Document/Exhibit Description Pages Size
1: 10-Q Charter Graham 47 112K
2: EX-1 Underwriting Agreement 2 7K
3: EX-2 Plan of Acquisition, Reorganization, Arrangement, 2 11K
Liquidation or Succession
4: EX-3 Articles of Incorporation/Organization or By-Laws 2 11K
5: EX-4 Instrument Defining the Rights of Security Holders 1 6K
6: EX-5 Opinion re: Legality 1 6K
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 September 30, 2005 or
[ ] 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
MORGAN STANLEY CHARTER GRAHAM L.P.
(Exact name of registrant as specified in its charter)
Delaware 13-4018068
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Demeter Management Corporation
330 Madison Avenue, 8th Floor
New York, NY 10017
(Address of principal executive offices) (Zip Code)
Registrant?s telephone number, including area code (212) 905-2700
(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___________
Indicate by check-mark whether the registrant is an accelerated
filer (as defined in Rule 12b-2 of the Exchange Act).
Yes No X
Indicate by check-mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act). Yes___ No X
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MORGAN STANLEY CHARTER GRAHAM L.P.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
September 30, 2005
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Statements of Financial Condition as of September 30, 2005
(Unaudited) and December 31, 2004..........................2
Statements of Operations for the Three and Nine Months
Ended September 30, 2005 and 2004 (Unaudited)..............3
Statements of Changes in Partners? Capital for the
Nine Months Ended September 30, 2005 and 2004
(Unaudited) ...............................................4
Statements of Cash Flows for the Nine Months
Ended September 30, 2005 and 2004 (Unaudited)..............5
Notes to Financial Statements (Unaudited)...............6-12
Item 2. Management?s Discussion and Analysis of
Financial Condition and Results of Operations.......13-28
Item 3. Quantitative and Qualitative Disclosures about
Market Risk.........................................29-42
Item 4. Controls and Procedures.............................42-43
PART II. OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and
Use of Proceeds....................................... 44
Item 6. Exhibits...............................................45
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
MORGAN STANLEY CHARTER GRAHAM L.P.
STATEMENTS OF FINANCIAL CONDITION
September 30, December 31,
2005 2004
$ $
(Unaudited)
ASSETS
Equity in futures interests trading accounts:
Cash 435,078,002 469,228,886
Net unrealized gain on open contracts (MS&Co.) 8,884,754 372,464
Net unrealized gain (loss) on open contracts (MSIL) 3,158,679 (132,550)
Total net unrealized gain on open contracts 12,043,433 239,914
Total Trading Equity 447,121,435 469,468,800
Subscriptions receivable 8,943,282 15,265,122
Interest receivable (Morgan Stanley DW) 1,214,064 778,963
Total Assets 457,278,781 485,512,885
LIABILITIES AND PARTNERS? CAPITAL
Liabilities
Redemptions payable 11,779,258 5,991,320
Accrued brokerage fees (Morgan Stanley DW) 2,146,967 2,336,127
Accrued management fees 715,656 747,560
Total Liabilities 14,641,881 9,075,007
Partners? Capital
Limited Partners (23,191,229.409 and
21,265,535.495 Units, respectively) 437,791,742 471,290,914
General Partner (256,663.501 and
232,240.705 Units, respectively) 4,845,158 5,146,964
Total Partners? Capital 442,636,900 476,437,878
Total Liabilities and Partners? Capital 457,278,781 485,512,885
NET ASSET VALUE PER UNIT 18.88 22.16
<fn>
The accompanying notes are an integral part
of these financial statements.
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MORGAN STANLEY CHARTER GRAHAM L.P. STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months For the Nine
Months
Ended September 30, Ended
September 30,
2005 2004 2005 2004
$ $ $ $
INVESTMENT INCOME
Interest income (Morgan Stanley DW) 3,419,874 1,052,214 8,869,999
2,505,571
EXPENSES
Brokerage fees (Morgan Stanley DW) 6,458,636 5,539,378 20,237,371 15,800,402
Management fees 2,152,879 1,772,602 6,562,076 5,056,129
Incentive fee ? ? ? 5,135,381
Total Expenses 8,611,515 7,311,980 26,799,447 25,991,912
NET INVESTMENT LOSS (5,191,641) (6,259,766) (17,929,448) (23,486,341)
TRADING RESULTS
Trading profit (loss):
Realized 21,898,474 (35,027,435) (65,619,686) (36,859,950)
Net change in unrealized (8,903,462) 30,575,157 11,803,519 6,023,056
Total Trading Results 12,995,012 (4,452,278) (53,816,167) (30,836,894)
NET INCOME (LOSS) 7,803,371 (10,712,044) (71,745,615) (54,323,235)
NET INCOME (LOSS) ALLOCATION
Limited Partners 7,719,132 (10,594,531) (70,963,809) (53,724,001)
General Partner 84,239 (117,513) (781,806) (599,234)
NET INCOME (LOSS) PER UNIT
Limited Partners 0.33 (0.61) (3.28) (2.99)
General Partner 0.33 (0.61) (3.28) (2.99)
<fn>
The accompanying notes are an integral part
of these financial statements.
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MORGAN STANLEY CHARTER GRAHAM L.P. STATEMENTS OF CHANGES IN PARTNERS? CAPITAL
For the Nine Months Ended September 30, 2005 and 2004
(Unaudited)
Units of
Partnership Limited General
Interest Partners Partner Total
$ $ $
Partners? Capital,
December 31, 2003 12,370,561.267 267,851,230 2,858,562 270,709,792
Offering of Units 8,349,315.535 174,166,365 1,790,000 175,956,365
Net Loss ? (53,724,001) (599,234) (54,323,235)
Redemptions (799,084.843) (16,074,262) ? (16,074,262)
Partners? Capital,
September 30, 2004 19,920,791.959 372,219,332 4,049,328 376,268,660
Partners? Capital,
December 31, 2004 21,497,776.200 471,290,914 5,146,964 476,437,878
Offering of Units 5,536,588.513 103,453,470 480,000 103,933,470
Net Loss ? (70,963,809) (781,806) (71,745,615)
Redemptions (3,586,471.803) (65,988,833) ? (65,988,833)
Partners? Capital,
September 30, 2005 23,447,892.910 437,791,742 4,845,158 442,636,900
<fn>
The accompanying notes are an integral part
of these financial statements.
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MORGAN STANLEY CHARTER GRAHAM L.P. STATEMENTS OF CASH FLOWS
(Unaudited)
For the Nine Months Ended September 30,
2005 2004
$ $
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss (71,745,615) (54,323,235)
Noncash item included in net loss:
Net change in unrealized (11,803,519) (6,023,056)
Increase in operating assets:
Interest receivable (Morgan Stanley DW) (435,101) (211,500)
Increase (decrease) in operating liabilities:
Accrued brokerage fees (Morgan Stanley DW) (189,160) 599,423
Accrued management fees (31,904) 191,815
Net cash used for operating activities (84,205,299) (59,766,553)
CASH FLOWS FROM FINANCING ACTIVITIES
Cash received from offering of Units 110,255,310 178,664,727
Cash paid from redemptions of Units (60,200,895) (16,580,226)
Net cash provided by financing activities 50,054,415 162,084,501
Net increase (decrease) in cash (34,150,884) 102,317,948
Balance at beginning of period 469,228,886 245,088,422
Balance at end of period 435,078,002 347,406,370
<fn>
The accompanying notes are an integral part
of these financial statements.
MORGAN STANLEY CHARTER GRAHAM L.P.
NOTES TO FINANCIAL STATEMENTS
September 30, 2005
(Unaudited)
The unaudited financial statements contained herein include, in the
opinion of management, all adjustments necessary for a fair
presentation of the results of operations and financial condition
of Morgan Stanley Charter Graham L.P. (the ?Partnership?). The
financial statements and condensed notes herein should be read in
conjunction with the Partnership?s December 31, 2004 Annual Report
on Form 10-K. Certain reclassifications have been made to the
prior year?s financial statements to conform to the current year
presentation. Such reclassifications have no impact on the
Partnership?s reported net income (loss).
1. Organization
Morgan Stanley 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
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. The Partnership is one of the Morgan Stanley Charter
Series of funds, comprised of the Partnership, Morgan Stanley
Charter Campbell L.P., Morgan Stanley Charter Millburn L.P., and
Morgan Stanley Charter MSFCM L.P.
MORGAN STANLEY CHARTER GRAHAM L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The Partnership?s general partner is Demeter Management Corporation
(?Demeter?). The non-clearing commodity broker is Morgan Stanley
DW Inc. (?Morgan Stanley DW?). The clearing commodity brokers
are Morgan Stanley & Co. Incorporated (?MS & Co.?) and Morgan
Stanley & Co. International Limited (?MSIL?). Demeter, Morgan
Stanley DW, MS & Co., and MSIL are wholly-owned subsidiaries of
Morgan Stanley. Graham Capital Management, L.P. (the ?Trading
Advisor?) is the trading advisor to the Partnership.
2. Related Party Transactions
The Partnership?s cash is on deposit with Morgan Stanley DW, MS &
Co., and MSIL in futures, forwards, and options trading accounts to
meet margin requirements as needed. Monthly, Morgan Stanley DW
pays the Partnership interest income equal to 100% of its average
daily funds held at Morgan Stanley DW at a rate equal to that
earned by Morgan Stanley DW on its U.S. Treasury bill investments.
In addition, Morgan Stanley DW pays interest received from MS & Co.
and MSIL with respect to such Partnership?s assets deposited as
margin. The Partnership pays brokerage fees to Morgan Stanley DW.
Effective July 1, 2005, the monthly brokerage fee, payable by the
Partnership to Morgan Stanley DW, was reduced to a flat-
MORGAN STANLEY CHARTER GRAHAM L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
rate of 1/12 of 6.00% of the Partnership?s Net Assets as of the
first day of each month (a 6.00% annual rate), from a flat-rate
of 1/12 of 6.25% of the Partnership?s Net Assets as of the first
day of each month (a 6.25% annual rate). Such fees currently
cover all brokerage fees, transaction fees and costs, and
ordinary administrative and offering expenses.
3. Financial Instruments
The Partnership trades futures contracts, options on futures
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. Futures and forwards represent contracts
for delayed delivery of an instrument at a specified date and
price. Risk arises from changes in the value of these contracts
and the potential inability of counterparties to perform under the
terms of the contracts. There are numerous factors which may
significantly influence the market value of these contracts,
including interest rate volatility.
The market value of exchange-traded contracts is based on the
settlement price quoted by the exchange on the day with respect
to which market value is being determined. If an exchange-traded
MORGAN STANLEY CHARTER GRAHAM L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 shall be the settlement price on the first
subsequent day on which the contract could be liquidated. The
market value of off-exchange-traded contracts is based on the
fair market value quoted by the counterparty.
The Partnership?s contracts are accounted for on a trade-date basis
and marked to market on a daily basis. The Partnership accounts
for its derivative investments in accordance with the provisions of
Statement of Financial Accounting Standards No. 133,
?Accounting for Derivative Instruments and Hedging Activities?
(?SFAS No. 133?). SFAS No. 133 defines a derivative as a
financial instrument or other contract that has all three of the
following characteristics:
1) One or more underlying notional amounts or payment
provisions;
2) Requires no initial net investment or a smaller initial net
investment than would be required relative to changes in
market factors;
3) Terms require or permit net settlement.
MORGAN STANLEY CHARTER GRAHAM L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 (losses) on open contracts, reported as a
component of ?Equity in futures interests trading accounts? on
the Statements of Financial Condition, and their longest contract
maturities were as follows:
Net Unrealized Gains/(Losses)
on Open Contracts Longest Maturities
Exchange- Off-Exchange- Exchange- Off-Exchange-
Date Traded Traded Total Traded Traded
$ $ $
Sep. 30, 2005 6,439,973 5,603,460 12,043,433 Mar. 2007 Dec. 2005
Dec. 31, 2004 7,966,178 (7,726,264) 239,914 Jun. 2006 Mar. 2005
The Partnership has credit risk associated with counterparty non-
performance. The credit risk associated with the instruments in
which the Partnership trades is limited to the amounts reflected in
the Partnership?s Statements of Financial Condition.
The Partnership also has credit risk because Morgan Stanley DW,
MS & Co., and MSIL act as the futures commission merchants or the
counterparties, with respect to most of the Partnership?s assets.
Exchange-traded futures, forward, and futures-styled options
MORGAN STANLEY CHARTER GRAHAM L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
contracts are marked to market on a daily basis, with variations
in value settled on a daily basis. Morgan Stanley DW, MS & Co.,
and MSIL, each as a futures commission merchant for the
Partnership?s exchange-traded futures, forward, and futures-
styled options contracts, are required, pursuant to regulations
of the Commodity Futures Trading Commission (?CFTC?), to
segregate from their own assets, and for the sole benefit of
their commodity customers, all funds held by them with respect to
exchange-traded futures, forward, and futures-styled options
contracts, including an amount equal to the net unrealized gains
(losses) on all open futures, forward, and futures-styled options
contracts, which funds, in the aggregate, totaled $441,517,975
and $477,195,064 at September 30, 2005 and December 31, 2004,
respectively. With respect to the Partnership?s off-exchange-
traded forward currency contracts, there are no daily exchange-
required settlements of variation in value, nor is there any
requirement that an amount equal to the net unrealized gains
(losses) on open forward contracts be segregated. However, the
Partnership is required to meet margin requirements equal to the
net unrealized loss on open contracts in the Partnership accounts
with the counterparty, which is accomplished by daily maintenance
of the cash balance in a custody account held at Morgan Stanley
MORGAN STANLEY CHARTER GRAHAM L.P.
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
DW for the benefit of MS & Co. With respect to those off-
exchange-traded forward currency contracts, the Partnership is at
risk to the ability of MS & Co., the sole counterparty on all
such contracts, to perform. The Partnership has a netting
agreement with MS & Co. This agreement, which seeks to reduce
both the Partnership?s and MS & Co.?s exposure on off-exchange-
traded forward currency contracts, should materially decrease the
Partnership?s credit risk in the event of MS & Co.?s bankruptcy
or insolvency.
Item 2. MANAGEMENT?S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity. The Partnership deposits its assets with Morgan Stanley
DW as non-clearing broker, and MS & Co. and MSIL as clearing
brokers in separate futures, forwards, 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 fluctuations limits? or ?daily limits?.
Trades may not be executed at prices beyond the daily limit. If
the price for a particular futures or options contract has
increased or decreased by an amount equal to the daily limit,
positions in that futures or options contract can neither be taken
nor liquidated unless traders are willing to effect trades at or
within the limit. Futures prices have occasionally moved the daily
limit for several consecutive days with little or no
trading. These market conditions could prevent the Partnership
from promptly liquidating its futures or options contracts and
result in restrictions on redemptions.
There is no limitation on daily price moves in trading forward
contracts on foreign currencies. The markets for some world
currencies have low trading volume and are illiquid, which may
prevent the Partnership from trading in potentially profitable
markets or prevent the Partnership from promptly liquidating
unfavorable positions in such markets, subjecting it to substantial
losses. Either of these market conditions could result in
restrictions on redemptions. For the periods covered by this
report, illiquidity has not materially affected the Partnership?s
assets.
There are no known material trends, demands, commitments, events,
or uncertainties at the present time that are reasonably likely to
result in the Partnership?s liquidity increasing or decreasing in
any material way.
Capital Resources. The Partnership does not have, nor expects to
have, any capital assets. Redemptions, exchanges, and sales of
units of limited partnership interest (?Unit(s)?) in the future
will affect the amount of funds available for investments in
futures, forwards, and options in subsequent periods. It is not
possible to estimate the amount, and therefore the impact,
of future inflows and outflows of Units.
There are no known material trends, favorable or unfavorable, that
would affect, nor any expected material changes to, the
Partnership?s capital resource arrangements at the present time.
Off-Balance Sheet Arrangements and Contractual Obligations. The
Partnership does not have any off-balance sheet arrangements, nor
does it have contractual obligations or commercial commitments to
make future payments that would affect its liquidity or capital
resources.
Results of Operations
General. The Partnership?s results depend on the Trading Advisor
and the ability of the Trading Advisor?s trading programs to take
advantage of price movements in the futures, forwards, and options
markets. The following presents a summary of the Partnership?s
operations for the three and nine month periods ended September 30,
2005 and 2004 and a general discussion of its trading activities
during each period. It is important to note, however, that the
Trading Advisor trades in various markets at different times and
that prior activity in a particular market does not mean that such
market will be actively traded by the Trading Advisor or will be
profitable in the future. Consequently, the results of operations
of the Partnership are difficult to discuss other than
in
the context of the Trading Advisor?s trading activities on behalf
of the Partnership during the period in question. Past performance
is no guarantee of future results.
The Partnership?s results of operations set forth in the
financial statements on pages 2 through 12 of this report are
prepared in accordance with accounting principles generally
accepted in the United States of America, which require the use
of certain accounting policies that affect the amounts reported
in these financial statements, including the following: The
contracts the Partnership trades are accounted for on a trade-
date basis and marked to market on a daily basis. The difference
between their cost and market value is recorded on the Statements
of Operations as ?Net change in unrealized trading profit (loss)?
for open (unrealized) contracts, and recorded as ?Realized
trading profit (loss)? when open positions are closed out. The
sum of these amounts constitutes the Partnership?s trading
results. The market value of a futures contract is the
settlement price on the exchange on which that futures contract
is traded on a particular day. The value of foreign currency
forward contracts is based on the spot rate as of the close of
business. Interest income, as well as management fees, incentive
fees, and brokerage fees expenses of the Partnership are recorded
on an accrual basis.
Demeter 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.
For the Three and Nine Months Ended September 30, 2005
The Partnership recorded total trading results including interest
income totaling $16,414,886 and expenses totaling $8,611,515,
resulting in net income of $7,803,371 for the three months ended
September 30, 2005. The Partnership?s net asset value per Unit
increased from $18.55 at June 30, 2005 to $18.88 at September 30,
2005.
The most significant trading gains of approximately 10.0% were
recorded in the global stock index futures markets, primarily
during July and September from long positions in Japanese and
European equity index futures. During July, long positions
benefited as prices increased on positive economic data out of
the U.S. and Japan. Prices continued to strengthen after China
reformed its U.S. dollar currency peg policy, leading market
participants to conclude that a revaluation in the Chinese yuan
would likely ease trade tensions between China, the U.S, Europe,
and Japan. Finally, strong corporate earnings out of the
European Union and the U.S. resulted in optimistic investor
sentiment and pushed prices higher. During September, long
positions in Japanese stock index futures experienced gains as
prices moved sharply higher on positive comments from Bank
of Japan Governor Toshihiko Fukui, who said the Japanese economy
was in the process of emerging from a soft patch as demonstrated
by rising production, improving business sentiment, and a
sustained upturn in consumer spending. Additional sector gains
in September resulted from long positions in European stock index
futures as oil prices declined and investors embraced signs that
the global economy could move forward despite Hurricane Katrina's
devastation of the U.S. Gulf Coast. In the energy markets, gains
of approximately 5.2% were recorded during August from long
futures positions in natural gas, unleaded gasoline, and crude
oil as prices climbed higher throughout the month on supply and
demand concerns. After Hurricane Katrina struck the Gulf of
Mexico, prices advanced further to touch record highs amid
concern for heavily damaged, or even possibly destroyed,
refineries and production facilities. Smaller gains of
approximately 0.4% were experienced in the metals markets, from
long positions in copper as prices trended higher throughout the
quarter amid consistent strong demand from China. A portion of
the Partnership?s overall gains for the quarter was offset by
losses of approximately 9.4% in the global interest rate futures
markets from both long and short positions in the U.S. and
European fixed-income futures as prices moved without consistent
direction amid conflicting economic data, uncertainty regarding
the future interest rate policy of the U.S. and the European
Union and volatility in energy prices. Additional losses of
approximately 2.9% were recorded within the currency
markets during August from short positions in the euro versus the
U.S. dollar, British pound, Japanese yen, and the Australian
dollar as the value of the euro advanced against its major rivals
in response to strong signals of euro-zone economic improvement
and enthusiasm for a positive reading of an index of business
confidence in Germany, which had previously risen for two
consecutive months. Elsewhere in the currency markets, losses
were recorded during July and August from short positions in the
South African rand against the U.S. dollar as the value of the
South African rand moved higher on strong economic data out of
South Africa. Finally, losses were recorded from long positions
in the British pound against the Swiss franc during July as the
value of the pound dropped against all its major rivals on
geopolitical concerns after a terror attack on the London public
transportation system.
The Partnership recorded total trading results including interest
income totaling $(44,946,168) and expenses totaling $26,799,447,
resulting in a net loss of $71,745,615 for the nine months ended
September 30, 2005. The Partnership?s net asset value per Unit
decreased from $22.16 at December 31, 2004 to $18.88 at September
30, 2005.
The most significant trading losses of approximately 7.4% were
recorded in the currency markets from positions in the euro
relative to the Japanese yen, the U.S. dollar, and the
British pound. During January, long positions in the euro versus
most of its rivals incurred losses as the value of the euro
reversed sharply lower in what many analysts described as a
?corrective? move after its strong upward trend during the
fourth quarter of 2004. This decline in the value of the euro
was attributed to weak economic data out of the European Union.
Further losses were recorded during January from positions in the
euro against the Japanese yen and British pound as the value of
the euro moved erratically against these currencies. Additional
losses were incurred during August from short positions in the
euro versus the U.S. dollar, British pound, and Japanese yen as
the value of the euro advanced against its major rivals in
response to strong signals of euro-zone economic improvement and
enthusiasm for a positive reading of an index of business
confidence in Germany, which had previously risen for two
consecutive months. Elsewhere in the currency markets, losses
resulted from positions in the South African rand, New Zealand
dollar, and Australian dollar relative to the U.S dollar
primarily during January, as the value of the U.S. dollar moved
erratically amid speculation that U.S. interest rates were likely
to continue to rise on fears that the revaluation of the Chinese
yuan was farther away than expected. Additional losses of
approximately 6.7% were incurred in the global interest rate
futures markets during February from long positions in long-term
U.S. and European interest rate futures as prices declined in
response to strong global economic data and congressional
testimony by U.S. Federal Reserve Chairman Alan Greenspan, which
supported Wall Street expectations for additional interest rate
hikes. In April, further losses were recorded from short
positions in U.S. interest rate futures as prices reversed higher
in a ?flight-to-quality? amid weakness in the equity markets
due to concerns for the sustainability of a healthy global
economy. Finally, losses were experienced throughout the third
quarter from both long and short positions in the U.S. and
European fixed-income futures as prices moved without consistent
direction amid conflicting economic data, uncertainty regarding
the future interest rate policy of the U.S. and the European
Union, and volatility in energy prices. Additional losses of
approximately 1.4% were incurred in the agricultural complex
primarily during April from long futures positions in wheat as
prices fell in response to favorable weather in growing regions,
improved crop conditions, and reduced foreign demand. Elsewhere
in the agricultural complex, losses were incurred from long
positions in cotton futures during May as prices declined on news
of weak demand in China and technically-based selling. Smaller
losses were experienced from positions in soybean meal futures as
prices moved in a trendless pattern through a majority of the
year. Within the metals markets, losses of approximately 0.9%
were recorded during January and April from long positions in
aluminum futures as prices weakened on renewed strength in the
U.S. dollar, lower equity prices, and news of a drop in Chinese
demand. Then in July, additional losses were incurred
from short positions in aluminum as prices reversed higher.
Further losses in the metals markets were experienced during
April and June from both long and short positions in gold futures
amid significant volatility in market prices. A portion of these
losses for the first nine months of the year was offset by gains
of approximately 3.6% recorded in the global stock index futures
markets during February from long positions in European and
Japanese equity index futures as equity prices moved higher early
in the month amid the successful elections in Iraq and lower-
than-expected unemployment data out of the U.S. Equity prices in
Japan were also pressured higher when positive economic data
painted a brighter picture of the Far East Region?s economy. In
June, further gains were recorded from long positions in European
equity index futures as prices rallied on the perception that
weakness in the euro could stimulate the European economy by
making exports more attractive to foreign buyers. Prices were
also bolstered by strong economic data out of the U.S. and news
of a trade deal between the European Union and China that would
avoid tariffs and manage the growth of Chinese textile imports to
Europe through the end of 2008. Finally, gains were recorded
during July and September from long positions in Japanese and
European equity index futures. During July, long positions
benefited as prices increased on positive economic data out of
the U.S. and Japan. Prices continued to strengthen after China
reformed its U.S. dollar currency peg policy, leading market
participants to conclude that a revaluation in the Chinese
yuan would likely ease trade tensions between China, the U.S,
Europe, and Japan. Finally, strong corporate earnings out of the
European Union and the U.S. resulted in optimistic investor
sentiment and pushed prices higher. Then in September, long
positions in Japanese stock index futures experienced gains as
prices moved sharply higher on positive comments from Bank of
Japan Governor Toshihiko Fukui, who said the Japanese economy was
in the process of emerging from a soft patch as demonstrated by
rising production, improving business sentiment and a sustained
upturn in consumer spending. Additional sector gains resulted
from long positions in European stock index futures as oil prices
declined and investors embraced signs that the global economy
could move forward despite Hurricane Katrina's devastation of the
U.S. Gulf Coast. Additional gains of approximately 0.7% were
recorded in the energy markets, primarily during August from long
positions in natural gas as prices climbed higher throughout the
month on supply and demand concerns. After Hurricane Katrina
struck the Gulf of Mexico, prices advanced further to touch
record highs amid concern for heavily damaged, or even possibly
destroyed, refineries and production facilities. Smaller gains
resulted from long futures positions in unleaded gasoline as
prices also moved higher during August.
For the Three and Nine Months Ended September 30, 2004
The Partnership recorded total trading results including interest
income totaling $(3,400,064) and expenses totaling $7,311,980,
resulting in a net loss of $10,712,044 for the three
months ended September 30, 2004. The Partnership?s net asset
value per Unit decreased from $19.50 at June 30, 2004 to $18.89
at September 30, 2004.
The most significant trading losses of approximately 4.4% were
experienced in the global stock index futures markets as equity
prices moved without consistent direction throughout the quarter.
During July, losses were incurred from long positions in European
and U.S. equity index futures as prices reversed lower early in
the month due to the release of disappointing U.S. employment
data, surging energy prices, and government warnings concerning
potential terrorist attacks. Further losses were recorded from
newly established short positions late in the month as U.S.
equity prices reversed higher due to a better-than-expected
consumer confidence report and the release of strong earnings in
Great Britain, France, and Germany. Within August, these short
positions resulted in further losses as prices moved higher
during the second half of the month due to energy prices falling
from all-time highs and better-than-expected U.S. economic data
concerning Gross Domestic Product and consumer sentiment.
Finally, during September, losses were incurred from newly
established long positions in European equity index futures as
rising energy prices, conflicting economic data, and weak
corporate earnings data pulled prices lower. Additional losses
resulted from short positions in Nasdaq 100 Index futures in the
first half of the month as prices drifted higher after
better-than-expected earnings. Additional losses of
approximately 2.5% were incurred in the currency markets during
July and September from positions in the Australian dollar versus
the euro and the Japanese yen as the value of the Australian
dollar moved without consistent direction due to volatility in
gold prices, geopolitical concerns regarding terror warnings in
the Pacific Rim, and the decision by the Reserve Bank of
Australia to raise interest rates. Elsewhere in the currency
markets, losses were recorded during August from long positions
in the South African rand relative to the U.S. dollar as the
value of the rand reversed lower due to a reduction in interest
rates by the Reserve Bank of South Africa. Finally, losses were
experienced during July and August from long positions in the
British pound against the U.S. dollar as the value of the pound
moved lower against most of its rivals. A portion of the
Partnership?s overall losses for the quarter was offset by gains
of approximately 2.5% recorded in the energy markets, primarily
during July and September, from long positions in crude oil as
prices strengthened due to continuing fears about potential
terrorist attacks against the production and refining facilities
in Saudi Arabia and Iraq, concerns that top Russian oil producer,
Yukos, may break up or stop selling oil, major disruptions in oil
production in the Gulf of Mexico due to Hurricane Ivan, and
growing civil unrest in Nigeria. Additional gains of
approximately 1.9% were recorded in the global interest rate
futures markets, primarily during August and September,
from long positions in European interest rate futures as prices
trended higher, boosted by a surge in oil prices, uncertainty in
the global equity markets, and testimony by the U.S. Federal
Reserve Chairman Alan Greenspan depicting a somewhat less
optimistic view about the immediate future of the U.S. economy.
Smaller gains of approximately 1.0% were experienced in the
agricultural markets during July and September from short
positions in corn and wheat futures as prices weakened due to
ideal weather conditions in the growing region of the U.S.
Midwest, reports of increased inventories by the U.S. Department
of Agriculture, and weak export demand.
The Partnership recorded total trading results including
interest income totaling $(28,331,323) and expenses totaling
$25,991,912, resulting in a net loss of $54,323,235 for the nine
months ended September 30, 2004. The Partnership?s net asset
value per Unit decreased from $21.88 at December 31, 2003 to
$18.89 at September 30, 2004.
The most significant trading losses of approximately 8.3% were
experienced in the currency markets from positions in the
Japanese yen versus the U.S. dollar and the euro, primarily in
the first and second quarters. Losses were incurred from both
long and short positions in the Japanese yen as the value of the
yen experienced short-term price volatility due to
conflicting economic data regarding a Japanese economic recovery,
uncertainty regarding currency market intervention by the Bank of
Japan, geopolitical concerns stemming from terror warnings and
instability in Iraq, and speculation regarding the direction of
U.S. and Japanese interest rates. Elsewhere in the currency
markets, losses were incurred from positions in the euro, South
African rand, and British pound relative to the U.S. dollar as
these currencies moved without consistent direction throughout a
majority of the year. In the third quarter, however, volatility
in the Australian dollar was responsible for losses in the
euro/Australian dollar cross-rate position as the value of the
Australian dollar experienced significant ?whipsawing? due to
volatility in gold prices, geopolitical concerns regarding terror
warnings in the Pacific Rim, and the decision by the Reserve Bank
of Australia to raise interest rates. Finally, losses were
incurred primarily during July from long positions in the Swiss
franc against the U.S. dollar as the value of the franc reversed
lower. Additional losses of approximately 5.6% were generated in
the global stock index futures markets, during March, May, July,
August, and September, from positions in European and U.S. equity
index futures as prices moved without consistent direction due to
conflicting economic data, volatility in energy prices, and
significant geopolitical concerns. A portion of the
Partnership?s overall losses for the first nine months of the
year was offset by gains of approximately 4.6% in the energy
markets. During February, April, May, July, and
September, long positions in crude oil profited as prices trended
higher due to consistent news of tight supply, continuing
geopolitical concerns in the Middle East, concerns that top
Russian oil producer, Yukos, may break up or stop selling oil,
major disruptions in oil production in the Gulf of Mexico due to
Hurricane Ivan, and growing civil unrest in Nigeria. Additional
gains of approximately 1.8% were experienced in the agricultural
markets during January, March, and June from long positions in
corn futures as prices increased on news of strong demand from
Asia. Further gains were experienced during July and August from
short positions in corn futures as prices weakened due to ideal
weather conditions in the growing regions of the U.S. Midwest,
reports of increased inventories by the U.S. Department of
Agriculture, and weaker export demand. Elsewhere in the
agricultural complex, gains were recorded from short positions in
cotton futures, primarily during March, April, June, and July, as
prices trended lower amid rising supplies and news of a
consistent decline in demand from China. Smaller gains of
approximately 1.1% were generated in the metals markets,
primarily during the first quarter, from long futures positions
in copper and aluminum as industrial metals prices trended higher
in response to greater demand from Asia driven by a declining
U.S. dollar.
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 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, forwards, and options are settled daily through
variation margin. Gains and losses on off-exchange-traded forward
currency contracts are settled upon termination of the contract,
however, the Partnership is required to meet margin requirements
equal to the net unrealized loss on open contracts in the
Partnership accounts with the counterparty, which is accomplished
by daily maintenance of the cash balance in a custody
account held at Morgan Stanley DW 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 to typically be many times the total
capitalization of the Partnership.
The Partnership?s past performance is no guarantee of its future
results. Any attempt to numerically quantify the Partnership?s
market risk is limited by the uncertainty of its speculative
trading. The Partnership?s speculative trading and use of
leverage may cause future losses and volatility (i.e., ?risk of
ruin?) that far exceed the Partnership?s experience to date
under the ?Partnership?s Value at Risk in Different Market
Sectors? section and significantly exceed the Value at Risk
(?VaR?) tables disclosed.
Limited partners will not be liable for losses exceeding
the current net asset value of their investment.
Quantifying the Partnership?s Trading Value at Risk
The following quantitative disclosures regarding the Partnership?s
market risk exposures contain ?forward-looking statements? within
the meaning of the safe harbor from civil liability provided for
such statements by the Private Securities Litigation Reform Act of
1995 (set forth in Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934). All
quantitative disclosures in this section are deemed to be forward-
looking statements for purposes of the safe harbor, except for
statements of historical fact.
The Partnership accounts for open positions on the basis of mark to
market accounting principles. Any loss in the market value of the
Partnership?s open positions is directly reflected in the
Partnership?s earnings and cash flow.
The Partnership?s risk exposure in the market sectors traded by
the Trading Advisor is estimated below in terms of VaR. The
Partnership estimates VaR using a model based upon historical
simulation (with a confidence level of 99%) which involves
constructing a distribution of hypothetical daily changes in the
value of a trading portfolio. The VaR model takes into account
linear exposures to risks including equity and commodity prices,
interest rates, foreign exchange rates, and correlation
among these variables. The hypothetical changes in portfolio
value are based on daily percentage changes observed in key
market indices or other market factors (?market risk factors?) to
which the portfolio is sensitive. The one-day 99% confidence
level of the Partnership?s VaR corresponds to the negative change
in portfolio value that, based on observed market risk factors,
would have been exceeded once in 100 trading days, or one day in
100. VaR typically does not represent the worst case outcome.
Demeter uses approximately four years of daily market data (1,000
observations) and revalues its portfolio (using delta-gamma
approximations) for each of the historical market moves that
occurred over this time period. This generates a probability
distribution of daily ?simulated profit and loss? outcomes. The
VaR is the appropriate percentile of this distribution. For
example, the 99% one-day VaR would represent the 10th worst
outcome from Demeter?s simulated profit and loss series.
The Partnership?s VaR computations are based on the risk
representation of the underlying benchmark for each instrument or
contract and do not distinguish between exchange and non-exchange
dealer-based instruments. They are also not based on exchange
and/or dealer-based maintenance margin requirements.
VaR models, including the Partnership?s, are continually
evolving as trading portfolios become more diverse and modeling
techniques and systems capabilities improve. Please note that
the VaR model is used to numerically quantify market risk for
historic reporting purposes only and is not utilized by either
Demeter or the Trading Advisor in their daily risk management
activities. Please further note that VaR as described above may
not be comparable to similarly titled measures used by other
entities.
The Partnership?s Value at Risk in Different Market Sectors
The following table indicates the VaR associated with the
Partnership?s open positions as a percentage of total Net Assets
by primary market risk category at September 30, 2005 and 2004.
At September 30, 2005 and 2004, the Partnership?s total
capitalization was approximately $443 million and $376 million,
respectively.
Primary Market September 30, 2005 September 30, 2004
Risk Category Value at Risk Value at Risk
Equity (2.35)% (0.58)%
Currency (0.98) (0.81)
Interest Rate (0.09) (5.72)
Commodity (0.61) (1.10)
Aggregate Value at Risk (2.83)% (5.80)%
The VaR for a market category represents the one-day
downside risk for the aggregate exposures associated with this
market category. The Aggregate Value at Risk listed above
represents the VaR of the Partnership?s open positions across all
the market categories, and is less than the sum of the VaRs for all
such market categories due to the diversification benefit across
asset classes.
Because the business of the Partnership is the speculative
trading of futures, forwards, and options, the composition of its
trading portfolio can change significantly over any given time
period, or even within a single trading day, which could
positively or negatively materially impact market risk as
measured by VaR.
The table below supplements the quarter-end VaR set forth above
by presenting the Partnership?s high, low, and average VaR, as a
percentage of total Net Assets for the four quarter-end reporting
periods from October 1, 2004 through September 30, 2005.
Primary Market Risk Category High Low Average
Equity (5.24)% (2.35)% (3.90)%
Currency (3.57) (0.45) (1.73)
Interest Rate (5.24) (0.09) (2.06)
Commodity (1.38) (0.23) (0.70)
Aggregate Value at Risk (5.39)% (2.83)% (4.63)%
Limitations on Value at Risk as an Assessment of Market Risk
VaR models permit estimation of a portfolio?s aggregate market risk
exposure, incorporating a range of varied market risks; reflect
risk reduction due to portfolio diversification or hedging
activities; and can cover a wide range of portfolio assets.
However, VaR risk measures should be viewed in light of the
methodology?s limitations, which include, but may not be limited to
the following:
* past changes in market risk factors will not always result in
accurate predictions of the distributions and correlations of
future market movements;
* changes in portfolio value caused by market movements may differ
from those of the VaR model;
* VaR results reflect past market fluctuations applied to current
trading positions while future risk depends on future positions;
* VaR using a one-day time horizon does not fully capture the
market risk of positions that cannot be liquidated or hedged
within one day; and
* the historical market risk factor data used for VaR estimation
may provide only limited insight into losses that could be
incurred under certain unusual market movements.
In addition, the VaR tables above, as well as the past performance
of the Partnership, give no indication of the Partnership?s
potential ?risk of ruin?.
The VaR tables provided present the results of the Partnership?s
VaR for each of the Partnership?s market risk exposures and on an
aggregate basis at September 30, 2005, and for the four quarter-end
reporting periods from October 1, 2004 through September 30, 2005.
VaR is not necessarily representative of the Partnership?s historic
risk, nor should it be used to predict the Partnership?s future
financial performance or its ability to manage or monitor risk.
There can be no assurance that the Partnership?s actual losses on a
particular day will not exceed the VaR amounts indicated above or
that such losses will not occur more than once in 100 trading days.
Non-Trading Risk
The Partnership has non-trading market risk on its foreign cash
balances. These balances and any market risk they may represent
are immaterial.
The Partnership also maintains a substantial portion of its
available assets in cash at Morgan Stanley DW; as of September
30, 2005, such amount is equal to approximately 90% 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
Demeter and the Trading Advisor for managing such exposures, are
subject to numerous uncertainties, contingencies and risks, any
one of which could cause the actual results of the Partnership?s
risk controls to differ materially from the objectives of such
strategies. Government interventions, defaults and
expropriations, illiquid markets, the emergence of dominant
fundamental factors, political
upheavals, changes in
historical price relationships, an influx of new market
participants, increased regulation, and many other factors could
result in material losses, as well as in material changes to the
risk exposures and the risk management strategies of the
Partnership. Investors must be prepared to lose all or
substantially all of their investment in the Partnership.
The following were the primary trading risk exposures of the
Partnership at September 30, 2005, by market sector. It may be
anticipated, however, that these market exposures will vary
materially over time.
Equity. The largest market exposure of the Partnership at
September 30, 2005 was to the global stock index sector,
primarily to equity price risk in the G-7 countries. The G-7
countries consist of France, the U.S., Britain, Germany, Japan,
Italy, and Canada. The stock index futures traded by the
Partnership are by law limited to futures on broadly-based
indices. The Partnership?s primary market exposures were to the
DAX (Germany), CAC 40 (France), NASDAQ 100 (U.S.), S&P 500
(U.S.), Euro Stoxx 50 (Europe), Hang Seng (China), IBEX 35
(Spain), FTSE 100 (United Kingdom), Nikkei 225 (Japan), TOPIX
(Japan), Dow Jones (U.S.), and RUSSELL 2000 (U.S.) stock indices.
The Partnership is exposed to the risk of adverse price trends or
static markets in the European, the U.S., Chinese, and Japanese
stock indices. Static markets would not cause major market
changes, but would make it difficult for the Partnership to avoid
trendless price movements, resulting in numerous small losses.
Currency. The second largest market exposure of the Partnership
at September 30, 2005 was to the currency sector. The
Partnership?s currency exposure is to exchange rate fluctuations,
primarily fluctuations which disrupt the historical pricing
relationships between different currencies and currency pairs.
Interest rate changes, as well as political and general economic
conditions influence these fluctuations. The Partnership trades
a number of currencies, including cross-rates - i.e., positions
between two currencies other than the U.S. dollar. At September
30, 2005, the Partnership?s major exposures were to the euro,
Canadian dollar, Australian dollar, Japanese yen, Swiss franc,
and British pound currency crosses, as well as to outright U.S.
dollar positions. Outright positions consist of the U.S. dollar
vs. other currencies. These other currencies include major and
minor currencies. Demeter does not anticipate that the risk
associated with the Partnership?s currency trades will change
significantly in the future.
Interest Rate. At September 30, 2005 the Partnership had
exposure to the global interest rate sector. Exposure was
primarily spread across the European, U.S., Australian, and
Japanese interest rate sectors. Interest rate movements directly
affect the price of the sovereign bond futures positions held by
the Partnership and indirectly affect the value of its
stock index and currency positions. Interest rate movements in
one country, as well as relative interest rate movements between
countries, materially impact the Partnership?s profitability. The
Partnership?s interest rate exposure is generally to interest
rate fluctuations in the U.S. and the other G-7 countries.
However, the Partnership also takes futures positions in the
government debt of smaller nations - e.g., Australia. Demeter
anticipates that the G-7 countries and Australian interest rates
will remain the primary interest rate exposure of the Partnership
for the foreseeable future. The speculative futures positions
held by the Partnership may range from short to long-term
instruments. Consequently, changes in short, medium, or long-
term interest rates may have an effect on the Partnership.
Commodity.
Soft Commodities and Agriculturals. At September 30, 2005,
the third largest market exposure of the Partnership was to
the markets that comprise these sectors. Most of the
exposure was to the sugar, corn, coffee, wheat, and cocoa
markets. Supply and demand inequalities, severe weather
disruptions, and market expectations affect price movements
in these markets.
Metals. At September 30, 2005, the Partnership had market
exposure in the metals sector. The Partnership?s metals
exposure was to fluctuations in the price of base
metals, such as copper, zinc, nickel, and aluminum. The
Partnership also had exposure to precious metals, such as
gold. Economic forces, supply and demand inequalities,
geopolitical factors, and market expectations influence
price movements in these markets. The Trading Advisor
utilizes the trading system(s) to take positions when market
opportunities develop, and Demeter anticipates that the
Partnership will continue to do so.
Energy. At September 30, 2005, the Partnership had market
exposure in the energy sector. The Partnership?s energy
exposure was shared primarily by futures contracts in crude
oil and its related products. Price movements in these
markets result from geopolitical developments, particularly
in the Middle East, as well as weather patterns and other
economic fundamentals. Significant profits and losses, which
have been experienced in the past, are expected to continue
to be experienced in the future. Natural gas has exhibited
volatility in prices resulting from weather patterns and
supply and demand factors and will likely continue in this
choppy pattern.
Qualitative Disclosures Regarding Non-Trading Risk Exposure
The following was the only non-trading risk exposure of the
Partnership at September 30, 2005:
Foreign Currency Balances. The Partnership?s primary foreign
currency balances at September 30, 2005 were in euros,
Australian dollars, Canadian dollars, Japanese yen, Hong
Kong dollars, British pounds, Swiss francs, and Swedish
kronas. The Partnership controls the non-trading risk of
foreign currency balances by regularly converting them back
into U.S. dollars upon liquidation of their respective
positions.
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. Demeter attempts
to manage market exposure by diversifying the Partnership?s assets
among different market sectors and trading approaches, and by
monitoring the performance of the Trading Advisor daily. 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.
Demeter monitors and controls the risk of the Partnership?s non-
trading instrument, cash. Cash is the only Partnership
investment directed by Demeter, rather than the Trading Advisor.
Item 4. CONTROLS AND PROCEDURES
(a) As of the end of the period covered by this quarterly
report, the President and Chief Financial Officer of
Demeter, the general partner of the Partnership, have
evaluated the effectiveness of the Partnership?s disclosure
controls and procedures (as defined in Rules 13a?15(e) and
15d?15(e) of the Exchange Act), and have judged such
controls and procedures to be effective.
(b) There have been no material changes during the period
covered by this quarterly report in the Partnership?s
internal control over financial reporting (as defined in
Rules 13a-15(f) and 15d-15(f) of the Exchange Act) or in
other factors that could significantly affect these controls
subsequent to the date of their evaluation.
PART II. OTHER INFORMATION
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
SEC
Registration Statement on Form S-1 Units Registered Effective Date
File Number
Initial Registration 3,000,000.000 November 6, 1998 333-60115
Additional Registration 6,000,000.000 March 27, 2000 333-91563
Additional Registration 2,000,000.000 July 29, 2002 333-85076
Additional Registration 9,000,000.000 February 26, 2003 333-103166
Additional Registration 30,000,000.000 April 28, 2004 333-113876
Total Units Registered 50,000,000.000
Units sold through 9/30/05 30,471,281.350
Units unsold through 9/30/05 19,528,718.650
The managing underwriter for the Partnership is Morgan Stanley
DW.
Units are continuously sold at monthly closings at a purchase
price equal to 100% of the net asset value per Unit as of the
close of business on the last day of each month.
The aggregate price of the Units sold through September 30, 2005
was $566,453,947.
Since no expenses are chargeable against the proceeds, 100% of the
proceeds of the offering have been applied to the working capital
of the Partnership for use in accordance with the ?Use of
Proceeds? section of the prospectus included as part of the above
referenced Registration Statements.
Item 6. EXHIBITS
10.05(a) Amendment No. 1 to the Amended and Restated Customer
Agreement between the Partnership and Morgan Stanley DW
Inc., dated as of July 31, 2003, is filed herewith.
31.01 Certification of President of Demeter Management
Corporation, 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 Demeter
Management Corporation, the general partner of the
Partnership pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
32.01 Certification of President of Demeter Management
Corporation, 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 Demeter
Management Corporation, 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.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
Morgan Stanley Charter Graham L.P.
(Registrant)
By: Demeter Management Corporation
(General Partner)
November 14, 2005 By: /s/ Kevin Perry
Kevin Perry
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.
Dates Referenced Herein and Documents Incorporated by Reference
4 Subsequent Filings that Reference this Filing
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