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 June 30, 2006 or

[ ]	Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from               to __________________


Commission File No. 0-13299

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

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

Dean Witter Cornerstone Fund III



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








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

Yes    X       	No___________

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

Large accelerated filer___Accelerated filer____Non-accelerated filer X

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


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

(formerly, Dean Witter Cornerstone Fund III)

	INDEX TO QUARTERLY REPORT ON FORM 10-Q

	June 30, 2006


<caption>


PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

				<c>
		Statements of Financial Condition as of June 30, 2006
		(Unaudited) and December 31, 2005..........................2

		Statements of Operations for the Three and Six Months
		Ended June 30, 2006 and 2005 (Unaudited)...................3

		Statements of Changes in Partners? Capital for the
		Six Months Ended June 30, 2006 and 2005 	(Unaudited)........4

		Statements of Cash Flows for the Six Months Ended
		June 30, 2006 and 2005 (Unaudited).........................5

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

Item 2.	Management?s Discussion and Analysis of
			Financial Condition and Results of Operations.......12-27

Item 3.	Quantitative and Qualitative Disclosures about
			Market Risk.........................................28-41

Item 4.	Controls and Procedures................................41


PART II. OTHER INFORMATION

Item 1A.Risk Factors...........................................42

Item 5.	Other Information......................................42

Item 6.	Exhibits...............................................43

</table>


<page> <table> PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements

MORGAN STANLEY CORNERSTONE FUND III L.P.
(formerly, Dean Witter Cornerstone Fund III)
STATEMENTS OF FINANCIAL CONDITION
<caption>
	                     June 30,	    December  31,
	      2006     	         2005
	                      $	      $
	                     (Unaudited)
ASSETS

	<c>	<c>
Equity in futures interests trading accounts:
	Unrestricted cash	20,756,875	21,002,788
	Restricted cash	    1,602,528	    1,409,104

	     Total cash	   22,359,403	   22,411,892

	Net unrealized gain on open contracts (MS&Co.)	548,631       	        271,196
	Net unrealized gain on open contracts (MSIL)	       107,884	       599,935

	     Total net unrealized gain on open contracts	       656,515	        871,131

	     Total Trading Equity	23,015,918  	23,283,023

Interest receivable (Morgan Stanley DW)	               74,314	          61,652
Due from Morgan Stanley DW	         59,385	         41,210

	     Total Assets	   23,149,617	  23,385,885

LIABILITIES AND PARTNERS? CAPITAL

Liabilities

Redemptions payable	238,212	247,236
Accrued administrative expenses	95,452	112,360
Accrued management fees	          67,241	         67,881

	     Total Liabilities	        400,905	       427,477

Partners? Capital

Limited Partners (5,317.999 and
	5,693.493 Units, respectively)	22,318,475	22,552,335
General Partner 102.516 Units		       430,237	       406,073

	     Total Partners? Capital	   22,748,712	  22,958,408

	     Total Liabilities and Partners? Capital                                               	   23,149,617	  23,385,885
NET ASSET VALUE PER UNIT	       4,196.78	      3,961.07
<fn>
	The accompanying notes are an integral part
	of these financial statements.
</table>
<page> <table>
MORGAN STANLEY CORNERSTONE FUND III L.P.
(formerly, Dean Witter Cornerstone Fund III)
STATEMENTS OF OPERATIONS
(Unaudited)

<caption>

                         For the Three Months	                            For the Six Months
  	                        Ended June 30,        	                  Ended June 30,


                         2006   	         2005    	       2006   	    2005
                          $	            $	           $ 	 $

	         <c>	  <c>		<c>		<c>
INVESTMENT INCOME
	Interest income (Morgan Stanley DW)	   224,853		    137,494 		   426,710		          268,458

EXPENSES
	Brokerage commissions (Morgan Stanley DW)	259,127	210,833	525,092		470,626
	Management fees	      207,676	    207,710	410,493 		   430,025
	Transaction fees and costs	21,711	        9,937    	44,217		       22,391
	Common administrative expenses	     23,000		      18,000 		    43,000		             35,000

		   Total Expenses 	    511,514	    446,480	1,022,802		      958,042

NET INVESTMENT LOSS 	   (286,661)	   (308,986)	  (596,092)		    (689,584)

TRADING RESULTS
Trading profit (loss):
	Realized	1,049,645 	(665,453)	2,158,805		(2,527,256)
	Net change in unrealized	   (194,712)	    347,554 	    (214,616)		           24,117

		  Total Trading Results	    854,933	    (317,899)	  1,944,189		   (2,503,139)

NET INCOME (LOSS)	    568,272	    (626,885)	    1,348,097		   (3,192,723)

NET INCOME (LOSS) ALLOCATION

	Limited Partners	558,129	  (617,089)	1,323,933		(3,143,130)
	General Partner 	10,143	(9,796)	24,164		(49,593)


NET INCOME (LOSS) PER UNIT

	Limited Partners                                                  	98.94	            (95.55)	235.71		(483.76)
	General Partner                                                   	98.94	            (95.55)	235.71	(483.76)


<fn>


	The accompanying notes are an integral part
	of these financial statements.
</table>
<page> <table> MORGAN STANLEY CORNERSTONE FUND III L.P.
(formerly, Dean Witter Cornerstone Fund III)
STATEMENTS OF CHANGES IN PARTNERS? CAPITAL
For the Six Months Ended June 30, 2006 and 2005
(Unaudited)


<caption>


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

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

Net Loss	?	(3,143,130)	(49,593)	(3,192,723)

Redemptions	   (316.507)	     (1,189,746) 	        ?  	      	     (1,189,746)

Partners? Capital,
June 30, 2005	           6,299.005	  23,143,959	             382,898	 23,526,857





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

Net Income	?	1,323,933	24,164	1,348,097

Redemptions	   (375.494)	     (1,557,793) 	        ?  	      	     (1,557,793)

Partners? Capital,
June 30, 2006	           5,420.515	  22,318,475	             430,237	 22,748,712





<fn>







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

</table>


<page> <table> MORGAN STANLEY CORNERSTONE FUND III L.P.
(formerly, Dean Witter Cornerstone Fund III)
	STATEMENTS OF CASH FLOWS
(Unaudited)


<caption>
	         For the Six Months Ended June 30,

	      2006     	      2005
	    $	      $


CASH FLOWS FROM OPERATING ACTIVITIES

			<c>	<c>
Net income (loss)	   1,348,097		(3,192,723)
Noncash item included in net income (loss):
	Net change in unrealized		214,616   	(24,117)

(Increase) decrease in operating assets:
	Restricted cash		(193,424)	1,314,852
	Interest receivable (Morgan Stanley DW)	 	     (12,662)	(6,309)
	Due from Morgan Stanley DW                                                 	      	(18,175)	11,337

Decrease in operating liabilities:
	Accrued administrative expenses	 (16,908)	(10,602)
	Accrued management fees                                               		            (640)	         (12,857)

Net cash provided by (used for) operating activities  		     1,320,904	     (1,920,419)

CASH FLOWS FROM FINANCING ACTIVITIES

Cash paid for redemptions of Units		   (1,566,817)	    (1,202,867)

Net cash used for financing activities               	    (1,566,817)	    (1,202,867)

Net decrease in unrestricted cash 	(245,913)	(3,123,286)

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

Unrestricted cash at end of period    		   20,756,875	   21,640,568





<fn>


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


</table>



<page> MORGAN STANLEY CORNERSTONE FUND III L.P.
(formerly, Dean Witter Cornerstone Fund III)
NOTES TO FINANCIAL STATEMENTS
June 30, 2006
(Unaudited)

The unaudited financial statements contained herein include, in
the opinion of management, all adjustments necessary for a fair
presentation of the results of operations and financial condition
of Morgan Stanley Cornerstone Fund III L.P. (formerly known as
Dean Witter Cornerstone Fund III) (the ?Partnership?).  The
financial statements and condensed notes herein should be read in
conjunction with the Partnership?s December 31, 2005 Annual Report
on Form 10-K.  Certain prior year amounts relating to cash
balances were reclassified on the Statements of Financial
Condition and the related Statements of Cash Flows to conform to
2006 presentation.  Such reclassifications have no impact on the
Partnership?s reported net income (loss).

1.  Organization
Morgan Stanley Cornerstone Fund III L.P. (formerly known as Dean
Witter Cornerstone Fund III) is a New York limited partnership
organized in 1983 to engage in the speculative trading of futures
contracts, options on futures contracts, and forward contracts on
foreign currencies and other commodity interests. The Partnership
is one of the Morgan Stanley Cornerstone Funds, comprised of the
Partnership, Morgan Stanley Cornerstone Fund II L.P., and Morgan
Stanley Cornerstone Fund IV L.P.
<page> MORGAN STANLEY CORNERSTONE FUND III L.P.
(formerly, Dean Witter Cornerstone Fund III)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)


Effective July 21, 2006, Dean Witter Cornerstone Fund III was
renamed to Morgan Stanley Cornerstone Fund III L.P.

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

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


<page> MORGAN STANLEY CORNERSTONE FUND III L.P.
(formerly, Dean Witter Cornerstone Fund III)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

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

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





<page> MORGAN STANLEY CORNERSTONE FUND III L.P.
(formerly, Dean Witter Cornerstone Fund III)
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, swaps or options
contracts, and other financial instruments with similar
characteristics such as caps, floors, and collars.

The net unrealized gains (losses) on open contracts, reported as a
component of ?Equity in futures interests trading accounts? on the
Statements of Financial Condition, and their longest contract
maturities were as follows:
<page> MORGAN STANLEY CORNERSTONE FUND III L.P.
(formerly, Dean Witter Cornerstone Fund III)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

	Net Unrealized Gains/(Losses)
	on Open Contracts	Longest Maturities
		Off-			Off-
	Exchange-	Exchange-		Exchange-	Exchange-
Date	 Traded  	  Traded   	Total	 Traded  	 Traded
	 $	  $	$

Jun. 30, 2006	778,891	(122,376)	656,515	Dec. 2007	Sep. 2006
Dec. 31, 2005	730,649	140,482	871,131	Jun. 2007	Mar. 2006

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




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

<page> MORGAN STANLEY CORNERSTONE FUND III L.P.
(formerly, Dean Witter Cornerstone Fund III)
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)

customers, all funds held by them with respect to exchange-traded
futures, forward, and futures-styled options contracts, including
an amount equal to the net unrealized gains (losses) on all open
futures, forward, and futures-styled options contracts, which
funds, in the aggregate, totaled $23,138,294 and $23,142,541 at
June 30, 2006 and December 31, 2005, respectively.  With respect
to the Partnership?s off-exchange-traded forward currency
contracts, there are no daily exchange-required settlements of
variation in value, nor is there any requirement that an amount
equal to the net unrealized gains (losses) on open forward
contracts be segregated.  However, the Partnership is required to
meet margin requirements equal to the net unrealized loss on open
contracts in the Partnership accounts with the counterparty, which
is accomplished by daily maintenance of the cash balance in a
custody account held at Morgan Stanley DW for the benefit of MS &
Co.  With respect to those off-exchange-traded forward currency
contracts, the Partnership is at risk to the ability of MS & Co.,
the sole counterparty on all such contracts, to perform. The
Partnership has a netting agreement with MS & Co.  This agreement,
which seeks to reduce both the Partnership?s and MS & Co.?s
exposure on off-exchange-traded forward currency contracts, should
materially decrease the Partnership?s credit risk in the event of
MS & Co.?s bankruptcy or insolvency.


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


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

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

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

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

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

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

Results of Operations
General.  The Partnership?s results depend on the Trading Managers
and the ability of each Trading Manager?s trading program(s) to
take advantage of price movements in the futures, forwards, and
options markets.  The following presents a summary of the
Partnership?s operations for the three and six month periods ended
June 30, 2006 and 2005, and a general discussion of its trading
activities during each period.  It is important to note, however,
that the Trading Managers trade in various markets at different
times and that prior activity in a particular market does not mean
that such market will be actively traded by the Trading Managers
or will be profitable in the future. Consequently, the results of
operations of the Partnership are difficult to discuss other than
in the context of the Trading Managers? trading activities on
<page> behalf of the Partnership during the period in question.
Past performance is no guarantee of future results.

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

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

For the Three and Six Months Ended June 30, 2006
The Partnership recorded total trading results including interest
income totaling $1,079,786 and expenses totaling $511,514,
resulting in net income of $568,272 for the three months ended
June 30, 2006. The Partnership?s net asset value per Unit
increased from $4,097.84 at March 31, 2006 to $4,196.78 at June
30, 2006.

The most significant trading gains of approximately 4.6% were
recorded in the global interest rate futures markets from short
positions in U.S. and German fixed-income futures as prices
trended lower. In the U.S., prices declined following the release
of stronger-than-expected economic data. Similarly in Germany,
rising equity prices and strong economic growth pressured German
fixed-income futures prices lower. U.S. fixed-income futures
prices continued to move lower into May amid higher-than-
forecasted manufacturing and construction data and a sixteenth
consecutive interest rate hike by the U.S. Federal Reserve.
Smaller gains of approximately 2.5% were recorded in the metals
markets, during April and May, from long futures positions in
aluminum, zinc and copper as prices rallied sharply on strong
global industrial demand, particularly from the U.S., China, and
India, and reports of decreasing inventories. Additional gains
<page> were experienced from long positions in gold and silver
futures during April and May as prices reached 25-year highs,
benefiting from strong demand and lagging supply. Additionally,
higher demand for precious metals was supported by continued
geopolitical concerns regarding Iran?s nuclear program, inflation
concerns due to high energy prices, and solid global economic
growth. A portion of the Partnership?s gains in the second
quarter was partially offset by losses of approximately 2.5%
incurred in the global equity index market from long positions in
U.S., European and Japanese stock index futures as equity prices
reversed lower during May and continued falling into June. The
weakness in the equity markets was attributed to inflation fears
and uncertainty regarding global interest rate policies. Within
the Asian equity index markets, long positions incurred losses as
prices suffered a heavy sell-off on investor concerns that a
global economic slowdown will negatively affect Japan?s export-
driven economy. Losses of approximately 1.3% were incurred in the
agricultural complex from short futures positions in corn as
prices moved higher during May on news of strong demand and
bullish export data. Newly established long positions in corn
futures resulted in additional losses during June as prices
reversed lower on favorable weather conditions in the U.S.
Midwest and reports of improved crop conditions. Elsewhere in the
agricultural markets, long positions in wheat futures incurred
losses as prices reversed lower in June due to positive weather
forecasts in the U.S. wheat belt. Additional losses of <page>
approximately 0.8% were recorded in the currency sector from
short positions in the Japanese yen, Swiss franc, and Australian
dollar as the value of the U.S. dollar weakened on news that
foreign central banks, including Russia, Sweden, and several
Middle Eastern central banks, were diversifying their currency
reserves away from the U.S. dollar. Also pressuring the value of
the U.S. dollar lower were concerns over the steep U.S. trade
deficit and speculation that the U.S. Federal Reserve may be near
the end of its interest rate tightening campaign. In addition to
the U.S. dollar weakening, the Japanese yen strengthened on
speculation of a possible Bank of Japan interest rate hike, while
the Swiss franc moved higher on the political tensions in the
Middle East, which increased the demand for the ?safe-haven?
currency. The Australian dollar also moved higher on an
unexpected interest rate hike by the Reserve Bank of Australia in
May. Smaller losses of approximately 0.6% were experienced in the
energy sector from short futures positions in crude oil during
April as prices increased sharply on strong demand, concerns of
supply disruptions as tensions mounted between the U.S. and Iran,
and limited production ability. Newly established long positions
in crude oil futures also experienced losses as prices fell
during May and June after supply data from the U.S. Department of
Energy showed crude oil inventory levels at an eight-year high,
on news of the death of Iraqi insurgent leader Abu Musab al-
Zarqawi and positive steps taken regarding the nuclear standoff
between the U.S. and Iran.
<page> The Partnership recorded total trading results including
interest income totaling $2,370,899 and expenses totaling
$1,022,802, resulting in net income of $1,348,097 for the six
months ended June 30, 2006.    The Partnership?s net asset value
per Unit increased from $3,961.07 at December 31, 2005 to
$4,196.78      at June 30, 2006.

The most significant trading gains of approximately 8.0% were
recorded in the global interest rate markets from short positions
in U.S., European, and Japanese interest rate futures as global
bond prices trended lower throughout a majority of the first
quarter amid strength in regional equity markets and investor
sentiment that interest rates in the United States, the European
Union, and Japan will rise. U.S. fixed-income futures continued
to move lower into April following the release of stronger-than-
expected U.S. economic data. Similarly in Europe, rising equity
prices, strong economic growth, and concerns about rising oil
prices pressured European fixed-income futures prices lower. U.S.
fixed-income prices also fell in May amid higher-than-forecasted
manufacturing and construction data and a sixteenth consecutive
interest rate hike by the U.S. Federal Reserve. Gains of
approximately 4.7% resulted in the metals markets from long
futures positions in aluminum, copper and zinc as base metals
prices rallied from March until May on strong global demand and
on reports of falling inventories. Long positions in gold and
silver futures also experienced gains as gold prices reached 25-
<page> year highs, benefiting from strong demand and lagging
supply. Additionally, higher demand for precious metals was
supported by continued geopolitical concerns regarding Iran?s
nuclear program, inflation concerns due to high energy prices,
and solid global economic growth.  A portion of the Partnership?s
gains in the first six months of the year was offset by losses of
approximately 5.9% incurred in the currency sector from short
positions in the Japanese yen, Swiss franc and Australian dollar
versus the U.S. dollar. During April and May the U.S. dollar
moved lower on news that foreign central banks are beginning to
diversify their currency reserves away from U.S. dollar-
denominated assets as well as uncertainty regarding the future of
the U.S. Federal Reserve?s interest rate tightening campaign. The
Japanese yen and Swiss franc also moved higher against the U.S.
dollar during January and February as strong economic data out of
the two regions increased speculation that the Bank of Japan and
European Central Bank may raise interest rates. During April, the
Japanese yen strengthened on speculation of a possible Bank of
Japan interest rate hike, while the Swiss franc moved higher on
the political tensions in the Middle East, which increased the
demand for the safe-haven currency. The Australian dollar also
moved higher on an unexpected interest rate hike by the Reserve
Bank of Australia in May.  Within the agricultural complex,
losses of approximately 1.0% were experienced from long positions
in wheat futures as prices declined in June amid positive weather
forecasts in the U.S. wheat belt. Elsewhere in the agricultural
<page> complex, short futures positions in corn experienced
losses as prices moved higher during May on news of strong demand
and bullish export data. Newly established long positions in corn
futures resulted in additional losses during June as prices
reversed lower on favorable weather conditions in the U.S.
Midwest and reports of improved crop conditions. Losses of
approximately 0.7% were recorded in the energy sector from short
futures positions in crude oil and its related products as prices
strengthened in March and April on strong demand, concerns of
supply disruptions as tensions mounted between the U.S. and Iran,
and limited production ability. Newly established long futures
positions in crude oil and its related products also experienced
losses as prices reversed lower during May after supply data from
the U.S. Department of Energy showed crude oil inventory levels
at an eight-year high. Crude oil prices continued to fall into
June on news of the death of Iraqi insurgent leader Abu Musab al-
Zarqawi and positive steps taken regarding the nuclear standoff
between the U.S. and Iran. Smaller losses of approximately 0.7%
were incurred in the global stock index sector from long
positions in U.S. and Japanese stock index futures as equity
prices reversed lower during May and continued falling into June.
The weakness in the equity markets was attributed to inflation
fears and uncertainty regarding global interest rate policies.
Within the Asian equity index markets, long futures positions
incurred losses as prices suffered a heavy sell-off on investor
<page> concern that a global economic slowdown will negatively
affect Japan?s export-driven economy.

For the Three and Six Months Ended June 30, 2005
The Partnership recorded total trading results including interest
income totaling $(180,405) and expenses totaling $446,480,
resulting in a net loss of $626,885 for the three months ended
June 30, 2005.  The Partnership?s net asset value per Unit
decreased from $3,830.56 at March 31, 2005 to $3,735.01 at June
30, 2005.

The most significant trading losses of approximately 2.8% were
recorded in the metals markets from long futures positions in
base and precious metals held during April and May, as well as
from positions held during June.  During April and May, losses
resulted from long futures positions in base metals, particularly
aluminum, copper, and zinc, as prices fell due to news of
increases in supply, fears that a slowing global economy would
weaken demand, and a higher U.S. dollar.  During June, short
futures positions in gold incurred losses after prices reversed
higher amid technically-based buying, while additional losses
resulted from long futures positions in copper after prices
declined due to a stronger U.S. dollar and news of decreased
demand.  Additional Partnership losses of approximately 1.7% were
recorded in the energy markets primarily during April and June
from positions in crude oil, its related products, and natural
<page> gas.  During April, long futures positions in crude oil
and its related products recorded losses as prices reversed lower
amid greater refinery production and slower growth in demand.
Losses also resulted from long positions in natural gas as prices
declined with crude oil prices.  During June, short natural gas
positions experienced losses as prices reversed higher on supply
fears prompted by a tropical storm in the Gulf of Mexico.  Short
crude oil positions also experienced losses after prices
increased due to news of weak supply.  Further losses were
recorded later in June from newly established long crude oil
positions as prices reversed lower on news of rising supplies and
solid refinery output.  Losses of approximately 1.6% resulted in
the agricultural markets primarily during May and June from long
futures positions in soybeans, its related products, coffee, and
cotton.  During May, losses resulted as coffee prices decreased
after it was reported that global supplies were currently
sufficient to meet world demand, while cotton prices fell on
supply increases.  During June, losses were experienced after
prices for soybeans and its related products moved lower on news
of greater crop yields, while coffee prices moved lower amid news
of growth in exports.  Partnership losses of approximately 1.2%
experienced in the global stock index markets resulted during
April from long positions in Pacific Rim and European stock index
futures as equity prices declined amid concerns for global
economic growth and higher oil prices.  Long positions in U.S.
stock index futures contributed to losses during June as prices
<page> weakened later in the month in response to similar
concerns regarding global economic strength.  A portion of the
Partner-ship?s overall losses for the quarter was offset by gains
of approximately 3.7% achieved in the global interest rate
markets during May and June from long positions in European
interest rate futures.  During May and June, prices moved higher
amid increased investor demand for safe-haven investments amid
uncertainty regarding significant hedge fund trading losses,
European Central Bank rejections for increases in interest rates,
concerns for Europe?s integration process, and higher oil prices.
Additional Partnership gains of approximately 1.7% resulted in
the currency markets primarily during June from short positions
in the euro and Swiss franc versus the U.S. dollar as the U.S.
dollar?s value benefited from euro-weakness resulting from market
pessimism for Europe?s integration and the release of weak
European economic data.  Also supporting the U.S. dollar was the
release of better-than-expected U.S. trade statistics and the
ninth consecutive quarter-point interest rate hike by the U.S.
Federal Reserve.

The Partnership recorded total trading results including interest
income totaling $(2,234,681) and expenses totaling $958,042,
resulting in a net loss of $3,192,723 for the six months ended
June 30, 2005. The Partnership?s net asset value per Unit
decreased from $4,218.77 at December 31, 2004 to $3,735.01 at
June 30, 2005.
<page>
The most significant trading losses of approximately 5.5% were
recorded in the currency markets primarily during the first
quarter from positions in European currencies versus the U.S.
dollar.  During January, long positions in the euro versus the
U.S. dollar resulted in losses after the U.S. dollar?s value
reversed higher amid improvements in the U.S. trade deficit data,
speculation for higher U.S. interest rates, and expectations that
the Chinese government would postpone its revaluation of the
Chinese yuan.  Short euro positions against the U.S. dollar
experienced losses during February as the U.S. dollar weakened in
response to concerns for the U.S. Current-Account deficit, a
larger-than-expected drop in leading economic indicators, and
news that South Korea?s Central Bank planned to reduce its U.S.
dollar currency reserve.  During March, re-established long euro
positions versus the U.S. dollar incurred losses after the U.S.
dollar?s value reversed higher amid an increase in U.S. interest
rates and consumer prices.  Long British pound positions versus
the U.S. dollar contributed to losses as the pound?s value
weakened primarily during May.  Additional losses of approxi-
mately 2.8% were recorded in the metals markets primarily during
the second quarter from long futures positions in base and
precious metals held during April and May, as well as positions
held during June. During April and May, losses resulted from long
futures positions in base metals as prices fell due to news of
increases in supply, fears that a slowing global economy would
<page> weaken demand, and a higher U.S. dollar.  During June,
short futures positions in gold incurred losses after prices
reversed higher amid technically-based buying, while additional
losses resulted from long futures positions in copper after
prices declined due to a stronger U.S. dollar and news of
decreased demand.  Partnership losses of approximately 2.0% were
incurred in the global stock indices from long positions in U.S.
stock index futures held during January and March, and long
Pacific Rim stock index futures held during April. During
January, U.S. equities finished the month lower amid weak
consumer confidence data, concerns about higher U.S. interest
rates, and the potential for deceleration in corporate profit
growth.  Equity prices weakened further during March in response
to higher U.S. interest rates and fears that rising energy prices
would negatively impact U.S. economic growth.  During April,
Pacific Rim equity prices weakened amid economic growth concerns
and higher oil prices.  The Partnership experienced losses of
approximately 1.9% in the energy markets primarily during the
second quarter from long futures positions in crude oil and its
related products as prices reversed lower amid greater refinery
production, slower demand growth forecasts, and signs of slower
economic growth. Losses also resulted from long positions in
natural gas as prices declined with crude oil prices.  Later in
the quarter, losses stemmed from short natural gas and crude oil
positions after prices reversed higher on supply worries, while
further losses were recorded in late June from newly established
<page> long crude oil positions as prices reversed lower in
response to news of rising supplies and solid refinery output.
In the agricultural markets, losses of approximately 1.5% were
experienced during the second quarter from long futures positions
in soybeans, its related products, and cotton.  During May,
losses resulted as cotton prices fell on supply increases, and
during June, losses were experienced after prices for soybeans
and its related products moved lower on news of greater crop
yields.  A portion of the Partnership?s overall losses during the
first six months of the year was offset by gains of approximately
2.8% in the global interest rate markets from long positions in
European interest rate futures.  During May, prices rose amid
increased investor demand for safe-haven investments.  Prices
continued to trend higher during June supported by the European
Central Bank?s decision to maintain Europe?s key interest rate, a
reduction in Swiss interest rates, the release of weaker-than-
expected French economic data, and higher oil prices.









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

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

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

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

The Partnership?s past performance is no guarantee of its future
results.  Any attempt to numerically quantify the Partnership?s
market risk is limited by the uncertainty of its speculative
trading.  The Partnership?s speculative trading and use of
leverage may cause future losses and volatility (i.e., ?risk of
ruin?) that far exceed the Partnership?s experience to date under
the ?Partnership?s Value at Risk in Different Market Sectors?
<page> section and significantly exceed the Value at Risk (?VaR?)
tables disclosed.
Limited partners will not be liable for losses exceeding the
current net asset value of their investment.

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

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

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

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

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

The Partnership?s Value at Risk in Different Market Sectors
The following table indicates the VaR associated with the
Partnership?s open positions as a percentage of total Net Assets
by primary market risk category at June 30, 2006 and 2005.  At
June 30, 2006 and 2005, the Partnership?s total capitalization was
approximately $23 million and $24 million, respectively.

Primary Market	            June 30, 2006        June 30, 2005
Risk Category	              Value at Risk        Value at Risk

Interest Rate                  (1.74)%	(3.30)%
Currency                       (0.68)	    (2.15)
Equity                         (0.55)	    (1.68)
Commodity                      (0.21)	(0.35)
Aggregate Value at Risk        (1.67)%	(3.41)%

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

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

The table below supplements the quarter-end VaR set forth above
by presenting the Partnership?s high, low, and average VaR, as a
percentage of total Net Assets for the four quarter-end reporting
periods from July 1, 2005 through June 30, 2006.

Primary Market Risk Category	   High		 Low		  Average
Interest Rate	(5.57)%	(0.44)%	(2.08)%

Currency	(1.16)	(0.68)	(0.96)

Equity	      (1.69)	(0.55)	(1.21)

Commodity	(1.05)	(0.21)	(0.55)

Aggregate Value at Risk	(6.39)%	(1.67)%	(3.13)%



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

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

<page> The VaR tables provided present the results of the
Partnership?s VaR for each of the Partnership?s market risk
exposures and on an aggregate basis at June 30, 2005, and for the
four quarter-end reporting periods from July 1, 2005 through June
30, 2006.  VaR is not necessarily representative of the
Partnership?s historic risk, nor should it be used to predict the
Partnership?s future financial performance or its ability to
manage or monitor risk.  There can be no assurance that the
Partnership?s actual losses on a particular day will not exceed
the VaR amounts indicated above or that such losses will not occur
more than once in 100 trading days.

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

The Partnership also maintains a substantial portion of its
available assets in cash at Morgan Stanley DW; as of June 30,
2006, such amount is equal to approximately 94% of the
Partnership?s net asset value.  A decline in short-term interest
rates would result in a decline in the Partnership?s cash
management income. This cash flow risk is not considered to be
material.

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

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

The following were the primary trading risk exposures of the
Partnership at June 30, 2006, by market sector.  It may be
anticipated, however, that these market exposures will vary
materially over time.

Interest Rate.  The largest market exposure of the Partnership at
June 30, 2006 was to the global interest rate sector, and was
primarily spread across the U.S., European, Japanese, Australian,
and Canadian interest rate sectors.  Interest rate movements
directly affect the price of the sovereign bond futures positions
held by the Partnership and indirectly affect the value of its
stock index and currency positions.  Interest rate movements in
one country, as well as relative interest rate movements between
countries, materially impact the Partnership?s profitability.  The
Partnership?s interest rate exposure is generally to interest rate
fluctuations in the U.S. and the other G-7 countries.  The G-7
countries consist of France, the U.S., Britain, Germany, Japan,
Italy, and Canada.  However, the Partnership also takes futures
positions in the government debt of smaller countries - e.g.,
Australia.  Demeter anticipates that the G-7 countries? interest
rates and Australian interest rates will remain the primary
interest rate exposures of the Partnership for the foreseeable
future.  The speculative futures positions held by the Partnership
<page> 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.  The second largest market exposure of the Partnership
at June 30, 2006 was to the currency sector.  The Partnership?s
currency exposure is to exchange rate fluctuations, primarily
fluctuations which disrupt the historical pricing relationships
between different currencies and currency pairs.  Interest rate
changes, as well as political and general economic conditions,
influence these fluctuations.  The Partnership trades a large
number of currencies including cross-rate ? i.e., positions
between two currencies other than the U.S. dollar.  At June 30,
2006, the Partnership?s major exposures were to euro, British
pound, Swiss franc, and Japanese yen currency crosses, as well as
to outright U.S. dollar positions.  Outright positions consist of
the U.S. dollar vs. other currencies.  These other currencies
include major and minor currencies.  Demeter does not anticipate
that the risk associated with the Partnership?s currency trades
will change significantly in the future.

Equity.  The third largest market exposure of the Partnership at
June 30, 2006 was to the global stock index sector, primarily to
equity price risk in the G-7 countries.  The stock index futures
traded by the Partnership are by law limited to futures on
broadly-based indices.  At June 30, 2006, the Partnership?s <page>
primary exposures were to the NASDAQ 100 (U.S.), S&P 500 (U.S.),
TOPIX (Japan), NIKKEI 225 (Japan), EURO STOX 50 (Europe), 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.,
European, and Japanese stock indices.  Static markets would not
cause major market changes but would make it difficult for the
Partnership to avoid trendless price movements, resulting in
numerous small losses.

Commodity.
Energy.  At June 30, 2006, the Partnership had market
exposure in the energy sector.  The Partnership?s primary
energy exposure was to futures contracts in crude oil and its
related products.  Price movements in these markets result
from geopolitical developments, particularly in the Middle
East, as well as weather patterns, and other economic
fundamentals.  Significant profits and losses, which have
been experienced in the past, are expected to continue to be
experienced in the future.

Soft Commodities and Agriculturals.  At June 30, 2006, the
Partnership had market exposure to the markets that comprise
these sectors.  Most of the exposure was to the corn, coffee,
cotton, sugar, and soybean meal 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 June 30, 2006:

Foreign Currency Balances.  The Partnership?s primary foreign
currency balances at June 30, 2006 were in euros, British
pounds, Japanese yen, Hong Kong dollars, Australian dollars,
Swiss francs, and Canadian dollars.  The Partnership controls
the non-trading risk of foreign currency balances by
regularly converting them back into U.S. dollars upon
liquidation of their respective positions.

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

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


Item 4.	CONTROLS AND PROCEDURES

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

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


<page> PART II.  OTHER INFORMATION

Item 1A. RISK FACTORS

Information regarding risk factors appears in Item 2.
?Management?s Discussion and Analysis of Financial Condition and
Results of Operations? and Item 3.  ?Quantitative and Qualitative
Disclosures about Market Risk? of this Form 10-Q.  There have been
no other material changes from the risk factors previously
referenced in the Partnership?s Report on Form 10-K for the fiscal
year ended December 31, 2005 and the Partnership?s Report on Form
10-Q for the quarter ended March 31, 2006.


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

On May 11, 2006, the National Futures Association approved Mr.
Walter Davis, Mr. Michael McGrath, and Mr. Andrew Saperstein as
directors of Demeter.

On July 20, 2006, the National Futures Association approved Mr.
Walter Davis as an associated person of Demeter.

Effective July 21, 2006, Dean Witter Cornerstone Fund III was
renamed to Morgan Stanley Cornerstone Fund III L.P.
<page>
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.
32.02	Certification of Chief Financial Officer of Demeter
Management Corporation, the general partner of the
Partnership, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.




























<page>








SIGNATURE



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



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

                     By:   Demeter Management Corporation
                           (General Partner)

August 14, 2006      By:   /s/Kevin Perry
                              Kevin Perry
                              Chief Financial Officer







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



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