Attached files
| file | filename |
|---|---|
| EXCEL - IDEA: XBRL DOCUMENT - Ceres Classic L.P. | Financial_Report.xls |
| EX-32.02 - EXHIBIT 32.02 - Ceres Classic L.P. | mscgex3202.htm |
| EX-31.01 - EXHIBIT 3101 - Ceres Classic L.P. | mscgex3101.htm |
| EX-32.01 - EXHIBIT 32.01 - Ceres Classic L.P. | mscgex3201.htm |
| EX-31.02 - EXHIBIT 31.02 - Ceres Classic L.P. | mscgex3102.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 June 30, 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: 0-25603
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MANAGED FUTURES CHARTER GRAHAM L.P.
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(Exact name of registrant as specified in its charter)
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Delaware
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13-4018068
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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Ceres Managed Futures LLC
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522 Fifth Avenue, 14th Floor
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New York, NY
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10036
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(Address of principal executive offices)
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(Zip Code)
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Registrant’s telephone number, including area code
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(212) 296-1999
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(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 x 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.
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Large accelerated filer o
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Accelerated filer o
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Non-accelerated filer x
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Smaller reporting company o
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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
MANAGED FUTURES CHARTER GRAHAM L.P.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
June 30, 2011
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PART I. FINANCIAL INFORMATION
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Item 1.
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Financial Statements (Unaudited)
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Statements of Financial Condition as of June 30, 2011 and December 31, 2010
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2
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Condensed Schedule of Investments as of June 30, 2011
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3
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Condensed Schedule of Investments as of December 31, 2010
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4
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Statements of Income and Expenses for the Three and Six Months Ended June 30, 2011 and 2010
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5
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Statements of Changes in Partners’ Capital for the Six Months Ended June 30, 2011 and 2010
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6
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Notes to Financial Statements
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7-21
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Item 2.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
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22-31
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Item 3.
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Quantitative and Qualitative Disclosures About Market Risk
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31-39
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Item 4.
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Controls and Procedures
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40-41
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PART II. OTHER INFORMATION
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Item 1A.
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Risk Factors
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42
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Item 2.
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Unregistered Sales of Securities and Use of Proceeds
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42
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Item 6.
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Exhibits
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42
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
MANAGED FUTURES CHARTER GRAHAM L.P.
STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
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June 30,
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December 31,
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||
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2011
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2010
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ASSETS
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$
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$
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Trading Equity:
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|||
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Unrestricted cash
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331,351,219
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332,055,996
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Restricted cash
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23,778,866
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25,115,126
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Total cash
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355,130,085
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357,171,122
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Net unrealized gain (loss) on open contracts (MSIP)
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(275,869)
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1,287,433
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Net unrealized gain (loss) on open contracts (MS&Co.)
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(2,141,800)
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7,018,064
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Total net unrealized gain (loss) on open contracts
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(2,417,669)
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8,305,497
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Total Trading Equity
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352,712,416
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365,476,619
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Interest receivable (MSSB)
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788
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25,629
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Subscriptions receivable
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–
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2,900,784
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Total Assets
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352,713,204
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368,403,032
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LIABILITIES AND PARTNERS’ CAPITAL
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Liabilities:
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Redemptions payable
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2,009,995
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4,638,344
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Accrued brokerage fees (MS&Co.)
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1,622,563
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1,576,346
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Accrued management fees
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603,745
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586,548
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Total Liabilities
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4,236,303
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6,801,238
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Partners’ Capital:
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Limited Partners (12,953,846.229 and 12,395,917.141 Units, respectively)
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344,786,340
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357,913,170
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General Partner (138,656.441 and 127,751.316 Units, respectively)
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3,690,561
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3,688,624
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Total Partners’ Capital
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348,476,901
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361,601,794
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Total Liabilities and Partners’ Capital
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352,713,204
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368,403,032
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NET ASSET VALUE PER UNIT
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26.62
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28.87
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The accompanying notes are an integral part of these financial statements.
- 2 -
MANAGED FUTURES CHARTER GRAHAM L.P.
CONDENSED SCHEDULE OF INVESTMENTS
June 30, 2011 (Unaudited)
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Futures and Forward Contracts Purchased
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Net unrealized
gain/(loss) on
open contracts
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% of
Partners’ Capital
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$
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Commodity
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(92,984)
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(0.02)
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Equity
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898,110
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0.26
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Foreign currency
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1,749,893
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0.50
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Interest rate
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(2,894,523)
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(0.83)
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Total Futures and Forward Contracts Purchased
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(339,504)
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(0.09)
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Futures and Forward Contracts Sold
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Commodity
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61,711
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0.02
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Equity
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(348,862)
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(0.10)
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Foreign currency
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(1,029,676)
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(0.30)
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Interest rate
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(346,240)
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(0.10)
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Total Futures and Forward Contracts Sold
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(1,663,067)
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(0.48)
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Unrealized Currency Loss
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(415,098)
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(0.12)
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Net fair value
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(2,417,669)
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(0.69)
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The accompanying notes are an integral part of these financial statements.
- 3 -
MANAGED FUTURES CHARTER GRAHAM L.P.
CONDENSED SCHEDULE OF INVESTMENTS
December 31, 2010
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Futures and Forward Contracts Purchased
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Net unrealized
gain/(loss) on
open contracts
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% of
Partners’ Capital
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$
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||
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Commodity
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5,713,726
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1.58
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Equity
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(931,429)
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(0.26)
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Foreign currency
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4,076,718
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1.13
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Interest rate
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323,407
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0.09
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Total Futures and Forward Contracts Purchased
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9,182,422
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2.54
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Futures and Forward Contracts Sold
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Commodity
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(99,428)
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(0.03)
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Equity
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39,537
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0.01
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Foreign currency
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559,940
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0.16
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Interest rate
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(1,192,360)
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(0.33)
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Total Futures and Forward Contracts Sold
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(692,311)
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(0.19)
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Unrealized Currency Loss
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(184,614)
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(0.05)
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Net fair value
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8,305,497
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2.30
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The accompanying notes are an integral part of these financial statements.
- 4 -
MANAGED FUTURES CHARTER GRAHAM L.P.
STATEMENTS OF INCOME AND EXPENSES
(Unaudited)
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For the Three Months
Ended June 30,
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For the Six Months
Ended June 30,
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2011
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2010
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2011
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2010
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$
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$
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$
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$
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INVESTMENT INCOME
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Interest income (MSSB)
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3,183
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103,715
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95,295
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141,798
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EXPENSES
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|||||||
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Brokerage fees (MS&Co.)
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4,969,876
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5,509,085
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9,892,216
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11,113,052
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Management fees
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1,849,257
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1,836,361
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3,680,826
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3,704,351
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Total Expenses
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6,819,133
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7,345,446
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13,573,042
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14,817,403
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|||
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NET INVESTMENT LOSS
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(6,815,950)
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(7,241,731)
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(13,477,747)
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(14,675,605)
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TRADING RESULTS
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|||||||
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Trading profit (loss):
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|||||||
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Realized
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(4,459,247)
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14,995,184
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(5,198,318)
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(4,379,447)
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|||
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Net change in unrealized
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(6,714,983)
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(13,701,171)
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(10,723,166)
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(7,728,803)
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Total Trading Results
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(11,174,230)
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1,294,013
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(15,921,484)
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(12,108,250)
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NET LOSS
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(17,990,180)
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(5,947,718)
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(29,399,231)
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(26,783,855)
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NET LOSS ALLOCATION
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|||||||
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Limited Partners
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(17,805,871)
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(5,887,798)
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(29,101,168)
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(26,509,284)
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General Partner
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(184,309)
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(59,920)
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(298,063)
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(274,571)
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NET LOSS PER UNIT *
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|||||||
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Limited Partners
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(1.36)
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(0.45)
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(2.25)
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(1.94)
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General Partner
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(1.36)
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(0.45)
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(2.25)
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(1.94)
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Units
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Units
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Units
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Units
|
||||
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WEIGHTED AVERAGE NUMBER OF UNITS OUTSTANDING
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13,033,204.699
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13,319,042.930
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12,847,465.986
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13,521,769.147
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|||
* Based on change in net asset value per Unit.
The accompanying notes are an integral part of these financial statements.
– 5 –
MANAGED FUTURES CHARTER GRAHAM L.P.
STATEMENTS OF CHANGES IN PARTNERS’ CAPITAL
For the Six Months Ended June 30, 2011 and 2010
(Unaudited)
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Units of
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|||||||
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Partnership
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Limited
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General
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|||||
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Interest
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Partners
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Partner
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Total
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||||
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$
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$
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$
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|||||
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Partners’ Capital,
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|||||||
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December 31, 2010
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12,523,668.457
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357,913,170
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3,688,624
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361,601,794
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|||
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Subscriptions
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1,116,015.999
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31,496,588
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300,000
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31,796,588
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|||
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Net Loss
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–
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(29,101,168)
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(298,063)
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(29,399,231)
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|||
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Redemptions
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(547,181.786)
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(15,522,250)
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–
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(15,522,250)
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Partners’ Capital,
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|||||||
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June 30, 2011
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13,092,502.670
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344,786,340
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3,690,561
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348,476,901
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|||
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Partners’ Capital,
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|||||||
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December 31, 2009
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13,841,108.731
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395,815,421
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4,093,056
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399,908,477
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Net Loss
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–
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(26,509,284)
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(274,571)
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(26,783,855)
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|||
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Redemptions
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(885,554.469)
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(23,715,360)
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(306,413)
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(24,021,773)
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|||
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Partners’ Capital,
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|||||||
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June 30, 2010
|
12,955,554.262
|
345,590,777
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3,512,072
|
349,102,849
|
The accompanying notes are an integral part of these financial statements.
- 6 -
MANAGED FUTURES CHARTER GRAHAM L.P.
NOTES TO FINANCIAL STATEMENTS
June 30, 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 Managed Futures Charter Graham 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
Managed Futures Charter Graham L.P. is a Delaware limited partnership organized in 1998 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’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
- 7 -
MANAGED FUTURES CHARTER GRAHAM L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(“LME”). 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. and MSIP are wholly-owned subsidiaries of Morgan Stanley. Graham Capital Management, L.P. (the “Trading Advisor”) is the trading advisor to the Partnership.
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2.
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Financial Highlights
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Changes in the net asset value per Unit for the three and six months ended June 30, 2011 and 2010 were as follows:
For the Three For the Six
Months Ended June 30, Months Ended June 30,
|
2011
|
2010
|
2011
|
2010
|
|
|
Per Unit operating performance:
|
||||
|
Net asset value at the beginning of the period:
|
$ 27.98
|
$ 27.40
|
$ 28.87
|
$ 28.89
|
|
Interest Income
|
– (3)
|
0.01
|
0.01
|
0.01
|
|
Expenses
|
(0.53)
|
(0.56)
|
(1.07)
|
(1.10)
|
|
Realized Gain (Loss) (1)
|
(0.31)
|
1.14
|
(0.35)
|
(0.28)
|
|
Unrealized Loss
|
(0.52)
|
(1.04)
|
(0.84)
|
(0.57)
|
|
Net Loss
|
(1.36)
|
(0.45)
|
(2.25)
|
(1.94)
|
|
Net asset value, June 30:
|
$ 26.62
|
$ 26.95
|
$ 26.62
|
$ 26.95
|
|
Ratios to average net assets:
|
||||
|
Net Investment Loss (2)
|
(7.6)%
|
(8.1)%
|
(7.5)%
|
(8.2)%
|
|
Expenses before Incentive Fees (2)
|
7.6 %
|
8.2 %
|
7.6 %
|
8.3 %
|
|
Expenses after Incentive Fees (2)
|
7.6 %
|
8.2 %
|
7.6 %
|
8.3 %
|
|
Net Loss (2)
|
(20.0)%
|
(6.6)%
|
(16.4)%
|
(14.9)%
|
|
Total return before incentive fees
|
(4.9)%
|
(1.6)%
|
(7.8)%
|
(6.7)%
|
|
Total return after incentive fees
|
(4.9)%
|
(1.6)%
|
(7.8)%
|
(6.7)%
|
(1) Realized Gain (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.
- 8 -
MANAGED FUTURES CHARTER GRAHAM L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 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 a flat rate brokerage fee to MSSB which then pays or reimburses the Partnership for all fees and costs charged or incurred by MS&Co., MSIP or any other entity acting as a commodity broker for the Partnership.
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
- 9 -
MANAGED FUTURES CHARTER GRAHAM L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 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 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.
- 10 -
MANAGED FUTURES CHARTER GRAHAM L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The Partnership’s contracts are accounted for on a trade-date basis and marked to market on a daily basis. The Partnership accounts for its derivative investments as described in Note 5. 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.
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
|
|
$
|
$
|
$
|
|||
|
Jun. 30, 2011
|
(2,933,424)
|
515,755
|
(2,417,669)
|
Dec. 2012
|
Aug. 2011
|
|
Dec. 31, 2010
|
4,257,692
|
4,047,805
|
8,305,497
|
Mar. 2015
|
Mar. 2011
|
- 11 -
MANAGED FUTURES CHARTER GRAHAM L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The Partnership has credit risk associated with counterparty nonperformance. As of the date of the financial statements, the credit risk associated with the instruments in which the Partnership trades is limited to the unrealized gain amounts reflected in the Partnership’s Statements of Financial Condition.
The Partnership also has credit risk because MS&Co. 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 gains (losses) on all open exchange-traded futures, exchange-traded forward, and exchange-traded futures-styled options contracts, which funds, in the aggregate, totaled $352,196,661 and $361,428,814 at June 30, 2011, and December 31, 2010, respectively. With respect to the Partnership’s off-exchange-traded forward currency 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
- 12 -
MANAGED FUTURES CHARTER GRAHAM L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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. 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 on such contracts traded by the Partnership involve varying degrees of related market risk. Market risk is often dependent upon changes in the level or volatility of interest rates, exchange rates, and prices of financial instruments and commodities, factors that result in frequent changes in the fair value of the Partnership’s open positions, and consequently in its earnings, whether realized or unrealized, and cash flow. Gains and losses on open positions of exchange-traded futures, exchange-traded forward, and exchange-traded futures-styled options contracts are settled daily through variation margin. Gains and losses on off-exchange-traded forward currency contracts are settled upon termination of the contract. Gains and losses on off-exchange-traded forward currency options contracts are settled 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.
- 13 -
MANAGED FUTURES CHARTER GRAHAM L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. Derivatives and Hedging
The Partnership’s objective is to profit from speculative trading in Futures Interests. Therefore, the Trading 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 June 30, 2011 and December 31, 2010, respectively.
The Effect of Trading Activities on the Statements of Financial Condition as of June 30, 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 six months
(absolute quantity)
|
|
$
|
$
|
$
|
$
|
$
|
||
|
Commodity
|
2,239,541
|
(2,332,525)
|
901,450
|
(839,739)
|
(31,273)
|
2,588
|
|
Equity
|
898,110
|
–
|
–
|
(348,862)
|
549,248
|
2,891
|
|
Foreign currency
|
3,481,576
|
(1,731,683)
|
279,697
|
(1,309,373)
|
720,217
|
25,291
|
|
Interest rate
|
339,261
|
(3,233,784)
|
43,192
|
(389,432)
|
(3,240,763)
|
11,788
|
|
Total
|
6,958,488
|
(7,297,992)
|
1,224,339
|
(2,887,406)
|
(2,002,571)
|
|
|
Unrealized currency loss
|
(415,098)
|
|||||
|
Total net unrealized loss on open contracts
|
(2,417,669)
|
- 14 -
MANAGED FUTURES CHARTER GRAHAM L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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
|
5,781,673
|
(67,947)
|
5,710
|
(105,138)
|
5,614,298
|
4,640
|
|
Equity
|
244,826
|
(1,176,255)
|
39,537
|
–
|
(891,892)
|
2,866
|
|
Foreign currency
|
4,755,171
|
(678,453)
|
854,409
|
(294,469)
|
4,636,658
|
17,648
|
|
Interest rate
|
392,619
|
(69,212)
|
72,075
|
(1,264,435)
|
(868,953)
|
8,548
|
|
Total
|
11,174,289
|
(1,991,867)
|
971,731
|
(1,664,042)
|
8,490,111
|
|
|
Unrealized currency loss
|
(184,614)
|
|||||
|
Total net unrealized gain on open contracts
|
8,305,497
|
The following tables summarize the net trading results of the Partnership for the three and six months ended June 30, 2011 and 2010, respectively.
The Effect of Trading Activities on the Statements of Income and Expenses for the Three and Six Months Ended June 30, 2011 included in Total Trading Results:
|
For the Three Months
|
For the Six Months
|
||
|
Ended June 30, 2011
|
Ended June 30, 2011
|
||
|
Type of Instrument
|
$
|
$
|
|
|
Commodity
|
(12,734,993)
|
(4,619,104)
|
|
|
Equity
|
(5,634,716)
|
(10,582,165)
|
|
|
Foreign currency
|
2,096,255
|
(2,836,128)
|
|
|
Interest rate
|
5,067,122
|
2,346,398
|
|
|
Unrealized currency gain (loss)
|
32,102
|
(230,485)
|
|
|
Total
|
(11,174,230)
|
(15,921,484)
|
- 15 -
MANAGED FUTURES CHARTER GRAHAM L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Line Items on the Statements of Income and Expenses for the Three and Six Months Ended June 30, 2011:
|
For the Three Months
|
For the Six Months
|
||
|
Ended June 30, 2011
|
Ended June 30, 2011
|
||
|
Trading Results
|
$
|
$
|
|
|
Realized
|
(4,459,247)
|
(5,198,318)
|
|
|
Net change in unrealized
|
(6,714,983)
|
(10,723,166)
|
|
|
Total Trading Results
|
(11,174,230)
|
(15,921,484)
|
The Effect of Trading Activities on the Statements of Income and Expenses for the Three and Six Months Ended June 30, 2010 included in Total Trading Results:
|
For the Three Months
|
For the Six Months
|
||
|
Ended June 30, 2010
|
Ended June 30, 2010
|
||
|
Type of Instrument
|
$
|
$
|
|
|
Commodity
|
(12,414,888)
|
(19,961,444)
|
|
|
Equity
|
(8,021,828)
|
(17,902,249)
|
|
|
Foreign currency
|
(1,554,233)
|
(1,519,836)
|
|
|
Interest rate
|
23,273,883
|
27,150,853
|
|
|
Unrealized currency gain
|
11,079
|
124,426
|
|
|
Total
|
1,294,013
|
(12,108,250)
|
Line Items on the Statements of Income and Expenses for the Three and Six Months Ended June 30, 2010:
|
For the Three Months
|
For the Six Months
|
||
|
Ended June 30, 2010
|
Ended June 30, 2010
|
||
|
Trading Results
|
$
|
$
|
|
|
Realized
|
14,995,184
|
(4,379,447)
|
|
|
Net change in unrealized
|
(13,701,171)
|
(7,728,803)
|
|
|
Total Trading Results
|
1,294,013
|
(12,108,250)
|
- 16 -
MANAGED FUTURES CHARTER GRAHAM L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. Fair Value Measurements and Disclosures
Financial instruments are carried at fair value, which is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Assets and liabilities carried at fair value are classified and disclosed in the following three levels: Level 1 - unadjusted quoted market prices in active markets for identical assets and liabilities; Level 2 - inputs other than unadjusted quoted market prices that are observable for the asset or liability, either directly or indirectly (including unadjusted quoted market prices for similar investments, interest rates, credit risk); and Level 3 - unobservable inputs for the asset or liability (including the Partnership’s own assumptions used in determining the fair value of investments).
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The Partnership’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment.
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.
- 17 -
MANAGED FUTURES CHARTER GRAHAM L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
|
June 30, 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
|
4,781,690
|
–
|
n/a
|
4,781,690
|
|
|
Forwards
|
–
|
3,401,137
|
n/a
|
3,401,137
|
|
|
Total Assets
|
4,781,690
|
3,401,137
|
n/a
|
8,182,827
|
|
|
Liabilities
|
|||||
|
Futures
|
7,300,016
|
–
|
n/a
|
7,300,016
|
|
|
Forwards
|
–
|
2,885,382
|
n/a
|
2,885,382
|
|
|
Total Liabilities
|
7,300,016
|
2,885,382
|
n/a
|
10,185,398
|
|
|
Unrealized currency loss
|
(415,098)
|
||||
|
*Net fair value
|
(2,518,326)
|
515,755
|
n/a
|
(2,417,669)
|
|
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
|
7,142,799
|
–
|
n/a
|
7,142,799
|
|
|
Forwards
|
–
|
5,003,221
|
n/a
|
5,003,221
|
|
|
Total Assets
|
7,142,799
|
5,003,221
|
n/a
|
12,146,020
|
|
|
Liabilities
|
|||||
|
Futures
|
2,700,493
|
–
|
n/a
|
2,700,493
|
|
|
Forwards
|
–
|
955,416
|
n/a
|
955,416
|
|
|
Total Liabilities
|
2,700,493
|
955,416
|
n/a
|
3,655,909
|
|
|
Unrealized currency loss
|
(184,614)
|
||||
|
*Net fair value
|
4,442,306
|
4,047,805
|
n/a
|
8,305,497
|
* This amount comprises the “Total net unrealized gain (loss) on open contracts” on the Statements of Financial Condition.
- 18 -
MANAGED FUTURES CHARTER GRAHAM L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. Other Pronouncements
In May 2011, FASB issued Accounting Standards Update (“ASU”) 2011-04, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in accounting principles generally accepted in the United States of America (“U.S. GAAP”) and International Financial Reporting Standards (“IFRSs”).” The amendments within this ASU change the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements to eliminate unnecessary wording differences between U.S. GAAP and IFRSs. However, some of the amendments clarify the FASB’s intent about the application of existing fair value measurement requirements and other amendments change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements. The ASU is effective for annual and interim periods beginning after December 15, 2011 for public entities. This new guidance is not expected to have a material impact on the Partnership’s financial statements.
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 only offset LME positions. All of
- 19 -
MANAGED FUTURES CHARTER GRAHAM L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
these amounts are maintained separately. Cash that is not classified as restricted cash is therefore classified as unrestricted cash.
9. 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 June 30, 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.
- 20 -
MANAGED FUTURES CHARTER GRAHAM L.P.
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
10. 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
- 22 -
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, exchanges, and sales 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 inflows and 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.
- 23 -
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 six month periods ended June 30, 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 require the use of certain accounting policies that affect the amounts reported in these financial statements, including the following: the contracts the Partnership trades are accounted for on a trade-date basis and marked to market on a daily basis. The difference between their original contract value and market value is recorded on the Statements of Income and Expenses as “Net change in unrealized trading profit (loss)” for open 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.
For the Three and Six Months Ended June 30, 2011
The Partnership recorded total trading results including interest income totaling $(11,171,047) and expenses totaling $6,819,133, resulting in a net loss of $17,990,180 for the three months ended June 30, 2011. The Partnership’s net asset value per Unit decreased from $27.98 at March 31, 2011 to $26.62 at June 30, 2011.
The most significant trading losses were incurred in the energy markets, primarily during May and June, from long futures positions in crude oil and its related products as prices moved lower on signs the global economic recovery is slowing. Within the agricultural complex, losses were recorded primarily during April due to long positions in cotton futures as prices declined to a three-month low on concern that demand may slow from China, the world’s biggest buyer of the fiber. Elsewhere during April, long futures positions in the soybean complex resulted in losses as prices fell on speculation that U.S. exports may slow. Losses were also experienced within the global stock index markets, primarily during May, from long positions in U.S., European, and Pacific Rim equity index futures as prices declined after worse-than-expected economic reports and mounting worries over the European debt crisis stoked concern the global economic recovery is faltering. Lastly, smaller losses were incurred within the metals sector, primarily during May, due to long positions in silver futures as prices fell sharply from a 31-year high. A portion of the Partnership’s losses for the quarter was offset
by gains achieved within the global interest rate sector, primarily during May, from long positions in U.S. fixed-income futures as prices increased following reports that showed the U.S. economy grew less than forecast and U.S. jobless claims unexpectedly rose. Within the currency markets, gains were recorded primarily during April from long positions in the Australian dollar, Canadian dollar, and British pound versus the U.S. dollar as the value of these currencies rose against the U.S. dollar after better-than-expected corporate earnings reports and signs of global growth spurred demand for higher-yielding currencies.
The Partnership recorded total trading results including interest income totaling $(15,826,189) and expenses totaling $13,573,042, resulting in a net loss of $29,399,231 for the six months ended June 30, 2011. The Partnership’s net asset value per Unit decreased from $28.87 at December 31, 2010, to $26.62 at June 30, 2011.
The most significant trading losses were incurred within the global stock index markets, primarily during March, from long positions in European, U.S., and Pacific Rim equity index futures as prices moved sharply lower after the disaster in Japan spurred concern about global economic growth. Additional losses were experienced within this sector during May from long positions in U.S., European, and Pacific Rim equity index futures as prices declined after worse-than-expected economic reports and mounting worries over the European debt crisis stoked concern the global economic recovery is faltering. Within the currency sector, losses were recorded primarily during January from long positions in the Japanese yen, Australian dollar, South African rand, and Canadian dollar versus the U.S. dollar as the value of these currencies declined against the U.S. dollar on optimism about the
U.S. economy. Further losses were incurred during May from long positions in the Australian dollar, Canadian dollar, and South African rand versus the U.S. dollar as the value of these “commodity currencies” fell in tandem with declining commodity prices. Losses were also experienced within the energy markets, primarily during May and June, from long futures positions in crude oil and its related products as prices moved lower amid signs the global economic recovery is slowing. Lastly, losses were incurred within the agricultural complex, primarily during April, due to long positions in cotton futures as prices declined on concern that demand may slow from China, the world’s biggest buyer of the fiber. A portion of the Partnership’s losses during the first half of the year was offset by gains achieved within the metals sector, primarily during February, from long positions in silver futures as prices extended a rally to a 30-year high. Additional gains were recorded within this sector during April due to long futures positions in silver and gold as silver futures prices advanced to a 31-year high and gold futures prices reached an all-time high. Within the global interest rate sector, gains were experienced primarily during May from long positions in U.S. fixed-income futures as prices increased following reports that showed the U.S. economy grew less than forecast and U.S. jobless claims unexpectedly rose.
For the Three and Six Months Ended June 30, 2010
The Partnership recorded total trading results including interest income totaling $1,397,728 and expenses totaling $7,345,446, resulting in a net loss of $5,947,718 for the three months ended June 30, 2010. The Partnership’s net asset value per Unit decreased from $27.40 at March 31, 2010 to $26.95 at June 30, 2010.
The most significant trading losses of approximately 2.2% were recorded in the global stock index sector, primarily during May and June, from long positions in European and Pacific Rim equity index futures. Equity prices declined in May on growing concerns that Greece’s sovereign debt crisis might begin to spread throughout Europe. Additionally, prices continued to fall throughout May due to uncertainty regarding policy actions in Europe and the impact on global economic growth. In June, equity prices dropped further during the second half of the month on concerns regarding weakening growth in China and a slump in U.S. consumer confidence. Within the energy markets, losses of approximately 2.2% were incurred primarily during May and June from long futures positions in crude oil and its related products as prices decreased amid worries that Europe’s debt troubles might impede global energy demand. Meanwhile, short positions in natural gas futures resulted in losses as prices reversed higher during the first half of May after a U.S. government report showed that stockpiles grew less than forecast. Natural gas futures prices then moved higher in June due to higher-than-normal temperatures in the Eastern U.S. and forecasts for an active hurricane season. In the agricultural sector, losses of approximately 0.7% were experienced primarily during April and June from short futures positions in wheat as prices reversed higher in April on speculation that cold weather in the U.S. might damage crops. Prices were also pressured higher throughout June due to supply concerns after wet weather disrupted harvesting in the U.S. Midwest and Great Plains. In the metals markets, losses of approximately 0.5% were recorded primarily during April and May from long futures positions in aluminum, copper, and zinc as prices were pressured lower after credit-rating downgrades of Greece and Portugal threatened to undermine economic growth, thereby eroding demand for base metals. Additional losses of approximately 0.4% were incurred within the currency sector, primarily during June, from long positions in the Japanese yen, Canadian dollar, and Australian dollar versus the
- 28 -
U.S. dollar as the value of the U.S. dollar reversed higher against these currencies after reports of political discord in Europe reignited worries about Euro-Zone stability and the ability of the global economy to strengthen, thereby prompting investor purchases of the U.S. dollar as a “safe haven” currency. A portion of the Partnership’s losses for the quarter was offset by gains of approximately 6.4% achieved in the global interest rate sector throughout the majority of the quarter from long positions in U.S., European, and Japanese fixed-income futures as prices rose due to an unexpected drop in U.S. consumer confidence, increased regulatory scrutiny of the financial industry, and the growing European debt crisis.
The Partnership recorded total trading results including interest income totaling $(11,966,452) and expenses totaling $14,817,403, resulting in a net loss of $26,783,855 for the six months ended June 30, 2010. The Partnership’s net asset value per Unit decreased from $28.89 at December 31, 2009, to $26.95 at June 30, 2010.
The most significant trading losses of approximately 4.6% 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 were pulled lower by concerns regarding U.S. President Barack Obama’s proposed limits on risk-taking by banks and speculation of sovereign debt defaults from a number of European countries, most notably Greece, Portugal, and Spain. Additional losses were experienced during May and June as prices moved lower amid fears that Greece’s sovereign debt crisis might begin to spread throughout Europe and concerns regarding weakening growth in China. In the energy markets, losses of approximately 2.3% were recorded primarily during January, May, and June from
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long futures positions in crude oil and its related products. In January, oil prices fell due to reports of increased U.S. inventories, as well as on speculation that China’s economic activity and energy demand may ease. Prices also dropped during May and June amid worries that Europe’s aforementioned debt troubles might weaken global energy demand. Within the agricultural sector, losses of approximately 1.8% were incurred primarily during January and February from long futures positions in the soybean complex as prices fell after rains improved the yield potential of crops in Brazil and Argentina, two of the world’s largest growers and exporters of soybeans. Elsewhere in the agricultural complex, long positions in sugar futures resulted in losses as prices reversed lower during February on speculation that Brazil, the world’s largest sugar producer, might increase exports. In the metals markets, losses of approximately 1.2% were experienced primarily during January from long futures positions in copper, aluminum, zinc, and lead as prices decreased on speculation that demand for base metals might wane after Chinese banks begin to restrict lending. Additional losses were incurred during the second quarter as base metals prices were pressured lower after credit-rating downgrades of Greece and Portugal threatened to undermine economic growth, thereby eroding demand for base metals. Smaller losses of approximately 0.3% were recorded within the currency sector, primarily during January from long positions in the Canadian dollar and Australian dollar versus the U.S. dollar as the value of the U.S. dollar reversed higher against these currencies after a sharp drop in the global equity markets diminished demand for higher-yielding currency assets, thereby causing the U.S. dollar to benefit as a “safe haven” currency. Further losses were experienced during June from long positions in the Japanese yen, Canadian dollar, and Australian dollar versus the U.S. dollar as the value of the U.S. dollar increased relative to these currencies after reports of political discord in Europe reignited worries about Euro-Zone stability and the ability of the global economy to
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strengthen, once again prompting investor purchases of the U.S. dollar as a “safe haven” currency. A portion of the Partnership’s losses for the first six months of the year was offset by gains of approximately 7.5% achieved in the global interest sector throughout the majority of the first six months of the year from long positions in U.S. and European fixed-income futures. During the first quarter, prices increased 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.
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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,
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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.
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
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Partnership’s speculative trading and use of leverage may cause future losses and volatility (i.e., “risk of ruin”) that far exceed the Partnership’s experience to date under the “Partnership’s Value at Risk in Different Market Sectors" section and significantly exceed the Value at Risk (“VaR”) tables disclosed.
Limited partners will not be liable for losses exceeding the current net asset value of their investment.
Quantifying the Partnership’s Trading Value at Risk
The following quantitative disclosures regarding the Partnership’s market risk exposures contain "forward-looking statements" within the meaning of the safe harbor from civil liability provided for such statements by the Private Securities Litigation Reform Act of 1995 (set forth in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934). All quantitative disclosures in this section are deemed to be forward-looking statements for purposes of the safe harbor, except for statements of historical fact.
The Partnership accounts for open positions on the basis of mark to market accounting principles. Any loss in the market value of the Partnership’s open positions is directly reflected in the Partnership’s earnings and cash flow.
The Partnership’s risk exposure in the market sectors traded by the Trading 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
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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.
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.
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The Partnership’s Value at Risk in Different Market Sectors
The following table indicates the VaR associated with the Partnership’s open positions as a percentage of total net assets by primary market risk category at June 30, 2011 and December 31, 2010. At June 30, 2011 and December 31, 2010, the Partnership’s total capitalization was approximately $348 million and $362 million, respectively.
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Primary Market
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June 30, 2011
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December 31, 2010
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Risk Category
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Value at Risk
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Value at Risk
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|
Currency
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(1.38)%
|
(1.11)%
|
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Interest Rate
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(0.88)
|
(0.42)
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Equity
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(0.47)
|
(2.85)
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Commodity
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(1.06)
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(2.05)
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|
Aggregate Value at Risk
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(2.08)%
|
(5.46)%
|
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, 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.
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The tables below supplement the quarter-end VaR set forth above by presenting the Partnership’s high, low, and average VaR, as a percentage of total net assets for the four quarter-end reporting periods from July 1, 2010 through June 30, 2011 and January 1, 2010 through December 31, 2010, respectively.
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June 30, 2011
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|||
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Primary Market Risk Category
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High
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Low
|
Average
|
|
Currency
|
(2.15)%
|
(1.11)%
|
(1.60)%
|
|
Interest Rate
|
(0.89)
|
(0.42)
|
(0.74)
|
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Equity
|
(4.02)
|
(0.47)
|
(2.20)
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Commodity
|
(2.05)
|
(1.06)
|
(1.52)
|
|
Aggregate Value at Risk
|
(5.54)%
|
(2.08)%
|
(4.61)%
|
|
December 31, 2010
|
|||
|
Primary Market Risk Category
|
High
|
Low
|
Average
|
|
Currency
|
(1.77)%
|
(0.32)%
|
(1.24)%
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|
Interest Rate
|
(1.28)
|
(0.42)
|
(0.86)
|
|
Equity
|
(6.04)
|
(0.23)
|
(3.29)
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|
Commodity
|
(2.05)
|
(0.70)
|
(1.27)
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|
Aggregate Value at Risk
|
(7.50)%
|
(1.12)%
|
(4.90)%
|
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Limitations on Value at Risk as an Assessment of Market Risk
VaR models permit estimation of a portfolio’s aggregate market risk exposure, incorporating a range of varied market risks, reflect risk reduction due to portfolio diversification or hedging activities, and can cover a wide range of portfolio assets. However, VaR risk measures should be viewed in light of the methodology’s limitations, which include, but may not be limited to the following:
|
·
|
past changes in market risk factors will not always result in accurate predictions of the distributions and correlations of future market movements;
|
|
·
|
changes in portfolio value caused by market movements may differ from those of the VaR model;
|
|
·
|
VaR results reflect past market fluctuations applied to current trading positions while future risk depends on future positions;
|
|
·
|
VaR using a one-day time horizon does not fully capture the market risk of positions that cannot be liquidated or hedged within one day; and
|
|
·
|
the historical market risk factor data used for VaR estimation may provide only limited insight into losses that could be incurred under certain unusual market movements.
|
In addition, the VaR tables above, as well as the past performance of the Partnership, give no indication of the Partnership’s potential “risk of ruin.”
The VaR tables provided present the results of the Partnership’s VaR for each of the Partnership’s market risk exposures and on an aggregate basis at June 30, 2011 and December 31, 2010, and for the four quarter-end reporting periods from July 1, 2010 through June 30, 2011 and January 1, 2010 through December 31, 2010, respectively. VaR is not necessarily representative of the Partnership’s historic risk,
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nor should it be used to predict the Partnership’s future financial performance or its ability to manage or monitor risk. There can be no assurance that the Partnership’s actual losses on a particular day will not exceed the VaR amounts indicated above or that such losses will not occur more than once in 100 trading days.
Non-Trading Risk
The Partnership has non-trading market risk on its foreign cash balances not needed for margin. These balances and any market risk they may represent are immaterial.
The Partnership also maintains a substantial portion of its available assets in cash at MSSB; as of June 30, 2011, such amount was equal to approximately 94% 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
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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.
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.
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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 June 30, 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 June 30, 2011.
Changes in Internal Control over Financial Reporting
There have been no significant 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 2.
|
UNREGISTERED SALES OF SECURITIES AND USE OF PROCEEDS
|
|
|
Units of the Partnership are sold to persons and entities who are accredited investors as the term is defined
|
|
|
in Rule 501(a) of Regulation D.
|
The aggregate proceeds of unregistered securities sold to the limited partners through June 30, 2011 was $48,330,144. The Partnership received $325,000 in consideration from the sale of Units to the General Partner.
|
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.
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|
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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– 42 –
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.
|
Managed Futures Charter Graham L.P.
|
||
|
(Registrant)
|
||
|
By:
|
Ceres Managed Futures LLC
|
|
|
(General Partner)
|
||
|
August 12, 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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