424B3 1 spec.txt SPECTRUM SELECT MORGAN STANLEY SPECTRUM SERIES August 2004 Monthly Report This Monthly Report supplements the Spectrum Funds' Prospectus dated April 28, 2004. Issued: September 30, 2004 [graphic omitted] MORGAN STANLEY SPECTRUM SERIES -------------------------------------------------------------------------------- Historical Fund Performance -------------------------------------------------------------------------------- Presented below is the percentage change in Net Asset Value per Unit from the start of every calendar year each Fund has traded. Also provided is the inception-to-date return and the compound annualized return since inception for each Fund. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
INCEPTION- COMPOUND TO-DATE ANNUALIZED 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 RETURN RETURN FUND % % % % % % % % % % % % % % % % --------------------------------------------------------------------------------------------------------------------------------- Spectrum Currency.... -- -- -- -- -- -- -- -- -- 11.7 11.1 12.2 12.4 (25.2) 17.1 3.9 (6 mos.) (8 mos.) --------------------------------------------------------------------------------------------------------------------------------- Spectrum Global Balanced.... -- -- -- (1.7) 22.8 (3.6) 18.2 16.4 0.8 0.9 (0.3) (10.1) 6.2 (7.5) 43.1 3.7 (2 mos.) (8 mos.) --------------------------------------------------------------------------------------------------------------------------------- Spectrum Select...... 31.2 (14.4) 41.6 (5.1) 23.6 5.3 6.2 14.2 (7.6) 7.1 1.7 15.4 9.6 (15.9) 154.8 7.4 (5 mos.) (8 mos.) --------------------------------------------------------------------------------------------------------------------------------- Spectrum Strategic... -- -- -- 0.1 10.5 (3.5) 0.4 7.8 37.2 (33.1) (0.6) 9.4 24.0 (2.4) 39.6 3.5 (2 mos.) (8 mos.) --------------------------------------------------------------------------------------------------------------------------------- Spectrum Technical... -- -- -- (2.2) 17.6 18.3 7.5 10.2 (7.5) 7.8 (7.2) 23.3 23.0 (15.9) 90.4 6.8 (2 mos.) (8 mos.) ---------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------- DEMETER MANAGEMENT CORPORATION -------------------------------------------------------------------------------- 330 Madison Avenue, 8th Floor New York, NY 10017 Telephone (212) 905-2700 MORGAN STANLEY SPECTRUM SERIES MONTHLY REPORT AUGUST 2004 Dear Limited Partner: The Net Asset Value per Unit for each of the five Morgan Stanley Spectrum Funds as of August 31, 2004 was as follows: FUND N.A.V. % CHANGE FOR MONTH --------------------------------------------------------------------- Spectrum Currency $11.71 - 5.76% --------------------------------------------------------------------- Spectrum Global Balanced $14.31 0.28% --------------------------------------------------------------------- Spectrum Select $25.48 - 2.96% --------------------------------------------------------------------- Spectrum Strategic $13.96 - 0.05% --------------------------------------------------------------------- Spectrum Technical $19.04 - 1.94% --------------------------------------------------------------------- Detailed performance information for each Fund is located in the body of the financial report. For each Fund, we provide a trading results by sector chart that portrays trading gains and trading losses for the previous month and year-to-date in each sector in which the Fund participates. In the case of Spectrum Currency, we provide the trading gains and trading losses for the five major currencies in which the Fund participates, and composite information for all other "minor" currencies traded within the Fund. The trading results by sector charts indicate the monthly and year-to-date composite percentage returns generated by the specific assets dedicated to trading within each market sector in which each Fund participates. Please note that there is not an equal amount of assets in each market sector, and the specific allocations of assets by a Fund to each sector will vary over time within a predetermined range. Below each chart is a description of the factors that influenced trading gains and trading losses within each Fund during the previous month. Limited Partners are advised of the following changes to the Board of Directors of Demeter Management Corporation (the "General Partner"), effective June 21, 2004: Mr. Jeffrey D. Hahn resigned the position of Chief Financial Officer and Director of the General Partner. Mr. Todd Taylor, age 41, is a Director of the General Partner. Mr. Taylor began his career with Morgan Stanley in June 1987 as a Financial Advisor in the Dallas office. In 1995, he joined the Management Training Program in New York and was appointed Branch Manager in St. Louis in 1997. Three years later, in 2000, Mr. Taylor was appointed to a newly created position, Director of Individual Investor Group ("IIG") Learning and Development, before becoming the Director of IIG Strategy in 2002. Most recently, Mr. Taylor has taken on a new role as the High Net Worth Segment Director. Currently a member of the firm's E-Learning Council, Mr. Taylor is also a current member of the Securities Industry/Regulatory Council on Continuing Education (CEP). Mr. Taylor graduated from Texas Tech University with a B.B.A. in Finance. Mr. William D. Seugling, age 34, will become a Director of the General Partner once he has registered with the National Futures Association as a principal, which registration is currently pending. Mr. Seugling is an Executive Director at Morgan Stanley and currently serves as Director of Client Solutions for US Private Wealth Management. Mr. Seugling joined Morgan Stanley in June 1993 as an Associate in Equity Structured Products having previously worked in research and consulting for Greenwich Associates from October 1991 to June 1993. Since 1994, he has focused broadly on analysis and solutions for wealthy individuals and families culminating in his current role within the division. He was named Vice President in 1996 and an Executive Director in 1999. Mr. Seugling graduated cum laude from Bucknell University with a B.S. in Management and a concentration in Chemistry. Mr. Kevin Perry, age 35, is the Chief Financial Officer of the General Partner. He currently serves as an Executive Director and Controller of Client Solutions at Morgan Stanley. Mr. Perry joined Morgan Stanley in October 2000 and is also Chief Financial Officer of Morgan Stanley Trust National Association, Van Kampen Funds Inc. and Morgan Stanley Distribution, Inc. Prior to joining Morgan Stanley, Mr. Perry worked as an auditor and consultant in the financial services practice of Ernst & Young from October 1991 to October 2000. Mr. Perry received a B.S. degree in Accounting from the University of Notre Dame in 1991 and is a Certified Public Accountant. These changes to the Board of Directors of the General Partner do not affect the day-to-day trading of the Partnerships. Effective August 17, 2004, Demeter Management Corporation changed its address to 330 Madison Avenue, 8th Floor, New York, NY 10017, and the new phone number is (212) 905-2700. Should you have any questions concerning this report, please feel free to contact Demeter Management Corporation, 330 Madison Avenue, 8th Floor, New York, NY 10017 or your Morgan Stanley Financial Advisor. I hereby affirm, that to the best of my knowledge and belief, the information contained in this report is accurate and complete. Past performance is no guarantee of future results. Sincerely, Jeffrey A. Rothman Chairman and President Demeter Management Corporation General Partner for Morgan Stanley Spectrum Currency L.P. Morgan Stanley Spectrum Global Balanced L.P. Morgan Stanley Spectrum Select L.P. Morgan Stanley Spectrum Strategic L.P. Morgan Stanley Spectrum Technical L.P. -------------------------------------------------------------------------------- SPECTRUM CURRENCY -------------------------------------------------------------------------------- Month ended YTD ended August 31, 2004 August 31, 2004 Australian dollar 0.12% -1.55% British pound -0.11% 0.07% Euro -2.43% -3.41% Japanese yen -1.16% -6.9% Swiss franc -0.46% 0.09% Minor currencies -1.27% -11.81% [The data above represents a graph in the printed piece.] Note: Reflects trading results only and does not include fees or interest income. Minor currencies may include, but are not limited to, the South African rand, Thai baht, Singapore dollar, Mexican peso, New Zealand dollar and Norwegian krone. FACTORS INFLUENCING MONTHLY TRADING LOSSES: o Losses were recorded from both long and short positions in the euro relative to the U.S. dollar as the value of the euro experienced significant short-term volatility due to conflicting economic data out of Europe and the U.S. and volatile energy prices throughout a majority of the month. o Additional losses resulted from short positions in the Japanese yen versus the U.S. dollar as the U.S. dollar's value decreased against the yen towards the latter half of the month, under pressure stemming from concerns for the rate of U.S. economic growth, soft economic data and record-high oil prices. o Further losses were incurred from long positions in the Norwegian krone versus the U.S. dollar as the value of the dollar temporarily moved higher in response to a decline in U.S. unemployment claims during the middle of the month. o Small Fund losses were experienced from long positions in the South African rand against the U.S. dollar as the value of the rand moved lower due to a reduction in interest rates by the Reserve Bank of South Africa. FACTORS INFLUENCING MONTHLY TRADING GAINS: o Gains were achieved from long positions in the New Zealand dollar and Australian dollar versus the U.S. dollar as the value of these "Commodity Currencies" benefited from rising gold prices early in the month. o Additional gains were recorded from long positions in the Brazilian real against the U.S. dollar as the value of the real moved higher due to positive economic data out of Brazil. -------------------------------------------------------------------------------- SPECTRUM GLOBAL BALANCED -------------------------------------------------------------------------------- Month ended YTD ended August 31, 2004 August 31, 2004 Currencies -0.26% -3.61% Interest Rates 2.03% 0.53% Stock Indices -0.46% -1.16% Energies 0.14% 0.35% Metals -0.25% -0.77% Agriculturals -0.67% 0% [The data above represents a graph in the printed piece.] Note: Reflects trading results only and does not include fees or interest income. FACTORS INFLUENCING MONTHLY TRADING GAINS: o In the global interest rate markets, long positions in U.S., European, Japanese, and Australian interest rate futures resulted in gains as global bond prices trended higher, boosted by a surge in oil prices earlier in the month, a drop in equity prices, and a mixed economic picture generated by reports on U.S. retail sales, U.S. jobless claims, and the U.S. trade deficit. o Within the energy markets, gains were recorded from short positions in natural gas futures as prices drifted lower due to record natural gas reserves and heavily reduced market demand. FACTORS INFLUENCING MONTHLY TRADING LOSSES: o In the global stock index markets, the largest losses were incurred from long positions in Japanese equity index futures as prices declined in the early part of the month in response to a surge in oil prices, a drop in global equity prices, and a mixed economic picture generated by reports on U.S. retail sales, U.S. jobless claims, and the U.S. trade deficit. o In the currency markets, losses were experienced from short positions in the Japanese yen versus the U.S. dollar, Swiss franc, Australian dollar, and the euro as the value of the yen moved higher against theses currencies due to higher Japanese equity prices and the release of positive Japanese economic data. o In the metals markets, losses were recorded from long futures positions in gold as prices were forced lower towards the end of the month by a stronger U.S. dollar and declining oil prices. -------------------------------------------------------------------------------- SPECTRUM SELECT -------------------------------------------------------------------------------- Month ended YTD ended August 31, 2004 August 31, 2004 Currencies -2.61% -7.89% Interest Rates 1.49% -3.82% Stock Indices -0.49% -3.38% Energies 0.05% 3.07% Metals -0.22% 1.83% Agriculturals -0.45% 1.3% [The data above represents a graph in the printed piece.] Note: Reflects trading results only and does not include fees or interest income. FACTORS INFLUENCING MONTHLY TRADING LOSSES: o In the currency markets, losses were recorded from both long and short positions in the euro relative to the U.S. dollar, British pound, and Japanese yen as the value of the euro experienced short-term volatility due to conflicting economic data and surging energy prices throughout a majority of the month. Additional losses resulted from short positions in the Japanese yen versus the U.S. dollar as the dollar's value decreased during the latter half of the month, under pressure stemming from concerns for the rate of U.S. economic growth and soft economic data. o In the global stock index markets, losses were incurred from short positions in U.S. and European equity index futures as prices reversed higher during the second half of the month due to energy prices falling from all-time highs and better-than-expected U.S. economic data concerning GDP and consumer sentiment. o In the agricultural markets, long positions in sugar futures resulted in additional losses as prices weakened after the elimination of subsidies on agricultural exports was implemented by Europe. o In the metals markets, long positions in copper futures resulted in losses as prices declined in response to fears of slower economic activity generated by higher oil prices and weak job growth. FACTORS INFLUENCING MONTHLY TRADING GAINS: o In the global interest rate markets, long positions in U.S. and European interest rate futures resulted in gains as global bond prices trended higher, boosted by a surge in oil prices earlier in the month, a drop in equity prices, and a mixed economic picture generated by reports on U.S. retail sales, U.S. jobless claims, and the U.S. trade deficit. -------------------------------------------------------------------------------- SPECTRUM STRATEGIC -------------------------------------------------------------------------------- Month ended YTD ended August 31, 2004 August 31, 2004 Currencies -0.78% -2.96% Interest Rates 1.68% -0.28% Stock Indices -0.12% -2.15% Energies 0.16% -0.55% Metals -0.35% 3.04% Agriculturals -0.15% 7.88% [The data above represents a graph in the printed piece.] Note: Reflects trading results only and does not include fees or interest income. FACTORS INFLUENCING MONTHLY TRADING GAINS: o In the global interest rate markets, long positions in European and U.S. interest rate futures resulted in gains as global bond prices trended higher, boosted by a surge in oil prices earlier in the month, a drop in equity prices, and a mixed economic picture generated by reports on U.S. retail sales, U.S. jobless claims, and the U.S. trade deficit. o Small gains were also supplied from long futures positions in crude oil and its related products as prices moved higher in response to supply concerns. FACTORS INFLUENCING MONTHLY TRADING LOSSES: o In the currency markets, losses were recorded from positions in the euro relative to the U.S. dollar and Japanese yen as the value of the euro experienced short-term volatility due to conflicting economic data and surging energy prices throughout a majority of the month. o In the metals markets, long positions in copper and aluminum futures resulted in losses as prices declined in response to fears of slower economic activity generated by higher oil prices and weak job growth. -------------------------------------------------------------------------------- SPECTRUM TECHNICAL -------------------------------------------------------------------------------- Month ended YTD ended August 31, 2004 August 31, 2004 Currencies -2.37% -11.13% Interest Rates 3.34% 1.65% Stock Indices -1.13% -4.64% Energies 0.33% 8.81% Metals 0.12% -0.36% Agriculturals -1.56% -2.05% [The data above represents a graph in the printed piece.] Note: Reflects trading results only and does not include fees or interest income. FACTORS INFLUENCING MONTHLY TRADING LOSSES: o In the currency markets, losses were recorded from positions in the euro relative to the U.S. dollar as the value of the euro experienced short-term volatility due to conflicting economic data and surging energy prices throughout a majority of the month. Additional losses resulted from short positions in the Japanese yen versus the U.S. dollar as the U.S. dollar's value decreased against the yen towards the latter half of the month, pressured by concerns for the rate of U.S. economic growth and soft economic data. o Within the agricultural markets, long positions in lean hogs and live cattle futures resulted in losses as prices reversed lower after Japan and the United States failed to reach an agreement regarding the resumption of U.S. beef exports. Additional losses were incurred from long positions in sugar futures as prices weakened after the elimination of subsidies on agricultural exports was implemented by Europe according to the terms of the WTO Agriculture Framework. o In the global stock index markets, losses were incurred from short positions in European and Japanese equity index futures as prices reversed higher during the second half of the month due to energy prices falling from all-time highs and better-than-expected U.S. economic data concerning GDP and consumer sentiment. FACTORS INFLUENCING MONTHLY TRADING GAINS: o In the global interest rate markets, long positions in European and U.S. interest rate futures resulted in gains as global bond prices trended higher, boosted by a surge in oil prices earlier in the month, a drop in equity prices, and a mixed economic picture generated by reports on U.S. retail sales, U.S. jobless claims, and the U.S. trade deficit. o Within the energy markets, gains were recorded from short positions in natural gas futures as prices drifted lower due to record natural gas reserves and heavily reduced market demand. MORGAN STANLEY SPECTRUM SERIES -------------------------------------------------------------------------------- STATEMENTS OF OPERATIONS -------------------------------------------------------------------------------- FOR THE MONTH ENDED AUGUST 31, 2004 (UNAUDITED)
MORGAN STANLEY MORGAN STANLEY SPECTRUM CURRENCY SPECTRUM GLOBAL BALANCED --------------------------- --------------------------- PERCENTAGE OF PERCENTAGE OF AUGUST 1, 2004 AUGUST 1, 2004 BEGINNING BEGINNING AMOUNT NET ASSET VALUE AMOUNT NET ASSET VALUE --------- --------------- --------- ---------------- $ % $ % REVENUES Trading profit (loss): Realized -- -- 332,536 .69 Net change in unrealized (11,507,341) (5.30) (14,984) (.03) ------------- ------- ---------- ------- Total Trading Results (11,507,341) (5.30) 317,552 .66 Interest income (Note 2) 188,061 .09 55,115 .11 ------------- ------- ---------- ------- Total Revenues (11,319,280) (5.21) 372,667 .77 ------------- ------- ---------- ------- EXPENSES Brokerage fees (Note 2) 832,575 .38 186,076 .38 Management fees (Note 3) 361,989 .17 50,565 .11 ------------- ------- ---------- ------- Total Expenses 1,194,564 .55 236,641 .49 ------------- ------- ---------- ------- NET INCOME (LOSS) (12,513,844) (5.76) 136,026 .28 ============= ======= ========== =======
MORGAN STANLEY SPECTRUM SERIES -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSET VALUE -------------------------------------------------------------------------------- FOR THE MONTH ENDED AUGUST 31, 2004 (UNAUDITED)
MORGAN STANLEY MORGAN STANLEY SPECTRUM CURRENCY SPECTRUM GLOBAL BALANCED ---------------------------------- --------------------------------- PER PER UNITS AMOUNT UNIT UNITS AMOUNT UNIT ----- ------ ---- ----- ------ ---- $ $ $ $ Net Asset Value, August 1, 2004 17,476,757.513 217,193,449 12.43 3,402,102.546 48,541,989 14.27 Net Income (Loss) -- (12,513,844) (.72) -- 136,026 .04 Redemptions (202,432.632) (2,370,486) 11.71 (41,411.106) (592,593) 14.31 Subscriptions 401,653.187 4,703,359 11.71 29,452.343 421,463 14.31 -------------- ----------- ------------- ---------- Net Asset Value, August 31, 2004 17,675,978.068 207,012,478 11.71 3,390,143.783 48,506,885 14.31 ============== =========== ============= ==========
The accompanying notes are an integral part of these financial statements. MORGAN STANLEY SPECTRUM SERIES -------------------------------------------------------------------------------- STATEMENTS OF OPERATIONS -------------------------------------------------------------------------------- FOR THE MONTH ENDED AUGUST 31, 2004 (UNAUDITED)
MORGAN STANLEY MORGAN STANLEY MORGAN STANLEY SPECTRUM SELECT SPECTRUM STRATEGIC SPECTRUM TECHNICAL --------------------------- --------------------------- --------------------------- PERCENTAGE OF PERCENTAGE OF PERCENTAGE OF AUGUST 1, 2004 AUGUST 1, 2004 AUGUST 1, 2004 BEGINNING BEGINNING BEGINNING AMOUNT NET ASSET VALUE AMOUNT NET ASSET VALUE AMOUNT NET ASSET VALUE --------- --------------- --------- --------------- -------- --------------- $ % $ % $ % REVENUES Trading profit (loss): Realized (3,225,031) (.66) 2,911,731 1.81 (4,828,401) (.81) Net change in unrealized (7,642,843) (1.55) (2,132,367) (1.33) (2,364,243) (.40) ----------- ------- ---------- ------ ----------- ----- Total Trading Results (10,867,874) (2.21) 779,364 .48 (7,192,644) (1.21) Interest income (Note 2) 432,349 .09 151,484 .09 526,478 .09 ----------- ------- ---------- ------ ----------- ----- Total Revenues (10,435,525) (2.12) 930,848 .57 (6,666,166) (1.12) ----------- ------- ---------- ------ ----------- ----- EXPENSES Brokerage fees (Note 2) 2,973,935 .60 712,433 .44 3,585,224 .60 Management fees (Note 3) 1,168,518 .24 294,799 .18 1,286,014 .22 ----------- ------- ---------- ------ ----------- ----- Total Expenses 4,142,453 .84 1,007,232 .62 4,871,238 .82 ----------- ------- ---------- ------ ----------- ----- NET LOSS (14,577,978) (2.96) (76,384) (.05) (11,537,404) (1.94) =========== ======= ========== ====== =========== =====
MORGAN STANLEY SPECTRUM SERIES -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS -------------------------------------------------------------------------------- FOR THE MONTH ENDED AUGUST 31, 2004 (UNAUDITED)
MORGAN STANLEY MORGAN STANLEY MORGAN STANLEY SPECTRUM SELECT SPECTRUM STRATEGIC SPECTRUM TECHNICAL -------------------------------- ---------------------------- ------------------------------ PER PER PER UNITS AMOUNT UNIT UNITS AMOUNT UNIT UNITS AMOUNT UNIT ----- ------ ---- ----- ------ ---- ----- ------ ---- $ $ $ $ $ $ Net Asset Value, August 1, 2004 18,747,191.716 492,237,488 26.26 11,517,745.972 160,881,002 13.97 30,562,323.712 593,416,409 19.42 Net Loss -- (14,577,978) (.78) -- (76,384) (.01) -- (11,537,404) (.38) Redemptions (155,113.062) (3,952,281) 25.48 (72,721.760) (1,015,196) 13.96 (197,893.182) (3,767,886) 19.04 Subscriptions 484,596.475 12,347,519 25.48 291,517.898 4,069,590 13.96 743,387.183 14,154,091 19.04 -------------- ----------- -------------- ----------- -------------- ----------- Net Asset Value, August 31, 2004 19,076,675.129 486,054,748 25.48 11,736,542.110 163,859,012 13.96 31,107,817.713 592,265,210 19.04 ============== =========== ============== =========== ============== ===========
MORGAN STANLEY SPECTRUM SERIES -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- (UNAUDITED) -------------------------------------------------------------------------------- 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION. Morgan Stanley Spectrum Currency L.P.("Spectrum Currency"), Morgan Stanley Spectrum Global Balanced L.P. ("Spectrum Global Balanced"), Morgan Stanley Spectrum Select L.P. ("Spectrum Select"), Morgan Stanley Spectrum Strategic L.P. ("Spectrum Strategic"), and Morgan Stanley Spectrum Technical L.P. ("Spectrum Technical") (individually, a "Partnership" or collectively, the "Partnerships"), are limited partnerships organized to engage primarily in the speculative trading of futures contracts, options on futures contracts, and forward contracts on physical commodities and other commodity interests, including, but not limited to, foreign currencies, financial instruments, metals, energy and agricultural products (collectively, "futures interests"). The Partnerships' general partner is Demeter Management Corporation ("Demeter"). The non-clearing commodity broker is Morgan Stanley DW Inc. ("Morgan Stanley DW"). The clearing commodity brokers for Spectrum Global Balanced, Spectrum Select, Spectrum Strategic and Spectrum Technical are Morgan Stanley & Co. Incorporated ("MS & Co.") and Morgan Stanley & Co. International Limited ("MSIL"). Spectrum Currency's clearing commodity broker is MS & Co. Demeter, Morgan Stanley DW, MS & Co., and MSIL are wholly-owned subsidiaries of Morgan Stanley. Demeter is required to maintain a 1% minimum interest in the equity of each Partnership and income (losses) are shared by Demeter and the limited partners based upon their proportional ownership interests. USE OF ESTIMATES. The financial statements are prepared in accordance with accounting principles generally accepted in the United States of America, which require management to make estimates and assumptions that affect the reported amounts in the financial statements and related disclosures. Management believes that the estimates utilized in the preparation of the financial statements are prudent and reasonable. Actual results could differ from those estimates. REVENUE RECOGNITION. Futures interests are open commitments until settlement date. They are valued at market on a daily basis and the resulting net change in unrealized gains and losses is reflected in the change in unrealized trading profit (loss) on open contracts from one period to the next in the Statements of Operations. Monthly, Morgan Stanley DW pays each Partnership interest income based upon 80% of the month's average daily "Net Assets" (as defined in the Limited Partnership Agreements) in the case of Spectrum Currency, MORGAN STANLEY SPECTRUM SERIES -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- (CONTINUED) Spectrum Select, Spectrum Strategic and Spectrum Technical, and on 100% in the case of Spectrum Global Balanced. The interest rate is equal to a prevailing rate on U.S. Treasury bills. For purposes of such interest payments, Net Assets do not include monies owed to the Partnerships on futures interests. NET INCOME (LOSS) PER UNIT. Net income (loss) per unit of limited partnership interest ("Unit(s)") is computed using the weighted average number of Units outstanding during the period. BROKERAGE AND RELATED TRANSACTION FEES AND COSTS. The brokerage fees for Spectrum Currency and Spectrum Global Balanced are accrued at a flat monthly rate of 1/12 of 4.6% (a 4.6% annual rate) of Net Assets as of the first day of each month. Brokerage fees for Spectrum Select, Spectrum Strategic and Spectrum Technical are accrued at a flat monthly rate of 1/12 of 7.25% (a 7.25% annual rate) of Net Assets as of the first day of each month. Such brokerage fees currently cover all brokerage commissions, transaction fees and costs, and ordinary administrative and continuing offering expenses. OPERATING EXPENSES. The Partnerships incur monthly management fees and may incur incentive fees. All common administrative and continuing offering expenses including legal, auditing, accounting, filing fees, and other related expenses are borne by Morgan Stanley DW through the brokerage fees paid by the Partnerships. INCOME TAXES. No provision for income taxes has been made in the accompanying financial statements, as partners are individually responsible for reporting income or loss based upon their respective share of each Partnership's revenues and expenses for income tax purposes. DISTRIBUTIONS. Distributions, other than redemptions of Units, are made on a pro-rata basis at the sole discretion of Demeter. No distributions have been made to date. CONTINUING OFFERING. Units of each Partnership are offered at a price equal to 100% of the Net Asset Value per Unit as of the close of business on the last day of each month. No selling commissions or charges related to the continuing offering of Units are paid by the limited partners or the Partnerships. Morgan Stanley DW pays all such costs. REDEMPTIONS. Limited partners may redeem some or all of their Units at 100% of the Net Asset Value per Unit as MORGAN STANLEY SPECTRUM SERIES -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- (CONTINUED) of the end of the last day of any month that is at least six months after the closing at which a person becomes a limited partner, upon five business days advance notice by redemption form to Demeter. Thereafter, Units redeemed on or prior to the last day of the twelfth month after such Units were purchased will be subject to a redemption charge equal to 2% of the Net Asset Value of a Unit on the date of such redemption. Units redeemed after the last day of the twelfth month and on or prior to the last day of the twenty-fourth month after which such Units were purchased will be subject to a redemption charge equal to 1% of the Net Asset Value of a Unit on the date of such redemption. Units redeemed after the last day of the twenty-fourth month after which such Units were purchased will not be subject to a redemption charge. The foregoing redemption charges are paid to Morgan Stanley DW. Redemptions must be made in whole Units, in a minimum amount of 50 Units, unless a limited partner is redeeming his entire interest in a Partnership. EXCHANGES. On the last day of the first month which occurs more than six months after a person first becomes a limited partner in any of the Partnerships, and at the end of each month thereafter, limited partners may exchange their investment among the Partnerships (subject to certain restrictions outlined in the Limited Partnership Agreements) without paying additional charges. DISSOLUTION OF THE PARTNERSHIPS. Spectrum Currency, Spectrum Global Balanced, Spectrum Strategic and Spectrum Technical will terminate on December 31, 2035 and Spectrum Select will terminate on December 31, 2025, regardless of financial condition at such time, or at an earlier date if certain conditions occur as defined in each Partnership's Limited Partnership Agreement. -------------------------------------------------------------------------------- 2. RELATED PARTY TRANSACTIONS The Partnerships pay brokerage fees to Morgan Stanley DW as described in Note 1. Spectrum Global Balanced, Spectrum Select, Spectrum Strategic and Spectrum Technical's cash is on deposit with Morgan Stanley DW, MS & Co., and MSIL, and Spectrum Currency's cash is on deposit with Morgan Stanley DW and MS & Co., in futures interests trading accounts to meet margin requirements as needed. Morgan Stanley DW pays interest on these funds as described in Note 1. MORGAN STANLEY SPECTRUM SERIES -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- (CONTINUED) -------------------------------------------------------------------------------- 3. TRADING ADVISORS Demeter, on behalf of each Partnership, retains certain commodity trading advisors to make all trading decisions for the Partnerships. The trading advisors for each Partnership are as follows: Morgan Stanley Spectrum Currency L.P. John W. Henry & Company, Inc. ("JWH") Sunrise Capital Partners, LLC Morgan Stanley Spectrum Global Balanced L.P. SSARIS Advisors, LLC Morgan Stanley Spectrum Select L.P. EMC Capital Management, Inc. ("EMC") Northfield Trading L.P. ("Northfield") Rabar Market Research, Inc. ("Rabar") Sunrise Capital Management, Inc. ("Sunrise") Graham Capital Management, L.P. ("Graham") Morgan Stanley Spectrum Strategic L.P. Blenheim Capital Management, L.L.C. Eclipse Capital Management, Inc. Morgan Stanley Spectrum Technical L.P. Campbell & Company, Inc. ("Campbell") Chesapeake Capital Corporation ("Chesapeake") John W. Henry & Company, Inc. Winton Capital Management Limited ("Winton") Compensation to the trading advisors by the Partnerships consists of a management fee and an incentive fee as follows: MANAGEMENT FEE. The management fee for Spectrum Currency is accrued at a rate of 1/12 of 2% per month of Net Assets allocated to each trading advisor on the first day of each month (a 2% annual rate). The management fee for Spectrum Global Balanced is accrued at a rate of 5/48 of 1% per month of Net Assets allocated to its sole trading advisor on the first day of each month (a 1.25% annual rate). The management fee for Spectrum Select is accrued at a rate of 1/4 of 1% per month of Net Assets allocated to EMC, Northfield, Rabar and Sunrise on the first day of each month (a 3% annual rate) and 1/12 of 2% per month of Net Assets allocated to Graham on the first day of each month (a 2% annual rate). The management fee for Spectrum Strategic is accrued at a rate of 1/12 of 3% per month of Net Assets allocated MORGAN STANLEY SPECTRUM SERIES -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- (CONCLUDED) to each trading advisor on the first day of each month (a 3% annual rate). The management fee for Spectrum Technical is accrued at a rate of 1/12 of 2% per month of Net Assets allocated to JWH and Winton on the first day of each month (a 2% annual rate) and 1/12 of 3% per month of Net Assets allocated to Campbell and Chesapeake on the first day of each month (a 3% annual rate). INCENTIVE FEE. Spectrum Currency pays a monthly incentive fee equal to 20% of the trading profits experienced with respect to each trading advisor's allocated Net Assets as of the end of each calendar month. Spectrum Global Balanced and Spectrum Strategic each pay a monthly incentive fee equal to 15% of the trading profits experienced with respect to each trading advisor's allocated Net Assets as of the end of each calendar month. Spectrum Select pays a monthly incentive fee equal to 15% of the trading profits experienced with respect to the Net Assets allocated to EMC, Northfield, Rabar, and Sunrise as of the end of each calendar month and 20% of the trading profits experienced with respect to the Net Assets allocated to Graham as of the end of each calendar month. Spectrum Technical pays a monthly incentive fee equal to 20% of the trading profits experienced with respect to the Net Assets allocated to Campbell, JWH, and Winton as of the end of each calendar month and 19% of the trading profits experienced with respect to the Net Assets allocated to Chesapeake as of the end of each calendar month. Trading profits represent the amount by which profits from futures, forwards, and options trading exceed losses after brokerage and management fees are deducted. For all Partnerships with trading losses, no incentive fee is paid in subsequent months until all such losses are recovered. Cumulative trading losses are adjusted on a pro-rata basis for the net amount of each month's subscriptions and redemptions. Demeter Management Corporation 330 Madison Avenue, 8th Floor New York, NY 10017 ADDRESS SERVICE REQUESTED [graphic omitted] printed on recycled paper DWS 38221-09