UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2007 or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to ___________________
Commission file number 0-19511
MORGAN STANLEY SPECTRUM SELECT L.P.
(Exact name of registrant as specified in its Limited Partnership Agreement)
DELAWARE 13-3619290
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Demeter Management Corporation
522 Fifth Avenue, 13th Floor
New York, NY 10036
(Address of principal executive offices) (Zip Code)
Registrant?s telephone number, including area code (212) 296-1999
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes No X
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. Yes No X
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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant?s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of ?accelerated
filer and large accelerated filer? in Rule 12b-2 of the Exchange Act. (Check
one):
Large accelerated filer___ Accelerated filer____ Non-accelerated filer __X__
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act). Yes No X
State the aggregate market value of the Units of Limited Partnership Interest
held by non-affiliates of the registrant. The aggregate market value shall be
computed by reference to the price at which Units were sold as of the last
business day of the registrant?s most recently completed second fiscal quarter:
$548,775,115 at June 30, 2007.
DOCUMENTS INCORPORATED BY REFERENCE
(See Page 1)
<page> <table> MORGAN STANLEY SPECTRUM SELECT L.P.
INDEX TO ANNUAL REPORT ON FORM 10-K
DECEMBER 31, 2007
<caption> Page No.
<s> <c>
DOCUMENTS INCORPORATED BY REFERENCE. . . . . . . . . . . . . . . . . . 1
Part I .
Item 1. Business. . . . . . . . . . . . . . . . . . . . . . . . .2?7
Item 1A. Risk Factors. . . . . . . . . . . . . . . . . . . . . . . .7
Item 1B. Unresolved Staff Comments . . . . . . . . . . . . . . . . .7
Item 2. Properties. . . . . . . . . . . . . . . . . . . . . . . . 7
Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . 7
Item 4. Submission of Matters to a Vote of Security Holders. . . .8
Part II.
Item 5. Market for Registrant's Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity
Securities . . . . . . . . . . . . . . . . . . . . . . 9-11
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . 12
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . 13?33
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk . . . . . . . . . . . . . . . . . . . . . .34-48
Item 8. Financial Statements and Supplementary Data. . . . . . 48-49
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure. . . . . . . . . . . .49
Item 9A. Controls and Procedures . . . . . . . . . . . . . . . .49-52
Item 9A(T). Controls and Procedures. . . . . . . . . . . . . . . . 52
Item 9B. Other Information . . . . . . . . . . . . . . . . . . . . 52
Part III.
Item 10. Directors, Executive Officers and Corporate
Governance . . . . . . . . . . . . . . . . . . . . . . 53-60
Item 11. Executive Compensation . . . . . . . . . . . . . . .. .60-61
Item 12. Security Ownership of Certain Beneficial Owners
and Management and Related Stockholder Matters . . . . . .61
Item 13. Certain Relationships and Related Transactions,
and Director Independence . . . . . . . . . . . . . . . . 61
Item 14. Principal Accountant Fees and Services . . . . . . . . 62-63
Part IV.
Item 15. Exhibits and Financial Statement Schedules . . . . . . 64?65
</table>
<page> DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference
as follows:
Documents Incorporated Part of Form 10-K
Partnership?s Prospectus dated
November 9, 2007 I
Annual Report to Morgan Stanley
Spectrum Series Limited Partners
for the year ended December 31,
2007 II, III, and IV
- - 1 -
<page> PART I
Item 1. BUSINESS
(a) General Development of Business. Morgan Stanley Spectrum
Select L.P. (the "Partnership") is a Delaware limited partnership
organized in 1991 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.
The Partnership commenced trading operations on August 1, 1991.
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 Strategic L.P., and Morgan Stanley
Spectrum Technical L.P. (collectively, the ?Spectrum Series?).
The Partnership?s general partner is Demeter Management
Corporation (?Demeter?). The commodity brokers are Morgan Stanley
& Co. Incorporated (?MS&Co.?) and Morgan Stanley & Co.
International plc (?MSIP?). 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.
MSIP serves as the commodity broker for trades on the London Metal
- - 2 -
<page> Exchange. The commodity brokers prior to April 1, 2007,
were Morgan Stanley DW Inc. (?Morgan Stanley DW?), MS&Co., and
MSIP. Demeter, MS&Co., MSIP, and MSCG are wholly-owned
subsidiaries of Morgan Stanley. The trading advisors to the
Partnership are EMC Capital Management, Inc. (?EMC?), Northfield
Trading L.P. (?Northfield?), Rabar Market Research, Inc.
(?Rabar?), Sunrise Capital Management, Inc. (?Sunrise?), Graham
Capital Management, L.P. (?Graham?), and Altis Partners (Jersey)
Limited (?Altis?) (each individually, a ?Trading Advisor?, or
collectively, the ?Trading Advisors?).
Effective December 1, 2007, Altis was added as a Trading Advisor
to the Partnership.
Effective December 1, 2007, the Partnership?s assets were
reallocated as follows: 12.5% to EMC, 7.5% to Northfield, 20% to
Rabar, 20% to Sunrise, 20% to Graham, and 20% to Altis.
Effective December 1, 2007, subscriptions and redemptions were
allocated among the Trading Advisors as follows: EMC (20%), Rabar
(20%), Sunrise (20%), Graham (20%), and Altis (20%).
Effective April 1, 2007, Morgan Stanley DW merged into MS&Co.
Upon completion of the merger, the surviving entity, MS&Co.,
became the Partnership?s principal U.S. commodity broker-dealer.
- - 3 -
<page> Effective April 13, 2007, Morgan Stanley & Co.
International Limited changed its name to Morgan Stanley & Co.
International plc.
Effective February 1, 2007, subscriptions were allocated among the
Trading Advisors as follows: EMC (10%), Rabar (30%), Sunrise
(30%), and Graham (30%); redemptions were allocated as follows:
Rabar (33.33%), Sunrise (33.33%), and Graham (33.34%).
Units of limited partnership interest (?Unit(s)?) are sold at
monthly closings at a purchase price equal to 100% of the net
asset value per Unit as of the close of business on the last day
of each month.
The managing underwriter for the Partnership is MS&Co. (Morgan
Stanley DW, prior to April 1, 2007).
The Partnership began the year at a net asset value per Unit of
$29.06 and returned 7.5% to $31.24 on December 31, 2007. For a
more detailed description of the Partnership's business, see
subparagraph (c).
(b) Financial Information about Segments. For financial infor-
mation reporting purposes, the Partnership is deemed to engage in
- - 4 -
<page> one industry segment, the speculative trading of futures,
forwards, and options on such contracts. The relevant financial
information is presented in Items 6 and 8.
(c) Narrative Description of Business. The Partnership is in the
business of speculative trading of futures, forwards, and options
pursuant to trading instructions provided by the Trading Advisors.
For a detailed description of the different facets of the
Partnership's business, see those portions of the Partnership's
prospectus, dated November 9, 2007 (the ?Prospectus?),
incorporated by reference in this Form 10-K, set forth below.
Facets of Business
1. Summary 1. "Summary" (Pages 1-9 of the
Prospectus).
2. Futures, Options, and 2. "The Futures, Options, and
Forwards Markets Forwards Markets" (Pages
218-222 of the Prospectus).
3. Partnership?s Trading 3. ?Use of Proceeds? (Pages
Arrangements and 29-31 of the Prospectus),
Policies ?The Trading Advisors?
(Pages 95-190 of the
Prospectus).
4. Management of the Part- 4. ?The Trading Advisors ?
nership Management Agreements? (Page
95 of the Prospectus), ?The
General Partner? (Pages 91-
94 of the Prospectus),
?The Commodity Brokers?
(Pages 193-194 of the
Prospectus) and ?The
Limited Partnership Agree-
ments? (Pages 200-203 of
the Prospectus).
- - 5 -
<page>
5. Taxation of the Partner- 5. ?Material Federal Income Tax
ship?s Limited Partners Considerations? and ?State
and Local Income Tax
Aspects? (Pages 210-217 of
the Prospectus).
(d) Financial Information about Geographic Areas. The
Partnership has not engaged in any operations in foreign
countries; however, the Partnership (through the commodity
brokers) enters into forward contract transactions where foreign
banks are the contracting party and trades futures, forwards, and
options on foreign exchanges.
(e) Available Information. The Partnership files an annual report
on Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K, and all amendments to these reports with the Securities
and Exchange Commission (?SEC?). You may read and copy any
document filed by the Partnership at the SEC?s Public Reference
Room at 100 F Street, N.E., Washington, D.C. 20549. Please call
the SEC at 1-800-SEC-0330 for information on the Public Reference
Room. The Partnership does not maintain an internet website;
however, the Partnership?s SEC filings are available to the public
from the EDGAR database on the SEC?s website at
?http://www.sec.gov?. The Partnership?s CIK number is 0000873799.
- - 6 -
<page> Item 1A. RISK FACTORS
The Partnership is in the business of speculative trading of
futures, forwards, and options on such contracts. For a detailed
description of the risks that may affect the business of the
Partnership or the limited partnership interests offered by the
Partnership, see those portions of the Partnership?s Prospectus
dated November 9, 2007, incorporated by reference in this Form
10-K, set forth in the ?Risk Factors? section of the Prospectus at
pages 10-15.
Item 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
Item 2. PROPERTIES
The Partnership?s executive and administrative offices are located
within the offices of MS&Co. The MS&Co. offices utilized by the
Partnership are located at 522 Fifth Avenue, 13th Floor, New York,
NY 10036.
Demeter changed its address in June 2007 from 330 Madison Avenue,
8th Floor, New York, NY 10017 to 522 Fifth Avenue, 13th Floor, New
York, NY 10036.
Item 3. LEGAL PROCEEDINGS
None.
- - 7 -
<page>
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
- - 8 -
<page> PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES
(a) Market Information. There is no established public trading
market for Units of the Partnership.
(b) Holders. The number of holders of Units at December 31, 2007,
was approximately 38,784.
(c) Distributions. No distributions have been made by the
Partnership since it commenced trading operations on August 1,
1991. Demeter has sole discretion to decide what distributions, if
any, shall be made to investors in the Partnership. Demeter
currently does not intend to make any distributions of the
Partnership?s profits.
(d) Securities Sold; Consideration. Units are continuously sold
at monthly closings at a purchase price equal to 100% of the net
asset value per Unit as of the close of business on the last day
of each month.
The aggregate price of the Units sold through December 31, 2007,
was $981,859,026.
- - 9 -
<page> <table>
(e) Underwriter. The managing underwriter for the Partnership is
MS&Co. (Morgan Stanley DW, prior to April 1, 2007).
(f) Use of Proceeds.
<caption>
SEC
Registration Statement on Form S-1 Units Registered Effective Date File Number
<s> <c> <c> <c>
Initial Registration 60,000.000 May 17, 1991 33-39667
Supplemental Closing 10,000.000 August 23, 1991 33-42380
Additional Registration 75,000.000 August 31, 1993 33-65072
Additional Registration 60,000.000 October 27, 1997 333-01918
Pre-conversion 205,000.000
Units sold through 10/17/97 146,139.671
Units unsold through 10/17/97 58,860.329
(Ultimately de-registered)
Commencing with the April 30, 1998, monthly closing, when the
Partnership became a member of the Spectrum Series of funds, each
previously outstanding Unit of the Partnership was converted into
100 Units, totaling 14,613,967.100 (pre-conversion).
Additional Registration 1,500,000.000 May 11, 1998 333-47829
Additional Registration 5,000,000.000 January 21, 1999 333-68773
Additional Registration 4,500,000.000 February 28, 2000 333-90467
Additional Registration 1,000,000.000 April 30, 2002 333-84656
Additional Registration 7,000,000.000 April 28, 2003 333-104005
Additional Registration 23,000,000.000 April 28, 2004 333-113393
Total Units Registered 42,000,000.000
Units sold post conversion 28,901,257.420
Units unsold through 12/31/07 13,098,742.580
Total Units sold
through 12/31/07 43,515,224.520
(pre and post conversion)
</table>
- - 10 -
<page> 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.
- - 11 -
<page> <table> Item 6. SELECTED FINANCIAL DATA (in dollars)
<caption>
For the Years Ended December 31, __
2007 2006 2005 2004 2003 .
<s> <c> <c> <c> <c> <c>
Total Trading Results
including interest
income 84,240,950 79,402,767 23,039,815 33,923,907 74,213,042
Net Income (Loss) 37,920,143 31,117,372 (29,214,513) (23,311,900) 34,186,905
Net Income (Loss)
Per Unit (Limited
& General Partners) 2.18 1.61 (1.43) (1.43) 2.66
Total Assets 533,911,805 555,435,805 550,467,763 595,823,205 449,549,242
Total Limited
Partners' Capital 517,496,723 537,667,844 527,198,790 579,155,164 436,666,633
Net Asset Value
Per Unit 31.24 29.06 27.45 28.88 30.31
</table>
- - 12 -
<page> Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity. The Partnership deposits its assets with Morgan
Stanley DW (through March 31, 2007), MS&Co., and MSIP as commodity
brokers in separate futures, forwards, and options trading
accounts established for each Trading Advisor. Such assets are
used as margin to engage in trading and may be used as margin
solely for the Partnership?s trading. The assets are held in
either non-interest bearing bank accounts or in securities and
instruments permitted by the Commodity Futures Trading Commission
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
- 13 -
<page> within the limit. Futures prices have occasionally moved
the daily limit for several consecutive days with little or no
trading. These market conditions could prevent the Partnership
from promptly liquidating its futures or options contracts and
result in restrictions on redemptions.
There is no limitation on daily price moves in trading forward
contracts on foreign currencies. The markets for some world
currencies have low trading volume and are illiquid, which may
prevent the Partnership from trading in potentially profitable
markets or prevent the Partnership from promptly liquidating
unfavorable positions in such markets, subjecting it to
substantial losses. Either of these market conditions could
result in restrictions on redemptions. For the periods covered by
this report, illiquidity has not materially affected the
Partnership?s assets.
There are no known material trends, demands, commitments, events,
or uncertainties at the present time that are reasonably likely to
result in the Partnership?s liquidity increasing or decreasing in
any material way.
Capital Resources. The Partnership does not have, nor does it
expect to have, any capital assets. Redemptions, exchanges, and
- 14 -
<page> sales of Units in the future will affect the amount of
funds available for investments in futures, forwards, and options
in subsequent periods. It is not possible to estimate the amount,
and therefore the impact, of future inflows and outflows of Units.
There are no known material trends, favorable or unfavorable, that
would affect, nor any expected material changes to, the
Partnership?s capital resource arrangements at the present time.
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, forwards, and options
markets. The following presents a summary of the Partnership's
operations for each of the three years in the period ended
December 31, 2007, 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.
- - 15 -
<page> The Partnership?s results of operations set forth in the
Financial Statements are prepared in accordance with accounting
principles generally accepted in the United States of America,
which require the use of certain accounting policies that affect
the amounts reported in these Financial Statements, including the
following: The contracts the Partnership trades are accounted for
on a trade-date basis and marked to market on a daily basis. The
difference between their cost and market value is recorded on the
Statements of Operations as ?Net change in unrealized trading
profit (loss)? for open (unrealized) contracts, and recorded as
?Realized trading profit (loss)? when open positions are closed
out. The sum of these amounts, along with the ?Proceeds from
Litigation Settlement?, 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 a foreign currency forward
contract is based on the spot rate as of the close of business.
Interest income, as well as management fees, incentive fees, and
brokerage fees expenses of the Partnership are recorded on an
accrual basis.
Demeter believes that, based on the nature of the operations of
the Partnership, no assumptions relating to the application of
critical accounting policies other than those presently used
could reasonably affect reported amounts.
- - 16 -
<page> The Partnership recorded total trading results including
interest income totaling $84,240,950 and expenses totaling
$46,320,807, resulting in net income of $37,920,143 for the year
ended December 31, 2007. The Partnership?s net asset value per
Unit increased from $29.06 at December 31, 2006, to $31.24 at
December 31, 2007. Total redemptions and subscriptions for the
year were $107,815,305 and $49,551,232, respectively, and the
Partnership?s ending capital was $523,178,555 at December 31,
2007, a decrease of $20,343,930 from ending capital at December
31, 2006, of $543,522,485.
The most significant trading gains of approximately 6.1% were
experienced in the currency sector during April, May, June,
September, and October from short positions in the U.S. dollar
versus the euro, Canadian dollar, Turkish lira, and Brazilian
real, as well as outright short positions in the U.S. Dollar
Index, as the value of the U.S. dollar weakened against most of
its major rivals on investor sentiment that the U.S. Federal
Reserve will need to reduce interest rates in order to prevent
the U.S. economy from slowing. Additional gains of approximately
5.7% were recorded in the global interest rate sector primarily
during January, May, and June from short positions in European
interest rate futures as prices trended lower after consistently
strong economic data out of the United Kingdom and Germany
resulted in reduced demand for the ?safe haven? of fixed-income
- 17 -
<page> investments. In addition, prices moved higher on investor
sentiment that the Bank of England and European Central Bank
would need to raise interest rates in order to curb inflation.
During August and November, newly established long positions in
U.S. and Japanese interest rate futures resulted in gains as
prices increased in a continuation of a worldwide ?flight-to-
quality? after volatility in the global equity markets, spurred
by losses in the U.S. sub-prime mortgage sector, caused investors
to seek the ?safety? of government bonds. Within the energy
markets, gains of approximately 4.7% were experienced primarily
during July, September, October, and December from long futures
positions in crude oil and its related products
as prices moved higher amid persistent concerns regarding U.S.
refinery capacity and after continuous hurricane activity in the
Gulf of Mexico threatened production facilities. Prices
continued to increase amid rising tensions over Iran?s nuclear
program, continued weakness in the U.S. dollar, and statements
from senior OPEC officials indicating that production would not
be increased to pull prices lower. Smaller gains of
approximately 0.9% were recorded in the agricultural markets
during June, August, and September from long positions in wheat
futures as prices rose amid persistently strong international
demand and news from the U.S. Department of Agriculture that
global stockpiles would fall to the lowest level in 26 years.
Elsewhere, long positions in soybean oil and soybean meal futures
- 18 -
<page> resulted in gains primarily during May and June as prices
moved higher after a representative from the European Union
announced plans to increase alternative fuel sources and U.S.
government reports showed that soybean acreage was down from a
year ago. During November and December, further gains were
experienced from long futures positions in the soybean complex
and wheat as prices moved higher due to further data indicating
dwindling global supplies. A portion of the Partnership?s
overall gains for the year was offset by losses of approximately
3.3% incurred in the global stock index sector during February
and early March from long positions in Japanese and U.S. stock
index futures as prices reversed sharply lower after a massive
sell-off in the global equity markets that began on February 27,
2007, following comments from former U.S. Federal Reserve
Chairman Alan Greenspan that the U.S. economy could be due for a
recession. In addition, concerns that tighter credit conditions
in China and Japan might dampen global growth first sent Chinese
stock markets plunging before the sell-off spread to other equity
markets. During July, August, November, and December, long
positions in U.S. equity index futures resulted in further losses
as prices fell sharply on concerns that a widening credit crunch,
sparked by U.S. sub-prime mortgage losses, would erode global
economic growth and corporate earnings. Finally, smaller losses
of approximately 1.2% were recorded in the metals markets
throughout a majority of the year from both short and long
positions in silver and
- 19 -
<page> aluminum futures as prices moved without consistent
direction due to conflicting data regarding supply and demand, as
well as uncertainty regarding the direction of the U.S. dollar.
During November, long positions in copper futures resulted in
further losses as prices decreased on concerns that global demand
would weaken while inventories continue to rise.
The Partnership recorded total trading results including interest
income totaling $79,402,767 and expenses totaling $48,285,395,
resulting in net income of $31,117,372 for the year ended
December 31, 2006. The Partnership?s net asset value per Unit
increased from $27.45 at December 31, 2005, to $29.06 at December
31, 2006. Total redemptions and subscriptions for the year were
$97,503,224 and $76,905,995, respectively, and the Partnership?s
ending capital was $543,522,485 at December 31, 2006, an increase
of $10,520,143 from ending capital at December 31, 2005, of
$533,002,342.
The most significant trading gains of approximately 6.1% were
recorded in the metals markets primarily during the first six
months of the year from long futures positions in copper, nickel,
zinc, and aluminum as base metals prices rallied on strong global
demand and reports of falling inventories. Further gains in the
metals markets were experienced from long positions in gold and
silver futures as prices reached 25-year highs, benefiting from
- 20 -
<page> strong demand and lagging supply. Demand for precious
metals increased on continued geopolitical concerns, inflation
fears, and consistent demand from foreign central banks. In
addition, silver prices were pressured higher after news that a
silver-backed Exchange Traded Fund would launch. Gains were
extended during October from long positions in base metals as
prices continued to trend higher amid labor protests in producer
countries and news that inventories had declined more-than-
expected. Additionally, prices were pressured higher after the
National Bureau of Statistics said that China's industrial
production had increased significantly from a year earlier,
reaffirming expectations that demand from China would stay
strong. Additional gains of approximately 5.6% were recorded
within the global stock index markets from long positions in
European, U.S., and Pacific Rim stock index futures as global
equity prices trended higher throughout the first quarter on
strong corporate earnings and solid economic data. Long
positions in Hong Kong equity index futures also recorded gains
as prices moved higher during April and July on positive
performance in the technology sector, speculation that the U.S.
Federal Reserve could be near the end of its interest rate
tightening campaign, and news that Gross Domestic Product in
China had surged to 10.9% in the first six months of the year.
Further gains in the global stock index futures markets were
experienced during September from long positions in European
- 21 -
<page> equity index futures as prices were supported higher on
merger and acquisition activity and solid corporate earnings.
During the fourth quarter, further gains were recorded from long
positions in U.S., European, and Pacific Rim equity index futures
as prices continued to move higher amid the U.S. Federal
Reserve?s decision to hold interest rates steady, consistent
merger and acquisition activity, and news of the world?s largest
initial public offering in China. Smaller gains of approximately
1.3% were experienced within the global interest rates sector,
primarily during March and April, from short positions in U.S.
and European interest rate futures as global bond prices trended
lower throughout a majority of the first quarter amid strength in
regional equity markets and investor sentiment that interest
rates in the United States and the European Union might rise in
order to combat inflation. U.S. fixed-income futures continued
to move lower into the second quarter following the release of
consistently strong U.S. economic data resulting in further gains
from short positions. Finally, during November, gains were
recorded from long positions in U.S. fixed-income futures as
prices moved higher on new concerns of a slowing U.S. economy
after reports showed an increase in jobless claims, while
consumer sentiment unexpectedly weakened. A portion of the
Partnership?s overall gains for the year was offset by losses of
approximately 1.7% in the agricultural markets from positions in
wheat, soybeans, and cocoa futures. Long positions in wheat
- 22 ?
<page> futures incurred losses as prices fell in March, April,
and June on forecasts for favorable weather in U.S. wheat-growing
regions, while short futures positions in soybeans recorded
losses as prices moved higher in March on speculative buying and
increased demand. During the third quarter, losses were incurred
primarily during July from long futures positions in wheat and
soybean oil as prices decreased on forecasts of improved weather
conditions across the growing regions of the U.S. Additional
losses were incurred during July from long positions in cocoa
futures as prices reversed lower on news from the International
Cocoa Organization that global supplies were still adequate to
meet demand. Further losses in the agricultural markets were
experienced during October, November, and December from both
short and long positions in the soybean complex as prices moved
without consistent direction due to conflicting news regarding
supply and demand. Smaller losses of approximately 1.1% were
incurred within the energy markets throughout the year from
futures positions in crude oil and its related products, as well
as in natural gas. During February, long futures positions in
crude oil and its related products recorded losses as prices
declined after an announcement by Chinese government authorities
that China would place an emphasis on prospecting alternative
energy sources in the future, reports of larger-than-expected
supplies, and mild weather in the U.S. Northeast. Further losses
were recorded during March from short futures positions in crude
- 23 -
<page> oil and its related products as prices reversed higher
early in the month on supply fears. During May, losses were
incurred from long futures positions in crude oil and its related
products as prices fell after supply data showed an increase in
domestic inventories. Further losses were incurred from short
positions in natural gas as prices moved higher on fears of a
possible supply shortage. During June, newly established long
positions in natural gas futures recorded losses as prices
reversed lower on reports of a supply surplus and fears of a
slowing global economy. During July and August, losses were also
experienced from long futures positions in crude oil and its
related products as prices moved lower after weaker-than-expected
U.S. economic data led investors to believe that energy demand
would be negatively affected and the U.S. Department of Labor
reported an unexpected climb in domestic gasoline supplies. In
addition, prices were pressured lower after news of an official
cease-fire between Israel and Hezbollah militants in Lebanon and
news that OPEC had reduced its 2006 oil demand growth forecast.
Finally, during November, losses were incurred from newly
established short positions in crude oil futures and its related
products as prices moved higher amid concern over OPEC's
production cut after the U.S. Department of Energy reported a
sharp fall in domestic inventories.
- - 24 -
<page> The Partnership recorded total trading results including
interest income totaling $23,039,815 and expenses totaling
$52,254,328, resulting in a net loss of $29,214,513 for the year
ended December 31, 2005. The Partnership?s net asset value per
Unit decreased from $28.88 at December 31, 2004, to $27.45 at
December 31, 2005. Total redemptions and subscriptions for the
year were $115,415,285 and $92,326,015, respectively, and the
Partnership?s ending capital was $533,002,342 at December 31,
2005, a decrease of $52,303,783 from ending capital at December
31, 2004, of $585,306,125.
The most significant trading losses of approximately 5.5% were
recorded in the currency markets during the first and third
quarters, as well as during December, from positions in foreign
currencies versus the U.S. dollar. During January, long positions
in the euro versus the U.S. dollar incurred losses after the U.S.
dollar?s value reversed sharply higher amid conflicting economic
data, improvements in U.S. trade deficit numbers, and speculation
for higher U.S. interest rates. The U.S. dollar?s value also
advanced in response to expectations that the Chinese government
would announce postponement of Chinese yuan re-valuation for the
foreseeable future. Additional losses were recorded during
February from short positions in the euro versus the U.S. dollar
as the U.S. dollar weakened in response to concern for the
considerable U.S. Current-Account deficit expressed by U.S.
- 25 -
<page> Federal Reserve Chairman Alan Greenspan. The value of the
U.S. dollar was further weakened during the remainder of February
by a larger-than-expected drop in January leading economic
indicators and news that South Korea?s Central Bank would be
reducing its U.S. dollar currency reserves. Long European
currency positions versus the U.S. dollar also recorded losses
during March after the value of the U.S. dollar reversed sharply
higher benefiting from higher U.S. interest rates and consumer
prices. During August, long U.S. dollar positions against the
British pound and euro resulted in losses as the value of the U.S.
dollar declined amid higher crude oil prices, lower durable goods
orders, the U.S. trade imbalance, and economic warnings from U.S.
Federal Reserve Chairman Alan Greenspan. During December, the
largest losses were incurred from long U.S. dollar positions
versus the euro after the euro?s value increased during mid-month
on the possibility that the European Central Bank would raise
interest rates in 2006. Additional losses resulted from long U.S.
dollar positions versus the South African rand and both the
Australian and the New Zealand dollars as their values reversed
higher with gold prices. Sector losses also stemmed from short
U.S. dollar positions against the British pound. Partnership
losses of approximately 0.9% were recorded in the global interest
rate markets primarily during the third quarter from long
positions in U.S. interest rate futures. During July, long
positions experienced losses as prices declined following a rise
in interest rates and after the U.S. Labor
- 26 -
<page> Department released its June employment report. During
September, long positions incurred additional losses as prices
weakened after it was revealed that Hurricane Katrina?s economic
impact was not significant enough to deter the U.S. Federal
Reserve from its policy of raising interest rates. Smaller
Partnership losses of approximately 0.6% were incurred in the
agricultural markets primarily during the second and third
quarters from long futures positions in wheat and corn. During
April, long futures positions in wheat resulted in losses as
prices fell in response to favorable weather in growing regions
and reduced foreign demand. During July and August, long
positions in corn futures experienced losses after prices weakened
in response to higher silo rates and forecasts for supply
increases. A portion of the Partnership?s overall losses for the
year was offset by gains of approximately 4.4% established in the
global stock index markets during the third and fourth quarters
from positions in Japanese and European stock index futures.
During July, long positions in Pacific Rim and European stock
index futures benefited after positive economic data out of the
U.S. and Japan pushed global equity prices higher. Prices
continued to strengthen after China reformed its U.S. dollar
currency peg policy. Strong corporate earnings out of the
European Union, Japan, and the U.S. resulted in optimistic
investor sentiment and pushed prices further. During September,
long positions in Japanese stock index futures experienced gains
as prices increased on positive comments from Bank of Japan
- 27 -
<page> Governor Toshihiko Fukui, who said the Japanese economy was
in the process of emerging from a soft patch. Additional sector
gains resulted from long positions in European stock index futures
as oil prices declined and investors embraced signs that the
global economy could move forward despite Hurricane Katrina's
devastation of the U.S. Gulf Coast. During the fourth quarter,
long positions in Japanese and European stock index futures
supplied gains as prices increased in response to falling energy
prices, strong corporate earnings, and positive economic data out
of the U.S. European stock markets also found support from the
possibility of an end to U.S. interest rate increases.
Partnership gains of approximately 3.3% were recorded in metals
during the third and fourth quarters from long futures positions
in copper, aluminum, and zinc as prices strengthened amid supply
tightness and strong demand from China, India, and the Middle
East. In the energy markets, gains of approximately 1.0% were
achieved primarily during August from long futures positions in
natural gas and crude oil and its related products as prices rose
on supply and demand concerns. After Hurricane Katrina struck the
Gulf of Mexico, prices advanced further to touch record highs.
For an analysis of unrealized gains and (losses) by contract type
and a further description of 2007 trading results, refer to the
Partnership?s Annual Report to Limited Partners for the year ended
- - 28 -
<page> December 31, 2007, which is incorporated by reference to
Exhibit 13.01 of this Form 10-K.
The Partnership's gains and losses are allocated among its
partners for income tax purposes.
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.
Market Risk.
The Partnership is a party to financial instruments with elements
of off-balance sheet market and credit risk. The Partnership
trades 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. In entering into these contracts, the
Partnership is subject to the market risk that such contracts?
may be significantly influenced by market conditions, such as
interest rate volatility, resulting in such contracts being less
valuable. If the markets should move against all of the positions
held by the Partnership at the same time, and the Trading
- 29 ?
<page> Advisors were unable to offset positions of the
Partnership, the Partnership could lose all of its assets and the
limited partners would realize a 100% loss.
In addition to the Trading Advisors? internal controls, the
Trading Advisors must comply with the Partnership?s trading
policies that include standards for liquidity and leverage that
must be maintained. The Trading Advisors and Demeter monitor the
Partnership's trading activities to ensure compliance with the
trading policies and Demeter can require the Trading Advisors to
modify positions of the Partnership if Demeter believes they
violate the Partnership's trading policies.
Credit Risk.
In addition to market risk, in entering into futures, forward, and
options contracts, there is a credit risk to the Partnership that
the counterparty on a contract will not be able to meet its
obligations to the Partnership. The ultimate counterparty or
guarantor of the Partnership for futures, forward, and options
contracts traded in the United States and most foreign exchanges
on which the Partnership trades is the clearinghouse associated
with such exchange. In general, a clearinghouse is backed by the
membership of the exchange and will act in the event of non-
performance by one of its members or one of its member?s
customers, which should significantly reduce this credit risk.
- 30 -
<page> There is no assurance that a clearinghouse, exchange, or
other exchange member will meet its obligations to the
Partnership, and Demeter and the commodity brokers will not
indemnify the Partnership against a default by such parties.
Further, the law is unclear as to whether a commodity broker has
any obligation to protect its customers from loss in the event of
an exchange or clearinghouse defaulting on trades affected for the
broker?s customers. In cases where the Partnership trades off-
exchange forward contracts with a counterparty, the sole recourse
of the Partnership will be the forward contract?s counterparty.
Demeter deals with these credit risks of the Partnership in
several ways. First, Demeter monitors the Partnership?s credit
exposure to each exchange on a daily basis. The commodity
brokers inform the Partnership, as with all of their customers,
of the Partnership?s net margin requirements for all of its
existing open positions, and Demeter has installed a system which
permits it to monitor the Partnership?s potential net credit
exposure, exchange by exchange, by adding the unrealized trading
gains on each exchange, if any, to the Partnership?s margin
liability thereon.
Second, the Partnership?s trading policies limit the amount of its
Net Assets that can be committed at any given time to futures
contracts and require a minimum amount of diversification in the
- 31 -
<page> Partnership?s trading, usually over several different
products and exchanges. Historically, the Partnership?s exposure
to any one exchange has typically amounted to only a small
percentage of its total Net Assets and on those relatively few
occasions where the Partnership?s credit exposure climbs above
such level, Demeter deals with the situation on a case by case
basis, carefully weighing whether the increased level of credit
exposure remains appropriate. Material changes to the trading
policies may be made only with the prior written approval of the
limited partners owning more than 50% of Units then outstanding.
Third, with respect to forward and options on forward contract
trading, the Partnership trades with only those counterparties
which Demeter, together with MS&Co., has determined to be
creditworthy. The Partnership presently deals with MS&Co. as the
sole counterparty on all trading of foreign currency forward
contracts and MSCG as the sole counterparty on all trading of
options on foreign currency forward contracts.
For additional information, see the ?Financial Instruments?
section under ?Notes to Financial Statements? in the
Partnership?s Annual Report to Limited Partners for the year
ended December 31, 2007, which is incorporated by reference to
Exhibit 13.01 of this Form 10-K.
- - 32 -
<page> Inflation has not been a major factor in the Partnership?s
operations.
New Accounting Developments.
In July 2006, the Financial Accounting Standards Board ("FASB")
issued Interpretation No. 48, "Accounting for Uncertainty in
Income Taxes - an interpretation of FASB Statement 109" ("FIN
48"). FIN 48 clarifies the accounting for income taxes by
prescribing the minimum recognition threshold a tax position must
meet before being recognized in the financial statements. FIN 48
became effective for the Partnership as of January 1, 2007. The
Partnership has determined that the adoption of FIN 48 did not
have a material impact on the Partnership?s Financial Statements.
The Partnership files U.S. federal and state tax returns. The
2004 through 2007 tax years generally remain subject to
examination by U.S. federal and most state tax authorities.
In September 2006, the FASB issued SFAS No. 157, "Fair Value
Measurements" ("SFAS No. 157"). SFAS No. 157 defines fair value,
establishes a framework for measuring fair value, and expands
disclosures about fair value measurements. SFAS No. 157 is
effective for the Partnership as of January 1, 2008. The impact to
the Partnership?s Financial Statements, if any, is currently being
assessed.
- - 33 -
<page>
Item 7A.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 Partner-
ship is required to meet margin requirements equal to the net
- 34 ?
<page> 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 MS&Co.
The Partnership?s total market risk may increase or decrease as
it is influenced by a wide variety of factors, including, but not
limited to, the diversification among the Partnership?s open
positions, the volatility present within the markets, and the
liquidity of the markets.
The face value of the market sector instruments held by the
Partnership is typically many times the applicable margin
requirements. Margin requirements generally range between 2% and
15% of contract face value. Additionally, the use of leverage
causes the face value of the market sector instruments held by
the Partnership 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 experiences to date under
- 35 ?
<page> 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 Partner-
ship?s market risk exposures contain ?forward-looking statements?
within the meaning of the safe harbor from civil liability
provided for such statements by the Private Securities Litigation
Reform Act of 1995 (set forth in Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of
1934). All quantitative disclosures in this section are deemed
to be forward-looking statements for purposes of the safe harbor,
except for statements of historical fact.
The Partnership accounts for open positions on the basis of mark
to market accounting principles. Any loss in the market value of
the Partnership?s open positions is directly reflected in the
Partnership?s earnings and cash flow.
The Partnership?s risk exposure in the market sectors traded by
the Trading Advisors is estimated below in terms of VaR. The
- 36 ?
<page> 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 risks 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 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
- 37 ?
<page> 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 December 31, 2007 and 2006.
At December 31, 2007 and 2006, the Partnership?s total
capitalization was approximately $523 million and $544 million,
respectively.
- - 38 -
<page>
Primary Market December 31, 2007 December 31, 2006
Risk Category Value at Risk Value at Risk
Currency (0.49)% (1.27)%
Interest Rate (0.31) (0.83)
Equity (0.20) (1.95)
Commodity (1.39) (0.65)
Aggregate Value at Risk (1.44)% (2.40)%
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. Such changes could
positively or negatively materially impact market risk as
measured by VaR.
The table below supplements the December 31, 2007, 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
- 39 ?
<page> reporting periods from January 1, 2007, through December
31, 2007.
Primary Market Risk Category High Low Average
Currency (1.53)% (0.49)% (1.13)%
Interest Rate (1.33) (0.31) (0.67)
Equity (1.54) (0.20) (0.68)
Commodity (2.21) (0.47) (1.15)
Aggregate Value at Risk (2.96)% (1.44)% (2.27)%
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;
- - 40 ?
<page>
* VaR results reflect past market fluctuations applied to
current trading positions while future risk depends on
future positions;
* VaR using a one-day time horizon does not fully capture the
market risk of positions that cannot be liquidated or hedged
within one day; and
* the historical market risk factor data used for VaR
estimation may provide only limited insight into losses that
could be incurred under certain unusual market movements.
In addition, the VaR tables above, as well as the past
performance of the Partnership, give no indication of the
Partnership?s potential ?risk of ruin?.
The VaR tables provided present the results of the Partnership?s
VaR for each of the Partnership?s market risk exposures and on an
aggregate basis at December 31, 2006, and for the four quarter-
end reporting periods during calendar year 2007. 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.
- - 41 -
<page>
Non-Trading Risk
The Partnership has non-trading market risk on its foreign cash
balances. These balances and any market risk they may represent
are immaterial.
The Partnership also maintains a substantial portion of its
available assets in cash at MS&Co. (Morgan Stanley DW, prior to
April 1, 2007); as of December 31, 2007, such amount is equal to
approximately 94% 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.
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
- 42 -
<page> forward-looking statements within the meaning of Section
27A of the Securities Act and Section 21E of the Securities
Exchange Act. The Partnership?s primary market risk exposures, as
well as the strategies used and to be used by Demeter and the
Trading Advisors for managing such exposures, are subject to
numerous uncertainties, contingencies and risks, any one of which
could cause the actual results of the Partnership?s risk controls
to differ materially from the objectives of such strategies.
Government interventions, defaults and expropriations, illiquid
markets, the emergence of dominant fundamental factors, political
upheavals, changes in historical price relationships, an influx of
new market participants, increased regulation, and many other
factors could result in material losses, as well as in material
changes to the risk exposures and the risk management strategies
of the Partnership. Investors must be prepared to lose all or
substantially all of their investment in the Partnership.
The following were the primary trading risk exposures of the
Partnership at December 31, 2007, by market sector. It may be
anticipated, however, that these market exposures will vary
materially over time.
Currency. At December 31, 2007, the Partnership had market
exposure to the currency sector. The Partnership?s currency
market exposure was to exchange rate fluctuations, primarily
- 43 ?
<page> fluctuations which disrupt the historical pricing
relationships between different currencies and currency
pairs. Interest rate changes, as well as political and general
economic conditions influence these fluctuations. At December
31, 2007, the Partnership?s major exposures were to the Canadian
dollar, Japanese yen, Swiss franc, British pound, euro,
Australian dollar, and New Zealand dollar currency crosses, as
well as to outright U.S. dollar positions. Outright positions
consist of the U.S. dollar vs. other currencies. These other
currencies include major and minor currencies. Demeter does not
anticipate that the risk associated with the Partnership?s
currency trades will change significantly in the future.
Interest Rate. At December 31, 2007, the Partnership had market
exposure to the global interest rate sector. Exposure was
primarily spread across the U.S., Japanese, European, Australian,
and Canadian interest rate sectors. Interest rate movements
directly affect the price of the sovereign bond futures positions
held by the Partnership and indirectly affect the value of its
stock index and currency positions. Interest rate movements in
one country, as well as relative interest rate movements between
countries, materially impact the Partnership?s profitability.
The Partnership?s interest rate exposure is generally to interest
rate fluctuations in the U.S. and the other G-7 countries?
interest rates. The G-7 countries consist of France, the U.S.,
Britain, Germany, Japan, Italy, and Canada. However, the
- 44 ?
<page> Partnership also takes futures positions in the government
debt of smaller countries ? e.g., Australia. Demeter anticipates
that the G-7 countries? interest rates and Australian interest
rates will remain the primary interest rate exposure of the
Partnership for the foreseeable future. The speculative futures
positions held by the Partnership may range from short to long-
term instruments. Consequently, changes in short, medium, or
long-term interest rates may have an effect on the Partnership.
Equity. At December 31, 2007, the Partnership had market
exposure to the global stock index sector, primarily to equity
price risk in the G-7 countries. The stock index futures traded
by the Partnership are by law limited to futures on broadly-based
indices. The Partnership?s primary market exposures were to the
DAX (Germany), NIKKEI 225 (Japan), NASDAQ 100 (U.S.), SPI 200
(Australia), Hang Seng (Hong Kong), TOPIX (Japan), Euro Stoxx 50
(Europe), AEX (Netherlands), RUSSELL 2000 (U.S.), TAIWAN
(Taiwan), All-Share (South Africa), FTSE 100 (United Kingdom),
and Dow Jones (U.S.) stock indices. The Partnership is typically
exposed to the risk of adverse price trends or static markets in
the European, U.S., Chinese, Japanese, and Australian stock
indices. Static markets would not cause major market changes, but
would make it difficult for the Partnership to avoid trendless
price movements, resulting in numerous small losses.
- - 45 -
<page>
Commodity.
Energy. The largest market exposure of the Partnership at
December 31, 2007, was to the energy sector. The
Partnership?s energy exposure was shared primarily by
futures contracts in crude oil and its related products, and
natural gas. Price movements in these markets result from
geopolitical developments, particularly in the Middle East,
as well as weather patterns and other economic fundamentals.
Significant profits and losses, which have been experienced
in the past, are expected to continue to be experienced in
the future. Natural gas has exhibited volatility in prices
resulting from weather patterns and supply and demand
factors and will likely continue in this choppy pattern.
Soft Commodities and Agriculturals. The second largest
market exposure of the Partnership at December 31, 2007, was
to the markets that comprise these sectors. Most of the
exposure was to the soybeans, soybean meal, corn, wheat,
cocoa, soybean oil, lean hogs, coffee, live cattle, sugar,
lumber, rubber, feeder cattle, and rapeseed markets. Supply
and demand inequalities, severe weather disruptions, and
market expectations affect price movements in these markets.
Metals. The third largest market exposure of the
Partnership at December 31, 2007, was to the metals sector.
The Partnership's metals exposure was to fluctuations in the
- 46 -
<page> price of base metals, such as aluminum, copper,
nickel, zinc, tin, lead, and palladium, and precious metals,
such as gold, silver, and platinum. Economic forces, supply
and demand inequalities, geopolitical factors, and market
expectations influence price movements in these markets.
The Trading Advisors utilize the trading system(s) to take
positions when market opportunities develop, and Demeter
anticipates that the Trading Advisors will continue to do
so.
Qualitative Disclosures Regarding Non-Trading Risk Exposure
The following was the only non-trading risk exposure of the
Partnership at December 31, 2007:
Foreign Currency Balances. The Partnership?s primary foreign
currency balances at December 31, 2007, were in euros, Hong
Kong dollars, Japanese yen, South African rand, British
pounds, Mexican pesos, Norwegian kroner, Swedish kronor,
Swiss francs, Singapore dollars, Israeli shekel, Canadian
dollars, Australian dollars, New Zealand dollars, Czech
koruna, and Hungarian forint. 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.
- - 47 -
<page>
Qualitative Disclosure 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, in a multi-advisor Partnership, 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 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements are incorporated by reference to the
Partnership's Annual Report, which is filed as Exhibit 13.01
hereto.
- - 48 -
<page>
Supplementary data specified by Item 302 of Regulation S-K:
Summary of Quarterly Results (Unaudited)
Quarter Total Trading Results Net Net Income/
Ended including interest income Income/(Loss) (Loss) Per Unit
2007
March 31 $(36,398,624) $ (48,035,313) $ (2.58)
June 30 89,269,053 78,115,518 4.25
September 30 (9,650,072) (21,378,761) (1.16)
December 31 41,020,593 29,218,699 1.67
Total $ 84,240,950 $ 37,920,143 $ 2.18
2006
March 31 $ 31,802,353 $ 19,972,754 $ 1.03
June 30 36,753,206 24,144,618 1.26
September 30 (18,019,116) (30,155,561) (1.59)
December 31 28,866,324 17,155,561 0.91
Total $ 79,402,767 $ 31,117,372 $ 1.61
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACOUNTING AND FINANCIAL DISCLOSURE
None.
Item 9A. CONTROLS AND PROCEDURES
As of the end of the period covered by this annual 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.
- - 49 -
<page>
Management?s Report on Internal Control Over Financial Reporting
Demeter is responsible for the management of the Partnership.
Management of Demeter (?Management?) is responsible for
establishing and maintaining adequate internal control over
financial reporting. The internal control over financial
reporting is designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of
Financial Statements for external purposes in accordance with
generally accepted accounting principles.
The Partnership?s internal control over financial reporting
includes those policies and procedures that:
* Pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and
dispositions of the assets of the Partnership;
* Provide reasonable assurance that transactions are recorded
as necessary to permit preparation of Financial Statements in
accordance with generally accepted accounting principles, and
that the Partnership?s transactions are being made only in
accordance with authorizations of Management and directors;
and
- - 50 ?
<page>
* Provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of
the Partnership?s assets that could have a material effect on
the Financial Statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of the Partnership?s
internal control over financial reporting as of December 31,
2007. In making this assessment, Management used the criteria
set forth by the Committee of Sponsoring Organizations of the
Treadway Commission in Internal Control-Integrated Framework.
Based on our assessment and those criteria, Management believes
that the Partnership maintained effective internal control over
financial reporting as of December 31, 2007.
Attestation Report of the Registered Public Accounting Firm
Deloitte & Touche LLP, the Partnership?s independent registered
public accounting firm, has issued an attestation report on
- 51 -
<page> the Partnership?s internal control over financial
reporting. This report, which expresses an unqualified opinion on
the Partnership?s internal control over financial reporting,
appears under ?Report of Independent Registered Public Accounting
Firm? in the Partnership?s Annual Report to Limited Partners for
the year ended December 31, 2007.
Changes in Internal Control over Financial Reporting
There have been no material changes during the period covered by
this annual 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) or in other factors that could significantly
affect these controls subsequent to the date of their evaluation.
Item 9A(T). CONTROLS AND PROCEDURES
Not applicable.
Item 9B. OTHER INFORMATION
None.
- - 52 -
<page> PART III
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
There are no directors or executive officers of the Partnership.
The Partnership is managed by Demeter, its general partner.
Directors and Officers of the General Partner
The directors and executive officers of Demeter are as follows:
Effective May 1, 2006, Mr. Walter Davis, age 42, is a Director,
Chairman of the Board of Directors, and President of Demeter. Mr.
Davis is an Executive Director at Morgan Stanley and the Director
of Morgan Stanley?s Managed Futures Department. Prior to joining
Morgan Stanley in 1999, Mr. Davis worked for Chase Manhattan
Bank?s Alternative Investment Group. Throughout his career, Mr.
Davis has been involved with the development, management, and
marketing of a diverse array of commodity pools, hedge funds, and
other alternative investment funds. Mr. Davis received an M.B.A
in Finance and International Business from the Columbia University
Graduate School of Business in 1992 and a B.A. in Economics from
the University of the South in 1987.
Effective December 5, 2002, Mr. Frank Zafran, age 52, is a
Director of Demeter. Mr. Zafran is a Managing Director at Morgan
Stanley and, in January 2007, was named Director of Annuity and
Insurance Services. Previously, Mr. Zafran was Director of the
- 53 -
<page> Wealth Solutions Division. Mr. Zafran joined the firm in
1979 and has held various positions in Corporate Accounting and
the Insurance Department, including Senior Operations Officer ?
Insurance Division, until his appointment in 2000 as Director of
Retirement Plan Services, responsible for all aspects of 401(k)
Plan Services, including marketing, sales, and operations.
Subsequently, he was named Chief Administrative Officer of Morgan
Stanley?s Client Solution Division in 2002. Mr. Zafran received a
B.S. degree in Accounting from Brooklyn College, New York.
Effective March 31, 2003, Mr. Douglas J. Ketterer, age 42, is a
Director of Demeter. Mr. Ketterer is a Managing Director of
Morgan Stanley and is head of the Client Solutions Group. The
Client Solutions Group is comprised of a number of departments
(including, among others, the Alternative Investments Group,
Consulting Services Group, Annuities & Insurance Department,
Mutual Fund Department, and Retirement & Equity Solutions Group),
which offer products and services through Morgan Stanley?s Global
Wealth Management Group. Mr. Ketterer joined Morgan Stanley in
1990 and has served in many roles in the corporate
finance/investment banking, asset management, and wealth
management divisions of the firm. Mr. Ketterer received his M.B.A
from New York University?s Leonard N. Stern School of Business and
his B.S. in Finance from the University at Albany?s School of
Business.
- - 54 -
<page> Effective May 1, 2005, Mr. Harry Handler, age 49, is a
Director of Demeter. Mr. Handler serves as an Executive Director
at Morgan Stanley in the Global Wealth Management Group. Mr.
Handler works in the Capital Markets Division as Equity Risk
Officer. Additionally, Mr. Handler serves as Chairman of the
Global Wealth Management Group?s Best Execution Committee and
manages the Stock Lending business. In his prior position, Mr.
Handler was a Systems Director in Information Technology, in
charge of Equity and Fixed Income Trading Systems along with the
Special Products, such as Unit Trusts, Managed Futures, and
Annuities. Prior to his transfer to the Information Technology
Area, Mr. Handler managed the Foreign Currency and Precious Metals
Trading Desk of Dean Witter, a predecessor company to Morgan
Stanley. He also held various positions in the Futures Division
where he helped to build the Precious Metals Trading Operation of
Dean Witter. Before joining Dean Witter, Mr. Handler worked at
Mocatta Metals as an Assistant to the Chairman. His roles at
Mocatta Metals included stints on the Futures Order Entry Desk and
the Commodities Exchange Trading Floor. Additional work included
building a computerized Futures Trading System and writing a
history of the company. Mr. Handler graduated on the Dean?s List
from the University of Wisconsin-Madison with a B.A. degree and a
double major in History and Political Science.
Effective May 1, 2006, Mr. Richard D. Gueren, age 46, is a
Director of Demeter. Mr. Gueren is an Executive Director, Retail
- 55 ?
<page> Options and Transactional Futures of Morgan Stanley. He is
responsible for marketing the options and futures product to the
firm?s approximately 600 offices and approximately 9,000 Financial
Advisors/Investment Representatives. Mr. Gueren first joined Dean
Witter in August 1986, as a Compliance Analyst and in October 1987
became a member of the Options Strategy/Trading team. In 1997,
Dean Witter merged with Morgan Stanley. Mr. Gueren is the firm?s
Senior Registered Options Principal. He is a member of several
Morgan Stanley committees, including the firm?s National Error
Committee and Best Execution Committee. He is an advisory member
to the Credit & Risk Committee. Mr. Gueren is also an active
member of several exchange and industry committee, including the
Managing Directors Committee for the Chicago Board Options
Exchange, and the Retail Advisory Committees for the American
Stock Exchange, the Philadelphia Stock Exchange, the Pacific Stock
Exchange, and the International Securities Exchange. Mr. Gueren is
also an Industry Arbitrator for FINRA and has been seated on
numerous industry cases over the past eight years. He has also
been asked to testify as an expert witness regarding options on
numerous occasions. Mr. Gueren holds a Bachelor of Science degree
in Economics from the University of Hartford.
Effective May 1, 2006, Mr. Michael P. McGrath, age 39, is a
Director of Demeter. Mr. McGrath is a Managing Director at Morgan
Stanley and currently serves as the Chief Operating Officer for
Private Wealth Management Americas, including Private Wealth
- 56 -
<page> Management North America and Private Wealth Management
Latin America. He is also the Chairman of the Global Wealth
Management Alternative Investments Due Diligence Committee. Prior
to his current role, Mr. McGrath was the Director of Product
Development for Morgan Stanley?s Global Wealth Management Group.
Mr. McGrath joined Morgan Stanley in May 2004, from Nuveen
Investments, a publicly traded investment management company
headquartered in Chicago, Illinois. At Nuveen, Mr. McGrath served
as a Managing Director and oversaw the development of alternative
investment products catering to the ultra-high net worth investor.
Mr. McGrath received his B.A. degree from Saint Peters College in
1990 and his M.B.A in Finance from New York University in 1996.
Effective May 1, 2006, Mr. Andrew Saperstein, age 41, is a
Director of Demeter. Mr. Saperstein is Chief Operating Officer of
National Sales for the Global Wealth Management Group, and serves
as a member of the group?s Executive Committee. He is also a
member of the Morgan Stanley Management Committee. One of the
largest businesses of its kind in the world with $690 billion in
client assets, the Global Wealth Management Group provides a range
of wealth management products and services to individuals,
businesses, and institutions. These include brokerage and
investment advisory services, financial and wealth planning,
credit and lending, banking and cash management, annuities and
insurance, retirement and trust. Prior to joining Morgan Stanley
- - 57 -
<page> in March 2006, Mr. Saperstein was with Merrill Lynch as
First Vice President and Chief Operating Officer of the Direct
Division, and served as a member of the Global Private Client
Executive Committee. In this capacity, he was responsible for the
oversight of the online brokerage unit and the Financial Advisory
Center, including the Retail Client Relationship Management group,
the Services, Operations and Technology group, the Client
Acquisition team, and the Business Development and Analysis team.
Mr. Saperstein joined Merrill Lynch in November 2001. Prior to
Merrill Lynch, Mr. Saperstein was a partner in the Financial
Institutions group of McKinsey & Co. Additionally, he served as
co-leader of both the North American Asset Management and
Brokerage Practice and North American Recruiting. Mr. Saperstein
graduated cum laude from Harvard Law School and summa cum laude
from the Wharton School/College of Arts and Sciences at the
University of Pennsylvania with a dual degree in Economics and
Finance.
Effective September 22, 2006, Mr. Jacques Chappuis, age 38, is a
Director of Demeter. Mr. Chappuis is a Managing Director of
Morgan Stanley and Head of Alternative Investments for the
Global Wealth Management Group. Prior to joining Morgan Stanley
in August 2006, Mr. Chappuis was Head of Alternative Investments
for Citigroup?s Global Wealth Management Group and prior to that,
a Managing Director at Citigroup Alternative Investments. Before
- 58 -
<page> joining Citigroup, Mr. Chappuis was a consultant at the
Boston Consulting Group, where he focused on the financial
services sector, and a corporate finance Associate at Bankers
Trust Company. Mr. Chappuis received an M.B.A in Finance, with
honors, from the Columbia University Graduate School of Business
in 1998 and a B.A. in Finance from Tulane University in 1991.
Effective December 3, 2007, Mr. Christian Angstadt, age 46,
serves as Chief Financial Officer of Demeter. He is an Executive
Director within Morgan Stanley?s Financial Control Group. Mr.
Angstadt currently serves as Chief Financial Officer for Morgan
Stanley Trust FSB and Morgan Stanley Trust NA, and is responsible
for the governance and overall financial management of these
regulated banks (appointed Chief Financial Officer in May 2003).
Since joining Morgan Stanley in April 1990, Mr. Angstadt has
held several positions within the firm?s Financial Control Group,
mostly supporting the Asset Management segment (including Chief
Financial Officer for Morgan Stanley Asset Management
Operations). Mr. Angstadt received a B.A. in Accounting from
Montclair University.
All of the foregoing directors have indefinite terms.
- - 59 -
<page> Effective December 3, 2007, Mr. Lee Horwitz no longer
serves as Chief Financial Officer of Demeter.
Code of Ethics
The Partnership has not adopted a code of ethics that applies to
the Partnership?s principal executive officer, principal financial
officer, principal accounting officer or controller, or persons
performing similar functions. The Partnership is operated by its
general partner, Demeter. The President, Chief Financial Officer,
and each member of the Board of Directors of Demeter are employees
of Morgan Stanley and are subject to the code of ethics adopted by
Morgan Stanley, the text of which can be viewed on Morgan
Stanley?s website at http://www.morganstanley.com/ourcommitment/
codeofconduct.html.
The Audit Committee
The Partnership is operated by its general partner, Demeter, and
has no audit committee and, thus, no audit committee financial
expert.
Item 11. EXECUTIVE COMPENSATION
The Partnership has no directors and executive officers. As a
limited partnership, the business of the Partnership is managed by
Demeter, which is responsible for the administration of the
- - 60 -
<page> business affairs of the Partnership but receives no
compensation for such services.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
(a) Security Ownership of Certain Beneficial Owners - At December
31, 2007, there were no persons known to be beneficial owners of
more than 5 percent of the Units.
(b) Security Ownership of Management - At December 31, 2007,
Demeter owned 181,848.769 Units of general partnership interest,
representing a 1.09 percent interest in the Partnership.
(c) Changes in Control ? None.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTOR INDEPENDENCE
Refer to Note 2 - "Related Party Transactions" of "Notes to
Financial Statements", in the accompanying Annual Report to
Limited Partners for the year ended December 31, 2007, which is
incorporated by reference to Exhibit 13.01 of this Form 10-K. In
its capacity as the Partnership's retail commodity broker, MS&Co.
(Morgan Stanley DW, through March 31, 2007) received commodity
brokerage fees (paid and accrued by the Partnership) of
$31,522,666 for the year ended December 31, 2007.
- - 61 -
<page>
Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
MS&Co. (Morgan Stanley DW, through March 31, 2007), on behalf of
the Partnership, pays all accounting fees. The Partnership
reimburses MS&Co. through the brokerage fees it pays, as discussed
in the Notes to Financial Statements in the Annual Report to the
Limited Partners for the year ended December 31, 2007.
(1) Audit Fees. The aggregate fees for professional services
rendered by Deloitte & Touche LLP in connection with their audit
of the Partnership?s Financial Statements and review of the
Financial Statements included in the Quarterly Reports on Form
10-Q, audit of Management?s assessments on the effectiveness of
the internal control over financial reporting, and in connection
with statutory and regulatory filings were approximately $61,633
for the year ended December 31, 2007, and $57,390 for the year
ended December 31, 2006.
(2) Audit-Related Fees. None.
(3) Tax Fees. The Partnership did not pay Deloitte & Touche LLP
any amounts in 2007 and 2006 for professional services in
connection with tax compliance, tax advice, and tax planning. The
Partnership engaged another unaffiliated professional firm to
provide services in connection with tax compliance, tax advice,
and tax planning.
- - 62 -
<page>
(4) All Other Fees. None.
Because the Partnership has no audit committee, the Board of
Directors of Demeter, its general partner, functions as the audit
committee with respect to the Partnership. The Board of Directors
of Demeter has not established pre-approval policies and
procedures with respect to the engagement of audit or permitted
non-audit services rendered to the Partnership. Consequently, all
audit and permitted non-audit services provided by Deloitte &
Touche LLP that are borne by MS&Co. through the brokerage fees
paid for by the Partnership are approved by Morgan Stanley?s Board
Audit Committee and the Board of Directors of Demeter.
- - 63 -
<page> PART IV
Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
1. Listing of Financial Statements
The following Financial Statements and report of independent
registered public accounting firm, all appearing in the
accompanying Annual Report to Limited Partners for the year
ended December 31, 2007, are incorporated by reference to
Exhibit 13.01 of this Form 10-K:
? Report of Deloitte & Touche LLP, independent registered
public accounting firm, for the years ended December 31,
2007, 2006, and 2005.
? Statements of Financial Condition, including the Schedules
of Investments, as of December 31, 2007 and 2006.
? Statements of Operations, Changes in Partners? Capital,
and Cash Flows for the years ended December 31, 2007,
2006, and 2005.
? Notes to Financial Statements.
With the exception of the aforementioned information and the
information incorporated in Items 7, 8, and 13, the Annual
Report to Limited Partners for the year ended December 31,
2007, is not deemed to be filed with this report.
2. Listing of Financial Statements Schedules
No Financial Statement schedules are required to be filed with
this report.
- - 64 -
<page>
3. Exhibits
For the exhibits incorporated by reference or filed herewith
to this report, refer to Exhibit Index on Pages E-1 to E-4.
- - 65 -
<page> SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
MORGAN STANLEY SPECTRUM SELECT L.P.
(Registrant)
BY: Demeter Management Corporation,
General Partner
March 27, 2008 BY: /s/ Walter Davis
Walter Davis,
President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
Demeter Management Corporation.
BY: /s/ Walter Davis March 27, 2008
Walter Davis, President
/s/ Frank Zafran March 27, 2008
Frank Zafran, Director
/s/ Douglas J. Ketterer March 27, 2008
Douglas J. Ketterer, Director
/s/ Harry Handler March 27, 2008
Harry Handler, Director
/s/ Richard D. Gueren March 27, 2008
Richard D. Gueren, Director
/s/ Michael P. McGrath March 27, 2008
Michael P. McGrath, Director
/s/ Andrew Saperstein March 27, 2008
Andrew Saperstein, Director
/s/ Jacques Chappuis March 27, 2008
Jacques Chappuis, Director
/s/ Christian Angstadt March 27, 2008
Christian Angstadt, Chief Financial Officer
- - 66 -
<page> EXHIBIT INDEX
ITEM
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 November
9, 2007, filed with the Securities and Exchange Commission
pursuant to Rule 424(b)(3) under the Securities Act of
1933 on November 19, 2007.
3.02 Certificate of Limited Partnership, dated March 19, 1991,
is incorporated by reference to Exhibit 3.02 of the
Partnership?s Registration Statement on Form S-1 (File No.
333-47829) filed with the Securities and Exchange
Commission on March 12, 1998.
3.03 Certificate of Amendment of Certificate of Limited
Partnership, dated April 28, 1998 (changing its name from
Dean Witter Select Futures Fund L.P.), is incorporated by
reference to Exhibit 3.03 of the Partnership's 10-K for
fiscal year ended December 31, 1998 filed with the
Securities and Exchange Commission on March 31, 1999.
3.04 Certificate of Amendment of Certificate of Limited
Partnership, dated April 6, 1999, (changing its name from
Dean Witter Spectrum Select L.P.), is incorporated by
reference to Exhibit 3.03 of the Partnership's
Registration Statement on Form S-1 (File No. 333-68773)
filed with the Securities and Exchange Commission on April
12, 1999.
3.05 Certificate of Amendment of Certificate of Limited
Partnership, dated November 1, 2001 (changing its name
from Morgan Stanley Dean Witter Spectrum Select L.P.), is
incorporated by reference to Exhibit 3.01 of the
Partnership?s Form 8-K (File No. 0-19511) filed with the
Securities and Exchange Commission on November 1, 2001.
10.01 Amended and Restated Management Agreement, dated as of
June 1, 1998, among the Partnership, Demeter, and Rabar
Market Research, Inc. is incorporated by reference to
Exhibit 10.01 of the Partnership's Form 10-K (File No.
0-19511) for fiscal year ended December 31, 1998 filed
with the Securities and Exchange Commission on March 31,
1999.
E-1
<page>
10.01(a) Amendment No. 1 to Amended and Restated Management
Agreement among the Partnership, Demeter, and Rabar Market
Research, Inc., dated as of October 3, 2006, is
incorporated by reference to Exhibit 10.01(a) of the
Partnership?s Form 8-K (File No. 0-19511) filed with the
Securities and Exchange Commission on October 10, 2006.
10.02 Amended and Restated Management Agreement, dated as of
June 1, 1998, among the Partnership, Demeter, and EMC
Capital Management, Inc., is incorporated by reference to
Exhibit 10.02 of the Partnership's Form 10-K (File No. 0-
19511) for fiscal year ended December 31, 1998 filed with
the Securities and Exchange Commission on March 31, 1999.
10.02(a) Amendment No. 1 to Amended and Restated Management
Agreement among the Partnership, Demeter, and EMC Capital
Management, Inc., dated as of October 3, 2006, is
incorporated by reference to Exhibit 10.02(a) of the
Partnership?s Form 8-K (File No. 0-19511) filed with the
Securities and Exchange Commission on October 10, 2006.
10.03 Amended and Restated Management Agreement, dated as of
June 1, 1998, among the Partnership, Demeter, and Sunrise
Capital Management, Inc., is incorporated by reference to
Exhibit 10.03 of the Partnership's Form 10-K (File No.
0-19511) for fiscal year ended December 31, 1998 filed
with the Securities and Exchange Commission on March 31,
1999.
10.04 Management Agreement, dated as of January 1, 2004, among
the Partnership, Demeter, and Graham Capital Management,
L.P., is incorporated by reference to Exhibit 10.04 of the
Partnership?s Form 8-K (File No. 0-19511) filed with the
Securities and Exchange Commission on March 10, 2004.
10.07 Form of Subscription and Exchange Agreement and Power of
Attorney to be executed by purchasers of Units is
incorporated by reference to Exhibit B of the
Partnership?s Prospectus, dated November 9, 2007, filed
with the Securities and Exchange Commission pursuant to
Rule 424(b)(3) under the Securities Act of 1933 on
November 19, 2007.
E-2
<page>
10.10 Escrow Agreement, dated as of July 25, 2007, among The
Bank of New York, Demeter, and Morgan Stanley & Co.
Incorporated, is incorporated by reference to Exhibit
10.10 of the Partnership?s Form 8-K (File No. 0-19511)
filed with the Securities and Exchange Commission on July
31, 2007.
10.11 Form of Subscription Agreement Update Form to be executed
by purchasers of Units is incorporated by reference to
Exhibit C of the Partnership?s Prospectus, dated November
9, 2007, filed with the Securities and Exchange Commission
pursuant to Rule 424(b)(3) under the Securities Act of
1933 on November 19, 2007.
10.12 Amended and Restated Customer Agreement between the
Partnership and Morgan Stanley DW, dated as of October 16,
2000, is incorporated by reference to Exhibit 10.01 of the
Partnership?s Form 8-K (File No. 0-19511) filed with the
Securities and Exchange Commission on November 1, 2001.
10.12(a)Amendment No. 1 to the Amended and Restated Customer
Agreement between the Partnership and Morgan Stanley DW
Inc., dated July 1, 2005, is incorporated by reference to
Exhibit 10.12(a) of the Partnership?s Form 10-Q (File No.
0-19511) filed with the Securities and Exchange Commission
on August 10, 2005.
10.13 Commodity Futures Customer Agreement between MS&Co. and
the Partnership, and acknowledged and agreed to by Morgan
Stanley DW, dated as of June 6, 2000, is incorporated by
reference to Exhibit 10.02 of the Partnership?s For8-K
(File No. 0-19511) filed with the Securities and Exchange
Commission on November 1, 2001.
10.14 Customer Agreement between the Partnership and MSIP dated
as of June 6, 2000, is incorporated by reference to
Exhibit 10.04 of the Partnership?s Form 8-K (File No.
0-19511) filed with the Securities and Exchange Commission
on November 1, 2001.
10.15 Foreign Exchange and Options Master Agreement between
MS&Co. and the Partnership, dated as of April 30, 2000, is
incorporated by reference to Exhibit 10.05 of the
Partnership?s Form 8-K (File No. 0-19511) filed with the
Securities and Exchange Commission on November 1, 2001.
E-3
<page>
10.16 Management Agreement, dated as of May 1, 2001, among the
Partnership, Demeter, and Northfield Trading L.P., is
incorporated by reference to Exhibit 10.01 of the
Partnership?s Form 8-K (File No. 0-19511) filed with the
Securities and Exchange Commission on April 25, 2001.
10.17 Securities Account Control Agreement between the
Partnership and MS&Co., dated as of May 1, 2000, is
incorporated by reference to Exhibit 10.03 of the
Partnership?s Form 8-K (File No. 0-19511) filed with the
Securities and Exchange Commission on November 1, 2001.
10.19 Management Agreement, dated as of October 9, 2007, among
the Partnership, Demeter, and Altis Partners (Jersey)
Limited, is incorporated by reference to Exhibit 10.19 of
the Partnership?s Form 8-K (File No. 0-19511) filed with
the Securities and Exchange Commission on October 15,
2007.
13.01 December 31, 2007, Annual Report to Limited Partners is
filed herewith.
31.01 Certification of President of Demeter Management
Corporation, the general partner of the Partnership
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.02 Certification of Chief Financial Officer of Demeter
Management Corporation, the general partner of the
Partnership pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
32.01 Certification of President of Demeter Management
Corporation, the general partner of the Partnership,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
32.02 Certification of Chief Financial Officer of Demeter
Management Corporation, the general partner of the
Partnership, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
E-4
Morgan Stanley
Spectrum Series
December 31, 2007
Annual Report
[LOGO] Morgan Stanley
MORGAN STANLEY SPECTRUM SERIES
HISTORICAL FUND PERFORMANCE
Presented below is the percentage change in Net Asset Value per Unit from the
start of every calendar year each Fund has traded. Also provided is the
inception-to-date return and the compound annualized return since inception for
each Fund. Past performance is no guarantee of future results.
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
FUND % % % % % % % % % % % % % % % % %
- -------------------------------------------------------------------------------------------------------------------------
Spectrum
Currency. -- -- -- -- -- -- -- -- -- 11.7 11.1 12.2 12.4 (8.0) (18.3) (3.4) (13.5)
(6 mos.)
- -------------------------------------------------------------------------------------------------------------------------
Spectrum
Global
Balanced. -- -- -- (1.7) 22.8 (3.6) 18.2 16.4 0.8 0.9 (0.3) (10.1) 6.2 (5.6) 4.2 2.4 0.2
(2 mos.)
- -------------------------------------------------------------------------------------------------------------------------
Spectrum
Select... 31.2 (14.4) 41.6 (5.1) 23.6 5.3 6.2 14.2 (7.6) 7.1 1.7 15.4 9.6 (4.7) (5.0) 5.9 7.5
(5 mos.)
- -------------------------------------------------------------------------------------------------------------------------
Spectrum
Strategic -- -- -- 0.1 10.5 (3.5) 0.4 7.8 37.2 (33.1) (0.6) 9.4 24.0 1.7 (2.6) 20.9 5.0
(2 mos.)
- -------------------------------------------------------------------------------------------------------------------------
Spectrum
Technical -- -- -- (2.2) 17.6 18.3 7.5 10.2 (7.5) 7.8 (7.2) 23.3 23.0 4.4 (5.4) 5.4 (14.2)
(2 mos.)
- -------------------------------------------------------------------------------------------------------------------------
INCEPTION- COMPOUND
TO-DATE ANNUALIZED
RETURN RETURN
FUND % %
- --------------------------------
Spectrum
Currency. (1.6) (0.2)
- --------------------------------
Spectrum
Global
Balanced. 56.3 3.5
- --------------------------------
Spectrum
Select... 212.4 7.2
- --------------------------------
Spectrum
Strategic 80.1 4.6
- --------------------------------
Spectrum
Technical 102.2 5.5
- --------------------------------
DEMETER MANAGEMENT CORPORATION
522 Fifth Avenue, 13th Floor
New York, NY 10036
Telephone (212) 296-1999
MORGAN STANLEY SPECTRUM SERIES
ANNUAL REPORT
2007
Dear Limited Partner:
This marks the eighth annual report for Morgan Stanley Spectrum Currency
L.P., the fourteenth annual report for Morgan Stanley Spectrum Global Balanced
L.P., Morgan Stanley Spectrum Strategic L.P., and Morgan Stanley Spectrum
Technical L.P., and the seventeenth annual report for Morgan Stanley Spectrum
Select L.P. The Net Asset Value per Unit for each of the five Morgan Stanley
Spectrum funds ("Fund(s)") as of December 31, 2007 was as follows:
% CHANGE
FUNDS N.A.V. FOR YEAR
----------------------------------------
Spectrum Currency $ 9.84 -13.5%
----------------------------------------
Spectrum Global Balanced $15.63 0.2%
----------------------------------------
Spectrum Select $31.24 7.5%
----------------------------------------
Spectrum Strategic $18.01 5.0%
----------------------------------------
Spectrum Technical $20.22 -14.2%
----------------------------------------
Since its inception in July 2000, Spectrum Currency has returned -1.6% (a
compound annualized return of -0.2%). Since their inception in November 1994,
Spectrum Global Balanced has returned 56.3% (a compound annualized return of
3.5%), Spectrum Strategic has returned 80.1% (a compound annualized return of
4.6%), and Spectrum Technical has returned 102.2% (a compound annualized return
of 5.5%). Since its inception in August 1991, Spectrum Select has returned
212.4% (a compound annualized return of 7.2%).
Detailed performance information for each Fund is located in the body of the
financial report. (Note: all returns are net of all fees). For each Fund, we
provide a trading results by sector chart that portrays trading gains and
trading losses for the year in each sector in which the Fund participates. In
the case of Spectrum Currency, we provide the trading gains and trading losses
for the five major currencies in which the Fund participates, and composite
information for all other "minor" currencies traded within the Fund.
The trading results by sector charts indicate the year's composite percentage
returns generated by the specific assets dedicated to trading within each
market sector in which each Fund participates. Please note that there is not an
equal amount of assets in each market sector, and the specific allocations of
assets by a Fund to each sector will vary over time within a predetermined
range. Below each chart is a description of the factors that influenced trading
gains and trading losses within each Fund during the year.
Effective September 1, 2007, Chesapeake Capital Corporation ("Chesapeake")
agreed temporarily to waive the management fee it receives from Spectrum
Technical. The waiver of the management fee remained in effect through December
31, 2007. Effective January 1, 2008, Chesapeake, in consultation with the
General Partner, has agreed to a further temporary partial waiver of the
management fee it receives from Spectrum Technical. The General Partner will
notify you prior to the end of this management fee waiver. Due to Chesapeake's
partial waiver of the management fee, effective January 1, 2008, Spectrum
Technical pays Chesapeake a monthly management fee equal to 1/6 of 1% of
Spectrum Technical's Net Assets allocated to Chesapeake as of the beginning of
each month (a 2% annual rate). Prior to the management fee waiver, Spectrum
Technical paid Chesapeake a monthly management fee equal to 1/4 of 1% of
Spectrum Technical's Net Assets allocated to Chesapeake as of the beginning of
each month (a 3% annual rate).
Effective February 29, 2008, Demeter terminated the management agreement by
and among Demeter, Spectrum Global Balanced, and Cornerstone Quantitative
Investment Group, Inc. ("Cornerstone"). Consequently, Cornerstone ceased all
futures interests trading on behalf of Spectrum Global Balanced as of February
29, 2008. Effective March 1, 2008, the estimated percentage of net assets
allocated to each trading advisor of Spectrum Global Balanced were as follows:
SSARIS Advisors, LLC (33.34%); Altis Partners (Jersey) Limited (33.33%); and
C-View International Limited (33.33%).
Effective February 29, 2008, Demeter terminated the management agreement by
and among Demeter, Spectrum Strategic, and Cornerstone. Consequently,
Cornerstone ceased all futures interests trading on behalf of Spectrum
Strategic as of February 29, 2008. Effective March 1, 2008, the estimated
percentage of net assets allocated to each trading advisor of Spectrum
Strategic were as follows: Blenheim Capital Management, L.L.C. (52.50%);
Eclipse Capital Management Limited (27.50%); and FX Concepts Trading Advisor,
Inc. (20%).
The percentage of net assets allocated to each trading advisor of Spectrum
Global Balanced and Spectrum Strategic as of March 1, 2008, as set forth above,
supplements the table under "Use of Proceeds" on page 30 of the Spectrum Funds'
Prospectus dated November 9, 2007.
Should you have any questions concerning this report, please feel free to
contact Demeter Management Corporation, 522 Fifth Avenue, 13th Floor, New York,
NY 10036, or your Morgan Stanley Financial Advisor.
I hereby affirm, that to the best of my knowledge and belief, the information
contained in this report is accurate and complete. Past performance is no
guarantee of future results.
Sincerely,
/s/ Walter J. Davis
Walter J. Davis
Chairman of the Board of Directors and President
Demeter Management Corporation,
General Partner of
Morgan Stanley Spectrum Currency L.P.
Morgan Stanley Spectrum Global Balanced L.P.
Morgan Stanley Spectrum Select L.P.
Morgan Stanley Spectrum Strategic L.P.
Morgan Stanley Spectrum Technical L.P.
Managed futures investments are speculative, involve a high degree of risk, use
significant leverage, are generally illiquid, have substantial charges, are
subject to conflicts of interest, and are suitable only for the risk capital
portion of an investor's portfolio. Before investing in any managed futures
investment, qualified investors should read the prospectus or offering
documents carefully for additional information with respect to charges,
expenses, and risks. Past performance is no guarantee of future results.
This report is based on information from multiple sources and Morgan Stanley
makes no representation as to the accuracy or completeness of information from
sources outside of Morgan Stanley.
MORGAN STANLEY SPECTRUM CURRENCY L.P.
[CHART]
Year Ended
December 31, 2007
-----------------------
Australian dollar -0.32%
British pound 0.72%
Euro 4.79%
Japanese yen -2.17%
Swiss franc -2.44%
Minor Currencies -9.27%
Note:Reflects trading results only and does not include fees or interest income.
Minor currencies may include, but are not limited to, the South African
rand, Thai baht, Singapore dollar, Mexican peso, New Zealand dollar,
Polish zloty, Brazilian real, Norwegian krone, Czech koruna, Chilean peso,
and Russian ruble.
FACTORS INFLUENCING ANNUAL TRADING LOSSES:
.. The most significant trading losses were experienced throughout a majority
of the year from both short and long positions in the South African rand
versus the U.S. dollar as the value of the rand moved in a trendless pattern
due to investor uncertainty regarding the status of the South African
economy. Meanwhile, short positions in the Swiss franc versus the U.S.
dollar incurred losses primarily during February, March, July, August,
October, and November as the value of the Swiss franc reversed higher
against the U.S. dollar due to accelerating fears of inflation in
Switzerland and speculation that the Swiss National Bank would raise
interest rates. During December, newly established long positions in the
Swiss franc versus the U.S. dollar incurred further losses as the value of
the U.S. dollar moved higher against its major rivals during the first half
of the month following a smaller-than-expected interest rate cut by the U.S.
Federal Reserve. Losses were incurred during late February and early March
from short positions in the Japanese yen versus the U.S. dollar as the value
of the Japanese yen reversed sharply higher against the U.S. dollar in late
February due to a combination of factors including an almost 10% drop in the
Shanghai stock market and a warning from Rodrigo Rato, Managing Director of
the International Monetary Fund, that a weak yen "could lead to more
entrenched exchange rate misalignments that worsen global imbalances", which
encouraged traders to unwind short positions in the Japanese yen against
most of its major rivals. During July, August, and October, short positions
in the Japanese yen versus the U.S. dollar resulted in
MORGAN STANLEY SPECTRUM CURRENCY L.P.
FACTORS INFLUENCING ANNUAL TRADING LOSSES: (continued)
further losses as the value of the Japanese yen corrected higher against most
of its major rivals when traders reduced "carry-trade" positions after the
sell-off in the global equity markets resulted in investors trimming
"riskier" assets funded by loans in Japan. Finally, losses were experienced
from both short and long positions in the Japanese yen versus the U.S. dollar
during November and December as the value of the Japanese yen moved without
consistent direction due to the uncertainty regarding the future interest
rate policy of the Bank of Japan. Elsewhere, losses were recorded from short
positions in the Mexican peso versus the U.S. dollar as the value of the
Mexican peso moved higher during March and April on increased speculation of
an interest rate hike by the Bank of Mexico. Additional losses were incurred
during June, July, and August from newly established long positions in the
Mexican peso versus the U.S. dollar as the value of the Mexican peso reversed
lower leading up to and after the Bank of Mexico's decision to hold interest
rates steady at 7.25%. Lastly, smaller losses were recorded primarily during
January, February, May, August, November, and December from long positions in
the New Zealand dollar and Australian dollar versus the U.S. dollar as the
value of the U.S. dollar reversed higher against most of its major rivals due
to the aforementioned reasons regarding demand for U.S. dollar-denominated
government bonds.
FACTORS INFLUENCING ANNUAL TRADING GAINS:
.. Trading gains for the year were recorded primarily during March and April
from long positions in the euro versus the U.S. dollar as the value of the
euro moved higher against the U.S. dollar amid indications from European
Central Bank member Klaus Liebscher that interest rates in the Euro-Zone
would increase further if inflation continued to rise. During September and
October, additional gains were experienced from long positions in the euro
versus the U.S. dollar as the value of the U.S. dollar was pulled lower
leading up to and following the U.S. Federal Reserve's decision to cut
interest rates to 4.50%. Lastly, during November, long positions in the euro
relative to the U.S. dollar experienced additional gains as the euro
strengthened against the U.S. dollar after Gross Domestic Product in the
Euro-Zone came in higher than expected. Additional gains were experienced
throughout a majority of the year from long positions in the Brazilian real
versus the U.S. dollar as the value of the Brazilian real trended higher as
consistently strong economic data out of Brazil led to investor sentiment
that the Central Bank of Brazil would continue raising interest rates. In
December, long positions in the Brazilian real versus the U.S. dollar
achieved gains as the value of the U.S. dollar moved lower relative to its
major rivals amid investor sentiment that U.S. interest rates would continue
to decline.
MORGAN STANLEY SPECTRUM GLOBAL BALANCED L.P.
[CHART]
Year ended December 31, 2007
----------------------------
Currencies 0.14%
Interest Rates 4.07%
Stock Indices -5.83%
Energies 1.21%
Metals 1.25%
Agriculturals -0.10%
Note:Reflects trading results only and does not include fees or interest income.
FACTORS INFLUENCING ANNUAL TRADING GAINS:
.. The most significant trading gains were experienced in the global interest
rate sector during January, May, and June from short positions in U.S.,
German, and Japanese fixed-income futures as prices trended lower as
consistently strong economic data out of these countries resulted in reduced
demand for the "safe haven" of fixed-income investments. In addition, prices
moved higher on investor sentiment that these respective central banks would
need to raise interest rates in order to curb inflation. During August,
September, and November, newly established long positions in U.S., German,
and Japanese fixed-income futures resulted in gains as prices increased in a
continuation of a worldwide "flight-to-quality" after volatility in global
equity markets, spurred by losses in the U.S. sub-prime mortgage sector,
caused investors to seek the "safety" of government bonds.
.. Additional gains were recorded in the metals markets during February, March,
and April from long positions in nickel and copper futures as prices moved
higher on speculation that low stockpiles would create a supply shortage and
after the International Monetary Fund's strong global growth forecasts
bolstered sentiment that demand for base metals would increase. Further
gains were recorded from newly established short positions in nickel futures
as prices moved lower during June and November on news that China would cut
stainless steel output. Elsewhere in the metals complex, short positions in
silver futures resulted in gains during March and June as prices fell amid
speculative selling.
MORGAN STANLEY SPECTRUM GLOBAL BALANCED L.P.
FACTORS INFLUENCING ANNUAL TRADING GAINS: (continued)
.. Smaller gains were recorded in the energy markets during March, April, July,
and December from long futures positions in crude oil and its related
products as prices trended higher due to persistent concerns that
instability in Iraq and tension over Iran's nuclear program would negatively
affect global supply. In addition, energy prices increased amid continued
weakness in the U.S. dollar as U.S. dollar-denominated assets became more
attractive to investors.
FACTORS INFLUENCING ANNUAL TRADING LOSSES:
.. Trading losses for the year were recorded in the global stock index sector
during February and early March from long positions in U.S., European, and
Pacific Rim stock index futures as prices reversed sharply lower after a
massive sell-off in the global equity markets that began on February 27,
2007, following comments from former U.S. Federal Reserve Chairman Alan
Greenspan that the U.S. economy could be due for a recession. In addition,
worries that tighter credit conditions in China and Japan might dampen
global growth first sent Chinese stock markets plunging before the sell-off
spread to other equity markets. During July, August, November, and December,
long positions in U.S. and European equity index futures resulted in further
losses as prices fell sharply on concerns that a widening credit crunch,
sparked by U.S. sub-prime mortgage losses, would erode global economic
growth and corporate earnings. These concerns heightened after U.S. Federal
Reserve Chairman Bernanke told a congressional hearing on November 8, 2007,
that U.S. policy makers expected U.S. growth to "slow noticeably" in the
fourth quarter of 2007 and remain "sluggish" in the first half of 2008.
MORGAN STANLEY SPECTRUM SELECT L.P.
[CHART]
Year Ended
December 31, 2007
-----------------------
Currencies 6.14%
Interest Rates 5.67%
Stock Indices -3.25%
Energies 4.69%
Metals -1.23%
Agriculturals 0.88%
Note:Reflects trading results only and does not include fees or interest income.
FACTORS INFLUENCING ANNUAL TRADING GAINS:
.. The most significant trading gains were experienced in the currency sector
during April, May, June, September, and October from short positions in the
U.S. dollar versus the euro, Canadian dollar, Turkish lira, and Brazilian
real, as well as outright short positions in the U.S. Dollar Index, as the
value of the U.S. dollar weakened against most of its major rivals on
investor sentiment that the U.S. Federal Reserve would need to reduce
interest rates in order to prevent the U.S. economy from slowing.
.. Additional gains were recorded in the global interest rate sector primarily
during January, May, and June from short positions in European interest rate
futures as prices trended lower after consistently strong economic data out
of the United Kingdom and Germany resulted in reduced demand for the "safe
haven" of fixed-income investments. In addition, prices moved higher on
investor sentiment that the Bank of England and European Central Bank would
need to raise interest rates in order to curb inflation. During August and
November, newly established long positions in U.S. and Japanese interest
rate futures resulted in gains as prices increased in a continuation of a
worldwide "flight-to-quality" after volatility in the global equity markets,
spurred by losses in the U.S. sub-prime mortgage sector, caused investors to
seek the "safety" of government bonds.
MORGAN STANLEY SPECTRUM SELECT L.P.
FACTORS INFLUENCING ANNUAL TRADING GAINS: (continued)
.. Within the energy markets, gains were experienced primarily during July,
September, October, and December from long futures positions in crude oil
and its related products as prices moved higher amid persistent concerns
regarding U.S. refinery capacity and after continuous hurricane activity in
the Gulf of Mexico threatened production facilities. Prices continued to
increase amid rising tensions over Iran's nuclear program, continued
weakness in the U.S. dollar, and statements from senior OPEC officials
indicating that production would not be increased to pull prices lower.
.. Smaller gains were recorded in the agricultural markets during June, August,
and September from long positions in wheat futures as prices rose amid
persistently strong international demand and news from the U.S. Department
of Agriculture that global stockpiles would fall to the lowest level in 26
years. Elsewhere, long positions in soybean oil and soybean meal futures
resulted in gains primarily during May and June as prices moved higher after
a representative from the European Union announced plans to increase
alternative fuel sources and U.S. government reports showed that soybean
acreage was down from a year earlier. During November and December, further
gains were experienced from long futures positions in the soybean complex
and wheat as prices moved higher due to further data indicating dwindling
global supplies.
FACTORS INFLUENCING ANNUAL TRADING LOSSES:
.. Trading losses for the year were recorded in the global stock index sector
during February and early March from long positions in Japanese and U.S.
stock index futures as prices reversed sharply lower after a massive
sell-off in the global equity markets that began on February 27, 2007,
following comments from former U.S. Federal Reserve Chairman Alan Greenspan
that the U.S. economy could be due for a recession. In addition, concerns
that tighter credit conditions in China and Japan might dampen global growth
first sent Chinese stock markets plunging before the sell-off spread to
other equity markets. During July, August, November, and December, long
positions in U.S. equity index futures resulted in further losses as prices
fell sharply on concerns that a widening credit crunch, sparked by U.S.
sub-prime mortgage losses, would erode global economic growth and corporate
earnings.
.. Finally, smaller losses were recorded in the metals markets throughout a
majority of the year from both short and long positions in silver and
aluminum futures as prices moved without consistent direction due to
conflicting data regarding supply and demand, as well as uncertainty
regarding the direction of the U.S. dollar. During November, long positions
in copper futures resulted in further losses as prices decreased on concerns
that global demand would weaken while inventories continued to rise.
MORGAN STANLEY SPECTRUM STRATEGIC L.P.
[CHART]
Year ended December 31, 2007
----------------------------
Currencies 0.03%
Interest Rates 1.49%
Stock Indices 1.54%
Energies 1.60%
Metals -2.84%
Agriculturals 8.19%
Note:Reflects trading results only and does not include fees or interest income.
FACTORS INFLUENCING ANNUAL TRADING GAINS:
.. The most significant trading gains were experienced in the agricultural
markets during January, February, June, and September from long futures
positions in soybeans and soybean meal as prices rose on speculative buying,
news of persistent global demand, and worries that drought conditions in the
U.S. South and flooding in the U.S. Midwest might have damaged crops.
Further gains were experienced during November and December from long
futures positions in the soybean complex as prices continued to move higher
amid speculation that the rising cost of oil would boost demand for
alternative biofuels made from crops. Elsewhere, long positions in cocoa
futures resulted in gains as prices moved higher during February, May, June,
September, and December on speculation that political tensions in the Ivory
Coast, the world's biggest cocoa producer, would limit production. During
May, September, November, and December, long positions in coffee futures
experienced gains as prices moved higher on concerns that adverse weather
conditions in Brazil and Vietnam would reduce supplies.
MORGAN STANLEY SPECTRUM STRATEGIC L.P.
FACTORS INFLUENCING ANNUAL TRADING GAINS: (continued)
.. Additional gains were recorded in the energy markets during January from
short futures positions in oil related products as prices declined on
skepticism that OPEC would cut production as much as originally pledged.
Towards the end of February, long futures positions in gasoline resulted in
gains as prices moved higher on increased concerns that unexpected refinery
shutdowns would curb fuel stockpiles in the future. During March, September,
October, and December, long futures positions in crude oil and its related
products recorded gains as prices increased due to persistent concerns that
instability in Iraq and tension over Iran's nuclear program would negatively
affect global supply. In addition, energy prices trended higher amid
continued weakness in the U.S. dollar as U.S. dollar-denominated assets
became more attractive to investors.
.. Within the global stock index sector, gains were recorded during January,
March, April, and May from long positions in German and Hong Kong equity
index futures as prices increased on continued optimism about the future of
the global economy, as well as strong corporate earnings and increased
merger and acquisition activity. During September and October, further gains
were experienced from long positions in Hong Kong stock index futures as
prices moved higher on sentiment that the easing U.S. Federal Reserve policy
would continue and strength in the technology sector.
.. Gains were also experienced in the global interest rate sector during
January, May, and June from short positions in U.S. interest rate futures as
prices fell amid consistently strong economic data and rising equity prices.
During October, long positions in U.S. fixed-income futures experienced
gains toward the end of the month as prices increased after government
reports revealed that housing starts in the U.S. had plunged to a 14-year
low in September and sales of previously owned homes had fallen to the
lowest level in eight years. Further gains were recorded during November
from long positions in U.S. fixed-income futures as prices continued to
increase following a sharp decline in global equity markets and forecasts of
deeper losses related to sub-prime investments, which fueled speculation
that the U.S. Federal Reserve would need to reduce borrowing costs in
response to widespread fears of an economic decline.
FACTORS INFLUENCING ANNUAL TRADING LOSSES:
.. Trading losses were experienced in the metals markets throughout a majority
of the year from long positions in zinc and aluminum futures as prices
reversed sharply lower due to rising global inventories. In addition, prices
continued to weaken on speculation that a possible slowing of the global
economy due to the U.S. sub-prime mortgage crisis would reduce future demand
for base metals.
MORGAN STANLEY SPECTRUM TECHNICAL L.P.
[CHART]
Year ended December 31, 2007
----------------------------
Currencies -0.65%
Interest Rates 2.26%
Stock Indices -3.40%
Energies 0.24%
Metals -2.27%
Agriculturals -0.11%
Note:Reflects trading results only and does not include fees or interest income.
FACTORS INFLUENCING ANNUAL TRADING LOSSES:
.. The most significant trading losses were recorded in the global stock index
markets primarily during February and early March from long positions in
U.S. and European stock index futures as prices reversed sharply lower after
a massive sell-off in the global equity markets that began on February 27,
2007, following comments from former U.S. Federal Reserve Chairman Alan
Greenspan that the U.S. economy could be due for a recession. In addition,
worries that tighter credit conditions in China and Japan might dampen
global growth first sent Chinese stock markets plunging before the sell-off
spread to other equity markets. During July, August, November, and December,
long positions in U.S. and European equity index futures resulted in further
losses as prices fell sharply on concerns that a widening credit crunch,
sparked by U.S. sub-prime mortgage losses, would erode global economic
growth and corporate earnings.
.. Additional losses were experienced in the metals markets primarily during
March, May, June, and August from long positions in copper, aluminum, and
zinc futures as prices moved lower due to rising global inventories. In
addition, prices continued to weaken on speculation that a possible slowing
of the global economy due to the U.S. sub-prime mortgage crisis would reduce
future demand for base metals. Elsewhere in the metals markets, long
positions in gold and silver futures resulted in losses during May, June,
and November as prices fell amid heavy speculative selling.
MORGAN STANLEY SPECTRUM TECHNICAL L.P.
FACTORS INFLUENCING ANNUAL TRADING LOSSES: (continued)
.. Smaller losses were incurred within the currency markets, primarily during
February and early March from short positions in the Japanese yen versus the
U.S. dollar as the value of the Japanese yen reversed sharply higher against
its major rivals due to a combination of factors including an almost 10%
drop in the Shanghai stock market and a warning from Rodrigo Rato, Managing
Director of the International Monetary Fund, that a weak Japanese yen "could
lead to more entrenched exchange rate misalignments that worsen global
imbalances", which encouraged traders to unwind short positions in the
Japanese yen against most of its major rivals. During July, August, and
November, further losses were incurred from short positions in the Japanese
yen versus the U.S. dollar as the value of the Japanese yen strengthened
against most of its major rivals after traders reduced "carry-trade"
positions as the sell-off in the global equity markets during July and
August resulted in investors trimming "riskier" assets funded by loans in
Japan. Meanwhile, long positions in the Swedish krona versus the euro and
U.S. dollar resulted in losses during February as the value of the Swedish
krona weakened after Riksbank Governor, Stefan Ingves, indicated that
inflationary pressures were slowing in Sweden. Elsewhere, long positions in
the British pound versus the U.S. dollar recorded losses during February,
August, November, and December as the value of the U.S. dollar reversed
higher against the British pound due to substantially stronger demand for
U.S. dollar-denominated government bonds amid continuing credit market
losses and uncertainty regarding the future direction of the global economy.
Finally, during November and December, long positions in the Canadian dollar
versus the U.S. dollar experienced losses as the value of the Canadian
dollar declined on concerns that a possible slowdown in the U.S. economy
might negatively impact future demand for Canadian exports.
FACTORS INFLUENCING ANNUAL TRADING GAINS:
.. Trading gains for the year were experienced in the global interest rates
markets primarily during the second quarter from short positions in U.S. and
British fixed-income futures as prices trended lower amid strength in
regional equity markets and rising housing prices in the United States and
United Kingdom. During November, long positions in U.S. fixed-income futures
resulted in further gains as prices increased following a sharp decline in
global equity markets and forecasts of deeper mortgage-related losses, which
spurred demand for the "safe haven" of government debt.
.. Smaller gains were experienced in the energy markets during January from
short futures positions in oil related products as prices declined on
skepticism that OPEC would cut production as much as originally pledged.
Further gains in the energy markets were experienced during September,
October, and December from long positions in oil related products as prices
trended higher due to geopolitical concerns regarding instability in Iraq
and Iran's nuclear program. Lastly, prices moved higher as a weaker U.S.
dollar resulted in bargain hunting by investors regarding U.S.
dollar-denominated investments.
MORGAN STANLEY SPECTRUM SERIES
MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Demeter Management Corporation ("Demeter"), the general partner of Morgan
Stanley Spectrum Currency L.P., Morgan Stanley Spectrum Global Balanced L.P.,
Morgan Stanley Spectrum Select L.P., Morgan Stanley Spectrum Strategic L.P.,
and Morgan Stanley Spectrum Technical L.P. (individually, a "Partnership", or
collectively, the "Partnerships"), is responsible for the management of the
Partnerships.
Management of Demeter ("Management") is responsible for establishing and
maintaining adequate internal control over financial reporting. The internal
control over financial reporting is designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally
accepted accounting principles.
The Partnerships' internal control over financial reporting includes those
policies and procedures that:
.. Pertain to the maintenance of records that, in reasonable detail, accurately
and fairly reflect the transactions and dispositions of the assets of the
Partnerships;
.. Provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally
accepted accounting principles, and that the Partnerships' transactions are
being made only in accordance with authorizations of Management and
directors; and
.. Provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the Partnerships' assets
that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of each Partnership's internal control
over financial reporting as of December 31, 2007. In making this assessment,
Management used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission in Internal Control--Integrated
Framework. Based on our assessment and those criteria, Management believes that
each Partnership maintained effective internal control over financial reporting
as of December 31, 2007.
Deloitte & Touche LLP, the Partnerships' independent registered public
accounting firm, has issued an audit report on the Partnerships' internal
control over financial reporting. This report, which expresses an unqualified
opinion on Management's assessment and on the effectiveness of the
Partnerships' internal control over financial reporting, appears under "Report
of Independent Registered Public Accounting Firm" on the following page.
/s/ Walter J. Davis
Walter J. Davis
President
Demeter Management Corporation
/s/ Christian M. Angstadt
Christian M. Angstadt
Chief Financial Officer
Demeter Management Corporation
New York, New York
March 20, 2008
MORGAN STANLEY SPECTRUM SERIES
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Limited Partners and the General Partner of Morgan Stanley Spectrum
Currency L.P., Morgan Stanley Spectrum Global Balanced L.P., Morgan Stanley
Spectrum Select L.P., Morgan Stanley Spectrum Strategic L.P., and Morgan
Stanley Spectrum Technical L.P. :
We have audited the internal control over financial reporting of Morgan
Stanley Spectrum Currency L.P., Morgan Stanley Spectrum Global Balanced L.P.,
Morgan Stanley Spectrum Select L.P., Morgan Stanley Spectrum Strategic L.P.,
and Morgan Stanley Spectrum Technical L.P. (collectively, the "Partnerships")
as of December 31, 2007, based on criteria established in Internal
Control--Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. The Partnerships' management is
responsible for maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control over financial
reporting, included in the accompanying Management's Report on Internal Control
Over Financial Reporting. Our responsibility is to express an opinion on the
Partnerships' internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness
exists, testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk, and performing such other
procedures as we considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinions.
A company's internal control over financial reporting is a process designed
by, or under the supervision of, the company's principal executive and
principal financial officers, or persons performing similar functions, and
effected by the company's board of directors, management, and other personnel
to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company's
internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the
assets of the company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company's assets that could have a
material effect on the financial statements.
Because of the inherent limitations of internal control over financial
reporting, including the possibility of collusion or improper management
override of controls, material misstatements due to error or fraud may not be
prevented or detected on a timely basis. Also, projections of any evaluation of
the effectiveness of the internal control over financial reporting to future
periods are subject to the risk that the controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
In our opinion, the Partnerships maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2007,
based on the criteria established in Internal Control--Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the financial statements as of and
for the year ended December 31, 2007 of the Partnerships and our report dated
March 20, 2008 expressed an unqualified opinion on those financial statements.
/s/ Deloitte & Touche LLP
New York, New York
March 20, 2008
MORGAN STANLEY SPECTRUM SERIES
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Limited Partners and the General Partner of Morgan Stanley Spectrum
Currency L.P., Morgan Stanley Spectrum Global Balanced L.P., Morgan Stanley
Spectrum Select L.P., Morgan Stanley Spectrum Strategic L.P., and Morgan
Stanley Spectrum Technical L.P. :
We have audited the accompanying statements of financial condition of Morgan
Stanley Spectrum Currency L.P., Morgan Stanley Spectrum Global Balanced L.P.,
Morgan Stanley Spectrum Select L.P., Morgan Stanley Spectrum Strategic L.P.,
and Morgan Stanley Spectrum Technical L.P. (collectively, the "Partnerships"),
including the schedules of investments, as of December 31, 2007 and 2006, and
the related statements of operations, changes in partners' capital, and cash
flows for each of the three years in the period ended December 31, 2007. These
financial statements are the responsibility of the Partnerships' management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Morgan Stanley Spectrum Currency L.P.,
Morgan Stanley Spectrum Global Balanced L.P., Morgan Stanley Spectrum Select
L.P., Morgan Stanley Spectrum Strategic L.P., and Morgan Stanley Spectrum
Technical L.P. at December 31, 2007 and 2006, and the results of their
operations, changes in partners' capital, and their cash flows for each of the
three years in the period ended December 31, 2007, in conformity with
accounting principles generally accepted in the United States of America.
As discussed in Note 1, the Partnerships modified their classification of
cash within the statements of financial condition and cash flows and modified
their presentation of options within the statements of financial condition to
conform to 2007 presentation.
We have also audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the Partnerships' internal control
over financial reporting as of December 31, 2007, based on the criteria
established in Internal Control--Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission and our report dated
March 20, 2008 expressed an unqualified opinion on the Partnerships' internal
control over financial reporting.
/s/ Deloitte & Touche LLP
New York, New York
March 20, 2008
MORGAN STANLEY SPECTRUM CURRENCY L.P.
STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31,
--------------------------
2007 2006
------------ ------------
$ $
ASSETS
Trading Equity:
Unrestricted cash 110,971,546 161,460,117
Restricted cash 2,985,523 1,277,000
------------ ------------
Total Cash 113,957,069 162,737,117
Net unrealized gain (loss) on open contracts (MS&Co.) (1,397,223) 4,534,033
Options purchased (proceeds paid $29,116 and $0,
respectively) 14,874 --
------------ ------------
Total Trading Equity 112,574,720 167,271,150
Subscriptions receivable 490,292 759,216
Interest receivable (MS&Co.) 228,618 560,751
------------ ------------
Total Assets 113,293,630 168,591,117
============ ============
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES
Redemptions payable 4,968,209 4,643,347
Accrued brokerage fees (MS&Co.) 436,938 626,181
Options written (premiums received $217,974 and $0,
respectively) 370,766 --
Accrued management fees 189,973 272,253
------------ ------------
Total Liabilities 5,965,886 5,541,781
------------ ------------
PARTNERS' CAPITAL
Limited Partners (10,795,995.838 and
14,173,942.826 Units, respectively) 106,178,308 161,303,764
General Partner (116,872.343 and
153,385.343 Units, respectively) 1,149,436 1,745,572
------------ ------------
Total Partners' Capital 107,327,744 163,049,336
------------ ------------
Total Liabilities and Partners' Capital 113,293,630 168,591,117
============ ============
NET ASSET VALUE PER UNIT 9.84 11.38
============ ============
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------------
2007 2006 2005
-------------- -------------- --------------
$ $ $
INVESTMENT INCOME
Interest income (MS&Co.) 4,909,004 6,632,240 5,391,828
-------------- -------------- --------------
EXPENSES
Brokerage fees (MS&Co.) 6,410,711 8,151,647 10,921,579
Management fees 2,787,267 3,544,196 4,748,514
-------------- -------------- --------------
Total Expenses 9,197,978 11,695,843 15,670,093
-------------- -------------- --------------
NET INVESTMENT LOSS (4,288,974) (5,063,603) (10,278,265)
-------------- -------------- --------------
TRADING RESULTS
Trading loss:
Realized (9,603,925) (1,843,404) (28,979,835)
Net change in unrealized (6,098,290) (1,668,161) (10,445,759)
-------------- -------------- --------------
Total Trading Results (15,702,215) (3,511,565) (39,425,594)
-------------- -------------- --------------
NET LOSS (19,991,189) (8,575,168) (49,703,859)
============== ============== ==============
NET LOSS ALLOCATION:
Limited Partners (19,782,415) (8,482,159) (49,177,845)
General Partner (208,774) (93,009) (526,014)
NET LOSS PER UNIT:
Limited Partners (1.54) (0.40) (2.63)
General Partner (1.54) (0.40) (2.63)
UNITS UNITS UNITS
-------------- -------------- --------------
WEIGHTED AVERAGE NUMBER
OF UNITS OUTSTANDING 12,853,813.902 16,060,812.779 19,118,465.909
The accompanying notes are an integral part of these financial statements.
MORGAN STANLEY SPECTRUM GLOBAL BALANCED L.P.
STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31,
------------------------
2007 2006
----------- -----------
$ $
ASSETS
Trading Equity:
Unrestricted cash 30,786,525 36,467,808
Restricted cash 3,622,932 3,414,695
----------- -----------
Total Cash 34,409,457 39,882,503
----------- -----------
Net unrealized gain on open contracts (MS&Co.) 983,371 1,135,527
Net unrealized gain (loss) on open contracts (MSIP) (27,480) 56,239
----------- -----------
Total net unrealized gain on open contracts 955,891 1,191,766
Options purchased (proceeds paid $9,251 and $0,
respectively) 3,970 --
----------- -----------
Total Trading Equity 35,369,318 41,074,269
Interest receivable (MS&Co.) 90,968 179,223
Subscriptions receivable 48,065 224,965
----------- -----------
Total Assets 35,508,351 41,478,457
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES
Redemptions payable 415,302 919,278
Accrued brokerage fees (MS&Co.) 136,898 158,727
Accrued management fees 44,641 43,132
----------- -----------
Total Liabilities 596,841 1,121,137
----------- -----------
PARTNERS' CAPITAL
Limited Partners (2,209,862.669 and
2,558,814.213 Units, respectively) 34,537,771 39,917,674
General Partner (23,913.331 and
28,182.331 Units, respectively) 373,739 439,646
----------- -----------
Total Partners' Capital 34,911,510 40,357,320
----------- -----------
Total Liabilities and Partners' Capital 35,508,351 41,478,457
=========== ===========
NET ASSET VALUE PER UNIT 15.63 15.60
=========== ===========
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------------
2007 2006 2005
------------- ------------- -------------
$ $ $
INVESTMENT INCOME
Interest income (MS&Co.) 1,712,782 2,044,009 1,370,806
------------- ------------- -------------
EXPENSES
Brokerage fees (MS&Co.) 1,733,526 1,987,699 2,126,114
Management fees 478,507 540,137 577,754
------------- ------------- -------------
Total Expenses 2,212,033 2,527,836 2,703,868
------------- ------------- -------------
NET INVESTMENT LOSS (499,251) (483,827) (1,333,062)
------------- ------------- -------------
TRADING RESULTS
Trading profit (loss):
Realized 783,064 981,659 3,338,207
Net change in unrealized (241,156) 589,128 (214,685)
------------- ------------- -------------
541,908 1,570,787 3,123,522
Proceeds from Litigation Settlement -- -- 2,230
------------- ------------- -------------
Total Trading Results 541,908 1,570,787 3,125,752
------------- ------------- -------------
NET INCOME 42,657 1,086,960 1,792,690
============= ============= =============
NET INCOME (LOSS) ALLOCATION:
Limited Partners 43,079 1,074,038 1,769,412
General Partner (422) 12,922 23,278
NET INCOME PER UNIT:
Limited Partners 0.03 0.37 0.62
General Partner 0.03 0.37 0.62
UNITS UNITS UNITS
------------- ------------- -------------
WEIGHTED AVERAGE NUMBER
OF UNITS OUTSTANDING 2,409,953.413 2,765,969.544 3,174,202.575
The accompanying notes are an integral part of these financial statements.
MORGAN STANLEY SPECTRUM SELECT L.P.
STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31,
-------------------------
2007 2006
------------ ------------
$ $
ASSETS
Trading Equity:
Unrestricted cash 475,137,768 471,264,633
Restricted cash 44,662,254 65,625,445
------------ ------------
Total Cash 519,800,022 536,890,078
------------ ------------
Net unrealized gain on open contracts (MS&Co.) 8,888,890 11,039,855
Net unrealized gain on open contracts (MSIP) 773,528 921,756
------------ ------------
Total net unrealized gain on open contracts 9,662,418 11,961,611
Options purchased (proceeds paid $378,156 and $0,
respectively) 324,788 --
------------ ------------
Total Trading Equity 529,787,228 548,851,689
Subscriptions receivable 3,061,382 4,725,710
Interest receivable (MS&Co.) 1,063,195 1,858,406
------------ ------------
Total Assets 533,911,805 555,435,805
============ ============
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES
Redemptions payable 7,030,875 7,988,976
Accrued brokerage fees (MS&Co.) 2,636,618 2,727,852
Accrued management fees 1,049,154 1,196,492
Accrued incentive fee 16,603 --
------------ ------------
Total Liabilities 10,733,250 11,913,320
------------ ------------
PARTNERS' CAPITAL
Limited Partners (16,562,641.240 and
18,501,387.237 Units, respectively) 517,496,723 537,667,844
General Partner (181,848.769 and
201,460.769 Units, respectively) 5,681,832 5,854,641
------------ ------------
Total Partners' Capital 523,178,555 543,522,485
------------ ------------
Total Liabilities and Partners' Capital 533,911,805 555,435,805
============ ============
NET ASSET VALUE PER UNIT 31.24 29.06
============ ============
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------------
2007 2006 2005
-------------- -------------- --------------
$ $ $
INVESTMENT INCOME
Interest income (MS&Co.) 18,812,196 20,639,273 12,876,956
-------------- -------------- --------------
EXPENSES
Brokerage fees (MS&Co.) 31,522,666 32,847,913 36,601,881
Management fees 13,731,691 15,437,482 15,652,447
Incentive fee 1,066,450 -- --
-------------- -------------- --------------
Total Expenses 46,320,807 48,285,395 52,254,328
-------------- -------------- --------------
NET INVESTMENT LOSS (27,508,611) (27,646,122) (39,377,372)
-------------- -------------- --------------
TRADING RESULTS
Trading profit (loss):
Realized 67,781,315 64,987,687 7,018,678
Net change in unrealized (2,352,561) (6,224,193) 3,059,181
-------------- -------------- --------------
65,428,754 58,763,494 10,077,859
Proceeds from Litigation Settlement -- -- 85,000
-------------- -------------- --------------
Total Trading Results 65,428,754 58,763,494 10,162,859
-------------- -------------- --------------
NET INCOME (LOSS) 37,920,143 31,117,372 (29,214,513)
============== ============== ==============
NET INCOME (LOSS) ALLOCATION:
Limited Partners 37,498,154 30,776,254 (28,920,794)
General Partner 421,989 341,118 (293,719)
NET INCOME (LOSS) PER UNIT:
Limited Partners 2.18 1.61 (1.43)
General Partner 2.18 1.61 (1.43)
UNITS UNITS UNITS
-------------- -------------- --------------
WEIGHTED AVERAGE NUMBER
OF UNITS OUTSTANDING 17,899,555.783 19,024,271.988 20,594,294.424
The accompanying notes are an integral part of these financial statements.
MORGAN STANLEY SPECTRUM STRATEGIC L.P.
STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31,
-----------------------
2007 2006
----------- -----------
$ $
ASSETS
Trading Equity:
Unrestricted cash 178,248,988 172,106,122
Restricted cash 27,652,056 20,983,647
----------- -----------
Total Cash 205,901,044 193,089,769
----------- -----------
Net unrealized gain on open contracts (MS&Co.) 9,057,511 7,890,783
Net unrealized gain on open contracts (MSIP) 835,498 9,283,006
----------- -----------
Total net unrealized gain on open contracts 9,893,009 17,173,789
Options purchased (proceeds paid $837,554 and
$1,187,646, respectively) 695,481 1,279,240
----------- -----------
Total Trading Equity 216,489,534 211,542,798
Subscriptions receivable 3,398,937 2,601,546
Interest receivable (MS&Co.) 421,265 670,338
----------- -----------
Total Assets 220,309,736 214,814,682
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES
Redemptions payable 2,892,540 3,111,834
Accrued brokerage fees (MS&Co.) 1,051,799 1,024,464
Accrued management fees 420,720 478,411
Options written (premiums received $631,414 and
$507,517, respectively) 314,263 722,909
Accrued incentive fee 102,353 --
----------- -----------
Total Liabilities 4,781,675 5,337,618
----------- -----------
PARTNERS' CAPITAL
Limited Partners (11,838,347.676 and
12,087,045.247 Units, respectively) 213,167,590 207,238,137
General Partner (131,089.692 and
130,584.135 Units, respectively) 2,360,471 2,238,927
----------- -----------
Total Partners' Capital 215,528,061 209,477,064
----------- -----------
Total Liabilities and Partners' Capital 220,309,736 214,814,682
=========== ===========
NET ASSET VALUE PER UNIT 18.01 17.15
=========== ===========
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------------
2007 2006 2005
-------------- -------------- --------------
$ $ $
INVESTMENT INCOME
Interest income (MS&Co.) 7,376,760 6,908,530 4,008,536
-------------- -------------- --------------
EXPENSES
Brokerage fees (MS&Co.) 12,796,668 11,319,725 11,407,747
Management fees 5,908,989 5,266,764 4,685,477
Incentive fees 698,113 5,369,200 2,251,786
-------------- -------------- --------------
Total Expenses 19,403,770 21,955,689 18,345,010
-------------- -------------- --------------
NET INVESTMENT LOSS (12,027,010) (15,047,159) (14,336,474)
-------------- -------------- --------------
TRADING RESULTS
Trading profit (loss):
Realized 29,578,391 47,135,224 (2,036,361)
Net change in unrealized (6,981,904) 3,564,208 10,826,414
-------------- -------------- --------------
22,596,487 50,699,432 8,790,053
Proceeds from Litigation Settlement -- -- 454
-------------- -------------- --------------
Total Trading Results 22,596,487 50,699,432 8,790,507
-------------- -------------- --------------
NET INCOME (LOSS) 10,569,477 35,652,273 (5,545,967)
============== ============== ==============
NET INCOME (LOSS) ALLOCATION:
Limited Partners 10,454,002 35,264,632 (5,489,130)
General Partner 115,475 387,641 (56,837)
NET INCOME (LOSS) PER UNIT:
Limited Partners 0.86 2.97 (0.38)
General Partner 0.86 2.97 (0.38)
UNITS UNITS UNITS
-------------- -------------- --------------
WEIGHTED AVERAGE NUMBER
OF UNITS OUTSTANDING 12,190,131.832 11,970,089.149 12,727,928.663
The accompanying notes are an integral part of these financial statements.
MORGAN STANLEY SPECTRUM TECHNICAL L.P.
STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31,
------------------------
2007 2006
----------- -----------
$ $
ASSETS
Trading Equity:
Unrestricted cash 522,722,048 616,475,593
Restricted cash 55,361,402 115,947,432
----------- -----------
Total Cash 578,083,450 732,423,025
----------- -----------
Net unrealized gain on open contracts (MS&Co.) 12,298,603 30,242,130
Net unrealized gain (loss) on open contracts (MSIP) (1,087,475) 1,537,347
----------- -----------
Total net unrealized gain on open contracts 11,211,128 31,779,477
Options purchased (proceeds paid $292,731 and
$150,677, respectively) 219,718 173,647
----------- -----------
Total Trading Equity 589,514,296 764,376,149
Subscriptions receivable 2,762,267 6,849,894
Interest receivable (MS&Co.) 1,201,347 2,538,494
----------- -----------
Total Assets 593,477,910 773,764,537
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES
Redemptions payable 10,327,244 11,571,388
Accrued brokerage fees (MS&Co.) 2,938,634 3,693,334
Accrued management fees 955,056 1,607,196
Accrued incentive fee 261,283 --
Options written (premiums received $164,046 and
$86,561, respectively) 96,035 71,661
----------- -----------
Total Liabilities 14,578,252 16,943,579
----------- -----------
PARTNERS' CAPITAL
Limited Partners (28,313,523.854 and
31,769,428.115 Units, respectively) 572,620,026 748,658,571
General Partner (310,500.001 and
346,372.001 Units, respectively) 6,279,632 8,162,387
----------- -----------
Total Partners' Capital 578,899,658 756,820,958
----------- -----------
Total Liabilities and Partners' Capital 593,477,910 773,764,537
=========== ===========
NET ASSET VALUE PER UNIT 20.22 23.57
=========== ===========
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------------
2007 2006 2005
-------------- -------------- --------------
$ $ $
INVESTMENT INCOME
Interest income (MS&Co.) 25,152,633 27,915,330 17,176,811
-------------- -------------- --------------
EXPENSES
Brokerage fees (MS&Co.) 41,846,536 44,839,676 49,430,024
Management fees 18,228,175 19,618,375 19,268,955
Incentive fees 5,585,417 6,762,802 2,668,447
-------------- -------------- --------------
Total Expenses 65,660,128 71,220,853 71,367,426
Management fee waived (1,306,736) -- --
-------------- -------------- --------------
Net Expenses 64,353,392 71,220,853 71,367,426
-------------- -------------- --------------
NET INVESTMENT LOSS (39,200,759) (43,305,523) (54,190,615)
-------------- -------------- --------------
TRADING RESULTS
Trading profit (loss):
Realized (43,429,844) 72,015,436 19,045,879
Net change in unrealized (20,611,221) 9,753,211 (5,277,614)
-------------- -------------- --------------
(64,041,065) 81,768,647 13,768,265
Proceeds from Litigation Settlement -- -- 4,209
-------------- -------------- --------------
Total Trading Results (64,041,065) 81,768,647 13,772,474
-------------- -------------- --------------
NET INCOME (LOSS) (103,241,824) 38,463,124 (40,418,141)
============== ============== ==============
NET INCOME (LOSS) ALLOCATION:
Limited Partners (102,064,643) 38,047,099 (39,990,714)
General Partner (1,177,181) 416,025 (427,427)
NET INCOME (LOSS) PER UNIT:
Limited Partners (3.35) 1.21 (1.27)
General Partner (3.35) 1.21 (1.27)
UNITS UNITS UNITS
-------------- -------------- --------------
WEIGHTED AVERAGE NUMBER
OF UNITS OUTSTANDING 30,918,611.010 32,179,375.785 33,933,657.327
The accompanying notes are an integral part of these financial statements.
MORGAN STANLEY SPECTRUM CURRENCY L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 2007, 2006, AND 2005
UNITS OF
PARTNERSHIP LIMITED GENERAL
INTEREST PARTNERS PARTNER TOTAL
-------------- ----------- --------- -----------
$ $ $
Partners' Capital,
December 31, 2004 18,954,389.185 270,231,305 2,869,425 273,100,730
Offering of Units 3,336,357.445 40,295,529 170,000 40,465,529
Net loss -- (49,177,845) (526,014) (49,703,859)
Redemptions (4,587,517.773) (55,149,719) (225,924) (55,375,643)
-------------- ----------- --------- -----------
Partners' Capital,
December 31, 2005 17,703,228.857 206,199,270 2,287,487 208,486,757
Offering of Units 1,518,069.025 16,510,816 -- 16,510,816
Net loss -- (8,482,159) (93,009) (8,575,168)
Redemptions (4,893,969.713) (52,924,163) (448,906) (53,373,069)
-------------- ----------- --------- -----------
Partners' Capital,
December 31, 2006 14,327,328.169 161,303,764 1,745,572 163,049,336
Offering of Units 612,283.271 6,526,442 -- 6,526,442
Net loss -- (19,782,415) (208,774) (19,991,189)
Redemptions (4,026,743.259) (41,869,483) (387,362) (42,256,845)
-------------- ----------- --------- -----------
Partners' Capital,
December 31, 2007 10,912,868.181 106,178,308 1,149,436 107,327,744
============== =========== ========= ===========
MORGAN STANLEY SPECTRUM GLOBAL BALANCED L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 2007, 2006, AND 2005
UNITS OF
PARTNERSHIP LIMITED GENERAL
INTEREST PARTNERS PARTNER TOTAL
------------- ----------- ------- -----------
$ $ $
Partners' Capital,
December 31, 2004 3,396,827.138 49,068,822 542,796 49,611,618
Offering of Units 345,735.053 4,999,666 -- 4,999,666
Net income -- 1,769,412 23,278 1,792,690
Redemptions (831,135.711) (11,967,738) (84,410) (12,052,148)
------------- ----------- ------- -----------
Partners' Capital,
December 31, 2005 2,911,426.480 43,870,162 481,664 44,351,826
Offering of Units 258,442.402 4,021,015 -- 4,021,015
Net income -- 1,074,038 12,922 1,086,960
Redemptions (582,872.338) (9,047,541) (54,940) (9,102,481)
------------- ----------- ------- -----------
Partners' Capital,
December 31, 2006 2,586,996.544 39,917,674 439,646 40,357,320
Offering of Units 186,872.225 2,900,452 -- 2,900,452
Net income (loss) -- 43,079 (422) 42,657
Redemptions (540,092.769) (8,323,434) (65,485) (8,388,919)
------------- ----------- ------- -----------
Partners' Capital,
December 31, 2007 2,233,776.000 34,537,771 373,739 34,911,510
============= =========== ======= ===========
The accompanying notes are an integral part of these financial statements.
MORGAN STANLEY SPECTRUM SELECT L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 2007, 2006, AND 2005
UNITS OF
PARTNERSHIP LIMITED GENERAL
INTEREST PARTNERS PARTNER TOTAL
-------------- ------------ --------- ------------
$ $ $
Partners' Capital,
December 31, 2004 20,263,823.593 579,155,164 6,150,961 585,306,125
Offering of Units 3,482,044.148 91,946,015 380,000 92,326,015
Net loss -- (28,920,794) (293,719) (29,214,513)
Redemptions (4,325,067.114) (114,981,595) (433,690) (115,415,285)
-------------- ------------ --------- ------------
Partners' Capital,
December 31, 2005 19,420,800.627 527,198,790 5,803,552 533,002,342
Offering of Units 2,664,130.689 76,905,995 -- 76,905,995
Net income -- 30,776,254 341,118 31,117,372
Redemptions (3,382,083.310) (97,213,195) (290,029) (97,503,224)
-------------- ------------ --------- ------------
Partners' Capital,
December 31, 2006 18,702,848.006 537,667,844 5,854,641 543,522,485
Offering of Units 1,690,719.727 49,551,232 -- 49,551,232
Net income -- 37,498,154 421,989 37,920,143
Redemptions (3,649,077.724) (107,220,507) (594,798) (107,815,305)
-------------- ------------ --------- ------------
Partners' Capital,
December 31, 2007 16,744,490.009 517,496,723 5,681,832 523,178,555
============== ============ ========= ============
MORGAN STANLEY SPECTRUM STRATEGIC L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 2007, 2006, AND 2005
UNITS OF
PARTNERSHIP LIMITED GENERAL
INTEREST PARTNERS PARTNER TOTAL
-------------- ----------- --------- -----------
$ $ $
Partners' Capital,
December 31, 2004 12,585,227.726 181,218,795 2,022,330 183,241,125
Offering of Units 2,346,340.284 31,611,503 -- 31,611,503
Net loss -- (5,489,130) (56,837) (5,545,967)
Redemptions (2,966,679.287) (39,566,716) (114,207) (39,680,923)
-------------- ----------- --------- -----------
Partners' Capital,
December 31, 2005 11,964,888.723 167,774,452 1,851,286 169,625,738
Offering of Units 2,517,218.118 40,403,751 -- 40,403,751
Net income -- 35,264,632 387,641 35,652,273
Redemptions (2,264,477.459) (36,204,698) -- (36,204,698)
-------------- ----------- --------- -----------
Partners' Capital,
December 31, 2006 12,217,629.382 207,238,137 2,238,927 209,477,064
Offering of Units 2,157,683.821 37,689,397 120,000 37,809,397
Net income -- 10,454,002 115,475 10,569,477
Redemptions (2,405,875.835) (42,213,946) (113,931) (42,327,877)
-------------- ----------- --------- -----------
Partners' Capital,
December 31, 2007 11,969,437.368 213,167,590 2,360,471 215,528,061
============== =========== ========= ===========
The accompanying notes are an integral part of these financial statements.
MORGAN STANLEY SPECTRUM TECHNICAL L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 2007, 2006, AND 2005
UNITS OF
PARTNERSHIP LIMITED GENERAL
INTEREST PARTNERS PARTNER TOTAL
-------------- ------------ ---------- ------------
$ $ $
Partners' Capital,
December 31, 2004 32,961,245.703 770,511,257 8,212,630 778,723,887
Offering of Units 6,431,314.024 139,226,034 480,000 139,706,034
Net loss -- (39,990,714) (427,427) (40,418,141)
Redemptions (7,045,625.892) (154,076,846) (518,841) (154,595,687)
-------------- ------------ ---------- ------------
Partners' Capital,
December 31, 2005 32,346,933.835 715,669,731 7,746,362 723,416,093
Offering of Units 5,449,636.682 127,236,707 -- 127,236,707
Net income -- 38,047,099 416,025 38,463,124
Redemptions (5,680,770.401) (132,294,966) -- (132,294,966)
-------------- ------------ ---------- ------------
Partners' Capital,
December 31, 2006 32,115,800.116 748,658,571 8,162,387 756,820,958
Offering of Units 2,927,214.256 65,566,835 -- 65,566,835
Net loss -- (102,064,643) (1,177,181) (103,241,824)
Redemptions (6,418,990.517) (139,540,737) (705,574) (140,246,311)
-------------- ------------ ---------- ------------
Partners' Capital,
December 31, 2007 28,624,023.855 572,620,026 6,279,632 578,899,658
============== ============ ========== ============
The accompanying notes are an integral part of these financial statements.
MORGAN STANLEY SPECTRUM CURRENCY L.P.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------
2007 2006 2005
------------ ----------- -----------
$ $ $
CASH FLOWS FROM
OPERATING ACTIVITIES
Net loss (19,991,189) (8,575,168) (49,703,859)
Noncash item included in net loss:
Net change in unrealized 6,098,290 1,668,161 10,445,759
(Increase) decrease in operating
assets:
Restricted cash (1,708,523) (601,000) 1,166,680
Net option premiums 188,858 -- --
Interest receivable (MS&Co.) 332,133 (768) (244,444)
Decrease in operating liabilities:
Accrued brokerage fees (MS&Co.) (189,243) (235,950) (145,868)
Accrued management fees (82,280) (102,587) (63,421)
------------ ----------- -----------
Net cash used for operating activities (15,351,954) (7,847,312) (38,545,153)
------------ ----------- -----------
CASH FLOWS FROM
FINANCING ACTIVITIES
Cash received from offering of Units 6,795,366 17,106,804 45,800,729
Cash paid for redemptions of Units (41,931,983) (55,076,000) (51,528,518)
------------ ----------- -----------
Net cash used for financing activities (35,136,617) (37,969,196) (5,727,789)
------------ ----------- -----------
Net decrease in unrestricted cash (50,488,571) (45,816,508) (44,272,942)
Unrestricted cash at beginning of
period 161,460,117 207,276,625 251,549,567
------------ ----------- -----------
Unrestricted cash at end of period 110,971,546 161,460,117 207,276,625
============ =========== ===========
The accompanying notes are an integral part of these financial statements.
MORGAN STANLEY SPECTRUM GLOBAL BALANCED L.P.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------
2007 2006 2005
------------ ---------- -----------
$ $ $
CASH FLOWS FROM
OPERATING ACTIVITIES
Net income 42,657 1,086,960 1,792,690
Noncash item included in net income:
Net change in unrealized 241,156 (589,128) 214,685
(Increase) decrease in operating assets:
Restricted cash (208,237) (835,091) 1,452,795
Net option premiums (9,251) -- --
Interest receivable (MS&Co.) 88,255 (30,183) (65,068)
Increase (decrease) in operating
liabilities:
Accrued brokerage fees (MS&Co.) (21,829) (13,249) (16,460)
Accrued management fees 1,509 (3,601) (4,473)
------------ ---------- -----------
Net cash provided by (used for)
operating activities 134,260 (384,292) 3,374,169
------------ ---------- -----------
CASH FLOWS FROM
FINANCING ACTIVITIES
Cash received from offering of Units 3,077,352 4,092,049 5,343,828
Cash paid for redemptions of Units (8,892,895) (9,034,848) (11,783,215)
------------ ---------- -----------
Net cash used for financing activities (5,815,543) (4,942,799) (6,439,387)
------------ ---------- -----------
Net decrease in unrestricted cash (5,681,283) (5,327,091) (3,065,218)
Unrestricted cash at beginning of
period 36,467,808 41,794,899 44,860,117
------------ ---------- -----------
Unrestricted cash at end of period 30,786,525 36,467,808 41,794,899
============ ========== ===========
The accompanying notes are an integral part of these financial statements.
MORGAN STANLEY SPECTRUM SELECT L.P.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------
2007 2006 2005
------------ ------------ ------------
$ $ $
CASH FLOWS FROM
OPERATING ACTIVITIES
Net income (loss) 37,920,143 31,117,372 (29,214,513)
Noncash item included in net
income (loss):
Net change in unrealized 2,352,561 6,224,193 (3,059,181)
(Increase) decrease in operating
assets:
Restricted cash 20,963,191 (13,525,098) 24,987,115
Net option premiums (378,156) -- 3,366,493
Interest receivable (MS&Co.) 795,211 (440,959) (659,466)
Increase (decrease) in operating
liabilities:
Accrued brokerage fees (MS&Co.) (91,234) (2,220) (738,682)
Accrued management fees (147,338) (99,004) (60,615)
Accrued incentive fee 16,603 -- --
------------ ------------ ------------
Net cash provided by (used for)
operating activities 61,430,981 23,274,284 (5,378,849)
------------ ------------ ------------
CASH FLOWS FROM
FINANCING ACTIVITIES
Cash received from offering of Units 51,215,560 76,635,498 100,607,663
Cash paid for redemptions of Units (108,773,406) (102,954,101) (107,667,647)
------------ ------------ ------------
Net cash used for financing activities (57,557,846) (26,318,603) (7,059,984)
------------ ------------ ------------
Net increase (decrease) in unrestricted
cash 3,873,135 (3,044,319) (12,438,833)
Unrestricted cash at beginning of
period 471,264,633 474,308,952 486,747,785
------------ ------------ ------------
Unrestricted cash at end of period 475,137,768 471,264,633 474,308,952
============ ============ ============
The accompanying notes are an integral part of these financial statements.
MORGAN STANLEY SPECTRUM STRATEGIC L.P.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------
2007 2006 2005
----------- ----------- -----------
$ $ $
CASH FLOWS FROM
OPERATING ACTIVITIES
Net income (loss) 10,569,477 35,652,273 (5,545,967)
Noncash item included in net
income (loss):
Net change in unrealized 6,981,904 (3,564,208) (10,826,414)
(Increase) decrease in operating
assets:
Restricted cash (6,668,409) 2,176,173 (6,214,615)
Net option premiums 473,989 (680,697) 263,856
Interest receivable (MS&Co.) 249,073 (224,414) (207,268)
Increase (decrease) in operating
liabilities:
Accrued brokerage fees (MS&Co.) 27,335 186,906 (243,247)
Accrued management fees (57,691) 97,384 (28,870)
Accrued incentive fees 102,353 (1,704,356) 1,515,612
----------- ----------- -----------
Net cash provided by (used for)
operating activities 11,678,031 31,939,061 (21,286,913)
----------- ----------- -----------
CASH FLOWS FROM
FINANCING ACTIVITIES
Cash received from offering of Units 37,012,006 39,153,750 35,344,084
Cash paid for redemptions of Units (42,547,171) (37,607,869) (36,891,247)
----------- ----------- -----------
Net cash provided by (used for)
financing activities (5,535,165) 1,545,881 (1,547,163)
----------- ----------- -----------
Net increase (decrease) in
unrestricted cash 6,142,866 33,484,942 (22,834,076)
Unrestricted cash at beginning of
period 172,106,122 138,621,180 161,455,256
----------- ----------- -----------
Unrestricted cash at end of period 178,248,988 172,106,122 138,621,180
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
MORGAN STANLEY SPECTRUM TECHNICAL L.P.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------
2007 2006 2005
------------ ------------ ------------
$ $ $
CASH FLOWS FROM
OPERATING ACTIVITIES
Net income (loss) (103,241,824) 38,463,124 (40,418,141)
Noncash item included in net
income (loss):
Net change in unrealized 20,611,221 (9,753,211) 5,277,614
(Increase) decrease in operating
assets:
Restricted cash 60,586,030 21,648,903 24,613,604
Net option premiums (64,569) (64,116) --
Interest receivable (MS&Co.) 1,337,147 (651,160) (887,041)
Increase (decrease) in operating
liabilities:
Accrued brokerage fees (MS&Co.) (754,700) (81,816) (854,838)
Accrued management fees (652,140) (21,993) (2,851)
Accrued incentive fee 261,283 -- --
------------ ------------ ------------
Net cash provided by (used for)
operating activities (21,917,552) 49,539,731 (12,271,653)
------------ ------------ ------------
CASH FLOWS FROM
FINANCING ACTIVITIES
Cash received from offering of Units 69,654,462 128,704,132 148,524,367
Cash paid for redemptions of Units (141,490,455) (143,586,833) (138,199,116)
------------ ------------ ------------
Net cash provided by (used for)
financing activities (71,835,993) (14,882,701) 10,325,251
------------ ------------ ------------
Net increase (decrease) in
unrestricted cash (93,753,545) 34,657,030 (1,946,402)
Unrestricted cash at beginning of
period 616,475,593 581,818,563 583,764,965
------------ ------------ ------------
Unrestricted cash at end of period 522,722,048 616,475,593 581,818,563
============ ============ ============
The accompanying notes are an integral part of these financial statements.
MORGAN STANLEY SPECTRUM CURRENCY L.P.
SCHEDULES OF INVESTMENTS
DECEMBER 31, 2007 AND 2006
LONG UNREALIZED PERCENTAGE SHORT UNREALIZED PERCENTAGE NET UNREALIZED
FUTURES AND FORWARD CONTRACTS: GAIN/(LOSS) OF NET ASSETS GAIN/(LOSS) OF NET ASSETS GAIN/(LOSS)
- ------------------------------ --------------- ------------- ---------------- ------------- --------------
2007 PARTNERSHIP NET ASSETS: $107,327,744 $ % $ % $
Foreign currency (1,211,833) (1.13) (369,379) (0.34) (1,581,212)
---------- ----- --------- ----- ----------
Grand Total: (1,211,833) (1.13) (369,379) (0.34) (1,581,212)
========== ===== ========= =====
Unrealized Currency Gain 16,955
----------
Total Net Unrealized Loss (1,564,257)
==========
2006 PARTNERSHIP NET ASSETS: $163,049,336
Foreign currency 1,858,967 1.14 2,675,066 1.64 4,534,033
---------- ----- --------- ----- ----------
Grand Total: 1,858,967 1.14 2,675,066 1.64 4,534,033
========== ===== ========= =====
Unrealized Currency Gain/(Loss) --
----------
Total Net Unrealized Gain 4,534,033
==========
The accompanying notes are an integral part of these financial statements.
MORGAN STANLEY SPECTRUM GLOBAL BALANCED L.P.
SCHEDULES OF INVESTMENTS
DECEMBER 31, 2007 AND 2006
LONG UNREALIZED PERCENTAGE SHORT UNREALIZED PERCENTAGE NET UNREALIZED
FUTURES AND FORWARD CONTRACTS: GAIN/(LOSS) OF NET ASSETS GAIN/(LOSS) OF NET ASSETS GAIN/(LOSS)
- ------------------------------ --------------- ------------- ---------------- ------------- --------------
2007 PARTNERSHIP NET ASSETS: $34,911,510 $ % $ % $
Commodity 470,579 1.35 (231,598) (0.66) 238,981
Equity 39,676 0.11 14,086 0.04 53,762
Foreign currency 89,948 0.26 (81,613) (0.23) 8,335
Interest rate 50,139 0.14 8,688 0.02 58,827
------- ----- -------- ----- ---------
Grand Total: 650,342 1.86 (290,437) (0.83) 359,905
======= ===== ======== =====
Unrealized Currency Gain 590,705
---------
Total Net Unrealized Gain 950,610
=========
2006 PARTNERSHIP NET ASSETS: $40,357,320
Commodity 65,101 0.16 127,695 0.32 192,796
Equity 269,904 0.66 -- -- 269,904
Foreign currency (30,000) (0.07) (7,613) (0.02) (37,613)
Interest rate (41,078) (0.10) 371,009 0.92 329,931
------- ----- -------- ----- ---------
Grand Total: 263,927 0.65 491,091 1.22 755,018
======= ===== ======== =====
Unrealized Currency Gain 436,748
---------
Total Net Unrealized Gain 1,191,766
=========
The accompanying notes are an integral part of these financial statements.
MORGAN STANLEY SPECTRUM SELECT L.P.
SCHEDULES OF INVESTMENTS
DECEMBER 31, 2007 AND 2006
LONG UNREALIZED PERCENTAGE SHORT UNREALIZED PERCENTAGE NET UNREALIZED
FUTURES AND FORWARD CONTRACTS: GAIN/(LOSS) OF NET ASSETS GAIN/(LOSS) OF NET ASSETS GAIN/(LOSS)
- ------------------------------ --------------- ------------- ---------------- ------------- --------------
2007 PARTNERSHIP NET ASSETS: $523,178,555 $ % $ % $
Commodity 7,709,875 1.47 (680,641) (0.13) 7,029,234
Equity 217,470 0.04 753,313 0.14 970,783
Foreign currency (2,792,089) (0.53) 1,293,820 0.25 (1,498,269)
Interest rate 3,055,072 0.58 137,198 0.03 3,192,270
---------- ----- ---------- ----- ----------
Grand Total: 8,190,328 1.56 1,503,690 0.29 9,694,018
========== ===== ========== =====
Unrealized Currency Loss (84,968)
----------
Total Net Unrealized Gain 9,609,050
==========
2006 PARTNERSHIP NET ASSETS: $543,522,485
Commodity 456,160 0.08 2,995,834 0.55 3,451,994
Equity 4,924,820 0.91 -- -- 4,924,820
Foreign currency (247,846) (0.05) 2,552,915 0.47 2,305,069
Interest rate (2,248,119) (0.41) 4,585,113 0.84 2,336,994
---------- ----- ---------- ----- ----------
Grand Total: 2,885,015 0.53 10,133,862 1.86 13,018,877
========== ===== ========== =====
Unrealized Currency Loss (1,057,266)
----------
Total Net Unrealized Gain 11,961,611
==========
The accompanying notes are an integral part of these financial statements.
MORGAN STANLEY SPECTRUM STRATEGIC L.P.
SCHEDULES OF INVESTMENTS
DECEMBER 31, 2007 AND 2006
LONG UNREALIZED PERCENTAGE SHORT UNREALIZED PERCENTAGE NET UNREALIZED
FUTURES AND FORWARD CONTRACTS: GAIN/(LOSS) OF NET ASSETS GAIN/(LOSS) OF NET ASSETS GAIN/(LOSS)
- ------------------------------ --------------- ------------- ---------------- ------------- --------------
2007 PARTNERSHIP NET ASSETS: $215,528,061 $ % $ % $
Commodity 9,635,610 4.47 537,314 0.25 10,172,924
Equity 385,124 0.18 -- -- 385,124
Foreign currency (349,860) (0.16) (986,474) (0.46) (1,336,334)
Interest rate 1,104,161 0.51 (127,932) (0.06) 976,229
---------- ----- --------- ----- ----------
Grand Total: 10,775,035 5.00 (577,092) (0.27) 10,197,943
========== ===== ========= =====
Unrealized Currency Loss (129,856)
----------
Total Net Unrealized Gain 10,068,087
==========
2006 PARTNERSHIP NET ASSETS: $209,477,064
Commodity 12,403,353 5.92* 570,125 0.27 12,973,478
Equity 1,533,728 0.73 (775) -- 1,532,953
Foreign currency 1,553,840 0.74 1,207,868 0.58 2,761,708
Interest rate (773,724) (0.37) 969,810 0.46 196,086
---------- ----- --------- ----- ----------
Grand Total: 14,717,197 7.02 2,747,028 1.31 17,464,225
========== ===== ========= =====
Unrealized Currency Loss (414,234)
----------
Total Net Unrealized Gain 17,049,991
==========
*No single contract's value exceeds 5% of Net Assets.
The accompanying notes are an integral part of these financial statements.
MORGAN STANLEY SPECTRUM TECHNICAL L.P.
SCHEDULES OF INVESTMENTS
DECEMBER 31, 2007 AND 2006
LONG UNREALIZED PERCENTAGE SHORT UNREALIZED PERCENTAGE NET UNREALIZED
FUTURES AND FORWARD CONTRACTS: GAIN/(LOSS) OF NET ASSETS GAIN/(LOSS) OF NET ASSETS GAIN/(LOSS)
- ------------------------------ --------------- ------------- ---------------- ------------- --------------
2007 PARTNERSHIP NET ASSETS: $578,899,658 $ % $ % $
Commodity 7,755,544 1.34 (145,413) (0.02) 7,610,131
Equity 823,775 0.14 427,342 0.07 1,251,117
Foreign currency (2,439,845) (0.42) (585,521) (0.10) (3,025,366)
Interest rate 1,669,779 0.29 (147,183) (0.03) 1,522,596
---------- ----- ---------- ----- ----------
Grand Total: 7,809,253 1.35 (450,775) (0.08) 7,358,478
========== ===== ========== =====
Unrealized Currency Gain 3,847,648
----------
Total Net Unrealized Gain 11,206,126
==========
2006 PARTNERSHIP NET ASSETS: $756,820,958
Commodity 1,502,376 0.20 2,066,014 0.27 3,568,390
Equity 7,860,426 1.04 -- -- 7,860,426
Foreign currency 3,058,385 0.40 12,834,701 1.70 15,893,086
Interest rate (6,358,278) (0.84) 16,042,982 2.12 9,684,704
---------- ----- ---------- ----- ----------
Grand Total: 6,062,909 0.80 30,943,697 4.09 37,006,606
========== ===== ========== =====
Unrealized Currency Loss (5,189,259)
----------
Total Net Unrealized Gain 31,817,347
==========
The accompanying notes are an integral part of these financial statements.
MORGAN STANLEY SPECTRUM SERIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION. Morgan Stanley Spectrum Currency L.P. ("Spectrum Currency"),
Morgan Stanley Spectrum Global Balanced L.P. ("Spectrum Global Balanced"),
Morgan Stanley Spectrum Select L.P. ("Spectrum Select"), Morgan Stanley
Spectrum Strategic L.P. ("Spectrum Strategic"), and Morgan Stanley Spectrum
Technical L.P. ("Spectrum Technical") (individually, a "Partnership", or
collectively, the "Partnerships"), are limited partnerships organized 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").
The Partnerships may buy or write put and call options through listed
exchanges and the over-the-counter market. The buyer 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 or 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 market price of 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 lose an unlimited amount.
Premiums received/paid from writing/purchasing options are recorded as
liabilities/assets on the Statements of Financial Condition and are
subsequently adjusted to current values. The difference between the current
value of an option and the premium received/paid is treated as an unrealized
gain or loss.
MORGAN STANLEY SPECTRUM SERIES
NOTES TO FINANCIAL STATEMENTS
(continued)
The general partner of each Partnership is Demeter Management Corporation
("Demeter"). The commodity brokers for Spectrum Global Balanced, Spectrum
Select, Spectrum Strategic, and Spectrum Technical are Morgan Stanley & Co.
Incorporated ("MS&Co.") and Morgan Stanley & Co. International plc ("MSIP").
Spectrum Currency's commodity broker is MS&Co. MS&Co. 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, MS&Co., MSIP, and MSCG are
wholly-owned subsidiaries of Morgan Stanley.
On April 1, 2007, Morgan Stanley merged Morgan Stanley DW Inc. ("Morgan
Stanley DW") into MS&Co. Upon completion of the merger, the surviving entity,
MS&Co., became the Partnerships' principal U.S. commodity broker-dealer.
On April 13, 2007, Morgan Stanley & Co. International Limited changed its
name to Morgan Stanley & Co. International plc.
Demeter is required to maintain a 1% minimum interest in the equity of each
Partnership and income (losses) are shared by Demeter and the limited partners
based upon their proportional ownership interests.
USE OF ESTIMATES. The financial statements are prepared in accordance with
accounting principles generally accepted in the United States of America, which
require management to make estimates and assumptions that affect the reported
amounts in the financial statements and related disclosures. Management
believes that the estimates utilized in the preparation of the financial
statements are prudent and reasonable. Actual results could differ from those
estimates.
MORGAN STANLEY SPECTRUM SERIES
NOTES TO FINANCIAL STATEMENTS
(continued)
REVENUE RECOGNITION. Futures Interests are open commitments until settlement
date, at which time they are realized. They are valued at market on a daily
basis and the resulting net change in unrealized gains and losses is reflected
in the change in unrealized trading profit (loss) on open contracts from one
period to the next on the Statements of Operations. Monthly, MS&Co. pays each
Partnership interest income at a rate equal to the monthly average of the
4-week U.S. Treasury bill discount rate during such month on 80% of the funds
on deposit with the commodity brokers at each month-end in the case of Spectrum
Currency, Spectrum Select, Spectrum Strategic, and Spectrum Technical, and on
100% in the case of Spectrum Global Balanced. For purposes of such interest
payments, Net Assets do not include monies owed to the Partnerships on Futures
Interests.
The Partnerships' functional currency is the U.S. dollar; however, the
Partnerships may transact business in currencies other than the U.S. dollar.
Assets and liabilities denominated in currencies other than the U.S. dollar are
translated into U.S. dollars at the rates in effect at the date of the
Statements of Financial Condition. Income and expense items denominated in
currencies other than the U.S. dollar are translated into U.S. dollars at the
rates in effect during the period. Gains and losses resulting from the
translation to U.S. dollars are reported in income currently.
NET INCOME (LOSS) PER UNIT. Net income (loss) per unit of limited partnership
interest ("Unit(s)") is computed using the weighted average number of Units
outstanding during the period.
MORGAN STANLEY SPECTRUM SERIES
NOTES TO FINANCIAL STATEMENTS
(continued)
NEW ACCOUNTING DEVELOPMENTS. In July 2006, the Financial Accounting Standards
Board ("FASB") issued Interpretation No. 48, "Accounting for Uncertainty in
Income Taxes--an interpretation of FASB Statement 109" ("FIN 48"). FIN 48
clarifies the accounting for income taxes by prescribing the minimum
recognition threshold a tax position must meet before being recognized in the
financial statements. FIN 48 became effective for the Partnerships as of
January 1, 2007. The Partnerships have determined that the adoption of FIN 48
did not have a material impact on the Partnerships' financial statements. The
Partnerships file U.S. federal and state tax returns. The 2004 through 2007 tax
years generally remain subject to examination by U.S. federal and most state
tax authorities.
In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements"
("SFAS No. 157"). SFAS No. 157 defines fair value, establishes a framework for
measuring fair value, and expands disclosures about fair value measurements.
SFAS No. 157 is effective for the Partnerships as of January 1, 2008. The
impact to the Partnerships' financial statements, if any, is currently being
assessed.
TRADING EQUITY. The Partnerships' asset "Trading Equity," reflected on the
Statements of Financial Condition, consists of (A) cash on deposit with MS&Co.
and MSIP for Spectrum Global Balanced, Spectrum Select, Spectrum Strategic, and
Spectrum Technical, and with MS&Co. for Spectrum Currency, to be used as margin
for trading; (B) net unrealized gains or losses on futures and forward
contracts, which are valued at market and calculated as the difference between
original contract value and market value; and for Partnerships which trade in
options, (C) options purchased at fair value. Options written at fair value are
recorded in Liabilities.
MORGAN STANLEY SPECTRUM SERIES
NOTES TO FINANCIAL STATEMENTS
(continued)
The Partnerships, in their normal course of business, enter into various
contracts with MS&Co. and MSIP acting as their commodity brokers. Pursuant to
brokerage agreements with MS&Co. and MSIP, to the extent that such trading
results in unrealized gains or losses, these amounts are offset and reported on
a net basis on the Partnerships' Statements of Financial Condition.
The Partnerships have offset the fair value amounts recognized for forward
contracts executed with the same counterparty as allowable under the terms of
their master netting agreement with MS&Co., as the counterparty on such
contracts. The Partnerships have consistently applied their right to offset.
BROKERAGE AND RELATED TRANSACTION FEES AND COSTS. The brokerage fees for
Spectrum Currency and Spectrum Global Balanced are accrued at a flat monthly
rate of 1/12 of 4.6% (a 4.6% annual rate) of Net Assets as of the first day of
each month.
Brokerage fees for Spectrum Select, Spectrum Strategic, and Spectrum
Technical are currently accrued at a flat monthly rate of 1/12 of 6.0% (a 6.0%
annual rate) of Net Assets as of the first day of each month.
Effective July 1, 2005, brokerage fees for Spectrum Select, Spectrum
Strategic, and Spectrum Technical were reduced from 1/12 of 7.25% (a 7.25%
annual rate) to 1/12 of 6.0% (a 6.0% annual rate) of Net Assets as of the
first day of each month.
Such brokerage fees currently cover all brokerage fees, transaction fees and
costs, and ordinary administrative and continuing offering expenses.
OPERATING EXPENSES. The Partnerships incur monthly management fees and may
incur incentive fees. All common administrative and continuing offering
expenses including legal, auditing, accounting, filing fees, and other related
expenses are borne by MS&Co. through the brokerage fees paid by the
Partnerships.
MORGAN STANLEY SPECTRUM SERIES
NOTES TO FINANCIAL STATEMENTS
(continued)
CONTINUING OFFERING. Units of each Partnership are offered at a price equal to
100% of the Net Asset Value per Unit as of the close of business on the last
day of each month. No selling commissions or charges related to the continuing
offering of Units are paid by the limited partners or the Partnerships. MS&Co.
pays all such costs.
REDEMPTIONS. Limited partners may redeem some or all of their Units at 100% of
the Net Asset Value per Unit as of the end of the last day of any month that is
at least six months after the closing at which a person first becomes a limited
partner. The Request for Redemption must be delivered to a limited partner's
local Morgan Stanley Branch Office in time for it to be forwarded and received
by Demeter, no later than 3:00 p.m., New York City time, on the last day of the
month in which the redemption is to be effective. Redemptions must be made in
whole Units, in a minimum amount of 50 Units required for each redemption,
unless a limited partner is redeeming his entire interest in a Partnership.
Units redeemed on or prior to the last day of the twelfth month from the date
of purchase will be subject to a redemption charge equal to 2% of the Net Asset
Value of a Unit on the Redemption Date. Units redeemed after the last day of
the twelfth month and on or prior to the last day of the twenty-fourth month
from the date of purchase will be subject to a redemption charge equal to 1% of
the Net Asset Value of a Unit on the Redemption Date. Units redeemed after the
last day of the twenty-fourth month from the date of purchase will not be
subject to a redemption charge. The foregoing redemption charges are paid to
MS&Co.
MORGAN STANLEY SPECTRUM SERIES
NOTES TO FINANCIAL STATEMENTS
(continued)
EXCHANGES. On the last day of the first month which occurs more than six
months after a person first becomes a limited partner in any of the
Partnerships, and at the end of each month thereafter, limited partners may
exchange their Units among the Partnerships (subject to certain restrictions
outlined in the Limited Partnership Agreements) without paying additional
charges.
DISTRIBUTIONS. Distributions, other than redemptions of Units, are made on a
pro-rata basis at the sole discretion of Demeter. No distributions have been
made to date. Demeter does not intend to make any distributions of the
Partnerships' profits.
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 each Partnership's revenues
and expenses for income tax purposes.
DISSOLUTION OF THE PARTNERSHIPS. Spectrum Currency, Spectrum Global Balanced,
Spectrum Strategic, and Spectrum Technical will terminate on December 31, 2035,
and Spectrum Select will terminate on December 31, 2025, regardless of
financial condition at such time, or at an earlier date if certain conditions
occur as defined in each Partnership's Limited Partnership Agreement.
LITIGATION SETTLEMENT. Spectrum Global Balanced, Spectrum Select, Spectrum
Strategic, and Spectrum Technical received notification of a preliminary
entitlement to payment from the Sumitomo Copper Litigation Settlement
Administrator, and each Partnership received a settlement award payment in the
amount of $2,230, $85,000, $454, and $4,209, respectively, during November
2005. Any amounts received are accounted for in the period received, for the
benefit of the limited partners at the date of receipt.
MORGAN STANLEY SPECTRUM SERIES
NOTES TO FINANCIAL STATEMENTS
(continued)
RESTRICTED AND UNRESTRICTED CASH. As reflected on the Partnerships' Statements
of Financial Condition, restricted cash represents cash on deposit to satisfy
margin requirements for trading. These amounts of restricted cash are
maintained separately. Cash that is not on deposit to satisfy the margin
requirements for trading is reflected as unrestricted cash.
RECLASSIFICATIONS. Certain prior year amounts relating to cash balances were
reclassified on the Statements of Financial Condition and Cash Flows to conform
to 2007 presentation. Certain prior year amounts relating to options were
reclassified on the Statements of Financial Condition to conform to 2007
presentation. Such reclassifications have no impact on the Partnerships'
reported net income (loss).
- --------------------------------------------------------------------------------
2. RELATED PARTY TRANSACTIONS
Each Partnership pays brokerage fees to MS&Co. (Morgan Stanley DW through March
31, 2007) as described in Note 1. Spectrum Global Balanced, Spectrum Select,
Spectrum Strategic, and Spectrum Technical's cash is on deposit with Morgan
Stanley DW (through March 31, 2007), MS&Co., and MSIP, and Spectrum Currency's
cash is on deposit with Morgan Stanley DW (through March 31, 2007) and MS&Co.,
in futures interests trading accounts to meet margin requirements as needed.
MS&Co. (Morgan Stanley DW through March 31, 2007) pays interest on these funds
as described in Note 1.
MORGAN STANLEY SPECTRUM SERIES
NOTES TO FINANCIAL STATEMENTS
(continued)
- --------------------------------------------------------------------------------
3. TRADING ADVISORS
Demeter, on behalf of each Partnership, retains certain commodity trading
advisors to make all trading decisions for the Partnerships. The trading
advisors for each Partnership at December 31, 2007 were as follows:
Morgan Stanley Spectrum Currency L.P.
John W. Henry & Company, Inc. ("JWH")
Sunrise Capital Partners, LLC ("Sunrise")
C-View International Limited ("C-View"),
effective December 1, 2007
DKR Fusion Management L.P. ("DKR"),
effective December 1, 2007
FX Concepts Trading Advisor, Inc. ("FX Concepts"),
effective December 1, 2007
Morgan Stanley Spectrum Global Balanced L.P.
SSARIS Advisors, LLC ("SSARIS")
Altis Partners (Jersey) Limited ("Altis"),
effective December 1, 2007
Cornerstone Quantitative Investment Group, Inc.
("Cornerstone"), effective December 1, 2007
C-View International Limited,
effective December 1, 2007
Morgan Stanley Spectrum Select L.P.
EMC Capital Management, Inc. ("EMC")
Northfield Trading L.P. ("Northfield")
Rabar Market Research, Inc. ("Rabar")
Sunrise Capital Management, Inc.
Graham Capital Management, L.P. ("Graham")
Altis Partners (Jersey) Limited,
effective December 1, 2007
Morgan Stanley Spectrum Strategic L.P.
Blenheim Capital Management, L.L.C. ("Blenheim")
Eclipse Capital Management, Inc. ("Eclipse")
FX Concepts Trading Advisor, Inc.
Cornerstone, effective December 1, 2007
Morgan Stanley Spectrum Technical L.P.
Campbell & Company, Inc. ("Campbell")
Chesapeake Capital Corporation ("Chesapeake")
John W. Henry & Company, Inc.
Winton Capital Management Limited ("Winton")
Aspect Capital Limited ("Aspect"),
effective December 1, 2007
Rotella Capital Management, Inc. ("Rotella"),
effective December 1, 2007
MORGAN STANLEY SPECTRUM SERIES
NOTES TO FINANCIAL STATEMENTS
(continued)
Compensation to the trading advisors by the Partnerships consists of a
management fee and an incentive fee as follows:
MANAGEMENT FEE. The management fee for Spectrum Currency is accrued at a rate
of 1/6 of 1% per month of Net Assets allocated to each trading advisor on the
first day of each month (a 2% annual rate).
The management fee for Spectrum Global Balanced is accrued at a rate of 1/12
of 1% per month of Net Assets allocated to Cornerstone on the first day of each
month (a 1% annual rate), 5/48 of 1% per month of Net Assets allocated to
SSARIS on the first day of each month (a 1.25% annual rate), 1/12 of 1.75% per
month of Net Assets allocated to Altis on the first day of each month (a 1.75%
annual rate), and 1/6 of 1% per month of Net Assets allocated to C-View on the
first day of each month (a 2% annual rate).
The management fee for Spectrum Select is accrued at a rate of 1/12 of 1.75%
per month of Net Assets allocated to Altis on the first day of each month (a
1.75% annual rate), 1/6 of 1% per month of Net Assets allocated to Graham on
the first day of each month (a 2% annual rate), 5/24 of 1% per month of Net
Assets allocated to EMC and Rabar on the first day of each month (a 2.5% annual
rate), and 1/4 of 1% per month of Net Assets allocated to Northfield and
Sunrise on the first day of each month (a 3% annual rate).
The management fee for Spectrum Strategic is accrued at a rate of 1/12 of 1%
per month of Net Assets allocated to Cornerstone on the first day of each month
(a 1% annual rate), 1/6 of 1% per month of Net Assets allocated to FX Concepts
on the first day of each month (a 2% annual rate), and 1/4 of 1% per month of
Net Assets allocated to Blenheim and Eclipse on the first day of each month (a
3% annual rate).
MORGAN STANLEY SPECTRUM SERIES
NOTES TO FINANCIAL STATEMENTS
(continued)
The management fee for Spectrum Technical is accrued at a rate of 1/6 of 1%
per month of Net Assets allocated to Aspect, JWH, Rotella, and Winton on the
first day of each month (a 2% annual rate), and 1/4 of 1% per month of Net
Assets allocated to Campbell on the first day of each month (a 3% annual rate).
For the period of September 1, 2007, through December 31, 2007, Chesapeake
waived the management fee it receives from Spectrums Technical. Effective
January 1, 2008, Spectrum Technical pays Chesapeake a monthly management fee
equal to 1/6 of 1% of its Net Assets allocated to Chesapeake on the first day
of each month (a 2% annual rate). Prior to September 1, 2007, Spectrum
Technical paid Chesapeake a monthly management fee equal to 1/4 of 1% of its
Net Assets allocated to Chesapeake on the first day of each month (a 3% annual
rate).
INCENTIVE FEE. Spectrum Currency pays a monthly incentive fee equal to 20% of
the trading profits experienced with respect to each trading advisor's
allocated Net Assets as of the end of each calendar month.
Spectrum Global Balanced pays a monthly incentive fee equal to 15% of the
trading profits experienced with respect to the Net Assets allocated to SSARIS
as of the end of each calendar month, and 20% of the trading profits
experienced with respect to the Net Assets allocated to Altis, Cornerstone, and
C-View as of the end of each calendar month.
MORGAN STANLEY SPECTRUM SERIES
NOTES TO FINANCIAL STATEMENTS
(continued)
Spectrum Select pays a monthly incentive fee equal to 15% of the trading
profits experienced with respect to the Net Assets allocated to Northfield and
Sunrise as of the end of each calendar month, 17.5% of the trading profits
experienced with respect to the Net Assets allocated to EMC and Rabar as of the
end of each calendar month, and 20% of the trading profits experienced with
respect to the Net Assets allocated to Altis and Graham as of the end of each
calendar month.
Spectrum Strategic pays a monthly incentive fee equal to 15% of the trading
profits experienced with respect to the Net Assets allocated to Blenheim and
Eclipse as of the end of each calendar month, and 20% of the trading profits
experienced with respect to the Net Assets allocated to Cornerstone and FX
Concepts as of the end of each calendar month.
Spectrum Technical pays a monthly incentive fee equal to 19% of the trading
profits experienced with respect to the Net Assets allocated to Chesapeake as
of the end of each calendar month, and 20% of the trading profits experienced
with respect to the Net Assets allocated to each of Aspect, Campbell, JWH,
Rotella, and Winton as of the end of each calendar month.
Trading profits represent the amount by which profits from futures, forwards,
and options trading exceed losses after brokerage and management fees are
deducted.
For all trading advisors with trading losses, no incentive fee is paid in
subsequent months until all such losses are recovered. Cumulative trading
losses are adjusted on a pro-rata basis for the net amount of each month's
subscriptions and redemptions.
MORGAN STANLEY SPECTRUM SERIES
NOTES TO FINANCIAL STATEMENTS
(continued)
- --------------------------------------------------------------------------------
4. FINANCIAL INSTRUMENTS
The Partnerships trade Futures Interests. Futures and forwards represent
contracts for delayed delivery of an instrument at a specified date and price.
Risk arises from changes in the value of these contracts and the potential
inability of counterparties to perform under the terms of the contracts. There
are numerous factors which may significantly influence the market value of
these contracts, including interest rate volatility.
The market value of exchange-traded contracts is based on the settlement
price quoted by the exchange on the day with respect to which market value is
being determined. If an exchange-traded contract could not have been liquidated
on such day due to the operation of daily limits or other rules of the
exchange, the settlement price shall be the settlement price on the first
subsequent day on which the contract could be liquidated. The market value of
off-exchange-traded contracts is based on the fair market value quoted by the
counterparty.
The Partnerships' contracts are accounted for on a trade-date basis and
marked to market on a daily basis. Each Partnership accounts for its derivative
investments in accordance with the provisions of Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and
Hedging Activities" ("SFAS No. 133"). SFAS No. 133 defines a derivative as a
financial instrument or other contract that has all three of the following
characteristics:
(1)One or more underlying notional amounts or payment provisions;
(2)Requires no initial net investment or a smaller initial net investment than
would be required relative to changes in market factors;
(3)Terms require or permit net settlement.
Generally, derivatives include futures, forward, swap or options contracts,
and other financial instruments with similar characteristics such as caps,
floors, and collars.
The net unrealized gains (losses) on open contracts at December 31, reported
as a component of "Trading Equity" on the Statements of Financial Condition,
and their longest contract maturities were as follows:
MORGAN STANLEY SPECTRUM SERIES
NOTES TO FINANCIAL STATEMENTS
(continued)
SPECTRUM CURRENCY
NET UNREALIZED GAINS/(LOSSES)
ON OPEN CONTRACTS LONGEST MATURITIES
-------------------------------- -------------------
OFF- OFF-
EXCHANGE- EXCHANGE- EXCHANGE- EXCHANGE-
YEAR TRADED TRADED TOTAL TRADED TRADED
---- --------- ---------- ---------- --------- ---------
$ $ $
2007 -- (1,564,257) (1,564,257) -- Mar. 2008
2006 -- 4,534,033 4,534,033 -- Mar. 2007
SPECTRUM GLOBAL BALANCED
NET UNREALIZED GAINS
ON OPEN CONTRACTS LONGEST MATURITIES
----------------------------- -------------------
OFF- OFF-
EXCHANGE- EXCHANGE- EXCHANGE- EXCHANGE-
YEAR TRADED TRADED TOTAL TRADED TRADED
---- --------- --------- --------- --------- ---------
$ $ $
2007 898,616 51,994 950,610 Jun. 2009 Mar. 2008
2006 1,191,766 -- 1,191,766 Jun. 2007 --
SPECTRUM SELECT
NET UNREALIZED GAINS/(LOSSES)
ON OPEN CONTRACTS LONGEST MATURITIES
-------------------------------- -------------------
OFF- OFF-
EXCHANGE- EXCHANGE- EXCHANGE- EXCHANGE-
YEAR TRADED TRADED TOTAL TRADED TRADED
---- ---------- --------- ---------- --------- ---------
$ $ $
2007 10,327,936 (718,886) 9,609,050 Jun. 2009 Mar. 2008
2006 10,738,293 1,223,318 11,961,611 Jun. 2008 Mar. 2007
SPECTRUM STRATEGIC
NET UNREALIZED GAINS/(LOSSES)
ON OPEN CONTRACTS LONGEST MATURITIES
--------------------------------- -------------------
OFF- OFF-
EXCHANGE- EXCHANGE- EXCHANGE- EXCHANGE-
YEAR TRADED TRADED TOTAL TRADED TRADED
---- ---------- ---------- ---------- --------- ---------
$ $ $
2007 11,568,520 (1,500,433) 10,068,087 Dec. 2011 Nov. 2008
2006 14,262,116 2,787,875 17,049,991 Dec. 2008 May 2007
SPECTRUM TECHNICAL
NET UNREALIZED GAINS/(LOSSES)
ON OPEN CONTRACTS LONGEST MATURITIES
--------------------------------- -------------------
OFF- OFF-
EXCHANGE- EXCHANGE- EXCHANGE- EXCHANGE-
YEAR TRADED TRADED TOTAL TRADED TRADED
---- ---------- ---------- ---------- --------- ---------
$ $ $
2007 14,510,132 (3,304,006) 11,206,126 Jun. 2010 Mar. 2008
2006 21,920,150 9,897,197 31,817,347 Jun. 2008 Mar. 2007
MORGAN STANLEY SPECTRUM SERIES
NOTES TO FINANCIAL STATEMENTS
(continued)
The Partnerships have credit risk associated with counterparty
nonperformance. As of the date of the financial statements, the credit risk
associated with the instruments in which the Partnerships trade is limited to
the amounts reflected in the Partnerships' Statements of Financial Condition.
The Partnerships also have credit risk because MS&Co., MSIP, and/or MSCG act
as the futures commission merchants or the counterparties, with respect to most
of the Partnerships' 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. and
MSIP, each as a futures commission merchant for each Partnership's
exchange-traded futures, exchange-traded forward, and exchange-traded
futures-styled options contracts, are required, pursuant to regulations of the
Commodity Futures Trading Commission, 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, exchange-traded forward, and
exchange-traded futures-styled options contracts, including an amount equal to
the net unrealized gains (losses) on all open exchange-traded futures,
exchange-traded forward, and exchange-traded futures-styled options contracts,
which funds, in the aggregate, totaled at December 31, 2007 and 2006
respectively, $35,308,073 and $41,074,269 for Spectrum Global Balanced,
$530,127,958 and $547,628,371 for Spectrum Select, $217,469,564 and
$207,351,885 for Spectrum Strategic, and $592,593,582 and $754,343,175 for
Spectrum Technical. With respect to each 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, each 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 MS&Co. With
respect to
MORGAN STANLEY SPECTRUM SERIES
NOTES TO FINANCIAL STATEMENTS
(continued)
those off-exchange-traded forward currency contracts, the Partnerships are 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 Partnerships are at risk to the ability of MSCG, the sole
counterparty on all such contracts, to perform. Each Partnership has a netting
agreement with each counterparty. These agreements, which seek to reduce both
the Partnerships' and the counterparties' exposure on off-exchange-traded
forward currency contracts, should materially decrease the Partnerships' credit
risk in the event of MS&Co.'s or MSCG's bankruptcy or insolvency.
- --------------------------------------------------------------------------------
5. FINANCIAL HIGHLIGHTS
SPECTRUM CURRENCY
2007 2006 2005
-------- ------- --------
PER UNIT OPERATING
PERFORMANCE:
NET ASSET VALUE, JANUARY 1: $ 11.38 $ 11.78 $ 14.41
-------- ------- --------
NET OPERATING RESULTS:
Interest Income 0.38 0.41 0.28
Expenses (0.72) (0.73) (0.82)
Realized Profit (Loss)/(1)/ (0.73) 0.02 (1.54)
Unrealized Loss (0.47) (0.10) (0.55)
-------- ------- --------
Net Loss (1.54) (0.40) (2.63)
-------- ------- --------
NET ASSET VALUE,
DECEMBER 31: $ 9.84 $ 11.38 $ 11.78
======== ======= ========
FOR THE CALENDAR YEAR:
RATIOS TO AVERAGE NET
ASSETS:
Net Investment Loss (3.2)% (2.9)% (4.4)%
Expenses before Incentive Fees 6.8 % 6.7 % 6.8 %
Expenses after Incentive Fees 6.8 % 6.7 % 6.8 %
Net Loss (14.8)% (4.9)% (21.4)%
TOTAL RETURN BEFORE
INCENTIVE FEES (13.5)% (3.4)% (18.3)%
TOTAL RETURN AFTER
INCENTIVE FEES (13.5)% (3.4)% (18.3)%
INCEPTION-TO-DATE RETURN (1.6)%
COMPOUND ANNUALIZED
RETURN (0.2)%
MORGAN STANLEY SPECTRUM SERIES
NOTES TO FINANCIAL STATEMENTS
(continued)
SPECTRUM GLOBAL BALANCED
2007 2006 2005
------- ------- -------
PER UNIT OPERATING
PERFORMANCE:
NET ASSET VALUE, JANUARY 1: $ 15.60 $ 15.23 $ 14.61
------- ------- -------
NET OPERATING RESULTS:
Interest Income 0.71 0.74 0.43
Expenses (0.92) (0.91) (0.85)
Realized Profit/(1)/ 0.34 0.33 1.11
Unrealized Profit (Loss) (0.10) 0.21 (0.07)
Proceeds from Litigation
Settlement -- -- 0.00
------- ------- -------
Net Income 0.03 0.37 0.62
------- ------- -------
NET ASSET VALUE,
DECEMBER 31: $ 15.63 $ 15.60 $ 15.23
======= ======= =======
FOR THE CALENDAR YEAR:
RATIOS TO AVERAGE NET
ASSETS:
Net Investment Loss (1.3)% (1.1)% (2.9)%
Expenses before Incentive Fees 5.9 % 5.9 % 5.9 %
Expenses after Incentive Fees 5.9 % 5.9 % 5.9 %
Net Income 0.1 % 2.5 % 3.9 %
TOTAL RETURN BEFORE
INCENTIVE FEES 0.2 % 2.4 % 4.2 %
TOTAL RETURN AFTER
INCENTIVE FEES 0.2 % 2.4 % 4.2 %
INCEPTION-TO-DATE RETURN 56.3 %
COMPOUND ANNUALIZED
RETURN 3.5 %
SPECTRUM SELECT
2007 2006 2005
-------- ------- -------
PER UNIT OPERATING
PERFORMANCE:
NET ASSET VALUE, JANUARY 1: $ 29.06 $ 27.45 $ 28.88
-------- ------- -------
NET OPERATING RESULTS:
Interest Income 1.05 1.08 0.63
Expenses (2.59) (2.54) (2.54)
Realized Profit/(1)/ 3.85 3.40 0.33
Unrealized Profit (Loss) (0.13) (0.33) 0.15
Proceeds from Litigation
Settlement -- -- 0.00
-------- ------- -------
Net Income (Loss) 2.18 1.61 (1.43)
-------- ------- -------
NET ASSET VALUE,
DECEMBER 31: $ 31.24 $ 29.06 $ 27.45
======== ======= =======
FOR THE CALENDAR YEAR:
RATIOS TO AVERAGE NET
ASSETS:
Net Investment Loss (5.3)% (5.0)% (7.2)%
Expenses before Incentive Fees 8.6 % 8.8 % 9.5 %
Expenses after Incentive Fees 8.8 % 8.8 % 9.5 %
Net Income (Loss) 7.2 % 5.7 % (5.3)%
TOTAL RETURN BEFORE
INCENTIVE FEES 7.7 % 5.9 % (5.0)%
TOTAL RETURN AFTER
INCENTIVE FEES 7.5 % 5.9 % (5.0)%
INCEPTION-TO-DATE RETURN 212.4 %
COMPOUND ANNUALIZED
RETURN 7.2 %
MORGAN STANLEY SPECTRUM SERIES
NOTES TO FINANCIAL STATEMENTS
(continued)
SPECTRUM STRATEGIC
2007 2006 2005
------- ------- -------
PER UNIT OPERATING
PERFORMANCE:
NET ASSET VALUE, JANUARY 1: $ 17.15 $ 14.18 $ 14.56
------- ------- -------
NET OPERATING RESULTS:
Interest Income 0.61 0.58 0.31
Expenses (1.59) (1.83) (1.44)
Realized Profit (Loss)/(1)/ 2.41 3.92 (0.10)
Unrealized Profit (Loss) (0.57) 0.30 0.85
Proceeds from Litigation Settlement -- -- 0.00
------- ------- -------
Net Income (Loss) 0.86 2.97 (0.38)
------- ------- -------
NET ASSET VALUE,
DECEMBER 31: $ 18.01 $ 17.15 $ 14.18
======= ======= =======
FOR THE CALENDAR YEAR:
RATIOS TO AVERAGE NET
ASSETS:
Net Investment Loss (5.6)% (7.8)% (8.4)%
Expenses before Incentive Fees 8.7 % 8.6 % 9.4 %
Expenses after Incentive Fees 9.1 % 11.4 % 10.8 %
Net Income (Loss) 4.9 % 18.6 % (3.3)%
TOTAL RETURN BEFORE
INCENTIVE FEES 5.3 % 24.1 % (1.4)%
TOTAL RETURN AFTER
INCENTIVE FEES 5.0 % 20.9 % (2.6)%
INCEPTION-TO-DATE RETURN 80.1 %
COMPOUND ANNUALIZED
RETURN 4.6 %
SPECTRUM TECHNICAL
2007 2006 2005
-------- ------- -------
PER UNIT OPERATING
PERFORMANCE:
NET ASSET VALUE, JANUARY 1: $ 23.57 $ 22.36 $ 23.63
-------- ------- -------
NET OPERATING RESULTS:
Interest Income 0.81 0.87 0.51
Expenses (2.08)* (2.21) (2.10)
Realized Profit (Loss)/(1)/ (1.41) 2.25 0.48
Unrealized Profit (Loss) (0.67) 0.30 (0.16)
Proceeds from Litigation Settlement -- -- 0.00
-------- ------- -------
Net Income (Loss) (3.35) 1.21 (1.27)
-------- ------- -------
NET ASSET VALUE,
DECEMBER 31: $ 20.22 $ 23.57 $ 22.36
======== ======= =======
FOR THE CALENDAR YEAR:
RATIOS TO AVERAGE NET
ASSETS:
Net Investment Loss (5.7)% (5.8)% (7.3)%
Expenses before Incentive Fees 8.6 %** 8.6 % 9.3 %
Expenses after Incentive Fees 9.4 %** 9.5 % 9.6 %
Net Income (Loss) (15.1)% 5.1 % (5.4)%
TOTAL RETURN BEFORE
INCENTIVE FEES (13.4)% 6.4 % (5.0)%
TOTAL RETURN AFTER
INCENTIVE FEES (14.2)% 5.4 % (5.4)%
INCEPTION-TO-DATE RETURN 102.2 %
COMPOUND ANNUALIZED
RETURN 5.5 %
*Expenses per unit would have been $(2.12) had it not been for the management
fee waived by Chesapeake.
**Such percentage is after waiver of management fees. Chesapeake voluntarily
waived a portion of the management fees (equal to 0.2% of average net assets).
/(1)/Realized Profit (Loss) is a balancing amount necessary to reconcile the
change in Net Asset Value per Unit with the other per Unit information.
MORGAN STANLEY SPECTRUM SERIES
NOTES TO FINANCIAL STATEMENTS
(concluded)
- --------------------------------------------------------------------------------
6. SUBSEQUENT EVENTS
Effective February 29, 2008, Demeter terminated the management agreement by and
among Demeter, Spectrum Global Balanced, and Cornerstone. Consequently,
Cornerstone ceased all futures interests trading on behalf of Spectrum Global
Balanced as of February 29, 2008. Effective March 1, 2008, the estimated
percentage of net assets allocated to each trading advisor of Spectrum Global
Balanced were as follows: SSARIS Advisors, LLC (33.34%); Altis Partners
(Jersey) Limited (33.33%); and C-View International Limited (33.33%).
Effective February 29, 2008, Demeter terminated the management agreement by
and among Demeter, Spectrum Strategic, and Cornerstone. Consequently,
Cornerstone ceased all futures interests trading on behalf of Spectrum
Strategic as of February 29, 2008. Effective March 1, 2008, the estimated
percentage of net assets allocated to each trading advisor of Spectrum
Strategic were as follows: Blenheim Capital Management, L.L.C. (52.50%);
Eclipse Capital Management Limited (27.50%); and FX Concepts Trading Advisor,
Inc. (20%).
Demeter Management Corporation
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