WITTER DEAN DIVERSIFIED FUTURES FUND III L P - 10-Q Quarterly Report

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

FORM 10-Q

[X] Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended March 31, 2003 or

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

Commission File Number 0-19116

DEAN WITTER DIVERSIFIED FUTURES FUND III L.P.

(Exact name of registrant as specified in its charter)

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

Demeter Management Corporation
825 Third Avenue, 9th Floor
New York, NY 10022
(Address of principal executive offices) (Zip Code)

Registrant?s telephone number, including area code (212) 310-6444

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

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

Yes X No___________

DEAN WITTER DIVERSIFIED FUTURES FUND III L.P.

INDEX TO QUARTERLY REPORT ON FORM 10-Q

March 31, 2003

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements

DEAN WITTER DIVERSIFIED FUTURES FUND III L.P.
STATEMENTS OF FINANCIAL CONDITION

DEAN WITTER DIVERSIFIED FUTURES FUND III L.P
STATEMENTS OF OPERATIONS
(Unaudited)

DEAN WITTER DIVERSIFIED FUTURES FUND III L.P.
STATEMENTS OF CHANGES IN PARTNERS? CAPITAL
For the Quarters Ended March 31, 2003 and 2002
(Unaudited)

DEAN WITTER DIVERSIFIED FUTURES FUND III L.P.
STATEMENTS OF CASH FLOWS
(Unaudited)

DEAN WITTER DIVERSIFIED FUTURES FUND III L.P.
NOTES TO FINANCIAL STATEMENTS

March 31, 2003

(Unaudited)

The unaudited financial statements contained herein include, in
the opinion of management, all adjustments necessary for a fair
presentation of the results of operations and financial condition
of Dean Witter Diversified Futures Fund III L.P. (the
?Partnership?). The financial statements and condensed notes
herein should be read in conjunction with the Partnership?s
December 31, 2002 Annual Report on Form 10-K.

1. Organization
Dean Witter Diversified Futures Fund III L.P. is a Delaware
limited partnership organized to engage primarily in the
speculative trading of futures and forward contracts on physical
commodities 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 are Morgan Stanley & Co. Incorporated (?MS &
Co.?) and Morgan Stanley & Co. International Limited (?MSIL?).
The trading manager is Morgan Stanley Futures & Currency

DEAN WITTER DIVERSIFIED FUTURES FUND III L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

Management Inc. (?MSFCM? or the ?Trading Manager?). Demeter,
Morgan Stanley DW, MS & Co., MSIL and MSFCM are wholly-owned
subsidiaries of Morgan Stanley.

2. Related Party Transactions
The Partnership?s cash is on deposit with Morgan Stanley DW, MS &
Co. and MSIL in futures and forwards trading accounts to meet
margin requirements as needed. Morgan Stanley DW pays interest on
these funds based on current 13-week U.S. Treasury bills. The
Partnership pays brokerage commissions to Morgan Stanley DW.
Management fees and incentive fees, if any, incurred by the
Partnership are paid to MSFCM.

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

DEAN WITTER DIVERSIFIED FUTURES FUND III L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

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

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

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.

DEAN WITTER DIVERSIFIED FUTURES FUND III L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

The net unrealized gains on open contracts, reported as a
component of ?Equity in futures interests trading accounts? on the
statements of financial condition, and their longest contract
maturities were as follows:
Net Unrealized Gains
on Open Contracts Longest Maturities

Exchange- Off-Exchange- Exchange- Off-Exchange-
Date Traded Traded Total Traded Traded
$ $ $

Mar. 31, 2003 868,617 425,459 1,294,076 Dec. 2003 Jun. 2003

Dec. 31, 2002 1,281,277 4,577,723 5,859,000 Sept. 2004 Apr. 2003

The Partnership has credit risk associated with counterparty non-
performance. The credit risk associated with the instruments in
which the Partnership is involved is limited to the amounts
reflected in the Partnership?s statements of financial condition.

The Partnership also has credit risk because Morgan Stanley DW, MS
& Co. and MSIL act as the futures commission merchants or the
counterparties, with respect to most of the Partnership?s assets.
Exchange-traded futures contracts are marked to market on a daily
basis, with variations in value settled on a daily basis. Morgan
Stanley DW, MS & Co. and MSIL, each as a futures commission
merchant for the Partnership?s exchange-traded futures contracts,
are required, pursuant to regulations of the Commodity Futures

DEAN WITTER DIVERSIFIED FUTURES FUND III L.P.
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)

Trading Commission (?CFTC?), to segregate from their own assets,
and for the sole benefit of their commodity customers, all funds
held by them with respect to exchange-traded futures contracts,
including an amount equal to the net unrealized gains on all open
futures contracts, which funds, in the aggregate, totaled
$58,129,129 and $47,781,722 at March 31, 2003 and December 31,
2002, respectively. With respect to the Partnership?s off-
exchange-traded forward currency contracts, there are no daily
settlements of variations in value nor is there any requirement
that an amount equal to the net unrealized gains on open forward
contracts be segregated. With respect to those off-exchange-
traded forward currency contracts, the Partnership is at risk to
the ability of MS & Co., the sole counterparty on all of such
contracts, to perform. The Partnership has a netting agreement
with MS & Co. This agreement, which seeks to reduce both the
Partnership?s and MS & Co.?s exposure on off-exchange-traded
forward currency contracts, should materially decrease the
Partnership?s credit risk in the event of MS & Co.?s bankruptcy or
insolvency.

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

Liquidity. The Partnership deposits its assets with Morgan
Stanley DW as non-clearing broker and MS & Co. and MSIL as
clearing brokers in separate futures and forwards trading accounts
established for the Trading Manager, which assets are used as
margin to engage in trading. The assets are held in either non-
interest bearing bank accounts or in securities and instruments
permitted by the CFTC for investment of customer segregated or
secured funds. The Partnership?s assets held by the commodity
brokers may be used as margin solely for the Partnership?s
trading. Since the Partnership?s sole purpose is to trade in
futures and forwards, it is expected that the Partnership will
continue to own such liquid assets for margin purposes.

The Partnership?s investment in futures and forwards may, from
time to time, be illiquid. Most U.S. futures exchanges limit
fluctuations in prices during a single day by regulations referred
to as ?daily price fluctuations limits? or ?daily limits?. Trades
may not be executed at prices beyond the daily limit. If the
price for a particular futures contract has increased or decreased
by an amount equal to the daily limit, positions in that futures
contract can neither be taken nor liquidated unless traders are
willing to effect trades at or within the limit. Futures prices
have occasionally moved the daily limit for several consecutive
days with little or no trading. These market conditions could
prevent the Partnership from promptly liquidating its
futures contracts and result in restrictions on redemptions.

There is no limitation on daily price moves in trading forward
contracts on foreign currencies. The markets for some world
currencies have low trading volume and are illiquid, which may
prevent the Partnership from trading in potentially profitable
markets or prevent the Partnership from promptly liquidating
unfavorable positions in such markets, subjecting it to
substantial losses. Either of these market conditions could
result in restrictions on redemptions.

The Partnership has never had illiquidity affect a material
portion of its assets. Furthermore, there are no material trends,
demands, commitments, events or uncertainties known at the present
time that will result in, or that are reasonably likely to result
in, the Partnership?s liquidity increasing or decreasing in any
material way.

Capital Resources. The Partnership does not have, nor expect to
have, any capital assets. Redemptions of additional units of
limited partnership interest (?Unit(s)?) in the future will affect
the amount of funds available for investment in futures and
forwards in subsequent periods. It is not possible to estimate
the amount, and therefore, the impact of future redemptions of
Units.
There are no known material trends, favorable or
unfavorable, that would affect, nor any expected material changes
to, the Partnership?s capital resource arrangements at the present
time. The Partnership has no off-balance sheet arrangements, nor
contractual obligations or commercial commitments to make future
payments that would affect the Partnership?s liquidity or capital
resources. The contracts traded by the Partnership are accounted
for on a trade-date basis and marked to market on a daily basis.
The value of futures contracts is the settlement price on the
exchange on which that futures contract is traded on a particular
day and the value of foreign currency forward contracts is based
on the spot rate as of the close of business, New York City time,
on a given day.

Results of Operations
General. The Partnership?s results depend on the Trading Manager
and the ability of the Trading Manager?s trading programs to take
advantage of price movements or other profit opportunities in the
futures and forwards markets. The following presents a summary of
the Partnership?s operations for the three month periods ended
March 31, 2003 and 2002, and a general discussion of its trading
activities during each period. It is important to note, however,
that the Trading Manager trades in various markets at different
times and that prior activity in a particular market does not mean
that such market will be actively traded by the Trading Manager or
will be profitable in the future. Consequently, the results of
operations of the Partnership are difficult to discuss
other than in the context of the Trading Manager?s trading
activities on behalf of the Partnership and how the Partnership
has performed in the past.

The Partnership?s results of operations set forth in the
financial statements on pages 2 through 10 of this report were
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 profit/loss? for open
(unrealized) contracts, and recorded as ?Realized profit/loss?
when open positions are closed out, and the sum of these amounts
constitutes the Partnership?s trading revenues. Interest income
revenue, 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.
For the Quarter Ended March 31, 2003
For the quarter ended March 31, 2003, the Partnership recorded
total trading revenues, including interest income, of $8,410,938
and posted an increase in net asset value per Unit. The most
significant gains of approximately 8.9% were recorded in the
energy markets, primarily during January and February, from long
positions in natural gas futures as prices trended higher in
response to prolonged frigid temperatures in the northeastern and
midwestern United States. Additional gains were recorded from
long positions in crude oil futures as prices increased amid the
looming threat of military action against Iraq and an overall
decline in inventories. Gains of approximately 4.4% were
recorded in the currency markets, primarily during January and
February, from long positions in the euro versus the British
pound as the pound?s value declined due to weak economic data out
of the U.K. and an interest rate cut by the Bank of England.
Additional gains stemmed from long positions in the Australian
dollar and South African rand versus the U.S. dollar as the value
of these currencies increased on the heels of higher commodity
prices. Gains of approximately 2.6% were recorded in the global
interest rate markets from long positions in Japanese and German
interest rate futures as prices trended higher amid continued
uncertainty in the global equity markets and ongoing demand from
investors seeking the ?safe haven? of fixed income investments.
A portion of the Partnership?s gains was offset by losses of
approximately 0.9% in the agricultural markets from long
positions in soybean futures as prices reversed in January
amid news of increased supply. Elsewhere in the agricultural
markets, losses were recorded from short positions in coffee
futures as prices reversed higher in early January amid a
decrease in Colombian exports. Total expenses for the three
months ended March 31, 2003 were $2,008,649, resulting in net
income of $6,402,289. The net asset value of a Unit increased
from $2,529.72 at December 31, 2002 to $2,840.36 at March 31,
2003.

For the Quarter Ended March 31, 2002
For the quarter ended March 31, 2002, the Partnership recorded
total trading revenues, including interest income, of $1,034,152
and posted an increase in net asset value per Unit. The most
significant gains of approximately 9.2% were recorded in the
energy markets primarily during March from previously established
long positions in crude oil futures as prices continued trending
higher amid escalating tensions in the Middle East and
supply/demand factors. Additional gains were recorded during
January from previously established short natural gas futures
positions as prices declined following a higher-than-expected
American Gas Association inventory report and forecasts of mild
weather for the Eastern U.S. A portion of the Partnership?s
overall gains was partially offset by losses of approximately 7.9%
recorded in the currency markets primarily during March from
positions in the euro versus the U.S. dollar and British pound
from short-term, choppy price movement. Additional losses
were experienced during early March from previously established
short positions in the Japanese yen as its value reversed higher
versus the U.S. dollar amid a repatriation of assets from the U.S.
to Japan. As a result of this strengthening, new long Japanese
yen positions were established only to result in additional losses
later in March as the value of the yen reversed lower on
expectations that the repatriation flows ahead of the Japanese
fiscal year-end would be ending. In the metals markets, losses of
approximately 0.5% were incurred primarily during January from
gold futures positions as prices moved in an erratic manner on
conflicting supply concerns and on the economic outlook. Total
expenses for the three months ended March 31, 2002 were $897,846,
resulting in net income of $136,306. The net asset value of a
Unit increased from $1,966.55 at December 31, 2001 to $1,972.58 at
March 31, 2002.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK

Introduction
The Partnership is a commodity pool engaged primarily in the
speculative trading of futures and forwards. The market-
sensitive instruments held by the Partnership are acquired for
speculative trading purposes only and, as a result, all or
substantially all of the Partnership?s assets are at risk of
trading loss. Unlike an operating company, the risk of market-
sensitive instruments is central, not incidental, to the
Partnership?s main business activities.

The futures and forwards traded by the Partnership involve
varying degrees of related market risk. Market risk is often
dependent upon changes in the level or volatility of interest
rates, exchange rates, and prices of financial instruments and
commodities. Fluctuations in market risk based upon these
factors result in frequent changes in the fair value of the
Partnership?s open positions, and consequently, in its earnings
and cash flow.

The Partnership?s total market risk is influenced by a wide
variety of factors, including the diversification among the
Partnership?s open positions, the volatility present within the
markets, and the liquidity of the markets. At different times,
each of these factors may act to increase or decrease the
market risk associated with the Partnership.

The Partnership?s past performance is not necessarily indicative
of its future results. Any attempt to numerically quantify the
Partnership?s market risk is limited by the uncertainty of its
speculative trading. The Partnership?s speculative trading may
cause future losses and volatility (i.e., ?risk of ruin?) that
far exceed the Partnership?s experience to date or any reasonable
expectations based upon historical changes in market value.

Quantifying the Partnership?s Trading Value at Risk
The following quantitative disclosures regarding the Partnership?s
market risk exposures contain ?forward-looking statements? within
the meaning of the safe harbor from civil liability provided for
such statements by the Private Securities Litigation Reform Act of
1995 (set forth in Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934). All
quantitative disclosures in this section are deemed to be forward-
looking statements for purposes of the safe harbor, except for
statements of historical fact.

The Partnership accounts for open positions on the basis of mark-
to-market accounting principles. Any loss in the market value of
the Partnership?s open positions is directly reflected in the
Partnership?s earnings, whether realized or unrealized, and its
cash flow. Profits and losses on open positions of
exchange-traded futures and forwards are settled daily through
variation margin.

The Partnership?s risk exposure in the market sectors traded by
the Trading Manager is estimated below in terms of Value at Risk
(?VaR?). The VaR model used by the Partnership includes many
variables that could change the market value of the Partnership?s
trading portfolio. The Partnership estimates VaR using a model
based upon historical simulation with a confidence level of 99%.
Historical simulation involves constructing a distribution of
hypothetical daily changes in the value of a trading portfolio.
The VaR model takes into account linear exposures to price and
interest rate risk. Market risks that are incorporated in the
VaR model include equity and commodity prices, interest rates,
foreign exchange rates, and correlation among these variables.
The hypothetical changes in portfolio value are based on daily
percentage changes observed in key market indices or other market
factors (?market risk factors?) to which the portfolio is
sensitive. The historical observation period of the Partnership?s
VaR is approximately four years. The one-day 99% confidence
level of the Partnership?s VaR corresponds to the negative change
in portfolio value that, based on observed market risk factors,
would have been exceeded once in 100 trading days. In other
words, one-day VaR for a portfolio is a number such that losses
in this portfolio are estimated to exceed the VaR only one
day in 100. VaR typically does not represent the worst case
outcome.

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

The Partnership?s VaR computations are based on the risk
representation of the underlying benchmark for each instrument or
contract and does not distinguish between exchange and non-
exchange-traded instruments and is also not based on exchange
and/or dealer-based 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 Manager 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 March 31, 2003 and 2002. At
March 31, 2003 and 2002, the Partnership?s total capitalization
was approximately $56 million and $43 million, respectively.

Primary Market March 31, 2003 March 31, 2002
Risk Category Value at Risk Value at Risk

Currency (1.54)% (2.59)%
Interest Rate (1.33) (1.93)
Equity ? (0.08)
Commodity (1.75) (2.26)
Aggregate Value at Risk (2.84)% (3.97)%

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 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.

The table above represents the VaR of the Partnership?s
open positions at March 31, 2003 and 2002 only and is not
necessarily representative of either the historic or future risk
of an investment in the Partnership. Because the Partnership?s
only business is the speculative trading of futures and forwards,
the composition of its trading portfolio can change significantly
over any given time period, or even within a single trading day.
Any changes in open positions could positively or negatively
materially impact market risk as measured by VaR.

The table below supplements the quarter-end VaR by presenting the
Partnership?s high, low and average VaR, as a percentage of total
net assets for the four quarterly reporting periods from April 1,
2002 through March 31, 2003.

Primary Market Risk Category High Low Average
Currency (3.35)% (1.54)% (2.47)%

Interest Rate (3.00) (1.16) (1.99)

Equity (0.16) ? (0.05)

Commodity (2.47) (0.97) (1.86)

Aggregate Value at Risk (4.72)% (2.84)% (3.79)%

Limitations on Value at Risk as an Assessment of Market Risk
The face value of the market sector instruments held by the
Partnership is typically many times the applicable margin
requirements. Margin requirements generally range between 2% and
15% of contract face value. Additionally, the use of
leverage causes the face value of the market sector instruments
held by the Partnership to typically be many times the total
capitalization of the Partnership. The value of the Partnership?s
open positions thus creates a ?risk of ruin? not typically found
in other investments. The relative size of the positions held may
cause the Partnership to incur losses greatly in excess of VaR
within a short period of time, given the effects of the leverage
employed and market volatility. The VaR tables above, as well as
the past performance of the Partnership, give no indication of
such ?risk of ruin?. In addition, VaR risk measures should be
viewed in light of the methodology?s limitations, which include
the following:
* past changes in market risk factors will not always result in
accurate predictions of the distributions and correlations of
future market movements;
* changes in portfolio value caused by market movements may
differ from those of the VaR model;
* VaR results reflect past trading positions while future risk
depends on future positions;
* VaR using a one-day time horizon does not fully capture the
market risk of positions that cannot be liquidated or hedged
within one day; and
* the historical market risk factor data used for VaR estimation
may provide only limited insight into losses that could be
incurred under certain unusual market movements.

The VaR tables above present the results of the Partnership?s VaR
for each of the Partnership?s market risk exposures and on an
aggregate basis at March 31, 2003 and 2002, and for the end of the
four quarterly reporting periods from April 1, 2002 through March
31, 2003. Since VaR is based on historical data, VaR should not
be viewed as predictive of the Partnership?s future financial
performance or its ability to manage or monitor risk. There can
be no assurance that the Partnership?s actual losses on a
particular day will not exceed the VaR amounts indicated above or
that such losses will not occur more than once in 100 trading
days.

Non-Trading Risk
The Partnership has non-trading market risk on its foreign cash
balances not needed for margin. These balances and any market
risk they may represent are immaterial.

At March 31, 2003, the Partnership?s cash balance at Morgan
Stanley DW was approximately 99% of its total net asset value. A
decline in short-term interest rates will result in a decline in
the Partnership?s cash management income. This cash flow risk is
not considered to be material.

Materiality, as used throughout this section, is based on an
assessment of reasonably possible market movements and any
associated potential losses, taking into account the leverage,
optionality and multiplier features of the Partnership?s market-
sensitive instruments, in relation to the Partnership?s net
assets.

Qualitative Disclosures Regarding Primary Trading Risk Exposures
The following qualitative disclosures regarding the Partnership?s
market risk exposures - except for (A) those disclosures that are
statements of historical fact and (B) the descriptions of how the
Partnership manages its primary market risk exposures - constitute
forward-looking statements within the meaning of Section 27A of
the Securities Act and Section 21E of the Securities Exchange Act.
The Partnership?s primary market risk exposures as well as the
strategies used and to be used by Demeter and the Trading Manager
for managing such exposures are subject to numerous uncertainties,
contingencies and risks, any one of which could cause the actual
results of the Partnership?s risk controls to differ materially
from the objectives of such strategies. Government interventions,
defaults and expropriations, illiquid markets, the emergence of
dominant fundamental factors, political upheavals, changes in
historical price relationships, an influx of new market
participants, increased regulation and many other factors could
result in material losses as well as in material changes to the
risk exposures and the risk management strategies of the
Partnership. Investors must be prepared to lose all or
substantially all of their investment in the Partnership.

The following were the primary trading risk exposures of the
Partnership at March 31, 2003, 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
March 31, 2003 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 March 31,
2003, the Partnership?s major exposures were to the euro currency
crosses and outright U.S. dollar positions. Outright positions
consist of the U.S. dollar vs. other currencies. These other
currencies include major and minor currencies. Demeter does not
anticipate that the risk profile of the Partnership?s currency
sector will change significantly in the future. The currency
trading VaR figure includes foreign margin amounts converted into
U.S. dollars with an incremental adjustment to reflect the
exchange rate risk inherent to the U.S.-based Partnership
in expressing VaR in a functional currency other than U.S.
dollars.

Interest Rate. The second largest exposure at March 31, 2003
was to the global interest rate sector. Exposure was primarily
spread across the Japanese, Australian and U.S. 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 primary
interest rate exposure is generally to interest rate fluctuations
in the U.S. and the other G-7 countries. The G-7 countries
consist of France, the U.S., Britain, Germany, Japan, Italy and
Canada. However, the Partnership also takes futures positions in
the government debt of smaller nations - e.g., Australia.
Demeter anticipates that the G-7 countries and Australian
interest rates will remain the primary interest rate exposure of
the Partnership for the foreseeable future. The speculative
futures positions held by the Partnership may range from short to
long-term instruments. Consequently, changes in short, medium or
long-term interest rates may have an effect on the Partnership.

Commodity.
Metals. The Partnership's metals exposure at March
31, 2003 was to fluctuations in the price of precious
metals, such as gold, and base metals, such as aluminum,
copper, nickel and zinc. Economic forces, supply and demand
inequalities, geopolitical factors and market expectations
influence price movements in these markets. The Trading
Manager, from time to time, takes positions as market
opportunities develop and Demeter anticipates that the
Partnership will continue to do so.

Energy. At March 31, 2003, the Partnership?s primary energy
exposure was to futures contracts in crude oil. Price
movements in this market result from political developments
in the Middle East, weather patterns and other economic
fundamentals. Significant profits and losses, which have
been experienced in the past, are expected to continue to be
experienced in the future.

Soft Commodities and Agriculturals. At March 31, 2003, the
Partnership had exposure to the markets that comprise these
sectors. Most of the exposure was to the coffee, corn and
cocoa markets. 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 March 31, 2003:

Foreign Currency Balances. The Partnership?s primary
foreign currency balance at March 31, 2003 was in Australian
dollars. The Partnership controls the non-trading risk of
these balances by regularly converting them back into U.S.
dollars upon liquidation of their respective positions.

Qualitative Disclosures Regarding Means of Managing Risk Exposure
The Partnership and the Trading Manager, 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 market sectors and trading
approaches, and monitoring the performance of the Trading Manager
daily. In addition, the Trading Manager establishes
diversification guidelines, often set in terms of the maximum
margin to be committed to positions in any one market sector or
market-sensitive instrument.

Demeter monitors and controls the risk of the Partnership?s non-
trading instrument, cash. Cash is the only Partnership investment
directed by Demeter, rather than the Trading Manager.

Item 4. CONTROLS AND PROCEDURES
(a) As of a date within 90 days of the filing date of this
quarterly report, the President and Chief Financial
Officer of the general partner, Demeter, have evaluated
the effectiveness of the Partnership?s disclosure
controls and procedures (as defined in Rules 13a?14 and
15d?14 of the Exchange Act), and have judged such
controls and procedures to be effective.

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

PART II. OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS
None.

Item 5. OTHER INFORMATION
Changes in Management. The following changes have been made to
the Board of Directors and Officers of Demeter Management
Corporation, the general partner:

Mr. Anthony J. DeLuca resigned the position of Director of
Demeter.

Mr. Edward C. Oelsner resigned the position of Director of
Demeter.

Mr. Joseph G. Siniscalchi resigned the position of Director of
Demeter.

Mr. Douglas J. Ketterer, age 37, was named a Director of Demeter,
subject to Mr. Ketterer being confirmed as a principal of Demeter
by the National Futures Association. Mr. Ketterer is a Managing
Director and head of the Strategic Solutions Group, which is
comprised of the Global Product Development Group, Financial
Planning, Mutual Fund Advisory Group, Retirement Strategies,
Education Strategies, Gifting Strategies, External Mutual Funds
and the Global Portfolio Analysis and Research Departments. 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. Jeffrey S. Swartz, age 36, was named a Director of Demeter,
subject to Mr. Swartz being confirmed as a principal of Demeter
by the National Futures Association. Mr. Swartz is a Managing
Director and Chief Operating Officer of Investor Advisory
Services (?IAS?). Mr. Swartz began his career with Morgan
Stanley in 1990, working as a Financial Advisor in Boston. He
was appointed Sales Manager of the Boston office in 1994, and
served in that role for two years. In 1996, he was named Branch
Manager of the Cincinnati office. In 1999, Mr. Swartz was named
Associate Director of the Midwest region, which consisted of 10
states and approximately 90 offices. Mr. Swartz served in this
capacity until October of 2001, when he was named Director of IAS
Strategy and relocated to IAS headquarters in New York. In
December of 2002, Mr. Swartz was promoted to Managing
Director and Chief Operating Officer of IAS. Mr. Swartz received
his degree in Business Administration from the University of New
Hampshire.

Mr. Jeffrey D. Hahn, Chief Financial Officer of Demeter, was
named a Director of Demeter.

Item 6. EXHIBITS AND REPORTS ON FORM 8-K

(A) Exhibits

3.01 Amended and Restated Limited Partnership Agreement of the
Partnership, dated as of May 14, 1990, is incorporated by
reference to Exhibit A of the Partnership?s Prospectus
dated June 30, 1992, filed with the Securities and
Exchange Commission pursuant to Rule 424(b)(3) under the
Securities Act of 1933 on July 14, 1992.
3.02 Amendment No. 1 to the Limited Partnership Agreement of
the Partnership dated as of May 14, 1990, is incorporated
by reference to Exhibit 3.02 of the Partnership?s
Quarterly Report on Form 10-Q (File No. 0-19116) filed
with the Securities and Exchange Commission on August 14,
2002.
10.01 Management Agreement among the Partnership, Demeter
Management Corporation and Dean Witter Futures & Currency
Management Inc., dated as of July 12, 1990, is
incorporated by reference to Exhibit 10.02 of the
Partnership?s Registration Statement on Form S-1 (File
No. 33-34989) filed on May 21, 1990.
10.02 Amendment No. 1 to the Management Agreement, dated as of
June 30, 1992, is incorporated by reference to Exhibit
10.02 of the Partnership?s Quarterly Report on Form 10-Q
(File No. 0-19116) filed with the Securities and Exchange
Commission on August 14, 2002.
10.03 Amended and Restated Customer Agreement between the
Partnership and Morgan Stanley DW Inc., dated as of May
19, 2000, is incorporated by reference to Exhibit 10.01
of the Partnership?s Form 8-K (File No. 0-19116) filed
with the Securities and Exchange Commission on November
13, 2001.
10.04 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-
19116) filed with the Securities and Exchange Commission
on November 13, 2001.

10.05 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. 0-19116) filed with
the Securities and Exchange Commission on November 13,
2001.
10.06 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.
0-19116) filed with the Securities and Exchange
Commission on November 13, 2001.
10.07 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. 0-19116) filed with the
Securities and Exchange Commission on November 13, 2001.
99.01 Certification of President of Demeter Management
Corporation, 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.
99.02 Certification of Chief Financial Officer of Demeter
Management Corporation, 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.

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

SIGNATURE

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

Dean Witter Diversified Futures Fund III L.P.
(Registrant)

By: Demeter Management Corporation
(General Partner)

May 15, 2003 By: /s/Jeffrey D. Hahn
Jeffrey D. Hahn
Director and Chief Financial Officer

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

CERTIFICATIONS

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

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

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

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

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

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

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

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

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

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

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

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

Date: May 15, 2003 /s/ Jeffrey A. Rothman
Jeffrey A. Rothman
President, Demeter Management
Corporation, general partner
of the registrant

CERTIFICATIONS

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

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

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

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

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

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

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

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

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

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

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

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

Date: May 15, 2003 /s/Jeffrey D. Hahn
Jeffrey D. Hahn
Chief Financial Officer,
Demeter Management Corporation,
general partner of the
registrant

EXHIBIT 99.01

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

In connection with the Quarterly Report of Dean Witter Diversified
Futures Fund III L.P. (the ?Partnership?) on Form 10-Q for the
period ended March 31, 2003 as filed with the Securities and
Exchange Commission on the date hereof (the ?Report?), I, Jeffrey
A. Rothman, President, Demeter Management Corporation, general
partner of the Partnership, certify, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002, that:

(1) The Report fully complies with the requirements of Section
13 or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents,
in all material respects, the financial condition and
results of operations of the Partnership.

By: /s/Jeffrey A. Rothman

Name: Jeffrey A. Rothman
Title: President

Date: May 15, 2003

EXHIBIT 99.02

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

In connection with the Quarterly Report of Dean Witter Diversified
Futures Fund III L.P. (the ?Partnership?) on Form 10-Q for the
period ended March 31, 2003 as filed with the Securities and
Exchange Commission on the date hereof (the ?Report?), I, Jeffrey
D. Hahn, Chief Financial Officer, Demeter Management Corporation,
general partner of the Partnership, certify, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section
13 or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents,
in all material respects, the financial condition and
results of operations of the Partnership.

By: /s/Jeffrey D. Hahn

Name: Jeffrey D. Hahn
Title: Chief Financial Officer

Date: May 15, 2003

DEAN WITTER DIVERSIFIED FUTURES FUND III L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

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