UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(Amendment No. 1)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2008 or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to ___________________
Commission file number 0-19511
MORGAN STANLEY SPECTRUM SELECT L.P.
(Exact name of registrant as specified in its Limited Partnership Agreement)
DELAWARE 13-3619290
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Demeter Management Corporation
522 Fifth Avenue, 13th Floor
New York, NY 10036
(Address of principal executive offices) (Zip Code)
Registrant?s telephone number, including area code (212) 296-1999
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes No X
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. Yes No X
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No _____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant?s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company.
See the definition of ?large accelerated filer?, ?accelerated filer? and
?smaller reporting company? in Rule 12b-2 of the Exchange Act.
Large accelerated filer___ Accelerated filer____ Non-accelerated filer __X__
Smaller reporting company _____
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act). Yes No X
State the aggregate market value of the Units of Limited Partnership Interest
held by non-affiliates of the registrant. The aggregate market value shall be
computed by reference to the price at which Units were sold as of the last
business day of the registrant?s most recently completed second fiscal quarter:
$594,416,237 at June 30, 2008.
DOCUMENTS INCORPORATED BY REFERENCE
(See Page 1)
<page>
EXPLANATORY NOTE
This Annual Report on Form 10-K/A ("Form 10-K/A") is being filed
as Amendment No. 1 to our Annual Report on Form 10-K for the year
ended December 31, 2008, which was filed with the Securities and
Exchange Commission on March 31, 2009 (the "Original Filing").
This Form 10-K/A is a technical amendment to correct a
typographical error in Exhibit 13.01 the Annual Report to Limited
Partners for the year ended December 31, 2008. The exhibit
included references to the reports of the registrant's
independent registered public accounting firm Deloitte and Touche
LLP as being dated March 20, 2009, when in fact the reports were
dated March 30, 2009.
This Form 10-K/A includes only the corrected exhibit. This
Amendment No. 1 does not reflect events occurring after the
filing of the Original Filing. The Original Filing is unchanged
except with respect to the changes to Exhibit 13.01 included in
this amendment.
<page> SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
MORGAN STANLEY SPECTRUM SELECT L.P.
(Registrant)
BY: Demeter Management Corporation,
General Partner
May 13, 2009 BY: /s/ Christian Angstadt _______
Christian Angstadt, Chief Financial Officer
<page> EXHIBIT INDEX
ITEM
13.01 December 31, 2008, Annual Report to Limited Partners is
filed herewith.
31.01 Certification of President of Demeter Management
Corporation, the general partner of the Partnership
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.02 Certification of Chief Financial Officer of Demeter
Management Corporation, the general partner of the
Partnership pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
32.01 Certification of President of Demeter Management
Corporation, the general partner of the Partnership,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
32.02 Certification of Chief Financial Officer of Demeter
Management Corporation, the general partner of the
Partnership, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
<page> EXHIBIT 31.01
CERTIFICATIONS
I, Walter Davis, certify that:
1. I have reviewed this annual report on Form 10-K/A of Morgan
Stanley Spectrum Select L.P.;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present
in all material respects the financial condition, results of
operations, and cash flows of the registrant as of, and for,
the periods presented in this report;
4. The registrant?s other certifying officer(s) and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-
15(e) and 15d-15 (e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed
under our supervision, to ensure that material information
relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those
entities, particularly during the period in which this
report is being prepared;
b) Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting
and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles;
c) Evaluated the effectiveness of the registrant?s disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
<page>
d) Disclosed in this report any change in the registrant?s
internal control over financial reporting that occurred
during the registrant?s most recent fiscal quarter (the
registrant?s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably
likely to materially affect, the registrant?s internal
control over financial reporting; and
5. The registrant?s other certifying officer(s) and I have
disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant?s auditors
and the audit committee of the registrant?s board of directors
(or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the
design or operation of internal controls over financial
reporting which are reasonably likely to adversely affect
the registrant?s ability to record, process, summarize, and
report financial information; and
b) Any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant?s internal control over financial reporting.
Date: May 13, 2009 /s/ Walter Davis
Walter Davis
President
Demeter Management Corporation,
general partner of the registrant
<page> EXHIBIT 31.02
CERTIFICATIONS
I, Christian Angstadt, certify that:
1. I have reviewed this annual report on Form 10-K/A of Morgan
Stanley Spectrum Select L.P.;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present
in all material respects the financial condition, results of
operations, and cash flows of the registrant as of, and for,
the periods presented in this report;
4. The registrant?s other certifying officer(s) and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-
15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under
our supervision, to ensure that material information
relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those
entities, particularly during the period in which this
report is being prepared;
b) Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting
and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles;
c) Evaluated the effectiveness of the registrant?s disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
<page>
d)Disclosed in this report any change in the registrant?s
internal control over financial reporting that occurred
during the registrant?s most recent fiscal quarter (the
registrant?s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably
likely to materially affect, the registrant?s internal
control over financial reporting; and
5. The registrant?s other certifying officer(s) and I have
disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant?s auditors
and the audit committee of the registrant?s board of directors
(or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the
design or operation of internal controls over financial
reporting which are reasonably likely to adversely affect the
registrant?s ability to record, process, summarize, and
report financial information; and
b) Any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant?s internal control over financial reporting.
Date: May 13, 2009 /s/ Christian Angstadt
Christian Angstadt
Chief Financial Officer
Demeter Management Corporation,
general partner of the registrant
<page> EXHIBIT 32.01
CERTIFICATION OF PRESIDENT PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Morgan Stanley Spectrum
Select L.P. (the ?Partnership?) on Form 10-K/A for the period
ended December 31, 2008, as filed with the Securities and Exchange
Commission on the date hereof (the ?Report?), I, Walter Davis,
President of Demeter Management Corporation, the general partner
of the Partnership, certify, pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that, to the best of my knowledge:
(1) The Report fully complies with the requirements of Section
13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents,
in all material respects, the financial condition and
results of operations of the Partnership.
By: /s/ Walter Davis
Name: Walter Davis
Title: President
Date: May 13, 2009
<page>
EXHIBIT 32.02
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Morgan Stanley Spectrum
Select L.P. (the ?Partnership?) on Form 10-K/A for the period
ended December 31, 2008, as filed with the Securities and Exchange
Commission on the date hereof (the ?Report?), I, Christian
Angstadt, Chief Financial Officer of Demeter Management
Corporation, the general partner of the Partnership, certify,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002, that, to the best of my
knowledge:
(1) The Report fully complies with the requirements of Section
13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents,
in all material respects, the financial condition and
results of operations of the Partnership.
By: /s/ Christian Angstadt
Name: Christian Angstadt
Title: Chief Financial Officer
Date: May 13, 2009
Morgan Stanley
Spectrum Series
December 31, 2008
Annual Report
[LOGO]
MORGAN STANLEY SPECTRUM SERIES
HISTORICAL FUND PERFORMANCE
Presented below is the percentage change in Net Asset Value per Unit from the
start of every calendar year each Fund has traded. Also provided is the
inception-to-date return and the compound annualized return since inception for
each Fund. Past performance is no guarantee of future results.
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
FUND % % % % % % % % % % % % % % % %
- ---------------------------------------------------------------------------------------------------------------------------------
Spectrum Currency........ -- -- -- -- -- -- -- -- -- 11.7 11.1 12.2 12.4 (8.0) (18.3) (3.4)
(6 mos.)
- ---------------------------------------------------------------------------------------------------------------------------------
Spectrum Global Balanced. -- -- -- (1.7) 22.8 (3.6) 18.2 16.4 0.8 0.9 (0.3) (10.1) 6.2 (5.6) 4.2 2.4
(2 mos.)
- ---------------------------------------------------------------------------------------------------------------------------------
Spectrum Select.......... 31.2 (14.4) 41.6 (5.1) 23.6 5.3 6.2 14.2 (7.6) 7.1 1.7 15.4 9.6 (4.7) (5.0) 5.9
(5 mos.)
- ---------------------------------------------------------------------------------------------------------------------------------
Spectrum Strategic....... -- -- -- 0.1 10.5 (3.5) 0.4 7.8 37.2 (33.1) (0.6) 9.4 24.0 1.7 (2.6) 20.9
(2 mos.)
- ---------------------------------------------------------------------------------------------------------------------------------
Spectrum Technical....... -- -- -- (2.2) 17.6 18.3 7.5 10.2 (7.5) 7.8 (7.2) 23.3 23.0 4.4 (5.4) 5.4
(2 mos.)
- ---------------------------------------------------------------------------------------------------------------------------------
INCEPTION- COMPOUND
TO-DATE ANNUALIZED
2007 2008 RETURN RETURN
FUND % % % %
- -----------------------------------------------------------
Spectrum Currency........ (13.5) 13.4 11.6 1.3
- -----------------------------------------------------------
Spectrum Global Balanced. 0.2 12.0 75.0 4.0
- -----------------------------------------------------------
Spectrum Select.......... 7.5 30.6 308.0 8.4
- -----------------------------------------------------------
Spectrum Strategic....... 5.0 4.5 88.2 4.6
- -----------------------------------------------------------
Spectrum Technical....... (14.2) 12.6 127.6 6.0
- -----------------------------------------------------------
DEMETER MANAGEMENT CORPORATION
522 Fifth Avenue, 13th Floor
New York, NY 10036
Telephone (212) 296-1999
MORGAN STANLEY SPECTRUM SERIES
ANNUAL REPORT
2008
Dear Limited Partner:
This marks the ninth annual report for Morgan Stanley Spectrum Currency L.P.,
the fifteenth annual report for Morgan Stanley Spectrum Global Balanced L.P.,
Morgan Stanley Spectrum Strategic L.P., and Morgan Stanley Spectrum Technical
L.P., and the eighteenth annual report for Morgan Stanley Spectrum Select L.P.
The Net Asset Value per Unit for each of the five Morgan Stanley Spectrum funds
("Fund(s)") as of December 31, 2008, was as follows:
% CHANGE
FUNDS N.A.V. FOR YEAR
-----------------------------------------
Spectrum Currency $11.16 13.4%
-----------------------------------------
Spectrum Global Balanced $17.50 12.0%
-----------------------------------------
Spectrum Select $40.80 30.6%
-----------------------------------------
Spectrum Strategic $18.82 4.5%
-----------------------------------------
Spectrum Technical $22.76 12.6%
-----------------------------------------
Since its inception in July 2000, Spectrum Currency has returned 11.6% (a
compound annualized return of 1.3%). Since their inception in November 1994,
Spectrum Global Balanced has returned 75.0% (a compound annualized return of
4.0%), Spectrum Strategic has returned 88.2% (a compound annualized return of
4.6%), and Spectrum Technical has returned 127.6% (a compound annualized return
of 6.0%). Since its inception in August 1991, Spectrum Select has returned
308.0% (a compound annualized return of 8.4%).
Detailed performance information for each Fund is located in the body of the
financial report. (Note: all returns are net of all fees). For each Fund, we
provide a trading results by sector chart that portrays trading gains and
trading losses for the year in each sector in which the Fund participates. In
the case of Spectrum Currency, we provide the trading gains and trading losses
for the five major currencies in which the Fund participates, and composite
information for all other "minor" currencies traded within the Fund.
The trading results by sector charts indicate the year's composite percentage
returns generated by the specific assets dedicated to trading within each
market sector in which each Fund participates. Please note that there is not an
equal amount of assets in each market sector, and the specific allocations of
assets by a Fund to each sector will vary over time within a predetermined
range. Below each chart is a description of the factors that influenced trading
gains and trading losses within each Fund during the year.
After the November 30, 2008 monthly close, Demeter Management Corporation
("Demeter") no longer offers 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.
Effective December 2, 2008, Chesapeake Capital Corporation ("Chesapeake"), in
consultation with Demeter, determined that it was appropriate to begin
increasing the overall leverage of Spectrum Technical's (the "Partnership")
assets traded pursuant to Chesapeake's Diversified 2XL Program (the "Program")
to 75% of the customary leverage utilized by the Program. By agreement between
Chesapeake and Demeter, the leverage employed by the Program since October 1,
2007, had been approximately 62% of the customary leverage utilized by the
Program. Chesapeake, in further consultation with Demeter, will determine if,
and at what time, the leverage may be further readjusted. Such adjustments to
the leverage employed will not exceed 100% of the customary leverage utilized
by Chesapeake in the Program. Such increases/decreases in leverage levels will
occur without prior notice to investors.
Graham Capital Management, L.P. ("Graham"), one of the trading advisors to
Morgan Stanley Spectrum Select L.P. ("Spectrum Select"), notified the General
Partner that Graham Global Diversified Program and Graham K4 Program were
merged into one trading program, Graham K4D-15 ("K4D-15"), effective January 1,
2009. Consequently, effective January 1, 2009, Graham began trading a portion
of Spectrum Select's assets pursuant to K4D-15 at the standard leverage. Prior
to January 1, 2009, Graham traded a portion of Spectrum Select's assets
pursuant to Graham Global Diversified Program at 1.5 times the standard
leverage it applied for such program.
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 Davis
Walter J. Davis
Chairman of the Board of Directors and President
Demeter Management Corporation,
General Partner of
Morgan Stanley Spectrum Currency L.P.
Morgan Stanley Spectrum Global Balanced L.P.
Morgan Stanley Spectrum Select L.P.
Morgan Stanley Spectrum Strategic L.P.
Morgan Stanley Spectrum Technical L.P.
Managed futures investments are speculative, involve a high degree of risk,
use significant leverage, are generally illiquid, have substantial charges, are
subject to conflicts of interest, and are suitable only for the risk capital
portion of an investor's portfolio. Before investing in any managed futures
investment, qualified investors should read the prospectus or offering
documents carefully for additional information with respect to charges,
expenses, and risks. Past performance is no guarantee of future results.
This report is based on information from multiple sources and Morgan Stanley
makes no representation as to the accuracy or completeness of information from
sources outside of Morgan Stanley.
MORGAN STANLEY SPECTRUM CURRENCY L.P.
[CHART]
Year Ended
December 31, 2008
-----------------------
Australian dollar 3.90%
British pound 1.02%
Euro 3.07%
Japanese yen 3.12%
Swiss franc -0.53%
Minor Currencies 11.49%
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.
MORGAN STANLEY SPECTRUM CURRENCY L.P.
FACTORS INFLUENCING ANNUAL TRADING GAINS:
.. The most significant trading gains for the year were experienced primarily
during the first half of the year from long positions in the Australian
dollar, euro, Mexican peso, Chilean peso, and Brazilian real versus the U.S.
dollar as the value of the U.S. dollar weakened against most of its major
rivals amid speculation that signs of a slowing U.S. economy might spur the
U.S. Federal Reserve to lower interest rates at a faster pace than other
central banks around the world. Gains were also experienced during July from
long positions in the Mexican peso and Brazilian real versus the U.S. dollar
as the value of these currencies strengthened against the U.S. dollar after
the Bank of Mexico raised interest rates to curb accelerating inflation, and
expectations increased that the Bank of Brazil would raise interest rates at
its next policy meeting. Further gains were experienced during September,
October, and November from newly established short positions in the
Australian dollar, euro, Mexican peso, and Chilean peso versus the U.S.
dollar as the value of the U.S. dollar moved higher against most of its
rivals in tandem with rising U.S. dollar-denominated Treasury bonds amid a
"flight-to-quality". During March, gains were recorded from long positions
in the Japanese yen versus the U.S. dollar as the value of the U.S. dollar
fell against its major rivals due to the aforementioned speculation of
interest rate cuts by the U.S. Federal Reserve. During July and August,
gains were also experienced from short positions in the Japanese yen versus
the U.S. dollar as the value of the Japanese yen declined relative to the
U.S. dollar after Japan's government downgraded its assessment of the
economy to "worsening," indicating that the six-year expansion of Japan's
economy might have ended. Furthermore, gains were experienced throughout the
fourth quarter from newly established 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.
Additional gains were achieved primarily during January, March, May,
September, and October from short positions in the Korean won versus the
U.S. dollar as the value of the Korean won fell against the U.S. dollar amid
news of a widening Current-Account deficit out of Korea.
FACTORS INFLUENCING ANNUAL TRADING LOSSES:
.. Trading losses for the year were recorded primarily during April and July
from short positions in the Canadian dollar versus the U.S. dollar as the
value of the Canadian dollar moved higher against the U.S. dollar amid
rising energy prices and strong economic data. Further losses were incurred
during September and October from both short and long positions in the
Canadian dollar versus the U.S. dollar as the value of the Canadian dollar
moved without consistent direction amid uncertainty regarding the health of
these economies. Lastly, losses were recorded from both long and short
positions in the Hungarian forint and Indian rupee versus the U.S. dollar as
the value of the these currencies failed to move in a consistent direction
throughout a majority of the first nine months of the year.
MORGAN STANLEY SPECTRUM GLOBAL BALANCED L.P.
[CHART]
Year ended December 31, 2008
----------------------------
Currencies 2.55%
Global Interest Rates 5.44%
Global Stock Indices -0.44%
Energies 4.27%
Metals 3.88%
Agriculturals 4.16%
Note:Reflects trading results only and does not include fees or interest income.
FACTORS INFLUENCING ANNUAL TRADING GAINS:
.. The most significant trading gains for the year were experienced in the
global interest rate sector during August, October, November, and December
from long positions in European and Australian fixed-income futures as
prices moved higher in a worldwide "flight-to-quality" following a drop in
the global equity markets, as well as worries regarding the fundamental
health of the global economy and financial system.
.. Additional gains were recorded in the energy markets throughout a majority
of the first half of the year from long futures positions in crude oil and
its related products as prices moved consistently higher due to speculation
that OPEC might cut production, ongoing geopolitical concerns in the Middle
East, growing Asian fuel consumption, and strong demand for physical
commodities as an inflation hedge. Additional gains were recorded during the
fourth quarter from newly established short futures positions in crude oil
and its related products as prices sharply decreased on concerns that a
substantial global economic slowdown might erode energy demand.
MORGAN STANLEY SPECTRUM GLOBAL BALANCED L.P.
FACTORS INFLUENCING ANNUAL TRADING GAINS: (continued)
.. Within the agricultural complex, gains were experienced, primarily during
January and February, from long positions in wheat futures as prices
increased to a record high amid diminishing stockpiles and consistently
rising global demand. Meanwhile, long futures positions in the soybean
complex resulted in gains primarily during January, February, and June as
prices increased after a government report showed a rise in demand for U.S.
supplies. During October, smaller gains resulted from short futures
positions in wheat and cotton as prices declined amid rising inventories and
growing concerns that slowing global economic growth might reduce demand for
these commodities.
.. Gains were recorded in the metals sector during February from long positions
in tin futures as prices moved higher on reports of falling inventories amid
rising demand from China and India. During September, October, November, and
December, additional gains were experienced from newly established short
futures positions in nickel, aluminum, tin, lead, and zinc as prices
declined amid worries that a global economic recession might erode demand
for base metals. Elsewhere, long positions in platinum futures resulted in
gains during February as prices moved higher amid continued uncertainty in
the direction of the U.S. dollar and further "safe haven" buying due to
weakness in global equity markets.
.. Within the currency sector, gains were achieved during February, March, and
June from long positions in the euro and Japanese yen versus the U.S. dollar
as the value of the U.S. dollar moved lower against these currencies during
the first six months of the year amid speculation that signs of a slowing
U.S. economy might spur the U.S. Federal Reserve to lower interest rates at
a faster pace than other central banks around the world. Short positions in
the Korean won versus the U.S. dollar resulted in additional gains,
primarily during March, as the value of the Korean won decreased relative to
the U.S. dollar amid news of a widening Current-Account deficit out of
Korea. Further gains were experienced during October from newly established
short positions in the Australian dollar, euro, and Canadian dollar versus
the U.S. dollar as the value of the U.S. dollar moved higher against most of
its rivals in tandem with rising U.S. dollar-denominated Treasury bonds amid
the aforementioned "flight-to-quality" that affected the global interest
rate futures markets. Meanwhile, gains were experienced throughout the
fourth quarter from long positions in the Japanese yen versus the U.S.
dollar as the value of the Japanese yen increased after mounting fears of a
global economic recession prompted investors to sell higher-yielding assets
funded by loans in Japan.
FACTORS INFLUENCING ANNUAL TRADING LOSSES:
.. Trading losses for the year were incurred in the global stock index sector,
primarily during January, from long positions in European and U.S. equity
index futures as prices moved lower on concerns that mounting losses linked
to U.S. sub-prime mortgage investments would continue to erode corporate
earnings and curb global economic growth.
MORGAN STANLEY SPECTRUM SELECT L.P.
[CHART]
Year Ended
December 31, 2008
-----------------------
Currencies 3.19%
Global Interest Rates 7.73%
Global Stock Indices 9.47%
Energies 10.26%
Metals 3.32%
Agriculturals 5.51%
Note:Reflects trading results only and does not include fees or interest income.
FACTORS INFLUENCING ANNUAL TRADING GAINS:
.. The most significant trading gains were experienced in the energy sector
throughout a majority of the first half of the year from long futures
positions in crude oil and its related products as prices moved consistently
higher due to speculation that OPEC might cut production, ongoing
geopolitical concerns in the Middle East, growing Asian fuel consumption,
and strong demand for physical commodities as an inflation hedge. Additional
gains were recorded during the fourth quarter from newly established short
futures positions in crude oil and its related products as prices sharply
decreased on concerns that a substantial global economic slowdown might
erode energy demand.
.. Additional gains were recorded in the global stock index sector during
January, February, March, and June from short positions in U.S., European,
and Pacific Rim equity index futures as prices decreased during the first
half of the year on concerns that a persistent U.S. housing slump, mounting
losses linked to U.S. sub-prime mortgage investments, rising commodity
prices, and a weakening job market might restrain consumer spending, erode
corporate earnings, and curb global economic growth. Additional gains were
recorded during September and October as equity prices dropped sharply amid
unprecedented U.S. financial market turmoil and growing concerns that
efforts by central banks and governments around the world to support the
financial system might not prevent a global recession.
MORGAN STANLEY SPECTRUM SELECT L.P.
FACTORS INFLUENCING ANNUAL TRADING GAINS: (continued)
.. Within the global interest rate sector, gains were experienced primarily
during January, May, June, October, and November from long positions in U.S.
and European fixed-income futures as prices moved higher in a worldwide
"flight-to-quality" following the aforementioned drop in the global equity
markets, as well as worries regarding the fundamental health of the global
economy and financial system.
.. Further gains were recorded in the agricultural markets, primarily during
January and February, from long positions in wheat futures as prices
increased to a record high amid diminishing stockpiles and consistently
rising global demand. Further gains were achieved during January, February,
and June from long positions in corn futures as prices moved higher on
supply concerns and rising demand for alternative biofuels. Meanwhile, long
futures positions in the soybean complex also resulted in gains primarily
during June as prices increased after a government report showed a rise in
demand for U.S. supplies. During October, gains resulted from short futures
positions in wheat and cotton as prices declined amid rising inventories and
growing concerns that slowing global economic growth might reduce demand for
these commodities.
.. Within the metals sector, gains were achieved, primarily during January and
February, from long positions in platinum and silver futures as prices moved
higher amid continued uncertainty in the direction of the U.S. dollar and
further "safe haven" buying due to weakness in global equity markets.
Meanwhile, gains were experienced, primarily during September, October,
November, and December, from short futures positions in nickel, copper,
zinc, aluminum, and tin as prices declined amid worries that a global
economic recession might erode demand for base metals.
.. Finally, smaller gains were recorded in the currency markets during
February, March, and May from long positions in the Mexican peso and euro
versus the U.S. dollar as the value of the U.S. dollar moved lower against
these currencies during the first six months of the year amid speculation
that signs of a slowing U.S. economy might spur the U.S. Federal Reserve to
lower interest rates at a faster pace than other central banks around the
world. Short positions in the Korean won versus the U.S. dollar resulted in
additional gains, primarily during March, as the value of the Korean won
decreased relative to the U.S. dollar amid news of a widening
Current-Account deficit out of Korea. Further gains were experienced during
October and November from newly established 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 rising
U.S. dollar-denominated Treasury bonds amid the aforementioned
"flight-to-quality". Meanwhile, gains were experienced throughout the fourth
quarter from long positions in the Japanese yen versus the U.S. dollar as
the value of the Japanese yen increased after mounting fears of a global
economic recession prompted investors to sell higher-yielding assets funded
by loans in Japan.
MORGAN STANLEY SPECTRUM STRATEGIC L.P.
[CHART]
Year ended December 31, 2008
----------------------------
Currencies 1.26%
Global Interest Rates 5.40%
Global Stock Indices 0.86%
Energies -0.15%
Metals -0.58%
Agriculturals 6.71%
Note:Reflects trading results only and does not include fees or interest income.
FACTORS INFLUENCING ANNUAL TRADING GAINS:
.. The most significant trading gains were experienced in the agricultural
markets primarily during January, February, April, and June, from long
futures positions in the soybean complex and corn as prices increased amid
news that global production might drop, rising energy prices might boost
demand for alternative biofuels, and severe floods in the U.S. Midwest had
damaged crops. Elsewhere, long positions in cocoa futures also resulted in
gains as prices rose throughout the first half of the year, as well as
during November and December, on speculation that crops in the Ivory Coast,
the world's largest cocoa producer, were developing more slowly than
anticipated. Meanwhile, gains were recorded throughout the first half of the
year from long positions in coffee futures as prices increased on worries
regarding future supply from Brazil, the world's largest coffee producer.
Further gains were experienced from long positions in sugar futures as
prices moved higher throughout the first half of the year due to ongoing
supply concerns.
.. Within the global interest rate sector, gains were recorded throughout a
majority of the year from long positions in U.S. and European fixed-income
futures as prices moved higher amid a worldwide "flight-to-quality" due to a
drop in the global equity markets and worries regarding the fundamental
health of the global financial system.
MORGAN STANLEY SPECTRUM STRATEGIC L.P.
FACTORS INFLUENCING ANNUAL TRADING GAINS: (continued)
.. Additional gains were recorded in the currency markets during February,
March, and May from long positions in the Australian dollar, euro, and
British pound versus the U.S. dollar as the value of the U.S. dollar moved
lower against these currencies during the first six months of the year amid
speculation that signs of a slowing U.S. economy might spur the U.S. Federal
Reserve to lower interest rates at a faster pace than other central banks
around the world. Further gains were experienced during October and November
from short positions in the South African rand, Australian dollar, euro, and
British pound versus the U.S. dollar as the value of the U.S. dollar moved
higher against most of its rivals in tandem with rising U.S.
dollar-denominated Treasury bonds amid the aforementioned
"flight-to-quality". Additional gains were achieved in December from newly
established long positions in the euro and Australian dollar versus the U.S.
dollar as the value of the U.S. dollar moved lower against these currencies
after the U.S. Federal Reserve cut its benchmark interest rate to an
unprecedented target range of 0% to 0.25%.
.. Lastly, gains were achieved in the global stock index sector during
February, March, and June from short positions in U.S., British, and
Japanese equity index futures as prices decreased during the first half of
the year on concerns that a persistent U.S. housing slump, mounting losses
linked to U.S. sub-prime mortgage investments, rising commodity prices, and
a weakening job market might restrain consumer spending, erode corporate
earnings, and curb global economic growth. Additional gains were recorded
during September and October as equity prices dropped sharply amid
unprecedented U.S. financial market turmoil and growing concerns that
efforts by central banks and governments around the world to support the
financial system might not prevent a global recession.
FACTORS INFLUENCING ANNUAL TRADING LOSSES:
.. Trading losses for the year were experienced in the metals markets primarily
during March, April, May, July, September, and October from long futures
positions in zinc and nickel as prices declined on concerns that slowing
economic growth might erode demand for base metals. Meanwhile, long
positions in palladium and platinum resulted in additional losses as prices
dropped during the third quarter due to a sharp rise in the value of the
U.S. dollar.
.. Lastly, losses were incurred within the energy sector primarily during the
third quarter from long futures positions in crude oil as prices moved lower
amid signs that the U.S. economic slump might extend into 2009 and curb
future energy demand. Elsewhere, further losses were experienced from long
positions in natural gas futures as prices decreased sharply in July amid
rising inventories and news that the Atlantic hurricane season's first storm
had avoided the gas-producing fields in the Gulf of Mexico. Finally, newly
established short futures positions in natural gas resulted in losses during
August as prices reversed higher during the latter half of July on concerns
that Hurricane Gustav might threaten oil production in the Gulf of Mexico.
MORGAN STANLEY SPECTRUM TECHNICAL L.P.
[CHART]
Year ended December 31, 2008
----------------------------
Currencies 4.25%
Global Interest Rates 3.15%
Global Stock Indices 6.71%
Energies 4.86%
Metals 0.94%
Agriculturals 1.65%
Note:Reflects trading results only and does not include fees or interest income.
FACTORS INFLUENCING ANNUAL TRADING GAINS:
.. The most significant trading gains were recorded in the global stock index
markets during January, March, and June from short positions in U.S.,
European, and Pacific Rim equity index futures as prices decreased during
the first half of the year on concerns that a persistent U.S. housing slump,
mounting losses linked to U.S. sub-prime mortgage investments, rising
commodity prices, and a weakening job market might restrain consumer
spending, erode corporate earnings, and curb global economic growth.
Additional gains were recorded during September and October as prices
dropped sharply amid unprecedented U.S. financial market turmoil and growing
concerns that efforts by central banks and governments around the world to
support the financial system might not prevent a global recession.
.. Within the energy sector, gains were experienced throughout a majority of
the first half of the year from long futures positions in crude oil and its
related products as prices moved consistently higher due to speculation that
OPEC might cut production, ongoing geopolitical concerns in the Middle East,
growing Asian fuel consumption, and strong demand for physical commodities
as an inflation hedge. Additional gains were recorded during the fourth
quarter from newly established short futures positions in crude oil and its
related products as prices sharply decreased on concerns that a substantial
global economic slowdown might erode energy demand.
MORGAN STANLEY SPECTRUM TECHNICAL L.P.
FACTORS INFLUENCING ANNUAL TRADING GAINS (continued)
.. Within the currency sector, gains were achieved, primarily during February,
March, May, and June, from short positions in the U.S. dollar versus the
euro and Mexican peso as the value of the U.S. dollar weakened against most
of its major rivals during the first six months of the year amid speculation
that signs of a slowing U.S. economy might spur the U.S. Federal Reserve to
lower interest rates at a faster pace than other central banks around the
world. Further gains were experienced during October and November from newly
established short positions in the British pound versus the U.S. dollar as
the value of the U.S. dollar moved higher in tandem with rising U.S.
dollar-denominated Treasury bonds amid a "flight-to-quality". Additionally,
the value of the British pound fell on estimates that the U.K. economy might
contract significantly in 2009.
.. Further gains were achieved in the global interest rate sector primarily
during January, February, August, October, November, and December from long
positions in U.S., Australian, and Canadian fixed-income futures as prices
moved higher in a worldwide "flight-to-quality" following the aforementioned
drop in the global equity markets, as well as worries regarding the
fundamental health of the global economy and financial system.
.. Additional gains were experienced in the agricultural complex from long
positions in cocoa futures primarily during January, February, April, and
June as prices moved higher amid supply disruptions in the Ivory Coast, the
world's largest cocoa producer. Meanwhile, short futures positions in live
cattle and lean hogs resulted in gains primarily during February, March, and
October as prices declined amid rising supplies and growing concerns that
slowing global economic growth might reduce demand. Elsewhere, gains were
experienced, primarily during January, February, April, and June, from long
positions in corn futures as prices moved higher on supply concerns and
rising demand for alternative biofuels.
.. Lastly, gains were experienced in the metals markets primarily during
September, October, November, and December from short futures positions in
aluminum and zinc as prices declined amid worries that a global economic
recession might erode demand for base metals. Elsewhere, gains were
recorded, primarily during January and February, from long positions in gold
and silver futures as prices moved higher amid continued uncertainty in the
direction of the U.S. dollar and further "safe haven" buying because of
weakness in global equity markets.
MORGAN STANLEY SPECTRUM SERIES
MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Demeter Management Corporation ("Demeter"), the general partner of Morgan
Stanley Spectrum Currency L.P., Morgan Stanley Spectrum Global Balanced L.P.,
Morgan Stanley Spectrum Select L.P., Morgan Stanley Spectrum Strategic L.P.,
and Morgan Stanley Spectrum Technical L.P. (individually, a "Partnership", or
collectively, the "Partnerships"), is responsible for the management of the
Partnerships.
Management of Demeter ("Management") is responsible for establishing and
maintaining adequate internal control over financial reporting. The internal
control over financial reporting is designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally
accepted accounting principles.
The Partnerships' internal control over financial reporting includes those
policies and procedures that:
.. Pertain to the maintenance of records that, in reasonable detail, accurately
and fairly reflect the transactions and dispositions of the assets of the
Partnerships;
.. Provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally
accepted accounting principles, and that the Partnerships' transactions are
being made only in accordance with authorizations of Management and
directors; and
.. Provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the Partnerships' assets
that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of each Partnership's internal control
over financial reporting as of December 31, 2008. In making this assessment,
Management used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission in Internal Control--Integrated
Framework. Based on our assessment and those criteria, Management believes that
each Partnership maintained effective internal control over financial reporting
as of December 31, 2008.
Deloitte & Touche LLP, the Partnerships' independent registered public
accounting firm, has issued an audit report on the Partnerships' internal
control over financial reporting. This report, which expresses an unqualified
opinion on Management's assessment and on the effectiveness of the
Partnerships' internal control over financial reporting, appears under "Report
of Independent Registered Public Accounting Firm" on the following page.
/s/ Walter Davis
Walter J. Davis
President
Demeter Management Corporation
/s/ Christian M. Angstadt
Christian M. Angstadt
Chief Financial Officer
Demeter Management Corporation
New York, New York
March 30, 2009
MORGAN STANLEY SPECTRUM SERIES
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Limited Partners and the General Partner of Morgan Stanley Spectrum
Currency L.P., Morgan Stanley Spectrum Global Balanced L.P., Morgan Stanley
Spectrum Select L.P., Morgan Stanley Spectrum Strategic L.P., and Morgan
Stanley Spectrum Technical L.P. :
We have audited the internal control over financial reporting of Morgan
Stanley Spectrum Currency L.P., Morgan Stanley Spectrum Global Balanced L.P.,
Morgan Stanley Spectrum Select L.P., Morgan Stanley Spectrum Strategic L.P.,
and Morgan Stanley Spectrum Technical L.P. (collectively, the "Partnerships")
as of December 31, 2008, based on criteria established in Internal
Control--Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. The Partnerships' management is
responsible for maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control over financial
reporting, included in the accompanying Management's Report on Internal Control
Over Financial Reporting. Our responsibility is to express an opinion on the
Partnerships' internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness
exists, testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk, and performing such other
procedures as we considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed
by, or under the supervision of, the company's principal executive and
principal financial officers, or persons performing similar functions, and
effected by the company's board of directors, management, and other personnel
to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in
accordance with
generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of management and
directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition
of the company's assets that could have a material effect on the financial
statements.
Because of the inherent limitations of internal control over financial
reporting, including the possibility of collusion or improper management
override of controls, material misstatements due to error or fraud may not be
prevented or detected on a timely basis. Also, projections of any evaluation of
the effectiveness of the internal control over financial reporting to future
periods are subject to the risk that the controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
In our opinion, the Partnerships maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2008,
based on the criteria established in Internal Control--Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the financial statements as of and
for the year ended December 31, 2008 of the Partnerships and our report dated
March 30, 2009 expressed an unqualified opinion on those financial statements.
/s/ Deloitte & Touche LLP
New York, New York
March 30, 2009
MORGAN STANLEY SPECTRUM SERIES
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Limited Partners and the General Partner of Morgan Stanley Spectrum
Currency L.P., Morgan Stanley Spectrum Global Balanced L.P., Morgan Stanley
Spectrum Select L.P., Morgan Stanley Spectrum Strategic L.P., and Morgan
Stanley Spectrum Technical L.P. :
We have audited the accompanying statements of financial condition of Morgan
Stanley Spectrum Currency L.P., Morgan Stanley Spectrum Global Balanced L.P.,
Morgan Stanley Spectrum Select L.P., Morgan Stanley Spectrum Strategic L.P.,
and Morgan Stanley Spectrum Technical L.P. (collectively, the "Partnerships"),
including the condensed schedules of investments, as of December 31, 2008 and
2007, and the related statements of operations, changes in partners' capital,
and cash flows for each of the three years in the period ended December 31,
2008. These financial statements are the responsibility of the Partnerships'
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Morgan Stanley Spectrum Currency L.P.,
Morgan Stanley Spectrum Global Balanced L.P., Morgan Stanley Spectrum Select
L.P., Morgan Stanley Spectrum Strategic L.P., and Morgan Stanley Spectrum
Technical L.P. at December 31, 2008 and 2007, and the results of their
operations, their changes in partners' capital, and their cash flows for each
of the three years in the period ended December 31, 2008, in conformity with
accounting principles generally accepted in the United States of America.
As discussed in Note 1, the Partnerships modified their classification of
cash within the 2006 statements of cash flows to conform to 2007 and 2008
presentation.
We have also audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the Partnerships' internal control
over financial reporting as of December 31, 2008, based on the criteria
established in Internal Control--Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission and our report dated
March 30, 2009 expressed an unqualified opinion on the Partnerships' internal
control over financial reporting.
/s/ Deloitte & Touche LLP
New York, New York
March 30, 2009
MORGAN STANLEY SPECTRUM CURRENCY L.P.
STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31,
-------------------------
2008 2007
------------ -----------
$ $
ASSETS
Trading Equity:
Unrestricted cash 92,837,025 110,971,546
Restricted cash 640,778 2,985,523
------------ -----------
Total Cash 93,477,803 113,957,069
------------ -----------
Net unrealized loss on open contracts (MS&Co.) (403,907) (1,397,223)
------------ -----------
Options purchased (premiums paid $45,729 and
$29,116, respectively) 251 14,874
------------ -----------
Total Trading Equity 93,074,147 112,574,720
Interest receivable (MS&Co.) 619 228,618
Subscriptions receivable -- 490,292
------------ -----------
Total Assets 93,074,766 113,293,630
============ ===========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES
Redemptions payable 4,139,379 4,968,209
Accrued brokerage fees (MS&Co.) 356,847 436,938
Accrued management fees 155,151 189,973
Options written (premiums received $24,780 and
$217,974, respectively) 251 370,766
------------ -----------
Total Liabilities 4,651,628 5,965,886
------------ -----------
PARTNERS' CAPITAL
Limited Partners (7,843,447.630 and
10,795,995.838 Units, respectively) 87,533,608 106,178,308
General Partner (79,706.343 and
116,872,343 Units, respectively) 889,530 1,149,436
------------ -----------
Total Partners' Capital 88,423,138 107,327,744
------------ -----------
Total Liabilities and Partners' Capital 93,074,766 113,293,630
============ ===========
NET ASSET VALUE PER UNIT 11.16 9.84
============ ===========
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------
2008 2007 2006
------------- -------------- --------------
$ $ $
INVESTMENT INCOME
Interest income (MS&Co.) 1,120,873 4,909,004 6,632,240
------------- -------------- --------------
EXPENSES
Brokerage fees (MS&Co.) 4,550,496 6,410,711 8,151,647
Management fees 1,978,477 2,787,267 3,544,196
Incentive fee 355,472 -- --
------------- -------------- --------------
Total Expenses 6,884,445 9,197,978 11,695,843
------------- -------------- --------------
NET INVESTMENT LOSS (5,763,572) (4,288,974) (5,063,603)
------------- -------------- --------------
TRADING RESULTS
Trading profit (loss):
Realized 17,155,471 (9,603,925) (1,843,404)
Net change in unrealized 1,139,401 (6,098,290) (1,668,161)
------------- -------------- --------------
Total Trading Results 18,294,872 (15,702,215) (3,511,565)
------------- -------------- --------------
NET INCOME (LOSS) 12,531,300 (19,991,189) (8,575,168)
============= ============== ==============
NET INCOME (LOSS) ALLOCATION:
Limited Partners 12,396,509 (19,782,415) (8,482,159)
General Partner 134,791 (208,774) (93,009)
NET INCOME (LOSS) PER UNIT:
Limited Partners 1.32 (1.54) (0.40)
General Partner 1.32 (1.54) (0.40)
UNITS UNITS UNITS
------------- -------------- --------------
WEIGHTED AVERAGE NUMBER
OF UNITS OUTSTANDING 9,457,649.181 12,853,813.902 16,060,812.779
The accompanying notes are an integral part of these financial statements.
MORGAN STANLEY SPECTRUM GLOBAL BALANCED L.P.
STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31,
---------------------
2008 2007
---------- ----------
$ $
ASSETS
Trading Equity:
Unrestricted cash 29,138,620 30,786,525
Restricted cash 212,233 3,622,932
---------- ----------
Total Cash 29,350,853 34,409,457
---------- ----------
Net unrealized gain on open contracts (MS&Co.) 2,560,293 981,749
Net unrealized gain (loss) on open contracts (MSIP) 349,094 (27,480)
---------- ----------
Total net unrealized gain on open contracts 2,909,387 954,269
---------- ----------
Options purchased (premiums paid $0 and $10,871,
respectively) -- 5,592
---------- ----------
Total Trading Equity 32,260,240 35,369,318
Interest receivable (MS&Co.) 274 90,968
Subscriptions receivable -- 48,065
---------- ----------
Total Assets 32,260,514 35,508,351
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES
Redemptions payable 1,568,189 415,302
Accrued incentive fee 158,261 --
Accrued brokerage fees (MS&Co.) 118,274 136,898
Accrued management fees 38,315 44,641
---------- ----------
Total Liabilities 1,883,039 596,841
---------- ----------
PARTNERS' CAPITAL
Limited Partners (1,718,093.175 and
2,209,862.669 Units, respectively) 30,071,901 34,537,771
General Partner (17,458.331 and
23,913.331 Units, respectively) 305,574 373,739
---------- ----------
Total Partners' Capital 30,377,475 34,911,510
---------- ----------
Total Liabilities and Partners' Capital 32,260,514 35,508,351
========== ==========
NET ASSET VALUE PER UNIT 17.50 15.63
========== ==========
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------------
2008 2007 2006
------------- ------------- -------------
$ $ $
INVESTMENT INCOME
Interest income (MS&Co.) 445,255 1,712,782 2,044,009
------------- ------------- -------------
EXPENSES
Brokerage fees (MS&Co.) 1,449,871 1,733,526 1,987,699
Incentive fee 789,211 -- --
Management fees 497,142 478,507 540,137
------------- ------------- -------------
Total Expenses 2,736,224 2,212,033 2,527,836
------------- ------------- -------------
NET INVESTMENT LOSS (2,290,969) (499,251) (483,827)
------------- ------------- -------------
TRADING RESULTS
Trading profit (loss):
Realized 3,668,920 784,684 981,659
Net change in unrealized 1,960,397 (242,776) 589,128
------------- ------------- -------------
Total Trading Results 5,629,317 541,908 1,570,787
------------- ------------- -------------
NET INCOME 3,338,348 42,657 1,086,960
============= ============= =============
NET INCOME (LOSS) ALLOCATION:
Limited Partners 3,300,034 43,079 1,074,038
General Partner 38,314 (422) 12,922
NET INCOME PER UNIT:
Limited Partners 1.87 0.03 0.37
General Partner 1.87 0.03 0.37
UNITS UNITS UNITS
------------- ------------- -------------
WEIGHTED AVERAGE NUMBER
OF UNITS OUTSTANDING 2,018,745.064 2,409,953.413 2,765,969.544
The accompanying notes are an integral part of these financial statements.
MORGAN STANLEY SPECTRUM SELECT L.P.
STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31,
-----------------------
2008 2007
----------- -----------
$ $
ASSETS
Trading Equity:
Unrestricted cash 601,638,653 475,137,768
Restricted cash 8,756,170 44,662,254
----------- -----------
Total Cash 610,394,823 519,800,022
----------- -----------
Net unrealized gain on open contracts (MS&Co.) 19,905,581 8,888,890
Net unrealized gain on open contracts (MSIP) 6,140,183 773,528
----------- -----------
Total net unrealized gain on open contracts 26,045,764 9,662,418
----------- -----------
Options purchased (premiums paid $0 and $378,156,
respectively) -- 324,788
----------- -----------
Total Trading Equity 636,440,587 529,787,228
Interest receivable (MS&Co.) 4,300 1,063,195
Subscriptions receivable -- 3,061,382
----------- -----------
Total Assets 636,444,887 533,911,805
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES
Redemptions payable 23,861,804 7,030,875
Accrued brokerage fees (MS&Co.) 3,093,914 2,636,618
Accrued incentive fees 2,429,055 16,603
Accrued management fees 1,175,736 1,049,154
----------- -----------
Total Liabilities 30,560,509 10,733,250
----------- -----------
PARTNERS' CAPITAL
Limited Partners (14,700,689.307 and
16,562,641.240 Units, respectively) 599,790,920 517,496,723
General Partner (149,348.769 and
181,848.769 Units, respectively) 6,093,458 5,681,832
----------- -----------
Total Partners' Capital 605,884,378 523,178,555
----------- -----------
Total Liabilities and Partners' Capital 636,444,887 533,911,805
=========== ===========
NET ASSET VALUE PER UNIT 40.80 31.24
=========== ===========
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------------
2008 2007 2006
-------------- -------------- --------------
$ $ $
INVESTMENT INCOME
Interest income (MS&Co.) 6,206,206 18,812,196 20,639,273
-------------- -------------- --------------
EXPENSES
Brokerage fees (MS&Co.) 34,013,929 31,522,666 32,847,913
Incentive fees 17,391,827 1,066,450 --
Management fees 13,376,153 13,731,691 15,437,482
-------------- -------------- --------------
Total Expenses 64,781,909 46,320,807 48,285,395
-------------- -------------- --------------
NET INVESTMENT LOSS (58,575,703) (27,508,611) (27,646,122)
-------------- -------------- --------------
TRADING RESULTS
Trading profit (loss):
Realized 195,783,856 67,781,315 64,987,687
Net change in unrealized 16,436,714 (2,352,561) (6,224,193)
-------------- -------------- --------------
Total Trading Results 212,220,570 65,428,754 58,763,494
-------------- -------------- --------------
NET INCOME 153,644,867 37,920,143 31,117,372
============== ============== ==============
NET INCOME ALLOCATION:
Limited Partners 151,981,698 37,498,154 30,776,254
General Partner 1,663,169 421,989 341,118
NET INCOME PER UNIT:
Limited Partners 9.56 2.18 1.61
General Partner 9.56 2.18 1.61
UNITS UNITS UNITS
-------------- -------------- --------------
WEIGHTED AVERAGE NUMBER
OF UNITS OUTSTANDING 15,802,082.028 17,899,555.783 19,024,271.988
The accompanying notes are an integral part of these financial statements.
MORGAN STANLEY SPECTRUM STRATEGIC L.P.
STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31,
-----------------------
2008 2007
----------- -----------
$ $
ASSETS
Investment in BHM I, LLC (cost $75,551,419 and $0,
respectively) 90,392,390 --
----------- -----------
Trading Equity:
Unrestricted cash 113,863,847 178,248,988
Restricted cash 2,175,923 27,652,056
----------- -----------
Total Cash 116,039,770 205,901,044
----------- -----------
Net unrealized gain on open contracts (MS&Co.) 391,494 9,057,511
Net unrealized gain on open contracts (MSIP) 1,613,170 835,498
----------- -----------
Total net unrealized gain on open contracts 2,004,664 9,893,009
----------- -----------
Options purchased (premiums paid $1,144,180 and
$836,806, respectively) 790,178 695,481
----------- -----------
Total Trading Equity 209,227,002 216,489,534
Receivable from Investment in BHM I, LLC 15,894,480 --
Interest receivable (MS&Co.) 1,470 421,265
Subscriptions receivable -- 3,398,937
----------- -----------
Total Assets 225,122,952 220,309,736
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES
Redemptions payable 8,467,774 2,892,540
Accrued brokerage fees (MS&Co.) 1,087,473 1,051,799
Accrued management fees 508,977 420,720
Options written (premiums received $344,612 and
$631,414, respectively) 201,784 314,263
Accrued incentive fee -- 102,353
----------- -----------
Total Liabilities 10,266,008 4,781,675
----------- -----------
PARTNERS' CAPITAL
Limited Partners (11,299,103.992 and
11,838,347.676 Units, respectively) 212,696,497 213,167,590
General Partner (114,769.692 and
131,089.692 Units, respectively) 2,160,447 2,360,471
----------- -----------
Total Partners' Capital 214,856,944 215,528,061
----------- -----------
Total Liabilities and Partners' Capital 225,122,952 220,309,736
=========== ===========
NET ASSET VALUE PER UNIT 18.82 18.01
=========== ===========
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------------
2008 2007 2006
-------------- -------------- --------------
$ $ $
INVESTMENT INCOME
Interest income (MS&Co.) 2,333,858 7,376,760 6,908,530
-------------- -------------- --------------
EXPENSES
Brokerage fees (MS&Co.) 12,935,032 12,796,668 11,319,725
Management fees 5,908,748 5,908,989 5,266,764
Incentive fees 3,578,609 698,113 5,369,200
-------------- -------------- --------------
Total Expenses 22,422,389 19,403,770 21,955,689
-------------- -------------- --------------
NET INVESTMENT LOSS (20,088,531) (12,027,010) (15,047,159)
-------------- -------------- --------------
TRADING RESULTS
Trading profit (loss):
Realized 10,690,368 29,589,963 47,204,725
Net change in unrealized 3,575,155 (6,993,476) 3,494,707
Realized gain on investments in BHM
I, LLC 966,654 -- --
Unrealized appreciation on investment
in BHM I, LLC 14,840,971 -- --
-------------- -------------- --------------
Total Trading Results 30,073,148 22,596,487 50,699,432
-------------- -------------- --------------
NET INCOME 9,984,617 10,569,477 35,652,273
============== ============== ==============
NET INCOME ALLOCATION:
Limited Partners 9,880,297 10,454,002 35,264,632
General Partner 104,320 115,475 387,641
NET INCOME PER UNIT:
Limited Partners 0.81 0.86 2.97
General Partner 0.81 0.86 2.97
UNITS UNITS UNITS
-------------- -------------- --------------
WEIGHTED AVERAGE NUMBER
OF UNITS OUTSTANDING 11,773,848.462 12,190,131.832 11,970,089.149
The accompanying notes are an integral part of these financial statements.
MORGAN STANLEY SPECTRUM TECHNICAL L.P.
STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31,
------------------------
2008 2007
------------ -----------
$ $
ASSETS
Trading Equity:
Unrestricted cash 517,758,117 522,722,048
Restricted cash 14,196,776 55,361,402
------------ -----------
Total Cash 531,954,893 578,083,450
------------ -----------
Net unrealized gain on open contracts (MS&Co.) 15,350,275 12,298,603
Net unrealized gain (loss) on open contracts (MSIP) 1,415,128 (1,087,475)
------------ -----------
Total net unrealized gain on open contracts 16,765,403 11,211,128
------------ -----------
Options purchased (premiums paid $47,381 and
$292,731, respectively) 26,406 219,718
------------ -----------
Total Trading Equity 548,746,702 589,514,296
Interest receivable (MS&Co.) 3,818 1,201,347
Subscriptions receivable -- 2,762,267
------------ -----------
Total Assets 548,750,520 593,477,910
============ ===========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES
Redemptions payable 23,445,292 10,327,244
Accrued brokerage fees (MS&Co.) 2,664,925 2,938,634
Accrued management fees 989,046 955,056
Accrued incentive fees 691,074 261,283
Options written (premiums received $170,031 and
$164,046, respectively) 150,636 96,035
------------ -----------
Total Liabilities 27,940,973 14,578,252
------------ -----------
PARTNERS' CAPITAL
Limited Partners (22,657,223.480 and
28,313,523.854 Units, respectively) 515,570,112 572,620,026
General Partner (230,252.001 and
310,500.001 Units, respectively) 5,239,435 6,279,632
------------ -----------
Total Partners' Capital 520,809,547 578,899,658
------------ -----------
Total Liabilities and Partners' Capital 548,750,520 593,477,910
============ ===========
NET ASSET VALUE PER UNIT 22.76 20.22
============ ===========
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------------
2008 2007 2006
-------------- -------------- --------------
$ $ $
INVESTMENT INCOME
Interest income (MS&Co.) 6,519,455 25,152,633 27,915,330
-------------- -------------- --------------
EXPENSES
Brokerage fees (MS&Co.) 34,167,890 41,846,536 44,839,676
Management fees 12,727,391 18,228,175 19,618,375
Incentive fees 11,646,915 5,585,417 6,762,802
-------------- -------------- --------------
Total Expenses 58,542,196 65,660,128 71,220,853
Management fee waived -- (1,306,736) --
-------------- -------------- --------------
Net Expenses 58,542,196 64,353,392 71,220,853
-------------- -------------- --------------
NET INVESTMENT LOSS (52,022,741) (39,200,759) (43,305,523)
-------------- -------------- --------------
TRADING RESULTS
Trading profit (loss):
Realized 114,853,874 (43,428,101) 72,013,693
Net change in unrealized 5,557,697 (20,612,964) 9,754,954
-------------- -------------- --------------
Total Trading Results 120,411,571 (64,041,065) 81,768,647
-------------- -------------- --------------
NET INCOME (LOSS) 68,388,830 (103,241,824) 38,463,124
============== ============== ==============
NET INCOME (LOSS) ALLOCATION:
Limited Partners 67,638,716 (102,064,643) 38,047,099
General Partner 750,114 (1,177,181) 416,025
NET INCOME (LOSS) PER UNIT:
Limited Partners 2.54 (3.35) 1.21
General Partner 2.54 (3.35) 1.21
UNITS UNITS UNITS
-------------- -------------- --------------
WEIGHTED AVERAGE NUMBER
OF UNITS OUTSTANDING 26,059,402.181 30,918,611.010 32,179,375.785
The accompanying notes are an integral part of these financial statements.
MORGAN STANLEY SPECTRUM CURRENCY L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 2008, 2007, AND 2006
UNITS OF
PARTNERSHIP LIMITED GENERAL
INTEREST PARTNERS PARTNER TOTAL
-------------- ----------- --------- -----------
$ $ $
Partners' Capital,
December 31, 2005 17,703,228.857 206,199,270 2,287,487 208,486,757
Offering of Units 1,518,069.025 16,510,816 -- 16,510,816
Net loss -- (8,482,159) (93,009) (8,575,168)
Redemptions (4,893,969.713) (52,924,163) (448,906) (53,373,069)
-------------- ----------- --------- -----------
Partners' Capital,
December 31, 2006 14,327,328.169 161,303,764 1,745,572 163,049,336
Offering of Units 612,283.271 6,526,442 -- 6,526,442
Net loss -- (19,782,415) (208,774) (19,991,189)
Redemptions (4,026,743.259) (41,869,483) (387,362) (42,256,845)
-------------- ----------- --------- -----------
Partners' Capital,
December 31, 2007 10,912,868.181 106,178,308 1,149,436 107,327,744
Offering of Units 442,658.625 4,701,294 -- 4,701,294
Net income -- 12,396,509 134,791 12,531,300
Redemptions (3,432,372.833) (35,742,503) (394,697) (36,137,200)
-------------- ----------- --------- -----------
Partners' Capital,
December 31, 2008 7,923,153.973 87,533,608 889,530 88,423,138
============== =========== ========= ===========
MORGAN STANLEY SPECTRUM GLOBAL BALANCED L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 2008, 2007, AND 2006
UNITS OF
PARTNERSHIP LIMITED GENERAL
INTEREST PARTNERS PARTNER TOTAL
------------- ---------- -------- ----------
$ $ $
Partners' Capital,
December 31, 2005 2,911,426.480 43,870,162 481,664 44,351,826
Offering of Units 258,442.402 4,021,015 -- 4,021,015
Net income -- 1,074,038 12,922 1,086,960
Redemptions (582,872.338) (9,047,541) (54,940) (9,102,481)
------------- ---------- -------- ----------
Partners' Capital,
December 31, 2006 2,586,996.544 39,917,674 439,646 40,357,320
Offering of Units 186,872.225 2,900,452 -- 2,900,452
Net income (loss) -- 43,079 (422) 42,657
Redemptions (540,092.769) (8,323,434) (65,485) (8,388,919)
------------- ---------- -------- ----------
Partners' Capital,
December 31, 2007 2,233,776.000 34,537,771 373,739 34,911,510
Offering of Units 130,955.133 2,053,979 -- 2,053,979
Net income -- 3,300,034 38,314 3,338,348
Redemptions (629,179.627) (9,819,883) (106,479) (9,926,362)
------------- ---------- -------- ----------
Partners' Capital,
December 31, 2008 1,735,551.506 30,071,901 305,574 30,377,475
============= ========== ======== ==========
The accompanying notes are an integral part of these financial statements.
MORGAN STANLEY SPECTRUM SELECT L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 2008, 2007, AND 2006
UNITS OF
PARTNERSHIP LIMITED GENERAL
INTEREST PARTNERS PARTNER TOTAL
-------------- ------------ ---------- ------------
$ $ $
Partners' Capital,
December 31, 2005 19,420,800.627 527,198,790 5,803,552 533,002,342
Offering of Units 2,664,130.689 76,905,995 -- 76,905,995
Net income -- 30,776,254 341,118 31,117,372
Redemptions (3,382,083.310) (97,213,195) (290,029) (97,503,224)
-------------- ------------ ---------- ------------
Partners' Capital,
December 31, 2006 18,702,848.006 537,667,844 5,854,641 543,522,485
Offering of Units 1,690,719.727 49,551,232 -- 49,551,232
Net income -- 37,498,154 421,989 37,920,143
Redemptions (3,649,077.724) (107,220,507) (594,798) (107,815,305)
-------------- ------------ ---------- ------------
Partners' Capital,
December 31, 2007 16,744,490.009 517,496,723 5,681,832 523,178,555
Offering of Units 2,122,702.631 78,579,397 -- 78,579,397
Net income -- 151,981,698 1,663,169 153,644,867
Redemptions (4,017,154.564) (148,266,898) (1,251,543) (149,518,441)
-------------- ------------ ---------- ------------
Partners' Capital,
December 31, 2008 14,850,038.076 599,790,920 6,093,458 605,884,378
============== ============ ========== ============
MORGAN STANLEY SPECTRUM STRATEGIC L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 2008, 2007, AND 2006
UNITS OF
PARTNERSHIP LIMITED GENERAL
INTEREST PARTNERS PARTNER TOTAL
-------------- ----------- --------- -----------
$ $ $
Partners' Capital,
December 31, 2005 11,964,888.723 167,774,452 1,851,286 169,625,738
Offering of Units 2,517,218.118 40,403,751 -- 40,403,751
Net income -- 35,264,632 387,641 35,652,273
Redemptions (2,264,477.459) (36,204,698) -- (36,204,698)
-------------- ----------- --------- -----------
Partners' Capital,
December 31, 2006 12,217,629.382 207,238,137 2,238,927 209,477,064
Offering of Units 2,157,683.821 37,689,397 120,000 37,809,397
Net income -- 10,454,002 115,475 10,569,477
Redemptions (2,405,875.835) (42,213,946) (113,931) (42,327,877)
-------------- ----------- --------- -----------
Partners' Capital,
December 31, 2007 11,969,437.368 213,167,590 2,360,471 215,528,061
Offering of Units 2,162,673.125 39,440,651 -- 39,440,651
Net income -- 9,880,297 104,320 9,984,617
Redemptions (2,718,236.809) (49,792,041) (304,344) (50,096,385)
-------------- ----------- --------- -----------
Partners' Capital,
December 31, 2008 11,413,873.684 212,696,497 2,160,447 214,856,944
============== =========== ========= ===========
The accompanying notes are an integral part of these financial statements.
MORGAN STANLEY SPECTRUM TECHNICAL L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 2008, 2007, AND 2006
UNITS OF
PARTNERSHIP LIMITED GENERAL
INTEREST PARTNERS PARTNER TOTAL
-------------- ------------ ---------- ------------
$ $ $
Partners' Capital,
December 31, 2005 32,346,933.835 715,669,731 7,746,362 723,416,093
Offering of Units 5,449,636.682 127,236,707 -- 127,236,707
Net income -- 38,047,099 416,025 38,463,124
Redemptions (5,680,770.401) (132,294,966) -- (132,294,966)
-------------- ------------ ---------- ------------
Partners' Capital,
December 31, 2006 32,115,800.116 748,658,571 8,162,387 756,820,958
Offering of Units 2,927,214.256 65,566,835 -- 65,566,835
Net loss -- (102,064,643) (1,177,181) (103,241,824)
Redemptions (6,418,990.517) (139,540,737) (705,574) (140,246,311)
-------------- ------------ ---------- ------------
Partners' Capital,
December 31, 2007 28,624,023.855 572,620,026 6,279,632 578,899,658
Offering of Units 2,124,231.354 46,288,957 -- 46,288,957
Net income -- 67,638,716 750,114 68,388,830
Redemptions (7,860,779.728) (170,977,587) (1,790,311) (172,767,898)
-------------- ------------ ---------- ------------
Partners' Capital,
December 31, 2008 22,887,475.481 515,570,112 5,239,435 520,809,547
============== ============ ========== ============
The accompanying notes are an integral part of these financial statements.
MORGAN STANLEY SPECTRUM CURRENCY L.P.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------
2008 2007 2006
------------ ----------- -----------
$ $ $
CASH FLOWS FROM
OPERATING ACTIVITIES
Net income (loss) 12,531,300 (19,991,189) (8,575,168)
Noncash item included in net
income (loss):
Net change in unrealized (1,139,401) 6,098,290 1,668,161
(Increase) decrease in operating
assets:
Restricted cash 2,344,745 (1,708,523) (601,000)
Net premiums paid for options
purchased (16,613) (29,116) --
Interest receivable (MS&Co.) 227,999 332,133 (768)
Increase (decrease) in operating
liabilities:
Accrued brokerage fees (MS&Co.) (80,091) (189,243) (235,950)
Accrued management fees (34,822) (82,280) (102,587)
Net premiums received for
options written (193,194) 217,974 --
------------ ----------- -----------
Net cash provided by (used for)
operating activities 13,639,923 (15,351,954) (7,847,312)
------------ ----------- -----------
CASH FLOWS FROM
FINANCING ACTIVITIES
Cash received from offering of Units 5,191,586 6,795,366 17,106,804
Cash paid for redemptions of Units (36,966,030) (41,931,983) (55,076,000)
------------ ----------- -----------
Net cash used for financing activities (31,774,444) (35,136,617) (37,969,196)
------------ ----------- -----------
Net decrease in unrestricted cash (18,134,521) (50,488,571) (45,816,508)
Unrestricted cash at beginning
of period 110,971,546 161,460,117 207,276,625
------------ ----------- -----------
Unrestricted cash at end of period 92,837,025 110,971,546 161,460,117
============ =========== ===========
The accompanying notes are an integral part of these financial statements.
MORGAN STANLEY SPECTRUM GLOBAL BALANCED L.P.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
2008 2007 2006
---------- ---------- ----------
$ $ $
CASH FLOWS FROM
OPERATING ACTIVITIES
Net income 3,338,348 42,657 1,086,960
Noncash item included in net income:
Net change in unrealized (1,960,397) 242,776 (589,128)
(Increase) decrease in operating assets:
Restricted cash 3,410,699 (208,237) (835,091)
Net premiums paid for options
purchased 10,871 (10,871) --
Interest receivable (MS&Co.) 90,694 88,255 (30,183)
Increase (decrease) in operating
liabilities:
Accrued incentive fee 158,261 -- --
Accrued brokerage fees (MS&Co.) (18,624) (21,829) (13,249)
Accrued management fees (6,326) 1,509 (3,601)
---------- ---------- ----------
Net cash provided by (used for)
operating activities 5,023,526 134,260 (384,292)
---------- ---------- ----------
CASH FLOWS FROM
FINANCING ACTIVITIES
Cash received from offering of Units 2,102,044 3,077,352 4,092,049
Cash paid for redemptions of Units (8,773,475) (8,892,895) (9,034,848)
---------- ---------- ----------
Net cash used for financing activities (6,671,431) (5,815,543) (4,942,799)
---------- ---------- ----------
Net decrease in unrestricted cash (1,647,905) (5,681,283) (5,327,091)
Unrestricted cash at beginning
of period 30,786,525 36,467,808 41,794,899
---------- ---------- ----------
Unrestricted cash at end of period 29,138,620 30,786,525 36,467,808
========== ========== ==========
The accompanying notes are an integral part of these financial statements.
MORGAN STANLEY SPECTRUM SELECT L.P.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------
2008 2007 2006
------------ ------------ ------------
$ $ $
CASH FLOWS FROM
OPERATING ACTIVITIES
Net income 153,644,867 37,920,143 31,117,372
Noncash item included in net
income:
Net change in unrealized (16,436,714) 2,352,561 6,224,193
(Increase) decrease in operating
assets:
Restricted cash 35,906,084 20,963,191 (13,525,098)
Net premiums paid for options
purchased 378,156 (378,156) --
Interest receivable (MS&Co.) 1,058,895 795,211 (440,959)
Increase (decrease) in operating
liabilities:
Accrued brokerage fees (MS&Co.) 457,296 (91,234) (2,220)
Accrued incentive fees 2,412,452 16,603 --
Accrued management fees 126,582 (147,338) (99,004)
------------ ------------ ------------
Net cash provided by operating
activities 177,547,618 61,430,981 23,274,284
------------ ------------ ------------
CASH FLOWS FROM
FINANCING ACTIVITIES
Cash received from offering
of Units 81,640,779 51,215,560 76,635,498
Cash paid for redemptions of Units (132,687,512) (108,773,406) (102,954,101)
------------ ------------ ------------
Net cash used for financing
activities (51,046,733) (57,557,846) (26,318,603)
------------ ------------ ------------
Net increase (decrease) in
unrestricted cash 126,500,885 3,873,135 (3,044,319)
Unrestricted cash at beginning
of period 475,137,768 471,264,633 474,308,952
------------ ------------ ------------
Unrestricted cash at end of period 601,638,653 475,137,768 471,264,633
============ ============ ============
The accompanying notes are an integral part of these financial statements.
MORGAN STANLEY SPECTRUM STRATEGIC L.P.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------
2008 2007 2006
------------- ----------- -----------
$ $ $
CASH FLOWS FROM
OPERATING ACTIVITIES
Net income 9,984,617 10,569,477 35,652,273
Purchase of investment in
BHM I, LLC (88,387,201) -- --
Proceeds from sale of investments 25,652,936 -- --
Noncash item included in
net income:
Net change in unrealized (3,575,155) 6,993,476 (3,494,707)
Realized appreciation on
investments in BHM I, LLC (966,654) -- --
Unrealized appreciation on
investment in BHM I, LLC (14,840,971) -- --
(Increase) decrease in operating assets:
Restricted cash 25,476,133 (6,668,409) 2,176,173
Net premiums paid for options
purchased (307,374) 338,520 (1,015,373)
Receivable from Investment in
BHM I, LLC (15,894,480) -- --
Interest receivable (MS&Co.) 419,795 249,073 (224,414)
Increase (decrease) in operating
liabilities:
Accrued brokerage fees (MS&Co.) 35,674 27,335 186,906
Accrued management fees 88,257 (57,691) 97,384
Net premiums received for options
written (286,802) 123,897 265,175
Accrued incentive fees (102,353) 102,353 (1,704,356)
------------- ----------- -----------
Net cash provided by (used for)
operating activities (62,703,578) 11,678,031 31,939,061
------------- ----------- -----------
CASH FLOWS FROM
FINANCING ACTIVITIES
Cash received from offering of Units 42,839,588 37,012,006 39,153,750
Cash paid for redemptions of Units (44,521,151) (42,547,171) (37,607,869)
------------- ----------- -----------
Net cash provided by (used for)
financing activities (1,681,563) (5,535,165) 1,545,881
------------- ----------- -----------
Net increase (decrease) in
unrestricted cash (64,385,141) 6,142,866 33,484,942
Unrestricted cash at beginning
of period 178,248,988 172,106,122 138,621,180
------------- ----------- -----------
Unrestricted cash at end of period 113,863,847 178,248,988 172,106,122
============= =========== ===========
SUPPLEMENTAL DISCLOSURE
OF NON-CASH OPERATING
ACTIVITY:
Non-Cash investment to BHM I, LLC $ 11,850,500
=============
The accompanying notes are an integral part of these financial statements.
MORGAN STANLEY SPECTRUM TECHNICAL L.P.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------
2008 2007 2006
------------ ------------ ------------
$ $ $
CASH FLOWS FROM
OPERATING ACTIVITIES
Net income (loss) 68,388,830 (103,241,824) 38,463,124
Noncash item included in net
income (loss):
Net change in unrealized (5,557,697) 20,612,964 (9,754,954)
(Increase) decrease in operating
assets:
Restricted cash 41,164,626 60,586,030 21,648,903
Net premiums paid for options
purchased 245,350 (143,797) (148,934)
Interest receivable (MS&Co.) 1,197,529 1,337,147 (651,160)
Increase (decrease) in operating
liabilities:
Accrued brokerage fees (MS&Co.) (273,709) (754,700) (81,816)
Accrued management fees 33,990 (652,140) (21,993)
Accrued incentive fees 429,791 261,283 --
Net premiums received for
options written 5,985 77,485 86,561
------------ ------------ ------------
Net cash provided by (used for)
operating activities 105,634,695 (21,917,552) 49,539,731
------------ ------------ ------------
CASH FLOWS FROM
FINANCING ACTIVITIES
Cash received from offering
of Units 49,051,224 69,654,462 128,704,132
Cash paid for redemptions
of Units (159,649,850) (141,490,455) (143,586,833)
------------ ------------ ------------
Net cash used for financing
activities (110,598,626) (71,835,993) (14,882,701)
------------ ------------ ------------
Net increase (decrease) in
unrestricted cash (4,963,931) (93,753,545) 34,657,030
Unrestricted cash at beginning
of period 522,722,048 616,475,593 581,818,563
------------ ------------ ------------
Unrestricted cash at end of period 517,758,117 522,722,048 616,475,593
============ ============ ============
The accompanying notes are an integral part of these financial statements.
MORGAN STANLEY SPECTRUM CURRENCY L.P.
CONDENSED SCHEDULES OF INVESTMENTS
DECEMBER 31, 2008 AND 2007
LONG UNREALIZED PERCENTAGE SHORT UNREALIZED PERCENTAGE NET UNREALIZED
FUTURES AND FORWARD CONTRACTS: GAIN/(LOSS) OF NET ASSETS GAIN/(LOSS) OF NET ASSETS GAIN/(LOSS)
- ------------------------------ --------------- ------------- ---------------- ------------- --------------
$ % $ % $
2008 PARTNERSHIP NET ASSETS: $88,423,138
Foreign currency 79,116 0.09 (613,982) (0.69) (534,866)
------ ---- -------- ----- --------
Grand Total: 79,116 0.09 (613,982) (0.69) (534,866)
====== ==== ======== =====
Unrealized Currency Gain 130,959
--------
Total Net Unrealized Loss (403,907)
========
FAIR VALUE % OF NAV
--------------- -------------
$ %
Options purchased on Futures Contacts -- --
Options purchased on Forward Contracts 251 --
Options written on Futures Contracts -- --
Options written on Forward Contracts (251) --
MORGAN STANLEY SPECTRUM CURRENCY L.P.
CONDENSED SCHEDULES OF INVESTMENTS
DECEMBER 31, 2008 AND 2007 (Continued)
LONG UNREALIZED PERCENTAGE SHORT UNREALIZED PERCENTAGE NET UNREALIZED
FUTURES AND FORWARD CONTRACTS: GAIN/(LOSS) OF NET ASSETS GAIN/(LOSS) OF NET ASSETS GAIN/(LOSS)
- ------------------------------ --------------- ------------- ---------------- ------------- --------------
$ % $ % $
2007 PARTNERSHIP NET ASSETS: $107,327,744
Foreign currency (1,197,592) (1.12) (216,586) (0.20) (1,414,178)
---------- ----- -------- ----- ----------
Grand Total: (1,197,592) (1.12) (216,586) (0.20) (1,414,178)
========== ===== ======== =====
Unrealized Currency Gain 16,955
----------
Total Net Unrealized Loss (1,397,223)
==========
FAIR VALUE % OF NAV
---------- --------
$ %
Options purchased on Futures Contracts -- --
Options purchased on Forward Contracts 14,874 0.01
Options written on Futures Contracts -- --
Options written on Forward Contracts (370,766) (0.35)
The accompanying notes are an integral part of these financial statements.
MORGAN STANLEY SPECTRUM GLOBAL BALANCED L.P.
CONDENSED SCHEDULES OF INVESTMENTS
DECEMBER 31, 2008 AND 2007
LONG UNREALIZED PERCENTAGE SHORT UNREALIZED PERCENTAGE NET UNREALIZED
FUTURES AND FORWARD CONTRACTS: GAIN OF NET ASSETS GAIN/(LOSS) OF NET ASSETS GAIN
- ------------------------------ --------------- ------------- ---------------- ------------- --------------
$ % $ % $
2008 PARTNERSHIP NET ASSETS: $30,377,475
Commodity 162,741 0.53 711,615 2.34 874,356
Equity 23,152 0.08 (334) -- 22,818
Foreign currency 167,729 0.55 63,032 0.21 230,761
Interest rate 1,089,765 3.59 -- -- 1,089,765
--------- ---- ------- ---- ---------
Grand Total: 1,443,387 4.75 774,313 2.55 2,217,700
========= ==== ======= ====
Unrealized Currency Gain 691,687
---------
Total Net Unrealized Gain 2,909,387
=========
MORGAN STANLEY SPECTRUM GLOBAL BALANCED L.P.
CONDENSED SCHEDULES OF INVESTMENTS
DECEMBER 31, 2008 AND 2007 (Continued)
LONG UNREALIZED PERCENTAGE SHORT UNREALIZED PERCENTAGE NET UNREALIZED
FUTURES AND FORWARD CONTRACTS: GAIN OF NET ASSETS GAIN/(LOSS) OF NET ASSETS GAIN
- ------------------------------ --------------- ------------- ---------------- ------------- --------------
$ % $ % $
2007 PARTNERSHIP NET ASSETS: $34,911,510
Commodity 470,579 1.35 (231,598) (0.66) 238,981
Equity 39,676 0.11 14,086 0.04 53,762
Foreign currency 93,607 0.27 (81,613) (0.23) 11,994
Interest rate 50,139 0.14 8,688 0.02 58,827
------- ---- -------- ----- -------
Grand Total: 654,001 1.87 (290,437) (0.83) 363,564
======= ==== ======== =====
Unrealized Currency Gain 590,705
-------
Total Net Unrealized Gain 954,269
=======
FAIR VALUE % OF NAV
---------- --------
$ %
Options purchased on Futures Contracts -- --
Options purchased on Forward Contracts 5,592 0.02
Options written on Futures Contracts -- --
Options written on Forward Contracts -- --
The accompanying notes are an integral part of these financial statements.
MORGAN STANLEY SPECTRUM SELECT L.P.
CONDENSED SCHEDULES OF INVESTMENTS
DECEMBER 31, 2008 AND 2007
LONG UNREALIZED PERCENTAGE SHORT UNREALIZED PERCENTAGE NET UNREALIZED
FUTURES AND FORWARD CONTRACTS: GAIN/(LOSS) OF NET ASSETS GAIN/(LOSS) OF NET ASSETS GAIN/(LOSS)
- ------------------------------ --------------- ------------- ---------------- ------------- --------------
$ % $ % $
2008 Partnership Net Assets: $605,884,378
Commodity 838,755 0.14 11,613,498 1.92 12,452,253
Equity 145,512 0.02 (39,608) (0.01) 105,904
Foreign currency (318,118) (0.05) 453,250 0.07 135,132
Interest rate 14,885,639 2.46 2,078 -- 14,887,717
---------- ----- ---------- ----- ----------
Grand Total: 15,551,788 2.57 12,029,218 1.98 27,581,006
========== ===== ========== =====
Unrealized Currency Loss (1,535,242)
----------
Total Net Unrealized Gain 26,045,764
==========
MORGAN STANLEY SPECTRUM SELECT L.P.
CONDENSED SCHEDULES OF INVESTMENTS
DECEMBER 31, 2008 AND 2007 (Continued)
LONG UNREALIZED PERCENTAGE SHORT UNREALIZED PERCENTAGE NET UNREALIZED
FUTURES AND FORWARD CONTRACTS: GAIN/(LOSS) OF NET ASSETS GAIN/(LOSS) OF NET ASSETS GAIN/(LOSS)
- ------------------------------ --------------- ------------- ---------------- ------------- --------------
$ % $ % $
2007 PARTNERSHIP NET ASSETS: $523,178,555
Commodity 7,709,875 1.47 (680,641) (0.13) 7,029,234
Equity 217,470 0.04 753,313 0.14 970,783
Foreign currency (2,792,089) (0.53) 1,293,820 0.25 (1,498,269)
Interest rate 3,108,440 0.59 137,198 0.03 3,245,638
---------- ----- --------- ----- ----------
Grand Total: 8,243,696 1.57 1,503,690 0.29 9,747,386
========== ===== ========= =====
Unrealized Currency Loss (84,968)
----------
Total Net Unrealized Gain 9,662,418
==========
FAIR VALUE % OF NAV
---------- --------
$ %
Options purchased on Futures Contracts -- --
Options purchased on Forward Contracts 324,788 0.06
Options written on Futures Contracts -- --
Options written on Forward Contracts -- --
The accompanying notes are an integral part of these financial statements.
MORGAN STANLEY SPECTRUM STRATEGIC L.P.
CONDENSED SCHEDULES OF INVESTMENTS
DECEMBER 31, 2008 AND 2007
LONG UNREALIZED PERCENTAGE SHORT UNREALIZED PERCENTAGE NET UNREALIZED
FUTURES AND FORWARD CONTRACTS: GAIN OF NET ASSETS LOSS OF NET ASSETS GAIN/(LOSS)
- ------------------------------ --------------- ------------- ---------------- ------------- --------------
$ % $ % $
2008 PARTNERSHIP NET ASSETS: $214,856,944
Commodity 1,854,894 0.86 (124,468) (0.06) 1,730,426
Equity 20,337 0.01 (16,805) (0.01) 3,532
Foreign currency 1,089,344 0.51 (453,017) (0.21) 636,327
Interest rate 426,800 0.20 -- -- 426,800
--------- ---- -------- ----- ---------
Grand Total: 3,391,375 1.58 (594,290) (0.28) 2,797,085
========= ==== ======== =====
Unrealized Currency Loss (792,421)
---------
Total Net Unrealized Gain 2,004,664
=========
FAIR VALUE % OF NAV
---------- --------
$ %
Options purchased on Futures Contracts -- --
Options purchased on Forward Contracts 790,178 0.37
Options written on Futures Contracts -- --
Options written on Forward Contracts (201,784) (0.09)
MORGAN STANLEY SPECTRUM STRATEGIC L.P.
CONDENSED SCHEDULES OF INVESTMENTS
DECEMBER 31, 2008 AND 2007 (Continued)
LONG UNREALIZED PERCENTAGE SHORT UNREALIZED PERCENTAGE NET UNREALIZED
FUTURES AND FORWARD CONTRACTS: GAIN/(LOSS) OF NET ASSETS GAIN/(LOSS) OF NET ASSETS GAIN/(LOSS)
- ------------------------------ --------------- ------------- ---------------- ------------- --------------
$ % $ % $
2007 PARTNERSHIP NET ASSETS: $215,528,061
Commodity 9,844,381 4.57 198,830 0.09 10,043,211
Equity 385,124 0.18 -- -- 385,124
Foreign currency (419,220) (0.19) (963,091) (0.45) (1,382,311)
Interest rate 1,106,823 0.51 (129,982) (0.06) 976,841
---------- ----- -------- ----- ----------
Grand Total: 10,917,108 5.07 (894,243) (0.42) 10,022,865
========== ===== ======== =====
Unrealized Currency Loss (129,856)
----------
Total Net Unrealized Gain 9,893,009
==========
FAIR VALUE % OF NAV
---------- --------
$ %
Options purchased on Futures Contracts -- --
Options purchased on Forward Contracts 695,481 0.32
Options written on Futures Contracts -- --
Options written on Forward Contracts (314,263) (0.15)
The accompanying notes are an integral part of these financial statements.
MORGAN STANLEY SPECTRUM TECHNICAL L.P.
CONDENSED SCHEDULES OF INVESTMENTS
DECEMBER 31, 2008 AND 2007
LONG UNREALIZED PERCENTAGE SHORT UNREALIZED PERCENTAGE NET UNREALIZED
FUTURES AND FORWARD CONTRACTS: GAIN OF NET ASSETS GAIN/(LOSS) OF NET ASSETS GAIN/(LOSS)
- ------------------------------ --------------- ------------- ---------------- ------------- --------------
$ % $ % $
2008 PARTNERSHIP NET ASSETS: $520,809,547
Commodity 780,334 0.15 501,033 0.10 1,281,367
Equity 16,503 0.00 (328,487) (0.06) (311,984)
Foreign currency 2,287,038 0.44 (2,652,344) (0.51) (365,306)
Interest rate 11,905,805 2.28 (96,679) (0.02) 11,809,126
---------- ----- ---------- ----- ----------
Grand Total: 14,989,680 2.87 (2,576,477) (0.49) 12,413,203
========== ===== ========== =====
Unrealized Currency Gain 4,352,200
----------
Total Net Unrealized Gain 16,765,403
==========
FAIR VALUE % NAV
--------------- -------------
$ %
Options purchased on Futures Contracts -- --
Options purchased on Forward Contracts 26,406 0.01
Options written on Futures Contracts -- --
Options written on Forward Contracts (150,636) (0.03)
MORGAN STANLEY SPECTRUM TECHNICAL L.P.
CONDENSED SCHEDULES OF INVESTMENTS
DECEMBER 31, 2008 AND 2007 (Continued)
LONG UNREALIZED PERCENTAGE SHORT UNREALIZED PERCENTAGE NET UNREALIZED
FUTURES AND FORWARD CONTRACTS: GAIN/(LOSS) OF NET ASSETS GAIN/(LOSS) OF NET ASSETS GAIN/(LOSS)
- ------------------------------ --------------- ------------- ---------------- ------------- --------------
$ % $ % $
2007 PARTNERSHIP NET ASSETS: $578,899,658
Commodity 7,755,544 1.34 (145,413) (0.02) 7,610,131
Equity 823,775 0.14 427,342 0.07 1,251,117
Foreign currency (2,366,832) (0.41) (653,532) (0.11) (3,020,364)
Interest rate 1,669,779 0.29 (147,183) (0.03) 1,522,596
---------- ----- -------- ----- ----------
Grand Total: 7,882,266 1.36 (518,786) (0.09) 7,363,480
========== ===== ======== =====
Unrealized Currency Gain 3,847,648
----------
Total Net Unrealized Gain 11,211,128
==========
FAIR VALUE % OF NAV
--------------- -------------
$ %
Options purchased on Futures Contracts -- --
Options purchased on Forward Contracts 219,718 0.04
Options written on Futures Contracts -- --
Options written on Forward Contracts (96,035) (0.02)
The accompanying notes are an integral part of these financial statements.
MORGAN STANLEY SPECTRUM SERIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION. Morgan Stanley Spectrum Currency L.P. ("Spectrum Currency"),
Morgan Stanley Spectrum Global Balanced L.P. ("Spectrum Global Balanced"),
Morgan Stanley Spectrum Select L.P. ("Spectrum Select"), Morgan Stanley
Spectrum Strategic L.P. ("Spectrum Strategic"), and Morgan Stanley Spectrum
Technical L.P. ("Spectrum Technical") (individually, a "Partnership", or
collectively, the "Partnerships"), are limited partnerships organized to engage
primarily in the speculative trading of futures contracts, options on futures
and forward contracts, and forward contracts on physical commodities and other
commodity interests, including, but not limited to, foreign currencies,
financial instruments, metals, energy, and agricultural products (collectively,
"Futures Interests").
The Partnerships may buy or write put and call options through listed
exchanges and the over-the-counter market. The buyer of an option has the right
to purchase (in the case of a call option) or sell (in the case of a put
option) a specified quantity of a specific Futures Interest or underlying asset
at a specified price prior to or on a specified expiration date. The writer of
an option is exposed to the risk of loss if the market price of a Futures
Interest or underlying asset declines (in the case of a put option) or
increases (in the case of a call option). The writer of an option can never
profit by more than the premium paid by the buyer but can lose an unlimited
amount.
Premiums received/premiums paid from writing/purchasing options are recorded
as liabilities/assets on the Statements of Financial Condition and are
subsequently adjusted to fair values. The difference between the fair value of
an option and the premiums received/premiums paid is treated as an unrealized
gain or loss.
MORGAN STANLEY SPECTRUM SERIES
NOTES TO FINANCIAL STATEMENTS
(continued)
The general partner of each Partnership is Demeter Management Corporation
("Demeter"). The commodity brokers for Spectrum Global Balanced, Spectrum
Select, Spectrum Strategic, and Spectrum Technical are Morgan Stanley & Co.
Incorporated ("MS&Co.") and Morgan Stanley & Co. International plc ("MSIP").
Spectrum Currency's commodity broker is MS&Co. MS&Co. acts as the counterparty
on all trading of foreign currency forward contracts. Morgan Stanley Capital
Group Inc. ("MSCG") acts as the counterparty on all trading of options on
foreign currency forward contracts. Demeter, MS&Co., MSIP, and MSCG are
wholly-owned subsidiaries of Morgan Stanley.
On January 1, 2008, the portion of Spectrum Strategic'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 and managed by Blenheim to invest together in one trading vehicle and
to promote efficiency and economy in the trading process. Demeter is the
trading manager of BHM I, LLC. Spectrum Strategic's allocation to Blenheim is
effected by investing substantially all of the capital that is allocated to
Blenheim in BHM I, LLC. There is no material change to the investors as a
result of the investment in BHM I, LLC.
Effective February 29, 2008, Demeter terminated the management agreement by
and among Demeter, Spectrum Global Balanced, and Cornerstone Quantitative
Investment Group, Inc. ("Cornerstone"). Consequently, Cornerstone ceased all
Futures Interests trading on behalf of Spectrum Global Balanced as of February
29, 2008.
Effective February 29, 2008, Demeter terminated the management agreement by
and among Demeter, Spectrum Strategic, and Cornerstone. Consequently,
Cornerstone ceased all Futures Interests trading on behalf of Spectrum
Strategic as of February 29, 2008.
MORGAN STANLEY SPECTRUM SERIES
NOTES TO FINANCIAL STATEMENTS
(continued)
On April 1, 2007, Morgan Stanley merged Morgan Stanley DW Inc. ("Morgan
Stanley DW") into MS&Co. Upon completion of the merger, the surviving entity,
MS&Co., became the Partnerships' principal U.S. commodity broker-dealer.
On April 13, 2007, Morgan Stanley & Co. International Limited changed its
name to Morgan Stanley & Co. International plc.
Demeter is required to maintain a 1% minimum interest in the equity of each
Partnership and income (losses) are shared by Demeter and the limited partners
based upon their proportional ownership interests.
USE OF ESTIMATES. The financial statements are prepared in accordance with
accounting principles generally accepted in the United States of America, which
require management to make estimates and assumptions that affect the reported
amounts in the financial statements and related disclosures. Management
believes that the estimates utilized in the preparation of the financial
statements are prudent and reasonable. Actual results could differ from those
estimates.
REVENUE RECOGNITION. Futures Interests are open commitments until settlement
date, at which time they are realized. They are valued at fair value, generally
on a daily basis, and the unrealized gains and losses on open contracts (the
difference between contract trade price and market price) are reported in the
Statements of Financial Condition as a net unrealized gain or loss on open
contracts. The resulting net change in unrealized gains and losses is reflected
in the change in unrealized trading profit (loss) on open contracts from one
period to the next on the Statements of Operations. The fair value of
exchange-traded futures, options and forwards contracts is determined by the
various futures exchanges, and reflects the settlement price for each contract
as of the close of business on the last business day of the reporting period.
The fair value of foreign currency forward contracts is extrapolated on a
forward basis from the spot prices quoted as of approximately 3:00 P.M. (E.T.)
of the last business day of the reporting period. 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
MORGAN STANLEY SPECTRUM SERIES
NOTES TO FINANCIAL STATEMENTS
(continued)
input, the spot prices, interest rates, and option implied volatilities quoted
as of approximately 3:00 P.M. (E.T.) on the last business day of the reporting
period. 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% of the funds on deposit in the
case of Spectrum Global Balanced. For purposes of such interest payments, Net
Assets do not include monies owed to the Partnerships on Futures Interests.
The Partnerships' functional currency is the U.S. dollar; however, the
Partnerships may transact business in currencies other than the U.S. dollar.
Assets and liabilities denominated in currencies other than the U.S. dollar are
translated into U.S. dollars at the rates in effect at the date of the
Statements of Financial Condition. Income and expense items denominated in
currencies other than the U.S. dollar are translated into U.S. dollars at the
rates in effect during the period. Gains and losses resulting from the
translation to U.S. dollars are reported in income currently.
NET INCOME (LOSS) PER UNIT. Net income (loss) per unit of limited partnership
interest ("Unit(s)") is computed using the weighted average number of Units
outstanding during the period.
TRADING EQUITY. The Partnerships' asset "Trading Equity," reflected on the
Statements of Financial Condition, consists of (A) cash on deposit with MS&Co.
and MSIP for Spectrum Global Balanced, Spectrum Select, Spectrum Strategic, and
Spectrum Technical, and with MS&Co. for Spectrum Currency, to be used as margin
for trading; (B) net unrealized gains or losses on futures and forward
contracts, which are valued at fair value and calculated as the difference
between original contract value and fair value; and for Partnerships which
trade in options, (C) options purchased at fair value. Options written at fair
value are recorded in "Liabilities."
The Partnerships, in their normal course of business, enter into various
contracts with MS&Co. and MSIP acting as their commodity brokers. Pursuant to
brokerage agreements with MS&Co. and MSIP, to the
MORGAN STANLEY SPECTRUM SERIES
NOTES TO FINANCIAL STATEMENTS
(continued)
extent that such trading results in unrealized gains or losses, these amounts
are offset and reported on a net basis on the Partnerships' Statements of
Financial Condition.
The Partnerships have offset the fair value amounts recognized for forward
contracts executed with the same counterparty as allowable under the terms of
their master netting agreement with MS&Co., as the counterparty on such
contracts. The Partnerships have consistently applied their right to offset.
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 and offset losses on offset
London Metal Exchange positions. All of these amounts are maintained
separately. Cash that is not classified as restricted cash is therefore
classified as unrestricted cash.
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 brokerage fees currently cover all brokerage fees, transaction fees and
costs, and ordinary administrative and continuing offering expenses.
OPERATING EXPENSES. The Partnerships incur monthly management fees and may
incur incentive fees. All common administrative and continuing offering
expenses including legal, auditing, accounting, filing fees, and other related
expenses are borne by MS&Co. through the brokerage fees paid by the
Partnerships.
CONTINUING OFFERING. Units of each Partnership were 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 were paid by the limited partners or the Partnerships. MS&Co.
paid all such costs. Effective December 1, 2008, the Partnerships no longer
offered Units for purchase or exchange.
MORGAN STANLEY SPECTRUM SERIES
NOTES TO FINANCIAL STATEMENTS
(continued)
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 became 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 occurred more than six
months after a person first became a limited partner in any of the
Partnerships, and at the end of each month thereafter, limited partners were
able to 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 no longer
offer Units for purchase or exchange.
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.
MORGAN STANLEY SPECTRUM SERIES
NOTES TO FINANCIAL STATEMENTS
(continued)
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. The Partnerships file U.S. federal and
state tax returns.
Management has continued to evaluate the application of Financial Accounting
Standards Board (the "FASB") Interpretation No. 48, "Accounting for Uncertainty
in Income Taxes--an interpretation of FASB Statement No. 109" (FIN 48), to the
Partnerships, and has determined that FIN 48 does not have a material impact on
the Partnerships' financial statements. The 2005 through 2008 tax years
generally remain subject to examination by U.S. federal and most state tax
authorities.
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.
RECLASSIFICATIONS. Certain 2006 amounts relating to cash balances were
reclassified on the Statements of Cash Flows to conform to 2007 and 2008
presentation. Such reclassifications have no impact on the Partnerships'
reported net income (loss).
NEW ACCOUNTING DEVELOPMENTS. In March 2008, the FASB issued Statement of
Financial Accounting Standards ("SFAS") No. 161, "Disclosures about Derivative
Instruments and Hedging Activities" ("SFAS 161"). SFAS 161 is intended to
improve financial reporting about derivative instruments and hedging activities
by requiring enhanced disclosures to enable investors to better understand how
those instruments and activities are accounted for; how and why they are used;
and their effects on a Partnership's financial position, financial performance,
and cash flows. SFAS 161 is effective for financial statements issued for
fiscal years beginning after November 15, 2008, and interim periods within
those fiscal years. The Partnerships are currently evaluating the impact of the
adoption of SFAS 161.
MORGAN STANLEY SPECTRUM SERIES
NOTES TO FINANCIAL STATEMENTS
(continued)
In September 2008, the FASB issued FASB Staff Position ("FSP") Financial
Accounting Standards ("FAS") No. 133-1 and FIN 45-4, Disclosures about Credit
Derivatives and Certain Guarantees: An Amendment of FASB Statement No. 133 and
FASB Interpretation No. 45; and Clarification of the Effective Date of FASB
Statement No. 161 ("FSP FAS No. 133-1 and FIN 45-4"). FSP FAS No. 133-1 and FIN
45-4 is intended to improve disclosures about credit derivatives by requiring
more information about the potential adverse effects of changes in credit risk
on the financial position, financial performance, and cash flows of the sellers
of credit derivatives. The FSP is effective for financial statements issued for
reporting periods ending after November 15, 2008. The Partnerships are
currently evaluating the impact of adopting FSP FAS No. 133-1 and FIN 45-4.
In October 2008, the FASB issued FSP FAS No. 157-3, Determining the Fair
Value of a Financial Asset When the Market for That Asset is Not Active ("FSP
FAS No. 157-3"). FSP FAS No. 157-3 clarifies the application of SFAS No. 157 in
a market that is not active and provides an example to illustrate key
considerations in determining the fair value of a financial asset when the
market for the financial asset is not active. FSP FAS No. 157-3 is effective
upon issuance, including prior periods for which financial statements have not
been issued. The issuance of FSP FAS No. 157-3 did not have a material impact
on the Partnerships' financial statements.
- --------------------------------------------------------------------------------
2. INVESTMENT IN BHM I, LLC
Effective January 1, 2008, Spectrum Strategic invested a portion of its assets
in BHM I, LLC. Spectrum Strategic's investment in BHM I, LLC represents
approximately 42.07% of the net asset value of Spectrum Strategic at December
31, 2008.
Summarized information for Spectrum Strategic's investment in BHM I, LLC as
of December 31, 2008, is as follows:
% OF
PARTNERSHIP FAIR TOTAL MANAGEMENT INCENTIVE ADMINISTRATIVE
INVESTMENT NET ASSETS VALUE INCOME FEES FEES FEES
- ---------- ----------- ---------- ---------- ---------- --------- --------------
% $ $ $ $ $
BHM I,
LLC 42.07 90,392,390 15,807,625 -- -- --
Spectrum Strategic's investment into BHM I, LLC does not pay any management,
incentive, or administrative fee. Those fees are paid by Spectrum Strategic.
MORGAN STANLEY SPECTRUM SERIES
NOTES TO FINANCIAL STATEMENTS
(continued)
- --------------------------------------------------------------------------------
3. RELATED PARTY TRANSACTIONS
Each Partnership pays brokerage fees to MS&Co. (Morgan Stanley DW through March
31, 2007) as described in Note 1. Spectrum Global Balanced, Spectrum Select,
Spectrum Strategic, and Spectrum Technical's cash is on deposit with Morgan
Stanley DW (through March 31, 2007), MS&Co., and MSIP, and Spectrum Currency's
cash is on deposit with Morgan Stanley DW (through March 31, 2007) and MS&Co.,
in futures interests trading accounts to meet margin requirements as needed.
MS&Co. (Morgan Stanley DW through March 31, 2007) pays interest on these funds
as described in Note 1.
- --------------------------------------------------------------------------------
4. TRADING ADVISORS
Demeter, on behalf of each Partnership, retains certain commodity trading
advisors to make all trading decisions for the Partnerships. The trading
advisors for each Partnership at December 31, 2008 were as follows:
Morgan Stanley Spectrum Currency L.P.
C-View International Limited ("C-View")
DKR Fusion Management L.P. ("DKR")
FX Concepts Trading Advisor, Inc. ("FX Concepts")
John W. Henry & Company, Inc. ("JWH")
Sunrise Capital Partners, LLC ("Sunrise")
Morgan Stanley Spectrum Global Balanced L.P.
Altis Partners (Jersey) Limited ("Altis")
C-View International Limited
SSARIS Advisors, LLC ("SSARIS")
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.
Morgan Stanley Spectrum Strategic L.P.
Blenheim Capital Management, L.L.C. ("Blenheim")
Eclipse Capital Management, Inc. ("Eclipse")
FX Concepts Trading Advisor, Inc.
Morgan Stanley Spectrum Technical L.P.
Aspect Capital Limited ("Aspect")
MORGAN STANLEY SPECTRUM SERIES
NOTES TO FINANCIAL STATEMENTS
(continued)
Campbell & Company, Inc. ("Campbell")
Chesapeake Capital Corporation ("Chesapeake")
John W. Henry & Company, Inc.
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).
Prior to August 1, 2008, Spectrum Global Balanced accrued management fees at
a rate of 1/12 of 1.75% per month of Net Assets allocated to Altis on the
first day of each month (a 1.75% annual rate).
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).
Prior to August 1, 2008, Spectrum Select accrued management fees at a rate of
1/12 of 1.75% per month of Net Assets allocated to Altis on the first day of
each month (a 1.75% annual rate).
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).
MORGAN STANLEY SPECTRUM SERIES
NOTES TO FINANCIAL STATEMENTS
(continued)
The management fee for Spectrum Technical is accrued at a rate of 1/6 of 1%
per month of Net Assets allocated to Aspect, 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).
For the period of September 1, 2007, through December 31, 2007, Chesapeake
waived the management fee it receives from Spectrum Technical. Effective
January 1, 2008, Spectrum Technical pays Chesapeake a monthly management fee
equal to 1/6 of 1% of its Net Assets allocated to Chesapeake on the first day
of each month (a 2% annual rate). Prior to September 1, 2007, Spectrum
Technical paid Chesapeake a monthly management fee equal to 1/4 of 1% of its
Net Assets allocated to Chesapeake on the first day of each month (a 3% annual
rate).
INCENTIVE FEE. Spectrum Currency pays a monthly incentive fee equal to 20% of
the trading profits experienced with respect to each trading advisor's
allocated Net Assets as of the end of each calendar month.
Spectrum Global Balanced pays a monthly incentive fee equal to 15% of the
trading profits experienced with respect to the Net Assets allocated to SSARIS
as of the end of each calendar month, and 20% of the trading profits
experienced with respect to the Net Assets allocated to Altis 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.
MORGAN STANLEY SPECTRUM SERIES
NOTES TO FINANCIAL STATEMENTS
(continued)
Spectrum Technical pays a monthly incentive fee equal to 19% of the trading
profits experienced with respect to the Net Assets allocated to Chesapeake as
of the end of each calendar month, and 20% of the trading profits experienced
with respect to the Net Assets allocated to each of Aspect, Campbell, JWH,
Rotella, and Winton as of the end of each calendar month.
Trading profits represent the amount by which profits from futures, forwards,
and options trading exceed losses after brokerage and management fees are
deducted.
For all trading advisors with trading losses, no incentive fee is paid in
subsequent months until all such losses are recovered. Cumulative trading
losses are adjusted on a pro-rata basis for the net amount of each month's
redemptions.
- --------------------------------------------------------------------------------
5. FINANCIAL INSTRUMENTS
The Partnerships trade Futures Interests. Futures and forwards represent
contracts for delayed delivery of an instrument at a specified date and price.
Risk arises from changes in the value of these contracts and the potential
inability of counterparties to perform under the terms of the contracts. There
are numerous factors which may significantly influence the fair value of these
contracts, including interest rate volatility.
The fair value of exchange-traded contracts is based on the settlement price
quoted by the exchange on the day with respect to which fair value is being
determined. If an exchange-traded contract could not have been liquidated on
such day due to the operation of daily limits or other rules of the exchange,
the settlement price shall be 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.
MORGAN STANLEY SPECTRUM SERIES
NOTES TO FINANCIAL STATEMENTS
(continued)
The Partnerships' contracts are accounted for on a trade-date basis and
marked to market on a daily basis. Each Partnership accounts for its derivative
investments in accordance with the provisions of SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133
defines a derivative as a financial instrument or other contract that has all
three of the following characteristics:
(1)One or more underlying notional amounts or payment provisions;
(2)Requires no initial net investment or a smaller initial net investment than
would be required relative to changes in market factors;
(3)Terms require or permit net settlement.
Generally, derivatives include futures, forward, swap or options contracts,
and other financial instruments with similar characteristics such as caps,
floors, and collars.
The net unrealized gains (losses) on open contracts at December 31, reported
as a component of "Trading Equity" on the Statements of Financial Condition,
and their longest contract maturities were as follows:
SPECTRUM CURRENCY
NET UNREALIZED LOSSES
ON OPEN CONTRACTS LONGEST MATURITIES
-------------------------------- -------------------
OFF- OFF-
EXCHANGE- EXCHANGE- EXCHANGE- EXCHANGE-
YEAR TRADED TRADED TOTAL TRADED TRADED
---- --------- ---------- ---------- --------- ---------
$ $ $
2008 -- (403,907) (403,907) -- Apr. 2009
2007 -- (1,397,223) (1,397,223) -- Mar. 2008
SPECTRUM GLOBAL BALANCED
NET UNREALIZED GAINS
ON OPEN CONTRACTS LONGEST MATURITIES
----------------------------- -------------------
OFF- OFF-
EXCHANGE- EXCHANGE- EXCHANGE- EXCHANGE-
YEAR TRADED TRADED TOTAL TRADED TRADED
---- --------- --------- --------- --------- ---------
$ $ $
2008 2,853,299 56,088 2,909,387 Jun. 2010 Apr. 2009
2007 898,616 55,653 954,269 Jun. 2009 Mar. 2008
SPECTRUM SELECT
NET UNREALIZED GAINS/(LOSSES)
ON OPEN CONTRACTS LONGEST MATURITIES
--------------------------------- -------------------
OFF- OFF-
EXCHANGE- EXCHANGE- EXCHANGE- EXCHANGE-
YEAR TRADED TRADED TOTAL TRADED TRADED
---- ---------- ---------- ---------- --------- ---------
$ $ $
2008 27,202,139 (1,156,375) 26,045,764 Jun. 2010 Mar. 2009
2007 10,381,304 (718,886) 9,662,418 Jun. 2009 Mar. 2008
MORGAN STANLEY SPECTRUM SERIES
NOTES TO FINANCIAL STATEMENTS
(continued)
SPECTRUM STRATEGIC
NET UNREALIZED GAINS/(LOSSES)
ON OPEN CONTRACTS LONGEST MATURITIES
-------------------------------- -------------------
OFF- OFF-
EXCHANGE- EXCHANGE- EXCHANGE- EXCHANGE-
YEAR TRADED TRADED TOTAL TRADED TRADED
---- ---------- ---------- --------- --------- ---------
$ $ $
2008 1,271,965 732,699 2,004,664 Jun. 2009 Mar. 2009
2007 11,568,520 (1,675,511) 9,893,009 Dec. 2011 Nov. 2008
SPECTRUM TECHNICAL
NET UNREALIZED GAINS/(LOSSES)
ON OPEN CONTRACTS LONGEST MATURITIES
--------------------------------- -------------------
OFF- OFF-
EXCHANGE- EXCHANGE- EXCHANGE- EXCHANGE-
YEAR TRADED TRADED TOTAL TRADED TRADED
---- ---------- ---------- ---------- --------- ---------
$ $ $
2008 16,274,500 490,903 16,765,403 Mar. 2012 Mar. 2009
2007 14,510,132 (3,299,004) 11,211,128 Jun. 2010 Mar. 2008
The Partnerships have credit risk associated with counterparty
nonperformance. As of the date of the financial statements, the credit risk
associated with the instruments in which the Partnerships trade is limited to
the amounts reflected in the Partnerships' Statements of Financial Condition.
The Partnerships also have credit risk because MS&Co., MSIP, and/or MSCG act
as the futures commission merchants or the counterparties, with respect to most
of the Partnerships' assets. Exchange-traded futures, exchange-traded forward,
and exchange-traded futures-styled options contracts are marked to market on a
daily basis, with variations in value settled on a daily basis. MS&Co. and
MSIP, each acting as a commodity broker for each Partnership's exchange-traded
futures, exchange-traded forward, and exchange-traded futures-styled options
contracts, are required, pursuant to regulations of the Commodity Futures
Trading Commission, to segregate from their own assets, and for the sole
benefit of their commodity customers, all funds held by them with respect to
exchange-traded futures, exchange-traded forward, and exchange-traded
futures-styled options contracts, including an amount equal to the net
unrealized gains (losses) on all open exchange-traded futures, exchange-traded
forward, and exchange-traded futures-styled options contracts, which funds, in
the aggregate, totaled at December 31, 2008 and 2007, respectively, $32,204,152
and $35,308,073 for Spectrum Global Balanced, $637,596,962 and $530,181,326 for
Spectrum Select, $117,311,735 and $217,469,564 for Spectrum Strategic, and
$548,229,393 and $592,593,582 for
MORGAN STANLEY SPECTRUM SERIES
NOTES TO FINANCIAL STATEMENTS
(continued)
Spectrum Technical. With respect to each Partnership's off-exchange-traded
forward currency contracts and forward currency options contracts, there are no
daily settlements of variation in value, nor is there any requirement that an
amount equal to the net unrealized gains (losses) on such contracts be
segregated. However, each Partnership is required to meet margin requirements
equal to the net unrealized loss on open forward currency contracts in the
Partnership accounts with the counterparty, which is accomplished by daily
maintenance of the cash balance in a custody account held at MS&Co. With
respect to those off-exchange-traded forward currency contracts, the
Partnerships are at risk to the ability of MS&Co., the sole counterparty on all
such contracts, to perform. With respect to those off-exchange-traded forward
currency options contracts, the Partnerships are at risk to the ability of
MSCG, the sole counterparty on all such contracts, to perform. Each Partnership
has a netting agreement with each counterparty. These agreements, which seek to
reduce both the Partnerships' and the counterparties' exposure on
off-exchange-traded forward currency contracts, 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.
In September 2006, the FASB issued SFAS No. 157 ("SFAS 157"), "Fair Value
Measurements". Fair value is the amount that would be recovered when an asset
is sold or an amount paid to transfer a liability, in an ordinary transaction
between market participants at the measurement date (exit price). Market price
observability is impacted by a number of factors, including the types of
investments, the characteristics specific to the investment, and the state of
the market price (including the existence and the transparency of transactions
between market participants). Investments with readily available actively
quoted prices in an ordinary market will generally have a higher degree of
market price observability and a lesser degree of judgment used in measuring
fair value.
MORGAN STANLEY SPECTRUM SERIES
NOTES TO FINANCIAL STATEMENTS
(continued)
SFAS 157 requires use of a fair value hierarchy that prioritizes the inputs
to valuation techniques used to measure fair value into three levels: Level
1--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 quoted prices for similar investments, interest rates, credit risk);
and Level 3--unobservable inputs for the asset or liability (including the
Partnership's own assumptions used in determining the fair value of
investments).
In certain cases, the inputs used to measure fair value may fall into
different levels of the fair value hierarchy. In such cases, an investment's
level within the fair value hierarchy is based on the lowest level of input
that is significant to the fair value measurement. The Partnerships' assessment
of the significance of a particular input to the fair value measurement in its
entirety requires judgment, and considers factors specific to the investment.
The Partnerships adopted SFAS 157 as of January 1, 2008. The adoption of SFAS
157 did not have a material impact on the Partnerships' financial statements.
The following tables summarize the valuation of each Partnership's
investments by the above SFAS 157 fair value hierarchy as of December 31, 2008:
SPECTRUM CURRENCY
QUOTED PRICES SIGNIFICANT
IN ACTIVE OTHER SIGNIFICANT
MARKETS FOR OBSERVABLE UNOBSERVABLE
IDENTICAL ASSETS INPUTS INPUTS
(LEVEL 1) (LEVEL 2) (LEVEL 3) TOTAL
---------------- ----------- ------------ ---------
ASSETS
Unrealized
loss on
open
contracts -- $(403,907) n/a $(403,907)
Options
purchased -- $ 251 n/a $ 251
LIABILITIES
Options
written -- $ 251 n/a $ 251
MORGAN STANLEY SPECTRUM SERIES
NOTES TO FINANCIAL STATEMENTS
(continued)
Spectrum Global Balanced
QUOTED PRICES
IN ACTIVE SIGNIFICANT
MARKETS FOR OTHER SIGNIFICANT
IDENTICAL OBSERVABLE UNOBSERVABLE
ASSETS INPUTS INPUTS
(LEVEL 1) (LEVEL 2) (LEVEL 3) TOTAL
------------- ----------- ------------ ----------
ASSETS
Unrealized
gain on
open
contracts $2,853,299 $56,088 n/a $2,909,387
SPECTRUM SELECT
QUOTED PRICES
IN ACTIVE SIGNIFICANT
MARKETS FOR OTHER SIGNIFICANT
IDENTICAL OBSERVABLE UNOBSERVABLE
ASSETS INPUTS INPUTS
(LEVEL 1) (LEVEL 2) (LEVEL 3) TOTAL
------------- ----------- ------------ -----------
Assets
Unrealized
gain (loss)
on open
contracts $27,202,139 $(1,156,375) n/a $26,045,764
SPECTRUM STRATEGIC
QUOTED PRICES
IN ACTIVE SIGNIFICANT
MARKETS FOR OTHER SIGNIFICANT
IDENTICAL OBSERVABLE UNOBSERVABLE
ASSETS INPUTS INPUTS
(LEVEL 1) (LEVEL 2) (LEVEL 3) TOTAL
------------- ----------- ------------ -----------
ASSETS
Investment
in BHM I,
LLC -- $90,392,390 n/a $90,392,390
Unrealized
gain on
open
contracts $1,271,965 $ 732,699 n/a $ 2,004,664
Options
purchased -- $ 790,178 n/a $ 790,178
LIABILITIES
Options
written -- $ 201,784 n/a $ 201,784
SPECTRUM TECHNICAL
QUOTED PRICES
IN ACTIVE SIGNIFICANT
MARKETS FOR OTHER SIGNIFICANT
IDENTICAL OBSERVABLE UNOBSERVABLE
ASSETS INPUTS INPUTS
(LEVEL 1) (LEVEL 2) (LEVEL 3) TOTAL
------------- ----------- ------------ -----------
Assets
Unrealized
gain on
open
contracts $16,274,500 $490,903 n/a $16,765,403
Options
purchased -- $ 26,406 n/a $ 26,406
LIABILITIES
Options
written -- $150,636 n/a $ 150,636
MORGAN STANLEY SPECTRUM SERIES
NOTES TO FINANCIAL STATEMENTS
(continued)
- --------------------------------------------------------------------------------
6. FINANCIAL HIGHLIGHTS
SPECTRUM CURRENCY
2008 2007 2006
-------- -------- -------
PER UNIT OPERATING
PERFORMANCE:
NET ASSET VALUE, JANUARY 1: $ 9.84 $ 11.38 $ 11.78
-------- -------- -------
NET OPERATING RESULTS:
Interest Income 0.12 0.38 0.41
Expenses (0.73) (0.72) (0.73)
Realized Profit (Loss)/(1)/ 1.81 (0.73) 0.02
Unrealized Profit (Loss) 0.12 (0.47) (0.10)
-------- -------- -------
Net Income (Loss) 1.32 (1.54) (0.40)
-------- -------- -------
NET ASSET VALUE, DECEMBER 31: $ 11.16 $ 9.84 $ 11.38
======== ======== =======
FOR THE CALENDAR YEAR:
RATIOS TO AVERAGE NET
ASSETS:
Net Investment Loss (5.9)% (3.2)% (2.9)%
Expenses before Incentive Fees 6.7 % 6.8 % 6.7 %
Expenses after Incentive Fees 7.1 % 6.8 % 6.7 %
Net Income (Loss) 12.9 % (14.8)% (4.9)%
TOTAL RETURN BEFORE
INCENTIVE FEES 13.8 % (13.5)% (3.4)%
TOTAL RETURN AFTER
INCENTIVE FEES 13.4 % (13.5)% (3.4)%
INCEPTION-TO-DATE RETURN 11.6 %
COMPOUND ANNUALIZED
RETURN 1.3 %
SPECTRUM GLOBAL BALANCED
2008 2007 2006
------- ------- -------
PER UNIT OPERATING
PERFORMANCE:
NET ASSET VALUE, JANUARY 1: $ 15.63 $ 15.60 $ 15.23
------- ------- -------
NET OPERATING RESULTS:
Interest Income 0.22 0.71 0.74
Expenses (1.36) (0.92) (0.91)
Realized Profit/(1)/ 2.04 0.34 0.33
Unrealized Profit (Loss) 0.97 (0.10) 0.21
------- ------- -------
Net Income 1.87 0.03 0.37
------- ------- -------
NET ASSET VALUE,
DECEMBER 31: $ 17.50 $ 15.63 $ 15.60
======= ======= =======
FOR THE CALENDAR YEAR:
RATIOS TO AVERAGE NET
ASSETS:
Net Investment Loss (7.4)% (1.3)% (1.1)%
Expenses before Incentive Fees 6.3 % 5.9 % 5.9 %
Expenses after Incentive Fees 8.8 % 5.9 % 5.9 %
Net Income 10.7 % 0.1 % 2.5 %
TOTAL RETURN BEFORE
INCENTIVE FEES 14.5 % 0.2 % 2.4 %
TOTAL RETURN AFTER
INCENTIVE FEES 12.0 % 0.2 % 2.4 %
INCEPTION-TO-DATE RETURN 75.0 %
COMPOUND ANNUALIZED
RETURN 4.0 %
MORGAN STANLEY SPECTRUM SERIES
NOTES TO FINANCIAL STATEMENTS
(continued)
SPECTRUM SELECT
2008 2007 2006
-------- ------- -------
PER UNIT OPERATING
PERFORMANCE:
NET ASSET VALUE, JANUARY 1: $ 31.24 $ 29.06 $ 27.45
-------- ------- -------
NET OPERATING RESULTS:
Interest Income 0.39 1.05 1.08
Expenses (4.10) (2.59) (2.54)
Realized Profit/(1)/ 12.23 3.85 3.40
Unrealized Profit (Loss) 1.04 (0.13) (0.33)
-------- ------- -------
Net Income 9.56 2.18 1.61
-------- ------- -------
NET ASSET VALUE, DECEMBER 31: $ 40.80 $ 31.24 $ 29.06
======== ======= =======
FOR THE CALENDAR YEAR:
RATIOS TO AVERAGE NET
ASSETS:
Net Investment Loss (10.2)% (5.3)% (5.0)%
Expenses before Incentive Fees 8.3 % 8.6 % 8.8 %
Expenses after Incentive Fees 11.3 % 8.8 % 8.8 %
Net Income 26.8 % 7.2 % 5.7 %
TOTAL RETURN BEFORE
INCENTIVE FEES 34.1 % 7.7 % 5.9 %
TOTAL RETURN AFTER
INCENTIVE FEES 30.6 % 7.5 % 5.9 %
INCEPTION-TO-DATE RETURN 308.0 %
COMPOUND ANNUALIZED
RETURN 8.4 %
SPECTRUM STRATEGIC
2008 2007 2006
------- ------- -------
PER UNIT OPERATING
PERFORMANCE:
NET ASSET VALUE, JANUARY 1: $ 18.01 $ 17.15 $ 14.18
------- ------- -------
NET OPERATING RESULTS:
Interest Income 0.20 0.61 0.58
Expenses (1.90) (1.59) (1.83)
Realized Profit/(1)/ 0.95 2.41 3.92
Unrealized Profit (Loss) 1.56 (0.57) 0.30
------- ------- -------
Net Income 0.81 0.86 2.97
------- ------- -------
NET ASSET VALUE, DECEMBER 31: $ 18.82 $ 18.01 $ 17.15
======= ======= =======
FOR THE CALENDAR YEAR:
RATIOS TO AVERAGE NET ASSETS:
Net Investment Loss (9.3)% (5.6)% (7.8)%
Expenses before Incentive Fees 8.7 % 8.7 % 8.6 %
Expenses after Incentive Fees 10.4 % 9.1 % 11.4 %
Net Income 4.6 % 4.9 % 18.6 %
TOTAL RETURN BEFORE
INCENTIVE FEES 6.2 % 5.3 % 24.1 %
TOTAL RETURN AFTER INCENTIVE
FEES 4.5 % 5.0 % 20.9 %
INCEPTION-TO-DATE RETURN 88.2 %
COMPOUND ANNUALIZED
RETURN 4.6 %
MORGAN STANLEY SPECTRUM SERIES
NOTES TO FINANCIAL STATEMENTS
(concluded)
SPECTRUM TECHNICAL
2008 2007 2006
-------- -------- -------
PER UNIT OPERATING
PERFORMANCE:
NET ASSET VALUE, JANUARY 1: $ 20.22 $ 23.57 $ 22.36
-------- -------- -------
NET OPERATING RESULTS:
Interest Income 0.25 0.81 0.87
Expenses (2.25) (2.08)* (2.21)
Realized Profit (Loss)/(1)/ 4.33 (1.41) 2.25
Unrealized Profit (Loss) 0.21 (0.67) 0.30
-------- -------- -------
Net Income (Loss) 2.54 (3.35) 1.21
-------- -------- -------
NET ASSET VALUE, DECEMBER 31: $ 22.76 $ 20.22 $ 23.57
======== ======== =======
FOR THE CALENDAR YEAR:
RATIOS TO AVERAGE NET ASSETS:
Net Investment Loss (9.2)% (5.7)% (5.8)%
Expenses before Incentive Fees 8.3 % 8.6 %** 8.6 %
Expenses after Incentive Fees 10.4 % 9.4 %** 9.5 %
Net Income (Loss) 12.1 % (15.1)% 5.1 %
TOTAL RETURN BEFORE
INCENTIVE FEES 14.8 % (13.4)% 6.4 %
TOTAL RETURN AFTER INCENTIVE
FEES 12.6 % (14.2)% 5.4 %
INCEPTION-TO-DATE RETURN 127.6 %
COMPOUND ANNUALIZED
RETURN 6.0 %
* Expenses per unit would have been $(2.12) had it not been for the management
fee waived by Chesapeake.
**Such percentage is after waiver of management fees. Chesapeake voluntarily
waived a portion of the management fees (equal to 0.2% of average net assets).
(1)Realized Profit (Loss) is a balancing amount necessary to reconcile the
change in Net Asset Value per Unit with the other per Unit information.
Demeter Management Corporation
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