WITTER DEAN CORNERSTONE FUND III - 10-Q Quarterly Report

Back to GetFilings.com

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

FORM 10-Q

[X] Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended September 30, 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 No. 0-13299

DEAN WITTER CORNERSTONE FUND III

(Exact name of registrant as specified in its charter)

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

Demeter Management Corporation
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 CORNERSTONE FUND III

INDEX TO QUARTERLY REPORT ON FORM 10-Q

September 30, 2003

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

DEAN WITTER CORNERSTONE FUND III
STATEMENTS OF FINANCIAL CONDITION

DEAN WITTER CORNERSTONE FUND III
STATEMENTS OF OPERATIONS
(Unaudited)

DEAN WITTER CORNERSTONE FUND III
STATEMENTS OF OPERATIONS
(Unaudited)

DEAN WITTER CORNERSTONE FUND III
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
For the Nine Months Ended September 30, 2003 and 2002
(Unaudited)

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

DEAN WITTER CORNERSTONE FUND III
NOTES TO FINANCIAL STATEMENTS
September 30, 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 Cornerstone Fund III (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 Cornerstone Fund III is a New York limited partnership
organized to engage primarily in the speculative trading of
futures contracts, options on futures contracts and forward
contracts on foreign currencies and other commodity interests. The
Partnership is one of the Dean Witter Cornerstone Funds, comprised
of Dean Witter Cornerstone Fund II, the Partnership, and Dean
Witter Cornerstone Fund IV.

The Partnership's general partner is Demeter Management
Corporation ("Demeter"). The non-clearing commodity broker is
Morgan Stanley DW Inc. ("Morgan Stanley DW"). The clearing
commodity brokers are Morgan Stanley & Co. Incorporated ("MS &
Co.") and Morgan Stanley & Co. International Limited ("MSIL").

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

Demeter, Morgan Stanley DW, MS & Co. and MSIL are wholly-owned
subsidiaries of Morgan Stanley. The trading managers of the
Partnership are Graham Capital Management, L.P. and Sunrise
Capital Management, Inc. (individually, a "Trading Manager", or
collectively, the "Trading Managers").

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

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

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

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

Sep. 30, 2003 (1,115,379) 338,831 (776,548) Dec. 2004 Dec. 2003
Dec. 31, 2002 688,301 864,306 1,552,607 Dec. 2003 Mar. 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 and futures-styled options contracts are
marked to market on a daily basis, with variations in value
settled on a daily basis. Morgan Stanley DW, MS & Co., and MSIL,
each as a futures commission merchant for the Partnership's
exchange-traded futures and futures-styled options contracts, are
DEAN WITTER CORNERSTONE FUND III
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)

required, pursuant to regulations of the Commodity Futures Trading
Commission ("CFTC"), to segregate from their own assets, and for
the sole benefit of their commodity customers, all funds held by
them with respect to exchange-traded futures and futures-styled
options contracts, including an amount equal to the net unrealized
gains (losses) on all open futures and futures-styled options
contracts, which funds, in the aggregate, totaled $25,054,317 and
$27,060,890 at September 30, 2003 and December 31, 2002,
respectively. With respect to the Partnership's off-exchange-
traded forward currency contracts, there are no daily exchange-
required settlements of variations in value nor is there any
requirement that an amount equal to the net unrealized gains
(losses) on open forward contracts be segregated, however, MS &
Co. and Morgan Stanley DW will make daily settlements of losses as
needed. 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 such contracts, to perform.
The Partnership has a netting agreement with MS & Co. This
agreement, which seeks to reduce both the Partnership's and MS &
Co.'s exposure on off-exchange-traded forward currency contracts,
should materially decrease the Partnership's credit risk in the
event of MS & Co.'s bankruptcy or insolvency.

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

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

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

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

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

There are no known material trends, favorable or unfavorable, that
would affect, and no expected material changes to, the
Partnership's capital resource arrangements at the present time.
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. The contracts the Partnership trades 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. The
value of foreign currency forward contracts is based on the spot
rate as of the close of business, New York City time, on a given
day.

Results of Operations
General. The Partnership's results depend on the Trading Managers
and the ability of the Trading Managers' trading programs to take
advantage of price movements or other profit opportunities in the
futures, forwards and options markets. The following presents a
summary of the Partnership's operations for the three and nine
month periods ended September 30, 2003 and 2002, and a general
discussion of its trading activities during each period. It is
important to note, however, that the Trading Managers trade in
various markets at different times and that prior activity
in a particular market does not mean that such market will be
actively traded by the Trading Managers or will be profitable in
the future. Consequently, the results of operations of the
Partnership are difficult to discuss other than in the context of
the Trading Managers' trading activities on behalf of the
Partnership and how the Partnership has performed in the past.

The Partnership's results of operations set forth in the
financial statements on pages 2 through 11 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 and Nine Months Ended September 30, 2003
For the quarter ended September 30, 2003, the Partnership
recorded total trading losses, net of interest income, of
$2,280,487 and posted a decrease in net asset value per Unit.
The most significant losses of approximately 5.7% were recorded
in the global interest rate markets throughout the quarter from
positions in U.S. and European interest rate futures as prices
first declined during July amid a rally in global equity prices
and then reversed higher during August and September as renewed
fears for an unsustainable economic recovery resurfaced. In the
energy markets, losses of approximately 2.3% were incurred
primarily during September by positions in crude oil futures as
prices first trailed lower and then unexpectedly reversed higher
after OPEC announced that it would move to reduce output by
limiting production in an effort to stem declining oil prices.
Additional losses of approximately 2.3% in the currency markets
resulted from short positions in the Swiss franc and euro versus
the U.S. dollar during September as the dollar's value moved
lower after the release of several weak U.S. economic reports
prompted fears that a U.S. economic recovery was unsustainable.
Smaller losses of approximately 0.8% were recorded in the metals
markets, primarily during September from long futures
positions in aluminum, as prices declined because investors
feared a drop in demand following the release of disappointing
U.S. economic data. A portion of the Partnership's overall
losses was offset by gains of approximately 0.6% recorded in the
agricultural markets, primarily during September, from long
futures positions in soybean meal and soybeans as prices were
lifted higher by robust U.S. export sales data and smaller crop
assessments by the U.S. Department of Agriculture. Additional
gains of approximately 0.5% were recorded in the global stock
index markets during July from long positions in Japanese stock
index futures as prices were buoyed by a rise in investor
sentiment regarding the Japanese economy. Total expenses for the
three months ended September 30, 2003 were $597,560, resulting in
a net loss of $2,878,047. The net asset value of a Unit
decreased from $3,829.52 at June 30, 2003 to $3,438.10 at
September 30, 2003.

For the nine months ended September 30, 2003, the Partnership
recorded total trading revenues, including interest income, of
$855,025 and after expenses, posted a decrease in net asset value
per Unit. The most significant gains of approximately 2.2% were
recorded in the currency markets from long positions in the euro
versus the U.S. dollar as the value of the euro strengthened to
an all-time high during May amid uncertainty regarding the Bush
Administration's economic policy, renewed fears of potential
terrorist attacks against American interests, and investor
preference for non-U.S. dollar assets. During January and April,
gains were also experienced from long positions in the euro
versus the U.S. dollar as the U.S. dollar's value weakened amid
renewed fears of a military conflict with Iraq, increased
tensions with North Korea, and weak U.S. economic data.
Elsewhere in the currency markets, gains were recorded from long
positions in the Australian dollar, Canadian dollar, and South
African rand versus the U.S. dollar as the value of these
currencies increased amid rising gold prices early in the year,
as well as interest rate differentials between the respective
countries and the U.S. Additional gains of approximately 1.7% in
the energy markets were experienced from long positions in
natural gas futures as prices trended higher during January and
February due to prolonged frigid temperatures in the northeastern
and midwestern U.S. A portion of the Partnership's overall gains
for the first nine months of the year was offset by losses of
approximately 3.1% incurred by the metals markets from long
futures positions in aluminum and copper as prices fell during
March, June, and August amid muted industrial demand, easing
supply concerns and heavy technically-based selling. Additional
losses of approximately 1.0% were experienced in global stock
index futures markets, primarily during April, from short
positions in European and U.S stock index futures as global
equity prices rallied in response to positive earnings
announcements and the conclusion of the war in Iraq. Further
losses were experienced in September from long positions
in European and U.S. stock index futures as global equity prices
retreated amid a broad-based sell-off prompted by a steady stream
of negative economic data that raised concerns about the strength
of the global economy. Losses of approximately 0.7% were
experienced in the agricultural markets during May and August
from short positions in corn futures as prices moved higher amid
concerns of weather related crop damage in the U.S. midwest.
Total expenses for the nine months ended September 30, 2003 were
$1,876,688, resulting in a net loss of $1,021,663. The net asset
value of a Unit decreased from $3,592.21 at December 31, 2002 to
$3,438.10 at September 30, 2003.

For the Quarter and Nine Months Ended September 30, 2002
For the quarter ended September 30, 2002, the Partnership
recorded total trading revenues, including interest income, of
$5,547,653 and posted an increase in net asset value per Unit.
The most significant gains of approximately 13.4% were recorded
in the global interest rate markets from previously established
long positions in U.S. and European interest rate futures, as
prices trended higher throughout the quarter due to investors
seeking a safe haven from falling equity prices and increased
pessimism regarding a global economic recovery. Gains of
approximately 1.5% were recorded in the energy markets from long
positions in crude oil futures as prices trended higher on the
increasing possibility of military action against Iraq.
Additional gains of approximately 1.4% were recorded in the
global stock index futures markets, primarily during July and
September, from short positions in U.S. and European Stock Index
futures as prices weakened amid suspicious regarding corporate
accounting practices and global political and economic
uncertainty. A portion of the Partnership's overall gains was
offset by losses of approximately 7.0% in the currency markets
from previously established long positions in the Swiss franc,
Japanese yen, and euro relative to the U.S. dollar as these
currencies weakened against the dollar due to the emphasis on a
"strong dollar" policy by the Bush Administration during July and
the persistence of trendless price activity during August and
September. Additional losses of approximately 1.3% were recorded
in the metals markets from long positions in gold futures as
prices reversed lower during July. On February 27, 2002, the
Partnership received notification of a preliminary entitlement to
payment from the Sumitomo Copper Litigation Settlement
Administrator. The Partnership received payment of this
settlement award in the amount of $2,842,492 as of August 30,
2002. Total expenses for the three months ended September 30,
2002 were $620,612, resulting in net income of $4,927,041. The
net asset value of a Unit increased from $3,159.95 at June 30,
2002 to $3,768.54 at September 30, 2002.

For the nine months ended September 30, 2002, the Partnership
recorded total trading revenues, including interest income, of
$7,611,223 and posted an increase in net asset value per
Unit. The most significant gains of approximately 14.8% were
recorded in the global interest rate markets from long positions
in U.S., European and Japanese interest rate futures as prices
trended higher during a majority of the second and third quarters
due to uncertainty regarding a global economic recovery. A
portion of the Partnership's overall gains was offset by losses
of approximately 1.8% recorded in the global stock index markets
from long positions in Nikkei 225 Index futures as Japanese
equity prices fluctuated from January through May amid concerns
regarding the stability of the yen. Total expenses for the nine
months ended September 30, 2002 were $1,812,190, resulting in net
income of $5,799,033. The net asset value of a Unit increased
from $3,045.84 at December 31, 2001 to $3,768.54 at September 30,
2002.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK

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

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

The Partnership's total market risk is influenced by a wide
variety of factors, including, but not limited to, 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, forwards and options are settled daily
through variation margin.

The Partnership's risk exposure in the market sectors traded by
the Trading Managers is estimated below in terms of Value at Risk
("VaR"). The VaR model used by the Partnership includes many
variables that could change the market value of the Partnership's
trading portfolio. The Partnership estimates VaR using a model
based upon historical simulation with a confidence level of 99%.
Historical simulation involves constructing a distribution of
hypothetical daily changes in the value of a trading portfolio.
The VaR model takes into account linear exposures to price and
interest rate risk. Market risks that are incorporated in the
VaR model include equity and commodity prices, interest rates,
foreign exchange rates, and correlation among these variables.
The hypothetical changes in portfolio value are based on daily
percentage changes observed in key market indices or other market
factors ("market risk factors") to which the portfolio is
sensitive. The historical observation period of the Partner-
ship's VaR is approximately four years. The one-day 99%
confidence level of the Partnership's VaR corresponds to the
negative change in portfolio value that, based on observed market
risk factors, would have been exceeded once in 100 trading days.
In other words, one-day VaR for a portfolio is a number such that
losses for a 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 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 continually evolving
as trading portfolios become more diverse and modeling techniques
and systems capabilities improve. Please note that the VaR model
is used to numerically quantify market risk for historic
reporting purposes only and is not utilized by either Demeter or
the Trading Managers in their daily risk management activities.
Please further note that VaR as described above may not be
comparable to similarly titled measures used by other entities.

The Partnership's Value at Risk in Different Market Sectors
The following table indicates the VaR associated with the
Partnership's open positions as a percentage of total net assets
by primary market risk category at September 30, 2003 and 2002.
At September 30, 2003 and 2002, the Partnership's total
capitalization was approximately $25 million and $30 million,
respectively.

Primary Market September 30, 2003 September 30, 2002
Risk Category Value at Risk Value at Risk

Equity (1.48)% (0.14)%
Currency (1.43) (2.94)
Interest Rate (0.33) (1.15)
Commodity (1.59) (1.85)
Aggregate Value at Risk (2.76)% (3.61)%

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 VaR(s) for all such market categories
due to the diversification benefit across asset classes.

The table above represents the VaR of the Partnership's
open positions at September 30, 2003 and 2002 only and is not
necessarily representative of either the historic or future risk
of an investment in the Partnership. Because the only 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. 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 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 October 1, 2002 through September 30, 2003.

Primary Market Risk Category High Low Average
Equity (1.48)% (0.08)% (0.86)%

Currency (2.60) (0.92) (1.51)

Interest Rate (1.55) (0.33) (0.81)

Commodity (1.59) (0.47) (1.19)

Aggregate Value at Risk (3.03)% (1.54)% (2.45)%

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 September 30, 2003 and
2002, and for the end of the four quarter-end reporting periods
from October 1, 2002 through September 30, 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.

The Partnership also maintains a substantial portion
(approximately 95% as of September 30, 2003) of its available
assets in cash at Morgan Stanley DW. A decline in short-term
interest rates will result in a decline in the Partnership's cash
management income. This cash flow risk is not considered to be
material.

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

Qualitative Disclosures Regarding Primary Trading Risk Exposures
The following qualitative disclosures regarding the Partnership's
market risk exposures - except for (A) those disclosures that are
statements of historical fact and (B) the descriptions of how the
Partnership manages its primary market risk exposures - constitute
forward-looking statements within the meaning of Section 27A of
the Securities Act and Section 21E of the Securities Exchange Act.
The Partnership's primary market risk exposures, as well as the
strategies used and to be used by Demeter and the Trading Managers
for managing such exposures, are subject to numerous
uncertainties, contingencies and risks, any one of which could
cause the actual results of the Partnership's risk controls to
differ materially from the objectives of such strategies.
Government interventions, defaults and expropriations, illiquid
markets, the emergence of dominant fundamental factors, political
upheavals, changes in historical price relationships, an influx of
new market participants, increased regulation and many other
factors could result in material losses, as well as in material
changes to the risk exposures and the risk management strategies
of the Partnership. Investors must be prepared to lose all or
substantially all of their investment in the Partnership.
The following were the primary trading risk exposures of
the Partnership at September 30, 2003, by market sector. It may
be anticipated, however, that these market exposures will vary
materially over time.

Equity. The Partnership's primary equity exposure at September
30, 2003 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 September 30, 2003, the Partnership's primary
exposures were to the S&P 500 (U.S.), NASDAQ (U.S.), Nikkei
(Japan), DAX (Germany) and CAC 40 (France) stock indices. The
Partnership is primarily exposed to the risk of adverse price
trends or static markets in the U.S., Japanese and European 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.

Currency. The second largest market exposure of the Partnership
at September 30, 2003 was to the currency sector. The Partner-
ship'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. At September 30, 2003,
the Partnership's major exposure was to outright U.S.
dollar positions. Outright positions consist of the U.S. dollar
vs. other currencies. These other currencies include major and
minor currencies. Demeter does not anticipate that the risk
profile of the Partnership's currency sector will change
significantly in the future. The currency trading VaR figure
includes foreign margin amounts converted into U.S. dollars with
an incremental adjustment to reflect the exchange rate risk
inherent to the U.S.-based Partnership in expressing VaR in a
functional currency other than U.S. dollars.

Interest Rate. At September 30, 2003, the Partnership's interest
rate exposure was primarily spread across the Japanese, U.S. and
European 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 countries - 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.
Energy. The Partnership's energy exposure at September 30,
2003 was shared primarily by 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 price resulting from weather patterns
and supply and demand factors and will likely continue in
this choppy pattern.

Metals. The Partnership's metals exposure at September 30,
2003 was to fluctuations in the price of precious metals,
such as gold and silver, and base metals, such as copper,
aluminum and nickel. Economic forces, supply and demand
inequalities, geopolitical factors and market expectations
influence price movements in these markets. The Trading
Managers, from time to time, take positions when market
opportunities develop, and Demeter anticipates that the
Partnership will continue to do so.
Soft Commodities and Agriculturals. At September 30,
2003, the Partnership had exposure to the markets that
comprise these sectors. Most of the exposure was to cotton,
soybeans and soybean-related products. 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 September 30, 2003:

Foreign Currency Balances. The Partnership's primary foreign
currency balances at September 30, 2003 were in Hong Kong
dollars, euros and Japanese yen. The Partnership controls
the non-trading risk of these balances by regularly
converting them back into U.S. dollars upon liquidation of
their respective positions.

Qualitative Disclosures Regarding Means of Managing Risk Exposure
The Partnership and the Trading Managers, separately, attempt to
manage the risk of the Partnership's open positions in essentially
the same manner in all market categories traded. Demeter attempts
to manage market exposure by diversifying the Partnership's assets
among different Trading Managers, each of whose strategies focus
on different market sectors and trading approaches, and monitoring
the performance of the Trading Managers daily. In addition, the
Trading Managers establish diversification guidelines,
often set in terms of the maximum margin to be committed to
positions in any one market sector or market-sensitive instrument.

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

Item 4. CONTROLS AND PROCEDURES
(a) As of the end of the period covered by 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-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 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

Management. The following individuals were named to the Board of
Directors of Demeter in the quarter ended March 31, 2003 and were
subsequently confirmed as principals of Demeter by the National
Futures Association:

Mr. Douglas J. Ketterer was confirmed as a principal of Demeter
by the National Futures Association on October 27, 2003.

Mr. Jeffrey S. Swartz was confirmed as a principal of Demeter by
the National Futures Association on October 23, 2003.

Item 6. EXHIBITS AND REPORTS ON FORM 8-K

(A) Exhibits

3.01 Limited Partnership Agreement of the Partnership, dated
as of December 7, 1983, as amended as of May 11, 1984, is
incorporated by reference to Exhibit 3.01 of the
Partnership's Annual Report on Form 10-K for the fiscal
year ended September 30, 1984 (File No. 0-13299).
10.01 Management Agreement among the Partnership, Demeter and
Sunrise Capital Management Inc. (formerly Sunrise
Commodities Inc.), dated as of November 15, 1983, is
incorporated by reference to Exhibit 10.03 of the
Partnership's Annual Report on Form 10-K for the fiscal
year ended September 30, 1984 (File No. 0-13299).

10.02 Management Agreement among the Partnership, Demeter and
Welton Investment Systems Corporation, dated as of July
1, 1996, is incorporated by reference to Exhibit 10.02 of
the Partnership's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997 (File No. 0-13299).
10.03 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.
31.01 Certification of President of Demeter Management
Corporation, the general partner of the Partnership,
pursuant to rules 13a-15(e) and 15d-15(e), as adopted
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 rules 13a-15(e) and 15d-15(e),
as adopted 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.

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

SIGNATURE

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

Dean Witter Cornerstone Fund III
(Registrant)

By: Demeter Management Corporation
(General Partner)

November 14, 2003 By: /s/Jeffrey D. Hahn
Jeffrey D. Hahn
Chief Financial Officer

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

EXHIBIT 31.01

CERTIFICATIONS

I, Jeffrey A. Rothman, President of Demeter Management Corporation
("Demeter"), 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 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
report;

3. Based on my knowledge, the financial statements, and other
financial information included in this 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 report;

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

a) Designed such disclosure controls and procedures, or
caused such disclosure controls and procedures to be
designed under our supervision, 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 report is being prepared;

b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period
covered by this report based on such evaluation; and

c) Disclosed in this report any change in the registrant's
internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter (the
registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's
internal control over financial reporting; and

5. The registrant's other certifying officer and I have
disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant's
auditors and the audit committee of Demeter's board of
directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in
the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect
the registrant's ability to record, process, summarize and
report financial information; and

b) Any fraud, whether or not material, that involves
management or other employees who have a significant role
in the registrant's internal control over financial
reporting.

Date: November 14, 2003 /s/ Jeffrey A. Rothman
Jeffrey A. Rothman
President,
Demeter Management Corporation,
general partner of the registrant

EXHIBIT 31.02
CERTIFICATIONS

I, Jeffrey D. Hahn, Chief Financial Officer of Demeter Management
Corporation ("Demeter"), 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 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
report;

3. Based on my knowledge, the financial statements, and other
financial information included in this 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 report;

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

a) Designed such disclosure controls and procedures, or
caused such disclosure controls and procedures to be
designed under our supervision, 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 report is being prepared;

b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period
covered by this report based on such evaluation; and

c) Disclosed in this report any change in the registrant's
internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter (the
registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is

reasonably likely to materially affect, the
registrant's internal control over financial reporting;
and

5. The registrant's other certifying officer and I have
disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant's
auditors and the audit committee of Demeter's board of
directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in
the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect
the registrant's ability to record, process, summarize and
report financial information; and

b) Any fraud, whether or not material, that involves
management or other employees who have a significant role
in the registrant's internal control over financial
reporting.

Date: November 14, 2003 /s/ Jeffrey D. Hahn
Jeffrey D. Hahn
Chief Financial Officer,
Demeter Management Corporation,
general partner of the registrant

EXHIBIT 32.01

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 Cornerstone
Fund III (the "Partnership") on Form 10-Q for the period ended
September 30, 2003 as filed with the Securities and Exchange
Commission on the date hereof (the "Report"), I, Jeffrey A.
Rothman, President, Demeter Management Corporation, the 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, to the best of my knowledge:
(1) The Report fully complies with the requirements of Section
13 or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents,
in all material respects, the financial condition and
results of operations of the Partnership.

By: /s/ Jeffrey A. Rothman

Name: Jeffrey A. Rothman
Title: President

Date: November 14, 2003

EXHIBIT 32.02

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 Cornerstone
Fund III (the "Partnership") on Form 10-Q for the period ended
September 30, 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, the
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, to the best of my knowledge:
(1) The Report fully complies with the requirements of
Section 13 or 15(d) of the Securities Exchange Act of
1934; and
(2) The information contained in the Report fairly presents,
in all material respects, the financial condition and
results of operations of the Partnership.

By: /s/ Jeffrey D. Hahn

Name: Jeffrey D. Hahn
Title: Chief Financial Officer

Date: November 14, 2003