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

	FORM 10-K

[X]	Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 [No Fee Required]
For the year ended December 31, 2002 or

[ ]	Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required]
For the transition period from ________________to___________________

Commission File Number 0-13299

	DEAN WITTER CORNERSTONE FUND III

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

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

Demeter Management Corporation
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


Securities registered pursuant to Section 12(b) of the Act:

									Name of each exchange
Title of each class  						on which registered

		None								  None

Securities registered pursuant to Section 12(g) of the Act:

	Units of Limited Partnership Interest

	(Title of Class)

Indicate by check-mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.  Yes    X      No  _____

Indicate by check-mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment of this Form 10-K. [X]

State the aggregate market value of the Units of Limited Partnership Interest
held by non-affiliates of the registrant.  The aggregate market value shall be
computed by reference to the price at which units were sold as of a specified
date within 60 days prior to the date of filing: $30,267,649 at January 31,
2003.

	DOCUMENTS INCORPORATED BY REFERENCE
	(See Page 1)


<page>
<table>
<caption>
DEAN WITTER CORNERSTONE FUND III
INDEX TO ANNUAL REPORT ON FORM 10-K
DECEMBER 31, 2002

                              Page No.

												<c>
DOCUMENTS INCORPORATED BY REFERENCE . . . . . . . . . . . . . . . . . 1

Part I .

  Item  1.  Business. . . . . . . . . . . . . . . . . . . . . . . . 2-5

  Item  2.  Properties. . . . . . . . . . . . . . . . . . . . . . . 5-6

  Item  3.  Legal Proceedings . . . . . . . . . . . . . . . . . . . . 6

  Item  4.  Submission of Matters to a Vote of Security Holders . . . 6

Part II.

  Item  5.  Market for the Registrant's Partnership Units
            and Related Security Holder Matters . . . . . . . . . . 7-8

  Item  6.  Selected Financial Data . . . . . . . . . . . . . . . . . 9

  Item  7.  Management's Discussion and Analysis of Financial
            Condition and Results of Operations . . . . . . . . . 10-23

  Item 7A.  Quantitative and Qualitative Disclosures About
		 Market Risk . . . . . . . . . . . . . . . . . . . . . 23-36

  Item  8.  Financial Statements and Supplementary Data . . . . . 36-37

  Item  9.  Changes in and Disagreements with Accountants on
            Accounting and Financial Disclosure . . . . . . . . . .  37

Part III.

  Item 10.  Directors and Executive Officers of the Registrant. . 38-42

  Item 11.  Executive Compensation. . . . . . . . . . . . . . . . .  43

  Item 12.  Security Ownership of Certain Beneficial Owners
            and Management. . . . . . . . . . . . . . . . . . . . .  43

  Item 13.  Certain Relationships and Related Transactions. . . . 43-44

  Item 14.  Controls and Procedures . . . . . . . . . . . . . . . .  44
Part IV.
  Item 15.  Exhibits, Financial Statement Schedules, and
            Reports on Form 8-K . . . . . . . . . . . . . . . . . 45-46

</table>


<page>

	DOCUMENTS INCORPORATED BY REFERENCE


Portions of the following documents are incorporated by reference
as follows:


	Documents Incorporated	      Part of Form 10-K

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

	Annual Report to the Dean Witter
	Cornerstone Funds II, III and
	IV Limited Partners for the
	year ended December 31, 2002           II, III and IV



<page>	PART I
Item 1.  BUSINESS

(a) General Development of Business. Dean Witter Cornerstone Fund
III (the "Partnership") is a New York limited partnership
organized to engage in the speculative trading of futures
contracts, options on futures contracts and forward contracts on
foreign currencies and other commodity interests including
financial instruments, metals, energy products and agriculturals.
The Partnership commenced operations on January 2, 1985.  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 (collectively, the "Cornerstone
Series").

The Partnership's general partner is Demeter Management
Corporation ("Demeter").  The non-clearing commodity broker is
Morgan Stanley DW Inc. ("Morgan Stanley DW").  The clearing
commodity brokers are Morgan Stanley & Co. Incorporated ("MS &
Co.") and Morgan Stanley & Co. International Limited ("MSIL").
Demeter, Morgan Stanley DW, MS & Co. and MSIL are wholly-owned
subsidiaries of Morgan Stanley.  The trading managers to the
Partnership as of December 31, 2002 were Welton Investment
Corporation and Sunrise Capital Management, Inc. (collectively,
the "Trading Managers").

<page> Effective June 20, 2002, Morgan Stanley Dean Witter & Co.
changed its name to Morgan Stanley.

Graham Capital Management, L.P. replaced Welton Investment
Corporation as one of the trading managers to the Partnership
effective January 1, 2003.

The Partnership's net asset value per unit of limited partnership
interest ("Unit(s)") at December 31, 2002 was $3,592.21,
representing an increase of 17.9 percent from the net asset value
per Unit of $3,045.84 at December 31, 2001.  For a more detailed
description of the Partnership's business, see subparagraph (c).

(b) Financial Information about Segments.  For financial infor-
mation reporting purposes, the Partnership is deemed to engage in
one industry segment, the speculative trading of futures, forwards
and options.  The relevant financial information is presented in
Items 6 and 8.

(c) Narrative Description of Business.  The Partnership is in the
business of speculative trading of futures, forwards and options
pursuant to trading instructions provided by the Trading Managers.
For a detailed description of the different facets of the
Partnership's business, see those portions of the Partnership's
prospectus, dated August 28, 1996, (the "Prospectus") together
with the supplement to the Prospectus dated May 14, 1999 (the
<page> "Supplement") incorporated by reference in this Form 10-K,
set forth below.
	Facets of Business
	1.	Summary	                    1.	"Summary of the Prospectus"
				(Pages 1-9 of the Prospec-
				 tus).

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

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

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

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


(d)	<page> Financial Information about Geographic Areas.  The
Partner-ship has not engaged in any operations in foreign
countries; however, the Partnership (through the commodity
brokers) enters into forward contract transactions where foreign
banks are the contracting party and trades futures, forwards and
options on foreign exchanges.

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

Item 2.  PROPERTIES
The Partnership's executive and administrative offices are located
within the offices of Morgan Stanley DW. The Morgan Stanley DW
<page> offices utilized by the Partnership are located at 825
Third Avenue, 9th Floor, New York, NY 10022.

Item 3.  LEGAL PROCEEDINGS
None.

Item 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
<page> PART II

Item 5.  MARKET FOR THE REGISTRANT'S PARTNERSHIP UNITS AND RELATED
         SECURITY HOLDER MATTERS


(a) Market Information.  There is no established public trading
market for Units of the Partnership.

(b) Holders.  The number of holders of Units at December 31, 2002
was approximately 2,924.

(c) Distributions.  No distributions have been made by the
Partnership since it commenced trading operations on January 2,
1985.  Demeter has sole discretion to decide what distributions,
if any, shall be made to investors in the Partnership.  Demeter
currently does not intend to make any distributions of Partnership
profits.

(d) Use of Proceeds.  The offering for the Partnership originally
commenced May 31, 1984 and was closed to new investors September
30, 1994.  Units of the Partnership were sold afterwards solely
through "exchanges" between existing investors within the
Cornerstone Series at 100% of net asset value per Unit.  Effective
with the April 30, 2000 monthly closing, the exchange privilege
within the Cornerstone Series was terminated.  However, Limited
Partners retained the ability to execute exchanges out of a
Cornerstone fund into other funds outside the Cornerstone Series
<page> subject to certain restrictions set forth in the applicable
limited partnership agreements.  Morgan Stanley DW pays all
expenses in connection with the exchanging of Units without
reimbursement and therefore, 100% of the proceeds from exchanges
out of the Partnership are applied to the working capital of the
funds outside the Cornerstone Series receiving the exchange in.
Please refer to the "Investment Programs, Use of Proceeds and
Trading Policies" section of the Prospectus.





<page>
<table>



	<caption>

Item 6.  SELECTED FINANCIAL DATA (in dollars)

	       	   	 	     For the Years Ended December 31,
	                         2002         2001        2000          1999          1998

			<c>			<c>		<c>		<c>		<c>

Revenues
(including interest)        6,926,335    2,754,939   2,422,345      1,032,785    7,717,783


Net Income (Loss)           4,360,649      111,961    (419,994)    (2,707,904)   3,657,606


Net Income (Loss)
Per Unit (Limited
& General Partners)            546.37         8.31       (7.90)       (221.54)      273.45


Total Assets               28,211,319   26,685,024  28,867,390     34,128,745   40,759,850


Total Limited
Partners' Capital          27,329,760   25,861,238  27,959,423     33,000,637   39,835,572


Net Asset Value Per
Unit                         3,592.21     3,045.84    3,037.53       3,045.43     3,266.97
</table>
<page> Item 7.  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 Commodity Futures Trading Commission
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
<page> 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 in the
future will affect the amount of funds available for investment in
futures, forwards and options in subsequent periods.  It is not
<page> possible to estimate the amount and therefore the impact of
future redemptions of Units.

There are no known material trends, favorable or unfavorable, that
would affect, nor any expected material changes to, the
Partnership's capital resource arrangements at the present time.
The Partnership has no off-balance sheet arrangements, nor
contractual obligations or commercial commitments to make future
payments that would affect the Partnership's liquidity or capital
resources. The contracts traded by the Partnership are accounted
for on a trade-date basis and marked to market on a daily basis.
The value of futures contracts is the settlement price on the
exchange on which that futures contract is traded on a particular
day.  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 years ended
December 31, 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
<page> times and that prior activity in a particular market does
not mean that such market will be actively traded by the Trading
Managers or will be profitable in the future.  Consequently, the
results of operations of the Partnership are difficult to discuss
other than in the context of the Trading Managers' trading
activities on behalf of the Partnership and how the Partnership
has performed in the past.

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

At December 31, 2002, the Partnership's total capital was
$27,840,224, an increase of $1,546,163 from the Partnership's
total capital of $26,294,061 at December 31, 2001. For the year
ended December 31, 2002, the Partnership generated net income of
$4,360,649 and total redemptions aggregated $2,814,486.

For the year ended December 31, 2002, the Partnership recorded
total trading revenues, including interest income, of $6,926,335
and posted an increase in net asset value per Unit.  The most
significant gains of approximately 15.6% were recorded in the
global interest rate futures markets from long positions in U.S.,
Japanese, and European interest rate futures as prices trended
higher during the second and third quarters, as well as in
December, amid continued uncertainty in the equity markets and
negative economic data.  Additional gains of approximately 2.3%
were recorded in the currency markets from long positions in the
euro and Swiss franc relative to the U.S. dollar as the value of
the dollar weakened during the second quarter, as well as in
December, amid investors' fears concerning increased tensions in
the Middle East and prolonged uncertainty regarding the U.S.
economy.  A portion of the Partnership's gains was offset by
losses of approximately 5.3% in the energy futures markets from
long positions in crude oil futures as prices reversed temporarily
<page> lower during April and October amid the potential for
reduced tensions between the U.S. and Iraq.  Additional losses
were recorded from short crude oil futures positions during
December as prices rose on heightened tensions with Iraq and
continued labor unrest in Venezuela.  Additional losses of
approximately 2.7% were recorded in the global stock index futures
markets from long positions in U.S. and Japanese stock index
futures during January and February as prices experienced a short-
term upward move amid hopes for a global economic recovery, only
to retreat later in the year, specifically in March and July, amid
a flurry of geopolitical concerns and continued economic
uncertainty.  Smaller losses of approximately 2.6% were recorded
in the metals futures markets from positions in aluminum and
copper futures as an uncertain economic outlook resulted in
trendless price activity among industrial metals throughout most
of the year.  Total expenses for the year were $2,565,686,
resulting in net income of $4,360,649. The net asset value of a
Unit increased from $3,045.84 at December 31, 2001 to $3,592.21 at
December 31, 2002.

At December 31, 2001, the Partnership's total capital was
$26,294,061, a decrease of $2,097,004 from the Partnership's total
capital of $28,391,065 at December 31, 2000.  For the year ended
December 31, 2001, the Partnership generated net income of
$111,961 and total redemptions aggregated $2,208,965.

<page> For the year ended December 31, 2001, the Partnership
recorded total trading revenues, including interest income, of
$2,754,939 and posted an increase in net asset value per Unit.
The most significant gains of approximately 10.3% were recorded
in the global interest rate futures markets primarily during the
third quarter from long positions in short-term U.S. interest
rate futures as prices trended higher in anticipation and
reaction to interest rate cuts by the U.S. Federal Reserve and as
investors sought a "safe haven" from declining stock prices. In
the global stock index futures markets, gains of approximately
2.4% were recorded primarily during September from previously
established short positions in S&P 500 Index futures as equity
prices moved sharply lower amid worries regarding global economic
uncertainty. Smaller gains of approximately 0.8% were recorded
throughout a majority of the first and second quarters in the
soft commodities markets from short cotton futures positions as
prices moved lower on weak export sales and low demand.  A
majority of the Partnership's overall gains was offset by losses
of approximately 4.2% recorded throughout a majority of the
fourth quarter in the energy markets from volatile price
movements in natural gas futures as a result of a continually
changing outlook for supply, production and demand.  In the
currency markets, losses of approximately 4.0% were experienced
primarily during the first quarter from cross-rate transactions
involving the euro versus the Japanese yen and from positions in
the British pound relative to the U.S. dollar.  Smaller losses of
<page> approximately 2.9% were incurred in the metals markets
from trading gold futures. Total expenses for the year were
$2,642,978, resulting in net income of $111,961.  The net asset
value of a Unit increased from $3,037.53 at December 31, 2000 to
$3,045.84 at December 31, 2001.

At December 31, 2000, the Partnership's total capital was
$28,391,065, a decrease of $5,042,337 from the Partnership's total
capital of $33,433,402 at December 31, 1999.   For the year ended
December 31, 2000, the Partnership generated a net loss of
$419,994 and total redemptions aggregated $4,622,343.

For the year ended December 31, 2000, the Partnership recorded
total trading revenues, including interest income, of $2,422,345
and, after expenses, posted a decrease in net asset value per
Unit. The Partnership recorded losses of approximately 6.1% in
the global stock index futures markets primarily from trading in
S&P 500 Index futures as prices moved erratically amid fears of
inflation, a changing U.S. interest rate environment and
uncertainty in equity prices.  Losses of approximately 3.4% were
also experienced in the metals markets primarily from positions
in gold futures as trading proved to be particularly difficult as
prices fluctuated in response to producer concerns, central bank
policies and exchange rate fluctuations.  Similarly, trading in
aluminum futures experienced price reversals due to technical
factors.  Smaller losses of approximately 1.6% were recorded in
<page> the soft commodities markets, primarily in cotton and
coffee futures, as erratic price activity resulted in the
predominance of trendless markets.  A majority of the
Partnership's losses was offset by gains of approximately 4.5%
recorded in the currency markets, primarily from short euro and
Swiss franc positions, as their values weakened versus the U.S.
dollar and other major currencies amid an uncertain European
interest rate environment and later in the year from long
positions in the euro as its value strengthened versus the U.S.
dollar.  Additional gains of approximately 2.9% resulted from
long positions in natural gas futures as prices skyrocketed to
all-time highs during the fourth quarter due to cold winter
weather across much of the U.S. and continued concerns regarding
supply.  Total expenses for the year were $2,842,339, resulting
in a net loss of $419,994.  The net asset value of a Unit
decreased from $3,045.43 at December 31, 1999 to $3,037.53 at
December 31, 2000.

The Partnership's overall performance record represents varied
results of trading in different futures, forwards and options
markets.  For an analysis of unrealized gains and (losses) by
contract type and a further description of 2002 trading results,
refer to the "Letter to the Limited Partners" in the
Partnership's Annual Report to Limited Partners for the year
ended December 31, 2002, which is incorporated by reference to
Exhibit 13.01 of this Form 10-K.
<page>
The Partnership's gains and losses are allocated among its
partners for income tax purposes.

Credit Risk.
Financial Instruments.  The Partnership is a party to financial
instruments with elements of off-balance sheet market and credit
risk.  The Partnership may trade futures, forwards and options in
stock indices, financial instruments, agricultural commodities,
energy products, foreign currencies, interest rates, precious and
base metals, and soft commodities. In entering into these
contracts, the Partnership is subject to the market risk that
such contracts may be significantly influenced by market
conditions, such as interest rate volatility, resulting in such
contracts being less valuable. If the markets should move against
all of the positions held by the Partnership at the same time,
and if the Trading Managers were unable to offset positions of
the Partnership, the Partnership could lose all of its assets and
limited partners would realize a 100% loss.

In addition to the Trading Managers' internal controls, the
Trading Managers must comply with the trading policies of the
Partnership.  These trading policies include standards for
liquidity and leverage with which the Partnership must comply.
The Trading Managers and Demeter monitor the Partnership's

<page> trading activities to ensure compliance with the trading
 policies.  Demeter may require the Trading Managers to modify
positions of the Partnership if Demeter believes they violate the
Partnership's trading policies.

In addition to market risk, in entering into futures, forward and
options contracts there is a credit risk to the Partnership that
the counterparty on a contract will not be able to meet its
obligations to the Partnership.  The ultimate counterparty or
guarantor of the Partnership for futures contracts traded in the
United States and the foreign exchanges on which the Partnership
trades is the clearinghouse associated with such exchange.  In
general, a clearinghouse is backed by the membership of the
exchange and will act in the event of non-performance by one of
its members or one of its member's customers, which should
significantly reduce this credit risk.  For example, a
clearinghouse may cover a default by drawing upon a defaulting
member's mandatory contributions and/or non-defaulting members'
contributions to a clearinghouse guarantee fund, established
lines or letters of credit with banks, and/or the clearinghouse's
surplus capital and other available assets of the exchange and
clearinghouse, or assessing its members.  In cases where the
Partnership trades off-exchange forward contracts with a
counterparty, the sole recourse of the Partnership will be the
forward contracts counterparty.

<page> There is no assurance that a clearinghouse, exchange, or
other exchange member will meet its obligations to the
Partnership, and Demeter and the commodity brokers will not
indemnify the Partnership against a default by such parties.
Further, the law is unclear as to whether a commodity broker has
any obligation to protect its customers from loss in the event of
an exchange or clearinghouse defaulting on trades effected for
the broker's customers.  Any such obligation on the part of a
broker appears even less clear where the default occurs in a non-
U.S. jurisdiction.

Demeter deals with these credit risks of the Partnership in
several ways.  First, it monitors the Partnership's credit
exposure to each exchange on a daily basis, calculating not only
the amount of margin required for it but also the amount of its
unrealized gains at each exchange, if any.  The commodity brokers
inform the Partnership, as with all their customers, of its net
margin requirements for all its existing open positions, but do
not break that net figure down, exchange by exchange.  Demeter,
however, has installed a system which permits it to monitor the
Partnership's potential margin liability, exchange by exchange.
As a result, Demeter is able to monitor the Partnership's
potential net credit exposure to each exchange by adding the
unrealized trading gains on that exchange, if any, to the
Partnership's margin liability thereon.

<page> Second, the Partnership's trading policies limit the
amount of its net assets that can be committed at any given time
to futures contracts and require, in addition, a minimum amount
of diversification in the Partnership's trading, usually over
several different products.  One of the aims of such trading
policies has been to reduce the credit exposure of the
Partnership to a single exchange and, historically, the
Partnership's exposure to any one exchange has typically amounted
to only a small percentage of its total net assets.  On those
relatively few occasions where the Partnership's credit exposure
may climb above such level, Demeter deals with the situation on a
case by case basis, carefully weighing whether the increased
level of credit exposure remains appropriate.  Material changes
to the trading policies may be made only with the prior written
approval of the Limited Partners owning more than 50% of Units
then outstanding.

Third, with respect to forward contract trading, the Partnership
trades with only those counterparties which Demeter, together
with Morgan Stanley DW, have determined to be creditworthy.  The
Partnership presently deals with MS & Co. as the sole
counterparty on forward contracts.

See "Financial Instruments" under "Notes to Financial Statements"
in the Partnership's Annual Report to Limited Partners for the
<page> year ended December 31, 2002, which is incorporated by
reference to Exhibit 13.01 of this Form 10-K.

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

Item 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Introduction

The Partnership is a commodity pool engaged primarily in the
speculative trading of futures, forwards and options.  The market-
sensitive instruments held by the Partnership are acquired for
speculative trading purposes only and, as a result, all or
substantially all of the Partnership's assets are at risk of
trading loss.  Unlike an operating company, the risk of market-
sensitive instruments is 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.

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

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

Quantifying the Partnership's Trading Value at Risk
The following quantitative disclosures regarding the Partnership's
market risk exposures contain "forward-looking statements" within
the meaning of the safe harbor from civil liability provided for
such statements by the Private Securities Litigation Reform Act of
1995 (set forth in Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934). All
quantitative disclosures in this section are deemed to be forward-
looking statements for purposes of the safe harbor, except for
statements of historical fact.
<page> 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 Partnership's
VaR is approximately four years.  The one-day 99% confidence level
of the Partnership's VaR corresponds to the negative change in
<page> portfolio value that, based on observed market risk
factors, would have been exceeded once in 100 trading days. In
other words, one-day VaR for a portfolio is a number such that
losses in this portfolio are estimated to exceed the VaR only one
day in 100.  VaR typically does not represent the worst case of
outcome.

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

The Partnership's VaR computations are based on the risk
representation of the underlying benchmark for each instrument or
contract and does not distinguish between exchange and non-
exchange-traded instruments and is also not based on exchange
and/or dealer-based margin requirements.

VaR models, including the Partnership's, are continuously
evolving as trading portfolios become more diverse and modeling
techniques and systems capabilities improve.  Please note that
<page> the VaR model is used to numerically quantify market risk
for historic reporting purposes only and is not utilized by
either Demeter or the Trading Managers in their daily risk
management activities.  Please further note that VaR as described
above may not be comparable to similarly titled measures used by
other entities.

The Partnership's Value at Risk in Different Market Sectors
The following table indicates the VaR associated with the
Partnership's open positions as a percentage of total net assets
by primary market risk category at December 31, 2002 and 2001. At
December 31, 2002 and 2001, the Partnership's total capital-
ization was approximately $28 million and $26 million,
respectively.

     Primary Market       December 31, 2002   December 31, 2001
     Risk Category	        Value at Risk	    Value at Risk

Currency		         	 (2.60)%			  (2.71)%
Interest Rate		  	 (0.63)		  	  (0.83)
Equity		  		 (0.08)			  (0.50)
Commodity		         	 (1.28)			  (0.68)
Aggregate Value at Risk	 (3.03)%			  (2.95)%

The VaR for a market category represents the one-day downside
risk for the aggregate exposures associated with this market
category. The aggregate VaR, listed above for the Partnership,
represents the aggregate VaR of the Partnership's open positions
<page> 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 December 31, 2002 and 2001 only and is not
necessarily representative of either the historic or future risk
of an investment in the Partnership. Because the Partnership's
only business is the speculative trading of futures, forwards and
options, the composition of its trading portfolio can change
significantly over any given time period, or even within a single
trading day. Any changes in open positions could positively or
negatively materially impact market risk as measured by VaR.

The table below supplements the December 31, 2002 VaR by
presenting the Partnership's high, low and average VaR, as a
percentage of total net assets for the four quarterly reporting
periods from January 1, 2002 through December 31, 2002.

Primary Market Risk Category	 High   	 Low 	Average
Currency	(2.94)%	(0.86)%	(2.16)%
Interest Rate 	(1.78)	(0.63)	(1.19)
Equity	(0.34)	(0.08) 	(0.20)
Commodity   	(1.85)	(0.71)	(1.40)
Aggregate Value at Risk 			(3.61)%	(2.23)%	(2.97)%

<page> Limitations on Value at Risk as an Assessment of
Market Risk

The face value of the market sector instruments held by the
Partnership is typically many times the applicable margin
requirements.  Margin requirements generally range between 2% and
15% of contract face value.  Additionally, the use of leverage
causes the face value of the market sector instruments held by
the Partnership to typically be many times the total
capitalization of the Partnership.  The value of the
Partnership's open positions thus creates a "risk of ruin" not
usually found in other investments.  The relative size of the
positions held may cause the Partnership to incur losses greatly
in excess of VaR within a short period of time, given the effects
of the leverage employed and market volatility.  The VaR tables
above, as well as the past performance of the Partnership, give
no indication of such "risk of ruin".  In addition, VaR risk
measures should be viewed in light of the methodology's
limitations, which include the following:
?	past changes in market risk factors will not always result in
accurate predictions of the distributions and correlations of
future market movements;
?	changes in portfolio value caused by market movements may
differ from those of the VaR model;
?	VaR results reflect past trading positions while future risk
depends on future positions;

<page>
?	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 December 31, 2002 and 2001, and for the end of
the four quarterly reporting periods during calendar year 2002.
Since VaR is based on historical data, VaR should not be viewed
as predictive of the Partnership's future financial performance
or its ability to manage or monitor risk.  There can be no
assurance that the Partnership's actual losses on a particular
day will not exceed the VaR amounts indicated above or that such
losses will not occur more than once in 100 trading days.

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

<page> At December 31, 2002, the Partnership's cash balance at
Morgan Stanley DW was approximately 88% of its total net asset
value.  A decline in short-term interest rates will result in a
decline in the Partnership's cash management income. This cash
flow risk is not considered to be material.

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

Qualitative Disclosures Regarding Primary Trading Risk Exposures

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

The following were the primary trading risk exposures of the
Partnership at December 31, 2002, by market sector.  It may be
anticipated, however, that these market exposures will vary
materially over time.

Currency.  The primary market exposure of the Partnership at
December 31, 2002 was to the currency sector.  The Partnership's
currency exposure was 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 December 31, 2002, the
Partnership's major exposure was to outright U.S. dollar
positions.  Outright positions consist of the U.S. dollar vs.
other currencies.  These other currencies include major and minor
currencies.  Demeter does not anticipate that the risk profile of
the Partnership's currency sector will change significantly in
<page> the future.  The currency trading VaR figure includes
foreign margin amounts converted into U.S. dollars with an
incremental adjustment to reflect the exchange rate risk inherent
to the U.S.-based Partnership in expressing VaR in a functional
currency other than U.S dollars.

Interest Rate.  The second largest market exposure of the
Partnership at December 31, 2002 was to the global interest rate
complex.  Exposure was primarily spread across 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
primary interest rate exposure is generally to interest rate
fluctuations in the U.S. and the other G-7 countries.  The G-7
countries consist of France, the U.S., Britain, Germany, Japan,
Italy and Canada.  However, the Partnership also takes futures
positions in the government debt of smaller nations - e.g.,
Australia.  Demeter anticipates that the G-7 countries' and
Australian interest rates will remain the primary interest rate
exposure of the Partnership for the foreseeable future.  The
speculative futures positions held by the Partnership may range
from short to long-term instruments.  Consequently, changes in
<page> short, medium or long-term interest rates may have an
effect on the Partnership.

Equity.  The Partnership's primary equity exposure at December
31, 2002 was to 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 December 31, 2002, the
Partnership's greatest exposure was to the Nikkei (Japan) stock
index.  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 being "whipsawed" into numerous small losses.

Commodity.
Energy.  At December 31, 2002, the Partnership's energy
exposure was shared primarily by futures contracts in crude
oil and natural gas. Price movements in these markets result
from political developments in the Middle East, weather
patterns and other economic fundamentals.  Significant
profits and losses, which have been experienced in the past,
are expected to continue to be experienced in the future.
Natural gas has exhibited volatility in prices resulting
from weather patterns and supply and demand factors and will
likely continue in this choppy pattern.

<page> Metals.	The Partnership's metals exposure at December
31, 2002 was to fluctuations in the price of precious
metals, such as gold, and base metals, such as copper.
Economic forces, supply and demand inequalities,
geopolitical factors and market expectations influence price
movements in these markets.  The Trading Managers, from time
to time, take positions as market opportunities develop and
Demeter anticipates that the Partnership will continue to do
so.

Soft Commodities and Agriculturals.  At December 31, 2002,
the Partnership had exposure to the markets that comprise
these sectors.  Most of the exposure was to the sugar and
cotton markets.  Supply and demand inequalities, severe
weather disruption and market expectations affect price
movements in these markets.

Qualitative Disclosures Regarding Non-Trading Risk Exposure
The following was the only non-trading risk exposure of the
Partnership at December 31, 2002:

Foreign Currency Balances. The Partnership's primary foreign
currency balance at December 31, 2002 was in Swiss francs.
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.
<page>
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 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements are incorporated by reference to the
Partnership's Annual Report which is filed as Exhibit 13.01
hereto.




<page>
Supplementary data specified by Item 302 of Regulation S-K:
Summary of Quarterly Results (Unaudited)


Quarter		  Revenues           Net		     Net Income/
Ended		     (Net Losses)    Income/(Loss)    (Loss) Per Unit

2002
March 31 		$(1,424,135)	$ (1,981,059)		  $(231.19)
June 30	    	  3,487,705	   2,853,051		    345.30
September 30	  5,547,653	   4,927,041		    608.59
December 31	   (684,888)	  (1,438,384)		   (176.33)

Total		$ 6,926,335	$  4,360,649		  $ 546.37

2001
March 31 		$ 3,178,906	$  2,526,236		  $ 274.91
June 30	    	 (3,067,591)	  (3,724,864)		   (409.93)
September 30	  3,750,483	   3,115,127		    352.14
December 31	 (1,106,859)	  (1,804,538)		   (208.81)

Total		$ 2,754,939	$    111,961		  $   8.31



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

None.

<page> PART III

Item 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

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


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

Robert E. Murray, age 42, is the Managing Director of the
Strategic Products Group at Morgan Stanley and Chairman of the
Board of Directors of Demeter Management Corporation, a leading
commodity pool operator with approximately $1.7 billion in assets
across a variety of U.S. and international public and private
managed futures funds.  Mr. Murray began at Dean Witter in 1984
and has been closely involved in the growth of managed futures at
the firm over the last 18 years.  He is also the Chairman of the
Board of Directors of Morgan Stanley Futures & Currency
Management Inc., Morgan Stanley's internal commodity trading
advisor.  Mr. Murray served as the Vice Chairman and a Director
of the Board of the Managed Futures Association and is currently
a member of the Board of Directors of the National Futures
Association.  Mr. Murray received a Bachelors Degree in Finance
from Geneseo State University in 1983.

Jeffrey A. Rothman, age 41, is the President and a Director of
Demeter. Mr. Rothman is the Executive Director of Morgan Stanley
<page> Managed Futures, responsible for overseeing all aspects of
the firm's managed futures department.  He is also President and
a Director of Morgan Stanley Futures & Currency Management Inc.
Mr. Rothman has been with the managed futures department for
sixteen years and most recently held the position of National
Sales Manager, assisting Branch Managers and Financial Advisors
with their managed futures education, marketing, and asset
retention efforts. Throughout his career, Mr. Rothman has helped
with the development, marketing and administration of
approximately 35 commodity pools.  Mr. Rothman is an active
member of the Managed Funds Association and serves on its Board
of Directors.

Mitchell M. Merin resigned his position as a Director of Demeter.

Joseph G. Siniscalchi, age 57, is a Director of Demeter.  Mr.
Siniscalchi joined Morgan Stanley DW in July 1984 as a First Vice
President, Director of General Accounting and served as a Senior
Vice President and Controller for Morgan Stanley DW's Securities
Division through 1997.  He is currently Managing Director
responsible for the Client Support Service Division of Morgan
Stanley DW. From February 1980 to July 1984, Mr. Siniscalchi was
Director of Internal Audit at Lehman Brothers Kuhn Loeb, Inc.

Edward C. Oelsner, III, age 61, is a Director of Demeter.  Mr.
Oelsner is currently an Executive Vice President and head of the
<page> Product Development Group at Morgan Stanley Investment
Advisors Inc., an affiliate of Morgan Stanley DW.  Mr. Oelsner
joined Morgan Stanley DW in 1981 as a Managing Director in Morgan
Stanley DW's Investment Banking Department specializing in
coverage of regulated industries and subsequently served as head
of the Morgan Stanley DW Retail Products Group.  Prior to joining
Morgan Stanley DW, Mr. Oelsner held positions at The First Boston
Corporation as a member of the Research and Investment Banking
Departments from 1967 to 1981.  Mr. Oelsner received an M.B.A. in
Finance from the Columbia University Graduate School of Business
in 1966 and an A.B. in Politics from Princeton University in
1964.

Richard A. Beech, age 51, is a Director of Demeter.  Mr. Beech
has been associated with the futures industry for over 25 years.
He has been at Morgan Stanley DW since August 1984 where he is
presently an Executive Director and head of Branch Futures.  Mr.
Beech began his career at the Chicago Mercantile Exchange, where
he became the Chief Agricultural Economist doing market analysis,
marketing and compliance. Prior to joining Morgan Stanley DW, Mr.
Beech worked at two investment banking firms in operations,
research, managed futures and sales management.

Raymond A. Harris, age 46, is a Director of Demeter and of Morgan
Stanley Futures & Currency Management Inc.  Mr. Harris is
currently Managing Director of Global Products & Services at
<page> Morgan Stanley.  He previously served as Chief Accounting
Officer of Morgan Stanley Dean Witter Asset Management.  From
July 1982 to July 1994, Mr. Harris served in financial,
administrative and other assignments at Dean Witter Reynolds,
Inc. and Dean Witter, Discover & Co.  From August 1994 to January
1999, he worked in Discover Financial Services and the firm's
Credit Service business units.  Mr. Harris has been with Morgan
Stanley and its affiliates since July 1982.  He has a B.A. degree
from Boston College and an M.B.A. in Finance from the University
of Chicago.

Anthony J. DeLuca, age 40, is a Director of Demeter.  Mr. DeLuca
is also a Director of Morgan Stanley Futures & Currency
Management Inc.  Mr. DeLuca was appointed the Controller of Asset
Management for Morgan Stanley in June 1999.  Prior to that, Mr.
DeLuca was a partner at the accounting firm of Ernst & Young LLP,
where he had Morgan Stanley as a major client.  Mr. DeLuca had
worked continuously at Ernst & Young LLP ever since 1984, after
he graduated from Pace University with a B.B.A. degree in
Accounting.

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

Raymond E. Koch resigned his position as Chief Financial Officer
of Demeter.

Jeffrey D. Hahn, age 45, is the Chief Financial Officer of
Demeter. Mr. Hahn began his career at Morgan Stanley in 1992 and
is currently an Executive Director responsible for the management
and supervision of the accounting, reporting, tax and finance
functions for the firm's private equity, managed futures, and
certain legacy real estate investing activities. He is also Chief
Financial Officer of Morgan Stanley Futures & Currency Management
Inc.  From August 1984 through May 1992, Mr. Hahn held various
positions as an auditor at Coopers & Lybrand, specializing in
manufacturing businesses and venture capital organizations. Mr.
Hahn received his B.A. in Economics from St. Lawrence University
in 1979, an M.B.A. from Pace University in 1984, and is a
Certified Public Accountant.

All of the foregoing directors have indefinite terms.
<page>
Item 11.   EXECUTIVE COMPENSATION
The Partnership has no directors and executive officers.  As a
limited partnership, the business of the Partnership is managed by
Demeter, which is responsible for the administration of the
business affairs of the Partnership but receives no compensation
for such services.

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
         MANAGEMENT

(a)	Security Ownership of Certain Beneficial Owners - At December
31, 2002, there were no persons known to be beneficial owners of
more than 5 percent of the Units.

(b)	Security Ownership of Management - At December 31, 2002,
Demeter owned 142.103 Units of general partnership interest,
representing a 1.83 percent interest in the Partnership.

(c)	Changes in Control - None.

Item 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Refer to Note 2 - "Related Party Transactions" of "Notes to
Financial Statements," in the accompanying Annual Report to
Limited Partners for the year ended December 31, 2002, which is
incorporated by reference to Exhibit 13.01 of this Form 10-K.  In
its capacity as the Partnership's retail commodity broker, Morgan
<page> Stanley DW received commodity brokerage commissions (paid
and accrued by the Partnership) of $1,386,685 for the year ended
December 31, 2002.

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

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



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

(a)	1. Listing of Financial Statements
The following financial statements and report of independent
auditors, all appearing in the accompanying Annual Report to
Limited Partners for the year ended December 31, 2002, are
incorporated by reference to Exhibit 13.01 of this Form 10-K:
-	Report of Deloitte & Touche LLP, independent auditors, for
the years ended December 31, 2002, 2001, and 2000.

-	Statements of Financial Condition, including the Schedules of
Investments, as of December 31, 2002 and 2001.

-	Statements of Operations, Changes in Partners' Capital, and
Cash Flows for the years ended December 31, 2002, 2001 and
2000.

-	Notes to Financial Statements.

With the exception of the aforementioned information and the
information incorporated in Items 7, 8, and 13, the Annual Report
to Limited Partners for the year ended December 31, 2002 is not
deemed to be filed with this report.

	2.  Listing of Financial Statement Schedules
No financial statement schedules are required to be filed with
this report.

<page> (b)	Reports on Form 8-K
On January 22, 2003 the Partnership filed the Current Report on
Form 8-K for the purpose of reporting, under Item 5, the
Partnership's management agreement with Graham Capital Management,
L.P.

(c)	Exhibits
Refer to Exhibit Index on Page E-1 to E-2.


<page> SIGNATURES

Pursuant to the requirements of Sections 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.

					DEAN WITTER CORNERSTONE FUND III
						(Registrant)

					BY:  Demeter Management Corporation,
						General Partner


March 31, 2003			BY: /s/	Jeffrey A. Rothman
						 	Jeffrey A. Rothman, Director
						  	and President


Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.

Demeter Management Corporation.

BY: 	/s/	Robert E. Murray                 			March 31, 2003
 	    	Robert E. Murray, Director and
           Chairman

    	/s/	Jeffrey A. Rothman               			March 31, 2003
         	Jeffrey A. Rothman, Director
  	    	and President

    	/s/	Joseph G. Siniscalchi            			March 31, 2003
        	Joseph G. Siniscalchi, Director

    	/s/	Edward C. Oelsner III            			March 31, 2003
 	    	Edward C. Oelsner III, Director

    	/s/	Richard A. Beech                 			March 31, 2003
 	    	Richard A. Beech, Director

    	/s/	Raymond A. Harris                			March 31, 2003
 	    	Raymond A. Harris, Director

    	/s/	Anthony J. DeLuca                			March 31, 2003
 	    	Anthony J. DeLuca, Director

   	/s/	Frank Zafran                     			March 31, 2003
 	    	Frank Zafran, Director

   	/s/	Jeffrey D. Hahn                  			March 31, 2003
         	Jeffrey D. Hahn, Chief
  	    	Financial Officer


<page> CERTIFICATIONS

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

1.	I have reviewed this annual report on Form 10-K of the
registrant;

2.	Based on my knowledge, this annual 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
annual report;

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

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

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

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

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

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

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

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

6.	The registrant's other certifying officers and I have
indicated in this annual report whether there were
significant changes in internal controls or in other factors
that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies
and material weaknesses.





Date:   March 31, 2003         /s/ Jeffrey A. Rothman
	Jeffrey A. Rothman
	President, Demeter Management
	Corporation, general partner
	of the registrant

<page> CERTIFICATIONS

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

1.	I have reviewed this annual report on Form 10-K of the
registrant;

2.	Based on my knowledge, this annual 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
annual report;

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

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

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

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

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

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

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

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

6.	The registrant's other certifying officers and I have
indicated in this annual report whether there were
significant changes in internal controls or in other factors
that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies
and material weaknesses.






Date:   March 31, 2003           /s/ Jeffrey D. Hahn
                       Jeffrey D. Hahn
	  Chief Financial Officer,
                                     Demeter Management Corporation,
                                     general partner of the
                                     registrant



<page> EXHIBIT INDEX
 	ITEM


 3.01		Limited Partnership Agreement of the Partnership, dated
as of December 7, 	1983, as amended as of May 11,
1984, is incorporated by reference to Exhibit 3.01 of
the Partnership's Annual Report on Form 10-K for the
fiscal year ended September 30, 1984 (File No. 0-
13299).

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

10.02	Management Agreement among the Partnership, Demeter and
Welton Investment Systems Corporation, dated as of July
1, 1996, is incorporated by reference to Exhibit 10.02
of the Partnership's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997 (File No. 0-13299).

10.03	Management Agreement among the Partnership, Demeter and
Graham Capital Management, L.P., dated as of January 1,
2003, is incorporated by reference to Exhibit 10.01 of
the Partnership's Form 8-K (File No. 0-13299) filed
with the Securities and Exchange Commission on January
22, 2003.

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

10.05	Amended and Restated Customer Agreement between the
Partnership and Morgan Stanley DW Inc., dated as of
June 22, 2000, is incorporated by reference to Exhibit
10.01 of the Partnership's Form 8-K (File No. 0-13299)
filed with the Securities and Exchange Commission on
November 13, 2001.

10.06	Commodity Futures Customer Agreement between Morgan
Stanley & Co. Incorporated and the Partnership, and
acknowledged and agreed to by Morgan Stanley DW Inc.,
dated as of May 1, 2000, is incorporated by reference
to Exhibit 10.02 of the Partnership's Form 8-K (File
No. 0-13299) filed with the Securities and Exchange
Commission on November 13, 2001.


<page>
10.07	Customer Agreement between the Partnership and Morgan
Stanley & Co. International Limited, dated as of May 1,
2000, is incorporated by reference to Exhibit 10.04 of
the Partnership's Form 8-K (File No. 0-13299) filed
with the Securities and Exchange Commission on November
13, 2001.

10.08	Foreign Exchange and Options Master Agreement between
Morgan Stanley & Co. Incorporated and the Partnership,
dated as of April 30, 2000, is incorporated by
reference to Exhibit 10.05 of the Partnership's Form 8-
K (File No. 0-13299) filed with the Securities and
Exchange Commission on November 13, 2001.

10.09	Amendment to Management Agreement between the
Partnership and Welton Investment Corporation, dated as
of November 30, 2000, is incorporated by reference to
Exhibit 10.1 of the Partnership's Form 8-K (File No. 0-
13299) filed with the Securities and Exchange
Commission on January 3, 2001.

10.10	Amendment to Management Agreement between the
Partnership and Sunrise Capital Management, Inc., dated
as of November 30, 2000, is incorporated by reference
to the Partnership's Form 8-K (File No. 0-13299) filed
with the Securities and Exchange Commission on January
3, 2001.

10.11	Securities Account Control Agreement among the
Partnership, Morgan Stanley & Co. Incorporated, and
Morgan Stanley DW Inc., dated as of May 1, 2000, is
incorporated by reference to Exhibit 10.03 of the
Partnership's Form 8-K (File No. 0-13299) filed with
the Securities and Exchange Commission on November 13,
2001.

13.01	Annual  Report to Limited Partners for the year ended
December 31, 2002 is filed herewith.

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

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




<page>
				       EXHIBIT 99.01


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




In connection with the Annual Report of Dean Witter Cornerstone
Fund III (the "Partnership") on Form 10-K for the period ended
December 31, 2002 as filed with the Securities and Exchange
Commission on the date hereof (the "Report"), I, Jeffrey A.
Rothman, President, Demeter Management Corporation, general
partner of the Partnership, certify, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002, that:
(1)	The Report fully complies with the requirements of Section
13 or 15(d) of the Securities Exchange Act of 1934; and
(2)	The information contained in the Report fairly presents,
in all material respects, the financial condition and
results of operations of the Partnership.








By:	  /s/	Jeffrey A. Rothman

Name:		Jeffrey A. Rothman
Title:	President

Date:		March 31, 2003









<page>

		            EXHIBIT 99.02


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




In connection with the Annual Report of Dean Witter Cornerstone
Fund III (the "Partnership") on Form 10-K for the period ended
December 31, 2002 as filed with the Securities and Exchange
Commission on the date hereof (the "Report"), I, Jeffrey D. Hahn,
Chief Financial Officer, Demeter Management Corporation, general
partner of the Partnership, certify, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002, that:
(1)	The Report fully complies with the requirements of Section
13 or 15(d) of the Securities Exchange Act of 1934; and
(2)	The information contained in the Report fairly presents,
in all material respects, the financial condition and
results of operations of the Partnership.








By:	  /s/	Jeffrey D. Hahn

Name:		Jeffrey D. Hahn
Title:	Chief Financial Officer

Date:		March 31, 2003



<PAGE>

                  Cornerstone
                  Funds

       December 31, 2002
       Annual Report

    [LOGO] Morgan Stanley

<PAGE>

DEAN WITTER CORNERSTONE FUNDS

HISTORICAL FUND PERFORMANCE

Presented below is the percentage change in Net Asset Value per Unit from the
start of each calendar year each Fund has traded. Also provided is the
inception-to-date return and the annualized return since inception for each
Fund. Past performance is not necessarily indicative of future results.

<TABLE>
<CAPTION>


                 1985  1986    1987   1988  1989  1990 1991  1992  1993   1994  1995 1996 1997 1998 1999  2000  2001  2002
FUND              %     %       %      %     %     %    %     %     %      %     %    %    %    %    %     %     %     %
---------------------------------------------------------------------------------------------------------------------------
<S>              <C>  <C>    <C>      <C>  <C>    <C>  <C>  <C>    <C>   <C>    <C>  <C>  <C>  <C>  <C>   <C>   <C>   <C>
Cornerstone Fund
 II............. 20.1 (17.5)   71.6   0.1  (15.1) 47.9 11.0 (1.3)   7.8  (8.9)  26.5 11.5 18.0 12.5 (5.4) 11.5  (1.3) 13.8
---------------------------------------------------------------------------------------------------------------------------
Cornerstone Fund
 III............ 54.6 (8.0)    32.5   19.4 (11.4) 18.8 12.0 (11.1) (4.8) (10.0) 27.5 8.2  10.2 9.1  (6.8) (0.3)  0.3  17.9
---------------------------------------------------------------------------------------------------------------------------
Cornerstone Fund
 IV.............  --    --     10.6   37.5 (14.1) 57.8 33.5  10.4  (9.1) (14.3) 23.0 13.0 38.4 6.7  (1.1) 14.7  15.9  12.3
                             (8 mos.)
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
                 INCEPTION-
                  TO-DATE   ANNUALIZED
                   RETURN     RETURN
FUND                 %          %
--------------------------------------
<S>              <C>        <C>
Cornerstone Fund
 II.............   409.1       9.5
--------------------------------------
Cornerstone Fund
 III............   268.4       7.5
--------------------------------------
Cornerstone Fund
 IV.............   617.5       13.4

--------------------------------------
</TABLE>

<PAGE>

DEMETER MANAGEMENT CORPORATION

825 Third Avenue, 9th Floor
New York, NY 10022
Telephone (212) 310-6444

DEAN WITTER CORNERSTONE FUNDS
ANNUAL REPORT
2002

Dear Limited Partner:

  This marks the eighteenth annual report for Cornerstone Funds II and III and
the sixteenth for Cornerstone Fund IV. The Net Asset Value per Unit for each of
the three Cornerstone Funds on December 31, 2002 was as follows:

<TABLE>
<CAPTION>
                                                   % CHANGE
                    FUNDS                 N.A.V.   FOR 2002
                    ---------------------------------------
                    <S>                  <C>       <C>
                    Cornerstone Fund II  $4,963.25  13.8%
                    ---------------------------------------
                    Cornerstone Fund III $3,592.21  17.9%
                    ---------------------------------------
                    Cornerstone Fund IV  $6,995.32  12.3%
                    ---------------------------------------
</TABLE>

  Since their inception in 1985, Cornerstone Funds II and III have increased by
409.1% (a compound annualized return of 9.5%) and 268.4% ( a compound
annualized return of 7.5%), respectively. Since its inception in 1987,
Cornerstone Fund IV has increased by 617.5% ( a compound annualized return of
13.4%).

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

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

  Special Notice to Limited Partners of Dean Witter Cornerstone Fund III

  Limited Partners of Dean Witter Cornerstone Fund III ("Cornerstone Fund III")
are advised that Demeter Management

<PAGE>

Corporation, the general partner of Cornerstone Fund III, has determined to
terminate Welton Investment Corporation as a trading manager to the fund,
effective December 31, 2002. As of December 31, 2002, Welton Investment
Corporation was managing approximately $9.4 million (approximately 33.7%) of
the net assets of Cornerstone Fund III. Commencing January 1, 2003, the net
assets previously traded by Welton Investment Corporation will be traded by
Graham Capital Management, L.P. ("Graham") pursuant to its Global Diversified
Program at 150% Leverage. Graham has agreed to manage its allocated portion of
Cornerstone Fund III's net assets pursuant to the same fee structure, including
management fee and annual netted incentive fee, as that previously paid to
Welton Investment Corporation.

  The Global Diversified Program utilizes multiple computerized trading models
designed to participate in the potential profit opportunities during sustained
price trends in approximately 80 global markets. This program features broad
diversification in both financial and non-financial markets. The strategies
that are utilized are primarily long-term in nature and are intended to
generate significant returns over time with an acceptable degree of risk and
volatility. The computer models on a daily basis analyze the recent price
action, the relative strength, and the risk characteristics of each market and
compare statistically the quantitative results of this data to years of
historical data on each market. The Global Diversified Program will normally
have weightings of approximately 25% in futures contracts based on short-term
and long-term global interest rates (including U.S. and foreign bonds, notes
and eurodollars), 25% in currency forwards (including major and minor
currencies), 17% in stock index futures (including all major indices), 16% in
softs and agricultural futures (including grains, meats and softs), 7% in metal
futures (including gold, aluminum and copper), and 10% in energy futures
(including crude oil and natural gas). The actual weighting and leverage used
in each market will change over time due to liquidity, price action, and risk
considerations. Graham rebalances the weighting of each market in the portfolio
on a monthly basis so as to maintain, on a volatility and risk-adjusted basis,
consistent exposure to each market over time.

  Margin requirements with respect to the Global Diversified Program at
standard leverage are expected to average about 15% to 20% of equity for
accounts traded by Graham; thus, Graham expects the margin requirements for the
net assets traded on behalf of Cornerstone Fund III over time to average about
20% to 30%. Increased leverage will alter risk exposure and may lead to greater
profits and losses and trading volatility.

  As of December 31, 2002, Graham was managing approximately $221 million of
funds in the Global Diversified Program

<PAGE>

and approximately $2.02 billion of assets in all of its trading programs.

  Past Performance of Graham's Global Diversified Program at 150% Leverage

  Set forth below is the past performance history of Graham's Global
Diversified Program at 150% Leverage. The footnotes following the capsule
performance summary are an integral part of the capsule.

  You are cautioned that the information set forth in the following capsule
performance summary is not necessarily indicative of, and may have no bearing
on, any trading results that may be attained by Graham or Cornerstone Fund III
in the future, since past results are not a guarantee of future results. There
can be no assurance that Graham or Cornerstone Fund III will make any profits
at all, or will be able to avoid incurring substantial losses. You should note
that the composite performance information presented below includes individual
accounts which, even though traded pursuant to the same investment program,
have materially different rates of return, and does not reflect the effect of
fees identical to those paid by Cornerstone Fund III, including management,
incentive, and brokerage fees. You should also note that interest income may
constitute a significant portion of a commodity pool's total income and, in
certain instances, may generate profits where there have been realized or
unrealized losses from commodity trading.

                        GRAHAM CAPITAL MANAGEMENT, L.P.
                  GLOBAL DIVERSIFIED PROGRAM AT 150% LEVERAGE

  Name of commodity trading advisor: Graham Capital Management, L.P.
  Name of program: Global Diversified Program at 150% Leverage
  Inception of trading by commodity trading advisor: February 1995
  Inception of trading in program:  May 1997
  Number of open accounts: 9
  Aggregate assets overall: $2,020,000,000
  Aggregate assets in program: $221,000,000
  Largest monthly drawdown: (15.77)%--(November 2001)
  Worst peak-to-valley drawdown: (24.27)%--(November 2001-April 2002)
  2002 annual return: 32.54%
  2001 annual return: 12.16%
  2000 annual return: 24.33%
  1999 annual return: 6.17%
  1998 annual return: 17.00%
  1997 annual return (8 months): 11.56%


<PAGE>

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.

  Footnotes

   "Inception of trading by commodity trading advisor" is the date on which
   Graham began trading client accounts.

   "Inception of trading in program" is the date on which Graham began trading
   client accounts pursuant to the program shown.

   "Number of open accounts" is the number of accounts directed by Graham
   pursuant to the program shown as of December 31, 2002.

   "Aggregate assets overall" is the aggregate amount of assets in
   non-proprietary accounts under the management of Graham as of December 31,
   2002.

   "Aggregate assets in program" is the aggregate amount of assets in the
   program specified as of December 31, 2002.

   "Drawdown" means losses experienced by the trading program over a specified
   period. A small number of accounts in the portfolio composites have
   experienced monthly drawdowns and peak-to-valley drawdowns that are
   materially larger than the largest composite monthly drawdown and
   peak-to-valley drawdown. These variances result from factors such as small
   account size (i.e., accounts with net assets of less than the prescribed
   portfolio minimum, which therefore trade fewer contracts than the standard
   portfolio), intra-month account opening or closing, significant intra-month
   additions or withdrawals, and investment restrictions imposed by the client.
   "Largest monthly drawdown" means the greatest percentage decline in net
   asset value due to losses sustained by the trading program from the
   beginning to the end of a calendar month during the most recent five
   calendar years.

   "Worst peak-to-valley drawdown" means greatest cumulative percentage decline
   in month-end net asset value of the trading program due to losses sustained
   during a period in which the initial month-end net asset value of the
   trading program is not equaled or exceeded by a subsequent month-end net
   asset value of the trading program during the most recent five calendar
   years.

   "Compound annual and year-to-date/period rate of return" presented in the
   composite performance capsules are calculated based on the
   "Fully-Funded-Subset" method, as prescribed by the Commodity Futures Trading
   Commission. The rate of return is calculated by dividing the sum of net
   performance of the qualifying Fully-Funded Subset by

<PAGE>

   the beginning net assets of the qualifying Fully-Funded Subset, except in
   periods of significant additions or withdrawals to the accounts in the
   qualifying Fully-Funded Subset. In such instances, the Fully-Funded Subset
   is adjusted to exclude accounts with significant additions or withdrawals
   that would materially distort the rate of return pursuant to the
   Fully-Funded Subset method. Returns are then compounded to arrive at the
   year-to-date rate of return.

  Limited Partners of Cornerstone Fund III are reminded of their voting rights
contained in Section 17 of the Limited Partnership Agreement on page A-16 of
the prospectus.

  Limited Partners are advised that Demeter Management Corporation, the general
partner to each fund, may withdraw any portion of its excess capital
contribution to a Fund at respective monthly closings to be held between March
31, 2003 and December 31, 2003, pursuant to the provisions of Section 7 of each
Fund's Limited Partnership Agreement.

  Should you have any questions concerning this report, please feel free to
contact Demeter Management Corporation, 825 Third Avenue, 9th Floor, New York,
NY 10022 or your Morgan Stanley Financial Advisor.

  I hereby affirm, that to the best of my knowledge and belief, the information
contained in this report is accurate and complete. Past performance is not a
guarantee of future results.

Sincerely,
/s/ Jeffrey A. Rothman
Jeffrey A. Rothman
President
Demeter Management Corporation
General Partner

<PAGE>

CORNERSTONE FUND II

                                    [CHART]

                                 Year ended
                              December 31, 2002
                              -----------------
Currencies                         11.78%
Interest Rates                      2.15%
Stock Indices                      -0.28%
Energies                            0.84%
Metals                             -1.15%
Agriculturals                      -2.01%

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



FACTORS INFLUENCING ANNUAL TRADING GAINS:
..  In the currency markets, gains were recorded from long positions in the
   euro, Norwegian krone, and Swiss franc relative to the U.S. dollar as the
   value of the dollar weakened during the second quarter, as well as in
   December, amid investors' fears concerning increased tensions in the Middle
   East and prolonged uncertainty regarding the U.S. economy. Additional
   currency gains were recorded from long positions in the Australian dollar
   and South African rand versus the U.S. dollar as the value of both
   currencies strengthened amid rising gold prices.
..  In the global interest rate futures markets, gains were recorded from long
   positions in Japanese interest rate futures as prices trended higher during
   the second and third quarter amid continued uncertainty regarding a Japanese
   economic recovery.
..  In the energy futures markets, gains were generated from long futures
   positions in natural gas during March, August, September, and December as
   prices trended higher on supply concerns and weather related factors.

FACTORS INFLUENCING ANNUAL TRADING LOSSES:
..  In the agricultural futures, losses were recorded from positions in sugar
   and coffee futures as prices moved erratically throughout most of the year.
   Additional losses were incurred from long positions in cotton futures as
   prices moved without consistent direction during the first and third quarter
   amid shifting supply and demand concerns.
..  In the metals futures markets, losses were recorded from positions in copper
   and aluminum futures as an uncertain economic outlook resulted in trendless
   price activity among industrial metals throughout most of the year.

<PAGE>

CORNERSTONE FUND III

                                     [CHART]

                               Year ended
                            December 31, 2002
                            -----------------
Currencies                          2.31%
Interest Rates                     15.57%
Stock Indices                      -2.74%
Energies                           -5.32%
Metals                             -2.64%
Agriculturals                      -1.98%

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



FACTORS INFLUENCING ANNUAL TRADING GAINS:
..  In the global interest rate futures markets, gains were recorded from long
   positions in U.S., Japanese, and European interest rate futures as prices
   trended higher during the second and third quarter, as well as in December,
   amid continued uncertainty in the equity markets and negative economic data.
..  In the currency markets, gains were recorded from long positions in the euro
   and Swiss franc relative to the U.S. dollar as the value of the dollar
   weakened during the second quarter, as well as in December, amid investors'
   fears concerning increased tensions in the Middle East and prolonged
   uncertainty regarding the U.S. economy.
FACTORS INFLUENCING ANNUAL TRADING LOSSES:
..  In the energy futures markets, losses were recorded from long positions in
   crude oil futures as prices reversed temporarily lower during April and
   October amid the potential for reduced tensions between the U.S. and Iraq.
   Additional losses were recorded from short crude oil futures positions
   during December as prices rose on heightened tensions with Iraq and
   continued labor unrest in Venezuela.
..  In the global stock index futures markets, losses were experienced from long
   positions in U.S. and Japanese stock index futures during January and
   February as prices experienced a short-lived upward move amid hopes for a
   global economy recovery, only to retreat later in the year, specifically in
   March and July, amid a flurry of geopolitical concerns and continued
   economic uncertainty.
..  In the metals futures markets, losses were recorded from positions in
   aluminum and copper futures as an uncertain economic outlook resulted in
   trendless price activity among industrial metals throughout most of the year.

<PAGE>

CORNERSTONE FUND IV

                                    [CHART]

                               Year ended
                            December 31, 2002
                            -----------------
Australian dollar                 4.06%
British pound                    -9.63%
Euro                             16.03%
Japanese yen                     -8.43%
Swiss franc                       4.91%
Minor Currencies                 11.95%

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

      Minor currencies may include, but are not limited to, the South African
      rand, Thai baht, Greek drachma, Singapore dollar, Mexican peso, New
      Zealand dollar and Norwegian krone.


FACTORS INFLUENCING ANNUAL TRADING GAINS:
..  Gains were recorded from long positions in the euro, Swiss franc, and
   Norwegian krone versus the U.S. dollar as the dollar's value significantly
   weakened during April, May, and June amid falling equity prices and concerns
   regarding corporate integrity. Additional gains from long positions in the
   euro, Swiss franc, and Norwegian krone were experienced in December as the
   looming threat of a potential military conflict with Iraq and North Korea
   further weakened the dollar.
..  Additional gains stemmed from long positions in the South African rand
   versus the U.S. dollar as its value approached a 16-month high during the
   second and fourth quarter amid strong demand for South African exports and
   high relative interest rates.
..  Profits were recorded from long positions in the Australian dollar and New
   Zealand dollar versus the U.S. dollar, as the value of both currencies
   strengthened during April, May, and throughout the fourth quarter amid
   higher gold prices.

FACTORS INFLUENCING ANNUAL TRADING LOSSES:
..  Losses were recorded in the British pound from short positions versus the
   U.S. dollar during the summer months and into the fourth quarter as the
   value of the dollar weakened amid geopolitical and economic concerns.
..  Losses resulted from positions in the Japanese yen versus the U.S. dollar
   during March as the yen initially strengthened amid asset repatriation out
   of the U.S. into Japan, only to retreat by month-end on expectations that
   the repatriation flow would soon subside ahead of the Japanese fiscal
   year-end. Further losses in the Japanese yen were experienced in December
   from short positions versus the U.S. dollar as the value of the dollar
   weakened versus most major currencies.

<PAGE>

DEAN WITTER CORNERSTONE FUNDS

INDEPENDENT AUDITORS' REPORT

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

  We have audited the accompanying statements of financial condition of Dean
Witter Cornerstone Fund II, Dean Witter Cornerstone Fund III and Dean Witter
Cornerstone Fund IV (collectively, the "Partnerships"), including the schedules
of investments, as of December 31, 2002 and 2001, and the related statements of
operations, changes in partners' capital, and cash flows for each of the three
years in the period ended December 31, 2002. These financial statements are the
responsibility of the Partnerships' management. Our responsibility is to
express an opinion on these financial statements based on our audits.

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

  In our opinion, such financial statements present fairly, in all material
respects, the financial position of Dean Witter Cornerstone Fund II, Dean
Witter Cornerstone Fund III and Dean Witter Cornerstone Fund IV at December 31,
2002 and 2001, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 2002 in conformity
with accounting principles generally accepted in the United States of America.

/s/ Deloitte & Touche LLP

New York, New York
February 14, 2003

<PAGE>

DEAN WITTER CORNERSTONE FUND II

STATEMENTS OF FINANCIAL CONDITION

<TABLE>
<CAPTION>
                                                             DECEMBER 31,
                                                        ---------------------
                                                           2002       2001
                                                        ---------- ----------
                                                            $          $
 <S>                                                    <C>        <C>
                                    ASSETS
 Equity in futures interests trading accounts:
   Cash                                                 21,702,438 21,315,776

   Net unrealized gain on open contracts (MS&Co.)        1,627,315  1,675,664
   Net unrealized gain (loss) on open contracts (MSIL)     423,825   (136,148)
                                                        ---------- ----------
   Total net unrealized gain on open contracts           2,051,140  1,539,516
                                                        ---------- ----------
    Total Trading Equity                                23,753,578 22,855,292
 Due from Morgan Stanley DW                                107,236     53,920
 Interest receivable (Morgan Stanley DW)                    18,316     25,562
                                                        ---------- ----------
    Total Assets                                        23,879,130 22,934,774
                                                        ========== ==========

                      LIABILITIES AND PARTNERS' CAPITAL

 LIABILITIES
 Redemptions payable                                       236,692    121,671
 Accrued management fees                                    69,501     66,751
 Accrued administrative expenses                            50,546     48,616
 Accrued incentive fee                                      40,483     --
                                                        ---------- ----------
    Total Liabilities                                      397,222    237,038
                                                        ---------- ----------
 PARTNERS' CAPITAL
 Limited Partners (4,613.758 and 5,088.041
  Units, respectively)                                  22,899,223 22,185,827
 General Partner (117.400 Units)                           582,685    511,909
                                                        ---------- ----------
    Total Partners' Capital                             23,481,908 22,697,736
                                                        ---------- ----------
    Total Liabilities and Partners' Capital             23,879,130 22,934,774
                                                        ========== ==========
 NET ASSET VALUE PER UNIT                                 4,963.25   4,360.39
                                                        ========== ==========
</TABLE>

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                          FOR THE YEARS ENDED DECEMBER 31,
                                          -------------------------------
                                            2002        2001       2000
                                          ---------  ----------  ---------
                                             $           $          $
      <S>                                 <C>        <C>         <C>
      REVENUES
      Trading profit (loss):
        Realized                          4,300,258   2,978,000  1,734,937
        Net change in unrealized            511,624  (1,728,062) 2,111,163
                                          ---------  ----------  ---------
                                          4,811,882   1,249,938  3,846,100
      Proceeds from Litigation Settlement    76,613      --         --
                                          ---------  ----------  ---------
         Total Trading Results            4,888,495   1,249,938  3,846,100
      Interest income (Morgan Stanley DW)   292,709     648,456  1,117,777
                                          ---------  ----------  ---------
         Total                            5,181,204   1,898,394  4,963,877
                                          ---------  ----------  ---------
      EXPENSES
      Brokerage commissions
       (Morgan Stanley DW)                1,196,563   1,279,146  1,361,674
      Management fees                       798,116     816,137    946,410
      Transaction fees and costs            133,591     115,808    124,990
      Common administrative expenses         59,809      46,155     40,256
      Incentive fee                          41,877      --         --
                                          ---------  ----------  ---------
         Total                            2,229,956   2,257,246  2,473,330
                                          ---------  ----------  ---------
      NET INCOME (LOSS)                   2,951,248    (358,852) 2,490,547
                                          =========  ==========  =========
      NET INCOME (LOSS) ALLOCATION:
      Limited Partners                    2,880,472    (351,955) 2,437,217
      General Partner                        70,776      (6,897)    53,330
      NET INCOME (LOSS) PER UNIT:
      Limited Partners                       602.86      (58.74)    454.26
      General Partner                        602.86      (58.74)    454.26
</TABLE>


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

<PAGE>

DEAN WITTER CORNERSTONE FUND III

STATEMENTS OF FINANCIAL CONDITION

<TABLE>
<CAPTION>
                                                          DECEMBER 31,
                                                     ----------------------
                                                        2002        2001
                                                     ----------  ----------
                                                         $           $
   <S>                                               <C>         <C>
                                    ASSETS
   Equity in futures interests trading accounts:
     Cash                                            26,372,589  26,471,514

     Net unrealized gain on open contracts (MS&Co.)   1,996,397     740,177
     Net unrealized loss on open contracts (MSIL)      (443,790)   (667,609)
                                                     ----------  ----------
     Total net unrealized gain on open contracts      1,552,607      72,568
     Net option premiums                                 --         (23,122)
                                                     ----------  ----------
      Total Trading Equity                           27,925,196  26,520,960
   Due from Morgan Stanley DW                           264,529     133,570
   Interest receivable (Morgan Stanley DW)               21,594      30,494
                                                     ----------  ----------
      Total Assets                                   28,211,319  26,685,024
                                                     ==========  ==========

                      LIABILITIES AND PARTNERS' CAPITAL

   LIABILITIES
   Accrued administrative expenses                      145,017     142,296
   Redemptions payable                                  144,217     171,251
   Accrued management fees                               81,861      77,416
                                                     ----------  ----------
      Total Liabilities                                 371,095     390,963
                                                     ----------  ----------
   PARTNERS' CAPITAL
   Limited Partners (7,608.072 and 8,490.681
    Units, respectively)                             27,329,760  25,861,238
   General Partner (142.103 Units)                      510,464     432,823
                                                     ----------  ----------
      Total Partners' Capital                        27,840,224  26,294,061
                                                     ----------  ----------
      Total Liabilities and Partners' Capital        28,211,319  26,685,024
                                                     ==========  ==========
   NET ASSET VALUE PER UNIT                            3,592.21    3,045.84
                                                     ==========  ==========
</TABLE>

STATEMENTS OF OPERATIONS


<TABLE>
<CAPTION>
                                         FOR THE YEARS ENDED DECEMBER 31,
                                         --------------------------------
                                           2002       2001        2000
                                         --------- ----------  ----------
                                            $          $           $
     <S>                                 <C>       <C>         <C>
     REVENUES
     Trading profit (loss):
      Realized                           2,266,403  5,761,442  (1,348,698)
      Net change in unrealized           1,480,039 (3,780,263)  2,427,220
                                         --------- ----------  ----------
                                         3,746,442  1,981,179   1,078,522
     Proceeds from Litigation Settlement 2,842,492     --          --
                                         --------- ----------  ----------
        Total Trading Results            6,588,934  1,981,179   1,078,522
     Interest income (Morgan Stanley DW)   337,401    773,760   1,343,823
                                         --------- ----------  ----------
        Total                            6,926,335  2,754,939   2,422,345
                                         --------- ----------  ----------
     EXPENSES
     Brokerage commissions
      (Morgan Stanley DW)                1,386,685  1,453,337   1,554,203
     Management fees                       903,361    978,766   1,128,381
     Transaction fees and costs            177,181    134,490      93,403
     Common administrative expenses         98,459     76,385      66,352
                                         --------- ----------  ----------
        Total                            2,565,686  2,642,978   2,842,339
                                         --------- ----------  ----------
     NET INCOME (LOSS)                   4,360,649    111,961    (419,994)
                                         ========= ==========  ==========
     NET INCOME (LOSS) ALLOCATION:
     Limited Partners                    4,283,008    110,780    (418,871)
     General Partner                        77,641      1,181      (1,123)
     NET INCOME (LOSS) PER UNIT:
     Limited Partners                       546.37       8.31       (7.90)
     General Partner                        546.37       8.31       (7.90)
</TABLE>

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

<PAGE>

DEAN WITTER CORNERSTONE FUND IV

STATEMENTS OF FINANCIAL CONDITION

<TABLE>
<CAPTION>
                                                        DECEMBER 31,
                                                   -----------------------
                                                      2002        2001
                                                   ----------- -----------
                                                       $           $
     <S>                                           <C>         <C>
                                    ASSETS
     Equity in futures interests trading accounts:
       Cash                                        103,560,309 101,084,842
       Net unrealized gain on open contracts
        (MS&Co.)                                     6,834,888   7,783,366
                                                   ----------- -----------
        Total Trading Equity                       110,395,197 108,868,208
     Interest receivable (Morgan Stanley DW)            80,149     108,781
                                                   ----------- -----------
        Total Assets                               110,475,346 108,976,989
                                                   =========== ===========

                       LIABILITIES AND PARTNERS' CAPITAL
     LIABILITIES
     Accrued incentive fees                          1,500,021   1,351,817
     Redemptions payable                               642,547     533,976
     Accrued management fees                           321,727     317,372
     Accrued administrative expenses                   169,156     163,799
                                                   ----------- -----------
        Total Liabilities                            2,633,451   2,366,964
                                                   ----------- -----------
     PARTNERS' CAPITAL
     Limited Partners (15,202.402 and 16,901.387
      Units, respectively)                         106,345,673 105,277,723
     General Partner (213.889 Units)                 1,496,222   1,332,302
                                                   ----------- -----------
        Total Partners' Capital                    107,841,895 106,610,025
                                                   ----------- -----------
        Total Liabilities and Partners' Capital    110,475,346 108,976,989
                                                   =========== ===========
     NET ASSET VALUE PER UNIT                         6,995.32    6,228.94
                                                   =========== ===========

</TABLE>

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                         FOR THE YEARS ENDED DECEMBER 31,
                                         ---------------------------------
                                            2002        2001       2000
                                         ----------  ---------- ----------
                                             $           $          $
     <S>                                 <C>         <C>        <C>
     REVENUES
     Trading profit (loss):
       Realized                          20,928,554  16,761,382 12,978,051
       Net change in unrealized            (948,478)  3,787,359  3,714,497
                                         ----------  ---------- ----------
        Total Trading Results            19,980,076  20,548,741 16,692,548
     Interest income (Morgan Stanley DW)  1,290,361   2,669,364  4,492,710
                                         ----------  ---------- ----------
        Total                            21,270,437  23,218,105 21,185,258
                                         ----------  ---------- ----------
     EXPENSES
     Management fees                      3,640,869   3,482,595  3,929,070
     Brokerage commissions
      (Morgan Stanley DW)                 3,568,609   2,563,321  2,755,463
     Incentive fees                       1,886,229   2,152,705    843,220
     Common administrative expenses         195,738     151,459    132,392
     Transaction fees and costs              --          --         50,557
                                         ----------  ---------- ----------
        Total                             9,291,445   8,350,080  7,710,702
                                         ----------  ---------- ----------
     NET INCOME                          11,978,992  14,868,025 13,474,556
                                         ==========  ========== ==========
     NET INCOME ALLOCATION:
     Limited Partners                    11,815,072  14,685,095 13,324,073
     General Partner                        163,920     182,930    150,483
     NET INCOME PER UNIT:
     Limited Partners                        766.38      855.25     690.27
     General Partner                         766.38      855.25     690.27
</TABLE>


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

<PAGE>

DEAN WITTER CORNERSTONE FUND II

STATEMENTS OF CHANGES IN PARTNERS' CAPITAL

FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000

<TABLE>
<CAPTION>
                            UNITS OF
                           PARTNERSHIP  LIMITED    GENERAL
                            INTEREST    PARTNERS   PARTNER     TOTAL
                           ----------- ----------  -------  ----------
                                           $          $          $
        <S>                <C>         <C>         <C>      <C>
        Partners' Capital,
        December 31, 1999   6,736.406  26,243,505  465,476  26,708,981
        Offering of Units       2.369       9,330     --         9,330
        Net income             --       2,437,217   53,330   2,490,547
        Redemptions        (1,152.227) (4,521,167)    --    (4,521,167)
                           ----------  ----------  -------  ----------
        Partners' Capital,
        December 31, 2000   5,586.548  24,168,885  518,806  24,687,691
        Net loss               --        (351,955)  (6,897)   (358,852)
        Redemptions          (381.107) (1,631,103)    --    (1,631,103)
                           ----------  ----------  -------  ----------
        Partners' Capital,
        December 31, 2001   5,205.441  22,185,827  511,909  22,697,736
        Net income             --       2,880,472   70,776   2,951,248
        Redemptions          (474.283) (2,167,076)    --    (2,167,076)
                           ----------  ----------  -------  ----------
        Partners' Capital,
        December 31, 2002   4,731.158  22,899,223  582,685  23,481,908
                           ==========  ==========  =======  ==========

        DEAN WITTER CORNERSTONE FUND III

        STATEMENTS OF CHANGES IN PARTNERS' CAPITAL

        FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000

                            UNITS OF
                           PARTNERSHIP  LIMITED    GENERAL
                            INTEREST    PARTNERS   PARTNER     TOTAL
                           ----------- ----------  -------  ----------
                                           $          $          $
        Partners' Capital,
        December 31, 1999  10,978.222  33,000,637  432,765  33,433,402
        Net loss               --        (418,871)  (1,123)   (419,994)
        Redemptions        (1,631.448) (4,622,343)    --    (4,622,343)
                           ----------  ----------  -------  ----------
        Partners' Capital,
        December 31, 2000   9,346.774  27,959,423  431,642  28,391,065
        Net income             --         110,780    1,181     111,961
        Redemptions          (713.990) (2,208,965)    --    (2,208,965)
                           ----------  ----------  -------  ----------
        Partners' Capital,
        December 31, 2001   8,632.784  25,861,238  432,823  26,294,061
        Net income             --       4,283,008   77,641   4,360,649
        Redemptions          (882.609) (2,814,486)    --    (2,814,486)
                           ----------  ----------  -------  ----------
        Partners' Capital,
        December 31, 2002   7,750.175  27,329,760  510,464  27,840,224
                           ==========  ==========  =======  ==========
</TABLE>

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

<PAGE>

DEAN WITTER CORNERSTONE FUND IV

STATEMENTS OF CHANGES IN PARTNERS' CAPITAL

FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000

<TABLE>
<CAPTION>
                          UNITS OF
                         PARTNERSHIP   LIMITED     GENERAL
                          INTEREST     PARTNERS    PARTNER      TOTAL
                         ----------- -----------  ---------  -----------
                                          $           $           $
      <S>                <C>         <C>          <C>        <C>
      Partners' Capital,
      December 31, 1999  21,987.255  101,716,331  1,259,322  102,975,653
      Offering of Units       6.161       29,469      --          29,469
      Net income             --       13,324,073    150,483   13,474,556
      Redemptions        (3,455.202) (16,600,690)  (260,433) (16,861,123)
                         ----------  -----------  ---------  -----------
      Partners' Capital,
      December 31, 2000  18,538.214   98,469,183  1,149,372   99,618,555
      Net income             --       14,685,095    182,930   14,868,025
      Redemptions        (1,422.938)  (7,876,555)     --      (7,876,555)
                         ----------  -----------  ---------  -----------
      Partners' Capital,
      December 31, 2001  17,115.276  105,277,723  1,332,302  106,610,025
      Net income             --       11,815,072    163,920   11,978,992
      Redemptions        (1,698.985) (10,747,122)     --     (10,747,122)
                         ----------  -----------  ---------  -----------
      Partners' Capital,
      December 31, 2002  15,416.291  106,345,673  1,496,222  107,841,895
                         ==========  ===========  =========  ===========
</TABLE>

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

<PAGE>

DEAN WITTER CORNERSTONE FUND II

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                        FOR THE YEARS ENDED DECEMBER 31,
                                       ----------------------------------
                                          2002        2001        2000
                                       ----------  ----------  ----------
                                           $           $           $
      <S>                              <C>         <C>         <C>
      CASH FLOWS FROM
       OPERATING ACTIVITIES
      Net income (loss)                 2,951,248    (358,852)  2,490,547
      Noncash item included in
       net income (loss):
        Net change in unrealized         (511,624)  1,728,062  (2,111,163)
      (Increase) decrease in operating
       assets:
        Due from Morgan Stanley
         DW                               (53,316)    (32,602)     (9,603)
        Interest receivable
         (Morgan Stanley DW)                7,246      67,028       2,174
      Increase (decrease) in operating
       liabilities:
        Accrued management fees             2,750      (6,524)    (16,506)
        Accrued administrative
         expenses                           1,930      21,771     (16,093)
        Accrued incentive fee              40,483      --          --
                                       ----------  ----------  ----------
      Net cash provided by operating
       activities                       2,438,717   1,418,883     339,356
                                       ----------  ----------  ----------
      CASH FLOWS FROM
       FINANCING ACTIVITIES
      Offering of Units                    --          --           9,330
      Increase (decrease) in
       redemptions payable                115,021    (240,275)    136,664
      Redemptions of Units             (2,167,076) (1,631,103) (4,521,167)
                                       ----------  ----------  ----------
      Net cash used for financing
       activities                      (2,052,055) (1,871,378) (4,375,173)
                                       ----------  ----------  ----------
      Net increase (decrease) in cash     386,662    (452,495) (4,035,817)

      Balance at beginning of period   21,315,776  21,768,271  25,804,088
                                       ----------  ----------  ----------

      Balance at end of period         21,702,438  21,315,776  21,768,271
                                       ==========  ==========  ==========
</TABLE>

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

<PAGE>

DEAN WITTER CORNERSTONE FUND III

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                           FOR THE YEARS ENDED DECEMBER 31,
                                          ----------------------------------
                                             2002        2001        2000
                                          ----------  ----------  ----------
                                              $           $           $
   <S>                                    <C>         <C>         <C>
   CASH FLOWS FROM
    OPERATING ACTIVITIES
   Net income (loss)                       4,360,649     111,961    (419,994)
   Noncash item included in net
    income (loss):
     Net change in unrealized             (1,480,039)  3,780,263  (2,427,220)
   (Increase) decrease in operating
    assets:
     Net option premiums                     (23,122)     (9,300)    350,703
     Due from Morgan Stanley DW             (130,959)    (94,885)    (38,685)
     Interest receivable
      (Morgan Stanley DW)                      8,900      75,489      10,082
   Increase (decrease) in operating
    liabilities:
     Accrued administrative expenses           2,721      36,117     (32,482)
     Accrued management fees                   4,445      (6,471)    (29,037)
                                          ----------  ----------  ----------
   Net cash provided by (used for)
    operating activities                   2,742,595   3,893,174  (2,586,633)
                                          ----------  ----------  ----------
   CASH FLOWS FROM
    FINANCING ACTIVITIES
   Decrease in redemptions payable           (27,034)   (115,008)   (157,499)
   Redemptions of Units                   (2,814,486) (2,208,965) (4,622,343)
                                          ----------  ----------  ----------
   Net cash used for financing activities (2,841,520) (2,323,973) (4,779,842)
                                          ----------  ----------  ----------

   Net increase (decrease) in cash           (98,925)  1,569,201  (7,366,475)

   Balance at beginning of period         26,471,514  24,902,313  32,268,788
                                          ----------  ----------  ----------
   Balance at end of period               26,372,589  26,471,514  24,902,313
                                          ==========  ==========  ==========
</TABLE>

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

<PAGE>

DEAN WITTER CORNERSTONE FUND IV

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                         FOR THE YEARS ENDED DECEMBER 31,
                                      -------------------------------------
                                          2002         2001         2000
                                      -----------  -----------  -----------
                                           $            $            $
   <S>                                <C>          <C>          <C>
   CASH FLOWS FROM
    OPERATING ACTIVITIES
   Net income                          11,978,992   14,868,025   13,474,556
   Noncash item included in net
    income:
     Net change in unrealized             948,478   (3,787,359)  (3,714,497)
   (Increase) decrease in operating
    assets:
     Interest receivable (Morgan
      Stanley DW)                          28,632      266,959      (18,220)
   Increase (decrease) in operating
    liabilities:
     Accrued incentive fees               148,204      509,200      842,617
     Accrued management fees                4,355       18,696      (48,662)
     Accrued administrative expenses        5,357       71,662      (53,676)
                                      -----------  -----------  -----------
   Net cash provided by operating
    activities                         13,114,018   11,947,183   10,482,118
                                      -----------  -----------  -----------
   CASH FLOWS FROM
    FINANCING ACTIVITIES
   Offering of Units                       --           --           29,469
   Increase (decrease) in redemptions
    payable                               108,571   (1,109,566)     417,652
   Redemptions of Units               (10,747,122)  (7,876,555) (16,861,123)
                                      -----------  -----------  -----------
   Net cash used for financing
    activities                        (10,638,551)  (8,986,121) (16,414,002)
                                      -----------  -----------  -----------

   Net increase (decrease) in cash      2,475,467    2,961,062   (5,931,884)

   Balance at beginning of period     101,084,842   98,123,780  104,055,664
                                      -----------  -----------  -----------
   Balance at end of period           103,560,309  101,084,842   98,123,780
                                      ===========  ===========  ===========
</TABLE>

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

<PAGE>

DEAN WITTER CORNERSTONE II

SCHEDULES OF INVESTMENTS

DECEMBER 31, 2002 AND 2001

<TABLE>
<CAPTION>
FUTURES AND FORWARD CONTRACTS:                                    LONG GAIN/(LOSS) SHORT GAIN/(LOSS) NET UNREALIZED GAIN/(LOSS)
------------------------------                                    ---------------- ----------------- --------------------------
2002 PARTNERSHIP NET ASSETS: $23,481,908                                 $                 $                     $
<S>                                                               <C>              <C>               <C>
Foreign currency                                                     1,015,521               285             1,015,806
Commodity                                                              450,244           158,752               608,996
Interest rate                                                          344,456          (166,859)              177,597
Equity                                                                 (97,829)           80,749               (17,080)
                                                                     ---------         ---------             ---------
  Grand Total:                                                       1,712,392            72,927             1,785,319
                                                                     =========         =========
  Unrealized Currency Gain                                                                                     265,821
                                                                                                             ---------
  Total Net Unrealized Gain per Statement of Financial Condition                                             2,051,140
                                                                                                             =========

2001 PARTNERSHIP NET ASSETS: $22,697,736
Foreign currency                                                        32,124         1,185,197             1,217,321
Commodity                                                             (121,700)          (62,513)             (184,213)
Interest rate                                                          (14,979)          180,371               165,392
Equity                                                                  15,154              (725)               14,429
                                                                     ---------         ---------             ---------
  Grand Total:                                                         (89,401)        1,302,330             1,212,929
                                                                     =========         =========
  Unrealized Currency Gain                                                                                     326,587
                                                                                                             ---------
  Total Net Unrealized Gain per Statement of Financial Condition                                             1,539,516
                                                                                                             =========
</TABLE>
<TABLE>
<CAPTION>
FUTURES AND FORWARD CONTRACTS:                                    PERCENTAGE OF NET ASSETS # OF CONTRACTS/NOTIONAL AMOUNTS
------------------------------                                    ------------------------ -------------------------------
2002 PARTNERSHIP NET ASSETS: $23,481,908                                     %
<S>                                                               <C>                      <C>
Foreign currency                                                            4.32                      504,828,717
Commodity                                                                   2.59                              668
Interest rate                                                               0.76                              437
Equity                                                                     (0.07)                             122
                                                                           -----
  Grand Total:                                                              7.60
                                                                           =====
  Unrealized Currency Gain

  Total Net Unrealized Gain per Statement of Financial Condition


2001 PARTNERSHIP NET ASSETS: $22,697,736
Foreign currency                                                            5.36*                   2,668,590,441
Commodity                                                                  (0.81)                             605
Interest rate                                                               0.73                              536
Equity                                                                      0.06                               69
                                                                           -----
  Grand Total:                                                              5.34
                                                                           =====
  Unrealized Currency Gain

  Total Net Unrealized Gain per Statement of Financial Condition

</TABLE>
* No single contract's value exceeds 5% of Net Assets.

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

<PAGE>

DEAN WITTER CORNERSTONE III

SCHEDULES OF INVESTMENTS

DECEMBER 31, 2002 AND 2001

<TABLE>
<CAPTION>
FUTURES AND FORWARD CONTACTS:                                     LONG GAIN/(LOSS) SHORT GAIN/(LOSS) NET UNREALIZED GAIN/(LOSS)
-----------------------------                                     ---------------- ----------------- --------------------------
2002 PARTNERSHIP NET ASSETS: $27,840,224                                 $                 $                     $
<S>                                                               <C>              <C>               <C>
Foreign currency                                                     1,927,510        (1,063,204)              864,306
Interest rate                                                        1,071,951            (8,694)            1,063,257
Commodity                                                             (305,430)           (4,875)             (310,305)
Equity                                                                      --            27,282                27,282
                                                                     ---------        ----------             ---------
  Grand Total:                                                       2,694,031        (1,049,491)            1,644,540
                                                                     =========        ==========
  Unrealized Currency Loss                                                                                     (91,933)
                                                                                                             ---------
  Total Net Unrealized Gain per Statement of Financial Condition                                             1,552,607
                                                                                                             =========

2001 PARTNERSHIP NET ASSETS: $26,294,061
Foreign currency                                                       336,126           696,943             1,033,069
Interest rate                                                         (132,338)          (77,123)             (209,461)
Commodity                                                             (622,136)         (104,947)             (727,083)
Equity                                                                  44,181            (2,450)               41,731
                                                                     ---------        ----------             ---------
  Grand Total:                                                        (374,167)          512,423               138,256
                                                                     =========        ==========
  Unrealized Currency Loss                                                                                     (65,688)
                                                                                                             ---------
  Total Net Unrealized Gain per Statement of Financial Condition                                                72,568
                                                                                                             =========
</TABLE>
<TABLE>
<CAPTION>
FUTURES AND FORWARD CONTACTS:                                     PERCENTAGE OF NET ASSETS # OF CONTRACTS/NOTIONAL AMOUNTS
-----------------------------                                     ------------------------ -------------------------------
2002 PARTNERSHIP NET ASSETS: $27,840,224                                     %
<S>                                                               <C>                      <C>
Foreign currency                                                            3.10                    2,056,042,500
Interest rate                                                               3.82                              626
Commodity                                                                  (1.11)                             431
Equity                                                                      0.10                               16
                                                                           -----
  Grand Total:                                                              5.91
                                                                           =====
  Unrealized Currency Loss

  Total Net Unrealized Gain per Statement of Financial Condition


2001 PARTNERSHIP NET ASSETS: $26,294,061
Foreign currency                                                            3.93                    2,133,875,197
Interest rate                                                              (0.80)                             783
Commodity                                                                  (2.77)                             422
Equity                                                                      0.16                               76
                                                                           -----
  Grand Total:                                                              0.52
                                                                           =====
  Unrealized Currency Loss

  Total Net Unrealized Gain per Statement of Financial Condition

</TABLE>

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

<PAGE>

DEAN WITTER CORNERSTONE IV

SCHEDULES OF INVESTMENTS

DECEMBER 31, 2002 AND 2001

<TABLE>
<CAPTION>
FUTURES AND FORWARD CONTRACTS:                                    LONG GAIN/(LOSS) SHORT GAIN/(LOSS) NET UNREALIZED GAIN/(LOSS)
------------------------------                                    ---------------- ----------------- --------------------------
2002 PARTNERSHIP NET ASSETS: $107,841,895                                $                 $                     $
<S>                                                               <C>              <C>               <C>
Foreign currency:
  Euro/US dollar Mar. 03                                              5,843,488               --             5,843,488
  Other                                                               5,698,117       (4,784,058)              914,059
                                                                     ----------       ----------             ---------
  Grand Total:                                                       11,541,605       (4,784,058)            6,757,547
                                                                     ==========       ==========
  Unrealized Currency Gain                                                                                      77,341
                                                                                                             ---------
  Total Net Unrealized Gain per Statement of Financial Condition                                             6,834,888
                                                                                                             =========

2001 PARTNERSHIP NET ASSETS: $106,610,025
Foreign currency                                                      1,040,742        6,742,624             7,783,366
                                                                                                             ---------
  Total Net Unrealized Gain per Statement of Financial Condition                                             7,783,366
                                                                                                             =========
</TABLE>
<TABLE>
<CAPTION>
FUTURES AND FORWARD CONTRACTS:                                    PERCENTAGE OF NET ASSETS NOTIONAL AMOUNTS
------------------------------                                    ------------------------ ----------------
2002 PARTNERSHIP NET ASSETS: $107,841,895                                    %
<S>                                                               <C>                      <C>
Foreign currency:
  Euro/US dollar Mar. 03                                                    5.42               172,375,000
  Other                                                                     0.85            11,897,260,598
                                                                            ----
  Grand Total:                                                              6.27
                                                                            ====
  Unrealized Currency Gain

  Total Net Unrealized Gain per Statement of Financial Condition


2001 PARTNERSHIP NET ASSETS: $106,610,025
Foreign currency                                                            7.30*           16,819,511,884

  Total Net Unrealized Gain per Statement of Financial Condition

</TABLE>

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

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

<PAGE>

DEAN WITTER CORNERSTONE FUNDS

NOTES TO FINANCIAL STATEMENTS

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

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

USE OF ESTIMATES.  The financial statements are prepared in accordance with
accounting principles generally accepted in the United States of America, which
require management to make estimates and assumptions that affect the reported
amounts in the financial statements and related disclosures. Management
believes that the estimates utilized in the preparation of the financial
statements are prudent and reasonable. Actual results could differ from those
estimates.

<PAGE>

DEAN WITTER CORNERSTONE FUNDS

NOTES TO FINANCIAL STATEMENTS
(continued)


REVENUE RECOGNITION.  Futures interests are open commitments until settlement
date. They are valued at market on a daily basis and the resulting net change
in unrealized gains and losses is reflected in the change in unrealized profit
(loss) on open contracts from one period to the next in the statements of
operations. Monthly, Morgan Stanley DW pays each Partnership interest income
based upon 80% of its average daily Net Assets at a rate equal to the average
yield on 13-week U.S. Treasury bills issued. For purposes of such interest
payments to Cornerstone IV, Net Assets do not include monies owed to the
Partnership on futures interests.

NET INCOME (LOSS) PER UNIT.  Net income (loss) per unit of limited partnership
interest ("Unit(s)") is computed using the weighted average number of Units
outstanding during the period.

CONDENSED SCHEDULES OF INVESTMENTS.  In March 2001, the American Institute of
Certified Public Accountants' Accounting Standards Executive Committee issued
Statement of Position ("SOP") 01-1, "Amendment to the Scope of Statement of
Position 95-2, Financial Reporting by Nonpublic Investment Partnerships, to
Include Commodity Pools" effective for fiscal years ending after December 15,
2001. Accordingly, commodity pools are required to include a condensed schedule
of investments identifying those investments which constitute more than 5% of
Net Assets, taking long and short positions into account separately.

EQUITY IN FUTURES INTERESTS TRADING ACCOUNTS.  The Partnerships' asset "Equity
in futures interests trading accounts", reflected in the statements of
financial condition, consists of (A) cash on deposit with Morgan Stanley DW,
MS&Co. and MSIL to be used as margin for trading; (B) net unrealized gains or
losses on open contracts, which are valued at market and calculated as the
difference between original contract value and market value; and (C) net option
premiums, which represent the net of all monies paid and/or received for such
option premiums.

<PAGE>

DEAN WITTER CORNERSTONE FUNDS

NOTES TO FINANCIAL STATEMENTS
(continued)

  The Partnerships, in their normal course of business, enter into various
contracts with MS&Co. and MSIL acting as their commodity brokers. Pursuant to
brokerage agreements with MS&Co. and MSIL, to the extent that such trading
results in unrealized gains or losses, these amounts are offset and reported on
a net basis on the Partnerships' statements of financial condition.
  The Partnerships have offset the fair value amounts recognized for forward
contracts executed with the same counterparty as allowable under terms of the
master netting agreements with MS&Co., the sole counterparty on such contracts.
The Partnerships have consistently applied their right to offset.

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

OPERATING EXPENSES.  Each Partnership has entered into an exchange agreement
pursuant to which certain common administrative expenses (i.e., legal,
auditing, accounting, filing fees and other related expenses) are shared by
each of the Partnerships based upon the number of outstanding Units of each
Partnership during the month in which such expenses are incurred. In addition,
the Partnerships incur monthly management fees and may incur incentive fees.
Demeter bears all other operating expenses.

INCOME TAXES.  No provision for income taxes has been made in the accompanying
financial statements, as partners are individually responsible for reporting
income or loss based upon their respective share of each Partnership's revenues
and expenses for income tax purposes.

DISTRIBUTIONS.  Distributions, other than redemptions of Units, are made on a
pro-rata basis at the sole discretion of Demeter. No distributions have been
made to date.

<PAGE>

DEAN WITTER CORNERSTONE FUNDS

NOTES TO FINANCIAL STATEMENTS
(continued)


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

EXCHANGES.  Prior to the April 30, 2000 monthly closing, Limited Partners were
able to transfer their investments among the Partnerships (subject to certain
restrictions outlined in the Limited Partnership Agreements) without paying
additional charges.
  Effective with the April 30, 2000 monthly closing, the exchange privilege
among the Cornerstone funds was terminated. However, limited partners retained
the ability to execute an exchange from a Cornerstone fund into other funds
outside the Cornerstone Series, subject to certain restrictions set forth in
the applicable Limited Partnership Agreements.

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

LITIGATION SETTLEMENT.  On February 27, 2002, Cornerstone II and Cornerstone
III received notification of a preliminary entitlement to payment from the
Sumitomo Copper Litigation Settlement Administrator and received payment of
these settlement awards in the amount of $76,613 and $2,842,492, respectively,
on August 30, 2002.

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

<PAGE>

DEAN WITTER CORNERSTONE FUNDS

NOTES TO FINANCIAL STATEMENTS
(continued)


--------------------------------------------------------------------------------
3. TRADING MANAGERS
Demeter, on behalf of each Partnership, retains certain commodity trading
managers to make all trading decisions for the Partnerships. The trading
managers for each Partnership at December 31, 2002 were as follows:

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

Dean Witter Cornerstone Fund III
  Sunrise Capital Management, Inc.
  Welton Investment Corporation

  Effective January 1, 2003, Graham Capital Management, L.P. replaced Welton
  Investment Corporation as a trading manager in the Fund.

Dean Witter Cornerstone Fund IV
  John W. Henry & Company, Inc.
  Sunrise Capital Management, Inc.

Compensation to the trading managers by the Partnerships consists of a
management fee and an incentive fee as follows:

MANAGEMENT FEE.  Each Partnership's management fee is accrued at the rate of
1/12 of 3.5% per month (a 3.5% annual rate) of the Net Assets under management
by each trading manager at each month end. Prior to December 1, 2000, each
Partnership's management fee was accrued at the rate of  1/3 of 1% per month (a
4% annual rate) of the Net Assets under management by each trading manager at
each month end.

INCENTIVE FEE.  Each Partnership pays an annual incentive fee equal to 15% of
the new appreciation in Net Assets, as defined in the Limited Partnership
Agreements, as of the end of each annual incentive period ending December 31,
except for Cornerstone IV, which pays incentive fees at the end of each annual
incentive period ending May 31. New appreciation represents the amount by which
Net Assets are increased by profits from futures, forwards and options trading
that exceed losses after brokerage commissions, management fees, transaction
fees and costs and common administrative expenses are deducted. Such incentive
fee is accrued in each month in which new

<PAGE>

DEAN WITTER CORNERSTONE FUNDS

NOTES TO FINANCIAL STATEMENTS
(continued)

appreciation occurs. In those months in which new appreciation is negative,
previous accruals, if any, during the incentive period are reduced. In those
instances in which a Limited Partner redeems an investment, the incentive fee
(if earned through a redemption date) is paid on those redemptions to the
trading manager in the month of such redemption.

--------------------------------------------------------------------------------
4. FINANCIAL INSTRUMENTS
The Partnerships trade futures contracts, options on futures contracts, and
forward contracts on foreign currencies and other commodity interests. Futures
and forwards represent contracts for delayed delivery of an instrument at a
specified date and price. Risk arises from changes in the value of these
contracts and the potential inability of counterparties to perform under the
terms of the contracts. There are numerous factors which may significantly
influence the market value of these contracts, including interest rate
volatility.
  The market value of contracts is based on closing prices quoted by the
exchange, bank or clearing firm through which the contracts are traded.
  The Partnerships' contracts are accounted for on a trade-date basis and
market to market on a daily basis. Each Partnership accounts for its derivative
investments in accordance with the provisions of Statement of Financial
Accounting Standard No. 133, "Accounting for Derivative Instruments and Hedging
Activities" (''SFAS No. 133"). SFAS No. 133 defines a derivative as a financial
instrument or other contract that has all three of the following
characteristics:

(1)One or more underlying notional amounts or payment provisions;

(2)Requires no initial net investment or a smaller initial net investment than
   would be required relative to changes in market factors;

(3)Terms require or permit net settlement.

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

<PAGE>

DEAN WITTER CORNERSTONE FUNDS

NOTES TO FINANCIAL STATEMENTS
(continued)

  The net unrealized gains (losses) on open contracts at December 31, reported
as a component of "Equity in futures interests trading accounts" on the
statements of financial condition, and their longest contract maturities are as
follows:

CORNERSTONE II

<TABLE>
<CAPTION>
                   NET UNREALIZED GAINS
                     ON OPEN CONTRACTS          LONGEST MATURITIES
               ----------------------------- ------------------------
                           OFF-                              OFF-
               EXCHANGE- EXCHANGE-             EXCHANGE-   EXCHANGE-
          YEAR  TRADED    TRADED     TOTAL      TRADED      TRADED
          ---- --------- --------- --------- ------------- ----------
                   $         $         $
          <S>  <C>       <C>       <C>       <C>           <C>
          2002 1,077,589   973,551 2,051,140 December 2003 March 2003
          2001   374,620 1,164,896 1,539,516 December 2002 March 2002
</TABLE>

CORNERSTONE III

<TABLE>
<CAPTION>
                   NET UNREALIZED GAINS/
                (LOSSES) ON OPEN CONTRACTS      LONGEST MATURITIES
               ----------------------------- ------------------------
                           OFF-                              OFF-
               EXCHANGE- EXCHANGE-             EXCHANGE-   EXCHANGE-
          YEAR  TRADED    TRADED     TOTAL      TRADED      TRADED
          ---- --------- --------- --------- ------------- ----------
                   $         $         $
          <S>  <C>       <C>       <C>       <C>           <C>
          2002  688,301   864,306  1,552,607 December 2003 March 2003
          2001 (679,746)  752,314     72,568 December 2002 March 2002
</TABLE>

CORNERSTONE IV

<TABLE>
<CAPTION>
                     NET UNREALIZED GAINS
                       ON OPEN CONTRACTS        LONGEST MATURITIES
                 ----------------------------- --------------------
                             OFF-                          OFF-
                 EXCHANGE- EXCHANGE-           EXCHANGE- EXCHANGE-
            YEAR  TRADED    TRADED     TOTAL    TRADED    TRADED
            ---- --------- --------- --------- --------- ----------
                     $         $         $
            <S>  <C>       <C>       <C>       <C>       <C>
            2002    --     6,834,888 6,834,888    --     March 2003
            2001    --     7,783,366 7,783,366    --     March 2002
</TABLE>

  The Partnerships have credit risk associated with counterparty
nonperformance. The credit risk associated with the instruments in which the
Partnerships are involved is limited to the amounts reflected in the
Partnerships' statements of financial condition.
  The Partnerships also have credit risk because Morgan Stanley DW, MS&Co., and
MSIL act as the futures commission merchants or the counterparties with respect
to most of the Partnerships' 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 each Partnership's exchange-traded futures and
futures-styled

<PAGE>

DEAN WITTER CORNERSTONE FUNDS

NOTES TO FINANCIAL STATEMENTS
(continued)

options contracts, are required, pursuant to regulations of the Commodity
Futures Trading Commission, to segregate from their own assets, and for the
sole benefit of their commodity customers, all funds held by them with respect
to exchange-traded futures 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 at
December 31, 2002 and 2001 respectively, $22,780,027 and $21,690,396 for
Cornerstone II and $27,060,890 and $25,791,768 for Cornerstone III. With
respect to each Partnership's off-exchange-traded forward currency contracts,
there are no daily settlements of variations in value nor is there any
requirement that an amount equal to the net unrealized gains (losses) on open
forward contracts be segregated. With respect to those off-exchange-traded
forward currency contracts, the Partnerships are at risk to the ability of
MS&Co., the sole counterparty on all such contracts, to perform. Each
Partnership has a netting agreement with MS&Co. These agreements, which seek to
reduce both the Partnerships' and MS&Co.'s exposure on off-exchange-traded
forward currency contracts, should materially decrease the Partnerships' credit
risk in the event of MS&Co.'s bankruptcy or insolvency.

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

CORNERSTONE II

<TABLE>
<CAPTION>
                                                       PER UNIT:
                                                       ---------
              <S>                                      <C>
              NET ASSET VALUE, JANUARY 1, 2002:        $4,360.39
                                                       ---------
              NET OPERATING RESULTS:
                 Realized Profit                          874.59
                 Unrealized Profit                        103.05
                 Proceeds from Litigation Settlement       15.43
                 Interest Income                           58.96
                 Expenses                                (449.17)
                                                       ---------
                 Net Income                               602.86
                                                       ---------

              NET ASSET VALUE, DECEMBER 31, 2002:      $4,963.25
                                                       =========
                 Expense Ratio                              9.9%
                 Net Income Ratio                          13.1%

              TOTAL RETURN                                 13.8%
</TABLE>

<PAGE>

DEAN WITTER CORNERSTONE FUNDS

NOTES TO FINANCIAL STATEMENTS
(concluded)


CORNERSTONE III

<TABLE>
<CAPTION>
                                                       PER UNIT:
                                                       ---------
              <S>                                      <C>
              NET ASSET VALUE, JANUARY 1, 2002:        $3,045.84
                                                       ---------
              NET OPERATING RESULTS:
                 Realized Profit                          290.45
                 Unrealized Profit                        180.87
                 Proceeds from Litigation Settlement      347.36
                 Interest Income                           41.23
                 Expenses                                (313.54)
                                                       ---------
                 Net Income                               546.37
                                                       ---------

              NET ASSET VALUE, DECEMBER 31, 2002:      $3,592.21
                                                       =========
                 Expense Ratio                              9.9%
                 Net Income Ratio                          16.8%

              TOTAL RETURN                                 17.9%
</TABLE>

CORNERSTONE IV

<TABLE>
<CAPTION>
                                                     PER UNIT:
                                                     ---------
                 <S>                                 <C>
                 NET ASSET VALUE, JANUARY 1, 2002:   $6,228.94
                                                     ---------
                 NET OPERATING RESULTS:
                    Realized Profit                   1,316.48
                    Unrealized Loss                     (58.30)
                    Interest Income                      79.31
                    Expenses                           (571.11)
                                                     ---------
                    Net Income                          766.38
                                                     ---------

                 NET ASSET VALUE, DECEMBER 31, 2002: $6,995.32
                                                     =========
                    Expense Ratio                         9.1%
                    Net Income Ratio                     11.7%

                 TOTAL RETURN                            12.3%
</TABLE>

<PAGE>

                                                                PRESORTED
                                                            FIRST CLASS MAIL
                                                              U.S. POSTAGE
                                                                  PAID
                                                               PERMIT #374
                                                              LANCASTER, PA


                    Demeter Management Corporation
                    825 Third Avenue, 9th Floor
                    New York, NY 10022



[LOGO] Morgan Stanley

ADDRESS SERVICE REQUESTED




[LOGO] printed on recycled paper










-4-