Attached files
Managed Futures
Premier Graham L.P.
Annual Report
December 31, 2014
CERES MANAGED FUTURES LLC
To the Limited Partners of
Managed Futures Premier Graham L.P.
To the best of the knowledge and belief of the undersigned, the information
contained herein is accurate and complete.
/s/ Patrick T. Egan
-----------------------------------
By: Patrick T. Egan
President and Director
Ceres Managed Futures LLC
General Partner,
Managed Futures Premier
Graham L.P.
Ceres Managed Futures LLC
522 Fifth Avenue
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. 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, as amended, 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 the directors of Ceres; 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, 2014. In making this assessment,
Management used the criteria set forth in the Internal Control-Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the
Treadway Commission. Based on its assessment, Management concluded that the
Partnership maintained effective internal control over financial reporting as
of December 31, 2014, based on the criteria referred to above.
/s/ Patrick T. Egan /s/ Steven Ross
------------------------------------- ------------------------------------
Patrick T. Egan Steven Ross
President and Director Chief Financial Officer
Ceres Managed Futures LLC Ceres Managed Futures LLC
General Partner, General Partner,
Managed Futures Premier Graham L.P. Managed Futures Premier Graham L.P.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Limited Partners and the General Partner of Managed Futures Premier
Graham L.P.:
We have audited the accompanying statements of financial condition of Managed
Futures Premier Graham L.P. (the "Partnership"), including the condensed
schedules of investments, as of December 31, 2014 and 2013, 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, 2014. 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, 2014 and 2013, and the results of its operations and changes in
its partners' capital for each of the three years in the period ended December
31, 2014, in conformity with accounting principles generally accepted in the
United States of America.
/s/ Deloitte & Touche LLP
New York, New York
March 25, 2015
Managed Futures Premier Graham L.P.
Statements of Financial Condition
December 31,
-----------------------
2014 2013
----------- -----------
$ $
ASSETS
Trading Equity:
Unrestricted cash............................................... 145,034,785 156,238,893
Restricted cash................................................. 22,479,675 29,924,799
----------- -----------
Total cash.................................................... 167,514,460 186,163,692
----------- -----------
Net unrealized gain on open contracts........................... 10,991,449 8,014,894
----------- -----------
Total Trading Equity.......................................... 178,505,909 194,178,586
Interest receivable.............................................. 813 1,722
----------- -----------
Total Assets.................................................. 178,506,722 194,180,308
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES
Redemptions payable.............................................. 2,217,518 3,710,954
Accrued placement agent fees..................................... 285,638 547,086
Accrued brokerage fees........................................... 285,638 324,198
Accrued management fees.......................................... 249,934 324,198
----------- -----------
Total Liabilities............................................. 3,038,728 4,906,436
----------- -----------
PARTNERS' CAPITAL
Limited Partners (6,404,822.920 and 8,627,682.375 Units,
respectively).................................................. 173,548,977 186,979,337
General Partner (70,821.303 and 105,875.441 Units, respectively). 1,919,017 2,294,535
----------- -----------
Total Partners' Capital......................................... 175,467,994 189,273,872
----------- -----------
Total Liabilities and Partners' Capital......................... 178,506,722 194,180,308
=========== ===========
NET ASSET VALUE PER UNIT......................................... 27.10 21.67
=========== ===========
The accompanying notes are an integral part of these financial statements.
Managed Futures Premier Graham L.P.
Statements of Income and Expenses
For the Years ended December 31,
--------------------------------------------
2014 2013 2012
------------- ------------- --------------
$ $ $
INVESTMENT INCOME
Interest income................. 24,574 87,489 144,258
------------- ------------- --------------
EXPENSES
Ongoing placement agent fees.... 3,781,389 6,663,745 8,681,535
Brokerage fees.................. 3,175,074 3,948,888 5,144,616
Management fees................. 2,888,430 3,948,888 5,144,616
------------- ------------- --------------
Total Expenses................ 9,844,893 14,561,521 18,970,767
------------- ------------- --------------
NET INVESTMENT LOSS.............. (9,820,319) (14,474,032) (18,826,509)
------------- ------------- --------------
TRADING RESULTS
Trading profit (loss):
Net Realized.................... 40,377,221 28,140,076 (8,986,897)
Net change in unrealized........ 2,976,555 3,760,379 (917,565)
------------- ------------- --------------
Total Trading Results......... 43,353,776 31,900,455 (9,904,462)
------------- ------------- --------------
NET INCOME (LOSS)................ 33,533,457 17,426,423 (28,730,971)
============= ============= ==============
Net Income (Loss) Allocation
Limited Partners................. 33,178,268 17,211,835 (28,408,388)
General Partner.................. 355,189 214,588 (322,583)
Net Income (Loss) Per Unit*
Limited Partners................. 5.43 1.81 (2.52)
General Partner.................. 5.43 1.81 (2.52)
Units Units Units
------------- ------------- --------------
WEIGHTED AVERAGE NUMBER OF UNITS
OUTSTANDING.................... 7,593,571.507 9,567,470.582 11,738,439.564
* 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.
Condensed Schedule of Investments
December 31, 2014
Net unrealized
gain/(loss) on % of
Futures and Forward Contracts Purchased open contracts Partners' Capital
--------------------------------------- -------------- -----------------
$
Commodity..................................... (1,239,297) (0.71)
Equity........................................ 806,619 0.46
Foreign currency.............................. 123,343 0.07
Interest rate................................. 5,009,248 2.86
---------- -----
Total Futures and Forward Contracts Purchased. 4,699,913 2.68
---------- -----
Futures and Forward Contracts Sold
----------------------------------
Commodity..................................... 4,929,775 2.81
Equity........................................ (344,353) (0.20)
Foreign currency.............................. 1,793,920 1.02
Interest rate................................. 10,126 0.01
---------- -----
Total Futures and Forward Contracts Sold...... 6,389,468 3.64
---------- -----
Unrealized Currency Loss..................... (97,932) (0.06)
---------- -----
Net fair value................................ 10,991,449 6.26
========== =====
The accompanying notes are an integral part of these financial statements.
Managed Futures Premier Graham L.P.
Condensed Schedule of Investments
December 31, 2013
Net unrealized
gain/(loss) on % of
Futures and Forward Contracts Purchased open contracts Partners' Capital
--------------------------------------- -------------- -----------------
$
Commodity..................................... (1,060,877) (0.56)
Equity........................................ 6,045,517 3.19
Foreign currency.............................. 1,215,434 0.64
Interest rate................................. (1,782,576) (0.94)
---------- -----
Total Futures and Forward Contracts Purchased. 4,417,498 2.33
---------- -----
Futures and Forward Contracts Sold
----------------------------------
Commodity..................................... 2,302,256 1.22
Equity........................................ (542,082) (0.29)
Foreign currency.............................. 1,326,009 0.70
Interest rate................................. 795,570 0.42
---------- -----
Total Futures and Forward Contracts Sold...... 3,881,753 2.05
---------- -----
Unrealized Currency Loss..................... (284,357) (0.15)
---------- -----
Net fair value................................ 8,014,894 4.23
========== =====
The accompanying notes are an integral part of these financial statements.
Managed Futures Premier Graham L.P.
Statements of Changes in Partners' Capital
For the Years Ended December 31, 2014, 2013, and 2012
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
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
Offering of Units.. 530,497.205 10,860,039 -- 10,860,039
Net Income......... -- 17,211,835 214,588 17,426,423
Redemptions........ (2,187,684.215) (45,025,584) (300,025) (45,325,609)
-------------- ----------- --------- -----------
Partners' Capital,
December 31, 2013. 8,733,557.816 186,979,337 2,294,535 189,273,872
Subscriptions...... 245,507.574 4,970,112 -- 4,970,112
Net Income......... -- 33,178,268 355,189 33,533,457
Redemptions........ (2,503,421.167) (51,578,740) (730,707) (52,309,447)
-------------- ----------- --------- -----------
Partners' Capital,
December 31, 2014. 6,475,644.223 173,548,977 1,919,017 175,467,994
============== =========== ========= ===========
The accompanying notes are an integral part of these financial statements.
Managed Futures Premier Graham L.P.
Notes to Financial Statements
1. Organization
Managed Futures Premier 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).
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 wholly-owned indirectly by Morgan
Stanley. Prior to June 28, 2013, Citigroup Inc. was the indirect minority owner
of MSSBH. Morgan Stanley Smith Barney LLC is doing business as Morgan Stanley
Wealth Management ("Morgan Stanley Wealth Management"). This entity, previously
acted as a non-clearing commodity broker for the Partnership, and currently
acts as the placement agent (the "Placement Agent") for the Partnership. Morgan
Stanley Wealth Management is a principal subsidiary of MSSBH.
The clearing commodity broker is Morgan Stanley & Co. LLC ("MS&Co."). MS&Co.
also acts as the counterparty on all trading of foreign currency forward
contracts. MS&Co. is a wholly-owned subsidiary 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 two 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, 2014, 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 of the Partnership, as amended
from time to time (the "Memorandum").
Effective April 1, 2014, the ongoing Placement Agent fee paid by the
Partnership to Morgan Stanley Wealth Management was reduced for Class A Unit
holders from an annual rate of 3.375% to an annual rate of 2.00% of the net
asset value of a limited partner's Class A Units.
Effective April 1, 2014, the monthly management fee paid by the Partnership
to Graham was reduced from 1/12th of 2.00% (a 2.00% annual rate) to 1/12th of
1.75% (a 1.75% annual rate) of the net assets of the Partnership (plus
"notional" funds, if any) as of the beginning of each month.
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.
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
Managed Futures Premier Graham L.P.
Notes to Financial Statements
2. Summary of Significant Accounting Policies (cont'd)
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 gain or loss on open
contracts. The resulting net change in unrealized gains and losses is reflected
in the "Net change in unrealized trading profit (loss)" on open contracts from
one period to the next on the Statements of Income and Expenses. The fair value
of exchange-traded futures, options and forward contracts is determined by the
various futures exchanges, and reflects the settlement price for each contract
as of the close of business 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.)
on the last business day of the reporting period from various exchanges. The
fair value of non-exchange-traded foreign currency option contracts is
calculated by applying an industry standard model application for options
valuation of foreign currency options, using as inputs the spot prices,
interest rates, and option implied volatilities quoted as of approximately
3:00 P.M. (E.T.) on the last business day of the reporting period. The fair
value of an off-exchange-traded contract is based on the fair value quoted by
the counterparty. The fair value of an off-exchange-traded contract is based on
the fair value quoted by the counterparty. 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. MS&Co. retains any
interest earned in excess of the interest paid by MS&Co. to the Partnership.
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.
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 (the "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.
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).
Managed Futures Premier Graham L.P.
Notes to Financial Statements
2. Summary of Significant Accounting Policies (cont'd)
Trading Equity -- The Partnership's asset "Trading Equity" reflected on the
Statements of Financial Condition, consists of (a) cash on deposit with MS&Co.
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. acting as its commodity broker. Pursuant to the brokerage
agreement with MS&Co., 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 forward and options contracts and offset
unrealized losses only on the offsetting London Metal Exchange 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 the
General Partner a monthly administrative fee equal to 1/12th of 2% of the
Partnership's net assets (plus "notional" funds, if any) as of the first day of
each month (a 2% annual rate), as described in the Partnership's Memorandum.
The General Partner then pays or reimburses the Partnership for all fees and
costs charged or incurred by the commodity brokers for trades executed on
behalf of the Partnership for all fees and costs charged or incurred by the
commodity broker for trades executed on behalf of the Partnership, and for all
ordinary administrative and offering expenses. Such fees cover all brokerage
fees, transaction fees and costs, and legal, accounting and auditing expenses,
printing costs, filing fees, escrow fees, marketing costs, and other related
fees and expenses.
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 2.00%
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.
Effective April 1, 2014, the ongoing Placement Agent fee paid by the
Partnership to Morgan Stanley Wealth Management was reduced for Class A Unit
holders from an annual rate of 3.375% to an annual rate of 2.00% of the net
asset value of a limited partner's Class A Units.
Managed Futures Premier Graham L.P.
Notes to Financial Statements
2. Summary of Significant Accounting Policies (cont'd)
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.
There were no redemption charges paid to MS&Co. for the years ended
December 31, 2014, 2013, and 2012.
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.
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
Managed Futures Premier Graham L.P.
Notes to Financial Statements
2. Summary of Significant Accounting Policies (cont'd)
uncertain tax positions that would require recognition in the financial
statements as of December 31, 2014 and 2013. If applicable, the Partnership
recognizes interest accrued related to unrecognized tax benefits in interest
expense and penalties in other expenses in the Statements of Income and
Expenses. Generally, the 2011 through 2014 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.
Statement of Cash Flows -- The Partnership is not required to provide a
Statement of Cash Flows.
Investment Company Status
Effective January 1, 2014, the Partnership adopted Accounting Standards
Update ("ASU") 2013-08, "Financial Services -- Investments Companies (Topic
946): Amendments to the Scope, Measurement and Disclosure Requirements". ASU
2013-08 changes the approach to the investment company assessment, requires
non-controlling ownership interests in other investment companies to be
measured at fair value, and requires additional disclosures about the
investment company's status as an investment company. ASU 2013-08 is effective
for interim and annual reporting periods beginning after December 15, 2013. The
adoption of this ASU did not have a material impact on the Partnership's
financial statements. Based on Management's assessment, the Partnership has
been deemed to be an investment company since inception.
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. MS&Co. acts as
the counterparty on all trading of foreign currency forward contracts. Since
October 2012, the Partnership pays brokerage fees to Morgan Stanley Wealth
Management and prior to October 2012, the Partnership paid brokerage fees to
MS&Co., as described in Note 2. Summary of Significant Accounting Policies.
4. Trading Advisor
Ceres, on behalf of the Partnership, has retained 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 1/12th of 1.75% (a 1.75% annual rate) of the Partnership's
net assets (plus "notional" funds, if any) as of the first day of each month.
Prior to April 1, 2014, the Partnership paid its Trading Advisor a flat-rate
monthly fee equal to 1/12/th/ of 2% (a 2% annual rate) of the Partnership's net
assets 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.
Managed Futures Premier Graham L.P.
Notes to Financial Statements
4. Trading Advisor (cont'd)
Trading profits represent the amount by which profits from futures,
forwards, and options trading exceed losses after brokerage and management fees
are deducted. When the 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, 2014, 2013 and 2012, there were no
incentive fees charged.
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.
The fair value of an exchange-traded contract 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 an off-exchange-traded contract 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, 2014 and 2013,
respectively, 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
---- --------------- ------------------- ---------- --------------- -------------------
$ $ $
2014. 9,505,992 1,485,457 10,991,449 Mar. 2019 Mar. 2015
2013. 5,557,421 2,457,473 8,014,894 Mar. 2018 Mar. 2014
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 are further
disclosed by type of contract and corresponding fair value level in Note 7.
Fair Value Measurements and Disclosures.
Managed Futures Premier Graham L.P.
Notes to Financial Statements
5. Financial Instruments (cont'd)
The Partnership also has credit risk because MS&Co. acts as the futures
commission merchant or the counterparty, 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., which is
acting as a commodity futures broker for the Partnership's exchange-traded
futures, exchange-traded forward, and exchange-traded futures-styled options
contracts, is required, pursuant to regulations of the Commodity Futures
Trading Commission, to segregate from its own assets, and for the sole benefit
of its commodity customers, total cash held by it 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 $177,020,452 and $191,721,113 at December 31, 2014 and 2013,
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's account 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 netting 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 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
Managed Futures Premier Graham L.P.
Notes to Financial Statements
6. Derivatives and Hedging (cont'd)
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.
On January 1, 2013, the Partnership adopted ASU 2011-11, "Disclosure about
Offsetting Assets and Liabilities" and ASU 2013-01, "Clarifying the Scope of
Disclosures about Offsetting Assets and Liabilities". ASU 2011-11 created a new
disclosure requirement about the nature of an entity's rights to setoff and the
related arrangements associated with its financial instruments and derivative
instruments, while ASU 2013-01 clarified 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 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. The new guidance did not have a
significant impact on the Partnership's financial statements.
As of December 31, 2014, approximately 69.78% of the Partnership's total
investments are futures contracts which are exchange-traded while approximately
30.22% are forward contracts which are off-exchange traded.
The following tables summarize the valuation of the Partnership's
investments as of December 31, 2014 and 2013, respectively.
Offsetting of Derivative Assets and Liabilities as of December 31, 2014:
Gross Amounts Net Amounts
Offset in the Presented in the
Statements of Statements of
Gross Amounts Financial Financial
Recognized Condition Condition
------------- ------------- ----------------
$ $ $
Assets
Futures..................................... 12,491,366 (2,280,167) 10,211,199
Forwards.................................... 2,508,601 (1,630,419) 878,182
---------- ---------- ----------
Total Assets................................ 14,999,967 (3,910,586) 11,089,381
---------- ---------- ----------
Liabilities
Futures..................................... (2,280,167) 2,280,167 --
Forwards.................................... (1,630,419) 1,630,419 --
---------- ---------- ----------
Total Liabilities........................... (3,910,586) 3,910,586 --
---------- ---------- ----------
Unrealized currency loss.................... (97,932)
----------
Total net unrealized gain on open contracts. 10,991,449
==========
Managed Futures Premier Graham L.P.
Notes to Financial Statements
6. Derivatives and Hedging (cont'd)
Offsetting of Derivative Assets and Liabilities as of December 31, 2013:
Gross Amounts Net Amounts
Offset in the Presented in the
Statements of Statements of
Gross Amounts Financial Financial
Recognized Condition Condition
------------- ------------- ----------------
$ $ $
Assets
Futures..................................... 10,656,264 (4,814,486) 5,841,778
Forwards.................................... 2,817,116 (359,643) 2,457,473
---------- ---------- ---------
Total Assets................................ 13,473,380 (5,174,129) 8,299,251
---------- ---------- ---------
Liabilities
Futures..................................... (4,814,486) 4,814,486 --
Forwards.................................... (359,643) 359,643 --
---------- ---------- ---------
Total Liabilities........................... (5,174,129) 5,174,129 --
---------- ---------- ---------
Unrealized currency loss.................... (284,357)
---------
Total net unrealized gain on open contracts. 8,014,894
=========
The effect of Trading Activities on the Statements of Financial Condition as
of December 31, 2014 and 2013:
December 31, 2014
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.................... 200,049 (1,439,346) 5,341,142 (411,367) 3,690,478 3,481
Equity....................... 1,829,639 (1,023,020) 7,571 (351,924) 462,266 2,032
Foreign currency............. 272,443 (149,100) 1,960,060 (166,140) 1,917,263 3,005
Interest rate................ 5,377,201 (367,953) 11,862 (1,736) 5,019,374 7,382
--------- ---------- --------- -------- ----------
Total....................... 7,679,332 (2,979,419) 7,320,635 (931,167) 11,089,381
========= ========== ========= ========
Unrealized currency
loss...................... (97,932)
----------
Total net unrealized gain
on open contracts......... 10,991,449
==========
Managed Futures Premier Graham L.P.
Notes to Financial Statements
6. Derivatives and Hedging (cont'd)
December 31, 2013
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.................... 384,705 (1,445,582) 2,808,187 (505,931) 1,241,379 3,708
Equity....................... 6,045,517 -- 440 (542,522) 5,503,435 3,144
Foreign currency............. 1,399,755 (184,321) 1,526,651 (200,642) 2,541,443 7,647
Interest rate................ 9,355 (1,791,931) 1,298,770 (503,200) (987,006) 8,798
--------- ---------- --------- ---------- ---------
Total....................... 7,839,332 (3,421,834) 5,634,048 (1,752,295) 8,299,251
========= ========== ========= ==========
Unrealized currency
loss...................... (284,357)
---------
Total net unrealized gain
on open contracts......... 8,014,894
=========
The following tables summarize the net trading results of the Partnership
for the years ended December 31, 2014, 2013, and 2012, respectively.
The effect of Trading Activities on the Statements of Income and Expenses
for the years ended December 31, 2014, 2013, and 2012, included in Total
Trading Results:
December 31,
------------------------------------
2014 2013 2012
---------- ----------- -----------
Type of Instrument
------------------ $ $ $
Commodity....................... 440,687 4,744,029 (25,656,631)
Equity.......................... (5,491,580) 46,697,833 11,644,684
Foreign currency................ 18,894,085 (3,283,896) (10,314,789)
Interest rate................... 29,324,159 (16,467,980) 14,570,878
Unrealized currency gain (loss). 186,425 210,469 (148,604)
---------- ----------- -----------
Total.......................... 43,353,776 31,900,455 (9,904,462)
========== =========== ===========
Line items on the Statements of Income and Expenses for the years ended
December 31, 2014, 2013, and 2012:
December 31,
--------------------------------
2014 2013 2012
---------- ---------- ----------
Trading Results
--------------- $ $ $
Net realized............. 40,377,221 28,140,076 (8,986,897)
Net change in unrealized. 2,976,555 3,760,379 (917,565)
---------- ---------- ----------
Total Trading Results... 43,353,776 31,900,455 (9,904,462)
========== ========== ==========
7. Fair Value Measurements and Disclosures
Financial instruments are carried at fair value, which is the price that
would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants. Assets and
Managed Futures Premier Graham L.P.
Notes to Financial Statements
7. Fair Value Measurements and Disclosures (cont'd)
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 and credit risk); and Level 3 -- unobservable
inputs for the asset or liability (including the Partnership's own assumptions
used in determining the fair value of investments).
In certain cases, the inputs used to measure fair value may fall into
different levels of the fair value hierarchy. In such cases, an investment's
level within the fair value hierarchy is based on the lowest level of input
that is significant to the fair value measurement. The Partnership's assessment
of the significance of a particular input to the fair value measurement in its
entirety requires judgment, and consideration of 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
Active Markets Significant
for Identical Other Significant
Assets and Observable Unobservable
Liabilities Inputs Inputs
December 31, 2014 (Level 1) (Level 2) (Level 3) Total
----------------- ---------------- ----------- ------------ ----------
$ $ $ $
Assets
Futures.................. 12,491,366 -- n/a 12,491,366
Forwards................. 742,680 1,765,921 n/a 2,508,601
---------- --------- ----------
Total Assets............. 13,234,046 1,765,921 n/a 14,999,967
---------- --------- ----------
Liabilities
Futures.................. 2,280,167 -- n/a 2,280,167
Forwards................. 1,349,955 280,464 n/a 1,630,419
---------- --------- ----------
Total Liabilities........ 3,630,122 280,464 n/a 3,910,586
---------- --------- ----------
Unrealized currency loss. (97,932)
----------
*Net fair value.......... 9,603,924 1,485,457 n/a 10,991,449
========== ========= ==========
Managed Futures Premier Graham L.P.
Notes to Financial Statements
7. Fair Value Measurements and Disclosures (cont'd)
Unadjusted
Quoted Prices in
Active Markets Significant
for Identical Other Significant
Assets and Observable Unobservable
Liabilities Inputs Inputs
December 31, 2013 (Level 1) (Level 2) (Level 3) Total
----------------- ---------------- ----------- ------------ ----------
$ $ $ $
Assets
Futures.................. 10,656,264 -- n/a 10,656,264
Forwards................. -- 2,817,116 n/a 2,817,116
---------- --------- ----------
Total Assets............. 10,656,264 2,817,116 n/a 13,473,380
---------- --------- ----------
Liabilities
Futures.................. 4,814,486 -- n/a 4,814,486
Forwards................. -- 359,643 n/a 359,643
---------- --------- ----------
Total Liabilities........ 4,814,486 359,643 n/a 5,174,129
---------- --------- ----------
Unrealized currency loss. (284,357)
----------
*Net fair value.......... 5,841,778 2,457,473 n/a 8,014,894
========== ========= ==========
* This amount comprises of the "Net unrealized gain on open contracts" on the
Statements of Financial Condition.
During the twelve months ended December 31, 2014 and 2013, there were no Level
3 assets and liabilities, and there were no transfers of assets or liabilities
between Level 1 and Level 2.
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.
2014 2013 2012
------ ------ ------
Per Unit operating performance:
Net asset value, January 1:........... $21.67 $19.86 $22.38
------ ------ ------
Interest Income...................... --(2) 0.01 0.01
Expenses............................. (1.33) (1.54) (1.64)
Realized/Unrealized Income (Loss)(1). 6.76 3.34 (0.89)
------ ------ ------
Net Income (Loss).................... 5.43 1.81 (2.52)
------ ------ ------
Net asset value, December 31:......... $27.10 $21.67 $19.86
====== ====== ======
For the Calendar Year:
Ratios to average net assets:
Net Investment Loss/ /............... (6.2)% (7.4)% (7.5)%
Expenses before Incentive Fees....... 6.3% 7.5% 7.6%
Expenses after Incentive Fees........ 6.3% 7.5% 7.6%
Total return before incentive fees.... 25.1% 9.1% (11.3)%
Total return after incentive fees..... 25.1% 9.1% (11.3)%
(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)Amount less than 0.005%.
Managed Futures Premier Graham L.P.
Notes to Financial Statements
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
New York, NY 10036
Publication #15
Morgan Stanley
(C) 2014 Morgan Stanle
