-----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, Ck95Sv5ZzOg60ccNVtDjSH1WrluGl4SyKcPOEfFzUrRqoTAythEFpq4em3jE3g60 ss7dBkeA7Rgo9txgFbERDA== 0000914747-07-000007.txt : 20070810 0000914747-07-000007.hdr.sgml : 20070810 20070810161343 ACCESSION NUMBER: 0000914747-07-000007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20070630 FILED AS OF DATE: 20070810 DATE AS OF CHANGE: 20070810 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-19511 FILM NUMBER: 071045524 BUSINESS ADDRESS: STREET 1: HARBORSIDE FINANCIAL CENTER PLAZA TWO CITY: JERSEY CITY STATE: NJ ZIP: 07311 BUSINESS PHONE: 2018764647 FORMER COMPANY: FORMER CONFORMED NAME: MORGAN STANLEY DEAN WITTER SPECTRUM SELECT LP DATE OF NAME CHANGE: 19990412 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 10-Q 1 dwsssf.txt DWSF UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2007 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 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 charter) Delaware 13-3619290 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) Demeter Management Corporation 522 Fifth Avenue, 13th Floor New York, NY 10036 (Address of principal executive offices) (Zip Code) Registrant?s telephone number, including area code (212) 296-1999 (Former name, former address, and former fiscal year, if changed since last report) 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 whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of ?accelerated filer and large accelerated filer? in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer___Accelerated filer____Non-accelerated filer X Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ___ No X MORGAN STANLEY SPECTRUM SELECT L.P. INDEX TO QUARTERLY REPORT ON FORM 10-Q June 30, 2007
PART I. FINANCIAL INFORMATION Item 1. Financial Statements Statements of Financial Condition as of June 30, 2007 (Unaudited) and December 31, 2006 2 Statements of Operations for the Three and Six Months Ended June 30, 2007 and 2006 (Unaudited) 3 Statements of Changes in Partners? Capital for the Six Months Ended June 30, 2007 and 2006 (Unaudited) 4 Statements of Cash Flows for the Six Months Ended June 30, 2007 and 2006 (Unaudited) 5 Notes to Financial Statements (Unaudited) 6-12 Item 2. Management?s Discussion and Analysis of Financial Condition and Results of Operations 13-28 Item 3. Quantitative and Qualitative Disclosures about Market Risk 29-42 Item 4. Controls and Procedures 42 Item 4T. Controls and Procedures 43 PART II. OTHER INFORMATION Item 1A.Risk Factors 44 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 44-45 Item 6. Exhibits 45-46
PART I. FINANCIAL INFORMATION Item 1. Financial Statements MORGAN STANLEY SPECTRUM SELECT L.P. STATEMENTS OF FINANCIAL CONDITION
June 30, December 31, 2007 2006 $ $ (Unaudited) ASSETS Equity in futures interests trading accounts: Unrestricted cash 480,220,331 472,088,633 Restricted cash 62,271,838 64,801,445 Total cash 542,492,169 536,890,078 Net unrealized gain on open contracts (MS&Co.) 22,777,650 11,039,855 Net unrealized gain (loss) on open contracts (MSIL) (3,492,216) 921,756 Total net unrealized gain on open contracts 19,285,434 11,961,611 Total Trading Equity 561,777,603 548,851,689 Subscriptions receivable 3,435,869 4,725,710 Interest receivable (MS&Co.) 1,654,882 1,858,406 Total Assets 566,868,354 555,435,805 LIABILITIES AND PARTNERS? CAPITAL Liabilities Redemptions payable 7,992,624 7,988,976 Accrued brokerage fees (MS&Co.) 2,716,107 2,727,852 Accrued management fees 1,193,620 1,196,492 Total Liabilities 11,902,351 11,913,320 Partners? Capital Limited Partners (17,857,965.072 and 18,501,387.237 Units, respectively) 548,775,115 537,667,844 General Partner (201,460.769 Units) 6,190,888 5,854,641 Total Partners? Capital 554,966,003 543,522,485 Total Liabilities and Partners? Capital 566,868,354 555,435,805 NET ASSET VALUE PER UNIT 30.73 29.06 The accompanying notes are an integral part of these financial statements.
MORGAN STANLEY SPECTRUM SELECT L.P. STATEMENTS OF OPERATIONS (Unaudited)
For the Three Months For the Six Months Ended June 30, Ended June 30, 2007 2006 2007 2006 $ $ $ $ INVESTMENT INCOME Interest income (MS&Co.) 4,968,472 5,360,860 10,232,755 9,745,669 EXPENSES Brokerage fees (MS&Co.) 7,746,785 8,540,432 15,825,293 16,557,242 Management fees 3,406,750 4,068,156 6,964,931 7,880,945 Total Expenses 11,153,535 12,608,588 22,790,224 24,438,187 NET INVESTMENT LOSS (6,185,063) (7,247,728) (12,557,469) (14,692,518) TRADING RESULTS Trading profit (loss): Realized 78,365,702 46,301,251 35,313,851 64,325,929 Net change in unrealized 5,934,879 (14,908,905) 7,323,823 (5,516,039) Total Trading Results 84,300,581 31,392,346 42,637,674 58,809,890 NET INCOME 78,115,518 24,144,618 30,080,205 44,117,372 NET INCOME ALLOCATION Limited Partners 77,260,201 23,878,300 29,743,958 43,631,968 General Partner 855,317 266,318 336,247 485,404 NET INCOME PER UNIT Limited Partners 4.25 1.26 1.67 2.29 General Partner 4.25 1.26 1.67 2.29 The accompanying notes are an integral part of these financial statements.
MORGAN STANLEY SPECTRUM SELECT L.P. STATEMENTS OF CHANGES IN PARTNERS? CAPITAL For the Six Months Ended June 30, 2007 and 2006 (Unaudited)
Units of Partnership Limited General Interest Partners Partner Total $ $ $ Partners? Capital, December 31, 2005 19,420,800.627 527,198,790 5,803,552 533,002,342 Offering of Units 1,381,439.762 40,353,096 ? 40,353,096 Net Income ? 43,631,968 485,404 44,117,372 Redemptions (1,809,804.780) (52,630,340) ? (52,630,340) Partners? Capital, June 30, 2006 18,992,435.609 558,553,514 6,288,956 564,842,470 Partners? Capital, December 31, 2006 18,702,848.006 537,667,844 5,854,641 543,522,485 Offering of Units 980,507.447 28,096,074 ? 28,096,074 Net Income ? 29,743,958 336,247 30,080,205 Redemptions (1,623,929.612) (46,732,761) ? (46,732,761) Partners? Capital, June 30, 2007 18,059,425.841 548,775,115 6,190,888 554,966,003 The accompanying notes are an integral part of these financial statements.
MORGAN STANLEY SPECTRUM SELECT L.P. STATEMENTS OF CASH FLOWS (Unaudited)
For the Six Months Ended June 30, 2007 2006 $ $ CASH FLOWS FROM OPERATING ACTIVITIES Net income 30,080,205 44,117,372 Noncash item included in net income: Net change in unrealized (7,323,823) 5,516,039 (Increase) decrease in operating assets: Restricted cash 2,529,607 4,467,651 Interest receivable (MS&Co.) 203,524 (341,650) Increase (decrease) in operating liabilities: Accrued brokerage fees (MS&Co.) (11,745) 171,434 Accrued management fees (2,872) 88,340 Net cash provided by operating activities 25,474,896 54,019,186 CASH FLOWS FROM FINANCING ACTIVITIES Cash received from offering of Units 29,385,915 37,013,847 Cash paid for redemptions of Units (46,729,113) (59,763,548) Net cash used for financing activities (17,343,198) (22,749,701) Net increase in unrestricted cash 8,131,698 31,269,485 Unrestricted cash at beginning of period 472,088,633 475,166,952 Unrestricted cash at end of period 480,220,331 506,436,437 The accompanying notes are an integral part of these financial statements.
MORGAN STANLEY SPECTRUM SELECT L.P. NOTES TO FINANCIAL STATEMENTS June 30, 2007 (Unaudited) The unaudited financial statements contained herein include, in the opinion of management, all adjustments necessary for a fair presentation of the results of operations and financial condition of Morgan Stanley Spectrum Select L.P. (the ?Partnership?). The financial statements and condensed notes herein should be read in conjunction with the Partnership?s December 31, 2006, Annual Report on Form 10-K. 1. Organization Morgan Stanley Spectrum Select L.P. is a Delaware limited partnership organized in 1991 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 is one of the Morgan Stanley Spectrum Series of funds, comprised of the Partnership, Morgan Stanley Spectrum Currency L.P., Morgan Stanley Spectrum Global Balanced L.P., Morgan Stanley Spectrum Strategic L.P., and Morgan Stanley Spectrum Technical L.P. MORGAN STANLEY SPECTRUM SELECT L.P. NOTES TO FINANCIAL STATEMENTS (CONTINUED) The Partnership?s general partner is Demeter Management Corporation (?Demeter?). Morgan Stanley & Co. Incorporated (?MS&Co.?) is the Partnership?s principal commodity broker-dealer and also acts as the counterparty on all trading of foreign currency forward contracts. In addition, Morgan Stanley & Co. International plc (?MSIL?) serves as the commodity broker for trades on the London Metal Exchange. Effective April 13, 2007, Morgan Stanley & Co. International Limited changed its name to Morgan Stanley & Co. International plc. Demeter, MS&Co., and MSIL are wholly-owned subsidiaries of Morgan Stanley. The trading advisors to the Partnership are EMC Capital Management, Inc., Northfield Trading L.P., Rabar Market Research, Inc., Sunrise Capital Management, Inc., and Graham Capital Management, L.P. (individually, a ?Trading Advisor?, or collectively, the ?Trading Advisors?). 2. Related Party Transactions The Partnership?s cash is on deposit with MS&Co. and MSIL in futures, forward, and options trading accounts to meet margin requirements as needed. MS&Co. pays the Partnership at each month end interest income on 80% of the funds on deposit with the commodity brokers at a rate equal to the monthly average of the MORGAN STANLEY SPECTRUM SELECT L.P. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 4-week U.S. Treasury bills discount rate during such month. The Partnership pays brokerage fees to MS&Co. 3. Financial Instruments The Partnership trades 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 market value of exchange-traded contracts is based on the settlement price quoted by the exchange on the day with respect to which market value is being determined. If an exchange-traded contract could not have been liquidated on such day due to the operation of daily limits or other rules of the exchange, the settlement price shall be the settlement price on the first MORGAN STANLEY SPECTRUM SELECT L.P. NOTES TO FINANCIAL STATEMENTS (CONTINUED) subsequent day on which the contract could be liquidated. The market value of off-exchange-traded contracts is based on the fair market value quoted by the counterparty. The Partnership?s contracts are accounted for on a trade-date basis and marked to market on a daily basis. The Partnership accounts for its derivative investments in accordance with the provisions of Statement of Financial Accounting Standards No. 133, ?Accounting for Derivative Instruments and Hedging Activities? (?SFAS No. 133?). SFAS No. 133 defines a derivative as a financial instrument or other contract that has all three of the following characteristics: 1) One or more underlying notional amounts or payment provisions; 2) Requires no initial net investment or a smaller initial net investment than would be required relative to changes in market factors; 3) Terms require or permit net settlement. Generally, derivatives include futures, forward, swap or options contracts, and other financial instruments with similar characteristics such as caps, floors, and collars. MORGAN STANLEY SPECTRUM SELECT L.P. NOTES TO FINANCIAL STATEMENTS (CONTINUED) The net unrealized gains on open contracts, 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: Net Unrealized Gains on Open Contracts Longest Maturities Exchange- Off-Exchange- Exchange- Off-Exchange- Date Traded Traded Total Traded Traded $ $ $ Jun. 30, 2007 14,655,622 4,629,812 19,285,434 Dec. 2008 Sep. 2007 Dec. 31, 2006 10,738,293 1,223,318 11,961,611 Jun. 2008 Mar. 2007 The Partnership has credit risk associated with counterparty non- performance. As of the date of the financial statements, the credit risk associated with the instruments in which the Partnership trades is limited to the amounts reflected in the Partnership?s Statements of Financial Condition. The Partnership also has credit risk because MS&Co. and MSIL act as the futures commission merchants or the counterparties, with respect to most of the Partnership?s assets. Exchange-traded futures, exchange-traded forward, and exchange-traded futures- styled options contracts are marked to market on a daily basis, with variations in value settled on a daily basis. MS&Co. and MSIL, each as a futures commission merchant for the Partnership?s exchange-traded futures, exchange-traded forward, and exchange- MORGAN STANLEY SPECTRUM SELECT L.P. NOTES TO FINANCIAL STATEMENTS (CONTINUED) traded futures-styled options contracts, are required, pursuant to regulations of the Commodity Futures Trading Commission (?CFTC?), 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, exchange-traded forward, and exchange- traded futures-styled options contracts, including an amount equal to the net unrealized gains (losses) on all open exchange-traded futures, exchange-traded forward, and exchange-traded futures- styled options contracts, which funds, in the aggregate, totaled $557,147,791 and $547,628,371 at June 30, 2007, and December 31, 2006, respectively. With respect to the Partnership?s off- exchange-traded forward currency contracts, there are no daily settlements of variation in value, nor is there any requirement that an amount equal to the net unrealized gains (losses) on such contracts be segregated. However, the Partnership is required to meet margin requirements equal to the net unrealized loss on open forward currency contracts in the Partnership accounts with the counterparty, which is accomplished by daily maintenance of the cash balance in a custody account held at MS&Co. With respect to those off-exchange-traded forward currency contracts, the Partnership is at risk to the ability of MS&Co., the sole counterparty on all such contracts, to perform. The Partnership has a netting agreement with MS&Co. This agreement, which seeks MORGAN STANLEY SPECTRUM SELECT L.P. NOTES TO FINANCIAL STATEMENTS (CONCLUDED) to reduce both the Partnership?s and MS&Co.?s exposure on off- exchange-traded forward currency contracts, should materially decrease the Partnership?s credit risk in the event of MS&Co.?s bankruptcy or insolvency. 4. New Accounting Developments In July 2006, the Financial Accounting Standards Board (?FASB?) issued interpretation No. 48, ?Accounting for Uncertainty in Income Taxes ? an interpretation of FASB Statement 109? (?FIN 48?). FIN 48 clarifies the accounting for income taxes by prescribing the minimum recognition threshold a tax position must meet before being recognized in the financial statements. FIN 48 was effective for the Partnership as of January 1, 2007. Based on its analysis, management believes that the adoption of FIN 48 has no impact on the Partnership?s Financial Statements. In September 2006, the FASB issued SFAS No. 157, ?Fair Value Measurements? (?SFAS No. 157?). SFAS No. 157 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. SFAS No. 157 is effective for the Partnership as of January 1, 2008. The impact to the Partnership?s Financial Statements, if any, is currently being assessed. Item 2. MANAGEMENT?S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity. The Partnership deposits its assets with MS&Co. and MSIL as commodity brokers in separate futures, forward, and options trading accounts established for each Trading Advisor. Such assets are used as margin to engage in trading and may be used as margin solely for the Partnership?s trading. The assets are held in either non-interest bearing bank accounts or in securities and instruments permitted by the CFTC for investment of customer segregated or secured funds. Since the Partnership?s sole purpose is to trade in futures, forwards, and options, it is expected that the Partnership will continue to own such liquid assets for margin purposes. The Partnership?s investment in futures, forwards, and options may, from time to time, be illiquid. Most U.S. futures exchanges limit fluctuations in prices during a single day by regulations referred to as ?daily price fluctuations limits? or ?daily limits?. Trades may not be executed at prices beyond the daily limit. If the price for a particular futures or options contract has increased or decreased by an amount equal to the daily limit, positions in that futures or options contract can neither be taken nor liquidated unless traders are willing to effect trades at or within the limit. Futures prices have occasionally moved the daily limit for several consecutive days with little or no trading. These market conditions could prevent the Partnership from promptly liquidating its futures or options contracts and result in restrictions on redemptions. There is no limitation on daily price moves in trading forward contracts on foreign currencies. The markets for some world currencies have low trading volume and are illiquid, which may prevent the Partnership from trading in potentially profitable markets or prevent the Partnership from promptly liquidating unfavorable positions in such markets, subjecting it to substantial losses. Either of these market conditions could result in restrictions on redemptions. For the periods covered by this report, illiquidity has not materially affected the Partnership?s assets. There are no known material trends, demands, commitments, events, or uncertainties at the present time that are reasonably likely to result in the Partnership?s liquidity increasing or decreasing in any material way. Capital Resources. The Partnership does not have, nor does it expect to have, any capital assets. Redemptions, exchanges, and sales of units of limited partnership interest (?Unit(s)?) in the future will affect the amount of funds available for investments in futures, forwards, and options in subsequent periods. It is not possible to estimate the amount, and therefore the impact, of future inflows and outflows of Units. There are no known material trends, favorable or unfavorable, that would affect, nor any expected material changes to, the Partnership?s capital resource arrangements at the present time. Off-Balance Sheet Arrangements and Contractual Obligations. The Partnership does not have any off-balance sheet arrangements, nor does it have contractual obligations or commercial commitments to make future payments that would affect its liquidity or capital resources. Results of Operations General. The Partnership?s results depend on the Trading Advisors and the ability of each Trading Advisor?s trading program to take advantage of price movements in the futures, forward, and options markets. The following presents a summary of the Partnership?s operations for the three and six month periods ended June 30, 2007, and 2006, 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 during the period in question. Past performance is no guarantee of future results. The Partnership?s results of operations set forth in the financial statements on pages 2 through 12 of this report are prepared in accordance with accounting principles generally accepted in the United States of America, which require the use of certain accounting policies that affect the amounts reported in these financial statements, including the following: The contracts the Partnership trades are accounted for on a trade- date basis and marked to market on a daily basis. The difference between their cost and market value is recorded on the Statements of Operations as ?Net change in unrealized trading profit (loss)? for open (unrealized) contracts, and recorded as ?Realized trading profit (loss)? when open positions are closed out. The sum of these amounts constitutes the Partnership?s trading results. The market value of a futures contract is the settlement price on the exchange on which that futures contract is traded on a particular day. The value of a foreign currency forward contract is based on the spot rate as of the close of business. Interest income, as well as management fees, incentive fees, and brokerage fees expenses of the Partnership are recorded on an accrual basis. Demeter believes that, based on the nature of the operations of the Partnership, no assumptions relating to the application of critical accounting policies other than those presently used could reasonably affect reported amounts. For the Three and Six Months Ended June 30, 2007 The Partnership recorded total trading results including interest income totaling $89,269,053 and expenses totaling $11,153,535, resulting in net income of $78,115,518 for the three months ended June 30, 2007. The Partnership?s net asset value per Unit increased from $26.48 at March 31, 2007, to $30.73 at June 30, 2007. The most significant trading gains of approximately 6.6% were recorded in the currency sector throughout the quarter from short positions in the Japanese yen versus the U.S. dollar, euro, British pound, and Australian dollar as the value of the Japanese yen weakened relative to most of its major rivals in a continuation of the carry-trade after news that the Tankan survey was weaker than expected and a decline in Japanese industrial production increased speculation that Japanese economic growth was not sufficient to warrant an increase in interest rates by the Bank of Japan. Additional gains were experienced throughout the quarter from long positions in the British pound, Canadian dollar, New Zealand dollar, Brazilian real, and Australian dollar versus the U.S. dollar as the value of these currencies strengthened relative to the U.S. dollar amid the release of consistently strong economic data out of these countries. Furthermore, the U.S. dollar weakened against its major rivals after the U.S. Federal Reserve?s decision to leave interest rates steady at 5.25%. Within the global interest rate sector, gains of approximately 6.4% were experienced primarily during May and June from short positions in European, U.S., Canadian, and Australian fixed-income futures as prices moved lower due to the aforementioned reasons regarding strong economic data and rising interest rates that affected the currency markets. Additional gains of approximately 4.4% were recorded in the global stock index sector primarily during April and May from long positions in European and U.S. equity index futures as prices moved higher on continued strong corporate earnings and increased merger and acquisition activity. In addition, prices were pressured higher amid strong U.S. retail sales data and on optimism that global trade imbalances would be reduced in the long term. Further gains in the global equity index sector were experienced from long positions in Pacific Rim stock index futures as prices moved higher during May on optimism that strong economic growth in the Euro-Zone and the U.S. would result in higher exports from Asia. Smaller gains of approximately 0.2% were recorded in the agricultural markets primarily during May and June from long futures positions in soybean oil, soybeans, and soybean meal after a representative from the European Union announced plans to increase alternative fuel sources in order to reduce the Euro-Zone?s dependence on crude oil and U.S. government reports showed that soybean acreage was down from a year earlier. Elsewhere, long positions in wheat futures resulted in gains during June as prices moved higher amid news of increased global demand. A portion of the Partnership?s gains in the second quarter was offset by losses of approximately 1.0% experienced in the metals markets during May from long positions in aluminum, copper, nickel, and zinc futures as prices moved lower after the Chinese government announced that it would raise export taxes for base metals, as well as amid speculation that rising production and inventories might create a global surplus. Elsewhere, long positions in gold futures experienced smaller losses as prices declined due to temporary strength in the value of the U.S. dollar. Lastly, losses of approximately 0.2% were incurred in the energy markets primarily during May from both short and long futures positions in crude oil and its related products as prices moved without consistent direction amid conflicting news regarding supply and demand. The Partnership recorded total trading results including interest income totaling $52,870,429 and expenses totaling $22,790,224, resulting in net income of $30,080,205 for the six months ended June 30, 2007. The Partnership?s net asset value per Unit increased from $29.06 at December 31, 2006, to $30.73 at June 30, 2007. The most significant trading gains of approximately 5.2% were experienced in the global interest rate sector primarily during January, May, and June from short positions in European interest rate futures as prices initially fell after reports showed confidence in the Euro-Zone economy stayed close to a six- year high in December and unemployment dropped in the United Kingdom and Germany. In addition, European fixed-income futures prices fell after reports showed German investor confidence rose during May and Italian retail sales were stronger than expected during April. Furthermore, prices continued to move lower on news that housing prices in the United Kingdom showed their biggest jump of 2007. Within the currency sector, gains of approximately 4.6% were recorded in the currency sector primarily during the second quarter from short positions in the Japanese yen versus the U.S. dollar, euro, British pound, and Australian dollar as the value of the Japanese yen weakened relative to most of its major rivals in a continuation of the carry-trade after news that the Tankan survey was weaker than expected and a decline in Japanese industrial production increased speculation that Japanese economic growth was not sufficient to warrant an increase in interest rates by the Bank of Japan. Additional gains were experienced from long positions in the Australian dollar, Brazilian real, and Canadian dollar versus the U.S. dollar throughout the second quarter as the value of these currencies strengthened relative to the U.S. dollar amid the release of consistently strong economic data. Furthermore, the U.S. dollar weakened against most of its major rivals leading up to and after the U.S. Federal Reserve?s decision to leave interest rates steady at 5.25%. Smaller gains of approximately 1.7% were experienced in the global stock index sector primarily during January, April, and May from long positions in German and Pacific Rim stock index futures as prices climbed higher on continued strong corporate earnings and increased merger and acquisition activity in those regions. Additionally, Pacific Rim stock index futures prices moved higher amid optimism that strong economic growth in the Euro-Zone and U.S. would result in higher exports from Asia. A portion of the Partnership?s gains in the first six months of the year was offset by losses of approximately 2.4% recorded in the metals sector throughout the year from both short and long positions in aluminum futures as prices moved without consistent direction due to conflicting data regarding supply and demand. Elsewhere, long positions in silver and gold futures resulted in losses during March, May, and June as prices moved lower on speculative selling. Within the agricultural sector, losses of approximately 0.6% were incurred primarily during January from long positions in coffee futures as prices fell on speculation that retail price increases imposed by large food companies during the last quarter of 2006 would curb demand in the United States. Elsewhere, losses from long positions in lean hog futures were experienced primarily during April as prices fell amid technically-based selling. Lastly, long positions in corn futures resulted in losses during January and March as prices fell after the U.S. announced plans to seek additional sources for alternative fuels and the U.S. Department of Agriculture?s Prospective Plantings report showed corn acreage might be up in 2007 to its highest level since 1944. Smaller losses of approximately 0.3% were experienced within the energy sector from short positions in natural gas futures as prices moved higher during March after the U.S. Department of Energy reported that natural gas supplies were down 15% from a year ago. Additional losses were recorded from both short and long positions in natural gas futures as prices moved without consistent direction during May. Elsewhere, short positions in crude oil futures and its related products incurred losses during February and March as prices moved higher on increased concerns that unexpected refinery shutdowns might curb fuel stockpiles in the future. In addition, prices moved higher amid geopolitical uncertainty in Iraq and concerns regarding future production in Venezuela and Iran. For the Three and Six Months Ended June 30, 2006 The Partnership recorded total trading results including interest income totaling $36,753,206 and expenses totaling $12,608,588, resulting in net income of $24,144,618 for the three months ended June 30, 2006. The Partnership?s net asset value per Unit increased from $28.48 at March 31, 2006, to $29.74 at June 30, 2006. The most significant trading gains of approximately 5.4% were recorded in the global interest rate futures markets from short positions in U.S., European, Japanese, and Australian interest rate futures as global bond prices trended lower during April. In the U.S., interest rate futures prices declined following the release of stronger than expected economic data. Similarly in Europe, rising equity prices and strong economic growth pressured European fixed-income futures prices lower. U.S fixed-income futures prices continued to move lower into May amid higher than forecasted manufacturing and construction data and the sixteenth consecutive interest rate hike by the U.S. Federal Reserve, while Australian fixed-income futures prices also declined on an optimistic outlook for the Australian economy as commodity prices climbed higher. Finally, additional gains were achieved in the global interest rate sector during June as prices for U.S. and European fixed-income futures continued to move lower on strong economic data out of the U.S. and Europe. In the metals sector, gains of approximately 3.4% were experienced during April and May from long futures positions in copper, nickel, and aluminum as prices rallied sharply on strong global industrial demand, particularly from the U.S., China, and India, and reports of decreasing inventories. Additional gains were experienced from long positions in gold and silver futures as prices reached 25-year highs, benefiting from strong demand and lagging supply. In addition, demand for precious metals increased given continued geopolitical concerns regarding Iran?s nuclear program and inflation concerns due to high energy prices. A portion of the Partnership?s gains in the second quarter was offset by losses of approximately 1.7% in the global equity index market from long positions in U.S., European, and Japanese stock index futures as prices reversed lower during May and June. The weakness in the equity markets was attributed to inflation fears and uncertainty regarding global interest rate policy. Within the Asian equity index markets, long positions incurred losses as prices suffered a heavy sell-off as investors expressed concern that a global economic slowdown would negatively affect Japan?s export-driven economy. Losses of approximately 0.8% were incurred in the agricultural complex from long positions in wheat futures as prices fell in April and June on forecasts for favorable weather in U.S. wheat-growing regions. Elsewhere in the agricultural complex, short futures positions in soybeans recorded losses as prices moved higher in April on speculative buying and increased demand. Smaller losses were recorded during June from newly established long positions as prices moved lower on forecasts for rain in the drought-suffering regions of the U.S. Additional losses of approximately 0.4% were incurred in the energy sector from short positions in natural gas futures as prices moved higher on fears of a possible supply shortage. In May, losses were also incurred from long futures positions in crude oil and its related products as prices fell during the month after supply data showed an increase in domestic gasoline and crude oil inventories. Further losses in the energy markets were recorded during June from newly established long positions in natural gas futures as prices reversed higher on reports of a supply surplus and fears of a slowing global economy. Smaller losses of approximately 0.2% were incurred in the currency markets from short positions in the Japanese yen, Australian dollar, and Swiss franc relative to the U.S. dollar as the value of the U.S. dollar weakened on news that foreign central banks, including Russia, Sweden, and several Middle Eastern central banks were diversifying their currency reserves away from the U.S. dollar. Also pressuring the value of the U.S. dollar lower were concerns over the steep U.S. trade deficit and speculation that the U.S. Federal Reserve might be near the end of its interest rate tightening campaign. In addition to the U.S. dollar weakening, the Japanese yen strengthened on speculation of a possible Bank of Japan interest rate hike, while the Swiss franc moved higher on the political tensions in the Middle East, which increased the demand for the safe-haven currency. The Australian dollar also moved higher on an unexpected interest rate hike by the Reserve Bank of Australia in May. The Partnership recorded total trading results including interest income totaling $68,555,559 and expenses totaling $24,438,187, resulting in net income of $44,117,372 for the six months ended June 30, 2006. The Partnership?s net asset value per Unit increased from $27.45 at December 31, 2005 to $29.74 at June 30, 2006. The most significant trading gains of approximately 8.8% were experienced in the global interest rate sector from short positions in U.S., European, and Japanese interest rate futures as global bond prices trended lower throughout a majority of the first quarter amid strength in regional equity markets and investor sentiment that interest rates in the United States, the European Union, and Japan would rise. U.S. fixed-income futures continued to move lower into the second quarter following the release of stronger than expected U.S. economic data. Similarly in Germany, rising equity prices, strong economic growth, and concerns about rising oil prices pressured German fixed-income futures prices even lower in the second quarter. Additional gains of approximately 6.3% were recorded in the metals markets from long futures positions in copper, nickel, zinc, and aluminum as base metals prices rallied throughout the second quarter on strong global demand and reports of falling inventories. As a result, copper and nickel prices hit new-record highs during the month of May. Further gains in the metals markets were experienced from long positions in gold and silver futures as prices reached 25-year highs, benefiting from strong demand and lagging supply. Demand for gold increased given continued geopolitical concerns regarding Iran?s nuclear program and inflation concerns due to high energy prices. Smaller gains, approximately 0.6%, were experienced in the global stock index sector from long positions in European and Australian stock index futures as global equity prices trended higher during the first quarter on strong corporate earnings and solid economic data. Long positions in Hong Kong equity index futures also recorded gains as prices moved higher during April on positive performance in the technology sector and speculation that the end was near for the U.S. Federal Reserve?s interest rate tightening campaign. A portion of the Partnership?s gains in the first six months of the year was offset by losses of approximately 3.0% incurred in the currency market from short positions in the Japanese yen, Swiss franc, and Australian dollar. Throughout a majority of the first half of the year, the U.S. dollar moved lower on news that foreign central banks were beginning to diversify their currency reserves away from U.S. dollar-denominated assets, as well as uncertainty regarding the future of the U.S. Federal Reserve?s interest rate tightening campaign. The Japanese yen and Swiss franc moved higher against the U.S. dollar during January and February as strong economic data out of the two regions increased speculation that the Bank of Japan and European Central Bank might raise interest rates. During April, the Japanese yen strengthened on speculation of a possible Bank of Japan interest rate hike in the near future, while the Swiss franc moved higher on the political tensions in the Middle East, which increased the demand for the safe-haven currency. The Australian dollar also moved higher on an unexpected interest rate hike by the Reserve Bank of Australia in May. Losses of approximately 1.0% were experienced in the energy markets from positions in crude oil, heating oil, and natural gas futures. During February, long futures positions in crude oil and its related products recorded losses as prices declined after an announcement by Chinese government authorities that China would place an emphasis on prospecting alternative energy sources in the future, reports of larger than expected supplies from the International Energy Agency, and mild weather in the U.S. Northeast. Further losses in the energy markets were recorded during March from short positions in the aforementioned markets as prices reversed higher early in the month on supply fears. In May, losses were incurred from long futures positions in crude oil and its related products as prices fell after supply data showed an increase in domestic gasoline and crude oil inventories. Additional losses were incurred from short positions in natural gas as prices moved higher on fears of a possible supply shortage. Smaller losses were experienced during June from newly established long positions in natural gas futures as prices reversed higher on reports of a supply surplus and fears of a slowing global economy. Losses of approximately 0.8% were incurred in the agricultural complex from long positions in wheat futures as prices fell in March, April, and June on forecasts for favorable weather in U.S. wheat-growing regions. Elsewhere in the agricultural complex, short futures positions in soybeans recorded losses as prices moved higher in April on speculative buying and increased demand. Losses were also recorded in soybean futures during June from newly established long positions as prices moved lower on forecasts for rain in the drought-suffering regions of the U.S. Additionally, short positions in soybean oil also recorded losses during the first quarter. Item 3. 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 inherent to the primary business activity of the Partnership. The futures, forwards, and options traded by the Partnership involve varying degrees of related market risk. Market risk is often dependent upon changes in the level or volatility of interest rates, exchange rates, and prices of financial instruments and commodities, factors that result in frequent changes in the fair value of the Partnership?s open positions, and consequently in its earnings, whether realized or unrealized, and cash flow. Gains and losses on open positions of exchange- traded futures, exchange-traded forward, and exchange-traded futures-styled options contracts are settled daily through variation margin. Gains and losses on off-exchange-traded forward currency contracts are settled upon termination of the contract. However, the Partnership is required to meet margin requirements equal to the net unrealized loss on open forward currency contracts in the Partnership accounts with the counterparty, which is accomplished by daily maintenance of the cash balance in a custody account held at MS&Co. The Partnership?s total market risk may increase or decrease as it is influenced by a wide variety of factors, including, but not limited to, the diversification among the Partnership?s open positions, the volatility present within the markets, and the liquidity of the markets. The 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 typically to be many times the total capitalization of the Partnership. The Partnership?s past performance is no guarantee 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 and use of leverage may cause future losses and volatility (i.e., ?risk of ruin?) that far exceed the Partnership?s experiences to date under the ?Partnership?s Value at Risk in Different Market Sectors? section and significantly exceed the Value at Risk (?VaR?) tables disclosed. Limited partners will not be liable for losses exceeding the current net asset value of their investment. 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 and cash flow. The Partnership?s risk exposure in the market sectors traded by the Trading Advisors is estimated below in terms of VaR. The Partnership estimates VaR using a model based upon historical simulation (with a confidence level of 99%) which involves constructing a distribution of hypothetical daily changes in the value of a trading portfolio. The VaR model takes into account linear exposures to risk including equity and commodity prices, interest rates, foreign exchange rates, and correlation among these variables. The hypothetical changes in portfolio value are based on daily percentage changes observed in key market indices or other market factors (?market risk factors?) to which the portfolio is sensitive. The one-day 99% confidence level of the Partnership?s VaR corresponds to the negative change in portfolio value that, based on observed market risk factors, would have been exceeded once in 100 trading days, or one day in 100. VaR typically does not represent the worst case outcome. Demeter uses approximately four years of daily market data (1,000 observations) and re-values its portfolio (using delta-gamma approximations) for each of the historical market moves that occurred over this time period. This generates a probability distribution of daily ?simulated profit and loss? outcomes. The VaR is the appropriate percentile of this distribution. For example, the 99% one-day VaR would represent the 10th worst outcome from Demeter?s simulated profit and loss series. The Partnership?s VaR computations are based on the risk representation of the underlying benchmark for each instrument or contract and do not distinguish between exchange and non-exchange dealer-based instruments. They are also not based on exchange and/or dealer-based maintenance margin requirements. VaR models, including the Partnership?s, are continually evolving as trading portfolios become more diverse and modeling techniques and systems capabilities improve. Please note that the VaR model is used to numerically quantify market risk for historic reporting purposes only and is not utilized by either Demeter or the Trading Advisors in their daily risk management activities. Please further note that VaR as described above may not be comparable to similarly-titled measures used by other entities. The Partnership?s Value at Risk in Different Market Sectors The following table indicates the VaR associated with the Partnership?s open positions as a percentage of total Net Assets by primary market risk category at June 30, 2007, and 2006. At June 30, 2007, and 2006, the Partnership?s total capitalization was approximately $555 million and $565 million, respectively. Primary Market June 30, 2007 June 30, 2006 Risk Category Value at Risk Value at Risk Equity (1.54)% (0.39)% Interest Rate (1.33) (1.70) Currency (1.11) (0.55) Commodity (0.47) (0.49) Aggregate Value at Risk (2.74)% (1.73)% The VaR for a market category represents the one-day downside risk for the aggregate exposures associated with this market category. The Aggregate Value at Risk listed above represents the VaR of the Partnership?s open positions across all the market categories, and is less than the sum of the VaRs for all such market categories due to the diversification benefit across asset classes. Because the business of the Partnership is the speculative trading of futures, forwards, and options, the composition of its trading portfolio can change significantly over any given time period, or even within a single trading day. Such changes could positively or negatively materially impact market risk as measured by VaR. The table below supplements the quarter-end VaR set forth above by presenting the Partnership?s high, low, and average VaR, as a percentage of total Net Assets for the four quarter-end reporting periods from July 1, 2006, through June 30, 2007. Primary Market Risk Category High Low Average Equity (1.95)% (0.62)% (1.39)% Interest Rate (1.46) (0.59) (1.05) Currency (1.53) (0.99) (1.22) Commodity (0.75) (0.47) (0.60) Aggregate Value at Risk (2.74)% (1.86)% (2.23)% Limitations on Value at Risk as an Assessment of Market Risk VaR models permit estimation of a portfolio?s aggregate market risk exposure, incorporating a range of varied market risks, reflect risk reduction due to portfolio diversification or hedging activities, and can cover a wide range of portfolio assets. However, VaR risk measures should be viewed in light of the methodology?s limitations, which include, but may not be limited to 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 market fluctuations applied to current 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. In addition, the VaR tables above, as well as the past performance of the Partnership, give no indication of the Partnership?s potential ?risk of ruin?. The VaR tables provided present the results of the Partnership?s VaR for each of the Partnership?s market risk exposures and on an aggregate basis at June 30, 2006, and for the four quarter-end reporting periods from July 1, 2006, through June 30, 2007. VaR is not necessarily representative of the Partnership?s historic risk, nor should it be used to predict the Partnership?s future financial performance or its ability to manage or monitor risk. There can be no assurance that the Partnership?s actual losses on a particular day will not exceed the VaR amounts indicated above or that such losses will not occur more than once in 100 trading days. Non-Trading Risk The Partnership has non-trading market risk on its foreign cash balances. These balances and any market risk they may represent are immaterial. The Partnership also maintains a substantial portion of its available assets in cash at MS&Co.; as of June 30, 2007, such amount is equal to approximately 89% of the Partnership?s net asset value. A decline in short-term interest rates would result in a decline in the Partnership?s cash management income. This cash flow risk is not considered to be material. Materiality, as used throughout this section, is based on an assessment of reasonably possible market movements and any associated potential losses, taking into account the leverage, optionality, and multiplier features of the Partnership?s market- sensitive instruments, in relation to the Partnership?s Net Assets. Qualitative Disclosures Regarding Primary Trading Risk Exposures The following qualitative disclosures regarding the Partnership?s market risk exposures - except for (A) those disclosures that are statements of historical fact and (B) the descriptions of how the Partnership manages its primary market risk exposures - constitute forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act. The Partnership?s primary market risk exposures, as well as the strategies used and to be used by Demeter and the Trading Advisors for managing such exposures, are subject to numerous uncertainties, contingencies and risks, any one of which could cause the actual results of the Partnership?s risk controls to differ materially from the objectives of such strategies. Government interventions, defaults and expropriations, illiquid markets, the emergence of dominant fundamental factors, political upheavals, changes in historical price relationships, an influx of new market participants, increased regulation, and many other factors could result in material losses, as well as in material changes to the risk exposures and the risk management strategies of the Partnership. Investors must be prepared to lose all or substantially all of their investment in the Partnership. The following were the primary trading risk exposures of the Partnership at June 30, 2007, by market sector. It may be anticipated, however, that these market exposures will vary materially over time. Equity. The largest market exposure of the Partnership at June 30, 2007, was to the global stock index sector, primarily to equity price risk in the G-7 countries. The G-7 countries consist of France, the U.S., Britain, Germany, Japan, Italy, and Canada. The stock index futures traded by the Partnership are by law limited to futures on broadly-based indices. The Partnership?s primary market exposures were to the NIKKEI 225 (Japan), NASDAQ 100 (U.S.), DAX (Germany), Hang Seng (China), S&P 500 (U.S.), TOPIX (Japan), Euro Stoxx 50 (Europe), AEX (Netherlands), TAIWAN (Taiwan), CAC 40 (France), Dow Jones (U.S.), FTSE 100 (United Kingdom), SPI 200 (Australia), IBEX 35 (Spain), and Canadian S&P 60 (Canada) stock indices. The Partnership is typically exposed to the risk of adverse price trends or static markets in the European, U.S., Chinese, Japanese, and Australian stock indices. Static markets would not cause major market changes, but would make it difficult for the Partnership to avoid trendless price movements, resulting in numerous small losses. Interest Rate. The second largest market exposure of the Partership at June 30, 2007, was to the global interest rate sector. Exposure was primarily spread across U.S., European, Australian, Japanese, and Canadian interest rate sectors. Interest rate movements directly affect the price of the sovereign bond futures positions held by the Partnership and indirectly affect the value of its stock index and currency positions. Interest rate movements in one country, as well as relative interest rate movements between countries, materially impact the Partnership?s profitability. The Partnership?s interest rate exposure is generally to interest rate fluctuations in the U.S. and the other G-7 countries? interest rates. However, the Partnership also takes futures positions in the government debt of smaller countries ? e.g., Australia. Demeter anticipates that the G-7 countries? interest rates and Australian interest rate 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. Currency. The third largest market exposure of the Partnership at June 30, 2007, was to the currency sector. The Partnership?s currency market 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 a large number of currencies, including cross- rates ? i.e., positions between two currencies other than the U.S. dollar. At June 30, 2007, the Partnership?s major exposures were to euro, Japanese yen, Swiss franc, British pound, Norwegian krone, Polish zloty, and Canadian dollar currency crosses, as well as 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 associated with the Partnership?s currency trades will change significantly in the future. Commodity. Energy. At June 30, 2007, the Partnership had market exposure to the energy sector. 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 geopolitical developments, particularly in the Middle East, as well as weather patterns and other economic fundamentals. Significant profits and losses, which have been experienced in the past, are expected to continue to be experienced in the future. Natural gas has exhibited volatility in prices resulting from weather patterns and supply and demand factors and will likely continue in this choppy pattern. Soft Commodities and Agriculturals. At June 30, 2007, the Partnership had market exposure to the markets that comprise these sectors. Most of the exposure was to the cocoa, soybean oil, soybeans, coffee, soybean meal, wheat, live cattle, sugar, feeder cattle, lean hogs, and orange juice markets. Supply and demand inequalities, severe weather disruptions, and market expectations affect price movements in these markets. Metals. At June 30, 2007, the Partnership had market exposure in the metals sector. The Partnership's metals exposure was to fluctuations in the price of precious metals, such as gold, platinum, palladium, and silver and base metals, such as copper, lead, and tin. Economic forces, supply and demand inequalities, geopolitical factors, and market expectations influence price movements in these markets. The Trading Advisors utilize the trading system(s) to take positions when market opportunities develop, and Demeter anticipates that the Partnership will continue to do so. Qualitative Disclosures Regarding Non-Trading Risk Exposure The following was the only non-trading risk exposure of the Partnership at June 30, 2007: Foreign Currency Balances. The Partnership?s primary foreign currency balances at June 30, 2007, were in euros, Hong Kong dollars, British pounds, Canadian dollars, Australian dollars, Swiss francs, Japanese yen, Norwegian krone, and Swedish krona. The Partnership controls the non-trading risk of foreign currency balances by regularly converting them back into U.S. dollars upon liquidation of their respective positions. Qualitative 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 in a multi-advisor Partnership, each of whose strategies focus on different market sectors and trading approaches, and by monitoring the performance of the Trading Advisors daily. In addition, the Trading Advisors establish diversification guidelines, often set in terms of the maximum margin to be committed to positions in any one market sector or market-sensitive instrument. Demeter monitors and controls the risk of the Partnership?s non- trading instrument, cash. Cash is the only Partnership investment directed by Demeter, rather than the Trading Advisors. Item 4. CONTROLS AND PROCEDURES (a) As of the end of the period covered by this quarterly report, the President and Chief Financial Officer of Demeter, the general partner of the Partnership, have evaluated the effectiveness of the Partnership?s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act), and have judged such controls and procedures to be effective. (b) There have been no material changes during the period covered by this quarterly report in the Partnership?s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) or in other factors that could significantly affect these controls subsequent to the date of their evaluation. Item 4T. CONTROLS AND PROCEDURES Not applicable. PART II. OTHER INFORMATION Item 1A. RISK FACTORS There have been no material changes from the risk factors previously referenced in the Partnership?s Report on Form 10-K for the fiscal year ended December 31, 2006, and the Partnership?s Report on Form 10Q for the quarter ended March 31, 2007.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS SEC Registration Statement on Form S-1 Units Registered Effective Date File Number Initial Registration 60,000.000 May 17, 1991 33-39667 Supplemental Closing 10,000.000 August 23, 1991 33-42380 Additional Registration 75,000.000 August 31, 1993 33-65072 Additional Registration 60,000.000 October 27, 1997 333-01918 Pre-conversion 205,000.000 Units sold through 10/17/97 146,139.671 Units unsold through 10/17/97 58,860.329 (Ultimately de-registered) Commencing with the April 30, 1998 monthly closing and with becoming a member of the Spectrum Series of funds, each previously outstanding Unit of the Partnership was converted into 100 Units, totaling 14,613,967.100 (pre-conversion). Additional Registration 1,500,000.000 May 11, 1998 333-47829 Additional Registration 5,000,000.000 January 21, 1999 333-68773 Additional Registration 4,500,000.000 February 28, 2000 333-90467 Additional Registration 1,000,000.000 April 30, 2002 333-84656 Additional Registration 7,000,000.000 April 28, 2003 333-104005 Additional Registration 23,000,000.000 April 28, 2004 333-113393 Total Units Registered 42,000,000.000 Units sold post conversion 28,191,045.140 Units unsold through 6/30/07 13,808,954.860 Total Units sold through 6/30/07 42,805,012.240 (pre and post conversion)
The managing underwriter for the Partnership is MS&Co. Units are continuously sold at monthly closings at a purchase price equal to 100% of the net asset value per Unit as of the close of business on the last day of each month. The aggregate price of the Units sold through June 30, 2007, was $960,403,868. 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 included as part of the above referenced Registration Statements. Item 6. EXHIBITS 31.01 Certification of President of Demeter Management Corporation, the general partner of the Partnership, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.02 Certification of Chief Financial Officer of Demeter Management Corporation, the general partner of the Partnership, pursuant to Section 302 of the Sarbanes- Oxley Act of 2002. 32.01 Certification of President of Demeter Management Corporation, the general partner of the Partnership, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.02 Certification of Chief Financial Officer of Demeter Management Corporation, the general partner of the Partnership, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. SIGNATURE Pursuant to the requirements 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) August 14, 2007 By:/s/ Lee Horwitz Lee Horwitz Chief Financial Officer The General Partner which signed the above is the only party authorized to act for the Regisrant. The Registrant has no principal executive officer, principal financial officer, controller, or principal accounting officer and has no Board of Directors. EX-1 2 dwsfex3101.txt EXHIBIT EXHIBIT 31.01 CERTIFICATIONS I, Walter Davis, President of Demeter Management Corporation (?Demeter?), the general partner of the registrant, Morgan Stanley Spectrum Select L.P., certify that: 1. I have reviewed this quarterly report on Form 10-Q of the registrant; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant?s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d- 15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant?s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant?s internal control over financial reporting that occurred during the registrant?s most recent fiscal quarter (the registrant?s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant?s internal control over financial reporting; and 5. The registrant?s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant?s auditors and the audit committee of Demeter?s board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant?s ability to record, process, summarize, and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant?s internal control over financial reporting. Date: August 14, 2007 /s/ Walter Davis Walter Davis President, Demeter Management Corporation, general partner of the registrant EX-2 3 dwsfex3102.txt EXHIBIT EXHIBIT 31.02 CERTIFICATIONS I, Lee Horwitz, Chief Financial Officer of Demeter Management Corporation (?Demeter?), the general partner of the registrant, Morgan Stanley Spectrum Select L.P., certify that: 1. I have reviewed this quarterly report on Form 10-Q of the registrant; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant?s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d- 15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant?s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant?s internal control over financial reporting that occurred during the registrant?s most recent fiscal quarter (the registrant?s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant?s internal control over financial reporting; and 5. The registrant?s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant?s auditors and the audit committee of Demeter?s board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant?s ability to record, process, summarize, and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant?s internal control over financial reporting. Date: August 14, 2007 /s/ Lee Horwitz Lee Horwitz Chief Financial Officer, Demeter Management Corporation, general partner of the registrant EX-3 4 dwsfex3201.txt EXHIBIT EXHIBIT 32.01 CERTIFICATION OF PRESIDENT PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Morgan Stanley Spectrum Select L.P. (the ?Partnership?) on Form 10-Q for the quarter ended June 30, 2007, as filed with the Securities and Exchange Commission on the date hereof (the ?Report?), I, Walter Davis, President of Demeter Management Corporation, the general partner of the Partnership, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Partnership. By: /s/ Walter Davis Name: Walter Davis Title: President of Demeter Management Corporation, the general partner of the Partnership Date: August 14, 2007 EX-4 5 dwsfex3202.txt EXHIBIT EXHIBIT 32.02 CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Morgan Stanley Spectrum Select L.P. (the ?Partnership?) on Form 10-Q for the quarter ended June 30, 2007, as filed with the Securities and Exchange Commission on the date hereof (the ?Report?), I, Lee Horwitz, Chief Financial Officer of Demeter Management Corporation, the general partner of the Partnership, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes- Oxley Act of 2002, that, to the best of my knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Partnership. By: /s/ Lee Horwitz Name: Lee Horwitz Title: Chief Financial Officer of Demeter Management Corporation, the general partner of the Partnership Date: August 14, 2007 -----END PRIVACY-ENHANCED MESSAGE-----