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, 2007 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

330 Madison Avenue, 8th Floor, New York, NY 10017



(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.

	INDEX TO QUARTERLY REPORT ON FORM 10-Q

	June 30, 2007

<caption>



PART I. FINANCIAL INFORMATION

				<c>
Item 1. Financial Statements

		Statements of Financial Condition as of June 30, 2007
		(Unaudited) and December 31, 2006..........................2

		Statements of Operations for the Three and Six Months
		Ended June 30, 2007 and 2006 (Unaudited) ..................3

		Statements of Changes in Partners? Capital for the
		Six Months Ended June 30, 2007 and 2006 	(Unaudited)........4

		Statements of Cash Flows for the Six Months Ended
		June 30, 2007 and 2006 (Unaudited).........................5

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

Item 2.	Management?s Discussion and Analysis of
			Financial Condition and Results of Operations.......13-29

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

Item 4.	Controls and Procedures................................43

Item 4T.	Controls and Procedures................................43


PART II. OTHER INFORMATION

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

Item 6.	Exhibits...............................................44

</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,
	      2007     	         2006
	                      $	      $
	                     (Unaudited)
ASSETS

	<c>	<c>
Equity in futures interests trading accounts:
	Unrestricted cash	17,406,630	18,056,766
	Restricted cash	     1,916,464	       2,408,811

	    Total cash	   19,323,094	    20,465,577

	Net unrealized gain on open contracts (MS&Co.)	811,517       	        489,311
	Net unrealized gain (loss) on open contracts (MSIL)	     (139,183)	                   42,675

	     Total net unrealized gain on open contracts	      672,334	         531,986

	     Total Trading Equity	19,995,428  	20,997,563

Due from MS&Co.	                100,023	         34,489
Interest receivable (MS&Co.)	         62,488     	                67,511

	     Total Assets	   20,157,939	  21,099,563

LIABILITIES AND PARTNERS? CAPITAL

Liabilities

Redemptions payable	175,382	352,302
Accrued administrative expenses	113,886	108,753
Accrued management fees	      58,462	         61,223

	     Total Liabilities	    347,730	       522,278

Partners? Capital

Limited Partners (4,562.167 and
	  4,928.664 Units, respectively)	19,374,839   	20,157,999
General Partner (102.516 Units)		      435,370	       419,286

	     Total Partners? Capital	  19,810,209	  20,577,285

	     Total Liabilities and Partners? Capital                                               	  20,157,939	  21,099,563
NET ASSET VALUE PER UNIT	     4,246.85	      4,089.95
<fn>

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

<caption>
                           For the Three Months                          For the Six Months
178:
                         Ended June 30,        	               Ended June 30,



                           2007   	         2006    	       2007   	    2006
                            $	                 $	           $ 	 $

                                                                                   <c>	<c>			<c>			<c>
INVESTMENT INCOME
	Interest income (MS&Co.)	    186,370		   224,853		   390,510
 426,710
EXPENSES
	Brokerage commissions (MS&Co.)	225,512	259,127	454,227		525,092
	Management fees	   172,854	   207,676	 346,071	   	410,493
	Common administrative expenses	     24,000		     23,000		                48,000
43,000
	Transaction fees and costs	       17,712	      21,711	             30,772	   	                44,217

		   Total Expenses 	     440,078	    511,514	    879,070		  1,022,802

NET INVESTMENT LOSS 	   (253,708)	   (286,661)	  (488,560)		    (596,092)

TRADING RESULTS
Trading profit (loss):
	Realized	2,679,627	1,049,645 	1,051,986		2,158,805
	Net change in unrealized	      328,489	   (194,712)	     140,348 		    (214,616)

		  Total Trading Results	   3,008,116	    854,933	  1,192,334		  1,944,189

NET INCOME 	   2,754,408	    568,272	     703,774		  1,348,097

NET INCOME ALLOCATION

	Limited Partners	2,695,728	558,129	687,690 		1,323,933
	General Partner 	58,680	10,143	16,084		24,164


NET INCOME PER UNIT

	Limited Partners                                                  	572.40	98.94	156.90            	235.71
	General Partner                                                   	572.40	98.94	156.90            	235.71


<fn>

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




<page> <table> 	MORGAN STANLEY CORNERSTONE FUND III L.P.
	STATEMENTS OF CHANGES IN PARTNERS? CAPITAL
	For the Six Months Ended June 30, 2007 and 2006
	(Unaudited)
<caption>




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

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

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

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

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




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







<fn>




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




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

<caption>

	         For the Six Months Ended June 30,

	      2007     	      2006
	    $	      $


	<c>	<c>
CASH FLOWS FROM OPERATING ACTIVITIES

Net income 	703,774			     1,348,097
Noncash item included in net income:
	Net change in unrealized	(140,348)		   214,616

(Increase) decrease in operating assets:
	Restricted cash	492,347		(193,424)

	Interest receivable (MS&Co.)	    5,023	 	(12,662)

	Due from MS&Co.                 	 (65,534) 	    	(18,175)

Increase (decrease) in operating liabilities:
	Accrued administrative expenses	5,133		(16,908)

	Accrued management fees                                                 	       (2,761)
 (640)

Net cash provided by operating activities  	         997,634		    1,320,904

CASH FLOWS FROM FINANCING ACTIVITIES

Cash paid for redemptions of Units	    (1,647,770)		   (1,566,817)


Net cash used for financing activities               	    (1,647,770)	    (1,566,817)


Net decrease in unrestricted cash                                                   (650,136)		 (245,913)


Unrestricted cash at beginning of period                                      18,056,766
     21,002,788

Unrestricted cash at end of period                                               17,406,630
     20,756,875




<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, 2007
(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, 2006, 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. 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?).  Morgan Stanley & Co. Incorporated (?MS&Co.?) is
the Partnership?s principal commodity broker-dealer


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


and also acts as the counterparty on all trading of foreign
currency forward contracts.  In addition, Morgan Stanley & Co.
International plc (?MSIL?) serves as the commodity broker for
trades on the London Metal Exchange.  Effective April 13, 2007,
Morgan Stanley & Co. International Limited changed its name to
Morgan Stanley & Co. International plc.  Demeter, 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 MS&Co. and MSIL 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.  Financial Instruments
The Partnership trades futures contracts, options on futures
contracts, and forward contracts on foreign currencies and other



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


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.

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



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

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.
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
	 $	  $	$

Jun. 30, 2007	314,265	358,069	672,334	Dec. 2008	Sep. 2007
Dec. 31, 2006	413,691	118,295	531,986	Jun. 2008	Mar. 2007

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 MSIL 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 MSIL,
each as a futures commission merchant 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?),


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

to segregate from their own assets, and for the sole benefit of
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
$19,637,359 and $20,879,268 at June 30, 2007, and December 31,
2006, 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



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

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.

4.  New Accounting Developments
In July 2006, the Financial Accounting Standards Board (?FASB?)
issued interpretation No. 48, ?Accounting for Uncertainty in
Income Taxes ? an interpretation of FASB Statement 109? (?FIN
48?).  FIN 48 clarifies the accounting for income taxes by
prescribing the minimum recognition threshold a tax position must
meet before being recognized in the financial statements.  FIN 48
was effective for the Partnership as of January 1, 2007.  Based
on its analysis, management believes that the adoption of FIN 48
has no impact on the Partnership?s Financial Statements.




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 impact to
the Partnership?s Financial Statements, if any, is currently being
assessed.





<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
MSIL 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


<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,
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(s) 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, 2007 and 2006, 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


<page> that such market will be actively traded by the Trading
Managers or will be profitable in the future. Consequently, the
results of operations of the Partnership are difficult to discuss
other than in the context of the Trading Managers? trading
activities on 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 a foreign currency forward contract 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 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
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

<page> 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
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

<page> 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
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.

<page> 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
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

<page> 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
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

<page> 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.

For the Three and Six Months Ended June 30, 2006
The Partnership recorded total trading results including interest
income totaling $1,079,786 and expenses totaling $511,514,
resulting in net income of $568,272 for the three months ended




<page> June 30, 2006. The Partnership?s net asset value per Unit
increased from $4,097.84 at March 31, 2006, to $4,196.78 at June
30, 2006.

The most significant trading gains of approximately 4.6% were
recorded in the global interest rate futures markets from short
positions in U.S. and German fixed-income futures as prices
trended lower. In the U.S., prices declined following the release
of stronger than expected economic data. Similarly in Germany,
rising equity prices and strong economic growth pressured German
fixed-income futures prices lower. U.S. fixed-income futures
prices continued to move lower into May amid higher than
forecasted manufacturing and construction data and the sixteenth
consecutive interest rate hike by the U.S. Federal Reserve.
Smaller gains of approximately 2.5% were recorded in the metals
markets, during April and May, from long futures positions in
aluminum, zinc, and copper as prices rallied sharply on strong
global industrial demand, particularly from the U.S., China, and
India, and reports of decreasing inventories. Additional gains
were experienced from long positions in gold and silver futures
during April and May as prices reached 25-year highs, benefiting
from strong demand and lagging supply. Additionally, higher
demand for precious metals was supported by continued
geopolitical concerns regarding Iran?s nuclear program, inflation
concerns due to high energy prices, and solid global economic

<page> growth. A portion of the Partnership?s gains in the second
quarter was offset by losses of approximately 2.5% incurred in
the global equity index market from long positions in U.S.,
European, and Japanese stock index futures as equity prices
reversed lower during May and continued falling into June. The
weakness in the equity markets was attributed to inflation fears
and uncertainty regarding global interest rate policies. Within
the Asian equity index markets, long positions incurred losses as
prices suffered a heavy sell-off on investor concerns that a
global economic slowdown would negatively affect Japan?s export-
driven economy. Losses of approximately 1.3% were incurred in the
agricultural complex from short futures positions in corn as
prices moved higher during May on news of strong demand and
bullish export data. Newly established long positions in corn
futures resulted in additional losses during June as prices
reversed lower on favorable weather conditions in the U.S.
Midwest and reports of improved crop conditions. Elsewhere in the
agricultural markets, long positions in wheat futures incurred
losses as prices reversed lower in June due to positive weather
forecasts in the U.S. wheat belt. Additional losses of
approximately 0.8% were recorded in the currency sector from
short positions in the Japanese yen, Swiss franc, and Australian
dollar as the value of the U.S. dollar weakened on news that
foreign central banks, including Russia, Sweden, and several
Middle Eastern central banks, were diversifying their currency

<page> reserves away from the U.S. dollar. Also pressuring the
value of the U.S. dollar lower were concerns over the steep U.S.
trade deficit and speculation that the U.S. Federal Reserve might
be near the end of its interest rate tightening campaign. In
addition to the U.S. dollar weakening, the Japanese yen
strengthened on speculation of a possible Bank of Japan interest
rate hike, while the Swiss franc moved higher on the political
tensions in the Middle East, which increased the demand for the
safe-haven currency. The Australian dollar also moved higher on
an unexpected interest rate hike by the Reserve Bank of Australia
in May. Smaller losses of approximately 0.6% were experienced in
the energy sector from short futures positions in crude oil
during April as prices increased sharply on strong demand,
concerns of supply disruptions as tensions mounted between the
U.S. and Iran, and limited production ability. Newly established
long positions in crude oil futures also experienced losses as
prices fell during May and June after supply data from the U.S.
Department of Energy showed crude oil inventory levels at an
eight-year high, on news of the death of Iraqi insurgent leader
Abu Musab al-Zarqawi and positive steps taken regarding the
nuclear standoff between the U.S. and Iran.


The Partnership recorded total trading results including interest
income totaling $2,370,899 and expenses totaling $1,022,802,
resulting in net income of $1,348,097 for the six months ended

<page> June 30, 2006.    The Partnership?s net asset value per
Unit increased from $3,961.07 at December 31, 2005, to $4,196.78
at June 30, 2006.

The most significant trading gains of approximately 8.0% were
recorded in the global interest rate markets from short positions
in U.S., European, and Japanese interest rate futures as global
bond prices trended lower throughout a majority of the first
quarter amid strength in regional equity markets and investor
sentiment that interest rates in the United States, the European
Union, and Japan would rise. U.S. fixed-income futures continued
to move lower into April following the release of stronger than
expected U.S. economic data. Similarly in Europe, rising equity
prices, strong economic growth, and concerns about rising oil
prices pressured European fixed-income futures prices lower. U.S.
fixed-income prices also fell in May amid higher than forecasted
manufacturing and construction data and the sixteenth consecutive
interest rate hike by the U.S. Federal Reserve. Gains of
approximately 4.7% resulted in the metals markets from long
futures positions in aluminum, copper, and zinc as base metals
prices rallied from March until May on strong global demand and
on reports of falling inventories. Long positions in gold and
silver futures also experienced gains as gold prices reached 25-
year highs, benefiting from strong demand and lagging supply.
Additionally, higher demand for precious metals was supported by

<page> continued geopolitical concerns regarding Iran?s nuclear
program, inflation concerns due to high energy prices, and solid
global economic growth.  A portion of the Partnership?s gains in
the first six months of the year was offset by losses of
approximately 5.9% incurred in the currency sector from short
positions in the Japanese yen, Swiss franc, and Australian dollar
versus the U.S. dollar. During April and May the U.S. dollar
moved lower on news that foreign central banks were beginning to
diversify their currency reserves away from U.S. dollar-
denominated assets as well as uncertainty regarding the future of
the U.S. Federal Reserve?s interest rate tightening campaign. The
Japanese yen and Swiss franc also moved higher against the U.S.
dollar during January and February as strong economic data out of
the two regions increased speculation that the Bank of Japan and
European Central Bank might raise interest rates. During April,
the Japanese yen strengthened on speculation of a possible Bank
of Japan interest rate hike, while the Swiss franc moved higher
on political tensions in the Middle East, which increased the
demand for the safe-haven currency. The Australian dollar also
moved higher on an unexpected interest rate hike by the Reserve
Bank of Australia in May.  Within the agricultural complex,
losses of approximately 1.0% were experienced from long positions
in wheat futures as prices declined in June amid positive weather
forecasts in the U.S. wheat belt. Elsewhere in the agricultural
complex, short futures positions in corn experienced losses as

<page> prices moved higher during May on news of strong demand
and bullish export data. Newly established long positions in corn
futures resulted in additional losses during June as prices
reversed lower on favorable weather conditions in the U.S.
Midwest and reports of improved crop conditions. Losses of
approximately 0.7% were recorded in the energy sector from short
futures positions in crude oil and its related products as prices
strengthened in March and April on strong demand, concerns of
supply disruptions as tensions mounted between the U.S. and Iran,
and limited production ability. Newly established long futures
positions in crude oil and its related products also experienced
losses as prices reversed lower during May after supply data from
the U.S. Department of Energy showed crude oil inventory levels
at an eight-year high. Crude oil prices continued to fall into
June on news of the death of Iraqi insurgent leader Abu Musab al-
Zarqawi and positive steps taken regarding the nuclear standoff
between the U.S. and Iran. Smaller losses of approximately 0.7%
were incurred in the global stock index sector from long
positions in U.S. and Japanese stock index futures as equity
prices reversed lower during May and continued falling into June.
The weakness in the equity markets was attributed to inflation
fears and uncertainty regarding global interest rate policies.
Within the Asian equity index markets, long futures positions
incurred losses as prices suffered a heavy sell-off on investor


<page> concern that a global economic slowdown would negatively
affect Japan?s export-driven economy.



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

<page> forward currency contracts are settled upon termination of
the contract.  However, the Partnership is required to meet
margin requirements equal to the net unrealized loss on open
forward currency contracts in the Partnership accounts with the
counterparty, which is accomplished by daily maintenance of the
cash balance in a custody account held at MS&Co.

The Partnership?s total market risk may increase or decrease as
it is influenced by a wide variety of factors, including, but not
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

<page> leverage may cause future losses and volatility (i.e.,
?risk of ruin?) that far exceed the Partnership?s experience to
date under the ?Partnership?s Value at Risk in Different Market
Sectors? section and significantly exceed the Value at Risk
(?VaR?) tables disclosed.

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

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.


<page> The Partnership?s risk exposure in the market sectors
traded by the Trading Managers is estimated below in terms of
VaR. The Partnership estimates VaR using a model based upon
historical simulation (with a confidence level of 99%) which
involves constructing a distribution of hypothetical daily
changes in the value of a trading portfolio.  The VaR model takes
into account linear exposures to risk including equity and
commodity prices, interest rates, foreign exchange rates, and
correlation among these variables. The hypothetical changes in
portfolio value are 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.

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

VaR models, including the Partnership?s, are continually evolving
as trading portfolios become more diverse and modeling techniques
and systems capabilities improve.  Please note that the VaR model
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, 2007 and 2006.  At
June 30, 2007 and 2006, the Partnership?s total capitalization was
approximately $20 million and $23 million, respectively.








<page>
Primary Market	            June 30, 2007        June 30, 2006
Risk Category	              Value at Risk        Value at Risk

Equity	(1.97)%	    (0.55)%
Interest Rate	               (1.48)	    (1.74)
Currency	(1.28)	(0.68)
Commodity                       	(0.31)	(0.21)
Aggregate Value at Risk         	(2.79)%	(1.67)%

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, 2006, through June 30, 2007.
<page>
Primary Market Risk Category	   High		 Low		  Average
Equity	(2.44)%	(1.11)%	(1.76)%

Interest Rate	(1.48)	(0.50)	(0.89)

Currency	(1.66)	(1.28)	(1.47)

Commodity	(1.11)	(0.31)	(0.77)

Aggregate Value at Risk	(2.95)%	(2.04)%	(2.51)%



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;



<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, 2006, and for the four quarter-end
reporting periods from July 1, 2006, through June 30, 2007.  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.



<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, 2007, such
amount is equal to approximately 90% 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

<page> forward-looking statements within the meaning of Section
27A of the Securities Act and Section 21E of the Securities
Exchange Act. The Partnership?s primary market risk exposures, as
well as the strategies used and to be used by Demeter and the
Trading Managers for managing such exposures, are subject to
numerous uncertainties, contingencies and risks, any one of which
could cause the actual results of the Partnership?s risk controls
to differ materially from the objectives of such strategies.
Government interventions, defaults and expropriations, illiquid
markets, the emergence of dominant fundamental factors, political
upheavals, changes in historical price relationships, an influx
of new market participants, increased regulation, and many other
factors could result in material losses, as well as in material
changes to the risk exposures and the risk management strategies
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, 2007, 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 June 30,
2007, was to the global stock index sector, primarily to equity
price risk in the G-7 countries.  The G-7 countries consist
<page> 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 June 30, 2007, the
Partnership?s primary exposures were to the DAX (Germany), NIKKEI
225 (Japan), NASDAQ 100 (U.S.), TOPIX (Japan), S&P 500 (U.S.), Euro
Stoxx 50 (European), Hang Seng (Hong Kong), CAC 40 (France), and
Dow Jones (U.S.) stock indices.  The Partnership is primarily
exposed to the risk of adverse price trends or static markets in
the U.S., European, and Asian 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.

Interest Rate.  The second largest market exposure of the
Partnership at June 30, 2007, was 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 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. <page> and the
other G-7 countries.  Demeter anticipates that the G-7 countries?
interest rates will remain the primary interest rate exposures of
the Partnership for the foreseeable future.  The
speculative futures positions held by the Partnership may range
from short to long-term instruments.  Consequently, changes in
short, medium, or long-term interest rates may have an effect on
the Partnership.

Currency.  The third largest market exposure of the Partnership at
June 30, 2007, was to the currency sector.  The Partnership?s
currency exposure is to exchange rate fluctuations, primarily
fluctuations which disrupt the historical pricing relationships
between different currencies and currency pairs.  Interest rate
changes, as well as political and general economic conditions
influence these fluctuations.  The Partnership trades a large
number of currencies including cross-rate ? i.e., positions between
two currencies other than the U.S. dollar.  At June 30, 2007, the
Partnership?s major exposures were to euro, Japanese yen,
Australian dollar, Polish zloty, British pound, and Canadian dollar
currency crosses, as well as to outright U.S. dollar positions.
Outright positions consist of the U.S. dollar vs. other currencies.
 These other currencies include major and minor currencies.
Demeter does not anticipate that the risk associated with the
Partnership?s currency trades will change significantly in the
future.

<page>
Commodity.
Soft Commodities and Agriculturals.  At June 30, 2007, the
Partnership had market exposure to the markets that comprise
these sectors.  Most of the exposure was to the wheat,
soybeans, corn, sugar, cotton, soybean meal, cocoa, and live
cattle markets. Supply and demand inequalities, severe weather
disruptions, and market expectations affect price movements in
these markets.

Energy.  At June 30, 2007, the Partnership had market exposure
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 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.

Qualitative Disclosures Regarding Non-Trading Risk Exposure
The following was the only non-trading risk exposure of the
Partnership at June 30, 2007:
<page>
Foreign Currency Balances.  The Partnership?s primary foreign
currency balances at June 30, 2007, were in euros, British
pounds, Swiss francs, Japanese yen, Hong Kong dollars, and
Australian dollars.  The Partnership controls the non-trading
risk of foreign currency balances by regularly converting them
back into U.S. dollars upon liquidation of their respective
positions.

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

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.


<page>
Item 4.	CONTROLS AND PROCEDURES

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

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

Item 4T.	CONTROLS AND PROCEDURES


Not applicable.








<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, 2006, and the Partnership?s Report on Form
10Q for the quarter ended March 31, 2007.


Item 6.  EXHIBITS

31.01	Certification of President of Demeter Management
Corporation, the general partner of the Partnership,
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.02	Certification of Chief Financial Officer of Demeter
Management Corporation, the general partner of the
Partnership, pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
32.01	Certification of President of Demeter Management
Corporation, the general partner of the Partnership,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
32.02	Certification of Chief Financial Officer of Demeter
Management Corporation, the general partner of the
Partnership, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.




<page>









SIGNATURE



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



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

                     By:   Demeter Management Corporation
                           (General Partner)

August 14, 2007      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.













1486: