WITTER DEAN CORNERSTONE FUND III - 10-Q Quarterly Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

[X] Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended September 30, 2002 or

[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to __________________

Commission File No. 0-13299

DEAN WITTER CORNERSTONE FUND III

(Exact name of registrant as specified in its charter)

New York 13-3190919
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

Demeter Management Corporation
c/o Managed Futures Department
Harborside Financial Center
Plaza Two, 1st Floor, Jersey City, NJ 07311
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code (201) 209-8400

825 Third Avenue, 8th Floor, New York, NY 10022

(Former name, former address, and former fiscal year, if changed
since last report)

Indicate by check-mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing
requirements for the past 90 days.

Yes X No___________

DEAN WITTER CORNERSTONE FUND III

INDEX TO QUARTERLY REPORT ON FORM 10-Q

September 30, 2002

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

DEAN WITTER CORNERSTONE FUND III
STATEMENTS OF FINANCIAL CONDITION

DEAN WITTER CORNERSTONE FUND III
STATEMENTS OF OPERATIONS
(Unaudited)

DEAN WITTER CORNERSTONE FUND III
STATEMENTS OF OPERATIONS
(Unaudited)

DEAN WITTER CORNERSTONE FUND III
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
For the Nine Months Ended September 30, 2002 and 2001
(Unaudited)

DEAN WITTER CORNERSTONE FUND III
STATEMENTS OF CASH FLOWS
(Unaudited)

DEAN WITTER CORNERSTONE FUND III
NOTES TO FINANCIAL STATEMENTS
September 30, 2002
(Unaudited)

The unaudited financial statements contained herein include, in
the opinion of management, all adjustments necessary for a fair
presentation of the results of operations and financial condition
of Dean Witter Cornerstone Fund III (the "Partnership"). The
financial statements and condensed notes herein should be read in
conjunction with the Partnership's December 31, 2001 Annual Report
on Form 10-K.

1. Organization
Dean Witter Cornerstone Fund III is a New York limited partnership
organized to engage primarily in the speculative trading of
futures contracts, options on futures contracts, and forward
contracts on foreign currencies and other commodity interests. The
Partnership is one of the Dean Witter Cornerstone Funds, comprised
of Dean Witter Cornerstone Fund II, the Partnership, and Dean
Witter Cornerstone Fund IV.

The Partnership's general partner is Demeter Management
Corporation ("Demeter"). The non-clearing commodity broker is
Morgan Stanley DW Inc. ("Morgan Stanley DW"). The clearing

DEAN WITTER CORNERSTONE FUND III
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

commodity brokers are Morgan Stanley & Co. Inc. ("MS & Co.") and
Morgan Stanley & Co. International Limited ("MSIL"). Demeter,
Morgan Stanley DW, MS & Co. and MSIL are wholly-owned subsidiaries
of Morgan Stanley. The trading managers to the Partnership are
Welton Investment Corporation and Sunrise Capital Management Inc.
(collectively, the "Trading Managers").

On February 27, 2002, the Partnership received notification of a
preliminary entitlement to payment from the Sumitomo Copper
Litigation Settlement Administrator. The Partnership received
payment of this settlement award in the amount of $2,842,492 as
of August 31, 2002.

2. Related Party Transactions
The Partnership's cash is on deposit with Morgan Stanley DW, MS &
Co. and MSIL in futures, forwards, and options trading accounts to
meet margin requirements as needed. Morgan Stanley DW pays
interest on these funds based on a rate equal to the average yield
on 13-week U.S. Treasury bills. The Partnership pays brokerage
commissions to Morgan Stanley DW.

DEAN WITTER CORNERSTONE FUND III
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

3. Financial Instruments
The Partnership trades futures contracts, options on futures
contracts, and forward contracts on foreign currencies and other
commodity interests. Futures and forwards represent contracts for
delayed delivery of an instrument at a specified date and price.
Risk arises from changes in the value of these contracts and the
potential inability of counterparties to perform under the terms
of the contracts. There are numerous factors which may
significantly influence the market value of these contracts,
including interest rate volatility.

The market value of contracts is based on closing prices quoted
by the exchange, bank or clearing firm through which the
contracts are traded.

The Partnership's contracts are accounted for on a trade-date
basis and marked to market on a daily basis. The Partnership
accounts for its derivative investments in accordance with the
provisions of Statement of Financial Accounting Standard No. 133,
"Accounting for Derivative Instruments and Hedging Activities"
("SFAS No. 133"). SFAS No. 133 defines a derivative as a
financial instrument or other contract that has all three of the
following characteristics:

DEAN WITTER CORNERSTONE FUND III
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

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, forward, swaps or options
contracts and other financial instruments with similar
characteristics such as caps, floors and collars.

The net unrealized gains (losses) on open contracts, reported as a
component of "Equity in futures interests trading accounts" on the
statements of financial condition, and their longest contract
maturities were as follows:

Net Unrealized Gains (Losses)
on Open Contracts Longest Maturities
Off- Off-
Exchange- Exchange- Exchange- Exchange-
Date Traded Traded Total Traded Traded
$ $ $

Sep. 30, 2002 2,366,018 314,337 2,680,355 Sep. 2003 Dec. 2002
Dec. 31, 2001 (679,746) 752,314 72,568 Dec. 2002 Mar. 2002

DEAN WITTER CORNERSTONE FUND III
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

The Partnership has credit risk associated with counterparty non-
performance. 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.

The Partnership also has credit risk because Morgan Stanley DW, 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 and futures-styled options contracts are
marked to market on a daily basis, with variations in value
settled on a daily basis. Morgan Stanley DW, MS & Co., and MSIL,
each as a futures commission merchant for all of the Partnership's
exchange-traded futures and futures-styled options contracts, are
required, pursuant to regulations of the Commodity Futures Trading
Commission ("CFTC"), to segregate from their own assets, and for
the sole benefit of their commodity customers, all funds held by
them with respect to exchange-traded futures and futures-styled
options contracts, including an amount equal to the net unrealized
gains (losses) on all open futures and futures-styled options
contracts, which funds, in the aggregate, totaled $30,015,614 and
$25,791,768 at September 30, 2002 and December 31, 2001,
respectively. With respect to the Partnership's off-exchange-
traded forward currency contracts, there are no daily settlements

DEAN WITTER CORNERSTONE FUND III
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)

of variations in value nor is there any requirement that an amount
equal to the net unrealized gains (losses) 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.

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

Liquidity - The Partnership deposits its assets with Morgan
Stanley DW as non-clearing broker and MS & Co. and MSIL as
clearing brokers in separate futures, forwards, and options
trading accounts established for each 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 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, forwards, and options, it is expected that the
Partnership will continue to own such liquid assets for margin
purposes.

The Partnership's investment in futures, forwards, and options
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 or options contract
has increased or decreased by an amount equal to the daily limit,
positions in that futures or options 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 prevent the Partnership from
promptly liquidating its futures or options 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, subjecting it to
substantial losses. Either of these market conditions could
result in restrictions on redemptions.

There are no material trends, demands, commitments, events or
uncertainties known at the present time that will result in or
that are reasonably likely to result in the Partnership's
liquidity increasing or decreasing in any material way.

The Partnership has never had illiquidity affect a material
portion of its assets.

Capital Resources. The Partnership does not have, nor expect to
have, any capital assets. Redemptions of additional units of
limited partnership interest ("Unit(s)") in the future will affect
the amount of funds available for investment in futures, forwards,
and options in subsequent periods. It is not possible to estimate
the amount and therefore the impact of future redemptions of
Units.

There are no known material trends, favorable or unfavorable, nor
any expected material changes to the Partnership's capital
resource arrangements at the present time.

The Partnership has no off-balance sheet arrangements, nor
contractual obligations or commercial commitments to make future
payments that would affect the Partnership's liquidity or capital
resources. The contracts traded by the Partnership are accounted
for on a trade-date basis and marked to market on a daily basis.
The value of foreign currency forward contracts is based on the
spot rate as of the close of business, New York City time, on a
given day.

Results of Operations
General. The Partnership's results depend on the Trading Managers
and the ability of the Trading Managers' trading programs to take
advantage of price movements or other profit opportunities in the

futures, forwards, and options markets. The following presents a
summary of the Partnership's operations for the three and nine
month periods ended September 30, 2002 and 2001 and a general
discussion of its trading activities during each period. It is
important to note, however, that the Trading Managers trade 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 Managers 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 the Trading
Managers' trading activities on behalf of the Partnership and how
the Partnership has performed in the past.

The Partnership's results of operations are set forth in
financial statements prepared in accordance with United States
generally accepted accounting principles, which require the use
of certain accounting policies that affect the amounts reported
in these financial statements, including the following: The
contracts the Partnership trades are accounted for on a trade-
date basis and marked to market on a daily basis. The difference
between their cost and market value is recorded on the Statements
of Operations as "Net change in unrealized profit/loss" for open
(unrealized) contracts, and recorded as "Realized profit/loss"
when open positions are closed out, and the sum of these amounts
constitutes the Partnership's trading revenues. Earned interest

income revenue, as well as management fees, incentive fees and
brokerage expenses of the Partnership are recorded on an accrual
basis.

Demeter believes that, based on the nature of the operations of
the Partnership, no assumptions other than those presently used
relating to the application of critical accounting policies are
reasonably plausible that could affect reported amounts.

For the Quarter and Nine Months Ended September 30, 2002
For the quarter ended September 30, 2002, the Partnership recorded
total trading revenues, including interest income, of $5,547,653
and posted an increase in net asset value per Unit. The most
significant gains of approximately 13.4% were recorded in the
global interest rate futures markets from previously established
long positions in U.S. and European interest rate futures, as
prices trended higher throughout the quarter due to investors
seeking a safe haven from falling equity prices and increased
pessimism regarding a global economic recovery. Gains of
approximately 1.5% were recorded in the energy markets from long
positions in crude oil futures as prices trended higher on the
increasing possibility of military action against Iraq. Additional
gains of approximately 1.4% were recorded in the global stock
index futures markets, primarily during July and September, from
short positions in U.S. and European stock index futures as prices
weakened amid suspicions regarding corporate accounting practices

and global political and economic uncertainty. A portion of the
Partnership's overall gains was offset by losses of approximately
7.0% in the currency markets from previously established long
positions in the Swiss franc, Japanese yen, and euro relative to
the U.S. dollar as these currencies weakened against the dollar
due to the emphasis on a "strong dollar" policy by the Bush
Administration during July and the persistence of trendless price
activity during August and September. Additional losses of
approximately 1.3% were recorded in the metals markets from long
positions in gold futures as prices reversed lower during July. On
February 27, 2002, the Partnership received notification of a
preliminary entitlement to payment from the Sumitomo Copper
Litigation Settlement Administrator. The Partnership received
payment of this settlement award in the amount of $2,842,492 as of
August 31, 2002. Total expenses for the three months ended
September 30, 2002 were $620,612, resulting in net income of
$4,927,041. The net asset value of a Unit increased from
$3,159.95 at June 30, 2002 to $3,768.54 at September 30, 2002.

For the nine months ended September 30, 2002, the Partnership
recorded total trading revenues, including interest income, of
$7,611,223 and posted an increase in net asset value per Unit. The
most significant gains of approximately 14.8% were recorded in the
global interest rate futures markets from long positions in U.S.,
European, and Japanese interest rate futures as prices trended
higher during a majority of the second and third quarters due to

uncertainty regarding a global economic recovery. A portion of
the Partnership's overall gain was offset by losses of
approximately 1.8% recorded in the global stock index futures
markets from long positions in Nikkei 225 Index futures as
Japanese equity prices fluctuated from January through May amid
concerns regarding the stability of the yen. Total expenses for
the nine months ended September 30, 2002 were $1,812,190,
resulting in net income of $5,799,033. The net asset value of a
Unit increased from $3,045.84 at December 31, 2001 to $3,768.54 at
September 30, 2002.

For the Quarter and Nine Months Ended September 30, 2001
For the quarter ended September 30, 2001, the Partnership recorded
total trading revenues, including interest income, of $3,750,483
and posted an increase in net asset value per Unit. The most
significant gains of approximately 9.3% were experienced in the
global interest rate futures markets throughout the quarter from
long positions in short-term U.S. interest rate futures as prices
trended higher in anticipation and reaction to interest rate cuts
by the U.S. Federal Reserve and as investors sought a safe haven
from declining stock prices. In the metals markets, gains of
approximately 3.9% were recorded throughout the quarter from short
positions in aluminum, copper and nickel futures as base metal
prices trended lower as a result of increased supplies and weak
demand. In the global stock index futures markets, gains of
approximately 3.8% were recorded primarily during September from

short positions in S&P 500, DAX and Nikkei index futures as equity
prices moved sharply lower amid worries regarding global economic
uncertainty. These gains were partially offset by losses of
approximately 3.7% recorded in the currency markets primarily
during September from long positions in the Japanese yen as its
value relative to the U.S. dollar reversed lower following
surprise interventions by the Bank of Japan. In the energy
markets, losses of approximately 0.9% were experienced during July
and August from short crude oil futures positions as prices rose
amid an OPEC production cut, declining inventories and growing
tensions in the Middle East. Total expenses for the three months
ended September 30, 2001 were $635,356, resulting in net income of
$3,115,127. The net asset value of a Unit increased from
$2,902.51 at June 30, 2001 to $3,254.65 at September 30, 2001.

For the nine months ended September 30, 2001, the Partnership
recorded total trading revenues, including interest income, of
$3,861,798 and posted an increase in net asset value per Unit.
The most significant gains of approximately 12.8% were recorded in
the global interest rate futures markets primarily during the
third quarter from long positions in short-term U.S. interest rate
futures as prices trended higher in anticipation and reaction to
interest rate cuts by the U.S. Federal Reserve and as investors
sought a safe haven from declining stock prices. Additional gains
were recorded throughout the first quarter from long positions in
Japanese interest rate futures as prices moved higher amid weak

Japanese stock prices and disappointing economic data in that
country. In the global stock index futures markets, gains of
approximately 3.6% were recorded primarily during September from
short positions in S&P 500, DAX and Nikkei index futures as equity
prices moved sharply lower amid worries regarding global economic
uncertainty. In the metals markets, gains of approximately 2.0%
were recorded throughout the third quarter from short positions in
base metal futures as prices trended lower as a result of
increased supplies and weak demand. In the soft commodities
markets, gains of approximately 1.2% were recorded throughout a
majority of the first and second quarters from short cotton
futures positions as prices moved lower on weak export sales and
low demand. These gains were partially offset by losses of
approximately 5.4% recorded in the energy markets throughout the
first nine months of the year from positions in the crude oil
futures and its related products as a result of volatility in oil
prices due to a continually changing outlook for inventory,
supply, production and global demand. In the currency markets,
losses of approximately 5.3% were experienced primarily during the
first quarter from cross-rate transactions involving the euro
versus the Japanese yen and from positions in the British pound
relative to the U.S. dollar. Total expenses for the nine months
ended September 30, 2001 were $1,945,299, resulting in net income
of $1,916,499. The net asset value of a Unit increased from
$3,037.53 at December 31, 2000 to $3,254.65 at September 30, 2001.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK

Introduction
The Partnership is a commodity pool engaged primarily in the
speculative trading of futures, forwards, and options. 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 operating company, the risk of market-
sensitive instruments is central, not incidental, to the
Partnership's main business activities.

The futures, forwards, and options 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
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 on the basis of 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, forwards, and options are settled daily through
variation margin.

The Partnership's risk exposure in the market sectors traded by
the Trading Managers 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
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 Partner-
ship'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.
In other words, one-day VaR for a portfolio is a number such that
losses in this portfolio are estimated to exceed the VaR only one
day in 100.

VaR is calculated using historical simulation. Demeter uses
approximately four years of daily market data (1,000 observations)
and revalues its portfolio (using delta-gamma approximations) for
each of the historical market moves that occurred over this time
period. This generates a probability distribution of daily
'simulated profit and loss' outcomes. The VaR is the appropriate
percentile of this distribution. For example, the 99% one-day VaR
would represent the 10th worst outcome from Demeter's simulated
profit and loss series.

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 Managers in their daily risk management
activities. Please further note that VaR as described above may
not be comparable to similarly titled measures used by other
entities.

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 at September 30, 2002 and 2001.
At September 30, 2002 and 2001, the Partnership's total
capitalization was approximately $30 million and $29 million,
respectively.

Primary Market September 30, 2002 September 30, 2001
Risk Category Value at Risk Value at Risk

Currency (2.94)% (0.64)%
Interest Rate (1.15) (1.89)
Equity (0.14) (0.23)
Commodity (1.85) (1.29)
Aggregate Value at Risk (3.61)% (2.56)%

The VaR for a market category represents the one-day downside risk
for the aggregate exposures associated with this market category.
The aggregate VaR, listed above for the Partnership, represents
the aggregate VaR of the Partnership's open positions across all
the market categories, and is less than the sum of the VaRs for
all such market categories due to the diversification benefit
across asset classes.

The table above represents the VaR of the Partnership's open
positions at September 30, 2002 and 2001 only and is not

necessarily representative of either the historic or future risk
of an investment in the Partnership. Because the Partnership's
only business is the speculative trading of futures, forwards,
and options, 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 quarter-end 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
October 1, 2001 through September 30, 2002.

Primary Market Risk Category High Low Average
Currency (2.94)% (0.86)% (2.19)%

Interest Rate (1.78) (0.83) (1.24)

Equity (0.50) (0.14) (0.30)

Commodity (1.85) (0.68) (1.25)

Aggregate Value at Risk (3.61)% (2.23)% (2.95)%

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 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 caused by 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.

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 September 30, 2002 and 2001, and for the end of
the four quarterly reporting periods from October 1, 2001 through
September 30, 2002. 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 once 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 September 30, 2002, the Partnership's cash balance at Morgan
Stanley DW was approximately 83% 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, in relation to the Partnership's net
assets.

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 Managers
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 at September 30, 2002, by market sector. It may be
anticipated, however, that these market exposures will vary
materially over time.

Currency. The primary market exposure of the Partnership at
September 30, 2002 was to the currency complex. The Partnership's
currency exposure is to exchange rate fluctuations, primarily
fluctuations 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 a large
number of currencies, including cross-rates - i.e., positions
between two currencies other than the U.S. dollar. At September
30, 2002, the Partnership's major exposure was to outright U.S.
dollar positions. Outright positions consist of the U.S. dollar
vs. other currencies. These other currencies include 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 U.S.-based Partnership in expressing VaR in a
functional currency other than U.S. dollars.

Interest Rate. The second largest market exposure of the
Partnership at September 30, 2002 was to the global interest rate
complex. Exposure was primarily spread across German, U.S. and
Japanese 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
materially impact the Partnership's profitability. The
Partnership's interest rate exposure is generally to interest rate
fluctuations in the U.S. and the other G-7 countries. The G-7
countries consist of France, the 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 Australia interest
rates will remain the primary interest rate exposure of the
Partnership for the foreseeable future. The speculative futures
positions held by the Partnership may range from short to long-
term instruments. Consequently, changes in short, medium or long-
term interest rates may have an effect on the Partnership.

Equity. The Partnership's primary equity exposure at September
30, 2002 was to equity price risk in the G-7 countries. The stock
index futures traded by the Partnership are by law limited to
futures on broadly-based indices. At September 30, 2002, the
Partnership's primary exposures were to the S&P 500 (U.S.), DAX
(Germany) and Nikkei (Japan) stock indices. The Partnership is
primarily exposed to the risk of adverse price trends or static
markets in the U.S., European and Japanese indices. Static
markets would not cause major market changes but would make it
difficult for the Partnership to avoid being "whipsawed" into
numerous small losses.

Commodity.
Energy. At September 30, 2002, the Partnership's energy
exposure was shared primarily by futures contracts in crude
oil and its related products, and natural gas. Price
movements in these markets result from political developments
in the Middle East, weather patterns and other economic
fundamentals. Significant profits and losses, which have
been experienced in the past, are expected to continue to be
experienced in these markets. Natural gas has exhibited
volatility in prices resulting from weather patterns and
supply and demand factors and may continue in this choppy
pattern.

Metals. The Partnership's metals exposure at September 30,
2002 was to fluctuations in the price of precious metals,
such as gold and silver, and base metals, such as aluminum,
copper and nickel. Economic forces, supply and demand
inequalities, geopolitical factors and market expectations
influence price movements in these markets. The Trading
Managers, from time to time, take positions as market
opportunities develop. Demeter anticipates that the
Partnership will continue to be exposed to the precious and
base metals markets.

Soft Commodities and Agriculturals. At September 30, 2002,
the Partnership had exposure to the markets that comprise
these sectors. Most of the exposure was to the sugar, coffee
and soybean markets. Supply and demand inequalities, severe
weather disruption and market expectations affect price
movements in these markets.

Qualitative Disclosures Regarding Non-Trading Risk Exposure
The following was the only non-trading risk exposure of the
Partnership at September 30, 2002:

Foreign Currency Balances. The Partnership's primary foreign
currency balances at September 30, 2002 were in euros and
Japanese yen. The Partnership controls the non-trading risk
of these balances by regularly converting them back into U.S.
dollars upon liquidation of their respective positions.

Qualitative Disclosures Regarding Means of Managing Risk Exposure
The Partnership and the Trading Managers, separately, attempt 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 Trading Managers, each of whose strategies focus
on different market sectors and trading approaches, and monitoring
the performance of the Trading Managers daily. In addition, the
Trading Managers establish 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 Managers.

Item 4. CONTROLS AND PROCEDURES
(a) As of a date within 90 days of the filing date of this
quarterly report, the President and Chief Financial
Officer of the general partner, Demeter, have evaluated
the Partnership's disclosure controls and procedures,
and have judged such controls and procedures to be
effective.

(b) There have been no significant changes in the
Partnership's internal controls or in other factors
that could significantly affect these controls
subsequent to the date of their evaluation.

PART II. OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS
None.

Item 5. OTHER INFORMATION

Changes in Management

The following changes have been made to the Board of Directors and
Officers of Demeter Management Corporation, the general partner:

Mr. Robert E. Murray resigned the position of President of
Demeter. Mr. Murray, however, retains his position as Chairman
and as a Director of Demeter.

Mr. Jeffrey A. Rothman, age 41, was named President and a Director
of Demeter. Mr. Rothman is the Executive Director of Morgan
Stanley Managed Futures, responsible for overseeing all aspects of
the firm's managed futures department. He is also President and a
Director of Morgan Stanley Futures & Currency Management Inc.,
Morgan Stanley's internal commodity trading advisor. Mr. Rothman
has been with the Managed Futures Department for sixteen years and
most recently held the position of National Sales Manager,
assisting Branch Managers and Financial Advisors with their
managed futures education, marketing, and asset retention efforts.
Throughout his career, Mr. Rothman has helped with the
development, marketing, and administration of approximately 33

commodity pool investments. Mr. Rothman is an active member of
the Managed Funds Association and serves on its Board of
Directors.

Mr. Frank Zafran, age 47, will become a Director of Demeter and of
Morgan Stanley Futures & Currency Management Inc. once he has
registered with the National Futures Association as an associated
person of both firms, which registration is currently pending.
Mr. Zafran is an Executive Director of Morgan Stanley and in
September 2002, was named Chief Administrative Officer of Morgan
Stanley's Global Products and Services Division. Mr. Zafran joined
the firm in 1979 and has held various positions in Corporate
Accounting and the Insurance Department, including Senior
Operations Officer - Insurance Division, until his appointment in
2000 as Director of 401(k) Plan Services, responsible for all
aspects of 401(k) Plan Services including marketing, sales and
operations. Mr. Zafran received a B.S. degree in Accounting from
Brooklyn College, New York.

Mr. Raymond E. Koch resigned the position of Chief Financial
Officer of Demeter.

Mr. Jeffrey D. Hahn, age 45, was named Chief Financial Officer of
Demeter. Mr. Hahn began his career at Morgan Stanley in 1992 and
is currently an Executive Director responsible for the management
and supervision of the accounting, reporting, tax and finance

functions for the firm's private equity, managed futures, and
certain legacy real estate investing activities. He is also Chief
Financial Officer of Morgan Stanley Futures & Currency Management
Inc. From August 1984 through May 1992, Mr. Hahn held various
positions as an auditor at Coopers & Lybrand, specializing in
manufacturing businesses and venture capital organizations. Mr.
Hahn received his B.A. in economics from St. Lawrence University
in 1979, an M.B.A. from Pace University in 1984, and is a
Certified Public Accountant.

Item 6. EXHIBITS AND REPORTS ON FORM 8-K

(A) Exhibits

3.01 Limited Partnership Agreement of the Partnership, dated
as of December 7, 1983, as amended as of May 11, 1984, is
incorporated by reference to Exhibit 3.01 of the
Partnership's Annual Report on Form 10-K for the fiscal
year ended September 30, 1984 (File No. 0-13299).
10.01 Management Agreement among the Partnership, Demeter and
Sunrise Capital Management Inc. (formerly Sunrise
Commodities Inc.), dated as of November 15, 1983, is
incorporated by reference to Exhibit 10.03 of the
Partnership's Annual Report on Form 10-K for the fiscal
year ended September 30, 1984 (File No. 0-13299).
10.02 Management Agreement among the Partnership, Demeter and
Welton Investment Systems Corporation, dated as of July
1, 1996, is incorporated by reference to Exhibit 10.02 of
the Partnership's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997 (File No. 0-13299).
10.03 Dean Witter Cornerstone Funds Exchange Agreement, dated
as of May 31, 1984, is incorporated by reference to
Exhibit 10.04 of the Partnership's Annual Report on Form
10-K for the fiscal year ended September 30, 1984 (File
No. 0-13299).

10.04 Amended and Restated Customer Agreement between the
Partnership and Morgan Stanley DW Inc., dated as of June
22, 2000, is incorporated by reference to Exhibit 10.01
of the Partnership's Form 8-K (File No. 0-13299) filed
with the Securities and Exchange Commission on November
13, 2001.
10.05 Commodity Futures Customer Agreement between Morgan
Stanley & Co. Incorporated and the Partnership, and
acknowledged and agreed to by Morgan Stanley DW Inc.,
dated as of May 1, 2000, is incorporated by reference to
Exhibit 10.02 of the Partnership's Form 8-K (File No. 0-
13299) filed with the Securities and Exchange Commission
on November 13, 2001.
10.06 Customer Agreement between the Partnership and Morgan
Stanley & Co. International Limited, dated as of May 1,
2000, is incorporated by reference to Exhibit 10.04 of
the Partnership's Form 8-K (File No. 0-13299) filed with
the Securities and Exchange Commission on November 13,
2001.
10.07 Foreign Exchange and Options Master Agreement between
Morgan Stanley & Co. Incorporated and the Partnership,
dated as of April 30, 2000, is incorporated by reference
to Exhibit 10.05 of the Partnership's Form 8-K (File
No. 0-13299) filed with the Securities and Exchange
Commission on November 13, 2001.
10.09 Amendment to Management Agreement between the Partnership
and Welton Investment Corporation, dated as of November
30, 2000, is incorporated by reference to Exhibit 10.1 of
the Partnership's Form 8-K (File No. 0-13299) filed with
the Securities and Exchange Commission on January 3,
2001.
10.10 Amendment to Management Agreement between the Partnership
and Sunrise Capital Management, Inc., dated as of
November 30, 2000, is incorporated by reference to the
Partnership's Form 8-K (File No. 0-13299) filed with the
Securities and Exchange Commission on January 3, 2001.
10.11 Securities Account Control Agreement among the
Partnership, Morgan Stanley & Co. Incorporated, and
Morgan Stanley DW Inc., dated as of May 1, 2000, is
incorporated by reference to Exhibit 10.03 of the
Partnership's Form 8-K (File No. 0-13299) filed with the
Securities and Exchange Commission on November 13, 2001.

99.01 Certification of Periodic Report by Jeffrey A. Rothman,
President of Demeter Management Corporation, general
partner of the Partnership.
99.02 Certification of Periodic Report by Jeffrey D. Hahn,
Chief Financial Officer of Demeter Management
Corporation, general partner of the Partnership.

(B) Reports on Form 8-K - None.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

Dean Witter Cornerstone Fund III
(Registrant)

By: Demeter Management Corporation
(General Partner)

November 14, 2002 By:/s/Jeffrey D. Hahn _
Jeffrey D. Hahn
Chief Financial Officer

The General Partner which signed the above is the only party
authorized to act for the Registrant. The Registrant has no
principal executive officer, principal financial officer,
controller, or principal accounting officer and has no Board of
Directors.

CERTIFICATIONS

I, Jeffrey A. Rothman, President of Demeter Management
Corporation, the general partner of the Partnership, certify that:

1. I have reviewed this quarterly report on Form 10-Q of the
Partnership;

2. Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light
of the circumstances under which such statements were made,
not misleading with respect to the period covered by this
quarterly report;

3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report,
fairly present in all material respects the financial
condition, results of operations and cash flows of the
Partnership as of, and for, the periods presented in this
quarterly report;

4. Demeter's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-
14) for the Partnership and we have:

a) designed such disclosure controls and procedures to ensure
that material information relating to the Partnership,
including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during
the period in which this quarterly report is being
prepared;

b) evaluated the effectiveness of the Partnership's
disclosure controls and procedures as of a date within 90
days prior to the filing date of this quarterly report
(the "Evaluation Date"); and

c) presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation
Date;

5. Demeter's other certifying officers and I have disclosed,
based on our most recent evaluation, to the Partnership's
auditors and the audit committee of Demeter's board of
directors (or persons performing the equivalent function):

a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
Partnership's ability to record, process, summarize and
report financial data and have identified for the
Partnership's auditors any material weaknesses in internal
controls; and

b) any fraud, whether or not material, that involves
management or other employees who have a significant role
in the Partnership's internal controls; and

6. Demeter's other certifying officers and I have indicated in
this quarterly report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date
of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material
weaknesses.

Date: November 14, 2002 /s/ Jeffrey A. Rothman
Jeffrey A. Rothman
President, Demeter Management
Corporation, general partner
of the Partnership

CERTIFICATIONS

I, Jeffrey D. Hahn, Chief Financial Officer of Demeter Management
Corporation, the general partner of the Partnership, certify that:

1. I have reviewed this quarterly report on Form 10-Q of the
Partnership;

2. Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light
of the circumstances under which such statements were made,
not misleading with respect to the period covered by this
quarterly report;

3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report,
fairly present in all material respects the financial
condition, results of operations and cash flows of the
Partnership as of, and for, the periods presented in this
quarterly report;

4. Demeter's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-
14) for the Partnership and we have:

a) designed such disclosure controls and procedures to ensure
that material information relating to the Partnership,
including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during
the period in which this quarterly report is being
prepared;

b) evaluated the effectiveness of the Partnership's
disclosure controls and procedures as of a date within 90
days prior to the filing date of this quarterly report
(the "Evaluation Date"); and

c) presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation
Date;

5. Demeter's other certifying officers and I have disclosed,
based on our most recent evaluation, to the Partnership's
auditors and the audit committee of Demeter's board of
directors (or persons performing the equivalent function):

a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
Partnership's ability to record, process, summarize and
report financial data and have identified for the
Partnership's auditors any material weaknesses in internal
controls; and

b) any fraud, whether or not material, that involves
management or other employees who have a significant role
in the Partnership's internal controls; and

6. Demeter's other certifying officers and I have indicated in
this quarterly report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date
of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material
weaknesses.

Date: November 14, 2002 /s/ Jeffrey D. Hahn
Jeffrey D. Hahn
Chief Financial Officer,
Demeter Management
Corporation, general partner
of the Partnership

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Dean Witter Cornerstone
Fund III (the "Partnership") on Form 10-Q for the period ended
September 30, 2002 as filed with the Securities and Exchange
Commission on the date hereof (the "Report"), I, Jeffrey A.
Rothman, President, Demeter Management Corporation, general
partner of the Partnership, certify, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002, that:
(1) The Report fully complies with the requirements of Section
13 or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents,
in all material respects, the financial condition and
results of operations of the Partnership.

By: /s/ Jeffrey A. Rothman

Name: Jeffrey A. Rothman
Title: President

Date: November 14, 2002

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Dean Witter Cornerstone
Fund III (the "Partnership") on Form 10-Q for the period ended
September 30, 2002 as filed with the Securities and Exchange
Commission on the date hereof (the "Report"), I, Jeffrey D. Hahn,
Chief Financial Officer, Demeter Management Corporation, general
partner of the Partnership, certify, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of
Section 13 or 15(d) of the Securities Exchange Act of
1934; and
(2) The information contained in the Report fairly presents,
in all material respects, the financial condition and
results of operations of the Partnership.

By: /s/ Jeffrey D. Hahn

Name: Jeffrey D. Hahn
Title: Chief Financial Officer

Date: November 14, 2002