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

	FORM 10-Q


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






(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

	September 30, 2007

<caption>



PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

				<c>
		Statements of Financial Condition as of September 30, 2007
		(Unaudited) and December 31, 2006..........................2

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

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

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

		Schedules of Investments as of September 30, 2007
		(Unaudited) and December 31, 2006..........................6

		Notes to Financial Statements (Unaudited)...............7-14

Item 2.	Management?s Discussion and Analysis of
			Financial Condition and Results of Operations.......15-29

Item 3.	Quantitative and Qualitative Disclosures about
			Market Risk.........................................29-43

Item 4.	Controls and Procedures................................44

Item 4T.	Controls and Procedures................................44


PART II. OTHER INFORMATION

Item 1A.Risk Factors...........................................45

Item 6.	Exhibits...............................................45

</table>


<page> <table> PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements

	MORGAN STANLEY CORNERSTONE FUND III L.P.
	STATEMENTS OF FINANCIAL CONDITION
<caption>
	                 September 30,	    December  31,
	      2007     	         2006
	                      $	      $
	                     (Unaudited)
ASSETS

	<c>	<c>
Equity in futures interests trading accounts:
	Unrestricted cash	14,570,317	18,056,766
	Restricted cash	     1,403,434	     2,408,811

	    Total cash	   15,973,751	      20,465,577

	Net unrealized gain on open contracts (MS&Co.)	714,259       	        489,311
	Net unrealized gain on open contracts (MSIP)	          46,095  	                  42,675

	     Total net unrealized gain on open contracts	        760,354	        531,986

	     Total Trading Equity	16,734,105  	20,997,563

Interest receivable (MS&Co.)	44,119	                     67,511
Due from MS&Co.	                                  ?           	         34,489

	     Total Assets	    16,778,224	   21,099,563

LIABILITIES AND PARTNERS? CAPITAL

Liabilities

Redemptions payable	174,085	352,302
Accrued administrative expenses	96,028	108,753
Accrued management fees	         48,657	          61,223

	     Total Liabilities	       318,770	        522,278

Partners? Capital

Limited Partners (4,358.473 and
	  4,928.664 Units, respectively)	16,081,207   	20,157,999
General Partner (102.516 Units)		       378,247	        419,286

	     Total Partners? Capital	   16,459,454	   20,577,285

	     Total Liabilities and Partners? Capital                                                   16,778,224	   21,099,563

NET ASSET VALUE PER UNIT	       3,689.64	       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 Nine Months
  	                       Ended September 30,        	            Ended September 30,


                                            2007   	         2006    	       2007   	    2006
                                             $	             $	           $ 	 $

                                                                               <c>	<c>			<c>			<c>
INVESTMENT INCOME
	Interest income (MS&Co.)	    158,110		  214,077	                 548,620	  	          640,787

EXPENSES
	Brokerage commissions (MS&Co.)	254,733	278,702	708,960		803,794
	Management fees	   149,495	   185,608	495,566 	   	596,101
	Common administrative expenses	     24,000		     25,000		        	72,000                   68,000
	Transaction fees and costs	     13,330	 	      16,239		        	44,102                   60,456

		   Total Expenses 	    441,558	     505,549	 1,320,628		    1,528,351

NET INVESTMENT LOSS 	   (283,448)	    (291,472)	   (772,008)		     (887,564)

TRADING RESULTS
Trading profit (loss):
	Realized	(2,404,087)	(830,653) 	(1,352,101)		1,328,152
	Net change in unrealized	         88,020	     (442,082)	    228,368 		     (656,698)

		  Total Trading Results	   (2,316,067)	  (1,272,735)	   (1,123,733)		       671,454


NET LOSS 	   (2,599,515)	  (1,564,207)	   (1,895,741)		     (216,110)


NET LOSS ALLOCATION

	Limited Partners	(2,542,392)	(1,534,485)	(1,854,702)		(210,552)
	General Partner 	(57,123)	(29,722)	(41,039)		(5,558)


NET LOSS PER UNIT

	Limited Partners                                                  	(557.21)	(289.92)                 (400.31)           	(54.21)
	General Partner                                                   	(557.21)	(289.92)	(400.31)            	(54.21)


			                                                                       Units	     Units   	    Units       	         Units
WEIGHTED AVERAGE NUMBER
	OF UNITS OUTSTANDING                                  4,558.278	    5,319.967             4,754.544	  	  5,513.185       		 	(0.19)

<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 Nine Months Ended September 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 Loss	    ?	(210,552)	(5,558)	(216,110)

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

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






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

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

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

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






<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 Nine Months Ended September 30,

	      2007     	      2006
	    $	      $


	<c>	<c>
CASH FLOWS FROM OPERATING ACTIVITIES

Net loss		(1,895,741)		     (216,110)
Noncash item included in net loss:
	Net change in unrealized		(228,368)	   656,698

(Increase) decrease in operating assets:
	Restricted cash		 1,005,377	(207,852)
	Interest receivable (MS&Co.)		 23,392	(5,665)
	Due from MS&Co.                 	 	    34,489	17,175

Decrease in operating liabilities:
	Accrued administrative expenses		(12,725)	(14,790)
	Accrued management fees                                               		       (12,566)	           (7,395)

Net cash provided by (used for) operating activities  			   (1,086,142)	        222,061

CASH FLOWS FROM FINANCING ACTIVITIES

Cash paid for redemptions of Units			   (2,400,307)	    (2,312,013)

Net cash used for financing activities               	    (2,400,307)	    (2,312,013)

Net decrease in unrestricted cash                                                      (3,486,449)		 (2,089,952)

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

Unrestricted cash at end of period                                            		   14,570,317  	                18,912,836





<fn>


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


</table>



<page> <table> MORGAN STANLEY CORNERSTONE FUND III L.P.
SCHEDULES OF INVESTMENTS
September 30, 2007 (Unaudited) and December 31, 2006


				<caption>





Futures and Forward Contracts
     Long
 Unrealized
     Gain/(Loss)

Percentage of
  Net Assets
    Short
 Unrealized
Gain/(Loss)

Percentage of
   Net Assets
      Net
Unrealized
Gain/(Loss)

$
%
$
%
$







September 30, 2007, Partnership Net Assets:   $16,459,454





<c>
<c>
<c>
<c>
<c>
Commodity
    400,477
        2.43
    45,490
       0.28
 445,967
Equity
    35,172
        0.21
    (98,863)
      (0.60)
 (63,691)
Foreign currency
    381,726
        2.32
    (4,144)
      (0.03)
 377,582
Interest rate
      56,670
        0.35
    (5,710)
      (0.03)
   50,960






     Grand Total:
    874,045
        5.31
   (63,227)
      (0.38)
 810,818

     Unrealized Currency Loss





  (50,464)

     Total Net Unrealized Gain per Statement of Financial Condition



760,354







December 31, 2006, Partnership Net Assets:  $20,577,285









Commodity
      23,088
        0.11
   169,297
       0.82
 192,385
Equity
  234,490
        1.14
           ?
          ?
 234,490
Foreign currency
    (37,575)
       (0.18)
   144,851
       0.70
 107,276
Interest rate
    (65,141)
       (0.32)
   154,876
       0.75
   89,735






     Grand Total:
    154,862
        0.75
   469,024
       2.27
 623,886

     Unrealized Currency Loss





  (91,900)

     Total Net Unrealized Gain per Statement of Financial Condition



 531,986

<fn>






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

</table>
<page> MORGAN STANLEY CORNERSTONE FUND III L.P.
NOTES TO FINANCIAL STATEMENTS
September 30, 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 (?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.  Financial Instruments
The Partnership trades futures contracts, options on futures
contracts, and forward contracts on foreign currencies and other
commodity interests.  Futures and forwards represent contracts for
delayed delivery of an instrument at a specified date and price.
Risk arises from changes in the value of these contracts and the


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


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
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



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



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
	 $	  $	$

Sep. 30, 2007	402,577	357,777	760,354	Mar. 2009	Dec. 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 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 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
$16,376,328 and $20,879,268 at September 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 (CONTINUED)

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


5.  Restricted and Unrestricted Cash
As reflected on the Partnership?s Statements of Financial
Condition, restricted cash represents cash on deposit to satisfy
margin requirements for trading.  These amounts of restricted cash
are maintained in separate trading accounts.  Cash that is not on
deposit to satisfy the margin requirements for trading is
reflected as unrestricted cash.


















<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


<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 nine month periods
ended September 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

<page> does not mean that such market will be actively traded by
the Trading Managers or will be profitable in the future.
Consequently, the results of operations of the Partnership are
difficult to discuss other than in the context of the Trading
Managers? trading activities on 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 14 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

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

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

For the Three and Nine Months Ended September 30, 2007
The Partnership recorded total trading results including interest
income totaling $(2,157,957) and expenses totaling $441,558,
resulting in a net loss of $ 2,599,515 for the three months
ended September 30, 2007. The Partnership?s net asset value per
Unit decreased from $4,246.85 at June 30, 2007, to $3,689.64
at September 30, 2007.

The most significant trading losses of approximately 5.3% were
recorded in the global stock index sector primarily during July
and August from long positions in European, Japanese, and U.S.
equity index futures as prices reversed lower on persistent
concerns that a widening credit crunch, sparked by U.S. sub-prime
mortgage losses, would erode global economic growth and corporate
earnings.  Additional losses of approximately 4.5% were incurred
in the currency sector primarily during July and August from

<page> short positions in the Japanese yen versus the U.S. dollar
and euro as the value of the Japanese yen reversed higher against
most of its major rivals when traders reduced ?carry-trade?
positions after the sell-off in the global equity markets
resulted in investors trimming ?riskier? assets funded by loans
in Japan.  Similarly, short positions in the Swiss franc versus
the U.S. dollar resulted in losses during July and August as the
value of the Swiss franc rose against the U.S. dollar.
Elsewhere, long positions in the British pound versus the U.S.
dollar experienced losses during August as the value of the U.S.
dollar reversed higher against the British pound after continued
extreme volatility in the global equity markets and widening
credit losses tied to U.S. sub-prime loans resulted in
substantially stronger demand for U.S. dollar-denominated
government bonds.  Finally, losses were recorded from short
positions in the Czech koruna versus the U.S. dollar during July
as the value of Czech koruna moved higher relative to the U.S.
dollar after the Czech National Bank increased its benchmark
interest rate to 3.0%.  Within the global interest rate sector,
losses of approximately 3.0% were incurred primarily during July
and August from short positions in European and U.S. fixed-income
futures as prices reversed sharply higher in a worldwide ?flight-
to-quality? after the significant decline in the global equity
markets resulted in substantially higher demand for the ?safe
haven? of government bonds.  Smaller losses of approximately 1.0%

<page> were experienced in the energy markets primarily during
August from long futures positions in crude oil and its related
products as prices declined amid concerns that a slowdown in the
global economy would negatively impact global energy demand.  A
portion of the Partnership?s losses during the quarter was offset
by gains of approximately 0.2% recorded in the agricultural
markets, primarily during August and September, from long
positions in wheat futures as prices increased to a record high
due to a rise in demand amid news from the U.S. Department of
Agriculture that global stockpiles would fall to the lowest level
in 26 years and after unfavorable weather in key growing
countries such as Ukraine and Australia.  Smaller gains of
approximately 0.2% were experienced in the metals markets
primarily during September from short positions in aluminum
futures as prices moved lower following news that surplus
production would increase supply.

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


<page> The most significant trading losses of approximately 3.5%
were recorded in the metals markets during February, March, May,
and June from long positions in silver and gold futures as prices
moved lower amid speculative selling.  Additional losses were
incurred during August from long positions in gold futures as
prices reversed lower amid temporary strength in the U.S. dollar.
Elsewhere, long positions in aluminum futures resulted in losses,
primarily during March and June, as prices weakened on worries
regarding future Chinese demand.  Finally, losses were incurred
from both short and long positions in copper futures as prices
moved without consistent direction throughout a majority of the
year amid conflicting data regarding supply and demand.  Further
losses of approximately 3.0% were experienced in the energy
markets, primarily during February and March, from short futures
positions in gasoline, crude oil, and heating oil as prices moved
higher on increased concerns that unexpected refinery shutdowns
would curb fuel stockpiles in the future and amid rising
geopolitical concerns in the Middle East.  During August, long
positions in crude oil futures and its related products resulted
in further losses as prices declined amid concerns that a
slowdown in the global economy, sparked by the U.S. sub-prime
mortgage losses, would negatively impact global energy demand.
Within the global stock index sector, losses of approximately
2.4% were incurred during February and March from long positions
in U.S. and Japanese stock index futures as prices reversed
sharply lower after the massive sell-off in the global equity
<page> markets that began on February 27, 2007, following
comments from former U.S. Federal Reserve Chairman Alan Greenspan
that the U.S. economy could be due for a recession.  In addition,
concerns that tighter credit conditions in China and Japan would
dampen global growth first sent Chinese stock markets plunging
before the sell-off spread to other equity markets.  Furthermore,
prices were pressured lower during the third quarter on
persistent concerns that a widening credit crunch would erode
global economic   growth and corporate earnings, thus resulting
in losses from  long positions during July and August.  Finally,
losses of approximately 1.5% were recorded in the currency sector
during February, March, July, and August from short positions in
the Japanese yen versus the U.S. dollar as the value of the
Japanese yen reversed sharply higher against the U.S. dollar
after a combination of factors including investor speculation
that consistently strong economic data out of Japan would force
the Bank of Japan to continue raising interest rates and after
the sell-off in the global equity markets resulted in investors
trimming ?riskier? assets funded by loans in Japan, thereby
unwinding carry-trades. Similarly, short positions in the Swiss
franc versus the U.S. dollar incurred losses during February,
July, and August as the value of the Swiss franc also reversed
higher against the U.S. dollar amid worries of a narrowing
interest rate differential.  Elsewhere in the currency markets,
losses were experienced during March and August from long

<page> positions in the British pound versus the U.S. dollar as
the value of the British pound reversed lower amid speculation
that the Bank of England would not continue to increase interest
rates in the near-term.  Furthermore, the value of the U.S.
dollar strengthened against the British pound during August as
continued extreme volatility in the global equity markets and
widening credit losses tied to U.S. sub-prime loans resulted in
substantially stronger demand for U.S. dollar-denominated
government bonds.

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

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

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

The most significant trading losses of approximately 5.0% were
recorded in the currency markets, during the first quarter, from
long U.S. dollar positions versus the Swiss franc, euro, and
Japanese yen as the value of the dollar reversed lower on
expectations that a string of increases in interest rates by the
U.S. Federal Reserve could possibly come to an end.  Also pushing
<page> the value of the U.S. dollar lower against its rivals was
speculation that foreign central banks might move to diversify
some of its U.S. dollar based assets into other currencies.  The
Swiss franc, euro, and Japanese yen also moved higher against the
U.S. dollar during January and February as strong economic data
out of Europe and Japan regions increased speculation that the
European Central Bank and Bank of Japan would raise interest
rates.  Further losses were recorded during April from short
positions in the Swiss franc and Japanese yen as the Swiss franc
reversed higher on the political tensions in the Middle east,
which increased the demand for the ?safe haven? currency, while
the Japanese yen strengthened on speculation of a possible
interest rate hike by the Bank of Japan.  Finally, during July,
losses were recorded from short U.S. dollar positions against the
euro as the value of the U.S. dollar moved higher due to a
narrower than expected U.S. trade deficit. Furthermore, the value
of the euro moved lower after the European Central Bank decided
to keep interest rates unchanged.  Within the energy markets,
losses of approximately 1.5% were incurred during April from
short futures positions in crude oil and its related products as
prices strengthened on strong demand, concerns of supply
disruptions as tensions mounted between the U.S. and Iran, and
limited production ability.  During May, losses were recorded
from long positions as prices reversed lower after supply data
from the U.S. Department of Energy showed crude oil inventory
<page> levels at an eight-year high, news of the death of Iraqi
insurgent leader Abu Musab al-Zarqawi, and positive steps taken
regarding the nuclear standoff between the U.S. and Iran.
Further losses were incurred during July and August from long
futures positions in crude oil and its related products as prices
moved lower after weaker than expected U.S. economic data led
investors to believe that energy demand will be negatively
affected.  Further pressuring prices lower was the unexpected
climb in domestic gasoline supplies, news of an official cease-
fire between Israel and Hezbollah militants in Lebanon, and
reports that OPEC reduced its 2006 oil demand growth forecast.
Additional losses of approximately 1.1% were recorded within the
agricultural markets, primarily during June, from long positions
in wheat futures as prices declined amid positive weather
forecasts in the U.S. wheat belt.  Elsewhere in the agricultural
complex, short futures positions in corn experienced losses as
prices moved higher during May on news of strong demand and
bullish export data.  Newly established long positions in corn
futures resulted in additional losses during June as prices
reversed lower on favorable weather conditions in the U.S.
Midwest and reports of improved crop conditions.  A portion of
the Partnership?s overall losses for the first nine months of the
year was partially offset by gains of approximately 4.7% recorded
in the metals sector, primarily during the first six months of
the year, from long futures positions in aluminum, copper, and

<page> zinc as base metals prices rallied on strong global demand
and on reports of falling inventories.  Long positions in gold
and silver futures experienced additional gains within the
metals sector as gold prices reached 25-year highs on continued
geopolitical concerns and inflation fears due to high energy
prices.  Smaller gains of approximately 0.4% were experienced
within the global interest rate futures markets, primarily during
March from short positions in U.S. and European interest rate
futures as global bond prices trended lower amid strength in
regional equity markets and investor sentiment that interest
rates in the United States and the European Union would rise.
U.S. fixed-income futures continued to move lower into April
following the release of stronger than expected U.S. economic
data resulting in further gains from short positions.  Similarly
in Europe, rising equity prices, strong economic growth and
concerns about rising oil prices pressured European fixed-income
futures prices lower.


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-

<page> sensitive instruments is inherent to the primary business
activity of the Partnership.

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

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


<page> positions, the volatility present within the markets, and
the liquidity of the markets.

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

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

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



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

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

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

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

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

VaR models, including the Partnership?s, are continually evolving
as trading portfolios become more diverse and modeling techniques
and systems capabilities improve.  Please note that the VaR model

<page> is used to numerically quantify market risk for historic
reporting purposes only and is not utilized by either Demeter or
the Trading Managers in their daily risk management activities.
Please further note that VaR as described above may not be
comparable to similarly-titled measures used by other entities.

The Partnership?s Value at Risk in Different Market Sectors
The following table indicates the VaR associated with the
Partnership?s open positions as a percentage of total Net Assets
by primary market risk category at September 30, 2007, and 2006.
At September 30, 2007, and 2006, the Partnership?s total
capitalization was approximately $16 million and $20 million,
respectively.

Primary Market	          September 30, 2007    September 30, 2006
Risk Category	              Value at Risk         Value at Risk

Currency	(1.62)%	(1.33)%
Interest Rate	               (0.74)	    (0.91)
Equity	(0.38)	    (1.51)
Commodity                       	(2.40)	(1.11)
Aggregate Value at Risk         	(3.25)%	(2.24)%

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


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

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

The table below supplements the quarter-end VaR set forth above
by presenting the Partnership?s high, low, and average VaR, as a
percentage of total Net Assets for the four quarter-end reporting
periods from October 1, 2006, through September 30, 2007.

Primary Market Risk Category	   High		 Low		  Average
Currency	(1.66)%	(1.28)%	(1.54)%

Interest Rate	(1.48)	(0.50)	(0.84)

Equity	(2.44)	(0.38)	(1.47)

Commodity	(2.40)	(0.31)	(1.09)

Aggregate Value at Risk	(3.25)%	(2.04)%	(2.76)%








<page>

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

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

The VaR tables provided present the results of the Partnership?s
VaR for each of the Partnership?s market risk exposures and on an
aggregate basis at September 30, 2006, and for the four quarter-
end reporting periods from October 1, 2006, through September 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.

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

The Partnership also maintains a substantial portion of its
available assets in cash at MS&Co.; as of September 30, 2007, such
amount is equal to approximately 91% of the Partnership?s net
asset value.  A decline in short-term interest rates would result
<page> in a decline in the Partnership?s cash management income.
This cash flow risk is not considered to be material.

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

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

The following were the primary trading risk exposures of the
Partnership at September 30, 2007, 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 September 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 September
30, 2007, the Partnership?s major exposures were to Canadian
dollar, euro, and Japanese yen, 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
<page> with the Partnership?s currency trades will change
significantly in the future.

Interest Rate.  At September 30, 2007, the Partnership had market
exposure to the global interest rate sector.  This exposure was
primarily spread across the U.S., Japanese, and European interest
rate sectors.  Interest rate movements directly affect the price
of the sovereign bond futures positions held by the Partnership
and indirectly affect the value of its stock index and currency
positions.  Interest rate movements in one country, as well as
relative interest rate movements between countries, materially
impact the Partnership?s profitability.  The Partnership?s
interest rate exposure is generally to interest rate fluctuations
in the U.S. and the other G-7 countries.  The G-7 countries
consist of France, the U.S., Britain, Germany, Japan, Italy, and
Canada.  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 September 30, 2007, 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
<page> indices.  At September 30, 2007, the Partnership?s primary
exposures were to the NASDAQ 100 (U.S.), NIKKEI 225 (Japan), TOPIX
(Japan), DAX (Germany), S&P 500 (U.S.), and Euro Stoxx 50
(European) 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.

Commodity.
Energy.  The largest market exposure of the Partnership at
September 30, 2007, was to the energy sector.  The
Partnership?s primary energy exposure was to futures
contracts in crude oil and its related products.  Price
movements in these markets result from geopolitical
developments, particularly in the Middle East, as well as
weather patterns, and other economic fundamentals.
Significant profits and losses, which have been experienced
in the past, are expected to continue to be experienced in
the future.  Natural gas has exhibited volatility in price
resulting from weather patterns and supply and demand factors
and will likely continue in this choppy pattern.



<page>
Metals.	 The third largest market exposure of the
Partnership at September 30, 2007, was to the metals sector.
The Partnership?s metals exposure was to fluctuations in the
price of precious metals, such as gold.  The Partnership also
had exposure to base metals, such as aluminum and copper.
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 Partnership will
continue to do so.

Soft Commodities and Agriculturals.  At September 30, 2007,
the Partnership had market exposure to the markets that
comprise these sectors.  Most of the exposure was to the
soybean meal, soybeans, coffee, and cocoa 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 September 30, 2007:

Foreign Currency Balances.  The Partnership?s primary foreign
currency balances at September 30, 2007, were in Japanese
<page> yen, euros, British pounds, Hong Kong dollars,
Australian dollars, and Swiss francs.  The Partnership
controls the non-trading risk of foreign currency balances by
regularly converting them back into U.S. dollars upon
liquidation of their respective positions.

Qualitative Disclosures Regarding Means of Managing Risk Exposure
The Partnership and the Trading Managers, separately, attempt to
manage the risk of the Partnership?s open positions in essentially
the same manner in all market categories traded.  Demeter attempts
to manage market exposure by diversifying the Partnership?s assets
among different 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 quarters ended March 31, 2007, and June 30, 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.



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SIGNATURE



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



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

                     By:   Demeter Management Corporation
                           (General Partner)

November 13, 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.