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EXCEL - IDEA: XBRL DOCUMENT - MANAGED FUTURES PREMIER GRAHAM L.P.Financial_Report.xls
EX-32.02 - EXHIBIT - MANAGED FUTURES PREMIER GRAHAM L.P.mscgex3202.htm
EX-32.01 - EXHIBIT - MANAGED FUTURES PREMIER GRAHAM L.P.mscgex3201.htm
EX-31.01 - EXHIBIT - MANAGED FUTURES PREMIER GRAHAM L.P.mscgex3101.htm
EX-31.02 - EXHIBIT - MANAGED FUTURES PREMIER GRAHAM 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 March 31, 2012 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

 
MANAGED FUTURES CHARTER GRAHAM L.P.
 
 
(Exact name of registrant as specified in its charter)
 

 
Delaware
 
13-4018068
 
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
       
Ceres Managed Futures LLC
   
522 Fifth Avenue, 14th Floor
   
New York, NY
 
10036
(Address of principal executive offices)
 
(Zip Code)

Registrant’s telephone number, including area code
 
(212) 296-1999


(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x  No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes 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.

Large accelerated filer o
Accelerated filer o
Non-accelerated filer x
Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes 0  No T


 
 

 




MANAGED FUTURES CHARTER GRAHAM L.P.
INDEX TO QUARTERLY REPORT ON FORM 10-Q

March 31, 2012



 
PART I. FINANCIAL INFORMATION
 
     
Item 1.
Financial Statements (Unaudited)
 
     
 
Statements of Financial Condition as of March 31, 2012 and December 31, 2011
2
     
 
Condensed Schedule of Investments as of March 31, 2012
3
     
 
Condensed Schedule of Investments as of December 31, 2011
4
     
 
Statements of Income and Expenses for the Quarters Ended March 31, 2012 and 2011
5
     
 
Statements of Changes in Partners’ Capital for the Quarters Ended March 31, 2012 and 2011
6
     
 
Notes to Financial Statements
  7-24
     
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
25-31
     
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
31-39
     
Item 4.
Controls and Procedures
39-40
     
 
PART II. OTHER INFORMATION
 
     
Item 1.
Legal Proceedings
41
     
Item 1A.
Risk Factors
41
     
Item 2.
Unregistered Sales of Securities and Use of Proceeds
41-42
     
Item 4.
Mine Safety Disclosures
42
     
Item 6.
Exhibits
42-43



 
 

 

PART I.  FINANCIAL INFORMATION
Item 1.  Financial Statements

MANAGED FUTURES CHARTER GRAHAM L.P.
STATEMENTS OF FINANCIAL CONDITION

 
(Unaudited)
   
 
March 31,
 
December 31,
 
2012
 
2011
ASSETS
$
 
$
       
Trading Equity:
     
       
Unrestricted cash
229,001,703
 
  233,838,381
Restricted cash
50,080,184
 
    49,210,558
       
Total cash
279,081,887
 
  283,048,939
       
Net unrealized gain on open contracts (MSIP)
537,898
 
     712,190
Net unrealized gain (loss) on open contracts (MS&Co.)
(91,397)
 
      4,459,890
       
Total net unrealized gain on open contracts
446,501
 
      5,172,080
       
Total Trading Equity
279,528,388
 
  288,221,019
       
Interest receivable (MSSB)
          20,090 
 
          – 
       
Total Assets
279,548,478
 
  288,221,019
       
LIABILITIES AND PARTNERS’ CAPITAL
     
       
Liabilities:
     
       
Redemptions payable
5,295,745
 
     6,926,802
Accrued placement agent fees
797,553
 
    799,278
Accrued brokerage fees (MS&Co.)
472,623
 
    473,647
Accrued management fees
472,623
 
    473,647
Interest payable (MSSB)
          – 
 
  1,358
       
Total Liabilities
7,038,544
 
    8,674,732
       
Partners’ Capital:
     
       
Limited Partners (11,924,385.993 and 12,354,601.303 Units, respectively)
269,377,619
 
 276,443,739
General Partner (138,656.441 and 138,656.441Units, respectively)
3,132,315
 
     3,102,548
       
Total Partners’ Capital
272,509,934
 
 279,546,287
       
Total Liabilities and Partners’ Capital
279,548,478
 
 288,221,019
       
NET ASSET VALUE PER UNIT
22.59
 
22.38




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

- 2 -

 
 

 

MANAGED FUTURES CHARTER GRAHAM L.P.
CONDENSED SCHEDULE OF INVESTMENTS
March 31, 2012 (Unaudited)



Futures and Forward Contracts Purchased
Net unrealized
gain/(loss) on
open contracts
% of
Partners’ Capital
 
$
 
Commodity
(1,106,250)
  (0.41)
Equity
   2,087,582  
                 0.77
Foreign currency
(821,511)
(0.30)     
Interest rate
  1,626,862    
                   0.60
     
Total Futures and Forward Contracts Purchased
  1,786,683
                 0.66
     
Futures and Forward Contracts Sold
   
     
     
Commodity
 584,585
  0.21
Equity
(48,464)
(0.02)
Foreign currency
(1,583,512)
 (0.58)
Interest rate
         60,396
    0.02
     
Total Futures and Forward Contracts Sold
     (986,995)
     (0.37)
     
Unrealized Currency Loss
     (353,187)
     (0.13)                 
     
Net fair value
        446,501
             0.16
     






















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

- 3 -

 
 

 

MANAGED FUTURES CHARTER GRAHAM L.P.
CONDENSED SCHEDULE OF INVESTMENTS
December 31, 2011




Futures and Forward Contracts Purchased
Net unrealized
gain/(loss) on
open contracts
% of
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.

- 4 -

 
 

 

MANAGED FUTURES CHARTER GRAHAM L.P.
STATEMENTS OF INCOME AND EXPENSES
(Unaudited)


 
For the Quarters Ended March 31,
       
 
2012
 
2011
 
$
 
$
INVESTMENT INCOME
     
Interest income (MSSB)
33,797
 
92,112
       
EXPENSES
     
Placement agent fees
2,372,014
 
Brokerage fees (MS&Co.)
1,405,639
 
4,922,340
Management fees
1,405,639
 
1,831,569
       
Total Expenses
5,183,292
 
6,753,909
       
NET INVESTMENT LOSS
(5,149,495)
 
(6,661,797)
       
TRADING RESULTS
     
Trading profit (loss):
     
Net realized
12,614,775
 
(739,071)
Net change in unrealized
(4,725,579)
 
(4,008,183)
       
Total Trading Results
7,889,196
 
(4,747,254)
       
NET INCOME (LOSS)
2,739,701
 
(11,409,051)
       
NET INCOME (LOSS) ALLOCATION
     
       
Limited Partners
2,709,934
 
(11,295,297)
General Partner
29,767
 
(113,754)
       
NET INCOME (LOSS) PER UNIT *
     
       
Limited Partners
0.21
 
(0.89)
General Partner
0.21
 
(0.89)
       
 
Units
 
Units
WEIGHTED AVERAGE NUMBER
     
OF UNITS OUTSTANDING
12,430,256.860
 
12,659,663.509



* 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 Quarters Ended March 31, 2012 and 2011
(Unaudited)



 
Units of
           
 
Partnership
 
Limited
 
General
   
 
Interest
 
Partners
 
Partner
 
Total
     
$
 
$
 
$
Partners’ Capital,
             
December 31, 2011
12,493,257.744
 
276,443,739
 
3,102,548
 
279,546,287
               
Subscriptions
225,707.114
 
5,118,715
 
 
5,118,715
               
Net Income
 
2,709,934
 
29,767
 
2,739,701
               
Redemptions
(655,922.424)
 
(14,894,769)
 
 
(14,894,769)
               
Partners’ Capital,
             
March 31, 2012
12,063,042.434
 
269,377,619
 
3,132,315
 
272,509,934
               
               
               
               
Partners’ Capital,
             
December 31, 2010
12,523,668.457
 
357,913,170
 
3,688,624
 
361,601,794
               
Subscriptions
432,137.745
 
12,511,890
 
 
12,511,890
               
Net Loss
 
(11,295,297)
 
(113,754)
 
(11,409,051)
               
Redemptions
(296,435.460)
 
(8,456,083)
 
 
(8,456,083)
               
Partners’ Capital,
             
March 31, 2011
12,659,370.742
 
350,673,680
 
3,574,870
 
354,248,550

















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

- 6 -

 
 

 

MANAGED FUTURES CHARTER GRAHAM L.P.
NOTES TO FINANCIAL STATEMENTS

March 31, 2012

(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, 2011.

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. 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”). Ceres is a wholly-owned subsidiary of Morgan Stanley Smith Barney Holdings LLC  (“MSSBH”).  MSSBH is majority-owned indirectly by Morgan


- 7 -
 
 
 

 
MANAGED FUTURES CHARTER GRAHAM L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)



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. (“Graham”) (the “Trading Advisor”) is the trading advisor to the Partnership and manages the assets of the Partnership pursuant to its K4D-15V Program, the Trading Advisor’s proprietary, trend-following trading program.  A description of the trading activities and focus of the Trading Advisor is included on page 27 under “Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

Units of limited partnership interest (“Unit(s)”) of the Partnership are being offered in two share classes (each a “Class” or collectively the “Classes”).  The Class of Units that a limited partner receives depends on 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 March 31, 2012, all Units are considered Class A Units.  The General Partner may, in its discretion, offer additional Classes of Units.
 
 





- 8 -
 
 
 

 
MANAGED FUTURES CHARTER GRAHAM L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

2.  
Financial Highlights
Financial Highlights for the three months ended March 31, 2012 and 2011 were as follows:
                         For the Quarters Ended March 31,

 
2012
2011
         Per Unit operating performance:
   
         Net asset value, January 1:
$     22.38
$     28.87
     
                     Interest Income
–     (3)
0.01
                     Expenses
     (0.42)
       (0.53)
                     Realized/Unrealized Income (Loss) (1)
      0.63
       (0.37) (4)
                     Net Income (Loss)
      0.21
       (0.89)
     
         Net asset value, March 31:
$    22.59
$    27.98
     
         Ratios to average net assets:
   
                     Net Investment Loss  (2)
      (7.5)%
      (7.5)%
                     Expenses before Incentive Fees (2)
       7.5%
       7.6 %
                     Expenses after Incentive Fees (2)
       7.5%
       7.6 %
                     Net Income (Loss) (2)
  4.0%
    (12.9)%
         Total return before incentive fees
  0.9%
      (3.1)%
         Total return after incentive fees
  0.9%
      (3.1)%


   (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.
   (2) Annualized (except for incentive fees, if applicable).

   (3) Amounts less than $0.005 per Unit.

 
         (4) These amounts have been reclassified from the prior year financial statements to conform to the current year       presentation. Specifically, realized and unrealized income (loss) per Unit amounts were combined in the 2011 Financial Highlights presentation.






- 9 -
 
 
 

 
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 MSSB, MS&Co. and MSIP.  Such amount is based on 100% of its average daily funds held at MSSB, 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 MS&Co.  The Partnership pays MSSB ongoing compensation on a monthly basis equal to a percentage of the net asset value 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%

MSSB pays a portion of the ongoing Placement Agent fees it received from the Partnership to the MSSB Financial Advisor or Private Wealth Advisor responsible for selling the Units to the limited partner.

- 10 -
 
 
 

 
MANAGED FUTURES CHARTER GRAHAM L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

There was no change in total fees for existing limited partners as all Units outstanding at March 31, 2012 were Class A Units.

4.  Financial Instruments
The Partnership trades Futures Interests.  Futures and forwards represent contracts for delayed delivery of an instrument at a specified date and price.  Futures Interests are open commitments until settlement date, at which time they are realized.  They are valued at fair value, generally on a daily basis, and the unrealized gains and losses on open contracts (the difference between contract trade price and market price) are reported in the Statements of Financial Condition as a net unrealized gain or loss on open contracts.  The resulting net change in unrealized gains and losses is reflected in the “Net change in unrealized” trading profit (loss) for 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 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

- 11 -
 
 
 

 
MANAGED FUTURES CHARTER GRAHAM L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

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 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.



- 12 -

 
 

 

MANAGED FUTURES CHARTER GRAHAM L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

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

The net unrealized gains (losses) on open contracts, reported as a component of “Trading Equity” on the Statements of Financial Condition, and their longest contract maturities were as follows:
 
  Net Unrealized Gains (Losses) on Open Contracts
Longest Maturities
Date
Exchange-Traded
Off-Exchange-Traded
Total
Exchange-Traded
Off-Exchange-Traded
 
$
$
$
   
Mar. 31, 2012
2,481,644
(2,035,143)
446,501
Jun. 2016
Jun. 2012
Dec. 31, 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 (losses) 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 6, 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

- 13 -
 
 

 
MANAGED FUTURES CHARTER GRAHAM L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

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 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, 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 (losses) on all open exchange-traded futures, exchange-traded forward, and exchange-traded futures-styled options contracts, which funds, in the aggregate, totaled $281,563,531 and $285,874,710 at March 31, 2012, and December 31, 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 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.  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.

- 14 -
 
 
 

 
MANAGED FUTURES CHARTER GRAHAM L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

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.  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.

- 15 -

 
 

 

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 March 31, 2012 and December 31, 2011, respectively.





















- 16 -

 
 

 

MANAGED FUTURES CHARTER GRAHAM L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)


The Effect of Trading Activities on the Statements of Financial Condition as of March 31, 2012:
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 three months
  (absolute quantity)
 
$
$
$
$
$
 
Commodity
1,432,055
(2,538,305)
 1,907,858
(1,323,273)
(521,665) 
4,188
Equity
3,406,671
(1,319,089)
            5,734
(54,198)
2,039,118 
3,967
Foreign currency
124,511
(946,022)
      85,303
(1,668,815)
(2,405,023) 
   25,138
Interest rate
  2,443,654
      (816,792)
              95,733
   (35,337)         
     1,687,258 
   13,496
Total
  7,406,891
   (5,620,208)
  2,094,628         
(3,081,623)
799,688 
 
             
Unrealized currency loss
       
    (353,187) 
 
Total net unrealized gain on open contracts
       
 
   446,501 
 


The Effect of Trading Activities on the Statements of Financial Condition as of December 31, 2011:
Futures and Forward Contracts
Long Unrealized
Gain
Long Unrealized
Loss
 Short
Unrealized
Gain
  Short Unrealized
Loss
Net  Unrealized
  Gain/(Loss)
Average number of contracts
outstanding for
the year
 (absolute 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
 

The following tables summarize the net trading results of the Partnership for the quarters ended March 31, 2012 and 2011, respectively.

- 17 -
 
 
 

 
MANAGED FUTURES CHARTER GRAHAM L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)


The Effect of Trading Activities on the Statements of Income and Expenses for the Quarter Ended March 31, 2012 included in Total Trading Results:

Type of Instrument
                      $
   
Commodity
 4,085,597
Equity
21,017,351
Foreign currency
  (6,188,518)                  
Interest rate
(11,018,251)              
Unrealized currency loss
          (6,983)
Total
      7,889,196

Line Items on the Statements of Income and Expenses for the Quarter Ended March 31, 2012:
Trading Results
                      $
   
Net realized
12,614,775
Net change in unrealized
    (4,725,579)
Total Trading Results
            7,889,196

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

Type of Instrument
                      $
   
Commodity
8,115,889
Equity
(4,947,448)
Foreign currency
                            (4,932,384)
Interest rate
 (2,720,724)                
Unrealized currency loss
      (262,587)
Total
   (4,747,254)

Line Items on the Statements of Income and Expenses for the Quarter Ended March 31, 2011:
Trading Results
                      $
   
Net realized
(739,071)
Net change in unrealized
    (4,008,183)
Total Trading Results
                                (4,747,254)




- 18 -
 
 
 

 
MANAGED FUTURES CHARTER GRAHAM L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)


6.  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 significant  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).



- 19 -

 
 

 

MANAGED FUTURES CHARTER GRAHAM L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy.  In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.  The Partnership’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment.

The Partnership’s assets and liabilities measured at fair value on a recurring basis are summarized in the following tables by the type of inputs applicable to the fair value measurements.

March 31, 2012
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
9,329,737
                –      
n/a
 
9,329,737
    Forwards
             –      
     171,782
n/a
 
                 171,782
           
  Total Assets
 9,329,737
                171,782      
n/a
 
          9,501,519
           
     Liabilities
         
 Futures
    6,494,906
                 –      
n/a
 
    6,494,906
     Forwards
                –       
 2,206,925
n/a
 
              2,206,925
           
  Total Liabilities
 6,494,906
              2,206,925
n/a
 
   8,701,831
           
Unrealized currency loss
       
    (353,187)
           
  *Net fair value
   2,834,831
            (2,035,143)
n/a
 
    446,501





- 20 -
 
 
 

 
MANAGED FUTURES CHARTER GRAHAM L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

December 31, 2011
Unadjusted
Quoted Prices in Active Markets for Identical Assets
(Level 1)
Significant Other Observable Inputs
(Level 2)
Significant Unobservable Inputs
(Level 3)
 
Total
 
$
$
$
 
$
Assets
         
Futures
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 the “Total net unrealized gain on open contracts” on the Statements of Financial Condition.

During the period January 1, 2012 to March 31, 2012, there were no Level 3 assets and liabilities and there were no transfers of assets or liabilities between Level 1 and Level 2.

7.  Other Pronouncements
In December 2011, the FASB issued Accounting Standards Update (“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. 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

- 21 -
 
 
 

 
MANAGED FUTURES CHARTER GRAHAM L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

instruments and transactions subject to an agreement similar to a master netting arrangement. The objective of this disclosure is to facilitate comparison between those entities that prepare their financial statements on the basis of accounting principles generally accepted in the United States of America (“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 should also provide the disclosures retrospectively for all comparative periods presented.  The Partnership is currently evaluating the impact that the pronouncement 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 be required to consolidate another investment company if it holds a controlling financial interest in the entity.  The Partnership will evaluate the impact that this proposed update would have on the financial statements once the pronouncement is issued.

- 22 -
 
 
 

 
MANAGED FUTURES CHARTER GRAHAM L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

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 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.

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 March 31, 2012 and December 31, 2011.  If applicable, the Partnership recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in other expenses in the Statements of Income and

- 23 -
 
 
 

 
MANAGED FUTURES CHARTER GRAHAM L.P.
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)

Expenses.  Generally, the 2008 through 2011 tax years remain subject to examination by U.S. federal and most state tax authorities.  No income tax returns are currently under examination.

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.














- 24 -

 
 

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


As of March 31, 2012, the percentage of assets allocated to each market sector was approximately as follows: Interest Rate 22.05%; Currency 12.37%; Equity 32.56%; and Commodity 33.02%.

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.


- 25 -
 
 
 

 
There is no limitation on daily price moves in trading forward contracts on foreign currencies.  The markets for some world currencies have low trading volume and are illiquid, which may prevent the Partnership from trading in potentially profitable markets or prevent the Partnership from promptly liquidating unfavorable positions in such markets, subjecting it to substantial losses.  Either of these market conditions could result in 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.

As of March 31, 2012, approximately 89.53% of the Partnership’s total investments are futures contracts which are exchange-traded while approximately 10.47% are forward contracts which are off-exchange traded.

Capital Resources.  The Partnership does not have, nor does it expect to have, any capital assets.  Redemptions, exchanges, and sales of Units 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.

- 26 -
 
 
 

 
Off-Balance Sheet Arrangements and Contractual Obligations.  The Partnership does not have any off-balance sheet arrangements, nor does it have contractual obligations or commercial commitments to make future payments that would affect its liquidity or capital resources.

Results of Operations
General.  The Partnership’s results depend on the Trading Advisor and the ability of the Trading Advisor’s trading program to take advantage of price movements in the futures, forward and options markets.  The K4D quantitative investment program has its origin in Graham’s legacy trend-following trading systems, dating as far back as 1995.  Graham’s trend systems are designed to participate selectively in potential profit opportunities that can occur during periods of price trends in a diverse number of U.S. and international markets.  The trend systems establish positions in markets where the price action of a particular market signals the computerized systems used by Graham that a potential trend in prices is occurring.  The trend systems also employ proprietary risk management and trade filter strategies that seek to benefit from sustained price trends while reducing risk and volatility exposure.  Each K4D program trades the same quantitative models in the same proportion, and differs only with respect to the annual volatility range targeted (with the K4D-10V Program targeting an annual volatility range of 8% to 12%; the K4D-15V Program targeting an annual volatility range of 12% to 18%; and the K4D-20V Program targeting an annual volatility range of 16% to 24%).

The following presents a summary of the Partnership’s operations for the quarters ended March 31, 2012 and 2011, 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

- 27 -
 
 
 

 
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 24 of this report are prepared in accordance with U.S. GAAP, 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 “Net 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.

Ceres believes that, based on the nature of the operations of the Partnership, no assumptions relating to the application of critical accounting policies other than those presently used could reasonably affect reported amounts.


- 28 -
 
 
 

 
For the Quarter Ended March 31, 2012
The Partnership recorded total trading results including interest income totaling $7,922,993 and expenses totaling $5,183,292, resulting in net income of $2,739,701 for the quarter ended March 31, 2012.  The Partnership’s net asset value per Unit increased from $22.38 at December 31, 2011 to $22.59 at March 31, 2012.

During the first quarter, the Partnership posted a gain in net asset value per Unit as profits in stock indices and energies offset losses within the global interest rate, metals, currency, and agricultural markets.

The most significant gains were recorded within the global stock index sector throughout the majority of the quarter from long positions in U.S., European, and Japanese equity index futures as prices were buoyed by better-than-expected economic reports in these regions. Prices also rose after China cut banks’ reserve requirements to fuel lending and the U.S. Federal Reserve Board raised its assessment of the U.S. economy. Within the energy markets, gains were achieved throughout the majority of the quarter from short positions in natural gas futures as prices dropped amid ample inventories and mild weather across the U.S. Additional gains were experienced during February from long futures positions in RBOB (unleaded) gas and brent crude as prices increased on concerns over inventory levels and rising tensions in the Middle East.

A portion of the Partnership’s gains for the quarter was offset by losses incurred within the global interest rate sector in February and March from long positions in U.S., European, and Australian fixed-

- 29 -
 
 
 

 
income futures. During February, prices fell amid optimism that Greece would receive a second bailout, thereby diminishing demand for the relative “safety” of government bonds. Meanwhile, prices fell further during March after the U.S. Federal Reserve upwardly revised the U.S. economic outlook. Within the metals markets, losses were recorded primarily in January from short positions in zinc, aluminum, and copper futures as prices advanced on speculation metals demand will be supported by economic expansion in the U.S. and an easing credit policy in China. Losses were experienced within the currency markets during January from short positions in the British pound and Swiss franc versus the U.S. dollar as the value of these currencies reversed higher against the U.S. dollar. During March, long positions in the Australian dollar and New Zealand dollar versus the U.S. dollar resulted in losses as the value of these commodity-linked currencies fell against the U.S. dollar after concern over earnings in China reduced demand for higher-yielding currency assets. Additional losses were incurred within the agricultural complex, primarily during January, from short positions in cocoa futures as prices advanced on concern supplies from the Ivory Coast, the world’s largest cocoa growing country, may weaken.

For the Quarter Ended March 31, 2011
The Partnership recorded total trading results including interest income totaling ($4,655,142) and expenses totaling $6,753,909, resulting in a net loss of $11,409,051 for the quarter ended March 31, 2011.  The Partnership’s net asset value per Unit decreased from $28.87 at December 31, 2010 to $27.98 at March 31, 2011.



- 30 -
 
 
 

 
The most significant trading losses were incurred within the currency markets, primarily during January, from long futures 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 following the release of minutes from the U.S. Federal Reserve meeting that reflected optimism about the U.S. economy and boosted demand for the U.S. currency. Further losses were recorded within this sector during March from long positions in the Canadian dollar versus the U.S. dollar as “commodity currencies” such as the Canadian dollar weakened as a result of the “flight-to-quality” following the natural disaster in Japan. Within the global stock index markets, losses were experienced 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. Within the global interest rate sector, losses were incurred primarily during February from short positions in U.S. and European fixed-income futures as prices increased amid a “flight-to-safety” spurred by geopolitical concerns in the Middle East and North Africa.

A portion of the Partnership’s losses for the quarter was offset by gains achieved within the energy markets, primarily during February and March, from long futures positions in crude oil and its related products as prices rose after political tension in Egypt stoked worries that protests may spread to crude-producing parts of the Middle East. Further gains were recorded after futures prices of crude oil and its related products continued to increase as geopolitical tensions extended to Libya. Within the agricultural complex, gains were experienced primarily during January and February due to long futures positions in cotton as prices increased on signs that global output may fail to keep pace with rising demand in China, the world’s biggest buyer of the fiber. Gains were recorded within the metals

- 31 -
 
 
 

 
markets, primarily during February, from long positions in silver futures as prices extended a rally to a 30-year high after mounting unrest in the Middle East spurred demand for silver as a “safe haven.”

 
Item 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Introduction
The Partnership is a commodity pool engaged primarily in the speculative trading of futures, forwards and options.  The market-sensitive instruments held by the Partnership are acquired for speculative trading purposes only and, as a result, all or substantially all of the Partnership’s assets are at risk of trading loss.  Unlike an operating company, the risk of market-sensitive instruments is inherent to the primary business activity of the Partnership.

The futures, forwards and options on such contracts traded by the Partnership involve varying degrees of related market risk.  Market risk is often dependent upon changes in the level or volatility of interest rates, exchange rates, and prices of financial instruments and commodities, factors that result in frequent changes in the fair value of the Partnership’s open positions, and consequently in its earnings, whether realized or unrealized, and cash flow.  Gains and losses on open positions of exchange-traded futures, exchange-traded forward, and exchange-traded futures-styled options contracts are settled daily through variation margin.  Gains and losses on off-exchange-traded forward currency contracts and forward currency options contracts are settled upon termination of the contract.  Gains and losses on off-exchange-traded forward currency options contracts are settled upon an agreed upon settlement date.  However, the Partnership is required to meet margin requirements equal to the net unrealized loss on open forward currency contracts in the Partnership accounts with the counterparty, which is

- 32 -
 
 
 

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

The Partnership’s total market risk may increase or decrease as it is influenced by a wide variety of factors, including, but not limited to, the diversification among the Partnership’s open positions, the volatility present within the markets, and the liquidity of the markets.  The face value of the market sector instruments held by the Partnership is typically many times the applicable margin requirements.  Margin requirements generally range between 2% and 15% of contract face value.  Additionally, the use of leverage causes the face value of the market sector instruments held by the Partnership typically to be many times the total capitalization of the Partnership.

The Partnership’s past performance is no guarantee of its future results.  Any attempt to numerically quantify the Partnership’s market risk is limited by the uncertainty of its speculative trading.  The Partnership’s speculative trading and use of leverage may cause future losses and volatility (i.e., “risk
of ruin”) that far exceed the Partnership’s experience to date as discussed 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

- 33 -
 
 
 

 
“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 fair value 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.  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.

VaR is a measure of the maximum amount which the Partnership could reasonably be expected to lose in a given market sector.  However, the inherent uncertainty of the Partnership’s speculative trading and the recurrence in the markets traded by the Partnership of market movements far exceeding expectations could result in actual trading or non-trading losses far beyond the indicated VaR or the Partnership’s experience to date (i.e., “risk of ruin”).  In light of the foregoing as well as the risks and uncertainties intrinsic to all future projections, the inclusion of the quantification in this section should not be considered to constitute any assurance or representation that the Partnership’s losses in any market sector will be limited to VaR or by the Partnership’s attempts to manage its market risk.
- 34 -
 
 
 

 
Exchange maintenance margin requirements have been used by the Partnership as the measure of its VaR.  Maintenance margin requirements are set by exchanges to equal or exceed the maximum losses reasonably expected to be incurred in the fair value of any given contract in 95% - 99% of any one-day interval.  Maintenance margin has been used rather than the more generally available initial margin, because initial margin includes a credit risk component, which is not relevant to VaR.

The Partnership’s Value at Risk in Different Market Sectors
The following tables indicate the trading VaR associated with the Partnership’s open positions by market category as of March 31, 2012 and the highest, lowest and average values during the three months ended March 31, 2012.  All open position trading risk exposures of the Partnership have been included in calculating the figures set forth below.  There has been no material change in the trading VaR information previously disclosed in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2011.  As of March 31, 2012, the Partnership’s total capitalization was approximately $273 million.
Primary Market
 
% of Total
Risk Category
VaR
Capitalization
     
Currency
$6,550,768
2.40%
     
Interest Rate
 11,674,312
4.28%
     
Equity
 17,227,820
6.32%
     
Commodity
 17,456,786
6.41%
     
Total
$52,909,686
19.41%





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                               Three Months Ended March 31, 2012
Market Sector
High VaR
Low VaR
Average VaR*
Currency
$16,754,949
$6,414,673
$11,129,761
Interest Rate
$20,879,321
$10,087,498
$15,874,522
Equity
$22,573,887
$11,623,705
$17,294,544
Commodity
$18,966,451
$12,085,759
$15,414,900
*Average of month-end VaR


The following tables indicate the trading VaR associated with the Partnership’s open positions by market category as of December 31, 2011 and the highest, lowest and average values during the twelve months ended December 31, 2011.  All open position trading risk exposure of the Partnership have been included in calculating the figures set forth below.  As of December 31, 2011, the Partnership’s total capitalization was approximately $280 million.
Primary Market
 
% of
Risk Category
VaR
Total Capitalization
     
Currency
$14,674,961
5.25%
     
Interest Rate
 17,427,276
6.23%
     
Equity
 11,744,133
4.20%
     
Commodity
 18,504,511
6.62%
     
Total
$62,350,881
22.30%




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                         Twelve Months Ended December 31, 2011
Market Sector
High VaR
Low VaR
Average VaR*
Currency
$30,536,383
$3,927,145
$10,555,409
Interest Rate
$17,693,704
$2,776,605
$5,662,832
Equity
$20,093,626
$1,659,106
$5,304,603
Commodity
$18,582,106
$3,768,786
$8,334,303
*Average of month-end VaR.
     


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

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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 unrestricted cash at MSSB; as of March 31, 2012, such amount was equal to approximately 82% of the Partnership’s net asset value.  A decline in short-term interest rates would result in a decline in the Partnership’s cash management income. This cash flow risk is not considered to be material.

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

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

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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 of 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.



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

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report was filed, Ceres’ President (Ceres’ principal executive officer) and Chief Financial Officer (Ceres’ principal financial officer) have evaluated the effectiveness of the design and operation of the Partnership’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of March 31, 2012.  The Partnership’s disclosure controls and procedures are designed to provide reasonable assurance that information the Partnership is required to disclose in the reports that the Partnership files or submits under the Exchange Act are recorded, processed and summarized and reported within the time period specified in the applicable rules and forms.  Based on this evaluation, the President and Chief Financial Officer of Ceres have concluded that the disclosure controls and procedures of the Partnership were effective at March 31, 2012.

Changes in Internal Control over Financial Reporting
There have been no 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.



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 1.  LEGAL PROCEEDINGS
There were no additional information to supplement or amend the discussion set forth under Part I, Item 3, “Legal Proceedings” in the Partnership’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011.

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, 2011.

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 March 31, 2012 was $71,435,011.  The Partnership received $325,000 in consideration from the sale of Units to the General Partner.
 








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The following chart sets forth the purchases of Units by the Partnership.

                           
(d) Maximum Number
 
                   
(c) Total Number
 
(or Approximate
 
                   
of Redeemable
 
Dollar Value) of
 
                   
Units Purchased as
 
Redeemable Units
 
   
(a) Total Number
 
(b) Average
 
Part of Publicly
 
That May Yet Be
 
   
of Redeemable
 
Price Paid per
 
Announced
 
Purchased Under the
 
Period
 
Units Purchased*
 
Redeemable Unit**
 
Plans or Programs
 
Plans or Programs
 
January  1, 2012 – January 31, 2012
 
188,469.842
 
$22.42
 
N/A
 
N/A
 
February 1, 2012-February 29, 2012
 
233,023.857
 
$23.06
 
N/A
 
N/A
 
March 1, 2012 – March 31, 2012
 
  234,428.725
 
$22.59
 
N/A
 
N/A
 
                   
   
655,922.424
 
$22.71
         
     
*
 
Generally, limited partners are permitted to redeem their Redeemable Units as of the end of each month on three business days’ notice to the General Partner. Under certain circumstances, the General Partner can compel redemption, although to date the General Partner has not exercised this right. Purchases of Redeemable Units by the Partnership reflected in the chart above were made in the ordinary course of the Partnership’s business in connection with effecting redemptions for limited partners.
     
**
 
Redemptions of Redeemable Units are effected as of the last day of each month at the net asset value per Redeemable Unit as of that day.


Item 4.  MINE SAFETY DISCLOSURES
Not applicable.


Item 6.
EXHIBITS

31.01
Certification of President of Ceres Managed Futures LLC, the General Partner of the Partnership, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
31.02
Certification of Chief Financial Officer of Ceres Managed Futures LLC, the General Partner of the Partnership, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
32.01
Certification of President of Ceres Managed Futures LLC, the General Partner of the Partnership, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
32.02
Certification of Chief Financial Officer of Ceres Managed Futures LLC, the General Partner of the Partnership, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 

 
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101.INS*
XBRL Instance Document
 
101.SCH*
XBRL Taxonomy Extension Schema Document
 
101.CAL*
XBRL Taxonomy Extension Calculation Linkbase Document
 
101.LAB*
XBRL Taxonomy Extension Label Document
 
101.PRE*
XBRL Taxonomy Extension Presentation Document
 
101.DEF*
XBRL Taxonomy Extension Definition Document
 

 
 
Notes to Exhibits List
 
 
* Submitted electronically herewith.
 
 
Pursuant to applicable securities laws and regulations, the Partnership is deemed to have complied with the reporting obligation relating to the submission of interactive data files in Exhibit 101 to this report and is not subject to liability under any anti-fraud provisions of the federal securities laws as long as the Partnership has made a good faith attempt to comply with the submission requirements and promptly amends the interactive data files after becoming aware that the interactive data files fails to comply with the submission requirements. Users of this data are advised that, pursuant to Rule 406T, these interactive data files are deemed not filed and otherwise are not subject to liability.
 

 

 

 

 

 

 

 

 

 

 

 

 
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SIGNATURE



Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.




 
Managed Futures Charter Graham L.P.
 
(Registrant)
     
 
By:
Ceres Managed Futures LLC
   
(General Partner)
     
May 11, 2012
By:
/s/Brian Centner
   
Brian Centner
   
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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