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, 2005 or

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

Commission File Number 0-13299

	DEAN WITTER CORNERSTONE FUND III

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

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

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

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


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

									Name of each exchange
     Title of each class						on which registered

		None								  None

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

	Units of Limited Partnership Interest

	(Title of Class)

Indicate by check-mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act.  Yes       No  X

Indicate by check-mark if the registrant is not required
 to file reports pursuant to Section 13 or Section 15(d)
of the Act.  Yes       No  X

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

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

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

Large accelerated filer___  Accelerated filer____  Non-accelerated filer __X__

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

State the aggregate market value of the Units of Limited Partnership Interest
held by non-affiliates of the registrant.  The aggregate market value shall be
computed by reference to the price at which Units were sold as of the last
business day of the registrant?s most recently completed second fiscal quarter:
$23,143,959 at June 30, 2005.

	DOCUMENTS INCORPORATED BY REFERENCE
	(See Page 1)




<page> <table> DEAN WITTER CORNERSTONE FUND III
INDEX TO ANNUAL REPORT ON FORM 10-K
DECEMBER 31, 2005
<caption>
		        Page No.

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

Part I .

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

  Item 1A.	 	Risk Factors . . . . . . . . . . . . . . . . . . . . . .5-6

	Item 1B.			Unresolved Staff Comments . . . . . . . . . . . . . . . . 6

  Item 2.   Properties. . . . . . . . . . . . . . . . . . . . . . . . 7

  Item 3.   Legal Proceedings . . . . . . . . . . . . . . . . . . . . 7

  Item 4.   Submission of Matters to a Vote of Security Holders . . . 7

Part II.

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

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

  Item 7.   Management's Discussion and Analysis of Financial
            Condition and Results of Operations . . . . . . . . . 10-26

  Item 7A.  Quantitative and Qualitative Disclosures About
		 Market Risk . . . . . . . . . . . . . . . . . . . . . 26-41

  Item 8.   Financial Statements and Supplementary Data . . . . . . .41

  Item 9.   Changes in and Disagreements with Accountants on
            Accounting and Financial Disclosure . . . . . . . . . .  41

  Item 9A.	 	Controls and Procedures . . . . . . . . . . . . . . . 42-44

	Item 9B.			Other Information . . . . . . . . . . . . . . . . . . . .44
Part III.
  Item 10.  Directors and Executive Officers of the Registrant. . 45-50

  Item 11.  Executive Compensation. . . . . . . . . . . . . . . . .  50

  Item 12.  Security Ownership of Certain Beneficial Owners
            and Management. . . . . . . . . . . . . . . . . . . . . .51

  Item 13.  Certain Relationships and Related Transactions. . . . . .51

  Item 14.  Principal Accounting Fees and Services. . . . . . . . 52-53
Part IV.
  Item 15.  Exhibits and Financial Statement Schedules. . . . . . 54-55

</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, 2005  	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
in 1983 to engage in the speculative trading of futures contracts,
options on futures contracts, and forward contracts on foreign
currencies and other commodity interests.  The Partnership
commenced trading operations on January 2, 1985.  The Partnership
is one of the Dean Witter Cornerstone Funds, comprised of the
Partnership, Dean Witter Cornerstone Fund II, and Dean Witter
Cornerstone Fund IV.

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



<page> The Partnership began the year at a net asset value per unit
of limited partnership interest ("Unit(s)") of $4,218.77 and
returned -6.1% to $3,961.07 on December 31, 2005.  For a more
detailed description of the Partnership?s business, see
subparagraph (c).

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

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





<page>
	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).




<page>

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

(e) Available Information.  The Partnership files an annual report
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 100
F Street, N.E., 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 1A.  RISK FACTORS
The following risk factors contain forward looking statements
within the meaning of the safe harbor from civil liability
                                                             <page>
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 ?Quantifying the Partnership?s
Trading Value at Risk? in Item 7A ?Quantitative and Qualitative
Disclosures About Market Risk? are deemed to be forward-looking
statements for purposes of the safe harbor, except for statements
of historical fact.  The qualitative disclosures, except for (A)
those disclosures that are statements of historical fact and (B)
the descriptions of how the Partnership manages its primary market
risk exposure, in the ?Qualitative Disclosure Regarding Primary
Trading Risk Exposures? in Item 7A ?Quantitative and Qualitative
Disclosures About Market Risk? are deemed to be forward looking
statements for purposes of the safe harbor.

The Partnership is in the business of speculative trading of
futures, forwards, and options.  For a detailed description of the
risks that may affect the business of the Partnership, see the
discussion of risk factors as set forth in Item 7 ?Management?s
Discussion and Analysis of Financial Condition and Results of
Operations? and Item 7A ?Quantitative and Qualitative Disclosures
About Market Risk?.

Item 1B.  UNRESOLVED STAFF COMMENTS
Not applicable.

<page>
Item 2.  PROPERTIES
The Partnership?s executive and administrative offices are located
within the offices of Morgan Stanley DW.  The Morgan Stanley DW
offices utilized by the Partnership are located at 330 Madison
Avenue, 8th Floor, New York, NY 10017.

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, 2005 was
approximately 2,204.

(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 the
Partnership?s profits.










<page> <table> Item 6.  SELECTED FINANCIAL DATA (in dollars)

<caption>




	       	   	 	     For the Years Ended December 31,
	                         2005         2004         2003         2002        2001




				<c>		<c>		<c>		<c>		<c>
Total Trading Results
including interest
income			    	45,356	4,341,373   4,783,736   6,926,335   2,754,939

Net Income (Loss)   	  (1,858,506)	2,128,735   2,379,915   4,360,649     111,961

Net Income (Loss)
Per Unit (Limited
& General Partners)    	     (257.70)        309.46      317.10  	   546.37	     8.31

Total Assets  		  23,385,885     28,397,216  28,347,638  28,211,319  26,685,024

Total Limited
Partners' Capital		  22,552,335     27,476,835  27,596,004  27,329,760  25,861,238


Net Asset Value
Per Unit         		    3,961.07       4,218.77    3,909.31    3,592.21    3,045.84







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

The Partnership?s investment in futures, forwards, and options may,
from time to time, be illiquid.  Most U.S. futures exchanges limit
fluctuations in prices during a single day by regulations referred
to as ?daily price fluctuations limits? or ?daily limits?.  Trades
may not be executed at prices beyond the daily limit.  If the price
for a particular futures or options contract has increased or
decreased by an amount equal to the daily limit, positions in that
futures or options contract can neither be taken nor liquidated
unless traders are willing to effect trades at or

<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.  For the periods covered by this
report, illiquidity has not materially affected the Partnership?s
assets.

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

Capital Resources.  The Partnership does not have, nor expects to
have, any capital assets.  Redemptions of Units in the future will
<page> affect the amount of funds available for investments in
futures, forwards, and options in subsequent periods.  It is not
possible to estimate the amount, and therefore the impact, of
future  outflows of Units.

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

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

Results of Operations
General.  The Partnership?s results depend on the Trading Managers
and the ability of each Trading Manager?s trading program(s) to
take advantage of price movements in the futures, forwards, and
options markets.  The following presents a summary of the
Partnership?s operations for each of the three years in the period
ended December 31, 2005, and a general discussion of its trading
activities during each period.  It is important to note, however,
that the Trading Managers trade in various markets at different
times and that prior activity in a particular market does not

<page> mean that such market will be actively traded by the Trading
Managers or will be profitable in the future.  Consequently, the
results of operations of the Partnership are difficult to discuss
other than in the context of the Trading Managers' trading
activities on behalf of the Partnership during the period in
question.  Past performance is no guarantee of future results.

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

Demeter believes that, based on the nature of the operations of
the Partnership, no assumptions relating to the application of
critical accounting policies other than those presently used
could reasonably affect reported amounts.

The Partnership recorded total trading results including interest
income totaling $45,356 and expenses totaling $1,903,862,
resulting in a net loss of $1,858,506 for the year ended December
31, 2005.  The Partnership?s net asset value per Unit decreased
from $4,218.77 at December 31, 2004 to $3,961.07 at December 31,
2005.  Total redemptions for the year were $3,092,412 and the
Partnership?s ending capital was $22,958,408 at December 31,
2005, a decrease of $4,950,918 from ending capital at December
31, 2004 of $27,909,326.

The most significant trading losses of approximately 6.5% were
recorded in the currency markets primarily during the first
quarter and in August.  During January, long positions in a
variety of foreign currencies, primarily the euro, South African
rand, and both the New Zealand and Australian dollars, recorded
losses after the U.S. dollar?s value reversed sharply higher amid
<page> positive U.S. economic data and speculation for higher
U.S. interest rates.  The U.S. dollar?s value also advanced
during January in response to expectations that the Chinese
government would announce postponement of its re-valuation of the
Chinese yuan for the foreseeable future.  During February, losses
stemmed from short positions in the euro and South African rand
against the U.S. dollar as the U.S. dollar weakened due to
concerns for the considerable U.S. Current-Account deficit as
expressed by U.S. Federal Reserve Chairman Alan Greenspan.  The
U.S. dollar weakened further during the remainder of the month
due to a larger-than-expected drop in economic indicators and
news that South Korea?s Central Bank planned to reduce its U.S.
dollar currency reserves.  Short European currency positions
resulted in losses during early March as their values moved
higher amid a sharp rise in German industrial production.
Additional losses were recorded from newly established long
European currency positions, as well as from existing long
positions in the British pound, versus the U.S. dollar.  During
August, losses were recorded from long U.S. dollar positions
against the British pound and euro as the value of the U.S.
dollar declined amid higher crude oil prices, lower durable goods
orders, the U.S. trade imbalance, and economic warnings from U.S.
Federal Reserve Chairman Alan Greenspan.  Additional losses of
approximately 3.6% were recorded in the global interest rate
markets primarily during February and July from long positions in
U.S. interest rate futures.  During February, prices reversed
<page> lower after positive economic data reduced investor demand
for fixed-income investments.  Prices fell further during July
following a rise in interest rates and after the U.S. Labor
Department released its June employment report.  Smaller losses
were incurred during November from short positions in U.S.
interest rate futures after prices moved higher early in the
month on strong demand at government debt auctions and then
advanced again later in the month on reduced inflation fears and
speculation that the U.S. Federal Reserve would potentially end
its cycle of hiking interest rates in early 2006. In the
agricultural markets, losses of approximately 0.9% were
experienced during the second and third quarter from long futures
positions in soybeans, its related products, and corn after
prices moved lower on news of greater crop yields.  During July
and August, losses resulted from long futures positions in corn
after prices declined from heavy rainfall in U.S. growing regions
and forecasts for growth in supply increases.  Losses of
approximately 0.2% resulted in the energy markets, primarily
during the second quarter from positions in crude oil and its
related products.  During April, long futures positions in crude
oil and its related products recorded losses as prices reversed
lower amid greater refinery production and slower growth in
demand.  Losses also resulted from long positions in natural gas
futures as prices declined with crude oil prices.  Short crude
oil futures positions also experienced losses during May after
<page> prices increased due to news of weak supply.  Further
losses were recorded later in June from newly established long
crude oil positions as prices reversed lower on news of rising
supplies and solid refinery output.  A portion of the
Partnership?s overall losses for the year was offset by gains of
approximately 4.3% achieved in the metals markets primarily
during the fourth quarter from long futures positions in copper,
aluminum, and zinc, as prices increased on news of consistently
strong demand from India, China, and the Middle East, and news of
weak global supplies.  Gains of approximately 1.8% resulted in
the global stock indices sector primarily during the third
quarter from long positions in European and Pacific Rim stock
index futures.  During July, long positions benefited as prices
increased on positive economic data out of the U.S. and Japan.
Prices continued to strengthen after China reformed its U.S.
dollar currency peg policy.  Finally, strong corporate earnings
out of the European Union and the U.S. resulted in optimistic
investor sentiment and pushed prices higher.  During September,
long positions in Japanese stock index futures experienced gains
as prices increased on positive comments from Bank of Japan
Governor Toshihiko Fukui, who said the Japanese economy was in
the process of emerging from a soft patch.  Additional gains
resulted during September from long positions in European stock
index futures.


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

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

The Partnership recorded total trading results including interest
income totaling $4,783,736 and expenses totaling $2,403,821,
resulting in net income of $2,379,915 for the year ended December
31, 2003. The Partnership?s net asset value per Unit increased
from $3,592.21 at December 31, 2002 to $3,909.31 at December 31,
2003. Total redemptions for the year were $2,223,369 and the
Partnership?s ending capital was $27,996,770 at December 31,
2003, an increase of $156,546 from ending capital at December 31,
2002 of $27,840,224.

The most significant trading gains of approximately 7.2% were
recorded in the currency markets, mainly throughout the fourth
<page> quarter, from long positions in a variety of major and
minor currencies versus the U.S. dollar.  A confluence of factors
including concerns regarding U.S. budget and trade deficits, a
dip in consumer confidence, an outbreak of Mad Cow Disease in the
U.S., and fears of a potential terrorist attack forced the U.S.
dollar to retreat.  The Partnership?s largest currency sector
gains were achieved during January, May, and December from long
positions in the euro, British pound, Australian dollar, South
African rand, and New Zealand dollar versus the U.S. dollar.
Additional gains of approximately 5.4% were recorded in the
metals markets primarily during the fourth quarter from long
futures positions in base metals, such as copper and nickel, as
well as from long futures positions in precious metals, such as
gold.  During October and December, industrial metals prices
rallied in response to growing investor sentiment that the global
economy was on the path to recovery as well as to increased
demand, especially from China.  Meanwhile, gold soared as
investors sought a ?safe-haven? from the falling U.S. dollar and
an increased risk of terrorism.  In the global equity markets,
gains of approximately 4.6% were achieved, again primarily during
the fourth quarter of the year.  During October and December,
long U.S. equity index futures positions profited amid the
release of favorable economic data and increased confidence that
the global economic recovery was materializing.  A portion of the
Partnership?s overall gains for the year was offset by losses of
<page> approximately 3.0% in the global interest rate markets.
Long positions in European and U.S. interest rate futures
suffered losses during July as prices declined amid rising
interest rates and a rally in global equity prices prompted by
renewed hope for a global economic recovery.  During September,
short positions in the same markets recorded losses as bond
prices reversed higher due to renewed skepticism regarding a
global economic recovery and lower equity prices.  Further losses
of approximately 2.1% were incurred in the energy markets.
During October, the Partnership entered the month with short
natural gas positions, but these positions proved unprofitable as
prices rallied during the first part of the month.  In response
to rising natural gas prices, the Partnership reversed its
position from short to long, only to see prices decline in the
latter part of the month.  December also added to losses from
short natural gas futures positions.  Additional losses were
incurred from short crude oil positions during September and
October as prices moved higher in response to supply fears
primarily caused by geopolitical tensions.  Crude oil prices
continued to trade in a volatile fashion during November, moving
in one direction for a few days and then sharply reversing,
resulting in additional losses.  Short natural gas futures
positions supplied losses during December.


<page> For an analysis of unrealized gains and (losses) by contract
type and a further description of 2005 trading results, refer to
the Partnership?s Annual Report to Limited Partners for the year
ended December 31, 2005, which is incorporated by reference to
Exhibit 13.01 of this Form 10-K.

The Partnership?s gains and losses are allocated among its
partners for income tax purposes.

Market Risk.
Financial Instruments.  The Partnership is a party to financial
instruments with elements of off-balance sheet market and credit
risk.  The Partnership trades futures contracts, options on
futures contracts, and forward contracts on foreign currencies
and other commodity interests.  In entering into these contracts,
the Partnership is subject to the market risk that such contracts
may be significantly influenced by market conditions, such as
interest rate volatility, resulting in such contracts being less
valuable. If the markets should move against all of the positions
held by the Partnership at the same time, and if the Trading
Managers were unable to offset positions of the Partnership, the
Partnership could lose all of its assets and the limited partners
would realize a 100% loss.

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

Credit Risk.
In addition to market risk, in entering into futures, 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, forward, and options
contracts traded in the United States and most foreign exchanges on
which the Partnership trades is the clearinghouse associated with
such exchange.  In general, a clearinghouse is backed by the
membership of the exchange and will act in the event of non-
performance by one of its members or one of its member?s customers,
which should significantly reduce this credit risk.
There is no assurance that a clearinghouse, exchange, or other
exchange member will meet its obligations to the Partnership, and
Demeter and the commodity brokers will not indemnify the
Partnership against a default by such parties.  Further, the law
is unclear as to whether a commodity broker has any obligation to
protect its customers from loss in the event of an exchange or
<page> clearinghouse defaulting on trades effected for the broker?s
customers.  In cases where the Partnership trades off-exchange
forward contracts with a counterparty, the sole recourse of the
Partnership will be the forward contract?s counterparty.

Demeter deals with these credit risks of the Partnership in
several ways.  First, Demeter monitors the Partnership?s credit
exposure to each exchange on a daily basis.  The commodity
brokers inform the Partnership, as with all their customers, of
the Partnership?s net margin requirements for all its existing
open positions, and Demeter has installed a system which permits
it to monitor the Partnership?s potential net credit exposure,
exchange by exchange, by adding the unrealized trading gains on
each exchange, if any, to the Partnership?s margin liability
thereon.

Second, the Partnership?s trading policies limit the amount of its
Net Assets that can be committed at any given time to futures
contracts and require a minimum amount of diversification in the
Partnership?s trading, usually over several different products and
exchanges.  Historically, the Partnership?s exposure to any one
exchange has typically amounted to only a small percentage of its
total Net Assets and on those relatively few occasions where the
Partnership?s credit exposure climbs above such level, Demeter
deals with the situation on a case by case basis,

<page> carefully weighing whether the increased level of credit
exposure remains appropriate.  Material changes to the trading
policies may be made only with the prior written approval of the
limited partners owning more than 50% of Units then outstanding.

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

For additional information, see the ?Financial Instruments?
section under ?Notes to Financial Statements? in the
Partnership?s Annual Report to Limited Partners for the year
ended December 31, 2005, 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

<page>
for speculative trading purposes only and, as a result, all or
substantially all of the Partnership?s assets are at risk of
trading loss.  Unlike an operating company, the risk of market-
sensitive instruments is inherent to the primary business
activity of the Partnership.

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



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

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

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


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

Quantifying the Partnership?s Trading Value at Risk


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

The Partnership accounts for open positions on the basis of mark
to market accounting principles.  Any loss in the market value of
the Partnership?s open positions is directly reflected in the
Partnership?s earnings and cash flow.

The Partnership?s risk exposure in the market sectors traded by the
Trading Managers is estimated below in terms of VaR.  The
Partnership estimates VaR using a model based upon historical
simulation (with a confidence level of 99%) which involves
constructing a distribution of hypothetical daily changes in the
<page> value of a trading portfolio.  The VaR model takes into
account linear exposures to risks including equity and commodity
prices, interest rates, foreign exchange rates, and correlation
among these variables. The hypothetical changes in portfolio value
are based on daily percentage changes observed in key market
indices or other market factors (?market risk factors?) to which
the portfolio is sensitive.  The one-day 99% confidence level of
the Partnership?s VaR corresponds to the negative change in
portfolio value that, based on observed market risk factors, would
have been exceeded once in 100 trading days, or one day in 100.
VaR typically does not represent the worst case outcome.  Demeter
uses approximately four years of daily market data (1,000
observations) and re-values its portfolio (using delta-gamma
approximations) for each of the historical market moves that
occurred over this time period.  This generates a probability
distribution of daily ?simulated profit and loss? outcomes.  The
VaR is the appropriate percentile of this distribution.  For
example, the 99% one-day VaR would represent the 10th worst outcome
from Demeter?s simulated profit and loss series.

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

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

The Partnership?s Value at Risk in Different Market Sectors
The following table indicates the VaR associated with the
Partnership?s open positions as a percentage of total Net Assets
by primary market risk category at December 31, 2005 and 2004. At
December 31, 2005 and 2004, the Partnership?s total capital-
ization was approximately $23 million and $28 million,
respectively.

Primary Market       December 31, 2005     December 31, 2004
Risk Category	        Value at Risk	     Value at Risk
Equity		  		  (1.24)%	 		   (2.46)%
Currency		         	  (1.16)  		   (2.49)
Interest Rate		  	  (0.44) 		  	   (1.46)
Commodity		         	  (0.61)	  		   (0.81)
Aggregate Value at Risk	  (2.27)%			   (3.58)%


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

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

The table below supplements the December 31, 2005 VaR set forth
above by presenting the Partnership?s high, low, and average VaR,
as a percentage of total Net Assets for the four quarter-end
reporting periods from January 1, 2005 through December 31, 2005.

Primary Market Risk Category	 High   	 Low 	Average
Equity	(1.74)%	(1.24)%	(1.59)%
Currency	(2.15)	(1.01)	(1.36)
Interest Rate	(3.30)	(0.44)	(1.21)
Commodity   	(1.08)	(0.35)	(0.77)
Aggregate Value at Risk 			(3.41)%	(2.21)%	(2.61)%
<page>
Limitations on Value at Risk as an Assessment of Market Risk

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


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

The VaR tables provided present the results of the Partnership?s
VaR for each of the Partnership?s market risk exposures and on an
aggregate basis at December 31, 2004 and for the four quarter-end
reporting periods during calendar year 2005.  VaR is not
necessarily representative of the Partnership?s historic risk, nor
should it be used to predict the Partnership?s future financial
performance or its ability to manage or monitor risk.  There can be
no assurance that the Partnership?s actual losses on a particular
day will not exceed the VaR amounts indicated above or
that such losses will not occur more than once in 100 trading days.

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

The Partnership also maintains a substantial portion of its
available assets in cash at Morgan Stanley DW; as of December 31,
2005, such amount is equal to approximately 92% of the
<page> Partnership?s net asset value.  A decline in short-term
interest rates would result in a decline in the Partnership?s
cash management income. This cash flow risk is not considered to
be material.

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.
<page> Government interventions, defaults and expropriations,
illiquid markets, the emergence of dominant fundamental factors,
political upheavals, changes in historical price relationships, an
influx of new market participants, increased regulation, and many
other factors could result in material losses, as well as in
material changes to the risk exposures and the risk management
strategies of the Partnership. Investors must be prepared to lose
all or substantially all of their investment in the Partnership.

The following were the primary trading risk exposures of the
Partnership at December 31, 2005, by market sector.  It may be
anticipated, however, that these market exposures will vary
materially over time.

Equity.  The largest market exposure of the Partnership at December
31, 2005 was to the global stock index sector, primarily to equity
price risk in the G-7 countries.  The G-7 countries consist of
France, the U.S., Britain, Germany, Japan, Italy, and Canada.  The
stock index futures traded by the Partnership are by law limited to
futures on broadly-based indices.  At December 31, 2005, the
Partnership?s primary exposures were to the S&P 500 E-MINI (U.S.),
DAX (Germany), CAC 40 (France), NASDAQ 100 (U.S.), and EURO STOX 50
(Europe) stock indices.  The Partnership is primarily exposed to
the risk of adverse price trends or static markets in the U.S.,
European, and Japanese stock indices.  Static

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

Currency.  The second largest market exposure of the Partnership at
December 31, 2005 was to the currency sector.  The Partnership?s
currency exposure is to exchange rate fluctuations, primarily
fluctuations which disrupt the historical pricing relationships
between different currencies and currency pairs.  Interest rate
changes, as well as political and general economic conditions
influence these fluctuations.  The Partnership trades a
large number of currencies including cross-rate ? i.e., positions
between two currencies other than the U.S. dollar.  At December 31,
2005, the Partnership?s major exposures were to Australian dollar,
euro, British pound, Canadian dollar, and Japanese yen currency
crosses, as well as to outright U.S. dollar positions.  Outright
positions consist of the U.S. dollar vs. other currencies.  These
other currencies include major and minor currencies.  Demeter does
not anticipate that the risk associated with the Partnership?s
currency trades will change significantly in the future.

Interest Rate.  The third largest market exposure of the
Partnership at December 31, 2005 was to the global interest rate
sector.  Exposure was primarily spread across the European, U.S.,

<page> and Japanese interest rate sectors.  Interest rate movements
directly affect the price of the sovereign bond futures positions
held by the Partnership and indirectly affect the value of its
stock index and currency positions.  Interest rate movements in one
country, as well as relative interest rate movements between
countries, materially impact the Partnership?s profitability.  The
Partnership?s interest rate exposure is generally to interest rate
fluctuations in the U.S. and the other G-7 countries.  However, the
Partnership also takes futures positions in the government debt of
smaller countries - e.g., Australia.  Demeter anticipates that the
G-7 countries interest rates and Australian interest rates will
remain the primary interest rate exposures of the Partnership for
the foreseeable future.  The speculative futures positions held by
the Partnership may range from short to long-term instruments.
Consequently, changes in short, medium, or long-term interest rates
may have an effect on the Partnership.

Commodity.
Metals.  At December 31, 2005, the Partnership had market
exposure in the metals sector.  The Partnership?s metals
exposure was to fluctuations in the price of base metals, such
as aluminum and copper, and precious metals, such as silver
and gold.  Economic forces, supply and demand inequalities,
geopolitical factors, and market expectations
<page> influence price movements in these markets.  The
Trading Managers utilize the trading system(s) to take
positions when market opportunities develop, and Demeter
anticipates that the Partnership will continue to do so.

Soft Commodities and Agriculturals.  At December 31, 2005, the
Partnership had market exposure to the markets that comprise
these sectors.  Most of the exposure was to the sugar complex.
 Supply and demand inequalities, severe
weather disruptions, and market expectations affect price
movements in these markets.

Energy. At December 31, 2005, the Partnership had market
exposure in the energy sector.  The Partnership?s energy
exposure was primarily to futures contracts in crude oil.
Price movements in these markets result from geopolitical
developments, particularly in the Middle East, as well as
weather patterns and other economic fundamentals.  Significant
profits and losses, which have been experienced in the past,
are expected to continue to be experienced in the future.
Natural gas has exhibited volatility in price resulting from
weather patterns and supply and demand factors and will likely
continue in this choppy pattern.



<page>
Qualitative Disclosures Regarding Non-Trading Risk Exposure
The following was the only non-trading risk exposure of the
Partnership at December 31, 2005:

Foreign Currency Balances.  The Partnership?s primary foreign
currency balances at December 31, 2005 were in euros,
Australian dollars, Swiss francs, and Hong Kong dollars.  The
Partnership controls the non-trading risk of foreign currency
balances by regularly converting them back into U.S. dollars
upon liquidation of their respective positions.


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


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

Item 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements are incorporated by reference to the
Partnership's Annual Report, which is filed as Exhibit 13.01
hereto.


Supplementary data specified by Item 302 of Regulation S-K:

Summary of Quarterly Results (Unaudited)

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

2005
March 31 		$(2,054,276)		$ (2,565,838)	   $(388.21)
June 30	    	   (180,405)	    	    (626,885)	     (95.55)
September 30	    582,225		     118,955	      21.41
December 31	  1,697,812		   1,215,262        204.65

Total		$    45,356		$ (1,858,506) 	   $(257.70)

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

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



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


None.

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

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

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

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

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

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

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

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

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

Management assessed the effectiveness of the Partnership?s
internal control over financial reporting as of December 31,
2005.  In making this assessment, Management used the criteria
set forth by the Committee of Sponsoring Organizations of the
Treadway Commission in Internal Control-Integrated Framework.
Based on our assessment and those criteria, Management believes
that the Partnership maintained effective internal control over
financial reporting as of December 31, 2005.

Deloitte & Touche LLP, the Partnership?s independent registered
public accounting firm, has issued an attestation report on
Management?s assessment of the Partnership?s internal control over
financial reporting and on the effectiveness of the Partnership?s
internal control over financial reporting.  This report, which
expresses an unqualified opinion on Management?s assessment and on
the effectiveness of the Partnership?s internal control over
financial reporting, appears under ?Report of Independent
Registered Public Accounting Firm? in the Partnership?s Annual
Report to Limited Partners for the year ended December 31, 2005.

Item 9B.  OTHER INFORMATION
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:

Effective May 1, 2005, Mr. Raymond A. Harris resigned his position
as a Director of Demeter.

Effective May 1, 2005, Mr. Todd Taylor resigned his position as a
Director of Demeter.

Effective May 1, 2005, Mr. William D. Seugling resigned his
position as a Director of Demeter.

Effective May 1, 2005, Ms. Louise M. Wasso-Jonikas resigned her
position as a Director of Demeter.

Mr. Jeffrey A. Rothman, age 44, is the Chairman of the Board of
Directors and President of Demeter.  Mr. Rothman is the Managing
Director of Morgan Stanley Alternative Investments Group,
responsible for overseeing all aspects of the firm?s Managed <page>
Futures Department.  Mr. Rothman has been with the Managed Futures
Department for nineteen years.  Throughout his career, Mr. Rothman
has helped with the development, marketing, and administration of
approximately 40 commodity pools. Mr. Rothman is an active member
of the Managed Funds Association and has recently served on its
Board of Directors.  Mr. Rothman has a B.A. degree in Liberal Arts
from Brooklyn College, New York.

Mr. Richard A. Beech, age 54, 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 in the Fixed Income Department.
Mr. Beech began his career at the Chicago Mercantile Exchange,
where he became the Chief Agricultural Economist doing market
analysis, marketing, and compliance.  Prior to joining Morgan
Stanley DW, Mr. Beech worked at two investment banking firms in
operations, research, managed futures, and sales management.  Mr.
Beech has a B.S. degree in Business Administration from Ohio State
University and an M.B.A. degree from Virginia Polytechnic Institute
and State University.

Ms. Shelley Hanan, age 45, is a Director of Demeter.  Ms. Hanan
joined Morgan Stanley in 1984.  She eventually became the Regional
Manager of the Southwest for Private Wealth Management and a
Senior Representative for the Morgan Stanley Foundation in

<page>
Southern California.  Her focus was senior relationship management
of the firm?s largest private clients in the Southwest.  Since
January 2005, Ms. Hanan has held the position of Chief Operating
Officer of the U.S. Client Coverage Group and is a Managing
Director.  Ms. Hanan graduated from the University of California at
San Diego with a B.A. in Psychology.

Mr. Frank Zafran, age 51, is a Director of Demeter.  Mr. Zafran is
a Managing Director of Morgan Stanley and, in November 2005, was
named Managing Director of Wealth Solutions.  Previously, Mr.
Zafran was Chief Administrative Officer of Morgan Stanley?s Client
Solutions Division. Mr. Zafran joined the firm in 1979 and has held
various positions in Corporate Accounting and the Insurance
Department, including Senior Operations Officer ? Insurance
Division, until his appointment in 2000 as Director of 401(k) Plan
Services, responsible for all aspects of 401(k) Plan Services
including marketing, sales, and operations.  Mr. Zafran received a
B.S. degree in Accounting from Brooklyn College, New York.

Mr. Douglas J. Ketterer, age 40, is a Director of Demeter.  Mr.
Ketterer is a Managing Director at Morgan Stanley and is head of
the Managed Money Group.  The Managed Money Group is comprised of a
number of departments (including the Alternative Investments Group,
Consulting Services Group, and Mutual Fund Department) which offer
products and services through Morgan Stanley?s Global

<page> Wealth Management Group.  Mr. Ketterer joined Morgan Stanley
in 1990 and has served in many roles in the corporate
finance/investment banking, asset management, and distribution
divisions of the firm. Mr. Ketterer received his M.B.A. from New
York University?s Leonard N. Stern School of Business and his B.S.
in Finance from the University at Albany?s School of Business.

Mr. Harry Handler, age 47, is a Director of Demeter. Mr. Handler
serves as an Executive Director for Morgan Stanley in the Global
Wealth Management Group.  Mr. Handler works in the Investment
Solutions Division as Chief Infrastructure and Risk Officer.
Additionally, Mr. Handler also serves as Chairman of the Morgan
Stanley DW Best Execution Committee and manages the Global Wealth
Management Group Stock Lending business.  In his prior position,
Mr. Handler was a Systems Director in Information Technology, in
charge of Equity and Fixed Income Trading Systems along with the
Special Products, such as Unit Trusts, Managed Futures, and
Annuities.  Prior to his transfer to the Information Technology
Area, Mr. Handler managed the Foreign Currency and Precious Metals
Trading Desk for Dean Witter, a predecessor company to Morgan
Stanley.  He also held various positions in the Futures Division
where he helped to build the Precious Metals Trading Operation of
Dean Witter.  Before joining Dean Witter, Mr. Handler worked at
Mocatta Metals as an Assistant to the Chairman.  His roles at
Mocatta Metals included stints on the Futures Order Entry Desk and
the Commodities Exchange Trading Floor.  Additional work included

<page> building a computerized Futures Trading System and writing a
history of the company.  Mr. Handler graduated on the Dean?s List
from the University of Wisconsin-Madison with a B.A. degree and a
double major in History and Political Science.

Mr. Kevin Perry, age 36, is the Chief Financial Officer of
Demeter.  Mr. Perry currently serves as an Executive Director and
Controller within the Global Wealth Management Group at Morgan
Stanley.  Mr. Perry joined Morgan Stanley in October 2000 and is
also Chief Financial Officer of Morgan Stanley Trust National
Association.  Prior to joining Morgan Stanley, Mr. Perry worked
as an auditor and consultant in the financial services practice
of Ernst & Young LLP from October 1991 to October 2000.  Mr.
Perry received a B.S. degree in Accounting from the University of
Notre Dame in 1991 and is a Certified Public Accountant.

All of the foregoing directors have indefinite terms.



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

<page> determined that Mr. Kevin Perry is the audit committee
financial expert.

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

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









<page>
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
         MANAGEMENT


(a)	Security Ownership of Certain Beneficial Owners - At December
31, 2005, 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, 2005,
Demeter owned 102.516 Units of general partnership interest,
representing a 1.77 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, 2005, which is
incorporated by reference to Exhibit 13.01 of this Form 10-K.  In
its capacity as the Partnership's retail commodity broker, Morgan
Stanley DW received commodity brokerage commissions (paid and
accrued by the Partnership) of $948,366 for the year ended December
31, 2005.




<page> Item 14.  PRINCIPAL ACCOUNTING FEES AND SERVICES
The Partnership pays accounting fees as discussed in Note 1 to the
Financial Statements, ?Operating Expenses?, in the Annual Report to
the Limited Partners for the year ended December 31, 2005.

(1)  	Audit Fees.  The aggregate fees for professional services
rendered by Deloitte & Touche LLP in connection with their audit
of the Partnership?s Financial Statements and review of the
Financial Statements included in the Quarterly Reports on Form
10-Q, audit of Management assessment of the effectiveness of the
internal control over financial reporting, and in connection with
statutory and regulatory filings were approximately $42,322 for
the year ended December 31, 2005 and $41,222 for the year ended
December 31, 2004.

(2)	Audit-Related Fees.  None.




(3)	Tax Fees.  The Partnership did not pay Deloitte & Touche LLP
any amounts in 2005 and 2004 for professional services in
connection with tax compliance, tax advice, and tax planning.  The
Partnership engaged another unaffiliated professional firm to
provide services in connection with tax compliance, tax advice, and
tax planning.

(4)  All Other Fees.  None.

<page>
The Board of Directors of Demeter serves as the audit committee
with respect to the Partnership.  The Board of Directors of Demeter
has not established pre-approval policies and procedures with
respect to the engagement of audit or permitted non-audit services
rendered to the Partnership.  Consequently, all audit and permitted
non-audit services provided by Deloitte & Touche LLP are approved
by the Board of Directors of Demeter and communicated to Morgan
Stanley.

















<page>
PART IV
Item 15.	EXHIBITS AND FINANCIAL STATEMENT SCHEDULES


1. 	Listing of Financial Statements
The following Financial Statements and report of independent
registered public accounting firm, all appearing in the
accompanying Annual Report to Limited Partners for the year
ended December 31, 2005, are incorporated by reference to
Exhibit 13.01 of this Form 10-K:
-	Report of Deloitte & Touche LLP, independent registered
public accounting firm, for the years ended December 31,
2005, 2004, and 2003.

-	Statements of Financial Condition, including the
Schedules of Investments, as of December 31, 2005 and
2004.

-	Statements of Operations, Changes in Partners' Capital,
and Cash Flows for the years ended December 31, 2005,
2004, and 2003.


	   - 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,
2005, 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>
3.	Exhibits
	For the exhibits incorporated by reference or filed herewith
to this report, refer to Exhibit Index on Pages  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, 2006			BY: /s/Jeffrey A. Rothman
						 Jeffrey A. Rothman,
						 President


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

Demeter Management Corporation.

BY: 	/s/	Jeffrey A. Rothman               			March 31, 2006
         	Jeffrey A. Rothman, President

    	/s/	Richard A. Beech                 			March 31, 2006
 	    	Richard A. Beech, Director

    	/s/	Shelley Hanan                			March 31, 2006
 	    	Shelley Hanan, Director

   	/s/	Frank Zafran                     			March 31, 2006
 	    	Frank Zafran, Director

    	/s/	Douglas J. Ketterer	            		March 31, 2006
        	Douglas J. Ketterer, Director

    	/s/	Harry Handler		            		March 31, 2006
 	    	Harry Handler, Director

   	/s/	Kevin Perry                  			March 31, 2006
         	Kevin Perry, Chief Financial Officer









<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).

10.01(a)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.

10.03	   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.

E-1
<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.

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

13.01  December 31, 2005 	Annual Report to Limited Partners is
filed herewith.

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

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

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


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


E-2




<page>


<PAGE>

                  Cornerstone
                  Funds

       December 31, 2005
       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 compound annualized return since inception for
each Fund. Past performance is no guarantee of future results.

<TABLE>
<CAPTION>


            1985  1986    1987   1988  1989  1990 1991  1992  1993   1994  1995 1996 1997 1998 1999  2000  2001  2002 2003 2004
FUND         %     %       %      %     %     %    %     %     %      %     %    %    %    %    %     %     %     %    %    %
---------------------------------------------------------------------------------------------------------------------------------
<S>         <C>  <C>    <C>      <C>  <C>    <C>  <C>  <C>    <C>   <C>    <C>  <C>  <C>  <C>  <C>   <C>   <C>   <C>  <C>  <C>
Cornerstone
 Fund II... 20.1 (17.6)   71.6   0.1  (15.1) 47.9 11.0 (1.3)   7.8  (8.9)  26.5 11.5 18.1 12.5 (5.4) 11.5  (1.3) 13.8 0.4  (6.5)
---------------------------------------------------------------------------------------------------------------------------------
Cornerstone
 Fund III.. 54.6 (8.0)    32.5   19.4 (11.4) 18.7 12.0 (11.1) (4.8) (10.0) 27.5 8.2  10.2 9.1  (6.8) (0.3)  0.3  17.9 8.8   7.9
---------------------------------------------------------------------------------------------------------------------------------
Cornerstone
 Fund IV...  --    --     10.6   37.5 (14.1) 57.8 33.5  10.4  (9.1) (14.3) 23.0 13.0 38.4 6.8  (1.1) 14.7  15.9  12.3 13.6 (8.3)
                        (8 mos.)
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
                   INCEPTION-  COMPOUND
                    TO-DATE   ANNUALIZED
             2005    RETURN     RETURN
FUND          %        %          %
----------------------------------------
<S>         <C>    <C>        <C>
Cornerstone
 Fund II... (19.4)   285.0       6.6
----------------------------------------
Cornerstone
 Fund III.. (6.1)    306.3       6.9
----------------------------------------
Cornerstone
 Fund IV... (19.3)   503.1       10.1

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

<PAGE>

DEMETER MANAGEMENT CORPORATION

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

DEAN WITTER CORNERSTONE FUNDS
ANNUAL REPORT
2005

Dear Limited Partner:
 This marks the twenty-first annual report for Cornerstone Funds II and III and
the nineteenth annual report for Cornerstone Fund IV. The Net Asset Value per
Unit for each of the three Cornerstone Funds ("Fund(s)") as of December 31,
2005 was as follows:

<TABLE>
<CAPTION>
                                                                       % CHANGE
FUNDS                                                         N.A.V.   FOR YEAR
-------------------------------------------------------------------------------
<S>                                                          <C>       <C>
Cornerstone Fund II                                          $3,753.50  (19.4)%
-------------------------------------------------------------------------------
Cornerstone Fund III                                         $3,961.07   (6.1)%
-------------------------------------------------------------------------------
Cornerstone Fund IV                                          $5,879.98  (19.3)%
-------------------------------------------------------------------------------
</TABLE>

 Since their inception in 1985, Cornerstone Funds II and III have increased by
285.0% (a compound annualized return of 6.6%) and 306.3% (a compound annualized
return of 6.9%), respectively. Since its inception in 1987, Cornerstone Fund IV
has increased by 503.1% (a compound annualized return of 10.1%).

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

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

 Should you have any questions concerning this report, please feel free to
contact Demeter Management Corporation, 330 Madison Avenue, 8th Floor, New
York, NY 10017 or your Morgan Stanley Financial Advisor.

 I hereby affirm, that to the best of my knowledge and belief, the information
contained in this report is accurate and complete. Past performance is no
guarantee of future results.

Sincerely,

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

<PAGE>

DEAN WITTER CORNERSTONE FUND II

                                    [CHART]

                              Year ended December 31, 2005
                              ----------------------------
Currencies                             -13.99%
Interest Rates                          -4.00%
Stock Indices                            3.13%
Energies                                -4.95%
Metals                                  -0.10%
Agriculturals                           -1.11%

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

FACTORS INFLUENCING ANNUAL TRADING LOSSES:
..  Losses were incurred in the currency markets, primarily during the first and
   third quarter. During January, long positions in a variety of foreign
   currencies, primarily the South African rand, euro, Swiss franc, and
   Singapore dollar, recorded losses after the U.S. dollar's value reversed
   higher amid positive U.S. economic data and speculation for higher U.S.
   interest rates. During February, long positions in the Singapore dollar
   against the U.S. dollar experienced losses as the U.S. dollar's value rose
   in response to positive sentiment for the Bush Administration's budget
   proposal. Relaxed speculation that China would re-value its currency also
   boosted the U.S. dollar. Additional losses were recorded from newly
   established short positions in the Singapore dollar, as well as from
   existing short positions in the South African rand, euro, and Swiss franc.
   In early March, short European currency positions resulted in losses as
   their values moved higher amid a sharp rise in German industrial production.
   Additional losses were recorded from newly established long euro positions,
   as well as from existing long positions in the British pound and the
   Singapore dollar, versus the U.S. dollar after the value of the U.S. dollar
   reversed sharply higher amid an increase in U.S. interest rates. During
   August, long U.S. dollar positions against the British pound, Swiss franc,
   euro, and Singapore dollar, incurred losses as the value of the U.S. dollar
   declined amid higher crude oil prices, lower

<PAGE>

DEAN WITTER CORNERSTONE FUND II

FACTORS INFLUENCING ANNUAL TRADING LOSSES: (continued)

 durable goods orders, the U.S. trade imbalance, and economic warnings from
  U.S. Federal Reserve Chairman Alan Greenspan. Short U.S. dollar positions
  against the British pound, Swiss franc, euro, and Norwegian krone, held
  during September also recorded losses as the value of the U.S. dollar
  advanced amid bolstered expectations that the U.S. Federal Reserve would
  continue to raise interest rates. Meanwhile, the British pound weakened after
  records of the slowest British economic growth led to expectations for
  further interest rate cuts by the Bank of England. In addition, the values of
  European currencies moved lower amid weaker growth forecasts for the European
  economy and developments of political uncertainty stemming from news that
  Germany's incumbent Chancellor, Gerhard Schroeder, would not concede defeat
  to the opposition leader Angela Merkel in the days after the election.
  Additional sector losses were experienced from long positions in the New
  Zealand and Australian dollars.

..  In the energy markets, losses were recorded during the second and fourth
   quarter from positions in natural gas, crude oil and its related products.
   During April, long futures positions in crude oil and its related products
   resulted in losses as prices reversed sharply lower after U.S. government
   data pointed to greater refinery production, slower demand growth forecasts,
   and news of growing supplies. Elsewhere in the energy markets, losses
   resulted from long natural gas positions as prices declined with crude oil
   prices. During June, losses were recorded from positions in natural gas,
   crude oil and its related products as short futures positions held early in
   the month resulted in losses as prices strengthened on supply-related
   concerns. Later in June, long crude oil futures positions experienced losses
   after prices declined amid reports of slowing demand from China and reduced
   concerns for U.S. supply disruptions. News of negligible production
   interruptions from the Gulf of Mexico caused natural gas prices to rise,
   thus resulting in additional losses for short positions. During October,
   long futures positions in natural gas, crude oil and its related products
   experienced losses after prices reversed lower amid a decline in energy
   consumption, an economic slowdown in parts of the U.S. affected by
   Hurricanes Katrina and Rita, and reports that more refineries in the U.S.
   Gulf region resumed operations at full capacity. Prices continued to decline
   during the month as supply worries eased on signs of adequate fuel stocks in
   the U.S. During December, long futures positions in natural gas recorded
   losses as prices reversed sharply lower due to weak demand, mild weather in
   Europe and the U.S., and the release of U.S. government data which showed a
   smaller-than-expected decline in supplies. Elsewhere in the energy markets,
   short futures positions in crude oil and its related

<PAGE>

DEAN WITTER CORNERSTONE FUND II

FACTORS INFLUENCING ANNUAL TRADING LOSSES: (continued)

 products also experienced losses after December prices finished higher on news
  of a rebound in energy demand. Pushing crude oil prices further upwards was a
  bullish energy outlook for 2006 from the Energy Information Administration.

..  Additional losses were incurred in the global interest rate markets during
   February from long positions in Japanese interest rate futures as prices
   reversed lower after positive economic data and expectations for higher
   interest rates reduced investor demand for fixed-income investments. Newly
   established short Japanese positions held during March experienced losses
   after prices reversed higher amid overall weakness in global equity markets.
   During the third quarter, losses stemmed from positions in U.S and Japanese
   interest rate futures. During July, long U.S. interest rate futures
   positions experienced losses as prices declined following a rise in interest
   rates and after the U.S. Labor Department released its June employment
   report. Within the Japanese interest rate markets, losses were recorded as
   prices declined following positive comments on the Japanese economy by the
   Japanese Ministry of Finance. During August, short positions in U.S. and
   Japanese fixed-income futures incurred losses as prices reversed higher on
   worries about the global economic impact of Hurricane Katrina. Within
   Japanese interest rate futures markets, a bigger-than-expected decline in
   Japanese industrial output for July also contributed to higher prices.

..  Losses recorded in the agricultural markets stemmed from positions in cocoa
   futures as prices traded without consistent direction throughout much of the
   year. Additional losses resulted from long futures positions in corn and
   wheat during the second quarter after prices fell amid favorable weather in
   U.S. growing regions, and reduced foreign demand. During the fourth quarter,
   short futures positions in corn recorded losses after prices advanced on
   reports of strong demand and news of weaker-than-expected supplies.

..  Smaller losses resulted in metals during the first and second quarter
   primarily from positions in precious metals as prices in these markets
   experienced choppiness amid volatility in the value of the U.S. dollar and a
   negative outlook in demand.

<PAGE>

DEAN WITTER CORNERSTONE FUND II



FACTORS INFLUENCING ANNUAL TRADING GAINS:
..  Gains were recorded in the global stock indices during the third and fourth
   quarter. During the third quarter, long positions in European and Pacific
   Rim stock index futures benefited as prices rose amid positive economic data
   out of the U.S. and Japan. Prices continued to strengthen after China
   reformed its U.S. dollar currency peg policy, leading market participants to
   conclude that a re-valuation in the Chinese yuan would likely ease trade
   tensions between China, the U.S., Europe, and Japan. Finally, strong
   corporate earnings out of the European Union and the U.S. resulted in
   optimistic investor sentiment and pushed prices higher. During September,
   gains were produced from long positions in Japanese stock index futures as
   prices increased on positive economic comments from Bank of Japan Governor
   Toshihiko Fukui, improving business sentiment and a sustained upturn in
   consumer spending. Additional gains resulted from long positions in European
   stock index futures as prices increased due to a decline in oil prices.
   During the fourth quarter, long positions in European and Japanese stock
   index futures supplied gains as prices increased, largely in response to
   falling energy prices, strong corporate earnings from each respective
   region, positive economic data out of the U.S., and anticipation that a
   strong holiday shopping season would improve the retail sectors for both
   economies. European stock markets also found support from the possibility of
   an end to U.S. interest rate increases. Strong market optimism for continued
   improvements in the Japanese economy during 2006 also benefited prices.

<PAGE>

DEAN WITTER CORNERSTONE FUND III

                                    [CHART]

                              Year ended December 31, 2005
                              ----------------------------
Currencies                              -6.55%
Interest Rates                          -3.58%
Stock Indices                            1.82%
Energies                                -0.20%
Metals                                   4.34%
Agriculturals                           -0.92%

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

FACTORS INFLUENCING ANNUAL TRADING LOSSES:
..  Losses were recorded in the currency markets primarily during the first
   quarter and in August. During January, long positions in a variety of
   foreign currencies, primarily the euro, South African rand, and both the New
   Zealand and Australian dollars, recorded losses after the U.S. dollar's
   value reversed sharply higher amid positive U.S. economic data and
   speculation for higher U.S. interest rates. The U.S. dollar's value also
   advanced during January in response to expectations that the Chinese
   government would announce postponement of its re-valuation of the Chinese
   yuan for the foreseeable future. During February, losses stemmed from short
   positions in the euro and South African rand against the U.S. dollar as the
   U.S. dollar weakened due to concern for the considerable U.S.
   Current-Account deficit as expressed by U.S. Federal Reserve Chairman Alan
   Greenspan. The U.S. dollar weakened further during the remainder of the
   month due to a larger-than-expected drop in economic indicators and news
   that South Korea's Central Bank planned to reduce its U.S. dollar currency
   reserves. Short European currency positions resulted in losses during early
   March as their values moved higher amid a sharp rise in German industrial
   production. Additional losses were recorded from newly established long
   European currency positions, as well as from existing long positions in the
   British pound, versus the U.S. dollar. During August, losses were recorded
   from long

<PAGE>

DEAN WITTER CORNERSTONE FUND III

FACTORS INFLUENCING ANNUAL TRADING LOSSES: (continued)

 U.S. dollar positions against the British pound and euro as the value of the
  U.S. dollar declined amid higher crude oil prices, lower durable goods
  orders, the U.S. trade imbalance, and economic warnings from U.S. Federal
  Reserve Chairman Alan Greenspan.

..  Losses were recorded in the global interest rate markets primarily during
   February and July from long positions in U.S. interest rate futures. During
   February, prices reversed lower after positive economic data reduced
   investor demand for fixed-income investments. Prices fell further during
   July following a rise in interest rates and after the U.S. Labor Department
   released its June employment report. Smaller losses were incurred during
   November from short positions in U.S. interest rate futures after prices
   moved higher early in the month on strong demand at government debt auctions
   and then advanced again later in the month on reduced inflation fears and
   speculation that the U.S. Federal Reserve would potentially end its cycle of
   hiking interest rates in early 2006.

..  In the agricultural markets, losses were experienced during the second and
   third quarter from long futures positions in soybeans, its related products,
   and corn after prices moved lower on news of greater crop yields. During
   July and August, losses resulted from long futures positions in corn after
   prices declined from heavy rainfall in U.S. growing regions and forecasts
   for growth in supply increases.

..  In the energy markets, losses occurred primarily during the second quarter
   from positions in crude oil and its related products. During April, long
   futures positions in crude oil and its related products recorded losses as
   prices reversed lower amid greater refinery production and slower growth in
   demand. Losses also resulted from long positions in natural gas futures as
   prices declined with crude oil prices. Short crude oil futures positions
   also experienced losses during May after prices increased due to news of
   weak supply. Further losses were recorded later in June from newly
   established long crude oil positions as prices reversed lower on news of
   rising supplies and solid refinery output.

<PAGE>

DEAN WITTER CORNERSTONE FUND III



FACTORS INFLUENCING ANNUAL TRADING GAINS:
..  Gains achieved in the metals markets resulted primarily during the fourth
   quarter from long futures positions in copper, aluminum, and zinc, as prices
   increased on news of consistently strong demand from India, China, and the
   Middle East, and news of weak global supplies.

..  Gains resulted in the global stock indices sector primarily during the third
   quarter from long positions in European and Pacific Rim stock index futures.
   During July, long positions benefited as prices increased on positive
   economic data out of the U.S. and Japan. Prices continued to strengthen
   after China reformed its U.S. dollar currency peg policy. Finally, strong
   corporate earnings out of the European Union and the U.S. resulted in
   optimistic investor sentiment and pushed prices higher. During September,
   long positions in Japanese stock index futures experienced gains as prices
   increased on positive comments from Bank of Japan Governor Toshihiko Fukui,
   who said the Japanese economy was in the process of emerging from a soft
   patch. Additional gains resulted during September from long positions in
   European stock index futures.

<PAGE>

                      This page intentionally left blank.

<PAGE>

DEAN WITTER CORNERSTONE FUND IV

                                    [CHART]

                              Year ended December 31, 2005
                              ----------------------------
Australian dollar                       -3.30%
British pound                          -10.12%
Euro                                    -2.58%
Japanese yen                            11.85%
Swiss franc                              1.13%
Minor Currencies                       -14.78%

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

FACTORS INFLUENCING ANNUAL TRADING LOSSES:
..  Losses resulted from positions in European currencies against the U.S.
   dollar. Early during the first quarter, losses resulted from long positions
   in the British pound, euro, Norwegian krone, Czech koruna, and Polish zloty
   versus the U.S. dollar after the U.S. dollar's value reversed sharply higher
   amid an increase in U.S. interest rates and consumer prices. The U.S.
   dollar's value also advanced in response to expectations that the Chinese
   government would announce postponement of its re-valuation of the Chinese
   yuan. During February, losses were incurred from short European currency
   positions after the U.S. dollar's value weakened in response to concern for
   the considerable U.S. Current-Account deficit as expressed by U.S. Federal
   Reserve Chairman Alan Greenspan. During early March, short European currency
   positions continued to experience losses as their values moved higher amid a
   sharp rise in German industrial production. Further losses were recorded
   from newly established long European currency positions versus the U.S.
   dollar as the U.S. dollar's value reversed sharply higher amid an increase
   in U.S. interest rates and consumer prices. During the second quarter, long
   British pound positions incurred losses as the pound's value declined after
   British Prime Minister Tony Blair's Labour Party won

<PAGE>

DEAN WITTER CORNERSTONE FUND IV

FACTORS INFLUENCING ANNUAL TRADING LOSSES: (continued)

 re-election with a reduced government majority, and then moved lower later in
  the quarter on growing speculation that the interest rate differential
  between the U.S. and the U.K. would tighten. During July, long British pound
  positions experienced additional losses as the value of the pound dropped
  sharply on geopolitical concerns after a terror attack on the London public
  transportation system. During August, short British pound positions incurred
  losses as the value of the U.S. dollar declined amid higher crude oil prices,
  lower durable goods orders, the U.S. trade imbalance, and economic warnings
  from U.S. Federal Reserve Chairman Alan Greenspan. During September, losses
  were recorded from long positions in the British pound, Norwegian krone, and
  Czech koruna, as the value of the U.S. dollar advanced amid bolstered
  expectations that the U.S. Federal Reserve would continue to raise interest
  rates. During the fourth quarter, long British pound positions versus the
  U.S. dollar incurred further losses as the pound's value weakened after the
  Bank of England indicated that a cut in its interest rates would likely take
  place in March of 2006. Short positions in European currencies, particularly
  the euro, Norwegian krone, and Czech koruna, versus the U.S. dollar also
  experienced losses as their values moved higher in response to a rise in the
  Euro-Zone Organization for Economic Cooperation & Development's leading
  indicator of 106 in August from a July figure of 105.5. European currency
  values also moved higher with the euro, which was boosted by expectations
  that the European Central Bank might raise interest rates next year.

..  Additional losses were recorded from positions in the South African rand and
   both the Australian and New Zealand dollars (collectively the "Commodity
   Currencies"). During the first quarter, losses stemmed from both long and
   short positions in these currencies versus the U.S. dollar as the Commodity
   Currencies values traded counter to the U.S. dollar. During the second
   quarter, long positions in the Australian dollar versus the U.S. dollar
   incurred losses as the Australian dollar declined amid falling gold prices.
   During the third quarter, short positions in the Australian and New Zealand
   dollars versus the U.S. dollar recorded losses as the values of the
   Commodity Currencies moved higher on strong economic data out of the region.
   During September, losses were recorded from long Australian and New Zealand
   dollar positions as the value of the U.S. dollar advanced amid bolstered
   expectations that the U.S. Federal Reserve would continue to raise interest
   rates. Also forcing the New Zealand dollar against the U.S. dollar lower
   were fears for an economic slow-down in New Zealand during 2006. During
   October, long positions in the Commodity Currencies versus the U.S. dollar
   resulted in losses as their values weakened in response to volatile gold
   prices. The Australian dollar was also

<PAGE>

DEAN WITTER CORNERSTONE FUND IV

FACTORS INFLUENCING ANNUAL TRADING LOSSES: (continued)

 pressured lower after the Reserve Bank of Australia kept its overnight
  interest rate unchanged. During November, short positions in the South
  African rand and Australian dollar incurred losses as their values reversed
  higher on stronger gold prices. Finally, during December long positions in
  both the New Zealand and Australian dollars experienced losses amid
  weaker-than-expected economic growth data combined with a lack of confidence
  for further interest rate hikes from the Reserve Bank of New Zealand.

..  Losses were also experienced from positions in the Singapore dollar versus
   the U.S. dollar, primarily during the first quarter. During February, long
   positions in the Singapore dollar against the U.S. dollar incurred losses
   early in the month as the U.S. dollar's value benefited from positive
   economic sentiment. Newly established short Singapore dollar positions also
   incurred losses later in the month after the U.S. dollar weakened due to a
   larger-than-expected drop in January leading economic indicators and news
   that South Korea's Central Bank planned to reduce its U.S. dollar currency
   reserves. During March, long positions in the Singapore dollar versus the
   U.S. dollar resulted in losses as the value of the U.S. dollar reversed
   sharply higher amid an increase in U.S. interest rates and U.S. consumer
   prices. Positions in the Singapore dollar against the U.S. dollar held
   during the third quarter also contributed to losses.

FACTORS INFLUENCING ANNUAL TRADING GAINS:
..  Gains were achieved from short positions in the Japanese yen against the
   U.S. dollar. During March, gains resulted as the U.S. dollar advanced
   against the yen due to an increase in U.S. interest rates. Short Japanese
   yen positions held during the second quarter also recorded profits as the
   yen's value declined during May and June in response to weak Japanese
   economic data. During July, gains resulted after the U.S. dollar's value
   strengthened against the yen on significant interest-rate differentials
   between the U.S. and Japan. Market participants also drove the U.S. dollar
   higher against the yen during July following the release of strong U.S.
   economic data, and news that the U.S. Current-Account deficit had narrowed.
   During September, short Japanese yen positions profited after the yen's
   value declined in the wake of weak Japanese economic data. During the fourth
   quarter, short Japanese yen positions continued to record gains as the yen's
   value trended lower against the U.S. dollar after the potential for higher
   U.S. interest rates continued to bolster the value of the U.S. dollar. The
   Japanese yen was also pulled lower on investor sentiment that future action
   by the Chinese government regarding further Chinese yuan re-valuation was
   farther away than previously expected.

<PAGE>

DEAN WITTER CORNERSTONE FUND IV

FACTORS INFLUENCING ANNUAL TRADING GAINS: (continued)


..  Additional gains resulted during the second quarter from short positions in
   the Swiss franc versus the U.S. dollar after the U.S. dollar increased
   during May as China downplayed rumors of a move toward a flexible exchange
   rate and the franc moved lower on weaker-than-expected French economic data,
   the rejection of a proposed European Union constitution by French voters,
   and speculation that future European Constitution referendums would result
   in similar outcomes. During June, short franc positions continued to profit
   as its value declined amid market pessimism for future European integration,
   the release of weak European economic data, and greater-than-expected
   capital outflows into U.S. markets.

Managed futures investments are speculative, involve a high degree of risk, use
significant leverage, are generally illiquid, have substantial charges, are
subject to conflicts of interest, and are suitable only for the risk capital
portion of an investor's portfolio. Before investing in any managed futures
investment, qualified investors should read the prospectus or offering
documents carefully for additional information with respect to charges,
expenses, and risks. Past performance is no guarantee of future results.

<PAGE>

DEAN WITTER CORNERSTONE FUNDS

MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

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

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

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

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

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

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

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

<PAGE>

  Management assessed the effectiveness of each Partnership's internal control
over financial reporting as of December 31, 2005. In making this assessment,
Management used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission in Internal Control--Integrated
Framework. Based on our assessment and those criteria, Management believes that
each Partnership maintained effective internal control over financial reporting
as of December 31, 2005.

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

/s/ Jeffrey A. Rothman
Jeffrey A. Rothman
President

/s/ Kevin Perry
Kevin Perry
Chief Financial Officer

New York, New York
March 21, 2006

<PAGE>

DEAN WITTER CORNERSTONE FUNDS

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

  We have audited management's assessment, included in the accompanying
Management's Report on Internal Control Over Financial Reporting, that Dean
Witter Cornerstone Fund II, Dean Witter Cornerstone Fund III and Dean Witter
Cornerstone Fund IV (collectively, the "Partnerships") maintained effective
internal control over financial reporting as of December 31, 2005, based on
criteria established in Internal Control--Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission. The
Partnerships' management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting. Our responsibility is to express an
opinion on management's assessment and an opinion on the effectiveness of the
Partnerships' internal control over financial reporting based on our audit.

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

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

<PAGE>

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

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

  In our opinion, management's assessment that the Partnerships maintained
effective internal control over financial reporting as of December 31, 2005, is
fairly stated, in all material respects, based on the criteria established in
Internal Control--Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Also in our opinion, the Partnerships
maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2005, based on the criteria established in
Internal Control--Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission.

  We have also audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the financial statements as of and
for the year ended December 31, 2005 of the Partnerships and our report dated
March 21, 2006 expressed an unqualified opinion on those financial statements.

/s/ Deloitte & Touche LLP

New York, New York
March 21, 2006

<PAGE>

DEAN WITTER CORNERSTONE FUNDS

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

  We have audited the accompanying statements of financial condition of Dean
Witter Cornerstone Fund II, Dean Witter Cornerstone Fund III and Dean Witter
Cornerstone Fund IV (collectively, the "Partnerships"), including the schedules
of investments, as of December 31, 2005 and 2004, 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, 2005. These financial statements are the
responsibility of the Partnerships' management. Our responsibility is to
express an opinion on these financial statements based on our audits.

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

  In our opinion, such financial statements present fairly, in all material
respects, the financial position of Dean Witter Cornerstone Fund II, Dean
Witter Cornerstone Fund III and Dean Witter Cornerstone Fund IV at December 31,
2005 and 2004, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 2005, in conformity
with accounting principles generally accepted in the United States of America.

  As discussed in Note 1, in 2005 the Partnerships modified their
classification of cash within the statements of financial condition and the
related statements of cash flows.

  We have also audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the effectiveness of the
Partnerships' internal control over financial reporting as of December 31,
2005, based on the criteria established in Internal Control--Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated March 21, 2006 expressed an unqualified opinion
on management's assessment of the effectiveness of the Partnerships' internal
control over financial reporting and an unqualified opinion on the
effectiveness of the Partnerships' internal control over financial reporting.

/s/ Deloitte & Touche LLP

New York, New York
March 21, 2006

<PAGE>

DEAN WITTER CORNERSTONE FUND II

STATEMENTS OF FINANCIAL CONDITION

<TABLE>
<CAPTION>
                                                               DECEMBER 31,
                                                          ---------------------
                                                             2005       2004
                                                          ---------- ----------
                                                              $          $
<S>                                                       <C>        <C>
                                    ASSETS
Equity in futures interests trading accounts:
 Unrestricted cash                                        11,242,503 14,047,174
 Restricted cash                                           1,213,808  2,632,103
                                                          ---------- ----------
  Total Cash                                              12,456,311 16,679,277
                                                          ---------- ----------

 Net unrealized gain on open contracts (MS&Co.)              344,900  2,020,502
 Net unrealized gain (loss) on open contracts (MSIL)         173,143     (9,769)
                                                          ---------- ----------
  Total net unrealized gain on open contracts                518,043  2,010,733
                                                          ---------- ----------
  Total Trading Equity                                    12,974,354 18,690,010
Interest receivable (Morgan Stanley DW)                       35,476     27,129
Due from Morgan Stanley DW                                    11,710     62,388
                                                          ---------- ----------
  Total Assets                                            13,021,540 18,779,527
                                                          ========== ==========

                       LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES
Redemptions payable                                          333,219     57,887
Accrued management fees                                       37,886     54,665
Accrued administrative expenses                               32,208     37,292
                                                          ---------- ----------
  Total Liabilities                                          403,313    149,844
                                                          ---------- ----------
PARTNERS' CAPITAL
Limited Partners (3,261.160 and 3,898.182 Units,
 respectively)                                            12,240,749 18,161,153
General Partner (100.567 Units)                              377,478    468,530
                                                          ---------- ----------
  Total Partners' Capital                                 12,618,227 18,629,683
                                                          ---------- ----------
  Total Liabilities and Partners' Capital                 13,021,540 18,779,527
                                                          ========== ==========
NET ASSET VALUE PER UNIT                                    3,753.50   4,658.88
                                                          ========== ==========
</TABLE>

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                 FOR THE YEARS ENDED DECEMBER 31,
                                                ----------------------------------
                                                   2005        2004        2003
                                                ----------  ----------  ----------
                                                    $           $           $
<S>                                             <C>         <C>         <C>
INVESTMENT INCOME
 Interest income (Morgan Stanley DW)               367,313     208,174     197,038
                                                ----------  ----------  ----------

EXPENSES
 Brokerage commissions (Morgan Stanley DW)         833,584   1,104,683   1,373,338
 Management fees                                   506,875     672,937     843,500
 Transaction fees and costs                         48,642      83,591     106,566
 Common administrative expenses                     41,000      56,000      48,477
 Incentive fees                                     --           2,250       9,461
                                                ----------  ----------  ----------
  Total Expenses                                 1,430,101   1,919,461   2,381,342
                                                ----------  ----------  ----------

NET INVESTMENT LOSS                             (1,062,788) (1,711,287) (2,184,304)
                                                ----------  ----------  ----------

TRADING RESULTS
Trading profit (loss):
 Realized                                       (1,007,388)   (545,606)  3,071,019
 Net change in unrealized                       (1,492,690)    712,273    (752,680)
                                                ----------  ----------  ----------
                                                (2,500,078)    166,667   2,318,339
Proceeds from Litigation Settlement                  2,209         755      --
                                                ----------  ----------  ----------
  Total Trading Results                         (2,497,869)    167,422   2,318,339
                                                ----------  ----------  ----------

NET INCOME (LOSS)                               (3,560,657) (1,543,865)    134,035
                                                ==========  ==========  ==========

NET INCOME (LOSS) ALLOCATION:
Limited Partners                                (3,469,605) (1,511,432)    125,757
General Partner                                    (91,052)    (32,433)      8,278

NET INCOME (LOSS) PER UNIT:
Limited Partners                                   (905.38)    (322.51)      18.14
General Partner                                    (905.38)    (322.51)      18.14
</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,
                                                          ---------------------
                                                             2005       2004
                                                          ---------- ----------
                                                              $          $
 <S>                                                      <C>        <C>
                                    ASSETS
 Equity in futures interests trading accounts:
  Unrestricted cash                                       21,002,788 24,763,854
  Restricted cash                                          1,409,104  3,115,418
                                                          ---------- ----------
    Total Cash                                            22,411,892 27,879,272
                                                          ---------- ----------

  Net unrealized gain on open contracts (MSIL)               599,935     89,136
  Net unrealized gain on open contracts (MS&Co.)             271,196    372,392
                                                          ---------- ----------
    Total net unrealized gain on open contracts              871,131    461,528
                                                          ---------- ----------
    Total Trading Equity                                  23,283,023 28,340,800
 Interest receivable (Morgan Stanley DW)                      61,652     41,296
 Due from Morgan Stanley DW                                   41,210     15,120
                                                          ---------- ----------
    Total Assets                                          23,385,885 28,397,216
                                                          ========== ==========

                      LIABILITIES AND PARTNERS' CAPITAL
 LIABILITIES
 Redemptions payable                                         247,236    285,744
 Accrued administrative expenses                             112,360    119,670
 Accrued management fees                                      67,881     82,476
                                                          ---------- ----------
    Total Liabilities                                        427,477    487,890
                                                          ---------- ----------
 PARTNERS' CAPITAL
 Limited Partners (5,693.493 and 6,512.996 Units,
  respectively)                                           22,552,335 27,476,835
 General Partner (102.516 Units)                             406,073    432,491
                                                          ---------- ----------
    Total Partners' Capital                               22,958,408 27,909,326
                                                          ---------- ----------
    Total Liabilities and Partners' Capital               23,385,885 28,397,216
                                                          ========== ==========
 NET ASSET VALUE PER UNIT                                   3,961.07   4,218.77
                                                          ========== ==========
</TABLE>

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                  FOR THE YEARS ENDED DECEMBER 31,
                                                 ----------------------------------
                                                    2005        2004        2003
                                                 ----------  ----------  ----------
                                                     $           $           $
<S>                                              <C>         <C>         <C>
INVESTMENT INCOME
 Interest income (Morgan Stanley DW)                602,016     306,275     233,160
                                                 ----------  ----------  ----------

EXPENSES
 Brokerage commissions (Morgan Stanley DW)          948,366   1,084,092   1,257,269
 Management fees                                    833,891     982,868     998,731
 Common administrative expenses                      70,000      88,000      78,892
 Transaction fees and costs                          51,605      57,678      68,929
                                                 ----------  ----------  ----------
   Total Expenses                                 1,903,862   2,212,638   2,403,821
                                                 ----------  ----------  ----------

NET INVESTMENT LOSS                              (1,301,846) (1,906,363) (2,170,661)
                                                 ----------  ----------  ----------

TRADING RESULTS
Trading profit (loss):
 Realized                                          (992,550)  6,007,562   3,641,193
 Net change in unrealized                           409,603  (2,000,462)    909,383
                                                 ----------  ----------  ----------
                                                   (582,947)  4,007,100   4,550,576
Proceeds from Litigation Settlement                  26,287      27,998      --
                                                 ----------  ----------  ----------
   Total Trading Results                           (556,660)  4,035,098   4,550,576
                                                 ----------  ----------  ----------

NET INCOME (LOSS)                                (1,858,506)  2,128,735   2,379,915
                                                 ==========  ==========  ==========

NET INCOME (LOSS) ALLOCATION:
Limited Partners                                 (1,832,088)  2,097,010   2,339,613
General Partner                                     (26,418)     31,725      40,302

NET INCOME (LOSS) PER UNIT:
Limited Partners                                    (257.70)     309.46      317.10
General Partner                                     (257.70)     309.46      317.10
</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,
                                                          ---------------------
                                                             2005       2004
                                                          ---------- ----------
                                                              $          $
 <S>                                                      <C>        <C>
                                    ASSETS
 Equity in futures interests trading accounts:
  Unrestricted cash                                       64,125,073 89,655,633
  Restricted cash                                             --         12,902
                                                          ---------- ----------
    Total Cash                                            64,125,073 89,668,535

  Net unrealized gain on open contracts (MS&Co.)           1,973,887  6,347,857
                                                          ---------- ----------
    Total Trading Equity                                  66,098,960 96,016,392
 Interest receivable (Morgan Stanley DW)                     170,317    122,840
 Due from Morgan Stanley DW                                   55,750     32,362
                                                          ---------- ----------
    Total Assets                                          66,325,027 96,171,594
                                                          ========== ==========

                      LIABILITIES AND PARTNERS' CAPITAL
 LIABILITIES
 Redemptions payable                                       1,232,662    801,350
 Accrued management fees                                     193,125    280,141
 Accrued administrative expenses                             110,888    123,214
                                                          ---------- ----------
    Total Liabilities                                      1,536,675  1,204,705
                                                          ---------- ----------
 PARTNERS' CAPITAL
 Limited Partners (10,902.992 and 12,873.981 Units,
  respectively)                                           64,109,338 93,819,259
 General Partner (115.479 and 157.479 Units,
  respectively)                                              679,014  1,147,630
                                                          ---------- ----------
    Total Partners' Capital                               64,788,352 94,966,889
                                                          ---------- ----------
    Total Liabilities and Partners' Capital               66,325,027 96,171,594
                                                          ========== ==========
 NET ASSET VALUE PER UNIT                                   5,879.98   7,287.51
                                                          ========== ==========
</TABLE>

STATEMENTS OF OPERATIONS


<TABLE>
<CAPTION>
                                                   FOR THE YEARS ENDED DECEMBER 31,
                                                 -----------------------------------
                                                     2005        2004        2003
                                                 -----------  ----------  ----------
                                                      $           $           $
<S>                                              <C>          <C>         <C>
INVESTMENT INCOME
 Interest income (Morgan Stanley DW)               1,848,451     969,606     858,078
                                                 -----------  ----------  ----------

EXPENSES
 Brokerage commissions (Morgan Stanley DW)         2,714,539   2,978,359   3,456,636
 Management fees                                   2,619,089   3,269,250   3,904,764
 Common administrative expenses                      139,000     178,000     156,630
 Incentive fees                                       --          (6,682)  2,307,973
                                                 -----------  ----------  ----------
   Total Expenses                                  5,472,628   6,418,927   9,826,003
                                                 -----------  ----------  ----------

NET INVESTMENT LOSS                               (3,624,177) (5,449,321) (8,967,925)
                                                 -----------  ----------  ----------

TRADING RESULTS
Trading profit (loss):
 Realized                                        (10,036,703) (7,816,724) 26,693,128
 Net change in unrealized                         (4,373,970)  3,301,580  (3,788,611)
                                                 -----------  ----------  ----------
   Total Trading Results                         (14,410,673) (4,515,144) 22,904,517
                                                 -----------  ----------  ----------

NET INCOME (LOSS)                                (18,034,850) (9,964,465) 13,936,592
                                                 ===========  ==========  ==========

NET INCOME (LOSS) ALLOCATION:
Limited Partners                                 (17,820,295) (9,861,124) 13,766,843
General Partner                                     (214,555)   (103,341)    169,749

NET INCOME (LOSS) PER UNIT:
Limited Partners                                   (1,407.53)    (656.22)     948.41
General Partner                                    (1,407.53)    (656.22)     948.41
</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, 2005, 2004, AND 2003

<TABLE>
<CAPTION>
                                   UNITS OF
                                  PARTNERSHIP  LIMITED     GENERAL
                                   INTEREST    PARTNERS    PARTNER     TOTAL
                                  ----------- ----------  --------  ----------
                                                  $           $          $
<S>                               <C>         <C>         <C>       <C>
Partners' Capital, December 31,
2002                               4,731.158  22,899,223   582,685  23,481,908
Net income                             --        125,757     8,278     134,035
Redemptions                         (304.802) (1,476,534)  (90,000) (1,566,534)
                                   ---------  ----------  --------  ----------
Partners' Capital, December 31,
2003                               4,426.356  21,548,446   500,963  22,049,409
Net loss                               --     (1,511,432)  (32,433) (1,543,865)
Redemptions                         (427.607) (1,875,861)    --     (1,875,861)
                                   ---------  ----------  --------  ----------
Partners' Capital, December 31,
2004                               3,998.749  18,161,153   468,530  18,629,683
Net loss                               --     (3,469,605)  (91,052) (3,560,657)
Redemptions                         (637.022) (2,450,799)    --     (2,450,799)
                                   ---------  ----------  --------  ----------
Partners' Capital,
December 31, 2005                  3,361.727  12,240,749   377,478  12,618,227
                                   =========  ==========  ========  ==========

DEAN WITTER CORNERSTONE FUND III

STATEMENTS OF CHANGES IN PARTNERS' CAPITAL

FOR THE YEARS ENDED DECEMBER 31, 2005, 2004, AND 2003

                                   UNITS OF
                                  PARTNERSHIP  LIMITED     GENERAL
                                   INTEREST    PARTNERS    PARTNER     TOTAL
                                  ----------- ----------  --------  ----------
                                                  $           $          $
Partners' Capital, December 31,
2002                               7,750.175  27,329,760   510,464  27,840,224
Net income                             --      2,339,613    40,302   2,379,915
Redemptions                         (588.606) (2,073,369) (150,000) (2,223,369)
                                   ---------  ----------  --------  ----------
Partners' Capital, December 31,
2003                               7,161.569  27,596,004   400,766  27,996,770
Net income                             --      2,097,010    31,725   2,128,735
Redemptions                         (546.057) (2,216,179)    --     (2,216,179)
                                   ---------  ----------  --------  ----------
Partners' Capital, December 31,
2004                               6,615.512  27,476,835   432,491  27,909,326
Net loss                               --     (1,832,088)  (26,418) (1,858,506)
Redemptions                         (819.503) (3,092,412)    --     (3,092,412)
                                   ---------  ----------  --------  ----------
Partners' Capital,
December 31, 2005                  5,796.009  22,552,335   406,073  22,958,408
                                   =========  ==========  ========  ==========
</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, 2005, 2004, AND 2003

<TABLE>
<CAPTION>
                                 UNITS OF
                                PARTNERSHIP   LIMITED     GENERAL
                                 INTEREST     PARTNERS    PARTNER      TOTAL
                                ----------- -----------  ---------  -----------
                                                 $           $           $
<S>                             <C>         <C>          <C>        <C>
Partners' Capital,
December 31, 2002               15,416.291  106,345,673  1,496,222  107,841,895
Net income                          --       13,766,843    169,749   13,936,592
Redemptions                     (1,261.461)  (8,921,278)  (415,000)  (9,336,278)
                                ----------  -----------  ---------  -----------
Partners' Capital,
December 31, 2003               14,154.830  111,191,238  1,250,971  112,442,209
Net loss                            --       (9,861,124)  (103,341)  (9,964,465)
Redemptions                     (1,123.370)  (7,510,855)     --      (7,510,855)
                                ----------  -----------  ---------  -----------
Partners' Capital, December
31, 2004                        13,031.460   93,819,259  1,147,630   94,966,889
Net loss                            --      (17,820,295)  (214,555) (18,034,850)
Redemptions                     (2,012.989) (11,889,626)  (254,061) (12,143,687)
                                ----------  -----------  ---------  -----------
Partners' Capital,
December 31, 2005               11,018.471   64,109,338    679,014   64,788,352
                                ==========  ===========  =========  ===========
</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,
                                             ----------------------------------
                                                2005        2004        2003
                                             ----------  ----------  ----------
                                                 $           $           $
<S>                                          <C>         <C>         <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)                            (3,560,657) (1,543,865)    134,035
Noncash item included in net income (loss):
 Net change in unrealized                     1,492,690    (712,273)    752,680
(Increase) decrease in operating assets:
 Restricted cash                              1,418,295     312,473    (416,702)
 Interest receivable (Morgan Stanley DW)         (8,347)    (14,057)      5,244
 Due from Morgan Stanley DW                      50,678         311      44,537
Decrease in operating liabilities:
 Accrued management fees                        (16,779)    (10,248)     (4,588)
 Accrued administrative expenses                 (5,084)     (8,679)     (4,575)
 Accrued incentive fees                          --          --         (40,483)
                                             ----------  ----------  ----------
Net cash provided by (used for) operating
 activities                                    (629,204) (1,976,338)    470,148
                                             ----------  ----------  ----------

CASH FLOWS FROM FINANCING ACTIVITIES
Cash paid from redemptions of Units          (2,175,467) (1,959,376) (1,661,824)
                                             ----------  ----------  ----------
Net cash used for financing activities       (2,175,467) (1,959,376) (1,661,824)
                                             ----------  ----------  ----------
Net decrease in unrestricted cash            (2,804,671) (3,935,714) (1,191,676)

Unrestricted cash at beginning of period     14,047,174  17,982,888  19,174,564
                                             ----------  ----------  ----------

Unrestricted cash at end of period           11,242,503  14,047,174  17,982,888
                                             ==========  ==========  ==========
</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,
                                             ----------------------------------
                                                2005        2004        2003
                                             ----------  ----------  ----------
                                                 $           $           $
<S>                                          <C>         <C>         <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)                            (1,858,506)  2,128,735   2,379,915
Noncash item included in net income (loss):
 Net change in unrealized                      (409,603)  2,000,462    (909,383)
(Increase) decrease in operating assets:
 Restricted cash                              1,706,314     783,002  (2,285,909)
 Interest receivable (Morgan Stanley DW)        (20,356)    (25,003)      5,301
 Due from Morgan Stanley DW                     (26,090)    (15,120)    264,529
Increase (decrease) in operating
 liabilities:
 Accrued administrative expenses                 (7,310)    (29,848)      4,501
 Accrued management fees                        (14,595)        231         384
                                             ----------  ----------  ----------
Net cash provided by (used for) operating
 activities                                    (630,146)  4,842,459    (540,662)
                                             ----------  ----------  ----------

CASH FLOWS FROM FINANCING ACTIVITIES
Cash paid from redemptions of Units          (3,130,920) (2,049,540) (2,248,481)
                                             ----------  ----------  ----------
Net cash used for financing activities       (3,130,920) (2,049,540) (2,248,481)
                                             ----------  ----------  ----------
Net increase (decrease) in unrestricted cash (3,761,066)  2,792,919  (2,789,143)

Unrestricted cash at beginning of period     24,763,854  21,970,935  24,760,078
                                             ----------  ----------  ----------

Unrestricted cash at end of period           21,002,788  24,763,854  21,970,935
                                             ==========  ==========  ==========
</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,
                                         -------------------------------------
                                             2005         2004         2003
                                         -----------  -----------  -----------
                                              $            $            $
<S>                                      <C>          <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)                        (18,034,850)  (9,964,465)  13,936,592
Noncash item included in net income
 (loss):
 Net change in unrealized                  4,373,970   (3,301,580)   3,788,611
(Increase) decrease in operating assets:
 Restricted cash                              12,902      (12,902)      --
 Interest receivable (Morgan Stanley DW)     (47,477)     (61,319)      18,628
 Due from Morgan Stanley DW                  (23,388)     (32,362)      --
Increase (decrease) in operating
 liabilities:
 Accrued management fees                     (87,016)     (50,454)       8,868
 Accrued administrative expenses             (12,326)     (53,805)       7,863
 Accrued incentive fees                       --           (6,682)  (1,493,339)
                                         -----------  -----------  -----------
Net cash provided by (used for)
 operating activities                    (13,818,185) (13,483,569)  16,267,223
                                         -----------  -----------  -----------

CASH FLOWS FROM FINANCING ACTIVITIES
Cash paid from redemptions of Units      (11,712,375)  (7,276,887)  (9,411,443)
                                         -----------  -----------  -----------
Net cash used for financing activities   (11,712,375)  (7,276,887)  (9,411,443)
                                         -----------  -----------  -----------
Net increase (decrease) in unrestricted
 cash                                    (25,530,560) (20,760,456)   6,855,780

Unrestricted cash at beginning of period  89,655,633  110,416,089  103,560,309
                                         -----------  -----------  -----------

Unrestricted cash at end of period        64,125,073   89,655,633  110,416,089
                                         ===========  ===========  ===========
</TABLE>

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

<PAGE>

DEAN WITTER CORNERSTONE II

SCHEDULES OF INVESTMENTS

DECEMBER 31, 2005 AND 2004

<TABLE>
<CAPTION>
                                                                  LONG UNREALIZED  PERCENTAGE   SHORT UNREALIZED  PERCENTAGE
FUTURES AND FORWARD CONTRACTS:                                      GAIN/(LOSS)   OF NET ASSETS   GAIN/(LOSS)    OF NET ASSETS
------------------------------                                    --------------- ------------- ---------------- -------------
2005 PARTNERSHIP NET ASSETS: $12,618,227                                 $              %              $               %
<S>                                                               <C>             <C>           <C>              <C>
Commodity                                                               98,649         0.78         (112,434)        (0.89)
Equity                                                                  59,908         0.48            --              --
Foreign currency                                                       (47,986)       (0.38)         322,181          2.56
Interest rate                                                            3,713         0.03          (34,872)        (0.28)
                                                                     ---------        -----         --------         -----
  Grand Total:                                                         114,284         0.91          174,875          1.39
                                                                     =========        =====         ========         =====
  Unrealized Currency Gain

  Total Net Unrealized Gain per Statement of Financial Condition


2004 PARTNERSHIP NET ASSETS: $18,629,683
Commodity                                                              257,829         1.38          247,455          1.33
Equity                                                                  52,788         0.28         (116,000)        (0.62)
Foreign currency                                                     1,392,929         7.48*           --              --
Interest rate                                                          (37,755)       (0.20)         (10,321)        (0.06)
                                                                     ---------        -----         --------         -----
  Grand Total:                                                       1,665,791         8.94          121,134          0.65
                                                                     =========        =====         ========         =====
  Unrealized Currency Gain

  Total Net Unrealized Gain per Statement of Financial Condition

</TABLE>
<TABLE>
<CAPTION>
                                                                  NET UNREALIZED
FUTURES AND FORWARD CONTRACTS:                                     GAIN/(LOSS)
------------------------------                                    --------------
2005 PARTNERSHIP NET ASSETS: $12,618,227                                $
<S>                                                               <C>
Commodity                                                             (13,785)
Equity                                                                 59,908
Foreign currency                                                      274,195
Interest rate                                                         (31,159)
                                                                    ---------
  Grand Total:                                                        289,159

  Unrealized Currency Gain                                            228,884
                                                                    ---------
  Total Net Unrealized Gain per Statement of Financial Condition      518,043
                                                                    =========

2004 PARTNERSHIP NET ASSETS: $18,629,683
Commodity                                                             505,284
Equity                                                                (63,212)
Foreign currency                                                    1,392,929
Interest rate                                                         (48,076)
                                                                    ---------
  Grand Total:                                                      1,786,925

  Unrealized Currency Gain                                            223,808
                                                                    ---------
  Total Net Unrealized Gain per Statement of Financial Condition    2,010,733
                                                                    =========
</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, 2005 AND 2004
<TABLE>
<CAPTION>
                                                                  LONG UNREALIZED  PERCENTAGE   SHORT UNREALIZED  PERCENTAGE
FUTURES AND FORWARD CONTACTS:                                       GAIN/(LOSS)   OF NET ASSETS   GAIN/(LOSS)    OF NET ASSETS
-----------------------------                                     --------------- ------------- ---------------- -------------
2005 PARTNERSHIP NET ASSETS: $22,958,408                                 $              %              $               %
<S>                                                               <C>             <C>           <C>              <C>
Commodity                                                             873,591          3.81          (10,356)        (0.05)
Equity                                                                (15,962)        (0.07)           --              --
Foreign currency                                                     (196,636)        (0.86)         330,718          1.44
Interest rate                                                          10,772          0.05           41,064          0.18
                                                                     --------         -----         --------         -----
  Grand Total:                                                        671,765          2.93          361,426          1.57
                                                                     ========         =====         ========         =====
  Unrealized Currency Loss

  Total Net Unrealized Gain per Statement of Financial Condition


2004 PARTNERSHIP NET ASSETS: $27,909,326
Commodity                                                             196,582          0.70           26,779          0.09
Equity                                                                358,469          1.29            --               --
Foreign currency                                                      165,230          0.59         (371,243)        (1.33)
Interest rate                                                         125,718          0.45           71,812          0.26
                                                                     --------         -----         --------         -----
  Grand Total:                                                        845,999          3.03         (272,652)        (0.98)
                                                                     ========         =====         ========         =====
  Unrealized Currency Loss

  Total Net Unrealized Gain per Statement of Financial Condition

</TABLE>
<TABLE>
<CAPTION>
                                                                  NET UNREALIZED
FUTURES AND FORWARD CONTACTS:                                      GAIN/(LOSS)
-----------------------------                                     --------------
2005 PARTNERSHIP NET ASSETS: $22,958,408                                $
<S>                                                               <C>
Commodity                                                             863,235
Equity                                                                (15,962)
Foreign currency                                                      134,082
Interest rate                                                          51,836
                                                                    ---------
  Grand Total:                                                      1,033,191

  Unrealized Currency Loss                                           (162,060)
                                                                    ---------
  Total Net Unrealized Gain per Statement of Financial Condition      871,131
                                                                    =========

2004 PARTNERSHIP NET ASSETS: $27,909,326
Commodity                                                             223,361
Equity                                                                358,469
Foreign currency                                                     (206,013)
Interest rate                                                         197,530
                                                                    ---------
  Grand Total:                                                        573,347

  Unrealized Currency Loss                                           (111,819)
                                                                    ---------
  Total Net Unrealized Gain per Statement of Financial Condition      461,528
                                                                    =========
</TABLE>

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

<PAGE>


DEAN WITTER CORNERSTONE IV

SCHEDULES OF INVESTMENTS

DECEMBER 31, 2005 AND 2004

<TABLE>
<CAPTION>
                                                                  LONG UNREALIZED PERCENTAGE OF SHORT UNREALIZED PERCENTAGE OF
FUTURES AND FORWARD CONTRACTS:                                      GAIN/(LOSS)    NET ASSETS     GAIN/(LOSS)     NET ASSETS
------------------------------                                    --------------- ------------- ---------------- -------------
2005 PARTNERSHIP NET ASSETS: $64,788,352                                 $              %              $               %
<S>                                                               <C>             <C>           <C>              <C>
Foreign currency                                                      (325,055)       (0.50)       2,298,942         3.55
                                                                     ---------        -----        ---------         ----
  Grand Total:                                                        (325,055)       (0.50)       2,298,942         3.55
                                                                     =========        =====        =========         ====
  Unrealized Currency Gain/(Loss)

  Total Net Unrealized Gain per Statement of Financial Condition

2004 PARTNERSHIP NET ASSETS: $94,966,889
Foreign currency                                                     6,231,832         6.56*         116,025         0.12
                                                                     ---------        -----        ---------         ----
  Grand Total:                                                       6,231,832         6.56          116,025         0.12
                                                                     =========        =====        =========         ====
  Unrealized Currency Gain/(Loss)

  Total Net Unrealized Gain per Statement of Financial Condition

</TABLE>
<TABLE>
<CAPTION>
                                                                  NET UNREALIZED
FUTURES AND FORWARD CONTRACTS:                                     GAIN/(LOSS)
------------------------------                                    --------------
2005 PARTNERSHIP NET ASSETS: $64,788,352                                $
<S>                                                               <C>
Foreign currency                                                    1,973,887
                                                                    ---------
  Grand Total:                                                      1,973,887

  Unrealized Currency Gain/(Loss)                                       --
                                                                    ---------
  Total Net Unrealized Gain per Statement of Financial Condition    1,973,887
                                                                    =========
2004 PARTNERSHIP NET ASSETS: $94,966,889
Foreign currency                                                    6,347,857
                                                                    ---------
  Grand Total:                                                      6,347,857

  Unrealized Currency Gain/(Loss)                                      --
                                                                    ---------
  Total Net Unrealized Gain per Statement of Financial Condition    6,347,857
                                                                    =========
</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 general partner for each Partnership is Demeter Management Corporation
("Demeter"). The non-clearing commodity broker is Morgan Stanley DW Inc.
("Morgan Stanley DW"). The clearing commodity brokers for Cornerstone II and
Cornerstone III are Morgan Stanley & Co. Incorporated ("MS&Co.") and Morgan
Stanley & Co. International Limited ("MSIL"). Cornerstone IV's sole clearing
commodity broker is MS&Co. Demeter, Morgan Stanley DW, MS&Co., and MSIL are
wholly-owned subsidiaries of Morgan Stanley.
  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.

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, at which time they are realized. They are valued at market on a daily
basis and the resulting net change in unrealized gains and losses is reflected
in the change in unrealized trading profit (loss) on open contracts from one
period to the next on the Statements of Operations. Monthly, Morgan Stanley DW
pays each Partnership interest income equal to 80% of its average daily Net
Assets at a rate equal to the average yield on 13-week U.S. Treasury bills. For
purposes of such interest payments to Cornerstone IV, Net Assets do not include
monies owed to the Partnership on Futures Interests.

  The Partnerships' functional currency is the U.S. dollar; however, it
transacts business in currencies other than the U.S. dollar. Assets and
liabilities denominated in currencies other than the U.S. dollar are translated
into U.S. dollars at the rates in effect at the date of the Statements of
Financial Condition. Income and expense items denominated in currencies other
than the U.S. dollar are translated into U.S. dollars at the rates in effect
during the period. Gains and losses resulting from the translation to U.S.
dollars are reported in income currently.

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

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

<PAGE>

DEAN WITTER CORNERSTONE FUNDS

NOTES TO FINANCIAL STATEMENTS
(continued)


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

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

<PAGE>

DEAN WITTER CORNERSTONE FUNDS

NOTES TO FINANCIAL STATEMENTS
(continued)


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 a monthly management fee and may incur an incentive fee.
Demeter bears all other operating expenses.

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.

DISTRIBUTIONS.  Distributions, other than redemptions of Units, are made on a
pro-rata basis at the sole discretion of Demeter. No distributions have been
made to date. Demeter does not intend to make any distributions of the
Partnerships' profits.

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.

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

LITIGATION SETTLEMENT.  On February 27, 2002, Cornerstone II and Cornerstone
III received notification of a preliminary entitlement to payment from the
Sumitomo Copper Litigation Settlement Administrator, and each Partnership
received settlement award payments in the amount of $76,613 and $2,842,492,
respectively, during August 2002, $755 and $27,998, respectively, during July
2004 and $2,209 and $26,287, respectively, during November 2005. Any amounts
received are accounted for in the period received, for the benefit of the
limited partners at the date of receipt.

<PAGE>

DEAN WITTER CORNERSTONE FUNDS

NOTES TO FINANCIAL STATEMENTS
(continued)


RECLASSIFICATIONS.  Certain prior year amounts relating to cash balances were
reclassified on the Statements of Financial Condition and the related
Statements of Cash Flows to conform to 2005 presentation. Such
reclassifications have no impact on the Partnerships' reported net income
(loss).

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

--------------------------------------------------------------------------------
3. TRADING MANAGERS
Demeter, on behalf of each Partnership, retains certain commodity trading
managers to make all trading decisions for the Partnerships. The trading
managers for each Partnership at December 31, 2005 were as follows:

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

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

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

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

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

<PAGE>

DEAN WITTER CORNERSTONE FUNDS

NOTES TO FINANCIAL STATEMENTS
(continued)


INCENTIVE FEE.  Each Partnership pays an annual incentive fee equal to 15% of
the new appreciation in Net Assets, as defined in the Limited Partnership
Agreements, as of the end of each annual incentive period ending December 31,
except for Cornerstone IV, which pays incentive fee at the end of each annual
incentive period ending May 31. New appreciation represents the amount by which
Net Assets are increased by profits from futures, forwards, and options trading
that exceed losses after brokerage commissions, management fees, transaction
fees and costs, and common administrative expenses are deducted. Such incentive
fee is accrued in each month in which new appreciation occurs. In those months
in which new appreciation is negative, previous accruals, if any, during the
incentive period are reduced. In those instances in which a limited partner
redeems an investment, the incentive fee (if earned through a redemption date)
is paid on that redemption to the trading manager in the month of such
redemption.

--------------------------------------------------------------------------------
4. FINANCIAL INSTRUMENTS
The Partnerships trade Futures Interests. Futures and forwards represent
contracts for delayed delivery of an instrument at a specified date and price.
Risk arises from changes in the value of these contracts and the potential
inability of counterparties to perform under the terms of the contracts. There
are numerous factors which may significantly influence the market value of
these contracts, including interest rate volatility.

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

<PAGE>

DEAN WITTER CORNERSTONE FUNDS

NOTES TO FINANCIAL STATEMENTS
(continued)


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

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

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

(3)Terms require or permit net settlement.

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

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

CORNERSTONE II

<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>
             2005  239,383    278,660   518,043 Dec. 2006 Mar. 2006
             2004  622,026  1,388,707 2,010,733 Dec. 2005 Mar. 2005
</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>
              2005  730,649   140,482  871,131 Jun. 2007 Mar. 2006
              2004  664,621  (203,093) 461,528 Jun. 2006 Mar. 2005
</TABLE>

<PAGE>

DEAN WITTER CORNERSTONE FUNDS

NOTES TO FINANCIAL STATEMENTS
(continued)


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>
             2005    --     1,973,887 1,973,887    --     Mar. 2006
             2004    --     6,347,857 6,347,857    --     Mar. 2005
</TABLE>

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

  The Partnerships also have credit risk because Morgan Stanley DW, MS&Co.,
and/or MSIL act as the futures commission merchants or the counterparties, with
respect to most of the Partnerships' assets. Exchange-traded futures, forward,
and futures-styled options contracts are marked to market on a daily basis,
with variations in value settled on a daily basis. Morgan Stanley DW, MS&Co.,
and/or MSIL, each as a futures commission merchant for each Partnership's
exchange-traded futures, forward, and futures-styled options contracts, are
required, pursuant to regulations of the Commodity Futures Trading Commission,
to segregate from their own assets, and for the sole benefit of their commodity
customers, all funds held by them with respect to exchange-traded futures,
forward, and futures-styled options contracts, including an amount equal to the
net unrealized gains (losses) on all open futures, forward, and futures-styled
options contracts, which funds, in the aggregate, totaled at December 31, 2005
and 2004 respectively, $12,695,694 and $17,301,303 for Cornerstone II and
$23,142,541 and $28,543,893 for Cornerstone III. With respect to each
Partnership's off-exchange-traded forward currency contracts, there are no
daily exchange-required settlements of variation in value nor is there any
requirement that an amount equal to the net unrealized gains (losses) on open
forward contracts be segregated. However, the Partnership is required to meet
margin requirements equal to the net unrealized loss on open contracts in the
Partnership

<PAGE>

DEAN WITTER CORNERSTONE FUNDS

NOTES TO FINANCIAL STATEMENTS
(continued)

accounts with the counterparty, which is accomplished by daily maintenance of
the cash balance in a custody account held at Morgan Stanley DW for the benefit
of MS&Co. With respect to those off-exchange-traded forward currency contracts,
the 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>
<S>                                                                   <C>
PER UNIT OPERATING PERFORMANCE:
NET ASSET VALUE, JANUARY 1, 2005:                                     $4,658.88
                                                                      ---------
NET OPERATING RESULTS:
   Interest Income                                                        99.05
   Expenses                                                             (385.64)
   Realized Loss                                                        (216.88)
   Unrealized Loss                                                      (402.51)
   Proceeds from Litigation Settlement                                     0.60
                                                                      ---------
   Net Loss                                                             (905.38)
                                                                      ---------
NET ASSET VALUE, DECEMBER 31, 2005:                                   $3,753.50
                                                                      =========

FOR THE 2005 CALENDAR YEAR:
RATIOS TO AVERAGE NET ASSETS:
   Net Investment Loss                                                   (7.5)%
   Expenses before Incentive Fees                                        10.0 %
   Expenses after Incentive Fees                                         10.0 %
   Net Loss                                                             (25.0)%
TOTAL RETURN BEFORE INCENTIVE FEES                                      (19.4)%
TOTAL RETURN AFTER INCENTIVE FEES                                       (19.4)%

INCEPTION-TO-DATE RETURN                                                285.0 %
COMPOUND ANNUALIZED RETURN                                                6.6 %
</TABLE>

<PAGE>

DEAN WITTER CORNERSTONE FUNDS

NOTES TO FINANCIAL STATEMENTS
(concluded)


CORNERSTONE III

<TABLE>
<S>                                                                   <C>
PER UNIT OPERATING PERFORMANCE:
NET ASSET VALUE, JANUARY 1, 2005:                                     $4,218.77
                                                                      ---------
NET OPERATING RESULTS:
   Interest Income                                                        96.39
   Expenses                                                             (304.82)
   Realized Loss                                                        (119.06)
   Unrealized Gain                                                        65.58
   Proceeds from Litigation Settlement                                     4.21
                                                                      ---------
   Net Loss                                                             (257.70)
                                                                      ---------
NET ASSET VALUE, DECEMBER 31, 2005:                                   $3,961.07
                                                                      =========

FOR THE 2005 CALENDAR YEAR:
RATIOS TO AVERAGE NET ASSETS:
   Net Investment Loss                                                   (5.5)%
   Expenses before Incentive Fees                                         8.1 %
   Expenses after Incentive Fees                                          8.1 %
   Net Loss                                                              (7.9)%
TOTAL RETURN BEFORE INCENTIVE FEES                                       (6.1)%
TOTAL RETURN AFTER INCENTIVE FEES                                        (6.1)%

INCEPTION-TO-DATE RETURN                                                306.3 %
COMPOUND ANNUALIZED RETURN                                                6.9 %
</TABLE>

CORNERSTONE IV

<TABLE>
<S>                                                                   <C>
PER UNIT OPERATING PERFORMANCE:
NET ASSET VALUE, JANUARY 1, 2005:                                     $ 7,287.51
                                                                      ----------
NET OPERATING RESULTS:
   Interest Income                                                        151.80
   Expenses                                                              (449.43)
   Realized Loss                                                         (750.70)
   Unrealized Loss                                                       (359.20)
                                                                      ----------
   Net Loss                                                            (1,407.53)
                                                                      ----------
NET ASSET VALUE, DECEMBER 31, 2005:                                   $ 5,879.98
                                                                      ==========

FOR THE 2005 CALENDAR YEAR:
RATIOS TO AVERAGE NET ASSETS:
   Net Investment Loss                                                    (4.9)%
   Expenses before Incentive Fees                                          7.4 %
   Expenses after Incentive Fees                                           7.4 %
   Net Loss                                                              (24.5)%
TOTAL RETURN BEFORE INCENTIVE FEES                                       (19.3)%
TOTAL RETURN AFTER INCENTIVE FEES                                        (19.3)%

INCEPTION-TO-DATE RETURN                                                 503.1 %
COMPOUND ANNUALIZED RETURN                                                10.1 %
</TABLE>

<PAGE>

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                                   STANDARD
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                                     PAID
                                  PERMIT #374
                                 LANCASTER, PA

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

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