Attached files
Managed Futures
Premier Graham L.P.
(formerly, Managed Futures Charter Graham L.P.)
Annual Report
December 31, 2012
CERES MANAGED FUTURES LLC
To the Limited Partners of
Managed Futures Premier Graham L.P.
(formerly, Managed Futures Charter Graham L.P.)
To the best of the knowledge and belief of the undersigned, the information
contained herein is accurate and complete.
/s/ Walter Davis
-----------------------------------
By:. Walter Davis
President and Director
Ceres Managed Futures LLC
General Partner,
Managed Futures Premier
Graham L.P.
Ceres Managed Futures LLC
522 Fifth Avenue
14th Floor
New York, NY 10036
(855) 672-4468
Management's Report on Internal Control Over
Financial Reporting
Ceres Managed Futures LLC ("Ceres"), is the general partner of Managed Futures
Premier Graham L.P. (formerly, Managed Futures Charter Graham L.P.) and is
responsible for the management of the Partnership.
Management of the Partnership, Ceres ("Management"), is responsible for
establishing and maintaining adequate internal control over financial reporting
as defined in Rules 13a - 15(f) and 15d - 15(f) under the Securities Exchange
Act of 1934 and for the assessment of internal control over financial
reporting. The Partnership's internal control over financial reporting is a
process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with accounting principles generally accepted in the
United States of America. The Partnership's internal control over financial
reporting includes those policies and procedures that:
(i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets
of the Partnership;
(ii) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with
accounting principles generally accepted in the United States of America, and
that receipts and expenditures of the Partnership are being made only in
accordance with authorizations of Management and directors of the Partnership;
and
(iii) provide reasonable assurance regarding prevention or timely detection
and correction of unauthorized acquisition, use or disposition of the
Partnership's assets that could have a material effect on the financial
statements.
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
Management has assessed the effectiveness of the Partnership's internal control
over financial reporting as of December 31, 2012. In making this assessment,
Management used the criteria set forth in the Internal Control-Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Based on its assessment, Management concluded that the
Partnership maintained effective internal control over financial reporting as
of December 31, 2012, based on the criteria referred to above.
/s/ Walter Davis /s/ Damian George
------------------------------------- -------------------------------------
Walter Davis Damian George
President and Director Chief Financial Officer and Director
Ceres Managed Futures LLC Ceres Managed Futures LLC
General Partner, General Partner,
Managed Futures Premier Graham L.P. Managed Futures Premier Graham L.P.
Deloitte.
Deloitte & Touche LLP
Two World Financial
Center
New York, NY
10281-1414
USA
www.deloitte.com
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Limited Partners and the General Partner of Managed Futures Premier
Graham L.P. (formerly, Managed Futures Charter Graham L.P.):
We have audited the accompanying statements of financial condition of Managed
Futures Premier Graham L.P. (formerly, Managed Futures Charter Graham L.P.)
(the "Partnership"), including the condensed schedules of investments, as of
December 31, 2012 and 2011, and the related statements of income and expenses
and changes in partners' capital for each of the three years in the period
ended December 31, 2012. These financial statements are the responsibility of
the Partnership's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Partnership is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audits included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Partnership's internal control over
financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Managed Futures Premier Graham L.P. as of
December 31, 2012 and 2011, and the results of its operations and its changes
in partners' capital for each of the three years in the period ended December
31, 2012, in conformity with accounting principles generally accepted in the
United States of America.
/s/ Deloitte & Touche LLP
March 25, 2013
Managed Futures Premier Graham L.P.
(formerly, Managed Futures Charter Graham L.P.)
Statements of Financial Condition
December 31,
-----------------------
2012 2011
----------- -----------
$ $
ASSETS
Trading Equity:
Unrestricted cash................................................ 179,658,788 233,838,381
Restricted cash.................................................. 29,732,655 49,210,558
----------- -----------
Total cash..................................................... 209,391,443 283,048,939
----------- -----------
Net unrealized gain on open contracts (MS&Co.)................... 4,254,515 4,459,890
Net unrealized gain on open contracts (MSIP)..................... -- 712,190
----------- -----------
Total net unrealized gain on open contracts.................... 4,254,515 5,172,080
----------- -----------
Total Trading Equity........................................... 213,645,958 288,221,019
Interest receivable (Morgan Stanley Wealth Management)............ 6,331 --
----------- -----------
Total Assets................................................... 213,652,289 288,221,019
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES
Redemptions payable............................................... 6,066,814 6,926,802
Accrued placement agent fees...................................... 582,310 799,278
Accrued brokerage fees (Morgan Stanley Wealth Management &
MS&Co.)......................................................... 345,073 473,647
Accrued management fees........................................... 345,073 473,647
Interest payable (MS&Co. & Morgan Stanley Wealth Management)...... -- 1,358
----------- -----------
Total Liabilities.............................................. 7,339,270 8,674,732
----------- -----------
PARTNERS' CAPITAL
Limited Partners (10,270,907.385 and 12,354,601.303 Units,
respectively)................................................... 203,933,047 276,443,739
General Partner (119,837.441 and 138,656.441 Units, respectively). 2,379,972 3,102,548
----------- -----------
Total Partners' Capital.......................................... 206,313,019 279,546,287
----------- -----------
Total Liabilities and Partners' Capital.......................... 213,652,289 288,221,019
=========== ===========
NET ASSET VALUE PER UNIT.......................................... 19.86 22.38
=========== ===========
The accompanying notes are an integral part of these financial statements.
Managed Futures Premier Graham L.P.
(formerly, Managed Futures Charter Graham L.P.)
Statements of Income and Expenses
For the Years ended December 31,
----------------------------------------------
2012 2011 2010
-------------- -------------- --------------
$ $ $
INVESTMENT INCOME
Interest income (MS&Co. & Morgan Stanley
Wealth Management)..................... 144,258 97,731 344,887
-------------- -------------- --------------
EXPENSES
Placement agent fees..................... 8,681,535 6,523,969 --
Brokerage fees (Morgan Stanley Wealth
Management & MS&Co.)................... 5,144,616 12,135,707 21,017,924
Management fees.......................... 5,144,616 6,943,138 7,189,540
-------------- -------------- --------------
Total Expenses......................... 18,970,767 25,602,814 28,207,464
-------------- -------------- --------------
NET INVESTMENT LOSS....................... (18,826,509) (25,505,083) (27,862,577)
-------------- -------------- --------------
TRADING RESULTS
Trading profit (loss):
Net Realized............................. (8,986,897) (56,127,142) 22,922,027
Net change in unrealized................. (917,565) (3,133,417) 2,383,991
Proceeds from Litigation................. -- -- 20,678
-------------- -------------- --------------
Total Trading Results.................. (9,904,462) (59,260,559) 25,326,696
-------------- -------------- --------------
NET LOSS.................................. (28,730,971) (84,765,642) (2,535,881)
============== ============== ==============
Net Loss Allocation
Limited Partners.......................... (28,408,388) (83,879,566) (2,508,117)
General Partner........................... (322,583) (886,076) (27,764)
Net Loss Per Unit*
Limited Partners.......................... (2.52) (6.49) (0.02)
General Partner........................... (2.52) (6.49) (0.02)
Units Units Units
-------------- -------------- --------------
WEIGHTED AVERAGE NUMBER OF UNITS
OUTSTANDING............................. 11,738,439.564 12,958,913.998 13,089,859.715
* Based on change in Net Asset Value per Unit.
The accompanying notes are an integral part of these financial statements.
Managed Futures Premier Graham L.P.
(formerly, Managed Futures Charter Graham L.P.)
Condensed Schedule of Investments
December 31, 2012
Net unrealized
gain/(loss) on % of
Futures and Forward Contracts Purchased open contracts Partners' Capital
--------------------------------------- -------------- -----------------
$
Commodity..................................... 610,834 0.30
Equity........................................ 4,266,356 2.07
Foreign currency.............................. (257,699) (0.13)
Interest rate................................. 526,806 0.25
---------- -----
Total Futures and Forward Contracts Purchased. 5,146,297 2.49
---------- -----
Futures and Forward Contracts Sold
----------------------------------
Commodity..................................... (1,724,776) (0.84)
Equity........................................ (173,208) (0.08)
Foreign currency.............................. 1,501,352 0.73
Interest rate................................. (325) -/(1)/
---------- -----
Total Futures and Forward Contracts Sold...... (396,957) (0.19)
---------- -----
Unrealized Currency Loss..................... (494,825) (0.24)
---------- -----
Net fair value................................ 4,254,515 2.06
========== =====
/(1)/Amounts less than 0.005%.
The accompanying notes are an integral part of these financial statements.
Managed Futures Premier Graham L.P.
(formerly, Managed Futures Charter Graham L.P.)
Condensed Schedule of Investments
December 31, 2011
Net unrealized
gain/(loss) on % of
Futures and Forward Contracts Purchased open contracts Partners' Capital
--------------------------------------- -------------- -----------------
$
Commodity..................................... 217,166 0.07
Equity........................................ 1,070,461 0.38
Foreign currency.............................. 109,099 0.04
Interest rate................................. 4,437,884 1.59
---------- -----
Total Futures and Forward Contracts Purchased. 5,834,610 2.08
---------- -----
Futures and Forward Contracts Sold
----------------------------------
Commodity..................................... (2,184,976) (0.78)
Equity........................................ (176,378) (0.06)
Foreign currency.............................. 2,383,928 0.85
Interest rate................................. (338,900) (0.12)
---------- -----
Total Futures and Forward Contracts Sold...... (316,326) (0.11)
---------- -----
Unrealized Currency Loss..................... (346,204) (0.12)
---------- -----
Net fair value................................ 5,172,080 1.85
========== =====
The accompanying notes are an integral part of these financial statements.
Managed Futures Premier Graham L.P.
(formerly, Managed Futures Charter Graham L.P.)
Statements of Changes in Partners' Capital
For the Years Ended December 31, 2012, 2011, and 2010
Units of
Partnership Limited General
Interest Partners Partner Total
-------------- ----------- --------- -----------
$ $ $
Partners' Capital,
December 31, 2009. 13,841,108.731 395,815,421 4,093,056 399,908,477
Offering of Units.. 595,887.019 16,833,555 25,000 16,858,555
Net Loss........... -- (2,508,117) (27,764) (2,535,881)
Redemptions........ (1,913,327.293) (52,227,689) (401,668) (52,629,357)
-------------- ----------- --------- -----------
Partners' Capital,
December 31, 2010. 12,523,668.457 357,913,170 3,688,624 361,601,794
Offering of Units.. 1,823,883.717 49,482,740 300,000 49,782,740
Net Loss........... -- (83,879,566) (886,076) (84,765,642)
Redemptions........ (1,854,294.430) (47,072,605) -- (47,072,605)
-------------- ----------- --------- -----------
Partners' Capital,
December 31, 2011. 12,493,257.744 276,443,739 3,102,548 279,546,287
Offering of Units.. 696,407.475 15,421,746 -- 15,421,746
Net Loss........... -- (28,408,388) (322,583) (28,730,971)
Redemptions........ (2,798,920.393) (59,524,050) (399,993) (59,924,043)
-------------- ----------- --------- -----------
Partners' Capital,
December 31, 2012. 10,390,744.826 203,933,047 2,379,972 206,313,019
============== =========== ========= ===========
The accompanying notes are an integral part of these financial statements.
Managed Futures Premier Graham L.P.
(formerly, Managed Futures Charter Graham L.P.)
Notes to Financial Statements
1. Organization
Managed Futures Premier Graham L.P. (formerly, Managed Futures Charter
Graham L.P.) ("Premier Graham" or the "Partnership") is a limited partnership
organized 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 5. Financial
Instruments). Prior to August 23, 2010, the Partnership was one of the Morgan
Stanley Charter Series of funds, which was comprised of the Partnership, Morgan
Stanley Smith Barney Charter Campbell L.P., Morgan Stanley Smith Barney Charter
Aspect L.P., and Morgan Stanley Smith Barney Charter WNT L.P.
Ceres Managed Futures LLC, a Delaware limited liability company, acts as the
general partner ("Ceres" or the "General Partner") and commodity pool operator
of the Partnership. 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. Morgan Stanley Smith
Barney LLC is doing business as Morgan Stanley Wealth Management ("Morgan
Stanley Wealth Management"). This entity, where the Partnership continues to
maintain a cash account, previously acted as a non-clearing commodity broker
for the Partnership, and currently acts as the placement agent (the "Placement
Agent") for the Partnership. The clearing commodity brokers are Morgan
Stanley & Co. LLC ("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 Wealth Management is a
principal subsidiary of MSSBH. MS&Co. and MSIP are wholly-owned subsidiaries of
Morgan Stanley.
Effective November 30, 2012, the General Partner changed the name of the
Partnership from Managed Futures Charter Graham L.P. to Managed Futures Premier
Graham L.P. The name change had no impact on the operation of the Partnership
or its limited partners.
Effective June 1, 2011, units of limited partnership interest ("Unit(s)") of
the Partnership are being offered in share classes (each a "Class" or
collectively, the "Classes"). The Class of Units that a limited partner
receives depends on the aggregate subscription amount made by such limited
partner in the Partnership.
Class of Units Aggregate Investment
-------------- --------------------
A Up to $4,999,999
D $5,000,000 and above
As of December 31, 2012, all Units outstanding are considered Class A Units.
The General Partner may, at its discretion, offer additional Classes of Units
as described in the Private Placement Memorandum (the "Memorandum").
Effective May 31, 2011, Morgan Stanley & Co. Incorporated changed its name
to Morgan Stanley & Co. LLC.
Effective August 23, 2010, the General Partner changed the name of Morgan
Stanley Smith Barney Charter Graham L.P. to Managed Futures Charter Graham L.P.
and made the Partnership available to new investments on a private placement
basis.
Ceres is required to maintain a 1% minimum interest in the equity of the
Partnership and income (losses) are shared by Ceres and the limited partners
based on their proportional ownership interest.
Managed Futures Premier Graham L.P.
(formerly, Managed Futures Charter Graham L.P.)
Notes to Financial Statements
Graham Capital Management L.P. ("Graham" or the "Trading Advisor") is the
Partnership's trading advisor.
2. Summary of Significant Accounting Policies
Use of Estimates -- The financial statements are prepared in accordance with
accounting principles generally accepted in the United States of America
("U.S. GAAP"), which require management to make estimates and assumptions that
affect the reported amounts in the financial statements and related
disclosures. Management believes that the estimates utilized in the preparation
of the financial statements are prudent and reasonable. Actual results could
differ from those estimates and the differences could be material.
Valuation -- Futures Interests are open commitments until the settlement
date, at which time they are realized. They are valued at fair value, generally
on a daily basis, and the unrealized gains and losses on open contracts (the
difference between contract trade price and market price) are reported in the
Statements of Financial Condition as net unrealized gains or losses on open
contracts. The resulting net change in unrealized gains and losses is reflected
in the 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 forwards contracts is determined by the
various futures exchanges, and reflects the settlement price for each contract
as of the close of business on the last business day of the reporting period.
The fair value of foreign currency forward contracts is extrapolated on a
forward basis from the spot prices quoted as of approximately 3:00 P.M. (E.T.)
of the last business day of the reporting period 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 input 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.
Revenue Recognition -- Monthly, MS&Co. credits the Partnership with interest
income on 100% of the average daily equity maintained in cash in the
Partnership's account during each month at a rate equal to 80% of the monthly
average of the 4-week U.S. Treasury bill discount rate. For purposes of these
interest credits, daily funds do not include monies due to the Partnership on
or with respect to futures, forwards, or options contracts that have not been
received. MS&Co. and Ceres will retain any interest earned in excess of the
interest paid to the Partnership.
Fair Value of Financial Instruments -- The fair value of the Partnership's
assets and liabilities that qualify as financial instruments under the
Financial Accounting Standards Board ("FASB") Accounting Standards Codification
("ASC") guidance relating to financial instruments, approximates the carrying
amount presented in the Statements of Financial Condition.
Foreign Currency Transactions and Translation -- The Partnership's
functional currency is the U.S. dollar; however, the Partnership may transact
business in currencies other than the U.S. dollar. Assets and liabilities
denominated in currencies other than the U.S. dollar are translated into
U.S. dollars at the rate in effect at the date of the Statements of Financial
Condition. Income and expense items denominated in currencies other than the
U.S. dollar are translated into U.S. dollars at the rate in effect during the
period. The effects of changes in foreign currency exchange rates on
investments are not segregated in the Statements of Income and Expenses from
the changes in market price of those investments, but are included in the net
realized gain/loss and net change in unrealized trading profit (loss) in the
Statements of Income and Expenses.
Managed Futures Premier Graham L.P.
(formerly, Managed Futures Charter Graham L.P.)
Notes to Financial Statements
Net Income (Loss) per Unit -- Net income (loss) per Unit is computed in
accordance with the specialized accounting for Investment Companies as
illustrated in the Financial Highlights Footnote (refer to Note 8. Financial
Highlights).
Trading Equity -- The Partnership's asset "Trading Equity," reflected on the
Statements of Financial Condition, consists of (a) cash on deposit with MS&Co.
and MSIP to be used as margin for trading and (b) net unrealized gains or
losses on futures and forward contracts, which are fair valued and calculated
as the difference between original contract value and fair value.
The Partnership in its normal course of business enters into various
contracts with MS&Co. and MSIP acting as its commodity brokers. Pursuant to
brokerage agreements with Morgan Stanley Wealth Management, MS&Co. and MSIP, to
the extent that such trading results in unrealized gains or losses, these
amounts are offset for the Partnership and are reported on a net basis on the
Statements of Financial Condition.
The Partnership has offset its unrealized gains or losses recognized on
forward contracts executed with the same counterparty as allowable under the
terms of its master netting agreement with MS&Co., as the counterparty on such
contracts. The Partnership has consistently applied its right to offset.
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 contracts and offset
unrealized 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.
Brokerage and Related Transaction Fees and Costs -- The Partnership pays
Morgan Stanley Wealth Management a flat-rate monthly brokerage fee of 1/12 of
2% of the Partnership's net assets as of the first day of each month (a 2%
annual rate), as described in the Partnership's Memorandum. Morgan Stanley
Wealth Management then reimburses the Partnership for all fees and costs
charged or incurred by the Commodity Brokers for trades executed on behalf of
the Partnership. Such fees cover all brokerage fees, transaction fees and
costs, and ordinary administrative and offering expenses.
Effective June 1, 2011, the Partnership paid MS&Co. a flat rate monthly
brokerage fee of 1/12 of 2%.
Prior to June 1, 2011, and October 1, 2010, the Partnership paid MS&Co. a
flat-rate brokerage fee of 5.375% and 6%, respectively.
Placement Agent Fees -- Limited partners are not charged an initial sales
commission. The Partnership pays the Placement Agent ongoing compensation on a
monthly basis equal to a percentage of the net asset value (as defined in the
Memorandum) of a limited partner's Unit as of the beginning of each month. The
applicable rate payable by each limited partner is determined by the Class of
Units held by such limited partner. The Partnership pays the Placement Agent
the following percentage in accordance with the following schedule.
Class of Units Annualized Rate (%)
-------------- -------------------
A 3.375%
D 0.75%
The Placement Agent pays a portion of the ongoing Placement Agent fees it
received from the Partnership to the Morgan Stanley Financial Advisor or
Private Wealth Advisor responsible for selling the Units to the limited partner.
Managed Futures Premier Graham L.P.
(formerly, Managed Futures Charter Graham L.P.)
Notes to Financial Statements
There was no change in total fees for existing limited partners as all Units
outstanding at December 31, 2012, were Class A Units.
Operating Expenses -- The Partnership incurs monthly management fees and may
incur an incentive fee. All common administrative and continuing offering
expenses, including legal, auditing, accounting, filing fees, and other related
expenses, are borne by Morgan Stanley Wealth Management through the brokerage
fees paid by the Partnership.
Continuing Offering -- Units of the Partnership are offered at a price equal
to 100% of the net asset value per Unit as of the first day of each month at
the final net asset value per Unit as of the last day of the immediately
preceding month. The minimum subscription amount in Class A Units in the
Partnership is $25,000 ($10,000 for ERISA/IRA investors), subject to the
discretion of Ceres to accept a lower amount. Certain investors are eligible to
purchase Class D Units upon investing a minimum of $5,000,000 in the
Partnership. The Class of Units that a limited partner receives upon a
subscription will generally depend upon the aggregate amount invested in the
Partnership, although the General Partner may determine to offer Class A or
Class D Units to an investor in its sole discretion, regardless of investment
amount. Additional subscriptions can be made in a minimum amount of $10,000,
subject to the discretion of Ceres to accept a lower amount. The request for
subscriptions must be delivered to a limited partner's Morgan Stanley Wealth
Management Branch Office in time for it to be forwarded to and received by
Ceres, no later than 3:00 P.M., New York City time, on the third business day
before the end of the month.
No selling commissions or charges related to the initial offering of Units
are paid by the limited partners or the Partnership. MS&Co. pays all such costs.
Redemptions -- Limited partners may redeem some or all of their Units at
100% of the net asset value per Unit as of the end of the last day of any month
(a "Redemption Date"). The request for redemptions must be delivered to a
limited partner's Morgan Stanley Wealth Management Branch Office in time for it
to be forwarded and received by Ceres no later than 3:00 p.m., New York City
time, on the third business day before the end of the month. A limited partner
must maintain a minimum investment of 300 Units in the Partnership unless such
limited partner is redeeming the entire interest in the Partnership. Ceres may
cause a limited partner to withdraw from the Partnership at any time and for
any reason upon at least five days' written notice. Ceres may also, in its sole
discretion, permit redemptions by limited partners in any amount at any time.
The aggregate amounts of redemption charges paid to MS&Co. for the years
ended December 31, 2012, 2011, and 2010 were as follows:
2012 2011 2010
------ ------ ------
$ $ $
-- -- 53,278
Exchanges -- Limited partners may redeem some or all of their Units at 100%
of the net asset value per Unit of the Partnership on the Redemption Date and
use the proceeds to purchase units in any other commodity pool operated by
Ceres that is open to investment. Limited partners may also redeem units in any
other commodity pool operated by Ceres and use the proceeds to purchase Units
in the Partnership. The request for exchanges must be delivered to a limited
partner's Morgan Stanley Wealth Management Branch Office in time for it to be
forwarded and received by Ceres, no later than 3:00 P.M., New York City time,
on the third business day before the end of the month.
Distributions -- Distributions, other than redemptions of Units, are made on
a pro rata basis at the sole discretion of Ceres. No distributions have been
made to date. Ceres does not intend to make any distributions of the
Partnership's profits.
Managed Futures Premier Graham L.P.
(formerly, Managed Futures Charter Graham L.P.)
Notes to Financial Statements
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
revenue and 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 were no
significant uncertain tax positions that would require recognition in the
financial statements as of December 31, 2012 and 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, 2009 through 2012 tax years remain subject to
examination by U.S. federal and most state tax authorities. No income tax
returns are currently under examination.
Dissolution of the Partnership -- The Partnership will terminate on
December 31, 2035, or at an earlier date if certain conditions occur as defined
in the Memorandum.
Litigation Settlement -- On July 28, 2010, the Partnership received a
settlement award payment in the amount of $20,678 from the natural Gas
Litigation Settlement Administrator. This settlement represents the
Partnership's portion of the 2006 Net Settlement Fund and the 2007 Net
Settlement Fund. The proceeds from settlement were accounted for in the period
they were received for the benefit of the partners in the Partnership.
Statement of Cash Flows -- The Partnership is not required to provide a
Statement of Cash Flows.
Other Pronouncements
On October 1, 2012, the FASB issued Accounting Standards Update ("ASU")
2012-04 "Technical Corrections and Improvements", which makes minor technical
corrections and clarifications to ASC 820, "Fair Value Measurements and
Disclosures". When the FASB issued Statement 157 (codified in ASC 820), it
conformed the use of the term "fair value" in certain pre-Codification
standards but not others. ASU 2012-04 conforms the term's use throughout the
ASC "to fully reflect the fair value measurement and disclosure requirements"
of ASC 820. The ASU also amends the requirements that must be met for an
investment company to qualify for the exemption from presenting a statement of
cash flows. Specifically, it eliminates the requirements that substantially all
of an entity's investments be carried at "market value" and that the
investments be highly liquid. Instead, it requires substantially all of the
entity's investments to be carried at "fair value" and classified as Level 1 or
Level 2 measurements under ASC 820. The amendments are effective for fiscal
periods beginning after December 15, 2012. The adoption of this ASU will not
have a significant impact on the Partnership's financial statements.
In December 2011, the FASB issued ASU 2011-11, "Disclosures about Offsetting
Assets and Liabilities", which creates a new disclosure requirement about the
nature of an entity's rights of setoff and the related arrangements associated
with its financial instruments and derivative instruments. Subsequently in
January 2013, the FASB issued ASU 2013-01 "Clarifying the Scope of Disclosures
about Offsetting Assets and Liabilities", which clarifies the types of
instruments and transactions that are subject to the offsetting disclosure
requirements established by ASU 2011-11. Entities are required to disclose both
gross information and net information about both instruments and transactions
eligible for offset in the statement of financial position and instruments and
transactions subject to an
Managed Futures Premier Graham L.P.
(formerly, Managed Futures Charter Graham L.P.)
Notes to Financial Statements
agreement similar to a master netting arrangement. The objective of these
disclosures is to facilitate comparison between those entities that prepare
their financial statements on the basis of U.S. GAAP and those entities that
prepare their financial statements on the basis of International Financial
Reporting Standards ("IFRS"). The disclosure requirements are effective for
annual reporting periods beginning on or after January 1, 2013, and interim
periods within those annual periods. The Partnership would also provide the
disclosures retrospectively for all comparative periods presented. The
Partnership is currently evaluating the impact that these pronouncements would
have on the financial statements.
In October 2011, the FASB issued a proposed ASU intended to improve and
converge financial reporting by setting forth consistent criteria for
determining whether an entity is an investment company. Under longstanding U.S.
GAAP, investment companies carry all of their investments at fair value, even
if they hold a controlling interest in another company. The primary changes
being proposed by the FASB relate to which entities would be considered
investment companies as well as certain disclosure and presentation
requirements. In addition to the changes to the criteria for determining
whether an entity is an investment company, the FASB also proposes that an
investment company would be required to consolidate another investment company
if it holds a controlling financial interest in the entity. In August 2012, the
FASB updated the proposed ASU to state that entities regulated under Investment
Company Act of 1940 should qualify to be investment companies within the
proposed investment company guide. The Partnership will evaluate the impact
that this proposed update would have on the financial statements once the
pronouncement is issued.
3. Related Party Transactions
The Partnership's cash is on deposit in commodity brokerage accounts with
Morgan Stanley. MS&Co. credits the Partnership with interest income as
described in Note 2. Summary of Significant Accounting Policies. The
Partnership pays brokerage fees to Morgan Stanley Wealth Management (prior to
October 2012, MS&Co.) as described in Note 2. Summary of Significant Accounting
Policies.
4. Trading Advisor
Ceres, on behalf of the Partnership retains Graham to make all trading
decisions for the Partnership.
Compensation to the Trading Advisor by the Partnership consists of a
management fee and an incentive fee as follows:
Management Fee -- The Partnership pays its Trading Advisor a flat-rate
monthly fee equal to 1/12 of 2% (a 2% annual rate) of the Partnership's net
assets under management as of the first day of each month.
Incentive Fee -- The Partnership pays the Trading Advisor an incentive fee
equal to 20% of trading profits experienced by the Partnership as of the end of
each calendar month.
Trading profits represent the amount by which profits from futures,
forwards, and options trading exceed losses after brokerage and management fees
are deducted. When a Trading Advisor experiences losses with respect to net
assets as of the end of a calendar month, the Trading Advisor must recover such
losses before the Trading Advisor is eligible for an incentive fee in the
future. Cumulative trading losses are adjusted on a pro rated basis for the
amount of each month's net withdrawals.
For the years ended December 31, 2012, 2011 and 2010, there are no incentive
fees charged.
Managed Futures Premier Graham L.P.
(formerly, Managed Futures Charter Graham L.P.)
Notes to Financial Statements
5. Financial Instruments
The Partnership trades Futures Interests. Futures and forwards represent
contracts for delayed delivery of an instrument at a specified date and price.
Risk arises from changes in the value of these contracts and the potential
inability of counterparties to perform under the terms of the contracts. There
are numerous factors which may significantly influence the fair value of these
contracts, including interest rate volatility.
The fair value of exchange-traded contracts is based on the settlement price
quoted by the exchange on the day with respect to which fair value is being
determined. If an exchange-traded contract could not have been liquidated on
such day due to the operation of daily limits or other rules of the exchange,
the settlement price will be equal to the settlement price on the first
subsequent day on which the contract could be liquidated. The fair value of
off-exchange-traded contracts is based on the fair value quoted by the
counterparty.
The Partnership's contracts are accounted for on a trade-date basis. 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, forward, swaps or options contracts,
and other financial instruments with similar characteristics such as caps,
floors, and collars.
The net unrealized gains on open contracts at December 31, reported as a
component of "Trading Equity" on the Statements of Financial Condition, and
their longest contract maturities were as follows:
Net Unrealized Gains on Open Contracts Longest Maturities
--------------------------------------------- -----------------------------------
Year Exchange-Traded Off-Exchange-Traded Total Exchange-Traded Off-Exchange-Traded
---- --------------- ------------------- --------- --------------- -------------------
$ $ $
2012. 3,098,093 1,156,422 4,254,515 Mar. 2017 Mar. 2013
2011. 2,825,771 2,346,309 5,172,080 Mar. 2016 Mar. 2012
In general, the risks associated with off-exchange-traded contracts are
greater than those associated with exchange-traded contracts because of the
greater risk of default by the counterparty to an off-exchange-traded contract.
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 gains
amounts reflected in the Partnership's Statements of Financial Condition. The
net unrealized gains (losses) on open contracts is further disclosed gross by
type of contract and corresponding fair value level in Note 7. Fair Value
Measurements and Disclosures.
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 fair valued on a daily
basis, with variations in value settled on a daily basis. MS&Co. and MSIP, each
acting as a commodity futures broker for the Partnership's exchange-traded
futures, exchange-traded forward, and
Managed Futures Premier Graham L.P.
(formerly, Managed Futures Charter Graham L.P.)
Notes to Financial Statements
exchange-traded futures-styled options contracts, are required, pursuant to
regulations of the Commodity Futures Trading Commission, to segregate from
their own assets, and for the sole benefit of their commodity customers, total
cash 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 on all open exchange-traded futures,
exchange-traded forward, and exchange-traded futures-styled options contracts,
which in the aggregate, totaled $212,489,536 and $285,874,710 at December 31,
2012 and 2011, 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 daily maintenance of the cash balance in
a custody account held at MS&Co. 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. The primary terms
are based on industry standard master agreements. 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 General Partner monitors and attempts to control the Partnership's risk
exposure on a daily basis through financial, credit and risk management
monitoring systems, and accordingly, believes that it has effective procedures
for evaluating and limiting the credit and market risks to which the
Partnership may be subject. These monitoring systems generally allow the
General Partner to statistically analyze actual trading results with risk
adjusted performance indicators and correlation statistics. In addition, online
monitoring systems provide account analysis of futures, forwards and options
positions by sector, margin requirements, gain and loss transactions and
collateral positions.
The futures, forwards and options traded by the Partnership involve varying
degrees of related market risk. Market risk is often dependent upon changes in
the level or volatility of interest rates, exchange rates, and prices of
financial instruments and commodities, factors that result in frequent changes
in the fair value of the Partnership's open positions, and consequently in its
earnings, whether realized or unrealized, and cash flow. Gains and losses on
open positions of exchange-traded futures, exchange-traded forward, and
exchange-traded futures-styled options contracts are settled daily through
variation margin. Gains and losses on off-exchange-traded forward currency
contracts are settled upon termination of the contract. Gains and losses on
off-exchange-traded forward currency options contracts are settled on an
agreed-upon settlement date.
6. 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 quantity (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.
Managed Futures Premier Graham L.P.
(formerly, Managed Futures Charter Graham L.P.)
Notes to Financial Statements
The following tables summarize the valuation of the Partnership's
investments as of December 31, 2012 and 2011.
The Effect of Trading Activities on the Statements of Financial Condition as
of December 31, 2012 and 2011:
December 31, 2012
Average
Number of
Contracts
Outstanding
Long Long Short Short Net for the Year
Unrealized Unrealized Unrealized Unrealized Unrealized (Absolute
Futures and Forward Contracts Gain Loss Gain Loss Gain/(Loss) Quantity)
----------------------------- ---------- ---------- ---------- ---------- ----------- ------------
$ $ $ $ $
Commodity.................... 802,059 (191,225) 966,315 (2,691,091) (1,113,942) 3,749
Equity....................... 5,120,882 (854,526) -- (173,208) 4,093,148 3,326
Foreign currency............. 1,218,559 (1,476,258) 1,552,135 (50,783) 1,243,653 16,674
Interest rate................ 1,447,053 (920,247) -- (325) 526,481 12,900
--------- ---------- --------- ---------- ----------
Total....................... 8,588,553 (3,442,256) 2,518,450 (2,915,407) 4,749,340
========= ========== ========= ==========
Unrealized currency
loss...................... (494,825)
----------
Total net unrealized gain
on open contracts......... 4,254,515
==========
December 31, 2011
Average
Number of
Contracts
Outstanding
Long Long Short Short Net for the Year
Unrealized Unrealized Unrealized Unrealized Unrealized (Absolute
Futures and Forward Contracts Gain Loss Gain Loss Gain/(Loss) Quantity)
----------------------------- ---------- ---------- ---------- ---------- ----------- ------------
$ $ $ $ $
Commodity.................... 460,330 (243,164) 2,195,043 (4,380,019) (1,967,810) 3,139
Equity....................... 1,099,211 (28,750) 26,530 (202,908) 894,083 2,372
Foreign currency............. 450,444 (341,345) 2,978,910 (594,982) 2,493,027 23,365
Interest rate................ 4,507,072 (69,188) 20,422 (359,322) 4,098,984 10,389
--------- -------- --------- ---------- ----------
Total....................... 6,517,057 (682,447) 5,220,905 (5,537,231) 5,518,284
========= ======== ========= ==========
Unrealized currency
loss...................... (346,204)
----------
Total net unrealized gain
on open contracts......... 5,172,080
==========
Managed Futures Premier Graham L.P.
(formerly, Managed Futures Charter Graham L.P.)
Notes to Financial Statements
The following tables summarize the net trading results of the Partnership
for the years ended December 31, 2012, 2011, and 2010, respectively.
The effect of Trading Activities on the Statements of Income and Expenses
for the years ended December 31, 2012, 2011, and 2010, included in Total
Trading Results:
2012 2011 2010
----------- ----------- -----------
Type of Instrument
------------------ $ $ $
Commodity................ (25,656,631) (13,224,390) (2,284,314)
Equity................... 11,644,684 (33,865,845) (11,812,474)
Foreign currency......... (10,314,789) (28,960,337) 10,670,505
Interest rate............ 14,570,878 16,951,603 28,877,259
Unrealized currency loss. (148,604) (161,590) (144,958)
Proceeds from Litigation. -- -- 20,678
----------- ----------- -----------
Total................... (9,904,462) (59,260,559) (25,326,696)
=========== =========== ===========
Line Items on the Statements of Income and Expenses for the years ended
December 31, 2012, 2011, and 2010:
2012 2011 2010
---------- ----------- ----------
Trading Results
--------------- $ $ $
Net realized............. (8,986,897) (56,127,142) 22,922,027
Net change in unrealized. (917,565) (3,133,417) 2,383,991
Proceeds from Litigation. -- -- 20,678
---------- ----------- ----------
Total Trading Results... (9,904,462) (59,260,559) 25,326,696
========== =========== ==========
7. Fair Value Measurements and Disclosures
Effective January 1, 2012, the Partnership adopted ASU 2011-04, "Amendments
to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S.
GAAP and IFRS." 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 IFRS. 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. This new guidance did not have a material impact on the
Partnership's financial statements.
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
Managed Futures Premier Graham L.P.
(formerly, Managed Futures Charter Graham L.P.)
Notes to Financial Statements
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.
Unadjusted
Quoted Prices in Significant
Active Markets Other Significant
for Identical Observable Unobservable
Assets Inputs Inputs
December 31, 2012 (Level 1) (Level 2) (Level 3) Total
----------------- ---------------- ----------- ------------ ----------
$ $ $ $
Assets
Futures.................. 8,424,480 -- n/a 8,424,480
Forwards................. -- 2,682,523 n/a 2,682,523
--------- --------- ----------
Total Assets............. 8,424,480 2,682,523 n/a 11,107,003
--------- --------- ----------
Liabilities
Futures.................. 4,831,562 -- n/a 4,831,562
Forwards................. -- 1,526,101 n/a 1,526,101
--------- --------- ----------
Total Liabilities........ 4,831,562 1,526,101 n/a 6,357,663
--------- --------- ----------
Unrealized currency loss. (494,825)
----------
*Net fair value 3,592,918 1,156,422 n/a 4,254,515
========= ========= ==========
Unadjusted
Quoted Prices in Significant
Active Markets Other Significant
for Identical Observable Unobservable
Assets Inputs Inputs
December 31, 2011 (Level 1) (Level 2) (Level 3) Total
----------------- ---------------- ----------- ------------ ----------
$ $ $ $
Assets
Futures.................. 8,457,018 -- n/a 8,457,018
Forwards................. -- 3,280,944 n/a 3,280,944
--------- --------- ----------
Total Assets............. 8,457,018 3,280,944 n/a 11,737,962
--------- --------- ----------
Liabilities
Futures.................. 5,285,043 -- n/a 5,285,043
Forwards................. -- 934,635 n/a 934,635
--------- --------- ----------
Total Liabilities........ 5,285,043 934,635 n/a 6,219,678
--------- --------- ----------
Unrealized currency loss. (346,204)
----------
*Net fair value.......... 3,171,975 2,346,309 n/a 5,172,080
========= ========= ==========
* This amount comprises of the "Total net unrealized gain on open contracts" on
the Statements of Financial Condition.
During the twelve months ended December 31, 2012 and 2011, there were no
Level 3 assets and liabilities and there were no transfers of assets or
liabilities between Level 1 and Level 2.
Managed Futures Premier Graham L.P.
(formerly, Managed Futures Charter Graham L.P.)
Notes to Financial Statements
8. Financial Highlights
The following ratios may vary for individual investors based on the timing
of capital transactions during the year. Additionally, these ratios are
calculated for the limited partners' share of income, expenses and average net
assets.
2012 2011 2010
------ ------ ------
Per Unit operating performance:
Net asset value, January 1:........... $22.38 $28.87 $28.89
------ ------ ------
Interest Income...................... 0.01 0.01 0.03
Expenses............................. (1.64) (2.00) (2.16)
Realized/Unrealized Income (Loss)(1). (0.89) (4.50) 2.11
------ ------ ------
Net Loss............................. (2.52) (6.49) (0.02)
------ ------ ------
Net asset value, December 31:......... $19.86 $22.38 $28.87
====== ====== ======
For the Calendar Year:
Ratios to average net assets:
Net Investment Loss/ /............... (7.5)% (7.6)% (7.8)%
Expenses before Incentive Fees....... 7.6% 7.6% 7.9%
Expenses after Incentive Fees........ 7.6% 7.6% 7.9%
Net Loss............................. (11.5)% (25.2)% (0.7)%
Total return before incentive fees.... (11.3)% (22.5)% (0.1)%
Total return after incentive fees..... (11.3)% (22.5)% (0.1)%
(1)Realized/Unrealized Income (Loss) is a balancing amount necessary to
reconcile the change in net asset value per Unit with the other per Unit
information.
9. Subsequent Events
Management performed its evaluation of subsequent events through the date of
filing, and has determined that there were no subsequent events requiring
adjustments of or disclosure in the financial statements.
CERES MANAGED FUTURES LLC
522 Fifth Avenue . 14th Floor
New York, NY 10036
Publication #15
(C) 2012 Morgan Stanley Smith Barney LL
