<PAGE>
 
 
 
Diversified 
Futures 
Fund III

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 III L.P.
ANNUAL REPORT
1996
 
Dear Limited Partner:
 
  This marks the seventh annual report for the Dean Witter Diversified Futures
Fund III L.P. ( the "Fund"). The Fund began the year at a Net Asset Value per
Unit of $1,581.75 and decreased by 4.7% to $1,506.89 at December 31, 1996. The
Fund has increased by 50.7% since it began trading in November 1990 (a compound
annualized return of 6.9%).
 
  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.
 
  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
<PAGE>
 
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 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
<PAGE>
 
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 in 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 III L.P.
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 III L.P. (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 III
L.P. 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 III L.P.
STATEMENTS OF FINANCIAL CONDITION
 
<TABLE>
<CAPTION>
                                                         DECEMBER 31,
                                                    ----------------------
                                                       1996       1995
                                                    ---------- -----------
                                                        $           $
<S>                                                 <C>        <C>
                                  ASSETS
Equity in Commodity futures trading
 accounts:
 Cash                                               79,927,495  95,976,883
 Net unrealized gain on open contracts               1,118,317   5,917,996
                                                    ---------- -----------
 Total Trading Equity                               81,045,812 101,894,879
Interest receivable (DWR)                              274,540     357,564
Due from DWR                                               --      160,019
                                                    ---------- -----------
 Total Assets                                       81,320,352 102,412,462
                                                    ========== ===========
                    LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES
 Redemptions payable                                   938,829   1,377,212
 Accrued management fee (DWFCM)                        204,690     257,680
 Accrued brokerage commissions (DWR)                   100,576     361,211
 Administrative expenses payable                        97,983     167,603
 Accrued transaction fees and costs                     15,691      35,174
                                                    ---------- -----------
 Total Liabilities                                   1,357,769   2,198,880
                                                    ---------- -----------
PARTNERS' CAPITAL
 Limited Partners (52,062.498 and 62,353.870 Units,
   respectively)                                    78,452,540  98,628,520
 General Partner (1,002.091 Units)                   1,510,043   1,585,062
                                                    ---------- -----------
 Total Partners' Capital                            79,962,583 100,213,582
                                                    ---------- -----------
 Total Liabilities and Partners' Capital            81,320,352 102,412,462
                                                    ========== ===========
NET ASSET VALUE PER UNIT                              1,506.89    1,581.75
                                                    ========== ===========
</TABLE>
   The accompanying notes are an integral part of these financial statements.
<PAGE>
 
DEAN WITTER DIVERSIFIED FUTURES FUND III L.P.
STATEMENTS OF OPERATIONS
 
<TABLE>
<CAPTION>
                                        FOR THE YEARS
                                            ENDED
                                         DECEMBER 31,
                               ----------------------------------
                                  1996        1995        1994
                               ----------  ----------  ----------
<S>                            <C>         <C>         <C>
                                   $           $           $
REVENUES
Trading Profit (Loss):
 Realized                       5,496,387  15,303,022  10,755,285
 Net change in unrealized      (4,799,679) (9,312,580)  4,602,577
                               ----------  ----------  ----------
  Total Trading Results           696,708   5,990,442  15,357,862
Interest income (DWR)           3,339,973   4,918,997   3,995,221
                               ----------  ----------  ----------
  Total Revenues                4,036,681  10,909,439  19,353,083
                               ----------  ----------  ----------
EXPENSES
Brokerage commissions (DWR)     6,272,319   9,754,458   9,540,891
Management fee (DWFCM)          2,579,203   3,412,913   3,588,253
Transaction fees and costs        509,927     929,298     952,522
Administrative expenses            84,000      26,000      78,000
Incentive fee (DWFCM)                 --      724,383         --
                               ----------  ----------  ----------
  Total Expenses                9,445,449  14,847,052  14,159,666
                               ----------  ----------  ----------
NET INCOME (LOSS)              (5,408,768) (3,937,613)  5,193,417
                               ==========  ==========  ==========
NET INCOME (LOSS) ALLOCATION:
Limited Partners               (5,333,749) (3,871,218)  5,101,508
General Partner                   (75,019)    (66,395)     91,909
NET INCOME (LOSS) PER UNIT:
Limited Partners                   (74.86)     (66.26)      91.72
General Partner                    (74.86)     (66.26)      91.72
</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
                             -----------  -----------  ---------  -----------
<S>                          <C>          <C>          <C>        <C>
                                               $           $           $
Partners' Capital, December
31, 1993                      90,015.276  138,530,684  1,559,548  140,090,232
Net Income                           --     5,101,508     91,909    5,193,417
Redemptions                  (18,651.677) (27,675,634)       --   (27,675,634)
                             -----------  -----------  ---------  -----------
Partners' Capital,
December 31, 1994             71,363.599  115,956,558  1,651,457  117,608,015
Net Loss                             --    (3,871,218)   (66,395)  (3,937,613)
Redemptions                   (8,007.638) (13,456,820)       --   (13,456,820)
                             -----------  -----------  ---------  -----------
Partners' Capital,
December 31, 1995             63,355.961   98,628,520  1,585,062  100,213,582
Net Loss                             --    (5,333,749)   (75,019)  (5,408,768)
Redemptions                  (10,291.372) (14,842,231)       --   (14,842,231)
                             -----------  -----------  ---------  -----------
Partners' Capital,
December 31, 1996             53,064.589   78,452,540  1,510,043   79,962,583
                             ===========  ===========  =========  ===========
</TABLE>
   The accompanying notes are an integral part of these financial statements.
<PAGE>
 
DEAN WITTER DIVERSIFIED FUTURES FUND III L.P.
STATEMENTS OF CASH FLOWS
 
<TABLE>
<CAPTION>
                                            FOR THE YEARS
                                                ENDED
                                            DECEMBER 31,
                                 -------------------------------------
                                    1996         1995         1994
                                 -----------  -----------  -----------
<S>                              <C>          <C>          <C>          <C> <C>
                                      $            $            $
CASH FLOWS FROM
  OPERATING ACTIVITIES
Net income (loss)                 (5,408,768)  (3,937,613)   5,193,417
Noncash item included in net
  income (loss):
 Net change in unrealized          4,799,679    9,312,580   (4,602,577)
(Increase) decrease in operat-
  ing assets:
 Interest receivable (DWR)            83,024      100,529     (170,708)
 Due from DWR                        160,019     (160,019)         --
Increase (decrease) in
  operating liabilities:
 Accrued management fee (DWFCM)      (52,990)     (44,671)     (56,926)
 Accrued brokerage commissions
   (DWR)                            (260,635)      40,759      (79,988)
 Administrative expenses
   payable                           (69,620)     (11,237)     (35,222)
 Accrued transaction fees and
   costs                             (19,483)      13,180       (6,915)
 Incentive fee payable (DWFCM)           --           --      (580,198)
                                 -----------  -----------  -----------
Net cash provided by (used for)
  operating activities              (768,774)   5,313,508     (339,117)
                                 -----------  -----------  -----------
CASH FLOWS FROM
  FINANCING ACTIVITIES
Increase (decrease) in
  redemptions payable               (438,383)    (213,435)     189,919
Redemptions of units             (14,842,231) (13,456,820) (27,675,634)
                                 -----------  -----------  -----------
Net cash used for financing
  activities                     (15,280,614) (13,670,255) (27,485,715)
                                 -----------  -----------  -----------
Net decrease in cash             (16,049,388)  (8,356,747) (27,824,832)
Balance at beginning of period    95,976,883  104,333,630  132,158,462
                                 -----------  -----------  -----------
Balance at end of period          79,927,495   95,976,883  104,333,630
                                 ===========  ===========  ===========
</TABLE>
   The accompanying notes are an integral part of these financial statements.
<PAGE>
 
DEAN WITTER DIVERSIFIED FUTURES FUND III L.P.
NOTES TO FINANCIAL STATEMENTS
 
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
ORGANIZATION--Dean Witter Diversified Futures Fund III L.P. (the "Partnership")
was organized to engage in 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 for the month at a rate equal to the average yield on 13-Week U.S.
Treasury Bills issued during such month. For purposes of such interest
payments, Net Assets do not include monies due the Partnership on forward
contracts and other commodity interests, but not actually received.
 
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--The Partnership
accrues brokerage commissions on a half-turn basis at 80% of DWR's
<PAGE>
 
DEAN WITTER DIVERSIFIED FUTURES FUND III L.P.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
published non-member rates. Transaction fees and costs are accrued on a half-
turn basis.
 
Prior to September 1, 1996, brokerage commissions were capped at 3/4 of 1% per
month of the Partnership's Net Assets as defined in the Limited Partnership
Agreement.
 
Effective September 1, 1996, brokerage commissions and transaction fees
chargeable to the Partnership have been capped at 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 operating expenses related to its
trading activities, to a maximum of 3/5 of 1% annually of the Partnership's
average month-end Net Assets. These include filing fees, clerical,
administrative, auditing, accounting, mailing, printing, and other incidental
operating expenses as permitted by the Limited Partnership Agreement. In
addition, the Partnership incurs a monthly management fee and may incur an
incentive fee. Demeter bears all other operating expenses.
 
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 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 are able to redeem some or all of their Units at
100% of the Net Asset Value per Unit as of the end of any month 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 the Limited
Partnership Agreement occur.
 
2. RELATED PARTY TRANSACTIONS
 
Under its Customer Agreement with DWR, the Partnership pays brokerage
commissions to DWR 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 and itself, has entered into a Management
Agreement with DWFCM to make all trading decisions for the Partnership.
<PAGE>
 
DEAN WITTER DIVERSIFIED FUTURES FUND III L.P.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
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 the Net Assets, as defined in the Management Agreement, at each
month-end.
 
INCENTIVE FEE--The Partnership will pay a quarterly incentive fee to DWFCM
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 the incentive period 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 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                                  --    454,963,000
Commodity Futures:
 Commitments to Purchase                           13,206,000   213,042,000
 Commitments to Sell                               40,027,000    32,460,000
Foreign Futures:
 Commitments to Purchase                           43,199,000   344,932,000
 Commitments to Sell                               80,268,000    24,415,000
OFF-EXCHANGE-TRADED FORWARD CURRENCY CONTRACTS
 Commitments to Purchase                          220,399,000   326,200,000
 Commitments to Sell                              284,187,000   367,996,000
</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
<PAGE>
 
DEAN WITTER DIVERSIFIED FUTURES FUND III L.P.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
commitments are economically offsetting, but are not offset in the forward
market until the settlement date.
 
The unrealized gains on open contracts are reported as a component of "Equity
in Commodity futures trading accounts" on the Statements of Financial Condition
and totaled $1,118,317 and $5,917,996 at December 31, 1996 and 1995,
respectively.
 
Of the $1,118,317 net unrealized gain on open contracts at December 31, 1996,
$2,867,245 related to exchange-traded futures contracts and $(1,748,928)
related to off-exchange-traded forward currency contracts. Of the $5,917,996
net unrealized gain on open contracts at December 31, 1995, $9,641,493 related
to exchange-traded futures contracts and $(3,723,497) 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 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 $82,794,740 and $105,618,376 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.
<PAGE>
 
DEAN WITTER DIVERSIFIED FUTURES FUND III L.P.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
 
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            105,297,000  55,515,000
 Commodity Futures             48,290,000  34,261,000
 Foreign Futures              150,041,000  54,933,000
OFF-EXCHANGE-TRADED
  FORWARD CURRENCY CONTRACTS  254,647,000 280,645,000
<CAPTION>
                                       1995
                              -----------------------
                                ASSETS    LIABILITIES
                              ----------- -----------
                                   $           $
<S>                           <C>         <C>
EXCHANGE-TRADED CONTRACTS:
 Financial Futures            165,445,000  94,695,000
 Commodity Futures             92,412,000  37,958,000
 Foreign Futures              193,090,000  59,182,000
OFF-EXCHANGE-TRADED
  FORWARD CURRENCY CONTRACTS  257,496,000 334,972,000
</TABLE>
 
4. 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, DWFCM, Demeter, 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
interest 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
<PAGE>
 
DEAN WITTER DIVERSIFIED FUTURES FUND III L.P.
NOTES TO FINANCIAL STATEMENTS--(CONCLUDED)
 
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.
Two World Trade Center
62nd Floor
New York, NY 10048
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