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 September 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

September 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 Nine Months Ended September 30, 2003 and 2002
(Unaudited)

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

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

September 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.
(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. 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
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 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
on Open Contracts Longest Maturities
Exchange- Off-Exchange- Exchange- Off-Exchange-
Date Traded Traded Total Traded Traded
$ $ $

Sep. 30, 2003 1,994,412 449,843 2,444,255 Dec. 2004 Dec. 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
which the Partnership is involved is limited to the amounts
reflected in the Partnership's statements of financial condition.
MORGAN STANLEY SPECTRUM STRATEGIC L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

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. Morgan Stanley DW, MS & Co., and MSIL,
each 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 on all open futures and futures-styled options contracts,
which funds, in the aggregate, totaled $97,491,870 and $74,612,644
at September 30, 2003 and December 31, 2002, respectively. With
respect to the Partnership's off-exchange-traded forward currency
contracts, there are no daily exchange-required settlements of
variations in value nor is there any requirement that an amount
equal to the net unrealized gains on open forward contracts be
segregated, however, MS & Co. and Morgan Stanley DW will make
daily settlements of losses as needed. 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
MORGAN STANLEY SPECTRUM STRATEGIC L.P.
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)

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, and no expected material changes to, the
Partnership's capital resource arrangements at the present time.
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. The contracts the Partnership trades 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 a particular day. 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 nine month periods ended September 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 Nine Months Ended September 30, 2003
For the quarter ended September 30, 2003, the Partnership
recorded total trading revenues, including interest income, of
$7,306,514 and posted an increase in net asset value per Unit.
The most significant gains of approximately 2.6% were recorded in
the currency markets from long positions in the euro versus the
U.S. dollar during September as the dollar's value trended lower
throughout the month after the release of several weak U.S.
economic reports prompted fears for an unsustainable U.S.
economic recovery. Additional gains were provided from short
positions in the euro versus the Japanese yen during August as
the value of the yen strengthened after the Bank of Japan
reiterated its commitment to its monetary policy. In the
agricultural markets, gains of approximately 2.0% were supplied
by long cotton futures positions during September as prices
rallied amid technically-based buying and unfavorable U.S.
weather conditions that interrupted supply shipments. Other
gains were produced from long positions in cocoa futures during
August as prices rallied amid short-covering, tight U.S. cocoa
reserves and dry weather in the Ivory Coast, the world's top
cocoa producer. In the metals markets, gains of approximately
1.8% resulted from long positions in nickel and copper
futures during July and September as base metal prices trended
higher amid technically-based buying, increased demand from China
and improved U.S. manufacturing data. Additional gains of
approximately 1.4% in the global stock index markets stemmed from
long positions in Japanese stock index futures as Japanese equity
prices increased during August and September amid robust Japanese
economic data and increased foreign investment. Long positions
in U.S. and European stock index futures also returned gains
during July and early September as prices were buoyed by a rise
in investor sentiment. Smaller gains of approximately 0.8% were
recorded in the energy markets from long positions in unleaded
gas and crude oil futures during August as prices increased amid
an increase in demand spurred by signs of a global economic
recovery. During September, short positions in crude oil futures
yielded gains as prices trended lower early in the month despite
attempts by OPEC to stabilize oil prices through possible output
reductions. A portion of the Partnership's overall gains for the
quarter was offset by losses of approximately 0.9% in the global
interest rate markets from long positions in U.S. and European
interest rate futures as prices declined during July amid rising
interest rates and a rally in global equity prices. During
September, short positions in U.S. and European interest rate
futures incurred losses as prices reversed higher after fears of
an unsustainable global economic recovery surfaced and triggered
investor demand for fixed income investments. Total expenses for
the three months ended September 30, 2003 were $2,334,115,
resulting in net income of $4,972,399. The net asset value of a
Unit increased from $12.36 at June 30, 2003 to $13.03 at
September 30, 2003.

For the nine months ended September 30, 2003, the Partnership
recorded total trading revenues, including interest income, of
$17,911,143 and posted an increase in net asset value per Unit.
The most significant gains of approximately 9.0% 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 assets. Additional gains were
recorded from long positions in the Australian dollar versus the
U.S. dollar as its value strengthened during January, April and
May in response to continued weakness in the U.S. dollar and
higher interest rates in Australia relative to those in the U.S.
Gains of approximately 3.9% in the agricultural markets resulted
primarily from long cotton futures positions during September as
prices rallied amid technically-based buying and unfavorable U.S.
weather conditions that interrupted supply shipments. During
January, long positions in sugar futures yielded gains as prices
rose amid speculative buying ahead of the Brazilian harvest.
Gains were also provided from long positions in cocoa futures
during August as prices rallied amid short-covering, tight
U.S. cocoa reserves and dry weather in the Ivory Coast, the
world's top cocoa producer. Further gains in the agricultural
sector stemmed from long futures positions in rough rice during
April as prices rose in response to the war in Iraq and the
potential for increased demand from Iraq after the war. In the
global stock index markets, gains of approximately 3.8% were
recorded during May and June from long positions in U.S. and
European stock index futures as prices moved higher amid
increased optimism regarding the U.S. economic recovery and a
rise in investor sentiment. Long positions in Japanese stock
index futures also returned gains as Japanese equity markets
tracked gains in global stock indices during September. Further
gains of approximately 1.6% in the metals markets stemmed from
long positions in copper futures during January as prices climbed
higher following the release of positive U.S. manufacturing data
and continued supply and demand concerns. Long futures positions
in nickel and copper provided further gains in this sector as
prices trended higher during July amid renewed optimism
concerning a U.S. economic recovery and hopes for increased
industrial production. Additional gains of approximately 1.5% 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. Short positions in Japanese interest rate
futures during August also profited as prices trended lower amid
an improved economic outlook for Japan and a sell-off in
Japanese fixed income markets after investors repositioned
capital into Japanese equities. Total expenses for the nine
months ended September 30, 2003 were $7,715,338, resulting in net
income of $10,195,805. The net asset value of a Unit increased
from $11.54 at December 31, 2002 to $13.03 at September 30, 2003.

For the Quarter and Nine Months Ended September 30, 2002
For the quarter ended September 30, 2002, the Partnership
recorded total trading revenues, including interest income, of
$6,023,092 and posted an increase in net asset value per Unit.
The most significant gains of approximately 7.9% were recorded in
the agricultural markets, primarily during July, from long
positions in grain futures as prices trended higher amid weather
related concerns. Additional gains of approximately 6.1% were
recorded in the global interest rate futures markets from long
positions, primarily established in July, as prices trended
higher amid retreating equity markets and continued pessimism
concerning a global economic recovery. A portion of the
Partnership's overall gains for the quarter was offset by losses
of approximately 5.3% in the metals markets primarily from
previously established long positions in copper futures as prices
decreased amid fears that the weak economy would dampen demand
for industrial metals. Additional losses of approximately 1.2%
were recorded in the currency markets from long Canadian dollar
positions as its value continued to fall versus the U.S. dollar
in response to the Bush Administration's "strong-dollar"
policy. On February 27, 2002, the Partnership received
notification of a preliminary entitlement to payment from the
Sumitomo Copper Litigation Settlement Administrator. The
Partnership received payment of this settlement award in the
amount of $17,556 as of August 30, 2002. Total expenses for the
three months ended September 30, 2002 were $2,222,531, resulting
in net income of $3,800,561. The net asset value of a Unit
increased from $12.02 at June 30, 2002 to $12.62 at September 30,
2002.

For the nine months ended September 30, 2002, the Partnership
recorded total trading revenues, including interest income, of
$19,052,809 and posted an increase in net asset value per Unit.
The most significant gains of approximately 22.4% were recorded
in the agricultural markets from long positions in cocoa and
grain futures as prices trended higher throughout a majority of
the year amid concerns of supply deficits due to harsh weather.
Additional gains of approximately 4.0% were recorded in the
currency markets, primarily during March 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 dollar amid falling equity prices,
concerns regarding corporate accounting integrity, and weak
economic data. Gains of approximately 3.6% were provided from
long interest rate futures positions in July and August as
economic data pointed to further deterioration of the economic
environment in Europe, the U.S., and Asia. A portion of the
Partnership's overall gains was offset by losses of approximately
2.5% in the metals markets from previously established long
futures positions in copper, tin, and zinc as prices declined
further due to diminished demand. Additional losses of
approximately 1.5% were recorded in the global stock index
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 nine months
ended September 30, 2002 were $5,815,804, resulting in net income
of $13,237,005. The net asset value of a Unit increased from
$10.55 at December 31, 2001 to $12.62 at September 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, but not limited to, 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 for a 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
dealer-based instruments. They also are 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 September 30, 2003 and 2002.
At September 30, 2003 and 2002, the Partnership's total
capitalization was approximately $99 million and $81 million,
respectively.

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

Currency (0.76)% (0.73)%

Equity (0.22) (0.64)

Interest Rate (0.09) (0.85)

Commodity (1.04) (1.87)

Aggregate Value at Risk (1.36)% (2.49)%

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.

The table above represents the VaR of the Partnership's
open positions at September 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 only 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. 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 set forth above
by presenting the Partnership's high, low, and average VaR, as a
percentage of total net assets for the four quarter-end reporting
periods from October 1, 2002 through September 30, 2003.

Primary Market Risk Category High Low Average
Currency (1.99)% (0.20)% (0.86)%

Equity (0.50) (0.12) (0.32)

Interest Rate (1.39) (0.09) (0.44)

Commodity (2.79) (1.04) (1.50)

Aggregate Value at Risk (3.93)% (1.19)% (1.93)%

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 September 30, 2003 and 2002, and for the four
quarter-end reporting periods from October 1, 2002 through
September 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.

The Partnership also maintains a substantial portion
(approximately 88% as of September 30, 2003) of its available
assets in cash at Morgan Stanley DW. 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 September 30, 2003 by market sector. It may be
anticipated, however, that these market exposures will vary
materially over time.

Currency. The Partnership's currency exposure at September 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. At September 30, 2003, the Partnership's
major exposure was 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 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.

Equity. The Partnership's equity exposure at September 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
September 30, 2003, the Partnership's primary exposure was to the
NASDAQ (U.S.) stock index. The Partnership is 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 trendless price movements resulting in
numerous small losses.

Interest Rate. At September 30, 2003, the Partnership's exposure
to the global interest rate market complex was primarily spread
across the U.S., European 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. Demeter anticipates that
the G-7 countries 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 September 30, 2003,
the Partnership had exposure to the markets that comprise
these sectors. Most of the exposure was to cocoa, coffee
and orange juice. Supply and demand inequalities, severe
weather disruptions, and market expectations affect price
movements in these markets.

Energy. At September 30, 2003, the Partnership's energy
exposure was shared primarily by futures contracts in crude
oil 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. The Partnership's metals exposure at September 30,
2003 was to fluctuations in the price of precious metals,
such as gold and silver, and base metals, such as copper,
zinc, nickel, aluminum, tin and lead. 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 September 30, 2003:

Foreign Currency Balances. The Partnership's primary
foreign currency balances at September 30, 2003 were in
British pounds and Japanese yen. 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, 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 among
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 September 30, 2003, 15,005,614.457 Units were
sold, leaving 10,494,385.543 Units unsold. The aggregate price
of the Units sold through September 30, 2003 was $168,600,200.

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
Management. The following individuals were named to the Board of
Directors of Demeter in the quarter ended March 31, 2003 and were
subsequently confirmed as principals of Demeter by the National
Futures Association:

Mr. Douglas J. Ketterer was confirmed as a principal of Demeter
by the National Futures Association on October 27, 2003.

Mr. Jeffrey S. Swartz was confirmed as a principal of Demeter by
the National Futures Association on October 23, 2003.

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 purchasers 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, 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 13a-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 13a-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)

November 14, 2003 By:/s/Jeffrey D. Hahn
Jeffrey D. Hahn
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.

47

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