UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2008 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 charter)
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
(Former name, former address, and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No___________
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of ?large accelerated filer?,
?accelerated filer? and ?smaller reporting company? in Rule 12b-2 of the
Exchange Act.
Large accelerated filer_______ Accelerated filer_______
Non-accelerated filer X Smaller reporting company_______
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). Yes ___ No X
<page> <table> MORGAN STANLEY SPECTRUM SELECT L.P.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
March 31, 2008
<caption>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<s> <c>
Statements of Financial Condition as of March 31, 2008
(Unaudited) and December 31, 2007 2
Statements of Operations for the Quarters
Ended March 31, 2008 and 2007 (Unaudited) 3
Statements of Changes in Partners? Capital for the
Quarters Ended March 31, 2008 and 2007 (Unaudited) 4
Statements of Cash Flows for the Quarters Ended
March 31, 2008 and 2007 (Unaudited) 5
Condensed Schedules of Investments as of March 31, 2008
(Unaudited) and December 31, 2007...........................6
Notes to Financial Statements (Unaudited) 7-16
Item 2. Management?s Discussion and Analysis of
Financial Condition and Results of Operations 17-26
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 26-40
Item 4. Controls and Procedures 40
Item 4T. Controls and Procedures 40
PART II. OTHER INFORMATION
Item 1A.Risk Factors 41
Item 2. Unregistered Sales of Equity Securities
and Use of Proceeds 41-42
Item 5. Other Information....................................42-44
Item 6. Exhibits 44
</table>
<page> <table> PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
MORGAN STANLEY SPECTRUM SELECT L.P.
STATEMENTS OF FINANCIAL CONDITION
<caption>
March 31, December 31,
2008 2007
$ $
(Unaudited)
ASSETS
<s> <c> <c>
Trading Equity:
Unrestricted cash 546,459,780 475,137,768
Restricted cash 22,638,449 44,662,254
Total cash 569,098,229 519,800,022
Net unrealized gain on open contracts (MS&Co.) 9,945,438 8,888,890
Net unrealized gain on open contracts (MSIP) 541,072 773,528
Total net unrealized gain on open contracts 10,486,510 9,662,418
Options purchased (proceeds paid $1,896,591 and
$378,156, respectively) 1,956,973 324,788
Total Trading Equity 581,541,712 529,787,228
Subscriptions receivable 3,163,636 3,061,382
Interest receivable (MS&Co.) 590,906 1,063,195
Total Assets 585,296,254 533,911,805
LIABILITIES AND PARTNERS? CAPITAL
Liabilities
Redemptions payable 8,858,493 7,030,875
Accrued brokerage fees (MS&Co.) 2,936,817 2,636,618
Accrued management fees 1,171,595 1,049,154
Accrued incentive fees 63,750 16,603
Total Liabilities 13,030,655 10,733,250
Partners? Capital
Limited Partners (16,028,115.698 and
16,562,641.240 Units, respectively) 566,139,246 517,496,723
General Partner (173,444.769 and
181,848.769 Units, respectively) 6,126,353 5,681,832
Total Partners? Capital 572,265,599 523,178,555
Total Liabilities and Partners? Capital 585,296,254 533,911,805
NET ASSET VALUE PER UNIT 35.32 31.24
<fn>
The accompanying notes are an integral part
of these financial statements.
</table>
<page> <table> MORGAN STANLEY SPECTRUM SELECT L.P.
STATEMENTS OF OPERATIONS
(Unaudited)
<caption>
For the Quarters Ended March 31,
2008 2007
$ $
<s> <c> <c>
INVESTMENT INCOME
Interest income (MS&Co.) 2,397,952 5,264,283
EXPENSES
Brokerage fees (MS&Co.) 8,197,976 8,078,508
Incentive fee 5,716,243 -
Management fees 3,275,658 3,558,181
Total Expenses 17,189,877 11,636,689
NET INVESTMENT LOSS (14,791,925) (6,372,406)
TRADING RESULTS
Trading profit (loss):
Realized 81,581,893 (43,051,851)
Net change in unrealized 937,842 1,388,944
Total Trading Results 82,519,735 (41,662,907)
NET INCOME (LOSS) 67,727,810 (48,035,313)
NET INCOME (LOSS) ALLOCATION
Limited Partners 66,986,460 (47,516,243)
General Partner 741,350 (519,070)
NET INCOME (LOSS) PER UNIT
Limited Partners 4.08 (2.58)
General Partner 4.08 (2.58)
Units Units
WEIGHTED AVERAGE NUMBER
OF UNITS OUTSTANDING 16,465,308.371 18,631,982.002
<fn>
The accompanying notes are an integral part
of these financial statements.
</table>
<page> <table> MORGAN STANLEY SPECTRUM SELECT L.P.
STATEMENTS OF CHANGES IN PARTNERS? CAPITAL
For the Quarters Ended March 31, 2008 and 2007
(Unaudited)
<caption>
Units of
Partnership Limited General
Interest Partners Partner Total
$ $ $
<s> <c> <c> <c> <c>
Partners? Capital,
December 31, 2006 18,702,848.006 537,667,844 5,854,641 543,522,485
Offering of Units 588,365.194 16,541,509 ? 16,541,509
Net Loss ? (47,516,243) (519,070) (48,035,313)
Redemptions (764,859.579) (21,369,074) ? (21,369,074)
Partners? Capital,
March 31, 2007 18,526,353.621 485,324,036 5,335,571 490,659,607
Partners? Capital,
December 31, 2007 16,744,490.009 517,496,723 5,681,832 523,178,555
Offering of Units 234,627.264 8,106,900 ? 8,106,900
Net Income ? 66,986,460 741,350 67,727,810
Redemptions (777,556.806) (26,450,837) (296,829) (26,747,666)
Partners? Capital,
March 31, 2008 16,201,560.467 566,139,246 6,126,353 572,265,599
<fn>
The accompanying notes are an integral part
of these financial statements.
</table>
<page> <table> MORGAN STANLEY SPECTRUM SELECT L.P.
STATEMENTS OF CASH FLOWS
(Unaudited)
<caption>
For the Quarters Ended March 31,
2008 2007
$ $
CASH FLOWS FROM OPERATING ACTIVITIES
<s> <c> <c>
Net income (loss) 67,727,810 (48,035,313)
Noncash item included in net income (loss):
Net change in unrealized (937,842) (1,388,944)
(Increase) decrease in operating assets:
Restricted cash 22,023,805 22,121,729
Net option proceeds (1,518,435) -
Interest receivable (MS&Co.) 472,289 97,447
Increase (decrease) in operating liabilities:
Accrued brokerage fees (MS&Co.) 300,199 (131,770)
Accrued management fee 122,441 (51,928)
Accrued incentive fee 47,147 -
Net cash provided by (used for) operating activities 88,237,414 (27,388,779)
CASH FLOWS FROM FINANCING ACTIVITIES
Cash received from offering of Units 8,004,646 16,340,650
Cash paid for redemptions of Units (24,920,048) (22,595,825)
Net cash used for financing activities (16,915,402) (6,255,175)
Net increase (decrease) in unrestricted cash 71,322,012 (33,643,954)
Unrestricted cash at beginning of period 475,137,768 471,264,633
Unrestricted cash at end of period 546,459,780 437,620,679
<fn>
The accompanying notes are an integral part
of these financial statements.
</table>
<page> <table> MORGAN STANLEY SPECTRUM SELECT L.P.
CONDENSED SCHEDULES OF INVESTMENTS
March 31, 2008 (Unaudited) and December 31, 2007
<caption>
Futures and Forward Contracts
Long
Unrealized
Gain/(Loss)
Percentage of
Net Assets
Short
Unrealized
Gain/(Loss)
Percentage of
Net Assets
Net Unrealized
Gain/(Loss)
$
%
$
%
$
March 31, 2008, Partnership Net Assets: $572,265,599
<s>
<c>
<c>
<c>
<c>
<c>
Commodity
(1,034,808)
(0.18)
1,907,550
0.33
872,742
Equity
(121,244)
(0.02)
(1,431,233)
(0.25)
(1,552,477)
Foreign currency
7,348,212
1.28
2,456,301
0.43
9,804,513
Interest rate
1,204,706
0.21
488,200
0.09
1,692,906
Grand Total:
7,396,866
1.29
3,420,818
0.60
10,817,684
Unrealized Currency Loss
(270,792)
Total Net Unrealized Gain
10,546,892
9,609,050
December 31, 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
<fn>
The accompanying notes are an integral part
of these financial statements.
</table>
- - 6 -
<page> MORGAN STANLEY SPECTRUM SELECT L.P.
NOTES TO FINANCIAL STATEMENTS
March 31, 2008
(Unaudited)
The unaudited financial statements contained herein include, in
the opinion of management, all adjustments necessary for a fair
presentation of the results of operations and financial condition
of Morgan Stanley Spectrum Select L.P. (the "Partnership"). The
financial statements and condensed notes herein should be read in
conjunction with the Partnership?s December 31, 2007, Annual
Report on Form 10-K.
1. Organization
Morgan Stanley Spectrum Select L.P. is a Delaware limited
partnership organized in 1991 to engage primarily in the
speculative trading of futures contracts, options on futures
contracts, and forward contracts on physical commodities and
other commodity interests, including, but not limited to, foreign
currencies, financial instruments, metals, energy, and
agricultural products (collectively, "Futures Interests"). 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").
- - 7 -
<page> MORGAN STANLEY SPECTRUM SELECT L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The Partnership 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.
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
- 8 -
<page> MORGAN STANLEY SPECTRUM SELECT L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
all trading of options on foreign currency forward contracts.
MSIP serves as the commodity broker for trades on the London Metal
Exchange. Demeter, MS&Co., MSIP, and MSCG are wholly-owned
subsidiaries of Morgan Stanley. The trading advisors to the
Partnership are EMC Capital Management, Inc., Northfield Trading
L.P., Rabar Market Research, Inc., Sunrise Capital Management,
Inc., Graham Capital Management, L.P., and Altis Partners
(Jersey) Limited (each individually, a "Trading Advisor", or
collectively, the "Trading Advisors").
2. Related Party Transactions
The Partnership?s cash is on deposit with MS&Co. and MSIP in
futures, forward, and options trading accounts to meet margin
requirements as needed. MS&Co. pays the Partnership at each month
end interest income on 80% of the funds on deposit with the
commodity brokers at a rate equal to the monthly average of the
4-week U.S. Treasury bill discount rate during such month. The
Partnership pays brokerage fees to MS&Co.
3. Income Taxes
No provision for income taxes has been made in the accompanying
financial statements, as partners are individually responsible
- 9 -
<page> MORGAN STANLEY SPECTRUM SELECT L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
for reporting income or loss based upon their respective share of
the Partnership?s revenues or expenses for income tax purposes.
The Partnership files U.S. federal and state tax returns. The
2004 through 2007 tax years generally remain subject to
examination by U.S. federal and most state tax authorities.
4. Financial Instruments
The Partnership trades Futures Interests. Futures and forwards
represent contracts for delayed delivery of an instrument at a
specified date and price. 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
<page> MORGAN STANLEY SPECTRUM SELECT L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 Partnership?s contracts are accounted for on a trade-date
basis and marked to market on a daily basis. The Partnership
accounts for its derivative investments in accordance with the
provisions of Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS No. 133"). SFAS No. 133 defines a derivative
as a financial instrument or other contract that has all three of
the following characteristics:
1) One or more underlying notional amounts or payment
provisions;
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.
<page> MORGAN STANLEY SPECTRUM SELECT L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The net unrealized gains (losses) on open contracts, reported as a
component of "Trading Equity" on the Statements of Financial
Condition, and their longest contract maturities were as follows:
Net Unrealized Gains/(Losses)
on Open Contracts Longest Maturities
Exchange- Off-Exchange- Exchange- Off-Exchange-
Date Traded Traded Total Traded Traded
$ $ $
Mar. 31, 2008 2,912,996 7,633,896 10,546,892 Sep. 2009 Jun. 2008
Dec. 31, 2007 10,327,936 (718,886) 9,609,050 Jun. 2009 Mar. 2008
The Partnership has credit risk associated with counterparty non-
performance. As of the date of the financial statements, the
credit risk associated with the instruments in which the
Partnership trades is limited to the amounts reflected in the
Partnership?s Statements of Financial Condition.
The Partnership also has credit risk because MS&Co., MSIP, and/or
MSCG act as the futures commission merchants or the counter-
parties, with respect to most of the Partnership?s assets.
Exchange-traded futures, exchange-traded forward, and exchange-
traded futures-styled options contracts are marked to market on a
daily basis, with variations in value settled on a daily basis.
MS&Co. and MSIP, each acting as a commodity broker for the
Partnership?s exchange-traded futures, exchange-traded forward,
<page> MORGAN STANLEY SPECTRUM SELECT L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
and exchange-traded futures-styled options contracts, are
required, pursuant to regulations of the Commodity Futures Trading
Commission ("CFTC"), to segregate from their own assets, and for
the sole benefit of their commodity customers, all funds held by
them with respect to exchange-traded futures, 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 $572,011,225 and $530,127,958 at March 31,
2008, and December 31, 2007, respectively. With respect to the
Partnership?s off-exchange-traded forward currency contracts and
forward currency options contracts, there are no daily
settlements of variation in value, nor is there any requirement
that an amount equal to the net unrealized gains (losses) on such
contracts be segregated. However, the Partnership is required to
meet margin requirements equal to the net unrealized loss on open
forward currency contracts in the Partnership accounts with the
counterparty, which is accomplished by daily maintenance of the
cash balance in a custody account held at MS&Co. With respect to
those off-exchange-traded forward currency contracts, the
Partnership is at risk to the ability of MS&Co., the sole
counterparty on all such contracts, to perform. With respect to
<page> MORGAN STANLEY SPECTRUM SELECT L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
those off-exchange-traded forward currency options contracts, the
Partnership is at risk to the ability of MSCG, the sole
counterparty on all such contracts, to perform. The Partnership
has a netting agreement with each counterparty. These agreements,
which seek to reduce both the Partnership?s and the
counterparties? exposure on off-exchange-traded forward currency
contracts, including options on such contracts, should materially
decrease the Partnership?s credit risk in the event of MS&Co.?s or
MSCG?s bankruptcy or insolvency.
5. New Accounting Developments
In September 2006, the Financial Accounting Standards Board
(?FASB?) issued Statement of Financial Accounting Standards No.
157 (?SFAS? 157?), ?Fair Value Measurements?. SFAS 157 requires
use of a fair value hierarchy that prioritizes the inputs to
valuation techniques used to measure fair value into three
levels: Level 1 ? quoted market prices in active markets for
identical assets and liabilities; Level 2 ? inputs other than
quoted market prices that are observable for the asset or
liability, either directly or indirectly (including quoted prices
for similar investments, interest rates, credit risk); and Level
3 ? unobservable inputs for the asset or liability (including the
Partnership?s own assumptions used in determining the fair value
of investments).
<page> MORGAN STANLEY SPECTRUM SELECT L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Demeter evaluated the impact of adopting SFAS 157 on the
Partnership?s financial statements. The Partnership adopted SFAS
157 as of January 1, 2008. Based on its analysis, the effect of
applying SFAS 157 to the investments included in the financial
statements does not have a material impact on the Partnership?s
financial statements.
The following table summarizes the valuation of the Partnership?s
investments by the above SFAS 157 fair value hierarchy as of
March 31, 2008: <table> <caption>
Assets
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Significant Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
<s>
<c>
<c>
<c>
<c>
Unrealized gain on open contracts
$ 956,023
$ 7,633,896
n/a
$ 8,589,919
Options purchased
1,956,973
?
n/a
1,956,973
Total Assets
$ 2,912,996
$ 7,633,896
n/a
$ 10,546,892
</table>
In March 2008, the FASB issued SFAS No. 161, Disclosures about
Derivative Instruments and Hedging Activities (?SFAS 161?). SFAS
161 is intended to improve financial reporting about derivative
instruments and hedging activities by requiring enhanced
disclosures to enable investors to better understand how those
instruments and activities are accounted for; how and why they are
used; and their effects on a Partnership?s financial position,
financial performance, and cash flows. SFAS 161 is effective for
<page> MORGAN STANLEY SPECTRUM SELECT L.P.
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
financial statements issued for fiscal years beginning after
November 15, 2008, and interim periods within those fiscal years.
The Partnership is currently evaluating the impact that the
adoption of SFAS No. 161 will have on its financial statement
disclosures.
6. Restricted and Unrestricted Cash
As reflected on the Partnership?s Statements of Financial
Condition, restricted cash equals the cash portion of assets on
deposit to meet margin requirements plus the cash required to
offset unrealized losses on foreign currency forwards and options
and offset losses on offset London Metal Exchange positions. All
of these amounts are maintained separately. Cash that is not
classified as restricted cash is therefore classified as
unrestricted cash.
7. Reclassification
Certain prior year amounts relating to cash balances were
reclassified on the Statements of Cash Flows to conform to 2008
presentation. Such reclassification has no impact on the
Partnership?s reported net income (loss).
<page> Item 2. MANAGEMENT?S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity. The Partnership deposits its assets with MS&Co. and
MSIP as commodity brokers in separate futures, forward, and
options trading accounts established for each Trading Advisor.
Such assets are used as margin to engage in trading and may be
used as margin solely for the Partnership?s trading. The assets
are held in either non-interest bearing bank accounts or in
securities and instruments permitted by the CFTC for investment of
customer segregated or secured funds. Since the Partnership?s
sole purpose is to trade in futures, forwards, and options, it is
expected that the Partnership will continue to own such liquid
assets for margin purposes.
The Partnership?s investment in futures, forwards, and options
may, from time to time, be illiquid. Most U.S. futures exchanges
limit fluctuations in prices during a single day by regulations
referred to as "daily price fluctuations limits" or "daily
limits". Trades may not be executed at prices beyond the daily
limit. If the price for a particular futures or options contract
has increased or decreased by an amount equal to the daily limit,
positions in that futures or options contract can neither be taken
nor liquidated unless traders are willing to effect trades at or
within the limit. Futures prices have occasionally moved the
daily limit for several consecutive days with little or no
- - 17 -
<page> 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
sales of units of limited partnership interest ("Unit(s)") in the
future will affect the amount of funds available for investments
in futures, forwards, and options in subsequent periods. It is not
- - 18 -
<page> 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.
Off-Balance Sheet Arrangements and Contractual Obligations. The
Partnership does not have any off-balance sheet arrangements, nor
does it have contractual obligations or commercial commitments to
make future payments that would affect its liquidity or capital
resources.
Results of Operations
General. The Partnership?s results depend on the Trading
Advisors and the ability of each Trading Advisor?s trading
program to take advantage of price movements in the futures,
forward, and options markets. The following presents a summary
of the Partnership?s operations for the three month periods ended
March 31, 2008, and 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 <page>
activities on behalf of the Partnership during the period in
question. Past performance is no guarantee of future results.
The Partnership?s results of operations set forth in the
financial statements on pages 2 through 16 of this report 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 gain (loss)?
for open (unrealized) contracts, and recorded as ?Realized
trading gain (loss)? when open positions are closed out. The sum
of these amounts constitutes the Partnership?s trading results.
The market value of a futures contract is the settlement price on
the exchange on which that futures contract is traded on a
particular day. The value of 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
<page> critical accounting policies other than those presently
used could reasonably affect reported amounts.
For the Quarter Ended March 31, 2008
The Partnership recorded total trading results including interest
income totaling $84,917,687 and expenses totaling $17,189,877,
resulting in net income of $67,727,810 for the quarter ended
March 31, 2008. The Partnership?s net asset value per Unit
increased from $31.24 at December 31, 2007, to $35.32 at March,
31, 2008.
The most significant trading gains of approximately 5.1% were
recorded in the agricultural markets primarily during January and
February from long positions in wheat futures as prices increased
to a record high amid diminishing stockpiles and consistently
rising global demand. Meanwhile, long futures positions in corn
and the soybean complex resulted in gains as prices increased
during January following news that global production might drop,
while rising energy prices might boost demand for alternative
biofuels. Prices continued to move higher throughout February
amid speculation that demand from China would climb after severe
winter storms damaged some of the nation?s major crops. Lastly,
gains were experienced from long positions in cocoa futures as
prices strengthened during January and February on worries
regarding future supply from the Ivory Coast, the world?s largest
producer. Additional gains of approximately 3.3% were recorded
in the currency sector during February and March from short
<page> positions in the U.S. dollar versus the Swiss franc, euro,
Colombian peso, and Brazilian real as the value of the U.S.
dollar weakened against most of its major rivals after weaker-
than-expected manufacturing data from the Federal Reserve Bank of
Philadelphia reignited fears of an economic slowdown in the U.S.
The value of the U.S. dollar continued to decline after U.S.
government reports showed a rise in unemployment and slower-than-
expected fourth quarter 2007 Gross Domestic Product growth.
Furthermore, the U.S. dollar weakened against its major rivals in
March following news of weaker-than-expected U.S. retail sales
and U.S. consumer confidence at a 16-year low. Finally, the
value of the U.S. dollar was negatively affected by several
interest rate cuts by the U.S. Federal Reserve as well as
indications that interest rates might continue to decline.
During March, short positions in the Korean won versus the U.S.
dollar resulted in gains as the value of the Korean won decreased
relative to the U.S. dollar at the beginning of the month amid
news of a widening Current-Account deficit out of Korea. Within
the global interest rate sector, gains of approximately 3.0% were
recorded during January and February from long positions in U.S.
and Japanese fixed-income futures as prices moved higher amid a
sharp decline in global equity markets, the aforementioned fears
of a recession in the United States, and speculation that global
interest rates would move lower. Smaller gains of approximately
1.9% were recorded in the metals markets during January and
February from long positions in gold, silver, and platinum
futures as prices moved higher amid continued uncertainty in the
<page> direction of the U.S. dollar and further "safe haven"
buying because of weakness in global equity markets. Further
gains of approximately 1.7% were recorded in the global stock
index sector throughout the quarter from short positions in
European, Japanese, and U.S. equity index futures as prices
decreased on concerns that mounting losses linked to U.S. sub-
prime mortgage investments might continue to erode corporate
earnings and curb global economic growth for the foreseeable
future. Lastly, gains of approximately 0.7% were experienced in
the energy markets during February and March from long futures
positions in crude oil and its related products as prices moved
higher amid increasing global supply concerns and a weakening
U.S. dollar.
For the Quarter Ended March 31, 2007
The Partnership recorded total trading results including interest
income totaling $(36,398,624) and expenses totaling $11,636,689,
resulting in a net loss of $48,035,313 for the quarter ended
March 31, 2007. The Partnership?s net asset value per Unit
decreased from $29.06 at December 31, 2006, to $26.48 at March
31, 2007.
The most significant trading losses of approximately 2.6% were
recorded within the global stock index sector, primarily during
February and early March, from long positions in U.S., Pacific
Rim, and European stock index futures as prices reversed sharply
<page> 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. Furthermore, 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. In addition, global equity
prices were negatively affected by sub-prime loan delinquency
concerns in the United States. Additional losses of
approximately 1.9% were recorded in the currency sector,
primarily during March, from long positions in the British pound
versus the U.S. dollar as the value of the British pound weakened
amid speculation that the Bank of England would not continue to
increase interest rates in the near term. Additional losses were
incurred from long positions in the New Zealand dollar versus the
U.S. dollar primarily during January as the value of the U.S.
dollar reversed higher against the New Zealand dollar after
economic data suggested that the U.S. Federal Reserve would not
cut interest rates in the near term. During February, short
positions in the Swiss franc versus the U.S. dollar incurred
additional losses as the value of the Swiss franc reversed higher
against the U.S. dollar due to speculation of a narrowing
interest rate differential between Switzerland and the United
States. Short positions in the Canadian dollar versus the U.S.
dollar recorded losses primarily during March as the value of the
Canadian dollar strengthened after government reports showing job
gains and rising exports prompted speculation that the Bank of
<page> Canada would refrain from cutting interest rates in 2007.
Within the metals markets, losses of approximately 1.4% were
experienced from long positions in silver and gold futures as
prices moved lower during February and March on concerns that a
slowing Chinese economy would reduce demand for precious metals.
Similarly, losses were incurred from long positions in aluminum
futures as prices fell during January and February due to a
decline in global demand and on news of an overabundance in
supply. Losses of approximately 1.1% were recorded in the global
interest rate sector during late February and early March from
short positions in U.S., Australian, and German fixed-income
futures as prices moved higher in a worldwide "flight-to-quality"
due to the aforementioned sell-off in the global equity markets.
During March, newly established long positions in U.S. interest
rate futures incurred further losses as prices declined later in
the month amid reduced demand for the "safe haven" of fixed-
income investments. In addition, U.S. interest rate futures
prices declined after a stronger-than-expected government jobs
report. Additional losses of approximately 0.8% were experienced
in the agricultural markets from long positions in coffee futures
as prices fell sharply in January on speculation that retail
price increases imposed by large food companies during the last
quarter of 2006 would curb demand in the United States.
Elsewhere in the agricultural complex, losses were incurred from
both short and long positions in cotton futures primarily during
March as prices moved without consistent direction amid
conflicting news regarding supply and demand. Meanwhile, long
<page> positions in corn and soybean futures resulted in further
losses during January and March as prices dropped after the U.S.
announced plans to seek additional sources for alternative fuels
and the U.S. Department of Agriculture?s Prospective Plantings
report showed corn acreage might be up this year to its highest
since 1944. Finally, losses of approximately 0.1% were recorded
in the energy markets during March from short positions in
natural gas futures as prices moved higher after the U.S.
Department of Energy reported that natural gas supplies were down
15% from a year before. Elsewhere in the energy complex, short
futures positions in gasoline resulted in losses during February
and March as prices moved higher after data indicated higher U.S.
fuel consumption. In addition, prices moved higher amid rising
geopolitical concerns in the Middle East after the United Nations
Security Council voted unanimously to increase sanctions against
Iran. Prices also rose on news that Iran had captured 15 members
of the British Royal Navy in the Persian Gulf, adding to investor
worries about the stability of the world?s oil supply in the
region.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Introduction
The Partnership is a commodity pool engaged primarily in the
speculative trading of futures, forwards, and options. The
market-sensitive instruments held by the Partnership are acquired
for speculative trading purposes only and, as a result, all or
substantially all of the Partnership?s assets are at risk of
<page> trading loss. Unlike an operating company, the risk of
market-sensitive instruments is inherent to the primary business
activity of the Partnership.
The futures, forwards, and options traded by the Partnership
involve varying degrees of related market risk. Market risk is
often dependent upon changes in the level or volatility of
interest rates, exchange rates, and prices of financial
instruments and commodities, factors that result in frequent
changes in the fair value of the Partnership?s open positions,
and consequently in its earnings, whether realized or unrealized,
and cash flow. Gains and losses on open positions of exchange-
traded futures, exchange-traded forward, and exchange-traded
futures-styled options contracts are settled daily through
variation margin. Gains and losses on off-exchange-traded
forward currency contracts are settled upon termination of the
contract. However, the Partnership is required to meet margin
requirements equal to the net unrealized loss on open forward
currency contracts in the Partnership accounts with the
counterparty, which is accomplished by daily maintenance of the
cash balance in a custody account held at 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.
<page>
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 the "Partnership?s Value at Risk in Different Market
Sectors" section and significantly exceed the Value at Risk
("VaR") tables disclosed.
Limited partners will not be liable for losses exceeding the
current net asset value of their investment.
Quantifying the Partnership?s Trading Value at Risk
The following quantitative disclosures regarding the Partnership?s
market risk exposures contain "forward-looking statements" within
the meaning of the safe harbor from civil liability provided for
such statements by the Private Securities Litigation Reform Act of
<page> 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
Partnership estimates VaR using a model based upon historical
simulation (with a confidence level of 99%) which involves
constructing a distribution of hypothetical daily changes in the
value of a trading portfolio. The VaR model takes into account
linear exposures to risk including equity and commodity prices,
interest rates, foreign exchange rates, and correlation among
these variables. The hypothetical changes in portfolio value are
based on daily percentage changes observed in key market indices
or other market factors ("market risk factors") to which the
portfolio is sensitive. The one-day 99% confidence level of the
Partnership?s VaR corresponds to the negative change in portfolio
value that, based on observed market risk factors, would have been
exceeded once in 100 trading days, or one day in 100. VaR
typically does not represent the worst case outcome. Demeter
<page> uses approximately four years of daily market data (1,000
observations) and re-values its portfolio (using delta-gamma
approximations) for each of the historical market moves that
occurred over this time period. This generates a probability
distribution of daily "simulated profit and loss" outcomes. The
VaR is the appropriate percentile of this distribution. For
example, the 99% one-day VaR would represent the 10th worst
outcome from Demeter?s simulated profit and loss series.
The Partnership?s VaR computations are based on the risk
representation of the underlying benchmark for each instrument or
contract and do not distinguish between exchange and non-exchange
dealer-based instruments. They are also not based on exchange
and/or dealer-based maintenance margin requirements.
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
<page> by primary market risk category at March 31, 2008, and
2007. At March 31, 2008, and 2007, the Partnership?s total
capitalization was approximately $572 million and $491 million,
respectively.
Primary Market March 31, 2008 March 31, 2007
Risk Category Value at Risk Value at Risk
Currency (0.65)% (1.53)%
Interest Rate (0.31) (0.59)
Equity (0.30) (0.62)
Commodity (0.95) (0.52)
Aggregate Value at Risk (1.34)% (1.93)%
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.
<page> The table below supplements the quarter-end VaR set forth
above by presenting the Partnership?s high, low, and average VaR,
as a percentage of total Net Assets for the four quarter-end
reporting periods from April 1, 2007, through March 31, 2008.
Primary Market Risk Category High Low Average
Currency (1.37)% (0.49)% (0.91)%
Interest Rate (1.33) (0.31) (0.60)
Equity (1.54) (0.20) (0.60)
Commodity (2.21) (0.47) (1.25)
Aggregate Value at Risk (2.96)% (1.34)% (2.12)%
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;
<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 March 31, 2007, and for the four quarter-end
reporting periods from April 1, 2007, through March 31, 2008. 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.
<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.; as of March 31, 2008, such
amount was 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
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
<page> 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 March 31, 2008, by market sector. It may be
anticipated, however, that these market exposures will vary
materially over time.
Currency. The second largest market exposure of the Partnership
at March 31, 2008 was to the currency sector. The Partnership?s
currency market exposure was to exchange rate fluctuations,
primarily fluctuations which disrupt the historical pricing
relationships between different currencies and currency
pairs. Interest rate changes, as well as political and general
economic conditions influence these fluctuations. At March 31,
2008, the Partnership?s major exposures were to the British
pound, Japanese yen, Canadian dollar, euro, Swiss franc, <page>
Australian dollar, Polish zloty, 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 March 31, 2008, the Partnership had market
exposure to the global interest rate sector. Exposure was
primarily spread across the U.S., European, Japanese, Canadian,
and Australian interest rate sectors. Interest rate movements
directly affect the price of the sovereign bond futures positions
held by the Partnership and indirectly affect the value of the
Partnership?s 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. The G-7 countries consist of France, the U.S.,
Britain, Germany, Japan, Italy, and Canada. However, the
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 rate
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 <page>
instruments. Consequently, changes in short, medium, or long-
term interest rates may have an effect on the Partnership.
Equity. At March 31, 2008, 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), S&P 500 E-MINI (U.S.), Euro Stox 50 (Europe),
NASDAQ 100 (U.S.), NIKKEI 225 (Japan), FTSE 100 (United Kingdom),
TOPIX (Japan), TAIWAN (Taiwan), SPI-200 (Australia), Hang Seng
(Hong Kong), CAC 40 (France), AEX (Netherlands), All Share (South
Africa), Canada S&P 500 (Canada), IBEX 35 (Spain), and RUSSELL
2000 (U.S.) stock indices. The Partnership is typically exposed
to the risk of adverse price trends or static markets in the
European, U.S., Japanese, Hong Kong, 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.
Commodity.
Energy. The largest market exposure of the Partnership at
March 31, 2008 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
<page> weather patterns and other economic fundamentals.
Significant profits and losses, which have been experienced
in the past, are expected to continue to be experienced in
the future. Natural gas has exhibited volatility in prices
resulting from weather patterns and supply and demand
factors and will likely continue in this choppy pattern.
Metals. The third largest market exposure of the
Partnership at March 31, 2008 was to the metals sector. The
Partnership's metals exposure was to fluctuations in the
price of base metals, such as copper, aluminum, tin, zinc,
nickel, and lead, 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 their trading system(s) to take positions
when market opportunities develop, and Demeter anticipates
that the Trading Advisors will continue to do so.
Soft Commodities and Agriculturals. At March 31, 2008, the
Partnership had market exposure to the markets that comprise
these sectors. Most of the exposure was to the corn, wheat,
coffee, live cattle, feeder cattle, cocoa, lean hogs,
soybeans, lumber, orange juice, soybean meal, rough rice,
cotton, soybean oil, sugar, and rubber markets. Supply and
demand inequalities, severe weather disruptions, and market
expectations affect price movements in these markets.
<page>
Qualitative Disclosures Regarding Non-Trading Risk Exposure
The following was the only non-trading risk exposure of the
Partnership at March 31, 2008:
Foreign Currency Balances. The Partnership?s primary foreign
currency balances at March 31, 2008 were in euros, Japanese
yen, Canadian dollars, Australian dollars, Hong Kong
dollars, Swiss francs, British pounds, Mexican pesos, Czech
koruna, Norwegian kroner, New Zealand dollars, Singapore
dollars, Hungarian forint, Swedish kronor, and South African
rand. The Partnership controls the non-trading risk of
foreign currency balances by regularly converting them back
into U.S. dollars upon liquidation of their respective
positions.
Qualitative Disclosures Regarding Means of Managing Risk Exposure
The Partnership and the Trading Advisors, separately, attempt to
manage the risk of the Partnership?s open positions in essentially
the same manner in all market categories traded. Demeter attempts
to manage market exposure by diversifying the Partnership?s assets
among different Trading Advisors, each of whose strategies focus
on different market sectors and trading approaches, 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
<page> maximum margin to be committed to positions in any one
market sector or market-sensitive instrument.
Demeter monitors and controls the risk of the Partnership?s non-
trading instrument, cash. Cash is the only Partnership investment
directed by Demeter, rather than the Trading Advisors.
Item 4. CONTROLS AND PROCEDURES
As of the end of the period covered by this quarterly report,
the President and Chief Financial Officer of Demeter, the
general partner of the Partnership, have evaluated the
effectiveness of the Partnership?s disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the
Exchange Act), and have judged such controls and procedures to
be effective.
Changes in Internal Control over Financial Reporting
There have been no material changes during the period covered by
this quarterly report in the Partnership?s internal control over
financial reporting (as defined in Rules 13a-15(f) and 15d-15(f)
of the Exchange Act) or in other factors that could significantly
affect these controls subsequent to the date of their evaluation.
Item 4T. CONTROLS AND PROCEDURES
Not applicable.
<page> PART II. OTHER INFORMATION
Item 1A. RISK FACTORS
There have been no material changes from the risk factors
previously referenced in the Partnership?s Report on Form 10-K for
the fiscal year ended December 31, 2007. <table> <caption>
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
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 and with
becoming 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 29,135,884.684
Units unsold through 3/31/08 12,864,115.316
Total Units sold
through 3/31/08 43,749,851.784
(pre and post conversion)
</table>
- - 41 -
<page> The managing underwriter for the Partnership is MS&Co.
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 March 31, 2008, was
$989,965,926.
Since no expenses are chargeable against proceeds, 100% of the
proceeds of the offering have been applied to the working capital
of the Partnership for use in accordance with the "Use of
Proceeds" section of the prospectus included as part of the above
referenced Registration Statements.
Item 5. OTHER INFORMATION
Management. Effective March 20, 2008, Mr. Michael Durbin, age
40, was named a Director of Demeter, subject to approval by the
National Futures Association. Mr. Durbin is a Managing Director
of Morgan Stanley and has been Chief Operating Officer of
National Sales since February 2008. Mr. Durbin joined Morgan
Stanley in 1990 and has served in a succession of leadership
positions in both its institutional and wealth management
businesses, most recently as head of Global Wealth Management
Group Capital Markets from October 2007 to February 2008. Mr.
Durbin also served as Head of Equity Products and Services from
- 42 -
<page> March 2006 to October 2007, Head of International Private
Wealth Management from May 2005 to March 2006, Chief Strategic
and Risk Officer of Global Wealth Management Group from September
2004 to May 2005, and Chief Administrative Officer of each of
Private Wealth Management and Global Wealth Management Group from
January 2002 to September 2004. Mr. Durbin received his B.B.A.
from the University of Notre Dame in 1990 and an M.B.A. from the
New York University in 1998.
Effective March 20, 2008, Mr. Jose Morales, age 31, was named a
Director of Demeter, subject to approval by the National Futures
Association. Mr. Morales is a Vice President at Morgan Stanley
and has headed the Product Development Group for the firm?s
Global Wealth Management business since August 2007. Mr. Morales
joined the firm in September 1998 as an analyst in the investment
management division, and subsequently held positions in the
Morgan Stanley Investment Management Global Product Development
Group from May 2000 to December 2003, in the Global Wealth
Management Product Development Group from December 2003 to June
2006, and in Global Wealth Management Alternative Investments
Product Development & Management from June 2006 to August 2007.
Mr. Morales is a member of the Global Wealth Management New
Products Committee and the Consulting Services Due Diligence
Committee. Prior to his appointment as a Director of Demeter,
- 43 -
<page> Mr. Morales served as a member of the Managed Futures
Investment Management Committee from March 2005 to March 2008.
Mr. Morales received an M.B.A. with a concentration in Finance
from the NYU Stern School of Business in June 2007 and a B.S. in
International Business Administration with a concentration in
Economics from Fordham University in 1998.
Effective April 1, 2008, Mr. Andrew Saperstein no longer serves
as a Director of Demeter.
Item 6. EXHIBITS
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.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
Morgan Stanley Spectrum Select L.P.
(Registrant)
By: Demeter Management Corporation
(General Partner)
May 15, 2008 By:/s/ Christian Angstadt
Christian Angstadt
Chief Financial Officer
The General Partner which signed the above is the only party
authorized to act for the Regisrant. The Registrant has no
principal executive officer, principal financial officer,
controller, or principal accounting officer and has no Board of
Directors.
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