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EX-32.02 - EXHIBIT - MORGAN STANLEY SMITH BARNEY SPECTRUM TECHNICAL LPdwstex3202.htm
EX-32.01 - EXHIBIT - MORGAN STANLEY SMITH BARNEY SPECTRUM TECHNICAL LPdwstex3201.htm
EX-31.01 - EXHIBIT - MORGAN STANLEY SMITH BARNEY SPECTRUM TECHNICAL LPdwstex3101.htm
EX-31.02 - EXHIBIT - MORGAN STANLEY SMITH BARNEY SPECTRUM TECHNICAL LPdwstex3102.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, 2010 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, 14th Floor
   
New York, NY
 
10036
(Address of principal executive offices)
 
(Zip Code)

Registrant’s telephone number, including area code
 
(212) 296-1999

522 Fifth Avenue, 13th Floor, New York, NY 10036
(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.
INDEX TO QUARTERLY REPORT ON FORM 10-Q

September 30, 2010



 
PART I. FINANCIAL INFORMATION
 
     
Item 1.
Financial Statements (Unaudited)
 
     
 
Statements of Financial Condition as of September 30, 2010 and December 31, 2009
     
 
Statements of Operations for the Three and Nine Months Ended September 30, 2010 and 2009
     
 
Statements of Changes in Partners’ Capital for the Nine Months Ended September 30, 2010 and 2009
     
 
Condensed Schedules of Investments as of September 30, 2010 and December 31, 2009
     
 
Notes to Financial Statements
  6-24 
     
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
25-35 
     
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
35-47 
     
Item 4.
Controls and Procedures
47-48 
     
 
PART II. OTHER INFORMATION
 
     
Item 1A.
Risk Factors
49 
     
Item 6.
Exhibits
49 



 
 

 

PART I.  FINANCIAL INFORMATION
Item 1.  Financial Statements

MORGAN STANLEY SMITH BARNEY SPECTRUM TECHNICAL L.P.
STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
 
September 30,
 
December 31,
 
2010
 
2009
ASSETS
$
 
$
Trading Equity:
     
Unrestricted cash
296,106,661 
 
337,112,125 
Restricted cash
24,886,767 
 
38,759,401 
       
Total cash
320,993,428 
  
375,871,526 
       
Net unrealized gain on open contracts (MS&Co.)
19,943,950 
 
8,183,798 
Net unrealized gain on open contracts (MSIP)
1,193,256 
 
2,511,873 
       
Total net unrealized gain on open contracts
21,137,206 
 
10,695,671 
       
Options purchased (premiums paid $54,519 and $192,906, respectively)
58,185 
 
185,397 
       
Total Trading Equity
342,188,819 
 
386,752,594 
       
Interest receivable (MSSB)
24,382 
 
5,334 
       
Total Assets
342,213,201 
 
386,757,928 
       
LIABILITIES AND PARTNERS’ CAPITAL
     
       
Liabilities
     
       
Redemptions payable
3,968,167 
 
3,332,464 
Accrued brokerage fees (MS&Co.)
1,666,440 
 
  1,955,857 
Accrued management fees
580,477 
 
586,118 
Options written (premiums received $80,497 and $67,908, respectively)
67,002 
 
55,219 
       
Total Liabilities
6,282,086 
 
5,929,658 
       
Partners’ Capital
     
       
Limited Partners (16,682,282.114 and 18,367,153.109 Units, respectively)
332,555,501 
 
376,999,886 
General Partner (169,334.001 and 186,516.001 Units, respectively)
3,375,614 
 
3,828,384 
       
Total Partners’ Capital
335,931,115 
 
380,828,270 
       
Total Liabilities and Partners’ Capital
342,213,201 
 
386,757,928 
       
NET ASSET VALUE PER UNIT
19.93 
 
20.53 






The accompanying notes are an integral part of these financial statements.

- 2 -

 
 

 

MORGAN STANLEY SMITH BARNEY SPECTRUM TECHNICAL L.P.
STATEMENTS OF OPERATIONS
(Unaudited)
       
 
For the Three Months
Ended September  30,
 
For the Nine Months
Ended September 30,
               
 
2010
 
2009
 
2010
 
2009
 
$
 
$
 
$
 
$
INVESTMENT INCOME
             
Interest income (MSSB)
94,582 
 
94,757 
 
230,606 
 
324,171 
               
EXPENSES
             
Brokerage fees (MS&Co.)
4,969,632 
 
5,879,163 
 
15,854,822 
 
19,947,992 
Management fees
1,822,717 
 
2,170,345 
 
5,806,644 
 
7,356,358 
Incentive fee
 
 
 
184,642 
               
Total Expenses
6,792,349 
 
8,049,508 
 
21,661,466 
 
27,488,992 
               
Management fees waived
(64,111) 
 
 
(64,111) 
 
               
Net Expenses
6,728,238 
 
8,049,508 
 
21,597,355 
 
27,488,992 
               
NET INVESTMENT LOSS
(6,633,656) 
 
(7,954,751) 
 
(21,366,749) 
 
(27,164,821) 
               
TRADING RESULTS
             
Trading profit (loss):
             
Realized
(4,228,320) 
 
667,978 
 
(612,150) 
 
(19,541,106) 
Net change in unrealized
20,211,537 
 
18,059,240 
 
10,453,516 
 
4,803,421 
 
15,983,217 
 
18,727,218 
 
9,841,366 
 
(14,737,685) 
Proceeds from Litigation Settlement
164,828 
 
––
 
164,828 
 
––
               
Total Trading Results
16,148,045 
 
18,727,218 
 
10,006,194 
 
(14,737,685) 
               
NET INCOME (LOSS)
9,514,389 
 
10,772,467 
 
(11,360,555) 
 
(41,902,506) 
               
NET INCOME (LOSS)  ALLOCATION
             
               
Limited Partners
9,419,280 
 
10,663,248 
 
(11,246,566) 
 
(41,480,921) 
General Partner
95,109 
 
109,219 
 
(113,989) 
 
(421,585) 
               
NET INCOME (LOSS) PER UNIT *
             
               
Limited Partners
0.56
 
0.56
 
(0.60) 
 
(2.05) 
General Partner
0.56
 
0.56
 
(0.60) 
   
(2.05) 
               
 
Units
 
Units
 
Units
 
Units
WEIGHTED AVERAGE NUMBER
             
OF UNITS OUTSTANDING
17,253,985.732 
 
19,355,209.594 
 
17,823,308.263 
 
20,478,787.768 

* Based on change in Net Asset Value per Unit.

The accompanying notes are an integral part of these financial statements.

- 3 -
 
 


 
MORGAN STANLEY SMITH BARNEY SPECTRUM TECHNICAL L.P.
STATEMENTS OF CHANGES IN PARTNERS’ CAPITAL
For the Nine Months Ended September 30, 2010 and 2009
(Unaudited)



 
Units of
           
 
Partnership
 
Limited
 
General
   
 
Interest
 
Partners
 
Partner
 
Total
     
$
 
$
 
                  $
 Partners’ Capital,
             
December 31, 2009
18,553,669.110 
 
376,999,886 
 
3,828,384 
 
380,828,270 
               
 Net Loss
 
(11,246,566) 
 
(113,989) 
 
(11,360,555) 
               
 Redemptions
(1,702,052.995) 
 
(33,197,819) 
 
(338,781) 
 
(33,536,600) 
               
 Partners’ Capital,
             
September 30, 2010
16,851,616.115 
 
332,555,501
 
3,375,614 
 
335,931,115 
               
               
               
               
 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.
CONDENSED SCHEDULES OF INVESTMENTS
September 30, 2010 and December 31, 2009 (Unaudited)

     Futures and Forward Contracts
Long Unrealized
Gain
Percentage of
Net Assets
Short  Unrealized
Loss
Percentage of
Net Assets
Net
  Unrealized
     Gain
 
$
%
$
%
    $
 September 30, 2010 Partnership Partners’ Capital:  $335,931,115
         
           
 Commodity
9,118,226
2.71
(598,255)
(0.18)
        8,519,971
 Equity
1,190,257
0.36
(153,318)           
(0.04)
            1,036,939
 Foreign currency
5,302,934
1.58
(642,463)
(0.19)
        4,660,471
 Interest rate
    3,838,848
   1.14
             (23,167) 
      (0.01)      
            3,815,681
     Grand Total:
  19,450,265
   5.79
            (1,417,203)
(0.42)
          18,033,062
           
     Unrealized Currency Gain
     
0.92
        3,104,144
           
 Total Net Unrealized Gain on Open Contracts
       
          21,137,206
 Option Contracts
Fair Value
Percentage of
Net Assets
     
 
$
%
     
 Options purchased on Futures Contracts
 3,153
      
 Options purchased on Forward Contracts
55,032
(0.02)
     
 Options written on Futures Contracts
(6,560)
     
 Options written on Forward Contracts
(60,442)
(0.02)
     
           
 Futures and Forward Contracts
Long Unrealized
Gain/(Loss)
Percentage of
Net Assets
Short
Unrealized
Gain/(Loss)
Percentage of
Net Assets
Net Unrealized
Gain/(Loss)
 
$
%
$
%
$
 December 31, 2009 Partnership Partners’ Capital: $380,828,270
         
           
 Commodity
6,940,685
1.82
177,727
0.04
         7,118,412
 Equity
5,093,096
1.34
(4,468)           
         5,088,628
 Foreign currency
(2,142,450)
 (0.56)           
152,960
 0.04
       (1,989,490)
 Interest rate
  (2,917,670)
 (0.77)          
               (7,311) 
         –       
           (2,924,981)
     Grand Total:
   6,973,661
    1.83           
    318,908           
0.08
             7,292,569
           
     Unrealized Currency Gain
     
0.89
     3,403,102
           
 Total Net Unrealized Gain on Open Contracts
       
            10,695,671
 Option Contracts
Fair Value
Percentage of
Net Assets
     
 
 $
%
     
 Options purchased on Futures Contracts
2,023
     
 Options purchased on Forward Contracts
183,374
0.05
     
 Options written on Futures Contracts
(4,633)
     
 Options written on Forward Contracts
(50,586)
(0.01)
     


The accompanying notes are an integral part of these financial statements.

- 5 -


 
 
 

 
MORGAN STANLEY SMITH BARNEY SPECTRUM TECHNICAL L.P.
NOTES TO FINANCIAL STATEMENTS

September 30, 2010

(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. (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, 2009.

1.  Organization
Morgan Stanley Smith Barney 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").




- 6 -
 
 
 

 
MORGAN STANLEY SMITH BARNEY SPECTRUM TECHNICAL L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

The Partnership’s general partner is Demeter Management LLC (“Demeter”).  The non-clearing commodity broker is Morgan Stanley Smith Barney LLC (“MSSB”) as of May 1, 2010.  The clearing 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 broker for trades on the London Metal Exchange (“LME”).  Demeter is a wholly-owned subsidiary of Morgan Stanley Smith Barney Holdings LLC (“MSSBH”).  MSSBH is majority-owned indirectly by Morgan Stanley and minority-owned indirectly by Citigroup Inc.  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 (“Chesapeake”), 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").

For the period from August 1, 2010 through September 30, 2010, Chesapeake agreed to reduce temporarily the management fee it receives from the Partnership 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.  This partial waiver of the management fee was in effect until October 1, 2010.  See Subsequent Event Note on page 23 for more information on the management fee waiver.



-  7 -

 
 

 

MORGAN STANLEY SMITH BARNEY SPECTRUM TECHNICAL L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)


On July 28, 2010, the Partnership received a settlement award payment in the amount of $164,828 from the Natural Gas Commodity Litigation Settlement Administrator.  This settlement represents the Partnership’s portion of the 2006 Net Settlement Fund and the 2007 Net Settlement Fund.  The proceeds from settlement was accounted for in the period it was received for the benefit of the partners in the Partnership.

For the period from July 12, 2010 through September 14, 2010, Chesapeake, one of the Trading Advisors to the Partnership, in consultation with Demeter, agreed to reduce temporarily the overall leverage of the Partnership’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.

Effective September 15, 2010, Chesapeake, in consultation with Demeter, had agreed to increase the overall leverage of the Partnership’s assets traded pursuant to the Program from 50% of the customary leverage utilized by the Program to 62.5% of the customary leverage utilized by the Program.  Chesapeake, in further consultation with Demeter, will determine, if, and at what time, the partnership’s leverage may be readjusted.

2.  Related Party Transactions
The Partnership’s cash is on deposit with MS&Co., MSIP, and MSSB in futures, forward and options
trading accounts to meet margin requirements as needed.  MSSB 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


- 8 -

 
 

 

MORGAN STANLEY SMITH BARNEY SPECTRUM TECHNICAL L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)



average of the 4-week U.S. Treasury bill discount rate during such month.  MSSB will retain any interest earned in excess of the interest paid by the MSSB to the Partnership.  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.

The guidance issued by the Financial Accounting Standards Board (“FASB”) on income taxes clarifies the accounting for uncertainty in income taxes recognized in the 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 Partnership has concluded that there are no significant uncertain tax positions that would require recognition in the financial statements as of September 30, 2010.  If applicable, the Partnership recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in other expenses in the Statements of Operations.  Generally, the 2007 through 2009 tax years remain subject to examination by U.S. federal and most state tax authorities.


- 9 -

 
 

 

MORGAN STANLEY SMITH BARNEY SPECTRUM TECHNICAL L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)






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 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 net change in unrealized trading profit (loss) 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 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.  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.


- 10 -
 
 
 

 
MORGAN STANLEY SMITH BARNEY SPECTRUM TECHNICAL L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)


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 on the underlying asset at a specified price prior to or on a specified expiration date.  The writer of an option is exposed to the risk of loss if the fair value of the Futures Interest on the underlying asset declines (in the case of a put option) or increases (in the case of a call option).  The writer of an option can never profit by more than the premium paid by the buyer but can potentially lose an unlimited amount.

Premiums received/premiums paid from writing/purchasing options are recorded as liabilities/assets on the Statements of Financial Condition and are subsequently adjusted to fair values.  The difference between the fair value of the option and the premiums received/premiums paid is treated as an unrealized gain or loss.

The fair value of exchange-traded contracts is based on the settlement price quoted by the exchange on the day with respect to which fair value is being determined.  If an exchange-traded contract could not have been liquidated on such day due to the operation of daily limits or other rules of the exchange, the settlement price will be equal to the settlement price on the first subsequent day on which the contract could be liquidated.  The fair value of off-exchange-traded contracts is based on the fair value quoted by the counterparty.




- 11 -

 
 

 

MORGAN STANLEY SMITH BARNEY 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 the Derivatives and Hedging as required by the FASB Accounting Standards Codification (“ASC” or the “Codification”).  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) 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, forwards, 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, reported as a component of "Trading Equity" on the Statements of Financial Condition, and their longest contract maturities were as follows:

 
Net Unrealized Gains (Losses) on Open Contracts
Longest Maturities
Date
Exchange-Traded
Off-Exchange-Traded
Total
Exchange-Traded
Off-Exchange-Traded
 
$
$
$
   
Sep. 30, 2010
18,590,239
2,546,967
21,137,206
Dec. 2013
Dec. 2010
Dec. 31, 2009
11,576,454
    (880,783)
10,695,671
Mar. 2013
Mar. 2010




- 12 -

 
 

 

MORGAN STANLEY SMITH BARNEY SPECTRUM TECHNICAL L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

The Partnership has credit risk associated with counterparty nonperformance.  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 $339,583,667 and $387,447,980 at September 30, 2010, and December 31, 2009, 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

- 13 -
 
 
 

 
 MORGAN STANLEY SMITH BARNEY SPECTRUM TECHNICAL L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)




forward currency contracts in the Partnership accounts with the counterparty, which is accomplished by daily maintenance of the cash balance in a custody account held at MSSB for the benefit of MS&Co. 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 are settled upon termination of the contract.  Gains and losses on off-exchange-traded forward currency options contracts are settled upon an agreed upon settlement date.  However, the Partnership is required to meet margin requirements equal to the net unrealized loss on open forward currency contracts in the Partnership’s accounts with the counterparty, which is accomplished by daily maintenance of the cash balance in a custody account held at MSSB for the benefit of MS&Co.
- 14 -
 
 
 

 
MORGAN STANLEY SMITH BARNEY SPECTRUM TECHNICAL L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)


5.  Derivatives and Hedging
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 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. 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 tables summarize the valuation of the Partnership’s investments as required by the disclosures about Derivatives and Hedging as of September 30, 2010 and December 31, 2009, respectively.

The Effect of Trading Activities on the Statements of Financial Condition as of September 30, 2010:
 Futures and Forward Contracts
Long
Unrealized
Gain
Long Unrealized
Loss
 Short
 Unrealized
Gain
  Short Unrealized
Loss
Net   Unrealized
 Gain
Average number of
contracts
outstanding for nine months
 (absolute quantity)
 
$
$
$
$
$
 
 Commodity
9,929,993
(811,767) 
310,630
(908,885)
8,519,971
4,180
 Equity
1,669,361
(479,104) 
743
                   (154,061)
1,036,939
2,445
 Foreign currency
6,153,098
(850,164) 
864,862
(1,507,325)
4,660,471
8,966
 Interest rate
  4,837,011
   (998,163) 
                            13,263
    (36,430)
  3,815,681
10,101
Total
22,589,463
(3,139,198) 
  1,189,498
  (2,606,701)
  18,033,062
 
             
Unrealized currency gain
       
   3,104,144
 
Total net unrealized gain on open contracts
       
 
  21,137,206
 

- 15 -
 
 
 

 
MORGAN STANLEY SMITH BARNEY SPECTRUM TECHNICAL L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)


   
Average number of
 
   
contracts outstanding
 
 
Fair
for nine months
 
 
Value
(absolute quantity)
 
Option Contracts
$
   
Options purchased
58,185
12
 
Options written
(67,002)
12
 


The Effect of Trading Activities on the Statements of Financial Condition as of December 31, 2009:
 Futures and Forward Contracts
  Long
Unrealized
 Gain
Long Unrealized
Loss
 Short
 Unrealized
Gain
  Short Unrealized
Loss
Net   Unrealized
 Gain/(Loss)
Average number of
contracts
outstanding
for the year  (absolute quantity)
 
$
$
$
$
$
 
 Commodity
9,706,779
(2,766,094)
405,015
(227,288)
7,118,412
3,562
 Equity
5,129,900
(36,804)
                    –
(4,468)
5,088,628
2,350
 Foreign currency
526,121
(2,668,571)
1,040,532
(887,572)
 (1,989,490)
4,883
 Interest rate
    376,281
  (3,293,951)
    242,196
  (249,507)
(2,924,981)
6,744
Total
15,739,081
(8,765,420)
1,687,743
(1,368,835)
7,292,569
 
             
Unrealized currency gain
       
 3,403,102
 
Total net unrealized gain on open contracts
       
 
10,695,671
 


   
Average number of
 
   
contracts outstanding
 
 
Fair
for the year
 
 
Value
(absolute quantity)
 
Option Contracts
$
   
Options purchased
  185,397
7
 
Options written
                        (55,219)
7
 


The following tables summarize the net trading results of the Partnership for the three and nine months ended September 30, 2010 and 2009, respectively, as required by the disclosures about Derivatives and Hedging.





- 16 -

 
 

 

MORGAN STANLEY SMITH BARNEY SPECTRUM TECHNICAL L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)



The Effect of Trading Activities on the Statements of Operations for the Three and Nine Months Ended September 30, 2010, included in Total Trading Results:

 
For the Three Months
For the Nine Months
 
Ended September 30, 2010
Ended September 30, 2010
Type of Instrument
          $
$
     
 Commodity
1,374,669
(22,327,654)
 Equity
347,407
(17,843,791)
 Foreign currency
2,237,317
3,809,966
 Interest rate
12,115,242
46,501,803
 Unrealized currency loss
(91,418)
(298,958)
 Proceeds from Litigation Settlement
        164,828
       164,828
Total
   16,148,045
  10,006,194




Line Items on the Statements of Operations for the Three and Nine Months Ended September 30, 2010:
 
For the Three Months
For the Nine Months
 
Ended September 30, 2010
Ended September 30, 2010
 Trading Results
          $
$
     
 Realized
                                                            (4,228,320)
                                                             (612,150)
 Net change in unrealized
20,211,537
10,453,516
 Proceeds from Litigation Settlement
        164,828
        164,828
Total Trading Results
   16,148,045
   10,006,194
     


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)



- 17 -
 
 
 

 
MORGAN STANLEY SMITH BARNEY 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
Financial instruments are carried at fair value, which is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.  Assets and liabilities carried at fair value are classified and disclosed in the following three levels: Level 1 - unadjusted quoted market prices in active markets for identical assets and liabilities; Level 2 - inputs other than unadjusted quoted market prices that are observable for the asset or liability, either directly or indirectly (including unadjusted quoted market prices for similar investments, interest rates, credit risk); and Level 3 - unobservable inputs for the asset or liability (including the 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.



- 18 -
 
 
 

 
MORGAN STANLEY SMITH BARNEY SPECTRUM TECHNICAL L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

The Partnership’s 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.


September 30, 2010
 
Unadjusted
Quoted Prices in Active Markets for Identical Assets
(Level 1)
Significant Other Observable Inputs
(Level 2)
Significant Unobservable Inputs
(Level 3)
 
Total
 
$
$
   
$
Assets
         
Net unrealized gain on futures contracts
18,590,239               
n/a
 
18,590,239
Net unrealized gain on forward contracts
2,546,967
n/a
 
2,546,967
Options purchased
3,153
55,032
n/a
 
58,185
           
Liabilities
         
Options written
(6,560)
(60,442)
n/a
 
(67,002)

December 31, 2009
 
Unadjusted
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 futures contracts
11,576,454
                    —
n/a
 
11,576,454
Net unrealized loss on forward contracts
                     —
(880,783)
n/a
 
(880,783)
Options purchased
2,023
183,374
n/a
 
185,397
           
Liabilities
         
Options written
(4,633)
(50,586)
n/a
 
(55,219)




- 19 -
 
 
 

 
MORGAN STANLEY SMITH BARNEY SPECTRUM TECHNICAL L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)



7.  Other Pronouncements
(a) Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles
In June 2009, the FASB issued accounting guidance to establish the FASB Codification.  ASC established the exclusive authoritative reference for accounting principles generally accepted in the United States of America  (“U.S. GAAP”) for use in financial statements except for Securities and Exchange Commission (“SEC”) rules and interpretive releases, which are also authoritative U.S. GAAP for SEC registrants.  The Codification supersedes all existing non-SEC accounting and reporting standards.  The Codification became the single source of authoritative U.S. GAAP and is effective for financial statements issued for interim and annual periods ending after September 15, 2009.

 (b)  Fair Value Measurements
In April 2009, the FASB issued additional guidance relating to Fair Value Measurements 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.  It is effective for the interim and annual periods ending after June 15, 2009 and the adoption did not have a material impact on the Partnership’s financial statements.


(c)  Financial Instruments

In April 2009, the FASB issued new guidance that requires fair value disclosures of financial instruments on a quarterly basis, as well as new disclosures regarding the methodology and significant assumptions

- 20 -
 
 
 

 
MORGAN STANLEY SMITH BARNEY SPECTRUM TECHNICAL L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

underlying the fair value measures and any changes to the methodology and assumptions during the reporting period.  This guidance is effective for the interim and annual periods ending after June 15, 2009.  The adoption of this guidance did not have a material impact on the Partnership’s financial statements.
 
 
 (d)  Subsequent Events
In May 2009, the FASB issued accounting guidance to establish general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued.  In February 2010, the FASB issued Accounting Standards Update, Subsequent Events - Amendments to Certain Recognition and Disclosures Requirements which was effective immediately, and amends the previous guidance on subsequent events and no longer requires SEC filers to disclose the date through which subsequent events have been evaluated.  Management performed its evaluation of subsequent events and has determined that there were no subsequent events requiring adjustment in the financial statements.  The nature of the subsequent events effective October 1, October 12, November 1, and on or about December 1, 2010 is disclosed in the Subsequent Event section on page 23 and 24.


(e)  Improving Disclosures about Fair Value Measurements
In January 2010, the FASB issued guidance, which, among other things, amends fair value measurements and disclosures to require entities to separately present purchases, sales, issuances, and settlements in their reconciliation of Level 3 fair value measurements (i.e., to present such items on a gross basis rather than on a net basis), and which clarifies existing disclosure requirements regarding the level of disaggregation and

- 21 -
 
 
 

 
MORGAN STANLEY SMITH BARNEY SPECTRUM TECHNICAL L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

the inputs and valuation techniques used to measure fair value for measurements that fall within either Level 2 or Level 3 of the fair value hierarchy. This guidance is effective for interim and annual periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements which are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years.  The adoption of this guidance did not have a material impact on the Partnership’s financial statements.
 
 


(f)  Consolidation of Variable Interest Entities
In June 2009, the FASB issued an amendment to the accounting and disclosure requirements for variable interest entities.  It contains new criteria for determining the primary beneficiary, and increases the frequency of required reassessments to determine whether a company is the primary beneficiary of a variable interest entity.  It also contains a new requirement that any term, transaction, or arrangement that does not have a substantive effect on an entity’s status as a variable interest entity, a company’s power over a variable interest entity, or a company’s obligation to absorb losses or its right to receive benefits of an entity must be disregarded.  This amendment is effective for annual periods beginning after November 15, 2009, and interim periods thereafter.  Effective February 25, 2010, the FASB has decided to indefinitely defer the application of this amendment for certain entities. Management believes that the Partnership meets the criteria for the indefinite deferral of the application of this guidance.

(g)  Statement of Cash Flows
The Partnership is not required to provide a Statement of Cash Flows as permitted by ASC 230.
- 22 -
 
 
 

 
MORGAN STANLEY SMITH BARNEY SPECTRUM TECHNICAL L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

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.

9.  Subsequent Event
Effective October 1, 2010 to October 31, 2010, Chesapeake’s management fee was increased from an annual rate of 1% of net assets as of the first day of the month, to an annual rate of 1.5% of net assets as of the first day of the month.


Effective October 12, 2010, Chesapeake, in consultation with Demeter, has agreed to increase the overall leverage of the Partnership’s assets traded pursuant to the Program from 62.5% of the customary leverage utilized by the Program to 75% of the customary leverage utilized by the Program.  Chesapeake, in further consultation with Demeter, will determine if, and at what time, the Partnership’s leverage may be readjusted.

Effective November 1, 2010, Chesapeake’s management fee was increased from an annual rate of 1.5% of net assets as of the first day of the month, to an annual rate of 2% of net assets as of the first day of the month.


- 23 -
 
 
 

 
MORGAN STANLEY SMITH BARNEY SPECTRUM TECHNICAL L.P.
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)

In 2009, Morgan Stanley and Citigroup Inc. combined certain assets of the Global Wealth Management Group of MS&Co., including Demeter, and the Smith Barney division of Citigroup Global Markets Inc.  into a new joint venture, MSSBH.  Since their contribution to the joint venture, Demeter and Ceres Managed Futures LLC (“Ceres”), the commodity pool operator for various legacy Citigroup Inc. sponsored commodity pools, have worked closely together to align the operations and management of the commodity pools they oversee.

As a result, MSSBH, together with the unanimous support of the Boards of Directors of Demeter and Ceres, has determined that a combination of the assets and operations of Demeter and Ceres into a single commodity pool operator, Ceres, is in the best interest of the limited partners and believes that this combination will achieve the intended benefits of the joint venture.  Ceres will continue to be wholly owned by MSSBH.  The targeted effective date of the combination is on or about December 1, 2010.  Refer to the 8-K filed on September 14, 2010, for additional information.















- 24 -
 
 
 

 
Item 2.         MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

Liquidity.  The Partnership deposits its assets with MSSB as non-clearing commodity broker and MS&Co. and MSIP as clearing commodity brokers in separate futures, forward and options trading accounts established for each Trading Advisor.  Such assets are used as margin to engage in trading and may be used as margin solely for the 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 fluctuation 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 moves in trading forward contracts on foreign currencies.  The markets for some world currencies have low trading volume and are illiquid, which may prevent the Partnership from trading in potentially profitable markets or prevent the Partnership from promptly liquidating unfavorable

- 25 -
 
 
 

 
positions in such markets, subjecting it to substantial losses.  Either of these market conditions could result in restrictions on redemptions.  For the periods covered by this report, illiquidity has not materially affected the Partnership’s assets.

There are no known material trends, demands, commitments, events, or uncertainties at the present time that are reasonably likely to result in the Partnership’s liquidity increasing or decreasing in any material way.

Capital Resources.  The Partnership does not have, nor 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.




- 26 -

 
 

 

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, 2010 and 2009, and a general discussion of its trading activities during each period.  It is important to note, however, that the Trading Advisors trade in various markets at different times and that prior activity in a particular market does not mean that such market will be actively traded by the Trading Advisors or will be profitable in the future.  Consequently, the results of operations of the Partnership are difficult to discuss other than in the context of the Trading Advisors’ trading activities on behalf of the Partnership during the period in question.  Past performance is no guarantee of future results.

The Partnership’s results of operations set forth in the financial statements on pages 2 through 24 of this report are prepared in accordance with U.S. GAAP, which requires 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 approximately 3:00 P.M. (E.T.) of the business day.  Interest

- 27 -
 
 
 

 
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, 2010
The Partnership recorded total trading results including interest income totaling $16,242,627 and net expenses totaling $6,728,238, resulting in net income of $9,514,389 for the three months ended September 30, 2010.  The Partnership’s net asset value per Unit increased from $19.37 at June 30, 2010 to $19.93 at September 30, 2010.

The most significant trading gains of approximately 3.7% were achieved within the global interest rate sector, primarily during July and August. In July, gains were experienced from long positions in U.S. fixed-income futures as prices moved higher after the U.S. Federal Reserve’s Beige Book indicated stalled or slower U.S. economic growth, thereby boosting demand for the relative “safety” of government debt. Gains were achieved during August from long positions in European, U.S., and Australian fixed-income futures as prices climbed higher due to concern that European governments might struggle to repay their debt, while reports added to evidence that Chinese economic growth might be slowing. Prices continued to move higher after reports on manufacturing in the New York region, U.S. home-builder confidence, and Japanese Gross Domestic Product fueled worries over the global economic recovery. Within the metals markets, gains of approximately 1.2% were experienced primarily during September from long futures positions in gold and silver as prices rose amid increased demand for the precious metals as an alternative investment due to a drop in the value of the U.S. dollar. Additional gains were recorded from long futures positions in copper,
nickel, and aluminum as prices moved higher after industrial output beat analyst estimates in China, the

- 28 -
 
 
 

 
world’s biggest base metals user. Within the currency sector, gains of approximately 0.5% were achieved primarily during September from long positions in the Australian dollar versus the U.S. dollar as the value of the Australian dollar appreciated to a 26-month high against the U.S. dollar amid speculation that the Reserve Bank of Australia may raise interest rates in October. Further gains were achieved from long positions in the Singapore dollar, Swedish krona, and Swiss franc versus the U.S. dollar as the value of the U.S. dollar fell against these currencies amid renewed optimism regarding the global economic recovery, which reduced demand for the U.S. dollar as a “safe haven” currency. Smaller gains of approximately 0.1% were experienced within the agricultural complex, primarily during September, due to long futures positions in the soybean complex as prices rose amid concern that reduced rains in Brazil and Argentina might diminish crop yields. Within the global stock index markets, gains of approximately 0.1% were achieved primarily during September from long positions in U.S., Hong Kong, and Taiwan equity index futures as prices rose after higher-than-estimated U.S. wholesale inventories and China’s better-than-expected industrial production data raised confidence in the global economic recovery.

The Partnership recorded total trading results including interest income totaling $10,236,800 and net expenses totaling $21,597,355, resulting in a net loss of $11,360,555 for the nine months ended September 30, 2010.  The Partnership’s net asset value per Unit decreased from $20.53 at December 31, 2009, to $19.93 at September 30, 2010.

The  most significant losses of approximately 4.8% were incurred within the global stock index markets, primarily during January, from long positions in European, U.S., and Pacific Rim equity index futures as

- 29 -
 
 
 

 
prices moved lower amid disappointing U.S. corporate earnings reports. Further losses were experienced during May and June from long positions in U.S., European, and Pacific Rim equity index futures as prices
reversed lower on growing concerns that Greece’s sovereign debt crisis might spread throughout Europe. Within the energy sector, losses of approximately 3.6% were incurred primarily during January from long futures positions in crude oil and its related products as prices declined amid reports of increased U.S. inventories, as well as on speculation that China’s economic activity and energy demand might ease. Further losses were recorded during May from long futures positions in crude oil and its related products as prices declined on continued worries that Europe’s sovereign debt troubles might slow down the global economic recovery and thereby weaken energy demand. Within the agricultural complex, losses of approximately 2.5% were recorded primarily during February and March from long futures positions in sugar as prices dropped amid easing supply concerns following news that production might rise in Brazil, India, and Thailand, three of the world’s largest sugar producers. During July, short futures positions in wheat and corn resulted in losses as prices moved sharply higher on supply concerns after wet weather disrupted harvesting in the U.S. Midwest and Great Plains. Wheat and corn prices were also pressured higher towards the end of July amid worries that droughts in Russia and other parts of Europe might diminish global supplies. A portion of the Partnership’s losses during the first nine months of the year was offset by gains of approximately 13.9% achieved within the global fixed-income sector from long positions in European, U.S., and Japanese fixed-income futures. In this sector, prices increased during the first quarter on concerns that lending restrictions in China, possible reductions in U.S. stimulus measures, and Greece’s fiscal struggles might stifle the
global economic rebound, thereby boosting demand for the relative “safety” of government bonds. Prices were then pressured higher during the second quarter amid an unexpected drop in U.S. consumer confidence,

- 30 -
 
 
 

 
increased regulatory scrutiny of the financial industry, and the growing European debt crisis. During the third quarter, prices continued to climb higher due to concern that European governments may struggle to repay their debt and Chinese economic growth might be slowing. Within the currency markets, gains of approximately 0.9% were recorded primarily during February, April, and May from short positions in the euro versus the U.S. dollar as the value of the U.S. dollar moved higher against the euro after investors sought the U.S. dollar as a “safe haven” currency amid a deteriorating global economic outlook. Furthermore, the value of the euro declined versus the U.S. currency amid concern that Greece might struggle to raise further funds, thereby reducing demand for European currency assets. Additional gains were experienced during September due to long positions in the Australian dollar versus the U.S. dollar as the value of the Australian dollar appreciated to a 26-month high against the U.S. dollar amid speculation that the Reserve Bank of Australia might raise interest rates in October.

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.

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

- 31 -
 
 
 

 
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 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

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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.

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

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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 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 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

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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.

 
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.



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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.

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.


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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.

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

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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.  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


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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, 2010 and 2009.  At September 30, 2010 and 2009, the Partnership’s total capitalization was approximately $336 million and $395 million, respectively.

Primary Market
September 30, 2010
September 30, 2009
Risk Category
Value at Risk
Value at Risk
     
Equity
(2.01)% 
(2.19)%
     
Interest Rate
(1.15)
(0.75)
     
Currency
(0.98)
(0.88)
     
Commodity
(1.92)
(0.93)
     
Aggregate Value at Risk
(3.44)%  
(2.78)%


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.




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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 tables below supplement 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, 2009 through September 30, 2010 and October 1, 2008 through September 30, 2009, respectively.

September 30, 2010
     
Primary Market Risk Category
High
Low
Average
Equity
(3.04)%   
(0.74)%
(2.20)%
Interest Rate
(1.36)
(0.60)
(1.00)
Currency
(0.98)
(0.42)
(0.73)
Commodity
(2.13)
(0.78)
(1.71)
Aggregate Value at Risk
(5.03)%
(1.55)%
(3.65)%


September 30, 2009
     
Primary Market Risk Category
High
Low
Average
Equity
(2.19)%
(0.05)%
(0.67)%
Interest Rate
(0.75)
(0.34)
(0.49)
Currency
(0.88)
(0.20)
(0.45)
Commodity
(0.93)
(0.22)
(0.44)
Aggregate Value at Risk
(2.78)%
(0.56)%
(1.19)%
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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:
·  
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, 2010 and 2009, and for the four quarter-end reporting periods from October 1, 2009 through September 30, 2010 and from October 1, 2008 through September 30,

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2009, respectively.  VaR is not necessarily representative of the Partnership’s historic risk, nor should it be used to predict the Partnership’s future financial performance or its ability to manage or monitor risk.  There can be no assurance that the Partnership’s actual losses on a particular day will not exceed the VaR amounts indicated above or that such losses will not occur more than once in 100 trading days.

Non-Trading Risk
The Partnership has non-trading market risk on its foreign cash balances not needed for margin.  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 MSSB; as of September 30, 2010, such amount was equal to approximately 89% 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

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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, political upheavals, changes in historical price relationships, an influx of new market participants, increased regulation, and many other factors could result in material losses, as well as in material changes to the risk exposures and the risk management strategies of the Partnership.  Investors must be prepared to lose all or substantially all of their investment in the Partnership.

The 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.

The following were the primary trading risk exposures of the Partnership at September 30, 2010, 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, 2010, 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

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by law limited to futures on broadly–based indices.  At September 30, 2010, the Partnership’s primary exposures were to the FTSE 100 (U.K.), NASDAQ 100 (U.S.), S&P 500 (U.S.), Hang Seng (Hong Kong), S&P 60 (Canada), DAX (Germany), Taiwan (Taiwan), AEX (The Netherlands), OMX 30 (Sweden), Euro Stoxx 50 (Europe), S&P Midcap (U.S.), SPI 200 (Australia), Dow Industrials (U.S.), CAC 40 (France), Russell 2000 (U.S.), Nikkei 225 (Japan), S&P Nifty (India), IBEX 35 (Spain), H-Shares (Hong Kong), 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, North American, and Pacific Rim stock indices.  Static markets would not cause major market changes, but would make it difficult for the Partnership to avoid trendless price movements, potentially resulting in numerous small losses.

Interest Rate.  At September 30, 2010, the Partnership had market exposure to the global interest rate sector. Exposure was primarily spread across the U.S., European, 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 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.
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Currency.  At September 30, 2010, 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, 2010, the Partnership’s major exposures were to the euro, Czech koruna, Norwegian krone, Polish zloty, Swedish krona, Australian dollar, Canadian dollar, Japanese yen, British pound, and Swiss franc 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.

Commodity.
Soft Commodities and Agriculturals.  The second largest market exposure of the Partnership at September 30, 2010, was to the soft commodities and agricultural sector. Most of the exposure was to the soybeans, corn, wheat, cocoa, sugar, coffee, cotton, live cattle, soybean meal, soybean oil, lean hogs, and rubber 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, 2010, 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, nickel, aluminum, zinc, and lead.

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Economic forces, supply and demand inequalities, geopolitical factors, and market expectations influence price movements in these markets.

Energy.  At September 30, 2010, 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. Oil and gas prices can be volatile and significant profits and losses, which have been experienced in the past, are expected to continue to be experienced in these markets in the future.

Qualitative Disclosures Regarding Non-Trading Risk Exposure
The following was the only non-trading risk exposure of the Partnership at September 30, 2010:

Foreign Currency Balances. The Partnership’s primary foreign currency balances at September 30, 2010, were in Australian dollars, Canadian dollars, euros, Japanese yen, British pounds, Swiss francs, South African rand, Singapore dollars, Hong Kong dollars, Turkish lira, Norwegian kroner, Hungarian forint, Czech korunas, New Zealand dollars, and Swedish kronor. 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.



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Qualitative Disclosures Regarding Means of Managing Risk Exposure
The Partnership and the Trading Advisors, separately, attempt to manage the risk of the Partnership’s open positions in essentially the same manner in all market categories traded. Demeter attempts to manage market exposure by diversifying the Partnership’s assets among different 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
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of the management of Demeter, at the time this quarterly report was filed, Demeter’s President (Demeter’s principal executive officer) and Chief Financial Officer (Demeter’s principal financial officer) have evaluated the effectiveness of the design and operation of the Partnership’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 2010.  The Partnership’s disclosure controls and procedures are designed to provide reasonable assurance that information the Partnership is required to disclose in the reports that the Partnership files or submits under the Exchange Act are recorded, processed and summarized and reported within the time period specified in the applicable rules and forms.  Based on this evaluation, the

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President and Chief Financial Officer of Demeter have concluded that the disclosure controls and procedures of the Partnership were effective at September 30, 2010.

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 materially affect the Partnership’s internal control over financial reporting.


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.










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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, 2009.


 
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 12, 2010
By:
 
   
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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