424B3 1 spec.txt SPECTRUM SELECT MORGAN STANLEY SPECTRUM SERIES December 2003 Monthly Report This Monthly Report supplements the Spectrum Funds' Prospectus dated April 28, 2003 and the Prospectus Supplement dated December 17, 2003. Issued: January 30, 2004 [Morgan Stanley Logo] 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 NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 FUND % % % % % % % % % % % % % -------------------------------------------------------------------------------------------------------------------------- Spectrum Currency -- -- -- -- -- -- -- -- -- 11.7 11.1 12.2 12.4 (6 mos.) -------------------------------------------------------------------------------------------------------------------------- Spectrum Global Balanced -- -- -- (1.7) 22.8 (3.6) 18.2 16.4 0.7 0.9 (0.3) (10.1) 6.2 (2 mos.) -------------------------------------------------------------------------------------------------------------------------- Spectrum Select 31.2 (14.4) 41.6 (5.1) 23.6 5.3 6.2 14.2 (7.6) 7.1 1.7 15.4 9.6 (5 mos.) -------------------------------------------------------------------------------------------------------------------------- Spectrum Strategic -- -- -- 0.1 10.5 (3.5) 0.4 7.8 37.2 (33.1) (0.6) 9.4 24.0 (2 mos.) -------------------------------------------------------------------------------------------------------------------------- Spectrum Technical -- -- -- (2.2) 17.6 18.3 7.5 10.2 (7.5) 7.8 (7.2) 23.3 23.0 (2 mos.) --------------------------------------------------------------------------------------------------------------------------
INCEPTION- COMPOUND TO-DATE ANNUALIZED RETURN RETURN % % ---------------------- 56.6 13.7 --------------------- 54.7 4.9 --------------------- 203.1 9.3 --------------------- 43.1 4.0 --------------------- 126.4 9.3 --------------------- -------------------------------------------------------------------------------- DEMETER MANAGEMENT CORPORATION -------------------------------------------------------------------------------- 825 Third Avenue, 9th Floor New York, NY 10022 Telephone (212) 310-6444 MORGAN STANLEY SPECTRUM SERIES MONTHLY REPORT DECEMBER 2003 Dear Limited Partner: The Net Asset Value per Unit for each of the five Morgan Stanley Spectrum Funds as of December 31, 2003 was as follows: FUND N.A.V. % CHANGE FOR MONTH -------------------------------------------------------------------------------- Spectrum Currency $15.66 5.69% -------------------------------------------------------------------------------- Spectrum Global Balanced $15.47 3.53% -------------------------------------------------------------------------------- Spectrum Select $30.31 8.51% -------------------------------------------------------------------------------- Spectrum Strategic $14.31 8.54% -------------------------------------------------------------------------------- Spectrum Technical $22.64 7.65% -------------------------------------------------------------------------------- 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. On January 1, 2004, the general partner expects to add Graham Capital Management, L.P. ("Graham") as a trading advisor for Morgan Stanley Spectrum Select L.P. ("Spectrum Select") and Winton Capital Management Limited ("Winton") as a trading advisor for Morgan Stanley Spectrum Technical L.P. ("Spectrum Technical"). The general partner will allocate approximately 5.0-7.5% of Spectrum Select's net assets to Graham's Global Diversified Program at 1.5 times the standard leverage it applies for such program and approximately 5.0-7.5% of Spectrum Select's net assets pursuant to Graham's Selective Trading Program at 1.5 times the standard leverage it applies to such program. At each monthly closing, Graham's Global Diversified Program at 1.5 times the standard leverage it applies for such program, will be allocated approximately 16 2/3% of the net proceeds from additional investments received by Spectrum Select, and approximately 16 2/3% of the redemptions from Spectrum Select. At each monthly closing, Graham's Selective Trading Program at 1.5 times the standard leverage it applies for such program, will be allocated approximately 16 2/3% of the net proceeds from additional investments received by Spectrum Select, and approximately 16 2/3% of the redemptions from Spectrum Select. Graham will be paid a monthly management fee at a 2% annual rate and a monthly incentive fee equal to 20% of any trading profits. The general partner will allocate approximately 10-15% of Spectrum Technical's net assets to Winton's Diversified Trading Program at standard leverage. At each monthly closing, Winton will be allocated 25% of the net proceeds from additional investments received by Spectrum Technical, and 25% of the redemptions from Spectrum Technical. Winton will be paid a monthly management fee at a 2% annual rate and a monthly incentive fee equal to 20% of any trading profits. Limited partners of Spectrum Select and Spectrum Technical are reminded that, subject to certain restrictions, they have the right to redeem their units on a monthly basis, and they may vote to take certain actions with respect to each applicable Partnership's operations, as more fully set forth in Section 15 of each Limited Partnership Agreement on pages A-20-21 of the prospectus. I WOULD ALSO LIKE TO TAKE THIS OPPORTUNITY TO INFORM YOU THAT WE ANTICIPATE SCHEDULE K-1 (FORM 1065) TAX FORMS REPORTING EACH LIMITED PARTNER'S SHARE OF THE PARTNERSHIP INCOME, LOSS AND DEDUCTIONS FOR CALENDAR YEAR 2003 WILL BE MAILED TO HOLDERS OF NON-IRA ACCOUNTS DURING THE LAST WEEK OF FEBRUARY. SHOULD YOU HAVE AN IRA ACCOUNT AND WISH TO RECEIVE A SCHEDULE K-1 TAX FORM, PLEASE CONTACT YOUR MORGAN STANLEY FINANCIAL ADVISOR. Should you have any questions concerning this report, please feel free to contact Demeter Management Corporation, 825 Third Avenue, 9th Floor, New York, NY 10022 or your Morgan Stanley Financial Advisor. I hereby affirm, that to the best of my knowledge and belief, the information contained in this report is accurate and complete. Past performance is not a guarantee of future results. Sincerely, /s/ Jeffrey A. Rothman Jeffrey A. Rothman Chairman and President Demeter Management Corporation General Partner -------------------------------------------------------------------------------- SPECTRUM CURRENCY -------------------------------------------------------------------------------- [Data below represents a bar graph in the original piece.] Month ended YTD ended December 31, 2003 December 31, 2003 ----------------- ----------------- Australian dollar 1.42 8.68 British pound 1.34 -2.43 Euro 2.14 12.03 Japanese yen 0.97 0.14 Swiss franc -0.25 -2.31 Minor currencies 0.79 4.76 Note: Reflects trading results only and does not include fees or interest income. Minor currencies may include, but are not limited to, the South African rand, Thai baht, Greek drachma, Singapore dollar, Mexican peso, New Zealand dollar and Norwegian krone. FACTORS INFLUENCING MONTHLY TRADING GAINS: > Significant gains were achieved from short U.S. dollar positions against a variety of major and minor currencies. A confluence of factors including concerns regarding U.S. budget and trade deficits, a dip in consumer confidence, an outbreak of Mad Cow Disease in the U.S., and fears of a potential terrorist attack forced the U.S. dollar to retreat. The Fund's largest gains were achieved from short U.S. dollar positions against the euro, British pound, Australian dollar and New Zealand dollar. FACTORS INFLUENCING MONTHLY TRADING LOSSES: > Long positions in the South African rand versus the U.S. dollar resulted in losses. Market expectations for further interest rate cuts by the Reserve Bank of South Africa caused the rand to decline against the dollar. -------------------------------------------------------------------------------- SPECTRUM GLOBAL BALANCED -------------------------------------------------------------------------------- [Data below represents a bar graph in the original piece.] Month ended YTD ended December 31, 2003 December 31, 2003 ----------------- ----------------- Currencies 1.2 0.41 Interest Rates -0.47 2.45 Stock Indices 2.27 7.05 Energies -0.07 0.5 Metals 0.95 1.07 Agriculturals -0.18 -1.19 Note: Reflects trading results only and does not include fees or interest income. FACTORS INFLUENCING MONTHLY TRADING GAINS: > The Fund's most significant gains were generated from long European, U.S. and Asian stock index futures positions. Spurred in part by strong U.S. manufacturing data and the strongest U.S. quarterly growth rate in twenty years, global equities rallied sharply during the month. > In the currency markets, the Fund generated gains from short U.S. dollar positions against a variety of major and minor currencies. A confluence of factors including concerns regarding U.S. budget and trade deficits, a dip in consumer confidence, an outbreak of Mad Cow Disease in the U.S., and fears of a potential terrorist attack forced the U.S. dollar to retreat. The Fund's largest gains were achieved from short U.S. dollar positions against the euro, British pound, Australian dollar and New Zealand dollar. > Gains were also achieved in the metals markets from long futures positions in base metals, such as copper, aluminum and nickel. During the month, copper and nickel prices rose to six and fourteen year highs respectively, benefiting from increased demand from China and the strengthening of the global economy. FACTORS INFLUENCING MONTHLY TRADING LOSSES: > The Fund incurred losses from short European, Australian and U.S. interest rate futures positions. Economic data released throughout the month indicated that inflation in the U.S. remained under control, despite the strengthening of the U.S. economy. As a result, the belief grew that the U.S. Federal Reserve would remain committed to keeping U.S. rates at their current low levels. In response, European, Australian and U.S. interest rate futures contracts rallied. -------------------------------------------------------------------------------- SPECTRUM SELECT -------------------------------------------------------------------------------- [Data below represents a bar graph in the original piece.] Month ended YTD ended December 31, 2003 December 31, 2003 ----------------- ----------------- Currencies 4.54 12.15 Interest Rates -1.24 -1.1 Stock Indices 1.93 2.56 Energies -0.17 -0.83 Metals 5.03 5.91 Agriculturals -0.38 1.71 Note: Reflects trading results only and does not include fees or interest income. FACTORS INFLUENCING MONTHLY TRADING GAINS: > The Fund generated significant gains in the metals markets from long futures positions in base metals, such as copper, aluminum and nickel, as well as from long futures positions in precious metals such as gold and silver. During the month, copper and nickel prices rose to six and fourteen year highs respectively, benefiting from increased demand from China and the strengthening of the global economy. Meanwhile, gold and silver continued to soar as investors sought a safe haven from the falling U.S. dollar and an increased risk of terrorism. > Gains were also achieved within the currency sector from short U.S. dollar positions against a variety of major and minor currencies. A confluence of factors including concerns regarding U.S. budget and trade deficits, a dip in consumer confidence, an outbreak of Mad Cow Disease in the U.S., and fears of a potential terrorist attack forced the U.S. dollar to retreat. The Fund's largest gains were achieved from short U.S. dollar positions against the euro, British pound, Australian dollar and New Zealand dollar. > Within the equity index sector, the Fund generated gains from long European, U.S. and Asian stock index futures positions. Spurred in part by strong U.S. manufacturing data and the strongest U.S. quarterly growth rate in twenty years, global equities rallied sharply during the month. FACTORS INFLUENCING MONTHLY TRADING LOSSES: > The Fund incurred losses from short European, Australian and U.S. interest rate futures positions. Economic data released throughout the month indicated that inflation in the U.S. remained under control, despite the strengthening of the U.S. economy. As a result, the belief grew that the U.S. Federal Reserve would remain committed to keeping U.S. rates at their current low levels. In response, European, Australian and U.S. interest rate futures contracts rallied. -------------------------------------------------------------------------------- SPECTRUM STRATEGIC -------------------------------------------------------------------------------- [Data below represents a bar graph in the original piece.] Month ended YTD ended December 31, 2003 December 31, 2003 ----------------- ----------------- Currencies 0.79 11.06 Interest Rates -0.08 0.87 Stock Indices 1.85 5.5 Energies -0.19 -0.13 Metals 3.06 8.35 Agriculturals 4.56 8.34 Note: Reflects trading results only and does not include fees or interest income. FACTORS INFLUENCING MONTHLY TRADING GAINS: > The Fund's largest gains were generated in the agricultural commodity sector from long cocoa and cotton futures positions. Cocoa prices rallied during the first two weeks of the month in response to disarmament and government power-sharing negotiations held between the Ivory Coast's Prime Minister and local rebels. Meanwhile, cotton prices rallied to their highest level in seven years following an increase in export orders from China. > The Fund generated gains in the metals markets from long futures positions in base metals, such as copper, aluminum and nickel. During the month, copper and nickel prices rose to six and fourteen year highs respectively, benefiting from increased demand from China and the strengthening of the global economy. > Within the equity index sector, the Fund generated gains from long European, U.S. and Asian stock index futures positions. Spurred in part by strong U.S. manufacturing data and the strongest U.S. quarterly growth rate in twenty years, global equities rallied sharply during the month. FACTORS INFLUENCING MONTHLY TRADING LOSSES: > Losses were incurred in the energy sector from short natural gas futures positions. Natural gas prices rose sharply in the beginning of the month amid fears of low supply and extremely cold weather forecasts for the northeastern U.S. -------------------------------------------------------------------------------- SPECTRUM TECHNICAL -------------------------------------------------------------------------------- [Data below represents a bar graph in the original piece.] Month ended YTD ended December 31, 2003 December 31, 2003 ----------------- ----------------- Currencies 7.09 22.78 Interest Rates -2.97 -0.93 Stock Indices 2.63 10.3 Energies 0.51 0.4 Metals 3.49 6.97 Agriculturals -1.38 -2.99 Note: Reflects trading results only and does not include fees or interest income. FACTORS INFLUENCING MONTHLY TRADING GAINS: > The Fund generated significant gains within the currency sector from short U.S. dollar positions against a variety of major and minor currencies. A confluence of factors including concerns regarding U.S. budget and trade deficits, a dip in consumer confidence, an outbreak of Mad Cow Disease in the U.S., and fears of a potential terrorist attack forced the U.S. dollar to retreat. The Fund's largest gains were achieved from short U.S. dollar positions against the euro, British pound, Australian dollar and New Zealand dollar. > Gains were also achieved in the metals markets from long futures positions in base metals, such as copper, aluminum and nickel, as well from long futures positions in precious metals such as gold and silver. During the month, copper and nickel prices rose to six and fourteen year highs respectively, benefiting from increased demand from China and the strengthening of the global economy. Meanwhile, gold and silver continued to soar as investors sought a safe haven from the falling U.S. dollar and an increased risk of terrorism. > Within the equity index sector, the Fund generated gains from long European, U.S. and Asian stock index futures positions. Spurred in part by strong U.S. manufacturing data and the strongest U.S. quarterly growth rate in twenty years, global equities rallied sharply during the month. FACTORS INFLUENCING MONTHLY TRADING LOSSES: > The Fund incurred losses from short European, Australian and U.S. interest rate futures positions. Economic data released throughout the month indicated that inflation in the U.S. remained under control, despite the strengthening of the U.S. economy. As a result, the belief grew that the U.S. Federal Reserve would remain committed to keeping U.S. rates at their current low levels. In response, European, Australian and U.S. interest rate futures contracts rallied. MORGAN STANLEY SPECTRUM SERIES -------------------------------------------------------------------------------- STATEMENTS OF OPERATIONS -------------------------------------------------------------------------------- FOR THE MONTH ENDED DECEMBER 31, 2003 (UNAUDITED)
MORGAN STANLEY MORGAN STANLEY SPECTRUM CURRENCY SPECTRUM GLOBAL BALANCED ----------------------------- ----------------------------- PERCENTAGE OF PERCENTAGE OF DECEMBER 1, 2003 DECEMBER 1, 2003 BEGINNING BEGINNING AMOUNT NET ASSET VALUE AMOUNT NET ASSET VALUE ---------- ---------------- --------- ---------------- $ % $ % REVENUES Trading profit (loss): Realized 20,910,025 12.12 (126,427) (.25) Net change in unrealized (9,839,528) (5.70) 2,128,714 4.19 ---------- ----- --------- ---- Total Trading Results 11,070,497 6.42 2,002,287 3.94 Interest income (Note 2) 101,889 .06 40,110 .08 ---------- ----- --------- ---- Total Revenues 11,172,386 6.48 2,042,397 4.02 ---------- ----- --------- ---- EXPENSES Brokerage fees (Note 2) 661,566 .38 194,891 .38 Incentive fees (Note 3) 399,035 .23 -- -- Management fees (Note 3) 287,638 .18 52,960 .11 ---------- ----- --------- ---- Total Expenses 1,348,239 .79 247,851 .49 ---------- ----- --------- ---- NET INCOME 9,824,147 5.69 1,794,546 3.53 ========== ===== ========= ====
MORGAN STANLEY SPECTRUM SERIES -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSET VALUE -------------------------------------------------------------------------------- FOR THE MONTH ENDED DECEMBER 31, 2003 (UNAUDITED)
MORGAN STANLEY MORGAN STANLEY SPECTRUM CURRENCY SPECTRUM GLOBAL BALANCED ------------------------------------- ---------------------------------- PER PER UNITS AMOUNT UNIT UNITS AMOUNT UNIT -------------- ----------- ----- ------------- ---------- ----- $ $ $ $ Net Asset Value, December 1, 2003 11,650,941.695 172,582,388 14.81 3,401,694.161 50,841,570 14.95 Net Income -- 9,824,147 .85 -- 1,794,546 .52 Redemptions (67,719.219) (1,060,483) 15.66 (66,776.981) (1,033,040) 15.47 Subscriptions 556,185.749 8,709,868 15.66 66,995.266 1,036,417 15.47 -------------- ----------- ------------- ---------- Net Asset Value, December 31, 2003 12,139,408.225 190,055,920 15.66 3,401,912.446 52,639,493 15.47 ============== =========== ============= ==========
The accompanying notes are an integral part of these financial statements. MORGAN STANLEY SPECTRUM SERIES -------------------------------------------------------------------------------- STATEMENTS OF OPERATIONS -------------------------------------------------------------------------------- FOR THE MONTH ENDED DECEMBER 31, 2003 (UNAUDITED)
MORGAN STANLEY MORGAN STANLEY MORGAN STANLEY SPECTRUM SELECT SPECTRUM STRATEGIC SPECTRUM TECHNICAL ----------------------------- ----------------------------- ----------------------------- PERCENTAGE OF PERCENTAGE OF PERCENTAGE OF DECEMBER 1, 2003 DECEMBER 1, 2003 DECEMBER 1, 2003 BEGINNING BEGINNING BEGINNING AMOUNT NET ASSET VALUE AMOUNT NET ASSET VALUE AMOUNT NET ASSET VALUE ---------- ---------------- ---------- ---------------- ----------- ---------------- $ % $ % $ % REVENUES Trading profit (loss): Realized 23,927,022 6.02 6,316,122 5.87 70,889,209 14.53 Net change in unrealized 15,263,359 3.84 4,536,364 4.22 (24,876,823) (5.10) ---------- ---- ---------- ----- ----------- ----- Total Trading Results 39,190,381 9.86 10,852,486 10.09 46,012,386 9.43 Interest income (Note 2) 250,620 .06 66,590 .06 291,811 .06 ---------- ---- ---------- ----- ----------- ----- Total Revenues 39,441,001 9.92 10,919,076 10.15 46,304,197 9.49 ---------- ---- ---------- ----- ----------- ----- EXPENSES Brokerage fees (Note 2) 2,401,081 .60 650,049 .60 2,947,775 .60 Incentive fees (Note 3) 2,227,005 .56 811,249 .75 4,924,640 1.01 Management fees (Note 3) 993,549 .25 268,987 .26 1,084,525 .23 ---------- ---- ---------- ----- ----------- ----- Total Expenses 5,621,635 1.41 1,730,285 1.61 8,956,940 1.84 ---------- ---- ---------- ----- ----------- ----- NET INCOME 33,819,366 8.51 9,188,791 8.54 37,347,257 7.65 ========== ==== ========== ===== =========== =====
MORGAN STANLEY SPECTRUM SERIES -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSET VALUE -------------------------------------------------------------------------------- FOR THE MONTH ENDED DECEMBER 31, 2003 (UNAUDITED)
MORGAN STANLEY MORGAN STANLEY SPECTRUM SELECT SPECTRUM STRATEGIC ------------------------------------ ----------------------------------- PER PER UNITS AMOUNT UNIT UNITS AMOUNT UNIT -------------- ----------- ----- ------------- ----------- ----- $ $ $ $ Net Asset Value, December 1, 2003 14,226,239.070 397,420,024 27.94 8,162,313.509 107,594,341 13.18 Net Income -- 33,819,366 2.37 -- 9,188,791 1.13 Redemptions (79,350.800) (2,405,123) 30.31 (45,833.086) (655,871) 14.31 Subscriptions 418,614.809 12,688,217 30.31 359,411.448 5,143,178 14.31 -------------- ----------- ------------- ----------- Net Asset Value, December 31, 2003 14,565,503.079 441,522,484 30.31 8,475,891.871 121,270,439 14.31 ============== =========== ============= ===========
MORGAN STANLEY SPECTRUM TECHNICAL ------------------------------------ PER UNITS AMOUNT UNIT -------------- ----------- ----- $ $ 23,203,117.115 487,907,605 21.03 -- 37,347,257 1.61 (129,227.170) (2,925,703) 22.64 700,314.379 15,855,119 22.64 -------------- ----------- 23,774,204.324 538,184,278 22.64 ============== =========== The accompanying notes are an integral part of these financial statements. 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 sole 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 profits (losses) on open contracts from one period to the next in the statements of operations. Monthly, Morgan Stanley DW pays each Partnership interest income based upon 80% of the month's average daily "Net Assets" (as defined in the limited MORGAN STANLEY SPECTRUM SERIES -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- (CONTINUED) partnership agreements) for the month in the case of Spectrum Currency, Spectrum Select, Spectrum Strategic and Spectrum Technical, and on 100% in the case of Spectrum Global Balanced. The interest rate is equal to a prevailing rate on U.S. Treasury bills. For purposes of such interest payments, Net Assets do not include monies owed to the Partnerships on futures interests. NET INCOME (LOSS) PER UNIT. Net income (loss) per unit of limited partnership interest ("Unit(s)") is computed using the weighted average number of Units outstanding during the period. BROKERAGE AND RELATED TRANSACTION FEES AND COSTS. The brokerage fees for Spectrum Currency and Spectrum Global Balanced are accrued at a flat monthly rate of 1/12 of 4.6% (a 4.6% annual rate) of Net Assets as of the first day of each month. Brokerage fees for Spectrum Select, Spectrum Strategic and Spectrum Technical are accrued at a flat monthly rate of 1/12 of 7.25% (a 7.25% annual rate) of Net Assets as of the first day of each month. Such brokerage fees currently cover all brokerage commissions, transaction fees and costs, and ordinary administrative and continuing offering expenses. OPERATING EXPENSES. The Partnerships incur monthly management fees and may incur incentive fees. All common administrative and continuing offering expenses including legal, auditing, accounting, filing fees and other related expenses are borne by Morgan Stanley DW through the brokerage fees paid by the Partnerships. INCOME TAXES. No provision for income taxes has been made in the accompanying financial statements, as partners are individually responsible for reporting income or loss based upon their respective share of each Partnership's revenues and expenses for income tax purposes. DISTRIBUTIONS. Distributions, other than redemptions of Units, are made on a pro-rata basis at the sole discretion of Demeter. No distributions have been made to date. CONTINUING OFFERING. Units of each Partnership are offered at a price equal to 100% of the Net Asset Value per Unit as of the close of business on the last day of the 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. MORGAN STANLEY SPECTRUM SERIES -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- (CONTINUED) REDEMPTIONS. Limited Partners may redeem some or all of their Units at 100% of the Net Asset Value per Unit as of the end of the last day of any month that is at least six months after the closing at which a person becomes a Limited Partner, upon five business days advance notice by redemption form to Demeter. Thereafter, Units redeemed on or prior to the last day of the twelfth month after such Units were purchased will be subject to a redemption charge equal to 2% of the Net Asset Value of a Unit on the date of such redemption. Units redeemed after the last day of the twelfth month and on or prior to the last day of the twenty-fourth month after which such Units were purchased will be subject to a redemption charge equal to 1% of the Net Asset Value of a Unit on the date of such redemption. Units redeemed after the last day of the twenty-fourth month after which such Units were purchased will not be subject to a redemption charge. The foregoing redemption charges are paid to Morgan Stanley DW. Redemptions must be made in whole Units, in a minimum amount of 50 Units, unless a Limited Partner is redeeming his entire interest in a Partnership. EXCHANGES. On the last day of the first month which occurs more than six months after a person first becomes a Limited Partner in any of the Partnerships, and at the end of each month thereafter, Limited Partners may exchange their investment among the Partnerships (subject to certain restrictions outlined in the Limited Partnership Agreements) without paying additional charges. DISSOLUTION OF THE PARTNERSHIPS. Spectrum Currency, Spectrum Global Balanced, Spectrum Strategic and Spectrum Technical will terminate on December 31, 2035 and Spectrum Select will terminate on December 31, 2025, regardless of financial condition at such time, or at an earlier date if certain conditions occur as defined in each Partnership's Limited Partnership Agreement. -------------------------------------------------------------------------------- 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 trad- MORGAN STANLEY SPECTRUM SERIES -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- (CONTINUED) ing accounts to meet margin requirements as needed. Morgan Stanley DW pays interest on these funds as described in Note 1. -------------------------------------------------------------------------------- 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. Sunrise Capital Partners, LLC Morgan Stanley Spectrum Global Balanced L.P. SSARIS Advisors, LLC Morgan Stanley Spectrum Select L.P. EMC Capital Management, Inc. Northfield Trading L.P. Rabar Market Research, Inc. Sunrise Capital Management, Inc. Morgan Stanley Spectrum Strategic L.P. Allied Irish Capital Management, Ltd. Blenheim Capital Management, L.L.C. Eclipse Capital Management, Inc. Morgan Stanley Spectrum Technical L.P. Campbell & Company, Inc. ("Campbell") Chesapeake Capital Corporation ("Chesapeake") John W. Henry & Company, Inc. ("JWH") 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 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 each trading advisor on the first day of each month (a 3% annual rate). The management fee for Spectrum Strategic is accrued at a rate of 1/12 of 3% 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 on the first day of each month, 1/12 of 3% per month of Net Assets allocated to Campbell on the first day of each month and 1/12 of 3% per month of Net Assets allocated to Chesapeake on the first day of each month (annual rates of 2%, 3% and 3% respectively). 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, Spectrum Select and Spectrum Strategic each pay a monthly incentive fee equal to 15% of the trading profits experienced with respect to each trading advisor's allocated Net Assets as of the end of each calendar month. Spectrum Technical pays a monthly incentive fee equal to 20% of the trading profits experienced with respect to the Net Assets allocated to Campbell and JWH as of the end of each calendar month and 19% of the trading profits experienced with respect to the Net 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 825 Third Avenue, 9th Floor New York, NY 10022 [Morgan Stanley Logo] ADDRESS SERVICE REQUESTED [logo] printed on recycled paper