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 year ended December 31, 2000 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 0-19116

         DEAN WITTER DIVERSIFIED FUTURES FUND III L.P.

(Exact name of registrant as specified in its Limited Partnership
                           Agreement)

               DELAWARE                                13-3577501
(State or other jurisdiction of                 (I.R.S. Employer
incorporation                   or                  organization)
Identification No.)

c/o Demeter Management Corporation
Two World Trade Center, - 62nd Flr., New York, N.Y.         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)

      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 10-K. [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 as of a specified date within  60
days  prior  to  the date of filing: $45,540,718 at  January  31,
2001.

              DOCUMENTS INCORPORATED BY REFERENCE
                          (See Page 1)
<PAGE>
<TABLE>

          DEAN WITTER DIVERSIFIED FUTURES FUND III L.P.
            INDEX TO ANNUAL REPORT ON FORM 10-K
                     DECEMBER 31, 2000

                              <CAPTION>

                              Page No.
<S>
<C>
DOCUMENTS  INCORPORATED BY REFERENCE. . . . . . . . .  .  .  .  .
 . . . . . 1

Part I .

  Item  1.Business. . . . . . . . . . . . . . . . . . . . . . . .
2-4

  Item  2.Properties. . . . . . . . . . . . . . . . . . . . . . .
 . 4

   Item  3.Legal Proceedings. . . . . . . . . . . . . . . . . . .
4-5

   Item  4.Submission of Matters to a Vote of Security Holders. .
 . .5

Part II.

  Item  5.Market for the Registrant's Partnership Units
           and Related Security Holder Matters. .. . . . . . .  .
 . . 6

   Item  6.Selected Financial Data. .. . . . . . . . . . . . .  .
 . . 7

  Item  7.Management's Discussion and Analysis of Financial
           Condition and Results of Operations. . . . . . . . . .
8-19

  Item 7A.Quantitative and Qualitative Disclosures About
           Market Risk. . . . . . . . . . . . . . . . . . . . . .
19-31

   Item  8.Financial Statements and Supplementary Data. . . . . .
 ...32

   Item  9.                                        Changes in and
Disagreements with Accountants on
           Accounting and Financial Disclosure. . . . . . . . . .
 . .32
Part III.

   Item 10.                                        Directors  and
Executive Officers of the Registrant. ..  33-37

   Item 11.Executive Compensation . . . . . . . . . . . . . . . .
 . .37

  Item 12.Security Ownership of Certain Beneficial Owners
           and Management. .. . . . . . . . . . . . . . . . . . .
 . .37

  Item 13.Certain Relationships and Related Transactions. . . . .
 ..38

Part IV.

    Item   14.                                          Exhibits,
Financial Statement Schedules, and
           Reports on Form 8-K. . . . . . . . . . . . . . .  .  .
 . .39
</TABLE>

<PAGE>





               DOCUMENTS INCORPORATED BY REFERENCE


Portions of the following documents are incorporated by reference
as follows:



         Documents Incorporated                Part of Form 10-K

     Partnership's Prospectus dated
     June 30, 1992.                                 I and IV

     Annual Report to Dean Witter
     Diversified Futures Fund III L.P.
     Limited Partners for the year
     ended December 31, 2000                      II, III and IV



























<PAGE>

                             PART I

Item 1.  BUSINESS

(a)  General  Development of Business.  Dean  Witter  Diversified

Futures  Fund III L.P. (the "Partnership") is a Delaware  limited

partnership  organized  to engage primarily  in  the  speculative

trading  of  commodity  futures and forward  contracts,  physical

commodities, and other commodity interests.



The  general  partner for the Partnership is  Demeter  Management

Corporation  ("Demeter").  The non-clearing commodity  broker  is

Dean  Witter  Reynolds,  Inc. ("DWR").   The  clearing  commodity

brokers  are Morgan Stanley & Co. Incorporated ("MS &  Co.")  and

Morgan Stanley & Co. International Limited ("MSIL") which provide

clearing and execution services.  Prior to May 2000, Carr Futures

Inc. provided clearing and execution services to the Partnership.

The  trading manager is Dean Witter Futures & Currency Management

Inc. ("DWFCM" or the "Trading Manager").  Demeter, DWR, MS & Co.,

MSIL  and  DWFCM are wholly-owned subsidiaries of Morgan  Stanley

Dean Witter & Co. ("MSDW").



The Partnership's net asset value per unit of limited partnership

interest  ("Unit(s)")  as of December 31,  2000,  was  $1,945.81,

representing an increase of 22.0 percent from the net asset value

per  Unit of $1,595.11 at December 31, 1999.  For a more detailed

description of the Partnership's business see subparagraph (c).



<PAGE>

(b)   Financial   Information  about  Segments.   For   financial

information  reporting  purposes, the Partnership  is  deemed  to

engage  in  one  industry  segment, the  speculative  trading  of

futures  and  forwards.   The relevant financial  information  is

presented in Items 6 and 8.



(c) Narrative Description of Business.  The Partnership is in the

business of speculative trading of futures and forwards, pursuant

to  trading instructions provided by the Trading Manager.  For  a

detailed description of the different facets of the Partnership's

business,  see  those  portions of the  Partnership's  prospectus

dated June 30, 1992 (the "Prospectus"), incorporated by reference

in this Form 10-K, set forth below:

  Facets of Business

    1. Summary                   1.  "Summary of the Prospectus"
                                      (Pages 1-8).

    2. Commodities Markets       2.  "The Commodities Markets"
                                      (Pages 52-59).

    3. Partnership's Commodity   3.  "Trading Policies" (Pages
       Trading Arrangements and       48-49). "The Trading
       Policies                       Manager" (Pages 37-47).

       4.    Management   of  the  Part-   4.   "The   Management
       Agreement"
     nership                          (Pages 50-52).  "The
            General Partner" (Pages
         33-35) and "The Commodity
             Broker" (Pages 49-50).
              "The Limited Partner-
             ship Agreement" (Pages
                            61-65).

     5.     Taxation  of  the  Partner-  5. "Federal  Income  Tax
     ship's Limited Partners          Aspects" and "State and
         Local Income Tax Aspects"
                     (Pages 70-77).
<PAGE>

(d)   Financial   Information  about   Geographic   Areas.    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  and

forwards 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

Similar  class actions were filed in 1996 in California  and  New

York State courts.  Each of these actions were dismissed in 1999.

However, the New York State class action discussed below is still

pending  because plaintiffs appealed the trial court's  dismissal

of their case on March 3, 2000.



On  September 18 and 20, 1996, purported class actions were filed

in  the  Supreme Court of the State of New York, New York County,

on  behalf  of all purchasers of interests in limited partnership

commodity  pools  sold  by  DWR.  Named defendants  include  DWR,

Demeter,   DWFCM,   MSDW,   the  Partnership,   certain   limited

partnership  commodity  pools of which  Demeter  is  the  general

partner   and  certain  trading  managers  to  those  pools.    A

consolidated and

<PAGE>

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.  The  complaints

sought  unspecified amounts of compensatory and punitive  damages

and  other relief.  The New York Supreme Court dismissed the  New

York  action  in November 1998, but granted plaintiffs  leave  to

file an amended complaint, which they did in early December 1998.

The  defendants  filed a motion to dismiss the amended  complaint

with  prejudice on February 1, 1999.  By decision dated  December

21,  1999,  the  New York Supreme Court dismissed the  case  with

prejudice.   However, on March 3, 2000, plaintiffs  appealed  the

trial court's dismissal of their case.



Item 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.



















<PAGE>

                          PART II

Item 5.   MARKET   FOR   THE  REGISTRANT'S  LIMITED   PARTNERSHIP
          INTERESTS AND RELATED SECURITY HOLDER MATTERS



(a) Market Information

There  is no established public trading market for Units  of  the

Partnership.



(b) Holders

The  number  of  holders  of  Units  at  December  31,  2000  was

approximately 3,539.



(c) Distributions

No  distributions  have  been made by the  Partnership  since  it

commenced  trading operations on November 1, 1990.   Demeter  has

sole  discretion to decide what distributions, if any,  shall  be

made to investors in the Partnership. Demeter currently does  not

intend to make any distribution of Partnership profits.

















<PAGE>
<TABLE>

Item 6.  SELECTED FINANCIAL DATA (in dollars)



     <CAPTION>




                                           For the Years Ended December 31,
                             2000          1999           1998         1997
1996  .

<S>                         <C>            <C>          <C>             <C>
<C>
Total Revenues
(including interest)     13,245,317     (1,033,483)   9,448,680  16,870,923
4,036,681

Net Income (Loss)         8,946,492     (6,483,053)   3,166,040    8,729,367
(5,408,768)

Net Income (Loss)
Per Unit (Limited
& General Partners)          350.70        (188.24)      91.27       185.19
(74.86)


Total Assets             49,191,101       49,917,104    65,687,386   73,774,146
81,320,352


Total Limited
Partners' Capital        47,524,395    47,862,260    64,144,919   70,564,013
78,452,540

Net Asset Value Per
Unit                               1,945.81        1,595.11        1,783.35
1,692.08       1,506.89




</TABLE>



















<PAGE>
Item 7.   MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  OF   FINANCIAL
          CONDITION AND RESULTS OF OPERATIONS

Liquidity - The Partnership deposits its assets with DWR as  non-

clearing  broker  and  MS & Co. and MSIL as clearing  brokers  in

separate  futures and forwards trading accounts  established  for

the Trading Manager, which assets are used as margin to engage in

trading. The assets are held in either non-interest-bearing  bank

accounts  or  in  securities  and instruments  permitted  by  the

Commodity  Futures Trading Commission ("CFTC") for investment  of

customer  segregated or secured funds.  The Partnership's  assets

held  by  the commodity brokers may be used as margin solely  for

the  Partnership's trading.  Since the Partnership's sole purpose

is  to  trade  in futures and forwards, it is expected  that  the

Partnership  will continue to own such liquid assets  for  margin

purposes.



The  Partnership's investment in futures and forwards  may,  from

time  to  time,  be illiquid.  Most U.S. futures exchanges  limit

fluctuations  in  prices  during  a  single  day  by  regulations

referred  to  as  "daily  price fluctuations  limits"  or  "daily

limits".   Trades may not be executed at prices beyond the  daily

limit.   If  the  price  for a particular  futures  contract  has

increased  or  decreased by an amount equal to the  daily  limit,

positions  in  that  futures contract can neither  be  taken  nor

liquidated  unless  traders are willing to effect  trades  at  or

within  the  limit.  Futures prices have occasionally  moved  the

daily  limit  for  several consecutive days  with  little  or  no

trading.  These market conditions could

<PAGE>

prevent  the  Partnership from promptly liquidating  its  futures

contracts and result in restrictions on redemptions.



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.



The  Partnership  has  never had illiquidity  affect  a  material

portion of its assets.



Capital  Resources.  The Partnership does not have, or expect  to

have,  any  capital assets.  Redemptions of Units in  the  future

will  affect  the  amount of funds available for  investments  in

futures  and forwards in subsequent periods.  It is not  possible

to  estimate  the  amount and therefore,  the  impact  of  future

redemptions of Units.



Results of Operations.

General.  The Partnership's results depend on its Trading Manager

and the ability of the Trading Manager's trading programs to take

advantage of price movements or other profit opportunities in the

<PAGE>

futures  and forwards markets.  The following presents a  summary

of  the  Partnership's  operations  for  the  three  years  ended

December  31,  2000  and  a  general discussion  of  its  trading

activities during each period.  It is important to note, however,

that  the  Trading Manager trades in various markets at different

times  and  that prior activity in a particular market  does  not

mean  that  such  market will be actively traded by  the  Trading

Manager  or will be profitable in the future.  Consequently,  the

results of operations of the Partnership are difficult to discuss

other  than  in  the  context  of its Trading  Manager's  trading

activities  on behalf of the Partnership as a whole and  how  the

Partnership has performed in the past.




At  December  31,  2000,  the  Partnership's  total  capital  was

$48,335,974, a decrease of $191,594 from the Partnership's  total

capital of $48,527,568 at December 31, 1999.  For the year  ended

December  31,  2000,  the  Partnership generated  net  income  of

$8,946,492, and total redemptions aggregated $9,138,086.



For  the  year ended December 31, 2000, the Partnership  recorded

total trading revenues, including interest income, of $13,245,317

and  posted  an  increase in net asset value per  Unit.   In  the

energy  sector, profits of approximately 18.3% resulted primarily

from  long  positions in the natural gas and  crude  oil  futures

markets.  Natural gas saw its price rise to record levels in

<PAGE>

2000.   Recent  low inventory levels, sluggish  supply  and  cold

winter weather combined to push prices to such high levels.    In

the  crude  oil  market, gains were realized from long  positions

earlier  in  the  year  as prices rose to nine-year  highs  on  a

combination of cold weather, declining inventories and increasing

demand.   In  addition, concerns about future output levels  from

the  world's leading producer countries added to the upward price

momentum.   Later  in  the year, however, profits  resulted  from

short  positions  as  the  price of crude  oil  futures  fell  on

expectations  that Iraqi oil exports would resume  and  on  fears

that  the slowdown in the economy would curb demand while at  the

same  time  increase supply. In the currency  markets,  gains  of

approximately 13.4% were recorded primarily from short  positions

in  the euro, Swiss franc and Swedish krona as the value of these

European  currencies weakened relative to the  U.S.  dollar  amid

skepticism about Europe's economic outlook.  Strong economic data

out  of the U.S. and interest rate hikes in the U.S. also boosted

the  dollar  and, subsequently, added to the euro's difficulties.

Later  in  the  year  as the bullish trend  in  the  U.S.  dollar

reversed,  additional gains were recorded from long positions  in

the euro, Swiss franc and Swedish krona versus the U.S. dollar as

a  result  of new confidence in the European economy and  overall

skepticism  regarding the U.S. economy.  Profits of approximately

1.7%  were  recorded in the agricultural markets  primarily  from

short positions in the corn market during the middle of the  year

as the price of corn trended lower on favorable weather

<PAGE>

conditions that resulted in good prospects for high crop  yields.

A  portion of these gains was offset by losses experienced in the

metals, stock index and soft commodities markets. The majority of

losses,  approximately  7.0%,  were  experienced  in  the  metals

markets  primarily  from  aluminum  futures.   From  a  technical

standpoint,  the  price of aluminum traded  in  a  very  volatile

pattern  throughout the year leaving little opportunity  for  the

development  of  trends.   In addition, long  positions  in  this

market, particularly in the second half of the year, resulted  in

losses  as  prices  declined after concerns mounted  that  demand

would  weaken  amid  a cooling of the U.S.  economy.   Losses  of

approximately  5.5%  were  recorded in  the  global  stock  index

futures  markets.   The S&P 500 Index traded  in  a  very  choppy

pattern,  resulting in losses for both long and short  positions.

Contributing to this price pattern was uncertainty over the state

of the U.S. economy. Total expenses for the year were $4,298,825,

resulting in net income of $8,946,492.  The net asset value of  a

Unit  increased from $1,595.11 at December 31, 1999 to  $1,945.81

at December 31, 2000.



At  December  31,  1999,  the  Partnership's  total  capital  was

$48,527,568,  a  decrease of $16,361,170 from  the  Partnership's

total capital of $64,888,738 at December 31, 1998.  For the  year

ended December 31, 1999, the Partnership generated a net loss  of

$6,483,053, and total redemptions aggregated $9,878,117.



<PAGE>

For  the  year ended December 31, 1999, the Partnership  recorded

total  trading losses, net of interest income, of $1,033,483  and

posted  a  decrease in net asset value per Unit. The  Partnership

experienced  losses in the global interest rate futures  markets,

approximately  9.82%,  primarily from short  Australian  interest

rate futures positions as prices increased during July and August

on  the temporary strength in U.S. bonds and weaker-than-expected

business spending data out of Australia.  Additional losses  were

recorded  from  short Japanese bond futures positions  as  prices

increased  during the first and third quarters.  In the  currency

markets,  losses  of approximately 7.03% were recorded  primarily

from  Australian dollar positions.  Throughout a majority of  the

first  quarter,  losses  were experienced  from  long  Australian

dollar  positions as its value dropped significantly relative  to

the  U.S.  dollar  on  speculation regarding  potential  currency

devaluations  in the Asian region.  Early in the  third  quarter,

additional  losses  were  recorded from long  positions  in  this

currency  due  to  depressed commodities prices, emerging  market

concerns and ongoing talks that China may eventually devalue  its

currency.   Newly established short positions in  the  Australian

dollar   resulted  in  losses  during  September  as  its   value

strengthened relative to the U.S. dollar following the  rally  in

gold  prices.   Offsetting currency gains of 3.82% were  recorded

from  Japanese  yen positions, primarily long positions.   During

the third quarter, gains were recorded from long positions in the

Japanese yen as the value of the yen climbed to a 44-month high

<PAGE>

versus  the  U.S. dollar due to continued optimism  over  Japan's

economic   recovery.   The  energy  markets  produced  gains   of

approximately 7.31%.  During March, gains were recorded from long

positions in oil futures as prices moved significantly higher  on

news  that  both  OPEC  and  non-OPEC countries  had  reached  an

agreement  to cut total output beginning April 1st.   Gains  were

also  recorded  in this market complex during the  third  quarter

after  OPEC  ministers  confirmed that they  would  uphold  their

global cutbacks until April of next year. Total expenses for  the

year were $5,449,570, resulting in a net loss of $6,483,053.  The

net  asset  value of a Unit decreased from $1,783.35 at  December

31, 1998 to $1,595.11 at December 31, 1999.



At  December  31,  1998,  the  Partnership's  total  capital  was

$64,888,738,  a  decrease of $7,370,890  from  the  Partnership's

total capital of $72,259,628 at December 31, 1997.  For the  year

ended December 31, 1998, the Partnership generated net income  of

$3,166,040, and total redemptions aggregated $10,536,930.



For  the  year ended December 31, 1998, the Partnership  recorded

total  trading revenues, including interest income, of $9,448,680

and  posted  an  increase in net asset value per Unit.  Gains  of

approximately  13.78% were recorded in the global  interest  rate

futures  markets from bond futures in most major world  countries

throughout the year.  The most significant gains were recorded in

German bond futures, by approximately 5.56%, U.S. bond futures,

<PAGE>

by   approximately   3.98%   and  Japanese   bond   futures,   by

approximately  3.30% from primarily long positions during  August

and  September  as investors sought the safety  of  fixed  income

investments  from  notable volatility  in  the  global  financial

markets.   Additional profits were recorded from  short  Japanese

government  bond  futures  positions during  December  as  prices

declined  amid  a  surge  in  Japanese  bond  yields,  which  was

attributed  to  news that Japan's Ministry of Finance  would  end

outright  purchases of government debt.  Total expenses  for  the

year were $6,282,640, resulting in net income of $3,166,040.  The

net  asset  value of a Unit increased from $1,692.08 at  December

31, 1997 to $1,783.35 at December 31, 1998.



The  Partnership's  overall performance record represents  varied

results  of  trading in different futures and  forwards  markets.

For  a further description of 2000 trading results, refer to  the

letter  to the Limited Partners in the accompanying Annual Report

to  Limited Partners for the year ended December 31, 2000,  which

is  incorporated by reference to Exhibit 13.01 of this Form 10-K.

The  Partnership's  gains  and losses  are  allocated  among  its

partners for income tax purposes.



Credit Risk.

Financial  Instruments.  The Partnership is a party to  financial

instruments with elements of off-balance sheet market and  credit

risk.  The Partnership may trade futures and forwards in a

<PAGE>

portfolio  of agricultural commodities, energy products,  foreign

currencies,  interest  rates,  precious  and  base  metals,  soft

commodities and stock indices.  In entering into these contracts,

the Partnership is subject to the 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

positions  held by the Partnership at the same time, and  if  the

Trading   Manager   was  unable  to  offset  positions   of   the

Partnership,  the Partnership could lose all of  its  assets  and

investors would realize a 100% loss.



In  addition  to  the  Trading Manager's internal  controls,  the

Trading  Manager  must comply with the trading  policies  of  the

Partnership.   These  trading  policies  include  standards   for

liquidity  and leverage with which the Partnership  must  comply.

The Trading Manager and Demeter monitor the Partnership's trading

activities  to  ensure  compliance  with  the  trading  policies.

Demeter  may  require the Trading Manager to modify positions  of

the   Partnership   if   Demeter  believes   they   violate   the

Partnership's trading policies.



In addition to market risk, in entering into futures and forwards

and  options  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 or

<PAGE>

guarantor of the Partnership for futures contracts traded in  the

United  States and the 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,  which  should

significantly   reduce  this  credit  risk.    For   example,   a

clearinghouse  may cover a default by 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  assessing its members.  In  cases  where  the

Partnership   trades  off-exchange  forward  contracts   with   a

counterparty, the sole recourse of the Partnership  will  be  the

forward contracts counterparty.



There is no assurance that a clearinghouse or exchange will  meet

its obligations to the Partnership, and Demeter and the commodity

brokers  will not indemnify the Partnership against a default  by

such  parties.  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 or clearinghouse defaulting  on

trades  effected for the broker's customers.  Any such obligation

on the part of a broker appears even less clear where the default

occurs in a non-U.S. jurisdiction.

<PAGE>

Demeter  deals  with  these credit risks of  the  Partnership  in

several  ways.   First,  it  monitors  the  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  the 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 to monitor  the

Partnership's potential margin liability, exchange  by  exchange.

As  a  result,  Demeter  is  able to  monitor  the  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,  the Partnership's trading policies limit the  amount  of

its net assets that can be committed at any given time to futures

contracts   and  require,  in  addition,  a  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   the

Partnership   to   a  single  exchange  and,  historically,   the

Partnership's exposure to any one exchange has typically amounted

to  only  a small percentage of its total net assets.   On  those

relatively few occasions where the Partnership's credit  exposure

may climb above that level, Demeter deals with the situation on a

<PAGE>

case  by  case  basis, carefully weighing whether  the  increased

level  of credit exposure remains appropriate.  Material  changes

to  the  trading policies may be made only with the prior written

approval  of the Limited Partners owning more than 50%  of  Units

then outstanding.



Third,  with respect to forward contract trading, the Partnership

trades  with  only  those counterparties which Demeter,  together

with  DWR,  have determined to be creditworthy.  The  Partnership

presently deals with MS & Co. as the sole counterparty on forward

contracts.



See  "Financial Instruments" under Notes to Financial  Statements

in  the  Partnership's Annual Report to Limited Partners for  the

year  ended December 31, 2000 which is incorporated by  reference

to Exhibit 13.01 of this Form 10-K.



Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
         RISK

Introduction

The  Partnership is a commodity pool involved in the  speculative

trading   of   futures   and  forwards.    The   market-sensitive

instruments  held by the Partnership are acquired for speculative

trading purposes only and, as a result, all or substantially  all

of  the Partnership's assets are at risk of trading loss.  Unlike

an



<PAGE>

operating  company, the risk of market-sensitive  instruments  is

central,  not  incidental,  to  the Partnership's  main  business

activities.



The  futures  and  forwards  traded by  the  Partnership  involve

varying  degrees of related market risk.  Market  risk  is  often

dependent  upon  changes in the level or volatility  of  interest

rates,  exchange  rates and prices of financial  instruments  and

commodities.   Fluctuations  in  market  risk  based  upon  these

factors  result  in  frequent changes in the fair  value  of  the

Partnership's open positions, and, consequently, in its  earnings

and cash flow.



The  Partnership's  total market risk is  influenced  by  a  wide

variety  of  factors,  including the  diversification  among  the

Partnership's open positions, the volatility present  within  the

markets  and  the liquidity of the markets.  At different  times,

each  of these factors may act to increase or decrease the market

risk associated with the Partnership.



The  Partnership's past performance is not necessarily indicative

of  its future results.  Any attempt to numerically quantify  the

Partnership's  market risk is limited by the uncertainty  of  its

speculative  trading.  The Partnership's speculative trading  may

cause future losses and volatility (i.e. "risk of ruin") that far



<PAGE>

exceed  the  Partnership's experiences to date or any  reasonable

expectations based upon historical changes in market value.



Quantifying the Partnership's Trading Value at Risk

The    following    quantitative   disclosures   regarding    the

Partnership's  market  risk  exposures  contain  "forward-looking

statements"  within  the meaning of the safe  harbor  from  civil

liability  provided for such statements by the Private Securities

Litigation  Reform Act of 1995 (set forth in Section 27A  of  the

Securities Act of 1933 and Section 21E of the Securities Exchange

Act  of  1934). All quantitative disclosures in this section  are

deemed to be forward-looking statements for purposes of the  safe

harbor, except for statements of historical fact.



The  Partnership accounts for open positions using mark-to-market

accounting  principles.   Any loss in the  market  value  of  the

Partnership's  open  positions  is  directly  reflected  in   the

Partnership's earnings, whether realized or unrealized,  and  its

cash  flow.   Profits and losses on open positions  of  exchange-

traded  futures and forwards are settled daily through  variation

margin.



The  Partnership's risk exposure in the market sectors traded  by

the  Trading Manager is estimated below in terms of Value at Risk

("VaR").  The  VaR  model used by the Partnership  includes  many

variables that could change the market value of the Partnership's

<PAGE>

trading  portfolio.  The Partnership estimates VaR using a  model

based upon historical simulation with a confidence level of  99%.

Historical  simulation involves constructing  a  distribution  of

hypothetical daily changes in the value of a trading portfolio.



The  VaR  model takes into account linear exposures to price  and

interest  rate risk.  Market risks that are incorporated  in  the

VaR  model  include equity and commodity prices, interest  rates,

foreign  exchange  rates, and correlation among these  variables.

The  hypothetical changes in portfolio value are based  on  daily

percentage changes observed in key market indices or other market

factors  ("market  risk  factors")  to  which  the  portfolio  is

sensitive.    The   historical   observation   period   of    the

Partnership's VaR is approximately four years.  The  one-day  99%

confidence  level  of the Partnership's VaR  corresponds  to  the

negative change in portfolio value that, based on observed market

risk factors, would have been exceeded once in 100 trading days.



VaR   models,   including  the  Partnership's,  are  continuously

evolving  as trading portfolios become more diverse and  modeling

techniques  and systems capabilities improve.  Please  note  that

the  VaR  model is used to numerically quantify market  risk  for

historic  reporting purposes only and is not utilized  by  either

Demeter  or  the  Trading Manager in their daily risk  management

activities.



<PAGE>

The Partnership's Value at Risk in Different Market Sectors

The  following  table  indicates  the  VaR  associated  with  the

Partnership's open positions as a percentage of total net  assets

by primary market risk category as of December 31, 2000 and 1999.

As  of  December  31,  2000  and 1999,  the  Partnership's  total

capitalization  was approximately $48 million  and  $49  million,

respectively.


     Primary Market      December 31, 2000   December 31, 1999
     Risk Category         Value at Risk       Value at Risk

     Interest   Rate                (2.86)%               (0.19)%

Currency                   (1.64)              (0.80)

     Commodity                  (1.15)              (0.82)

     Equity                     (0.11)              (0.15)

     Aggregate Value at Risk    (3.34)%             (1.26)%



Aggregate Value at Risk represents the aggregate VaR of  all  the

Partnership's open positions and not the sum of the  VaR  of  the

individual market categories listed above.  Aggregate VaR will be

lower  as  it  takes  into  account correlation  among  different

positions and categories.


The  table  above  represents the VaR of the  Partnership's  open

positions  at  December  31,  2000  and  1999  only  and  is  not

necessarily representative of either the historic or future  risk

of an investment in the Partnership. Because the Partnership's



<PAGE>

only business is the speculative trading of futures and forwards,

the composition of its trading portfolio can change significantly

over  any given time period, or even within a single trading day.

Any  changes  in  open positions could positively  or  negatively

materially impact market risk as measured by VaR.



The  table  below  supplements  the  December  31,  2000  VaR  by

presenting  the  Partnership's high, low and  average  VaR  as  a

percentage  of total net assets for the four quarterly  reporting

periods from January 1, 2000 through December 31, 2000.



Primary Market Risk Category       High       Low       Average

Interest Rate                     (2.86)%    (0.48)%     (1.63)%

Currency                          (2.80)     (1.44)      (1.89)

Commodity                         (2.45)     (1.15)      (1.88)

Equity                            (1.28)        -        (0.36)

Aggregate Value at Risk           (3.41)%    (2.70)%     (3.21)%


Limitations on Value at Risk as an Assessment of Market Risk

The  face  value  of the market sector instruments  held  by  the

Partnership  is  typically  many  times  the  applicable   margin

requirements.  Margin requirements generally range between 2% and

15%  of  contract face value. Additionally, the use  of  leverage

causes  the face value of the market sector instruments  held  by

the Partnership to typically be many times the total



<PAGE>

capitalization   of   the  Partnership.    The   value   of   the

Partnership's open positions thus creates a "risk  of  ruin"  not

usually  found in other investments.  The relative  size  of  the

positions held may cause the Partnership to incur losses  greatly

in excess of VaR within a short period of time, given the effects

of  the  leverage employed and market volatility.  The VaR tables

above,  as well as the past performance of the Partnership,  give

no  indication  of  such "risk of ruin". In  addition,  VaR  risk

measures   should  be  viewed  in  light  of  the   methodology's

limitations, which include the following:

     past  changes in market risk factors will not always result

  in accurate predictions of the distributions and correlations of

  future market movements;

     changes  in portfolio value in response to market movements

  may differ from those of the VaR model;

    VaR results reflect past trading positions while future risk

  depends on future positions;

     VaR using a one-day time horizon does not fully capture the

  market  risk of positions that cannot be liquidated  or  hedged

  within one day; and

     the  historical  market  risk  factor  data  used  for  VaR

  estimation  may provide only limited insight into  losses  that

  could be incurred under certain unusual market movements.





<PAGE>

The VaR tables above present the results of the Partnership's VaR

for  each  of the Partnership's market risk exposures and  on  an

aggregate basis at December 31, 2000 and 1999, and for the end of

the  four quarterly reporting periods during calendar year  2000.

Since  VaR is based on historical data, VaR should not be  viewed

as  predictive of the Partnership's future financial  performance

or  its  ability  to manage or monitor risk.   There  can  be  no

assurance  that the Partnership's actual losses on  a  particular

day  will not exceed the VaR amounts indicated above or that such

losses will not occur more than 1 in 100 trading days.



Non-Trading Risk

The  Partnership has non-trading market risk on its foreign  cash

balances  not needed for margin.  These balances and  any  market

risk they may represent are immaterial. At December 31, 2000, the

Partnership's cash balance at DWR was approximately  86%  of  its

total  net  asset value.  A decline in short-term interest  rates

will  result  in  a decline in the Partnership's cash  management

income. This cash flow risk is not considered to be material.



Materiality,  as used throughout this section,  is  based  on  an

assessment  of  reasonably  possible  market  movements  and  any

associated  potential  losses taking into account  the  leverage,

optionality and multiplier features of the Partnership's  market-

sensitive instruments.



<PAGE>

Qualitative Disclosures Regarding Primary Trading Risk Exposures

The following qualitative disclosures regarding the Partnership's

market risk exposures - except for (A) those disclosures that are

statements of historical fact and (B) the descriptions of how the

Partnership   manages  its  primary  market  risk   exposures   -

constitute  forward-looking  statements  within  the  meaning  of

Section  27A  of  the  Securities Act  and  Section  21E  of  the

Securities  Exchange Act.  The Partnership's primary market  risk

exposures  as  well  as the strategies used and  to  be  used  by

Demeter  and the Trading Manager for managing such exposures  are

subject  to numerous uncertainties, contingencies and risks,  any

one  of which could cause the actual results of the Partnership's

risk  controls to differ materially from the objectives  of  such

strategies.     Government    interventions,     defaults     and

expropriations,  illiquid  markets,  the  emergence  of  dominant

fundamental  factors, political upheavals, changes in  historical

price  relationships,  an  influx  of  new  market  participants,

increased  regulation  and many other  factors  could  result  in

material  losses  as  well as in material  changes  to  the  risk

exposures  and the risk management strategies of the Partnership.

Investors  must be prepared to lose all or substantially  all  of

their investment in the Partnership.



The  following  were the primary trading risk  exposures  of  the

Partnership as of December 31, 2000 by market sector.  It may be



<PAGE>

anticipated  however,  that  these  market  exposures  will  vary

materially over time.



Interest Rate.  The largest market exposure at December 31,  2000

was  in  the  interest rate complex.  Exposure was spread  across

European,  United States, Japanese and Australian  interest  rate

sectors.   Interest rate movements directly affect the  price  of

the  sovereign bond futures positions held by the Partnership and

indirectly  affect  the  value of its stock  index  and  currency

positions.   Interest rate movements in one country  as  well  as

relative interest rate movements between countries may materially

impact   the   Partnership's  profitability.   The  Partnership's

primary  interest  rate exposure is generally  to  interest  rate

fluctuations  in the United States and the other  G-7  countries.

The  G-7  countries  consist of France, U.S.,  Britain,  Germany,

Japan,  Italy and Canada.   However, the Partnership  also  takes

futures  positions  in the government debt of smaller  nations  -

e.g.  Australia.   Demeter anticipates that  G-7  and  Australian

interest rates will remain the primary interest rate exposure  of

the  Partnership  for the foreseeable future.  The  changes  that

have  the  most  effect  on  the Partnership  are  in  short-  to

intermediate-term as opposed to long-term rates as  most  of  the

speculative   interest  rate  futures  positions  held   by   the

Partnership are in short-term and medium-term instruments.





<PAGE>

Currency.   The  next  most significant market  exposure  of  the

Partnership  at  December 31, 2000 was in  the  foreign  exchange

complex.  The currency exposure is to exchange rate fluctuations,

primarily   those   which   disrupt   the   historical    pricing

relationships  between different currencies and  currency  pairs.

Interest  rate changes as well as political and general  economic

conditions influence these fluctuations.  The Partnership  trades

in  a  large number of currencies, including cross-rates -  i.e.,

positions between two currencies other than the U.S. dollar.  The

Partnership's  major exposures were in the euro currency  crosses

and  outright U.S. dollar positions.  Outright positions  consist

of  the U.S. dollar vs. other currencies.  These other currencies

include  the  major  and  minor  currencies.   Demeter  does  not

anticipate  that  the risk profile of the Partnership's  currency

sector  will  change significantly in the future.   The  currency

trading VaR figure includes foreign margin amounts converted into

U.S.  dollars  with  an  incremental adjustment  to  reflect  the

exchange  rate  risk inherent to the dollar-based Partnership  in

expressing VaR in a functional currency other than U.S. dollars.



Commodity.

Energy.   At  December  31, 2000 the Partnership's  next  largest

exposure was in the energy complex. The largest exposure  was  in

natural  gas,  followed  by  crude oil  and  brent  crude.  Price

movement in these markets results from political developments  in

Middle Eastern and OPEC and non-OPEC oil producing countries.

<PAGE>

Weather  patterns  and  other economic fundamentals  also  affect

prices.  It  is  possible  that  volatility  will  remain   high.

Significant  profits and losses, which have been  experienced  in

the  past,  will  continue  to  be experienced  in  this  market.

Natural  gas  has exhibited volatility in prices  resulting  from

weather  patterns and supply and demand factors and may  continue

in this choppy pattern.



Soft  Commodities and Agriculturals.  At December  31,  2000  the

Partnership  had  exposure  in the markets  that  comprise  these

sectors.   Exposure was in the corn, soybean, cotton,  cocoa  and

coffee  markets.  Supply and demand inequalities, severe  weather

disruption  and  market expectations affect  price  movements  in

these markets.



Metals.  The Partnership's smallest exposure as of the end of the

fourth  quarter  was in the metals complex.  The  only  positions

were  in  the  LME  nickel market.  Prices  in  this  market  are

influenced by general economic conditions and warehouse stocks.



Equity.   There was a relatively small exposure to stock  indexes

as of December 31, 2000.  The Partnership trades these markets in

the  United  States  and Japan and had small  positions  in  both

markets.   Stock  indexes are affected by the same  factors  that

influence the

underlying equity issues such as the monetary and fiscal policies

of government, profit outlook and general economic conditions.

     <PAGE>

Qualitative Disclosures Regarding Non-Trading Risk Exposure

The  following  was  the only non-trading risk  exposure  of  the

Partnership at December 31, 2000:



     Foreign   Currency  Balances.   The  Partnership's   primary

     foreign  currency  balances were  in  British  Pounds.   The

     Partnership controls the non-trading risk of these  balances

     by  regularly  converting  these  balances  back  into  U.S.

     dollars upon liquidation of the respective position.



Qualitative Disclosures Regarding Means of Managing Risk Exposure

The Partnership and the Trading Manager, separately, attempts  to

manage   the   risk  of  the  Partnership's  open  positions   in

essentially  the  same  manner in all market  categories  traded.

Demeter  attempts  to manage market exposure by diversifying  the

Partnership's assets among different market sectors  and  trading

approaches, and monitoring the performance of the Trading Manager

daily.     In   addition,   the   Trading   Manager   establishes

diversification  guidelines, often set in terms  of  the  maximum

margin  to be committed to positions in any one market sector  or

market-sensitive instrument.



Demeter monitors and controls the risk of the Partnership's  non-

trading   instrument,  cash.   Cash  is  the   only   Partnership

investment directed by Demeter, rather than the Trading Manager.



<PAGE>

Item 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The  Financial  Statements are incorporated by reference  to  the

Partnership's  Annual  Report, which is filed  as  Exhibit  13.01

hereto.


Supplementary data specified by Item 302 of Regulation S-K:



            Summary of Quarterly Results (Unaudited)

                                                           Net
Income/
                                                    (Loss) Per
Quarter                            Net          Unit of Limited
Ended                Revenue        Income/(Loss)
Partnership Interest

2000
March 31           $ 2,949,521      $ 1,698,560         $  58.82
June 30         1,974,514          918,169            32.17
September 30   (2,958,401)      (3,861,960)         (143.16)
December 31    11,279,683       10,191,723           402.87

Total              $13,245,317      $ 8,946,492         $ 350.70


1999
March 31           $(2,953,631)     $(4,415,774)        $(122.51)
June 30         1,194,781         (299,931)          (10.18)
September 30    2,767,176        1,396,328            42.60
December 31    (2,041,809)      (3,163,676)          (98.15)

Total              $(1,033,483)     $(6,483,053)        $(188.24)





Item 9.   CHANGES  IN  AND  DISAGREEMENTS  WITH  ACCOUNTANTS   ON
          ACCOUNTING AND FINANCIAL DISCLOSURE

None.






<PAGE>

                            PART III


Item 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

There  are no directors or executive officers of the Partnership.

The Partnerhsip is managed by Demeter.



Directors and Officers of the General Partner

The directors and officers of Demeter are as follows:



Robert E. Murray, age 40, is Chairman of the Board, President and

a Director of Demeter.  Mr. Murray is also Chairman of the Board,

President  and  a Director of DWFCM.  Mr. Murray is  currently  a

Senior  Vice President of DWR's Managed Futures Department.   Mr.

Murray  began  his  career at DWR in 1984 and  is  currently  the

Director of the Managed Futures Department. In this capacity, Mr.

Murray  is  responsible for overseeing all aspects of the  firm's

Managed Futures Department.  Mr. Murray previously served as Vice

Chairman  and  a  Director of the Managed Funds  Association,  an

industry  association  for investment professionals  in  futures,

hedge   funds  and  other  alternative  investments.  Mr.  Murray

graduated from Geneseo State University in May 1983 with  a  B.A.

degree in Finance.



Mitchell  M. Merin, age 47, is a Director of Demeter.  Mr.  Merin

is  also a Director of DWFCM.  Mr. Merin was appointed the  Chief

Operating Officer of Individual Asset Management for MSDW in

<PAGE>

December  1998 and the President and Chief Executive  Officer  of

Morgan  Stanley Dean Witter Advisors in February  1998.   He  has

been  an Executive Vice President of DWR since 1990, during which

time  he  has  been  Director of DWR's Taxable Fixed  Income  and

Futures  divisions,  Managing Director in Corporate  Finance  and

Corporate  Treasurer.  Mr. Merin received his  Bachelor's  degree

from  Trinity  College in Connecticut and his  M.B.A.  degree  in

Finance  and  Accounting  from the  Kellogg  Graduate  School  of

Management of Northwestern University in 1977.



Joseph  G.  Siniscalchi, age 55, 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 59, is a Director of Demeter.   Mr.

Oelsner is currently an Executive Vice President and head of  the

Product Development Group at Morgan Stanley Dean Witter Advisors,

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.

<PAGE>

Prior  to  joining DWR, Mr. Oelsner held positions at  The  First

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.



Richard  A. Beech, age 49, is a Director of Demeter.   Mr.  Beech

has  been associated with the futures industry for over 23 years.

He  has  been  at  DWR since August 1984, where he  is  presently

Senior  Vice  President and head of Branch  Futures.   Mr.  Beech

began  his  career at the Chicago Mercantile Exchange,  where  he

became  the  Chief Agricultural Economist doing market  analysis,

marketing  and compliance.  Prior to joining DWR, Mr. Beech  also

had  worked  at  two  investment  banking  firms  in  operations,

research, managed futures and sales management.



Raymond  A. Harris, age 44, is a Director of Demeter. Mr.  Harris

is    currently   Executive   Vice   President,   Planning    and

Administration  for Morgan Stanley Dean Witter  Asset  Management

and  has worked at DWR or its affiliates since July 1982, serving

in  both  financial and administrative capacities.   From  August

1994  to  January 1999, he worked in two separate DWR affiliates,

Discover   Financial   Services  and   Novus   Financial   Corp.,

culminating as Senior Vice President.  Mr. Harris received his



<PAGE>

B.A.  degree  from Boston College and his M.B.A. in finance  from

the University of Chicago.



Anthony  J.  DeLuca,  age  38, became a Director  of  Demeter  on

September 14, 2000.  Mr. DeLuca is also a Director of DWFCM.  Mr.

DeLuca was appointed the Controller of Asset Management for  MSDW

in  June  1999.  Prior to that, Mr. DeLuca was a partner  at  the

accounting  firm of Ernst & Young LLP, where he  had  MSDW  as  a

major  client.   Mr. DeLuca had worked continuously  at  Ernst  &

Young  LLP  ever  since  1984,  after  he  graduated  from   Pace

University with a B.B.A. degree in Accounting.



Raymond  E. Koch, age 45, is Chief Financial Officer of  Demeter.

Effective July 10, 2000, Mr. Koch replaced Mr. Raibley  as  Chief

Financial Officer of Demeter.  Mr. Koch began his career at  MSDW

in  1988,  has  overseen the Managed Futures Accounting  function

since  1992,  and is currently First Vice President, Director  of

Managed  Futures  and Realty Accounting.  From November  1979  to

June  1988,  Mr. Koch held various positions at Thomson  McKinnon

Securities, Inc. culminating as Manager, Special Projects in  the

Capital  Markets Division.  From August 1977 to November 1979  he

was  an  auditor, specializing in financial services at  Deloitte

Haskins  and  Sells.  Mr. Koch received his B.B.A. in  accounting

from  Iona  College  in  1977, an M.B.A.  in  finance  from  Pace

University in 1984 and is a Certified Public Accountant.



<PAGE>

Lewis  A.  Raibley, III, age 38, served as Vice President,  Chief

Financial Officer, and a Director of Demeter and DWFCM until  his

resignation from MSDW on July 1, 2000.



All of the foregoing directors have indefinite terms.



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, 2000, there were no persons known to be  beneficial

owners of more than 5 percent of the Units.



(b)   Security  Ownership of Management - At December  31,  2000,

Demeter  owned  417.091  Units  of General  Partnership  Interest

representing a 1.68 percent interest in the Partnership.



(c) Changes in Control - None





<PAGE>

Item 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Refer  to  Note  2 - "Related Party Transactions"  of  "Notes  to

Financial  Statements",  in  the accompanying  Annual  Report  to

Limited  Partners for the year ended December 31, 2000, which  is

incorporated by reference to Exhibit 13.01 of this Form 10-K.  In

its  capacity as the Partnership's retail commodity  broker,  DWR

received commodity brokerage commissions (paid and accrued by the

Partnership) of $2,687,957 for the year ended December 31,  2000.

In  its  capacity  as  the Partnership's Trading  Manager,  DWFCM

received  management  fees  of  $1,366,025  for  the  year  ended

December 31, 2000.































<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 auditors, all appearing in the accompanying

Annual  Report to Limited Partners for the  year  ended

December  31,  2000, are incorporated by  reference  to

Exhibit 13.01 of this Form 10-K:


-    Report of Deloitte & Touche LLP, independent auditors,
     for the years ended December 31, 2000, 1999 and 1998.

-    Statements of Financial Condition as of December 31,
     2000 and 1999.

-    Statements of Operations, Changes in Partners' Capital,
     and Cash Flows for the years ended December 31, 2000, 1999
     and 1998.

-    Notes to Financial Statements.

With  the  exception of the aforementioned  information

and  the information incorporated in Items 7, 8 and 13,

the  Annual  Report to Limited Partners  for  the  year

ended December 31, 2000 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  requirements 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 III L.P.
                                                  (Registrant)

                                         BY:   Demeter Management
                         Corporation,
                                                  General Partner

March 29, 2001      BY: /s/ Robert E. Murray           .
                            Robert E. Murray, Director,
                            Chairman of the Board 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/   Robert E. Murray                             March 29,
2001
          Robert E. Murray, Director,
          Chairman of the Board and
          President

     /s/    Mitchell M. Merin                           March 29,
2001
           Mitchell M. Merin, Director

     /s/   Joseph G. Siniscalchi                        March 29,
2001
          Joseph G. Siniscalchi, Director

     /s/   Edward C. Oelsner III                        March 29,
2001
          Edward C. Oelsner III, Director

     /s/    Richard A. Beech                            March 29,
2001
           Richard A. Beech, Director

     /s/    Raymond A. Harris                           March 29,
2001
           Raymond A. Harris, Director

     /s/    Anthony J. DeLuca                           March 29,
2001
           Anthony J. DeLuca, Director

    /s/   Raymond E. Koch                                   March
29, 2001
          Raymond E. Koch, Chief
          Financial Officer and Principal
          Accounting Officer








<PAGE>
                         EXHIBIT INDEX

     ITEM

3.01 Limited  Partnership Agreement of the Partnership, dated  as
     of  July  12, 1990 is incorporated by reference  to  Exhibit
     3.01  and  Exhibit  3.02  of the Partnership's  Registration
     Statement on Form S-1, File No. 33-34989, filed on  May  21,
     1990.

3.02 Form   of   Amendment  No.  1  to  the  Limited  Partnership
     Agreement  of  the Partnership is incorporated by  reference
     to   Exhibit   3.01(a)  of  the  Partnership's  Registration
     Statement on Form S-1, File No. 33-47797, filed on  May  11,
     1992.

10.01Management   Agreement   among  the   Partnership,   Demeter
     Management  Corporation and Dean Witter Futures  &  Currency
     Management  Inc.  dated as of July 12, 1990 is  incorporated
     by   reference   to  Exhibit  10.02  of  the   Partnership's
     Registration  Statement  on Form  S-1,  File  No.  33-34989,
     filed on May 21, 1990.

     10.02                                             Form    of
     Amendment  No. 1 to the Management Agreement is incorporated
     by  reference  to  Exhibit 10.02 (a)  of  the  Partnership's
     Registration  Statement  on Form  S-1,  file  no.  33-47797,
     filed on May 11, 1992.

     10.03                                           Amended  and
     Restated  Customer Agreement dated as  of           December
     1,  1997,  between the Partnership and Dean Witter  Reynolds
     Inc.  incorporated  by  reference to Exhibit  10.03  of  the
     Partnership's Quarterly Report on Form 10-Q for the  quarter
     ended March 31, 2000, File No.-19116.

     10.04                                               Customer
     Agreement  dated  as  of  December  1,  1997,  between   the
     Partnership,  Carr Futures, Inc., and Dean  Witter  Reynolds
     Inc.  is incorporated by reference to Exhibit 10.04  of  the
     Partnership's Quarterly Report on Form 10-Q for the  quarter
     ended March 31, 2000, File No. 0-19116.

     10.05
     International foreign Exchange Master Agreement dated as  of
     August  1,  1997, between the Partnership and Carr  Futures,
     Inc.  is incorporated by reference to Exhibit 10.05  of  the
     Partnership's Quarterly Report on Form 10-Q for the  quarter
     ended March 31, 2000, File No. 0-19116.

     10.06                                               Customer
     Agreement, dated as of May 1, 2000 between Morgan Stanley  &
     Co.  Incorporated, the Partnership and Dean Witter  Reynolds
     Inc.  is incorporated by reference to Exhibit 10.06  of  the
     Partnership's quarterly Report on Form 10-Q for the  quarter
     ended June 30, 2000, (File No. 0-19116).

     13.01                                                 Annual
     Report to Limited Partners for the year ended December 31,
     2000 is filed herewith.

<PAGE>



Diversified
Futures
Fund III

December 31, 2000
Annual Report

MORGAN STANLEY DEAN WITTER
<PAGE>

Dean Witter Diversified Futures Fund III L.P.
Historical Fund Performance

Presented below is the percentage change in Net Asset Value per Unit from the
start of each calendar year the Fund has traded. Also provided is the incep-
tion-to-date return and the annualized return since inception for the Fund.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.

<TABLE>
<CAPTION>
    Year                       Return
    ----                       ------
    <S>                        <C>
    1990 (2 months)             -1.7%
    1991                        27.1%
    1992                        15.8%
    1993                         7.6%
    1994                         5.9%
    1995                        -4.0%
    1996                        -4.7%
    1997                        12.2%
    1998                         5.3%
    1999                       -10.6%
    2000                        22.0%
    Inception-to-Date Return:   94.6%
    Annualized Return:           6.8%
</TABLE>

<PAGE>

Demeter Management Corporation
Two World Trade Center
62nd Floor
New York, NY 10048
Telephone (212) 392-8899

Dean Witter Diversified Futures Fund III L.P.
Annual Report
2000

Dear Limited Partner:

This marks the eleventh 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 $1,595.11 and increased by 22.0% to $1,945.81 on December 31, 2000. A
review of trading results for the year is provided in the Annual Report of the
Trading Manager located on the next page of this report.

Should you have any questions concerning this report, please feel free to con-
tact Demeter Management Corporation at Two World Trade Center, 62nd Floor, New
York, NY 10048, or your Morgan Stanley Dean Witter Financial Advisor.

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/ Robert E. Murray

    Robert E. Murray
    Chairman
    Demeter Management Corporation
    General Partner
<PAGE>

Dean Witter Diversified Futures Fund III L.P.
Annual Report of the Trading Manager

The Fund posted gains in 2000 as a result of strong trends in the energy, cur-
rency, and grain futures markets. In the energy sector, profits resulted from
long positions in the natural gas and crude oil futures markets. Natural gas
saw its price rise to record levels in 2000. Recent low inventory levels,
sluggish supply and cold winter weather combined to push prices to such high
levels. In the crude oil market, gains were realized from long positions ear-
lier in the year as prices rose to nine-year highs on a combination of cold
weather, declining inventories and increasing demand. In addition, concerns
about future output levels from the world's leading producer countries added
to the upward price momentum. Later in the year, however, profits resulted
from short positions as the price of crude oil futures fell on expectations
that Iraqi oil exports would resume and on fears that the slowdown in the
economy would curb demand while at the same time supply was increasing. In the
currency markets, gains were recorded from short positions in the euro, Swiss
franc and Swedish krona as the value of these European currencies weakened
relative to the U.S. dollar amid skepticism about Europe's economic outlook.
Strong economic data out of the U.S. and interest rate hikes in the U.S. also
boosted the dollar and, subsequently, added to the euro's difficulties. Later
in the year as the bullish trend in the U.S. dollar reversed, additional gains
were recorded from long positions in the euro, Swiss franc and Swedish krona
versus the U.S. dollar as a result of new confidence in the European economy
and an overall skepticism regarding the U.S. economy. Profits were also re-
corded from short positions in the corn market during the middle of the year
as the price of corn trended lower on favorable weather conditions that re-
sulted in good prospects for high crop yields.

A portion of these gains was offset by losses experienced in the metals, stock
index and soft commodity futures markets. The majority of losses in the metals
markets were experienced in the aluminum market. From a technical standpoint,
the price of aluminum traded in a very volatile pattern throughout the year
leaving little opportunity for the development of trends. In addition, long
positions in this market, particularly in the second half of the year, re-
sulted in losses as price declined after con-
<PAGE>

cerns mounted that demand would weaken amid a cooling of the U.S. economy.
Losses were also recorded in the global stock index futures markets. The S&P
500 Index traded in a very choppy pattern resulting in losses for both long
and short positions. Contributing to this price pattern was uncertainty over
the state of the U.S. economy.

We appreciate your continued investment in Diversified Futures Fund III L.P.

Dean Witter Futures & Currency Management Inc.
<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, 2000 and 1999 and the related statements of operations, changes in part-
ners' capital, and cash flows for each of the three years in the period ended
December 31, 2000. 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 auditing standards generally ac-
cepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the finan-
cial statements are free of material misstatement. An audit includes examin-
ing, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting princi-
ples used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits pro-
vide a reasonable basis for our opinion.

In our opinion, such financial statements present fairly, in all material re-
spects, the financial position of Dean Witter Diversified Futures Fund III
L.P. at December 31, 2000 and 1999 and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 2000
in conformity with accounting principles generally accepted in the United
States of America.

/s/ Deloitte & Touche LLP

New York, New York
February 16, 2001
<PAGE>

Dean Witter Diversified Futures Fund III L.P.
Statements of Financial Condition

<TABLE>
<CAPTION>
                                                        December 31,
                                                    ----------------------
                                                       2000        1999
                                                    ----------  ----------
                                                        $           $
<S>                                                 <C>         <C>
                                 ASSETS
Equity in futures interests trading
 accounts:
 Cash                                               42,644,762  47,778,818

 Net unrealized gain on open contracts (MS&Co.)      7,351,597      --
 Net unrealized loss on open contracts (MSIL)         (986,218)     --
 Net unrealized gain on open contracts (Carr)           --       1,959,828
                                                    ----------  ----------
 Total net unrealized gain on
   open contracts                                    6,365,379   1,959,828
                                                    ----------  ----------
 Total Trading Equity                               49,010,141  49,738,646
Interest receivable (DWR)                              180,960     178,458
                                                    ----------  ----------
 Total Assets                                       49,191,101  49,917,104
                                                    ==========  ==========

                   LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES
Redemptions payable                                    666,041   1,195,090
Accrued management fees (DWFCM)                        123,748     125,214
Administrative expenses payable                         65,338      69,232
                                                    ----------  ----------
 Total Liabilities                                     855,127   1,389,536
                                                    ----------  ----------
PARTNERS' CAPITAL
Limited Partners (24,423.985 and 30,005.528 Units,
  respectively)                                     47,524,395  47,862,260
General Partner (417.091 Units)                        811,579     665,308
                                                    ----------  ----------
 Total Partners' Capital                            48,335,974  48,527,568
                                                    ----------  ----------
 Total Liabilities and
   Partners' Capital                                49,191,101  49,917,104
                                                    ==========  ==========
NET ASSET VALUE PER UNIT                              1,945.81    1,595.11
                                                    ==========  ==========
</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,
                               ---------------------------------
                                  2000       1999        1998
                               ---------- ----------  ----------
<S>                            <C>        <C>         <C>
                                   $          $           $
REVENUES
Trading profit (loss):
 Realized                       6,754,178 (3,300,101) 16,344,815
 Net change in unrealized       4,405,551    189,989  (9,385,547)
                               ---------- ----------  ----------
  Total Trading Results        11,159,729 (3,110,112)  6,959,268
Interest income (DWR)           2,085,588  2,076,629   2,489,412
                               ---------- ----------  ----------
  Total Revenues               13,245,317 (1,033,483)  9,448,680
                               ---------- ----------  ----------
EXPENSES
Brokerage commissions (DWR)     2,687,957  3,442,621   3,886,833
Management fees (DWFCM)         1,366,025  1,687,248   2,006,537
Transaction fees and costs        153,843    246,701     299,270
Administrative expenses            91,000     73,000      90,000
                               ---------- ----------  ----------
  Total Expenses                4,298,825  5,449,570   6,282,640
                               ---------- ----------  ----------
NET INCOME (LOSS)               8,946,492 (6,483,053)  3,166,040
                               ========== ==========  ==========
Net Income (Loss) Allocation:
Limited Partners                8,800,221 (6,404,542)  3,051,370
General Partner                   146,271    (78,511)    114,670
Net Income (Loss) per Unit:
Limited Partners                   350.70    (188.24)      91.27
General Partner                    350.70    (188.24)      91.27
</TABLE>

Statements of Changes in Partners' Capital
For the Years Ended December 31, 2000, 1999 and 1998

<TABLE>
<CAPTION>
                     Units of
                    Partnership   Limited     General
                     Interest     Partners    Partner       Total
                    -----------  ----------  ----------  -----------
<S>                 <C>          <C>         <C>         <C>
                                     $           $            $
Partners' Capital,
December 31, 1997   42,704.685   70,564,013   1,695,615   72,259,628
Net income              --        3,051,370     114,670    3,166,040
Redemptions         (6,318.820)  (9,470,464) (1,066,466) (10,536,930)
                    ----------   ----------  ----------  -----------
Partners' Capital,
December 31, 1998   36,385.865   64,144,919     743,819   64,888,738
Net loss                --       (6,404,542)    (78,511)  (6,483,053)
Redemptions         (5,963.246)  (9,878,117)     --       (9,878,117)
                    ----------   ----------  ----------  -----------
Partners' Capital,
December 31, 1999   30,422.619   47,862,260     665,308   48,527,568
Net income              --        8,800,221     146,271    8,946,492
Redemptions         (5,581.543)  (9,138,086)     --       (9,138,086)
                    ----------   ----------  ----------  -----------
Partners' Capital,
December 31, 2000   24,841.076   47,524,395     811,579   48,335,974
                    ==========   ==========  ==========  ===========
</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,
                                        ------------------------------------
                                           2000        1999         1998
                                        ----------  -----------  -----------
<S>                                     <C>         <C>          <C>
                                            $            $            $
CASH FLOWS FROM
  OPERATING ACTIVITIES
Net income (loss)                        8,946,492   (6,483,053)   3,166,040
Noncash item included in net
  income (loss):
 Net change in unrealized               (4,405,551)    (189,989)   9,385,547
(Increase) decrease in
  operating assets:
 Interest receivable (DWR)                  (2,502)      17,365       34,568
 Due from DWR                               --           --            3,839
Increase (decrease) in
  operating liabilities:
 Accrued management fees (DWFCM)            (1,466)     (39,733)     (20,851)
 Administrative expenses payable            (3,894)     (28,119)       6,086
                                        ----------  -----------  -----------
Net cash provided by (used
  for) operating activities              4,533,079   (6,723,529)  12,575,229
                                        ----------  -----------  -----------
CASH FLOWS FROM
  FINANCING ACTIVITIES
Increase (decrease) in redemptions
  payable                                 (529,049)     658,740     (701,105)
Redemptions of Units                    (9,138,086)  (9,878,117) (10,536,930)
                                        ----------  -----------  -----------
Net cash used for financing activities  (9,667,135)  (9,219,377) (11,238,035)
                                        ----------  -----------  -----------
Net increase (decrease) in cash         (5,134,056) (15,942,906)   1,337,194
Balance at beginning of period          47,778,818   63,721,724   62,384,530
                                        ----------  -----------  -----------
Balance at end of period                42,644,762   47,778,818   63,721,724
                                        ==========  ===========  ===========
</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 "Partner-
ship") is a limited partnership organized to engage primarily in the specula-
tive trading of commodity futures and forward contracts, physical commodities,
and other commodity interests (collectively, "futures interests").

The general partner for the Partnership is Demeter Management Corporation
("Demeter"). The non-clearing commodity broker is Dean Witter Reynolds Inc.
("DWR"). Morgan Stanley & Co., Inc. ("MS&Co.") and Morgan Stanley & Co. Inter-
national Limited ("MSIL") provide clearing and execution services. Prior to
May 2000, Carr Futures Inc. ("Carr") provided clearing and execution services
to the Partnership. The trading manager is Dean Witter Futures & Currency Man-
agement Inc. ("DWFCM" or the "Trading Manager"). Demeter, DWR, DWFCM, MS&Co.
and MSIL are wholly-owned subsidiaries of Morgan Stanley Dean Witter & Co.
("MSDW").

Effective February 19, 1998, Morgan Stanley, Dean Witter, Discover & Co.
changed its corporate name to Morgan Stanley Dean Witter & Co.

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.

Use of Estimates--The financial statements are prepared in accordance with ac-
counting principles generally accepted in the United States of America, which
require management to make estimates and assumptions that affect the reported
amounts in the financial statements and related disclosures. Management be-
lieves that the estimates utilized in the preparation of the financial state-
ments are prudent and reasonable. Actual results could differ from those esti-
mates.

Revenue Recognition--Futures interests are open commitments until settlement
date. They are valued at market on a daily basis and the resulting net change
in unrealized gains and losses is reflected in the change in unrealized profit
(loss) on open contracts from one period to the next in the statements of op-
erations. Monthly, DWR pays the Partnership interest income based upon 80% of
its average daily Net Assets for the month at a prevailing rate for U.S. Trea-
sury bills. For purposes of such interest payments, Net Assets do not include
monies due the Partnership on futures interests, but not actually received.

Net Income (Loss) per Unit--Net income (loss) per unit of limited partnership
interest ("Unit(s)") is computed using the
weighted average number of Units outstanding during the period.
<PAGE>

Dean Witter Diversified Futures Fund III L.P.
Notes to Financial Statements--(Continued)


Equity in Futures Interests Trading Accounts--The Partnership's asset "Equity
in futures interests trading accounts," reflected in the statements of finan-
cial condition, consists of (A) cash on deposit with DWR, MS&Co. and MSIL to
be used as margin for trading and (B) net unrealized gains or losses on open
contracts, which are valued at market, and calculated as the difference be-
tween original contract value and market value.

The Partnership, in the normal course of business, enters into various con-
tracts with MS&Co. and MSIL acting as its commodity brokers. Pursuant to bro-
kerage agreements with MS&Co. and MSIL, to the extent that such trading re-
sults in unrealized gains or losses, the amounts are offset and reported on a
net basis in the Partnership's statements of financial condition.

The Partnership has offset the fair value amounts recognized for forward con-
tracts executed with the same counterparty as allowable under terms of the
master netting agreement with MS&Co., the sole counterparty on such contracts.
The Partnership has consistently applied its right to offset.

Brokerage Commissions and Related Transaction Fees and Costs--Brokerage com-
missions 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. Brokerage
commissions and transaction fees combined are capped at 13/20 of 1% per month
(a maximum 7.8% annual rate) of the Partnership's Net Assets as of the last
day of each month.

Operating Expenses--The Partnership bears all operating expenses related to
its trading activities, to a maximum of 3/5 of 1% annually of the Partner-
ship's average month-end Net Assets. These include filing fees, clerical, ad-
ministrative, auditing, accounting, mailing, printing and other incidental op-
erating expenses as permitted by the Limited Partnership Agreement. In addi-
tion, the Partnership incurs monthly management fees and may incur incentive
fees. 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 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 as of the end of any month upon five business
days advance notice by redemption form to Demeter.
<PAGE>

Dean Witter Diversified Futures Fund III L.P.
Notes to Financial Statements--(Continued)


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

The Partnership pays brokerage commissions to DWR as described in Note 1. The
Partnership's cash is on deposit with DWR, MS&Co., and MSIL in futures inter-
ests 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 Manage-
ment 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 monthly management fee is accrued daily at the rate of 1/4
of 1% per month of the Net Assets (a 3% annual rate), as defined in the Man-
agement Agreement, at each month-end.

Incentive Fee--The Partnership pays a quarterly incentive fee to DWFCM equal
to 15% of the trading profits earned by the Partnership as of the end of each
calendar quarter. Trading profits represent the amount by which profits from
futures and forward trading exceed losses after brokerage commissions, manage-
ment fees, transaction fees and costs and administrative expenses are deduct-
ed. Such incentive fees are accrued in each month in which trading profits oc-
cur. 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 commodity futures contracts and forward contracts,
physical commodities, and other commodity interests. Futures and forwards rep-
resent 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 poten-
tial 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.

In June 1998, the Financial Accounting Standards Board ("FASB") issued State-
ment of Financial Accounting Standard ("SFAS") No. 133, "Accounting for Deriv-
ative Instruments and Hedging Activities" effective for fiscal years beginning
after
<PAGE>

Dean Witter Diversified Futures Fund III L.P.
Notes to Financial Statements--(Continued)

June 15, 2000, as amended by SFAS No. 137. The Partnership adopted the provi-
sions of SFAS No. 133 beginning with the fiscal year ended December 31, 1998.
SFAS No. 133 superceded SFAS Nos. 119 and 105, which required the disclosure
of average aggregate fair values and contract/notional values, respectively,
of derivative financial instruments for an entity that carries its assets at
fair value. SFAS No. 133 was further amended by SFAS No. 138, which clarifies
issues surrounding interest rate risk, foreign currency denominations, normal
purchases and sales and net hedging. The application of SFAS No. 133, as
amended by SFAS No. 137 and SFAS No. 138, did not have a significant effect on
the Partnership's financial statements.

SFAS No. 133 defines a derivative as a financial instrument or other contract
that has all three of the following characteristics:

(1)  One or more underlying notional amounts or payment provisions;
(2)  Requires no initial net investment or a smaller initial net investment
     than would be required relative to changes in market factors;
(3)  Terms require or permit net settlement.

Generally derivatives include futures, forwards, swaps or option contracts, or
other financial instruments with similar characteristics such as caps, floors
and collars.

The net unrealized gains on open contracts are reported as a component of "Eq-
uity in futures interests trading accounts" on the statements of financial
condition and totaled $6,365,379 and $1,959,828 at December 31, 2000 and 1999,
respectively.

Of the $6,365,379 net unrealized gain on open contracts at December 31, 2000,
$4,504,930 related to exchange-traded futures contracts and $1,860,449 related
to off-exchange-traded forward currency contracts.

Of the $1,959,828 net unrealized gain on open contracts at December 31, 1999,
$1,781,996 related to exchange-traded futures contracts and $177,832 related
to off-exchange-traded forward currency contracts.

Exchange-traded futures contracts held by the Partnership at December 31, 2000
and 1999 mature through June 2002 and September 2000, respectively. Off-
exchange-traded forward currency contracts held by the Partnership at December
31, 2000 and 1999 mature through March 2001 and March 2000, respectively.

The Partnership has credit risk associated with counterparty nonperformance.
The credit risk associated with the instruments in which the Partnership is
involved is limited to the amounts reflected in the Partnership's statements
of financial condition.
<PAGE>

Dean Witter Diversified Futures Fund III L.P.
Notes to Financial Statements--(Continued)


The Partnership also has credit risk because DWR, MS&Co., and MSIL act as the
futures commission merchants or the counterparties with respect to most of the
Partnership's assets. Exchange-traded futures contracts are marked to market
on a daily basis, with variations in value settled on a daily basis. DWR,
MS&Co. and MSIL each as a futures commission merchant 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,
in the aggregate, $47,149,692 and $49,560,814 at December 31, 2000 and 1999,
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 MS&Co., the sole counterparty on all of such contracts, to perform. The
Partnership has a netting agreement with MS&Co. This agreement, which seeks to
reduce both the Partnership's and MS&Co.'s exposure on off-exchange-traded
forward currency contracts, should materially decrease the Partnership's
credit risk in the event of MS&Co.'s bankruptcy or insolvency.

4. Legal Matters

Similar class actions were filed in 1996 in California and New York state
courts. Each of the actions were dismissed in 1999. However, the New York
state class action discussed below is still pending because plaintiffs ap-
pealed the final court's dismissal of their case on March 3, 2000.

On September 18 and 20, 1996, purported class actions were filed in the Su-
preme Court of the State of New York, New York County, on behalf of all pur-
chasers of interests in limited partnership commodity pools sold by DWR. Named
defendants include DWR, DWFCM, Demeter, MSDW, the Partnership, certain limited
partnership commodity pools of which Demeter is the general partner and cer-
tain trading managers to those pools. 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 fidu-
ciary duty, and negligent misrepresentation in the sale and operation of the
various limited partnership commodity pools. The complaints sought unspecified
amounts of compensatory and punitive damages and other relief. The New York
Supreme Court dismissed the New York action in November 1998, but granted
plaintiffs leave to file an
<PAGE>

Dean Witter Diversified Futures Fund III L.P.
Notes to Financial Statements--(Concluded)

amended complaint, which they did in early December 1998. The defendants filed
a motion to dismiss the amended complaint with prejudice on February 1, 1999.
By decision dated December 21, 1999, the New York Supreme Court dismissed the
case with prejudice. However, on March 3, 2000, plaintiffs appealed the trial
court's dismissal of their case.
<PAGE>

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