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, 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













(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

	September 30, 2006


<caption>


PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

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

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

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

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

		Notes to Financial Statements (Unaudited)...............6-12

Item 2.	Management?s Discussion and Analysis of
			Financial Condition and Results of Operations.......13-28

Item 3.	Quantitative and Qualitative Disclosures about
			Market Risk.........................................29-42

Item 4.	Controls and Procedures.............................42-43


PART II. OTHER INFORMATION

Item 1A.Risk Factors...........................................44

Item 5.	Other Information...................................44-45

Item 6.	Exhibits...............................................46

</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>
	                  September 30,	    December  31,
	      2006     	         2005
	                      $	      $
	                     (Unaudited)
ASSETS

	<c>	<c>
Equity in futures interests trading accounts:
	Unrestricted cash	18,912,836	21,002,788
	Restricted cash	    1,616,956	    1,409,104

	     Total cash	  20,529,792	   22,411,892

	Net unrealized gain on open contracts (MS&Co.)	       218,902	        271,196
	Net unrealized gain (loss) on open contracts (MSIL)	          (4,469)	       599,935

	     Total net unrealized gain on open contracts	      214,433	        871,131

	     Total Trading Equity	20,744,225  	23,283,023

Interest receivable (Morgan Stanley DW)	               67,317	          61,652
Due from Morgan Stanley DW	         24,035	         41,210

	     Total Assets	  20,835,577	  23,385,885

LIABILITIES AND PARTNERS? CAPITAL

Liabilities

Redemptions payable	340,459	247,236
Accrued administrative expenses	97,570	112,360
Accrued management fees	        60,486	         67,881

	     Total Liabilities	      498,515	       427,477

Partners? Capital

Limited Partners (5,102.960 and
	5,693.493 Units, respectively)	19,936,547	22,552,335
General Partner (102.516) Units		      400,515	       406,073

	     Total Partners? Capital	   20,337,062 	  22,958,408

	     Total Liabilities and Partners? Capital                                               	   20,835,577	  23,385,885

NET ASSET VALUE PER UNIT	       3,906.86	      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 Nine  Months
  	                        Ended September 30,        	           Ended September 30,


                           2006   	         2005    	       2006   	    2005
                            $	                 $	           $ 	 $

                            <c>                  <c>	         <c>	<c>
INVESTMENT INCOME
	Interest income (Morgan Stanley DW)	   214,077		    155,165 		   640,787		          423,623

EXPENSES
	Brokerage commissions (Morgan Stanley DW)	278,702	233,398	803,794		704,024
	Management fees	      185,608	    201,381	596,101 		   631,406
	Common administrative expenses	     25,000	        15,000    	      68,000		       50,000
	Transaction fees and costs	     16,239		      13,491 		     60,456		             35,882

		   Total Expenses 	   505,549	    463,270	 1,528,351		    1,421,312

NET INVESTMENT LOSS 	   (291,472)	   (308,105)	   (887,564)		    (997,689)

TRADING RESULTS
Trading profit (loss):
	Realized	 (830,653)	528,847	1,328,152		(1,998,409)
	Net change in unrealized	   (442,082)	    (101,787) 	   (656,698)		          (77,670)

		  Total Trading Results	 (1,272,735)	    427,060	    671,454		   (2,076,079)

NET INCOME (LOSS)	  (1,564,207)	    118,955	   (216,110)		   (3,073,768)

NET INCOME (LOSS) ALLOCATION

	Limited Partners	(1,534,485)	  116,760	(210,552)		(3,026,370)
	General Partner 	(29,722)	2,195	(5,558)		(47,398)


NET INCOME (LOSS) PER UNIT

	Limited Partners                                          	(289.92)               21.41	(54.21)
	(462.35)
	General Partner                                           	   (289.92)	          21.41		(54.21)	(462.35)


<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 Nine Months Ended September 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	?	(3,026,370)	(47,398)	(3,073,768)

Redemptions	   (616.835)	   (2,302,030) 	            ?   	 (2,302,030)

Partners? Capital,
September 30, 2005                                      5,998.677	  22,148,435	              385,093	22,533,528




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

Net Loss	    ?	(210,552)	(5,558)	(216,110)

Redemptions	  (590.533)	   (2,405,236) 	            ?   	 (2,405,236)

Partners? Capital,
September 30, 2006                                      5,205.476	  19,936,547	              400,515	20,337,062











<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 Nine Months Ended September 30,

	        2006     	      2005
	       $	      $


CASH FLOWS FROM OPERATING ACTIVITIES

			<c>	<c>
Net loss		(216,110)		(3,073,768)
Noncash item included in net loss:
	Net change in unrealized	   656,698	   	77,670

(Increase) decrease in operating assets:
	Restricted cash	(207,852)	1,500,163
	Interest receivable (Morgan Stanley DW)	(5,665) 	(11,412)

	Due from Morgan Stanley DW	17,175		15,120

Decrease in operating liabilities:
	Accrued administrative expenses 	       (14,790)		         (17,594)
	Accrued management fees 	         (7,395)		        (15,418)

Net cash provided by (used for) operating activities  	       222,061	 	     (1,525,239)

CASH FLOWS FROM FINANCING ACTIVITIES

Cash paid for redemptions of Units	   (2,312,013)		    (2,196,930)

Net cash used for financing activities               	  (2,312,013)	    (2,196,930)

Net decrease in unrestricted cash 	(2,089,952)	(3,722,169)

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

Unrestricted cash at end of period    	  18,912,836
21,041,685






<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
September 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, swap or options
contracts, and other financial instruments with similar
characteristics such as caps, floors, and collars.

The net unrealized gains 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
	on Open Contracts	Longest Maturities
		Off-			Off-
	Exchange-	Exchange-		Exchange-	Exchange-
Date	 Traded  	  Traded   	Total	 Traded  	 Traded
	 $	  $	$

Sep. 30, 2006	179,627	34,806	214,433	Mar. 2008	Dec. 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 (CONTINUED)

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 $20,709,419 and $23,142,541 at
September 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> MORGAN STANLEY CORNERSTONE FUND III L.P.
(formerly, Dean Witter Cornerstone Fund III)
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)

4.  New Accounting Developments
In July 2006, the FASB issued FASB Interpretation No. 48,
?Accounting for Uncertainty in Income Taxes, an interpretation of
FASB Statement No. 109? (?FIN 48?). FIN 48 clarifies the
accounting for uncertainty in income taxes recognized in a
company?s financial statements and prescribes a recognition
threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to
be taken in an income tax return. FIN 48 also provides guidance on
derecognition, classification, interest and penalties, accounting
in interim periods, disclosure and transition. FIN 48 is effective
for the Partnership as of January 1, 2007. The Partnership is cur-
rently evaluating the potential impact of adopting FIN 48.

In September 2006, the FASB issued SFAS No. 157, ?Fair Value
Measurements? (?SFAS No. 157?). SFAS No. 157 defines fair value,
establishes a framework for measuring fair value and expands
disclosures about fair value measurements. SFAS No. 157 is
effective for the Partnership as of January 1, 2008 . The Partner-
ship is currently evaluating the potential impact of adopting SFAS
No. 157.




<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 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,
forwards, and options in subsequent periods.  It is not possible
<page> to estimate the amount, and therefore the impact, of future
outflows of Units.

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

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

Results of Operations
General.  The Partnership?s results depend on the Trading Managers
and the ability of each Trading Manager?s trading program(s) to
take advantage of price movements in the futures, forwards, and
options markets.  The following presents a summary of the
Partnership?s operations for the three and nine month periods ended
September 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 <page> 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 12 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.

<page> 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, 2006
The Partnership recorded total trading results including interest
income totaling $(1,058,658) and expenses totaling $505,549,
resulting in a net loss of $1,564,207 for the three months ended
September 30, 2006. The Partnership?s net asset value per Unit
decreased from $4,196.78 at June 30, 2006 to $3,906.86 at
September 30, 2006.

The most significant trading losses of approximately 7.1% were
recorded in the global interest rate futures markets throughout
the quarter from short positions in U.S., European, and Japanese
fixed-income futures as prices reversed higher during July and
August on significant geopolitical concerns and fears of a
slowing global economy demonstrated by weak economic data out of
the United States, Germany, and Japan, thereby diminishing
expectations for future interest rate hikes by the U.S. Federal
Reserve, European Central Bank, and Bank of Japan.  Within the
energy markets, losses of approximately 0.7% were incurred
primarily during July and August from long futures positions in
crude oil and its related products as prices moved lower after
weaker-than-expected U.S. economic data led investors to believe
<page> that energy demand would be negatively affected.  Further
pressuring prices lower was the unexpected climb in domestic
gasoline supplies as reported by the U.S. Department of Energy.
Prices continued to move lower towards the end of August after
news of an official cease-fire between Israel and Hezbollah
militants in Lebanon and news that OPEC reduced its 2006 oil
demand growth forecast on expectations of a slowing global
economy.  Further losses were recorded in the energy markets from
short futures positions in natural gas as prices increased during
July after hot weather across much of the U.S. boosted demand.
Additional losses of approximately 0.2% were recorded within the
global stock index futures markets, primarily during August and
September, from short positions in U.S. equity index futures as
prices increased after tamer-than-expected core consumer
inflation data and speculation of a slowing U.S. economy lifted
hopes that the U.S. Federal Reserve would stop raising interest
rates.  Smaller losses of approximately 0.1% were incurred within
the agricultural markets, primarily during July and August, from
short positions in corn futures as prices increased amid strong
demand and an increase in ethanol production.  Prices were also
pressured higher during September on expectations of increased
demand after the U.S. Department of Agriculture reported larger-
than-expected global purchases.  A portion of the Partnership?s
overall losses for the quarter was offset by gains of
approximately 1.0% experienced within the currency markets,
primarily during August and September, from short positions in
<page> the Japanese yen against the U.S. dollar as the value of
the Japanese yen moved lower after the Japanese Consumer Price
Index for July came in lower-than-expected and was revised
downward for the previous months.


The Partnership recorded total trading results including interest
income totaling $1,312,241 and expenses totaling $1,528,351,
resulting in a net loss of $216,110 for the nine months ended
September 30, 2006.    The Partnership?s net asset value per Unit
decreased from $3,961.07 at December 31, 2005 to $3,906.86 at
September 30, 2006.

The most significant trading losses of approximately 5.0% were
recorded in the currency markets, during the first quarter, from
long U.S. dollar positions versus the Swiss franc, euro, and
Japanese yen as the value of the dollar reversed lower on
expectations that a string of increases in interest rates by the
U.S. Federal Reserve could possibly come to an end.  Also pushing
the value of the U.S. dollar lower against its rivals was
speculation that foreign central banks might move to diversify
some of its U.S. dollar based assets into other currencies.  The
Swiss franc, euro, and Japanese yen also moved higher against the
U.S. dollar during January and February as strong economic data
out of Europe and Japan regions increased speculation that the
European Central Bank and Bank of Japan would raise interest
rates.  Further losses were recorded during April from short
<page> positions in the Swiss franc and Japanese yen as the Swiss
franc reversed higher on the political tensions in the Middle
east, which increased the demand for the safe-haven currency,
while the Japanese yen strengthened on speculation of a possible
interest rate hike by the Bank of Japan.  Finally, during July,
losses were recorded from short U.S. dollar positions against the
euro as the value of the U.S. dollar moved higher due to a
narrower-than-expected U.S. trade deficit. Furthermore, the value
of the euro moved lower after the European Central Bank decided
to keep interest rates unchanged.  Within the energy markets,
losses of approximately 1.5% were incurred during April from
short futures positions in crude oil and its related products as
prices strengthened on strong demand, concerns of supply
disruptions as tensions mounted between the U.S. and Iran, and
limited production ability.  During May, losses were recorded
from long positions as prices reversed lower after supply data
from the U.S. Department of Energy showed crude oil inventory
levels at an eight-year high, 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.
Further losses were incurred during July and August from long
futures positions in crude oil and its related products as prices
moved lower after weaker-than-expected U.S. economic data led
investors to believe that energy demand will be negatively
affected.  Further pressuring prices lower was the unexpected
climb in domestic gasoline supplies, news of an official cease-
<page> fire between Israel and Hezbollah militants in Lebanon,
and reports that OPEC reduced its 2006 oil demand growth
forecast.  Additional losses of approximately 1.1% were recorded
within the agricultural markets, primarily during June, from long
positions in wheat futures as prices declined amid positive
weather forecasts in the U.S. wheat belt.  Elsewhere in the
agricultural 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.  A portion of
the Partnership?s overall losses for the first nine months of the
year was partially offset by gains of approximately 4.7% recorded
in the metals sector, primarily during the first six months of
the year, from long futures positions in aluminum, copper, and
zinc as base metals prices rallied on strong global demand and on
reports of falling inventories.  Long positions in gold and
silver futures experienced additional gains within the metals
sector as gold prices reached 25-year highs on continued
geopolitical concerns and inflation fears due to high energy
prices.  Smaller gains of approximately 0.4% were experienced
within the global interest rate futures markets, primarily during
March from short positions in U.S. and European interest rate
futures as global bond prices trended lower amid strength in
regional equity markets and investor sentiment that interest
<page> rates in the United States and the European Union would
rise.  U.S. fixed-income futures continued to move lower into
April following the release of stronger-than-expected U.S.
economic data resulting in further gains from short positions.
Similarly in Europe, rising equity prices, strong economic growth
and concerns about rising oil prices pressured European fixed-
income futures prices lower.

For the Three and Nine Months Ended September 30, 2005
The Partnership recorded total trading results including interest
income totaling $582,225 and expenses totaling $463,270,
resulting in net income of $118,955 for the three months ended
September 30, 2005.  The Partnership?s net asset value per Unit
increased from $3,735.01 at June 30, 2005 to $3,756.42 at
September 30, 2005.

The most significant trading gains of approximately 4.3% were
recorded in the global stock indices during July and September
from long positions in European and Pacific Rim stock index
futures.  During July, long positions benefited as prices
increased on positive economic data out of the U.S. and Japan.
Prices continued to strengthen after China reformed its U.S.
dollar currency peg policy, leading market participants to
conclude that a revaluation in the Chinese yuan would likely ease
trade tensions between China, the U.S, Europe, and Japan.
Finally, strong corporate earnings out of the European Union and
<page> the U.S. resulted in optimistic investor sentiment and
pushed prices higher.  During September, long positions in
Japanese stock index futures experienced gains as prices
increased on positive comments from Bank of Japan Governor
Toshihiko Fukui, who said the Japanese economy was in the process
of emerging from a soft patch as demonstrated by rising
production, improving business sentiment and a sustained upturn
in consumer spending.  Additional sector gains resulted from long
positions in European stock index futures as oil prices declined
and investors embraced signs that the global economy could move
forward despite Hurricane Katrina's devastation of the U.S. Gulf
Coast.  Gains of approximately 2.6% were recorded in the energy
markets primarily during August from long positions in natural
gas, crude oil, and oil related products as prices climbed higher
throughout the month on supply and demand concerns.  After
Hurricane Katrina struck the Gulf of Mexico, prices advanced
further to touch record highs amid concerns for heavily damaged,
or even possibly destroyed, refineries and production facilities.
 In the metals markets, gains of approximately 1.2% were recorded
in the metals markets during July and September from long futures
positions in copper and gold.  During July, copper prices
strengthened amid supply tightness, concerns over strikes at two
copper mines, and temporary weakness in the U.S. dollar caused by
China?s currency revaluation.  During September, copper prices
continued to strengthen in response to increased global demand
from countries such as China and India, while gold prices <page>
increased sharply as fears of inflation and the long-term
economic effect of higher energy prices pushed the value of the
safe-haven commodity higher.  A portion of the Partnership?s
overall gains for the quarter was offset by losses of
approximately 4.5% incurred in the global interest rate markets
during July and September from long positions in U.S. and
European interest rate futures.  During July, long U.S. positions
experienced losses as prices declined following a rise in
interest rates and after the U.S. Labor Department released its
June employment report.  European fixed-income prices declined on
strength in regional equity markets and news of terrorist attacks
on the London transport network.  During September, long
positions in U.S. and European fixed-income futures incurred
losses as prices weakened after it was revealed that measurements
of Hurricane Katrina?s economic impact was not weak enough to
deter the U.S. Federal Reserve from its policy of raising
interest rates.  European fixed-income prices also fell in
response to expectations that European Central Bank
representatives would leave European interest rates unchanged at
their upcoming meeting, despite the fact that the representatives
had openly discussed the eventual need to hike rates due to
concerns for inflation risks.  Losses of approximately 2.4%
occurred in the currency markets, primarily during August, from
long U.S. dollar positions against the British pound and euro as
the value of the U.S. dollar declined amid higher crude oil
prices, lower durable goods orders, the U.S. trade imbalance, and
<page> economic warnings from U.S. Federal Reserve Chairman Alan
Greenspan.  Smaller Partnership losses of approximately 0.3% were
experienced within the agricultural markets during July and
August from long futures positions in corn after prices declined
from heavy rainfall in the U.S. growing regions and forecasts for
increases in supply increases.
The Partnership recorded total trading results including interest
income totaling $(1,652,456) and expenses totaling $1,421,312,
resulting in a net loss of $3,073,768 for the nine months ended
September 30, 2005.  The Partnership?s net asset value per Unit
decreased from $4,218.77 at December 31, 2004 to $3,756.42 at
September 30, 2005.

The most significant trading losses of approximately 7.7%
resulted in the currency markets primarily during the first
quarter and in August.  Losses during the first quarter resulted
from positions in a variety of foreign currencies versus the U.S.
dollar.  During January, long positions in a variety of foreign
currencies, primarily the euro, South African rand, and both the
New Zealand and Australian dollars, recorded losses after the
U.S. dollar?s value reversed sharply higher amid positive U.S.
economic data and speculation for higher U.S. interest rates.
The U.S. dollar?s value also advanced during January in response
to expectations that the Chinese government would announce
postponement of its revaluation of the Chinese yuan for the
foreseeable future.  During February, losses stemmed from short
<page> positions in the euro and South African rand against the
U.S. dollar as the U.S. dollar weakened due to concerns for the
considerable U.S. Current-Account deficit as expressed by Federal
Reserve Chairman Alan Greenspan.  The U.S. dollar weakened
further during the remainder of the month due to a larger-than-
expected drop in economic indicators and news that South Korea?s
Central Bank planned to reduce its U.S. dollar currency reserves.
Short European currency positions resulted in losses during early
March as their values moved higher amid a sharp rise in German
industrial production.  Additional losses were recorded from
newly-established long European currency positions, as well as
from existing long positions in the British pound, versus the
U.S. dollar after the value of the U.S. dollar reversed sharply
higher amid an increase in U.S. interest rates and consumer
prices.  During August, losses were recorded from long U.S.
dollar positions against the British pound and euro as the value
of the U.S. dollar declined amid higher crude oil prices, lower
durable goods orders, the U.S. trade imbalance, and economic
warnings from U.S. Federal Reserve Chairman Alan Greenspan.
Losses of approximately 1.8% were recorded in the agricultural
markets during the second and third quarters from long futures
positions in soybeans, soybean-related products, corn, wheat, and
cotton.  During May, long cotton futures positions recorded
losses after cotton prices fell on supply increases.  During
June, sector losses were experienced from long positions in
soybeans and soybean-related products after prices moved lower on
<page> news of greater crop yields.  During July and August,
losses resulted from long futures positions in corn and wheat
after prices declined from heavy rainfall in the U.S. growing
regions and forecasts for growth in supply increases.  In the
global interest rate markets, losses of approximately 1.7% were
incurred primarily during February and July from long positions
in U.S. interest rate futures.  During February, prices reversed
lower after positive economic data reduced investor demand for
fixed-income investments.  Prices fell further during July
following a rise in interest rates and after the U.S. Labor
Department released its June employment report.  Losses of
approximately 1.7% occurred in the metals markets from trading in
base and precious metals during January and the second quarter.
During January, long futures positions in aluminum incurred
losses as prices weakened on renewed strength in the U.S. dollar,
lower equity prices, and news of a drop in Chinese demand.
Additional losses were recorded from long positions in gold as
prices declined due to strength in the U.S. dollar.  During the
second quarter, losses were recorded 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 aluminum futures positions 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.  A portion
<page> of the Partnership?s overall losses for the first nine
months of the year was offset by gains of approximately 2.2%
achieved in the global stock indices sector primarily during the
third quarter from long positions in European and Pacific Rim
stock index futures.  During July, long positions benefited as
prices increased on positive economic data out of the U.S. and
Japan.  Prices continued to strengthen after China reformed its
U.S. dollar currency peg policy, leading market participants to
conclude that a revaluation in the Chinese yuan would likely ease
trade tensions between China, the U.S, Europe, and Japan.
Finally, strong corporate earnings out of the European Union and
the U.S. resulted in optimistic investor sentiment and pushed
prices higher.  During September, long positions in Japanese
stock index futures experienced gains as prices increased on
positive comments from Bank of Japan Governor Toshihiko Fukui,
who said the Japanese economy was in the process of emerging from
a soft patch as demonstrated by rising production, improving
business sentiment and a sustained upturn in consumer spending.
Additional sector gains resulted from long positions in European
stock index futures as oil prices declined.  Smaller Partnership
gains of approximately 0.6% were established in the energy
markets, primarily during August, from long positions in natural
gas, crude oil, and oil related products as prices climbed higher
throughout the month on supply and demand concerns.  After
Hurricane Katrina struck the Gulf of Mexico, prices advanced
<page> further to touch record highs amid concerns for heavily
damaged, or even possibly destroyed, refineries and production
facilities.

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
<page> contract.  However, the Partnership is required to meet
margin requirements equal to the net unrealized loss on open
contracts in the Partnership accounts with the counterparty,
which is accomplished by daily maintenance of the cash balance in
a custody account held at Morgan Stanley DW for the benefit of MS
& Co.

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 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
<page> 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.

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
<page> simulation (with a confidence level of 99%) which involves
constructing a distribution of hypothetical daily changes in the
value of a trading portfolio.  The VaR model takes into account
linear exposures to risk including equity and commodity prices,
interest rates, foreign exchange rates, and correlation among
these variables. The hypothetical changes in portfolio value are
based on daily percentage changes observed in key market indices
or other market factors (?market risk factors?) to which 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
<page> 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
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, 2006 and 2005.  At
September 30, 2006 and 2005, the Partnership?s total capitalization
was approximately $20 million and $23 million, respectively.
Primary Market	          September 30, 2006    September 30, 2005
Risk Category	              Value at Risk        Value at Risk

Equity	(1.51)%	    (1.69)%
Currency	(1.33)	(1.12)
Interest Rate                   (0.91)	    (0.55)
Commodity                       (1.11)	(1.05)
Aggregate Value at Risk         (2.24)%	(2.21)%

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

Because the business of the Partnership is the speculative
trading of futures, forwards, and options, the composition of its
trading portfolio can change significantly over any given time
period, or even within a single trading day.  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, 2005 through September 30, 2006.

Primary Market Risk Category	   High		 Low		  Average
Equity	(1.51)%	(0.55)%	(1.16)%

Currency	(1.33)	(0.68)	(1.02)

Interest Rate	(5.57)	(0.44)	(2.17)

Commodity	(1.11)	(0.21)	(0.56)

Aggregate Value at Risk	(6.39)%	(1.67)%	(3.14)%


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

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

The VaR tables provided present the results of the Partnership?s
VaR for each of the Partnership?s market risk exposures and on an
aggregate basis at September 30, 2005, and for the four quarter-end
reporting periods from October 1, 2005 through September 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 September
30, 2006, such amount is equal to approximately 96% of the
Partnership?s net asset value.  A decline in short-term interest
rates would result in a decline in the Partnership?s cash
<page> 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 markets, the emergence of dominant
fundamental factors, political upheavals, changes in historical
price relationships, an influx of <page> 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, 2006, by market sector.  It may be
anticipated, however, that these market exposures will vary
materially over time.

Equity.  The largest market exposure of the Partnership at
September 30, 2006 was to the global stock index sector, primarily
to equity price risk in the G-7 countries.  The G-7 countries
consist of France, the U.S., Britain, Germany, Japan, Italy, and
Canada.  The stock index futures traded by the Partnership are by
law limited to futures on broadly-based indices.  At September 30,
2006, the Partnership?s primary exposures were to the EURO Stoxx 50
(Europe), S&P 500 (U.S.), DAX (Germany), CAC 40 (France), IBEX 35
(Spain), NASDAQ 100 (U.S.), FTSE 100 (Britain), Hang Seng (China),
TOPIX (Japan), Dow Jones (U.S.), and NIKKEI 225 (Japan) 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 <page>
avoid trendless price movements, resulting in numerous small
losses.

Currency.  The second largest market exposure of the Partnership at
September 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 September 30, 2006,
the Partnership?s major exposures were to euro, Australian dollar,
and Japanese yen currency crosses, as well as to outright U.S.
dollar positions.  Outright positions consist of the U.S. dollar
vs. other currencies.  These other currencies include major and
minor currencies.  Demeter does not anticipate that the risk
associated with the Partnership?s currency trades will change
significantly in the future.

Interest Rate. At September 30, 2006, the Partnership had exposure
to the global interest rate sector.  This exposure was primarily
spread across the U.S., European, Japanese, and Australian 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 <page> currency
positions.  Interest rate movements in one country, as well as
relative interest rate movements between countries, materially
impact the Partnership?s profitability.  The Partnership?s interest
rate exposure is generally to interest rate fluctuations in the
U.S. and the other G-7 countries.  However, the Partnership also
takes futures positions in the government debt of smaller countries
- e.g., Australia.  Demeter anticipates that the G-7 countries?
interest rates and Australian interest rates will remain the
primary interest rate exposures of the Partnership for the
foreseeable future.  The speculative futures positions held by the
Partnership may range from short to long-term instruments.
Consequently, changes in short, medium, or long-term interest rates
may have an effect on the Partnership.

Commodity.
Energy.  The third largest market exposure at September 30,
2006, was to 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.

<page> Soft Commodities and Agriculturals.  At September 30,
2006, the Partnership had market exposure to the markets that
comprise these sectors.  Most of the exposure was to the corn,
sugar, soybean meal, cocoa, cotton, and coffee markets. Supply
and demand inequalities, severe weather disruptions and market
expectations affect price movements in these markets.

Metals.	At September 30, 2006, the Partnership had market
exposure in the metals sector.  The Partnership's metals
exposure was to fluctuations in the price of precious metals,
such as gold.  Economic forces, supply and demand
inequalities, geopolitical factors, and market expectations
influence price movements in these markets.  The Trading
Managers utilize the trading system(s) to take positions when
market opportunities develop, and Demeter anticipates that
the Partnership will continue to do so.

Qualitative Disclosures Regarding Non-Trading Risk Exposure
The following was the only non-trading risk exposure of the
Partnership at September 30, 2006:

Foreign Currency Balances.  The Partnership?s primary foreign
currency balances at September 30, 2006 were in Swiss francs,
euros, Japanese yen, Hong Kong dollars, British pounds, and
Australian dollars.  The Partnership controls the non-trading
<page> 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.

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 <page>
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 Reports on Form
10-Q for the quarters ended March 31, 2006 and June 30, 2006.


Item 5. OTHER INFORMATION
Management.  On September 22, 2006, the following individual was
elected as a Director of Demeter.  Jacques Chappuis, age 37, is a
Director of Demeter, and will be a principal of Demeter, pending
approval by and registration with the National Futures
Association.  Mr. Chappuis is a Managing Director of Morgan
Stanley and Head of Alternative Investments for the Global Wealth
Management Group.  Prior to joining Morgan Stanley in 2006, Mr.
Chappuis was Head of Alternative Investments for Citigroup?s
Global Wealth Management Group and prior to that a Managing
Director at Citigroup Alternative Investments.  Before joining
Citigroup, Mr. Chappuis was a consultant at the Boston Consulting
Group, where he focused on the financial services sector, and a
corporate finance Associate at Bankers Trust Company.  Mr.
Chappuis received a B.A. degree in finance from Tulane University
<page> in 1991 and an MBA in finance, with honors, from the
Columbia University Graduate School of Business in 1998.

On November 6, 2006, Mr. Kevin Perry resigned his position as
Chief Financial Officer of Demeter effective November 7, 2006.

On November 7, 2006, the Board of Directors of Demeter appointed
Mr. Lee Horwitz as the Chief Financial Officer of Demeter.  Lee
Horwitz, age 55, is the Chief Financial Officer of Demeter, and
will be a principal of Demeter, pending approval by and
registration with the National Futures Association.  Mr. Horwitz
currently serves as an Executive Director and Controller within
the Global Wealth Management Group at Morgan Stanley.  Mr.
Horwitz joined Morgan Stanley in March 1984 and has held a
variety of positions throughout Morgan Stanley?s organization
during his tenure.  Mr. Horwitz received a B.A. degree from
Queens College and an MBA from Rutgers University.  Mr. Horwitz
is a Certified Public Accountant.


Other.  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)

November 14, 2006    By:   /s/Lee Horwitz
                              Lee Horwitz
                              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.







? 48 ?