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, 2006 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
330 Madison Avenue, 8th Floor
New York, NY                                 	         10017
(Address of principal executive offices)	  	      (Zip Code)

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





(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___________

Indicate by check-mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer.  See definition of ?accelerated
filer and large accelerated filer? in Rule 12b-2 of the Exchange Act.  (Check
one):

Large accelerated filer___Accelerated filer____Non-accelerated filer X

Indicate by check-mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act).  Yes___  No X


<page> <table>	DEAN WITTER CORNERSTONE FUND III

	INDEX TO QUARTERLY REPORT ON FORM 10-Q

	March 31, 2006


<caption>


PART I. FINANCIAL INFORMATION

				<c>
Item 1. Financial Statements

		Statements of Financial Condition as of March 31, 2006
		(Unaudited) and December 31, 2005..........................2

		Statements of Operations for the Quarters
		Ended March 31, 2006 and 2005 (Unaudited) .................3

		Statements of Changes in Partners? Capital for the
		Quarters Ended March 31, 2006 and 2005 	(Unaudited).........4

		Statements of Cash Flows for the Quarters Ended
		March 31, 2006 and 2005 (Unaudited)........................5

		Notes to Financial Statements (Unaudited)...............6-11

Item 2.	Management?s Discussion and Analysis of
			Financial Condition and Results of Operations.......12-20

Item 3.	Quantitative and Qualitative Disclosures about
			Market Risk.........................................21-34

Item 4.	Controls and Procedures.............................34-35


PART II. OTHER INFORMATION

Item 1A.Risk Factors...........................................36

Item 5.	Other Information......................................36

Item 6.	Exhibits............................................36-37
</table>


<page> <table> PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements

	DEAN WITTER CORNERSTONE FUND III
	STATEMENTS OF FINANCIAL CONDITION
<caption>
	                     March 31,	    December  31,
	      2006     	         2005
	                      $	      $
	                     (Unaudited)
ASSETS

	<c>	<c>
Equity in futures interests trading accounts:
	Unrestricted cash	19,123,375	21,002,788
	Restricted cash	      3,309,456	    1,409,104

	    Total cash	  22,432,831	   22,411,892

	Net unrealized gain on open contracts (MS&Co.)	       875,426	        271,196
	Net unrealized gain (loss) on open contracts (MSIL)	         (24,199)	       599,935

	     Total net unrealized gain on open contracts	       851,227	        871,131

	     Total Trading Equity	23,284,058  	23,283,023

Due from Morgan Stanley DW	         78,869	         41,210
Interest receivable (Morgan Stanley DW)	                69,044	          61,652

	     Total Assets	  23,431,971	  23,385,885

LIABILITIES AND PARTNERS? CAPITAL

Liabilities

Redemptions payable	259,070	247,236
Accrued administrative expenses	118,378	112,360
Accrued management fees	        67,998	         67,881

	     Total Liabilities	       445,446	       427,477

Partners? Capital

Limited Partners (5,506.911 and
	5,693.493 Units, respectively)	22,566,431	22,552,335
General Partner (102.516 Units)		         420,094	       406,073

	     Total Partners? Capital	    22,986,525	  22,958,408

	     Total Liabilities and Partners? Capital                                               	    23,431,971	  23,385,885


NET ASSET VALUE PER UNIT	       4,097.84	      3,961.07
<fn>
	The accompanying notes are an integral part
</table>	of these financial statements.
<page> <table> 	DEAN WITTER CORNERSTONE FUND III
	STATEMENTS OF OPERATIONS
(Unaudited)


<caption>
  	   	     For the Quarters Ended March 31,


                                                                         		        2006    	    2005
                                                                               	                    $		     $

		<c>		<c>
INVESTMENT INCOME
	Interest income (Morgan Stanley DW)		   201,857			      130,964

EXPENSES
	Brokerage commissions (Morgan Stanley DW)		265,965	259,793
	Management fees 	      	202,817	222,315
	Transaction fees and costs		      22,506	         12,454
	Common administrative expenses		20,000	       17,000

		Total Expenses		    511,288	     511,562

NET INVESTMENT LOSS	   (309,431)	   (380,598)

TRADING RESULTS
Trading profit (loss):
	Realized			1,109,160	 (1,861,803)
	Net change in unrealized		      (19,904)	      (323,437)

    		Total Trading Results		   1,089,256	    (2,185,240)

NET INCOME (LOSS)  	    779,825	     (2,565,838)


NET INCOME (LOSS) ALLOCATION

	Limited Partners                                                  		     765,804       	   (2,526,041)

	General Partner                                                   		            14,021	     (39,797)


NET INCOME (LOSS) PER UNIT

	Limited Partners                                                   		           136.77    	 (388.21)

	General Partner                                                   		             136.77	      (388.21)



<fn>




	The accompanying notes are an integral part
	of these financial statements.
</table>
<page> <table> 	DEAN WITTER CORNERSTONE FUND III
	STATEMENTS OF CHANGES IN PARTNERS? CAPITAL
	For the Quarters Ended March 31, 2006 and 2005
	(Unaudited)

<caption>



                                                              	Units of
	Partnership	Limited	General
	     Interest   	  Partners  	   Partner   	     Total
		$	$	$

	<c>	<c>	<c>	<c>
Partners? Capital,
December 31, 2004	6,615.512	27,476,835	432,491	27,909,326

Net Loss	?	(2,526,041)	(39,797)	(2,565,838)

Redemptions	   (138.047)	     (531,176) 	        ?  	      	        (531,176)

Partners? Capital,
March 31, 2005	           6,477.465	  24,419,618	             392,694	 24,812,312





Partners? Capital,
December 31, 2005	5,796.009	22,552,335	406,073	22,958,408

Net Income	?	765,804	14,021	779,825

Redemptions	   (186.582)	     (751,708) 	        ?  	      	        (751,708)

Partners? Capital,
March 31, 2006	         5,609.427	  22,566,431	             420,094	 22,986,525






<fn>







The accompanying notes are an integral part
of these financial statements.
</table>



<page> <table> 	DEAN WITTER CORNERSTONE FUND III
	STATEMENTS OF CASH FLOWS
(Unaudited)

<caption>

	         For the Quarters Ended March 31,

	      2006     	      2005
	    $	      $


	<c>	<c>
CASH FLOWS FROM OPERATING ACTIVITIES

Net income (loss)	      779,825		(2,565,838)
Noncash item included in net income (loss):
	Net change in unrealized		   19,904	323,437

(Increase) decrease in operating assets:
	Restricted cash		(1,900,352)	562,297
	Due from Morgan Stanley DW                                                 	      	(37,659)
	15,120
	Interest receivable (Morgan Stanley DW)	 	(7,392)	(5,311)


Increase (decrease) in operating liabilities:
	Accrued administrative expenses		6,018	13,103
	Accrued management fees                                               		             117	         (9,262)

Net cash used for operating activities  		  (1,139,539)	   (1,666,454)

CASH FLOWS FROM FINANCING ACTIVITIES

Cash paid for redemptions of Units		   (739,874)	      (600,842)

Net cash used for financing activities               	   (739,874)	      (600,842)

Net decrease in unrestricted cash 	(1,879,413)	(2,267,296)

Unrestricted cash at beginning of period                                     		   21,002,788
24,763,854

Unrestricted cash at end of period                                               		   19,123,375
22,496,558





<fn>




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


</table>


<page> DEAN WITTER CORNERSTONE FUND III
NOTES TO FINANCIAL STATEMENTS
March 31, 2006
(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, 2005 Annual Report
on Form 10-K.  Certain prior year amounts relating to cash balances
were reclassified on the Statements of Financial Condition and the
related Statements of Cash Flows to conform to 2006 presentation.
Such reclassifications have no impact on the Partnership?s reported
net income (loss).

1.  Organization
Dean Witter Cornerstone Fund III is a New York limited partnership
organized in 1983 to engage in the speculative trading of futures
contracts, options on futures contracts, and forward contracts on
foreign currencies and other commodity interests. The Partnership
is one of the Dean Witter Cornerstone Funds, comprised of the
Partnership, Dean Witter Cornerstone Fund II, and Dean Witter
Cornerstone Fund IV.


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

The Partnership?s general partner is Demeter Management Corporation
(?Demeter?). The non-clearing commodity broker is
Morgan Stanley DW Inc. (?Morgan Stanley DW?).  The clearing
commodity brokers are Morgan Stanley & Co. Incorporated (?MS &
Co.?) and Morgan Stanley & Co. International Limited (?MSIL?).
Demeter, Morgan Stanley DW, MS & Co., and MSIL are wholly-owned
subsidiaries of Morgan Stanley.  The trading managers to the
Partnership are Graham Capital Management, L.P. and Sunrise Capital
Management, Inc. (individually, a ?Trading Manager?, or
collectively, the ?Trading Managers?).

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. Monthly, Morgan Stanley DW pays
the Partnership interest income equal to 80% of its average daily
Net Assets at a rate equal to the average yield on 13-week U.S.
Treasury bills. 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

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

delayed delivery of an instrument at a specified date and price.
Risk arises from changes in the value of these contracts and the
potential inability of counterparties to perform under the terms of
the contracts.  There are numerous factors which may significantly
influence the market value of these contracts, including interest
rate volatility.

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

The 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

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

as a financial instrument or other contract that has all three of
the following characteristics:

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

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

The net unrealized gains (losses) on open contracts, 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
	 $	  $	$

Mar. 31, 2006	1,142,309	(291,082)	851,227	Sep. 2007	Jun. 2006
Dec. 31, 2005	730,649	140,482	871,131	Jun. 2007	Mar. 2006

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

The Partnership has credit risk associated with counterparty non-
performance.  As of the date of the financial statements, the
credit risk associated with the instruments in which the
Partnership trades 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, forward, and futures-styled options
contracts are marked to market on a daily basis, with variations in
value settled on a daily basis. Morgan Stanley DW, MS & Co., and
MSIL, each as a futures commission merchant for the Partnership?s
exchange-traded futures, forward, and futures-styled options
contracts, are required, pursuant to regulations of the Commodity
Futures Trading Commission (?CFTC?), to segregate from their own
assets, and for the sole benefit of their commodity customers, all
funds held by them with respect to exchange-traded futures,
forward, and futures-styled options contracts, including an amount
equal to the net unrealized gains (losses) on all open futures,
forward, and futures-styled options contracts, which funds, in the
aggregate, totaled $23,575,140 and $23,142,541 at March 31, 2006
and December 31, 2005, respectively.  With respect

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

to the Partnership?s off-exchange-traded forward currency
contracts, there are no daily exchange-required settlements of
variation in value, nor is there any requirement that an amount
equal to the net unrealized gains (losses) on open forward
contracts be segregated.  However, the Partnership is required to
meet margin requirements equal to the net unrealized loss on open
contracts in the Partnership accounts with the counterparty, which
is accomplished by daily maintenance of the cash balance in a
custody account held at Morgan Stanley DW for the benefit of MS &
Co.  With respect to those off-exchange-traded forward currency
contracts, the 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.


<page> 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.  Such assets are used as
margin to engage in trading and may be used as margin solely for
the Partnership?s trading. The assets are held in either non-
interest bearing bank accounts or in securities and instruments
permitted by the CFTC for investment of customer segregated or
secured funds.  Since the Partnership?s sole purpose is to trade in
futures, forwards, and options, it is expected that the Partnership
will continue to own such liquid assets for margin purposes.

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

There is no limitation on daily price moves in trading forward
contracts on foreign currencies.  The markets for some world
currencies have low trading volume and are illiquid, which may
prevent the Partnership from trading in potentially profitable
markets or prevent the Partnership from promptly liquidating
unfavorable positions in such markets, subjecting it to substantial
losses.  Either of these market conditions could result in
restrictions on redemptions.  For the periods covered by this
report, illiquidity has not materially affected the Partnership?s
assets.

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

Capital Resources.  The Partnership does not have, nor expects to
have, any capital assets.  Redemptions of units of limited
partnership interest (?Unit(s)?) in the future will affect the
amount of funds available for investments in futures, forwards, and
options in subsequent periods.  It is not possible to estimate the
amount, and therefore the impact, of future outflows of Units.
<page> There are no known material trends, favorable or
unfavorable, that would affect, nor any expected material changes
to, the  Partnership?s capital resource arrangements at the present
time.

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

Results of Operations
General.  The Partnership?s results depend on the Trading Managers
and the ability of each Trading Manager?s trading program(s) to
take advantage of price movements in the futures, forwards, and
options markets.  The following presents a summary of the
Partnership?s operations for the three month periods ended March
31, 2006 and 2005, 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
<page> behalf of the Partnership during the period in question.
Past performance is no guarantee of future results.

The Partnership?s results of operations set forth in the financial
statements on pages 2 through 11 of this report are prepared in
accordance with accounting principles generally accepted in the
United States of America, which require the use of certain
accounting policies that affect the amounts reported in these
financial statements, including the following:  The contracts the
Partnership trades are accounted for on a trade-date basis and
marked to market on a daily basis.  The difference between their
cost and market value is recorded on the Statements of Operations
as ?Net change in unrealized trading profit (loss)? for open
(unrealized) contracts, and recorded as ?Realized trading profit
(loss)? when open positions are closed out.  The sum of these
amounts constitutes the Partnership?s trading results.  The market
value of a futures contract is the settlement price on the exchange
on which that futures contract is traded on a particular day. The
value of foreign currency forward contracts is based on the spot
rate as of the close of business.  Interest income, as well as
management fees, incentive fees, and brokerage commissions, and
transaction fees and costs 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
<page> critical accounting policies other than those presently
used could reasonably affect reported amounts.

For the Quarter Ended March 31, 2006
The Partnership recorded total trading results including interest
income totaling $1,291,113 and expenses totaling $511,288,
resulting in net income of $779,825 for the quarter ended March
31, 2006. The Partnership?s net asset value per Unit increased
from $3,961.07 at December 31, 2005 to $4,097.84 at March 31,
2006.

The most significant trading gains of approximately 3.3% were
recorded in the global interest rate futures markets, primarily
during March, from short positions in U.S., European, and
Japanese interest rate futures as global bond prices trended
lower amid strength in regional equity markets and investor
sentiment that interest rates in the United States, the European
Union, and Japan will rise.  Additional gains of approximately
2.2% were experienced in the metals markets during January and
March from long positions in copper and aluminum as prices
strengthened amid news of weak supplies, forecasts for continued
buying by China, and acceleration in demand from Japan, Europe,
and the U.S.  Elsewhere in the metals markets, gains were
recorded from long futures positions in silver and gold as
precious metals prices moved higher on persistent demand from
foreign central banks.  Silver prices were also pressured higher
<page> after news that a silver-backed Exchange Traded Fund would
soon launch and create greater investment interest in the metal.
Within the global stock index futures markets, gains of
approximately 1.9% were experienced from long positions in
European and U.S. stock index futures as global equity markets
trended higher during the quarter on strong corporate earnings,
and solid economic data.  Smaller gains of approximately 0.3%
were experienced in the agricultural markets, from long positions
in sugar futures as prices trended higher during January, moving
to their highest level since 1981 in response to a decline in
inventories, as well as from increased ethanol demand caused by
higher energy prices. A portion of these gains for the quarter
was offset by losses of approximately 5.2% in the currency sector
from long U.S. dollar positions versus the Swiss franc, euro, and
Japanese yen as the value of the dollar moved lower during
January on expectations that a string of increases in interest
rates by the U.S. Federal Reserve could possible come to an end.
Also pushing the value of the U.S. dollar lower against its
rivals was speculation that China might move to diversify some of
its U.S. dollar based assets into other currencies.  Further
losses were experienced during February from short positions in
the Japanese yen relative to the U.S. dollar as the value of the
yen increased on the release of better-than-expected Japanese
machinery orders data and speculation that the Bank of Japan may
move to tighten monetary policy in Japan.  Additional losses
during February were recorded from short positions in the Swiss
<page> franc versus the U.S. dollar as value of the dollar
weakened amid investor concern regarding the massive U.S. trade
deficit.  Currency losses were also incurred during March from
long positions in the British pound relative to the U.S. dollar
as the value of the pound finished lower after news that Gross
Domestic Product in the United Kingdom for 2005 was weaker-than-
expected. Smaller losses were experienced during March from short
positions in the euro and the Swiss franc relative to the U.S.
dollar as the value of these European currencies moved higher
after the release of generally positive economic data from the
euro-zone reinforced expectations that European interest rates
would continue to rise.  In the energy markets, losses of
approximately 0.2% were recorded, primarily during March, from
short positions in crude oil futures as prices strengthened early
in the month on supply fears fueled by news of geopolitical
tensions in Nigeria and Iran.


For the Quarter Ended March 31, 2005
The Partnership recorded total trading results including interest
income totaling $(2,054,276) and expenses totaling $511,562,
resulting in a net loss of $2,565,838 for the quarter ended March
31, 2005.    The Partnership?s net asset value per Unit decreased
from $4,218.77 at December 31, 2004 to $3,830.56 at March 31,
2005.

<page> The most significant trading losses of approximately 7.1%
were recorded in the currency markets throughout the quarter from
positions in European currencies versus the U.S. dollar.  During
January, long positions in the euro and Swiss franc versus the
U.S. dollar resulted in losses after the U.S. dollar?s value
reversed sharply higher amid conflicting economic data,
improvements in the U.S. trade deficit data, and speculation for
higher U.S. interest rates.  The U.S. dollar?s value also
advanced in response to expectations that the Chinese government
would announce postponement of its revaluation of the Chinese
yuan for the foreseeable future.  Short European currency
positions against the U.S. dollar experienced additional losses
during February as the U.S. dollar weakened in response to
concerns for the considerable U.S. Current-Account deficit as
expressed by U.S. Federal Reserve Chairman Alan Greenspan.  The
U.S. dollar?s value weakened further after a larger-than-expected
drop in leading economic indicators and news that South Korea?s
Central Bank planned to reduce its U.S. dollar currency reserve.
During March, reestablished long European currency positions
versus the U.S. dollar incurred losses after the value of the
U.S. dollar reversed sharply higher amid an increase in U.S.
interest rates and consumer prices.  Additional Partnership
losses of approximately 0.8% recorded in the global interest rate
markets resulted during February from long positions in European
and U.S. interest rate futures as prices reversed lower after
positive economic data reduced investor demand for fixed-income
<page> investments.  Partnership losses of approximately 0.8%
were also incurred in the global stock index markets during
January and March from long positions in U.S. stock index
futures.  During January, long positions experienced losses after
prices finished the month lower amid weak consumer confidence
data, concerns about higher U.S. interest rates, and the
potential for deceleration in corporate profit growth.  Long
positions experienced additional losses during March after prices
weakened throughout the month in response to higher U.S. interest
rates and fears that rising energy prices would negatively impact
U.S. economic growth.  Smaller Partnership losses of
approximately 0.2% recorded in the energy markets resulted during
January, first from short futures positions in crude oil and its
related products after prices reversed higher amid speculation
that OPEC would move to cut production.  Forecasts for cold
winter weather in the Northeastern U.S. resulted in further
losses from short crude oil positions, as well as in natural gas.
 Later during January, newly established long futures positions
in crude oil experienced additional losses after prices declined
on new rumors that OPEC would not cut production and maintain
existing supply levels.  A portion of the Partnership?s overall
losses for the quarter was offset by gains of approximately 0.1%
in the agricultural sector achieved primarily during March from
long futures positions in coffee, which benefited from higher
prices triggered by speculative buying and concerns for dry
weather in Brazilian growing regions.
<page>
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 inherent to the primary business activity
of the Partnership.

The futures, forwards, and options traded by the Partnership
involve varying degrees of related market risk.  Market risk is
often dependent upon changes in the level or volatility of
interest rates, exchange rates, and prices of financial
instruments and commodities, factors that result in frequent
changes in the fair value of the Partnership?s open positions,
and consequently in its earnings, whether realized or unrealized,
and cash flow.  Gains and losses on open positions of exchange-
traded futures, forwards, and options are settled daily through
variation margin.  Gains and losses on off-exchange-traded
forward currency contracts are settled upon termination of the
contract, however, the Partnership is required to meet margin
requirements equal to the net unrealized loss on open contracts
in the Partnership accounts with the counterparty, which is
<page> accomplished by daily maintenance of the cash balance in a
custody account held at Morgan Stanley DW for the benefit of MS &
Co.

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

The face value of the market sector instruments held by the
Partnership is typically many times the applicable margin
requirements.  Margin requirements generally range between 2% and
15% of contract face value.  Additionally, the use of leverage
causes the face value of the market sector instruments held by
the Partnership to typically be many times the total
capitalization of the Partnership.

The Partnership?s past performance is no guarantee of its future
results.  Any attempt to numerically quantify the Partnership?s
market risk is limited by the uncertainty of its speculative
trading.  The Partnership?s speculative trading and use of
leverage may cause future losses and volatility (i.e., ?risk of
ruin?) that far exceed the Partnership?s experience to date
under the ?Partnership?s Value at Risk in Different Market
Sectors? <page> section and significantly exceed the Value at
Risk (?VaR?) tables disclosed.

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

Quantifying the Partnership?s Trading Value at Risk
The following quantitative disclosures regarding the 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 and cash flow.

The Partnership?s risk exposure in the market sectors traded by
the Trading Managers is estimated below in terms of VaR. The
Partnership estimates VaR using a model based upon historical
simulation (with a confidence level of 99%) which involves
<page> constructing a distribution of hypothetical daily changes
in the value of a trading portfolio.  The VaR model takes into
account linear exposures to risk including equity and commodity
prices, interest rates, foreign exchange rates, and correlation
among these variables. The hypothetical changes in portfolio
value are based on daily percentage changes observed in key
market indices or other market factors (?market risk factors?)
to which the portfolio is sensitive.  The one-day 99% confidence
level of the Partnership?s VaR corresponds to the negative change
in portfolio value that, based on observed market risk factors,
would have been exceeded once in 100 trading days, or one day in
100.  VaR typically does not represent the worst case outcome.
Demeter uses approximately four years of daily market data (1,000
observations) and re-values 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.
<page>
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 March 31, 2006 and 2005.  At March
31, 2006 and 2005, the Partnership?s total capitalization was
approximately $23 million and $25 million, respectively.

Primary Market	            March 31, 2006       March 31, 2005
Risk Category	              Value at Risk        Value at Risk

Interest Rate                  (5.57)%	(0.54)%
Equity                         (1.35)	(1.74)
Currency                       (0.90)	    (1.01)
Commodity                      (0.32)	(1.08)
Aggregate Value at Risk        (6.39)%	(2.54)%

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

Because the business of the Partnership is the speculative
trading of futures, forwards, and options, the composition of its
trading portfolio can change significantly over any given time
period, or even within a single trading day, which could
positively or negatively materially impact market risk as
measured by VaR.

The table below supplements the 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 April 1, 2005 through March 31, 2006.

Primary Market Risk Category	   High		 Low		  Average
Interest Rate	(5.57)%	(0.44)%	(2.47)%

Equity	      (1.69)	(1.24)	(1.49)

Currency	(2.15)	(0.90)	(1.33)

Commodity	(1.05)	(0.32)	(0.58)

Aggregate Value at Risk	(6.39)%	(2.21)%	(3.57)%



Limitations on Value at Risk as an Assessment of Market Risk
<page> VaR models permit estimation of a portfolio?s aggregate
market risk exposure, incorporating a range of varied market risks;
reflect risk reduction due to portfolio diversification or hedging
activities; and can cover a wide range of portfolio assets.
However, VaR risk measures should be viewed in light of the
methodology?s limitations, which include, but may not be limited to
the following:
*	past changes in market risk factors will not always result in
accurate predictions of the distributions and correlations of
future market movements;
*	changes in portfolio value caused by market movements may differ
from those of the VaR model;
*	VaR results reflect past market fluctuations applied to current
trading positions while future risk depends on future positions;
*	VaR using a one-day time horizon does not fully capture the
market risk of positions that cannot be liquidated or hedged
within one day; and
*	the historical market risk factor data used for VaR estimation
may provide only limited insight into losses that could be
incurred under certain unusual market movements.

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

<page> The VaR tables provided present the results of the
Partnership?s VaR for each of the Partnership?s market risk
exposures and on an aggregate basis at March 31, 2005, and for the
four quarter-end reporting periods from April 1, 2005 through March
31, 2006.  VaR is not necessarily representative of the
Partnership?s historic risk, nor should it be used to predict the
Partnership?s future financial performance or its ability to manage
or monitor risk.  There can be no assurance that the Partnership?s
actual losses on a particular day will not exceed the VaR amounts
indicated above or that such losses will not occur more than once
in 100 trading days.

Non-Trading Risk
The Partnership has non-trading market risk on its foreign cash
balances.  These balances and any market risk they may represent
are immaterial.

The Partnership also maintains a substantial portion of its
available assets in cash at Morgan Stanley DW; as of March 31,
2006, such amount is equal to approximately 90% of the
Partnership?s net asset value.  A decline in short-term interest
rates would result in a decline in the Partnership?s cash
management income. This cash flow risk is not considered to be
material.

<page> 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 <page> 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, 2006, by market sector.  It may be
anticipated, however, that these market exposures will vary
materially over time.

Interest Rate.  The largest market exposure of the Partnership at
March 31, 2006 was to the global interest rate sector, and was
primarily spread across the U.S., European, Japanese, Australian,
and Canadian interest rate sectors.  Interest rate movements
directly affect the price of the sovereign bond futures positions
held by the Partnership and indirectly affect the value of its
stock index and currency positions.  Interest rate movements in one
country, as well as relative interest rate movements between
countries, materially impact the Partnership?s profitability.  The
Partnership?s interest rate exposure is generally to interest rate
fluctuations in the U.S. and the other G-7 countries.  The G-7
countries consist of France, the U.S., Britain, Germany, Japan,
Italy, and Canada.  However, the Partnership also takes futures
positions in the government debt of smaller countries - e.g.,
Australia.  Demeter anticipates that the G-7 countries interest
rates and Australian interest rates will remain the primary
interest rate exposures of the Partnership for the foreseeable
<page> future.  The speculative futures positions held by the
Partnership may range from short to long-term instruments.
Consequently, changes in short, medium, or long-term interest rates
may have an effect on the Partnership.
Equity.  The second largest market exposure of the Partnership at
March 31, 2006 was to the global stock index sector, primarily to
equity price risk in the G-7 countries.  The stock index futures
traded by the Partnership are by law limited to futures on broadly-
based indices.  At March 31, 2006, the Partnership?s primary
exposures were to the S&P 500 (U.S.), EURO STOX 50 (Europe), NASDAQ
100 (U.S.), Hang Seng (China), DAX (Germany), DOW JONES (U.S.), CAC
40 (France), IBEX 35 (Spain), NIKKEI 225 (Japan), and RUSSELL 2000
(U.S.) stock indices.  The Partnership is primarily exposed to the
risk of adverse price trends or static markets in the U.S.,
European, and Japanese stock indices.  Static markets would not
cause major market changes but would make it difficult for the
Partnership to avoid trendless price movements, resulting in
numerous small losses.

Currency.  The third largest market exposure of the Partnership at
March 31, 2006 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
<page> number of currencies including cross-rate ? i.e., positions
between two currencies other than the U.S. dollar.  At March 31,
2006, the Partnership?s major exposures were to euro, British
pound, Canadian dollar, and Japanese yen currency crosses, as well
as to outright U.S. dollar positions.  Outright positions consist
of the U.S. dollar vs. other currencies.  These other currencies
include major and minor currencies.  Demeter does not anticipate
that the risk associated with the Partnership?s currency trades
will change significantly in the future.

Commodity.
Metals.  At March 31, 2006, the Partnership had market
exposure in the metals sector.  The Partnership?s metals
exposure was to fluctuations in the price of base metals, such
as copper, zinc, and aluminum and precious metals, such as
silver and gold.  Economic forces, supply and demand
inequalities, geopolitical factors, and market expectations
influence price movements in these markets.  The Trading
Managers utilize the trading system(s) to take positions when
market opportunities develop, and Demeter anticipates that the
Partnership will continue to do so.

Soft Commodities and Agriculturals.  At March 31, 2006, the
Partnership had market exposure to the markets that comprise
these sectors.  Most of the exposure was to the cotton, lean
hogs, sugar, live cattle, soybean meal, wheat, and corn <page>
markets.  Supply and demand inequalities, severe weather
disruptions and market expectations affect price movements in
these markets.

Energy.  At March 31, 2006, the Partnership had market
exposure in the energy sector.  The Partnership?s primary
energy exposure was to futures contracts in natural gas, crude
oil and its related products.  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.

Qualitative Disclosures Regarding Non-Trading Risk Exposure
The following was the only non-trading risk exposure of the
Partnership at March 31, 2006:

Foreign Currency Balances.  The Partnership?s primary foreign
currency balances at March 31, 2006 were in euros, Australian
dollars, Hong Kong dollars, Swiss francs, Canadian dollars,
Japanese yen, and British pounds.  The Partnership controls
the non-trading risk of foreign currency balances by    <page>
regularly converting them back into U.S. dollars upon
liquidation of their respective positions.

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

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


Item 4.	CONTROLS AND PROCEDURES

   (a)	As of the end of the period covered by this quarterly
report, the President and Chief Financial Officer of
Demeter, the general partner of the Partnership, have
evaluated the effectiveness of the Partnership?s
disclosure controls and procedures (as defined in Rules
<page> 13a?15(e) and 15d?15(e) of the Exchange Act), and
have judged such controls and procedures to be effective.

   (b)	There have been no material changes during the period
covered by this quarterly report in the Partnership?s
internal control over financial reporting (as defined in
Rules 13a-15(f) and 15d-15(f) of the Exchange Act) or in
other factors that could significantly affect these
controls subsequent to the date of their evaluation.


<page> PART II.  OTHER INFORMATION

Item 1A. RISK FACTORS

Information regarding risk factors appears in Item 2.
?Management?s Discussion and Analysis of Financial Condition and
Results of Operations? and Item 3.  ?Quantitative and Qualitative
Disclosures about Market Risk? of this Form 10-Q.  There have been
no other material changes from the risk factors previously
referenced in the Partnership?s Report on Form 10-K for the fiscal
year ended December 31, 2005.


Item 5. OTHER INFORMATION
Management.  In connection with the election of new directors to
the Board of Directors of Demeter, the following information
updates the disclosures in the Partnership?s Form 8-K filed on
March 27, 2006 and Form 8-K filed on April 5, 2006:

On April 11, 2006, the National Futures Association approved Mr.
Richard Gueren as a director of Demeter.


Item 6.  EXHIBITS

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

<page>
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.






































<page>










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)

May 15, 2006         By:   /s/Kevin Perry
                              Kevin Perry
                              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.







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