Attached files
Morgan Stanley
Spectrum Series
Annual Report
December 31, 2014
CERES MANAGED FUTURES LLC
To the Limited Partners of
Morgan Stanley Smith Barney Spectrum Currency and Commodity 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/ Patrick T. Egan
-----------------------------------
By: Patrick T. Egan
President and Director
Ceres Managed Futures LLC
General Partner,
Morgan Stanley Smith Barney
Spectrum Currency and
Commodity 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
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 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, as amended, 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 the 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, 2014. In making this
assessment, Management used the criteria set forth in the Internal
Control-Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on its assessment, Management
concluded that the Partnerships maintained effective internal control over
financial reporting as of December 31, 2014, based on the criteria referred to
above.
/s/ Patrick T. Egan /s/ Steven Ross
--------------------------------------- --------------------------------------
Patrick T. Egan Steven Ross
President and Director Chief Financial Officer
Ceres Managed Futures LLC Ceres Managed Futures LLC
General Partner General Partner
Morgan Stanley Smith Barney Spectrum Morgan Stanley Smith Barney
Currency and Commodity L.P. Spectrum Currency and Commodity L.P.
Morgan Stanley Smith Barney Morgan Stanley Smith Barney
Spectrum Select L.P. Spectrum Select L.P.
Morgan Stanley Smith Barney Morgan Stanley Smith Barney
Spectrum Strategic L.P. Spectrum Strategic L.P.
Morgan Stanley Smith Barney Morgan Stanley Smith Barney
Spectrum Technical L.P. Spectrum Technical L.P.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Limited Partners and the General Partner of Morgan Stanley Smith Barney
Spectrum Currency and Commodity L.P., Morgan Stanley Smith Barney Spectrum
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 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 of Morgan
Stanley Smith Barney Spectrum Select L.P., and Morgan Stanley Smith Barney
Spectrum Technical L.P. as of December 31, 2014 and 2013, and the related
statements of income and expenses and changes in partners' capital of the
Partnerships for each of the three years in the period ended December 31, 2014.
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 Select L.P.,
Morgan Stanley Smith Barney Spectrum Strategic L.P., and Morgan Stanley Smith
Barney Spectrum Technical L.P. as of December 31, 2014 and 2013, and the
results of their operations and changes in their partners' capital for each of
the three years in the period ended December 31, 2014, in conformity with
accounting principles generally accepted in the United States of America.
/s/ Deloitte & Touche LLP
New York, New York
March 25, 2015
Morgan Stanley Smith Barney Spectrum Currency and Commodity L.P.
Statements of Financial Condition
December 31,
---------------------
2014 2013
---------- ----------
$ $
ASSETS
Investment in Cambridge Master Fund.................................... 12,289,754 11,299,138
Investment in KR Master Fund........................................... -- 7,290,317
---------- ----------
Total Investments in Master Funds................................... 12,289,754 18,589,455
---------- ----------
Redemptions receivable from KR Master Fund............................. 1,882,328 --
Interest receivable.................................................... 61 165
---------- ----------
Total Assets........................................................ 14,172,143 18,589,620
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES
Redemptions payable.................................................... 238,966 529,590
Accrued incentive fees................................................. 108,183 --
Accrued ongoing placement agent fee.................................... 22,139 --
Accrued administrative fees............................................ 17,712 --
Accrued management fees................................................ 15,812 20,064
Accrued brokerage fee.................................................. -- 70,894
---------- ----------
Total Liabilities................................................... 402,812 620,548
---------- ----------
PARTNERS' CAPITAL
Limited Partners (1,604,009.847 and 2,394,803.341 Units, respectively). 13,623,087 17,703,845
General Partner (17,219.120 and 35,877.343 Units, respectively)........ 146,244 265,227
---------- ----------
Total Partners' Capital............................................... 13,769,331 17,969,072
---------- ----------
Total Liabilities and Partners' Capital............................... 14,172,143 18,589,620
========== ==========
NET ASSET VALUE PER UNIT............................................... 8.49 7.39
========== ==========
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,
-------------------------------------------
2014 2013 2012
------------- ------------- -------------
$ $ $
INVESTMENT INCOME
Interest income...................................... 2,318 9,149 17,704
------------- ------------- -------------
EXPENSES
Brokerage fees....................................... 459,790 958,464 1,345,522
Incentive fees....................................... 240,978 165,296 --
Management fees...................................... 205,572 346,230 547,886
Ongoing placement agent fee.......................... 68,155 -- --
Administrative fees.................................. 54,524 -- --
------------- ------------- -------------
Total Expenses..................................... 1,029,019 1,469,990 1,893,408
------------- ------------- -------------
NET INVESTMENT LOSS................................... (1,026,701) (1,460,841) (1,875,704)
------------- ------------- -------------
TRADING RESULTS
Trading profit (loss):
Net realized......................................... -- 444,474 (199,068)
Net change in unrealized............................. -- (43,205) 133,331
Net realized loss on investment in KR Master Fund.... (405,824) (551,662) (488,412)
Net realized income (loss) on investment in
Cambridge Master Fund.............................. 2,258,243 1,188,237 (44,139)
Net realized loss on investment in FL Master Fund.... -- -- (2,033,985)
Net change in unrealized appreciation (depreciation)
on investment in KR Master Fund.................... 562,331 (23,816) 52,939
Net change in unrealized appreciation (depreciation)
on investment in Cambridge Master Fund............. 519,476 (39,518) 123,978
Net change in unrealized appreciation on investment
in FL Master Fund.................................. -- -- 514,630
------------- ------------- -------------
Total Trading Results.............................. 2,934,226 974,510 (1,940,726)
------------- ------------- -------------
NET INCOME (LOSS)..................................... 1,907,525 (486,331) (3,816,430)
============= ============= =============
Net Income (Loss) Allocation
Limited Partners...................................... 1,885,964 (479,900) (3,769,861)
General Partner....................................... 21,561 (6,431) (46,569)
Net Income (Loss) Per Unit*
Limited Partners...................................... 1.10 (0.18) (1.06)
General Partner....................................... 1.10 (0.18) (1.06)
Units Units Units
------------- ------------- -------------
WEIGHTED AVERAGE NUMBER OF UNITS
OUTSTANDING......................................... 1,991,023.150 2,774,112.516 3,584,790.785
* 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,
-----------------------
2014 2013
----------- -----------
$ $
ASSETS
Trading Equity:
Unrestricted cash.............................................. 101,238,145 117,701,386
Restricted cash................................................ 13,490,625 26,703,038
----------- -----------
Total cash................................................... 114,728,770 144,404,424
Net unrealized gain on open contracts.......................... 5,792,535 6,652,432
----------- -----------
Total Trading Equity......................................... 120,521,305 151,056,856
Interest receivable............................................. 565 1,354
----------- -----------
Total Assets................................................. 120,521,870 151,058,210
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES
Redemptions payable............................................. 2,079,936 3,447,262
Accrued ongoing placement agent fee............................. 195,005 --
Accrued administrative fees..................................... 195,005 --
Accrued management fees......................................... 169,133 205,988
Payable to MS&Co................................................ -- 127,622
Accrued brokerage fee........................................... -- 750,593
----------- -----------
Total Liabilities............................................ 2,639,079 4,531,465
----------- -----------
PARTNERS' CAPITAL
Limited Partners (3,861,976.161 and 5,462,815.917 Units,
respectively)................................................. 116,569,858 144,651,488
General Partner (43,497.666 and 70,819.769 Units, respectively). 1,312,933 1,875,257
----------- -----------
Total Partners' Capital........................................ 117,882,791 146,526,745
----------- -----------
Total Liabilities and Partners' Capital........................ 120,521,870 151,058,210
=========== ===========
NET ASSET VALUE PER UNIT........................................ 30.18 26.48
=========== ===========
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,
-------------------------------------------
2014 2013 2012
------------- ------------- -------------
$ $ $
INVESTMENT INCOME
Interest income................. 19,055 78,343 153,597
------------- ------------- -------------
EXPENSES
Brokerage fees.................. 4,378,408 10,576,864 15,124,033
Management fees................. 1,984,202 3,176,170 4,610,705
Administrative fees............. 571,137 -- --
Ongoing placement agent fee..... 571,137 -- --
------------- ------------- -------------
Total Expenses................ 7,504,884 13,753,034 19,734,738
------------- ------------- -------------
NET INVESTMENT LOSS.............. (7,485,829) (13,674,691) (19,581,141)
------------- ------------- -------------
TRADING RESULTS
Trading profit (loss):
Net realized.................... 21,564,894 1,840,569 (2,747,878)
Net change in unrealized........ (859,897) 4,101,078 (3,850,545)
------------- ------------- -------------
Total Trading Results......... 20,704,997 5,941,647 (6,598,423)
------------- ------------- -------------
NET INCOME (LOSS)................ 13,219,168 (7,733,044) (26,179,564)
============= ============= =============
Net Income (Loss) Allocation
Limited Partners................. 13,077,451 (7,644,502) (25,885,258)
General Partner.................. 141,717 (88,542) (294,306)
Net Income (Loss) Per Unit*
Limited Partners................. 3.70 (1.28) (3.48)
General Partner.................. 3.70 (1.28) (3.48)
Units Units Units
------------- ------------- -------------
WEIGHTED AVERAGE NUMBER OF UNITS
OUTSTANDING.................... 4,702,032.014 6,392,736.584 8,177,824.370
* 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,
---------------------
2014 2013
---------- ----------
$ $
ASSETS
Investments:
Investment in BHM I, LLC............................................... 28,236,607 46,985,018
Investment in PGR Master Fund.......................................... 5,291,425 3,327,454
Investment in MB Master Fund........................................... 3,502,992 4,183,031
---------- ----------
Total Investments (cost $7,147,767and $7,622,350)................... 37,031,024 54,495,503
Interest receivable.................................................... 182 494
---------- ----------
Total Assets........................................................ 37,031,206 54,495,997
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES
Redemptions payable to Limited Partners................................ 1,091,038 --
Redemptions payable to General Partner................................. 50,000 1,159,681
Accrued ongoing placement agent fee.................................... 61,272 --
Accrued administrative fee............................................. 61,272 --
Accrued incentive fee.................................................. 53,508 --
Accrued management fees................................................ 7,729 124,834
Accrued brokerage fee.................................................. -- 270,566
---------- ----------
Total Liabilities................................................... 1,324,819 1,555,081
---------- ----------
PARTNERS' CAPITAL
Limited Partners (2,592,477.838 and 3,829,652.114 Units, respectively). 35,306,899 52,246,247
General Partner (29,333.202 and 50,919.274 Units, respectively)........ 399,488 694,669
---------- ----------
Total Partners' Capital............................................... 35,706,387 52,940,916
---------- ----------
Total Liabilities and Partners' Capital............................... 37,031,206 54,495,997
========== ==========
NET ASSET VALUE PER UNIT............................................... 13.62 13.64
========== ==========
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,
-------------------------------------------
2014 2013 2012
------------- ------------- -------------
$ $ $
INVESTMENT INCOME
Interest income...................................... 7,178 28,668 57,466
------------- ------------- -------------
EXPENSES
Brokerage fees....................................... 1,724,317 3,855,868 5,825,816
Management fees...................................... 312,606 1,753,124 2,647,299
Administrative fees.................................. 194,376 -- --
Ongoing placement agent fee.......................... 194,376 -- --
Incentive fees....................................... 53,508 -- --
------------- ------------- -------------
Total Expenses..................................... 2,479,183 5,608,992 8,473,115
------------- ------------- -------------
NET INVESTMENT LOSS................................... (2,472,005) (5,580,324) (8,415,649)
------------- ------------- -------------
TRADING RESULTS
Trading profit (loss):
Net realized gain (loss) on investment in BHM I,
LLC................................................ 20,180,635 559,473 (429,295)
Net realized gain (loss) on investment in PGR Master
Fund............................................... (26,049) 5,825 (25,751)
Net realized gain on investment in MB Master
Fund............................................... 11,573 22,738 3,838
Net change in unrealized appreciation (depreciation)
on investment in BHM I, LLC........................ (18,299,332) 981,916 (687,951)
Net change in unrealized appreciation (depreciation)
on investment in PGR Master Fund................... 1,252,383 1,092,727 (1,252,834)
Net change in unrealized appreciation on investment
in MB Master Fund.................................. 57,061 216,643 160,465
------------- ------------- -------------
Total Trading Results.............................. 3,176,271 2,879,322 (2,231,528)
------------- ------------- -------------
NET INCOME (LOSS)..................................... 704,266 (2,701,002) (10,647,177)
============= ============= =============
Net Income (Loss) Allocation
Limited Partners...................................... 677,750 (2,668,922) (10,517,888)
General Partner....................................... 26,516 (32,080) (129,289)
Net Income (Loss) Per Unit*
Limited Partners...................................... (0.02) (0.61) (1.77)
General Partner....................................... (0.02) (0.61) (1.77)
Units Units Units
------------- ------------- -------------
WEIGHTED AVERAGE NUMBER OF UNITS
OUTSTANDING......................................... 3,243,727.489 4,582,116.588 6,273,402.856
* Based on change in net asset value per Unit.
The accompanying notes are an integral part of these financial statements.
Morgan Stanley Smith Barney Spectrum Technical L.P.
Statements of Financial Condition
December 31,
-----------------------
2014 2013
----------- -----------
$ $
ASSETS
Trading Equity:
Investment in Blackwater Master Fund............................. 16,901,955 33,548,272
Unrestricted cash............................................... 87,743,638 91,751,066
Restricted cash................................................. 7,277,235 12,312,414
----------- -----------
Total cash.................................................... 95,020,873 104,063,480
----------- -----------
Net unrealized gain on open contracts........................... 604,870 1,225,590
----------- -----------
Total Trading Equity.......................................... 112,527,698 138,837,342
Interest receivable.............................................. 536 1,241
----------- -----------
Total Assets.................................................. 112,528,234 138,838,583
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES
Redemptions payable to Limited Partners.......................... 2,596,957 3,062,360
Redemptions payable to General Partner........................... 50,005 --
Accrued ongoing placement agent fee.............................. 182,210 --
Accrued administrative fee....................................... 182,210 --
Accrued management fees.......................................... 117,826 142,659
Accrued incentive fees........................................... 50,229 --
Accrued brokerage fee............................................ -- 687,693
----------- -----------
Total Liabilities............................................. 3,179,437 3,892,712
----------- -----------
PARTNERS' CAPITAL
Limited Partners (5,670,382.719 and 8,052,816.352 Units,
respectively).................................................. 108,125,693 133,281,088
General Partner (64,142.656 and 100,585.879 Units, respectively). 1,223,104 1,664,783
----------- -----------
Total Partners' Capital......................................... 109,348,797 134,945,871
----------- -----------
Total Liabilities and Partners' Capital......................... 112,528,234 138,838,583
=========== ===========
NET ASSET VALUE PER UNIT......................................... 19.07 16.55
=========== ===========
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,
--------------------------------------------
2014 2013 2012
------------- ------------- --------------
$ $ $
INVESTMENT INCOME
Interest income.............................. 17,849 69,030 133,904
------------- ------------- --------------
EXPENSES
Brokerage fees............................... 4,133,321 9,353,028 13,307,993
Management fees.............................. 1,431,344 2,127,948 3,384,253
Incentive fees............................... 719,326 -- --
Administrative fees.......................... 534,640 -- --
Ongoing placement agent fee.................. 534,640 -- --
------------- ------------- --------------
Total Expenses............................. 7,353,271 11,480,976 16,692,246
Management fee waived........................ -- -- (83,982)
------------- ------------- --------------
Net Expenses............................... 7,353,271 11,480,976 16,608,264
------------- ------------- --------------
NET INVESTMENT LOSS........................... (7,335,422) (11,411,946) (16,474,360)
------------- ------------- --------------
TRADING RESULTS
Trading profit (loss):
Net realized................................. 22,532,708 7,217,969 (6,219,265)
Net change in unrealized..................... (620,720) 2,267,134 (9,809,697)
Net realized gain (loss) on Investment in
Blackwater Master Fund..................... 668,573 396,051 (4,657,167)
Net change in unrealized appreciation
(depreciation) on Investment in Blackwater
Master Fund................................ (807,350) 63,604 898,526
------------- ------------- --------------
Total Trading Results...................... 21,773,211 9,944,758 (19,787,603)
------------- ------------- --------------
NET INCOME (LOSS)............................. 14,437,789 (1,467,188) (36,261,963)
============= ============= ==============
Net Income (Loss) Allocation
Limited Partners.............................. 14,253,756 (1,451,095) (35,829,461)
General Partner............................... 184,033 (16,093) (432,502)
Net Income (Loss) Per Unit*
Limited Partners.............................. 2.52 (0.16) (2.94)
General Partner............................... 2.52 (0.16) (2.94)
Units Units Units
------------- ------------- --------------
WEIGHTED AVERAGE NUMBER OF UNITS
OUTSTANDING................................. 6,923,660.693 9,350,648.660 12,156,580.269
* 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.
Condensed Schedule of Investments
December 31, 2014
Net unrealized
gain/(loss) on % of
Futures and Forward Contracts Purchased open contracts Partners' Capital
--------------------------------------- -------------- -----------------
$
Commodity..................................... (1,909,532) (1.62)
Equity........................................ 236,709 0.20
Foreign currency.............................. 52,035 0.04
Interest rate................................. 2,928,753 2.48
---------- -----
Total Futures and Forward Contracts Purchased. 1,307,965 1.11
---------- -----
Futures and Forward Contracts Sold
----------------------------------
Commodity..................................... 4,259,593 3.61
Equity........................................ (97,922) (0.08)
Foreign currency.............................. 991,501 0.84
Interest rate................................. 1,345 --(1)
---------- -----
Total Futures and Forward Contracts Sold...... 5,154,517 4.37
---------- -----
Unrealized Currency Loss..................... (669,947) (0.57)
---------- -----
Net fair value................................ 5,792,535 4.91
========== =====
(1)Amount 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, 2013
Net unrealized
gain/(loss) on % of
Futures and Forward Contracts Purchased open contracts Partners' Capital
--------------------------------------- -------------- -----------------
$
Commodity..................................... (1,214,349) (0.82)
Equity........................................ 3,462,235 2.36
Foreign currency.............................. 1,349,914 0.92
Interest rate................................. (574,172) (0.39)
---------- -----
Total Futures and Forward Contracts Purchased. 3,023,628 2.07
---------- -----
Futures and Forward Contracts Sold
----------------------------------
Commodity..................................... 2,107,872 1.44
Equity........................................ 32,409 0.02
Foreign currency.............................. 927,755 0.63
Interest rate................................. 1,250,345 0.85
---------- -----
Total Futures and Forward Contracts Sold...... 4,318,381 2.94
---------- -----
Unrealized Currency Loss..................... (689,577) (0.47)
---------- -----
Net fair value................................ 6,652,432 4.54
========== =====
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, 2014
Net unrealized
gain/(loss) on % of
Futures and Forward Contracts Purchased open contracts Partners' Capital
--------------------------------------- -------------- -----------------
$
Commodity..................................... (605,582) (0.55)
Equity........................................ 539,849 0.49
Foreign currency.............................. (775,708) (0.71)
Interest rate................................. 1,680,723 1.54
---------- -----
Total Futures and Forward Contracts Purchased. 839,282 0.77
---------- -----
Futures and Forward Contracts Sold
----------------------------------
Commodity..................................... 1,735,517 1.58
Equity........................................ (58,649) (0.05)
Foreign currency.............................. 1,565,204 1.43
Interest rate................................. (10,887) (0.01)
---------- -----
Total Futures and Forward Contracts Sold...... 3,231,185 2.95
---------- -----
Unrealized Currency Loss..................... (3,465,597) (3.17)
---------- -----
Net fair value................................ 604,870 0.55
========== =====
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, 2013
Net unrealized
gain/(loss) on % of
Futures and Forward Contracts Purchased open contracts Partners' Capital
--------------------------------------- -------------- -----------------
$
Commodity..................................... (204,694) (0.15)
Equity........................................ 3,109,753 2.31
Foreign currency.............................. 300,680 0.22
Interest rate................................. (400,432) (0.30)
---------- -----
Total Futures and Forward Contracts Purchased. 2,805,307 2.08
---------- -----
Futures and Forward Contracts Sold
----------------------------------
Commodity..................................... 768,610 0.57
Equity........................................ 22,944 0.02
Foreign currency.............................. 497,611 0.37
Interest rate................................. 578,949 0.43
---------- -----
Total Futures and Forward Contracts Sold...... 1,868,114 1.39
---------- -----
Unrealized Currency Loss..................... (3,447,831) (2.56)
---------- -----
Net fair value................................ 1,225,590 0.91
========== =====
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, 2014, 2013, and 2012
Units of
Partnership Limited General
Interest Partners Partner Total
------------- ---------- -------- ----------
$ $ $
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
Net Loss............................. -- (479,900) (6,431) (486,331)
Redemptions.......................... (648,244.994) (4,857,782) -- (4,857,782)
------------- ---------- -------- ----------
Partners' Capital, December 31, 2013. 2,430,680.684 17,703,845 265,227 17,969,072
Net Income........................... -- 1,885,964 21,561 1,907,525
Redemptions.......................... (809,451.717) (5,966,722) (140,544) (6,107,266)
------------- ---------- -------- ----------
Partners' Capital, December 31, 2014. 1,621,228.967 13,623,087 146,244 13,769,331
============= ========== ======== ==========
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, 2014, 2013, and 2012
Units of
Partnership Limited General
Interest Partners Partner Total
-------------- ----------- --------- -----------
$ $ $
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
Net Loss............................. -- (7,644,502) (88,542) (7,733,044)
Redemptions.......................... (1,525,996.806) (41,464,280) (250,012) (41,714,292)
-------------- ----------- --------- -----------
Partners' Capital, December 31, 2013. 5,533,635.686 144,651,488 1,875,257 146,526,745
Net Income........................... -- 13,077,451 141,717 13,219,168
Redemptions.......................... (1,628,161.859) (41,159,081) (704,041) (41,863,122)
-------------- ----------- --------- -----------
Partners' Capital, December 31, 2014. 3,905,473.827 116,569,858 1,312,933 117,882,791
============== =========== ========= ===========
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, 2014, 2013, and 2012
Units of
Partnership Limited General
Interest Partners Partner Total
- -------------- ----------- --------- -----------
$ $ $
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
Net Loss............................. -- (2,668,922) (32,080) (2,701,002)
Redemptions.......................... (1,318,303.688) (18,317,546) (100,008) (18,417,554)
-------------- ----------- --------- -----------
Partners' Capital, December 31, 2013. 3,880,571.388 52,246,247 694,669 52,940,916
Net Income........................... -- 677,750 26,516 704,266
Redemptions.......................... (1,258,760.348) (17,617,098) (321,697) (17,938,795)
-------------- ----------- --------- -----------
Partners' Capital, December 31, 2014. 2,621,811.040 35,306,899 399,488 35,706,387
============== =========== ========= ===========
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, 2014, 2013, and 2012
Units of
Partnership Limited General
Interest Partners Partner Total
- -------------- ----------- --------- -----------
$ $ $
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
Net Loss............................. -- (1,451,095) (16,093) (1,467,188)
Redemptions.......................... (2,190,361.355) (36,119,312) (350,019) (36,469,331)
-------------- ----------- --------- -----------
Partners' Capital, December 31, 2013. 8,153,402.231 133,281,088 1,664,783 134,945,871
Net Income........................... -- 14,253,756 184,033 14,437,789
Redemptions.......................... (2,418,876.856) (39,409,151) (625,712) (40,034,863)
-------------- ----------- --------- -----------
Partners' Capital, December 31, 2014. 5,734,525.375 108,125,693 1,223,104 109,348,797
============== =========== ========= ===========
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 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 wholly-owned indirectly by Morgan
Stanley. Prior to June 28, 2013, Citigroup Inc. was the indirect minority owner
of MSSBH. Morgan Stanley Smith Barney LLC is doing business as Morgan Stanley
Wealth Management ("Morgan Stanley Wealth Management"). This entity, previously
acted as a non-clearing commodity broker for the Partnerships. Morgan Stanley
Wealth Management is a principal subsidiary of MSSBH.
The clearing commodity broker is Morgan Stanley & Co. LLC ("MS&Co."). 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. MS&Co. 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 December 31, 2014, Ceres terminated the management agreement among
Ceres, Rotella Capital Management, Inc. ("Rotella") and Spectrum Technical
pursuant to which Rotella ceased all Futures Interests trading on behalf of
Spectrum Technical.
Effective December 31, 2014, Spectrum Currency fully redeemed its investment
from KR Master Fund L.P. ("KR Master Fund"). In addition, Krom River Investment
Management (Cayman) Limited and Krom River Trading AG (together, and each
separately, "Krom River") no longer act as commodity trading advisors to
Spectrum Currency. Effective on or about January 1, 2015, Spectrum Currency
reallocated the assets allocated to Krom River to the existing commodity
trading advisor in Spectrum Currency.
Effective December 9, 2014, Cambridge Strategy (Asset Management) Limited
("Cambridge"), trading advisor to the Cambridge Master Fund L.P. (the
"Cambridge Master Fund"), in consultation with the General Partner for Spectrum
Currency, agreed to increase the amount of leverage applied to the assets of
the Cambridge Master Fund allocated to Cambridge by the General Partner to 2.0
times the assets of the Cambridge Master Fund allocated to Cambridge by the
General Partner and traded pursuant to Cambridge's Asian Markets Alpha
Programme and the Emerging Markets Alpha Programme.
Effective October 1, 2014, the flat rate brokerage fee, equal to an annual
rate of 3.6% of Spectrum Currency's net assets, was separated into (i) a
general partner administrative fee payable to the General Partner equal to an
annual rate of 1.6% of the Spectrum Currency's net assets, and (ii) an ongoing
placement agent fee payable to Morgan Stanley Wealth Management equal to an
annual rate of 2.0% of the Spectrum Currency's net assets. The October 1, 2014
fee changes, in the aggregate, did not exceed the flat rate brokerage fee and,
accordingly, there was no change to the aggregate fees incurred by Spectrum
Currency.
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
Effective October 1, 2014, the flat rate brokerage fees, equal to an annual
rate of 4.0% of each of Spectrum Select, Spectrum Strategic and Spectrum
Technical's net assets, was separated into (i) a general partner administrative
fee payable to the General Partner equal to an annual rate of 2.0% of the
relevant Partnership's net assets, and (ii) an ongoing placement agent fee
payable to Morgan Stanley Wealth Management equal to an annual rate of 2.0% of
the relevant Partnership's net assets. The October 1, 2014 fee changes, in the
aggregate, did not exceed the flat rate brokerage fees and, accordingly, there
was no change to the aggregate fees incurred by Spectrum Select, Spectrum
Strategic and Spectrum Technical.
Effective the close of business on August 8, 2014, Ceres terminated the
management agreement among Ceres, Northfield Trading L.P. ("Northfield") and
Spectrum Select pursuant to which Northfield ceased all Futures Interests
trading on behalf of Spectrum Select.
Effective June 1, 2014, the management fee payable by Spectrum Technical to
Campbell & Company, Inc. ("Campbell") was reduced from a monthly management fee
rate equal to 1/12th of 2% (a 2% annual rate) per month of net assets allocated
to Campbell on the first day of each month to a monthly management fee rate
equal to 1/12th of 1.5% (a 1.5% annual rate) per month of net assets allocated
to Campbell on a first day of each month.
Effective April 1, 2014, the flat rate brokerage fee for Spectrum Currency
was reduced from 4.60% per annum (paid monthly) to 3.60% per annum (paid
monthly) of Spectrum Currency's net assets.
Effective April 1, 2014, the flat rate brokerage fee for each of Spectrum
Select, Spectrum Strategic and Spectrum Technical was reduced from 6.0% per
annum (paid monthly) to 4.0% per annum (paid monthly) of the relevant
Partnership's net assets.
Effective March 1, 2014, the management fee payable by Spectrum Strategic to
Blenheim Capital Management, L.L.C. ("Blenheim") was reduced to a rate of
1/12th of 2% (a 2% annual rate) of net assets allocated to Blenheim on the
first day of each month.
Effective March 1, 2014, the incentive fee payable by Spectrum Strategic to
Blenheim increased to 20% of the trading profits experienced with respect to
the net assets allocated to Blenheim accruing monthly but payable as of the end
of each calendar quarter.
Effective March 1, 2014, Spectrum Strategic directly pays Morgan Stanley
Smith Barney BHM I, LLC ("BHM I, LLC") for its pro rata portion of incentive,
management and administrative fees.
Effective March 1, 2014, the management fee payable by Spectrum Strategic to
Aventis Asset Management LLC ("Aventis") was reduced to a rate of 1/12th of
1.25% (a 1.25% annual rate) of net assets allocated to Aventis on the first day
of each month.
Effective December 1, 2013, the management fee payable by Spectrum Technical
to Blackwater Capital Management LLC ("Blackwater") was reduced from a monthly
management fee rate equal to 1/12th of 1.25% (a 1.25% annual rate) per month of
net assets allocated to Blackwater on the first day of each month to a monthly
management fee rate equal to 1/12th of 0.75% (a 0.75% annual rate) per month of
net assets allocated to Blackwater on the first day of each month.
Effective December 1, 2013, the management fee payable by Spectrum Select to
Northfield was reduced from a monthly management fee rate equal to 1/12th of 2%
(a 2% annual rate) of net assets allocated to Northfield on the first day of
each month to a monthly management fee rate equal to 1/12th of 1% (a 1% annual
rate) per month of net assets allocated to Northfield on the first day of each
month.
Effective October 1, 2013, the management fee payable by Spectrum Currency
to Krom River was reduced from a monthly management fee rate equal to 1/12th of
2% (a 2% annual rate) per month of net assets allocated to Krom River on the
first day of each month to a monthly management fee rate equal to 1/12th of 1%
(a 1% annual rate) per month of net assets allocated to Krom River on the first
day of each month.
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
Effective October 1, 2013, the General Partner determined that Spectrum
Currency's assets allocated to Cambridge would be allocated 50% to Cambridge's
Asian Markets Alpha Programme, and 50% to Cambridge's Emerging Markets Alpha
Programme.
Effective October 1, 2013, EMC Capital Management, Inc. ("EMC") assigned its
obligations, rights and interest to EMC Capital Advisors, LLC ("EMC Capital
Advisors"). EMC Capital Advisors assumed all of EMC's obligations under the
management agreement, dated as of June 1, 1998, as amended, among Spectrum
Select, the General Partner and EMC.
Effective June 28, 2013, Ceres terminated the management agreement among
Ceres, Sunrise Capital Management, Inc. ("Sunrise Capital") and Spectrum
Select, pursuant to which Sunrise Capital ceased all Futures Interest trading
on behalf of Spectrum Select.
Effective May 31, 2013, Ceres terminated the management agreement among
Ceres, C-View International Limited ("C-View") and Spectrum Currency pursuant
to which C-View ceased all Futures Interest trading on behalf of Spectrum
Currency.
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, 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. pursuant to the 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 reduced the management fee it receives
from Spectrum Technical from a rate of 1/12th of 2% (a 2% annual rate) of
adjusted net assets to 1/12th of 1% (a 1% annual rate) of adjusted net assets.
Effective June 1, 2012, Aspect Capital Limited ("Aspect") reduced the
monthly management fee for Spectrum Technical from 1/12th of 2.0% (a 2.0%
annual rate) to 1/12th of 1.5% (a 1.5% annual rate) of the net assets as of the
first day of each month.
Effective May 22, 2012, Chesapeake, in consultation with the General Partner
for Spectrum Technical 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 then current market environment
and the adverse performance experienced by Chesapeake over the previous 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
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
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 1/6th 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 1/12th 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 as trading advisors to manage the assets of Spectrum Currency through its
investments in FL Master Fund and KR Master Fund, respectively.
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 gain or loss on open
contracts. The resulting net change in unrealized gains and losses is reflected
in the "Net 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 forward 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.)
on 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 inputs 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. The fair
value of an off-exchange-traded contract is based on the fair value quoted by
the counterparty. 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 ("Master
Fund(s)"). U.S. GAAP permits the Partnerships, as a practical expedient, to
estimate the fair value of an investment using the net asset value per share of
the investment (or the equivalent), if the net asset value per share of the
investment (or the equivalent) is calculated in a manner consistent with the
measurement principles of Financial Accounting Standards Board (the "FASB")
Accounting Standards Codification ("ASC") 946 as of the reporting entity's
measurement date. The fair value of each Master Fund is based on the
information provided by the Master Fund which reflects the Partnerships' share
of the fair value of the net assets of the Master Fund (i.e., the practical
expedient is used).
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
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. 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 the Partnership' accounts
during each month at a rate equal to 80% 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. The Partnerships each pay a flat rate
brokerage fee to Morgan Stanley Wealth Management and flat rate administrative
fee to the General Partner. The General Partner pays or reimburses the
Partnerships for all fees and costs charged or incurred by MS&Co., the General
Partner and/or their affiliates or any other entity acting as a commodity
broker for the Partnerships.
Fair Value of Financial Instruments -- The fair value of the Partnerships'
assets and liabilities that qualify as financial instruments under the FASB 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 MS&Co.,
a portion of which is 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 (c) for the Partnerships which trade in options, options purchased at fair
value, if any. Options written at fair value, if any, 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. acting as their commodity broker. Pursuant to the
brokerage agreement with MS&Co., 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 in the Statements of
Financial Condition as allowable under the terms of their master netting
agreement or such similar 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 only the offsetting London Metal Exchange 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 -- Spectrum Currency pays a
general partner administrative fee to General Partner equal to 1/12th of 1.6%
(a 1.6% annual rate) of its net assets, and an ongoing placement agent fee to
Morgan Stanley Wealth Management equal to 1/12th of 2.0% (a 2.0% annual rate)
of its net assets. Spectrum Select, Spectrum Strategic, and Spectrum Technical
each pay a general partner administrative fee to the General Partner equal to
1/12th of 2.0% (a 2.0% annual rate) of their net assets, and an ongoing
placement agent fee to Morgan Stanley Wealth Management equal to 1/12th of 2.0%
(a 2.0% annual rate) of their net assets. Administrative fees currently cover
all brokerage fees, transaction fees and costs, and ordinary administrative
expenses.
Effective October 1, 2014, the flat rate brokerage fees for Spectrum
Currency were reduced from 4.60% per annum (paid monthly) to 3.60% per annum
(paid monthly) of its net assets.
Effective April 1, 2014, the flat rate brokerage fees for Spectrum Select,
Spectrum Strategic and Spectrum Technical were reduced from 6.0% per annum
(paid monthly) to 4.0% per annum (paid monthly) of their net assets.
Redemptions -- Limited partners may redeem some or all of their Units at
100% of the net asset value per Unit. 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.
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,
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
2014 and 2013. 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, the 2011 through
2014 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 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.
Statement of Cash Flows -- The Partnerships are not required to provide a
Statement of Cash Flows.
Investment Company Status
Effective January 1, 2014, the Partnerships adopted Accounting Standards
Update ("ASU") 2013-08, "Financial Services - Investments Companies (Topic
946): Amendments to the Scope, Measurement and Disclosure Requirements". ASU
2013-08 changes the approach to the investment company assessment, requires
non-controlling ownership interests in other investment companies to be
measured at fair value, and requires additional disclosures about the
investment company's status as an investment company. ASU 2013-08 is effective
for interim and annual reporting periods beginning after December 15, 2013. The
adoption of this ASU did not have a material impact on the Partnerships'
financial statements. Based on Management's assessment, the Partnerships have
been deemed to be the investment companies since inception.
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 L.P. ("MB Master Fund") and PGR Master Fund L.P. ("PGR
Master Fund"). Spectrum Strategic's investment in MB Master Fund represents
approximately 9.8% and 7.9%, and investment in PGR Master Fund represents
approximately 14.8% and 6.3%, respectively, of the net asset value of Spectrum
Strategic as of December 31, 2014, and 2013, respectively.
Effective January 1, 2008, Spectrum Strategic invested a portion of its
assets in BHM I, LLC. Spectrum Strategic's investment in BHM I, LLC represents
approximately 79.1% and 88.7% of the net asset value of Spectrum Strategic at
December 31, 2014, and 2013, respectively.
Summarized information for Spectrum Strategic's investment in BHM I, LLC,
PGR Master Fund and MB Master Fund, as of December 31, 2014 and 2013, is as
follows:
December 31, 2014
% of Partnership's
Spectrum pro rata
Strategic Fair Net Investment Management Incentive Administrative
Investment Net Assets Value Income Objective Fees Fees Fees
---------- ---------- ---------- ------------- ------------------- ---------- --------- --------------
% $ $ $ $ $
BHM I,
LLC...... 79.1 28,236,607 1,881,303 Commodity Portfolio n/a n/a n/a
PGR Master
Fund..... 14.8 5,291,425 1,226,334 Commodity Portfolio n/a n/a n/a
MB Master
Fund..... 9.8 3,502,992 68,634 Commodity Portfolio n/a n/a n/a
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
December 31, 2013
% of Partnership's
Spectrum pro rata
Strategic Fair Net Investment Management Incentive Administrative
Investment Net Assets Value Income Objective Fees Fees Fees
---------- ---------- ---------- ------------- ------------------- ---------- --------- --------------
% $ $ $ $ $
BHM I,
LLC...... 88.7 46,985,018 1,541,390 Commodity Portfolio n/a n/a n/a
MB Master
Fund..... 7.9 4,183,031 239,381 Commodity Portfolio n/a n/a n/a
PGR Master
Fund..... 6.3 3,327,454 1,098,551 Commodity Portfolio n/a n/a n/a
Spectrum Strategic does not directly pay PGR Master Fund and MB Master Fund
and, prior to March 1, 2014, BHM I, LLC, for its pro rata portion of management
or incentive fees. Such fees are directly paid by Spectrum Strategic to the
respective parties.
Effective March 1, 2014, Spectrum Strategic directly pays BHM I, LLC for its
pro rata portion of incentive, management and administrative fees.
For BHM I, LLC, PGR Master Fund and MB Master Fund, contributions and
withdrawals are permitted on a monthly basis.
As of December 31, 2014 and 2013, there have been no suspended redemptions,
"lock up" periods or gate provisions imposed before a withdrawal can be made by
Spectrum Strategic.
The tables below represent summarized Income Statement information for BHM
I, LLC, PGR Master Fund and MB Master Fund for the years ended December 31,
2014, 2013 and 2012, respectively, to meet the requirements of Regulation S-X
Rule 3-09:
Net
Investment Investment Total
December 31, 2014 Income Loss Trading Results Net Income
----------------- ---------- ---------- --------------- ----------
$ $ $ $
BHM I, LLC........ -- (6,707,413) 11,593,435 4,886,022
PGR Master Fund... 1,816 (92,435) 2,790,730 2,698,295
MB Master Fund.... 41,225 (4,655,303) 7,309,353 2,654,050
Net
Investment Investment Total
December 31, 2013 Income Loss Trading Results Net Income
----------------- ---------- ---------- --------------- ----------
$ $ $ $
BHM I, LLC........ 2,258 (6,908,153) 10,136,795 3,228,642
PGR Master Fund... 12,279 (134,731) 8,544,764 8,410,033
MB Master Fund.... 92,224 (5,087,972) 14,221,096 9,133,124
Net
Investment Investment Total
December 31, 2012 Income/(Loss) Loss Trading Results Net 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)
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 L.P. ("Blackwater Master Fund"), a limited partnership
organized under the partnership laws of
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
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, 2014 and 2013 is shown in the
following tables.
December 31, 2014
--------------------------------------------
Total Assets Total Liabilities Total Capital
------------ ----------------- -------------
Blackwater Master Fund. $24,973,305 $43,208 $24,930,097
December 31, 2013
--------------------------------------------
Total Assets Total Liabilities Total Capital
------------ ----------------- -------------
Blackwater Master Fund. $63,936,601 $610,828 $63,325,773
Summarized information for Spectrum Technical's investment in, and the
operations of, Blackwater Master Fund as of December 31, 2014 and 2013, is as
follows:
% of Partnership's
Spectrum pro rata
Technical Fair Net Investment Redemption
December 31, 2014 Net Assets Value Loss Objective Permitted
----------------- ---------- ---------- ------------- ------------------- ----------
% $ $
Blackwater Master Fund. 15.5 16,901,955 (138,777) Commodity Portfolio Monthly
% of Partnership's
Spectrum pro rata
Technical Fair Net Investment Redemption
December 31, 2013 Net Assets Value Income Objective Permitted
----------------- ---------- ---------- ------------- ------------------- ----------
% $ $
Blackwater Master Fund. 24.9 33,548,272 459,654 Commodity Portfolio Monthly
Blackwater Master Fund does not pay any management or incentive fees related
to Spectrum Technical's investment in the fund. These fees are accrued and 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, 2014 and 2013, Spectrum Technical owned approximately 67.8%
and 53.0%, 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.
The tables below represent summarized income statement information for
Blackwater Master Fund for the years ended December 31, 2014, 2013 and 2012
respectively, to meet the requirements of Regulation S-X Rule 3-09:
Net
Investment Investment Total Net
December 31, 2014 Income Loss Trading Results Loss
----------------- ---------- ---------- --------------- --------
$ $ $ $
Blackwater Master Fund. 7,048 (72,105) (545,462) (617,567)
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
Net
Investment Investment Total Net
December 31, 2013 Income Loss Trading Results Income
----------------- ---------- ---------- --------------- -------
$ $ $ $
Blackwater Master Fund. 28,776 (89,483) 886,883 797,400
Net
Investment Investment Total Net
December 31, 2012 Income Loss Trading Results Loss
----------------- ---------- ---------- --------------- ----------
$ $ $ $
Blackwater Master Fund. 48,607 (110,152) (8,076,139) (8,186,291)
c. Spectrum Currency's investments in KR Master Fund and Cambridge Master Fund
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 and, from October 1, 2013, Cambridge Emerging
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.
On January 1, 2012, the assets allocated to Krom River 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 River 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 River, including Spectrum Currency, are permitted to be limited
partners of KR Master Fund. The General Partner and Krom River believe that
trading through this structure should promote efficiency and economy in the
trading process.
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.
Summarized information for Spectrum Currency, reflecting the total assets,
liabilities and capital of KR Master Fund and Cambridge Master Fund as of
December 31, 2014 and 2013, is shown in the following tables.
December 31, 2014
--------------------------------------------
Total Assets Total Liabilities Total Capital
------------ ----------------- -------------
KR Master Fund........ $12,415,386 $12,415,386 --
Cambridge Master Fund. 39,046,641 48,456 38,998,185
----------- ----------- -----------
$51,462,027 $12,463,842 $38,998,185
=========== =========== ===========
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
December 31, 2013
--------------------------------------------
Total Assets Total Liabilities Total Capital
------------ ----------------- -------------
KR Master Fund........ $44,043,845 $1,456,785 $42,587,060
Cambridge Master Fund. 37,549,964 28,580 37,521,384
----------- ---------- -----------
$81,593,809 $1,485,365 $80,108,444
=========== ========== ===========
Summarized information for Spectrum Currency's investment in KR Master Fund
and Cambridge Master Fund for the period ended December 31, 2014 and 2013, is
as follows:
% of Partnership's
For the year ended Spectrum pro rata
December 31, 2014 Currency Fair Net Investment Redemption
Investment Net Assets Value Income Objective Permitted
------------------ ---------- ---------- ------------- ------------------- ----------
% $ $
Cambridge Master Fund. 89.3 12,289,754 2,777,719 Commodity Portfolio Monthly
KR Master Fund........ -- -- 156,509 Commodity Portfolio Monthly
% of Partnership's
For the year ended Spectrum pro rata
December 31, 2013 Currency Fair Net Investment Redemption
Investment Net Assets Value Income/(Loss) Objective Permitted
------------------ ---------- ---------- ------------- ------------------- ----------
% $ $
Cambridge Master Fund. 62.9 11,299,138 1,148,720 Commodity Portfolio Monthly
KR Master Fund........ 40.6 7,290,317 (575,477) Commodity Portfolio Monthly
Cambridge Master Fund and KR Master Fund do not pay any management or
incentive fees related to Spectrum Currency's investments. These fees are
accrued and 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
investments.
As of December 31, 2014 and 2013, Spectrum Currency owned approximately
31.51% and 0%, and 30.11% and 17.11% of Cambridge Master Fund and KR Master
Fund, respectively. It is Spectrum Currency's intention to continue to invest
in Cambridge Master Fund. The performance of Spectrum Currency is directly
affected by the performance of Cambridge Master Fund and prior to termination
on December 31, 2014, 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, 2014,
2013 and 2012, to meet the requirements of Regulation S-X Rule 3-09:
Investment Net Total Net
December 31, 2014 Income Investment Loss Trading Results Income
----------------- ---------- --------------- --------------- ---------
$ $ $ $
Cambridge Master Fund. 6,641 (154,743) 9,610,031 9,455,288
KR Master Fund........ 3,785 (159,030) 893,723 734,693
Investment Net Total Net
December 31, 2013 Income Investment Loss Trading Results Income/(Loss)
----------------- ---------- --------------- --------------- -------------
$ $ $ $
Cambridge Master Fund. 9,306 (66,302) 3,166,855 3,100,553
KR Master Fund........ 25,093 (281,565) (5,175,049) (5,456,614)
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
Investment Net Total Net
December 31, 2012 Income Investment Loss Trading Results Income/(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 and
related transaction fees and costs as described in Note 2. Summary of
Significant Accounting Policies. MS&Co. acts as the counterparty on all trading
of foreign currency forward contracts. 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 unaffiliated commodity
trading advisors, which are registered with the Commodity Futures Trading
Commission, to make all trading decisions for the Partnerships. The trading
advisors for each Partnership at December 31, 2014, were as follows:
Spectrum Currency
Cambridge
Spectrum Select
Altis Partners (Jersey) Limited
EMC Capital Advisors, LLC
Graham Capital Management, L.P. ("Graham")
Rabar Market Research, Inc. ("Rabar")
Spectrum Strategic
Aventis
Blenheim
PGR Capital L.P.
Spectrum Technical
Aspect Capital Limited ("Aspect")
Blackwater Capital Management LLC
Campbell
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 1/12th of 1.5% (a 1.5% annual rate) per month of net assets allocated
to Cambridge on the first day of each month and prior to termination on
December 31, 2014, 1/12th of 1% (a 1% annual rate) per month of net assets
allocated to Krom River on the first day of each month.
Prior to October 1, 2013, the management fee payable to Krom River was
1/12th of 2% (a 2% annual rate).
The monthly management fee payable to C-View prior to termination on May 31,
2013, was 1/12th of 2% (a 2% annual rate).
The monthly management fee payable to Flintlock prior to termination on
October 10, 2012, was 1/12th of 1.5% (a 1.5% annual rate).
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
The management fee for Spectrum Select is accrued at a rate of 1/12th of
1.25% (a 1.25% annual rate) per month of net assets allocated to Altis on the
first day of each month , 1/6th of 1% (a 2% annual rate) per month of net
assets allocated to Graham on the first day of each month, and 1/12th of 2% (a
2% annual rate) per month of net assets allocated to EMC and Rabar on the first
day of each month.
The monthly management fee payable to Northfield prior to termination on
August 8, 2014 was 1/12th of 1% (a 1% annual rate) per month of net assets
allocated to Northfield on the first day of each month.
Prior to December 1, 2013, the monthly management fee payable to Northfield
was 1/12th of 2% (a 2% annual rate).
The monthly management fee payable to Sunrise Capital prior to termination
on June 28, 2013, was 1/12th of 2% (a 2% annual rate).
The management fee for Spectrum Strategic is accrued at a rate of 1/12th of
2% (a 2% annual rate) per month of net assets allocated to Blenheim on the
first day of each month, 1/12th of 1% (a 1% annual rate) per month of net
assets allocated to PGR on the first day of each month, and 1/12th of 1.25% (a
1.25% annual rate) per month of net assets allocated to Aventis on the first
day of each month.
Prior to March 1, 2014, the monthly management fee payable to Blenheim was
1/4th of 1% (a 3% annual rate) of net assets allocated to Blenheim on the first
day of each month.
Prior to March 1, 2014, the management fee payable to Aventis was 1/12th of
1.5% (a 1.5% annual rate) of net assets allocated to Aventis on the first day
of each month.
The management fee for Spectrum Technical is accrued at a rate of 1/12th of
1.5% (a 1.5% annual rate) per month of net assets allocated to Aspect and
Winton on the first day of each month, 1/6th of 1% (a 2% annual rate) per month
of net assets allocated to Campbell on the first day of each month, 1/12th of
0.75% (a 0.75% annual rate) per month of net assets allocated to Blackwater a
on the first day of each month, and, prior to December 31, 2014, 1/12th of 1%
(a 1% annual rate) per month of net assets allocated to Rotella on the first
day of each month.
Prior to June 1, 2014, the management fee payable to Campbell was 1/12th of
2% (a 2% annual rate) per month of net assets allocated to Campbell on the
first day of each month.
Prior to December 1, 2013, the monthly management fee payable to Blackwater
was 1/12th of 1.25% (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 1/6th 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
1/12th 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
1/6th of 1% (a 2% annual rate).
Prior to January 1, 2012, the monthly management fee payable to Winton was
1/6th of 1% (a 2% annual rate).
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
Incentive Fee -- Spectrum Currency pays a monthly incentive fee equal to 15%
of the trading profits experienced with respect to Cambridge's allocated net
assets at the end of each calendar quarter and prior to termination on
December 31, 2014, 20% of the trading profits experienced with respect to Krom
River's allocated net assets as of the end of each calendar quarter.
Prior to May 31, 2013, Spectrum Currency paid C-View 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. C-View was removed
as a trading advisor to Spectrum Currency effective May 31, 2013.
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 calendar quarter.
Flintlock was removed as a trading advisor to Spectrum Currency effective
October 10, 2012.
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, Rabar, Altis and Graham as of the end of each calendar month.
Prior to June 28, 2013, Spectrum Select paid Sunrise Capital a monthly
incentive fee equal to 20% of the trading profits experienced with respect to
the net assets allocated to C-View as of the end of each calendar month.
Sunrise Capital was removed as a trading advisor to Spectrum Select effective
June 28, 2013.
Spectrum Strategic pays a monthly incentive fee equal to 20% of the trading
profits experienced with respect to the net assets allocated to Blenheim and
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.
Prior to March 1, 2014, Spectrum Strategic paid 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.
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 end of each calendar month.
Trading profits represent the amount by which profits from futures,
forwards, and options trading exceed losses after brokerage and management fees
are deducted.
For all trading advisors with trading losses, no incentive fee is paid in
subsequent months until all such losses are recovered. Cumulative trading
losses are adjusted on a pro rata basis for the net amount of each month's
redemptions.
6. Financial Instruments
The Partnerships trade Futures Interests. Futures and forwards represent
contracts for delayed delivery of an instrument at a specified date and price.
The fair value of an exchange-traded contract 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.
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
The Partnerships' contracts are accounted for on a trade-date basis. A
derivative is defined as a financial instrument or other contract that has all
three of the following characteristics:
(1) a) One or more "underlyings" and b) one or more "notional amounts" or
payment provisions or both;
(2) Requires no initial net investment or a smaller initial net
investment than would be required for other types of contracts that would be
expected to have a similar response relative to changes in market
factors; and
(3) Terms that require or permit net settlement.
Generally, derivatives include futures, forward, swaps or options contracts,
and other financial instruments with similar characteristics such as caps,
floors, and collars.
The net unrealized gains (losses) on open contracts at December 31, 2014 and
2013, respectively, reported as a component of "Trading Equity" on the
Statements of Financial Condition, and their longest contract maturities were
as follows:
Spectrum Select
Net Unrealized Gains on Open Contracts Longest Maturities
- --------------------------------------------- -----------------------------------
Year Exchange-Traded Off-Exchange-Traded Total Exchange-Traded Off-Exchange-Traded
---- --------------- ------------------- --------- --------------- -------------------
$ $ $
2014. 5,296,681 495,854 5,792,535 Mar. 2019 Mar. 2015
2013. 6,193,496 458,936 6,652,432 Dec. 2017 Mar. 2014
Spectrum Technical
Net Unrealized Gains on Open Contracts Longest Maturities
- --------------------------------------------- -----------------------------------
Year Exchange-Traded Off-Exchange-Traded Total Exchange-Traded Off-Exchange-Traded
---- --------------- ------------------- --------- --------------- -------------------
$ $ $
2014. 172,160 432,710 604,870 Mar. 2018 Jun. 2015
2013. 817,366 408,224 1,225,590 Jun. 2018 Jun. 2014
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 are 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. 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., which is
acting as a commodity futures broker for each Partnership's exchange-traded
futures, exchange-traded forward, and exchange-traded futures-styled options
contracts, is required, pursuant to regulations of the Commodity Futures
Trading Commission, to segregate from its own assets, and for the sole benefit
of its commodity customers, total cash held by it 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 $120,025,451 and $150,597,920 for Spectrum Select and
$95,193,033 and $104,880,846 for
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
Spectrum Technical at December 31, 2014 and 2013, 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's 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
each counterparty. The primary terms are based on industry standard master
netting 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.
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 respective trading strategies. As such, the
average number of contracts outstanding in absolute quantities (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.
On January 1, 2013, the Partnerships adopted ASU 2011-11, "Disclosure about
Offsetting Assets and Liabilities" and ASU 2013-01, "Clarifying the Scope of
Disclosures about Offsetting Assets and Liabilities". ASU 2011-11 created a new
disclosure requirement about the nature of an entity's rights to setoff and the
related arrangements associated with its financial instruments and derivative
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
instruments, while ASU 2013-01 clarified 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. The new guidance did not have a
significant impact on the Partnerships' financial statements.
As of December 31, 2014, approximately 100% of Spectrum Currency's total
investments are forward contracts which are off-exchange traded.
As of December 31, 2014, approximately 84.14% of Spectrum Select's total
investments are futures contracts which are exchange-traded while approximately
15.86% are forward contracts which are off-exchange traded.
As of December 31, 2014, approximately 100% of Spectrum Strategic's total
investments are futures contracts which are exchange-traded.
As of December 31, 2014, approximately 74.64% of Spectrum Technical's total
investments are futures contracts which are exchange-traded while approximately
25.36% are forward contracts which are off-exchange traded.
The following tables summarize the valuation of each Partnership's
investments as of December 31, 2014 and 2013.
Spectrum Currency
As of December 31, 2014, Spectrum Currency held no futures and forward
contracts; therefore, there were no net unrealized gains and losses on futures
and forward contracts.
The effect of Trading Activities on the Statements of Financial Condition as of
December 31, 2013:
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.............. -- -- -- -- -- 826
-- -- -- -- --
Total........................ -- -- -- -- --
== == == == ==
Unrealized currency gain
(loss)..................... --
--
Total net unrealized gain
(loss) on open contracts... --
==
Average
Number of
Contracts
Outstanding
for the Year
(Absolute
Option Contracts at Fair Value Quantity)
------------------------------ ------------
$
Options purchased........ -- 1
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
Spectrum Select
Offsetting of Derivative Assets and Liabilities as of December 31, 2014:
Gross Amounts Net Amounts
Offset in the Presented in the
Statements of Statements of
Gross Amounts Financial Financial
Recognized Condition Condition
------------- ------------- ----------------
$ $ $
Assets
Futures..................................... 7,228,527 (1,519,724) 5,708,803
Forwards.................................... 2,346,025 (1,592,346) 753,679
---------- ---------- ---------
Total Assets................................ 9,574,552 (3,112,070) 6,462,482
---------- ---------- ---------
Liabilities
Futures..................................... (1,519,724) 1,519,724 --
Forwards.................................... (1,592,346) 1,592,346 --
---------- ---------- ---------
Total Liabilities........................... (3,112,070) 3,112,070 --
---------- ---------- ---------
Unrealized currency loss.................... (669,947)
---------
Total net unrealized gain on open contracts. 5,792,535
=========
Offsetting of Derivative Assets and Liabilities as of December 31, 2013:
Gross Amounts Net Amounts
Offset in the Presented in the
Statements of Statements of
Gross Amounts Financial Financial
Recognized Condition Condition
- ------------- ------------- ----------------
$ $ $
Assets
Futures..................................... 9,894,085 (3,011,012) 6,883,073
Forwards.................................... 528,063 (69,127) 458,936
---------- ---------- ---------
Total Assets................................ 10,422,148 (3,080,139) 7,342,009
---------- ---------- ---------
Liabilities
Futures..................................... (3,011,012) 3,011,012 --
Forwards.................................... (69,127) 69,127 --
---------- ---------- ---------
Total Liabilities........................... (3,080,139) 3,080,139 --
---------- ---------- ---------
Unrealized currency loss.................... (689,577)
---------
Total net unrealized gain on open contracts. 6,652,432
=========
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
The effect of Trading Activities on the Statements of Financial Condition as
of December 31, 2014 and 2013:
December 31, 2014
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.................... 282,336 (2,191,868) 4,475,726 (216,133) 2,350,061 4,302
Equity....................... 515,619 (278,910) 7,778 (105,700) 138,787 1,107
Foreign currency............. 161,381 (109,346) 1,083,928 (92,427) 1,043,536 1,707
Interest rate................ 3,045,534 (116,781) 2,250 (905) 2,930,098 4,621
--------- ---------- --------- -------- ---------
Total....................... 4,004,870 (2,696,905) 5,569,682 (415,165) 6,462,482
========= ========== ========= ========
Unrealized currency
loss...................... (669,947)
---------
Total net unrealized gain
on open contracts......... 5,792,535
=========
December 31, 2013
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.................... 561,914 (1,776,263) 2,430,029 (322,157) 893,523 4,153
Equity....................... 3,462,235 -- 36,105 (3,696) 3,494,644 1,717
Foreign currency............. 1,474,046 (124,132) 986,884 (59,129) 2,277,669 3,214
Interest rate................ 61,862 (636,034) 1,409,073 (158,728) 676,173 5,741
--------- ---------- --------- -------- ---------
Total....................... 5,560,057 (2,536,429) 4,862,091 (543,710) 7,342,009
========= ========== ========= ========
Unrealized currency
loss...................... (689,577)
---------
Total net unrealized gain
on open contracts......... 6,652,432
=========
Average
Number of
Contracts
Outstanding
for the Year
(Absolute
Option Contracts at Fair Value Quantity)
------------------------------ ------------
$
Options purchased........ -- 3
Options written.......... -- 2
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
Spectrum Technical
Offsetting of Derivative Assets and Liabilities as of December 31, 2014:
Gross Amounts Net Amounts
Offset in the Presented in the
Statements of Statements of
Gross Amounts Financial Financial
Recognized Condition Condition
------------- ------------- ----------------
$ $ $
Assets
Futures..................................... 4,533,559 (797,767) 3,735,792
Forwards.................................... 2,011,895 (1,677,220) 334,675
---------- ---------- ----------
Total Assets................................ 6,545,454 (2,474,987) 4,070,467
---------- ---------- ----------
Liabilities
Futures..................................... (797,767) 797,767 --
Forwards.................................... (1,677,220) 1,677,220 --
---------- ---------- ----------
Total Liabilities........................... (2,474,987) 2,474,987 --
---------- ---------- ----------
Unrealized currency loss.................... (3,465,597)
----------
Total net unrealized gain on open contracts. 604,870
==========
Offsetting of Derivative Assets and Liabilities as of December 31, 2013:
Gross Amounts Net Amounts
Offset in the Presented in the
Statements of Statements of
Gross Amounts Financial Financial
Recognized Condition Condition
------------- ------------- ----------------
$ $ $
Assets
Futures..................................... 5,404,721 (1,139,524) 4,265,197
Forwards.................................... 728,738 (320,514) 408,224
---------- ---------- ----------
Total Assets................................ 6,133,459 (1,460,038) 4,673,421
---------- ---------- ----------
Liabilities
Futures..................................... (1,139,524) 1,139,524 --
Forwards.................................... (320,514) 320,514 --
---------- ---------- ----------
Total Liabilities........................... (1,460,038) 1,460,038 --
---------- ---------- ----------
Unrealized currency loss.................... (3,447,831)
----------
Total net unrealized gain on open contracts. 1,225,590
==========
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
The effect of Trading Activities on the Statements of Financial Condition as
of December 31, 2014 and 2013:
December 31, 2014
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.................... 35,163 (640,745) 1,817,116 (81,599) 1,129,935 1,561
Equity....................... 713,684 (173,835) 17,967 (76,616) 481,200 1,203
Foreign currency............. 267,933 (1,043,641) 1,855,362 (290,158) 789,496 1,355
Interest rate................ 1,829,953 (149,230) 8,276 (19,163) 1,669,836 4,328
--------- ---------- --------- -------- ----------
Total....................... 2,846,733 (2,007,451) 3,698,721 (467,536) 4,070,467
========= ========== ========= ========
Unrealized currency
loss...................... (3,465,597)
----------
Total net unrealized gain
on open contracts......... 604,870
==========
December 31, 2013
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.................... 182,135 (386,829) 893,327 (124,717) 563,916 1,300
Equity....................... 3,110,927 (1,174) 28,444 (5,500) 3,132,697 1,458
Foreign currency............. 539,752 (239,072) 601,972 (104,361) 798,291 4,080
Interest rate................ 152,993 (553,425) 623,909 (44,960) 178,517 3,501
--------- ---------- --------- -------- ----------
Total....................... 3,985,807 (1,180,500) 2,147,652 (279,538) 4,673,421
========= ========== ========= ========
Unrealized currency
loss...................... (3,447,831)
----------
Total net unrealized gain
on open contracts......... 1,225,590
==========
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
The following tables summarize the net trading results of each Partnership
for the years ended December 31, 2014, 2013, and 2012, respectively.
Spectrum Select
The effect of Trading Activities on the Statements of Income and Expenses
for the years ended December 31, 2014, 2013, and 2012, included in Total
Trading Results:
December 31,
-----------------------------------
2014 2013 2012
---------- ---------- -----------
Type of Instrument
------------------ $ $ $
Commodity................ 11,295,753 (8,240,610) (12,872,729)
Equity................... (3,990,077) 17,236,173 6,993,095
Foreign currency......... 4,165,976 69,245 (2,206,555)
Interest rate............ 9,213,718 (3,637,449) 1,388,041
Unrealized currency gain. 19,627 514,288 99,725
---------- ---------- -----------
Total................... 20,704,997 5,941,647 (6,598,423)
========== ========== ===========
Line items on the Statements of Income and Expenses for the years ended
December 31, 2014, 2013, and 2012:
December 31,
--------------------------------
2014 2013 2012
---------- --------- ----------
Trading Results
--------------- $ $ $
Net realized............. 21,564,894 1,840,569 (2,747,878)
Net change in unrealized. (859,897) 4,101,078 (3,850,545)
---------- --------- ----------
Total................... 20,704,997 5,941,647 (6,598,423)
========== ========= ==========
Spectrum Technical
The effect of Trading Activities on the Statements of Income and Expenses
for the years ended December 31, 2014, 2013, and 2012, included in Total
Trading Results:
December 31,
------------------------------------
2014 2013 2012
---------- ----------- -----------
Type of Instrument
------------------ $ $ $
Commodity....................... 3,173,650 1,447,554 7,806,061
Equity.......................... 3,873,373 16,778,460 (58,323,819)
Foreign currency................ (6,165,114) 1,893,467 (30,995,834)
Interest rate................... 20,943,980 (10,210,043) 68,102,911
Unrealized currency gain (loss). (52,678) 35,320 (6,376,922)
---------- ----------- -----------
Total.......................... 21,773,211 9,944,758 (19,787,603)
========== =========== ===========
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, 2014, 2013, and 2012:
December 31,
---------------------------------
2014 2013 2012
---------- --------- -----------
Trading Results
--------------- $ $ $
Net realized............................................ 22,532,708 7,217,969 (6,219,265)
Net change in unrealized................................ (620,720) 2,267,134 (9,809,697)
Realized gain (loss) on Investment in Blackwater Master
Fund.................................................. 668,573 396,051 (4,657,167)
Unrealized appreciation (depreciation) on Investment in
Blackwater Master Fund................................ (807,350) 63,604 898,526
---------- --------- -----------
Total Trading Results.................................. 21,773,211 9,944,758 (19,787,603)
========== ========= ===========
8. Fair Value Measurements and Disclosures
Financial instruments are carried at fair value, which is the price that
would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants. Assets and liabilities carried
at fair value are classified and disclosed in the following three levels:
Level 1 -- unadjusted quoted market prices in active markets for identical
assets and liabilities; Level 2 -- inputs other than unadjusted quoted market
prices that are observable for the asset or liability, either directly or
indirectly (including unadjusted quoted market prices for similar investments,
interest rates and credit risk); and Level 3 -- unobservable inputs for the
asset or liability (including the Partnerships' own assumptions used in
determining the fair value of investments).
In certain cases, the inputs used to measure fair value may fall into
different levels of the fair value hierarchy. In such cases, an 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 consideration of 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
Active Markets Significant
for Identical Other Significant
Assets and Observable Unobservable
Liabilities Inputs Inputs
December 31, 2014 (Level 1) (Level 2) (Level 3) Total
----------------- ---------------- ----------- ------------ ----------
$ $ $ $
Assets
Investment in Cambridge Master Fund. -- 12,289,754 n/a 12,289,754
-- ---------- ----------
Total Investments................... -- 12,289,754 n/a 12,289,754
== ========== ==========
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
Unadjusted
Quoted Prices in
Active Markets Significant
for Identical Other Significant
Assets and Observable Unobservable
Liabilities Inputs Inputs
December 31, 2013 (Level 1) (Level 2) (Level 3) Total
----------------- ---------------- ----------- ------------ ----------
$ $ $ $
Assets
Investment in Cambridge Master Fund. -- 11,299,138 n/a 11,299,138
Investment in KR Master Fund........ -- 7,290,317 n/a 7,290,317
-- ---------- ----------
Total Investments................... -- 18,589,455 n/a 18,589,455
== ========== ==========
* This amount comprises of "Investment in Cambridge Master Fund and KR Master
Fund" on the Statements of Financial Condition.
During the twelve months ended December 31, 2014 and 2013, there were no
Level 3 assets and liabilities, and there were no transfers of assets or
liabilities between Level 1 and Level 2 for Spectrum Currency.
Spectrum Select
Unadjusted
Quoted Prices in
Active Markets Significant
for Identical Other Significant
Assets and Observable Unobservable
Liabilities Inputs Inputs
December 31, 2014 (Level 1) (Level 2) (Level 3) Total
----------------- ---------------- ----------- ------------ ---------
$ $ $ $
Assets
Futures.................. 7,228,527 -- n/a 7,228,527
Forwards................. 1,699,736 646,289 n/a 2,346,025
--------- ------- ---------
Total Assets............. 8,928,263 646,289 n/a 9,574,552
--------- ------- ---------
Liabilities
Futures.................. 1,519,724 -- n/a 1,519,724
Forwards................. 1,441,911 150,435 n/a 1,592,346
--------- ------- ---------
Total Liabilities........ 2,961,635 150,435 n/a 3,112,070
--------- ------- ---------
Unrealized currency loss. (669,947)
---------
*Net fair value.......... 5,966,628 495,854 n/a 5,792,535
========= ======= =========
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
Unadjusted
Quoted Prices in
Active Markets Significant
for Identical Other Significant
Assets and Observable Unobservable
Liabilities Inputs Inputs
December 31, 2013 (Level 1) (Level 2) (Level 3) Total
----------------- ---------------- ----------- ------------ ----------
$ $ $ $
Assets
Futures.................. 9,894,085 -- n/a 9,894,085
Forwards................. -- 528,063 n/a 528,063
--------- ------- ----------
Total Assets............. 9,894,085 528,063 n/a 10,422,148
--------- ------- ----------
Liabilities
Futures.................. 3,011,012 -- n/a 3,011,012
Forwards................. -- 69,127 n/a 69,127
--------- ------- ----------
Total Liabilities........ 3,011,012 69,127 n/a 3,080,139
--------- ------- ----------
Unrealized currency loss. (689,577)
----------
*Net fair value.......... 6,883,073 458,936 n/a 6,652,432
========= ======= ==========
* 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, 2014 and 2013, there were no
Level 3 assets and liabilities, and there were no transfers of assets or
liabilities between Level 1 and Level 2 for Spectrum Select.
Spectrum Strategic
Unadjusted
Quoted Prices in
Active Markets Significant
for Identical Other Significant
Assets and Observable Unobservable
Liabilities Inputs Inputs
December 31, 2014 (Level 1) (Level 2) (Level 3) Total
----------------- ---------------- ----------- ------------ ----------
$ $ $ $
Assets
Investment in BHM I, LLC...... -- 28,236,607 n/a 28,236,607
Investment in PGR Master Fund. -- 5,291,425 n/a 5,291,425
Investment in MB Master Fund.. -- 3,502,992 n/a 3,502,992
-- ---------- ----------
Total Investments............. -- 37,031,024 n/a 37,031,024
== ========== ==========
Unadjusted
Quoted Prices in Significant
Active Markets Other Significant
for Identical Observable Unobservable
Assets Inputs Inputs
December 31, 2013 (Level 1) (Level 2) (Level 3) Total
----------------- ---------------- ----------- ------------ ----------
$ $ $ $
Assets
Investment in BHM I, LLC...... -- 46,985,018 n/a 46,985,018
Investment in PGR Master Fund. -- 3,327,454 n/a 3,327,454
Investment in MB Master Fund.. -- 4,183,031 n/a 4,183,031
-- ---------- ----------
Total Investments............. -- 54,495,503 n/a 54,495,503
== ========== ==========
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
During the twelve months ended December 31, 2014 and 2013, there were no
Level 3 assets and liabilities, and there were no transfers of assets or
liabilities between Level 1 and Level 2 for Spectrum Strategic.
Spectrum Technical
Unadjusted
Quoted Prices in
Active Markets Significant
for Identical Other Significant
Assets and Observable Unobservable
Liabilities Inputs Inputs
December 31, 2014 (Level 1) (Level 2) (Level 3) Total
----------------- ---------------- ----------- ------------ ----------
$ $ $ $
Assets
Investment in Blackwater Master Fund. -- 16,901,955 n/a 16,901,955
Futures.............................. 4,533,559 -- n/a 4,533,559
Forwards............................. 274,957 1,736,938 n/a 2,011,895
--------- ---------- ----------
Total Assets......................... 4,808,516 18,638,893 n/a 23,447,409
--------- ---------- ----------
Liabilities
Futures.............................. 797,767 -- n/a 797,767
Forwards............................. 372,992 1,304,228 n/a 1,677,220
--------- ---------- ----------
Total Liabilities.................... 1,170,759 1,304,228 n/a 2,474,987
--------- ---------- ----------
Unrealized currency loss............. (3,465,597)
----------
*Net fair value...................... 3,637,757 17,334,665 n/a 17,506,825
========= ========== ==========
Unadjusted
Quoted Prices in
Active Markets Significant
for Identical Other Significant
Assets and Observable Unobservable
Liabilities Inputs Inputs
December 31, 2013 (Level 1) (Level 2) (Level 3) Total
----------------- ---------------- ----------- ------------ ----------
$ $ $ $
Assets
Investment in Blackwater Master Fund. -- 33,548,272 n/a 33,548,272
Futures.............................. 5,404,721 -- n/a 5,404,721
Forwards............................. -- 728,738 n/a 728,738
--------- ---------- ----------
Total Assets......................... 5,404,721 34,277,010 n/a 39,681,731
--------- ---------- ----------
Liabilities
Futures.............................. 1,139,524 -- n/a 1,139,524
Forwards............................. -- 320,514 n/a 320,514
--------- ---------- ----------
Total Liabilities.................... 1,139,524 320,514 n/a 1,460,038
--------- ---------- ----------
Unrealized currency loss............. (3,447,831)
----------
*Net fair value...................... 4,265,197 33,956,496 n/a 34,773,862
========= ========== ==========
* This amount comprises of the "Total net unrealized gain on open contracts"
and "Investment in Blackwater Master Fund" on the Statements of Financial
Condition.
During the twelve months ended December 31, 2014 and 2013, there were no
Level 3 assets and liabilities, and there were no transfers of assets or
liabilities between Level 1 and Level 2 for Spectrum Technical.
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
9. Financial Highlights
The following ratios may vary for individual investors based on the timing of
capital transactions during the year. Additionally, these ratios are calculated
for the limited partners' share of income, expenses and average net assets.
Spectrum Currency
2014 2013 2012
------ ------ ------
Per Unit operating performance:
Net asset value, January 1:............ $ 7.39 $ 7.57 $ 8.63
------ ------ ------
Interest Income...................... --(2) --(2) --(2)
Expenses............................. (0.53) (0.53) (0.53)
Realized/Unrealized Income (Loss)(1). 1.63 0.35 (0.53)
------ ------ ------
Net Income (Loss).................... 1.10 (0.18) (1.06)
------ ------ ------
Net asset value, December 31:.......... $ 8.49 $ 7.39 $ 7.57
====== ====== ======
For the Calendar Year:
Ratios to average net assets:
Net Investment Gain (Loss/ /)........ (7.0)% (7.2)% (6.6)%
Expenses before Incentive Fees....... 5.4% 6.4% 6.7%
Expenses after Incentive Fees........ 7.0% 7.2% 6.7%
Total return before incentive fees..... 16.6% (1.6)% (12.3)%
Total return after incentive fees...... 14.9% (2.4)% (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.
(2)Amount less than 0.005%.
Spectrum Select
2014 2013 2012
------ ------ ------
Per Unit operating performance:
Net asset value, January 1:............ $26.48 $27.76 $31.24
------ ------ ------
Interest Income...................... --(2) 0.01 0.02
Expenses............................. (1.64) (2.17) (2.44)
Realized/Unrealized Income (Loss)(1). 5.34 0.88 (1.06)
------ ------ ------
Net Income (Loss).................... 3.70 (1.28) (3.48)
------ ------ ------
Net asset value, December 31:.......... $30.18 $26.48 $27.76
====== ====== ======
For the Calendar Year:
Ratios to average net assets:
Net Investment Loss/ /............... (6.3)% (7.9)% (8.0)%
Expenses before Incentive Fees....... 6.3% 8.0% 8.1%
Expenses after Incentive Fees........ 6.3% 8.0% 8.1%
Total return before incentive fees..... 14.0% (4.6)% (11.1)%
Total return after incentive fees...... 14.0% (4.6)% (11.1)%
(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)Amount less than 0.005%.
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
Spectrum Strategic
2014 2013 2012
------ ------ ------
Per Unit operating performance:
Net asset value, January 1:............ $13.64 $14.25 $16.02
------ ------ ------
Interest Income...................... -- 0.01 0.01
Expenses............................. (0.79) (1.24) (1.37)
Realized/Unrealized Income (Loss)(1). 0.77 0.62 (0.41)
------ ------ ------
Net Loss............................. (0.02) (0.61) (1.77)
------ ------ ------
Net asset value, December 31:.......... $13.62 $13.64 $14.25
====== ====== ======
For the Calendar Year:
Ratios to average net assets:
Net Investment Loss/ /............... (5.5)% (8.9)% (9.0)%
Expenses before Incentive Fees....... 5.4% 9.0% 9.1%
Expenses after Incentive Fees........ 5.5% 9.0% 9.1%
Total return before incentive fees..... --(2) (4.3)% (11.0)%
Total return after incentive fees...... (0.1)% (4.3)% (11.0)%
(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)Amount less than 0.005%.
Spectrum Technical
2014 2013 2012
------ ------ ------
Per Unit operating performance:
Net asset value, January 1:............ $16.55 $16.71 $19.65
------ ------ ------
Interest Income...................... --(2) 0.01 0.01
Expenses............................. (1.09) (1.24) (1.38)+
Realized/Unrealized Income (Loss)(1). 3.61 1.07 (1.57)
------ ------ ------
Net Income (Loss).................... 2.52 (0.16) (2.94)
------ ------ ------
Net asset value, December 31:.......... $19.07 $16.55 $16.71
====== ====== ======
For the Calendar Year:
Ratios to average net assets:
Net Investment Loss/ /............... (6.6)% (7.5)% (7.7)%
Expenses before Incentive Fees....... 5.9% 7.5% 7.8%++
Expenses after Incentive Fees........ 6.6% 7.5% 7.8%++
Total return before incentive fees..... 15.9% (1.0)% (15.0)%
Total return after incentive fees...... 15.2% (1.0)% (15.0)%
(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)Amount less than 0.005%.
+ Expenses per Unit would have been $(1.39) in 2012 had it not been for the
management fee waived by Chesapeake.
Morgan Stanley Smith Barney Spectrum Series
Notes to Financial Statements
++ Such percentage is after waiver of management fees. Chesapeake voluntarily
waived a portion of the management fees (equal to 0.04% in 2012 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 other than those
disclosed below.
Ceres, SECOR Capital Advisors, L.P. ("SECOR") and Spectrum Technical entered
into a management agreement pursuant to which, as of January 1, 2015, SECOR
serves as a trading advisor to Spectrum Technical and trades its allocated
portion of Spectrum Technical's net assets through the Partnership's investment
in SECOR Master Fund, L.P. pursuant to the SECOR Alpha Program.
CERES MANAGED FUTURES LLC
522 Fifth Avenue
New York, NY 10036
Publication #07
Morgan Stanley
(C) 2014 Morgan Stanle
