<DOCUMENT>
<TYPE>424B3
<SEQUENCE>1
<FILENAME>spec.txt
<DESCRIPTION>SPECTRUM CURRENCY
<TEXT>
Harborside Financial Center, Plaza Two
Attention: Managed Futures, 1st Floor
Jersey City, NJ 07311
[Morgan Stanley Logo]
ADDRESS SERVICE REQUESTED
[logo] printed on recycled paper
MORGAN STANLEY
SPECTRUM SERIES
December 2002
Monthly Report
This Monthly Report supplements the Spectrum Funds' Prospectus dated April 30,
2002.
Issued: January 31, 2003
[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 annualized return since inception for each
Fund. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
FUND % % % % % % % % % % % %
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Spectrum Commodity ............... -- -- -- -- -- -- -- (34.3) 15.8 3.2 (25.6) 16.6
--------------------------------------------------------------------------------------------------------------------------
Spectrum Currency ................ -- -- -- -- -- -- -- -- -- 11.7 11.1 12.2
(6 mos.)
--------------------------------------------------------------------------------------------------------------------------
Spectrum Global Balanced ......... -- -- -- (1.7) 22.8 (3.6) 18.2 16.4 0.7 0.9 (0.3) (10.1)
(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
(5 mos.)
--------------------------------------------------------------------------------------------------------------------------
Spectrum Strategic ............... -- -- -- 0.1 10.5 (3.5) 0.4 7.8 37.2 (33.1) (0.6) 9.4
(2 mos.)
--------------------------------------------------------------------------------------------------------------------------
Spectrum Technical ............... -- -- -- (2.2) 17.6 18.3 7.5 10.2 (7.5) 7.8 (7.2) 23.3
(2 mos.)
--------------------------------------------------------------------------------------------------------------------------
</TABLE>
INCEPTION-
TO-DATE ANNUALIZED
RETURN RETURN
% %
---------------------
(31.9) (7.4)
---------------------
39.3 14.2
---------------------
45.7 4.7
---------------------
176.5 9.3
---------------------
15.4 1.8
---------------------
84.1 7.8
---------------------
--------------------------------------------------------------------------------
DEMETER MANAGEMENT CORPORATION
--------------------------------------------------------------------------------
c/o Managed Futures Department
Harborside Financial Center, Plaza Two, 1st Floor
Jersey City, New Jersey 07311
Telephone (201) 209-8400
MORGAN STANLEY SPECTRUM SERIES
MONTHLY REPORT
DECEMBER 2002
Dear Limited Partner:
The Net Asset Value per Unit for each of the six Morgan Stanley Spectrum
Funds as of December 31, 2002 was as follows:
FUND N.A.V. % CHANGE FOR MONTH
--------------------------------------------------------------------------------
Spectrum Commodity $ 6.81 2.18%
--------------------------------------------------------------------------------
Spectrum Currency $13.93 13.27%
--------------------------------------------------------------------------------
Spectrum Global Balanced $14.57 -4.06%
--------------------------------------------------------------------------------
Spectrum Select $27.65 5.60%
--------------------------------------------------------------------------------
Spectrum Strategic $11.54 4.75%
--------------------------------------------------------------------------------
Spectrum Technical $18.41 5.19%
--------------------------------------------------------------------------------
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.
SPECIAL NOTICE TO LIMITED PARTNERS OF MORGAN STANLEY SPECTRUM COMMODITY L.P.
As notified under separate cover dated December 16, 2002, Limited Partners of
Morgan Stanley Spectrum Commodity L.P. ("Spectrum Commodity") are advised that
Demeter Management Corporation, the general partner of Spectrum Commodity, has
determined to terminate trading within the Fund effective December 31, 2002, and
commence dissolution pursuant to the Fund's Limited Partnership Agreement.
Limited Partners are advised of recent changes to the Board of Directors and
Officers of Demeter Management Corporation (the "General Partner"):
Mr. Robert E. Murray resigned the position of President of the General
Partner. Mr. Murray will, however, retain his position as Chairman and a
Director of the General Partner.
Mr. Jeffrey A. Rothman, age 41, was named President and a Director of the
General Partner. 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 President and a Director of Morgan Stanley Futures &
<PAGE>
Currency Management Inc., Morgan Stanley's internal commodity trading
advisor. Mr. Rothman has been with the Managed Futures Department for sixteen
years and most recently held the position of National Sales Manager, assisting
Branch Managers and Financial Advisors with their managed futures education,
marketing, and asset retention efforts. Throughout his career, Mr. Rothman has
helped with the development, marketing, and administration of approximately 33
commodity pool investments. Mr. Rothman is an active member of the Managed Funds
Association and serves on its Board of Directors.
Mr. Frank Zafran, age 47, is an Executive Director of Morgan Stanley and, in
September 2002, was named Chief Administrative Officer of Morgan Stanley's
Global Products and Services 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. Mr. Zafran
will become a Director of the General Partner and of Morgan Stanley Futures &
Currency Management Inc. once he has registered with the National Futures
Association as an associated person of both firms, which registration is
currently pending.
Mr. Raymond E. Koch resigned the position of Chief Financial Officer of the
General Partner.
Mr. Jeffrey D. Hahn, age 45, was named Chief Financial Officer of the General
Partner. 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
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.
I would also like to take this opportunity to inform you that we anticipate
Schedule K-1 (Form 1065) tax forms reporting each Limited Partner's share of the
Partnership income, loss and deductions for calendar year 2002 will be mailed to
holders of non-IRA accounts during the last week of February. Should you have an
IRA account and wish to receive a Schedule K-1 tax form, please contact your
Morgan Stanley Financial Advisor.
Should you have any questions concerning this report, please feel free to
contact Demeter Management Corporation c/o Managed Futures Department,
Harborside Financial Center, Plaza Two, 1st Floor, Jersey City, New Jersey 07311
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 not a
guarantee of future results.
Sincerely,
/s/ Jeffrey A. Rothman
--------------------------
Jeffrey A. Rothman
President
Demeter Management Corporation
General Partner
<PAGE>
--------------------------------------------------------------------------------
SPECTRUM COMMODITY
--------------------------------------------------------------------------------
[The following data were represented by a bar graph in the original report.]
Month ended YTD ended
December 31, 2002 December 31, 2002
----------------- -----------------
Energies 5.44 10.34
Metals 0.2 1.7
Agriculturals -2.96 9.77
Note: Reflects trading results only and does not include fees or interest
income.
FACTORS INFLUENCING MONTHLY TRADING GAINS:
> In the energy futures markets, gains were recorded from long positions in
natural gas futures as prices trended to a 19-month high amid colder weather
in the Northeastern U.S. and a drop in supplies as reported by the U.S.
Energy Department.
> In the metals futures markets, gains were recorded from long positions in
silver and gold futures as prices climbed higher amid investors' fears
concerning weaker global equity prices and the looming threat of a military
strike against Iraq and North Korea.
FACTORS INFLUENCING MONTHLY TRADING LOSSES:
> In the agricultural futures markets, losses resulted from long positions in
coffee futures as prices were weighed down due to an abundance of supply
among world producers.
--------------------------------------------------------------------------------
SPECTRUM CURRENCY
--------------------------------------------------------------------------------
[The following data were represented by a bar graph in the original report.]
Month ended YTD ended
December 31, 2002 December 31, 2002
----------------- -----------------
Australian dollar 0.09 4.12
British pound -2.09 -8.99
Euro 9.94 16.42
Japanese yen -4.35 -7.28
Swiss franc 3.5 5.07
Minor currencies 6.93 12.95
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 MONTHLY TRADING GAINS:
> Gains were recorded from long positions in the euro and Swiss franc versus
the U.S. dollar as the dollar's value weakened amid investors' fears
concerning increased global tensions, specifically the looming threat of a
military strike against Iraq and the resumption of North Korea's nuclear
program.
> Additional gains stemmed from long positions in the South African rand as its
value approached a 16-month high versus the U.S. dollar on strong demand for
South African exports and high South African interest rates.
FACTORS INFLUENCING MONTHLY TRADING LOSSES:
> Losses were recorded from short positions in the Japanese yen and British
pound relative to the U.S. dollar as the value of the U.S. dollar continued
to weaken amid geopolitical concerns.
<PAGE>
--------------------------------------------------------------------------------
SPECTRUM GLOBAL BALANCED
--------------------------------------------------------------------------------
[The following data were represented by a bar graph in the original report.]
Month ended YTD ended
December 31, 2002 December 31, 2002
----------------- -----------------
Currencies 1.41 1.31
Interest Rates 1.21 7.42
Stock Indices -5.81 -14.15
Energies 0.07 0
Metals -0.33 -0.45
Agriculturals -0.19 -0.43
Note: Reflects trading results only and does not include fees or interest
income.
FACTORS INFLUENCING MONTHLY TRADING LOSSES:
> In the global stock index futures markets, losses were experienced from long
positions in European stock index futures as prices declined on geopolitical
worries and concerns regarding corporate earnings.
> In the metals futures markets, losses were recorded from long positions in
copper futures as prices declined during the month amid falling equity
prices, increased pessimism regarding consumer spending, and reduced
industrial demand.
FACTORS INFLUENCING MONTHLY TRADING GAINS:
> In the currency markets, gains were recorded from long positions in the euro
and Swiss franc versus the U.S. dollar as the dollar's value weakened amid
investors' fears concerning increased global tensions, specifically the
looming threat of a military strike agains Iraq and the resumption on North
Korea's nuclear program.
> In the global interest rate futures markets, gains stemmed European interest
rate futures as prices trended higher as investors shifted assets out of
stocks and into bonds amid continued geopolitical turmoil.
--------------------------------------------------------------------------------
SPECTRUM SELECT
--------------------------------------------------------------------------------
[The following data were represented by a bar graph in the original report.]
Month ended YTD ended
December 31, 2002 December 31, 2002
----------------- -----------------
Currencies 5.46 12.08
Interest Rates 2.35 9.54
Stock Indices -1.1 0.45
Energies 0.41 1.01
Metals -0.03 -1.82
Agriculturals -0.76 1.23
Note: Reflects trading results only and does not include fees or interest
income.
FACTORS INFLUENCING MONTHLY TRADING GAINS:
> In the currency markets, gains were recorded from long positions in the euro
and Swiss franc versus the U.S. dollar as the dollar's value weakened amid
investors' fears concerning increased global tensions, specifically the
looming threat of a military strike against Iraq and the resumption of North
Korea's nuclear program.
> In the global interest rate futures markets, gains stemmed from long
positions in European interest rate futures as prices trended higher as
investors shifted assets out of stocks and into bonds amid continued
geopolitical turmoil.
> In the energy futures markets, gains were recorded from long positions in
natural gas futures as prices trended to a 19-month high amid weather related
supply concerns. Additional gains were recorded from long positions in
unleaded gas futures as prices rose in response to higher oil prices.
FACTORS INFLUENCING MONTHLY TRADING LOSSES:
> In the global stock index futures markets, long positions in U.S. and
European stock index futures resulted in losses as prices declined throughout
the month on geopolitical worries and concerns regarding corporate earnings.
> In the agricultural futures markets, long positions in cotton futures
experienced losses as prices decreased early in the month amid poor export
data.
<PAGE>
--------------------------------------------------------------------------------
SPECTRUM STRATEGIC
--------------------------------------------------------------------------------
[The following data were represented by a bar graph in the original report.]
Month ended YTD ended
December 31, 2002 December 31, 2002
----------------- -----------------
Currencies 3.73 7.56
Interest Rates 0.53 -0.28
Stock Indices -0.96 -2.92
Energies 0.13 -0.06
Metals -0.6 -2.87
Agriculturals 2.78 18.25
Note: Reflects trading results only and does not include fees or interest
income.
FACTORS INFLUENCING MONTHLY TRADING GAINS:
> In the currency markets, gains were recorded from long positions in the euro
and Swiss franc versus the U.S. dollar as the dollar's value weakened amid
investors' fears concerning increased global tensions, specifically the
looming threat of a military strike against Iraq and the resumption of North
Korea's nuclear program.
> In the agricultural futures markets, long positions in cocoa futures resulted
in gains as prices increased amid renewed fighting in the Ivory Coast, the
world's largest cocoa producer.
> In the global interest rate futures markets, gains were provided from long
positions in European interest rate futures as prices trended higher as
investors shifted assets out of stocks and into bonds amid continued
geopolitical turmoil.
FACTORS INFLUENCING MONTHLY TRADING LOSSES:
> In the global stock index futures markets, losses were recorded from long
positions in U.S. and European stock index futures as prices declined
throughout the month on geopolitical worries and concerns regarding corporate
earnings.
> In the metals futures markets, losses were experienced from long positions in
copper futures as prices declined during the month amid falling equity
prices, increased pessimism regarding consumer spending, and reduced
industrial demand.
--------------------------------------------------------------------------------
SPECTRUM TECHNICAL
--------------------------------------------------------------------------------
[The following data were represented by a bar graph in the original report.]
Month ended YTD ended
December 31, 2002 December 31, 2002
----------------- -----------------
Currencies 3.92 13.05
Interest Rates 2.46 17.05
Stock Indices -0.42 4.34
Energies 0.28 0.01
Metals -0.05 -2.34
Agriculturals -0.45 0.96
Note: Reflects trading results only and does not include fees or interest
income.
FACTORS INFLUENCING MONTHLY TRADING GAINS:
> In the currency markets, gains were recorded from long positions in the euro
versus the U.S. dollar as the dollar's value weakened amid investors' fears
concerning increased global tensions, specifically the looming threat of a
military strike against Iraq and the resumption of North Korea's nuclear
program.
> In the global interest rate futures markets, gains were provided from long
positions in European interest rate futures as prices trended higher as
investors shifted assets out of stocks and into bonds amid continued
geopolitical turmoil.
> In the energy futures markets, gains were established from long positions in
natural gas futures as prices trended to a 19-month high amid colder weather
in the Northeastern U.S. and a drop in supplies as reported by the U.S.
Energy Department.
FACTORS INFLUENCING MONTHLY TRADING LOSSES:
> In the agricultural futures markets, losses resulted from long positions in
coffee futures as prices were weighed down due to an abundance of supply
among world producers.
> In the global stock index futures markets, losses were experienced from long
positions in U.S. and European stock index futures as prices declined
throughout the month on geopolitical worries and concerns regarding corporate
earnings.
<PAGE>
MORGAN STANLEY SPECTRUM SERIES
--------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------
FOR THE MONTH ENDED DECEMBER 31, 2002 (UNAUDITED)
<TABLE>
<CAPTION>
MORGAN STANLEY MORGAN STANLEY MORGAN STANLEY
SPECTRUM COMMODITY SPECTRUM CURRENCY SPECTRUM GLOBAL BALANCED
--------------------------- --------------------------- ---------------------------
PERCENTAGE OF PERCENTAGE OF PERCENTAGE OF
DECEMBER 1, 2002 DECEMBER 1, 2002 DECEMBER 1, 2002
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 1,395,974 10.10 5,924,066 7.18 (1,412,093) (2.68)
Net change in unrealized (1,025,454) (7.42) 5,651,537 6.85 (523,459) (.99)
---------- ----- ---------- ----- ---------- -----
Total Trading Results 370,520 2.68 11,575,603 14.03 (1,935,552) (3.67)
Interest income (Note 2) 11,963 .09 70,210 .09 53,457 .10
---------- ----- ---------- ----- ---------- -----
Total Revenues 382,483 2.77 11,645,813 14.12 (1,882,095) (3.57)
---------- ----- ---------- ----- ---------- -----
EXPENSES
Brokerage fees (Note 2) 52,969 .38 316,460 .38 202,109 .38
Management fees (Note 2 & 3) 28,787 .21 137,591 .18 54,922 .11
Incentive fees (Note 3) -- -- 239,482 .29 -- --
---------- ----- ---------- ----- ---------- -----
Total Expenses 81,756 .59 693,533 .85 257,031 .49
---------- ----- ---------- ----- ---------- -----
NET INCOME (LOSS) 300,727 2.18 10,952,280 13.27 (2,139,126) (4.06)
========== ===== ========== ===== ========== =====
</TABLE>
MORGAN STANLEY SPECTRUM SERIES
--------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSET VALUE
--------------------------------------------------------------------------------
FOR THE MONTH ENDED DECEMBER 31, 2002 (UNAUDITED)
<TABLE>
<CAPTION>
MORGAN STANLEY MORGAN STANLEY MORGAN STANLEY
SPECTRUM COMMODITY SPECTRUM CURRENCY SPECTRUM GLOBAL BALANCED
---------------------------------- ---------------------------------- ----------------------------------
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,
December 1, 2002 2,073,310.640 13,817,905 6.66 6,712,207.216 82,554,749 12.30 3,472,533.704 52,724,541 15.18
Net Income (Loss) -- 300,727 .15 -- 10,952,280 1.63 -- (2,139,126) (.61)
Redemptions (786,762.550) (5,357,853) 6.81 (109,571.794) (1,526,335) 13.93 (61,549.437) (896,775) 14.57
Subscriptions -- -- 6.81 299,982.685 4,178,758 13.93 49,196.415 716,792 14.57
------------- ---------- ------------- ---------- ------------- ----------
Net Asset Value,
December 31, 2002 1,286,548.090 8,760,779 6.81 6,902,618.107 96,159,452 13.93 3,460,180.682 50,405,432 14.57
============= ========== ============= ========== ============= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
MORGAN STANLEY SPECTRUM SERIES
--------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------
FOR THE MONTH ENDED DECEMBER 31, 2002 (UNAUDITED)
<TABLE>
<CAPTION>
MORGAN STANLEY MORGAN STANLEY MORGAN STANLEY
SPECTRUM SELECT SPECTRUM STRATEGIC SPECTRUM TECHNICAL
--------------------------- --------------------------- ---------------------------
PERCENTAGE OF PERCENTAGE OF PERCENTAGE OF
DECEMBER 1, 2002 DECEMBER 1, 2002 DECEMBER 1, 2002
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 (3,929,928) (1.43) (1,788,806) (2.50) (4,816,474) (1.53)
Net change in unrealized 21,465,691 7.80 5,730,723 8.02 23,509,268 7.45
---------- ---- --------- ---- ---------- ----
Total Trading Results 17,535,763 6.37 3,941,917 5.52 18,692,794 5.92
Interest income (Note 2) 235,283 .09 61,778 .09 268,835 .09
---------- ---- --------- ---- ---------- ----
Total Revenues 17,771,046 6.46 4,003,695 5.61 18,961,629 6.01
---------- ---- --------- ---- ---------- ----
EXPENSES
Brokerage fees (Note 2) 1,662,321 .60 431,596 .60 1,906,305 .60
Management fees (Note 2 & 3) 687,856 .26 178,592 .26 672,961 .22
---------- ---- --------- ---- ---------- ----
Total Expenses 2,350,177 .86 610,188 .86 2,579,266 .82
---------- ---- --------- ---- ---------- ----
NET INCOME 15,420,869 5.60 3,393,507 4.75 16,382,363 5.19
========== ==== ========= ==== ========== ====
</TABLE>
MORGAN STANLEY SPECTRUM SERIES
--------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSET VALUE
--------------------------------------------------------------------------------
FOR THE MONTH ENDED DECEMBER 31, 2002 (UNAUDITED)
<TABLE>
<CAPTION>
MORGAN STANLEY MORGAN STANLEY MORGAN STANLEY
SPECTRUM SELECT SPECTRUM STRATETIC 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,
December 1, 2002 10,507,550.808 275,142,589 26.19 6,484,074.998 71,436,643 11.02 18,026,985.254 315,526,392 17.50
Net Income -- 15,420,869 1.46 -- 3,393,507 .52 -- 16,382,363 .91
Redemptions (67,862.669) (1,876,403) 27.65 (96,668.035) (1,115,549) 11.54 (173,596.878) (3,195,919) 18.41
Subscriptions 241,979.908 6,690,744 27.65 143,368.342 1,654,471 11.54 386,137.481 7,108,790 18.41
-------------- ----------- ------------- ---------- -------------- -----------
Net Asset Value,
December 31, 2002 10,681,668.047 295,377,799 27.65 6,530,775.305 75,369,072 11.54 18,239,525.857 335,821,626 18.41
============== =========== ============= ========== ============== ===========
</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 Commodity L.P. ("Spectrum Commodity"),
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 general partner for each Partnership is Demeter Management Corporation
("Demeter"). The non-clearing commodity broker for the Partnerships is Morgan
Stanley DW Inc. ("Morgan Stanley DW"). The clearing commodity brokers for the
Partnerships are Morgan Stanley & Co. Incorporated ("MS & Co.") and Morgan
Stanley & Co. International Limited ("MSIL"). Morgan Stanley Commodities
Management, Inc. ("MSCM") is the trading advisor to Spectrum Commodity. Demeter,
Morgan Stanley DW, MS & Co., MSIL and MSCM are wholly-owned subsidiaries of
Morgan Stanley.
Effective December 31, 2002, Demeter has determined to terminate trading in
Spectrum Commodity and commence dissolution of the Partnership pursuant to its
Limited Partnership Agreement.
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
MORGAN STANLEY SPECTRUM SERIES
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
(CONTINUED)
on a daily basis and the resulting net change in unrealized gains and losses is
reflected in the change in unrealized profits (losses) on open contracts from
one period to the next in the statements of operations. Monthly, Morgan Stanley
DW pays each Partnership interest income on 80% of the month's average daily
"Net Assets" (as defined in the limited partnership agreements) for the month in
the case of Spectrum Commodity, 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
due the Partnerships on futures interests, but not actually received.
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
Commodity, 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 each
Partnership.
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.
<PAGE>
MORGAN STANLEY SPECTRUM SERIES
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
(CONTINUED)
DISTRIBUTIONS. Distributions, other than redemptions of Units, are made on a
pro-rata basis at the sole discretion of Demeter. No distributions have been
made to date.
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 the month. No selling commissions or charges related to the continuing
offering of Units will be paid by the Limited Partners or the Partnership.
Morgan Stanley DW will pay 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.
All 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 Agreement) without paying additional charges.
DISSOLUTION OF THE PARTNERSHIPS. Spectrum Commodity has terminated trading on
December 31, 2002 and will commence dissolution pursuant to the Fund's Limited
Partnership Agreement. Spectrum
MORGAN STANLEY SPECTRUM SERIES
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NOTES TO FINANCIAL STATEMENTS
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(CONTINUED)
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 Commodity pays management fees and incentive fees (if applicable) to
MSCM. Each Partnership's cash is on deposit with Morgan Stanley DW, MS & Co. and
MSIL 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 Commodity L.P.
Morgan Stanley Commodities Management Inc.
Morgan Stanley Spectrum Currency L.P.
John W. Henry & Company, Inc. ("JWH")
Sunrise Capital Partners, LLC
Morgan Stanley Spectrum Global Balanced L.P.
RXR, Inc.
Morgan Stanley Spectrum Select L.P.
EMC Capital Management, Inc.
Northfield Trading L.P.
Rabar Market Research, Inc.
Sunrise Capital Management, Inc.
Morgan Stanley Spectrum Strategic L.P.
Allied Irish Capital Management, Ltd.
Blenheim Capital Management, L.L.C.
Eclipse Capital Management, Inc.
Morgan Stanley Spectrum Technical L.P.
Campbell & Company, Inc. ("Campbell")
Chesapeake Capital Corporation ("Chesapeake")
John W. Henry & Company, Inc.
<PAGE>
MORGAN STANLEY SPECTRUM SERIES
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NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
(CONTINUED)
Compensation to the trading advisors by the Partnerships consists of a
management fee and an incentive fee as follows:
MANAGEMENT FEE. The management fee for Spectrum Commodity is accrued at a rate
of 5/24 of 1% of Net Assets on the first day of each month (a 2.5% annual rate).
The management fee for Spectrum Currency is accrued at a rate of 1/12 of 2%
of Net Assets 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% of Net Assets 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% of
Net Assets on the first day of each month (a 3% annual rate).
The management fee for Spectrum Strategic is accrued at a rate of 1/12 of 3%
of Net Assets on the first day of each month (a 3% annual rate).
The management fee for Spectrum Technical is accrued at a rate of 1/12 of 2%
of Net Assets allocated to JWH on the first day of each month, 1/12 of 3% of Net
Assets allocated to Campbell on the first day of each month and effective May 1,
2002, 1/12 of 3%, (reduced from 1/12 of 4% charged in previous months), of Net
Assets allocated to Chesapeake on the first day of each month (annual rates of
2%, 3% and 3% respectively).
INCENTIVE FEE. Spectrum Commodity pays an annual incentive fee equal to 17.5% of
Partnership's trading profits, as determined from the end of the last period in
which an incentive fee was earned.
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 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
MORGAN STANLEY SPECTRUM SERIES
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
(CONTINUED)
Assets allocated to Chesapeake as of the end of each calendar month.
Trading profits for the Partnerships represent the amount by which profits
from futures, forwards and options trading exceed losses after brokerage and
management fees are deducted.
For all Partnerships, when trading losses are incurred, no incentive fees are
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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