MORGAN STANLEY SPECTRUM SELECT LP - 10-Q Quarterly Report

Back to GetFilings.com

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

FORM 10-Q

[X] Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended March 31, 2005 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 0-19511

MORGAN STANLEY SPECTRUM SELECT L.P.

(Exact name of registrant as specified in its charter)

Delaware 13-3619290
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

Demeter Management Corporation
330 Madison Avenue, 8th Floor
New York, NY 10017
(Address of principal executive offices) (Zip Code)

Registrant?s telephone number, including area code (212) 905-2700

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

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

Yes X No___________

Indicate by check-mark whether the registrant is an accelerated
filer (as defined in Rule 12b-2 of the Exchange Act.)

Yes No X

MORGAN STANLEY SPECTRUM SELECT L.P.

INDEX TO QUARTERLY REPORT ON FORM 10-Q

March 31, 2005

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

MORGAN STANLEY SPECTRUM SELECT L.P.
STATEMENTS OF FINANCIAL CONDITION

MORGAN STANLEY SPECTRUM SELECT L.P.
STATEMENTS OF OPERATIONS
(Unaudited)

MORGAN STANLEY SPECTRUM SELECT L.P.
STATEMENTS OF CHANGES IN PARTNERS? CAPITAL
For the Quarters Ended March 31, 2005 and 2004
(Unaudited)

MORGAN STANLEY SPECTRUM SELECT L.P.
STATEMENTS OF CASH FLOWS
(Unaudited)

MORGAN STANLEY SPECTRUM SELECT L.P.
NOTES TO FINANCIAL STATEMENTS

March 31, 2005

(Unaudited)

The unaudited financial statements contained herein include, in
the opinion of management, all adjustments necessary for a fair
presentation of the results of operations and financial condition
of Morgan Stanley Spectrum Select L.P. (the ?Partnership?). The
financial statements and condensed notes herein should be read in
conjunction with the Partnership?s December 31, 2004 Annual Report
on Form 10-K. Certain reclassifications have been made to the
prior year?s financial statements to conform to the current year
presentation. Such reclassifications have no impact on the
Partnership?s reported net income (loss).

1. Organization
Morgan Stanley Spectrum Select L.P. is a Delaware limited
partnership organized in 1991 to engage primarily in the
speculative trading of futures contracts, options on futures
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 is one of the Morgan
Stanley Spectrum Series of funds, comprised of the Partnership,
Morgan Stanley Spectrum Currency L.P., Morgan Stanley Spectrum

MORGAN STANLEY SPECTRUM SELECT L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

Global Balanced L.P., Morgan Stanley Spectrum Strategic L.P., and
Morgan Stanley Spectrum Technical L.P.

The Partnership?s general partner is Demeter Management
Corporation (?Demeter?). The non-clearing commodity broker is
Morgan Stanley DW Inc. (?Morgan Stanley DW?). The clearing
commodity brokers are Morgan Stanley & Co. Incorporated (?MS &
Co.?) and Morgan Stanley & Co. International Limited (?MSIL?).
Demeter, Morgan Stanley DW, MS & Co., and MSIL are wholly-owned
subsidiaries of Morgan Stanley. The trading advisors to the
Partnership are EMC Capital Management, Inc., Northfield Trading
L.P., Rabar Market Research, Inc., Sunrise Capital Management,
Inc., and Graham Capital Management, L.P. (individually, a
?Trading Advisor?, or collectively, the ?Trading Advisors?).

2. Related Party Transactions
The Partnership?s cash is on deposit with Morgan Stanley DW, MS &
Co., and MSIL in futures, forwards, and options trading accounts
to meet margin requirements as needed. Monthly, Morgan Stanley DW
pays the Partnership interest income equal to 80% of the month?s
average daily Net Assets at a rate equal to a prevailing rate on
U.S. Treasury bills. The Partnership pays brokerage fees to
Morgan Stanley DW.

MORGAN STANLEY SPECTRUM SELECT L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

3. Financial Instruments
The Partnership trades futures contracts, options on futures
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. 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.

MORGAN STANLEY SPECTRUM SELECT 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, swaps or options
contracts, and other financial instruments with similar
characteristics such as caps, floors, and collars.

The net unrealized gains (losses) on open contracts, reported as a
component of ?Equity in futures interests trading accounts? on the
Statements of Financial Condition, and their longest contract
maturities were as follows:
MORGAN STANLEY SPECTRUM SELECT L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

Net Unrealized Gains (Losses)
on Open Contracts Longest Maturities
Exchange- Off-Exchange- Exchange- Off-Exchange-
Date Traded Traded Total Traded Traded
$ $ $
Mar. 31, 2005 9,986,891 (5,863,383) 4,123,508 Sep. 2006 Jun. 2005
Dec. 31, 2004 13,504,844 1,621,779 15,126,623 Jun. 2006 Mar. 2005

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

The Partnership also has credit risk because Morgan Stanley DW, MS
& Co., and MSIL act as the futures commission merchants or the
counterparties, with respect to most of the Partnership?s assets.

Exchange-traded futures, forward, and futures-styled options
contracts are marked to market on a daily basis, with variations
in value settled on a daily basis. Morgan Stanley DW, MS & Co.,
and MSIL, each as a futures commission merchant for the
Partnership?s exchange-traded futures, forward, and futures-styled
options contracts, are required, pursuant to regulations of the
Commodity Futures Trading Commission (?CFTC?), to segregate from
their own assets, and for the sole benefit of their commodity
customers, all funds held by them with respect to exchange-traded
futures, forward, and futures-styled options contracts, including
an amount equal to the net unrealized gains (losses) on all open
MORGAN STANLEY SPECTRUM SELECT L.P.
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)

futures, forward, and futures-styled options contracts, which
funds, in the aggregate, totaled $560,596,128 and $577,340,091 at
March 31, 2005 and December 31, 2004, respectively. With respect
to the Partnership?s off-exchange-traded forward currency
contracts, there are no daily exchange-required settlements of
variation in value, nor is there any requirement that an amount
equal to the net unrealized gains (losses) on open forward
contracts be segregated. However, the Partnership is required to
meet margin requirements equal to the net unrealized loss on open
contracts in the Partnership accounts with the counterparty,
which is accomplished by daily maintenance of the cash balance in
a custody account held at Morgan Stanley DW for the benefit of MS
& Co. With respect to those off-exchange-traded forward currency
contracts, the Partnership is at risk to the ability of MS & Co.,
the sole counterparty on all such contracts, to perform. The
Partnership has a netting agreement with MS & Co. This agreement,
which seeks to reduce both the Partnership?s and MS & Co.?s
exposure on off-exchange-traded forward currency contracts, should
materially decrease the Partnership?s credit risk in the event of
MS & Co.?s bankruptcy or insolvency.

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

Liquidity. The Partnership deposits its assets with Morgan
Stanley DW as non-clearing broker, and MS & Co. and MSIL as
clearing brokers in separate futures, forwards, and options
trading accounts established for each Trading 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 CFTC for investment of customer
segregated or secured funds. Since the Partnership?s sole purpose
is to trade in futures, forwards, and options, it is expected that
the Partnership will continue to own such liquid assets for margin
purposes.

The Partnership?s investment in futures, forwards, and options
may, from time to time, be illiquid. Most U.S. futures exchanges
limit fluctuations in prices during a single day by regulations
referred to as ?daily price fluctuations limits? or ?daily
limits?. Trades may not be executed at prices beyond the daily
limit. If the price for a particular futures or options contract
has increased or decreased by an amount equal to the daily limit,
positions in that futures or options contract can neither be taken
nor liquidated unless traders are willing to effect trades at or
within the limit. Futures prices have occasionally moved the
daily limit for several consecutive days with little or no
trading. 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 expects to
have, any capital assets. Redemptions, exchanges, and sales of
units of limited partnership interest (?Unit(s)?) in the future
will affect the amount of funds available for investments in
futures, forwards, and options in subsequent periods. It is not
possible to estimate the amount, and therefore the impact,
of future inflows and outflows of Units.

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

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

Results of Operations
General. The Partnership?s results depend on the Trading
Advisors and the ability of each Trading Advisor?s trading
program(s) to take advantage of price movements in the futures,
forwards, and options markets. The following presents a summary
of the Partnership?s operations for the three month periods ended
March 31, 2005 and 2004, and a general discussion of its trading
activities during each period. It is important to note, however,
that the Trading Advisors trade in various markets at different
times and that prior activity in a particular market does not
mean that such market will be actively traded by the Trading
Advisors 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 Advisors? trading
activities on behalf of the Partnership during the period in
question. Past performance is no guarantee of future results.

The Partnership?s results of operations set forth in the
financial statements on pages 2 through 11 of this report are
prepared in accordance with accounting principles generally
accepted in the United States of America, which require the use
of certain accounting policies that affect the amounts reported
in these financial statements, including the following: The
contracts the Partnership trades are accounted for on a trade-
date basis and marked to market on a daily basis. The difference
between their cost and market value is recorded on the Statements
of Operations as ?Net change in unrealized trading profit (loss)?
for open (unrealized) contracts, and recorded as ?Realized
trading profit (loss)? when open positions are closed out. The
sum of these amounts constitutes the Partnership?s trading
results. The market value of a futures contract is the
settlement price on the exchange on which that futures contract
is traded on a particular day. The value of foreign currency
forward contracts is based on the spot rate as of the close of
business. Interest income, as well as management fees, incentive
fees, and brokerage fees expenses of the Partnership are recorded
on an accrual basis.

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

For the Quarter Ended March 31, 2005
The Partnership recorded total trading results including interest
income totaling $(35,305,346) and expenses totaling $14,294,428,
resulting in a net loss of $49,599,774 for the quarter ended March
31, 2005. The Partnership?s net asset value per Unit decreased
from $28.88 at December 31, 2004 to $26.45 at March 31, 2005.

The most significant trading losses of approximately 6.8% resulted
in the currency sector throughout the quarter from positions in
foreign currencies versus the U.S. dollar. During January, long
positions in Swiss franc and euro versus the U.S. dollar incurred
losses after the U.S. dollar?s value reversed sharply higher amid
conflicting economic data, improvements in U.S. trade deficit
numbers, and speculation for higher U.S. interest rates. The U.S.
dollar?s value also advanced in response to expectations that the
Chinese government would announce postponement of Chinese yuan-
revaluation for the foreseeable future. Additional losses were
recorded during February from short positions in the Swiss franc
and euro versus the U.S. dollar as the U.S. dollar weakened in
response to concern for the considerable U.S. current account
deficit expressed by Federal Reserve Chairman Alan Greenspan. The
value of the U.S. dollar was further weakened during the
remainder of the month by a larger-than-expected drop in January
leading economic indicators and news that South Korea?s Central
Bank would be reducing its U.S. dollar currency reserves. Long
European currency positions versus the U.S. dollar also recorded
losses during March after the value of the U.S. dollar reversed
sharply higher benefiting from higher U.S. interest rates and
consumer prices. Additional Partnership losses of approximately
1.5% were recorded in the global stock index sector, primarily
during January and March, from long positions in U.S. and Pacific
Rim stock index futures. During January, long U.S. index
positions experienced losses after prices declined amid weak
consumer confidence data, concerns about higher U.S. interest
rates, and the potential for slower corporate profit growth.
Additional losses were incurred from long positions in Japanese
equity index futures as prices declined in the wake of lower U.S.
equity markets and weaker-than-expected earnings in the Japanese
technology sector. During March, long positions in U.S. and
Pacific Rim stock index futures incurred losses after equity
prices moved lower amid concerns for the growing U.S. trade
deficit, weakness in the U.S. dollar early in the month, inflation
fears, and a surge in crude oil prices. Prices continued to
weaken throughout the month on higher U.S. interest rates and
fears that consistently rising energy prices would negatively
impact economic growth in the U.S. and Pacific Rim region.
Smaller Partnership losses of approximately 0.1% resulted in the
metals markets from long futures positions in gold as
prices declined during January amid strength in the U.S. dollar.
A portion of the Partnership?s overall losses for the quarter were
offset by gains of approximately 1.1% recorded in the agricultural
markets during February from long futures positions in coffee as
prices increased amid news of strong demand and expectations for
smaller world crops. Long positions in the soybeans complex were
also profitable after prices trended higher on news of extremely
cold weather in U.S. growing regions and rumors of a reduction on
world output during 2005. Additional Partnership gains of
approximately 0.8% were achieved in the energy markets, primarily
during March, from long futures positions in crude oil and its
related products as rising energy prices advanced after OPEC oil
ministers announced that there were no plans to raise output and
the U.S. Energy Information Administration reported that U.S.
inventories of gasoline and heating oil measured significantly
lower-than-expected. The weaker U.S. dollar value also triggered
crude oil demand early in the month from countries such as Japan
and China. Finally, prices soared at the end of the month after
Goldman Sachs analysts warned oil prices could reach $105 a barrel
in the future. Smaller Partnership gains of approximately 0.1%
were achieved in the global interest rate sector during January
and March from positions in U.S. interest rate futures. During
January, long positions benefited after prices trended higher due
to uncertainty in the equity markets and the release of
conflicting international economic data. During March, short
positions benefited as prices moved lower amid an increase
in U.S. interest rates and speculation for further increases in
the future.

For the Quarter Ended March 31, 2004
The Partnership recorded total trading results including interest
income totaling $61,318,726 and expenses totaling $18,255,568,
resulting in net income of $43,063,158 for the quarter ended March
31, 2004. The Partnership?s net asset value per Unit increased
from $30.31 at December 31, 2003 to $33.19 at March 31, 2004.

The most significant trading gains of approximately 6.0% were
achieved in the metals markets from long futures positions in base
metals, such as copper, aluminum, and zinc, during January and
February. Prices for these metals reacted positively to increased
demand from China coupled with a weaker U.S. dollar. News of
decreased market supply, along with higher global equity prices,
also contributed to the rally in prices. Smaller gains were
supplied from long futures positions in silver as prices benefited
from continued U.S. dollar weakness in early January. During
February, base metals and silver prices benefited further from
increased demand triggered by a declining U.S. dollar. In the
global interest rate markets, gains of approximately 2.9% were
generated from long positions in European and U.S. interest rate
futures during February and March. During February, global bond
prices rallied after central banks, such as the European Central
Bank and U.S. Federal Reserve, reported no need to raise
interest rates due to a lack of inflation. During March, prices
trended higher due to uncertainty in the global equity markets,
disappointing U.S. economic data, and safe-haven buying following
the terrorist attack in Madrid. Gains of approximately 2.9% were
recorded in the agricultural sector from long futures positions in
corn and soybeans. Prices for both commodities finished higher as
increased exports abroad and greater demand from Asia caused
prices to rally during the quarter. Within the energy sector,
gains of approximately 1.1% were generated during February from
long futures positions in crude oil and its related products. Low
market supply, falling inventory levels, and a production-cut
announcement from OPEC caused prices to increase. Smaller gains
of approximately 0.7% were recorded in the global stock index
markets, primarily during March, from long positions in Japanese
stock index futures. Japanese equity prices increased following
consistent signals of Japanese economic recovery. A portion of
the Partnership?s overall gains for the quarter was offset by
losses of approximately 0.6% incurred in the currency markets,
primarily during March. Short positions in the Japanese yen
versus the U.S. dollar resulted in the largest losses within this
sector as the yen reversed higher due to speculation that the Bank
of Japan was relaxing its efforts of intervention to weaken the
yen.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK

Introduction
The Partnership is a commodity pool engaged primarily in the
speculative trading of futures, forwards, and options. The
market-sensitive instruments held by the Partnership are acquired
for speculative trading purposes only and, as a result, all or
substantially all of the Partnership?s assets are at risk of
trading loss. Unlike an operating company, the risk of market-
sensitive instruments is inherent to the primary business activity
of the Partnership.

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

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

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

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

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

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

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

The Partnership?s risk exposure in the market sectors traded by
the Trading Advisors is estimated below in terms of VaR. The
Partnership estimates VaR using a model based upon historical
simulation (with a confidence level of 99%) which involves
constructing a distribution of hypothetical daily changes in the
value of a trading portfolio. The VaR model takes into account
linear exposures to risk including equity and commodity prices,
interest rates, foreign exchange rates, and correlation among
these variables. The hypothetical changes in portfolio value are
based on daily percentage changes observed in key market indices
or other market factors (?market risk factors?) to which the
portfolio is sensitive. The one-day 99% confidence level of the
Partnership?s VaR corresponds to the negative change in portfolio
value that, based on observed market risk factors, would have
been exceeded once in 100 trading days, or one day in 100. VaR
typically does not represent the worst case outcome. Demeter
uses approximately four years of daily market data (1,000
observations) and revalues its portfolio (using delta-gamma
approximations) for each of the historical market moves that
occurred over the 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 Advisors in their daily risk management activities.
Please further note that VaR as described above may not be
comparable to similarly titled measures used by other entities.

The Partnership?s Value at Risk in Different Market Sectors
The following table indicates the VaR associated with the
Partnership?s open positions as a percentage of total net assets
by primary market risk category at March 31, 2005 and 2004. At
March 31, 2005 and 2004, the Partnership?s total capitalization
was approximately $557 million and $547 million, respectively.

Primary Market March 31, 2005 March 31, 2004
Risk Category Value at Risk Value at Risk

Equity (1.45)% (0.66)%

Interest Rate (0.98) (2.12)

Currency (0.69) (0.40)

Commodity (1.21) (1.32)

Aggregate Value at Risk (2.65)% (2.43)%

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

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

The table below supplements the quarter-end VaR set forth above
by presenting the Partnership?s high, low, and average VaR, as a
percentage of total net assets for the four quarter-end reporting
periods from April 1, 2004 through March 31, 2005.

Primary Market Risk Category High Low Average
Equity (2.63)% (0.73)% (1.45)%
Interest Rate (2.90) (0.64) (1.52)
Currency (1.94) (0.37) (0.92)
Commodity (1.21) (0.39) (0.83)
Aggregate Value at Risk (3.56)% (1.44)% (2.70)%

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

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

The VaR tables provided present the results of the Partnership?s
VaR for each of the Partnership?s market risk exposures and on an
aggregate basis at March 31, 2005, and for the four quarter-end
reporting periods from April 1, 2004 through March 31, 2005. 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
(approximately 91% as of March 31, 2005) of its available assets
in cash at Morgan Stanley DW. A decline in short-term interest
rates would result in a decline in the Partnership?s cash
management income. This cash flow risk is not considered to be
material.

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

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

The following were the primary trading risk exposures of the
Partnership at March 31, 2005, by market sector. It may be
anticipated, however, that these market exposures will vary
materially over time.

Equity. The primary market exposure of the Partnership at March
31, 2005 was to equity price risk in the G-7 countries. The G-7
countries consist of France, the U.S., Britain, Germany, Japan,
Italy, and Canada. The stock index futures traded by the
Partnership are by law limited to futures on broadly-based
indices. At March 31, 2005, the Partnership?s primary exposures
were to the DAX (Germany), CAC 40 (France), TOPIX (Japan), S&P
500 (U.S.), and NIKKEI (Japan) stock indices. The Partnership
is exposed to the risk of adverse price trends or static markets
in the European, U.S., Japanese, and Australian stock indices.
Static markets would not cause major market changes, but would
make it difficult for the Partnership to avoid trendless price
movements, resulting in numerous small losses.

Interest Rate. The second largest market exposure of the
Partnership at March 31, 2005 was to the global interest rate
sector. Exposure was primarily spread across the U.S.,
European, Australian, and Japanese interest rate sectors.
Interest rate movements directly affect the price of the
sovereign bond futures positions held by the Partnership and
indirectly affect the value of its stock index and currency
positions. Interest rate movements in one country, as well as
relative interest rate movements between countries, materially
impact the Partnership?s profitability. The Partnership?s
interest rate exposure is generally to interest rate fluctuations
in the U.S. and the other G-7 countries. However, the
Partnership also takes futures positions in the government debt
of smaller countries ? e.g., Australia. Demeter anticipates that
the G-7 countries and Australian interest rates will remain the
primary interest rate exposure of the Partnership for the
foreseeable future. The speculative futures positions held by
the Partnership may range from short to long-term instruments.
Consequently, changes in short, medium, or long-term interest
rates may have an effect on the Partnership.

Currency. The third largest market exposure of the Partnership
at March 31, 2005 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
March 31, 2005, the Partnership?s major exposures were to the
Australian dollar, euro, Japanese yen, British pound, Norwegian
krone, Swiss franc, and Canadian dollar currency crosses, as
well as to outright U.S. dollar positions. Outright positions
consist of the U.S. dollar vs. other currencies. These other
currencies include major and minor currencies. Demeter does not
anticipate that the risk associated with the Partnership?s
currency trades will change significantly in the future.

Commodity.
Energy. At March 31, 2005, the Partnership had market
exposure in the energy sector. The Partnership?s energy
exposure was primarily to futures contracts in crude oil and
its related products, and natural gas. Price movements in
these markets result from geopolitical developments,
particularly in the Middle East, as well as weather patterns
and other economic fundamentals. Significant profits and
losses, which have been experienced in the past, are
expected to continue to be experienced in the future.
Natural gas has exhibited volatility in prices resulting
from weather patterns and supply and demand factors and will
likely continue in this choppy pattern.

Metals. At March 31, 2005, the Partnership had market
exposure in the metals sector. The Partnership's metals
exposure was to fluctuations in the price of base metals,
such as copper, aluminum, zinc, nickel, lead, and precious
metals, such as gold and silver. Economic forces, supply
and demand inequalities, geopolitical factors, and market
expectations influence price movements in these markets.
The Trading Advisors utilize the trading system(s) to take
positions when market opportunities develop, and Demeter
anticipates that the Partnership will continue to do so.

Soft Commodities and Agriculturals. At March 31, 2005, the
Partnership had market exposure to the markets that comprise
these sectors. Most of the exposure was to the cotton and
soybean markets. Supply and demand inequalities, severe
weather disruptions, and market expectations affect price
movements in these markets.

Qualitative Disclosures Regarding Non-Trading Risk Exposure
The following was the only non-trading risk exposure of the
Partnership at March 31, 2005:

Foreign Currency Balances. The Partnership?s primary foreign
currency balances at March 31, 2005 were in euros, Japanese
yen, Hong Kong dollars, Australian dollars, and British
pounds. 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 Advisors, separately, attempt to
manage the risk of the Partnership?s open positions in essentially
the same manner in all market categories traded. Demeter attempts
to manage market exposure by diversifying the Partnership?s assets
among different Trading Advisors in a multi-advisor Partnership,
each of whose strategies focus on different market sectors and
trading approaches, and by monitoring the performance of the
Trading Advisors daily. In addition, the Trading Advisors
establish diversification guidelines, often set in terms of the
maximum margin to be committed to positions in any one market
sector or market-sensitive instrument.

Demeter monitors and controls the risk of the Partnership?s non-
trading instrument, cash. Cash is the only Partnership investment
directed by Demeter, rather than the Trading Advisors.

Item 4. CONTROLS AND PROCEDURES
(a) As of the end of the period covered by this quarterly
report, the President and Chief Financial Officer of
Demeter, the general partner of the Partnership, have
evaluated the effectiveness of the Partnership?s
disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) of the Exchange Act), and have
judged such controls and procedures to be effective.

(b) There have been no material changes during the period
covered by this quarterly report in the Partnership?s
internal controls or in other factors that could
significantly affect these controls subsequent to the
date of their evaluation.

PART II. OTHER INFORMATION

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
SEC
Registration Statement on Form S-1 Units Registered Effective Date
File Number

Initial Registration 60,000.000 May 17, 1991 33-39667
Supplemental Closing 10,000.000 August 23, 1991 33-42380
Additional Registration 75,000.000 August 31, 1993 33-65072
Additional Registration 60,000.000 October 27, 1997 333-01918
Pre-conversion 205,000.000

Units sold through 10/17/97 146,139.671
Units unsold through 10/17/97 58,860.329
(Ultimately de-registered)

Commencing with April 30, 1998 monthly closing and with becoming a
member of the Spectrum Series of funds, each previously
outstanding Unit of the Partnership was converted into 100 Units,
totaling 14,613,967.100 (pre-conversion).

Additional Registration 1,500,000.000 May 11, 1998 333-47829
Additional Registration 5,000,000.000 January 21, 1999 333-68773
Additional Registration 4,500,000.000 February 28, 2000 333-90467
Additional Registration 1,000,000.000 April 30, 2002 333-84656
Additional Registration 7,000,000.000 April 28, 2003 333-104005
Additional Registration 23,000,000.000 April 28, 2004 333-113393
Total Units Registered 42,000,000.000

Units sold post conversion 22,511,071.943
Units unsold through 3/31/05 19,488,928.057

Total Units sold
through 3/31/05 37,125,039.043
(pre and post conversion)

The managing underwriter for the Partnership is Morgan Stanley DW.
Units are continuously sold at monthly closings at a
purchase price equal to 100% of the net asset value per Unit as of
the close of business on the last day of each month.

The aggregate price of the Units sold through March 31, 2005 was
$801,790,666.

Since no expenses are chargeable against proceeds, 100% of the
proceeds of the offering have been applied to the working capital
of the Partnership for use in accordance with the ?Use of
Proceeds? section of the prospectus included as part of the above
referenced Registration Statements.

Item 5. OTHER INFORMATION
Departure of Directors or Principal Officers; Election of
Directors; Appointment of Principal Officers.

At a meeting of the Board of Directors of Demeter held on March
30, 2005, the following Directors of Demeter resigned, and the
Board of Directors accepted such resignations effective May 1,
2005: Ms. Louise M. Wasso-Jonikas and Messrs. Raymond A. Harris,
Todd Taylor, and William D. Seugling.

At that March 30, 2005 meeting of the Board of Directors of
Demeter, the Board of Directors elected two new Directors
effective May 1, 2005, subject to approval by and registration
with the National Futures Association: Ms. Shelley Hanan
and Mr. Harry Handler.

Item 6. EXHIBITS

3.01 Form of Amended and Restated Limited Partnership
Agreement of the Partnership, is incorporated by
reference to Exhibit A of the Partnership?s Prospectus,
dated April 25, 2005, filed with the Securities and
Exchange Commission pursuant to Rule 424(b)(3) under the
Securities Act of 1933, on April 29, 2005.
3.02 Certificate of Limited Partnership, dated March 19, 1991,
is incorporated by reference to Exhibit 3.02 of the
Partnership?s Registration Statement on Form S-1 (File
No. 333-47829) filed with the Securities and Exchange
Commission on March 12, 1998.
3.03 Certificate of Amendment of Certificate of Limited
Partnership, dated April 6, 1999 (changing its name from
Dean Witter Spectrum Select L.P.), is incorporated by
reference to Exhibit 3.03 of the Partnership?s
Registration Statement on Form S-1 (File No. 333-68773)
filed with the Securities and Exchange Commission on
April 12, 1999.
3.04 Certificate of Amendment of Certificate of Limited
Partnership, dated November 1, 2001 (changing its name
from Morgan Stanley Dean Witter Spectrum Select L.P.), is
incorporated by reference to Exhibit 3.01 of the
Partnership?s Form 8-K (File No. 0-19511) filed with the
Securities and Exchange Commission on November 1, 2001.
10.01 Amended and Restated Management Agreement, dated as of
June 1, 1998, among the Partnership, Demeter, and Rabar
Market Research, Inc., is incorporated by reference to
Exhibit 10.01 of the Partnership?s Form 10-K (File No. 0-
19511) for fiscal year ended December 31, 1998 filed with
the Securities and Exchange Commission on June 30, 1999.
10.02 Amended and Restated Management Agreement, dated as of
June 1, 1998, among the Partnership, Demeter, and EMC
Capital Management, Inc., is incorporated by reference to
Exhibit 10.02 of the Partnership?s Form 10-K (File No. 0-
19511) for fiscal year ended December 31, 1998 filed with
the Securities and Exchange Commission on June 30, 1999.

10.03 Amended and Restated Management Agreement, dated as of
June 1, 1998, among the Partnership, Demeter, and Sunrise
Capital Management, Inc., is incorporated by reference to
Exhibit 10.03 of the Partnership?s Form 10-K (File No. 0-
19511) for fiscal year ended December 31, 1998 filed with
the Securities and Exchange Commission on June 30, 1999.
10.04 Management Agreement, dated as of May 1, 2001, among the
Partnership, Demeter, and Northfield Trading L.P., is
incorporated by reference to Exhibit 10.01 of the
Partnership?s Form 8-K (File No. 0-19511) filed with the
Securities and Exchange Commission on April 25, 2001.
10.07 Form of Subscription and Exchange Agreement and Power of
Attorney to be executed by purchasers of Units is
incorporated by reference to Exhibit B of the
Partnership?s Prospectus, dated April 25, 2005, filed
with the Securities and Exchange Commission pursuant to
Rule 424(b)(3) under the Securities Act of 1933 on April
29, 2005.
10.10 Amended and Restated Escrow Agreement, among the
Partnership, Morgan Stanley Spectrum Strategic L.P.,
Morgan Stanley Spectrum Global Balanced L.P., Morgan
Stanley Spectrum Technical L.P., Morgan Stanley Spectrum
Currency L.P., Morgan Stanley Spectrum Commodity L.P.,
Morgan Stanley DW, and The Chase Manhattan Bank as escrow
agent, dated March 10, 2000, is incorporated by reference
to Exhibit 10.10 of the Partnership?s Registration
Statement on Form S-1 (File No. 333-90467) filed with the
Securities and Exchange Commission on November 2, 2001.
10.11 Form of Subscription Agreement Update Form to be executed
by purchasers of Units is incorporated by reference to
Exhibit C of the Partnership?s Prospectus, dated April
25, 2005, filed with the Securities and Exchange
Commission pursuant to Rule 424(b)(3) under the
Securities Act of 1933 on April 29, 2005.
10.12 Amended and Restated Customer Agreement between the
Partnership and Morgan Stanley DW, dated as of October
16, 2000, is incorporated by reference to Exhibit 10.01
of the Partnership?s Form 8-K (File No. 0-19511) filed
with the Securities and Exchange Commission on November
1, 2001.
10.13 Commodity Futures Customer Agreement between MS & Co. and
the Partnership, and acknowledged and agreed to by Morgan
Stanley DW, dated as of June 6, 2000, is incorporated by
reference to Exhibit 10.02 of the Partnership?s Form 8-K
(File No. 0-19511) filed with the Securities and
Exchange Commission on November 1, 2001.
10.14 Customer Agreement between the Partnership and MSIL,
dated as of June 6, 2000, is incorporated by reference to
Exhibit 10.04 of the Partnership?s Form 8-K (File No.
0?19511) filed with the Securities and Exchange
Commission on November 1, 2001.
10.15 Foreign Exchange and Options Master Agreement between MS
& Co. 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. 0-19511) filed with the
Securities and Exchange Commission on November 1, 2001.
10.16 Securities Account Control Agreement among the
Partnership, MS & Co., and Morgan Stanley DW, dated as of
May 1, 2000, is incorporated by reference to Exhibit
10.03 of the Partnership?s Form 8-K (File No. 0-19511)
filed with the Securities and Exchange Commission on
November 1, 2001.
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.

SIGNATURE

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

Morgan Stanley Spectrum Select L.P.
(Registrant)

By: Demeter Management Corporation
(General Partner)

May 16, 2005 By:/s/ Kevin Perry
Kevin Perry
Chief Financial Officer

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

MORGAN STANLEY SPECTRUM SELECT L.P.
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)

? 40 ?