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

FORM 10-K

[X]	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 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 number 0-19046

	MORGAN STANLEY PORTFOLIO STRATEGY FUND L.P.

(Exact name of registrant as specified in its Limited Partnership Agreement)

		DELAWARE		        				13-3589337
(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

Securities registered pursuant to Section 12(b) of the Act:

									  Name of each exchange
    Title of each class 						  on which registered

		None								    None

Securities registered pursuant to Section 12(g) of the Act:

	Units of Limited Partnership Interest

	(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act.  Yes          No  X

Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act.  Yes         No   X

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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant?s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]

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 Act).  Yes       No  X

State the aggregate market value of the Units of Limited Partnership Interest
held by non-affiliates of the registrant.  The aggregate market value shall be
computed by reference to the price at which Units were sold as of the last
business day of the registrant?s most recently completed second fiscal quarter:
$27,228,724 at June 30, 2007.

DOCUMENTS INCORPORATED BY REFERENCE
	(See Page 1)


<page> <table> MORGAN STANLEY PORTFOLIO STRATEGY FUND L.P.
INDEX TO ANNUAL REPORT ON FORM 10-K
DECEMBER 31, 2007
                      <caption>                               Page No.

												<c>
DOCUMENTS INCORPORATED BY REFERENCE . . . . . . . . . . . . . . . . .1

Part I .

  Item 1.	Business . . . . . . . . . . . . . . . . . . . . . . . .2-5

  Item 1A.	Risk Factors . . . . . . . . . . . . . . . . . . . . . . .6

  Item 1B.	Unresolved Staff Comments. . . . . . . . . . . . . . . . .7

  Item 2.	Properties . . . . . . . . . . . . . . . . . . . . . . . .7

  Item 3.	Legal Proceedings. . . . . . . . . . . . . . . . . . . . .7

  Item 4.	Submission of Matters to a Vote of Security
           Holders. . . . . . . . . . . . . . . . . . . . . . . . . .7
Part II.

  Item 5.	Market for Registrant's Common Equity, Related
           Stockholder Matters and Issuer Purchases of
       Equity Securities . . . . . . . . . . . . . . . . . . . ..8

  Item 6.	Selected Financial Data. . . . . . . . . . . . . . . . . .9

  Item 7.	Management's Discussion and Analysis of
           Financial Condition and Results of Operations. . . . .10-31

  Item 7A.	Quantitative and Qualitative Disclosures About
           Market Risk. . . . . . . . . . . . . . . . . . . . . .31-45

  Item 8.	Financial Statements and Supplementary Data. . . . . . . 45

  Item 9.	Changes in and Disagreements with Accountants
           on Accounting and Financial Disclosure . . . . . . . . . 45

  Item 9A.	Controls and Procedures . . . . . . . . . .  . . . . .46-48

  Item 9A(T).Controls and Procedures. . . . . . . . . .  . . . . . .48

  Item 9B.	 Other Information	 . . . . . . . . . . . . . . . . . . . . 48

Part III.

  Item 10.	Directors, Executive Officers and Corporate
       Governance. . . . . . . . . . . . . . . . . . . . . . 49-56

  Item 11. Executive Compensation . . . . . . . . . . . . . .  . . .56

  Item 12. Security Ownership of Certain Beneficial Owners
           and Management and Related Stockholder Matters. . . . .  57

  Item 13. Certain Relationships and Related Transactions, and
       Director Independence. . . . . . . . . . . . . . . . . . 57

  Item 14. Principal Accountant Fees and Services . . . . . .  . 57-59
Part IV.
  Item 15. Exhibits and Financial Statement Schedules. . . . . ..60-61

</table>



<page>



              DOCUMENTS INCORPORATED BY REFERENCE


Portions of the following documents are incorporated by reference
as follows:



         Documents Incorporated             Part of Form 10-K

     Partnership's Prospectus dated
     May 12, 1997                                   I

     Annual Report to Morgan Stanley
     Portfolio Strategy Fund L.P.
	Limited Partners for the year
     Ended December 31, 2007		            II, III, and IV





























<page>	PART I
Item 1.  BUSINESS
(a) General Development of Business. Morgan Stanley Portfolio
Strategy Fund L.P. (the "Partnership") is a Delaware limited
partnership organized in 1990 to engage primarily in the
speculative trading of futures contracts, options on futures and
forward contracts, and forward contracts on physical commodities
and other commodity interests, including, but not limited to,
foreign currencies, financial instruments, metals, energy, and
agricultural products.  The Partnership commenced trading
operations on February 1, 1991.

The Partnership?s general partner is Demeter Management
Corporation (?Demeter?).  The commodity brokers are Morgan Stanley
& Co. Incorporated (?MS&Co.?) and Morgan Stanley & Co.
International plc (?MSIP?).  MS&Co. also acts as the counterparty
on all trading of foreign currency forward contracts.  Morgan
Stanley Capital Group Inc. (?MSCG?) acts as the counterparty on
all trading of options on foreign currency forward contracts.
MSIP serves as the commodity broker for trades on the London Metal
Exchange. The commodity brokers prior to April 1, 2007, were
Morgan Stanley DW Inc. (?Morgan Stanley DW?), MS&Co., and MSIP.
Demeter, MS&Co., MSIP, and MSCG are wholly-owned subsidiaries of
Morgan Stanley.  Hyman Beck & Company, Inc. (?Hyman Beck? or the
?Trading Advisor?) is the trading advisor to the Partnership.

<page> Prior to June 30, 2007, John W. Henry & Company, Inc.
(?JWH?) was the trading manager to the Partnership.

Demeter terminated the management agreement with JWH as of June
30, 2007.  Effective June 5, 2007, Demeter entered into a
management agreement with Hyman Beck to serve as the trading
advisor to the Partnership and to commence trading effective July
1, 2007, pursuant to its Global Portfolio trading program.

Effective April 1, 2007, Morgan Stanley DW merged into MS&Co.
Upon completion of the merger, the surviving entity, MS&Co.,
became the Partnership?s principal U.S. commodity broker-dealer.

Effective April 13, 2007, Morgan Stanley & Co. International
Limited changed its name to Morgan Stanley & Co. International
plc.

The Partnership began the year at a net asset value per unit of
limited partnership interest ("Unit(s)") of $2,213.24 and
returned (21.9)% to $1,728.36 on December 31, 2007.  For a more
detailed description of the Partnership's business see
subparagraph (c).

(b) Financial Information about Segments. For financial infor-
mation reporting purposes, the Partnership is deemed to engage in
one industry segment, the speculative trading of futures,
<page> forwards, and options on such contracts.  The relevant
financial information is presented in Items 6 and 8.

(c) Narrative Description of Business.  The Partnership is in the
business of speculative trading of futures, forwards, and
options, pursuant to trading instructions provided by its Trading
Advisor.  For a detailed description of the different facets of
the Partnership's business, see those portions of the
Partnership's prospectus, dated May 12, 1997 (the ?Prospectus?),
incorporated by reference in this Form 10-K, set forth below:


  Facets of Business

  1.  Summary                    1.  "Summary of the Prospectus"
                                     (Pages 1-12 of the
                                     Prospectus).

  2.  Futures, Options, and      2.  "Futures, Options, and
      Forwards Markets               Forwards Markets" (Pages
                                     48-52 of the Prospectus).

  3.  Partnership's Commodity    3.  "Investment Programs,
      Trading Arrangements and       Use of Proceeds, and
      Policies                       Trading Policies" (Pages
                                     42-44 of the Prospectus)
                                     and ?The Trading Advisor"
                                     (Pages 55-74 of the
                                     Prospectus).

  4.  Management of the          4.  "The Management Agreement"
      Partnership                    (Pages 76-77 of the
                                     Prospectus). "The
                                     General Partner" (Pages
                                     45-47 of the Prospectus),
                                     "The Commodity Brokers?
                                     (Page 75 of the
                                     Prospectus), and "The
                                     Limited Partnership
                                     Agreement" (Pages 79-82
                                     of the Prospectus).

<page>
  5.  Taxation of the Partner-   5.  "Material Federal Income
      ship's Limited Partners        Tax Considerations? and
                                     "State and Local Income
                                     Tax Aspects" (Pages 88-96
                                     of the Prospectus).


(d) Financial Information about Geographic Areas. The Partnership
has not engaged in any operations in foreign countries; however,
the Partnership (through the commodity brokers) enters into
forward contract transactions where foreign banks are the
contracting party and trades futures, forwards, and options on
foreign exchanges.

(e) Available Information.  The Partnership files an annual
report on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K, and all amendments to these reports with the
Securities and Exchange Commission (?SEC?). You may read and copy
any document filed by the Partnership at the SEC?s Public
Reference Room at 100 F Street, N.E., Washington, D.C.  20549.
Please call the SEC at 1-800-SEC-0330 for information on the
Public Reference Room.  The Partnership does not maintain an
internet website; however, the Partnership?s SEC filings are
available to the public from the EDGAR database on the SEC?s
website at ?http://www.sec.gov?.  The Partnership?s CIK number is
0000867495.


<page>
Item 1A.  RISK FACTORS
The following risk factors 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 ?Quantifying the Partnership?s
Trading Value at Risk? in Item 7A ?Quantitative and Qualitative
Disclosures About Market Risk? are deemed to be forward-looking
statements for purposes of the safe harbor, except for statements
of historical fact.  The qualitative disclosures, except for (A)
those disclosures that are statements of historical fact and (B)
the descriptions of how the Partnership manages its primary market
risk exposure, in the ?Qualitative Disclosure Regarding Primary
Trading Risk Exposures? in Item 7A ?Quantitative and Qualitative
Disclosures About Market Risk? are deemed to be forward-looking
statements for purposes of the safe harbor.

The Partnership is in the business of speculative trading of
futures, forwards, and options.  For a detailed description of the
risks that may affect the business of the Partnership, see the
discussion of risk factors as set forth in Item 7 ?Management?s
Discussion and Analysis of Financial Condition and Results of
Operations? and Item 7A ?Quantitative and Qualitative Disclosures
About Market Risk?.
<page>
Item 1B.  UNRESOLVED STAFF COMMENTS
Not applicable.

Item 2.  PROPERTIES
The Partnership?s executive and administrative offices are
located within the offices of MS&Co.  The MS&Co. offices utilized
by the Partnership are located at 522 Fifth Avenue, 13th Floor,
New York, NY  10036.

Demeter changed its address in June 2007 from 330 Madison Avenue,
8th Floor, New York, NY 10017 to 522 Fifth Avenue, 13th Floor,
New York, NY 10036.

Item 3.  LEGAL PROCEEDINGS
None.

Item 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.







<page> PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED
        STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
	   SECURITIES

(a) Market Information.  There is no established public trading
market for Units of the Partnership.

(b) Holders.  The number of holders of Units at December 31,
2007, was approximately 1,966.

(c) Distributions.  No distributions have been made by the
Partnership since it commenced trading operations on February 1,
1991.  Demeter has sole discretion to decide what distributions,
if any, shall be made to investors in the Partnership.  Demeter
currently does not intend to make any distributions of the
Partnership?s profits.
<page> <table> Item 6.  SELECTED FINANCIAL DATA (in dollars)


<caption>





                                     For the Years Ended December 31,
                            2007         2006         2005        2004        2003

				<c>			<c>		<c>		<c>		<c>


Total Trading Results
including interest
income			     (4,798,975) 	(5,164,044)	(13,922,992) 13,717,596	  13,484,883


Net Income (Loss)      (6,708,585)   (9,005,028)	(19,667,394)  6,760,313	   3,785,066


Net Income (Loss)
Per Unit (Limited
& General Partners)       (484.88)	   (514.53)     (870.58)	     315.31	      117.04


Total Assets  	     21,076,904    34,699,103	 54,201,405  84,451,024	  85,290,955


Total Limited
Partners' Capital 	     19,810,763	 33,711,181	 52,377,441	 82,610,177	  83,407,424



Net Asset Value
Per Unit          	       1,728.36	   2,213.24     2,727.77	   3,598.35	    3,283.04

</table>



<page>
Item 7. 	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
		CONDITION AND RESULTS OF OPERATIONS


Liquidity. The Partnership deposits its assets with Morgan
Stanley DW (through March 31, 2007), MS&Co., and MSIP as
commodity brokers in separate futures, forwards, and options
trading accounts established for the Trading Advisor.  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 Commodity Futures Trading Commission
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
<page> the daily 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 in the
future will affect the amount of funds available for investments
in futures, forwards, and options in subsequent periods.  It is
<page> 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.


Results of Operations.
General.  The Partnership's results depend on the Trading Advisor
and the ability of the Trading Advisor's trading program to take
advantage of price movements in the futures, forwards, and
options markets. The following presents a summary of the
Partnership?s operations for each of the three years in the
period ended December 31, 2007, and a general discussion of its
trading activities during each period.  It is important to note,
however, that the Trading Advisor trades in various markets at
different times and that prior activity in a particular market
does not mean that such market will be actively traded by the
Trading Advisor 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
Advisor?s trading activities on behalf of the Partnership during
the period in question.  Past performance is no guarantee of
future results.

<page> The Partnership?s results of operations set forth in the
Financial Statements 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, 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.

<page> The Partnership recorded total trading results including
interest income totaling $(4,798,975) and expenses totaling
$1,909,610, resulting in a net loss of $6,708,585 for the year
ended December 31, 2007.  The Partnership?s net asset value per
Unit decreased from $2,213.24 at December 31, 2006, to $1,728.36
at December 31, 2007.  Total redemptions for the year were
$7,343,822 and the Partnership?s ending capital was $20,029,070 at
December 31, 2007, a decrease of $14,052,407 from ending capital
at December 31, 2006, of $34,081,477.

The most significant trading losses of approximately 6.6% were
incurred within the currency sector from short positions in the
Japanese yen versus the British pound, euro, Australian dollar,
and Canadian dollar as the value of the Japanese yen corrected
higher against these currencies during February, March, and August
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.  Furthermore, losses were
recorded during November from short positions in the Japanese yen
versus the British pound and the euro as the value of the Japanese
yen reversed higher against these currencies following news that
the Japanese economy had expanded more than economists had
forecast during the third quarter.  Finally, losses were incurred
from long positions in the British pound, euro, and Australian
dollar versus the U.S. dollar, primarily during August, November,
and December, as the value of the U.S. dollar increased relative
<page> to these currencies after continued 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.  Within the global interest
rate sector, losses of approximately 5.7% were experienced
primarily during February, March, 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.  During September, October, and December, additional losses
were recorded from both long and short positions in European
interest rate futures as prices moved without consistent direction
amid uncertainty regarding the future of the global economy.
Within the global stock index sector, losses of approximately 4.8%
were incurred primarily during February and March from long
positions in European, U.S., and Japanese equity index futures as
prices reversed lower after former U.S. Federal Reserve Chairman
Alan Greenspan indicated that the U.S. economy could be headed for
a recession.  In addition, prices moved lower after worries that
tighter credit conditions in China and Japan might dampen global
growth first sent Chinese stock markets plunging before the sell-
off spread to other equity markets.  Additional losses were
incurred during July, August, and November from long positions in
European, U.S., and Japanese equity index futures as prices moved
sharply lower on persistent concerns that a collapsing U.S. sub-
<page> prime mortgage market and declining U.S. real estate prices
might pull the global economy into a recession.  Within the
agricultural markets, losses of approximately 4.1% were
experienced primarily during January, March, August, and October
from long futures positions in coffee as prices declined amid
technically based selling and rising supplies in Vietnam and
Brazil, two of the world?s largest producers.  Elsewhere in the
agricultural complex, short positions in cotton futures resulted
in losses, primarily during September and December, as prices
moved higher due to news that excessive rain might delay crop
production in parts of India. Additional losses of approximately
1.6% were recorded within the energy markets, primarily during
February and May, from long positions in natural gas futures as
prices decreased amid speculation that mild weather in the U.S.
might slow demand.  Finally, newly established short futures
positions in natural gas experienced losses during October and
December as prices reversed higher amid a decline in U.S.
inventories.  Smaller losses of approximately 0.3% were incurred
within the metals sector, primarily during March, May, July, and
November, from long futures positions in silver and gold as prices
declined amid heavy speculative selling and strength in the U.S.
dollar.

The Partnership recorded total trading results including interest
income totaling $(5,164,044) and expenses totaling $3,840,984,
resulting in a net loss of $9,005,028 for the year ended December
<page> 31, 2006. The Partnership?s net asset value per Unit
decreased from $2,727.77 at December 31, 2005, to $2,213.24 at
December 31, 2006.  Total redemptions for the year were
$9,845,517 and the Partnership?s ending capital was $34,081,477
at December 31, 2006, a decrease of $18,850,545 from ending
capital at December 31, 2005, of $52,932,022.

The most significant trading losses of approximately 14.9% were
experienced in the currency markets from both long and short
positions in the Japanese yen as the value of the yen moved
without consistent direction during the first quarter on
uncertainty regarding future interest rate policy by the Bank of
Japan.  Long positions in the Australian dollar versus the U.S.
dollar incurred additional losses during June as the U.S. dollar
reversed higher amid diplomatic developments between the U.S. and
Iran regarding Iran?s nuclear research program. Further losses
were incurred during the third quarter from short and long
positions in the Swiss franc and the euro as the value of these
currencies experienced short-term volatile price movement.
During October, losses were incurred from short positions in the
euro, Japanese yen, and Swiss franc versus the U.S. dollar as the
value of the U.S. dollar declined towards the latter half of the
month after the U.S. Department of Commerce reported slower-than-
expected growth in third quarter U.S. Gross Domestic Product, as
well as a faster-than-expected decline in consumer core
inflation. Furthermore, the value of the U.S. dollar continued to
<page> move lower after the U.S. Federal Reserve held interest
rates steady on October 25, 2006. Additionally, the Japanese yen
strengthened after the Swiss National Bank said it had raised its
holdings of the Japanese currency, while the euro moved higher
after the IFO survey showed an unexpected increase in German
business confidence.  Meanwhile, the Swiss franc strengthened in
tandem with the euro. Finally, in December, losses were
experienced from long positions in the Swiss franc, euro, and
British pound versus the U.S. dollar as the value of the U.S.
dollar moved higher relative to these currencies due to renewed
optimism about the health of the U.S. economy.  Additional losses
of approximately 2.1% were incurred in the energy markets from
long futures positions in crude oil and its related products as
prices declined during February after an announcement by Chinese
government authorities that China would place an emphasis on
prospecting alternative energy sources in the future, reports of
larger than expected supplies, and mild winter weather in the
U.S. Northeast. Further losses in the energy markets were
recorded during March from short positions in the aforementioned
markets as prices strengthened early in the month on supply fears
fueled by news of geopolitical tensions in Nigeria and Iran.
Elsewhere in the energy markets, losses were incurred during
March from short positions in natural gas futures as prices
advanced on news from the U.S. Department of Energy that domestic
reserves were lower-than-expected.   In November, losses were
experienced in the energy markets from short positions in gas oil
<page> and crude oil futures as prices rose on supply concerns
after a major Nigerian facility ceased production following a
hostage situation, and BP?s Prudhoe Bay, Alaska facility
experienced a pipeline delay.  Prices continued to move higher
amid concern over OPEC's production cut after the U.S. Department
of Energy reported a sharp fall in domestic inventories of
distillate products.  Smaller losses were incurred, during
November, from short positions in natural gas futures as prices
reversed higher on colder temperatures forecasted in the U.S. and
expectations of a decline in domestic inventories.  Partnership
losses of approximately 1.9% were recorded in the agricultural
complex, during the second quarter, from long positions in
soybean and coffee futures as soybean prices reversed lower on
news that supplies would increase and U.S. exports would
decrease, while coffee prices moved lower after estimates that
Brazil?s coffee crop was larger-than-expected.  Further losses in
the agricultural complex were incurred towards the end of June
from short positions in wheat, soybean, and corn futures as
prices reversed higher amid reports of stronger demand and large
volumes of speculative buying. Losses were also recorded during
July and August from long positions in wheat and corn futures as
prices fell amid favorable weather in the U.S. wheat and corn
belts, while losses were recorded from short positions in coffee
futures as prices increased at the beginning of August on news of
potential for a drought during Brazil's coffee-blooming season
and expectations of higher demand.  Finally in December,
<page> additional losses were incurred from long positions in
soybean and wheat futures as prices moved lower after news that
exports had slumped and favorable weather in the southern Great
Plains that boosted prospects for the winter crop.  A portion of
the Partnership?s overall losses for the year was offset by gains
of approximately 2.7% that were recorded in the metals sector
from long positions in copper, aluminum, and zinc futures as
prices rallied sharply to record highs amid strong global
industrial demand from the U.S., China, and India.  Elsewhere in
the metals markets, gains were also recorded from long futures
positions in gold and silver as prices moved higher, primarily
during the first half of the year, on continued geopolitical
concerns regarding Iran?s nuclear program, inflation concerns due
to high oil prices, and U.S. persistent demands from foreign
central banks.  Within the global stock index sector, gains of
approximately 0.9% were experienced during first quarter from
long positions in European, U.S., and Pacific Rim stock index
futures as equity prices trended higher on strong corporate
earnings and solid economic data.  Long positions in European
equity index futures also experienced gains during September as
prices rose amid falling oil prices, merger and acquisition
activity, and solid corporate earnings.  Further gains in the
global stock index market were experienced during October from
long positions in U.S., European, and Australian stock index
futures as prices advanced amid declining energy prices and
favorable government reports, which showed few signs of increased
<page> global inflationary pressure. Finally, U.S. equity index
futures prices increased after the U.S. Federal Reserve?s
decision to hold interest rates steady. Smaller gains of
approximately 0.2% were experienced in the global fixed-income
sector, primarily during March and April, from short positions in
European and U.S. fixed-income futures as prices trended lower
amid rising equity prices and strong economic data out of the
Euro-Zone, while U.S. fixed-income prices declined on investor
sentiment that the U.S. Federal Reserve would continue to
increase interest rates in order to combat inflation. U.S. fixed-
income prices also moved lower following the release of stronger-
than-expected economic data. Further profits in the global fixed-
income sector were incurred during August from long positions in
Japanese, U.S., and German fixed-income futures as prices
increased on higher demand amid concerns of a slowing global
economy and geopolitical tensions.

The Partnership recorded total trading results including interest
income totaling $(13,922,992) and expenses totaling $5,744,402,
resulting in a net loss of $19,667,394 for the year ended
December 31, 2005.  The Partnership?s net asset value per Unit
decreased from $3,598.35 at December 31, 2004, to $2,727.77 at
December 31, 2005.  Total redemptions for the year were
$11,048,198 and the Partnership?s ending capital was $52,932,022
at December 31, 2005, a decrease of $30,715,592 from ending
capital at December 31, 2004, of $83,647,614.
<page>
The most significant trading losses of approximately 14.9%
resulted in the currency markets throughout the first and third
quarters from positions in a variety of foreign currencies, such
as the British pound, Swiss franc, euro, Czech koruna, Norwegian
krone, South African rand, and both the Australian and New
Zealand dollars, versus the U.S. dollar.  During January, long
European currency positions against the U.S. dollar resulted in
losses after the U.S. dollar?s value reversed sharply higher amid
conflicting economic data and speculation for higher U.S.
interest rates.  Losses during February were recorded from newly
established short European currency positions against the U.S.
dollar after the U.S. dollar weakened due to comments by U.S.
Federal Reserve Chairman Alan Greenspan regarding the
considerable U.S. Current-Account deficit and the U.S. dependence
on foreign investment.  During March, losses resulted from long
European currency positions versus the U.S. dollar after the U.S.
dollar reversed sharply higher due to an increase in U.S.
interest rates and concerns for inflation.  During August, long
U.S. dollar positions against the British pound and Swiss franc
resulted in losses as the value of the U.S. dollar declined amid
higher crude oil prices, lower durable goods orders, the U.S.
trade imbalance, and economic warnings from U.S. Federal Reserve
Chairman Alan Greenspan.  During September, losses were recorded
from short U.S. dollar positions against the British pound, Swiss
franc, and euro as the value of the U.S. dollar advanced amid
<page> bolstered expectations that the U.S. Federal Reserve would
continue to raise interest rates.  Meanwhile, the British pound
weakened on expectations for further interest rate cuts by the
Bank of England.  In addition, the values of the Swiss franc and
euro moved lower amid weaker growth forecasts for the European
economy and developments of political uncertainty stemming from
news that Germany?s incumbent Chancellor, Gerhard Schroeder,
would not concede defeat to the opposition leader Angela Merkel
in the days after the election.  Partnership losses of
approximately 8.6% were recorded in the global interest rate
markets during February from long positions in U.S., European,
and Japanese interest rate futures as prices reversed lower after
positive economic data and expectations for higher interest rates
reduced investor demand for fixed-income investments.  Short
positions in European and Japanese interest rate futures held
during March also recorded losses after prices strengthened amid
overall weakness in global equity markets.  During July, losses
resulted from long positions in U.S., European, and Japanese
interest rate futures as prices reversed lower.  European fixed-
income prices declined amid strength in regional equity markets,
and news of terrorist attacks on the London transport network.
Long U.S. interest rate futures positions experienced losses as
prices declined following a rise in interest rates and after the
U.S. Labor Department released its June employment report.
Within the Japanese interest rate markets, losses were recorded
as prices declined following positive economic comments by the
<page> Japanese Ministry of Finance.  During August, short
positions in U.S., Japanese, and European fixed-income futures
incurred losses as prices reversed higher on worries about the
global economic impact of Hurricane Katrina.  Prices for U.S.
interest rate futures also rallied on growing speculation that
the U.S. Federal Reserve might stop raising interest rates sooner
than previously thought.  Within the Japanese interest rate
futures markets, a bigger-than-expected decline in Japanese
industrial output for July, also contributed to higher prices.
Long positions in U.S. and European fixed-income futures held
during September incurred losses as prices weakened after
measurements of Hurricane Katrina?s economic impact revealed that
it was not serious enough to deter the U.S. Federal Reserve from
its policy of raising interest rates.  European fixed-income
prices also fell in response to expectations that European
Central Bank representatives would leave European interest rates
unchanged, despite the fact that European Central Bank
representatives had openly discussed the eventual need to hike
rates due to concern for inflation risks.  Additional losses
stemmed from long positions in Australian bond futures.  During
the fourth quarter, losses resulted from short futures positions
in global interest rate futures as fixed-income prices reversed
higher amid reduced expectations for further increases in
interest rates by central banks.  In the energy markets, losses
of approximately 4.5% were incurred in the energy markets
primarily during the second and fourth quarters from long futures
<page> positions in crude oil and its related products, as well
as in natural gas, after prices declined amid a reduction in
demand, an economic slowdown in parts of the U.S. affected by
Hurricanes Katrina and Rita, and reports that more refineries in
the U.S. Gulf region had resumed operations at full capacity.
Prices continued to decline during October as supply worries
eased on signs of adequate fuel stocks in the U.S.  Also
impacting long futures positions in natural gas was a sharp price
reversal during December caused by weak demand, mild weather in
Europe and the U.S., and the release of the U.S. government data
which showed a smaller-than-expected decline in supplies.  Newly
established short futures positions in crude oil and its related
products held during December also incurred losses after prices
finished higher on news of a rebound in energy demand.
Additional losses of approximately 1.4% were incurred in the
metals markets throughout a majority of the year from positions
in precious metals futures as gold and silver prices fluctuated,
driven by volatility in the U.S. dollar, as well as supply and
demand concerns.  In the agricultural markets, losses of
approximately 1.4% resulted during the second quarter from
futures positions in cocoa and corn as prices traded
inconsistently in response to technically based trading activity
and supply and demand concerns.  Long futures positions in wheat
held during April also resulted in losses after prices fell in
response to favorable weather in growing regions and reduced
foreign demand. Futures positions in cotton also experienced
<page> losses as prices moved lower during May on supply
increases and then reversed higher during June amid weather-
related concerns.  During the fourth quarter, long futures
positions in cotton resulted in losses as prices reversed lower
in response to weaker demand.  Short futures positions in corn,
soybeans, and its related products established later in the
quarter also incurred losses.  A portion of the Partnership?s
overall losses for the year was offset by gains of approximately
2.4% achieved in the global stock index markets during the third
and fourth quarters from long positions in Japanese stock index
futures as prices increased amid the release of positive Japanese
economic data, falling energy prices, and investor optimism for
continued improvement in the Japanese economy during 2006.

For an analysis of unrealized gains and (losses) by contract type
and a further description of 2007 trading results, refer to the
Partnership?s Annual Report to Limited Partners for the year ended
December 31, 2007, which is incorporated by reference to Exhibit
13.01 of this Form 10-K.

The Partnership's gains and losses are allocated among its
partners for income tax purposes.

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
<page> commitments to make future payments that would affect its
liquidity or capital resources.

Market Risk.
The Partnership is a party to financial instruments with elements
of off-balance sheet market and credit risk.  The Partnership
trades futures contracts, options on futures and forward
contracts, and forward contracts on physical commodities and
other commodity interests, including, but not limited to, foreign
currencies, financial instruments, metals, energy, and
agricultural products. In entering into these contracts, the
Partnership is subject to the market risk that such contracts may
be significantly influenced by market conditions, such as
interest rate volatility, resulting in such contracts? being less
valuable.  If the markets should move against all of the
positions held by the Partnership at the same time, and the
Trading Advisor was unable to offset positions of the
Partnership, the Partnership could lose all of its assets and
limited partners would realize a 100% loss.

In addition to the Trading Advisor's internal controls, the
Trading Advisor must comply with the Partnership?s trading
policies that include standards for liquidity and leverage that
must be maintained.  The Trading Advisor and Demeter monitor the
Partnership's trading activities to ensure compliance with the
trading policies and Demeter can require the Trading Advisor to
<page> modify positions of the Partnership if Demeter believes
they violate the Partnership's trading policies.

Credit Risk.
In addition to market risk, in entering into futures, forward,
and options contracts there, is a credit risk to the Partnership
that the counterparty on a contract will not be able to meet its
obligations to the Partnership.  The ultimate counterparty or
guarantor of the Partnership for futures, forward, and options
contracts traded in the United States and most foreign exchanges
on which the Partnership trades is the clearinghouse associated
with such exchange.  In general, a clearinghouse is backed by the
membership of the exchange and will act in the event of non-
performance by one of its members or one of its member?s
customers, which should significantly reduce this credit risk.
There is no assurance that a clearinghouse, exchange, or other
exchange member will meet its obligations to the Partnership, and
Demeter and the commodity brokers will not indemnify the
Partnership against a default by such parties. Further, the law
is unclear as to whether a commodity broker has any obligation to
protect its customers from loss in the event of an exchange or
clearinghouse defaulting on trades affected for the broker?s
customers.  In cases where the Partnership trades off-exchange
forward contracts with a counterparty, the sole recourse of the
Partnership will be the forward contract?s counterparty.

<page> Demeter deals with these credit risks of the Partnership
in several ways.  First, Demeter monitors the Partnership?s
credit exposure to each exchange on a daily basis.  The commodity
brokers inform the Partnership, as with all of their customers,
of the Partnership?s net margin requirements for all of its
existing open positions, and Demeter has installed a system which
permits it to monitor the Partnership?s potential net credit
exposure, exchange by exchange, by adding the unrealized trading
gains on each exchange, if any, to the Partnership?s margin
liability thereon.

Second, the Partnership?s trading policies limit the amount of its
Net Assets that can be committed at any given time to futures
contracts and require a minimum amount of diversification in the
Partnership?s trading, usually over several different products and
exchanges.  Historically, the Partnership?s exposure to any one
exchange has typically amounted to only a small percentage of its
total Net Assets and on those relatively few occasions where the
Partnership?s credit exposure climbs above such level, Demeter
deals with the situation on a case by case basis, carefully
weighing whether the increased level of credit exposure remains
appropriate.  Material changes to the trading policies may be made
only with the prior written approval of the limited partners
owning more than 50% of Units then outstanding.

<page> Third, with respect to forward and options on forward
contract trading, the Partnership trades with only those
counterparties which Demeter, together with MS&Co., has determined
to be creditworthy.  The Partnership presently deals with MS&Co.
as the sole counterparty on all trading of foreign currency
forward contracts and MSCG as the sole counterparty on all trading
of options on foreign currency forward contracts.

For additional information, see the ?Financial Instruments?
section under ?Notes to Financial Statements? in the Partnership?s
Annual Report to Limited Partners for the year ended December 31,
2007, which is incorporated by reference to Exhibit 13.01 of in
this Form 10-K.

Inflation has not been a major factor in the Partnership?s
operations.

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
became effective for the Partnership as of January 1, 2007.  The
Partnership has determined that the adoption of FIN 48 did not
<page> have a material impact on the Partnership?s Financial
Statements. The Partnership files U.S. federal and state tax
returns.  The 2004 through 2007 tax years generally remain
subject to examination by U.S. federal and most state tax
authorities.

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.

Item 7A.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.

<page> The futures, forwards, and options on such contracts
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 and forward currency options 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.

<page> 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 experiences 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 Partner-
ship?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
<page> 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 Advisor 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 risks 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
<page> 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
is used to numerically quantify market risk for historic
reporting purposes only and is not utilized by either Demeter or
the Trading Advisor 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
<page> 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 December 31, 2007 and 2006.
At December 31, 2007 and 2006, the Partnership?s total capital-
ization was approximately $20 million and $34 million,
respectively.

Primary Market          December 31, 2007   December 31, 2006
Risk Category             Value at Risk       Value at Risk
Currency                		(1.71)%			(3.43)%

Interest Rate      			(1.18)%             (1.45)

Equity                    	(0.28)   	 		(0.72)

Commodity                	(0.75)   			(0.68)

Aggregate Value at Risk   	(2.63)%		 	(3.76)%


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 on such contracts, the
composition of its trading portfolio can change significantly over
any given time period, or even within a single trading day.  Such
<page> changes could positively or negatively materially impact
market risk as measured by VaR.

The table below supplements the December 31, 2007, 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 January 1, 2007, through December 31,
2007.

The Partnership?s low VaR, as a percentage of total Net Assets
for the four quarter-end reporting periods from January 1, 2007,
through December 31, 2007, was zero for the currency and
commodity market risk categories as there were no open positions
in the Partnership at June 30, 2007.


Primary Market Risk Category        High        Low      Average
Currency 						(1.71)%	     -   %   (1.02)%
Interest Rate					(1.18)	   (0.10)	   (0.64)
Equity 						(0.28)	   (0.04)	   (0.13)
Commodity 					(0.78)	     -	   (0.54)
Aggregate Value at Risk 			(2.63)%	   (0.12)%   (1.49)%

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
<page> 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 fluctuation applied to
current trading positions while future risk depends on future
positions;
*	VaR using a one-day time horizon does not fully capture the
market risk of positions that cannot be liquidated or hedged
within one day; and
*	the historical market risk factor data used for VaR
estimation may provide only limited insight into losses that
could be incurred under certain unusual market movements.

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

The VaR tables provided present the results of the Partnership?s
VaR for each of the Partnership?s market risk exposures and on an
<page> aggregate basis at December 31, 2006, and for the four
quarter-end reporting periods during calendar year 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. (Morgan Stanley DW, prior to
April 1, 2007); as of December 31, 2007, such amount is equal to
approximately 94% of the Partnership?s net asset value.  A
decline in short-term interest rates would result in a decline in
the Partnership?s cash management income.  This cash flow risk is
not considered to be material.

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,
<page> 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 Advisor 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 expro-
priations, 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.
<page>
The following were the primary trading risk exposures of the
Partnership at December 31, 2007, by market sector.  It may be
anticipated, however, that these market exposures will vary
materially over time.

Currency.   The largest market exposure of the Partnership at
December 31, 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-rates - i.e., positions
between two currencies other than the U.S. dollar.  At December
31, 2007, the Partnership?s major exposures were to the euro,
Japanese yen, and British pound currency crosses, as well as to
outright U.S. dollar positions.  Outright positions consist of
the U.S. dollar vs. other currencies.  These other currencies
include major and minor currencies.  Demeter does not anticipate
that the risk associated with the Partnership?s currency trades
will change significantly in the future.

Interest Rate.  The third largest market exposure of the
Partnership at December 31, 2007, was to the global interest rate
sector.  This exposure was primarily spread across European,
<page> U.S., Japanese, Canadian, 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
primary interest rate exposure is generally to interest rate
fluctuations in the U.S. and the other G-7 countries? interest
rates.  The G-7 countries consist of France, the U.S., Britain,
Germany, Japan, Italy, and Canada.  However, the Partnership also
takes futures positions in the government debt of smaller
countries ? e.g., Australia.  Demeter anticipates that the G-7
countries? interest rates will remain the primary interest rate
exposures were 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 December 31, 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
indices.  At December 31, 2007, the Partnership?s primary
exposures were to the NIKKEI 225 (Japan) and S&P 500 (U.S.) stock
<page> indices.  The Partnership is exposed to the risk of
adverse price trends or static markets in the Japanese and U.S.
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.
Metals.	 The second largest market exposure of the
Partnership at December 31, 2007, was to the metals sector.
The Partnership's metals exposure was to fluctuations in the
price of precious metals, such as gold, and base metals,
such as copper and zinc.  Economic forces, supply and demand
inequalities, geopolitical factors, and market expectations
influence price movements in these markets.  The Trading
Advisor utilizes the trading system(s) to take positions
when market opportunities develop, and Demeter anticipates
that the Trading Advisor will continue to do so.

Soft Commodities and Agriculturals.  At December 31, 2007,
the Partnership had market exposure to the markets that
comprise these sectors.  Most of the exposure was to the
cocoa, soybean oil, and corn markets.  Supply and demand
inequalities, severe weather disruptions, and market
expectations affect price movements in these markets.

<page> Energy.  At December 31, 2007, the Partnership had
market exposure to the energy sector.  The Partnership?s
primary energy exposure was to futures contracts in natural
gas.  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 December 31, 2007:

Foreign Currency Balances. The Partnership?s primary foreign
currency balances at December 31, 2007, were in euros,
Japanese yen, British pounds, Australian dollars, Swiss
francs, Canadian dollars, Mexican pesos, and Turkish lira.
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 Advisor, 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 market sectors and trading
approaches, and by monitoring the performance of the Trading
<page> Advisor daily. In addition, the Trading Advisor
establishes 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 Advisor.

Item 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements are incorporated by reference to the
Partnership's Annual Report, which is filed as Exhibit 13.01
hereto.


Supplementary data specified by Item 302 of Regulation S-K:
<page>         Summary of Quarterly Results (Unaudited)


Quarter   Total Trading Results        Net          Net Income/
Ended   including interest income  Income/(Loss)  (Loss) Per Unit

2007
March 31        $(3,630,645)       $(4,270,996)       $(283.76)
June 30           2,261,889          1,795,000          128.38
September 30     (2,474,394)        (2,980,380)        (226.52)
December 31        (955,825)        (1,252,209)        (102.98)

Total           $(4,798,975)       $(6,708,585)       $(484.88)



2006
March 31        $(3,573,495)       $(4,773,134)       $(244.98)
June 30             374,599           (534,288)         (40.76)
September 30        697,061           (187,449)          (8.31)
December 31      (2,662,209)        (3,510,157)        (220.48)

Total           $(5,164,044)       $(9,005,028)       $(514.53)



Item 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
	  AND FINANCIAL DISCLOSURE

None.

Item 9A.  CONTROLS AND PROCEDURES
As of the end of the period covered by this annual 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.

Management?s Report on Internal Control Over Financial Reporting
Demeter is responsible for the management of the Partnership.
<page>
Management of Demeter (?Management?) is responsible for
establishing and maintaining adequate internal control over
financial reporting.  The internal control over financial
reporting is designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of
Financial Statements for external purposes in accordance with
generally accepted accounting principles.

The Partnership?s internal control over financial reporting
includes those policies and procedures that:

*	Pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and
dispositions of the assets of the Partnership;

*	Provide reasonable assurance that transactions are recorded
as necessary to permit preparation of Financial Statements
in accordance with generally accepted accounting principles,
and that the Partnership?s  transactions are being made only
in accordance with authorizations of Management and
directors; and

*	Provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of
the Partnership?s assets that could have a material effect
on the Financial Statements.
<page>
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of the Partnership?s
internal control over financial reporting as of December 31,
2007.  In making this assessment, Management used the criteria
set forth by the Committee of Sponsoring Organizations of the
Treadway Commission in Internal Control-Integrated Framework.
Based on our assessment and those criteria, Management believes
that the Partnership maintained effective internal control over
financial reporting as of December 31, 2007.

Attestation Report of the Registered Public Accounting Firm
Deloitte & Touche LLP, the Partnership?s independent registered
public accounting firm, has issued an attestation report on the
Partnership?s internal control over financial reporting.  This
report, which expresses an unqualified opinion on the
Partnership?s internal control over financial reporting, appears
under ?Report of Independent Registered Public Accounting Firm?
in the Partnership?s Annual Report to Limited Partners for the
year ended December 31, 2007.
<page>
Changes in Internal Control over Financial Reporting
There have been no material changes during the period covered by
this annual 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 9A(T).  CONTROLS AND PROCEDURES
Not applicable.

Item 9B.  OTHER INFORMATION
None.

<page> PART III

Item 10.  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

There are no directors or executive officers of the Partnership.
The Partnership is managed by Demeter, its general partner.


Directors and Officers of the General Partner
The directors and executive officers of Demeter are as follows:

Effective May 1, 2006, Mr. Walter Davis, age 42, is a Director,
Chairman of the Board of Directors, and President of Demeter.
Mr. Davis is an Executive Director at Morgan Stanley and the
Director of Morgan Stanley?s Managed Futures Department.  Prior
to joining Morgan Stanley in 1999, Mr. Davis worked for Chase
Manhattan Bank?s Alternative Investment Group.  Throughout his
career, Mr. Davis has been involved with the development,
management, and marketing of a diverse array of commodity pools,
hedge funds, and other alternative investment funds.  Mr. Davis
received an M.B.A in Finance and International Business from the
Columbia University Graduate School of Business in 1992 and a
B.A. in Economics from the University of the South in 1987.

Effective December 5, 2002, Mr. Frank Zafran, age 52, is a
Director of Demeter.  Mr. Zafran is a Managing Director at Morgan
Stanley and, in January 2007, was named Director of Annuity and
Insurance Services. Previously, Mr. Zafran was Director of the
Wealth Solutions Division. Mr. Zafran joined the firm in 1979 and
<page> has held various positions in Corporate Accounting and the
Insurance Department, including Senior Operations Officer ?
Insurance Division, until his appointment in 2000 as Director of
Retirement Plan Services, responsible for all aspects of 401(k)
Plan Services, including marketing, sales, and operations.
Subsequently, he was named Chief Administrative Officer of Morgan
Stanley?s Client Solution Division in 2002.  Mr. Zafran received
a B.S. degree in Accounting from Brooklyn College, New York.

Effective March 31, 2003, Mr. Douglas J. Ketterer, age 42, is a
Director of Demeter.  Mr. Ketterer is a Managing Director of
Morgan Stanley and is head of the Client Solutions Group.  The
Client Solutions Group is comprised of a number of departments
(including, among others, the Alternative Investments Group,
Consulting Services Group, Annuities & Insurance Department,
Mutual Fund Department, and Retirement & Equity Solutions Group),
which offer products and services through Morgan Stanley?s Global
Wealth Management Group. Mr. Ketterer joined Morgan Stanley in
1990 and has served in many roles in the corporate
finance/investment banking, asset management, and wealth
management divisions of the firm. Mr. Ketterer received his M.B.A
from New York University?s Leonard N. Stern School of Business
and his B.S. in Finance from the University at Albany?s School of
Business.


<page> Effective May 1, 2005, Mr. Harry Handler, age 49, is a
Director of Demeter. Mr. Handler serves as an Executive Director
of Morgan Stanley in the Global Wealth Management Group.  Mr.
Handler works in the Capital Markets Division as Equity Risk
Officer. Additionally, Mr. Handler serves as Chairman of the
Global Wealth Management Group?s Best Execution Committee and
manages the Stock Lending business.  In his prior position, Mr.
Handler was a Systems Director in Information Technology, in
charge of Equity and Fixed Income Trading Systems along with the
Special Products, such as Unit Trusts, Managed Futures, and
Annuities.  Prior to his transfer to the Information Technology
Area, Mr. Handler managed the Foreign Currency and Precious
Metals Trading Desk of Dean Witter, a predecessor company to
Morgan Stanley.  He also held various positions in the Futures
Division where he helped to build the Precious Metals Trading
Operation of Dean Witter.  Before joining Dean Witter, Mr.
Handler worked at Mocatta Metals as an Assistant to the Chairman.
His roles at Mocatta Metals included stints on the Futures Order
Entry Desk and the Commodities Exchange Trading Floor.
Additional work included building a computerized Futures Trading
System and writing a history of the company.  Mr. Handler
graduated on the Dean?s List from the University of Wisconsin-
Madison with a B.A. degree and a double major in History and
Political Science.

<page> Effective May 1, 2006, Mr. Richard D. Gueren, age 46, is a
Director of Demeter.  Mr. Gueren is an Executive Director, Retail
Options and Transactional Futures of Morgan Stanley.  He is
responsible for marketing the options and futures product to the
firm?s approximately 600 offices and approximately 9,000
Financial Advisors/Investment Representatives.  Mr. Gueren first
joined Dean Witter in August 1986, as a Compliance Analyst and in
October 1987 became a member of the Options Strategy/Trading
team.  In 1997, Dean Witter merged with Morgan Stanley.  Mr.
Gueren is the firm?s Senior Registered Options Principal.  He is
a member of several Morgan Stanley committees, including the
firm?s National Error Committee and Best Execution Committee.  He
is an advisory member to the Credit & Risk Committee.  Mr. Gueren
is also an active member of several exchange and industry
committees, including the Managing Directors Committee for the
Chicago Board Options Exchange, and the Retail Advisory
Committees for the American Stock Exchange, the Philadelphia
Stock Exchange, the Pacific Stock Exchange, and the International
Securities Exchange. Mr. Gueren is also an Industry Arbitrator
for FINRA and has been seated on numerous industry cases over the
past eight years. He has also been asked to testify as an expert
witness regarding options on numerous occasions.  Mr. Gueren
holds a Bachelor of Science degree in Economics from the
University of Hartford.

<page> Effective May 1, 2006, Mr. Michael P. McGrath, age 39, is
a Director of Demeter.  Mr. McGrath is a Managing Director at
Morgan Stanley and currently serves as the Chief Operating
Officer for Private Wealth Management Americas, including Private
Wealth Management North America and Private Wealth Management
Latin America.  He is also the Chairman of the Global Wealth
Management Alternative Investments Due Diligence Committee.
Prior to his current role, Mr. McGrath was the Director of
Product Development for Morgan Stanley?s Global Wealth Management
Group.  Mr. McGrath joined Morgan Stanley in May 2004, from
Nuveen Investments, a publicly traded investment management
company headquartered in Chicago, Illinois. At Nuveen, Mr.
McGrath served as a Managing Director and oversaw the development
of alternative investment products catering to the ultra-high net
worth investor. Mr. McGrath received his B.A. degree from Saint
Peter?s College in 1990 and his M.B.A in Finance from New York
University in 1996.

Effective May 1, 2006, Mr. Andrew Saperstein, age 41, is a
Director of Demeter.  Mr. Saperstein is Chief Operating Officer
of National Sales for the Global Wealth Management Group, and
serves as a member of the group?s Executive Committee. He is also
a member of the Morgan Stanley Management Committee.  One of the
largest businesses of its kind in the world with $690 billion in
client assets, the Global Wealth Management Group provides a
<page> range of wealth management products and services to
individuals, businesses, and institutions.  These include
brokerage and investment advisory services, financial and wealth
planning, credit and lending, banking and cash management,
annuities and insurance, retirement and trust.  Prior to joining
Morgan Stanley in March 2006, Mr. Saperstein was with Merrill
Lynch as First Vice President and Chief Operating Officer of the
Direct Division, and served as a member of the Global Private
Client Executive Committee.  In this capacity, he was responsible
for the oversight of the online brokerage unit and the Financial
Advisory Center, including the Retail Client Relationship
Management group, the Services, Operations and Technology group,
the Client Acquisition team, and the Business Development and
Analysis team.  Mr. Saperstein joined Merrill Lynch in November
2001.  Prior to Merrill Lynch, Mr. Saperstein was a partner in
the Financial Institutions group of McKinsey & Co.  Additionally,
he served as co-leader of both the North American Asset
Management and Brokerage Practice and North American Recruiting.
Mr. Saperstein graduated cum laude from Harvard Law School and
summa cum laude from the Wharton School/College of Arts and
Sciences at the University of Pennsylvania with a dual degree in
Economics and Finance.

Effective September 22, 2006, Mr. Jacques Chappuis, age 38, is a
Director of Demeter.  Mr. Chappuis is a Managing Director of
Morgan Stanley and Head of Alternative Investments for the Global
<page> Wealth Management Group.  Prior to joining Morgan Stanley
in August 2006, Mr. Chappuis was Head of Alternative Investments
for Citigroup?s Global Wealth Management Group and prior to that,
a Managing Director at Citigroup Alternative Investments.  Before
joining Citigroup, Mr. Chappuis was a consultant at the Boston
Consulting Group, where he focused on the financial services
sector, and a corporate finance Associate at Bankers Trust
Company.  Mr. Chappuis received an M.B.A in Finance, with honors,
from the Columbia University Graduate School of Business in 1998
and a B.A. in Finance from Tulane University in 1991.

Effective December 3, 2007, Mr. Christian Angstadt, age 46,
serves as Chief Financial Officer of Demeter.  He is an Executive
Director within Morgan Stanley?s Financial Control Group.  Mr.
Angstadt currently serves as Chief Financial Officer for Morgan
Stanley Trust FSB and Morgan Stanley Trust NA, and is responsible
for the governance and overall financial management of these
regulated banks (appointed Chief Financial Officer in May 2003).
 Since joining Morgan Stanley in April 1990, Mr. Angstadt has
held several positions within the firm?s Financial Control Group,
mostly supporting the Asset Management segment (including Chief
Financial Officer for Morgan Stanley Asset Management
Operations).  Mr. Angstadt received a B.A. in Accounting from
Montclair University.

All of the foregoing directors have indefinite terms.
<page>
Effective December 3, 2007, Mr. Lee Horwitz no longer serves as
Chief Financial Officer of Demeter.

Code of Ethics
The Partnership has not adopted a code of ethics that applies to
the Partnership?s principal executive officer, principal
financial officer, principal accounting officer or controller, or
persons performing similar functions.  The Partnership is
operated by its general partner, Demeter.  The President, Chief
Financial Officer, and each member of the Board of Directors of
Demeter are employees of Morgan Stanley and are subject to the
code of ethics adopted by Morgan Stanley, the text of which can
be viewed on Morgan Stanley?s website at http://www.morganstanley
..com/ourcommitment/codeofconduct.html.

The Audit Committee
The Partnership is operated by its general partner, Demeter, and
has no audit committee and, thus, no audit committee financial
expert.

Item 11.  EXECUTIVE COMPENSATION
The Partnership has no directors and executive officers.  As a
limited partnership, the business of the Partnership is managed by
Demeter, which is responsible for the administration of the
business affairs of the Partnership but receives no compensation
for such services.
<page> Item 12. 	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
        OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

(a)	Security Ownership of Certain Beneficial Owners - At December
31, 2007, there were no persons known to be beneficial owners of
more than 5 percent of the Units.

(b)	Security Ownership of Management - At December 31, 2007,
Demeter owned 126.309 Units of general partnership interest,
representing a 1.09 percent interest in the Partnership.


(c)	Changes in Control ? None.

Item 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
      DIRECTOR INDEPENDENCE

Refer to Note 2 - "Related Party Transactions" of "Notes to
Financial Statements", in the accompanying Annual Report to
Limited Partners for the year ended December 31, 2007, which is
incorporated by reference to Exhibit 13.01 of this Form 10-K.  In
its capacity as the Partnership's retail commodity broker, MS&Co.
received commodity brokerage commissions (paid and accrued by the
Partnership) of $1,283,415 for the year ended December 31, 2007.

Item 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES
The Partnership pays accounting fees as discussed in Note 1 to
the Financial Statements, "Operating Expenses", in the Annual
Report to the Limited Partners for the year ended December 31,
2007.
<page>
(1)  Audit Fees.  The aggregate fees for professional services
rendered by Deloitte & Touche LLP in connection with their audit
of the Partnership?s Financial Statements and review of the
Financial Statements included in the Quarterly Reports on Form
10-Q, audit of Management?s assessments of the effectiveness of
the internal control over financial reporting, and in connection
with statutory and regulatory filings were approximately $47,150
for the year ended December 31, 2007, and $47,584 for the year
ended December 31, 2006.

(2)	Audit-Related Fees.  None.

(3)	Tax Fees.  The Partnership did not pay Deloitte & Touche LLP
any amounts in 2007 and 2006 for professional services in
connection with tax compliance, tax advice, and tax planning.  The
Partnership engaged another unaffiliated professional firm to
provide services in connection with tax compliance, tax advice,
and tax planning.

(4)  All Other Fees.  None.

Because the Partnership has no audit committee, the Board of
Directors of Demeter, its general partner, functions as the audit
committee with respect to the Partnership.  The Board of
Directors of Demeter has not established pre-approval policies
<page> and procedures with respect to the engagement of audit or
permitted non-audit services rendered to the Partnership.
Consequently, all audit and permitted non-audit services provided
by Deloitte & Touche LLP are approved by the Board of Directors
of Demeter and communicated to Morgan Stanley.


<page> PART IV
Item 15.	EXHIBITS AND FINANCIAL STATEMENT SCHEDULES


1. Listing of Financial Statements
   The following Financial Statements and report of independent
   registered public accounting firm, all appearing in the
   accompanying Annual Report to Limited Partners for the year
   ended December 31, 2007, are incorporated by reference to
   Exhibit 13.01 of this Form 10-K:
?	Report of Deloitte & Touche LLP, independent registered
public accounting firm, for the years ended December
31, 2007, 2006, and 2005.

?	Statements of Financial Condition, including the
Schedules of Investments, as of December 31, 2007 and
2006.

?	Statements of Operations, Changes in Partners' Capital,
and Cash Flows for the years ended December 31, 2007,
2006, and 2005.

?	Notes to Financial Statements.

   With the exception of the aforementioned information and the
   information incorporated in Items 7, 8, and 13, the Annual
   Report to Limited Partners for the year ended December 31,
   2007, is not deemed to be filed with this report.

2. Listing of Financial Statement Schedules
   No Financial Statement schedules are required to be filed with
   this report.


<page>
3. Exhibits
   For the exhibits incorporated by reference or filed herewith
   to this report, refer to Exhibit Index on Pages E-1 to E-2.


<page> SIGNATURES

Pursuant to the requirements of Sections 13 or 15(d) 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 PORTFOLIO STRATEGY FUND L.P.
                                (Registrant)

                           BY:  Demeter Management Corporation,
                                General Partner

March 28, 2008             BY: /s/ Walter Davis
                                   Walter Davis,
                                   President


Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.

Demeter Management Corporation.


BY: /s/ 	Walter Davis	                    	  	  March 28, 2008
	  	Walter Davis, President

    /s/    Frank Zafran       	             	  	  March 28, 2008
           Frank Zafran, Director

    /s/    Douglas J. Ketterer   	               	  March 28, 2008
           Douglas J. Ketterer, Director

    /s/    Harry Handler		               	  March 28, 2008
	    	Harry Handler, Director

    /s/ 	Richard D. Gueren     		         	  	  March 28, 2008
	 	Richard D. Gueren, Director

    /s/	Michael P. McGrath		             	  March 28, 2008
	  	Michael P. McGrath, Director

    /s/  	Andrew Saperstein	                   	  March 28, 2008
	    	Andrew Saperstein, Director

    /s/  	Jacques Chappuis		                   	  March 28, 2008
	    	Jacques Chappuis, Director

    /s/  	Christian Angstadt	                     	  March 28, 2008
	    	Christian Angstadt, Chief Financial Officer





<page>
	EXHIBIT INDEX
ITEM

3.01	Amended and Restated Limited Partnership Agreement of the
Partnership, is incorporated by reference to Exhibit A of
the Partnership?s Prospectus, dated May 12, 1997, filed
with the Securities and Exchange Commission pursuant to
Rule 424(b)(3) under the Securities Act of 1933 on May
13, 1997.

3.02	Certificate of Limited Partnership, dated August 28,
1990, is incorporated by reference to Exhibit 3.02 of the
Partnership?s Form 10-K (File No. 0-19046) for fiscal
year ended December 31, 2006, filed with the Securities
and Exchange Commission on March 23, 2007.

3.02(a)	Certificate of Amendment to the Certificate of Limited
Partnership, dated July 20, 2006 (changing its name from
Dean Witter Portfolio Strategy Fund L.P.), is
incorporated by reference to Exhibit 3.02 of the
Partnership?s Form  8-K (File No. 0-19046) filed with the
Securities and Exchange Commission on July 26, 2006.

10.01	Management Agreement dated as of June 5, 2007, among the
Partnership, Demeter, and Hyman Beck & Company, Inc. is
incorporated by reference to Exhibit 10.01 of the
Partnership?s Form 8-K (File No. 0-19046) filed with the
Securities and Exchange Commission on June 8, 2007.

10.02	Amended and Restated Customer Agreement between the
Partnership and Morgan Stanley DW Inc., dated as of June
22, 2000, is incorporated by reference to Exhibit 10.01
of the Partnership?s Form 8-K (File No. 0-19046) filed
with the Securities and Exchange Commission on November
13, 2001.

10.03	Commodity Futures Customer Agreement between Morgan
Stanley & Co. Incorporated and the Partnership, and
acknowledged and agreed to by Morgan Stanley DW Inc.,
dated as of May 1, 2000, is incorporated by reference to
Exhibit 10.02 of the Partnership?s Form 8-K (File No.
0-19046) filed with the Securities and Exchange
Commission on November 13, 2001.

10.04	Customer Agreement between the Partnership and Morgan
Stanley & Co. International plc, dated as of May 1, 2000,
is incorporated by reference to Exhibit 10.04 of the
Partnership?s Form 8-K (File No. 0-19046) filed with the
Securities and Exchange Commission on November 13, 2001.
E-1
<page>
10.05	Foreign Exchange and Options Master Agreement between
Morgan Stanley & Co. Incorporated and the Partnership,
dated as of April 30, 2000, is incorporated by reference
to Exhibit 10.05 of the Partnership?s Form 8-K (File No.
0-19046) filed with the Securities and Exchange Commission
on November 13, 2001.

10.06	Foreign Exchange and Options Master Agreement between
Morgan Stanley Capital Group Inc. and the Partnership,
dated as of June 15, 2007, is incorporated by reference to
Exhibit 10.07 of the Partnership?s Form 8-K (File No. 0-
19046) filed with the Securities and Exchange Commission
on July 6, 2007.

10.07	Securities Account Control Agreement between the Partner-
ship and Morgan Stanley & Co. Incorporated, dated as of
May 1, 2000, is incorporated by reference to Exhibit 10.03
of the Partnership?s Form 8-K (File No. 0-19046) filed
with the Securities and Exchange Commission on November
13, 2001.

13.01	December 31, 2007, Annual Report to Limited Partners is
filed herewith.

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.

E-2
<PAGE>

                                                                      Portfolio
                                                                       Strategy
                                                                           Fund
         December 31, 2007
         Annual Report


    [LOGO]

Morgan Stanley

<PAGE>

MORGAN STANLEY PORTFOLIO STRATEGY FUND L.P.

HISTORICAL FUND PERFORMANCE

Presented below is the percentage change in Net Asset Value per Unit from the
start of each calendar year the Fund has traded. Also provided is the
inception-to-date return and the compound annualized return since inception for
the Fund. Past performance is no guarantee of future results.

<TABLE>
<CAPTION>


                       1991    1992  1993 1994  1995 1996 1997 1998 1999  2000 2001  2002 2003 2004  2005   2006   2007
FUND                    %       %     %    %     %    %    %    %    %     %    %     %    %    %     %      %      %
-------------------------------------------------------------------------------------------------------------------------
<S>                  <C>       <C>   <C>  <C>   <C>  <C>  <C>  <C>  <C>   <C>  <C>   <C>  <C>  <C>  <C>    <C>    <C>
Portfolio Strategy
 Fund...............   27.7    (6.4) 19.9 (5.4) 25.4 25.5 11.3 9.5  (6.9) 9.9  (6.0) 26.7 3.7  9.6  (24.2) (18.9) (21.9)
                     (11 mos.)
-------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
                     INCEPTION-  COMPOUND
                      TO-DATE   ANNUALIZED
                       RETURN     RETURN
FUND                     %          %
------------------------------------------
<S>                  <C>        <C>
Portfolio Strategy
 Fund...............    72.8       3.3

------------------------------------------
</TABLE>

<PAGE>

DEMETER MANAGEMENT CORPORATION

522 Fifth Avenue, 13th Floor
New York, NY 10036
Telephone (212) 296-1999

MORGAN STANLEY PORTFOLIO STRATEGY FUND L.P.
ANNUAL REPORT
2007

Dear Limited Partner:

 This marks the seventeenth annual report for the Morgan Stanley Portfolio
Strategy Fund L.P. (the "Fund"). The Fund began the year trading at a Net Asset
Value per Unit of $2,213.24 and returned -21.9% to $1,728.36 on December 31,
2007. Since its inception in February 1991, the Fund has returned 72.8% (a
compound annualized return of 3.3%).

 Detailed performance information for the Fund is located in the body of the
financial report. (Note: all returns are net of all fees). We provide a trading
results by sector chart that portrays trading gains and trading losses for the
year in each sector in which the Fund participates.

 The trading results by sector chart indicates the year's composite percentage
returns generated by the specific assets dedicated to trading within each
market sector in which the Fund participates. Please note that there is not an
equal amount of assets in each market sector, and the specific allocations of
assets by the Fund to each sector will vary over time within a predetermined
range. Below the chart is a description of the factors that influenced trading
gains and trading losses within the Fund during the year.

 Should you have any questions concerning this report, please feel free to
contact Demeter Management Corporation, 522 Fifth Avenue, 13th Floor, New York,
NY 10036, or your Morgan Stanley Financial Advisor.

 I hereby affirm, that to the best of my knowledge and belief, the information
contained in this report is accurate and complete. Past performance is no
guarantee of future results.

Sincerely,
 LOGO
Walter J. Davis
Chairman of the Board of Directors and President
Demeter Management Corporation,
General Partner of
Morgan Stanley Portfolio Strategy Fund L.P.

 Managed futures investments are speculative, involve a high degree of risk,
use significant leverage, are generally illiquid, have substantial charges, are
subject to conflicts of interest, and are suitable only for the risk capital
portion of an investor's portfolio. Before investing in any managed futures
investment, qualified investors should read the prospectus or offering
documents carefully for additional information with respect to charges,
expenses, and risks. Past performance is no guarantee of future results.

 This report is based on information from multiple sources and Morgan Stanley
makes no representation as to the accuracy or completeness of information from
sources outside of Morgan Stanley.

<PAGE>

MORGAN STANLEY PORTFOLIO STRATEGY FUND L.P.

                                      [CHART]

                    Year ended December 31, 2007
                    ----------------------------
Currencies                    -6.59%
Interest Rates                -5.73%
Stock Indices                 -4.78%
Energies                      -1.61%
Metals                        -0.35%
Agriculturals                 -4.07%



Note:Includes trading results and commissions but does not include other fees
     or interest income.

FACTORS INFLUENCING ANNUAL TRADING LOSSES:
..  The most significant trading losses were incurred within the currency sector
   from short positions in the Japanese yen versus the British pound, euro,
   Australian dollar, and Canadian dollar as the value of the Japanese yen
   corrected higher against these currencies during February, March, and August
   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. Furthermore, losses were recorded during November from
   short positions in the Japanese yen versus the British pound and the euro as
   the value of the Japanese yen reversed higher against these currencies
   following news that the Japanese economy had expanded more than economists
   had forecast during the third quarter. Finally, losses were incurred from
   long positions in the British pound, euro, and Australian dollar versus the
   U.S. dollar, primarily during August, November, and December, as the value
   of the U.S. dollar increased relative to these currencies after continued
   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.

<PAGE>

MORGAN STANLEY PORTFOLIO STRATEGY FUND L.P.

FACTORS INFLUENCING ANNUAL TRADING LOSSES: (continued)



..  Within the global interest rate sector, losses were experienced primarily
   during February, March, 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. During September, October, and December, additional
   losses were recorded from both long and short positions in European interest
   rate futures as prices moved without consistent direction amid uncertainty
   regarding the future of the global economy.

..  Within the global stock index sector, losses were incurred primarily during
   February and March from long positions in European, U.S., and Japanese
   equity index futures as prices reversed lower after former U.S. Federal
   Reserve Chairman Alan Greenspan indicated that the U.S. economy could be
   headed for a recession. In addition, prices moved lower after worries that
   tighter credit conditions in China and Japan might dampen global growth
   first sent Chinese stock markets plunging before the sell-off spread to
   other equity markets. Additional losses were incurred during July, August,
   and November from long positions in European, U.S., and Japanese equity
   index futures as prices moved sharply lower on persistent concerns that a
   collapsing U.S. sub-prime mortgage market and declining U.S. real estate
   prices would pull the global economy into a recession.

..  Within the agricultural markets, losses were experienced primarily during
   January, March, August, and October from long futures positions in coffee as
   prices declined amid technically-based selling and rising supplies in
   Vietnam and Brazil, two of the world's largest producers. Elsewhere in the
   agricultural complex, short positions in cotton futures resulted in losses,
   primarily during September and December, as prices moved higher due to news
   that excessive rain might delay crop production in parts of India.

..  Additional losses were recorded within the energy markets, primarily during
   February and May, from long positions in natural gas futures as prices
   decreased amid speculation that mild weather in the U.S. might slow demand.
   Finally, newly established short futures positions in natural gas
   experienced losses during October and December as prices reversed higher
   amid a decline in U.S. inventories.

..  Smaller losses were incurred within the metals sector, primarily during
   March, May, July, and November, from long futures positions in silver and
   gold as prices declined amid heavy speculative selling and strength in the
   U.S. dollar.

<PAGE>

MORGAN STANLEY PORTFOLIO STRATEGY FUND L.P.

MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

  Demeter Management Corporation ("Demeter"), the general partner of Morgan
Stanley Portfolio Strategy Fund L.P. (the "Partnership"), is responsible for
the management of the Partnership.

  Management of Demeter ("Management") is responsible for establishing and
maintaining adequate internal control over financial reporting. The internal
control over financial reporting is designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally
accepted accounting principles.

  The Partnership's internal control over financial reporting includes those
policies and procedures that:

..  Pertain to the maintenance of records that, in reasonable detail, accurately
   and fairly reflect the transactions and dispositions of the assets of the
   Partnership;

..  Provide reasonable assurance that transactions are recorded as necessary to
   permit preparation of financial statements in accordance with generally
   accepted accounting principles, and that the Partnership's transactions are
   being made only in accordance with authorizations of Management and
   directors; and

..  Provide reasonable assurance regarding prevention or timely detection of
   unauthorized acquisition, use or disposition of the Partnership's assets
   that could have a material effect on the financial statements.

  Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.


<PAGE>

  Management assessed the effectiveness of the Partnership's internal control
over financial reporting as of December 31, 2007. In making this assessment,
Management used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission in Internal Control-Integrated
Framework. Based on our assessment and those criteria, Management believes that
the Partnership maintained effective internal control over financial reporting
as of December 31, 2007.

  Deloitte & Touche LLP, the Partnership's independent registered public
accounting firm, has issued an audit report on the Partnership's internal
control over financial reporting. This report, which expresses an unqualified
opinion on the Partnership's internal control over financial reporting, appears
under "Report of Independent Registered Public Accounting Firm" on the
following page.

/s/ Walter J. Davis
Walter J. Davis
President
Demeter Management Corporation

/s/ Christian M. Angstadt
Christian M. Angstadt
Chief Financial Officer
Demeter Management Corporation

New York, New York
March 20, 2008

<PAGE>

MORGAN STANLEY PORTFOLIO STRATEGY FUND L.P.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Limited Partners and the General Partner:

  We have audited the internal control over financial reporting of Morgan
Stanley Portfolio Strategy Fund L.P. (the "Partnership") as of December 31,
2007, based on criteria established in Internal Control--Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission.
The Partnership's management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting, included in the accompanying
Management's Report on Internal Control Over Financial Reporting. Our
responsibility is to express an opinion on the Partnership's internal control
over financial reporting based on our audit.

  We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness
exists, testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk, and performing such other
procedures as we considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinions.

  A company's internal control over financial reporting is a process designed
by, or under the supervision of, the company's principal executive and
principal financial officers, or persons performing similar functions, and
effected by the company's board of directors, management, and other personnel
to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company's internal
control over financial reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and

<PAGE>

dispositions of the assets of the company; (2) provide reasonable assurance
that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and
that receipts and expenditures of the company are being made only in accordance
with authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company's assets that could have a
material effect on the financial statements.

  Because of the inherent limitations of internal control over financial
reporting, including the possibility of collusion or improper management
override of controls, material misstatements due to error or fraud may not be
prevented or detected on a timely basis. Also, projections of any evaluation of
the effectiveness of the internal control over financial reporting to future
periods are subject to the risk that the controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.

  In our opinion, the Partnership maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2007,
based on the criteria established in Internal Control--Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission.

  We have also audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the financial statements as of and
for the year ended December 31, 2007 of the Partnership and our report dated
March 20, 2008 expressed an unqualified opinion on those financial statements.

/s/ Deloitte & Touche LLP

New York, New York
March 20, 2008

<PAGE>

MORGAN STANLEY PORTFOLIO STRATEGY FUND L.P.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Limited Partners and the General Partner:

  We have audited the accompanying statements of financial condition of Morgan
Stanley Portfolio Strategy Fund L.P. (the "Partnership"), including the
schedules of investments, as of December 31, 2007 and 2006, and the related
statements of operations, changes in partners' capital, and cash flows for each
of the three years in the period ended December 31, 2007. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

  We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

  In our opinion, such financial statements present fairly, in all material
respects, the financial position of Morgan Stanley Portfolio Strategy Fund L.P.
at December 31, 2007 and 2006, and the results of its operations, changes in
partners' capital, and its cash flows for each of the three years in the period
ended December 31, 2007, in conformity with accounting principles generally
accepted in the United States of America.

  As discussed in Note 1, the Partnership modified its classification of cash
within the statements of financial condition and cash flows and modified its
presentation of options within the statements of financial condition to conform
to 2007 presentation.

<PAGE>

  We have also audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the Partnership's internal control
over financial reporting as of December 31, 2007, based on the criteria
established in Internal Control--Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission and our report dated
March 20, 2008 expressed an unqualified opinion on the Partnership's internal
control over financial reporting.

/s/ Deloitte & Touche LLP

New York, New York
March 20, 2008

<PAGE>

MORGAN STANLEY PORTFOLIO STRATEGY FUND L.P.

STATEMENTS OF FINANCIAL CONDITION

<TABLE>
<CAPTION>
                                                         DECEMBER 31,
                                                    ---------------------
                                                       2007          2006
                                                    ----------    ----------
                                                        $             $
     <S>                                            <C>           <C>
                                   ASSETS
     Trading Equity:
       Unrestricted cash                            18,351,654    31,419,335
       Restricted cash                               1,945,251     3,081,509
                                                    ----------    ----------
         Total cash                                 20,296,905    34,500,844
                                                    ----------    ----------
       Net unrealized gain (loss) on open
        contracts (MS&Co.)                              74,614       (47,222)
       Net unrealized gain (loss) on open
        contracts (MSIP)                               (2,035)        35,900
                                                    ----------    ----------
         Total net unrealized gain (loss) on
          open contracts                                72,579       (11,322)
       Options purchased (proceeds paid
        $820,994 and $0, respectively)                 666,251        --
                                                    ----------    ----------
         Total Trading Equity                       21,035,735    34,489,522
     Interest receivable (MS&Co.)                       41,169       123,403
     Due from MS&Co.                                    --            86,178
                                                    ----------    ----------
         Total Assets                               21,076,904    34,699,103
                                                    ==========    ==========

                     LIABILITIES AND PARTNERS' CAPITAL

     LIABILITIES

     Options written (premiums received
      $908,725 and $0, respectively)                   666,251        --
     Redemptions payable                               334,659       446,039
     Management fees payable                            33,924        57,738
     Accrued administrative expenses                    13,000       113,849
                                                    ----------    ----------
         Total Liabilities                           1,047,834       617,626
                                                    ----------    ----------

     PARTNERS' CAPITAL

     Limited Partners (11,462.204 and
      15,231.577 Units, respectively)               19,810,763    33,711,181
     General Partner (126.309 and
      167.309 Units, respectively)                     218,307       370,296
                                                    ----------    ----------
         Total Partners' Capital                    20,029,070    34,081,477
                                                    ----------    ----------
         Total Liabilities and Partners' Capital    21,076,904    34,699,103
                                                    ==========    ==========

     NET ASSET VALUE PER UNIT                         1,728.36      2,213.24
                                                    ==========    ==========
</TABLE>

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

<PAGE>

MORGAN STANLEY PORTFOLIO STRATEGY FUND L.P.

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                       FOR THE YEARS ENDED DECEMBER 31,
                                     -----------------------------------
                                        2007        2006        2005
                                     ----------  ----------  -----------
                                          $           $           $
       <S>                           <C>         <C>         <C>
       INVESTMENT INCOME
         Interest income (MS&Co.)       976,356   1,626,207    1,439,069
                                     ----------  ----------  -----------

       EXPENSES
         Brokerage commissions
          (MS&Co.)                    1,283,415   2,699,945    4,137,112
         Management fees                534,451     863,656    1,265,126
         Transaction fees and costs      56,744     137,383      211,164
         Administrative expenses         35,000     140,000      131,000
                                     ----------  ----------  -----------
          Total Expenses              1,909,610   3,840,984    5,744,402
                                     ----------  ----------  -----------

       NET INVESTMENT LOSS             (933,254) (2,214,777)  (4,305,333)
                                     ----------  ----------  -----------

       TRADING RESULTS
       Trading profit (loss):
         Realized                    (5,946,963) (7,025,891)  (6,461,506)
         Net change in unrealized       171,632     235,640   (8,900,555)
                                     ----------  ----------  -----------
          Total Trading Results      (5,775,331) (6,790,251) (15,362,061)
                                     ----------  ----------  -----------

       NET LOSS                      (6,708,585) (9,005,028) (19,667,394)
                                     ==========  ==========  ===========

       NET LOSS ALLOCATION:
       Limited Partners              (6,634,217) (8,906,995) (19,436,831)
       General Partner                  (74,368)    (98,033)    (230,563)

       NET LOSS PER UNIT:
       Limited Partners                 (484.88)    (514.53)     (870.58)
       General Partner                  (484.88)    (514.53)     (870.58)

                                        UNITS       UNITS       UNITS
                                     ----------  ----------  -----------
       WEIGHTED AVERAGE NUMBER
        OF UNITS OUTSTANDING         13,448.867  17,334.774   21,687.537
</TABLE>

STATEMENTS OF CHANGES IN PARTNERS' CAPITAL

FOR THE YEARS ENDED DECEMBER 31, 2007, 2006, AND 2005

<TABLE>
<CAPTION>
                                UNITS OF
                               PARTNERSHIP   LIMITED     GENERAL
                                INTEREST     PARTNERS    PARTNER      TOTAL
                               ----------- -----------  ---------  -----------
                                                $           $           $
<S>                            <C>         <C>          <C>        <C>
Partners' Capital, December
31, 2004                       23,246.089   82,610,177  1,037,437   83,647,614
Net loss                           --      (19,436,831)  (230,563) (19,667,394)
Redemptions                    (3,841.252) (10,795,905)  (252,293) (11,048,198)
                               ----------  -----------  ---------  -----------
Partners'
Capital, December 31, 2005     19,404.837   52,377,441    554,581   52,932,022
Net loss                           --       (8,906,995)   (98,033)  (9,005,028)
Redemptions                    (4,005.951)  (9,759,265)   (86,252)  (9,845,517)
                               ----------  -----------  ---------  -----------
Partners' Capital, December
31, 2006                       15,398.886   33,711,181    370,296   34,081,477
Net loss                           --       (6,634,217)   (74,368)  (6,708,585)
Redemptions                    (3,810.373)  (7,266,201)   (77,621)  (7,343,822)
                               ----------  -----------  ---------  -----------
Partners' Capital, December
31, 2007                       11,588.513   19,810,763    218,307   20,029,070
                               ==========  ===========  =========  ===========
</TABLE>

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

<PAGE>

MORGAN STANLEY PORTFOLIO STRATEGY FUND L.P.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                    FOR THE YEARS ENDED DECEMBER 31,
                                 -------------------------------------
                                     2007         2006         2005
                                 -----------  -----------  -----------
                                      $            $            $
<S>                              <C>          <C>          <C>
CASH FLOWS FROM
 OPERATING
 ACTIVITIES
Net loss                          (6,708,585)  (9,005,028) (19,667,394)
Noncash item included in net
 loss:
  Net change in unrealized         (171,632)    (235,640)    8,900,555
(Increase) decrease in operating
 assets:
  Restricted cash                  1,136,258    1,967,306    7,673,051
  Net option premiums                 87,731       --           --
  Interest receivable (MS&Co.)        82,234       20,299     (50,945)
  Due from MS&Co.                     86,178     (51,176)      311,574
Decrease in operating
 liabilities:
  Management fees payable           (23,814)     (32,534)     (50,478)
  Accrued administrative
   expenses                        (100,849)     (14,814)     (13,240)
                                 -----------  -----------  -----------
Net cash used for operating
 activities                       (5,612,479)  (7,351,587)  (2,896,877)
                                 -----------  -----------  -----------

CASH FLOWS FROM
 FINANCING
 ACTIVITIES
Cash paid for redemptions
 of Units                         (7,455,202) (10,449,926) (10,518,507)
                                 -----------  -----------  -----------
Net cash used for financing
 activities                       (7,455,202) (10,449,926) (10,518,507)
                                 -----------  -----------  -----------

Net decrease in unrestricted
 cash                            (13,067,681) (17,801,513) (13,415,384)

Unrestricted cash at beginning
 of period                        31,419,335   49,220,848   62,636,232
                                 -----------  -----------  -----------

Unrestricted cash at end
 of period                        18,351,654   31,419,335   49,220,848
                                 ===========  ===========  ===========
</TABLE>

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

<PAGE>

MORGAN STANLEY PORTFOLIO STRATEGY FUND L.P.

SCHEDULES OF INVESTMENTS

DECEMBER 31, 2007 AND 2006

<TABLE>
<CAPTION>

                                         LONG UNREALIZED  PERCENTAGE   SHORT UNREALIZED  PERCENTAGE   NET UNREALIZED
                                           GAIN/(LOSS)   OF NET ASSETS       GAIN       OF NET ASSETS  GAIN/(LOSS)
FUTURES AND FORWARD CONTRACTS:           --------------- ------------- ---------------- ------------- --------------
2007 PARTNERSHIP NET ASSETS: $20,029,070        $              %              $               %             $
<S>                                      <C>             <C>           <C>              <C>           <C>
      Commodity                               (6,625)        (0.03)        240,043          1.20          233,418
      Equity                                   --              --           65,377          0.32           65,377
      Foreign currency                      (205,734)        (1.03)         49,924          0.25         (155,810)
      Interest Rate                          (10,837)        (0.05)         34,365          0.17           23,528
                                            --------         -----         -------          ----         --------
        Grand Total:                        (223,196)        (1.11)        389,709          1.94          166,513
                                            ========         =====         =======          ====
        Unrealized Currency Loss                                                                           (6,203)
                                                                                                         --------
       Total Net Unrealized Gain                                                                          160,310
                                                                                                         ========

2006 PARTNERSHIP NET ASSETS: $34,081,477
      Commodity                              119,667          0.35         261,756          0.77          381,423
      Equity                                  74,963          0.22           --              --            74,963
      Foreign currency                       222,890          0.65         207,313          0.61          430,203
      Interest Rate                         (887,074)        (2.60)        204,837          0.60         (682,237)
                                            --------         -----         -------          ----         --------
        Grand Total:                        (469,554)        (1.38)        673,906          1.98          204,352
                                            ========         =====         =======          ====
        Unrealized Currency Loss                                                                         (215,674)
                                                                                                         --------
       Total Net Unrealized Loss                                                                          (11,322)
                                                                                                         ========
</TABLE>

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

<PAGE>

MORGAN STANLEY PORTFOLIO STRATEGY FUND L.P.

NOTES TO FINANCIAL STATEMENTS

--------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION.  Morgan Stanley Portfolio Strategy Fund L.P. (the "Partnership")
is a limited partnership organized to engage primarily in the speculative
trading of futures contracts, options on futures and forward contracts, and
forward contracts on physical commodities and other commodity interests,
including, but not limited to, foreign currencies, financial instruments,
metals, energy, and agricultural products (collectively, "Futures Interests").
  Effective July 20, 2006, Dean Witter Portfolio Strategy Fund L.P. was renamed
to Morgan Stanley Portfolio Strategy Fund L.P.
  The Partnership may buy or write put and call options through listed
exchanges and the over-the-counter market. The buyer has the right to purchase
(in the case of a call option) or sell (in the case of a put option) a
specified quantity of a specific Futures Interest or underlying asset at a
specified price prior to or on a specified expiration date. The writer of an
option is exposed to the risk of loss if the market price of the underlying
asset declines (in the case of a put option) or increases (in the case of a
call option). The writer of an option can never profit by more than the premium
paid by the buyer but can lose an unlimited amount.
  Premiums received/paid from writing/purchasing options are recorded as
liabilities/assets on the Statements of Financial Condition and are
subsequently adjusted to current values. The difference between the current
value of an option and the premium received/paid is treated as an unrealized
gain or loss.
  The Partnership's general partner is Demeter Management Corporation
("Demeter"). The commodity brokers are Morgan Stanley & Co. Incorporated
("MS&Co.") and Morgan Stanley & Co. International plc ("MSIP"). MS&Co. acts as
the counterparty on all trading of foreign currency forward contracts. Morgan
Stanley Capital Group Inc. ("MSCG") acts as the counterparty on all trading of
options on foreign currency forward contracts. Demeter, MS&Co., MSIP, and MSCG
are wholly-owned subsidiaries of Morgan Stanley.

<PAGE>

MORGAN STANLEY PORTFOLIO STRATEGY FUND L.P.

NOTES TO FINANCIAL STATEMENTS
(continued)

  On April 1, 2007, Morgan Stanley merged Morgan Stanley DW Inc. ("Morgan
Stanley DW") into MS&Co. Upon completion of the merger, the surviving entity,
MS&Co., became the Partnership's principal U.S. commodity broker-dealer.
  On April 13, 2007, Morgan Stanley & Co. International Limited changed its
name to Morgan Stanley & Co. International plc.
  Effective June 30, 2007, John W. Henry & Company ("JWH") was terminated as
the trading manager to the Partnership.
  Effective July 1, 2007, Hyman Beck & Company, Inc. ("Hyman Beck") is the
trading advisor to the Partnership.
  Demeter is required to maintain a 1% minimum interest in the equity of the
Partnership and income (losses) are shared by Demeter and the limited partners
based upon their proportional ownership interests.

USE OF ESTIMATES.  The financial statements are prepared in accordance with
accounting principles generally accepted in the United States of America, which
require management to make estimates and assumptions that affect the reported
amounts in the financial statements and related disclosures. Management
believes that the estimates utilized in the preparation of the financial
statements are prudent and reasonable. Actual results could differ from those
estimates.

REVENUE RECOGNITION.  Futures Interests are open commitments until settlement
date, at which time they are realized. They are valued at market on a daily
basis and the resulting net change in unrealized gains and losses is reflected
in the change in unrealized trading profit (loss) on open contracts from one
period to the next on the Statements of Operations. Monthly, MS&Co. pays the
Partnership interest income on 80% of its average daily Net Assets for the
month at a rate equal to the monthly average yield on the 4-week U.S. Treasury
bill discount rate during such month. For purposes of such interest payments,
Net Assets do not include monies owed to the Partnership on Futures Interests.

<PAGE>

MORGAN STANLEY PORTFOLIO STRATEGY FUND L.P.

NOTES TO FINANCIAL STATEMENTS
(continued)

  The Partnership's functional currency is the U.S. dollar; however, the
Partnership may transact business in currencies other than the U.S. dollar.
Assets and liabilities denominated in currencies other than the U.S. dollar are
translated into U.S. dollars at the rates in effect at the date of the
Statements of Financial Condition. Income and expense items denominated in
currencies other than the U.S. dollar are translated into U.S. dollars at the
rates in effect during the period. Gains and losses resulting from the
translation to U.S. dollars are reported in income currently.

NET INCOME (LOSS) PER UNIT.  Net income (loss) per unit of limited partnership
interest ("Unit(s)") is computed using the weighted average number of Units
outstanding during the period.

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 became effective for the Partnership as of January
1, 2007. The Partnership has determined that the adoption of FIN 48 did not
have a material impact on the Partnership's financial statements. The
Partnership files U.S. federal and state tax returns. The 2004 through 2007 tax
years generally remain subject to examination by U.S. federal and most state
tax authorities.
  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 PORTFOLIO STRATEGY FUND L.P.

NOTES TO FINANCIAL STATEMENTS
(continued)


TRADING EQUITY.  The Partnership's asset "Trading Equity," reflected on the
Statements of Financial Condition, consists of (A) cash on deposit with MS&Co.
and MSIP to be used as margin for trading; (B) net unrealized gains or losses
on futures and forward contracts, which are valued at market and calculated as
the difference between original contract value and market value; and, if any,
(C) options purchased at fair value. Options written at fair value are recorded
in Liabilities.
  The Partnership, in the normal course of business, enters into various
contracts with MS&Co. and MSIP acting as its commodity brokers. Pursuant to
brokerage agreements with MS&Co. and MSIP, to the extent that such trading
results in unrealized gains or losses, the amounts are offset and reported on a
net basis on the Partnership's Statements of Financial Condition.
  The Partnership has offset the fair value amounts recognized for forward
contracts executed with the same counterparty as allowable under the terms of
its master netting agreement with MS&Co. as the counterparty on such contracts.
The Partnership has consistently applied its right to offset.

BROKERAGE COMMISSIONS AND RELATED TRANSACTION FEES AND COSTS.  The Partnership
accrues brokerage commissions and transaction fees and costs on a half-turn
basis, at 80% and 100%, respectively, of the rates MS&Co. charges retail
commodity customers and parties that are not clearinghouse members,
respectively. Brokerage commissions and transaction fees and costs combined are
capped at  13/20 of 1% per month (a maximum 7.8% annual rate) of the
Partnership's beginning of month Net Assets applied on a per trading program
basis.

OPERATING EXPENSES.  The Partnership bears all expenses related to its trading
activities, to a maximum of 1/4 of 1% annually of the Partnership's average
month-end Net Assets. These include filing fees, clerical, administrative,
auditing, accounting, mailing, printing, and other incidental operating
expenses as permitted by the Limited Partnership Agreement. In addition, the
Partnership incurs a monthly management fee and may incur an incentive fee.
Demeter and/or MS&Co. bear all other operating expenses.

<PAGE>

MORGAN STANLEY PORTFOLIO STRATEGY FUND L.P.

NOTES TO FINANCIAL STATEMENTS
(continued)


REDEMPTIONS.  Limited partners may redeem some or all of their Units at 100% of
the Net Asset Value per Unit as of the last day of any month upon five business
days advance notice by redemption form to Demeter.

DISTRIBUTIONS.  Distributions, other than redemptions of Units, are made on a
pro-rata basis at the sole discretion of Demeter. No distributions have been
made to date. Demeter does not intend to make any distributions of the
Partnership's profits.

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

DISSOLUTION OF THE PARTNERSHIP.  The Partnership will terminate on December 31,
2025 or at an earlier date if certain conditions set forth in the Limited
Partnership Agreement occur.

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 separately. Cash that is not on deposit to satisfy the margin
requirements for trading is reflected as unrestricted cash.

RECLASSIFICATIONS.  Certain prior year amounts relating to cash balances were
reclassified on the Statements of Financial Condition and Cash Flows to conform
to 2007 presentation. Certain prior year amounts relating to options were
reclassified on the Statements of Financial Condition to conform to 2007
presentation. Such reclassifications have no impact on the Partnership's
reported net income (loss).

--------------------------------------------------------------------------------
2. RELATED PARTY TRANSACTIONS
The Partnership pays brokerage commissions to MS&Co. (Morgan Stanley DW through
March 31, 2007) as described in Note 1. The Partnership's cash is on deposit
with Morgan Stanley DW (through March 31, 2007), MS&Co., and MSIP in futures
interests trading accounts to meet margin requirements as needed. MS&Co.
(Morgan Stanley DW through March 31, 2007) pays interest on these funds as
described in Note 1.

<PAGE>

MORGAN STANLEY PORTFOLIO STRATEGY FUND L.P.

NOTES TO FINANCIAL STATEMENTS
(continued)


--------------------------------------------------------------------------------
3. TRADING ADVISOR
Prior to June 30, 2007, JWH was the trading manager to the Partnership.
Effective July 1, 2007, Demeter, on behalf of the Partnership and itself,
entered into a Management Agreement with Hyman Beck to make all trading
decisions for the Partnership.
  Compensation by the Partnership to JWH (prior to June 30, 2007) and to Hyman
Beck (effective July 1, 2007) consists of a management fee and an incentive fee
as follows:

MANAGEMENT FEE.  Prior to June 30, 2007, the Partnership paid a management fee
to JWH equal to 1/6 of 1% per month (a 2% annual rate) of the Partnership's
adjusted Net Assets, as defined in the Limited Partnership Agreement, as of the
last day of each month.
  Effective July 1, 2007, the Partnership pays a management fee to Hyman Beck
equal to  1/6 of 1% per month (a 2% annual rate) of the Partnership's Net
Assets as of the opening of business on the first day of each calendar month.

INCENTIVE FEE.  Prior to June 30, 2007, the Partnership paid a quarterly
incentive fee to JWH equal to 20% of the Partnership's new appreciation of its
Net Assets as of the end of each calendar quarter.
  Effective July 1, 2007, the Partnership pays a quarterly incentive fee to
Hyman Beck equal to 20% of the Partnership's new appreciation of its Net Assets
as of the end of each calendar quarter. For purposes of the incentive fee
calculation, interest income is not included in new trading profits.

<PAGE>

MORGAN STANLEY PORTFOLIO STRATEGY FUND L.P.

NOTES TO FINANCIAL STATEMENTS
(continued)

  New appreciation represents the amount by which Net Assets are increased by
profits from futures and forwards trading that exceed losses after brokerage
commissions, management fees, transaction fees and costs, and administrative
expenses are deducted. Such incentive fee is accrued in each month in which new
appreciation occurs. The initial incentive fee period began July 1, 2007, the
date the Partnership began to receive trading advice from Hyman Beck. Please
note that the Partnership pays incentive fees based upon the performance of
Hyman Beck beginning July 1, 2007, without regard to any losses incurred by the
prior trading advisor. In those months in which new appreciation is negative,
previous accruals, if any, during the incentive period are reduced. In those
instances in which a limited partner redeems an investment, the incentive fee
(earned through a redemption date) is (was) paid to Hyman Beck (to JWH, prior
to June 30, 2007) on those redemptions in the month of such redemptions.

--------------------------------------------------------------------------------
4. FINANCIAL INSTRUMENTS
The Partnership trades Futures Interests. Futures and forwards represent
contracts for delayed delivery of an instrument at a specified date and price.
Risk arises from changes in the value of these contracts and the potential
inability of counterparties to perform under the terms of the contracts. There
are numerous factors which may significantly influence the market value of
these contracts, including interest rate volatility.
  The market value of exchange-traded contracts is based on the settlement
price quoted by the exchange on the day with respect to which market value is
being determined. If an exchange-traded contract could not have been liquidated
on such day due to the operation of daily limits or other rules of the
exchange, the settlement price shall be the settlement price on the first
subsequent day on which the contract could be liquidated. The market value of
off-exchange-traded contracts is based on the fair market value quoted by the
counterparty.

<PAGE>

MORGAN STANLEY PORTFOLIO STRATEGY FUND L.P.

NOTES TO FINANCIAL STATEMENTS
(continued)

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

(1)One or more underlying notional amounts or payment provisions;

(2)Requires no initial net investment or a smaller initial net investment than
   would be required relative to changes in market factors;

(3)Terms require or permit net settlement.

  Generally, derivatives include futures, forward, swap or options contracts,
and other financial instruments with similar characteristics such as caps,
floors, and collars.
  The net unrealized gains (losses) on open contracts at December 31, reported
as a component of "Trading Equity" on the Statements of Financial Condition,
and their longest contract maturities were as follows:

<TABLE>
<CAPTION>
     NET UNREALIZED GAINS/(LOSSES)
          ON OPEN CONTRACTS        LONGEST MATURITIES
     ---------------------------   -------------------
                  OFF-                         OFF-
     EXCHANGE-  EXCHANGE-          EXCHANGE- EXCHANGE-
YEAR  TRADED     TRADED    TOTAL    TRADED    TRADED
---- ---------  --------- -------  --------- ---------
         $          $        $
<S>  <C>        <C>       <C>      <C>       <C>
2007  316,134   (155,824) 160,310  Sep. 2008 Aug. 2008
2006 (441,525)   430,203  (11,322) Dec. 2007 Mar. 2007
</TABLE>

  The Partnership has credit risk associated with counterparty nonperformance.
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.

<PAGE>

MORGAN STANLEY PORTFOLIO STRATEGY FUND L.P.

NOTES TO FINANCIAL STATEMENTS
(continued)

  The Partnership also has credit risk because MS&Co., MSIP, and/or MSCG 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, 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 $20,613,039 and $34,059,319 at December
31, 2007 and 2006, respectively. With respect to the Partnership's
off-exchange-traded forward currency contracts and forward currency options
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. With respect to those off-exchange-traded
forward currency options contracts, the Partnership is at risk to the ability
of MSCG, the sole counterparty on all such contracts, to perform. The
Partnership has a netting agreement with each counterparty. These agreements,
which seek to reduce both the Partnership's and the counterparties' exposure on
off-exchange-traded forward currency contracts, should materially decrease the
Partnership's credit risk in the event of MS&Co.'s or MSCG's bankruptcy or
insolvency.

<PAGE>

MORGAN STANLEY PORTFOLIO STRATEGY FUND L.P.

NOTES TO FINANCIAL STATEMENTS
(concluded)


--------------------------------------------------------------------------------
5. FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
                                             2007       2006       2005
                                          ---------  ---------  ---------
      <S>                                 <C>        <C>        <C>
      PER UNIT OPERATING
       PERFORMANCE:
      NET ASSET VALUE, JANUARY 1:         $2,213.24  $2,727.77  $3,598.35
                                          ---------  ---------  ---------
      NET OPERATING RESULTS:
         Interest Income                      72.60      93.81      66.35
         Expenses                           (141.99)   (221.58)   (264.87)
         Realized Loss/(1)/                 (428.25)   (400.35)   (261.66)
         Unrealized Profit (Loss)             12.76      13.59    (410.40)
                                          ---------  ---------  ---------
         Net Loss                           (484.88)   (514.53)   (870.58)
                                          ---------  ---------  ---------
      NET ASSET VALUE,
       DECEMBER 31:                        1,728.36  $2,213.24  $2,727.77
                                          =========  =========  =========
      FOR THE CALENDAR YEAR:
      RATIOS TO AVERAGE NET
       ASSETS:
         Net Investment Loss                 (3.6)%     (5.2)%     (6.9)%
         Expenses before Incentive fees       7.4 %      9.1 %      9.2 %
         Expenses after Incentive fees        7.4 %      9.1 %      9.2 %
         Net Loss                           (26.1)%    (21.3)%    (31.7)%
      TOTAL RETURN BEFORE
       INCENTIVE FEES                       (21.9)%    (18.9)%    (24.2)%
      TOTAL RETURN AFTER
       INCENTIVE FEES                       (21.9)%    (18.9)%    (24.2)%

      INCEPTION-TO-DATE RETURN               72.8 %
      COMPOUND ANNUALIZED
       RETURN                                 3.3 %
</TABLE>
/(1)/Realized Profit (Loss) is a balancing amount necessary to reconcile the
     change in Net Asset Value per Unit with the other per Unit information.

<PAGE>


                    Demeter Management Corporation
                    522 Fifth Avenue, 13th Floor
                    New York, NY 10036

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