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, 2008 or

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


Commission File No. 0-13299

	MORGAN STANLEY CORNERSTONE FUND III L.P.

	(Exact name of registrant as specified in its charter)

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

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

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






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








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

Yes    X       	No___________

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

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

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


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

	INDEX TO QUARTERLY REPORT ON FORM 10-Q

	June 30, 2008

<caption>



PART I. FINANCIAL INFORMATION

				<c>
Item 1. Financial Statements

		Statements of Financial Condition as of June 30, 2008
		(Unaudited) and December 31, 2007..........................2

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

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

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

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

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

Item 2.	Management?s Discussion and Analysis of
			Financial Condition and Results of Operations.......16-30

Item 3.	Quantitative and Qualitative Disclosures About
			Market Risk.........................................31-45

Item 4.	Controls and Procedures................................45

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


PART II. OTHER INFORMATION

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

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

Item 6.	Exhibits............................................48-49
</table>


<page> <table> PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements

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

	<c>	<c>
Trading Equity:
	Unrestricted cash	19,118,964	15,925,629
	Restricted cash	      760,054	     1,251,653

	    Total cash	19,879,018	      17,177,282

	Net unrealized gain on open contracts (MS&Co.)	       537,923	        741,994
	Net unrealized gain on open contracts (MSIP)	                                         95,719	                    54,095

	     Total net unrealized gain on open contracts	     633,642	        796,089

	     Total Trading Equity	20,512,660  	17,973,371

Interest receivable (MS&Co.)	25,918	                     36,546
Due from MS&Co.                                             -     	          12,811

	     Total Assets	   20,538,578	   18,022,728

LIABILITIES AND PARTNERS? CAPITAL

Liabilities

Redemptions payable	176,899	159,039
Accrued administrative fees payable (MS&Co.)	112,084	111,753
Accrued management fees	        59,578	          52,241

	     Total Liabilities	     348,561	        323,033

Partners? Capital

Limited Partners (3,872.269 and
	  4,175.524 Units, respectively)	19,669,284   	17,275,552
General Partner (102.516 Units)		        520,733	        424,143

	     Total Partners? Capital	   20,190,017	   17,699,695

	     Total Liabilities and Partners? Capital                                              	    20,538,578	   18,022,728

NET ASSET VALUE PER UNIT	        5,079.52	       4,137.34

<fn>
The accompanying notes are an integral part
of these financial statements.
</table>
- 2 -
<page> <table> 	MORGAN STANLEY CORNERSTONE FUND III L.P.
	STATEMENTS OF OPERATIONS
(Unaudited)

<caption>
                                For the Three Months                          For the Six Months
  	                       Ended June 30,        	               Ended June 30,


                              2008   	         2007    	       2008   	    2007
                               $	             $	           $ 	 $

                 <c>                  <c>                        <c>                        <c>
INVESTMENT INCOME
	Interest income (MS&Co.)	     66,836		    186,370		    149,490		           390,510

EXPENSES
	Management fees	175,508  	 172,854	348,594	   	 346,071
	Brokerage commissions (MS&Co.)	136,266	225,512	309,032		454,227
	Common administrative expenses	    21,000		24,000	              	  42,000                   48,000
	Transaction fees and costs	         6,595	       17,712	      14,560                   30,772

		   Total Expenses 	     339,369	     440,078	    714,186		    879,070

NET INVESTMENT LOSS 	    (272,533)	   (253,708)	    (564,696)		  (488,560)

TRADING RESULTS
Trading profit (loss):
	Realized	1,135,487	2,679,627	4,671,443	 	1,051,986
	Net change in unrealized	     (52,574)	      328,489	    (162,447)		     140,348

		  Total Trading Results	   1,082,913	   3,008,116	    4,508,996		  1,192,334

NET INCOME 	     810,380	   2,754,408	   3,944,300		     703,774

NET INCOME ALLOCATION

	Limited Partners	789,566	2,695,728	3,847,710		687,690
	General Partner 	20,814	58,680	96,590		16,084


NET INCOME PER UNIT

	Limited Partners                                                  	203.02	572.40		942.18	156.90
	General Partner                                                   	203.02	572.40		942.18	156.90


			                                                                       Units     	            Units	Units	          Units
WEIGHTED AVERAGE NUMBER
	OF UNITS OUTSTANDING                                 4,047.028		4,755.854	   4,128.198		4,853.859

<fn>
	The accompanying notes are an integral part
	of these financial statements.
</table>
- 3 -
<page> <table> 	MORGAN STANLEY CORNERSTONE FUND III L.P.
	STATEMENTS OF CHANGES IN PARTNERS? CAPITAL
	For the Six Months Ended June 30, 2008 and 2007
	(Unaudited)

<caption>



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

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

Net Income	?	687,690	16,084	703,774

Redemptions	   (366.497)	     (1,470,850) 	        ?  	      	     (1,470,850)

Partners? Capital,
June 30, 2007	          4,664.683	  19,374,839	             435,370	 19,810,209





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

Net Income	?	3,847,710	96,590	3,944,300

Redemptions	   (303.255)	     (1,453,978) 	        ?  	      	     (1,453,978)

Partners? Capital,
June 30, 2008	          3,974.785	  19,669,284	             520,733	 20,190,017






<fn>






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

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


<caption>
	         For the Six Months Ended June 30,

	      2008     	      2007
	    $	      $


CASH FLOWS FROM OPERATING ACTIVITIES

			<c>	<c>
Net income 	  3,944,300  	   	 703,774
Noncash item included in net income:
	Net change in unrealized		162,447	  (140,348)

(Increase) decrease in operating assets:
	Restricted cash		 491,599	492,347
	Interest receivable (MS&Co.)		10,628	5,023
	Due from MS&Co.                 	 	    12,811	(65,534)

Increase (decrease) in operating liabilities:
	Accrued administrative expenses		331	5,133
	Accrued management fees                                               		           7,337	           (2,761)

Net cash provided by operating activities  			    4,629,453	         997,634

CASH FLOWS FROM FINANCING ACTIVITIES

Cash paid for redemptions of Units			       (1,436,118)	     (1,647,770)

Net cash used for financing activities               	   (1,436,118)	     (1,647,770)

Net increase (decrease) in unrestricted cash                                     	3,193,335	 (650,136)

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

Unrestricted cash at end of period                                            		       19,118,964                  17,406,630


<fn>





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


</table>
- 5 -


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


				<caption>





Futures and Forward Contracts
     Long
 Unrealized
     Gain/(Loss)

Percentage of
  Net Assets
    Short
 Unrealized
Gain/(Loss)

Percentage of
   Net Assets
      Net
Unrealized
Gain/(Loss)

$
%
$
%
$

June 30, 2008, Partnership Net Assets:   $20,190,017





<c>
<c>
<c>
<c>
<c>
Commodity
    255,697
        1.27
       2,654
        0.01
 258,351
Equity
       ?
       ?
     13,397
        0.07
   13,397
Foreign currency
    184,561
        0.91
   (36,436)
       (0.18)
 148,125
Interest rate
        2,250
        0.01
  198,345
        0.98
 200,595






     Grand Total:
    442,508
        2.19
   177,960
        0.88
 620,468

     Unrealized Currency Gain





  13,174

     Total Net Unrealized Gain



633,642



796,089







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









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






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

     Unrealized Currency Loss





 (17,182)

     Total Net Unrealized Gain



796,089


<fn>







The accompanying notes are an integral part
of these financial statements.
</table>
<page> MORGAN STANLEY CORNERSTONE FUND III L.P.
NOTES TO FINANCIAL STATEMENTS
June 30, 2008
(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. (the "Partnership").
The financial statements and condensed notes herein should be read
in conjunction with the Partnership?s December 31, 2007, Annual
Report on Form 10-K.

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

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

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


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

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



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

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


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

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

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

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


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

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

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

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

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

	<c>	<c>	<c>	<c>	<c>
Jun. 30, 2008	485,516	148,126	633,642	Dec. 2009	Sep. 2008
Dec. 31, 2007	725,294	70,795	796,089	Jun. 2009	Mar. 2008
</table>

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



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

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

their commodity customers, all funds held by them with respect to
exchange-traded futures, exchange-traded forward, and exchange-
traded futures-styled options contracts, including an amount equal
to the net unrealized gains (losses) on all open exchange-traded
futures, exchange-traded forward, and exchange-traded futures-
styled options contracts, which funds, in the aggregate, totaled
$20,364,534 and $17,902,576 at June 30, 2008, and December 31,
2007, respectively. With respect to the Partnership?s off-
exchange-traded forward currency contracts, there are no daily
settlements of variation in value, nor is there any requirement
that an amount equal to the net unrealized gains (losses) on such
contracts be segregated.  However, the Partnership is required to
meet margin requirements equal to the net unrealized loss on open
forward currency contracts in the Partnership accounts with the
counterparty, which is accomplished by daily maintenance of the
cash balance in a custody account held at MS&Co.  With respect to
those off-exchange-traded forward currency contracts, the
Partnership is at risk to the ability of MS&Co., the sole
counterparty on all such contracts, to perform. The Partnership
has a netting agreement with MS&Co.  This agreement, which seeks
to reduce both the Partnership?s and MS&Co.?s exposure
on off-exchange-traded forward currency contracts, should
materially  decrease the Partnership?s credit risk in the event of
MS&Co.?s bankruptcy or insolvency.
                              - 12 -
<page> MORGAN STANLEY CORNERSTONE FUND III L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)


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

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


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


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



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




     Total


<c>
<c>
 <c>

  <c>
Unrealized gain on open contracts
$ 485,516
$ 148,126
    n/a

                  $633,642
</table>


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

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

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

















- 15 -


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


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

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

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

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

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

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

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

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

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

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

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


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

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

For the Three and Six Months Ended June 30, 2008
The Partnership recorded total trading results including interest
income totaling $1,149,749 and expenses totaling $339,369,
resulting in net income of $810,380 for the three months ended
June 30, 2008. The Partnership?s net asset value per Unit
increased from $4,876.50 at March 31, 2008, to $5,079.52 at June
30, 2008.

The most significant trading gains of approximately 8.4% were
recorded in the energy sector throughout the quarter from long
futures positions in crude oil and its related products as prices
trended higher amid unexpected plant shutdowns in the U.S.,
production disruption in Mexico, Nigeria, and the Middle East, as
well as news that OPEC output fell in March for the first time
since August 2007.  Elsewhere, long positions in natural gas
futures resulted in gains throughout the quarter as prices
                           - 20 -
<page> increased due to a government report that showed U.S.
inventories declined to the lowest level since 2005, while
forecasts for warmer weather across the U.S. ignited speculation
of higher demand. Smaller gains of approximately 0.8% were
experienced within the global interest rate sector primarily
during May and June from short positions in European fixed-income
futures as prices fell after news of accelerating inflation and
better-than-expected growth in the Euro-Zone. A portion of the
Partnership?s gains was offset by losses of approximately 3.1%
incurred within the global stock index sector primarily during
April and May from short positions in European, U.S., and
Japanese equity index futures as prices reversed higher amid the
release of better-than-expected corporate earnings reports from
the financial and technology sectors, as well as a smaller-than-
expected drop in U.S. jobs data. European equity index futures
prices also increased following news of an unexpected rise in
business confidence in Germany, increased merger and acquisition
activity, and better-than-expected corporate earnings. During
June, additional losses were incurred from long positions in
European equity index futures as prices moved sharply lower
throughout the month on concerns that record commodity prices and
additional subprime-related writedowns may erode corporate
earnings and continue to slow global economic growth.  Within the
metals sector, losses of approximately 0.7% were recorded
primarily during April from long positions in gold and silver
                             - 21 ?
<page> futures as prices moved lower due to a rise in the value
of the U.S. dollar. Elsewhere in the metals complex, long
positions in copper futures resulted in losses as prices
decreased throughout April and May amid speculation that a
continued slowdown in global economic growth may erode future
demand for base metals. Losses of approximately 0.5% were
experienced within the currency sector primarily during April
from long positions in the Swiss franc versus the U.S. dollar as
the value of the U.S. dollar moved higher against these
currencies after the U.S. Institute for Supply Management?s
manufacturing index unexpectedly moved higher and a U.S. economic
report showed private sector jobs unexpectedly increased in
March. Meanwhile, short positions in the British pound versus the
U.S. dollar incurred losses during April as the value of the
British pound increased amid speculation that the Bank of England
may slow the pace of interest rate cuts amid concerns of
accelerating global inflation.

The Partnership recorded total trading results including interest
income totaling $4,658,486 and expenses totaling $714,186,
resulting in net income of $3,944,300 for the six months ended
June 30, 2008. The Partnership?s net asset value per Unit
increased from $4,137.34 at December 31, 2007, to $5,079.52 at
June 30, 2008.

- 22 -
<page> The most significant trading gains of approximately 9.9%
were recorded in the energy sector from long futures positions in
crude oil and its related products as prices moved consistently
higher throughout the first half of the year due to speculation
that OPEC may cut production, ongoing geopolitical concerns in
the Middle East, growing Asian fuel consumption, and strong
demand for physical commodities as an inflation hedge.
Elsewhere, long positions in natural gas futures experienced
gains during February and March as prices increased on
expectations of a rise in demand due to colder weather in the
U.S. Northeast and news of a drop in U.S. inventories.  During
the second quarter, prices were pressured higher amid declining
production in Western Canada, a continued decline in U.S.
inventories, and forecasts for an active hurricane season in the
Atlantic, resulting in further gains from long positions.  In
addition, futures prices for crude oil, its related products, and
natural gas increased due to persistent decline in the value of
the U.S. dollar.  Additional gains of approximately 5.6% were
experienced in the currency sector throughout the first six
months of the year from long positions in the euro, Swiss franc,
Brazilian real, and Mexican peso as the value of the U.S. dollar
moved lower against most of its rivals amid the aforementioned
weak economic data out of the U.S. Within the global interest
rate sector, gains of approximately 4.4% were experienced,
primarily during January and February, from long positions in
                               - 23 -
<page> U.S. fixed income futures as prices moved higher in a
"flight-to-quality" following a sharp decline in the global
equity markets and the aforementioned concerns regarding the
global economy.  Furthermore, U.S. fixed-income futures prices
moved higher as the U.S. Federal Reserve cut interest rates by
200 basis points throughout the first quarter and U.S. government
reports showed a rise in unemployment and slower-than-expected
fourth quarter Gross Domestic Product growth.  Additional gains
were recorded during May and June from short positions in
European fixed-income futures as prices declined after government
reports revealed accelerating inflation in the Euro-Zone.  Gains
of approximately 1.5% were achieved within the agricultural
complex primarily during February from long futures positions in
corn as prices moved higher amid speculation that demand from
China may climb after severe winter storms damaged some of the
nation?s major crops. During June, corn prices moved higher after
severe floods in the U.S. Midwest also damaged crops. Elsewhere,
long positions in wheat futures recorded gains as prices rose to
a record high in February on expectations that stockpiles may
fall to a 30-year low. Smaller gains of approximately 0.5% were
recorded within the global stock index sector during January,
February, and March from short positions in Japanese equity index
futures as prices moved lower on concerns that a persistent U.S.
housing slump, mounting losses linked to U.S. subprime mortgage
investments, and a weakening job market may restrain consumer
                             - 24 ?
<page> spending.  Finally, gains of 0.5% were achieved within the
metals sector, primarily during January and February, from long
positions in gold and silver futures as prices increased due to a
declining U.S. dollar and concerns of accelerating global
inflation, which increased demand for the  "safe haven" of
precious metals.  During June, gains were also recorded within
the metals markets from long positions in aluminum futures as
prices increased on signs of diminishing stockpiles and robust
economic growth in China.

For the Three and Six Months Ended June 30, 2007
The Partnership recorded total trading results including interest
income totaling $3,194,486 and expenses totaling $440,078,
resulting in net income of $2,754,408 for the three months ended
June 30, 2007. The Partnership?s net asset value per Unit
increased from $3,674.45 at March 31, 2007, to $4,246.85 at June
30, 2007.

The most significant trading gains of approximately 5.7% were
recorded in the currency sector primarily during April and May
from short positions in the Japanese yen versus the U.S. dollar
as the value of the Japanese yen weakened relative to its major
rivals in a continuation of the carry-trade after news that the
Tankan survey was weaker-than-expected and a decline in Japanese
industrial production increased speculation that Japanese
                              - 25 -
<page> economic growth was not sufficient to warrant an increase
in interest rates by the Bank of Japan.  Elsewhere, gains were
recorded from long positions in the British pound and New Zealand
dollar versus the U.S. dollar primarily during April as these
currencies moved higher relative to the U.S. dollar after strong
economic data out of the United Kingdom and New Zealand added to
growing investor sentiment that the respective Central Banks of
these countries would raise interest rates in order to combat
inflation.  Additionally, the value of the U.S. dollar declined
against these currencies after the U.S. Federal Reserve?s
decision to leave interest rates steady at 5.25%.  Within the
global stock index sector, gains of approximately 5.2% were
experienced primarily during April and May from long positions in
European and U.S. equity index futures as prices moved higher on
continued strong corporate earnings and increased merger and
acquisition activity.  Furthermore, gains were recorded during
June from long positions in Japanese stock index futures as
prices moved higher amid investor optimism regarding future
earnings in the technology sector.  Additional gains of
approximately 4.8% were recorded in the global interest rate
sector throughout the quarter from short positions in European
fixed-income futures as prices weakened after news from the Ifo
Institute that German business sentiment climbed to the second-
highest level on record and news of an increasing U.S. consumer
confidence index.  During May and June, European interest rate
                             - 26 -
<page> futures prices continued to fall after a report that real
Gross Domestic Product in the Euro-Zone increased more-than-
expected in the first quarter of 2007, news that Germany?s
seasonally adjusted unemployment rate reached its lowest level
since 1995, and housing prices in the United Kingdom showed their
biggest jump of the year.  Elsewhere, gains were recorded from
short positions in U.S. fixed-income futures as prices moved
lower during May and June after the Philadelphia Federal
Reserve?s index of regional manufacturing increased more than
expected in April, Federal Reserve Bank of Richmond President
Jeffrey Lacker stated that there were still inflationary concerns
present in the U.S. economy, and the Conference Board?s index of
leading economic indicators showed that five of the ten
categories for the U.S. economy showed improvement.  A portion of
the Partnership?s gains during the quarter was offset by losses
of approximately 1.2% experienced in the metals markets primarily
during May from long positions in aluminum and copper futures as
prices fell after an announcement by the Chinese government that
it would raise export taxes for base metals and on speculation
that rising production and inventories might create a global
surplus.  Additional losses were recorded during June from long
positions in gold futures as prices fell due to speculative
selling.  Within the energy markets, losses of approximately 0.3%
were recorded primarily during May and June from long futures
positions in crude oil and its related products as prices moved
                              - 27 -
<page> lower on expectations of a rise in global stockpiles.
Lastly, losses of approximately 0.2% were incurred in the
agricultural markets primarily during June from long positions in
wheat and soybean meal futures as prices fell due to technically-
based selling.

The Partnership recorded total trading results including interest
income totaling $1,582,844 and expenses totaling $879,070,
resulting in net income of $703,774 for the six months ended June
30, 2007. The Partnership?s net asset value per Unit increased
from $4,089.95 at December 31, 2006, to $4,246.85 at June 30,
2007.

The most significant trading gains of approximately 3.2% were
recorded in the currency sector primarily during January, April,
and June from short positions in the Japanese yen versus the U.S.
dollar as the value of the Japanese yen weakened relative to most
of its major rivals in a continuation of the carry-trade after
news that the Tankan survey was weaker-than-expected and a
decline in Japanese industrial production increased speculation
that Japanese economic growth was not sufficient to warrant an
increase in interest rates by the Bank of Japan.  Elsewhere, long
positions in the Turkish lira, Brazilian real, Canadian dollar,
and New Zealand dollar versus the U.S. dollar resulted in gains
primarily during April and June as the value of the U.S. dollar
                             - 28 -
<page> weakened relative to these currencies on news that foreign
investment in U.S. securities fell more-than-expected in February
and U.S. industrial  production declined in March.  In addition,
the value of the U.S. dollar continued to fall against its major
rivals leading up to and after the U.S. Federal Reserve?s
decision to leave interest rates steady at 5.25%.  Additional
gains of approximately 3.1% were experienced in the global stock
index sector primarily during January, April, and May from long
positions in European and Japanese equity index futures as prices
climbed higher on continued optimism about the future of the
global economy, as well as strong corporate earnings and
increased merger and acquisition activity.  Furthermore, Japanese
stock index futures prices moved higher during May on optimism
that strong economic growth in the Euro-Zone and the U.S. would
result in higher exports from Asia.  Smaller gains of
approximately 3.0% were recorded in the global interest rate
sector primarily during January, May, and June from short
positions in European fixed-income futures as prices fell
initially after reports showed confidence in the Euro-Zone
economy stayed close to a six-year higher in December.  Prices
continued to fall after strong economic data reported in the
United Kingdom and Germany increased inflation concerns.  During
May and June, European interest rate futures prices declined
after a report that real Gross Domestic Product in the Euro-Zone
increased more-than-expected in the first quarter of 2007, news
                             - 29 -
<page> that Germany?s seasonally adjusted unemployment rate
reached its lowest level since 1995, and data indicating that
housing prices in the United Kingdom showed their biggest jump of
the year.  A portion of the Partnership?s gains in the first six
months of the year was offset by losses of approximately 3.7%
recorded in the metals markets throughout a majority of the year
from long positions in silver and gold futures as prices moved
lower amid speculative selling.  Elsewhere, long positions in
aluminum futures resulted in losses primarily during March and
June as prices weakened on worries regarding future Chinese
demand.   Additional losses of approximately 2.1% were incurred
primarily during February and March from short futures positions
in crude oil and its related products as prices reversed higher
on increased concerns that unexpected refinery shutdowns would
curb fuel stockpiles in the future.  Additionally, prices moved
higher amid rising geopolitical concerns in the Middle East.
Finally, losses of approximately 0.2% were recorded throughout a
majority of the year from long positions in corn futures as
prices declined sharply after the U.S. Department of
Agriculture?s Prospective Plantings report showed corn acreage
may be up in 2007 to its highest since 1944.  Further losses were
incurred primarily during June from short positions in wheat
futures as prices moved higher on news of damaged crops.


- 30 -
<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, exchange-traded forward, and exchange-traded
futures-styled options contracts are settled daily through
variation margin.  Gains and losses on off-exchange-traded
forward currency contracts are settled upon termination of the
contract.  However, the Partnership is required to meet margin
                             - 31 ?
<page> requirements equal to the net unrealized loss on open
forward currency contracts in the Partnership accounts with the
counterparty, which is accomplished by daily maintenance of the
cash balance in a custody account held at MS&Co.

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

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

The Partnership?s past performance is no guarantee of its future
results.  Any attempt to numerically quantify the Partnership?s
market risk is limited by the uncertainty of its speculative
trading.  The Partnership?s speculative trading and use of
leverage may cause future losses and volatility (i.e., "risk of
ruin") that far exceed the Partnership?s experience to date under
                            - 32 ?
<page> 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
                              - 33 -
<page> Partnership estimates VaR using a model based upon
historical simulation (with a confidence level of 99%) which
involves constructing a distribution of hypothetical daily
changes in the value of a trading portfolio.  The VaR model takes
into account linear exposures to risk including equity and
commodity prices, interest rates, foreign exchange rates, and
correlation among these variables. The hypothetical changes in
portfolio value are based on daily percentage changes observed in
key market indices or other market factors ("market risk
factors") to which 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
                              - 34 -
<page> contract and do not distinguish between exchange and non-
exchange dealer-based instruments. They are also not based on
exchange and/or dealer-based maintenance margin requirements.

VaR models, including the Partnership?s, are continually evolving
as trading portfolios become more diverse and modeling techniques
and systems capabilities improve.  Please note that the VaR model
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, 2008 and 2007.
At both June 30, 2008 and 2007, the Partnership?s total
capitalization was approximately $20 million.












- 35 -
<page>
Primary Market	            June 30, 2008         June 30, 2007
Risk Category	              Value at Risk         Value at Risk

Currency	(0.71)%	(1.28)%
Interest Rate	             (0.40)  	    (1.48)
Equity	(0.25)	    (1.97)
Commodity                       	(1.16)	(0.31)
Aggregate Value at Risk         	(1.43)%	(2.79)%

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 July 1, 2007, through June 30, 2008.

- 36 -
<page>
Primary Market Risk Category	   High		 Low		  Average
Currency	(1.62)%	(0.71)%	(1.00)%

Interest Rate	(0.74)	(0.34)	(0.50)

Equity	(0.67)	(0.25)	(0.39)

Commodity	(2.40)	(1.08)	(1.54)

Aggregate Value at Risk	(3.25)%	(1.43)%	(2.04)%



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;

-	37 ?
<page>
*	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".

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, 2008 and 2007, and for the four
quarter-end reporting periods from July 1, 2007, through June 30,
2008.  VaR is not necessarily representative of the Partnership?s
historic risk, nor should it be used to predict the Partnership?s
future financial performance or its ability to manage or monitor
risk.  There can be no assurance that the Partnership?s actual
losses on a particular day will not exceed the VaR amounts
indicated above or that such losses will not occur more than once
in 100 trading days.


- 38 -
<page> Non-Trading Risk
The Partnership has non-trading market risk on its foreign cash
balances.  These balances and any market risk they may represent
are immaterial.

The Partnership also maintains a substantial portion of its
available assets in cash at MS&Co.; as of June 30, 2008, such
amount was 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.

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
                             - 39 -
<page> 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
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, 2008, by market sector.  It may be
anticipated, however, that these market exposures will vary
materially over time.

Currency.  The second largest market exposure of the Partnership
at June 30, 2008, was to the currency sector.  The Partnership?s
currency exposure is to exchange rate fluctuations, primarily
fluctuations which disrupt the historical pricing relationships
                             - 40 -


<page> between different currencies and currency pairs.  Interest
rate changes, as well as political and general economic conditions
influence these fluctuations.  The Partnership trades a number of
currencies including cross-rate ? i.e., positions between two
currencies other than the U.S. dollar.  At June 30, 2008, the
Partnership?s major exposures were to Japanese yen and Swiss franc
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 June 30, 2008, the Partnership had market
exposure to the global interest rate sector.  This exposure was
primarily spread across the European, Japanese, and U.S. interest
rate sectors.  Interest rate movements directly affect the price
of the sovereign bond futures positions held by the Partnership
and indirectly affect the value of its stock index and currency
positions.  Interest rate movements in one country, as well as
relative interest rate movements between countries, materially
impact the Partnership?s profitability. The Partnership?s 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., the United Kingdom, Germany, Japan, Italy, and
Canada.
                             - 41 ?


<page> Demeter anticipates that the G-7 countries? interest rates
will remain the primary interest rate exposures of the Partnership
for the foreseeable future.  The speculative futures positions
held by the Partnership may range from short to long-term
instruments.  Consequently, changes in short, medium, or long-term
interest rates may have an effect on the Partnership.

Equity.  At June 30, 2008, the Partnership had market exposure 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, 2008, the Partnership?s primary exposures
were to the EURO STOX 50 (Europe), NASDAQ 100 (U.S.), S&P 500
(U.S.), and RUSSELL 2000 (U.S.) stock indices.  The Partnership is
primarily exposed to the risk of adverse price trends or static
markets in the U.S. and European stock indices.  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.  The largest market exposure of the Partnership at
June 30, 2008, was to the energy sector.  The Partnership?s
primary energy exposure was to futures contracts in crude oil
and its related products, as well as natural gas.  Price
                          - 42 -
<page> movements in these markets result from geopolitical
developments, particularly in the Middle East, as well as
weather patterns, and other economic fundamentals.
Significant profits and losses, which have been experienced
in the past, are expected to continue to be experienced in
the future.  Natural gas has exhibited volatility in price
resulting from weather patterns and supply and demand factors
and will likely continue in this choppy pattern.

Metals.	The third largest market exposure of the
Partnership at June 30, 2008, was to the metals sector.  The
Partnership?s metals exposure was to fluctuations in the
price of base metals, such as aluminum, copper, and zinc, as
well as 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 trading system(s) to
take positions when market opportunities develop, and
Demeter anticipates that the Trading Managers will continue
to do so.

Soft Commodities and Agriculturals.  At June 30, 2008, the
Partnership had market exposure to the markets that comprise
these sectors.  Most of the exposure was to the corn, coffee,

- 43 -
<page> soybeans, soybean meal, cocoa, and sugar markets.
Supply and demand inequalities, severe weather disruptions,
and market expectations affect price movements in these
markets.

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

Foreign Currency Balances.  The Partnership?s primary foreign
currency balances at June 30, 2008, were in British pounds,
euros, Swiss francs, and Japanese yen. 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, each of whose strategies
focus on different market sectors and trading approaches, in a
multi-manager Partnership, and by monitoring the performance of
the Trading Managers daily.  In addition, the Trading Managers
establish diversification guidelines, often set in terms of the
                              - 44 -


<page> 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

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

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


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<page>
Item 4T.  CONTROLS AND PROCEDURES
Not applicable.






















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<page> PART II.  OTHER INFORMATION

Item 1A. RISK FACTORS

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

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

Mr. Michael Durbin was confirmed as a principal of Demeter by the
National Futures Association on June 5, 2008.

Mr. Jose Morales was confirmed as a principal of Demeter by the
National Futures Association on June 23, 2008.

Item 6.  EXHIBITS

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
































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<page>








SIGNATURE



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



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

                     By:   Demeter Management Corporation
                           (General Partner)

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







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











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