WITTER DEAN CORNERSTONE FUND III - 10-K Annual Report

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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, 2004 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 0-13299

DEAN WITTER CORNERSTONE FUND III

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

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

Demeter Management Corporation
330 Madison Avenue, 8th Floor
New York, NY 10017
(Address of principal executive offices) (Zip Code)

Registrant?s telephone number, including area code (212) 905-2700

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]

Indicate by check-mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes No 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 the last
business day of the registrant?s most recently completed second fiscal quarter:
$26,560,158 at June 30, 2004.

DOCUMENTS INCORPORATED BY REFERENCE
(See Page 1)

DEAN WITTER CORNERSTONE FUND III
INDEX TO ANNUAL REPORT ON FORM 10-K
DECEMBER 31, 2004

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
August 28, 1996, together with
the Supplement to the Prospectus
dated May 14, 1999 I

Annual Report to the Dean Witter
Cornerstone Funds II, III and IV
Limited Partners for the year
ended December 31, 2004 II, III, and IV

PART I
Item 1. BUSINESS

(a) General Development of Business. Dean Witter Cornerstone Fund
III (the "Partnership") is a New York limited partnership
organized in 1983 to engage in the speculative trading of futures
contracts, options on futures contracts, and forward contracts on
foreign currencies and other commodity interests. The Partnership
commenced trading operations on January 2, 1985. The Partnership
is one of the Dean Witter Cornerstone Funds, comprised of the
Partnership, Dean Witter Cornerstone Fund II, and Dean Witter
Cornerstone Fund IV (collectively, the ?Cornerstone Series?).

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
commodity brokers are Morgan Stanley & Co. Incorporated (?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 Graham Capital Management, L.P. and Sunrise
Capital Management, Inc. (individually, a ?Trading Manager?, or
collectively, the ?Trading Managers?).

The Partnership?s net asset value per unit of limited
partnership interest ("Unit(s)") at December 31, 2004 was
$4,218.77, representing an increase of 7.9 percent from the net
asset value per Unit of $3,909.31 at December 31, 2003. For a
more detailed description of the Partnership?s business, see
subparagraph (c).

(b) Financial Information about Segments. For financial infor-
mation reporting purposes, the Partnership is deemed to engage in
one industry segment, the speculative trading of futures,
forwards, and options on such contracts. 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, forwards, and options
pursuant to trading instructions provided by the Trading Managers.
For a detailed description of the different facets of the
Partnership's business, see those portions of the Partnership's
prospectus, dated August 28, 1996, (the "Prospectus") together
with the supplement to the Prospectus dated May 14, 1999 (the
?Supplement?) incorporated by reference in this Form 10-K, set
forth below.

Facets of Business
1. Summary 1. "Summary of the Prospectus"
(Pages 1-9 of the Prospec-
tus).

2. Commodities Market 2. "The Commodities Market"
(Pages 80-84 of the
Prospectus).

3. Partnership's Commodity 3. ?Investment Program, Use
Trading Arrangements and of Proceeds and Trading
Policies Policies" (Pages 45-47
of the Prospectus) and
?The Trading Managers?
(Pages 51-74 of the
Prospectus and Pages
S-20 ? S-32 of the
Supplement).

4. Management of the Part- 4. "The Cornerstone Funds?
nership (Pages 19-24 of the
Prospectus and Pages
S-2 ? S-5 of the Supple-
ment). ?The General
Partner? (Pages 77-79
of the Prospectus and
Pages S-32 ? S-34 of
the Supplement) and
?The Commodity Brokers?
(Pages 79-80 of the
Prospectus and Pages
S-34 ? S-36 of the
Supplement). ?The
Limited Partnership
Agreements? (Pages 86-
90 of the Prospectus).

5. Taxation of the Partner- 5. ?Material Federal Income
ship?s Limited Partners Tax Considerations" and
"State and Local Income
Tax Aspects" (Pages 92-
99 of the Prospectus and
Page S-37 of the Supple-
ment).

(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 futures, forwards, and options on
foreign exchanges.

(e) Available Information. The Partnership files annual reports
on Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K, and all amendments to these reports with the Securities
and Exchange Commission (?SEC?). You may read and copy any
document filed by the Partnership at the SEC?s Public Reference
Room at Room 1024, 450 Fifth Street, N.W., Washington, D.C.
20549. Please call the SEC at 1-800-SEC-0330 for information on
the Public Reference Room. The Partnership does not maintain an
internet website, however, the SEC maintains a website that
contains annual, quarterly, and current reports, proxy statements,
and other information that issuers (including the Partnership)
file electronically with the SEC. The SEC?s website address is
http://www.sec.gov.

Item 2. PROPERTIES
The Partnership?s executive and administrative offices are located
within the offices of Morgan Stanley DW. The Morgan Stanley DW

offices utilized by the Partnership are located at 330
Madison Avenue, 8th Floor, New York, NY 10017.

Demeter changed its address in August 2004 from 825 Third Avenue,
9th Floor, New York, NY 10022 to 330 Madison Avenue, 8th Floor,
New York, NY 10017.

Item 3. LEGAL PROCEEDINGS
None.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.

PART II

Item 5. MARKET FOR THE REGISTRANT'S PARTNERSHIP UNITS 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, 2004
was approximately 2,512.

(c) Distributions. No distributions have been made by the
Partnership since it commenced trading operations on January 2,
1985. 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 distributions of
Partnership?s profits.

(d) Use of Proceeds. The offering for the Partnership originally
commenced May 31, 1984 and was closed to new investors September
30, 1994. Units of the Partnership were sold afterwards solely
through ?exchanges? between existing investors within the
Cornerstone Series at 100% of net asset value per Unit. Effective
with the April 30, 2000 monthly closing, the exchange privilege
within the Cornerstone Series was terminated. However, limited
partners retained the ability to execute exchanges out of a

Cornerstone fund into other funds outside the Cornerstone
Series subject to certain restrictions set forth in the applicable
Limited Partnership Agreements. Morgan Stanley DW pays all
expenses in connection with the exchanging of Units without
reimbursement and therefore, 100% of the proceeds from exchanges
out of the Partnership are applied to the working capital of the
funds outside the Cornerstone Series receiving the exchange in.
Please refer to the "Investment Programs, Use of Proceeds and
Trading Policies" section of the Prospectus.

Item 6. SELECTED FINANCIAL DATA (in dollars)

Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION

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. Such
assets are used as margin to engage in trading and may be used as
margin solely for the Partnership?s trading. The assets are held
in either non-interest bearing bank accounts or in securities and
instruments permitted by the Commodity Futures Trading Commission
for investment of customer segregated or secured funds. 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. For the periods covered by
this report, illiquidity has not materially affected the
Partnership?s assets.

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

Capital Resources. The Partnership does not have, nor expects to
have, any capital assets. Redemptions of Units in the future will
affect the amount of funds available for investments in futures,

forwards, and options in subsequent periods. It is not
possible to estimate the amount, and therefore the impact, of
future outflows of Units.

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

Off-Balance Sheet Arrangements and Contractual Obligations. The
Partnership does not have any off-balance sheet arrangements, nor
does it have contractual obligations or commercial commitments to
make future payments that would affect its liquidity or capital
resources.

Results of Operations
General. The Partnership?s results depend on the Trading Managers
and the ability of each Trading Manager?s trading program(s) to
take advantage of price movements in the futures, forwards, and
options markets. The following presents a summary of the
Partnership?s operations for each of the three years in the period
ended December 31, 2004 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 during
the period in question. Past performance is no guarantee of
future results.

The Partnership?s results of operations set forth in the
financial statements are prepared in accordance with accounting
principles generally accepted in the United States of America,
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 trading
profit (loss)? for open (unrealized) contracts, and recorded as
?Realized trading profit (loss)? when open positions are closed
out. The sum of these amounts along with the ?Proceeds from
Litigation Settlement?, constitutes the Partnership?s trading
results. The market value of a futures contract is the
settlement price on the exchange on which that futures contract is
traded on a particular day. The value of foreign currency forward
contracts is based on the spot rate as of the close of business.
Interest income, as well as management fees, incentive
fees, and brokerage commissions 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 relating to the application of
critical accounting policies other than those presently used
could reasonably affect reported amounts.

The Partnership recorded total trading results including interest
totaling $4,341,373 and expenses totaling $2,212,638, resulting in
net income of $2,128,735 for the year ended December 31, 2004.
The Partnership?s net asset value per Unit increased from
$3,909.31 at December 31, 2003 to $4,218.77 at December 31, 2004.
Total redemptions for the year were $2,216,179 and the
Partnership?s ending capital was $27,909,326 at December 31, 2004,
a decrease of $87,444 from ending capital at December 31, 2003 of
$27,996,770.

The most significant trading gains of approximately 7.4% were
recorded in the energy markets from long futures positions in
crude oil and its related products as prices trended higher
throughout much of the year in response to low market supply,
falling inventory levels, and fears of terrorist attacks.
Additional gains of approximately 3.3% were recorded in the
metals markets, primarily during the first quarter, from
long futures positions in base metals, such as copper, as lower
supply and heightened demand from Asia caused prices to increase.
During March, long futures positions in silver benefited as
prices moved higher amid central bank demand triggered by lower
currency values. Gains of approximately 2.4% were recorded in
the agricultural markets from long futures positions in corn,
soybeans, and its related products as prices trended higher
during the first and third quarter amid growing U.S. exports and
heightened demand from Asia. Smaller gains of approximately 0.9%
recorded in the global stock index markets resulted primarily
during the first and fourth quarter of the year. During January,
long positions in U.S. stock index futures provided gains as
prices rallied on reports of strong company earnings. During
December, long U.S. equity index futures positions profited as
equity prices trended higher due to stabilizing oil prices,
strong corporate earnings, and positive investor sentiment
regarding the future of the global economy. A portion of the
Partnership?s overall gains for the year was offset by losses of
approximately 2.2% incurred in the currency markets during the
second and third quarter of the year. During the second quarter,
long positions in the Japanese yen versus the U.S. dollar
experienced losses as the U.S. dollar advanced following the
release of stronger-than-expected U.S. jobs data, while the yen
weakened amid Japanese government currency market intervention.
During the third quarter, short Japanese yen positions versus the
U.S. dollar incurred losses as the U.S. dollar?s value
declined amid fears of potential terrorist attacks, expanding
energy prices, and the release of weaker-than-expected economic
data. Short positions in the Japanese yen versus the U.S. dollar
also generated losses during December as the U.S. dollar?s value
depreciated against the yen amid beliefs that the Bush
administration took no action to hamper the decline in the U.S.
dollar. Long positions in the British pound versus the U.S.
dollar also produced losses as the U.S. dollar strengthened
during the third quarter amid upbeat market sentiment. Relatively
smaller Partnership losses of approximately 0.4% were recorded in
the global interest rate sector, primarily during the second
quarter, as long U.S. interest rate futures positions experienced
negative performance during April after prices reversed sharply
lower following the release of stronger-than-expected U.S. jobs
data. Short positions during May and June also experienced
losses as prices moved higher amid beliefs the U.S. Federal
Reserve would delay increasing interest rates in the face of
slower U.S. economic growth.

The Partnership recorded total trading results including interest
totaling $4,783,736 and expenses totaling $2,403,821, resulting
in net income of $2,379,915 for the year ended December 31, 2003.

The Partnership?s net asset value per Unit increased from
$3,592.21 at December 31, 2002 to $3,909.31 at December 31, 2003.
Total redemptions for the year were $2,223,369 and the
Partnership?s ending capital was $27,996,770 at December 31,
2003, an increase of $156,546 from ending capital at December 31,
2002 of $27,840,224.

The most significant trading gains of approximately 7.2% were
recorded in the currency markets, mainly throughout the fourth
quarter, from long positions in a variety of major and minor
currencies versus the U.S. dollar. A confluence of factors
including concerns regarding U.S. budget and trade deficits, a
dip in consumer confidence, an outbreak of Mad Cow Disease in the
U.S., and fears of a potential terrorist attack forced the U.S.
dollar to retreat. The Partnership?s largest currency sector
gains were achieved during January, May, and December from long
positions in the euro, British pound, Australian dollar, South
African rand, and New Zealand dollar versus the U.S. dollar.
Additional gains of approximately 5.4% were recorded in the
metals markets primarily during the fourth quarter from long
futures positions in base metals, such as copper and nickel, as
well as from long futures positions in precious metals, such as
gold. During October and December, industrial metals prices
rallied in response to growing investor sentiment that the global
economy was on the path to recovery as well as to increased

demand, especially from China. Meanwhile, gold soared as
investors sought a ?safe-haven? from the falling U.S. dollar and
an increased risk of terrorism. In the global equity markets,
gains of approximately 4.6% were achieved, again primarily during
the fourth quarter of the year. During October and December,
long U.S. equity index futures positions profited amid the
release of favorable economic data and increased confidence that
the global economic recovery was materializing. A portion of the
Partnership?s overall gains for the year was offset by losses of
approximately 3.0% in the global interest rate markets. Long
positions in European and U.S. interest rate futures suffered
losses during July as prices declined amid rising interest rates
and a rally in global equity prices prompted by renewed hope for
a global economic recovery. During September, short positions in
the same markets recorded losses as bond prices reversed higher
due to renewed skepticism regarding a global economic recovery
and lower equity prices. Further losses of approximately 2.1%
were incurred in the energy markets. During October, the
Partnership entered the month with short natural gas positions,
but these positions proved unprofitable as prices rallied during
the first part of the month. In response to rising natural gas
prices, the Partnership reversed its position from short to long,
only to see prices decline in the latter part of the month.
December also added to losses from short natural gas futures
positions. Additional losses were incurred from short crude oil

positions during September and October as prices moved
higher in response to supply fears primarily caused by
geopolitical tensions. Crude oil prices continued to trade in a
volatile fashion during November, moving in one direction for a
few days and then sharply reversing, resulting in additional
losses. Short natural gas futures positions supplied losses
during December.

The Partnership?s recorded total trading results including
interest totaling $6,926,335 and expenses totaling $2,565,686,
resulting in net income of $4,360,649 for the year ended December
31, 2002. The Partnership?s net asset value per Unit increased
from $3,045.84 at December 31, 2001 to $3,592.21 at December 31,
2002. Total redemptions for the year were $2,814,486 and the
Partnership?s ending capital was $27,840,224 at December 31,
2002, an increase of $1,546,163 from ending capital at December
31, 2001 of $26,294,061.

The most significant trading gains of approximately 15.6% were
recorded in the global interest rate futures markets from long
positions in U.S., Japanese, and European interest rate futures
as prices trended higher during the second and third quarter, as
well as in December, amid continued uncertainty in the equity
markets and negative economic data. Additional gains of
approximately 2.3% were recorded in the currency markets from

long positions in the euro and Swiss franc relative to the
U.S. dollar as the value of the U.S. dollar weakened during the
second quarter, as well as in December, amid investors? fears
concerning increased tensions in the Middle East and prolonged
uncertainty regarding the U.S. economy. A portion of the
Partnership?s overall gains was offset by losses of approximately
5.3% in the energy futures markets from long positions in crude
oil futures as prices reversed temporarily lower during April and
October amid the potential for reduced tensions between the U.S.
and Iraq. Additional losses were recorded from short crude oil
futures positions during December as prices rose on heightened
tensions with Iraq and continued labor unrest in Venezuela.
Additional losses of approximately 2.7% were recorded in the
global stock index futures markets from long positions in the
U.S. and Japanese stock index futures during January and February
as prices experienced a short-term upward move amid hopes for a
global economic recovery, only to retreat later in the year,
specifically in March and July, amid a flurry of geopolitical
concerns and continued economic uncertainty. Smaller losses of
approximately 2.6% were recorded in the metals futures markets
from positions in aluminum and copper futures as an uncertain
economic outlook resulted in trendless price activity among
industrial metals throughout most of the year.

For an analysis of unrealized gains and (losses) by
contract type and a further description of 2004 trading results,
refer to the Partnership?s Annual Report to Limited Partners for
the year ended December 31, 2004, 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.

Market Risk.
Financial Instruments. The Partnership is a party to financial
instruments with elements of off-balance sheet market and credit
risk. The Partnership trades futures contracts, options on
futures contracts, and forward contracts on foreign currencies
and other commodity interests. 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
Managers were unable to offset positions of the Partnership, the
Partnership could lose all of its assets and the limited partners
would realize a 100% loss.

In addition to the Trading Managers? internal controls, the
Trading Managers must comply with the Partnership?s trading
policies that include standards for liquidity and leverage that
must be maintained. The Trading Managers and Demeter monitor the
Partnership's trading activities to ensure compliance with the
trading policies and Demeter can require the Trading Managers to
modify positions of the Partnership if Demeter believes they
violate the Partnership's trading policies.

Credit Risk.
In addition to market risk, in entering into futures, 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
guarantor of the Partnership for futures, forwards, and options
contracts traded in the United States and most foreign exchanges
on which the Partnership trades is the clearinghouse associated
with such exchange. In general, a clearinghouse is backed by the
membership of the exchange and will act in the event of non-
performance by one of its members or one of its member?s
customers, which should significantly reduce this credit risk.
There is no assurance that a clearinghouse, exchange, or other
exchange member 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. In cases where the Partnership trades off-
exchange forward contracts with a counterparty, the sole recourse
of the Partnership will be the forward contract?s counterparty.

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. The commodity
brokers inform the Partnership, as with all their customers, of
its net margin requirements for all its existing open positions
and Demeter has installed a system which permits it to monitor
the Partnership?s potential net credit exposure, exchange by
exchange, by adding the unrealized trading gains on each
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 a minimum amount of diversification in the
Partnership?s trading, usually over several different products and
exchanges. Historically, the Partnership?s exposure to any one
exchange has typically amounted to only a small percentage of its
total net assets and on those relatively few occasions where the

Partnership?s credit exposure climbs above such level,
Demeter deals with the situation on a 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
Morgan Stanley DW, have determined to be creditworthy. The
Partnership presently deals with MS & Co. as the sole counterparty
on forward contracts.

For additional information, see the ?Financial Instruments?
section under ?Notes to Financial Statements? in the
Partnership?s Annual Report to Limited Partners for the year
ended December 31, 2004, which is incorporated by reference to
Exhibit 13.01 of this Form 10-K.

Inflation has not been a major factor in the Partnership?s
operations.

Item 7A.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 inherent to the primary business
activity of the Partnership.

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, factors that result in frequent
changes in the fair value of the Partnership?s open positions, and
consequently in its earnings, whether realized or unrealized, and
cash flow. Gains and losses on open positions of exchange-traded
futures, forwards, and options are settled daily through variation
margin. Gains and losses on off-exchange-traded forward currency
contracts are settled upon termination of the contract, however,
the Partnership is required to meet margin requirements equal to
the net unrealized loss on open contracts in the Partnership

accounts with the counterparty, which is accomplished by
daily maintenance of the cash balance in a custody account held at
Morgan Stanley DW for the benefit of MS & Co.

The Partnership?s total market risk may increase or decrease as
it is influenced by a wide variety of factors, including, but not
limited to, the diversification among the Partnership?s open
positions, the volatility present within the markets, and the
liquidity of the markets.

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 Partnership?s past performance is no guarantee of its future
results. Any attempt to numerically quantify the Partner-
ship?s market risk is limited by the uncertainty of its
speculative trading. The Partnership?s speculative trading and
use of leverage may cause future losses and volatility (i.e.,
?risk of ruin?) that far exceed the Partnership?s experiences to
date under the ?Partnership?s Value at Risk in Different Market

Sectors? section and significantly exceed the Value at Risk
(?VaR?) tables disclosed.

Limited partners will not be liable for losses exceeding the
current net asset value of their investment.

Quantifying the Partnership?s Trading Value at Risk

The following quantitative disclosures regarding the Partner-
ship?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 qualitative 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 and cash flow.

The Partnership?s risk exposure in the market sectors traded by
the Trading Managers is estimated below in terms of VaR. The
Partnership estimates VaR using a model based upon historical

simulation (with a confidence level of 99%) which involves
constructing a distribution of hypothetical daily changes in the
value of a trading portfolio. The VaR model takes into account
linear exposures to risks including 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 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, or one day in 100. VaR
typically does not represent the worst case outcome. 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.

The Partnership?s VaR computations are based on the risk
representation of the underlying benchmark for each instrument or

contract and do not distinguish between exchange and non-
exchange dealer-based instruments. They are also not based on
exchange and/or dealer-based maintenance margin requirements.

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 December 31, 2004 and 2003. At
December 31, 2004 and 2003, the Partnership?s total capital-
ization was approximately $28 million.

Primary Market December 31, 2004 December 31, 2003
Risk Category Value at Risk Value at Risk
Currency (2.49)% (1.46)%
Equity (2.46) (2.23)
Interest Rate (1.46) (0.36)
Commodity (0.81) (1.73)
Aggregate Value at Risk (3.58)% (3.19)%

The VaR for a market category represents the one-day downside risk
for the aggregate exposures associated with this market category.
The Aggregate Value at Risk listed above represents the 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.

Because the business of the Partnership 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, which could
positively or negatively materially impact market risk as
measured by VaR.

The table below supplements the December 31, 2004 VaR set forth
above by presenting the Partnership?s high, low, and average VaR,

as a percentage of total net assets for the four quarter-
end reporting periods from January 1, 2004 through December 31,
2004.

Primary Market Risk Category High Low Average
Currency (2.49)% (0.24)% (0.96)%
Equity (2.46) (0.38) (1.02)
Interest Rate (3.34) (0.70) (1.92)
Commodity (1.25) (0.49) (0.92)
Aggregate Value at Risk (3.58)% (1.17)% (2.65)%

Limitations on Value at Risk as an Assessment of Market Risk

VaR models permit estimation of a portfolio?s aggregate market
risk exposure, incorporating a range of varied market risks;
reflect risk reduction due to portfolio diversification or hedging
activities; and can cover a wide range of portfolio assets.
However, VaR risk measures should be viewed in light of the
methodology?s limitations, which include, but may not be limited
to 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 market fluctuations applied to current
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.

In addition, the VaR tables above, as well as the past
performance of the Partnership, give no indication of the
Partnership?s potential ?risk of ruin?.

The VaR tables provided 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, 2003 and for the four quarter-end
reporting periods during calendar year 2004. VaR is not
necessarily representative of the Partnership?s historic risk, nor
should it be used to predict 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. These balances and any market risk they may represent
are immaterial.

The Partnership also maintains a substantial portion
(approximately 88% as of December 31, 2004) of its available
assets in cash at Morgan Stanley DW. A decline in short-term
interest rates would 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 December 31, 2004, 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
December 31, 2004 was to the currency sector. 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
December 31, 2004, the Partnership?s major exposures were to the
euro, Japanese yen, Australian dollar, Swiss franc, and British
pound currency crosses, as well as 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 associated
with the Partnership?s currency trades will change significantly
in the future.

Equity. The second largest market exposure of the Partnership?s
at December 31, 2004 was to equity price risk in the G-7
countries. The G-7 countries consist of France, the U.S.,
Britain, Germany, Japan, Italy, and Canada. The stock index
futures traded by the Partnership are by law limited to futures
on broadly-based indices. At December 31, 2004, the
Partnership?s primary exposures were to the S&P 500 (U.S.), DAX
(Germany), and IBEX 35 (Spain) stock indices. The Partnership is
primarily exposed to the risk of adverse price trends or static
markets in the U.S., European, and Japanese stock indices.

Static markets would not cause major market changes, but
would make it difficult for the Partnership to avoid trendless
price movements, resulting in numerous small losses.

Interest Rate. The third largest market exposure of the
Partnership at December 31, 2004 was to the global interest rate
sector. Exposure was primarily spread across the European, 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.
However, the Partnership also takes futures positions in the
government debt of smaller nations - e.g., Australia. Demeter
anticipates that the G-7 countries and Australian interest rates
will remain the primary interest rate exposures 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.

Commodity.
Metals. At December 31, 2004, the Partnership had market
exposure in the metals sector. The Partnership's metals
exposure at December 31, 2004 was to fluctuations in the
price of base metals, such as aluminum, copper, and zinc,
and precious metals, such as gold. Economic forces, supply
and demand inequalities, geopolitical factors, and market
expectations influence price movements in these markets.
The Trading Managers utilize the trading system(s) to take
positions as market opportunities develop, and Demeter
anticipates that the Partnership will continue to do so.

Energy. At December 31, 2004, the Partnership had market
exposure in the energy sector. The Partnership?s energy
exposure at December 31, 2004 was primarily to futures
contracts in crude oil and its related products, and natural
gas. Price movements in these markets result from
geopolitical developments, particularly in the Middle East,
as well as 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
the future. Natural gas has exhibited volatility in prices
resulting from weather patterns and supply and demand
factors and will likely continue in this choppy pattern.

Soft Commodities and Agriculturals. At December 31,
2004, the Partnership had market exposure to the markets
that comprise these sectors. Most of the exposure was to
the coffee, corn, and soybean market. Supply and demand
inequalities, severe weather disruptions, 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 December 31, 2004:

Foreign Currency Balances. The Partnership?s primary foreign
currency balances at December 31, 2004 were in euros,
Australian dollars, Japanese yens, and Canadian dollars. The
Partnership controls the non-trading risk of foreign
currency 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 in a multi-manager Partnership,
each of whose strategies focus on different market sectors and

trading approaches, and by 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 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)

Quarter Total Trading Results Net Net Income/
Ended including interest Income/(Loss) (Loss) Per Unit

2004
March 31 $ 5,186,646 $ 4,574,366 $ 641.94
June 30 (4,086,272) (4,579,888) (655.86)
September 30 (704,902) (1,229,342) (177.69)
December 31 3,945,901 3,363,599 501.07

Total $ 4,341,373 $ 2,128,735 $ 309.46

2003
March 31 $ 2,243,073 $ 1,548,022 $ 196.95
June 30 892,439 308,362 40.36
September 30 (2,280,487) (2,878,047) (391.42)
December 31 3,928,711 3,401,578 471.21

Total $ 4,783,736 $ 2,379,915 $ 317.10

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

None.

Item 9A. CONTROLS AND PROCEDURES
(a) As of the end of the period covered by this annual report,
the President and Chief Financial Officer of Demeter, the
general partner of the Partnership, have evaluated the
effectiveness of the Partnership?s disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) of
the Exchange Act), and have judged such controls and
procedures to be effective.

(b) There have been no material changes during the period covered
by this annual report in the Partnership?s internal controls
or in other factors that could significantly affect these
controls subsequent to the date of their evaluation.

Management?s Report on Internal Control Over Financial Reporting
Demeter is responsible for the management of the Partnership.

Management of Demeter (?Management?) is responsible for
establishing and maintaining adequate internal control over
financial reporting. The internal control over financial
reporting is designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles.

The Partnership?s internal control over financial reporting
includes those policies and procedures that:

* Pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and
dispositions of the assets of the Partnership;

* Provide reasonable assurance that transactions are recorded
as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and
that the Partnership?s transactions are being made only in
accordance with authorizations of Management and directors;
and

* Provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of
the Partnership?s assets that could have a material effect on
the financial statements.

Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of the Partnership?s
internal control over financial reporting as of December 31,
2004. In making this assessment, Management used the criteria
set forth by the Committee of Sponsoring Organizations of the
Treadway Commission in Internal Control-Integrated Framework.

Based on our assessment and those criteria, Management
believes that the Partnership maintained effective internal
control over financial reporting as of December 31, 2004.

Deloitte & Touche LLP, the Partnership?s independent registered
public accounting firm, has issued an audit report on Management?s
assessment of the Partnership?s internal control over financial
reporting and on the effectiveness of the Partnership?s
internal control over financial reporting. This report, which
expresses unqualified opinions on Management?s assessment and on
the effectiveness of the Partnership?s internal control over
financial reporting, appears under ?Report of Independent
Registered Public Accounting Firm? in the Partnership?s Annual
Report to Limited Partners for the year ended December 31, 2004.

Item 9B. OTHER INFORMATION
The Board of Directors of Demeter, the general partner of the
registrant, approved the engagement of Ernst & Young LLP as the
registrant?s principal accountant for tax purposes. Ernst & Young
LLP was engaged by the registrant on November 1, 2004. Deloitte &
Touche LLP will continue as the registrant?s principal accountant
and audit the financial statements of the registrant.

There have been no material disagreements with Deloitte & Touche
LLP on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure.

PART III

Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

There are no directors or executive officers of the Partnership.
The Partnership is managed by Demeter.

Directors and Officers of the General Partner
The directors and executive officers of Demeter are as follows:

Mr. Jeffrey D. Hahn resigned his position as Chief Financial
Officer and Director of Demeter.

Mr. Jeffrey S. Swartz resigned his position as a Director of
Demeter.

Mr. Jeffrey A. Rothman, age 43, is the Chairman of the Board of
Directors and President of Demeter. Mr. Rothman is the Managing
Director of Morgan Stanley Managed Futures, responsible for
overseeing all aspects of the firm?s managed futures department.
Mr. Rothman has been with the managed futures department for
eighteen years. Throughout his career, Mr. Rothman has helped
with the development, marketing, and administration of
approximately 40 commodity pools. Mr. Rothman is an active member
of the Managed Funds Association and has recently served on its
Board of Directors. Mr. Rothman has a B.A. degree in Liberal Arts
from Brooklyn College, New York.

Mr. Richard A. Beech, age 53, is a Director of Demeter. Mr. Beech
has been associated with the futures industry for over 25 years.
He has been at Morgan Stanley DW since August 1984 where he is
presently an Executive Director and head of Futures, Forex &
Metals. 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
Morgan Stanley DW, Mr. Beech worked at two investment banking
firms in operations, research, managed futures, and sales
management. Mr. Beech has a B.S. degree in Business
Administration from Ohio State University and an M.B.A. degree
from Virginia Polytechnic Institute and State University.

Mr. Raymond A. Harris, age 48, is a Director of Demeter. Mr.
Harris is currently Managing Director and head of Client Solutions
for Morgan Stanley Individual Investor Group (?IIG?), a Board
Member of Morgan Stanley DW Inc., and Director of Morgan Stanley
Trust. Mr. Harris joined Morgan Stanley in 1982 and served in
financial and operational assignments for Dean Witter Reynolds.
In 1994, he joined the Discover Financial Services division,
leading restructuring and product development efforts. Mr. Harris
became Chief Administrative Officer for Morgan Stanley Investment
Management in 1999. In 2001, he was named head of Global Products
and Services for Investment Management. Mr. Harris has an M.B.A.

in Finance from the University of Chicago and a B.A. degree from
Boston College.

Mr. Frank Zafran, age 50, is a Director of Demeter. Mr. Zafran is
an Executive Director of Morgan Stanley and, in September 2002,
was named Chief Administrative Officer of Morgan Stanley?s Client
Solutions 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. Douglas J. Ketterer, age 39, was named a Director of Demeter.
Mr. Ketterer is a Managing Director and has had responsibility for
managing a number of departments at Morgan Stanley over the years,
most recently as head of the Investment Solutions Group, which is
comprised of a number of departments which offer products and
services through Morgan Stanley?s Individual Investor Group
(including Managed Futures, Alternative Investments, Insurance
Services, Personal Trust, Corporate Services, and others). Mr.
Ketterer joined the firm in 1990 in the Corporate Finance Division
as a part of the Retail Products Group. He later moved to the

origination side of Investment Banking, and then, after the merger
between Morgan Stanley and Dean Witter, served in the Product
Development Group at Morgan Stanley Dean Witter Advisors (now
known as Morgan Stanley Funds). From the summer of 2000 to the
summer of 2002, Mr. Ketterer served as the Chief Administrative
Officer for Morgan Stanley Investment Management, where he headed
the Strategic Planning & Administrative Group. Mr. Ketterer
received his M.B.A. from New York University?s Leonard N. Stern
School of Business and his B.S. in Finance from the University at
Albany?s School of Business.

Mr. Todd Taylor, age 42, is a Director of Demeter. Mr. Taylor
began his career with Morgan Stanley in June 1987 as a Financial
Advisor in the Dallas office. In 1995, he joined the Management
Training Program in New York and was appointed Branch Manager of
the Missouri and southern Illinois branch offices in 1997. Three
years later, in 2000, Mr. Taylor was appointed to a newly created
position, Director of IIG Learning and Development, before
becoming the Director of IIG Strategy in 2002. Most recently, Mr.
Taylor has taken on a new role as the High Net Worth Segment
Director. Mr. Taylor graduated from Texas Tech University with a
B.B.A. in Finance.

Mr. William D. Seugling, age 35, will become a Director of
Demeter. Mr. Seugling is a Managing Director at Morgan Stanley
and currently serves as Director of Client Solutions for U.S.
Private Wealth Management. Mr. Seugling joined Morgan Stanley in
June 1993 as an Associate in Equity Structured Products having
previously worked in research and consulting for Greenwich
Associates from October 1991 to June 1993. Since 1994, he has
focused broadly on analysis and solutions for wealthy individuals
and families culminating in his current role within the division.
He was named Vice President in 1996 and an Executive Director in
1999. Mr. Seugling graduated cum laude from Bucknell University
with a B.S. in Management and a concentration in Chemistry.

Ms. Louise M. Wasso-Jonikas, age 51, is a Director of Demeter.
Ms. Wasso-Jonikas is a Managing Director of Morgan Stanley and
the Director of Alternative Investments for the IIG of Morgan
Stanley. Ms. Wasso-Jonikas was Co-Founder, President, and Chief
Operating Officer of Graystone Partners, an objective consulting
firm, from 1993 to 1999, when Graystone was acquired by Morgan
Stanley. Prior to founding Graystone, Ms. Wasso-Jonikas was a
Senior Vice President at Bessemer Trust and opened their Chicago
office. She also was a Vice President at the Northern Trust in
their Wealth Management Services Group where she worked

exclusively with their largest private clients and family offices
throughout the U.S. and abroad, serving their broad investment
and custody needs. Ms. Wasso-Jonikas also worked as an equity
block trader with Goldman Sachs and with Morgan Stanley advising
and managing money for private clients. Ms. Wasso-Jonikas? focus
is on developing a robust external manager platform utilizing
alternative managers for Morgan Stanley?s IIG private clients as
well as overseeing some of the Morgan Stanley?s largest client
relationships. Ms. Wasso-Jonikas holds a B.A. in Economics from
Mount Holyoke College and an M.B.A in Finance from the University
of Chicago Graduate School of Business.

Mr. Kevin Perry, age 35, is the Chief Financial Officer of
Demeter. Mr. Perry currently serves as an Executive Director and
Controller within the IIG at Morgan Stanley. Mr. Perry joined
Morgan Stanley in October 2000 and is also Chief Financial
Officer of Morgan Stanley Trust National Association, Van Kampen
Funds Inc., and Morgan Stanley Distribution, Inc. Prior to
joining Morgan Stanley, Mr. Perry worked as an auditor and
consultant in the financial services practice of Ernst & Young
LLP from October 1991 to October 2000. Mr. Perry received a B.S.
degree in Accounting from the University of Notre Dame in 1991
and is a Certified Public Accountant.
All of the foregoing directors have indefinite terms.

The Audit Committee
The Partnership is operated by its general partner, Demeter, and
does not have an audit committee. The entire Board of Directors
of Demeter serves as the audit committee. None of the directors
are considered to be ?independent? as that term is used in Item
7(d)(3)(iv) of Schedule 14A under the Securities Exchange
Act of 1934, as amended. The Board of Directors of Demeter has
determined that Mr. Kevin Perry is the audit committee financial
expert.

Code of Ethics
The Partnership has not adopted a code of ethics that applies to
the Partnership?s principal executive officer, principal financial
officer, principal accounting officer or controller, or persons
performing similar functions. The Partnership is operated by its
general partner, Demeter. The President, Chief Financial Officer,
and each member of the Board of Directors of Demeter are employees
of Morgan Stanley and are subject to the code of ethics adopted by
Morgan Stanley, the text of which can be viewed on Morgan
Stanley?s website at http://www.morganstanley.com/ourcommitment/
codeofconduct.html.

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 - At December
31, 2004, 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, 2004,
Demeter owned 102.516 Units of general partnership interest,
representing a 1.55 percent interest in the Partnership.

(c) Changes in Control ? None.

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Refer to Note 2 - "Related Party Transactions" of "Notes to
Financial Statements,? in the accompanying Annual Report to
Limited Partners for the year ended December 31, 2004, which is
incorporated by reference to Exhibit 13.01 of this Form 10-K. In
its capacity as the Partnership's retail commodity broker, Morgan
Stanley DW received commodity brokerage commissions (paid and
accrued by the Partnership) of $1,084,092 for the year ended
December 31, 2004.

Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The Partnership pays accounting fees as discussed in Note 1 to the
Financial Statements, ?Operating Expenses,? in the Annual Report
to the Limited Partners for the year ended December 31, 2004.

(1) Audit Fees. The aggregate fees for professional services
rendered by Deloitte & Touche LLP in connection with their audit
of the Partnership?s financial statements and reviews of the
financial statements included in the Quarterly Reports on Form
10-Q, and in connection with statutory and regulatory filings for
the year ended December 31, 2004 were approximately $36,190 and
for the year ended December 31, 2003 were $34,403.

(2) Audit-Related Fees. There were no fees for assurance and
related services rendered by Deloitte & Touche LLP for the years
ended December 31, 2004 and 2003.

(3) Tax Fees. The aggregate fees for tax compliance services
rendered by Ernst & Young LLP were approximately $30,446 and
Deloitte & Touche LLP were $29,559 for the years ended December
31, 2004 and 2003, respectively.

(4) All Other Fees. None.

As of the date of this Report, the Board of Directors of Demeter
has not adopted pre-approval policies and procedures. As a
result, all services provided by Ernst & Young LLP and Deloitte &
Touche LLP must be directly pre-approved by the Board of Directors
of Demeter. Additionally, all services provided by Deloitte &
Touche LLP and Ernst & Young LLP must be communicated to Morgan
Stanley?s Audit Director.

PART IV
Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K

(a) 1. Listing of Financial Statements
The following financial statements and report of independent
registered public accounting firm, all appearing in the
accompanying Annual Report to Limited Partners for the year ended
December 31, 2004, are incorporated by reference to Exhibit 13.01
of this Form 10-K:
- - Report of Deloitte & Touche LLP, independent registered public
accounting firm, for the years ended December 31, 2004, 2003,
and 2002.

- - Statements of Financial Condition, including the Schedules of
Investments, as of December 31, 2004 and 2003.

- - Statements of Operations, Changes in Partners' Capital, and
Cash Flows for the years ended December 31, 2004, 2003, and
2002.

- - 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, 2004 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.

(c) Exhibits
Refer to Exhibit Index on Pages E-1 to E-3.

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 CORNERSTONE FUND III
(Registrant)

BY: Demeter Management Corporation,
General Partner

March 31, 2005 BY: /s/Jeffrey A. Rothman
Jeffrey A. Rothman,
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/ Jeffrey A. Rothman March 31, 2005
Jeffrey A. Rothman, President

/s/ Richard A. Beech March 31, 2005
Richard A. Beech, Director

/s/ Raymond A. Harris March 31, 2005
Raymond A. Harris, Director

/s/ Frank Zafran March 31, 2005
Frank Zafran, Director

/s/ Douglas J. Ketterer March 31, 2005
Douglas J. Ketterer, Director

/s/ Todd Taylor March 31, 2005
Todd Taylor, Director

/s/ William D. Seugling March 31, 2005
William D. Seugling, Director

/s/ Louise M. Wasso-Jonikas March 31, 2005
Louise M. Wasso-Jonikas, Director

/s/ Kevin Perry March 31, 2005
Kevin Perry, Chief Financial Officer

EXHIBIT INDEX
ITEM

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 Management Agreement among the Partnership, Demeter and
Graham Capital Management, L.P., dated as of January 1,
2003, 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 January
22, 2003.

10.04 Dean Witter Cornerstone Funds Exchange Agreement, dated
as of May 31, 1984, is incorporated by reference to
Exhibit 10.06 of the Partnership's Annual Report on
Form 10-K for the fiscal year ended September 30, 1984
(File No. 0-13299).

10.05 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.

10.06 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.

10.07 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.

10.08 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.

13.01 December 31, 2004 Annual Report to Limited Partners is
filed herewith.

31.01 Certification of President of Demeter Management
Corporation, the general partner of the Partnership
pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.

31.02 Certification of Chief financial Officer of Demeter
Management Corporation, the general partner of the
Partnership pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002.

32.01 Certification of President of Demeter Management
Corporation, the general partner of the Partnership,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.

32.02 Certification of Chief Financial Officer of Demeter
Management Corporation, the general partner of the
Partnership, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.

Cornerstone
Funds

December 31, 2004
Annual Report

[LOGO] Morgan Stanley

DEAN WITTER CORNERSTONE FUNDS

HISTORICAL FUND PERFORMANCE

Presented below is the percentage change in Net Asset Value per Unit from the
start of each calendar year each Fund has traded. Also provided is the
inception-to-date return and the compound annualized return since inception for
each Fund. Past performance is no guarantee of future results.

1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
FUND % % % % % % % % % % % % % % % % % % % %
- ---------------------------------------------------------------------------------------------------------------------------------

Cornerstone
Fund II... 20.1 (17.6) 71.6 0.1 (15.1) 47.9 11.0 (1.3) 7.8 (8.9) 26.5 11.5 18.1 12.5 (5.4) 11.5 (1.3) 13.8 0.4 (6.5)
- ---------------------------------------------------------------------------------------------------------------------------------
Cornerstone
Fund III.. 54.6 (8.0) 32.5 19.4 (11.4) 18.7 12.0 (11.1) (4.8) (10.0) 27.5 8.2 10.2 9.1 (6.8) (0.3) 0.3 17.9 8.8 7.9
- ---------------------------------------------------------------------------------------------------------------------------------
Cornerstone
Fund IV... -- -- 10.6 37.5 (14.1) 57.8 33.5 10.4 (9.1) (14.3) 23.0 13.0 38.4 6.8 (1.1) 14.7 15.9 12.3 13.6 (8.3)
(8 mos.)
- ---------------------------------------------------------------------------------------------------------------------------------

INCEPTION- COMPOUND
TO-DATE ANNUALIZED
RETURN RETURN
FUND % %
- ---------------------------------

Cornerstone
Fund II... 377.8 8.1
- ---------------------------------
Cornerstone
Fund III.. 332.7 7.6
- ---------------------------------
Cornerstone
Fund IV... 647.4 12.1

- ---------------------------------

DEMETER MANAGEMENT CORPORATION

330 Madison Avenue, 8th Floor
New York, NY 10017
Telephone (212) 905-2700

DEAN WITTER CORNERSTONE FUNDS
ANNUAL REPORT
2004

Dear Limited Partner:
This marks the twentieth annual report for Cornerstone Funds II and III and
the eighteenth annual report for Cornerstone Fund IV. The Net Asset Value per
Unit for each of the three Cornerstone Funds ("Fund(s)") as of December 31,
2004 was as follows:

% CHANGE
FUNDS N.A.V. FOR YEAR
- -------------------------------------------------------------------------------

Cornerstone Fund II $4,658.88 -6.5%
- -------------------------------------------------------------------------------
Cornerstone Fund III $4,218.77 7.9%
- -------------------------------------------------------------------------------
Cornerstone Fund IV $7,287.51 -8.3%
- -------------------------------------------------------------------------------

Since their inception in 1985, Cornerstone Funds II and III have increased by
377.8% (a compound annualized return of 8.1%) and 332.7% (a compound annualized
return of 7.6%), respectively. Since its inception in 1987, Cornerstone Fund IV
has increased by 647.4% (a compound annualized return of 12.1%).

Detailed performance information for each Fund is located in the body of the
financial report. For each Fund, we provide a trading results by sector chart
that portrays trading gains and trading losses for the year in each sector in
which the Fund participates. In the case of Cornerstone Fund IV, we provide the
trading gains and trading losses for the five major currencies in which the
Fund participates, and composite information for all other "minor" currencies
traded within the Fund.

The trading results by sector charts indicate the year's composite percentage
returns generated by the specific assets dedicated to trading within each
market sector in which each Fund participates. Please note that there is not an
equal amount of assets in each market sector, and the specific allocations of
assets by a Fund to each sector will vary over time within a predetermined
range. Below each chart is a description of the factors that influenced trading
gains and trading losses within each Fund during the year.

Should you have any questions concerning this report, please feel free to
contact Demeter Management Corporation, 330 Madison Avenue, 8th Floor, New
York, NY 10017 or your Morgan Stanley 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 no
guarantee of future results.

Sincerely,

/s/ Jeffrey A. Rothman
Jeffrey A. Rothman
Chairman of the Board of Directors and President
Demeter Management Corporation
General Partner for
Dean Witter Cornerstone Fund II
Dean Witter Cornerstone Fund III
Dean Witter Cornerstone Fund IV

CORNERSTONE FUND II

[CHART]

Year ended December 31, 2004
----------------------------
Currencies -11.62%
Interest Rates 2.95%
Stock Indices -6.42%
Energies 14.61%
Metals -4.32%
Agriculturals 0.06%

Note:Includes trading results and commissions but does not include other fees
or interest income.

FACTORS INFLUENCING ANNUAL TRADING LOSSES:
.. Losses were incurred in the currency markets during the first nine months of
the year. Losses during the first quarter resulted from short Japanese yen
positions as the yen reversed higher after the Bank of Japan relaxed its
plans to weaken the currency. During February, short South African rand
positions produced losses as the rand reversed upwards following the release
of positive South African economic data. During the second quarter, losses
stemmed from Japanese yen and European currency positions versus the U.S.
dollar as speculation for increases in U.S. interest rates and the release
of mixed U.S. economic data caused the U.S. dollar to trade inconsistently.
During the third quarter, long Japanese yen positions versus the U.S. dollar
resulted in losses as the U.S. dollar advanced amid a jump in July consumer
confidence data. Long positions in European currencies, in addition to the
South African rand, versus the U.S. dollar contributed to sector losses as
upbeat market sentiment strengthened the U.S. dollar's value during the
third quarter. Additional losses resulted during August from short Japanese
yen positions versus the U.S. dollar as the U.S. dollar's value declined due
to concerns for U.S. economic growth.

CORNERSTONE FUND II

.. Additional losses resulted in the global stock index sector, particularly
during May and July. During May, long positions in Japanese and European
equity index futures resulted in losses as equity prices declined amid
geopolitical concerns and expanding energy prices. Newly established short
positions in these markets, as well as in U.S. stock indices, experienced
additional losses as prices rebounded later in May. During July, long
positions in Japanese, European, and U.S. stock index futures generated
losses as prices reversed lower due to the release of disappointing U.S.
employment data. During September, short positions in European and U.S.
stock index futures experienced losses as global equity prices increased
amid tame U.S. inflation data and a better-than-expected jobless outlook.

.. Losses incurred in the metals markets resulted largely during the second and
third quarter of the year. During April, long positions in both precious and
base metals experienced losses amid fears of reduced demand from China
resulting from the U.S. dollar's sudden strength. During May, short futures
positions in gold and nickel produced losses as prices reversed upwards in
response to a lower U.S. dollar value. During July, long futures positions
in precious and base metals incurred losses as a slowdown in demand from
China and a rebound in the U.S. dollar's value negatively affected prices.
During September, short positions in precious and base metals generated
losses as prices moved higher in response to continued demand from China,
reports of lower-than-expected inventories and a decline in the U.S. dollar.

FACTORS INFLUENCING ANNUAL TRADING GAINS:
.. Gains were recorded in the energy markets from long futures positions in
crude oil and its related products as low market supply, falling inventory
levels, and fears of potential terrorist activity in the Middle East pushed
prices higher throughout a majority of the year.

.. Additional profits were established in the global interest rate markets as
long positions in European and U.S. interest rate futures benefited during
the first and fourth quarter from prospects for weak economic growth spurred
by fears of terrorism and higher energy prices.

.. Significantly smaller profits were achieved in the agricultural markets from
long futures positions in corn as growing U.S. exports and heightened demand
from Asia pushed prices higher during the first quarter.

CORNERSTONE FUND III

[CHART]

Year ended December 31, 2004
----------------------------
Currencies -2.16%
Interest Rates -0.40%
Stock Indices 0.86%
Energies 7.36%
Metals 3.30%
Agriculturals 2.42%

Note: Includes trading results and commissions but does not include other fees
or interest income.

FACTORS INFLUENCING ANNUAL TRADING GAINS:
.. The most significant gains were recorded in the energy markets from long
futures positions in crude oil and its related products as prices trended
higher throughout much of the year in response to low market supply, falling
inventory levels, and fears of terrorist attacks.

.. Additional gains were recorded in the metals markets, primarily during the
first quarter, from long futures positions in base metals, such as copper,
as lower supply and heightened demand from Asia caused prices to increase.
During March, long futures positions in silver benefited as prices moved
higher amid central bank demand triggered by lower currency values.

.. Gains were recorded in the agricultural markets from long futures positions
in corn, soybeans, and its related products as prices trended higher during
the first and third quarter amid growing U.S. exports and heightened demand
from Asia.

CORNERSTONE FUND III

.. Smaller gains recorded in the global stock index markets resulted primarily
during the first and fourth quarters of the year. During January, long
positions in U.S. stock index futures provided gains as prices rallied on
reports of strong company earnings. During December, long U.S. equity index
futures positions profited as equity prices trended higher due to
stabilizing oil prices, strong corporate earnings, and positive investor
sentiment regarding the future of the global economy.

FACTORS INFLUENCING ANNUAL TRADING LOSSES:
.. Losses were incurred in the currency markets during the second and third
quarter of the year. During the second quarter, long positions in the
Japanese yen versus the U.S. dollar experienced losses as the U.S. dollar
advanced following the release of stronger-than-expected U.S. jobs data,
while the yen weakened amid Japanese government currency market
intervention. During the third quarter, short Japanese yen positions versus
the U.S. dollar incurred losses as the U.S. dollar's value declined amid
fears of potential terrorist attacks, expanding energy prices, and the
release of weaker-than-expected economic data. Short positions in the
Japanese yen versus the U.S. dollar also generated losses during December as
the U.S. dollar's value depreciated against the yen amid beliefs that the
Bush administration took no action to hamper the decline in the U.S. dollar.
Long positions in the British pound versus the U.S. dollar also produced
losses as the U.S. dollar strengthened during the third quarter amid upbeat
market sentiment.

.. Relatively smaller losses were recorded in the global interest rate sector,
primarily during the second quarter, as long U.S. interest rate futures
positions experienced negative performance during April after prices
reversed sharply lower following the release of stronger-than-expected U.S.
jobs data. Short positions during May and June also experienced losses as
prices moved higher amid beliefs the U.S. Federal Reserve would delay
increasing interest rates in the face of slower U.S. economic growth.

CORNERSTONE FUND IV

[CHART]

Year ended December 31, 2004
----------------------------
Australian dollar -0.10%
British pound -4.71%
Euro 6.53%
Japanese yen -9.69%
Swiss franc 2.33%
Minor Currencies 1.35%

Note:Includes trading results and commissions but does not include other fees
or interest income.
Minor currencies may include, but are not limited to, the South African
rand, Thai baht, Singapore dollar, Mexican peso, New Zealand dollar,
Polish zloty, Brazilian real, and Norwegian krona.

FACTORS INFLUENCING ANNUAL TRADING LOSSES:
.. The most significant losses were recorded from positions in the Japanese yen
versus the U.S. dollar. Short yen positions against the U.S. dollar during
March recorded losses as the yen reversed higher due to speculation the Bank
of Japan was relaxing its efforts to weaken the yen. After reversing to long
yen positions, the U.S. dollar surged upwards against most currencies during
April following the release of stronger-than-expected U.S. jobs data,
thereby, causing losses. The yen also came under pressure from weakening
efforts undertaken by the Japanese government. Short yen positions incurred
losses during May as the U.S. dollar's value declined amid fears of
potential terrorist attacks, expanding energy prices, and the release of
weaker-than-expected economic data. During June, short yen positions
experienced further losses due to the yen's rise prompted by
better-than-anticipated improvements in Japanese economic data. The yen
continued its rise later in the month in response to speculation that the
Bank of Japan would move to raise interest rates amid further confirmation
that Japan's economic recovery was on track. During August and September,
short yen positions also experienced losses as the U.S. dollar's value
declined under pressure from concerns for the rate of U.S. economic growth,
soft economic data, and record-high oil prices. Finally, long yen positions
incurred losses during December as the yen's value

CORNERSTONE FUND IV

declined early in the month due to weak Japanese machinery orders and
temporary U.S. dollar strength.

.. Additional losses resulted from positions in the British pound, primarily
during the fourth quarter. During both October and November, short pound
positions generated losses as the pound's value reversed higher amid a
decline in the U.S. dollar prompted by higher oil prices and concerns for
the growing U.S. Current-Account deficit. During December, long pound
positions recorded losses as the pound's value declined due to
weaker-than-expected U.K. economic data and the releases of dovish minutes
from the Bank of England's December meeting, which reflected the possibility
for future interest rate cuts.

.. Losses were also experienced from short positions in the Mexican peso versus
the U.S. dollar, primarily during the first quarter, as the peso reversed
higher in response to encouraging signs of a recovery in the Mexican economy.

.. Long positions in the Norwegian krona versus the U.S. dollar incurred
losses, primarily during the second and third quarter, as the value of the
U.S. dollar temporarily moved higher in response to growing confidence in
the U.S. economy.

.. Positions in the South African rand versus the U.S. dollar also incurred
losses during the first nine months of the year. During January and
February, long rand positions declined amid expectations for weaker gold
prices caused by improvements in the global economy. During April, long
South African rand positions versus the U.S. dollar experienced losses as
the U.S. dollar's value moved higher amid economic optimism. During May,
short South African rand positions incurred losses as the commodity-linked
currency reversed higher in response to rising gold prices. During July, the
U.S. dollar's upward reversal was prompted by upbeat market sentiment.
During August, long rand positions experienced further losses as the rand's
value moved lower due to a reduction in interest rates by the South African
Reserve Bank.

FACTORS INFLUENCING ANNUAL TRADING GAINS:
.. Gains were achieved from long positions in the euro, Swiss franc, and Polish
zloty versus the U.S. dollar primarily during the fourth quarter. The U.S.
dollar's value trended lower throughout the quarter amid rising oil prices,
reports of weaker-than-expected economic data, growing U.S. Current-Account
deficits, and the investment community's perception that the Bush
administration would not move to intervene in the U.S. dollar's decline.

.. Additional gains resulted from long positions in the Brazilian real and New
Zealand dollar versus the U.S. dollar as both foreign currencies benefited
from a weaker U.S. dollar during the fourth quarter. Additionally, the New
Zealand dollar's value moved higher as it was propelled by stronger gold
prices.

DEAN WITTER CORNERSTONE FUNDS

MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Demeter Management Corporation ("Demeter"), the general partner of Dean
Witter Cornerstone Fund II, Dean Witter Cornerstone Fund III and Dean Witter
Cornerstone Fund IV (collectively, the "Partnerships"), is responsible for the
management of the Partnerships.

Management of Demeter ("Management") is responsible for establishing and
maintaining adequate internal control over financial reporting. The internal
control over financial reporting is designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally
accepted accounting principles.

The Partnerships' internal control over financial reporting includes those
policies and procedures that:

.. Pertain to the maintenance of records that, in reasonable detail, accurately
and fairly reflect the transactions and dispositions of the assets of the
Partnerships;

.. Provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally
accepted accounting principles, and that the Partnerships' transactions are
being made only in accordance with authorizations of Management and
directors; and

.. Provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the Partnerships' assets
that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of each Partnership's internal control
over financial reporting as of December 31, 2004. In making this assessment,
Management used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission in Internal Control--Integrated
Framework. Based on our assessment and those criteria, Management believes that
each Partnership maintained effective internal control over financial reporting
as of December 31, 2004.

Deloitte & Touche LLP, the Partnerships' independent registered public
accounting firm, has issued an audit report on Management's assessment of the
Partnerships' internal control over financial reporting and on the
effectiveness of the Partnerships' internal control over financial reporting.
This report, which expresses unqualified opinions on Management's assessment
and on the effectiveness of the Partnerships' internal control over financial
reporting, appears under "Report of Independent Registered Public Accounting
Firm" on the following page.

New York, New York
March 11, 2005

DEAN WITTER CORNERSTONE FUNDS

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Limited Partners and the General Partner of
Dean Witter Cornerstone Fund II
Dean Witter Cornerstone Fund III
Dean Witter Cornerstone Fund IV:

We have audited management's assessment, included in the accompanying
Management's Report on Internal Control Over Financial Reporting, that Dean
Witter Cornerstone Fund II, Dean Witter Cornerstone Fund III and Dean Witter
Cornerstone Fund IV (collectively, the "Partnerships") maintained effective
internal control over financial reporting as of December 31, 2004, based on
criteria established in Internal Control--Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission. The
Partnerships' management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting. Our responsibility is to express an
opinion on management's assessment and an opinion on the effectiveness of the
Partnerships' internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of internal
control over financial reporting, evaluating management's assessment, testing
and evaluating the design and operating effectiveness of internal control, and
performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our
opinions.

A company's internal control over financial reporting is a process designed
by, or under the supervision of, the company's principal executive and
principal financial officers, or persons performing similar functions, and
effected by the company's board of directors, management, and other personnel
to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company's internal
control over financial reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly

reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of management and
directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition
of the company's assets that could have a material effect on the financial
statements.

Because of the inherent limitations of internal control over financial
reporting, including the possibility of collusion or improper management
override of controls, material misstatements due to error or fraud may not be
prevented or detected on a timely basis. Also, projections of any evaluation of
the effectiveness of the internal control over financial reporting to future
periods are subject to the risk that the controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.

In our opinion, management's assessment that the Partnerships maintained
effective internal control over financial reporting as of December 31, 2004, is
fairly stated, in all material respects, based on the criteria established in
Internal Control--Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Also in our opinion, the Partnerships
maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2004, based on the criteria established in
Internal Control--Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the financial statements as of and
for the year ended December 31, 2004 of the Partnerships and our report dated
March 11, 2005 expressed an unqualified opinion on those financial statements.

/s/ Deloitte & Touche LLP

New York, New York
March 11, 2005

DEAN WITTER CORNERSTONE FUNDS

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Limited Partners and the General Partner of
Dean Witter Cornerstone Fund II
Dean Witter Cornerstone Fund III
Dean Witter Cornerstone Fund IV:

We have audited the accompanying statements of financial condition of Dean
Witter Cornerstone Fund II, Dean Witter Cornerstone Fund III and Dean Witter
Cornerstone Fund IV (collectively, the "Partnerships"), including the schedules
of investments, as of December 31, 2004 and 2003, and the related statements of
operations, changes in partners' capital, and cash flows for each of the three
years in the period ended December 31, 2004. These financial statements are the
responsibility of the Partnerships' management. Our responsibility is to
express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, such financial statements present fairly, in all material
respects, the financial position of Dean Witter Cornerstone Fund II, Dean
Witter Cornerstone Fund III and Dean Witter Cornerstone Fund IV at December 31,
2004 and 2003, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 2004, in conformity
with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the effectiveness of the
Partnerships' internal control over financial reporting as of December 31,
2004, based on the criteria established in Internal Control--Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated March 11, 2005 expressed an unqualified opinion
on management's assessment of the effectiveness of the Partnerships' internal
control over financial reporting and an unqualified opinion on the
effectiveness of the Partnerships' internal control over financial reporting.

/s/ Deloitte & Touche LLP

New York, New York
March 11, 2005

DEAN WITTER CORNERSTONE FUND II

STATEMENTS OF FINANCIAL CONDITION

DECEMBER 31,
----------------------
2004 2003
---------- ----------
$ $

ASSETS
Equity in futures interests trading accounts:
Cash 16,679,277 20,927,464

Net unrealized gain on open contracts (MS&Co.) 2,020,502 796,998
Net unrealized gain (loss) on open contracts (MSIL) (9,769) 501,462
---------- ----------
Total net unrealized gain on open contracts 2,010,733 1,298,460
---------- ----------
Total Trading Equity 18,690,010 22,225,924
Due from Morgan Stanley DW 62,388 62,699
Interest receivable (Morgan Stanley DW) 27,129 13,072
---------- ----------
Total Assets 18,779,527 22,301,695
========== ==========

LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES
Redemptions payable 57,887 141,402
Accrued management fees 54,665 64,913
Accrued administrative expenses 37,292 45,971
---------- ----------
Total Liabilities 149,844 252,286
---------- ----------
PARTNERS' CAPITAL
Limited Partners (3,898.182 and 4,325.789 Units,
respectively) 18,161,153 21,548,446
General Partner (100.567 Units) 468,530 500,963
---------- ----------
Total Partners' Capital 18,629,683 22,049,409
---------- ----------
Total Liabilities and Partners' Capital 18,779,527 22,301,695
========== ==========
NET ASSET VALUE PER UNIT 4,658.88 4,981.39
========== ==========

STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
2004 2003 2002
---------- ---------- ----------
$ $ $

INVESTMENT INCOME
Interest income (Morgan Stanley DW) 208,174 197,038 292,709
---------- ---------- ----------

EXPENSES
Brokerage commissions (Morgan Stanley DW) 1,104,683 1,373,338 1,196,563
Management fees 672,937 843,500 798,116
Transaction fees and costs 83,591 106,566 133,591
Common administrative expenses 56,000 48,477 59,809
Incentive fees 2,250 9,461 41,877
---------- ---------- ----------
Total Expenses 1,919,461 2,381,342 2,229,956
---------- ---------- ----------

NET INVESTMENT LOSS (1,711,287) (2,184,304) (1,937,247)
---------- ---------- ----------

TRADING RESULTS
Trading profit (loss):
Realized (545,606) 3,071,019 4,300,258
Net change in unrealized 712,273 (752,680) 511,624
---------- ---------- ----------
166,667 2,318,339 4,811,882
Proceeds from Litigation Settlement 755 -- 76,613
---------- ---------- ----------
Total Trading Results 167,422 2,318,339 4,888,495
---------- ---------- ----------

NET INCOME (LOSS) (1,543,865) 134,035 2,951,248
========== ========== ==========

NET INCOME (LOSS) ALLOCATION:
Limited Partners (1,511,432) 125,757 2,880,472
General Partner (32,433) 8,278 70,776

NET INCOME (LOSS) PER UNIT:
Limited Partners (322.51) 18.14 602.86
General Partner (322.51) 18.14 602.86

The accompanying notes are an integral part of these financial statements.

DEAN WITTER CORNERSTONE FUND III

STATEMENTS OF FINANCIAL CONDITION

DECEMBER 31,
---------------------
2004 2003
---------- ----------
$ $

ASSETS
Equity in futures interests trading accounts:
Cash 27,879,272 25,869,355

Net unrealized gain on open contracts (MS&Co.) 372,392 1,572,599
Net unrealized gain on open contracts (MSIL) 89,136 889,391
---------- ----------
Total net unrealized gain on open contracts 461,528 2,461,990
---------- ----------
Total Trading Equity 28,340,800 28,331,345
Interest receivable (Morgan Stanley DW) 41,296 16,293
Due from Morgan Stanley DW 15,120 --
---------- ----------
Total Assets 28,397,216 28,347,638
========== ==========

LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES
Redemptions payable 285,744 119,105
Accrued administrative expenses 119,670 149,518
Accrued management fees 82,476 82,245
---------- ----------
Total Liabilities 487,890 350,868
---------- ----------
PARTNERS' CAPITAL
Limited Partners (6,512.996 and 7,059.053 Units,
respectively) 27,476,835 27,596,004
General Partner (102.516 Units) 432,491 400,766
---------- ----------
Total Partners' Capital 27,909,326 27,996,770
---------- ----------
Total Liabilities and Partners' Capital 28,397,216 28,347,638
========== ==========
NET ASSET VALUE PER UNIT 4,218.77 3,909.31
========== ==========

STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
2004 2003 2002
---------- ---------- ----------
$ $ $

INVESTMENT INCOME
Interest income (Morgan Stanley DW) 306,275 233,160 337,401
---------- ---------- ----------

EXPENSES
Brokerage commissions (Morgan Stanley DW) 1,084,092 1,257,269 1,386,685
Management fees 982,868 998,731 903,361
Common administrative expenses 88,000 78,892 98,459
Transaction fees and costs 57,678 68,929 177,181
---------- ---------- ----------
Total Expenses 2,212,638 2,403,821 2,565,686
---------- ---------- ----------

NET INVESTMENT LOSS (1,906,363) (2,170,661) (2,228,285)
---------- ---------- ----------

TRADING RESULTS
Trading profit (loss):
Realized 6,007,562 3,641,193 2,266,403
Net change in unrealized (2,000,462) 909,383 1,480,039
---------- ---------- ----------
4,007,100 4,550,576 3,746,442
Proceeds from Litigation Settlement 27,998 -- 2,842,492
---------- ---------- ----------
Total Trading Results 4,035,098 4,550,576 6,588,934
---------- ---------- ----------

NET INCOME 2,128,735 2,379,915 4,360,649
========== ========== ==========

NET INCOME ALLOCATION:
Limited Partners 2,097,010 2,339,613 4,283,008
General Partner 31,725 40,302 77,641

NET INCOME PER UNIT:
Limited Partners 309.46 317.10 546.37
General Partner 309.46 317.10 546.37

The accompanying notes are an integral part of these financial statements.

DEAN WITTER CORNERSTONE FUND IV

STATEMENTS OF FINANCIAL CONDITION

DECEMBER 31,
----------------------
2004 2003
---------- -----------
$ $

ASSETS
Equity in futures interests trading accounts:
Cash 89,668,535 110,416,089

Net unrealized gain on open contracts (MS&Co.) 6,347,857 3,046,277
---------- -----------
Total Trading Equity 96,016,392 113,462,366
Interest receivable (Morgan Stanley DW) 122,840 61,521
Due from Morgan Stanley DW 32,362 --
---------- -----------
Total Assets 96,171,594 113,523,887
========== ===========

LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES
Redemptions payable 801,350 567,382
Accrued management fees 280,141 330,595
Accrued administrative expenses 123,214 177,019
Accrued incentive fee -- 6,682
---------- -----------
Total Liabilities 1,204,705 1,081,678
---------- -----------
PARTNERS' CAPITAL
Limited Partners (12,873.981 and 13,997.351 Units,
respectively) 93,819,259 111,191,238
General Partner (157.479 Units) 1,147,630 1,250,971
---------- -----------
Total Partners' Capital 94,966,889 112,442,209
---------- -----------
Total Liabilities and Partners' Capital 96,171,594 113,523,887
========== ===========
NET ASSET VALUE PER UNIT 7,287.51 7,943.73
========== ===========

STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
2004 2003 2002
---------- ---------- ----------
$ $ $

INVESTMENT INCOME
Interest income (Morgan Stanley DW) 969,606 858,078 1,290,361
---------- ---------- ----------

EXPENSES
Management fees 3,269,250 3,904,764 3,640,869
Brokerage commissions (Morgan Stanley DW) 2,978,359 3,456,636 3,568,609
Common administrative expenses 178,000 156,630 195,738
Incentive fees (6,682) 2,307,973 1,886,229
---------- ---------- ----------
Total Expenses 6,418,927 9,826,003 9,291,445
---------- ---------- ----------

NET INVESTMENT LOSS (5,449,321) (8,967,925) (8,001,084)
---------- ---------- ----------

TRADING RESULTS
Trading profit (loss):
Realized (7,816,724) 26,693,128 20,928,554
Net change in unrealized 3,301,580 (3,788,611) (948,478)
---------- ---------- ----------
Total Trading Results (4,515,144) 22,904,517 19,980,076
---------- ---------- ----------

NET INCOME (LOSS) (9,964,465) 13,936,592 11,978,992
========== ========== ==========

NET INCOME (LOSS) ALLOCATION:
Limited Partners (9,861,124) 13,766,843 11,815,072
General Partner (103,341) 169,749 163,920

NET INCOME (LOSS) PER UNIT:
Limited Partners (656.22) 948.41 766.38
General Partner (656.22) 948.41 766.38

The accompanying notes are an integral part of these financial statements.

DEAN WITTER CORNERSTONE FUND II

STATEMENTS OF CHANGES IN PARTNERS' CAPITAL

FOR THE YEARS ENDED DECEMBER 31, 2004, 2003, AND 2002

UNITS OF
PARTNERSHIP LIMITED GENERAL
INTEREST PARTNERS PARTNER TOTAL
----------- ---------- -------- ----------
$ $ $

Partners' Capital,
December 31, 2001 5,205.441 22,185,827 511,909 22,697,736
Net income -- 2,880,472 70,776 2,951,248
Redemptions (474.283) (2,167,076) -- (2,167,076)
--------- ---------- -------- ----------
Partners' Capital,
December 31, 2002 4,731.158 22,899,223 582,685 23,481,908
Net income -- 125,757 8,278 134,035
Redemptions (304.802) (1,476,534) (90,000) (1,566,534)
--------- ---------- -------- ----------
Partners' Capital,
December 31, 2003 4,426.356 21,548,446 500,963 22,049,409
Net loss -- (1,511,432) (32,433) (1,543,865)
Redemptions (427.607) (1,875,861) -- (1,875,861)
--------- ---------- -------- ----------
Partners' Capital,
December 31, 2004 3,998.749 18,161,153 468,530 18,629,683
========= ========== ======== ==========

DEAN WITTER CORNERSTONE FUND III

STATEMENTS OF CHANGES IN PARTNERS' CAPITAL

FOR THE YEARS ENDED DECEMBER 31, 2004, 2003, AND 2002

UNITS OF
PARTNERSHIP LIMITED GENERAL
INTEREST PARTNERS PARTNER TOTAL
----------- ---------- -------- ----------
$ $ $
Partners' Capital,
December 31, 2001 8,632.784 25,861,238 432,823 26,294,061
Net income -- 4,283,008 77,641 4,360,649
Redemptions (882.609) (2,814,486) -- (2,814,486)
--------- ---------- -------- ----------
Partners' Capital,
December 31, 2002 7,750.175 27,329,760 510,464 27,840,224
Net income -- 2,339,613 40,302 2,379,915
Redemptions (588.606) (2,073,369) (150,000) (2,223,369)
--------- ---------- -------- ----------
Partners' Capital,
December 31, 2003 7,161.569 27,596,004 400,766 27,996,770
Net income -- 2,097,010 31,725 2,128,735
Redemptions (546.057) (2,216,179) -- (2,216,179)
--------- ---------- -------- ----------
Partners' Capital,
December 31, 2004 6,615.512 27,476,835 432,491 27,909,326
========= ========== ======== ==========

The accompanying notes are an integral part of these financial statements.

DEAN WITTER CORNERSTONE FUND IV

STATEMENTS OF CHANGES IN PARTNERS' CAPITAL

FOR THE YEARS ENDED DECEMBER 31, 2004, 2003, AND 2002

UNITS OF
PARTNERSHIP LIMITED GENERAL
INTEREST PARTNERS PARTNER TOTAL
----------- ----------- --------- -----------
$ $ $

Partners' Capital,
December 31, 2001 17,115.276 105,277,723 1,332,302 106,610,025
Net income -- 11,815,072 163,920 11,978,992
Redemptions (1,698.985) (10,747,122) -- (10,747,122)
---------- ----------- --------- -----------
Partners' Capital,
December 31, 2002 15,416.291 106,345,673 1,496,222 107,841,895
Net income -- 13,766,843 169,749 13,936,592
Redemptions (1,261.461) (8,921,278) (415,000) (9,336,278)
---------- ----------- --------- -----------
Partners' Capital,
December 31, 2003 14,154.830 111,191,238 1,250,971 112,442,209
Net loss -- (9,861,124) (103,341) (9,964,465)
Redemptions (1,123.370) (7,510,855) -- (7,510,855)
---------- ----------- --------- -----------
Partners' Capital,
December 31, 2004 13,031.460 93,819,259 1,147,630 94,966,889
========== =========== ========= ===========

The accompanying notes are an integral part of these financial statements.

DEAN WITTER CORNERSTONE FUND II

STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
2004 2003 2002
---------- ---------- ----------
$ $ $

CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) (1,543,865) 134,035 2,951,248
Noncash item included in net income (loss):
Net change in unrealized (712,273) 752,680 (511,624)
(Increase) decrease in operating assets:
Due from Morgan Stanley DW 311 44,537 (53,316)
Interest receivable (Morgan Stanley DW) (14,057) 5,244 7,246
Increase (decrease) in operating
liabilities:
Accrued management fees (10,248) (4,588) 2,750
Accrued administrative expenses (8,679) (4,575) 1,930
Accrued incentive fees -- (40,483) 40,483
---------- ---------- ----------
Net cash provided by (used for) operating
activities (2,288,811) 886,850 2,438,717
---------- ---------- ----------

CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in redemptions payable (83,515) (95,290) 115,021
Redemptions of Units (1,875,861) (1,566,534) (2,167,076)
---------- ---------- ----------
Net cash used for financing activities (1,959,376) (1,661,824) (2,052,055)
---------- ---------- ----------
Net increase (decrease) in cash (4,248,187) (774,974) 386,662

Balance at beginning of period 20,927,464 21,702,438 21,315,776
---------- ---------- ----------

Balance at end of period 16,679,277 20,927,464 21,702,438
========== ========== ==========

The accompanying notes are an integral part of these financial statements.

DEAN WITTER CORNERSTONE FUND III

STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
2004 2003 2002
---------- ---------- ----------
$ $ $

CASH FLOWS FROM OPERATING ACTIVITIES
Net income 2,128,735 2,379,915 4,360,649
Noncash item included in net income:
Net change in unrealized 2,000,462 (909,383) (1,480,039)
(Increase) decrease in operating assets:
Interest receivable (Morgan Stanley DW) (25,003) 5,301 8,900
Due from Morgan Stanley DW (15,120) 264,529 (130,959)
Net option premiums -- -- (23,122)
Increase (decrease) in operating
liabilities:
Accrued administrative expenses (29,848) 4,501 2,721
Accrued management fees 231 384 4,445
---------- ---------- ----------
Net cash provided by operating activities 4,059,457 1,745,247 2,742,595
---------- ---------- ----------

CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in redemptions payable 166,639 (25,112) (27,034)
Redemptions of Units (2,216,179) (2,223,369) (2,814,486)
---------- ---------- ----------
Net cash used for financing activities (2,049,540) (2,248,481) (2,841,520)
---------- ---------- ----------
Net increase (decrease) in cash 2,009,917 (503,234) (98,925)

Balance at beginning of period 25,869,355 26,372,589 26,471,514
---------- ---------- ----------

Balance at end of period 27,879,272 25,869,355 26,372,589
========== ========== ==========

The accompanying notes are an integral part of these financial statements.

DEAN WITTER CORNERSTONE FUND IV

STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------
2004 2003 2002
----------- ----------- -----------
$ $ $

CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) (9,964,465) 13,936,592 11,978,992
Noncash item included in net income
(loss):
Net change in unrealized (3,301,580) 3,788,611 948,478
(Increase) decrease in operating assets:
Interest receivable (Morgan Stanley DW) (61,319) 18,628 28,632
Due from Morgan Stanley DW (32,362) -- --
Increase (decrease) in operating
liabilities:
Accrued management fees (50,454) 8,868 4,355
Accrued administrative expenses (53,805) 7,863 5,357
Accrued incentive fees (6,682) (1,493,339) 148,204
----------- ----------- -----------
Net cash provided by (used for)
operating activities (13,470,667) 16,267,223 13,114,018
----------- ----------- -----------

CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in redemptions
payable 233,968 (75,165) 108,571
Redemptions of Units (7,510,855) (9,336,278) (10,747,122)
----------- ----------- -----------
Net cash used for financing activities (7,276,887) (9,411,443) (10,638,551)
----------- ----------- -----------
Net increase (decrease) in cash (20,747,554) 6,855,780 2,475,467

Balance at beginning of period 110,416,089 103,560,309 101,084,842
----------- ----------- -----------

Balance at end of period 89,668,535 110,416,089 103,560,309
=========== =========== ===========

The accompanying notes are an integral part of these financial statements.

DEAN WITTER CORNERSTONE II

SCHEDULES OF INVESTMENTS

DECEMBER 31, 2004 AND 2003

LONG UNREALIZED PERCENTAGE SHORT UNREALIZED PERCENTAGE
FUTURES AND FORWARD CONTRACTS: GAIN/(LOSS) OF NET ASSETS GAIN/(LOSS) OF NET ASSETS
- ------------------------------ --------------- ------------- ---------------- -------------
2004 PARTNERSHIP NET ASSETS: $18,629,683 $ % $ %

Commodity 257,829 1.38 247,455 1.33
Equity 52,788 0.28 (116,000) (0.62)
Foreign currency 1,392,929 7.48* -- --
Interest rate (37,755) (0.20) (10,321) (0.06)
--------- ----- -------- -----
Grand Total: 1,665,791 8.94 121,134 0.65
========= ===== ======== =====
Unrealized Currency Gain

Total Net Unrealized Gain per Statement of Financial Condition

2003 PARTNERSHIP NET ASSETS: $22,049,409
Commodity 550,044 2.49 (80,715) (0.37)
Equity 124,756 0.57 (141,055) (0.64)
Foreign currency 605,088 2.75 (17,470) (0.08)
Interest rate 40,604 0.18 (26,475) (0.12)
--------- ----- -------- -----
Grand Total: 1,320,492 5.99 (265,715) (1.21)
========= ===== ======== =====
Unrealized Currency Gain

Total Net Unrealized Gain per Statement of Financial Condition

NET UNREALIZED
FUTURES AND FORWARD CONTRACTS: GAIN/(LOSS)
- ------------------------------ --------------
2004 PARTNERSHIP NET ASSETS: $18,629,683 $

Commodity 505,284
Equity (63,212)
Foreign currency 1,392,929
Interest rate (48,076)
---------
Grand Total: 1,786,925

Unrealized Currency Gain 223,808
---------
Total Net Unrealized Gain per Statement of Financial Condition 2,010,733
=========

2003 PARTNERSHIP NET ASSETS: $22,049,409
Commodity 469,329
Equity (16,299)
Foreign currency 587,618
Interest rate 14,129
---------
Grand Total: 1,054,777

Unrealized Currency Gain 243,683
---------
Total Net Unrealized Gain per Statement of Financial Condition 1,298,460
=========

* No single contract's value exceeds 5% of Net Assets.

The accompanying notes are an integral part of these financial statements.

DEAN WITTER CORNERSTONE III

SCHEDULES OF INVESTMENTS

DECEMBER 31, 2004 AND 2003

LONG UNREALIZED PERCENTAGE SHORT UNREALIZED PERCENTAGE
FUTURES AND FORWARD CONTACTS: GAIN/(LOSS) OF NET ASSETS GAIN/(LOSS) OF NET ASSETS
- ----------------------------- --------------- ------------- ---------------- -------------
2004 PARTNERSHIP NET ASSETS: $27,909,326 $ % $ %

Commodity 196,582 0.70 26,779 0.09
Equity 358,469 1.29 -- --
Foreign currency 165,230 0.59 (371,243) (1.33)
Interest rate 125,718 0.45 71,812 0.26
--------- ---- -------- -----
Grand Total: 845,999 3.03 (272,652) (0.98)
========= ==== ======== =====
Unrealized Currency Loss

Total Net Unrealized Gain per Statement of Financial Condition

2003 PARTNERSHIP NET ASSETS: $27,996,770
Commodity 1,395,548 4.98 (1,310) --
Equity 625,429 2.23 -- --
Foreign currency 557,716 2.00 (67,418) (0.24)
Interest rate 9,410 0.03 (11,520) (0.04)
--------- ---- -------- -----
Grand Total: 2,588,103 9.24 (80,248) (0.28)
========= ==== ======== =====
Unrealized Currency Loss

Total Net Unrealized Gain per Statement of Financial Condition

NET UNREALIZED
FUTURES AND FORWARD CONTACTS: GAIN/(LOSS)
- ----------------------------- --------------
2004 PARTNERSHIP NET ASSETS: $27,909,326 $

Commodity 223,361
Equity 358,469
Foreign currency (206,013)
Interest rate 197,530
---------
Grand Total: 573,347

Unrealized Currency Loss (111,819)
---------
Total Net Unrealized Gain per Statement of Financial Condition 461,528
=========
2003 PARTNERSHIP NET ASSETS: $27,996,770
Commodity 1,394,238
Equity 625,429
Foreign currency 490,298
Interest rate (2,110)
---------
Grand Total: 2,507,855

Unrealized Currency Loss (45,865)
---------
Total Net Unrealized Gain per Statement of Financial Condition 2,461,990
=========

The accompanying notes are an integral part of these financial statements.

DEAN WITTER CORNERSTONE IV

SCHEDULES OF INVESTMENTS

DECEMBER 31, 2004 AND 2003

LONG UNREALIZED PERCENTAGE OF SHORT UNREALIZED PERCENTAGE OF
FUTURES AND FORWARD CONTRACTS: GAIN/(LOSS) NET ASSETS GAIN/(LOSS) NET ASSETS
- ------------------------------ --------------- ------------- ---------------- -------------
2004 PARTNERSHIP NET ASSETS: $94,966,889 $ % $ %

Foreign currency 6,231,832 6.56* 116,025 0.12
--------- ---- ------- -----
Grand Total: 6,231,832 6.56 116,025 0.12
========= ==== ======= =====
Unrealized Currency Gain/(Loss)

Total Net Unrealized Gain per Statement of Financial Conditions

2003 PARTNERSHIP NET ASSETS: $112,442,209
Foreign currency 3,142,423 2.80 (96,146) (0.08)
--------- ---- ------- -----
Grand Total: 3,142,423 2.80 (96,146) (0.08)
========= ==== ======= =====
Unrealized Currency Gain/(Loss)

Total Net Unrealized Gain per Statement of Financial Condition

NET UNREALIZED
FUTURES AND FORWARD CONTRACTS: GAIN/(LOSS)
- ------------------------------ --------------
2004 PARTNERSHIP NET ASSETS: $94,966,889 $

Foreign currency 6,347,857
---------
Grand Total: 6,347,857

Unrealized Currency Gain/(Loss) --
---------
Total Net Unrealized Gain per Statement of Financial Conditions 6,347,857
=========

2003 PARTNERSHIP NET ASSETS: $112,442,209
Foreign currency 3,046,277
---------
Grand Total: 3,046,277

Unrealized Currency Gain/(Loss) --
---------
Total Net Unrealized Gain per Statement of Financial Condition 3,046,277
=========

* No single contract's value exceeds 5% of Net Assets.

The accompanying notes are an integral part of these financial statements.

DEAN WITTER CORNERSTONE FUNDS

NOTES TO FINANCIAL STATEMENTS

- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION. Dean Witter Cornerstone Fund II ("Cornerstone II"), Dean Witter
Cornerstone Fund III ("Cornerstone III"), and Dean Witter Cornerstone Fund IV
("Cornerstone IV") (individually, a "Partnership", or collectively, the
"Partnerships"), are limited partnerships organized to engage in the
speculative trading of futures contracts, options on futures contracts, and
forward contracts on foreign currencies and other commodity interests
(collectively, "Futures Interests").
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 commodity brokers for Cornerstone II and
Cornerstone III are Morgan Stanley & Co. Incorporated ("MS&Co.") and Morgan
Stanley & Co. International Limited ("MSIL"). Cornerstone IV's sole clearing
commodity broker is MS&Co. Demeter, Morgan Stanley DW, MS&Co., and MSIL are
wholly-owned subsidiaries of Morgan Stanley.
Effective June 20, 2002, Morgan Stanley Dean Witter & Co. changed its name to
Morgan Stanley.
Demeter is required to maintain a 1% minimum interest in the equity of each
Partnership and income (losses) are shared by Demeter and the limited partners
based upon their proportional ownership interests.
Effective December 31, 2002, Welton Investment Corporation was terminated as
a trading manager of Cornerstone III and was replaced by Graham Capital
Management, L.P. on January 1, 2003.

USE OF ESTIMATES. The financial statements are prepared in accordance with
accounting 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
believes that the estimates utilized in the preparation of the financial
statements are prudent and reasonable. Actual results could differ from those
estimates.

DEAN WITTER CORNERSTONE FUNDS

NOTES TO FINANCIAL STATEMENTS
(continued)

REVENUE RECOGNITION. Futures Interests are open commitments until settlement
date, at which time they are realized. 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 trading profit (loss) on open contracts from one
period to the next on the Statements of Operations. Monthly, Morgan Stanley DW
pays each Partnership interest income equal to 80% of its average daily Net
Assets at a rate equal to the average yield on 13-week U.S. Treasury bills. For
purposes of such interest payments to Cornerstone IV, Net Assets do not include
monies owed to the Partnership on Futures Interests.

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.

CONDENSED SCHEDULES OF INVESTMENTS. In December 2003, the American Institute
of Certified Public Accountants' Accounting Standards Executive Committee
issued Statement of Position 03-4 ("SOP 03-4") "Reporting Financial Highlights
and Schedule of Investments by Nonregistered Investment Partnerships: An
Amendment to the Audit and Accounting Guide Audits Of Investment Companies and
AICPA Statement of Position 95-2, Financial Reporting By Nonpublic Investment
Partnerships". SOP 03-4 requires commodity pools to disclose the number of
contracts, the contracts' expiration dates and the cumulative unrealized
gains/(losses) on open futures contracts, when the cumulative unrealized
gains/(losses) on an open futures contract exceeds 5% of Net Assets, taking
long and short positions into account separately. SOP 03-4 also requires ratios
for net investment income/(losses), expenses before and after incentive fees,
and net income/(losses) based on average net assets, and ratios for total
return before and after incentive fees based on average units outstanding to be
disclosed in Financial Highlights. SOP 03-4 was effective for fiscal years
ending after December 15, 2003.

EQUITY IN FUTURES INTERESTS TRADING ACCOUNTS. The Partnerships' asset "Equity
in futures interests trading

DEAN WITTER CORNERSTONE FUNDS

NOTES TO FINANCIAL STATEMENTS
(continued)

accounts", reflected on the Statements of Financial Condition, consists of (A)
cash on deposit with Morgan Stanley DW, MS&Co., and MSIL for Cornerstone II and
Cornerstone III, and Morgan Stanley DW and MS&Co. for Cornerstone IV, to be
used as margin for trading; (B) net unrealized gains or losses on open
contracts, which are valued at market and calculated as the difference between
original contract value and market value; and (C) net option premiums, which
represent the net of all monies paid and/or received for such option premiums.
The Partnerships, in their normal course of business, enter into various
contracts with MS&Co. and/or MSIL acting as their commodity brokers. Pursuant
to brokerage agreements with MS&Co. and/or MSIL, to the extent that such
trading results in unrealized gains or losses, these amounts are offset and
reported on a net basis on the Partnerships' Statements of Financial Condition.
The Partnerships have offset the fair value amounts recognized for forward
contracts executed with the same counterparty as allowable under the terms of
their master netting agreements with MS&Co., the sole counterparty on such
contracts. The Partnerships have consistently applied their right to offset.

BROKERAGE COMMISSIONS AND RELATED TRANSACTION FEES AND COSTS. Brokerage
commissions and related transaction fees and costs for each Partnership are
accrued on a half-turn basis at 80% and 100%, respectively, of the rates Morgan
Stanley DW charges parties that are not clearinghouse members. Brokerage
commissions and transaction fees and costs combined for each Partnership are
capped at 13/20 of 1% per month (a 7.8% maximum annual rate) of the adjusted
Net Assets allocated to each trading program employed by the Partnerships'
trading managers.

OPERATING EXPENSES. Each Partnership has entered into an exchange agreement
pursuant to which certain common administrative expenses (i.e., legal,
auditing, accounting, filing fees, and other related expenses) are shared by
each of the Partnerships based upon the number of outstanding Units of each
Partnership dur-

DEAN WITTER CORNERSTONE FUNDS

NOTES TO FINANCIAL STATEMENTS
(continued)

ing the month in which such expenses are incurred. In addition, the
Partnerships incur 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 each 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. Demeter does not intend to make any distributions of the
Partnerships' profits.

REDEMPTIONS. Limited partners may redeem some or all of their Units at 100% of
the Net Asset Value per Unit as of the last day of any month upon fifteen days
advance notice by redemption form to Demeter.

DISSOLUTION OF THE PARTNERSHIPS. Each Partnership will terminate on September
30, 2025 regardless of its financial condition at such time, upon a decline in
Net Assets to less than $250,000, a decline in the Net Asset Value per Unit to
less than $250, or under certain other circumstances defined in each Limited
Partnership Agreement.

LITIGATION SETTLEMENT. On February 27, 2002, Cornerstone II and Cornerstone
III received notification of a preliminary entitlement to payment from the
Sumitomo Copper Litigation Settlement Administrator, and each Partnership
received settlement award payments in the amount of $76,613 and $2,842,492,
respectively, during August 2002 and $755 and $27,998, respectively, during
July 2004. Any amounts received are accounted for in the period received, for
the benefit of the limited partners at the date of receipt.

RECLASSIFICATIONS. Certain reclassifications have been made to the prior
years' financial statements to conform to the current year presentation. Such
reclassifications have no impact on the Partnerships' reported net income
(loss).

DEAN WITTER CORNERSTONE FUNDS

NOTES TO FINANCIAL STATEMENTS
(continued)

- --------------------------------------------------------------------------------
2. RELATED PARTY TRANSACTIONS
Each Partnership pays brokerage commissions to Morgan Stanley DW as described
in Note 1. Cornerstone II and Cornerstone III's cash is on deposit with Morgan
Stanley DW, MS&Co., and MSIL, and Cornerstone IV's cash is on deposit with
Morgan Stanley DW and MS&Co., in futures interests trading accounts to meet
margin requirements as needed. Morgan Stanley DW pays interest on these funds
as described in Note 1.

- --------------------------------------------------------------------------------
3. TRADING MANAGERS
Demeter, on behalf of each Partnership, retains certain commodity trading
managers to make all trading decisions for the Partnerships. The trading
managers for each Partnership at December 31, 2004 were as follows:

Dean Witter Cornerstone Fund II
John W. Henry & Company, Inc.
Northfield Trading L.P.

Dean Witter Cornerstone Fund III
Graham Capital Management, L.P.
Sunrise Capital Management, Inc.

Dean Witter Cornerstone Fund IV
John W. Henry & Company, Inc.
Sunrise Capital Management, Inc.
Compensation to the trading managers by the Partnerships consists of a
management fee and an incentive fee as follows:

MANAGEMENT FEE. Each Partnership's management fee is accrued at the rate of
1/12 of 3.5% per month (a 3.5% annual rate) of the Net Assets under management
by each trading manager at each month end.

INCENTIVE FEE. Each Partnership pays an annual incentive fee equal to 15% of
the new appreciation in Net Assets, as defined in the Limited Partnership
Agreements, as of the end of each annual incentive period ending December 31,
except for Cornerstone IV, which pays incentive fee at the end of each annual
incentive period ending May 31. New appreciation represents the amount by which
Net Assets are

DEAN WITTER CORNERSTONE FUNDS

NOTES TO FINANCIAL STATEMENTS
(continued)

increased by profits from futures, forwards, and options trading that exceed
losses after brokerage commissions, management fees, transaction fees and
costs, and common administrative expenses are deducted. Such incentive fee is
accrued in each month in which new appreciation occurs. In those months in
which new appreciation is negative, previous accruals, if any, during the
incentive period are reduced. In those instances in which a limited partner
redeems an investment, the incentive fee (if earned through a redemption date)
is paid on that redemption to the trading manager in the month of such
redemption.

- --------------------------------------------------------------------------------
4. FINANCIAL INSTRUMENTS
The Partnerships trade Futures 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 exchange-traded contracts is based on the settlement
price quoted by the exchange on the day with respect to which market value is
being determined. If an exchange-traded contract could not have been liquidated
on such day due to the operation of daily limits or other rules of the
exchange, the settlement price shall be the settlement price on the first
subsequent day on which the contract could be liquidated. The market value of
off-exchange-traded contracts is based on the fair market value quoted by the
counterparty.

The Partnerships' contracts are accounted for on a trade-date basis and
marked to market on a daily basis. Each Partnership accounts for its derivative
investments in accordance with the provisions of Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and
Hedging Activities" (''SFAS No. 133"). SFAS No. 133 defines a derivative

DEAN WITTER CORNERSTONE FUNDS

NOTES TO FINANCIAL STATEMENTS
(continued)

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, 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 at December 31, reported
as a component of "Equity in futures interests trading accounts" on the
Statements of Financial Condition, and their longest contract maturities are as
follows:

CORNERSTONE II

NET UNREALIZED GAINS
ON OPEN CONTRACTS LONGEST MATURITIES
----------------------------- -------------------
OFF- OFF-
EXCHANGE- EXCHANGE- EXCHANGE- EXCHANGE-
YEAR TRADED TRADED TOTAL TRADED TRADED
---- --------- --------- --------- --------- ---------
$ $ $

2004 622,026 1,388,707 2,010,733 Dec. 2005 Mar. 2005
2003 748,037 550,423 1,298,460 Dec. 2004 Mar. 2004

CORNERSTONE III

NET UNREALIZED GAINS/LOSSES
ON OPEN CONTRACTS LONGEST MATURITIES
----------------------------- -------------------
OFF- OFF-
EXCHANGE- EXCHANGE- EXCHANGE- EXCHANGE-
YEAR TRADED TRADED TOTAL TRADED TRADED
---- --------- --------- --------- --------- ---------
$ $ $

2004 664,621 (203,093) 461,528 Jun. 2006 Mar. 2005
2003 2,061,496 400,494 2,461,990 Jun. 2005 Mar. 2004

DEAN WITTER CORNERSTONE FUNDS

NOTES TO FINANCIAL STATEMENTS
(continued)

CORNERSTONE IV

NET UNREALIZED GAINS
ON OPEN CONTRACTS LONGEST MATURITIES
----------------------------- -------------------
OFF- OFF-
EXCHANGE- EXCHANGE- EXCHANGE- EXCHANGE-
YEAR TRADED TRADED TOTAL TRADED TRADED
---- --------- --------- --------- --------- ---------
$ $ $

2004 -- 6,347,857 6,347,857 -- Mar. 2005
2003 -- 3,046,277 3,046,277 -- Mar. 2004

The Partnerships have credit risk associated with counterparty
nonperformance. The credit risk associated with the instruments in which the
Partnerships trade is limited to the amounts reflected in the Partnerships'
Statements of Financial Condition.

The Partnerships also have credit risk because Morgan Stanley DW, MS&Co.,
and/or MSIL act as the futures commission merchants or the counterparties, with
respect to most of the Partnerships' assets. Exchange-traded futures, forward,
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/or MSIL, each as a futures commission merchant for each Partnership's
exchange-traded futures, forward, and futures-styled options 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,
forward, and futures-styled options contracts, including an amount equal to the
net unrealized gains (losses) on all open futures, forward, and futures-styled
options contracts, which funds, in the aggregate, totaled at December 31, 2004
and 2003 respectively, $17,301,303 and $21,675,501 for Cornerstone II and
$28,543,893 and $27,930,851 for Cornerstone III. With respect to each
Partnership's off-exchange-traded forward currency contracts, there are no
daily exchange-required settlements of variation in value nor is there any
requirement that an amount equal to the net unrealized gains (losses) on open
forward contracts be segregated. However, the Partnership is required to meet
margin requirements equal to the net unrealized loss on open contracts in the
Partnership accounts with the counterparty, which is accomplished

DEAN WITTER CORNERSTONE FUNDS

NOTES TO FINANCIAL STATEMENTS
(continued)

by daily maintenance of the cash balance in a custody account held at Morgan
Stanley DW for the benefit of MS&Co. With respect to those off-exchange-traded
forward currency contracts, the Partnerships are at risk to the ability of
MS&Co., the sole counterparty on all such contracts, to perform. Each
Partnership has a netting agreement with MS&Co. These agreements, which seek to
reduce both the Partnerships' and MS&Co.'s exposure on off-exchange-traded
forward currency contracts, should materially decrease the Partnerships' credit
risk in the event of MS&Co.'s bankruptcy or insolvency.

- --------------------------------------------------------------------------------
5. FINANCIAL HIGHLIGHTS

CORNERSTONE II

PER UNIT:
---------

NET ASSET VALUE, JANUARY 1, 2004: $4,981.39
---------
NET OPERATING RESULTS:
Interest Income 49.43
Expenses (455.79)
Realized Loss (85.46)
Unrealized Profit 169.13
Proceeds from Litigation Settlement 0.18
---------
Net Loss (322.51)
---------
NET ASSET VALUE, DECEMBER 31, 2004: $4,658.88
=========
RATIOS TO AVERAGE NET ASSETS:
Net Investment Loss (9.0)%
Expenses before Incentive Fees 10.1 %
Expenses after Incentive Fees 10.1 %
Net Loss (8.1)%

TOTAL RETURN BEFORE INCENTIVE FEES (6.5)%
TOTAL RETURN AFTER INCENTIVE FEES (6.5)%
INCEPTION-TO-DATE RETURN 377.8 %
COMPOUND ANNUALIZED RETURN 8.1 %

DEAN WITTER CORNERSTONE FUNDS

NOTES TO FINANCIAL STATEMENTS
(concluded)

CORNERSTONE III

PER UNIT:
---------

NET ASSET VALUE, JANUARY 1, 2004: $3,909.31
---------
NET OPERATING RESULTS:
Interest Income 44.43
Expenses (321.01)
Realized Profit 872.21
Unrealized Loss (290.23)
Proceeds from Litigation Settlement 4.06
---------
Net Income 309.46
---------
NET ASSET VALUE, DECEMBER 31, 2004: $4,218.77
=========
RATIOS TO AVERAGE NET ASSETS:
Net Investment Loss (6.9)%
Expenses before Incentive Fees 8.0 %
Expenses after Incentive Fees 8.0 %
Net Income 7.7 %

TOTAL RETURN BEFORE INCENTIVE FEES 7.9 %
TOTAL RETURN AFTER INCENTIVE FEES 7.9 %
INCEPTION-TO-DATE RETURN 332.7 %
COMPOUND ANNUALIZED RETURN 7.6 %

CORNERSTONE IV

PER UNIT:
---------

NET ASSET VALUE, JANUARY 1, 2004: $7,943.73
---------
NET OPERATING RESULTS:
Interest Income 71.21
Expenses (471.41)
Realized Loss (498.49)
Unrealized Profit 242.47
---------
Net Loss (656.22)
---------
NET ASSET VALUE, DECEMBER 31, 2004: $7,287.51
=========
RATIOS TO AVERAGE NET ASSETS:
Net Investment Loss (5.9)%
Expenses before Incentive Fees 6.9 %
Expenses after Incentive Fees 6.9 %
Net Loss (10.8)%

TOTAL RETURN BEFORE INCENTIVE FEES (8.3)%
TOTAL RETURN AFTER INCENTIVE FEES (8.3)%
INCEPTION-TO-DATE RETURN 647.4 %
COMPOUND ANNUALIZED RETURN 12.1 %

PRESORTED
STANDARD
U.S. POSTAGE
PAID
PERMIT #374
LANCASTER, PA

Demeter Management Corporation
330 Madison Avenue, 8th Floor
New York, NY 10017

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