10-K 1 sel.txt SELECT UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 [No Fee Required] For the year ended December 31, 2003 or [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 [No Fee Required] 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 825 Third Avenue, 9th Floor New York, NY 10022 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (212) 310-6444 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 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 (section 229.405 of this chapter) 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 of this Form 10-K. [ ] Indicate by check-mark whether the registrant is an accelerated filer (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: $362,046,851 at June 30, 2003. DOCUMENTS INCORPORATED BY REFERENCE (See Page 1) MORGAN STANLEY SPECTRUM SELECT L.P. INDEX TO ANNUAL REPORT ON FORM 10-K DECEMBER 31, 2003
Page No. DOCUMENTS INCORPORATED BY REFERENCE. . . . . . . . . . . . . . . . . . 1 Part I . Item 1. Business. . . . . . . . . . . . . . . . . . . . . . . .. 2-5 Item 2. Properties. . . . . . . . . . . . . . . . . . . . . . . . 5 Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . 6 Item 4. Submission of Matters to a Vote of Security Holders. . . .6 Part II. Item 5. Market for the Registrant's Partnership Units and Related Security Holder Matters . . . . . . . . . . .7-9 Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . 10 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. . . . . . . . . . 11-24 Item 7A. Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . .24-37 Item 8. Financial Statements and Supplementary Data. . . . . . 37-38 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. . . . . . . . . . . .38 Item 9A. Controls and Procedures . . . . . . . . . . . . . . . .38-39 Part III. Item 10. Directors and Executive Officers of the Registrant. . .40-45 Item 11. Executive Compensation . . . . . . . . . . . . . . . . . .46 Item 12. Security Ownership of Certain Beneficial Owners and Management. .. . . . . . . . . . . . . . . . . . . . 46 Item 13. Certain Relationships and Related Transactions. . . . .46-47 Item 14. Principal Accounting Fees and Services . . . . . . . . 47-48 Part IV. Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. . . . . . . . . . . . . . . . . . 49-50
DOCUMENTS INCORPORATED BY REFERENCE Portions of the following documents are incorporated by reference as follows: Documents Incorporated Part of Form 10-K Partnership's Prospectus dated April 28, 2003 I Partnership's Supplement to the Prospectus dated December 17, 2003 I Annual Report to Morgan Stanley Spectrum Series Limited Partners for the year ended December 31, 2003 II, III and IV ` PART I Item 1. BUSINESS (a) General Development of Business. Morgan Stanley Spectrum Select L.P. (the "Partnership") is a Delaware limited partnership organized to engage primarily in the speculative trading of futures contracts, options on futures 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. The Partnership commenced operations on August 1, 1991. The Partnership is one of the Morgan Stanley Spectrum series of funds, comprised of the Partnership, Morgan Stanley Spectrum Currency L.P., Morgan Stanley Spectrum Global Balanced L.P., Morgan Stanley Spectrum Strategic L.P., and Morgan Stanley Spectrum Technical L.P. (collectively, the "Spectrum Series"). The Partnership's general partner is Demeter Management Corporation ("Demeter"). The non-clearing commodity broker is Morgan Stanley DW Inc. ("Morgan Stanley DW"). The clearing commodity brokers are Morgan Stanley & Co. Incorporated ("MS & Co.") and Morgan Stanley & Co. International Limited ("MSIL"). Demeter, Morgan Stanley DW, MS & Co. and MSIL are wholly-owned subsidiaries of Morgan Stanley. The trading advisors to the Partnership are EMC Capital Management, Inc., Northfield Trading L.P., Rabar Market Research, Inc., and Sunrise Capital Management, Inc. (collectively, the "Trading Advisors"). Units of limited partnership interest ("Unit(s)") are sold at monthly closings at a purchase price equal to 100% of the net asset value per Unit as of the close of business on the last day of each month. The managing underwriter for the Partnership is Morgan Stanley DW. The Partnership's net asset value per Unit at December 31, 2003 was $30.31, representing an increase of 9.6 percent from the net asset value per Unit of $27.65 at December 31, 2002. For a more detailed description of the Partnership's business, see subparagraph (c). (b) Financial Information about Segments. For financial infor- mation reporting purposes the Partnership is deemed to engage in one industry segment, the speculative trading of futures, forwards, and options. The relevant financial information is presented in Items 6 and 8. (c) Narrative Description of Business. The Partnership is in the business of speculative trading of futures, forwards, and options, pursuant to trading instructions provided by the Trading Advisors. For a detailed description of the different facets of the Partnership's business, see those portions of the Partnership's prospectus, dated April 28, 2003 (the "Prospectus"), and the Partnership's supplement to the Prospectus dated December 17, 2003 (the "Supplement"), incorporated by reference in this Form 10-K, set forth below. Facets of Business 1. Summary 1. "Summary" (Pages 1-9 of the Prospectus and Page S-1 of the Supplement). 2. Futures, Options, and 2. "The Futures, Options, and Forwards Markets Forwards Markets" (Pages 136-140 of the Prospectus). 3. Partnership's Trading 3. "Use of Proceeds" (Page 26-28 Arrangements and of the Prospectus and Page Policies S-5 of the Supplement), "The Trading Advisors" (Pages 70- 116 of the Prospectus and Pages S-31 - S-52 of the Supplement). 4. Management of the 4. "The Trading Advisors - The Partnership Management Agreements" (Page 70 of the Prospectus), "The General Partner" (Pages 64- 69 of the Prospectus and Pages S-29 - S-30 of the Supplement), "The Commodity Brokers" (Pages 119-120 of the Prospectus) and "The Limited Partnership Agreements" (Pages 121-123 of the Prospectus). 5. Taxation of the Partner- 5. "Material Federal Income Tax ship's Limited Partners Considerations" and "State and Local Income Tax Aspects" (Pages 128-134 of the Prospectus). (d) Financial Information about Geographic Areas. The Partnership has not engaged in any operations in foreign countries; however, the Partnership (through the commodity brokers) enters into forward contract transactions where foreign banks are the contracting party and trades futures, forwards, and options on foreign exchanges. (e) Available Information. The Partnership files annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to these reports with the Securities and Exchange Commission ("SEC"). You may read and copy any document filed by the Partnership at the SEC's public reference room at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for information on the public reference room. The Partnership does not maintain an internet website, however, the SEC maintains a website that contains annual, quarterly, and current reports, proxy statements and other information that issuers (including the Partnership) file electronically with the SEC. The SEC's website address is http://www.sec.gov. Item 2. PROPERTIES The Partnership's executive and administrative offices are located within the offices of Morgan Stanley DW. The Morgan Stanley DW offices utilized by the Partnership are located at 825 Third Avenue, 9th Floor, New York, NY 10022. Item 3. LEGAL PROCEEDINGS None. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II Item 5. MARKET FOR THE REGISTRANT'S PARTNERSHIP UNITS AND RELATED SECURITY HOLDER MATTERS (a) Market Information. There is no established public trading market for Units of the Partnership. (b) Holders. The number of holders of Units at December 31, 2003 was approximately 36,269. (c) Distributions. No distributions have been made by the Partnership since it commenced trading operations on August 1, 1991. Demeter has sole discretion to decide what distributions, if any, shall be made to investors in the Partnership. Demeter currently does not intend to make any distributions of Partnership profits. (d) Securities Sold; Consideration. Units are continuously sold at monthly closings at a purchase price equal to 100% of the net asset value per Unit as of the close of business on the last day of each month. Through December 31, 2003, 28,529,412.378 Units were sold, leaving 5,084,554.722 Units unsold. The aggregate price of the Units sold through December 31, 2003 was $554,768,112. (e) Underwriter. The managing underwriter for the Partnership is Morgan Stanley DW. (f) Use of Proceeds. The Partnership initially registered 60,000 Units (prior to the 100 for one Unit conversion on April 30, 1998, the "Conversion") pursuant to a Registration Statement on Form S-1, which became effective on May 17, 1991 (SEC File Number 33-39667), and 10,000 Units (pre-Conversion) at a supplemental closing pursuant to a new Registration Statement on Form S-1, which became effective on August 23, 1991 (SEC File No. 33- 42380). The Partnership registered an additional 75,000 Units (pre- Conversion) pursuant to a new Registration Statement of Form S-1, which became effective on August 31, 1993 (SEC File Number 33- 65072). The Partnership registered an additional 60,000 Units (pre- Conversion) pursuant to another Registration Statement on Form S-1, which became effective on October 17, 1997 (SEC File Number 333-1918) (the "Third Offering"). Through the Third Offering 58,860.329 Units (pre-Conversion) were left unsold and ultimately de-registered. Commencing with the April 30, 1998 monthly closing and with becoming a member of the Spectrum Series of funds, each previously outstanding Unit of the Partnership was converted into 100 Units. The Partnership registered an additional 1,500,000 Units pursuant to another Registration Statement on Form S-1, which became effective on May 11, 1998 (SEC File Number 333-47829). The Partnership registered an additional 5,000,000 Units pursuant to another Registration Statement on Form S-1, which became effective on January 21, 1999 (File Number 333-68773). The Partnership registered an additional 4,500,000 Units pursuant to another Registration Statement on Form S-1, which became effective on February 28, 2000 (SEC File Number 333-90467). The Partnership registered an additional 1,000,000 Units pursuant to another Registration Statement on Form S-1, which became effective on April 30, 2002 (SEC File Number 333-84656). The Partnership registered an additional 7,000,000 Units pursuant to another Registration Statement on Form S-1, which became effective on April 28, 2003 (SEC File Number 333-104005). Since no expenses are chargeable against proceeds, 100% of the proceeds of the offering have been applied to the working capital of the Partnership for use in accordance with the "Use of Proceeds" section of the Prospectus and the Supplement included as part of the above referenced Registration Statements. Item 6. SELECTED FINANCIAL DATA (in dollars)
For the Years Ended December 31, 2003 2002 2001 2000 1999 . Revenues (including interest) 74,213,042 67,605,728 30,468,895 35,083,619 4,778,950 Net Income (Loss) 34,186,905 40,823,199 3,165,349 14,291,045 (16,694,414) Net Income (Loss) Per Unit (Limited & General Partners) 2.66 3.69 0.39 1.57 (1.80) Total Assets 449,549,242 299,604,379 246,043,382 224,581,554 219,366,812 Total Limited Partners' Capital 436,666,633 292,226,000 238,821,840 218,182,118 210,877,519 Net Asset Value Per Unit 30.31 27.65 23.96 23.57 22.00
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity. The Partnership deposits its assets with Morgan Stanley DW as non-clearing broker, and MS & Co. and MSIL as clearing brokers in separate futures, forwards, and options trading accounts established for each Trading Advisor, which assets are used as margin to engage in trading and may be used as margin solely for the Partnership's trading. The assets are held in either non-interest bearing bank accounts or in securities and instruments permitted by the Commodity Futures Trading Commission for investment of customer segregated or secured funds. Since the Partnership's sole purpose is to trade in futures, forwards, and options, it is expected that the Partnership will continue to own such liquid assets for margin purposes. The Partnership's investment in futures, forwards, and options may, from time to time, be illiquid. Most U.S. futures exchanges limit fluctuations in prices during a single day by regulations referred to as "daily price fluctuations limits" or "daily limits". Trades may not be executed at prices beyond the daily limit. If the price for a particular futures or options contract has increased or decreased by an amount equal to the daily limit, positions in that futures or options contract can neither be taken nor liquidated unless traders are willing to effect trades at or within the limit. Futures prices have occasionally moved the daily limit for several consecutive days with little or no trading. These market conditions could prevent the Partnership from promptly liquidating its futures or options contracts and result in restrictions on redemptions. There is no limitation on daily price moves in trading forward contracts on foreign currencies. The markets for some world currencies have low trading volume and are illiquid, which may prevent the Partnership from trading in potentially profitable markets or prevent the Partnership from promptly liquidating unfavorable positions in such markets, subjecting it to substantial losses. Either of these market conditions could result in restrictions on redemptions. Illiquidity has not materially affected the Partnership's assets. There are no known material trends, demands, commitments, events or uncertainties at the present time that will result in, or that are reasonably likely to result in, the Partnership's liquidity increasing or decreasing in any material way. Capital Resources. The Partnership does not have, nor expect to have, any capital assets. Redemptions, exchanges and sales of additional Units in the future will affect the amount of funds available for investment in futures, forwards, and options in subsequent periods. It is not possible to estimate the amount, and therefore the impact, of future redemptions of Units. There are no known material trends, favorable or unfavorable, that would affect, nor any expected material changes to, the Partnership's capital resource arrangements at the present time. The Partnership does not have any off-balance sheet arrangements, nor does it have contractual obligations or commercial commitments to make future payments that would affect its liquidity or capital resources. Results of Operations. General. The Partnership's results depend on the Trading Advisors and the ability of the Trading Advisors' trading program to take advantage of price movements or other profit opportunities in the futures, forwards, and options markets. The following presents a summary of the Partnership's operations for each of the three years in the period ended December 31, 2003 and a general discussion of its trading activities during each period. It is important to note, however, that the Trading Advisors trade in various markets at different times and that prior activity in a particular market does not mean that such market will be actively traded by the Trading Advisors or will be profitable in the future. Consequently, the results of operations of the Partnership are difficult to discuss other than in the context of the Trading Advisors' trading activities on behalf of the Partnership and how the Partnership has performed in the past. Past performance is not necessarily indicative of future results. The Partnership's results of operations are set forth in its financial statements prepared in accordance with accounting principles generally accepted in the United States of America, which require the use of certain accounting policies that affect the amounts reported in these financial statements, including the following: The contracts the Partnership trades are accounted for on a trade-date basis and marked to market on a daily basis. The difference between their cost and market value is recorded on the Statements of Operations as "Net change in unrealized profit/loss" for open (unrealized) contracts, and recorded as "Realized profit/loss" when open positions are closed out, and the sum of these amounts constitutes the Partnership's trading revenues. The market value of a futures contract is the settlement price on the exchange on which that futures contract is traded on a particular day. The value of foreign currency forward contracts is based on the spot rate as of the close of business, New York City time, on a given day. Interest income revenue, as well as management fees, incentive fees and brokerage fees expenses of the Partnership are recorded on an accrual basis. Demeter believes that, based on the nature of the operations of the Partnership, no assumptions relating to the application of critical accounting policies other than those presently used could reasonably affect reported amounts. The Partnership recorded revenues including interest totaling $74,213,042 and expenses totaling $40,026,137, resulting in net income of $34,186,905 for the year ended December 31, 2003. The Partnership's net asset value per Unit increased from $27.65 at December 31, 2002 to $30.31 at December 31, 2003. Total redemptions and subscriptions for the year were $30,542,924 and $142,500,704, respectively, and the Partnership's ending capital was $441,522,484 at December 31, 2003, an increase of $146,144,685 from ending capital at December 31, 2002 of $295,377,799. The most significant trading gains of approximately 12.2% were recorded in the currency markets during January from long positions in the euro versus the U.S. dollar as the value of the European currency strengthened against the U.S. dollar amid renewed fears of a military conflict with Iraq, increased tensions with North Korea, and weak U.S. economic data. During May, gains were supplied by long positions in the euro versus the U.S. dollar as the value of the euro strengthened amid uncertainty regarding the Bush Administration's economic policy, renewed fears of potential terrorist attacks against American interests, and investor preference for non-U.S. dollar assets. Additional currency gains were recorded by long positions in the Australian dollar versus the U.S. dollar as the value of the Australian currency strengthened in response to continued weakness in the U.S. currency, rising gold prices and relatively high interest rates in Australia. During November and December, long positions in the euro, British pound, and Australian and New Zealand dollar versus the U.S. dollar generated additional gains. The U.S. dollar tumbled to a six-year low against the Australian and New Zealand dollar and a five-year low against the British pound. Additionally, the euro soared past the $1.20 mark, its highest level against the U.S. dollar since its introduction in January 1999. The U.S. dollar's weakness was caused by a variety of factors, including concerns regarding the growing U.S. current trade account and budget deficits, the Federal Reserve's policy of maintaining low interest rates, widening interest rate differentials relative to other countries, and renewed fears of global terrorism. In the metals markets, gains of approximately 5.9% were achieved primarily during the fourth quarter by long futures positions in copper and nickel. Industrial metals prices rallied during October in response to increased demand, especially from China, as well as to growing investor sentiment that the global economy was on the path to recovery. During December, copper and nickel prices rose to a six and fourteen-year high respectively, benefiting from increased demand from China and the strengthening of the global economy. Gains of approximately 2.6% in the global stock index markets were supplied by long positions in Asian stock index futures during August as Asian equity prices drew strength from robust Japanese economic data and rising prices in the U.S. equity markets. Long U.S. equity index futures positions profited after the release of favorable economic data during October, as well as in December. In the agricultural markets, gains of approximately 1.7% resulted from long futures positions in soybeans and its related products during September as prices reacted positively in response to robust U.S. export sales data and smaller U.S. crop assessments. Then in October, long futures positions in cotton and soybeans generated gains as increased demand from China and tight market supplies lifted prices. A portion of the Partnership's overall gains for the year was offset by losses of approximately 1.1% in the global interest rate markets incurred primarily during the last four months of the year. The Partnership experienced losses from short European futures positions. Prices reversed higher amid investor demand for safe haven investments following renewed volatility in global equity markets, continued geopolitical instability in the Middle East and comments from the U.S. Federal Reserve regarding the continuation of low U.S. interest rates. In the energy sector, losses of approximately 0.8% partially offset Partnership's gains for the year. Long positions in crude oil futures resulted in losses during March as prices reversed sharply lower amid market anticipation of a swift military victory for Coalition forces against Iraq. During September, losses were suffered from short positions in crude oil futures as prices unexpectedly reversed higher following OPEC's announcement for output reductions and curbs in production. During October, short crude oil positions experienced further losses as prices moved higher in response to supply fears spurred by Middle East tensions early in the month, as well as strike threats in Nigeria, one of the world's major oil producers. The Partnership recorded revenues including interest totaling $67,605,728 and expenses totaling $26,782,529, resulting in net income of $40,823,199 for the year ended December 31, 2002. The Partnership's net asset value per Unit increased from $23.96 at December 31, 2001 to $27.65 at December 31, 2002. Total redemptions and subscriptions for the year were $49,669,825 and $62,812,840, respectively, and the Partnership's ending capital was $295,377,799 at December 31, 2002, an increase of $53,966,214 from ending capital at December 31, 2001 of $241,411,585. The most significant trading gains of approximately 12.1% were recorded in the currency markets from long positions in the euro and Swiss franc versus the U.S. dollar during May, June, and December, as the dollar's value weakened amid investors' fears concerning global political tensions, specifically the threat of war between India and Pakistan, the looming threat of a military strike against Iraq, and the resumption of North Korea's nuclear program. Additional gains of approximately 9.5% were recorded from June through September, as well as in December, from long positions in European and U.S. interest rate futures as prices trended higher amid a shift of assets from stocks into bonds as investors sought the safe haven of fixed income investments. In the agricultural futures markets, gains of approximately 1.2% were recorded from long positions in soybean and wheat futures as prices rallied during the second and third quarter amid fears that hot and dry weather would adversely affect crops in the U.S. midwest. In the energy futures markets, gains of approximately 1.0% were experienced from long positions in natural gas futures during March, August, September, and December, as prices moved higher amid supply concerns. A portion of the Partnership's overall gains was offset by losses of approximately 1.8% recorded in the metals markets early in the year from long positions in copper futures as prices fell amid weak industrial demand. Additional losses were recorded in October from short positions in copper futures as prices reversed higher in response to a temporary rally in global equity prices in October. As of August 30, 2002, the Partnership received a settlement award payment from the Sumitomo Copper Litigation Settlement Administrator in the amount of $4,631,156. The Partnership recorded revenues including interest totaling $30,468,895 and expenses totaling $27,303,546, resulting in net income of $3,165,349 for the year ended December 31, 2001. The Partnership's net asset value per Unit increased from $23.57 at December 31, 2000 to $23.96 at December 31, 2001. Total redemptions and subscriptions for the year were $23,745,268 and $41,261,535, respectively, and the Partnership's ending capital was $241,411,585 at December 31, 2001, an increase of $20,681,616 from ending capital at December 31, 2000 of $220,729,969. The most significant trading gains of approximately 8.2% were recorded in the global interest rate futures markets primarily during August, September, and October from previously established long positions in short and intermediate term U.S. interest rate futures as prices continued trending higher following interest rate cuts by the U.S. and European central banks and as investors sought a safe haven from the decline in stock prices. Additional gains were recorded throughout the majority of the first quarter from previously established long positions in Japanese government bond futures as prices moved higher on concerns regarding that country's economy. In the global stock index futures markets, profits of approximately 5.1% were recorded throughout a majority of the third quarter from previously established short positions in DAX, Hang Seng, Nikkei, and S&P 500 index futures as the trend in equity prices continued sharply lower amid worries regarding global economic uncertainty. A portion of the Partnership's overall gains was partially offset by losses of approximately 2.6% recorded in the energy markets throughout a majority of the fourth quarter from volatile price movement in natural gas futures as a result of a continually changing outlook for supply, production and demand. In the currency markets, losses of approximately 0.1% were recorded throughout a majority of the fourth quarter from transactions involving the euro and Swiss franc. For an analysis of unrealized gains and (losses) by contract type and a further description of 2003 trading results, refer to the Partnership's Annual Report to Limited Partners for the year ended December 31, 2003, which is incorporated by reference to Exhibit 13.01 of this Form 10-K. The Partnership's gains and losses are allocated among its partners for income tax purposes. Market Risk. Financial Instruments. The Partnership is a party to financial instruments with elements of off-balance sheet market and credit risk. The Partnership trades futures, forwards, and options in interest rates, stock indices, commodities, currencies, petroleum, precious metals, and other commodity interests. In entering into these contracts, the Partnership is subject to the market risk that such contracts may be significantly influenced by market conditions, such as interest rate volatility, resulting in such contracts being less valuable. If the markets should move against all of the positions held by the Partnership at the same time, and if the Trading Advisors were unable to offset positions of the Partnership, the Partnership could lose all of its assets and the limited partners would realize a 100% loss. In addition to the Trading Advisors' internal controls, the Trading Advisors must comply with the Partnership's trading policies that include standards for liquidity and leverage that must be maintained. The Trading Advisors and Demeter monitor the Partnership's trading activities to ensure compliance with the trading policies and Demeter can require the Trading Advisors to modify positions of the Partnership if Demeter believes they violate the Partnership's trading policies. Credit Risk. In addition to market risk, in entering into futures, forward, and options contracts there is a credit risk to the Partnership that the counterparty on a contract will not be able to meet its obligations to the Partnership. The ultimate counterparty or guarantor of the Partnership for futures contracts traded in the United States and the foreign exchanges on which the Partnership trades is the clearinghouse associated with such exchange. In general, a clearinghouse is backed by the membership of the exchange and will act in the event of non-performance by one of its members or one of its member's customers, which should significantly reduce this credit risk. There is no assurance that a clearinghouse, exchange or other exchange member will meet its obligations to the Partnership, and Demeter and the commodity brokers will not indemnify the Partnership against a default by such parties. Further, the law is unclear as to whether a commodity broker has any obligation to protect its customers from loss in the event of an exchange or clearinghouse defaulting on trades effected for the broker's customers. In cases where the Partnership trades off-exchange forward contracts with a counterparty, the sole recourse of the Partnership will be the forward contracts counterparty. Demeter deals with these credit risks of the Partnership in several ways. First, it monitors the Partnership's credit exposure to each exchange on a daily basis. The commodity brokers inform the Partnership, as with all their customers, of its net margin requirements for all its existing open positions and Demeter has installed a system which permits it to monitor the Partnership's potential net credit exposure, exchange by exchange, by adding the unrealized trading gains on each exchange, if any, to the Partnership's margin liability thereon. Second, the Partnership's trading policies limit the amount of its net assets that can be committed at any given time to futures contracts and require a minimum amount of diversification in the Partnership's trading, usually over several different products and exchanges. Historically, the Partnership's exposure to any one exchange has typically amounted to only a small percentage of its total net assets and on those relatively few occasions where the Partnership's credit exposure climbs above an acceptable level, Demeter deals with the situation on a case by case basis, carefully weighing whether the increased level of credit exposure remains appropriate. Material changes to the trading policies may be made only with the prior written approval of the limited partners owning more than 50% of Units then outstanding. Third, with respect to forward contract trading, the Partnership trades with only those counterparties which Demeter, together with Morgan Stanley DW, have determined to be creditworthy. The Partnership presently deals with MS & Co. as the sole counterparty on forward contracts. See "Financial Instruments" under "Notes to Financial Statements" in the Partnership's Annual Report to Limited Partners for the year ended December 31, 2003, which is incorporated by reference to Exhibit 13.01 of this Form 10-K. Inflation has not been a major factor in the Partnership's operations. Item 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Introduction The Partnership is a commodity pool engaged primarily in the speculative trading of futures, forwards, and options. The market-sensitive instruments held by the Partnership are acquired for speculative trading purposes only and, as a result, all or substantially all of the Partnership's assets are at risk of trading loss. Unlike an operating company, the risk of market- sensitive instruments is central, not incidental, to the Partnership's main business activities. The futures, forwards, and options traded by the Partnership involve varying degrees of related market risk. Market risk is often dependent upon changes in the level or volatility of interest rates, exchange rates, and prices of financial instruments and commodities, factors that result in frequent changes in the fair value of the Partnership's open positions, and consequently in its earnings whether, realized or unrealized, and cash flow. Profits and losses on open positions of exchange-traded futures, forwards, and options are settled daily through variation margin. The Partnership's total market risk may increase or decrease as it's influenced by a wide variety of factors, including, but not limited to, the diversification among the Partnership's open positions, the volatility present within the markets, and the liquidity of the markets. The Partnership's past performance is not necessarily indicative of its future results. Any attempt to numerically quantify the Partnership's market risk is limited by the uncertainty of its speculative trading. The Partnership's speculative trading may cause future losses and volatility (i.e., "risk of ruin") that far exceed the Partnership's experiences to date or any reasonable expectations based upon historical changes in market value. Quantifying the Partnership's Trading Value at Risk The following quantitative disclosures regarding the Partner- ship's market risk exposures contain "forward-looking statements" within the meaning of the safe harbor from civil liability provided for such statements by the Private Securities Litigation Reform Act of 1995 (set forth in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934). All quantitative disclosures in this section are deemed to be forward-looking statement for purposes of the safe harbor, except for statements of historical fact. The Partnership accounts for open positions on the basis of mark to market accounting principles. Any loss in the market value of the Partnership's open positions is directly reflected in the Partnership's earnings and cash flow. The Partnership's risk exposure in the market sectors traded by the Trading Advisors is estimated below in terms of Value at Risk ("VaR"). The Partnership estimates VaR using a model based upon historical simulation (with a confidence level of 99%) which involves constructing a distribution of hypothetical daily changes in the value of a trading portfolio. The VaR model takes into account linear exposures to risk including equity and commodity prices, interest rates, foreign exchange rates, and correlation among these variables. The hypothetical changes in portfolio value are based on daily percentage changes observed in key market indices or other market factors ("market risk factors") to which the portfolio is sensitive. The one-day 99% confidence level of the Partnership's VaR corresponds to the negative change in portfolio value that, based on observed market risk factors, would have been exceeded once in 100 trading days, or one day in 100. VaR typically does not represent the worst case outcome. Demeter uses approximately four years of daily market data (1,000 observations) and revalues its portfolio (using delta-gamma approximations) for each of the historical market moves that occurred over this time period. This generates a probability distribution of daily "simulated profit and loss" outcomes. The VaR is the appropriate percentile of this distribution. For example, the 99% one-day VaR would represent the 10th worst outcome from Demeter's simulated profit and loss series. The Partnership's VaR computations are based on the risk representation of the underlying benchmark for each instrument or contract and do not distinguish between exchange and non-exchange dealer-based instruments. They are also not based on exchange and/or dealer-based maintenance margin requirements. VaR models, including the Partnership's, are continuously evolving as trading portfolios become more diverse and modeling techniques and systems capabilities improve. Please note that the VaR model is used to numerically quantify market risk for historic reporting purposes only and is not utilized by either Demeter or the Trading Advisors in their daily risk management activities. Please further note that VaR as described above may not be comparable to similarly titled measures used by other entities. The Partnership's Value at Risk in Different Market Sectors The following table indicates the VaR associated with the Partnership's open positions as a percentage of total net assets by primary market risk category at December 31, 2003 and 2002. At December 31, 2003 and 2002, the Partnership's total capitalization was approximately $442 million and $295 million, respectively. Primary Market December 31, 2003 December 31, 2002 Risk Category Value at Risk Value at Risk Equity (1.75)% (0.44)% Currency (1.19) (2.17) Interest Rate (0.48) (1.25) Commodity (1.40) (1.22) Aggregate Value at Risk (2.64)% (2.84)% The VaR for a market category represents the one-day downside risk for the aggregate exposures associated with this market category. The Aggregate Value at Risk listed above represents the VaR of the Partnership's open positions across all the market categories, and is less than the sum of the VaRs for all such market categories due to the diversification benefit across asset classes. Because the business of the Partnership is the speculative trading of futures, forwards, and options, the composition of its trading portfolio can change significantly over any given time period, or even within a single trading day, which could positively or negatively materially impact market risk as measured by VaR. The table below supplements the December 31, 2003 VaR set forth above by presenting the Partnership's high, low and average VaR, as a percentage of total net assets for the four quarter-end reporting periods from January 1, 2003 through December 31, 2003. Primary Market Risk Category High Low Average Equity (1.75)% (0.42)% (0.86)% Currency (1.32) (0.44) (1.00) Interest Rate (0.58) (0.35) (0.47) Commodity (1.40) (0.16) (0.80) Aggregate Value at Risk (2.64)% (0.82)% (1.72)% Limitations on Value at Risk as an Assessment of Market Risk The face value of the market sector instruments held by the Partnership is typically many times the applicable margin requirements. Margin requirements generally range between 2% and 15% of contract face value. Additionally, the use of leverage causes the face value of the market sector instruments held by the Partnership to typically be many times the total capitalization of the Partnership. The value of the Partnership's open positions thus creates a "risk of ruin" not typically found in other investments. The relative size of the positions held may cause the Partnership to incur losses greatly in excess of VaR within a short period of time, given the effects of the leverage employed and market volatility. The VaR tables above, as well as the past performance of the Partnership, give no indication of such "risk of ruin". In addition, VaR risk measures should be viewed in light of the methodology's limitations, which include the following: ? past changes in market risk factors will not always result in accurate predictions of the distributions and correlations of future market movements; ? changes in portfolio value caused by market movements may differ from those of the VaR model; ? VaR results reflect past trading positions while future risk depends on future positions; ? VaR using a one-day time horizon does not fully capture the market risk of positions that cannot be liquidated or hedged within one day; and ? the historical market risk factor data used for VaR estimation may provide only limited insight into losses that could be incurred under certain unusual market movements. The VaR tables provided present the results of the Partnership's VaR for each of the Partnership's market risk exposures and on an aggregate basis at December 31, 2003, and 2002, and for the four quarter-end reporting periods during calendar year 2003. VaR is not necessarily representative of the historic risk, nor should it be used to predict the Partnership's future financial performance or its ability to manage or monitor risk. There can be no assurance that the Partnership's actual losses on a particular day will not exceed the VaR amounts indicated above or that such losses will not occur more than once in 100 trading days. Non-Trading Risk The Partnership has non-trading market risk on its foreign cash balances not needed for margin. These balances and any market risk they may represent are immaterial. The Partnership also maintains a substantial portion (approximately 78% as of December 31, 2003) of its available assets in cash at Morgan Stanley DW. A decline in short-term interest rates would result in a decline in the Partnership's cash management income. This cash flow risk is not considered to be material. Materiality, as used throughout this section, is based on an assessment of reasonably possible market movements and any associated potential losses, taking into account the leverage, optionality and multiplier features of the Partnership's market- sensitive instruments, in relation to the Partnership's net assets. Qualitative Disclosures Regarding Primary Trading Risk Exposures The following qualitative disclosures regarding the Partnership's market risk exposures - except for (A) those disclosures that are statements of historical fact and (B) the descriptions of how the Partnership manages its primary market risk exposures - constitute forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act. The Partnership's primary market risk exposures, as well as the strategies used and to be used by Demeter and the Trading Advisors for managing such exposures, are subject to numerous uncertainties, contingencies and risks, any one of which could cause the actual results of the Partnership's risk controls to differ materially from the objectives of such strategies. Government interventions, defaults and expropriations, illiquid markets, the emergence of dominant fundamental factors, political upheavals, changes in historical price relationships, an influx of new market participants, increased regulation and many other factors could result in material losses, as well as in material changes to the risk exposures and the risk management strategies of the Partnership. Investors must be prepared to lose all or substantially all of their investment in the Partnership. The following were the primary trading risk exposures of the Partnership at December 31, 2003, by market sector. It may be anticipated, however, that these market exposures will vary materially over time. Equity. The primary market exposure of the Partnership at December 31, 2003 was to equity price risk in the G-7 countries. The G-7 countries consist of France, the U.S., Britain, Germany, Japan, Italy, and Canada. The stock index futures traded by the Partnership are by law limited to futures on broadly-based indices. At December 31, 2003, the Partnership's primary exposures were to the S&P 500 (U.S.), DAX (Germany), Euro Stoxx 50 (Europe), MIB 30 (Italy), and FTSE 100 (Great Britain) stock indices. The Partnership is exposed to the risk of adverse price trends or static markets in the U.S., European and Japanese stock indices. Static markets would not cause major market changes, but would make it difficult for the Partnership to avoid trendless price movements resulting in numerous small losses. Currency. The second largest market exposure of the Partnership at December 31, 2003 was to the currency complex. The Partnership's currency exposure is to exchange rate fluctuations, primarily fluctuations which disrupt the historical pricing relationships between different currencies and currency pairs. Interest rate changes as well as political and general economic conditions influence these fluctuations. The Partnership trades a large number of currencies, including cross- rates - i.e., positions between two currencies other than the U.S. dollar. At December 31, 2003, the Partnership's major exposures were to the euro and Norwegian kroner currency crosses, as well as to outright U.S. dollar positions. Outright positions consist of the U.S. dollar vs. other currencies. These other currencies include major and minor currencies. Demeter does not anticipate that the risk profile of the Partnership's currency sector will change significantly in the future. The currency trading VaR figure includes foreign margin amounts converted into U.S. dollars with an incremental adjustment to reflect the exchange rate risk inherent to the U.S.-based Partnership in expressing VaR in a functional currency other than U.S. dollars. Interest Rate. The third largest market exposure of the Partnership at December 31, 2003 was to the global interest rate complex. Exposure was primarily spread across the U.S., European, Australian, and Japanese interest rate sectors. Interest rate movements directly affect the price of the sovereign bond futures positions held by the Partnership and indirectly affect the value of its stock index and currency positions. Interest rate movements in one country, as well as relative interest rate movements between countries, materially impact the Partnership's profitability. The Partnership's interest rate exposure is generally to interest rate fluctuations in the U.S. and the other G-7 countries. However, the Partnership also takes futures positions in the government debt of smaller nations - e.g., Australia. Demeter anticipates that G-7 countries and Australian interest rates will remain the primary interest rate exposure of the Partnership for the foreseeable future. The speculative futures positions held by the Partnership may range from short to long-term instruments. Consequently, changes in short, medium or long-term interest rates may have an effect on the Partnership. Commodity. Metals. The Partnership's metals exposure at December 31, 2003 was to fluctuations in the price of precious metals, such as gold and silver, and base metals, such as copper, aluminum, nickel, zinc, lead, and tin. Economic forces, supply and demand inequalities, geopolitical factors and market expectations influence price movements in these markets. The Trading Advisors, from time to time, take positions when market opportunities develop and Demeter anticipates that the Partnership will continue to do so. Energy. At December 31, 2003, the Partnership's energy exposure was primarily to futures contracts in crude oil and its related products, and natural gas. Price movements in the energy markets result from geopolitical developments, particularly in the Middle East, as well as weather patterns and other economic fundamentals. Significant profits and losses, which have been experienced in the past, are expected to continue to be experienced in the future. Natural gas has exhibited volatility in prices resulting from weather patterns and supply and demand factors and will likely continue in this choppy pattern. Soft Commodities and Agriculturals. At December 31, 2003, the Partnership had exposure to the markets that comprise these sectors. Most of the exposure was to soybeans and its related products, and wheat. Supply and demand inequalities, severe weather disruptions and market expectations affect price movements in these markets. Qualitative Disclosures Regarding Non-Trading Risk Exposure The following was the only non-trading risk exposure of the Partnership at December 31, 2003: Foreign Currency Balances. The Partnership's primary foreign currency balances at December 31, 2003 were in Hong Kong dollars, euros, and Japanese yen. The Partnership controls the non-trading risk of foreign currency balances by regularly converting them back into U.S. dollars upon liquidation of their respective positions. Qualitative Disclosure Regarding Means of Managing Risk Exposure The Partnership and the Trading Advisors, separately, attempt to manage the risk of the Partnership's open positions in essentially the same manner in all market categories traded. Demeter attempts to manage market exposure by diversifying the Partnership's assets among different Trading Advisors, each of whose strategies focus on different market sectors and trading approaches, and by monitoring the performance of the Trading Advisors daily. In addition, the Trading Advisors establish diversification guidelines, often set in terms of the maximum margin to be committed to positions in any one market sector or market- sensitive instrument. Demeter monitors and controls the risk of the Partnership's non- trading instrument, cash. Cash is the only Partnership investment directed by Demeter, rather than the Trading Advisors. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Financial Statements are incorporated by reference to the Partnership's Annual Report, which is filed as Exhibit 13.01 hereto. Supplementary data specified by Item 302 of Regulation S-K: Summary of Quarterly Results (Unaudited) Quarter Revenues/ Net Net Income/ Ended (Net Losses) Income/(Loss) (Loss) Per Unit 2003 March 31 $ 5,648,636 $ (3,435,893) $ (0.22) June 30 30,802,630 21,952,801 1.89 September 30 (7,076,850) (16,582,417) (1.29) December 31 44,838,626 32,252,414 2.28 Total $ 74,213,042 $ 34,186,905 $ 2.66 2002 March 31 $ (4,965,948) $(11,031,500) $ (1.10) June 30 35,775,689 29,684,989 2.81 September 30 45,366,560 38,074,946 3.56 December 31 (8,570,573) (15,905,236) (1.58) Total $ 67,605,728 $ 40,823,199 $ 3.69 Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACOUNTING AND FINANCIAL DISCLOSURE None. Item 9A. CONTROLS AND PROCEDURES (a) As of the end of the period covered by this annual report, the President and Chief Financial Officer of the general partner, Demeter, have evaluated the effectiveness of the Partnership's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d- 15(e) of the Exchange Act), and have judged such controls and procedures to be effective. (b) There have been no significant changes in the Partnership's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation. PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT There are no directors or executive officers of the Partnership. The Partnership is managed by Demeter. Directors and Officers of the General Partner The directors and executive officers of Demeter are as follows: Jeffrey A. Rothman, age 42, is the Chairman of the Board of Directors and President of Demeter. Mr. Rothman is the Executive Director of Morgan Stanley Managed Futures, responsible for overseeing all aspects of the firm's managed futures department. He is also the Chairman of the Board of Directors of Morgan Stanley Futures & Currency Management Inc. Mr. Rothman has been with the managed futures department for seventeen years. Throughout his career, Mr. Rothman has helped with the development, marketing and administration of approximately 39 commodity pools. Mr. Rothman is an active member of the Managed Funds Association and serves on its Board of Directors. Mr. Rothman has a B.A. degree in Liberal Arts from Brooklyn College, New York. Richard A. Beech, age 52, is a Director of Demeter. Mr. Beech has been associated with the futures industry for over 25 years. He has been at Morgan Stanley DW since August 1984 where he is presently an Executive Director and head of Futures, Forex & Metals. Mr. Beech began his career at the Chicago Mercantile Exchange, where he became the Chief Agricultural Economist doing market analysis, marketing and compliance. Prior to joining Morgan Stanley DW, Mr. Beech worked at two investment banking firms in operations, research, managed futures and sales management. Mr. Beech has a B.S. degree in Business Administration from Ohio State University and an M.B.A. degree from Virginia Polytechnic Institute and State University. Raymond A. Harris, age 47, is a Director of Demeter and of Morgan Stanley Futures & Currency Management Inc. Mr. Harris is currently Managing Director and head of Client Solutions for Morgan Stanley Individual Investor Group. Mr. Harris joined Morgan Stanley in 1982 and served in financial and operational assignments for Dean Witter Reynolds. In 1994, he joined the Discover Financial Services division, leading restructuring and product development efforts. Mr. Harris became Chief Administrative Officer for Morgan Stanley Investment Management in 1999. In 2001, he was named head of Global Products and Services for Investment Management. Mr. Harris has an M.B.A. in Finance from the University of Chicago and a B.A. degree from Boston College. Frank Zafran, age 48, is a Director of Demeter and of Morgan Stanley Futures & Currency Management Inc. Mr. Zafran is an Executive Director of Morgan Stanley and, in September 2002, was named Chief Administrative Officer of Morgan Stanley's Client Solutions Division. Mr. Zafran joined the firm in 1979 and has held various positions in Corporate Accounting and the Insurance Department, including Senior Operations Officer - Insurance Division, until his appointment in 2000 as Director of 401(k) Plan Services, responsible for all aspects of 401(k) Plan Services including marketing, sales and operations. Mr. Zafran received a B.S. degree in Accounting from Brooklyn College, New York. Douglas J. Ketterer, age 38, was named a Director of Demeter, and confirmed by the National Futures Association as a principal of Demeter on October 27, 2003. Mr. Ketterer is a Managing Director and head of the Investment Solutions Group, which is comprised of a number of departments which offer products and services through Morgan Stanley's Individual Investor Group (including Managed Futures, Alternative Investments, Insurance Services, Personal Trust, Corporate Services, and others). Mr. Ketterer joined the firm in 1990 in the Corporate Finance Division as a part of the Retail Products Group. He later moved to the origination side of Investment Banking, and then, after the merger between Morgan Stanley and Dean Witter, served in the Product Development Group at Morgan Stanley Dean Witter Advisors (now known as Morgan Stanley Funds). From the summer of 2000 to the summer of 2002, Mr. Ketterer served as the Chief Administrative Officer for Morgan Stanley Investment Management, where he headed the Strategic Planning & Administrative Group. Mr. Ketterer received his M.B.A. from New York University's Leonard N. Stern School of Business and his B.S. in Finance from the University at Albany's School of Business. Jeffrey S. Swartz, age 36, was named a Director of Demeter, and confirmed by the National Futures Association as a principal of Demeter on October 23, 2003. Mr. Swartz is a Managing Director and Director of the Mass Affluent Segment of Morgan Stanley's Individual Investor Group. Mr. Swartz began his career with Morgan Stanley in 1990, working as a Financial Advisor in Boston. He was appointed Sales Manager of the Boston office in 1994, and served in that role for two years. In 1996, he was named Branch Manager of the Cincinnati office. In 1999, Mr. Swartz was named Associate Director of the Midwest Region, which consisted of 10 states and approximately 90 offices. Mr. Swartz served in this capacity until October of 2001, when he was named Director of Investor Advisory Services ("IAS") Strategy and relocated to IAS headquarters in New York. In December of 2002, Mr. Swartz was promoted to Managing Director and Chief Operating Officer of IAS and has recently assumed the responsibility for managing the Mass Affluent Client Segment. Mr. Swartz received his degree in Business Administration from the University of New Hampshire. Jeffrey D. Hahn, age 46, is the Chief Financial Officer of Demeter. Mr. Hahn began his career at Morgan Stanley in 1992 and is currently an Executive Director responsible for the management and supervision of the accounting, reporting, tax and finance functions for the firm's private equity, managed futures, and certain legacy real estate investing activities. He is also the Chief Financial Officer of Morgan Stanley Futures & Currency Management Inc. From August 1984 through May 1992, Mr. Hahn held various positions as an auditor at Coopers & Lybrand, specializing in manufacturing businesses and venture capital organizations. Mr. Hahn received his B.A. in Economics from St. Lawrence University in 1979, an M.B.A. from Pace University in 1984, and is a Certified Public Accountant. All of the foregoing directors have indefinite terms. The Audit Committee The Partnership is operated by its general partner, Demeter, and does not have an audit committee. As such, the entire Board of Directors of Demeter serves as the audit committee. None of the directors are considered to be "independent" as that term is used in Item 7(d)(3)(iv) of Schedule 14A under the Securities Exchange Act of 1934, as amended. The Board of Directors of Demeter has determined that Mr. Jeffrey D. Hahn is the audit committee financial expert. Section 16(a) Beneficial Ownership Reporting Compliance The Partnership has no directors, executive officers or greater than 10 percent beneficial owners. However, Mr. Jeffrey Rothman, President and Chairman of the Board of Directors of Demeter, the general partner of the Partnership, beneficially owns 640 Units of the Partnership and filed the Annual Statement of Changes in Beneficial Ownership on Form 5 for the year ended December 31, 2003, on February 15, 2004. Mr. Rothman became a director and officer of Demeter on September 12, 2002, and Form 3 should have been filed on or before September 22, 2002 and a Form 5 should have been filed for the fiscal year ending December 31, 2002. Mr. Rothman's ownership of 640 Units of the Partnership represents less than 1% of the outstanding Units of the Partnership. No other Forms 3, 4, or 5 have been filed. Code of Ethics The Partnership has not adopted a code of ethics that applies to the Partnership's principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. The Partnership is operated by its general partner, Demeter. The President, Chief Financial Officer and each member of the Board of Directors of Demeter are employees of Morgan Stanley and are subject to the code of ethics adopted by Morgan Stanley, the text of which can be viewed on Morgan Stanley's website at www.morganstanley.com/ourcommitment/codeofcon duct.html. Item 11. EXECUTIVE COMPENSATION The Partnership has no directors and executive officers. As a limited partnership, the business of the Partnership is managed by Demeter, which is responsible for the administration of the business affairs of the Partnership but receives no compensation for such services. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (a) Security Ownership of Certain Beneficial Owners - At December 31, 2003, there were no persons known to be beneficial owners of more than 5 percent of the Units. (b) Security Ownership of Management - At December 31, 2003, Demeter owned 160,190.965 Units of general partnership interest, representing a 1.10 percent interest in the Partnership. (c) Changes in Control - None. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Refer to Note 2 - "Related Party Transactions" of "Notes to Financial Statements", in the accompanying Annual Report to Limited Partners for the year ended December 31, 2003, which is incorporated by reference to Exhibit 13.01 of this Form 10-K. In its capacity as the Partnership's retail commodity broker, Morgan Stanley DW received commodity brokerage fees (paid and accrued by the Partnership) of $25,658,616 for the year ended December 31, 2003. Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES Morgan Stanley DW, on behalf of the Partnership, pays all accounting fees. The Partnership reimburses Morgan Stanley DW through the brokerage fees it pays, as discussed in the Notes to Financial Statements in the Annual Report to the Limited Partners for the year ended December 31, 2003. (1) Audit Fees. The aggregate fees for professional services rendered by Deloitte & Touche LLP in connection with their audit of the Partnership's financial statements and reviews of the financial statements included in the Quarterly Reports on Form 10-Q and in connection with statutory and regulatory filings for the years ended December 31, 2003 and 2002 were approximately $44,900 and $45,049, respectively. (2) Audit-Related Fees. There were no fees for assurance and related services rendered by Deloitte & Touche LLP for the years ended December 31, 2003 and 2002. (3) Tax Fees. The aggregate fees for tax compliance services rendered by Deloitte & Touche LLP for the years ended December 31, 2003 and 2002 were approximately $29,914 and $29,066, respectively. (4) All Other Fees. None. As of the date of this Report, the Board of Directors of Demeter has not adopted pre-approval policies and procedures. As a result, all services provided by Deloitte & Touche LLP must be directly pre-approved by the Board of Directors of Demeter. PART IV Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) 1. Listing of Financial Statements The following financial statements and report of independent auditors, all appearing in the accompanying Annual Report to Limited Partners for the year ended December 31, 2003 are incorporated by reference to Exhibit 13.01 of this Form 10-K: - Report of Deloitte & Touche LLP, independent auditors, for the years ended December 31, 2003, 2002 and 2001. - Statements of Financial Condition, including the Schedules of Investments, as of December 31, 2003 and 2002. - Statements of Operations, Changes in Partners' Capital, and Cash Flows for the years ended December 31, 2003, 2002 and 2001. - Notes to Financial Statements. With the exception of the aforementioned information and the information incorporated in Items 7, 8, and 13, the Annual Report to Limited Partners for the year ended December 31, 2003 is not deemed to be filed with this report. 2. Listing of Financial Statement Schedules No financial statement schedules are required to be filed with this report. (b) Reports on Form 8-K On March 10, 2004, the Partnership filed the Current Report on Form 8-K for the purpose of reporting, under Item 5, the Partnership having entered a management agreement with Graham Capital Management, L.P., thereby adding Graham Capital Management, L.P., as a trading advisor to the Partnership. (c) Exhibits Refer to Exhibit Index on Page E-1 to E-3. 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 March 15, 2004 BY: /s/ Jeffrey A. Rothman Jeffrey A. Rothman, President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Demeter Management Corporation. BY: /s/ Jeffrey A. Rothman March 15, 2004 Jeffrey A. Rothman, President /s/ Douglas J. Ketterer March 15, 2004 Douglas J. Ketterer, Director /s/ Jeffrey S. Swartz March 15, 2004 Jeffrey S. Swartz, Director /s/ Richard A. Beech March 15, 2004 Richard A. Beech, Director /s/ Raymond A. Harris March 15, 2004 Raymond A. Harris, Director /s/ Frank Zafran March 15, 2004 Frank Zafran, Director /s/ Jeffrey D. Hahn March 15, 2004 Jeffrey D. Hahn, Chief Financial Officer EXHIBIT INDEX ITEM 3.01 Form of Amended and Restated Limited Partnership Agreement of the Partnership, is incorporated by reference to Exhibit A of the Partnership's Prospectus, dated April 28, 2003, filed with the Securities and Exchange Commission pursuant to Rule 424(b)(3) under the Securities Act of 1933 on May 7, 2003. 3.02 Certificate of Limited Partnership, dated March 19, 1991, is incorporated by reference to Exhibit 3.02 of the Partnership's Registration Statement on Form S-1 (File No. 333-47829) filed with the Securities and Exchange Commission on March 12, 1998. 3.03 Certificate of Amendment Certificate of Limited Partnership, dated April 6, 1999, is incorporated by reference to Exhibit 3.03 of the Partnership's Registration Statement on Form S-1 (File No. 333-68773) filed with the Securities and Exchange Commission on April 12, 1999. 3.04 Certificate of Amendment of Certificate of Limited Partnership, dated November 1, 2001 (changing its name from Morgan Stanley Dean Witter Spectrum Select L.P.), is incorporated by reference to Exhibit 3.01 of the Partnership's Form 8-K (File No. 0-19511) filed with the Securities and Exchange Commission on November 1, 2001. 10.01 Amended and Restated Management Agreement, dated as of June 1, 1998, among the Partnership, Demeter, and Rabar Market Research, Inc. is incorporated by reference to Exhibit 10.01 of the Partnership's Form 10-K (File No. 0-19511) for fiscal year ended December 31, 1998 filed on June 30, 1999. 10.02 Amended and Restated Management Agreement, dated as of June 1, 1998, among the Partnership, Demeter, and EMC Capital Management, Inc. is incorporated by reference to Exhibit 10.02 of the Partnership's Form 10-K (File No. 0- 19511) for fiscal year ended December 31, 1998 filed on June 30, 1999. 10.03 Amended and Restated Management Agreement, dated as of June 1, 1998, among the Partnership, Demeter, and Sunrise Capital Management, Inc. is incorporated by reference to Exhibit 10.03 of the Partnership's Form 10-K (File No. 0-19511) for fiscal year ended December 31, 1998 filed on June 30, 1999. E-1 10.04 Management Agreement, dated as of May 1, 2001, among the Partnership, Demeter, and Northfield Trading L.P., is incorporated by reference to Exhibit 10.01 of the Partnership's Form 8-K (File No. 0-19511) filed with the Securities and Exchange Commission on April 25, 2001. 10.07 Form of Subscription and Exchange Agreement and Power of Attorney to be executed by each purchaser of Units is incorporated by reference to Exhibit B of the Partnership's Prospectus, dated April 28, 2003, filed with the Securities and Exchange Commission pursuant to Rule 424(b)(3) under the Securities Act of 1933 on May 7, 2003. 10.10 Amended and Restated Escrow Agreement, among the Partnership, Morgan Stanley Spectrum Strategic L.P., Morgan Stanley Spectrum Global Balanced L.P., Morgan Stanley Spectrum Technical L.P., Morgan Stanley Spectrum Currency L.P., Morgan Stanley Spectrum Commodity L.P., Morgan Stanley DW, and The Chase Manhattan Bank as escrow agent, dated March 10, 2000, is incorporated by reference to Exhibit 10.10 of the Partnership's Registration Statement on Form S-1 (File No. 333-90467) filed with the Securities and Exchange Commission on November 2, 2001. 10.11 Form of Subscription Agreement Update Form to be executed by purchasers of Units is incorporated by reference to Exhibit C of the Partnership's Prospectus, dated April 28, 2003, filed with the Securities and Exchange Commission pursuant to Rule 424(b)(3) under the Securities Act of 1933 on May 7, 2003. 10.12 Amended and Restated Customer Agreement between the Partnership and Morgan Stanley DW, dated as of October 16, 2000, is incorporated by reference to Exhibit 10.01 of the Partnership's Form 8-K (File No. 0-19511) filed with the Securities and Exchange Commission on November 1, 2001. 10.13 Commodity Futures Customer Agreement between MS & Co. and the Partnership, and acknowledged and agreed to by Morgan Stanley DW, dated as of June 6, 2000, is incorporated by reference to Exhibit 10.02 of the Partnership's Form 8-K (File No. 0-19511) filed with the Securities and Exchange Commission on November 1, 2001. E-2 10.14 Customer Agreement between the Partnership and MSIL, dated as of June 6, 2000, is incorporated by reference to Exhibit 10.04 of the Partnership's Form 8-K (File No. 0-19511) filed with the Securities and Exchange Commission on November 1, 2001. 10.15 Foreign Exchange and Options Master Agreement between MS & Co. and the Partnership, dated as of April 30, 2000, is incorporated by reference to Exhibit 10.05 of the Partnership's Form 8-K (File No. 0-19511) filed with the Securities and Exchange Commission on November 1, 2001. 10.16 Securities Account Control Agreement among the Partnership, MS & Co., and Morgan Stanley DW, dated as of May 1, 2000, is incorporated by reference to Exhibit 10.03 of the Partnership's Form 8-K (File No. 0-19511) filed with the Securities and Exchange Commission on November 1, 2001. 13.01 December 31, 2003 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 rules 13a-15(e) and 15d-15(e), as adopted 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 rules 13a-15(e) and 15d-15(e), as adopted 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. E-3 Morgan Stanley Spectrum Series December 31, 2003 Annual Report [LOGO] Morgan Stanley 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 not necessarily indicative of future results.
INCEPTION- TO-DATE 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 RETURN FUND % % % % % % % % % % % % % % ------------------------------------------------------------------------------------------------------------------------ Spectrum Currency....... -- -- -- -- -- -- -- -- -- 11.7 11.1 12.2 12.4 56.6 (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 54.7 (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 9.6 203.1 (5 mos.) ------------------------------------------------------------------------------------------------------------------------ Spectrum Strategic...... -- -- -- 0.1 10.5 (3.5) 0.4 7.8 37.2 (33.1) (0.6) 9.4 24.0 43.1 (2 mos.) ------------------------------------------------------------------------------------------------------------------------ Spectrum Technical...... -- -- -- (2.2) 17.6 18.3 7.5 10.2 (7.5) 7.8 (7.2) 23.3 23.0 126.4 (2 mos.) ------------------------------------------------------------------------------------------------------------------------
COMPOUND ANNUALIZED RETURN FUND % ----------------------------------- Spectrum Currency....... 13.7 ----------------------------------- Spectrum Global Balanced 4.9 ----------------------------------- Spectrum Select......... 9.3 ----------------------------------- Spectrum Strategic...... 4.0 ----------------------------------- Spectrum Technical...... 9.3 -----------------------------------
DEMETER MANAGEMENT CORPORATION 825 Third Avenue, 9th Floor New York, NY 10022 (212) 310-6444 MORGAN STANLEY SPECTRUM SERIES ANNUAL REPORT 2003 Dear Limited Partner: This marks the tenth annual report for Morgan Stanley Spectrum Global Balanced L.P., Morgan Stanley Spectrum Strategic L.P. and Morgan Stanley Spectrum Technical L.P., the thirteenth annual report for Morgan Stanley Spectrum Select L.P., and the fourth annual report for Morgan Stanley Spectrum Currency L.P. The Net Asset Value per Unit for each of the five Morgan Stanley Spectrum Funds ("Fund(s)") as of December 31, 2003 was as follows:
% CHANGE FUNDS N.A.V. FOR YEAR ----------------------------------------- Spectrum Currency $15.66 12.4% ----------------------------------------- Spectrum Global Balanced $15.47 6.2% ----------------------------------------- Spectrum Select $30.31 9.6% ----------------------------------------- Spectrum Strategic $14.31 24.0% ----------------------------------------- Spectrum Technical $22.64 23.0% -----------------------------------------
Since their inception in November 1994, Spectrum Global Balanced has increased by 54.7% (a compound annualized return of 4.9%), Spectrum Strategic has increased by 43.1% (a compound annualized return of 4.0%), and Spectrum Technical has increased by 126.4% (a compound annualized return of 9.3%). Since its inception in August 1991, Spectrum Select has increased by 203.1% (a compound annualized return of 9.3%). Since its inception in July 2000, Spectrum Currency has increased by 56.6% (a compound annualized return of 13.7%). 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 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. Should you have any questions concerning this report, please feel free to contact Demeter Management Corporation, 825 Third Avenue, 9th Floor, New York, NY 10022 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/ Jeffrey A. Rothman Jeffrey A. Rothman Chairman 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. SPECTRUM CURRENCY [CHART] Year ended December 31, 2003 ----------------- Australian dollar 8.68% British pound -2.43% Euro 12.03% Japanese yen 0.14% Swiss franc -2.31% Minor currencies 4.76% 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, Greek drachma, Singapore dollar, Mexican peso, New Zealand dollar and Norwegian krone. FACTORS INFLUENCING ANNUAL TRADING GAINS: . The most significant gains were recorded from long positions in the euro versus the U.S. dollar as the dollar's value weakened throughout a majority of the year. Fears of a military conflict with Iraq, skepticism regarding the likelihood of a U.S. economic recovery and fears of a potential terrorist attack resulted in gains from long euro positions during January, April, and May. A confluence of factors during December including concerns regarding U.S. budget and trade deficits, a dip in consumer confidence, an outbreak of Mad Cow Disease in the U.S., and continued fears of a potential terrorist attack forced the U.S. dollar to retreat further and the euro to climb. . Additional gains resulted from long positions in the Australian dollar versus the U.S. dollar during April, May, and June and again during November and December as the Australian currency strengthened in response to continued weakness in the U.S. dollar, higher interest rates in Australia relative to those in the U.S. and higher gold prices. . Profits were also provided by long positions in the South African rand versus the U.S. dollar during April and December due to significant interest rate differentials between the two countries, economic concerns regarding U.S. budget and trade deficits and fears of a potential terrorist attack. Smaller profits were experienced from long positions in the New Zealand dollar versus the U.S. dollar primarily during November as the U.S. dollar's value tumbled to a six-year low versus the New Zealand currency. FACTORS INFLUENCING ANNUAL TRADING LOSSES: . Losses were recorded by positions in the British pound versus the U.S. dollar as the value of the pound strengthened during April and May on expectations that the Bank of England would likely leave interest rates unchanged and upon the release of lower-than-expected unemployment data from Great Britain. During June, losses stemmed from positions in the pound versus the U.S. dollar as the pound's value increased early in the month, amid expectations that the Bank of England would likely leave interest rates unchanged, and then reversed lower, after the British Finance Minister released positive comments regarding the U.K.'s entry prospects into the European Union. . Additional losses resulted from short positions in the Swiss franc versus the U.S. dollar during September as the dollar's value declined amid concerns about the strength of the U.S. economy and the potential impact of a statement by the G-7 nations supporting "more flexible exchange rates." The G-7 countries consist of France, the U.S., Britain, Germany, Japan, Italy, and Canada. SPECTRUM CURRENCY (continued) SPECTRUM GLOBAL BALANCED [CHART] Year ended December 31, 2003 ----------------- Currencies 0.41% Interest Rates 2.45% Stock Indices 7.05% Energies 0.50% Metals 1.07% Agriculturals -1.19% Note:Reflects trading results only and does not include fees or interest income. FACTORS INFLUENCING ANNUAL TRADING GAINS: . In the global stock index futures markets, gains were recorded by long positions in European and U.S. stock index futures. During the second quarter, global equity prices rallied in response to positive earnings announcements, the conclusion of the war in Iraq, and the prospect of lower interest rates. Additional gains were recorded from long positions in Japanese stock index futures during July and August as prices jumped higher in response to increased investor demand triggered by record-low Japanese government bond yields, robust Japanese economic data and gains in the U.S. equity markets. During the fourth quarter, further gains were provided by long European, U.S., and Asian equity index futures positions. The release of favorable economic data and an inflow of investor assets into equities spurred in part by strong U.S. manufacturing data and the strongest U.S. quarterly growth rate in twenty years helped boost global equity prices. . Additional gains were generated in the global interest rate markets. During February and May, long positions in European and U.S. interest rate futures profited as prices trended higher amid speculation of an interest rate cut by the U.S. Federal Reserve, lingering doubts concerning a global economic recovery, and investor preference for fixed income investments. . In the metals markets, smaller gains were experienced, primarily during October, by long futures positions in nickel and copper as industrial metals prices rallied in response to increased demand, especially from China, as well as to growing investor sentiment that the global economy was on the path to recovery. FACTORS INFLUENCING ANNUAL TRADING LOSSES: . Losses were recorded in the agricultural sector. Corn futures positions incurred losses as the price of corn was lifted higher with wheat prices during January and then traded inconsistently during April and August amid supply and weather-related issues. Long positions in cotton and corn futures during November added to losses within in this sector as the prices of those commodities reversed lower. SPECTRUM GLOBAL BALANCED (continued) SPECTRUM SELECT [CHART] Year ended December 31, 2003 ----------------- Currencies 12.15% Interest Rates -1.10% Stock Indices 2.56% Energies -0.83% Metals 5.91% Agriculturals 1.71% Note:Reflects trading results only and does not include fees or interest income. FACTORS INFLUENCING ANNUAL TRADING GAINS: . The most significant gains were recorded in the currency markets. During January, long positions in the euro versus the U.S. dollar profited as the value of the European currency strengthened against the U.S. dollar amid renewed fears of a military conflict with Iraq, increased tensions with North Korea, and weak U.S. economic data. During May, gains were supplied by long positions in the euro versus the U.S. dollar as the value of the euro strengthened amid uncertainty regarding the Bush Administration's economic policy, renewed fears of potential terrorist attacks against American interests, and investor preference for non-U.S. dollar assets. Additional currency gains were recorded by long positions in the Australian dollar versus the U.S. dollar as the value of the Australian currency strengthened in response to continued weakness in the U.S. currency, rising gold prices and relatively high interest rates in Australia. During November and December, long positions in the euro, British pound, and Australian and New Zealand dollars versus the U.S. dollar generated additional gains. The U.S. dollar tumbled to a six-year low against the Australian and New Zealand dollar and a five-year low against the British pound. Additionally, the euro soared past the $1.20 mark, its highest level against the U.S. dollar since its introduction in January 1999. The U.S. dollar's weakness was caused by a variety of factors, including concerns regarding the growing U.S. current trade account and budget deficits, the Federal Reserve's policy of maintaining low interest rates, widening interest rate differentials relative to other countries, and renewed fears of global terrorism. . In the metals markets, gains were achieved primarily during the fourth quarter by long futures positions in copper and nickel. Industrial metals prices rallied during October in response to increased demand, especially from China, as well as to growing investor sentiment that the global economy was on the path to recovery. During December, copper and nickel prices rose to six and fourteen year highs respectively, benefiting from increased demand from China and the strengthening of the global economy. . Gains were also supplied by the global stock index markets. Long positions in Asian stock index futures returned gains during August as Asian equity prices drew strength from robust Japanese economic data and rising prices in the U.S. equity markets. Long U.S. equity index futures positions also profited after the release of favorable economic data during October, as well as in December. . In the agricultural markets, smaller gains resulted from long futures positions in soybeans and its related products during September as prices reacted positively in response to robust U.S. export sales data and smaller U.S. crop assessments. Then in October, long futures positions in cotton and soybeans generated gains as increased demand from China and tight market supplies lifted prices. FACTORS INFLUENCING ANNUAL TRADING LOSSES: . In the global interest rate markets, losses were incurred primarily during the last four months of the year. The Fund experienced losses from short European futures positions. Prices reversed higher amid investor demand for safe haven investments following renewed volatility in global equity markets, continued geopolitical instability in the Middle East and comments from the U.S. Federal Reserve regarding the continuation of low U.S. interest rates. . Additional losses stemmed from the energy sector. Long positions in crude oil futures resulted in losses during March as prices reversed sharply lower amid market anticipation of a swift military victory for Coalition forces against Iraq. During September, losses were suffered from short positions in crude oil futures as prices unexpectedly reversed higher following OPEC's announcement for output reductions and curbs in production. During October, short crude oil positions experienced further losses as prices moved higher in response to supply fears spurred by Middle East tensions early in the month, as well as strike threats in Nigeria, one of the world's major oil producers. SPECTRUM SELECT (continued) SPECTRUM STRATEGIC [CHART] Year ended December 31, 2003 ----------------- Currencies 11.06% Interest Rates 0.87% Stock Indices 5.50% Energies -0.13% Metals 8.35% Agriculturals 8.34% Note:Reflects trading results only and does not include fees or interest income. FACTORS INFLUENCING ANNUAL TRADING GAINS: . The most significant gains were recorded in the currency markets, primarily during September, from long euro positions against the U.S. dollar. The dollar's weakness was caused by concerns about the strength of the U.S. economy and the potential impact of a statement by the G-7 countries supporting "more flexible exchange rates." The G-7 countries consist of France, the U.S., Britain, Germany, Japan, Italy, and Canada. The G-7's statement was viewed as part of an effort by the Bush Administration to allow the dollar to weaken against its counterparts. The dollar tumbled during the month, falling to three-month lows against the euro. During May, long positions in the euro versus the U.S. dollar generated gains as the value of the euro strengthened amid uncertainty regarding the Bush Administration's economic policy, renewed fears of potential terrorist attacks against American interests, and investor preference for non-U.S. dollar assets. Additional gains were recorded from long positions in the Australian dollar versus the U.S. dollar as its value strengthened during January, April, and May in response to continued weakness in the U.S. dollar, rising commodity prices and higher interest rates in Australia relative to those in the U.S. . Gains were also experienced in the metals markets from long futures positions in nickel, copper, and zinc. Base metals prices climbed higher during January following the release of positive U.S. manufacturing data and continued supply and demand concerns. Long futures positions in nickel and copper provided further gains in this sector as prices trended higher during July amid renewed optimism concerning a U.S. economic recovery and hopes for increased industrial production. During the fourth quarter, prices rallied during October in response to growing investor sentiment that the global economy was on the path to recovery and increased demand, especially from China. During December, nickel and copper prices rose to fourteen and six-year highs respectively, benefiting from increased demand from China and the strengthening of the global economy. . Additional profits were achieved in the agricultural markets. During January, long positions in sugar futures yielded gains as prices rose amid speculative buying ahead of the Brazilian harvest. Gains were also provided from long positions in cocoa futures during August as prices rallied amid short-covering, tight U.S. cocoa reserves and dry weather in the Ivory Coast, the world's top cocoa producer. Cocoa prices rallied again during the first two weeks of December in response to political developments in the Ivory Coast, thereby, generating profits for long cocoa positions. Meanwhile, long futures positions in cotton benefited as prices rallied to their highest level in seven years during December following an increase in export orders from China. Further gains in the agricultural sector stemmed from long futures positions in soybeans and cotton during April as increased demand from China and tight market supplies lifted prices. Rough rice futures positions profited during April as prices rose in response to the Iraqi war and the potential for increased Iraqi demand after the war. . In the global stock index markets, gains were contributed during May and June from long positions in U.S. and European stock index futures as prices moved higher amid increased optimism regarding the U.S. economic recovery and a rise in investor sentiment. Long positions in Japanese stock index futures also returned gains as Japanese equity markets tracked gains in global stock indices during September. During December, the Fund generated gains from long U.S. and European stock index futures positions as strong U.S. manufacturing data and the strongest U.S. quarterly growth rate in twenty years resulted in higher prices. FACTORS INFLUENCING ANNUAL TRADING LOSSES: . Losses were incurred in the energy markets, primarily during May, from short positions in crude oil futures and its related products as prices moved higher amid supply concerns and renewed fears concerning security at Middle Eastern refining facilities. Long positions in natural gas futures experienced losses during June as prices reversed sharply lower following news of larger-than-expected U.S. reserves. SPECTRUM STRATEGIC (continued) SPECTRUM TECHNICAL [CHART] Year ended December 31, 2003 ----------------- Currencies 22.78% Interest Rates -0.93% Stock Indices 10.30% Energies 0.40% Metals 6.97% Agriculturals -2.99% Note:Reflects trading results only and does not include fees or interest income. FACTORS INFLUENCING ANNUAL TRADING GAINS: . The most significant gains were recorded in the currency markets. Long positions in the euro profited as its value rose versus the U.S. dollar during January amid renewed fears of a military conflict with Iraq, increased tensions with North Korea, and weak U.S. economic data. During May, additional gains were recorded as the value of the euro strengthened due to uncertainty regarding the Bush Administration's economic policy, renewed fears of potential terrorist attacks against American interests and investor preference for non-U.S. dollar assets. Gains were also recorded during April by long positions in the Australian dollar versus the U.S. dollar as the Australian currency strengthened in response to continued weakness in the U.S. dollar, rising commodity prices and significant interest rate differentials between the two countries. The strongest gains in the currency sector were recorded during the fourth quarter, particularly during December, by long positions in a broad range of major and minor currencies versus the U.S. dollar. Profits accumulated as the U.S. dollar tumbled to a six-year low against the Australian and New Zealand dollars and a five-year low against the British pound. Additionally, the euro soared past the $1.20 mark, its highest level against the U.S. dollar since its introduction in January 1999. The U.S. dollar's weakness was caused by a variety of factors, including concerns regarding the growing U.S. current trade account and budget deficits, the Federal Reserve's policy of maintaining low interest rates, widening interest rate differentials relative to other countries, and renewed fears of global terrorism. . Additional gains were recorded in the global stock index markets from long positions in Japanese stock index futures during July and August as prices trended higher in response to increased investor demand triggered by record-low Japanese government bond yields and robust Japanese economic data. Gains were also contributed during July and August by long positions in U.S. stock index futures as prices were buoyed by a rise in investor sentiment and tangible signs of a U.S. economic recovery. During the fourth quarter, additional gains were achieved on long European, U.S. and Asian equity index futures positions. The release of favorable economic data and an inflow of investor assets into equities helped boost prices. . In the metals markets, gains were produced, primarily during the fourth quarter, from long futures positions in base and precious metals. Long futures positions in copper, nickel, and aluminum profited as industrial metals prices rallied in response to growing investor confidence in the global economy and increased demand, especially from China. Meanwhile, gold and silver climbed higher during December as investors sought a safe haven from the falling U.S. dollar and an increased risk of terrorism. FACTORS INFLUENCING ANNUAL TRADING LOSSES: . Losses stemmed from the agricultural markets. Short futures positions in coffee suffered losses as prices reversed higher in early September due to supply fears prompted by reduced estimates for world coffee production. Additional losses were experienced from long positions in lean hog futures during June as prices declined in response to a potential outbreak of Mad Cow Disease. During October, short futures positions in corn also incurred losses as prices reversed higher in response to news of decreased supply. SPECTRUM TECHNICAL (continued) MORGAN STANLEY SPECTRUM SERIES INDEPENDENT AUDITORS' REPORT 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 schedules of investments, as of December 31, 2003 and 2002, 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, 2003. 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 auditing standards generally accepted in the United States of America. 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, 2003 and 2002, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2003 in conformity with accounting principles generally accepted in the United States of America. /s/ Deloitte & Touche LLP New York, New York March 2, 2004 MORGAN STANLEY SPECTRUM CURRENCY L.P. STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, ---------------------- 2003 2002 ----------- ---------- $ $ ASSETS Equity in futures interests trading accounts: Cash 178,774,244 88,478,803 Net unrealized gain on open contracts 4,878,640 5,651,549 ----------- ---------- Total Trading Equity 183,652,884 94,130,352 Subscriptions receivable 8,709,868 4,178,758 Interest receivable (Morgan Stanley DW) 101,889 70,210 ----------- ---------- Total Assets 192,464,641 98,379,320 =========== ========== LIABILITIES AND PARTNERS' CAPITAL LIABILITIES Redemptions payable 1,060,483 1,526,335 Accrued brokerage fees (Morgan Stanley DW) 661,566 316,460 Accrued incentive fees 399,035 239,482 Accrued management fees 287,637 137,591 ----------- ---------- Total Liabilities 2,408,721 2,219,868 ----------- ---------- PARTNERS' CAPITAL Limited Partners (12,010,816.426 and 6,739,826.121 Units, respectively) 188,042,673 93,891,619 General Partner (128,591.799 and 162,791.986 Units, respectively) 2,013,247 2,267,833 ----------- ---------- Total Partners' Capital 190,055,920 96,159,452 ----------- ---------- Total Liabilities and Partners' Capital 192,464,641 98,379,320 =========== ========== NET ASSET VALUE PER UNIT 15.66 13.93 =========== ==========
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, -------------------------------- 2003 2002 2001 ---------- ---------- --------- $ $ $ REVENUES Trading profit (loss): Realized 27,952,154 12,877,202 3,998,924 Net change in unrealized (772,909) 2,473,166 2,622,814 ---------- ---------- --------- Total Trading Results 27,179,245 15,350,368 6,621,738 Interest income (Morgan Stanley DW) 1,006,410 833,523 731,716 ---------- ---------- --------- Total 28,185,655 16,183,891 7,353,454 ---------- ---------- --------- EXPENSES Brokerage fees (Morgan Stanley DW) 6,109,327 3,077,048 1,297,698 Management fees 2,656,229 1,337,848 564,216 Incentive fees 2,623,290 1,485,875 1,155,201 ---------- ---------- --------- Total 11,388,846 5,900,771 3,017,115 ---------- ---------- --------- NET INCOME 16,796,809 10,283,120 4,336,339 ========== ========== ========= NET INCOME ALLOCATION: Limited Partners 16,514,538 10,038,409 4,119,027 General Partner 282,271 244,711 217,312 NET INCOME PER UNIT: Limited Partners 1.73 1.52 1.24 General Partner 1.73 1.52 1.24
The accompanying notes are an integral part of these financial statements. MORGAN STANLEY SPECTRUM GLOBAL BALANCED L.P. STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, ---------------------- 2003 2002 ---------- ---------- $ $ ASSETS Equity in futures interests trading accounts: Cash 50,336,417 49,330,482 Net unrealized gain on open contracts (MS&Co.) 1,845,313 758,782 Net unrealized gain (loss) on open contracts (MSIL) 701,727 (12,849) ---------- ---------- Total net unrealized gain on open contracts 2,547,040 745,933 Net option premiums (39,600) 712,573 ---------- ---------- Total Trading Equity 52,843,857 50,788,988 Subscriptions receivable 1,036,417 716,792 Interest receivable (Morgan Stanley DW) 40,110 53,458 ---------- ---------- Total Assets 53,920,384 51,559,238 ========== ========== LIABILITIES AND PARTNERS' CAPITAL LIABILITIES Redemptions payable 1,033,040 896,775 Accrued brokerage fees (Morgan Stanley DW) 194,891 202,109 Accrued management fees 52,960 54,922 ---------- ---------- Total Liabilities 1,280,891 1,153,806 ---------- ---------- PARTNERS' CAPITAL Limited Partners (3,364,748.115 and 3,419,596.378 Units, respectively) 52,064,431 49,814,229 General Partner (37,164.331 and 40,584.304 Units, respectively) 575,062 591,203 ---------- ---------- Total Partners' Capital 52,639,493 50,405,432 ---------- ---------- Total Liabilities and Partners' Capital 53,920,384 51,559,238 ========== ========== NET ASSET VALUE PER UNIT 15.47 14.57 ========== ==========
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, -------------------------------- 2003 2002 2001 --------- ---------- ---------- $ $ $ REVENUES Trading profit (loss): Realized 3,711,981 (3,772,374) 3,618,628 Net change in unrealized 1,801,107 56,725 (2,628,436) --------- ---------- ---------- 5,513,088 (3,715,649) 990,192 Proceeds from Litigation Settlement -- 233,074 -- --------- ---------- ---------- Total Trading Results 5,513,088 (3,482,575) 990,192 Interest income (Morgan Stanley DW) 525,817 916,179 2,160,076 --------- ---------- ---------- Total 6,038,905 (2,566,396) 3,150,268 --------- ---------- ---------- EXPENSES Brokerage fees (Morgan Stanley DW) 2,328,615 2,532,371 2,597,121 Management fees 632,782 688,151 705,746 --------- ---------- ---------- Total 2,961,397 3,220,522 3,302,867 --------- ---------- ---------- NET INCOME (LOSS) 3,077,508 (5,786,918) (152,599) ========= ========== ========== NET INCOME (LOSS) ALLOCATION: Limited Partners 3,043,649 (5,720,328) (150,650) General Partner 33,859 (66,590) (1,949) NET INCOME (LOSS) PER UNIT: Limited Partners .90 (1.64) (.05) General Partner .90 (1.64) (.05)
The accompanying notes are an integral part of these financial statements. MORGAN STANLEY SPECTRUM SELECT L.P. STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, ----------------------- 2003 2002 ----------- ----------- $ $ ASSETS Equity in futures interests trading accounts: Cash 398,595,952 274,780,334 Net unrealized gain on open contracts (MS&Co.) 25,504,948 20,865,525 Net unrealized gain (loss) on open contracts (MSIL) 11,277,017 (2,967,507) ----------- ----------- Total net unrealized gain on open contracts 36,781,965 17,898,018 Net option premiums 1,232,488 -- ----------- ----------- Total Trading Equity 436,610,405 292,678,352 Subscriptions receivable 12,688,217 6,690,744 Interest receivable (Morgan Stanley DW) 250,620 235,283 ----------- ----------- Total Assets 449,549,242 299,604,379 =========== =========== LIABILITIES AND PARTNERS' CAPITAL LIABILITIES Redemptions payable 2,405,123 1,876,403 Accrued brokerage fees (Morgan Stanley DW) 2,401,080 1,662,321 Accrued incentive fee 2,227,005 -- Accrued management fees 993,550 687,856 ----------- ----------- Total Liabilities 8,026,758 4,226,580 ----------- ----------- PARTNERS' CAPITAL Limited Partners (14,405,312.114 and 10,567,690.403 Units, respectively) 436,666,633 292,226,000 General Partner (160,190.965 and 113,977.644 Units, respectively) 4,855,851 3,151,799 ----------- ----------- Total Partners' Capital 441,522,484 295,377,799 ----------- ----------- Total Liabilities and Partners' Capital 449,549,242 299,604,379 =========== =========== NET ASSET VALUE PER UNIT 30.31 27.65 =========== ===========
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, --------------------------------- 2003 2002 2001 ---------- ---------- ----------- $ $ $ REVENUES Trading profit (loss): Realized 52,485,483 46,999,853 43,420,724 Net change in unrealized 18,883,947 12,501,282 (20,155,561) ---------- ---------- ----------- 71,369,430 59,501,135 23,265,163 Proceeds from Litigation Settlement -- 4,636,156 -- ---------- ---------- ----------- Total Trading Results 71,369,430 64,137,291 23,265,163 Interest income (Morgan Stanley DW) 2,843,612 3,468,437 7,203,732 ---------- ---------- ----------- Total 74,213,042 67,605,728 30,468,895 ---------- ---------- ----------- EXPENSES Brokerage fees (Morgan Stanley DW) 25,658,616 18,943,743 17,183,347 Management fees 10,617,352 7,838,786 7,110,346 Incentive fees 3,750,169 -- 3,009,853 ---------- ---------- ----------- Total 40,026,137 26,782,529 27,303,546 ---------- ---------- ----------- NET INCOME 34,186,905 40,823,199 3,165,349 ========== ========== =========== NET INCOME ALLOCATION: Limited Partners 33,822,853 40,391,145 3,123,455 General Partner 364,052 432,054 41,894 NET INCOME PER UNIT: Limited Partners 2.66 3.69 .39 General Partner 2.66 3.69 .39
The accompanying notes are an integral part of these financial statements. MORGAN STANLEY SPECTRUM STRATEGIC L.P. STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, ---------------------- 2003 2002 ----------- ---------- $ $ ASSETS Equity in futures interests trading accounts: Cash 109,846,761 68,224,648 Net unrealized gain on open contracts (MS&Co.) 5,847,799 7,430,755 Net unrealized gain (loss) on open contracts (MSIL) 2,073,986 (499,611) ----------- ---------- Total net unrealized gain on open contracts 7,921,785 6,931,144 Net option premiums 678,280 222,768 ----------- ---------- Total Trading Equity 118,446,826 75,378,560 Subscriptions receivable 5,143,178 1,654,471 Interest receivable (Morgan Stanley DW) 66,591 61,778 ----------- ---------- Total Assets 123,656,595 77,094,809 =========== ========== LIABILITIES AND PARTNERS' CAPITAL LIABILITIES Accrued incentive fee 811,250 -- Redemptions payable 655,871 1,115,549 Accrued brokerage fees (Morgan Stanley DW) 650,049 431,596 Accrued management fees 268,986 178,592 ----------- ---------- Total Liabilities 2,386,156 1,725,737 ----------- ---------- PARTNERS' CAPITAL Limited Partners (8,385,489.652 and 6,454,424.204 Units, respectively) 119,976,992 74,487,934 General Partner (90,402.219 and 76,351.101 Units, respectively) 1,293,447 881,138 ----------- ---------- Total Partners' Capital 121,270,439 75,369,072 ----------- ---------- Total Liabilities and Partners' Capital 123,656,595 77,094,809 =========== ========== NET ASSET VALUE PER UNIT 14.31 11.54 =========== ==========
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, -------------------------------- 2003 2002 2001 ---------- ---------- ---------- $ $ $ REVENUES Trading profit: Realized 30,251,636 10,648,811 2,132,212 Net change in unrealized 990,641 2,439,378 2,505,634 ---------- ---------- ---------- 31,242,277 13,088,189 4,637,846 Proceeds from Litigation Settlement -- 17,556 -- ---------- ---------- ---------- Total Trading Results 31,242,277 13,105,745 4,637,846 Interest income (Morgan Stanley DW) 741,890 972,942 2,217,963 ---------- ---------- ---------- Total 31,984,167 14,078,687 6,855,809 ---------- ---------- ---------- EXPENSES Brokerage fees (Morgan Stanley DW) 6,611,238 5,304,486 5,152,756 Management fees 2,735,685 2,194,958 2,183,596 Incentive fees 2,123,832 264,827 -- ---------- ---------- ---------- Total 11,470,755 7,764,271 7,336,352 ---------- ---------- ---------- NET INCOME (LOSS) 20,513,412 6,314,416 (480,543) ========== ========== ========== NET INCOME (LOSS) ALLOCATION: Limited Partners 20,281,103 6,238,448 (475,383) General Partner 232,309 75,968 (5,160) NET INCOME (LOSS) PER UNIT: Limited Partners 2.77 .99 (.06) General Partner 2.77 .99 (.06)
The accompanying notes are an integral part of these financial statements. MORGAN STANLEY SPECTRUM TECHNICAL L.P. STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, ----------------------- 2003 2002 ----------- ----------- $ $ ASSETS Equity in futures interests trading accounts: Cash 483,512,056 310,115,973 Net unrealized gain on open contracts (MS&Co.) 27,948,353 27,172,226 Net unrealized gain (loss) on open contracts (MSIL) 18,485,857 (3,069,013) ----------- ----------- Total net unrealized gain on open contracts 46,434,210 24,103,213 Net option premiums 3,973,725 -- ----------- ----------- Total Trading Equity 533,919,991 334,219,186 Subscriptions receivable 15,855,119 7,108,790 Interest receivable (Morgan Stanley DW) 291,810 268,836 ----------- ----------- Total Assets 550,066,920 341,596,812 =========== =========== LIABILITIES AND PARTNERS' CAPITAL LIABILITIES Accrued incentive fee 4,924,640 -- Accrued brokerage fees (Morgan Stanley DW) 2,947,775 1,906,305 Redemptions payable 2,925,703 3,195,919 Accrued management fees 1,084,524 672,962 ----------- ----------- Total Liabilities 11,882,642 5,775,186 ----------- ----------- PARTNERS' CAPITAL Limited Partners (23,512,770.158 and 18,038,726.045 Units, respectively) 532,266,109 332,124,550 General Partner (261,434.166 and 200,799.812 Units, respectively) 5,918,169 3,697,076 ----------- ----------- Total Partners' Capital 538,184,278 335,821,626 ----------- ----------- Total Liabilities and Partners' Capital 550,066,920 341,596,812 =========== =========== NET ASSET VALUE PER UNIT 22.64 18.41 =========== ===========
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, ---------------------------------- 2003 2002 2001 ----------- ---------- ----------- $ $ $ REVENUES Trading profit (loss): Realized 116,446,374 76,058,451 30,115,483 Net change in unrealized 22,330,997 12,597,598 (28,536,694) ----------- ---------- ----------- 138,777,371 88,656,049 1,578,789 Proceeds from Litigation Settlement -- 306,400 -- ----------- ---------- ----------- Total Trading Results 138,777,371 88,962,449 1,578,789 Interest income (Morgan Stanley DW) 3,316,107 3,686,460 8,288,660 ----------- ---------- ----------- Total 142,093,478 92,648,909 9,867,449 ----------- ---------- ----------- EXPENSES Brokerage fees (Morgan Stanley DW) 30,273,037 20,470,797 19,556,056 Incentive fees 13,042,559 4,024,921 2,093,709 Management fees 10,835,994 7,377,756 7,501,053 ----------- ---------- ----------- Total 54,151,590 31,873,474 29,150,818 ----------- ---------- ----------- NET INCOME (LOSS) 87,941,888 60,775,435 (19,283,369) =========== ========== =========== NET INCOME (LOSS) ALLOCATION: Limited Partners 86,960,795 60,110,064 (19,062,561) General Partner 981,093 665,371 (220,808) NET INCOME (LOSS) PER UNIT: Limited Partners 4.23 3.48 (1.15) General Partner 4.23 3.48 (1.15)
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, 2003, 2002 AND 2001
UNITS OF PARTNERSHIP LIMITED GENERAL INTEREST PARTNERS PARTNER TOTAL -------------- ----------- ---------- ----------- $ $ $ Partners' Capital, December 31, 2000 1,406,451.233 13,988,414 1,718,818 15,707,232 Offering of Units 2,572,156.095 28,921,302 277,000 29,198,302 Net income -- 4,119,027 217,312 4,336,339 Redemptions (125,958.895) (1,430,132) -- (1,430,132) -------------- ----------- ---------- ----------- Partners' Capital, December 31, 2001 3,852,648.433 45,598,611 2,213,130 47,811,741 Offering of Units 3,918,276.910 48,564,478 420,000 48,984,478 Net income -- 10,038,409 244,711 10,283,120 Redemptions (868,307.236) (10,309,879) (610,008) (10,919,887) -------------- ----------- ---------- ----------- Partners' Capital, December 31, 2002 6,902,618.107 93,891,619 2,267,833 96,159,452 Offering of Units 6,157,215.998 89,883,376 790,000 90,673,376 Net income -- 16,514,538 282,271 16,796,809 Redemptions (920,425.880) (12,246,860) (1,326,857) (13,573,717) -------------- ----------- ---------- ----------- Partners' Capital, December 31, 2003 12,139,408.225 188,042,673 2,013,247 190,055,920 ============== =========== ========== ===========
MORGAN STANLEY SPECTRUM GLOBAL BALANCED L.P. STATEMENTS OF CHANGES IN PARTNERS' CAPITAL FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
UNITS OF PARTNERSHIP LIMITED GENERAL INTEREST PARTNERS PARTNER TOTAL ------------- ----------- ------- ----------- $ $ $ Partners' Capital, December 31, 2000 3,437,465.006 55,220,008 659,742 55,879,750 Offering of Units 640,074.598 10,254,342 -- 10,254,342 Net loss -- (150,650) (1,949) (152,599) Redemptions (512,291.775) (8,195,733) -- (8,195,733) ------------- ----------- ------- ----------- Partners' Capital, December 31, 2001 3,565,247.829 57,127,967 657,793 57,785,760 Offering of Units 572,583.510 8,829,394 -- 8,829,394 Net loss -- (5,720,328) (66,590) (5,786,918) Redemptions (677,650.657) (10,422,804) -- (10,422,804) ------------- ----------- ------- ----------- Partners' Capital, December 31, 2002 3,460,180.682 49,814,229 591,203 50,405,432 Offering of Units 690,016.887 10,491,897 -- 10,491,897 Net income -- 3,043,649 33,859 3,077,508 Redemptions (748,285.123) (11,285,344) (50,000) (11,335,344) ------------- ----------- ------- ----------- Partners' Capital, December 31, 2003 3,401,912.446 52,064,431 575,062 52,639,493 ============= =========== ======= ===========
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, 2003, 2002 AND 2001
UNITS OF PARTNERSHIP LIMITED GENERAL INTEREST PARTNERS PARTNER TOTAL -------------- ----------- --------- ----------- $ $ $ Partners' Capital, December 31, 2000 9,363,087.227 218,182,118 2,547,851 220,729,969 Offering of Units 1,676,778.529 41,261,535 -- 41,261,535 Net income -- 3,123,455 41,894 3,165,349 Redemptions (965,150.030) (23,745,268) -- (23,745,268) -------------- ----------- --------- ----------- Partners' Capital, December 31, 2001 10,074,715.726 238,821,840 2,589,745 241,411,585 Offering of Units 2,459,750.992 62,682,840 130,000 62,812,840 Net income -- 40,391,145 432,054 40,823,199 Redemptions (1,852,798.671) (49,669,825) -- (49,669,825) -------------- ----------- --------- ----------- Partners' Capital, December 31, 2002 10,681,668.047 292,226,000 3,151,799 295,377,799 Offering of Units 4,942,610.490 141,160,704 1,340,000 142,500,704 Net income -- 33,822,853 364,052 34,186,905 Redemptions (1,058,775.458) (30,542,924) -- (30,542,924) -------------- ----------- --------- ----------- Partners' Capital, December 31, 2003 14,565,503.079 436,666,633 4,855,851 441,522,484 ============== =========== ========= ===========
MORGAN STANLEY SPECTRUM STRATEGIC L.P. STATEMENTS OF CHANGES IN PARTNERS' CAPITAL FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
UNITS OF PARTNERSHIP LIMITED GENERAL INTEREST PARTNERS PARTNER TOTAL -------------- ----------- --------- ----------- $ $ $ Partners' Capital, December 31, 2000 6,994,953.429 73,433,119 801,330 74,234,449 Offering of Units 892,802.518 9,240,482 9,000 9,249,482 Net loss -- (475,383) (5,160) (480,543) Redemptions (1,362,078.833) (14,186,002) -- (14,186,002) -------------- ----------- --------- ----------- Partners' Capital, December 31, 2001 6,525,677.114 68,012,216 805,170 68,817,386 Offering of Units 1,160,993.682 13,475,899 -- 13,475,899 Net income -- 6,238,448 75,968 6,314,416 Redemptions (1,155,895.491) (13,238,629) -- (13,238,629) -------------- ----------- --------- ----------- Partners' Capital, December 31, 2002 6,530,775.305 74,487,934 881,138 75,369,072 Offering of Units 2,823,095.529 36,375,972 180,000 36,555,972 Net income -- 20,281,103 232,309 20,513,412 Redemptions (877,978.963) (11,168,017) -- (11,168,017) -------------- ----------- --------- ----------- Partners' Capital, December 31, 2003 8,475,891.871 119,976,992 1,293,447 121,270,439 ============== =========== ========= ===========
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, 2003, 2002 AND 2001
UNITS OF PARTNERSHIP LIMITED GENERAL INTEREST PARTNERS PARTNER TOTAL -------------- ----------- --------- ----------- $ $ $ Partners' Capital, December 31, 2000 16,670,218.496 265,060,579 3,072,513 268,133,092 Offering of Units 2,591,525.213 40,832,142 -- 40,832,142 Net loss -- (19,062,561) (220,808) (19,283,369) Redemptions (1,981,247.508) (31,707,743) -- (31,707,743) -------------- ----------- --------- ----------- Partners' Capital, December 31, 2001 17,280,496.201 255,122,417 2,851,705 257,974,122 Offering of Units 3,538,032.569 58,538,660 180,000 58,718,660 Net income -- 60,110,064 665,371 60,775,435 Redemptions (2,579,002.913) (41,646,591) -- (41,646,591) -------------- ----------- --------- ----------- Partners' Capital, December 31, 2002 18,239,525.857 332,124,550 3,697,076 335,821,626 Offering of Units 7,617,427.705 156,115,402 1,240,000 157,355,402 Net income -- 86,960,795 981,093 87,941,888 Redemptions (2,082,749.238) (42,934,638) -- (42,934,638) -------------- ----------- --------- ----------- Partners' Capital, December 31, 2003 23,774,204.324 532,266,109 5,918,169 538,184,278 ============== =========== ========= ===========
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, ------------------------------------ 2003 2002 2001 ----------- ----------- ---------- $ $ $ CASH FLOWS FROM OPERATING ACTIVITIES Net income 16,796,809 10,283,120 4,336,339 Noncash item included in net income: Net change in unrealized 772,909 (2,473,166) (2,622,814) (Increase) decrease in operating assets: Interest receivable (Morgan Stanley DW) (31,679) (19,622) 4,876 Increase (decrease) in operating liabilities: Accrued brokerage fees (Morgan Stanley DW) 345,106 161,731 99,484 Accrued incentive fees 159,553 (673,773) 880,379 Accrued management fees 150,046 70,317 43,254 ----------- ----------- ---------- Net cash provided by operating activities 18,192,744 7,348,607 2,741,518 ----------- ----------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES Offering of Units 90,673,376 48,984,478 29,198,302 (Increase) decrease in subscriptions receivable (4,531,110) (1,536,641) 412,033 Increase (decrease) in redemptions payable (465,852) 1,361,111 (2,072,127) Redemptions of Units (13,573,717) (10,919,887) (1,430,132) ----------- ----------- ---------- Net cash provided by financing activities 72,102,697 37,889,061 26,108,076 ----------- ----------- ---------- Net increase in cash 90,295,441 45,237,668 28,849,594 Balance at beginning of period 88,478,803 43,241,135 14,391,541 ----------- ----------- ---------- Balance at end of period 178,774,244 88,478,803 43,241,135 =========== =========== ==========
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, ------------------------------------ 2003 2002 2001 ----------- ----------- ---------- $ $ $ CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) 3,077,508 (5,786,918) (152,599) Noncash item included in net income (loss): Net change in unrealized (1,801,107) (56,725) 2,628,436 (Increase) decrease in operating assets: Net option premiums 752,173 (712,573) 192,500 Interest receivable (Morgan Stanley DW) 13,348 40,360 191,236 Increase (decrease) in operating liabilities: Accrued brokerage fees (Morgan Stanley DW) (7,218) (17,837) 17,157 Accrued management fees (1,962) (4,846) 4,661 ----------- ----------- ---------- Net cash provided by (used for) operating activities 2,032,742 (6,538,539) 2,881,391 ----------- ----------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES Offering of Units 10,491,897 8,829,394 10,254,342 Increase in subscriptions receivable (319,625) (105,151) (81,007) Increase in redemptions payable 136,265 171,491 122,794 Redemptions of Units (11,335,344) (10,422,804) (8,195,733) ----------- ----------- ---------- Net cash provided by (used for) financing activities (1,026,807) (1,527,070) 2,100,396 ----------- ----------- ---------- Net increase (decrease) in cash 1,005,935 (8,065,609) 4,981,787 Balance at beginning of period 49,330,482 57,396,091 52,414,304 ----------- ----------- ---------- Balance at end of period 50,336,417 49,330,482 57,396,091 =========== =========== ==========
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, ------------------------------------- 2003 2002 2001 ----------- ----------- ----------- $ $ $ CASH FLOWS FROM OPERATING ACTIVITIES Net income 34,186,905 40,823,199 3,165,349 Noncash item included in net income: Net change in unrealized (18,883,947) (12,501,282) 20,155,561 (Increase) decrease in operating assets: Net option premiums (1,232,488) 167,063 (167,063) Interest receivable (Morgan Stanley DW) (15,337) 70,073 584,598 Increase in operating liabilities: Accrued brokerage fees (Morgan Stanley DW) 738,759 221,961 208,881 Accrued incentive fee 2,227,005 -- -- Accrued management fees 305,694 91,845 86,434 ----------- ----------- ----------- Net cash provided by operating activities 17,326,591 28,872,859 24,033,760 ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Offering of Units 142,500,704 62,812,840 41,261,535 Increase in subscriptions receivable (5,997,473) (1,699,578) (3,407,225) Increase (decrease) in redemptions payable 528,720 (719,023) 484,897 Redemptions of Units (30,542,924) (49,669,825) (23,745,268) ----------- ----------- ----------- Net cash provided by financing activities 106,489,027 10,724,414 14,593,939 ----------- ----------- ----------- Net increase in cash 123,815,618 39,597,273 38,627,699 Balance at beginning of period 274,780,334 235,183,061 196,555,362 ----------- ----------- ----------- Balance at end of period 398,595,952 274,780,334 235,183,061 =========== =========== ===========
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, ------------------------------------- 2003 2002 2001 ----------- ----------- ----------- $ $ $ CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) 20,513,412 6,314,416 (480,543) Noncash item included in net income (loss): Net change in unrealized (990,641) (2,439,378) (2,505,634) (Increase) decrease in operating assets: Net option premiums (455,512) 65,784 (62,352) Interest receivable (Morgan Stanley DW) (4,813) 27,581 217,520 Increase (decrease) in operating liabilities: Accrued incentive fees 811,250 -- (289,687) Accrued brokerage fees (Morgan Stanley DW) 218,453 7,354 14,950 Accrued management fees 90,394 3,043 (11,028) ----------- ----------- ----------- Net cash provided by (used for) operating activities 20,182,543 3,978,800 (3,116,774) ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Offering of Units 36,555,972 13,475,899 9,249,482 Increase in subscriptions receivable (3,488,707) (1,002,535) (189,876) Increase (decrease) in redemptions payable (459,678) (956,549) 765,005 Redemptions of Units (11,168,017) (13,238,629) (14,186,002) ----------- ----------- ----------- Net cash provided by (used for) financing activities 21,439,570 (1,721,814) (4,361,391) ----------- ----------- ----------- Net increase (decrease) in cash 41,622,113 2,256,986 (7,478,165) Balance at beginning of period 68,224,648 65,967,662 73,445,827 ----------- ----------- ----------- Balance at end of period 109,846,761 68,224,648 65,967,662 =========== =========== ===========
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, ------------------------------------- 2003 2002 2001 ----------- ----------- ----------- $ $ $ CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) 87,941,888 60,775,435 (19,283,369) Noncash item included in net income (loss): Net change in unrealized (22,330,997) (12,597,598) 28,536,694 (Increase) decrease in operating assets: Net option premiums (3,973,725) -- -- Interest receivable (Morgan Stanley DW) (22,974) 49,837 744,371 Increase (decrease) in operating liabilities: Accrued incentive fees 4,924,640 -- (111,599) Accrued brokerage fees (Morgan Stanley DW) 1,041,470 397,100 51,079 Accrued management fees 411,562 91,431 21,704 ----------- ----------- ----------- Net cash provided by operating activities 67,991,864 48,716,205 9,958,880 ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Offering of Units 157,355,402 58,718,660 40,832,142 Increase in subscriptions receivable (8,746,329) (2,663,228) (3,357,977) Increase (decrease) in redemptions payable (270,216) 818,573 (1,055,038) Redemptions of Units (42,934,638) (41,646,591) (31,707,743) ----------- ----------- ----------- Net cash provided by financing activities 105,404,219 15,227,414 4,711,384 ----------- ----------- ----------- Net increase in cash 173,396,083 63,943,619 14,670,264 Balance at beginning of period 310,115,973 246,172,354 231,502,090 ----------- ----------- ----------- Balance at end of period 483,512,056 310,115,973 246,172,354 =========== =========== ===========
The accompanying notes are an integral part of these financial statements. MORGAN STANLEY SPECTRUM CURRENCY L.P. SCHEDULES OF INVESTMENTS DECEMBER 31, 2003 AND 2002
LONG UNREALIZED PERCENTAGE SHORT UNREALIZED PERCENTAGE FUTURES AND FORWARD CONTRACTS: GAIN/(LOSS) OF NET ASSETS GAIN/(LOSS) OF NET ASSETS ------------------------------ --------------- ------------- ---------------- ------------- 2003 PARTNERSHIP NET ASSETS: $190,055,920 $ % $ % Foreign currency 5,023,184 2.64 (144,544) (0.07) --------- ----- ---------- ----- Grand Total: 5,023,184 2.64 (144,544) (0.07) ========= ===== ========== ===== Unrealized Currency Gain/(Loss) Total Net Unrealized Gain per Statement of Financial Condition 2002 PARTNERSHIP NET ASSETS: $96,159,452 Foreign currency: Other 4,758,215 4.95 (4,013,755) (4.18) Euro/US dollar Mar. 03 4,860,786 5.05 -- -- --------- ----- ---------- ----- Grand Total: 9,619,001 10.00 (4,013,755) (4.18) ========= ===== ========== ===== Unrealized Currency Gain Total Net Unrealized Gain per Statement of Financial Condition
FUTURES AND FORWARD CONTRACTS: NET UNREALIZED GAIN/(LOSS) NOTIONAL AMOUNTS ------------------------------ -------------------------- ---------------- 2003 PARTNERSHIP NET ASSETS: $190,055,920 $ Foreign currency 4,878,640 10,021,102,895 --------- Grand Total: 4,878,640 Unrealized Currency Gain/(Loss) -- --------- Total Net Unrealized Gain per Statement of Financial Condition 4,878,640 ========= 2002 PARTNERSHIP NET ASSETS: $96,159,452 Foreign currency: Other 744,460 9,742,575,176 Euro/US dollar Mar. 03 4,860,786 143,425,000 --------- Grand Total: 5,605,246 Unrealized Currency Gain 46,303 --------- Total Net Unrealized Gain per Statement of Financial Condition 5,651,549 =========
The accompanying notes are an integral part of these financial statements. MORGAN STANLEY SPECTRUM GLOBAL BALANCED L.P. SCHEDULES OF INVESTMENTS DECEMBER 31, 2003 AND 2002
LONG UNREALIZED PERCENTAGE SHORT UNREALIZED PERCENTAGE FUTURES AND FORWARD CONTRACTS: GAIN/(LOSS) OF NET ASSETS GAIN/(LOSS) OF NET ASSETS ------------------------------ --------------- ------------- ---------------- ------------- 2003 PARTNERSHIP NET ASSETS: $52,639,493 $ % $ % Foreign currency 627,263 1.19 109,420 0.21 Interest rate 216,798 0.41 -- -- Equity 936,933 1.78 -- -- Commodity 689,471 1.31 (5,870) (0.01) --------- ----- ------- ----- Grand Total: 2,470,465 4.69 103,550 0.20 ========= ===== ======= ===== Unrealized Currency Loss Total Net Unrealized Gain per Statement of Financial Condition 2002 PARTNERSHIP NET ASSETS: $50,405,432 Foreign currency 641,746 1.27 137,676 0.28 Interest rate 806,083 1.60 (1,737) -- Equity (812,665) (1.61) -- -- Commodity 120,736 0.24 26,606 0.05 --------- ----- ------- ----- Grand Total: 755,900 1.50 162,545 0.33 ========= ===== ======= ===== Unrealized Currency Loss Total Net Unrealized Gain per Statement of Financial Condition
FUTURES AND FORWARD CONTRACTS: NET UNREALIZED GAIN/(LOSS) # OF CONTRACTS/NOTIONAL AMOUNTS ------------------------------ -------------------------- ------------------------------- 2003 PARTNERSHIP NET ASSETS: $52,639,493 $ Foreign currency 736,683 15,130,291 Interest rate 216,798 1,053 Equity 936,933 291 Commodity 683,601 172 --------- Grand Total: 2,574,015 Unrealized Currency Loss (26,975) --------- Total Net Unrealized Gain per Statement of Financial Condition 2,547,040 ========= 2002 PARTNERSHIP NET ASSETS: $50,405,432 Foreign currency 779,422 6,800,258 Interest rate 804,346 1,479 Equity (812,665) 477 Commodity 147,342 425 --------- Grand Total: 918,445 Unrealized Currency Loss (172,512) --------- Total Net Unrealized Gain per Statement of Financial Condition 745,933 =========
The accompanying notes are an integral part of these financial statements. MORGAN STANLEY SPECTRUM SELECT L.P. SCHEDULES OF INVESTMENTS DECEMBER 31, 2003 AND 2002
LONG UNREALIZED PERCENTAGE SHORT UNREALIZED PERCENTAGE FUTURES AND FORWARD CONTRACTS: GAIN/(LOSS) OF NET ASSETS GAIN/(LOSS) OF NET ASSETS ------------------------------ --------------- ------------- ---------------- ------------- 2003 PARTNERSHIP NET ASSETS: $441,522,484 $ % $ % Foreign currency 11,095,838 2.51 691,093 0.16 Commodity 20,983,272 4.75 (175,989) (0.04) Interest rate 1,338,070 0.31 (87,559) (0.02) Equity 5,391,145 1.22 -- -- ---------- ----- ---------- ----- Grand Total: 38,808,325 8.79 427,545 0.10 ========== ===== ========== ===== Unrealized Currency Loss Total Net Unrealized Gain per Statement of Financial Condition 2002 PARTNERSHIP NET ASSETS: $295,377,799 Foreign currency 16,008,784 5.42* (5,655,235) (1.91) Interest rate 9,770,731 3.31 (48,039) (0.02) Commodity (1,443,818) (0.49) 371,055 0.13 Equity (194,728) (0.07) 829,442 0.28 ---------- ----- ---------- ---- Grand Total: 24,140,969 8.17 (4,502,777) (1.52) ========== ==== ========== ===== Unrealized Currency Loss Total Net Unrealized Gain per Statement of Financial Condition
FUTURES AND FORWARD CONTRACTS: NET UNREALIZED GAIN/(LOSS) # OF CONTRACTS/NOTIONAL AMOUNTS ------------------------------ -------------------------- ------------------------------- 2003 PARTNERSHIP NET ASSETS: $441,522,484 $ Foreign currency 11,786,931 14,607,137,889,667 Commodity 20,807,283 11,866 Interest rate 1,250,511 11,094 Equity 5,391,145 3,874 ---------- Grand Total: 39,235,870 Unrealized Currency Loss (2,453,905) ---------- Total Net Unrealized Gain per Statement of Financial Condition 36,781,965 ========== 2002 PARTNERSHIP NET ASSETS: $295,377,799 Foreign currency 10,353,549 11,828,382,656 Interest rate 9,722,692 14,820 Commodity (1,072,763) 5,211 Equity 634,714 1,202 ---------- Grand Total: 19,638,192 Unrealized Currency Loss (1,740,174) ---------- Total Net Unrealized Gain per Statement of Financial Condition 17,898,018 ==========
* No single contract's value exceeds 5% of Net Assets. The accompanying notes are an integral part of these financial statements. MORGAN STANLEY SPECTRUM STRATEGIC L.P. SCHEDULES OF INVESTMENTS DECEMBER 31, 2003 AND 2002
LONG UNREALIZED PERCENTAGE SHORT UNREALIZED PERCENTAGE FUTURES AND FORWARD CONTRACTS: GAIN/(LOSS) OF NET ASSETS GAIN/(LOSS) OF NET ASSETS ------------------------------ --------------- ------------- ---------------- ------------- 2003 PARTNERSHIP NET ASSETS: $121,270,439 $ % $ % Foreign currency 1,149,874 0.95 13,175 0.01 Commodity 6,059,248 5.00* (1,198,617) (0.99) Interest rate 207,192 0.17 8,576 0.01 Equity 1,807,241 1.49 -- -- --------- ---- ---------- ----- Grand Total: 9,223,555 7.61 (1,176,866) (0.97) ========= ==== ========== ===== Unrealized Currency Loss Total Net Unrealized Gain per Statement of Financial Condition 2002 PARTNERSHIP NET ASSETS: $75,369,072 Foreign currency 2,362,577 3.13 3,680 0.01 Commodity 3,548,205 4.71 4,379 0.01 Interest rate 1,057,473 1.40 -- -- Equity -- -- 131,610 0.17 --------- ---- ---------- ----- Grand Total: 6,968,255 9.24 139,669 0.19 ========= ==== ========== ===== Unrealized Currency Loss Total Net Unrealized Gain per Statement of Financial Condition
FUTURES AND FORWARD CONTRACTS: NET UNREALIZED GAIN/(LOSS) # OF CONTRACTS/NOTIONAL AMOUNTS ------------------------------ -------------------------- ------------------------------- 2003 PARTNERSHIP NET ASSETS: $121,270,439 $ Foreign currency 1,163,049 2,274,600,195 Commodity 4,860,631 9,826 Interest rate 215,768 1,476 Equity 1,807,241 1,160 --------- Grand Total: 8,046,689 Unrealized Currency Loss (124,904) --------- Total Net Unrealized Gain per Statement of Financial Condition 7,921,785 ========= 2002 PARTNERSHIP NET ASSETS: $75,369,072 Foreign currency 2,366,257 1,471,600,565 Commodity 3,552,584 12,920 Interest rate 1,057,473 3,130 Equity 131,610 172 --------- Grand Total: 7,107,924 Unrealized Currency Loss (176,780) --------- Total Net Unrealized Gain per Statement of Financial Condition 6,931,144 =========
* No single contract's value exceeds 5% of Net Assets. The accompanying notes are an integral part of these financial statements. MORGAN STANLEY SPECTRUM TECHNICAL L.P. SCHEDULES OF INVESTMENTS DECEMBER 31, 2003 AND 2002
LONG UNREALIZED PERCENTAGE SHORT UNREALIZED PERCENTAGE FUTURES AND FORWARD CONTRACTS: GAIN/(LOSS) OF NET ASSETS GAIN/(LOSS) OF NET ASSETS ------------------------------ --------------- ------------- ---------------- ------------- 2003 PARTNERSHIP NET ASSETS: $538,184,278 $ % $ % Foreign currency 22,436,449 4.17 (1,729,369) (0.32) Interest rate 53,129 0.01 (5,502,664) (1.02) Commodity 23,626,420 4.39 (2,094,377) (0.39) Equity 10,843,962 2.01 (2,020,472) (0.37) ---------- ----- ----------- ----- Grand Total: 56,959,960 10.58 (11,346,882) (2.10) ========== ===== =========== ===== Unrealized Currency Gain Total Net Unrealized Gain per Statement of Financial Condition 2002 PARTNERSHIP NET ASSETS: $335,821,626 Foreign currency 10,097,643 3.01 967,843 0.29 Commodity 2,703,202 0.80 1,100,261 0.33 Interest rate 9,047,725 2.69 (683,890) (0.20) Equity (486,130) (0.14) 449,469 0.13 ---------- ----- ----------- ----- Grand Total: 21,362,440 6.36 1,833,683 0.55 ========== ===== =========== ===== Unrealized Currency Gain Total Net Unrealized Gain per Statement of Financial Condition
FUTURES AND FORWARD CONTRACTS: NET UNREALIZED GAIN/(LOSS) # OF CONTRACTS/NOTIONAL AMOUNTS ------------------------------ -------------------------- ------------------------------- 2003 PARTNERSHIP NET ASSETS: $538,184,278 $ Foreign currency 20,707,080 15,752,105,748 Interest rate (5,449,535) 18,105 Commodity 21,532,043 15,966 Equity 8,823,490 7,658 ---------- Grand Total: 45,613,078 Unrealized Currency Gain 821,132 ---------- Total Net Unrealized Gain per Statement of Financial Condition 46,434,210 ========== 2002 PARTNERSHIP NET ASSETS: $335,821,626 Foreign currency 11,065,486 3,317,707,667 Commodity 3,803,463 11,280 Interest rate 8,363,835 10,261 Equity (36,661) 881 ---------- Grand Total: 23,196,123 Unrealized Currency Gain 907,090 ---------- Total Net Unrealized Gain per Statement of Financial Condition 24,103,213 ==========
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 in the speculative trading of futures contracts, options on futures 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' general partner 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. Demeter, Morgan Stanley DW, MS&Co., and MSIL are wholly-owned subsidiaries of Morgan Stanley. On April 2, 2001, Dean Witter Reynolds Inc. changed its name to Morgan Stanley DW Inc. On November 1, 2001, the Partnerships were renamed 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. On June 20, 2002, Morgan Stanley Dean Witter & Co. changed its name to Morgan Stanley. Demeter is required to maintain a 1% minimum interest in the equity of each Partnership and income (losses) are shared by Demeter and the limited partners based upon their proportional ownership interests. MORGAN STANLEY SPECTRUM SERIES NOTES TO FINANCIAL STATEMENTS (continued) USE OF ESTIMATES. The financial statements are prepared in accordance with accounting principles generally accepted in the United States of America, which require management to make estimates and assumptions that affect the reported amounts in the financial statements and related disclosures. Management believes that the estimates utilized in the preparation of the financial statements are prudent and reasonable. Actual results could differ from those estimates. REVENUE RECOGNITION. Futures interests are open commitments until settlement date. 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 profit (loss) on open contracts from one period to the next in the statements of operations. Monthly, Morgan Stanley DW pays each Partnership interest income based upon 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. 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. CONDENSED SCHEDULES OF INVESTMENTS. In March 2001, the American Institute of Certified Public Accountants' Accounting Standards Executive Committee ("AICPA Executive Committee") issued Statement of Position 01-1 ("SOP 01-1") "Amendment to the Scope of Statement of Position 95-2, Financial Reporting By Nonpublic Investment Partnerships, to Include Commodity Pools". SOP 01-1 required commodity pools to include a condensed schedule of investments identifying those investments which constitute more than 5% of Net Assets, taking long and short positions into account separately, beginning in fiscal years ending after December 15, 2001. MORGAN STANLEY SPECTRUM SERIES NOTES TO FINANCIAL STATEMENTS (continued) In December 2003, the AICPA Executive Committee issued Statement of Position 03-4 ("SOP 03-4") "Reporting Financial Highlights and Schedule of Investments by Nonregistered Investment Partnerships: An Amendment to the Audit and Accounting Guide Audits Of Investment Companies and AICPA Statement of Position 95-2, Financial Reporting By Nonpublic Investment Partnerships". SOP 03-4 requires commodity pools to disclose on the Schedule of Investments the number of contracts, the contracts' expiration dates and the cumulative unrealized gains/(losses) on open futures contracts, when the cumulative unrealized gains/(losses) on an open futures contract exceeds 5% of Net Assets, taking long and short positions into account separately. SOP 03-4 also requires ratios for expenses and net income/(losses) based on average net assets to be disclosed in Financial Highlights. SOP 03-4 is effective for fiscal years ending after December 15, 2003. EQUITY IN FUTURES INTERESTS TRADING ACCOUNTS. The Partnerships' asset "Equity in futures interests trading accounts," reflected on the statements of financial condition, consists of (A) cash on deposit with Morgan Stanley DW, MS&Co. and MSIL for Spectrum Global Balanced, Spectrum Select, Spectrum Strategic and Spectrum Technical, and Morgan Stanley DW and MS&Co. for Spectrum Currency, to be used as margin for trading; (B) net unrealized gains or losses on open contracts, which are valued at market and calculated as the difference between original contract value and market value, and (C) net option premiums, which represent the net of all monies paid and/or received for such option premiums. The Partnerships, in their normal course of business, enter into various contracts with MS&Co. and/or MSIL acting as their commodity brokers. Pursuant to brokerage agreements with MS&Co. and/or MSIL, to the 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 MORGAN STANLEY SPECTRUM SERIES NOTES TO FINANCIAL STATEMENTS (continued) same counterparty as allowable under the terms of their master netting agreements with MS&Co., the sole counterparty on such contracts. The Partnerships have consistently applied their right to offset. 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 7.25% (a 7.25% annual rate) of Net Assets as of the first day of each month. Such brokerage fees currently cover all brokerage commissions, 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. 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. 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. 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 becomes a limited partner, upon five business days advance notice by redemption form to Demeter. Thereafter, Units redeemed on or prior to the last day of the twelfth month after such Units were purchased will be subject to a redemption charge equal to 2% of the Net Asset Value of a Unit on the date of such redemption. Units redeemed after the last day of the twelfth month and on or prior to the last day of the twenty-fourth month after which such Units were purchased will be subject to a redemption charge equal to 1% of the Net Asset Value of a Unit on the date of such redemption. Units redeemed after the last day of the twenty-fourth month after which such Units were purchased will not be subject to a redemption charge. The foregoing redemption charges are paid to Morgan Stanley DW. Redemptions must be made in whole Units, in a minimum amount of 50 Units, unless a limited partner is redeeming his entire interest in a Partnership. 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. DISSOLUTION OF THE PARTNERSHIPS. Spectrum Currency, Spectrum Global Balanced, Spectrum Strategic and Spectrum Technical will terminate on December 31, 2035 and Spectrum Select will terminate on December 31, 2025, regardless of financial condition at such time, or at an earlier date if certain conditions occur as defined in each Partnership's Limited Partnership Agreement. LITIGATION SETTLEMENT. On February 27, 2002, Spectrum Global Balanced, Spectrum Select, Spectrum Strategic and Spectrum Technical received notification MORGAN STANLEY SPECTRUM SERIES NOTES TO FINANCIAL STATEMENTS (continued) of a preliminary entitlement to payment from the Sumitomo Copper Litigation Settlement Administrator and received payment of this settlement awards in the amount of $233,074, $4,636,156, $17,556 and $306,400, respectively, as of August 30, 2002. -------------------------------------------------------------------------------- 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 at December 31, 2003 were as follows: Morgan Stanley Spectrum Currency L.P. John W. Henry & Company, Inc. ("JWH") Sunrise Capital Partners, LLC Morgan Stanley Spectrum Global Balanced L.P. SSARIS Advisors, LLC ("SSARIS") Effective December 6, 2002, SSARIS replaced RXR, Inc. as a trading advisor to Spectrum Global Balanced. Morgan Stanley Spectrum Select L.P. EMC Capital Management, Inc. Northfield Trading L.P. Rabar Market Research, Inc. Sunrise Capital Management, Inc. Effective May 1, 2001, Spectrum Select entered into a management agreement with Northfield Trading L.P. ("Northfield"), adding Northfield as its fourth trading advisor. MORGAN STANLEY SPECTRUM SERIES NOTES TO FINANCIAL STATEMENTS (continued) Effective January 1, 2004, Spectrum Select entered into a management agreement with Graham Capital Management, L.P. ("Graham"), adding Graham as its fifth trading advisor. Morgan Stanley Spectrum Strategic L.P. Allied Irish Capital Management, Ltd. Blenheim Capital Management, L.L.C. ("Blenheim") Eclipse Capital Management, Inc. Effective August 31, 2001, Blenheim Investments, Inc. changed its name to Blenheim Capital Management, L.L.C. Morgan Stanley Spectrum Technical L.P. Campbell & Company, Inc. ("Campbell") Chesapeake Capital Corporation ("Chesapeake") John W. Henry & Company, Inc. Effective January 1, 2004, Spectrum Technical entered into a management agreement with Winton Capital Management Limited ("Winton"), adding Winton as its fourth trading advisor. 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 the 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 the 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 the rate of 1/4 of 1% per month of Net Assets allocated to each trading advisor on the first day of each month (a 3% annual rate). The management fee for Spectrum Strategic is accrued at the rate of 1/12 of 3% per month of Net Assets allocated to each trading advisor on the first day of each month (a 3% annual rate). Prior to March 23, 2001, the management fee allocated to Blenheim was accrued at a rate of 1/12 of 4% per month of Net Assets as of the first day of each month (a 4% annual rate). MORGAN STANLEY SPECTRUM SERIES NOTES TO FINANCIAL STATEMENTS (continued) The management fee for Spectrum Technical is accrued at the rate of 1/12 of 2% per month of Net Assets allocated to JWH on the first day of each month, 1/12 of 3% per month of Net Assets allocated to Campbell on the first day of each month and 1/12 of 3% per month of Net Assets allocated to Chesapeake on the first day of each month (annual rates of 2%, 3% and 3% respectively). Prior to May 1, 2002, the management fee for Chesapeake was accrued at a rate of 1/12 of 4% per month of Net Assets on the first day of each month (a 4% 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, Spectrum Select and Spectrum Strategic each pay a monthly incentive fee equal to 15% of the trading profits experienced with respect to each trading advisor's allocated Net Assets 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 Campbell and JWH 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. -------------------------------------------------------------------------------- 4. FINANCIAL INSTRUMENTS The Partnerships trade futures contracts, options on futures contracts, and forward contracts on physical commodities and other commodity interests, including, but not limited to foreign currencies, financial instru- MORGAN STANLEY SPECTRUM SERIES NOTES TO FINANCIAL STATEMENTS (continued) ments, metals, energy and agricultural products. 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 market value of these contracts, including interest rate volatility. The market value of contracts is based on closing prices quoted by the exchange, bank or clearing firm through which the contracts are traded. The Partnerships' contracts are accounted for on a trade-date basis and marked to market on a daily basis. The Partnerships account for their derivative investments in accordance with the provisions of Statement of Financial Accounting Standards 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, swaps or options contracts and other financial instruments with similar characteristics such as caps, floors and collars. The net unrealized gains on open contracts at December 31, reported as a component of "Equity in futures interests trading accounts" on the statements of financial condition, and their longest contract maturities were as follows: SPECTRUM CURRENCY
NET UNREALIZED GAINS ON OPEN CONTRACTS LONGEST MATURITIES ----------------------------- ------------------- OFF- OFF- EXCHANGE- EXCHANGE- EXCHANGE- EXCHANGE- YEAR TRADED TRADED TOTAL TRADED TRADED ---- --------- --------- --------- --------- --------- $ $ $ 2003 -- 4,878,640 4,878,640 -- Mar. 2004 2002 -- 5,651,549 5,651,549 -- Mar. 2003
MORGAN STANLEY SPECTRUM SERIES NOTES TO FINANCIAL STATEMENTS (continued) SPECTRUM GLOBAL BALANCED
NET UNREALIZED GAINS ON OPEN CONTRACTS LONGEST MATURITIES ----------------------------- ------------------- OFF- OFF- EXCHANGE- EXCHANGE- EXCHANGE- EXCHANGE- YEAR TRADED TRADED TOTAL TRADED TRADED ---- --------- --------- --------- --------- --------- $ $ $ 2003 2,472,718 74,322 2,547,040 Apr. 2004 Mar. 2004 2002 717,293 28,640 745,933 Mar. 2003 Mar. 2003
SPECTRUM SELECT
NET UNREALIZED GAINS ON OPEN CONTRACTS LONGEST MATURITIES ------------------------------- ------------------- OFF- OFF- EXCHANGE- EXCHANGE- EXCHANGE- EXCHANGE- YEAR TRADED TRADED TOTAL TRADED TRADED ---- ---------- --------- ---------- --------- --------- $ $ $ 2003 31,690,225 5,091,740 36,781,965 Mar. 2005 Mar. 2004 2002 12,359,670 5,538,348 17,898,018 Dec. 2003 Mar. 2003
SPECTRUM STRATEGIC
NET UNREALIZED GAINS ON OPEN CONTRACTS LONGEST MATURITIES ----------------------------- ------------------- OFF- OFF- EXCHANGE- EXCHANGE- EXCHANGE- EXCHANGE- YEAR TRADED TRADED TOTAL TRADED TRADED ---- --------- --------- --------- --------- --------- $ $ $ 2003 6,905,992 1,015,793 7,921,785 Jul. 2005 Mar. 2004 2002 6,387,996 543,148 6,931,144 Jul. 2004 Mar. 2003
SPECTRUM TECHNICAL
NET UNREALIZED GAINS ON OPEN CONTRACTS LONGEST MATURITIES -------------------------------- ------------------- OFF- OFF- EXCHANGE- EXCHANGE- EXCHANGE- EXCHANGE- YEAR TRADED TRADED TOTAL TRADED TRADED ---- ---------- ---------- ---------- --------- --------- $ $ $ 2003 34,239,960 12,194,250 46,434,210 Dec. 2004 Mar. 2004 2002 16,269,250 7,833,963 24,103,213 Dec. 2003 Mar. 2003
The Partnerships have credit risk associated with counterparty nonperformance. The credit risk associated with the instruments in which the Partnerships are involved is limited to the amounts reflected in the Partnerships' statements of financial condition. The Partnerships also have credit risk because Morgan Stanley DW, MS&Co. and/or MSIL act as the futures commission merchants or the counterparties, with respect to most of the Partnerships' assets. MORGAN STANLEY SPECTRUM SERIES NOTES TO FINANCIAL STATEMENTS (continued) Exchange-traded futures and futures-styled options contracts are marked to market on a daily basis, with variations in value settled on a daily basis. Morgan Stanley DW, MS&Co. and/or MSIL, each as a futures commission merchant for each Partnership's exchange-traded futures and 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 and futures-styled options contracts, including an amount equal to the net unrealized gains on all open futures and futures-styled options contracts, which funds, in the aggregate, totaled at December 31, 2003 and 2002 respectively, $52,809,135 and $50,047,775 for Spectrum Global Balanced, $430,286,177 and $287,140,004 for Spectrum Select, $116,752,753 and $74,612,644 for Spectrum Strategic and $517,752,016 and $326,385,223 for Spectrum Technical. With respect to the Partnerships' off-exchange-traded forward currency contracts, there are no daily exchange-related settlements of variations in value nor is there any requirement that an amount equal to the net unrealized gains on open forward contracts be segregated, however, MS&Co. and Morgan Stanley DW will make daily settlements of losses as needed. 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. Each Partnership has a netting agreement with MS&Co. These agreements, which seek to reduce both the Partnerships' and MS&Co.'s exposure on off-exchange-traded forward currency contracts, should materially decrease the Partnerships' credit risk in the event of MS&Co.'s bankruptcy or insolvency. MORGAN STANLEY SPECTRUM SERIES NOTES TO FINANCIAL STATEMENTS (continued) -------------------------------------------------------------------------------- 5. FINANCIAL HIGHLIGHTS SPECTRUM CURRENCY
PER UNIT: --------- NET ASSET VALUE, JANUARY 1, 2003: $13.93 ------ NET OPERATING RESULTS: Realized Profit 2.92 Unrealized Loss (0.08) Interest Income 0.11 Expenses (1.22) ------ Net Income 1.73 ------ NET ASSET VALUE, DECEMBER 31, 2003: $15.66 ====== Expense Ratio 8.1% Net Income Ratio 11.9% TOTAL RETURN 2003 12.4% INCEPTION-TO-DATE RETURN 56.6% COMPOUND ANNUALIZED RETURN 13.7%
SPECTRUM GLOBAL BALANCED
PER UNIT: --------- NET ASSET VALUE, JANUARY 1, 2003: $14.57 ------ NET OPERATING RESULTS: Realized Profit 1.08 Unrealized Profit 0.54 Interest Income 0.16 Expenses (0.88) ------ Net Income 0.90 ------ NET ASSET VALUE, DECEMBER 31, 2003: $15.47 ====== Expense Ratio 5.8% Net Income Ratio 6.1% TOTAL RETURN 2003 6.2% INCEPTION-TO-DATE RETURN 54.7% COMPOUND ANNUALIZED RETURN 4.9%
MORGAN STANLEY SPECTRUM SERIES NOTES TO FINANCIAL STATEMENTS (continued) SPECTRUM SELECT
PER UNIT: --------- NET ASSET VALUE, JANUARY 1, 2003: $ 27.65 ------- NET OPERATING RESULTS: Realized Profit 4.12 Unrealized Profit 1.51 Interest Income 0.23 Expenses (3.20) ------- Net Income 2.66 ------- NET ASSET VALUE, DECEMBER 31, 2003: $ 30.31 ======= Expense Ratio 10.9% Net Income Ratio 9.3% TOTAL RETURN 2003 9.6% INCEPTION-TO-DATE RETURN 203.1% COMPOUND ANNUALIZED RETURN 9.3%
SPECTRUM STRATEGIC
PER UNIT: --------- NET ASSET VALUE, JANUARY 1, 2003: $11.54 ------ NET OPERATING RESULTS: Realized Profit 4.10 Unrealized Profit 0.14 Interest Income 0.10 Expenses (1.57) ------ Net Income 2.77 ------ NET ASSET VALUE, DECEMBER 31, 2003: $14.31 ====== Expense Ratio 12.1% Net Income Ratio 21.6% TOTAL RETURN 2003 24.0% INCEPTION-TO-DATE RETURN 43.1% COMPOUND ANNUALIZED RETURN 4.0%
MORGAN STANLEY SPECTRUM SERIES NOTES TO FINANCIAL STATEMENTS (concluded) SPECTRUM TECHNICAL
PER UNIT: --------- NET ASSET VALUE, JANUARY 1, 2003: $ 18.41 ------- NET OPERATING RESULTS: Realized Profit 5.61 Unrealized Profit 1.07 Interest Income 0.16 Expenses (2.61) ------- Net Income 4.23 ------- NET ASSET VALUE, DECEMBER 31, 2003: $ 22.64 ======= Expense Ratio 12.5% Net Income Ratio 20.2% TOTAL RETURN 2003 23.0% INCEPTION-TO-DATE RETURN 126.4% COMPOUND ANNUALIZED RETURN 9.3%
Demeter Management Corporation 825 Third Avenue, 9th Floor New York, NY 10022 [LOGO] Morgan Stanley ADDRESS SERVICE REQUESTED [LOGO] printed on recycled paper PRESORTED FIRST CLASS MAIL U.S. POSTAGE PAID PERMIT #374 LANCASTER, PA -