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 June 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: 0-31563





MORGAN STANLEY SMITH BARNEY SPECTRUM CURRENCY L.P.(Exact name of registrant as specified in its charter)





Delaware

13-4084211(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)Demeter Management LLC522 Fifth Avenue, 13th FloorNew York, NY

10036(Address of principal executive offices)

(Zip Code)





Registrant’s telephone number, including area code

(212) 296-1999








(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 oNon-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 CURRENCY L.P.


INDEX TO QUARTERLY REPORT ON FORM 10-Q





June 30, 2010











PART I. FINANCIAL INFORMATIONItem 1.
Financial Statements (Unaudited)Statements of Financial Condition as of June 30, 2010 and December 31, 2009
2Statements of Operations for the Three and Six Months Ended June 30, 2010 and 2009
3Statements of Changes in Partners’ Capital for the Six Months Ended June 30, 2010 and 2009
4Statements of Cash Flows for the Six Months Ended June 30, 2010 and 2009
5Condensed Schedules of Investments as of June 30, 2010 and December 31, 2009
6Notes to Financial Statements
7-22Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
23-31Item 3.
Quantitative and Qualitative Disclosures About Market Risk
31-40Item 4.
Controls and Procedures
40-41PART II. OTHER INFORMATIONItem 1A.
Risk Factors
42Item 6.
Exhibits
42











PART I.  FINANCIAL INFORMATION


Item 1.  Financial Statements





MORGAN STANLEY SMITH BARNEY SPECTRUM CURRENCY L.P.


STATEMENTS OF FINANCIAL CONDITION


(Unaudited)


June 30,

December 31,2010

2009ASSETS
$

$Trading Equity:Unrestricted cash
53,588,514

61,087,188Restricted cash
521,421

620,523Total cash
54,109,935

61,707,711Net unrealized loss on open contracts (MS&Co.)
(449,496)

(462,626)Options purchased (premiums paid $134,381 and $1,442, respectively)
130,283

121Total Trading Equity
53,790,722

61,245,206Interest receivable (MSSB)
3,033

853Total Assets
53,793,755

61,246,059LIABILITIES AND PARTNERS’ CAPITALLiabilitiesRedemptions payable
654,585

491,924Accrued brokerage fees (MS&Co.)
207,225

239,572Accrued management fees
90,098

104,162Options written (premiums received $20,702 and $0, respectively)
21,640

—Total Liabilities
973,548

835,658Partners’ CapitalLimited Partners ( 5,465,878.571 and 5,963,360.859 Units, respectively)
52,289,122

59,798,213General Partner (55,515.343 and 61,050.343 Units, respectively)
531,085

612,188Total Partners’ Capital
52,820,207

60,410,401Total Liabilities and Partners’ Capital
53,793,755

61,246,059NET ASSET VALUE PER UNIT
9.57

10.03























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





- 2 -





MORGAN STANLEY SMITH BARNEY SPECTRUM CURRENCY L.P.


STATEMENTS OF OPERATIONS


(Unaudited)





For the Three Months

Ended June  30,

For the Six Months

Ended June 30,2010

2009

2010

2009$

$

$

$INVESTMENT INCOMEInterest income (MSSB)
14,765

16,717

21,447

38,560EXPENSESBrokerage fees (MS&Co.)
643,529

830,905

1,325,371

1,796,815Management fees
279,795

361,262

576,248

781,224Total Expenses
923,324

1,192,167

1,901,619

2,578,039NET INVESTMENT LOSS
(908,559)

(1,175,450)

(1,880,172)

(2,539,479)TRADING RESULTSTrading profit (loss):Realized
(211,274)

(294,623)

(764,455)

(1,319,959)Net change in unrealized
(828,672)

1,463,009

9,415

565,196Total Trading Results
(1,039,946)

1,168,386

(755,040)

(754,763)NET LOSS
(1,948,505)

(7,064)

(2,635,212)

(3,294,242)NET LOSS ALLOCATIONLimited Partners
(1,928,904)

(6,991)

(2,608,643)

(3,261,110)General Partner
(19,601)

(73)

(26,569)

(33,132)NET LOSS PER UNIT *Limited Partners
(0.34)

–

(0.46)

(0.47)General Partner
(0.34)

–

(0.46)

(0.47)Units

Units

Units

UnitsWEIGHTED AVERAGE NUMBEROF UNITS OUTSTANDING
5,679,062.758

6,675,419.309

5,819,094.467

7,071,687.425

















* 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 CURRENCY L.P.


STATEMENTS OF CHANGES IN PARTNERS’ CAPITAL


For the Six Months Ended June 30, 2010 and 2009


(Unaudited)











Units ofPartnership

Limited

GeneralInterest

Partners

Partner

Total$

$

$Partners’ Capital,December 31, 2009
6,024,411.202

59,798,213

612,188

60,410,401Net Loss
–

(2,608,643)

(26,569)

(2,635,212)Redemptions
(503,017.288)

(4,900,448)

(54,534)

(4,954,982)Partners’ Capital,June 30, 2010
5,521,393.914

52,289,122

531,085

52,820,207Partners’ Capital,December 31, 2008
7,923,153.973

87,533,608

889,530

88,423,138Net Loss
–

(3,261,110)

(33,132)

(3,294,242)Redemptions
(1,433,999.579)

(15,403,803)

(144,738)

(15,548,541)Partners’ Capital,June 30, 2009
6,489,154.394

68,868,695

711,660

69,580,355






























































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








- 4 -





MORGAN STANLEY SMITH BARNEY SPECTRUM CURRENCY L.P.


STATEMENTS OF CASH FLOWS


(Unaudited)





For the Six Months Ended June 30,2010

2009$

$CASH FLOWS FROM OPERATING ACTIVITIESNet loss
(2,635,212)

(3,294,242)Noncash item included in net loss:Net change in unrealized
(9,415)

(565,196)(Increase) decrease in operating assets:Restricted cash
99,102

567,430Net premiums paid for options purchased
(132,939)

18,031Interest receivable (MSSB)
(2,180)

(3,835)Increase (decrease) in operating liabilities:Accrued brokerage fees (MS&Co.)
(32,347)

(83,750)Accrued management fees
(14,064)

(36,413)Net premiums received from options written
20,702

(18,565)Net cash used for operating activities
(2,706,353)

(3,416,540)CASH FLOWS FROM FINANCING ACTIVITIESCash paid for redemptions of Units
(4,792,321)

(18,457,233)Net cash used for financing activities
(4,792,321)

(18,457,233)Net decrease in unrestricted cash
(7,498,674)

(21,873,773)Unrestricted cash at beginning of period
61,087,188

92,837,025Unrestricted cash at end of period
53,588,514

70,963,252


















































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





- 5 -





MORGAN STANLEY SMITH BARNEY SPECTRUM CURRENCY L.P.


CONDENSED SCHEDULES OF INVESTMENTS


June 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/(Loss)$
%
$
%
$June 30, 2010 Partnership Partners’ Capital: $52,820,207Foreign currency
48,145
0.09
(530,393)
(1.00)
(482,248)Grand Total:
48,145
0.09
(530,393)
(1.00)
(482,248)Unrealized Currency Gain



0.06
32,752Total Net Unrealized Loss on Open Contracts




(449,496)Option Contracts
Fair Value
Percentage of

Net Assets$
%Options purchased on Futures Contracts
–
–Options purchased on Forward Contracts
130,283
0.25Options written on Futures Contracts
–
–Options written on Forward Contracts
(21,640)
(0.04)Futures and Forward Contracts
Long Unrealized

Loss
Percentage of

Net Assets
Short  Unrealized

Loss
Percentage of

Net Assets
Net Unrealized

Gain/(Loss)$
%
$
%
$December 31, 2009 Partnership Partners’ Capital: $60,410,401Foreign currency
(349,025)
(0.58)
(191,918)
(0.32)
(540,943)Grand Total:
(349,025)
(0.58)
(191,918)
(0.32)
(540,943)Unrealized Currency Gain



0.13
78,317Total Net Unrealized Loss on Open Contracts




(462,626)Option Contracts
Fair Value
Percentage of

Net Assets$
%Options purchased on Futures Contracts
–
–Options purchased on Forward Contracts
121
–Options written on Futures Contracts
–
–Options written on Forward Contracts
–
–




















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





- 6 -





MORGAN STANLEY SMITH BARNEY SPECTRUM CURRENCY L.P.


NOTES TO FINANCIAL STATEMENTS





June 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 Currency 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 Currency L.P. is a Delaware limited partnership organized in 1999 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 Global Balanced L.P., Morgan Stanley Smith Barney Spectrum Select L.P., Morgan Stanley Smith Barney Spectrum Strategic L.P., and Morgan Stanley Smith Barney Spectrum Technical L.P. (collectively, the "Spectrum Series").





























- 7 -





MORGAN STANLEY SMITH BARNEY SPECTRUM CURRENCY 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 broker is Morgan Stanley & Co. Incorporated ("MS&Co.").  MS&Co. also acts as the counterparty on all trading of foreign currency forward contracts. Morgan Stanley Capital Group Inc. ("MSCG") acts as the counterparty on all trading of options on foreign currency forward contracts.  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. and MSCG are wholly-owned  subsidiaries of Morgan Stanley.  The trading advisors to the Partnership are C-View International Limited, DKR Fusion Management L.P., John W. Henry & Company, Inc., and Sunrise Capital Partners, LLC (each individually, a "Trading Advisor", or collectively, the "Trading Advisors").





2.  Related Party Transactions


The Partnership’s cash is on deposit with MS&Co. and MSSB in futures, forward and options trading accounts to meet margin requirements as needed.  At each month end, MSSB pays the Partnership interest income on 80% of the funds on deposit with the commodity broker at a rate equal to the monthly 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 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.











- 8 -





MORGAN STANLEY SMITH BARNEY SPECTRUM CURRENCY L.P.


NOTES TO FINANCIAL STATEMENTS (CONTINUED)





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.





This 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 June 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 2006 through 2009 tax years 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 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











- 9 -





MORGAN STANLEY SMITH BARNEY SPECTRUM CURRENCY L.P.


NOTES TO FINANCIAL STATEMENTS (CONTINUED)





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.





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.


- 10 -





MORGAN STANLEY SMITH BARNEY SPECTRUM CURRENCY L.P.


NOTES TO FINANCIAL STATEMENTS (CONTINUED)








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.





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.








- 11 -





MORGAN STANLEY SMITH BARNEY SPECTRUM CURRENCY L.P.


NOTES TO FINANCIAL STATEMENTS (CONTINUED)








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 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 Losses on Open Contracts
Longest MaturitiesDate
Exchange-Traded
Off-Exchange-Traded
Total
Exchange-Traded
Off-Exchange-Traded$
$
$Jun. 30, 2010
–
(449,496)
(449,496)
–
Sep. 2010Dec. 31, 2009
–
(462,626)
(462,626)
–
Mar. 2010





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. and/or MSCG acts as the futures commission merchant or the counterparty, 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., as a commodity broker for the Partnership’s exchange-traded futures, exchange-traded forward, and exchange-traded futures-styled options contracts, is required,





- 12 -





MORGAN STANLEY SMITH BARNEY SPECTRUM CURRENCY L.P.


NOTES TO FINANCIAL STATEMENTS (CONTINUED)





pursuant to regulations of the Commodity Futures Trading Commission ("CFTC"), to segregate from their own assets, and for the sole benefit of its commodity customers, all funds held by it with respect to exchange-traded futures, exchange-traded forward, and exchange-traded futures-styled options contracts, including an amount equal to the net unrealized losses on all open exchange-traded futures, exchange-traded forward, and exchange-traded futures-styled options contracts.  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, 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.

















- 13 -





MORGAN STANLEY SMITH BARNEY SPECTRUM CURRENCY L.P.


NOTES TO FINANCIAL STATEMENTS (CONTINUED)








The futures, forwards and options traded by the Partnership involve varying degrees of related market risk.  Market risk is often dependent upon changes in the level or volatility of interest rates, exchange rates, and prices of financial instruments and commodities, factors that result in frequent changes in the fair value of the Partnership’s open positions, and consequently in its earnings, whether realized or unrealized, and cash flow.  Gains and losses on open positions of exchange-traded futures, 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 price.  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 MS&Co.





5.  Derivatives and Hedging


Effective January 1, 2009, the Partnership adopted the provision of the Derivatives and Hedging Topic of the FASB Codification, which 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 the Partnership’s financial position, financial performance, and cash flows.  The adoption of this new guidance did not have a material impact on the Partnership’s financial statements, other than enhanced financial statements disclosures.








-  14 -







MORGAN STANLEY SMITH BARNEY SPECTRUM CURRENCY L.P.


NOTES TO FINANCIAL STATEMENTS (CONTINUED)








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 June 30, 2010 and December 31, 2009, respectively.





The Effect of Trading Activities on the Statements of Financial Condition as of June 30, 2010:


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 six months (absolute quantity)$
$
$
$
$Foreign currency
513,123
(464,978)
223,635
(754,028)
(482,248)
6,920Total
513,123
(464,978)
223,635
(754,028)
(482,248)Unrealized currency gain




32,752Total net unrealized loss on open contracts




(449,496)














- 15 -







MORGAN STANLEY SMITH BARNEY SPECTRUM CURRENCY L.P.


NOTES TO FINANCIAL STATEMENTS (CONTINUED)








Average number ofcontracts outstandingFair
for six monthsValue
(absolute quantity)Option Contracts
$Options purchased
130,283
2Options written
(21,640)
1











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
Average number of contracts

outstanding for the year  (absolute quantity)$
$
$
$
$Foreign currency
322,002
(671,027)
178,089
(370,007)
(540,943)
5,740Total
322,002
(671,027)
178,089
(370,007)
(540,943)Unrealized currency gain




78,317Total net unrealized  loss on open contracts




(462,626)











Average number ofcontracts outstandingFair
for the yearValue
(absolute quantity)Option Contracts
$Options purchased
121
2Options written
–
1








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








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





For the Three Months
For the Six MonthsEnded June 30, 2010
Ended June 30, 2010Type of Instrument
$
$Foreign currency
(967,659)
(709,474)Unrealized currency loss
(72,287)
(45,566)Total
(1,039,946)
(755,040)





- 16 -







MORGAN STANLEY SMITH BARNEY SPECTRUM CURRENCY L.P.


NOTES TO FINANCIAL STATEMENTS (CONTINUED)





Line Items on the Statements of Operations for the Three and Six Months Ended June 30, 2010:


For the Three Months
For the Six MonthsEnded June 30, 2010
Ended June 30, 2010Trading Results
$
$Realized
(211,274)
(764,455)Net change in unrealized
(828,672)
9,415Total Trading Results
(1,039,946)
(755,040)








The Effect of Trading Activities on the Statements of Operations for the Three and Six Months Ended June 30, 2009 included in Total Trading Results:





For the Three Months
For the Six MonthsEnded June 30, 2009
Ended June 30, 2009Type of Instrument
$
$Foreign  currency
1,193,996
(714,741)Unrealized currency loss
(25,610)
(40,022)Total
1,168,386
(754,763)





Line Items on the Statements of Operations for the Three and Six Months Ended June 30, 2009:


For the Three Months
For the Six MonthsEnded June 30, 2009
Ended June 30, 2009Trading Results
$
$Realized
(294,623)
(1,319,959)Net change in unrealized
1,463,009
565,196Total Trading Results
1,168,386
(754,763)





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).


- 17 -







MORGAN STANLEY SMITH BARNEY SPECTRUM CURRENCY L.P.


NOTES TO FINANCIAL STATEMENTS (CONTINUED)





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 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.


June 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$
$


$AssetsNet unrealized loss on forward contracts
–
(449,496)
n/a

(449,496)Options purchased
–
130,283
n/a

130,283LiabilitiesOptions written
–
(21,640)
n/a

(21,640)





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$
$


$AssetsNet unrealized loss on forward contracts
–
(462,626)
n/a

(462,626)Options purchased
–
121
n/a

121











- 18 -







MORGAN STANLEY SMITH BARNEY SPECTRUM CURRENCY 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 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.





- 19 -







MORGAN STANLEY SMITH BARNEY SPECTRUM CURRENCY 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 or disclosure in the financial statements.





(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 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





-  20 -







MORGAN STANLEY SMITH BARNEY SPECTRUM CURRENCY L.P.


NOTES TO FINANCIAL STATEMENTS (CONTINUED)








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.  The 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 of the indefinite deferral of the application of this guidance.





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





- 21 -








MORGAN STANLEY SMITH BARNEY SPECTRUM CURRENCY L.P.


NOTES TO FINANCIAL STATEMENTS (CONCLUDED)





currency forwards and options. All of these amounts are maintained separately.  Cash that is not classified as restricted cash is therefore classified as unrestricted cash.



























































- 22 -







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


OF OPERATIONS





Liquidity.  The Partnership deposits its assets with MS&Co. as its commodity broker 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 positions in such markets, subjecting it to substantial losses.  Either of these market conditions could result in





- 23 -





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.





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 six month periods ended June





- 24 -





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 22 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 income, as well as management fees, incentive fees, and brokerage fees of the Partnership are recorded on an accrual basis.

















- 25 -





For the Three and Six Months Ended June 30, 2010


The Partnership recorded total trading results including interest income totaling $(1,025,181) and expenses totaling $923,324, resulting in a net loss of $1,948,505 for the three months ended June 30, 2010.  The Partnership’s net asset value per Unit decreased from $9.91 on March 31, 2010 to $9.57 at June 30, 2010.





The most significant trading losses of approximately 2.7%, were experienced during April from long positions in the Australian dollar versus the Japanese yen and U.S. dollar as the value of the Australian dollar declined against these currencies at the end of the month after Standard & Poor’s cut Greece’s credit rating to junk, fueling speculation its debt crisis might spread and dampening the appeal of growth-linked currencies.  During May, the value of the Australian dollar fell further after Australian reports showed weak consumer confidence, as well as on concerns that China's economy might be slowing, resulting in additional losses from the Fund’s long positions in the Australian dollar versus the U.S. dollar and Japanese yen.  Smaller losses of approximately 0.4% were recorded during May from long positions in the South African rand versus the U.S. dollar as the value of the South African rand declined amid the aforementioned concern over the Greek government debt crisis.  A portion of the Partnership’s losses in the second quarter was offset by gains of approximately 1.3% achieved during April from long positions in the Japanese yen versus the U.S. dollar as the value of the Japanese yen moved higher at the beginning of the month amid increased “safe haven” demand due to concerns regarding regulatory scrutiny in the U.S. financial sector. Newly established short positions in the Japanese yen versus the U.S. dollar resulted in gains as the value of the Japanese yen fell during the latter half of April after several global central banks indicated they might increase borrowing costs as the economic recovery gains momentum, thereby causing investors to resume carry trades.  Additional gains were experienced during May and June from long positions in the Japanese yen versus the





- 26 -







U.S. dollar as the value of the Japanese yen increased relative to the U.S. dollar on concerns regarding the stability of the Euro-Zone and amid speculation that global economic growth may diminish, thus boosting “safe haven” demand for the Japanese currency.  Gains of approximately 0.7% and 0.6%, respectively, were achieved, primarily during May, from short positions in the Swedish krona and euro versus the U.S. dollar as the value of these currencies moved lower against the U.S. currency after reports of political discord in Europe reignited worries about the stability of the region’s economy.





The Partnership recorded total trading results including interest income totaling $(733,593) and expenses totaling $1,901,619, resulting in a net loss of $2,635,212 for the six months ended June 30, 2010.  The Partnership’s net asset value per Unit decreased from $10.03 at December 31, 2009 to $9.57 at June 30, 2010.





The most significant trading losses of approximately 2.9% were incurred, primarily during April and May, from long positions in the Australian dollar versus the U.S. dollar and Japanese yen as the value of the Australian dollar declined against these currencies after Standard & Poor’s cut Greece’s credit rating, Australian reports showed weak consumer confidence, and speculation that China's economy might be slowing, dampening the appeal of growth-linked currencies.  Additional losses of approximately 0.7% and 0.6%, respectively, were incurred during January from long positions in the South African rand and Norwegian krone versus the U.S. dollar as the value of the U.S. dollar moved higher against these currencies during the latter half of the month after a drop in the global equity markets diminished demand for higher-yielding currency assets, thereby causing the U.S. dollar to benefit as a “safe haven” currency. Further losses were recorded from newly established short positions in the Norwegian krone versus the U.S. dollar as the value of the Norwegian krone increased during March amid rising oil prices, the nation’s largest export.





- 27 -







During May, the South African rand and Norwegian krone declined amid concern over the Greek government debt crisis, which reduced demand for higher-yielding currency assets, resulting in further losses from long positions in these currencies versus the U.S. dollar.  A portion of the Partnership’s losses in the first six months of the year was offset by gains of approximately 1.7%, primarily during January and February, from short positions in the euro versus the U.S. dollar as the value of the euro was pressured lower on concern Greece’s fiscal struggles may spread and hinder growth for the entire Euro-Zone.  Additional gains were achieved during May as the value of the euro continued to move lower against the U.S. currency after reports of political discord in Europe reignited worries about the stability of the region’s economy.  Gains of approximately 1.1% and 0.4%, respectively, were experienced from long positions in the Swedish krona and Mexican peso versus the U.S. dollar as the value of these currencies moved higher against the U.S. dollar, primarily during February and March, after signs of a global economic recovery caused investors to increase their risk appetite for higher-yielding currencies.  Furthermore, the value of the Mexican peso moved higher at the end of March after Mexico’s Finance Ministry raised its forecast for the nation’s economic growth this year to 4.1%.  Newly established short positions in the Swedish krona versus the U.S. dollar resulted in gains during May as the value of the Swedish krona fell in tandem with the euro amid the aforementioned worries about the stability of the Euro-Zone.  Smaller gains of 0.4% were achieved throughout the quarter from long positions in the Japanese yen versus the U.S. dollar as the value of the Japanese yen increased relative to the U.S. dollar amid speculation that global economic growth may diminish, thus boosting “safe haven” demand for the Japanese currency.














- 28 -







For the Three and Six Months Ended June 30, 2009


The Partnership recorded total trading results including interest income totaling $1,185,103 and expenses totaling $1,192,167, resulting in a net loss of $7,064 for the three months ended June 30, 2009.  The Partnership’s net asset value per Unit was $10.72 on March 31, 2009, and $10.72 on June 30, 2009.





The most significant trading gains of approximately 1.3%, 1.2%, 0.6%, and 0.3%, respectively, were experienced, primarily during April and May, from long positions in the Australian dollar, South African rand, Brazilian real, and Russian ruble versus the U.S. dollar as the value of the U.S. dollar moved lower against most of its rivals 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.  Additionally, the Australian dollar, South African rand, and Brazilian real moved higher amid rising commodity prices.  A portion of the Partnership’s gains in the second quarter was offset by losses of approximately 0.5%, 0.4%, 0.4%, and 0.3%, respectively, from short positions in the euro, Polish zloty, Canadian dollar, and Japanese yen versus the U.S. dollar as the value of the U.S. dollar moved lower during the first half of the quarter due to the aforementioned optimism that reduced the “safe haven” demand for the U.S. currency.  Additional losses were recorded during June from long positions in the euro, Canadian dollar, and Japanese yen versus the U.S. dollar as the value of the U.S. dollar moved 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.  Smaller losses of 0.3% were recorded primarily during May from short positions in the Swiss franc versus the U.S. dollar as the value of the Swiss franc moved higher against the U.S. dollar after better-than-expected economic data out of Switzerland added to speculation that the Swiss economy might rebound sooner than expected.





- 29 -







The Partnership recorded total trading results including interest income totaling $(716,203) and expenses totaling $2,578,039, resulting in a net loss of $3,294,242 for the six months ended June 30, 2009. The Partnership’s net asset value per Unit decreased from $11.16 at December 31, 2008, to $10.72 at June 30, 2009.





The most significant trading losses of approximately 1.0% were incurred, primarily during January, from long positions in the euro versus the U.S. dollar as the value of the euro moved lower against the U.S. dollar on expectations the European Central Bank would cut interest rates amid continued signs of a slowing economy in the Euro-Zone. Further losses were recorded from short positions in the euro versus the U.S. dollar as the value of the U.S. dollar moved lower in April 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.  During June, further losses were incurred from long positions in the euro 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.  Additional losses of approximately 0.8% were incurred from long positions in the Japanese yen versus the U.S. dollar as the value of the Japanese yen moved lower against most of its rivals during January and February due to 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 March and May from newly established short positions in the Japanese yen as the value of the Japanese yen reversed higher amid optimism that demand for the Japanese currency would strengthen.  Losses were also experienced during June from long positions in the Japanese yen versus the U.S. dollar as the value of the U.S. dollar reversed higher amid the aforementioned speculation that the U.S. Federal Reserve might raise interest rates following better-than-





- 30 -







expected U.S. economic data.  Smaller losses of 0.6% were recorded from short positions in the Swiss franc versus the U.S. dollar, primarily during March and May, as the value of the Swiss franc moved higher against the U.S. dollar after better-than-expected economic data out of Switzerland added to speculation that the Swiss economy might rebound sooner than expected.  A portion of the Partnership’s losses in the first six months of the year was offset by gains of approximately 1.2% and 1.0%, respectively, primarily during April and May, from long positions in the Australian dollar and South African rand versus the U.S. dollar as the value of the U.S. dollar moved lower against most of its rivals 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.  Additionally, the Australian dollar and South African rand moved higher amid rising commodity prices.  Smaller gains of approximately 0.5% were achieved primarily during January from short positions in the Russian ruble versus the U.S. dollar as the value of the U.S. dollar increased against the Russian ruble after a government report showed the U.S. trade deficit narrowed by the largest amount in 12 years.  Further gains were experienced during April and May, from long positions in the Russian ruble versus the U.S. dollar as the value of the U.S. dollar moved lower against the Russian ruble after the aforementioned government report showed U.S. employers cut fewer jobs than forecast.








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.


- 31 -







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.











- 32 -







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 confidence level of 99%) which involves constructing a distribution of hypothetical daily changes in the value of a trading





- 33 -







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 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.











- 34 -







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 June 30, 2010 and 2009.  At June 30, 2010 and 2009, the Partnership’s total capitalization was approximately $53 million and $70 million, respectively.





Primary Market
June 30, 2010
June 30, 2009Risk Category
Value at Risk
Value at RiskCurrency
(1.11)%
(0.76)%





The VaR for a market category represents the one-day downside risk for the aggregate exposures associated with this market category.  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 July 1, 2009 through June 30, 2010 and July 1, 2008 through June 30, 2009, respectively.





June 30, 2010Primary Market Risk Category
High
Low
AverageCurrency
(1.24)%
(1.01)%
(1.10)%














- 35 -







June 30, 2009Primary Market Risk Category
High
Low
AverageCurrency
(1.12)%
(0.16)%
(0.61)%





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 movement.





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.”








- 36 -







The VaR tables provided present the results of the Partnership’s VaR for the Partnership’s market risk exposure at June 30, 2010 and 2009, and for the four quarter-end reporting periods from July 1, 2009 through June 30, 2010 and from July 1, 2008 through June 30, 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 June 30, 2010, such amount was equal to approximately 101% 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.











- 37 -







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, 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 was the only trading risk exposure of the Partnership at June 30, 2010.  It may be anticipated, however, that market exposure will vary materially over time.





Currency.  The Partnership’s currency market exposure at June 30, 2010, was to exchange rate fluctuations, primarily fluctuations which disrupt the historical pricing relationships between different currencies and





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currency pairs.  Interest rate changes, as well as political and general economic conditions influence these fluctuations.  At June 30, 2010, the Partnership’s major exposures were to the British pound, Japanese yen, New Zealand dollar, Australian dollar, euro, Canadian dollar, Hungarian forint, Swiss franc, and Singapore dollar 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.





Qualitative Disclosures Regarding Non-Trading Risk Exposure


The following was the primary non-trading risk exposure of the Partnership at June 30, 2010:





Foreign Currency Balances.  The Partnership’s primary foreign currency balances at June 30, 2010, were in Japanese yen, Canadian dollars, euros, Polish zlotych, Mexican pesos, Swiss francs, Australian dollars, Hungarian forint, British pounds, Swedish kronor, Singapore dollars, South African rands, Norwegian kroner, Israeli shekels, Turkish lire, Hong Kong dollars, New Zealand dollars, Czech koruny, and Danish krone.  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 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





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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(c) and 15d-15(e) under the Exchange Act) as of June 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 President and Chief Financial Officer of Demeter have concluded that the disclosure controls and procedures of the Partnership were effective at June 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)





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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 Currency L.P.(Registrant)By:
Demeter Management LLC(General Partner)August 12, 2010
By:
/s/Christian AngstadtChristian AngstadtChief 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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