UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual report pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
[No Fee Required]
For the fiscal year ended December 31, 1997 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: $140,523,351.58 at January 31, 1998.
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, 1997
<CAPTION>
Page No.
<S> <C>
DOCUMENTS INCORPORATED BY REFERENCE. . . . . . . . . . . . . . . . .
1
Part I .
Item 1. Business. . . . . . . . . . . . . . . . . . . . . . . 2-5
Item 2. Properties. . . . . . . . . . . . . . . . . . . . . . 5
Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . . 5-7
Item 4. Submission of Matters to a Vote of Security Holders . . 7
Part II.
Item 5. Market for the Registrant's Partnership Units and
Related Security Holder Matters . . . . . . . . . . . . 8
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . 9
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . 10-17
Item 8. Financial Statements and Supplementary Data. . . . . 17
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure. . . . . . . . . 18
Part III.
Item10. Directors, Executive Officers, Promoters and
Control Persons of the Registrant . . . . . . . . . 19-24
Item11. Executive Compensation . . . . . . . . . . . . . . . 24
Item12. Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . . . . 24
Item13. Certain Relationships and Related Transactions . . 24-25
Part IV.
Item14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K . . . . . . . . . . . . . . . . 26
</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
Partnership's Registration Statement
on Form S-1, File No. 33-95624 I
December 31, 1997 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.
<PAGE>
("DWR"). Both DWR and Demeter are wholly-owned subsidiaries
of Morgan Stanley, Dean Witter, Discover & Co. ("MSDWD").
Through July 31, 1997, the sole commodity broker for
the Partnership's transactions was DWR. On July 31, 1997,
DWR closed the sale of its institutional futures business
and foreign currency trading operations to Carr Futures,
Inc. ("Carr"), a subsidiary of Credit Agricole Indosuez.
Following the sale, Carr became the clearing commodity
broker for the Partnership's futures and futures options
trades and the counterparty on the Partnership's foreign
currency trades. DWR serves as the non-clearing commodity
broker for the Partnerships with Carr providing all clearing
services for the Partnerships' transactions.
The Partnership's net asset value per unit, as of
December 31, 1997, was $1,020.54 representing an increase of
11.96 percent from the net asset value per unit of $911.49
at December 31, 1996. For a more detailed description of
the Partnership's business, see subparagraph (c).
(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.
<PAGE>
(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 MSDWD 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)
"The Commodity
Broker" (Pages 53-
54), and "The Limited
Partnership
Agreement" (Pages
61-65).
5. Taxation of the Partner- 5. "Material Federal
Income
ship's Limited Partners Tax 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 brokers) enters into forward contract transactions
where foreign banks are the contracting party and trades in
futures interests 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, 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, MSDWD, (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
<PAGE>
fiduciary duty, fraudulent and unfair business practices,
unjust enrichment, and conversion in the sale and operation
of the various limited partnerships 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
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
<PAGE>
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, 1997 was
approximately 14,033. 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>
1997 1996 1995 1994
1993
Total Revenues
(including interest)33,683,534 12,331,871 (4,886,349) 849,5081,005,4
25
Net Income (Loss) 17,349,458 (6,535,424) (13,153,506) 313,523 297,550
Net Income (Loss)
Per Unit (Limited
& General Partners) 109.05 (24.92) (44.80) 69.98 56.83
Total Assets 148,972,658 167,301,602 195,491,703 2,973,987 4,823,939
Total Limited
Partners' Capital 143,225,512 161,609,600 192,029,423 2,836,167 4,587,461
Net Asset Value Per
Unit of Limited
Partnership Interest 1,020.54 911.49 936.41 981.21 911.23
</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 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 Commodity Futures Trading
Commission ("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 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.
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
<PAGE>
(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, in entering
into futures, options and forward contracts there is a
credit risk to the Partnership that the counterparty on a
contract will not be able to meet its obligations to the
Partnership. The ultimate counterparty of a 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. For example,
a clearinghouse may cover a default by (i) drawing upon a
defaulting member's mandatory contributions and/or non-
defaulting members' contributions to a clearinghouse
guarantee fund, established lines or letters of credit with
banks, and/or the clearinghouse's surplus capital and other
available assets of the exchange and clearinghouse, or (ii)
assessing its members. In cases where a Partnership trades
on a foreign exchange 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
<PAGE>
exchange or a clearinghouse, or when a 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.
There can be no assurance that a clearinghouse,
exchange or other exchange member will meet its obligations
to the Partnership, and the Partnership is not indemnified
against a default by such parties from Demeter or MSDWD or
DWR. Further, the law is unclear as to whether a commodity
broker has any obligation to protect its customers from loss
in the event of an exchange, clearinghouse or other exchange
member default on trades effected for the broker's
customers; any such obligation on the part of the broker
appears even less clear where the default occurs in a non-US
jurisdiction.
Demeter deals with these credit risks of the
partnerships in several ways. First, it monitors each
partnership's credit exposure to each exchange on a daily
basis, calculating not only the amount of margin required
for it but also the amount of its unrealized gains at each
exchange, if any. The Commodity Brokers inform each
partnership, as with all their customers, of its net margin
requirements for all its existing open positions, but do not
break that net figure down, exchange by exchange. Demeter,
however, has installed a system which permits it
<PAGE>
to monitor each partnership's potential margin liability,
exchange by exchange. Demeter is then able to monitor the
individual partnership's potential net credit exposure to
each exchange by adding the unrealized trading gains on that
exchange, if any, to the partnership's margin liability
thereon.
Second, as discussed earlier, each partnership's
trading policies limit the amount of partnership Net Assets
that can be committed at any given time to futures contracts
and require, in addition, a certain minimum amount of
diversification in the partnership's trading, usually over
several different products. One of the aims of such trading
policies has been to reduce the credit exposure of any
partnership to any single exchange and, historically, such
partnership exposure has typically amounted to only a small
percentage of its total Net Assets. On those relatively few
occasions where a partnership's credit exposure has climbed
above that level, Demeter has dealt with the situations on a
case by case basis, carefully weighing whether the increased
level of credit exposure remained appropriate. Demeter
expects to continue to deal with such situations in a
similar manner in the future.
Third, Demeter has secured, with respect to Carr acting
as the clearing broker for the partnerships, a guarantee by
Credit Agricole Indosuez, Carr's parent, of the payment of
the "net liquidating value" of the transactions (futures,
options and forward contracts) in each
<PAGE>
partnership's account. As of December 31, 1997, Credit
Agricole Indosuez' total capital was over $3.25 billion and
it is currently rated AA2 by Moody's.
With respect to forward contract trading, the
partnerships trade with only those counterparties which
Demeter, together with DWR, have determined to be
creditworthy. At the date of this filing, the partnerships
deal only with Carr as their counterparty on forward
contracts. The guarantee by Carr's parent, discussed above,
covers these forward contracts.
See "Financial Instruments" under Notes to Financial
Statements in the Partnership's 1997 Annual Report to
Partners, incorporated by reference in this Form 10-K.
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. As of December 31, 1997, the
Partnership's total capital was $145,551.623, a decrease of
$18,135,532 from the Partnership's total capital of
$163,687,155, at December 31, 1996. For
<PAGE>
the year ended December 31, 1997, the Partnership generated
net income of $17,349,458 and total redemptions aggregated
$35,484,990.
For the year ended December 31, 1997, the Partnership's
total trading revenues including interest income were
$33,683,534. The Partnership's total expenses for the year
were $16,334,076, resulting in net income of $17,349,458.
The value of an individual unit in the Partnership increased
from $911.49 at December 31, 1996 to $1,020.54 at December
31, 1997.
As of December 31, 1996, the Partnership's total
capital was $163,687,155, a decrease of $30,476,609 from the
Partnership's total capital of $194,163,764 at December 31,
1995. For the year ended December 31, 1996, the Partnership
incurred a net loss of $6,535,424 and total redemptions
aggregated $23,941,185.
For the year ended December 31, 1996, the Partnership's
total trading revenues including interest income were
$12,331,871. The Partnership's total expenses for the year
were $18,867,295, resulting in a net loss of $6,535,424.
Expenses are not comparable to the prior years commensurate
with the increase in assets traded resulting from the
offering of additional Units in September 1995. The value
of an individual unit in the Partnership decreased from
$936.41 at December 31, 1995 to $911.49 at December 31,
1996.
<PAGE>
As of December 31, 1995, the Partnership's total
capital was $194,163,764, an increase of $191,249,802 from
the Partnership's total capital of $2,913,962 at December
31, 1994. For the year ended December 31, 1995, the
Partnership incurred a net loss of $13,153,506, total
subscriptions aggregated $205,135,863 as a result of the
unit offering and total redemptions aggregated $732,555.
For the year ended December 31, 1995, the Partnership's
total trading losses net of interest income were $4,886,349.
The Partnership's total expenses for the year were
$8,267,157, resulting in a net loss of $13,153,506. The
value of an individual unit in the Partnership decreased
from $981.21 at December 31, 1994 to $936.41 at December 31,
1995.
The Partnership's overall performance record represents
varied results of trading in different commodity markets.
For a further description of trading results, refer to the
letter to the Limited Partners in the accompanying 1997
Annual Report to Partners, incorporated
by reference in this Form 10-K. The Partnership's gains and
losses are
allocated among its Limited Partners for income tax
purposes.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item appears in the
attached 1997 Annual Report to Partners and is incorporated
by reference in this Annual Report on Form 10-K.
<PAGE>
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
<PAGE>
PART III
Item 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL
PERSONS OF THE REGISTRANT
General Partner
Demeter, a Delaware corporation, was formed on August
18, 1977 to act as a commodity pool operator and is
registered with the CFTC as a commodity pool operator and
currently is a member of the National Futures Association
("NFA") in such capacity. Demeter is wholly-owned by MSDWD
and is an affiliate of DWR. MSDWD, DWR and Demeter may each
be deemed to be "promoters" and/or a "parent" of the
Partnership within the meaning of the federal securities
laws.
On July 21, 1997, MSDWD, the sole shareholder of
Demeter, appointed a new Board of Directors consisting of
Richard M. DeMartini, Mark J. Hawley, Lawrence Volpe, Joseph
G. Siniscalchi, Edward C. Oelsner III, and Robert E. Murray.
Dean Witter Reynolds Inc.
DWR is a financial services company which provides to
its individual, corporate and institutional clients services
as a broker in securities and commodity interest contracts,
a dealer in corporate, municipal and government securities,
an investment adviser and an agent in the sale of life
insurance and various other products and services.
<PAGE>
DWR is a member firm of the New York Stock Exchange, the
American Stock Exchange, the Chicago Board Options Exchange,
and other major securities exchanges.
DWR is registered with the CFTC as a futures commission
merchant and is a member of the NFA in such capacity. As of
December 31, 1997, DWR is servicing its clients through a
network of approximately 401 branch offices with
approximately 10,155 account executives servicing individual
and institutional client accounts.
Directors and Officers of the General Partner
The directors and officers of Demeter as of December
31, 1997 are as follows:
Richard M. DeMartini, age 45, is the Chairman of the
Board and a Director of Demeter. Mr. DeMartini is also
Chairman of the Board and a Director of Dean Witter Futures
& Currency Management Inc. ("DWFCM"). Mr. DeMartini is
president and chief operating officer of MSDWD's Individual
Asset Management Group. He was named to this position in
May of 1997 and is responsible for Dean Witter InterCapital,
Van Kampen American Capital, insurance services, managed
futures, unit trust, investment consulting services, Dean
Witter Realty, and NOVUS Financial Corporation. Mr.
DeMartini is a member of the MSDWD management committee, a
director of the InterCapital funds, a trustee of the TCW/DW
funds and a trustee of the Van Kampen American Capital and
Morgan
<PAGE>
Stanley retail funds. Mr. DeMartini has been with Dean
Witter his entire career, joining the firm in 1975 as an
account executive. He served as a branch manager, regional
director and national sales director, before being appointed
president and chief operating officer of the Dean Witter
Consumer Markets. In 1988 he was named president and chief
operating officer of Sears' Consumer Banking Division and in
January 1989 he became president and chief operating officer
of Dean Witter Capital. Mr. DeMartini has served as
chairman of the board of the Nasdaq Stock Market, Inc. and
vice chairman of the board of the National Association of
Securities Dealers, Inc. A native of San Francisco, Mr.
DeMartini holds a bachelor's degree in marketing from San
Diego State University.
Mark J. Hawley, age 54, is President and a Director of
Demeter. Mr. Hawley is also President and a Director of
DWFCM. Mr. Hawley joined DWR in February 1989 as Senior
Vice President and is currently the Executive Vice President
and Director of DWR's Managed Futures Department. From 1978
to 1989, Mr. Hawley was a member of the senior management
team at Heinold Asset Management, Inc., a CPO, and was
responsible for a variety of projects in public futures
funds. From 1972 to 1978, Mr. Hawley was a Vice President
in charge of institutional block trading for the Mid-West at
Kuhn Loeb & Company.
<PAGE>
Lawrence Volpe, age 50, is a Director of Demeter and
DWFCM. Mr. Volpe joined DWR as a Senior Vice President and
Controller in September 1983, and currently holds those
positions. From July 1979 to September 1983, he was
associated with E.F. Hutton & Company Inc. and prior to his
departure, held the positions of First Vice President and
Assistant Controller. From 1970 to July 1979, he was
associated with Arthur Anderson & Co. and prior to his
departure served as audit manager in the financial services
division.
Joseph G. Siniscalchi, age 52, is a Director of
Demeter. Mr. Siniscalchi joined DWR in July 1984 as a First
Vice President, Director of General Accounting and served as
a Senior Vice President and Controller for DWR's Securities
division through 1997. He is currently Executive Vice
President and Director of the Operations Division of DWR.
From February 1980 to July 1984, Mr. Siniscalchi was
Director of Internal Audit at Lehman Brothers Kuhn Loeb,
Inc.
Edward C. Oelsner, III, age 55, is a Director of
Demeter. Mr. Oelsner is currently an Executive Vice
President and head of the Product Development Group at Dean
Witter InterCapital Inc., an affiliate of DWR. Mr. Oelsner
joined DWR in 1981 as a Managing Director in DWR's
Investment Banking Department specializing in coverage of
regulated industries and, subsequently, served as head of
the DWR Retail Products Group. Prior to joining DWR, Mr.
Oelsner held positions at The First
<PAGE>
Boston Corporation as a member of the Research and
Investment Banking Departments from 1967 to 1981. Mr.
Oelsner received his M.B.A. in Finance from the Columbia
University Graduate School of Business in 1966 and an A.B.
in Politics from Princeton University in 1964.
Robert E. Murray, age 37, is a Director of Demeter.
Mr. Murray is also a Director of DWFCM. Mr. Murray is
currently a Senior Vice President of DWR's Managed Futures
Department and is the Senior Administrative Officer of
DWFCM. Mr. Murray began his career at DWR in 1984 and is
currently the Director of Product Development for the
Managed Futures Department. He is responsible for the
development and maintenance of the proprietary Fund
Management System utilized by DWFCM and Demeter in
organizing information and producing reports for monitoring
clients' accounts. Mr. Murray currently serves as a
Director of the Managed Funds Association. Mr. Murray
graduated from Geneseo State University in May 1983 with a
B.A. degree in Finance.
Patti L. Behnke, age 37, is Vice President and Chief
Financial Officer of Demeter. Ms. Behnke joined DWR in
April 1991 as Assistant Vice President of Financial
Reporting and is currently a First Vice President and
Director of Financial Reporting and Managed Futures
Accounting in the Individual Asset Management Group. Prior
to joining DWR, Ms. Behnke held positions of increasing
responsibility at L.F. Rothschild & Co. and Carteret Savings
Bank. Ms. Behnke began her career
<PAGE>
at Arthur Anderson & Co., where she was employed in the
audit division from 1982-1986. She is a member of the AICPA
and the New York State Society of Certified Public
Accountants.
Item 11. EXECUTIVE COMPENSATION
The Partnership has no directors and executive
officers. As a limited partnership, the business of the
Partnership is managed by Demeter which is responsible for
the administration of the business affairs of the
Partnership but receives no compensation for such services.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
(a) Security Ownership of Certain Beneficial Owners -
As of December 31, 1997 there were no persons known to be
beneficial owners of more than 5 percent of the Units of
Limited Partnership Interest in the Partnership.
(b) Security Ownership of Management - At December 31,
1997, Demeter owned 2,279.285 Units of General Partnership
Interest representing a 1.60 percent interest in the
Partnership.
(c) Changes in Control - None
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Refer to Note 2 - "Related Party Transactions" of
"Notes to Financial Statements", in the accompanying 1997
Annual Report to
<PAGE>
Partners, incorporated by reference in this Form 10-K. In
its capacity as the Partnership's retail commodity broker,
DWR received commodity brokerage fees (paid and accrued by
the Partnership) of $10,617,262 for the year ended December
31, 1997. In its capacity as the Partnership's trading
manager, DWFCM received management fees of $4,608,774 and
incentive fees of $23,103 for the year ended December 31,
1997.
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) 1. Listing of Financial Statements
The following financial statements and report of independent
public accountants, all appearing in the accompanying 1997 Annual
Report to Partners, are incorporated by reference in this Form 10-
K:
- Report of Deloitte & Touche LLP,
independent auditors, for the years ended December
31, 1997, 1996 and 1995.
- Statements of Financial Condition as of
December 31, 1997 and 1996.
- Statements of Operations, Changes in
Partners' Capital, and Cash Flows for the years
ended December 31, 1997, 1996 and 1995.
- Notes to Financial Statements.
With exception of the aforementioned information and the
information incorporated in Items 7, 8, and 13, the 1997 Annual
Report to Partners is not deemed to be filed with this report.
2. Listing of Financial Statement Schedules
No financial statement schedules are required to be filed with
this report.
(b) Reports on Form 8-K
No reports on Form 8-K have been filed by the Partnership
during the last quarter of the period covered by this report.
(c) Exhibits
Refer to Exhibit Index on Page E-1.
<PAGE>
SIGNATURES
Pursuant to the requirement of Sections 13 or 15(d) 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
LIMITED PARTNERSHIP
(Registrant)
BY: Demeter
Management Corporation,
General
Partner
March 24, 1998 BY: /s/ Mark J. Hawley
Mark J. Hawley, Director and
President
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on
the dates indicated.
Demeter Management Corporation.
BY: /s/ Mark J. Hawley March 24,
1998
Mark J. Hawley, Director and
President
/s/ Richard M. DeMartini March 24,
1998
Richard M. DeMartini, Director
and Chairman of the Board
/s/ Lawrence Volpe March 24,
1998
Lawrence Volpe, Director
/s/ Joseph G. Siniscalchi March 24,
1998
Joseph G. Siniscalchi, Director
/s/ Edward C. Oelsner III March 24,
1998
Edward C. Oelsner III, Director
/s/ Robert E. Murray March 24,
1998
Robert E. Murray, Director
/s/ Patti L. Behnke March 24,
1998
Patti L. Behnke, Chief Financial
Officer and Principal Accounting
Officer
<PAGE>
EXHIBIT INDEX
ITEM METHOD
OF FILING
-3. Amended and Restated Limited
Partnership Agreement of
the Partnership, dated as of
June 30, 1995. (1)
- -10. Amended and Restated Management
Agreement among the Partnership,
Demeter and DWFCM dated
as of August 31, 1995. (2)
- -10. Amended and Restated Customer
Agreement Between the
Partnership and DWR,
dated as of August 31, 1995. (3)
- -13. December 31, 1997 Annual Report to Limited Partners. (4)
(1)
Incorporated by reference to Exhibit 3.01 of the Partnership's
Registration Statement on Form S-1 (File No. 33-90360).
(2)
Incorporated by reference to Exhibit 10.02 of the Partnership's
Registration Statement on Form S-1 (File No. 33-90360).
(3)
Incorporated by reference to Exhibit 10.01 of the Partnership's
Registration Statement on Form S-1 (File No. 33-90360).
(4) Filed
herewith.
<PAGE>
Diversified
Futures
Fund
December 31, 1997
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
1997
Dear Limited Partner:
This marks the tenth 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 $911.49 and increased by 11.9% to $1,020.54 on December 31, 1997.
The Fund has increased by 304.6% since it began trading in April 1988 ( a
compound annualized return of 15.5%).
Gains were recorded during January and February as a result of a strengthening
in the value of the U.S. dollar versus the Japanese yen and most major European
currencies. Additional gains were recorded during this two month period from
long coffee futures positions as prices increased over concerns regarding the
weather and labor conditions in South America. Smaller gains were recorded from
short positions in the energy markets as oil and gas prices moved lower.
Performance during March resulted in a portion of previous months' profits
being given back as many of the markets that produced gains in January and
February experienced trend reversals and choppy price movement. The most
significant losses were recorded in the currency markets as the value of most
European currencies reversed higher versus the U.S. dollar. Additional losses
were recorded in the financial futures and most domestic commodities markets as
prices in these markets moved in a choppy pattern.
Losses were experienced during April as the difficult trading environment that
began in March continued. The most significant losses were recorded in the
financial futures markets as domestic bond prices rallied higher late in the
<PAGE>
month after showing signs of trending lower previously. Small losses were
recorded during May as profits in soft commodities and financial futures were
more than offset by losses in the energy and currency markets. During June,
losses were recorded from long copper futures positions as prices moved lower
late in the month. Smaller losses were recorded from trading in soft
commodities and energies. A portion of these losses was offset from long global
interest rate and stock index futures positions as prices in these markets
moved higher.
During July, profits were recorded from long positions in global interest rate
futures as U.S., Australian, European and Japanese interest rate futures prices
all trended higher. Additional gains were recorded from short European currency
positions as the U.S. dollar again strengthened relative to the German mark. A
sharp trend reversal in global interest rate futures prices during August
resulted in a giveback of a portion of July's profits. Additional losses were
recorded in the currency markets as the value of most European currencies
increased relative to the U.S. dollar after moving lower previously. A strong
upward move in international interest rate futures prices during September
resulted in gains for the Fund's long positions. Smaller gains were recorded
from long natural gas futures positions as prices in this market also
increased.
A sharp trend reversal in international interest rate futures prices during
October resulted in a give-back of a portion of September's profits. Additional
losses were recorded as a result of short-term volatility in domestic bond and
stock index futures throughout a majority of the month. Trading gains recorded
in the currency and agricultural markets offset a small portion of the overall
losses for the month. During November and December, profits were recorded in
the currency markets from short Japanese yen positions as the value of the yen
decreased relative to the U.S. dollar and other world currencies amid concerns
of the stability of the Asian economy. Additional profits were recorded from
short gold futures positions as gold prices declined to their lowest level in
over twelve years.
<PAGE>
1997 was a profitable year for the Fund as profits were recorded from sustained
price movements in the currency markets during January and February and then
again in November and December from short Japanese yen positions as the value
of the U.S. dollar increased versus the yen. Additional gains were also
recorded from long global interest rate futures positions during June and July.
Although many of the profitable periods with long price trends were followed by
trend reversals and short-term volatile price movement, Dean Witter Futures &
Currency Management Inc's ("DWFCM's") intermediate to long-term trend following
trading methodology was able to retain profits. Looking ahead, we remain
confident in DWFCM's time tested methodology and in its ability to profit over
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, 1997 and 1996 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, 1997. 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, 1997 and 1996 and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1997 in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
February 17, 1998
New York, New York
<PAGE>
DEAN WITTER DIVERSIFIED FUTURES FUND
LIMITED PARTNERSHIP
STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1997 1996
----------- -----------
$ $
<S> <C> <C>
ASSETS
Equity in Commodity futures trading
accounts:
Cash 127,701,224 166,737,088
Net unrealized gain (loss) on open contracts 20,684,288 (10,164)
----------- -----------
Total Trading Equity 148,385,512 166,726,924
Interest receivable (DWR) 497,966 574,678
Due from DWR 89,180 --
----------- -----------
Total Assets 148,972,658 167,301,602
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES
Redemptions payable 2,976,998 2,811,995
Accrued management fee (DWFCM) 352,057 455,428
Administrative expenses payable 91,980 106,568
Accrued brokerage commissions (DWR) -- 208,243
Accrued transaction fees and costs -- 32,213
----------- -----------
Total Liabilities 3,421,035 3,614,447
----------- -----------
PARTNERS' CAPITAL
Limited Partners (140,342.310 and 177,301.806 Units,
respectively) 143,225,512 161,609,600
General Partner (2,279.285 Units) 2,326,111 2,077,555
----------- -----------
Total Partners' Capital 145,551,623 163,687,155
----------- -----------
Total Liabilities and Partners' Capital 148,972,658 167,301,602
=========== ===========
NET ASSET VALUE PER UNIT 1,020.54 911.49
=========== ===========
</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,
----------------------------------
1997 1996 1995
---------- ---------- -----------
$ $ $
<S> <C> <C> <C>
REVENUES
Trading Profit (Loss):
Realized 6,592,590 13,509,897 (15,339,073)
Net change in unrealized 20,694,452 (7,971,947) 7,527,594
---------- ---------- -----------
Total Trading Results 27,287,042 5,537,950 (7,811,479)
Interest income (DWR) 6,396,492 6,793,921 2,925,130
---------- ---------- -----------
Total Revenues 33,683,534 12,331,871 (4,886,349)
---------- ---------- -----------
EXPENSES
Brokerage commissions (DWR) 10,617,262 12,600,962 5,729,359
Management fee (DWFCM) 4,608,774 5,141,736 2,001,158
Transaction fees and costs 907,937 1,010,645 438,155
Administrative expenses 177,000 113,952 71,000
Incentive fees (DWFCM) 23,103 -- 27,485
---------- ---------- -----------
Total Expenses 16,334,076 18,867,295 8,267,157
---------- ---------- -----------
NET INCOME (LOSS) 17,349,458 (6,535,424) (13,153,506)
========== ========== ===========
NET INCOME (LOSS) ALLOCATION:
Limited Partners 17,100,902 (6,478,638) (13,010,052)
General Partner 248,556 (56,786) (143,454)
NET INCOME (LOSS) PER UNIT (NOTE 1):
Limited Partners 109.05 (24.92) (44.80)
General Partner 109.05 (24.92) (44.80)
</TABLE>
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
UNITS OF
PARTNERSHIP LIMITED GENERAL
INTEREST PARTNERS PARTNER TOTAL
----------- ----------- --------- -----------
(NOTE 1) $ $ $
<S> <C> <C> <C> <C>
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
Net Income -- 17,100,902 248,556 17,349,458
Redemptions (36,959.496) (35,484,990) -- (35,484,990)
----------- ----------- --------- -----------
Partners' Capital,
December 31, 1997 142,621.595 143,225,512 2,326,111 145,551,623
=========== =========== ========= ===========
</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,
-------------------------------------
1997 1996 1995
----------- ----------- -----------
$ $ $
<S> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES
Net income (loss) 17,349,458 (6,535,424) (13,153,506)
Noncash item included in net income
(loss):
Net change in unrealized (20,694,452) 7,971,947 (7,527,594)
(Increase) decrease in operating
assets:
Interest receivable (DWR) 76,712 119,968 (678,200)
Due from DWR (89,180) 257,457 (255,471)
Increase (decrease) in operating
liabilities:
Accrued management fee (DWFCM) (103,371) (9,322) 457,447
Administrative expenses payable (14,588) 9,446 52,694
Accrued brokerage commissions
(DWR) (208,243) (420,132) 620,611
Accrued transaction fees and costs (32,213) (29,383) 61,066
----------- ----------- -----------
Net cash provided by (used for)
operating activities (3,715,877) 1,364,557 (20,422,953)
----------- ----------- -----------
CASH FLOWS FROM
FINANCING ACTIVITIES
Offering of units -- -- 205,135,863
Increase in redemptions payable 165,003 2,735,899 76,096
Redemptions of units (35,484,990) (23,941,185) (732,555)
----------- ----------- -----------
Net cash provided by (used for)
financing activities (35,319,987) (21,205,286) 204,479,404
----------- ----------- -----------
Net increase (decrease) in cash (39,035,864) (19,840,729) 184,056,451
Balance at beginning of period 166,737,088 186,577,817 2,521,366
----------- ----------- -----------
Balance at end of period 127,701,224 166,737,088 186,577,817
=========== =========== ===========
</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 (the "Partnership") is a
limited partnership organized to engage in the speculative trading of commodity
futures contracts, commodity options contracts and forward contracts on foreign
currencies. The general partner for the Partnership is Demeter Management
Corporation ("Demeter"). The trading manager is Dean Witter Futures & Currency
Management Inc. ("DWFCM"). Demeter and DWFCM are wholly-owned subsidiaries of
Morgan Stanley, Dean Witter, Discover & Co. ("MSDWD").
On May 31, 1997, Morgan Stanley Group Inc. was merged with and into Dean
Witter, Discover & Co. ("DWD"). At that time DWD changed its corporate name to
Morgan Stanley, Dean Witter, Discover & Co.
Through July 31, 1997, the sole commodity broker for the Partnership's
transactions was Dean Witter Reynolds Inc. ("DWR"), also a subsidiary of MSDWD.
On July 31, 1997, DWR closed the sale of its institutional futures business and
foreign currency trading operations to Carr Futures, Inc. ("Carr"), a
subsidiary of Credit Agricole Indosuez. Following the sale, Carr became the
clearing commodity broker for the Partnership's futures and futures options
trades and the counterparty on the Partnership's foreign currency trades. DWR
will continue to serve as the non-clearing commodity broker for the Partnership
with Carr providing all clearing services for the Partnership's transactions.
Demeter is required to maintain a 1% minimum interest in the equity of the
Partnership and income (losses) are shared by Demeter and the 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.
<PAGE>
DEAN WITTER DIVERSIFIED FUTURES FUND
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
EQUITY IN COMMODITY FUTURES TRADING ACCOUNTS--The Partnership's asset "Equity
in Commodity futures trading accounts" consists of cash on deposit at DWR and
Carr 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 in each period due to master netting agreements.
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.
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 are 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
<PAGE>
DEAN WITTER DIVERSIFIED FUTURES FUND
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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 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 effective as of the last day of any calendar
quarter upon five business days advance notice by redemption form to Demeter.
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
and Carr 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--The management fee is accrued daily at the rate of 1/4 of 1%
per month of adjusted Net Assets, as defined in the Management Agreement, at
each month-end.
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
<PAGE>
DEAN WITTER DIVERSIFIED FUTURES FUND
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
"Trading Profits" occur. When trading losses are incurred no incentive fee is
paid in subsequent quarters until all such losses are recovered.
3. FINANCIAL INSTRUMENTS
The Partnership trades futures and forward contracts in interest rates, stock
indices, commodities, currencies, petroleum, and precious metals. Futures and
forwards represent contracts for delayed delivery of an instrument at a
specified date and price. Risk arises from changes in the value of these
contracts and the potential inability of counterparties to perform under the
terms of the contracts. There are numerous factors which may significantly
influence the market value of these contracts, including interest rate
volatility. At December 31, 1997 and 1996, open contracts were:
<TABLE>
<CAPTION>
CONTRACT OR NOTIONAL AMOUNT
---------------------------
1997 1996
------------- -------------
$ $
<S> <C> <C>
EXCHANGE-TRADED CONTRACTS
Financial Futures:
Commitments to Purchase 44,959,000 --
Commodity Futures:
Commitments to Purchase 6,287,000 28,117,000
Commitments to Sell 94,480,000 84,112,000
Foreign Futures:
Commitments to Purchase 305,847,000 86,391,000
Commitments to Sell 68,688,000 163,838,000
OFF-EXCHANGE-TRADED FORWARD CURRENCY CONTRACTS
Commitments to Purchase 282,748,000 442,642,000
Commitments to Sell 546,818,000 573,157,000
</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 $20,684,288 and $(10,164) at December 31, 1997
and 1996, respectively.
Of the $20,684,288 net unrealized gain on open contracts at December 31, 1997,
$7,311,878 related to exchange-traded futures contracts and $13,372,410 related
to off-exchange-traded forward currency contracts.
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.
<PAGE>
DEAN WITTER DIVERSIFIED FUTURES FUND
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Exchange-traded futures contracts held by the Partnership at December 31, 1997
and 1996 mature through June 1998 and June 1997, respectively. Off-exchange-
traded forward currency contracts held by the Partnership at December 31, 1997
and 1996 mature through April 1998 and February 1997, respectively.
The contract amounts in the above table represent the Partnership's extent of
involvement in the particular class of financial instrument, but not the credit
risk associated with counterparty 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 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 the Partnership's exchange-traded
futures contracts, are required pursuant to regulations of the Commodity
Futures Trading Commission 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 totaled $135,013,102
and $170,404,565 at December 31, 1997 and 1996, respectively. With respect to
the Partnership's off-exchange-traded forward currency contracts, there are no
daily settlements of variations in value nor is there any requirement that an
amount equal to the net unrealized gain on open forward contracts be
segregated. With respect to those off-exchange-traded forward currency
contracts, the Partnership is at risk to the ability of 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 years ended December 31, 1997 and 1996, the average fair value of
financial instruments held for trading purposes was as follows:
<TABLE>
<CAPTION>
1997
-----------------------
ASSETS LIABILITIES
----------- -----------
$ $
<S> <C> <C>
EXCHANGE-TRADED CONTRACTS:
Financial Futures 45,777,000 157,169,000
Commodity Futures 62,602,000 74,762,000
Foreign Futures 185,126,000 107,251,000
OFF-EXCHANGE-TRADED FORWARD CURRENCY CONTRACTS 320,498,000 431,962,000
</TABLE>
<PAGE>
DEAN WITTER DIVERSIFIED FUTURES FUND
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS--(CONCLUDED)
<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
</TABLE>
5. LEGAL MATTERS
On September 6, 10, and 20, 1996, and on March 13, 1997, similar purported
class actions were filed in the Superior Court of the State of California,
County of Los Angeles, on behalf of all purchasers of interests in limited
partnership commodity pools sold by DWR. Named defendants include DWR, Demeter,
DWFCM, MSDWD (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
partnerships 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
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
<PAGE>
DEAN WITTER DIVERSIFIED FUTURES FUND
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS--(CONCLUDED)
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.
Two World Trade Center
62nd Floor
New York, NY 10048
FIRST-CLASS MAIL
ZIP + 4 PRESORT
U.S. POSTAGE PAID
BROOKLYN, NY
PERMIT NO. 148
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from Dean
Witter Diversified Futures Fund Limited Partnership and is qualified in
its entirety by reference to such financial instruments.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 127,701,224
<SECURITIES> 0
<RECEIVABLES> 587,146<F1>
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 148,972,658<F2>
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 148,972,658<F3>
<SALES> 0
<TOTAL-REVENUES> 33,683,534<F4>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 16,334,076
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 17,349,458
<INCOME-TAX> 0
<INCOME-CONTINUING> 17,349,458
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,349,458
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>Receivables include interest receivable of $497,966, and due from DWR
of $89,180.
<F2>In addition to cash and receivables, total assets include net unrealized
gain on open contracts of $20,684,288.
<F3>Liabilities include redemptions payable of $2,976,998, accrued brokerage
commission of $0, accrued management fees of $352,057, administrative
expenses payable of $91,980 and accrued transaction fees and costs of
$0.
<F4>Total revenue includes realized trading revenue of $6,592,590, net
change in unrealized of $20,694,452 and interest income of $6,396,492.
</FN>
</TABLE>
