UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the quarterly period ended September 30, 2004 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from __________________ to __________________
Commission File Number 0-26280
MORGAN STANLEY SPECTRUM STRATEGIC L.P.
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(Exact name of registrant as specified in its charter)
Delaware 13-3782225
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Demeter Management Corporation
330 Madison Avenue, 8th Floor
New York, NY 10017
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 905-2700
---------------
825 Third Avenue, 9th Floor, New York, NY 10022
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(Former name, former address, and former fiscal year,
if changed since last report)
Indicate by check-mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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Indicate by check-mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes No X
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MORGAN STANLEY SPECTRUM STRATEGIC L.P.
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INDEX TO QUARTERLY REPORT ON FORM 10-Q
--------------------------------------
September 30, 2004
------------------
PART I. FINANCIAL INFORMATION
- -----------------------------
Item 1. Financial Statements
Statements of Financial Condition as of September 30, 2004
(Unaudited) and December 31, 2003.....................................2
Statements of Operations for the Three and Nine Months
Ended September 30, 2004 and 2003 (Unaudited).........................3
Statements of Changes in Partners' Capital for the
Nine Months Ended September 30, 2004 and 2003 (Unaudited).............4
Statements of Cash Flows for the Nine Months Ended
September 30, 2004 and 2003 (Unaudited)...............................5
Notes to Financial Statements (Unaudited)..........................6-12
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.................13-25
Item 3. Quantitative and Qualitative Disclosures about
Market Risk...................................................26-38
Item 4. Controls and Procedures..........................................39
PART II. OTHER INFORMATION
- --------------------------
Item 2. Changes in Securities and Use of Proceeds........................40
Item 5. Other Information................................................41
Item 6. Exhibits and Reports on Form 8-K..............................41-44
PART I. FINANCIAL INFORMATION
-----------------------------
Item 1. Financial Statements
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MORGAN STANLEY SPECTRUM STRATEGIC L.P.
STATEMENTS OF FINANCIAL CONDITION
September 30, December 31,
2004 2003
----------- -----------
$ $
(Unaudited)
ASSETS
Equity in futures interests trading accounts:
Cash 163,416,211 109,846,761
Net unrealized gain on open contracts (MS&Co.) 5,855,009 5,847,799
Net unrealized gain on open contracts (MSIL) 288,134 2,073,986
----------- -----------
Total net unrealized gain on open contracts 6,143,143 7,921,785
Net option premiums 119,131 678,280
----------- -----------
Total Trading Equity 169,678,485 118,446,826
Subscriptions receivable 4,142,063 5,143,178
Interest receivable (Morgan Stanley DW) 168,656 66,591
----------- -----------
Total Assets 173,989,204 123,656,595
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Redemptions payable 1,088,806 655,871
Accrued brokerage fees (Morgan Stanley DW) 725,528 650,049
Accrued management fees 300,218 268,986
Accrued incentive fees 51,748 811,250
----------- -----------
Total Liabilities 2,166,300 2,386,156
----------- -----------
Partners' Capital
Limited Partners (11,816,840.745 and
8,385,489.652 Units, respectively) 169,924,362 119,976,992
General Partner (132,028.003 and
90,402.219 Units, respectively) 1,898,542 1,293,447
----------- -----------
Total Partners' Capital 171,822,904 121,270,439
----------- -----------
Total Liabilities and Partners' Capital 173,989,204 123,656,595
=========== ===========
NET ASSET VALUE PER UNIT 14.38 14.31
=========== ===========
The accompanying notes are an integral part of these
financial statements.
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MORGAN STANLEY SPECTRUM STRATEGIC L.P.
STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
2004 2003 2004 2003
---------- ---------- ----------- -----------
$ $ $ $
REVENUES
Trading profit (loss):
Realized (4,567,759) 4,659,680 11,911,081 21,844,266
Net change in unrealized 4,893,948 2,478,417 (1,778,642) (4,486,889)
---------- ---------- ----------- -----------
326,189 7,138,097 10,132,439 17,357,377
Proceeds from Litigation Settlement 173 -- 173 --
---------- ---------- ----------- -----------
Total Trading Results 326,362 7,138,097 10,132,612 17,357,377
Interest income (Morgan Stanley DW) 447,343 168,417 971,474 553,766
---------- ---------- ----------- -----------
Total 773,705 7,306,514 11,104,086 17,911,143
---------- ---------- ----------- -----------
EXPENSES
Brokerage fees (Morgan Stanley DW) 2,173,213 1,650,960 6,945,714 4,724,251
Management fees 899,261 683,155 2,874,089 1,954,862
Incentive fees 51,748 -- 2,264,511 1,036,225
---------- ---------- ----------- -----------
Total 3,124,222 2,334,115 12,084,314 7,715,338
---------- ---------- ----------- -----------
NET INCOME (LOSS) (2,350,517) 4,972,399 (980,228) 10,195,805
========== ========== =========== ===========
NET INCOME (LOSS) ALLOCATION
Limited Partners (2,322,027) 4,917,279 (965,323) 10,077,875
General Partner (28,490) 55,120 (14,905) 117,930
NET INCOME (LOSS) PER UNIT
Limited Partners (0.23) 0.67 0.07 1.49
General Partner (0.23) 0.67 0.07 1.49
The accompanying notes are an integral part of these
financial statements.
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MORGAN STANLEY SPECTRUM STRATEGIC L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
For the Nine Months Ended September 30, 2004 and 2003
(Unaudited)
Units of
Partnership Limited General
Interest Partners Partner Total
-------------- -------------- -------------- --------------
$ $ $
Partners' Capital,
December 31, 2002 6,530,775.305 74,487,934 881,138 75,369,072
Offering of Units 1,842,337.104 23,093,642 60,000 23,153,642
Net Income -- 10,077,875 117,930 10,195,805
Redemptions (739,142.641) (9,270,335) -- (9,270,335)
-------------- -------------- -------------- --------------
Partners' Capital,
September 30, 2003 7,633,969.768 98,389,116 1,059,068 99,448,184
============== ============== ============== ==============
Partners' Capital,
December 31, 2003 8,475,891.871 119,976,992 1,293,447 121,270,439
Offering of Units 4,106,817.868 60,207,199 620,000 60,827,199
Net Loss -- (965,323) (14,905) (980,228)
Redemptions (633,840.991) (9,294,506) -- (9,294,506)
-------------- -------------- -------------- --------------
Partners' Capital,
September 30, 2004 11,948,868.748 169,924,362 1,898,542 171,822,904
============== ============== ============== ==============
The accompanying notes are an integral part of these
financial statements.
- 4 -
MORGAN STANLEY SPECTRUM STRATEGIC L.P.
STATEMENTS OF CASH FLOWS
(Unaudited)
For the Nine Months Ended September 30,
---------------------------------------
2004 2003
------------ ------------
$ $
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) (980,228) 10,195,805
Noncash item included in net income (loss):
Net change in unrealized 1,778,642 4,486,889
(Increase) decrease in operating assets:
Net option premiums 559,149 34,914
Interest receivable (Morgan Stanley DW) (102,065) 2,201
Increase (decrease) in operating liabilities:
Accrued brokerage fees (Morgan Stanley DW) 75,479 139,652
Accrued management fees 31,232 57,786
Accrued incentive fee (759,502) --
------------ ------------
Net cash provided by operating activities 602,707 14,917,247
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CASH FLOWS FROM FINANCING ACTIVITIES
Offering of Units 60,827,199 23,153,642
(Increase) decrease in subscriptions receivable 1,001,115 (1,038,009)
Increase (decrease) in redemptions payable 432,935 (489,735)
Redemptions of Units (9,294,506) (9,270,335)
------------ ------------
Net cash provided by financing activities 52,966,743 12,355,563
------------ ------------
Net increase in cash 53,569,450 27,272,810
Balance at beginning of period 109,846,761 68,224,648
------------ ------------
Balance at end of period 163,416,211 95,497,458
============ ============
The accompanying notes are an integral part of these
financial statements.
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MORGAN STANLEY SPECTRUM STRATEGIC L.P.
NOTES TO FINANCIAL STATEMENTS
-----------------------------
September 30, 2004
(Unaudited)
The unaudited financial statements contained herein include, in the opinion of
management, all adjustments necessary for a fair presentation of the results of
operations and financial condition of Morgan Stanley Spectrum Strategic L.P.
(the "Partnership"). The financial statements and condensed notes herein should
be read in conjunction with the Partnership's December 31, 2003 Annual Report on
Form 10-K.
1. Organization
------------
Morgan Stanley Spectrum Strategic L.P. is a Delaware limited partnership
organized to engage primarily in the speculative trading of futures contracts,
options on futures contracts, and forward contracts on physical commodities and
other commodity interests, including, but not limited to, foreign currencies,
financial instruments, metals, energy, and agricultural products. The
Partnership is one of the Morgan Stanley Spectrum series of funds, comprised of
the Partnership, Morgan Stanley Spectrum Currency L.P., Morgan Stanley Spectrum
Global Balanced L.P., Morgan Stanley Spectrum Select L.P., and Morgan Stanley
Spectrum Technical L.P.
- 6 -
MORGAN STANLEY SPECTRUM STRATEGIC L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
-----------------------------------------
The Partnership's general partner is Demeter Management Corporation ("Demeter").
The non-clearing commodity broker is Morgan Stanley DW Inc. ("Morgan Stanley
DW"). The clearing commodity brokers are Morgan Stanley & Co. Incorporated ("MS
& Co.") and Morgan Stanley & Co. International Limited ("MSIL"). Morgan Stanley
Capital Group Inc. ("MSCG") acts as the counterparty on all of the options on
foreign currency forward trades for the Partnership. Demeter, Morgan Stanley DW,
MS & Co., MSIL, and MSCG are wholly-owned subsidiaries of Morgan Stanley. The
trading advisors to the Partnership are Blenheim Capital Management, L.L.C. and
Eclipse Capital Management, Inc. (individually, a "Trading Advisor", or
collectively, the "Trading Advisors").
The Partnership entered into a management agreement with FX Concepts (Trading
Advisor), Inc. ("FX Concepts") adding FX Concepts as its third trading advisor
and effective November 1, 2004, the general partner allocated a portion of the
Partnership's assets to FX Concepts.
- 7 -
MORGAN STANLEY SPECTRUM STRATEGIC L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
-----------------------------------------
On February 27, 2002, the Partnership received notification of a preliminary
entitlement to payment from the Sumitomo Copper Litigation Settlement
Administrator, and the Partnership has received settlement award payments in the
amount of $17,556 as of August 30, 2002 and $173 as of July 30, 2004. Any
amounts received are accounted for in the period received, for the benefit of
the limited partners at the date of receipt.
2. Related Party Transactions
--------------------------
The Partnership's cash is on deposit with Morgan Stanley DW, MS & Co., and MSIL
in futures, forwards, and options trading accounts to meet margin requirements
as needed. Monthly, Morgan Stanley DW pays the Partnership interest income equal
to 80% of its average daily Net Assets for the month at a prevailing rate on
U.S. Treasury bills. The Partnership pays brokerage fees to Morgan Stanley DW.
- 8 -
MORGAN STANLEY SPECTRUM STRATEGIC L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
-----------------------------------------
3. Financial Instruments
---------------------
The Partnership trades futures contracts, options on futures contracts, and
forward contracts on physical commodities and other commodity interests,
including, but not limited to, foreign currencies, financial instruments,
metals, energy, and agricultural products. Futures and forwards represent
contracts for delayed delivery of an instrument at a specified date and price.
Risk arises from changes in the value of these contracts and the potential
inability of counterparties to perform under the terms of the contracts. There
are numerous factors which may significantly influence the market value of these
contracts, including interest rate volatility.
The market value of exchange-traded contracts is based on the settlement price
quoted by the exchange on the day with respect to which market value is being
determined. If an exchange-traded contract could not have been liquidated on
such day due to the operation of daily limits or other rules of the exchange,
the settlement price shall be the settlement price on the first subsequent day
on which the contract could be liquidated. The market value of
off-exchange-traded contracts is based on the fair market value quoted by the
counterparty.
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MORGAN STANLEY SPECTRUM STRATEGIC L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
-----------------------------------------
The Partnership's contracts are accounted for on a trade-date basis and marked
to market on a daily basis. The Partnership accounts for its derivative
investments in accordance with the provisions of Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS No. 133"). SFAS No. 133 defines a derivative as a financial
instrument or other contract that has all three of the following
characteristics:
1) One or more underlying notional amounts or payment provisions;
2) Requires no initial net investment or a smaller initial net
investment than would be required relative to changes in market
factors;
3) Terms require or permit net settlement.
Generally, derivatives include futures, forward, swaps or options contracts, and
other financial instruments with similar characteristics such as caps, floors,
and collars.
- 10 -
MORGAN STANLEY SPECTRUM STRATEGIC L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
-----------------------------------------
The net unrealized gains on open contracts, reported as a component of "Equity
in futures interests trading accounts" on the Statements of Financial Condition,
and their longest contract maturities were as follows:
Net Unrealized Gains
--------------------
on Open Contracts Longest Maturities
----------------- ------------------
Exchange- Off-Exchange- Exchange- Off-Exchange-
Date Traded Traded Total Traded Traded
- ---- ---------- ------------- ----- --------- -------------
$ $ $
Sep. 30, 2004 5,809,440 333,703 6,143,143 Jul. 2005 Dec. 2004
Dec. 31, 2003 6,905,992 1,015,793 7,921,785 Jul. 2005 Mar. 2004
The Partnership has credit risk associated with counterparty non-performance.
The credit risk associated with the instruments in which the Partnership trades
is limited to the amounts reflected in the Partnership's Statements of Financial
Condition.
The Partnership also has credit risk because Morgan Stanley DW, MS & Co., and
MSIL act as the futures commission merchants or the counterparties, with respect
to most of the Partnership's assets.
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MORGAN STANLEY SPECTRUM STRATEGIC L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
-----------------------------------------
Exchange-traded futures, forward, and futures-styled options contracts are
marked to market on a daily basis, with variations in value settled on a daily
basis. Morgan Stanley DW, MS & Co., and MSIL, each as a futures commission
merchant for the Partnership's exchange-traded futures, forward, and
futures-styled options contracts, are required, pursuant to regulations of the
Commodity Futures Trading Commission ("CFTC"), to segregate from their own
assets, and for the sole benefit of their commodity customers, all funds held by
them with respect to exchange-traded futures, forward, and futures-styled
options contracts, including an amount equal to the net unrealized gains
(losses) on all open futures, forward, and futures-styled options contracts,
which funds, in the aggregate, totaled $169,225,651 and $116,752,753 at
September 30, 2004 and December 31, 2003, respectively. With respect to the
Partnership's off-exchange-traded forward currency contracts, there are no daily
exchange-required settlements of variation in value nor is there any requirement
that an amount equal to the net unrealized gains (losses) on open forward
contracts be segregated. However, the Partnership is required to meet margin
requirements equal to the net unrealized loss on open contracts in the
Partnership accounts with the counterparty, which is accomplished by daily
maintenance of the cash balance in a custody account held at Morgan Stanley DW
for the benefit of MS & Co. With respect to those off-exchange-traded forward
currency contracts, the Partnership is at risk to the ability of MS & Co., the
sole counterparty on all such contracts, to perform. The Partnership has a
netting agreement with MS & Co. This agreement, which seeks to reduce both the
Partnership's and MS & Co.'s exposure on off-exchange-traded forward currency
contracts, should materially decrease the Partnership's credit risk in the event
of MS & Co.'s bankruptcy or insolvency.
- 12 -
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- ------ --------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
Liquidity. The Partnership deposits its assets with Morgan Stanley DW as
non-clearing broker, and MS & Co. and MSIL as clearing brokers in separate
futures, forwards, and options trading accounts established for each Trading
Advisor, which assets are used as margin to engage in trading and may be used as
margin solely for the Partnership's trading. The assets are held in either
non-interest bearing bank accounts or in securities and instruments permitted by
the CFTC for investment of customer segregated or secured funds. Since the
Partnership's sole purpose is to trade in futures, forwards, and options, it is
expected that the Partnership will continue to own such liquid assets for margin
purposes.
The Partnership's investment in futures, forwards, and options may, from time to
time, be illiquid. Most U.S. futures exchanges limit fluctuations in prices
during a single day by regulations referred to as "daily price fluctuations
limits" or "daily limits". Trades may not be executed at prices beyond the daily
limit. If the price for a particular futures or options contract has increased
or decreased by an amount equal to the daily limit, positions in that futures or
options contract can neither be taken nor liquidated unless traders are willing
to effect trades at or within the limit. Futures prices have occasionally moved
the daily limit for several consecutive days with little or no trading. These
market conditions could prevent the Partnership from promptly liquidating its
futures or options contracts and result in restrictions on redemptions.
- 13 -
There is no limitation on daily price moves in trading forward contracts on
foreign currencies. The markets for some world currencies have low trading
volume and are illiquid, which may prevent the Partnership from trading in
potentially profitable markets or prevent the Partnership from promptly
liquidating unfavorable positions in such markets, subjecting it to substantial
losses. Either of these market conditions could result in restrictions on
redemptions. For the periods covered by this report, illiquidity has not
materially affected the Partnership's assets.
There are no known material trends, demands, commitments, events or
uncertainties at the present time that are reasonably likely to result in, the
Partnership's liquidity increasing or decreasing in any material way.
Capital Resources. The Partnership does not have, nor expects to have, any
capital assets. Redemptions, exchanges, and sales of units of limited
partnership interest ("Unit(s)") in the future will affect the amount of funds
available for investment in futures, forwards, and options in subsequent
periods. It is not possible to estimate the amount, and therefore the impact, of
future redemptions of Units.
There are no known material trends, favorable or unfavorable, that would affect,
nor any expected material changes to, the Partnership's capital resource
arrangements at the present time.
Off-Balance Sheet Arrangements and Contractual Obligations. The Partnership does
not have any off-balance sheet arrangements, nor does it have contractual
obligations or commercial commitments to make future payments that would affect
its liquidity or capital resources.
- 14 -
Results of Operations
- ---------------------
General. The Partnership's results depend on the Trading Advisors and the
ability of the Trading Advisors' trading program to take advantage of price
movements in the futures, forwards, and options markets. The following presents
a summary of the Partnership's operations for the three and nine month periods
ended September 30, 2004 and 2003, and a general discussion of its trading
activities during each period. It is important to note, however, that the
Trading Advisors trade in various markets at different times and that prior
activity in a particular market does not mean that such market will be actively
traded by the Trading Advisors or will be profitable in the future.
Consequently, the results of operations of the Partnership are difficult to
discuss other than in the context of the Trading Advisors' trading activities on
behalf of the Partnership during the period in question. Past performance is no
guarantee of future results.
The Partnership's results of operations set forth in the financial statements on
pages 2 through 12 of this report were prepared in accordance with accounting
principles generally accepted in the United States of America, which require the
use of certain accounting policies that affect the amounts reported in these
financial statements, including the following: The contracts the Partnership
trades are accounted for on a trade-date basis and marked to market on a daily
basis. The difference between their cost and market value is recorded on the
Statements of Operations as "Net change in unrealized trading profit (loss)" for
open (unrealized) contracts, and recorded as "Realized trading profit (loss)"
when open positions are closed out. The sum of these amounts, along with the
"Proceeds from Litigation Settlement", constitutes the Partnership's trading
results. The market value of a futures contract is the settlement price on the
exchange on which that futures contract is traded on a particular day. The value
of foreign currency forward contracts is based on the spot rate as of the close
of business, New York City time, on a given day. Interest income revenue, as
well as management fees, incentive fees, and brokerage fees expenses of the
Partnership are recorded on an accrual basis.
- 15 -
Demeter believes that, based on the nature of the operations of the Partnership,
no assumptions relating to the application of critical accounting policies other
than those presently used could reasonably affect reported amounts.
For the Three and Nine Months Ended September 30, 2004
- ------------------------------------------------------
The Partnership recorded revenues including interest income totaling $773,705
and expenses totaling $3,124,222, resulting in a net loss of $2,350,517 for the
three months ended September 30, 2004. The Partnership's net asset value per
Unit decreased from $14.61 at June 30, 2004 to $14.38 at September 30, 2004.
The most significant trading losses of approximately 1.7% were incurred in the
global stock index markets, largely during July. As global equity prices
reversed lower in early July due to the release of disappointing U.S. employment
data, surging energy prices, and new warnings concerning potential terrorist
attacks, long futures positions in U.S., European, and Japanese stock index
futures returned negative performance. Additional losses of approximately 1.3%
were recorded in the currency markets, during July and August, from long
positions in the euro and Swiss franc both versus the U.S. dollar. During July,
long euro and Swiss franc positions incurred losses as the U.S. dollar reversed
higher in response to upbeat market sentiment and an increase in U.S. consumer
confidence data. During August, positions in the euro relative to the U.S.
dollar were also unprofitable as short-term volatility was caused by conflicting
economic data and surging energy prices. Smaller losses of approximately 0.3%
were recorded in the metals markets during July and August from long futures
positions in base and precious metals. A slowdown in demand from China
negatively affected prices for industrial metals, while precious metals prices
fell amid a rebound in the value of the U.S. dollar. A portion of the
Partnership's overall losses for the quarter was offset by gains of
- 16 -
approximately 1.6% achieved in the global interest rate markets, primarily
during August and September, from long positions in Japanese and European
interest rate futures. During August, long positions in European interest rate
futures profited as prices trended higher in response to a surge in oil prices,
a drop in equity prices, and a conflicted economic picture caused by a variety
of U.S. economic reports. During September, long positions in Japanese interest
rate futures benefited from a rise in prices due to geopolitical concerns and
market skepticism concerning the Japanese economic recovery. Additional gains of
approximately 1.5% were recorded in the energy markets, primarily during July
and September, from long futures positions in crude oil and its related products
as oil prices trended higher reaching historical highs amid heavy market demand
and concerns for supply. Gains of approximately 0.3% were recorded in the
agricultural markets, primarily during September, from long futures positions in
sugar as prices for this commodity increased in response to speculative and
technically-based buying.
The Partnership recorded revenues including interest income totaling $11,104,086
and expenses totaling $12,084,314, resulting in a net loss of $980,228 for the
nine months ended September 30, 2004. The Partnership's net asset value per Unit
increased from $14.31 at December 31, 2003 to $14.38 at September 30, 2004. The
net asset value per Unit increased despite the Partnership's net loss for the
period since the net loss per Unit amount, incurred in the later months of the
nine month period, was not in excess of the net income per Unit amount incurred
in the earlier months of the nine month period because the later losses were
spread over a larger number of Units due to subscriptions increasing the
Partnership's total number of Units each month.
- 17 -
The most significant trading gains of approximately 8.6% were achieved in the
agricultural markets from long futures positions in soybeans and its related
products, corn, and sugar. During the first quarter, soybean and corn prices
finished higher, especially during February, due to increased exports abroad and
greater demand from Asia. Long futures positions in sugar also benefited as
prices rallied during April amid diminished market supply and inflation
concerns. During June, sugar prices climbed further amid increased demand.
Additional gains of approximately 3.6% were recorded in the metals markets,
primarily during the first quarter, from long futures positions in base metals
as prices trended higher due to a declining U.S. dollar, and an increase in
demand from Asia and global central banks. During September, long futures
positions in base metals benefited as prices moved higher in response to
continued demand from China and reports of lower-than-expected inventories.
Gains of approximately 0.6% were established in the global interest rate markets
during the first and third quarters from long positions in European interest
rate futures. During the first quarter, long positions profited as global bond
prices rallied after the European Central Bank reported no need to raise
interest rates due to a lack of inflation. Prices also trended higher during
March due to uncertainty in the global equity markets, disappointing U.S.
economic data and "safe haven" buying following the terrorist attack in Madrid.
During the third quarter, long European interest rate futures positions were
profitable as prices trended higher in response to a surge in oil prices, a drop
in equity prices and a conflicted economic picture caused by a variety of
- 18 -
economic reports. Smaller gains of approximately 0.3% resulted in the energy
markets, primarily during the third quarter, from long futures positions in
crude oil and its related products as prices trended higher reaching historical
highs amid heavy market demand and concerns for supply. A portion of the
Partnership's gains for the first nine months of the year was offset by losses
of approximately 2.4% incurred in the currency markets, primarily during the
third and first quarters of the year. During the third quarter, long positions
in the euro and Swiss franc both versus the U.S. dollar generated negative
performance as the U.S. dollar reversed higher in response to upbeat market
sentiment and an increase in U.S. consumer confidence data. During August,
positions in the euro relative to the U.S. dollar experienced losses as
short-term volatility was caused by conflicting economic data and surging energy
prices. During the first quarter, long positions in the Japanese yen versus the
U.S. dollar resulted in losses after the Bank of Japan intervened in the
currency markets in order to stem the yen's rise. Short positions in the
Australian dollar versus the U.S. dollar also lost during February as the U.S.
dollar's value declined amid heightened dollar-selling, which was prompted by
huge U.S. trade and budget deficits, fears of terror attacks, and interest rate
differentials between U.S. Treasury securities and relatively high-yielding
Australian bonds. Additional losses of approximately 2.2% were incurred in the
global stock indices, primarily during the third and first quarters of the year.
- 19 -
During the third quarter, long futures positions in U.S., European, and Japanese
stock index futures experienced losses as equity prices reversed lower due to
the release of disappointing U.S. employment data, surging energy prices, and
new warnings concerning potential terrorist attacks. During the first quarter,
long European and Japanese equity index futures positions were unprofitable as
equity prices, dropped during February and early March amid weakness in the U.S.
technology sector and growing geopolitical uncertainty due to the terrorist
attacks in Spain.
For the Three and Nine Months Ended September 30, 2003
- ------------------------------------------------------
The Partnership recorded revenues including interest income totaling $7,306,514
and expenses totaling $2,334,115, resulting in net income of $4,972,399 for the
three months ended September 30, 2003. The Partnership's net asset value per
Unit increased from $12.36 at June 30, 2003 to $13.03 at September 30, 2003.
The most significant trading gains of approximately 2.6% were recorded in the
currency markets from long positions in the euro versus the U.S. dollar during
September as the dollar's value trended lower throughout the month after the
release of several weak U.S. economic reports prompted fears for an
unsustainable U.S. economic recovery. Additional gains were provided from short
positions in the euro versus the Japanese yen during August as the value of the
yen strengthened after the Bank of Japan reiterated its commitment to its
- 20 -
monetary policy. In the agricultural markets, gains of approximately 2.0% were
supplied by long cotton futures positions during September as prices rallied
amid technically-based buying and unfavorable U.S. weather conditions that
interrupted supply shipments. Other gains were produced from long positions in
cocoa futures during August as prices rallied amid short-covering, tight U.S.
cocoa reserves, and dry weather in the Ivory Coast, the world's top cocoa
producer. In the metals markets, gains of approximately 1.8% resulted from long
positions in nickel and copper futures during July and September as base metal
prices trended higher amid technically-based buying, increased demand from China
and improved U.S. manufacturing data. Additional gains of approximately 1.4% in
the global stock index markets stemmed from long positions in Japanese stock
index futures as Japanese equity prices increased during August and September
amid robust Japanese economic data and increased foreign investment. Long
positions in U.S. and European stock index futures also returned gains during
July and early September as prices were buoyed by a rise in investor sentiment.
Smaller gains of approximately 0.8% were recorded in the energy markets from
long positions in unleaded gas and crude oil futures during August as prices
increased amid an increase in demand spurred by signs of a global economic
- 21 -
recovery. During September, short positions in crude oil futures yielded gains
as prices trended lower early in the month despite attempts by OPEC to stabilize
oil prices through possible output reductions. A portion of the Partnership's
overall gains for the quarter was offset by losses of approximately 0.9% in the
global interest rate markets from long positions in U.S. and European interest
rate futures as prices declined during July amid rising interest rates and a
rally in global equity prices. During September, short positions in U.S. and
European interest rate futures incurred losses as prices reversed higher after
fears of an unsustainable global economic recovery surfaced and triggered
investor demand for fixed income investments.
The Partnership recorded revenues including interest income totaling $17,911,143
and expenses totaling $7,715,338, resulting in net income of $10,195,805 for the
nine months ended September 30, 2003. The Partnership's net asset value per Unit
increased from $11.54 at December 31, 2002 to $13.03 at September 30, 2003.
- 22 -
The most significant trading gains of approximately 9.0% were recorded in the
currency markets, primarily during May, from long positions in the euro versus
the U.S. dollar as the value of the euro strengthened to an all-time high amid
uncertainty regarding the Bush Administration's economic policy, renewed fears
of potential terrorist attacks against American interest, and investor
preference for non-U.S. dollar assets. Additional gains were recorded from long
positions in the Australian dollar versus the U.S. dollar as its value
strengthened during January, April, and May in response to continued weakness in
the U.S. dollar and higher interest rates in Australia relative to those in the
U.S. Gains of approximately 3.9% in the agricultural markets resulted primarily
from long cotton futures positions during September as prices rallied amid
technically-based buying and unfavorable U.S. weather conditions that
interrupted supply shipments. During January, long positions in sugar futures
yielded gains as prices rose amid speculative buying ahead of the Brazilian
harvest. Gains were also provided from long positions in cocoa futures during
August as prices rallied amid short-covering, tight U.S. cocoa reserves, and dry
weather in the Ivory Coast, the world's top cocoa producer. Further gains in the
- 23 -
agricultural sector stemmed from long futures positions in rough rice during
April as prices rose in response to the war in Iraq and the potential for
increased demand from Iraq after the war. In the global stock index markets,
gains of approximately 3.8% were recorded during May and June from long
positions in U.S. and European stock index futures as prices moved higher amid
increased optimism regarding the U.S. economic recovery and a rise in investor
sentiment. Long positions in Japanese stock index futures also returned gains as
Japanese equity markets tracked gains in global stock indices during September.
Further gains of approximately 1.6% in the metals markets stemmed from long
positions in copper futures during January as prices climbed higher following
the release of positive U.S. manufacturing data and continued supply and demand
concerns. Long futures positions in nickel and copper provided further gains in
this sector as prices trended higher during July amid renewed optimism
concerning a U.S. economic recovery and hopes for increased industrial
production. Additional gains of approximately 1.5% in the global interest rate
markets were recorded during February and May from long positions in European
- 24 -
interest rate futures as prices trended higher amid lingering doubts concerning
a global economic recovery. Short positions in Japanese interest rate futures
during August also profited as prices trended lower amid an improved economic
outlook for Japan and a sell-off in Japanese fixed income markets after
investors repositioned capital into Japanese equities.
- 25 -
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- ------ ----------------------------------------------------------
Introduction
- ------------
The Partnership is a commodity pool engaged primarily in the speculative trading
of futures, forwards, and options. The market-sensitive instruments held by the
Partnership are acquired for speculative trading purposes only and, as a result,
all or substantially all of the Partnership's assets are at risk of trading
loss. Unlike an operating company, the risk of market-sensitive instruments is
inherent to the primary business activity of the Partnership.
The futures, forwards, and options traded by the Partnership involve varying
degrees of related market risk. Market risk is often dependent upon changes in
the level or volatility of interest rates, exchange rates, and prices of
financial instruments and commodities, factors that result in frequent changes
in the fair value of the Partnership's open positions, and consequently in its
earnings, whether realized or unrealized, and cash flow. Gains and losses on
open positions of exchange-traded futures, forwards, and options are settled
daily through variation margin. Gains and losses on off-exchange-traded forward
currency contracts are settled upon termination of the contract, however, the
Partnership is required to meet margin requirements equal to the net unrealized
loss on open contracts in the Partnership accounts with the counterparty, which
is accomplished by daily maintenance of the cash balance in a custody account
held at Morgan Stanley DW for the benefit of MS & Co.
- 26 -
The Partnership's total market risk may increase or decrease as it is influenced
by a wide variety of factors, including, but not limited to, the diversification
among the Partnership's open positions, the volatility present within the
markets, and the liquidity of the markets.
The face value of the market sector instruments held by the Partnership is
typically many times the applicable margin requirements. Margin requirements
generally range between 2% and 15% of contract face value. Additionally, the use
of leverage causes the face value of the market sector instruments held by the
Partnership to typically be many times the total capitalization of the
Partnership.
The Partnership's past performance is no guarantee of its future results. Any
attempt to numerically quantify the Partnership's market risk is limited by the
uncertainty of its speculative trading. The Partnership's speculative trading
and use of leverage may cause future losses and volatility (i.e., "risk of
ruin") that far exceed the Partnership's experience to date under the
"Partnership's Value at Risk in Different Market Sectors" section and
significantly exceed the Value at Risk ("VaR") tables disclosed.
Limited partners will not be liable for losses exceeding the current net asset
value of their investment.
- 27 -
Quantifying the Partnership's Trading Value at Risk
- ---------------------------------------------------
The following quantitative disclosures regarding the Partnership's market risk
exposures contain "forward-looking statements" within the meaning of the safe
harbor from civil liability provided for such statements by the Private
Securities Litigation Reform Act of 1995 (set forth in Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934).
All quantitative disclosures in this section are deemed to be forward-looking
statements for purposes of the safe harbor, except for statements of historical
fact.
The Partnership accounts for open positions on the basis of mark to market
accounting principles. Any loss in the market value of the Partnership's open
positions is directly reflected in the Partnership's earnings and cash flow.
The Partnership's risk exposure in the market sectors traded by the Trading
Advisors is estimated below in terms of VaR. The Partnership estimates VaR using
a model based upon historical simulation (with a confidence level of 99%) which
involves constructing a distribution of hypothetical daily changes in the value
of a trading portfolio. The VaR model takes into account linear exposures to
risk including equity and commodity prices, interest rates, foreign exchange
rates, and correlation among these variables. The hypothetical changes in
portfolio value are based on daily percentage changes observed in key market
indices or other market factors ("market risk factors") to which the portfolio
- 28 -
is sensitive. The one-day 99% confidence level of the Partnership's VaR
corresponds to the negative change in portfolio value that, based on observed
market risk factors, would have been exceeded once in 100 trading days, or one
day in 100. VaR typically does not represent the worst case outcome. Demeter
uses approximately four years of daily market data (1,000 observations) and
revalues its portfolio (using delta-gamma approximations) for each of the
historical market moves that occurred over this time period. This generates a
probability distribution of daily "simulated profit and loss" outcomes. The VaR
is the appropriate percentile of this distribution. For example, the 99% one-day
VaR would represent the 10th worst outcome from Demeter's simulated profit and
loss series.
The Partnership's VaR computations are based on the risk representation of the
underlying benchmark for each instrument or contract and do not distinguish
between exchange and non-exchange dealer-based instruments. They are also not
based on exchange and/or dealer-based maintenance margin requirements.
- 29 -
VaR models, including the Partnership's, are continually evolving as trading
portfolios become more diverse and modeling techniques and systems capabilities
improve. Please note that the VaR model is used to numerically quantify market
risk for historic reporting purposes only and is not utilized by either Demeter
or the Trading Advisors in their daily risk management activities. Please
further note that VaR as described above may not be comparable to similarly
titled measures used by other entities.
The Partnership's Value at Risk in Different Market Sectors
- -----------------------------------------------------------
The following table indicates the VaR associated with the Partnership's open
positions as a percentage of total net assets by primary market risk category at
September 30, 2004 and 2003. At September 30, 2004 and 2003, the Partnership's
total capitalization was approximately $172 million and $99 million,
respectively.
Primary Market September 30, 2004 September 30, 2003
Risk Category Value at Risk Value at Risk
- ------------- ------------- -------------
Interest Rate (1.40)% (0.09)%
Currency (0.68) (0.76)
Equity - (0.22)
Commodity (1.31) (1.04)
Aggregate Value at Risk (2.37)% (1.36)%
- 30 -
The VaR for a market category represents the one-day downside risk for the
aggregate exposures associated with this market category. The Aggregate Value at
Risk listed above represents the VaR of the Partnership's open positions across
all the market categories, and is less than the sum of the VaRs for all such
market categories due to the diversification benefit across asset classes.
Because the business of the Partnership is the speculative trading of futures,
forwards, and options, the composition of its trading portfolio can change
significantly over any given time period, or even within a single trading day,
which could positively or negatively materially impact market risk as measured
by VaR.
The table below supplements the quarter-end VaR set forth above by presenting
the Partnership's high, low, and average VaR, as a percentage of total net
assets for the four quarter-end reporting periods from October 1, 2003 through
September 30, 2004.
- 31 -
Primary Market Risk Category High Low Average
- ---------------------------- ---- --- -------
Interest Rate (1.73)% (0.21)% (0.90)%
Currency (0.93) (0.08) (0.45)
Equity (1.69) - (0.83)
Commodity (1.67) (0.52) (1.13)
Aggregate Value at Risk (2.61)% (1.44)% (2.09)%
Limitations on Value at Risk as an Assessment of Market Risk
- ------------------------------------------------------------
VaR models permit estimation of a portfolio's aggregate market risk exposure,
incorporating a range of varied market risks; reflect risk reduction due to
portfolio diversification or hedging activities; and can cover a wide range of
portfolio assets. However, VaR risk measures should be viewed in light of the
methodology's limitations, which include, but may not be limited to the
following:
- 32 -
o past changes in market risk factors will not always result in accurate
predictions of the distributions and correlations of future market movements;
o changes in portfolio value caused by market movements may differ from
those of the VaR model;
o VaR results reflect past market fluctuations applied to current trading
positions while future risk depends on future positions;
o VaR using a one-day time horizon does not fully capture the market risk of
positions that cannot be liquidated or hedged within one day; and
o the historical market risk factor data used for VaR estimation may provide
only limited insight into losses that could be incurred under certain unusual
market movements.
In addition, the VaR tables above, as well as the past performance of the
Partnership, give no indication of the Partnership's potential "risk of ruin".
- 33 -
The VaR tables provided present the results of the Partnership's VaR for each of
the Partnership's market risk exposures and on an aggregate basis at September
30, 2004 and 2003, and for the four quarter-end reporting periods from October
1, 2003 through September 30, 2004. VaR is not necessarily representative of the
Partnership's historic risk, nor should it be used to predict the Partnership's
future financial performance or its ability to manage or monitor risk. There can
be no assurance that the Partnership's actual losses on a particular day will
not exceed the VaR amounts indicated above or that such losses will not occur
more than once in 100 trading days.
Non-Trading Risk
- ----------------
The Partnership has non-trading market risk on its foreign cash balances. These
balances and any market risk they may represent are immaterial.
The Partnership also maintains a substantial portion (approximately 91% as of
September 30, 2004) of its available assets in cash at Morgan Stanley DW. A
decline in short-term interest rates would result in a decline in the
Partnership's cash management income. This cash flow risk is not considered to
be material.
Materiality, as used throughout this section, is based on an assessment of
reasonably possible market movements and any associated potential losses, taking
into account the leverage, optionality, and multiplier features of the
Partnership's market-sensitive instruments, in relation to the Partnership's net
assets.
- 34 -
Qualitative Disclosures Regarding Primary Trading Risk Exposures
- ----------------------------------------------------------------
The following qualitative disclosures regarding the Partnership's market risk
exposures -- except for (A) those disclosures that are statements of historical
fact and (B) the descriptions of how the Partnership manages its primary market
risk exposures -- constitute forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Securities Exchange
Act. The Partnership's primary market risk exposures, as well as the strategies
used and to be used by Demeter and the Trading Advisors for managing such
exposures, are subject to numerous uncertainties, contingencies and risks, any
one of which could cause the actual results of the Partnership's risk controls
to differ materially from the objectives of such strategies. Government
interventions, defaults and expro-priations, illiquid markets, the emergence of
dominant fundamental factors, political upheavals, changes in historical price
relationships, an influx of new market participants, increased regulation, and
many other factors could result in material losses, as well as in material
changes to the risk exposures and the risk management strategies of the
Partnership. Investors must be prepared to lose all or substantially all of
their investment in the Partnership.
The following were the primary trading risk exposures of the Partnership at
September 30, 2004 by market sector. It may be anticipated, however, that these
market exposures will vary materially over time.
Interest Rate. The primary market exposure of the Partnership at September 30,
2004 was to the global interest rate sector. Exposure was primarily spread
across the U.S., Japanese, European, and Australian interest rate sector.
Interest rate movements directly affect the price of the sovereign bond futures
positions held by the Partnership and indirectly affect the value of its stock
index and currency positions. Interest rate movements in one country, as well as
relative interest rate movements between countries, materially impact the
Partnership's profitability. The Partnership's interest rate exposure is
generally to interest rate fluctuations in the U.S. and the other G-7 countries.
The G-7 countries consist of France, the U.S., Britain, Germany, Japan, Italy,
and Canada. Demeter anticipates that the G-7 countries and Australian interest
rates will remain the primary interest rate exposure of the Partnership for the
foreseeable future. The speculative futures positions held by the Partnership
may range from short to long-term instruments. Consequently, changes in short,
medium or long-term interest rates may have an effect on the Partnership.
- 35 -
Currency. The Partnership's currency market exposure at September 30, 2004 was
to exchange rate fluctuations, primarily fluctuations which disrupt the
historical pricing relationships between different currencies and currency
pairs. Interest rate changes, as well as political and general economic
conditions influence these fluctuations. The Partnership trades a number of
currencies, including cross-rates - i.e., position between two currencies other
than the U.S. dollar. At September 30, 2004, the Partnership's major exposure
were to the euro and Japanese yen currency crosses, as well as to outright U.S.
dollar positions. Outright positions consists of the U.S. dollar vs. other
currencies. These other currencies include major and minor currencies. Demeter
does not anticipate that the risk associated with of the Partnership's currency
trades will change significantly in the future.
Commodity.
- ----------
Energy. The second largest market exposure of the Partnership at September
30, 2004, was to the energy sector. The Partnership's energy exposure was
shared primarily by futures contracts in crude oil and its related
products, and natural gas. Price movements in these markets result from
geopolitical developments, particularly in the Middle East, as well as
weather patterns and other economic fundamentals. Significant profits and
losses, which have been experienced in the past, are expected to continue
to be experienced in the future. Natural gas has exhibited volatility in
prices resulting from weather patterns and supply and demand factors and
will likely continue in this choppy pattern.
- 36 -
Metals. The Partnership's metals exposure at September 30, 2004 was to
fluctuations in the price of precious metals, such as gold and silver, and
base metals, such as aluminum, copper, zinc, and lead. Economic forces,
supply and demand inequalities, geopolitical factors and market
expectations influence price movements in these markets. The Trading
Advisors utilize the trading system(s) to take positions when market
opportunities develop, and Demeter anticipates that the Partnership will
continue to do so.
Soft Commodities and Agriculturals. At September 30, 2004, the Partnership
had exposure to the markets that comprise these sectors. Most of the
exposure was to sugar, cotton, soybeans, and corn. Supply and demand
inequalities, severe weather disruptions, and market expectations affect
price movements in these markets.
Qualitative Disclosures Regarding Non-Trading Risk Exposure
- -----------------------------------------------------------
The following was the only non-trading risk exposure of the Partnership at
September 30, 2004:
Foreign Currency Balances. The Partnership's primary foreign currency
balances at September 30, 2004 were in British pounds, Japanese yen, and
euros. The Partnership controls the non-trading risk of foreign currency
balances by regularly converting them back into U.S. dollars upon
liquidation of their respective positions.
- 37 -
Qualitative Disclosures Regarding Means of Managing Risk Exposure
- -----------------------------------------------------------------
The Partnership and the Trading Advisors, separately, attempt to manage the risk
of the Partnership's open positions in essentially the same manner in all market
categories traded. Demeter attempts to manage market exposure by diversifying
the Partnership's assets among different Trading Advisors, each of whose
strategies focus on different market sectors and trading approaches, and by
monitoring the performance of the Trading Advisors daily. In addition, the
Trading Advisors establish diversification guidelines, often set in terms of the
maximum margin to be committed to positions in any one market sector or
market-sensitive instrument.
Demeter monitors and controls the risk of the Partnership's non-trading
instrument, cash. Cash is the only Partnership investment directed by Demeter,
rather than the Trading Advisors.
- 38 -
Item 4. CONTROLS AND PROCEDURES
- ------- -----------------------
(a) As of the end of the period covered by this quarterly report, the
President and Chief Financial Officer of Demeter, the general partner
of the Partnership, have evaluated the effectiveness of the
Partnership's disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) of the Exchange Act), and have judged such
controls and procedures to be effective.
(b) There have been no significant changes during the period covered by
this quarterly report in the Partnership's internal controls or in
other factors that could significantly affect these controls subsequent
to the date of their evaluation.
- 39 -
PART II. OTHER INFORMATION
--------------------------
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
- ------ -----------------------------------------
Registration Statement
on Form S-1 Units Registered Effective Date File Number
- ------------------------- ---------------- -------------- -----------
Initial Registration 4,000,000.000 September 15, 1994 33-80146
Additional Registration 6,000,000.000 January 31, 1996 333-00494
Additional Registration 2,500,000.000 April 30, 1996 333-3222
Additional Registration 6,500,000.000 February 28, 2000 333-90487
Additional Registration 6,500,000.000 April 28, 2003 333-104003
Additional Registration 12,000,000.000 April 28, 2004 333-113396
---------------
Total Units Registered 37,500,000.000
---------------
Units sold through 9/30/04 20,042,460.262
---------------
Units unsold through 9/30/04 17,457,539.738
===============
The managing underwriter for the Partnership is Morgan Stanley DW.
Units are continuously sold at monthly closings at a purchase price equal to
100% of the net asset value per Unit as of the close of business on the last day
of each month.
The aggregate price of the Units sold through September 30, 2004 was
$242,089,728.
Since no expenses are chargeable against proceeds, 100% of the proceeds of the
offering have been applied to the working capital of the Partnership for use in
accordance with the "Use of Proceeds" section of the prospectus and the
supplement included as part of the above referenced Registration Statements.
- 40 -
Item 5. OTHER INFORMATION
- ------- -----------------
Management.
- -----------
The following changes have been made to the Board of Directors and Officers of
Demeter:
Mr. Kevin Perry, Chief Financial Officer of Demeter, was confirmed as a
principal of Demeter by the National Futures Association on September 3, 2004.
Mr. William D. Seugling, Director of Demeter, was confirmed as a principal of
Demeter by the National Futures Association on October 11, 2004.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
- ------- --------------------------------
(A) Exhibits
--------
3.01 Form of Amended and Restated Limited Partnership Agreement of the
Partnership, is incorporated by reference to Exhibit A of the
Partnership's Prospectus, dated April 28, 2004, filed with the
Securities and Exchange Commission pursuant to Rule 424(b)(3) under
the Securities Act of 1933, on May 4, 2004.
3.02 Certificate of Limited Partnership, dated April 18, 1994, is
incorporated by reference to Exhibit 3.02 of the Partnership's
Registration Statement on Form S-1 (File No. 33-80146) filed with the
Securities and Exchange Commission on June 10, 1994.
- 41 -
3.04 Certificate of Amendment of Certificate of Limited Partnership of the
Partnership, dated April 6, 1999, (changing its name from Dean Witter
Spectrum Strategic L.P.), is incorporated by reference to Exhibit
3.04 of the Partnership's Registration Statement (File No. 333-3222)
filed with the Securities and Exchange Commission on April 12, 1999.
3.05 Certificate of Amendment of Certificate of Limited Partnership, dated
November 1, 2001 (changing its name from Morgan Stanley Dean Witter
Spectrum Strategic L.P.), is incorporated by reference to Exhibit
3.01 of the Partnership's Form 8-K (File No. 0-26280) filed with the
Securities and Exchange Commission on November 1, 2001.
10.02 Management Agreement, dated as of November 1, 1994, among the
Partnership, Demeter, and Blenheim Investments, Inc. is incorporated
by reference to Exhibit 10.01 of the Partnership's Form 10-K (File
No. 0-26280) for fiscal year ended December 31, 1998 filed with the
Securities and Exchange Commission on June 30, 1999.
10.02(a) Amendment to the Management Agreement, among the Partnership,
Demeter, and Blenheim Investments, Inc. is incorporated by reference
to Exhibit 10.01 of the Partnership's From 8-K (File No. 0-26280),
filed with the Securities and Exchange Commission on April 25, 2001.
10.03 Management Agreement, dated as of June 1, 2000, among the
Partnership, Demeter, and Eclipse Capital Management, Inc. is
incorporated by reference to Exhibit 10.09 of the Partnership's Form
10-Q (File No. 0-26280) for the quarterly period ended September 30,
2000 and filed with the Securities and Exchange Commission on
November 14, 2000.
10.04 Management Agreement, dated as of October 7, 2004, among the
Partnership, Demeter, and FX Concepts (Trading Advisor), Inc. is
filed herewith.
- 42 -
10.11 Form of Subscription and Exchange Agreement and Power of Attorney to
be executed by purchasers of Units is incorporated by reference to
Exhibit B of the Partnership's Prospectus, dated April 28, 2004 as
filed with the Securities and Exchange Commission pursuant to Rule
424(b)(3) under the Securities Act of 1933 on May 4, 2004.
10.13 Amended and Restated Escrow Agreement, dated as of March 10, 2000,
among the Partnership, Morgan Stanley Spectrum Select L.P., Morgan
Stanley Spectrum Technical L.P., Morgan Stanley Spectrum Global
Balanced L.P., Morgan Stanley Spectrum Currency L.P., Morgan Stanley
Spectrum Commodity L.P., Morgan Stanley DW, and The Chase Manhattan
Bank, escrow agent, is incorporated by reference to Exhibit 10.13 of
the Partnership's Registration Statement on Form S-1 (File No.
333-90487) filed with the Securities and Exchange Commission on
November 2, 2001.
10.14 Form of Subscription Agreement Update Form to be executed by
purchasers of Units is incorporated by reference to Exhibit C of the
Partnership's Prospectus, dated April 28, 2004, as filed with the
Securities and Exchange Commission pursuant to Rule 424(b)(3) under
the Securities Act of 1933 on May 4, 2004.
10.15 Amended and Restated Customer Agreement between the Partnership and
Morgan Stanley DW, dated as of October 16, 2000, is incorporated by
reference to Exhibit 10.01 of the Partnership's Form 8-K (File No.
0-26280) filed with the Securities and Exchange Commission on
November 1, 2001.
10.16 Commodity Futures Customer Agreement between MS & Co. and the
Partnership, and acknowledged and agreed to by Morgan Stanley DW,
dated as of June 6, 2000, is incorporated by reference to Exhibit
10.02 of the Partnership's Form 8-K (File No. 0-26280) filed with the
Securities and Exchange Commission on November 1, 2001.
10.17 Customer Agreement between the Partnership and MSIL, dated as of May
1, 2000, is incorporated by reference to Exhibit 10.04 of the
Partnership's Form 8-K (File No. 0-26280) filed with the Securities
and Exchange Commission on November 1, 2001.
- 43 -
10.18 Foreign Exchange and Options Master Agreement between MS & Co. and
the Partnership, dated as of April 30, 2000, is incorporated by
reference to Exhibit 10.05 of the Partnership's Form 8-K (File No.
0-26280) filed with the Securities and Exchange Commission on
November 1, 2001.
10.19 Securities Account Control Agreement among the Partnership, MS & Co.,
and Morgan Stanley DW, dated as of May 1, 2000, is incorporated by
reference to Exhibit 10.03 of the Partnership's Form 8-K (File No.
0-26280) filed with the Securities and Exchange Commission on
November 1, 2001.
10.20 Foreign Exchange and Options Master Agreement between Morgan Stanley
Capital Group Inc. and the Partnership, dated as of September 27,
2004 is filed herewith.
31.01 Certification of President of Demeter Management Corporation, the
general partner of the Partnership, pursuant to rules 13a-15(e) and
15d-15(e), as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
31.02 Certification of Chief Financial Officer of Demeter Management
Corporation, the general partner of the Partnership, pursuant to
rules 13a-15(e) and 15d-15(e), as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
32.01 Certification of President of Demeter Management Corporation, the
general partner of the Partnership, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
32.02 Certification of Chief Financial Officer of Demeter Management
Corporation, the general partner of the Partnership, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
(B) Reports on Form 8-K - None.
- 44 -
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Morgan Stanley Spectrum
Strategic L.P. (Registrant)
By: Demeter Management Corporation
(General Partner)
November 15, 2004 By: /s/ Kevin Perry
---------------------------------------
Kevin Perry
Chief Financial Officer
The General Partner which signed the above is the only party authorized to act
for the Registrant. The Registrant has no principal executive officer, principal
financial officer, controller, or principal accounting officer and has no Board
of Directors.