<DOCUMENT>
<TYPE>424B3
<SEQUENCE>1
<FILENAME>spec.txt
<DESCRIPTION>SPECTRUM CURRENCY
<TEXT>
MORGAN STANLEY
SPECTRUM SERIES
October 2004
Monthly Report
This Monthly Report supplements the Spectrum Funds' Prospectus dated April 28,
2004 and the Prospectus Supplement dated October 19, 2004.
Issued: November 30, 2004
MORGAN STANLEY [LOGO]
<PAGE>
MORGAN STANLEY SPECTRUM SERIES
--------------------------------------------------------------------------------
HISTORICAL FUND PERFORMANCE
Presented below is the percentage change in Net Asset Value per Unit from the
start of every calendar year each Fund has traded. Also provided is the
inception-to-date return and the compound annualized return since inception for
each Fund. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
FUND % % % % % % % % % % % % % %
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Spectrum Currency......... -- -- -- -- -- -- -- -- -- 11.7 11.1 12.2 12.4 (20.4)
(6 mos.) (10 mos.)
------------------------------------------------------------------------------------------------------------------------------------
Spectrum Global Balanced.. -- -- -- (1.7) 22.8 (3.6) 18.2 16.4 0.8 0.9 (0.3) (10.1) 6.2 (7.3)
(2 mos.) (10 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 (12.7)
(5 mos.) (10 mos.)
------------------------------------------------------------------------------------------------------------------------------------
Spectrum Strategic........ -- -- -- 0.1 10.5 (3.5) 0.4 7.8 37.2 (33.1) (0.6) 9.4 24.0 0.1
(2 mos.) (10 mos.)
------------------------------------------------------------------------------------------------------------------------------------
Spectrum Technical........ -- -- -- (2.2) 17.6 18.3 7.5 10.2 (7.5) 7.8 (7.2) 23.3 23.0 (7.5)
(2 mos.) (10 mos.)
------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
INCEPTION- COMPOUND
TO-DATE ANNUALIZED
RETURN RETURN
FUND % %
---------------------------------------------------
<S> <C> <C>
Spectrum Currency......... 24.7 5.2
---------------------------------------------------
Spectrum Global Balanced.. 43.4 3.7
---------------------------------------------------
Spectrum Select........... 164.6 7.6
---------------------------------------------------
Spectrum Strategic........ 42.9 3.6
---------------------------------------------------
Spectrum Technical 109.5 7.7
---------------------------------------------------
</TABLE>
<PAGE>
--------------------------------------------------------------------------------
DEMETER MANAGEMENT CORPORATION
--------------------------------------------------------------------------------
330 Madison Avenue, 8th Floor
New York, NY 10017
Telephone (212) 905-2700
MORGAN STANLEY SPECTRUM SERIES
MONTHLY REPORT
OCTOBER 2004
Dear Limited Partner:
The Net Asset Value per Unit for each of the five Morgan Stanley Spectrum
Funds as of October 31, 2004 was as follows:
FUND N.A.V. % CHANGE FOR MONTH
--------------------------------------------------------------------------------
Spectrum Currency $12.47 7.62%
--------------------------------------------------------------------------------
Spectrum Global Balanced $14.34 0.40%
--------------------------------------------------------------------------------
Spectrum Select $26.46 3.71%
--------------------------------------------------------------------------------
Spectrum Strategic $14.29 -0.65%
--------------------------------------------------------------------------------
Spectrum Technical $20.95 6.92%
--------------------------------------------------------------------------------
Detailed performance information for each Fund is located in the body of the
financial report. For each Fund, we provide a trading results by sector chart
that portrays trading gains and trading losses for the previous month and
year-to-date in each sector in which the Fund participates. In the case of
Spectrum Currency, we provide the trading gains and trading losses for the five
major currencies in which the Fund participates, and composite information for
all other "minor" currencies traded within the Fund.
The trading results by sector charts indicate the monthly and year-to-date
composite percentage returns generated by the specific assets dedicated to
trading within each market sector in which each Fund participates. Please note
that there is not an equal amount of assets in each market sector, and the
specific allocations of assets by a Fund to each sector will vary over time
within a predetermined range. Below each chart is a description of the factors
that influenced trading gains and trading losses within each Fund during the
previous month.
Should you have any questions concerning this report, please feel free to
contact Demeter Management Corporation, 330 Madison Avenue, 8th Floor, New York,
NY 10017 or your Morgan Stanley Financial Advisor.
I hereby affirm, that to the best of my knowledge and belief, the information
contained in this report is accurate and complete. Past performance is no
guarantee of future results.
Sincerely,
/s/ Jeffrey A. Rothman
-------------------------
Jeffrey A. Rothman
Chairman of the Board of Directors and President
Demeter Management Corporation
General Partner for
Morgan Stanley Spectrum Currency L.P.
Morgan Stanley Spectrum Global Balanced L.P.
Morgan Stanley Spectrum Select L.P.
Morgan Stanley Spectrum Strategic L.P.
Morgan Stanley Spectrum Technical L.P.
<PAGE>
--------------------------------------------------------------------------------
SPECTRUM CURRENCY
--------------------------------------------------------------------------------
MONTH ENDED OCTOBER 31, 2004
YTD ENDED OCTOBER 31, 2004
[Data below represents bar chart in the printed piece]
Australian dollar 1.08 -0.79
British pound -1.26 -1.59
Euro 3.87 0.8
Japanese yen 0.03 -7.74
Swiss franc 0.61 0.41
Minor| currencies 3.74 -7.76
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, Singapore dollar, Mexican peso, New
Zealand dollar, and Norwegian krone.
FACTORS INFLUENCING MONTHLY TRADING GAINS:
> Fund gains resulted from long positions in a variety of foreign currencies
versus the U.S. dollar as foreign currency values benefited during the
month from a declining dollar trend. The largest gains stemmed from long
positions in the euro, Australian dollar, South African rand, and New
Zealand dollar. Fears that rising oil prices could potentially result in
sluggish economic growth for the world's largest economy provided further
impetus for selling the U.S. dollar and buying competing currencies. Later
in the month, reports of weaker-than-expected economic data, specifically
concerning lackluster U.S. job creation and a huge current account deficit,
promoted further economic growth anxieties and prospects for lower U.S.
interest rates. Finally, uncertainty ahead of the U.S. Presidential
election also weighed on the value of the U.S. dollar.
FACTORS INFLUENCING MONTHLY TRADING LOSSES:
> Fund losses for the month occurred in short British pound positions versus
the U.S. dollar as the pound's value reversed higher against the dollar due
to the weakening of the U.S. currency for the aforementioned reasons.
<PAGE>
--------------------------------------------------------------------------------
SPECTRUM GLOBAL BALANCED
--------------------------------------------------------------------------------
MONTH ENDED OCTOBER 31, 2004
YTD ENDED OCTOBER 31, 2004
[Data below represents bar chart in the printed piece]
Currencies 0.44 -3.68
Interest|Rates 0.37 1.03
Stock|Indices 0.19 -0.71
Energies 0.73 1.51
Metals -0.7 -1.3
Agriculturals -0.33 -0.68
Note: Reflects trading results only and does not include fees or interest
income.
FACTORS INFLUENCING MONTHLY TRADING GAINS:
> Fund gains resulted from long positions within the energy markets as crude
oil prices trended consistently higher during most of October, reaching
historical price levels. Prices rose amid supply and security concerns for
major oil centers and production facilities situated throughout the globe,
including the Gulf of Mexico, Iraq, Nigeria, and Norway. Steady increases
in demand from China also contributed to oil's price climb.
> Additional Fund gains resulted from trading within the currency markets as
long positions in the Singapore dollar, Japanese yen, and Australian dollar
versus the U.S. dollar benefited during the month from a declining dollar
trend. Fears that rising oil prices could potentially result in sluggish
economic growth for the world's largest economy provided further impetus
for selling the U.S. dollar and buying competing currencies. Later in the
month, reports of weaker-than-expected economic data, specifically
concerning lackluster U.S. job creation and a huge current account deficit,
promoted further economic growth anxieties and prospects for lower U.S.
interest rates. Finally, uncertainty ahead of the U.S. Presidential
election also negatively weighed on the value of the U.S. dollar.
> Trading in the global interest rate markets also resulted in Fund profits
for the month as long positions in European interest rate futures recorded
gains after global bond prices ended October higher after falling early in
the month amid speculation for interest rate tightening. However,
expectations for elevated interest rates quickly abated as record high oil
prices gave rise to concerns for limited global economic expansion--a view
further reinforced following the release of lower-than-expected increases
in U.S. non-farm business payrolls.
> Finally, the Fund also profited from trading in the global stock index
markets as long positions in European and U.S. stock index futures
benefited primarily during the final week of October from rising equity
prices and falling crude oil prices.
FACTORS INFLUENCING MONTHLY TRADING LOSSES:
> Trading in the metals markets proved difficult as industrial metals prices
endured a sharp decline during mid-month after prices dropped due to fears
of falling demand in key markets such as China and the U.S. Specifically,
copper prices declined as much as 12% after previously reaching new 14-year
highs. Thus, long positions in base metals recorded losses for the month.
> Losses also occurred in the agricultural markets from positions in sugar
and wheat. Long futures positions in sugar incurred losses as prices for
the commodity moved lower in response to technically-based selling and news
of weaker demand. Short futures positions in wheat futures produced losses
as prices reversed higher due to reports of strong export demand.
<PAGE>
--------------------------------------------------------------------------------
SPECTRUM SELECT
--------------------------------------------------------------------------------
MONTH ENDED OCTOBER 31, 2004
YTD ENDED OCTOBER 31, 2004
[Data below represents bar chart in the printed piece]
Currencies 2.92 -5.5
Interest|Rates 2.32 -2.23
Stock|Indices 0.09 -3.51
Energies 1.07 5.38
Metals -1.48 1.01
Agriculturals -0.44 0.92
Note: Reflects trading results only and does not include fees or interest
income.
FACTORS INFLUENCING MONTHLY TRADING GAINS:
> Fund gains resulted from long positions in a variety of foreign currencies
versus the U.S. dollar as foreign currency values benefited during the
month from a declining dollar trend. The largest gains stemmed from long
positions in the euro, Swiss franc, and Canadian dollar. Fears that rising
oil prices could potentially result in sluggish economic growth for the
world's largest economy provided further impetus for selling the U.S.
dollar and buying competing currencies. Later in the month, reports of
weaker-than-expected economic data, specifically concerning lackluster U.S.
job creation and a huge current account deficit, promoted further economic
growth anxieties and prospects for lower U.S. interest rates. Finally,
uncertainty ahead of the U.S. Presidential election also negatively
affected the value of the U.S. dollar.
> Trading in the global interest rate markets also resulted in profits as
long positions in European and U.S. interest rate futures recorded gains
after global bond prices ended October higher following a decline early in
the month amid speculation for interest rate tightening. However,
expectations for elevated interest rates quickly abated as record high oil
prices gave rise to concerns for limited global economic expansion--a view
further reinforced following the release of lower-than-expected increases
in U.S. non-farm business payrolls.
> Finally, Fund gains also resulted from long positions within the energy
markets as crude oil prices trended consistently higher during much of
October, reaching historical price levels. Prices rose amid supply and
security concerns for major oil centers and production facilities situated
throughout the globe, including the Gulf of Mexico, Iraq, Nigeria, and
Norway. Steady increases in demand from China also contributed to oil's
price climb.
FACTORS INFLUENCING MONTHLY TRADING LOSSES:
> Trading in the metals markets proved difficult as industrial metals prices
endured a sharp decline during mid-month after prices dropped due to fears
of falling demand in key markets such as China and the U.S. Specifically,
copper prices declined as much as 12% after previously reaching new 14-year
highs. Thus, long positions in base metals recorded losses for the month.
> Trading in the agricultural markets resulted in further difficult
performance as losses resulted from long futures positions in coffee after
prices declined due to larger harvests and greater market supply. Long
futures positions in sugar incurred losses as prices for the commodity
moved lower in response to technically-based selling and news of weaker
demand.
<PAGE>
--------------------------------------------------------------------------------
SPECTRUM STRATEGIC
--------------------------------------------------------------------------------
MONTH ENDED OCTOBER 31, 2004
YTD ENDED OCTOBER 31, 2004
[Data below represents bar chart in the printed piece]
Currencies 1.48 -0.93
Interest|Rates -0.08 0.49
Stock|Indices -0.55 -2.69
Energies 0.69 0.99
Metals -1.1 2.5
Agriculturals -0.6 7.9
Note:Reflects trading results only and does not include fees or interest
income.
FACTORS INFLUENCING MONTHLY TRADING LOSSES:
> Trading in the metals markets proved difficult as industrial metals prices
endured a sharp decline during mid-month after prices dropped due to fears
of falling demand in key markets such as China and the U.S. Specifically,
copper prices declined as much as 12% after reaching new 14-year highs.
Thus, long positions in base metals recorded losses for the month.
> In the agricultural markets, losses resulted from long futures positions in
sugar as prices for the commodity moved lower in response to
technically-based selling and news of weaker demand. Long futures positions
in coffee also produced losses as prices declined due to larger harvests
and greater market supply.
> Losses in the global stock index markets resulted from long positions in
Asian and U.S. stock index futures as prices moved without consistent
direction during much of the month, due primarily to oil's advancement to
record price levels. Also weighing on equity prices was a
larger-than-expected increase in first-time U.S. jobless claims and tepid
earnings reports from several large U.S. corporations.
> Smaller Fund losses were recorded in the global interest rate sector from
long positions in Japanese interest rate futures early in the month.
FACTORS INFLUENCING MONTHLY TRADING GAINS:
> Fund gains achieved in the currency sector resulted from long positions in
a variety of foreign currencies versus the U.S. dollar as their values
benefited from a declining dollar trend. Fears that rising oil prices could
potentially result in sluggish economic growth for the world's largest
economy provided further impetus for selling the U.S. dollar and buying
competing currencies. Later in the month, reports of weaker-than-expected
economic data, specifically concerning lackluster U.S. job creation and a
huge current account deficit, promoted further economic growth anxieties
and prospects for lower U.S. interest rates. Finally, uncertainty ahead of
the U.S. Presidential election also negatively affected the value of the
U.S. dollar.
> Additional Fund gains resulted from long positions within the energy
markets as crude oil prices trended consistently higher during much of
October, reaching historical price levels. Prices rose amid supply and
security concerns for major oil centers and production facilities situated
throughout the globe, including the Gulf of Mexico, Iraq, Nigeria, and
Norway. Steady increases in demand from China also contributed to oil's
price climb.
<PAGE>
--------------------------------------------------------------------------------
SPECTRUM TECHNICAL
--------------------------------------------------------------------------------
MONTH ENDED OCTOBER 31, 2004
YTD ENDED OCTOBER 31, 2004
[Data below represents bar chart in the printed piece]
Currencies 3.64 -7.12
Interest|Rates 4.13 6.29
Stock|Indices -0.09 -5.21
Energies 1.49 13.48
Metals -0.8 -0.85
Agriculturals -0.64 -2.89
Note:Reflects trading results only and does not include fees or interest
income.
FACTORS INFLUENCING MONTHLY TRADING GAINS:
> The largest Fund gains resulted in the global interest rate markets from
long positions in European and U.S. interest rate futures as global bond
prices ended October higher after falling early in the month amid
speculation for interest rate tightening. However, expectations for
elevated interest rates quickly abated as record high oil prices gave rise
to concerns for limited global economic expansion--a view further
reinforced following the release of lower-than-expected increases in U.S.
non-farm business payrolls.
> Fund gains also resulted from trading within the currency markets as long
positions in a variety of foreign currencies versus the U.S. dollar
benefited during the month from a declining dollar trend. Fears that rising
oil prices could potentially result in sluggish economic growth for the
world's largest economy provided further impetus for selling the U.S.
dollar and buying competing currencies. Later in the month, reports of
weaker-than-expected economic data, specifically concerning lackluster U.S.
job creation and a huge current account deficit, promoted further economic
growth anxieties and prospects for lower U.S. interest rates. Finally,
uncertainty ahead of the U.S. Presidential election also negatively
affected the value of the U.S. dollar.
> Additional Fund gains resulted from long positions within the energy
markets as crude oil prices trended consistently higher during much of
October, reaching historical price levels. Prices rose amid supply and
security concerns for major oil centers and production facilities situated
throughout the globe, including the Gulf of Mexico, Iraq, Nigeria, and
Norway. Steady increases in demand from China also contributed to oil's
price climb.
FACTORS INFLUENCING MONTHLY TRADING LOSSES:
> Trading in the metals markets proved difficult as industrial metals prices
endured a sharp decline during mid-month after prices dropped due to fears
of falling demand in key markets such as China and the U.S. Specifically,
copper prices declined as much as 12% after reaching new 14-year highs.
Thus, long positions in base metals recorded losses for the month.
> In the agricultural markets, losses resulted from long futures positions in
sugar as prices for the commodity moved lower in response to
technically-based selling and news of weaker demand. Long futures positions
in coffee incurred losses as prices declined due to larger harvests and
greater market supply. Finally, long futures positions in live cattle
recorded losses during the final week of the month as prices weakened after
concerns that U.S. beef exports to Japan could take years to recover.
<PAGE>
[This page intentionally left blank]
<PAGE>
MORGAN STANLEY SPECTRUM SERIES
--------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------
FOR THE MONTH ENDED OCTOBER 31, 2004 (UNAUDITED)
<TABLE>
<CAPTION>
MORGAN STANLEY MORGAN STANLEY
SPECTRUM CURRENCY SPECTRUM GLOBAL BALANCED
--------------------------- ---------------------------
PERCENTAGE OF PERCENTAGE OF
OCTOBER 1, 2004 OCTOBER 1, 2004
BEGINNING BEGINNING
AMOUNT NET ASSET VALUE AMOUNT NET ASSET VALUE
------------ ----------------- ---------- ----------------
$ % $ %
<S> <C> <C> <C> <C>
REVENUES
Trading profit (loss):
Realized -- -- 541,381 1.13
Net change in unrealized 16,898,027 8.06 (184,871) (.38)
Proceeds from Litigation
Settlement -- -- 2,296 --
------------ -------- --------- -----
Total Trading Results 16,898,027 8.06 358,806 .75
Interest income (Note 2) 223,122 .11 66,201 .14
------------ -------- --------- -----
Total Revenues 17,121,149 8.17 425,007 .89
------------ -------- --------- -----
EXPENSES
Brokerage fees (Note 2) 803,697 .38 184,460 .38
Management fees (Note 3) 349,433 .17 50,126 .11
------------ -------- --------- -----
Total Expenses 1,153,130 .55 234,586 .49
------------ -------- --------- -----
NET INCOME 15,968,019 7.62 190,421 .40
============ ======== ========= =====
</TABLE>
MORGAN STANLEY SPECTRUM SERIES
--------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSET VALUE
--------------------------------------------------------------------------------
FOR THE MONTH ENDED OCTOBER 31, 2004 (UNAUDITED)
<TABLE>
<CAPTION>
MORGAN STANLEY MORGAN STANLEY
SPECTRUM CURRENCY SPECTRUM GLOBAL BALANCED
------------------------------------ ---------------------------------------
PER PER
UNITS AMOUNT UNIT UNITS AMOUNT UNIT
------- -------- ------ ------- -------- ------
$ $ $ $
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
OCTOBER 1, 2004 18,099,031.514 209,660,066 11.58 3,369,888.044 48,120,322 14.28
Net Income -- 15,968,019 .89 -- 190,421 .06
Redemptions (146,870.716) (1,831,478) 12.47 (28,723.083) (411,889) 14.34
Subscriptions 441,533.569 5,505,924 12.47 44,296.167 635,207 14.34
-------------- ----------- ------------- ----------
Net Asset Value,
October 31, 2004 18,393,694.367 229,302,531 12.47 3,385,461.128 48,534,061 14.34
============== =========== ============= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
MORGAN STANLEY SPECTRUM SERIES
--------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------
FOR THE MONTH ENDED OCTOBER 31, 2004 (UNAUDITED)
<TABLE>
<CAPTION>
MORGAN STANLEY MORGAN STANLEY MORGAN STANLEY
SPECTRUM SELECT SPECTRUM STRATEGIC SPECTRUM TECHNICAL
--------------------------- --------------------------- ---------------------------
PERCENTAGE OF PERCENTAGE OF PERCENTAGE OF
OCTOBER 1, 2004 OCTOBER 1, 2004 OCTOBER 1, 2004
BEGINNING BEGINNING BEGINNING
AMOUNT NET ASSET VALUE AMOUNT NET ASSET VALUE AMOUNT NET ASSET VALUE
--------- ----------------- --------- ----------------- --------- ------------------
$ % $ % $ %
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Trading profit (loss):
Realized 11,007,434 2.23 2,556,806 1.49 5,900,534 .95
Net change in unrealized 10,935,554 2.21 (2,764,716) (1.61) 41,341,447 6.68
------------ ----- ------------- ------- ------------ ------
Total Trading Results 21,942,988 4.44 (207,910) (.12) 47,241,981 7.63
Interest income (Note 2) 539,014 .11 193,520 .11 681,116 .11
------------ ----- ------------- ------- ------------ ------
Total Revenues 22,482,002 4.55 (14,390) (.01) 47,923,097 7.74
------------ ----- ------------- ------- ------------ ------
EXPENSES
Brokerage fees (Note 2) 2,983,576 .60 782,855 .46 3,740,827 .60
Management fees (Note 3) 1,168,466 .24 323,940 .18 1,329,099 .22
------------ ----- ------------- ------- ------------ ------
Total Expenses 4,152,042 .84 1,106,795 .64 5,069,926 .82
------------ ----- ------------- ------- ------------ ------
NET INCOME (LOSS) 18,329,960 3.71 (1,121,185) (.65) 42,853,171 6.92
============ ===== ============= ======= ============ ======
</TABLE>
MORGAN STANLEY SPECTRUM SERIES
--------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSET VALUE
--------------------------------------------------------------------------------
FOR THE MONTH ENDED OCTOBER 31, 2004 (UNAUDITED)
<TABLE>
<CAPTION>
MORGAN STANLEY MORGAN STANLEY MORGAN STANLEY
SPECTRUM SELECT SPECTRUM STRATEGIC SPECTRUM TECHNICAL
---------------------------------- ------------------------------------- ----------------------------------
PER PER PER
UNITS AMOUNT UNIT UNITS AMOUNT UNIT UNITS AMOUNT UNIT
-------------- ----------- ---- ---------------- ------------ ---- -------------- ---------- ----
$ $ $ $ $ $
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
October 1, 2004 19,359,005.895 493,833,184 25.51 11,948,868.748 171,822,904 14.38 31,596,886.234 619,171,349 19.60
Net Income (Loss) -- 18,329,960 .95 -- (1,121,185) (.09) -- 42,853,171 1.35
REDEMPTIONS (133,051.086) (3,520,532) 26.46 (92,905.858) (1,327,625) 14.29 (231,823.384) (4,856,700) 20.95
Subscriptions 484,785.465 12,827,424 26.46 323,185.446 4,618,320 14.29 745,071.706 15,609,254 20.95
-------------- ----------- -------------- ----------- -------------- -----------
Net Asset Value,
October 31, 2004 19,710,740.274 521,470,036 26.46 12,179,148.336 173,992,414 14.29 32,110,134.556 672,777,074 20.95
============== =========== ============== =========== ============== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
MORGAN STANLEY SPECTRUM SERIES
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION. Morgan Stanley Spectrum Currency L.P. ("Spectrum Currency"),
Morgan Stanley Spectrum Global Balanced L.P. ("Spectrum Global Balanced"),
Morgan Stanley Spectrum Select L.P. ("Spectrum Select"), Morgan Stanley Spectrum
Strategic L.P. ("Spectrum Strategic"), and Morgan Stanley Spectrum Technical
L.P. ("Spectrum Technical") (individually, a "Partnership" or collectively, the
"Partnerships"), are limited partnerships organized to engage primarily in the
speculative trading of futures contracts, options on futures 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, and Spectrum Technical are Morgan Stanley & Co.
Incorporated ("MS & Co.") and Morgan Stanley & Co. International Limited
("MSIL"). Spectrum Strategic's clearing commodity brokers are MS & Co., MSIL,
and Morgan Stanley Capital Group Inc. ("MSCG"). Spectrum Currency's clearing
commodity broker is MS & Co. Demeter, Morgan Stanley DW, MS & Co., MSIL, and
MSCG are wholly-owned subsidiaries of Morgan Stanley.
Demeter is required to maintain a 1% minimum interest in the equity of each
Partnership and income (losses) are shared by Demeter and the limited partners
based upon their proportional ownership interests.
USE OF ESTIMATES. The financial statements are prepared in accordance with
accounting principles generally accepted in the United States of America, which
require management to make estimates and assumptions that affect the reported
amounts in the financial statements and related disclosures. Management believes
that the estimates utilized in the preparation of the financial statements are
prudent and reasonable. Actual results could differ from those estimates.
REVENUE RECOGNITION. Futures interests are open commitments until settlement
date. They are valued at market on a daily basis and the resulting net change in
unrealized gains and losses is reflected in the change in unrealized trading
profit (loss) on open contracts from one period to the next in the Statements of
Operations. Monthly, Morgan Stanley DW
<PAGE>
MORGAN STANLEY SPECTRUM SERIES
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
(CONTINUED)
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.
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 part-
<PAGE>
MORGAN STANLEY SPECTRUM SERIES
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
(CONTINUED)
ners or the Partnerships. Morgan Stanley DW pays all such costs.
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.
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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
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NOTES TO FINANCIAL STATEMENTS
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(CONTINUED)
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.
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3. TRADING ADVISORS
Demeter, on behalf of each Partnership, retains certain commodity trading
advisors to make all trading decisions for the Partnerships. The trading
advisors for each Partnership are as follows:
Morgan Stanley Spectrum Currency L.P.
John W. Henry & Company, Inc. ("JWH")
Sunrise Capital Partners, LLC
Morgan Stanley Spectrum Global Balanced L.P.
SSARIS Advisors, LLC
Morgan Stanley Spectrum Select L.P.
EMC Capital Management, Inc. ("EMC")
Northfield Trading L.P. ("Northfield")
Rabar Market Research, Inc. ("Rabar")
Sunrise Capital Management, Inc. ("Sunrise")
Graham Capital Management, L.P. ("Graham")
Morgan Stanley Spectrum Strategic L.P.
Blenheim Capital Management, L.L.C. ("Blenheim")
Eclipse Capital Management, Inc. ("Eclipse")
FX Concepts ("FX Concepts")
Morgan Stanley Spectrum Technical L.P.
Campbell & Company, Inc. ("Campbell")
Chesapeake Capital Corporation ("Chesapeake")
John W. Henry & Company, Inc.
Winton Capital Management Limited ("Winton")
Compensation to the trading advisors by the Partnerships consists of a
management fee and an incentive fee as follows:
MANAGEMENT FEE.The management fee for Spectrum Currency is accrued at a rate of
1/12 of 2% per month of Net Assets allocated to each trading advisor on the
first day of each month (a 2% annual rate).
The management fee for Spectrum Global Balanced is accrued at a rate of 5/48
of 1% per month of Net Assets allocated to its sole trading advisor on the first
day of each month (a 1.25% annual rate).
The management fee for Spectrum Select is accrued at a rate of 1/4 of 1% per
month of Net Assets allocated to
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(CONTINUED)
EMC, Northfield, Rabar, and Sunrise on the first day of each month (a 3% annual
rate) and 1/12 of 2% per month of Net Assets allocated to Graham on the first
day of each month (a 2% annual rate).
The management fee for Spectrum Strategic is accrued at a rate of 1/12 of 3%
per month of Net Assets allocated to Blenheim and Eclipse on the first day of
each month (a 3% annual rate) and 1/12 of 2% per month of Net Assets allocated
to FX Concepts on the first day of each month (a 2% annual rate).
The management fee for Spectrum Technical is accrued at a rate of 1/12 of 2%
per month of Net Assets allocated to JWH and Winton on the first day of each
month (a 2% annual rate) and 1/12 of 3% per month of Net Assets allocated to
Campbell and Chesapeake on the first day of each month (a 3% annual rate).
INCENTIVE FEE.Spectrum Currency pays a monthly incentive fee equal to 20% of the
trading profits experienced with respect to each trading advisor's allocated Net
Assets as of the end of each calendar month.
Spectrum Global Balanced pays a monthly incentive fee equal to 15% of the
trading profits experienced with respect to each trading advisor's allocated Net
Assets as of the end of each calendar month.
Spectrum Strategic pays a monthly incentive fee equal to 15% of the trading
profits experienced with respect to the Net Assets allocated to Blenheim and
Eclipse as of the end of each calendar month and 20% of the trading profits
experienced with respect to the Net Assets allocated to FX Concepts as of the
end of each calendar month.
Spectrum Select pays a monthly incentive fee equal to 15% of the trading
profits experienced with respect to the Net Assets allocated to EMC, Northfield,
Rabar, and Sunrise as of the end of each calendar month and 20% of the trading
profits experienced with respect to the Net Assets allocated to Graham 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, JWH,
and Winton as of the end of each calendar month and 19% of the trading profits
experienced with respect to the Net Assets allocated to Chesapeake as of the end
of each calendar month.
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NOTES TO FINANCIAL STATEMENTS
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(CONTINUED)
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.
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Demeter Management Corporation
330 Madison Avenue, 8th Floor
New York, NY 10017
MORGAN STANLEY [LOGO]
ADDRESS SERVICE REQUESTED
[Recycle Logo] printed on recycled paper
DWS 38221-09
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