UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2011 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 SMITH BARNEY SPECTRUM SELECT L.P.
(Exact name of registrant as specified in its charter)
Delaware | 13-3619290 | |
State or other jurisdiction of incorporation or organization |
(I.R.S. Employer Identification No.) |
Ceres Managed Futures LLC | ||
522 Fifth Avenue, 14th Floor | ||
New York, NY | 10036 | |
(Address of principal executive offices) | (Zip Code) |
(212) 296-1999
Registrants telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Name of each exchange on which registered | |
None |
None |
Securities registered pursuant to Section 12(g) of the Act: Units of Limited Partnership Interest
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes No X
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes No X
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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Registration S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files)
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.404 of this chapter) is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definition of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer | Accelerated filer | Non-accelerated filer X | Smaller reporting company |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes No X
State the aggregate market value of the Units of Limited Partnership Interest held by non-affiliates of the registrant. The aggregate market value shall be computed by reference to the price at which Units were sold as of the last business day of the registrants most recently completed second fiscal quarter: $334,886,507 at June 30, 2011.
DOCUMENTS INCORPORATED BY REFERENCE
(See Page 1)
MORGAN STANLEY SMITH BARNEY SPECTRUM SELECT L.P.
INDEX TO ANNUAL REPORT ON FORM 10-K
December 31, 2011
1 | ||||||
Item 1. |
2-7 | |||||
Item 1A. |
7-8 | |||||
Item 1B. |
8 | |||||
Item 2. |
8 | |||||
Item 3. |
9-34 | |||||
Item 4. |
34 | |||||
Item 5. |
35 | |||||
Item 6. |
36 | |||||
Item 7. |
Managements Discussion and Analysis of Financial Condition and Results of Operations |
37-61 | ||||
Item 7A. |
61-72 | |||||
Item 8. |
73 | |||||
Item 9. |
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
73 | ||||
Item 9A. |
74-76 | |||||
Item 9B. |
76 | |||||
Item 10. |
77-85 | |||||
Item 11. |
86 | |||||
Item 12. |
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
86 | ||||
Item 13. |
Certain Relationships and Related Transactions, and Director Independence |
86 | ||||
Item 14. |
87 | |||||
Item 15. |
88 |
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference as follows:
Documents Incorporated |
Part of Form 10-K | |
Annual Report to Morgan Stanley Smith Barney Spectrum Series Limited Partners for the year ended December 31, 2011 | II, III, and IV |
- 1 -
(a) General Development of Business. Morgan Stanley Smith Barney Spectrum Select L.P. (the Partnership) is a Delaware limited partnership organized in 1991 to engage primarily in the speculative trading of futures contracts, options on futures and forward 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 Partnership commenced trading operations on August 1, 1991. The Partnership is one of the Morgan Stanley Smith Barney Spectrum series of funds, comprised of the Partnership, Morgan Stanley Smith Barney Spectrum Currency and Commodity L.P., Morgan Stanley Smith Barney Spectrum Global Balanced L.P., Morgan Stanley Smith Barney Spectrum Strategic L.P., and Morgan Stanley Smith Barney Spectrum Technical L.P. (collectively, the Spectrum Series).
The Partnerships general partner is Ceres Managed Futures LLC (Ceres or the General Partner). The non-clearing commodity broker is Morgan Stanley Smith Barney LLC (MSSB). The clearing commodity brokers are Morgan Stanley & Co. LLC (MS&Co.) (formerly, Morgan Stanley & Co. Incorporated) and Morgan Stanley & Co. International plc (MSIP). MS&Co. also acts as the counterparty on all trading of foreign currency forward contracts. Morgan Stanley Capital Group Inc. (MSCG) acts as the counterparty on all trading of options on foreign currency forward contracts. MSIP serves as the commodity broker for trades on the London Metal Exchange. Ceres is a wholly-owned subsidiary of Morgan Stanley Smith Barney Holdings LLC (MSSBH). MSSBH
- 2 -
is majority-owned indirectly by Morgan Stanley and minority-owned indirectly by Citigroup Inc. (Citigroup). MSSB is the principal subsidiary of MSSBH. MS&Co., MSIP, and MSCG are wholly-owned subsidiaries of Morgan Stanley. The trading advisors to the Partnership are EMC Capital Management, Inc. (EMC), Northfield Trading L.P. (Northfield), Rabar Market Research, Inc. (Rabar), Sunrise Capital Management, Inc. (Sunrise Capital), Graham Capital Management, L.P. (Graham), and Altis Partners (Jersey) Limited (Altis) (each individually, a Trading Advisor, or collectively, the Trading Advisors). A description of the trading activities and focus of each Trading Advisor begins on page 39 under Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations.
Effective May 31, 2011, Morgan Stanley & Co. Incorporated changed its name to Morgan Stanley & Co. LLC.
The General Partner, on behalf of the Partnership, has entered into a management agreement with each Trading Advisor (each, a Management Agreement). Each Management Agreement provides that the Trading Advisor has sole discretion in determining the investments of the assets of the Partnership allocated to the Trading Advisor by the General Partner. Pursuant to each Management Agreement, the Partnership pays each Trading Advisor a flat-rate monthly management fee and an incentive fee.
- 3 -
The management fee for the Partnership is accrued at a rate of 1/12 of 1.25% per month of net assets allocated to Altis on the first day of each month (a 1.25% annual rate), 1/6 of 1% per month of net assets allocated to Graham on the first day of each month (a 2% annual rate), 1/12 of 2% per month of net assets allocated to EMC and Rabar on the first day of each month (a 2% annual rate), and 1/12 of 2% per month of net assets allocated to Northfield and Sunrise Capital on the first day of each month (a 2% annual rate).
Prior to February 1, 2011, the monthly management fee payable to Sunrise Capital was 1/4 of 1% per month (a 3% annual rate).
Prior to July 1, 2011, the monthly management fee payable to EMC and Rabar was 5/24 of 1% (a 2.50% annual rate).
Prior to July 1, 2011, the monthly management fee payable to Northfield was 1/12 of 3% (a 3% annual rate).
In addition, the Partnership pays a monthly incentive fee equal to 20% of the trading profits experienced with respect to the net assets allocated to Northfield, EMC, Sunrise Capital, Rabar, Altis and Graham as of the end of each calendar month.
Prior to February 1, 2011, the monthly incentive fee rate paid to Sunrise Capital was 15%.
- 4 -
Prior to July 1, 2011, the Partnership paid Northfield a monthly incentive fee equal to 15% of the trading profits experienced with respect to the trading advisors allocated net assets as of the end of each calendar month.
Prior to July 1, 2011, the Partnership paid EMC and Rabar a monthly incentive fee equal to 17.5% of the trading profits experienced with respect to the trading advisors allocated net assets 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 trading advisors 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 months redemptions.
The current term of the Management Agreement with Altis will expire on October 9, 2012 and will renew annually unless terminated by the General Partner or the Trading Advisor. The current term of the Management Agreement with EMC will expire on May 1, 2012 and will renew annually unless terminated by the General Partner or the Trading Advisor. The current term of the Management Agreement with Graham will expire on December 31, 2012 and will renew annually unless terminated by the General Partner or the Trading Advisor. The current term of the Management Agreement with Northfield will expire on April 30, 2012 and will renew annually unless terminated by the General Partner or the Trading Advisor. The current term of the
- 5 -
Management Agreement with Rabar will expire on May 1, 2012 and will renew annually unless terminated by the General Partner or the Trading Advisor. The current term of the Management Agreement with Sunrise Capital will expire on May 1, 2012 and will renew annually unless terminated by the General Partner or the Trading Advisor. In general, each Management Agreement may be terminated upon notice by either party.
The Partnership began the year at a net asset value per unit of limited partnership interest (Unit(s)) of $38.03 and returned (17.9)% to $31.24 per Unit on December 31, 2011. For a more detailed description of the Partnerships business see subparagraph (c).
(b) Financial Information about Segments. For financial information reporting purposes, the Partnership is deemed to engage in one industry segment, the speculative trading of futures, forwards and options on such contracts. The relevant financial information is presented in Items 6 and 8.
(c) Narrative Description of Business. The Partnership is in the business of speculative trading of futures, forwards and options on such contracts pursuant to trading instructions provided by the Trading Advisors. See Item 1(a) and (b) above for a complete description of the Partnerships business. The information requested in Section 101(c)(i) through (xiii) of Regulation S-K is not applicable to the Partnership. Additionally, the Partnership does not have any employees. The directors and officers of the General Partner are listed in Part III Item 10. Directors, Executive Officers and Corporate Governance.
- 6 -
(d) Financial Information about Geographic Areas. The Partnership has not engaged in any operations in non-U.S. countries; however, the Partnership (through the commodity brokers) enters into forward contract transactions where non-U.S. banks are the contracting party and trades futures, forwards, and options on such contracts on non-U.S. exchanges.
(e) Available Information. The Partnership files an annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to these reports with the Securities and Exchange Commission (SEC). You may read and copy any document filed by the Partnership at the SECs Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for information on the Public Reference Room. The Partnership does not maintain an internet website, however, the Partnerships SEC filings are available to the public from the EDGAR database on the SECs website at http://www.sec.gov. The Partnerships CIK number is 0000873799.
The following risk factors 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 Quantifying the Partnerships Trading Value at Risk in Item 7A. Quantitative and Qualitative Disclosures About Market Risk are deemed to be forward-looking statements for purposes of the safe harbor, except for statements of historical fact. The qualitative disclosures, except for (A) those disclosures that are statements of historical fact and (B) the descriptions of how the Partnership manages its primary market risk exposure, in the
- 7 -
Qualitative Disclosure Regarding Primary Trading Risk Exposures in Item 7A. Quantitative and Qualitative Disclosures About Market Risk are deemed to be forward-looking statements for purposes of the safe harbor.
Current limited partners of the Partnership are advised that effective December 1, 2008, the General Partner no longer accepts any subscriptions for investments in the Partnership or any exchanges in from other Spectrum Series partnerships for Units of the Partnership. Current limited partners of the Partnership will continue to be able to redeem Units of the Partnership.
The Partnership is in the business of speculative trading of futures, forwards and options on such contracts. For a detailed description of the risks that may affect the business of the Partnership or the limited partnership interests offered by the Partnership, see the discussion of the risk factors as set forth in Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations and Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
The Partnerships executive and administrative offices are located within the offices of MS&Co. The MS&Co. offices utilized by the Partnership are located at 522 Fifth Avenue, 14th Floor, New York, NY 10036.
- 8 -
General
The Partnership is not engaged in any legal or arbitration proceedings and no legal or arbitration proceedings are known to be pending or threatened by or against the Partnership. During the five years preceding the date of this Memorandum, there have been (other than as described below) no administrative, civil or criminal actions pending, on appeal or concluded against Morgan Stanley, Morgan Stanley Smith Barney, the General Partner, MS & Co., MSIP, Morgan Stanley Dean Witter, Inc. (MSDW), MSCG or any of their respective affiliates or principals which the General Partner believes would be material to an investors decision to invest in the Partnership. Unless the context otherwise requires, for purposes of this section, the terms the Company, we, us and our mean Morgan Stanley and its consolidated subsidiaries.
In addition to the matters described below, in the normal course of business, the Company has been named, from time to time, as a defendant in various legal actions, including arbitrations, class actions and other litigation, arising in connection with its activities as a global diversified financial services institution. Certain of the actual or threatened legal actions include claims for substantial compensatory and/or punitive damages or claims for indeterminate amounts of damages. In some cases, the entities that would otherwise be the primary defendants in such cases are bankrupt or in financial distress.
- 9 -
The Company is also involved, from time to time, in other reviews, investigations and proceedings (both formal and informal) by governmental and self-regulatory agencies regarding the Companys business, including, among other matters, accounting and operational matters, certain of which may result in adverse judgments, settlements, fines, penalties, injunctions or other relief.
The Company contests liability and/or the amount of damages as appropriate in each pending matter. Where available information indicates that it is probable a liability had been incurred at the date of the consolidated financial statements and the Company can reasonably estimate the amount of that loss, the Company accrues the estimated loss by a charge to income.
In many proceedings, however, it is inherently difficult to determine whether any loss is probable or even possible or to estimate the amount of any loss. The Company cannot predict with certainty if, how or when such proceedings will be resolved or what the eventual settlement, fine, penalty or other relief, if any, may be, particularly for proceedings that are in their early stages of development or where plaintiffs seek substantial or indeterminate damages. Numerous issues may need to be resolved, including through potentially lengthy discovery and determination of important factual matters, determination of issues related to class certification and the calculation of damages, and by addressing novel or unsettled legal questions relevant to the proceedings in question, before a loss or additional loss or range of loss or additional loss can be reasonably estimated for any proceeding. Subject to the foregoing, the Company believes, based on current knowledge and after consultation with counsel, that the outcome of such proceedings will not have a material adverse effect on the consolidated financial condition of the Company, although the outcome of such proceedings could be material to the Companys operating results and cash flows for a particular period depending on, among other things, the level of the Companys revenues or income for such period.
- 10 -
Over the last several years, the level of litigation and investigatory activity focused on residential mortgage and credit crisis related matters has increased materially in the financial services industry. As a result, the Company expects that it may become the subject of increased claims for damages and other relief regarding residential mortgages and related securities in the future and, while the Company has identified below certain proceedings that the Company believes to be material, individually or collectively, there can be no assurance that additional material losses will not be incurred from residential mortgage claims that have not yet been notified to the Company or are not yet determined to be material.
Effective on or about April 1, 2007 MSDW was merged into MS & Co., which has assumed all of the responsibilities of MSDW. For purposes of clarity, however, MSDWs litigation disclosure will be retained and listed separately, in relevant part, until the fifth anniversary of the date of each specific disclosure item in the MSDW sub-section.
Morgan Stanley DW Inc.
On September 27, 2007, FINRA announced that MS & Co., on behalf of itself and as successor to MSDW, entered into a Letter of Acceptance, Waiver and Consent to resolve charges filed by FINRA on December 19, 2006. In the Letter of Acceptance, Waiver and Consent, FINRA found that, among other things, MS & Co. provided inaccurate information regarding the existence
- 11 -
of pre-September 11, 2001 emails and failed to provide such emails to arbitration claimants and regulators in response to discovery obligations and regulatory inquiries, failed adequately to preserve books and records, and failed to establish and maintain systems and written procedures reasonably designed to preserve required records and to ensure that it conducted adequate searches in response to regulatory inquiries and discovery requests. The Letter of Acceptance, Waiver and Consent also included findings that MS & Co. failed to provide arbitration claimants with updates to a supervisory manual when called for in discovery. FINRA found that MS & Co. violated Section 17(a) of the Exchange Act and Rule 17a-4 thereunder, FINRA Conduct Rules 2110, 3010 (a) and (b) and 3110, FINRA Procedural Rule 8210 and Interpretative Material 10100 under the FINRA Code of Arbitration Procedure. In the settlement, MS & Co. neither admitted nor denied these findings. The settlement established a $9.5 million fund for the benefit of potentially affected arbitration claimants to be administered by a third party at the expense of MS & Co. In addition, MS & Co. was censured and agreed to pay a $3 million regulatory fine and to retain an independent consultant to review its procedures for complying with discovery requirements in arbitration proceedings relating to MS & Co.s retail brokerage operations.
On October 10, 2007, MS & Co., on behalf of itself and as successor to MSDW, became the subject of an Order Instituting Administrative And Cease-And-Desist Proceedings by the SEC. The Order found that from as early as 2000 until 2006, MS & Co. failed to provide to its customers accurate and complete written trade confirmations for certain fixed income securities in violation of Rule 10b-10 under the Exchange Act, Section 15B(c)(1) of the Exchange Act and Rule G-15 of the Municipal Securities Rulemaking Board (MSRB). The Order censured MS & Co., ordered it to
- 12 -
cease and desist from committing or causing any violations and any future violations of Rule 10b-10 under the Exchange Act, Section 15B(c)(1) of the Exchange Act, and MSRB Rule G-15, ordered MS & Co. to pay a $7.5 million penalty, and to retain an independent consultant to review MS & Co.s policies and procedures. MS & Co. consented to the issuance of the Order without admitting or denying any of the SECs findings, except as to the SECs jurisdiction over the matter.
The Company
Residential Mortgage and Credit Crisis Related Matters.
Regulatory and Governmental Matters. The Company is responding to subpoenas and requests for information from certain regulatory and governmental entities concerning the origination, financing, purchase, securitization and servicing of subprime and non-subprime residential mortgages and related matters such as residential mortgage backed securities (RMBS), collateralized debt obligations (CDOs), structured investment vehicles (SIVs) and credit default swaps backed by or referencing mortgage pass through certificates. These matters include, but are not limited to, investigations related to the Companys due diligence on the loans that it purchased for securitization, the Companys communications with ratings agencies, the Companys disclosures to investors, and the Companys handling of servicing and foreclosure related issues.
Class Actions. Beginning in December 2007, several purported class action complaints were filed in the United States District Court for the Southern District of New York (the SDNY) asserting claims on behalf of participants in the Companys 401(k) plan and employee stock ownership plan against the Company and other parties, including certain present and former
- 13 -
directors and officers, under the Employee Retirement Income Security Act of 1974 (ERISA). In February 2008, these actions were consolidated in a single proceeding, which is styled In re Morgan Stanley ERISA Litigation. The consolidated complaint relates in large part to the Companys subprime and other mortgage related losses, but also includes allegations regarding the Companys disclosures, internal controls, accounting and other matters. The consolidated complaint alleges, among other things, that the Companys common stock was not a prudent investment and that risks associated with its common stock and its financial condition were not adequately disclosed. Plaintiffs are seeking, among other relief, class certification, unspecified compensatory damages, costs, interest and fees. On December 9, 2009, the court denied defendants motion to dismiss the consolidated complaint.
On March 16, 2011, a purported class action, styled Coulter v. Morgan Stanley & Co. Incorporated et al., was filed in the SDNY asserting claims on behalf of participants in the Companys 401(k) plan and employee stock ownership plan against the Company and certain current and former officers and directors for breach of fiduciary duties under ERISA. The complaint alleges, among other things, that defendants knew or should have known that from January 2, 2008 to December 31, 2008, the plans investment in Company stock was imprudent given the extraordinary risks faced by the Company and its common stock during that period. Plaintiffs are seeking, among other relief, class certification, unspecified compensatory damages, costs, interest and fees. On July 20, 2011, plaintiffs filed an amended complaint and on October 28, 2011, defendants filed a motion to dismiss the amended complaint.
- 14 -
On February 12, 2008, a plaintiff filed a purported class action, which was amended on November 24, 2008, naming the Company and certain present and former senior executives as defendants and asserting claims for violations of the securities laws. The amended complaint, which is styled Joel Stratte-McClure, et al. v. Morgan Stanley, et al., is currently pending in the SDNY. Subject to certain exclusions, the amended complaint asserts claims on behalf of a purported class of persons and entities who purchased shares of the Companys common stock during the period June 20, 2007 to December 19, 2007 and who suffered damages as a result of such purchases. The allegations in the amended complaint relate in large part to the Companys subprime and other mortgage related losses, but also include allegations regarding the Companys disclosures, internal controls, accounting and other matters. Plaintiffs are seeking, among other relief, class certification, unspecified compensatory damages, costs, interest and fees. On April 27, 2009, the Company filed a motion to dismiss the amended complaint. On April 4, 2011, the court granted defendants motion to dismiss and granted plaintiffs leave to file an amended complaint with respect to certain of their allegations. On June 9, 2011, plaintiffs filed a second amended complaint in response to the courts order of April 4, 2011. On August 8, 2011, defendants filed a motion to dismiss the second amended complaint.
On May 7, 2009, the Company was named as a defendant in a purported class action lawsuit brought under Sections 11, 12 and 15 of the Securities Act of 1933, as amended (the Securities Act), alleging, among other things, that the registration statements and offering documents related to the offerings of approximately $17 billion of mortgage pass through certificates in 2006 and 2007
- 15 -
contained false and misleading information concerning the pools of residential loans that backed these securitizations. The plaintiffs sought, among other relief, class certification, unspecified compensatory and rescissionary damages, costs, interest and fees. This case, which was consolidated with an earlier lawsuit and is currently styled In re Morgan Stanley Mortgage Pass-Through Certificate Litigation, is pending in the SDNY. On August 17, 2010, the court dismissed the claims brought by the lead plaintiff, but gave a different plaintiff leave to file a second amended complaint. On September 10, 2010, that plaintiff, together with several new plaintiffs, filed a second amended complaint which purported to assert claims against the Company and others on behalf of a class of investors who purchased approximately $4.7 billion of mortgage pass through certificates issued in 2006 by seven trusts collectively containing residential mortgage loans. The second amended complaint asserted claims under Sections 11, 12 and 15 of the Securities Act, and alleged, among other things, that the registration statements and offering documents related to the offerings contained false and misleading information concerning the pools of residential loans that backed these securitizations. The plaintiffs sought, among other relief, class certification, unspecified compensatory and rescissionary damages, costs, interest and fees. On September 15, 2011, the court granted in part and denied in part the defendants motion to dismiss and granted the plaintiffs request to file another amended complaint. On September 29, 2011, the defendants moved for reconsideration of a portion of the courts decision partially denying the motion to dismiss. On September 30, 2011, the plaintiffs filed a third amended complaint purporting to bring claims on behalf of a class of investors who purchased approximately $2.7 billion of mortgage pass through certificates issued in 2006 by five trusts. The defendants moved to dismiss the third amended complaint on October 17, 2011.
- 16 -
Beginning in 2007, the Company was named as a defendant in several putative class action lawsuits brought under Sections 11 and 12 of the Securities Act, related to its role as a member of the syndicates that underwrote offerings of securities and mortgage pass through certificates for certain non-Morgan Stanley related entities that have been exposed to subprime and other mortgage-related losses. The plaintiffs in these actions allege, among other things, that the registration statements and offering documents for the offerings at issue contained material misstatements or omissions related to the extent to which the issuers were exposed to subprime and other mortgage-related risks and other matters and seek various forms of relief including class certification, unspecified compensatory and rescissionary damages, costs, interest and fees. The Companys exposure to potential losses in these cases may be impacted by various factors including, among other things, the financial condition of the entities that issued or sponsored the securities and mortgage pass through certificates at issue, the principal amount of the offerings underwritten by the Company, the financial condition of co-defendants and the willingness and ability of the issuers (or their affiliates) to indemnify the underwriter defendants. Some of these cases, including In Re Washington Mutual, Inc. Securities Litigation, In re: Lehman Brothers Equity/Debt Securities Litigation and In re IndyMac Mortgage-Backed Securities Litigation, relate to issuers or sponsors (or their affiliates) that have filed for bankruptcy or have been placed into receivership.
In re: Lehman Brothers Equity/Debt Securities Litigation is pending in the SDNY and relates to several offerings of debt and equity securities issued by Lehman Brothers Holdings Inc. during 2007 and 2008. The Company underwrote approximately $232 million of the principal amount of the offerings at issue. On September 23, 2011, a group of underwriter defendants, including the Company,
- 17 -
reached an agreement in principle with the class plaintiffs to settle the litigation. On December 15, 2011, the Court presiding over this action issued an order preliminarily approving the settlement. The settlement hearing is currently scheduled for April 12, 2012.
In re IndyMac Mortgage-Backed Securities Litigation is pending in the SDNY and relates to offerings of mortgage pass through certificates issued by seven trusts sponsored by affiliates of IndyMac Bancorp during 2006 and 2007. The Company underwrote over $1.4 billion of the principal amount of the offerings originally at issue. On June 21, 2010, the court granted in part and denied in part the underwriter defendants motion to dismiss the amended consolidated class action complaint. The Company underwrote approximately $46 million of the principal amount of the offerings at issue following the courts June 21, 2010 decision. On May 17, 2010, certain putative plaintiffs filed a motion to intervene in the litigation in order to assert claims related to additional offerings. The principal amount of the additional offerings underwritten by the Company is approximately $1.2 billion. On June 21, 2011, the Company successfully opposed the motion to add the additional plaintiffs as to the Company. On July 20, 2011 and July 21, 2011, certain of the additional plaintiffs filed appeals in the United States Court of Appeals for the Second Circuit. The Company is opposing the appeals.
Luther, et al. v. Countrywide Financial Corporation, et al., pending in the Superior Court of the State of California, involves claims related to the Companys role as an underwriter of various residential mortgage backed securities offerings issued by affiliates of Countrywide Financial Corporation. The amended complaint includes allegations that the registration statements and the
- 18 -
offering documents contained false and misleading statements about the residential mortgage loans backing the securities. The Company underwrote approximately $6.3 billion of the principal amount of the offerings at issue. On January 6, 2010, the Court dismissed the case for lack of subject matter jurisdiction. On May 18, 2011, a California court of appeals reversed the dismissal and reinstated the complaint. On December 19, 2011, defendants moved to dismiss the complaint. On February 3, 2012, defendants moved to stay the case pending resolution of a securities class action brought by the same plaintiffs, styled Maine State Retirement System v. Countrywide Financial Corporation, et al., in the United States District Court for the Central District of California.
Other Litigation. On August 25, 2008, the Company and two ratings agencies were named as defendants in a purported class action related to securities issued by a SIV called Cheyne Finance (the Cheyne SIV). The case is styled Abu Dhabi Commercial Bank, et al. v. Morgan Stanley & Co. Inc., et al. and is pending in the SDNY. The complaint alleges, among other things, that the ratings assigned to the securities issued by the SIV were false and misleading because the ratings did not accurately reflect the risks associated with the subprime RMBS held by the SIV. On September 2, 2009, the court dismissed all of the claims against the Company except for plaintiffs claims for common law fraud. On June 15, 2010, the court denied plaintiffs motion for class certification. On July 20, 2010, the court granted plaintiffs leave to replead their aiding and abetting common law fraud claims against the Company, and those claims were added in an amended complaint filed on August 5, 2010. On December 27, 2011, the court permitted plaintiffs to reinstate their causes of action for negligent misrepresentation and breach of fiduciary duty against
- 19 -
the Company. The Company moved to dismiss these claims on January 10, 2012. On January 5, 2012, the court permitted plaintiffs to amend their complaint and assert a negligence claim against the Company. The amended complaint was filed on January 9, 2012 and the Company moved to dismiss the negligence claim on January 17, 2012. On January 23, 2012, the Company moved for summary judgment with respect to the fraud and aiding and abetting fraud claims. Plaintiffs have not alleged the amount of their alleged investments, and are seeking, among other relief, unspecified compensatory and punitive damages. There are 15 plaintiffs in this action asserting claims related to approximately $983 million of securities issued by the SIV.
On September 25, 2009, the Company was named as a defendant in a lawsuit styled Citibank, N.A. v. Morgan Stanley & Co. International, PLC, pending in the SDNY. The lawsuit relates to a credit default swap referencing the Capmark VI CDO, which was structured by Citibank, N.A. (Citi N.A.). At issue is whether, as part of the swap agreement, Citi N.A. was obligated to obtain the Companys prior written consent before it exercised its rights to liquidate Capmark upon the occurrence of certain contractually-defined credit events. Citi N.A. is seeking approximately $245 million in compensatory damages plus interest and costs. On May 25, 2011, the court issued an order denying the Companys motion for summary judgment and granting Citi N.A.s cross motion for summary judgment. On June 27, 2011, the court entered a final judgment against the Company for approximately $269 million plus post-judgment interest, and the Company filed a notice of appeal with the United States Court of Appeals for the Second Circuit, which appeal is now pending.
- 20 -
On December 14, 2009, Central Mortgage Company (CMC) filed a complaint against the Company, in a matter styled Central Mortgage Company v. Morgan Stanley Mortgage Capital Holdings LLC, pending in the Court of Chancery of the State of Delaware. The complaint alleged that that Morgan Stanley Mortgage Capital Holdings LLC improperly refused to repurchase certain mortgage loans that CMC, as servicer, was required to repurchase from the Federal Home Loan Mortgage Corporation (Freddie Mac) and the Federal National Mortgage Association (Fannie Mae). On November 4, 2011, CMC filed an amended complaint adding claims related to its purchase of servicing rights in connection with approximately $4.1 billion of residential loans deposited into RMBS trusts sponsored by the Company. The amended complaint asserts claims for breach of contract, quasi-contract, equitable and tort claims and seeks compensatory damages and equitable remedies, including rescission, injunctive relief, damages, restitution and disgorgement. On January 9, 2012, the Company moved to dismiss the amended complaint.
On December 23, 2009, the Federal Home Loan Bank of Seattle filed a complaint against the Company and another defendant in the Superior Court of the State of Washington, styled Federal Home Loan Bank of Seattle v. Morgan Stanley & Co. Inc., et al. An amended complaint was filed on September 28, 2010. The complaint alleges that defendants made untrue statements and material omissions in the sale to plaintiff of certain mortgage pass through certificates backed by securitization trusts containing residential mortgage loans. The total amount of certificates allegedly sold to plaintiff by the Company was approximately $233 million. The complaint raises claims under the Washington State Securities Act and seeks, among other things, to rescind the
- 21 -
plaintiffs purchase of such certificates. On October 18, 2010, defendants filed a motion to dismiss the action. By orders dated June 23, 2011 and July 18, 2011, the court denied defendants omnibus motion to dismiss plaintiffs amended complaint and on August 15, 2011, the court denied the Companys individual motion to dismiss the amended complaint.
On March 15, 2010, the Federal Home Loan Bank of San Francisco filed two complaints against the Company and other defendants in the Superior Court of the State of California. These actions are styled Federal Home Loan Bank of San Francisco v. Credit Suisse Securities (USA) LLC, et al., and Federal Home Loan Bank of San Francisco v. Deutsche Bank Securities Inc. et al., respectively. Amended complaints were filed on June 10, 2010. The complaints allege that defendants made untrue statements and material omissions in connection with the sale to plaintiff of a number of mortgage pass through certificates backed by securitization trusts containing residential mortgage loans. The amount of certificates allegedly sold to plaintiff by the Company in these cases was approximately $704 million and $276 million, respectively. The complaints raise claims under both the federal securities laws and California law and seek, among other things, to rescind the plaintiffs purchase of such certificates. On April 18, 2011, defendants in these actions filed an omnibus demurrer and motion to strike the amended complaints. On July 29, 2011 and September 8, 2011, the court presiding over both actions sustained defendants demurrers with respect to claims brought under the Securities Act, and overruled defendants demurrers with respect to all other claims.
- 22 -
On June 10, 2010, the Company was named as a new defendant in a pre-existing purported class action related to securities issued by a SIV called Rhinebridge plc (Rhinebridge SIV). The case is styled King County, Washington, et al. v. IKB Deutsche Industriebank AG, et al. and is pending in the SDNY. The complaint asserts claims for common law fraud and aiding and abetting common law fraud and alleges, among other things, that the ratings assigned to the securities issued by the SIV were false and misleading, including because the ratings did not accurately reflect the risks associated with the subprime RMBS held by the SIV. On July 15, 2010, the Company moved to dismiss the complaint. That motion was denied on October 29, 2010. On December 27, 2011, the court permitted plaintiffs to amend their complaint and assert causes of action for negligence, negligent misrepresentation, and breach of fiduciary duty against the Company. The amended complaint was filed on January 10, 2012 and the Company moved to dismiss the negligence, negligent misrepresentation, and breach of fiduciary duty claims on January 31, 2012. The case is pending before the same judge presiding over the litigation concerning the Cheyne SIV, described above. While reserving their ability to act otherwise, plaintiffs have indicated that they do not currently plan to file a motion for class certification. Plaintiffs have not alleged the amount of their alleged investments, and are seeking, among other relief, unspecified compensatory and punitive damages.
On July 9, 2010, Cambridge Place Investment Management Inc. filed a complaint against the Company and other defendants in the Superior Court of the Commonwealth of Massachusetts, styled Cambridge Place Investment Management Inc. v. Morgan Stanley & Co., Inc., et al. The complaint asserts claims on behalf of certain clients of plaintiffs affiliates and alleges that
- 23 -
defendants made untrue statements and material omissions in the sale of a number of mortgage pass through certificates backed by securitization trusts containing residential mortgage loans. The total amount of certificates allegedly issued by the Company or sold to plaintiffs affiliates clients by the Company was approximately $242 million. The complaint raises claims under the Massachusetts Uniform Securities Act and seeks, among other things, to rescind the plaintiffs purchase of such certificates. On February 11, 2011, Cambridge Place Investment Management Inc. filed a second complaint against the Company and other defendants in the Superior Court of the Commonwealth of Massachusetts also styled Cambridge Place Investment Management Inc. v. Morgan Stanley & Co., Inc. et al. The complaint asserts claims on behalf of clients of plaintiffs affiliates, and alleges that the defendants made untrue statements and material omissions in selling certain mortgage pass through certificates backed by securitization trusts containing residential mortgage loans. The total amount of certificates allegedly issued or underwritten by the Company or sold to plaintiffs affiliates clients by the Company was approximately $102 million. The complaint raises claims under the Massachusetts Uniform Securities Act and seeks, among other things, to rescind the plaintiffs purchase of such certificates. On October 14, 2011, plaintiffs filed an amended complaint in each action. On November 22, 2011, defendants filed a motion to dismiss the amended complaints.
On July 15, 2010, The Charles Schwab Corp. filed a complaint against the Company and other defendants in the Superior Court of the State of California, styled The Charles Schwab Corp. v. BNP Paribas Securities Corp., et al. The complaint alleges that defendants made untrue statements and material omissions in the sale to one of plaintiffs subsidiaries of a number
- 24 -
of mortgage pass through certificates backed by securitization trusts containing residential mortgage loans. The total amount of certificates allegedly sold to plaintiffs subsidiary by the Company was approximately $180 million. The complaint raises claims under both the federal securities laws and California law and seeks, among other things, to rescind the plaintiffs purchase of such certificates. Plaintiff filed an amended complaint on August 2, 2010. On September 22, 2011, defendants filed demurrers to the amended complaint. On October 13, 2011, plaintiff voluntarily dismissed its claims brought under the Securities Act. On January 27, 2012, the court, in a ruling from the bench, substantially overruled defendants demurrers.
On July 15, 2010, China Development Industrial Bank (CDIB) filed a complaint against the Company, which is styled China Development Industrial Bank v. Morgan Stanley & Co. Incorporated and is pending in the Supreme Court of the State of New York, New York County. The Complaint relates to a $275 million credit default swap referencing the super senior portion of the STACK 2006-1 CDO. The complaint asserts claims for common law fraud, fraudulent inducement and fraudulent concealment and alleges that the Company misrepresented the risks of the STACK 2006-1 CDO to CDIB, and that the Company knew that the assets backing the CDO were of poor quality when it entered into the credit default swap with CDIB. The complaint seeks compensatory damages related to the approximately $228 million that CDIB alleges it has already lost under the credit default swap, rescission of CDIBs obligation to pay an additional $12 million, punitive damages, equitable relief, fees and costs. On September 30, 2010, the Company filed a motion to dismiss the complaint. On February 28, 2011, the Court denied the Companys motion to dismiss the complaint. On March 21, 2011, the Company appealed the order denying its motion to dismiss the complaint. On July 7, 2011, the appellate court affirmed the lower courts decision denying the Companys motion to dismiss.
- 25 -
On October 15, 2010, the Federal Home Loan Bank of Chicago filed two complaints against the Company and other defendants. One was filed in the Circuit Court of the State of Illinois and is styled Federal Home Loan Bank of Chicago v. Bank of America Funding Corporation et al. The other was filed in the Superior Court of the State of California and is styled Federal Home Loan Bank of Chicago v. Bank of America Securities LLC, et al. The complaints allege that defendants made untrue statements and material omissions in the sale to plaintiff of a number of mortgage pass through certificates backed by securitization trusts containing residential mortgage loans. The total amount of certificates allegedly sold to plaintiff by the Company in the two actions was approximately $203 million and $75 million respectively. The complaint filed in Illinois raises claims under Illinois law. The complaint filed in California raises claims under the federal securities laws, Illinois law and California law. Both complaints seek, among other things, to rescind the plaintiffs purchase of such certificates. On March 24, 2011, the Court presiding over Federal Home Loan Bank of Chicago v. Bank of America Funding Corporation et al. granted plaintiff leave to file an amended complaint. On May 27, 2011, defendants filed a motion to dismiss the amended complaint, which motion is currently pending. On September 15, 2011, plaintiff filed an amended complaint in Federal Home Loan Bank of Chicago v. Bank of America Securities LLC, et al. On December 1, 2011, defendants filed a demurrer to the amended complaint, which demurrer is currently pending.
- 26 -
On April 20, 2011, the Federal Home Loan Bank of Boston filed a complaint against the Company and other defendants in the Superior Court of the Commonwealth of Massachusetts styled Federal Home Loan Bank of Boston v. Ally Financial, Inc. F/K/A GMAC LLC et al. The complaint alleges that defendants made untrue statements and material omissions in the sale to plaintiff of certain mortgage pass through certificates backed by securitization trusts containing residential mortgage loans. The total amount of certificates allegedly issued by the Company or sold to plaintiff by the Company was approximately $550 million. The complaint raises claims under the Massachusetts Uniform Securities Act, the Massachusetts consumer protection act and common law and seeks, among other things, to rescind the plaintiffs purchase of such certificates. On May 26, 2011, defendants removed the case to the United States District Court for the District of Massachusetts, and on June 22, 2011, plaintiff filed a motion to remand the case back to state court.
On July 5, 2011, Allstate Insurance Company and certain of its affiliated entities filed a complaint against the Company in New York State Supreme Court styled Allstate Insurance Company, et al. v. Morgan Stanley, et al. The complaint alleges that defendants made untrue statements and material omissions in the sale to plaintiff of certain mortgage pass through certificates backed by securitization trusts containing residential mortgage loans. The total amount of certificates allegedly issued and/or sold to plaintiffs by the Company was approximately $104 million. The complaint raises common law claims of fraud, fraudulent inducement, aiding and abetting fraud and negligent misrepresentation and seeks, among other things, compensatory and/or rescissionary damages associated with plaintiffs purchases of such certificates. On September 9, 2011, plaintiffs filed an amended complaint. On October 14, 2011, defendants filed a motion to dismiss the amended complaint, which motion is currently pending.
- 27 -
On July 18, 2011, the Western and Southern Life Insurance Company and certain affiliated companies filed a complaint against the Company and other defendants in the Court of Common Pleas in Ohio, styled Western and Southern Life Insurance Company, et al. v. Morgan Stanley Mortgage Capital Inc., et al. The complaint alleges that defendants made untrue statements and material omissions in the sale to plaintiffs of certain mortgage pass through certificates backed by securitization trusts containing residential mortgage loans. The amount of the certificates allegedly sold to plaintiffs by the Company was approximately $153 million. The complaint raises claims under the Ohio Securities Act, federal securities laws, and common law and seeks, among other things, to rescind the plaintiffs purchases of such certificates.
On September 2, 2011, the Federal Housing Finance Agency (FHFA), as conservator for Fannie Mae and Freddie Mac, filed 17 complaints against numerous financial services companies, including the Company. A complaint against the Company and other defendants was filed in the Supreme Court of the State of New York, styled Federal Housing Finance Agency, as Conservator v. Morgan Stanley et al. The complaint alleges that defendants made untrue statements and material omissions in connection with the sale to Fannie Mae and Freddie Mac of residential mortgage pass through certificates with an original unpaid balance of approximately $11 billion. The complaint raises claims under federal and state securities laws and common law and seeks, among other things, rescission and compensatory and punitive damages. On September 26, 2011, defendants removed the action to the SDNY and on October 26, 2011, the FHFA moved to remand the action back to the Supreme Court of the State of New York.
- 28 -
On September 2, 2011, the FHFA, as conservator for Freddie Mac, also filed a complaint against the Company and other defendants in the Supreme Court of the State of New York, styled Federal Housing Finance Agency, as Conservator v. General Electric Company et al. The complaint alleges that defendants made untrue statements and material omissions in connection with the sale to Freddie Mac of residential mortgage pass through certificates with an original unpaid balance of approximately $549 million. The complaint raises claims under federal and state securities laws and common law and seeks, among other things, rescission and compensatory and punitive damages. On October 6, 2011, defendants removed the action to the SDNY and on November 7, 2011, the FHFA moved to remand the action back to the Supreme Court of the State of New York.
On November 4, 2011, the Federal Deposit Insurance Corporation, as receiver for Franklin Bank S.S.B, filed two complaints against the Company in the District Court of the State of Texas. Each is styled Federal Deposit Insurance Corporation, as Receiver for Franklin Bank S.S.B v. Morgan Stanley & Company LLC F/K/A Morgan Stanley & Co. Inc. and alleges that the Company made untrue statements and material omissions in connection with the sale to plaintiff of mortgage pass through certificates backed by securitization trusts containing residential mortgage loans. The amount of certificates allegedly underwritten and sold to plaintiff by the Company in these cases was approximately $67 million and $35 million, respectively. The complaints each raise claims under both federal securities law and the Texas Securities Act and each seeks, among other things, compensatory damages associated with plaintiffs purchase of such certificates.
- 29 -
On January 20, 2012, Sealink Funding Limited filed a complaint against the Company in the Supreme Court of the State of New York styled Sealink Funding Limited v. Morgan Stanley, et al. Plaintiff purports to be the assignee of claims of certain special purpose vehicles (SPVs) formerly sponsored by SachsenLB Europe. The complaint alleges that defendants made untrue statements and material omissions in the sale to the SPVs of certain mortgage pass through certificates backed by securitization trusts containing residential mortgage loans. The total amount of certificates allegedly issued by the Company and/or sold by the Company was approximately $556 million. The complaint raises common law claims of fraud, fraudulent inducement, aiding and abetting fraud and negligent misrepresentation and seeks, among other things, compensatory and/or rescissionary damages associated with plaintiffs purchases of such certificates.
On January 25, 2012, Dexia SA/NV and certain of its affiliated entities filed a complaint against the Company in the Supreme Court of the State of New York styled Dexia SA/NV et al. v. Morgan Stanley, et al. The complaint alleges that defendants made untrue statements and material omissions in the sale to plaintiffs of certain mortgage pass through certificates backed by securitization trusts containing residential mortgage loans. The total amount of certificates allegedly issued by the Company and/or sold to plaintiffs by the Company was approximately $680 million. The complaint raises common law claims of fraud, fraudulent inducement, aiding and abetting fraud and negligent misrepresentation and seeks, among other things, compensatory and/or rescissionary damages associated with plaintiffs purchases of such certificates.
- 30 -
On January 25, 2012, Bayerische Landesbank, New York Branch filed a complaint against the Company in the Supreme Court of the State of New York styled Bayerische Landesbank, New York Branch v. Morgan Stanley, et al. The complaint alleges that defendants made untrue statements and material omissions in the sale to plaintiff of certain mortgage pass through certificates backed by securitization trusts containing residential mortgage loans. The total amount of certificates allegedly issued by the Company and/or sold to plaintiff by the Company was approximately $486 million. The complaint raises common law claims of fraud, fraudulent inducement, aiding and abetting fraud and negligent misrepresentation and seeks, among other things, compensatory and/or rescissionary damages associated with plaintiffs purchases of such certificates.
Other Matters. On a case-by-case basis the Company has entered into agreements to toll the statute of limitations applicable to potential civil claims related to RMBS, CDOs and other mortgage-related products and services when the Company has concluded that it is in its interest to do so.
On October 18, 2011, the Company received a letter from Gibbs & Bruns LLP (the Law Firm), which is purportedly representing a group of investment advisers and holders of mortgage pass through certificates issued by RMBS trusts that were sponsored or underwritten by the Company. The letter asserted that the Law Firms clients collectively hold 25% or more of the voting rights in 17 RMBS trusts sponsored or underwritten by the Company and that these trusts have an aggregate outstanding balance exceeding $6 billion. The letter alleged generally that large
- 31 -
numbers of mortgages in these trusts were sold or deposited into the trusts based on false and/or fraudulent representations and warranties by the mortgage originators, sellers and/or depositors. The letter also alleged generally that there is evidence suggesting that the Company has failed prudently to service mortgage loans in these trusts. On January 31, 2012, the Law Firm announced that its clients hold over 25% of the voting rights in 69 RMBS trusts securing over $25 billion of RMBS sponsored or underwritten by the Company, and that its clients had issued instructions to the trustees of these trusts to open investigations into allegedly ineligible mortgages held by these trusts. The Law Firms press release also indicated that the Law Firms clients anticipate that they may provide additional instructions to the trustees, as needed, to further the investigations.
Shareholder Derivative Matter.
On February 11, 2010, a shareholder derivative complaint styled Security, Police and Fire Professionals of America Retirement Fund, et al. v. John J. Mack et al. was filed in the Supreme Court of the State of New York. The complaint is purportedly for the benefit of the Company, and is brought against certain current and former directors and officers of the Company, to recover damages for alleged acts of corporate waste, breaches of the duty of loyalty, and unjust enrichment based on the amount of compensation awarded to an undefined group of employees for fiscal years 2006, 2007 and 2009. The complaint seeks, among other relief, unspecified compensatory damages, restitution and disgorgement of compensation, benefits and profits, and institution of certain corporate governance reforms. On December 9, 2010, the court granted defendants motion to dismiss the complaint and on February 4, 2011, plaintiffs noticed an appeal of that dismissal, which appeal is pending.
- 32 -
China Matter.
As disclosed in February 2009, the Company uncovered actions initiated by an employee based in China in an overseas real estate subsidiary that appear to have violated the Foreign Corrupt Practices Act. The Company terminated the employee, reported the activity to appropriate authorities and is cooperating with investigations by the United States Department of Justice and the SEC.
The following matters were terminated during the quarter ended December 31, 2011:
In Re Washington Mutual, Inc. Securities Litigation, which had been pending in the United States District Court for the Western District of Washington, involved claims under the Securities Act related to three offerings by Washington Mutual Inc. in 2006 and 2007. The Company was one of several underwriters who participated in the offerings. The Company underwrote approximately $1.3 billion of the securities covered by the class certified by the court. On November 4, 2011, a final settlement among the parties was approved by the court.
Employees Retirement System of the Government of the Virgin Islands v. Morgan Stanley & Co. Incorporated, et al., which had been pending in the SDNY, involved claims for common law fraud and unjust enrichment against the Company related to the Libertas III CDO. On November 3, 2011, the Court dismissed the action with prejudice.
MBIA Insurance Corporation v. Morgan Stanley, et al. which had been pending in New York Supreme Court, Westchester County, involved claims for fraud, breach of contract and unjust
- 33 -
enrichment against the Company related to MBIA Insurance Corporations (MBIAs) contract to insure approximately $223 million of residential mortgage pass through certificates related a second lien securitization sponsored by the Company in June 2007. On December 13, 2011, the Company and MBIA entered into an agreement to settle this litigation and to resolve certain claims that the Company had against MBIA.
Item 4. MINE SAFETY DISCLOSURES
Not applicable.
- 34 -
Item 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
(a) | Market Information. There is no established public trading market for Units of the Partnership. |
(b) | Holders. The number of holders of Units at December 31, 2011, was approximately 21,588. |
(c) | Distributions. No distributions have been made by the Partnership since it commenced trading operations on August 1, 1991. Ceres has sole discretion to decide what distributions, if any, shall be made to investors in the Partnership. Ceres currently does not intend to make any distributions of the Partnerships profits. |
(d) | Underwriter. The managing underwriter for the Partnership was MS&Co. |
(e) | Use of Proceeds. All Units remaining unsold after the November 30, 2008 closing were deregistered with the SEC effective January 23, 2009. |
- 35 -
Item 6. SELECTED FINANCIAL DATA (in dollars)
For the Years Ended December 31, | ||||||||||||||||||||
2011 | 2010 | 2009 | 2008 | 2007 | ||||||||||||||||
$ | $ | $ | $ | $ | ||||||||||||||||
Total Trading Results including interest income |
(37,128,215 | ) | 34,009,565 | 2,428,936 | 218,426,776 | 84,240,950 | ||||||||||||||
Net Income (Loss) |
(67,857,749 | ) | (2,712,947 | ) | (40,555,841 | ) | 153,644,867 | 37,920,143 | ||||||||||||
Net Income (Loss) Per Unit (Limited & General Partners) |
(6.79 | ) | 0.07 | (2.84 | ) | 9.56 | 2.18 | |||||||||||||
Total Assets |
294,516,833 | 421,279,811 | 471,841,125 | 636,444,887 | 533,911,805 | |||||||||||||||
Total Limited Partners Capital |
283,036,281 | 404,921,242 | 459,902,047 | 599,790,920 | 517,496,723 | |||||||||||||||
Net Asset Value Per Unit |
31.24 | 38.03 | 37.96 | 40.80 | 31.24 |
- 36 -
Item 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
As of December 31, 2011, the percentage of assets allocated to each market sector was approximately as follows: Interest Rate 25.98%; Currency 30.59%; Equity 10.12%; and Commodity 33.31%.
Liquidity. The Partnership deposits its assets with MSSB as non-clearing commodity broker and MS&Co. and MSIP as clearing 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 Partnerships trading. The assets are held in either non-interest bearing bank accounts or in securities and instruments permitted by the Commodity Futures Trading Commission for investment of customer segregated or secured funds. Since the Partnerships 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 Partnerships 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.
- 37 -
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 Partnerships assets.
There are no known material trends, demands, commitments, events, or uncertainties at the present time that are reasonably likely to result in the Partnerships 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 of Units 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 outflows of Units.
There are no known material trends, favorable or unfavorable, that would affect, nor any expected material changes to, the Partnerships capital resource arrangements at the present time.
- 38 -
Results of Operations
General. The Partnerships results depend on the Trading Advisors and the ability of each Trading Advisors trading program to take advantage of price movements in the futures, forwards and options markets.
Altis trades its Global Futures Portfolio Program on behalf of the Partnership. It is a systematic, automated trading program that builds on the market experience of Altis principals and employs a unique proprietary Advanced Asset Allocator. The Advanced Asset Allocator was specifically developed to manage portfolios of derivative instruments in a robust and scalable manner. The portfolio management technology combines original, traditional and contrasting investment techniques into one complete and comprehensive trading system. Investment changes are implemented after considering their effect on the whole portfolio and not just on the individual markets concerned.
Graham currently trades its allocated portion of the Partnerships assets pursuant to Grahams Global Diversified Program, as described below, at 150% Leverage. The Global Diversified Program features the first trend system that Graham developed, which began trading client accounts in 1995. It utilizes multiple computerized trading models and offers broad diversification in both financial and non-financial markets, trading in approximately 65 global markets. The Global Diversified Programs trend system is primarily long-term in nature and is intended to generate significant returns over time with an acceptable degree of risk and volatility. The computer models analyze on a daily basis analyze the recent price action, the relative strength and the risk characteristics of each market and compare statistically the quantitative results of this data to years of historical data on each market.
- 39 -
EMC currently trades its Classic Program for the Partnership. EMCs investment strategies are technical rather than fundamental in nature. In other words, they are developed from analysis of patterns of actual monthly, weekly, and daily price movements and are not based on analysis of fundamental supply and demand factors, general economic factors, or anticipated world events. EMC relies on historical analysis of these price patterns to interpret current market behavior and to evaluate technical indicators for trade initiations and liquidations.
EMCs investment strategies used in its program are trend-following. This means that initiation and liquidation of positions in a particular market are generally in the direction of the price trend in that market, although at times counter-trend elements also may be employed.
EMC employs an investment strategy which utilizes a blend of systems (or, stated another way, a number of systems simultaneously). The strategies are diversified in that its program follows a number of futures interests and often invests in more than ten different interests at one time.
Northfield trades the Diversified Program on behalf of the Partnership. The Diversified Program was conceived, tested, and refined by Northfields principals. The approach is fully computerized and nondiscretionary. Money management principles are a critical element of the Diversified Program and have been carefully constructed and are rigorously applied to minimize risk exposure and to protect asset appreciation.
- 40 -
Rabar trades its investment strategy on behalf of the Partnership. The objective of Rabars investment strategy is to generate capital appreciation over the long run by investing exclusively in futures interests, including exchange traded futures contracts, options on futures contracts, foreign currency forward contracts and, to a very limited extent, cash commodities. Rabar may also engage in exchange for physical transactions, more commonly referred to as EFPs. Rabars strategy employs a diversified, systematic, technical, and trend-following approach, utilizing a blend of several separate and distinct quantitative models.
Sunrise Capital trades the CIMCO Program on behalf of the Partnership. The CIMCO Diversified Financial Program was designed by Sunrise Capital to participate exclusively in the highly liquid financial markets. This program trades the major currencies as outrights against the U.S. dollar and selectively against each other. Interest rate futures, both long and short term (including U.S. and non-U.S. bonds, notes, and euro products), stock indices, precious and industrial metals, and energy products are also traded in this program. These commodity interests are traded on futures exchanges but may also be traded in the interbank or cash markets when appropriate.
The following chart sets forth the percentage and the amount of the Partnerships net assets allocated to each Trading Advisor for the period ending December 31, 2011, and December 31, 2010, respectively, and the change during the applicable period.
- 41 -
Trading Advisor |
Allocations as
of December 31, 2011 (%) |
Allocations as of December 31, 2010 (%) |
Allocations as of December 31, 2011($) |
Allocations as of December 31, 2010 ($) |
Change during the period |
|||||||||||||||
Sunrise |
11.09 | % | 13.36 | % | 31,728,486 | 54,697,708 | -41.99 | % | ||||||||||||
EMC |
14.93 | % | 16.24 | % | 42,736,108 | 66,469,112 | -35.71 | % | ||||||||||||
Rabar |
22.24 | % | 22.04 | % | 63,642,556 | 90,188,985 | -29.43 | % | ||||||||||||
Northfield |
11.74 | % | 10.41 | % | 33,585,852 | 42,605,318 | -21.17 | % | ||||||||||||
Graham |
18.12 | % | 18.54 | % | 51,843,900 | 75,862,415 | -31.66 | % | ||||||||||||
Altis |
21.88 | % | 19.41 | % | 62,607,506 | 79,427,322 | -21.18 | % |
The following presents a summary of the Partnerships operations for each of the three years in the period ended December 31, 2011, 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 Partnerships results of operations set forth in the financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP), 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 original contract value and market value is recorded on the Statements of Income and Expenses as Net change in unrealized trading profit (loss) for open (unrealized) contracts, and recorded as Net realized trading profit (loss) when open positions are closed out. The sum of these amounts constitutes the
- 42 -
Partnerships 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 approximately 3:00 P.M. (E.T.), the close of the business day. Interest income, as well as management fees, incentive fees, and brokerage fees of the Partnership are recorded on an accrual basis.
Ceres 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.
The Partnership recorded total trading results including interest income totaling $(37,128,215) and expenses totaling $30,729,534, resulting in a net loss of $67,857,749 for the year ended December 31, 2011. The Partnerships net asset value per Unit decreased from $38.03 at December 31, 2010 to $31.24 at December 31, 2011. Total redemptions for the year were $55,248,703, and the Partnerships ending capital was $286,144,408 at December 31, 2011, a decrease of $123,106,452 from ending capital at December 31, 2010, of $409,250,860.
The most significant trading losses during the year were recorded within the global stock index markets, primarily during March, May, and June. In March, long positions in European, U.S., and Pacific Rim equity index futures resulted in losses as prices reversed lower amid concern that heightened tensions in the Middle East, as well as the natural disaster and subsequent nuclear crisis in Japan, may threaten the global
- 43 -
economic recovery. In May, losses were incurred from long positions in European and U.S. equity index futures as prices moved lower on concerns the global economic recovery was faltering. Additional losses were incurred in this sector during June from long positions in European, U.S., and Pacific Rim equity index futures as prices continued to move lower. Within the agricultural sector, losses were incurred in September from long futures positions in corn and soybeans as prices declined on speculation that Europes sovereign debt crisis may hinder the global economy, reducing demand for the grains. Additionally, corn futures prices continued to decline after a U.S. government report revealed bigger-than-expected U.S. inventories. Further losses were recorded during March from long positions in cocoa as prices fell to a 10-week low on signs that the political turmoil that hampered exports may be easing in the Ivory Coast, the worlds biggest producer of cocoa. Within the currency sector, losses were incurred in May from long positions in the euro and British pound versus the U.S. dollar as the value of these currencies moved lower against the U.S. dollar after Standard & Poors downgraded Greeces credit rating, prompting concern that the European sovereign debt crisis may escalate. Elsewhere, long positions in the Australian dollar and Canadian dollar versus the U.S. dollar resulted in losses as the value of these commodity currencies fell in tandem with declining commodity prices. Further losses were incurred during January from long positions in the Japanese yen and Australian dollar versus the U.S. dollar as the value of U.S. dollar moved higher following the release of minutes from the U.S. Federal Reserve meeting that showed optimism for the U.S. economy. Additionally, losses were incurred in August from long positions in the Australian dollar, New Zealand dollar, Japanese yen, and Canadian dollar versus the U.S. dollar as the value of the U.S. dollar was boosted higher against these currencies by safe haven demand following central bank intervention in the Japanese yen and amid concerns related to the European debt crisis. Within the metals
- 44 -
sector, losses were incurred in May from long futures positions in base metals, primarily aluminum, as prices fell after China restricted bank lending, spurring speculation anti-inflation policies may slow growth in the worlds second-biggest economy and biggest purchaser of base metals. A portion of the Partnerships losses for the year was offset by gains achieved within the global interest rate sector during July, August, and September from long positions in U.S. and European fixed income futures as prices rose on increased demand for the relative safety of government bonds due to concern about a faltering global economic recovery. Further gains were recorded during May from long positions in U.S. fixed-income futures as prices increased following reports that showed the U.S. economy grew less than forecast and U.S. jobless claims unexpectedly rose. Within the energy markets, gains were experienced during the first four months of the year from long positions in RBOB (unleaded) gas, gas oil, and heating oil as prices rose after protests in Egypt and Libya turned violent, prompting fear of contagion to other Middle Eastern and North African nations and causing concern that crude oil supplies may be disrupted.
The Partnership recorded total trading results including interest income totaling $34,009,565 and expenses totaling $36,722,512, resulting in a net loss of $2,712,947 for the year ended December 31, 2010. The Partnerships net asset value per Unit increased from $37.96 at December 31, 2009, to $38.03 at December 31, 2010. Total redemptions for the year were $52,681,240, and the Partnerships ending capital was $409,250,860 at December 31, 2010, a decrease of $55,394,187 from ending capital at December 31, 2009, of $464,645,047.
The most significant trading gains were experienced within the global interest rate sector from long positions in European, U.S., and Japanese fixed-income futures. In this sector, prices increased during the
- 45 -
first quarter on concerns that lending restrictions in China, possible reductions in U.S. stimulus measures, and Greeces fiscal struggles might stifle the global economic rebound. Prices were then pressured higher during the second quarter amid an unexpected drop in U.S. consumer confidence, increased regulatory scrutiny of the financial industry, and the growing European debt crisis. During the third quarter, prices continued to climb higher due to concern that European governments may struggle to repay their debt and Chinese economic growth may be slowing. Within the agricultural complex, gains were experienced primarily during September, October, and December from long futures positions in the soybean complex and corn as prices increased after the U.S. Department of Agriculture said domestic and world supplies of these crops would be smaller than forecast and adverse weather threatened crops in South America. Further gains were recorded in October from long positions in sugar futures as prices rose amid worries that dry weather and port delays would curb shipments from Brazil, the worlds biggest producer of sugar. Within the currency markets, gains were achieved primarily during September, October, and December. During September, long positions in the Australian dollar versus the U.S. dollar and Canadian dollar resulted in gains as the value of the Australian dollar rose against these currencies amid speculation that the Reserve Bank of Australia may raise interest rates in October. Gains were also achieved during October from long positions in the Japanese yen, euro, and New Zealand dollar versus the U.S. dollar as the value of the U.S. dollar fell against these currencies after a report revealed U.S. private-sector employment unexpectedly dropped in September, fueling worries that the U.S. Federal Reserve would undertake additional quantitative easing. During December, short positions in the British pound versus the Australian dollar, Japanese yen, and Swiss franc resulted in gains as the value of the British pound declined against these currencies following lower-than-expected mortgage approval figures in the United Kingdom. In the metals
- 46 -
markets, gains were recorded primarily during March from long futures positions in nickel, copper, and aluminum as prices rose after China indicated it might boost state reserves of base metals. Throughout September, October, November, and December, long futures positions in silver and gold resulted in additional gains for the metals sector as prices rose amid increased demand for the precious metals due to a drop in the value of the U.S. dollar, with silver futures rallying to a 30-year high and gold prices reaching a new all-time high. A portion of the Partnerships gains for the year was offset by losses recorded in the energy markets, primarily during January, from long futures positions in crude oil and its related products as prices declined amid speculation that Chinas economic activity and energy demand may ease. Throughout May, long futures positions in crude oil and its related products resulted in additional losses as prices declined on continued worries that Europes debt troubles might slow down the global economic recovery and thereby weaken energy demand. Within the global stock index sector, losses were incurred primarily during January from long positions in European, U.S., and Pacific Rim equity index futures as prices moved lower amid disappointing U.S. corporate earnings reports and mounting concerns over sovereign debt defaults from a number of European countries. During May and June, further losses were incurred from long positions in European, U.S., and Japanese equity-index futures as prices moved lower on growing concerns that Greeces sovereign debt crisis might spread throughout Europe. Additional losses were recorded during August from long positions in European and U.S. equity index futures as prices fell after the U.S. Federal Reserve said the pace of economic recovery is likely to be more modest than forecast and a report revealed U.S. productivity unexpectedly fell in the second quarter.
- 47 -
The Partnership recorded total trading results including interest income totaling $2,428,936 and expenses totaling $42,984,777, resulting in a net loss of $40,555,841 for the year ended December 31, 2009. The Partnerships net asset value per Unit decreased from $40.80 at December 31, 2008, to $37.96 at December 31, 2009. Total redemptions for the year were $100,683,490, and the Partnerships ending capital was $464,645,047 at December 31, 2009, a decrease of $141,239,331 from ending capital at December 31, 2008, of $605,884,378.
The most significant trading losses of approximately 4.1% were incurred within the global interest rate sector, primarily during January, March, April, and June, from long positions in U.S., European, and Japanese fixed-income futures as prices dropped following news that debt sales might increase as governments around the world boosted spending in an effort to ease the deepening economic slump. Newly established short positions in European, U.S., and Japanese fixed-income futures resulted in further losses, primarily during July, as prices moved higher on investor sentiment that the slow pace of the global economic recovery and signs of moderate inflation might lead central banks in these regions to maintain low interest rates in the near term. Additional losses were recorded during August from newly established long positions in European fixed-income futures as prices reversed lower at the beginning of the month amid a rise in the European equity markets, thus reducing demand for the relative safety of government bonds. During December, further losses were incurred from long positions in U.S. and European fixed-income futures as prices fell sharply amid concern that an unprecedented supply of government bonds might outweigh demand as governments around the world were issuing record amounts of debt to finance economic stimulus measures. Losses of approximately 1.4% were experienced in the energy sector
- 48 -
primarily during July from short futures positions in crude oil and its related products as prices moved higher during the latter half of the month amid better-than-expected quarterly earnings reports and positive economic data. During August, newly established long futures positions in crude oil and its related products recorded additional losses as prices reversed lower due to above-average U.S. stockpiles. Further losses were incurred during October from long futures positions in crude oil and its related products as prices reversed lower after government reports showed U.S. consumer spending dropped for the first time in seven months. Additional losses of approximately 1.3% were recorded in the currency sector, primarily during March, from short positions in the Swiss franc and euro versus the U.S. dollar as the value of the U.S. dollar decreased relative to most of its rivals following the U.S. Federal Reserves surprise plans to begin a more aggressive phase of quantitative easing and economic stimulus spending. Additional losses were recorded during June and July from long positions in the Swiss franc and euro versus the U.S. dollar as the value of the U.S. dollar reversed higher against these currencies following better-than-expected U.S. payrolls and durable goods data. Elsewhere, long positions in the Mexican peso versus the U.S. dollar incurred losses, primarily during July and August, as the value of the Mexican peso declined on concerns that Mexico might take longer to recover from a recession than investors previously estimated. Long positions in the British pound versus the U.S. dollar also experienced losses as the British pound fell during August and September on news that U.K. consumer confidence rose to the highest level in more than a year and Bank of England officials indicated inflation might remain low. Lastly, losses were incurred from long positions in the Japanese yen versus the U.S. dollar primarily in December as the value of the U.S. dollar moved higher on speculation that the U.S. Federal Reserve might raise interest rates earlier than expected in the wake of positive economic data and consistent strength in the equity markets. Smaller
- 49 -
losses of approximately 0.1% were recorded in the agricultural complex primarily during June as coffee futures prices reversed lower and fell throughout a majority of the third quarter amid expectations of higher global output due to favorable weather conditions in the worlds major growing regions, thus resulting in losses from long positions. Elsewhere, losses were recorded from long and short futures positions in the soybean complex as prices moved without consistent direction during July and August amid conflicting reports regarding supply and demand. A portion of the Partnerships losses was offset by gains of approximately 4.0% achieved within the metals complex, primarily during July and August, from long futures positions in copper as prices rose following news of an economic expansion in China during the second quarter of 2009, thereby spurring speculation that Chinas demand for base metals might rise. In December, additional gains were recorded as prices of copper futures rose to a 15-month high after workers at the worlds second-biggest copper mine in Chile voted to go on strike, thereby threatening the global supply. Meanwhile, gains were achieved from long positions in gold futures primarily during October and November as prices rose due to concerns of a rise in inflation, as well as amid a drop in the value of the U.S. dollar, which spurred demand for the precious metal as an alternative investment. Lastly, gains of approximately 3.9% were recorded within the global stock index markets throughout July, August, and September from long positions in European, U.S., and Hong Kong equity index futures as prices increased due to positive economic data and increased merger and acquisition activity in the technology sector. Further gains were achieved from long positions in European and U.S. global stock index futures as prices continued to increase throughout November and December after positive economic data and strong corporate earnings reports reinforced optimism that the global economic recovery might be gaining momentum.
- 50 -
For an analysis of unrealized gains and (losses) by contract type and a further description of 2011 trading results, refer to the Partnerships Annual Report to Limited Partners for the year ended December 31, 2011, which is incorporated by reference to Exhibit 13.01 of this Form 10-K.
The Partnerships gains and losses are allocated among its partners for income tax purposes.
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.
Market Risk.
The Partnership is a party to financial instruments with elements of off-balance sheet market and credit risk. The Partnership trades futures contracts, options on futures and forward 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. In entering into these contracts, the Partnership is subject to the market risk that such contracts may be significantly influenced by market conditions, such as interest rate volatility, resulting in such contracts being less valuable. If the markets should move against all of the positions held by the Partnership at the same time, and the Trading Advisors were unable to offset positions of the Partnership, the Partnership could lose all of its assets and the limited partners would realize a loss equal to 100% of their capital accounts.
- 51 -
In addition to the Trading Advisors internal controls, the Trading Advisors must comply with the Partnerships trading policies that include standards for liquidity and leverage that must be maintained. The Trading Advisors and Ceres monitor the Partnerships trading activities to ensure compliance with the trading policies and Ceres can require the Trading Advisors to modify positions of the Partnership if Ceres believes they violate the Partnerships trading policies.
Credit Risk.
In addition to market risk, in entering into futures, forward and options contracts, there is a credit risk to the Partnership that the counterparty on a contract will not be able to meet its obligations to the Partnership. The ultimate counterparty or guarantor of the Partnership for futures, forward and options contracts traded in the United States and most foreign exchanges on which the Partnership trades is the clearinghouse associated with such exchange. In general, a clearinghouse is backed by the membership of the exchange and will act in the event of non-performance by one of its members or one of its members customers, which should significantly reduce this credit risk. There is no assurance that a clearinghouse, exchange, or other exchange member will meet its obligations to the Partnership, and Ceres and the commodity brokers will not indemnify the Partnership against a default by such parties. Further, the law is unclear as to whether a commodity broker has any obligation to protect its customers from loss in the event of an exchange or clearinghouse defaulting on trades effected for the brokers customers. In cases where the Partnership trades off-exchange forward contracts with a counterparty, the sole recourse of the Partnership will be the forward contracts counterparty.
- 52 -
Ceres deals with these credit risks of the Partnership in several ways. First, Ceres monitors the Partnerships credit exposure to each exchange on a daily basis. The commodity brokers inform the Partnership, as with all of their customers, of the Partnerships net margin requirements for all of its existing open positions, and Ceres has installed a system which permits it to monitor the Partnerships potential net credit exposure, exchange by exchange, by adding the unrealized trading gains on each exchange, if any, to the Partnerships margin liability thereon.
Second, the Partnerships trading policies limit the amount of its net assets that can be committed at any given time to futures contracts and require a minimum amount of diversification in the Partnerships trading, usually over several different products and exchanges. Historically, the Partnerships exposure to any one exchange has typically amounted to only a small percentage of its total net assets and on those relatively few occasions where the Partnerships credit exposure climbs above such level, Ceres deals with the situation on a case by case basis, carefully weighing whether the increased level of credit exposure remains appropriate. Material changes to the trading policies may be made only with the prior written approval of the limited partners owning more than 50% of Units then outstanding.
Third, with respect to forward and options on forward contract trading, the Partnership trades with only those counterparties which Ceres, together with MS&Co., has determined to be creditworthy. The Partnership presently deals with MS&Co. as the sole counterparty on all trading of foreign currency forward contracts and MSCG as the sole counterparty on all trading of options on foreign currency forward contracts.
- 53 -
For additional information, see the Financial Instruments section under Notes to Financial Statements in the Partnerships Annual Report to Limited Partners for the year ended December 31, 2011, which is incorporated by reference to Exhibit 13.01 of this Form 10-K.
Inflation has not been a major factor in the Partnerships operations.
Fair Value Measurements and Disclosures
Financial instruments are carried at fair value, which is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Assets and liabilities carried at fair value are classified and disclosed in the following three levels: Level 1 unadjusted quoted market prices in active markets for identical assets and liabilities; Level 2 inputs other than unadjusted quoted market prices that are observable for the asset or liability, either directly or indirectly (including quoted market prices for similar investments, interest rates and credit risk); and Level 3 unobservable inputs for the asset or liability (including the Partnerships own assumptions used in determining the fair value of investments).
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investments level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The Partnerships assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment.
- 54 -
The Partnerships assets and liabilities measured at fair value on a recurring basis are summarized in the following tables by the type of inputs applicable to the fair value measurements.
December 31, 2011 |
Unadjusted Quoted Prices in Active Markets for Identical Assets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
Total | ||||||||||
$ | $ | $ | $ | |||||||||||
Assets |
||||||||||||||
Futures |
11,006,486 | | n/a | 11,006,486 | ||||||||||
Forwards |
| 729,350 | n/a | 729,350 | ||||||||||
|
|
|
|
|
|
|||||||||
Total Assets |
11,006,486 | 729,350 | n/a | 11,735,836 | ||||||||||
|
|
|
|
|
|
|||||||||
Liabilities |
||||||||||||||
Futures |
3,707,388 | | n/a | 3,707,388 | ||||||||||
Forwards |
| 322,961 | n/a | 322,961 | ||||||||||
|
|
|
|
|
|
|||||||||
Total Liabilities |
3,707,388 | 322,961 | n/a | 4,030,349 | ||||||||||
|
|
|
|
|
|
|||||||||
Unrealized currency loss |
(1,303,588 | ) | ||||||||||||
|
|
|||||||||||||
*Net fair value |
7,299,098 | 406,389 | n/a | 6,401,899 | ||||||||||
|
|
|
|
|
|
|||||||||
December 31, 2010 |
Unadjusted Quoted Prices in Active Markets for Identical Assets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
Total | ||||||||||
$ | $ | $ | $ | |||||||||||
Assets |
||||||||||||||
Futures |
22,348,537 | | n/a | 22,348,537 | ||||||||||
Forwards |
| 3,248,292 | n/a | 3,248,292 | ||||||||||
|
|
|
|
|
|
|||||||||
Total Assets |
22,348,537 | 3,248,292 | n/a | 25,596,829 | ||||||||||
|
|
|
|
|
|
|||||||||
Liabilities |
||||||||||||||
Futures |
4,839,789 | | n/a | 4,839,789 | ||||||||||
Forwards |
| 218,049 | n/a | 218,049 | ||||||||||
|
|
|
|
|
|
|||||||||
Total Liabilities |
4,839,789 | 218,049 | n/a | 5,057,838 | ||||||||||
|
|
|
|
|
|
|||||||||
Unrealized currency loss |
(735,824 | ) | ||||||||||||
|
|
|||||||||||||
*Net fair value |
17,508,748 | 3,030,243 | n/a | 19,803,167 | ||||||||||
|
|
|
|
|
|
* | This amount comprises of the Total net unrealized gain on open contracts on the Statements of Financial Condition. |
- 55 -
Derivatives and Hedging
The Partnerships objective is to profit from speculative trading in Futures Interests. Therefore, the Trading Advisors for the Partnership will take speculative positions in Futures Interests where they feel the best profit opportunities exist for their trading strategy. As such, the average number of contracts outstanding in absolute quantity (the total of the open long and open short positions) has been presented as a part of the volume disclosure, as position direction is not an indicative factor in such volume disclosures. With regard to foreign currency forward trades, each notional quantity amount has been converted to an equivalent contract based upon an industry convention.
As of December 31, 2011, approximately 86.4% of the Partnerships total investments are futures contracts which are exchange-traded while approximately 13.6% are forward contracts which are off-exchange traded.
The following tables summarize the valuation of the Partnerships investments as of December 31, 2011 and 2010, respectively.
- 56 -
The Effect of Trading Activities on the Statements of Financial Condition as of December 31, 2011:
Futures and Forward Contracts |
Long Unrealized Gain |
Long Unrealized Loss |
Short Unrealized Gain |
Short Unrealized Loss |
Net Unrealized Gain/(Loss) |
Average number of contracts outstanding for the year (absolute quantity) |
||||||||||||||||||
$ | $ | $ | $ | $ | ||||||||||||||||||||
Commodity |
418,029 | (822,942 | ) | 4,381,649 | (2,417,431 | ) | 1,559,305 | 4,077 | ||||||||||||||||
Equity |
307,762 | (7,656 | ) | 94,660 | (143,961 | ) | 250,805 | 1,386 | ||||||||||||||||
Foreign currency |
739,841 | (106,865 | ) | 2,115,906 | (300,292 | ) | 2,448,590 | 7,744 | ||||||||||||||||
Interest rate |
3,538,706 | (109,261 | ) | 139,283 | (121,941 | ) | 3,446,787 | 7,073 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total |
5,004,338 | (1,046,724 | ) | 6,731,498 | (2,983,625 | ) | 7,705,487 | |||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Unrealized currency loss |
(1,303,588 | ) | ||||||||||||||||||||||
|
|
|||||||||||||||||||||||
Total net unrealized gain on open contracts |
6,401,899 | |||||||||||||||||||||||
|
|
The Effect of Trading Activities on the Statements of Financial Condition as of December 31, 2010:
Futures and Forward Contracts |
Long Unrealized Gain |
Long Unrealized Loss |
Short Unrealized Gain |
Short Unrealized Loss |
Net Unrealized Gain/(Loss) |
Average number of contracts outstanding for the year (absolute quantity) |
||||||||||||||||||
$ | $ | $ | $ | $ | ||||||||||||||||||||
Commodity |
13,583,270 | (1,631,233 | ) | | (1,310,915 | ) | 10,641,122 | 5,409 | ||||||||||||||||
Equity |
762,962 | (500,929 | ) | 239,908 | (5,232 | ) | 496,709 | 2,069 | ||||||||||||||||
Foreign currency |
6,060,140 | (193,557 | ) | 3,957,095 | (524,581 | ) | 9,299,097 | 7,961 | ||||||||||||||||
Interest rate |
662,741 | (58,143 | ) | 330,713 | (833,248 | ) | 102,063 | 7,714 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total |
21,069,113 | (2,383,862 | ) | 4,527,716 | (2,673,976 | ) | 20,538,991 | |||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Unrealized currency loss |
(735,824 | ) | ||||||||||||||||||||||
|
|
|||||||||||||||||||||||
Total net unrealized gain on open contracts |
19,803,167 | |||||||||||||||||||||||
|
|
The following tables summarize the net trading results of the Partnership for the years ended December 31, 2011, 2010 and 2009, respectively.
- 57 -
The Effect of Trading Activities on the Statements of Income and Expenses for the year ended December 31, 2011 included in Total Trading Results:
Type of Instrument |
$ | |||
Commodity |
(17,215,862 | ) | ||
Equity |
(27,174,382 | ) | ||
Foreign currency |
(11,400,426 | ) | ||
Interest rate |
19,104,345 | |||
Unrealized currency loss |
(567,763 | ) | ||
|
|
|||
Total |
(37,254,088 | ) | ||
|
|
Line Items on the Statements of Income and Expenses for the year ended December 31, 2011:
Trading Results |
$ | |||
Net Realized |
(23,852,820 | ) | ||
Net change in unrealized |
(13,401,268 | ) | ||
|
|
|||
Total Trading Results |
(37,254,088 | ) | ||
|
|
The Effect of Trading Activities on the Statements of Income and Expenses for the year ended December 31, 2010 included in Total Trading Results:
Type of Instrument |
$ | |||
Commodity |
10,078,791 | |||
Equity |
(14,372,116 | ) | ||
Foreign currency |
13,050,193 | |||
Interest rate |
24,513,376 | |||
Unrealized currency gain |
31,129 | |||
Proceeds from Litigation |
337,120 | |||
|
|
|||
Total |
33,638,493 | |||
|
|
Line Items on the Statements of Income and Expenses for the year ended December 31, 2010:
Trading Results |
$ | |||
Net Realized |
25,513,507 | |||
Net change in unrealized |
7,787,866 | |||
Proceeds from Litigation |
337,120 | |||
|
|
|||
Total Trading Results |
33,638,493 | |||
|
|
- 58 -
The Effect of Trading Activities on the Statements of Income and Expenses for the year ended December 31, 2009 included in Total Trading Results:
Type of Instrument |
$ | |||
Commodity |
10,512,655 | |||
Equity |
23,140,270 | |||
Foreign currency |
(11,446,352 | ) | ||
Interest rate |
(20,962,448 | ) | ||
Unrealized currency gain |
768,289 | |||
|
|
|||
Total |
2,012,414 | |||
|
|
Line Items on the Statements of Income and Expenses for the year ended December 31, 2009:
Trading Results |
$ | |||
Net Realized |
16,042,877 | |||
Net change in unrealized |
(14,030,463 | ) | ||
|
|
|||
Total Trading Results |
2,012,414 | |||
|
|
Other Pronouncements
In December 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2011-11, Disclosures about Offsetting Assets and Liabilities, which creates a new disclosure requirement about the nature of an entitys rights of setoff and the related arrangements associated with its financial instruments and derivative instruments. Entities are required to disclose both gross information and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. The objective of this disclosure is to facilitate comparison between those entities that prepare their financial statements on the basis of U.S. GAAP and those entities that prepare their financial statements on the basis of International Financial Reporting Standards (IFRS). The disclosure requirements are effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. The Partnership should also provide the disclosures retrospectively for all comparative periods presented. The Partnership is currently evaluating the impact that the pronouncement would have on the financial statements.
- 59 -
In October 2011, the FASB issued a proposed ASU intended to improve and converge financial reporting by setting forth consistent criteria for determining whether an entity is an investment company. Under longstanding U.S. GAAP, investment companies carry all of their investments at fair value, even if they hold a controlling interest in another company. The primary changes being proposed by the FASB relate to which entities would be considered investment companies as well as certain disclosure and presentation requirements. In addition to the changes to the criteria for determining whether an entity is an investment company, the FASB also proposes that an investment company consolidate another investment company if it holds a controlling financial interest in the entity. The Partnership will evaluate the impact that this proposed update would have on the financial statements once the pronouncement is issued.
In May 2011, the FASB issued ASU 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS. The amendments within this ASU change the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements to eliminate unnecessary wording differences between U.S. GAAP and IFRS. However, some of the amendments clarify the FASBs intent about the application of existing fair value measurement requirements and other amendments change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements. The ASU is effective for annual and interim periods beginning after December 15, 2011 for public entities. This new guidance is not expected to have a material impact on the Partnerships financial statements.
- 60 -
Subsequent Events
Management performed its evaluation of subsequent events and has determined that there were no subsequent events requiring adjustment or disclosure in the financial statements.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Introduction
The Partnership is a commodity pool engaged primarily in the speculative trading of futures, forwards and options. The market-sensitive instruments held by the Partnership are acquired for speculative trading purposes only and, as a result, all or substantially all of the Partnerships 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 on such contracts 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 Partnerships 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 and forward currency options contracts are settled upon termination of the contract. Gains and losses on off-exchange-traded forward currency options contracts are settled upon an agreed upon settlement date. However, the Partnership is required to
- 61 -
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 MSSB for the benefit of MS&Co.
The Partnerships 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 Partnerships 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 Partnerships past performance is no guarantee of its future results. Any attempt to numerically quantify the Partnerships market risk is limited by the uncertainty of its speculative trading. The Partnerships speculative trading and use of leverage may cause future losses and volatility (i.e., risk of ruin) that far exceed the Partnerships experience to date under the Partnerships 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.
- 62 -
Quantifying the Partnerships Trading Value at Risk
The following quantitative disclosures regarding the Partnerships 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 fair value accounting principles. Any loss in the market value of the Partnerships open positions is directly reflected in the Partnerships earnings and cash flow.
The Partnerships risk exposure in the market sectors traded by the Trading Advisors is estimated below in terms of VaR. Prior to June 30, 2011, the Partnership estimated VaR using a model based upon historical simulation (with a confidence level of 99%) which involved constructing a distribution of hypothetical daily changes in the value of a trading portfolio. The VaR model took into account linear exposures to risks including equity and commodity prices, interest rates, foreign exchange rates, and correlation among these variables. The hypothetical changes in portfolio value were based on daily percentage changes observed in key market indices or other market factors (market risk factors) to which the portfolio was sensitive. The one-day 99% confidence level of the Partnerships VaR corresponded to the negative change in portfolio value that, based on observed market risk factors, would have been exceeded once in
- 63 -
100 trading days, or one day in 100. VaR typically does not represent the worst case outcome. Ceres used approximately four years of daily market data (1,000 observations) and re-valued its portfolio (using delta-gamma approximations) for each of the historical market moves that occurred over this time period. This generated 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 Ceres simulated profit and loss series.
The Partnerships 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 Partnerships, 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 Ceres 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.
Starting with the third quarter 2011, exchange maintenance margin requirements have been used by the Partnership as the measure of its VaR. Maintenance margin requirements are set by exchanges to equal or exceed the maximum losses reasonably expected to be incurred in the fair value of any given contract in 95% 99% of any one-day interval. Maintenance margin has been used rather than the more generally available initial margin, because initial margin includes a credit risk component, which is not relevant to VaR.
- 64 -
The Partnerships Value at Risk in Different Market Sectors
The following tables indicate the trading VaR associated with the Partnerships open positions by market category as of December 31, 2011 and the highest, lowest and average values during the twelve months ended December 31, 2011. All open position trading risk exposure of the Partnership have been included in calculating the figures set forth below. As of December 31, 2011, the Partnerships total capitalization was approximately $286 million.
Primary Market Risk Category |
VaR | %
of Total Capitalization |
||||||
Currency |
$ | 13,024,311 | 4.55 | % | ||||
Interest Rate |
11,060,388 | 3.87 | % | |||||
Equity |
4,307,985 | 1.51 | % | |||||
Commodity |
14,181,413 | 4.96 | % | |||||
|
|
|
|
|||||
Total |
$ | 42,574,097 | 14.89 | % | ||||
|
|
|
|
Twelve Months Ended December 31, 2011 | ||||||||||||
Market Sector |
High VaR | Low VaR | Average VaR* | |||||||||
Currency |
$ | 18,329,898 | $ | 4,243,012 | $ | 7,986,820 | ||||||
Interest Rate |
$ | 11,060,388 | $ | 2,334,453 | $ | 4,662,626 | ||||||
Equity |
$ | 10,612,203 | $ | 2,560,198 | $ | 3,790,165 | ||||||
Commodity |
$ | 15,407,368 | $ | 1,675,397 | $ | 9,512,117 |
* | Average of month-end VaR. |
- 65 -
The following table indicates the VaR associated with the Partnerships open positions as a percentage of total Partners Capital by primary market risk category at December 31, 2010. At December 31, 2010, the Partnerships total capitalization was approximately $409 million.
Primary Market Risk Category |
December 31, 2010 VaR |
|||
Equity |
(1.48 | )% | ||
Currency |
(1.01 | ) | ||
Interest Rate |
(0.25 | ) | ||
Commodity |
(3.93 | ) | ||
Aggregate Value at Risk |
(5.76 | )% |
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 Partnerships 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 on such contracts, 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.
- 66 -
The table below supplements the December 31, 2010 VaR set forth above by presenting the Partnerships high, low, and average VaR, as a percentage of total net assets for the four quarter-end reporting periods from January 1, 2010 through December 31, 2010.
December 31, 2010 | ||||||||||||
Primary Market Risk Category |
High | Low | Average | |||||||||
Equity |
(3.01 | )% | (0.46 | )% | (1.90 | )% | ||||||
Currency |
(1.12 | ) | (0.39 | ) | (0.81 | ) | ||||||
Interest Rate |
(0.97 | ) | (0.25 | ) | (0.67 | ) | ||||||
Commodity |
(3.93 | ) | (0.94 | ) | (2.28 | ) | ||||||
Aggregate Value at Risk |
(5.76 | )% | (1.55 | )% | (4.19 | )% |
Limitations on Value at Risk as an Assessment of Market Risk
VaR models permit estimation of a portfolios 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 methodologys 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; |
- 67 -
| 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 Partnerships potential risk of ruin.
The VaR tables provided present the results of the Partnerships VaR for each of the Partnerships market risk exposures at December 31, 2011 and market risk exposure and on an aggregate basis at December 31, 2010, and for the four quarter-end reporting periods during calendar years 2011 and 2010. VaR is not necessarily representative of the Partnerships historic risk, nor should it be used to predict the Partnerships future financial performance or its ability to manage or monitor risk. There can be no assurance that the Partnerships actual losses on a particular day will not exceed the VaR amounts indicated above or that such losses will not occur more than once in 100 trading days.
Non-Trading Risk
The Partnership has non-trading market risk on its foreign cash balances not needed for margin. These balances and any market risk they may represent are immaterial.
- 68 -
The Partnership also maintains a substantial portion of its available assets in cash at MSSB; as of December 31, 2011, such amount is equal to approximately 80% of the Partnerships net asset value. A decline in short-term interest rates would result in a decline in the Partnerships 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 Partnerships market-sensitive instruments, in relation to the Partnerships net assets.
Qualitative Disclosures Regarding Primary Trading Risk Exposures
The following qualitative disclosures regarding the Partnerships 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 Partnerships primary market risk exposures, as well as the strategies used and to be used by Ceres and the Trading Advisors for managing such exposures, are subject to numerous uncertainties, contingencies and risks, any any one of which could cause the actual results of the Partnerships 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
- 69 -
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 Trading Advisors, in general, tend to utilize trading system(s) to take positions when market opportunities develop, and Ceres anticipates that the Trading Advisors will continue to do so.
The following were the primary trading risk exposures of the Partnership at December 31, 2011 by market sector. It may be anticipated, however, that these market exposures will vary materially over time.
Currencies. The Partnerships currency exposure is to exchange rate fluctuations, primarily fluctuations which disrupt the historical pricing relationships between different currencies and currency pairs. These fluctuations are influenced by interest rate changes as well as political and general economic conditions. The General Partner does not anticipate that the risk profile of the Partnerships currency sector will change significantly in the future.
Interest Rates. Interest rate movements directly affect the price of the futures positions held by the Partnership and indirectly 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
- 70 -
Partnerships profitability. The Partnerships primary interest rate exposure is to interest rate fluctuations in the United States and the other G-8 countries. However, the Partnership also take futures positions on the government debt of smaller nations e.g., Australia.
Equities. The Partnerships primary equity exposure is to equity price risk in the G-8 countries. The stock index futures traded by the Partnership are limited to futures on broadly based indices. As of December 31, 2011 the Partnerships primary exposures were in the Topix (Japan), S&P 500 (U.S.), Dow Jones Industrials (U.S.), and Nikkei (Japan) stock indices. The Partnership is primarily exposed to the risk of adverse price trends or static markets in the major North American, European, and Pacific Rim indices. (Static markets would not cause major market changes but would make it difficult for the Partnership to avoid being whipsawed into numerous small losses.)
Commodity.
Energy. The Partnerships primary energy market exposure is to natural gas and oil price movements, often resulting from political developments in the Middle East and weather conditions. Energy prices can be volatile and substantial profits and losses, which have been experienced in the past, are expected to continue to be experienced in these markets in the future.
Metals. The Partnerships primary metal market exposure as of December 31, 2011 was to fluctuations in the price of aluminum, copper, silver, and gold.
- 71 -
Softs. The Partnerships trading risk exposure in the soft commodities is primarily to agricultural-related price movements which are often directly affected by severe or unexpected weather conditions. Cotton, cocoa, and sugar accounted for the majority of the Partnerships soft commodities exposure as of December 31, 2011.
Grains. The Partnerships trading risk exposure in the grains is primarily to agricultural price movements which are often directly affected by severe or unexpected weather conditions. The soybean complex, corn, and wheat accounted for the majority of the Partnerships grain exposure as of December 31, 2011.
Qualitative Disclosures Regarding Means of Managing Risk Exposure
The Partnership and the Trading Advisors, separately, attempt to manage the risk of the Partnerships open positions in essentially the same manner in all market categories traded. Ceres attempts to manage market exposure by diversifying the Partnerships assets among different market sectors and trading approaches through the selection of Commodity Trading Advisors and by daily monitoring their performance. 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.
Ceres monitors and controls the risk of the Partnerships non-trading instrument, cash. Cash is the only Partnership investment directed by Ceres, rather than the Trading Advisors.
- 72 -
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements are incorporated by reference to the Partnerships Annual Report, which is filed as Exhibit 13.01 hereto.
Supplementary data specified by Item 302 of Regulation S-K:
Summary of Quarterly Results (Unaudited)
Quarter Ended |
Total Trading
Results including interest income |
Net Income/(Loss) |
Net Income/ (Loss) Per Unit |
|||||||||
2011 |
||||||||||||
March 31 |
$ | (7,630,025 | ) | $ | (16,840,726 | ) | $ | (1.59 | ) | |||
June 30 |
(15,477,738 | ) | (24,315,962 | ) | (2.41 | ) | ||||||
September 30 |
4,518,037 | (2,168,780 | ) | (0.24 | ) | |||||||
December 31 |
(18,538,489 | ) | (24,532,281 | ) | (2.55 | ) | ||||||
|
|
|
|
|
|
|||||||
Total |
$ | (37,128,215 | ) | $ | (67,857,749 | ) | $ | (6.79 | ) | |||
|
|
|
|
|
|
|||||||
2010 |
||||||||||||
March 31 |
$ | (12,258,341 | ) | $ | (21,387,532 | ) | $ | (1.74 | ) | |||
June 30 |
(22,545,550 | ) | (31,288,554 | ) | (2.65 | ) | ||||||
September 30 |
30,451,831 | 22,055,734 | 1.94 | |||||||||
December 31 |
38,361,625 | 27,907,405 | 2.52 | |||||||||
|
|
|
|
|
|
|||||||
Total |
$ | 34,009,565 | $ | (2,712,947 | ) | $ | 0.07 | |||||
|
|
|
|
|
|
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
- 73 -
Item 9A. CONTROLS AND PROCEDURES
As of the end of the period covered by this annual report, the President and Chief Financial Officer of Ceres have evaluated the effectiveness of the Partnerships 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.
Managements Report on Internal Control Over Financial Reporting
Ceres is responsible for the management of the Partnership.
Management is responsible for establishing and maintaining adequate internal control over financial reporting. The internal control over financial reporting is designed 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.
The Partnerships internal control over financial reporting includes those policies and procedures that:
| Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Partnership; |
| Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that the Partnerships transactions are being made only in accordance with authorizations of Management and directors of Ceres; and |
- 74 -
| Provide reasonable assurance regarding prevention or timely detection and correction of unauthorized acquisition, use or disposition of the Partnerships assets that could have a material effect on the financial statements. |
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of the Partnerships internal control over financial reporting as of December 31, 2011. In making this assessment, Management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework. Based on our assessment and those criteria, Management believes that the Partnership maintained effective internal control over financial reporting as of December 31, 2011.
Changes in Internal Control over Financial Reporting
There have been no material changes during the period covered by this annual report in the Partnerships internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that have materially affected or are reasonably likely to affect the Partnerships internal control over financial reporting.
- 75 -
Limitations on the Effectiveness of Controls
Any control system, no matter how well designed and operated, can provide reasonable (not absolute) assurance that its objectives will be met. Furthermore, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.
None.
- 76 -
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The Partnership has no officers or directors and its affairs are managed by its General Partner. Investment decisions are made by the Advisors.
The officers and directors of the General Partner are Walter Davis (President and Chairman of the Board of Directors), Brian Centner (Chief Financial Officer, Principal Accounting Officer), Colbert Narcisse (Director), Douglas J. Ketterer (Director), Ian Bernstein (Director), Harry Handler (Director), Patrick T. Egan (Director) and Alper Daglioglu (Director). Each director holds office until the earlier of his or her death, resignation or removal. Vacancies on the board of directors may be filled by either (i) the majority vote of the remaining directors or (ii) MSSBH, as the sole member of the General Partner. The officers of the General Partner are designated by the General Partners board of directors. Each officer will hold office until his or her successor is designated and qualified or until his or her death, resignation or removal.
Walter Davis, age 47, has been President and Chairman of the Board of Directors of the General Partner since June 2010, where his responsibilities include oversight of the General Partners funds and accounts. Since June 2010, Mr. Davis has been a principal and registered as an associated person of the General Partner, and is an associate member of the NFA. Since June 2009, Mr. Davis has been employed by Morgan Stanley Smith Barney LLC (Morgan Stanley Smith Barney), a financial services firm, where his responsibilities include serving as Managing Director and the Director of the Managed Futures Department. Since June 2009, Mr. Davis has been registered as an associated person of Morgan Stanley
- 77 -
Smith Barney. From May 2006 through June 2010, Mr. Davis served as President and Chairman of the Board of Directors of Demeter Management LLC (Demeter), a registered commodity pool operator, where his responsibilities included oversight of Demeters funds and accounts. From May 2006 through December 2010, Mr. Davis was listed as a principal of Demeter, and from July 2006 through December 2010, Mr. Davis was registered as an associated person of Demeter. From April 2007 through June 2009, Mr. Davis was employed by Morgan Stanley & Co. LLC (MS & Co.), a financial services firm, where his responsibilities included serving as the Managing Director and the Director of the Managed Futures Department. From April 2007 through June 2009, Mr. Davis was registered as an associated person of MS & Co. From August 2006 through April 2007, Mr. Davis was employed by Morgan Stanley DW Inc., a financial services firm, where his responsibilities included serving as Managing Director and the Director of the Managed Futures Department. From August 2006 through April 2007, Mr. Davis was registered as an associated person of Morgan Stanley DW Inc. From September 1999 through August 2006, Mr. Davis was employed by MS & Co., a financial services firm, where his responsibilities included oversight of the sales and marketing of MS & Co.s managed futures funds to high net worth and institutional investors on a global basis. From January 1992 through September 1999, Mr. Davis was employed by Chase Manhattan Banks Alternative Investment Group, an alternative investment group, where his responsibilities included marketing managed futures funds to high net worth investors, as well as developing and structuring managed futures funds. Mr. Davis earned his Bachelor of Arts degree in Economics in May 1987 from the University of the South and his Master of Business Administration in Finance and International Business in May 1992 from Columbia University Graduate School of Business.
- 78 -
Brian Centner, age 34, has been the Chief Financial Officer and a principal of the General Partner since September 2011. Since July 2009, Mr. Centner has been employed by Morgan Stanley Smith Barney, a financial services firm, where his responsibilities include oversight of accounting and financial and regulatory reporting of the General Partners managed futures funds. From February 2003 through July 2009, Mr. Centner was employed by Citi Alternative Investments (CAI), a division of Citigroup, a financial services firm, which administered Citigroups hedge fund and fund of funds business, where he served as Senior Vice President responsible for the accounting and financial and regulatory reporting of CAIs managed futures funds. From June 2002 through February 2003, Mr. Centner was employed by KPMG LLP, a U.S. audit, tax and advisory services firm, as a Senior Associate within the Investment Management division, where his responsibilities included performing audits and attestation services for financial services firms. From September 2000 through June 2002, Mr. Centner was employed by Arthur Andersen LLP, a U.S. audit, tax and advisory services firm, where he served in the Financial Services division and his responsibilities included performing audits and attestation services for financial services firms. Mr. Centner earned his Bachelor of Science degree in Accounting in May 2000 from Binghamton University and his Master of Business Administration degree in May 2011 from New York Universitys Leonard N. Stern School of Business. Mr. Centner is a Certified Public Accountant.
Colbert Narcisse, age 45, has been a Director and a principal of the General Partner since December 2011. Since February 2011, Mr. Narcisse has been a Managing Director at Morgan Stanley Smith Barney, a financial services firm, where his responsibilities have included serving as Head of the Alternative Investment Group, Head of the Corporate Equity Solutions Group, and Chief Operating Officer of the Investment Strategy and Client Solutions Division. From July 2009 until February 2011,
- 79 -
Mr. Narcisse served as Chief Executive Officer of Gold Bullion International, a business services company that enables retail investors to acquire, manage and store physical precious metals through their financial advisor. From March 2009 until July 2009, Mr. Narcisse took personal leave. From August 1990 until March 2009, Mr. Narcisse was employed by Merrill Lynch & Co., Inc., a financial services firm, where his responsibilities included serving as Chief Operating Officer of Americas Investment Banking, Chief Operating Officer of the Global Wealth Management Division, and as an investment banker in both the Financial Institutions and Public Finance Groups. From July 1987 until August 1990, Mr. Narcisse was employed by the Federal Reserve Bank of New York, where his responsibilities included serving as a Bank Examiner. Additionally, Mr. Narcisse serves on the Board of Harlem RBI, as the Vice Chair of Finance for the Montclair Cooperative School Board of Trustees, as an Audit Committee Member of the New York City Housing Authority, and as a Member of the Executive Leadership Council. Mr. Narcisse received his Bachelor of Science degree in Finance in June 1987 from New York University. He received his Master of Business Administration degree in July 1992 from Harvard Business School.
Douglas J. Ketterer, age 46, has been a Director and a principal of the General Partner since December 2010. From October 2003 through December 2010, Mr. Ketterer was listed as a principal of Demeter, a commodity pool operator, until Demeters combination with the General Partner. From July 2010 through the present, Mr. Ketterer has been employed by Morgan Stanley Smith Barney, a financial services firm, as Managing Director and Head of the U.S. Private Wealth Management Group, where his responsibilities include overseeing the U.S. Private Wealth Management Group. From March 1990 through July 2010, Mr. Ketterer was employed by MS & Co., a financial services firm, where his
- 80 -
responsibilities included serving as Chief Operating Officer of the Wealth Management Group and Head of the Products Group. During Mr. Ketterers employment at MS & Co. his responsibilities included oversight over a number of departments including the Alternative Investments Group, the Consulting Services Group, the Annuities & Insurance Department, and the Retirement & Equity Solutions Group, which offered products and services through MS & Co.s Global Wealth Management Group. Mr. Ketterer received his Master of Business Administration degree from New York Universitys Leonard N. Stern School of Business in January 1994 and his Bachelor of Science degree in Finance from the University at Albanys School of Business in May 1987.
Ian Bernstein, age 49, has been a Director of the General Partner and listed as a principal of the General Partner since December 2010. From June 2009 through the present, Mr. Bernstein has been employed by Morgan Stanley Smith Barney, a financial services firm, as Managing Director of Capital Markets, with oversight of risk and infrastructure, joint venture negotiations and integration. From April 2007 through the present, Mr. Bernstein has been employed by MS & Co., a financial services firm, where his responsibilities include serving as Managing Director of the Capital Markets group, the head of the Global Wealth Management group, and serving as market risk manager. From October 1984 through April 2007, Mr. Bernstein was employed by Morgan Stanley DW Inc., a financial services firm, where his responsibilities included serving as a Repo trader, manager of the Repo trading desk, and Chief Operating Officer for fixed income. Mr. Bernstein also served as Managing Director of Morgan Stanley DW Inc. from March 2004 through April 2007. Mr. Bernstein earned his Bachelor of Arts in May 1980 from the University of Buckingham and his Master of Business Administration in May 1988 from New York Universitys Leonard N. Stern School of Business.
- 81 -
Harry Handler, age 52, has been a Director of the General Partner since December 2010. Since December 2010, Mr. Handler has been registered as an associated person and listed as a principal of the General Partner, and is an associate member of the NFA. Mr. Handler was listed as a principal of Demeter from May 2005, and was registered as an associated person of Demeter from April 2006, until Demeters combination with the General Partner in December 2010. Mr. Handler was registered as an associated person of Morgan Stanley DW Inc., a financial services firm, from February 1984 until on or about April 2007, when, because of the merger of Morgan Stanley DW Inc. into MS & Co., he became registered as an associated person of MS & Co. due to the transfer of his original registration as an associated person of Morgan Stanley DW Inc. Mr. Handler withdrew as an associated person of MS & Co. in June 2009. Mr. Handler has been registered as an associated person of Morgan Stanley Smith Barney since June 2009. Mr. Handler serves as an Executive Director at Morgan Stanley Smith Barney in the Global Wealth Management Group. Mr. Handler works in the Capital Markets Division and is responsible for Electronic Equity and Securities Lending. Additionally, Mr. Handler serves as Chairman of the Global Wealth Management Groups Best Execution Committee. In his prior position, Mr. Handler was a Systems Director in Information Technology, in charge of Equity and Fixed Income Trading Systems along with the Special Products, such as Unit Trusts, Managed Futures, and Annuities. Prior to his transfer to the Information Technology Area, Mr. Handler managed the Foreign Currency and Precious Metals Trading Desk of Dean Witter, a financial services firm and predecessor company to Morgan Stanley, from July 1982 until January 1984. He also held various positions in the Futures Division where he helped to build the Precious Metals Trading Operation at Dean Witter. Before joining Dean Witter, Mr. Handler worked at Mocatta Metals, a precious metals trading firm and futures broker that was sold to Standard Charted Bank in the 1980s, as an Assistant to the Chairman from March 1980
- 82 -
until June 1982. His roles at Mocatta Metals included positions on the Futures Order Entry Desk and the Commodities Exchange Trading Floor. Additional work included building a computerized Futures Trading System and writing a history of the company. Mr. Handler graduated on the Deans List from the University of Wisconsin-Madison with a Bachelor of Arts degree in History and Political Science.
Patrick T. Egan, age 42, has been a Director of the General Partner since December 2010. Since December 2010, Mr. Egan has been a principal and registered as an associated person of the General Partner, and is an associate member of the NFA. Since June 2011, Mr. Egan has been employed by Morgan Stanley Smith Barney, a financial services firm, where his responsibilities include serving as Executive Director and as Chief Risk Officer for Morgan Stanley Smith Barney Managed Futures. From June 2009 through June 2011, Mr. Egan was employed by Morgan Stanley Smith Barney, where his responsibilities included serving as Co-Chief Investment Officer for Morgan Stanley Smith Barney Managed Futures. Since November 2010, Mr. Egan has been registered as an associated person of Morgan Stanley Smith Barney. From April 2007 through June 2009, Mr. Egan was employed by MS & Co., a financial services firm, where his responsibilities included serving as Head of Due Diligence and Manager Research for Morgan Stanleys Managed Futures Department. From April 2007 through November 2010, Mr. Egan was registered as an associated person of MS & Co. From March 1993 through April 2007, Mr. Egan was employed by Morgan Stanley DW Inc., a financial services firm, where his initial responsibilities included serving as an analyst and manager within the Managed Futures Department (with primary responsibilities for product development, due diligence, investment analysis and risk management of the firms commodity pools) and later included serving as Head of Due Diligence and Manager Research for Morgan Stanleys Managed Futures Department. From February
- 83 -
1998 through April 2007, Mr. Egan was registered as an associated person of Morgan Stanley DW Inc. From August 1991 through March 1993, Mr. Egan was employed by Dean Witter Intercapital, the asset management arm of Dean Witter Reynolds, Inc., where his responsibilities included serving as a mutual fund administration associate. Mr. Egan also served as a Director from November 2004 through October 2006, and from November 2006 through October 2008 of the Managed Funds Associations Board of Directors, a position he was elected to by industry peers for two consecutive two-year terms. Mr. Egan earned his Bachelor of Business Administration degree with a concentration in Finance in May 1991 from the University of Notre Dame.
Alper Daglioglu, age 34, has been a Director and listed as a principal of the General Partner since December 2010. Since December 2010, Mr. Daglioglu has been employed by Morgan Stanley Smith Barney, a financial services firm, where his responsibilities include serving as Executive Director and Chief Investment Officer for Morgan Stanley Smith Barney Managed Futures and serving on the Alternative Investments Product Review Committee of Morgan Stanley Smith Barneys Alternative Investments Group. From June 2009 through December 2010, Mr. Daglioglu was employed by Morgan Stanley Smith Barney, a financial services firm, where his responsibilities included serving as a Senior Analyst in the Product Origination Group. From December 2003 through June 2009, Mr. Daglioglu was employed by Morgan Stanley, a financial services firm, where his responsibilities included serving as a Senior Analyst in the Product Origination Group, and serving as the lead investment analyst for Global Macro and Managed Futures strategies within Morgan Stanley Graystone Research Group from February 2007 through June 2009. Mr. Daglioglu earned his Bachelor of Science degree in Industrial Engineering in June 2000 from Galatasaray University and his Master of Business Administration degree in Finance
- 84 -
in May 2003 from the University of Massachusetts-Amhersts Isenberg School of Management. Mr. Daglioglu was awarded a full merit scholarship and research assistantship at the Center for International Securities and Derivatives Markets during his graduate studies. In this capacity, he worked with various major financial institutions in performance monitoring, asset allocation and statistical analysis projects and specialized on alternative approaches to risk assessment for hedge funds and managed futures. Mr. Daglioglu wrote and published numerous research papers on alternative investments. Mr. Daglioglu is a Chartered Alternative Investment Analyst charterholder.
Section 16(a) Beneficial Ownership Reporting Compliance
To the Partnerships knowledge, all required Section 16(a) filings during the fiscal year ended December 31, 2011, were timely and correctly made.
Code of Ethics
The Partnership has not adopted a code of ethics that applies to the Partnerships principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. The Partnership is operated by its general partner, Ceres. The President, Chief Financial Officer, and each member of the Board of Directors of Ceres are employees of Morgan Stanley or MSSB and are subject to the code of ethics adopted by Morgan Stanley, the text of which can be viewed on Morgan Stanleys website at http://www.morganstanley.com/individual/ourcommitment/codeofconduct. html.
The Audit Committee
The Partnership is operated by its general partner, Ceres, and has no audit committee.
- 85 -
Item 11. EXECUTIVE COMPENSATION
The Partnership has no directors and executive officers. As a limited partnership, the business of the Partnership is managed by Ceres, which is responsible for the administration of the business affairs of the Partnership but receives no compensation for such services.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
(a) Security Ownership of Certain Beneficial Owners At December 31, 2011, there were no persons known to be beneficial owners of more than 5 percent of the Units.
(b) Security Ownership of Management At December 31, 2011, Ceres owned 99,481.769 Units of general partnership interest, representing a 1.09 percent interest in the Partnership.
(c) Changes in Control None.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Refer to Note 2 Summary of Significant Accounting Policies, Note 4 Related Party Transactions, and Note 5 Trading Advisors of Notes to Financial Statements, in the accompanying Annual Report to Limited Partners for the year ended December 31, 2011, which is incorporated by reference to Exhibit 13.01 of this Form 10-K. In its capacity as the Partnerships retail commodity broker, MS&Co. received commodity brokerage fees (paid and accrued by the Partnership) of $21,431,854 for the year ended December 31, 2011.
- 86 -
Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
MS&Co. on behalf of the Partnership, pays all accounting fees. The Partnership reimburses MS&Co. through the brokerage fees it pays, as discussed in the Notes to Financial Statements in the Annual Report to the Limited Partners for the year ended December 31, 2011.
(1) Audit Fees. The aggregate fees for professional services rendered by Deloitte & Touche LLP (D&T) in connection with their audit of the Partnerships financial statements and review of the financial statements included in the Quarterly Reports on Form 10-Q and in connection with statutory and regulatory filings were approximately $61,881 for the year ended December 31, 2011, and $60,411 for the year ended December 31, 2010.
(2) Audit-Related Fees. None.
(3) Tax Fees. The Partnership did not pay D&T any amounts in 2011 and 2010 for professional services in connection with tax compliance, tax advice, and tax planning.
(4) All Other Fees. None.
- 87 -
Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
1. | Listing of Financial Statements |
The following financial statements and report of independent registered public accounting firm, all appearing in the accompanying Annual Report to Limited Partners for the year ended December 31, 2011, are incorporated by reference to Exhibit 13.01 of this Form 10-K:
| Report of Deloitte & Touche LLP, independent registered public accounting firm. |
| Statements of Financial Condition, including the Condensed Schedules of Investments, as of December 31, 2011 and 2010. |
| Statements of Income and Expenses and Changes in Partners Capital for the years ended December 31, 2011, 2010, and 2009. |
| Notes to Financial Statements. |
With the exception of the aforementioned information and the information incorporated in Items 7, 8, and 13, the Annual Report to Limited Partners for the year ended December 31, 2011, is not deemed to be filed with this report.
2. | Listing of Financial Statement Schedules |
No Financial Statement schedules are required to be filed with this report.
3. | Exhibits |
For the exhibits incorporated by reference or filed herewith to this report, refer to Exhibit Index on Pages E-1 to E-4.
- 88 -
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
MORGAN STANLEY SMITH BARNEY SPECTRUM SELECT L.P. | ||||||
(Registrant) | ||||||
By: | Ceres Managed Futures LLC | |||||
(General Partner) | ||||||
March 28, 2012 | By: | /s/ Walter Davis | ||||
Walter Davis, | ||||||
President |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Ceres Managed Futures LLC
BY: | /s/ Walter Davis |
March 28, 2012 | ||||
Walter Davis, President, Director | ||||||
/s/ Brian Centner |
March 28, 2012 | |||||
Brian Centner, Chief Financial Officer, Principal Accounting Officer | ||||||
/s/ Ian Bernstein |
March 28, 2012 | |||||
Ian Bernstein, Director | ||||||
/s/ Alper Daglioglu |
March 28, 2012 | |||||
Alper Daglioglu, Director | ||||||
/s/ Patrick T. Egan |
March 28, 2012 | |||||
Patrick T. Egan, Director | ||||||
/s/ Harry Handler |
March 28, 2012 | |||||
Harry Handler, Director | ||||||
/s/ Douglas J. Ketterer |
March 28, 2012 | |||||
Douglas J. Ketterer, Director | ||||||
/s/ Colbert Narcisse |
March 28, 2012 | |||||
Colbert Narcisse, Director |
- 89 -
EXHIBIT INDEX
ITEM |
||
3.01 | Form of Amended and Restated Limited Partnership Agreement of the Partnership is incorporated by reference to Exhibit A of the Partnerships Prospectus, dated May 1, 2008, filed with the Securities and Exchange Commission pursuant to Rule 424(b)(3) under the Securities Act of 1933 on May 8, 2008. | |
3.01(a) | Amendment No. 1 to the Amended and Restated Limited Partnership Agreement of the Partnership, dated May 31, 2009, is incorporated by reference to Exhibit 3.01(a) of the Partnerships Form 8-K (File No. 0-19511) filed with the Securities and Exchange Commission on June 4, 2009. | |
3.02 | Certificate of Limited Partnership, dated March 19, 1991, is incorporated by reference to Exhibit 3.02 of the Partnerships Registration Statement on Form S-1 (File No. 333-47829) filed with the Securities and Exchange Commission on March 12, 1998. | |
3.03 | Certificate of Amendment of Certificate of Limited Partnership, dated April 28, 1998 (changing its name from Dean Witter Select Futures Fund L.P.), is incorporated by reference to Exhibit 3.03 of the Partnerships 10-K for fiscal year ended December 31, 1998, filed with the Securities and Exchange Commission on March 31, 1999. | |
3.04 | Certificate of Amendment of Certificate of Limited Partnership, dated April 6, 1999 (changing its name from Dean Witter Spectrum Select L.P.), is incorporated by reference to Exhibit 3.03 of the Partnerships Registration Statement on Form S-1 (File No. 333-68773) filed with the Securities and Exchange Commission on April 12, 1999. | |
3.05 | Certificate of Amendment of Certificate of Limited Partnership, dated November 1, 2001 (changing its name from Morgan Stanley Dean Witter Spectrum Select L.P.), is incorporated by reference to Exhibit 3.01 of the Partnerships Form 8-K (File No. 0-19511) filed with the Securities and Exchange Commission on November 1, 2001. | |
3.06 | Certificate of Amendment of Certificate of Limited Partnership, dated June 1, 2009, (changing the name and mailing address of the general partner of the Partnership), is incorporated by reference to Exhibit 3.06 of the Partnerships Form 8-K (File No. 0-19511) filed with the Securities and Exchange Commission on June 4, 2009. | |
3.07 | Certificate of Amendment of Certificate of Limited Partnership, dated September 29, 2009 (changing its name from Morgan Stanley Spectrum Select L.P. to Morgan Stanley Smith Barney Spectrum Select L.P.), is incorporated by reference to Exhibit 3.07 of the Partnerships form 8-K (File No. 0-19511) filed with the Securities and Exchange Commission on October 5, 2009. |
E-1
10.01 | Amended and Restated Management Agreement, dated as of June 1, 1998, among the Partnership, the General Partner, and Rabar Market Research, Inc. is incorporated by reference to Exhibit 10.01 of the Partnerships Form 10-K (File No. 0-19511) for fiscal year ended December 31, 1998, filed with the Securities and Exchange Commission on March 31, 1999. | |
10.01(a) | Amendment No. 1 to Amended and Restated Management Agreement among the Partnership, the General Partner, and Rabar Market Research, Inc., dated as of October 3, 2006, is incorporated by reference to Exhibit 10.01(a) of the Partnerships Form 8-K (File No. 0-19511) filed with the Securities and Exchange Commission on October 10, 2006. | |
10.01(b) | Amendment No. 2 to Amended and Restated Management Agreement among the Partnership, the General Partner, and Rabar Market Research, Inc., dated as of May 9, 2011, is incorporated by reference to Exhibit 10.01(b) of the Partnerships Form 10-Q (File No. 0-19511) filed with the Securities and Exchange Commission on August 12, 2011. | |
10.02 | Amended and Restated Management Agreement, dated as of June 1, 1998, among the Partnership, the General Partner, and EMC Capital Management, Inc., is incorporated by reference to Exhibit 10.02 of the Partnerships Form 10-K (File No. 0-19511) for fiscal year ended December 31, 1998, filed with the Securities and Exchange Commission on March 31, 1999. | |
10.02(a) | Amendment No. 1 to Amended and Restated Management Agreement among the Partnership, the General Partner, and EMC Capital Management, Inc., dated as of October 3, 2006, is incorporated by reference to Exhibit 10.02(a) of the Partnerships Form 8-K (File No. 0-19511) filed with the Securities and Exchange Commission on October 10, 2006. | |
10.02(b) | Amendment No. 2 to Amended and Restated Management Agreement among the Partnership, the General Partner, and EMC Capital Management, Inc., dated as of May 9, 2011, is incorporated by reference to Exhibit 10.02(b) of the Partnerships Form 10-Q (File No. 0-19511) filed with the Securities and Exchange Commission on August 12, 2011. | |
10.03 | Amended and Restated Management Agreement, dated as of June 1, 1998, among the Partnership, the General Partner, and Sunrise Capital Management, Inc., is incorporated by reference to Exhibit 10.03 of the Partnerships Form 10-K (File No. 0-19511) for fiscal year ended December 31, 1998, filed with the Securities and Exchange Commission on March 31, 1999. | |
10.03(a) | Amendment No. 1 to Amended and Restated Management Agreement among the Partnership, the General Partner, and Sunrise Capital Management Inc., dated as of December 7, 2010 is incorporated by reference to Exhibit 10.03(a) of the Partnerships Form 8-K (File No. 0-19511) filed with the Securities and Exchange Commission on January 3, 2011. |
E-2
10.04 | Management Agreement, dated as of January 1, 2004, among the Partnership, Demeter, and Graham Capital Management, L.P., is incorporated by reference to Exhibit 10.04 of the Partnerships Form 8-K (File No. 0-19511) filed with the Securities and Exchange Commission on March 10, 2004. | |
10.07 | Form of Subscription and Exchange Agreement and Power of Attorney to be executed by purchasers of Units is incorporated by reference to Exhibit B of the Partnerships Prospectus, dated May 1, 2008, filed with the Securities and Exchange Commission pursuant to Rule 424(b)(3) under the Securities Act of 1933 on May 8, 2008. | |
10.10 | Escrow Agreement, dated as of July 25, 2007, among The Bank of New York, the General Partner, and Morgan Stanley & Co. Incorporated, is incorporated by reference to Exhibit 10.10 of the Partnerships Form 8-K (File No. 0-19511) filed with the Securities and Exchange Commission on July 31, 2007. | |
10.11 | Form of Subscription Agreement Update Form to be executed by purchasers of Units is incorporated by reference to Exhibit C of the Partnerships Prospectus, dated May 1, 2008, filed with the Securities and Exchange Commission pursuant to Rule 424(b)(3) under the Securities Act of 1933 on May 8, 2008. | |
10.12 | Amended and Restated Customer Agreement between the Partnership and Morgan Stanley DW, dated as of October 16, 2000, is incorporated by reference to Exhibit 10.01 of the Partnerships Form 8-K (File No. 0-19511) filed with the Securities and Exchange Commission on November 1, 2001. | |
10.12(a) | Amendment No. 1 to the Amended and Restated Customer Agreement between the Partnership and Morgan Stanley DW Inc., dated July 1, 2005, is incorporated by reference to Exhibit 10.12(a) of the Partnerships Form 10-Q (File No. 0-19511) filed with the Securities and Exchange Commission on August 10, 2005. | |
10.13 | Commodity Futures Customer Agreement between MS&Co. and the Partnership, and acknowledged and agreed to by Morgan Stanley DW, dated as of June 6, 2000, is incorporated by reference to Exhibit 10.02 of the Partnerships Form 8-K (File No. 0-19511) filed with the Securities and Exchange Commission on November 1, 2001. | |
10.14 | Customer Agreement between the Partnership and MSIP dated as of June 6, 2000, is incorporated by reference to Exhibit 10.04 of the Partnerships Form 8-K (File No. 0-19511) filed with the Securities and Exchange Commission on November 1, 2001. | |
10.15 | Foreign Exchange and Options Master Agreement between MS&Co. and the Partnership, dated as of April 30, 2000, is incorporated by reference to Exhibit 10.05 of the Partnerships Form 8-K (File No. 0-19511) filed with the Securities and Exchange Commission on November 1, 2001. |
E-3
10.16 | Management Agreement, dated as of May 1, 2001, among the Partnership, the General Partner, and Northfield Trading L.P., is incorporated by reference to Exhibit 10.01 of the Partnerships Form 8-K (File No. 0-19511) filed with the Securities and Exchange Commission on April 25, 2001. | |
10.16(a) | Amendment No. 1 to Amended and Restated Management Agreement among the Partnership, the General Partner, and Northfield Trading L.P., dated as of May 9, 2011, is incorporated by reference to Exhibit 10.16(a) of the Partnerships Form 10-Q (File No. 0-19511) filed with the Securities and Exchange Commission on August 12, 2011. | |
10.17 | Securities Account Control Agreement between the Partnership and MS&Co., dated as of May 1, 2000, is incorporated by reference to Exhibit 10.03 of the Partnerships Form 8-K (File No. 0-19511) filed with the Securities and Exchange Commission on November 1, 2001. | |
10.19 | Management Agreement, dated as of October 9, 2007, among the Partnership, the General Partner, and Altis Partners (Jersey) Limited, is incorporated by reference to Exhibit 10.19 of the Partnerships Form 8-K (File No. 0-19511) filed with the Securities and Exchange Commission on October 15, 2007. | |
10.19(a) | Amendment No. 1 to Management Agreement among the Partnership, the General Partner, and Altis Partners (Jersey) Limited, dated as of July 28, 2008, is incorporated by reference to Exhibit 10.19 of the Partnerships Form 8-K (File No. 0-19511) filed with the Securities and Exchange Commission on August 1, 2008. | |
13.01 | December 31, 2011 Annual Report to Limited Partners is filed herewith. | |
31.01 | Certification of President of Ceres Managed Futures LLC, 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 Ceres Managed Futures LLC, the general partner of the Partnership pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
32.01 | Certification of President of Ceres Managed Futures LLC, 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 Ceres Managed Futures LLC, 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. |
101.INS^ XBRL Instance Document
101.SCH^ XBRL Taxonomy Extension Schema
101.CAL^ XBRL Taxonomy Extension Calculation Linkbase
101.DEF^ XBRL Taxonomy Extension Definition Linkbase
101.LAB^ XBRL Taxonomy Extension Label Linkbase
101.PRE^ XBRL Taxonomy Extension Presentation Linkbase
^ Submitted electronically herewith.
Pursuant to applicable securities laws and regulations, the Partnership is deemed to have complied with the reporting obligation relating to the submission of interactive data files in Exhibit 101 to this report and is not subject to liability under any anti-fraud provisions of the federal securities laws as long as the Partnership has made a good faith attempt to comply with the submission requirements and promptly amends the interactive data files after becoming aware that the interactive data files fails to comply with the submission requirements. Users of this data are advised that, pursuant to Rule 406T, these interactive data files are deemed not filed and otherwise are not subject to liability.
E-4
Morgan Stanley Smith Barney
Spectrum Series
Annual Report
December 31, 2011
CERES MANAGED FUTURES LLC
To the Limited Partners of
Morgan Stanley Smith Barney Spectrum Currency and Commodity L.P.
Morgan Stanley Smith Barney Spectrum Global Balanced L.P.
Morgan Stanley Smith Barney Spectrum Select L.P.
Morgan Stanley Smith Barney Spectrum Strategic L.P.
Morgan Stanley Smith Barney Spectrum Technical L.P.
To the best of the knowledge and belief of the undersigned, the information contained herein is accurate and complete.
| ||
By: | Walter Davis | |
President and Director | ||
Ceres Managed Futures LLC | ||
General Partner, | ||
Morgan Stanley Smith Barney Spectrum Currency and Commodity L.P. | ||
Morgan Stanley Smith Barney Spectrum Global Balanced L.P. | ||
Morgan Stanley Smith Barney Spectrum Select L.P. | ||
Morgan Stanley Smith Barney Spectrum Strategic L.P. | ||
Morgan Stanley Smith Barney Spectrum Technical L.P. | ||
Ceres Managed Futures LLC | ||
522 Fifth Avenue | ||
14th Floor | ||
New York, NY 10036 | ||
212-296-1999 |
Managements Report on Internal Control Over
Financial Reporting
Ceres Managed Futures LLC (Ceres), the general partner of Morgan Stanley Smith Barney Spectrum Currency and Commodity L.P. (formerly, Morgan Stanley Smith Barney Spectrum Currency L.P.), Morgan Stanley Smith Barney Spectrum Global Balanced L.P., Morgan Stanley Smith Barney Spectrum Select L.P., Morgan Stanley Smith Barney Spectrum Strategic L.P., and Morgan Stanley Smith Barney Spectrum Technical L.P. (collectively, the Partnerships), and is responsible for the management of the Partnerships.
Management of the Partnerships, Ceres (Management) is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a 15(f) and 15d 15(f) under the Securities Exchange Act of 1934 and for the assessment of internal control over financial reporting. The Partnerships internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. The Partnerships internal control over financial reporting includes those policies and procedures that:
(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Partnerships:
(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the Partnerships are being made only in accordance with authorizations of Management and directors of Ceres; and
(iii) provide reasonable assurance regarding prevention or timely detection and correction of unauthorized acquisition, use or disposition of the Partnerships assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management has assessed the effectiveness of the Partnerships internal control over financial reporting as of December 31, 2011. In making this assessment, Management used the criteria set forth in the Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on our assessment, Management concluded that the Partnerships maintained effective internal control over financial reporting as of December 31, 2011 based on the criteria referred to above.
Walter Davis President and Director Ceres Managed Futures LLC General Partner, |
Brian Centner Chief Financial Officer Ceres Managed Futures LLC General Partner, | |
Morgan Stanley Smith Barney Spectrum Currency and Commodity L.P. |
Morgan Stanley Smith Barney Spectrum Currency and Commodity L.P. | |
Morgan Stanley Smith Barney Spectrum Global Balanced L.P. |
Morgan Stanley Smith Barney Spectrum Global Balanced L.P. | |
Morgan Stanley Smith Barney Spectrum Select L.P. |
Morgan Stanley Smith Barney Spectrum Select L.P. | |
Morgan Stanley Smith Barney Spectrum Strategic L.P. |
Morgan Stanley Smith Barney Spectrum Strategic L.P. | |
Morgan Stanley Smith Barney Spectrum Technical L.P. |
Morgan Stanley Smith Barney Spectrum Technical L.P. |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Limited Partners and the General Partner of Morgan Stanley Smith Barney Spectrum Currency and Commodity L.P., Morgan Stanley Smith Barney Spectrum Global Balanced L.P., Morgan Stanley Smith Barney Spectrum Select L.P., Morgan Stanley Smith Barney Spectrum Strategic L.P., and Morgan Stanley Smith Barney Spectrum Technical L.P.:
We have audited the accompanying statements of financial condition of Morgan Stanley Smith Barney Spectrum Currency and Commodity L.P. (formerly, Morgan Stanley Smith Barney Spectrum Currency L.P.), Morgan Stanley Smith Barney Spectrum Global Balanced L.P., Morgan Stanley Smith Barney Spectrum Select L.P., Morgan Stanley Smith Barney Spectrum Strategic L.P., and Morgan Stanley Smith Barney Spectrum Technical L.P. (collectively, the Partnerships), including the condensed schedules of investments, as of December 31, 2011 and 2010, and the related statements of income and expenses and changes in partners capital for each of the three years in the period ended December 31, 2011. These financial statements are the responsibility of the Partnerships management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Partnerships are not required to have, nor were we engaged to perform, an audit of their internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnerships internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements present fairly, in all material respects, the financial position of Morgan Stanley Smith Barney Spectrum Currency and Commodity L.P., Morgan Stanley Smith Barney Spectrum Global Balanced L.P., Morgan Stanley Smith Barney Spectrum Select L.P., Morgan Stanley Smith Barney Spectrum Strategic L.P., and Morgan Stanley Smith Barney Spectrum Technical L.P. as of December 31, 2011 and 2010, and the results of their operations and changes in partners capital for each of the three years in the period ended December 31, 2011, in conformity with accounting principles generally accepted in the United States of America.
/s/ Deloitte & Touche LLP
New York, New York
March 23, 2012
Morgan Stanley Smith Barney Spectrum Currency and Commodity L.P.
(formerly, Morgan Stanley Smith Barney Spectrum Currency L.P.)
Statements of Financial Condition
December 31, | ||||||||
2011 | 2010 | |||||||
$ | $ | |||||||
ASSETS | ||||||||
Trading Equity: |
||||||||
Unrestricted cash |
35,693,205 | 47,835,799 | ||||||
Restricted cash |
125,600 | 88,858 | ||||||
|
|
|
|
|||||
Total cash |
35,818,805 | 47,924,657 | ||||||
|
|
|
|
|||||
Net unrealized gain (loss) on open contracts (MS&Co.) |
(88,387 | ) | 1,118,436 | |||||
Options purchased (premiums paid $3,273 and $2,240, respectively) |
1,534 | 4,459 | ||||||
|
|
|
|
|||||
Total Trading Equity |
35,731,952 | 49,047,552 | ||||||
Interest receivable (MSSB) |
98 | 3,168 | ||||||
|
|
|
|
|||||
Total Assets |
35,732,050 | 49,050,720 | ||||||
|
|
|
|
|||||
LIABILITIES AND PARTNERS CAPITAL | ||||||||
LIABILITIES |
||||||||
Redemptions payable |
724,150 | 765,167 | ||||||
Accrued brokerage fees (MS&Co.) |
134,931 | 183,824 | ||||||
Accrued management fees |
58,665 | 79,923 | ||||||
|
|
|
|
|||||
Total Liabilities |
917,746 | 1,028,914 | ||||||
|
|
|
|
|||||
PARTNERS CAPITAL |
||||||||
Limited Partners (3,983,851.059 and 4,966,477.604 Units, respectively) |
34,396,076 | 47,504,374 | ||||||
General Partner (48,440.343 and 54,096.343 Units, respectively) |
418,228 | 517,432 | ||||||
|
|
|
|
|||||
Total Partners Capital |
34,814,304 | 48,021,806 | ||||||
|
|
|
|
|||||
Total Liabilities and Partners Capital |
35,732,050 | 49,050,720 | ||||||
|
|
|
|
|||||
NET ASSET VALUE PER UNIT |
8.63 | 9.57 | ||||||
|
|
|
|
The accompanying notes are an integral part of these financial statements.
Morgan Stanley Smith Barney Spectrum Currency and Commodity L.P.
(formerly, Morgan Stanley Smith Barney Spectrum Currency L.P.)
Statements of Income and Expenses
For the Years Ended December 31, | ||||||||||||
2011 | 2010 | 2009 | ||||||||||
$ | $ | $ | ||||||||||
INVESTMENT INCOME |
||||||||||||
Interest income (MSSB & MS&Co.) |
14,552 | 48,130 | 59,638 | |||||||||
|
|
|
|
|
|
|||||||
EXPENSES |
||||||||||||
Brokerage fees (MS&Co.) |
1,909,452 | 2,485,116 | 3,288,790 | |||||||||
Management fees |
830,197 | 1,080,486 | 1,429,909 | |||||||||
|
|
|
|
|
|
|||||||
Total Expenses |
2,739,649 | 3,565,602 | 4,718,699 | |||||||||
|
|
|
|
|
|
|||||||
NET INVESTMENT LOSS |
(2,725,097 | ) | (3,517,472 | ) | (4,659,061 | ) | ||||||
|
|
|
|
|
|
|||||||
TRADING RESULTS |
||||||||||||
Trading profit (loss): |
||||||||||||
Net Realized |
(483,261 | ) | (745,965 | ) | (2,992,672 | ) | ||||||
Net change in unrealized |
(1,210,781 | ) | 1,584,602 | (39,091 | ) | |||||||
|
|
|
|
|
|
|||||||
Total Trading Results |
(1,694,042 | ) | 838,637 | (3,031,763 | ) | |||||||
|
|
|
|
|
|
|||||||
NET LOSS |
(4,419,139 | ) | (2,678,835 | ) | (7,690,824 | ) | ||||||
|
|
|
|
|
|
|||||||
Net Loss Allocation |
||||||||||||
Limited Partners |
(4,369,934 | ) | (2,651,894 | ) | (7,613,304 | ) | ||||||
General Partner |
(49,205 | ) | (26,941 | ) | (77,520 | ) | ||||||
Net Loss Per Unit* |
||||||||||||
Limited Partners |
(0.94 | ) | (0.46 | ) | (1.13 | ) | ||||||
General Partner |
(0.94 | ) | (0.46 | ) | (1.13 | ) | ||||||
Units | Units | Units | ||||||||||
WEIGHTED AVERAGE NUMBER OF UNITS OUTSTANDING |
4,606,460.437 | 5,569,769.759 | 6,709,462.987 |
* | Based on change in Net Asset Value per Unit. |
The accompanying notes are an integral part of these financial statements.
Morgan Stanley Smith Barney Spectrum Global Balanced L.P.
Statements of Financial Condition
December 31, | ||||||||
2011 | 2010 | |||||||
$ | $ | |||||||
ASSETS | ||||||||
Trading Equity: |
||||||||
Unrestricted cash |
12,202,453 | 16,507,962 | ||||||
Restricted cash |
989,964 | 1,670,616 | ||||||
|
|
|
|
|||||
Total cash |
13,192,417 | 18,178,578 | ||||||
|
|
|
|
|||||
Net unrealized gain on open contracts (MS&Co.) |
1,186,221 | 1,625,744 | ||||||
Net unrealized gain (loss) on open contracts (MSIP) |
34,556 | (68,187 | ) | |||||
|
|
|
|
|||||
Total net unrealized gain on open contracts |
1,220,777 | 1,557,557 | ||||||
|
|
|
|
|||||
Options purchased (premiums paid $1,737 and $1,356, respectively) |
814 | 2,701 | ||||||
|
|
|
|
|||||
Total Trading Equity |
14,414,008 | 19,738,836 | ||||||
Interest receivable (MSSB) |
49 | 1,592 | ||||||
|
|
|
|
|||||
Total Assets |
14,414,057 | 19,740,428 | ||||||
|
|
|
|
|||||
LIABILITIES AND PARTNERS CAPITAL | ||||||||
LIABILITIES |
||||||||
Redemptions payable |
273,368 | 202,690 | ||||||
Accrued brokerage fees (MS&Co.) |
54,606 | 73,533 | ||||||
Accrued management fees |
17,799 | 23,698 | ||||||
|
|
|
|
|||||
Total Liabilities |
345,773 | 299,921 | ||||||
|
|
|
|
|||||
PARTNERS CAPITAL |
||||||||
Limited Partners (936,792.541 and 1,123,253.035 Units, respectively) |
13,888,123 | 19,232,434 | ||||||
General Partner (12,152.331 and 12,152.331 Units, respectively) |
180,161 | 208,073 | ||||||
|
|
|
|
|||||
Total Partners Capital |
14,068,284 | 19,440,507 | ||||||
|
|
|
|
|||||
Total Liabilities and Partners Capital |
14,414,057 | 19,740,428 | ||||||
|
|
|
|
|||||
NET ASSET VALUE PER UNIT |
14.83 | 17.12 | ||||||
|
|
|
|
The accompanying notes are an integral part of these financial statements.
Morgan Stanley Smith Barney Spectrum Global Balanced L.P.
Statements of Income and Expenses
For the Years Ended December 31, | ||||||||||||
2011 | 2010 | 2009 | ||||||||||
$ | $ | $ | ||||||||||
INVESTMENT INCOME |
||||||||||||
Interest income (MSSB & MS&Co.) |
7,327 | 22,423 | 25,062 | |||||||||
|
|
|
|
|
|
|||||||
EXPENSES |
||||||||||||
Brokerage fees (MS&Co.) |
764,480 | 905,997 | 1,104,183 | |||||||||
Management fees |
246,609 | 295,068 | 360,248 | |||||||||
|
|
|
|
|
|
|||||||
Total Expenses |
1,011,089 | 1,201,065 | 1,464,431 | |||||||||
|
|
|
|
|
|
|||||||
NET INVESTMENT LOSS |
(1,003,762 | ) | (1,178,642 | ) | (1,439,369 | ) | ||||||
|
|
|
|
|
|
|||||||
TRADING RESULTS |
||||||||||||
Trading profit (loss): |
||||||||||||
Net Realized |
(1,151,478 | ) | 3,283,491 | (451,631 | ) | |||||||
Net change in unrealized |
(339,048 | ) | 189,151 | (1,539,636 | ) | |||||||
Proceeds from Litigation |
| 29,602 | | |||||||||
|
|
|
|
|
|
|||||||
Total Trading Results |
(1,490,526 | ) | 3,502,244 | (1,991,267 | ) | |||||||
|
|
|
|
|
|
|||||||
NET INCOME (LOSS) |
(2,494,288 | ) | 2,323,602 | (3,430,636 | ) | |||||||
|
|
|
|
|
|
|||||||
Net Income (Loss) Allocation |
||||||||||||
Limited Partners |
(2,466,376 | ) | 2,299,999 | (3,396,166 | ) | |||||||
General Partner |
(27,912 | ) | 23,603 | (34,470 | ) | |||||||
Net Income (Loss) Per Unit* |
||||||||||||
Limited Partners |
(2.29 | ) | 1.89 | (2.27 | ) | |||||||
General Partner |
(2.29 | ) | 1.89 | (2.27 | ) | |||||||
Units | Units | Units | ||||||||||
WEIGHTED AVERAGE NUMBER OF UNITS OUTSTANDING |
1,056,873.607 | 1,234,612.751 | 1,465,622.529 |
* | Based on change in Net Asset Value per Unit. |
The accompanying notes are an integral part of these financial statements.
Morgan Stanley Smith Barney Spectrum Select L.P.
Statements of Financial Condition
December 31, | ||||||||
2011 | 2010 | |||||||
$ | $ | |||||||
ASSETS | ||||||||
Trading Equity: |
||||||||
Unrestricted cash |
250,786,399 | 362,360,920 | ||||||
Restricted cash |
37,327,727 | 39,088,853 | ||||||
|
|
|
|
|||||
Total cash |
288,114,126 | 401,449,773 | ||||||
|
|
|
|
|||||
Net unrealized gain on open contracts (MS&Co.) |
6,712,081 | 19,046,952 | ||||||
Net unrealized gain (loss) on open contracts (MSIP) |
(310,182 | ) | 756,215 | |||||
|
|
|
|
|||||
Total net unrealized gain on open contracts |
6,401,899 | 19,803,167 | ||||||
|
|
|
|
|||||
Total Trading Equity |
294,516,025 | 421,252,940 | ||||||
Interest receivable (MSSB) |
808 | 26,871 | ||||||
|
|
|
|
|||||
Total Assets |
294,516,833 | 421,279,811 | ||||||
|
|
|
|
|||||
LIABILITIES AND PARTNERS CAPITAL | ||||||||
LIABILITIES |
||||||||
Redemptions payable |
6,464,963 | 7,999,594 | ||||||
Accrued brokerage fees (MS&Co.) |
1,459,689 | 1,972,489 | ||||||
Accrued management fees |
447,773 | 751,806 | ||||||
Accrued incentive fee |
| 1,305,062 | ||||||
|
|
|
|
|||||
Total Liabilities |
8,372,425 | 12,028,951 | ||||||
|
|
|
|
|||||
PARTNERS CAPITAL |
||||||||
Limited Partners (9,059,136.131 and 10,646,418.942 Units, respectively) |
283,036,281 | 404,921,242 | ||||||
General Partner (99,481.769 and 113,836.769 Units, respectively) |
3,108,127 | 4,329,618 | ||||||
|
|
|
|
|||||
Total Partners Capital |
286,144,408 | 409,250,860 | ||||||
|
|
|
|
|||||
Total Liabilities and Partners Capital |
294,516,833 | 421,279,811 | ||||||
|
|
|
|
|||||
NET ASSET VALUE PER UNIT |
31.24 | 38.03 | ||||||
|
|
|
|
The accompanying notes are an integral part of these financial statements.
Morgan Stanley Smith Barney Spectrum Select L.P.
Statements of Income and Expenses
For the Years Ended December 31, | ||||||||||||
2011 | 2010 | 2009 | ||||||||||
$ | $ | $ | ||||||||||
INVESTMENT INCOME |
||||||||||||
Interest income (MSSB & MS&Co.) |
125,873 | 371,072 | 416,522 | |||||||||
|
|
|
|
|
|
|||||||
EXPENSES |
||||||||||||
Brokerage fees (MS&Co.) |
21,431,854 | 24,726,203 | 30,514,021 | |||||||||
Management fees |
7,263,522 | 9,509,245 | 11.648,733 | |||||||||
Incentive fees |
2,034,158 | 2,487,064 | 822,023 | |||||||||
|
|
|
|
|
|
|||||||
Total Expenses |
30,729,534 | 36,722,512 | 42,984,777 | |||||||||
|
|
|
|
|
|
|||||||
NET INVESTMENT LOSS |
(30,603,661 | ) | (36,351,440 | ) | (42,568,255 | ) | ||||||
|
|
|
|
|
|
|||||||
TRADING RESULTS |
||||||||||||
Trading profit (loss): |
||||||||||||
Net Realized |
(23,852,820 | ) | 25,513,507 | 16,042,877 | ||||||||
Net change in unrealized |
(13,401,268 | ) | 7,787,866 | (14,030,463 | ) | |||||||
Proceeds from Litigation |
| 337,120 | | |||||||||
|
|
|
|
|
|
|||||||
Total Trading Results |
(37,254,088 | ) | 33,638,493 | 2,012,414 | ||||||||
|
|
|
|
|
|
|||||||
NET LOSS |
(67,857,749 | ) | (2,712,947 | ) | (40,555,841 | ) | ||||||
|
|
|
|
|
|
|||||||
Net Loss Allocation |
||||||||||||
Limited Partners |
(67,138,290 | ) | (2,687,785 | ) | (40,147,610 | ) | ||||||
General Partner |
(719,459 | ) | (25,162 | ) | (408,231 | ) | ||||||
Net Income (Loss) Per Unit* |
||||||||||||
Limited Partners |
(6.79 | ) | 0.07 | (2.84 | ) | |||||||
General Partner |
(6.79 | ) | 0.07 | (2.84 | ) | |||||||
Units | Units | Units | ||||||||||
WEIGHTED AVERAGE NUMBER OF UNITS OUTSTANDING |
10,069,277.824 | 11,625,750.592 | 13,212,818.036 |
* | Based on change in Net Asset Value per Unit. |
The accompanying notes are an integral part of these financial statements.
Morgan Stanley Smith Barney Spectrum Strategic L.P.
Statements of Financial Condition
December 31, | ||||||||
2011 | 2010 | |||||||
$ | $ | |||||||
ASSETS | ||||||||
Investment in BHM I, LLC (cost $55,017,097 and $22,166,858, respectively) |
101,259,072 | 89,755,278 | ||||||
Investment in PGR Master Fund (cost $8,952,411 and $0, respectively) |
9,193,011 | | ||||||
Investment in MB Master Fund (cost $8,952,411 and $0, respectively) |
8,832,023 | | ||||||
|
|
|
|
|||||
Trading Equity: |
||||||||
Unrestricted cash |
| 77,030,039 | ||||||
Restricted cash |
| 9,784,572 | ||||||
|
|
|
|
|||||
Total cash |
| 86,814,611 | ||||||
|
|
|
|
|||||
Net unrealized gain on open contracts (MS&Co.) |
| 5,754,543 | ||||||
Net unrealized gain on open contracts (MSIP) |
| 1,223,220 | ||||||
|
|
|
|
|||||
Total net unrealized gain on open contracts |
| 6,977,763 | ||||||
|
|
|
|
|||||
Total Trading Equity |
119,284,106 | 183,547,652 | ||||||
Interest receivable (MSSB) |
328 | 11,589 | ||||||
Receivable from Investment in BHM I, LLC |
| 1,828,119 | ||||||
|
|
|
|
|||||
Total Assets |
119,284,434 | 185,387,360 | ||||||
|
|
|
|
|||||
LIABILITIES AND PARTNERS CAPITAL | ||||||||
LIABILITIES |
||||||||
Redemptions payable |
1,603,104 | 3,309,081 | ||||||
Accrued brokerage fees (MS&Co.) |
596,827 | 814,385 | ||||||
Accrued management fees |
272,302 | 366,473 | ||||||
Accrued incentive fees |
37,676 | 1,386,865 | ||||||
|
|
|
|
|||||
Total Liabilities |
2,509,909 | 5,876,804 | ||||||
|
|
|
|
|||||
PARTNERS CAPITAL |
||||||||
Limited Partners (7,211,352.161 and 8,263,198.237 Units, respectively) |
115,518,403 | 177,594,148 | ||||||
General Partner (78,414.692 and 89,167.692 Units, respectively) |
1,256,122 | 1,916,408 | ||||||
|
|
|
|
|||||
Total Partners Capital |
116,774,525 | 179,510,556 | ||||||
|
|
|
|
|||||
Total Liabilities and Partners Capital |
119,284,434 | 185,387,360 | ||||||
|
|
|
|
|||||
NET ASSET VALUE PER UNIT |
16.02 | 21.49 | ||||||
|
|
|
|
The accompanying notes are an integral part of these financial statements.
Morgan Stanley Smith Barney Spectrum Strategic L.P.
Statements of Income and Expenses
For the Years Ended December 31, | ||||||||||||
2011 | 2010 | 2009 | ||||||||||
$ | $ | $ | ||||||||||
INVESTMENT INCOME |
||||||||||||
Interest income (MSSB & MS&Co.) |
53,908 | 147,814 | 149,472 | |||||||||
|
|
|
|
|
|
|||||||
EXPENSES |
||||||||||||
Brokerage fees (MS&Co.) |
9,254,864 | 9,956,090 | 11,170,576 | |||||||||
Management fees |
4,157,245 | 4,589,666 | 5,321,165 | |||||||||
Incentive fees |
1,238,078 | 3,117,691 | 1,783,508 | |||||||||
|
|
|
|
|
|
|||||||
Total Expenses |
14,650,187 | 17,663,447 | 18,275,249 | |||||||||
|
|
|
|
|
|
|||||||
NET INVESTMENT LOSS |
(14,596,279 | ) | (17,515,633 | ) | (18,125,777 | ) | ||||||
|
|
|
|
|
|
|||||||
TRADING RESULTS |
||||||||||||
Trading profit (loss): |
||||||||||||
Net Realized |
2,750,625 | 11,512,792 | (15,530,111 | ) | ||||||||
Net change in unrealized |
(8,555,065 | ) | 7,129,344 | (1,945,071 | ) | |||||||
Realized gain (loss) on investment in BHM I, LLC |
(958,118 | ) | 1,679,125 | 1,148,140 | ||||||||
Unrealized appreciation (depreciation) on investment in BHM I, LLC |
(21,346,446 | ) | 16,522,092 | 36,225,357 | ||||||||
Unrealized appreciation on investment in PGR Master Fund |
240,600 | | | |||||||||
Unrealized depreciation on investment in MB Master Fund |
(120,388 | ) | | | ||||||||
Proceeds from Litigation |
| 220,755 | | |||||||||
|
|
|
|
|
|
|||||||
Total Trading Results |
(27,988,792 | ) | 37,064,108 | 19,898,315 | ||||||||
|
|
|
|
|
|
|||||||
NET INCOME (LOSS) |
(42,585,071 | ) | 19,548,475 | 1,772,538 | ||||||||
|
|
|
|
|
|
|||||||
Net Income (Loss) Allocation |
||||||||||||
Limited Partners |
(42,124,253 | ) | 19,344,514 | 1,752,399 | ||||||||
General Partner |
(460,818 | ) | 203,961 | 20,139 | ||||||||
Net Income (Loss) Per Unit* |
||||||||||||
Limited Partners |
(5.47 | ) | 2.36 | 0.31 | ||||||||
General Partner |
(5.47 | ) | 2.36 | 0.31 | ||||||||
Units | Units | Units | ||||||||||
WEIGHTED AVERAGE NUMBER OF UNITS OUTSTANDING |
7,873,786.813 | 8,988,248.355 | 10,166,429.664 |
* | Based on change in Net Asset Value per Unit. |
The accompanying notes are an integral part of these financial statements.
Morgan Stanley Smith Barney Spectrum Technical L.P.
Statements of Financial Condition
December 31, | ||||||||
2011 | 2010 | |||||||
$ | $ | |||||||
ASSETS | ||||||||
Investment in Blackwater Master Fund |
43,800,324 | | ||||||
|
|
|
|
|||||
Trading Equity: |
||||||||
Unrestricted cash |
195,525,329 | 309,023,347 | ||||||
Restricted cash |
25,997,636 | 22,476,248 | ||||||
|
|
|
|
|||||
Total cash |
221,522,965 | 331,499,595 | ||||||
|
|
|
|
|||||
Net unrealized gain on open contracts (MS&Co.) |
8,237,677 | 19,487,234 | ||||||
Net unrealized gain on open contracts (MSIP) |
528,494 | 1,107,988 | ||||||
|
|
|
|
|||||
Total net unrealized gain on open contracts |
8,766,171 | 20,595,222 | ||||||
|
|
|
|
|||||
Options purchased (premiums paid $3,780 and $231,217, respectively) |
1,507 | 314,450 | ||||||
|
|
|
|
|||||
Total Trading Equity |
274,090,967 | 352,409,267 | ||||||
Interest receivable (MSSB) |
755 | 22,413 | ||||||
|
|
|
|
|||||
Total Assets |
274,091,722 | 352,431,680 | ||||||
|
|
|
|
|||||
LIABILITIES AND PARTNERS CAPITAL | ||||||||
LIABILITIES |
||||||||
Redemptions payable |
4,351,339 | 6,788,911 | ||||||
Accrued brokerage fees (MS&Co.) |
1,345,886 | 1,637,276 | ||||||
Accrued management fees |
385,820 | 602,381 | ||||||
Accrued incentive fee |
94,355 | | ||||||
Options written (premiums received $7,715 and $56,970, respectively) |
3,460 | 147,085 | ||||||
|
|
|
|
|||||
Total Liabilities |
6,180,860 | 9,175,653 | ||||||
|
|
|
|
|||||
PARTNERS CAPITAL |
||||||||
Limited Partners (13,483,404.778 and 15,924,830.135 Units, respectively) |
264,947,461 | 339,644,475 | ||||||
General Partner (150,810.001 and 169,334.001 Units, respectively) |
2,963,401 | 3,611,552 | ||||||
|
|
|
|
|||||
Total Partners Capital |
267,910,862 | 343,256,027 | ||||||
|
|
|
|
|||||
Total Liabilities and Partners Capital |
274,091,722 | 352,431,680 | ||||||
|
|
|
|
|||||
NET ASSET VALUE PER UNIT |
19.65 | 21.33 | ||||||
|
|
|
|
The accompanying notes are an integral part of these financial statements.
Morgan Stanley Smith Barney Spectrum Technical L.P.
Statements of Income and Expenses
For the Years Ended December 31, | ||||||||||||
2011 | 2010 | 2009 | ||||||||||
$ | $ | $ | ||||||||||
INVESTMENT INCOME |
||||||||||||
Interest income (MSSB & MS&Co.) |
107,915 | 314,509 | 354,698 | |||||||||
|
|
|
|
|
|
|||||||
EXPENSES |
||||||||||||
Brokerage fees (MS&Co.) |
18,722,379 | 20,908,735 | 25,764,849 | |||||||||
Management fees |
6,205,832 | 7,663,963 | 9,505,272 | |||||||||
Incentive fees |
94,355 | | 184,642 | |||||||||
|
|
|
|
|
|
|||||||
Total Expenses |
25,022,566 | 28,572,698 | 35,454,763 | |||||||||
Management fee waived |
| (80,743 | ) | (409,373 | ) | |||||||
|
|
|
|
|
|
|||||||
Net Expenses |
25,022,566 | 28,491,955 | 35,045,390 | |||||||||
|
|
|
|
|
|
|||||||
NET INVESTMENT LOSS |
(24,914,651 | ) | (28,177,446 | ) | (34,690,692 | ) | ||||||
|
|
|
|
|
|
|||||||
TRADING RESULTS |
||||||||||||
Trading profit (loss): |
||||||||||||
Net Realized |
11,402,800 | 29,840,644 | (5,718,953 | ) | ||||||||
Net change in unrealized |
(11,820,187 | ) | 9,887,489 | (6,062,972 | ) | |||||||
Realized gain on Investment in Blackwater Master Fund |
167,699 | | | |||||||||
Unrealized appreciation on Investment in Blackwater Master Fund |
564,283 | | | |||||||||
Proceeds from Litigation |
10,951 | 164,828 | | |||||||||
|
|
|
|
|
|
|||||||
Total Trading Results |
325,546 | 39,892,961 | (11,781,925 | ) | ||||||||
|
|
|
|
|
|
|||||||
NET INCOME (LOSS) |
(24,589,105 | ) | 11,715,515 | (46,472,617 | ) | |||||||
|
|
|
|
|
|
|||||||
Net Income (Loss) Allocation |
||||||||||||
Limited Partners |
(24,340,924 | ) | 11,593,566 | (46,005,221 | ) | |||||||
General Partner |
(248,181 | ) | 121,949 | (467,396 | ) | |||||||
Net Income (Loss) Per Unit* |
||||||||||||
Limited Partners |
(1.68 | ) | 0.80 | (2.23 | ) | |||||||
General Partner |
(1.68 | ) | 0.80 | (2.23 | ) | |||||||
Units | Units | Units | ||||||||||
WEIGHTED AVERAGE NUMBER OF UNITS OUTSTANDING |
14,975,570.662 | 17,523,345.833 | 20,187,874.856 |
* | Based on change in Net Asset Value per Unit. |
The accompanying notes are an integral part of these financial statements.
Morgan Stanley Smith Barney Spectrum Currency and Commodity L.P.
(formerly, Morgan Stanley Smith Barney Spectrum Currency L.P.)
Condensed Schedule of Investments
December 31, 2011
Futures and Forward Contracts Purchased |
Net unrealized gain/(loss) on open contracts |
% of Partners Capital |
||||||
$ | ||||||||
Foreign currency |
(90,347 | ) | (0.25 | ) | ||||
|
|
|
|
|||||
Total Futures and Forward Contracts Purchased |
(90,347 | ) | (0.25 | ) | ||||
|
|
|
|
|||||
Futures and Forward Contracts Sold |
||||||||
Foreign currency |
(33,514 | ) | (0.10 | ) | ||||
|
|
|
|
|||||
Total Futures and Forward Contracts Sold |
(33,514 | ) | (0.10 | ) | ||||
|
|
|
|
|||||
Unrealized Currency Gain |
35,474 | 0.10 | ||||||
|
|
|
|
|||||
Net fair value |
(88,387 | ) | (0.25 | ) | ||||
|
|
|
|
|||||
Option Contracts |
Fair Value | % of Partners Capital |
||||||
$ | ||||||||
Options purchased on Forward Contracts |
1,534 | | (1) |
(1) | Amounts less than 0.005% |
The accompanying notes are an integral part of these financial statements.
Morgan Stanley Smith Barney Spectrum Currency and Commodity L.P.
(formerly, Morgan Stanley Smith Barney Spectrum Currency L.P.)
Condensed Schedule of Investments
December 31, 2010
Futures and Forward Contracts Purchased |
Net unrealized gain/(loss) on open contracts |
% of Partners Capital |
||||||
$ | ||||||||
Foreign currency |
1,089,617 | 2.27 | ||||||
|
|
|
|
|||||
Total Futures and Forward Contracts Purchased |
1,089,617 | 2.27 | ||||||
|
|
|
|
|||||
Futures and Forward Contracts Sold |
||||||||
Foreign currency |
(79,464 | ) | (0.17 | ) | ||||
|
|
|
|
|||||
Total Futures and Forward Contracts Sold |
(79,464 | ) | (0.17 | ) | ||||
|
|
|
|
|||||
Unrealized Currency Gain |
108,283 | 0.23 | ||||||
|
|
|
|
|||||
Net fair value |
1,118,436 | 2.33 | ||||||
|
|
|
|
|||||
Option Contracts |
Fair Value | % of Partners Capital |
||||||
$ | ||||||||
Options purchased on Forward Contracts |
4,459 | 0.01 |
The accompanying notes are an integral part of these financial statements.
Morgan Stanley Smith Barney Spectrum Global Balanced L.P.
Condensed Schedule of Investments
December 31, 2011
Futures and Forward Contracts Purchased |
Net unrealized gain/(loss) on open contracts |
% of Partners Capital |
||||||
$ | ||||||||
Commodity |
(15,932 | ) | (0.11 | ) | ||||
Equity |
5,601 | 0.04 | ||||||
Foreign currency |
4,129 | 0.03 | ||||||
Interest rate |
68,092 | 0.48 | ||||||
|
|
|
|
|||||
Total Futures and Forward Contracts Purchased |
61,890 | 0.44 | ||||||
|
|
|
|
|||||
Futures and Forward Contracts Sold |
||||||||
Commodity |
211,973 | 1.51 | ||||||
Equity |
2,015 | 0.01 | ||||||
Foreign currency |
33,472 | 0.24 | ||||||
Interest rate |
16,565 | 0.12 | ||||||
|
|
|
|
|||||
Total Futures and Forward Contracts Sold |
264,025 | 1.88 | ||||||
|
|
|
|
|||||
Unrealized Currency Gain |
894,862 | 6.36 | ||||||
|
|
|
|
|||||
Net fair value |
1,220,777 | 8.68 | ||||||
|
|
|
|
|||||
Option Contracts |
Fair Value | % of Partners Capital |
||||||
$ | ||||||||
Options purchased on Forward Contracts |
814 | | (1) |
(1) | Amounts less than 0.005% |
The accompanying notes are an integral part of these financial statements.
Morgan Stanley Smith Barney Spectrum Global Balanced L.P.
Condensed Schedule of Investments
December 31, 2010
Futures and Forward Contracts Purchased |
Net unrealized gain/(loss) on open contracts |
% of Partners Capital |
||||||
$ | ||||||||
Commodity |
497,614 | 2.56 | ||||||
Equity |
3,491 | 0.02 | ||||||
Foreign currency |
171,443 | 0.88 | ||||||
Interest rate |
47,762 | 0.25 | ||||||
|
|
|
|
|||||
Total Futures and Forward Contracts Purchased |
720,310 | 3.71 | ||||||
|
|
|
|
|||||
Futures and Forward Contracts Sold |
||||||||
Commodity |
(280,791 | ) | (1.45 | ) | ||||
Equity |
4,962 | 0.03 | ||||||
Foreign currency |
182,777 | 0.94 | ||||||
Interest rate |
(27,407 | ) | (0.14 | ) | ||||
|
|
|
|
|||||
Total Futures and Forward Contracts Sold |
(120,459 | ) | (0.62 | ) | ||||
|
|
|
|
|||||
Unrealized Currency Gain |
957,706 | 4.92 | ||||||
|
|
|
|
|||||
Net fair value |
1,557,557 | 8.01 | ||||||
|
|
|
|
|||||
Option Contracts |
Fair Value | % of Partners Capital |
||||||
$ | ||||||||
Options purchased on Forward Contracts |
2,701 | 0.01 |
The accompanying notes are an integral part of these financial statements.
Morgan Stanley Smith Barney Spectrum Select L.P.
Condensed Schedule of Investments
December 31, 2011
Futures and Forward Contracts Purchased |
Net unrealized gain/(loss) on open contracts |
% of Partners Capital |
||||||
$ | ||||||||
Commodity |
(404,913 | ) | (0.14 | ) | ||||
Equity |
300,106 | 0.10 | ||||||
Foreign currency |
632,976 | 0.22 | ||||||
Interest rate |
3,429,445 | 1.20 | ||||||
|
|
|
|
|||||
Total Futures and Forward Contracts Purchased |
3,957,614 | 1.38 | ||||||
|
|
|
|
|||||
Futures and Forward Contracts Sold |
||||||||
Commodity |
1,964,218 | 0.69 | ||||||
Equity |
(49,301 | ) | (0.02 | ) | ||||
Foreign currency |
1,815,614 | 0.63 | ||||||
Interest rate |
17,342 | 0.01 | ||||||
|
|
|
|
|||||
Total Futures and Forward Contracts Sold |
3,747,873 | 1.31 | ||||||
|
|
|
|
|||||
Unrealized Currency Loss |
(1,303,588 | ) | (0.46 | ) | ||||
|
|
|
|
|||||
Net fair value |
6,401,899 | 2.23 | ||||||
|
|
|
|
The accompanying notes are an integral part of these financial statements.
Morgan Stanley Smith Barney Spectrum Select L.P.
Condensed Schedule of Investments
December 31, 2010
Futures and Forward Contracts Purchased |
Net unrealized gain/(loss) on open contracts |
% of Partners Capital |
||||||
$ | ||||||||
Commodity |
11,952,037 | 2.92 | ||||||
Equity |
262,033 | 0.06 | ||||||
Foreign currency |
5,866,583 | 1.43 | ||||||
Interest rate |
604,598 | 0.15 | ||||||
|
|
|
|
|||||
Total Futures and Forward Contracts Purchased |
18,685,251 | 4.56 | ||||||
|
|
|
|
|||||
Futures and Forward Contracts Sold |
||||||||
Commodity |
(1,310,915 | ) | (0.32 | ) | ||||
Equity |
234,676 | 0.05 | ||||||
Foreign currency |
3,432,514 | 0.84 | ||||||
Interest rate |
(502,535 | ) | (0.12 | ) | ||||
|
|
|
|
|||||
Total Futures and Forward Contracts Sold |
1,853,740 | 0.45 | ||||||
|
|
|
|
|||||
Unrealized Currency Loss |
(735,824 | ) | (0.18 | ) | ||||
|
|
|
|
|||||
Net fair value |
19,803,167 | 4.83 | ||||||
|
|
|
|
The accompanying notes are an integral part of these financial statements.
Morgan Stanley Smith Barney Spectrum Strategic L.P.
Condensed Schedule of Investments
December 31, 2011
As of December 31, 2011, the Partnership held no futures or forward contracts; therefore, there were no net unrealized gains or losses on futures or forward contracts.
December 31, 2010
Futures and Forward Contracts Purchased |
Net unrealized gain/(loss) on open contracts |
% of Partners Capital |
||||||
$ | ||||||||
Commodity |
4,859,982 | 2.71 | ||||||
Equity |
340,412 | 0.19 | ||||||
Foreign currency |
2,447,791 | 1.36 | ||||||
Interest rate |
217,612 | 0.12 | ||||||
|
|
|
|
|||||
Total Futures and Forward Contracts Purchased |
7,865,797 | 4.38 | ||||||
|
|
|
|
|||||
Futures and Forward Contracts Sold |
||||||||
Commodity |
(22,080 | ) | (0.01 | ) | ||||
Foreign currency |
(152,812 | ) | (0.08 | ) | ||||
Interest rate |
(10,504 | ) | (0.01 | ) | ||||
|
|
|
|
|||||
Total Futures and Forward Contracts Sold |
(185,396 | ) | (0.10 | ) | ||||
|
|
|
|
|||||
Unrealized Currency Loss |
(702,638 | ) | (0.39 | ) | ||||
|
|
|
|
|||||
Net fair value |
6,977,763 | 3.89 | ||||||
|
|
|
|
The accompanying notes are an integral part of these financial statements.
Morgan Stanley Smith Barney Spectrum Technical L.P.
Condensed Schedule of Investments
December 31, 2011
Futures and Forward Contracts Purchased |
Net unrealized gain/(loss) on open contracts |
% of Partners Capital |
||||||
$ | ||||||||
Commodity |
193,829 | 0.07 | ||||||
Equity |
117,796 | 0.04 | ||||||
Foreign currency |
338,402 | 0.13 | ||||||
Interest rate |
2,934,828 | 1.10 | ||||||
|
|
|
|
|||||
Total Futures and Forward Contracts Purchased |
3,584,855 | 1.34 | ||||||
|
|
|
|
|||||
Futures and Forward Contracts Sold |
||||||||
Commodity |
727,030 | 0.27 | ||||||
Equity |
350,484 | 0.13 | ||||||
Foreign currency |
1,218,007 | 0.45 | ||||||
Interest rate |
(7,976 | ) | | (1) | ||||
|
|
|
|
|||||
Total Futures and Forward Contracts Sold |
2,287,545 | 0.85 | ||||||
|
|
|
|
|||||
Unrealized Currency Gain |
2,893,771 | 1.08 | ||||||
|
|
|
|
|||||
Net fair value |
8,766,171 | 3.27 | ||||||
|
|
|
|
|||||
Option Contracts |
Fair Value | % of Partners Capital |
||||||
$ | ||||||||
Options purchased on Future Contracts |
1,507 | | (1) | |||||
Options written on Future Contracts |
(3,460 | ) | | (1) |
(1) | Amounts less than 0.005% |
The accompanying notes are an integral part of these financial statements.
Morgan Stanley Smith Barney Spectrum Technical L.P.
Condensed Schedule of Investments
December 31, 2010
Futures and Forward Contracts Purchased |
Net unrealized gain/(loss) on open contracts |
% of Partners Capital |
||||||
$ | ||||||||
Commodity |
12,293,447 | 3.58 | ||||||
Equity |
969,327 | 0.28 | ||||||
Foreign currency |
5,504,502 | 1.60 | ||||||
Interest rate |
186,566 | 0.06 | ||||||
|
|
|
|
|||||
Total Futures and Forward Contracts Purchased |
18,953,842 | 5.52 | ||||||
|
|
|
|
|||||
Futures and Forward Contracts Sold |
||||||||
Commodity |
(930,820 | ) | (0.27 | ) | ||||
Equity |
16,882 | 0.01 | ||||||
Foreign currency |
506,726 | 0.14 | ||||||
Interest rate |
(757,797 | ) | (0.22 | ) | ||||
|
|
|
|
|||||
Total Futures and Forward Contracts Sold |
(1,165,009 | ) | (0.34 | ) | ||||
|
|
|
|
|||||
Unrealized Currency Gain |
2,806,389 | 0.82 | ||||||
|
|
|
|
|||||
Net fair value |
20,595,222 | 6.00 | ||||||
|
|
|
|
|||||
Option Contracts |
Fair Value | % of Partners Capital |
||||||
$ | ||||||||
Options purchased on Future Contracts |
2,775 | | (1) | |||||
Options purchased on Forward Contracts |
311,675 | 0.09 | ||||||
Options written on Future Contracts |
(5,500 | ) | | (1) | ||||
Options written on Forward Contracts |
(141,585 | ) | (0.04 | ) |
(1) | Amounts less than 0.005% |
The accompanying notes are an integral part of these financial statements.
Morgan Stanley Smith Barney Spectrum Currency and Commodity L.P.
(formerly, Morgan Stanley Smith Barney Spectrum Currency L.P.)
Statements of Changes in Partners Capital
For the Years Ended December 31, 2011, 2010, and 2009
Units of Partnership Interest |
Limited Partners |
General Partner |
Total | |||||||||||||
$ | $ | $ | ||||||||||||||
Partners Capital, December 31, 2008 |
7,923,153.973 | 87,533,608 | 889,530 | 88,423,138 | ||||||||||||
Net Loss |
| (7,613,304 | ) | (77,520 | ) | (7,690,824 | ) | |||||||||
Redemptions |
(1,898,742.771 | ) | (20,122,091 | ) | (199,822 | ) | (20,321,913 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Partners Capital, December 31, 2009 |
6,024,411.202 | 59,798,213 | 612,188 | 60,410,401 | ||||||||||||
Net Loss |
| (2,651,894 | ) | (26,941 | ) | (2,678,835 | ) | |||||||||
Redemptions |
(1,003,837.255 | ) | (9,641,945 | ) | (67,815 | ) | (9,709,760 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Partners Capital, December 31, 2010 |
5,020,573.947 | 47,504,374 | 517,432 | 48,021,806 | ||||||||||||
Net Loss |
| (4,369,934 | ) | (49,205 | ) | (4,419,139 | ) | |||||||||
Redemptions |
(988,282.545 | ) | (8,738,364 | ) | (49,999 | ) | (8,788,363 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Partners Capital, December 31, 2011 |
4,032,291.402 | 34,396,076 | 418,228 | 34,814,304 | ||||||||||||
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
Morgan Stanley Smith Barney Spectrum Global Balanced L.P.
Statements of Changes in Partners Capital
For the Years Ended December 31, 2011, 2010, and 2009
Units of Partnership Interest |
Limited Partners |
General Partner |
Total | |||||||||||||
$ | $ | $ | ||||||||||||||
Partners Capital, December 31, 2008 |
1,735,551.506 | 30,071,901 | 305,574 | 30,377,475 | ||||||||||||
Net Loss |
| (3,396,166 | ) | (34,470 | ) | (3,430,636 | ) | |||||||||
Redemptions |
(435,204.924 | ) | (7,067,279 | ) | (70,210 | ) | (7,137,489 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Partners Capital, December 31, 2009 |
1,300,346.582 | 19,608,456 | 200,894 | 19,809,350 | ||||||||||||
Net Income |
| 2,299,999 | 23,603 | 2,323,602 | ||||||||||||
Redemptions |
(164,941.216 | ) | (2,676,021 | ) | (16,424 | ) | (2,692,445 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Partners Capital, December 31, 2010 |
1,135,405.366 | 19,232,434 | 208,073 | 19,440,507 | ||||||||||||
Net Loss |
| (2,466,376 | ) | (27,912 | ) | (2,494,288 | ) | |||||||||
Redemptions |
(186,460.494 | ) | (2,877,935 | ) | | (2,877,935 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Partners Capital, December 31, 2011 |
948,944.872 | 13,888,123 | 180,161 | 14,068,284 | ||||||||||||
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
Morgan Stanley Smith Barney Spectrum Select L.P.
Statements of Changes in Partners Capital
For the Years Ended December 31, 2011, 2010, and 2009
Units of Partnership Interest |
Limited Partners |
General Partner |
Total | |||||||||||||
$ | $ | $ | ||||||||||||||
Partners Capital, December 31, 2008 |
14,850,038.076 | 599,790,920 | 6,093,458 | 605,884,378 | ||||||||||||
Net Loss |
| (40,147,610 | ) | (408,231 | ) | (40,555,841 | ) | |||||||||
Redemptions |
(2,608,237.601 | ) | (99,741,263 | ) | (942,227 | ) | (100,683,490 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Partners Capital, December 31, 2009 |
12,241,800.475 | 459,902,047 | 4,743,000 | 464,645,047 | ||||||||||||
Net Loss |
| (2,687,785 | ) | (25,162 | ) | (2,712,947 | ) | |||||||||
Redemptions |
(1,481,544.764 | ) | (52,293,020 | ) | (388,220 | ) | (52,681,240 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Partners Capital, December 31, 2010 |
10,760,255.711 | 404,921,242 | 4,329,618 | 409,250,860 | ||||||||||||
Net Loss |
| (67,138,290 | ) | (719,459 | ) | (67,857,749 | ) | |||||||||
Redemptions |
(1,601,637.811 | ) | (54,746,671 | ) | (502,032 | ) | (55,248,703 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Partners Capital, December 31, 2011 |
9,158,617.900 | 283,036,281 | 3,108,127 | 286,144,408 | ||||||||||||
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
Morgan Stanley Smith Barney Spectrum Strategic L.P.
Statements of Changes in Partners Capital
For the Years Ended December 31, 2011, 2010, and 2009
Units of Partnership Interest |
Limited Partners |
General Partner |
Total | |||||||||||||
$ | $ | $ | ||||||||||||||
Partners Capital, December 31, 2008 |
11,413,873.684 | 212,696,497 | 2,160,447 | 214,856,944 | ||||||||||||
Net Income |
| 1,752,399 | 20,139 | 1,772,538 | ||||||||||||
Redemptions |
(1,989,213.188 | ) | (36,028,437 | ) | (337,940 | ) | (36,366,377 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Partners Capital, December 31, 2009 |
9,424,660.496 | 178,420,459 | 1,842,646 | 180,263,105 | ||||||||||||
Net Income |
| 19,344,514 | 203,961 | 19,548,475 | ||||||||||||
Redemptions |
(1,072,294.567 | ) | (20,170,825 | ) | (130,199 | ) | (20,301,024 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Partners Capital, December 31, 2010 |
8,352,365.929 | 177,594,148 | 1,916,408 | 179,510,556 | ||||||||||||
Net Loss |
| (42,124,253 | ) | (460,818 | ) | (42,585,071 | ) | |||||||||
Redemptions |
(1,062,599.076 | ) | (19,951,492 | ) | (199,468 | ) | (20,150,960 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Partners Capital, December 31, 2011 |
7,289,766.853 | 115,518,403 | 1,256,122 | 116,774,525 | ||||||||||||
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
Morgan Stanley Smith Barney Spectrum Technical L.P.
Statements of Changes in Partners Capital
For the Years Ended December 31, 2011, 2010, and 2009
Units of Partnership Interest |
Limited Partners |
General Partner |
Total | |||||||||||||
$ | $ | $ | ||||||||||||||
Partners Capital, December 31, 2008 |
22,887,475.481 | 515,570,112 | 5,239,435 | 520,809,547 | ||||||||||||
Net Loss |
| (46,005,221 | ) | (467,396 | ) | (46,472,617 | ) | |||||||||
Redemptions |
(4,333,806.371 | ) | (92,565,005 | ) | (943,655 | ) | (93,508,660 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Partners Capital, December 31, 2009 |
18,553,669.110 | 376,999,886 | 3,828,384 | 380,828,270 | ||||||||||||
Net Income |
| 11,593,566 | 121,949 | 11,715,515 | ||||||||||||
Redemptions |
(2,459,504.974 | ) | (48,948,977 | ) | (338,781 | ) | (49,287,758 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Partners Capital, December 31, 2010 |
16,094,164.136 | 339,644,475 | 3,611,552 | 343,256,027 | ||||||||||||
Net Loss |
| (24,340,924 | ) | (248,181 | ) | (24,589,105 | ) | |||||||||
Redemptions |
(2,459,949.357 | ) | (50,356,090 | ) | (399,970 | ) | (50,756,060 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Partners Capital, December 31, 2011 |
13,634,214.779 | 264,947,461 | 2,963,401 | 267,910,862 | ||||||||||||
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
1. | Organization |
Morgan Stanley Smith Barney Spectrum Currency and Commodity L.P. (formerly, Morgan Stanley Smith Barney Spectrum Currency L.P.)(Spectrum Currency), Morgan Stanley Smith Barney Spectrum Global Balanced L.P. (Spectrum Global Balanced), Morgan Stanley Smith Barney Spectrum Select L.P., (Spectrum Select), Morgan Stanley Smith Barney Spectrum Strategic L.P. (Spectrum Strategic) and Morgan Stanley Smith Barney 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 and forward 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) (refer to Note 6. Financial Instruments).
In 2009, Morgan Stanley and Citigroup Inc. (Citigroup) combined certain assets of the Global Wealth Management Group of Morgan Stanley & Co. LLC (formerly, Morgan Stanley & Co. Incorporated) (MS&Co.), including Demeter Management LLC (Demeter) and the Smith Barney division of Citigroup Global Markets, Inc., into a new joint venture, Morgan Stanley Smith Barney Holdings LLC (MSSBH). As part of that transaction, Ceres Managed Futures LLC (Ceres or the General Partner) and Demeter were contributed to MSSBH, and each became a wholly-owned subsidiary of MSSBH. Prior to June 1, 2009, Demeter was a wholly-owned subsidiary of Morgan Stanley.
Effective December 1, 2010, MSSBH, together with the unanimous support of the respective Boards of Directors of Demeter and Ceres, combined the assets and operations of Demeter and Ceres into a single commodity pool operator, Ceres. Ceres will continue to be wholly-owned by MSSBH and replaced Demeter as the general partner. MSSBH is majority-owned indirectly by Morgan Stanley and minority-owned indirectly by Citigroup.
The non-clearing commodity broker is Morgan Stanley Smith Barney LLC (MSSB), the principal subsidiary of MSSBH. The clearing commodity brokers for Spectrum Global Balanced, Spectrum Select, Spectrum Strategic and Spectrum Technical are MS&Co. and Morgan Stanley & Co. International plc (MSIP). Spectrum Currencys clearing commodity broker is MS&Co. MS&Co. also acts as the counterparty on all trading of the foreign currency forward contracts. MSIP serves as the commodity broker for trades on the London Metal Exchange (LME). Morgan Stanley Capital Group Inc. (MSCG) acts as the counterparty on all trading of the options on foreign currency forward contracts. MS&Co., MSIP, and MSCG are wholly-owned subsidiaries of Morgan Stanley.
Effective December 30, 2011, Ceres changed the name of Morgan Stanley Smith Barney Spectrum Currency L.P. to Morgan Stanley Smith Barney Spectrum Currency and Commodity L.P.
Effective February 19, 2010, Demeter notified FX Concepts Trading Advisor, Inc. (FX Concepts) that the Management Agreement dated as of October 9, 2007 and any amendments or revisions subsequently made thereto, among Spectrum Strategic, Demeter and FX Concepts, pursuant to which FX Concepts traded a portion of Spectrum Strategics assets in commodity interest contracts, would be terminated effective February 26, 2010. Consequently, FX Concepts ceased all commodity interest trading on behalf of Spectrum Strategic effective February 26, 2010.
Effective February 19, 2010, Demeter notified FX Concepts that the Management Agreement dated as of October 9, 2007 and any amendments or revisions subsequently made thereto, among Spectrum Currency, Demeter and FX Concepts, pursuant to which FX Concepts traded a portion of the Spectrum Currencys assets in commodity interest contracts, would be terminated effective February 26, 2010. Consequently, FX Concepts ceased all commodity interest trading on behalf of Spectrum Currency effective February 26, 2010.
Effective September 29, 2009, the General Partner changed the name of Morgan Stanley Spectrum Currency L.P., Morgan Stanley Spectrum Global Balanced L.P., Morgan Stanley Spectrum Select L.P., Morgan Stanley Spectrum Strategic L.P., and Morgan Stanley Spectrum Technical L.P.,
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
respectively, to Morgan Stanley Smith Barney Spectrum Currency L.P., Morgan Stanley Smith Barney Spectrum Global Balanced L.P., Morgan Stanley Smith Barney Spectrum Select L.P., Morgan Stanley Smith Barney Spectrum Strategic L.P., and Morgan Stanley Smith Barney Spectrum Technical L.P., respectively. The name change did not have any impact on the operation of each Partnership or its limited partners.
Effective as of the close of business on August 31, 2011, DKR was terminated as a trading advisor to Spectrum Strategic.
Effective March 1, 2010, Spectrum Strategic, Demeter and DKR Fusion Management L.P. (DKR) entered into a management agreement pursuant to which, effective March 1, 2010, DKR served as a trading advisor for Spectrum Strategic and traded its allocated portion of net assets pursuant to DKRs Quantitative Strategies 2X trading program.
The General Partner removed the following trading advisors from the Spectrum Currency as of the close of the day on December 31, 2011: John W. Henry & Company, Inc. (JWH) and Sunrise Capital Partners, LLC (Sunrise). Consequently, both JWH and Sunrise ceased all futures interest trading on behalf of Spectrum Currency as of that date.
Effective as of the close of business on May 31, 2011, DKR was terminated as a trading advisor to Spectrum Currency.
Effective November 30, 2011, the General Partner has removed Eclipse Capital Management Inc. (Eclipse) as a trading advisor to Spectrum Strategic.
Effective December 1, 2011, the General Partner added Aventis Asset Management LLC (Aventis) and PGR Capital LLP (PGR) as trading advisors to manage the assets of Spectrum Strategic through its investment in MB Master Fund L.P. (MB Master Fund) and PGR Master Fund L.P. (PGR Master Fund), respectively.
Effective December 1, 2011, the General Partner added Blackwater Capital Management LLC (Blackwater) as a trading advisor to manage the assets of Spectrum Technical through its investment in Blackwater Master Fund L.P. (Blackwater Master Fund).
Effective August 1, 2011, JWH started trading the net assets of Spectrum Technical allocated to JWH (the JWH Account) in accordance with the JWH Global Analytics trading program and ceased trading the JWH Account in accordance with JWHs Financial and Metals Portfolio.
Effective May 31, 2011, Morgan Stanley & Co. Incorporated changed its name to Morgan Stanley & Co. LLC.
Ceres is required to maintain a 1% minimum interest in the equity of each Partnership and income (losses) are shared by Ceres and the limited partners based on their proportional ownership interest.
2. | Summary of Significant Accounting Policies |
Use of Estimates The financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP), 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 and the differences could be material.
Valuation Futures Interests are open commitments until the settlement date, at which time they are realized. They are valued at fair value, generally on a daily basis, and the unrealized gains and losses on open contracts (the difference between contract trade price and market price) are reported in the Statements of Financial Condition as net unrealized gains or losses on open contracts. The resulting net change in unrealized gains and losses is reflected in the change in unrealized trading
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
profit (loss) on open contracts from one period to the next on the Statements of Income and Expenses. The fair value of exchange-traded futures, options and forwards contracts is determined by the various futures exchanges, and reflects the settlement price for each contract as of the close of business on the last business day of the reporting period. The fair value of foreign currency forward contracts is extrapolated on a forward basis from the spot prices quoted as of approximately 3:00 P.M. (E.T.) of the last business day of the reporting period from various exchanges. The fair value of non-exchange-traded foreign currency option contracts is calculated by applying an industry standard model application for options valuation of foreign currency options, using as input the spot prices, interest rates, and option implied volatilities quoted as of approximately 3:00 P.M. (E.T.) on the last business day of the reporting period. 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 fair value of these contracts, including interest rate volatility.
The Partnerships may invest in affiliated underlying funds. Relevant authoritative guidance permits, as a practical expedient, the Partnerships to measure the fair value of their investments in affiliated underlying funds on the basis of the net asset value per share of such investments (or the equivalent) if the net asset value per share of such investments (or the equivalent) is calculated in a manner consistent with the measurement principles of applicable authoritative guidance as of the Partnerships reporting date. The fair value of each affiliated underlying fund is based on the information provided by the affiliated underlying fund which reflects the Partnerships share of the fair value of the net assets of the affiliated underlying fund (i.e., the practical expedient is used).
The Partnerships may also invest in Master Funds. The Partnerships record their investments in Master Funds at fair value. The financial statements of the Master Funds, including the condensed schedule of investments and the notes to the Master Funds financial statements, which provide information about the Master Funds valuation policy, are attached to this report and should be read with the Partnerships financial statements.
The Partnerships may buy or write put and call options through listed exchanges and the over-the-counter market. The buyer of an option has the right to purchase (in the case of a call option) or sell (in the case of a put option) a specified quantity of a specific Futures Interest on the underlying asset at a specified price prior to or on a specified expiration date. The writer of an option is exposed to the risk of loss if the fair value of the Futures Interest on the underlying asset declines (in the case of a put option) or increases (in the case of a call option). The writer of an option can never profit by more than the premium paid by the buyer but can potentially lose an unlimited amount.
Premiums received/premiums paid from writing/purchasing options are recorded as liabilities/assets on the Statements of Financial Condition and are subsequently adjusted to fair values. The difference between the fair value of the option and the premiums received/premiums paid is treated as an unrealized gain or loss within the Statements of Income and Expenses.
Revenue Recognition Monthly, MSSB pays each Partnership interest income at a rate equal to the monthly average of the 4-week U.S. Treasury bill discount rate during such month on 80% of the funds on deposit with the commodity brokers at each month-end in the case of Spectrum Currency, Spectrum Select, Spectrum Strategic, and Spectrum Technical, and on 100% of the funds on deposit in the case of Spectrum Global Balanced. MSSB retains any interest earned in excess of the interest paid by MSSB to each Partnership. For purposes of such interest payments, net assets do not include monies owed to the Partnerships on Futures Interests.
Fair Value of Financial Instruments The fair value of the Partnerships assets and liabilities that qualify as financial instruments under the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC), approximates the carrying amount presented in the Statements of Financial Condition.
Foreign Currency Transactions and Translation The Partnerships functional currency is the U.S. dollar; however, the Partnerships may transact business in currencies other than the U.S. dollar.
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
Assets and liabilities denominated in currencies other than the U.S. dollar are translated into U.S. dollars at the rate in effect at the date of the Statements of Financial Condition. Income and expense items denominated in currencies other than the U.S. dollar are translated into U.S. dollars at the rate in effect during the period. The effects of changes in foreign currency exchange rates on investments are not segregated in the Statements of Income and Expenses from the changes in market price of those investments, but are included in the realized gain/loss and unrealized trading profit (loss) in the Statements of Income and Expenses.
Net Income (Loss) per Unit Net income (loss) per unit of limited partnership interest (Unit(s)) is computed in accordance with the specialized accounting for Investment Companies as illustrated in the Financial Highlights Footnote (Refer to Note 9, Financial Highlights).
Trading Equity The Partnerships asset Trading Equity, reflected on the Statements of Financial Condition, consists of (a) cash on deposit with MSSB, MS&Co., and MSIP for Spectrum Global Balanced, Spectrum Select, Spectrum Strategic and Spectrum Technical, and with MSSB and MS&Co. for Spectrum Currency, to be used as margin for trading and (b) net unrealized gains or losses on futures and forward contracts, which are fair valued and calculated as the difference between original contract value and fair value; and for the Partnerships which trade in options; if any, (c) options purchased at fair value. Options written at fair value are recorded in Liabilities within the Statements of Financial Condition.
The Partnerships, in their normal course of business, enter into various contracts with MSSB, MS&Co., and MSIP acting as their commodity brokers. Pursuant to brokerage agreements with MSSB, MS&Co., and MSIP, to the extent that such trading results in unrealized gains or losses, these amounts are offset for each Partnership and are reported on a net basis on the Statements of Financial Condition.
The Partnerships have offset their fair value amounts recognized for forward contracts executed with the same counterparty as allowable under the terms of their master netting agreement with MS&Co., as the counterparty on such contracts. The Partnerships have consistently applied their right to offset.
Restricted and Unrestricted Cash As reflected on the Partnerships Statements of Financial Condition, restricted cash equals the cash portion of assets on deposit to meet margin requirements plus the cash required to offset unrealized losses on foreign currency forwards and options contracts and offset unrealized losses on offset LME positions. All of these amounts are maintained separately. Cash that is not classified as restricted cash is therefore classified as unrestricted cash.
Brokerage and Related Transaction Fees and Costs The brokerage fees for Spectrum Currency and Spectrum Global Balanced are currently 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 currently accrued at a flat monthly rate of 1/12 of 6.0% (a 6.0% annual rate) of net assets as of the first day of each month. Such fees currently cover all brokerage fees, transaction fees and costs, and ordinary administrative and offering expenses.
Operating Expenses The Partnerships incur monthly management fees and may incur an incentive fee. All common administrative and continuing offering expenses, including legal, auditing, accounting, filing fees, and other related expenses, are borne by MS&Co. through the brokerage fees paid by the Partnerships.
Continuing Offering Units of each Partnership were offered at a price equal to 100% of the net asset value per Unit as of the close of business on the last day of each month. No selling commissions or charges related to the continuing offering of Units were paid by the limited partners of the Partnerships. MS&Co. paid all such costs.
The Partnerships no longer offer Units for purchase or exchange.
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
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 first becomes a limited partner. The request for redemptions must be delivered to a limited partners local MSSB Branch Office in time for it to be forwarded and received by Ceres no later than 3:00 p.m., New York City time, on the last day of the month in which the redemption is to be effective. Redemptions must be made in whole Units, with a minimum amount of 50 Units required for each redemption, unless a limited partner is redeeming his entire interest in a particular Partnership.
Units redeemed on or prior to the last day of the twelfth month from the date of purchase will be subject to a redemption charge equal to 2% of the net asset value of a Unit on the Redemption Date. Units redeemed after the last day of the twelfth month and on or prior to the last day of the twenty-fourth month from the date of purchase will be subject to a redemption charge equal to 1% of the net asset value of a Unit on the Redemption Date. Units redeemed after the last day of the twenty-fourth month from the date of purchase will not be subject to a redemption charge. The foregoing redemptions charges are paid to MS&Co.
The aggregate amounts of redemption charges paid to MS&Co. for the years ended December 31, 2011, 2010, and 2009 were as follows:
2011 | 2010 | 2009 | ||||||||||
$ | $ | $ | ||||||||||
Spectrum Currency |
| 1,653 | 14,053 | |||||||||
Spectrum Global Balanced |
| 767 | 6,792 | |||||||||
Spectrum Select |
| 25,528 | 154,095 | |||||||||
Spectrum Strategic |
| 8,019 | 69,135 | |||||||||
Spectrum Technical |
| 9,992 | 123,590 |
Exchanges On the last day of the first month which occurred more than six months after a person first became a limited partner in any of the Partnerships, and at the end of each month thereafter, limited partners could exchange their Units among the Partnerships (subject to certain restrictions outlined in the Limited Partnership Agreements) without paying additional charges.
Distributions Distributions, other than redemptions of Units, are made on a pro rata basis at the sole discretion of Ceres. No distributions have been made to date. Ceres does not intend to make any distributions of the Partnerships profits.
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 Partnerships revenue and expenses for income tax purposes. The Partnerships file U.S. federal and state tax returns.
The guidance issued by the FASB on income taxes clarifies the accounting for uncertainty in income taxes recognized in each Partnerships financial statements, and prescribes a recognition threshold and measurement attribute for financial statement recognition and measurement of a tax position taken or expected to be taken. The Partnerships have concluded that there were no significant uncertain tax positions that would require recognition in the financial statements as of December 31, 2011 and 2010. If applicable, the Partnerships recognize interest accrued related to unrecognized tax benefits in interest expense and penalties in other expenses in the Statements of Income and Expenses. Generally, 2008 through 2011 tax years remain subject to examination by U.S. federal and most state tax authorities. No income tax returns are currently under examination.
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 Partnerships Limited Partnership Agreement.
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
Litigation Settlement In September 2011, Spectrum Technical received a settlement award payment in the amount of $10,951 from the Natural Gas Commodity Litigation Settlement Administrator. This settlement represents the Partnerships portion of the Net Settlement Fund. The proceeds from this settlement were accounted for in the period they were received for the benefit of the partners in the Partnership.
On July 28, 2010, Spectrum Global Balanced, Spectrum Select, Spectrum Strategic, and Spectrum Technical, each, received a settlement award payment in the amounts of $29,602, $337,120, $220,755, and $164,828, respectively, from the Natural Gas Commodity Litigation Settlement Administrator. This settlement represents each Partnerships portion of the 2006 Net Settlement Fund and the 2007 Net Settlement Fund. The proceeds from this settlement were accounted for in the period they were received for the benefit of the partners in each Partnership.
Statement of Cash Flows The Partnerships are not required to provide a Statement of Cash Flows.
Other Pronouncements
In December 2011, the FASB issued Accounting Standards Update (ASU) 2011-11, Disclosures about Offsetting Assets and Liabilities, which creates a new disclosure requirement about the nature of an entitys rights of setoff and the related arrangements associated with its financial instruments and derivative instruments. Entities are required to disclose both gross information and net information about both instruments and transactions eligible for offset in the statement of financial condition and instruments and transactions subject to an agreement similar to a master netting arrangement. The objective of this disclosure is to facilitate comparison between those entities that prepare their financial statements on the basis of U.S. GAAP and those entities that prepare their financial statements on the basis of International Financial Reporting Standards (IFRS). The disclosure requirements are effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. The Partnerships should also provide the disclosures retrospectively for all comparative periods presented. The Partnerships are currently evaluating the impact that the pronouncement would have on the financial statements.
In October 2011, the FASB issued a proposed ASU intended to improve and converge financial reporting by setting forth consistent criteria for determining whether an entity is an investment company. Under longstanding U.S. GAAP, investment companies carry all of their investments at fair value, even if they hold a controlling interest in another company. The primary changes being proposed by the FASB relate to which entities would be considered investment companies as well as certain disclosure and presentation requirements. In addition to the changes to the criteria for determining whether an entity is an investment company, the FASB also proposes that an investment company consolidate another investment company if it holds a controlling financial interest in the entity. The Partnerships will evaluate the impact that this proposed update would have on the financial statements once the pronouncement is issued.
In May 2011, the FASB issued ASU 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS. The amendments within this ASU change the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements to eliminate unnecessary wording differences between U.S. GAAP and IFRS. However, some of the amendments clarify the FASBs intent about the application of existing fair value measurement requirements and other amendments change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements. The ASU is effective for annual and interim periods beginning after December 15, 2011 for public entities. This new guidance is not expected to have a material impact on the Partnerships financial statements.
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
3. | Investments |
a. | Spectrum Strategics investment in affiliated underlying funds. |
Effective December 1, 2011, Spectrum Strategic invested a portion of its assets in MB Master Fund and PGR Master Fund. Spectrum Strategics investment in MB Master Fund and PGR Master Fund represents approximately 7.6% and 7.9%, respectively, of the net asset value of Spectrum Strategic as of December 31, 2011.
Effective January 1, 2008, Spectrum Strategic initially invested a portion of its assets in Morgan Stanley Smith Barney BHM I, LLC (BHM I, LLC). Spectrum Strategics investment in BHM I, LLC represents approximately 86.7% and 50.0% of the net asset value of Spectrum Strategic at December 31, 2011, and 2010, respectively.
Summarized information for Spectrum Strategics investment in BHM I, LLC as of December 31, 2011 and 2010, and MB Master Fund and PGR Master Fund as of December 31, 2011 is as follows:
December 31, 2011
Investment |
% of Partnership Net Assets |
Fair Value |
Partnerships pro rata Net Income (Loss) |
Management Fees |
Incentive Fees |
Administrative Fees |
||||||||||||||||||
% | $ | $ | $ | $ | $ | |||||||||||||||||||
BHM I, LLC |
86.7 | 101,259,072 | (22,304,564 | ) | n/a | n/a | n/a | |||||||||||||||||
PGR Master Fund |
7.9 | 9,193,011 | 240,600 | n/a | n/a | n/a | ||||||||||||||||||
MB Master Fund |
7.6 | 8,832,023 | (120,388 | ) | n/a | n/a | n/a |
December 31, 2010
Investment |
% of Partnership Net Assets |
Fair Value |
Partnerships pro rata Net Income |
Management Fees |
Incentive Fees |
Administrative Fees |
||||||||||||||||||
% | $ | $ | $ | $ | $ | |||||||||||||||||||
BHM I, LLC |
50.0 | 89,755,278 | 18,201,217 | n/a | n/a | n/a |
Spectrum Strategic does not directly pay BHM I, LLC, PGR Master Fund and MB Master Fund for its pro rata portion of incentive, management and administrative fees. Such fees are directly paid by Spectrum Strategic to the respective parties.
For BHM I, LLC, PGR Master Fund and MB Master Fund contributions and withdrawals are permitted on a monthly basis.
As of December 31, 2011 and 2010, there have been no suspended redemptions, lock up periods or gate provisions imposed before a withdrawal can be made by the Partnership.
The tables below represent summarized Income Statement information for BHM I, LLC for the years ended December 31, 2011, 2010, and 2009, respectively, and for, PGR Master Fund and MB Master Fund for the year ended December 31, 2011 to meet the requirements of Regulation S-X rule 3-09, as follows:
December 31, 2011 |
Investment Income/(Loss) |
Net Investment Loss |
Total Trading Results |
Net Income (Loss) |
||||||||||||
$ |
$ | $ | $ | |||||||||||||
BHM I, LLC |
(53,603 | ) | (7,089,593 | ) | (100,575,804 | ) | (107,665,397 | ) | ||||||||
PGR Master Fund |
8,507 | (110,281 | ) | 2,276,086 | 2,165,805 | |||||||||||
MB Master Fund |
963 | (325,546 | ) | 438,595 | 113,049 | |||||||||||
December 31, 2010 |
Investment Loss |
Net Investment Loss |
Total Trading Results |
Net Income |
||||||||||||
$ | $ | $ | $ | |||||||||||||
BHM I, LLC |
(8,738 | ) | (4,238,014 | ) | 34,087,359 | 29,849,345 | ||||||||||
December 31, 2009 |
Investment Income |
Net Investment Loss |
Total Trading Results |
Net Income |
||||||||||||
$ | $ | $ | $ | |||||||||||||
BHM I, LLC |
22,591 | (2,554,661 | ) | 49,563,805 | 47,009,144 |
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
b. | Spectrum Technicals investment in Blackwater Master Fund |
On December 1, 2011, Spectrum Technical invested a portion of its assets in Blackwater Master Fund, a limited partnership organized under the partnership laws of the State of Delaware. Blackwater Master Fund was formed to permit accounts managed now or in the future by Blackwater using the Global Program, a proprietary, systematic trading program, to invest together in one trading vehicle. The General Partner is also the general partner for Blackwater Master Fund. Individual and pooled accounts currently managed by Blackwater, including Spectrum Technical, are permitted to be limited partners of Blackwater Master Fund. The General Partner and Blackwater believe that trading through this structure should promote efficiency and economy in the trading process.
Summarized information for Spectrum Technicals investment in Blackwater Master Fund as of December 31, 2011 is as follows:
Investment |
% of Partnership Net Assets |
Fair Value |
Partnerships pro rata Net Income |
Investment Objective |
Redemption Permitted |
|||||||||||||
% | $ | $ | ||||||||||||||||
Blackwater Master Fund |
16.4 | 43,800,324 | 731,982 | Commodity Portfolio |
Monthly |
Spectrum Technicals investment into Blackwater Master Fund does not pay any management, incentive, or administrative fee. Those fees are paid by Spectrum Technical. Spectrum Technical reimburses Blackwater Master Fund for all brokerage related fees borne by Blackwater Master Fund on behalf of Spectrum Technicals investment.
On December 31, 2011, Spectrum Technical owned approximately 52.8% of Blackwater Master Fund. It is Spectrum Technicals intention to continue to invest in Blackwater Master Fund. The performance of Spectrum Technical is directly affected by the performance of Blackwater Master Fund.
The table below represents summarized Income Statement information for Blackwater Master Fund for the year ended December 31, 2011, to meet the requirements of Regulation S-X rule 3-09, as follows:
Investment Income |
Net Investment Loss |
Total Trading Results |
Net Income |
|||||||||||||
$ | $ | $ | $ | |||||||||||||
Blackwater Master Fund |
9,337 | (102,547 | ) | 2,948,325 | 2,845,778 |
4. | Related Party Transactions |
Spectrum Global Balanced, Spectrum Select, Spectrum Strategic, and Spectrum Technicals cash is on deposit with MSSB, MS&Co., and MSIP, and Spectrum Currencys cash is on deposit with MSSB and MS&Co., in futures interests trading accounts to meet margin requirements as needed. MSSB, pays interest on these funds as described in Note 2. Each Partnership pays brokerage fees to MS&Co. as described in Note 2. MSCG acts as the counterparty on all trading of options on foreign currency forward contracts.
5. | Trading Advisors |
Ceres, on behalf of each Partnership retains certain commodity trading advisors to make all trading decisions for the Partnerships. The trading advisors for each Partnership at December 31, 2011, were as follows:
Spectrum Currency
C-View International Limited (C-View)
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
Spectrum Global Balanced
Altis Partners (Jersey) Limited (Altis)
C-View International Limited
SSARIS Advisors, LLC (SSARIS)
Spectrum Select
Altis Partners (Jersey) Limited
EMC Capital Management, Inc. (EMC)
Graham Capital Management, L.P. (Graham)
Northfield Trading L.P. (Northfield)
Rabar Market Research, Inc. (Rabar)
Sunrise Capital Management, Inc. (Sunrise Capital)
Spectrum Strategic
Aventis Asset Management LLC
Blenheim Capital Management, L.L.C. (Blenheim)
PGR Capital L.P.
Spectrum Technical
Aspect Capital Limited (Aspect)
Blackwater Capital Management LLC
Campbell & Company, Inc. (Campbell)
Chesapeake Capital Corporation (Chesapeake)
John W. Henry & Company, Inc.
Rotella Capital Management, Inc. (Rotella)
Winton Capital Management Limited (Winton)
Compensation to the trading advisors by the Partnerships consists of a management fee and an incentive fee as follows:
Management Fee The management fee for Spectrum Currency is accrued at a rate of 1/6 of 1% per month of net assets allocated to each trading advisor on the first day of each month (a 2% annual rate).
The management fee for Spectrum Global Balanced is accrued at a rate of 5/48 of 1% per month of net assets allocated to SSARIS on the first day of each month (a 1.25% annual rate), 1/12 of 1.25% per month of net assets allocated to Altis on the first day of each month (a 1.25% annual rate), and 1/6 of 1% per month of net assets allocated to C-View on the first day of each month (a 2% annual rate).
The management fee for Spectrum Select is accrued at a rate of 1/12 of 1.25% per month of net assets allocated to Altis on the first day of each month (a 1.25% annual rate), 1/6 of 1% per month of net assets allocated to Graham on the first day of each month (a 2% annual rate), 1/12 of 2% per month of net assets allocated to EMC and Rabar on the first day of each month (a 2% annual rate), and 1/12 of 2% per month of net assets allocated to Northfield and Sunrise Capital on the first day of each month (a 2% annual rate).
Prior to February 1, 2011, the monthly management fee payable to Sunrise Capital was 1/4 of 1% per month (a 3% annual rate).
Prior to July 1, 2011, the monthly management fee payable to EMC and Rabar was 5/24 of 1% (a 2.5% annual rate).
Prior to July 1, 2011, the monthly management fee payable to Northfield was 1/12 of 3% (a 3% annual rate).
The management fee for Spectrum Strategic is accrued at a rate of 1/4 of 1% per month of net assets allocated to Blenheim on the first day of each month (a 3% annual rate), 1/12 of 1% per month
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
of net assets allocated to PGR on the first day of each month (a 1% annual rate) and 1/12 of 1.5% per month of net assets allocated to Aventis on the first day of each month (a 1.5% annual rate).
Effective July 1, 2011, the management fee payable to Eclipse was reduced from a monthly management fee rate equal to 1/12 of 3% (a 3% annual rate) to a monthly management fee rate equal to 1/12 of 2% (a 2% annual rate). Eclipse was removed as a trading advisor to Spectrum Strategic effective November 30, 2011.
Effective June 1, 2011, the monthly management fee payable to DKR was reduced from a monthly management fee rate equal to 1/12 of 2% (a 2% annual rate) to a monthly management fee rate equal to 1/12 of 1.75% (a 1.75% annual rate). DKR was removed as a trading advisor to Spectrum Strategic effective August 31, 2011.
The management fee for Spectrum Technical is accrued at a rate of 1/6 of 1% per month of net assets allocated to Aspect, Chesapeake, JWH, and Winton on the first day of each month (a 2% annual rate), 1/6 of 1% per month of net assets allocated to Campbell on the first day of each month (a 2% annual rate), 1/12 of 1% per month of net assets allocated to Rotella on the first day of each month (a 1% annual rate), and 1/12 of 1.25% per month of net assets allocated to Blackwater on the first day of each month (a 1.25% annual rate).
Prior to June 1, 2011, the monthly management fee payable to Campbell was 1/4 of 1% (a 3% annual rate).
Prior to July 1, 2011, the monthly management fee payable to Rotella was 1/12 of 2% (a 2% annual rate).
For the period from August 1, 2010 through September 30, 2010, Chesapeake temporarily reduced the management fee it received from Spectrum Technical from an annual rate of 2% of net assets as of the first day of the month, to an annual rate of 1% of net assets as of the first day of the month.
Effective October 1, 2010 through October 31, 2010, Chesapeakes management fee was increased from an annual rate of 1% of net assets as of the first day of the month, to an annual rate of 1.5% of net assets as of the first day of the month.
Effective November 1, 2010, Chesapeakes management fee was reinstated from an annual rate of 1.5% of net assets as of the first day of the month to an annual rate of 2% of net assets as of the first day of the month.
For the period from October 1, 2009, through December 31, 2009, Rotella temporarily waived the management fee it received from Spectrum Technical. Effective January 1, 2010 to July 1, 2011, Spectrum Technical paid Rotella a monthly management fee equal to 1/6 of 1% of its net assets allocated to Rotella on the first day of each month (a 2% annual rate). Prior to October 1, 2009, Spectrum Technical paid Rotella a monthly management fee equal to 1/6 of 1% of its net assets allocated to Rotella on the first day of each month (a 2% annual rate).
Incentive Fee Spectrum Currency pays a monthly incentive fee equal to 20% of the trading profits experienced with respect to each trading advisors allocated net assets as of the end of each calendar month.
Prior to May 31, 2011, Spectrum Currency paid DKR a monthly incentive fee equal to 20% of the trading profits experienced with respect to trading advisors allocated net assets as of the end of each calendar month. DKR was removed as a trading advisor to Spectrum Currency effective May 31, 2011.
Spectrum Global Balanced pays a monthly incentive fee equal to 15% of the trading profits experienced with respect to the net assets allocated to SSARIS as of the end of each calendar month, and 20% of the trading profits experienced with respect to the net assets allocated to Altis and C-View as of the end of each calendar month.
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
Spectrum Select pays a monthly incentive fee equal to 20% of the trading profits experienced with respect to the net assets allocated to Northfield, EMC, Sunrise Capital, Rabar, Altis and Graham as of the end of each calendar month.
Prior to February 1, 2011, the monthly incentive fee rate paid to Sunrise Capital was 15%.
Prior to July 1, 2011, Spectrum Select paid Northfield a monthly incentive fee equal to 15% of the trading profits experienced with respect to trading advisors allocated net assets as of the end of each calendar month.
Prior to July 1, 2011, Spectrum Select paid EMC and Rabar a monthly incentive fee equal to 17.5% of the trading profits experienced with respect to trading advisors allocated net assets as of the end of each calendar month.
Spectrum Strategic pays a monthly incentive fee equal to 15% of the trading profits experienced with respect to the net assets allocated to Blenheim as of the end of each calendar month, and 20% of the trading profits experienced with respect to the net assets allocated to Aventis as of the end of each calendar quarter, and 20% of the trading profits experienced with respect to the net assets allocated to PGR as of the end of each calendar year.
For the period from July 1, 2011 to November 30, 2011, Spectrum Strategic paid Eclipse a monthly incentive fee equal to 20% of the trading profits experienced with respect to the net assets allocated to Eclipse as of the end of each calendar month.
Prior to July 1, 2011, Spectrum Strategic paid Eclipse a monthly incentive fee equal to 15% of the trading profits experienced with respect to the net assets allocated to Eclipse as of the end of each calendar month.
Prior to August 31, 2011, Spectrum Strategic paid DKR a monthly incentive fee equal to 20% of the trading profits experienced with respect to the net assets allocated to DKR as of the end of each calendar month.
Spectrum Technical pays a monthly incentive fee equal to 19% of the trading profits experienced with respect to the net assets allocated to Chesapeake as of the end of each calendar month, 20% of the trading profits experienced with respect to the net assets allocated to each of Aspect, Campbell, JWH, Rotella, and Winton as of the end of each calendar month, and 20% of the trading profits experienced with respect to the net assets allocated to Blackwater as of the end of each calendar year.
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 trading advisors 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 months redemptions.
6. | Financial Instruments |
The Partnerships trade Futures Interests. 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 fair value of these contracts, including interest rate volatility.
The fair value of exchange-traded contracts is based on the settlement price quoted by the exchange on the day with respect to which fair 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 will be equal to the settlement price on the first subsequent day on which the contract could be liquidated. The fair value of off-exchange-traded contracts is based on the fair value quoted by the counterparty.
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
The Partnerships contracts are accounted for on a trade-date basis. A derivative is defined as a financial instrument or other contract that has all three of the following characteristics:
(1) a) One or more underlyings and b) one or more notional amounts or payment provisions or both;
(2) Requires no initial net investment or a smaller initial net investment than would be required for other types of contracts that would be expected to have a similar response relative to changes in market factors; and
(3) Terms that require or permit net settlement.
Generally, derivatives include futures, forward, swaps or options contracts, and other financial instruments with similar characteristics such as caps, floors, and collars.
The net unrealized gains (losses) on open contracts at December 31, reported as a component of Trading Equity on the Statements of Financial Condition, and their longest contract maturities were as follows:
Spectrum Currency
Net Unrealized Gains (Losses) on Open Contracts | Longest Maturities | |||||||||||||||||||
Year |
Exchange-Traded | Off-Exchange-Traded | Total | Exchange-Traded | Off-Exchange-Traded | |||||||||||||||
$ | $ | $ | ||||||||||||||||||
2011 |
| (88,387 | ) | (88,387 | ) | | Mar. 2012 | |||||||||||||
2010 |
74,100 | 1,044,336 | 1,118,436 | Mar. 2011 | Mar. 2011 |
Spectrum Global Balanced
Net Unrealized Gains (Losses) on Open Contracts | Longest Maturities | |||||||||||||||||||
Year |
Exchange-Traded | Off-Exchange-Traded | Total | Exchange-Traded | Off-Exchange-Traded | |||||||||||||||
$ | $ | $ | ||||||||||||||||||
2011 |
1,229,274 | (8,497 | ) | 1,220,777 | Dec. 2013 | Jan. 2012 | ||||||||||||||
2010 |
1,494,155 | 63,402 | 1,557,557 | Dec. 2012 | Apr. 2011 |
Spectrum Select
Net Unrealized Gains on Open Contracts | Longest Maturities | |||||||||||||||||||
Year |
Exchange-Traded | Off-Exchange-Traded | Total | Exchange-Traded | Off-Exchange-Traded | |||||||||||||||
$ | $ | $ | ||||||||||||||||||
2011 |
5,995,510 | 406,389 | 6,401,899 | Mar. 2016 | Mar. 2012 | |||||||||||||||
2010 |
16,772,924 | 3,030,243 | 19,803,167 | Mar. 2015 | Mar. 2011 |
Spectrum Strategic
Net Unrealized Gains (Losses) on Open Contracts | Longest Maturities | |||||||||||||||||||
Year |
Exchange-Traded | Off-Exchange-Traded | Total | Exchange-Traded | Off-Exchange-Traded | |||||||||||||||
$ | $ | $ | ||||||||||||||||||
2011 |
| | | | | |||||||||||||||
2010 |
6,503,745 | 474,018 | 6,977,763 | Dec. 2011 | Mar. 2011 |
Spectrum Technical
Net Unrealized Gains on Open Contracts | Longest Maturities | |||||||||||||||||||
Year |
Exchange-Traded | Off-Exchange-Traded | Total | Exchange-Traded | Off-Exchange-Traded | |||||||||||||||
$ | $ | $ | ||||||||||||||||||
2011 |
8,196,777 | 569,394 | 8,766,171 | Mar. 2015 | Mar. 2012 | |||||||||||||||
2010 |
17,468,280 | 3,126,942 | 20,595,222 | Mar. 2014 | Mar. 2011 |
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
In general, the risks associated with off-exchange-traded contracts are greater than those associated with exchange-traded contracts because of the greater risk of default by the counterparty to an off-exchange-traded contract. The Partnerships have credit risk associated with counterparty nonperformance. As of the date of the financial statements, the credit risk associated with the instruments in which the Partnerships trade is limited to the unrealized gains (losses) amounts reflected in the Partnerships Statements of Financial Condition. The net unrealized gains (losses) on open contracts is further disclosed gross by type of contract and corresponding fair value level in Note 8, Fair Value Measurements and Disclosures.
The Partnerships also have credit risk because MS&Co., MSIP, and/or MSCG act as the futures commission merchants or the counterparties, with respect to most of the Partnerships assets. Exchange-traded futures, exchange-traded forward, and exchange-traded futures-styled options contracts are fair valued on a daily basis, with variations in value settled on a daily basis. MS&Co. and MSIP, each acting as a commodity futures broker for each Partnerships exchange-traded futures, exchange-traded forward, and exchange-traded futures-styled options contracts, are required, pursuant to regulations of the Commodity Futures Trading Commission, to segregate from their own assets, and for the sole benefit of their commodity customers, total cash 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 in the aggregate, totaled $35,818,805 and $47,998,757 for Spectrum Currency, $14,421,691 and $19,672,733 for Spectrum Global Balanced, $294,109,636 and $418,222,697 for Spectrum Select, $0 and $93,318,356 for Spectrum Strategic, and $229,719,742 and $348,967,875 for Spectrum Technical at December 31, 2011 and 2010, respectively. With respect to each Partnerships off-exchange-traded forward currency contracts and forward currency options contracts, there are no daily settlements of variation in value, nor is there any requirement than an amount equal to the net unrealized gains (losses) on such contracts be segregated. However, each Partnership is required to meet margin requirements equal to the net unrealized loss on open forward currency contracts in each Partnership account with the counterparty, which is accomplished by daily maintenance of the cash balance in a custody account held at MSSB for the benefit of MS&Co. With respect to those off-exchange-traded forward currency contracts, the Partnerships are at risk to the ability of MS&Co., the sole counterparty on all such contracts, to perform. Each Partnership has a netting agreement with the counterparty. The primary terms are based on industry standard master agreements. These agreements, which seek to reduce both the Partnerships and the counterparties exposure on off-exchange-traded forward currency contracts, including options on such contracts, should materially decrease the Partnerships credit risk in the event of MS&Co.s or MSCGs bankruptcy or insolvency.
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
The General Partner monitors and attempts to control the Partnerships risk exposure on a daily basis through financial, credit and risk management monitoring systems, and accordingly, believes that it has effective procedures for evaluating and limiting the credit and market risks to which the Partnerships may be subject. These monitoring systems generally allow the General Partner to statistically analyze actual trading results with risk adjusted performance indicators and correlation statistics. In addition, online monitoring systems provide account analysis of futures, forwards and options positions by sector, margin requirements, gain and loss transactions and collateral positions.
The futures, forwards and options traded by the Partnerships 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 Partnerships open positions, and consequently in their 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. Gains and losses on off-exchange-traded forward currency options contracts are settled on an agreed-upon settlement date. However, the Partnerships are required to meet margin requirements equal to the net unrealized loss on open forward currency contracts in the Partnerships accounts with the counterparty, which is accomplished by daily maintenance of the cash balance in a custody account held at MSSB for the benefit of MS&Co.
Spectrum Strategics and Spectrum Technicals investments in the affiliated underlying funds expose each Partnership to various types of risks that are associated with Futures Interests trading and the markets in which the affiliated underlying funds invest. The significant types of financial risks to which the affiliated underlying funds are exposed are market risk, liquidity risk, and counterparty credit risk, as described above.
7. | Derivatives and Hedging |
The Partnerships objective is to profit from speculative trading in Futures Interests. Therefore, the Trading Advisors for each Partnership will take speculative positions in Futures Interests where they feel the best profit opportunities exist for their trading strategy. As such, the average number of contracts outstanding in absolute quantity (the total of the open long and open short positions) has been presented as a part of the volume disclosure, as position direction is not an indicative factor in such volume disclosures. With regard to foreign currency forward trades, each notional quantity amount has been converted to an equivalent contract based upon an industry convention.
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
The following tables summarize the valuation of each Partnerships investments as of December 31, 2011 and 2010.
Spectrum Currency
The Effect of Trading Activities on the Statements of Financial Condition as of December 31, 2011 and 2010:
December 31, 2011
Futures and Forward Contracts |
Long Unrealized Gain |
Long Unrealized Loss |
Short Unrealized Gain |
Short Unrealized Loss |
Net Unrealized Gain/(Loss) |
Average Number of Contracts Outstanding for the Year (Absolute Quantity) |
||||||||||||||||||
$ | $ | $ | $ | $ | ||||||||||||||||||||
Foreign currency |
34,016 | (124,363 | ) | 4,823 | (38,337 | ) | (123,861 | ) | 4,996 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total |
34,016 | (124,363 | ) | 4,823 | (38,337 | ) | (123,861 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Unrealized currency gain |
35,474 | |||||||||||||||||||||||
|
|
|||||||||||||||||||||||
Total net unrealized loss on open contracts |
(88,387 | ) | ||||||||||||||||||||||
|
|
|||||||||||||||||||||||
Option Contracts at Fair Value |
Average Number of Contracts Outstanding for the Year (Absolute Quantity) |
|||||||||||||||||||||||
$ | ||||||||||||||||||||||||
Options purchased |
1,534 | 1 | ||||||||||||||||||||||
Options written |
| 1 |
December 31, 2010
Futures and Forward Contracts |
Long Unrealized Gain |
Long Unrealized Loss |
Short Unrealized Gain |
Short Unrealized Loss |
Net Unrealized Gain |
Average Number of Contracts Outstanding for the Year (Absolute Quantity) |
||||||||||||||||||
$ | $ | $ | $ | $ | ||||||||||||||||||||
Foreign currency |
1,132,624 | (43,007 | ) | 169,153 | (248,617 | ) | 1,010,153 | 6,867 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total |
1,132,624 | (43,007 | ) | 169,153 | (248,617 | ) | 1,010,153 | |||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Unrealized currency gain |
108,283 | |||||||||||||||||||||||
|
|
|||||||||||||||||||||||
Total net unrealized gain on open contracts |
1,118,436 | |||||||||||||||||||||||
|
|
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
Option Contracts at Fair Value |
Average Number of Contracts Outstanding for the Year (Absolute Quantity) |
|||||||
$ | ||||||||
Options purchased |
4,459 | 3 | ||||||
Options written |
| 2 |
Spectrum Global Balanced
The Effect of Trading Activities on the Statements of Financial Condition as of December 31, 2011 and 2010:
December 31, 2011
Futures and Forward Contracts |
Long Unrealized Gain |
Long Unrealized Loss |
Short Unrealized Gain |
Short Unrealized Loss |
Net Unrealized Gain |
Average Number of Contracts Outstanding for the Year (Absolute Quantity) |
||||||||||||||||||
$ | $ | $ | $ | $ | ||||||||||||||||||||
Commodity |
26,687 | (42,619 | ) | 281,332 | (69,359 | ) | 196,041 | 233 | ||||||||||||||||
Equity |
10,832 | (5,231 | ) | 3,176 | (1,161 | ) | 7,616 | 39 | ||||||||||||||||
Foreign currency |
22,399 | (18,270 | ) | 54,621 | (21,149 | ) | 37,601 | 1,920 | ||||||||||||||||
Interest rate |
72,718 | (4,626 | ) | 21,080 | (4,515 | ) | 84,657 | 277 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total |
132,636 | (70,746 | ) | 360,209 | (96,184 | ) | 325,915 | |||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Unrealized currency gain |
894,862 | |||||||||||||||||||||||
|
|
|||||||||||||||||||||||
Total net unrealized gain on open contracts |
1,220,777 | |||||||||||||||||||||||
|
|
|||||||||||||||||||||||
Option Contracts at Fair Value |
Average Number of Contracts Outstanding for the Year (Absolute Quantity) |
|||||||||||||||||||||||
$ | ||||||||||||||||||||||||
Options purchased |
814 | 1 | ||||||||||||||||||||||
Options written |
| 1 |
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
December 31, 2010
Futures and Forward Contracts |
Long Unrealized Gain |
Long Unrealized Loss |
Short Unrealized Gain |
Short Unrealized Loss |
Net Unrealized Gain |
Average Number of Contracts Outstanding for the Year (Absolute Quantity) |
||||||||||||||||||
$ | $ | $ | $ | $ | ||||||||||||||||||||
Commodity |
572,508 | (74,894 | ) | 1,700 | (282,491 | ) | 216,823 | 364 | ||||||||||||||||
Equity |
19,806 | (16,315 | ) | 14,244 | (9,282 | ) | 8,453 | 54 | ||||||||||||||||
Foreign currency |
202,991 | (31,548 | ) | 222,394 | (39,617 | ) | 354,220 | 1,998 | ||||||||||||||||
Interest rate |
61,518 | (13,756 | ) | 1,842 | (29,249 | ) | 20,355 | 417 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total |
856,823 | (136,513 | ) | 240,180 | (360,639 | ) | 599,851 | |||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Unrealized currency gain |
957,706 | |||||||||||||||||||||||
|
|
|||||||||||||||||||||||
Total net unrealized gain on open contracts |
1,557,557 | |||||||||||||||||||||||
|
|
Option Contracts at Fair Value |
Average Number of Contracts Outstanding for the Year (Absolute Quantity) |
|||||||
$ | ||||||||
Options purchased |
2,701 | 2 | ||||||
Options written |
| 1 |
Spectrum Select
The Effect of Trading Activities on the Statements of Financial Condition as of December 31, 2011 and 2010:
December 31, 2011
Futures and Forward |
Long Unrealized Gain |
Long Unrealized Loss |
Short Unrealized Gain |
Short Unrealized Loss |
Net Unrealized Gain/ (Loss) |
Average Number of Contracts Outstanding for the Year (Absolute Quantity) |
||||||||||||||||||
$ | $ | $ | $ | $ | ||||||||||||||||||||
Commodity |
418,029 | (822,942 | ) | 4,381,649 | (2,417,431 | ) | 1,559,305 | 4,077 | ||||||||||||||||
Equity |
307,762 | (7,656 | ) | 94,660 | (143,961 | ) | 250,805 | 1,386 | ||||||||||||||||
Foreign currency |
739,841 | (106,865 | ) | 2,115,906 | (300,292 | ) | 2,448,590 | 7,744 | ||||||||||||||||
Interest rate |
3,538,706 | (109,261 | ) | 139,283 | (121,941 | ) | 3,446,787 | 7,073 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total |
5,004,338 | (1,046,724 | ) | 6,731,498 | (2,983,625 | ) | 7,705,487 | |||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Unrealized currency loss |
(1,303,588 | ) | ||||||||||||||||||||||
|
|
|||||||||||||||||||||||
Total net unrealized gain on open contracts |
6,401,899 | |||||||||||||||||||||||
|
|
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
December 31, 2010
Futures and Forward Contracts |
Long Unrealized Gain |
Long Unrealized Loss |
Short Unrealized Gain |
Short Unrealized Loss |
Net Unrealized Gain/(Loss) |
Average Number of Contracts Outstanding for the Year (Absolute Quantity) |
||||||||||||||||||
$ | $ | $ | $ | $ | ||||||||||||||||||||
Commodity |
13,583,270 | (1,631,233 | ) | | (1,310,915 | ) | 10,641,122 | 5,409 | ||||||||||||||||
Equity |
762,962 | (500,929 | ) | 239,908 | (5,232 | ) | 496,709 | 2,069 | ||||||||||||||||
Foreign currency |
6,060,140 | (193,557 | ) | 3,957,095 | (524,581 | ) | 9,299,097 | 7,961 | ||||||||||||||||
Interest rate |
662,741 | (58,143 | ) | 330,713 | (833,248 | ) | 102,063 | 7,714 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total |
21,069,113 | (2,383,862 | ) | 4,527,716 | (2,673,976 | ) | 20,538,991 | |||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Unrealized currency loss |
(735,824 | ) | ||||||||||||||||||||||
|
|
|||||||||||||||||||||||
Total net unrealized gain on open contracts |
19,803,167 | |||||||||||||||||||||||
|
|
Spectrum Strategic
The Effect of Trading Activities on the Statements of Financial Condition as of December 31, 2011 and 2010:
December 31, 2011
Futures and Forward Contracts |
Long Unrealized Gain |
Long Unrealized Loss |
Short Unrealized Gain |
Short Unrealized Loss |
Net Unrealized Loss |
Average Number of Contracts Outstanding for the Year (Absolute Quantity) |
||||||||||||||||||
$ | $ | $ | $ | $ | ||||||||||||||||||||
Commodity |
| | | | | 752 | ||||||||||||||||||
Equity |
| | | | | 328 | ||||||||||||||||||
Foreign currency |
| | | | | 6,514 | ||||||||||||||||||
Interest rate |
| | | | | 2,260 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total |
| | | | | |||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Unrealized currency loss |
| |||||||||||||||||||||||
|
|
|||||||||||||||||||||||
Total net unrealized loss on open contracts |
| |||||||||||||||||||||||
|
|
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
December 31, 2010
Futures and Forward Contracts |
Long Unrealized Gain |
Long Unrealized Loss |
Short Unrealized Gain |
Short Unrealized Loss |
Net Unrealized Gain/(Loss) |
Average Number of Contracts Outstanding for the Year (Absolute Quantity) |
||||||||||||||||||
$ | $ | $ | $ | $ | ||||||||||||||||||||
Commodity |
5,438,627 | (578,645 | ) | | (22,080 | ) | 4,837,902 | 1,039 | ||||||||||||||||
Equity |
514,170 | (173,758 | ) | | | 340,412 | 520 | |||||||||||||||||
Foreign currency |
2,511,732 | (63,941 | ) | 444,352 | (597,164 | ) | 2,294,979 | 7,956 | ||||||||||||||||
Interest rate |
249,809 | (32,197 | ) | 195,622 | (206,126 | ) | 207,108 | 3,216 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total |
8,714,338 | (848,541 | ) | 639,974 | (825,370 | ) | 7,680,401 | |||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Unrealized currency loss |
(702,638 | ) | ||||||||||||||||||||||
|
|
|||||||||||||||||||||||
Total net unrealized gain on open contracts |
6,977,763 | |||||||||||||||||||||||
|
|
Option Contracts at Fair Value |
Average Number of Contracts Outstanding for the Year (Absolute Quantity) |
|||||||
$ | ||||||||
Options purchased |
| 15 | ||||||
Options written |
| 15 |
Spectrum Technical
The Effect of Trading Activities on the Statements of Financial Condition as of December 31, 2011 and 2010:
December 31, 2011
Futures and Forward Contracts |
Long Unrealized Gain |
Long Unrealized Loss |
Short Unrealized Gain |
Short Unrealized Loss |
Net Unrealized Gain |
Average Number of Contracts Outstanding for the Year (Absolute Quantity) |
||||||||||||||||||
$ | $ | $ | $ | $ | ||||||||||||||||||||
Commodity |
461,717 | (267,888 | ) | 2,598,439 | (1,871,409 | ) | 920,859 | 2,650 | ||||||||||||||||
Equity |
123,510 | (5,714 | ) | 458,154 | (107,670 | ) | 468,280 | 1,700 | ||||||||||||||||
Foreign currency |
456,046 | (117,644 | ) | 1,480,181 | (262,174 | ) | 1,556,409 | 10,673 | ||||||||||||||||
Interest rate |
3,295,555 | (360,727 | ) | 5,324 | (13,300 | ) | 2,926,852 | 7,484 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total |
4,336,828 | (751,973 | ) | 4,542,098 | (2,254,553 | ) | 5,872,400 | |||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Unrealized currency gain |
2,893,771 | |||||||||||||||||||||||
|
|
|||||||||||||||||||||||
Total net unrealized gain on open contracts |
8,766,171 | |||||||||||||||||||||||
|
|
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
Option Contracts at Fair Value |
Average Number of Contracts Outstanding for the Year (Absolute Quantity) |
|||||||
$ | ||||||||
Options purchased |
1,507 | 7 | ||||||
Options written |
(3,460 | ) | 7 |
December 31, 2010
Futures and Forward Contracts |
Long Unrealized Gain |
Long Unrealized Loss |
Short Unrealized Gain |
Short Unrealized Loss |
Net Unrealized Gain/(Loss) |
Average Number of Contracts Outstanding for the Year (Absolute Quantity) |
||||||||||||||||||
$ | $ | $ | $ | $ | ||||||||||||||||||||
Commodity |
13,124,335 | (830,888 | ) | | (930,820 | ) | 11,362,627 | 4,140 | ||||||||||||||||
Equity |
1,514,410 | (545,083 | ) | 18,807 | (1,925 | ) | 986,209 | 2,558 | ||||||||||||||||
Foreign currency |
5,887,120 | (382,618 | ) | 1,445,278 | (938,552 | ) | 6,011,228 | 9,351 | ||||||||||||||||
Interest rate |
420,990 | (234,424 | ) | 24 | (757,821 | ) | (571,231 | ) | 8,977 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total |
20,946,855 | (1,993,013 | ) | 1,464,109 | (2,629,118 | ) | 17,788,833 | |||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Unrealized currency gain |
2,806,389 | |||||||||||||||||||||||
|
|
|||||||||||||||||||||||
Total net unrealized gain on open contracts |
20,595,222 | |||||||||||||||||||||||
|
|
Option Contracts at Fair Value |
Average Number of Contracts Outstanding for the Year (Absolute Quantity) |
|||||||
$ | ||||||||
Options purchased |
314,450 | 12 | ||||||
Options written |
(147,085 | ) | 12 |
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
The following tables summarize the net trading results of each Partnership for the years ended December 31, 2011, 2010 and 2009, respectively.
Spectrum Currency
The Effect of Trading Activities on the Statements of Income and Expenses for the years ended December 31, 2011, 2010 and 2009 in Total Trading Results:
December 31, 2011 Type of Instrument |
$ | |||
Foreign currency |
(1,647,809 | ) | ||
Unrealized currency loss |
(46,233 | ) | ||
|
|
|||
Total |
(1,694,042 | ) | ||
|
|
|||
December 31, 2010 Type of Instrument |
$ | |||
Foreign currency |
808,671 | |||
Unrealized currency gain |
29,966 | |||
|
|
|||
Total |
838,637 | |||
|
|
|||
December 31, 2009 Type of Instrument |
$ |
|||
Foreign currency |
(2,979,122 | ) | ||
Unrealized currency loss |
(52,641 | ) | ||
|
|
|||
Total |
(3,031,763 | ) | ||
|
|
Line Items on the Statements of Income and Expenses for the years ended December 31, 2011, 2010 and 2009:
December 31, 2011 Trading Results |
$ | |||
Net Realized |
(483,261 | ) | ||
Net change in unrealized |
(1,210,781 | ) | ||
|
|
|||
Total Trading Results |
(1,694,042 | ) | ||
|
|
|||
December 31, 2010 Trading Results |
$ | |||
Net Realized |
(745,965 | ) | ||
Net change in unrealized |
1,584,602 | |||
|
|
|||
Total Trading Results |
838,637 | |||
|
|
|||
December 31, 2009 Trading Results |
$ | |||
Net Realized |
(2,992,672 | ) | ||
Net change in unrealized |
(39,091 | ) | ||
|
|
|||
Total Trading Results |
(3,031,763 | ) | ||
|
|
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
Spectrum Global Balanced
The Effect of Trading Activities on the Statements of Income and Expenses for the years ended December 31, 2011, 2010 and 2009 included in Total Trading Results:
December 31, 2011 Type of Instrument |
$ | |||
Commodity |
(864,562 | ) | ||
Equity |
(965,779 | ) | ||
Foreign currency |
(735,607 | ) | ||
Interest rate |
1,137,203 | |||
Unrealized currency loss |
(61,781 | ) | ||
|
|
|||
Total |
(1,490,526 | ) | ||
|
|
|||
December 31, 2010 Type of Instrument |
$ | |||
Commodity |
176,977 | |||
Equity |
(119,010 | ) | ||
Foreign currency |
1,416,646 | |||
Interest rate |
2,032,378 | |||
Unrealized currency loss |
(34,349 | ) | ||
Proceeds from Litigation |
29,602 | |||
|
|
|||
Total |
3,502,244 | |||
|
|
|||
December 31, 2009 Type of Instrument |
$ |
|||
Commodity |
(1,244,194 | ) | ||
Equity |
303,714 | |||
Foreign currency |
(756,331 | ) | ||
Interest rate |
(608,998 | ) | ||
Unrealized currency gain |
314,542 | |||
|
|
|||
Total |
(1,991,267 | ) | ||
|
|
Line Items on the Statements of Income and Expenses for the years ended December 31, 2011, 2010 and 2009:
December 31, 2011 Trading Results |
$ | |||
Net Realized |
(1,151,478 | ) | ||
Net change in unrealized |
(339,048 | ) | ||
|
|
|||
Total Trading Results |
(1,490,526 | ) | ||
|
|
December 31, 2010 Trading Results |
$ | |||
Net Realized |
3,283,491 | |||
Net change in unrealized |
189,151 | |||
Proceeds from Litigation |
29,602 | |||
|
|
|||
Total Trading Results |
3,502,244 | |||
|
|
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
December 31, 2009 Trading Results |
$ |
|||
Net Realized |
(451,631 | ) | ||
Net change in unrealized |
(1,539,636 | ) | ||
|
|
|||
Total Trading Results |
(1,991,267 | ) | ||
|
|
Spectrum Select
The Effect of Trading Activities on the Statements of Income and Expenses for the years ended December 31, 2011, 2010 and 2009 included in Total Trading Results:
December 31, 2011 Type of Instrument |
$ | |||
Commodity |
(17,215,862 | ) | ||
Equity |
(27,174,382 | ) | ||
Foreign currency |
(11,400,426 | ) | ||
Interest rate |
19,104,345 | |||
Unrealized currency loss |
(567,763 | ) | ||
|
|
|||
Total |
(37,254,088 | ) | ||
|
|
|||
December 31, 2010 Type of Instrument |
$ | |||
Commodity |
10,078,791 | |||
Equity |
(14,372,116 | ) | ||
Foreign currency |
13,050,193 | |||
Interest rate |
24,513,376 | |||
Unrealized currency gain |
31,129 | |||
Proceeds from Litigation |
337,120 | |||
|
|
|||
Total |
33,638,493 | |||
|
|
|||
December 31, 2009 Type of Instrument |
$ | |||
Commodity |
10,512,655 | |||
Equity |
23,140,270 | |||
Foreign currency |
(11,446,352 | ) | ||
Interest rate |
(20,962,448 | ) | ||
Unrealized currency gain |
768,289 | |||
|
|
|||
Total |
2,012,414 | |||
|
|
Line Items on the Statements of Income and Expenses for the years ended December 31, 2011, 2010 and 2009:
December 31, 2011 Trading Results |
$ | |||
Net Realized |
(23,852,820 | ) | ||
Net change in unrealized |
(13,401,268 | ) | ||
|
|
|||
Total Trading Results |
(37,254,088 | ) | ||
|
|
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
December 31, 2010 Trading Results |
$ | |||
Net Realized |
25,513,507 | |||
Net change in unrealized |
7,787,866 | |||
Proceeds from Litigation |
337,120 | |||
|
|
|||
Total Trading Results |
33,638,493 | |||
|
|
|||
December 31, 2009 Trading Results |
$ | |||
Net Realized |
16,042,877 | |||
Net change in unrealized |
(14,030,463 | ) | ||
|
|
|||
Total Trading Results |
2,012,414 | |||
|
|
Spectrum Strategic
The Effect of Trading Activities on the Statements of Income and Expenses for the years ended December 31, 2011, 2010 and 2009 included in Total Trading Results:
December 31, 2011 Type of Instrument |
$ | |||
Commodity |
(18,052,648 | ) | ||
Equity |
(2,778,840 | ) | ||
Foreign currency |
(14,779,073 | ) | ||
Interest rate |
7,707,782 | |||
Unrealized currency loss |
(86,013 | ) | ||
|
|
|||
Total |
(27,988,792 | ) | ||
|
|
|||
December 31, 2010 Type of Instrument |
$ | |||
Commodity |
27,847,302 | |||
Equity |
1,553,897 | |||
Foreign currency |
1,814,321 | |||
Interest rate |
5,580,325 | |||
Unrealized currency gain |
47,508 | |||
Proceeds from Litigation |
220,755 | |||
|
|
|||
Total |
37,064,108 | |||
|
|
|||
December 31, 2009 Type of Instrument |
$ | |||
Commodity |
25,868,905 | |||
Equity |
(3,666,716 | ) | ||
Foreign currency |
(9,779,702 | ) | ||
Interest rate |
7,433,549 | |||
Unrealized currency gain |
42,279 | |||
|
|
|||
Total |
19,898,315 | |||
|
|
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
Line Items on the Statements of Income and Expenses for the years ended December 31, 2011, 2010 and 2009:
December 31, 2011 Trading Results |
$ | |||
Net Realized |
2,750,625 | |||
Net change in unrealized |
(8,555,065 | ) | ||
Realized loss on investment in BHM I, LLC |
(958,118 | ) | ||
Unrealized depreciation on investment in BHM I, LLC |
(21,346,446 | ) | ||
Unrealized appreciation on investment in PGR Master Fund |
240,600 | |||
Unrealized depreciation on investment in MB Master Fund |
(120,388 | ) | ||
|
|
|||
Total Trading Results |
|
(27,988,792 |
) | |
|
|
|||
December 31, 2010 Trading Results |
$ | |||
Net Realized |
11,512,792 | |||
Net change in unrealized |
7,129,344 | |||
Realized gain on investment in BHM I, LLC |
1,679,125 | |||
Unrealized appreciation on investment in BHM I, LLC |
16,522,092 | |||
Proceeds from Litigation |
220,755 | |||
|
|
|||
Total Trading Results |
37,064,108 | |||
|
|
|||
December 31, 2009 Trading Results |
$ | |||
Net Realized |
(15,530,111 | ) | ||
Net change in unrealized |
(1,945,071 | ) | ||
Realized gain on investment in BHM I ,LLC |
1,148,140 | |||
Unrealized appreciation on investment in BHM I, LLC |
36,225,357 | |||
|
|
|||
Total Trading Results |
19,898,315 | |||
|
|
Spectrum Technical
The Effect of Trading Activities on the Statements of Income and Expenses for the years ended December 31, 2011, 2010 and 2009 included in Total Trading Results:
December 31, 2011 Type of Instrument |
$ | |||
Commodity |
(13,197,401 | ) | ||
Equity |
(16,512,047 | ) | ||
Foreign currency |
(3,771,234 | ) | ||
Interest rate |
33,707,895 | |||
Unrealized currency gain |
87,382 | |||
Proceeds from Litigation |
10,951 | |||
|
|
|||
Total |
325,546 | |||
|
|
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
December 31, 2010 Type of Instrument |
$ | |||
Commodity |
5,109,902 | |||
Equity |
(8,075,989 | ) | ||
Foreign currency |
8,722,783 | |||
Interest rate |
34,568,150 | |||
Unrealized currency loss |
(596,713 | ) | ||
Proceeds from Litigation |
164,828 | |||
|
|
|||
Total |
39,892,961 | |||
|
|
December 31, 2009 Type of Instrument |
$ | |||
Commodity |
4,000,782 | |||
Equity |
9,428,097 | |||
Foreign currency |
(7,009,480 | ) | ||
Interest rate |
(17,252,226 | ) | ||
Unrealized currency loss |
(949,098 | ) | ||
|
|
|||
Total |
(11,781,925 | ) | ||
|
|
Line Items on the Statements of Income and Expenses for the years ended December 31, 2011, 2010 and 2009:
December 31, 2011 Trading Results |
$ | |||
Net Realized |
11,402,800 | |||
Net change in unrealized |
(11,820,187 | ) | ||
Realized gain on investment in Blackwater Master Fund |
167,699 | |||
Unrealized appreciation on investment in Blackwater Master Fund |
564,283 | |||
Proceeds from Litigation |
10,951 | |||
|
|
|||
Total Trading Results |
325,546 | |||
|
|
|||
December 31, 2010 Trading Results |
$ | |||
Net Realized |
29,840,644 | |||
Net change in unrealized |
9,887,489 | |||
Proceeds from Litigation |
164,828 | |||
|
|
|||
Total Trading Results |
39,892,961 | |||
|
|
|||
December 31, 2009 Trading Results |
$ | |||
Net Realized |
(5,718,953 | ) | ||
Net change in unrealized |
(6,062,972 | ) | ||
|
|
|||
Total Trading Results |
(11,781,925 | ) | ||
|
|
8. | Fair Value Measurements and Disclosures |
Financial instruments are carried at fair value, which is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Assets and liabilities carried at fair value are classified and disclosed in the following three levels: Level 1 unadjusted quoted market prices in active markets for identical assets and liabilities; Level 2 inputs other than unadjusted quoted market prices that are observable for the asset or liability, either directly
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
or indirectly (including unadjusted quoted market prices for similar investments, interest rates, credit risk); and Level 3 unobservable inputs for the asset or liability (including the Partnerships own assumptions used in determining the fair value of investments).
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investments level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The Partnerships assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment.
The Partnerships assets and liabilities measured at fair value on a recurring basis are summarized in the following tables by the type of inputs applicable to the fair value measurements.
Spectrum Currency
December 31, 2011 |
Unadjusted Quoted Prices in Active Markets for Identical Assets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
Total | ||||||||||||
$ | $ | $ | $ | |||||||||||||
Assets |
||||||||||||||||
Forwards |
| 38,838 | n/a | 38,838 | ||||||||||||
Options Purchased |
| 1,534 | n/a | 1,534 | ||||||||||||
|
|
|
|
|
|
|||||||||||
Total Assets |
| 40,372 | n/a | 40,372 | ||||||||||||
|
|
|
|
|
|
|||||||||||
Liabilities |
||||||||||||||||
Forwards |
| 162,699 | n/a | 162,699 | ||||||||||||
|
|
|
|
|
|
|||||||||||
Total Liabilities |
| 162,699 | n/a | 162,699 | ||||||||||||
|
|
|
|
|
|
|||||||||||
Unrealized currency gain |
35,474 | |||||||||||||||
|
|
|||||||||||||||
*Net fair value |
| (122,327 | ) | n/a | (86,853 | ) | ||||||||||
|
|
|
|
|
|
|||||||||||
December 31, 2010 |
Unadjusted Quoted Prices in Active Markets for Identical Assets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
Total | ||||||||||||
$ | $ | $ | $ | |||||||||||||
Assets |
||||||||||||||||
Futures |
74,100 | | n/a | 74,100 | ||||||||||||
Forwards |
| 1,227,677 | n/a | 1,227,677 | ||||||||||||
Options Purchased |
| 4,459 | n/a | 4,459 | ||||||||||||
|
|
|
|
|
|
|||||||||||
Total Assets |
74,100 | 1,232,136 | n/a | 1,306,236 | ||||||||||||
|
|
|
|
|
|
|||||||||||
Liabilities |
||||||||||||||||
Futures |
| | n/a | | ||||||||||||
Forwards |
| 291,624 | n/a | 291,624 | ||||||||||||
|
|
|
|
|
|
|||||||||||
Total Liabilities |
| 291,624 | n/a | 291,624 | ||||||||||||
|
|
|
|
|
|
|||||||||||
Unrealized currency gain |
108,283 | |||||||||||||||
|
|
|||||||||||||||
*Net fair value |
74,100 | 940,512 | n/a | 1,122,895 | ||||||||||||
|
|
|
|
|
|
* | This amount comprises of the Net unrealized gain (loss) on open contracts and options purchased on the Statements of Financial Condition. |
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
Spectrum Global Balanced
December 31, 2011 |
Unadjusted Quoted Prices in Active Markets for Identical Assets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
Total | ||||||||||||
$ | $ | $ | $ | |||||||||||||
Assets |
||||||||||||||||
Futures |
472,189 | | n/a | 472,189 | ||||||||||||
Forwards |
| 20,656 | n/a | 20,656 | ||||||||||||
Options Purchased |
| 814 | n/a | 814 | ||||||||||||
|
|
|
|
|
|
|||||||||||
Total Assets |
472,189 | 21,470 | n/a | 493,659 | ||||||||||||
|
|
|
|
|
|
|||||||||||
Liabilities |
||||||||||||||||
Futures |
137,777 | | n/a | 137,777 | ||||||||||||
Forwards |
| 29,153 | n/a | 29,153 | ||||||||||||
|
|
|
|
|
|
|||||||||||
Total Liabilities |
137,777 | 29,153 | n/a | 166,930 | ||||||||||||
|
|
|
|
|
|
|||||||||||
Unrealized currency gain |
894,862 | |||||||||||||||
|
|
|||||||||||||||
*Net fair value |
334,412 | (7,683 | ) | n/a | 1,221,591 | |||||||||||
|
|
|
|
|
|
|||||||||||
December 31, 2010 |
Unadjusted Quoted Prices in Active Markets for Identical Assets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
Total | ||||||||||||
$ | $ | $ | $ | |||||||||||||
Assets |
||||||||||||||||
Futures |
980,403 | | n/a | 980,403 | ||||||||||||
Forwards |
| 116,589 | n/a | 116,589 | ||||||||||||
Options Purchased |
| 2,701 | n/a | 2,701 | ||||||||||||
|
|
|
|
|
|
|||||||||||
Total Liabilities |
980,403 | 119,290 | n/a | 1,099,693 | ||||||||||||
|
|
|
|
|
|
|||||||||||
Liabilities |
||||||||||||||||
Futures |
443,954 | | n/a | 443,954 | ||||||||||||
Forwards |
| 53,187 | n/a | 53,187 | ||||||||||||
|
|
|
|
|
|
|||||||||||
Total Liabilities |
443,954 | 53,187 | n/a | 497,141 | ||||||||||||
|
|
|
|
|
|
|||||||||||
Unrealized currency gain |
957,706 | |||||||||||||||
|
|
|||||||||||||||
*Net fair value |
536,449 | 66,103 | n/a | 1,560,258 | ||||||||||||
|
|
|
|
|
|
* | This amount comprises of the Total net unrealized gain on open contracts and options purchased on the Statements of Financial Condition. |
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
Spectrum Select
December 31, 2011 |
Unadjusted Quoted Prices in Active Markets for Identical Assets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
Total | ||||||||||||
$ | $ | $ | $ | |||||||||||||
Assets |
||||||||||||||||
Futures |
11,006,486 | | n/a | 11,006,486 | ||||||||||||
Forwards |
| 729,350 | n/a | 729,350 | ||||||||||||
|
|
|
|
|
|
|||||||||||
Total Assets |
11,006,486 | 729,350 | n/a | 11,735,836 | ||||||||||||
|
|
|
|
|
|
|||||||||||
Liabilities |
||||||||||||||||
Futures |
3,707,388 | | n/a | 3,707,388 | ||||||||||||
Forwards |
| 322,961 | n/a | 322,961 | ||||||||||||
|
|
|
|
|
|
|||||||||||
Total Liabilities |
3,707,388 | 322,961 | n/a | 4,030,349 | ||||||||||||
|
|
|
|
|
|
|||||||||||
Unrealized currency loss |
(1,303,588 | ) | ||||||||||||||
|
|
|||||||||||||||
*Net fair value |
7,299,098 | 406,389 | n/a | 6,401,899 | ||||||||||||
|
|
|
|
|
|
|||||||||||
December 31, 2010 |
Unadjusted Quoted Prices in Active Markets for Identical Assets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
Total | ||||||||||||
$ | $ | $ | $ | |||||||||||||
Assets |
||||||||||||||||
Futures |
22,348,537 | | n/a | 22,348,537 | ||||||||||||
Forwards |
| 3,248,292 | n/a | 3,248,292 | ||||||||||||
|
|
|
|
|
|
|||||||||||
Total Assets |
22,348,537 | 3,248,292 | n/a | 25,596,829 | ||||||||||||
|
|
|
|
|
|
|||||||||||
Liabilities |
||||||||||||||||
Futures |
4,839,789 | | n/a | 4,839,789 | ||||||||||||
Forwards |
| 218,049 | n/a | 218,049 | ||||||||||||
|
|
|
|
|
|
|||||||||||
Total Liabilities |
4,839,789 | 218,049 | n/a | 5,057,838 | ||||||||||||
|
|
|
|
|
|
|||||||||||
Unrealized currency loss |
(735,824 | ) | ||||||||||||||
|
|
|||||||||||||||
*Net fair value |
17,508,748 | 3,030,243 | n/a | 19,803,167 | ||||||||||||
|
|
|
|
|
|
* | This amount comprises of the Total net unrealized gain on open contracts on the Statements of Financial Condition. |
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
Spectrum Strategic
December 31, 2011 |
Unadjusted Quoted Prices in Active Markets for Identical Assets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
Total | ||||||||||||
$ | $ | $ | $ | |||||||||||||
Assets |
||||||||||||||||
Investment in BHM |
| 101,259,072 | n/a | 101,259,072 | ||||||||||||
Investment in PGR Master Fund |
| 9,193,011 | n/a | 9,193,011 | ||||||||||||
Investment in MB Master Fund |
| 8,832,023 | n/a | 8,832,023 | ||||||||||||
Futures |
| | n/a | | ||||||||||||
Forwards |
| | n/a | | ||||||||||||
|
|
|
|
|
|
|||||||||||
Total Assets |
| 119,284,106 | n/a | 119,284,106 | ||||||||||||
|
|
|
|
|
|
|||||||||||
Liabilities |
||||||||||||||||
Futures |
| | n/a | | ||||||||||||
Forwards |
| | n/a | | ||||||||||||
|
|
|
|
|
|
|||||||||||
Total Liabilities |
| | n/a | | ||||||||||||
|
|
|
|
|
|
|||||||||||
Unrealized currency loss |
| |||||||||||||||
|
|
|||||||||||||||
*Net fair value |
| 119,284,106 | n/a | 119,284,106 | ||||||||||||
|
|
|
|
|
|
|||||||||||
December 31, 2010 |
Unadjusted Quoted Prices in Active Markets for Identical Assets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
Total | ||||||||||||
$ | $ | $ | $ | |||||||||||||
Assets |
||||||||||||||||
Investment in BHM I, LLC |
| 89,755,278 | n/a | 89,755,278 | ||||||||||||
Futures |
8,219,189 | | n/a | 8,219,189 | ||||||||||||
Forwards |
| 1,135,107 | n/a | 1,135,107 | ||||||||||||
|
|
|
|
|
|
|||||||||||
Total Assets |
8,219,189 | 90,890,385 | n/a | 99,109,574 | ||||||||||||
|
|
|
|
|
|
|||||||||||
Liabilities |
||||||||||||||||
Futures |
1,012,806 | | n/a | 1,012,806 | ||||||||||||
Forwards |
| 661,089 | n/a | 661,089 | ||||||||||||
|
|
|
|
|
|
|||||||||||
Total Liabilities |
1,012,806 | 661,089 | n/a | 1,673,895 | ||||||||||||
|
|
|
|
|
|
|||||||||||
Unrealized currency loss |
(702,638 | ) | ||||||||||||||
|
|
|||||||||||||||
*Net fair value |
7,206,383 | 90,229,296 | n/a | 96,733,041 | ||||||||||||
|
|
|
|
|
|
* | This amount comprises of the Total net unrealized gain on open contracts and Investments on the Statements of Financial Condition. |
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
Spectrum Technical
December 31, 2011 |
Unadjusted Quoted Prices in Active Markets for Identical Assets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
Total | ||||||||||||
$ | $ | $ | $ | |||||||||||||
Assets |
||||||||||||||||
Investment in Blackwater Master Fund |
|
|
|
|
43,800,324 |
|
n/a | |
43,800,324 |
| ||||||
Futures |
8,141,255 | | n/a | 8,141,255 | ||||||||||||
Forwards |
| 737,671 | n/a | 737,671 | ||||||||||||
Options Purchased |
1,507 | | n/a | 1,507 | ||||||||||||
|
|
|
|
|
|
|||||||||||
Total Assets |
8,142,762 | 44,537,995 | n/a | 52,680,757 | ||||||||||||
|
|
|
|
|
|
|||||||||||
Liabilities |
||||||||||||||||
Futures |
2,838,249 | | n/a | 2,838,249 | ||||||||||||
Forwards |
| 168,277 | n/a | 168,277 | ||||||||||||
Options Written |
3,460 | | n/a | 3,460 | ||||||||||||
|
|
|
|
|
|
|||||||||||
Total Liabilities |
2,841,709 | 168,277 | n/a | 3,009,986 | ||||||||||||
|
|
|
|
|
|
|||||||||||
Unrealized currency gain |
2,893,771 | |||||||||||||||
|
|
|||||||||||||||
*Net fair value |
5,301,053 | 44,369,718 | n/a | 52,564,542 | ||||||||||||
|
|
|
|
|
|
|||||||||||
December 31, 2010 |
Unadjusted Quoted Prices in Active Markets for Identical Assets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
Total | ||||||||||||
$ | $ | $ | $ | |||||||||||||
Assets |
||||||||||||||||
Futures |
18,274,921 | | n/a | 18,274,921 | ||||||||||||
Forwards |
| 4,136,044 | n/a | 4,136,044 | ||||||||||||
Options Purchased |
2,774 | 311,676 | n/a | 314,450 | ||||||||||||
|
|
|
|
|
|
|||||||||||
Total Assets |
18,277,695 | 4,447,720 | n/a | 22,725,415 | ||||||||||||
|
|
|
|
|
|
|||||||||||
Liabilities |
||||||||||||||||
Futures |
3,613,070 | | n/a | 3,613,070 | ||||||||||||
Forwards |
| 1,009,062 | n/a | 1,009,062 | ||||||||||||
Options Written |
5,500 | 141,585 | n/a | 147,085 | ||||||||||||
|
|
|
|
|
|
|||||||||||
Total Liabilities |
3,618,570 | 1,150,647 | n/a | 4,769,217 | ||||||||||||
|
|
|
|
|
|
|||||||||||
Unrealized currency gain |
2,806,389 | |||||||||||||||
|
|
|||||||||||||||
*Net fair value |
14,659,125 | 3,297,073 | n/a | 20,762,587 | ||||||||||||
|
|
|
|
|
|
* | This amount comprises of the Total net unrealized gain on open contracts, Investment and options purchased and options written on the Statements of Financial Condition. |
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
9. | Financial Highlights |
The following ratios may vary for individual investors based on the timing of capital transactions during the year. Additionally, these ratios are calculated for the limited partners share of income, expenses and average net assets.
Spectrum Currency
2011 | 2010 | 2009 | ||||||||||
Per Unit operating performance: |
||||||||||||
Net asset value, January 1: |
$ | 9.57 | $ | 10.03 | $ | 11.16 | ||||||
|
|
|
|
|
|
|||||||
Interest Income |
| (3) | 0.01 | 0.01 | ||||||||
Expenses |
(0.60 | ) | (0.64 | ) | (0.71 | ) | ||||||
Realized/Unrealized Gain (Loss)(1) |
(0.34 | ) | 0.17 | (2) | (0.43 | )(2) | ||||||
|
|
|
|
|
|
|||||||
Net Loss |
(0.94 | ) | (0.46 | ) | (1.13 | ) | ||||||
|
|
|
|
|
|
|||||||
Net asset value, December 31: |
$ | 8.63 | $ | 9.57 | $ | 10.03 | ||||||
|
|
|
|
|
|
|||||||
For the Calendar Year: |
||||||||||||
Ratios to average net assets: |
||||||||||||
Net Investment Loss |
(6.7 | )% | (6.6 | )% | (6.7 | )% | ||||||
Expenses before Incentive Fees |
6.8 | % | 6.7 | % | 6.8 | % | ||||||
Expenses after Incentive Fees |
6.8 | % | 6.7 | % | 6.8 | % | ||||||
Net Loss |
(10.9 | )% | (5.1 | )% | (11.1 | )% | ||||||
Total return before incentive fees |
(9.8 | )% | (4.6 | )% | (10.1 | )% | ||||||
Total return after incentive fees |
(9.8 | )% | (4.6 | )% | (10.1 | )% |
(1) | Realized/Unrealized Gain (Loss) is a balancing amount necessary to reconcile the change in net asset value per Unit with the other per Unit information. |
(2) | These amounts have been reclassified from the prior year financial statements to conform to the current year presentation. Specifically, realized and unrealized gain (loss) per Unit amounts were combined in the 2011 Financial Highlights presentation. |
(3) | Amounts less than 0.005% |
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
Spectrum Global Balanced
2011 | 2010 | 2009 | ||||||||||
Per Unit operating performance: |
||||||||||||
Net asset value, January 1: |
$ | 17.12 | $ | 15.23 | $ | 17.50 | ||||||
|
|
|
|
|
|
|||||||
Interest Income |
0.01 | 0.02 | 0.02 | |||||||||
Expenses |
(0.96 | ) | (0.98 | ) | (1.01 | ) | ||||||
Realized/Unrealized Gain (Loss)(1) |
(1.34 | ) | 2.85 | (2) | (1.28 | )(2) | ||||||
|
|
|
|
|
|
|||||||
Net Gain (Loss) |
(2.29 | ) | 1.89 | (2.27 | ) | |||||||
|
|
|
|
|
|
|||||||
Net asset value, December 31: |
$ | 14.83 | $ | 17.12 | $ | 15.23 | ||||||
|
|
|
|
|
|
|||||||
For the Calendar Year: |
||||||||||||
Ratios to average net assets: |
||||||||||||
Net Investment Loss |
(6.2 | )% | (6.0 | )% | (6.2 | )% | ||||||
Expenses before Incentive Fees |
6.3 | % | 6.1 | % | 6.3 | % | ||||||
Expenses after Incentive Fees |
6.3 | % | 6.1 | % | 6.3 | % | ||||||
Net Gain (Loss) |
(15.4 | )% | 11.8 | % | (14.8 | )% | ||||||
Total return before incentive fees |
(13.4 | )% | 12.4 | % | (13.0 | )% | ||||||
Total return after incentive fees |
(13.4 | )% | 12.4 | % | (13.0 | )% |
(1) | Realized/Unrealized Gain (Loss) is a balancing amount necessary to reconcile the change in net asset value per Unit with the other per Unit information. |
(2) | These amounts have been reclassified from the prior year financial statements to conform to the current year presentation. Specifically, realized and unrealized gain (loss) per Unit amounts were combined in the 2011 Financial Highlights presentation. |
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
Spectrum Select
2011 | 2010 | 2009 | ||||||||||
Per Unit operating performance: |
||||||||||||
Net asset value, January 1: |
$ | 38.03 | $ | 37.96 | $ | 40.80 | ||||||
|
|
|
|
|
|
|||||||
Interest Income |
0.01 | 0.03 | 0.03 | |||||||||
Expenses |
(3.07 | ) | (3.18 | ) | (3.27 | ) | ||||||
Realized/Unrealized Gain (Loss)(1) |
(3.73 | ) | 3.22 | (2) | 0.40 | (2) | ||||||
|
|
|
|
|
|
|||||||
Net Gain (Loss) |
(6.79 | ) | 0.07 | * | (2.84 | ) | ||||||
|
|
|
|
|
|
|||||||
Net asset value, December 31: |
$ | 31.24 | $ | 38.03 | $ | 37.96 | ||||||
|
|
|
|
|
|
|||||||
For the Calendar Year: |
||||||||||||
Ratios to average net assets: |
||||||||||||
Net Investment Loss |
(8.8 | )% | (8.9 | )% | (8.6 | )% | ||||||
Expenses before Incentive Fees |
8.3 | % | 8.4 | % | 8.5 | % | ||||||
Expenses after Incentive Fees |
8.9 | % | 9.0 | % | 8.7 | % | ||||||
Net Loss |
(19.6 | )% | (0.7 | )% | (8.2 | )% | ||||||
Total return before incentive fees |
(17.3 | )% | 0.8 | % | (6.8 | )% | ||||||
Total return after incentive fees |
(17.9 | )% | 0.2 | % | (7.0 | )% |
(1) | Realized/Unrealized Gain (Loss) is a balancing amount necessary to reconcile the change in net asset value per Unit with the other per Unit information. |
(2) | These amounts have been reclassified from the prior year financial statements to conform to the current year presentation. Specifically, realized and unrealized gain (loss) per Unit amounts were combined in the 2011 Financial Highlights presentation. |
* | The increase in the net asset value per Unit, while the Partnership incurred a net loss for the year ended December 31, 2010, is due to the timing of subscriptions and redemptions of Units throughout the year. |
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
Spectrum Strategic
2011 | 2010 | 2009 | ||||||||||
Per Unit operating performance: |
||||||||||||
Net asset value, January 1: |
$ | 21.49 | $ | 19.13 | $ | 18.82 | ||||||
|
|
|
|
|
|
|||||||
Interest Income |
0.01 | 0.02 | 0.01 | |||||||||
Expenses |
(1.87 | ) | (1.98 | ) | (1.81 | ) | ||||||
Realized/Unrealized Gain (Loss)(1) |
(3.61 | ) | 4.32 | (2) | 2.11 | (2) | ||||||
|
|
|
|
|
|
|||||||
Net Gain (Loss) |
(5.47 | ) | 2.36 | 0.31 | ||||||||
|
|
|
|
|
|
|||||||
Net asset value, December 31: |
$ | 16.02 | $ | 21.49 | $ | 19.13 | ||||||
|
|
|
|
|
|
|||||||
For the Calendar Year: |
||||||||||||
Ratios to average net assets: |
||||||||||||
Net Investment Loss |
(9.8 | )% | (10.6 | )% | (9.9 | )% | ||||||
Expenses before Incentive Fees |
9.0 | % | 8.8 | % | 9.0 | % | ||||||
Expenses after Incentive Fees |
9.8 | % | 10.6 | % | 10.0 | % | ||||||
Net Gain (Loss) |
(28.6 | )% | 11.8 | % | 1.0 | % | ||||||
Total return before incentive fees |
(24.7 | )% | 14.2 | % | 2.6 | % | ||||||
Total return after incentive fees |
(25.5 | )% | 12.3 | % | 1.6 | % |
(1) | Realized/Unrealized Gain (Loss) is a balancing amount necessary to reconcile the change in net asset value per Unit with the other per Unit information. |
(2) | These amounts have been reclassified from the prior year financial statements to conform to the current year presentation. Specifically, realized and unrealized gain (loss) per Unit amounts were combined in the 2011 Financial Highlights presentation. |
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
Spectrum Technical
2011 | 2010 | 2009 | ||||||||||
Per Unit operating performance: |
||||||||||||
Net asset value, January 1: |
$ | 21.33 | $ | 20.53 | $ | 22.76 | ||||||
|
|
|
|
|
|
|||||||
Interest Income |
0.01 | 0.02 | 0.02 | |||||||||
Expenses |
(1.68 | ) | (1.64) | * | (1.75 | ) | ||||||
Realized/Unrealized Gain (Loss)(1) |
(0.01 | ) | 2.42 | (2) | (0.50 | )(2) | ||||||
|
|
|
|
|
|
|||||||
Net Gain (Loss) |
(1.68 | ) | 0.80 | (2.23 | ) | |||||||
|
|
|
|
|
|
|||||||
Net asset value, December 31: |
$ | 19.65 | $ | 21.33 | $ | 20.53 | ||||||
|
|
|
|
|
|
|||||||
For the Calendar Year: |
||||||||||||
Ratios to average net assets: |
||||||||||||
Net Investment Loss |
(8.1 | )% | (8.2 | )% | (8.3 | )% | ||||||
Expenses before Incentive Fees |
8.2 | % | 8.3 | %** | 8.3 | % | ||||||
Expenses after Incentive Fees |
8.2 | % | 8.3 | %** | 8.4 | % | ||||||
Net Gain (Loss) |
(8.0 | )% | 3.4 | % | (11.1 | )% | ||||||
Total return before incentive fees |
(7.8 | )% | 3.9 | % | (9.8 | )% | ||||||
Total return after incentive fees |
(7.9 | )% | 3.9 | % | (9.8 | )% |
(1) | Realized/Unrealized Gain (Loss) is a balancing amount necessary to reconcile the change in net asset value per Unit with the other per Unit information. |
(2) | These amounts have been reclassified from the prior year financial statements to conform to the current year presentation. Specifically, realized and unrealized gain (loss) per Unit amounts were combined in the 2011 Financial Highlights presentation. |
* | Expenses per Unit would have been $(1.64) had it not been for the management fee waived by Chesapeake. |
** | Such percentage is after waiver of management fees. Chesapeake voluntarily waived a portion of the management fees (equal to 0.02% of the average net assets). |
| Expenses per Unit would have been $(1.77) had it not been for the management fee waived by Rotella. |
| Such percentage is after waiver of management fees. Rotella voluntarily waived a portion of the management fees for the fourth quarter of 2009 (equal to 0.1% of the average net assets). |
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
10. | Subsequent Events |
Management performed its evaluation of subsequent events through the date of filing, and has determined that there were no subsequent events requiring adjustments or disclosure in the financial statements other than these disclosed below.
Effective January 1, 2012, the management fee payable by Spectrum Technical to Winton was reduced from a monthly management fee rate equal to 1/6 of 1% (a 2% annual rate) per month of net assets allocated to Winton on the first day of each month to a monthly management fee rate equal to 1/12 of 1.5% (a 1.5% annual rate) per month of net assets allocated to Winton on the first day of each month.
As of January 2, 2012, the General Partner changed the trading strategy of Spectrum Currency to a strategy in which the trading advisors employ proprietary trading models and methodologies that seek to identify favorable price relationships between and among various global currency and commodity markets through the analysis of technical market information. Spectrum Currency aims to achieve capital appreciation through speculative trading, directly and indirectly, in U.S. and international markets for currencies, agricultural and energy products and precious and base metals. Spectrum Currency may employ futures, options on futures, and forward contracts in those markets. The General Partner has determined to add the following two new trading advisors to manage the assets of Spectrum Currency as of January 1, 2012: Flintlock Capital Asset Management, LLC and Krom River Investment Management (Cayman) Limited (together with its affiliate, Krom River Trading AG).
CERES MANAGED FUTURES LLC
522 Fifth Avenue 14th Floor
New York, NY 10036
Publication #
07
Investments and services offered through Morgan Stanley Smith Barney LLC, and accounts carried by Morgan Stanley & Co. LLC© 2011 Morgan Stanley Smith Barney LLC. Member SIPC.
EXHIBIT 31.01
CERTIFICATIONS
I, Walter Davis, certify that:
1. | I have reviewed this annual report on Form 10-K of Morgan Stanley Smith Barney Spectrum Select L.P.; |
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 and results of operations of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officer(s) 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 registrants 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 registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrants 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 registrants internal control over financial reporting. |
Date: March 28, 2012 | /s/ Walter Davis | |
Walter Davis | ||
President | ||
Ceres Managed Futures LLC, | ||
General Partner of the registrant |
EXHIBIT 31.02
CERTIFICATIONS
I, Brian Centner, certify that:
1. | I have reviewed this annual report on Form 10-K of Morgan Stanley Smith Barney Spectrum Select L.P.; |
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 and results of operations, of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officer(s) 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 registrants 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 registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
+5. | The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrants 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 registrants internal control over financial reporting. |
Date: March 28, 2012 | /s/ Brian Centner | |
Brian Centner | ||
Chief Financial Officer | ||
Ceres Managed Futures LLC, | ||
General Partner of the registrant |
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 Annual Report of Morgan Stanley Smith Barney Spectrum Select L.P. (the Partnership) on Form 10-K for the period ended December 31, 2011, as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Walter Davis, President of Ceres Managed Futures LLC, 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 Ceres Managed Futures LLC, | |
General Partner of the registrant | ||
Date: | March 28, 2012 |
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 Annual Report of Morgan Stanley Smith Barney Spectrum Select L.P. (the Partnership) on Form 10-K for the period ended December 31, 2011, as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Brian Centner, Chief Financial Officer of Ceres Managed Futures LLC, 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/ Brian Centner | |
Name: | Brian Centner | |
Title: | Chief Financial Officer of Ceres Managed Futures LLC, | |
General Partner of the registrant | ||
Date: | March 28, 2012 |
F6IOLWN'3M!&7A(0%,K]XB').((C"0^H@A,R#/Z8[0R/;
M&(7$38M0N%'6=KS?[MK]:,.0S]+-X^=/H5#:QLE4\0B=QY+'C9'!UZ6PD9`?
M*1(CS1$*4RM-@/O`('7X!P#@'`.`<`X!P#@'`.!__]#;PUPZEM4HKL!:?G?@
M,!>Y)/ME[A HX65E8KKL;[&
MW%N;C6ESSDF_U&,P*;K[
OBQ]^C8Q,&-NH2M[;D>QE))T@'.TJCM"@(JX2"YZ2<6]1]24HF$
M95M1A*0T_P`).N2'I5@LD)S_`%`#ET% K=UV
MHV?/K0OB)K.2C20X-!Q:81A(>C>`."@YY%)2Y:(XP(TZ;\7I'`AZ9P7>AI+A
M(3F5>J=E>:[L1EC5\S&`VZY[JM;?-,7;'(PV]=Z9M"SW0Y6=&CHRK>#6ZPH6
MG:EBA`O2*CT1;L0;S[@2N@YSLA?7QL6!3^3;8KRX5NO=G:Q.T'-*TJV4Q&`-
M<6JI-3-355$'$PIYG4K+A++)IHX2N>/S>S@+.<3CP])1]&E+3F?$@PNDNR0E
M/K#J"J;>WKO?V+T\0^+*$L.1ML$SP]NK>[-$?EDEDT>A$AU-:$-8)`@0+DC?
:*;&B[>E*
H=1Z8ROI
MCF,SJ2TS(L8F*CFZC
MN0DY-VW81[%JB43K.7CUTHDV:MTB!U,
12 Months Ended
Investments [Abstract]
Investments
$ $ $ $ $ 86.7 101,259,072 (22,304,564 ) n/a n/a n/a 7.9 9,193,011 240,600 n/a n/a n/a 7.6 8,832,023 (120,388 ) n/a n/a n/a $ $ $ $ $ 50.0 89,755,278 18,201,217 n/a n/a n/a $ $ $ $ (53,603 ) (7,089,593 ) (100,575,804 ) (107,665,397 ) 8,507 (110,281 ) 2,276,086 2,165,805 963 (325,546 ) 438,595 113,049 $ $ $ $ (8,738 ) (4,238,014 ) 34,087,359 29,849,345 $ $ $ $ 22,591 (2,554,661 ) 49,563,805 47,009,144 % $ $ 16.4 43,800,324 731,982 $ $ $ $ 9,337 (102,547 ) 2,948,325 2,845,778