Morgan Stanley
Spectrum Series
Annual Report
December 31, 2013
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/ Alper Daglioglu
-----------------------------------
By: Alper Daglioglu
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, 2013. 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, 2013 based on the criteria
referred to above.
/s/ Alper Daglioglu /s/ Alice Lonero
---------------------------------------- --------------------------------------
Alper Daglioglu Alice Lonero
President and Director Chief Financial Officer
Ceres Managed Futures LLC Ceres Managed Futures LLC
General Partner, General Partner,
Morgan Stanley Smith Barney Spectrum Currency Morgan Stanley Smith Barney Spectrum
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.
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 of Morgan
Stanley Smith Barney Global Balanced L.P., Morgan Stanley Smith Barney Spectrum
Select L.P., and Morgan Stanley Smith Barney Spectrum Technical L.P. as of
December 31, 2013 and 2012, and the condensed schedule of investments of Morgan
Stanley Smith Barney Spectrum Currency and Commodity L.P. as of December 31,
2012, and the related statements of income and expenses and changes of in
partners' capital of the Partnerships for each of the three years in the period
ended December 31, 2013. 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, 2013 and 2012, and the results of their
operations and changes in their partners' capital for each of the three years
in the period ended December 31, 2013, in conformity with accounting principles
generally accepted in the United States of America.
/s/ Deloitte & Touche LLP
New York, New York
March 25, 2014
Morgan Stanley Smith Barney Spectrum Currency and Commodity L.P.
Statements of Financial Condition
December 31,
---------------------
2013 2012
---------- ----------
$ $
ASSETS
Trading Equity:
Investment in Cambridge Master Fund.................................... 11,299,138 6,920,831
Investment in KR Master Fund........................................... 7,290,317 10,109,603
---------- ----------
Total Investments in Master Funds................................... 18,589,455 17,030,434
Cash.................................................................. -- 6,788,072
---------- ----------
Net unrealized gain on open contracts (MS&Co.)........................ -- 43,205
---------- ----------
Total Trading Equity................................................ 18,589,455 23,861,711
Interest receivable (MS&Co. & Morgan Stanley Wealth Management)........ 165 710
---------- ----------
Total Assets........................................................ 18,589,620 23,862,421
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES
Redemptions payable.................................................... 529,590 422,017
Accrued brokerage fees (MS&Co.)........................................ 70,894 90,602
Accrued management fees................................................ 20,064 36,617
---------- ----------
Total Liabilities................................................... 620,548 549,236
---------- ----------
PARTNERS' CAPITAL
Limited Partners (2,394,803.341 and 3,043,048.335 Units, respectively). 17,703,845 23,041,527
General Partner (35,877.343 and 35,877.343 Units, respectively)........ 265,227 271,658
---------- ----------
Total Partners' Capital............................................... 17,969,072 23,313,185
---------- ----------
Total Liabilities and Partners' Capital............................... 18,589,620 23,862,421
========== ==========
NET ASSET VALUE PER UNIT............................................... 7.39 7.57
========== ==========
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,
-------------------------------------------
2013 2012 2011
------------- ------------- -------------
$ $ $
INVESTMENT INCOME
Interest income (MS&Co. & Morgan Stanley Wealth
Management)...................................... 9,149 17,704 14,552
------------- ------------- -------------
EXPENSES
Brokerage fees (MS&Co.)............................ 958,464 1,345,522 1,909,452
Management fees.................................... 346,230 547,886 830,197
Incentive fees..................................... 165,296 -- --
------------- ------------- -------------
Total Expenses................................... 1,469,990 1,893,408 2,739,649
------------- ------------- -------------
NET INVESTMENT LOSS................................. (1,460,841) (1,875,704) (2,725,097)
------------- ------------- -------------
TRADING RESULTS
Trading profit (loss):
Net realized....................................... 444,474 (199,068) (483,261)
Net change in unrealized........................... (43,205) 133,331 (1,210,781)
Realized loss on investment in KR Master Fund...... (551,662) (488,412) --
Realized gain (loss) on investment in Cambridge
Master Fund...................................... 1,188,237 (44,139) --
Realized loss on investment in FL Master Fund...... -- (2,033,985) --
Unrealized appreciation (deppreciation) on
investment in KR Master Fund..................... (23,816) 52,939 --
Unrealized appreciation (deppreciation) on
investment in Cambridge Master Fund.............. (39,518) 123,978 --
Unrealized appreciation on investment in FL Master
Fund............................................. -- 514,630 --
------------- ------------- -------------
Total Trading Results............................ 974,510 (1,940,726) (1,694,042)
------------- ------------- -------------
NET LOSS............................................ (486,331) (3,816,430) (4,419,139)
============= ============= =============
Net Loss Allocation
Limited Partners.................................... (479,900) (3,769,861) (4,369,934)
General Partner..................................... (6,431) (46,569) (49,205)
Net Loss Per Unit*
Limited Partners.................................... (0.18) (1.06) (0.94)
General Partner..................................... (0.18) (1.06) (0.94)
Units Units Units
------------- ------------- -------------
WEIGHTED AVERAGE NUMBER OF UNITS
OUTSTANDING....................................... 2,774,112.516 3,584,790.785 4,606,460.437
* 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,
--------------------
2013 2012
--------- ----------
$ $
ASSETS
Trading Equity:
Unrestricted cash.................................................... 6,298,716 9,403,917
Restricted cash...................................................... 968,132 899,358
--------- ----------
Total cash......................................................... 7,266,848 10,303,275
--------- ----------
Net unrealized gain on open contracts (MS&Co.)....................... 1,200,500 1,019,443
Net unrealized loss on open contracts (MSIP)......................... -- (37,664)
--------- ----------
Total net unrealized gain on open contracts........................ 1,200,500 981,779
--------- ----------
Total Trading Equity............................................... 8,467,348 11,285,054
Interest receivable (MS&Co. & Morgan Stanley Wealth Management)....... 96 422
--------- ----------
Total Assets....................................................... 8,467,444 11,285,476
========= ==========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES
Redemptions payable................................................... 187,714 117,253
Payable to MS&Co...................................................... 44,762 --
Accrued brokerage fees (MS&Co.)....................................... 32,043 42,933
Options written (premiums received $12,708 and $12,772, respectively). 31,915 22,859
Accrued management fees............................................... 8,707 13,727
--------- ----------
Total Liabilities.................................................. 305,141 196,772
--------- ----------
PARTNERS' CAPITAL
Limited Partners (601,916.025 and 776,379.501 Units, respectively).... 8,000,772 10,917,812
General Partner (12,152.331 and 12,152.331 Units, respectively)....... 161,531 170,892
--------- ----------
Total Partners' Capital.............................................. 8,162,303 11,088,704
--------- ----------
Total Liabilities and Partners' Capital.............................. 8,467,444 11,285,476
========= ==========
NET ASSET VALUE PER UNIT.............................................. 13.29 14.06
========= ==========
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,
---------------------------------------
2013 2012 2011
----------- ----------- -------------
$ $ $
INVESTMENT INCOME
Interest income (MS&Co. & Morgan Stanley Wealth
Management)................................... 5,480 9,876 7,327
----------- ----------- -------------
EXPENSES
Brokerage fees (MS&Co.)......................... 459,184 591,826 764,480
Management fees................................. 133,754 190,827 246,609
----------- ----------- -------------
Total Expenses................................ 592,938 782,653 1,011,089
----------- ----------- -------------
NET INVESTMENT LOSS.............................. (587,458) (772,777) (1,003,762)
----------- ----------- -------------
TRADING RESULTS
Trading profit (loss):
Net realized.................................... (129,286) 370,013 (1,151,478)
Net change in unrealized........................ 209,601 (248,162) (339,048)
----------- ----------- -------------
Total Trading Results......................... 80,315 121,851 (1,490,526)
----------- ----------- -------------
NET LOSS......................................... (507,143) (650,926) (2,494,288)
=========== =========== =============
Net Loss Allocation
Limited Partners................................. (497,782) (641,657) (2,466,376)
General Partner.................................. (9,361) (9,269) (27,912)
Net Loss Per Unit*
Limited Partners................................. (0.77) (0.77) (2.29)
General Partner.................................. (0.77) (0.77) (2.29)
Units Units Units
----------- ----------- -------------
WEIGHTED AVERAGE NUMBER OF UNITS
OUTSTANDING.................................... 712,685.559 879,118.270 1,056,873.607
* 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,
-----------------------
2013 2012
----------- -----------
$ $
ASSETS
Trading Equity:
Unrestricted cash.............................................. 117,701,386 171,164,335
Restricted cash................................................ 26,703,038 27,192,268
----------- -----------
Total cash................................................... 144,404,424 198,356,603
----------- -----------
Net unrealized gain on open contracts (MS&Co.)................. 6,652,432 3,072,667
Net unrealized loss on open contracts (MSIP)................... -- (521,313)
----------- -----------
Total net unrealized gain on open contracts.................. 6,652,432 2,551,354
----------- -----------
Total Trading Equity......................................... 151,056,856 200,907,957
Interest receivable (MS&Co. & Morgan Stanley Wealth Management). 1,354 6,032
----------- -----------
Total Assets................................................. 151,058,210 200,913,989
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES
Redemptions payable............................................. 3,447,262 3,642,807
Accrued brokerage fees (MS&Co.)................................. 750,593 994,527
Accrued management fees......................................... 205,988 302,574
Payable to MS&Co................................................ 127,622 --
----------- -----------
Total Liabilities............................................ 4,531,465 4,939,908
----------- -----------
PARTNERS' CAPITAL
Limited Partners (5,462,815.917 and 6,979,883.723 Units,
respectively)................................................. 144,651,488 193,760,270
General Partner (70,819.769 and 79,748.769 Units, respectively). 1,875,257 2,213,811
----------- -----------
Total Partners' Capital........................................ 146,526,745 195,974,081
----------- -----------
Total Liabilities and Partners' Capital........................ 151,058,210 200,913,989
=========== ===========
NET ASSET VALUE PER UNIT........................................ 26.48 27.76
=========== ===========
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,
--------------------------------------------
2013 2012 2011
------------- ------------- --------------
$ $ $
INVESTMENT INCOME
Interest income (MS&Co. & Morgan Stanley
Wealth Management)..................... 78,343 153,597 125,873
------------- ------------- --------------
EXPENSES
Brokerage fees (MS&Co.).................. 10,576,864 15,124,033 21,431,854
Management fees.......................... 3,176,170 4,610,705 7,263,522
Incentive fees........................... -- -- 2,034,158
------------- ------------- --------------
Total Expenses......................... 13,753,034 19,734,738 30,729,534
------------- ------------- --------------
NET INVESTMENT LOSS....................... (13,674,691) (19,581,141) (30,603,661)
------------- ------------- --------------
TRADING RESULTS
Trading profit (loss):
Net realized............................. 1,840,569 (2,747,878) (23,852,820)
Net change in unrealized................. 4,101,078 (3,850,545) (13,401,268)
------------- ------------- --------------
Total Trading Results.................. 5,941,647 (6,598,423) (37,254,088)
------------- ------------- --------------
NET LOSS.................................. (7,733,044) (26,179,564) (67,857,749)
============= ============= ==============
Net Loss Allocation
Limited Partners.......................... (7,644,502) (25,885,258) (67,138,290)
General Partner........................... (88,542) (294,306) (719,459)
Net Income (Loss) Per Unit*
Limited Partners.......................... (1.28) (3.48) (6.79)
General Partner........................... (1.28) (3.48) (6.79)
Units Units Units
------------- ------------- --------------
WEIGHTED AVERAGE NUMBER OF UNITS
OUTSTANDING............................. 6,392,736.584 8,177,824.370 10,069,277.824
* 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,
---------------------
2013 2012
---------- ----------
$ $
ASSETS
Investment in BHM I, LLC (cost $449,078 and $17,491,367,
respectively)........................................................ 46,985,018 63,045,391
Investment in MB Master Fund (cost $3,926,311 and $8,102,894,
respectively)........................................................ 4,183,031 8,142,971
Investment in PGR Master Fund (cost $3,246,961 and $6,033,345,
respectively)........................................................ 3,327,454 5,021,111
---------- ----------
Total Investments................................................... 54,495,503 76,209,473
Interest receivable (MS&Co.)........................................... 494 2,273
---------- ----------
Total Assets........................................................ 54,495,997 76,211,746
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES
Redemptions payable.................................................... 1,159,681 1,590,323
Accrued brokerage fees (MS&Co.)........................................ 270,566 387,030
Accrued management fees................................................ 124,834 174,921
---------- ----------
Total Liabilities................................................... 1,555,081 2,152,274
---------- ----------
PARTNERS' CAPITAL
Limited Partners (3,829,652.114 and 5,140,837.802 Units, respectively). 52,246,247 73,232,715
General Partner (50,919.274 and 58,037.274 Units, respectively)........ 694,669 826,757
---------- ----------
Total Partners' Capital............................................... 52,940,916 74,059,472
---------- ----------
Total Liabilities and Partners' Capital............................... 54,495,997 76,211,746
========== ==========
NET ASSET VALUE PER UNIT............................................... 13.64 14.25
========== ==========
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,
-------------------------------------------
2013 2012 2011
------------- ------------- -------------
$ $ $
INVESTMENT INCOME
Interest income (MS&Co. & Morgan Stanley Wealth
Management)........................................ 28,668 57,466 53,908
------------- ------------- -------------
EXPENSES
Brokerage fees (MS&Co.).............................. 3,855,868 5,825,816 9,254,864
Management fees...................................... 1,753,124 2,647,299 4,157,245
Incentive fees....................................... -- -- 1,238,078
------------- ------------- -------------
Total Expenses..................................... 5,608,992 8,473,115 14,650,187
------------- ------------- -------------
NET INVESTMENT LOSS................................... (5,580,324) (8,415,649) (14,596,279)
------------- ------------- -------------
TRADING RESULTS
Trading profit (loss):
Net realized......................................... -- -- 2,750,625
Net change in unrealized............................. -- -- (8,555,065)
Realized gain (loss) on investment in BHM I, LLC..... 559,473 (429,295) (958,118)
Realized gain (loss) on investment in PGR Master
Fund............................................... 5,825 (25,751) --
Realized gain on investment in MB Master Fund........ 22,738 3,838 --
Unrealized appreciation (depreciation) on investment
in BHM I, LLC...................................... 981,916 (687,951) (21,346,446)
Unrealized appreciation (depreciation) on investment
in PGR Master Fund................................. 1,092,727 (1,252,834) 240,600
Unrealized appreciation (depreciation) on investment
in MB Master Fund.................................. 216,643 160,465 (120,388)
------------- ------------- -------------
Total Trading Results.............................. 2,879,322 (2,231,528) (27,988,792)
------------- ------------- -------------
NET LOSS.............................................. (2,701,002) (10,647,177) (42,585,071)
============= ============= =============
Net Loss Allocation
Limited Partners...................................... (2,668,922) (10,517,888) (42,124,253)
General Partner....................................... (32,080) (129,289) (460,818)
Net Loss Per Unit*
Limited Partners...................................... (0.61) (1.77) (5.47)
General Partner....................................... (0.61) (1.77) (5.47)
Units Units Units
------------- ------------- -------------
WEIGHTED AVERAGE NUMBER OF UNITS
OUTSTANDING......................................... 4,582,116.588 6,273,402.856 7,873,786.813
* 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,
-----------------------
2013 2012
----------- -----------
$ $
ASSETS
Trading Equity:
Investment in Blackwater Master Fund.............................. 33,548,272 43,685,685
----------- -----------
Unrestricted cash................................................ 91,751,066 120,032,935
Restricted cash.................................................. 12,312,414 14,361,905
----------- -----------
Total cash..................................................... 104,063,480 134,394,840
----------- -----------
Net unrealized gain (loss) on open contracts (MS&Co.)............ 1,225,590 (1,017,450)
Net unrealized loss on open contracts (MSIP)..................... - (24,094)
----------- -----------
Total net unrealized gain (loss) on open contracts............. 1,225,590 (1,041,544)
----------- -----------
Total Trading Equity........................................... 138,837,342 177,038,981
Interest receivable (MS&Co. & Morgan Stanley Wealth Management)... 1,241 5,291
----------- -----------
Total Assets................................................... 138,838,583 177,044,272
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES
Redemptions payable............................................... 3,062,360 3,098,948
Accrued brokerage fees (MS&Co.)................................... 687,693 863,648
Accrued management fees........................................... 142,659 199,286
----------- -----------
Total Liabilities.............................................. 3,892,712 4,161,882
----------- -----------
PARTNERS' CAPITAL
Limited Partners (8,052,816.352 and 10,222,252.707 Units,
respectively)................................................... 133,281,088 170,851,495
General Partner (100,585.879 and 121,510.879 Units, respectively). 1,664,783 2,030,895
----------- -----------
Total Partners' Capital........................................ 134,945,871 172,882,390
----------- -----------
Total Liabilities and Partners' Capital........................ 138,838,583 177,044,272
=========== ===========
NET ASSET VALUE PER UNIT.......................................... 16.55 16.71
=========== ===========
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,
---------------------------------------------
2013 2012 2011
------------- -------------- --------------
$ $ $
INVESTMENT INCOME
Interest income (MS&Co. & Morgan Stanley Wealth
Management).................................... 69,030 133,904 107,915
------------- -------------- --------------
EXPENSES
Brokerage fees (MS&Co.).......................... 9,353,028 13,307,993 18,722,379
Management fees.................................. 2,127,948 3,384,253 6,205,832
Incentive fees................................... -- -- 94,355
------------- -------------- --------------
Total Expenses................................. 11,480,976 16,692,246 25,022,566
Management fee waived............................ -- (83,982) --
------------- -------------- --------------
Net Expenses................................... 11,480,976 16,608,264 25,022,566
------------- -------------- --------------
NET INVESTMENT LOSS............................... (11,411,946) (16,474,360) (24,914,651)
------------- -------------- --------------
TRADING RESULTS
Trading profit (loss):
Net realized..................................... 7,217,969 (6,219,265) 11,402,800
Net change in unrealized......................... 2,267,134 (9,809,697) (11,820,187)
Realized gain (loss) on investment in Blackwater
Master Fund.................................... 396,051 (4,657,167) 167,699
Unrealized appreciation on Investment in
Blackwater Master Fund......................... 63,604 898,526 564,283
Proceeds from Litigation......................... -- -- 10,951
------------- -------------- --------------
Total Trading Results.......................... 9,944,758 (19,787,603) 325,546
------------- -------------- --------------
NET LOSS.......................................... (1,467,188) (36,261,963) (24,589,105)
============= ============== ==============
Net Loss Allocation
Limited Partners.................................. (1,451,095) (35,829,461) (24,340,924)
General Partner................................... (16,093) (432,502) (248,181)
Net Loss Per Unit*
Limited Partners.................................. (0.16) (2.94) (1.68)
General Partner................................... (0.16) (2.94) (1.68)
Units Units Units
------------- -------------- --------------
WEIGHTED AVERAGE NUMBER OF UNITS
OUTSTANDING..................................... 9,350,648.660 12,156,580.269 14,975,570.662
* 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, 2013
As of December 31, 2013, Spectrum Currency 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 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 Global Balanced L.P.
Condensed Schedule of Investments
December 31, 2013
Net unrealized
gain/(loss) on % of
Futures and Forward Contracts Purchased open contracts Partners' Capital
--------------------------------------- -------------- -----------------
$
Commodity..................................... (86,359) (1.06)
Equity........................................ 84,093 1.03
Foreign currency.............................. 115,306 1.41
Interest rate................................. (27,000) (0.33)
--------- -----
Total Futures and Forward Contracts Purchased. 86,040 1.05
--------- -----
Futures and Forward Contracts Sold
----------------------------------
Commodity..................................... 144,024 1.76
Equity........................................ (8,824) (0.11)
Foreign currency.............................. 26,188 0.32
Interest rate................................. 63,451 0.78
--------- -----
Total Futures and Forward Contracts Sold...... 224,839 2.75
--------- -----
Unrealized Currency Gain..................... 889,621 10.90
--------- -----
Net fair value................................ 1,200,500 14.70
========= =====
% of
Option Contracts Fair Value Partners' Capital
---------------- -------------- -----------------
$
Options written on Future Contracts........... (31,915) (0.39)
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)Amount 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, 2013
Net unrealized
gain/(loss) on % of
Futures and Forward Contracts Purchased open contracts Partners' Capital
--------------------------------------- -------------- -----------------
$
Commodity..................................... (1,214,349) (0.82)
Equity........................................ 3,462,235 2.36
Foreign currency.............................. 1,349,914 0.92
Interest rate................................. (574,172) (0.39)
---------- -----
Total Futures and Forward Contracts Purchased. 3,023,628 2.07
---------- -----
Futures and Forward Contracts Sold
----------------------------------
Commodity..................................... 2,107,872 1.44
Equity........................................ 32,409 0.02
Foreign currency.............................. 927,755 0.63
Interest rate................................. 1,250,345 0.85
---------- -----
Total Futures and Forward Contracts Sold...... 4,318,381 2.94
---------- -----
Unrealized Currency Loss..................... (689,577) (0.47)
---------- -----
Net fair value................................ 6,652,432 4.54
========== =====
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 Strategic L.P.
Condensed Schedules of Investments
December 31, 2013 and 2012
As of December 31, 2013 and 2012, Spectrum Strategic 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, 2013
Net unrealized
gain/(loss) on % of
Futures and Forward Contracts Purchased open contracts Partners' Capital
--------------------------------------- -------------- -----------------
$
Commodity..................................... (204,694) (0.15)
Equity........................................ 3,109,753 2.31
Foreign currency.............................. 300,680 0.22
Interest rate................................. (400,432) (0.30)
---------- -----
Total Futures and Forward Contracts Purchased. 2,805,307 2.08
---------- -----
Futures and Forward Contracts Sold
----------------------------------
Commodity..................................... 768,610 0.57
Equity........................................ 22,944 0.02
Foreign currency.............................. 497,611 0.37
Interest rate................................. 578,949 0.43
---------- -----
Total Futures and Forward Contracts Sold...... 1,868,114 1.39
---------- -----
Unrealized Currency Loss..................... (3,447,831) (2.56)
---------- -----
Net fair value................................ 1,225,590 0.91
========== =====
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)
========== =====
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, 2013, 2012, and 2011
Units of
Partnership Limited General
Interest Partners Partner Total
------------- ---------- -------- ----------
$ $ $
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
Net Loss............................. -- (479,900) (6,431) (486,331)
Redemptions.......................... (648,244.994) (4,857,782) -- (4,857,782)
------------- ---------- -------- ----------
Partners' Capital, December 31, 2013. 2,430,680.684 17,703,845 265,227 17,969,072
============= ========== ======== ==========
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, 2013, 2012, and 2011
Units of
Partnership Limited General
Interest Partners Partner Total
------------- ---------- ------- ----------
$ $ $
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
Net Loss............................. -- (497,782) (9,361) (507,143)
Redemptions.......................... (174,463.476) (2,419,258) -- (2,419,258)
------------- ---------- ------- ----------
Partners' Capital, December 31, 2013. 614,068.356 8,000,772 161,531 8,162,303
============= ========== ======= ==========
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, 2013, 2012, and 2011
Units of
Partnership Limited General
Interest Partners Partner Total
-------------- ----------- --------- -----------
$ $ $
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
Net Loss............................. -- (7,644,502) (88,542) (7,733,044)
Redemptions.......................... (1,525,996.806) (41,464,280) (250,012) (41,714,292)
-------------- ----------- --------- -----------
Partners' Capital, December 31, 2013. 5,533,635.686 144,651,488 1,875,257 146,526,745
============== =========== ========= ===========
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, 2013, 2012, and 2011
Units of
Partnership Limited General
Interest Partners Partner Total
-------------- ----------- --------- -----------
$ $ $
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
Net Loss............................. -- (2,668,922) (32,080) (2,701,002)
Redemptions.......................... (1,318,303.688) (18,317,546) (100,008) (18,417,554)
-------------- ----------- --------- -----------
Partners' Capital, December 31, 2013. 3,880,571.388 52,246,247 694,669 52,940,916
============== =========== ========= ===========
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, 2013, 2012, and 2011
Units of
Partnership Limited General
Interest Partners Partner Total
-------------- ----------- --------- -----------
$ $ $
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
Net Loss............................. -- (1,451,095) (16,093) (1,467,188)
Redemptions.......................... (2,190,361.355) (36,119,312) (350,019) (36,469,331)
-------------- ----------- --------- -----------
Partners' Capital, December 31, 2013. 8,153,402.231 133,281,088 1,664,783 134,945,871
============== =========== ========= ===========
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 wholly-owned indirectly by Morgan
Stanley. Prior to June 2013, Citigroup Inc. was an indirect minority owner of
MSSBH. Morgan Stanley Smith Barney LLC is doing business as Morgan Stanley
Wealth Management ("Morgan Stanley Wealth Management"). This entity, previously
acted as a non-clearing commodity broker for the Partnerships. Morgan Stanley
Wealth Management is a principal subsidiary of MSSBH.
The clearing commodity broker is Morgan Stanley & Co. LLC ("MS&Co."). Morgan
Stanley & Co. International plc ("MSIP") previously served as a clearing
commodity broker for the Partnerships. 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. MS&Co. 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 December 1, 2013, the management fee payable by Spectrum Technical
to Blackwater Capital Management LLC ("Blackwater") was reduced from a monthly
management fee rate equal to 1/12 of 1.25% (a 1.25% annual rate) per month of
net assets allocated to Blackwater on the first day of each month to a monthly
management fee rate equal to 1/12 of 0.75% (a 0.75% annual rate) per month of
net assets allocated to Blackwater on the first day of each month.
Effective December 1, 2013, the management fee payable by Spectrum Select to
Northfield Trading L.P. ("Northfield") was reduced from a monthly management
fee rate equal to 1/12 of 2% (a 2% annual rate) of net assets allocated to
Northfield on the first day of each month to a monthly management fee rate
equal to 1/12 of 1% (a 1% annual rate) per month of net assets allocated to
Northfield on the first day of each month.
Effective October 1, 2013, the management fee payable by Spectrum Currency
to Krom River Investment Management (Cayman) Limited (together with its
affiliate, Krom River Trading AG) ("Krom River") was reduced from a monthly
management fee rate equal to 1/12 of 2% (a 2% annual rate) per month of net
assets allocated to Krom River on the first day of each month to a monthly
management fee rate equal to 1/12 of 1% (a 1% annual rate) per month of net
assets allocated to Krom River on the first day of each month.
Effective October 1, 2013, the General Partner determined that Spectrum
Currency's assets allocated to The Cambridge Strategy (Asset Management)
Limited ("Cambridge") shall be allocated 50% to Cambridge's Asian Markets Alpha
Programme, and 50% to Cambridge's Emerging Markets Alpha Programme.
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
Effective October 1, 2013, EMC Capital Management, Inc. ("EMC") assigned its
obligations, rights and interest to EMC Capital Advisors, LLC ("EMC Capital
Advisors"). EMC Capital Advisors has assumed all of EMC's obligations under the
management agreement, dated as of June 1, 1998, as amended, among Spectrum
Select, the General Partner and EMC.
Effective June 30, 2013, Ceres terminated the management agreement among
Ceres, Sunrise Capital Management, Inc. ("Sunrise Capital") and Spectrum
Select, pursuant to which Sunrise Capital ceased all Futures Interest trading
on behalf of Spectrum Select.
Effective May 31, 2013, Ceres terminated the management agreement among
Ceres, C-View International Limited ("C-View") and Spectrum Currency pursuant
to which C-View ceased all Futures Interest trading on behalf of Spectrum
Currency.
Effective May 31, 2013, Ceres terminated the management agreement among
Ceres, C-View and Spectrum Global Balanced pursuant to which C-View ceased all
Futures Interest trading on behalf of Spectrum Global Balanced.
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, 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 the 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 reduced the management fee it receives
from Spectrum Technical from a 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"), reduced 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.
Effective May 22, 2012, Chesapeake, in consultation with the General Partner
for Spectrum Technical 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 than current market environment
and the adverse performance experienced by Chesapeake over the previous 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
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
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 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 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 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.
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
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
the Statements of Financial Condition as net unrealized gains or losses on open
contracts. The resulting net change in unrealized gains and losses is reflected
in the net change in unrealized trading profit (loss) 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 forward 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.)
on 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 inputs the spot prices,
interest rates, and option implied volatilities quoted as of approximately
3:00 P.M. (E.T.) on the last business day of the reporting period. Risk arises
from changes in the value of these contracts and the potential inability of
counterparties to perform under the terms of the contracts. There are numerous
factors which may significantly influence the fair value of these contracts,
including interest rate volatility.
The Partnerships may invest in affiliated underlying funds. U.S. GAAP
permits the Partnerships, as a practical expedient, to estimate the fair value
of an investment using the net asset value per share of the investment, if the
net asset value per share of the investment is calculated in a manner
consistent with the measurement principles of Financial Accounting Standards
Board (the "FASB") Accounting Standards Codification ("ASC") 946 as of the
reporting entity's measurement date.The fair value of Partnerships' 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).
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 Interests 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 Interests 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. 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.
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
Fair Value of Financial Instruments -- The fair value of the Partnerships'
assets and liabilities that qualify as financial instruments under the FASB 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 MS&Co.,
a portion of which is 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 (c) options purchased at
fair value, if any. Options written at fair value, if any, are recorded in
"Liabilities" within the Statements of Financial Condition.
The Partnerships, in their normal course of business, enter into various
contracts with MS&Co. acting as its commodity broker. Pursuant to the brokerage
agreement with MS&Co. 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 agreement or such similar 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 only the offseting London Metal Exchange positions. All of
these amounts are maintained separately. Cash that is not classified as
restricted cash is therefore classified as unrestricted cash.
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. and/or its affiliates through the brokerage fees paid by the
Partnerships.
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
Redemptions -- Limited partners may redeem some or all of their Units at
100% of the net asset value per Unit. 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.
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, 2013 and 2012. 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, the 2010 through 2013 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.
Statement of Cash Flows -- The Partnerships are not required to provide a
Statement of Cash Flows.
Other Pronouncements
In June 2013, the FASB issued Accounting Standards Update ("ASU") 2013-08,
"Financial Services -- Investments Companies (Topic 946): Amendments to the
Scope, Measurement and Disclosure Requirements". ASU 2013-08 changes the
approach to the investment company assessment, requires non-controlling
ownership interests in other investment companies to be measured at fair value,
and requires additional disclosures about the investment company's status as an
investment company. The amendments are effective for interim and annual
reporting periods beginning after December 15, 2013. The Partnerships are
currently evaluating the impact this pronouncement would have on the financial
statements.
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
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
approximately 7.9% and 11.0%, and investment in PGR Master Fund represents
approximately 6.3% and 6.8%, respectively, of the net asset value of Spectrum
Strategic as of December 31, 2013, and 2012, 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 88.7% and 85.1%
of the net asset value of Spectrum Strategic at December 31, 2013, and 2012,
respectively.
Summarized information for Spectrum Strategic's investment in BHM I, LLC, MB
Master Fund and PGR Master Fund, as of December 31, 2013 and 2012, is as
follows:
December 31, 2013
% of Partnership's
Spectrum pro rata
Strategic Fair Net Investment Management Incentive Administrative
Investment Net Assets Value Income Objective Fees Fees Fees
---------- ---------- ---------- ------------- ------------------- ---------- --------- --------------
% $ $ $ $ $
BHM I,
LLC...... 88.7 46,985,018 1,541,390 Commodity Portfolio n/a n/a n/a
MB Master
Fund..... 7.9 4,183,031 239,381 Commodity Portfolio n/a n/a n/a
PGR Master
Fund..... 6.3 3,327,454 1,098,551 Commodity Portfolio n/a n/a n/a
December 31, 2012
Partnership's
% of pro rata
Spectrum Net
Strategic Fair Income/ Investment Management Incentive Administrative
Investment Net Assets Value (Loss) Objective Fees Fees Fees
---------- ---------- ---------- ------------- ------------------- ---------- --------- --------------
% $ $ $ $ $
BHM I,
LLC...... 85.1 63,045,391 (1,117,246) Commodity Portfolio n/a n/a n/a
MB Master
Fund..... 11.0 8,142,971 164,303 Commodity Portfolio n/a n/a n/a
PGR Master
Fund..... 6.8 5,021,111 (1,278,585) Commodity Portfolio 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 management or incentive 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, 2013 and 2012, 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, PGR Master Fund and MB Master Fund for the years ended December 31,
2013, 2012 and 2011, respectively, to meet the requirements of Regulation S-X
Rule 3-09:
Net
Investment Investment Total
December 31, 2013 Income Loss Trading Results Net Income
----------------- ---------- ---------- --------------- ----------
$ $ $ $
BHM I, LLC........ 2,258 (6,908,153) 10,136,795 3,228,642
PGR Master Fund... 12,279 (134,731) 8,544,764 8,410,033
MB Master Fund.... 92,224 (5,087,972) 14,221,096 9,133,124
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
Net
Investment Investment Total
December 31, 2012 Income/(Loss) Loss Trading Results Net 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
Investment Investment Total Net
December 31, 2011 Income/(Loss) Loss Trading Results Income (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
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, 2013 and 2012, is shown in the
following tables.
December 31, 2013
--------------------------------------------
Total Assets Total Liabilities Total Capital
------------ ----------------- -------------
Blackwater Master Fund. 63,936,601 610,828 63,325,773
December 31, 2012
--------------------------------------------
Total Assets Total Liabilities Total Capital
------------ ----------------- -------------
Blackwater Master Fund. $82,996,036 $1,069,352 $81,926,684
Summarized information for Spectrum Technical's investment in Blackwater
Master Fund as of December 31, 2013 and 2012, is as follows:
% of Partnership's
Spectrum pro rata
Technical Fair Net Investment Redemption
December 31, 2013 Net Assets Value Income Objective Permitted
----------------- ---------- ---------- ------------- ------------------- ----------
% $ $
Blackwater Master Fund. 24.9 33,548,272 459,654 Commodity Portfolio Monthly
% of Partnership's
Spectrum pro rata
Technical Fair Net Investment Redemption
December 31, 2012 Net Assets Value Loss Objective Permitted
----------------- ---------- ---------- ------------- ------------------- ----------
% $ $
Blackwater Master Fund. 25.3 43,685,685 (3,758,641) Commodity Portfolio Monthly
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
Blackwater Master Fund does not pay any management or incentive fees related
to Spectrum Technical's investment in the fund. These fees are accrued and 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, 2013 and 2012, Spectrum Technical owned approximately 53.0%
and 53.3%, 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.
The tables below represent summarized Income Statement information for
Blackwater Master Fund for the years ended December 31, 2013, 2012 and 2011
respectively, to meet the requirements of Regulation S-X Rule 3-09:
Net
Investment Investment Total Net
December 31, 2013 Income Loss Trading Results Income
----------------- ---------- ---------- --------------- -------
$ $ $ $
Blackwater Master Fund. 28,776 (89,483) 886,883 797,400
Net
Investment Investment Total Net
December 31, 2012 Income Loss Trading Results Loss
----------------- ---------- ---------- --------------- ----------
$ $ $ $
Blackwater Master Fund. 48,607 (110,152) (8,076,139) (8,186,291)
Net
Investment Investment Total Net
December 31, 2011 Income Loss Trading 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 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 and, from October 1, 2013 Cambridge Emerging
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.
On January 1, 2012, the assets allocated to Krom River 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 River 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 River, including Spectrum Currency, are permitted to be limited
partners of KR Master Fund. The General Partner and Krom River believe that
trading through this structure should promote efficiency and economy in the
trading process.
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
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
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.
Summarized information for Spectrum Currency, reflecting the total assets,
liabilities and capital of KR Master Fund and Cambridge Master Fund as of
December 31, 2013 and 2012, is shown in the following tables.
December 31, 2013
--------------------------------------------
Total Assets Total Liabilities Total Capital
------------ ----------------- -------------
KR Master Fund........ $44,043,845 $1,456,785 $42,587,060
Cambridge Master Fund. 37,549,964 28,580 37,521,384
----------- ---------- -----------
$81,593,809 $1,485,365 $80,108,444
=========== ========== ===========
December 31, 2012
--------------------------------------------
Total Assets Total 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
============ ========== ============
Summarized information for Spectrum Currency's investment in KR Master Fund,
Cambridge Master Fund and FL Master Fund for the period ended December 31, 2013
and 2012, is as follows:
% of Partnership's
For the period ended Spectrum pro rata
December 31, 2013 Currency Fair Net Investment Redemption
Investment Net Assets Value Income/(Loss) Objective Permitted
-------------------- ---------- ---------- ------------- ------------------- ----------
% $ $
KR Master Fund........ 40.6 7,290,317 (575,477) Commodity Portfolio Monthly
Cambridge Master Fund. 62.9 11,299,138 1,148,720 Commodity Portfolio Monthly
% of Partnership's
For the period ended Spectrum pro rata
December 31, 2012 Currency Fair Net Investment Redemption
Investment Net Assets Value Income/(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
Cambridge Master Fund and KR Master Fund do not pay any management or
incentive fees related to Spectrum Currency's investments. These fees are
accrued and 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
investments.
As of December 31, 2013 and 2012, Spectrum Currency owned approximately
30.11% and 48.23% and 17.11% 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.
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
The tables below represent summarized Income Statement information for
Cambridge Master Fund and KR Master Fund for the year ended December 31, 2013
and 2012, to meet the requirements of Regulation S-X Rule 3-09:
Investment Net Total Net
December 31, 2013 Income Investment Loss Trading Results Income/(Loss)
----------------- ---------- --------------- --------------- -------------
$ $ $ $
KR Master Fund........ 25,093 (281,565) (5,175,049) (5,456,614)
Cambridge Master Fund. 9,306 (66,302) 3,166,855 3,100,553
Investment Net Total Net
December 31, 2012 Income Investment Loss Trading Results Income/(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. MS&Co. acts as the counterparty on all trading of foreign currency
forward contracts. 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 unaffiliated commodity
trading advisors which are registered with Commodity Futures Commission, to
make all trading decisions for the Partnerships. The trading advisors for each
Partnership at December 31, 2013, were as follows:
Spectrum Currency
Cambridge
Krom River
Spectrum Global Balanced
Altis Partners (Jersey) Limited ("Altis")
SSARIS Advisors, LLC ("SSARIS")
Spectrum Select
Altis Partners (Jersey) Limited
EMC Capital Advisors, LLC
Graham Capital Management, L.P. ("Graham")
Northfield Trading L.P.
Rabar Market Research, Inc. ("Rabar")
Spectrum Strategic
Aventis Asset Management LLC
Blenheim Capital Management, L.L.C. ("Blenheim")
PGR Capital L.P.
Spectrum Technical
Aspect Capital Limited
Blackwater Capital Management LLC
Campbell & Company, Inc. ("Campbell")
Rotella Capital Management, Inc. ("Rotella")
Winton Capital Management Limited
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
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 1/12 of 1% (a 1% annual rate) per month of net assets allocated on the
first day of each month to Krom River and 1/12 of 1.5% (a 1.5% annual rate) per
month of net assets allocated to Cambridge on the first day of each month.
Prior to October 1, 2013, the management fee payable to Krom River was 1/12
of 2% (a 2% annual rate).
The monthly management fee payable to C-View prior to termination on May 31,
2013 was 1/12 of 2% (a 2% annual rate).
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) and 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).
The monthly management fee payable to C-View prior to termination on May 31,
2013 was 1/6 of 1% (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 and Rabar on the first day of each month (a 2% annual
rate) and 1/12 of 1% per month of net assets allocated to Northfield on the
first day of each month (a 1% annual rate).
Prior to December 1, 2013, the monthly management fee payable to Northfield
was 1/12 of 2% (a 2% annual rate).
The monthly management fee payable to Sunrise Capital prior to termination
on June 28, 2013 was 1/12 of 2% (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 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.
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
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 0.75% per month of net assets allocated to Blackwater
on the first day of each month (a 0.75% annual rate).
Prior to December 1, 2013, the monthly management fee payable to Blackwater
was 1/12 of 1.25% (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).
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 Krom River's allocated net
assets at the end of the 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 May 31, 2013, Spectrum Currency paid C-View 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. C-View was removed
as a trading advisor to Spectrum Currency effective May 31, 2013.
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 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 as of the end of each
calendar month.
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
Prior to May 31, 2013, Spectrum Global Balanced paid C-View 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. C-View was
removed as a trading advisor to Spectrum Global Balanced effective May 31, 2013.
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, Rabar, Altis and Graham as of the end of each calendar month.
Prior to June 28, 2013, Spectrum Select paid Sunrise Capital a monthly
incentive fee equal to 20% of the trading profits experienced with respect to
the net assets allocated to C-View as of the end of each calendar month.
Sunrise Capital was removed as a trading advisor to Spectrum Select effective
June 28, 2013.
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 end of each calendar month.
Trading profits represent the amount by which profits from futures,
forwards, and options trading exceed losses after brokerage and management fees
are deducted.
For all trading advisors with trading losses, no incentive fee is paid in
subsequent months until all such losses are recovered. Cumulative trading
losses are adjusted on a pro rata basis for the net amount of each month's
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.
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 on Open Contracts Longest Maturities
------------------------------------------ -----------------------------------
Year Exchange-Traded Off-Exchange-Traded Total Exchange-Traded Off-Exchange-Traded
---- --------------- ------------------- ------ --------------- -------------------
$ $ $
2013. -- -- -- -- --
2012. -- 43,205 43,205 -- Feb. 2013
Spectrum Global Balanced
Net Unrealized Gains on Open Contracts Longest Maturities
--------------------------------------------- -----------------------------------
Year Exchange-Traded Off-Exchange-Traded Total Exchange-Traded Off-Exchange-Traded
---- --------------- ------------------- --------- --------------- -------------------
$ $ $
2013. 1,200,500 -- 1,200,500 Dec. 2015 --
2012. 951,801 29,978 981,779 Dec. 2014 Feb. 2013
Spectrum Select
Net Unrealized Gains on Open Contracts Longest Maturities
--------------------------------------------- -----------------------------------
Year Exchange-Traded Off-Exchange-Traded Total Exchange-Traded Off-Exchange-Traded
---- --------------- ------------------- --------- --------------- -------------------
$ $ $
2013. 6,193,496 458,936 6,652,432 Dec. 2017 Mar. 2014
2012. 2,503,274 48,080 2,551,354 Mar. 2017 Mar. 2013
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
---- --------------- ------------------- ---------- --------------- -------------------
$ $ $
2013. 817,366 408,224 1,225,590 Jun. 2018 Jun. 2014
2012. (1,651,077) 609,533 (1,041,544) Jun. 2017 Apr. 2013
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. 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., which is
acting as a commodity futures broker for each Partnership's exchange-traded
futures, exchange-traded forward, and exchange-traded futures-styled options
contracts, is required, pursuant to regulations of the Commodity Futures
Trading Commission, to segregate from its own assets, and for the sole benefit
of its commodity customers, total cash held by it 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 $0 and $6,788,072 for Spectrum Currency, $8,467,348 and
$11,255,076 for Spectrum Global Balanced, $150,597,920 and $200,859,877 for
Spectrum Select, and $104,880,846 and $132,743,763 for Spectrum Technical at
December 31, 2013 and 2012, 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 netting
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 quantities (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.
On January 1, 2013, the Partnership adopted ASU 2011-11, "Disclosure about
Offsetting Assets and Liabilities" and ASU 2013-01, "Clarifying the Scope of
Disclosures about Offsetting Assets and Liabilities". ASU 2011-11 created a new
disclosure requirement about the nature of an entity's rights to setoff and the
related arrangements associated with its financial instruments and derivative
instruments, while ASU 2013-01 clarified 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. The new guidance did not have a
significant impact on the Partnerships' financial statements.
The following tables summarize the valuation of each Partnership's
investments as of December 31, 2013 and 2012.
Spectrum Currency
As of December 31, 2013, Spectrum Currency held no futures and forward
contracts; therefore, there were no net unrealized gains and losses on futures
and forward contracts.
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
Offsetting of Derivative Assets and Liabilities as of December 31, 2012:
Gross Amounts Net Amounts
Offset in the Presented in the
Statements of Statements of
Gross Amounts Financial Financial
Recognized Condition Condition
- ------------- ------------- ----------------
$ $ $
Assets
Forwards.................................... 105,849 (64,477) 41,372
------- ------- ------
Total Assets................................ 105,849 (64,477) 41,372
------- ------- ------
Liabilities
Forwards.................................... (64,477) 64,477 --
------- ------- ------
Total Liabilities........................... (64,477) 64,477 --
------- ------- ------
Unrealized currency gain.................... 1,833
------
Total net unrealized gain on open contracts. 43,205
======
The effect of Trading Activities on the Statements of Financial Condition as
of December 31, 2013 and 2012:
December 31, 2013
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.............. -- -- -- -- -- 826
-- -- -- -- --
Total........................ -- -- -- -- --
== == == == ==
Unrealized currency gain
(loss)..................... --
--
Total net unrealized gain
(loss) on open contracts... --
==
Average
Number of
Contracts
Outstanding
for the Year
(Absolute
Option Contracts at Fair Value Quantity)
------------------------------ ------------
$
Options purchased........ -- 1
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
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
Spectrum Global Balanced
Offsetting of Derivative Assets and Liabilities as of December 31, 2013:
Gross Amounts Net Amounts
Offset in the Presented in the
Statements of Statements of
Gross Amounts Financial Financial
Recognized Condition Condition
------------- ------------- ----------------
$ $ $
Assets
Futures..................................... 511,577 (200,698) 310,879
-------- -------- ---------
Total Assets................................ 511,577 (200,698) 310,879
-------- -------- ---------
Liabilities
Futures..................................... (200,698) 200,698 --
-------- -------- ---------
Total Liabilities........................... (200,698) 200,698 --
-------- -------- ---------
Unrealized currency gain.................... 889,621
---------
Total net unrealized gain on open contracts. 1,200,500
=========
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
Gross amounts not offset in the
Statements of Financial Condition
-------------------------------------
Financial Cash Collateral
Instruments Received Net Amount
----------- --------------- ----------
$ $ $
Liabilities
Options written... (31,915) -- (31,915)
------- -- ---------
Total Liabilities. (31,915) -- (31,915)
------- -- ---------
Total............. (31,915)
---------
Net fair value.... 1,168,585
=========
Offsetting of Derivative Assets and Liabilities as of December 31, 2012:
Gross Amounts Net Amounts
Offset in the Presented in the
Statements of Statements of
Gross Amounts Financial Financial
Recognized Condition Condition
------------- ------------- ----------------
$ $ $
Assets
Futures..................................... 270,741 (195,393) 75,348
Forwards.................................... 70,236 (40,258) 29,978
-------- -------- -------
Total Assets................................ 340,977 (235,651) 105,326
-------- -------- -------
Liabilities
Futures..................................... (195,393) 195,393 --
Forwards.................................... (40,258) 40,258 --
-------- -------- -------
Total Liabilities........................... (235,651) 235,651 --
-------- -------- -------
Unrealized currency gain.................... 876,453
-------
Total net unrealized gain on open contracts. 981,779
=======
Gross amounts not offset in the
Statements of Financial Condition
-------------------------------------
Financial Cash Collateral
Instruments Received Net Amount
----------- --------------- ----------
$ $ $
Liabilities
Options written... (22,859) -- (22,859)
------- -- -------
Total Liabilities. (22,859) -- (22,859)
------- -- -------
Total............. (22,859)
-------
Net fair value.... 958,920
=======
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
The effect of Trading Activities on the Statements of Financial Condition as
of December 31, 2013 and 2012:
December 31, 2013
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...................... 35,708 (122,067) 152,026 (8,002) 57,665 201
Equity......................... 84,250 (157) 19,206 (28,030) 75,269 54
Foreign currency............... 117,601 (2,295) 27,474 (1,286) 141,494 705
Interest rate.................. 10,679 (37,679) 64,633 (1,182) 36,451 298
------- -------- ------- ------- ---------
Total......................... 248,238 (162,198) 263,339 (38,500) 310,879
======= ======== ======= =======
Unrealized currency gain...... 889,621
---------
Total net unrealized gain on
open contracts.............. 1,200,500
=========
Average
Number of
Contracts
Outstanding
for the Year
(Absolute
Option Contracts at Fair Value Quantity)
------------------------------ ------------
$
Options purchased.......................................................... -- 1
Options written............................................................ (31,915) 10
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
=======
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
Average
Number of
Contracts
Outstanding
for the Year
(Absolute
Option Contracts at Fair Value Quantity)
------------------------------ ------------
$
Options purchased........ -- 1
Options written.......... (22,859) 14
Spectrum Select
Offsetting of Derivative Assets and Liabilities as of December 31, 2013:
Gross Amounts Net Amounts
Offset in the Presented in the
Statements of Statements of
Gross Amounts Financial Financial
Recognized Condition Condition
------------- ------------- ----------------
$ $ $
Assets
Futures..................................... 9,894,085 (3,011,012) 6,883,073
Forwards.................................... 528,063 (69,127) 458,936
---------- ---------- ---------
Total Assets................................ 10,422,148 (3,080,139) 7,342,009
---------- ---------- ---------
Liabilities
Futures..................................... (3,011,012) 3,011,012 --
Forwards.................................... (69,127) 69,127 --
---------- ---------- ---------
Total Liabilities........................... (3,080,139) 3,080,139 --
---------- ---------- ---------
Unrealized currency loss.................... (689,577)
---------
Total net unrealized gain on open contracts. 6,652,432
=========
Offsetting of Derivative Assets and Liabilities as of December 31, 2012:
Gross Amounts Net Amounts
Offset in the Presented in the
Statements of Statements of
Gross Amounts Financial Financial
Recognized Condition Condition
------------- ------------- ----------------
$ $ $
Assets
Futures..................................... 7,876,474 (4,169,335) 3,707,139
Forwards.................................... 619,732 (571,652) 48,080
---------- ---------- ----------
Total Assets................................ 8,496,206 (4,740,987) 3,755,219
---------- ---------- ----------
Liabilities
Futures..................................... (4,169,335) 4,169,335 --
Forwards.................................... (571,652) 571,652 --
---------- ---------- ----------
Total Liabilities........................... (4,740,987) 4,740,987 --
---------- ---------- ----------
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
The effect of Trading Activities on the Statements of Financial Condition as
of December 31, 2013 and 2012:
December 31, 2013
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.................... 561,914 (1,776,263) 2,430,029 (322,157) 893,523 4,153
Equity....................... 3,462,235 -- 36,105 (3,696) 3,494,644 1,717
Foreign currency............. 1,474,046 (124,132) 986,884 (59,129) 2,277,669 3,214
Interest rate................ 61,862 (636,034) 1,409,073 (158,728) 676,173 5,741
--------- ---------- --------- -------- ---------
Total....................... 5,560,057 (2,536,429) 4,862,091 (543,710) 7,342,009
========= ========== ========= ========
Unrealized currency
loss...................... (689,577)
---------
Total net unrealized gain
on open contracts......... 6,652,432
=========
Average
Number of
Contracts
Outstanding
for the Year
(Absolute
Option Contracts at Fair Value Quantity)
------------------------------ ------------
$
Options purchased........ -- 3
Options written.......... -- 2
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
Spectrum Strategic
The effect of Trading Activities on the Statements of Financial Condition as
of December 31, 2013 and 2012:
December 31, 2013
The Partnership held no futures or forward contracts; therefore, there were
no net unrealized gains or losses on futures or forward contracts.
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..................... -- -- -- -- -- 752
Equity........................ -- -- -- -- -- 328
Foreign currency.............. -- -- -- -- -- 6,514
Interest rate................. -- -- -- -- -- 2,260
---------- ---------- ---------- ---------- -----------
Total........................ -- -- -- -- --
========== ========== ========== ==========
Unrealized currency gain
(loss)..................... --
-----------
Total net unrealized gain
(loss) on open contracts... --
===========
Spectrum Technical
Offsetting of Derivative Assets and Liabilities as of December 31, 2013:
Gross Amounts Net Amounts
Offset in the Presented in the
Statements of Statements of
Gross Amounts Financial Financial
Recognized Condition Condition
------------- ------------- ----------------
$ $ $
Assets
Futures..................................... 5,404,721 (1,139,524) 4,265,197
Forwards.................................... 728,738 (320,514) 408,224
---------- ---------- ----------
Total Assets................................ 6,133,459 (1,460,038) 4,673,421
---------- ---------- ----------
Liabilities
Futures..................................... (1,139,524) 1,139,524 --
Forwards.................................... (320,514) 320,514 --
---------- ---------- ----------
Total Liabilities........................... (1,460,038) 1,460,038 --
---------- ---------- ----------
Unrealized currency loss.................... (3,447,831)
----------
Total net unrealized gain on open contracts. 1,225,590
==========
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
Offsetting of Derivative Assets and Liabilities as of December 31, 2012:
Gross Amounts Net Amounts
Offset in the Presented in the
Statements of Statements of
Gross Amounts Financial Financial
Recognized Condition Condition
------------- ------------- ----------------
$ $ $
Assets
Futures..................................... 4,081,355 (2,249,281) 1,832,074
Forwards.................................... 1,275,053 (665,520) 609,533
---------- ---------- ----------
Total Assets................................ 5,356,408 (2,914,801) 2,441,607
---------- ---------- ----------
Liabilities
Futures..................................... (2,249,281) 2,249,281 --
Forwards.................................... (665,520) 665,520 --
---------- ---------- ----------
Total Liabilities........................... (2,914,801) 2,914,801 --
---------- ---------- ----------
Unrealized currency loss.................... (3,483,151)
----------
Total net unrealized loss on open contracts. (1,041,544)
==========
The effect of Trading Activities on the Statements of Financial Condition as
of December 31, 2013 and 2012:
December 31, 2013
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.................... 182,135 (386,829) 893,327 (124,717) 563,916 1,300
Equity....................... 3,110,927 (1,174) 28,444 (5,500) 3,132,697 1,458
Foreign currency............. 539,752 (239,072) 601,972 (104,361) 798,291 4,080
Interest rate................ 152,993 (553,425) 623,909 (44,960) 178,517 3,501
--------- ---------- --------- -------- ----------
Total....................... 3,985,807 (1,180,500) 2,147,652 (279,538) 4,673,421
========= ========== ========= ========
Unrealized currency
loss...................... (3,447,831)
----------
Total net unrealized gain
on open contracts......... 1,225,590
==========
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
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
The following tables summarize the net trading results of each Partnership
for the years ended December 31, 2013, 2012, and 2011, respectively.
Spectrum Currency
The effect of Trading Activities on the Statements of Income and Expenses
for the years ended December 31, 2013, 2012, and 2011, in Total Trading Results:
December 31,
---------------------------------
2013 2012 2011
--------- ---------- ----------
Type of Instrument
------------------ $ $ $
Commodity................ (565,844) (2,081,165) --
Foreign currency......... 1,542,186 174,080 (1,647,809)
Unrealized currency loss. (1,832) (33,641) (46,233)
--------- ---------- ----------
Total................... 974,510 (1,940,726) (1,694,042)
========= ========== ==========
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, 2013, 2012, and 2011:
December 31,
---------------------------------
2013 2012 2011
--------- ---------- ----------
Trading Results
--------------- $ $ $
Net realized............................................... 444,474 (199,068) (483,261)
Net change in unrealized................................... (43,205) 133,331 (1,210,781)
Realized loss on investment in KR Master Fund.............. (551,662) (488,412) --
Realized loss on investment in FL Master Fund.............. -- (2,033,985) --
Realized income (loss) on investment in Cambridge Master
Fund..................................................... 1,188,237 (44,139) --
Unrealized appreciation on investment in FL Master Fund.... -- 514,630 --
Unrealized appreciation (depreciation) on investment in KR
Master Fund.............................................. (23,816) 52,939 --
Unrealized appreciation (depreciation) on investment in
Cambridge Master Fund.................................... (39,518) 123,978 --
--------- ---------- ----------
Total..................................................... 974,510 (1,940,726) (1,694,042)
========= ========== ==========
Spectrum Global Balanced
The effect of Trading Activities on the Statements of Income and Expenses
for the years ended December 31, 2013, 2012, and 2011, included in Total
Trading Results:
December 31,
------------------------------
2013 2012 2011
-------- -------- ----------
Type of Instrument
------------------ $ $ $
Commodity....................... (813,691) (261,829) (864,562)
Equity.......................... 330,825 224,150 (965,779)
Foreign currency................ 604,077 171,401 (735,607)
Interest rate................... (54,064) 6,538 1,137,203
Unrealized currency gain (loss). 13,168 (18,409) (61,781)
-------- -------- ----------
Total.......................... 80,315 121,851 (1,490,526)
======== ======== ==========
Line Items on the Statements of Income and Expenses for the years ended
December 31, 2013, 2012, and 2011:
December 31,
------------------------------
2013 2012 2011
-------- -------- ----------
Trading Results
--------------- $ $ $
Net realized............. (129,286) 370,013 (1,151,478)
Net change in unrealized. 209,601 (248,162) (339,048)
-------- -------- ----------
Total................... 80,315 121,851 (1,490,526)
======== ======== ==========
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, 2013, 2012, and 2011, included in Total
Trading Results:
December 31,
------------------------------------
2013 2012 2011
---------- ----------- -----------
Type of Instrument
------------------ $ $ $
Commodity....................... (8,240,610) (12,872,729) (17,215,862)
Equity.......................... 17,236,173 6,993,095 (27,174,382)
Foreign currency................ 69,245 (2,206,555) (11,400,426)
Interest rate................... (3,637,449) 1,388,041 19,104,345
Unrealized currency gain (loss). 514,288 99,725 (567,763)
---------- ----------- -----------
Total.......................... 5,941,647 (6,598,423) (37,254,088)
========== =========== ===========
Line Items on the Statements of Income and Expenses for the years ended
December 31, 2013, 2012, and 2011:
December 31,
---------------------------------
2013 2012 2011
--------- ---------- -----------
Trading Results
--------------- $ $ $
Net realized............. 1,840,569 (2,747,878) (23,852,820)
Net change in unrealized. 4,101,078 (3,850,545) (13,401,268)
--------- ---------- -----------
Total................... 5,941,647 (6,598,423) (37,254,088)
========= ========== ===========
Spectrum Strategic
The effect of Trading Activities on the Statements of Income and Expenses
for the years ended December 31, 2013, 2012, and 2011, included in Total
Trading Results:
December 31,
----------------------------------
2013 2012 2011
--------- ---------- -----------
Type of Instrument
------------------ $ $ $
Commodity................ 2,391,667 (1,374,285) (18,052,648)
Equity................... 853,223 (3,098,127) (2,778,840)
Foreign currency......... 197,595 (39,186) (14,779,073)
Interest rate............ (563,163) 2,280,070 7,707,782
Unrealized currency loss. -- -- (86,013)
--------- ---------- -----------
Total................... 2,879,322 (2,231,528) (27,988,792)
========= ========== ===========
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, 2013, 2012, and 2011:
December 31,
---------------------------------
2013 2012 2011
--------- ---------- -----------
Trading Results
--------------- $ $ $
Net realized................................................... -- -- 2,750,625
Net change in unrealized....................................... -- -- (8,555,065)
Realized gain (loss) on investment in BHM I, LLC............... 559,473 (429,295) (958,118)
Realized gain (loss) on investment in PGR Master Fund.......... 5,825 (25,751) --
Realized gain on investment in MB Master Fund.................. 22,738 3,838 --
Unrealized appreciation (depreciation) on investment in BHM I,
LLC.......................................................... 981,916 (687,951) (21,346,446)
Unrealized appreciation (depreciation) on investment in PGR
Master Fund.................................................. 1,092,727 (1,252,834) 240,600
Unrealized appreciation (depreciation) on investment in MB
Master Fund.................................................. 216,643 160,465 (120,388)
--------- ---------- -----------
Total Trading Results......................................... 2,879,322 (2,231,528) (27,988,792)
========= ========== ===========
Spectrum Technical
The effect of Trading Activities on the Statements of Income and Expenses
for the years ended December 31, 2013, 2012, and 2011, included in Total
Trading Results:
December 31,
-------------------------------------
2013 2012 2011
----------- ----------- -----------
Type of Instrument
------------------ $ $ $
Commodity....................... 1,447,554 7,806,061 (13,197,401)
Equity.......................... 16,778,460 (58,323,819) (16,512,047)
Foreign currency................ 1,893,467 (30,995,834) (3,771,234)
Interest rate................... (10,210,043) 68,102,911 33,707,895
Unrealized currency gain (loss). 35,320 (6,376,922) 87,382
Proceeds from Litigation........ -- -- 10,951
----------- ----------- -----------
Total.......................... 9,944,758 (19,787,603) 325,546
=========== =========== ===========
Line Items on the Statements of Income and Expenses for the years ended
December 31, 2013, 2012, and 2011:
December 31,
----------------------------------
2013 2012 2011
--------- ----------- -----------
Trading Results
--------------- $ $ $
Net realized............................................... 7,217,969 (6,219,265) 11,402,800
Net change in unrealized................................... 2,267,134 (9,809,697) (11,820,187)
Realized gain (loss) on investment in Blackwater Master
Fund..................................................... 396,051 (4,657,167) 167,699
Unrealized appreciation on Investment in Blackwater Master
Fund..................................................... 63,604 898,526 564,283
Proceeds from Litigation................................... -- -- 10,951
--------- ----------- -----------
Total Trading Results..................................... 9,944,758 (19,787,603) 325,546
========= =========== ===========
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
8. Fair Value Measurements and Disclosures
On October 1, 2012, the FASB issued 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.
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 and 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 consideration of 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, 2013 (Level 1) (Level 2) (Level 3) Total
----------------- ---------------- ----------- ------------ ----------
$ $ $ $
Assets
Investment in Cambridge Master Fund. -- 11,299,138 n/a 11,299,138
Investment in KR Master Fund........ -- 7,290,317 n/a 7,290,317
-- ---------- ----------
Total Assets........................ -- 18,589,455 n/a 18,589,455
== ========== ==========
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, 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
== ========== ==========
* This amount comprises of the "Net unrealized gain on open contracts" and
"Investment in Cambridge Master Fund and KR Master Fund" on the Statements of
Financial Condition.
During the twelve months ended December 31, 2013 and 2012, 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, 2013 (Level 1) (Level 2) (Level 3) Total
----------------- ---------------- ----------- ------------ ---------
$ $ $ $
Assets
Futures.................. 511,577 -- n/a 511,577
------- -- ---------
Total Assets............. 511,577 -- n/a 511,577
------- -- ---------
Liabilities
Futures.................. 200,698 -- n/a 200,698
Options Written.......... 31,915 -- 31,915
------- -- ---------
Total Liabilities........ 232,613 -- n/a 232,613
------- -- ---------
Unrealized currency gain. 889,621
---------
*Net fair value.......... 278,964 -- n/a 1,168,585
======= == =========
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, 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
======= ====== =======
* This amount comprises of the "Total net unrealized gain on open contracts"
and "Options written" on the Statements of Financial Condition.
During the twelve months ended December 31, 2013 and 2012, 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, 2013 (Level 1) (Level 2) (Level 3) Total
----------------- ---------------- ----------- ------------ ----------
$ $ $ $
Assets
Futures.................. 9,894,085 -- n/a 9,894,085
Forwards................. -- 528,063 n/a 528,063
--------- ------- ----------
Total Assets............. 9,894,085 528,063 n/a 10,422,148
--------- ------- ----------
Liabilities
Futures.................. 3,011,012 -- n/a 3,011,012
Forwards................. -- 69,127 n/a 69,127
--------- ------- ----------
Total Liabilities........ 3,011,012 69,127 n/a 3,080,139
--------- ------- ----------
Unrealized currency loss. (689,577)
----------
*Net fair value.......... 6,883,073 458,936 n/a 6,652,432
========= ======= ==========
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, 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
========= ======= ==========
* 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, 2013 and 2012, 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, 2013 (Level 1) (Level 2) (Level 3) Total
----------------- ---------------- ----------- ------------ ----------
$ $ $ $
Assets
Investment in BHM I, LLC...... -- 46,985,018 n/a 46,985,018
Investment in PGR Master Fund. -- 3,327,454 n/a 3,327,454
Investment in MB Master Fund.. -- 4,183,031 n/a 4,183,031
-- ---------- ----------
Total Assets.................. -- 54,495,503 n/a 54,495,503
== ========== ==========
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
-- ========== ==========
During the twelve months ended December 31, 2013 and 2012, 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 Unobservable Unobservable
Assets Inputs Inputs
December 31, 2013 (Level 1) (Level 3) (Level 3) Total
----------------- ---------------- ------------ ------------ ----------
$ $ $ $
Assets
Investment in Blackwater Master Fund. -- 33,548,272 n/a 33,548,272
Futures.............................. 5,404,721 -- n/a 5,404,721
Forwards............................. -- 728,738 n/a 728,738
--------- ---------- ----------
Total Assets......................... 5,404,721 34,277,010 n/a 39,681,731
--------- ---------- ----------
Liabilities
Futures.............................. 1,139,524 -- n/a 1,139,524
Forwards............................. -- 320,514 n/a 320,514
--------- ---------- ----------
Total Liabilities.................... 1,139,524 320,514 n/a 1,460,038
--------- ---------- ----------
Unrealized currency loss............. (3,447,831)
----------
*Net fair value...................... 4,265,197 33,956,496 n/a 34,773,862
========= ========== ==========
Unadjusted
Quoted Prices in
Active Markets Significant Significant
for Identical Unobservable Unobservable
Assets Inputs Inputs
December 31, 2012 (Level 1) (Level 3) (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
========= ========== ==========
* This amount comprises of the "Total net unrealized gain on open contracts"
and "Investment in Blackwater Master Fund" on the Statements of Financial
Condition.
During the twelve months ended December 31, 2013 and 2012, 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
2013 2012 2011
------ ------ ------
Per Unit operating performance:
Net asset value, January 1:............ $ 7.57 $ 8.63 $ 9.57
------ ------ ------
Interest Income...................... --(2) --(2) --(2)
Expenses............................. (0.53) (0.53) (0.60)
Realized/Unrealized Income (Loss)(1). 0.35 (0.53) (0.34)
------ ------ ------
Net Loss............................. (0.18) (1.06) (0.94)
------ ------ ------
Net asset value, December 31:.......... $ 7.39 $ 7.57 $ 8.63
====== ====== ======
For the Calendar Year:
Ratios to average net assets:
Net Investment Loss/ /............... (7.2)% (6.6)% (6.7)%
Expenses before Incentive Fees....... 6.4% 6.7% 6.8%
Expenses after Incentive Fees........ 7.2% 6.7% 6.8%
Net Loss............................. (2.4)% (13.5)% (10.9)%
Total return before incentive fees..... (1.6)% (12.3)% (9.8)%
Total return after incentive fees...... (2.4)% (12.3)% (9.8)%
(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)Amount less than 0.005%.
Spectrum Global Balanced
2013 2012 2011
------ ------ ------
Per Unit operating performance:
Net asset value, January 1:............ $14.06 $14.83 $17.12
------ ------ ------
Interest Income...................... 0.01 0.01 0.01
Expenses............................. (0.84) (0.90) (0.96)
Realized/Unrealized Income (Loss)(1). 0.06 0.12 (1.34)
------ ------ ------
Net Loss............................. (0.77) (0.77) (2.29)
------ ------ ------
Net asset value, December 31:.......... $13.29 $14.06 $14.83
====== ====== ======
For the Calendar Year:
Ratios to average net assets:
Net Investment Loss/ /............... (6.0)% (6.1)% (6.2)%
Expenses before Incentive Fees....... 6.1% 6.2% 6.3%
Expenses after Incentive Fees........ 6.1% 6.2% 6.3%
Net Loss............................. (5.2)% (5.2)% (15.4)%
Total return before incentive fees..... (5.5)% (5.2)% (13.4)%
Total return after incentive fees...... (5.5)% (5.2)% (13.4)%
(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
2013 2012 2011
------ ------ ------
Per Unit operating performance:
Net asset value, January 1:............ $27.76 $31.24 $38.03
------ ------ ------
Interest Income...................... 0.01 0.02 0.01
Expenses............................. (2.17) (2.44) (3.07)
Realized/Unrealized Income (Loss)(1). 0.88 (1.06) (3.73)
------ ------ ------
Net Loss............................. (1.28) (3.48) (6.79)
------ ------ ------
Net asset value, December 31:.......... $26.48 $27.76 $31.24
====== ====== ======
For the Calendar Year:
Ratios to average net assets:
Net Investment Loss/ /............... (7.9)% (8.0)% (8.8)%
Expenses before Incentive Fees....... 8.0% 8.1% 8.3%
Expenses after Incentive Fees........ 8.0% 8.1% 8.9%
Net Loss............................. (4.5)% (10.7)% (19.6)%
Total return before incentive fees..... (4.6)% (11.1)% (17.3)%
Total return after incentive fees...... (4.6)% (11.1)% (17.9)%
(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.
Spectrum Strategic
2013 2012 2011
------ ------ ------
Per Unit operating performance:
Net asset value, January 1:............ $14.25 $16.02 $21.49
------ ------ ------
Interest Income...................... 0.01 0.01 0.01
Expenses............................. (1.24) (1.37) (1.87)
Realized/Unrealized Income (Loss)(1). 0.62 (0.41) (3.61)
------ ------ ------
Net Loss............................. (0.61) (1.77) (5.47)
------ ------ ------
Net asset value, December 31:.......... $13.64 $14.25 $16.02
====== ====== ======
For the Calendar Year:
Ratios to average net assets:
Net Investment Loss/ /............... (8.9)% (9.0)% (9.8)%
Expenses before Incentive Fees....... 9.0% 9.1% 9.0%
Expenses after Incentive Fees........ 9.0% 9.1% 9.8%
Net Loss............................. (4.3)% (11.4)% (28.6)%
Total return before incentive fees..... (4.3)% (11.0)% (24.7)%
Total return after incentive fees...... (4.3)% (11.0)% (25.5)%
(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
2013 2012 2011
------ ------ ------
Per Unit operating performance:
Net asset value, January 1:............ $16.71 $19.65 $21.33
------ ------ ------
Interest Income...................... 0.01 0.01 0.01
Expenses............................. (1.24) (1.38)+ (1.68)
Realized/Unrealized Income (Loss)(1). 1.07 (1.57) (0.01)
------ ------ ------
Net Loss............................. (0.16) (2.94) (1.68)
------ ------ ------
Net asset value, December 31:.......... $16.55 $16.71 $19.65
====== ====== ======
For the Calendar Year:
Ratios to average net assets:
Net Investment Loss/ /............... (7.5)% (7.7)% (8.1)%
Expenses before Incentive Fees....... 7.5% 7.8%++ 8.2%
Expenses after Incentive Fees........ 7.5% 7.8%++ 8.2%
Net Loss............................. (1.0)% (17.0)% (8.0)%
Total return before incentive fees..... (1.0)% (15.0)% (7.8)%
Total return after incentive fees...... (1.0)% (15.0)% (7.9)%
(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 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 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 other than those
disclosed below.
Effective April 1, 2014, the flat rate brokerage fees for Spectrum Currency
and Spectrum Global Balanced shall be reduced from 4.60% per annum (paid
monthly) to 3.60% per annum (paid monthly) of Spectrum Currency's and Spectrum
Global Balanced net assets.
Effective April 1, 2014, the flat rate brokerage fees for Spectrum Select,
Spectrum Strategic and Spectrum Technical shall be reduced from 6.0% per annum
(paid monthly) to 4.0% per annum (paid monthly) of Spectrum Select's, Spectrum
Strategic's and Spectrum Technical's net assets.
Effective March 1, 2014, the management fee payable by Spectrum Strategic to
Blenheim was reduced to a rate of 1/12 of 2% (a 2% annual rate) of net assets
allocated to Blenheim on the first day of each month.
Effective March 1, 2014, the incentive fee payable by Spectrum Strategic to
Blenheim increased to 20% of the trading profits experienced with respect to
the net assets allocated to Blenheim accruing monthly but payable as of the end
of each calendar quarter.
Effective March 1, 2014, Spectrum Strategic directly pays BHMI, LLC for its
pro rata portion of incentive, management and administrative fees.
Effective March 1, 2014, the management fee payable by Spectrum Strategic to
Aventis was reduced to a rate of 1/12 of 1.25% (a 1.25% annual rate) of net
assets allocated to Aventis on the first day of each month.
CERES MANAGED FUTURES LLC
522 Fifth Avenue . 14th Floor
New York, NY 10036
Publication #07
Morgan Stanley
(C) 2013 Morgan Stanley Smith Barney LLC