EX-13.01 13 d474593dtype1spectrumar13.txt Morgan Stanley Spectrum Series Annual Report December 31, 2012 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. /s/ Walter Davis ----------------------------------- 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 (855) 672-4468 Management's 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., 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"), 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, 2012. 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 its assessment, Management concluded that the Partnerships maintained effective internal control over financial reporting as of December 31, 2012 based on the criteria referred to above. /s/ Walter Davis /s/ Damian George ------------------------------------- -------------------------------------- Walter Davis Damian George President and Director Chief Financial Officer and Director Ceres Managed Futures LLC Ceres Managed Futures LLC General Partner, General Partner, Morgan Stanley Smith Barney Spectrum Morgan Stanley Smith Barney Spectrum Currency and Commodity L.P. Currency and Commodity L.P. Morgan Stanley Smith Barney Spectrum Morgan Stanley Smith Barney Spectrum Global Global Balanced L.P. Balanced L.P. Morgan Stanley Smith Barney Spectrum Morgan Stanley Smith Barney Spectrum Select L.P. Select L.P. Morgan Stanley Smith Barney Spectrum Morgan Stanley Smith Barney Spectrum Strategic L.P. Strategic L.P. Morgan Stanley Smith Barney Spectrum Morgan Stanley Smith Barney Spectrum Technical L.P. Technical L.P.
[LOGO] [GRAPHIC] 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., 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, 2012 and 2011, and the related statements of income and expenses and changes presented in partners' capital for each of the three years in the period ended December 31, 2012. 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 audit 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, such 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, 2012 and 2011, and the results of their operations and their changes in partners' capital for each of the three years in the period ended December 31, 2012, in conformity with accounting principles generally accepted in the United States of America. /s/ Deloitte & Touche LLP March 25, 2013 Morgan Stanley Smith Barney Spectrum Currency and Commodity L.P. Statements of Financial Condition
December 31, --------------------- 2012 2011 ---------- ---------- $ $ ASSETS Trading Equity: Investment in KR Master Fund........................................... 10,109,603 -- Investment in Cambridge Master Fund.................................... 6,920,831 -- ---------- ---------- Total Investments in Master Funds................................... 17,030,434 -- Unrestricted cash..................................................... 6,788,072 35,693,205 Restricted cash....................................................... -- 125,600 ---------- ---------- Total cash.......................................................... 6,788,072 35,818,805 ---------- ---------- Net unrealized gain (loss) on open contracts (MS&Co.)................. 43,205 (88,387) Options purchased (premiums paid $0 and $3,273, respectively)......... -- 1,534 ---------- ---------- Total Trading Equity................................................ 23,861,711 35,731,952 Interest receivable (MS&Co. & Morgan Stanley Wealth Management)........ 710 98 ---------- ---------- Total Assets........................................................ 23,862,421 35,732,050 ========== ========== LIABILITIES AND PARTNERS' CAPITAL LIABILITIES Redemptions payable.................................................... 422,017 724,150 Accrued brokerage fees (MS&Co.)........................................ 90,602 134,931 Accrued management fees................................................ 36,617 58,665 ---------- ---------- Total Liabilities................................................... 549,236 917,746 ---------- ---------- PARTNERS' CAPITAL Limited Partners (3,043,048.335 and 3,983,851.059 Units, respectively). 23,041,527 34,396,076 General Partner (35,877.343 and 48,440.343 Units, respectively)........ 271,658 418,228 ---------- ---------- Total Partners' Capital............................................... 23,313,185 34,814,304 ---------- ---------- Total Liabilities and Partners' Capital............................... 23,862,421 35,732,050 ========== ========== NET ASSET VALUE PER UNIT............................................... 7.57 8.63 ========== ==========
The accompanying notes are an integral part of these financial statements. Morgan Stanley Smith Barney Spectrum Currency and Commodity L.P. Statements of Income and Expenses
For the Years Ended December 31, ------------------------------------------- 2012 2011 2010 ------------- ------------- ------------- $ $ $ INVESTMENT INCOME Interest income (MS&Co. & Morgan Stanley Wealth Management)............................ 17,704 14,552 48,130 ------------- ------------- ------------- EXPENSES Brokerage fees (MS&Co.)......................... 1,345,522 1,909,452 2,485,116 Management fees................................. 547,886 830,197 1,080,486 ------------- ------------- ------------- Total Expenses................................ 1,893,408 2,739,649 3,565,602 ------------- ------------- ------------- NET INVESTMENT LOSS.............................. (1,875,704) (2,725,097) (3,517,472) ------------- ------------- ------------- TRADING RESULTS Trading profit (loss): Net realized.................................... (199,068) (483,261) (745,965) Net change in unrealized........................ 133,331 (1,210,781) 1,584,602 Realized loss on investment in KR Master Fund... (488,412) -- -- Realized loss on investment in FL Master Fund... (2,033,985) -- -- Realized loss on investment in Cambridge Master Fund.......................................... (44,139) -- -- Unrealized appreciation on investment in FL Master Fund................................... 514,630 -- -- Unrealized appreciation on investment in KR Master Fund................................... 52,939 -- -- Unrealized appreciation on investment in Cambridge Master Fund......................... 123,978 -- -- ------------- ------------- ------------- Total Trading Results......................... (1,940,726) (1,694,042) 838,637 ------------- ------------- ------------- NET LOSS......................................... (3,816,430) (4,419,139) (2,678,835) ============= ============= ============= Net Loss Allocation Limited Partners................................. (3,769,861) (4,369,934) (2,651,894) General Partner.................................. (46,569) (49,205) (26,941) Net Loss Per Unit* Limited Partners................................. (1.06) (0.94) (0.46) General Partner.................................. (1.06) (0.94) (0.46) Units Units Units ------------- ------------- ------------- WEIGHTED AVERAGE NUMBER OF UNITS OUTSTANDING.................................... 3,584,790.785 4,606,460.437 5,569,769.759
* 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, ---------------------- 2012 2011 ---------- ---------- $ $ ASSETS Trading Equity: Unrestricted cash................................................. 9,403,917 12,202,453 Restricted cash................................................... 899,358 989,964 ---------- ---------- Total cash...................................................... 10,303,275 13,192,417 ---------- ---------- Net unrealized gain on open contracts (MS&Co.).................... 1,019,443 1,186,221 Net unrealized gain (loss) on open contracts (MSIP)............... (37,664) 34,556 ---------- ---------- Total net unrealized gain on open contracts..................... 981,779 1,220,777 ---------- ---------- Options purchased (premiums paid $0 and $1,737, respectively)...... -- 814 ---------- ---------- Total Trading Equity............................................ 11,285,054 14,414,008 Interest receivable (MS&Co. & Morgan Stanley Wealth Management).... 422 49 ---------- ---------- Total Assets.................................................... 11,285,476 14,414,057 ========== ========== LIABILITIES AND PARTNERS' CAPITAL LIABILITIES Redemptions payable................................................ 117,253 273,368 Accrued brokerage fees (MS&Co.).................................... 42,933 54,606 Options written (premiums received $12,772 and $0, respectively)... 22,859 -- Accrued management fees............................................ 13,727 17,799 ---------- ---------- Total Liabilities............................................... 196,772 345,773 ---------- ---------- PARTNERS' CAPITAL Limited Partners (776,379.501 and 936,792.541 Units, respectively). 10,917,812 13,888,123 General Partner (12,152.331 and 12,152.331 Units, respectively).... 170,892 180,161 ---------- ---------- Total Partners' Capital........................................... 11,088,704 14,068,284 ---------- ---------- Total Liabilities and Partners' Capital........................... 11,285,476 14,414,057 ========== ========== NET ASSET VALUE PER UNIT........................................... 14.06 14.83 ========== ==========
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, ----------------------------------------- 2012 2011 2010 ----------- ------------- ------------- $ $ $ INVESTMENT INCOME Interest income (MS&Co. & Morgan Stanley Wealth Management)................................... 9,876 7,327 22,423 ----------- ------------- ------------- EXPENSES Brokerage fees (MS&Co.)......................... 591,826 764,480 905,997 Management fees................................. 190,827 246,609 295,068 ----------- ------------- ------------- Total Expenses................................ 782,653 1,011,089 1,201,065 ----------- ------------- ------------- NET INVESTMENT LOSS.............................. (772,777) (1,003,762) (1,178,642) ----------- ------------- ------------- TRADING RESULTS Trading profit (loss): Net realized.................................... 370,013 (1,151,478) 3,283,491 Net change in unrealized........................ (248,162) (339,048) 189,151 Proceeds from Litigation........................ -- -- 29,602 ----------- ------------- ------------- Total Trading Results......................... 121,851 (1,490,526) 3,502,244 ----------- ------------- ------------- NET INCOME (LOSS)................................ (650,926) (2,494,288) 2,323,602 =========== ============= ============= Net Income (Loss) Allocation Limited Partners................................. (641,657) (2,466,376) 2,299,999 General Partner.................................. (9,269) (27,912) 23,603 Net Income (Loss) Per Unit* Limited Partners................................. (0.77) (2.29) 1.89 General Partner.................................. (0.77) (2.29) 1.89 Units Units Units ----------- ------------- ------------- WEIGHTED AVERAGE NUMBER OF UNITS OUTSTANDING.................................... 879,118.270 1,056,873.607 1,234,612.751
* 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, ------------------------ 2012 2011 ----------- ----------- $ $ ASSETS Trading Equity: Unrestricted cash.............................................. 171,164,335 250,786,399 Restricted cash................................................ 27,192,268 37,327,727 ----------- ----------- Total cash................................................... 198,356,603 288,114,126 ----------- ----------- Net unrealized gain on open contracts (MS&Co.)................. 3,072,667 6,712,081 Net unrealized loss on open contracts (MSIP)................... (521,313) (310,182) ----------- ----------- Total net unrealized gain on open contracts.................. 2,551,354 6,401,899 ----------- ----------- Total Trading Equity......................................... 200,907,957 294,516,025 Interest receivable (MS&Co. & Morgan Stanley Wealth Management). 6,032 808 ----------- ----------- Total Assets................................................. 200,913,989 294,516,833 =========== =========== LIABILITIES AND PARTNERS' CAPITAL LIABILITIES Redemptions payable............................................. 3,642,807 6,464,963 Accrued brokerage fees (MS&Co.)................................. 994,527 1,459,689 Accrued management fees......................................... 302,574 447,773 ----------- ----------- Total Liabilities............................................ 4,939,908 8,372,425 ----------- ----------- PARTNERS' CAPITAL Limited Partners (6,979,883.723 and 9,059,136.131 Units, respectively)................................................. 193,760,270 283,036,281 General Partner (79,748.769 and 99,481.769 Units, respectively). 2,213,811 3,108,127 ----------- ----------- Total Partners' Capital........................................ 195,974,081 286,144,408 ----------- ----------- Total Liabilities and Partners' Capital........................ 200,913,989 294,516,833 =========== =========== NET ASSET VALUE PER UNIT........................................ 27.76 31.24 =========== ===========
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, --------------------------------------------- 2012 2011 2010 ------------- -------------- -------------- $ $ $ INVESTMENT INCOME Interest income (MS&Co. & Morgan Stanley Wealth Management)..................... 153,597 125,873 371,072 ------------- -------------- -------------- EXPENSES Brokerage fees (MS&Co.).................. 15,124,033 21,431,854 24,726,203 Management fees.......................... 4,610,705 7,263,522 9,509,245 Incentive fees........................... -- 2,034,158 2,487,064 ------------- -------------- -------------- Total Expenses......................... 19,734,738 30,729,534 36,722,512 ------------- -------------- -------------- NET INVESTMENT LOSS....................... (19,581,141) (30,603,661) (36,351,440) ------------- -------------- -------------- TRADING RESULTS Trading profit (loss): Net realized............................. (2,747,878) (23,852,820) 25,513,507 Net change in unrealized................. (3,850,545) (13,401,268) 7,787,866 Proceeds from Litigation................. -- -- 337,120 ------------- -------------- -------------- Total Trading Results.................. (6,598,423) (37,254,088) 33,638,493 ------------- -------------- -------------- NET LOSS.................................. (26,179,564) (67,857,749) (2,712,947) ============= ============== ============== Net Loss Allocation Limited Partners.......................... (25,885,258) (67,138,290) (2,687,785) General Partner........................... (294,306) (719,459) (25,162) Net Income (Loss) Per Unit* Limited Partners.......................... (3.48) (6.79) 0.07 General Partner........................... (3.48) (6.79) 0.07 Units Units Units ------------- -------------- -------------- WEIGHTED AVERAGE NUMBER OF UNITS OUTSTANDING............................. 8,177,824.370 10,069,277.824 11,625,750.592
* 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, ---------------------- 2012 2011 ---------- ----------- $ $ ASSETS Investment in BHM I, LLC (cost $17,491,367 and $55,017,097, respectively)........................................................ 63,045,391 101,259,072 Investment in PGR Master Fund (cost $6,033,345 and $8,952,411, respectively)........................................................ 5,021,111 9,193,011 Investment in MB Master Fund (cost $8,102,894 and $8,952,411, respectively)........................................................ 8,142,971 8,832,023 ---------- ----------- Total Investments................................................... 76,209,473 119,284,106 Interest receivable (MS&Co. & Morgan Stanley Wealth Management)........ 2,273 328 ---------- ----------- Total Assets........................................................ 76,211,746 119,284,434 ========== =========== LIABILITIES AND PARTNERS' CAPITAL LIABILITIES Redemptions payable.................................................... 1,590,323 1,603,104 Accrued brokerage fees (MS&Co.)........................................ 387,030 596,827 Accrued management fees................................................ 174,921 272,302 Accrued incentive fee.................................................. -- 37,676 ---------- ----------- Total Liabilities................................................... 2,152,274 2,509,909 ---------- ----------- PARTNERS' CAPITAL Limited Partners (5,140,837.802 and 7,211,352.161 Units, respectively). 73,232,715 115,518,403 General Partner (58,037.274 and 78,414.692 Units, respectively)........ 826,757 1,256,122 ---------- ----------- Total Partners' Capital............................................... 74,059,472 116,774,525 ---------- ----------- Total Liabilities and Partners' Capital............................... 76,211,746 119,284,434 ========== =========== NET ASSET VALUE PER UNIT............................................... 14.25 16.02 ========== ===========
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, ------------------------------------------- 2012 2011 2010 ------------- ------------- ------------- $ $ $ INVESTMENT INCOME Interest income (MS&Co. & Morgan Stanley Wealth Management)......................... 57,466 53,908 147,814 ------------- ------------- ------------- EXPENSES Brokerage fees (MS&Co.)...................... 5,825,816 9,254,864 9,956,090 Management fees.............................. 2,647,299 4,157,245 4,589,666 Incentive fees............................... -- 1,238,078 3,117,691 ------------- ------------- ------------- Total Expenses............................. 8,473,115 14,650,187 17,663,447 ------------- ------------- ------------- NET INVESTMENT LOSS........................... (8,415,649) (14,596,279) (17,515,633) ------------- ------------- ------------- TRADING RESULTS Trading profit (loss): Net realized................................. -- 2,750,625 11,512,792 Net change in unrealized..................... -- (8,555,065) 7,129,344 Realized gain (loss) on investment in BHM I, LLC........................................ (429,295) (958,118) 1,679,125 Realized loss on investment in PGR Master Fund....................................... (25,751) -- -- Realized gain on investment in MB Master Fund....................................... 3,838 -- -- Unrealized appreciation (depreciation) on investment in BHM I, LLC................... (687,951) (21,346,446) 16,522,092 Unrealized appreciation (depreciation) on investment in PGR Master Fund.............. (1,252,834) 240,600 -- Unrealized appreciation (depreciation) on investment in MB Master Fund............... 160,465 (120,388) -- Proceeds from Litigation..................... -- -- 220,755 ------------- ------------- ------------- Total Trading Results...................... (2,231,528) (27,988,792) 37,064,108 ------------- ------------- ------------- NET INCOME (LOSS)............................. (10,647,177) (42,585,071) 19,548,475 ============= ============= ============= Net Income (Loss) Allocation Limited Partners.............................. (10,517,888) (42,124,253) 19,344,514 General Partner............................... (129,289) (460,818) 203,961 Net Income (Loss) Per Unit* Limited Partners.............................. (1.77) (5.47) 2.36 General Partner............................... (1.77) (5.47) 2.36 Units Units Units ------------- ------------- ------------- WEIGHTED AVERAGE NUMBER OF UNITS OUTSTANDING................................. 6,273,402.856 7,873,786.813 8,988,248.355
* 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, ------------------------ 2012 2011 ----------- ----------- $ $ ASSETS Trading Equity: Investment in Blackwater Master Fund............................... 43,685,685 43,800,324 ----------- ----------- Unrestricted cash................................................. 120,032,935 195,525,329 Restricted cash................................................... 14,361,905 25,997,636 ----------- ----------- Total cash...................................................... 134,394,840 221,522,965 ----------- ----------- Net unrealized gain (loss) on open contracts (MSIP)............... (24,094) 528,494 Net unrealized gain (loss) on open contracts (MS&Co.)............. (1,017,450) 8,237,677 ----------- ----------- Total net unrealized gain (loss) on open contracts.............. (1,041,544) 8,766,171 ----------- ----------- Options purchased (premiums paid $0 and $3,780, respectively)...... -- 1,507 ----------- ----------- Total Trading Equity............................................ 177,038,981 274,090,967 Interest receivable (MS&Co. & Morgan Stanley Wealth Management).... 5,291 755 ----------- ----------- Total Assets.................................................... 177,044,272 274,091,722 =========== =========== LIABILITIES AND PARTNERS' CAPITAL LIABILITIES Redemptions payable................................................ 3,098,948 4,351,339 Accrued brokerage fees (MS&Co.).................................... 863,648 1,345,886 Accrued management fees............................................ 199,286 385,820 Accrued incentive fee.............................................. -- 94,355 Options written (premiums received $0 and $7,715, respectively).... -- 3,460 ----------- ----------- Total Liabilities............................................... 4,161,882 6,180,860 ----------- ----------- PARTNERS' CAPITAL Limited Partners (10,222,252.707 and 13,483,404.778 Units, respectively).................................................... 170,851,495 264,947,461 General Partner ( 121,510.879 and 150,810.001 Units, respectively). 2,030,895 2,963,401 ----------- ----------- Total Partners' Capital......................................... 172,882,390 267,910,862 ----------- ----------- Total Liabilities and Partners' Capital......................... 177,044,272 274,091,722 =========== =========== NET ASSET VALUE PER UNIT........................................... 16.71 19.65 =========== ===========
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, ---------------------------------------------- 2012 2011 2010 -------------- -------------- -------------- $ $ $ INVESTMENT INCOME Interest income (MS&Co. & Morgan Stanley Wealth Management)..................... 133,904 107,915 314,509 -------------- -------------- -------------- EXPENSES Brokerage fees (MS&Co.).................. 13,307,993 18,722,379 20,908,735 Management fees.......................... 3,384,253 6,205,832 7,663,963 Incentive fees........................... -- 94,355 -- -------------- -------------- -------------- Total Expenses......................... 16,692,246 25,022,566 28,572,698 Management fee waived.................... (83,982) -- (80,743) -------------- -------------- -------------- Net Expenses........................... 16,608,264 25,022,566 28,491,955 -------------- -------------- -------------- NET INVESTMENT LOSS....................... (16,474,360) (24,914,651) (28,177,446) -------------- -------------- -------------- TRADING RESULTS Trading profit (loss): Net realized............................. (6,219,265) 11,402,800 29,840,644 Net change in unrealized................. (9,809,697) (11,820,187) 9,887,489 Realized gain (loss) on Investment in Blackwater Master Fund................. (4,657,167) 167,699 -- Unrealized appreciation on Investment in Blackwater Master Fund................. 898,526 564,283 -- Proceeds from Litigation................. -- 10,951 164,828 -------------- -------------- -------------- Total Trading Results.................. (19,787,603) 325,546 39,892,961 -------------- -------------- -------------- NET INCOME (LOSS)......................... (36,261,963) (24,589,105) 11,715,515 ============== ============== ============== Net Income (Loss) Allocation Limited Partners.......................... (35,829,461) (24,340,924) 11,593,566 General Partner........................... (432,502) (248,181) 121,949 Net Income (Loss) Per Unit* Limited Partners.......................... (2.94) (1.68) 0.80 General Partner........................... (2.94) (1.68) 0.80 Units Units Units -------------- -------------- -------------- WEIGHTED AVERAGE NUMBER OF UNITS OUTSTANDING............................. 12,156,580.269 14,975,570.662 17,523,345.833
* 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. Condensed Schedule of Investments December 31, 2012
Net unrealized gain on % of Futures and Forward Contracts Purchased open contracts Partners' Capital --------------------------------------- -------------- ----------------- $ Foreign currency.............................. 5,545 0.02 ------ ---- Total Futures and Forward Contracts Purchased. 5,545 0.02 ------ ---- Futures and Forward Contracts Sold ---------------------------------- Foreign currency.............................. 35,827 0.16 ------ ---- Total Futures and Forward Contracts Sold...... 35,827 0.16 ------ ---- Unrealized Currency Gain..................... 1,833 0.01 ------ ---- Net fair value................................ 43,205 0.19 ====== ====
The accompanying notes are an integral part of these financial statements. Morgan Stanley Smith Barney Spectrum Currency and Commodity L.P. Condensed Schedule of Investments December 31, 2011
Net unrealized gain/(loss) on % of Futures and Forward Contracts Purchased open contracts 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) ======= ===== % of Option Contracts Fair Value 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 Global Balanced L.P. Condensed Schedule of Investments December 31, 2012
Net unrealized gain/(loss) on % of Futures and Forward Contracts Purchased open contracts Partners' Capital --------------------------------------- -------------- ----------------- $ Commodity..................................... (58,726) (0.53) Equity........................................ 43,098 0.39 Foreign currency.............................. 78,781 0.71 Interest rate................................. 25,589 0.23 ------- ----- Total Futures and Forward Contracts Purchased. 88,742 0.80 ------- ----- Futures and Forward Contracts Sold ---------------------------------- Commodity..................................... 11,711 0.11 Equity........................................ (439) --(1) Foreign currency.............................. 24,791 0.22 Interest rate................................. (19,479) (0.18) ------- ----- Total Futures and Forward Contracts Sold...... 16,584 0.15 ------- ----- Unrealized Currency Gain..................... 876,453 7.90 ------- ----- Net fair value................................ 981,779 8.85 ======= ===== % of Option Contracts Fair Value Partners' Capital ---------------- -------------- ----------------- $ Options written on Future Contracts........... (22,859) (0.21)
(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, 2011
Net unrealized gain/(loss) on % of Futures and Forward Contracts Purchased open contracts 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 ========= ===== % of Option Contracts Fair Value 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 Select L.P. Condensed Schedule of Investments December 31, 2012
Net unrealized gain/(loss) on % of Futures and Forward Contracts Purchased open contracts Partners' Capital --------------------------------------- -------------- ----------------- $ Commodity..................................... (257,575) (0.13) Equity........................................ 1,325,665 0.67 Foreign currency.............................. 856,313 0.43 Interest rate................................. 151,921 0.08 ---------- ----- Total Futures and Forward Contracts Purchased. 2,076,324 1.05 ---------- ----- Futures and Forward Contracts Sold ---------------------------------- Commodity..................................... (82,988) (0.04) Equity........................................ (36,283) (0.02) Foreign currency.............................. 1,942,804 0.99 Interest rate................................. (144,638) (0.07) ---------- ----- Total Futures and Forward Contracts Sold...... 1,678,895 0.86 ---------- ----- Unrealized Currency Loss..................... (1,203,865) (0.61) ---------- ----- Net fair value................................ 2,551,354 1.30 ========== =====
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
Net unrealized gain/(loss) on % of Futures and Forward Contracts Purchased open contracts 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 Strategic L.P. Condensed Schedules of Investments December 31, 2012 and 2011 As of December 31, 2012 and 2011 the Partnership held no futures or forward contracts; therefore, there were no net unrealized gains or losses on futures or forward contracts. 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, 2012
Net unrealized gain/(loss) on % of Futures and Forward Contracts Purchased open contracts Partners' Capital --------------------------------------- -------------- ----------------- $ Commodity..................................... (255,725) (0.15) Equity........................................ 965,010 0.56 Foreign currency.............................. 69,363 0.04 Interest rate................................. 322,705 0.19 ---------- ----- Total Futures and Forward Contracts Purchased. 1,101,353 0.64 ---------- ----- Futures and Forward Contracts Sold ---------------------------------- Commodity..................................... 49,147 0.03 Equity........................................ (9,384) (0.01) Foreign currency.............................. 1,322,968 0.76 Interest rate................................. (22,477) (0.01) ---------- ----- Total Futures and Forward Contracts Sold...... 1,340,254 0.77 ---------- ----- Unrealized Currency Loss..................... (3,483,151) (2.01) ---------- ----- Net fair value................................ (1,041,544) (0.60) ========== =====
(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, 2011
Net unrealized gain/(loss) on % of Futures and Forward Contracts Purchased open contracts 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 ========= ==== % of Option Contracts Fair Value 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 Currency and Commodity L.P. Statements of Changes in Partners' Capital For the Years Ended December 31, 2012, 2011, and 2010
Units of Partnership Limited General Interest Partners Partner Total -------------- ---------- -------- ---------- $ $ $ 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 Net Loss............................. -- (3,769,861) (46,569) (3,816,430) Redemptions.......................... (953,365.724) (7,584,688) (100,001) (7,684,689) -------------- ---------- -------- ---------- Partners' Capital, December 31, 2012. 3,078,925.678 23,041,527 271,658 23,313,185 ============== ========== ======== ==========
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, 2012, 2011, and 2010
Units of Partnership Limited General Interest Partners Partner Total ------------- ---------- ------- ---------- $ $ $ 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 Net Loss............................. -- (641,657) (9,269) (650,926) Redemptions.......................... (160,413.040) (2,328,654) -- (2,328,654) ------------- ---------- ------- ---------- Partners' Capital, December 31, 2012. 788,531.832 10,917,812 170,892 11,088,704 ============= ========== ======= ==========
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, 2012, 2011, and 2010
Units of Partnership Limited General Interest Partners Partner Total -------------- ----------- --------- ----------- $ $ $ 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 Net Loss............................. -- (25,885,258) (294,306) (26,179,564) Redemptions.......................... (2,098,985.408) (63,390,753) (600,010) (63,990,763) -------------- ----------- --------- ----------- Partners' Capital, December 31, 2012. 7,059,632.492 193,760,270 2,213,811 195,974,081 ============== =========== ========= ===========
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, 2012, 2011, and 2010
Units of Partnership Limited General Interest Partners Partner Total -------------- ----------- --------- ----------- $ $ $ 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 Net Loss............................. -- (10,517,888) (129,289) (10,647,177) Redemptions.......................... (2,090,891.777) (31,767,800) (300,076) (32,067,876) -------------- ----------- --------- ----------- Partners' Capital, December 31, 2012. 5,198,875.076 73,232,715 826,757 74,059,472 ============== =========== ========= ===========
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, 2012, 2011, and 2010
Units of Partnership Limited General Interest Partners Partner Total -------------- ----------- --------- ----------- $ $ $ 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 Net Loss............................. -- (35,829,461) (432,502) (36,261,963) Redemptions.......................... (3,290,451.193) (58,266,505) (500,004) (58,766,509) -------------- ----------- --------- ----------- Partners' Capital, December 31, 2012. 10,343,763.586 170,851,495 2,030,895 172,882,390 ============== =========== ========= ===========
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. ("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). Ceres Managed Futures LLC, a Delaware limited liability company, acts as the general partner ("Ceres" or the "General Partner") and commodity pool operator of the Partnerships. Ceres is a wholly-owned subsidiary of Morgan Stanley Smith Barney Holdings LLC ("MSSBH"). MSSBH is majority-owned indirectly by Morgan Stanley and minority-owned indirectly by Citigroup Inc. Morgan Stanley Smith Barney LLC is doing business as Morgan Stanley Wealth Management ("Morgan Stanley Wealth Management"). This entity, where the Partnerships continue to maintain a cash account, previously acted as a non-clearing commodity broker for the Partnerships. The clearing commodity brokers are Morgan Stanley & Co. LLC ("MS&Co.") 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 ("LME"). Morgan Stanley Wealth Management is a principal subsidiary of MSSBH. MS&Co., MSIP, and MSCG are wholly-owned subsidiaries of Morgan Stanley. The Partnerships no longer offer units of limited partnership interest ("Unit(s)") for purchase or exchange. Effective the close of business on October 31, 2012, Ceres terminated the management agreement dated as of November 1, 1994, and as amended on November 30, 2000, between Ceres, John W. Henry & Company, Inc. ("JWH") and Spectrum Technical. Consequently, JWH ceased all trading on behalf of Spectrum Technical effective October 31, 2012. Effective the close of business on October 31, 2012, Ceres terminated the management agreement dated as of November 1, 1994, among Ceres, Chesapeake Capital Corporation ("Chesapeake") and Spectrum Technical. Consequently, Chesapeake ceased all trading on behalf of Spectrum Technical effective October 31, 2012. On October 22, 2012, Ceres, The Cambridge Strategy (Asset Management) Limited ("Cambridge") and Spectrum Currency entered into a management agreement pursuant to which, effective November 1, 2012, Cambridge serves as a trading advisor to Spectrum Currency and trades its allocated portion of Spectrum Currency's net assets through its investment in Cambridge Master Fund L.P. ("Cambridge Master Fund") pursuant to Cambridge Asian Markets Alpha Programme. Effective the close of business on October 10, 2012, Ceres terminated the management agreement dated as of January 1, 2012, between Ceres, Flintlock Capital Asset Management, LLC ("Flintlock") and Spectrum Currency. The Partnership fully redeemed its investment in FL Master Fund L.P. ("FL Master Fund") effective October 10, 2012. Effective June 1, 2012, Chesapeake has agreed to temporarily reduce the management fee it receives from Spectrum Technical from an annual rate of 1/12 of 2% (a 2% annual rate) of adjusted net assets to 1/12 of 1% (a 1% annual rate) of adjusted net assets. Effective June 1, 2012, Aspect Capital Limited ("Aspect"), has agreed to reduce the monthly management fee for Spectrum Technical from 1/12 of 2.0% (a 2.0% annual rate) to 1/12 of 1.5% (a 1.5% annual rate) of the net assets as of the first day of each month. Morgan Stanley Smith Barney Spectrum Series Notes to Financial Statements Effective May 22, 2012, Chesapeake, in consultation with the General Partner for Spectrum Technical has temporarily reduced the overall leverage of Spectrum Technical's assets traded pursuant to Chesapeake's Diversified 2XL Program (the "Program") from 75% of the customary leverage utilized by the Program, to 50% of the customary leverage utilized by the Program, a reduction of 33.33%. This reduction in leverage was in response to the current market environment and the adverse performance experienced by Chesapeake over the past 12 months. 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. Effective January 1, 2012, the management fee payable by Spectrum Technical to Winton Capital Management Limited ("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. Effective January 1, 2012, the General Partner added Flintlock and Krom River Investment Management (Cayman) Limited (together with its affiliate, Krom River Trading AG) ("Krom") as trading advisors to manage the assets of Spectrum Currency through its investments in FL Master Fund and KR Master Fund L.P. ("KR Master Fund"), respectively. Effective December 31, 2011, the General Partner removed the following trading advisors from the Spectrum Currency: 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 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 November 30, 2011, the General Partner has removed Eclipse Capital Management Inc. ("Eclipse") as a trading advisor to Spectrum Strategic. Effective as of the close of business on August 31, 2011, DKR Fusion Management L.P. ("DKR") was terminated as a trading advisor to Spectrum Strategic. 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 JWH's Financial and Metals Portfolio. Effective as of the close of business on May 31, 2011, DKR was terminated as a trading advisor to Spectrum Currency. Effective May 31, 2011, Morgan Stanley & Co. Incorporated changed its name to Morgan Stanley & Co. LLC. Effective March 1, 2010, Spectrum Strategic, the General Partner and 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 DKR's Quantitative Strategies 2X trading program. Morgan Stanley Smith Barney Spectrum Series Notes to Financial Statements Effective February 19, 2010, the General Partner 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, the General Partner and FX Concepts, pursuant to which FX Concepts traded a portion of Spectrum Strategic's 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, the General Partner notified FX Concepts that the management agreement dated as of October 9, 2007, and any amendments or revisions subsequently made thereto, among Spectrum Currency, the General Partner and FX Concepts, pursuant to which FX Concepts traded a portion of the Spectrum Currency's 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. 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 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 Partnership's investment in each affiliated underlying fund is based on the information provided by the affiliated underlying fund which reflects the Partnerships' pro rata share of the net asset value of the affiliated underlying fund (i.e., the practical expedient is used). Morgan Stanley Smith Barney Spectrum Series Notes to Financial Statements The Partnerships may also invest in Master Funds. The Partnerships record their investments in Master Funds at fair value on the basis of the net asset value of such investments. 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, MS&Co. pays each Partnership interest income on 100% of the average daily equity maintained in cash in Spectrum Currency, Spectrum Global Balanced, Spectrum Select, Spectrum Strategic, and Spectrum Technical accounts during each month at a rate equal to 80% for Spectrum Currency, Spectrum Select, Spectrum Strategic and Spectrum Technical, and at a rate equal to 100% for Spectrum Global Balanced of the monthly average of the 4-week U.S. Treasury bill discount rate. MS&Co. retains any interest earned in excess of the interest paid to the Partnerships. For purposes of such interest payments, net assets do not include monies due to the Partnerships on Futures Interests that have not been received. 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") guidance relating to financial instruments, 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. 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 net realized gain/loss and net change in unrealized trading profit (loss) in the Statements of Income and Expenses. Net Income (Loss) per Unit -- Net income (loss) per Unit 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 Morgan Stanley Wealth Management, MS&Co. and MSIP for Spectrum Global Balanced, Spectrum Select and Spectrum Technical, and with Morgan Stanley Wealth Management and MS&Co. for Spectrum Currency, to be used as margin for trading (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 and, if any, (c) options purchased at fair value. Options written at fair value are recorded in "Liabilities" within the Statements of Financial Condition. Morgan Stanley Smith Barney Spectrum Series Notes to Financial Statements The Partnerships, in their normal course of business, enter into various contracts with MS&Co. and MSIP acting as their commodity brokers. Pursuant to brokerage agreements with Morgan Stanley Wealth Management, 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 unrealized gains or losses recognized on forward contracts executed with the same counterparty as allowable under the terms of their master netting agreements 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 expenses. Operating Expenses -- The Partnerships incur monthly management fees and may incur an incentive fee. All common administrative expenses, including legal, auditing, accounting, filing fees, and other related expenses, are borne by MS&Co. through the brokerage fees paid by the Partnerships. 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 partner's local Morgan Stanley 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, 2012, 2011, and 2010, were as follows:
2012 2011 2010 ---- ---- ------ $ $ $ Spectrum Currency........ -- -- 1,653 Spectrum Global Balanced. -- -- 767 Spectrum Select.......... -- -- 25,528 Spectrum Strategic....... -- -- 8,019 Spectrum Technical....... -- -- 9,992
Morgan Stanley Smith Barney Spectrum Series Notes to Financial Statements 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 Partnership's 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 Partnership's 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, 2012, and 2011. 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, 2009 through 2012 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 Partnership's Limited Partnership Agreement. 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 Partnership's 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 Partnership's 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 On October 1, 2012, the FASB issued Accounting Standards Update ("ASU") 2012-04 "Technical Corrections and Improvements", which makes minor technical corrections and clarifications to ASC 820, "Fair Value Measurements and Disclosures". When the FASB issued Statement 157 (codified in ASC 820), it conformed the use of the term "fair value" in certain pre-Codification standards but not others. ASU 2012-04 conforms the term's use throughout the ASC "to fully reflect the fair value measurement and disclosure requirements" of ASC 820. The ASU also amends the requirements that must be met for an investment company to qualify for the exemption from presenting a statement of cash flows, Specifically, it eliminates the requirements that substantially all of an entity's investments be carried at "market value" and that the investments be highly liquid, Instead, it requires substantially all of the entity's investments to be carried at "fair value" and classified as Level 1 or Level 2 measurements under ASC 820. The amendments are effective for fiscal periods beginning after December 15, 2012. The adoption of this ASU will not have a significant impact on the Partnerships' financial statements. Morgan Stanley Smith Barney Spectrum Series Notes to Financial Statements In December 2011, the FASB issued ASU 2011-11, "Disclosures about Offsetting Assets and Liabilities", which creates a new disclosure requirement about the nature of an entity's rights of setoff and the related arrangements associated with its financial instruments and derivative instruments. Subsequently in January 2013, the FASB issued ASU 2013-01 "Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities", which clarifies the types of instruments and transactions that are subject to the offsetting disclosure requirements established by ASU 2011-11. 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 these disclosures 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 would also provide the disclosures retrospectively for all comparative periods presented. The Partnerships are currently evaluating the impact that these pronouncements 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 would be required to consolidate another investment company if it holds a controlling financial interest in the entity. In August 2012, the FASB updated the proposed ASU to state that entities regulated under Investment Company Act of 1940 should qualify to be investment companies within the proposed investment company guide. The Partnerships will evaluate the impact that this proposed update would have on the financial statements once the pronouncement is issued. 3. Investments a. Spectrum Strategic's investments 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 Strategic's investment in MB Master Fund represents approximately 11.0% and 7.6%, and investment in PGR Master Fund represents approximately 6.8% and 7.9%, respectively, of the net asset value of Spectrum Strategic as of December 31, 2012, and 2011, respectively. Effective January 1, 2008, Spectrum Strategic invested a portion of its assets in Morgan Stanley Smith Barney BHM I, LLC ("BHM I, LLC"). Spectrum Strategic's investment in BHM I, LLC represents approximately 85.1% and 86.7% of the net asset value of Spectrum Strategic at December 31, 2012, and 2011, respectively. Morgan Stanley Smith Barney Spectrum Series Notes to Financial Statements Summarized information for Spectrum Strategic's investment in BHM I, LLC, MB Master Fund and PGR Master Fund as of December 31, 2012, and 2011, is as follows: December 31, 2012
Partnership's % of pro rata Partnership Fair Net Income/ Management Incentive Administrative Investment Net Assets Value (Loss) Fees Fees Fees ---------- ----------- ---------- ------------- ---------- --------- -------------- % $ $ $ $ $ BHM I, LLC...... 85.1 63,045,391 (1,117,246) n/a n/a n/a MB Master Fund.. 11.0 8,142,971 164,303 n/a n/a n/a PGR Master Fund. 6.8 5,021,111 (1,278,585) n/a n/a n/a
December 31, 2011
Partnership's % of pro rata Partnership Fair Net Income/ Management Incentive Administrative Investment Net Assets Value (Loss) Fees Fees 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
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, 2012, and 2011, 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, 2012, 2011, and 2010, respectively, and for PGR Master Fund and MB Master Fund for the years ended December 31, 2012, and 2011, respectively, to meet the requirements of Regulation S-X rule 3-09, as follows:
Net Total Investment Investment Trading Net December 31, 2012 Income/(Loss) Loss Results Loss ----------------- ------------- ---------- ------------ ------------ $ $ $ $ BHM I, LLC........ (48,368) (8,182,509) (9,518,219) (17,700,728) PGR Master Fund... 26,436 (126,749) (8,963,355) (9,090,104) MB Master Fund.... 30,442 (691,180) (261,679) (952,859) Net Total Net Investment Investment Trading Income December 31, 2011 Income/(Loss) Loss Results (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 Net Total Investment Investment Trading Net December 31, 2010 Loss Loss Results Income ----------------- ------------- ---------- ------------ ------------ $ $ $ $ BHM I, LLC........ (8,738) (4,238,014) 34,087,359 29,849,345
Morgan Stanley Smith Barney Spectrum Series Notes to Financial Statements b. Spectrum Technical's 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 reflecting the total assets, liabilities and capital of Blackwater Master Fund as of December 31, 2012 and 2011, is shown in the following tables.
December 31, 2012 -------------------------------------- Total Total Assets Liabilities Total Capital ------------ ----------- ------------- Blackwater Master Fund. $82,996,036 $1,069,352 $81,926,684
December 31, 2011 -------------------------------------- Total Total Assets Liabilities Total Capital ------------ ----------- ------------- Blackwater Master Fund. $83,066,066 $176,287 $82,889,779
Summarized information for Spectrum Technical's investment in Blackwater Master Fund as of December 31, 2012 and 2011, is as follows:
% of Partnership's Partnership Fair pro rata Investment Redemption December 31, 2012 Net Assets Value Net Loss Objective Permitted ----------------- ----------- ---------- ------------- ---------- ---------- % $ $ Blackwater Master Fund. 25.3 43,685,685 (3,758,641) Commodity Monthly Portfolio
% of Partnership's Partnership Fair pro rata Investment Redemption December 31, 2011 Net Assets Value Net Income Objective Permitted ----------------- ----------- ---------- ------------- ---------- ---------- % $ $ Blackwater Master Fund*. 16.4 43,800,324 731,982 Commodity Monthly Portfolio
* The Partnership invested in Blackwater Master Fund as of December 1, 2011. Spectrum Technical's 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 Technical's investment. On December 31, 2012 and 2011, Spectrum Technical owned approximately 53.3% and 52.8%, respectively, of Blackwater Master Fund. It is Spectrum Technical's intention to continue to invest in Blackwater Master Fund. The performance of Spectrum Technical is directly affected by the performance of Blackwater Master Fund. Morgan Stanley Smith Barney Spectrum Series Notes to Financial Statements The tables below represent summarized Income Statement information for Blackwater Master Fund for the years ended December 31, 2012 and 2011, respectively, to meet the requirements of Regulation S-X rule 3-09, as follows:
Net Total Investment Investment Trading Net December 31, 2012 Income Loss Results Loss ----------------- ---------- ---------- ---------- ---------- $ $ $ $ Blackwater Master Fund. 48,607 (110,152) (8,076,139) (8,186,291)
Net Total Investment Investment Trading Net December 31, 2011 Income Loss Results Income ----------------- ---------- ---------- --------- --------- $ $ $ $ Blackwater Master Fund. 9,337 (102,547) 2,948,325 2,845,778
c. Spectrum Currency's investments in KR Master Fund and Cambridge Master Fund On January 1, 2012, the assets allocated to Flintlock for trading were invested in FL Master Fund, a limited partnership organized under the partnership laws of the State of Delaware. FL Master Fund was formed to permit accounts managed now or in the future by Flintlock using the 2x Flintlock Commodity Opportunities Partners, LP, a proprietary, systematic trading program, to invest together in one trading vehicle. The General Partner was also the general partner for FL Master Fund. Individual and pooled accounts managed by Flintlock, including Spectrum Currency, were permitted to be limited partners of FL Master Fund. The General Partner and Flintlock believed that trading through this structure promoted efficiency and economy in the trading process. Spectrum Currency fully redeemed its investment in FL Master Fund as of October 10, 2012. On January 1, 2012, the assets allocated to Krom for trading were invested in the KR Master Fund, a limited partnership organized under the partnership laws of the State of Delaware. KR Master Fund was formed in order to permit commodity pools managed now or in the future by Krom using the Commodity Program at 150% Leverage, a fundamental and technical trading system, to invest together in one trading vehicle. The General Partner is also the general partner of KR Master Fund. Individual and pooled accounts currently managed by Krom, including Spectrum Currency, are permitted to be limited partners of KR Master Fund. The General Partner and Krom believe that trading through this structure should promote efficiency and economy in the trading process. On November 1, 2012, the assets allocated to Cambridge for trading were invested in the Cambridge Master Fund, a limited partnership organized under the partnership laws of the State of Delaware. Cambridge Master Fund was formed to permit accounts managed now and in the future by Cambridge using Cambridge Asian Markets Alpha Programme, to invest together in one trading vehicle. The General Partner is also the general partner of Cambridge Master Fund. Individual and pooled accounts currently managed by Cambridge, including Spectrum Currency, are permitted to be limited partners of Cambridge Master Fund. The General Partner and Cambridge believe that trading through this structure should provide efficiency and economy in the trading process. Summarized information for Spectrum Currency, reflecting the total assets, liabilities and capital of KR Master Fund and Cambridge Master Fund as of December 31, 2012, is shown in the following tables.
December 31, 2012 -------------------------------------- Total Total Assets Liabilities Total Capital ------------ ----------- ------------- KR Master Fund........ $116,058,406 $1,168,169 $114,890,237 Cambridge Master Fund. $ 14,372,049 $ 31,163 $ 14,340,886 ------------ ---------- ------------ $130,430,455 $1,199,332 $129,231,123
Morgan Stanley Smith Barney Spectrum Series Notes to Financial Statements Summarized information for Spectrum Currency's investment in KR Master Fund, Cambridge Master Fund and FL Master Fund for the period ended December 31, 2012, is as follows:
Partnership's For the period ended % of pro rata December 31, 2012 Partnership Fair Net Income/ Investment Redemption Investment Net Assets Value (Loss) Objective Permitted -------------------- ----------- ---------- ------------- -------------------- ---------- % $ $ KR Master Fund........ 43.4 10,109,603 (435,473) Commodity Portfolio Monthly Cambridge Master Fund. 29.7 6,920,831 79,839 Commodity Portfolio Monthly FL Master Fund........ -- -- (1,519,355) Commodity Portfolio Monthly
Spectrum Currency's investment into Cambridge Master Fund and KR Master Fund do not pay any management, incentive, or administrative fee. These fees are paid by Spectrum Currency. Spectrum Currency reimburses Cambridge Master Fund and KR Master Fund for all brokerage related fees borne by Cambridge Master Fund and KR Master Fund on behalf of Spectrum Currency's investment. As of December 31, 2012, Spectrum Currency owned approximately 48.23% and 8.80% of Cambridge Master Fund and KR Master Fund, respectively. It is Spectrum Currency's intention to continue to invest in Cambridge Master Fund and KR Master Fund. The performance of Spectrum Currency is directly affected by the performance of Cambridge Master Fund and KR Master Fund. The tables below represent summarized Income Statement information for Cambridge Master Fund and KR Master Fund for the year ended December 31, 2012, to meet the requirements of Regulation S-X rule 3-09, as follows:
Net Total Net Investment Investment Trading Income/ December 31, 2012 Income Loss Results (Loss) ----------------- ---------- ---------- ---------- ---------- $ $ $ $ KR Master Fund........ 59,059 (462,208) (4,542,592) (5,004,800) Cambridge Master Fund. 2,095 (16,586) 539,604 523,018
4. Related Party Transactions Each Partnership's cash is on deposit in commodity brokerage accounts with Morgan Stanley. MS&Co. pays interest on these funds as described in Note 2. Summary of Significant Accounting Policies. Each Partnership pays brokerage fees to MS&Co. as described in Note 2. Summary of Significant Accounting Policies. 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, 2012, were as follows: Spectrum Currency C-View International Limited ("C-View") Cambridge Krom Spectrum Global Balanced Altis Partners (Jersey) Limited ("Altis") C-View International Limited SSARIS Advisors, LLC ("SSARIS") Morgan Stanley Smith Barney Spectrum Series Notes to Financial Statements 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") 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% (a 2% annual rate) per month of net assets allocated on the first day of each month to C-View and Krom and 1/12 of 1.5% (a 1.5% annual rate) per month of net assets allocated to Cambridge on the last day of each month. The monthly management fee payable to Flintlock prior to termination on October 10, 2012, was 1/12 of 1.5% (a 1.5% 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, Rabar, 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% (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 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 Morgan Stanley Smith Barney Spectrum Series Notes to Financial Statements 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 1/12 of 1.5% per month of net assets allocated to Aspect and Winton on the first day of each month (a 1.5% 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). Effective October 31, 2012, JWH was terminated as a trading advisor to Spectrum Technical. The monthly management fee payable to JWH was 1/6 of 1% (a 2% annual rate). Effective October 31, 2012, Chesapeake was terminated as a trading advisor to Spectrum Technical. The monthly management fee payable to Chesapeake was 1/12 of 2% (a 2% annual rate). For the period from June 1, 2012, through October 31, 2012, 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. Prior to June 1, 2012, the monthly management fee payable to Aspect was 1/6 of 1% (a 2% annual rate). Prior to January 1, 2012, the monthly management fee payable to Winton was 1/6 of 1% (a 2% 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, Chesapeake's 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, Chesapeake's 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. 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). Incentive Fee -- Spectrum Currency pays a monthly incentive fee equal to 20% of the trading profits experienced with respect to C-View's allocated net assets as of the end of each calendar month and Krom's at the end of calendar quarter, and 15% of the trading profits experienced with respect to Cambridge's allocated net assets as of the end of each calendar quarter. Prior to October 10, 2012, Spectrum Currency paid Flintlock a monthly incentive fee equal to 20% of the trading profits experienced with respect to Flintlock's allocated net assets as of the end of each Morgan Stanley Smith Barney Spectrum Series Notes to Financial Statements calendar quarter. Flintlock was removed as a trading advisor to Spectrum Currency effective October 10, 2012. 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 advisor's 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. 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 advisor's 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 advisor's 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, 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 20% of the trading profits experienced with respect to the net assets allocated to each of Aspect, Campbell, 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. Prior to October 31, 2012, Spectrum Technical paid Chesapeake and JWH a monthly incentive fee equal to 19% and 20%, respectively of the trading profits experienced with respect to Chesapeake's and JWH's allocated net assets as of the and 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 month's redemptions. Morgan Stanley Smith Barney Spectrum Series Notes to Financial Statements 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. 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 ---- --------------- ------------------- ------- --------------- ------------------- $ $ $ 2012. -- 43,205 43,205 -- Feb. 2013 2011. -- (88,387) (88,387) -- Mar. 2012
Spectrum Global Balanced
Net Unrealized Gains (Losses) on Open Contracts Longest Maturities --------------------------------------------- ----------------------------------- Year Exchange-Traded Off-Exchange-Traded Total Exchange-Traded Off-Exchange-Traded ---- --------------- ------------------- --------- --------------- ------------------- $ $ $ 2012. 951,801 29,978 981,779 Dec. 2014 Feb. 2013 2011. 1,229,274 (8,497) 1,220,777 Dec. 2013 Jan. 2012
Spectrum Select
Net Unrealized Gains on Open Contracts Longest Maturities --------------------------------------------- ----------------------------------- Year Exchange-Traded Off-Exchange-Traded Total Exchange-Traded Off-Exchange-Traded ---- --------------- ------------------- --------- --------------- ------------------- $ $ $ 2012. 2,503,274 48,080 2,551,354 Mar. 2017 Mar. 2013 2011. 5,995,510 406,389 6,401,899 Mar. 2016 Mar. 2012
Morgan Stanley Smith Barney Spectrum Series Notes to Financial Statements Spectrum Technical
Net Unrealized Gains (Losses) on Open Contracts Longest Maturities ---------------------------------------------- ----------------------------------- Year Exchange-Traded Off-Exchange-Traded Total Exchange-Traded Off-Exchange-Traded ---- --------------- ------------------- ---------- --------------- ------------------- $ $ $ 2012. (1,651,077) 609,533 (1,041,544) Jun. 2017 Apr. 2013 2011. 8,196,777 569,394 8,766,171 Mar. 2015 Mar. 2012
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 Partnership's 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 $6,788,072 and $35,818,805 for Spectrum Currency, $11,255,076 and $14,421,691 for Spectrum Global Balanced, $200,859,877 and $294,109,636 for Spectrum Select, and $132,743,763 and $229,719,742 for Spectrum Technical at December 31, 2012 and 2011, respectively. With respect to each Partnership's 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 that 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 MS&Co, 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. With respect to those off-exchange-traded forward currency options contracts, the Partnerships are at risk to the ability of MSCG, 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 MSCG's bankruptcy or insolvency. 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. Morgan Stanley Smith Barney Spectrum Series Notes to Financial Statements 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. Spectrum Strategic's, Spectrum Technical's, and Spectrum Currency's 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. The following tables summarize the valuation of each Partnership's investments as of December 31, 2012, and 2011. Spectrum Currency The Effect of Trading Activities on the Statements of Financial Condition as of December 31, 2012 and 2011: December 31, 2012
Average Number of Contracts Outstanding Long Long Short Short Net for the Year Unrealized Unrealized Unrealized Unrealized Unrealized (Absolute Futures and Forward Contracts Gain Loss Gain Loss Gain Quantity) ----------------------------- ---------- ---------- ---------- ---------- ---------- ------------ $ $ $ $ $ Foreign currency............... 47,414 (41,869) 58,435 (22,608) 41,372 1,498 ------ ------- ------ ------- ------ Total......................... 47,414 (41,869) 58,435 (22,608) 41,372 ====== ======= ====== ======= ------ Unrealized currency gain...... 1,833 ------ Total net unrealized gain on open contracts.............. 43,205 ====== Average Number of Contracts Outstanding for the Year (Absolute Option Contracts at Fair Value Quantity) ------------------------------ ------------ $ Options purchased.............. -- 1 Options written................ -- 1
Morgan Stanley Smith Barney Spectrum Series Notes to Financial Statements December 31, 2011
Average Number of Contracts Outstanding Long Long Short Short Net for the Year Unrealized Unrealized Unrealized Unrealized Unrealized (Absolute Futures and Forward Contracts Gain Loss Gain Loss Gain/(Loss) 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) ========
Average Number of Contracts Outstanding for the Year (Absolute Option Contracts at Fair Value Quantity) ------------------------------ ------------ $ Options purchased........ 1,534 1 Options written.......... -- 1
Spectrum Global Balanced The Effect of Trading Activities on the Statements of Financial Condition as of December 31, 2012 and 2011: December 31, 2012
Average Number of Contracts Outstanding Long Long Short Short Net for the Year Unrealized Unrealized Unrealized Unrealized Unrealized (Absolute Futures and Forward Contracts Gain Loss Gain Loss Gain/(Loss) Quantity) ----------------------------- ---------- ---------- ---------- ---------- ----------- ------------ $ $ $ $ $ Commodity...................... 15,953 (74,679) 34,996 (23,285) (47,015) 195 Equity......................... 51,479 (8,381) 15,186 (15,625) 42,659 46 Foreign currency............... 125,101 (46,320) 53,721 (28,930) 103,572 892 Interest rate.................. 44,541 (18,952) -- (19,479) 6,110 405 ------- -------- ------- ------- ------- Total......................... 237,074 (148,332) 103,903 (87,319) 105,326 ======= ======== ======= ======= Unrealized currency gain...... 876,453 ------- Total net unrealized gain on open contracts.............. 981,779 ======= Average Number of Contracts Outstanding for the Year (Absolute Option Contracts at Fair Value Quantity) ------------------------------ ------------ $ Options purchased.......................................................... -- 1 Options written............................................................ (22,859) 14
Morgan Stanley Smith Barney Spectrum Series Notes to Financial Statements December 31, 2011
Average Number of Contracts Outstanding Long Long Short Short Net for the Year Unrealized Unrealized Unrealized Unrealized Unrealized (Absolute Futures and Forward Contracts Gain Loss Gain Loss Gain 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 =========
Average Number of Contracts Outstanding for the Year (Absolute Option Contracts at Fair Value Quantity) ------------------------------ ------------ $ Options purchased........ 814 1 Options written.......... -- 1
Spectrum Select The Effect of Trading Activities on the Statements of Financial Condition as of December 31, 2012 and 2011: December 31, 2012
Average Number of Contracts Outstanding Long Long Short Short Net for the Year Unrealized Unrealized Unrealized Unrealized Unrealized (Absolute Futures and Forward Contracts Gain Loss Gain Loss Gain/(Loss) Quantity) ----------------------------- ---------- ---------- ---------- ---------- ----------- ------------ $ $ $ $ $ Commodity..................... 763,693 (1,021,268) 1,051,860 (1,134,848) (340,563) 4,025 Equity........................ 1,842,840 (517,175) -- (36,283) 1,289,382 1,915 Foreign currency.............. 1,878,922 (1,022,609) 2,196,364 (253,560) 2,799,117 5,689 Interest rate................. 759,302 (607,381) 3,225 (147,863) 7,283 9,810 --------- ---------- --------- ---------- ---------- Total......................... 5,244,757 (3,168,433) 3,251,449 (1,572,554) 3,755,219 ========= ========== ========= ========== Unrealized currency loss...... (1,203,865) ---------- Total net unrealized gain on open contracts.............. 2,551,354 ==========
Morgan Stanley Smith Barney Spectrum Series Notes to Financial Statements December 31, 2011
Average Number of Contracts Outstanding Long Long Short Short Net for the Year Unrealized Unrealized Unrealized Unrealized Unrealized (Absolute Futures and Forward Contracts Gain Loss Gain Loss Gain/(Loss) 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 ==========
Spectrum Strategic The Effect of Trading Activities on the Statements of Financial Condition as of December 31, 2012 and 2011: December 31, 2012 The Partnership held no futures or forward contracts; therefore, there were no net unrealized gains or losses on futures or forward contracts. December 31, 2011
Average Number of Contracts Outstanding Long Long Short Short Net for the Year Unrealized Unrealized Unrealized Unrealized Unrealized (Absolute Futures and Forward Contracts Gain Loss Gain Loss Gain (Loss) Quantity) ----------------------------- ---------- ---------- ---------- ---------- ----------- ------------ $ $ $ $ $ Commodity..................... -- -- -- -- -- 752 Equity........................ -- -- -- -- -- 328 Foreign currency.............. -- -- -- -- -- 6,514 Interest rate................. -- -- -- -- -- 2,260 -- -- -- -- -- Total........................ -- -- -- -- -- == == == == Unrealized currency gain (loss)..................... -- -- Total net unrealized gain (loss) on open contracts... -- ==
Morgan Stanley Smith Barney Spectrum Series Notes to Financial Statements Spectrum Technical The Effect of Trading Activities on the Statements of Financial Condition as of December 31, 2012 and 2011: December 31, 2012
Average Number of Contracts Outstanding Long Long Short Short Net for the Year Unrealized Unrealized Unrealized Unrealized Unrealized (Absolute Futures and Forward Contracts Gain Loss Gain Loss Gain/(Loss) Quantity) ----------------------------- ---------- ---------- ---------- ---------- ----------- ------------ $ $ $ $ $ Commodity.................... 503,509 (759,234) 451,092 (401,945) (206,578) 1,895 Equity....................... 1,289,387 (324,377) 33 (9,417) 955,626 1,525 Foreign currency............. 751,769 (682,406) 1,511,142 (188,174) 1,392,331 4,077 Interest rate................ 845,015 (522,310) 4,461 (26,938) 300,228 6,112 --------- ---------- --------- -------- ---------- Total....................... 3,389,680 (2,288,327) 1,966,728 (626,474) 2,441,607 ========= ========== ========= ======== Unrealized currency loss...................... (3,483,151) ---------- Total net unrealized loss on open contracts......... (1,041,544) ==========
Average Number of Contracts Outstanding for the Year (Absolute Option Contracts at Fair Value Quantity) ------------------------------ ------------ $ Options purchased........ -- 6 Options written.......... -- 6
Morgan Stanley Smith Barney Spectrum Series Notes to Financial Statements December 31, 2011
Average Number of Contracts Outstanding Long Long Short Short Net for the Year Unrealized Unrealized Unrealized Unrealized Unrealized (Absolute Futures and Forward Contracts Gain Loss Gain Loss Gain 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 =========
Average Number of Contracts Outstanding for the Year (Absolute Option Contracts at Fair Value Quantity) ------------------------------ ------------ $ Options purchased........ 1,507 7 Options written.......... (3,460) 7
The following tables summarize the net trading results of each Partnership for the years ended December 31, 2012, 2011, and 2010, respectively. Spectrum Currency The Effect of Trading Activities on the Statements of Income and Expenses for the years ended December 31, 2012, 2011, and 2010, in Total Trading Results:
December 31, ------------------------------- 2012 2011 2010 ---------- ---------- ------- Type of Instrument ------------------ $ $ $ Commodity....................... (2,081,165) -- -- Foreign currency................ 174,080 (1,647,809) 808,671 Unrealized currency gain (loss). (33,641) (46,233) 29,966 ---------- ---------- ------- Total.......................... (1,940,726) (1,694,042) 838,637 ========== ========== =======
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, 2012, 2011, and 2010:
December 31, --------------------------------- 2012 2011 2010 ---------- ---------- --------- Trading Results --------------- $ $ $ Net realized.............................................. (199,068) (483,261) (745,965) Net change in unrealized.................................. 133,331 (1,210,781) 1,584,602 Realized loss on investment in KR Master Fund............. (488,412) -- -- Realized loss on investment in FL Master Fund............. (2,033,985) -- -- Realized loss on investment in Cambridge Master Fund...... (44,139) -- -- Unrealized appreciation on investment in FL Master Fund... 514,630 -- -- Unrealized appreciation on investment in KR Master Fund... 52,939 -- -- Unrealized appreciation on investment in Cambridge Master Fund.................................................... 123,978 -- -- ---------- ---------- --------- Total.................................................... (1,940,726) (1,694,042) 838,637 ========== ========== =========
Spectrum Global Balanced The Effect of Trading Activities on the Statements of Income and Expenses for the years ended December 31, 2012, 2011, and 2010, included in Total Trading Results:
December 31, ------------------------------- 2012 2011 2010 -------- ---------- --------- Type of Instrument ------------------ $ $ $ Commodity................ (261,829) (864,562) 176,977 Equity................... 224,150 (965,779) (119,010) Foreign currency......... 171,401 (735,607) 1,416,646 Interest rate............ 6,538 1,137,203 2,032,378 Unrealized currency loss. (18,409) (61,781) (34,349) Proceeds from Litigation. -- -- 29,602 -------- ---------- --------- Total................... 121,851 (1,490,526) 3,502,244 ======== ========== =========
Line Items on the Statements of Income and Expenses for the years ended December 31, 2012, 2011, and 2010:
December 31, ------------------------------- 2012 2011 2010 -------- ---------- --------- Trading Results --------------- $ $ $ Net realized............. 370,013 (1,151,478) 3,283,491 Net change in unrealized. (248,162) (339,048) 189,151 Proceeds from Litigation. -- -- 29,602 -------- ---------- --------- Total................... 121,851 (1,490,526) 3,502,244 ======== ========== =========
Morgan Stanley Smith Barney Spectrum Series Notes to Financial Statements Spectrum Select The Effect of Trading Activities on the Statements of Income and Expenses for the years ended December 31, 2012, 2011, and 2010, included in Total Trading Results:
December 31, ------------------------------------- 2012 2011 2010 ----------- ----------- ----------- Type of Instrument ------------------ $ $ $ Commodity....................... (12,872,729) (17,215,862) 10,078,791 Equity.......................... 6,993,095 (27,174,382) (14,372,116) Foreign currency................ (2,206,555) (11,400,426) 13,050,193 Interest rate................... 1,388,041 19,104,345 24,513,376 Unrealized currency gain (loss). 99,725 (567,763) 31,129 Proceeds from Litigation........ -- -- 337,120 ----------- ----------- ----------- Total.......................... (6,598,423) (37,254,088) 33,638,493 =========== =========== ===========
Line Items on the Statements of Income and Expenses for the years ended December 31, 2012, 2011, and 2010:
December 31, ----------------------------------- 2012 2011 2010 ---------- ----------- ---------- Trading Results --------------- $ $ $ Net realized............. (2,747,878) (23,852,820) 25,513,507 Net change in unrealized. (3,850,545) (13,401,268) 7,787,866 Proceeds from Litigation. -- -- 337,120 ---------- ----------- ---------- Total................... (6,598,423) (37,254,088) 33,638,493 ========== =========== ==========
Spectrum Strategic The Effect of Trading Activities on the Statements of Income and Expenses for the years ended December 31, 2012, 2011, and 2010, included in Total Trading Results:
December 31, ----------------------------------- 2012 2011 2010 ---------- ----------- ---------- Type of Instrument ------------------ $ $ $ Commodity....................... (1,374,285) (18,052,648) 27,847,302 Equity.......................... (3,098,127) (2,778,840) 1,553,897 Foreign currency................ (39,186) (14,779,073) 1,814,321 Interest rate................... 2,280,070 7,707,782 5,580,325 Unrealized currency gain (loss). -- (86,013) 47,508 Proceeds from Litigation........ -- -- 220,755 ---------- ----------- ---------- Total.......................... (2,231,528) (27,988,792) 37,064,108 ========== =========== ==========
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, 2012, 2011, and 2010:
December 31, ----------------------------------- 2012 2011 2010 ---------- ----------- ---------- Trading Results --------------- $ $ $ Net realized................................................ -- 2,750,625 11,512,792 Net change in unrealized.................................... -- (8,555,065) 7,129,344 Realized gain (loss) on investment in BHM I, LLC............ (429,295) (958,118) 1,679,125 Realized loss on investment in PGR Master Fund.............. (25,751) -- -- Realized gain on investment in MB Master Fund............... 3,838 -- -- Unrealized appreciation (depreciation) on investment in BHM I, LLC.................................................... (687,951) (21,346,446) 16,522,092 Unrealized appreciation (depreciation) on investment in PGR Master Fund............................................... (1,252,834) 240,600 -- Unrealized appreciation (depreciation) on investment in MB Master Fund............................................... 160,465 (120,388) -- Proceeds from Litigation.................................... -- -- 220,755 ---------- ----------- ---------- Total Trading Results...................................... (2,231,528) (27,988,792) 37,064,108 ========== =========== ==========
Spectrum Technical The Effect of Trading Activities on the Statements of Income and Expenses for the years ended December 31, 2012, 2011, and 2010, included in Total Trading Results:
December 31, ------------------------------------ 2012 2011 2010 ----------- ----------- ---------- Type of Instrument ------------------ $ $ $ Commodity....................... 7,806,061 (13,197,401) 5,109,902 Equity.......................... (58,323,819) (16,512,047) (8,075,989) Foreign currency................ (30,995,834) (3,771,234) 8,722,783 Interest rate................... 68,102,911 33,707,895 34,568,150 Unrealized currency gain (loss). (6,376,922) 87,382 (596,713) Proceeds from Litigation........ -- 10,951 164,828 ----------- ----------- ---------- Total.......................... (19,787,603) 325,546 39,892,961 =========== =========== ==========
Line Items on the Statements of Income and Expenses for the years ended December 31, 2012, 2011, and 2010:
December 31, ------------------------------------ 2012 2011 2010 ----------- ----------- ---------- Trading Results --------------- $ $ $ Net realized............................................... (6,219,265) 11,402,800 29,840,644 Net change in unrealized................................... (9,809,697) (11,820,187) 9,887,489 Realized gain (loss) on investment in Blackwater Master Fund..................................................... (4,657,167) 167,699 -- Unrealized appreciation on Investment in Blackwater Master Fund..................................................... 898,526 564,283 -- Proceeds from Litigation................................... -- 10,951 164,828 ----------- ----------- ---------- Total Trading Results..................................... (19,787,603) 325,546 39,892,961 =========== =========== ==========
Morgan Stanley Smith Barney Spectrum Series Notes to Financial Statements 8. Fair Value Measurements and Disclosures Effective January 1, 2012, the Partnerships adopted 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 FASB's 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. This new guidance did not have a material impact on the Partnerships' financial statements. 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 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 investment's 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
Unadjusted Quoted Prices in Significant Active Markets Other Significant for Identical Observable Unobservable Assets Inputs Inputs December 31, 2012 (Level 1) (Level 2) (Level 3) Total ----------------- ---------------- ----------- ------------ ---------- $ $ $ $ Assets Investment in KR Master Fund........ -- 10,109,603 n/a 10,109,603 Investment in Cambridge Master Fund. -- 6,920,831 n/a 6,920,831 Forwards............................ -- 105,849 n/a 105,849 -- ---------- ---------- Total Assets........................ -- 17,136,283 n/a 17,136,283 -- ---------- ---------- Liabilities Forwards............................ -- 64,477 n/a 64,477 -- ---------- ---------- Total Liabilities................... -- 64,477 n/a 64,477 -- ---------- ---------- Unrealized currency gain............ 1,833 ---------- *Net fair value..................... -- 17,071,806 n/a 17,073,639 -- ========== ==========
Morgan Stanley Smith Barney Spectrum Series Notes to Financial Statements
Unadjusted Quoted Prices in Significant Active Markets Other Significant for Identical Observable Unobservable Assets Inputs Inputs December 31, 2011 (Level 1) (Level 2) (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) -- ======== =======
* This amount comprises of the "Net unrealized gain (loss) on open contracts", "Investments" and "Options purchased" on the Statements of Financial Condition. During the twelve months ended December 31, 2012 and 2011, there were no Level 3 assets and liabilities and there were no transfers of assets or liabilities between Level 1 and Level 2. Spectrum Global Balanced
Unadjusted Quoted Prices in Significant Active Markets Other Significant for Identical Observable Unobservable Assets Inputs Inputs December 31, 2012 (Level 1) (Level 2) (Level 3) Total ----------------- ---------------- ----------- ------------ ------- $ $ $ $ Assets Futures.................. 270,741 -- n/a 270,741 Forwards................. -- 70,236 n/a 70,236 ------- ------ ------- Total Assets............. 270,741 70,236 n/a 340,977 ------- ------ ------- Liabilities Futures.................. 195,393 -- n/a 195,393 Forwards................. -- 40,258 n/a 40,258 Options Written.......... 22,859 -- 22,859 ------- ------ ------- Total Liabilities........ 218,252 40,258 n/a 258,510 ------- ------ ------- Unrealized currency gain. 876,453 ------- *Net fair value.......... 52,489 29,978 n/a 958,920 ======= ====== =======
Morgan Stanley Smith Barney Spectrum Series Notes to Financial Statements
Unadjusted Quoted Prices in Significant Active Markets Other Significant for Identical Observable Unobservable Assets Inputs Inputs December 31, 2011 (Level 1) (Level 2) (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 ======= ====== =========
* This amount comprises of the "Total net unrealized gain on open contracts" and "Options purchased" and "Options written" on the Statements of Financial Condition. During the twelve months ended December 31, 2012 and 2011, there were no Level 3 assets and liabilities and there were no transfers of assets or liabilities between Level 1 and Level 2. Spectrum Select
Unadjusted Quoted Prices in Significant Active Markets Other Significant for Identical Observable Unobservable Assets Inputs Inputs December 31, 2012 (Level 1) (Level 2) (Level 3) Total ----------------- ---------------- ----------- ------------ ---------- $ $ $ $ Assets Futures.................. 7,876,474 -- n/a 7,876,474 Forwards................. -- 619,732 n/a 619,732 --------- ------- ---------- Total Assets............. 7,876,474 619,732 n/a 8,496,206 --------- ------- ---------- Liabilities Futures.................. 4,169,335 -- n/a 4,169,335 Forwards................. -- 571,652 n/a 571,652 --------- ------- ---------- Total Liabilities........ 4,169,335 571,652 n/a 4,740,987 --------- ------- ---------- Unrealized currency loss. (1,203,865) ---------- *Net fair value.......... 3,707,139 48,080 n/a 2,551,354 ========= ======= ==========
Morgan Stanley Smith Barney Spectrum Series Notes to Financial Statements
Unadjusted Quoted Prices in Significant Active Markets Other Significant for Identical Observable Unobservable Assets Inputs Inputs December 31, 2011 (Level 1) (Level 2) (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 ========== ======= ==========
* This amount comprises of the "Total net unrealized gain on open contracts" on the Statements of Financial Condition. During the twelve months ended December 31, 2012 and 2011, there were no Level 3 assets and liabilities and there were no transfers of assets or liabilities between Level 1 and Level 2. Spectrum Strategic
Unadjusted Quoted Prices in Significant Active Markets Other Significant for Identical Observable Unobservable Assets Inputs Inputs December 31, 2012 (Level 1) (Level 2) (Level 3) Total ----------------- ---------------- ----------- ------------ ---------- $ $ $ $ Assets Investment in BHM I, LLC...... -- 63,045,391 n/a 63,045,391 Investment in PGR Master Fund. -- 5,021,111 n/a 5,021,111 Investment in MB Master Fund.. -- 8,142,971 n/a 8,142,971 -- ---------- ---------- Total Assets.................. -- 76,209,473 n/a 76,209,473 == ========== ==========
Spectrum Strategic
Unadjusted Quoted Prices in Significant Active Markets Other Significant for Identical Observable Unobservable Assets Inputs Inputs December 31, 2011 (Level 1) (Level 2) (Level 3) Total ----------------- ---------------- ----------- ------------ ----------- $ $ $ $ Assets Investment in BHM I, LLC...... -- 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 -- ----------- ----------- Total Assets.................. -- 119,284,106 n/a 119,284,106 == =========== ===========
During the twelve months ended December 31, 2012 and 2011, there were no Level 3 assets and liabilities and there were no transfers of assets or liabilities between Level 1 and Level 2. Morgan Stanley Smith Barney Spectrum Series Notes to Financial Statements Spectrum Technical
Unadjusted Quoted Prices in Active Markets Significant Significant for Identical Observable Unobservable Assets Inputs Inputs December 31, 2012 (Level 1) (Level 2) (Level 3) Total ----------------- ---------------- ----------- ------------ ---------- $ $ $ $ Assets Investment in Blackwater Master Fund. -- 43,685,685 n/a 43,685,685 Futures.............................. 4,081,355 -- n/a 4,081,355 Forwards............................. -- 1,275,053 n/a 1,275,053 --------- ---------- ---------- Total Assets......................... 4,081,355 44,960,738 n/a 49,042,093 --------- ---------- ---------- Liabilities Futures.............................. 2,249,281 -- n/a 2,249,281 Forwards............................. -- 665,520 n/a 665,520 --------- ---------- ---------- Total Liabilities.................... 2,249,281 665,520 n/a 2,914,801 --------- ---------- ---------- Unrealized currency loss............. (3,483,151) ---------- *Net fair value...................... 1,832,074 44,295,218 n/a 42,644,141 ========= ========== ==========
Unadjusted Quoted Prices in Significant Active Markets Other Significant for Identical Observable Unobservable Assets Inputs Inputs December 31, 2011 (Level 1) (Level 2) (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 ========= ========== ==========
* This amount comprises of the "Total net unrealized gain on open contracts", "Investment in Blackwater Master Fund" and "Options purchased" and "Options written" on the Statements of Financial Condition. During the twelve months ended December 31, 2012 and 2011, there were no Level 3 assets and liabilities and there were no transfers of assets or liabilities between Level 1 and Level 2. 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 partner's share of income, expenses and average net assets. Spectrum Currency
2012 2011 2010 ------ ------ ------ Per Unit operating performance: Net asset value, January 1:............ $ 8.63 $ 9.57 $10.03 ------ ------ ------ Interest Income...................... --(2) --(2) 0.01 Expenses............................. (0.53) (0.60) (0.64) Realized/Unrealized Income (Loss)(1). (0.53) (0.34) 0.17 ------ ------ ------ Net Loss............................. (1.06) (0.94) (0.46) ------ ------ ------ Net asset value, December 31:.......... $ 7.57 $ 8.63 $ 9.57 ====== ====== ====== For the Calendar Year: Ratios to average net assets:.......... Net Investment Loss/ /............... (6.6)% (6.7)% (6.6)% Expenses before Incentive Fees....... 6.7% 6.8% 6.7% Expenses after Incentive Fees........ 6.7% 6.8% 6.7% Net Loss............................. (13.5)% (10.9)% (5.1)% Total return before incentive fees..... (12.3)% (9.8)% (4.6)% Total return after incentive fees...... (12.3)% (9.8)% (4.6)%
(1)Realized/Unrealized Income (Loss) is a balancing amount necessary to reconcile the change in net asset value per Unit with the other per Unit information. (2) Amounts less than 0.005%. Spectrum Global Balanced
2012 2011 2010 - ------ ------ ------ Per Unit operating performance: Net asset value, January 1:............ $14.83 $17.12 $15.23 ------ ------ ------ Interest Income...................... 0.01 0.01 0.02 Expenses............................. (0.90) (0.96) (0.98) Realized/Unrealized Income (Loss)(1). 0.12 (1.34) 2.85 ------ ------ ------ Net Income (Loss).................... (0.77) (2.29) 1.89 ------ ------ ------ Net asset value, December 31:.......... $14.06 $14.83 $17.12 ====== ====== ====== For the Calendar Year: Ratios to average net assets: Net Investment Loss/ /............... (6.1)% (6.2)% (6.0)% Expenses before Incentive Fees....... 6.2% 6.3% 6.1% Expenses after Incentive Fees........ 6.2% 6.3% 6.1% Net Income (Loss).................... (5.2)% (15.4)% 11.8% Total return before incentive fees..... (5.2)% (13.4)% 12.4% Total return after incentive fees...... (5.2)% (13.4)% 12.4%
(1)Realized/Unrealized Income (Loss) is a balancing amount necessary to reconcile the change in net asset value per Unit with the other per Unit information. Morgan Stanley Smith Barney Spectrum Series Notes to Financial Statements Spectrum Select
2012 2011 2010 - ------ ------ ------ Per Unit operating performance: Net asset value, January 1:............ $31.24 $38.03 $37.96 ------ ------ ------ Interest Income...................... 0.02 0.01 0.03 Expenses............................. (2.44) (3.07) (3.18) Realized/Unrealized Income (Loss)(1). (1.06) (3.73) 3.22 ------ ------ ------ Net Income (Loss).................... (3.48) (6.79) 0.07* ------ ------ ------ Net asset value, December 31:.......... $27.76 $31.24 $38.03 ====== ====== ====== For the Calendar Year: Ratios to average net assets: Net Investment Loss/ /............... (8.0)% (8.8)% (8.9)% Expenses before Incentive Fees....... 8.1% 8.3% 8.4% Expenses after Incentive Fees........ 8.1% 8.9% 9.0% Net Loss............................. (10.7)% (19.6)% (0.7)% Total return before incentive fees..... (11.1)% (17.3)% 0.8% Total return after incentive fees...... (11.1)% (17.9)% 0.2%
(1)Realized/Unrealized Income (Loss) is a balancing amount necessary to reconcile the change in net asset value per Unit with the other per Unit information. * 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. Spectrum Strategic
2012 2011 2010 ------ ------ ------ Per Unit operating performance: Net asset value, January 1:............ $16.02 $21.49 $19.13 ------ ------ ------ Interest Income...................... 0.01 0.01 0.02 Expenses............................. (1.37) (1.87) (1.98) Realized/Unrealized Income (Loss)(1). (0.41) (3.61) 4.32 ------ ------ ------ Net Income (Loss).................... (1.77) (5.47) 2.36 ------ ------ ------ Net asset value, December 31:.......... $14.25 $16.02 $21.49 ====== ====== ====== For the Calendar Year: Ratios to average net assets: Net Investment Loss/ /............... (9.0)% (9.8)% (10.6)% Expenses before Incentive Fees....... 9.1% 9.0% 8.8% Expenses after Incentive Fees........ 9.1% 9.8% 10.6% Net Income (Loss).................... (11.4)% (28.6)% 11.8% Total return before incentive fees..... (11.0)% (24.7)% 14.2% Total return after incentive fees...... (11.0)% (25.5)% 12.3%
(1)Realized/Unrealized Income (Loss) is a balancing amount necessary to reconcile the change in net asset value per Unit with the other per Unit information. Morgan Stanley Smith Barney Spectrum Series Notes to Financial Statements Spectrum Technical
2012 2011 2010 ------ ------ ------ Per Unit operating performance: Net asset value, January 1:............ $19.65 $21.33 $20.53 ------ ------ ------ Interest Income...................... 0.01 0.01 0.02 Expenses............................. (1.38)* (1.68) (1.64)* Realized/Unrealized Income (Loss)(1). (1.57) (0.01) 2.42 ------ ------ ------ Net Income (Loss).................... (2.94) (1.68) 0.80 ------ ------ ------ Net asset value, December 31:.......... $16.71 $19.65 $21.33 ====== ====== ====== For the Calendar Year: Ratios to average net assets:.......... Net Investment Loss/ /............... (7.7)% (8.1)% (8.2)% Expenses before Incentive Fees....... 7.8%** 8.2% 8.3%** Expenses after Incentive Fees........ 7.8%** 8.2% 8.3%** Net Income (Loss).................... (17.0)% (8.0)% 3.4% Total return before incentive fees..... (15.0)% (7.8)% 3.9% Total return after incentive fees...... (15.0)% (7.9)% 3.9%
(1)Realized/Unrealized Income (Loss) is a balancing amount necessary to reconcile the change in net asset value per Unit with the other per Unit information. * Expenses per Unit would have been $(1.39) in 2012 and $(1.64) in 2010 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 0.04% in 2012 and 0.02% in 2010 of the average net assets). 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 of or disclosure in the financial statements. CERES MANAGED FUTURES LLC 522 Fifth Avenue . 14th Floor New York, NY 10036 Publication # 07 Morgan Stanley (C) 2012 Morgan Stanley Smith Barney LLC