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, 2010 or





o           TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the transition period from __________________to__________________





Commission File Number: 0-25603





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





Delaware

13-4018068(State or other jurisdiction of

corporation or organization)

(I.R.S. Employer

Identification No.)Demeter Management LLC522 Fifth Avenue, 14th FloorNew York, NY

10036(Address of principal executive offices)

(Zip Code)





Registrant’s telephone number, including area code

(212) 296-1999





Morgan Stanley Smith Barney Charter Graham L.P.
 522 Fifth Avenue, 13th Floor, New York, NY 10036


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





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





Yes x No o





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


Yes o  No o


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.





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





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

















MANAGED FUTURES CHARTER GRAHAM L.P.


(formerly, Morgan Stanley Smith Barney Charter Graham L.P.)


INDEX TO QUARTERLY REPORT ON FORM 10-Q





September 30, 2010











PART I. FINANCIAL INFORMATIONItem 1.
Financial Statements (Unaudited)Statements of Financial Condition as of September 30, 2010 and December 31, 2009
2Statements of Operations for the Three and Nine Months Ended September 30, 2010 and 2009
3Statements of Changes in Partners’ Capital for the Nine Months Ended September 30, 2010 and 2009
4Condensed Schedules of Investments as of September 30, 2010 and December 31, 2009
5Notes to Financial Statements
6-23Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
24-36Item 3.
Quantitative and Qualitative Disclosures About Market Risk
36-48Item 4.
Controls and Procedures
48-49PART II. OTHER INFORMATIONItem 1A.
Risk Factors
50Item 2.
Unregistered Sales of Securities and Use of Proceeds
50Item 6.
Exhibits
50











PART I.  FINANCIAL INFORMATION


Item 1.  Financial Statements





MANAGED FUTURES CHARTER GRAHAM L.P.


(formerly, Morgan Stanley Smith Barney Charter Graham L.P.)


STATEMENTS OF FINANCIAL CONDITION


(Unaudited)


September 30,

December 31,2010

2009ASSETS
$

$Trading Equity:Unrestricted cash
301,692,685

371,818,291Restricted cash
35,335,500

32,234,772Total cash
337,028,185

404,053,063Net unrealized gain on open contracts (MS&Co.)
10,320,196

2,122,029Net unrealized gain on open contracts (MSIP)
1,764,429

3,799,477Total net unrealized gain on open contracts
12,084,625

5,921,506Total Trading Equity
349,112,810

409,974,569Subscriptions receivable
2,026,779

—Interest receivable (MSSB)
28,232

4,329Total Assets
351,167,821

409,978,898LIABILITIES AND PARTNERS’ CAPITALLiabilitiesRedemptions payable
5,019,031

7,234,689Accrued brokerage fees (MS&Co.)
1,727,613

2,126,799Accrued management fees
575,871

708,933Total Liabilities
7,322,515

10,070,421Partners’ CapitalLimited Partners (12,383,363.255 and 13,699,445.230 Units, respectively)
340,358,608

395,815,421General Partner (126,857.501 and 141,663.501 Units, respectively)
3,486,698

4,093,056Total Partners’ Capital
343,845,306

399,908,477Total Liabilities and Partners’ Capital
351,167,821

409,978,898NET ASSET VALUE PER UNIT
27.49

28.89














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





- 2 -





MANAGED FUTURES CHARTER GRAHAM L.P.


(formerly, Morgan Stanley Smith Barney Charter Graham L.P.)


STATEMENTS OF OPERATIONS


(Unaudited)








For the Three Months

Ended September  30,

For the Nine Months

Ended September 30,2010

2009

2010

2009$

$

$

$INVESTMENT INCOMEInterest income (MSSB)
112,217

102,987

254,015

361,792EXPENSESBrokerage fees (MS&Co.)
5,168,919

6,119,954

16,281,971

20,187,346Management fees
1,722,974

2,039,985

5,427,325

6,729,116Incentive fee
–

–

–

1,873,519Total Expenses
6,891,893

8,159,939

21,709,296

28,789,981NET INVESTMENT LOSS
(6,779,676)

(8,056,952)

(21,455,281)

(28,428,189)TRADING RESULTSTrading profit (loss):Realized
(319,563)

32,979,440

(4,699,010)

22,658,302Net change in unrealized
13,891,922

12,661,527

6,163,119

8,644,45713,572,359

45,640,967

1,464,109

31,302,759Proceeds from Litigation Settlement
20,678

–

20,678

–Total Trading Results
13,593,037

45,640,967

1,484,787

31,302,759NET INCOME (LOSS)
6,813,361

37,584,015

(19,970,494)

2,874,570NET INCOME (LOSS) ALLOCATIONLimited Partners
6,743,480

37,204,193

(19,765,804)

2,847,407General Partner
69,881

379,822

(204,690)

27,163NET INCOME (LOSS) PER UNIT *Limited Partners
0.54

2.56

(1.40)

0.18General Partner
0.54

2.56

(1.40)

0.18Units

Units

Units

UnitsWEIGHTED AVERAGE NUMBER  OF UNITS OUTSTANDING
12,794,984.173

14,683,874.839

13,276,845.273

15,693,691.289





* Based on change in Net Asset Value per Unit.








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





– 3 –





MANAGED FUTURES CHARTER GRAHAM L.P.


(formerly, Morgan Stanley Smith Barney Charter Graham L.P.)


STATEMENTS OF CHANGES IN PARTNERS’ CAPITAL


For the Nine Months Ended September 30, 2010 and 2009


(Unaudited)











Units ofPartnership

Limited

GeneralInterest

Partners

Partner

Total$

$

$Partners’ Capital,December 31, 2009
13,841,108.731

395,815,421

4,093,056

399,908,477Subscriptions
73,727.879

2,026,779

–

2,026,779Net Loss
–

(19,765,804)

(204,690)

(19,970,494)Redemptions
(1,404,615.854)

(37,717,788)

(401,668)

(38,119,456)Partners’ Capital,September 30, 2010
12,510,220.756

340,358,608

3,486,698

343,845,306Partners’ Capital,December 31, 2008
18,009,881.252

519,261,648

5,276,301

524,537,949Net Income
–

2,847,407

27,163

2,874,570Redemptions
(3,627,411.648)

(102,498,683)

(1,042,565)

(103,541,248)Partners’ Capital,September 30, 2009
14,382,469.604

419,610,372

4,260,899

423,871,271
























































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





- 4 -





MANAGED FUTURES CHARTER GRAHAM L.P.


(formerly, Morgan Stanley Smith Barney Charter Graham L.P.)


CONDENSED SCHEDULES OF INVESTMENTS


September 30, 2010 and December 31, 2009 (Unaudited)











Futures and Forward Contracts
Long Unrealized

Gain/(Loss)
Percentage of

Net Assets
Short  Unrealized

Loss

Percentage of

Net Assets

Net Unrealized

Gain/(Loss)$
%
$

%

$September 30, 2010, Partnership Partners’ Capital: $343,845,306Commodity
8,895,290
2.59
(4,259,403)

(1.24)

4,635,887Equity
(510,842)
(0.15)
(11,494)

–

(522,336)Foreign currency
6,875,443
2.00
(594,559)

(0.17)

6,280,884Interest rate
2,139,318
0.62
(402,666)

(0.12)

1,736,652Grand Total:
17,399,209
5.06
(5,268,122)

(1.53)

12,131,087Unrealized Currency Loss




(0.01)

(46,462)Total Net Unrealized Gain on Open Contracts






12,084,625Long Unrealized

Gain/(Loss)
Percentage of

Net Assets
Short Unrealized

Gain

Percentage of

Net Assets

Net Unrealized

Gain/(Loss)$
%
$

%

$December 31, 2009, Partnership Partners’ Capital: $399,908,477Commodity
5,893,727
1.47
245,680

0.06

6,139,407Equity
786,962
0.20
18,522

0.01

805,484Foreign currency
616,300
0.15
438,549

0.11

1,054,849Interest rate
(2,169,237)
(0.54)
130,659

0.03

(2,038,578)Grand Total:
5,127,752
1.28
833,410

0.21

5,961,162Unrealized Currency Loss




(0.01)

(39,656)Total Net Unrealized Gain on Open Contracts






5,921,506



































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





- 5 -





MANAGED FUTURES CHARTER GRAHAM L.P.


(formerly, Morgan Stanley Smith Barney Charter Graham L.P.)


NOTES TO FINANCIAL STATEMENTS





September 30, 2010





(Unaudited)





The unaudited financial statements contained herein include, in the opinion of management, all adjustments necessary for a fair presentation of the financial condition and results of operations of Managed Futures Charter Graham L.P. (formerly, Morgan Stanley Smith Barney Charter Graham L.P.) (the "Partnership").  The financial statements and condensed notes herein should be read in conjunction with the Partnership’s Annual Report on Form 10-K for the fiscal year ending December 31, 2009.





1.  Organization


Managed Futures Charter Graham L.P. (formerly, Morgan Stanley Smith Barney Charter Graham L.P.) is a Delaware limited partnership organized in 1998 to engage primarily in the speculative trading of futures contracts, options on futures and forward contracts, and forward contracts on physical commodities and other commodity interests, including, but not limited to, foreign currencies, financial instruments, metals, energy, and agricultural products (collectively, "Futures Interests") (refer to Note 4. Financial Instruments).  Prior to August 23, 2010, the Partnership was one of the Morgan Stanley Smith Barney Charter series of funds, comprised of the Partnership, Morgan Stanley Smith Barney Charter WNT L.P., Morgan Stanley Smith Barney Charter Aspect L.P., and Morgan Stanley Smith Barney Charter Campbell  L.P.

















- 6 -





MANAGED FUTURES CHARTER GRAHAM L.P.


(formerly, Morgan Stanley Smith Barney Charter Graham L.P.)


NOTES TO FINANCIAL STATEMENTS (CONTINUED)





Effective August 23, 2010, Demeter Management LLC (“Demeter”), the general partner of the Partnership, changed the name of Morgan Stanley Smith Barney Charter Graham L.P. to Managed Futures Charter Graham L.P.  The Partnership is now available for new investment on a private placement basis.





The Partnership’s general partner is Demeter.  The non-clearing commodity broker is Morgan Stanley Smith Barney LLC (“MSSB”) as of May 1, 2010.  The clearing commodity brokers are Morgan Stanley & Co. Incorporated ("MS&Co.") and Morgan Stanley & Co. International plc ("MSIP").   MS&Co. also acts as the counterparty on all trading of foreign currency forward contracts. MSIP serves as the commodity broker for trades on the London Metal Exchange (“LME”). Demeter is a wholly-owned subsidiary of Morgan Stanley Smith Barney Holdings LLC (“MSSBH”).  MSSBH is majority-owned indirectly by Morgan Stanley and minority-owned indirectly by Citigroup Inc.  MS&Co. and MSIP are wholly-owned subsidiaries of Morgan Stanley.  Graham Capital Management, L.P. (the “Trading Advisor”) is the trading advisor to the Partnership.





On July 28, 2010, the Partnership received a settlement award payment in the amount of $20,678 from the Natural Gas Commodity Litigation Settlement Administrator.  This settlement represents the Partnership’s portion of the 2006 Net Settlement Fund and the 2007 Net Settlement Fund.  The proceeds from settlement was accounted for in the period it was received for the benefit of the partners in the Partnership.





- 7 -





MANAGED FUTURES CHARTER GRAHAM L.P.


(formerly, Morgan Stanley Smith Barney Charter Graham L.P.)


NOTES TO FINANCIAL STATEMENTS (CONTINUED)





2.  Related Party Transactions


The Partnership’s cash is on deposit with MS&Co., MSIP, and MSSB in futures, forward and options trading accounts to meet margin requirements as needed.  Monthly, MSSB credits the Partnership with interest income received from MS&Co. and MSIP.  Such amount is based on 100% of its average daily funds held at MS&Co. and MSIP to meet margin requirements at a rate approximately equivalent to what the commodity brokers pay other similar customers on margin deposits.  In addition, MSSB credits the Partnership at each month end with interest income on 100% of the Partnership’s assets not deposited as margin at a rate equal to the monthly average of the 4-week U.S. Treasury bill discount rate during such month.  MSSB will retain any interest earned in excess of the interest paid by MSSB to the Partnership.  The Partnership pays brokerage fees to MS&Co.





3.  Income Taxes


No provision for income taxes has been made in the accompanying financial statements, as partners are individually responsible for reporting income or loss based upon their respective share of the Partnership’s revenues or expenses for income tax purposes. The Partnership files U.S. federal and state tax returns.

















- 8 -







MANAGED FUTURES CHARTER GRAHAM L.P.


(formerly, Morgan Stanley Smith Barney Charter Graham L.P.)


NOTES TO FINANCIAL STATEMENTS (CONTINUED)





The guidance issued by the Financial Accounting Standards Board (“FASB”) on income taxes clarifies the accounting for uncertainty in income taxes recognized in the Partnership's financial statements, and prescribes a recognition threshold and measurement attribute for financial statement recognition and measurement of a tax position taken or expected to be taken.  The Partnership has concluded that there are no significant uncertain tax positions that would require recognition in the financial statements as of September 30, 2010.  If applicable, the Partnership recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in other expenses in the Statements of Operations.  Generally, the 2007 through 2009 tax years remain subject to examination by U.S. federal and most state tax authorities.





4.  Financial Instruments


The Partnership trades Futures Interests.  Futures and forwards represent contracts for delayed delivery of an instrument at a specified date and price.  Futures Interests are open commitments until settlement


date, at which time they are realized.  They are valued at fair value, generally on a daily basis, and the unrealized gains and losses on open contracts (the difference between contract trade price and market price) are reported in the Statements of Financial Condition as net unrealized gains or losses on open contracts.  The resulting net change in unrealized gains and losses is reflected in the net change in unrealized trading profit (loss) from one period to the next on the Statements of Operations.  The fair value of exchange-traded futures, options and forwards contracts is determined by the various futures








- 9 -







MANAGED FUTURES CHARTER GRAHAM L.P.


(formerly, Morgan Stanley Smith Barney Charter Graham L.P.)


NOTES TO FINANCIAL STATEMENTS (CONTINUED)








exchanges, and reflects the settlement price for each contract as of the close of business on the last business day of the reporting period.  The fair value of foreign currency forward contracts is extrapolated on a forward basis from the spot prices quoted as of approximately 3:00 P.M. (E.T.) of the last business day of the reporting period.  The fair value of non-exchange-traded foreign currency option contracts is calculated by applying an industry standard model application for options valuation of foreign currency options, using as inputs, the spot prices, interest rates, and option implied volatilities quoted as of approximately 3:00 P.M. (E.T.) on the last business day of the reporting period.  Risk arises from changes in the value of these contracts and the potential inability of counterparties to perform under the terms of the contracts.  There are numerous factors which may significantly influence the fair value of these contracts, including interest rate volatility.





The fair value of exchange-traded contracts is based on the settlement price quoted by the exchange on the day with respect to which fair value is being determined.  If an exchange-traded contract could not have been liquidated on such day due to the operation of daily limits or other rules of the exchange, the settlement price will be equal to the settlement price on the first subsequent day on which the contract could be liquidated.  The fair value of off-exchange-traded contracts is based on the fair value quoted by the counterparty.














- 10 -







MANAGED FUTURES CHARTER GRAHAM L.P.


(formerly, Morgan Stanley Smith Barney Charter Graham L.P.)


NOTES TO FINANCIAL STATEMENTS (CONTINUED)





The Partnership’s contracts are accounted for on a trade-date basis and marked to market on a daily basis.  The Partnership accounts for its derivative investments as required by the Derivatives and Hedging as required by the FASB Accounting Standards Codification(“ASC” or the “Codification”).  A derivative is defined as a financial instrument or other contract that has all three of the following characteristics:





1)
a) One or more underlyings and b) notional amounts or payment provisions or both;


2)
Requires no initial net investment or a smaller initial net investment than would be required for other types of contracts that would be expected to have a similar response relative to changes in market factors; and


3)
Terms that require or permit net settlement.











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





The net unrealized gains on open contracts, reported as a component of "Trading Equity" on the Statements of Financial Condition, and their longest contract maturities were as follows:


Net Unrealized Gains on Open Contracts
Longest MaturitiesDate
Exchange-Traded
Off-Exchange-Traded
Total
Exchange-Traded
Off-Exchange-Traded$
$
$Sep. 30, 2010
6,465,477
5,619,148
12,084,625
Dec. 2014
Nov. 2010Dec. 31, 2009
4,878,451
1,043,055
5,921,506
Jun. 2011
Feb. 2010








- 11 -





MANAGED FUTURES CHARTER GRAHAM L.P.


(formerly, Morgan Stanley Smith Barney Charter Graham L.P.)


NOTES TO FINANCIAL STATEMENTS (CONTINUED)





The Partnership has credit risk associated with counterparty nonperformance.  As of the date of the financial statements, the credit risk associated with the instruments in which the Partnership trades is limited to the unrealized gain amounts reflected in the Partnership’s Statements of Financial Condition.





The Partnership also has credit risk because MS&Co. and MSIP act as the futures commission merchants or the counterparties, with respect to most of the Partnership’s assets. Exchange-traded futures, exchange-traded forward, and exchange-traded futures-styled options contracts are marked to market on a daily basis, with variations in value settled on a daily basis. MS&Co. and MSIP, each acting as a commodity broker for the Partnership’s exchange-traded futures, exchange-traded forward, and exchange-traded futures-styled options contracts, are required, pursuant to regulations of the Commodity Futures Trading Commission ("CFTC"), to segregate from their own assets, and for the sole benefit of their commodity customers, all funds held by them with respect to exchange-traded futures, exchange-traded forward, and exchange-traded futures-styled options contracts, including an amount equal to the net unrealized gains (losses) on all open exchange-traded futures, exchange-traded forward, and exchange-traded futures-styled options contracts, which funds, in the aggregate, totaled $343,493,662 and $408,931,514 at September 30, 2010, and December 31, 2009, respectively.  With respect to the Partnership’s off-exchange-traded forward currency contracts, there are no daily settlements of variation in value, nor is there any requirement that an amount equal to the net unrealized gains (losses) on such contracts be segregated.  However, the Partnership is required to meet margin requirements equal to the net unrealized loss on open forward currency contracts in the Partnership accounts with the counterparty, which is accomplished by





- 12 -







MANAGED FUTURES CHARTER GRAHAM L.P.


(formerly, Morgan Stanley Smith Barney Charter Graham L.P.)


NOTES TO FINANCIAL STATEMENTS (CONTINUED)





daily maintenance of the cash balance in a custody account held at MSSB for the benefit of MS&Co. With respect to those off-exchange-traded forward currency contracts, the Partnership is at risk to the ability of MS&Co., the sole counterparty on all such contracts, to perform. The Partnership has a netting agreement with MS&Co.  This agreement, which seeks to reduce both the Partnership’s and MS&Co.’s exposure on off-exchange-traded forward currency contracts, should materially decrease the Partnership’s credit risk in the event of MS&Co.’s bankruptcy or insolvency.





The futures, forwards and options 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 upon an agreed upon settlement date.  However, the Partnership is required to meet margin requirements equal to the net unrealized loss on open forward currency contracts in the Partnership’s accounts with the counterparty, which is accomplished by daily maintenance of the cash balance in a custody account held at MSSB for the benefit of MS&Co.





- 13 -





MANAGED FUTURES CHARTER GRAHAM L.P.


(formerly, Morgan Stanley Smith Barney Charter Graham L.P.)


NOTES TO FINANCIAL STATEMENTS (CONTINUED)





5.  Derivatives and Hedging


The Partnership’s objective is to profit from speculative trading in Futures Interests.  Therefore, the Trading Advisor for the Partnership will take speculative positions in Futures Interests where it feels the best profit opportunities exist for its trading strategy.  As such, the average number of contracts outstanding in absolute quantities (the total of the open long and open short positions) has been presented as a part of the volume disclosure, as position direction is not an indicative factor in such volume disclosures. In regards to foreign currency forward trades, each notional quantity amount


has been converted to an equivalent contract based upon an industry convention.





The following tables summarize the valuation of the Partnership’s investments as required by the disclosures about Derivatives and Hedging as of September 30, 2010 and December 31, 2009, respectively.





The Effect of Trading Activities on the Statements of Financial Condition as of September 30, 2010:


Futures and Forward Contracts
Long Unrealized

Gain
Long Unrealized

Loss
Short

Unrealized

Gain
Short Unrealized

Loss
Net   Unrealized

Gain/(Loss)
Average number of contracts

outstanding for nine months (absolute quantity)$
$
$
$
$Commodity
9,256,611
(361,321)
453,080
(4,712,483)
4,635,887
5,267Equity
583,857
(1,094,699)
34,369
(45,863)
(522,336)
2,657Foreign currency
8,142,136
(1,266,693)
1,142,831
(1,737,390)
6,280,884
17,338Interest rate
2,433,751
(294,433)
70,002
(472,668)
1,736,652
9,122Total
20,416,355
(3,017,146)
1,700,282
(6,968,404)
12,131,087Unrealized currency loss




(46,462)Total net unrealized gain on open contracts




12,084,625





- 14 -





MANAGED FUTURES CHARTER GRAHAM L.P.


(formerly, Morgan Stanley Smith Barney Charter Graham L.P.)


NOTES TO FINANCIAL STATEMENTS (CONTINUED)











The Effect of Trading Activities on the Statements of Financial Condition as of December 31, 2009:


Futures and Forward Contracts
Long Unrealized

Gain
Long Unrealized

Loss
Short

Unrealized

Gain
Short Unrealized

Loss
Net   Unrealized

Gain/(Loss)
Average number of contracts

outstanding for the year (absolute quantity)$
$
$
$
$Commodity
7,291,580
(1,397,853)
499,089
(253,409)
6,139,407
4,941Equity
1,413,940
(626,978)
18,522
–
805,484
3,384Foreign currency
1,718,378
(1,102,078)
1,070,003
(631,454)
1,054,849
41,153Interest rate
154,564
(2,323,801)
227,907
(97,248)
(2,038,578)
10,824Total
10,578,462
(5,450,710)
1,815,521
(982,111)
5,961,162Unrealized currency loss




(39,656)Total net unrealized gain on open contracts




5,921,506





The following tables summarize the net trading results of the Partnership for the three and nine months ended September 30, 2010 and 2009, respectively, as required by the disclosures about Derivatives and Hedging.





The Effect of Trading Activities on the Statements of Operations for the Three and Nine Months Ended September 30, 2010 included in Total Trading Results:





For the Three Months
For the Nine MonthsEnded September 30, 2010
Ended September 30, 2010Type of Instrument
$
$Commodity
4,619,626
(15,341,818)Equity
(6,588,505)
(24,490,754)Foreign currency
5,849,717
4,329,881Interest rate
9,822,753
36,973,606Unrealized currency loss
(131,232)
(6,806)Proceeds from Litigation Settlement
20,678
20,678Total
13,593,037
1,484,787











- 15 -







MANAGED FUTURES CHARTER GRAHAM L.P.


(formerly, Morgan Stanley Smith Barney Charter Graham L.P.)


NOTES TO FINANCIAL STATEMENTS (CONTINUED)








Line Items on the Statements of Operations for the Three and Nine Months Ended September 30, 2010:


For the Three Months
For the Nine MonthsEnded September 30, 2010
Ended September 30, 2010Trading Results
$
$Realized
(319,563)
(4,699,010)Net change in unrealized
13,891,922
6,163,119Proceeds from Litigation Settlement
20,678
20,678Total Trading Results
13,593,037
1,484,787





The Effect of Trading Activities on the Statements of Operations for the Three and Nine Months Ended September 30, 2009 included in Total Trading Results:





For the Three Months
For the Nine MonthsEnded September 30, 2009
Ended September 30, 2009Type of Instrument
$
$Commodity
7,921,966
(2,052,970)Equity
37,288,223
36,030,331Foreign currency
7,435,737
10,644,217Interest rate
(6,805,380)
(12,232,310)Unrealized currency loss
(199,579)
(1,086,509)Total
45,640,967
31,302,759





Line Items on the Statements of Operations for the Three and Nine Months Ended September 30 2009:


For the Three Months
For the Nine MonthsEnded September 30, 2009
Ended September 30, 2009Trading Results
$
$Realized
32,979,440
22,658,302Net change in unrealized
12,661,527
8,644,457Total Trading Results
45,640,967
31,302,759

















- 16 -







MANAGED FUTURES CHARTER GRAHAM L.P.


(formerly, Morgan Stanley Smith Barney Charter Graham L.P.)


NOTES TO FINANCIAL STATEMENTS (CONTINUED)








6.  Fair Value Measurements and Disclosures


Financial instruments are carried at fair value, which is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.  Assets and liabilities carried at fair value are classified and disclosed in the following three levels: Level 1 - unadjusted quoted market prices in active markets for identical assets and liabilities; Level 2 - inputs other than unadjusted quoted market prices that are observable for the asset or liability, either directly or indirectly (including unadjusted quoted market prices for similar investments, interest rates, credit risk); and Level 3 - unobservable inputs for the asset or liability (including the Partnership’s own assumptions used in determining the fair value of investments).





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





























- 17 -





MANAGED FUTURES CHARTER GRAHAM L.P.


(formerly, Morgan Stanley Smith Barney Charter Graham L.P.)


NOTES TO FINANCIAL STATEMENTS (CONTINUED)





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.





September 30, 2010


Unadjusted

Quoted Prices in Active Markets for Identical Assets

(Level 1)
Significant Other Observable Inputs

(Level 2)
Significant Unobservable Inputs

(Level 3)

Total$
$


$AssetsNet unrealized gain on futures contracts
6,465,477
—
n/a

6,465,477Net unrealized gain on forward contracts
—
5,619,148
n/a

5,619,148





December 31, 2009


Unadjusted

Quoted Prices in Active Markets for Identical Assets

(Level 1)
Significant Other Observable Inputs

(Level 2)
Significant Unobservable Inputs

(Level 3)

Total$
$


$AssetsNet unrealized gain on futures contracts
4,878,451
—
n/a

4,878,451Net unrealized gain on forward contracts
—
1,043,055
n/a

1,043,055





























- 18 -







MANAGED FUTURES CHARTER GRAHAM L.P.


(formerly, Morgan Stanley Smith Barney Charter Graham L.P.)


NOTES TO FINANCIAL STATEMENTS (CONTINUED)





7.  Other Pronouncements


(a)  Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles


In June 2009, the FASB issued accounting guidance to establish FASB Codification.  ASC established the exclusive authoritative reference for accounting principles generally accepted in the United States of America (“U.S. GAAP”) for use in financial statements except for Securities and Exchange Commission (“SEC”) rules and interpretive releases, which are also authoritative U.S. GAAP for SEC registrants.  The Codification supersedes all existing non-SEC accounting and reporting standards.  The Codification became the single source of authoritative U.S. GAAP and is effective for financial statements issued for interim and annual periods ending after September 15, 2009.





(b)  Fair Value Measurements


In April 2009, the FASB issued additional guidance relating to Fair Value Measurements for determining fair value and requires new disclosures regarding the categories of fair value instruments, as well as the inputs and valuation techniques utilized to determine fair value and any changes to the inputs and valuation techniques during the period.  It is effective for the interim and annual periods ending after June 15, 2009 and the adoption did not have a material impact on the Partnership’s financial statements.











- 19 -







MANAGED FUTURES CHARTER GRAHAM L.P.


(formerly, Morgan Stanley Smith Barney Charter Graham L.P.)


NOTES TO FINANCIAL STATEMENTS (CONTINUED)





(c)  Financial Instruments


In April 2009, the FASB issued new guidance that requires fair value disclosures of financial instruments on a quarterly basis, as well as new disclosures regarding the methodology and significant assumptions underlying the fair value measures and any changes to the methodology and assumptions during the reporting period.  This guidance is effective for the interim and annual periods ending after June 15, 2009.  The adoption of this guidance did not have a material impact on the Partnership’s financial statements.





(d)  Subsequent Events


In May 2009, the FASB issued accounting guidance to establish general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued.  In February 2010, the FASB issued Accounting Standards Update, Subsequent Events – Amendments to Certain Recognition and Disclosures Requirements which was effective immediately, and amends the previous guidance on subsequent events and no longer requires SEC filers to disclose the date through which subsequent events have been evaluated.  Management performed its evaluation of subsequent events and has determined that there were no subsequent events requiring adjustment in the financial statements.  The nature of the subsequent event effective on or about December 1, 2010 is disclosed in the Subsequent Event section on page 23.











- 20 -







MANAGED FUTURES CHARTER GRAHAM L.P.


(formerly, Morgan Stanley Smith Barney Charter Graham L.P.)


NOTES TO FINANCIAL STATEMENTS (CONTINUED)





(e)  Improving Disclosures about Fair Value Measurements


In January 2010, the FASB issued guidance, which, among other things, amends fair value measurements and disclosures to require entities to separately present purchases, sales, issuances, and settlements in their reconciliation of Level 3 fair value measurements (i.e., to present such items on a gross basis rather than on a net basis), and which clarifies existing disclosure requirements regarding the level of disaggregation and the inputs and valuation techniques used to measure fair value for measurements that fall within either Level 2 or Level 3 of the fair value hierarchy.  This guidance is effective for interim and annual periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements which are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years.  The adoption of this guidance did not have a material impact on the Partnership’s financial statements.





(f)  Consolidation of Variable Interest Entities


In June 2009, the FASB issued an amendment to the accounting and disclosure requirements for variable interest entities.  It contains new criteria for determining the primary beneficiary, and increases the frequency of required reassessments to determine whether a company is the primary beneficiary of a variable interest entity.  It also contains a new requirement that any term, transaction,








- 21 -







MANAGED FUTURES CHARTER GRAHAM L.P.


(formerly, Morgan Stanley Smith Barney Charter Graham L.P.)


NOTES TO FINANCIAL STATEMENTS (CONTINUED)








or arrangement that does not have a substantive effect on an entity’s status as a variable interest entity, a company’s power over a variable interest entity, or a company’s obligation to absorb losses or its right to receive benefits of an entity must be disregarded.  The amendment is effective for annual periods beginning after November 15, 2009, and interim periods thereafter. Effective February 25, 2010, the FASB has decided to indefinitely defer the application of this amendment for certain entities. Management believes that the Partnership meets the criteria for the indefinite deferral of the application of this guidance.





(g)  Statement of Cash Flows


The Partnership is not required to provide a Statement of Cash Flows as permitted by ASC 230.





8.  Restricted and Unrestricted Cash


As reflected on the Partnership’s Statements of Financial Condition, restricted cash equals the cash portion of assets on deposit to meet margin requirements plus the cash required to offset unrealized losses on foreign currency forwards and options and offset losses on offset LME positions. All of these amounts are maintained separately.  Cash that is not classified as restricted cash is therefore classified as unrestricted cash.











-  22 -







MANAGED FUTURES CHARTER GRAHAM L.P.


(formerly, Morgan Stanley Smith Barney Charter Graham L.P.)


NOTES TO FINANCIAL STATEMENTS (CONCLUDED)








9.  Subsequent Event


In 2009, Morgan Stanley and Citigroup Inc. combined certain assets of the Global Wealth Management Group of MS&Co., including Demeter, and the Smith Barney division of Citigroup Global Markets Inc. into a new joint venture, MSSBH.  Since their contribution to the joint venture, Demeter and Ceres Managed Futures LLC (“Ceres”), the commodity pool operator for various legacy Citigroup Inc. sponsored commodity pools, have worked closely together to align the operations and management of the commodity pools they oversee.





As a result, MSSBH, together with the unanimous support of the Boards of Directors of Demeter and Ceres, has determined that a combination of the assets and operations of Demeter and Ceres into a single commodity pool operator, Ceres, is in the best interest of the limited partners and believes that this combination will achieve the intended benefits of the joint venture.  Ceres will continue to be wholly owned by MSSBH.  The targeted effective date of the combination is on or about December 1, 2010.  Refer to the 8-K filed on September 14, 2010, for additional information.

















































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


RESULTS OF OPERATIONS





Liquidity.  The Partnership deposits its assets with MSSB as non-clearing commodity broker and MS&Co. and MSIP as clearing commodity brokers in separate futures, forward and options trading accounts established for the Trading Advisor.  Such assets are used as margin to engage in trading and may be used as margin solely for the Partnership’s trading. The assets are held in either non-interest bearing bank accounts or in securities and instruments permitted by the CFTC for investment of customer segregated or secured funds.  Since the Partnership’s sole purpose is to trade in futures, forwards and options, it is expected that the Partnership will continue to own such liquid assets for margin purposes.





The Partnership’s investment in futures, forwards and options may, from time to time, be illiquid.  Most U.S. futures exchanges limit fluctuations in prices during a single day by regulations referred to as "daily price fluctuation limits" or "daily limits".  Trades may not be executed at prices beyond the daily limit.  If the price for a particular futures or options contract has increased or decreased by an amount equal to the daily limit, positions in that futures or options contract can neither be taken nor liquidated unless traders are willing to effect trades at or within the limit. Futures prices have occasionally moved the daily limit for several consecutive days with little or no trading.  These market conditions could prevent the Partnership from promptly liquidating its futures or options contracts and result in restrictions on redemptions.





There is no limitation on daily price moves in trading forward contracts on foreign currencies.  The markets for some world currencies have low trading volume and are illiquid, which may prevent the Partnership from trading in potentially profitable markets or prevent the Partnership from promptly





- 24 -







liquidating unfavorable positions in such markets, subjecting it to substantial losses.  Either of these market conditions could result in restrictions on redemptions.  For the periods covered by this report, illiquidity has not materially affected the Partnership’s assets.





There are no known material trends, demands, commitments, events, or uncertainties at the present time that are reasonably likely to result in the Partnership’s liquidity increasing or decreasing in any material way.





Capital Resources.  The Partnership does not have, nor does it expect to have, any capital assets.  Redemptions, exchanges, and sales of units of limited partnership interest ("Unit(s)") in the future will affect the amount of funds available for investments in futures, forwards and options in subsequent periods.  It is not possible to estimate the amount, and therefore the impact, of future inflows and outflows of Units.





There are no known material trends, favorable or unfavorable, that would affect, nor any expected material changes to, the Partnership’s capital resource arrangements at the present time.





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











- 25 -







Results of Operations


General.  The Partnership’s results depend on the Trading Advisor and the ability of the Trading Advisor’s trading program to take advantage of price movements in the futures, forward and options markets.  The following presents a summary of the Partnership’s operations for the three and nine month periods ended September 30, 2010 and 2009, 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 23 of this report are prepared in accordance with U.S. GAAP, which requires the use of certain accounting policies that affect the amounts reported in these financial statements, including the following: the contracts the Partnership trades are accounted for on a trade-date basis and marked to market on a daily basis.  The difference between their original contract value and market value is recorded on the Statements of 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











- 26 -







on the exchange on which that futures contract is traded on a particular day.  The value of a foreign currency forward contract is based on the spot rate as of approximately 3:00 P.M. (E.T.) of the business day.  Interest income, as well as management fees, incentive fees, and brokerage fees of the Partnership are recorded on an accrual basis.





For the Three and Nine Months Ended September 30, 2010


The Partnership recorded total trading results including interest income totaling $13,705,254 and expenses totaling $6,891,893, resulting in net income of $6,813,361 for the three months ended September 30, 2010.  The Partnership’s net asset value per Unit increased from $26.95 at June 30, 2010 to $27.49 at September 30, 2010.





The most significant trading gains of approximately 2.8% were recorded in the global interest rate sector, primarily during July and August. In July, gains were achieved from long positions in U.S. fixed-income futures as prices rose on speculation that the U.S. Federal Reserve might resume purchases of U.S. Treasuries if the economy slows. During August, long positions in European, U.S., and Australian fixed-income futures achieved gains as prices climbed higher due to concern that European governments might struggle to repay their debt, while reports added to evidence that Chinese economic growth might be slowing. Prices continued to move higher after reports on manufacturing in the New York region, U.S. home-builder confidence, and Japanese Gross Domestic Product fueled worries over the global economy and spurred demand for the relative “safety” of government bonds. Within the currency markets, gains of approximately 1.7% were achieved primarily during September from long positions in the Australian dollar versus the U.S. dollar as the value of the Australian dollar





- 27 -







appreciated to a 26-month high against the U.S. dollar amid speculation that the Reserve Bank of Australia might raise interest rates in October. Further gains were achieved from long positions in the South African rand, Swiss franc, and euro versus the U.S. dollar as the value of the U.S. dollar fell against these currencies amid renewed optimism regarding the global economic recovery, which reduced demand for the U.S. dollar as a “safe haven” currency.  In the metals complex, gains of approximately 1.4% were experienced primarily during September from long futures positions in silver and gold as prices rose amid increased demand for the precious metals as an alternative investment due to a drop in the value of the U.S. dollar. Additional gains were recorded from long futures positions in copper and aluminum as prices moved higher after industrial output beat analyst estimates in China, the world’s biggest base metals user. Gains of approximately 0.3% were achieved within the agricultural complex, primarily during September, from long positions in cotton futures as prices increased on signs that global demand might outpace limited supplies. Meanwhile, long futures positions in the soybean complex achieved gains as prices rose amid concern that reduced rains in Brazil and Argentina might diminish crop yields. A portion of the Partnership’s gains for the quarter was offset by losses of approximately 2.0% incurred in the global stock index markets, primarily during July and August. During July, short positions in European and U.S. equity index futures incurred losses as prices increased amid unexpected growth in Europe’s manufacturing and service industries, rising U.K. retail sales, and positive U.S. corporate earnings reports. During August, newly established long positions in European and U.S. equity index futures experienced losses as prices fell after the U.S. Federal Reserve said the pace of economic recovery was likely to be “more modest” than forecast and a report revealed U.S. productivity unexpectedly fell in the second quarter. Within the energy sector, losses of approximately 0.4% were recorded primarily during July and September. In





- 28 -







July, short futures positions in crude oil and its related products resulted in losses as prices rose after the U.S. Department of Energy estimated production might trail demand while Tropical Storm Bonnie headed for the Gulf of Mexico, thereby spurring concerns of a supply disruption. During September, losses were experienced from short futures positions in crude oil and its related products as prices rose after positive economic indicators from the U.S., Asia, and Europe restored confidence that the economic recovery might stimulate energy demand. Furthermore, oil prices increased after a pipeline that carries Canadian crude to refineries in the U.S. Midwest was closed due to a leak.








The Partnership recorded total trading results including interest income totaling $1,738,802 and expenses totaling $21,709,296, resulting in a net loss of $19,970,494 for the nine months ended September 30, 2010.  The Partnership’s net asset value per Unit decreased from $28.89 at December 31, 2009, to $27.49 at September 30, 2010.





The most significant trading losses of approximately 6.5% were incurred within the global stock index markets, primarily during May, June, July, and August. During May and June, long positions in European and Pacific Rim equity index futures recorded losses as prices declined on growing concerns that Greece’s sovereign debt crisis might begin to spread throughout Europe. In June, equity prices dropped further on concerns regarding weakening growth in China and a slump in U.S. consumer confidence. During July, newly established short positions in European and U.S. equity index futures incurred losses as prices increased amid unexpected growth in Europe’s manufacturing and service industries, rising U.K. retail sales, and positive U.S. corporate earnings reports. Lastly, newly





- 29 -







established long positions in European and U.S. equity index futures experienced losses during August as prices fell after the U.S. Federal Reserve said the pace of economic recovery was likely to be “more modest” than forecast and a report revealed U.S. productivity unexpectedly fell in the second quarter. Within the energy markets, losses of approximately 2.6% were incurred primarily during January, May, June, and September. In January, long positions in crude oil futures recorded losses as prices fell due to reports of increased U.S. inventories, as well as on speculation that China’s economic activity and energy demand might ease. Additional losses were incurred from long positions in crude oil futures in May and June as prices dropped amid worries that Europe’s sovereign debt troubles might weaken global energy demand. During September, losses were experienced from newly established short futures positions in crude oil and its related products as prices rose after positive economic indicators from the U.S., Asia, and Europe restored confidence that the economic recovery might stimulate energy demand. Furthermore, oil prices increased after a pipeline that carries Canadian crude to refineries in the U.S. Midwest was closed due to a leak. Within the agricultural sector, losses of approximately 1.6% were incurred primarily during February from long positions in sugar futures as prices reversed lower on speculation that Brazil, the world’s largest sugar producer, might increase exports. Further losses were experienced during July from short futures positions in wheat as prices moved sharply higher on supply concerns. Prices were also pressured higher towards the end of July amid worries that droughts in Russia and other parts of Europe might diminish global supplies. A portion of the Partnership’s losses for the first nine months of the year was offset by gains of approximately 10.4% achieved within the global interest rate sector from long positions in U.S., European, and Japanese fixed-income futures. In this sector, prices increased during the first quarter on concerns that lending restrictions in China, possible reductions in U.S. stimulus measures, and





- 30 -







Greece’s fiscal struggles might stifle the global economic rebound, thereby boosting demand for the relative “safety” of government bonds. Prices were then pressured higher during the second quarter amid an unexpected drop in U.S. consumer confidence, increased regulatory scrutiny of the financial industry, and the growing European debt crisis. During the third quarter, prices continued to climb higher due to concern that European governments might struggle to repay their debt and Chinese economic growth might be slowing. In the currency markets, gains of approximately 1.4% were recorded primarily during February, March, and September. In February, long positions in the Japanese yen versus the euro and British pound experienced gains as the value of the Japanese yen moved higher against most of its rivals after concerns regarding Greece’s credit rating caused investors to unwind existing carry trades. During March, long positions in the Mexican peso, Canadian dollar, and Australian dollar versus the U.S. dollar recorded gains as the value of these currencies moved higher against the U.S. dollar after signs of a continued global economic recovery caused investors to increase their risk appetite for higher-yielding currencies. In September, long positions in the Australian dollar versus the U.S. dollar resulted in gains as the value of the Australian dollar appreciated to a 26-month high against the U.S. dollar amid speculation that the Reserve Bank of Australia might raise interest rates in October. Further gains were achieved during September from long positions in the South African rand, Swiss franc, and euro versus the U.S. dollar as the value of the U.S. dollar fell against these currencies amid renewed optimism regarding the global economic recovery, which reduced demand for the U.S. dollar as a “safe haven” currency. Smaller gains of approximately 0.2% were experienced within the metals complex, primarily during September, from long futures positions in silver and gold as prices rose amid increased demand for the precious metals as an alternative investment due to a drop in the value of the U.S. dollar.





- 31 -







For the Three and Nine Months Ended September 30, 2009


The Partnership recorded total trading results including interest income totaling $45,743,954 and expenses totaling $8,159,939, resulting in net income of $37,584,015 for the three months ended September 30, 2009.  The Partnership’s net asset value per Unit increased from $26.92 at June 30, 2009, to $29.47 at September 30, 2009.





The most significant trading gains of approximately 9.3% were recorded in the global stock index sector throughout a majority of the quarter from long positions in U.S., European, and Hong Kong equity index futures as prices increased due to positive economic data and increased merger and acquisition activity in the technology sector.  Within the agricultural markets, gains of approximately 2.0% were experienced throughout a majority of the quarter from long futures positions in sugar as prices moved sharply higher amid speculation that a global production deficit may continue for two consecutive years, triggered by increasing demand from India, the world’s largest consumer.  Sugar prices continued to climb throughout August, reaching a 28-year high, on deepening concerns that unfavorable weather in producing countries and rising import demand may worsen the global supply shortfall.  Elsewhere in the agricultural complex, short positions in wheat futures resulted in gains as prices declined during August and September amid favorable weather forecasts in the U.S. Midwest and reports that global wheat inventories may increase next year.  Smaller gains were recorded from long futures positions in cocoa, primarily during July and September, as prices rose following news of a smaller-than-average crop this year and a decline in global inventories.  Within the currency sector, gains of approximately 1.6% were experienced primarily during July and September from long positions in the Canadian dollar, New Zealand dollar, and Australian dollar versus the U.S. dollar as





- 32 -







the value of the U.S. dollar moved lower against these currencies on speculation that the U.S. Federal Reserve might keep borrowing rates low after the U.S. central bank indicated that it remained committed to its quantitative easing program.  Meanwhile, the value of the Canadian dollar, New Zealand dollar, and Australian dollar also moved higher in the wake of stronger gold prices.  Additional gains of approximately 1.4% were recorded in the metals markets throughout a majority of the quarter from long futures positions in copper, lead, zinc, and aluminum as prices increased following news that China’s economy expanded during the second quarter of 2009 and Chinese manufacturing jumped in July, thereby spurring speculation that demand for base metals might rise.  Smaller gains were experienced from long positions in silver and gold futures as prices rose amid a decline in the value of the U.S. dollar.  A portion of the Partnership’s gains for the quarter was offset by losses of approximately 1.8% incurred within the global interest rate sector, primarily during July, from short positions in U.S. and European fixed-income futures as prices moved higher on investor sentiment that the slow pace of the global economic recovery and signs of moderate inflation might lead central banks in these regions to maintain low interest rates in the near term.  Additional losses were recorded during August from newly established long positions in European fixed-income futures as prices reversed lower at the beginning of the month amid a rise in the European equity markets, thus reducing demand for the relative “safety” of government bonds.  Smaller losses of approximately 1.5% were experienced within the energy markets, primarily during July and September, from both long and short futures positions in crude oil and its related products as prices moved without consistent direction amid conflicting data regarding supply and demand.











- 33 -







The Partnership recorded total trading results including interest income totaling $31,664,551 and expenses totaling $28,789,981, resulting in net income of $2,874,570 for the nine months ended September 30, 2009.  The Partnership’s net asset value per Unit increased from $29.13 at December 31, 2008 to $29.47 at September 30, 2009.





The most significant trading gains of approximately 8.7% were recorded within the global stock index sector, primarily during January, February, May, July, August, and September.  During January and February, short positions in U.S., European, and Pacific Rim equity index futures resulted in gains as prices dropped on concerns that financial firms may need to raise additional capital and a continued slowdown in global economic growth may further erode corporate earnings.  Additional gains were experienced during May, July, August, and September from long positions in U.S., European, and Pacific Rim equity index futures as prices rose due to positive economic data and increased merger and acquisition activity in the technology sector.  Within the currency sector, gains of approximately 2.2% were recorded primarily during January, May, July, August, and September.  During January, gains were experienced from short positions in the Australian dollar and New Zealand dollar versus the U.S. dollar as the value of the U.S. dollar moved higher against these currencies after a government report showed the U.S. trade deficit narrowed by the largest amount in 12 years.  Newly established long positions in the Australian dollar, New Zealand dollar, and Canadian dollar versus the U.S. dollar resulted in additional gains, primarily during May, July, August, and September as the value of the U.S. dollar declined relative to these currencies after improving global economic data reduced demand for the U.S. dollar as a “safe haven” currency.  The value of the U.S. dollar was also pressured lower on speculation that the U.S. Federal Reserve might keep borrowing rates low after the U.S. central





- 34 -







bank indicated that it remained committed to its quantitative easing program.  Meanwhile, the value of the Australian dollar, New Zealand dollar, and Canadian dollar also moved higher in the wake of stronger gold prices.  Within the agricultural markets, gains of approximately 1.0% were recorded primarily during February, May, July, August, and September from long futures positions in sugar as prices moved higher on expectations of a drop in global production.  Sugar prices continued to climb throughout August, reaching a 28-year high, on deepening concerns that unfavorable weather in producing countries and rising import demand may worsen the global supply shortfall.  Elsewhere, long positions in cocoa futures resulted in gains as prices rose during July and September following news of a smaller-than-average crop this year and a decline in global inventories.  Additional gains of approximately 0.3% were experienced within the metals sector, primarily during May, July, August, and September from long futures positions in lead, aluminum, and zinc as prices increased after positive economic data boosted speculation that demand for base metals may rise.  A portion of the Partnership’s gains for the first nine months of the year was offset by losses of approximately 3.0% incurred within the global interest rate sector, primarily during January, April, June, July, and August.  Losses were recorded during January from long positions in European fixed-income futures as prices decreased following news that debt sales might increase as governments around the world boosted spending in an effort to ease the deepening economic slump.  European fixed-income futures prices moved lower during April and June amid rising investor confidence, which reduced demand for the relative “safety” of government debt.  Additional losses were experienced from short positions in Japanese fixed-income futures as prices increased after the Bank of Japan indicated that they remain cautious about the Japanese economy.  During July, newly established short positions in U.S. and European fixed-income futures resulted in losses as prices moved higher on investor sentiment that the





- 35 -







slow pace of the global economic recovery and signs of moderate inflation might lead central banks in these regions to maintain low interest rates in the near term.  Lastly, further losses were recorded during August from newly established long positions in European fixed-income futures as prices reversed lower at the beginning of the month amid a rise in the European equity markets, thus reducing demand for the relative “safety” of government bonds.  Within the energy markets, losses of approximately 1.9% were incurred primarily during May from short positions in heating oil and gas oil as prices increased amid better-than-expected economic data in the U.S. and China, the world’s largest consumers of energy.  Smaller losses were experienced during July and September from both long and short futures positions in crude oil and its related products as prices moved without consistent direction amid conflicting data regarding supply and demand.





Item 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK





Introduction


The Partnership is a commodity pool engaged primarily in the speculative trading of futures, forwards and options.  The market-sensitive instruments held by the Partnership are acquired for speculative trading purposes only and, as a result, all or substantially all of the Partnership’s assets are at risk of


trading loss.  Unlike an operating company, the risk of market-sensitive instruments is inherent to the primary business activity of the Partnership.





The futures, forwards and options on such contracts traded by the Partnership involve varying degrees of related market risk.  Market risk is often dependent upon changes in the level or volatility of interest rates, exchange rates, and prices of financial instruments and commodities, factors that result in





- 36 -







frequent changes in the fair value of the Partnership’s open positions, and consequently in its earnings, whether realized or unrealized, and cash flow.  Gains and losses on open positions of exchange-traded futures, exchange-traded forward, and exchange-traded futures-styled options contracts are settled daily through variation margin.  Gains and losses on off-exchange-traded forward currency contracts and forward currency options contracts are settled upon termination of the contract.  However, the Partnership is required to meet margin requirements equal to the net unrealized loss on open forward currency contracts in the Partnership accounts with the counterparty, which is accomplished by daily maintenance of the cash balance in a custody account held at MSSB for the benefit of MS&Co.





The Partnership’s total market risk may increase or decrease as it is influenced by a wide variety of factors, including, but not limited to, the diversification among the Partnership’s open positions, the volatility present within the markets, and the liquidity of the markets.





The face value of the market sector instruments held by the Partnership is typically many times the applicable margin requirements.  Margin requirements generally range between 2% and 15% of contract face value.  Additionally, the use of leverage causes the face value of the market sector


instruments held by the Partnership typically to be many times the total capitalization of the Partnership.





The Partnership’s past performance is no guarantee of its future results.  Any attempt to numerically quantify the Partnership’s market risk is limited by the uncertainty of its speculative trading.  The Partnership’s speculative trading and use of leverage may cause future losses and volatility (i.e., "risk





- 37 -







of ruin") that far exceed the Partnership’s experience to date under the “Partnership’s Value at Risk in Different Market Sectors" section and significantly exceed the Value at Risk ("VaR") tables disclosed.





Limited partners will not be liable for losses exceeding the current net asset value of their investment.





Quantifying the Partnership’s Trading Value at Risk


The following quantitative disclosures regarding the Partnership’s market risk exposures contain "forward-looking statements" within the meaning of the safe harbor from civil liability provided for such statements by the Private Securities Litigation Reform Act of 1995 (set forth in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934).  All quantitative disclosures in this section are deemed to be forward-looking statements for purposes of the safe harbor, except for statements of historical fact.





The Partnership accounts for open positions on the basis of mark to market accounting principles.  Any loss in the market value of the Partnership’s open positions is directly reflected in the Partnership’s earnings and cash flow.





The Partnership’s risk exposure in the market sectors traded by the Trading Advisor is estimated below in terms of VaR.  The Partnership estimates VaR using a model based upon historical simulation (with a confidence level of 99%) which involves constructing a distribution of hypothetical daily changes in the value of a trading portfolio.  The VaR model takes into account linear exposures to risk including equity and commodity prices, interest rates, foreign exchange rates, and correlation among these





- 38 -







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 re-values its portfolio (using delta-gamma approximations) for each of the historical market moves that occurred over this time period.  This generates a probability distribution of daily "simulated profit and loss" outcomes.  The VaR is the appropriate percentile of this distribution.  For example, the 99% one-day VaR would represent the 10th worst outcome from 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.











- 39 -







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, 2010 and 2009.  At September 30, 2010 and 2009, the Partnership’s total capitalization was approximately $344 million and $424 million, respectively.





Primary Market
September 30, 2010
September 30, 2009Risk Category
Value at Risk
Value at RiskEquity
(4.02)%
(3.45)%Currency
(1.77)
(1.37)Interest Rate
(0.89)
(1.78)Commodity
(1.07)
(0.95)Aggregate Value at Risk
(5.54)%
(3.91)%





The VaR for a market category represents the one-day downside risk for the aggregate exposures associated with this market category.  The Aggregate Value at Risk listed above represents the VaR of


the Partnership’s open positions across all the market categories, and is less than the sum of the VaRs for all such market categories due to the diversification benefit across asset classes.





Because the business of the Partnership is the speculative trading of futures, forwards and options, the composition of its trading portfolio can change significantly over any given time period, or even within a single trading day.  Such change could positively or negatively materially impact market risk as measured by VaR.








- 40 -







The tables below supplement the quarter-end VaR set forth above by presenting the Partnership’s high, low, and average VaR, as a percentage of total net assets for the four quarter-end reporting periods from October 1, 2009 through September 30, 2010 and October 1, 2008 through September 30, 2009, respectively.





September 30, 2010Primary Market Risk Category
High
Low
AverageEquity
(6.04)%
(0.23)%
(3.24)%Currency
(1.77)
(0.32)
(1.20)Interest Rate
(1.28)
(0.61)
(0.91)Commodity
(1.71)
(0.70)
(1.18)Aggregate Value at Risk
(7.50)%
(1.12)%
(4.65)%








September 30, 2009Primary Market Risk Category
High
Low
AverageEquity
(3.45)%
(0.05)%
(1.56)%Currency
(1.37)
(0.07)
(0.75)Interest Rate
(1.78)
(0.32)
(0.77)Commodity
(1.00)
(0.19)
(0.60)Aggregate Value at Risk
(3.91)%
(0.42)%
(2.19)%








- 41 -







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, 2010 and 2009, and for the four quarter-end reporting periods from October 1, 2009 through September 30, 2010 and October 1, 2008 through September 30, 2009, respectively.  VaR is not necessarily representative of the Partnership’s historic risk,





- 42 -







nor should it be used to predict the Partnership’s future financial performance or its ability to manage or monitor risk.  There can be no assurance that the Partnership’s actual losses on a particular day will not exceed the VaR amounts indicated above or that such losses will not occur more than once in 100 trading days.





Non-Trading Risk


The Partnership has non-trading market risk on its foreign cash balances not needed for margin.  These balances and any market risk they may represent are immaterial.





The Partnership also maintains a substantial portion of its available assets in cash at MSSB; as of September 30, 2010, such amount was equal to approximately 88% 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





- 43 -







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 Trading Advisor,in general, tends to utilize its trading system(s) to take positions when market opportunities develop, and Demeter anticipates that the Trading Advisor will continue to do so.





The following were the primary trading risk exposures of the Partnership at September 30, 2010, 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, 2010, was to the global stock index sector.  Exposure was primarily to equity price risk in the G-7 countries.  The G-7 countries consist of France, the U.S., the United Kingdom, Germany, Japan, Italy, and Canada. The stock index





- 44 -







futures traded by the Partnership are by law limited to futures on broadly-based indices.  At September 30, 2010, The Partnership’s primary market exposures were to the DAX (Germany), Euro Stoxx 50 (Europe), Nasdaq 100 (U.S.), FTSE 100 (U.K.), CAC 40 (France), Hang Seng (Hong Kong), Dow Jones Industrials (U.S.), Russell 2000 (U.S.), S&P 60 (Canada), and Nikkei 225 (Japan) stock indices. The Partnership is typically exposed to the risk of adverse price trends or static markets in the European, U.S., and Asian 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, 2010, 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, 2010, the Partnership’s major exposures were to the Australian dollar, euro, British pound, Japanese yen, Swedish krona, Canadian dollar, Norwegian krone, and Swiss franc 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.








- 45 -







Interest Rate.  At September 30, 2010, the Partnership had market exposure to the global interest rate sector. Exposure was primarily spread across the U.S., European, Japanese, Australian, and Canadian


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.


Energy.  The third largest market exposure of the Partnership at September 30, 2010, was to the energy sector. The Partnership’s energy exposure was shared primarily by futures contracts in crude oil and its related products, as well as in natural gas. Price movements in these markets result from geopolitical developments, particularly in the Middle East, as well as weather patterns and other economic fundamentals. Oil and gas prices can be volatile and significant profits and losses, which have been experienced in the past, are expected to continue to be experienced in these markets in the future.








- 46 -







Metals.  At September 30, 2010, the Partnership had market exposure to the metals sector. The Partnership’s metals exposure was to fluctuations in the price of precious metals, such as gold and silver, as well as base metals, such as copper, aluminum, zinc, and lead. Economic forces, supply and demand inequalities, geopolitical factors, and market expectations influence price movements in these markets.





Soft Commodities and Agriculturals.  At September 30, 2010, the Partnership had market exposure to the soft commodities and agricultural sectors. Most of the exposure was to the soybean meal, soybean oil, corn, live cattle, wheat, sugar, coffee, cotton, soybeans, and cocoa markets. Supply and demand inequalities, severe weather disruptions, and market expectations affect price movements in these markets.





Qualitative Disclosures Regarding Non-Trading Risk Exposure


The following was the only non-trading risk exposure of the Partnership at September 30, 2010:





Foreign Currency Balances. The Partnership’s primary foreign currency balances at September 30, 2010, were in euros, Hong Kong dollars, British pounds, Japanese yen, Swiss francs, Australian dollars, and Canadian dollars. 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.








- 47 -










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 through the selection of a commodity trading advisor and by daily monitoring its performance.  In addition, the Trading Advisor establishes diversification guidelines, often set in terms of the maximum margin to be committed to positions in any one market sector or market-sensitive instrument.





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








Evaluation of Disclosure Controls and Procedures


Under the supervision and with the participation of the management of Demeter, at the time this quarterly report was filed, Demeter’s President (Demeter’s principal executive officer) and Chief Financial Officer (Demeter’s principal financial officer) have evaluated the effectiveness of the design and operation of the Partnership’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 2010.  The Partnership’s disclosure controls and procedures are designed to provide reasonable assurance that information the Partnership is required to disclose in the reports that the Partnership files or submits under the Exchange Act are recorded, processed and summarized and reported within the time period specified in the applicable rules and forms.  Based on this evaluation, the President and Chief Financial Officer of Demeter have




- 48 -







concluded that the disclosure controls and procedures of the Partnership were effective at September 30, 2010.





Changes in Internal Control over Financial Reporting


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) that have materially affected or are reasonably likely to materially affect the Partnership’s internal control over financial reporting.











Limitations on the Effectiveness of Controls





Any control system, no matter how well designed and operated, can provide reasonable (not absolute) assurance that its objectives will be met.  Furthermore, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.





























- 49 -







PART II.  OTHER INFORMATION





Item 1A.
RISK FACTORS





There have been no material changes from the risk factors previously referenced in the Partnership’s Report on Form 10-K for the fiscal year ended December 31, 2009.








Item 2.
UNREGISTERED SALES OF SECURITIES AND USE OF PROCEEDS







Units of the Partnership are sold to persons and entities who are accredited investors as the term is defined




in Rule 501(a) of Regulation D.









The aggregate proceeds of securities sold in all share Classes to the limited partners through September 30, 2010 was $2,026,779.









Item 6.
EXHIBITS





31.01
Certification of President of Demeter Management LLC, the general partner of the Partnership, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.




31.02
Certification of Chief Financial Officer of Demeter Management LLC, 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 LLC, the general partner of the Partnership, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.




32.02
Certification of Chief Financial Officer of Demeter Management LLC, the general partner of the Partnership, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.



















– 50 –






























































SIGNATURE











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











Managed Futures Charter Graham L.P.(Registrant)By:
Demeter Management LLC(General Partner)November 10, 2010
By:Christian AngstadtChief 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.

































































- 51 -