MORGAN STANLEY
SPECTRUM SERIES
August 2006
Monthly Report
This Monthly Report supplements the Spectrum Funds' Prospectus
dated May 1, 2006.
Issued: September 29, 2006
[MORGAN STANLEY 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.
INCEPTION- COMPOUND
TO-DATE ANNUALIZED
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 RETURN RETURN
FUND % % % % % % % % % % % % % % % % % %
- ------------------------------------------------------------------------------------------------------------------------------------
Spectrum
Currency ... -- -- -- -- -- -- -- -- -- 11.7 11.1 12.2 12.4 (8.0) (18.3) (7.7) 8.7 1.4
(6 mos.) (8 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 1.4 54.5 3.7
(2 mos.) (8 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) 3.2 183.2 7.1
(5 mos.) (8 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) 11.9 58.7 4.0
(2 mos.) (8 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) 2.1 128.4 7.2
(2 mos.) (8 mos.)
- ------------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DEMETER MANAGEMENT CORPORATION
- --------------------------------------------------------------------------------
330 Madison Avenue, 8th Floor
New York, NY 10017
Telephone (212) 905-2700
MORGAN STANLEY SPECTRUM SERIES
MONTHLY REPORT
AUGUST 2006
Dear Limited Partner:
The Net Asset Value per Unit for each of the five Morgan Stanley Spectrum
Funds as of August 31, 2006 was as follows:
FUND N.A.V. % CHANGE FOR MONTH
- --------------------------------------------------------------------------------
Spectrum Currency $10.87 6.47%
- --------------------------------------------------------------------------------
Spectrum Global Balanced $15.45 2.62%
- --------------------------------------------------------------------------------
Spectrum Select $28.32 -0.10%
- --------------------------------------------------------------------------------
Spectrum Strategic $15.87 -1.62%
- --------------------------------------------------------------------------------
Spectrum Technical $22.84 -0.77%
- --------------------------------------------------------------------------------
Detailed performance information for each Fund is located in the body of the
financial report. For each Fund, we provide a trading results by sector chart
that portrays trading gains and trading losses for the previous month and
year-to-date in each sector in which the Fund participates. In the case of
Spectrum Currency, we provide the trading gains and trading losses for the five
major currencies in which the Fund participates, and composite information for
all other "minor" currencies traded within the Fund.
The trading results by sector charts indicate the monthly and year-to-date
composite percentage returns generated by the specific assets dedicated to
trading within each market sector in which each Fund participates. Please note
that there is not an equal amount of assets in each market sector, and the
specific allocations of assets by a Fund to each sector will vary over time
within a predetermined range. Below each chart is a description of the factors
that influenced trading gains and trading losses within each Fund during the
previous month.
LIMITED PARTNERS OF MORGAN STANLEY SPECTRUM SELECT L.P. ("SPECTRUM SELECT")
ARE ADVISED THAT EFFECTIVE NOVEMBER 1, 2006, THE MONTHLY MANAGEMENT FEE PAYABLE
TO RABAR MARKET RESEARCH, INC. ("RABAR") AND EMC CAPITAL MANAGEMENT, INC.
("EMC") WILL BE REDUCED FROM 1/4 OF 1% (A 3% ANNUAL RATE) TO 5/24 OF 1% (A 2.5%
ANNUAL RATE). ALSO, EFFECTIVE NOVEMBER 1, 2006, THE MONTHLY INCENTIVE FEE
PAYABLE TO RABAR AND EMC WILL BE INCREASED FROM 15% TO 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.
LIMITED PARTNERS OF SPECTRUM SELECT ARE REMINDED THAT, SUBJECT TO CERTAIN
RESTRICTIONS, THEY HAVE THE RIGHT TO REDEEM THEIR UNITS OF LIMITED PARTNERSHIP
INTERESTS (THE "UNITS") ON A MONTHLY BASIS, AND THAT LIMITED PARTNERS OWNING
MORE THAN 50% OF THE OUTSTANDING UNITS OF SPECTRUM SELECT MAY VOTE TO TAKE
CERTAIN ACTIONS WITH RESPECT TO THE PARTNERSHIP, AS MORE FULLY SET FORTH IN
SECTION 15(C) OF THE LIMITED PARTNERSHIP AGREEMENT ON PAGE A-21 OF THE SPECTRUM
SERIES PROSPECTUS. IF LIMITED PARTNERS OF SPECTRUM SELECT CHOOSE TO REDEEM THEIR
UNITS, THERE WILL BE NO MINIMUM HOLDING PERIOD REQUIREMENT OR REDEMPTION CHARGE
FOR THE OCTOBER 31, 2006 CLOSING.
Should you have any questions concerning this report, please feel free to
contact Demeter Management Corporation, 330 Madison Avenue, 8th Floor, New York,
NY 10017 or your Morgan Stanley Financial Advisor.
I hereby affirm, that to the best of my knowledge and belief, the information
contained in this report is accurate and complete. Past performance is no
guarantee of future results.
Sincerely,
/s/ Walter J. Davis
Walter J. Davis
Chairman of the Board of Directors and President
Demeter Management Corporation
General Partner for
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.
- --------------------------------------------------------------------------------
MORGAN STANLEY SPECTRUM CURRENCY L.P.
- --------------------------------------------------------------------------------
[The table below represents a bar chart in the printed report.]
MONTH ENDED YTD ENDED
AUGUST 31, 2006 AUGUST 31, 2006
--------------- ---------------
Australian dollar -0.14 -1.35
British pound 2.26 3.69
Euro 0.04 1.02
Japanese yen 5.29 -4.45
Swiss franc 0.14 -4.05
Minor Currencies -0.94 -0.61
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, and Czech
koruna.
During the month, the Fund experienced gains from short positions in the
Japanese yen against the U.S. dollar, as well as long positions in the British
pound versus the U.S. dollar. These gains were slightly offset by losses from
long positions in the U.S. dollar relative to the Norwegian krone, as well as
both long and short positions in the South African rand versus the U.S. dollar.
- --------------------------------------------------------------------------------
MORGAN STANLEY SPECTRUM CURRENCY L.P.
- --------------------------------------------------------------------------------
(CONTINUED)
Gains were recorded from short Japanese yen positions against the U.S. dollar as
the value of the Japanese yen moved lower against other foreign currencies after
the Japanese Consumer Price Index for July came in lower-than-expected and was
revised down for the previous months. As such, this weaker-than-expected
inflation data diminished concerns of another interest rate hike by the Bank of
Japan this year. Elsewhere in the currency sector, gains were experienced from
long positions in the British pound versus the U.S dollar as the British pound
strengthened after the Bank of England unexpectedly lifted its key interest rate
to 4.75%. The value of the British pound was also pressured higher after data
from the United Kingdom,s Office for National Statistics showed real Gross
Domestic Product increased 2.6% in the second quarter, the highest increase in
two years.
Losses were incurred from long positions in the U.S. dollar against the South
African rand and Norwegian krone as the U.S. dollar weakened following the U.S.
Federal Reserve,s decision to hold interest rates steady, the first pause in the
U.S. Federal Reserve,s interest rate tightening campaign in over two years. The
U.S. dollar continued to move lower during the first half of the month as
economic reports showed slowing inflation and diminished expectations for
further interest rate hikes by the U.S. Federal Reserve. Additional losses were
incurred from newly established long positions in the South African rand against
the U.S. dollar as the value of the South African rand weakened during the
latter half of the month following data showing the country,s July trade deficit
widened more-than-expected.
- --------------------------------------------------------------------------------
MORGAN STANLEY SPECTRUM GLOBAL BALANCED L.P.
- --------------------------------------------------------------------------------
[The table below represents a bar chart in the printed report.]
MONTH ENDED YTD ENDED
AUGUST 31, 2006 AUGUST 31, 2006
--------------- ---------------
Currencies -0.28 -0.55
Interest Rates 1.95 0.13
Stock Indices 0.34 2.34
Energies -0.32 -1.14
Metals 0.26 1.47
Agriculturals 0.64 -0.99
Note: Reflects trading results only and does not include fees or interest
income.
During the month, the Fund experienced gains in the global interest rate,
agricultural, global stock index, and metals sectors. These gains were partially
offset by losses recorded in the energy and currency sector.
Within the global interest rate sector, long positions in U.S., Japanese, and
German fixed-income futures experienced gains as prices increased during the
month on higher demand amid concerns of a slowing global economy and news that
Iran will continue its nuclear research program. U.S. interest rate futures
prices were also pressured higher by government reports showing
weaker-than-expected U.S. economic data and soft inflation data, thereby
boosting expectations that the U.S. Federal Reserve will hold interest rates
steady at its next policy meeting. Additionally, Japanese fixed-income futures
prices also climbed higher on weak economic data and reduced speculation of
another interest rate hike by the Bank of Japan in the near-future, while German
fixed-income futures prices rose after consumer prices in the Euro-Zone fell for
the first time in five months and the "ZEW" report showed investor confidence in
Germany fell to its lowest level since June 2001.
- --------------------------------------------------------------------------------
MORGAN STANLEY SPECTRUM GLOBAL BALANCED L.P.
- --------------------------------------------------------------------------------
(CONTINUED)
Gains were recorded in the agriculture complex from short positions in soybean
futures as prices ended the month lower on decreasing demand and slow export
sales, as well as above-average crop ratings. Elsewhere in the agricultural
complex, long positions in coffee futures experienced gains as prices increased
during the month, hitting seven-year highs, on concerns of tight supplies amid
speculation of lower production from Vietnam, the world,s second largest
producer. Additional gains were experienced from long positions in live cattle
futures as prices moved higher on strong demand after data from the U.S.
Department of Agriculture showed domestic beef exports at its highest level
since December 2003. Higher prices were also supported by supply concerns as hot
weather in the U.S. continued to take a toll on the livestock population.
Additional gains were experienced within the global stock index and metals
sectors. In the global stock index sector, long positions in U.S., European, and
Japanese equity index futures recorded gains as prices moved higher after
tamer-than-expected inflation data lifted hopes that the U.S. Federal Reserve
has stopped raising interest rates. Prices for European equity index futures
also moved higher after government reports showed the Euro-Zone economy in the
second quarter expanded at its fastest pace in five years and Germany's Consumer
Price Index increased in line with expectations. Additionally, Japanese equity
index futures prices rose on higher-than-expected private-sector machinery
orders. Within the metals sector, long positions in nickel futures experienced
gains as prices hit record highs during the month on strong demand from China
and inadequate inventories. Additionally, prices moved higher on news of a labor
strike at a Canadian nickel mine.
Losses were incurred in the energy and currency sectors. Within the energy
sector, losses were incurred from long positions in natural gas futures as
prices fell to a six-week low on an overabundance in supply. Within the currency
sector, losses were recorded from long positions in the South African rand
against the U.S. dollar as the value of the South African rand weakened
following data showing the country,s July trade deficit widened
more-than-expected. Additional losses were recorded from short positions in the
Australian dollar versus the euro as the Australian dollar moved higher on
expectations that the Reserve Bank of Australia will raise interest rates in the
near-future.
- --------------------------------------------------------------------------------
MORGAN STANLEY SPECTRUM SELECT L.P.
- --------------------------------------------------------------------------------
[The table below represents a bar chart in the printed report.]
MONTH ENDED YTD ENDED
AUGUST 31, 2006 AUGUST 31, 2006
--------------- ---------------
Currencies 2.32 -1.6
Interest Rates -1 4.61
Stock Indices -0.23 0.61
Energies -0.98 -2.61
Metals 0.06 6.6
Agriculturals 0.06 -1.16
Note: Reflects trading results only and does not include fees or interest
income.
During the month, the Fund experienced losses in the global interest rate,
energy, and global stock index sectors. A portion of these losses was offset by
gains recorded in the currency, agricultural, and metals sectors.
Losses were recorded within the global interest rate sector from short positions
in Japanese, Australian, and European fixed-income futures as prices increased
on higher demand amid concerns of a slowing global economy and news that Iran
will continue its nuclear research program. Additionally, higher Japanese
interest rate futures prices were supported by weak economic data and reduced
speculation of another interest rate hike by the Bank of Japan in the
near-future, while Australian fixed-income futures were buoyed by an economic
report showing consumer confidence in Australia had its biggest monthly decline
since 1989. Elsewhere in the global interest rate sector, German fixed-income
futures prices rose after consumer prices in the Euro-Zone fell for the first
time in five months and the "ZEW" report showed investor confidence in Germany
fell to its lowest level since June 2001. Meanwhile, British fixed-income
futures prices increased on weaker-than-expected industrial data.
- --------------------------------------------------------------------------------
MORGAN STANLEY SPECTRUM SELECT L.P.
- --------------------------------------------------------------------------------
(CONTINUED)
Within the energy sector, losses were incurred from long futures positions in
crude oil and its related products as prices reversed lower following remarks by
U.S. Department of Energy Secretary Samuel Bodman suggesting there were adequate
supplies to make up for the loss of output due to BP,s recent pipeline shutdown
in Alaska. Prices were pressured further lower after reports of a terrorist plot
to attack U.S.-bound flights from the United Kingdom increased speculation that
demand for oil may weaken as consumers may cut back on airline travel plans over
safety concerns. Prices continued to move lower towards the latter half of the
month after news of an official cease-fire between Israel and Hezbollah
militants in Lebanon and news that the Organization of Petroleum Exporting
Countries reduced its 2006 oil demand growth forecast on expectations of a
slowing global economy.
Smaller losses were experienced within the global stock index sector from short
positions in U.S. equity index futures as prices increased after
tamer-than-expected core consumer inflation data and speculation of a slowing
U.S. economy lifted hopes that the U.S. Federal Reserve has stopped raising
interest rates.
Gains were recorded in the currency sector from short positions in the Japanese
yen against the U.S. dollar, British pound, and euro as the value of the
Japanese yen moved lower against other foreign currencies after the Japanese
Consumer Price Index for July came in lower-than-expected and was revised down
for the previous months. As such, this weaker-than-expected inflation data
diminished concerns of another interest rate hike by the Bank of Japan this
year. Additional gains were experienced from long positions in the British pound
versus the U.S. dollar and Japanese yen as the British pound strengthened after
the Bank of England unexpectedly lifted its key interest rate to 4.75%. The
value of the British pound was also pressured higher after data from the United
Kingdom,s Office for National Statistics showed real Gross Domestic Product
increased 2.6% in the second quarter, the highest increase in two years.
Smaller gains were experienced in the agricultural and metals sectors. Within
the agricultural complex, gains were recorded from short positions in soybean
and soybean meal futures as prices ended the month lower on decreasing demand
and slow export sales, as well as above-average crop ratings. Additional gains
were recorded from short positions in sugar futures as prices fell under
pressure from low physical demand and high inventories. Within the metals
sector, long positions in nickel futures experienced gains as prices hit record
highs during the month on strong demand from China and inadequate inventories.
Additionally, prices moved higher on news of a labor strike at a Canadian nickel
mine.
- --------------------------------------------------------------------------------
MORGAN STANLEY SPECTRUM STRATEGIC L.P.
- --------------------------------------------------------------------------------
[The table below represents a bar chart in the printed report.]
MONTH ENDED YTD ENDED
AUGUST 31, 2006 AUGUST 31, 2006
--------------- ---------------
Currencies 0.38 -1.64
Interest Rates -0.21 2.99
Stock Indices 0.64 1.53
Energies -0.27 -1.37
Metals 0.23 20.32
Agriculturals -2.21 -1.67
Note: Reflects trading results only and does not include fees or interest
income.
During the month, the Fund incurred losses across the agricultural, energy, and
global interest rate sectors. These losses were partially offset by gains
achieved in the global stock index, currency, and metals sectors.
In the agricultural complex, losses were incurred from long positions in sugar
futures as prices fell under pressure from low physical demand and high
inventories. Additional losses were recorded from long positions in cocoa
futures as prices reversed lower after the International Cocoa Organization
increased its world cocoa production estimates for the year amid encouraging
signs of a bumper harvest in the Ivory Coast, the world,s largest producer.
Elsewhere in the agricultural complex, long futures positions in soybeans and
soybean meal recorded losses as prices ended the month lower on decreasing
demand and slow export sales, as well as above-average crop ratings.
Additional losses were recorded in the energy sector from long futures positions
in crude oil and its related products as prices reversed lower following remarks
by U.S. Department of Energy Secretary Samuel Bodman suggesting there were
adequate supplies to make up for the loss of output due to BP's recent pipeline
shutdown in Alaska. Prices were pressured further lower after reports of a
terrorist plot to attack U.S.-bound flights from the United Kingdom increased
speculation that demand for oil may weaken as consumers may cut back on airline
travel plans over safety concerns. Prices continued to move lower towards the
latter half of the month after news of an official cease-fire between Israel and
Hezbollah militants in Lebanon and news that the Organization of Petroleum
Exporting Countries reduced its 2006 oil demand growth forecast on expectations
of a slowing global economy.
- --------------------------------------------------------------------------------
MORGAN STANLEY SPECTRUM STRATEGIC L.P.
- --------------------------------------------------------------------------------
(CONTINUED)
Within the global interest rate sector, losses were recorded from short
positions in Japanese and German interest rate futures as prices reversed higher
on increased demand amid concerns of a slowing global economy and news that Iran
will continue its nuclear research program. Additionally, Japanese fixed-income
futures prices also climbed higher on weak economic data and reduced speculation
of another interest rate hike by the Bank of Japan in the near-future, while
German fixed-income futures prices rose after consumer prices in the Euro-Zone
fell for the first time in five months and the "ZEW" report showed investor
confidence in Germany fell to its lowest level since June 2001.
Gains were experienced in the global stock index sector from long positions in
Japanese, Hong Kong, U.S., and German equity index futures as prices moved
higher after tamer-than-expected inflation data lifted hopes that the U.S.
Federal Reserve has stopped raising interest rates. Additionally, Japanese and
Hong Kong equity index futures prices rose on higher-than-expected
private-sector machinery orders from the region, while prices for German equity
index futures moved higher after government reports showed the Euro-Zone economy
in the second quarter expanded at its fastest pace in five years and Germany's
Consumer Price Index increased in line with expectations.
Within the currency sector, gains were experienced from short positions in the
Japanese yen against the U.S. dollar and euro as the value of the Japanese yen
moved lower against other foreign currencies after the Japanese Consumer Price
Index for July came in lower-than-expected and was revised down for the previous
months. As such, this weaker-than-expected inflation data diminished concerns of
another interest rate hike by the Bank of Japan this year. Elsewhere in the
currency sector, gains were also recorded from long positions in the Canadian
dollar against the U.S. dollar as the Canadian dollar strengthened on continued
optimism about the future of the Canadian economy. Meanwhile, long positions in
the New Zealand dollar against the U.S. dollar experienced gains as the New
Zealand dollar moved higher amid strong housing data and accelerating inflation,
thereby boosting speculation that the Reserve Bank of New Zealand will maintain
that country's high interest rate policy at its next meeting.
Smaller gains were recorded in the metals sector from long positions in zinc
futures as prices increased on continued strong demand from expanding global
economies and tight supplies.
- --------------------------------------------------------------------------------
MORGAN STANLEY SPECTRUM TECHNICAL L.P.
- --------------------------------------------------------------------------------
[The table below represents a bar chart in the printed report.]
MONTH ENDED YTD ENDED
AUGUST 31, 2006 AUGUST 31, 2006
--------------- ---------------
Currencies 1.99 -4.89
Interest Rates 0.2 2.94
Stock Indices -0.03 3.33
Energies -1.52 -1.34
Metals 0.06 8.59
Agriculturals -1.16 -2.04
Note: Reflects trading results only and does not include fees or interest
income.
During the month, the Fund experienced losses across the energy, agricultural,
and global stock index sectors. These losses were partially offset by gains
recorded in the currency, global interest rate, and metals sectors.
Within the energy sector, losses were incurred from long futures positions in
crude oil and its related products as prices reversed lower following remarks by
U.S. Department of Energy Secretary Samuel Bodman suggesting there were adequate
supplies to make up for the loss of output due to BP's recent pipeline shutdown
in Alaska. Prices were pressured further lower after reports of a terrorist plot
to attack U.S.-bound flights from the United Kingdom increased speculation that
demand for oil may weaken as consumers may cut back on airline travel plans over
safety concerns. Prices continued to move lower towards the latter half of the
month after news of an official cease-fire between Israel and Hezbollah
militants in Lebanon and news that the Organization of Petroleum Exporting
Countries reduced its 2006 oil demand growth forecast on expectations of a
slowing global economy.
Additional losses were recorded within the agricultural and global stock index
sectors. In the agricultural complex, losses were experienced from short
positions in live cattle and lean hogs futures as prices moved higher on strong
demand after data from the U.S. Department of Agriculture showed domestic beef
exports at their highest level since December 2003. Higher prices were also
supported by supply concerns as hot weather in the U.S. continued to take a toll
on the livestock population. Additional losses were incurred from long positions
in wheat futures as prices fell on expectations of lower demand from the U.S.
Department of Agriculture. Elsewhere in the agriculture complex, long positions
in cocoa futures
- --------------------------------------------------------------------------------
MORGAN STANLEY SPECTRUM TECHNICAL L.P.
- --------------------------------------------------------------------------------
(CONTINUED)
experienced losses as prices reversed lower after the International Cocoa
Organization increased its world cocoa production estimates for the year amid
encouraging signs of a bumper harvest in the Ivory Coast, the world's largest
cocoa producer. Within the global stock index sector, short positions in Nasdaq
100 Index futures incurred losses as prices increased after tamer-than-expected
core consumer inflation data and speculation of a slowing U.S. economy lifted
hopes that the U.S. Federal Reserve has stopped raising interest rates.
Gains were recorded in the currency sector from long positions in the British
pound versus the U.S dollar and euro as the British pound strengthened after the
Bank of England unexpectedly lifted its key interest rate to 4.75%. The value of
the British pound was also pressured higher after data from the United Kingdom's
Office for National Statistics showed real Gross Domestic Product increased 2.6%
in the second quarter, the highest increase in two years. Elsewhere in the
currency sector, short positions in the Japanese yen against the U.S. dollar,
euro, British pound, and Swiss franc experienced gains as the value of the
Japanese yen moved lower against other foreign currencies after the Japanese
Consumer Price Index for July came in lower-than-expected and was revised down
for the previous months. As such, this weaker-than-expected inflation data
diminished concerns of another interest rate hike by the Bank of Japan this
year. Meanwhile, gains were also recorded from long positions in the Canadian
dollar against the U.S. dollar as the Canadian dollar strengthened on continued
optimism about the future of the Canadian economy, while short positions in the
South African rand against the U.S. dollar experienced gains as the value of the
South African rand weakened following data showing the country's July trade
deficit widened more-than-expected.
Smaller gains were recorded in the global interest rate sector from long
positions in Japanese and German fixed-income futures as prices trended higher
on greater demand amid concerns of a slowing global economy and news that Iran
will continue its nuclear research program. Additionally, Japanese fixed-income
futures prices climbed higher on weak economic data and reduced speculation of
another interest rate hike by the Bank of Japan in the near-future, while German
fixed-income futures prices also rose after consumer prices in the Euro-Zone
fell for the first time in five months and the "ZEW" report showed investor
confidence in Germany fell to its lowest level since June 2001. Within the
metals sector, long positions in nickel futures experienced gains as prices hit
record highs during the month on strong demand from China and inadequate
inventories. Additionally, prices moved higher on news of a labor strike at a
Canadian nickel mine.
MORGAN STANLEY SPECTRUM SERIES
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
FOR THE MONTH ENDED AUGUST 31, 2006 (UNAUDITED)
MORGAN STANLEY MORGAN STANLEY
SPECTRUM CURRENCY SPECTRUM GLOBAL BALANCED
--------------------------- ---------------------------
PERCENTAGE OF PERCENTAGE OF
AUGUST 1, 2006 AUGUST 1, 2006
BEGINNING BEGINNING
AMOUNT NET ASSET VALUE AMOUNT NET ASSET VALUE
----------- --------------- ---------- ----------------
$ % $ %
INVESTMENT INCOME
Interest income (Note 2) 590,858 .36 183,700 .44
----------- -------- ---------- ------
EXPENSES
Brokerage fees (Note 2) 624,489 .38 159,548 .38
Management fees (Note 3) 271,516 .16 43,356 .11
----------- -------- ---------- ------
Total Expenses 896,005 .54 202,904 .49
----------- -------- ---------- ------
NET INVESTMENT LOSS (305,147) (.18) (19,204) (.05)
----------- -------- ---------- ------
TRADING RESULTS
Trading profit (loss):
Realized -- -- (62,570) (.15)
Net change in unrealized 10,841,235 6.65 1,172,455 2.82
----------- -------- ---------- ------
Total Trading Results 10,841,235 6.65 1,109,885 2.67
----------- -------- ---------- ------
NET INCOME 10,536,088 6.47 1,090,681 2.62
=========== ======== ========== ======
MORGAN STANLEY SPECTRUM SERIES
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSET VALUE
- --------------------------------------------------------------------------------
FOR THE MONTH ENDED AUGUST 31, 2006 (UNAUDITED)
MORGAN STANLEY MORGAN STANLEY
SPECTRUM CURRENCY SPECTRUM GLOBAL BALANCED
-------------------------------------- ----------------------------------
PER PER
UNITS AMOUNT UNIT UNITS AMOUNT UNIT
-------------- ----------- ----- ------------- ---------- -----
$ $ $ $
Net Asset Value,
August 1, 2006 15,949,480.462 162,910,252 10.21 2,764,691.107 41,621,228 15.05
Net Income -- 10,536,088 .66 -- 1,090,681 .40
Redemptions (418,600.398) (4,550,186) 10.87 (38,141.178) (589,281) 15.45
Subscriptions 138,799.583 1,508,751 10.87 31,384.833 484,896 15.45
-------------- ----------- ----- ------------- ---------- -----
Net Asset Value,
August 31, 2006 15,669,679.647 170,404,905 10.87 2,757,934.762 42,607,524 15.45
============== =========== ============= ==========
The accompanying notes are an integral part of these financial statements.
MORGAN STANLEY SPECTRUM SERIES
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
FOR THE MONTH ENDED AUGUST 31, 2006 (UNAUDITED)
MORGAN STANLEY MORGAN STANLEY MORGAN STANLEY
SPECTRUM SELECT SPECTRUM STRATEGIC SPECTRUM TECHNICAL
-------------------------------- --------------------------------- ------------------------------
PERCENTAGE OF PERCENTAGE OF PERCENTAGE OF
AUGUST 1, 2006 AUGUST 1, 2006 AUGUST 1, 2006
BEGINNING BEGINNING BEGINNING
AMOUNT NET ASSET VALUE AMOUNT NET ASSET VALUE AMOUNT NET ASSET VALUE
------------ ----------------- ------------ ----------------- ----------- ----------------
$ % $ % $ %
INVESTMENT INCOME
Interest income (Note 2) 1,895,199 .35 641,379 .33 2,598,687 .35
------------ ----- ------------ ----- ------------ -----
EXPENSES
Brokerage fees (Note 2) 2,694,393 .50 962,739 .50 3,711,739 .50
Management fees (Note 3) 1,282,627 .24 449,939 .23 1,630,139 .22
------------ ----- ------------ ----- ------------ -----
Total Expenses 3,977,020 .74 1,412,678 .73 5,341,878 .72
------------ ----- ------------ ----- ------------ -----
NET INVESTMENT LOSS (2,081,821) (.39) (771,299) (.40) (2,743,191) (.37)
------------ ----- ------------ ----- ------------ -----
TRADING RESULTS
Trading profit (loss):
Realized (21,652,300) (4.02) (3,713,810) (1.93) (22,649,030) (3.05)
Net change in unrealized 23,213,939 4.31 1,364,080 .71 19,658,341 2.65
------------ ----- ------------ ----- ------------ -----
Total Trading Results 1,561,639 .29 (2,349,730) (1.22) (2,990,689) (.40)
------------ ----- ------------ ----- ------------ -----
NET LOSS (520,182) (.10) (3,121,029) (1.62) (5,733,880) (.77)
============ ===== ============ ===== ============ =====
MORGAN STANLEY SPECTRUM SERIES
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSET VALUE
- --------------------------------------------------------------------------------
FOR THE MONTH ENDED AUGUST 31, 2006 (UNAUDITED)
MORGAN STANLEY MORGAN STANLEY MORGAN STANLEY
SPECTRUM SELECT SPECTRUM STRATEGIC SPECTRUM TECHNICAL
------------------------------------ ----------------------------------- -----------------------------------
PER PER PER
UNITS AMOUNT UNIT UNITS AMOUNT UNIT UNITS AMOUNT UNIT
------- ------ ---- ------- ------ ----- ------- ------ ----
$ $ $ $ $ $
Net Asset Value,
August 1, 2006 19,007,710.162 538,878,672 28.35 11,938,573.181 192,547,860 16.13 32,257,007.944 742,347,809 23.01
Net Loss -- (520,182) (.03) -- (3,121,029) (.26) -- (5,733,880) (.17)
Redemptions (227,378.019) (6,439,345) 28.32 (150,517.385) (2,388,711) 15.87 (363,628.676) (8,305,279) 22.84
Subscriptions 299,310.440 8,476,472 28.32 379,635.522 6,024,815 15.87 591,002.369 13,498,494 22.84
-------------- ----------- ----- -------------- ----------- ----- -------------- ----------- -----
Net Asset Value,
August 31, 2006 19,079,642.583 540,395,617 28.32 12,167,691.318 193,062,935 15.87 32,484,381.637 741,807,144 22.84
============== =========== ============== =========== ============== ===========
The accompanying notes are an integral part of these financial statements.
MORGAN STANLEY SPECTRUM SERIES
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(UNAUDITED)
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization.Morgan Stanley Spectrum Currency L.P. ("Spectrum Currency"), Morgan
Stanley Spectrum Global Balanced L.P. ("Spectrum Global Balanced"), Morgan
Stanley Spectrum Select L.P. ("Spectrum Select"), Morgan Stanley Spectrum
Strategic L.P. ("Spectrum Strategic"), and Morgan Stanley Spectrum Technical
L.P. ("Spectrum Technical") (individually, a "Partnership", or collectively, the
"Partnerships"), are limited partnerships organized to engage primarily in the
speculative trading of futures contracts, options on futures and forward
contracts, and forward contracts on physical commodities and other commodity
interests, including, but not limited to, foreign currencies, financial
instruments, metals, energy, and agricultural products (collectively, "Futures
Interests").
The general partner for each Partnership is Demeter Management Corporation
("Demeter"). The non-clearing commodity broker is Morgan Stanley DW Inc.
("Morgan Stanley DW"). The clearing 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
Limited ("MSIL"). Spectrum Currency's clearing commodity broker is MS & Co. For
Spectrum Strategic and Spectrum Technical, Morgan Stanley Capital Group Inc.
("MSCG") acts as the counterparty on all of the options on foreign currency
forward contracts. Demeter, Morgan Stanley DW, MS & Co., MSIL, and MSCG are
wholly-owned subsidiaries of Morgan Stanley.
Demeter is required to maintain a 1% minimum interest in the equity of
each Partnership and income (losses) are shared by Demeter and the limited
partners based upon their proportional ownership interests.
USE OF ESTIMATES. The financial statements are prepared in accordance with
accounting principles generally accepted in the United States of America, which
require management to make estimates and assumptions that affect the reported
amounts in the financial statements and related disclosures. Management believes
that the estimates utilized in the preparation of the financial statements are
prudent and reasonable. Actual results could differ from those estimates.
REVENUE RECOGNITION. Futures Interests are open commitments until settlement
date, at which time they are realized. They are valued at market on a daily
basis and the resulting net change in unrealized gains and losses is reflected
in the change in unrealized trading profit (loss) on open contracts from one
period to the next on the Statements of
MORGAN STANLEY SPECTRUM SERIES
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(CONTINUED)
Operations. Monthly, Morgan Stanley DW pays each Partnership interest income
equal to 80% of the month's average daily "Net Assets" (as defined in the
Limited Partnership Agreements) in the case of Spectrum Currency, Spectrum
Select, Spectrum Strategic, and Spectrum Technical, and on 100% in the case of
Spectrum Global Balanced. The interest rate is equal to a prevailing rate on
U.S. Treasury bills. 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, they
transact business in currencies other than the U.S. dollar. Assets and
liabilities denominated in currencies other than the U.S. dollar are translated
into U.S. dollars at the rates in effect at the date of the Statements of
Changes in Net Asset Value. Income and expense items denominated in currencies
other than the U.S. dollar are translated into U.S. dollars at the rates in
effect during the period. Gains and losses resulting from the translation to
U.S. dollars are reported in income currently.
NET INCOME (LOSS) PER UNIT. Net income (loss) per unit of limited partnership
interest ("Unit(s)") is computed using the weighted average number of Units
outstanding during the period.
BROKERAGE AND RELATED TRANSACTION FEES AND COSTS. The brokerage fees for
Spectrum Currency and Spectrum Global Balanced are accrued at a flat monthly
rate of 1/12 of 4.6% (a 4.6% annual rate) of Net Assets as of the first day of
each month.
Brokerage fees for Spectrum Select, Spectrum Strategic, and Spectrum
Technical are accrued at a flat monthly rate of 1/12 of 6.00% (a 6.00% 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 Morgan Stanley DW through the brokerage fees paid by the
Partnerships.
CONTINUING OFFERING. Units of each Partnership are offered at a price equal to
100% of the Net Asset Value per Unit as of the close of business on the last day
of each month. No selling commissions or charges related to the continuing
offering of Units are paid by the limited partners or the Partnerships. Morgan
Stanley DW pays all such costs.
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 becomes a limited
partner. The Request for Redemption must be delivered to a limited partner's
local Morgan Stanley Branch Office in time for it to be forwarded and received
by Demeter no later than 3:00 p.m., New York City time, on the last day of the
month in which the redemption is to be effective. Redemptions must be made in
whole Units, in a minimum amount of 50 Units required for each redemption,
unless a limited partner is redeeming his entire interest in a Partnership.
Units redeemed on or prior to the last day of the twelfth month from the date of
purchase will be subject to a redemption charge equal to 2% of the Net Asset
Value of a Unit on the Redemption Date. Units redeemed after the last day of the
twelfth month and on or prior to the last day of the twenty-fourth month from
the date of purchase will be subject to a redemption charge equal to 1% of the
Net Asset Value of a Unit on the Redemption Date. Units redeemed after the last
day of the twenty-fourth month from the date of purchase will not be subject to
a redemption charge. The foregoing redemption charges are paid to Morgan Stanley
DW.
EXCHANGES. On the last day of the first month which occurs more than six months
after a person first becomes a limited partner in any of the Partnerships, and
at the end of each month thereafter, limited partners may exchange their
investment among the Partnerships (subject to certain restrictions outlined in
the Limited Partnership Agreements) without paying additional charges.
DISTRIBUTIONS. Distributions, other than redemptions of Units, are made on a
pro-rata basis at the sole discretion of Demeter. No distributions have been
made to date. Demeter does not intend to make any distributions of the
Partnerships' profits.
INCOME TAXES. No provision for income taxes has been made in the accompanying
financial statements, as partners are individually responsible for reporting
income or loss based upon their respective share of each Partnership's revenues
and expenses for income tax purposes.
MORGAN STANLEY SPECTRUM SERIES
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(CONTINUED)
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.
- --------------------------------------------------------------------------------
2. RELATED PARTY TRANSACTIONS
The Partnerships pay brokerage fees to Morgan Stanley DW as described in Note 1.
Spectrum Global Balanced, Spectrum Select, Spectrum Strategic, and Spectrum
Technical's cash is on deposit with Morgan Stanley DW, MS & Co., and MSIL, and
Spectrum Currency's cash is on deposit with Morgan Stanley DW and MS & Co., in
futures interests trading accounts to meet margin requirements as needed. Morgan
Stanley DW pays interest on these funds as described in Note 1.
- --------------------------------------------------------------------------------
3. TRADING ADVISORS
Demeter, on behalf of each Partnership, retains certain commodity trading
advisors to make all trading decisions for the Partnerships. The trading
advisors for each Partnership are as follows:
Morgan Stanley Spectrum Currency L.P.
John W. Henry & Company, Inc.
Sunrise Capital Partners, LLC
Morgan Stanley Spectrum Global Balanced L.P.
SSARIS Advisors, LLC
Morgan Stanley Spectrum Select L.P.
EMC Capital Management, Inc. ("EMC")
Northfield Trading L.P. ("Northfield")
Rabar Market Research, Inc. ("Rabar")
Sunrise Capital Management, Inc. ("Sunrise")
Graham Capital Management, L.P. ("Graham")
Morgan Stanley Spectrum Strategic L.P.
Blenheim Capital Management, L.L.C. ("Blenheim")
Eclipse Capital Management, Inc. ("Eclipse")
FX Concepts (Trading Advisor), Inc. ("FX Concepts")
Morgan Stanley Spectrum Technical L.P.
Campbell & Company, Inc. ("Campbell")
Chesapeake Capital Corporation ("Chesapeake")
John W. Henry & Company, Inc. ("JWH")
Winton Capital Management Limited ("Winton")
MORGAN STANLEY SPECTRUM SERIES
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(CONTINUED)
Compensation to the trading advisors by the Partnerships consists of a
management fee and an incentive fee as follows:
MANAGEMENT FEE. The management fee for Spectrum Currency is accrued at a rate of
1/12 of 2% 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 its sole trading advisor on the
first day of each month (a 1.25% annual rate).
The management fee for Spectrum Select is accrued at a rate of 1/4 of 1%
per month of Net Assets allocated to EMC, Northfield, Rabar, and Sunrise on the
first day of each month (a 3% annual rate) and 1/12 of 2% per month of Net
Assets allocated to Graham on the first day of each month (a 2% annual rate).
Effective November 1, 2006, the monthly management fee payable to EMC and
Rabar will be reduced to 5/24 of 1% (a 2.5% annual rate).
The management fee for Spectrum Strategic is accrued at a rate of 1/12 of
3% per month of Net Assets allocated to Blenheim and Eclipse on the first day of
each month (a 3% annual rate) and 1/12 of 2% per month of Net Assets allocated
to FX Concepts on the first day of each month (a 2% annual rate).
The management fee for Spectrum Technical is accrued at a rate of 1/12 of
2% per month of Net Assets allocated to JWH and Winton on the first day of each
month (a 2% annual rate) and 1/12 of 3% per month of Net Assets allocated to
Campbell and 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 its sole trading advisor's allocated
Net Assets 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 each of EMC,
Northfield, Rabar, and Sunrise as of the end of each calendar month and 20% of
the trading profits experienced with respect to
MORGAN STANLEY SPECTRUM SERIES
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(CONCLUDED)
the Net Assets allocated to Graham as of the end of each calendar month.
Effective November 1, 2006, the monthly incentive fee payable to EMC and
Rabar will be increased to 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.
Spectrum Strategic pays a monthly incentive fee equal to 15% of the
trading profits experienced with respect to the Net Assets allocated to each of
Blenheim and Eclipse as of the end of each calendar month and 20% of the trading
profits experienced with respect to the Net Assets allocated to FX Concepts as
of the end of each calendar month.
Spectrum Technical pays a monthly incentive fee equal to 20% of the
trading profits experienced with respect to the Net Assets allocated to each of
Campbell, JWH, and Winton as of the end of each calendar month and 19% of the
trading profits experienced with respect to the Net Assets allocated to
Chesapeake 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 Partnerships with trading losses, no incentive fee is paid in
subsequent months until all such losses are recovered. Cumulative trading losses
are adjusted on a pro-rata basis for the net amount of each month's
subscriptions and redemptions.
MANAGED FUTURES INVESTMENTS ARE SPECULATIVE, INVOLVE A HIGH DEGREE OF RISK, USE
SIGNIFICANT LEVERAGE, ARE GENERALLY ILLIQUID, HAVE SUBSTANTIAL CHARGES, ARE
SUBJECT TO CONFLICTS OF INTEREST, AND ARE SUITABLE ONLY FOR THE RISK CAPITAL
PORTION OF AN INVESTOR'S PORTFOLIO. BEFORE INVESTING IN ANY MANAGED FUTURES
INVESTMENT, QUALIFIED INVESTORS SHOULD READ THE PROSPECTUS OR OFFERING DOCUMENTS
CAREFULLY FOR ADDITIONAL INFORMATION WITH RESPECT TO CHARGES, EXPENSES, AND
RISKS. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
Demeter Management Corporation
330 Madison Avenue, 8th Floor
New York, NY 10017
[MORGAN STANLEY LOGO]
ADDRESS SERVICE REQUESTED
(RECYCLE SYMBOL) printed on recycled paper
DWS 38221-09