MORGAN STANLEY SMITH BARNEY CHARTER CAMPBELL LP - FORM 10-Q - May 13, 2011

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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 March 31, 2011 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: 0-50064

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

 
Delaware
  
01-0710311
 
     (State or other jurisdiction of
      incorporation or organization)
  
(I.R.S. Employer
Identification No.)
       
  Ceres Managed Futures 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


(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 CAMPBELL L.P.
INDEX TO QUARTERLY REPORT ON FORM 10-Q

March 31, 2011



 
PART I. FINANCIAL INFORMATION
  
     
Item 1.
Financial Statements (Unaudited)
  
     
 
Statements of Financial Condition as of March 31, 2011 and December 31, 2010
2
     
 
Condensed Schedule of Investments as of March 31, 2011
3
     
 
Condensed Schedule of Investments as of December 31, 2010
4
     
 
Statements of Income and Expenses for the Quarters Ended March 31, 2011 and 2010
5
     
 
Statements of Changes in Partners’ Capital for the Quarters Ended March 31, 2011 and 2010
6
     
 
Notes to Financial Statements
  7-21
     
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
22-27
     
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
28-36
     
Item 4.
Controls and Procedures
36-37
     
 
PART II. OTHER INFORMATION
  
     
Item 1A.
Risk Factors
38
     
Item 6.
Exhibits
38



 
 
 

PART I.  FINANCIAL INFORMATION
Item 1.  Financial Statements

MORGAN STANLEY SMITH BARNEY CHARTER CAMPBELL L.P.
STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
 
March 31,
  
December 31,
 
2011
  
2010
ASSETS
$
  
$
       
Trading Equity:
      
       
Unrestricted cash
71,993,094
  
79,053,213
Restricted cash
6,421,992
  
5,052,970
       
Total cash
78,415,086
  
84,106,183
       
Net unrealized gain (loss) on open contracts (MSIP)
(201,537)
  
  356,301
Net unrealized loss on open contracts (MS&Co.)
(2,496,154)
  
(216,405)
       
Total net unrealized gain (loss) on open contracts
(2,697,691)
  
139,896
       
Options purchased (premiums paid $167,869 and $267,400, respectively)
300,073
  
366,896
       
Total Trading Equity
76,017,468
  
84,612,975
       
Interest receivable (MSSB)
4,707
  
5,799
       
Total Assets
76,022,175
  
84,618,774
       
LIABILITIES AND PARTNERS’ CAPITAL
      
       
Liabilities:
      
       
Redemptions payable
1,284,113
  
2,189,794
Accrued brokerage fees (MS&Co.)
403,606
  
400,033
Options written (premiums received $95,583 and $58,237, respectively)
152,895
  
166,225
Accrued management fees
134,535
  
176,681
       
Total Liabilities
1,975,149
  
2,932,733
       
Partners’ Capital:
      
       
Limited Partners (7,332,015.628 and 7,633,482.867 Units, respectively)
73,219,158
  
80,808,446
General Partner (82,901.055 and 82,901.055 Units, respectively)
827,868
  
877,595
       
Total Partners’ Capital
74,047,026
  
81,686,041
       
Total Liabilities and Partners’ Capital
76,022,175
  
84,618,774
       
NET ASSET VALUE PER UNIT
9.99
  
10.59



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

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MORGAN STANLEY SMITH BARNEY CHARTER CAMPBELL L.P.
CONDENSED SCHEDULE OF INVESTMENTS
March 31, 2011 (Unaudited)




 Futures and Forward Contracts Purchased
Net unrealized
gain/(loss)
on open contracts
% of
Partners’ Capital
 
$
  
 Commodity
   372,009
0.50
 Equity
   341,709
         0.46
 Foreign currency
(409,338)
(0.55)             
 Interest rate
                                 (569,217)
  (0.77)             
     
 Total Futures and Forward Contracts Purchased
  (264,837)
   (0.36)             
     
     
 Futures and Forward Contracts Sold
    
     
 Commodity
(36,402)
  (0.05)
 Equity
(21,782)
  (0.03)
 Foreign currency
(166,161)
   (0.22)
 Interest rate
      163,993
           0.22
     
 Total Futures and Forward Contracts Sold
     (60,352)
       (0.08)
     
Unrealized Currency Loss
                           (2,372,502)
                        (3.20)
     
 Net fair value
        (2,697,691)
                        (3.64)
     
     
 
 Option Contracts
Fair Value            
% of          
Partners’ Capital          
      
Options purchased on Forward Contracts
300,073
0.41
Options written on Forward Contracts
(152,895)
(0.21)
     
     















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

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MORGAN STANLEY SMITH BARNEY CHARTER CAMPBELL L.P.
CONDENSED SCHEDULE OF INVESTMENTS
December 31, 2010



Futures and Forward Contracts Purchased
Net unrealized gain/(loss)
on open contracts
% of
Partners’ Capital
 
      $
  
 Commodity
    1,279,093
 1.57          
 Equity
   17,386
                                     0.02                 
 Foreign currency
1,831,284
     2.24          
 Interest rate
                                    106,248
   0.13          
     
 Total Futures and Forward Contracts Purchased
  3,234,011
           3.96          
     

 Futures and Forward Contracts Sold
    
     
 Commodity
(79,630)
     (0.10)
 Equity
10,264
      0.01
 Foreign currency
(496,506)
      (0.61)
 Interest rate
    (159,688)
              (0.19)
     
 Total Futures and Forward Contracts Sold
    (725,560)
          (0.89)
     
Unrealized Currency Loss
                            (2,368,555)
                         (2.90)
     
Net fair value
             139,896
                          0.17
     
     
 
Option Contracts
Fair Value         
% of         
Partners’ Capital        
     
Options purchased on Forward Contracts
366,896
0.45
Options written on Forward Contracts
(166,225)
(0.20)

















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

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MORGAN STANLEY SMITH BARNEY CHARTER CAMPBELL L.P.
STATEMENTS OF INCOME AND EXPENSES
(Unaudited)


 
For the Quarters Ended March 31,
       
 
2011
  
2010
 
$
  
$
INVESTMENT INCOME
      
Interest income (MSSB & MS&Co.)
20,722
  
5,934
       
EXPENSES
      
Brokerage fees (MS&Co.)
1,210,258
  
1,329,231
Management fees
403,419
  
587,077
       
Total Expenses
1,613,677
  
1,916,308
       
NET INVESTMENT LOSS
(1,592,955)
  
(1,910,374)
       
TRADING RESULTS
      
Trading profit (loss):
      
Realized
(180,530)
  
(5,707,586)
Net change in unrealized
(2,754,203)
  
3,161,340
       
Total Trading Results
(2,934,733)
  
(2,546,246)
       
NET LOSS
(4,527,688)
  
(4,456,620)
       
NET LOSS ALLOCATION
      
       
Limited Partners
(4,477,961)
  
(4,411,974)
General Partner
(49,727)
  
(44,646)
       
NET LOSS PER UNIT *
      
       
Limited Partners
(0.60)
  
(0.45)
General Partner
(0.60)
  
(0.45)
       
 
Units
  
Units
WEIGHTED AVERAGE NUMBER
      
OF UNITS OUTSTANDING
7,629,167.454
  
9,486,671.007







* Based on change in net asset value per Unit.



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

– 5 –

 
 
 

MORGAN STANLEY SMITH BARNEY CHARTER CAMPBELL L.P.
STATEMENTS OF CHANGES IN PARTNERS’ CAPITAL
For the Quarters Ended March 31, 2011 and 2010
(Unaudited)



 
Units of
            
 
Partnership
  
Limited
  
General
    
 
Interest
  
Partners
  
Partner
  
Total
     
$
  
$
  
$
Partners’ Capital,
              
December 31, 2010
7,716,383.922
  
80,808,446
  
877,595
  
81,686,041
               
Net Loss
–
  
(4,477,961)
  
(49,727)
  
(4,527,688)
               
Redemptions
(301,467.239)
  
(3,111,327)
  
–
  
(3,111,327)
               
Partners’ Capital,
              
March 31, 2011
7,414,916.683
  
73,219,158
  
827,868
  
74,047,026
               
               
               
               
Partners’ Capital,
              
December 31, 2009
9,674,466.469
  
93,776,897
  
952,606
  
94,729,503
               
Net Loss
–
  
(4,411,974)
  
(44,646)
  
(4,456,620)
               
Redemptions
(585,689.865)
  
(5,328,847)
  
(54,570)
  
(5,383,417)
               
Partners’ Capital,
              
March 31, 2010
9,088,776.604
  
84,036,076
  
853,390
  
84,889,466





















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

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MORGAN STANLEY SMITH BARNEY CHARTER CAMPBELL L.P.
NOTES TO FINANCIAL STATEMENTS

March 31, 2011

(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 Campbell 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, 2010.

1.  Organization
Morgan Stanley Smith Barney Charter Campbell L.P. is a Delaware limited partnership organized in 2002 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 Charter series of funds, comprised of the Partnership, Morgan Stanley Smith Barney Charter Aspect L.P., and Morgan Stanley Smith Barney Charter WNT L.P. (collectively, the “Charter Series”).






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MORGAN STANLEY SMITH BARNEY CHARTER CAMPBELL L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

The Partnership’s general partner is Ceres Managed Futures LLC (“Ceres” or the “General Partner”).  The non-clearing commodity broker is Morgan Stanley Smith Barney LLC (“MSSB”).  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”).  Morgan Stanley Capital Group Inc. (“MSCG”) acts as the counterparty on all trading of options on foreign currency forward contracts. Ceres 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.  MSSB is the principal subsidiary of MSSBH.  MS&Co., MSIP, and MSCG are wholly-owned subsidiaries of Morgan Stanley. Campbell & Company, Inc. (the “Trading Advisor”) is the trading advisor to the Partnership.

Effective January 1, 2011, the monthly management fee payable by the Partnership to the Trading Advisor was reduced from 1/12 of 2.65% (a 2.65% annual rate) to 1/6 of 1% (a 2% annual rate).







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MORGAN STANLEY SMITH BARNEY CHARTER CAMPBELL L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

2.  
Financial Highlights
                   For the Quarters Ended March 31,

 
2011
2010
         Per Unit operating performance:
    
         Net asset value, January 1:
       $    10.59
   $       9.79
     
                     Interest Income
                 –     (3)
            –     (3)
                     Expenses
              (0.21)
          (0.20)
                     Realized Loss (1 )
              (0.03)
          (0.59)
                     Unrealized Loss
              (0.36)
           0.34
                     Net Loss
              (0.60)
          (0.45)
     
         Net asset value, March 31:
        $      9.99
   $      9.34
     
         Ratios to average net assets:
    
                     Net investment loss (2)
                (8.3)%
         (9.1)%
                     Expenses before  incentive fees (2)
                 8.4 %
          9.1 %
                     Expenses after incentive fees (2)
                 8.4 %
          9.1 %
                     Net Loss (2)
              (23.5) %
       (21.2) %
         Total return before incentive fees
                (5.7)%
         (4.6)%
         Total return after incentive fees
                (5.7)%
         (4.6)%
     


   (1) Realized Loss is a balancing amount necessary to reconcile the change in net asset value per Unit
       with the other per Unit information.
   
  (2) Annualized (except for incentive fees, if applicable).

   (3) Amounts less than $0.005 per Unit.

3.  Related Party Transactions
The Partnership’s cash is on deposit with MSSB, MS&Co., and MSIP, in Futures Interests trading accounts to meet margin requirements as needed.  Monthly, MSSB credits the Partnership with interest income received from



-  9 -
 
 
 
 
MORGAN STANLEY SMITH BARNEY CHARTER CAMPBELL L.P.                                       
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

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 or charge 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 of the 4-week U.S. Treasury bill discount rate during such month. MSSB retains any interest earned in excess of the interest paid by MSSB to the Partnership.  For purposes of such interest payments, net assets do not include monies owed to the Partnership on forward contracts and other Futures Interests.  The Partnership pays brokerage fees to MS&Co.  MSCG acts as the counterparty on all trading options on foreign currency forward contracts.

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 a net unrealized gain or loss on open contracts.  The resulting net change in unrealized gains and losses is reflected in the net change in unrealized trading profit (loss) on open contracts from one period to the next on the Statements of Income and Expenses.  The fair value of exchange-traded futures, options and forward contracts is determined by the various futures exchanges, and reflects the settlement price for each contract as of the close of business

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MORGAN STANLEY SMITH BARNEY CHARTER CAMPBELL L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

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 from various exchanges.  The fair value of non-exchange-traded foreign currency option contracts is calculated by applying an industry standard model application for options valuation of foreign currency options, using as inputs, the spot prices, interest rates, and option implied volatilities quoted as of approximately 3:00 P.M. (E.T.) on the last business day of the reporting period.  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.

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.

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MORGAN STANLEY SMITH BARNEY CHARTER CAMPBELL L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

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 Financial Accounting Standards Board (“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) one or more “notional amounts” or payment provisions or both;
2)  
Requires no initial net investment or a smaller initial net investment than would be required for other types of contracts that would be expected to have a similar response relative to changes in market factors; and
3)  
Terms that require or permit net settlement.


Generally, derivatives include futures, forwards, swaps or options contracts, and other financial instruments with similar characteristics such as caps, floors, and collars.





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MORGAN STANLEY SMITH BARNEY CHARTER CAMPBELL L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

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
 
$
$
$
    
Mar. 31, 2011
  (2,122,204)
   (575,487)
(2,697,691)
Sep. 2012
Jun. 2011
Dec. 31, 2010
(1,194,883)
1,334,779
139,896
Mar. 2012
 Mar. 2011

The Partnership has credit risk associated with counterparty nonperformance.  As of the date of the financial statements, the credit risk associated with the instruments in which the Partnership trades is limited to the unrealized gain amounts reflected in the Partnership’s Statements of Financial Condition.

The Partnership also has credit risk because MS&Co., MSIP, and/or MSCG act as the futures commission merchants or the counterparties, with respect to most of the Partnership’s assets. Exchange-traded futures, exchange-traded forward, and exchange-traded futures-styled options contracts are marked to market on a daily basis, with variations in value settled on a daily basis. MS&Co. and MSIP, each acting as a commodity broker for the Partnership’s exchange-traded futures, exchange-traded forward, and exchange-traded futures-styled options contracts, are required, pursuant to regulations of the Commodity Futures Trading Commission (“CFTC”), to segregate from their own assets, and for the sole benefit of their commodity customers, all funds held by them with respect to exchange-traded futures, exchange-traded forward, and exchange-traded futures-styled options contracts, including an amount equal to the net unrealized losses on all open exchange-traded futures, exchange-traded forward, and exchange-traded futures-styled options contracts, which funds, in the

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MORGAN STANLEY SMITH BARNEY CHARTER CAMPBELL L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)


aggregate, totaled $76,292,882 and $82,911,300 at March 31, 2011, and December 31, 2010, 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 the benefit of MS&Co. With respect to those off-exchange-traded forward currency contracts, the Partnership is at risk to the ability of MS&Co., the sole counterparty on all such contracts, to perform. With respect to those off-exchange-traded forward currency options contracts, the Partnership is at risk to the ability of MSCG, the sole counterparty on all such contracts, to perform.  The Partnership has a netting agreement with each counterparty.  These agreements, which seek to reduce both the Partnership’s and the counterparties’ exposure on off-exchange-traded forward currency contracts, including options on such contracts, should materially decrease the Partnership’s credit risk in the event of MS&Co.’s or MSCG’s bankruptcy or insolvency.

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


- 14 -

 
 
 

MORGAN STANLEY SMITH BARNEY CHARTER CAMPBELL L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)



forward, and exchange-traded futures-styled options contracts are settled daily through variation margin.  Gains and losses on off-exchange-traded forward currency contracts are settled upon termination of the contract.  Gains and losses on off-exchange-traded forward currency options contracts are settled on an agreed- upon settlement date.  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 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. With regard 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 of March 31, 2011 and December 31, 2010, respectively.






- 15 -
 
 
 
 
MORGAN STANLEY SMITH BARNEY CHARTER CAMPBELL L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

The Effect of Trading Activities on the Statements of Financial Condition as of March 31, 2011:
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 quarter 
 (absolute quantity)
 
$
$
$
  
$
$
  
Commodity
695,661
(323,652)
11,150
  
(47,552)
335,607 
546
Equity
357,261
(15,552)
–
  
(21,782)
319,927 
675
Foreign currency
401,027
(810,365)
163,361
  
(329,522)
(575,499) 
 8,083
Interest rate
                  –        
           (569,217) 
   166,868
  
             (2,875)
   (405,224) 
 1,242
Total
  1,453,949
   (1,718,786)
  341,379
  
  (401,731)
 (325,189) 
 
               
Unrealized currency loss
          
  (2,372,502)
  
Total net unrealized loss on open contracts
          
 
 (2,697,691)
  
               


   
Average number of
  
   
contracts outstanding
  
   
for the quarter
  
   
(absolute quantity)
  
Option Contracts at Fair Value
$
    
Options purchased
300,073
2
  
Options written
            (152,895)
1
  


The Effect of Trading Activities on the Statements of Financial Condition as of December 31, 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 the year (absolute quantity)
 
$
$
$
  
$
$
  
               
Commodity
1,337,918
(58,825)
–
  
(79,630)
1,199,463 
562
Equity
188,291
(170,905)
10,264
  
–
27,650 
579
Foreign currency
2,099,244
(267,960)
148,803
  
(645,309)
1,334,778 
  6,666
Interest rate
     106,248
                  –        
    13,334
  
       (173,022)
     (53,440) 
  2,512
Total
  3,731,701
   (497,690)
  172,401
  
  (897,961)
 2,508,451 
 
               
Unrealized currency loss
          
  (2,368,555)
  
Total net unrealized gain on open contracts
          
 
       139,896 
 







- 16 -
 
 
 
 
MORGAN STANLEY SMITH BARNEY CHARTER CAMPBELL L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)



   
Average number of
   
contracts outstanding
   
for the year
   
(absolute quantity)
Option Contracts at Fair Value
$
  
Options purchased
  366,896
3
Options written
               (166,225)
3

The following tables summarize the net trading results of the Partnership for the quarters ended March 31, 2011 and 2010, respectively.

The Effect of Trading Activities on the Statements of Income and Expenses for the Quarter Ended March 31, 2011 included in Total Trading Results:


Type of Instrument
                                                $
   
 Commodity
1,340,935
 Equity
(1,485,251)
 Foreign currency
(1,457,071)
 Interest rate
(1,329,399)
 Unrealized currency loss
         (3,947)
   
Total
  (2,934,733)

Line Items on the Statements of Income and Expenses for the Quarter Ended March 31, 2011:
Trading Results
                                               $
   
 Realized
(180,530)
 Net change in unrealized
   (2,754,203)
Total Trading Results
   (2,934,733)







- 17 -
 
 
 
 
MORGAN STANLEY SMITH BARNEY CHARTER CAMPBELL L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

The Effect of Trading Activities on the Statements of Income and Expenses for the Quarter Ended March 31, 2010 included in Total Trading Results:

Type of Instrument
                                                   $
   
Commodity
(1,576,209)
Equity
 (1,803,725)
Foreign currency
(785,035)
Interest rate
1,604,890
Unrealized currency gain
          13,833
   
Total
   (2,546,246)




Line Items on the Statements of Income and Expenses for the Quarter Ended March 31, 2010:
Trading Results
                                                    $
   
Realized
(5,707,586)
Net change in unrealized
     3,161,340
Total Trading Results
    (2,546,246)

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).




- 18 -
 
 
 
 
MORGAN STANLEY SMITH BARNEY CHARTER CAMPBELL 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.
March 31, 2011
Unadjusted
Quoted Prices in Active Markets for Identical Assets
(Level 1)
Significant Other Observable Inputs
(Level 2)
Significant Unobservable Inputs
(Level 3)
  
Total
 
$
$
$
  
$
 Assets
          
 Futures
 1,230,928       
            –      
n/a
 
    1,230,928
 Forwards
                    –      
           564,400    
n/a
  
  564,400
     Options Purchased
                –      
       300,073 
n/a
  
                 300,073
           
  Total Assets
 1,230,928
           864,473      
n/a
  
       2,095,401
           
      Liabilities
          
   Futures
     980,630    
                    –      
n/a
  
      980,630
       Forwards
                  –      
1,139,887         
n/a
  
              1,139,887
       Options Written
                  –      
         152,895 
n/a
  
                 152,895
           
  Total Liabilities
    980,630
          1,292,782      
n/a
  
     2,273,412
           
  Unrealized currency loss
        
     (2,372,502)
           
  * Net fair value
    250,298
          (428,309)
n/a
  
         (2,550,513)




- 19 -

 
 
 

MORGAN STANLEY SMITH BARNEY CHARTER CAMPBELL L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)



December 31, 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
          
Futures
 1,656,055
            –      
   n/a    
 
     1,656,055
 Forwards
                         –      
        2,248,048    
       n/a    
 
2,248,048
     Options Purchased
                     –      
       366,896 
n/a    
 
                 366,896
           
  Total Assets
 1,656,055
        2,614,944      
   n/a    
 
           4,270,999
           
     Liabilities
          
  Futures
      482,383
            –      
  n/a   
 
      482,383
      Forwards
                    –      
  913,269             
   n/a
  
                913,269
      Options Written
                    –      
       166,225 
   n/a    
 
                166,225
           
  Total Liabilities
   482,383
        1,079,494      
 n/a    
 
       1,561,877
           
Unrealized currency loss
        
      (2,368,555)
           
  *Net fair value
 1,173,672
        1,535,450
n/a    
 
             340,567

* This amount comprises of the net unrealized gain/(loss) on open contracts and options purchased and options written on the Statements of Financial Condition.


7.  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.



-  20 -
 
 
 
 
MORGAN STANLEY SMITH BARNEY CHARTER CAMPBELL L.P.
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)

8.  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 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 March 31, 2011.  If applicable, the Partnership recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in other expenses in the Statements of Income and Expenses.  Generally, the 2007 through 2010 tax years remain subject to examination by U.S. federal and most state tax authorities.  No income tax returns are currently under examination.

9.  Subsequent Events
Management of Ceres performed its evaluation of subsequent events through the date of filing, and has determined that there were no subsequent events requiring adjustment of or disclosure in the financial statements.


- 21 -
 
 
 
 

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 Partnership from trading in potentially profitable markets or prevent the Partnership from promptly liquidating unfavorable


- 22 -

 
 
 

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.

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

- 23 -

 
 
 

following presents a summary of the Partnership’s operations for the three month periods ended March 31, 2011 and 2010, 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 21 of this report are prepared in accordance with accounting principles generally accepted in the United States of America, 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 Income and Expenses 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.) the close 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.



- 24 -
 
 
 
 
For the Quarter Ended March 31, 2011
The Partnership recorded total trading results including interest income totaling $(2,914,011) and expenses totaling $1,613,677, resulting in a net loss of $4,527,688 for the quarter ended March 31, 2011.  The Partnership’s net asset value per Unit decreased from $10.59 at December 31, 2010, to $9.99 at March 31, 2011.

The most significant trading losses were incurred within the global stock index sector, primarily during March, due to long positions in European, Pacific Rim, and U.S. equity index futures as prices moved sharply lower following the worst earthquake and tsunami in Japanese history. Within the global interest rate sector, losses were recorded throughout the majority of the quarter. In January, long positions in short-term European fixed-income futures resulted in losses as prices declined after European Central Bank President Jean-Claude Trichet said inflationary pressures in the euro region may increase. During February, short positions in U.S. fixed-income futures resulted in losses as prices rose after concern over unrest in the Middle East spurred demand for the relative “safety” of government debt. Further losses were experienced in March from both long and short positions in fixed-income futures as prices moved without consistent direction throughout the month. Within the metals markets, losses were incurred primarily during January from long futures positions in gold and silver as prices fell amid a strengthening U.S. dollar, which reduced the “safe haven” appeal of precious metals. In March, additional losses were recorded in the metals sector from long futures positions in copper, nickel, and zinc as prices moved lower amid concern that rising energy costs associated with mounting unrest in the Middle East may slow the global economy. Lastly, losses were experienced within the currency markets, primarily during January, from long futures positions in the South African rand and Japanese yen versus the U.S. dollar, as well as

- 25 -
 
 
 
 
short positions in the euro versus the U.S. dollar. The value of the South African rand and Japanese yen declined against the U.S. dollar following the release of minutes from the latest U.S. Federal Reserve meeting that showed optimism about the U.S. economy and boosted demand for the U.S. currency, while the euro ended higher as European sovereign debt worries abated.

A portion of the Partnership’s losses for the quarter was offset by gains achieved within the energy markets throughout a majority of the quarter due to long futures positions in crude oil and its related products as prices rose amid an escalation in political instability in the Middle East and North Africa, prompting concerns that crude supplies may be disrupted. Within the agricultural complex, gains were recorded primarily during January and February from long positions in cotton futures as prices increased on signs that global output may fail to keep pace with rising demand in China, the world’s biggest buyer of the fiber.

For the Quarter Ended March 31, 2010
The Partnership recorded total trading results including interest income totaling $(2,540,312) and expenses totaling $1,916,308, resulting in a net loss of $4,456,620 for the quarter ended March 31, 2010.  The Partnership’s net asset value per Unit decreased from $9.79 at December 31, 2009, to $9.34 at March 31, 2010.

The most significant trading losses of approximately 1.8% were incurred within the global stock index sector, primarily during January and February, from long positions in European and Pacific Rim equity index futures as prices declined due to disappointing U.S. corporate earnings reports, concerns regarding

- 26 -
 
 
 
 
U.S. President Barack Obama’s proposed limits on risk-taking by banks, and speculation that China might raise interest rates.  Prices continued to fall towards the end of January on mounting concerns regarding sovereign debt defaults from a number of European countries, most notably Greece, Portugal, and Spain. During February, prices moved lower towards the end of the month following news that European confidence in the economic outlook worsened and U.S. jobless claims unexpectedly increased, thereby resulting in additional losses.  Within the metals markets, losses of approximately 0.8% were experienced primarily during January and February from long futures positions in zinc and copper as prices decreased on speculation that demand for base metals might wane after Chinese banks began to restrict lending.  Meanwhile, additional losses were recorded during January from long positions in silver and gold futures as prices declined due to a rise in the value of the U.S. dollar.  In the energy sector, losses of approximately 0.8% were incurred primarily during January from long futures positions in crude oil and its related products as prices dropped due to reports of increased U.S. inventories, as well as on speculation that China’s economic activity and energy demand might ease.  Additional losses of approximately 0.7% were experienced within the currency sector, primarily during January, from long positions in the British pound versus the U.S. dollar as the value of the British pound decreased relative to the U.S. dollar after a government report showed the U.K. economy grew less than forecast in the fourth quarter of 2009.  A portion of the Partnership’s losses for the quarter was offset by gains of approximately 1.7% achieved in the global interest rate sector, primarily during January and February, from long positions in U.S. and European fixed-income futures.  In January, prices rose on concerns that lending restrictions in China and possible reductions in U.S. stimulus measures might stifle the global economic rebound, thereby boosting demand for the relative “safety” of government bonds.  Prices were then pressured higher during February amid worries that Greece’s fiscal struggles might begin to spread to other nations.

- 27 -
 
 
 
 
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.  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 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.



- 28 -
 
 
 
 
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.

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

- 29 -
 
 
 
 
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.  Ceres 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 Ceres’ simulated profit and loss series.


- 30 -
 
 
 
 
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 Ceres 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 March 31, 2011 and December 31, 2010.  At March 31, 2011 and December 31, 2010, the Partnership’s total capitalization was approximately $74 million and $82 million, respectively.

Primary Market
March 31, 2011
December 31, 2010
Risk Category
Value at Risk
Value at Risk
     
Currency
(1.94)%   
(0.80)%  
     
Equity
    (1.32)
(2.52)
     
Interest Rate
(0.72)
(0.21)
     
Commodity
(2.10)
(2.12)
     
Aggregate Value at Risk
 (4.19)%
(5.08)%  



- 31 -
 
 
 
 
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 April 1, 2010 through March 31, 2011 and January 1, 2010 through December 31, 2010, respectively.

March 31, 2011
      
Primary Market Risk Category
High
Low
Average
Currency
(1.94)%   
       (0.55)%
(1.11)% 
Equity
(2.52)
(1.21)
(1.77)
Interest Rate
(2.07)
(0.21)
(1.05)
Commodity
(2.14)
(0.65)
(1.75)
Aggregate Value at Risk
 (5.08)% 
 (2.13)%
(3.89)%    


- 32 -
 
 
 
 
December 31, 2010
      
Primary Market Risk Category
High
Low
Average
Currency
(1.61)%
(0.55)%
(1.03)%  
Equity
(3.58)
(1.21)
(2.33)  
Interest Rate
(2.07)
(0.21)
(1.16)
Commodity
(2.14)
(0.65)
(1.61)
Aggregate Value at Risk
 (5.61)%
(2.13)%    
(4.24)%    

Limitations on Value at Risk as an Assessment of Market Risk
VaR models permit estimation of a portfolio’s aggregate market risk exposure, incorporating a range of varied market risks, reflect risk reduction due to portfolio diversification or hedging activities, and can cover a wide range of portfolio assets. However, VaR risk measures should be viewed in light of the methodology’s limitations, which include, but may not be limited to the following:
·  
past changes in market risk factors will not always result in accurate predictions of the distributions and correlations of future market movements;
·  
changes in portfolio value caused by market movements may differ from those of the VaR model;
·  
VaR results reflect past market fluctuations applied to current trading positions while future risk depends on future positions;
·  
VaR using a one-day time horizon does not fully capture the market risk of positions that cannot be liquidated or hedged within one day; and
·  
the historical market risk factor data used for VaR estimation may provide only limited insight into losses that could be incurred under certain unusual market movements.

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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 March 31, 2011 and December 31, 2010, and for the four quarter-end reporting periods from April 1, 2010 through March 31, 2011 and from January 1, 2010 through December 31, 2010, 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 March 31, 2011, such amount was equal to approximately 93% 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.
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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 Ceres and the Trading Advisor 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.

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. Ceres 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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Ceres monitors and controls the risk of the Partnership’s non-trading instrument, cash. Cash is the only Partnership investment directed by Ceres, 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 Ceres, at the time this quarterly report was filed, Ceres’ President (Ceres’ principal executive officer) and Chief Financial Officer (Ceres’ 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 March 31, 2011.  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 Ceres have concluded that the disclosure controls and procedures of the Partnership were effective at March 31, 2011.

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, 2010.


Item 6.
EXHIBITS

31.01
Certification of President of Ceres Managed Futures 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 Ceres Managed Futures LLC, the general partner of the Partnership, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
32.01
Certification of President of Ceres Managed Futures 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 Ceres Managed Futures 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 Campbell L.P.
 
(Registrant)
     
 
By:
Ceres Managed Futures LLC
   
(General Partner)
     
May 13, 2011
By:
/s/Jennifer Magro
   
Jennifer Magro
   
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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MORGAN STANLEY SMITH BARNEY CHARTER CAMPBELL LP Reports

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