Attached files
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EXCEL - IDEA: XBRL DOCUMENT - ML SELECT FUTURES I LP | Financial_Report.xls |
EX-32.02 - EX-32.02 - ML SELECT FUTURES I LP | a11-26135_1ex32d02.htm |
EX-31.02 - EX-31.02 - ML SELECT FUTURES I LP | a11-26135_1ex31d02.htm |
EX-31.01 - EX-31.01 - ML SELECT FUTURES I LP | a11-26135_1ex31d01.htm |
EX-32.01 - EX-32.01 - ML SELECT FUTURES I LP | a11-26135_1ex32d01.htm |
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2011
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 0-50269
ML SELECT FUTURES I L.P.
(Exact Name of Registrant as
specified in its charter)
Delaware |
|
13-3879393 |
(State or other jurisdiction of |
|
(IRS Employer Identification No.) |
incorporation or organization) |
|
|
c/o Merrill Lynch Alternative Investments LLC
Four World Financial Center, 10th Floor
250 Vesey Street
New York, New York 10080
(Address of principal executive offices)
(Zip Code)
212-449-3517
(Registrants telephone number, including area code)
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 website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o |
|
Accelerated filer o |
|
|
|
Non-accelerated filer x |
|
Small reporting company o |
(Do not check if a smaller reporting company) |
|
|
Indicate by check mark whether registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes o No x
As of September 30, 2011, 440,061 units of limited partnership interest were outstanding.
ML SELECT FUTURES I L.P.
QUARTERLY REPORT FOR SEPTEMBER 30, 2011 ON FORM 10-Q
Table of Contents
|
|
PAGE |
PART IFINANCIAL INFORMATION | ||
|
|
|
Item 1. |
Financial Statements |
1 |
|
|
|
Item 2. |
Managements Discussion and Analysis of Financial Condition and Results of Operations |
13 |
|
|
|
Item 3. |
Quantitative and Qualitative Disclosures About Market Risk |
24 |
|
|
|
Item 4. |
Controls and Procedures |
28 |
|
|
|
PART IIOTHER INFORMATION | ||
|
|
|
Item 1. |
Legal Proceedings |
28 |
|
|
|
Item 1A. |
Risk Factors |
28 |
|
|
|
Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds |
28 |
|
|
|
Item 3. |
Defaults Upon Senior Securities |
29 |
|
|
|
Item 4. |
(Removed and Reserved) |
29 |
|
|
|
Item 5. |
Other Information |
29 |
|
|
|
Item 6. |
Exhibits |
29 |
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ML SELECT FUTURES I L.P.
(a Delaware Limited Partnership)
STATEMENTS OF FINANCIAL CONDITION
(unaudited)
|
|
September 30, |
|
December 31, |
| ||
|
|
2011 |
|
2010 |
| ||
ASSETS: |
|
|
|
|
| ||
|
|
|
|
|
| ||
Equity in commodity futures trading accounts: |
|
|
|
|
| ||
Cash (includes restricted cash of $11,349,380 for 2011 and $8,492,711 for 2010) |
|
$ |
123,865,458 |
|
$ |
147,627,836 |
|
Net unrealized profit on open futures contracts |
|
7,718,182 |
|
4,344,222 |
| ||
Net unrealized profit on open forwards contracts |
|
2,005,611 |
|
2,172,926 |
| ||
Cash and cash equivalents |
|
313,250 |
|
264,329 |
| ||
Accrued interest receivable |
|
84 |
|
19,626 |
| ||
|
|
|
|
|
| ||
TOTAL ASSETS |
|
$ |
133,902,585 |
|
$ |
154,428,939 |
|
|
|
|
|
|
| ||
LIABILITIES AND PARTNERS CAPITAL |
|
|
|
|
| ||
|
|
|
|
|
| ||
LIABILITIES: |
|
|
|
|
| ||
|
|
|
|
|
| ||
Brokerage commissions payable |
|
$ |
609,699 |
|
$ |
704,702 |
|
Administrative and filing fees payable |
|
27,714 |
|
32,056 |
| ||
Redemptions payable |
|
601,343 |
|
2,560,999 |
| ||
Net unrealized loss on open futures contracts |
|
415,518 |
|
500,182 |
| ||
Net unrealized loss on open forward contracts |
|
461,757 |
|
175,650 |
| ||
Total liabilities |
|
2,116,031 |
|
3,973,589 |
| ||
|
|
|
|
|
| ||
PARTNERS CAPITAL: |
|
|
|
|
| ||
|
|
|
|
|
| ||
General Partner (13,916 Units and 13,916 Units) |
|
4,167,410 |
|
4,006,555 |
| ||
Limited Partners (426,145 Units and 508,654 Units) |
|
127,619,144 |
|
146,448,795 |
| ||
|
|
|
|
|
| ||
Total partners capital |
|
131,786,554 |
|
150,455,350 |
| ||
|
|
|
|
|
| ||
TOTAL LIABILITIES AND PARTNERS CAPITAL |
|
$ |
133,902,585 |
|
$ |
154,428,939 |
|
|
|
|
|
|
| ||
NET ASSET VALUE PER UNIT |
|
|
|
|
| ||
(Based on 440,061 Units outstanding; 522,570 Units authorized) |
|
$ |
299.4734 |
|
$ |
287.9143 |
|
See notes to financial statements.
ML SELECT FUTURES I L.P.
(a Delaware Limited Partnership)
STATEMENTS OF OPERATIONS
(unaudited)
|
|
For the three |
|
For the three |
|
For the nine |
|
For the nine |
| ||||
|
|
months ended |
|
months ended |
|
months ended |
|
months ended |
| ||||
|
|
September 30, |
|
September 30, |
|
September 30, |
|
September 30, |
| ||||
|
|
2011 |
|
2010 |
|
2011 |
|
2010 |
| ||||
TRADING PROFIT (LOSS): |
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Realized, net |
|
$ |
1,239,705 |
|
$ |
(2,482,915 |
) |
$ |
8,285,259 |
|
$ |
(28,919,595 |
) |
Change in unrealized, net |
|
8,599,020 |
|
5,350,246 |
|
3,005,202 |
|
2,916,207 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Total trading profit (loss) |
|
9,838,725 |
|
2,867,331 |
|
11,290,461 |
|
(26,003,388 |
) | ||||
|
|
|
|
|
|
|
|
|
| ||||
INVESTMENT INCOME (LOSS) |
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Interest |
|
13,828 |
|
56,976 |
|
81,077 |
|
167,339 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
EXPENSES: |
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Brokerage commissions |
|
1,843,525 |
|
2,016,056 |
|
5,915,106 |
|
6,773,202 |
| ||||
Administrative and filing fees |
|
83,797 |
|
91,638 |
|
268,868 |
|
313,058 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Total expenses |
|
1,927,322 |
|
2,107,694 |
|
6,183,974 |
|
7,086,260 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
NET INVESTMENT INCOME (LOSS) |
|
(1,913,494 |
) |
(2,050,718 |
) |
(6,102,897 |
) |
(6,918,921 |
) | ||||
|
|
|
|
|
|
|
|
|
| ||||
NET INCOME (LOSS) |
|
$ |
7,925,231 |
|
$ |
816,613 |
|
$ |
5,187,564 |
|
$ |
(32,922,309 |
) |
|
|
|
|
|
|
|
|
|
| ||||
NET INCOME (LOSS) PER UNIT: |
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Weighted average number of General Partner and Limited Partner Units outstanding |
|
464,071 |
|
565,824 |
|
490,037 |
|
581,910 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Net income (loss) per weighted average General Partner and Limited Partner Unit |
|
$ |
17.08 |
|
$ |
1.44 |
|
$ |
10.59 |
|
$ |
(56.58 |
) |
See notes to financial statements.
ML SELECT FUTURES I L.P.
(a Delaware Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS CAPITAL
For the nine months ended September 30, 2011 and 2010
(unaudited)
|
|
|
|
General |
|
Limited |
|
|
| |||
|
|
Units |
|
Partner |
|
Partners |
|
Total |
| |||
|
|
|
|
|
|
|
|
|
| |||
PARTNERS CAPITAL, December 31, 2009 |
|
602,106 |
|
$ |
4,459,788 |
|
$ |
188,505,511 |
|
$ |
192,965,299 |
|
|
|
|
|
|
|
|
|
|
| |||
Subscriptions |
|
|
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
|
|
| |||
Net income (loss) |
|
|
|
(781,140 |
) |
(32,141,169 |
) |
(32,922,309 |
) | |||
|
|
|
|
|
|
|
|
|
| |||
Redemptions |
|
(53,204 |
) |
|
|
(14,940,437 |
) |
(14,940,437 |
) | |||
|
|
|
|
|
|
|
|
|
| |||
PARTNERS CAPITAL, September 30, 2010 |
|
548,902 |
|
$ |
3,678,648 |
|
$ |
141,423,905 |
|
$ |
145,102,553 |
|
|
|
|
|
|
|
|
|
|
| |||
PARTNERS CAPITAL, December 31, 2010 |
|
522,570 |
|
$ |
4,006,555 |
|
$ |
146,448,795 |
|
$ |
150,455,350 |
|
|
|
|
|
|
|
|
|
|
| |||
Subscriptions |
|
69 |
|
|
|
20,378 |
|
20,378 |
| |||
|
|
|
|
|
|
|
|
|
| |||
Net income (loss) |
|
|
|
160,855 |
|
5,026,709 |
|
5,187,564 |
| |||
|
|
|
|
|
|
|
|
|
| |||
Redemptions |
|
(82,578 |
) |
|
|
(23,876,738 |
) |
(23,876,738 |
) | |||
|
|
|
|
|
|
|
|
|
| |||
PARTNERS CAPITAL, September 30, 2011 |
|
440,061 |
|
$ |
4,167,410 |
|
$ |
127,619,144 |
|
$ |
131,786,554 |
|
See notes to financial statements.
ML SELECT FUTURES I L.P.
(A Delaware Limited Partnership)
FINANCIAL DATA HIGHLIGHTS
For the three and nine months ended September 30, 2011 (unaudited)
The following per Unit data and ratios have been derived from information provided in the financial statements.
|
|
Nine months ended |
|
Three months ended |
| ||
|
|
September 30, 2011 |
|
September 30, 2011 |
| ||
|
|
|
|
|
| ||
Per Unit Operating Performance: |
|
|
|
|
| ||
|
|
|
|
|
| ||
Net asset value, beginning of period |
|
$ |
287.9143 |
|
$ |
281.6155 |
|
|
|
|
|
|
| ||
Realized trading profit (loss) |
|
16.3451 |
|
2.9454 |
| ||
Change in unrealized, net |
|
7.6699 |
|
19.0399 |
| ||
Interest income |
|
0.1614 |
|
0.0296 |
| ||
Expenses (1) |
|
(12.6173 |
) |
(4.1570 |
) | ||
|
|
|
|
|
| ||
Net asset value, end of period |
|
$ |
299.4734 |
|
$ |
299.4734 |
|
|
|
|
|
|
| ||
Total Return: |
|
|
|
|
| ||
|
|
|
|
|
| ||
Total return (2) |
|
4.01 |
% |
6.34 |
% | ||
|
|
|
|
|
| ||
Ratios to Average Partners Capital (1): |
|
|
|
|
| ||
|
|
|
|
|
| ||
Expenses (2) |
|
4.34 |
% |
1.46 |
% | ||
Net investment loss |
|
-4.29 |
% |
-1.45 |
% |
(1) Includes the impact of brokerage commission expenses.
(2) Includes the impact of Performance fees of 0.0%, and 0.0%, respectively.
See notes to financial statements.
ML SELECT FUTURES I L.P.
(A Delaware Limited Partnership)
FINANCIAL DATA HIGHLIGHTS
For the three and nine months ended September 30, 2010 (unaudited)
The following per Unit data and ratios have been derived from information provided in the financial statements.
|
|
Nine months ended |
|
Three months ended |
| ||
|
|
September 30, 2010 |
|
September 30, 2010 |
| ||
|
|
|
|
|
| ||
Per Unit Operating Performance: |
|
|
|
|
| ||
|
|
|
|
|
| ||
Net asset value, beginning of period |
|
$ |
320.4839 |
|
$ |
262.7351 |
|
|
|
|
|
|
| ||
Realized trading profit (loss) |
|
(49.8549 |
) |
(4.3888 |
) | ||
Change in unrealized, net |
|
5.5806 |
|
9.6292 |
| ||
Interest income |
|
0.2881 |
|
0.1007 |
| ||
Expenses (1) |
|
(12.1471 |
) |
(3.7256 |
) | ||
|
|
|
|
|
| ||
Net asset value, end of period |
|
$ |
264.3506 |
|
$ |
264.3506 |
|
|
|
|
|
|
| ||
Total Return: |
|
|
|
|
| ||
|
|
|
|
|
| ||
Total return (2) |
|
-17.52 |
% |
0.61 |
% | ||
|
|
|
|
|
| ||
Ratios to Average Partners Capital (1): |
|
|
|
|
| ||
|
|
|
|
|
| ||
Expenses (2) |
|
4.29 |
% |
1.45 |
% | ||
Net investment loss |
|
-4.19 |
% |
-1.41 |
% |
(1) Includes the impact of brokerage commission expenses.
(2) Includes the impact of Performance fees of 0.0%, and 0.0%, respectively.
See notes to financial statements.
ML SELECT FUTURES I L.P.
(a Delaware Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
(unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ML Select Futures I L.P. (the Partnership) was organized under the Delaware Revised Uniform Partnership Act in August 1995 and commenced trading activities on April 16, 1996. The Partnership issues new units of limited partner interest (Units) at Net Asset Value as of the beginning of each calendar month (see Item 2 for discussion of Net Asset Value). The Partnership engages in the speculative trading of futures, options on futures and forward contracts on a wide range of commodities. Sunrise Capital Partners, LLC (Sunrise or trading advisor) is the trading advisor of the Partnership. Merrill Lynch Alternative Investments LLC (MLAI) is the general partner of the Partnership.
MLAI is an indirect wholly-owned subsidiary of Merrill Lynch & Co., Inc. (Merrill Lynch). Merrill Lynch, Pierce, Fenner & Smith Incorporated (MLPF&S), a wholly-owned subsidiary of Merrill Lynch, is the Partnerships commodity broker. Merrill Lynch is a wholly-owned subsidiary of Bank of America Corporation. MLAI has agreed to maintain a general partners interest of at least 1% of the total capital in the Partnership. MLAI and each Limited Partner share in the profits and losses of the Partnership in proportion to their respective interests in it.
Interests in the Partnership are not insured or otherwise protected by the Federal Deposit Insurance Corporation or any other government authority. Interests are not deposits or other obligations of, and are not guaranteed by, Bank of America Corporation or any of its affiliates or by any bank. Interests are subject to investment risks, including the possible loss of the full amount invested.
In the opinion of management, the interim financial statements contain all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the financial position of the Partnership as of September 30, 2011 and the results of its operations for the three and nine months ended September 30, 2011 and 2010. However, the operating results for the interim periods may not be indicative of the results for the full year.
Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) have been omitted. These financial statements should be read in conjunction with the financial statements and notes thereto included in the Partnerships Annual Report on Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2010.
Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that may affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and such differences could be material.
2. CONDENSED SCHEDULE OF INVESTMENTS
The Partnerships investments, defined as Net unrealized profit (loss) on open contracts on the Statements of Financial Condition, as of September 30, 2011 and December 31, 2010, are as follows:
September 30, 2011
|
|
Long Positions |
|
Short Positions |
|
Net Unrealized |
|
|
|
|
| |||||||||||
Commodity Industry |
|
Number of |
|
Unrealized |
|
Percent of |
|
Number of |
|
Unrealized |
|
Percent of |
|
Profit (Loss) |
|
Percent of |
|
|
| |||
Sector |
|
Contracts |
|
Profit (Loss) |
|
Partners Capital |
|
Contracts |
|
Profit (Loss) |
|
Partners Capital |
|
on Open Positions |
|
Partners Capital |
|
Maturity Dates |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Agriculture |
|
|
|
$ |
|
|
0.00 |
% |
(925 |
) |
$ |
2,398,805 |
|
1.82 |
% |
$ |
2,398,805 |
|
1.82 |
% |
November 2011 - March 2012 |
|
Currencies |
|
77,885,132 |
|
(710,907 |
) |
-0.54 |
% |
(141,584,381 |
) |
2,676,392 |
|
2.03 |
% |
1,965,485 |
|
1.49 |
% |
December 2011 |
| |||
Energy |
|
|
|
|
|
0.00 |
% |
(142 |
) |
498,260 |
|
0.38 |
% |
498,260 |
|
0.38 |
% |
October 2011 - November 2012 |
| |||
Interest rates |
|
307 |
|
349,167 |
|
0.26 |
% |
|
|
|
|
0.00 |
% |
349,167 |
|
0.26 |
% |
December 2011 - June 2012 |
| |||
Metals |
|
53 |
|
(101,050 |
) |
-0.08 |
% |
(443 |
) |
4,095,902 |
|
3.11 |
% |
3,994,852 |
|
3.03 |
% |
December 2011 |
| |||
Stock indices |
|
|
|
|
|
0.00 |
% |
(384 |
) |
(360,051 |
) |
-0.27 |
% |
(360,051 |
) |
-0.27 |
% |
October 2011 - December 2011 |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Total |
|
|
|
$ |
(462,790 |
) |
-0.36 |
% |
|
|
$ |
9,309,308 |
|
7.07 |
% |
$ |
8,846,518 |
|
6.71 |
% |
|
|
December 31, 2010
|
|
Long Positions |
|
Short Positions |
|
Net Unrealized |
|
|
|
|
| |||||||||||
Commodity Industry |
|
Number of |
|
Unrealized |
|
Percent of |
|
Number of |
|
Unrealized |
|
Percent of |
|
Profit (Loss) |
|
Percent of |
|
|
| |||
Sector |
|
Contracts |
|
Profit (Loss) |
|
Partners Capital |
|
Contracts |
|
Profit (Loss) |
|
Partners Capital |
|
on Open Positions |
|
Partners Capital |
|
Maturity Dates |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Agriculture |
|
348 |
|
$ |
1,762,786 |
|
1.17 |
% |
|
|
$ |
|
|
0.00 |
% |
$ |
1,762,786 |
|
1.17 |
% |
March 11 |
|
Currencies |
|
1,330,860,517 |
|
2,355,094 |
|
1.57 |
% |
(497,146,287 |
) |
(171,750 |
) |
-0.11 |
% |
2,183,344 |
|
1.46 |
% |
March 11 |
| |||
Interest rates |
|
|
|
|
|
0.00 |
% |
(780 |
) |
(253,496 |
) |
-0.17 |
% |
(253,496 |
) |
-0.17 |
% |
March 11 - December 11 |
| |||
Energy |
|
405 |
|
757,124 |
|
0.50 |
% |
(28 |
) |
(45,360 |
) |
-0.03 |
% |
711,764 |
|
0.47 |
% |
January 11 - February 11 |
| |||
Metals |
|
380 |
|
2,127,230 |
|
1.41 |
% |
(165 |
) |
(750,472 |
) |
-0.50 |
% |
1,376,758 |
|
0.91 |
% |
January 11 - March 11 |
| |||
Stock indices |
|
530 |
|
60,160 |
|
0.04 |
% |
|
|
|
|
0.00 |
% |
60,160 |
|
0.04 |
% |
January 11 - March 11 |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Total |
|
|
|
$ |
7,062,394 |
|
4.69 |
% |
|
|
$ |
(1,221,078 |
) |
-0.81 |
% |
$ |
5,841,316 |
|
3.88 |
% |
|
|
No individual contracts unrealized profit or loss comprised greater than 5% of the Partners Capital as of September 30, 2011 and December 31, 2010.
3. FAIR VALUE OF INVESTMENTS
The Financial Accounting Standards Board (FASB) issued the Accounting Standards Codification (ASC) which provides authoritative guidance on fair value measurement. This guidance defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements.
Fair value of an investment is the amount that would be received to sell the investment in an orderly transaction between market participants at the measurement date (i.e. the exit price). All investments interests (including derivative financial instruments and derivative commodity instruments) are held for trading purposes. The investments are recorded on trade date and open contracts are recorded at fair value (described below) at the measurement date. Investments denominated in foreign currencies are translated into U.S. dollars at the exchange rates prevailing at the measurement date. Gains or losses are realized when contracts are liquidated. Unrealized gains or losses on open contracts are included in Equity in a commodity trading account. Any change in net unrealized gain or loss from the preceding period is reported in the Statements of Operations.
The fair value measurement established a hierarchal disclosure framework which prioritizes and ranks the level of market price observability used in measuring investments at fair value. Market price observability is impacted by a number of factors, including the type of investment and the characteristics specific to the investment. Investments with readily available active quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value.
Investments measured and reported at fair value are classified and disclosed in one of the following categories:
Level I Quoted prices are available in active markets for identical investments as of the reporting date. The type of investments included in Level I are publicly traded investments. As required by the fair market measurement, the Partnership does not adjust the quoted price for these investments even in situations where the Partnership holds a large position and a sale could reasonably impact the quoted price.
Level II Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date, and fair value is determined through the use of generally accepted and understood models or other valuation methodologies. Investments which are generally included in this category are investments valued using market data.
Level III Pricing inputs are unobservable and include situations where there is little, if any, market activity for the investment. Fair value for these investments are determined using valuation methodologies that consider a range of factors, including but not limited to the nature of the investment, local market conditions, trading values on public exchanges for comparable securities, current and projected operating performance and financing transactions subsequent to the acquisition of the investment. The inputs into the determination of fair value require significant management judgment. Due to the inherent uncertainty of these estimates, these values may differ materially from the values that would have been used had a ready market for these investments existed.
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investments level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. MLAIs 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.
Following is a description of the valuation methodologies used for investments, as well as the general classification of such investments pursuant to the valuation hierarchy.
Exchange traded investments are fair valued by the Partnership by using the reported closing price on the primary exchange where it trades such investments. These closing prices are observed through the clearing broker and third party pricing services. For non-exchange traded investments, quoted values and other data provided by nationally recognized independent pricing sources are used by the Partnership as inputs into its process for determining fair values.
The independent pricing sources obtain market quotations and actual transaction prices for securities that have quoted prices in active markets. Each source has its own proprietary method for determining the fair value of securities that are not actively traded. In general, these methods involve the use of matrix pricing in which the independent pricing source uses observable market inputs including, but not limited to, investment yields, credit risks and spreads, benchmarking of like securities, broker-dealer quotes, reported trades and sector groupings to determine a reasonable fair market value.
The Partnership has determined that Level I securities would include most of its futures and options contracts where it believes that quoted prices are available in an active market.
Where the Partnership believes that quoted market prices are not available or that the market is not active, fair values are estimated by using quoted prices of securities with similar characteristics, pricing models or matrix pricing and these are generally classified as Level II securities. The Partnership determined that Level II securities would include its forward and certain futures contracts.
The Partnerships net unrealized profit (loss) on open forward and futures contracts by the above fair value hierarchy levels as of September 30, 2011 and December 31, 2010 are as follows:
Net unrealized profit (loss) |
|
|
|
|
|
|
|
|
| ||||
on open contracts |
|
Total |
|
Level I |
|
Level II |
|
Level III |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Futures |
|
|
|
|
|
|
|
|
| ||||
Long |
|
$ |
(1,033 |
) |
$ |
100,017 |
|
$ |
(101,050 |
) |
$ |
|
|
Short |
|
$ |
7,303,697 |
|
$ |
5,014,992 |
|
$ |
2,288,705 |
|
$ |
|
|
|
|
$ |
7,302,664 |
|
$ |
5,115,009 |
|
$ |
2,187,655 |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Forwards |
|
|
|
|
|
|
|
|
| ||||
Long |
|
$ |
(461,757 |
) |
$ |
|
|
$ |
(461,757 |
) |
$ |
|
|
Short |
|
$ |
2,005,611 |
|
$ |
|
|
$ |
2,005,611 |
|
$ |
|
|
|
|
$ |
1,543,854 |
|
$ |
|
|
$ |
1,543,854 |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
| ||||
September 30, 2011 |
|
$ |
8,846,518 |
|
$ |
5,115,009 |
|
$ |
3,731,509 |
|
$ |
|
|
Net unrealized profit (loss) |
|
|
|
|
|
|
|
|
| ||||
on open contracts |
|
Total |
|
Level I |
|
Level II |
|
Level III |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Futures |
|
|
|
|
|
|
|
|
| ||||
Long |
|
$ |
4,889,468 |
|
$ |
4,419,143 |
|
$ |
470,325 |
|
$ |
|
|
Short |
|
$ |
(1,045,428 |
) |
$ |
(294,956 |
) |
$ |
(750,472 |
) |
$ |
|
|
|
|
$ |
3,844,040 |
|
$ |
4,124,187 |
|
$ |
(280,147 |
) |
$ |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Forwards |
|
|
|
|
|
|
|
|
| ||||
Long |
|
$ |
2,172,926 |
|
$ |
|
|
$ |
2,172,926 |
|
$ |
|
|
Short |
|
$ |
(175,650 |
) |
$ |
|
|
$ |
(175,650 |
) |
$ |
|
|
|
|
$ |
1,997,276 |
|
$ |
|
|
$ |
1,997,276 |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
| ||||
December 31, 2010 |
|
$ |
5,841,316 |
|
$ |
4,124,187 |
|
$ |
1,717,129 |
|
$ |
|
|
The Partnerships volume of trading forwards and futures as of the period and year ended September 30, 2011 and December 31, 2010, respectively, are representative of the activity throughout these periods. There were no transfers to or from Level I or II during the quarter ended September 30, 2011.
The Partnership engages in the speculative trading of futures, options on futures and forward contracts on a wide range of commodities. Such contracts meet the definition of a derivative as noted in the guidance for derivatives and hedging activities. The fair value amounts of and the gains and losses on derivative instruments is disclosed in the Statements of Financial Condition and Statements of Operations, respectively. There are no credit related contingent features embedded in these derivative contracts.
The following table indicates the trading gains and losses, by commodity industry sector, on derivative instruments for the three and nine month periods ended September 30, 2011 and 2010:
|
|
For the three months ended |
|
For the nine months ended |
| ||
|
|
September 30, 2011 |
|
September 30, 2011 |
| ||
Commodity Industry Sector |
|
Gain (loss) from trading |
|
Gain (loss) from trading |
| ||
|
|
|
|
|
| ||
Agriculture |
|
$ |
(977,570 |
) |
$ |
(2,324,630 |
) |
Currencies |
|
22,706 |
|
86,835 |
| ||
Energy |
|
233,680 |
|
6,341,029 |
| ||
Interest rates |
|
2,796,819 |
|
1,243,640 |
| ||
Metals |
|
6,770,358 |
|
6,181,720 |
| ||
Stock indices |
|
992,732 |
|
(238,133 |
) | ||
|
|
|
|
|
| ||
Total |
|
$ |
9,838,725 |
|
$ |
11,290,461 |
|
|
|
For the three months ended |
|
For the nine months ended |
| ||
|
|
September 30, 2010 |
|
September 30, 2010 |
| ||
Commodity Industry Sector |
|
Gain (loss) from trading |
|
Gain (loss) from trading |
| ||
|
|
|
|
|
| ||
Agriculture |
|
$ |
4,726,378 |
|
$ |
4,646,008 |
|
Currencies |
|
1,293,152 |
|
(1,546,216 |
) | ||
Energy |
|
(563,395 |
) |
(14,516,471 |
) | ||
Interest rates |
|
236,998 |
|
2,817,339 |
| ||
Metals |
|
(1,041,489 |
) |
(6,245,169 |
) | ||
Stock indices |
|
(1,784,313 |
) |
(11,158,879 |
) | ||
|
|
|
|
|
| ||
Total |
|
$ |
2,867,331 |
|
$ |
(26,003,388 |
) |
The Partnership is subject to the risk of insolvency of a counterparty, an exchange, a clearinghouse or MLPF&S. Partnership assets could be lost or impounded during lengthy bankruptcy proceedings. Were a substantial portion of the Partnerships capital tied up in a bankruptcy or other similar types of proceedings, MLAI might suspend or limit trading, perhaps causing the Partnership to miss significant profit opportunities. There are increased risks in dealing with unregulated trading counterparties including the risk that assets may not benefit from the protection afforded to customer funds deposited with regulated dealers and brokers.
4. MARKET AND CREDIT RISKS
The nature of this Partnership has certain risks, which cannot be presented on the financial statements. The following summarizes some of those risks.
Market Risk
Derivative instruments involve varying degrees of market risk. Changes in the level or volatility of interest rates, foreign currency exchange rates or the market values of the financial instruments or commodities underlying such derivative instruments frequently result in changes in the Partnerships Net unrealized profit (loss) on such derivative instruments as reflected in the Statements of Financial Condition. The Partnerships exposure to market risk is influenced by a number of factors, including the relationships among the derivative instruments held by the Partnership as well as the volatility and liquidity of the markets in which the derivative instruments are traded. Investments in foreign markets may also entail legal and political risks.
MLAI has procedures in place intended to control market risk exposure, although there can be no assurance that they will, in fact, succeed in doing so. These procedures focus primarily on monitoring the trading of Sunrise calculating the Net Asset Value of the Partnership as of the close of business on each day and reviewing outstanding positions for over-concentrations. While MLAI does not intervene in the markets to hedge or diversify the Partnerships market exposure, MLAI may urge Sunrise to reallocate positions in an attempt to avoid over-concentrations. However, such interventions are expected to be unusual. MLAIs basic risk control procedures which consist simply of the ongoing process of advisor monitoring, along with monitoring the market risk controls being applied by Sunrise is sufficient to detect any such intervention is needed.
Credit Risk
The risks associated with exchange-traded contracts are typically perceived to be less than those associated with over-the-counter (non-exchange-traded) transactions, because exchanges typically (but not universally) provide clearinghouse arrangements in which the collective credit (in some cases limited in amount, in some cases not) of the members of the exchange is pledged to support the financial integrity of the exchange. In over-the-counter transactions, on the other hand, traders must rely solely on the credit of their respective individual counterparties. Margins, which may be subject to loss in the event of a default, are generally required in exchange trading, and counterparties may also require margin in the over-the-counter markets.
The credit risk associated with these instruments from counterparty nonperformance is the net unrealized profit on open contracts, if any, included in the Statements of Financial Condition. The Partnership attempts to mitigate this risk by dealing exclusively with Merrill Lynch entities as clearing brokers.
The Partnership, in its normal course of business, enters into various contracts, with MLPF&S acting as its commodity broker. Pursuant to the brokerage arrangement with MLPF&S (which includes a netting arrangement), to the extent that such trading results in receivables from and payables to MLPF&S, these receivables and payables are offset and reported as a net receivable or payable and included in Equity in commodity futures trading accounts in the Statements of Financial Condition.
Indemnifications
In the normal course of business, the Partnership has entered, or may in the future enter into agreements that obligate the Partnership to indemnify third parties, including affiliates of the Partnership, for breach of certain representations and warranties made by the Partnership. No claims have actually been made with respect to such indemnities and any quantification would involve hypothetical claims that have not been made. Based on the Partnerships experience, MLAI expected the risk of loss to be remote and, therefore, no provision has been recorded.
5. RELATED PARTY TRANSACTIONS
Starting in June of 2010, the Partnership entered into a transfer agency and investor services agreement with Financial Data Services, Inc. (the Transfer Agent), a related party of Merrill Lynch through MLAI. The agreement calls for a fee to be paid based on the collective net assets of funds managed or sponsored by MLAI with a minimum annual fee of $2,700,000. The fee rate ranges from 0.016% to 0.02% based on aggregate net assets. The fee is payable monthly in arrears. MLAI allocates the Transfer Agent fees to each of the managed/sponsored funds on a monthly basis based on the Partnerships net assets. The Transfer Agent fee, which was determined at 0.02% of aggregate asset level, allocated to the Partnership for the quarter ended September 30, 2011 are paid on behalf of the Partnership by the Sponsor.
6. RECENT ACCOUNTING PRONOUNCEMENTS
In May 2011, the FASB issued an update to requirements relating to Fair Value Measurement which represents amendments to achieve common fair value measurement and disclosure requirements in GAAP and International Financial Reporting Standards. The amendments are of two types: (i) those that clarify the FASBs intent about the application of existing fair value measurement and disclosure requirements and (ii) those that change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements.
The amendments that change a particular principle or requirement for measuring fair value or disclosing information about fair value measurements relate to (i) measuring the fair value of the financial instruments that are managed within a portfolio; (ii) application of premium and discount in a fair value measurement; and (iii) additional disclosures about fair value measurements. The update is effective for annual periods beginning after December 15, 2011. MLAI does not believe the adoption of this update will have a material impact on the Partnerships financial statements.
7. SUBSEQUENT EVENTS
The General Partner has evaluated the impact of subsequent events on the Partnership and has determined that there are no subsequent events that require adjustments to, or disclosure in, the financial statements.
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
MONTH-END NET ASSET VALUE PER UNIT
MONTH-END NET ASSET VALUE PER INITIAL UNIT
|
|
Jan. |
|
Feb. |
|
Mar. |
|
Apr. |
|
May |
|
June |
|
July |
|
Aug. |
|
Sept. |
| |||||||||
2010 |
|
$ |
304.3271 |
|
$ |
301.2208 |
|
$ |
307.9271 |
|
$ |
306.4419 |
|
$ |
266.4390 |
|
$ |
262.7351 |
|
$ |
253.2554 |
|
$ |
256.1866 |
|
$ |
264.3506 |
|
2011 |
|
$ |
288.6250 |
|
$ |
297.7954 |
|
$ |
293.7558 |
|
$ |
306.9529 |
|
$ |
288.3932 |
|
$ |
281.6155 |
|
$ |
281.2604 |
|
$ |
282.6780 |
|
$ |
299.4734 |
|
The Partnership calculates the Net Asset Value per unit as of the close of business on the last business day of each calendar month and such other dates as MLAI may determine in its discretion. The Partnerships Net Asset Value as of any calculation date will generally equal the value of the Partnerships account under the management of its trading advisor as of such date, plus any other assets held by the Partnership, minus accrued brokerage commissions, administrative fees, profit shares, and other liabilities of the Partnership. MLAI is authorized to make all Net Asset Value determinations.
Liquidity and Capital Resources
The Partnership does not engage in the sale of goods or services. The Partnerships assets are its (i) equity in its trading account, consisting of cash including restricted cash, and unrealized gain net of unrealized losses and (ii) interest receivable. Because of the low margin deposits normally required in commodity futures trading relatively small price movements may result in substantial losses to the Partnership. While substantial losses could lead to a material decrease in liquidity, no such material losses occurred during the third quarter of 2011 and there was no impact on the Partnerships liquidity.
The Partnerships capital consists of the capital contributions of the partners as increased or decreased by gains or losses on trading, expenses, interest income, redemptions of Redeemable Units and distributions of profits, if any.
For the nine months ended September 30, 2011, Partnership capital decreased 12.41% from $150,455,350 to $131,786,554. This decrease was attributable to the net gain from operations of $5,187,564, coupled with the redemption of 82,578 Redeemable Units of Interest resulting in an outflow of $23,876,738. The cash outflow was offset with cash inflow of $20,378 due to subscriptions of 69 units. Future redemptions could impact the amount of funds available for investment in commodity contract positions in subsequent months.
Critical Accounting Policies
Statement of Cash Flows
The Partnership is not required to provide a Statement of Cash Flows.
Investments
All investments (including derivatives) are held for trading purposes. Investments are recorded on trade date and open contracts are recorded at fair value (as described below) at the measurement date. Investments denominated in foreign currencies are translated into U.S. dollars at the exchange rates prevailing at the measurement date. Gains or losses are realized when contracts are liquidated. Unrealized gains or losses on open contracts are included as a component of equity in a commodity trading account on the Statements of Financial Condition. Realized gains or losses and any change in net unrealized gains or losses from the preceding period are reported in the Statements of Operations.
Cash and Cash Equivalents
The Partnership considers all highly liquid investments, with a maturity of three months or less when acquired, to be cash equivalents. Cash equivalents were recorded at amortized cost, as provided by the investment manager of the cash equivalent, which approximated fair value (Level II see Note 3). Cash was held at a nationally recognized financial institution.
Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. For more information on our treatment of fair value see Note 3, Fair Value of Investments.
Futures Contracts
The Partnership trades listed futures contracts. A listed futures contract is a firm commitment to buy or sell a standardized quantity of an underlying asset over a specified duration. The Partnership buys and sells contracts based on indexes of financial assets such as stocks, domestic and global stock indexes, as well as contracts on various physical commodities. Prices paid or received on these contracts are determined by the ask or bid provided by the exchanges on which they are traded. Contracts may be settled in physical form or cash settled depending upon the contract. Upon the execution of a trade, margin requirements determine the amount of cash that must be on deposit to secure the transaction. These amounts are considered restricted cash on the Partnerships balance sheet. Contracts are priced daily by the Partnership and the gain or loss based on the daily mark to market are recorded as unrealized gains. When the contract is closed, the Partnership records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. Because transactions in futures contracts require participants to make both initial margin
deposits of cash or other assets and variation margin deposits, through the futures broker, directly with the exchange on which the contracts are traded, credit exposure is limited. Realized gains (losses) and changes in unrealized gains (losses) on futures contracts are included in the Statements of Operations. The Partnership also trades futures contracts on the London Metals Exchange (LME). The valuation pricing for LME contracts is based on action of a committee that incorporates prices from the most liquid trading sessions of the day and can also rely on other inputs such as supply and demand factors and bid and asks from open outcry sessions.
Forward Foreign Currency Contracts
Foreign currency contracts are those contracts where the Partnership agrees to receive or deliver a fixed quantity of foreign currency for an agreed-upon price on an agreed future date. Foreign currency contracts are valued daily, and the Partnerships net equity therein, representing unrealized gain or loss on the contracts as measured by the difference between the forward foreign exchange rates at the dates of entry into the contracts and the forward rates at the reporting date, is included in the Statements of Financial Condition. Realized gains (losses) and changes in unrealized gains (losses) on foreign currency contracts are recognized in the period in which the contract is closed or the changes occur, respectively and are included in the Statements of Operations.
Interest Rates and Income
The Partnership receives an interest rate based on the 90 day T-bill rate on U.S. dollar deposits. Other rates exist for non-U.S. dollar deposits, however most of the Partnerships cash is held in U.S. dollars. The current short term interest rates have remained extremely low when compared with historical rates and thus has contributed negligible amounts to overall Partnership performance.
Income Taxes
No provision for income taxes has been made in the accompanying financial statements as each Limited Partner is individually responsible for reporting income or loss based on such Partners share of the Partnerships income and expenses as reported for income tax purposes.
The Partnership follows the ASC guidance on accounting for uncertainty in income taxes. This guidance provides how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. This guidance also requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Partnerships financial statements to determine whether the tax positions are more-likely-than-not to be sustained by the applicable tax authority. Tax positions with respect to tax at the Partnership level not deemed to meet the more-likely-than-not threshold would be recorded as a tax benefit or expense in the current year. MLAI has analyzed the Partnerships tax positions and has concluded that no provision for income tax is required in the Partnerships financial statements. The following are the major tax jurisdictions for the Partnership and the earliest tax year subject to examination: United States 2007.
Reform Act
The Dodd-Frank Wall Street Reform and Consumer Protection Act (the Reform Act) was signed into law on July 21, 2010. The Reform Act enacts financial regulatory reform, and may alter the way in which the Partnership conducts certain trading activities. The Reform Act includes measures to broaden the scope of derivative instruments subject to regulation, including by requiring clearing and exchange trading of certain derivatives, imposing new capital and margin reporting, registration and business conduct requirements for certain market participants and imposing position limits on certain over-the-counter derivatives. The Reform Act grants the U.S. Commodity Futures Trading Commission and the Securities and Exchange Commission substantial new authority and requires numerous rulemakings by these
agencies. The ultimate impact of these derivatives regulations, and the time it will take to comply, remains uncertain. The final regulations may impose additional operational and compliance costs on the Partnership.
Results of Operations
January 1, 2011 to September 30, 2011
January 1, 2011 to March 31, 2011
The Partnership experienced a net profit of $5,196,811 before brokerage commissions and related fees in the first quarter of 2011. The Partnerships profits were primarily attributable to energy sector posting profits. The stock indices, agriculture, interest rates, currencies and metals sectors posted losses.
The energy sector posted profits to the Partnership. Profits were posted to the Partnership at the beginning of the quarter. Worries about possible supply disruptions triggered considerable price movements in the energy market and helped Brent Crude oil prices break through the $100/barrel resistance level. Profits were posted to the Partnership in the middle of the quarter. Political chaos in oil producing countries of the Middle East and North Africa injected new volatility into the market and raised new risks for the global economy. The impact of these events was felt across different market sectors. Oil prices shot higher as disruptions in crude oil production took a large amount of oil off the world market. The Brent crude contract for nearby delivery surpassed $110 per barrel. The quarter ended with profits posted to the Partnership. Developments in Libya followed by a devastating earthquake and nuclear crisis in Japan provided unexpected shocks to the markets in March and triggered high levels of price volatility and economic uncertainty. Markets somewhat stabilized during the second half of the month and energies resumed their upward trend.
The stock indices sector posted losses to the Partnership. Profits were posted to the Partnership at the beginning of the quarter. Profits in equity markets appeared to be driven by a more optimistic view on economic growth. Profits were posted to the Partnership in the middle of the quarter. The situation in the Middle East and North Africa prompted a large correction in the global equity market after the rally of the past few months. Despite the price correction, profits were posted to the Partnership due to the trading programs long U.S. and European stock index futures. Losses were posted to the Partnership at the end of the quarter. Developments in Libya followed by a devastating earthquake and nuclear crisis in Japan provided unexpected shocks to the markets in March and triggered high levels of price volatility and economic uncertainty. Most equity markets initially moved lower, reversing the trends of previous months.
The agriculture sector posted losses to the Partnership. Profits were posted to the Fund at the beginning of the quarter. Price action in the agricultural sector was relatively subdued and produced marginal profits. Profits were posted to the Partnership in the middle of the quarter only to be reversed at the end of the quarter. Developments in Libya followed by a devastating earthquake and nuclear crisis in Japan provided unexpected shocks to the markets in March and triggered high levels of price volatility and economic uncertainty. Most equity markets initially moved lower, reversing the trends of previous months. Agricultural commodities suffered pullbacks as they focused on potentially major economic consequences of these events.
The interest rate sector posted losses to the Partnership. Profits were posted to the Partnership at the beginning of the quarter. The interest rate sector was trading in a relatively tight range. Small profits were recorded in European short-term instruments on rising expectations for an interest rate increase in the Eurozone. Profits were posted to the Partnership in the middle of the quarter only to be reversed at the end
of the quarter. Developments in Libya followed by a devastating earthquake and nuclear crisis in Japan provided unexpected shocks to the markets in March and triggered high levels of price volatility and economic uncertainty.
The currency sector posted losses to the Partnership. Losses were posted to the Partnership at the beginning of the quarter. The year started with a substantial price correction in high yielding currencies, in particular, the South African rand. The South African rand currency fell against the U.S. Dollar which caused losses for the trading program. The British pound moved higher against the trading programs positions and also contributed to the losses. Losses were posted to the Partnership in the middle of the quarter. The U.S. dollar initially strengthened, but came under pressure against most major and minor currencies during the second half of February. Small profits from the trading programs short positions in the U.S. dollar trades against minor currencies were offset by losses from major currency cross rates. Losses were posted to the Partnership at the end of the quarter. The Japanese yen experienced some wild swings in value, but eventually moved lower against the U.S. dollar and other currencies, possibly a result of coordinated intervention by the central banks.
The metals sector posted losses to the Partnership. Losses were posted to the Partnership at the beginning of the quarter. Precious metals experienced significant price retracements in January. Gold fell $100 off the high it posted at the beginning of the month which led to the liquidation of most of our Gold positions. The trading programs Silver trade was also closed out in January, posting realized profits overall which was not enough to offset losses. Profits were posted to the Partnership in the middle of the quarter. Precious metals seemed to be benefiting from higher levels of geopolitical risk. Gold resumed its upward momentum and pushed through $1400 an ounce. The silver price touched an all time high in February above $33/oz. Losses were posted to the Partnership at the end of the quarter. Developments in Libya followed by a devastating earthquake and nuclear crisis in Japan provided unexpected shocks to the markets in March and triggered high levels of price volatility and economic uncertainty. Most equity markets initially moved lower, reversing the trends of previous months. Metals suffered pullbacks as they focused on potentially major economic consequences of these events.
April 1, 2011 to June 30, 2011
The Partnership experienced a net trading loss of $3,745,075 before brokerage commissions and related fees in the second quarter of 2011. The Partnerships profits were primarily attributable to the currency and metals sectors posting profits. The stock indices, agriculture, interest rates and energy sectors posted losses.
The currency sector posted profits to the Partnership. Profits were posted to the Partnership at the beginning of the quarter as the U.S. dollar declined versus most major and minor currencies. The U.S. dollar hit new record lows against the Swiss franc and the Australian dollar. Several factors seemed to be conspiring against the U.S. currency. They included the widening of interest rate differentials in favor of other currencies as well as concerns over fiscal policy in the U.S. During the month of April, the trading program increased its exposure to the downtrend in the U.S. dollar versus the South African rand, New Zealand dollar and Polish zloty, while taking profits on existing short U.S. dollar positions versus the Australian dollar, Swedish krona and Singapore dollar. Losses were posted to the Partnership in the middle of the quarter as worries that Greece may soon default on its debts helped push the U.S. dollar higher against the Euro. Most major and minor currencies also seemed to be trading down against the U.S. dollar, generating losses for the trading program. The Swiss franc was the best performer. Solid performance of Switzerlands economy most likely contributed to the currencys strength. The quarter ended with profits posted to the Partnership due to profits from the Swiss franc and the Euro as they both gained against other major currencies.
The metals sector posted profits to the Partnership. Profits were posted to the Partnership at the beginning of the quarter as record levels were recorded in the precious metals sector. Gold futures broke through $1500 an ounce. Silver prices soared to new 31 year highs and approached $50 a troy ounce. Both metals seemed to be well supported by a weaker U.S. dollar and rising inflationary fears. The trading programs exposure to precious metals was reduced on profit taking. Losses were posted to the Partnership in the middle of the quarter as silver suffered a substantial decline as its price fell from April highs of nearly $50 a troy ounce down to as low as $32. Fortunately, the trading programs silver positions had been scaled back considerably prior to the May downturn and as a result, the trading program was able to liquidate the overall profitable trade with only a marginal loss for the month. Gold also retreated from record highs, but held up better than silver and prices bounced back later in the month. The trading program remained long gold positions throughout the month. Losses were posted to the Partnership at the end of the quarter due to the uncertain economic environment in developed economies which seemed to be a driving force behind the June volatility.
The stock indices sector posted losses to the Partnership. Profits were posted to the Partnership at the beginning of the quarter as trading in the equity sector generated profits. Domestic stocks advanced to multiyear highs in response to encouraging corporate earnings and prospects of low interest rates. As global equities moved higher, the trading program increased its exposure to the sector. Losses were posted to the Partnership in the middle of the quarter as the trading program began unwinding long trades in equities. Losses continued to be posted to the Partnership at the end of the quarter as equities extended their decline further into June. As a result the trading program reduced its equity exposure to 1% of the total portfolio risk.
The agriculture sector posted losses to the Partnership. Profits were posted to the Partnership at the beginning of the quarter only to be reversed in the middle of the quarter. In May markets endured a choppy month after prices turned against the established trends, negatively impacting the trading programs performance. Losses were posted to the Partnership at the end of the quarter as wheat was the best performer for the month but not enough to offset losses. Markets seemed to reflect the loss of momentum in the U.S. economy and renewed concerns about the European debt crisis.
The interest rate sector posted losses to the Partnership. Losses were posted to the Partnership at the beginning of the quarter. Trading in interest rate futures generated negative results after prices turned against the trading programs short positions. Losses were posted to the Partnership in the middle of the quarter. The interest rate futures staged a rally in May, driving yields to the lowest point of the year and causing most of the trading programs modest short trades to be stopped out with a loss. Losses were posted to the Partnership at the end of the quarter. In June, the price behavior alternated between positive and negative risk sentiment based on encouraging or disappointing signals on Greece, the outlook for economic growth and the debt ceiling debate in the U.S.
The energy sector posted losses to the Partnership. Profits were posted to the Partnership at the beginning of the quarter as positive performance resulted from long positions in energies. The rise in oil prices seemed to be driven by lingering concerns about supply disruptions in the Middle East and North Africa along with the weakening U.S. dollar. Losses were posted to the Partnership in the middle of the quarter. The trading program liquidated a large amount of their remaining energy exposure during the first half of May. Losses were posted to the Partnership at the end of the quarter as energies extended their decline further into June and the trading program liquidated a few remaining energy trades.
July 1, 2011 to September 30, 2011
The Partnership experienced a net profit of $ 9,838,725 before brokerage commissions and related fees in the third quarter of 2011. The Partnerships profits were primarily attributable to the metals, interest rates, stock indices, energy, and currency sectors posting profits. The agriculture sector posted losses.
The metals sector posted profits to the Partnership. Profits were posted to the Partnership at the beginning of the quarter. Gold was the highlight of the month as prices pushed to new all-time highs. Profits were posted to the Partnership in the middle of the quarter as gold was the biggest beneficiary of the financial system turmoil. Prices reached new record highs and despite a significant mid-month pullback the market eventually turned upward and resumed its trend. Profits continued to be posted to the Partnership at the end of the quarter. Steep declines in commodity markets translated into profitable performance for the trading programs base metals. Many of these trades were initiated in September when prices fell through important technical levels. Copper was the best performing market. The drop in copper prices was also significant from the fundamental perspective because the metal is considered a good indicator of global economic growth. Meanwhile, gold futures posted losses for the month. Despite the fact that gold enjoyed a special status as a safe haven from financial crisis and trended higher for much of this year, the market suddenly switched direction and fell along with other assets. A large portion of the trading programs long gold positions had already been liquidated on profit taking prior to September, with the balance stopped out while still profitable.
The interest rate sector posted profits to the Partnership. Losses were posted to the Partnership at the beginning of the quarter as the interest rate sector was basically flat as profits from the U.S. market were offset by losses in European markets. Profits were posted to the Partnership in the middle of the quarter as yields fell to historic lows and prices rallied. They found good support in the U.S. Federal Reserves decision to keep interest rates near zero through 2013. Profits were posted to the Partnership at the end of the quarter. The U.S. Federal Reserve announced its economic stimulus plan to sell short dated instruments and buy an equal amount of longer dated U.S. Treasury bonds, which sent the yield on longer term bonds to record lows.
The stock indices posted profits to the Partnership. Losses were posted to the Partnership at the beginning of the quarter as the Partnership navigated the financial markets ups and downs by maintaining defensive positions, (i.e. being light or neutral in global stock index futures), thus lowering their negative impact on performance. Profits were posted to the Partnership in the middle of the quarter. Trading in the equity sector was profitable due to European stock indices as they suffered heavy declines during the month. In an effort to control volatility, several European governments announced a ban on short selling of some of their equity products, including stock index futures. Profits were posted to the Partnership at the end of the quarter. Equity markets suffered sharp declines during the month. They made a meaningful contribution to profits, especially from positions in European stock index futures.
The energy sector posted profits to the Partnership. Losses were posted to the Partnership at the beginning through the middle of the quarter due to a quick decline in oil prices. Profits were posted to the Partnership at the end of the quarter as steep declines in commodity markets translated into profitable performance for the Partnerships energy positions.
The currency sector posted profits to the Partnership. Profits were posted to the Partnership at the beginning of the quarter. In the currency sector, the Swiss franc benefited from its safe haven status and hit a record high against the U.S. dollar, the British pound and other currencies. It turned out to be the best performer for the trading program. The Japanese yen was profitable as well. It moved up to a 4-month high against the U.S. dollar, possibly a sign of Japans progress in recovering from this springs earthquake and nuclear disaster. Minor currencies, such as the New Zealand dollar and Singapore dollar also gained
against the U.S. currency and recorded positive performance for the month. The U.S. dollar tumbled across the board as expectations were growing that the U.S. might suffer a credit rating downgrade. Losses were posted to the Partnership in the middle of the quarter. The Swiss franc was the best market in the sector. It initially trended higher in favor of the trading programs long positions, then retreated sharply and triggered exit signals. The Australian dollar was the worst performer. Profits were posted to the Partnership at the end of the quarter. After rallying for much of the year, emerging market currencies such as the Brazilian real and South African rand joined the sell-off and contributed positively to performance. Also included among the winners were Japanese yen cross rates that benefited from the falling Euro, the Swiss franc and the British pound.
The agriculture sector posted losses to the Partnership. Losses were posted to the Partnership at the beginning of the quarter. Cotton prices dropped dramatically in July, which benefited the trading programs short positions. Perceptions of higher crops were among the factors behind the falling prices. Trading in agricultural commodities was negative except for the corn market. Corn futures soared on weather concerns and produced profits which were not enough to offset losses posted to the Partnership in the middle of the quarter. Profits were posted to the Partnership at the end of the quarter. Steep declines in commodity markets translated into profitable performance for the trading programs grains positions.
January 1, 2010 to September 30, 2010
January 1, 2010 to March 31, 2010
The Partnership experienced a net trading loss of $5,004,193 before brokerage commissions and related fees in the first quarter of 2010. Profits were primarily attributable to the interest rate and agriculture sectors posted profits while metals, stock indices, energy and currency sectors posted losses.
The interest rate sector posted profits to the Partnership. Profits were posted to the Partnership at the beginning through the middle of the quarter. Changing perceptions about the global interest rate adjustments seemed to keep the prices within a range during the February. However, the markets representing the shorter end of the yield curve finished the month higher, outside their recent trading range as yields decreased. Losses were posted to the Partnership at the end of the quarter due to volatility in global markets.
The agriculture sector posted profits to the Partnership. Profits were posted to the Partnership at the beginning of the quarter due to sugar prices rallying to a 29 year high. The markets upward momentum was supported by favorable fundamental factors as key producing countries produced smaller than expected yields. Losses were posted to the Partnership in the middle of the quarter. Cotton generated positive returns while sugar generated the largest loss. Sugar prices reversed direction in early February and by the end of the month the trading program had liquidated all of its long sugar positions. Profits were posted to the Partnership at the end of the quarter due to short wheat positions as prices weakened on what appeared to be favorable weather and supply conditions.
The metals sector posted losses to the Partnership. Losses were posted to the Partnership at the beginning of the quarter. The markets had a strong start to the year and the price dynamic then changed dramatically toward the middle of the month. The price correction was large enough to trigger partial liquidation of long positions. Losses continued to be posted in the middle of the quarter as the commodity markets initially extended their downturn into February causing the trading program to close out more of its long positions. Profits were posted to the Partnership at the end of the quarter. Nickel was the best performer of the base metal sector, maintaining strong price momentum throughout the month of March.
Stock indices posted losses to the Partnership. Losses were posted to the Partnership at the beginning of the quarter as the markets found it difficult to follow a clear direction in January. The stock markets initially extended their downturn into February posting losses to the Partnership. Profits were posted to the Partnership at the end of the quarter. Stock markets recovered from a steep February price correction and resumed their upward trends. As a result, the trading program increased its long exposure in both domestic and foreign stock index futures.
The energy sector posted losses to the Partnership. Losses were posted to the Partnership at the beginning of the quarter as oil prices rose to a 15 month high in early January and then retreated sharply. Losses were posted to the Partnership in the middle of the quarter due to the commodity markets continuing their downturn resulting in the trading program closing out of their long exposure in energies. Profits were posted to the Partnership at the end of the quarter as the trading program capitalized on declining prices in natural gas and newly initiated short positions.
The currency sector posted losses to the Partnership. Losses were posted to the Partnership at the beginning of the quarter as the currency sector experienced price reversals. The U.S. dollar declined against the euro and other currencies, dropping most sharply against commodity linked currencies, such as the Australian dollar and the New Zealand dollar. Later in January the U.S. dollar reversed direction and turned higher against short positions. Profits were posted to the Partnership in the middle of the quarter due to newly established short positions in major currency cross rates, such as the euro and the British pound against the Japanese yen. Losses were posted to the Partnership at the end of the quarter as the Japanese yen moved lower across the board versus most of the major currencies.
April 1, 2010 to June 30, 2010
The Partnership experienced a net trading loss of $23,866,526 before commissions and related fees in the second quarter of 2010. Profits were primarily attributable to the interest rate sector posting profits. The agriculture, currency, metals, stock indices, and energy posted losses.
The interest rate sector posted profits to the Partnership. Interest rate markets, both domestic and foreign, produced profits for the Partnership at the beginning through the middle of the quarter. In the environment of anxiety about global fiscal issues the interest rate market strengthened, sending yields lower. A consistent theme of strong demand for U.S. government debt continued in June. Signs of a slowdown in the global economic recovery and more worrisome financial news out of Europe were among the macro factors that supported the interest rate market. Some important yield levels were broken domestically: the 2-year U.S. Treasury Note fell to a record low, the 10-year U.S. Treasury Note yield dropped below 3%. These yields benefited the trading programs long positions. The quarter ended with profits being posted to the Partnership.
The agriculture sector posted losses to the Partnership. Losses were posted to the Partnership at the beginning of the quarter. Cotton futures were up at their highest level in more than 2 years which was offset by sugar prices dropping to their lowest level in nearly a year on supply worries. Profits were posted to the Partnership in the middle of the quarter due to the trading programs short positions in wheat and sugar. The agricultural sector generated losses for the Partnership at the end of the quarter with the exception of coffee. Coffee futures reached important technical levels and soared to a 12-year high, then retreated somewhat towards the end of the June. Reports of tight supplies from key producing countries appeared to be the main factor behind the spike in prices.
The currency sector posted losses to the Partnership. Losses were posted to the Partnership at the beginning of the quarter as currencies produced mixed results. The U.S. dollar versus the Singapore dollar was the best performing market in the currency sector. The euro came under pressure and moved in favor of the
trading programs short positions and suffered losses from the reversal in the British pound and the Swiss franc. As a result, all cross rate positions involving the two currencies were liquidated. The euro weakened against every major currency dropping to a 4 year low against the U.S. dollar and to its lowest level against the Japanese yen since 2001. The euro and the Swiss franc were the best performing markets in the currency sector. These gains offset losses from minor currency trading resulting in profits being posted to the Partnership in the middle of the quarter. The U.S. dollar weakened against other major currencies. The euro versus the British pound cross rate was the best performing market in sector. The Swiss franc generated the biggest loss, moving up against the U.S. dollar. Other currency markets were confined to tighter ranges, leading to marginal results. The quarter ended with losses posted to the Partnership.
The metals sector posted losses to the Partnership. Losses were posted to the Partnership at the beginning of the quarter as negative returns were generated in base metals due to adverse price movements in aluminum and copper. Losses continued to be posted in the middle of the quarter due to elevated volatility levels. The quarter ended with profits posted to the Partnership due to the trading programs long gold positions. Gold futures reached a new all-time high in June as global economic anxiety continued to support a rally in precious metals.
The stock indices posted losses to the Partnership. Profits were posted to the Partnership at the beginning of the quarter. Trading in domestic stock indices was profitable as equities reached 18-month highs in April. New long trades were initiated in March and early April when the trading model signaled a resumption of upward trends. Unfortunately, during the violent price action of May 6th trends reversed simultaneously across multiple markets and triggered stop loss signals resulting in losses posted to the Partnership in the middle of the quarter. The quarter ended with losses posted to the Fund. Equities continued their downward slide in June as concerns regarding European financial stability and global growth plagued markets.
The energy sector posted losses to the Partnership. Profits were posted to the Partnership at the beginning of the quarter. The trading program increased its long exposure in the energy sector early in April as prices moved to new highs for the year. The market subsequently came back under downward pressure only to recover in the second half of the month. Since the oil-futures curve sloped significantly upward, the trading program benefited from its long positions in the more distant contract month. Losses were posted to the Partnership in the middle through the end of the quarter. Prices turned higher against the trading programs short position in early June. The intramonth price action was very choppy. It triggered a position reversal in natural gas, only to turn again and trade lower at the end of the month of June.
July 1, 2010 to September 30, 2010
The Partnership experienced a net profit of $2,867,331 before commissions and related fees in the third quarter of 2010. Profits were primarily attributable to the agriculture, currency and interest rate sectors posting profits. The energy, metals and stock indices sectors posted losses.
The agriculture sector posted profits to the Partnership. Losses were posted to the Partnership at the beginning of the quarter. During the month of July, the Partnerships trading program identified several new trend signals that led to profits, such as long positions in coffee and soymeal. However, gains from these trades were not enough to offset losses. Profits were posted to the Partnership in the middle of the quarter due to the Partnerships trading program benefiting from rising prices in wheat, soymeal and cotton. Despite weakening economic conditions, agricultural commodities remained relatively strong. Unfavorable weather conditions and export disruptions appeared to be the main drivers behind this trend. Coffee futures also moved higher in August, reaching a 13-year high in mid-month. However, this move was followed by a one day drop of nearly 10% before the market slowly resumed its upward trend with coffee positions finishing the month with small losses. In September, cotton was the best performing
market for the month as prices moved above the $1 per pound level for the first time in 15 years. Among the key factors that supported commodity prices in September seemed to be weather-related supply shortages and improving demand resulting in profits being posted to the Partnership.
The currency sector posted profits to the Partnership. Losses were posted to the Partnership at the beginning of the quarter as the euro rebounded significantly from its early June lows which negatively impacted the trading programs short euro positions against the U.S. dollar and the British pound. Profits continued to be posted to the Partnership in the middle of the quarter as the Japanese yen and the euro were the best performing markets. The Japanese yen strengthened against other major currencies, except the Swiss franc. The Japanese yen reached its highest level since 1995 versus the U.S. dollar, which benefited the Partnerships trading programs long positions. Other profitable trades included long positions in the Japanese yen against the British pound and the euro. Profits were posted to the Partnership at the end of the quarter due to the short U.S. dollar positions against minor currencies, such as the Australian dollar, South African rand and Singapore dollar. Trading in the Swiss franc and the Japanese yen were also profitable. The prospects of another round of monetary stimulus from the Federal Reserve appeared to be negative for the U.S. dollar as it weakened versus most major and minor currencies. Trading in the euro currency generated losses, especially in the euro versus the British pound. The euro currency moved higher against the remaining short positions, which led to their gradual liquidation.
The interest rate sector posted profits to the Partnership. Profits were posted to the Partnership at the beginning of the quarter due to the exposure in the interest rate sector was very low. Profits continued to be posted to the Partnership in the middle of the quarter as the general trend in interest rates seemed to be driven by expectations of more monetary easing by the Federal Reserve. Economic data provided further evidence of a slowing economic expansion resulting in yields to decline and prices to move in favor of the Partnerships trading programs long positions. Long positions in U.S. bonds outperformed the positions in foreign interest rates. In September, the Partnerships trading programs risk exposure was spread across different market sectors, with relatively higher allocations to currencies and commodities. The Partnerships trading program profited from directional price movements in both of these sectors while limiting the negative impact of the losses posted to the Partnership from the interest rate sector on the overall Partnership performance.
The energy sector posted losses to the Partnership. Profits were posted to the Partnership in the middle of the quarter with losses posted to the Partnership at the beginning and the end of the quarter due to the global market volatility.
The metals sector posted losses to the Partnership. Losses were posted to the Partnership at the beginning of the quarter through the middle of the quarter. In July after reaching a record high in June, gold futures also experienced a large price correction which triggered liquidation of the Partnerships trading programs long positions. Profits were posted to the Partnership at the end of the quarter as gold continued its record run. Trading in silver was also profitable as prices rose to 30-year highs. Overall, the still-pessimistic assessment of the economy along with rising inflation expectations seemed to push investors into the relative safety of precious metals.
The stock indices posted losses to the Partnership. Profits were posted to the Partnership at the beginning of the quarter as the market environment was characterized by non-directional price volatility, which was consistent with fluctuations in global economic sentiment. Losses were posted to the Partnership in the middle of the quarter. Profits posted to the Partnership from short positions in Nikkei and Topix which was not enough to offset losses from long positions in DAX. Overall, markets appeared to be cautious about the long-term economic recovery. It was evident in daily price swings and lack of sustained trends in many market sectors. Losses were posted to the Partnership at the end of the quarter due to global market volatility.
The Partnership has no applicable off-balance sheet arrangements or tabular disclosure of contractual obligations of the type described in Items 303(a)(4) and 303(a)(5) of Regulation S-K.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Introduction
The Partnership is a speculative commodity pool. The market sensitive instruments held by it are acquired for speculative trading purposes and all or substantially all of the Partnerships assets are subject to the risk of trading loss. Unlike an operating company, the risk of market sensitive instruments is integral, not incidental, to the Partnerships main line of business.
Market movements result in frequent changes in the fair market value of the Partnerships open positions and consequently, in its earnings and cash flow. The Partnerships market risk is influenced by a wide variety of factors, including the level and volatility of interest rates, exchange rates, equity price levels, the market value of financial instruments and contracts, the diversification effects among the Partnerships open positions and the liquidity of the markets in which it trades.
The Partnership, under the direction of Sunrise, rapidly acquires and liquidates both long and short positions in a wide range of different markets. Consequently, it is not possible to predict how a particular future market scenario will affect performance, and the Partnerships past performance is not necessarily indicative of its future results.
Value at Risk is a measure of the maximum amount which the Partnership could reasonably be expected to lose in a given market sector. However, the inherent uncertainty of the Partnerships speculative trading and the recurrence in the markets traded by the Partnership of market movements far exceeding expectations could result in actual trading or non-trading losses far beyond the indicated Value at Risk or the Partnerships experience to date (i.e., risk of ruin). In light of the foregoing, as well as the risks and uncertainties intrinsic to all future projections, the quantifications included in this section should not be considered to constitute any assurance or representation that the Partnerships losses in any market sector will be limited to Value at Risk or by the Partnerships attempts to manage its market risk.
Quantifying The Partnerships Trading Value At Risk
Quantitative Forward-Looking Statements
The following quantitative disclosures regarding the Partnerships market risk exposures contain forward-looking statement 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 Partnerships risk exposure in the various market sectors traded by the Advisor is quantified below in terms of Value at Risk. Due to the Partnerships fair value accounting, any loss in the fair value of the Partnerships open positions is directly reflected in the Partnerships earnings (realized or unrealized) and cash flow (at least in the case of exchange-traded contracts in which profits and losses on open positions are settled daily through variation margin).
Exchange maintenance margin requirements have been used by the Partnership as the measure of its Value at Risk. Maintenance margin requirements are set by exchanges to equal or exceed the maximum loss in the fair value of any given contract incurred in 95%-99% of the one-day time periods included in the historical sample (generally approximately one year) researched for purposes of establishing margin levels. The maintenance margin levels are established by dealers and exchanges using historical price studies as well as an assessment of current market volatility (including the implied volatility of the options on a given futures contract) and economic fundamentals to provide a probabilistic estimate of the maximum expected near-term one-day price fluctuation.
In the case of market sensitive instruments which are not exchange-traded (almost exclusively currencies in the case of the Partnership), the margin requirements for the equivalent futures positions have been used as Value at Risk. In those rare cases in which a futures-equivalent margin is not available, dealers margins have been used.
100% positive correlation in the different positions held in each market risk category has been assumed. Consequently, the margin requirements applicable to the open contracts have been aggregated to determine each trading categorys aggregate Value at Risk. The diversification effects resulting from the fact that the Partnerships positions are rarely, if ever, 100% positively correlated have not been reflected.
Partnerships Trading Value at Risk in Different Market Sectors
The following table indicates the average, highest and lowest trading Value at Risk associated with the Partnerships open positions by market category for the fiscal period. For the nine months ended September 30, 2011 and 2010, the Partnerships average capitalization was $141,096,314 and $173,804,352, respectively.
September 30, 2011
|
|
Average |
|
% of Average |
|
Highest Value |
|
Lowest Value |
| |||
Market Sector |
|
Value at Risk |
|
Capitalization |
|
At Risk |
|
At Risk |
| |||
|
|
|
|
|
|
|
|
|
| |||
Currencies |
|
$ |
674,101 |
|
0.48 |
% |
$ |
2,136,569 |
|
$ |
101,010 |
|
Metals |
|
1,497,828 |
|
1.06 |
% |
4,305,946 |
|
415,617 |
| |||
Stock Indices |
|
287,837 |
|
0.20 |
% |
433,048 |
|
122,933 |
| |||
Interest Rates |
|
217,482 |
|
0.15 |
% |
552,824 |
|
3,431 |
| |||
Energy |
|
2,570,150 |
|
1.82 |
% |
5,309,438 |
|
313,906 |
| |||
Agricultural Commodities |
|
803,018 |
|
0.57 |
% |
1,624,673 |
|
381,375 |
| |||
|
|
|
|
|
|
|
|
|
| |||
TOTAL |
|
$ |
6,050,416 |
|
4.28 |
% |
$ |
14,362,498 |
|
$ |
1,338,272 |
|
September 30, 2010
|
|
Average |
|
% of Average |
|
Highest Value |
|
Lowest Value |
| |||
Market Sector |
|
Value at Risk |
|
Capitalization |
|
At Risk |
|
At Risk |
| |||
|
|
|
|
|
|
|
|
|
| |||
Currencies |
|
$ |
1,780,406 |
|
1.08 |
% |
$ |
3,338,741 |
|
$ |
403,254 |
|
Metals |
|
1,409,476 |
|
0.85 |
% |
3,388,987 |
|
392,690 |
| |||
Stock Indices |
|
2,056,348 |
|
1.25 |
% |
5,056,574 |
|
55,171 |
| |||
Interest Rates |
|
596,661 |
|
0.36 |
% |
1,423,969 |
|
89,733 |
| |||
Energy |
|
1,250,294 |
|
0.76 |
% |
3,143,563 |
|
205,731 |
| |||
Agricultural Commodities |
|
3,358,000 |
|
2.04 |
% |
6,484,758 |
|
1,368,716 |
| |||
|
|
|
|
|
|
|
|
|
| |||
TOTAL |
|
$ |
10,451,185 |
|
6.34 |
% |
$ |
22,836,592 |
|
$ |
2,515,295 |
|
Material Limitations on Value at Risk as an Assessment of Market Risk
The face value of the market sector instruments held by the Partnership is typically many times the applicable maintenance margin requirement (maintenance margin requirements generally ranging between approximately 1% and 10% of contract face value) as well as many times the capitalization of the Partnership. The magnitude of the Partnerships open positions creates a risk of ruin not typically found in most other investment vehicles. Because of the size of its positions, certain market conditions unusual, but historically recurring from time to time could cause the Partnership to incur severe losses over a short period of time. The foregoing Value at Risk table as well as the past performance of the Partnership gives no indication of this risk of ruin.
Non-Trading Risk
Foreign Currency Balances; Cash on Deposit with MLPF&S
The Partnership has non-trading market risk on its foreign cash balances not needed for margin. However, these balances (as well as the market risk they represent) are immaterial.
The Partnership also has non-trading market risk on the approximately 90%-95% of its assets which are held in cash at MLPF&S or BlackRock. The value of this cash is not interest rate sensitive, but there is cash flow risk in that if interest rates decline so will the cash flow generated on these monies.
Qualitative Disclosures Regarding Primary Trading Risk Exposures
The following qualitative disclosures regarding the Partnerships market risk exposures except for (i) those disclosures that are statements of historical fact and (ii) 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 Partnerships primary market risk exposures as well as the strategies used and to be used by MLAI and Sunrise for managing such exposures are subject to numerous uncertainties, contingencies and risks, any one of which could cause the actual results of the Partnerships 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, and 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. There can be no assurance that the Partnerships current market exposure and/or risk management strategies will not change materially or that any such strategies will be effective in either the short- or long-term. Investors must be prepared to lose all or substantially all of the time value of their investment in the Partnership.
The following were the primary trading risk exposures of the Partnership as of September 30, 2011 by market sector.
Interest Rates
Interest rate risk is the principal market exposure of the Partnership. Interest rate movements directly affect the price of derivative sovereign bond positions held by the Partnership and indirectly 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 Partnerships profitability. The Partnerships primary interest rate exposure is to interest rate fluctuations in the United States and the other G-7 countries. However, the Partnership also takes positions in the government debt of smaller nations e.g., Australia.
MLAI anticipates that G-7 interest rates will remain the primary market exposure of the Partnership for the foreseeable future.
Currencies
The Partnership trades in a number of currencies. The Partnerships major exposures have typically been in the U.S. dollar/Japanese yen, U.S. dollar/Euro, U.S. dollar/Australian dollar and U.S. dollar/Swiss franc positions. The Partnership does not anticipate that the risk profile of the Partnerships currency sector will change significantly in the future. The currency trading Value at Risk figure includes foreign margin amounts converted into U.S. dollars with an incremental adjustment to reflect the exchange rate risk of maintaining Value at Risk in a functional currency other than U.S. dollars.
Stock Indices
The Partnerships primary equity exposure is to S&P 500, Hang Seng and German DAX equity index price movements. The Partnership is primarily exposed to the risk of adverse price trends or static markets in the major U.S., European and Asian indices.
Metals
The Partnerships metals market exposure is to fluctuations in both the price of precious and non-precious metals.
Agricultural Commodities
The Partnerships primary agricultural commodities exposure is to agricultural price movements which are often directly affected by severe or unexpected weather conditions. Soybeans, grains and corn accounted for the substantial bulk of the Partnerships agricultural commodities exposure as of September 30, 2011. However, it is anticipated that Sunrise will maintain an emphasis on cotton, grains and sugar, in which the Partnership has historically taken its largest positions.
Energy
The Partnerships primary energy market exposure is to natural gas and crude oil price movements, often resulting from political developments in the Middle East. Oil prices can be volatile and substantial profits and losses have been and are expected to continue to be experienced in this market.
Qualitative Disclosures Regarding Non-Trading Risk Exposure
The following were the only non-trading risk exposures of the Partnership as of September 30, 2011.
Foreign Currency Balances
The Partnerships primary foreign currency balances are in Japanese yen, Australian dollar, Swiss franc and Euros.
U.S. Dollar Cash Balance
The Partnership holds U.S. dollars only in cash at MLPF&S or BlackRock. The Partnership has immaterial cash flow interest rate risk on its cash on deposit with MLPF&S in that declining interest rates would cause the income from such cash to decline.
Item 4. Controls and Procedures
MLAI, the General Partner of the Partnership with the participation of MLAIs Chief Executive Officer and the Chief Financial Officer, has evaluated the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) under the Securities Exchange Act of 1934) with respect to the Partnership as of the end of the period covered by this quarterly report, and, based on this evaluation, has concluded that these disclosure controls and procedures are effective. No change in internal control over financial reporting (in connection the evaluation required by paragraph (d) of Rule 13a-15 or Rule 15d-15 under the Securities Exchange Act of 1934) occurred during the quarter ended September 30, 2011 that has materially affected, or is reasonably likely to materially affect, the Partnerships internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 1A. Risk Factors
There are no material changes from risk factors as previously disclosed in the Annual Report on Form 10-K for the year ended December 31, 2010, filed with the Securities and Exchange Commission on March 15, 2011.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(a) Units are privately offered and sold to accredited investors (as defined in Rule 501(a) under the Securities Act) in reliance on the exemption from registration provided by Section 4(2) of the Securities Act and Rule 506 thereunder. The selling agent of the Units was MLPF&S.
|
|
Subscription |
|
|
| ||||
|
|
Amount |
|
Units |
|
NAV |
| ||
Jan-11 |
|
$ |
|
|
|
|
$ |
287.9143 |
|
Feb-11 |
|
|
|
|
|
288.6250 |
| ||
Mar-11 |
|
|
|
|
|
297.7954 |
| ||
Apr-11 |
|
|
|
|
|
293.7558 |
| ||
May-11 |
|
9,822 |
|
32 |
|
306.9529 |
| ||
Jun-11 |
|
5,768 |
|
20 |
|
288.3932 |
| ||
Jul-11 |
|
4,787 |
|
17 |
|
281.6155 |
| ||
Aug-11 |
|
|
|
|
|
281.2604 |
| ||
Sep-11 |
|
|
|
|
|
282.6780 |
| ||
Oct-11 |
|
68,879 |
|
230 |
|
299.4734 |
| ||
(b) Not applicable.
(c) Not applicable.
Item 3. Defaults Upon Senior Securities
None.
Item 4. (Removed and Reserved)
Item 5. Other Information
None.
Item 6. Exhibits
The following exhibits are filed herewith to this Quarterly Report on Form 10-Q:
31.01 and
31.02 Rule 13a-14(a)/15d-14(a) Certifications
Exhibit 31.01
and 31.02: Are filed herewith.
32.01 and
32.02 Section 1350 Certifications
Exhibit 32.01
and 32.02 Are filed herewith.
Exhibit 101 Are filed herewith.
The following materials from the Partnerships quarterly Report on Form 10-Q for the three and nine month periods ended September 30, 2011 formatted in XBRL (Extensible Business Reporting Language): (i) Statements of Financial Condition (ii) Statements of Operations (iii) Statements of Changes in Partners Capital (iv) Financial Data Highlights and (v) Notes to Financial Statements, tagged as blocks of text. (1)
(1) These interactive data files shall not be deemed filed for purposes of Section 11 or 12 of the Securities Act as amended, or Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability under those sections.
SIGNATURES
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.
|
|
ML SELECT FUTURES I L.P. |
|
|
|
|
|
|
|
By |
MERRILL LYNCH ALTERNATIVE INVESTMENTS LLC |
|
|
(General Partner) |
|
|
|
|
|
|
Date: November 10, 2011 |
By: |
/s/ JUSTIN C. FERRI |
|
|
Justin C. Ferri |
|
|
Chief Executive Officer, President and Manager |
|
|
(Principal Executive Officer) |
|
|
|
|
|
|
Date: November 10, 2011 |
By: |
/s/ BARBRA E. KOCSIS |
|
|
Barbra E. Kocsis |
|
|
Chief Financial Officer |
|
|
(Principal Financial and Accounting Officer) |