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

	FORM 10-Q


[X]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2008 or

[ ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from               to __________________


Commission File No. 0-13299

	MORGAN STANLEY CORNERSTONE FUND III L.P.

	(Exact name of registrant as specified in its charter)

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

Demeter Management Corporation
522 Fifth Avenue, 13th Floor
New York, NY                                 	         10036
(Address of principal executive offices)	  	      (Zip Code)

Registrant?s telephone number, including area code     (212) 296-1999






(Former name, former address and former fiscal year, if changed since
last report)








Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.

Yes    X       	No___________

Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company.  See the definitions of "large accelerated filer",
"accelerated filer" and "smaller reporting company" in Rule 12b-2 of the
Exchange Act.

Large accelerated filer_______ 		Accelerated filer_______
Non-accelerated filer   X   		Smaller reporting company_______

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


	<page> <table> MORGAN STANLEY CORNERSTONE FUND III L.P.

	INDEX TO QUARTERLY REPORT ON FORM 10-Q

	September 30, 2008

<caption>



PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

				<c>
		Statements of Financial Condition as of September 30, 2008
		(Unaudited) and December 31, 2007............................2

		Statements of Operations for the Three and Nine Months
		Ended September 30, 2008 and 2007 (Unaudited)................3

		Statements of Changes in Partners? Capital for the
		Nine Months Ended September 30, 2008 and 2007 (Unaudited)....4

		Statements of Cash Flows for the Nine Months Ended
		September 30, 2008 and 2007 (Unaudited)......................5

		Condensed Schedules of Investments as of September 30, 2008
		(Unaudited) and December 31, 2007............................6

		Notes to Financial Statements (Unaudited).................7-15

Item 2.	Management?s Discussion and Analysis of
			Financial Condition and Results of Operations.........16-31

Item 3.	Quantitative and Qualitative Disclosures About
			Market Risk...........................................31-46

Item 4.	Controls and Procedures..................................46

Item 4T.	Controls and Procedures..................................46


PART II. OTHER INFORMATION

Item 1A.Risk Factors.............................................47

Item 5.	Other Information.................................... 47-48

Item 6.	Exhibits..............................................48-49

</table>


<page> <table> PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements

	MORGAN STANLEY CORNERSTONE FUND III L.P.
	STATEMENTS OF FINANCIAL CONDITION
<caption>
	                  September 30,	    December  31,
	      2008     	         2007
	                      $	      $
	                     (Unaudited)
ASSETS

	<c>	<c>
Trading Equity:
	Unrestricted cash	15,598,101	15,925,629
	Restricted cash	     1,255,761	     1,251,653

	    Total cash	   16,853,862	      17,177,282

	Net unrealized gain (loss) on open contracts (MSIP)                  	          (50,078)                   54,095
	Net unrealized gain (loss) on open contracts (MS&Co.)	       (335,316)      	        741,994

	     Total net unrealized gain (loss) on open contracts	       (385,394)	        796,089

	     Total Trading Equity	16,468,468  	17,973,371

Due from MS&Co.                                             32,006	          12,811
Interest receivable (MS&Co.)	            16,888	                     36,546

	     Total Assets	    16,517,362	   18,022,728

LIABILITIES AND PARTNERS? CAPITAL

Liabilities

Redemptions payable	1,209,188	159,039
Accrued administrative expenses 	110,641	111,753
Accrued management fees	         47,853	          52,241

	     Total Liabilities	    1,367,682	        323,033

Partners? Capital

Limited Partners (3,236.610 and
	  4,175.524 Units, respectively)	14,684,563   	17,275,552
General Partner (102.516 Units)		      465,117	        424,143

	     Total Partners? Capital	  15,149,680	   17,699,695

	     Total Liabilities and Partners? Capital                                              	   16,517,362	   18,022,728

NET ASSET VALUE PER UNIT	       4,537.02	       4,137.34

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

- 2 -
<page> <table> 	MORGAN STANLEY CORNERSTONE FUND III L.P.
	STATEMENTS OF OPERATIONS
(Unaudited)

<caption>
                                  For the Three Months                         For the Nine Months
  	                       Ended September 30,        	           Ended September 30,


                                           2008   	         2007    	       2008   	    2007
                                         $	                 $		           $ 	 $

	<c>	<c>		<c>    	<c>
INVESTMENT INCOME
	Interest income (MS&Co.)	     61,769		    158,110		    211,259		           548,620

EXPENSES
	Brokerage commissions (MS&Co.)	173,489	254,733	482,521		708,960
	Management fees	  155,300	 149,495	503,894	   	 495,566
	Common administrative expenses	     20,000		24,000	                   62,000                   72,000
	Transaction fees and costs	      12,037	       13,330	        26,597	                   44,102

		   Total Expenses 	     360,826	     441,558	    1,075,012		  1,320,628

NET INVESTMENT LOSS 	    (299,057)	    (283,448)	     (863,753)		    (772,008)

TRADING RESULTS
Trading profit (loss):
	Realized	(776,082)	(2,404,087)	3,895,361	 	(1,352,101)
	Net change in unrealized	  (1,019,036)	        88,020	     (1,181,483)		     228,368

		  Total Trading Results	   (1,795,118)	 (2,316,067)	    2,713,878	 	 (1,123,733)


NET INCOME (LOSS)	   (2,094,175)	 (2,599,515)	    1,850,125		 (1,895,741)

NET INCOME (LOSS) ALLOCATION

	Limited Partners	(2,038,559)	(2,542,392)	1,809,151		(1,854,702)
	General Partner 	(55,616)	(57,123)	40,974		(41,039)


NET INCOME (LOSS) PER UNIT

	Limited Partners                                                  	(542.50)	(557.21)	399.68		(400.31)
	General Partner                                                   	(542.50)	(557.21)	399.68		(400.31)


			                                                                       Units     	            Units	Units	          Units
WEIGHTED AVERAGE NUMBER
	OF UNITS OUTSTANDING                                 3,682.945   		4,558.278	  3,965.438   	             4,754.544
<fn>
	The accompanying notes are an integral part
	of these financial statements.  </table>

- 3 -
<page> <table> 	MORGAN STANLEY CORNERSTONE FUND III L.P.
	STATEMENTS OF CHANGES IN PARTNERS? CAPITAL
	For the Nine Months Ended September 30, 2008 and 2007
	(Unaudited)



<caption>

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

	<c>	<c>	<c>	<c>
Partners? Capital,
December 31, 2006	 5,031.180	20,157,999	419,286	20,577,285

Net Loss	    ?	(1,854,702)	(41,039)	(1,895,741)

Redemptions	  (570.191)	   (2,222,090) 	            ?   	 (2,222,090)

Partners? Capital,
September 30, 2007                                      4,460.989	  16,081,207	              378,247	16,459,454



Partners? Capital,
December 31, 2007	4,278.040	17,275,552	424,143	17,699,695

Net Income	    ?	1,809,151	40,974	1,850,125

Redemptions	    (938.914)	   (4,400,140) 	            ?   	 (4,400,140)

Partners? Capital,
September 30, 2008                                    3,339.126		  14,684,563	              465,117	15,149,680




<fn>










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


-	4 -
<page> <table> 	MORGAN STANLEY CORNERSTONE FUND III L.P.
	STATEMENTS OF CASH FLOWS
(Unaudited)

<caption>

	         For the Nine Months Ended September 30,

	      2008     	      2007
	    $	      $


	<c>	<c>
CASH FLOWS FROM OPERATING ACTIVITIES

Net income (loss) 	     1,850,125   	(1,895,741)
Noncash item included in net income (loss):
	Net change in unrealized		1,181,483	  (228,368)

(Increase) decrease in operating assets:
	Restricted cash	 (4,108) 	1,005,377
	Due from MS&Co.                 	 	(19,195)    	34,489
	Interest receivable (MS&Co.)		19,658	23,392

Decrease in operating liabilities:
	Accrued administrative expenses		(1,112)	(12,725)
	Accrued management fees                                               		       (4,388)	          (12,566)

Net cash provided by (used for) operating activities  			   3,022,463	     (1,086,142)

CASH FLOWS FROM FINANCING ACTIVITIES

Cash paid for redemptions of Units			       (3,349,991)	     (2,400,307)

Net cash used for financing activities               	                                   (3,349,991)	     (2,400,307)

Net decrease in unrestricted cash                                                         (327,528)		  (3,486,449)

Unrestricted cash at beginning of period                                   	 	    15,925,629	                18,056,766

Unrestricted cash at end of period                                            		        15,598,101                 14,570,317



<fn>






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



- 5 -


<page> <table> MORGAN STANLEY CORNERSTONE FUND III L.P.
CONDENSED SCHEDULES OF INVESTMENTS
September 30, 2008 (Unaudited) and December 31, 2007

<caption>






Futures and Forward Contracts
     Long
 Unrealized
     Gain/(Loss)

Percentage of
  Net Assets
    Short
 Unrealized
Gain/(Loss)

Percentage of
   Net Assets
      Net
Unrealized
Gain/(Loss)

$
%
$
%
$

September 30, 2008, Partnership Net Assets:   $15,149,680





<c>
<c>
<c>
<c>
<c>
Commodity
     (50,078)
       (0.33)
     93,496
        0.61
   43,418
Equity
    29,669
        0.20
   148,237
        0.98
 177,906
Foreign currency
   (459,925)
       (3.04)
   (87,981)
       (0.58)
(547,906)
Interest rate
     (53,202)
       (0.35)
         ?
         ?
  (53,202)






     Grand Total:
   (533,536)
       (3.52)
   153,752
        1.01
(379,784)

     Unrealized Currency Loss





   (5,610)

     Total Net Unrealized Loss



(385,394)










December 31, 2007, Partnership Net Assets:  $17,699,695









Commodity
    413,874
        2.34
     53,390
        0.30
 467,264
Equity
    22,161
        0.13
     92,328
        0.52
 114,489
Foreign currency
   (119,794)
       (0.68)
   190,608
        1.07
   70,814
Interest rate
    163,283
        0.92
     (2,579)
       (0.01)
 160,704






     Grand Total:
    479,524
        2.71
   333,747
        1.88
 813,271

     Unrealized Currency Loss





 (17,182)

     Total Net Unrealized Gain



796,089




<fn>



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



<page> MORGAN STANLEY CORNERSTONE FUND III L.P.
NOTES TO FINANCIAL STATEMENTS
September 30, 2008
(Unaudited)

The unaudited financial statements contained herein include, in
the opinion of management, all adjustments necessary for a fair
presentation of the financial condition and results of operations
of Morgan Stanley Cornerstone Fund III L.P. (the "Partnership").
The financial statements and condensed notes herein should be read
in conjunction with the Partnership?s December 31, 2007, Annual
Report on Form 10-K.

1.  Organization
Morgan Stanley Cornerstone Fund III L.P. is a New York limited
partnership organized in 1983 to engage in the speculative trading
of futures contracts, options on futures contracts, and forward
contracts on foreign currencies and other commodity interests
(collectively, ?Futures Interests?).  The Partnership is one of
the Morgan Stanley Cornerstone Funds, comprised of the
Partnership, Morgan Stanley Cornerstone Fund II L.P., and Morgan
Stanley Cornerstone Fund IV L.P.

The Partnership?s general partner is Demeter Management
Corporation ("Demeter").  The commodity brokers are Morgan Stanley

                                - 7 -
<page> MORGAN STANLEY CORNERSTONE FUND III L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)


& Co. Incorporated ("MS&Co.") and Morgan Stanley & Co.
International plc ("MSIP").  MS&Co. also acts as the counterparty
on all trading of foreign currency forward contracts.  MSIP serves
as the commodity broker for trades on the London Metal Exchange.
Demeter, MS&Co., and MSIP are wholly-owned subsidiaries of Morgan
Stanley. The trading managers to the Partnership are Graham
Capital Management, L.P. and Sunrise Capital Management, Inc.
(individually, a "Trading Manager", or collectively, the "Trading
Managers").

2.  Related Party Transactions
The Partnership?s cash is on deposit with MS&Co. and MSIP in
futures, forward, and options trading accounts to meet margin
requirements as needed. Monthly, MS&Co. pays the Partnership
interest income on 80% of its average daily Net Assets at a rate
equal to the average yield on 13-week U.S. Treasury bills. The
Partnership pays brokerage commissions to MS&Co.



3.  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 or expenses for income tax purposes.

                                - 8 -
<page> MORGAN STANLEY CORNERSTONE FUND III L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)


The Partnership files U.S. federal and state tax returns.  The
2004 through 2007 tax years generally remain subject to
examination by U.S. federal and most state tax authorities.

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

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

- 9 -
<page> MORGAN STANLEY CORNERSTONE FUND III L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)


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

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

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

The net unrealized gains (losses) on open contracts, reported as a
component of "Trading Equity" on the Statements of Financial
Condition, and their longest contract maturities were as follows:

- 10 -
<page> MORGAN STANLEY CORNERSTONE FUND III L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
<table> <caption>
	    Net Unrealized Gains/(Losses)
	on Open Contracts	Longest Maturities
		Off-			Off-
	Exchange-	Exchange-		Exchange-	Exchange-
Date	 Traded  	  Traded   	Total	 Traded  	 Traded
	 $	  $	$

	<c>	<c>	<c>	<c>	<c>
Sep. 30, 2008	163,562	(548,956)	(385,394)	Mar. 2010	Oct. 2008
Dec. 31, 2007	725,294	70,795	796,089	Jun. 2009	Mar. 2008
</table>

The Partnership has credit risk associated with counterparty non-
performance.  As of the date of the financial statements, the
credit risk associated with the instruments in which the
Partnership trades is limited to the amounts reflected in the
Partnership?s Statements of Financial Condition.



The Partnership also has credit risk because MS&Co. and MSIP act
as the futures commission merchants or the counterparties, with
respect to most of the Partnership?s assets. Exchange-traded
futures, exchange-traded forward, and exchange-traded futures-
styled options contracts are marked to market on a daily basis,
with variations in value settled on a daily basis. MS&Co. and
MSIP, each acting as a commodity broker for the Partnership?s
exchange-traded futures, exchange-traded forward, and exchange-
traded futures-styled options contracts, are required, pursuant to
regulations of the Commodity Futures Trading Commission ("CFTC"),
to segregate from their own assets, and for the sole benefit of

- 11 -
<page> MORGAN STANLEY CORNERSTONE FUND III L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

their commodity customers, all funds held by them with respect to
exchange-traded futures, exchange-traded forward, and exchange-
traded futures-styled options contracts, including an amount equal
to the net unrealized gains (losses) on all open exchange-traded
futures, exchange-traded forward, and exchange-traded futures-
styled options contracts, which funds, in the aggregate, totaled
$17,017,424 and $17,902,576 at September 30, 2008, and December
31, 2007, respectively. With respect to the Partnership?s off-
exchange-traded forward currency contracts, there are no daily
settlements of variation in value, nor is there any requirement
that an amount equal to the net unrealized gains (losses) on such
contracts be segregated.  However, the Partnership is required to
meet margin requirements equal to the net unrealized loss on open
forward currency contracts in the Partnership accounts with the
counterparty, which is accomplished by daily maintenance of the
cash balance in a custody account held at MS&Co.  With respect to
those off-exchange-traded forward currency contracts, the
Partnership is at risk to the ability of MS&Co., the sole
counterparty on all such contracts, to perform. The Partnership
has a netting agreement with MS&Co.  This agreement, which seeks
to reduce both the Partnership?s and MS&Co.?s exposure
on off-exchange-traded forward currency contracts, should
materially decrease the Partnership?s credit risk in the event of
MS&Co.?s bankruptcy or insolvency.
                              - 12 -
<page> MORGAN STANLEY CORNERSTONE FUND III L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)


5.  New Accounting Developments
In September 2006, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards No.
157 ("SFAS 157"), "Fair Value Measurements".  SFAS 157 requires
use of a fair value hierarchy that prioritizes the inputs to
valuation techniques used to measure fair value into three
levels: Level 1 - quoted market prices in active markets for
identical assets and liabilities; Level 2 - inputs other than
quoted market prices that are observable for the asset or
liability, either directly or indirectly (including quoted prices
for similar investments, interest rates, credit risk); and Level
3 - unobservable inputs for the asset or liability (including the
Partnership?s own assumptions used in determining the fair value
of investments).

Demeter evaluated the impact of adopting SFAS 157 on the
Partnership?s financial statements.  The Partnership adopted SFAS
157 as of January 1, 2008. Based on its analysis, the effect of
applying SFAS 157 to the investments included in the financial
statements does not have a material impact on the Partnership?s
financial statements.


- 13 -
<page> MORGAN STANLEY CORNERSTONE FUND III L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)


The following table summarizes the valuation of the Partnership?s
investments by the above SFAS 157 fair value hierarchy as of
September 30, 2008: <table> <caption>



Assets
Quoted Prices in
Active Markets for
Identical Assets
       (Level 1)
Significant Other
    Observable
       Inputs
     (Level 2)
 Significant
  Unobservable
     Inputs
   (Level 3)




     Total


<c>
<c>
 <c>

  <c>
Unrealized gain (loss)  on open
contracts

$163,562

$(548,956)

 n/a


  $(385,394)


</table>
In March 2008, the FASB issued SFAS No. 161, Disclosures about
Derivative Instruments and Hedging Activities ("SFAS 161").  SFAS
161 is intended to improve financial reporting about derivative
instruments and hedging activities by requiring enhanced
disclosures to enable investors to better understand how those
instruments and activities are accounted for; how and why they are
used; and their effects on a Partnership?s financial position,
financial performance, and cash flows.  SFAS 161 is effective for
financial statements issued for fiscal years beginning after
November 15, 2008, and interim periods within those fiscal years.
The Partnership is currently evaluating the impact that the
adoption of SFAS No. 161 will have on its financial statement
disclosures.

6.  Restricted and Unrestricted Cash
As reflected on the Partnership?s Statements of Financial
Condition, restricted cash equals the cash portion of assets on
                            - 14 -
<page> MORGAN STANLEY CORNERSTONE FUND III L.P.
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)

deposit to meet margin requirements plus the cash required to
offset unrealized losses on foreign currency forwards and options
and offset losses on offset London Metal Exchange positions. All
of these amounts are maintained separately.  Cash that is not
classified as restricted cash is therefore classified as
unrestricted cash.

















- 15 -


<page> Item 2. MANAGEMENT?S DISCUSSION AND ANALYSIS OF FINANCIAL
	   CONDITION AND RESULTS OF OPERATIONS


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

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

- 16 -
<page> limit for several consecutive days with little or no
trading.

These market conditions could prevent the Partnership from
promptly liquidating its futures or options contracts and result
in restrictions on redemptions.

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

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

Capital Resources.  The Partnership does not have, nor does it
expect to have, any capital assets.  Redemptions of units of
limited partnership interest ("Unit(s)") in the future will affect
the amount of funds available for investments in futures,
                               - 17 -
<page> forwards, and options in subsequent periods.  It is not
possible to estimate the amount, and therefore the impact, of
future outflows of Units.

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

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

Results of Operations
General.  The Partnership?s results depend on the Trading Managers
and the ability of each Trading Manager?s trading program to take
advantage of price movements in the futures, forward, and options
markets.  The following presents a summary of the Partnership?s
operations for the three and nine month periods ended September
30, 2008 and 2007, and a general discussion of its trading
activities during each period.  It is important to note, however,
that the Trading Managers trade in various markets at different
times and that prior activity in a particular market does not mean
that such market will be actively traded by the Trading Managers
                               - 18 -
<page> or will be profitable in the future. Consequently, the
results of operations of the Partnership are difficult to discuss
other than in the context of the Trading Managers? trading
activities on behalf of the Partnership during the period in
question. Past performance is no guarantee of future results.

The Partnership?s results of operations set forth in the financial
statements on pages 2 through 15 of this report are prepared in
accordance with accounting principles generally accepted in the
United States of America, which require the use of certain
accounting policies that affect the amounts reported in these
financial statements, including the following:  The contracts the
Partnership trades are accounted for on a trade-date basis and
marked to market on a daily basis.  The difference between their
cost and market value is recorded on the Statements of Operations
as "Net change in unrealized trading gain (loss)" for open
(unrealized) contracts, and recorded as "Realized trading gain
(loss)" when open positions are closed out.  The sum of these
amounts constitutes the Partnership?s trading results.  The market
value of a futures contract is the settlement price on the
exchange on which that futures contract is traded on a particular
day. The value of a foreign currency forward contract is based on
the spot rate as of the close of business.  Interest income, as


- 19 -
<page> well as management fees, brokerage commissions, transaction
fees and costs, and administrative expenses of the Partnership are
recorded on an accrual basis.

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

For the Three and Nine Months Ended September 30, 2008
The Partnership recorded total trading results including interest
income totaling $(1,733,349) and expenses totaling $360,826,
resulting in a net loss of $2,094,175 for the three months ended
September 30, 2008. The Partnership?s net asset value per Unit
decreased from $5,079.52 at June 30, 2008, to $4,537.02 at
September 30, 2008.

The most significant trading losses of approximately 5.5% were
recorded in the currency sector primarily during August and
September from long positions in the euro and Swiss franc versus
the U.S. dollar as the value of the U.S. dollar moved higher.
Such losses were recorded during August after U.S. consumer
confidence increased for a second consecutive month. Furthermore,
the value of the U.S. dollar moved higher amid a worldwide
"flight-to-quality" due to fears of an intense credit crunch and
                              - 20 -
<page> subsequent fears of a global recession. Within the global
interest rate sector, losses of approximately 3.2% were incurred
throughout the quarter from short positions in European fixed-
income futures as prices moved higher following a sharp decline
in the global equity markets, weaker-than-expected U.K. and
German economic data, and comments from European Central Bank
President Jean-Claude Trichet saying that economic growth would
be "particularly weak", thereby fueling demand for the "safe
haven" of government bonds. During September, additional losses
were recorded from long positions in U.S. fixed-income futures as
prices reversed lower during the middle of the month after news
of a major U.S. government intervention in the financial sector
eased concerns that the credit crisis would continue to
deteriorate the growth of the global economy. Additional losses
of 3.1% were experienced within the metals sector during July
from long positions in gold futures as prices fell due to a rise
in the value of the U.S. dollar. During September, newly
established short positions in gold futures incurred losses as
prices reversed sharply higher on "safe haven" buying amid global
credit-market turmoil and uncertainty regarding the U.S.
financial system.  Elsewhere, long positions in copper and
aluminum futures experienced losses, primarily during July and
August, as prices declined amid speculation that slowing economic
growth would reduce demand for the base metals. Within the energy
sector, losses of approximately 2.2% were incurred, primarily
                             - 21 -
<page> during July, from long futures positions in crude oil and
its related products as prices reversed lower on signs that
global economic growth might be slowing, which might curb future
energy demand. Meanwhile, long positions in natural gas futures
resulted in losses as prices decreased sharply amid rising
inventories.  Finally, losses of approximately 0.3% were
incurred, primarily during July, from long positions in coffee
futures as prices moved lower following news that Brazil, the
world?s largest grower, had accelerated exports. Elsewhere, long
futures positions in corn resulted in losses as prices reversed
sharply lower during July amid news that favorable weather in
U.S. growing regions might boost crop prospects. A portion of the
Partnership?s losses during the quarter was offset by gains of
approximately 3.1% achieved primarily during July from short
positions in U.S. equity index futures as prices moved lower on
concerns that widening credit-market losses, weakening consumer
demand, and surging commodity prices would erode corporate
earnings. Additional gains were experienced during September from
short positions in European, U.S., and Japanese equity index
futures as prices moved sharply lower amid unprecedented U.S.
financial market volatility and turmoil following news of the
collapse of a major U.S. investment bank and the government
rescue of a U.S. insurance giant. Furthermore, U.S. equity
markets plunged on Monday, September 29, 2008, after the U.S.
House of Representatives rejected the Economic Stabilization Act
                             - 22 -
<page> of 2008, which would have allowed the U.S. Treasury to
purchase troubled mortgage-backed securities from U.S. financial
institutions.

The Partnership recorded total trading results including interest
income totaling $2,925,137 and expenses totaling $1,075,012,
resulting in net income of $1,850,125 for the nine months ended
September 30, 2008.  The Partnership?s net asset value per Unit
increased from $4,137.34 at December 31, 2007, to $4,537.02 at
September 30, 2008.

The most significant trading gains of approximately 7.5% were
recorded in the energy markets from long futures positions in
crude oil and its related products as prices moved consistently
higher throughout the first half of the year due to speculation
that OPEC would cut production, ongoing geopolitical concerns in
the Middle East, growing Asian fuel consumption, and strong
demand for physical commodities as an inflation hedge.
Elsewhere, long positions in natural gas futures experienced
gains during February and March as prices increased on
expectations of a rise in demand due to colder weather in the
U.S. Northeast and news of a drop in U.S. inventories.  During
the second quarter, prices were pressured higher amid news of
declining production in Western Canada, a continued decline in
U.S. inventories, and forecasts for an active hurricane season in
                              - 23 -
<page> the Atlantic, resulting in further gains from long
positions.  In addition, futures prices for crude oil, its
related products, and natural gas increased throughout a majority
of the first nine months of the year due to a decline in the
value of the U.S. dollar. Further gains of approximately 3.6%
were experienced in the global stock index sector throughout the
first quarter from short positions in Japanese, European, and
U.S. equity index futures as prices moved lower on concerns that
a persistent U.S. housing slump, mounting losses linked to U.S.
sub-prime mortgage investments, and a weakening job market would
restrain consumer spending. Furthermore, global equity index
prices moved sharply lower during July and September amid
unprecedented U.S. financial market volatility and turmoil.
Within the agricultural complex, gains of approximately 1.2% were
recorded primarily during February and June from long futures
positions in corn as prices moved higher amid speculation that
demand from China would climb after severe winter storms damaged
some of the nation?s major crops. Newly established short
positions in corn futures experienced gains during September as
prices fell on growing investor sentiment that a slowing U.S.
economy would result in decreased demand for alternative
biofuels. Meanwhile, short futures positions in cotton achieved
gains during September as prices declined to a one-year low after
the U.S. Department of Agriculture reported exports remained
below average due to a drop in demand. Elsewhere, long positions
                             - 24 ?
<page> in wheat futures recorded gains primarily during the first
quarter as prices rose to a record high on expectations that
stockpiles would fall to a 30-year low. Within the global
interest rate sector, gains of approximately 1.0% were
experienced, primarily during January and February, from long
positions in U.S. fixed income futures as prices moved higher in
a "flight-to-quality" following a sharp decline in the global
equity markets and the aforementioned concerns regarding the
global economy.  Furthermore, U.S. fixed-income futures prices
moved higher as the U.S. Federal Reserve cut interest rates by
200 basis points throughout the first quarter and U.S. government
reports showed a rise in unemployment and slower-than-expected
fourth quarter Gross Domestic Product growth.  A portion of the
Partnership?s gains for the first nine months of the year was
offset by losses of approximately 2.7% incurred within the metals
sector, primarily during March, April, and July, from long
positions in gold futures as prices moved lower due to a rise in
the value of the U.S. dollar.  During September, newly
established short positions in gold futures incurred losses as
prices reversed higher on "safe haven" buying amid global credit-
market turmoil and uncertainty regarding the U.S. financial
system.  Elsewhere in the metals complex, long positions in
copper and aluminum futures resulted in losses as prices
decreased throughout April, May, July, and August amid
speculation that a continued slowdown in global economic growth
                             - 25 -
<page> would erode future demand for base metals.  Smaller losses
of 0.2% were recorded within the currency sector during April
from long positions in the Swiss franc and euro versus the U.S.
dollar as the value of the U.S. dollar moved higher against these
currencies after the U.S. Institute for Supply Management?s
manufacturing index unexpectedly moved higher and a U.S. economic
report showed private sector jobs had unexpectedly increased in
March. Meanwhile, short positions in the British pound versus the
U.S. dollar incurred losses as the value of the British pound
increased during April amid speculation that the Bank of England
was going to slow the pace of interest rate cuts amid concerns of
accelerating global inflation. Additional losses were achieved
during August and September from long positions in the euro and
Swiss franc versus the U.S. dollar as the value of the U.S.
dollar moved higher after U.S. consumer confidence increased in
August. Furthermore, the value of the U.S. dollar moved higher
amid a worldwide "flight-to-quality" due to fears of an intense
credit crunch and subsequent global recession.

For the Three and Nine Months Ended September 30, 2007
The Partnership recorded total trading results including interest
income totaling $(2,157,957) and expenses totaling $441,558,
resulting in a net loss of $ 2,599,515 for the three months
ended September 30, 2007. The Partnership?s net asset value per
Unit decreased from $4,246.85 at June 30, 2007, to $3,689.64
at September 30, 2007.
- 26 -
<page> The most significant trading losses of approximately 5.3%
were recorded in the global stock index sector primarily during
July and August from long positions in European, Japanese, and
U.S. equity index futures as prices reversed lower on persistent
concerns that a widening credit crunch, sparked by U.S. sub-prime
mortgage losses, would erode global economic growth and corporate
earnings.  Additional losses of approximately 4.5% were incurred
in the currency sector primarily during July and August from
short positions in the Japanese yen versus the U.S. dollar and
euro as the value of the Japanese yen reversed higher against
most of its major rivals when traders reduced "carry-trade"
positions after the sell-off in the global equity markets
resulted in investors? trimming "riskier" assets funded by loans
in Japan.  Similarly, short positions in the Swiss franc versus
the U.S. dollar resulted in losses during July and August as the
value of the Swiss franc rose against the U.S. dollar.
Elsewhere, long positions in the British pound versus the U.S.
dollar experienced losses during August as the value of the U.S.
dollar reversed higher against the British pound after continued
extreme volatility in the global equity markets and widening
credit losses tied to U.S. sub-prime loans resulted in
substantially stronger demand for U.S. dollar-denominated
government bonds.  Finally, losses were recorded from short
positions in the Czech koruna versus the U.S. dollar during July
as the value of Czech koruna moved higher relative to the U.S.
                             - 27 -
<page> dollar after the Czech National Bank increased its
benchmark interest rate to 3.0%.  Within the global interest rate
sector, losses of approximately 3.0% were incurred primarily
during July and August from short positions in European and U.S.
fixed-income futures as prices reversed sharply higher in a
worldwide "flight-to-quality" after the significant decline in
the global equity markets resulted in substantially higher demand
for the "safe haven" of government bonds.  Smaller losses of
approximately 1.0% were experienced in the energy markets
primarily during August from long futures positions in crude oil
and its related products as prices declined amid concerns that a
slowdown in the global economy would negatively impact global
energy demand.  A portion of the Partnership?s losses during the
quarter was offset by gains of approximately 0.2% recorded in the
agricultural markets, primarily during August and September, from
long positions in wheat futures as prices increased to a record
high due to a rise in demand amid news from the U.S. Department
of Agriculture that global stockpiles would fall to the lowest
level in 26 years and after unfavorable weather in key growing
countries such as Ukraine and Australia.  Smaller gains of
approximately 0.2% were experienced in the metals markets
primarily during September from short positions in aluminum
futures as prices moved lower following news that surplus
production would increase supply.

- 28 -
<page> The Partnership recorded total trading results including
interest income totaling $(575,113) and expenses totaling
$1,320,628, resulting in a net loss of $1,895,741 for the nine
months ended September 30, 2007. The Partnership?s net asset
value per Unit decreased from $4,089.95 at December 31, 2006, to
$3,689.64 at September 30, 2007.

The most significant trading losses of approximately 3.5% were
recorded in the metals markets during February, March, May, and
June from long positions in silver and gold futures as prices
moved lower amid speculative selling.  Additional losses were
incurred during August from long positions in gold futures as
prices reversed lower amid temporary strength in the U.S. dollar.
Elsewhere, long positions in aluminum futures resulted in losses,
primarily during March and June, as prices weakened on worries
regarding future Chinese demand.  Finally, losses were incurred
from both short and long positions in copper futures as prices
moved without consistent direction throughout a majority of the
year amid conflicting data regarding supply and demand.  Further
losses of approximately 3.0% were experienced in the energy
markets, primarily during February and March, from short futures
positions in gasoline, crude oil, and heating oil as prices moved
higher on increased concerns that unexpected refinery shutdowns
would curb fuel stockpiles in the future and amid rising
geopolitical concerns in the Middle East.  During August, long
                             - 29 -
<page> positions in crude oil futures and its related products
resulted in further losses as prices declined amid concerns that
a slowdown in the global economy, sparked by the U.S. sub-prime
mortgage losses, would negatively impact global energy demand.
Within the global stock index sector, losses of approximately
2.4% were incurred during February and March from long positions
in U.S. and Japanese stock index futures as prices reversed
sharply lower after the massive sell-off in the global equity
markets that began on February 27, 2007, following comments from
former U.S. Federal Reserve Chairman Alan Greenspan that the U.S.
economy could be due for a recession.  In addition, concerns that
tighter credit conditions in China and Japan would dampen global
growth first sent Chinese stock markets plunging before the sell-
off spread to other equity markets.  Furthermore, prices were
pressured lower during the third quarter on persistent concerns
that a widening credit crunch would erode global economic
growth and corporate earnings, thus resulting in losses from
long positions during July and August.  Finally, losses of
approximately 1.5% were recorded in the currency sector during
February, March, July, and August from short positions in the
Japanese yen versus the U.S. dollar as the value of the Japanese
yen reversed sharply higher against the U.S. dollar after a
combination of factors including investor speculation that
consistently strong economic data out of Japan would force the
Bank of Japan to continue raising interest rates and after the
                              - 30 -
<page> sell-off in the global equity markets resulted in
investors? trimming "riskier" assets funded by loans in Japan,
thereby unwinding carry-trades. Similarly, short positions in the
Swiss franc versus the U.S. dollar incurred losses during
February, July, and August as the value of the Swiss franc also
reversed higher against the U.S. dollar amid worries of a
narrowing interest rate differential.  Elsewhere in the currency
markets, losses were experienced during March and August from
long positions in the British pound versus the U.S. dollar as the
value of the British pound reversed lower amid speculation that
the Bank of England would not continue to increase interest rates
in the near term.  Furthermore, the value of the U.S. dollar
strengthened against the British pound during August as continued
extreme volatility in the global equity markets and widening
credit losses tied to U.S. sub-prime loans resulted in
substantially stronger demand for U.S. dollar-denominated
government bonds.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Introduction
The Partnership is a commodity pool engaged primarily in the
speculative trading of futures, forwards, and options.  The
market-sensitive instruments held by the Partnership are acquired
for speculative trading purposes only and, as a result, all or
substantially all of the Partnership?s assets are at risk of
                              - 31 -
<page> trading loss.  Unlike an operating company, the risk of
market-sensitive instruments is inherent to the primary business
activity of the Partnership.

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

The Partnership?s total market risk may increase or decrease as
it is influenced by a wide variety of factors, including, but not
                             - 32 -
<page> limited to, the diversification among the Partnership?s
open positions, the volatility present within the markets, and
the liquidity of the markets.

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

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

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

- 33 -
<page> Quantifying the Partnership?s Trading Value at Risk
The following quantitative disclosures regarding the Partnership?s
market risk exposures contain "forward-looking statements" within
the meaning of the safe harbor from civil liability provided for
such statements by the Private Securities Litigation Reform Act of
1995 (set forth in Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934).  All
quantitative disclosures in this section are deemed to be forward-
looking statements for purposes of the safe harbor, except for
statements of historical fact.

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

The Partnership?s risk exposure in the market sectors traded by
the Trading Managers is estimated below in terms of VaR. The
Partnership estimates VaR using a model based upon historical
simulation (with a confidence level of 99%) which involves
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
                             - 34 -
<page> based on daily percentage changes observed in key market
indices or other market factors ("market risk factors") to which
the portfolio is sensitive.  The one-day 99% confidence level of
the Partnership?s VaR corresponds to the negative change in
portfolio value that, based on observed market risk factors,
would have been exceeded once in 100 trading days, or one day in
100.  VaR typically does not represent the worst case outcome.
Demeter uses approximately four years of daily market data (1,000
observations) and re-values its portfolio (using delta-gamma
approximations) for each of the historical market moves that
occurred over this time period.  This generates a probability
distribution of daily "simulated profit and loss" outcomes.  The
VaR is the appropriate percentile of this distribution.  For
example, the 99% one-day VaR would represent the 10th worst
outcome from Demeter?s simulated profit and loss series.

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

VaR models, including the Partnership?s, are continually evolving
as trading portfolios become more diverse and modeling techniques
and systems capabilities improve.  Please note that the VaR model
                             - 35 -
<page> is used to numerically quantify market risk for historic
reporting purposes only and is not utilized by either Demeter or
the Trading Managers in their daily risk management activities.
Please further note that VaR as described above may not be
comparable to similarly-titled measures used by other entities.


The Partnership?s Value at Risk in Different Market Sectors
The following table indicates the VaR associated with the
Partnership?s open positions as a percentage of total Net Assets
by primary market risk category at September 30, 2008 and 2007.
At September 30, 2008 and 2007, the Partnership?s total
capitalization was approximately $15 million and $16 million,
respectively.

Primary Market	          September 30, 2008    September 30, 2007
Risk Category	              Value at Risk         Value at Risk

Equity	(0.34)%	     (0.38)%
Interest Rate	               (0.26)	    (0.74)
Currency	(0.09)	 (1.62)
Commodity                       	(0.51)	(2.40)
Aggregate Value at Risk         	(0.78)%	(3.25)%

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

- 36 -
<page> Partnership?s open positions across all the market
categories, and is less than the sum of the VaRs for all such
market categories due to the diversification benefit across asset
classes.

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

The table below supplements the quarter-end VaR set forth above
by presenting the Partnership?s high, low, and average VaR, as a
percentage of total Net Assets for the four quarter-end reporting
periods from October 1, 2007, through September 30, 2008.

Primary Market Risk Category	   High		 Low		  Average
Equity	(0.67)%	(0.25)%	(0.38)%

Interest Rate	(0.53)	(0.26)	(0.38)

Currency	(0.88)	(0.09)	(0.62)

Commodity	(1.53)	(0.51)	(1.07)

Aggregate Value at Risk	(1.90)%	(0.78)%	(1.43)%






- 37 -
<page>
Limitations on Value at Risk as an Assessment of Market Risk
VaR models permit estimation of a portfolio?s aggregate market
risk exposure, incorporating a range of varied market risks,
reflect risk reduction due to portfolio diversification or hedging
activities, and can cover a wide range of portfolio assets.
However, VaR risk measures should be viewed in light of the
methodology?s limitations, which include, but may not be limited
to the following:
*	past changes in market risk factors will not always result in
accurate predictions of the distributions and correlations of
future market movements;
*	changes in portfolio value caused by market movements may
differ from those of the VaR model;
*	VaR results reflect past market fluctuations applied to
current trading positions while future risk depends on future
positions;
*	VaR using a one-day time horizon does not fully capture the
market risk of positions that cannot be liquidated or hedged
within one day; and
*	the historical market risk factor data used for VaR estimation
may provide only limited insight into losses that could be
incurred under certain unusual market movements.


- 38 -
<page> In addition, the VaR tables above, as well as the past
performance of the Partnership, give no indication of the
Partnership?s potential "risk of ruin".

The VaR tables provided present the results of the Partnership?s
VaR for each of the Partnership?s market risk exposures and on an
aggregate basis at September 30, 2008 and 2007, and for the four
quarter-end reporting periods October 1, 2007, through September
30, 2008.  VaR is not necessarily representative of the
Partnership?s historic risk, nor should it be used to predict the
Partnership?s future financial performance or its ability to
manage or monitor risk.  There can be no assurance that the
Partnership?s actual losses on a particular day will not exceed
the VaR amounts indicated above or that such losses will not occur
more than once in 100 trading days.

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

The Partnership also maintains a substantial portion of its
available assets in cash at MS&Co.; as of September 30, 2008, such
amount was equal to approximately 103% of the Partnership?s net
                             - 39 -
<page> asset value.  A decline in short-term interest rates would
result in a decline in the Partnership?s cash management income.
This cash flow risk is not considered to be material.

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

Qualitative Disclosures Regarding Primary Trading Risk Exposures
The following qualitative disclosures regarding the Partnership?s
market risk exposures - except for (A) those disclosures that are
statements of historical fact and (B) the descriptions of how the
Partnership manages its primary market risk exposures - constitute
forward-looking statements within the meaning of Section 27A of
the Securities Act and Section 21E of the Securities Exchange Act.
The Partnership?s primary market risk exposures, as well as the
strategies used and to be used by Demeter and the Trading Managers
for managing such exposures, are subject to numerous
uncertainties, contingencies and risks, any one of which could
cause the actual results of the Partnership?s risk controls to
differ materially from the objectives of such strategies.
Government interventions, defaults and expropriations, illiquid
                              - 40 -
<page> markets, the emergence of dominant fundamental factors,
political upheavals, changes in historical price relationships, an
influx of new market participants, increased regulation, and many
other factors could result in material losses, as well as in
material changes to the risk exposures and the risk management
strategies of the Partnership. Investors must be prepared to lose
all or substantially all of their investment in the Partnership.

The following were the primary trading risk exposures of the
Partnership at September 30, 2008, by market sector.  It may be
anticipated, however, that these market exposures will vary
materially over time.

Equity.  The second largest market exposure of the Partnership at
September 30, 2008, was to the global stock index sector,
primarily to equity price risk in the G-7 countries. The G-7
countries consist of France, the U.S., the United Kingdom,
Germany, Japan, Italy, and Canada.  The stock index futures traded
by the Partnership are by law limited to futures on broadly-based
indices.  At September 30, 2008, the Partnership?s primary
exposures were to the NIKKEI 225 (Japan), S&P 500 (U.S.), TOPIX
(Japan), DAX (Germany), EURO STOX 50 (Europe), FTSE 100 (U.K.),
NASDAQ 100 (U.S.), and CAC 40 (France) stock indices.  The
Partnership is primarily exposed to the risk of adverse price
trends or static markets in the U.S. and European stock indices.
                                - 41 -
<page> 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.

Interest Rate.  At September 30, 2008, the Partnership had market
exposure to the global interest rate sector.  This exposure was
primarily spread across the U.S., European, and Japanese interest
rate sectors.  Interest rate movements directly affect the price
of the sovereign bond futures positions held by the Partnership
and indirectly affect the value of its stock index and currency
positions.  Interest rate movements in one country, as well as
relative interest rate movements between countries, materially
impact the Partnership?s profitability. The Partnership?s interest
rate exposure is generally to interest rate fluctuations in the
U.S. and the other G-7 countries.  Demeter anticipates that the
G-7 countries? interest rates will remain the primary interest
rate exposures of the Partnership for the foreseeable future.  The
speculative futures positions held by the Partnership may range
from short to long-term instruments.  Consequently, changes in
short, medium, or long-term interest rates may have an effect on
the Partnership.

Currency.  At September 30, 2008, the Partnership had market
exposure to the currency sector.  The Partnership?s currency
exposure is to exchange rate fluctuations, primarily fluctuations
                              - 42 -
<page> which disrupt the historical pricing relationships between
different currencies and currency pairs.  Interest rate changes as
well as political and general economic conditions influence these
fluctuations.  The Partnership trades a large number of currencies
including cross-rate - i.e., positions between two currencies
other than the U.S. dollar.  At September 30, 2008, the
Partnership?s major exposures were to Japanese yen and Australian
dollar currency crosses, as well as to outright U.S. dollar
positions.  Outright positions consist of the U.S. dollar vs.
other currencies.  These other currencies include major and minor
currencies.  Demeter does not anticipate that the risk associated
with the Partnership?s currency trades will change significantly
in the future.

Commodity.
Soft Commodities and Agriculturals.  The largest market
exposure of the Partnership at September 30, 2008, was to the
markets that comprise these sectors.  Most of the exposure
was to the corn, coffee, cotton, wheat, live cattle,
soybeans, sugar, and soybean meal markets. Supply and demand
inequalities, severe weather disruptions, and market
expectations affect price movements in these markets.



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<page> Energy.  The third largest market exposure of the
Partnership at September 30, 2008, was to the energy sector.
 The Partnership?s primary energy exposure was to futures
contracts in natural gas, as well as crude oil.  Price
movements in these markets result from geopolitical
developments, particularly in the Middle East, as well as
weather patterns, and other economic fundamentals.
Significant profits and losses, which have been experienced
in the past, are expected to continue to be experienced in
the future.  Natural gas has exhibited volatility in price
resulting from weather patterns and supply and demand factors
and will likely continue in this choppy pattern.

	Metals.	At September 30, 2008, the Partnership had market
exposure to the metals sector.  The Partnership?s metals
exposure was to fluctuations in the price of precious metals,
such as silver, as well as base metals, such as copper and
aluminum.  Economic forces, supply and demand inequalities,
geopolitical factors, and market expectations influence price
movements in these markets.  The Trading Managers utilize
their trading systems to take positions when market
opportunities develop, and Demeter anticipates that the
Trading Managers will continue to do so.


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<page> Qualitative Disclosures Regarding Non-Trading Risk Exposure
The following was the only non-trading risk exposure of the
Partnership at September 30, 2008:

Foreign Currency Balances.  The Partnership?s primary foreign
currency balances at September 30, 2008, were in Japanese
yen, British pounds, euros, and Swiss francs. The Partnership
controls the non-trading risk of foreign currency balances by
regularly converting them back into U.S. dollars upon
liquidation of their respective positions.

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



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


Item 4.	CONTROLS AND PROCEDURES

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

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

Item 4T.  CONTROLS AND PROCEDURES
Not applicable.


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<page> PART II.  OTHER INFORMATION

Item 1A. RISK FACTORS

Information regarding risk factors appears in Item 2.
"Management?s Discussion and Analysis of Financial Condition and
Results of Operations" and Item 3.  "Quantitative and Qualitative
Disclosures about Market Risk" of this Form 10-Q.  There have been
no other material changes from the risk factors previously
referenced in the Partnership?s Report on Form 10-K for the fiscal
year ended December 31, 2007, and the Partnership?s Reports on
Form 10-Q for the quarters ended March 31, 2008 and June 30, 2008.

Item 5.  OTHER INFORMATION
Limited Partners of the Partnership are advised that Demeter has
determined to withdraw from the Partnership effective November 30,
2008, and thereafter will commence dissolution of the Partnership
pursuant to the Partnership?s Limited Partnership Agreement.  In
connection with such withdrawal, Demeter terminated trading for
the Partnership effective October 31, 2008.  Following termination
of trading for the Partnership, all Partnership assets will be
paid interest at the rate equal to the average yield on 13-week
U.S. Treasury Bills, with your share of interest credited to your
Units.  The management and brokerage fees on any assets remaining
in the Partnership after October 31, 2008, will be waived, given
the absence of any further futures trading by the Partnership.
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<page> Through November 30, 2008, qualified Limited Partners may,
under certain conditions, redeem some or all of their interest in
the Partnership and use the proceeds of such redemption to
purchase an interest in another Morgan Stanley managed futures
partnership for which Demeter is the general partner (an offering
in any such managed futures partnership is by prospectus or
offering memorandum only).  Otherwise, Limited Partners may simply
redeem their interest in the Partnership and receive the proceeds
of such redemption in cash.  Whether you exchange or redeem your
Partnership Units, there will be no minimum holding period
requirement or redemption charge.  Limited Partners who do not
redeem their interest in the Partnership prior to November 30,
2008, should be aware that final distribution of any remaining
Partnership assets are anticipated to be made on or about December
15, 2008.

Item 6.  EXHIBITS

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

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<page>
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.










































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<page>







SIGNATURE



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



				         Morgan Stanley Cornerstone Fund III L.P.
				         (Registrant)

                     By:   Demeter Management Corporation
                           (General Partner)

November 14, 2008    By:   /s/Christian Angstadt
                              Christian Angstadt
                              Chief Financial Officer







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