MORGAN STANLEY SMITH BARNEY CHARTER ASPECT L.P. - FORM 10-Q

Attached files

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EX-32.02 - EXHIBIT 3202 - MORGAN STANLEY SMITH BARNEY CHARTER ASPECT L.P.	mscdex3202.htm
EX-31.01 - EXHIBIT 3101 - MORGAN STANLEY SMITH BARNEY CHARTER ASPECT L.P.	mscdex3101.htm
EX-31.02 - EXHIBIT 3102 - MORGAN STANLEY SMITH BARNEY CHARTER ASPECT L.P.	mscdex3102.htm
EX-32.01 - EXHIBIT 3201 - MORGAN STANLEY SMITH BARNEY CHARTER ASPECT L.P.	mscdex3201.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: 0-26282

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

	Delaware	13-3775071
	(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 CHARTER ASPECT 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	2

	Statements of Operations for the Three and Nine Months Ended September 30, 2010 and 2009	3

	Statements of Changes in Partners’ Capital for the Nine Months Ended September 30, 2010 and 2009	4

	Condensed Schedules of Investments as of September 30, 2010 and December 31, 2009	5

	Notes to Financial Statements	6-22

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23-35

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 CHARTER ASPECT L.P.

STATEMENTS OF FINANCIAL CONDITION

(Unaudited)

	September 30,	December 31,
	2010	2009
ASSETS	$	$

Trading Equity:
Unrestricted cash	97,795,744	101,013,648
Restricted cash	6,775,673	13,630,081

Total cash	104,571,417	114,643,729

Net unrealized gain (loss) on open contracts (MS&Co.)	6,334,966	(206,150)
Net unrealized gain on open contracts (MSIP)	319,891	445,943

Total net unrealized gain on open contracts	6,654,857	239,793

Total Trading Equity	111,226,274	114,883,522

Interest receivable (MSSB)	10,090	—

Total Assets	111,236,364	114,883,522

LIABILITIES AND PARTNERS’ CAPITAL

Liabilities

Redemptions payable	1,988,833	965,075
Accrued brokerage fees (MS&Co.)	548,822	603,471
Accrued management fees	182,941	201,157
Interest payable (MS&Co.)	—	89

Total Liabilities	2,720,596	1,769,792

Partners’ Capital

Limited Partners (5,404,662.912 and 5,981,069.975 Units, respectively)	107,404,785	111,976,636
General Partner (55,905.223 and 60,736.223 Units, respectively)	1,110,983	1,137,094

Total Partners’ Capital	108,515,768	113,113,730

Total Liabilities and Partners’ Capital	111,236,364	114,883,522

NET ASSET VALUE PER UNIT	19.87	18.72

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

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MORGAN STANLEY SMITH BARNEY CHARTER ASPECT 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)	35,657	25,043	77,960	128,139

EXPENSES
Brokerage fees (MS&Co.)	1,609,235	1,772,643	4,930,038	6,322,342
Management fees	536,411	590,880	1,643,346	2,107,447
Incentive fee	–	–	–	114,911

Total Expenses	2,145,646	2,363,523	6,573,384	8,544,700

NET INVESTMENT LOSS	(2,109,989)	(2,338,480)	(6,495,424)	(8,416,561)

TRADING RESULTS
Trading profit (loss):
Realized	4,775,195	1,222,987	6,532,380	(10,689,397)
Net change in unrealized	2,954,673	5,959,683	6,415,064	(1,912,056)
	7,729,868	7,182,670	12,947,444	(12,601,453)

Proceeds from Litigation Settlement	40,052	–	40,052	–

Total Trading Results	7,769,920	7,182,670	12,987,496	(12,601,453)

NET INCOME (LOSS)	5,659,931	4,844,190	6,492,072	(21,018,014)

NET INCOME (LOSS) ALLOCATION

Limited Partners	5,601,970	4,795,582	6,426,064	(20,806,078)
General Partner	57,961	48,608	66,008	(211,936)

NET INCOME (LOSS) PER UNIT *

Limited Partners	1.01	0.77	1.15	(3.13)
General Partner	1.01	0.77	1.15	(3.13)

	Units	Units	Units	Units
WEIGHTED AVERAGE NUMBER
OF UNITS OUTSTANDING	5,636,712.630	6,328,704.515	5,807,619.629	6,712,434.833

* Based on change in Net Asset Value per Unit.

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

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MORGAN STANLEY SMITH BARNEY CHARTER ASPECT 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	6,041,806.198	111,976,636	1,137,094	113,113,730

Net Income	–	6,426,064	66,008	6,492,072

Redemptions	(581,238.063)	(10,997,915)	(92,119)	(11,090,034)

Partners’ Capital,
September 30, 2010	5,460,568.135	107,404,785	1,110,983	108,515,768




Partners’ Capital,
December 31, 2008	7,659,574.162	170,429,845	1,733,103	172,162,948

Net Loss	–	(20,806,078)	(211,936)	(21,018,014)

Redemptions	(1,414,592.592)	(29,889,647)	(282,373)	(30,172,020)

Partners’ Capital,
September 30, 2009	6,244,981.570	119,734,120	1,238,794	120,972,914

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

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MORGAN STANLEY SMITH BARNEY CHARTER ASPECT 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 Gain/(Loss)	Percentage of Net Assets	Net Unrealized Gain
	$	%	$	%	$
September 30, 2010 Partnership Partners’ Capital: $108,515,768

Commodity	2,668,896	2.46	(596,761)	(0.55)	2,072,135
Equity	111,150	0.10	(95,267)	(0.09)	15,883
Foreign currency	1,744,297	1.61	2,941	–	1,747,238
Interest rate	2,128,688	1.96	(15,383)	(0.01)	2,113,305

Grand Total:	6,653,031	6.13	(704,470)	(0.65)	5,948,561

Unrealized Currency Gain				0.65	706,296

Total Net Unrealized Gain on Open Contracts					6,654,857


	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: $113,113,730

Commodity	829,767	0.73	29,079	0.02	858,846
Equity	871,369	0.77	(2,147)	–	869,222
Foreign currency	(843,556)	(0.75)	459,318	0.41	(384,238)
Interest rate	(1,780,583)	(1.57)	34,276	0.03	(1,746,307)

Grand Total:	(923,003)	(0.82)	520,526	0.46	(402,477)

Unrealized Currency Gain				0.57	642,270

Total Net Unrealized Gain on Open Contracts					239,793

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

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MORGAN STANLEY SMITH BARNEY CHARTER ASPECT 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 Charter Aspect 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 Charter Aspect L.P. is a Delaware limited partnership organized in 1993 to engage primarily in the speculative trading of futures contracts, options on futures contracts, and forward contracts on physical commodities and other commodity interests, including, but not limited to, foreign currencies, financial instruments, metals, energy, and agricultural products (collectively, "Futures Interests") (refer to Note 4. Financial Instruments). The Partnership is one of the Morgan Stanley Smith Barney Charter series of funds, comprised of the Partnership, Morgan Stanley Smith Barney Charter WNT L.P. (“Charter WNT”), and Morgan Stanley Smith Barney Charter Campbell L.P. (“Charter Campbell”) (collectively, the "Charter Series"). Prior to August 23, 2010, the Charter Series was comprised of the Partnership, Charter Campbell, Charter WNT, and Managed Futures Charter Graham L.P. (formerly, Morgan Stanley Smith Barney Charter Graham L.P.).

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MORGAN STANLEY SMITH BARNEY CHARTER ASPECT 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. 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. and MSIP are wholly-owned subsidiaries of Morgan Stanley. Aspect Capital Limited (the “Trading Advisor”) is the trading advisor to the Partnership.

On July 28, 2010, the Partnership received a settlement award payment in the amount of $40,052 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.

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MORGAN STANLEY SMITH BARNEY CHARTER ASPECT L.P.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

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. Monthly, MSSB credits the Partnership with interest income received from MS&Co. and MSIP. Such amount is based on 100% of its average daily funds held at MS&Co. and MSIP to meet margin requirements at a rate approximately equivalent to what the commodity brokers pay other similar customers on margin deposits. In addition, MSSB credits the Partnership at each month end with interest income on 100% of the Partnership’s assets not deposited as margin at a rate equal to the monthly average on 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.

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

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MORGAN STANLEY SMITH BARNEY CHARTER ASPECT L.P.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

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.

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

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MORGAN STANLEY SMITH BARNEY CHARTER ASPECT L.P.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

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 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:

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MORGAN STANLEY SMITH BARNEY CHARTER ASPECT L.P.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

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	4,913,068	1,741,789	6,654,857	Mar. 2013	Dec. 2010
Dec. 31, 2009	601,960	(362,167)	239,793	Jun. 2012	Jan. 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.

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MORGAN STANLEY SMITH BARNEY CHARTER ASPECT L.P.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

The Partnership also has credit risk because MS&Co. and MSIP 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 gain (losses) on all open exchange-traded futures, exchange-traded forward, and exchange-traded futures-styled options contracts, which funds, in the aggregate, totaled $109,484,485 and $115,245,689 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 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 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

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MORGAN STANLEY SMITH BARNEY CHARTER ASPECT L.P.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

contracts, to perform. The Partnership has a netting agreement with MS&Co. This agreement, which seeks to reduce both the Partnership’s and MS&Co.’s exposure on off-exchange-traded forward currency contracts, should materially decrease the Partnership’s credit risk in the event of MS&Co.’s bankruptcy or insolvency.

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 flows. 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.

5. Derivatives and Hedging

The Partnership’s objective is to profit from speculative trading in Futures Interests. Therefore, the

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MORGAN STANLEY SMITH BARNEY CHARTER ASPECT L.P.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

Trading Advisor for the Partnership will take speculative positions in Futures Interests where it feels the best profit opportunities exist for its 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	2,804,147	(135,251)	254,740	(851,501)	2,072,135	1,238
Equity	174,029	(62,879)	3,942	(99,209)	15,883	546
Foreign currency	1,744,323	(26)	112,579	(109,638)	1,747,238	957
Interest rate	2,675,354	(546,666)	2,259	(17,642)	2,113,305	4,524
Total	7,397,853	(744,822)	373,520	(1,077,990)	5,948,561

Unrealized currency gain					706,296

Total net unrealized gain on open contracts					6,654,857

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MORGAN STANLEY SMITH BARNEY CHARTER ASPECT L.P.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

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	2,048,490	(1,218,723)	128,586	(99,507)	858,846	1,683
Equity	871,844	(475)	–	(2,147)	869,222	623
Foreign currency	128,587	(972,143)	504,260	(44,942)	(384,238)	1,178
Interest rate	331,046	(2,111,629)	49,343	(15,067)	(1,746,307)	4,795
Total	3,379,967	(4,302,970)	682,189	(161,663)	(402,477)

Unrealized currency gain					642,270
Total net unrealized gain on open contracts					239,793

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.

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	(472,992)	(7,068,444)
Equity	(930,571)	(4,164,838)
Foreign currency	2,655,323	3,195,801
Interest rate	6,572,103	20,920,899
Unrealized currency gain/(loss)	(93,995)	64,026
Proceeds from Litigation Settlement	40,052	40,052
Total	7,769,920	12,987,496

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	4,775,195	6,532,380
Net change in unrealized	2,954,673	6,415,064
Proceeds from Litigation Settlement	40,052	40,052
Total Trading Results	7,769,920	12,987,496

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MORGAN STANLEY SMITH BARNEY CHARTER ASPECT 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, 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	864,965	(6,232,639)
Equity	1,270,545	559,793
Foreign currency	1,197,070	(4,036,775)
Interest rate	3,914,581	(2,740,575)
Unrealized currency loss	(64,491)	(151,257)
Total	7,182,670	(12,601,453)

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	1,222,987	(10,689,397)
Net change in unrealized	5,959,683	(1,912,056)
Total Trading Results	7,182,670	(12,601,453)

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).

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MORGAN STANLEY SMITH BARNEY CHARTER ASPECT 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.

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	4,913,068	–	n/a	4,913,068
Net unrealized gain on forward contracts	–	1,741,789	n/a	1,741,789

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	601,960	—	n/a	601,960
Net unrealized loss on forward contracts	—	(362,167)	n/a	(362,167)

- 17 -

MORGAN STANLEY SMITH BARNEY CHARTER ASPECT 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.

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MORGAN STANLEY SMITH BARNEY CHARTER ASPECT L.P.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

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 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 event effective on or about December 1, 2010 is disclosed in the Subsequent Event section on pages 21 and 22.

- 19 -

MORGAN STANLEY SMITH BARNEY CHARTER ASPECT L.P.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(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 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

- 20 -

MORGAN STANLEY SMITH BARNEY CHARTER ASPECT L.P.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

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 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.

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

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

- 21 -

MORGAN STANLEY SMITH BARNEY CHARTER ASPECT L.P.

NOTES TO FINANCIAL STATEMENTS (CONCLUDED)

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.

- 22 -

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 the 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

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

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

Capital Resources. The Partnership does not have, nor 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.

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Results of Operations

General. The Partnership’s results depend on the Trading Advisor and the ability of the 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 Advisor trades 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 Advisor 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 Advisor’s 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

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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.

For the Three and Nine Months Ended September 30, 2010

The Partnership recorded total trading results including interest income totaling $7,805,577 and expenses totaling $2,145,646, resulting in net income of $5,659,931 for the three months ended September 30, 2010. The Partnership’s net asset value per Unit increased from $18.86 at June 30, 2010 to $19.87 at September 30, 2010.

The most significant trading gains of approximately 6.2% were recorded within the global interest rate sector, primarily during July and August. In July, gains were achieved from long positions in U.S. fixed-income futures as prices rose on speculation that the U.S. Federal Reserve might resume purchases of U.S. Treasuries if the economy slows. During August, long positions in European, U.S., and Australian fixed-income futures achieved gains as prices climbed higher due to concern that European governments may struggle to repay their debt, while reports added to evidence that Chinese economic growth may 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 economy and spurred demand for the relative “safety” of government bonds. Gains of approximately 2.4% were experienced within the currency sector, 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

- 26 -

gains were achieved from long positions in the Swiss franc, Singapore dollar, and South African rand 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. Within the metals sector, gains of approximately 0.8% were achieved primarily during September due to long futures positions in silver and gold 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 positions in copper futures as prices moved higher after industrial output beat analyst estimates in China, the world’s biggest base metals user. Gains of approximately 0.5% were achieved within the agricultural complex, primarily during September, from long positions in cotton futures as prices increased on signs that global demand may outpace limited supplies. Elsewhere, long positions in corn futures resulted in gains after prices advanced to the highest level in almost two years as freezing weather threatened crops in China and Canada and a prolonged drought slowed planting in Russia. A portion of the Partnership’s gains for the quarter was offset by losses of approximately 1.8% incurred within the energy sector, primarily during July and September. In July, short futures positions in crude oil and its related products experienced losses as prices increased after the U.S. Department of Energy estimated production might trail demand while Tropical Storm Bonnie headed for the Gulf of Mexico, thereby spurring concerns of a supply disruption. During September, short futures positions in crude oil and its related products resulted in losses as prices rose after positive economic indicators restored confidence that the global economic recovery may stimulate energy demand. Furthermore, oil prices increased after a pipeline that carries Canadian crude to refineries in the U.S. Midwest was closed due to a leak. Within the global stock index markets, losses of approximately 0.9% were experienced primarily

- 27 -

during July from short positions in European and U.S. equity index futures as prices were pressured higher amid unexpected growth in Europe’s manufacturing and service industries, rising U.K. retail sales, and positive U.S. corporate earnings reports.

The Partnership recorded total trading results including interest income totaling $13,065,456 and expenses totaling $6,573,384, resulting in net income of $6,492,072 for the nine months ended September 30, 2010. The Partnership’s net asset value per Unit increased from $18.72 at December 31, 2009 to $19.87 at September 30, 2010.

The most significant trading gains of approximately 20.7% were achieved within the global interest rate sector throughout the majority of the first nine months of the year from long positions in U.S., European, 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, 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 may be slowing and after reports on manufacturing in the New York region, U.S. home-builder confidence, and Japanese Gross Domestic Product fueled worries over the global economy. In the currency sector, gains of approximately 2.9% were recorded primarily during February, March, and April from short positions in the euro versus the

- 28 -

U.S. dollar, Swedish krona, and Norwegian krone as the value of the euro moved lower against most of its rivals on growing concerns that Greece’s mounting debt burden might spread to other European nations. In September, gains were experienced 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 Swiss franc, Singapore dollar, and South African rand 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. A portion of the Partnership’s gains for the first nine months of the year was offset by losses of approximately 3.7% incurred within the global stock index sector, primarily during January and May, from long positions in U.S., European, and Pacific Rim equity index futures. Equity index futures prices reversed lower in January due to disappointing U.S. corporate earnings reports, concerns regarding U.S. President Barack Obama’s proposed limits on risk-taking by banks, and speculation that China might raise interest rates. During May, prices fell on the aforementioned worries regarding Greece’s sovereign debt crisis and uncertainty regarding policy actions in Europe. In July, newly established short positions in European and U.S. equity index futures resulted in losses as prices were pressured higher amid unexpected growth in Europe’s manufacturing and service industries, rising U.K. retail sales, and positive U.S. corporate earnings reports. Within the energy sector, losses of approximately 3.6% were recorded primarily during January, May, and June from long futures positions in crude oil and its related products as prices decreased due to reports of increased U.S. inventories, speculation that China’s energy demand may ease, and worries that Europe’s debt troubles might impede global

- 29 -

energy demand. Short positions in natural gas futures resulted in additional losses in the energy markets as prices reversed higher during the first half of May after a U.S. government report showed that stockpiles grew less than forecast. In July, newly established short futures positions in crude oil and its related products experienced losses as prices increased after the U.S. Department of Energy estimated production might trail demand while Tropical Storm Bonnie headed for the Gulf of Mexico, thereby spurring concerns of a supply disruption. Further losses were incurred in September due to short futures positions in crude oil and its related products as prices rose after positive economic indicators restored confidence that the global economic recovery may stimulate energy demand. Furthermore, oil prices increased after a pipeline that carries Canadian crude to refineries in the U.S. Midwest was closed due to a leak. In the agricultural complex, losses of approximately 1.8% were experienced throughout the majority of the first nine months of 2010 from long futures positions in sugar as prices dropped during February and March following news that production might rise in Brazil, India, and Thailand, three of the world’s largest sugar producers. Elsewhere, short positions in coffee futures resulted in losses as prices sharply increased during the second quarter amid dwindling U.S. inventories, rain damage to crops in Brazil, and two consecutive poor harvests in Central America and Columbia. Meanwhile, losses were recorded from short futures positions in wheat as prices moved sharply higher on supply concerns after wet weather disrupted wheat harvesting in the U.S. Midwest and Great Plains. 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. Smaller losses of approximately 1.1% were incurred within the metals markets, primarily during January, from long positions in aluminum, zinc, copper, and lead futures as prices dropped amid a rise in the value of the U.S. dollar, as well

- 30 -

as on speculation that demand for base metals might wane after Chinese banks begin to restrict lending. Further losses were experienced during April and May as base metals prices were pressured lower after credit-rating downgrades of Greece and Portugal threatened to undermine economic growth, which eroded demand. During July, smaller losses were incurred from long futures positions in gold as prices reversed lower amid waning European debt concerns, which reduced demand for the precious metal as a “safe haven.”

For the Three and Nine Months Ended September 30, 2009

The Partnership recorded total trading results including interest income totaling $7,207,713 and expenses totaling $2,363,523, resulting in net income of $4,844,190 for the three months ended September 30, 2009. The Partnership’s net asset value per Unit increased from $18.60 at June 30, 2009, to $19.37 at September 30, 2009.

The most significant trading gains of approximately 3.3% were recorded within the global interest rate sector throughout a majority of the quarter from long positions in U.S. and European fixed-income futures as prices moved higher on investor sentiment that the slow pace of the global economic recovery and signs of moderate inflation might lead central banks in these regions to maintain low interest rates in the near term. Within the global stock index sector, gains of approximately 1.1% were experienced primarily during August and September from long positions in U.S., European, and Pacific Rim equity index futures as prices rose due to positive economic data and increased merger and acquisition activity in the technology sector. Within the metals markets, gains of approximately

- 31 -

1.0% were recorded throughout a majority of the quarter from long futures positions in gold and silver as prices moved higher amid a decline in the value of the U.S. dollar. Additional gains were experienced in the metals complex from long positions in copper, lead, and zinc futures as prices increased following news that China’s economy expanded during the second quarter of 2009 and Chinese manufacturing jumped in July, thereby spurring speculation that demand for base metals might rise. Within the currency sector, gains of approximately 1.0% were recorded primarily during September from long positions in the Japanese yen, Swiss franc, and Australian dollar versus the U.S. dollar as the value of the U.S. dollar moved lower against these currencies due to the aforementioned 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. Meanwhile, the value of the Australian dollar also moved higher in the wake of stronger gold prices, while the Japanese yen was bolstered by better-than-expected economic data out of Japan. Additional gains of approximately 0.9% were experienced within the agricultural markets, primarily during August, from long futures positions in sugar as prices moved sharply higher at the beginning of the month following reports of damaged crops in India and reduced yields in Brazil. 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. Smaller gains were recorded from long positions in cocoa futures as prices increased during September after reports showed global inventories reached a seven-month low. A portion of the Partnership’s gains for the quarter was offset by losses of approximately 1.2% incurred within the energy sector, primarily during July and September, from short futures positions in crude oil and its related products as prices increased after positive economic data spurred optimism that energy demand might rebound.

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The Partnership recorded total trading results including interest income totaling $(12,473,314) and expenses totaling $8,544,700, resulting in a net loss of $21,018,014 for the nine months ended September 30, 2009. The Partnership’s net asset value per Unit decreased from $22.48 at December 31, 2008 to $19.37 at September 30, 2009.

The most significant trading losses of approximately 3.5% were recorded within the energy markets, primarily during March, May, June, July, and September from short futures positions in crude oil and its related products as prices increased on optimism that a possible rebound in global economic growth might boost energy demand. Within the currency sector, losses of approximately 2.6% were experienced primarily during March, April, May, and July from short positions in the euro and British pound versus the U.S. dollar as the value of the U.S. dollar moved lower against most of its rivals after improving global economic data reduced demand for the U.S. dollar as a “safe haven” currency. Additional losses were incurred from long positions in the Japanese yen versus the U.S. dollar, primarily during June, as the value of the Japanese yen reversed lower relative to the U.S. dollar amid pessimism regarding the future growth of the Japanese economy. Within the global interest rate sector, losses of approximately 1.9% were recorded primarily during January and June. During January, losses were experienced from long positions in U.S. 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 recorded during June from long positions in U.S. and Australian fixed-income futures prices moved lower amid rising investor confidence, which reduced demand for the relative “safety” of government bonds. Meanwhile, short positions in Japanese fixed-income futures resulted in losses as prices increased during the second half

- 33 -

of June after the Bank of Japan indicated that it remained cautious about the Japanese economy. Additional losses of approximately 1.8% were incurred within the metals markets, primarily during March and April, from short futures positions in aluminum and lead as prices rose amid speculation that economic stimulus plans in the U.S. and China might help boost demand for base metals. Smaller losses were experienced during June from long positions in silver futures as prices reversed lower due to a temporary rise in the value of the U.S. dollar. A portion of the Partnership’s losses for the first nine months of the year was offset by gains of approximately 0.8% recorded within the agricultural sector, primarily during June and August, from long futures positions in sugar as prices moved higher amid expectations of a drop in global production. During August, sugar prices moved sharply higher at the beginning of the month following reports of damaged crops in India and reduced yields in Brazil. Prices continued to climb throughout August, reaching a 28-year high, on deepening concerns that unfavorable weather in producing countries and rising import demand may worsen the global supply shortfall. Additional gains were experienced from short positions in lean hog futures as prices fell during June on speculation that demand for U.S. pork products might remain sluggish amid ongoing swine flu concerns. Smaller gains of approximately 0.6% were recorded within the global stock index sector, primarily during January, February, May, June, August, and September. During January and February, short positions in European and Pacific Rim equity index futures resulted in gains as prices dropped on concerns that financial firms might need to raise additional capital and a continued slowdown in global economic growth might further erode corporate earnings. Additional gains were recorded during June from short positions in European equity index futures as prices declined on speculation that a recent rally in the European equity index markets might have outpaced the prospects for corporate earnings growth. Further gains were experienced during August and

- 34 -

September from newly established long positions in European and Pacific Rim equity index futures as prices rose 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.

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

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accomplished by daily maintenance of the cash balance in a custody account held at MSSB for the benefit of 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.

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.

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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 Advisor is estimated below in terms of VaR. The Partnership estimates VaR using a model based upon historical simulation (with a confidence level of 99%) which involves constructing a distribution of hypothetical daily changes in the value of a trading portfolio. The VaR model takes into account linear exposures to risk including equity and commodity prices, interest rates, foreign exchange rates, and correlation among these variables. The hypothetical changes in portfolio value are based on daily percentage changes observed in key market

indices or other market factors ("market risk factors") to which the portfolio is sensitive. The one-day 99% confidence level of the Partnership’s VaR corresponds to the negative change in portfolio value that,

based on observed market risk factors, would have been exceeded once in 100 trading days, or one day in 100. VaR typically does not represent the worst case outcome. Demeter uses approximately four years of

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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 Advisor 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 $109 million and $121 million, respectively.

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Primary Market	September 30, 2010	September 30, 2009
Risk Category	Value at Risk	Value at Risk

Interest Rate	(1.68)%	(1.40)%

Currency	(1.38)	(0.64)

Equity	(1.04)	(1.72)

Commodity	(1.35)	(0.94)

Aggregate Value at Risk	(2.91)%	(2.27)%

The VaR for a market category represents the one-day downside risk for the aggregate exposures associated with this market category. The Aggregate Value at Risk listed above represents the VaR of the Partnership’s open positions across all the market categories, and is less than the sum of the VaRs for all such market categories due to the diversification benefit across asset classes.

Because the business of the Partnership is the speculative trading of futures, forwards and options 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.

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September 30, 2010
Primary Market Risk Category	High	Low	Average
Interest Rate	(1.68)%	(1.23)%	(1.39)%
Currency	(1.38)	(0.34)	(0.71)
Equity	(2.19)	(0.22)	(1.39)
Commodity	(2.24)	(0.79)	(1.46)
Aggregate Value at Risk	(3.65)%	(1.62)%	(2.84)%

September 30, 2009
Primary Market Risk Category	High	Low	Average
Interest Rate	(1.40)%	(0.53)%	(0.98)%
Currency	(0.64)	(0.14)	(0.39)
Equity	(1.72)	(0.05)	(0.55)
Commodity	(0.94)	(0.50)	(0.68)
Aggregate Value at Risk	(2.27)%	(0.94)%	(1.46)%

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:

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·	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, 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.

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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 91% of the Partnership’s net asset value. A decline in short-term interest rates would result in a decline in the Partnership’s cash management income. This cash flow risk is not considered to be material.

Materiality, as used throughout this section, is based on an assessment of reasonably possible market movements and any associated potential losses, taking into account the leverage, optionality, and multiplier features of the Partnership’s market-sensitive instruments, in relation to the Partnership’s net assets.

Qualitative Disclosures Regarding Primary Trading Risk Exposures

The following qualitative disclosures regarding the Partnership’s market risk exposures - except for (A) those disclosures that are statements of historical fact and (B) the descriptions of how the Partnership manages its primary market risk exposures - constitute forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act. The Partnership’s primary market risk exposures, as well as the strategies used and to be used by Demeter and the Trading Advisor for managing such exposures, are subject to numerous uncertainties,

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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 Advisor, in general, tends to utilize trading system(s) to take positions when market opportunities develop, and Demeter anticipates that the Trading Advisor 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.

Interest Rate. The third largest market exposure of the Partnership at September 30, 2010, was to the global interest rate sector. Exposure was primarily spread across European, U.S., Japanese, Australian, and Canadian interest rate sectors. Interest rate movements directly affect the price of the sovereign bond futures positions held by the Partnership and indirectly affect the value of its stock index and currency positions. Interest rate movements in one country, as well as relative interest rate movements between countries, materially impact the Partnership’s profitability. The Partnership’s primary interest rate exposure is generally to interest rate fluctuations in the U.S. and the other G-7 countries. The G-7

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countries consist of France, the U.S., the United Kingdom, Germany, Japan, Italy, and Canada. However, the Partnership also takes futures positions in the government debt of smaller countries- e.g., Australia. Demeter anticipates that the G-7 countries interest rate 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.

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 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 euro, Swedish krona, Polish zloty, Hungarian forint, Norwegian krone, and Czech koruna 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.

Equity. At September 30, 2010, the Partnership had market exposure to the global stock index sector. Exposure was primarily to equity price risk in the G-7 countries. The stock index futures traded by the Partnership are by law limited to futures on broadly-based indices. At September 30, 2010, the

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Partnership’s primary market exposures were to the FTSE 100 (United Kingdom), OMX 30 (Sweden), S&P 500 (U.S.), S&P 60 (Canada), DAX (Germany), Nasdaq 100 (U.S.), Topix (Japan), Hang Seng (Hong Kong), Nikkei 225 (Japan), Taiwan (Taiwan), Dow Jones Industrials (U.S.), and IBEX 35 (Spain) 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, resulting in numerous small losses.

Commodity.

Energy. The largest market exposure of the Partnership at September 30, 2010, was to the energy sector. The Partnership’s primary energy exposure was to futures contracts in crude oil and its related products, as well as in 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.

Soft Commodities and Agriculturals. The second largest market exposure of the Partnership at September 30, 2010, was to the soft commodities and agricultural sectors. Most of the exposure was to the sugar, soybeans, coffee, cocoa, corn, soybean meal, soybean oil, cotton, live cattle, wheat, and rapeseed markets. Supply and demand inequalities, severe weather disruptions, and market expectations affect price movements in these markets.

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Metals. At September 30, 2010, the Partnership had market exposure 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, aluminum, nickel, zinc, and lead. Economic forces, supply and demand inequalities, geopolitical factors, and market expectations influence price movements in these markets.

Qualitative Disclosures Regarding Non-Trading Risk Exposure

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

Foreign Currency Balances. The Partnership’s primary foreign currency balances at September 30, 2010, were in Japanese yen, British pounds, euros, Swedish kronor, Canadian dollars, Australian dollars, and Hong Kong dollars. 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 Advisor, 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 through the selection of a Commodity Trading Advisor and by daily monitoring its performance. In addition, the Trading Advisor establishes diversification guidelines, often set in terms of the

maximum margin to be committed to positions in any one market sector or market-sensitive instrument.

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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 Advisor.

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 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.

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Limitations on the Effectiveness of Controls

Any control system, no matter how well designed and operated, can provide reasonable (not absolute) assurance that its objectives will be met. Furthermore, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.

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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 Charter Aspect L.P.
	(Registrant)

	By:	Demeter Management LLC
		(General Partner)

November 10, 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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Attached files

MORGAN STANLEY SMITH BARNEY CHARTER ASPECT L.P. Reports

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