MORGAN STANLEY SPECTRUM STRATEGIC LP - 10-Q Quarterly Report

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

FORM 10-Q

[X] Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended June 30, 2003 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 0-26280

MORGAN STANLEY SPECTRUM STRATEGIC L.P.

(Exact name of registrant as specified in its charter)

Delaware 13-3782225
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

Demeter Management Corporation
825 Third Avenue, 9th Floor
New York, NY 10022
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code (212) 310-6444

(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___________

MORGAN STANLEY SPECTRUM STRATEGIC L.P.

INDEX TO QUARTERLY REPORT ON FORM 10-Q

June 30, 2003

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

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

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

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

MORGAN STANLEY SPECTRUM STRATEGIC L.P.
STATEMENTS OF CHANGES IN PARTNERS? CAPITAL
For the Six Months Ended June 30, 2003 and 2002
(Unaudited)

The accompanying notes are an integral part
of these financial statements.
MORGAN STANLEY SPECTRUM STRATEGIC L.P.
STATEMENTS OF CASH FLOWS
(Unaudited)

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

June 30, 2003

(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 Strategic L.P. (the ?Partnership?).
The financial statements and condensed notes herein should be read
in conjunction with the Partnership?s December 31, 2002 Annual
Report on Form 10-K.

1. Organization
Morgan Stanley Spectrum Strategic L.P. is a Delaware limited
partnership organized 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 Global Balanced L.P.,
Morgan Stanley Spectrum Select L.P., and Morgan Stanley Spectrum
Technical L.P.

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

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 Allied Irish Capital Management, Ltd., Blenheim
Capital Management, L.L.C., and Eclipse Capital Management, Inc.
(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. Morgan Stanley DW pays
interest on these funds based on a prevailing rate on U.S.
Treasury bills. The Partnership pays brokerage fees to Morgan
Stanley DW.

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

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

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 contracts is based on closing prices quoted
by the exchange, bank or clearing firm through which the
contracts are traded.

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

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:

Net Unrealized Gains (Losses)
on Open Contracts Longest Maturities
Exchange- Off-Exchange- Exchange- Off-Exchange-
Date Traded Traded Total Traded Traded
$ $ $

Jun. 30, 2003 (39,207) 5,045 (34,162) Dec. 2003 Sep. 2003
Dec. 31, 2002 6,387,996 543,148 6,931,144 Jul. 2004 Mar. 2003

The Partnership has credit risk associated with counterparty non-
performance. The credit risk associated with the instruments in

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

which the Partnership is involved 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 and futures-styled options contracts are
marked to market on a daily basis, with variations in value
settled on a daily basis. Each of Morgan Stanley DW, MS & Co.,
and MSIL, as a futures commission merchant for the Partnership?s
exchange-traded futures 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 and futures-styled
options contracts, including an amount equal to the net unrealized
gains (losses) on all open futures and futures-styled options
contracts, which funds, in the aggregate, totaled $88,282,646 and
$74,612,644 at June 30, 2003 and December 31, 2002, respectively.
With respect to the Partnership?s off-exchange-traded forward
currency contracts, there are no daily settlements of variations
in value nor is there any requirement that an amount equal to the
net unrealized gains (losses) on open forward contracts be

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

segregated. 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 of 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, which
assets are used as margin to engage in 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. The Partnership?s assets held by the
commodity brokers may be used as margin solely for the
Partnership?s trading. 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 currency. 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.

The Partnership has never had illiquidity affect a material
portion of its assets. Furthermore, there are no material trends,
demands, commitments, events or uncertainties known at the present
time that will result in, or 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 expect to
have, any capital assets. Redemptions, exchanges, and sales of
additional units of limited partnership interest (?Unit(s)?) in
the future will affect the amount of funds available for
investment in futures, forwards, and options in subsequent
periods. It is not possible to estimate the amount, and
therefore the impact of future, redemptions 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.
The Partnership has no off-balance sheet arrangements, nor
contractual obligations or commercial commitments to make future
payments that would affect the Partnership?s liquidity or capital
resources. The contracts traded by the Partnership are accounted
for on a trade-date basis and marked to market on a daily basis.
The value of futures contracts is the settlement price on the
exchange on which that futures contract is traded on particular
day and the value of foreign currency forward contracts is based
on the spot rate as of the close of business, New York City time,
on a given day.

Results of Operations
General. The Partnership?s results depend on the Trading
Advisors and the ability of the Trading Advisors? trading
programs to take advantage of price movements or other profit
opportunities in the futures, forwards, and options markets. The
following presents a summary of the Partnership?s operations for
the three and six month periods ended June 30, 2003 and 2002 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 and how the Partnership has performed
in the past.

The Partnership?s results of operations set forth in the
financial statements on pages 2 through 12 of this report were
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 profit/loss? for open
(unrealized) contracts, and recorded as ?Realized profit/loss?
when open positions are closed out, and the sum of these amounts
constitutes the Partnership?s trading revenues. Interest income
revenue, 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 and Six Months Ended June 30, 2003
For the quarter ended June 30, 2003, the Partnership recorded
total trading revenues, including interest income, of $2,970,073
and posted an increase in net asset value per Unit. The most
significant gains of approximately 3.2% were recorded in the
currency markets, primarily during May, from long positions in
the euro versus the U.S. dollar as the value of the euro
strengthened to an all-time high amid uncertainty regarding the
Bush Administration?s economic policy, renewed fears of potential
terrorist attacks against American interests, and investor
preference for non-U.S. dollar denominated assets. Additional
gains were recorded from long positions in the Australian dollar
versus the U.S. dollar as its value strengthened in response to
continued weakness in the U.S. dollar and higher interest rates
in Australia relative to those elsewhere. Additional gains of
approximately 2.2% in the global stock index markets were
supplied from long positions in U.S. stock index futures as
prices moved higher amid increased optimism regarding the U.S.
economic recovery. Smaller gains of approximately 0.9% in the
global interest rate markets were provided from long positions in
European interest rate futures during May as prices continued to
trend higher amid lingering doubts concerning a global
economic recovery. A portion of the Partnership?s overall gains
for the quarter was offset by losses of approximately 1.8% in the
energy markets from long positions in natural gas futures as
prices reversed lower during June following news of larger-than-
expected U.S. reserves. Additional losses stemmed from short
positions in crude oil futures as prices moved higher during May
amid supply concerns and renewed fears regarding security at
Middle Eastern refining facilities. Losses of approximately 1.7%
were experienced in the agricultural markets from long positions
in cocoa futures as prices moved lower during May amid
speculative selling and higher-than-expected crop estimates from
the Ivory Coast, Ghana, and Nigeria. Total expenses for the
three months ended June 30, 2003 were $2,527,845, resulting in
net income of $442,228. The net asset value of a Unit increased
from $12.29 at March 31, 2003 to $12.36 at June 30, 2003.

For the six months ended June 30, 2003, the Partnership recorded
total trading revenues, including interest income, of $10,604,629
and posted an increase in net asset value per Unit. The most
significant gains of approximately 6.3% were recorded in the
currency markets, primarily during May, from long positions in
the euro versus the U.S. dollar as the value of the euro
strengthened to an all-time high amid uncertainty regarding the
Bush Administration?s economic policy, renewed fears of potential
terrorist attacks against American interests, and investors
preference for non-U.S. dollar denominated assets.
Additional gains were recorded from long positions in the
Australian dollar versus the U.S. dollar as its value
strengthened in response to continued weakness in the U.S. dollar
and higher interest rates in Australia relative to those
elsewhere. Additional gains of approximately 2.5% in the global
interest rate markets were recorded during February and May from
long positions in European interest rate futures as prices
trended higher amid lingering doubts concerning a global economic
recovery. Further gains of approximately 2.4% in the global
stock index markets were contributed during May and June from
long positions in European and U.S. stock index futures as prices
moved higher amid increased optimism regarding the U.S. economic
recovery. During January gains of approximately 1.8% in the
agricultural markets primarily resulted from long positions in
sugar futures as prices rose on speculative buying ahead of the
Brazilian harvest. Further gains in the agricultural sector
stemmed from long futures positions in rough rice. A portion of
the Partnership?s overall gains for the quarter was offset by
losses of approximately 0.2 % in the metals markets, primarily
from long positions in gold futures, as prices declined during
March amid renewed strength in the value of the U.S. dollar and a
moderate rebound in global equity prices. Total expenses for the
six months ended June 30, 2003 were $5,381,223, resulting in net
income of $5,223,406. The net asset value of a Unit increased
from $11.54 at December 31, 2002 to $12.36 at June 30, 2003.
For the Quarter and Six Months Ended June 30, 2002
For the quarter ended June 30, 2002, the Partnership recorded
total trading revenues, including interest income, of $4,753,904
and posted an increase in net asset value per Unit. The most
significant gains of approximately 5.9% were recorded in the
agricultural markets from long positions in cotton futures as
prices increased sharply during May on bullish data from the U.S.
Department of Agriculture. Bullish sentiment continued as prices
rose during June, resulting in further gains from long positions.
Long cocoa futures positions were profitable, as prices trended
higher throughout a majority of the year on concerns of supply
deficits and speculative buying. Elsewhere in the agricultural
markets, long positions in corn and wheat futures were profitable
as prices increased on forecasts for hot and dry weather
throughout the U.S. midwest. Additional gains of approximately
4.1% were recorded in the currency markets primarily during May
and June from previously established long positions in the euro
and Swiss franc relative to the U.S. dollar as the value of these
currencies strengthened against the U.S. dollar amid falling
equity prices, concerns regarding corporate accounting integrity,
and weak economic data. A portion of the Partnership?s overall
gains for the quarter was offset by losses of approximately 1.6%
in the global stock index futures markets primarily from long
positions in U.S. stock index futures as prices decreased on
geopolitical concerns and uncertainty surrounding a global
economic recovery. Additional losses of approximately 1.1% were
recorded in the metals markets from short positions in
aluminum and zinc futures as prices trended higher during May on
sentiment that the possibility of an improving U.S. economy would
boost demand for industrial metals. Total expenses for the three
months ended June 30, 2002 were $1,809,663, resulting in net
income of $2,944,241. The net asset value of a Unit increased
from $11.55 at March 31, 2002 to $12.02 at June 30, 2002.

For the six months ended June 30, 2002, the Partnership recorded
total trading revenues, including interest income, of $13,029,717
and posted an increase in net asset value per Unit. The most
significant gains of approximately 13.5% were recorded in the
agricultural markets from long positions in cocoa and cotton
futures as prices trended higher throughout a majority of the
year on concerns of supply deficits and speculative buying.
Additional gains of approximately 5.3% were recorded in the
currency markets primarily during May and June from previously
established long positions in the euro and Swiss franc relative
to the U.S. dollar as the value of these currencies strengthened
against the U.S. dollar amid falling equity prices, concerns
regarding corporate accounting integrity, and weak economic data.
In the metals markets gains of approximately 3.0% were recorded
from long positions in copper futures as prices increased early
in the year on reports of falling inventories and Chinese buying
interest. Smaller gains of approximately 1.2% were recorded in
the energy markets primarily during March from long positions in
crude oil and its related products as prices trended
higher amid escalating Middle East tensions and supply and demand
factors. A portion of the Partnership?s overall gains was offset
by losses of approximately 2.4% in the global interest rate
futures markets primarily during April as U.S. and European
interest rate futures prices trended higher on pessimistic
economic data out of the U.S. and uncertainty regarding an
economic recovery, resulting in losses from short positions.
Additional losses of approximately 1.9% were recorded in the
global stock index futures markets from long positions in S&P 500
Index futures, as prices decreased during April amid concerns
regarding a sustainable and robust economic recovery. Total
expenses for the six months ended June 30, 2002 were $3,593,273,
resulting in net income of $9,436,444. The net asset value of a
Unit increased from $10.55 at December 31, 2001 to $12.02 at June
30, 2002.
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 central, not incidental, to the
Partnership?s main business activities.

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. Fluctuations in market risk based
upon these factors result in frequent changes in the fair value of
the Partnership?s open positions, and consequently, in its
earnings and cash flow.

The Partnership?s total market risk is influenced by a wide
variety of factors, including the diversification among the
Partnership?s open positions, the volatility present within the
markets, and the liquidity of the markets. At different times,
each of these factors may act to increase or decrease the
market risk associated with the Partnership.
The Partnership?s past performance is not necessarily indicative
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 may
cause future losses and volatility (i.e., ?risk of ruin?) that
far exceed the Partnership?s experience to date or any reasonable
expectations based upon historical changes in market value.

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, whether realized or unrealized, and its
cash flow. Profits and losses on open positions of exchange-
traded futures, forwards, and options are settled daily
through variation margin.
The Partnership?s risk exposure in the market sectors traded by
the Trading Advisors is estimated below in terms of Value at Risk
(?VaR?). The VaR model used by the Partnership includes many
variables that could change the market value of the Partnership?s
trading portfolio. The Partnership estimates VaR using a model
based upon historical simulation with a confidence level of 99%.
Historical simulation involves constructing a distribution of
hypothetical daily changes in the value of a trading portfolio.
The VaR model takes into account linear exposures to price and
interest rate risk. Market risks that are incorporated in the VaR
model include 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 historical observation period of the Partner-
ship?s VaR is approximately four years. 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.
In other words, one-day VaR for a portfolio is a number such that
losses in this portfolio are estimated to exceed the VaR only one
day in 100. VaR typically does not represent the worst-case
outcome.

VaR is calculated using historical simulation. 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 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-
traded instruments and are also not based on exchange and/or
dealer-based margin requirements.

VaR models, including the Partnership?s, are continuously 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 June 30, 2003 and 2002.
At June 30, 2003 and 2002, the Partnership?s total capitalization
was approximately $89 million and $76 million, respectively.

Primary Market June 30, 2003 June 30, 2002
Risk Category Value at Risk Value at Risk

Equity (0.50)% (0.17)%

Currency (0.20) (1.38)

Interest Rate (0.15) (0.71)

Commodity (1.12) (2.00)

Aggregate Value at Risk (1.24)% (2.51)%

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 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.

The table above represents the VaR of the Partnership?s open
positions at June 30, 2003 and 2002 only and is not necessarily
representative of either the historic or future risk of an
investment in the Partnership. Because the Partnership?s only
business 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. Any changes in open positions could positively
or negatively materially impact market risk as measured by VaR.

The table below supplements the quarter-end VaR by presenting the
Partnership?s high, low, and average VaR, as a percentage of
total net assets for the four quarterly reporting periods from
July 1, 2002 through June 30, 2003.

Primary Market Risk Category High Low Average
Equity (0.64)% (0.12)% (0.43)%

Currency (1.99) (0.20) (0.85)

Interest Rate (1.39) (0.14) (0.63)

Commodity (2.79) (1.05) (1.71)

Aggregate Value at Risk (3.93)% (1.19)% (2.21)%

Limitations on Value at Risk as an Assessment of Market Risk
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 value of the Partnership?s open positions
thus creates a ?risk of ruin? not typically found in other
investments. The relative size of the positions held may
cause the Partnership to incur losses greatly in excess of VaR
within a short period of time, given the effects of the leverage
employed and market volatility. The VaR tables above, as well as
the past performance of the Partnership, give no indication of
such ?risk of ruin?. In addition, VaR risk measures should be
viewed in light of the methodology?s limitations, which include
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 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.

The VaR tables above present the results of the Partnership?s VaR
for each of the Partnership?s market risk exposures and on an
aggregate basis at June 30, 2003 and 2002, and for the end of the
four quarterly reporting periods from July 1, 2002 through June
30, 2003. Since VaR is based on historical data, VaR
should not be viewed as predictive of 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 not needed for margin. These balances and any market
risk they may represent are immaterial.

At June 30, 2003, the Partnership?s cash balance at Morgan Stanley
DW was approximately 89% of its total net asset value. A decline
in short-term interest rates will 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 June 30, 2003 by market sector. It may be
anticipated, however, that these market exposures will
vary materially over time.
Equity. The Partnership?s equity exposure at June 30, 2003 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 June 30,
2003, the Partnership?s primary exposures were to the S&P 500
(U.S.), DAX (Germany) and Nikkei (Japan) stock indices. The
Partnership is primarily exposed to the risk of adverse price
trends or static markets in the U.S., European and Japanese stock
indices. Static markets would not cause major market changes but
would make it difficult for the Partnership to avoid being
"whipsawed" into numerous small losses.

Currency. The Partnership?s currency exposure at June 30, 2003
was 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., position between two
currencies other than the U.S. dollar. At June 30, 2003, the
Partnership?s major exposures were to the euro, Japanese yen and
British pound currency crosses as well as 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
profile of the Partnership?s currency sector will change
significantly in the future. The currency trading VaR figure
includes foreign margin amounts converted into U.S. dollars with
an incremental adjustment to reflect the exchange rate risk
inherent to the U.S.-based Partnership in expressing VaR in a
functional currency other than U.S. dollars.

Interest Rate. At June 30, 2003, the Partnership?s exposure to
the global interest rate market complex was primarily spread
across the U.S., European 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. The
Partnership also takes futures position in the government debt of
smaller nations ? 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 range from short to long-term instruments.
Consequently, changes in short, medium or long-term
interest rates may have an effect on the Partnership.
Commodity.
Soft Commodities and Agriculturals. At June 30, 2003, the
Partnership had exposure to the markets that comprise these
sectors. Most of the exposure was to the cotton, cocoa and
orange juice markets. Supply and demand inequalities,
severe weather disruptions, and market expectations affect
price movements in these markets.

Energy. At June 30, 2003, the Partnership?s energy exposure
was shared primarily by futures contracts in crude oil and
its related products, and natural gas. Price movements in
these markets result from political developments in the
Middle East, 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 may continue in this choppy
pattern.

Metals. The Partnership?s metals exposure at June 30, 2003
was to fluctuations in the price of precious metals, such as
gold, and base metals, such as copper and nickel. Economic
forces, supply and demand inequalities, geopolitical factors
and market expectations influence price movements in
these markets. The Trading Advisors, from time to time,
take positions when market opportunities develop and Demeter
anticipates that the Partnership will continue to do so.

Qualitative Disclosures Regarding Non-Trading Risk Exposure
The following was the only non-trading risk exposure of the
Partnership at June 30, 2003:

Foreign Currency Balances. The Partnership?s primary
foreign currency balances at June 30, 2003 were in British
pounds, Japanese yen and Australian dollars. The Partner-
ship 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, 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 the general partner, Demeter, 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 significant changes 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 1. LEGAL PROCEEDINGS
None.

Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
The Partnership, Morgan Stanley Spectrum Technical L.P.
(?Spectrum Technical?) and Morgan Stanley Spectrum Global
Balanced L.P. (?Spectrum Global Balanced?), collectively
registered 10,000,000 Units, pursuant to a Registration Statement
on a Form S-1, which became effective on September 15, 1994 (SEC
File Number 33-80146). While such Units were not allocated to
the Partnership, Spectrum Technical, and Spectrum Global Balanced
at that time, they were subsequently allocated for convenience
purposes as follows: the Partnership 4,000,000, Spectrum
Technical 4,000,000, and Spectrum Global Balanced 2,000,000.

The Partnership, Spectrum Technical, and Spectrum Global Balanced
collectively registered an additional 20,000,000 Units pursuant
to the new Registration Statement on Form S-1, which became
effective on January 31, 1996 (SEC File Number 333-00494); such
Units were allocated to the Partnership, Spectrum Technical, and
Spectrum Global Balanced as follows: the Partnership 6,000,000,
Spectrum Technical 9,000,000, and Spectrum Global Balanced
5,000,000.

The Partnership, Spectrum Technical, and Spectrum Global
Balanced collectively registered an additional 8,500,000 Units
pursuant to another Registration Statement on Form S-1, which
became effective on April 30, 1996 (SEC File Number 333-3222);
such Units were allocated to the Partnership, Spectrum Technical,
and Spectrum Global Balanced as follows: the Partnership
2,500,000, Spectrum Technical 5,000,000, and Spectrum Global
Balanced 1,000,000.

The Partnership registered an additional 6,500,000 Units pursuant
to another Registration Statement on Form S-1, which became
effective on February 28, 2000 (SEC File Number 333-90487).

The Partnership registered an additional 6,500,000 Units pursuant
to another Registration Statement on Form S-1, which became
effective on April 28, 2003 (SEC File Number 333-104003).

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.

Through June 30, 2003, 14,374,741.938 Units were sold,
leaving 11,125,258.062 Units unsold. The aggregate price of the
Units sold through June 30, 2003 was $160,668,711.

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
Changes in Management. The following changes have been made to
the Board of Directors and Officers of Demeter:

Mr. Robert E. Murray resigned the position of Chairman of the
Board of Directors of Demeter.

Mr. Jeffrey A. Rothman, President and Director of Demeter, was
named Chairman of the Board of Directors of Demeter.

Item 6. EXHIBITS AND REPORTS ON FORM 8-K

(A) 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
28, 2003, filed with the Securities and Exchange
Commission pursuant to Rule 424(b)(3) under the
Securities Act of 1933, on May 7, 2003.

3.02 Certificate of Limited Partnership, dated April 18, 1994,
is incorporated by reference to Exhibit 3.02 of the
Partnership?s Registration Statement on Form S-1 (File
No. 33-80146) filed with the Securities and Exchange
Commission on June 10, 1994.
3.04 Certificate of Amendment of Certificate of Limited
Partnership of the Partnership, dated April 6, 1999
(changing its name from Dean Witter Spectrum Strategic
L.P.), is incorporated by reference to Exhibit 3.04 of
the Partnership?s Registration Statement (File No. 333-
3222) filed with the Securities and Exchange Commission
on April 12, 1999.
3.05 Certificate of Amendment of Certificate of Limited
Partnership, dated November 1, 2001 (changing its name
from Morgan Stanley Dean Witter Spectrum Strategic L.P.),
is incorporated by reference to Exhibit 3.01 of the
Partnership?s Form 8-K (File No. 0-26280) filed with the
Securities and Exchange Commission on November 1, 2001.
10.02 Management Agreement, dated as of November 1, 1994, among
the Partnership, Demeter, and Blenheim Investments, Inc.
is incorporated by reference to Exhibit 10.01 of the
Partnership?s Form 10-K (File No. 0-26280) for fiscal
year ended December 31, 1998 filed on June 30, 1999.
10.02(a) Amendment to the Management Agreement, among the
Partnership, Demeter, and Blenheim Investments, Inc. is
incorporated by reference to Exhibit 10.01 of the
Partnership?s Form 8-K (File No. 0-26280), filed with the
Securities and Exchange Commission on April 25, 2001.
10.03 Management Agreement, dated as of June 1, 2000, among the
Partnership, Demeter, and Eclipse Capital Management,
Inc. is incorporated by reference to Exhibit 10.09 of the
Partnership?s Form 10-Q (File No. 0-26280) for the
quarterly period ended September 30, 2000 and filed with
the Securities and Exchange Commission on November 14,
2000.
10.04 Management Agreement, dated as of May 1, 1999, among the
Partnership, Demeter, and Allied Irish Capital Management
Ltd. is incorporated by reference to Exhibit 10.04 of the
Partnership?s Registration Statement on Form S-1 (File
No. 333-90487) filed with the Securities and Exchange
Commission on December 29, 1999.

10.11 Form of Subscription and Exchange Agreement and Power of
Attorney to be executed by each purchaser of Units is
incorporated by reference to Exhibit B of the
Partnership?s prospectus dated April 28, 2003, as filed
with the Securities and Exchange Commission pursuant to
Rule 424(b)(3) under the Securities Act of 1933 on May 7,
2003.
10.13 Amended and Restated Escrow Agreement, dated as of March
10, 2000 among the Partnership, Morgan Stanley Spectrum
Select L.P., Morgan Stanley Spectrum Technical L.P.,
Morgan Stanley Spectrum Global Balanced L.P., Morgan
Stanley Spectrum Currency L.P., Morgan Stanley Spectrum
Commodity L.P., Morgan Stanley DW, and The Chase
Manhattan Bank, the escrow agent, is incorporated by
reference to Exhibit 10.13 of the Partnership?s
Registration Statement on Form S-1 (File No. 333-90487)
filed with the Securities and Exchange Commission on
November 2, 2001.
10.14 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
28, 2003, as filed with the Securities and Exchange
Commission pursuant to Rule 424(b)(3) under the
Securities Act of 1933 on May 7, 2003.
10.15 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. 0-26280) filed
with the Securities and Exchange Commission on November
1, 2001.
10.16 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. 0-26280) filed with the Securities and Exchange
Commission on November 1, 2001.
10.17 Customer Agreement between the Partnership and MSIL,
dated as of May 1, 2000, is incorporated by reference to
Exhibit 10.04 of the Partnership?s Form 8-K (File No.
0-26280) filed with the Securities and Exchange
Commission on November 1, 2001.
10.18 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. 0-26280) filed
with the Securities and Exchange Commission on November
1, 2001.
10.19 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. 0-26280)
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 rules 13(a)-15(e) and 15d-15(e), as adopted
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 rules 13(a)-15(e) and 15d-15(e),
as adopted 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.

(B) Reports on Form 8-K. ? None.

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
Strategic L.P. (Registrant)

By: Demeter Management Corporation
(General Partner)

August 11, 2003 By:/s/Jeffrey D. Hahn
Jeffrey D. Hahn
Director and Chief Financial Officer

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

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