Ceres Tactical Global 10-Q 2010 Q3 Quarterly report

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, 2010 or

o           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: 0-31563

MORGAN STANLEY SMITH BARNEY SPECTRUM CURRENCY L.P.

(Exact name of registrant as specified in its charter)

	Delaware	13-4084211
	(State or other jurisdiction of      incorporation or organization)	(I.R.S. Employer Identification No.)
Demeter Management LLC
522 Fifth Avenue, 14th Floor
New York, NY		10036
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code (212) 296-1999

 522 Fifth Avenue, 13th Floor, New York, NY 10036

 (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 o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes o  No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o	Accelerated filer o
Non-accelerated filer x	Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes 0  No T

MORGAN STANLEY SMITH BARNEY SPECTRUM CURRENCY L.P.

INDEX TO QUARTERLY REPORT ON FORM 10-Q

September 30, 2010

	PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Statements of Financial Condition as of September 30, 2010 and December 31, 2009	2
	Statements of Operations for the Three and Nine Months Ended September 30, 2010 and 2009	3
	Statements of Changes in Partners’ Capital for the Nine Months Ended September 30, 2010 and 2009	4
	Condensed Schedules of Investments as of September 30, 2010 and December 31, 2009	5
	Notes to Financial Statements	6-22
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23-33
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	33-41
Item 4.	Controls and Procedures	41-42
	PART II. OTHER INFORMATION
Item 1A.	Risk Factors	43
Item 6.	Exhibits	43

PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements

MORGAN STANLEY SMITH BARNEY SPECTRUM CURRENCY L.P.

STATEMENTS OF FINANCIAL CONDITION

(Unaudited)

	September 30,	December 31,
	2010	2009
ASSETS	$	$
Trading Equity:
Unrestricted cash	50,439,658	61,087,188
Restricted cash	362,746	620,523
Total cash	50,802,404	61,707,711
Net unrealized gain (loss) on open contracts (MS&Co.)	391,855	(462,626)
Options purchased (premiums paid $527,804 and $1,442, respectively)	645,887	121
Total Trading Equity	51,840,146	61,245,206
Interest receivable (MSSB)	3,692	853
Total Assets	51,843,838	61,246,059
LIABILITIES AND PARTNERS’ CAPITAL
Liabilities
Redemptions payable	641,352	491,924
Options written (premiums received $333,521 and $0, respectively)	410,913	—
Accrued brokerage fees (MS&Co.)	193,029	239,572
Accrued management fees	83,926	104,162
Total Liabilities	1,329,220	835,658
Partners’ Capital
Limited Partners (5,259,516.548 and 5,963,360.859 Units, respectively)	50,000,343	59,798,213
General Partner (54,096.343 and 61,050.343 Units, respectively)	514,275	612,188
Total Partners’ Capital	50,514,618	60,410,401
Total Liabilities and Partners’ Capital	51,843,838	61,246,059
NET ASSET VALUE PER UNIT	9.51	10.03

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

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MORGAN STANLEY SMITH BARNEY SPECTRUM CURRENCY L.P.

STATEMENTS OF OPERATIONS

(Unaudited)

	For the Three Months Ended September  30,		For the Nine Months    Ended September 30,
	2010	2009	2010	2009
	$	$	$	$
INVESTMENT INCOME
Interest income (MSSB)	14,696	16,141	36,143	54,701
EXPENSES
Brokerage fees (MS&Co.)	591,110	766,518	1,916,481	2,563,333
Management fees	257,004	333,269	833,252	1,114,493
Total Expenses	848,114	1,099,787	2,749,733	3,677,826
NET INVESTMENT LOSS	(833,418)	(1,083,646)	(2,713,590)	(3,623,125)
TRADING RESULTS
Trading profit (loss):
Realized	(403,574)	(2,000,792)	(1,168,029)	(3,320,751)
Net change in unrealized	887,078	595,155	896,493	1,160,351
Total Trading Results	483,504	(1,405,637)	(271,536)	(2,160,400)
NET LOSS	(349,914)	(2,489,283)	(2,985,126)	(5,783,525)
NET LOSS ALLOCATION
Limited Partners	(346,385)	(2,464,021)	(2,955,028)	(5,725,131)
General Partner	(3,529)	(25,262)	(30,098)	(58,394)
NET LOSS PER UNIT *
Limited Partners	(0.06)	(0.39)	(0.52)	(0.85)
General Partner	(0.06)	(0.39)	(0.52)	(0.85)
	Units	Units	Units	Units
WEIGHTED AVERAGE NUMBER
OF UNITS OUTSTANDING	5,451,080.574	6,334,775.845	5,695,075.133	6,835,176.096

* Based on change in Net Asset Value per Unit.

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

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MORGAN STANLEY SMITH BARNEY SPECTRUM CURRENCY L.P.

STATEMENTS OF CHANGES IN PARTNERS’ CAPITAL

For the Nine Months Ended September 30, 2010 and 2009

(Unaudited)

	Units of
	Partnership	Limited	General
	Interest	Partners	Partner	Total
		$	$	$
Partners’ Capital,
December 31, 2009	6,024,411.202	59,798,213	612,188	60,410,401
Net Loss	–	(2,955,028)	(30,098)	(2,985,126)
Redemptions	(710,798.311)	(6,842,842)	(67,815)	(6,910,657)
Partners’ Capital,
September 30, 2010	5,313,612.891	50,000,343	514,275	50,514,618
Partners’ Capital,
December 31, 2008	7,923,153.973	87,533,608	889,530	88,423,138
Net Loss	–	(5,725,131)	(58,394)	(5,783,525)
Redemptions	(1,726,554.511)	(18,380,286)	(187,248)	(18,567,534)
Partners’ Capital,
September 30, 2009	6,196,599.462	63,428,191	643,888	64,072,079

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

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 MORGAN STANLEY SMITH BARNEY SPECTRUM CURRENCY L.P.

CONDENSED SCHEDULES OF INVESTMENTS

September 30, 2010 and December 31, 2009 (Unaudited)

Futures and Forward Contracts	Long Unrealized Gain	Percentage of Net Assets	Short  Unrealized Gain	Percentage of Net Assets	Net Unrealized      Gain
	$	%	$	%	$
September 30, 2010 Partnership Partners’ Capital: $50,514,618
Foreign currency	273,747	0.54	34,446	0.07	308,193
Grand Total:	273,747	0.54	34,446	0.07	308,193
Unrealized Currency Gain				0.17	83,662
Total Net Unrealized Gain on Open Contracts					391,855
Option Contracts	Fair Value	Percentage of Net Assets
	$	%
Options purchased on Futures Contracts	–	–
Options purchased on Forward Contracts	645,887	1.28
Options written on Futures Contracts	–	–
Options written on Forward Contracts	(410,913)	(0.81)
Futures and Forward Contracts	Long Unrealized Loss	Percentage of Net Assets	Short              Unrealized               Loss	Percentage of Net Assets	Net Unrealized          Gain/(Loss)
	$	%	$	%	$
December 31, 2009 Partnership Partners’ Capital: $60,410,401
Foreign currency	(349,025)	(0.58)	(191,918)	(0.32)	(540,943)
Grand Total:	(349,025)	(0.58)	(191,918)	(0.32)	(540,943)
Unrealized Currency Gain				0.13	78,317
Total Net Unrealized Loss on Open Contracts					(462,626)
Option Contracts	Fair Value	Percentage of Net Assets
	$	%
Options purchased on Futures Contracts	–	–
Options purchased on Forward Contracts	121	–
Options written on Futures Contracts	–	–
Options written on Forward Contracts	–	–

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

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MORGAN STANLEY SMITH BARNEY SPECTRUM CURRENCY L.P.

NOTES TO FINANCIAL STATEMENTS

September 30, 2010

(Unaudited)

The unaudited financial statements contained herein include, in the opinion of management, all adjustments necessary for a fair presentation of the financial condition and results of operations of Morgan Stanley Smith Barney Spectrum Currency L.P. (the "Partnership").  The financial statements and condensed notes herein should be read in conjunction with the Partnership’s Annual Report on Form 10-K for the fiscal year ending December 31, 2009.

1.  Organization

Morgan Stanley Smith Barney Spectrum Currency L.P. is a Delaware limited partnership organized in 1999 to engage primarily in the speculative trading of futures contracts, options on futures and forward contracts, and forward contracts on physical commodities and other commodity interests, including, but not limited to, foreign currencies, financial instruments, metals, energy, and agricultural products (collectively, "Futures Interests") (refer to Note 4. Financial Instruments).  The Partnership is one of the Morgan Stanley Smith Barney Spectrum series of funds, comprised of the Partnership, Morgan Stanley Smith Barney Spectrum Global Balanced L.P., Morgan Stanley Smith Barney Spectrum Select L.P., Morgan Stanley Smith Barney Spectrum Strategic L.P., and Morga n Stanley Smith Barney Spectrum Technical L.P. (collectively, the "Spectrum Series").

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MORGAN STANLEY SMITH BARNEY SPECTRUM CURRENCY L.P.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

The Partnership’s general partner is Demeter Management LLC (“Demeter”).  The non-clearing commodity broker is Morgan Stanley Smith Barney LLC (“MSSB”) as of May 1, 2010.  The clearing commodity broker is Morgan Stanley & Co. Incorporated ("MS&Co.").  MS&Co. also acts as the counterparty on all trading of foreign currency forward contracts. Morgan Stanley Capital Group Inc. ("MSCG") acts as the counterparty on all trading of options on foreign currency forward contracts.  Demeter is a wholly-owned subsidiary of Morgan Stanley Smith Barney Holdings LLC (“MSSBH”).  MSSBH is majority-owned indirectly by Morgan Stanley and minority-owned indirectly by Citigroup Inc.  MS&Co. and MSCG are wholly-owned  subsidiaries of Morgan Stanley.  The trading advisors to the Partnership are C-View International Limited, DKR Fusion Management L.P., John W. Henry & Company, Inc., and Sunrise Capital Partners, LLC (each individually, a "Trading Advisor", or collectively, the "Trading Advisors").

2.  Related Party Transactions

The Partnership’s cash is on deposit with MS&Co. and MSSB in futures, forward and options trading accounts to meet margin requirements as needed.  At each month end, MSSB pays the Partnership interest income on 80% of the funds on deposit with the commodity broker at a rate equal to the monthly average of the 4-week U.S. Treasury bill discount rate during such month.  MSSB will retain any interest earned in excess of the interest paid by MSSB to the Partnership.  The Partnership pays brokerage fees to MS&Co.  MSCG acts as the counterparty on all trading of options on foreign currency forward contracts.

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MORGAN STANLEY SMITH BARNEY SPECTRUM CURRENCY L.P.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

3.  Income Taxes

No provision for income taxes has been made in the accompanying financial statements, as partners are

individually responsible for reporting income or loss based upon their respective share of the Partnership’s revenues or expenses for income tax purposes. The Partnership files U.S. federal and state tax returns.

This guidance issued by the Financial Accounting Standards Board (“FASB”) on income taxes clarifies the accounting for uncertainty in income taxes recognized in the Partnership's financial statements, and prescribes a recognition threshold and measurement attribute for financial statement recognition and measurement of a tax position taken or expected to be taken.  The Partnership has concluded that there are no significant uncertain tax positions that would require recognition in the financial statements as of September 30, 2010.  If applicable, the Partnership recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in other expenses in the Statements of Operations.  Generally, the 2007 through 2009 tax years remain subject to examination by U.S. fed eral and most state tax authorities.

4.  Financial Instruments

The Partnership trades Futures Interests.  Futures and forwards represent contracts for delayed delivery of an instrument at a specified date and price.  Futures Interests are open commitments until settlement date, at which

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MORGAN STANLEY SMITH BARNEY SPECTRUM CURRENCY L.P.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

time they are realized.  They are valued at fair value, generally on a daily basis, and the unrealized gains and losses on open contracts (the difference between contract trade price and market price) are reported in the Statements of Financial Condition as net unrealized gains or losses on open contracts.  The resulting net change in unrealized gains and losses is reflected in the net change in unrealized trading profit (loss) from one period to the next on the Statements of Operations.  The fair value of exchange-traded futures, options and forwards contracts is determined by the various futures exchanges, and reflects the settlement pric e for each contract as of the close of business on the last business day of the reporting period.  The fair value of foreign currency forward contracts is extrapolated on a forward basis from the spot prices quoted as of approximately 3:00 P.M. (E.T.) of the last business day of the reporting period.  The fair value of non-exchange-traded foreign currency option contracts is calculated by applying an industry standard model application for options valuation of foreign currency options, using as inputs, the spot prices, interest rates, and option implied volatilities quoted as of approximately 3:00 P.M. (E.T.) on the last business day of the reporting period.  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 fair value of the se contracts, including interest rate volatility.

The Partnership may buy or write put and call options through listed exchanges and the over-the-counter market.  The buyer of an option has the right to purchase (in the case of a call option) or sell (in the case of a put option) a specified quantity of a specific Futures Interest on the underlying asset at a specified price prior to or on a specified expiration date.  The writer of an option is exposed to the risk of loss if the fair value of the Futures

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MORGAN STANLEY SMITH BARNEY SPECTRUM CURRENCY L.P.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

Interest on the underlying asset declines (in the case of a put option) or increases (in the case of a call option).  The writer of an option can never profit by more than the premium paid by the buyer but can potentially lose an unlimited amount.

Premiums received/premiums paid from writing/purchasing options are recorded as liabilities/assets on the Statements of Financial Condition and are subsequently adjusted to fair values.  The difference between the fair value of the option and the premiums received/premiums paid is treated as an unrealized gain or loss.

The fair value of exchange-traded contracts is based on the settlement price quoted by the exchange on the day with respect to which fair value is being determined.  If an exchange-traded contract could not have been liquidated on such day due to the operation of daily limits or other rules of the exchange, the settlement price will be equal to the settlement price on the first subsequent day on which the contract could be liquidated.  The fair value of off-exchange-traded contracts is based on the fair value quoted by the counterparty.

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 as required by the Derivatives and Hedging as

required by the FASB Accounting Standards Codification (“ASC” or the “Codification”).  A derivative is defined as a financial instrument or other contract that has all three of the following characteristics:

1)   a) One or more underlyings and b) notional amounts or payment provisions or both;

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MORGAN STANLEY SMITH BARNEY SPECTRUM CURRENCY L.P.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

2)   Requires no initial net investment or a smaller initial net investment than would be required for other types of contracts that would be expected to have a similar response relative to changes in market factors; and

3)   Terms that require or permit net settlement.

Generally, derivatives include futures, forwards, 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 "Trading Equity" on the Statements of Financial Condition, and their longest contract maturities were as follows:

	Net Unrealized Gains/(Losses) on Open Contracts			Longest Maturities
Date	Exchange-Traded	Off-Exchange-Traded	Total	Exchange-Traded	Off-Exchange-Traded
	$	$	$
Sep. 30, 2010	–	391,855	391,855	–	Dec. 2010
Dec. 31, 2009	–	(462,626)	(462,626)	–	Mar. 2010

The Partnership has credit risk associated with counterparty nonperformance.  As of the date of the financial statements, the credit risk associated with the instruments in which the Partnership trades is limited to the unrealized gain amounts reflected in the Partnership’s Statements of Financial Condition.

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MORGAN STANLEY SMITH BARNEY SPECTRUM CURRENCY L.P.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

The Partnership also has credit risk because MS&Co. and/or MSCG acts as the futures commission merchant or the counterparty, with respect to most of the Partnership’s assets. Exchange-traded futures, exchange-traded forward, and exchange-traded futures-styled options contracts are marked to market on a daily basis, with variations in value settled on a daily basis. MS&Co., as a commodity broker for the Partnership’s exchange-traded futures, exchange-traded forward, and exchange-traded futures-styled options contracts, is required, pursuant to regulations of the Commodity Futures Trading Commission ("CFTC"), to segregate from their own assets, and for the sole benefit of its commodity customers, all funds held by it with respect to e xchange-traded futures, exchange-traded forward, and exchange-traded futures-styled options contracts, including an amount equal to the net unrealized losses on all open exchange-traded futures, exchange-traded forward, and exchange-traded futures-styled options contracts.  With respect to the Partnership’s off-exchange-traded forward currency contracts and forward currency options contracts, there are no daily settlements of variation in value, nor is there any requirement that an amount equal to the net unrealized gains (losses) on such contracts be segregated.  However, the Partnership is required to meet margin requirements equal to the net unrealized loss on open forward currency contracts in the Partnership accounts with the counterparty, which is accomplished by daily maintenance of the cash balance in a custody account held at MSSB for the benefit of MS&Co. With respect to those off-exchange-traded forward currency contracts, the Partnership is at risk to the ability of MS&Co., the sole counterparty on all such contracts, to perform. With respect to those off-exchange-traded forward currency options contracts, the Partnership is at risk to the ability of MSCG, the sole counterparty on all such contracts, to perform.   The Partnership has a netting agreement with each counterparty.  These agreements, which seek to reduce both the Partnership’s and the counterparties’ exposure on off-exchange-traded forward currency

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MORGAN STANLEY SMITH BARNEY SPECTRUM CURRENCY L.P.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

contracts, including options on such contracts, should materially decrease the Partnership’s credit risk in the event of MS&Co.’s or MSCG’s bankruptcy or insolvency.

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, exchange-traded forward, and exchange-traded futures-styled options contracts are settled daily through variation margin.  Gains and losses on off-exchange-traded forward currency contracts are settled upon termination of the contract.  Gains and losses on off-exchange-traded forward currenc y options contracts are settled upon an agreed upon settlement price.  However, the Partnership is required to meet margin requirements equal to the net unrealized loss on open forward currency contracts in the Partnership’s accounts with the counterparty, which is accomplished by daily maintenance of the cash balance in a custody account held at MSSB for the benefit of MS&Co.

5.  Derivatives and Hedging

The Partnership’s objective is to profit from speculative trading in Futures Interests.  Therefore, the Trading Advisors for the Partnership will take speculative positions in Futures Interests where they feel the best profit opportunities exist for their trading strategy.  As such, the average number of contracts outstanding in absolute quantities (the total of the open long and open short positions) has been presented as a part of the

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MORGAN STANLEY SMITH BARNEY SPECTRUM CURRENCY L.P.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

volume disclosure, as position direction is not an indicative factor in such volume disclosures.  In regards to foreign currency forward trades, each notional quantity amount has been converted to an equivalent contract based upon an industry convention.

The following tables summarize the valuation of the Partnership’s investments as required by the disclosures about Derivatives and Hedging as of September 30, 2010 and December 31, 2009, respectively.

The Effect of Trading Activities on the Statements of Financial Condition as of September 30, 2010:

Futures and Forward Contracts	Long Unrealized Gain	Long Unrealized Loss	Short Unrealized Gain	Short Unrealized Loss	Net   Unrealized  Gain	Average number of contracts outstanding for nine months (absolute quantity)
	$	$	$	$	$
Foreign currency	1,698,523	(1,424,776)	305,233	(270,787)	308,193	6,669
Total	1,698,523	(1,424,776)	305,233	(270,787)	308,193
Unrealized currency gain					83,662
Total net unrealized gain on open contracts					391,855

		Average number of
		contracts outstanding
	Fair	for nine months
	Value	(absolute quantity)
Option Contracts	$
Options purchased	645,887	3
Options written	(410,913)	2

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MORGAN STANLEY SMITH BARNEY SPECTRUM CURRENCY L.P.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

The Effect of Trading Activities on the Statements of Financial Condition as of December 31, 2009:

Futures and Forward Contracts	Long Unrealized Gain	Long Unrealized Loss	Short Unrealized Gain	Short Unrealized Loss	Net   Unrealized  Gain/(Loss)	Average number of contracts outstanding for the year  (absolute quantity)
	$	$	$	$	$
Foreign currency	322,002	(671,027)	178,089	(370,007)	(540,943)	5,740
Total	322,002	(671,027)	178,089	(370,007)	(540,943)
Unrealized currency gain					78,317
Total net unrealized  loss on open contracts					(462,626)

		Average number of
		contracts outstanding
	Fair	for the year
	Value	(absolute quantity)
Option Contracts	$
Options purchased	121	2
Options written	–	1

The following tables summarize the net trading results of the Partnership for the three and nine months ended September 30, 2010 and 2009, respectively, as required by the disclosures about Derivatives and Hedging.

The Effect of Trading Activities on the Statements of Operations for the Three and Nine Months Ended September 30, 2010 included in Total Trading Results:

	For the Three Months	For the Nine Months
	Ended September 30, 2010	Ended September 30, 2010
Type of Instrument	$	$
Foreign currency	432,594	(276,880)
Unrealized currency gain	50,910	5,344
Total	483,504	(271,536)

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MORGAN STANLEY SMITH BARNEY SPECTRUM CURRENCY L.P.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

Line Items on the Statements of Operations for the Three and Nine Months Ended September 30, 2010:

	For the Three Months	For the Nine Months
	Ended September 30, 2010	Ended September 30, 2010
Trading Results	$	$
Realized	(403,574)	(1,168,029)
Net change in unrealized	887,078	896,493
Total Trading Results	483,504	(271,536)

The Effect of Trading Activities on the Statements of Operations for the Three and Nine Months Ended September 30, 2009 included in Total Trading Results:

	For the Three Months	For the Nine Months
	Ended September 30, 2009	Ended September 30, 2009
Type of Instrument	$	$
Foreign  currency	(1,390,087)	(2,104,828)
Unrealized currency loss	(15,550)	(55,572)
Total	(1,405,637)	(2,160,400)

Line Items on the Statements of Operations for the Three and Nine Months Ended September 30, 2009:

	For the Three Months	For the Nine Months
	Ended September 30, 2009	Ended September 30, 2009
Trading Results	$	$
Realized	(2,000,792)	(3,320,751)
Net change in unrealized	595,155	1,160,351
Total Trading Results	(1,405,637)	(2,160,400)

6.  Fair Value Measurements and Disclosures

Financial instruments are carried at fair value, which is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.  Assets and liabilities carried at fair value are classified and disclosed in the following three levels: Level 1 - unadjusted quoted market prices in active markets for identical assets and liabilities; Level 2 - inputs other than unadjusted quoted market prices

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MORGAN STANLEY SMITH BARNEY SPECTRUM CURRENCY L.P.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

that are observable for the asset or liability, either directly or indirectly (including unadjusted quoted market prices for similar investments, interest rates, credit risk); and Level 3 - unobservable inputs for the asset or liability (including the Partnership’s own assumptions used in determining the fair value of investments).

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy.  In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.  The Partnership’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment.

The Partnership’s assets and liabilities measured at fair value on a recurring basis are summarized in the following tables by the type of inputs applicable to the fair value measurements.

September 30, 2010

	Unadjusted Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)	Total
	$	$		$
Assets
Net unrealized gain on forward contracts	–	391,855	n/a	391,855
Options purchased	–	645,887	n/a	645,887
Liabilities
Options written	–	(410,913)	n/a	(410,913)

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MORGAN STANLEY SMITH BARNEY SPECTRUM CURRENCY L.P.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

December 31, 2009

	Unadjusted Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)	Total
	$	$		$
Assets
Net unrealized loss on forward contracts	–	(462,626)	n/a	(462,626)
Options purchased	–	121	n/a	121

7.  Other Pronouncements

(a) Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles

In June 2009, the FASB issued accounting guidance to establish FASB Codification.  ASC established the exclusive authoritative reference for accounting principles generally accepted in the United States of America (“U.S. GAAP”) for use in financial statements except for Securities and Exchange Commission (“SEC”) rules and interpretive releases, which are also authoritative U.S. GAAP for SEC registrants.  The Codification supersedes all existing non-SEC accounting and reporting standards.  The Codification became the single source of authoritative U.S. GAAP and is effective for financial statements issued for interim and annual periods ending after September 15, 2009.

(b)  Fair Value Measurements

In April 2009, the FASB issued additional guidance relating to Fair Value Measurements for determining fair value and requires new disclosures regarding the categories of fair value instruments, as well as the inputs and valuation techniques utilized to determine fair value and any changes to the inputs and valuation

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MORGAN STANLEY SMITH BARNEY SPECTRUM CURRENCY L.P.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

techniques during the period.  It is effective for the interim and annual periods ending after June 15, 2009 and the adoption did not have a material impact on the Partnership’s financial statements.

(c)  Financial Instruments

In April 2009, the FASB issued new guidance that requires fair value disclosures of financial instruments on a quarterly basis, as well as new disclosures regarding the methodology and significant assumptions.

underlying the fair value measures and any changes to the methodology and assumptions during the reporting period.  This guidance is effective for the interim and annual periods ending after June 15, 2009.  The adoption of this guidance did not have a material impact on the Partnership’s financial statements.

(d)  Subsequent Events

In May 2009, the FASB issued accounting guidance to establish general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued.

In February 2010, the FASB issued Accounting Standards Update, Subsequent Events – Amendments to Certain Recognition and Disclosures Requirements which was effective immediately, and amends the previous guidance on subsequent events and no longer requires SEC filers to disclose the date through which subsequent events have been evaluated.  Management performed its evaluation of subsequent events and has determined that there were no subsequent events requiring adjustment in the financial statements.  The nature of the subsequent event effective on or about December 1, 2010 is disclosed in the Subsequent Event section on pages 21 and 22.

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MORGAN STANLEY SMITH BARNEY SPECTRUM CURRENCY L.P.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(e)  Improving Disclosures about Fair Value easurements

In January 2010, the FASB issued guidance, which, among other things, amends fair value measurements and disclosures to require entities to separately present purchases, sales, issuances, and settlements in their reconciliation of Level 3 fair value measurements (i.e., to present such items on a gross basis rather than on a net basis), and which clarifies existing disclosure requirements regarding the level of disaggregation and the inputs and valuation techniques used to measure fair value for measurements that fall within either Level 2 or Level 3 of the fair value hierarchy.  This guidance is effective for interim and annual periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlem ents in the roll forward of activity in Level 3 fair value measurements which are effective for fiscal years beginning after

December 15, 2010, and for interim periods within those fiscal years.  The adoption of this guidance did not have a material impact on the Partnership’s financial statements.

 (f)  Consolidation of Variable Interest Entities

In June 2009, the FASB issued an amendment to the accounting and disclosure requirements for variable interest entities.  It contains new criteria for determining the primary beneficiary, and increases the frequency of required reassessments to determine whether a company is the primary beneficiary of a variable interest entity.  It also contains a new requirement that any term, transaction, or arrangement that does not have a substantive effect on an entity’s status as a variable interest entity, a company’s power over a variable interest entity, or a company’s obligation to absorb losses or its right to receive benefits of an entity must be disregarded.  The amendment is

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MORGAN STANLEY SMITH BARNEY SPECTRUM CURRENCY L.P.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

effective for annual periods beginning after November 15, 2009, and interim periods thereafter.

Effective February 25, 2010, the FASB has decided to indefinitely defer the application of this amendment for certain entities.  Management believes that the Partnership meets the criteria of the indefinite deferral of the application of this guidance.

(g)  Statement of Cash Flows

The Partnership is not required to provide a Statement of Cash Flows as permitted by ASC 230.

8.  Restricted and Unrestricted Cash

As reflected on the Partnership’s Statements of Financial Condition, restricted cash equals the cash portion of assets on deposit to meet margin requirements plus the cash required to offset unrealized losses on foreign

currency forwards and options. All of these amounts are maintained separately.  Cash that is not classified as restricted cash is therefore classified as unrestricted cash.

9.  Subsequent Event

In 2009, Morgan Stanley and Citigroup Inc. combined certain assets of the Global Wealth Management Group of MS&Co., including Demeter, and the Smith Barney division of Citigroup Global Markets Inc. into a new joint venture, MSSBH.  Since their contribution to the joint venture, Demeter and Ceres Managed Futures LLC (“Ceres”), the commodity pool operator for various legacy Citigroup Inc. sponsored commodity pools, have worked closely together to align the operations and management of the commodity pools they oversee.

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MORGAN STANLEY SMITH BARNEY SPECTRUM CURRENCY L.P.

NOTES TO FINANCIAL STATEMENTS (CONCLUDED)

As a result, MSSBH, together with the unanimous support of the Boards of Directors of Demeter and Ceres, has determined that a combination of the assets and operations of Demeter and Ceres into a single commodity pool operator, Ceres, is in the best interest of the limited partners and believes that this combination will achieve the intended benefits of the joint venture.  Ceres will continue to be wholly owned by MSSBH.  The targeted effective date of the combination is on or about December 1, 2010.  Refer to the 8-K filed on September 14, 2010, for additional information.

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

OF OPERATIONS

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

The Partnership’s investment in futures, forwards and options may, from time to time, be illiquid.  Most U.S. futures exchanges limit fluctuations in prices during a single day by regulations referred to as “daily price fluctuation 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

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trading in potentially profitable markets or prevent the Partnership from promptly liquidating unfavorable positions in such markets, subjecting it to substantial losses.  Either of these market conditions could result in restrictions on redemptions.  For the periods covered by this report, illiquidity has not materially affected the Partnership’s assets.

There are no known material trends, demands, commitments, events, or uncertainties at the present time that are reasonably likely to result in the Partnership’s liquidity increasing or decreasing in any material way.

Capital Resources.  The Partnership does not have, nor does it expect to have, any capital assets.  Redemptions of units of limited partnership interest (“Unit(s)”) in the future will affect the amount of funds available for investments in futures, forwards and options in subsequent periods.  It is not possible to estimate the amount, and therefore the impact, of future outflows of Units.

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

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

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Results of Operations

General.  The Partnership’s results depend on the Trading Advisors and the ability of each Trading Advisor’s trading program to take advantage of price movements in the futures, forward and options markets.  The following presents a summary of the Partnership’s operations for the three and nine month periods ended September 30, 2010 and 2009, 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 22 of this report are prepared in accordance with U.S. GAAP, which requires 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 original contract value and market value is recorded on the Statements of Operations as “Net change in unrealized trading profit (loss)” for open unrealized contracts, and recorded as “Realized trading profit (loss)” when open positions are closed out.  The sum of these amounts constitutes the Partnership’s trading results.  The ma rket value of a futures contract is the settlement price on the exchange on which that futures contract is traded on a particular day.  The value of a foreign currency forward contract is based on the spot rate as of approximately 3:00 P.M. (E.T.) of the business day.  Interest income, as well as management fees, incentive fees, and brokerage fees of the Partnership are recorded on an accrual basis.

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For the Three and Nine Months Ended September 30, 2010

The Partnership recorded total trading results including interest income totaling $498,200 and expenses totaling $848,114, resulting in a net loss of $349,914 for the three months ended September 30, 2010.  The Partnership’s net asset value per Unit decreased from $9.57 on June 30, 2010 to $9.51 at September 30, 2010.

The most significant trading losses of approximately 1.3%, 0.4%, and 0.3%, respectively, were incurred primarily during July from short positions in the euro, Swedish krona, and Canadian dollar versus the U.S. dollar as the value of these currencies rose against the U.S. dollar after the International Monetary Fund raised global growth forecasts, which boosted demand for higher-yielding currency assets. Additional losses were recorded during September from short positions in the euro and Swedish krona versus the U.S. dollar as the value of the U.S. dollar fell against these currencies amid renewed optimism regarding the global economic recovery, which diminished demand for the relative “safe haven” of the U.S. currency. Meanwhile, losses of approximately 0.3% were experienced primarily during August from long positions in the New Zealand dollar versus the U.S. dollar as the value of the U.S. dollar moved higher against the New Zealand dollar amid fears about global growth prospects. A portion of the Partnership’s losses for the quarter was offset by gains of approximately 0.9% achieved primarily during September from long positions in the Australian dollar versus the U.S. dollar as the value of the Australian dollar appreciated to a 26-month high against the U.S. dollar amid speculation that the Reserve Bank of Australia might raise interest rates in October. Gains of approximately 0.7% were experienced primarily during July from long positions in the Japanese yen versus the U.S. dollar as the value of the U.S. dollar fell against the Japanese yen following downbeat comments about the U.S. credit rating and economic growth. During August, further gains were achieved as the value of the Japanese yen increased relative to the U.S. currency on speculation that reports

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might show U.S. expansion decelerated, thereby spurring investors to unwind existing carry trades. Gains of approximately 0.6%, 0.5%, and 0.4%, respectively, were achieved primarily during September from long positions in the Singapore dollar, South African rand, and Swiss franc versus the U.S. dollar as the value of the U.S. dollar fell against these currencies amid the aforementioned renewed optimism regarding the global economic recovery, which reduced demand for the U.S. dollar as a “safe haven” currency. The value of the U.S. dollar continued to drop later in September on speculation that the U.S. Federal Reserve’s willingness to ease monetary policy further might diminish demand for U.S. currency assets.

The Partnership recorded total trading results including interest income totaling $(235,393) and expenses totaling $2,749,733, resulting in a net loss of $2,985,126 for the nine months ended September 30, 2010.  The Partnership’s net asset value per Unit decreased from $10.03 at December 31, 2009 to $9.51 at September 30, 2010.

The most significant trading losses of approximately 2.0% were incurred primarily during April and May from long positions in the Australian dollar versus the U.S. dollar and Japanese yen as the value of the Australian dollar declined against these currencies after Australian reports showed weak consumer confidence and the speculation that China's economy might be slowing diminished the appeal of growth-linked currencies. Additional losses of approximately 0.7% were incurred primarily during May from long positions in the Norwegian krone versus the U.S. dollar as the value of the Norwegian krone declined amid concern over the Greek government debt crisis, which reduced demand for higher-yielding currency assets. Losses of approximately 0.5% were recorded primarily during May and August from long positions in the New Zealand dollar ver sus the U.S. dollar amid concern over the Greek government debt crisis and global

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growth prospects, which reduced investor demand for higher-yielding currency assets. Smaller losses of approximately 0.4% were experienced primarily during September from short positions in the British pound versus the U.S. dollar as the value of the U.S. dollar fell against the British pound amid renewed optimism regarding the global economic recovery, which diminished demand for the relative “safe haven” of the U.S. currency. A portion of the Partnership’s losses in the first nine months of the year was offset by gains of approximately 1.1% from long positions in the Japanese yen versus the U.S. dollar as the value of the Japanese yen increased relative to the U.S. dollar amid speculation that global economic growth might diminish, thus boosting “safe haven” demand for the Japanese currency. Further gai ns were experienced during August as the value of the Japanese yen increased relative to the U.S. dollar on speculation that reports might show U.S. expansion decelerated, thereby spurring investors to unwind existing carry trades. Gains of approximately 0.7% and 0.3%, respectively, were experienced from long positions in the Swedish krona and Mexican peso versus the U.S. dollar as the value of these currencies moved higher against the U.S. dollar, primarily during February and March, after signs of a global economic recovery caused investors to increase their risk appetite for higher-yielding currencies. Furthermore, the value of the Mexican peso moved higher at the end of March after Mexico’s Finance Ministry raised its forecast for the nation’s economic growth this year. Additionally, newly established short positions in the Swedish krona versus the U.S. dollar resulted in gains during May as the value of the Swedish krona fell amid worries about the stability of the Euro-Zone. Additional gain s of approximately 0.4% were achieved, primarily during January and February, from short positions in the euro versus the U.S. dollar as the value of the euro was pressured lower on concern that Greece’s fiscal struggles might spread and hinder growth for the entire Euro-Zone. Further gains were achieved during May as the value of the euro continued to move lower against the U.S. currency after reports of political discord in Europe reignited worries about the stability of the region’s economy. Lastly, gains of

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approximately 0.4% were experienced during May and September due to positions in the Swiss franc versus the U.S. dollar. During May, short positions in the Swiss franc versus the U.S. dollar resulted in gains as the value of the Swiss franc moved lower against the U.S. currency after reports of political discord in Europe reignited worries about the stability of the region’s economy. Meanwhile, in September, newly established long positions in the Swiss franc versus the U.S. dollar achieved gains as the value of the U.S. dollar fell against the Swiss franc on speculation that the U.S. Federal Reserve’s willingness to ease monetary policy further might diminish demand for U.S. currency assets.

For the Three and Nine Months Ended September 30, 2009

The Partnership recorded total trading results including interest income totaling $(1,389,496) and expenses totaling $1,099,787, resulting in a net loss of $2,489,283 for the three months ended September 30, 2009.  The Partnership’s net asset value per Unit decreased from $10.72 on June 30, 2009 to $10.34 at September 30, 2009.

The most significant trading losses of approximately 0.9%, 0.8%, 0.5%, and 0.3%, respectively, were incurred, primarily during July, from short positions in the euro, Canadian dollar, Swedish krona, and Swiss franc versus the U.S. dollar as the value of the U.S. dollar reversed lower against these currencies amid investor belief that the U.S. Federal Reserve might keep U.S. interest rates at historic lows.  Furthermore, the value of the euro climbed higher on signs the recession in the Euro-Zone was abating after reports showed both Germany and France’s economy grew in the second quarter, while German business confidence and investor sentiment also showed improvement in August.  During September, newly established long positions in the Swiss franc and euro versus the U.S. dollar resulted in losses as the value of these currencies reversed lower during the latter half of the month amid concerns regarding the rapid appreciation of the euro at the meeting of the Group of 20

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(“G-20”) leaders.  Additional losses of approximately 0.8% were recorded during July from long positions in the Mexican peso versus the U.S. dollar as the value of the Mexican peso declined during the first half of the month on concerns that the Mexican economy might take longer to recover from a recession than investors previously estimated.  During August, newly established short positions in the Mexican peso versus the U.S. dollar incurred losses as the value of the U.S. dollar was supported higher after reports revealed a rise in U.S. durable goods orders and news that U.S. new home sales reached a four-and-a-half year high in July.  A portion of the Partnership’s losses in the third quarter was offset by gains of approximately 0.7% from long positions in the New Zealand dollar versus the U.S. dollar as the value of the New Zealand dollar trended higher in August and September after government reports showed retail sales, consumer spending, and house prices in New Zealand all rose more than expected, diminishing speculation that the Reserve Bank of New Zealand might cut interest rates in the near future.  Gains of approximately 0.3% and 0.3%, respectively, were experienced, primarily during September, from long positions in the Brazilian real and Australian dollar versus the U.S. dollar as the value of the U.S. dollar moved lower on speculation that the U.S. Federal Reserve might keep borrowing rates low after the U.S. central bank indicated that it remained committed to its quantitative easing program. Additionally, the value of the Australian dollar moved higher in the wake of stronger gold prices.  Additional gains of 0.2% were achieved during August from long positions in the Briti sh pound versus the U.S. dollar as the value of the British pound moved higher on news that U.K. consumer confidence rose to the highest level in more than a year, while Bank of England officials indicated inflation might remain low.  During September, newly established short positions in the British pound versus the U.S. dollar resulted in gains as the value of the British pound moved lower against its major rivals after U.K. unemployment rose to the highest level in 14 years.

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The Partnership recorded total trading results including interest income totaling $(2,105,699) and expenses totaling $3,677,826, resulting in a net loss of $5,783,525 for the nine months ended September 30, 2009.  The Partnership’s net asset value per Unit decreased from $11.16 at December 31, 2008 to $10.34 at September 30, 2009.

The most significant trading losses of approximately 1.9%, 1.1%, and 1.1%, respectively, were incurred, primarily during March and April, from short positions in the euro, Canadian dollar, and Mexican peso versus the U.S. dollar as the value of the U.S. dollar moved lower after a government report showed U.S. employers cut fewer jobs than forecast, which reduced demand for the U.S. dollar as a “safe haven” currency.  During June, further losses were incurred from long positions in the euro and Canadian dollar versus the U.S. dollar as the value of the U.S. dollar reversed higher against these currencies amid speculation that the U.S. Federal Reserve might raise interest rates following news that U.S. payrolls fell less than expected in May.  Additional losses were incurred during July from short positions in the euro versus the U.S. dollar as the value of the euro climbed higher on signs the recession in the Euro-Zone was abating after reports showed both Germany and France’s economy grew in the second quarter.  During September, newly established long positions in the euro versus the U.S. dollar resulted in losses as the value of the euro reversed lower during the latter half of the month amid concerns regarding the rapid appreciation of the euro at the meeting of G-20 leaders.  Meanwhile, losses were recorded during July from long positions in the Mexican peso versus the U.S. dollar as the value of the Mexican peso declined during the first half of the month on concerns that the Mexican economy might take longer to recover from a recession than investors previously estimated.  During August, newly establi shed short positions in the Mexican peso versus the U.S. dollar incurred losses as the value of the U.S. dollar was supported higher after reports revealed a rise in U.S. durable goods orders and news that U.S. new home sales

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reached a four-and-a-half year high in July.  Additional losses of approximately 0.9% were incurred from long positions in the Japanese yen versus the U.S. dollar as the value of the Japanese yen moved lower against most of its rivals during January and February due to speculation that the Bank of Japan might intervene to weaken the currency, as well as on news that Japan’s trade deficit substantially increased. Further losses were recorded during March and May from newly established short positions in the Japanese yen versus the U.S. dollar as the value of the Japanese yen reversed higher amid optimism that demand for the Japanese currency might strengthen.  Losses were also experienced during June from long positions in the J apanese yen versus the U.S. dollar as the value of the U.S. dollar reversed higher amid the aforementioned speculation that the U.S. Federal Reserve might raise interest rates following better-than-expected U.S. economic data.  Both long and short positions in the Japanese yen versus the U.S. dollar resulted in losses as the value of the Japanese yen moved without consistent direction during July and August following conflicting economic data out of Japan.  Lastly, losses of 0.9% were recorded from short positions in the Swiss franc versus the U.S. dollar, primarily during March and May, as the value of the Swiss franc moved higher against the U.S. dollar after better-than-expected economic data out of Switzerland added to speculation that the Swiss economy might rebound sooner than expected.  Losses were also inc urred during July and August from short positions in the Swiss franc versus the U.S. dollar as the value of the U.S. dollar reversed lower against the Swiss franc amid investor belief that the U.S. Federal Reserve might keep U.S. interest rates at historic lows.  A portion of the Partnership’s losses in the first nine months of the year was offset by gains of approximately 1.5%, 0.9%, 0.8%, and 0.6%, respectively, experienced primarily during April, May, and September from long positions in the Australian dollar, New Zealand dollar, South African rand, and Brazilian real versus the U.S. dollar as the value of the U.S. dollar moved lower against most of its rivals after a government report showed U.S. employers cut fewer jobs than forecast, which reduced demand for the U.S. dollar as a “safe haven” currency.  Additionally, the

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Australian dollar, New Zealand dollar, South African rand, and Brazilian real moved higher amid rising commodity 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 on such contracts traded by the Partnership involve varying degrees of related market risk.  Market risk is often dependent upon changes in the level or volatility of interest rates, exchange rates, and prices of financial instruments and commodities, factors that result in frequent changes in the fair value of the Partnership’s open positions, and consequently in its earnings, whether realized or unrealized, and cash flow.  Gains and losses on open positions of exchange-traded futures, exchange-traded forward, and exchange-traded futures-styled options contracts are settled daily through variation margin.

Gains and losses on off-exchange-traded forward currency contracts and forward currency options contracts are settled upon termination of the contract.  However, the Partnership is required to meet margin requirements equal to the net unrealized loss on open forward currency contracts in the Partnership accounts with the counterparty, which is accomplished by daily maintenance of the cash balance in a custody account held at MSSB for the benefit of MS&Co.

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

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

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

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

Quantifying the Partnership’s Trading Value at Risk

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

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

The Partnership’s risk exposure in the market sectors traded by the Trading Advisors is estimated below in terms of VaR.  The Partnership estimates VaR using a model based upon historical simulation (with a confidence level of 99%) which involves constructing a distribution of hypothetical daily changes in the value of a trading portfolio.  The VaR model takes into account linear exposures to risk including equity and commodity prices, interest rates, foreign exchange rates, and correlation among these variables. The hypothetical changes in portfolio value are based on daily percentage changes observed in key market indices or other market factors (“market risk factors”) to which the portfolio is sensitive. &# 160;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 re-values its portfolio (using delta-gamma approximations) for each of the historical market moves that occurred over this time period.  This generates a probability distribution of daily “simulated profit and loss” outcomes.  The VaR is the appropriate percentile of this distribution.  For example, the 99% one-day VaR would represent the 10th worst outcome from Demeter’s simulated profit and loss series.

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

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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, 2010 and 2009.  At September 30, 2010 and 2009, the Partnership’s total capitalization was approximately $51 million and $64 million, respectively.

Primary Market	September 30, 2010	September 30, 2009
Risk Category	Value at Risk	Value at Risk
Currency	(1.59)%	(1.03)%

The VaR for a market category represents the one-day downside risk for the aggregate exposures associated with this market category.  Because the business of the Partnership is the speculative trading of futures, forwards and options on such contracts, the composition of its trading portfolio can change significantly over any given time period, or even within a single trading day.  Such change could positively or negatively materially impact market risk as measured by VaR.

The tables below supplement 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, 2009 through September 30, 2010 and October 1, 2008 through September 30, 2009, respectively.

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September 30, 2010
Primary Market Risk Category	High	Low	Average
Currency	(1.59)%	(1.01)%	(1.24)%

September 30, 2009
Primary Market Risk Category	High	Low	Average
Currency	(1.03)%	(0.16)%	(0.59)%

Limitations on Value at Risk as an Assessment of Market Risk

VaR models permit estimation of a portfolio’s aggregate market risk exposure, incorporating a range of varied market risks, reflect risk reduction due to portfolio diversification or hedging activities, and can cover a wide range of portfolio assets. However, VaR risk measures should be viewed in light of the methodology’s limitations, which include, but may not be limited to the following:

·   past changes in market risk factors will not always result in accurate predictions of the distributions and correlations of future market movements;

·   changes in portfolio value caused by market movements may differ from those of the VaR model;

·   VaR results reflect past market fluctuations applied to current trading positions while future risk depends on future positions;

·   VaR using a one-day time horizon does not fully capture the market risk of positions that cannot be liquidated or hedged within one day; and

·   the historical market risk factor data used for VaR estimation may provide only limited insight into losses that could be incurred under certain unusual market movement.

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

The VaR tables provided present the results of the Partnership’s VaR for the Partnership’s market risk exposure at September 30, 2010 and 2009, and for the four quarter-end reporting periods from October 1, 2009 through September 30, 2010 and from October 1, 2008 through September 30, 2009, respectively.  VaR is not necessarily representative of the Partnership’s historic risk, nor should it be used to predict the Partnership’s future financial performance or its ability to manage or monitor risk.  There can be no assurance that the Partnership’s actual losses on a particular day will not exceed the VaR amounts indicated above or that such losses will not occur more than once in 100 trading days.

Non-Trading Risk

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

The Partnership also maintains a substantial portion of its available assets in cash at MSSB; as of September 30, 2010, such amount was equal to approximately 99% of the Partnership’s net asset value.  A decline in short-term interest rates would result in a decline in the Partnership’s cash management income. This cash flow risk is not considered to be material.

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

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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 Trading Advisors,in general, tend to utilize trading system(s) to take positions when market opportunities develop, and Demeter anticipates that the Trading Advisors will continue to do so.

The following was the only trading risk exposure of the Partnership at September 30, 2010. It may be anticipated, however, that market exposure will vary materially over time.

Currency.  The Partnership’s currency market exposure at September 30, 2010, was to exchange rate fluctuations, primarily fluctuations which disrupt the historical pricing relationships between different

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currencies and currency pairs. Interest rate changes, as well as political and general economic conditions influence these fluctuations. At September 30, 2010, the Partnership’s major exposures were to the British pound, Japanese yen, Canadian dollar, New Zealand dollar, euro, Australian dollar, Polish zloty, Singapore dollar, and Swiss franc currency crosses, as well as to outright U.S. dollar positions. Outright positions consist of the U.S. dollar vs. other currencies. These other currencies include major and minor currencies. Demeter does not anticipate that the risk associated with the Partnership’s currency trades will change significantly in the future.

Qualitative Disclosures Regarding Non-Trading Risk Exposure

The following was the only non-trading risk exposure of the Partnership at September 30, 2010:

Foreign Currency Balances.  The Partnership’s primary foreign currency balances at September 30, 2010, were in Hungarian forint, Japanese yen, Swiss francs, Polish zlotys, Singapore dollars, South African rand, Mexican pesos, and Norwegian kroner. 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 market sectors and trading approaches through the selection of Commodity Trading Advisors and by daily monitoring their performance.  In

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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

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of the management of Demeter, at the time this quarterly report was filed, Demeter’s President (Demeter’s principal executive officer) and Chief Financial Officer (Demeter’s principal financial officer) have evaluated the effectiveness of the design and operation of the

Partnership’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 2010.  The Partnership’s disclosure controls and procedures are designed to provide reasonable assurance that information the Partnership is required to disclose in the reports that the Partnership files or submits under the Exchange Act are recorded, processed and summarized and reported within the time period specified in the applicable rules and forms.  Based on this evaluation, the President and Chief Financial Officer of Demeter have concluded that the disclosure controls and procedures of the Partnership were effective at September 30, 2010.

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Changes in Internal Control over Financial Reporting

There have been no material changes during the period covered by this quarterly report in the Partnership’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that have materially affected or are reasonably likely to materially affect the Partnership’s internal control over financial reporting.

Limitations on the Effectiveness of Controls

Any control system, no matter how well designed and operated, can provide reasonable (not absolute) assurance that its objectives will be met.  Furthermore, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.

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PART II.  OTHER INFORMATION

Item 1A. RISK FACTORS

There have been no material changes from the risk factors previously referenced in the Partnership’s Report on Form 10-K for the fiscal year ended December 31, 2009.

Item 6. EXHIBITS

31.01 Certification of President of Demeter Management LLC, the general partner of the Partnership, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.02 Certification of Chief Financial Officer of Demeter Management LLC, the general partner of the Partnership, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.01 Certification of President of Demeter Management LLC, 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 LLC, 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.

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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 Smith Barney Spectrum Currency L.P.
	(Registrant)
	By:	Demeter Management LLC
		(General Partner)
November 12, 2010	By:
		Christian Angstadt
		Chief Financial Officer

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

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