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, 2003 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 0-19116

	DEAN WITTER DIVERSIFIED FUTURES FUND III L.P.

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

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

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


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


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

                                                       Name of each exchange
  Title of each class                                   on which registered

  	 None                                            	 None

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

	Units of Limited Partnership Interest

	(Title of Class)

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

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

Indicate by check-mark whether the registrant is an accelerated filer (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:
$50,646,731 at June 30, 2003.

	DOCUMENTS INCORPORATED BY REFERENCE
	(See Page 1)



<page <table> DEAN WITTER DIVERSIFIED FUTURES FUND III L.P.
INDEX TO ANNUAL REPORT ON FORM 10-K
DECEMBER 31, 2003
<caption>                    Page No.

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

Part I .

  Item  1.  Business . . . . . . . . . . . . . . . . . . . . . . .  2-4

  Item  2.  Properties . . . . . . . . . . . . . . . . . . . . . . .  5

  Item  3.  Legal Proceedings. . . . . . . . . . . . . . . . . . . .  5

  Item  4.  Submission of Matters to a Vote of Security Holders. . .  5

Part II.

  Item  5.  Market for the Registrant's Partnership Units
            and Related Security Holder Matters. . . . . . . . . . .  6

  Item  6.  Selected Financial Data. . . . . . . . . . . . . . . . .  7

  Item  7.  Management's Discussion and Analysis of Financial
            Condition and Results of Operations. . . . . . . . . . 8-20

  Item 7A.  Quantitative and Qualitative Disclosures About
            Market Risk. . . . . . . . . . . . . . . . . . . . .  20-32

  Item  8.  Financial Statements and Supplementary Data. . . . .  . .33

  Item  9.  Changes in and Disagreements with Accountants on
            Accounting and Financial Disclosure. . . . . . . . . . . 33

  Item 9A.	 	Controls and Procedures . . . . . . . . . . . . . . . . .34

Part III.
  Item 10.  Directors and Executive Officers of the Registrant .  35-40
  Item 11.  Executive Compensation . . . . . . . . . . . . . . . . . 41

  Item 12.  Security Ownership of Certain Beneficial Owners
            and Management . . . . . . . . . . . . . . . . . . . . . 41

  Item 13.  Certain Relationships and Related Transactions . . .  41-42

  Item 14.  Principal Accounting Fees and Services. . . . . . . . 42-43

Part IV.

  Item 15.  Exhibits, Financial Statement Schedules, and
            Reports on Form 8-K. . . . . . . . . . . . . . . . . .44-45

</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
     June 30, 1992.                                    I

     Annual Report to Dean Witter
     Diversified Futures Fund III L.P.
     Limited Partners for the year
     ended December 31, 2003                     II, III and IV





























<page> PART I
Item 1.  BUSINESS

(a) General Development of Business.  Dean Witter Diversified Fu-
tures Fund III L.P. (the "Partnership") is a Delaware limited
partnership organized to engage primarily in the speculative
trading of futures and forward contracts on physical commodities
and other commodity interests, including, but not limited to,
foreign currencies, financial instruments, metals, energy and
agricultural products. The Partnership commenced operations on
November 1, 1990.

The Partnership's general partner is Demeter Management
Corporation ("Demeter").  The non-clearing commodity broker is
Morgan Stanley DW Inc. ("Morgan Stanley DW").  The clearing
commodity brokers are Morgan Stanley & Co. Incorporated ("MS &
Co.") and Morgan Stanley & Co. International Limited ("MSIL").
The trading manager is Morgan Stanley Futures & Currency
Management Inc. ("MSFCM" or the "Trading Manager").  Demeter,
Morgan Stanley DW, MS & Co., MSIL and MSFCM are wholly-owned
subsidiaries of Morgan Stanley.

The Partnership's net asset value per unit of limited partnership
interest ("Unit(s)") as of December 31, 2003 was $2,239.99,
representing a decrease of 11.5 percent from the net asset value
<page> per Unit of $2,529.72 at December 31, 2002.  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 and
forwards.  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 and forwards, pursuant
to trading instructions provided by the Trading Manager.  For a
detailed description of the different facets of the Partnership's
business, see those portions of the Partnership's prospectus,
dated June 30, 1992 (the "Prospectus"), incorporated by reference
in this Form 10-K, set forth below:
   Facets of Business
     1.  Summary                  1.  "Summary of the Prospectus"
                                      (Pages 1-8).

     2.  Commodities Markets      2.  "The Commodities Markets"
                                      (Pages 52-59).

     3.  Partnership's Commodity  3.  "Trading Policies" (Pages
         Trading Arrangements and     48-49). "The Trading
         Policies                     Manager" (Pages 37-47).

     4.  Management of the        4.  "The Management Agreement"
         Partnership                  (Pages 50-52).  "The
                                      General Partner" (Pages
                                      33-35) and "The Commodity
                                      Broker" (Pages 49-50).
                                      "The Limited Partnership
                                      Agreement" (Pages 61-65).
<page>
     5.  Taxation of the          5.  "Federal Income Tax
	         Partnership's Limited         Aspects" and "State and
	         Partners                      Local Income Tax Aspects"
                                       (Pages 70-77).


(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 and forwards on foreign
exchanges.

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


<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 825
Third Avenue, 9th Floor, New York, NY 10022.

Item 3.  LEGAL PROCEEDINGS
None.

Item 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.



























<page>

PART II

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


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

(b) Holders.  The number of holders of Units at December 31, 2003
was approximately 2,773.

(c) Distributions. No distributions have been made by the
Partnership since it commenced trading operations on April 14,
1988.  Demeter has sole discretion to decide what distributions,
if any, shall be made to investors in the Partnership.  Demeter
currently does not intend to make any distributions of Partnership
profits.












<page> <table>

Item 6.  SELECTED FINANCIAL DATA (in dollars)

<caption>


                            ________________For the Years Ended December 31,
                                2003         2002         2001         2000         1999  .


		<c>	<c>	<c>	<c>	<c>
Revenues/(Losses)
(including interest)	295,035	 17,529,465	4,638,330	13,245,317	(1,033,483)


Net Income (Loss)           	(5,190,138)	11,978,334	618,682	8,946,492	(6,483,053)


Net Income (Loss)
Per Unit (Limited
& General Partners)       	(289.73)	     563.17	20.74	350.70	(188.24)


Total Assets                42,392,256	    52,399,998	   44,099,605	   49,191,101  49,917,104


Total Limited
Partners' Capital        	41,349,447	 50,740,355	42,633,308	   47,524,395  47,862,260


Net Asset Value
Per Unit                      2,239.99  	2,529.72	     1,966.55     1,945.81	  1,595.11










</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 and forwards trading
accounts established for the Trading Manager, which 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 and forwards,
it is expected that the Partnership will continue to own such
liquid assets for margin purposes.

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

There is no limitation on daily price moves in trading forward
contracts on foreign currency.  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.  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 will result in, or that
are reasonably likely to result in, the Partnership's liquidity
increasing or decreasing in any material way.

Capital Resources.  The Partnership does not have, nor expect to
have, any capital assets.  Redemptions of additional Units in the
future will affect the amount of funds available for investment in
futures and forwards in subsequent periods.  It is not
possible to estimate the amount, and therefore the impact, of
future redemptions of Units.

<page> There are no known material trends, favorable or
unfavorable,  that would affect, nor any expected material changes
to, the Partnership's capital resource arrangements at the present
time. 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 Manager
and the ability of the Trading Manager's trading programs to take
advantage of price movements or other profit opportunities in the
futures and forwards markets.  The following presents a summary
of the Partnership's operations for each of the three years in the
period ended  December 31, 2003 and a general discussion of its
trading activities during each period.  It is important to note,
however, that the Trading Manager trades in various markets at
different times and that prior activity in a particular market
does not  mean that such market will be actively traded by the
Trading Manager or will be profitable in the future.
Consequently, the results of operations of the Partnership are
difficult to discuss other than in the context of the Trading
Manager's trading activities on behalf of the Partnership and how
the Partnership has performed in the past.  Past performance is
not necessarily indicative of future results.

<page> The Partnership's results of operations are set forth in
its financial statements prepared in accordance with accounting
principles generally accepted in the United States of America,
which require the use of certain accounting policies that affect
the amounts reported in these financial statements, including the
following: The contracts the Partnership trades are accounted for
on a trade-date basis and marked to market on a daily basis. The
difference between their cost and market value is recorded on the
Statements of Operations as "Net change in unrealized profit/loss"
for open (unrealized) contracts, and recorded as "Realized
profit/loss" when open positions are closed out, and the sum of
these amounts constitutes the Partnership's trading revenues.  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, New York City time, on
a given day.  Interest income revenue, as well as management fees,
incentive fees and brokerage commission expenses of the
Partnership are recorded on an accrual basis.

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

The Partnership recorded revenues including interest totaling
$295,035 and expenses totaling $5,485,173, resulting in a net loss
<page> of $5,190,138 for the year ended December 31, 2003.  The
Partnership's net asset value per Unit decreased from $2,529.72 at
December 31, 2002 to $2,239.99 at December 31, 2003.  Total
redemptions for the year were $4,789,603 and the Partnership's
ending capital was $41,815,738 at December 31, 2003, a decrease of
$9,979,741 from ending capital at December 31, 2002 of
$51,795,479.

The most significant trading losses of approximately 7.7% were
recorded in the global interest rate markets from short positions
in Japanese, Australian and European interest rate futures during
September as bond prices reversed higher due to renewed
skepticism regarding a global economic recovery and lower equity
prices.  Further losses in this sector resulted from long
positions in Australian interest rate futures during March as
prices reversed sharply lower amid reports of advancing Coalition
forces in the Persian Gulf region. Losses within this sector
continued during December as European bond prices increased in
value amid perceptions that the European Central Bank would
maintain low interest rates.  Consequently, losses were recorded
on short positions in European interest rate futures.  Additional
losses of approximately 6.2% were recorded in the agricultural
markets from positions in coffee and cotton futures as prices
experienced volatile price movement throughout a majority of the
year.  Elsewhere in the agricultural markets, losses were
recorded during October from short positions in corn futures as
prices reversed higher due to news of decreased supply.  In the
<page> energy markets, losses of approximately 4.3% were recorded
primarily during October, as the Partnership entered the month
with short natural gas positions, which proved unprofitable as
prices rallied during the first part of the month.  In response
to this rise in prices, the Partnership reversed its position
from short to long, only to see prices decline in the latter part
of the month.  Additional losses were also incurred in the energy
sector from positions in crude oil futures as prices moved
erratically during October in response to geopolitical and
supply/demand factors.  Losses were also experienced during
November and December as energy prices continued to trade in a
volatile fashion.  A portion of the Partnership's overall losses
for the year was offset by gains of approximately 10.7% in the
currency markets produced by long positions in the Australian
dollar versus the U.S. dollar during a majority of the year as
the value of the Australian currency increased versus the U.S.
dollar on the heels of higher commodity prices and a significant
interest rate differential between the two countries.  Additional
gains resulted from long positions in the euro, Singapore dollar,
Swedish krona, and Swiss franc versus the U.S. dollar as the
value of the U.S. dollar declined throughout much of the year due
to geopolitical uncertainty and negative economic data.
Additional currency gains were recorded from long positions in
the euro versus the Japanese yen.  Additional gains of
approximately 1.2% were recorded in the metals markets primarily
during the fourth quarter from long positions in copper and
nickel as base metal prices rallied in response to growing <page>
investor sentiment that the global economy was on the path to
recovery and amid increased demand, especially from China.
Smaller gains of approximately 0.3% were experienced in the
global stock index futures markets primarily during December from
long positions in U.S. stock index futures as prices increased
due to strong manufacturing data and the strongest U.S. quarterly
growth rate in almost 20 years.

The Partnership recorded revenues including interest totaling
$17,529,465 and expenses totaling $5,551,131, resulting in net
income of $11,978,334 for the year ended December 31, 2002.  The
Partnership's net asset value per Unit increased from $1,966.55 at
December 31, 2001 to $2,529.72 at December 31, 2002.  Total
redemptions for the year were $3,636,395 and the Partnership's
ending capital was $51,795,479 at December 31, 2002, an increase
of $8,341,939 from ending capital at December 31, 2001 of
$43,453,540.

The most significant trading gains of approximately 20.5% were
recorded from long positions in European, Japanese, and U.S.
interest rate futures during the period from June through
September, as well as in December, as prices trended higher amid
increased demand among investors seeking the safety of fixed
income investments.  Additional gains of approximately 18.4% were
generated in the currency markets from long positions in the
Swiss franc, euro, Japanese yen, and Swedish krona relative to
the U.S. dollar as the dollar weakened due to continued
<page> uncertainty regarding a U.S. economic recovery. Additional
currency gains were recorded from long positions in the euro
versus the British pound.  A portion of the Partnership's overall
gains was offset by losses of approximately 6.8% recorded in the
metals futures markets from positions in aluminum futures as an
uncertain economic outlook resulted in trendless price activity
among industrial metals throughout most of the year.  In the
agricultural futures markets, losses of approximately 1.8% were
incurred from long positions in cotton futures as prices moved
without consistent direction during the first and third quarters
amid shifting supply and demand concerns.  The Partnership
received a settlement award payment from the Sumitomo Copper
Litigation Settlement Administrator in the amount of $1,107,007
on August 30, 2002.

The Partnership recorded revenues including interest totaling
$4,638,330 and expenses totaling $4,019,648, resulting in net
income of $618,682 for the year ended December 31, 2001.  The
Partnership's net asset value per Unit increased from $1,945.81 at
December 31, 2000 to $1,966.55 at December 31, 2001.  Total
redemptions for the year were $5,501,116 and the Partnership's
ending capital was $43,453,540 at December 31, 2001, a decrease of
$4,882,434 from ending capital at December 31, 2000 of
$48,335,974.

<page> The most significant trading gains of approximately 10.1%
were recorded in the global interest rate futures markets
throughout a majority of the first quarter from previously
established long positions in U.S. interest rate futures as
prices trended higher amid a rattled stock market, shaky consumer
confidence, positive inflation data and interest rate cuts by the
U.S. Federal Reserve.  Additional gains were recorded primarily
during August, September and October from previously established
long positions in short and intermediate term U.S. and German
interest rate futures as prices continued trending higher
following an interest rate cut by the U.S. Federal Reserve and as
investors sought a safe haven from the decline in stock prices.
In soft commodities, profits of approximately 5.5% were recorded
throughout a majority of the first and second quarters from
previously established short cotton futures positions as prices
continued moving lower on weak export sales and low demand.  A
portion of the Partnership's overall gains were partially offset
by losses of approximately 6.6% recorded in the currency markets
primarily during July from previously established short positions
in the euro as the value of the European common currency reversed
higher versus the British pound as hints of possible intervention
by the European Central Bank to support the euro remained.
During December, additional losses were recorded from previously
established long euro positions as its value reversed lower
relative to the British pound.  In the energy markets, losses of
approximately 2.5% were experienced throughout the first nine
<page> months of the year from positions in crude oil futures and
its related products as a result of volatility in oil prices due
to a continually changing outlook for supply, production and
demand.

For an analysis of unrealized gains and (losses) by contract type
and a further description of 2003 trading results, refer to the
Partnership's Annual Report to Limited Partners for the year
ended December 31, 2003, 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 and forwards in interest
rates, stock indices, currencies, agriculturals, energies and
metals. 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 Manager were
unable to offset positions of the Partnership, the Partnership
<page> could lose all of its assets and the limited partners would
realize a 100% loss.

In addition to the Trading Manager's internal controls, the
Trading Manager must comply with the Partnership's trading
policies that include standards for liquidity and leverage that
must be maintained.  The Trading Manager and Demeter monitor the
Partnership's trading activities to ensure compliance with the
trading policies and Demeter can require the Trading Manager 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 and forward
contracts there is a credit risk to the Partnership that the
counterparty on a contract will not be able to meet its
obligations to the Partnership.  The ultimate counterparty or
guarantor of the Partnership for futures contracts traded in the
United States and the foreign exchanges on which the Partnership
trades is the clearinghouse associated with such exchange.  In
general, a clearinghouse is backed by the membership of the
exchange and will act in the event of non-performance by one of
its members or one of its member's customers, which should
significantly reduce this credit risk.  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
<page> such parties. Further, the law is unclear as to whether a
commodity broker has any obligation to protect its customers from
loss in the event of an exchange or clearinghouse defaulting on
trades effected for the broker's customers.  In cases where the
Partnership trades off-exchange forward contracts with a
counterparty, the sole recourse of the Partnership will be the
forward contracts counterparty.

Demeter deals with these credit risks of the Partnership in
several ways.  First, it monitors the Partnership's credit
exposure to each exchange on a daily basis.  The commodity brokers
inform the Partnership, as with all their customers, of its 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 an acceptable 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.

See "Financial Instruments" under "Notes to Financial Statements"
in the Partnership's Annual Report to Limited Partners for the
year ended December 31, 2003, which is incorporated by reference
to Exhibit 13.01 of in 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 and forwards. The market-sensitive
instruments held by the Partnership are acquired for speculative
trading purposes only and, as a result, all or substantially all
of the Partnership's assets are at risk of trading loss.  Unlike
an operating company, the risk of market-sensitive instruments is
<page> central, not incidental, to the Partnership's main business
activities.

The futures and forwards traded by the Partnership involve
varying degrees of related market risk.  Market risk is often
dependent upon changes in the level or volatility of interest
rates, exchange rates, and prices of financial instruments and
commodities, 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.  Profits
and losses on open positions of exchange-traded futures and
forwards are settled daily through variation margin.

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

<page> 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 qualitative 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 Manager is estimated below in terms of Value at Risk
("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 value of a trading portfolio.  The VaR model takes into
account linear exposures to risk including equity and commodity
prices, interest rates, foreign exchange rates, and correlation
among these variables. The hypothetical changes in portfolio value
are based on daily percentage changes observed in key market
indices or other market factors ("market risk factors") to which
<page> 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 revalues its portfolio (using delta-gamma
approximations) for each of the historical market moves that
occurred over this time period.  This generates a probability
distribution of daily "simulated profit and loss" outcomes.  The
VaR is the appropriate percentile of this distribution.  For
example, the 99% one-day VaR would represent the 10th worst
outcome from Demeter's simulated profit and loss series.

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

VaR models, including the Partnership's, are continuously evolving
as trading portfolios become more diverse and modeling techniques
and systems capabilities improve.  Please note that the VaR model
is used to numerically quantify market risk for historic reporting
purposes only and is not utilized by either Demeter or the Trading
Manager in their daily risk management activities.  Please further
<page> 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, 2003 and 2002. At
December 31, 2003 and 2002, the Partnership's total capital-
ization was approximately $42 million and $52 million,
respectively.

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

Currency                     (2.77)%             	 (3.35)%

Interest Rate                (0.84)              	 (2.48)

Equity                       (0.61)                    -

Commodity                    (1.93)             	 (2.25)

Aggregate Value at Risk      (3.50)%            	 (4.72)%

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 and forwards, the composition of its trading portfolio
can change significantly over any given time period, or even
<page> 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, 2003 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, 2003 through December 31, 2003.

Primary Market Risk Category        High        Low      Average
Currency                           (2.77)%     (0.80)%    (1.77)%
Interest Rate                      (2.05)      (0.08)	     (1.08)
Equity                             (0.61)         -	       (0.25)
Commodity                          (2.02)      (1.75)	     (1.90)
Aggregate Value at Risk            (3.50)%     (2.84)%	    (3.06)%

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

The VaR tables 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, 2003 and 2002 and for the four
quarter-end reporting periods during calendar year 2003.  VaR is
not necessarily representative of the 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
<page> will not exceed the VaR amounts indicated above or that
such losses will not occur more than once in 100 trading days.


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

The Partnership also maintains a substantial portion
(approximately 87% as of December 31, 2003) of its available
assets in cash at Morgan Stanley DW.  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
<page> Partnership manages its primary market risk exposures -
constitute forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the
Securities Exchange Act.  The Partnership's primary market risk
exposures, as well as the strategies used and to be used by
Demeter and the Trading Manager for managing such exposures, are
subject to numerous uncertainties, contingencies and risks, any
one of which could cause the actual results of the Partnership's
risk controls to differ materially from the objectives of such
strategies. Government interventions, defaults and expro-
priations, 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, 2003, by market sector.  It may be
anticipated, however, that these market exposures will vary
materially over time.

Currency.  The primary market exposure of the Partnership at
December 31, 2003 was to the currency sector.  The Partnership's
currency exposure is to exchange rate fluctuations, primarily
fluctuations which disrupt the historical pricing relationships
<page> between different currencies and currency pairs.  Interest
rate changes as well as political and general economic conditions
influence these fluctuations.  The Partnership trades a large
number of currencies, including cross-rates - i.e., positions
between two currencies other than the U.S. dollar.  At December
31, 2003, the Partnership's major exposures were to euro,
Japanese yen, and British pound currency crosses and outright
U.S. dollar positions.  Outright positions consist of the U.S.
dollar vs. other currencies.  These other currencies include
major and minor currencies.  Demeter does not anticipate that the
risk profile of the Partnership's currency sector will change
significantly in the future.  The currency trading VaR figure
includes foreign margin amounts converted into U.S. dollars with
an incremental adjustment to reflect the exchange rate risk
inherent to the U.S.-based Partnership in expressing VaR in a
functional currency other than U.S. dollars.

Interest Rate.  The second largest market exposure at December
31, 2003 was to the global interest rate complex, primarily the
Japanese and U.S. interest rate sectors.  Interest rate movements
directly affect the price of the sovereign bond futures positions
held by the Partnership and indirectly affect the value of its
stock index and currency positions.  Interest rate movements in
one country, as well as relative interest rate movements between
countries, materially impact the Partnership's profitability.
The Partnership's primary interest rate exposure is generally to
<page> interest rate fluctuations in the U.S. and the other G-7
countries.  The G-7 countries consist of France, the U.S.,
Britain, Germany, Japan, Italy and Canada.  Demeter anticipates
that G-7 countries interest rates will remain the primary
interest rate exposure of the Partnership for the foreseeable
future.  The speculative futures positions held by the
Partnership may range from short to long-term instruments.
Consequently, changes in short, medium or long-term interest
rates may have an effect on the Partnership.

Equity.  The third largest market exposure of the Partnership at
December 31, 2003 was to equity price risk in the G-7 countries.
The stock index futures traded by the Partnership are by law
limited to futures on broadly-based indices.  At December 31,
2003, the Partnership's primary exposure was to the S&P 500
(U.S.) stock index.  The Partnership is primarily exposed to the
risk of adverse price trends or static markets in the U.S. stock
indices. Static markets would not cause major market changes but
would make it difficult for the Partnership to avoid trendless
price movements resulting in numerous small losses.

Commodity.
Energy.  At December 31, 2003, the Partnership's energy
exposure was primarily to futures contracts in crude oil and
natural gas.  Price movements in these markets result from
geopolitical developments, particularly in the Middle East,
<page> 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 prices resulting from weather patterns and
supply and demand factors and will likely continue in this
choppy pattern.

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

Soft Commodities and Agriculturals.  At December 31, 2003,
the Partnership had exposure to the markets that comprise
these sectors.  Most of the exposure was to the cotton and
corn markets.  Supply and demand inequalities, severe
weather disruptions and market expectations affect price
movements in these markets.

<page> Qualitative Disclosures Regarding Non-Trading Risk Exposure

The following was the only non-trading risk exposure of the
Partnership at December 31, 2003:

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

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

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

<page> 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          Revenues/           Net           Net Income/
Ended	          (Net Losses)     Income/(Loss)   (Loss) Per Unit

2003
March 31       $ 8,410,938      $ 6,402,289         $ 310.64
June 30         (2,845,154)      (4,138,572)         (213.83)
September 30    (4,191,111)      (5,359,075)         (277.38)
December 31     (1,079,638)      (2,094,780)         (109.16)

Total          $   295,035      $(5,190,138)        $(289.73)

2002
March 31       $ 1,034,152      $   136,306         $   6.03
June 30          9,311,988        7,903,101           369.80
September 30     8,031,500        6,050,926           288.60
December 31       (848,175)      (2,111,999)         (101.26)

Total          $17,529,465      $11,978,334         $ 563.17



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 the
general partner, Demeter, have evaluated the effectiveness
of the Partnership's disclosure controls and procedures
(as defined in Rules 13a-15(e) and 15d-15(e) of the
Exchange Act), and have judged such controls and
procedures to be effective.

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













<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:

Jeffrey A. Rothman, age 42, is the Chairman of the Board of
Directors and President of Demeter. Mr. Rothman is the Executive
Director of Morgan Stanley Managed Futures, responsible for
overseeing all aspects of the firm's managed futures department.
He is also the Chairman of the Board of Directors of Morgan
Stanley Futures & Currency Management Inc. Mr. Rothman has been
with the managed futures department for seventeen years.
Throughout his career, Mr. Rothman has helped with the
development, marketing and administration of approximately 39
commodity pools. Mr. Rothman is an active member of the Managed
Funds Association and serves on its Board of Directors.  Mr.
Rothman has a B.A. degree in Liberal Arts from Brooklyn College,
New York.

Richard A. Beech, age 52, is a Director of Demeter.  Mr. Beech has
been associated with the futures industry for over 25 years. He
has been at Morgan Stanley DW since August 1984 where he is
presently an Executive Director and head of Futures, Forex &
<page> Metals.  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 Unviersity.

Raymond A. Harris, age 47, is a Director of Demeter and of Morgan
Stanley Futures & Currency Management Inc.  Mr. Harris is
currently Managing Director and head of Client Solutions for
Morgan Stanley Individual Investor Group.  Mr. Harris joined
Morgan Stanley in 1982 and served in financial and operational
assignments for Dean Witter Reynolds.  In 1994, he joined the
Discover Financial Services division, leading restructuring and
product development efforts.  Mr. Harris became Chief
Administrative Officer for Morgan Stanley Investment Management in
1999.  In 2001, he was named head of Global Products and Services
for Investment Management.  Mr. Harris has an M.B.A. in Finance
from the University of Chicago and a B.A. degree from Boston
College.

Frank Zafran, age 48, is a Director of Demeter and of Morgan
Stanley Futures & Currency Management Inc. Mr. Zafran is an
Executive Director of Morgan Stanley and, in September 2002, was
<page> named 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.

Douglas J. Ketterer, age 38, was named a Director of Demeter, and
confirmed by the National Futures Association as a principal of
Demeter on October 27, 2003.  Mr. Ketterer is a Managing Director
and head of the Investment Solutions Group, which is comprised of
a number of departments which offer products and services through
Morgan Stanley's Individual Investor Group (including Managed
Futures, Alternative Investments, Insurance Services, Personal
Trust, Corporate Services, and others).  Mr. Ketterer joined the
firm in 1990 in the Corporate Finance Division as a part of the
Retail Products Group.  He later moved to the origination side of
Investment Banking, and then, after the merger between Morgan
Stanley and Dean Witter, served in the Product Development Group
at Morgan Stanley Dean Witter Advisors (now known as Morgan
Stanley Funds).  From the summer of 2000 to the summer of 2002,
Mr. Ketterer served as the Chief Administrative Officer for Morgan
Stanley Investment Management, where he headed the Strategic
<page> Planning & Administrative Group.  Mr. Ketterer received his
M.B.A. from New York University's Leonard N. Stern School of
Business and his B.S. in Finance from the University at Albany's
School of Business.

Jeffrey S. Swartz resigned his position as a Director of Demeter.

Louise M. Wasso-Jonikas will become a Director of Demeter once she
has registered with the National Futures Association as an
associated person, which registration is currently pending.  Ms.
Wasso-Jonikas is a Managing Director of Morgan Stanley and
Director of Alternative Investments for the Individual Investor
Group (IIG) of Morgan Stanley.  Ms. Wasso-Jonikas rejoined Morgan
Stanley in 1999.  Ms. Wasso-Jonikas was Co-Founder and
President/Chief Operating Officer of Graystone Partners, an
objective consulting firm, from 1993 to 1999, when Graystone was
acquired by Morgan Stanley.  Prior to founding Graystone, Ms.
Wasso-Jonikas was a Senior Vice President at Bessemer Trust and
opened their Chicago office.  She also was a Vice President at the
Northern Trust in their Wealth Management Services Group where she
worked exclusively with their largest private clients and family
offices throughout the U.S. and abroad serving their broad
investment and custody needs.  Ms. Wasso-Jonikas also worked as an
Equity Block Trader with Goldman Sachs and with Morgan Stanley
advising and managing money for private clients.  Ms. Wasso-
Jonikas's focus is on developing a robust external manager <page>
platform utilizing alternative managers for IIG clients as well as
overseeing some of the firm's largest client relationships.  Ms.
Wasso-Jonikas holds a BA in Economics from Mount Holyoke College
and an MBA in Finance from the University of Chicago Graduate
School of Business.

Jeffrey D. Hahn, age 46, is the Chief Financial Officer of
Demeter. Mr. Hahn began his career at Morgan Stanley in 1992 and
is currently an Executive Director responsible for the management
and supervision of the accounting, reporting, tax and finance
functions for the firm's private equity, managed futures, and
certain legacy real estate investing activities. He is also the
Chief Financial Officer of Morgan Stanley Futures & Currency
Management Inc.  From August 1984 through May 1992, Mr. Hahn held
various positions as an auditor at Coopers & Lybrand, specializing
in manufacturing businesses and venture capital organizations. Mr.
Hahn received his B.A. in Economics from St. Lawrence University
in 1979, an M.B.A. from Pace University in 1984, and is a
Certified Public Accountant.

All of the foregoing directors have indefinite terms.

The Audit Committee
The Partnership is operated by its general partner, Demeter, and
does not have an audit committee.  As such, the entire Board of
Directors of Demeter serves as the audit committee.  None of the
<page> 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 determined that Mr. Jeffrey D. Hahn is the audit
committee financial expert.

Section 16(a) Beneficial Ownership Reporting Compliance
The Partnership has no directors, executive officers or greater
than 10 percent beneficial owners and none of the directors or
executive officers of Demeter, the general partner of the
Partnership, own Units of the Partnership.  As such, no Forms 3,
4, or 5 have been filed.

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 www.morganstanley.com/ourcommitment/
codeofconduct.html.


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

Item 12. 	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
	  		  MANAGEMENT
(a)	Security Ownership of Certain Beneficial Owners - At December
31, 2003, 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, 2003,
Demeter owned 208.167 Units of general partnership interest,
representing a 1.12 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, 2003, which is
incorporated by reference to Exhibit 13.01 of this Form 10-K.  In
its capacity as the Partnership's retail commodity broker, Morgan
<page> Stanley DW received commodity brokerage commissions (paid
and accrued by the Partnership) of $2,906,478 for the year ended
December 31, 2003.  In its capacity as the Partnership's Trading
Manager, MSFCM received management fees of $1,581,440 and
incentive fees of $723,309 for the year ended December 31, 2003.

Item 14.  PRINCIPAL ACCOUNTING FEES AND SERVICES
The Partnership pays all accounting fees as discussed in Note 1,
"Operating Expenses" to Financial Statements in the Annual Report
to the Limited Partners for the year ended December 31, 2003.

(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 reviews of the
financial statements included in the Quarterly Reports on Form
10-Q and in connection with statutory and regulatory filings for
the years ended December 31, 2003 and 2002 were approximately
$24,900 and $24,829, respectively.

(2)	 Audit-Related Fees. There were no fees for assurance and
related services rendered by Deloitte & Touche LLP for the years
ended December 31, 2003 and 2002.

(3)	 Tax Fees.  The aggregate fees for tax compliance services
rendered by Deloitte & Touche LLP for the years ended December 31,
<page> 2003 and 2002 were approximately $29,914 and $29,066,
respectively.
(4)  All Other Fees.  None.

As of the date of this Report, the Board of Directors of Demeter
has not adopted pre-approval policies and procedures.  As a
result, all services provided by Deloitte & Touche LLP must be
directly pre-approved by the Board of Directors of Demeter.


















<page>
PART IV

Item 15.	EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K


(a)  1. Listing of Financial Statements
The following financial statements and report of independent
auditors, all appearing in the accompanying Annual Report to
Limited Partners for the year ended December 31, 2003, are
incorporated by reference to Exhibit 13.01 of this Form 10-K:
-	Report of Deloitte & Touche LLP, independent auditors, for
the years ended December 31, 2003, 2002 and 2001.

-	Statements of Financial Condition, including the Schedules of
Investments, as of December 31, 2003 and 2002.

-	Statements of Operations, Changes in Partners' Capital, and
Cash Flows for the years ended December 31, 2003, 2002 and
2001.

-	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, 2003, is not
deemed to be filed with this report.

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

<page>
(b)  Reports on Form 8-K
No  reports on Form 8-K have been filed by the Partnership during
the last quarter of the period covered by this report.

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


<page> SIGNATURES

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

				DEAN WITTER DIVERSIFIED FUTURES FUND III L.P.
					(Registrant)

				BY:  Demeter Management Corporation,
					General Partner

March 30, 2004		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 30, 2004
	  	Jeffrey A. Rothman, President

    /s/ 	Douglas J. Ketterer            			March 30, 2004
	 	Douglas J. Ketterer, Director

    /s/	Louise M. Wasso-Jonikas          			March 30, 2004
	  	Louise M. Wasso-Jonikas, Director

    /s/    Richard A. Beech                 			March 30, 2004
           Richard A. Beech, Director

    /s/    Raymond A. Harris                			March 30, 2004
           Raymond A. Harris, Director

    /s/  	Frank Zafran                   			March 30, 2004
	    	Frank Zafran, Director

    /s/  	Jeffrey D. Hahn                  			March 30, 2004
	    	Jeffrey D. Hahn, Chief
	    	Financial Officer





<page> 	EXHIBIT INDEX

ITEM

3.01	Amended and Restated Limited Partnership Agreement of the
Partnership, dated as of May 14, 1990, is incorporated by
reference to Exhibit A of the Partnership's Prospectus
dated June 30, 1992, filed with the Securities and
Exchange Commission pursuant to Rule 424(b)(3) under the
Securities Act of 1933 on July 14, 1992.

3.02	Amendment No. 1 to the Limited Partnership Agreement of the
Partnership, dated as of May 14, 1990, is incorporated by
reference to Exhibit 3.02 of the Partnership's Quarterly
Report on Form 10-Q (File No. 0-19116) filed with the
Securities and Exchange Commission on august 14, 2002.

10.01	Management Agreement among the Partnership, Demeter
Management Corporation and Dean Witter Futures & Currency
Management Inc., dated as of July 12, 1990, is incorporated
by reference to Exhibit 10.02 of the Partnership's
Registration Statement on Form S-1, (File No. 33-34989)
filed on May 21, 1990.

10.02	Amendment No. 1 to the Management Agreement, dated as of
June 30, 1992, is incorporated by reference to Exhibit
10.02 of the Partnership's Quarterly Report on Form 10-Q
(File No. 0-19116) filed the Securities and Exchange
Commission on August 14, 2002.

10.03	Amended and Restated Customer Agreement between the
Partnership and Morgan Stanley DW Inc., dated as of May 19,
2000, is incorporated by reference to Exhibit 10.01 of the
Partnership's Form 8-K (File No. 0-19116) filed with the
Securities and Exchange Commission on November 13, 2001.

10.04	Commodity Futures Customer Agreement between Morgan Stanley
& Co. Incorporated and the Partnership, and acknowledged
and agreed to by Morgan Stanley DW Inc., dated as of May 1,
2000, is incorporated by reference to Exhibit 10.02 of the
Partnership's Form 8-K (File No. 0-19116) filed with the
Securities and Exchange Commission on November 13, 2001.

10.05	Customer Agreement between the Partnership and Morgan
Stanley & Co. International Limited, dated as of May 1,
2000, is incorporated by reference to Exhibit 10.04 of the
Partnership's Form 8-K (File No. 0-19116) filed with the
Securities and Exchange Commission on November 13, 2001.



E-1
<page>
10.06	Foreign Exchange and Options Master Agreement between
Morgan Stanley & Co. Incorporated and the Partnership,
dated as of April 30, 2000, is incorporated by reference to
Exhibit 10.05 of the Partnership's Form 8-K (File No. 0-
19116) filed with the Securities and Exchange Commission on
November 13, 2001.

10.07	Securities Account Control Agreement among the Partnership,
Morgan Stanley & Co. Incorporated, and Morgan Stanley DW
Inc., dated as of May 1, 2000, is incorporated by reference
to Exhibit 10.03 of the Partnership's Form 8-K (File No. 0-
19116) filed with the Securities and Exchange Commission on
November 13, 2001.

13.01	December 31, 2003 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 rules 13a-15(e) and 15d-15(e), as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.02	Certification of Chief Financial Officer of Demeter
Management Corporation, the general partner of the
Partnership, pursuant to rules 13a-15(e) and 15d-15(e), as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.

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

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


E-2
<PAGE>

                                                                    Diversified
                                                                        Futures
                                                                       Fund III

          December 31, 2003
          Annual Report








[LOGO] Morgan Stanley

<PAGE>

DEAN WITTER DIVERSIFIED FUTURES FUND III L.P.

HISTORICAL FUND PERFORMANCE

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

<TABLE>
<CAPTION>
                                                                                                             INCEPTION-
                                                                                                              TO-DATE
                               1990   1991 1992 1993 1994 1995  1996  1997 1998  1999  2000 2001 2002  2003    RETURN
FUND                            %      %    %    %    %    %     %     %    %     %     %    %    %     %        %
------------------------------------------------------------------------------------------------------------------------
<S>                          <C>      <C>  <C>  <C>  <C>  <C>   <C>   <C>  <C>  <C>    <C>  <C>  <C>  <C>    <C>
Diversified Futures Fund III  (1.7)   27.1 15.8 7.6  5.9  (4.0) (4.7) 12.3 5.4  (10.6) 22.0 1.1  28.6 (11.5)   124.0
                             (2 mos.)
------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
                              COMPOUND
                             ANNUALIZED
                               RETURN
FUND                             %
---------------------------------------
<S>                          <C>
Diversified Futures Fund III    6.3

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

<PAGE>

DEMETER MANAGEMENT CORPORATION

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

DEAN WITTER DIVERSIFIED FUTURES FUND III L.P.
ANNUAL REPORT
2003

Dear Limited Partner:

  This marks the fourteenth annual report for the Dean Witter Diversified
Futures Fund III L.P. (the "Fund"). The Fund began the year at a Net Asset
Value per Unit of $2,529.72 and decreased by 11.5% to $2,239.99 on December 31,
2003. The Fund has increased by 124.0% since it began trading in November 1990
(a compound annualized return of 6.3%).

  Detailed performance information for the Fund is located in the body of the
financial report. 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.

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

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

<PAGE>

  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 and President
Demeter Management Corporation
General Partner for
Dean Witter Diversified Futures Fund III L.P.

<PAGE>

DIVERSIFIED FUTURES FUND III L.P.

                                     [CHART]

                    Year ended December 31, 2003
                    ----------------------------
Currencies                  10.71%
Interest Rates              -7.69%
Stock Indices                0.30%
Energies                    -4.26%
Metals                       1.19%
Agriculturals               -6.19%



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

FACTORS INFLUENCING ANNUAL TRADING LOSSES:
..  In the global interest rate markets, losses were incurred from short
   positions in Japanese, Australian and European interest rate futures during
   September as bond prices reversed higher due to renewed skepticism regarding
   a global economic recovery and lower equity prices. Further losses in this
   sector resulted from long positions in Australian interest rate futures
   during March as prices reversed sharply lower amid reports of advancing
   Coalition forces in the Persian Gulf region. Losses within this sector
   continued during December as European bond prices increased in value amid
   perceptions that the European Central Bank would maintain low interest
   rates. Consequently, losses were recorded on short positions in European
   interest rate futures.
..  Additional losses were recorded in the agricultural markets from positions
   in coffee and cotton futures as prices experienced volatile price movement
   throughout a majority of the year. Elsewhere in the agricultural markets,
   losses were recorded during October from short positions in corn futures as
   prices reversed higher due to news of a decrease in supply.
..  In the energy markets, losses were recorded primarily during October as the
   Fund entered the month with short natural gas positions which proved
   unprofitable as prices rallied during the first part of the month. In
   response to this rise in prices, the Fund reversed its position from short
   to long, only

<PAGE>

DIVERSIFIED FUTURES FUND III L.P.
(continued)


 to see prices decline in the latter part of the month. Additional losses were
  incurred in the energy sector from positions in crude oil futures as prices
  moved erratically during October in response to geopolitical and
  supply/demand factors. Losses were also experienced during November and
  December as energy prices continued to trade in a volatile fashion.

FACTORS INFLUENCING ANNUAL TRADING GAINS:
..  In the currency markets, gains were produced by long positions in the
   Australian dollar versus the U.S. dollar during a majority of the year as
   the value of the Australian currency increased versus the U.S. dollar on the
   heels of higher commodity prices and a significant interest rate
   differential between the two countries. Additional gains resulted from long
   positions in the euro, Singapore dollar, Swedish krona, and Swiss franc
   versus the U.S. dollar as the value of the U.S. dollar declined throughout
   much of the year due to geopolitical uncertainty and negative economic data.
   Additional currency gains were recorded from long positions in the euro
   versus the Japanese yen.
..  Gains were recorded in the metals markets, primarily during the fourth
   quarter, from long positions in copper and nickel as base metal prices
   rallied in response to growing investor sentiment that the global economy
   was on the path to recovery and amid increased demand, especially from China.
..  In the global stock index futures markets, gains were experienced primarily
   during December from long positions in U.S. stock index futures as prices
   increased due to strong manufacturing data and the strongest U.S. quarterly
   growth rate in almost 20 years.

<PAGE>

DEAN WITTER DIVERSIFIED FUTURES FUND III L.P.

INDEPENDENT AUDITORS' REPORT

To the Limited Partners and the General Partner:

  We have audited the accompanying statements of financial condition of Dean
Witter Diversified Futures Fund III L.P. (the "Partnership"), including the
schedules of investments, as of December 31, 2003 and 2002, 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, 2003. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

  In our opinion, such financial statements present fairly, in all material
respects, the financial position of Dean Witter Diversified Futures Fund III
L.P. at December 31, 2003 and 2002, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 2003 in
conformity with accounting principles generally accepted in the United States
of America.

/s/ Deloitte & Touche LLP

New York, New York
March 2, 2004

<PAGE>

DEAN WITTER DIVERSIFIED FUTURES FUND III L.P.

STATEMENTS OF FINANCIAL CONDITION

<TABLE>
<CAPTION>
                                                         DECEMBER 31,
                                                    ---------------------
                                                       2003       2002
                                                    ---------- ----------
                                                        $          $
     <S>                                            <C>        <C>

                                    ASSETS
     Equity in futures interests trading accounts:
       Cash                                         39,854,002 46,500,445
       Net unrealized gain on open contracts
        (MS&Co.)                                     1,619,468  7,068,528
       Net unrealized gain (loss) on open
        contracts (MSIL)                               894,963 (1,209,528)
                                                    ---------- ----------
         Total net unrealized gain on open
          contracts                                  2,514,431  5,859,000
                                                    ---------- ----------
         Total Trading Equity                       42,368,433 52,359,445
     Interest receivable (Morgan Stanley DW)            23,823     40,553
                                                    ---------- ----------
         Total Assets                               42,392,256 52,399,998
                                                    ========== ==========

                      LIABILITIES AND PARTNERS' CAPITAL

     LIABILITIES
     Redemptions payable                               335,337    359,654
     Administrative expenses payable                   134,617    113,252
     Accrued management fees (MSFCM)                   106,564    131,613
                                                    ---------- ----------
         Total Liabilities                             576,518    604,519
                                                    ---------- ----------

     PARTNERS' CAPITAL
     Limited Partners (18,459.689 and
      20,057.688 Units, respectively)               41,349,447 50,740,355
     General Partner (208.167 and
      417.091 Units, respectively)                     466,291  1,055,124
                                                    ---------- ----------
         Total Partners' Capital                    41,815,738 51,795,479
                                                    ---------- ----------
         Total Liabilities and Partners' Capital    42,392,256 52,399,998
                                                    ========== ==========

     NET ASSET VALUE PER UNIT                         2,239.99   2,529.72
                                                    ========== ==========
</TABLE>

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

<PAGE>

DEAN WITTER DIVERSIFIED FUTURES FUND III L.P.

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                          FOR THE YEARS ENDED DECEMBER 31,
                                         ---------------------------------
                                            2003        2002       2001
                                         ----------  ---------- ----------
                                             $           $          $
     <S>                                 <C>         <C>        <C>
     REVENUES
     Trading profit (loss):
       Realized                           3,209,687  10,540,492  9,125,249
       Net change in unrealized          (3,344,569)  5,263,150 (5,769,529)
                                         ----------  ---------- ----------
                                           (134,882) 15,803,642  3,355,720
     Proceeds from Litigation Settlement     --       1,107,007     --
                                         ----------  ---------- ----------
        Total Trading Results              (134,882) 16,910,649  3,355,720
     Interest income (Morgan Stanley DW)    429,917     618,816  1,282,610
                                         ----------  ---------- ----------
        Total                               295,035  17,529,465  4,638,330
                                         ----------  ---------- ----------
     EXPENSES
     Brokerage commissions
      (Morgan Stanley DW)                 2,906,478   2,582,647  2,387,626
     Management fees (MSFCM)              1,581,440   1,461,168  1,419,604
     Incentive fees (MSFCM)                 723,309   1,231,206     --
     Administrative expenses                144,000     155,000     99,000
     Transaction fees and costs             129,946     121,110    113,418
                                         ----------  ---------- ----------
        Total                             5,485,173   5,551,131  4,019,648
                                         ----------  ---------- ----------
     NET INCOME (LOSS)                   (5,190,138) 11,978,334    618,682
                                         ==========  ========== ==========
     NET INCOME (LOSS) ALLOCATION:
     Limited Partners                    (5,196,305) 11,743,442    610,029
     General Partner                          6,167     234,892      8,653

     NET INCOME (LOSS) PER UNIT:
     Limited Partners                       (289.73)     563.17      20.74
     General Partner                        (289.73)     563.17      20.74
</TABLE>

STATEMENTS OF CHANGES IN PARTNERS' CAPITAL

FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001

<TABLE>
<CAPTION>
                           UNITS OF
                          PARTNERSHIP  LIMITED     GENERAL
                           INTEREST    PARTNERS    PARTNER      TOTAL
                          ----------- ----------  ---------  ----------
                                          $           $           $
       <S>                <C>         <C>         <C>        <C>
       Partners' Capital,
       December 31, 2000  24,841.076  47,524,395    811,579  48,335,974
       Net income             --         610,029      8,653     618,682
       Redemptions        (2,744.800) (5,501,116)     --     (5,501,116)
                          ----------  ----------  ---------  ----------
       Partners' Capital,
       December 31, 2001  22,096.276  42,633,308    820,232  43,453,540
       Net income             --      11,743,442    234,892  11,978,334
       Redemptions        (1,621.497) (3,636,395)     --     (3,636,395)
                          ----------  ----------  ---------  ----------
       Partners' Capital,
       December 31, 2002  20,474.779  50,740,355  1,055,124  51,795,479
       Net income (loss)      --      (5,196,305)     6,167  (5,190,138)
       Redemptions        (1,806.923) (4,194,603)  (595,000) (4,789,603)
                          ----------  ----------  ---------  ----------
       Partners' Capital,
       December 31, 2003  18,667.856  41,349,447    466,291  41,815,738
                          ==========  ==========  =========  ==========
</TABLE>

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

<PAGE>

DEAN WITTER DIVERSIFIED FUTURES FUND III L.P.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                  FOR THE YEARS ENDED DECEMBER 31,
                                 ----------------------------------
                                    2003        2002        2001
                                 ----------  ----------  ----------
                                     $           $           $
<S>                              <C>         <C>         <C>
CASH FLOWS FROM
 OPERATING ACTIVITIES
Net income (loss)                (5,190,138) 11,978,334     618,682
Noncash item included in net
 income (loss):
  Net change in unrealized        3,344,569  (5,263,150)  5,769,529
Decrease in operating assets:
  Interest receivable
   (Morgan Stanley DW)               16,730      12,346     128,061
Increase (decrease) in operating
 liabilities:
  Administrative expenses
   payable                           21,365         (25)     47,939
  Accrued management fees
   (MSFCM)                          (25,049)     21,006     (13,141)
                                 ----------  ----------  ----------
Net cash provided by (used for)
 operating activities            (1,832,523)  6,748,511   6,551,070
                                 ----------  ----------  ----------

CASH FLOWS FROM
 FINANCING ACTIVITIES
Decrease in redemptions payable     (24,317)    (62,527)   (243,860)
Redemptions of Units             (4,789,603) (3,636,395) (5,501,116)
                                 ----------  ----------  ----------
Net cash used for financing
 activities                      (4,813,920) (3,698,922) (5,744,976)
                                 ----------  ----------  ----------

Net increase (decrease) in cash  (6,646,443)  3,049,589     806,094

Balance at beginning of period   46,500,445  43,450,856  42,644,762
                                 ----------  ----------  ----------

Balance at end of period         39,854,002  46,500,445  43,450,856
                                 ==========  ==========  ==========
</TABLE>

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

<PAGE>

DEAN WITTER DIVERSIFIED FUTURES FUND III L.P.

SCHEDULES OF INVESTMENTS

DECEMBER 31, 2003 AND 2002

<TABLE>
<CAPTION>
                                                                  LONG UNREALIZED  PERCENTAGE   SHORT UNREALIZED  PERCENTAGE
FUTURES AND FORWARD CONTRACTS:                                      GAIN/(LOSS)   OF NET ASSETS   GAIN/(LOSS)    OF NET ASSETS
------------------------------                                      -----------   -------------   -----------    -------------
2003 PARTNERSHIP NET ASSETS: $41,815,738                                 $              %              $               %
<S>                                                               <C>             <C>           <C>              <C>
Foreign currency                                                       144,175         0.34            --              --
Commodity                                                            1,400,203         3.35         (246,885)        (0.59)
Interest rate                                                         (156,214)       (0.37)           --              --
Equity                                                                 272,300         0.65            --              --
                                                                    ----------        -----         --------         -----
  Grand Total:                                                       1,660,464         3.97         (246,885)        (0.59)
                                                                    ==========        =====         ========         =====
  Unrealized Currency Gain

  Total Net Unrealized Gain per Statement of Financial Condition


2002 PARTNERSHIP NET ASSETS: $51,795,479
Foreign currency                                                     4,577,722         8.84*           --              --
Commodity                                                           (1,253,213)       (2.42)          75,138          0.15
Interest rate                                                        1,394,584         2.69            --              --
                                                                    ----------        -----         --------         -----
  Grand Total:                                                       4,719,093         9.11           75,138          0.15
                                                                    ==========        =====         ========         =====
  Unrealized Currency Gain

  Total Net Unrealized Gain per Statement of Financial Condition

</TABLE>
<TABLE>
<CAPTION>

FUTURES AND FORWARD CONTRACTS:                                    NET UNREALIZED GAIN/(LOSS) # OF CONTRACTS/NOTIONAL AMOUNTS
------------------------------                                    -------------------------- -------------------------------
2003 PARTNERSHIP NET ASSETS: $41,815,738                                      $
<S>                                                               <C>                        <C>
Foreign currency                                                             144,175                  4,033,175,337
Commodity                                                                  1,153,318                          1,065
Interest rate                                                               (156,214)                           150
Equity                                                                       272,300                             28
                                                                          ----------
  Grand Total:                                                             1,413,579

  Unrealized Currency Gain                                                 1,100,852
                                                                          ----------
  Total Net Unrealized Gain per Statement of Financial Condition           2,514,431
                                                                          ==========

2002 PARTNERSHIP NET ASSETS: $51,795,479
Foreign currency                                                           4,577,722                  2,816,511,564
Commodity                                                                 (1,178,075)                         1,504
Interest rate                                                              1,394,584                          1,222
                                                                          ----------
  Grand Total:                                                             4,794,231

  Unrealized Currency Gain                                                 1,064,769
                                                                          ----------
  Total Net Unrealized Gain per Statement of Financial Condition           5,859,000
                                                                          ==========
</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 DIVERSIFIED FUTURES FUND III L.P.

NOTES TO FINANCIAL STATEMENTS

--------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION.  Dean Witter Diversified Futures Fund III L.P. (the
"Partnership") is a limited partnership organized to engage primarily in the
speculative trading of futures and forward contracts on physical commodities
and other commodity interests, including, but not limited to, foreign
currencies, financial instruments, metals, energy and agricultural products
(collectively, "futures interests").
  The Partnership's general partner is Demeter Management Corporation
("Demeter"). The non-clearing commodity broker is Morgan Stanley DW Inc.
("Morgan Stanley DW"). The clearing commodity brokers are Morgan Stanley & Co.
Incorporated ("MS&Co.") and Morgan Stanley & Co. International Limited
("MSIL"). The trading manager is Morgan Stanley Futures & Currency Management
Inc. ("MSFCM or the "Trading Manager"). Demeter, Morgan Stanley DW, MS&Co.,
MSIL and MSFCM are wholly-owned subsidiaries of Morgan Stanley .
  Effective June 20, 2002 Morgan Stanley Dean Witter & Co. changed its name to
Morgan Stanley.
  Demeter is required to maintain a 1% minimum interest in the equity of the
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.

REVENUE RECOGNITION.  Futures interests are open commitments until settlement
date. They are valued at market on a daily basis and the resulting net change
in unrealized gains and losses is reflected in the change in

<PAGE>

DEAN WITTER DIVERSIFIED FUTURES FUND III L.P.

NOTES TO FINANCIAL STATEMENTS
(continued)

unrealized profit (loss) on open contracts from one period to the next on the
statements of operations. Monthly, Morgan Stanley DW pays the Partnership
interest income based upon 80% of its average daily Net Assets for the month at
a rate equal to the average yield on 13-week U.S. Treasury bills. For purposes
of such interest payments, Net Assets do not include monies owed to the
Partnership on futures interests.

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

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

  In December 2003, the AICPA 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 on the Schedule of Investments 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 expenses and net income/(losses) based on average net assets to be
disclosed in Financial High-

<PAGE>

DEAN WITTER DIVERSIFIED FUTURES FUND III L.P.

NOTES TO FINANCIAL STATEMENTS
(continued)

lights. SOP 03-4 is effective for fiscal years ending after December 15, 2003.

EQUITY IN FUTURES INTERESTS TRADING ACCOUNTS. The Partnership's 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 to be used as margin for trading and (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.
  The Partnership, in the normal course of business, enters into various
contracts with MS&Co. and MSIL acting as its commodity brokers. Pursuant to
brokerage agreements with MS&Co. and MSIL, to the extent that such trading
results in unrealized gains or losses, the amounts are offset and reported on a
net basis on the Partnership's statements of financial condition.
  The Partnership has offset the fair value amounts recognized for forward
contracts executed with the same counterparty as allowable under the terms of
its master netting agreement with MS&Co., the sole counterparty on such
contracts. The Partnership has consistently applied its right to offset.

BROKERAGE COMMISSIONS AND RELATED TRANSACTION FEES AND COSTS.  The Partnership
accrues brokerage commissions and transaction fees and costs on a half-turn
basis at 80% and 100%, respectively, of the rates Morgan Stanley DW charges
parties that are not clearinghouse members. Brokerage commissions and
transaction fees and costs combined are capped at  13/20 of 1% per month (a
maximum 7.8% annual rate) of the Partnership's Net Assets as of the last day of
each month.

OPERATING EXPENSES.  The Partnership bears all operating expenses related to
its trading activities, to a maximum of  3/5 of 1% annually of the
Partnership's average month-end Net Assets. These include filing fees,
clerical, administrative, auditing, accounting, mailing, printing and other
incidental operating expenses as permitted by the Limited Partnership
Agreement. In addition, the Partnership incurs a

<PAGE>

DEAN WITTER DIVERSIFIED FUTURES FUND III L.P.

NOTES TO FINANCIAL STATEMENTS
(continued)

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

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

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

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

DISSOLUTION OF THE PARTNERSHIP.  The Partnership will terminate on December 31,
2025 or at an earlier date if certain conditions set forth in the Limited
Partnership Agreement occur.

LITIGATION SETTLEMENT.  On February 27, 2002, the Partnership received
notification of a preliminary entitlement to payment from the Sumitomo Copper
Litigation Settlement Administrator and received payment of this settlement
award in the amount of $1,107,007 as of August 30, 2002.

--------------------------------------------------------------------------------
2. RELATED PARTY TRANSACTIONS
The Partnership pays brokerage commissions to Morgan Stanley DW as described in
Note 1. The Partnership's cash is on deposit with Morgan Stanley DW, MS&Co. and
MSIL in futures interests trading accounts to meet margin requirements as
needed. Morgan Stanley DW pays interest on these funds as described in Note 1.
Management fees and incentive fees (if any) incurred by the Partnership are
paid to MSFCM.

--------------------------------------------------------------------------------
3. TRADING MANAGER
Demeter, on behalf of the Partnership, entered into a management agreement with
MSFCM to make all trading decisions for the Partnership.

<PAGE>

DEAN WITTER DIVERSIFIED FUTURES FUND III L.P.

NOTES TO FINANCIAL STATEMENTS
(continued)

  Compensation to MSFCM by the Partnership consists of a management fee and an
incentive fee as follows:

MANAGEMENT FEE.  The management fee is accrued daily at the rate of  1/4 of 1%
per month (a 3% annual rate) of adjusted Net Assets, as defined in the
management agreement, as of each month-end.

INCENTIVE FEE.  The Partnership pays a quarterly incentive fee to MSFCM equal
to 15% of the trading profits earned by the Partnership as of the end of each
calendar quarter. Trading profits represent the amount by which gains from
futures and forwards trading exceed losses after brokerage commissions,
management fees, transaction fees and costs and administrative expenses are
deducted. Such incentive fee is accrued in each month in which trading profits
occur. In those months in which trading profits are negative, previous
accruals, if any, during the incentive period are reduced.

--------------------------------------------------------------------------------
4. FINANCIAL INSTRUMENTS
The Partnership trades futures and forward contracts on physical commodities
and other commodity interests, including, but not limited to, foreign
currencies, financial instruments, metals, energy and agricultural products.
Futures and forwards represent contracts for delayed delivery of an instrument
at a specified date and price. Risk arises from changes in the value of these
contracts and the potential inability of counterparties to perform under the
terms of the contracts. There are numerous factors which may significantly
influence the market value of these contracts, including interest rate
volatility.
  The market value of contracts is based on closing prices quoted by the
exchange, bank or clearing firm through which the contracts are traded.
  The Partnership's contracts are accounted for on a trade-date basis and
marked to market on a daily basis. The Partnership accounts for its derivative
investments in accordance with the provisions of Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and
Hedging Activities"

<PAGE>

DEAN WITTER DIVERSIFIED FUTURES FUND III L.P.

NOTES TO FINANCIAL STATEMENTS
(continued)

("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 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 were as follows:

<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>
            2003 2,370,257   144,174 2,514,431 Mar. 2004  Mar. 2004
            2002 1,281,277 4,577,723 5,859,000 Sept. 2004 April 2003
</TABLE>

  The Partnership has credit risk associated with counterparty nonperformance.
The credit risk associated with the instruments in which the Partnership is
involved is limited to the amounts reflected in the Partnership's statements of
financial condition.
  The Partnership also has credit risk because Morgan Stanley DW, MS&Co., and
MSIL act as the futures commission merchants or the counterparties, with
respect to most of the Partnership's assets. Exchange-traded futures contracts
are marked to market on a daily basis, with variations in value settled on a
daily basis. Morgan Stanley DW, MS&Co. and MSIL, each as a futures commission
merchant for the Partnership's exchange-traded futures contracts, are required,
pursuant to regulations of the Commodity Futures Trading Commission, to
segregate from their own

<PAGE>

DEAN WITTER DIVERSIFIED FUTURES FUND III L.P.

NOTES TO FINANCIAL STATEMENTS
(concluded)

assets, and for the sole benefit of their commodity customers, all funds held
by them with respect to exchange-traded futures contracts, including an amount
equal to the net unrealized gains on all open futures contracts, which funds,
in the aggregate, totaled $42,224,259 and $47,781,722 at December 31, 2003 and
2002, respectively. With respect to the Partnership's off-exchange-traded
forward currency contracts, there are no daily exchange-required settlements of
variations in value nor is there any requirement that an amount equal to the
net unrealized gains on open forward contracts be segregated, however, MS&Co.
and Morgan Stanley DW will make daily settlements of losses as needed. With
respect to those off-exchange-traded forward currency contracts, the
Partnership is at risk to the ability of MS&Co., the sole counterparty on all
such contracts, to perform. The Partnership has a netting agreement with MS&Co.
This agreement, which seeks to reduce both the Partnership's and MS&Co.'s
exposure on off-exchange-traded forward currency contracts, should materially
decrease the Partnership's credit risk in the event of MS&Co.'s bankruptcy or
insolvency.

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

<TABLE>
<CAPTION>
                                                             PER UNIT:
                                                             ---------
<S>                                                          <C>
NET ASSET VALUE, JANUARY 1, 2003:                            $2,529.72
                                                             ---------
NET OPERATING RESULTS:
 Realized Profit                                                140.11
 Unrealized Loss                                               (171.15)
 Interest Income                                                 22.00
 Expenses                                                      (280.69)
                                                             ---------
 Net Loss                                                      (289.73)
                                                             ---------

NET ASSET VALUE, DECEMBER 31, 2003:                          $2,239.99
                                                             =========

 Expense Ratio                                                   10.7%
 Net Loss Ratio                                                 (10.1%)
TOTAL RETURN 2003                                               (11.5%)
INCEPTION-TO-DATE RETURN                                        124.0%
COMPOUND ANNUALIZED RETURN                                        6.3%
</TABLE>

<PAGE>

                                   PRESORTED
                               FIRST CLASS MAIL
                                 U.S. POSTAGE
                                     PAID
                                  PERMIT #374
                                 LANCASTER, PA
                    Demeter Management Corporation
                    825 Third Avenue, 9th Floor
                    New York, NY 10022
                             [LOGO] Morgan Stanley

ADDRESS SERVICE REQUESTED


[LOGO] printed on recycled paper