Morgan Stanley
Spectrum Series
Annual Report
December 31, 2012
CERES MANAGED FUTURES LLC
To the Limited Partners of
Morgan Stanley Smith Barney Spectrum Currency and Commodity L.P.
Morgan Stanley Smith Barney Spectrum Global Balanced L.P.
Morgan Stanley Smith Barney Spectrum Select L.P.
Morgan Stanley Smith Barney Spectrum Strategic L.P.
Morgan Stanley Smith Barney Spectrum Technical L.P.
To the best of the knowledge and belief of the undersigned, the information
contained herein is accurate and complete.
/s/ Walter Davis
-----------------------------------
By: Walter Davis
President and Director
Ceres Managed Futures LLC
General Partner,
Morgan Stanley Smith Barney
Spectrum Currency and
Commodity L.P.
Morgan Stanley Smith Barney
Spectrum Global Balanced L.P.
Morgan Stanley Smith Barney
Spectrum Select L.P.
Morgan Stanley Smith Barney
Spectrum Strategic L.P.
Morgan Stanley Smith Barney
Spectrum Technical L.P.
Ceres Managed Futures LLC
522 Fifth Avenue
14th Floor
New York, NY 10036
(855) 672-4468
Management's Report on Internal Control Over
Financial Reporting
Ceres Managed Futures LLC ("Ceres"), the general partner of Morgan Stanley
Smith Barney Spectrum Currency and Commodity L.P., Morgan Stanley Smith Barney
Spectrum Global Balanced L.P., Morgan Stanley Smith Barney Spectrum Select
L.P., Morgan Stanley Smith Barney Spectrum Strategic L.P., and Morgan Stanley
Smith Barney Spectrum Technical L.P. (collectively, the "Partnerships"), is
responsible for the management of the Partnerships.
Management of the Partnerships, Ceres ("Management"), is responsible for
establishing and maintaining adequate internal control over financial reporting
as defined in Rules 13a - 15(f) and 15d - 15(f) under the Securities Exchange
Act of 1934 and for the assessment of internal control over financial
reporting. The Partnerships' internal control over financial reporting is a
process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with accounting principles generally accepted in the
United States of America. The Partnerships' internal control over financial
reporting includes those policies and procedures that:
(i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets
of the Partnerships;
(ii) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with
accounting principles generally accepted in the United States of America, and
that receipts and expenditures of the Partnerships are being made only in
accordance with authorizations of Management and directors of Ceres; and
(iii) provide reasonable assurance regarding prevention or timely detection
and correction 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 has assessed the effectiveness of the Partnerships' internal
control over financial reporting as of December 31, 2012. In making this
assessment, Management used the criteria set forth in the Internal
Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Based on its assessment,
Management concluded that the Partnerships maintained effective internal
control over financial reporting as of December 31, 2012 based on the criteria
referred to above.
/s/ Walter Davis /s/ Damian George
------------------------------------- --------------------------------------
Walter Davis Damian George
President and Director Chief Financial Officer and Director
Ceres Managed Futures LLC Ceres Managed Futures LLC
General Partner, General Partner,
Morgan Stanley Smith Barney Spectrum Morgan Stanley Smith Barney Spectrum
Currency and Commodity L.P. Currency and Commodity L.P.
Morgan Stanley Smith Barney Spectrum Morgan Stanley Smith Barney Spectrum Global
Global Balanced L.P. Balanced L.P.
Morgan Stanley Smith Barney Spectrum Morgan Stanley Smith Barney Spectrum
Select L.P. Select L.P.
Morgan Stanley Smith Barney Spectrum Morgan Stanley Smith Barney Spectrum
Strategic L.P. Strategic L.P.
Morgan Stanley Smith Barney Spectrum Morgan Stanley Smith Barney Spectrum
Technical L.P. Technical L.P.
[LOGO]
[GRAPHIC]
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Limited Partners and the General Partner of Morgan Stanley Smith
Barney Spectrum Currency and Commodity L.P., Morgan Stanley Smith Barney
Spectrum Global Balanced L.P., Morgan Stanley Smith Barney Spectrum Select
L.P., Morgan Stanley Smith Barney Spectrum Strategic L.P., and Morgan Stanley
Smith Barney Spectrum Technical L.P.:
We have audited the accompanying statements of financial condition of Morgan
Stanley Smith Barney Spectrum Currency and Commodity L.P., Morgan Stanley Smith
Barney Spectrum Global Balanced L.P., Morgan Stanley Smith Barney Spectrum
Select L.P., Morgan Stanley Smith Barney Spectrum Strategic L.P., and Morgan
Stanley Smith Barney Spectrum Technical L.P. (collectively, the
"Partnerships"), including the condensed schedules of investments, as of
December 31, 2012 and 2011, and the related statements of income and expenses
and changes presented in partners' capital for each of the three years in the
period ended December 31, 2012. 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. The Partnerships
are not required to have, nor were we engaged to perform, an audit of their
internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose
of expressing an opinion on the effectiveness of the Partnerships' internal
control over financial reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, 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 Smith Barney Spectrum
Currency and Commodity L.P., Morgan Stanley Smith Barney Spectrum Global
Balanced L.P., Morgan Stanley Smith Barney Spectrum Select L.P., Morgan Stanley
Smith Barney Spectrum Strategic L.P., and Morgan Stanley Smith Barney Spectrum
Technical L.P. as of December 31, 2012 and 2011, and the results of their
operations and their changes in partners' capital for each of the three years
in the period ended December 31, 2012, in conformity with accounting principles
generally accepted in the United States of America.
/s/ Deloitte & Touche LLP
March 25, 2013
Morgan Stanley Smith Barney Spectrum Currency and Commodity L.P.
Statements of Financial Condition
December 31,
---------------------
2012 2011
---------- ----------
$ $
ASSETS
Trading Equity:
Investment in KR Master Fund........................................... 10,109,603 --
Investment in Cambridge Master Fund.................................... 6,920,831 --
---------- ----------
Total Investments in Master Funds................................... 17,030,434 --
Unrestricted cash..................................................... 6,788,072 35,693,205
Restricted cash....................................................... -- 125,600
---------- ----------
Total cash.......................................................... 6,788,072 35,818,805
---------- ----------
Net unrealized gain (loss) on open contracts (MS&Co.)................. 43,205 (88,387)
Options purchased (premiums paid $0 and $3,273, respectively)......... -- 1,534
---------- ----------
Total Trading Equity................................................ 23,861,711 35,731,952
Interest receivable (MS&Co. & Morgan Stanley Wealth Management)........ 710 98
---------- ----------
Total Assets........................................................ 23,862,421 35,732,050
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES
Redemptions payable.................................................... 422,017 724,150
Accrued brokerage fees (MS&Co.)........................................ 90,602 134,931
Accrued management fees................................................ 36,617 58,665
---------- ----------
Total Liabilities................................................... 549,236 917,746
---------- ----------
PARTNERS' CAPITAL
Limited Partners (3,043,048.335 and 3,983,851.059 Units, respectively). 23,041,527 34,396,076
General Partner (35,877.343 and 48,440.343 Units, respectively)........ 271,658 418,228
---------- ----------
Total Partners' Capital............................................... 23,313,185 34,814,304
---------- ----------
Total Liabilities and Partners' Capital............................... 23,862,421 35,732,050
========== ==========
NET ASSET VALUE PER UNIT............................................... 7.57 8.63
========== ==========
The accompanying notes are an integral part of these financial statements.
Morgan Stanley Smith Barney Spectrum Currency and Commodity L.P.
Statements of Income and Expenses
For the Years Ended December 31,
-------------------------------------------
2012 2011 2010
------------- ------------- -------------
$ $ $
INVESTMENT INCOME
Interest income (MS&Co. & Morgan Stanley
Wealth Management)............................ 17,704 14,552 48,130
------------- ------------- -------------
EXPENSES
Brokerage fees (MS&Co.)......................... 1,345,522 1,909,452 2,485,116
Management fees................................. 547,886 830,197 1,080,486
------------- ------------- -------------
Total Expenses................................ 1,893,408 2,739,649 3,565,602
------------- ------------- -------------
NET INVESTMENT LOSS.............................. (1,875,704) (2,725,097) (3,517,472)
------------- ------------- -------------
TRADING RESULTS
Trading profit (loss):
Net realized.................................... (199,068) (483,261) (745,965)
Net change in unrealized........................ 133,331 (1,210,781) 1,584,602
Realized loss on investment in KR Master Fund... (488,412) -- --
Realized loss on investment in FL Master Fund... (2,033,985) -- --
Realized loss on investment in Cambridge Master
Fund.......................................... (44,139) -- --
Unrealized appreciation on investment in FL
Master Fund................................... 514,630 -- --
Unrealized appreciation on investment in KR
Master Fund................................... 52,939 -- --
Unrealized appreciation on investment in
Cambridge Master Fund......................... 123,978 -- --
------------- ------------- -------------
Total Trading Results......................... (1,940,726) (1,694,042) 838,637
------------- ------------- -------------
NET LOSS......................................... (3,816,430) (4,419,139) (2,678,835)
============= ============= =============
Net Loss Allocation
Limited Partners................................. (3,769,861) (4,369,934) (2,651,894)
General Partner.................................. (46,569) (49,205) (26,941)
Net Loss Per Unit*
Limited Partners................................. (1.06) (0.94) (0.46)
General Partner.................................. (1.06) (0.94) (0.46)
Units Units Units
------------- ------------- -------------
WEIGHTED AVERAGE NUMBER OF UNITS
OUTSTANDING.................................... 3,584,790.785 4,606,460.437 5,569,769.759
* Based on change in Net Asset Value per Unit.
The accompanying notes are an integral part of these financial statements.
Morgan Stanley Smith Barney Spectrum Global Balanced L.P.
Statements of Financial Condition
December 31,
----------------------
2012 2011
---------- ----------
$ $
ASSETS
Trading Equity:
Unrestricted cash................................................. 9,403,917 12,202,453
Restricted cash................................................... 899,358 989,964
---------- ----------
Total cash...................................................... 10,303,275 13,192,417
---------- ----------
Net unrealized gain on open contracts (MS&Co.).................... 1,019,443 1,186,221
Net unrealized gain (loss) on open contracts (MSIP)............... (37,664) 34,556
---------- ----------
Total net unrealized gain on open contracts..................... 981,779 1,220,777
---------- ----------
Options purchased (premiums paid $0 and $1,737, respectively)...... -- 814
---------- ----------
Total Trading Equity............................................ 11,285,054 14,414,008
Interest receivable (MS&Co. & Morgan Stanley Wealth Management).... 422 49
---------- ----------
Total Assets.................................................... 11,285,476 14,414,057
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES
Redemptions payable................................................ 117,253 273,368
Accrued brokerage fees (MS&Co.).................................... 42,933 54,606
Options written (premiums received $12,772 and $0, respectively)... 22,859 --
Accrued management fees............................................ 13,727 17,799
---------- ----------
Total Liabilities............................................... 196,772 345,773
---------- ----------
PARTNERS' CAPITAL
Limited Partners (776,379.501 and 936,792.541 Units, respectively). 10,917,812 13,888,123
General Partner (12,152.331 and 12,152.331 Units, respectively).... 170,892 180,161
---------- ----------
Total Partners' Capital........................................... 11,088,704 14,068,284
---------- ----------
Total Liabilities and Partners' Capital........................... 11,285,476 14,414,057
========== ==========
NET ASSET VALUE PER UNIT........................................... 14.06 14.83
========== ==========
The accompanying notes are an integral part of these financial statements.
Morgan Stanley Smith Barney Spectrum Global Balanced L.P.
Statements of Income and Expenses
For the Years Ended December 31,
-----------------------------------------
2012 2011 2010
----------- ------------- -------------
$ $ $
INVESTMENT INCOME
Interest income (MS&Co. & Morgan Stanley Wealth
Management)................................... 9,876 7,327 22,423
----------- ------------- -------------
EXPENSES
Brokerage fees (MS&Co.)......................... 591,826 764,480 905,997
Management fees................................. 190,827 246,609 295,068
----------- ------------- -------------
Total Expenses................................ 782,653 1,011,089 1,201,065
----------- ------------- -------------
NET INVESTMENT LOSS.............................. (772,777) (1,003,762) (1,178,642)
----------- ------------- -------------
TRADING RESULTS
Trading profit (loss):
Net realized.................................... 370,013 (1,151,478) 3,283,491
Net change in unrealized........................ (248,162) (339,048) 189,151
Proceeds from Litigation........................ -- -- 29,602
----------- ------------- -------------
Total Trading Results......................... 121,851 (1,490,526) 3,502,244
----------- ------------- -------------
NET INCOME (LOSS)................................ (650,926) (2,494,288) 2,323,602
=========== ============= =============
Net Income (Loss) Allocation
Limited Partners................................. (641,657) (2,466,376) 2,299,999
General Partner.................................. (9,269) (27,912) 23,603
Net Income (Loss) Per Unit*
Limited Partners................................. (0.77) (2.29) 1.89
General Partner.................................. (0.77) (2.29) 1.89
Units Units Units
----------- ------------- -------------
WEIGHTED AVERAGE NUMBER OF UNITS
OUTSTANDING.................................... 879,118.270 1,056,873.607 1,234,612.751
* Based on change in Net Asset Value per Unit.
The accompanying notes are an integral part of these financial statements.
Morgan Stanley Smith Barney Spectrum Select L.P.
Statements of Financial Condition
December 31,
------------------------
2012 2011
----------- -----------
$ $
ASSETS
Trading Equity:
Unrestricted cash.............................................. 171,164,335 250,786,399
Restricted cash................................................ 27,192,268 37,327,727
----------- -----------
Total cash................................................... 198,356,603 288,114,126
----------- -----------
Net unrealized gain on open contracts (MS&Co.)................. 3,072,667 6,712,081
Net unrealized loss on open contracts (MSIP)................... (521,313) (310,182)
----------- -----------
Total net unrealized gain on open contracts.................. 2,551,354 6,401,899
----------- -----------
Total Trading Equity......................................... 200,907,957 294,516,025
Interest receivable (MS&Co. & Morgan Stanley Wealth Management). 6,032 808
----------- -----------
Total Assets................................................. 200,913,989 294,516,833
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES
Redemptions payable............................................. 3,642,807 6,464,963
Accrued brokerage fees (MS&Co.)................................. 994,527 1,459,689
Accrued management fees......................................... 302,574 447,773
----------- -----------
Total Liabilities............................................ 4,939,908 8,372,425
----------- -----------
PARTNERS' CAPITAL
Limited Partners (6,979,883.723 and 9,059,136.131 Units,
respectively)................................................. 193,760,270 283,036,281
General Partner (79,748.769 and 99,481.769 Units, respectively). 2,213,811 3,108,127
----------- -----------
Total Partners' Capital........................................ 195,974,081 286,144,408
----------- -----------
Total Liabilities and Partners' Capital........................ 200,913,989 294,516,833
=========== ===========
NET ASSET VALUE PER UNIT........................................ 27.76 31.24
=========== ===========
The accompanying notes are an integral part of these financial statements.
Morgan Stanley Smith Barney Spectrum Select L.P.
Statements of Income and Expenses
For the Years Ended December 31,
---------------------------------------------
2012 2011 2010
------------- -------------- --------------
$ $ $
INVESTMENT INCOME
Interest income (MS&Co. & Morgan Stanley
Wealth Management)..................... 153,597 125,873 371,072
------------- -------------- --------------
EXPENSES
Brokerage fees (MS&Co.).................. 15,124,033 21,431,854 24,726,203
Management fees.......................... 4,610,705 7,263,522 9,509,245
Incentive fees........................... -- 2,034,158 2,487,064
------------- -------------- --------------
Total Expenses......................... 19,734,738 30,729,534 36,722,512
------------- -------------- --------------
NET INVESTMENT LOSS....................... (19,581,141) (30,603,661) (36,351,440)
------------- -------------- --------------
TRADING RESULTS
Trading profit (loss):
Net realized............................. (2,747,878) (23,852,820) 25,513,507
Net change in unrealized................. (3,850,545) (13,401,268) 7,787,866
Proceeds from Litigation................. -- -- 337,120
------------- -------------- --------------
Total Trading Results.................. (6,598,423) (37,254,088) 33,638,493
------------- -------------- --------------
NET LOSS.................................. (26,179,564) (67,857,749) (2,712,947)
============= ============== ==============
Net Loss Allocation
Limited Partners.......................... (25,885,258) (67,138,290) (2,687,785)
General Partner........................... (294,306) (719,459) (25,162)
Net Income (Loss) Per Unit*
Limited Partners.......................... (3.48) (6.79) 0.07
General Partner........................... (3.48) (6.79) 0.07
Units Units Units
------------- -------------- --------------
WEIGHTED AVERAGE NUMBER OF UNITS
OUTSTANDING............................. 8,177,824.370 10,069,277.824 11,625,750.592
* Based on change in Net Asset Value per Unit.
The accompanying notes are an integral part of these financial statements.
Morgan Stanley Smith Barney Spectrum Strategic L.P.
Statements of Financial Condition
December 31,
----------------------
2012 2011
---------- -----------
$ $
ASSETS
Investment in BHM I, LLC (cost $17,491,367 and $55,017,097,
respectively)........................................................ 63,045,391 101,259,072
Investment in PGR Master Fund (cost $6,033,345 and $8,952,411,
respectively)........................................................ 5,021,111 9,193,011
Investment in MB Master Fund (cost $8,102,894 and $8,952,411,
respectively)........................................................ 8,142,971 8,832,023
---------- -----------
Total Investments................................................... 76,209,473 119,284,106
Interest receivable (MS&Co. & Morgan Stanley Wealth Management)........ 2,273 328
---------- -----------
Total Assets........................................................ 76,211,746 119,284,434
========== ===========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES
Redemptions payable.................................................... 1,590,323 1,603,104
Accrued brokerage fees (MS&Co.)........................................ 387,030 596,827
Accrued management fees................................................ 174,921 272,302
Accrued incentive fee.................................................. -- 37,676
---------- -----------
Total Liabilities................................................... 2,152,274 2,509,909
---------- -----------
PARTNERS' CAPITAL
Limited Partners (5,140,837.802 and 7,211,352.161 Units, respectively). 73,232,715 115,518,403
General Partner (58,037.274 and 78,414.692 Units, respectively)........ 826,757 1,256,122
---------- -----------
Total Partners' Capital............................................... 74,059,472 116,774,525
---------- -----------
Total Liabilities and Partners' Capital............................... 76,211,746 119,284,434
========== ===========
NET ASSET VALUE PER UNIT............................................... 14.25 16.02
========== ===========
The accompanying notes are an integral part of these financial statements.
Morgan Stanley Smith Barney Spectrum Strategic L.P.
Statements of Income and Expenses
For the Years Ended December 31,
-------------------------------------------
2012 2011 2010
------------- ------------- -------------
$ $ $
INVESTMENT INCOME
Interest income (MS&Co. & Morgan Stanley
Wealth Management)......................... 57,466 53,908 147,814
------------- ------------- -------------
EXPENSES
Brokerage fees (MS&Co.)...................... 5,825,816 9,254,864 9,956,090
Management fees.............................. 2,647,299 4,157,245 4,589,666
Incentive fees............................... -- 1,238,078 3,117,691
------------- ------------- -------------
Total Expenses............................. 8,473,115 14,650,187 17,663,447
------------- ------------- -------------
NET INVESTMENT LOSS........................... (8,415,649) (14,596,279) (17,515,633)
------------- ------------- -------------
TRADING RESULTS
Trading profit (loss):
Net realized................................. -- 2,750,625 11,512,792
Net change in unrealized..................... -- (8,555,065) 7,129,344
Realized gain (loss) on investment in BHM I,
LLC........................................ (429,295) (958,118) 1,679,125
Realized loss on investment in PGR Master
Fund....................................... (25,751) -- --
Realized gain on investment in MB Master
Fund....................................... 3,838 -- --
Unrealized appreciation (depreciation) on
investment in BHM I, LLC................... (687,951) (21,346,446) 16,522,092
Unrealized appreciation (depreciation) on
investment in PGR Master Fund.............. (1,252,834) 240,600 --
Unrealized appreciation (depreciation) on
investment in MB Master Fund............... 160,465 (120,388) --
Proceeds from Litigation..................... -- -- 220,755
------------- ------------- -------------
Total Trading Results...................... (2,231,528) (27,988,792) 37,064,108
------------- ------------- -------------
NET INCOME (LOSS)............................. (10,647,177) (42,585,071) 19,548,475
============= ============= =============
Net Income (Loss) Allocation
Limited Partners.............................. (10,517,888) (42,124,253) 19,344,514
General Partner............................... (129,289) (460,818) 203,961
Net Income (Loss) Per Unit*
Limited Partners.............................. (1.77) (5.47) 2.36
General Partner............................... (1.77) (5.47) 2.36
Units Units Units
------------- ------------- -------------
WEIGHTED AVERAGE NUMBER OF UNITS
OUTSTANDING................................. 6,273,402.856 7,873,786.813 8,988,248.355
* Based on change in Net Asset Value per Unit.
The accompanying notes are an integral part of these financial statements.
Morgan Stanley Smith Barney Spectrum Technical L.P.
Statements of Financial Condition
December 31,
------------------------
2012 2011
----------- -----------
$ $
ASSETS
Trading Equity:
Investment in Blackwater Master Fund............................... 43,685,685 43,800,324
----------- -----------
Unrestricted cash................................................. 120,032,935 195,525,329
Restricted cash................................................... 14,361,905 25,997,636
----------- -----------
Total cash...................................................... 134,394,840 221,522,965
----------- -----------
Net unrealized gain (loss) on open contracts (MSIP)............... (24,094) 528,494
Net unrealized gain (loss) on open contracts (MS&Co.)............. (1,017,450) 8,237,677
----------- -----------
Total net unrealized gain (loss) on open contracts.............. (1,041,544) 8,766,171
----------- -----------
Options purchased (premiums paid $0 and $3,780, respectively)...... -- 1,507
----------- -----------
Total Trading Equity............................................ 177,038,981 274,090,967
Interest receivable (MS&Co. & Morgan Stanley Wealth Management).... 5,291 755
----------- -----------
Total Assets.................................................... 177,044,272 274,091,722
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES
Redemptions payable................................................ 3,098,948 4,351,339
Accrued brokerage fees (MS&Co.).................................... 863,648 1,345,886
Accrued management fees............................................ 199,286 385,820
Accrued incentive fee.............................................. -- 94,355
Options written (premiums received $0 and $7,715, respectively).... -- 3,460
----------- -----------
Total Liabilities............................................... 4,161,882 6,180,860
----------- -----------
PARTNERS' CAPITAL
Limited Partners (10,222,252.707 and 13,483,404.778 Units,
respectively).................................................... 170,851,495 264,947,461
General Partner ( 121,510.879 and 150,810.001 Units, respectively). 2,030,895 2,963,401
----------- -----------
Total Partners' Capital......................................... 172,882,390 267,910,862
----------- -----------
Total Liabilities and Partners' Capital......................... 177,044,272 274,091,722
=========== ===========
NET ASSET VALUE PER UNIT........................................... 16.71 19.65
=========== ===========
The accompanying notes are an integral part of these financial statements.
Morgan Stanley Smith Barney Spectrum Technical L.P.
Statements of Income and Expenses
For the Years Ended December 31,
----------------------------------------------
2012 2011 2010
-------------- -------------- --------------
$ $ $
INVESTMENT INCOME
Interest income (MS&Co. & Morgan Stanley
Wealth Management)..................... 133,904 107,915 314,509
-------------- -------------- --------------
EXPENSES
Brokerage fees (MS&Co.).................. 13,307,993 18,722,379 20,908,735
Management fees.......................... 3,384,253 6,205,832 7,663,963
Incentive fees........................... -- 94,355 --
-------------- -------------- --------------
Total Expenses......................... 16,692,246 25,022,566 28,572,698
Management fee waived.................... (83,982) -- (80,743)
-------------- -------------- --------------
Net Expenses........................... 16,608,264 25,022,566 28,491,955
-------------- -------------- --------------
NET INVESTMENT LOSS....................... (16,474,360) (24,914,651) (28,177,446)
-------------- -------------- --------------
TRADING RESULTS
Trading profit (loss):
Net realized............................. (6,219,265) 11,402,800 29,840,644
Net change in unrealized................. (9,809,697) (11,820,187) 9,887,489
Realized gain (loss) on Investment in
Blackwater Master Fund................. (4,657,167) 167,699 --
Unrealized appreciation on Investment in
Blackwater Master Fund................. 898,526 564,283 --
Proceeds from Litigation................. -- 10,951 164,828
-------------- -------------- --------------
Total Trading Results.................. (19,787,603) 325,546 39,892,961
-------------- -------------- --------------
NET INCOME (LOSS)......................... (36,261,963) (24,589,105) 11,715,515
============== ============== ==============
Net Income (Loss) Allocation
Limited Partners.......................... (35,829,461) (24,340,924) 11,593,566
General Partner........................... (432,502) (248,181) 121,949
Net Income (Loss) Per Unit*
Limited Partners.......................... (2.94) (1.68) 0.80
General Partner........................... (2.94) (1.68) 0.80
Units Units Units
-------------- -------------- --------------
WEIGHTED AVERAGE NUMBER OF UNITS
OUTSTANDING............................. 12,156,580.269 14,975,570.662 17,523,345.833
* Based on change in Net Asset Value per Unit.
The accompanying notes are an integral part of these financial statements.
Morgan Stanley Smith Barney Spectrum Currency and Commodity L.P.
Condensed Schedule of Investments
December 31, 2012
Net unrealized
gain on % of
Futures and Forward Contracts Purchased open contracts Partners' Capital
--------------------------------------- -------------- -----------------
$
Foreign currency.............................. 5,545 0.02
------ ----
Total Futures and Forward Contracts Purchased. 5,545 0.02
------ ----
Futures and Forward Contracts Sold
----------------------------------
Foreign currency.............................. 35,827 0.16
------ ----
Total Futures and Forward Contracts Sold...... 35,827 0.16
------ ----
Unrealized Currency Gain..................... 1,833 0.01
------ ----
Net fair value................................ 43,205 0.19
====== ====
The accompanying notes are an integral part of these financial statements.
Morgan Stanley Smith Barney Spectrum Currency and Commodity L.P.
Condensed Schedule of Investments
December 31, 2011
Net unrealized
gain/(loss) on % of
Futures and Forward Contracts Purchased open contracts Partners' Capital
--------------------------------------- -------------- -----------------
$
Foreign currency.............................. (90,347) (0.25)
------- -----
Total Futures and Forward Contracts Purchased. (90,347) (0.25)
------- -----
Futures and Forward Contracts Sold
----------------------------------
Foreign currency.............................. (33,514) (0.10)
------- -----
Total Futures and Forward Contracts Sold...... (33,514) (0.10)
------- -----
Unrealized Currency Gain..................... 35,474 0.10
------- -----
Net fair value................................ (88,387) (0.25)
======= =====
% of
Option Contracts Fair Value Partners' Capital
---------------- -------------- -----------------
$
Options purchased on Forward Contracts........ 1,534 --(1)
(1)Amounts less than 0.005%
The accompanying notes are an integral part of these financial statements.
Morgan Stanley Smith Barney Spectrum Global Balanced L.P.
Condensed Schedule of Investments
December 31, 2012
Net unrealized
gain/(loss) on % of
Futures and Forward Contracts Purchased open contracts Partners' Capital
--------------------------------------- -------------- -----------------
$
Commodity..................................... (58,726) (0.53)
Equity........................................ 43,098 0.39
Foreign currency.............................. 78,781 0.71
Interest rate................................. 25,589 0.23
------- -----
Total Futures and Forward Contracts Purchased. 88,742 0.80
------- -----
Futures and Forward Contracts Sold
----------------------------------
Commodity..................................... 11,711 0.11
Equity........................................ (439) --(1)
Foreign currency.............................. 24,791 0.22
Interest rate................................. (19,479) (0.18)
------- -----
Total Futures and Forward Contracts Sold...... 16,584 0.15
------- -----
Unrealized Currency Gain..................... 876,453 7.90
------- -----
Net fair value................................ 981,779 8.85
======= =====
% of
Option Contracts Fair Value Partners' Capital
---------------- -------------- -----------------
$
Options written on Future Contracts........... (22,859) (0.21)
(1)Amounts less than 0.005%
The accompanying notes are an integral part of these financial statements.
Morgan Stanley Smith Barney Spectrum Global Balanced L.P.
Condensed Schedule of Investments
December 31, 2011
Net unrealized
gain/(loss) on % of
Futures and Forward Contracts Purchased open contracts Partners' Capital
--------------------------------------- -------------- -----------------
$
Commodity..................................... (15,932) (0.11)
Equity........................................ 5,601 0.04
Foreign currency.............................. 4,129 0.03
Interest rate................................. 68,092 0.48
--------- -----
Total Futures and Forward Contracts Purchased. 61,890 0.44
--------- -----
Futures and Forward Contracts Sold
----------------------------------
Commodity..................................... 211,973 1.51
Equity........................................ 2,015 0.01
Foreign currency.............................. 33,472 0.24
Interest rate................................. 16,565 0.12
--------- -----
Total Futures and Forward Contracts Sold...... 264,025 1.88
--------- -----
Unrealized Currency Gain................... 894,862 6.36
--------- -----
Net fair value................................ 1,220,777 8.68
========= =====
% of
Option Contracts Fair Value Partners' Capital
---------------- -------------- -----------------
$
Options purchased on Forward Contracts........ 814 --(1)
(1)Amounts less than 0.005%
The accompanying notes are an integral part of these financial statements.
Morgan Stanley Smith Barney Spectrum Select L.P.
Condensed Schedule of Investments
December 31, 2012
Net unrealized
gain/(loss) on % of
Futures and Forward Contracts Purchased open contracts Partners' Capital
--------------------------------------- -------------- -----------------
$
Commodity..................................... (257,575) (0.13)
Equity........................................ 1,325,665 0.67
Foreign currency.............................. 856,313 0.43
Interest rate................................. 151,921 0.08
---------- -----
Total Futures and Forward Contracts Purchased. 2,076,324 1.05
---------- -----
Futures and Forward Contracts Sold
----------------------------------
Commodity..................................... (82,988) (0.04)
Equity........................................ (36,283) (0.02)
Foreign currency.............................. 1,942,804 0.99
Interest rate................................. (144,638) (0.07)
---------- -----
Total Futures and Forward Contracts Sold...... 1,678,895 0.86
---------- -----
Unrealized Currency Loss..................... (1,203,865) (0.61)
---------- -----
Net fair value................................ 2,551,354 1.30
========== =====
The accompanying notes are an integral part of these financial statements.
Morgan Stanley Smith Barney Spectrum Select L.P.
Condensed Schedule of Investments
December 31, 2011
Net unrealized
gain/(loss) on % of
Futures and Forward Contracts Purchased open contracts Partners' Capital
--------------------------------------- -------------- -----------------
$
Commodity..................................... (404,913) (0.14)
Equity........................................ 300,106 0.10
Foreign currency.............................. 632,976 0.22
Interest rate................................. 3,429,445 1.20
---------- -----
Total Futures and Forward Contracts Purchased. 3,957,614 1.38
---------- -----
Futures and Forward Contracts Sold
----------------------------------
Commodity..................................... 1,964,218 0.69
Equity........................................ (49,301) (0.02)
Foreign currency.............................. 1,815,614 0.63
Interest rate................................. 17,342 0.01
---------- -----
Total Futures and Forward Contracts Sold...... 3,747,873 1.31
---------- -----
Unrealized Currency Loss................... (1,303,588) (0.46)
---------- -----
Net fair value................................ 6,401,899 2.23
========== =====
The accompanying notes are an integral part of these financial statements.
Morgan Stanley Smith Barney Spectrum Strategic L.P.
Condensed Schedules of Investments
December 31, 2012 and 2011
As of December 31, 2012 and 2011 the Partnership held no futures or forward
contracts; therefore, there were no net unrealized gains or losses on futures
or forward contracts.
The accompanying notes are an integral part of these financial statements.
Morgan Stanley Smith Barney Spectrum Technical L.P.
Condensed Schedule of Investments
December 31, 2012
Net unrealized
gain/(loss) on % of
Futures and Forward Contracts Purchased open contracts Partners' Capital
--------------------------------------- -------------- -----------------
$
Commodity..................................... (255,725) (0.15)
Equity........................................ 965,010 0.56
Foreign currency.............................. 69,363 0.04
Interest rate................................. 322,705 0.19
---------- -----
Total Futures and Forward Contracts Purchased. 1,101,353 0.64
---------- -----
Futures and Forward Contracts Sold
----------------------------------
Commodity..................................... 49,147 0.03
Equity........................................ (9,384) (0.01)
Foreign currency.............................. 1,322,968 0.76
Interest rate................................. (22,477) (0.01)
---------- -----
Total Futures and Forward Contracts Sold...... 1,340,254 0.77
---------- -----
Unrealized Currency Loss..................... (3,483,151) (2.01)
---------- -----
Net fair value................................ (1,041,544) (0.60)
========== =====
(1)Amounts less than 0.005%
The accompanying notes are an integral part of these financial statements.
Morgan Stanley Smith Barney Spectrum Technical L.P.
Condensed Schedule of Investments
December 31, 2011
Net unrealized
gain/(loss) on % of
Futures and Forward Contracts Purchased open contracts Partners' Capital
--------------------------------------- -------------- -----------------
$
Commodity..................................... 193,829 0.07
Equity........................................ 117,796 0.04
Foreign currency.............................. 338,402 0.13
Interest rate................................. 2,934,828 1.10
--------- ----
Total Futures and Forward Contracts Purchased. 3,584,855 1.34
--------- ----
Futures and Forward Contracts Sold
----------------------------------
Commodity..................................... 727,030 0.27
Equity........................................ 350,484 0.13
Foreign currency.............................. 1,218,007 0.45
Interest rate................................. (7,976) --(1)
--------- ----
Total Futures and Forward Contracts Sold...... 2,287,545 0.85
--------- ----
Unrealized Currency Gain..................... 2,893,771 1.08
--------- ----
Net fair value................................ 8,766,171 3.27
========= ====
% of
Option Contracts Fair Value Partners' Capital
---------------- -------------- -----------------
$
Options purchased on Future Contracts......... 1,507 --(1)
Options written on Future Contracts........... (3,460) --(1)
(1)Amounts less than 0.005%
The accompanying notes are an integral part of these financial statements.
Morgan Stanley Smith Barney Spectrum Currency and Commodity L.P.
Statements of Changes in Partners' Capital
For the Years Ended December 31, 2012, 2011, and 2010
Units of
Partnership Limited General
Interest Partners Partner Total
-------------- ---------- -------- ----------
$ $ $
Partners' Capital, December 31, 2009. 6,024,411.202 59,798,213 612,188 60,410,401
Net Loss............................. -- (2,651,894) (26,941) (2,678,835)
Redemptions.......................... (1,003,837.255) (9,641,945) (67,815) (9,709,760)
-------------- ---------- -------- ----------
Partners' Capital, December 31, 2010. 5,020,573.947 47,504,374 517,432 48,021,806
Net Loss............................. -- (4,369,934) (49,205) (4,419,139)
Redemptions.......................... (988,282.545) (8,738,364) (49,999) (8,788,363)
-------------- ---------- -------- ----------
Partners' Capital, December 31, 2011. 4,032,291.402 34,396,076 418,228 34,814,304
Net Loss............................. -- (3,769,861) (46,569) (3,816,430)
Redemptions.......................... (953,365.724) (7,584,688) (100,001) (7,684,689)
-------------- ---------- -------- ----------
Partners' Capital, December 31, 2012. 3,078,925.678 23,041,527 271,658 23,313,185
============== ========== ======== ==========
The accompanying notes are an integral part of these financial statements.
Morgan Stanley Smith Barney Spectrum Global Balanced L.P.
Statements of Changes in Partners' Capital
For the Years Ended December 31, 2012, 2011, and 2010
Units of
Partnership Limited General
Interest Partners Partner Total
------------- ---------- ------- ----------
$ $ $
Partners' Capital, December 31, 2009. 1,300,346.582 19,608,456 200,894 19,809,350
Net Income........................... -- 2,299,999 23,603 2,323,602
Redemptions.......................... (164,941.216) (2,676,021) (16,424) (2,692,445)
------------- ---------- ------- ----------
Partners' Capital, December 31, 2010. 1,135,405.366 19,232,434 208,073 19,440,507
Net Loss............................. -- (2,466,376) (27,912) (2,494,288)
Redemptions.......................... (186,460.494) (2,877,935) -- (2,877,935)
------------- ---------- ------- ----------
Partners' Capital, December 31, 2011. 948,944.872 13,888,123 180,161 14,068,284
Net Loss............................. -- (641,657) (9,269) (650,926)
Redemptions.......................... (160,413.040) (2,328,654) -- (2,328,654)
------------- ---------- ------- ----------
Partners' Capital, December 31, 2012. 788,531.832 10,917,812 170,892 11,088,704
============= ========== ======= ==========
The accompanying notes are an integral part of these financial statements.
Morgan Stanley Smith Barney Spectrum Select L.P.
Statements of Changes in Partners' Capital
For the Years Ended December 31, 2012, 2011, and 2010
Units of
Partnership Limited General
Interest Partners Partner Total
-------------- ----------- --------- -----------
$ $ $
Partners' Capital, December 31, 2009. 12,241,800.475 459,902,047 4,743,000 464,645,047
Net Loss............................. -- (2,687,785) (25,162) (2,712,947)
Redemptions.......................... (1,481,544.764) (52,293,020) (388,220) (52,681,240)
-------------- ----------- --------- -----------
Partners' Capital, December 31, 2010. 10,760,255.711 404,921,242 4,329,618 409,250,860
Net Loss............................. -- (67,138,290) (719,459) (67,857,749)
Redemptions.......................... (1,601,637.811) (54,746,671) (502,032) (55,248,703)
-------------- ----------- --------- -----------
Partners' Capital, December 31, 2011. 9,158,617.900 283,036,281 3,108,127 286,144,408
Net Loss............................. -- (25,885,258) (294,306) (26,179,564)
Redemptions.......................... (2,098,985.408) (63,390,753) (600,010) (63,990,763)
-------------- ----------- --------- -----------
Partners' Capital, December 31, 2012. 7,059,632.492 193,760,270 2,213,811 195,974,081
============== =========== ========= ===========
The accompanying notes are an integral part of these financial statements.
Morgan Stanley Smith Barney Spectrum Strategic L.P.
Statements of Changes in Partners' Capital
For the Years Ended December 31, 2012, 2011, and 2010
Units of
Partnership Limited General
Interest Partners Partner Total
-------------- ----------- --------- -----------
$ $ $
Partners' Capital, December 31, 2009. 9,424,660.496 178,420,459 1,842,646 180,263,105
Net Income........................... -- 19,344,514 203,961 19,548,475
Redemptions.......................... (1,072,294.567) (20,170,825) (130,199) (20,301,024)
-------------- ----------- --------- -----------
Partners' Capital, December 31, 2010. 8,352,365.929 177,594,148 1,916,408 179,510,556
Net Loss............................. -- (42,124,253) (460,818) (42,585,071)
Redemptions.......................... (1,062,599.076) (19,951,492) (199,468) (20,150,960)
-------------- ----------- --------- -----------
Partners' Capital, December 31, 2011. 7,289,766.853 115,518,403 1,256,122 116,774,525
Net Loss............................. -- (10,517,888) (129,289) (10,647,177)
Redemptions.......................... (2,090,891.777) (31,767,800) (300,076) (32,067,876)
-------------- ----------- --------- -----------
Partners' Capital, December 31, 2012. 5,198,875.076 73,232,715 826,757 74,059,472
============== =========== ========= ===========
The accompanying notes are an integral part of these financial statements.
Morgan Stanley Smith Barney Spectrum Technical L.P.
Statements of Changes in Partners' Capital
For the Years Ended December 31, 2012, 2011, and 2010
Units of
Partnership Limited General
Interest Partners Partner Total
-------------- ----------- --------- -----------
$ $ $
Partners' Capital, December 31, 2009. 18,553,669.110 376,999,886 3,828,384 380,828,270
Net Income........................... -- 11,593,566 121,949 11,715,515
Redemptions.......................... (2,459,504.974) (48,948,977) (338,781) (49,287,758)
-------------- ----------- --------- -----------
Partners' Capital, December 31, 2010. 16,094,164.136 339,644,475 3,611,552 343,256,027
Net Loss............................. -- (24,340,924) (248,181) (24,589,105)
Redemptions.......................... (2,459,949.357) (50,356,090) (399,970) (50,756,060)
-------------- ----------- --------- -----------
Partners' Capital, December 31, 2011. 13,634,214.779 264,947,461 2,963,401 267,910,862
Net Loss............................. -- (35,829,461) (432,502) (36,261,963)
Redemptions.......................... (3,290,451.193) (58,266,505) (500,004) (58,766,509)
-------------- ----------- --------- -----------
Partners' Capital, December 31, 2012. 10,343,763.586 170,851,495 2,030,895 172,882,390
============== =========== ========= ===========
The accompanying notes are an integral part of these financial statements.
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
1. Organization
Morgan Stanley Smith Barney Spectrum Currency and Commodity L.P. ("Spectrum
Currency"), Morgan Stanley Smith Barney Spectrum Global Balanced L.P.
("Spectrum Global Balanced"), Morgan Stanley Smith Barney Spectrum Select L.P.,
("Spectrum Select"), Morgan Stanley Smith Barney Spectrum Strategic L.P.
("Spectrum Strategic") and Morgan Stanley Smith Barney 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") (refer to Note 6. Financial Instruments).
Ceres Managed Futures LLC, a Delaware limited liability company, acts as the
general partner ("Ceres" or the "General Partner") and commodity pool operator
of the Partnerships. Ceres is a wholly-owned subsidiary of Morgan Stanley Smith
Barney Holdings LLC ("MSSBH"). MSSBH is majority-owned indirectly by Morgan
Stanley and minority-owned indirectly by Citigroup Inc. Morgan Stanley Smith
Barney LLC is doing business as Morgan Stanley Wealth Management ("Morgan
Stanley Wealth Management"). This entity, where the Partnerships continue to
maintain a cash account, previously acted as a non-clearing commodity broker
for the Partnerships. The clearing commodity brokers are Morgan Stanley & Co.
LLC ("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 Exchange ("LME"). Morgan
Stanley Wealth Management is a principal subsidiary of MSSBH. MS&Co., MSIP, and
MSCG are wholly-owned subsidiaries of Morgan Stanley.
The Partnerships no longer offer units of limited partnership interest
("Unit(s)") for purchase or exchange.
Effective the close of business on October 31, 2012, Ceres terminated the
management agreement dated as of November 1, 1994, and as amended on
November 30, 2000, between Ceres, John W. Henry & Company, Inc. ("JWH") and
Spectrum Technical. Consequently, JWH ceased all trading on behalf of Spectrum
Technical effective October 31, 2012.
Effective the close of business on October 31, 2012, Ceres terminated the
management agreement dated as of November 1, 1994, among Ceres, Chesapeake
Capital Corporation ("Chesapeake") and Spectrum Technical. Consequently,
Chesapeake ceased all trading on behalf of Spectrum Technical effective
October 31, 2012.
On October 22, 2012, Ceres, The Cambridge Strategy (Asset Management)
Limited ("Cambridge") and Spectrum Currency entered into a management agreement
pursuant to which, effective November 1, 2012, Cambridge serves as a trading
advisor to Spectrum Currency and trades its allocated portion of Spectrum
Currency's net assets through its investment in Cambridge Master Fund L.P.
("Cambridge Master Fund") pursuant to Cambridge Asian Markets Alpha Programme.
Effective the close of business on October 10, 2012, Ceres terminated the
management agreement dated as of January 1, 2012, between Ceres, Flintlock
Capital Asset Management, LLC ("Flintlock") and Spectrum Currency. The
Partnership fully redeemed its investment in FL Master Fund L.P. ("FL Master
Fund") effective October 10, 2012.
Effective June 1, 2012, Chesapeake has agreed to temporarily reduce the
management fee it receives from Spectrum Technical from an annual rate of 1/12
of 2% (a 2% annual rate) of adjusted net assets to 1/12 of 1% (a 1% annual
rate) of adjusted net assets.
Effective June 1, 2012, Aspect Capital Limited ("Aspect"), has agreed to
reduce the monthly management fee for Spectrum Technical from 1/12 of 2.0% (a
2.0% annual rate) to 1/12 of 1.5% (a 1.5% annual rate) of the net assets as of
the first day of each month.
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
Effective May 22, 2012, Chesapeake, in consultation with the General Partner
for Spectrum Technical has temporarily reduced the overall leverage of Spectrum
Technical's assets traded pursuant to Chesapeake's Diversified 2XL Program (the
"Program") from 75% of the customary leverage utilized by the Program, to 50%
of the customary leverage utilized by the Program, a reduction of 33.33%. This
reduction in leverage was in response to the current market environment and the
adverse performance experienced by Chesapeake over the past 12 months.
As of January 2, 2012, the General Partner changed the trading strategy of
Spectrum Currency to a strategy in which the trading advisors employ
proprietary trading models and methodologies that seek to identify favorable
price relationships between and among various global currency and commodity
markets through the analysis of technical market information. Spectrum Currency
aims to achieve capital appreciation through speculative trading directly and
indirectly, in U.S. and international markets for currencies, agricultural and
energy products and precious and base metals. Spectrum Currency may employ
futures, options on futures, and forward contracts in those markets.
Effective January 1, 2012, the management fee payable by Spectrum Technical
to Winton Capital Management Limited ("Winton") was reduced from a monthly
management fee rate equal to 1/6 of 1% (a 2% annual rate) per month of net
assets allocated to Winton on the first day of each month to a monthly
management fee rate equal to 1/12 of 1.5% (a 1.5% annual rate) per month of net
assets allocated to Winton on the first day of each month.
Effective January 1, 2012, the General Partner added Flintlock and Krom
River Investment Management (Cayman) Limited (together with its affiliate, Krom
River Trading AG) ("Krom") as trading advisors to manage the assets of Spectrum
Currency through its investments in FL Master Fund and KR Master Fund L.P. ("KR
Master Fund"), respectively.
Effective December 31, 2011, the General Partner removed the following
trading advisors from the Spectrum Currency: JWH and Sunrise Capital Partners,
LLC ("Sunrise"). Consequently, both JWH and Sunrise ceased all futures interest
trading on behalf of Spectrum Currency as of that date.
Effective December 1, 2011, the General Partner added Aventis Asset
Management LLC ("Aventis") and PGR Capital LLP ("PGR") as trading advisors to
manage the assets of Spectrum Strategic through its investment in MB Master
Fund L.P. ("MB Master Fund") and PGR Master Fund L.P.( "PGR Master Fund"),
respectively.
Effective December 1, 2011, the General Partner added Blackwater Capital
Management LLC ("Blackwater") as a trading advisor to manage the assets of
Spectrum Technical through its investment in Blackwater Master Fund L.P.
("Blackwater Master Fund").
Effective November 30, 2011, the General Partner has removed Eclipse Capital
Management Inc. ("Eclipse") as a trading advisor to Spectrum Strategic.
Effective as of the close of business on August 31, 2011, DKR Fusion
Management L.P. ("DKR") was terminated as a trading advisor to Spectrum
Strategic.
Effective August 1, 2011, JWH started trading the net assets of Spectrum
Technical allocated to JWH (the "JWH Account") in accordance with the JWH
Global Analytics trading program and ceased trading the JWH Account in
accordance with JWH's Financial and Metals Portfolio.
Effective as of the close of business on May 31, 2011, DKR was terminated as
a trading advisor to Spectrum Currency.
Effective May 31, 2011, Morgan Stanley & Co. Incorporated changed its name
to Morgan Stanley & Co. LLC.
Effective March 1, 2010, Spectrum Strategic, the General Partner and DKR
entered into a management agreement pursuant to which, effective March 1, 2010,
DKR served as a trading advisor for Spectrum Strategic and traded its allocated
portion of net assets pursuant to DKR's Quantitative Strategies 2X trading
program.
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
Effective February 19, 2010, the General Partner notified FX Concepts
Trading Advisor, Inc. ("FX Concepts") that the management agreement dated as of
October 9, 2007 and any amendments or revisions subsequently made thereto,
among Spectrum Strategic, the General Partner and FX Concepts, pursuant to
which FX Concepts traded a portion of Spectrum Strategic's assets in commodity
interest contracts, would be terminated effective February 26, 2010.
Consequently, FX Concepts ceased all commodity interest trading on behalf of
Spectrum Strategic effective February 26, 2010.
Effective February 19, 2010, the General Partner notified FX Concepts that
the management agreement dated as of October 9, 2007, and any amendments or
revisions subsequently made thereto, among Spectrum Currency, the General
Partner and FX Concepts, pursuant to which FX Concepts traded a portion of the
Spectrum Currency's assets in commodity interest contracts, would be terminated
effective February 26, 2010. Consequently, FX Concepts ceased all commodity
interest trading on behalf of Spectrum Currency effective February 26, 2010.
Ceres is required to maintain a 1% minimum interest in the equity of each
Partnership and income (losses) are shared by Ceres and the limited partners
based on their proportional ownership interest.
2. Summary of Significant Accounting Policies
Use of Estimates -- The financial statements are prepared in accordance with
accounting principles generally accepted in the United States of America
("U.S. GAAP"), 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 and the differences could be material.
Valuation -- Futures Interests are open commitments until the settlement
date, at which time they are realized. They are valued at fair value, generally
on a daily basis, and the unrealized gains and losses on open contracts (the
difference between contract trade price and market price) are reported in the
Statements of Financial Condition as net unrealized gains or losses on open
contracts. The resulting net change in unrealized gains and losses is reflected
in the change in unrealized trading profit (loss) on open contracts from one
period to the next on the Statements of Income and Expenses. The fair value of
exchange-traded futures, options and forwards contracts is determined by the
various futures exchanges, and reflects the settlement price for each contract
as of the close of business on the last business day of the reporting period.
The fair value of foreign currency forward contracts is extrapolated on a
forward basis from the spot prices quoted as of approximately 3:00 P.M. (E.T.)
of the last business day of the reporting period from various exchanges. The
fair value of non-exchange-traded foreign currency option contracts is
calculated by applying an industry standard model application for options
valuation of foreign currency options, using as input the spot prices, interest
rates, and option implied volatilities quoted as of approximately 3:00 P.M.
(E.T.) on the last business day of the reporting period. Risk arises from
changes in the value of these contracts and the potential inability of
counterparties to perform under the terms of the contracts. There are numerous
factors which may significantly influence the fair value of these contracts,
including interest rate volatility.
The Partnerships may invest in affiliated underlying funds. Relevant
authoritative guidance permits, as a practical expedient, the Partnerships to
measure the fair value of their investments in affiliated underlying funds on
the basis of the net asset value per share of such investments (or the
equivalent) if the net asset value per share of such investments (or the
equivalent) is calculated in a manner consistent with the measurement
principles of applicable authoritative guidance as of the Partnerships'
reporting date. The fair value of Partnership's investment in each affiliated
underlying fund is based on the information provided by the affiliated
underlying fund which reflects the Partnerships' pro rata share of the net
asset value of the affiliated underlying fund (i.e., the practical expedient is
used).
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
The Partnerships may also invest in Master Funds. The Partnerships record
their investments in Master Funds at fair value on the basis of the net asset
value of such investments. The financial statements of the Master Funds,
including the condensed schedule of investments and the notes to the Master
Funds' financial statements, which provide information about the Master Funds'
valuation policy, are attached to this report and should be read with the
Partnerships' financial statements.
The Partnerships may buy or write put and call options through listed
exchanges and the over-the-counter market. The buyer of an option has the right
to purchase (in the case of a call option) or sell (in the case of a put
option) a specified quantity of a specific Futures Interest on the underlying
asset at a specified price prior to or on a specified expiration date. The
writer of an option is exposed to the risk of loss if the fair value of the
Futures Interest on the underlying asset declines (in the case of a put option)
or increases (in the case of a call option). The writer of an option can never
profit by more than the premium paid by the buyer but can potentially lose an
unlimited amount.
Premiums received/premiums paid from writing/purchasing options are recorded
as liabilities/assets on the Statements of Financial Condition and are
subsequently adjusted to fair values. The difference between the fair value of
the option and the premiums received/premiums paid is treated as an unrealized
gain or loss within the Statements of Income and Expenses.
Revenue Recognition -- Monthly, MS&Co. pays each Partnership interest income
on 100% of the average daily equity maintained in cash in Spectrum Currency,
Spectrum Global Balanced, Spectrum Select, Spectrum Strategic, and Spectrum
Technical accounts during each month at a rate equal to 80% for Spectrum
Currency, Spectrum Select, Spectrum Strategic and Spectrum Technical, and at a
rate equal to 100% for Spectrum Global Balanced of the monthly average of the
4-week U.S. Treasury bill discount rate. MS&Co. retains any interest earned in
excess of the interest paid to the Partnerships. For purposes of such interest
payments, net assets do not include monies due to the Partnerships on Futures
Interests that have not been received.
Fair Value of Financial Instruments -- The fair value of the Partnerships'
assets and liabilities that qualify as financial instruments under the
Financial Accounting Standards Board ("FASB") Accounting Standards Codification
("ASC") guidance relating to financial instruments, approximates the carrying
amount presented in the Statements of Financial Condition.
Foreign Currency Transactions and Translation -- 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 rate 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 rate in effect during the
period. The effects of changes in foreign currency exchange rates on
investments are not segregated in the Statements of Income and Expenses from
the changes in market price of those investments, but are included in the net
realized gain/loss and net change in unrealized trading profit (loss) in the
Statements of Income and Expenses.
Net Income (Loss) per Unit -- Net income (loss) per Unit is computed in
accordance with the specialized accounting for Investment Companies as
illustrated in the Financial Highlights Footnote (refer to Note 9. Financial
Highlights).
Trading Equity -- The Partnerships' asset "Trading Equity," reflected on the
Statements of Financial Condition, consists of (a) cash on deposit with Morgan
Stanley Wealth Management, MS&Co. and MSIP for Spectrum Global Balanced,
Spectrum Select and Spectrum Technical, and with Morgan Stanley Wealth
Management and 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
fair valued and calculated as the difference between original contract value
and fair value; and for the Partnerships which trade in options and, if any,
(c) options purchased at fair value. Options written at fair value are recorded
in "Liabilities" within the Statements of Financial Condition.
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
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 Morgan Stanley Wealth Management, MS&Co. and MSIP, to
the extent that such trading results in unrealized gains or losses, these
amounts are offset for each Partnership and are reported on a net basis on the
Statements of Financial Condition.
The Partnerships have offset their unrealized gains or losses recognized on
forward contracts executed with the same counterparty as allowable under the
terms of their master netting agreements with MS&Co., as the counterparty on
such contracts. The Partnerships have consistently applied their right to
offset.
Restricted and Unrestricted Cash -- As reflected on the Partnerships'
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 contracts and offset
unrealized losses on offset LME positions. All of these amounts are maintained
separately. Cash that is not classified as restricted cash is therefore
classified as unrestricted cash.
Brokerage and Related Transaction Fees and Costs -- The brokerage fees for
Spectrum Currency and Spectrum Global Balanced are currently 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. Such fees
currently cover all brokerage fees, transaction fees and costs, and ordinary
administrative expenses.
Operating Expenses -- The Partnerships incur monthly management fees and may
incur an incentive fee. All common administrative expenses, including legal,
auditing, accounting, filing fees, and other related expenses, are borne by
MS&Co. through the brokerage fees paid by the Partnerships.
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 redemptions must be delivered to a limited
partner's local Morgan Stanley Branch Office in time for it to be forwarded and
received by Ceres 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, with a minimum amount of 50 Units required for each
redemption, unless a limited partner is redeeming his entire interest in a
particular 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 redemptions charges are paid to
MS&Co.
The aggregate amounts of redemption charges paid to MS&Co. for the years
ended December 31, 2012, 2011, and 2010, were as follows:
2012 2011 2010
---- ---- ------
$ $ $
Spectrum Currency........ -- -- 1,653
Spectrum Global Balanced. -- -- 767
Spectrum Select.......... -- -- 25,528
Spectrum Strategic....... -- -- 8,019
Spectrum Technical....... -- -- 9,992
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
Distributions -- Distributions, other than redemptions of Units, are made on
a pro rata basis at the sole discretion of Ceres. No distributions have been
made to date. Ceres 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 revenue and expenses for income tax purposes. The Partnerships
file U.S. federal and state tax returns.
The guidance issued by the FASB on income taxes clarifies the accounting for
uncertainty in income taxes recognized in each Partnership's financial
statements, and prescribes a recognition threshold and measurement attribute
for financial statement recognition and measurement of a tax position taken or
expected to be taken. The Partnerships have concluded that there were no
significant uncertain tax positions that would require recognition in the
financial statements as of December 31, 2012, and 2011. If applicable, the
Partnerships recognize interest accrued related to unrecognized tax benefits in
interest expense and penalties in other expenses in the Statements of Income
and Expenses. Generally, 2009 through 2012 tax years remain subject to
examination by U.S. federal and most state tax authorities. No income tax
returns are currently under examination.
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 -- In September 2011, Spectrum Technical received a
settlement award payment in the amount of $10,951 from the Natural Gas
Commodity Litigation Settlement Administrator. This settlement represents the
Partnership's portion of the Net Settlement Fund. The proceeds from this
settlement were accounted for in the period they were received for the benefit
of the partners in the Partnership.
On July 28, 2010, Spectrum Global Balanced, Spectrum Select, Spectrum
Strategic, and Spectrum Technical, each received a settlement award payment in
the amounts of $29,602, $337,120, $220,755, and $164,828, respectively, from
the Natural Gas Commodity Litigation Settlement Administrator. This settlement
represents each Partnership's portion of the 2006 Net Settlement Fund and the
2007 Net Settlement Fund. The proceeds from this settlement were accounted for
in the period they were received for the benefit of the partners in each
Partnership.
Statement of Cash Flows -- The Partnerships are not required to provide a
Statement of Cash Flows.
Other Pronouncements
On October 1, 2012, the FASB issued Accounting Standards Update ("ASU")
2012-04 "Technical Corrections and Improvements", which makes minor technical
corrections and clarifications to ASC 820, "Fair Value Measurements and
Disclosures". When the FASB issued Statement 157 (codified in ASC 820), it
conformed the use of the term "fair value" in certain pre-Codification
standards but not others. ASU 2012-04 conforms the term's use throughout the
ASC "to fully reflect the fair value measurement and disclosure requirements"
of ASC 820. The ASU also amends the requirements that must be met for an
investment company to qualify for the exemption from presenting a statement of
cash flows, Specifically, it eliminates the requirements that substantially all
of an entity's investments be carried at "market value" and that the
investments be highly liquid, Instead, it requires substantially all of the
entity's investments to be carried at "fair value" and classified as Level 1 or
Level 2 measurements under ASC 820. The amendments are effective for fiscal
periods beginning after December 15, 2012. The adoption of this ASU will not
have a significant impact on the Partnerships' financial statements.
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
In December 2011, the FASB issued ASU 2011-11, "Disclosures about Offsetting
Assets and Liabilities", which creates a new disclosure requirement about the
nature of an entity's rights of setoff and the related arrangements associated
with its financial instruments and derivative instruments. Subsequently in
January 2013, the FASB issued ASU 2013-01 "Clarifying the Scope of Disclosures
about Offsetting Assets and Liabilities", which clarifies the types of
instruments and transactions that are subject to the offsetting disclosure
requirements established by ASU 2011-11. Entities are required to disclose both
gross information and net information about both instruments and transactions
eligible for offset in the statement of financial position and instruments and
transactions subject to an agreement similar to a master netting arrangement.
The objective of these disclosures is to facilitate comparison between those
entities that prepare their financial statements on the basis of U.S. GAAP and
those entities that prepare their financial statements on the basis of
International Financial Reporting Standards ("IFRS"). The disclosure
requirements are effective for annual reporting periods beginning on or after
January 1, 2013, and interim periods within those annual periods. The
Partnerships would also provide the disclosures retrospectively for all
comparative periods presented. The Partnerships are currently evaluating the
impact that these pronouncements would have on the financial statements.
In October 2011, the FASB issued a proposed ASU intended to improve and
converge financial reporting by setting forth consistent criteria for
determining whether an entity is an investment company. Under longstanding U.S.
GAAP, investment companies carry all of their investments at fair value, even
if they hold a controlling interest in another company. The primary changes
being proposed by the FASB relate to which entities would be considered
investment companies as well as certain disclosure and presentation
requirements. In addition to the changes to the criteria for determining
whether an entity is an investment company, the FASB also proposes that an
investment company would be required to consolidate another investment company
if it holds a controlling financial interest in the entity. In August 2012, the
FASB updated the proposed ASU to state that entities regulated under Investment
Company Act of 1940 should qualify to be investment companies within the
proposed investment company guide. The Partnerships will evaluate the impact
that this proposed update would have on the financial statements once the
pronouncement is issued.
3. Investments
a. Spectrum Strategic's investments in affiliated underlying funds
Effective December 1, 2011, Spectrum Strategic invested a portion of its
assets in MB Master Fund and PGR Master Fund. Spectrum Strategic's investment
in MB Master Fund represents approximately 11.0% and 7.6%, and investment in
PGR Master Fund represents approximately 6.8% and 7.9%, respectively, of the
net asset value of Spectrum Strategic as of December 31, 2012, and 2011,
respectively.
Effective January 1, 2008, Spectrum Strategic invested a portion of its
assets in Morgan Stanley Smith Barney BHM I, LLC ("BHM I, LLC"). Spectrum
Strategic's investment in BHM I, LLC represents approximately 85.1% and 86.7%
of the net asset value of Spectrum Strategic at December 31, 2012, and 2011,
respectively.
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
Summarized information for Spectrum Strategic's investment in BHM I, LLC, MB
Master Fund and PGR Master Fund as of December 31, 2012, and 2011, is as
follows:
December 31, 2012
Partnership's
% of pro rata
Partnership Fair Net Income/ Management Incentive Administrative
Investment Net Assets Value (Loss) Fees Fees Fees
---------- ----------- ---------- ------------- ---------- --------- --------------
% $ $ $ $ $
BHM I, LLC...... 85.1 63,045,391 (1,117,246) n/a n/a n/a
MB Master Fund.. 11.0 8,142,971 164,303 n/a n/a n/a
PGR Master Fund. 6.8 5,021,111 (1,278,585) n/a n/a n/a
December 31, 2011
Partnership's
% of pro rata
Partnership Fair Net Income/ Management Incentive Administrative
Investment Net Assets Value (Loss) Fees Fees Fees
---------- ----------- ----------- ------------- ---------- --------- --------------
% $ $ $ $ $
BHM I, LLC...... 86.7 101,259,072 (22,304,564) n/a n/a n/a
PGR Master Fund. 7.9 9,193,011 240,600 n/a n/a n/a
MB Master Fund.. 7.6 8,832,023 (120,388) n/a n/a n/a
Spectrum Strategic does not directly pay BHM I, LLC, PGR Master Fund and MB
Master Fund for its pro rata portion of incentive, management and
administrative fees. Such fees are directly paid by Spectrum Strategic to the
respective parties.
For BHM I, LLC, PGR Master Fund and MB Master Fund contributions and
withdrawals are permitted on a monthly basis.
As of December 31, 2012, and 2011, there have been no suspended redemptions,
"lock up" periods or gate provisions imposed before a withdrawal can be made by
the Partnership.
The tables below represent summarized Income Statement information for BHM
I, LLC for the years ended December 31, 2012, 2011, and 2010, respectively, and
for PGR Master Fund and MB Master Fund for the years ended December 31, 2012,
and 2011, respectively, to meet the requirements of Regulation S-X rule 3-09,
as follows:
Net Total
Investment Investment Trading Net
December 31, 2012 Income/(Loss) Loss Results Loss
----------------- ------------- ---------- ------------ ------------
$ $ $ $
BHM I, LLC........ (48,368) (8,182,509) (9,518,219) (17,700,728)
PGR Master Fund... 26,436 (126,749) (8,963,355) (9,090,104)
MB Master Fund.... 30,442 (691,180) (261,679) (952,859)
Net Total Net
Investment Investment Trading Income
December 31, 2011 Income/(Loss) Loss Results (Loss)
----------------- ------------- ---------- ------------ ------------
$ $ $ $
BHM I, LLC........ (53,603) (7,089,593) (100,575,804) (107,665,397)
PGR Master Fund... 8,507 (110,281) 2,276,086 2,165,805
MB Master Fund.... 963 (325,546) 438,595 113,049
Net Total
Investment Investment Trading Net
December 31, 2010 Loss Loss Results Income
----------------- ------------- ---------- ------------ ------------
$ $ $ $
BHM I, LLC........ (8,738) (4,238,014) 34,087,359 29,849,345
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
b. Spectrum Technical's investment in Blackwater Master Fund
On December 1, 2011, Spectrum Technical invested a portion of its assets in
Blackwater Master Fund, a limited partnership organized under the partnership
laws of the State of Delaware. Blackwater Master Fund was formed to permit
accounts managed now or in the future by Blackwater using the Global Program, a
proprietary, systematic trading program, to invest together in one trading
vehicle. The General Partner is also the general partner for Blackwater Master
Fund. Individual and pooled accounts currently managed by Blackwater, including
Spectrum Technical, are permitted to be limited partners of Blackwater Master
Fund. The General Partner and Blackwater believe that trading through this
structure should promote efficiency and economy in the trading process.
Summarized information reflecting the total assets, liabilities and capital
of Blackwater Master Fund as of December 31, 2012 and 2011, is shown in the
following tables.
December 31, 2012
--------------------------------------
Total
Total Assets Liabilities Total Capital
------------ ----------- -------------
Blackwater Master Fund. $82,996,036 $1,069,352 $81,926,684
December 31, 2011
--------------------------------------
Total
Total Assets Liabilities Total Capital
------------ ----------- -------------
Blackwater Master Fund. $83,066,066 $176,287 $82,889,779
Summarized information for Spectrum Technical's investment in Blackwater
Master Fund as of December 31, 2012 and 2011, is as follows:
% of Partnership's
Partnership Fair pro rata Investment Redemption
December 31, 2012 Net Assets Value Net Loss Objective Permitted
----------------- ----------- ---------- ------------- ---------- ----------
% $ $
Blackwater Master Fund. 25.3 43,685,685 (3,758,641) Commodity Monthly
Portfolio
% of Partnership's
Partnership Fair pro rata Investment Redemption
December 31, 2011 Net Assets Value Net Income Objective Permitted
----------------- ----------- ---------- ------------- ---------- ----------
% $ $
Blackwater Master Fund*. 16.4 43,800,324 731,982 Commodity Monthly
Portfolio
* The Partnership invested in Blackwater Master Fund as of December 1, 2011.
Spectrum Technical's investment into Blackwater Master Fund does not pay any
management, incentive, or administrative fee. Those fees are paid by Spectrum
Technical. Spectrum Technical reimburses Blackwater Master Fund for all
brokerage related fees borne by Blackwater Master Fund on behalf of Spectrum
Technical's investment.
On December 31, 2012 and 2011, Spectrum Technical owned approximately 53.3%
and 52.8%, respectively, of Blackwater Master Fund. It is Spectrum Technical's
intention to continue to invest in Blackwater Master Fund. The performance of
Spectrum Technical is directly affected by the performance of Blackwater Master
Fund.
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
The tables below represent summarized Income Statement information for
Blackwater Master Fund for the years ended December 31, 2012 and 2011,
respectively, to meet the requirements of Regulation S-X rule 3-09, as follows:
Net Total
Investment Investment Trading Net
December 31, 2012 Income Loss Results Loss
----------------- ---------- ---------- ---------- ----------
$ $ $ $
Blackwater Master Fund. 48,607 (110,152) (8,076,139) (8,186,291)
Net Total
Investment Investment Trading Net
December 31, 2011 Income Loss Results Income
----------------- ---------- ---------- --------- ---------
$ $ $ $
Blackwater Master Fund. 9,337 (102,547) 2,948,325 2,845,778
c. Spectrum Currency's investments in KR Master Fund and Cambridge Master Fund
On January 1, 2012, the assets allocated to Flintlock for trading were
invested in FL Master Fund, a limited partnership organized under the
partnership laws of the State of Delaware. FL Master Fund was formed to permit
accounts managed now or in the future by Flintlock using the 2x Flintlock
Commodity Opportunities Partners, LP, a proprietary, systematic trading
program, to invest together in one trading vehicle. The General Partner was
also the general partner for FL Master Fund. Individual and pooled accounts
managed by Flintlock, including Spectrum Currency, were permitted to be limited
partners of FL Master Fund. The General Partner and Flintlock believed that
trading through this structure promoted efficiency and economy in the trading
process. Spectrum Currency fully redeemed its investment in FL Master Fund as
of October 10, 2012.
On January 1, 2012, the assets allocated to Krom for trading were invested
in the KR Master Fund, a limited partnership organized under the partnership
laws of the State of Delaware. KR Master Fund was formed in order to permit
commodity pools managed now or in the future by Krom using the Commodity
Program at 150% Leverage, a fundamental and technical trading system, to invest
together in one trading vehicle. The General Partner is also the general
partner of KR Master Fund. Individual and pooled accounts currently managed by
Krom, including Spectrum Currency, are permitted to be limited partners of KR
Master Fund. The General Partner and Krom believe that trading through this
structure should promote efficiency and economy in the trading process.
On November 1, 2012, the assets allocated to Cambridge for trading were
invested in the Cambridge Master Fund, a limited partnership organized under
the partnership laws of the State of Delaware. Cambridge Master Fund was formed
to permit accounts managed now and in the future by Cambridge using Cambridge
Asian Markets Alpha Programme, to invest together in one trading vehicle. The
General Partner is also the general partner of Cambridge Master Fund.
Individual and pooled accounts currently managed by Cambridge, including
Spectrum Currency, are permitted to be limited partners of Cambridge Master
Fund. The General Partner and Cambridge believe that trading through this
structure should provide efficiency and economy in the trading process.
Summarized information for Spectrum Currency, reflecting the total assets,
liabilities and capital of KR Master Fund and Cambridge Master Fund as of
December 31, 2012, is shown in the following tables.
December 31, 2012
--------------------------------------
Total
Total Assets Liabilities Total Capital
------------ ----------- -------------
KR Master Fund........ $116,058,406 $1,168,169 $114,890,237
Cambridge Master Fund. $ 14,372,049 $ 31,163 $ 14,340,886
------------ ---------- ------------
$130,430,455 $1,199,332 $129,231,123
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
Summarized information for Spectrum Currency's investment in KR Master Fund,
Cambridge Master Fund and FL Master Fund for the period ended December 31,
2012, is as follows:
Partnership's
For the period ended % of pro rata
December 31, 2012 Partnership Fair Net Income/ Investment Redemption
Investment Net Assets Value (Loss) Objective Permitted
-------------------- ----------- ---------- ------------- -------------------- ----------
% $ $
KR Master Fund........ 43.4 10,109,603 (435,473) Commodity Portfolio Monthly
Cambridge Master Fund. 29.7 6,920,831 79,839 Commodity Portfolio Monthly
FL Master Fund........ -- -- (1,519,355) Commodity Portfolio Monthly
Spectrum Currency's investment into Cambridge Master Fund and KR Master Fund
do not pay any management, incentive, or administrative fee. These fees are
paid by Spectrum Currency. Spectrum Currency reimburses Cambridge Master Fund
and KR Master Fund for all brokerage related fees borne by Cambridge Master
Fund and KR Master Fund on behalf of Spectrum Currency's investment.
As of December 31, 2012, Spectrum Currency owned approximately 48.23% and
8.80% of Cambridge Master Fund and KR Master Fund, respectively. It is Spectrum
Currency's intention to continue to invest in Cambridge Master Fund and KR
Master Fund. The performance of Spectrum Currency is directly affected by the
performance of Cambridge Master Fund and KR Master Fund.
The tables below represent summarized Income Statement information for
Cambridge Master Fund and KR Master Fund for the year ended December 31, 2012,
to meet the requirements of Regulation S-X rule 3-09, as follows:
Net Total Net
Investment Investment Trading Income/
December 31, 2012 Income Loss Results (Loss)
----------------- ---------- ---------- ---------- ----------
$ $ $ $
KR Master Fund........ 59,059 (462,208) (4,542,592) (5,004,800)
Cambridge Master Fund. 2,095 (16,586) 539,604 523,018
4. Related Party Transactions
Each Partnership's cash is on deposit in commodity brokerage accounts with
Morgan Stanley. MS&Co. pays interest on these funds as described in Note 2.
Summary of Significant Accounting Policies. Each Partnership pays brokerage
fees to MS&Co. as described in Note 2. Summary of Significant Accounting
Policies. MSCG acts as the counterparty on all trading of options on foreign
currency forward contracts.
5. Trading Advisors
Ceres, 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, 2012, were as follows:
Spectrum Currency
C-View International Limited ("C-View")
Cambridge
Krom
Spectrum Global Balanced
Altis Partners (Jersey) Limited ("Altis")
C-View International Limited
SSARIS Advisors, LLC ("SSARIS")
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
Spectrum Select
Altis Partners (Jersey) Limited
EMC Capital Management, Inc. ("EMC")
Graham Capital Management, L.P. ("Graham")
Northfield Trading L.P. ("Northfield")
Rabar Market Research, Inc. ("Rabar")
Sunrise Capital Management, Inc. ("Sunrise Capital")
Spectrum Strategic
Aventis Asset Management LLC
Blenheim Capital Management, L.L.C. ("Blenheim")
PGR Capital L.P.
Spectrum Technical
Aspect Capital Limited ("Aspect")
Blackwater Capital Management LLC
Campbell & Company, Inc. ("Campbell")
Rotella Capital Management, Inc. ("Rotella")
Winton Capital Management Limited ("Winton")
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% (a 2% annual rate) per month of net assets allocated on the
first day of each month to C-View and Krom and 1/12 of 1.5% (a 1.5% annual
rate) per month of net assets allocated to Cambridge on the last day of each
month.
The monthly management fee payable to Flintlock prior to termination on
October 10, 2012, was 1/12 of 1.5% (a 1.5% annual rate).
The management fee for Spectrum Global Balanced is accrued at a rate of 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 1.25% per month of net assets allocated to
Altis on the first day of each month (a 1.25% 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
1.25% per month of net assets allocated to Altis on the first day of each month
(a 1.25% 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), 1/12 of 2% per month of net
assets allocated to EMC, Rabar, Northfield and Sunrise Capital on the first day
of each month (a 2% annual rate).
Prior to February 1, 2011, the monthly management fee payable to Sunrise
Capital was 1/4 of 1% (a 3% annual rate).
Prior to July 1, 2011, the monthly management fee payable to EMC and Rabar
was 5/24 of 1% (a 2.5% annual rate).
Prior to July 1, 2011, the monthly management fee payable to Northfield was
1/12 of 3% (a 3% annual rate).
The management fee for Spectrum Strategic is accrued at a rate of 1/4 of
1% per month of net assets allocated to Blenheim on the first day of each month
(a 3% annual rate), 1/12 of 1% per month of net assets allocated to PGR on the
first day of each month (a 1% annual rate) and 1/12 of 1.5% per month of net
assets allocated to Aventis on the first day of each month (a 1.5% annual rate).
Effective July 1, 2011, the management fee payable to Eclipse was reduced
from a monthly management fee rate equal to 1/12 of 3% (a 3% annual rate) to a
monthly management fee rate equal
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
to 1/12 of 2% (a 2% annual rate). Eclipse was removed as a trading advisor to
Spectrum Strategic effective November 30, 2011.
Effective June 1, 2011, the monthly management fee payable to DKR was
reduced from a monthly management fee rate equal to 1/12 of 2% (a 2% annual
rate) to a monthly management fee rate equal to 1/12 of 1.75% (a 1.75% annual
rate). DKR was removed as a trading advisor to Spectrum Strategic effective
August 31, 2011.
The management fee for Spectrum Technical is accrued at a rate of 1/12 of
1.5% per month of net assets allocated to Aspect and Winton on the first day of
each month (a 1.5% annual rate), 1/6 of 1% per month of net assets allocated to
Campbell on the first day of each month (a 2% annual rate), 1/12 of 1% per
month of net assets allocated to Rotella on the first day of each month (a 1%
annual rate), and 1/12 of 1.25% per month of net assets allocated to Blackwater
on the first day of each month (a 1.25% annual rate).
Effective October 31, 2012, JWH was terminated as a trading advisor to
Spectrum Technical. The monthly management fee payable to JWH was 1/6 of 1% (a
2% annual rate).
Effective October 31, 2012, Chesapeake was terminated as a trading advisor
to Spectrum Technical. The monthly management fee payable to Chesapeake was
1/12 of 2% (a 2% annual rate).
For the period from June 1, 2012, through October 31, 2012, Chesapeake
temporarily reduced the management fee it received from Spectrum Technical from
an annual rate of 2% of net assets as of the first day of the month, to an
annual rate of 1% of net assets as of the first day of the month.
Prior to June 1, 2012, the monthly management fee payable to Aspect was 1/6
of 1% (a 2% annual rate).
Prior to January 1, 2012, the monthly management fee payable to Winton was
1/6 of 1% (a 2% annual rate).
Prior to June 1, 2011, the monthly management fee payable to Campbell was
1/4 of 1% (a 3% annual rate).
Prior to July 1, 2011, the monthly management fee payable to Rotella was
1/12 of 2% (a 2% annual rate).
For the period from August 1, 2010, through September 30, 2010, Chesapeake
temporarily reduced the management fee it received from Spectrum Technical from
an annual rate of 2% of net assets as of the first day of the month, to an
annual rate of 1% of net assets as of the first day of the month.
Effective October 1, 2010, through October 31, 2010, Chesapeake's management
fee was increased from an annual rate of 1% of net assets as of the first day
of the month, to an annual rate of 1.5% of net assets as of the first day of
the month.
Effective November 1, 2010, Chesapeake's management fee was reinstated from
an annual rate of 1.5% of net assets as of the first day of the month to an
annual rate of 2% of net assets as of the first day of the month.
Effective January 1, 2010, to July 1, 2011, Spectrum Technical paid Rotella
a monthly management fee equal to 1/6 of 1% of its net assets allocated to
Rotella on the first day of each month (a 2% annual rate).
Incentive Fee -- Spectrum Currency pays a monthly incentive fee equal to 20%
of the trading profits experienced with respect to C-View's allocated net
assets as of the end of each calendar month and Krom's at the end of calendar
quarter, and 15% of the trading profits experienced with respect to Cambridge's
allocated net assets as of the end of each calendar quarter.
Prior to October 10, 2012, Spectrum Currency paid Flintlock a monthly
incentive fee equal to 20% of the trading profits experienced with respect to
Flintlock's allocated net assets as of the end of each
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
calendar quarter. Flintlock was removed as a trading advisor to Spectrum
Currency effective October 10, 2012.
Prior to May 31, 2011, Spectrum Currency paid DKR a monthly incentive fee
equal to 20% of the trading profits experienced with respect to trading
advisor's allocated net assets as of the end of each calendar month. DKR was
removed as a trading advisor to Spectrum Currency effective May 31, 2011.
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 and C-View as of
the end of each calendar month.
Spectrum Select pays a monthly incentive fee equal to 20% of the trading
profits experienced with respect to the net assets allocated to Northfield,
EMC, Sunrise Capital, Rabar, Altis and Graham as of the end of each calendar
month.
Prior to February 1, 2011, the monthly incentive fee rate paid to Sunrise
Capital was 15%.
Prior to July 1, 2011, Spectrum Select paid Northfield a monthly incentive
fee equal to 15% of the trading profits experienced with respect to trading
advisor's allocated net assets as of the end of each calendar month.
Prior to July 1, 2011, Spectrum Select paid EMC and Rabar a monthly
incentive fee equal to 17.5% of the trading profits experienced with respect to
trading advisor's allocated net assets 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 as of
the end of each calendar month, 20% of the trading profits experienced with
respect to the net assets allocated to Aventis as of the end of each calendar
quarter and 20% of the trading profits experienced with respect to the net
assets allocated to PGR as of the end of each calendar year.
For the period from July 1, 2011, to November 30, 2011, Spectrum Strategic
paid Eclipse a monthly incentive fee equal to 20% of the trading profits
experienced with respect to the net assets allocated to Eclipse as of the end
of each calendar month.
Prior to July 1, 2011, Spectrum Strategic paid Eclipse a monthly incentive
fee equal to 15% of the trading profits experienced with respect to the net
assets allocated to Eclipse as of the end of each calendar month.
Prior to August 31, 2011, Spectrum Strategic paid DKR a monthly incentive
fee equal to 20% of the trading profits experienced with respect to the net
assets allocated to DKR as of the end of each calendar month.
Spectrum Technical pays a monthly incentive fee equal to 20% of the trading
profits experienced with respect to the net assets allocated to each of Aspect,
Campbell, Rotella, and Winton as of the end of each calendar month and 20% of
the trading profits experienced with respect to the net assets allocated to
Blackwater as of the end of each calendar year.
Prior to October 31, 2012, Spectrum Technical paid Chesapeake and JWH a
monthly incentive fee equal to 19% and 20%, respectively of the trading profits
experienced with respect to Chesapeake's and JWH's allocated net assets as of
the and 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
redemptions.
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
6. 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 fair value of these
contracts, including interest rate volatility.
The fair value of exchange-traded contracts is based on the settlement price
quoted by the exchange on the day with respect to which fair value is being
determined. If an exchange-traded contract could not have been liquidated on
such day due to the operation of daily limits or other rules of the exchange,
the settlement price will be equal to the settlement price on the first
subsequent day on which the contract could be liquidated. The fair value of
off-exchange-traded contracts is based on the fair value quoted by the
counterparty.
The Partnerships' contracts are accounted for on a trade-date basis. A
derivative is defined as a financial instrument or other contract that has all
three of the following characteristics:
(1) a) One or more "underlyings" and b) one or more "notional amounts" or
payment provisions or both;
(2) Requires no initial net investment or a smaller initial net
investment than would be required for other types of contracts that would be
expected to have a similar response relative to changes in market
factors; and
(3) Terms that require or permit net settlement.
Generally, derivatives include futures, forward, swaps or options contracts,
and other financial instruments with similar characteristics such as caps,
floors, and collars.
The net unrealized gains (losses) on open contracts at December 31, reported
as a component of "Trading Equity" on the Statements of Financial Condition,
and their longest contract maturities were as follows:
Spectrum Currency
Net Unrealized Gains (Losses) on Open Contracts Longest Maturities
---------------------------------------------- -----------------------------------
Year Exchange-Traded Off-Exchange-Traded Total Exchange-Traded Off-Exchange-Traded
---- --------------- ------------------- ------- --------------- -------------------
$ $ $
2012. -- 43,205 43,205 -- Feb. 2013
2011. -- (88,387) (88,387) -- Mar. 2012
Spectrum Global Balanced
Net Unrealized Gains (Losses) on Open Contracts Longest Maturities
--------------------------------------------- -----------------------------------
Year Exchange-Traded Off-Exchange-Traded Total Exchange-Traded Off-Exchange-Traded
---- --------------- ------------------- --------- --------------- -------------------
$ $ $
2012. 951,801 29,978 981,779 Dec. 2014 Feb. 2013
2011. 1,229,274 (8,497) 1,220,777 Dec. 2013 Jan. 2012
Spectrum Select
Net Unrealized Gains on Open Contracts Longest Maturities
--------------------------------------------- -----------------------------------
Year Exchange-Traded Off-Exchange-Traded Total Exchange-Traded Off-Exchange-Traded
---- --------------- ------------------- --------- --------------- -------------------
$ $ $
2012. 2,503,274 48,080 2,551,354 Mar. 2017 Mar. 2013
2011. 5,995,510 406,389 6,401,899 Mar. 2016 Mar. 2012
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
Spectrum Technical
Net Unrealized Gains (Losses) on Open Contracts Longest Maturities
---------------------------------------------- -----------------------------------
Year Exchange-Traded Off-Exchange-Traded Total Exchange-Traded Off-Exchange-Traded
---- --------------- ------------------- ---------- --------------- -------------------
$ $ $
2012. (1,651,077) 609,533 (1,041,544) Jun. 2017 Apr. 2013
2011. 8,196,777 569,394 8,766,171 Mar. 2015 Mar. 2012
In general, the risks associated with off-exchange-traded contracts are
greater than those associated with exchange-traded contracts because of the
greater risk of default by the counterparty to an off-exchange-traded contract.
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 unrealized gains
(losses) amounts reflected in the Partnerships' Statements of Financial
Condition. The net unrealized gains (losses) on open contracts is further
disclosed gross by type of contract and corresponding fair value level in Note
8. Fair Value Measurements and Disclosures.
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 fair valued on a daily
basis, with variations in value settled on a daily basis. MS&Co. and MSIP, each
acting as a commodity futures broker 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, total cash 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 in the
aggregate, totaled $6,788,072 and $35,818,805 for Spectrum Currency,
$11,255,076 and $14,421,691 for Spectrum Global Balanced, $200,859,877 and
$294,109,636 for Spectrum Select, and $132,743,763 and $229,719,742 for
Spectrum Technical at December 31, 2012 and 2011, respectively. 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 each Partnership account with the counterparty,
which is accomplished by daily maintenance of the cash balance in a custody
account held at MS&Co, for the benefit of MS&Co. With respect to 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
the counterparty. The primary terms are based on industry standard master
agreements. These agreements, which seek to reduce both the Partnerships' and
the counterparties' exposure on off-exchange-traded forward currency contracts,
including options on such contracts, should materially decrease the
Partnerships' credit risk in the event of MS&Co.'s or MSCG's bankruptcy or
insolvency.
The General Partner monitors and attempts to control the Partnerships' risk
exposure on a daily basis through financial, credit and risk management
monitoring systems, and accordingly, believes that it has effective procedures
for evaluating and limiting the credit and market risks to which the
Partnerships may be subject. These monitoring systems generally allow the
General Partner to statistically analyze actual trading results with risk
adjusted performance indicators and correlation statistics. In addition, online
monitoring systems provide account analysis of futures, forwards and options
positions by sector, margin requirements, gain and loss transactions and
collateral positions.
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
The futures, forwards and options traded by the Partnerships 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 Partnerships' open positions, and consequently in
their earnings, whether realized or unrealized, and cash flow. Gains and losses
on open positions of exchange-traded futures, exchange-traded forward, and
exchange-traded futures-styled options contracts are settled daily through
variation margin. Gains and losses on off-exchange-traded forward currency
contracts are settled upon termination of the contract. Gains and losses on
off-exchange-traded forward currency options contracts are settled on an
agreed-upon settlement date.
Spectrum Strategic's, Spectrum Technical's, and Spectrum Currency's
investments in the affiliated underlying funds expose each Partnership to
various types of risks that are associated with Futures Interests trading and
the markets in which the affiliated underlying funds invest. The significant
types of financial risks to which the affiliated underlying funds are exposed
are market risk, liquidity risk, and counterparty credit risk as described
above.
7. Derivatives and Hedging
The Partnerships' objective is to profit from speculative trading in Futures
Interests. Therefore, the trading advisors for each Partnership will take
speculative positions in Futures Interests where they feel the best profit
opportunities exist for their trading strategy. As such, the average number of
contracts outstanding in absolute quantity (the total of the open long and open
short positions) has been presented as a part of the volume disclosure, as
position direction is not an indicative factor in such volume disclosures. With
regard to foreign currency forward trades, each notional quantity amount has
been converted to an equivalent contract based upon an industry convention.
The following tables summarize the valuation of each Partnership's
investments as of December 31, 2012, and 2011.
Spectrum Currency
The Effect of Trading Activities on the Statements of Financial Condition as
of December 31, 2012 and 2011:
December 31, 2012
Average
Number of
Contracts
Outstanding
Long Long Short Short Net for the Year
Unrealized Unrealized Unrealized Unrealized Unrealized (Absolute
Futures and Forward Contracts Gain Loss Gain Loss Gain Quantity)
----------------------------- ---------- ---------- ---------- ---------- ---------- ------------
$ $ $ $ $
Foreign currency............... 47,414 (41,869) 58,435 (22,608) 41,372 1,498
------ ------- ------ ------- ------
Total......................... 47,414 (41,869) 58,435 (22,608) 41,372
====== ======= ====== ======= ------
Unrealized currency gain...... 1,833
------
Total net unrealized gain on
open contracts.............. 43,205
======
Average
Number of
Contracts
Outstanding
for the Year
(Absolute
Option Contracts at Fair Value Quantity)
------------------------------ ------------
$
Options purchased.............. -- 1
Options written................ -- 1
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
December 31, 2011
Average
Number of
Contracts
Outstanding
Long Long Short Short Net for the Year
Unrealized Unrealized Unrealized Unrealized Unrealized (Absolute
Futures and Forward Contracts Gain Loss Gain Loss Gain/(Loss) Quantity)
----------------------------- ---------- ---------- ---------- ---------- ----------- ------------
$ $ $ $ $
Foreign currency.............. 34,016 (124,363) 4,823 (38,337) (123,861) 4,996
------ -------- ----- ------- --------
Total........................ 34,016 (124,363) 4,823 (38,337) (123,861)
====== ======== ===== =======
Unrealized currency gain..... 35,474
--------
Total net unrealized loss on
open contracts............. (88,387)
========
Average
Number of
Contracts
Outstanding
for the Year
(Absolute
Option Contracts at Fair Value Quantity)
------------------------------ ------------
$
Options purchased........ 1,534 1
Options written.......... -- 1
Spectrum Global Balanced
The Effect of Trading Activities on the Statements of Financial Condition as
of December 31, 2012 and 2011:
December 31, 2012
Average
Number of
Contracts
Outstanding
Long Long Short Short Net for the Year
Unrealized Unrealized Unrealized Unrealized Unrealized (Absolute
Futures and Forward Contracts Gain Loss Gain Loss Gain/(Loss) Quantity)
----------------------------- ---------- ---------- ---------- ---------- ----------- ------------
$ $ $ $ $
Commodity...................... 15,953 (74,679) 34,996 (23,285) (47,015) 195
Equity......................... 51,479 (8,381) 15,186 (15,625) 42,659 46
Foreign currency............... 125,101 (46,320) 53,721 (28,930) 103,572 892
Interest rate.................. 44,541 (18,952) -- (19,479) 6,110 405
------- -------- ------- ------- -------
Total......................... 237,074 (148,332) 103,903 (87,319) 105,326
======= ======== ======= =======
Unrealized currency gain...... 876,453
-------
Total net unrealized gain on
open contracts.............. 981,779
=======
Average
Number of
Contracts
Outstanding
for the Year
(Absolute
Option Contracts at Fair Value Quantity)
------------------------------ ------------
$
Options purchased.......................................................... -- 1
Options written............................................................ (22,859) 14
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
December 31, 2011
Average
Number of
Contracts
Outstanding
Long Long Short Short Net for the Year
Unrealized Unrealized Unrealized Unrealized Unrealized (Absolute
Futures and Forward Contracts Gain Loss Gain Loss Gain Quantity)
----------------------------- ---------- ---------- ---------- ---------- ---------- ------------
$ $ $ $ $
Commodity..................... 26,687 (42,619) 281,332 (69,359) 196,041 233
Equity........................ 10,832 (5,231) 3,176 (1,161) 7,616 39
Foreign currency.............. 22,399 (18,270) 54,621 (21,149) 37,601 1,920
Interest rate................. 72,718 (4,626) 21,080 (4,515) 84,657 277
------- ------- ------- ------- ---------
Total........................ 132,636 (70,746) 360,209 (96,184) 325,915
======= ======= ======= =======
Unrealized currency gain..... 894,862
---------
Total net unrealized gain on
open contracts............. 1,220,777
=========
Average
Number of
Contracts
Outstanding
for the Year
(Absolute
Option Contracts at Fair Value Quantity)
------------------------------ ------------
$
Options purchased........ 814 1
Options written.......... -- 1
Spectrum Select
The Effect of Trading Activities on the Statements of Financial Condition as
of December 31, 2012 and 2011:
December 31, 2012
Average
Number of
Contracts
Outstanding
Long Long Short Short Net for the Year
Unrealized Unrealized Unrealized Unrealized Unrealized (Absolute
Futures and Forward Contracts Gain Loss Gain Loss Gain/(Loss) Quantity)
----------------------------- ---------- ---------- ---------- ---------- ----------- ------------
$ $ $ $ $
Commodity..................... 763,693 (1,021,268) 1,051,860 (1,134,848) (340,563) 4,025
Equity........................ 1,842,840 (517,175) -- (36,283) 1,289,382 1,915
Foreign currency.............. 1,878,922 (1,022,609) 2,196,364 (253,560) 2,799,117 5,689
Interest rate................. 759,302 (607,381) 3,225 (147,863) 7,283 9,810
--------- ---------- --------- ---------- ----------
Total......................... 5,244,757 (3,168,433) 3,251,449 (1,572,554) 3,755,219
========= ========== ========= ==========
Unrealized currency loss...... (1,203,865)
----------
Total net unrealized gain on
open contracts.............. 2,551,354
==========
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
December 31, 2011
Average
Number of
Contracts
Outstanding
Long Long Short Short Net for the Year
Unrealized Unrealized Unrealized Unrealized Unrealized (Absolute
Futures and Forward Contracts Gain Loss Gain Loss Gain/(Loss) Quantity)
----------------------------- ---------- ---------- ---------- ---------- ----------- ------------
$ $ $ $ $
Commodity..................... 418,029 (822,942) 4,381,649 (2,417,431) 1,559,305 4,077
Equity........................ 307,762 (7,656) 94,660 (143,961) 250,805 1,386
Foreign currency.............. 739,841 (106,865) 2,115,906 (300,292) 2,448,590 7,744
Interest rate................. 3,538,706 (109,261) 139,283 (121,941) 3,446,787 7,073
--------- ---------- --------- ---------- ----------
Total......................... 5,004,338 (1,046,724) 6,731,498 (2,983,625) 7,705,487
========= ========== ========= ==========
Unrealized currency loss...... (1,303,588)
----------
Total net unrealized gain on
open contracts.............. 6,401,899
==========
Spectrum Strategic
The Effect of Trading Activities on the Statements of Financial Condition as
of December 31, 2012 and 2011:
December 31, 2012
The Partnership held no futures or forward contracts; therefore, there were
no net unrealized gains or losses on futures or forward contracts.
December 31, 2011
Average
Number of
Contracts
Outstanding
Long Long Short Short Net for the Year
Unrealized Unrealized Unrealized Unrealized Unrealized (Absolute
Futures and Forward Contracts Gain Loss Gain Loss Gain (Loss) Quantity)
----------------------------- ---------- ---------- ---------- ---------- ----------- ------------
$ $ $ $ $
Commodity..................... -- -- -- -- -- 752
Equity........................ -- -- -- -- -- 328
Foreign currency.............. -- -- -- -- -- 6,514
Interest rate................. -- -- -- -- -- 2,260
-- -- -- -- --
Total........................ -- -- -- -- --
== == == ==
Unrealized currency gain
(loss)..................... --
--
Total net unrealized gain
(loss) on open contracts... --
==
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
Spectrum Technical
The Effect of Trading Activities on the Statements of Financial Condition as
of December 31, 2012 and 2011:
December 31, 2012
Average
Number of
Contracts
Outstanding
Long Long Short Short Net for the Year
Unrealized Unrealized Unrealized Unrealized Unrealized (Absolute
Futures and Forward Contracts Gain Loss Gain Loss Gain/(Loss) Quantity)
----------------------------- ---------- ---------- ---------- ---------- ----------- ------------
$ $ $ $ $
Commodity.................... 503,509 (759,234) 451,092 (401,945) (206,578) 1,895
Equity....................... 1,289,387 (324,377) 33 (9,417) 955,626 1,525
Foreign currency............. 751,769 (682,406) 1,511,142 (188,174) 1,392,331 4,077
Interest rate................ 845,015 (522,310) 4,461 (26,938) 300,228 6,112
--------- ---------- --------- -------- ----------
Total....................... 3,389,680 (2,288,327) 1,966,728 (626,474) 2,441,607
========= ========== ========= ========
Unrealized currency
loss...................... (3,483,151)
----------
Total net unrealized loss
on open contracts......... (1,041,544)
==========
Average
Number of
Contracts
Outstanding
for the Year
(Absolute
Option Contracts at Fair Value Quantity)
------------------------------ ------------
$
Options purchased........ -- 6
Options written.......... -- 6
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
December 31, 2011
Average
Number of
Contracts
Outstanding
Long Long Short Short Net for the Year
Unrealized Unrealized Unrealized Unrealized Unrealized (Absolute
Futures and Forward Contracts Gain Loss Gain Loss Gain Quantity)
----------------------------- ---------- ---------- ---------- ---------- ---------- ------------
$ $ $ $ $
Commodity.................... 461,717 (267,888) 2,598,439 (1,871,409) 920,859 2,650
Equity....................... 123,510 (5,714) 458,154 (107,670) 468,280 1,700
Foreign currency............. 456,046 (117,644) 1,480,181 (262,174) 1,556,409 10,673
Interest rate................ 3,295,555 (360,727) 5,324 (13,300) 2,926,852 7,484
--------- -------- --------- ---------- ---------
Total....................... 4,336,828 (751,973) 4,542,098 (2,254,553) 5,872,400
========= ======== ========= ==========
Unrealized currency
gain...................... 2,893,771
---------
Total net unrealized gain
on open contracts......... 8,766,171
=========
Average
Number of
Contracts
Outstanding
for the Year
(Absolute
Option Contracts at Fair Value Quantity)
------------------------------ ------------
$
Options purchased........ 1,507 7
Options written.......... (3,460) 7
The following tables summarize the net trading results of each Partnership
for the years ended December 31, 2012, 2011, and 2010, respectively.
Spectrum Currency
The Effect of Trading Activities on the Statements of Income and Expenses
for the years ended December 31, 2012, 2011, and 2010, in Total Trading Results:
December 31,
-------------------------------
2012 2011 2010
---------- ---------- -------
Type of Instrument
------------------ $ $ $
Commodity....................... (2,081,165) -- --
Foreign currency................ 174,080 (1,647,809) 808,671
Unrealized currency gain (loss). (33,641) (46,233) 29,966
---------- ---------- -------
Total.......................... (1,940,726) (1,694,042) 838,637
========== ========== =======
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
Line Items on the Statements of Income and Expenses for the years ended
December 31, 2012, 2011, and 2010:
December 31,
---------------------------------
2012 2011 2010
---------- ---------- ---------
Trading Results
--------------- $ $ $
Net realized.............................................. (199,068) (483,261) (745,965)
Net change in unrealized.................................. 133,331 (1,210,781) 1,584,602
Realized loss on investment in KR Master Fund............. (488,412) -- --
Realized loss on investment in FL Master Fund............. (2,033,985) -- --
Realized loss on investment in Cambridge Master Fund...... (44,139) -- --
Unrealized appreciation on investment in FL Master Fund... 514,630 -- --
Unrealized appreciation on investment in KR Master Fund... 52,939 -- --
Unrealized appreciation on investment in Cambridge Master
Fund.................................................... 123,978 -- --
---------- ---------- ---------
Total.................................................... (1,940,726) (1,694,042) 838,637
========== ========== =========
Spectrum Global Balanced
The Effect of Trading Activities on the Statements of Income and Expenses
for the years ended December 31, 2012, 2011, and 2010, included in Total
Trading Results:
December 31,
-------------------------------
2012 2011 2010
-------- ---------- ---------
Type of Instrument
------------------ $ $ $
Commodity................ (261,829) (864,562) 176,977
Equity................... 224,150 (965,779) (119,010)
Foreign currency......... 171,401 (735,607) 1,416,646
Interest rate............ 6,538 1,137,203 2,032,378
Unrealized currency loss. (18,409) (61,781) (34,349)
Proceeds from Litigation. -- -- 29,602
-------- ---------- ---------
Total................... 121,851 (1,490,526) 3,502,244
======== ========== =========
Line Items on the Statements of Income and Expenses for the years ended
December 31, 2012, 2011, and 2010:
December 31,
-------------------------------
2012 2011 2010
-------- ---------- ---------
Trading Results
--------------- $ $ $
Net realized............. 370,013 (1,151,478) 3,283,491
Net change in unrealized. (248,162) (339,048) 189,151
Proceeds from Litigation. -- -- 29,602
-------- ---------- ---------
Total................... 121,851 (1,490,526) 3,502,244
======== ========== =========
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
Spectrum Select
The Effect of Trading Activities on the Statements of Income and Expenses
for the years ended December 31, 2012, 2011, and 2010, included in Total
Trading Results:
December 31,
-------------------------------------
2012 2011 2010
----------- ----------- -----------
Type of Instrument
------------------ $ $ $
Commodity....................... (12,872,729) (17,215,862) 10,078,791
Equity.......................... 6,993,095 (27,174,382) (14,372,116)
Foreign currency................ (2,206,555) (11,400,426) 13,050,193
Interest rate................... 1,388,041 19,104,345 24,513,376
Unrealized currency gain (loss). 99,725 (567,763) 31,129
Proceeds from Litigation........ -- -- 337,120
----------- ----------- -----------
Total.......................... (6,598,423) (37,254,088) 33,638,493
=========== =========== ===========
Line Items on the Statements of Income and Expenses for the years ended
December 31, 2012, 2011, and 2010:
December 31,
-----------------------------------
2012 2011 2010
---------- ----------- ----------
Trading Results
--------------- $ $ $
Net realized............. (2,747,878) (23,852,820) 25,513,507
Net change in unrealized. (3,850,545) (13,401,268) 7,787,866
Proceeds from Litigation. -- -- 337,120
---------- ----------- ----------
Total................... (6,598,423) (37,254,088) 33,638,493
========== =========== ==========
Spectrum Strategic
The Effect of Trading Activities on the Statements of Income and Expenses
for the years ended December 31, 2012, 2011, and 2010, included in Total
Trading Results:
December 31,
-----------------------------------
2012 2011 2010
---------- ----------- ----------
Type of Instrument
------------------ $ $ $
Commodity....................... (1,374,285) (18,052,648) 27,847,302
Equity.......................... (3,098,127) (2,778,840) 1,553,897
Foreign currency................ (39,186) (14,779,073) 1,814,321
Interest rate................... 2,280,070 7,707,782 5,580,325
Unrealized currency gain (loss). -- (86,013) 47,508
Proceeds from Litigation........ -- -- 220,755
---------- ----------- ----------
Total.......................... (2,231,528) (27,988,792) 37,064,108
========== =========== ==========
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
Line Items on the Statements of Income and Expenses for the years ended
December 31, 2012, 2011, and 2010:
December 31,
-----------------------------------
2012 2011 2010
---------- ----------- ----------
Trading Results
--------------- $ $ $
Net realized................................................ -- 2,750,625 11,512,792
Net change in unrealized.................................... -- (8,555,065) 7,129,344
Realized gain (loss) on investment in BHM I, LLC............ (429,295) (958,118) 1,679,125
Realized loss on investment in PGR Master Fund.............. (25,751) -- --
Realized gain on investment in MB Master Fund............... 3,838 -- --
Unrealized appreciation (depreciation) on investment in BHM
I, LLC.................................................... (687,951) (21,346,446) 16,522,092
Unrealized appreciation (depreciation) on investment in PGR
Master Fund............................................... (1,252,834) 240,600 --
Unrealized appreciation (depreciation) on investment in MB
Master Fund............................................... 160,465 (120,388) --
Proceeds from Litigation.................................... -- -- 220,755
---------- ----------- ----------
Total Trading Results...................................... (2,231,528) (27,988,792) 37,064,108
========== =========== ==========
Spectrum Technical
The Effect of Trading Activities on the Statements of Income and Expenses
for the years ended December 31, 2012, 2011, and 2010, included in Total
Trading Results:
December 31,
------------------------------------
2012 2011 2010
----------- ----------- ----------
Type of Instrument
------------------ $ $ $
Commodity....................... 7,806,061 (13,197,401) 5,109,902
Equity.......................... (58,323,819) (16,512,047) (8,075,989)
Foreign currency................ (30,995,834) (3,771,234) 8,722,783
Interest rate................... 68,102,911 33,707,895 34,568,150
Unrealized currency gain (loss). (6,376,922) 87,382 (596,713)
Proceeds from Litigation........ -- 10,951 164,828
----------- ----------- ----------
Total.......................... (19,787,603) 325,546 39,892,961
=========== =========== ==========
Line Items on the Statements of Income and Expenses for the years ended
December 31, 2012, 2011, and 2010:
December 31,
------------------------------------
2012 2011 2010
----------- ----------- ----------
Trading Results
--------------- $ $ $
Net realized............................................... (6,219,265) 11,402,800 29,840,644
Net change in unrealized................................... (9,809,697) (11,820,187) 9,887,489
Realized gain (loss) on investment in Blackwater Master
Fund..................................................... (4,657,167) 167,699 --
Unrealized appreciation on Investment in Blackwater Master
Fund..................................................... 898,526 564,283 --
Proceeds from Litigation................................... -- 10,951 164,828
----------- ----------- ----------
Total Trading Results..................................... (19,787,603) 325,546 39,892,961
=========== =========== ==========
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
8. Fair Value Measurements and Disclosures
Effective January 1, 2012, the Partnerships adopted ASU 2011-04, "Amendments
to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S.
GAAP and IFRS." The amendments within this ASU change the wording used to
describe many of the requirements in U.S. GAAP for measuring fair value and for
disclosing information about fair value measurements to eliminate unnecessary
wording differences between U.S. GAAP and IFRS. However, some of the amendments
clarify the FASB's intent about the application of existing fair value
measurement requirements and other amendments change a particular principle or
requirement for measuring fair value or for disclosing information about fair
value measurements. This new guidance did not have a material impact on the
Partnerships' financial statements.
Financial instruments are carried at fair value, which is the price that
would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants. Assets and liabilities carried
at fair value are classified and disclosed in the following three levels:
Level 1 -- unadjusted quoted market prices in active markets for identical
assets and liabilities; Level 2 -- inputs other than unadjusted quoted market
prices that are observable for the asset or liability, either directly or
indirectly (including unadjusted quoted market prices for similar investments,
interest rates, credit risk); and Level 3 -- unobservable inputs for the asset
or liability (including the Partnerships' own assumptions used in determining
the fair value of investments).
In certain cases, the inputs used to measure fair value may fall into
different levels of the fair value hierarchy. In such cases, an investment's
level within the fair value hierarchy is based on the lowest level of input
that is significant to the fair value measurement. The Partnerships' assessment
of the significance of a particular input to the fair value measurement in its
entirety requires judgment, and considers factors specific to the investment.
The Partnerships' assets and liabilities measured at fair value on a
recurring basis are summarized in the following tables by the type of inputs
applicable to the fair value measurements.
Spectrum Currency
Unadjusted
Quoted Prices in Significant
Active Markets Other Significant
for Identical Observable Unobservable
Assets Inputs Inputs
December 31, 2012 (Level 1) (Level 2) (Level 3) Total
----------------- ---------------- ----------- ------------ ----------
$ $ $ $
Assets
Investment in KR Master Fund........ -- 10,109,603 n/a 10,109,603
Investment in Cambridge Master Fund. -- 6,920,831 n/a 6,920,831
Forwards............................ -- 105,849 n/a 105,849
-- ---------- ----------
Total Assets........................ -- 17,136,283 n/a 17,136,283
-- ---------- ----------
Liabilities
Forwards............................ -- 64,477 n/a 64,477
-- ---------- ----------
Total Liabilities................... -- 64,477 n/a 64,477
-- ---------- ----------
Unrealized currency gain............ 1,833
----------
*Net fair value..................... -- 17,071,806 n/a 17,073,639
-- ========== ==========
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
Unadjusted
Quoted Prices in Significant
Active Markets Other Significant
for Identical Observable Unobservable
Assets Inputs Inputs
December 31, 2011 (Level 1) (Level 2) (Level 3) Total
----------------- ---------------- ----------- ------------ -------
$ $ $ $
Assets
Forwards................. -- 38,838 n/a 38,838
Options Purchased........ -- 1,534 n/a 1,534
-- -------- -------
Total Assets............. -- 40,372 n/a 40,372
-- -------- -------
Liabilities
Forwards................. -- 162,699 n/a 162,699
-- -------- -------
Total Liabilities........ -- 162,699 n/a 162,699
-- -------- -------
Unrealized currency gain. 35,474
-------
*Net fair value.......... -- (122,327) n/a (86,853)
-- ======== =======
* This amount comprises of the "Net unrealized gain (loss) on open contracts",
"Investments" and "Options purchased" on the Statements of Financial
Condition.
During the twelve months ended December 31, 2012 and 2011, there were no
Level 3 assets and liabilities and there were no transfers of assets or
liabilities between Level 1 and Level 2.
Spectrum Global Balanced
Unadjusted
Quoted Prices in Significant
Active Markets Other Significant
for Identical Observable Unobservable
Assets Inputs Inputs
December 31, 2012 (Level 1) (Level 2) (Level 3) Total
----------------- ---------------- ----------- ------------ -------
$ $ $ $
Assets
Futures.................. 270,741 -- n/a 270,741
Forwards................. -- 70,236 n/a 70,236
------- ------ -------
Total Assets............. 270,741 70,236 n/a 340,977
------- ------ -------
Liabilities
Futures.................. 195,393 -- n/a 195,393
Forwards................. -- 40,258 n/a 40,258
Options Written.......... 22,859 -- 22,859
------- ------ -------
Total Liabilities........ 218,252 40,258 n/a 258,510
------- ------ -------
Unrealized currency gain. 876,453
-------
*Net fair value.......... 52,489 29,978 n/a 958,920
======= ====== =======
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
Unadjusted
Quoted Prices in Significant
Active Markets Other Significant
for Identical Observable Unobservable
Assets Inputs Inputs
December 31, 2011 (Level 1) (Level 2) (Level 3) Total
----------------- ---------------- ----------- ------------ ---------
$ $ $ $
Assets
Futures.................. 472,189 -- n/a 472,189
Forwards................. -- 20,656 n/a 20,656
Options Purchased........ -- 814 n/a 814
------- ------ ---------
Total Assets............. 472,189 21,470 n/a 493,659
------- ------ ---------
Liabilities
Futures.................. 137,777 -- n/a 137,777
Forwards................. -- 29,153 n/a 29,153
------- ------ ---------
Total Liabilities........ 137,777 29,153 n/a 166,930
------- ------ ---------
Unrealized currency gain. 894,862
---------
*Net fair value.......... 334,412 (7,683) n/a 1,221,591
======= ====== =========
* This amount comprises of the "Total net unrealized gain on open contracts"
and "Options purchased" and "Options written" on the Statements of Financial
Condition.
During the twelve months ended December 31, 2012 and 2011, there were no
Level 3 assets and liabilities and there were no transfers of assets or
liabilities between Level 1 and Level 2.
Spectrum Select
Unadjusted
Quoted Prices in Significant
Active Markets Other Significant
for Identical Observable Unobservable
Assets Inputs Inputs
December 31, 2012 (Level 1) (Level 2) (Level 3) Total
----------------- ---------------- ----------- ------------ ----------
$ $ $ $
Assets
Futures.................. 7,876,474 -- n/a 7,876,474
Forwards................. -- 619,732 n/a 619,732
--------- ------- ----------
Total Assets............. 7,876,474 619,732 n/a 8,496,206
--------- ------- ----------
Liabilities
Futures.................. 4,169,335 -- n/a 4,169,335
Forwards................. -- 571,652 n/a 571,652
--------- ------- ----------
Total Liabilities........ 4,169,335 571,652 n/a 4,740,987
--------- ------- ----------
Unrealized currency loss. (1,203,865)
----------
*Net fair value.......... 3,707,139 48,080 n/a 2,551,354
========= ======= ==========
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
Unadjusted
Quoted Prices in Significant
Active Markets Other Significant
for Identical Observable Unobservable
Assets Inputs Inputs
December 31, 2011 (Level 1) (Level 2) (Level 3) Total
----------------- ---------------- ----------- ------------ ----------
$ $ $ $
Assets
Futures.................. 11,006,486 -- n/a 11,006,486
Forwards................. -- 729,350 n/a 729,350
---------- ------- ----------
Total Assets............. 11,006,486 729,350 n/a 11,735,836
---------- ------- ----------
Liabilities
Futures.................. 3,707,388 -- n/a 3,707,388
Forwards................. -- 322,961 n/a 322,961
---------- ------- ----------
Total Liabilities........ 3,707,388 322,961 n/a 4,030,349
---------- ------- ----------
Unrealized currency loss. (1,303,588)
----------
*Net fair value.......... 7,299,098 406,389 n/a 6,401,899
========== ======= ==========
* This amount comprises of the "Total net unrealized gain on open contracts" on
the Statements of Financial Condition.
During the twelve months ended December 31, 2012 and 2011, there were no
Level 3 assets and liabilities and there were no transfers of assets or
liabilities between Level 1 and Level 2.
Spectrum Strategic
Unadjusted
Quoted Prices in Significant
Active Markets Other Significant
for Identical Observable Unobservable
Assets Inputs Inputs
December 31, 2012 (Level 1) (Level 2) (Level 3) Total
----------------- ---------------- ----------- ------------ ----------
$ $ $ $
Assets
Investment in BHM I, LLC...... -- 63,045,391 n/a 63,045,391
Investment in PGR Master Fund. -- 5,021,111 n/a 5,021,111
Investment in MB Master Fund.. -- 8,142,971 n/a 8,142,971
-- ---------- ----------
Total Assets.................. -- 76,209,473 n/a 76,209,473
== ========== ==========
Spectrum Strategic
Unadjusted
Quoted Prices in Significant
Active Markets Other Significant
for Identical Observable Unobservable
Assets Inputs Inputs
December 31, 2011 (Level 1) (Level 2) (Level 3) Total
----------------- ---------------- ----------- ------------ -----------
$ $ $ $
Assets
Investment in BHM I, LLC...... -- 101,259,072 n/a 101,259,072
Investment in PGR Master Fund. -- 9,193,011 n/a 9,193,011
Investment in MB Master Fund.. -- 8,832,023 n/a 8,832,023
-- ----------- -----------
Total Assets.................. -- 119,284,106 n/a 119,284,106
== =========== ===========
During the twelve months ended December 31, 2012 and 2011, there were no
Level 3 assets and liabilities and there were no transfers of assets or
liabilities between Level 1 and Level 2.
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
Spectrum Technical
Unadjusted
Quoted Prices in
Active Markets Significant Significant
for Identical Observable Unobservable
Assets Inputs Inputs
December 31, 2012 (Level 1) (Level 2) (Level 3) Total
----------------- ---------------- ----------- ------------ ----------
$ $ $ $
Assets
Investment in Blackwater Master Fund. -- 43,685,685 n/a 43,685,685
Futures.............................. 4,081,355 -- n/a 4,081,355
Forwards............................. -- 1,275,053 n/a 1,275,053
--------- ---------- ----------
Total Assets......................... 4,081,355 44,960,738 n/a 49,042,093
--------- ---------- ----------
Liabilities
Futures.............................. 2,249,281 -- n/a 2,249,281
Forwards............................. -- 665,520 n/a 665,520
--------- ---------- ----------
Total Liabilities.................... 2,249,281 665,520 n/a 2,914,801
--------- ---------- ----------
Unrealized currency loss............. (3,483,151)
----------
*Net fair value...................... 1,832,074 44,295,218 n/a 42,644,141
========= ========== ==========
Unadjusted
Quoted Prices in Significant
Active Markets Other Significant
for Identical Observable Unobservable
Assets Inputs Inputs
December 31, 2011 (Level 1) (Level 2) (Level 3) Total
----------------- ---------------- ----------- ------------ ----------
$ $ $ $
Assets
Investment in Blackwater Master Fund. -- 43,800,324 n/a 43,800,324
Futures.............................. 8,141,255 -- n/a 8,141,255
Forwards............................. -- 737,671 n/a 737,671
Options Purchased.................... 1,507 -- n/a 1,507
--------- ---------- ----------
Total Assets......................... 8,142,762 44,537,995 n/a 52,680,757
--------- ---------- ----------
Liabilities
Futures.............................. 2,838,249 -- n/a 2,838,249
Forwards............................. -- 168,277 n/a 168,277
Options Written...................... 3,460 -- n/a 3,460
--------- ---------- ----------
Total Liabilities.................... 2,841,709 168,277 n/a 3,009,986
--------- ---------- ----------
Unrealized currency gain............. 2,893,771
----------
*Net fair value...................... 5,301,053 44,369,718 n/a 52,564,542
========= ========== ==========
* This amount comprises of the "Total net unrealized gain on open contracts",
"Investment in Blackwater Master Fund" and "Options purchased" and "Options
written" on the Statements of Financial Condition.
During the twelve months ended December 31, 2012 and 2011, there were no
Level 3 assets and liabilities and there were no transfers of assets or
liabilities between Level 1 and Level 2.
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
9. Financial Highlights
The following ratios may vary for individual investors based on the timing
of capital transactions during the year. Additionally, these ratios are
calculated for the limited partner's share of income, expenses and average net
assets.
Spectrum Currency
2012 2011 2010
------ ------ ------
Per Unit operating performance:
Net asset value, January 1:............ $ 8.63 $ 9.57 $10.03
------ ------ ------
Interest Income...................... --(2) --(2) 0.01
Expenses............................. (0.53) (0.60) (0.64)
Realized/Unrealized Income (Loss)(1). (0.53) (0.34) 0.17
------ ------ ------
Net Loss............................. (1.06) (0.94) (0.46)
------ ------ ------
Net asset value, December 31:.......... $ 7.57 $ 8.63 $ 9.57
====== ====== ======
For the Calendar Year:
Ratios to average net assets:..........
Net Investment Loss/ /............... (6.6)% (6.7)% (6.6)%
Expenses before Incentive Fees....... 6.7% 6.8% 6.7%
Expenses after Incentive Fees........ 6.7% 6.8% 6.7%
Net Loss............................. (13.5)% (10.9)% (5.1)%
Total return before incentive fees..... (12.3)% (9.8)% (4.6)%
Total return after incentive fees...... (12.3)% (9.8)% (4.6)%
(1)Realized/Unrealized Income (Loss) is a balancing amount necessary to
reconcile the change in net asset value per Unit with the other per Unit
information.
(2) Amounts less than 0.005%.
Spectrum Global Balanced
2012 2011 2010
- ------ ------ ------
Per Unit operating performance:
Net asset value, January 1:............ $14.83 $17.12 $15.23
------ ------ ------
Interest Income...................... 0.01 0.01 0.02
Expenses............................. (0.90) (0.96) (0.98)
Realized/Unrealized Income (Loss)(1). 0.12 (1.34) 2.85
------ ------ ------
Net Income (Loss).................... (0.77) (2.29) 1.89
------ ------ ------
Net asset value, December 31:.......... $14.06 $14.83 $17.12
====== ====== ======
For the Calendar Year:
Ratios to average net assets:
Net Investment Loss/ /............... (6.1)% (6.2)% (6.0)%
Expenses before Incentive Fees....... 6.2% 6.3% 6.1%
Expenses after Incentive Fees........ 6.2% 6.3% 6.1%
Net Income (Loss).................... (5.2)% (15.4)% 11.8%
Total return before incentive fees..... (5.2)% (13.4)% 12.4%
Total return after incentive fees...... (5.2)% (13.4)% 12.4%
(1)Realized/Unrealized Income (Loss) is a balancing amount necessary to
reconcile the change in net asset value per Unit with the other per Unit
information.
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
Spectrum Select
2012 2011 2010
- ------ ------ ------
Per Unit operating performance:
Net asset value, January 1:............ $31.24 $38.03 $37.96
------ ------ ------
Interest Income...................... 0.02 0.01 0.03
Expenses............................. (2.44) (3.07) (3.18)
Realized/Unrealized Income (Loss)(1). (1.06) (3.73) 3.22
------ ------ ------
Net Income (Loss).................... (3.48) (6.79) 0.07*
------ ------ ------
Net asset value, December 31:.......... $27.76 $31.24 $38.03
====== ====== ======
For the Calendar Year:
Ratios to average net assets:
Net Investment Loss/ /............... (8.0)% (8.8)% (8.9)%
Expenses before Incentive Fees....... 8.1% 8.3% 8.4%
Expenses after Incentive Fees........ 8.1% 8.9% 9.0%
Net Loss............................. (10.7)% (19.6)% (0.7)%
Total return before incentive fees..... (11.1)% (17.3)% 0.8%
Total return after incentive fees...... (11.1)% (17.9)% 0.2%
(1)Realized/Unrealized Income (Loss) is a balancing amount necessary to
reconcile the change in net asset value per Unit with the other per Unit
information.
* The increase in the net asset value per Unit, while the Partnership incurred
a net loss for the year ended December 31, 2010, is due to the timing of
subscriptions and redemptions of Units throughout the year.
Spectrum Strategic
2012 2011 2010
------ ------ ------
Per Unit operating performance:
Net asset value, January 1:............ $16.02 $21.49 $19.13
------ ------ ------
Interest Income...................... 0.01 0.01 0.02
Expenses............................. (1.37) (1.87) (1.98)
Realized/Unrealized Income (Loss)(1). (0.41) (3.61) 4.32
------ ------ ------
Net Income (Loss).................... (1.77) (5.47) 2.36
------ ------ ------
Net asset value, December 31:.......... $14.25 $16.02 $21.49
====== ====== ======
For the Calendar Year:
Ratios to average net assets:
Net Investment Loss/ /............... (9.0)% (9.8)% (10.6)%
Expenses before Incentive Fees....... 9.1% 9.0% 8.8%
Expenses after Incentive Fees........ 9.1% 9.8% 10.6%
Net Income (Loss).................... (11.4)% (28.6)% 11.8%
Total return before incentive fees..... (11.0)% (24.7)% 14.2%
Total return after incentive fees...... (11.0)% (25.5)% 12.3%
(1)Realized/Unrealized Income (Loss) is a balancing amount necessary to
reconcile the change in net asset value per Unit with the other per Unit
information.
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
Spectrum Technical
2012 2011 2010
------ ------ ------
Per Unit operating performance:
Net asset value, January 1:............ $19.65 $21.33 $20.53
------ ------ ------
Interest Income...................... 0.01 0.01 0.02
Expenses............................. (1.38)* (1.68) (1.64)*
Realized/Unrealized Income (Loss)(1). (1.57) (0.01) 2.42
------ ------ ------
Net Income (Loss).................... (2.94) (1.68) 0.80
------ ------ ------
Net asset value, December 31:.......... $16.71 $19.65 $21.33
====== ====== ======
For the Calendar Year:
Ratios to average net assets:..........
Net Investment Loss/ /............... (7.7)% (8.1)% (8.2)%
Expenses before Incentive Fees....... 7.8%** 8.2% 8.3%**
Expenses after Incentive Fees........ 7.8%** 8.2% 8.3%**
Net Income (Loss).................... (17.0)% (8.0)% 3.4%
Total return before incentive fees..... (15.0)% (7.8)% 3.9%
Total return after incentive fees...... (15.0)% (7.9)% 3.9%
(1)Realized/Unrealized Income (Loss) is a balancing amount necessary to
reconcile the change in net asset value per Unit with the other per Unit
information.
* Expenses per Unit would have been $(1.39) in 2012 and $(1.64) in 2010 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 0.04% in 2012 and 0.02% in
2010 of the average net assets).
10.Subsequent Events
Management performed its evaluation of subsequent events through the date of
filing, and has determined that there were no subsequent events requiring
adjustments of or disclosure in the financial statements.
CERES MANAGED FUTURES LLC
522 Fifth Avenue . 14th Floor
New York, NY 10036
Publication #
07
Morgan Stanley
(C) 2012 Morgan Stanley Smith Barney LLC