MORGAN STANLEY
SPECTRUM SERIES
October 2008
Monthly Report
This Monthly Report supplements the Spectrum Funds' Prospectus dated May 1, 2008
and the Prospectus Supplement dated September 17, 2008.
Issued: November 28, 2008
MORGAN STANLEY
SPECTRUM SERIES
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HISTORICAL FUND PERFORMANCE
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Presented below is the percentage change in Net Asset Value per Unit from the
start of every calendar year each Fund has traded. Also provided is the
inception-to-date return and the compound annualized return since inception for
each Fund. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
FUND % % % % % % % % % % % % % % % % %
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Spectrum
Currency..... -- -- -- -- -- -- -- -- -- 11.7 11.1 12.2 12.4 (8.0)(18.3) (3.4) (13.5)
(6 mos.)
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Spectrum
Global
Balanced..... -- -- -- (1.7) 22.8 (3.6) 18.2 16.4 0.8 0.9 (0.3) (10.1) 6.2 (5.6) 4.2 2.4 0.2
(2 mos.)
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Spectrum
Select..... 31.2 (14.4) 41.6 (5.1) 23.6 5.3 6.2 14.2 (7.6) 7.1 1.7 15.4 9.6 (4.7) (5.0) 5.9 7.5
(5 mos.)
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Spectrum
Strategic.....-- -- -- 0.1 10.5 (3.5) 0.4 7.8 37.2 (33.1) (0.6) 9.4 24.0 1.7 (2.6) 20.9 5.0
(2 mos.)
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Spectrum
Technical.....-- -- -- (2.2) 17.6 18.3 7.5 10.2 (7.5) 7.8 (7.2) 23.3 23.0 4.4 (5.4) 5.4 (14.2)
(2 mos.)
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INCEPTION- COMPOUND
TO-DATE ANNUALIZED
2008 RETURN RETURN
FUND % % %
- -------------------------------------------
Spectrum
Currency..... 12.7 10.9 1.2
(10 mos.)
- -------------------------------------------
Spectrum
Global
Balanced..... 5.2 64.5 3.6
(10 mos.)
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Spectrum
Select..... 25.3 291.5 8.2
(10 mos.)
- -------------------------------------------
Spectrum
Strategic..... (0.6) 79.0 4.2
(10 mos.)
- -------------------------------------------
Spectrum
Technical..... 6.4 115.1 5.6
(10 mos.)
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DEMETER MANAGEMENT CORPORATION
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522 Fifth Avenue, 13th Floor
New York, NY 10036
Telephone (212) 296-1999
MORGAN STANLEY SPECTRUM SERIES
MONTHLY REPORT
OCTOBER 2008
Dear Limited Partner:
The Net Asset Value per Unit for each of the five Morgan Stanley Spectrum
Funds as of October 31, 2008 was as follows:
FUND N.A.V. % CHANGE FOR MONTH
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Spectrum Currency $11.09 9.94%
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Spectrum Global Balanced $16.45 12.77%
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Spectrum Select $39.15 11.61%
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Spectrum Strategic $17.90 4.45%
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Spectrum Technical $21.51 5.65%
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Detailed performance information for each Fund is located in the body of the
financial report. (Note: all returns are net of all fees). For each Fund, we
provide a trading results by sector chart that portrays trading gains and
trading losses for the previous month and year-to-date in each sector in which
the Fund participates. In the case of Spectrum Currency, we provide the trading
gains and trading losses for the five major currencies in which the Fund
participates, and composite information for all other "minor" currencies traded
within the Fund.
The trading results by sector charts indicate the monthly and year-to-date
composite percentage returns generated by the specific assets dedicated to
trading within each market sector in which each Fund participates. Please note
that there is not an equal amount of assets in each market sector, and the
specific allocations of assets by a Fund to each sector will vary over time
within a predetermined range. Below each chart is a description of the factors
that influenced trading gains and trading losses within each Fund during the
previous month.
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DEMETER MANAGEMENT CORPORATION
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AFTER THE NOVEMBER 30, 2008 MONTHLY CLOSE, DEMETER MANAGEMENT CORPORATION
WILL NO LONGER OFFER FOR PURCHASE OR EXCHANGE UNITS OF LIMITED PARTNERSHIP
INTEREST IN SPECTRUM CURRENCY, SPECTRUM GLOBAL BALANCED, SPECTRUM SELECT,
SPECTRUM STRATEGIC, AND SPECTRUM TECHNICAL. FOR MORE INFORMATION, PLEASE CONTACT
YOUR FINANCIAL ADVISOR AND REFER TO YOUR MORGAN STANLEY SPECTRUM SERIES
SUPPLEMENT DATED SEPTEMBER 17, 2008.
Should you have any questions concerning this report, please feel free to
contact Demeter Management Corporation, 522 Fifth Avenue, 13th Floor, New York,
NY 10036, or your Morgan Stanley Financial Advisor.
I hereby affirm, that to the best of my knowledge and belief, the information
contained in this report is accurate and complete. Past performance is no
guarantee of future results.
Sincerely,
/s/ Walter J. Davis
- -------------------
Walter J. Davis
Chairman of the Board of Directors and President
Demeter Management Corporation,
General Partner of
Morgan Stanley Spectrum Currency L.P.
Morgan Stanley Spectrum Global Balanced L.P.
Morgan Stanley Spectrum Select L.P.
Morgan Stanley Spectrum Strategic L.P.
Morgan Stanley Spectrum Technical L.P.
[This page intentionally left blank]
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MORGAN STANLEY SPECTRUM CURRENCY L.P.
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[Data below represents a bar chart in the printed piece]
Morgan Stanley Spectrum Currency L.P.
Month ended YTD ended
October 31, 2008 October 31, 2008
---------------- ----------------
Australian dollar 2.4 4.03
British pound 0.78 0.27
Euro 0.42 2.91
Japanese yen 1.99 1.57
Swiss franc -0.17 0.08
Minor Currencies 5.08 11.46
Note: Reflects trading results only and does not include fees or interest
income.
Minor currencies may include, but are not limited to, the South
African rand, Thai baht, Singapore dollar, Mexican peso, New Zealand
dollar, Polish zloty, Brazilian real, Norwegian krone, Swedish krona,
Czech koruna, Chilean peso, Russian ruble, and Taiwan dollar.
During the month, the Fund recorded gains from short positions in the Australian
dollar, South African rand, Mexican peso, British pound, and euro versus the
U.S. dollar. Additional gains were experienced from long positions in the
Japanese yen versus the U.S. dollar. A portion of these gains was offset by
losses incurred from both short and long positions in the Canadian dollar and
Swiss franc versus the U.S. dollar.
Short positions in the Australian dollar, South African rand, Mexican peso,
British pound, and euro versus the U.S. dollar resulted in gains as the value of
the U.S. dollar moved higher against most of its rivals in tandem with U.S.
dollar-denominated treasuries amid a "flight-to-quality" due to the deepening
credit crisis and global financial market turmoil. Additional gains were
recorded from long positions in the Japanese yen versus the U.S. dollar as the
value of the Japanese yen increased relative to the U.S. dollar after mounting
fears of a global economic recession prompted investors to sell higher-yielding
assets funded by loans in Japan.
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MORGAN STANLEY SPECTRUM CURRENCY L.P.
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(CONTINUED)
Short and long positions in the Canadian dollar and Swiss franc versus the U.S.
dollar resulted in losses as the value of these currencies moved without
consistent direction relative to the U.S. dollar due to conflicting economic
data out of Canada and Switzerland.
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MORGAN STANLEY SPECTRUM GLOBAL BALANCED L.P.
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[Data below represents a bar chart in the printed piece]
Morgan Stanley Spectrum Global Balanced L.P.
Month ended YTD ended
October 31, 2008 October 31, 2008
---------------- ----------------
Currencies 3.62 1.73
Global Interest Rates 1.01 -0.8
Global Stock Indices 1.5 -0.58
Energies 2.2 3.83
Metals 2.64 3.69
Agriculturals 2.67 3.98
Note: Reflects trading results only and does not include fees or interest
income.
During the month, the Fund experienced gains in the currency, agricultural,
metal, energy, global stock index, and global interest rate sectors.
The most significant gains were achieved within the currency sector from short
positions in the Australian dollar, euro, and South African rand versus the U.S.
dollar as the value of the U.S. dollar moved higher against most of its rivals
in tandem with U.S. dollar-denominated treasuries amid a "flight-to-quality" due
to the deepening credit crisis and global financial market turmoil. Additional
gains were experienced from long positions in the Japanese yen versus the U.S.
dollar and Swiss franc as the value of the Japanese yen increased relative to
these currencies after mounting fears of a global economic recession prompted
investors to sell higher-yielding assets funded by loans in Japan.
Within the agricultural markets, gains were experienced from short positions in
wheat futures as prices declined amid rising inventories and growing concerns
that slowing global economic growth may erode demand. Elsewhere, futures prices
for lean hogs, live cattle, cotton, and coffee fell amid a rise in the value of
the U.S. dollar and concerns that slowing economies may curb demand for these
commodities.
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MORGAN STANLEY SPECTRUM GLOBAL BALANCED L.P.
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(CONTINUED)
Additional gains were experienced within the metals markets from short futures
positions in nickel, aluminum, copper, zinc, and tin as prices declined due to
rising inventories, weaker-than-expected U.S. and European economic data, and
news that China's economy expanded at the slowest pace in five years, thereby
fueling speculation that a slowing global economy may erode demand for base
metals. Elsewhere, additional gains were recorded from short positions in silver
and platinum futures as prices continued to trend lower due to a rise in the
value of the U.S. dollar.
Gains were also recorded in the energy markets from short futures positions in
crude oil and its related products as prices decreased after the International
Energy Agency cut its forecast for global oil demand next year as the financial
crisis threatens to slash energy usage. Meanwhile, gains were experienced from
short positions in natural gas futures as prices dropped due to rising domestic
supplies and mild weather throughout the U.S.
Within the global stock index sector, short positions in Pacific Rim, European,
Canadian, and U.S. equity index futures resulted in gains as prices moved lower
amid fears of additional bank failures and concerns that efforts by central
banks and governments around the world to support the banking system may not
prevent a global recession.
Lastly, gains were achieved within the global interest rate sector from long
positions in European and Australian fixed-income futures as prices increased
after the European Central Bank and Reserve Bank of Australia cut interest rates
in an effort to alleviate the global credit crisis and spur economic growth.
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MORGAN STANLEY SPECTRUM SELECT L.P.
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[Data below represents a bar chart in the printed piece]
Morgan Stanley Spectrum Select L.P.
Month ended YTD ended
October 31, 2008 October 31, 2008
---------------- ----------------
Currencies 2.89 2.67
Global Interest Rates 0.66 3.43
Global Stock Indices 3.47 9.37
Energies 2.06 9.09
Metals 2.22 3.1
Agriculturals 1.75 5.52
Note: Reflects trading results only and does not include fees or interest
income.
During the month, the Fund recorded gains across the global stock index,
currency, metals, energy, agricultural, and global interest rate sectors.
Within the global stock index sector, short positions in U.S., European, and
Pacific Rim equity index futures resulted in gains as prices moved lower amid
fears of additional bank failures and concerns that efforts by central banks and
governments around the world to support the banking system may not prevent a
global recession.
Within the currency sector, long positions in the Japanese yen versus the U.S.
dollar and British pound experienced gains as the value of the Japanese yen
increased relative to these currencies after mounting fears of a global economic
recession prompted investors to sell higher-yielding assets funded by loans in
Japan. Additional gains were recorded from short positions in the euro, British
pound, and Mexican peso versus the U.S. dollar as the value of the U.S. dollar
moved higher against most of its rivals in tandem with U.S. dollar-denominated
treasuries amid a "flight-to-quality" due to the deepening credit crisis and
global financial market turmoil.
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MORGAN STANLEY SPECTRUM SELECT L.P.
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(CONTINUED)
Within the metals markets, short futures positions in copper, aluminum, zinc,
and nickel resulted in gains as prices declined due to rising inventories,
weaker-than-expected U.S. and European economic data, and news that China's
economy expanded at the slowest pace in five years, thereby fueling speculation
that a slowing global economy may erode demand for base metals. Elsewhere, gains
were experienced from short positions in silver and platinum futures as prices
continued to trend lower due to a rise in the value of the U.S. dollar.
Within the energy sector, short futures positions in crude oil and its related
products recorded gains as prices decreased after the International Energy
Agency cut its forecast for global oil demand next year as the financial crisis
threatens to slash energy usage. Meanwhile, short positions in natural gas
futures resulted in gains as prices dropped due to rising domestic supplies and
mild weather throughout the U.S., which eased demand for the heating fuel.
Within the agricultural markets, short futures positions in wheat and cotton
experienced gains as prices declined amid rising inventories and growing
concerns that slowing global economic growth may reduce demand for these
commodities.
Smaller gains were recorded within the global interest rate sector from long
positions in short-term U.S., European, and Australian fixed-income futures as
prices increased after the U.S. Federal Reserve, European Central Bank, and
Reserve Bank of Australia cut interest rates in an effort to alleviate the
global credit crisis and spur economic growth.
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MORGAN STANLEY SPECTRUM STRATEGIC L.P.
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[Data below represents a bar chart in the printed piece]
Morgan Stanley Spectrum Strategic L.P.
Month ended YTD ended
October 31, 2008 October 31, 2008
---------------- ----------------
Currencies 3.48 0.1
Global Interest Rates 2.77 2.6
Global Stock Indices 1.03 0.97
Energies 0.45 -0.38
Metals 0.02 -1.43
Agriculturals -2.4 4.81
Note: Reflects trading results only and does not include fees or interest
income.
During the month, the Fund recorded gains across the currency, global interest
rate, global stock index, and energy sectors. A portion of these gains was
offset by losses incurred in the agricultural markets. Trading results in the
metals sector were essentially flat and had no material effect on overall Fund
performance during the month.
Within the currency sector, short positions in the South African rand, Turkish
lira, and Australian dollar versus the U.S. dollar resulted in gains as the
value of the U.S. dollar moved higher against most of its rivals in tandem with
U.S. dollar-denominated treasuries amid a "flight-to-quality" due to the
deepening credit crisis and global financial market turmoil.
Within the global interest rate sector, gains were experienced from long
positions in European fixed-income futures as prices increased after the
European Central Bank cut interest rates in an effort to alleviate the global
credit crisis and spur economic growth.
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MORGAN STANLEY SPECTRUM STRATEGIC L.P.
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(CONTINUED)
Within the global stock index sector, short positions in European and Pacific
Rim equity index futures recorded gains as prices moved lower amid fears of
additional bank failures and concerns that efforts by central banks and
governments around the world to support the banking system may not prevent a
global recession.
Additional gains were experienced within the energy sector from short futures
positions in crude oil and its related products as prices decreased after the
International Energy Agency cut its forecast for global oil demand next year as
the financial crisis threatens to slash energy usage. Smaller gains were
recorded from short positions in natural gas futures as prices dropped due to
rising domestic supplies and mild weather throughout the U.S., which eased
demand for the heating fuel.
Within the agricultural markets, long futures positions in sugar, cotton, cocoa,
the soybean complex, and corn resulted in losses as prices declined amid rising
inventories and growing concerns that slowing global economic growth may reduce
demand for these commodities.
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MORGAN STANLEY SPECTRUM TECHNICAL L.P.
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[Data below represents a bar chart in the printed piece]
Morgan Stanley Spectrum Technical L.P.
Month ended YTD ended
October 31, 2008 October 31, 2008
---------------- ----------------
Currencies 2.44 2.91
Global Interest Rates 0.53 -1.71
Global Stock Indices 2.31 6.62
Energies -0.05 4.13
Metals 0.79 0.72
Agriculturals 0.2 1.68
Note: Reflects trading results only and does not include fees or interest
income.
During the month, the Fund recorded gains across the currency, global stock
index, metals, global interest rate, and agricultural sectors. A portion of
these gains was offset by losses incurred in the energy markets.
Within the currency sector, short positions in the British pound, euro,
Australian dollar, and New Zealand dollar versus the U.S. dollar resulted in
gains as the value of the U.S. dollar moved higher against most of its rivals in
tandem with U.S. dollar-denominated treasuries amid a "flight-to-quality" due to
the deepening credit crisis and global financial market turmoil.
Within the global stock index sector, short positions in U.S., European, and
Pacific Rim equity index futures experienced gains as prices moved lower amid
fears of additional bank failures and concerns that efforts by central banks and
governments around the world to support the banking system may not prevent a
global recession.
Within the metals markets, short futures positions in aluminum, copper, and zinc
recorded gains as prices declined due to rising inventories,
weaker-than-expected U.S. and European economic data, and news that China's
economy expanded at the slowest pace in five years, thereby fueling speculation
that a slowing global economy may erode demand for base metals.
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MORGAN STANLEY SPECTRUM TECHNICAL L.P.
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(CONTINUED)
Additional gains were experienced within the global interest rate sector from
long positions in short-term U.S. and Australian fixed-income futures as prices
increased after the U.S. Federal Reserve and Reserve Bank of Australia cut
interest rates in an effort to alleviate the global credit crisis and spur
economic growth.
Smaller gains were recorded within the agricultural markets from short futures
positions in live cattle, lean hogs, and cotton as prices declined amid rising
supplies and growing concerns that slowing global economic growth may reduce
demand.
Within the energy sector, long futures positions in crude oil and its related
products resulted in losses as prices decreased after the International Energy
Agency cut its forecast for global oil demand next year as the financial crisis
threatens to slash energy usage.
MORGAN STANLEY SPECTRUM SERIES
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STATEMENTS OF OPERATIONS
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FOR THE MONTH ENDED OCTOBER 31, 2008 (UNAUDITED)
MORGAN STANLEY MORGAN STANLEY
SPECTRUM CURRENCY SPECTRUM GLOBAL BALANCED
------------------------------- ------------------------------
PERCENTAGE OF PERCENTAGE OF
OCTOBER 1, 2008 OCTOBER 1, 2008
BEGINNING BEGINNING
AMOUNT NET ASSET VALUE AMOUNT NET ASSET VALUE
------------ ---------------- ---------- -----------------
$ % $ %
INVESTMENT INCOME
Interest income (Note 2) 36,747 .04 15,622 .06
----------- ------- ---------- ------
EXPENSES
Brokerage fees (Note 2) 344,753 .38 107,292 .38
Management fees (Note 3) 149,893 .16 35,329 .12
Incentive fee (Note 3) -- -- 88,261 .32
----------- ------- ---------- ------
Total Expenses 494,646 .54 230,882 .82
----------- ------- ---------- ------
NET INVESTMENT LOSS (457,899) (.50) (215,260) (.76)
----------- ------- ---------- ------
TRADING RESULTS
Trading profit (loss):
Realized (125,533) (.14) 2,497,392 8.92
Net change in unrealized 9,519,105 10.58 1,291,193 4.61
----------- ------- ------------ ------
Total Trading Results 9,393,572 10.44 3,788,585 13.53
----------- ------- ------------ ------
NET INCOME 8,935,673 9.94 3,573,325 12.77
=========== ======= ============ ======
MORGAN STANLEY SPECTRUM SERIES
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STATEMENTS OF CHANGES IN NET ASSET VALUE
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FOR THE MONTH ENDED OCTOBER 31, 2008 (UNAUDITED)
MORGAN STANLEY MORGAN STANLEY
SPECTRUM CURRENCY SPECTRUM GLOBAL BALANCED
---------------------------------- --------------------------------------
PER PER
UNITS AMOUNT UNIT UNITS AMOUNT UNIT
-------------- ---------- ------------- -----------
$ $ $ $
Net Asset Value,
October 1, 2008 8,914,526.825 89,935,694 10.09 1,918,263.660 27,989,140 14.59
Net Income -- 8,935,673 1.00 -- 3,573,325 1.86
Redemptions (387,695.656 (4,299,545) 11.09 (71,393.974 (1,174,431) 16.45
Subscriptions 43,090.905 77,878 11.09 8,555.106 140,731 16.45
-------------- ---------- ------------- -----------
Net Asset Value,
October 31, 2008 8,569,922.074 95,049,700 11.09 1,855,424.792 30,528,765 16.45
============== ========== ============= ==========
The accompanying notes are an integral part of these financial statements.
MORGAN STANLEY SPECTRUM SERIES
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STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
FOR THE MONTH ENDED OCTOBER 31, 2008 (UNAUDITED)
MORGAN STANLEY MORGAN STANLEY MORGAN STANLEY
SPECTRUM SELECT SPECTRUM STRATEGIC SPECTRUM TECHNICAL
--------------------------- --------------------------- ----------------------------
PERCENTAGE OF PERCENTAGE OF PERCENTAGE OF
OCTOBER 1, 2008 OCTOBER 1, 2008 OCTOBER 1, 2008
BEGINNING BEGINNING BEGINNING
AMOUNT NET ASSET VALUE AMOUNT NET ASSET VALUE AMOUNT NET ASSET VALUE
---------- --------------- ---------- --------------- ------------ ---------------
$ % $ % $ %
INVESTMENT INCOME
Interest income (Note 2) 238,432 .04 81,867 .04 216,439 .04
------------ ----- ----------- ----- ------------ -----
EXPENSES
Brokerage fees (Note 2) 2,732,467 .50 1,018,213 .50 2,552,009 .50
Incentive fee (Note 3) 2,353,122 .43 -- -- -- --
Management fees (Note 3) 1,050,685 .19 475,394 .23 957,768 .19
------------ ----- ----------- ----- ------------ -----
Total Expenses 6,136,274 1.12 1,493,607 .73 3,509,777 .69
------------ ----- ----------- ----- ------------ -----
NET INVESTMENT LOSS (5,897,842) (1.08) (1,411,740) (.69) (3,293,338) (.65)
------------ ----- ----------- ----- ------------ -----
TRADING RESULTS
Trading profit (loss):
Realized 41,817,447 7.65 4,214,739 2.07 8,863,494 1.74
Net change in unrealized 27,554,137 5.04 6,251,765 3.07 23,262,355 4.56
------------ ----- ----------- ----- ------------ -----
Total Trading Results 69,371,584 12.69 10,466,504 5.14 32,125,849 6.30
------------ ----- ----------- ----- ------------ -----
NET INCOME 63,473,742 11.61 9,054,764 4.45 28,832,511 5.65
============ ===== =========== ===== ============ =====
MORGAN STANLEY SPECTRUM SERIES
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STATEMENTS OF CHANGES IN NET ASSET VALUE
- --------------------------------------------------------------------------------
FOR THE MONTH ENDED OCTOBER 31, 2008 (UNAUDITED)
MORGAN STANLEY MORGAN STANLEY MORGAN STANLEY
SPECTRUM SELECT SPECTRUM STRATEGIC SPECTRUM TECHNICAL
------------------------------------ ---------------------------------- ----------------------------------
PER PER PER
UNITS AMOUNT UNIT UNITS AMOUNT UNIT UNITS AMOUNT UNIT
-------------- ----------- ----- -------------- ----------- ----- -------------- ----------- ------
$ $ $ $ $ $
Net Asset Value,
October 1, 2008 15,579,838.960 546,493,379 35.08 11,882,076.596 203,642,600 17.14 25,067,565.267 510,401,719 20.36
Net Income -- 63,473,742 4.07 -- 9,054,764 .76 -- 28,832,511 1.15
Redemptions (459,996.385 (18,008,859) 39.15 (292,015.432 (5,227,076) 17.90 (772,124.661 (16,608,402) 21.51
Subscriptions 179,436.362 7,024,934 39.15 192,653.634 3,448,500 17.90 197,704.283 4,252,619 21.51
-------------- ----------- -------------- ----------- -------------- -----------
Net Asset Value,
October 31, 2008 15,299,278.937 598,983,196 39.15 11,782,714.798 210,918,788 17.90 24,493,144.889 526,878,447 21.51
============== =========== ============== =========== ============== ===========
The accompanying notes are an integral part of these financial statements.
MORGAN STANLEY SPECTRUM SERIES
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NOTES TO FINANCIAL STATEMENTS
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(UNAUDITED)
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION. Morgan Stanley Spectrum Currency L.P. ("Spectrum Currency"),
Morgan Stanley Spectrum Global Balanced L.P. ("Spectrum Global Balanced"),
Morgan Stanley Spectrum Select L.P. ("Spectrum Select"), Morgan Stanley Spectrum
Strategic L.P. ("Spectrum Strategic"), and Morgan Stanley Spectrum Technical
L.P. ("Spectrum Technical") (individually, a "Partnership", or collectively, the
"Partnerships"), are limited partnerships organized to engage primarily in the
speculative trading of futures contracts, options on futures and forward
contracts, and forward contracts on physical commodities and other commodity
interests, including, but not limited to, foreign currencies, financial
instruments, metals, energy, and agricultural products (collectively, "Futures
Interests").
On January 1, 2008, the portion of the Partnership's assets which are managed
by Blenheim Capital Management, L.L.C. ("Blenheim") were initially invested as
capital in Morgan Stanley Managed Futures BHM I, LLC ("BHM I, LLC"). BHM I, LLC
was formed in order to permit commodity pools operated by Demeter Management
Corporation ("Demeter") and managed by Blenheim to invest together in one
trading vehicle and promote efficiency and economy in the trading process.
Demeter is the trading manager of BHM I, LLC. The Partnership's allocation to
Blenheim is effected by investing substantially all of the capital that is
allocated to Blenheim in the Trading Company. There is no material change to the
investors as a result of the investment in BHM I, LLC.
The general partner of each Partnership is Demeter. The commodity brokers for
Spectrum Global Balanced, Spectrum Select, Spectrum Strategic, and Spectrum
Technical are Morgan Stanley & Co. Incorporated ("MS&Co.") and Morgan Stanley &
Co. International plc ("MSIP"). Spectrum Currency's sole commodity broker is
MS&Co. MS&Co. acts as the counterparty on all trading of foreign currency
forward contracts. Morgan Stanley Capital Group Inc. ("MSCG") acts as the
counterparty on all trading of options on foreign currency forward contracts.
Demeter, MS&Co., MSIP, and MSCG are wholly-owned subsidiaries of Morgan Stanley.
Demeter is required to maintain a 1% minimum
interest in the equity of each Partnership and income (losses) are shared by
Demeter and the limited partners based upon their proportional ownership
interests.
MORGAN STANLEY SPECTRUM SERIES
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NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(CONTINUED)
USE OF ESTIMATES. The financial statements are prepared in accordance with
accounting principles generally accepted in the United States of America, which
require management to make estimates and assumptions that affect the reported
amounts in the financial statements and related disclosures. Management believes
that the estimates utilized in the preparation of the financial statements are
prudent and reasonable. Actual results could differ from those estimates.
REVENUE RECOGNITION. Futures Interests are open commitments until settlement
date, at which time they are realized. They are valued at market on a daily
basis and the resulting net change in unrealized gains and losses is reflected
in the change in unrealized trading profit (loss) on open contracts from one
period to the next on the Statements of Operations. Monthly, MS&Co. pays each
Partnership interest income at a rate equal to the monthly average of the 4-week
U.S. Treasury bill discount rate during such month on 80% of the funds on
deposit with the commodity brokers at each month-end in the case of Spectrum
Currency, Spectrum Select, Spectrum Strategic, and Spectrum Technical, and on
100% in the case of Spectrum Global Balanced. For purposes of such interest
payments, Net Assets do not include monies owed to the Partnerships on Futures
Interests.
The Partnerships' functional currency is the U.S. dollar; however, the
Partnerships may transact business in currencies other than the U.S. dollar.
Assets and liabilities denominated in currencies other than the U.S. dollar are
translated into U.S. dollars at the rates in effect at the date of the
Statements of Changes in Net Asset Value. Income and expense items denominated
in currencies other than the U.S. dollar are translated into U.S. dollars at the
rates in effect during the period. Gains and losses resulting from the
translation to U.S. dollars are reported in income currently.
NET INCOME (LOSS) PER UNIT. Net income (loss) per unit of limited partnership
interest ("Unit(s)") is computed using the weighted average number of Units
outstanding during the period.
BROKERAGE AND RELATED TRANSACTION FEES AND COSTS. The brokerage fees for
Spectrum Currency and Spectrum Global Balanced are accrued at a flat monthly
rate of 1/12 of 4.6% (a 4.6% annual rate) of Net Assets as of the first day of
each month.
Brokerage fees for Spectrum Select, Spectrum Strategic, and Spectrum
Technical are 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 brokerage fees currently cover all brokerage fees, transaction fees and
costs, and ordinary administrative and continuing offering expenses.
MORGAN STANLEY SPECTRUM SERIES
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NOTES TO FINANCIAL STATEMENTS
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(CONTINUED)
OPERATING EXPENSES. The Partnerships incur monthly management fees and may incur
incentive fees. All common administrative and continuing offering expenses
including legal, auditing, accounting, filing fees, and other related expenses
are borne by MS&Co. through the brokerage fees paid by the Partnerships.
CONTINUING OFFERING. Units of each Partnership are offered at a price equal to
100% of the Net Asset Value per Unit as of the close of business on the last day
of each month. No selling commissions or charges related to the continuing
offering of Units are paid by the limited partners or the Partnerships. MS&Co.
pays all such costs. Effective December 1, 2008, the Partnerships will no longer
offer units for purchase or exchange.
REDEMPTIONS. Limited partners may redeem some or all of their Units at 100% of
the Net Asset Value per Unit as of the end of the last day of any month that is
at least six months after the closing at which a person first becomes a limited
partner. The Request for Redemption must be delivered to a limited partner's
local Morgan Stanley Branch Office in time for it to be forwarded and received
by Demeter, no later than 3:00 p.m., New York City time, on the last day of the
month in which the redemption is to be effective. Redemptions must be made in
whole Units, in a minimum amount of 50 Units required for each redemption,
unless a limited partner is redeeming his entire interest in a Partnership.
Units redeemed on or prior to the last day of the twelfth month from the date
of purchase will be subject to a redemption charge equal to 2% of the Net Asset
Value of a Unit on the Redemption Date. Units redeemed after the last day of the
twelfth month and on or prior to the last day of the twenty-fourth month from
the date of purchase will be subject to a redemption charge equal to 1% of the
Net Asset Value of a Unit on the Redemption Date. Units redeemed after the last
day of the twenty-fourth month from the date of purchase will not be subject to
a redemption charge. The foregoing redemption charges are paid to MS&Co.
EXCHANGES. On the last day of the first month which occurs more than six months
after a person first becomes a limited partner in any of the Partnerships, and
at the end of each month thereafter, limited partners may exchange their Units
among the Partnerships (subject to certain restrictions outlined in the Limited
Partnership Agreements) without paying additional charges. Effective December 1,
2008, the Partnerships will no longer offer units for purchase or exchange.
MORGAN STANLEY SPECTRUM SERIES
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NOTES TO FINANCIAL STATEMENTS
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(CONTINUED)
DISTRIBUTIONS. Distributions, other than redemptions of Units, are made on a
pro-rata basis at the sole discretion of Demeter. No distributions have been
made to date. Demeter does not intend to make any distributions of the
Partnerships' profits.
INCOME TAXES. No provision for income taxes has been made in the accompanying
financial statements, as partners are individually responsible for reporting
income or loss based upon their respective share of each Partnership's revenues
and expenses for income tax purposes.
DISSOLUTION OF THE PARTNERSHIPS. Spectrum Currency, Spectrum Global Balanced,
Spectrum Strategic, and Spectrum Technical will terminate on December 31, 2035
and Spectrum Select will terminate on December 31, 2025, regardless of financial
condition at such time, or at an earlier date if certain conditions occur as
defined in each Partnership's Limited Partnership Agreement.
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2. RELATED PARTY TRANSACTIONS
The Partnerships pay brokerage fees to MS&Co. as described in Note 1. Spectrum
Global Balanced, Spectrum Select, Spectrum Strategic, and Spectrum Technical's
cash is on deposit with MS&Co. and MSIP, and Spectrum Currency's cash is on
deposit with MS&Co., in futures interests trading accounts to meet margin
requirements as needed. MS&Co. pays interest on these funds as described in Note
1.
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3. TRADING ADVISORS
Demeter, on behalf of each Partnership, retains certain commodity trading
advisors to make all trading decisions for the Partnerships. The trading
advisors for each Partnership are as follows:
Morgan Stanley Spectrum Currency L.P.
C-View International Limited
DKR Fusion Management L.P.
FX Concepts Trading Advisor, Inc.
John W. Henry & Company, Inc.
Sunrise Capital Partners, LLC
Morgan Stanley Spectrum Global Balanced L.P.
Altis Partners (Jersey) Limited ("Altis")
C-View International Limited ("C-View")
SSARIS Advisors, LLC ("SSARIS")
MORGAN STANLEY SPECTRUM SERIES
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NOTES TO FINANCIAL STATEMENTS
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(CONTINUED)
Morgan Stanley Spectrum Select L.P.
Altis Partners (Jersey) Limited
EMC Capital Management, Inc. ("EMC")
Graham Capital Management, L.P. ("Graham")
Northfield Trading L.P. ("Northfield")
Rabar Market Research, Inc. ("Rabar")
Sunrise Capital Management, Inc. ("Sunrise")
Morgan Stanley Spectrum Strategic L.P.
Blenheim Capital Management, L.L.C. ("Blenheim")
Eclipse Capital Management, Inc. ("Eclipse")
FX Concepts Trading Advisor, Inc. ("FX Concepts")
Morgan Stanley Spectrum Technical L.P.
Aspect Capital Limited ("Aspect")
Campbell & Company, Inc. ("Campbell")
Chesapeake Capital Corporation ("Chesapeake")
John W. Henry & Company, Inc. ("JWH")
Rotella Capital Management Inc. ("Rotella")
Winton Capital Management Limited ("Winton")
Compensation to the trading advisors by the Partnerships consists of a
management fee and an incentive fee as follows:
MANAGEMENT FEE. The management fee for Spectrum Currency is accrued at a rate of
1/6 of 1% per month of Net Assets allocated to each trading advisor on the first
day of each month (a 2% annual rate).
The management fee for Spectrum Global Balanced is accrued at a rate of 5/48
of 1% per month of Net Assets allocated to SSARIS on the first day of each month
(a 1.25% annual rate), 1/12 of 1.25% per month of Net Assets allocated to Altis
on the first day of each month (a 1.25% annual rate), and 1/6 of 1% per month of
Net Assets allocated to C-View on the first day of each month (a 2% annual
rate).
The management fee for Spectrum Select is accrued at a rate of 1/12 of 1.25%
per month of Net Assets allocated to Altis on the first day of each month (a
1.25% annual rate), 1/6 of 1% per month of Net Assets allocated to Graham on the
first day of each month (a 2% annual rate), 5/24 of 1% per month of Net Assets
allocated to EMC and Rabar on the first day of each month (a 2.5% annual rate),
and 1/4 of 1% per month of Net Assets allocated to Northfield and Sunrise on the
first day of each month (a 3% annual rate).
MORGAN STANLEY SPECTRUM SERIES
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NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(CONTINUED)
The management fee for Spectrum Strategic is accrued at a rate of 1/6 of 1%
per month of Net Assets allocated to FX Concepts on the first day of each month
(a 2% annual rate), and 1/4 of 1% per month of Net Assets allocated to Blenheim
and Eclipse on the first day of each month (a 3% annual rate).
The management fee for Spectrum Technical is accrued at a rate of 1/6 of 1%
per month of Net Assets allocated to Aspect, Chesapeake, JWH, Rotella, and
Winton on the first day of each month (a 2% annual rate), and 1/4 of 1% per
month of Net Assets allocated to Campbell on the first day of each month (a 3%
annual rate).
INCENTIVE FEE. Spectrum Currency pays a monthly incentive fee equal to 20% of
the trading profits experienced with respect to each trading advisor's allocated
Net Assets as of the end of each calendar month.
Spectrum Global Balanced pays a monthly incentive fee equal to 15% of the
trading profits experienced with respect to the Net Assets allocated to SSARIS
as of the end of each calendar month, and 20% of the trading profits experienced
with respect to the Net Assets allocated to Altis and C-View as of the end of
each calendar month.
Spectrum Select pays a monthly incentive fee equal to 15% of the trading
profits experienced with respect to the Net Assets allocated to Northfield and
Sunrise as of the end of each calendar month, 17.5% of the trading profits
experienced with respect to the Net Assets allocated to EMC and Rabar as of the
end of each calendar month, and 20% of the trading profits experienced with
respect to the Net Assets allocated to Altis and Graham as of the end of each
calendar month.
Spectrum Strategic pays a monthly incentive fee equal to 15% of the trading
profits experienced with respect to the Net Assets allocated to Blenheim and
Eclipse as of the end of each calendar month, and 20% of the trading profits
experienced with respect to the Net Assets allocated to FX Concepts as of the
end of each calendar month.
Spectrum Technical pays a monthly incentive fee equal to 19% of the trading
profits experienced with respect to the Net Assets allocated to Chesapeake as of
the end of each calendar month, and 20% of the trading profits experienced with
respect to the Net Assets allocated to each of Aspect, Campbell, JWH, Rotella,
and Winton as of the end of each calendar month.
Trading profits represent the amount by which profits from futures, forwards,
and options trading exceed losses after brokerage and management fees are
deducted.
MORGAN STANLEY SPECTRUM SERIES
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NOTES TO FINANCIAL STATEMENTS
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(CONCLUDED)
For all trading advisors with trading losses, no incentive fee is paid in
subsequent months until all such losses are recovered. Cumulative trading losses
are adjusted on a pro-rata basis for the net amount of each month's
subscriptions and redemptions.
MANAGED FUTURES INVESTMENTS ARE SPECULATIVE, INVOLVE A HIGH DEGREE OF RISK, USE
SIGNIFICANT LEVERAGE, ARE GENERALLY ILLIQUID, HAVE SUBSTANTIAL CHARGES, ARE
SUBJECT TO CONFLICTS OF INTEREST, AND ARE SUITABLE ONLY FOR THE RISK CAPITAL
PORTION OF AN INVESTOR'S PORTFOLIO. BEFORE INVESTING IN ANY MANAGED FUTURES
INVESTMENT, QUALIFIED INVESTORS SHOULD READ THE PROSPECTUS OR OFFERING DOCUMENTS
CAREFULLY FOR ADDITIONAL INFORMATION WITH RESPECT TO CHARGES, EXPENSES, AND
RISKS. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
THIS REPORT IS BASED ON INFORMATION FROM MULTIPLE SOURCES AND MORGAN STANLEY
MAKES NO REPRESENTATION AS TO THE ACCURACY OR COMPLETENESS OF INFORMATION FROM
SOURCES OUTSIDE OF MORGAN STANLEY.
Demeter Management Corporation
522 Fifth Avenue, 13th Floor
New York, NY 10036
Morgan Stanley
ADDRESS SERVICE REQUESTED
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