-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OsRQGyaDY6Bmvp6BR6xkccBO21ArFUtdugw/M/pjrnrNi2Q3JFxA3PpJ913x0Qzv BTtjD5/jC7FcSchmFwab/Q== 0000873799-02-000001.txt : 20020415 0000873799-02-000001.hdr.sgml : 20020415 ACCESSION NUMBER: 0000873799-02-000001 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020327 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MORGAN STANLEY SPECTRUM SELECT LP CENTRAL INDEX KEY: 0000873799 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 133619290 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-19511 FILM NUMBER: 02587187 BUSINESS ADDRESS: STREET 1: HARBORSIDE FINANCIAL CENTER PLAZA TWO CITY: JERSEY CITY STATE: NJ ZIP: 07311 BUSINESS PHONE: 2018764647 FORMER COMPANY: FORMER CONFORMED NAME: DEAN WITTER SPECTRUM SELECT LP DATE OF NAME CHANGE: 19980507 FORMER COMPANY: FORMER CONFORMED NAME: WITTER DEAN SELECT FUTURES FUND LP DATE OF NAME CHANGE: 19930328 FORMER COMPANY: FORMER CONFORMED NAME: MORGAN STANLEY DEAN WITTER SPECTRUM SELECT LP DATE OF NAME CHANGE: 19990412 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, 2001 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 c/o Managed Futures Department, 825 Third Avenue, 8th Floor, New York, NY 10022 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (201) 876-4647 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. [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 a specified date within 60 days prior to the date of filing: $235,810,682 at January 31, 2002. DOCUMENTS INCORPORATED BY REFERENCE (See Page 1) MORGAN STANLEY SPECTRUM SELECT L.P. (formerly, "Morgan Stanley Dean Witter Spectrum Select L.P.") INDEX TO ANNUAL REPORT ON FORM 10-K DECEMBER 31, 2001 Page No. DOCUMENTS INCORPORATED BY REFERENCE. . . . . . . . . . . . . . . . . 1 Part I . Item 1. Business. . . . . . . . . . . . . . . . . . . . . . . . 2-6 Item 2. Properties. . . . . . . . . . . . . . . . . . . . . . . . 6 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 . . . . . . . . . . 7-8 Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . 9 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. . . . . . . . . . 10-22 Item 7A. Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . 22-35 Item 8. Financial Statements and Supplementary Data. . .. . . . ..35 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. . . . . . . . . . . .36 Part III. Item 10. Directors and Executive Officers of the Registrant . 37-41 Item 11. Executive Compensation . . . . . . . . . . . . . . . . . 41 Item 12. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . . . . . . . 41-42 Item 13. Certain Relationships and Related Transactions . . . . . .42 Part IV. Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. . . . . . . . . . . . . . . . . 43-44 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 March 23, 2001 I Partnership's Supplement to the Prospectus dated December 6, 2001 I Annual Report to Morgan Stanley Spectrum Series Limited Partners for the year ended December 31, 2001 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 (formerly, "Morgan Stanley Dean Witter Spectrum Series") of funds, comprised of the Partnership, Morgan Stanley Spectrum Commodity L.P., 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"). On November 1, 2001, Morgan Stanley Dean Witter Spectrum Select L.P., Morgan Stanley Dean Witter Spectrum Commodity L.P., Morgan Stanley Dean Witter Spectrum Currency L.P., Morgan Stanley Dean Witter Spectrum Global Balanced L.P., Morgan Stanley Dean Witter Spectrum Strategic L.P., and Morgan Stanley Dean Witter Spectrum Technical L.P., were renamed Morgan Stanley Spectrum Select L.P., Morgan Stanley Spectrum Commodity L.P., 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., respectively. The 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. Inc. ("MS & Co.") and Morgan Stanley & Co. International Limited ("MSIL"). Demeter, Morgan Stanley DW, MS & Co. and MSIL are wholly-owned subsidiaries of Morgan Stanley Dean Witter & Co. ("MSDW"). The trading advisors to the Partnership are EMC Capital Management, Inc., Rabar Market Research, Inc., Sunrise Capital Management, Inc., and Northfield Trading L.P. (collectively, the "Trading Advisors"). Effective April 2, 2001, Dean Witter Reynolds Inc. changed its name to Morgan Stanley DW Inc. Effective May 1, 2001, the Partnership entered into a management agreement with Northfield Trading L.P. ("Northfield") adding Northfield as its fourth Trading Advisor to the Partnership. The managing underwriter for the Spectrum Series is Morgan Stanley DW. Units of limited partnership interest ("Unit(s)") are offered for sale at monthly closings at a price equal to 100% of the net asset value per Unit at the close of business on the last day of each month. The Partnership's net asset value per Unit at December 31, 2001 was $23.96, representing an increase of 1.65 percent from the net asset value per Unit of $23.57 at December 31, 2000. For a more detailed description of the Partnership's business, see subparagraph (c). (b) Financial Information about Segments. For financial information 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 March 23, 2001 (the "Prospectus"), and the Partnership's supplement to the Prospectus dated December 6, 2001 (the "Supplement"), incorporated by reference in this Form 10-K, set forth below. Facets of Business 1. Summary 1. "Summary" (Pages 1-8 of the Prospectus and Page S-2 of the Supplement). 2. Futures, Options, and 2. "The Futures, Options, and Forwards Markets Forwards Markets" (Pages 145-149 of the Prospectus). 3. Partnership's Trading 3. "Use of Proceeds" (Page Arrangements and 26-28 of the Prospectus Policies and Page S-5 of the Supplement) "The Trading Advisors" (Pages 71-123 of the Prospectus and Pages S-33-S-43 of the Supple- ment). 4. Management of the Part- 4. "The Trading Advisors - nership The Management Agree- ments" (Page 71 of the Prospectus), "The General Partner" (Pages 66-70 of the Prospectus and Pages S-31 - S-32 of the Supplement), "The Com- modity Brokers" (Pages 125-127 of the Prospec- tus) and "The Limited Partnership Agreements" (Pages 128-131 of the Prospectus). 5. Taxation of the Partner- 5. "Material Federal Income ship's Limited Partners Tax Considerations" and "State and Local Income Tax Aspects" (Pages 136-143 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 in futures, forwards, and options on foreign exchanges. Item 2. PROPERTIES The 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, 8th Floor, New York, NY 10022. Demeter changed its address from 2 World Trade Center, New York, NY 10048. Item 3. LEGAL PROCEEDINGS In April 2001, the Appellate Division of New York State dismissed the class action previously disclosed in the Partnership's Form 10-K for the year ended December 31, 2000. Because plaintiffs did not exercise their right to appeal any further, this dismissal constituted a final resolution of the case. 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, 2001 was approximately 18,634. (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 distribution of Partnership profits. (d) Use of Proceeds Units are sold at monthly closings as of the last day of each month at a price equal to 100% of the net asset value per Unit as of the date of such monthly closing. Through December 31, 2001, 21,179,165.261 Units were sold, leaving 4,434,801.839 Units unsold at December 31, 2001. The aggregate price of the Units sold through December 31, 2001 was $350,924,568. 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. Item 6. SELECTED FINANCIAL DATA (in dollars)
For the Years Ended December 31, 2001 2000 1999 1998 1997 . Total Revenues (including interest) 30,468,895 35,083,619 4,778,950 41,778,732 26,495,529 Net Income (Loss) 3,165,349 14,291,045 (16,694,414) 22,695,060 9,943,717 Net Income (Loss) Per Unit (Limited & General Partners) .39 1.57 (1.80) 2.95* 1.22* Total Assets 246,043,382 224,581,554 219,366,812 202,668,038 169,541,807 Total Limited Partners' Capital 238,821,840 218,182,118 210,877,519 196,915,644 163,999,307 Net Asset Value Per Unit 23.96 23.57 22.00 23.80* 20.85* * The Partnership became one of the Spectrum Series of Funds on June 1, 1998 and each outstanding Unit of Dean Witter Select Futures Fund L.P. on that date was converted to 100 Units of the Partnership. Per Unit amounts prior to the conversion are restated to reflect this 100 for 1 split.
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 with MS & Co. and MSIL as clearing brokers in separate futures, forwards, and options accounts established for each Trading Advisor, which assets are used as margin to engage in 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. The Partnership's assets held by the commodity brokers may be used as margin solely for the Partnership's trading. 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. The Partnership has never had illiquidity affect a material portion of its assets. 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. Results of Operations. General. The Partnership's results depend on the Trading Advisors and the ability of each Trading Advisor's 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 the three years ended December 31, 2001 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. At December 31, 2001, the Partnership's total capital was $241,411,585, an increase of $20,681,616 from the Partnership's total capital of $220,729,969 at December 31, 2000. For the year ended December 31, 2001, the Partnership generated net income of $3,165,349, total subscriptions aggregated $41,261,535 and total redemptions aggregated $23,745,268. For the year ended December 31, 2001, the Partnership recorded total trading revenues, including interest income, of $30,468,895 and posted an increase in net asset value per Unit. The most significant 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. Total expenses for the year were $27,303,546, resulting in net income of $3,165,349. The net asset value of a Unit increased from $23.57 at December 31, 2000 to $23.96 at December 31, 2001. At December 31, 2000, the Partnership's total capital was $220,729,969, an increase of $6,924,295 from the Partnership's total capital of $213,805,674 at December 31, 1999. For the year ended December 31, 2000, the Partnership generated net income of $14,291,045, total subscriptions aggregated $28,581,403 and total redemptions aggregated $35,948,153. For the year ended December 31, 2000, the Partnership recorded total trading revenues, including interest income, of $35,083,619 and posted an increase in net asset value per Unit. The most significant gains of approximately 9.3% were recorded in the global interest rate futures markets primarily during August, November and December from long positions in U.S. interest rate futures as prices climbed higher amid a drop in stock prices and as fears of an economic slowdown drew investors to the perceived safety of government securities. Additional gains were recorded during December from long positions in European and Australian interest rate futures as prices in these markets rose amid the speculation that the U.S. Federal Reserve would lower interest rates in the near future following their decision to switch to an easing policy bias. In the currency markets, gains of approximately 8.2% were recorded primarily during January, March, April and October from short positions in the euro and the Swiss franc as the value of these European currencies weakened relative to the U.S. dollar amid skepticism about Europe's economic outlook. In the energy markets, gains of approximately 4.0% were recorded primarily during May, August, September, November and December from long positions in natural gas futures as prices trended upward, amid supply and storage concerns. A portion of the Partnership's overall gains was partially offset by losses of approximately 4.9% recorded in the global stock index futures markets primarily during mid-April from long positions in U.S. stock index futures as domestic equity prices declined following the release of an unexpected jump in the Consumer Price Index. During the first half of September, additional losses were recorded from long positions in U.S. stock index futures as prices declined due to jitters in the technology sector and a worrisome spike in oil prices. In the metals markets, losses of approximately 3.5% were experienced from long positions in copper and aluminum futures as prices moved lower during February, May, October and December, after concerns mounted that demand would weaken amid a cooling of the U.S. economy. Total expenses for the year were $20,792,574, resulting in net income of $14,291,045. The net asset value of a Unit increased from $22.00 at December 31, 1999 to $23.57 at December 31, 2000. At December 31, 1999, the Partnership's total capital was $213,805,674, an increase of $13,723,158 from the Partnership's total capital of $200,082,516 at December 31, 1998. For the year ended December 31, 1999, the Partnership generated a net loss of $16,694,414, total subscriptions aggregated $51,589,367 and total redemptions aggregated $21,171,795. For the year ended December 31, 1999, the Partnership recorded total trading revenues, including interest income, of $4,778,950 and posted a decrease in net asset value per Unit. The Partnership recorded a net loss during 1999 with losses of approximately 3.27% being experienced primarily in the global interest rate futures markets, particularly from short-term price volatility in U.S. and European interest rate futures. Losses were recorded during September from short positions in Australian bond futures as prices spiked higher on technically based buying and short covering. Losses of approximately 2.07% were also recorded from short Japanese government bond futures positions early in the first quarter as prices surged higher in response to the Bank of Japan's aggressive easing of monetary policy. Additional losses were experienced later in the first quarter from newly established long positions as prices retreated following comments by Bank of Japan Governor Hayami that he expected interest rates in Japan to rise over time. In the metals markets, losses of approximately 1.33% were experienced, particularly during the month of March from long silver futures positions as prices declined after Berkshire Hathaway's annual report failed to provide any new information on the company's silver positions. During October, additional losses were recorded from long silver futures positions as prices decreased following a reversal lower in gold prices. Offsetting gains were recorded from long positions in gold futures as gold prices soared during September following the Bank of England's second gold auction and an announcement by several European central banks stating that they were to restrict the sales of gold reserves for five years. Gains of approximately 3.11% recorded in the energy markets helped to mitigate overall Partnership losses for the year. Long futures positions in crude oil and its refined products proved profitable as oil prices trended significantly higher largely attributed to the news that both OPEC and non-OPEC countries had reached and adhered to an agreement to cut total output. Total expenses for the year were $21,473,364, resulting in a net loss of $16,694,414. The net asset value of a Unit decreased from $23.80 at December 31, 1998 to $22.00 at December 31, 1999. The Partnership's overall performance record represents varied results of trading in different futures, forwards, and options markets. For a further description of 2001 trading results, refer to the letter to the Limited Partners in the accompanying Annual Report to Limited Partners for the year ended December 31, 2001, 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. Credit Risk. Financial Instruments. The Partnership is a party to financial instruments with elements of off-balance sheet market and credit risk. The Partnership may trade futures, forwards, and options in interest rates, stock indices, commodities, currencies, petroleum and precious metals. 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 investors would realize a 100% loss. In addition to the Trading Advisors' internal controls, the Trading Advisors must comply with the trading policies of the Partnership. These trading policies include standards for liquidity and leverage with which the Partnership must comply. The Trading Advisors and Demeter monitor the Partnership's trading activities to ensure compliance with the trading plicies. Demeter may require the Trading Advisors to modify positions of the Partnership if Demeter believes they violate the Partnership's trading policies. 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. For example, a clearinghouse may cover a default by drawing upon a defaulting member's mandatory contributions and/or non-defaulting members' contributions to a clearinghouse guarantee fund, established lines or letters of credit with banks, and/or the clearinghouse's surplus capital and other available assets of the exchange and clearinghouse, or assessing its members. 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. There can be no assurance that a clearinghouse, exchange or 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. Any such obligation on the part of a broker appears even less clear where the default occurs in a non-U.S. jurisdiction. 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, calculating not only the amount of margin required for it but also the amount of its unrealized gains at each exchange, if any. The commodity brokers inform the Partnership, as with all their customers, of its net margin requirements for all its existing open positions, but do not break that net figure down, exchange by exchange. Demeter, however, has installed a system which permits it to monitor the Partnership's potential margin liability, exchange by exchange. As a result, Demeter is able to monitor the Partnership's potential net credit exposure to each exchange by adding the unrealized trading gains on that 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, in addition, a minimum amount of diversification in the Partnership's trading, usually over several different products. One of the aims of such trading policies has been to reduce the credit exposure of the Partnership to a single exchange and, historically, the Partnership's exposure to one exchange has typically amounted to only a small percentage of its total net assets. On those relatively few occasions where the Partnership's credit exposure may climb above such 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. Inflation has not been a major factor in the Partnership's operations. See "Financial Instruments" under Notes to Financial Statements in the Partnership's Annual Report to Limited Partners for the year ended December 31, 2001, which is incorporated by reference to Exhibit 13.01 of this Form 10-K. 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. Fluctuations in market risk based upon these factors result in frequent changes in the fair value of the Partnership's open positions, and, consequently, in its earnings and cash flow. The Partnership's total market risk is influenced by a wide variety of factors, including the diversification among the Partnership's open positions, the volatility present within the markets, and the liquidity of the markets. At different times, each of these factors may act to increase or decrease the market risk associated with the Partnership. 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 Partnership'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 statements 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, whether realized or unrealized, and its cash flow. Profits and losses on open positions of exchange- traded futures, forwards, and options are settled daily through variation margin. 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 VaR model used by the Partnership includes many variables that could change the market value of the Partnership's trading portfolio. The Partnership estimates VaR using a model based upon historical simulation with a confidence level of 99%. Historical simulation involves constructing a distribution of hypothetical daily changes in the value of a trading portfolio. The VaR model takes into account linear exposures to price and interest rate risk. Market risks that are incorporated in the VaR model include 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 historical observation period of the Partnership's VaR is approximately four years. 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. 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. 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, 2001 and 2000. At December 31, 2001 and 2000, the Partnership's total capitalization was approximately $241 million and $221 million, respectively. Primary Market December 31, 2001 December 31, 2000 Risk Category Value at Risk Value at Risk Currency (1.36)% (0.58)% Interest Rate (0.49) (2.33) Equity (0.28) (0.55) Commodity (0.41) (0.59) Aggregate Value at Risk (1.55)% (2.65)% Aggregate Value at Risk represents the aggregate VaR of all the Partnership's open positions and not the sum of the VaR of the individual market categories listed above. Aggregate VaR will be lower as it takes into account correlation among different positions and categories. The table above represents the VaR of the Partnership's open positions at December 31, 2001 and 2000 only and is not necessarily representative of either the historic or future risk of an investment in the Partnership. Because the Partnership's only business 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. Any changes in open positions could positively or negatively materially impact market risk as measured by VaR. The table below supplements the December 31, 2001 VaR by presenting the Partnership's high, low and average VaR, as a percentage of total net assets for the four quarterly reporting periods from January 1, 2001 through December 31, 2001. Primary Market Risk Category High Low Average Currency (1.98)% (0.54)% (1.13)% Interest Rate (1.46) (0.49) (1.03) Equity (0.48) (0.28) (0.35) Commodity (0.73) (0.41) (0.61) Aggregate Value at Risk (2.10)% (1.55)% (1.79)% 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 above 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, 2001, and 2000, and for the end of the four quarterly reporting periods during calendar year 2001. Since VaR is based on historical data, VaR should not be viewed as predictive of 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. At December 31, 2001, the Partnership's cash balance at Morgan Stanley DW was approximately 91% of its total net asset value. A decline in short-term interest rates will result in a decline in the Partnership's cash management income. This cash flow risk is not considered 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 expro- priations, 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, 2001, by market sector. It may be anticipated, however, that these market exposures will vary materially over time. Currency. The primary market exposure of the Partnership at December 31, 2001 was to the currency sector. The Partnership's currency exposure was 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 in a large number of currencies, including cross-rates - i.e., positions between two currencies other than the U.S. dollar. At December 31, 2001, the Partnership's major exposures were to Japanese yen currency crosses and 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 dollar-based Partnership in expressing VaR in a functional currency other than dollars. Interest Rate. The second largest market exposure at December 31, 2001 was to the global interest rate complex. The Partnership's exposure in the interest rate market complex was primarily spread across the U.S., Japanese and European 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 primary interest rate exposure is generally to interest rate fluctuations in the United States and the other G-7 countries. The G-7 countries consist of France, U.S., Britain, Germany, Japan, Italy and Canada. However, the Partnership also takes futures positions in the government debt of smaller nations - e.g. Australia. Demeter anticipates that G-7 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. Equity. The primary equity exposure at December 31, 2001 was to equity price risk in the G-7 countries. The stock index futures traded by the Partnership are by law limited to futures on broadly-based indices. At December 31, 2001, the Partnership's primary exposures were to the Hang Seng (China), Nikkei (Japan), S&P 500 (U.S.) and DAX (Germany) stock indices. The Partnership is primarily exposed to the risk of adverse price trends or static markets in the U.S., European and Japanese indices. Static markets would not cause major market changes but would make it difficult for the Partnership to avoid being "whipsawed" into numerous small losses. Commodity. Energy. At December 31, 2001, the Partnership's energy exposure was shared primarily by futures contracts in crude oil and its related products, and natural gas. Price movements in these markets result from political developments in the Middle East, weather patterns and other economic fundamentals. It is possible that volatility will remain high. Significant profits and losses, which have been experienced in the past, will continue to be experienced in these markets. Natural gas has exhibited volatility in prices resulting from weather patterns and supply and demand factors and may continue in this choppy pattern. Soft Commodities and Agriculturals. At December 31, 2001, the Partnership had exposure to the markets that comprise these sectors. Most of the exposure was to corn, soybean meal and soybean markets. Supply and demand inequalities, severe weather disruption and market expectations affect price movements in these markets. Metals. The Partnership's metals exposure at December 31, 2001 was to fluctuations in the price of precious metals, such as silver, and base metals, such as copper, zinc, nickel and aluminum. Economic forces, supply and demand inequalities, geopolitical factors and market expectations influence price movement in these markets. The Trading Advisors have, from time to time, taken positions when market opportunities develop. Demeter anticipates that the Partnership will continue to be exposed to the precious and base metals markets. Qualitative Disclosures Regarding Non-Trading Risk Exposure The following was the only non-trading risk exposure of the Partnership at December 31, 2001: Foreign Currency Balances. The Partnership's primary foreign currency balances at December 31, 2001 was in Japanese yen, Hong Kong dollars, Canadian dollars and Swiss francs. The Partnership controls the non-trading risk of these balances by regularly converting them back into U.S. dollars upon liquidation of their respective positions. Qualitative Disclosures 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 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) Net Income/ (Loss) Per Quarter Revenue Net Unit of Limited Ended (Net Trading Loss) Income/(Loss) Partnership Interest 2001 March 31 $ 30,525,016 $ 24,046,834 $ 2.55 June 30 (16,536,822) (22,611,942) (2.37) September 30 28,022,232 21,354,388 2.20 December 31 (11,541,531) (19,623,931) (1.99) Total $ 30,468,895 $ 3,165,349 $ 0.39 2000 March 31 $ 2,404,979 $ (3,137,046) $(0.32) June 30 (8,520,028) (13,799,338) (1.43) September 30 5,462,810 512,200 0.06 December 31 35,735,858 30,715,229 3.26 Total $ 35,083,619 $ 14,291,045 $ 1.57
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACOUNTING AND FINANCIAL DISCLOSURE None. 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: Robert E. Murray, age 41, is the Executive Director of Morgan Stanley DW's Managed Futures Department, a leading commodity pool operator with approximately $1.4 billion in assets across a variety of U.S. and international public and private managed futures funds. In this capacity, Mr. Murray is responsible for overseeing all aspects of Morgan Stanley DW's Managed Futures Department. Mr. Murray began at Dean Witter in 1984 and has been closely involved in the growth of managed futures at the firm over the last 17 years. He is also the Chairman and President of Morgan Stanley Futures & Currency Management Inc. ("MSFCM") (formerly known as Dean Witter Futures & Currency Management Inc.), Morgan Stanley's internal commodity trading advisor, and is Chairman and President of Demeter Management Corporation, the entity which acts as a general partner for Morgan Stanley DW's managed futures funds. Mr. Murray has served as the Vice Chairman and a Director of the Board of the Managed Futures Association and is currently a member of the Board of Directors o the National Futures Association. Mr. Murray received a Bachelors Degree in Finance from Geneseo State University in 1983. Mitchell M. Merin, age 48, is a Director of Demeter. Mr. Merin is also a Director of MSFCM. Mr. Merin was appointed the Chief Operating Officer of Individual Asset Management for MSDW in December 1998 and the President and Chief Executive Officer of Morgan Stanley Dean Witter Advisors in February 1998. He has been an Executive Vice President of Morgan Stanley DW since 1990, during which time he has been Director of Morgan Stanley DW's Taxable Fixed Income and Futures divisions, Managing Director in Corporate Finance and Corporate Treasurer. Mr. Merin received his Bachelors degree from Trinity College in Connecticut and his M.B.A. degree in Finance and Accounting from the Kellogg Graduate School of Management of Northwestern University in 1977. Joseph G. Siniscalchi, age 56, is a Director of Demeter. Mr. Siniscalchi joined Morgan Stanley DW in July 1984 as a First Vice President, Director of General Accounting and served as a Senior Vice President and Controller for Morgan Stanley DW's Securities Division through 1997. He is currently Managing Director, responsible for the Client Support Service Division of Morgan Stanley DW. From February 1980 to July 1984, Mr. Siniscalchi was Director of Internal Audit at Lehman Brothers Kuhn Loeb, Inc. Edward C. Oelsner, III, age 60, is a Director of Demeter. Mr. Oelsner is currently an Executive Vice President and head of the Product Development Group at Morgan Stanley Dean Witter Advisors, an affiliate of Morgan Stanley DW. Mr. Oelsner joined Morgan Stanley DW in 1981 as a Managing Director in Morgan Stanley DW's Investment Banking Department specializing in coverage of regulated industries and, subsequently, served as head of the Morgan Stanley DW Retail Products Group. Prior to joining Morgan Stanley DW, Mr. Oelsner held positions at The First Boston Corporation as a member of the Research and Investment Banking Departments from 1967 to 1981. Mr. Oelsner received his M.B.A. in Finance from the Columbia University Graduate School of Business in 1966 and an A.B. in Politics from Princeton University in 1964. Richard A. Beech, age 50, is a Director of Demeter. Mr. Beech has been associated with the futures industry for over 24 years. He has been at Morgan Stanley DW since August 1984 where he is presently Executive Director and head of Branch Futures. 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 also had worked at two investment banking firms in operations, research, managed futures and sales management. Raymond A. Harris, age 45, is currently Managing Director in Asset Management Services. He previously served as CAO of Morgan Stanley Dean Witter Asset Management. From July 1982 to July 1994, Mr. Harris served in financial, administrative and other assignments at Dean Witter Reynolds, Inc. and Dean Witter, Discover & Co. From August 1994 to January 1999, he worked in Discover Financial Services and the firm's Credit Service business units. Mr. Harris has been with Morgan Stanley Dean Witter & Co. and its affiliates since July 1982. He has a B.A. degree from Boston College and an M.B.A. in finance from the University of Chicago. Anthony J. DeLuca, age 39, became a Director of Demeter on September 14, 2000. Mr. DeLuca is also a Director of MSFCM. Mr. DeLuca was appointed the Controller of Asset Management for MSDW in June 1999. Prior to that, Mr. DeLuca was a partner at the accounting firm of Ernst & Young LLP, where he had MSDW as a major client. Mr. DeLuca had worked continuously at Ernst & Young LLP ever since 1984, after he graduated from Pace University with a B.B.A. degree in Accounting. Raymond E. Koch, age 46, is Chief Financial Officer of Demeter. Mr. Koch began his career at MSDW in 1988, has overseen the Managed Futures Accounting function since 1992, and is currently an Executive Director in Investment Management Controllers. From November 1979 to June 1988, Mr. Koch held various positions at Thomson McKinnon Securities, Inc. culminating as Manager, Special Projects in the Capital Markets Division. From August 1977 to November 1979 he was an auditor, specializing in financial services at Deloitte Haskins & Sells. Mr. Koch received his B.B.A. in accounting from Iona College in 1977, an M.B.A. in finance from Pace University in 1984 and is a Certified Public Accountant. All of the foregoing directors have indefinite terms. 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, 2001, 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, 2001, Demeter owned 108,076.600 Units of General Partnership Interest representing a 1.07 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, 2001, 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 $17,183,347 for the year ended December 31, 2001. PART IV Item 14.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, 2001 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, 2001, 2000 and 1999. - - Statements of Financial Condition as of December 31, 2001 and 2000. - - Schedule of Investments as of December 31, 2001. - - Statements of Operations, Changes in Partners' Capital, and Cash Flows for the years ended December 31, 2001, 2000 and 1999. - - 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, 2001 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 During the quarter/year ended December 31, 2001, the following Forms 8-K were filed by the Partnership: On April 25, 2001, 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 Northfield Trading L.P., thereby adding Northfield Trading L.P. as a trading advisor for the Partnership. On November 1, 2001, the Partnership filed the Current Report on Form 8-K for the purpose of reporting, under Item 5, the Partnership's change of name; the relocation of offices of the Partnership and Demeter; the transfer of futures and options clearing of the Partnership to MS & Co.; and the replacement by MS & Co. as counterparty on all foreign currency forward contracts for 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 26, 2002 BY: /s/ Robert E. Murray Robert E. Murray, Director, Chairman of the Board and 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/ Robert E. Murray March 26, 2002 Robert E. Murray, Director, Chairman of the Board and President /s/ Mitchell M. Merin March 26, 2002 Mitchell M. Merin, Director /s/ Joseph G. Siniscalchi March 26, 2002 Joseph G. Siniscalchi, Director /s/ Edward C. Oelsner III March 26, 2002 Edward C. Oelsner III, Director /s/ Richard A. Beech March 26, 2002 Richard A. Beech, Director /s/ Raymond A. Harris March 26, 2002 Raymond A. Harris, Director /s/ Anthony J. DeLuca March 26, 2002 Anthony J. DeLuca, Director /s/ Raymond E. Koch March 26, 2002 Raymond E. Koch, Chief Financial Officer and Principal Accounting 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 March 23, 2001, filed with the Securities and Exchange Commission pursuant to Rule 424(b)(3) under the Securities Act of 1933 on April 6, 2001. 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 March 31, 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 March 31, 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 March 31, 1999. 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 March 23, 2001, filed with the Securities and Exchange Commission pursuant to Rule 424(b)(3) under the Securities Act of 1933 on April 6, 2001. 10.10 Amended and Restated Escrow Agreement, dated as of March 10, 2000, 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 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 March 23, 2001, filed with the Securities and Exchange Commission pursuant to Rule 424(b)(3) under the Securities Act of 1933 on April 6, 2001. 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. 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, 2001 Annual Report to Limited Partners is filed herewith. Morgan Stanley Spectrum Series [GRAPHIC] December 31, 2001 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 annualized return since inception for each Fund. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. Funds - ----- Spectrum Commodity Year Return ---- ------ 1998 -34.3% 1999 15.8% 2000 3.2% 2001 -25.6% Inception-to-Date Return: -41.6% Annualized Return: -12.6% - ---------------------------------------------------------------------- Spectrum Currency Year Return ---- ------ 2000 (6 months) 11.7% 2001 11.1% Inception-to-Date Return: 24.1% Annualized Return: 15.5% - ---------------------------------------------------------------------- Spectrum Global Balanced Year Return Year Return - ---- ------ ---- ------ 1994 (2 months) -1.7% 1998 16.4% 1995 22.8% 1999 0.7% 1996 -3.6% 2000 0.9% 1997 18.2% 2001 -0.3% Inception-to-Date Return: 62.1% Annualized Return: 7.0% - ---------------------------------------------------------------------- Spectrum Select Year Return Year Return - ---- ------ ---- ------ 1991 (5 months) 31.2% 1996 5.3% 1992 -14.4% 1997 6.2% 1993 41.6% 1998 14.2% 1994 -5.1% 1999 -7.6% 1995 23.6% 2000 7.1% 2001 1.7% Inception-to-Date Return: 139.6% Annualized Return: 8.8% - ---------------------------------------------------------------------- Spectrum Strategic Year Return Year Return - ---- ------ ---- ------ 1994 (2 months) 0.1% 1998 7.8% 1995 10.5% 1999 37.2% 1996 -3.5% 2000 -33.1% 1997 0.4% 2001 -0.6% Inception-to-Date Return: 5.5% Annualized Return: 0.8% - ---------------------------------------------------------------------- Spectrum Technical Year Return Year Return - ---- ------ ---- ------ 1994 (2 months) -2.2% 1998 10.2% 1995 17.6% 1999 -7.5% 1996 18.3% 2000 7.8% 1997 7.5% 2001 -7.2% Inception-to-Date Return: 49.3% Annualized Return: 5.8% Demeter Management Corporation c/o Managed Futures Department 825 Third Avenue, 8th Floor New York, NY 10022 Telephone (201) 876-4647 Morgan Stanley Spectrum Series Annual Report 2001 Dear Limited Partner: This marks the eighth annual report for Morgan Stanley Spectrum Global Balanced, Morgan Stanley Spectrum Strategic and Morgan Stanley Spectrum Technical, the eleventh annual report for Morgan Stanley Spectrum Select, the fourth annual report for Morgan Stanley Spectrum Commodity and the second annual report for Morgan Stanley Spectrum Currency. The Net Asset Value per Unit for each of the six Morgan Stanley Spectrum Funds as of December 31, 2001 was as follows:
Funds N.A.V. % change for year ----- ------ ----------------- Spectrum Commodity $ 5.84 -25.6% Spectrum Currency $12.41 11.1% Spectrum Global Balanced $16.21 -0.3% Spectrum Select $23.96 1.7% Spectrum Strategic $10.55 -0.6% Spectrum Technical $14.93 -7.2%
Spectrum Commodity During the year, the Fund recorded a decrease in Net Asset Value per Unit. The most significant losses were experienced in the energy markets throughout a majority of the year from long positions in natural gas futures as prices reversed the sharp upward trend experienced in late 2000 amid reports of increased inventories and forecasts for favorable weather. In the metals markets, losses were experienced throughout a majority of the year from long positions in copper and aluminum futures as the slowdown in the U.S. economy and weak demand drove prices lower. In the agricultural markets, losses were incurred from long positions in corn and wheat futures as prices moved lower due to favorable weather forecasts and on reports of declining demand. In the soft commodities markets, losses were recorded throughout a majority of the year from long cotton futures positions as prices moved lower on weak export sales and low demand. Spectrum Currency During the year, the Fund recorded an increase in Net Asset Value per Unit. The most significant gains were recorded primarily in the South African rand from previously established short positions in September, November and December as its value trended lower relative to the U.S. dollar on global economic jitters and emerging market concerns following Argentina's debt default. Profits were recorded from previously established short positions in the Japanese yen early in the year and again in December as the value of the yen weakened relative to the U.S. dollar on continuing concerns for the Japanese economy. A portion of the Fund's overall gains was partially offset by losses recorded in the British pound primarily during May and early June from previously established long positions as its value reversed lower relative to the U.S. dollar in reaction to reports that British Prime Minister Blair will push for Great Britain's entry into the European Monetary Union. Spectrum Global Balanced During the year, the Fund recorded a decrease in Net Asset Value per Unit. The most significant losses were incurred primarily in the global stock index futures markets throughout a majority of the first three quarters from long positions in FTSE, DAX and S&P 500 Index futures as equity prices moved lower amid worries regarding global economic uncertainty. In the energy markets, losses were recorded throughout the year from positions in crude oil futures and its related products as a result of volatility in oil prices due to a continually changing outlook for supply, production and demand. A portion of the Fund's overall losses was partially offset by gains recorded in the global interest rate futures markets primarily during January and again in the third quarter from previously established long positions in U.S. and European interest rate futures as prices trended higher amid continued economic concerns and interest rate cuts by the U.S. and European central banks. In the currency markets, profits were recorded throughout a majority of the fourth quarter from previously established short positions in the South African rand as its value trended lower relative to the U.S. dollar while global economic jitters persisted. Spectrum Select During the year, the Fund recorded an increase in Net Asset Value per Unit. The most significant gains were recorded primarily in the global interest rate futures markets during August, September and October from previously established long positions in U.S. interest rate futures as prices trended higher following interest rate cuts by the U.S. and European central banks. In the global stock index futures markets, profits 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 Fund's overall gains was partially offset by losses 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. Spectrum Strategic During the year, the Fund recorded a decrease in Net Asset Value per Unit. The most significant losses were experienced primarily in the currency markets throughout a majority of the fourth quarter from transactions involving the euro and Swiss franc. In the global stock index futures markets, losses were experienced throughout a majority of the first quarter from long positions in U.S. stock index futures as U.S. stock prices declined after discouraging corporate earnings warnings, inflationary news and on worries of a U.S. economic slowdown. A portion of the Fund's overall losses was partially offset by gains recorded in the soft commodities markets primarily during September and November from long cocoa futures positions as prices soared higher on expectations that global demand will outpace production. Additional gains were recorded primarily during April, May and December from long lumber futures positions as prices increased amid low inventories and on hopes of a pickup in the U.S. economy. Limited Partners of Spectrum Strategic are advised of a change in trading personnel at one of the trading advisors employed by the Fund. Effective January 1, 2002, Allied Irish Capital Management, Ltd., a trading advisor to the Fund, announced the retirement of Mr. David Tease, a Director of Allied Irish. Allied Irish trades its allocated portion of Fund assets pursuant to the Worldwide Financial Futures Program, a portion of which was traded by Mr. Tease, as discussed on page 101 of the Prospectus dated March 23, 2001. Commencing on or about January 17, 2002, that portion of the Worldwide Financial Futures Program previously traded by Mr. Tease (approximately $8.1 million, or 11.8% of Fund assets) is being traded by Mr. Gerry Grimes. Mr. Grimes is Managing Director and a founding member of Allied Irish, with nearly twenty years of experience in investment management. Mr. Grimes will employ a discretionary trading approach based upon his fundamental economic analysis of markets. He believes that the positioning of individual markets is a critical factor in determining trading opportunities. Hence, he will place strong emphasis on the gathering of intelligence in relation to market sentiment and trade flow indicators to determine how individual markets are positioned. Mr. Grimes will attempt to profit from those instances in which he determines that a market is positioned in a manner contrary to his own fundamental view. Pre-determined stop loss levels will be applied to all trades in an effort to manage trade risk. In addition to trading a portion of the Fund's assets, Mr. Grimes will continue in his role as trading controller for all three programs employed in the Worldwide Financial Futures Program. Spectrum Technical During the year, the Fund recorded a decrease in Net Asset Value per Unit. The most significant losses were recorded primarily in the energy markets throughout the first nine months of the year from trading in crude oil futures and its related products as a result of volatility in oil prices due to a continually changing outlook for supply, production and demand. A portion of the Fund's overall losses was partially offset by gains recorded in the global interest rate futures markets primarily during August, September and October from previously established long positions in U.S. interest rate futures as prices trended higher following interest rate cuts by the U.S. and European central banks. In the global stock index futures markets, profits were recorded throughout a majority of the third quarter from previously established short positions in DAX and Nikkei index futures as the trend in equity prices con- tinued sharply lower amid worries regarding global economic uncertainty. Should you have any questions concerning this report, please feel free to contact Demeter Management Corporation, c/o Managed Futures Department, 825 Third Avenue, 8th 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 not a guarantee of future results. Sincerely, /s/ Robert Murray Robert E. Murray Chairman Demeter Management Corporation General Partner Morgan Stanley Spectrum Series (formerly, Morgan Stanley Dean Witter Spectrum Series) Independent Auditors' Report To the Limited Partners and the General Partner of Morgan Stanley Spectrum Commodity L.P. (formerly, Morgan Stanley Dean Witter Spectrum Commodity L.P.), Morgan Stanley Spectrum Currency L.P. (formerly, Morgan Stanley Dean Witter Spectrum Currency L.P.), Morgan Stanley Spectrum Global Balanced L.P. (formerly, Morgan Stanley Dean Witter Spectrum Global Balanced L.P.), Morgan Stanley Spectrum Select L.P. (formerly, Morgan Stanley Dean Witter Spectrum Select L.P.), Morgan Stanley Spectrum Strategic L.P. (formerly, Morgan Stanley Dean Witter Spectrum Strategic L.P.), and Morgan Stanley Spectrum Technical L.P. (formerly, Morgan Stanley Dean Witter Spectrum Technical L.P.): We have audited the accompanying statements of financial condition of Morgan Stanley Spectrum Commodity L.P., Morgan Stanley Spectrum Currency L.P. ("Spectrum Currency"), Morgan Stanley Spectrum Global Balanced L.P., Morgan Stanley Spectrum Select L.P., Morgan Stanley Spectrum Strategic L.P., and Morgan Stanley Spectrum Technical L.P. (collectively, the "Partnerships") as of December 31, 2001 and 2000, including the schedules of investments as of December 31, 2001, and the related statements of operations, changes in partners' capital, and cash flows for the period from July 3, 2000 (commencement of operations) to December 31, 2000 and the year ended December 31, 2001 for Spectrum Currency, and for each of the three years in the period ended December 31, 2001 for the other above mentioned Partnerships. 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 Commodity L.P., 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. as of December 31, 2001 and 2000, and the results of their operations and their cash flows for the period from July 3, 2000 (commencement of operations) to December 31, 2000 and the year ended December 31, 2001 for Spectrum Currency, and for each of the three years in the period ended December 31, 2001 for the other above mentioned Partnerships, in conformity with accounting principles generally accepted in the United States of America. /s/ Deloitte & Touche LLP New York, New York February 15, 2002 (February 27, 2002 as to Note 7) Morgan Stanley Spectrum Commodity L.P. (formerly, Morgan Stanley Dean Witter Spectrum Commodity L.P.) Statements of Financial Condition
December 31, --------------------- 2001 2000 ---------- ---------- $ $ ASSETS Equity in futures interests trading accounts: Cash 12,980,361 20,529,979 Net unrealized gain on open contracts (MS&Co.) 289,317 160,096 Net unrealized gain (loss) on open contracts (MSIL) 77,762 (185,379) ---------- ---------- Total net unrealized gain (loss) on open contracts 367,079 (25,283) ---------- ---------- Total Trading Equity 13,347,440 20,504,696 Subscriptions receivable 108,050 215,897 Interest receivable (Morgan Stanley DW and MS&Co.) 17,129 89,128 ---------- ---------- Total Assets 13,472,619 20,809,721 ========== ========== LIABILITIES AND PARTNERS' CAPITAL LIABILITIES Redemptions payable 417,678 489,923 Accrued brokerage fees (Morgan Stanley DW and MS&Co.) 52,001 77,628 Accrued management fees (MSCM) 28,261 42,189 ---------- ---------- Total Liabilities 497,940 609,740 ---------- ---------- PARTNERS' CAPITAL Limited Partners (2,180,009.505 and 2,530,392.671 Units, respectively) 12,721,444 19,859,397 General Partner (43,395.648 Units) 253,235 340,584 ---------- ---------- Total Partners' Capital 12,974,679 20,199,981 ---------- ---------- Total Liabilities and Partners' Capital 13,472,619 20,809,721 ========== ========== NET ASSET VALUE PER UNIT 5.84 7.85 ========== ==========
Statements of Operations
For the Years Ended December 31, -------------------------------- 2001 2000 1999 ---------- --------- --------- $ $ $ REVENUES Trading profit (loss): Realized (4,662,750) 1,696,824 3,003,270 Net change in unrealized 392,362 (567,711) 1,178,071 ---------- --------- --------- Total Trading Results (4,270,388) 1,129,113 4,181,341 Interest income (Morgan Stanley DW and MS&Co.) 518,759 1,047,350 864,383 ---------- --------- --------- Total (3,751,629) 2,176,463 5,045,724 ---------- --------- --------- EXPENSES Brokerage fees (Morgan Stanley DW and MS&Co.) 736,436 949,310 852,484 Management fees (MSCM) 400,237 546,187 583,893 Service fees (Demeter) -- 58,604 233,558 ---------- --------- --------- Total 1,136,673 1,554,101 1,669,935 ---------- --------- --------- NET INCOME (LOSS) (4,888,302) 622,362 3,375,789 ========== ========= ========= Net Income (Loss) Allocation: Limited Partners (4,800,953) 612,086 3,330,798 General Partner (87,349) 10,276 44,991 Net Income (Loss) per Unit: Limited Partners (2.01) .24 1.04 General Partner (2.01) .24 1.04
The accompanying notes are an integral part of these financial statements. Morgan Stanley Spectrum Currency L.P. (formerly, Morgan Stanley Dean Witter Spectrum Currency L.P.) Statements of Financial Condition
December 31, --------------------- 2001 2000 ---------- ---------- $ $ ASSETS Equity in futures interests trading accounts: Cash 43,241,135 14,391,541 Net unrealized gain on open contracts (MS&Co.) 3,178,383 555,569 ---------- ---------- Total Trading Equity 46,419,518 14,947,110 Subscriptions receivable 2,642,117 3,054,150 Interest receivable (Morgan Stanley DW) 50,588 55,464 ---------- ---------- Total Assets 49,112,223 18,056,724 ========== ========== LIABILITIES AND PARTNERS' CAPITAL LIABILITIES Accrued incentive fees 913,255 32,876 Redemptions payable 165,224 2,237,351 Accrued brokerage fees (Morgan Stanley DW) 154,729 55,245 Accrued management fees 67,274 24,020 ---------- ---------- Total Liabilities 1,300,482 2,349,492 ---------- ---------- PARTNERS' CAPITAL Limited Partners (3,674,315.446 and 1,252,545.441 Units, respectively) 45,598,611 13,988,414 General Partner (178,332.987 and 153,905.792 Units, respectively) 2,213,130 1,718,818 ---------- ---------- Total Partners' Capital 47,811,741 15,707,232 ---------- ---------- Total Liabilities and Partners' Capital 49,112,223 18,056,724 ========== ========== NET ASSET VALUE PER UNIT 12.41 11.17 ========== ==========
Statements of Operations
For the Period from July 3, 2000 For the (commencement of Year Ended operations) to December 31, December 31, 2001 2000 -------------- ------------------- $ $ REVENUES Trading profit: Realized 3,998,924 1,126,201 Net change in unrealized 2,622,814 555,569 -------------- --------- Total Trading Results 6,621,738 1,681,770 Interest income (Morgan Stanley DW) 731,716 236,461 -------------- --------- Total 7,353,454 1,918,231 -------------- --------- EXPENSES Brokerage fees (Morgan Stanley DW) 1,297,698 249,571 Incentive fees 1,155,201 188,423 Management fees 564,216 171,693 -------------- --------- Total 3,017,115 609,687 -------------- --------- NET INCOME 4,336,339 1,308,544 ============== ========= Net Income Allocation: Limited Partners 4,119,027 1,134,371 General Partner 217,312 174,173 Net Income per Unit: Limited Partners 1.24 1.17 General Partner 1.24 1.17
The accompanying notes are an integral part of these financial statements. Morgan Stanley Spectrum Global Balanced L.P. (formerly, Morgan Stanley Dean Witter Spectrum Global Balanced L.P.) Statements of Financial Condition
December 31, ---------------------- 2001 2000 ---------- ---------- $ $ ASSETS Equity in futures interests trading accounts: Cash 57,396,091 52,414,304 Net unrealized gain on open contracts (MS&Co.) 839,855 3,384,377 Net unrealized loss on open contracts (MSIL) (150,647) (66,733) ---------- ---------- Total net unrealized gain on open contracts 689,208 3,317,644 Net option premiums -- 192,500 ---------- ---------- Total Trading Equity 58,085,299 55,924,448 Subscriptions receivable 611,641 530,634 Interest receivable (Morgan Stanley DW) 93,818 285,054 ---------- ---------- Total Assets 58,790,758 56,740,136 ========== ========== LIABILITIES AND PARTNERS' CAPITAL LIABILITIES Redemptions payable 725,284 602,490 Accrued brokerage fees (Morgan Stanley DW) 219,946 202,789 Accrued management fees 59,768 55,107 ---------- ---------- Total Liabilities 1,004,998 860,386 ---------- ---------- PARTNERS' CAPITAL Limited Partners (3,524,663.525 and 3,396,880.702 Units, respectively) 57,127,967 55,220,008 General Partner (40,584.304 Units) 657,793 659,742 ---------- ---------- Total Partners' Capital 57,785,760 55,879,750 ---------- ---------- Total Liabilities and Partners' Capital 58,790,758 56,740,136 ========== ========== NET ASSET VALUE PER UNIT 16.21 16.26 ========== ==========
Statements of Operations
For the Years Ended December 31, ---------------------------------- 2001 2000 1999 ---------- ---------- ---------- $ $ $ REVENUES Trading profit (loss): Realized 3,618,628 (2,091,009) 2,425,585 Net change in unrealized (2,628,436) 2,507,530 (1,157,073) ---------- ---------- ---------- Total Trading Results 990,192 416,521 1,268,512 Interest income (Morgan Stanley DW) 2,160,076 3,275,958 2,385,751 ---------- ---------- ---------- Total 3,150,268 3,692,479 3,654,263 ---------- ---------- ---------- EXPENSES Brokerage fees (Morgan Stanley DW) 2,597,121 2,558,008 2,387,515 Management fees 705,746 695,117 648,787 Incentive fees -- -- 215,651 ---------- ---------- ---------- Total 3,302,867 3,253,125 3,251,953 ---------- ---------- ---------- NET INCOME (LOSS) (152,599) 439,354 402,310 ========== ========== ========== Net Income (Loss) Allocation: Limited Partners (150,650) 433,786 397,258 General Partner (1,949) 5,568 5,052 Net Income (Loss) per Unit: Limited Partners (.05) .14 .12 General Partner (.05) .14 .12
The accompanying notes are an integral part of these financial statements. Morgan Stanley Spectrum Select L.P. (formerly, Morgan Stanley Dean Witter Spectrum Select L.P.) Statements of Financial Condition
December 31, ------------------------ 2001 2000 ----------- ----------- $ $ ASSETS Equity in futures interests trading accounts: Cash 235,183,061 196,555,362 Net unrealized gain on open contracts (MS&Co.) 7,164,265 26,063,382 Net unrealized loss on open contracts (MSIL) (1,767,529) (511,085) ----------- ----------- Total net unrealized gain on open contracts 5,396,736 25,552,297 Net option premiums 167,063 -- ----------- ----------- Total Trading Equity 240,746,860 222,107,659 Subscriptions receivable 4,991,166 1,583,941 Interest receivable (Morgan Stanley DW) 305,356 889,954 ----------- ----------- Total Assets 246,043,382 224,581,554 =========== =========== LIABILITIES AND PARTNERS' CAPITAL LIABILITIES Redemptions payable 2,595,426 2,110,529 Accrued brokerage fees (Morgan Stanley DW) 1,440,360 1,231,479 Accrued management fees 596,011 509,577 ----------- ----------- Total Liabilities 4,631,797 3,851,585 ----------- ----------- PARTNERS' CAPITAL Limited Partners (9,966,639.126 and 9,255,010.627 Units, respectively) 238,821,840 218,182,118 General Partner (108,076.600 Units) 2,589,745 2,547,851 ----------- ----------- Total Partners' Capital 241,411,585 220,729,969 ----------- ----------- Total Liabilities and Partners' Capital 246,043,382 224,581,554 =========== =========== NET ASSET VALUE PER UNIT 23.96 23.57 =========== ===========
Statements of Operations
For the Years Ended December 31, ----------------------------------- 2001 2000 1999 ----------- ---------- ----------- $ $ $ REVENUES Trading profit (loss): Realized 43,420,724 6,845,291 (1,351,849) Net change in unrealized (20,155,561) 18,665,233 (1,547,990) ----------- ---------- ----------- Total Trading Results 23,265,163 25,510,524 (2,899,839) Interest income (Morgan Stanley DW) 7,203,732 9,573,095 7,678,789 ----------- ---------- ----------- Total 30,468,895 35,083,619 4,778,950 ----------- ---------- ----------- EXPENSES Brokerage fees (Morgan Stanley DW) 17,183,347 14,706,945 15,188,479 Management fees 7,110,346 6,085,629 6,284,885 Incentive fees 3,009,853 -- -- ----------- ---------- ----------- Total 27,303,546 20,792,574 21,473,364 ----------- ---------- ----------- NET INCOME (LOSS) 3,165,349 14,291,045 (16,694,414) =========== ========== =========== Net Income (Loss) Allocation: Limited Partners 3,123,455 14,165,099 (16,455,697) General Partner 41,894 125,946 (238,717) Net Income (Loss) per Unit: Limited Partners .39 1.57 (1.80) General Partner .39 1.57 (1.80)
The accompanying notes are an integral part of these financial statements. Morgan Stanley Spectrum Strategic L.P. (formerly, Morgan Stanley Dean Witter Spectrum Strategic L.P.) Statements of Financial Condition
December 31, -------------------------- 2001 2000 -------------- ---------- $ $ ASSETS Equity in futures interests trading accounts: Cash 65,967,662 73,445,827 Net unrealized gain on open contracts (MS&Co.) 4,515,344 1,936,658 Net unrealized gain (loss) on open contracts (MSIL) (23,578) 58,457 Net unrealized loss on open contracts (Carr) -- (8,983) -------------- ---------- Total net unrealized gain on open contracts 4,491,766 1,986,132 Net option premiums 288,552 226,200 -------------- ---------- Total Trading Equity 70,747,980 75,658,159 Subscriptions receivable 651,936 462,060 Interest receivable (Morgan Stanley DW) 89,359 306,879 -------------- ---------- Total Assets 71,489,275 76,427,098 ============== ========== LIABILITIES AND PARTNERS' CAPITAL LIABILITIES Redemptions payable 2,072,098 1,307,093 Accrued brokerage fees (Morgan Stanley DW) 424,242 409,292 Accrued management fees 175,549 186,577 Accrued incentive fee -- 289,687 -------------- ---------- Total Liabilities 2,671,889 2,192,649 -------------- ---------- PARTNERS' CAPITAL Limited Partners (6,449,326.013 and 6,919,445.814 Units, respectively) 68,012,216 73,433,119 General Partner (76,351.101 and 75,507.615 Units, respectively) 805,170 801,330 -------------- ---------- Total Partners' Capital 68,817,386 74,234,449 -------------- ---------- Total Liabilities and Partners' Capital 71,489,275 76,427,098 ============== ========== NET ASSET VALUE PER UNIT 10.55 10.61 ============== ==========
Statements of Operations
For the Years Ended December 31, ----------------------------------- 2001 2000 1999 ---------- ----------- ---------- $ $ $ REVENUES Trading profit (loss): Realized 2,132,212 (23,193,914) 32,274,037 Net change in unrealized 2,505,634 (7,577,681) 4,264,478 ---------- ----------- ---------- Total Trading Results 4,637,846 (30,771,595) 36,538,515 Interest income (Morgan Stanley DW) 2,217,963 3,832,634 3,017,103 ---------- ----------- ---------- Total 6,855,809 (26,938,961) 39,555,618 ---------- ----------- ---------- EXPENSES Brokerage fees (Morgan Stanley DW) 5,152,756 5,798,093 5,837,887 Management fees 2,183,596 2,880,999 3,137,509 Incentive fees -- 1,269,237 2,451,152 ---------- ----------- ---------- Total 7,336,352 9,948,329 11,426,548 ---------- ----------- ---------- NET INCOME (LOSS) (480,543) (36,887,290) 28,129,070 ========== =========== ========== Net Income (Loss) Allocation: Limited Partners (475,383) (36,503,461) 27,829,050 General Partner (5,160) (383,829) 300,020 Net Income (Loss) per Unit: Limited Partners (0.06) (5.24) 4.30 General Partner (0.06) (5.24) 4.30
The accompanying notes are an integral part of these financial statements. Morgan Stanley Spectrum Technical L.P. (formerly, Morgan Stanley Dean Witter Spectrum Technical L.P.) Statements of Financial Condition
December 31, ------------------------ 2001 2000 ----------- ----------- $ $ ASSETS Equity in futures interests trading accounts: Cash 246,172,354 231,502,090 Net unrealized gain on open contracts (MS&Co.) 14,299,794 41,877,552 Net unrealized loss on open contracts (MSIL) (2,794,179) (1,835,243) ----------- ----------- Total net unrealized gain on open contracts 11,505,615 40,042,309 ----------- ----------- Total Trading Equity 257,677,969 271,544,399 Subscriptions receivable 4,445,562 1,087,585 Interest receivable (Morgan Stanley DW) 318,673 1,063,044 ----------- ----------- Total Assets 262,442,204 273,695,028 =========== =========== LIABILITIES AND PARTNERS' CAPITAL LIABILITIES Redemptions payable 2,377,346 3,432,384 Accrued brokerage fees (Morgan Stanley DW) 1,509,205 1,458,126 Accrued management fees 581,531 559,827 Accrued incentive fee -- 111,599 ----------- ----------- Total Liabilities 4,468,082 5,561,936 ----------- ----------- PARTNERS' CAPITAL Limited Partners (17,089,473.684 and 16,479,195.979 Units, respectively) 255,122,417 265,060,579 General Partner (191,022.517 Units) 2,851,705 3,072,513 ----------- ----------- Total Partners' Capital 257,974,122 268,133,092 ----------- ----------- Total Liabilities and Partners' Capital 262,442,204 273,695,028 =========== =========== NET ASSET VALUE PER UNIT 14.93 16.08 =========== ===========
Statements of Operations
For the Years Ended December 31, ----------------------------------- 2001 2000 1999 ----------- ---------- ----------- $ $ $ REVENUES Trading profit (loss): Realized 30,115,483 12,255,064 726,179 Net change in unrealized (28,536,694) 22,006,013 (872,972) ----------- ---------- ----------- Total Trading Results 1,578,789 34,261,077 (146,793) Interest income (Morgan Stanley DW) 8,288,660 11,613,896 9,593,178 ----------- ---------- ----------- Total 9,867,449 45,874,973 9,446,385 ----------- ---------- ----------- EXPENSES Brokerage fees (Morgan Stanley DW) 19,556,056 17,835,223 19,176,380 Management fees 7,501,053 9,595,464 10,580,071 Incentive fees 2,093,709 166,085 430,097 ----------- ---------- ----------- Total 29,150,818 27,596,772 30,186,548 ----------- ---------- ----------- NET INCOME (LOSS) (19,283,369) 18,278,201 (20,740,163) =========== ========== =========== Net Income (Loss) Allocation: Limited Partners (19,062,561) 18,053,408 (20,531,494) General Partner (220,808) 224,793 (208,669) Net Income (Loss) per Unit: Limited Partners (1.15) 1.17 (1.21) General Partner (1.15) 1.17 (1.21)
The accompanying notes are an integral part of these financial statements. Morgan Stanley Spectrum Series (formerly, Morgan Stanley Dean Witter Spectrum Series) Statements of Changes in Partners' Capital For the Years Ended December 31, 2001, 2000 and 1999
Units of Partnership Limited General Interest Partners Partner Total ------------- ---------- ------- ---------- $ $ $ Morgan Stanley Spectrum Commodity L.P. (formerly, Morgan Stanley Dean Witter Spectrum Commodity L.P.) Partners' Capital, December 31, 1998 3,788,464.700 24,622,999 285,317 24,908,316 Net income -- 3,330,798 44,991 3,375,789 Redemptions (682,597.530) (4,643,635) -- (4,643,635) ------------- ---------- ------- ---------- Partners' Capital, December 31, 1999 3,105,867.170 23,310,162 330,308 23,640,470 Offering of Units 277,607.062 2,115,964 -- 2,115,964 Net income -- 612,086 10,276 622,362 Redemptions (809,685.913) (6,178,815) -- (6,178,815) ------------- ---------- ------- ---------- Partners' Capital, December 31, 2000 2,573,788.319 19,859,397 340,584 20,199,981 Offering of Units 287,171.772 1,838,372 -- 1,838,372 Net loss -- (4,800,953) (87,349) (4,888,302) Redemptions (637,554.938) (4,175,372) -- (4,175,372) ------------- ---------- ------- ---------- Partners' Capital, December 31, 2001 2,223,405.153 12,721,444 253,235 12,974,679 ============= ========== ======= ==========
Statements of Changes in Partners' Capital For the Year Ended December 31, 2001 and the period from July 3, 2000 (commencement of operations) to December 31, 2000
Units of Partnership Limited General Interest Partners Partner Total ------------- ---------- --------- ---------- $ $ $ Morgan Stanley Spectrum Currency L.P. (formerly, Morgan Stanley Dean Witter Spectrum Currency L.P.) Partners' Capital, July 3, 2000 (commencement of operations) 2.000 10 10 20 Initial Offering 633,152.332 4,886,888 1,444,635 6,331,523 Offering of Units 980,783.417 10,281,803 100,000 10,381,803 Net income -- 1,134,371 174,173 1,308,544 Redemptions (207,486.516) (2,314,658) -- (2,314,658) ------------- ---------- --------- ---------- 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 ============= ========== ========= ==========
The accompanying notes are an integral part of these financial statements. Morgan Stanley Spectrum Series (formerly, Morgan Stanley Dean Witter Spectrum Series) Statements of Changes in Partners' Capital For the Years Ended December 31, 2001, 2000 and 1999
Units of Partnership Limited General Interest Partners Partner Total ------------- ----------- ------- ----------- $ $ $ Morgan Stanley Spectrum Global Balanced L.P. (formerly, Morgan Stanley Dean Witter Spectrum Global Balanced L.P.) Partners' Capital, December 31, 1998 2,869,073.505 45,399,750 514,122 45,913,872 Offering of Units 1,019,759.235 16,184,278 135,000 16,319,278 Net income -- 397,258 5,052 402,310 Redemptions (299,009.049) (4,771,448) -- (4,771,448) ------------- ----------- ------- ----------- Partners' Capital, December 31, 1999 3,589,823.691 57,209,838 654,174 57,864,012 Offering of Units 568,088.752 8,983,545 -- 8,983,545 Net income -- 433,786 5,568 439,354 Redemptions (720,447.437) (11,407,161) -- (11,407,161) ------------- ----------- ------- ----------- 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 ============= =========== ======= ===========
Units of Partnership Limited General Interest Partners Partner Total -------------- ----------- --------- ----------- $ $ $ Morgan Stanley Spectrum Select L.P. (formerly, Morgan Stanley Dean Witter Spectrum Select L.P.) Partners' Capital, December 31, 1998 8,407,766.751 196,915,644 3,166,872 200,082,516 Offering of Units 2,238,093.744 51,589,367 -- 51,589,367 Net loss -- (16,455,697) (238,717) (16,694,414) Redemptions (928,973.063) (21,171,795) -- (21,171,795) -------------- ----------- --------- ----------- Partners' Capital, December 31, 1999 9,716,887.432 210,877,519 2,928,155 213,805,674 Offering of Units 1,339,972.159 28,581,403 -- 28,581,403 Net income -- 14,165,099 125,946 14,291,045 Redemptions (1,693,772.364) (35,441,903) (506,250) (35,948,153) -------------- ----------- --------- ----------- 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 ============== =========== ========= ===========
The accompanying notes are an integral part of these financial statements. Morgan Stanley Spectrum Series (formerly, Morgan Stanley Dean Witter Spectrum Series) Statements of Changes in Partners' Capital For the Years Ended December 31, 2001, 2000 and 1999
Units of Partnership Limited General Interest Partners Partner Total -------------- ----------- --------- ----------- $ $ $ Morgan Stanley Spectrum Strategic L.P. (formerly, Morgan Stanley Dean Witter Spectrum Strategic L.P.) Partners' Capital, December 31, 1998 6,096,199.701 69,671,636 750,139 70,421,775 Offering of Units - 1,300,877.987 16,846,544 100,000 16,946,544 Net income -- 27,829,050 300,020 28,129,070 Redemptions (601,106.169) (7,804,868) -- (7,804,868) -------------- ----------- --------- ----------- Partners' Capital, December 31, 1999 6,795,971.519 106,542,362 1,150,159 107,692,521 Offering of Units 1,467,043.314 17,566,488 35,000 17,601,488 Net loss -- (36,503,461) (383,829) (36,887,290) Redemptions (1,268,061.404) (14,172,270) -- (14,172,270) -------------- ----------- --------- ----------- 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 ============== =========== ========= =========== Units of Partnership Limited General Interest Partners Partner Total -------------- ----------- --------- ----------- $ $ $ Morgan Stanley Spectrum Technical L.P. (formerly, Morgan Stanley Dean Witter Spectrum Technical L.P.) Partners' Capital, December 31, 1998 15,824,199.968 252,455,045 2,646,389 255,101,434 Offering of Units - 3,976,153.731 61,073,132 410,000 61,483,132 Net loss -- (20,531,494) (208,669) (20,740,163) Redemptions (1,772,457.606) (27,088,685) -- (27,088,685) -------------- ----------- --------- ----------- Partners' Capital, December 31, 1999 18,027,896.093 265,907,998 2,847,720 268,755,718 Offering of Units 2,110,290.038 29,668,693 -- 29,668,693 Net income -- 18,053,408 224,793 18,278,201 Redemptions (3,467,967.635) (48,569,520) -- (48,569,520) -------------- ----------- --------- ----------- 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 ============== =========== ========= ===========
The accompanying notes are an integral part of these financial statements. Morgan Stanley Spectrum Commodity L.P. (formerly, Morgan Stanley Dean Witter Spectrum Commodity L.P.) Statements of Cash Flows
For the Years Ended December 31, ---------------------------------- 2001 2000 1999 ---------- ---------- ---------- $ $ $ CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) (4,888,302) 622,362 3,375,789 Noncash item included in net income (loss): Net change in unrealized (392,362) 567,711 (1,178,071) (Increase) decrease in operating assets: Interest receivable (Morgan Stanley DW and MS&Co.) 71,999 (12,936) 2,530 Increase (decrease) in operating liabilities: Accrued brokerage fees (Morgan Stanley DW and MS&Co.) (25,627) 6,801 (10,395) Accrued management fees (MSCM) (13,928) (6,322) (7,121) Service fees payable (Demeter) -- (19,404) (2,849) ---------- ---------- ---------- Net cash provided by (used for) operating activities (5,248,220) 1,158,212 2,179,883 ---------- ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES Offering of Units 1,838,372 2,115,964 -- (Increase) decrease in subscriptions receivable 107,847 (215,897) -- Increase (decrease) in redemptions payable (72,245) 220,378 (626,002) Redemptions of Units (4,175,372) (6,178,815) (4,643,635) ---------- ---------- ---------- Net cash used for financing activities (2,301,398) (4,058,370) (5,269,637) ---------- ---------- ---------- Net decrease in cash (7,549,618) (2,900,158) (3,089,754) Balance at beginning of period 20,529,979 23,430,137 26,519,891 ---------- ---------- ---------- Balance at end of period 12,980,361 20,529,979 23,430,137 ========== ========== ==========
The accompanying notes are an integral part of these financial statements. Morgan Stanley Spectrum Currency L.P. (formerly, Morgan Stanley Dean Witter Spectrum Currency L.P.) Statements of Cash Flows
For the Period from July 3, 2000 For the Year (commencement of Ended operations) to December 31, December 31, 2001 2000 ------------ ------------------- $ $ CASH FLOWS FROM OPERATING ACTIVITIES Net income 4,336,339 1,308,544 Noncash item included in net income: Net change in unrealized (2,622,814) (555,569) (Increase) decrease in operating assets: Interest receivable (Morgan Stanley DW) 4,876 (55,464) Increase in operating liabilities: Accrued incentive fees 880,379 32,876 Accrued brokerage fees (Morgan Stanley DW) 99,484 55,245 Accrued management fees 43,254 24,020 ---------- ---------- Net cash provided by operating activities 2,741,518 809,652 ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES Initial offering -- 6,331,543 Offering of Units 29,198,302 10,381,803 (Increase) decrease in subscriptions receivable 412,033 (3,054,150) Increase (decrease) in redemptions payable (2,072,127) 2,237,351 Redemptions of Units (1,430,132) (2,314,658) ---------- ---------- Net cash provided by financing activities 26,108,076 13,581,889 ---------- ---------- Net increase in cash 28,849,594 14,391,541 Balance at beginning of period 14,391,541 -- ---------- ---------- Balance at end of period 43,241,135 14,391,541 ========== ==========
The accompanying notes are an integral part of these financial statements. Morgan Stanley Spectrum Global Balanced L.P. (formerly, Morgan Stanley Dean Witter Spectrum Global Balanced L.P.) Statements of Cash Flows
For the Years Ended December 31, ----------------------------------- 2001 2000 1999 ---------- ----------- ---------- $ $ $ CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) (152,599) 439,354 402,310 Noncash item included in net income (loss): Net change in unrealized 2,628,436 (2,507,530) 1,157,073 (Increase) decrease in operating assets: Net option premiums 192,500 (192,500) -- Interest receivable (Morgan Stanley DW) 191,236 (40,455) (77,458) Increase (decrease) in operating liabilities: Accrued brokerage fees (Morgan Stanley DW) 17,157 (14,106) 47,054 Accrued management fees 4,661 (3,833) 12,787 Incentive fees payable -- -- (69,730) ---------- ----------- ---------- Net cash provided by (used for) operating activities 2,881,391 (2,319,070) 1,472,036 ---------- ----------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES Offering of Units 10,254,342 8,983,545 16,319,278 (Increase) decrease in subscriptions receivable (81,007) 317,320 315,143 Increase (decrease) in redemptions payable 122,794 (65,251) 549,551 Redemptions of Units (8,195,733) (11,407,161) (4,771,448) ---------- ----------- ---------- Net cash provided by (used for) financing activities 2,100,396 (2,171,547) 12,412,524 ---------- ----------- ---------- Net increase (decrease) in cash 4,981,787 (4,490,617) 13,884,560 Balance at beginning of period 52,414,304 56,904,921 43,020,361 ---------- ----------- ---------- Balance at end of period 57,396,091 52,414,304 56,904,921 ========== =========== ==========
The accompanying notes are an integral part of these financial statements. Morgan Stanley Spectrum Select L.P. (formerly, Morgan Stanley Dean Witter Spectrum Select L.P.) Statements of Cash Flows
For the Years Ended December 31, -------------------------------------- 2001 2000 1999 ------------ ----------- ----------- $ $ $ CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) 3,165,349 14,291,045 (16,694,414) Noncash item included in net income (loss): Net change in unrealized 20,155,561 (18,665,233) 1,547,990 (Increase) decrease in operating assets: Net option premiums (167,063) 776,380 (776,380) Interest receivable (Morgan Stanley DW) 584,598 (167,649) (130,447) Increase (decrease) in operating liabilities: Accrued brokerage fees (Morgan Stanley DW) 208,881 (39,496) 106,631 Accrued management fees 86,434 (16,344) 44,124 ------------ ----------- ----------- Net cash provided by (used for) operating activities 24,033,760 (3,821,297) (15,902,496) ------------ ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Offering of Units 41,261,535 28,581,403 51,589,367 (Increase) decrease in subscriptions receivable (3,407,225) 2,146,110 2,291,656 Increase (decrease) in redemptions payable 484,897 (1,653,713) 2,824,861 Redemptions of Units (23,745,268) (35,948,153) (21,171,795) ------------ ----------- ----------- Net cash provided by (used for) financing activities 14,593,939 (6,874,353) 35,534,089 ------------ ----------- ----------- Net increase (decrease) in cash 38,627,699 (10,695,650) 19,631,593 Balance at beginning of period 196,555,362 207,251,012 187,619,419 ------------ ----------- ----------- Balance at end of period 235,183,061 196,555,362 207,251,012 ============ =========== ===========
The accompanying notes are an integral part of these financial statements. Morgan Stanley Spectrum Strategic L.P. (formerly, Morgan Stanley Dean Witter Spectrum Strategic L.P.) Statements of Cash Flows
For the Years Ended December 31, ------------------------------------ 2001 2000 1999 ----------- ----------- ---------- $ $ $ CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) (480,543) (36,887,290) 28,129,070 Noncash item included in net income (loss): Net change in unrealized (2,505,634) 7,577,681 (4,264,478) (Increase) decrease in operating assets: Net option premiums (62,352) (237,853) 237,299 Interest receivable (Morgan Stanley DW) 217,520 32,703 (134,335) Increase (decrease) in operating liabilities: Accrued brokerage fees (Morgan Stanley DW) 14,950 (180,709) 184,395 Accrued management fees (11,028) (127,069) 94,670 Accrued incentive fee (289,687) 289,687 -- ----------- ----------- ---------- Net cash provided by (used for) operating activities (3,116,774) (29,532,850) 24,246,621 ----------- ----------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES Offering of Units 9,249,482 17,601,488 16,946,544 (Increase) decrease in subscriptions receivable (189,876) 1,281,898 52,093 Increase in redemptions payable 765,005 459,233 448,884 Redemptions of Units (14,186,002) (14,172,270) (7,804,868) ----------- ----------- ---------- Net cash provided by (used for) financing activities (4,361,391) 5,170,349 9,642,653 ----------- ----------- ---------- Net increase (decrease) in cash (7,478,165) (24,362,501) 33,889,274 Balance at beginning of period 73,445,827 97,808,328 63,919,054 ----------- ----------- ---------- Balance at end of period 65,967,662 73,445,827 97,808,328 =========== =========== ==========
The accompanying notes are an integral part of these financial statements. Morgan Stanley Spectrum Technical L.P. (formerly, Morgan Stanley Dean Witter Spectrum Technical L.P.) Statements of Cash Flows
For the Years Ended December 31, ------------------------------------- 2001 2000 1999 ----------- ----------- ----------- $ $ $ CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) (19,283,369) 18,278,201 (20,740,163) Noncash item included in net income (loss): Net change in unrealized 28,536,694 (22,006,013) 872,972 (Increase) decrease in operating assets: Net option premiums -- (74,725) 74,725 Interest receivable (Morgan Stanley DW) 744,371 (162,089) (183,270) Increase (decrease) in operating liabilities: Accrued brokerage fees (Morgan Stanley DW) 51,079 (101,355) 120,330 Accrued management fees 21,704 (300,576) 66,388 Accrued incentive fee (111,599) 111,599 -- ----------- ----------- ----------- Net cash provided by (used for) operating activities 9,958,880 (4,254,958) (19,789,018) ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Offering of Units 40,832,142 29,668,693 61,483,132 (Increase) decrease in subscriptions receivable (3,357,977) 2,839,329 75,719 Increase (decrease) in redemptions payable (1,055,038) 374,791 1,718,282 Redemptions of Units (31,707,743) (48,569,520) (27,088,685) ----------- ----------- ----------- Net cash provided by (used for) financing activities 4,711,384 (15,686,707) 36,188,448 ----------- ----------- ----------- Net increase (decrease) in cash 14,670,264 (19,941,665) 16,399,430 Balance at beginning of period 231,502,090 251,443,755 235,044,325 ----------- ----------- ----------- Balance at end of period 246,172,354 231,502,090 251,443,755 =========== =========== ===========
The accompanying notes are an integral part of these financial statements. Morgan Stanley Spectrum Commodity L.P. (formerly, Morgan Stanley Dean Witter Spectrum Commodity L.P.) Schedule of Investments December 31, 2001 Partnership Net Assets: $12,974,679
Long Short Gain/ Gain/ Net Percentage of # of Contracts/ Futures and Forward Contracts: (Loss) (Loss) Unrealized Gain/(Loss) Net Assets Notional Amounts - ------------------------------ ------- ------ ---------------------- ------------- ---------------- $ $ $ % Commodity 367,079 367,079 -- ------- 2.83 795 Total Net Unrealized Gain per Statement of Financial Condition 367,079 =======
The accompanying notes are an integral part of these financial statements. Morgan Stanley Spectrum Currency L.P. (formerly, Morgan Stanley Dean Witter Spectrum Currency L.P.) Schedule of Investments December 31, 2001 Partnership Net Assets: $47,811,741
Long Short Gain/ Gain/ Net Percentage of # of Contracts/ Futures and Forward Contracts: (Loss) (Loss) Unrealized Gain/(Loss) Net Assets Notional Amounts - ------------------------------ ------- --------- ---------------------- ------------- ---------------- $ $ $ % Foreign currency 503,253 2,675,130 3,178,383 6.65* 7,044,346,181 --------- Total Net Unrealized Gain per Statement of Financial Condition 3,178,383 =========
*No single contract's value exceeds 5% of Net Assets. The accompanying notes are an integral part of these financial statements. Morgan Stanley Spectrum Global Balanced L.P. (formerly, Morgan Stanley Dean Witter Spectrum Global Balanced L.P.) Schedule of Investments December 31, 2001 Partnership Net Assets: $57,785,760
Long Gain/ Short Net Percentage of # of Contracts/ Futures and Forward Contracts: (Loss) Gain/(Loss) Unrealized Gain/(Loss) Net Assets Notional Amounts - ------------------------------ -------- ----------- ---------------------- ------------- ---------------- $ $ $ % Foreign Currency 545,662 121,385 667,047 1.15 6,800,319 Interest Rate (30,784) 207,014 176,230 0.30 1,132 Commodity (166,876) 43,389 (123,487) (0.21) 437 Equity 57,696 -- 57,696 0.10 209 -------- ------- -------- ----- Grand Total: 405,698 371,788 777,486 1.34 ======== ======= ===== Unrealized Currency Loss (88,278) -------- Total Net Unrealized Gain per Statement of Financial Condition 689,208 ========
The accompanying notes are an integral part of these financial statements. Morgan Stanley Spectrum Select L.P. (formerly, Morgan Stanley Dean Witter Spectrum Select L.P.) Schedule of Investments December 31, 2001 Partnership Net Assets: $241,411,585
Long Short Net Percentage of # of Contracts/ Futures and Forward Contracts: Gain/(Loss) Gain/(Loss) Unrealized Gain/(Loss) Net Assets Notional Amounts - ------------------------------ ----------- ----------- ---------------------- ------------- ---------------- $ $ $ % Foreign currency 3,340,060 5,340,666 8,680,726 3.60 19,685,077,273 Interest rate (590,545) 1,010,165 419,620 0.17 6,472 Commodity (1,867,521) (573,394) (2,440,915) (1.01) 2,686 Equity 142,296 (57,555) 84,741 0.03 722 ---------- --------- ---------- ----- Grand Total: 1,024,290 5,719,882 6,744,172 2.79 ========== ========= ===== Unrealized Currency Loss (1,347,436) ---------- Total Net Unrealized Gain per Statement of Financial Condition 5,396,736 ==========
The accompanying notes are an integral part of these financial statements. Morgan Stanley Spectrum Strategic L.P. (formerly, Morgan Stanley Dean Witter Spectrum Strategic L.P.) Schedule of Investments December 31, 2001 Partnership Net Assets: $68,817,386
Long Short Net Percentage of # of Contracts/ Futures and Forward Contracts: Gain/(Loss) Gain/(Loss) Unrealized Gain/(Loss) Net Assets Notional Amounts - ------------------------------ ----------- ----------- ---------------------- ------------- ---------------- $ $ $ % Foreign currency (163,374) 1,006,617 843,243 1.23 20,788 Commodity 2,761,214 632,208 3,393,422 4.93 4,965 Interest rate 160,801 -- 160,801 0.23 599 Equity 137,400 2,400 139,800 0.20 35 --------- --------- --------- ---- Grand Total: 2,896,041 1,641,225 4,537,266 6.59 ========= ========= ==== Unrealized Currency Loss (45,500) --------- Total Net Unrealized Gain per Statement of Financial Condition 4,491,766 =========
The accompanying notes are an integral part of these financial statements. Morgan Stanley Spectrum Technical L.P. (formerly, Morgan Stanley Dean Witter Spectrum Technical L.P.) Schedule of Investments December 31, 2001 Partnership Net Assets: $257,947,122
Long Short Net Percentage of # of Contracts/ Futures and Forward Contracts: Gain/(Loss) Gain/(Loss) Unrealized Gain/(Loss) Net Assets Notional Amounts - ------------------------------ ----------- ----------- ---------------------- ------------- ---------------- $ $ $ % Foreign currency 2,247,864 10,754,547 13,002,411 5.04* 29,705,176,931 Interest rate (323,455) 1,378,568 1,055,113 0.41 8,984 Commodity (2,009,527) (1,765,451) (3,774,978) (1.46) 5,538 Equity 195,865 (31,771) 164,094 0.06 584 ---------- ---------- ---------- ----- Grand Total: 110,747 10,335,893 10,446,640 4.05 ========== ========== ===== Unrealized Currency Gain 1,058,975 ---------- Total Net Unrealized Gain per Statement of Financial Condition 11,505,615 ==========
*No single contract's value exceeds 5% of Net Assets. The accompanying notes are an integral part of these financial statements. Morgan Stanley Spectrum Series (formerly, Morgan Stanley Dean Witter Spectrum Series) Notes to Financial Statements 1. Summary of Significant Accounting Policies Organization--Morgan Stanley Spectrum Commodity L.P. (formerly known as Morgan Stanley Dean Witter Spectrum Commodity L.P.) ("Spectrum Commodity"), Morgan Stanley Spectrum Currency L.P. (formerly known as Morgan Stanley Dean Witter Spectrum Currency L.P.) ("Spectrum Currency"), Morgan Stanley Spectrum Global Balanced L.P. (formerly known as Morgan Stanley Dean Witter Spectrum Global Balanced L.P.) ("Spectrum Global Balanced"), Morgan Stanley Spectrum Select L.P. (formerly known as Morgan Stanley Dean Witter Spectrum Select L.P.) ("Spectrum Select"), Morgan Stanley Spectrum Strategic L.P. (formerly known as Morgan Stanley Dean Witter Spectrum Strategic L.P.) ("Spectrum Strategic") and Morgan Stanley Spectrum Technical L.P. (formerly known as Morgan Stanley Dean Witter 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 general partner for each Partnership is Demeter Management Corporation ("Demeter"). The non-clearing commodity broker is Morgan Stanley DW Inc. ("Morgan Stanley DW"). The clearing commodity brokers are Morgan Stanley & Co., Inc. ("MS&Co.") and Morgan Stanley & Co. International Limited ("MSIL"). Prior to October 2000, Carr Futures Inc. ("Carr") provided clearing and execution services to Spectrum Global Balanced, Spectrum Select, Spectrum Strategic and Spectrum Technical. 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 Dean Witter & Co. Spectrum Commodity became one of the Spectrum Series of funds effective March 6, 2000. Spectrum Currency commenced trading as of July 3, 2000. Effective April 2, 2001, Dean Witter Reynolds Inc. changed its name to Morgan Stanley DW Inc. Effective September 28, 2001 Morgan Stanley Dean Witter Commodities Management Inc. changed its name to Morgan Stanley Commodities Management Inc. On November 1, 2001, the Partnerships were renamed Morgan Stanley Spectrum Commodity L.P., 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. Morgan Stanley Spectrum Series (formerly, Morgan Stanley Dean Witter Spectrum Series) Notes to Financial Statements--(Continued) 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 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 based upon 80% of its 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 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 Partnership 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. Condensed Schedule of Investments--In March 2001, the American Institute of Certified Public Accountants' Accounting Standards Executive Committee issued Statement of Position ("SOP") 01-1, "Amendment to the Scope of Statement of Position 95-2, Financial Reporting by Nonpublic Investment Partnerships, to Include Commodity Pools" effective for fiscal years ending after December 15, 2001. Accordingly, commodity pools are now required 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. Equity in Futures Interests Trading Accounts--The Partnerships' asset "Equity in futures interests trading accounts," reflected in the statements of financial condition consists of (A) cash on deposit with Morgan Stanley DW, MS&Co. and MSIL 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, Morgan Stanley Spectrum Series (formerly, Morgan Stanley Dean Witter Spectrum Series) Notes to Financial Statements--(Continued) 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 MSIL acting as their commodity brokers. Pursuant to brokerage agreements with MS&Co. and 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 same counterparty as allowable under terms of the 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 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. Prior to April 1, 2000, brokerage fees for Spectrum Commodity were accrued at a monthly rate of 1/12 of 3.65% of Net Assets (a 3.65% annual rate) 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. Service Fee--Prior to April 1, 2000, Spectrum Commodity paid Demeter a monthly service fee equal to 1/12 of 1% per month (a 1% annual rate) of the Partnership's Net Assets as of the first day of each month. 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. Morgan Stanley Spectrum Series (formerly, Morgan Stanley Dean Witter 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 Partnerships. 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. 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 Commodity will terminate on December 31, 2027, Spectrum Currency, Spectrum Global Balanced, Spectrum Strategic and Spectrum Technical will terminate on December 31, 2035 and Spectrum Select will terminate on December 31, 2025 regardless of financial condition at such time, or at an earlier date if certain conditions occur as defined in each Partnership's Limited Partnership Agreement. 2. Related Party Transactions The Partnerships pay brokerage fees to Morgan Stanley DW as described in Note 1. 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 Spectrum Series (formerly, Morgan Stanley Dean Witter Spectrum Series) Notes to Financial Statements--(Continued) Morgan Stanley DW pays interest on these funds as described in Note 1. Spectrum Commodity paid Demeter a service fee prior to April 1, 2000 and pays management fees, and when applicable, incentive fees to MSCM. 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 ("Sunrise") Morgan Stanley Spectrum Global Balanced L.P. RXR, Inc. ("RXR") Effective June 1, 2001 RXR was acquired by SSARIS Advisors, LLC. Morgan Stanley Spectrum Select L.P. EMC Capital Management, Inc. Rabar Market Research, Inc. Sunrise Capital Management, Inc. Northfield Trading L.P. Effective May 1, 2001 Spectrum Select entered into a management agreement with Northfield Trading L.P., ("Northfield") adding Northfield as its fourth trading advisor to the Partnership. Morgan Stanley Spectrum Strategic L.P. Allied Irish Capital Management, Ltd. ("AICM") Blenheim Capital Management, L.L.C. ("Blenheim") Eclipse Capital Management, Inc. ("Eclipse") Effective August 31, 2001 Blenheim Investments, Inc. changed its name to Blenheim Capital Management, L.L.C. Effective April 14, 2000, Willowbridge Associates Inc. ("Willowbridge") was terminated as an advisor to Spectrum Strategic. The assets of the Partnership previously allocated to Willowbridge were allocated to Eclipse, effective June 26, 2000. Effective March 4, 1999, Stonebrook Capital Management Inc. ("Stonebrook") was terminated as an advisor to Spectrum Strategic. The assets of the Partnership previously allocated to Stonebrook were allocated to AICM, effective June 1, 1999. Morgan Stanley Spectrum Technical L.P. Campbell & Company, Inc. ("Campbell") Chesapeake Capital Corporation ("Chesapeake") John W. Henry & Company, Inc. Morgan Stanley Spectrum Series (formerly, Morgan Stanley Dean Witter Spectrum Series) Notes to Financial Statements--(Continued) Compensation to the trading advisors by the Partnerships consists of a management fee and an incentive fee as follows: Management Fee--The management fee for Spectrum Commodity is accrued at the 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 the rate of 1/12 of 2% of Net Assets on the first day of each month (a 2% annual rate). Prior to December 1, 2000, the management fee was accrued at the rate of 1/3 of 1% of Net Assets allocated to JWH on the first day of each month and 1/4 of 1% of Net Assets allocated to Sunrise on the first day of each month (annual rates of 4% and 3%, respectively). The management fee for Spectrum Global Balanced is accrued at the rate of 5/48 of 1% per month of Net Assets 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% of Net Assets 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). The management fee for Spectrum Technical is accrued at the 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 1/12 of 4% of Net Assets allocated to Chesapeake on the first day of each month (annual rates of 2%, 3% and 4% respectively). Prior to December 1, 2000 the management fee was accrued to each trading advisor at the rate of 1/3 of 1% of Net Assets on the first day of each month (a 4% annual rate). Incentive Fee--Spectrum Commodity pays an annual incentive fee equal to 17.5% of Partnership trading profits, as determined from the end of the last period in which an incentive fee was earned. Prior to December 1, 2000, Spectrum Commodity paid an annual incentive fee to MSCM equal to 20% of the trading profits. 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. Prior to December 1, 2000, Spectrum Currency paid a monthly incentive fee equal to 15% of the trading profits. Spectrum Global Balanced, Spectrum Select and Spectrum Strategic each pay a monthly incentive fee equal to 15% of the Morgan Stanley Spectrum Series (formerly, Morgan Stanley Dean Witter Spectrum Series) Notes to Financial Statements--(Continued) 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. Prior to December 1, 2000, Spectrum Technical paid an incentive fee equal to 15% of trading profits to Campbell and JWH. 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 when trading losses are incurred, no incentive fee will be 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 instruments, 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 Partnership accounts for its derivative investments in accordance with the provisions of Statement of Financial Accounting Standard 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. Morgan Stanley Spectrum Series (formerly, Morgan Stanley Dean Witter Spectrum Series) Notes to Financial Statements--(Continued) The net unrealized gains (losses) 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 Commodity
Net Unrealized Gains/ (Losses) on Open Contracts Longest Maturities ------------------------------- --------------------- Off- Off- Exchange- Exchange- Exchange- Exchange- Year Traded Traded Total Traded Traded ---- --------- --------- --------- ---------- ---------- $ $ $ 2001 367,079 -- 367,079 Dec. 2002 -- 2000 (25,283) -- (25,283) April 2001 -- Spectrum Currency Net Unrealized Gains on Open Contracts Longest Maturities ------------------------------- --------------------- Off- Off- Exchange- Exchange- Exchange- Exchange- Year Traded Traded Total Traded Traded ---- --------- --------- --------- ---------- ---------- $ $ $ 2001 -- 3,178,383 3,178,383 -- March 2002 2000 -- 555,569 555,569 -- March 2001 Spectrum Global Balanced Net Unrealized Gains/ (Losses) on Open Contracts Longest Maturities ------------------------------- --------------------- Off- Off- Exchange- Exchange- Exchange- Exchange- Year Traded Traded Total Traded Traded ---- --------- --------- --------- ---------- ---------- $ $ $ 2001 646,308 42,900 689,208 March 2002 March 2002 2000 3,374,178 (56,534) 3,317,644 June 2001 March 2001
Morgan Stanley Spectrum Series (formerly, Morgan Stanley Dean Witter Spectrum Series) Notes to Financial Statements--(Continued) Spectrum Select
Net Unrealized Gains on Open Contracts Longest Maturities -------------------------------- -------------------- Off- Off- Exchange- Exchange- Exchange- Exchange- Year Traded Traded Total Traded Traded ---- ---------- --------- ---------- --------- ---------- $ $ $ 2001 1,010,544 4,386,192 5,396,736 Dec. 2002 March 2002 2000 23,901,575 1,650,722 25,552,297 Dec. 2001 March 2001 Spectrum Strategic Net Unrealized Gains on Open Contracts Longest Maturities -------------------------------- -------------------- Off- Off- Exchange- Exchange- Exchange- Exchange- Year Traded Traded Total Traded Traded ---- ---------- --------- ---------- --------- ---------- $ $ $ 2001 4,491,712 54 4,491,766 Dec. 2002 Jan. 2002 2000 1,986,132 -- 1,986,132 Dec. 2001 -- Spectrum Technical Net Unrealized Gains on Open Contracts Longest Maturities -------------------------------- -------------------- Off- Off- Exchange- Exchange- Exchange- Exchange- Year Traded Traded Total Traded Traded ---- ---------- --------- ---------- --------- ---------- $ $ $ 2001 828,853 10,676,762 11,505,615 Dec. 2002 March 2002 2000 37,170,209 2,872,100 40,042,309 Dec. 2001 March 2001
Morgan Stanley Spectrum Series (formerly, Morgan Stanley Dean Witter Spectrum Series) Notes to Financial Statements--(Continued) 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 MSIL act as the futures commission merchants or the counterparties, with respect to most of the Partnerships' assets. 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. Each of Morgan Stanley DW, MS&Co. and MSIL, 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 (losses) on all open futures and futures-styled options contracts, which funds, in the aggregate, totaled at December 31, 2001 and 2000 respectively, $13,347,440 and $20,504,696 for Spectrum Commodity, $43,241,135 and $14,391,541 for Spectrum Currency, $58,042,399 and $55,788,482 for Spectrum Global Balanced, $236,193,605 and $220,456,937 for Spectrum Select, $70,459,374 and $75,431,959 for Spectrum Strategic and $247,001,207 and $268,672,299 for Spectrum Technical. With respect to the Partnerships' off-exchange-traded forward currency contracts, there are no daily settlements of variations in value nor is there any requirement that an amount equal to the net unrealized gains (losses) on open forward contracts be segregated. 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 of 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 (formerly, Morgan Stanley Dean Witter Spectrum Series) Notes to Financial Statements--(Continued) 5. Financial Highlights Spectrum Commodity
PER UNIT: --------- NET ASSET VALUE, JANUARY 1, 2001: $ 7.85 ------ NET OPERATING RESULTS: Realized Loss (1.91) Unrealized Profit 0.16 Interest Income 0.22 Expenses (0.48) ------ Net Loss (2.01) ------ NET ASSET VALUE, DECEMBER 31, 2001: $ 5.84 ====== Expense Ratio 7.4% Net Loss Ratio (31.7)% TOTAL RETURN (25.6)%
Spectrum Currency
PER UNIT: --------- NET ASSET VALUE, JANUARY 1, 2001: $11.17 ------ NET OPERATING RESULTS: Realized Profit 1.11 Unrealized Profit 1.00 Interest Income 0.28 Expenses (1.15) ------ Net Income 1.24 ------ NET ASSET VALUE, DECEMBER 31, 2001: $12.41 ====== Expense Ratio 9.8% Net Income Ratio 14.0% TOTAL RETURN 11.1%
Spectrum Global Balanced
PER UNIT: --------- NET ASSET VALUE, JANUARY 1, 2001: $16.26 ------ NET OPERATING RESULTS: Realized Profit 1.02 Unrealized Loss (0.74) Interest Income 0.61 Expenses (0.94) ------ Net Loss (0.05) ------ NET ASSET VALUE, DECEMBER 31, 2001: $16.21 ====== Expense Ratio 5.8% Net Loss Ratio (0.3)% TOTAL RETURN (0.3)%
Morgan Stanley Spectrum Series (formerly, Morgan Stanley Dean Witter Spectrum Series) Notes to Financial Statements--(Continued) Spectrum Select
PER UNIT: --------- NET ASSET VALUE, JANUARY 1, 2001: $23.57 ------ NET OPERATING RESULTS: Realized Profit 4.56 Unrealized Loss (2.09) Interest Income 0.75 Expenses (2.83) ------ Net Income 0.39 ------ NET ASSET VALUE, DECEMBER 31, 2001: $23.96 ====== Expense Ratio 11.4 % Net Income Ratio 1.3 % TOTAL RETURN 1.7 %
Spectrum Strategic
PER UNIT: --------- NET ASSET VALUE, JANUARY 1, 2001: $10.61 ------ NET OPERATING RESULTS: Realized Profit 0.32 Unrealized Profit 0.37 Interest Income 0.33 Expenses (1.08) ------ Net Loss (0.06) ------ NET ASSET VALUE, DECEMBER 31, 2001: $10.55 ====== Expense Ratio 10.4 % Net Loss Ratio (0.7)% TOTAL RETURN (0.6)%
Spectrum Technical
PER UNIT: --------- NET ASSET VALUE, JANUARY 1, 2001: $16.08 ------ NET OPERATING RESULTS: Realized Profit 1.78 Unrealized Loss (1.69) Interest Income 0.49 Expenses (1.73) ------ Net Loss (1.15) ------ NET ASSET VALUE, DECEMBER 31, 2001: $14.93 ====== Expense Ratio 10.8 % Net Loss Ratio (7.2)% TOTAL RETURN (7.2)%
6. Legal Matters In April 2001, the Appellate Division of New York State dismissed the class action previously disclosed in the Partnership's Annual Report for the year ended December 31, 2000. Because plaintiffs did not exercise their right to appeal any further, this dismissal constituted a final resolution in this case. Morgan Stanley Spectrum Series (formerly, Morgan Stanley Dean Witter Spectrum Series) Notes to Financial Statements--(Concluded) 7. Subsequent Event On February 27, 2002, 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. received notification of a preliminary entitlement to payment from the Sumitomo Copper Litigation Settlement Administrator. Such preliminary award, however, is subject to a court hearing scheduled on April 10, 2002 and is entirely contingent on the court's final approval. Any amount ultimately received will be accounted for in the period received, for the benefit of the limited partners at the date of receipt. [LOGO] Morgan Stanley c/o Morgan Stanley Trust Company, Attention: Managed Futures, 7th Floor, Harborside Financial Center, Plaza Two Jersey City, NJ 07311-3977 ADDRESS SERVICE REQUESTED [LOGO] printed on recycled paper PRESORTED FIRST CLASS MAIL U.S. POSTAGE PAID PERMIT #374 LANCASTER, PA -----END PRIVACY-ENHANCED MESSAGE-----