Attached files
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EX-1.S - EXHIBIT - MORGAN STANLEY SMITH BARNEY SPECTRUM TECHNICAL LP | dwstex3101.htm |
EX-3.S - EXHIBIT - MORGAN STANLEY SMITH BARNEY SPECTRUM TECHNICAL LP | dwstex3201.htm |
EX-4.S - EXHIBIT - MORGAN STANLEY SMITH BARNEY SPECTRUM TECHNICAL LP | dwstex3202.htm |
EX-2.S - EXHIBIT - MORGAN STANLEY SMITH BARNEY SPECTRUM TECHNICAL LP | dwstex3102.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
x QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the
quarterly period ended September 30, 2009 or
o TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the
transition period from __________________to__________________
Commission
File Number: 0-26338
MORGAN
STANLEY SMITH BARNEY SPECTRUM TECHNICAL L.P.
|
||
(Exact
name of registrant as specified in its charter)
|
Delaware
|
13-3782231
|
|||
(State or other jurisdiction of
incorporation or organization)
|
(I.R.S.
Employer
Identification
No.)
|
|||
Demeter
Management LLC
|
||||
522
Fifth Avenue, 13th Floor
|
||||
New
York, NY
|
10036
|
|||
(Address
of principal executive offices)
|
(Zip
Code)
|
Registrant’s
telephone number, including area code
|
(212)
296-1999
|
Morgan
Stanley Spectrum Technical L.P.
(Former
name, former address and former fiscal year, if changed since last
report)
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes x No o
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
Yes o No o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer”,
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.
Large
accelerated filer o
|
Accelerated
filer o
|
Non-accelerated
filer x
|
Smaller
reporting company o
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes 0 No
T
MORGAN
STANLEY SMITH BARNEY SPECTRUM TECHNICAL L.P.
(formerly,
Morgan Stanley Spectrum Technical L.P.)
INDEX TO QUARTERLY REPORT ON
FORM 10-Q
September 30,
2009
PART I. FINANCIAL
INFORMATION
|
||
Item
1.
|
Financial
Statements (Unaudited)
|
|
Statements
of Financial Condition as of September 30, 2009 and December 31, 2008
|
2
|
|
Statements
of Operations for the Three and Nine Months Ended September 30, 2009 and
2008
|
3
|
|
Statements
of Changes in Partners’ Capital for the Nine Months Ended September 30,
2009 and 2008
|
4
|
|
Statements
of Cash Flows for the Nine Months Ended September 30, 2009 and 2008
|
5
|
|
Condensed
Schedules of Investments as of September 30, 2009 and December 31,
2008
|
6
|
|
Notes
to Financial Statements
|
7-21
|
|
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
22-32
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
33-44
|
Item
4.
|
Controls
and Procedures
|
44-45
|
Item
4T.
|
Controls
and Procedures
|
45
|
PART II. OTHER INFORMATION
|
||
Item
1A.
|
Risk
Factors
|
46
|
Item
6.
|
Exhibits
|
46
|
PART I. FINANCIAL
INFORMATION
Item
1. Financial
Statements
MORGAN
STANLEY SMITH BARNEY SPECTRUM TECHNICAL L.P.
(formerly,
Morgan Stanley Spectrum Technical L.P.)
STATEMENTS
OF FINANCIAL CONDITION
(Unaudited)
September
30,
|
December
31,
|
||
2009
|
2008
|
||
ASSETS
|
$
|
$
|
|
Trading
Equity:
|
|||
Unrestricted
cash
|
347,488,426
|
517,758,117
|
|
Restricted
cash
|
33,229,403
|
14,196,776
|
|
Total
cash
|
380,717,829
|
531,954,893
|
|
Net
unrealized gain on open contracts (MS&Co.)
|
21,057,795
|
15,350,275
|
|
Net
unrealized gain on open contracts (MSIP)
|
533,765
|
1,415,128
|
|
Total
net unrealized gain on open contracts
|
21,591,560
|
16,765,403
|
|
Options
purchased (premiums paid $108,651 and $47,381,
respectively)
|
75,871
|
26,406
|
|
Total
Trading Equity
|
402,385,260
|
548,746,702
|
|
Interest
receivable (MS&Co.)
|
16,158
|
3,818
|
|
Total
Assets
|
402,401,418
|
548,750,520
|
|
LIABILITIES
AND PARTNERS’ CAPITAL
|
|||
Liabilities
|
|||
Redemptions
payable
|
4,812,578
|
23,445,292
|
|
Accrued
brokerage fees (MS&Co.)
|
1,939,355
|
2,664,925
|
|
Accrued
management fees
|
715,206
|
989,046
|
|
Options
written (premiums received $74,392 and $170,031,
respectively)
|
65,928
|
150,636
|
|
Accrued
incentive fee
|
–
|
691,074
|
|
Total
Liabilities
|
7,533,067
|
27,940,973
|
|
Partners’
Capital
|
|||
Limited
Partners (18,824,414.640 and 22,657,223.480 Units,
respectively)
|
390,899,102
|
515,570,112
|
|
General
Partner (191,146.001 and 230,252.001 Units, respectively)
|
3,969,249
|
5,239,435
|
|
Total
Partners’ Capital
|
394,868,351
|
520,809,547
|
|
Total
Liabilities and Partners’ Capital
|
402,401,418
|
548,750,520
|
|
NET
ASSET VALUE PER UNIT
|
20.77
|
22.76
|
The
accompanying notes are an integral part of these financial
statements.
- 2
-
MORGAN
STANLEY SMITH BARNEY SPECTRUM TECHNICAL L.P.
(formerly,
Morgan Stanley Spectrum Technical L.P.)
STATEMENTS
OF OPERATIONS
(Unaudited)
For
the Three Months
Ended September 30,
|
For
the Nine Months
Ended September 30,
|
||||||
2009
|
2008
|
2009
|
2008
|
||||
$
|
$
|
$
|
$
|
||||
INVESTMENT
INCOME
|
|||||||
Interest
income (MS&Co.)
|
94,757
|
1,708,452
|
324,171
|
6,250,063
|
|||
EXPENSES
|
|||||||
Brokerage
fees (MS&Co.)
|
5,879,163
|
8,531,274
|
19,947,992
|
26,316,565
|
|||
Management
fees
|
2,170,345
|
3,180,994
|
7,356,358
|
9,798,281
|
|||
Incentive
fees
|
–
|
–
|
184,642
|
10,562,562
|
|||
Total
Expenses
|
8,049,508
|
11,712,268
|
27,488,992
|
46,677,408
|
|||
NET
INVESTMENT LOSS
|
(7,954,751)
|
(10,003,816)
|
(27,164,821)
|
(40,427,345)
|
|||
TRADING
RESULTS
|
|||||||
Trading
profit (loss):
|
|||||||
Realized
|
667,978
|
(36,053,133)
|
(19,541,106)
|
59,480,475
|
|||
Net
change in unrealized
|
18,059,240
|
(31,627,024)
|
4,803,421
|
(9,696,678)
|
|||
Total
Trading Results
|
18,727,218
|
(67,680,157)
|
(14,737,685)
|
49,783,797
|
|||
NET
INCOME (LOSS)
|
10,772,467
|
(77,683,973)
|
(41,902,506)
|
9,356,452
|
|||
NET
INCOME (LOSS) ALLOCATION
|
|||||||
Limited
Partners
|
10,663,248
|
(76,843,993)
|
(41,480,921)
|
9,236,537
|
|||
General
Partner
|
109,219
|
(839,980)
|
(421,585)
|
119,915
|
|||
NET
INCOME (LOSS) PER UNIT
|
|||||||
Limited
Partners
|
0.56
|
(3.03)
|
(2.05)
|
0.14
|
|||
General
Partner
|
0.56
|
(3.03)
|
(2.05)
|
0.14
|
|||
Units
|
Units
|
Units
|
Units
|
||||
WEIGHTED
AVERAGE NUMBER
|
|||||||
OF
UNITS OUTSTANDING
|
19,355,209.594
|
25,466,213.601
|
20,478,787.768
|
26,747,402.300
|
The
accompanying notes are an integral part of these financial
statements.
– 3
–
MORGAN
STANLEY SMITH BARNEY SPECTRUM TECHNICAL L.P.
(formerly,
Morgan Stanley Spectrum Technical L.P.)
STATEMENTS
OF CHANGES IN PARTNERS’ CAPITAL
For the
Nine Months Ended September 30, 2009 and 2008
(Unaudited)
Units
of
|
|||||||
Partnership
|
Limited
|
General
|
|||||
Interest
|
Partners
|
Partner
|
Total
|
||||
$
|
$
|
$
|
|||||
Partners’
Capital,
|
|||||||
December
31, 2007
|
28,624,023.855
|
572,620,026
|
6,279,632
|
578,899,658
|
|||
Offering
of Units
|
1,575,763.108
|
34,221,317
|
–
|
34,221,317
|
|||
Net
Income
|
–
|
9,236,537
|
119,915
|
9,356,452
|
|||
Redemptions
|
(5,132,221.696)
|
(111,323,682)
|
(752,026)
|
(112,075,708)
|
|||
Partners’
Capital,
|
|||||||
September
30, 2008
|
25,067,565.267
|
504,754,198
|
5,647,521
|
510,401,719
|
|||
Partners’
Capital,
|
|||||||
December
31, 2008
|
22,887,475.481
|
515,570,112
|
5,239,435
|
520,809,547
|
|||
Net
Loss
|
–
|
(41,480,921)
|
(421,585)
|
(41,902,506)
|
|||
Redemptions
|
(3,871,914.840)
|
(83,190,089)
|
(848,601)
|
(84,038,690)
|
|||
Partners’
Capital,
|
|||||||
September
30, 2009
|
19,015,560.641
|
390,899,102
|
3,969,249
|
394,868,351
|
The
accompanying notes are an integral part of these financial
statements.
- 4
-
MORGAN
STANLEY SMITH BARNEY SPECTRUM TECHNICAL L.P.
(formerly,
Morgan Stanley Spectrum Technical L.P.)
STATEMENTS
OF CASH FLOWS
(Unaudited)
For the Nine Months Ended September
30,
|
|||
2009
|
2008
|
||
$
|
$
|
||
CASH
FLOWS FROM OPERATING ACTIVITIES
|
|||
Net
income (loss)
|
(41,902,506)
|
9,356,452
|
|
Noncash
item included in net income (loss):
|
|||
Net
change in unrealized
|
(4,803,421)
|
9,696,678
|
|
(Increase)
decrease in operating assets:
|
|||
Restricted
cash
|
(19,032,627)
|
26,109,508
|
|
Net
premium paid for options purchased
|
(61,270)
|
264,376
|
|
Interest
receivable (MS&Co.)
|
(12,340)
|
868,523
|
|
Increase
(decrease) in operating liabilities:
|
|||
Accrued
brokerage fees (MS&Co.)
|
(725,570)
|
(257,669)
|
|
Accrued
management fees
|
(273,840)
|
48,368
|
|
Net
premium received from options written
|
(95,639)
|
(146,384)
|
|
Accrued
incentive fees
|
(691,074)
|
(261,283)
|
|
Net
cash provided by (used for) operating activities
|
(67,598,287)
|
45,678,569
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES
|
|||
Cash
received from offering of Units
|
–
|
32,928,991
|
|
Cash
paid for redemptions of Units
|
(102,671,404)
|
(113,272,972)
|
|
Net
cash used for financing activities
|
(102,671,404)
|
(80,343,981)
|
|
Net
decrease in unrestricted cash
|
(170,269,691)
|
(34,665,412)
|
|
Unrestricted
cash at beginning of period
|
517,758,117
|
522,722,048
|
|
Unrestricted
cash at end of period
|
347,488,426
|
488,056,636
|
|
The
accompanying notes are an integral part of these financial
statements.
- 5
-
MORGAN
STANLEY SMITH BARNEY SPECTRUM TECHNICAL L.P.
(formerly,
Morgan Stanley Spectrum Technical L.P.)
CONDENSED
SCHEDULES OF INVESTMENTS
September
30, 2009 and December 31, 2008 (Unaudited)
Futures and Forward
Contracts
|
Long
Unrealized
Gain
|
Percentage
of
Net Assets
|
Short Unrealized
Gain
|
Percentage
of
Net Assets
|
Net
Unrealized
Gain
|
$
|
%
|
$
|
%
|
$
|
|
September 30, 2009, Partnership Net Assets: $394,868,351
|
|||||
Commodity
|
5,187,627
|
1.31
|
75,298
|
0.02
|
5,262,925
|
Equity
|
1,898,114
|
0.48
|
5,780
|
―
|
1,903,894
|
Foreign
currency
|
6,602,226
|
1.67
|
529,995
|
0.14
|
7,132,221
|
Interest
rate
|
3,754,606
|
0.95
|
120,155
|
0.03
|
3,874,761
|
Grand
Total:
|
17,442,573
|
4.41
|
731,228
|
0.19
|
18,173,801
|
Unrealized
Currency Gain
|
0.87
|
3,417,759
|
|||
Total
Net Unrealized Gain on Open Contracts
|
21,591,560
|
||||
Option Contracts
|
Fair Value
|
Percentage
of
Net Assets
|
|||
$
|
%
|
||||
Options
purchased on Futures Contracts
|
2,312
|
–
|
|||
Options
purchased on Forward Contracts
|
73,559
|
0.02
|
|||
Options
written on Futures Contracts
|
(6,625)
|
–
|
|||
Options
written on Forward Contracts
|
(59,303)
|
(0.02)
|
|||
Futures and Forward
Contracts
|
Long
Unrealized
Gain
|
Percentage
of
Net Assets
|
Short
Unrealized
Gain/(Loss)
|
Percentage
of
Net Assets
|
Net
Unrealized
Gain/(Loss)
|
$
|
%
|
$
|
%
|
$
|
|
December
31, 2008, Partnership Net Assets: $520,809,547
|
|||||
Commodity
|
780,334
|
0.15
|
501,033
|
0.10
|
1,281,367
|
Equity
|
16,503
|
–
|
(328,487)
|
(0.06)
|
(311,984)
|
Foreign
currency
|
2,287,038
|
0.44
|
(2,652,344)
|
(0.51)
|
(365,306)
|
Interest
rate
|
11,905,805
|
2.28
|
(96,679)
|
(0.02)
|
11,809,126
|
Grand
Total:
|
14,989,680
|
2.87
|
(2,576,477)
|
(0.49)
|
12,413,203
|
Unrealized
Currency Gain
|
0.84
|
4,352,200
|
|||
Total
Net Unrealized Gain on Open Contracts
|
16,765,403
|
||||
Option Contracts
|
Fair Value
|
Percentage
of
Net Assets
|
|||
$
|
%
|
||||
Options
purchased on Futures Contracts
|
–
|
–
|
|||
Options
purchased on Forward Contracts
|
26,406
|
0.01
|
|||
Options
written on Futures Contracts
|
–
|
–
|
|||
Options
written on Forward Contracts
|
(150,636)
|
(0.03)
|
The
accompanying notes are an integral part of these financial
statements.
- 6
-
MORGAN
STANLEY SMITH BARNEY SPECTRUM TECHNICAL L.P.
(formerly,
Morgan Stanley Spectrum Technical L.P.)
NOTES TO FINANCIAL
STATEMENTS
September
30, 2009
(Unaudited)
The
unaudited financial statements contained herein include, in the opinion of
management, all adjustments necessary for a fair presentation of the financial
condition and results of operations of Morgan Stanley Smith Barney Spectrum
Technical L.P. (formerly, Morgan Stanley Spectrum Technical L.P.) (the
"Partnership"). The financial statements and condensed notes herein
should be read in conjunction with the Partnership’s Annual Report on Form 10-K
for the fiscal year ending December 31, 2008.
1. Organization
Morgan
Stanley Smith Barney Spectrum Technical L.P. (formerly, Morgan Stanley Spectrum
Technical L.P.) is a Delaware limited partnership organized in 1994 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 4. Financial
Instruments). The Partnership is one of the Morgan Stanley
Smith Barney Spectrum series of funds, comprised of the Partnership, Morgan
Stanley Smith Barney Spectrum Currency L.P., Morgan Stanley Smith Barney
Spectrum Global Balanced L.P., Morgan Stanley Smith Barney Spectrum Select L.P.,
and Morgan Stanley Smith Barney Spectrum Strategic L.P. (collectively, the
"Spectrum Series").
- 7
-
MORGAN
STANLEY SMITH BARNEY SPECTRUM TECHNICAL L.P.
(formerly,
Morgan Stanley Spectrum Technical L.P.)
NOTES TO FINANCIAL
STATEMENTS (CONTINUED)
Effective
September 29, 2009, Demeter Management LLC (“Demeter”), the general partner of
the Partnership, changed the name of Morgan Stanley Spectrum Technical L.P. to
Morgan Stanley Smith Barney Spectrum Technical L.P.
The
Partnership 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 or 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 market price 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 lose an
unlimited amount.
Premiums
received/premiums paid from writing/purchasing options are recorded as
liabilities/assets on the Statements of Financial Condition and are subsequently
adjusted to fair values. The difference between the fair value of the
option and the premiums received/premiums paid is treated as an unrealized gain
or loss.
The
Partnership’s general partner is Demeter. The commodity brokers are
Morgan Stanley & Co. Incorporated ("MS&Co.") and Morgan Stanley &
Co. International plc ("MSIP"). MS&Co. also acts as the
counterparty on all trading of foreign currency forward contracts.
Morgan Stanley Capital Group Inc. ("MSCG") acts as the counterparty on all
trading of options on foreign currency forward contracts. MSIP serves as the
commodity
- 8
-
MORGAN
STANLEY SMITH BARNEY SPECTRUM TECHNICAL L.P.
(formerly,
Morgan Stanley Spectrum Technical L.P.)
NOTES TO FINANCIAL
STATEMENTS (CONTINUED)
broker
for trades on the London Metal Exchange (“LME”). Demeter is a wholly-owned
subsidiary of Morgan Stanley Smith Barney Holdings LLC (“MSSB”). MSSB
is majority-owned indirectly by Morgan Stanley and minority-owned indirectly by
Citigroup Inc. MS&Co., MSIP, and MSCG are wholly-owned
subsidiaries of Morgan Stanley. The trading advisors to the Partnership are
Campbell & Company Inc., Chesapeake Capital Corporation, John W. Henry &
Company Inc., Winton Capital Management Limited, Aspect Capital Limited, and
Rotella Capital Management, Inc. (each individually, a "Trading Advisor", or
collectively, the "Trading Advisors").
On July
1, 2009, the Financial Accounting Standards Board (“FASB”) issued Statement of
Financial Accounting Standards (“SFAS”) No. 168, The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting
Principles (“GAAP”), also known as FASB Accounting Standards Codification
(“ASC”) 105-10, Generally
Accepted Accounting Principles (“ASC 105-10” or the
“Codification”). ASC 105-10 established the exclusive authoritative
reference for U.S. GAAP for use in financial statements except for Securities
and Exchange Commission (“SEC”) rules and interpretive releases, which are also
authoritative GAAP for SEC registrants. The Codification supersedes
all existing non-SEC accounting and reporting standards. The
Codification became the single source of authoritative accounting principles
generally accepted in the United States and is effective for financial
statements issued for interim and annual periods ending after September 15,
2009.
2. Related Party
Transactions
The
Partnership’s cash is on deposit with MS&Co. and MSIP in futures, forward
and options trading accounts to
- 9
-
MORGAN
STANLEY SMITH BARNEY SPECTRUM TECHNICAL L.P.
(formerly,
Morgan Stanley Spectrum Technical L.P.)
NOTES TO FINANCIAL
STATEMENTS (CONTINUED)
meet
margin requirements as needed. MS&Co. pays the Partnership at
each month end interest income on 80% of the funds on deposit with the commodity
brokers at a rate equal to the monthly average of the 4-week U.S. Treasury bill
discount rate during such month. The Partnership pays brokerage fees
to MS&Co. MSCG acts as the counterparty on all trading of options
on foreign currency forward contracts.
3. 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 the Partnership’s revenues or expenses
for income tax purposes. The Partnership files U.S. federal and state tax
returns.
ASC
740-10, Income Taxes
(which incorporates former FASB No. 109 and FASB Interpretation No. 48, Income Taxes), clarifies the
accounting for uncertainty in income taxes recognized in a 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 2005 through 2008 tax years
generally remain subject to examination by U.S. federal and most state tax
authorities.
4. Financial
Instruments
The
Partnership trades Futures Interests. Futures and forwards represent
contracts for delayed delivery of an instrument at a specified date and
price. Futures Interests are open commitments until settlement date,
at which
- 10
-
MORGAN
STANLEY SMITH BARNEY SPECTRUM TECHNICAL L.P.
(formerly,
Morgan Stanley Spectrum Technical L.P.)
NOTES TO FINANCIAL
STATEMENTS (CONTINUED)
time they
are realized. They are valued at fair value, generally on a daily
basis, and the unrealized gains and losses on open contracts (the difference
between contract trade price and market price) are reported in the Statements of
Financial Condition as net unrealized gains or losses on open
contracts. The resulting net change in unrealized gains and losses is
reflected in the change in unrealized trading profit (loss) on open contracts
from one period to the next on the Statements of Operations. The fair
value of exchange-traded futures, options and forwards contracts is determined
by the various futures exchanges, and reflects the settlement price for each
contract as of the close of business on the last business day of the reporting
period. The fair value of foreign currency forward contracts is
extrapolated on a forward basis from the spot prices quoted as of approximately
3:00 P.M. (E.T.) of the last business day of the reporting
period. The fair value of non-exchange-traded foreign currency option
contracts is calculated by applying an industry standard model application for
options valuation of foreign currency options, using as input, the spot prices,
interest rates, and option implied volatilities quoted as of approximately 3:00
P.M. (E.T.) on the last business day of the reporting period. Risk
arises from changes in the value of these contracts and the potential inability
of counterparties to perform under the terms of the contracts. There
are numerous factors which may significantly influence the fair value of these
contracts, including interest rate volatility.
The fair
value of exchange-traded contracts is based on the settlement price quoted by
the exchange on the day with respect to which fair value is being
determined. If an exchange-traded contract could not have been
liquidated on such day due to the operation of daily limits or other rules of
the exchange, the settlement price shall be the settlement price on the first
subsequent day on which the contract could be liquidated. The fair
value of off-exchange-traded contracts is based on the fair value quoted by the
counterparty.
- 11
-
MORGAN
STANLEY SMITH BARNEY SPECTRUM TECHNICAL L.P.
(formerly,
Morgan Stanley Spectrum Technical L.P.)
NOTES TO FINANCIAL
STATEMENTS (CONTINUED)
The
Partnership’s contracts are accounted for on a trade-date basis and marked to
market on a daily basis. The Partnership accounts for its derivative
investments as required by ASC 815-10-15, Derivative and Hedging
(formerly, SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities). A derivative is defined
as a financial instrument or other contract that has all three of the following
characteristics:
1)
|
One
or more underlying notional amounts or payment
provisions;
|
2)
|
Requires
no initial net investment or a smaller initial net investment than would
be required relative to changes in market
factors;
|
3)
|
Terms
require or permit net settlement.
|
Generally,
derivatives include futures, forward, swap or options contracts, and other
financial instruments with similar characteristics such as caps, floors, and
collars.
The net
unrealized gains on open contracts, reported as a component of "Trading Equity"
on the Statements of Financial Condition, and their longest contract maturities
were as follows:
Net Unrealized Gains on Open
Contracts
|
Longest Maturities
|
||||
Date
|
Exchange-Traded
|
Off-Exchange-Traded
|
Total
|
Exchange-Traded
|
Off-Exchange-Traded
|
$
|
$
|
$
|
|||
Sep.
30, 2009
|
17,338,944
|
4,252,616
|
21,591,560
|
Mar.
2013
|
Dec.
2009
|
Dec.
31, 2008
|
16,274,500
|
490,903
|
16,765,403
|
Mar.
2012
|
Mar.
2009
|
- 12
-
MORGAN
STANLEY SMITH BARNEY SPECTRUM TECHNICAL L.P.
(formerly,
Morgan Stanley Spectrum Technical L.P.)
NOTES TO FINANCIAL
STATEMENTS (CONTINUED)
The
Partnership has credit risk associated with counterparty
non-performance. As of the date of the financial statements, the
credit risk associated with the instruments in which the Partnership trades is
limited to the unrealized gain amounts reflected in the Partnership’s Statements
of Financial Condition.
The
Partnership also has credit risk because MS&Co., MSIP, and/or MSCG act as
the futures commission merchants or the counterparties, with respect to most of
the Partnership’s assets. Exchange-traded futures, exchange-traded forward, and
exchange-traded futures-styled options contracts are marked to market on a daily
basis, with variations in value settled on a daily basis. MS&Co. and MSIP,
each acting as a commodity broker for the Partnership’s exchange-traded futures,
exchange-traded forward, and exchange-traded futures-styled options contracts,
are required, pursuant to regulations of the Commodity Futures Trading
Commission ("CFTC"), to segregate from their own assets, and for the sole
benefit of their commodity customers, all funds held by them with respect to
exchange-traded futures, 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 funds, in
the aggregate, totaled $398,056,773 and $548,229,393 at September 30, 2009, and
December 31, 2008, respectively. With respect to the 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, the Partnership is required to
meet margin requirements equal to the net unrealized loss on open forward
currency contracts in the Partnership accounts with the
counterparty,
- 13
-
MORGAN
STANLEY SMITH BARNEY SPECTRUM TECHNICAL L.P.
(formerly
Morgan Stanley Spectrum Technical L.P.)
NOTES TO FINANCIAL
STATEMENTS (CONTINUED)
which is
accomplished by daily maintenance of the cash balance in a custody account held
at MS&Co. With respect to those off-exchange-traded forward currency
contracts, the Partnership is at risk to the ability of MS&Co., the sole
counterparty on all such contracts, to perform. With respect to those
off-exchange-traded forward currency options contracts, the Partnership is at
risk to the ability of MSCG, the sole counterparty on all such contracts, to
perform. The Partnership has a netting agreement with each
counterparty. These agreements, which seek to reduce both the
Partnership’s and the counterparties’ exposure on off-exchange-traded forward
currency contracts, including options on such contracts, should materially
decrease the Partnership’s credit risk in the event of MS&Co.’s or MSCG’s
bankruptcy or insolvency.
The
futures, forwards and options on such contracts traded by the Partnership
involve varying degrees of related market risk. Market risk is often
dependent upon changes in the level or volatility of interest rates, exchange
rates, and prices of financial instruments and commodities, factors that result
in frequent changes in the fair value of the Partnership’s open positions, and
consequently in its earnings, whether realized or unrealized, and cash
flow. Gains and losses on open positions of exchange-traded futures,
exchange-traded forward, and exchange-traded futures-styled options contracts
are settled daily through variation margin. Gains and losses on
off-exchange-traded forward currency contracts and forward currency options
contracts are settled upon termination of the contract. However, the
Partnership is required to meet margin requirements equal to the net unrealized
loss on open forward currency contracts in the Partnership accounts with the
counterparty, which is accomplished by daily maintenance of the cash balance in
a custody account held at MS&Co.
- 14
-
MORGAN
STANLEY SMITH BARNEY SPECTRUM TECHNICAL L.P.
(formerly,
Morgan Stanley Spectrum Technical L.P.)
NOTES TO FINANCIAL
STATEMENTS (CONTINUED)
5. Derivative and
Hedging
ASC
815-10-65, Derivative and
Hedging (formerly, SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities – an amendment of SFAS No.
133), which was issued in March 2008, is intended to improve financial
reporting about derivative instruments and hedging activities by requiring
enhanced disclosures to enable investors to better understand how those
instruments and activities are accounted for; how and why they are used; and
their effects on a Partnership’s financial position, financial performance, and
cash flows. ASC 815-10-65 is effective as of January 1, 2009, for the
Partnership.
The
Partnership’s objective is to profit from speculative trading in Futures
Interests. Therefore, the Trading Advisors for the Partnership will
take speculative positions in Futures Interests where they feel the best profit
opportunities exist for their trading strategy. As such, the absolute
quantity (the total of the open long and open short positions) has been
presented as a part of the volume disclosure, as position direction is not an
indicative factor in such volume disclosures. In regards to foreign currency
forward trades, each notional quantity amount has been converted to an
equivalent contract based upon an industry convention.
The
following table summarizes the valuation of the Partnership’s investments as
required by the ASC 815-10-65 as of September 30, 2009 and reflects the
contracts outstanding at such time.
- 15
-
MORGAN
STANLEY SMITH BARNEY SPECTRUM TECHNICAL L.P.
(formerly,
Morgan Stanley Spectrum Technical L.P.)
NOTES TO FINANCIAL
STATEMENTS (CONTINUED)
The
Effect of Trading Activities on the Statements of Financial Condition as of
September 30, 2009:
Futures and Forward
Contracts
|
Long
Unrealized
Gain
|
Long
Unrealized
Loss
|
Short
Unrealized
Gain
|
Short
Unrealized
Loss
|
Net Unrealized
Gain
|
Total
number of outstanding
contracts
(absolute quantity)
|
$
|
$
|
$
|
$
|
$
|
||
Commodity
|
6,203,735
|
(1,016,108)
|
906,962
|
(831,664)
|
5,262,925
|
4,389
|
Equity
|
2,118,921
|
(220,807)
|
5,780
|
–
|
1,903,894
|
3,309
|
Foreign
currency
|
6,926,949
|
(324,723)
|
751,450
|
(221,455)
|
7,132,221
|
6,544
|
Interest
rate
|
3,757,867
|
(3,261)
|
120,155
|
–
|
3,874,761
|
7,449
|
Total
|
19,007,472
|
(1,564,899)
|
1,784,347
|
(1,053,119)
|
18,173,801
|
|
Unrealized
currency gain
|
3,417,759
|
|||||
Total
net unrealized gain on open contracts
|
21,591,560
|
Option
Contracts at Fair Value
|
||||||
Options
purchased
|
$75,871
|
|||||
Options
written
|
$(65,928)
|
The
following tables summarize the net trading results of the Partnership during the
three and nine month periods as required by the disclosures about Derivative and
Hedging Topic of ASC 815-10-65.
The
Effect of Trading Activities on the Statements of Operations for the Three and
Nine Months Ended September 30, 2009 included in Total Trading
Results:
For
the Three Months
|
For
the Nine Months
|
||
Ended September 30, 2009
|
Ended September 30, 2009
|
||
Type of Instrument
|
$
|
$
|
|
Commodity
|
5,517,107
|
428,150
|
|
Equity
|
6,471,014
|
4,009,177
|
|
Foreign
currency
|
4,654,682
|
(6,306,267)
|
|
Interest
rate
|
2,517,839
|
(11,934,305)
|
|
Unrealized
currency loss
|
(433,424)
|
(934,440)
|
|
Total
|
18,727,218
|
(14,737,685)
|
- 16
-
MORGAN
STANLEY SMITH BARNEY SPECTRUM TECHNICAL L.P.
(formerly,
Morgan Stanley Spectrum Technical L.P.)
NOTES TO FINANCIAL
STATEMENTS (CONTINUED)
Line
Items on the Statements of Operations for the Three and Nine Months Ended
September 30, 2009:
For
the Three Months
|
For
the Nine Months
|
|
Ended September 30, 2009
|
Ended September 30, 2009
|
|
Trading Results
|
$
|
$
|
Realized
|
667,978
|
(19,541,106)
|
Net
change in unrealized
|
18,059,240
|
4,803,421
|
Total
Trading Results
|
18,727,218
|
(14,737,685)
|
6. Fair Value Measurements and
Disclosures
As
defined by ASC 820-10-55, Fair
Value Measurements and Disclosures (formerly, SFAS No. 157, Fair Value Measurements),
fair value is the amount that would be recovered when an asset is sold or an
amount paid to transfer a liability, in an ordinary transaction, between market
participants at the measurement date (exit price). Market price
observability is impacted by a number of factors, including the types of
investments, the characteristics specific to the investment, and the state of
the market (including the existence and the transparency of transactions between
market participants). Investments with readily available actively
quoted prices in an ordinary market will generally have a higher degree of
market price observability and a lesser degree of judgment used in measuring
fair value.
ASC
820-10-55 requires use of a fair value hierarchy that prioritizes the inputs to
valuation techniques used to measure fair value into three levels: Level 1 -
unadjusted quoted market prices in active markets for identical assets and
liabilities; Level 2 - inputs other than unadjusted quoted market prices that
are observable for the asset or liability, either directly or indirectly
(including quoted prices for similar investments, interest rates, credit risk);
and Level 3 – unobservable inputs for the assets or liability (including the
Partnership’s own
- 17
-
MORGAN
STANLEY SMITH BARNEY SPECTRUM TECHNICAL L.P.
(formerly,
Morgan Stanley Spectrum Technical L.P.)
NOTES TO FINANCIAL
STATEMENTS (CONTINUED)
Level 3 -
unobservable inputs for the asset or liability (including the Partnership’s 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 Partnership’s
assessment of the significance of a particular input to the fair value
measurement in its entirety requires judgment, and considers factors specific to
the investment.
The
following tables summarize the valuation of the Partnership’s investments by the
above ASC 820-10-55 fair value hierarchy as of September 30, 2009 and December
31, 2008:
September 30,
2009
Quoted
Prices in Active Markets for Identical Assets
(Level 1)
|
Significant
Other Observable Inputs
(Level 2)
|
Significant
Unobservable Inputs
(Level 3)
|
Total
|
||
$
|
$
|
$
|
|||
Assets
|
|||||
Net
unrealized gain on open contracts
|
17,338,944
|
4,252,616
|
n/a
|
21,591,560
|
|
Options
purchased
|
2,312
|
73,559
|
n/a
|
75,871
|
|
Liabilities
|
|||||
Options
written
|
6,625
|
59,303
|
n/a
|
65,928
|
- 18
-
MORGAN
STANLEY SMITH BARNEY SPECTRUM TECHNICAL L.P.
(formerly,
Morgan Stanley Spectrum Technical L.P.)
NOTES TO FINANCIAL
STATEMENTS (CONTINUED)
December 31,
2008
Quoted
Prices in Active Markets for Identical Assets
(Level 1)
|
Significant
Other Observable Inputs
(Level 2)
|
Significant
Unobservable Inputs
(Level 3)
|
Total
|
||
$
|
$
|
$
|
|||
Assets
|
|||||
Net
unrealized gain on open contracts
|
16,274,500
|
490,903
|
n/a
|
16,765,403
|
|
Options
purchased
|
–
|
26,406
|
n/a
|
26,406
|
|
Liabilities
|
|||||
Options
written
|
–
|
150,636
|
n/a
|
150,636
|
|
7. Recent Accounting
Pronouncements
(a) Fair Value
Measurements
ASC
820-10-65, Fair Value
Measurements (formerly, FASB Staff Position (“FSP”) SFAS No. 157-4, Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are Not Orderly), was issued
in April 2009. ASC 820-10-65 provides additional guidance for
determining fair value and requires new disclosures regarding the categories of
fair value instruments, as well as the inputs and valuation techniques utilized
to determine fair value and any changes to the inputs and valuation techniques
during the period. ASC 820-10-65 is effective for the interim and
annual periods ending after June 15, 2009. The adoption of ASC
820-10-65 did not have a material impact on the Partnership’s financial
statements.
- 19
-
MORGAN
STANLEY SMITH BARNEY SPECTRUM TECHNICAL L.P.
(formerly,
Morgan Stanley Spectrum Technical L.P.)
NOTES TO FINANCIAL
STATEMENTS (CONTINUED)
(b) Financial
Instruments
ASC
825-10-65, Financial
Instruments (formerly, FSP SFAS No. 107-1 and Accounting Principal Board
No. 28-1, Interim Disclosures
about Fair Value of Financial Instruments), was issued in April
2009. ASC 825-10-65 requires fair value disclosures of financial
instruments on a quarterly basis, as well as new disclosures regarding the
methodology and significant assumptions underlying the fair value measures and
any changes to the methodology and assumptions during the reporting
period. ASC 825-10-65 is effective for the interim and annual periods
ending after June 15, 2009. The adoption of ASC 825-10-65 did not
have a material impact on the Partnership’s financial statements.
(c) Subsequent
Events
The
Partnership adopted ASC 855-10, Subsequent Events (formerly,
SFAS No. 165, Subsequent
Events), which was issued in May 2009. ASC 855-10 establishes general
standards of accounting for and disclosure of events that occur after the
balance sheet date but before financial statements are issued or are available
to be issued. It requires the disclosure of the date through which an
entity has evaluated subsequent events and the basis for that date; that is,
whether that date represents the date the financial statements were issued or
were available to be issued. ASC 855-10 is effective for the interim
and annual periods ending after June 15, 2009. Management has
performed its evaluation of subsequent events through November 13, 2009, the
date these financial statements were issued, and has determined that there were
no subsequent events requiring adjustment or disclosures in the financial
statements.
- 20
-
MORGAN
STANLEY SMITH BARNEY SPECTRUM TECHNICAL L.P.
(formerly,
Morgan Stanley Spectrum Technical L.P.)
NOTES TO FINANCIAL
STATEMENTS (CONCLUDED)
8. Restricted and Unrestricted
Cash
As
reflected on the Partnership’s 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 and offset losses on offset LME positions. All of these
amounts are maintained separately. Cash that is not classified as
restricted cash is therefore classified as unrestricted cash.
- 21
-
Item
2.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS
|
OF
OPERATIONS
Liquidity. The
Partnership deposits its assets with MS&Co. and MSIP as commodity brokers in
separate futures, forward and options trading accounts established for each
Trading Advisor. Such assets are used as margin to engage in trading
and may be used as margin solely for the Partnership’s trading. The assets are
held in either non-interest bearing bank accounts or in securities and
instruments permitted by the CFTC for investment of customer segregated or
secured funds. Since the Partnership’s sole purpose is to trade in
futures, forwards and options, it is expected that the Partnership will continue
to own such liquid assets for margin purposes.
The
Partnership’s investment in futures, forwards and options may, from time to
time, be illiquid. Most U.S. futures exchanges limit fluctuations in
prices during a single day by regulations referred to as "daily price
fluctuations limits" or "daily limits". Trades may not be executed at
prices beyond the daily limit. If the price for a particular futures
or options contract has increased or decreased by an amount equal to the daily
limit, positions in that futures or options contract can neither be taken nor
liquidated unless traders are willing to effect trades at or within the limit.
Futures prices have occasionally moved the daily limit for several consecutive
days with little or no trading. These market conditions could prevent
the Partnership from promptly liquidating its futures or options contracts and
result in restrictions on redemptions.
There is
no limitation on daily price movements in trading forward contracts on foreign
currencies. The markets for some world currencies have low trading
volume and are illiquid, which may prevent the Partnership from trading in
potentially profitable markets or prevent the Partnership from promptly
liquidating unfavorable positions in such markets, subjecting it to substantial
losses. Either of these market conditions could result in
restrictions on redemptions. For the periods covered by this report,
illiquidity has not materially affected the Partnership’s assets.
- 22
-
There are
no known material trends, demands, commitments, events, or uncertainties at the
present time that are reasonably likely to result in the Partnership’s liquidity
increasing or decreasing in any material way.
Capital
Resources. The Partnership does not have, nor does it expect
to have, any capital assets. Redemptions of units of limited
partnership interest ("Unit(s)") in the future will affect the amount of funds
available for investments in futures, forwards and options in subsequent
periods. It is not possible to estimate the amount, and therefore the
impact, of future outflows of Units.
There are
no known material trends, favorable or unfavorable, that would affect, nor any
expected material changes to, the Partnership’s capital resource arrangements at
the present time.
Off-Balance Sheet
Arrangements and Contractual Obligations. The Partnership does
not have any off-balance sheet arrangements, nor does it have contractual
obligations or commercial commitments to make future payments that would affect
its liquidity or capital resources.
Results of
Operations
General. The
Partnership’s results depend on the Trading Advisors and the ability of each
Trading Advisor’s trading program to take advantage of price movements in the
futures, forward and options markets. The following presents a
summary of the Partnership’s operations for the three and nine month periods
ended September 30, 2009 and 2008, and a general discussion of its trading
activities during each period. It is important to note, however,
that
the
Trading Advisors trade in various markets at different times and that prior
activity in a particular market does not mean that such market will be actively
traded by the Trading Advisors or will be profitable in the future.
-
23 -
Consequently,
the results of operations of the Partnership are difficult to discuss other than
in the context of the Trading Advisors’ trading activities on behalf of the
Partnership during the period in question. Past performance is no
guarantee of future results.
The
Partnership’s results of operations set forth in the financial statements on
pages 2 through 21 of this report are prepared in accordance with U.S. GAAP,
which require the use of certain accounting policies that affect the amounts
reported in these financial statements, including the following: the contracts
the Partnership trades are accounted for on a trade-date basis and marked to
market on a daily basis. The difference between their original
contract value and market value is recorded on the Statements of Operations as
"Net change in unrealized trading profit (loss)" for open (unrealized)
contracts, and recorded as "Realized trading profit (loss)" when open positions
are closed out. The sum of these amounts constitutes the
Partnership’s trading results. The market value of a futures contract
is the settlement price on the exchange on which that futures contract is traded
on a particular day. The value of a foreign currency forward contract
is based on the spot rate as of the close of business. Interest
income, as well as management fees, incentive fees, and brokerage fees of the
Partnership are recorded on an accrual basis.
For the Three and Nine
Months Ended September 30, 2009
The
Partnership recorded total trading results including interest income totaling
$18,821,975 and expenses totaling $8,049,508, resulting in net income of
$10,772,467 for the three months ended September 30, 2009. The
Partnership’s net asset value per Unit increased from $20.20 at June 30, 2009,
to $20.77 at September 30, 2009.
- 24
-
The most
significant trading gains of approximately 1.6% were recorded in the global
stock index sector throughout a majority of the quarter from long positions in
European, U.S., Hong Kong, and Taiwanese equity index futures as prices
increased due to positive economic data and increased merger and acquisition
activity in the technology sector. Within the agricultural complex,
gains of approximately 1.6% were achieved throughout a majority of the quarter
from long futures positions in sugar as prices moved sharply higher amid
speculation that a global production deficit might continue for two consecutive
years, triggered by increasing demand from India, the world’s largest
consumer. Sugar prices continued to climb throughout August, reaching
a 28-year high, on deepening concerns that unfavorable weather in producing
countries and rising import demand might worsen the global supply
shortfall. Elsewhere in the agricultural complex, long futures
positions in cocoa resulted in gains, primarily during July and September, as
prices rose following news of a smaller-than-average crop this year and a
decline in global inventories. Smaller gains were also recorded from
short positions in wheat futures as prices declined during August and September
amid favorable weather forecasts in the U.S. Midwest. Additional
gains of approximately 1.2% were recorded in the currency sector throughout a
majority of the quarter from long positions in the Australian dollar, New
Zealand dollar, and Swiss franc versus the U.S. dollar as the value of the U.S.
dollar moved lower against these currencies on speculation that the U.S. Federal
Reserve might keep borrowing rates low after the U.S. central bank indicated
that it remained committed to its
quantitative
easing program. Within the metals complex, gains of approximately
0.7% were experienced from long positions in silver and gold futures as prices
rose during September amid a decline in the value of the U.S.
dollar. Elsewhere, gains were experienced primarily during July and
August from long futures positions in copper and zinc as prices rose following
news of an economic expansion in China during the second quarter of
- 25
-
2009,
thereby spurring speculation that China’s demand for base metals might
rise. Smaller gains of approximately 0.6% were recorded in the global
interest rate sector throughout a majority of the quarter from long positions in
short-term British and U.S. interest rate futures as prices increased on
investor sentiment that signs of moderate inflation, as well as the U.S. Federal
Reserve’s commitment to its quantitative easing program, would result in the
U.S. Federal Reserve and the Bank of England holding interest rates steady in
the near term. A portion of the Partnership’s gains for the quarter
was offset by losses of approximately 0.9% incurred in the energy sector during
July from short futures positions in crude oil and its related products as
prices moved higher during the latter half of the month amid
better-than-expected quarterly earnings reports and positive economic data,
which spurred optimism that energy demand might rebound. During
August, newly established long futures positions in crude oil and its related
products recorded additional losses as prices reversed lower due to
above-average U.S. stockpiles.
The
Partnership recorded total trading results including interest income totaling
$(14,413,514) and expenses totaling $27,488,992, resulting in a net loss of
$41,902,506 for the nine months ended September 30, 2009. the
Partnership’s net asset value per Unit decreased from $22.76 at December 31,
2008, to $20.77 at September 30, 2009.
- 26
-
The most
significant trading losses of approximately 2.7% were incurred in the global
interest rate sector during January from long positions in U.S., European, and
Australian fixed-income futures as prices declined following news that debt
sales might increase as governments around the world boosted spending in an
effort to ease the deepening economic slump. Additional losses were
incurred during April and June from long positions in U.S., European, and
Australian fixed-income futures as prices moved lower after a pledge from G-20
leaders to support the global economy reduced demand for the relative “safety”
of government bonds. Within the energy sector, losses of
approximately 1.4% were recorded primarily during March, May, and July from
short futures positions in crude oil and its related products as prices reversed
higher on optimism that a possible rebound in global economic growth might boost
energy demand. During August, newly established long futures
positions in crude oil and its related products recorded additional losses as
prices reversed lower due to above-average U.S.
stockpiles. Additional losses of approximately 1.2% were experienced
in the currency sector during January from long positions in the Japanese yen
versus the U.S. dollar as the value of the Japanese yen reversed lower against
most of its rivals amid speculation that the Bank of Japan might intervene to
weaken the currency, as well as on news that Japan’s trade deficit substantially
increased. Further losses were recorded during April and May from
short positions in the British pound, Canadian dollar, Japanese yen, and Swiss
franc versus the U.S. dollar as the value of the U.S. dollar moved lower against
these currencies after a government report showed U.S. employers cut fewer jobs
than forecast, which reduced demand for the U.S. dollar as a “safe haven”
currency. Additional losses were incurred during June from long
positions in the British pound, Canadian dollar, Swiss franc, and Japanese yen
versus the U.S. dollar as the value of the U.S. dollar reversed higher against
these currencies amid speculation that the U.S. Federal Reserve might raise
interest rates following news that U.S. payrolls fell less than expected in
May. Long positions in the Canadian dollar and
- 27
-
Japanese
yen versus the U.S. dollar resulted in further losses during August as the value
of the U.S. dollar was supported higher against these currencies after reports
revealed a rise in U.S. durable goods orders and news that U.S. new home sales
reached a four-and-a-half year high in July. Smaller losses of
approximately 0.4% were incurred in the metals complex throughout a majority of
the first half of the year from short futures positions in copper and aluminum
as prices reversed higher on speculation that economic stimulus plans in the
U.S. and China would help boost demand for base metals. Short
positions in aluminum futures resulted in further losses during July as prices
moved higher after reports showed an economic expansion in China during the
second quarter of 2009. A portion of the Partnership’s losses in the
first nine months of the year was offset by gains of approximately 2.0% achieved
in the agricultural complex throughout a majority of the third quarter from long
futures positions in sugar as prices moved sharply higher amid speculation that
a global production deficit might continue for two consecutive years, triggered
by increasing demand from India, the world’s largest
consumer. Elsewhere in the agricultural complex, gains were
experienced from short positions in lean hog futures as prices fell throughout
the second quarter on speculation that demand for U.S. pork products might
remain sluggish amid ongoing swine flu concerns. Smaller gains were
also recorded from short positions in wheat futures as prices declined during
August and September amid favorable weather forecasts in the U.S.
Midwest. Within the global equity index sector, gains of
approximately 1.0% were experienced throughout a majority of the third quarter
from long positions in European and U.S. equity index futures as prices
increased due to positive economic data and increased merger and acquisition
activity in the technology sector.
For the Three and Nine
Months Ended September 30, 2008
The
Partnership recorded total trading results including interest income totaling
$(65,971,705) and expenses totaling $11,712,268, resulting in a net loss of
$77,683,973 for the three months ended September 30, 2008.
- 28
-
The
Partnership’s net asset value per Unit decreased from $23.39 at June 30, 2008,
to $20.36 at September 30, 2008.
The most
significant trading losses of approximately 4.2% were recorded in the energy
sector, primarily during July and August, from long futures positions in crude
oil and its related products as prices reversed lower amid signs that the U.S.
economic slump might extend into 2009 and curb future energy
demand. Meanwhile, long positions in natural gas futures resulted in
losses as prices sharply decreased in July amid rising inventories and news that
the Atlantic hurricane season's first storm had avoided the gas-producing fields
in the Gulf of Mexico. Additional losses of approximately 3.0% were incurred
within the agricultural complex throughout the majority of the quarter from long
futures positions in the soybean complex and corn as prices declined on news
that favorable weather might improve crop conditions in the U.S.
Midwest. Prices also moved lower on speculation that a slowing U.S.
economy would reduce demand for alternative biofuels. Smaller losses
were recorded in July and September, from long positions in cocoa futures as
prices decreased following news of a rise in exports from the Ivory Coast, the
world’s largest cocoa producer. Lastly, losses were incurred, primarily during
July and August, from long positions in coffee futures as prices moved lower
following news that Brazil, the world’s largest grower, had accelerated exports.
Within the global interest rate sector, losses of approximately 2.7% were
experienced throughout a majority of the quarter, from short positions in
European fixed-income futures as prices moved higher following a sharp decline
in global equity prices, weaker-than-expected U.K. and German economic data, and
comments from European Central Bank President Jean-Claude Trichet saying that
economic growth would be “particularly weak”, thereby fueling demand for the
“safe haven” of government bonds. Additional losses of approximately 2.7% were
recorded within the currency sector, primarily during August and September, from
long positions in the Australian dollar and euro versus the U.S. dollar as the
value of the U.S.
- 29
-
dollar
moved higher after U.S. consumer confidence increased in August for a second
consecutive month and the U.S. Commerce Department reported a
higher-than-previously-estimated increase in Gross Domestic Product during the
second quarter of 2008. Elsewhere, short positions in the Japanese yen versus
the U.S. dollar and euro recorded losses as the value of the Japanese yen spiked
higher against these currencies during September after extreme volatility in the
global financial markets resulted in a reduction in "carry-trade" positions.
Within the metals sector, losses of approximately 1.0% were incurred during July
and August, from long positions in gold and silver futures as prices moved lower
due to a sharp rise in the value of the U.S. dollar. Newly established short
positions in gold futures resulted in losses during September as prices reversed
sharply higher due to “safe haven” buying amid global credit-market turmoil and
uncertainty regarding the global financial system. A portion of the
Partnership’s losses for the quarter was offset by gains of approximately 1.8%
experienced in the global stock index sector primarily during September from
short positions in European, U.S., and Pacific Rim equity index futures as
prices moved sharply lower amid unprecedented financial market volatility and
turmoil following news of the collapse of a major U.S. investment bank and the
government rescue of a U.S. insurance giant. Furthermore, U.S. equity
prices plunged on Monday, September 29, 2008, after the U.S. House of
Representatives rejected the Economic Stabilization Act of 2008, which would
have allowed the U.S. Treasury to purchase troubled mortgage-backed securities
from U.S. financial institutions.
The
Partnership recorded total trading results including interest income totaling
$56,033,860 and expenses totaling $46,677,408, resulting in net income of
$9,356,452 for the nine months ended September 30, 2008. The
Partnership’s net asset value per Unit increased from $20.22 at December 31,
2007, to $20.36 at September 30, 2008.
- 30
-
The most
significant trading gains of approximately 4.2% were achieved within the global
stock index sector, primarily during January, March, and June, from short
positions in European, Japanese, U.S., and Australian equity index futures as
prices decreased on concerns that mounting losses linked to U.S. sub-prime
mortgage investments would continue to erode corporate earnings and curb global
economic growth. During September, prices moved sharply lower amid unprecedented
U.S. financial market volatility and turmoil following news of the collapse of a
major U.S. investment bank and the government rescue of a U.S. insurance giant,
thus resulting in further gains from short positions. Within the energy sector,
gains of approximately 4.2% were recorded from long futures positions in crude
oil and its related products as prices moved higher throughout a majority of the
first half of the year amid increasing global supply concerns and strong demand
in Asia. Furthermore, futures prices of crude oil and its related
products were also pressured higher due to continued weakness in the U.S.
dollar. Additional gains of approximately 1.5% were experienced
within the agricultural complex from long positions in cocoa futures, primarily
during January, February, April, and June, as prices moved higher amid supply
disruptions in the Ivory Coast, the world’s largest cocoa
producer. Elsewhere, gains were experienced, primarily during
January, February, April, and June, from long positions in corn futures as
prices moved higher on supply concerns and rising demand for alternative fuels
made from crops. Meanwhile, long futures positions in the soybean
complex resulted in gains, primarily during April and June, as prices increased
after a government report showed a rise in demand for U.S. supplies. Smaller
gains of approximately 0.5% were experienced within the currency sector,
primarily during February, March, May, and June, from short positions in the
U.S. dollar versus the euro, Mexican peso, and Swiss franc as the value of the
U.S. dollar weakened against most of its major rivals after U.S. government
reports showed a rise in unemployment, weaker-than-expected U.S. retail sales,
and U.S. consumer confidence at a 16-year low. Furthermore, newly
- 31
-
established
short positions in the Swiss franc versus the U.S. dollar resulted in gains
during August as the value of the U.S. dollar increased after U.S. consumer
confidence increased in August for a second consecutive month and the U.S.
Commerce Department reported a higher-than-previously-estimated increase in
Gross Domestic Product during the second quarter. Additional gains were achieved
primarily during March and August, from short positions in the Korean won versus
the U.S. dollar as the value of the Korean won fell amid concerns of a rising
Current-Account deficit out of Korea. A portion of the Partnership’s gains in
the first nine months of the year was offset by losses of approximately 2.2%
incurred in global interest rate sector during March and April, from long
positions in European fixed-income futures as prices reversed lower after policy
makers at the European Central Bank expressed concern that inflation pressures
would increase, thereby reducing speculation that they would lower interest
rates. Additional losses were incurred throughout a majority of the third
quarter from newly established short positions in European fixed-income futures
as prices moved higher following a sharp decline in global equity prices,
weaker-than-expected U.K. and German economic data, and comments from European
Central Bank President Jean-Claude Trichet saying that economic growth would be
“particularly weak”, thereby fueling demand for the “safe haven” of government
bonds. Smaller losses of approximately 0.1% were recorded in the metals markets,
primarily during January, March, July, and August, from long positions in
aluminum and copper futures as prices moved lower amid speculation that slowing
economic growth would reduce demand for the base metals.
- 32
-
|
Item
3. QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
|
Introduction
The
Partnership is a commodity pool engaged primarily in the speculative trading of
futures, forwards and options. The market-sensitive instruments held
by the Partnership are acquired for speculative trading purposes only and, as a
result, all or substantially all of the Partnership’s assets are at risk of
trading loss. Unlike an operating company, the risk of
market-sensitive instruments is inherent to the primary business activity of the
Partnership.
The
futures, forwards and options on such contracts traded by the Partnership
involve varying degrees of related market risk. Market risk is often
dependent upon changes in the level or volatility of interest rates, exchange
rates, and prices of financial instruments and commodities, factors that result
in frequent changes in the fair value of the Partnership’s open positions, and
consequently in its earnings, whether realized or unrealized, and cash
flow. Gains and losses on open positions of exchange-traded futures,
exchange-traded forward, and exchange-traded futures-styled options contracts
are settled daily through variation margin. Gains and losses on
off-exchange-traded forward currency contracts and forward currency options
contracts are settled upon termination of the contract. However, the
Partnership is required to meet margin requirements equal to the net unrealized
loss on open forward currency contracts in the Partnership accounts with the
counterparty, which is
accomplished
by daily maintenance of the cash balance in a custody account held at
MS&Co.
The
Partnership’s total market risk may increase or decrease as it is influenced by
a wide variety of factors, including, but not limited to, the diversification
among the Partnership’s open positions, the volatility present within the
markets, and the liquidity of the markets.
- 33
-
The face
value of the market sector instruments held by the Partnership is typically many
times the applicable margin requirements. Margin requirements
generally range between 2% and 15% of contract face
value. Additionally, the use of leverage causes the face value of the
market sector instruments held by the Partnership typically to be many times the
total capitalization of the Partnership.
The
Partnership’s past performance is no guarantee of its future
results. Any attempt to numerically quantify the Partnership’s market
risk is limited by the uncertainty of its speculative trading. The
Partnership’s speculative trading and use of leverage may cause future losses
and volatility (i.e.,
"risk of ruin") that far exceed the Partnership’s experience to date under the
"Partnership’s Value at Risk in Different Market Sectors" section and
significantly exceed the Value at Risk ("VaR") tables disclosed.
Limited
partners will not be liable for losses exceeding the current net asset value of
their investment.
Quantifying the
Partnership’s Trading Value at Risk
The
following quantitative disclosures regarding the Partnership’s market risk
exposures contain "forward-looking statements" within the meaning of the safe
harbor from civil liability provided for such statements by the Private
Securities Litigation Reform Act of 1995 (set forth in Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934). All quantitative disclosures in this section are deemed to be
forward-looking statements for purposes of the safe harbor, except for
statements of historical fact.
The
Partnership accounts for open positions on the basis of mark to market
accounting principles. Any loss in the market value of the
Partnership’s open positions is directly reflected in the Partnership’s earnings
and cash flow.
- 34
-
The
Partnership’s risk exposure in the market sectors traded by the Trading Advisors
is estimated below in terms of VaR. The Partnership estimates VaR
using a model based upon historical simulation (with a confidence level of 99%)
which involves constructing a distribution of hypothetical daily changes in the
value of a trading portfolio. The VaR model takes into account linear
exposures to risk including equity and commodity prices, interest rates, foreign
exchange rates, and correlation among these variables. The hypothetical changes
in portfolio value are based on daily percentage changes observed in key market
indices or other market factors ("market risk factors") to which the portfolio
is sensitive. The one-day 99% confidence level of the Partnership’s
VaR corresponds to the negative change in portfolio value that, based on
observed market risk factors, would have been exceeded once in 100 trading days,
or one day in 100. VaR typically does not represent the worst case
outcome. Demeter uses approximately four years of daily market data
(1,000 observations) and re-values its portfolio (using delta-gamma
approximations) for each of the historical market moves that occurred over this
time period. This generates a probability distribution of daily
"simulated profit and loss" outcomes. The VaR is the appropriate
percentile of this distribution. For example, the 99% one-day VaR
would represent the 10th worst outcome from Demeter’s simulated profit and loss
series.
The
Partnership’s VaR computations are based on the risk representation of the
underlying benchmark for each instrument or contract and do not distinguish
between exchange and non-exchange dealer-based instruments. They are
also not based on exchange and/or dealer-based maintenance margin
requirements.
- 35
-
VaR
models, including the Partnership’s are continually evolving as trading
portfolios become more diverse and modeling techniques and systems capabilities
improve. Please note that the VaR model is used to numerically
quantify market risk for historic reporting purposes only and is not utilized by
either Demeter or the Trading Advisors in their daily risk management
activities. Please further note that VaR as described above may not
be comparable to similarly-titled measures used by other entities.
The Partnership’s Value at
Risk in Different Market Sectors
The
following table indicates the VaR associated with the Partnership’s open
positions as a percentage of total net assets by primary market risk category at
September 30, 2009 and 2008. At September 30, 2009 and 2008, the
Partnership’s total capitalization was approximately $395 million and $510
million, respectively.
Primary
Market
|
September
30, 2009
|
September
30, 2008
|
Risk Category
|
Value at Risk
|
Value at Risk
|
Equity
|
(2.19)%
|
(0.23)%
|
Currency
|
(0.88)
|
(0.20)
|
Interest
Rate
|
(0.75)
|
(0.37)
|
Commodity
|
(0.93)
|
(0.18)
|
Aggregate
Value at Risk
|
(2.78)%
|
(0.60)%
|
The VaR
for a market category represents the one-day downside risk for the aggregate
exposures associated with this market category. The Aggregate Value
at Risk listed above represents the VaR of the Partnership’s open positions
across all the market categories, and is less than the sum of the VaRs for all
such market categories due to the diversification benefit across asset
classes.
- 36
-
Because
the business of the Partnership is the speculative trading of futures, forwards
and options on such contracts, the composition of its trading portfolio can
change significantly over any given time period, or even within a single trading
day. Such change could positively or negatively materially impact
market risk as measured by VaR.
The table
below supplements the quarter-end VaR set forth above by presenting the
Partnership’s high, low, and average VaR, as a percentage of total net assets
for the four quarter-end reporting periods from October 1, 2008, through
September 30, 2009.
Primary Market Risk
Category
|
High
|
Low
|
Average
|
Equity
|
(2.19)%
|
(0.05)%
|
(0.67)%
|
Currency
|
(0.88)
|
(0.20)
|
(0.45)
|
Interest
Rate
|
(0.75)
|
(0.34)
|
(0.49)
|
Commodity
|
(0.93)
|
(0.22)
|
(0.44)
|
Aggregate
Value at Risk
|
(2.78)%
|
(0.56)%
|
(1.19)%
|
Limitations on Value at Risk
as an Assessment of Market Risk
VaR
models permit estimation of a portfolio’s aggregate market risk exposure,
incorporating a range of varied market risks, reflect risk reduction due to
portfolio diversification or hedging activities, and can cover a wide
range of portfolio assets. However, VaR risk measures should be viewed in light
of the methodology’s limitations, which include, but may not be limited to the
following:
- 37
-
·
|
past
changes in market risk factors will not always result in accurate
predictions of the distributions and correlations of future market
movements;
|
·
|
changes
in portfolio value caused by market movements may differ from those of the
VaR model;
|
·
|
VaR
results reflect past market fluctuations applied to current trading
positions while future risk depends on future
positions;
|
·
|
VaR
using a one-day time horizon does not fully capture the market risk of
positions that cannot be liquidated or hedged within one day;
and
|
·
|
the
historical market risk factor data used for VaR estimation may provide
only limited insight into losses that could be incurred under certain
unusual market movements.
|
In
addition, the VaR tables above, as well as the past performance of the
Partnership, give no indication of the Partnership’s potential "risk of
ruin".
The VaR
tables provided present the results of the Partnership’s VaR for each of the
Partnership’s market risk exposures and on an aggregate basis at September 30,
2009 and 2008, and for the four quarter-end reporting periods from October 1,
2008, through September 30, 2009. VaR is not necessarily
representative of the Partnership’s historic risk, nor should it be used to
predict the Partnership’s future financial performance or its ability to manage
or monitor risk. There can be no assurance that the Partnership’s
actual losses on a particular day will not exceed the VaR amounts indicated
above or that such losses will not occur more than once in 100 trading
days.
- 38
-
Non-Trading
Risk
The
Partnership has non-trading market risk on its foreign cash
balances. These balances and any market risk they may represent are
immaterial.
The
Partnership also maintains a substantial portion of its available assets in cash
at MS&Co.; as of September 30, 2009, such amount was equal to approximately
88% of the Partnership’s net asset value. A decline in short-term
interest rates would result in a decline in the Partnership’s cash management
income. This cash flow risk is not considered to be material.
Materiality,
as used throughout this section, is based on an assessment of reasonably
possible market movements and any associated potential losses, taking into
account the leverage, optionality, and multiplier features of the Partnership’s
market-sensitive instruments, in relation to the Partnership’s net
assets.
Qualitative Disclosures
Regarding Primary Trading Risk Exposures
The
following qualitative disclosures regarding the Partnership’s market risk
exposures - except for (A) those disclosures that are statements of historical
fact and (B) the descriptions of how the Partnership manages its primary market
risk exposures - constitute forward-looking statements within the meaning of
Section 27A of
the
Securities Act and Section 21E of the Securities Exchange Act. The Partnership’s
primary market risk exposures, as well as the strategies used and to be used by
Demeter and the Trading Advisors for managing such exposures, are subject to
numerous uncertainties, contingencies and risks, any one of which could cause
the actual results of the Partnership’s risk controls to differ materially from
the objectives of such strategies. Government interventions, defaults
and expropriations, illiquid markets, the emergence of dominant fundamental
factors,
- 39
-
political
upheavals, changes in historical price relationships, an influx of new market
participants, increased regulation, and many other factors could result in
material losses, as well as in material changes to the risk exposures and the
risk management strategies of the Partnership.
The
Trading Advisors, in general, tend
to utilize trading system(s) to take positions when market opportunities
develop, and Demeter anticipates that the Trading Advisors will continue to do
so.
Investors
must be prepared to lose all or substantially all of their investment in the
Partnership.
The
following were the primary trading risk exposures of the Partnership at
September 30, 2009, by market sector. It may be anticipated, however,
that these market exposures will vary materially over time.
Equity. The
largest market exposure of the Partnership at September 30, 2009, was to the
global stock index sector, primarily to equity price risk in the G-7
countries. The G-7 countries consist of France, the U.S., the United
Kingdom, Germany, Japan, Italy, and Canada. The stock index futures
traded by the Partnership are by law limited to futures on broadly–based
indices. At September 30, 2009, the Partnership’s primary exposures
were to the NASDAQ 100 (U.S.), FTSE 100 (U.K.), S&P 500 (U.S.), Euro Stox 50
(Europe), SPI 200 (Australia), DAX (Germany), IBEX 35 (Spain), AEX (The
Netherlands), CAC 40 (France), Hang Seng (Hong Kong), Canadian S&P 60
(Canada), TAIWAN (Taiwan), H-Shares (Hong Kong), S&P Midcap (U.S.), Russell
2000 (U.S.), NIKKEI 225 (Japan), S&P/MIB (Italy), Dow Jones 30 (U.S.),
S&P Nifty (India), OMX 30 (Sweden), Singapore Free (Singapore), TOPIX
(Japan), and ALL SHARE (South Africa) stock indices. The Partnership
is typically exposed to the risk of adverse price trends or static markets in
the European, Asian,
- 40
-
U.S.,
Canadian, and Australian stock indices. Static markets would not
cause major market changes, but would make it difficult for the Partnership to
avoid trendless price movements, resulting in numerous small
losses.
Currency. At
September 30, 2009, the Partnership had market exposure to the currency sector.
The Partnership’s currency exposure is to exchange rate fluctuations, primarily
fluctuations which disrupt the historical pricing relationships between
different currencies and currency pairs. Interest rate changes, as
well as political and general economic conditions influence these
fluctuations. The Partnership trades a large number of currencies,
including cross-rates - i.e., positions between two
currencies other than the U.S. dollar. At September 30, 2009, the
Partnership’s major exposures were to the euro, Norwegian krone, Australian
dollar, Canadian dollar, Swedish krona, Japanese yen, British pound, Swiss
franc, Czech koruna, and Polish zloty currency crosses, as well as to outright
U.S. dollar positions. Outright positions consist of the U.S. dollar
vs. other currencies. These other currencies include major and minor
currencies. Demeter does not anticipate that the risk associated with
the Partnership’s currency trades will change significantly in the
future.
Interest
Rate. At September 30, 2009, the Partnership had market
exposure to the global interest rate sector. Exposure was primarily
spread across the European, U.S., Japanese, Australian, and Canadian interest
rate sectors. Interest rate movements directly affect the price of
the sovereign bond futures positions held by the Partnership and indirectly
affect the value of its stock index and currency positions. Interest
rate movements in one country, as well as relative interest rate movements
between countries, materially impact the Partnership’s profitability. The
Partnership’s interest rate exposure is generally to interest rate fluctuations
in the U.S. and the
- 41
-
other G-7
countries’ interest rates. However, the Partnership also takes
futures positions in the government debt of smaller countries – e.g.,
Australia. Demeter anticipates that G-7 countries’ interest rates and
Australian interest rates will remain the primary interest rate exposure of the
Partnership for the foreseeable future. The speculative futures
positions held by the Partnership may range from short to long-term instruments.
Consequently, changes in short, medium, or long-term interest rates may have an
effect on the Partnership.
Commodity.
Soft Commodities and
Agriculturals. The second largest market exposure of the
Partnership at September 30, 2009, was to the soft commodities and agricultural
sector. Most of the exposure was to the sugar, wheat, cocoa, soybean
meal, live cattle, lean hogs, corn, soybeans, coffee, soybean oil, and feeder
cattle markets. Supply and demand inequalities, severe weather
disruptions, and market expectations affect price movements in these
markets.
Metals. The
third largest market exposure of the Partnership at September 30, 2009, was to
the metals sector. The Partnership’s metals exposure was to
fluctuations in the price of precious metals, such as gold, silver, and
platinum, as well as base metals, such as copper, zinc, nickel, lead, and
aluminum. Economic forces, supply and demand inequalities,
geopolitical factors, and market expectations influence price movements in these
markets.
- 42
-
Energy. At
September 30, 2009, the Partnership had market exposure to the energy
sector. The Partnership’s energy exposure was shared primarily by
futures contracts in crude oil and its related products, as well as natural gas.
Price movements in these markets result from geopolitical developments,
particularly in the Middle East, as well as weather patterns, and other economic
fundamentals. Significant profits and losses, which have been
experienced in the past, are expected to continue to be experienced in the
future. Natural gas has exhibited volatility in prices resulting from
weather patterns and supply and demand factors and will likely continue in this
choppy pattern.
Qualitative Disclosures
Regarding Non-Trading Risk Exposure
The
following was the only non-trading risk exposure of the Partnership at September
30, 2009:
Foreign Currency
Balances. The Partnership’s primary foreign currency balances at
September 30, 2009, were in British pounds, Japanese yen, Australian dollars,
Swiss francs, euros, South African rands, Hungarian forint, Norwegian kroner,
Hong Kong dollars, Swedish kronor, Canadian dollars, Turkish lire, New Zealand
dollars, and Czech koruny. The Partnership controls the non-trading
risk of foreign currency balances by regularly converting them back into U.S.
dollars upon liquidation of their respective positions.
Qualitative Disclosures
Regarding Means of Managing Risk Exposure
The
Partnership and the Trading Advisors, separately, attempt to manage the risk of
the Partnership’s open positions in essentially the same manner in all market
categories traded. Demeter attempts to manage market
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exposure
by diversifying the Partnership’s assets among different market sectors and
trading approaches through the selection of Commodity Trading Advisors and by
daily monitoring their performance. In addition, the Trading Advisors
establish diversification guidelines, often set in terms of the maximum margin
to be committed to positions in any one market sector or market-sensitive
instrument.
Demeter
monitors and controls the risk of the Partnership’s non-trading instrument,
cash. Cash is the only Partnership investment directed by Demeter, rather than
the Trading Advisors.
Item
4.
|
CONTROLS AND
PROCEDURES
|
As of the
end of the period covered by this quarterly report, the President and Chief
Financial Officer of Demeter have evaluated the effectiveness of the
Partnership’s disclosure controls and procedures (as defined in Rules 13a-15(e)
and 15d-15(e) of the Exchange Act), and have judged such controls and procedures
to be effective.
Changes in Internal Control
over Financial Reporting
There
have been no material changes during the period covered by this quarterly report
in the Partnership’s internal control over financial reporting (as defined in
Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that have materially affected
or are reasonably likely to affect the Partnership’s internal control over
financial reporting.
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Limitations on the
Effectiveness of Controls
Any
control system, no matter how well designed and operated, can provide reasonable
(not absolute) assurance that its objectives will be
met. Furthermore, no evaluation of controls can provide absolute
assurance that all control issues and instances of fraud, if any, have been
detected.
Item
4T. CONTROLS AND
PROCEDURES
Not
applicable.
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–
PART
II. OTHER
INFORMATION
Item
1A.
|
RISK
FACTORS
|
There
have been no material changes from the risk factors previously referenced in the
Partnership’s Report on Form 10-K for the fiscal year ended December 31,
2008.
|
Item
6.
|
EXHIBITS
|
31.01
|
Certification
of President of Demeter Management LLC, the general partner of the
Partnership, pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
31.02
|
Certification
of Chief Financial Officer of Demeter Management LLC, the general partner
of the Partnership, pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
32.01
|
Certification
of President of Demeter Management LLC, the general partner of the
Partnership, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of
2002.
|
32.02
|
Certification
of Chief Financial Officer of Demeter Management LLC, the general partner
of the Partnership, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
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–
SIGNATURE
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
Morgan
Stanley Smith Barney Spectrum Technical L.P.
|
|||
(Registrant)
|
|||
By:
|
Demeter
Management LLC
|
||
(General
Partner)
|
|||
November
13, 2009
|
By:
|
/s/Christian
Angstadt
|
|
Christian
Angstadt
|
|||
Chief
Financial Officer
|
The
General Partner which signed the above is the only party authorized to act for
the registrant. The registrant has no principal executive officer,
principal financial officer, controller, or principal accounting officer and has
no Board of Directors.
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