 and common administrative expenses payable of $106,568.
<F3>Total revenue includes realized trading revenue of $13,509,897, net
change in unrealized of ($7,971,947) and interest income of $6,793,921.
</FN>
</TABLE>
<PAGE>
Diversified
Futures
Fund
December 31, 1996
Annual Report
[LOGO] DEAN WITTER
<PAGE>
DEAN WITTER
Two World Trade Center
62nd Floor
New York, NY 10048
Telephone (212) 392-8899
DEAN WITTER DIVERSIFIED FUTURES FUND LIMITED PARTNERSHIP
ANNUAL REPORT
1996
Dear Limited Partner:
This marks the ninth annual report for the Dean Witter Diversified Futures Fund
Limited Partnership (the "Fund"). The Fund began the year at a Net Asset Value
per Unit of $936.41 and decreased by 2.7% to $911.49 on December 31, 1996.
Please note, after the close of business on August 31, 1995, the Net Asset
Value per Unit of the Fund was re-valued from $3,964.23 to $1,000. All
investors in the Fund prior to August 31, 1995 have had their units increased
in a corresponding amount to reflect this re-valuation. The Fund has increased
by 261.4% since it began trading in April 1988 (a compound annualized return of
15.9%).
Losses were recorded during January primarily as a result of long positions in
energy futures as gas and oil prices reversed lower after an upward move late
in 1995. Smaller losses were recorded in agricultural futures. Trading gains
experienced in currencies from short Japanese yen, German mark and Swiss franc
positions offset a majority of these losses. Significant losses were recorded
in February as a result of a series of sharp trend reversals in the value of
the Japanese yen and major European currencies. Additional losses were recorded
in the energy markets, as a result of inconsistent price movement, and in
global interest rate futures as a result of a sharp reversal in the previous
upward move. Small gains were recorded in March from newly established long
positions in the energy markets as oil and gas futures prices finished the
month higher.
<PAGE>
Trading gains posted during April were recorded from short positions in the
German mark and Swiss franc as the value of these currencies moved lower
relative to the U.S. dollar. Smaller gains were recorded from trading in the
agricultural and energy futures markets. Sharp trend reversals in a majority of
the markets traded resulted in losses during May. The most significant losses
were recorded in metals from long copper futures positions as prices moved
dramatically lower on May 17 and 20. During June, global interest rate and
stock index futures prices moved in a choppy pattern, resulting in losses for
the Fund. Smaller losses were recorded in the agricultural markets. A portion
of these losses was offset by gains from short copper futures positions as
prices moved dramatically lower on news of significant losses in copper by
Sumitomo Corporation.
During July, long German mark and Swiss franc positions profited from an upward
move in the value of these currencies relative to the U.S. dollar. Additional
gains were recorded during July from long global interest rate futures
positions. Trend reversals and choppy movement in the currency markets resulted
in losses for the Fund during August. Smaller losses were recorded from trading
in agricultural commodities and metals. Gains from long energy futures
positions offset a portion of these losses. A strong upward move in global
interest rate futures prices during September resulted in gains for the Fund's
long positions. Additional gains were recorded in the energy markets as oil and
gas prices continued to trend higher.
Gains were recorded during October and November from long British pound
positions as the value of the pound surged higher relative to the U.S. dollar.
Additional gains were recorded as long global interest rate futures positions
profited from a continued upward price trend. A small portion of these gains
was offset by losses experienced
<PAGE>
during October in the energy markets, and during November as a result of choppy
movement in agricultural futures prices. Losses were recorded during December
as a result of sudden and dramatic reversal in global interest rate futures
prices early in the month. Additional losses were recorded as the value of the
British pound decreased sharply during the first week of December.
The intermediate to long-term trend following trading methodology of the Fund's
sole trading advisor, Dean Witter Futures & Currency Management Inc. ("DWFCM"),
was hurt by price volatility in energies and agricultural commodities during
much of 1996. This factor coupled with sharp trend reversals in currencies and
global bond futures in February and December when positions in these areas were
significant, resulted in overall losses for the year despite a better than 20%
increase during the three month period September-November. While such results
are frustrating, we remain confident in DWFCM's time tested methodology and its
ability to rebound as it has over previous long-term periods.
Should you have any questions concerning this report, please feel free to
contact Demeter Management Corporation at Two World Trade Center, 62nd Floor,
New York, NY 10048 or your Dean Witter Account Executive.
I hereby affirm, that to the best of my knowledge and belief, the information
contained in this report is accurate and complete. Past performance is not a
guarantee of future results.
Sincerely,
/s/ Mark J. Hawley
Mark J. Hawley
President
Demeter Management Corporation
General Partner
<PAGE>
DEAN WITTER DIVERSIFIED FUTURES FUND
LIMITED PARTNERSHIP
INDEPENDENT AUDITORS' REPORT
The Limited Partners and the General Partner:
We have audited the accompanying statements of financial condition of Dean
Witter Diversified Futures Fund Limited Partnership (the "Partnership") as of
December 31, 1996 and 1995 and the related statements of operations, changes in
partners' capital, and cash flows for each of the three years in the period
ended December 31, 1996. These financial statements are the responsibility of
the Partnership's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Dean Witter Diversified Futures Fund
Limited Partnership as of December 31, 1996 and 1995 and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
February 17, 1997
New York, New York
<PAGE>
DEAN WITTER DIVERSIFIED FUTURES FUND
LIMITED PARTNERSHIP
STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1995
----------- -----------
$ $
<S> <C> <C>
ASSETS
Equity in Commodity futures trading
accounts:
Cash 166,737,088 186,577,817
Net unrealized gain (loss) on open contracts (10,164) 7,961,783
----------- -----------
Total Trading Equity 166,726,924 194,539,600
Interest receivable (DWR) 574,678 694,646
Due from DWR -- 257,457
----------- -----------
Total Assets 167,301,602 195,491,703
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES
Redemptions payable 2,811,995 76,096
Accrued management fee (DWFCM) 455,428 464,750
Accrued brokerage commissions (DWR) 208,243 628,375
Administrative expenses payable 106,568 97,122
Accrued transaction fees and costs 32,213 61,596
----------- -----------
Total Liabilities 3,614,447 1,327,939
----------- -----------
PARTNERS' CAPITAL
Limited Partners (177,301.806 and 205,070.252 Units,
respectively) 161,609,600 192,029,423
General Partner (2,279.285 Units) 2,077,555 2,134,341
----------- -----------
Total Partners' Capital 163,687,155 194,163,764
----------- -----------
Total Liabilities and Partners' Capital 167,301,602 195,491,703
=========== ===========
NET ASSET VALUE PER UNIT 911.49 936.41
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
DEAN WITTER DIVERSIFIED FUTURES FUND
LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS
ENDED
DECEMBER 31,
--------------------------------
1996 1995 1994
---------- ----------- -------
$ $ $
<S> <C> <C> <C>
REVENUES
Trading Profit (Loss):
Realized 13,509,897 (15,339,073) 630,326
Net change in unrealized (7,971,947) 7,527,594 71,205
---------- ----------- -------
Total Trading Results 5,537,950 (7,811,479) 701,531
Interest income (DWR) 6,793,921 2,925,130 147,977
---------- ----------- -------
Total Revenues 12,331,871 (4,886,349) 849,508
---------- ----------- -------
EXPENSES
Brokerage commissions (DWR) 12,600,962 5,729,359 354,845
Management fee (DWFCM) 5,141,736 2,001,158 124,451
Transaction fees and costs 1,010,645 438,155 32,689
Administrative expenses 113,952 71,000 24,000
Incentive fees (DWFCM) -- 27,485 --
---------- ----------- -------
Total Expenses 18,867,295 8,267,157 535,985
---------- ----------- -------
NET INCOME (LOSS) (6,535,424) (13,153,506) 313,523
========== =========== =======
NET INCOME (LOSS) ALLOCATION:
Limited Partners (6,478,638) (13,010,052) 307,974
General Partner (56,786) (143,454) 5,549
NET INCOME (LOSS) PER UNIT (NOTE 1):
Limited Partners (24.92) (44.80) 69.98
General Partner (24.92) (44.80) 69.98
</TABLE>
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
UNITS OF
PARTNERSHIP LIMITED GENERAL
INTEREST PARTNERS PARTNER TOTAL
----------- ----------- --------- -----------
(NOTE 1) $ $ $
<S> <C> <C> <C> <C>
Partners' Capital, December
31, 1993 5,113.661 4,587,461 72,246 4,659,707
Net Income -- 307,974 5,549 313,523
Redemptions (2,143.893) (2,059,268) -- (2,059,268)
----------- ----------- --------- -----------
Partners' Capital, December
31, 1994 2,969.768 2,836,167 77,795 2,913,962
Offering of Units 205,135.863 202,935,863 2,200,000 205,135,863
Net Loss -- (13,010,052) (143,454) (13,153,506)
Redemptions (756.094) (732,555) -- (732,555)
----------- ----------- --------- -----------
Partners' Capital, December
31, 1995 207,349.537 192,029,423 2,134,341 194,163,764
Net Loss -- (6,478,638) (56,786) (6,535,424)
Redemptions (27,768.446) (23,941,185) -- (23,941,185)
----------- ----------- --------- -----------
Partners' Capital,
December 31, 1996 179,581.091 161,609,600 2,077,555 163,687,155
=========== =========== ========= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
DEAN WITTER DIVERSIFIED FUTURES FUND
LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS
ENDED
DECEMBER 31,
------------------------------------
1996 1995 1994
----------- ----------- ----------
$ $ $
<S> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES
Net income (loss) (6,535,424) (13,153,506) 313,523
Noncash item included in net income
(loss):
Net change in unrealized 7,971,947 (7,527,594) (71,205)
(Increase) decrease in operating
assets:
Interest receivable (DWR) 119,968 (678,200) (7,088)
Due from DWR 257,457 (255,471) (1,986)
Increase (decrease) in operating
liabilities:
Accrued management fee (DWFCM) (9,322) 457,447 (4,569)
Accrued brokerage commissions (DWR) (420,132) 620,611 (5,264)
Administrative expenses payable 9,446 52,694 (16,915)
Accrued transaction fees and costs (29,383) 61,066 (415)
Accrued incentive fee (DWFCM) -- -- (15,552)
----------- ----------- ----------
Net cash provided by (used for)
operating activities 1,364,557 (20,422,953) 190,529
----------- ----------- ----------
CASH FLOWS FROM
FINANCING ACTIVITIES
Offering of units -- 205,135,863 --
Increase (decrease) in redemptions
payable 2,735,899 76,096 (61,492)
Redemptions of units (23,941,185) (732,555) (2,059,268)
----------- ----------- ----------
Net cash provided by (used for)
financing activities (21,205,286) 204,479,404 (2,120,760)
----------- ----------- ----------
Net increase (decrease) in cash (19,840,729) 184,056,451 (1,930,231)
Balance at beginning of period 186,577,817 2,521,366 4,451,597
----------- ----------- ----------
Balance at end of period 166,737,088 186,577,817 2,521,366
=========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
DEAN WITTER DIVERSIFIED FUTURES FUND
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION--Dean Witter Diversified Futures Fund Limited Partnership (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 is Demeter Management Corporation ("Demeter").
The commodity broker is Dean Witter Reynolds Inc. ("DWR"). The Trading Manager
is Dean Witter Futures & Currency Management Inc. ("DWFCM"). DWR, DWFCM and
Demeter are wholly-owned subsidiaries of Dean Witter, Discover & Co. ("DWD").
Demeter is required to maintain a 1% minimum interest in the equity of the
Partnership and income (losses) are shared by the General and Limited Partners
based upon their proportional ownership interests.
BASIS OF ACCOUNTING--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts in the financial statements.
REVENUE RECOGNITION--Commodity futures contracts and other commodity interests
are open commitments until settlement date. They are valued at market and the
resulting unrealized gains and losses are reflected in income. Monthly, DWR
pays the Partnership interest income based upon 80% of the average daily Net
Assets, as defined, at a prevailing rate for U.S. Treasury bills.
NET INCOME (LOSS) PER UNIT--Net income (loss) per Unit is computed using the
weighted average number of units outstanding during the period.
EQUITY IN COMMODITY FUTURES TRADING ACCOUNTS--The Partnership's asset "Equity
in Commodity futures trading accounts" consists of cash on deposit at DWR to be
used as margin for trading and the net asset or liability related to unrealized
gains or losses on open contracts. The asset or liability related to the
unrealized gains or losses on forward contracts is presented as a net amount
because the Partnership has a master netting agreement with DWR.
BROKERAGE COMMISSIONS AND RELATED TRANSACTION FEES AND COSTS--Brokerage
commissions are accrued at 80% of DWR's published non-member rates on a half-
turn basis. Transaction fees and costs are accrued on a half-turn basis.
<PAGE>
DEAN WITTER DIVERSIFIED FUTURES FUND
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Through August 31, 1995, brokerage commissions were capped at 1% per month of
the adjusted Net Assets allocated to each trading program employed by the
Trading Manager. From September 1, 1995 through August 31, 1996, the cap was
changed to 3/4 of 1% of the Partnership's Net Assets as of the first day of
each month.
Effective September 1, 1996, brokerage commissions and transaction fees
chargeable to the Partnership have been capped at a combined amount of 13/20 of
1% per month of the Partnership's month-end Net Assets (as defined in the
Limited Partnership Agreement).
OPERATING EXPENSES--The Partnership bears all expenses related to its trading
activities. Effective September 1, 1995, such fees were capped at a maximum of
1/4 of 1% annually of the Partnership's average monthly Net Assets as of the
first day of each month. These include legal, auditing, accounting, mailing,
printing, filing fees and other expenses as permitted by the Limited
Partnership Agreement. In addition, the Partnership incurs a monthly management
fee and may incur incentive fees. Demeter bears all other operating expenses.
OFFERING OF UNITS--The General Partnership registered additional Units of
Limited Partnership interest with the Securities and Exchange Commission for a
public offering held in August 1995. Units were offered at $1,000 per Unit. At
the close of business on August 31, 1995 the Partnership issued to each
existing Partner additional Units in such amounts as necessary so that the Net
Asset Value of all outstanding Units on September 1, 1995 was equal to $1,000
per Unit. Per Unit amounts and Units of Partnership interest for the periods
prior to August 31, 1995 have been restated to reflect this issuance.
ORGANIZATIONAL AND OFFERING EXPENSES--The Partnership is not liable for any
organizational and offering expenses in connection with the issuance and
distribution of Units. DWR agreed to pay the organizational expenses of the
Partnership and the expenses of offering the Units to the public.
INCOME TAXES--No provision for income taxes has been made in the accompanying
financial statements, as partners are individually responsible for reporting
income or loss based upon their respective share of the Partnership's revenues
and expenses as reported for income tax purposes.
DISTRIBUTIONS--Distributions, other than on redemptions of Units, are made on a
pro-rata basis at
<PAGE>
DEAN WITTER DIVERSIFIED FUTURES FUND
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
the sole discretion of Demeter. No distributions have been made to date.
REDEMPTIONS--Limited Partners may redeem some or all of their Units at 100% of
the Net Asset Value per Unit as of the end of the last day that is six months
after the closing at which a person becomes a limited partner, upon five
business days advance notice by redemption form to Demeter. Thereafter, Units
may be redeemed as of the end of any month upon five business days advance
notice by redemption form to Demeter. However, any Units redeemed at the end of
the sixth month or at or prior to the end of the ninth month following the
closing at which such person first becomes a limited partner, may be assessed a
redemption charge equal to 2% or 1% respectively, of the Net Asset Value per
Unit on the date of such redemption.
DISSOLUTION OF THE PARTNERSHIP--The Partnership will terminate on December 31,
2025 or at an earlier date if certain conditions set forth in its Limited
Partnership Agreement occur.
2. RELATED PARTY TRANSACTIONS
The Partnership pays brokerage commissions to DWR on trades executed on its
behalf as described in Note 1. 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 as described in Note 1.
Demeter, on behalf of the Partnership, has entered into a Management Agreement
with DWFCM to make all trading decisions for the Partnership.
Compensation to DWFCM by the Partnership consists of a management fee and an
incentive fee as follows:
MANAGEMENT FEE--A flat rate of 1/4 of 1% of the Partnership's adjusted average
daily Net Assets as of the first day of each month.
INCENTIVE FEE--The Partnership will pay a quarterly incentive fee equal to 15%
of the "Trading Profits," as defined in the Management Agreement, earned by the
Partnership as of the end of each calendar quarter. Such incentive fee is
accrued in each month in which "Trading Profits" occur. In those months in
which "Trading Profits" are negative, previous accruals, if any, during each
fiscal quarter will be reduced.
3. FINANCIAL INSTRUMENTS
The Partnership trades futures and forward contracts in interest rates, stock
indices, commodities, currencies, petroleum, and precious metals. Futures
<PAGE>
DEAN WITTER DIVERSIFIED FUTURES FUND
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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 December 31, 1996 and 1995, open contracts were:
<TABLE>
<CAPTION>
CONTRACT OR NOTIONAL AMOUNT
---------------------------
1996 1995
------------- -------------
$ $
<S> <C> <C>
EXCHANGE-TRADED CONTRACTS
Financial Futures:
Commitments to Purchase -- 795,389,000
Commitments to Sell -- --
Commodity Futures:
Commitments to Purchase 28,117,000 373,366,000
Commitments to Sell 84,112,000 56,340,000
Foreign Futures:
Commitments to Purchase 86,391,000 565,963,000
Commitments to Sell 163,838,000 44,156,000
OFF-EXCHANGE-TRADED FORWARD CURRENCY CONTRACTS
Commitments to Purchase 442,642,000 623,225,000
Commitments to Sell 573,157,000 696,127,000
</TABLE>
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 gains and losses on open contracts are reported as a component
of "Equity in Commodity futures trading accounts" on the Statements of
Financial Condition and totaled $(10,164) and $7,961,783 at December 31, 1996
and 1995, respectively.
Of the $(10,164) net unrealized loss on open contracts at December 31, 1996,
$3,667,477 related to exchange-traded futures contracts and $(3,677,641)
related to off-exchange-traded forward currency contracts. Of the $7,961,783
net unrealized gain on open contracts at December 31, 1995, $14,845,404 related
to exchange-traded futures contracts and $(6,883,621) related to off-exchange-
traded forward currency contracts.
Exchange-traded futures contracts held by the Partnership at December 31, 1996
and 1995 mature through June 1997 and September 1996, respectively. Off-
exchange-traded forward currency contracts held by the Partnership at December
31, 1996 and 1995 mature through February 1997 and February 1996, respectively.
The contract amounts in the above table
<PAGE>
DEAN WITTER DIVERSIFIED FUTURES FUND
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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.
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 $170,404,565 and $201,423,221 at
December 31, 1996 and 1995, 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.
For the years ended December 31, 1996 and 1995, the average fair value of
financial instruments held for trading purposes was as follows:
<TABLE>
<CAPTION>
1996
-----------------------
ASSETS LIABILITIES
----------- -----------
$ $
<S> <C> <C>
EXCHANGE-TRADED CONTRACTS:
Financial Futures 198,372,000 116,558,000
Commodity Futures 92,560,000 69,758,000
Foreign Futures 282,199,000 109,444,000
OFF-EXCHANGE-TRADED FORWARD CURRENCY CONTRACTS 489,931,000 540,039,000
<CAPTION>
1995
-----------------------
ASSETS LIABILITIES
----------- -----------
$ $
<S> <C> <C>
EXCHANGE-TRADED CONTRACTS:
Financial Futures 161,543,000 2,296,000
Commodity Futures 104,873,000 19,103,000
Foreign Futures 174,660,000 55,356,000
OFF-EXCHANGE-TRADED FORWARD CURRENCY CONTRACTS 208,852,000 211,252,000
</TABLE>
<PAGE>
DEAN WITTER DIVERSIFIED FUTURES FUND
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS--(CONCLUDED)
5. LEGAL MATTERS
On September 6, 10, and 20, 1996, 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 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>
DEAN WITTER REYNOLDS INC. FIRST-CLASS MAIL
Two World Trade Center ZIP + 4 PRESORT
62nd Floor U.S. POSTAGE PAID
New York, NY 10048 BROOKLYN, NY
PERMIT NO. 148
