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, 2004 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___________

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

Yes No X

MORGAN STANLEY SPECTRUM STRATEGIC L.P.

INDEX TO QUARTERLY REPORT ON FORM 10-Q

June 30, 2004

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

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, 2004 and 2003
(Unaudited)

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

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

June 30, 2004

(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, 2003 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 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
MORGAN STANLEY SPECTRUM STRATEGIC L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

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, 2004 1,479,167 (229,972) 1,249,195 Jul. 2005 Sep. 2004
Dec. 31, 2003 6,905,992 1,015,793 7,921,785 Jul. 2005 Mar. 2004

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, forward, and futures-styled options
contracts are marked to market on a daily basis, with variations
in value settled on a daily basis. Morgan Stanley DW, MS & Co.,
and MSIL, each as a futures commission merchant for the
Partnership's exchange-traded futures, forward, and futures-styled
options contracts, are required, pursuant to regulations of the
Commodity Futures Trading Commission ("CFTC"), to segregate from
their own assets, and for the sole benefit of their commodity
customers, all funds held by them with respect to exchange-traded
futures, forward, and futures-styled options contracts, including
an amount equal to the net unrealized gains (losses) on all open
futures, forward, and futures-styled options contracts, which
funds, in the aggregate, totaled $160,137,146 and $116,752,753 at
June 30, 2004 and December 31, 2003, 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 (losses) 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
MORGAN STANLEY SPECTRUM STRATEGIC L.P.
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)

Partnership is at risk to the ability of MS & Co., the sole
counterparty on all such contracts, to perform. The Partnership
has a netting agreement with MS & Co. This agreement, which seeks
to reduce both the Partnership's and MS & Co.'s exposure on off-
exchange-traded forward currency contracts, should materially
decrease the Partnership's credit risk in the event of MS & Co.'s
bankruptcy or insolvency.

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

Liquidity. The Partnership deposits its assets with Morgan
Stanley DW as non-clearing broker, and MS & Co., and MSIL as
clearing brokers in separate futures, forwards, and options
trading accounts established for each Trading Advisor, which
assets are used as margin to engage in trading and may be used as
margin solely for the Partnership's trading. The assets are held
in either non-interest bearing bank accounts or in securities and
instruments permitted by the CFTC for investment of customer
segregated or secured funds. Since the Partnership's sole purpose
is to trade in futures, forwards, and options, it is expected that
the Partnership will continue to own such liquid assets for margin
purposes.

The Partnership's investment in futures, forwards, and options
may, from time to time, be illiquid. Most U.S. futures exchanges
limit fluctuations in prices during a single day by regulations
referred to as "daily price fluctuations limits" or "daily
limits". Trades may not be executed at prices beyond the daily
limit. If the price for a particular futures or options contract
has increased or decreased by an amount equal to the daily limit,
positions in that futures or options contract can neither be taken
nor liquidated unless traders are willing to effect trades at or
within the limit. Futures prices have occasionally moved the daily
limit for several consecutive days with little or no trading.
These market conditions could prevent the Partnership from
promptly liquidating its futures or options contracts and result
in restrictions on redemptions.

There is no limitation on daily price moves in trading forward
contracts on foreign currencies. The markets for some world
currencies have low trading volume and are illiquid, which may
prevent the Partnership from trading in potentially profitable
markets or prevent the Partnership from promptly liquidating
unfavorable positions in such markets, subjecting it to
substantial losses. Either of these market conditions could
result in restrictions on redemptions. For the periods covered by
this report, illiquidity has not materially affected the
Partnership's assets.

There are no known material trends, demands, commitments, events
or uncertainties at the present time that 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.

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

Results of Operations
General. The Partnership's results depend on the Trading Advisors
and the ability of the Trading Advisors' trading programs to take
advantage of price movements in the futures, forwards, and options
markets. The following presents a summary of the Partnership's
operations for the three and six month periods ended June 30, 2004
and 2003 and a general discussion of its trading activities during
each period. It is important to note, however, that the Trading
Advisors trade in various markets at different times and that
prior activity in a particular market does not mean that such
market will be actively traded by the Trading Advisors or will be
profitable in the future. Consequently, the results of operations
of the Partnership are difficult to discuss other than in the
context of the Trading Advisors' trading activities on
behalf of the Partnership during the period in question. Past
performance is no guarantee of future results.

The Partnership's results of operations set forth in the financial
statements on pages 2 through 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 trading profit/loss" for open
(unrealized) contracts, and recorded as "Realized trading
profit/loss" when open positions are closed out, and the sum of
these amounts constitutes the Partnership's trading results. The
market value of a futures contract is the settlement price on the
exchange on which that futures contract is traded on a particular
day. The value of foreign currency forward contracts is based on
the spot rate as of the close of business, New York City time, on
a given day. 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, 2004
The Partnership recorded losses net of interest income totaling
$9,056,217 and expenses totaling $3,629,817, resulting in a net
loss of $12,686,034 for the quarter ended June 30, 2004. The
Partnership's net asset value per Unit decreased from $15.87 at
March 31, 2004 to $14.61 at June 30, 2004.

The most significant trading losses of approximately 3.6% were
incurred in the global interest rate markets, primarily during
April, from long positions in U.S. and European interest rate
futures. Global fixed income prices tumbled following the
release of stronger-than-expected U.S. jobs data and market
anticipations for sooner-than-expected raises in U.S. interest
rates. During June, short positions in eurodollar futures
experienced losses as prices increased on weaker-than-expected
U.S. economic reports and diminishing expectations that the
Federal Reserve would take an aggressive stance on raising
interest rates. Additional Partnership losses of approximately
1.8% were recorded in the metals markets during April from long
futures positions in both base and precious metals. Long futures
positions in base metals experienced losses as prices weakened
due to the strength of the U.S. dollar and fears of
reduced demand from China. Additionally, the U.S. dollar's move
higher caused losses in long gold futures positions. Further
Partnership losses of approximately 1.7% in the energy markets
stemmed from long futures positions in crude oil, crude oil-
related products, and natural gas during April and June. Prices
reversed lower during early April following the release of data
indicating larger-than-expected U.S. supplies and announcements
concerning a potential reduction in environmental gasoline
restrictions. During June, long positions suffered as prices
declined following news that OPEC would move to increase its
daily production quota. Further price decreases occurred after
the U.S. Energy Information Administration (EIA) reported that
crude oil stocks increased to their highest level in nearly two
years. Later in June, prices dropped to two-month lows as Saudi
Arabia signaled its readiness to cover any production shortfalls
and oil supplies recovered in both Iraq and Norway. A portion of
the Partnership's overall losses for the quarter was offset by
gains of approximately 1.0% achieved in the agricultural markets
during April and June. Long futures positions in sugar benefited
as prices rallied amid diminished market supply and inflation
concerns. Prices climbed higher during June amid increased
demand prompted by concerns that too much rain in Brazil had
disrupted the harvest.

The Partnership recorded revenues including interest
income totaling $10,330,381 and expenses totaling $8,960,092,
resulting in net income of $1,370,289 for the six months ended
June 30, 2004. The Partnership's net asset value per Unit
increased from $14.31 at December 31, 2003 to $14.61 at June 30,
2004.

The most significant trading gains of approximately 8.2% were
achieved in the agricultural markets from long futures positions
in soybeans, soybean-related products, and sugar. During the
first quarter, soybean prices finished higher, especially during
February, due to increased exports abroad and greater demand from
Asia. Long futures positions in sugar benefited as prices first
rallied during April amid diminished market supply and inflation
concerns. During June, sugar prices climbed further amid
increased demand prompted by concerns that too much rain in
Brazil had disrupted the harvest. Additional gains of
approximately 4.0% were recorded in the metals markets, primarily
during February, from long futures positions in base metals.
Copper, lead, nickel, zinc, and tin prices trended higher as a
declining U.S. dollar prompted an increase in industrial metal
demand from Asia and global central banks. A portion of the
Partnership's gains for the first six months of the year was
offset by losses of approximately 1.2% experienced in the energy
markets, primarily during the second quarter. Long futures
positions in natural gas suffered losses as prices declined
during early April amid a potential reduction in
environmental gasoline restrictions. During June, long futures
positions in crude oil produced losses as prices reversed lower
following news that OPEC would move to increase its daily
production quota. Further price decreases occurred after the
U.S. EIA reported that crude oil stocks increased to their
highest level in nearly two years. Later in June, prices dropped
to two-month lows as Saudi Arabia signaled its readiness to cover
any production shortfalls and oil supplies recovered in both Iraq
and Norway. In the currency markets, losses of approximately
1.1% resulted primarily during January and February. Long
positions in the Japanese yen versus the U.S. dollar resulted in
losses after the Bank of Japan intervened in the currency markets
by buying dollars in an attempt to stem the yen's rise during
February and again during April. Short positions in the
Australian dollar versus the U.S. dollar also lost during
February as the U.S. dollar's value declined amid heightened
dollar-selling prompted by huge U.S. trade and budget deficits,
fears of terror attacks, and interest rate differentials between
U.S. Treasury securities and relatively high-yielding Australian
bonds. Long positions in the Canadian dollar versus the U.S.
dollar were unprofitable as the U.S. dollar advanced during
January amid a brief corrective recovery encouraged by the
release of a batch of positive U.S. economic data. Additional
losses of approximately 1.0% in the global interest rate markets
resulted primarily during April from long positions in Australian
and U.S. interest rate futures. Global fixed income
prices tumbled following the release of stronger-than-expected
U.S. jobs data and market anticipations for sooner-than-expected
raises in U.S. interest rates. Long U.S. interest rate futures
positions experienced losses earlier in the year during January
as prices sharply declined following comments from the U.S.
Federal Reserve concerning a shift in their interest rate policy.
Smaller losses of approximately 0.5% were incurred in the global
stock indices, primarily during March. Long European and
Japanese equity index futures positions proved unprofitable as
equity prices dropped during February and early March amid
weakness in the U.S. technology sector and growing geopolitical
uncertainty stemming from the terrorist attacks in Spain.

For the Quarter and Six Months Ended June 30, 2003
The Partnership recorded revenues including interest income
totaling $2,970,073 and expenses totaling $2,527,845, resulting
in net income of $442,228 for the quarter ended June 30, 2003.
The Partnership's net asset value per Unit increased from $12.29
at March 31, 2003 to $12.36 at June 30, 2003.

The most significant trading 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.

The Partnership recorded revenues including interest
income totaling $10,604,629 and expenses totaling $5,381,223,
resulting in net income of $5,223,406 for the six months ended
June 30, 2003. The Partnership's net asset value per Unit
increased from $11.54 at December 31, 2002 to $12.36 at June 30,
2003.

The most significant trading 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.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK

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

The futures, forwards, and options traded by the Partnership
involve varying degrees of related market risk. Market risk is
often dependent upon changes in the level or volatility of
interest rates, exchange rates, and prices of financial
instruments and commodities, factors that result in frequent
changes in the fair value of the Partnership's open positions,
and consequently in its earnings, whether realized or unrealized,
and cash flow. Gains and losses on open positions of exchange-
traded futures, forwards and options are settled daily through
variation margin. Gains/losses on off-exchange-traded forward
currency contracts are settled at the termination of the contract
or more frequently, as agreed upon with each counterparty.

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

The Partnership's past performance is no guarantee of its future
results. Any attempt to numerically quantify the Partnership's
market risk is limited by the uncertainty of its speculative
trading. The Partnership's speculative trading 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.

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

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

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

The Partnership's risk exposure in the market sectors traded by
the Trading Advisors is estimated below in terms of Value at Risk
("VaR"). The Partnership estimates VaR using a model based upon
historical simulation (with a confidence level of 99%) which
involves constructing a distribution of hypothetical daily
changes in the value of a trading portfolio. The VaR model takes
into account linear exposures to risk including equity and
commodity prices, interest rates, foreign exchange rates, and
correlation among these variables. The hypothetical changes in
portfolio value are based on daily percentage changes observed in
key market indices or other market factors ("market risk
factors") to which the portfolio is sensitive. The one-day 99%
confidence level of the Partnership's VaR corresponds to the
negative change in portfolio value that, based on observed market
risk factors, would have been exceeded once in 100 trading days,
or one day in 100. VaR typically does not represent the worst
case outcome. Demeter uses approximately four years of daily
market data (1,000 observations) and revalues its portfolio
(using delta-gamma approximations) for each of the
historical market moves that occurred over this time period.
This generates a probability distribution of daily "simulated
profit and loss" outcomes. The VaR is the appropriate percentile
of this distribution. For example, the 99% one-day VaR would
represent the 10th worst outcome from Demeter's simulated profit
and loss series.

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

VaR models, including the Partnership's, are continually evolving
as trading portfolios become more diverse and modeling techniques
and systems capabilities improve. Please note that the VaR model
is used to numerically quantify market risk for historic
reporting purposes only and is not utilized by either Demeter or
the Trading 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, 2004 and 2003.
At June 30, 2004 and 2003, the Partnership's total capitalization
was approximately $163 million and $89 million, respectively.
Primary Market June 30, 2004 June 30, 2003
Risk Category Value at Risk Value at Risk

Equity (1.21)% (0.50)%

Interest Rate (0.21) (0.15)

Currency (0.12) (0.20)

Commodity (0.52) (1.12)

Aggregate Value at Risk (1.44)% (1.24)%

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

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

The table below supplements the quarter-end VaR set forth
above by presenting the Partnership's high, low, and average VaR,
as a percentage of total net assets for the four quarter-end
reporting periods from July 1, 2003 through June 30, 2004.

Primary Market Risk Category High Low Average
Equity (1.69)% (0.22)% (0.88)%
Interest Rate (1.73) (0.09) (0.57)
Currency (0.93) (0.08) (0.47)
Commodity (1.67) (0.52) (1.06)
Aggregate Value at Risk (2.61)% (1.36)% (1.84)%

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

The VaR tables provided present the results of the Partnership's
VaR for each of the Partnership's market risk exposures and on an
aggregate basis at June 30, 2004 and 2003, and for the four
quarter-end reporting periods from July 1, 2003 through June 30,
2004. VaR not necessarily representative of the Partnership's
historic risk, nor should it be used to predict the Partnership's
future financial performance or its ability to manage or monitor
risk. There can be no assurance that the Partnership's
actual losses on a particular day will not exceed the VaR amounts
indicated above or that such losses will not occur more than once
in 100 trading days.

Non-Trading Risk
The Partnership has non-trading market risk on its foreign cash
balances not needed for margin. These balances and any market
risk they may represent are immaterial.

The Partnership also maintains a substantial portion
(approximately 92% as of June 30, 2004) of its available assets
in cash at Morgan Stanley DW. A decline in short-term interest
rates would result in a decline in the Partnership's cash
management income. This cash flow risk is not considered to be
material.

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

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

The following were the primary trading risk exposures of the
Partnership at June 30, 2004 by market sector. It may be
anticipated, however, that these market exposures will vary
materially over time.

Equity. The primary market exposure of the Partnership at June
30, 2004 was the global stock index sector, primarily 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, 2004,
the Partnership's primary exposures were to the S&P 500 (U.S.),
NASDAQ (U.S.), and Nikkei (Japan) stock indices. The Partnership
is exposed to the risk of adverse price trends or static markets
in the U.S. 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 June 30, 2004, exposure was primarily spread
across the U.S. and Japanese interest rate sector. 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 may range from short to
long-term instruments. Consequently, changes in short, medium or
long-term interest rates may have an effect on the Partnership.

Currency. The Partnership's currency market exposure at June 30,
2004 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. At June 30, 2004, the Partnership's major exposure
was to outright U.S. dollar positions. Outright positions
consists 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.

Commodity.
Metals. The second largest market exposure of the
Partnership at June 30, 2004 was to the metal sector. The
Partnership's metals exposure was to fluctuations in the
price of precious metals, such as silver, and base metals,
such as aluminum, copper, lead, and zinc. 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.

Soft Commodities and Agriculturals. At June 30, 2004, the
Partnership had exposure to the markets that comprise these
sectors. Most of the exposure was to sugar, rice, soybeans,
and soybean-related products. Supply and demand
inequalities, severe weather disruptions, and market
expectations affect price movements in these markets.

Energy. At June 30, 2004, the Partnership's energy exposure
was shared primarily by futures contracts in crude oil and
crude oil-related products. Price movements in these markets
result from geopolitical developments, particularly in the
Middle East, as well as weather patterns and other economic
fundamentals. Significant profits and losses, which have
been experienced in the past, are expected to continue to be
experienced in the future.

Qualitative Disclosures Regarding Non-Trading Risk Exposure
The following was the only non-trading risk exposure of the
Partnership at June 30, 2004:

Foreign Currency Balances. The Partnership's primary
foreign currency balances at June 30, 2004 were in British
pounds, Japanese yen, and euros. 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 Demeter, the general partner of the
Partnership, have evaluated the effectiveness of the
Partnership's disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) of the Exchange
Act), and have judged such controls and procedures to be
effective.
(b) There have been no significant changes during the period
covered by this quarterly report in the Partnership's
internal controls or in other factors that could
significantly affect these controls subsequent to the
date of their evaluation.

PART II. OTHER INFORMATION

Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
The Partnership initially registered 4,000,000 Units pursuant to
a Registration Statement on Form S-1, which became effective on
September 15, 1994 (SEC File Number 33-80146).

The Partnership registered an additional 6,000,000 Units pursuant
to another Registration Statement on Form S-1, which became
effective on January 31, 1996 (SEC File Number 333-00494).

The Partnership registered an additional 2,500,000 Units pursuant
to another Registration Statement on Form S-1, which became
effective on April 30, 1996 (SEC File Number 333-3222).

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 Partnership registered an additional 12,000,000 Units
pursuant to another Registration Statement on Form S-1, which
became effective on April 28, 2004 (SEC File Number 333-113396).
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, 2004, 19,069,731.999 Units were sold, leaving
18,430,268.001 Units unsold. The aggregate price of the Units
sold through June 30, 2004 was $228,388,953.

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. Effective June 21, 2004, the following changes have
been made to the Board of Directors and Officers of Demeter:

Mr. Jeffrey D. Hahn resigned the position of Chief Financial
Officer and Director of Demeter.

Mr. Todd Taylor, age 41, is a Director of Demeter. Mr.
Taylor began his career with Morgan Stanley in June 1987 as a
Financial Advisor in the Dallas office. In 1995, he joined the
Management Training Program in New York and was appointed Branch
Manager in St. Louis in 1997. Three years later, in 2000, Mr.
Taylor was appointed to a newly created position, Director of
Individual Investor Group ("IIG") Learning and Development,
before becoming the Director of IIG Strategy in 2002. Most
recently, Mr. Taylor has taken on a new role as the High Net
Worth Segment Director. Currently a member of the firm's E-
Learning Council, Mr. Taylor is also a current member of the
Securities Industry/Regulatory Council on Continuing Education.
Mr. Taylor graduated from Texas Tech University with a B.B.A. in
Finance.

Mr. William D. Seugling, age 34, will become a Director of
Demeter once he has registered with the National Futures
Association ("NFA") as a principal, which registration is
currently pending. Mr. Seugling is an Executive Director at
Morgan Stanley and currently serves as Director of Client
Solutions for US Private Wealth Management. Mr. Seugling joined
Morgan Stanley in June 1993 as an Associate in Equity Structured
Products having previously worked in research and consulting for
Greenwich Associates from October 1991 to June 1993. Since 1994,
he has focused broadly on analysis and solutions for wealthy
individuals and families culminating in his current role within
the division. He was named Vice President in 1996 and an
Executive Director in 1999. Mr. Seugling graduated cum laude
from Bucknell University with a B.S. in Management and a
concentration in Chemistry.

Mr. Kevin Perry, age 35, is the Chief Financial Officer of
Demeter. His registration with the NFA as a principal is
currently pending. He currently serves as an Executive Director
and Controller of Client Solutions at Morgan Stanley. Mr. Perry
joined Morgan Stanley in October 2000 and is also Chief Financial
Officer of Morgan Stanley Trust National Association, Van Kampen
Funds Inc. and Morgan Stanley Distribution, Inc. Prior to
joining Morgan Stanley, Mr. Perry worked as an auditor and
consultant in the financial services practice of Ernst & Young
from October 1991 to October 2000. Mr. Perry received a B.S.
degree in Accounting from the University of Notre Dame in 1991
and is a Certified Public Accountant.

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, 2004, filed with the Securities and
Exchange Commission pursuant to Rule 424(b)(3) under the
Securities Act of 1933, on May 4, 2004.
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 From 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.
10.11 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, 2004 as filed
with the Securities and Exchange Commission pursuant to
Rule 424(b)(3) under the Securities Act of 1933 on May 4,
2004.
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, 2004, as filed with the Securities and Exchange
Commission pursuant to Rule 424(b)(3) under the
Securities Act of 1933 on May 4, 2004.
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)

August 16, 2004 By: /s/Kevin Perry
Kevin Perry
Chief Financial Officer

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

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