Attached files
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EX-31.01 - EX-31.01 - ML SELECT FUTURES I LP | a13-8675_1ex31d01.htm |
EX-32.01 - EX-32.01 - ML SELECT FUTURES I LP | a13-8675_1ex32d01.htm |
EX-32.02 - EX-32.02 - ML SELECT FUTURES I LP | a13-8675_1ex32d02.htm |
EXCEL - IDEA: XBRL DOCUMENT - ML SELECT FUTURES I LP | Financial_Report.xls |
EX-31.02 - EX-31.02 - ML SELECT FUTURES I LP | a13-8675_1ex31d02.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 March 31, 2013
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, 11th 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 Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer o |
|
Accelerated filer o |
|
|
|
Non-accelerated filer x |
|
Smaller reporting company o |
(Do not check if a smaller reporting company) |
|
|
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes o No x
As of March 31, 2013, 286,440 units of limited partnership interest were outstanding.
ML SELECT FUTURES I L.P.
QUARTERLY REPORT FOR MARCH 31, 2013 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 |
19 |
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Item 4. |
Controls and Procedures |
23 |
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PART IIOTHER INFORMATION |
|
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Item 1. |
Legal Proceedings |
23 |
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Item 1A. |
Risk Factors |
23 |
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Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds |
23 |
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Item 3. |
Defaults Upon Senior Securities |
23 |
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Item 4. |
Mine Safety Disclosures |
24 |
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Item 5. |
Other Information |
24 |
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Item 6. |
Exhibits |
24 |
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ML SELECT FUTURES I L.P.
(a Delaware Limited Partnership)
STATEMENTS OF FINANCIAL CONDITION
(unaudited)
|
|
March 31, |
|
December 31, |
| ||
|
|
2013 |
|
2012 |
| ||
ASSETS: |
|
|
|
|
| ||
|
|
|
|
|
| ||
Equity in commodity futures trading accounts: |
|
|
|
|
| ||
Cash (includes restricted cash of $4,042,669 for 2013 and $5,303,414 for 2012) |
|
$ |
65,456,868 |
|
$ |
70,840,801 |
|
Net unrealized profit on open futures contracts |
|
156,742 |
|
713,463 |
| ||
Cash |
|
515,790 |
|
499,274 |
| ||
Accrued interest receivable |
|
5,263 |
|
5,904 |
| ||
|
|
|
|
|
| ||
TOTAL ASSETS |
|
$ |
66,134,663 |
|
$ |
72,059,442 |
|
|
|
|
|
|
| ||
LIABILITIES AND PARTNERS CAPITAL |
|
|
|
|
| ||
|
|
|
|
|
| ||
LIABILITIES: |
|
|
|
|
| ||
|
|
|
|
|
| ||
Net unrealized loss on open futures contracts |
|
$ |
760,075 |
|
$ |
394,347 |
|
Net unrealized loss on open forward contracts |
|
42,630 |
|
454,655 |
| ||
Redemptions payable |
|
2,068,457 |
|
3,364,972 |
| ||
Wrap fee payable |
|
313,049 |
|
341,217 |
| ||
Other liabilities |
|
6 |
|
|
| ||
Total liabilities |
|
3,184,217 |
|
4,555,191 |
| ||
|
|
|
|
|
| ||
PARTNERS CAPITAL: |
|
|
|
|
| ||
|
|
|
|
|
| ||
General Partner (3,700 Units and 6,000 Units) |
|
813,142 |
|
1,318,046 |
| ||
Limited Partners (282,740 Units and 301,292 Units) |
|
62,137,304 |
|
66,186,205 |
| ||
|
|
|
|
|
| ||
Total partners capital |
|
62,950,446 |
|
67,504,251 |
| ||
|
|
|
|
|
| ||
TOTAL LIABILITIES AND PARTNERS CAPITAL |
|
$ |
66,134,663 |
|
$ |
72,059,442 |
|
|
|
|
|
|
| ||
NET ASSET VALUE PER UNIT |
|
|
|
|
| ||
(Based on 286,440 and 307,292 Units outstanding; unlimited Units authorized) |
|
$ |
219.7681 |
|
$ |
219.6744 |
|
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 |
| ||
|
|
months ended |
|
months ended |
| ||
|
|
March 31, |
|
March 31, |
| ||
|
|
2013 |
|
2012 |
| ||
TRADING PROFIT (LOSS): |
|
|
|
|
| ||
|
|
|
|
|
| ||
Realized, net |
|
$ |
1,500,547 |
|
$ |
(2,567,221 |
) |
Change in unrealized, net |
|
(510,424 |
) |
1,303,912 |
| ||
|
|
|
|
|
| ||
Total trading profit (loss), net |
|
990,123 |
|
(1,263,309 |
) | ||
|
|
|
|
|
| ||
INVESTMENT INCOME (LOSS) |
|
|
|
|
| ||
|
|
|
|
|
| ||
Interest, net |
|
14,872 |
|
19,608 |
| ||
|
|
|
|
|
| ||
EXPENSES: |
|
|
|
|
| ||
|
|
|
|
|
| ||
Wrap fee |
|
959,880 |
|
1,657,465 |
| ||
|
|
|
|
|
| ||
Total expenses |
|
959,880 |
|
1,657,465 |
| ||
|
|
|
|
|
| ||
NET INVESTMENT INCOME (LOSS) |
|
(945,008 |
) |
(1,637,857 |
) | ||
|
|
|
|
|
| ||
NET INCOME (LOSS) |
|
$ |
45,115 |
|
$ |
(2,901,166 |
) |
|
|
|
|
|
| ||
NET INCOME (LOSS) PER UNIT: |
|
|
|
|
| ||
|
|
|
|
|
| ||
Weighted average number of General Partner and Limited Partner Units outstanding |
|
301,438 |
|
417,840 |
| ||
|
|
|
|
|
| ||
Net income (loss) per weighted average General Partner and Limited Partner Unit |
|
$ |
0.15 |
|
$ |
(6.94 |
) |
See notes to financial statements.
ML SELECT FUTURES I L.P.
(a Delaware Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS CAPITAL
FOR THE THREE MONTHS ENDED MARCH 31, 2013 AND 2012
(unaudited)
|
|
|
|
General |
|
Limited |
|
|
| |||
|
|
Units |
|
Partner |
|
Partners |
|
Total |
| |||
|
|
|
|
|
|
|
|
|
| |||
PARTNERS CAPITAL, December 31, 2011 |
|
419,820 |
|
$ |
1,705,074 |
|
$ |
117,598,997 |
|
$ |
119,304,071 |
|
|
|
|
|
|
|
|
|
|
| |||
Subscriptions |
|
456 |
|
|
|
124,865 |
|
124,865 |
| |||
|
|
|
|
|
|
|
|
|
| |||
Net income (loss) |
|
|
|
(41,181 |
) |
(2,859,985 |
) |
(2,901,166 |
) | |||
|
|
|
|
|
|
|
|
|
| |||
Redemptions |
|
(16,198 |
) |
|
|
(4,470,661 |
) |
(4,470,661 |
) | |||
|
|
|
|
|
|
|
|
|
| |||
PARTNERS CAPITAL, March 31, 2012 |
|
404,078 |
|
$ |
1,663,893 |
|
$ |
110,393,216 |
|
$ |
112,057,109 |
|
|
|
|
|
|
|
|
|
|
| |||
PARTNERS CAPITAL, December 31, 2012 |
|
307,292 |
|
$ |
1,318,046 |
|
$ |
66,186,205 |
|
$ |
67,504,251 |
|
|
|
|
|
|
|
|
|
|
| |||
Subscriptions |
|
|
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
|
|
| |||
Net income (loss) |
|
|
|
347 |
|
44,768 |
|
45,115 |
| |||
|
|
|
|
|
|
|
|
|
| |||
Redemptions |
|
(20,852 |
) |
(505,251 |
) |
(4,093,669 |
) |
(4,598,920 |
) | |||
|
|
|
|
|
|
|
|
|
| |||
PARTNERS CAPITAL, March 31, 2013 |
|
286,440 |
|
$ |
813,142 |
|
$ |
62,137,304 |
|
$ |
62,950,446 |
|
See notes to financial statements.
ML SELECT FUTURES I L.P.
(A Delaware Limited Partnership)
FINANCIAL DATA HIGHLIGHTS
FOR THE THREE MONTHS ENDED MARCH 31, 2013 AND 2012 (unaudited)
The following per Unit data and ratios have been derived from information provided in the financial statements.
|
|
Three months ended |
|
Three months ended |
| ||
|
|
March 31, 2013 |
|
March 31, 2012 |
| ||
|
|
|
|
|
| ||
Per Unit Operating Performance: |
|
|
|
|
| ||
|
|
|
|
|
| ||
Net asset value, beginning of period |
|
$ |
219.6744 |
|
$ |
284.1791 |
|
|
|
|
|
|
| ||
Realized trading profit (loss) |
|
5.0504 |
|
(6.1111 |
) | ||
Change in unrealized, net |
|
(1.8225 |
) |
3.1673 |
| ||
Interest income, net |
|
0.0494 |
|
0.0470 |
| ||
Expenses (1) |
|
(3.1836 |
) |
(3.9668 |
) | ||
|
|
|
|
|
| ||
Net asset value, end of period |
|
$ |
219.7681 |
|
$ |
277.3155 |
|
|
|
|
|
|
| ||
Total Return: |
|
|
|
|
| ||
|
|
|
|
|
| ||
Total return (2) |
|
0.04 |
% |
-2.42 |
% | ||
|
|
|
|
|
| ||
Ratios to Average Partners Capital (1): |
|
|
|
|
| ||
|
|
|
|
|
| ||
Expenses (2) |
|
1.44 |
% |
1.44 |
% | ||
Net investment loss |
|
-1.42 |
% |
-1.42 |
% |
(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 engages in the speculative trading of 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. The Trading Advisor trades its Expanded Diversified Program (the Trading Program) for the Partnership.
Merrill Lynch Alternative Investments LLC (MLAI or the Sponsor or the General Partner), is the general partner and sponsor of the Partnership. MLAI is an indirect wholly-owned subsidiary of Bank of America Corporation. Bank of America Corporation and its affiliates are referred to herein as BAC. Merrill Lynch, Pierce, Fenner & Smith Incorporated (MLPF&S) is currently the exclusive clearing broker for the Partnership. The General Partner may select other parties as clearing broker(s). Merrill Lynch International Bank Ltd. (MLIB) is the primary (F/X) forward prime broker for the Partnership. The General Partner may select other parties as F/X or other over-the counter (OTC) prime brokers, including Bank of America N.A. (BANA). MLPF&S, MLIB and BANA are BAC affiliates. MLAI has agreed to maintain a general partners interest of at least 1% of the total capital accounts 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, BAC or by any bank. Interests are subject to investment risks, including the possible loss of the full amount invested.
In the opinion of management, these 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 March 31, 2013 and December 31, 2012 and the results of its operations for the three months ended March 31, 2013 and 2012. 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 report on Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2012.
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 March 31, 2013 and December 31, 2012, are as follows:
March 31, 2013
|
|
Long Positions |
|
Short Positions |
|
Net Unrealized |
|
|
|
|
| |||||||||||
Commodity Industry |
|
Number of |
|
Unrealized |
|
Percent of |
|
Number of |
|
Unrealized |
|
Percent of |
|
Profit (Loss) |
|
Percent of |
|
|
| |||
Sector |
|
Contracts / Notional* |
|
Profit (Loss) |
|
Partners Capital |
|
Contracts / Notional* |
|
Profit (Loss) |
|
Partners Capital |
|
on Open Positions |
|
Partners Capital |
|
Maturity Dates |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Agriculture |
|
86 |
|
$ |
(8,215 |
) |
-0.01 |
% |
(235 |
) |
$ |
75,268 |
|
0.12 |
% |
$ |
67,053 |
|
0.11 |
% |
April 2013 - June 2013 |
|
Currencies* |
|
26,054,548 |
|
(105,327 |
) |
-0.17 |
% |
(44,362,338 |
) |
(458,353 |
) |
-0.73 |
% |
(563,680 |
) |
-0.90 |
% |
June 2013 |
| |||
Energy |
|
140 |
|
17,163 |
|
0.03 |
% |
|
|
|
|
0.00 |
% |
17,163 |
|
0.03 |
% |
April 2013 |
| |||
Interest rates |
|
354 |
|
181,236 |
|
0.29 |
% |
(26 |
) |
(5,033 |
) |
-0.01 |
% |
176,203 |
|
0.28 |
% |
June 2013 - December 2013 |
| |||
Metals |
|
72 |
|
(533,302 |
) |
-0.85 |
% |
(133 |
) |
346,786 |
|
0.55 |
% |
(186,516 |
) |
-0.30 |
% |
May 2013 |
| |||
Stock indices |
|
606 |
|
(151,161 |
) |
-0.24 |
% |
(247 |
) |
(5,025 |
) |
-0.01 |
% |
(156,186 |
) |
-0.25 |
% |
April 2013 - June 2013 |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Total, net |
|
|
|
$ |
(599,606 |
) |
-0.95 |
% |
|
|
$ |
(46,357 |
) |
-0.08 |
% |
$ |
(645,963 |
) |
-1.03 |
% |
|
|
December 31, 2012
|
|
Long Positions |
|
Short Positions |
|
Net Unrealized |
|
|
|
|
| |||||||||||
Commodity Industry |
|
Number of |
|
Unrealized |
|
Percent of |
|
Number of |
|
Unrealized |
|
Percent of |
|
Profit (Loss) |
|
Percent of |
|
|
| |||
Sector |
|
Contracts / Notional* |
|
Profit (Loss) |
|
Partners Capital |
|
Contracts / Notional* |
|
Profit (Loss) |
|
Partners Capital |
|
on Open Positions |
|
Partners Capital |
|
Maturity Dates |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Agriculture |
|
|
|
$ |
|
|
0.00 |
% |
(268 |
) |
$ |
160,609 |
|
0.24 |
% |
$ |
160,609 |
|
0.24 |
% |
February 2013 - March 2013 |
|
Currencies* |
|
80,585,876 |
|
(313,499 |
) |
-0.46 |
% |
(91,171,403 |
) |
334,816 |
|
0.50 |
% |
21,317 |
|
0.04 |
% |
January 2013 - March 2013 |
| |||
Interest rates |
|
569 |
|
(186,285 |
) |
-0.28 |
% |
|
|
|
|
0.00 |
% |
(186,285 |
) |
-0.28 |
% |
March 2013 |
| |||
Metals |
|
|
|
|
|
0.00 |
% |
(88 |
) |
(90,822 |
) |
-0.13 |
% |
(90,822 |
) |
-0.13 |
% |
February 2013 - March 2013 |
| |||
Stock indices |
|
781 |
|
(40,358 |
) |
-0.06 |
% |
|
|
|
|
0.00 |
% |
(40,358 |
) |
-0.06 |
% |
January 2013 - March 2013 |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Total, net |
|
|
|
$ |
(540,142 |
) |
-0.80 |
% |
|
|
$ |
404,603 |
|
0.61 |
% |
$ |
(135,539 |
) |
-0.19 |
% |
|
|
*Currencies are stated in notional amounts.
No individual contracts unrealized profit or loss comprised greater than 5% of Partners Capital as of March 31, 2013 and December 31, 2012. With respect to each commodity industry sector listed in the above chart, the net unrealized profit (loss) on open positions is the sum of the unrealized profits (loss) of long positions and short positions of the open contracts, netting unrealized losses against unrealized profits as applicable. Net unrealized profit and loss provides a rough measure of the exposure of the Partnership to the various sectors as of the date listed, although such exposure can change at any time.
3. FAIR VALUE OF INVESTMENTS
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 (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. Profits or losses are realized when contracts are liquidated. Unrealized profits or losses on open contracts are included in Equity in commodity trading account on the Statements of Financial Condition. Any change in net unrealized profit or loss from the preceding period/year is reported in the respective Statements of Operations.
The fair value measurement guidance established by U.S. GAAP is 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 value measurement guidance in U.S. GAAP, 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 is 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. Investments that are included in this category generally are privately held debt and equity securities.
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 such investments are traded. 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 as inputs into its process for determining fair values.
The independent pricing sources obtain market quotations and actual transaction prices for investments that have quoted prices in active markets. Each source has its own proprietary method for determining the fair value of investments 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 investments, broker-dealer quotes, reported trades and sector groupings to determine a reasonable fair market value.
The Partnership has determined that Level I investments would include 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 investments with similar characteristics, pricing models or matrix pricing and these are generally classified as Level II investments. 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 March 31, 2013 and December 31, 2012 are as follows:
Net unrealized profit (loss) |
|
|
|
|
|
|
|
|
| ||||
on open contracts |
|
Total |
|
Level I |
|
Level II |
|
Level III |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Futures |
|
|
|
|
|
|
|
|
| ||||
Long |
|
$ |
(582,229 |
) |
$ |
(48,927 |
) |
$ |
(533,302 |
) |
$ |
|
|
Short |
|
(21,104 |
) |
(301,940 |
) |
280,836 |
|
|
| ||||
|
|
$ |
(603,333 |
) |
$ |
(350,867 |
) |
$ |
(252,466 |
) |
$ |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Forwards |
|
|
|
|
|
|
|
|
| ||||
Long |
|
$ |
(17,377 |
) |
$ |
|
|
$ |
(17,377 |
) |
$ |
|
|
Short |
|
(25,253 |
) |
|
|
(25,253 |
) |
|
| ||||
|
|
$ |
(42,630 |
) |
$ |
|
|
$ |
(42,630 |
) |
$ |
|
|
|
|
|
|
|
|
|
|
|
| ||||
March 31, 2013 |
|
$ |
(645,963 |
) |
$ |
(350,867 |
) |
$ |
(295,096 |
) |
$ |
|
|
Net unrealized profit (loss) |
|
|
|
|
|
|
|
|
| ||||
on open contracts |
|
Total |
|
Level I |
|
Level II |
|
Level III |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Futures |
|
|
|
|
|
|
|
|
| ||||
Long |
|
$ |
(384,296 |
) |
$ |
(384,296 |
) |
$ |
|
|
$ |
|
|
Short |
|
703,412 |
|
703,412 |
|
|
|
|
| ||||
|
|
319,116 |
|
319,116 |
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Forwards |
|
|
|
|
|
|
|
|
| ||||
Long |
|
(155,846 |
) |
|
|
(155,846 |
) |
|
| ||||
Short |
|
(298,809 |
) |
|
|
(298,809 |
) |
|
| ||||
|
|
(454,655 |
) |
|
|
(454,655 |
) |
|
| ||||
|
|
|
|
|
|
|
|
|
| ||||
December 31, 2012 |
|
$ |
(135,539 |
) |
$ |
319,116 |
|
$ |
(454,655 |
) |
$ |
|
|
The Partnerships volume of trading forwards and futures as of the three month period and year ended March 31, 2013 and December 31, 2012, respectively, are representative of the activity throughout these periods. There were no transfers to or from any level during the three month period ended March 31, 2013.
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 ASC guidance for accounting for derivative and hedging activities. The fair value amounts of, and the net profits 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 total notional, contract amount or number of contracts and fair values of derivative instruments by contract type/commodity sector are disclosed in Note 2, above.
The Partnership presents their futures and forward contract amounts gross on the Statement of Financial Condition. The Partnership maintains initial and variation margin deposits and cash collateral with its futures and forward brokers, respectively, in amounts such broker determine, for open futures in the case of forwards, currency contracts. At March 31, 2013, the initial and variation margin deposits and cash collateral are used to satisfy the margin requirements on open contracts and are presented on the Statement of Financial Condition as unrealized gain or loss on futures or forward contracts, respectively.
The following table indicates the trading profits and losses, before brokerage commissions, by type/commodity industry sector, on derivative instruments for each of the three month periods ended March 31, 2013 and 2012:
|
|
For the three months ended |
|
For the three months ended |
| ||
|
|
March 31, 2013 |
|
March 31, 2012 |
| ||
Commodity Industry Sector |
|
Profit (loss) from trading, net |
|
Profit (loss) from trading, net |
| ||
|
|
|
|
|
| ||
Agriculture |
|
$ |
365,889 |
|
$ |
1,029,689 |
|
Currencies |
|
(320,924 |
) |
(3,729,859 |
) | ||
Energy |
|
(840,367 |
) |
948,355 |
| ||
Interest rates |
|
(989,566 |
) |
(636,484 |
) | ||
Metals |
|
(86,768 |
) |
(2,414,728 |
) | ||
Stock indices |
|
2,861,859 |
|
3,539,718 |
| ||
|
|
|
|
|
| ||
Total, net |
|
$ |
990,123 |
|
$ |
(1,263,309 |
) |
The Partnership is subject to the risk of insolvency of a counterparty, an exchange, a clearinghouse, MLPF&S or other BAC entities. 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 all 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 open contracts 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 itself 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. It is expected that MLAIs basic risk control procedures will consist of the ongoing process of Trading Advisor monitoring, with the market risk controls being applied by Sunrise.
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/clearinghouse is pledged to support the financial integrity of the exchange/clearinghouse. 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 (loss) on open contracts, if any, included in the Statements of Financial Condition. MLAI, as sponsor of the Partnership, has a general policy of maintaining clearing and prime brokerage arrangements with BAC affiliates, such as MLPF&S and MLIB, although MLAI may engage non-BAC affiliated service providers as clearing brokers or prime brokers for the Partnership.
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 trading accounts on 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
MLAI and the Partnership have entered into a transfer agency and investor services agreement with Financial Data Services, Inc. (the Registrar and Transfer Agent) a wholly-owned subsidiary of BAC and affiliate of MLAI. The Registrar and Transfer Agent perform the transfer agent and investor services functions for the Partnership. The agreement with the Registrar and Transfer Agent calls for a fee to be paid based on the collective net assets of funds managed or sponsored by MLAI. The fee rate ranges from 0.016% to 0.02% based on aggregate net assets. MLAI allocates the Registrar and Transfer Agent fees to each of the managed/sponsored funds on a monthly basis based on the Partnerships net assets. The fee is payable monthly in arrears. The Registrar and Transfer Agent fee, which was 0.02% of aggregate asset level, allocated to the Partnership for each of the three month periods ended March 31, 2013 and 2012, are paid on behalf of the Partnership by the Sponsor. These fees are included in the wraps fees.
Wrap Fees and Interest as presented on the Statements of Operations are all received from or paid to related parties. Equity in commodity trading accounts, including cash and net unrealized profit/loss, as seen on the Statement of Financial Condition are held with a related party.
6. SUBSEQUENT EVENTS
The General Partner has evaluated the impact of subsequent events on the Partnership through the date the financials were able to be issued and has determined that there were 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
MLAI believes that the Net Asset Value used to calculate subscription and redemption value and to report performance to investors throughout the period is a useful performance measure for the investors of the Partnership. Therefore, the charts below referencing Net Asset Value and performance measurements are based on the Net Asset Value for financial reporting purposes.
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 or its delegates are authorized to make all Net Asset Value determinations.
MONTH-END NET ASSET VALUE PER UNIT
MONTH-END NET ASSET VALUE PER INITIAL UNIT
|
|
Jan. |
|
Feb. |
|
Mar. |
| |||
2012 |
|
$ |
273.8266 |
|
$ |
272.7583 |
|
$ |
277.3155 |
|
2013 |
|
$ |
227.3940 |
|
$ |
214.0573 |
|
$ |
219.7681 |
|
Liquidity and Capital Resources
The Partnership borrows only to a limited extent and only on a strictly short-term basis in order to finance losses on non-U.S. dollar denominated trading positions pending the conversion of the Partnerships U.S. dollar deposits. These borrowings are at a prevailing short-term rate in the relevant currency.
Substantially all of the Partnerships assets are held in cash. The Net Asset Value of the Partnerships cash is not affected by inflation. However, changes in interest rates could cause periods of strong up or down price trends, during which the Partnerships profit potential generally increases. Inflation in commodity prices could also generate price movements, which the strategies might successfully follow. The Partnership should be able to close out its open trading positions and liquidate its holdings relatively quickly and at market prices, except in unusual circumstances. This typically permits the Partnership to limit losses as well as reduce market exposure on short notice should its strategies indicate doing so.
Investors in the Partnership generally may redeem any or all of their Units at Net Asset Value, effective as of last day of any calendar month, upon providing notice at least 10 calendar days prior to month-end. Units redeemed at or prior to the twelfth full month following the purchase date will be assessed a redemption charge of 4% as of the date of redemption, paid to the General Partner. Investors will remain exposed to fluctuations in Net Asset Value during the period between submission of their redemption requests and the applicable redemption date.
As a commodity pool, the Partnership maintains an extremely large percentage of its assets in cash, which it must have available to post initial and variation margin on futures contracts. This cash is also used to fund redemptions. While the Partnership has the ability to fund redemption proceeds from liquidating positions, as a practical matter positions are not liquidated to fund redemptions. In the event that positions were liquidated to
fund redemptions, MLAI, as the General Partner of the Partnership, has the ability to override decisions of the Trading Advisor to fund redemptions if necessary, but in practice the Trading Advisor would determine in its discretion which investments should be liquidated.
For the three months ended March 31, 2013, Partnership capital decreased 6.75% from $67,504,251 to $62,950,446. This decrease was attributable to the net income from operations of $45,115 coupled with the redemption of 20,852 Redeemable Units of Interest resulting in an outflow of $4,598,920. 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. Profits or losses are realized when contracts are liquidated. Unrealized profits or losses on open contracts are included as a component of equity in commodity trading accounts on the Statements of Financial Condition. Realized profits or losses and any change in net unrealized profits or losses from the preceding period are reported in the Statements of Operations.
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 the Partnerships treatment of fair value see Note 3, Fair Value of Investments.
Futures Contracts
The Partnership trades exchange 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 indices of financial assets such as stocks, domestic and global stock indices, 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 Statements of Financial Condition. Contracts are priced daily by the Partnership and the profit or loss based on the daily mark to market are recorded as unrealized profits. When the contract is closed, the Partnership records a realized profit 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 profits (losses), net and changes in unrealized profits (losses), net 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 profit 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 profits (losses) and changes in unrealized profits (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 Accounting Standards Codification 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 is the major tax jurisdiction for the Partnership and the earliest tax year subject to examination: United States 2009.
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 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, 2013 to March 31, 2013
January 1, 2013 to March 31, 2013
The Partnership experienced a net trading profit of $990,123 before brokerage commissions and related fees in the first quarter of 2013. The Partnerships profits were primarily attributable to the stock indices and the agriculture sectors posting profits. The metals, currencies, energy and interest rates sectors posted losses.
The stock indices posted profits to the Partnership. Profits were posted to the Partnership at the beginning of the quarter as investor confidence drove prices up across numerous markets traded. Leading the charge for the Trading Program were Japanese equities which continued their late 2012 run in the wake of continued efforts by the new government to stimulate its economy by weakening the Japanese yen. Losses were posted to the Partnership in the middle of the quarter. Trading in the U.S. markets generated small profits that were offset by losses in international equities in the face of Italian politics and other perceived indicators of global economic weakness. As a result, the Trading Program continued profitable trading of U.S. stock indices and trending S&P sub-sectors was outweighed by losses in both Europe and Asia for the month. Profits were posted to the Partnership at the end of the quarter due to the surging U.S. stock markets. Large gains in the S&P, NASDAQ, Dow Jones and various U.S. equity sub-sectors generated the bulk of equity profits.
The agriculture sector posted profits to the Partnership. Profits were posted to the Partnership at the beginning of the quarter in which sugar prices spiraled downward in support of the Trading Programs short position. Profits were posted to the Partnership in the middle of through the end of the quarter due to the Trading Programs short positions in sugar and coffee.
The metals sector posted losses to the Partnership. Losses were posted to the Partnership at the beginning of the quarter as gold and copper pushed upward against the Trading Programs short positions. Also challenging was the zinc market, wherein the Trading Program entered into a long position only to sharply reverse resulting in losses posted to the Partnership. Losses were posted to the Partnership in the middle of the quarter with zinc losses offsetting gains in gold and copper. Profits were posted to the Partnership at the end of the quarter as the Trading Programs short copper and gold positions continued to track ongoing reversals in each of those markets and offset a small loss incurred on a long zinc trade.
The currency sector posted losses to the Partnership. Profits were posted to the Partnership at the beginning of the quarter. The sharp downward move in the Japanese yen that began late 2012 accelerated in January and led to profit taking by the Trading Program. Complementing the Japanese yens productive move was a solid upward surge in the euro and European minor currencies. Profits were also found shorting the South African rand which continued a downward trend and further bolstered the Trading Programs January performance in currency. These trading gains were more-than-sufficient to offset losses suffered when the Swiss franc and Australian dollar moved against the Trading Programs long positions and the British pound spiked upward against the Trading Programs short position. Losses in the euro, Swiss franc, Australian dollar and a range of minor European currencies outweighed gains in the British pound, Japanese yen, and South African rand resulting in losses posted to the Partnership in the middle of the quarter. Profits were posted to the Partnership at the end of the quarter. March began with the Trading Programs short euro trade that caused a loss, which was offset by winning short positions in the Japanese yen, Swiss franc and South African rand.
The energy sector posted losses to the Partnership. Profits were posted to the Partnership at the beginning of the quarter. Most notably, crude oil spiked sharply yielding profits for the Trading Program. Supplementing these profits were favorable trades in heating oil, and various gasoline markets. Losses were posted to the Partnership in the middle of the quarter. Strong upward trends and seemingly orderly pullbacks were disrupted by unpredicted price turmoil when an unidentified investor sold large quantities of crude oil futures within a very short time window toward the end of the month of February. This occurrence reduced prices below the Trading Programs risk tolerances and forced the Trading Program out of trading positions that otherwise appeared on track to produce positive returns. The Trading Program also generated losses in unleaded gas, gas oil, heating oil and Brent crude. Profits were posted to the Partnership at the end of the quarter as the Trading Programs long natural gas trade toward the end of the month of March generated gains to offset losses realized by shorting the same market in early March.
The interest rate sector posted losses to the Partnership. Losses were posted to the Partnership at the beginning of the quarter. In particular, the U.S. and European interest rates moved downward against the Trading Programs short bond positions. Losses were posted to the Partnership in the middle of the quarter due to small losses in European interest rates. Profits were posted to the Partnership at the end of the quarter due to the Trading Programs long bond/short interest rate positions across Europe and in Japan and long T- note/short rate positions in the U.S.
January 1, 2012 to March 31, 2012
January 1. 2012 to March 31, 2012
The Partnership experienced a net loss of $1,263,309 before brokerage commissions and related fees in the first quarter of 2011. The Partnerships profits were primarily attributable to the stock indices, agriculture and the energy sectors posting profits. The interest rates, metals and the currencies sectors posted losses.
The stock indices sector posted profits to the Partnership. Losses were posted to the Partnership at the beginning of the quarter. After last years wild swings, equity markets had a strong start to the year and moved steadily higher. Positive data from the U.S., China and even Europe helped drove stock prices higher. The trading program exited all of its remaining short trades and initiated new long positions in both domestic and foreign equity markets. Profits were posted to the Partnership in the middle of the quarter. A two month rally, driven in large part by an improving U.S. economic outlook and a stabilizing European debt situation, ultimately challenged the technically (and psychologically) important 13,000 level. Among the equity positions, the NASDAQ was the best performing market for the Trading programs strategy. Profits were posted to the Partnership at the end of the quarter. The U.S. equity markets continued to trend in March, moving up without a meaningful retracement. An improving U.S. economy combined with an increase in investor confidence and signs of stabilization in Europe appear to be influencing this rally.
The agriculture sector posted profits to the Partnership. Profits were posted to the Partnership at the beginning of the quarter as the winters unusually warm climate across much of the country has disrupted the seasonal trading patterns, ultimately causing prices to drop further. Trading in coffee was profitable as the coffee prices continued to decline on expectations of a record crop in Brazil, the worlds largest producer. Profits were posted to the Partnership in the middle of the quarter as coffee prices ended the month of February lower, in favor of short positions which were driven by its own, weather related fundamentals. Profits were posted to the Partnership at the end of the quarter. The coffee market remained in a downward trend, which contributed to profits. Since hitting a near record high price in 2011, coffee prices have fallen on expectations of an extra-large Brazilian crop, the worlds largest coffee producer.
The energy sector posted profits to the Partnership. Profits were posted to the Partnership at the beginning of the quarter. Short natural gas positions posted profits in January. Prices dropped to their lowest level in 10 years. Overall, the boom in low-cost natural gas from shale has suppressed prices in recent months. In addition, the market appeared to be anticipating storage cost increases on the horizon as stored inventories continue to build. Losses were posted to the Partnership in the middle of the quarter. Energy prices rallied as tensions with Iran raised fears about a possible supply disruption and/or military conflict. The Iran situation had a more pronounced impact on Brent Crude as compared to West Texas Intermediate, because the Eurozone is one of Irans biggest markets for its oil. The price of U.S. oil lagged behind that of Brent Crude, which rose above $125 per barrel in February while West Texas Intermediate stayed below the $110 level. During the last three days of February energy prices retreated by more than which caused the sector to finish the month with a minor loss. Nevertheless, rising oil prices seem to be a key fundamental risk factor for the global economy. Unfortunately, geopolitical risks coming from the Middle East still have an oversized impact on oil prices. Profits were posted to the Partnership at the end of the quarter. Gasoil and Unleaded Gas (RBOB) finished the month of March higher and generated profits, while Brent Crude traded sideways and posted only marginal gains. Trading in natural gas was also profitable. The market has been chronically oversupplied and prices continued to weaken.
The interest rate sector posted losses to the Partnership. Profits were posted to the Partnership at the beginning of the quarter. Following the U.S. Federal Reserves announcement, interest rate futures rallied, pushing yields lower. Yields for 5-year Notes fell to an all-time low of 0.752%. Losses were posted to the Partnership in the middle through the end of the quarter. During the first half of the month of March, U.S. interest rates moved higher. This rate rise triggered a liquidation of the Trading programs remaining exposure in domestic interest rate futures, which caused negative performance.
The metals sector posted losses to the Partnership. Losses were posted to the Partnership at the beginning of the quarter. The Partnership liquidated a substantial portion of their short positions in metals as prices bounced back from their December lows. Losses were posted to the Partnership in the middle through the end of the quarter due to volatility in the market.
The currency sector posted losses to the Partnership. Losses were posted to the Partnership at the beginning of the quarter as the U.S. dollar reversed course over the second half of January and weakened across the board. The Euro initially touched a 16-month low against the U.S. dollar and then climbed back above $1.30. Losses were posted to the Partnership in the middle of the quarter. The currency sector suffered from price reversals against established market trends, particularly in the Euro and the Japanese yen. The Euro staged a rally as optimism about Greece sent the currency to a three month high against the U.S. dollar and the Euro trades were partially liquidated as a result. The Japanese yen fell against the U.S. dollar after the Bank of Japan injected more money into the economy, applying downward pressure on the Japanese yen. This is merely the Bank of Japans most recent effort to weaken the Japanese yen: Japan intervened three times last year to weaken the Japanese yen in the face of a post-World War II record high against the U.S. dollar (in October last year). Consequently, the Partnership was stopped out of all of its long Japanese yen positions. The Partnership also liquidated most of the short positions in minor currencies as they moved higher against the U.S. dollar. Losses were posted to the Partnership at the end of the quarter. The U.S. dollar initially benefited from higher yields and gained against other currencies; however, the U.S. dollar came under pressure during the second half of March. The Partnership maintained a very low exposure in the currency sector during this month due to a lack of any sustained trends.
(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 statements within the meaning of the safe harbor from civil liability provided for such statements by the Private Securities Litigation Reform Act of 1995 (set forth in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934). All quantitative disclosures in this section are deemed to be forward-looking statements for purposes of the safe harbor, except for statements of historical fact.
The 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 (in the case of exchange-traded contracts in which profits and losses on open positions are cash 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 three months ended March 31, 2013 and 2012, the Partnerships average capitalization was approximately $65,567,092 and $114,770,435, respectively.
|
|
March 31, 2013 |
| |||||||||
|
|
Average |
|
% of Average |
|
Highest Value |
|
Lowest Value |
| |||
Market Sector |
|
Value at Risk |
|
Capitalization |
|
At Risk |
|
At Risk |
| |||
|
|
|
|
|
|
|
|
|
| |||
Currencies |
|
$ |
2,245,551 |
|
3.42 |
% |
$ |
2,586,952 |
|
$ |
1,823,562 |
|
Metals |
|
743,030 |
|
1.13 |
% |
855,996 |
|
603,398 |
| |||
Stock Indices |
|
622,203 |
|
0.95 |
% |
716,800 |
|
505,278 |
| |||
Interest Rates |
|
701,946 |
|
1.07 |
% |
808,666 |
|
570,035 |
| |||
Energy |
|
68,373 |
|
0.10 |
% |
78,768 |
|
55,524 |
| |||
Agricultural Commodities |
|
267,121 |
|
0.41 |
% |
307,733 |
|
216,923 |
| |||
TOTAL |
|
$ |
4,648,224 |
|
7.08 |
% |
$ |
5,354,915 |
|
$ |
3,774,720 |
|
|
|
March 31, 2012 |
| |||||||||
|
|
Average |
|
% of Average |
|
Highest Value |
|
Lowest Value |
| |||
Market Sector |
|
Value at Risk |
|
Capitalization |
|
At Risk |
|
At Risk |
| |||
|
|
|
|
|
|
|
|
|
| |||
Currencies |
|
$ |
299,401 |
|
0.26 |
% |
$ |
363,826 |
|
$ |
220,948 |
|
Metals |
|
330,778 |
|
0.29 |
% |
401,955 |
|
244,104 |
| |||
Stock Indices |
|
3,860,872 |
|
3.36 |
% |
4,691,664 |
|
2,849,206 |
| |||
Interest Rates |
|
23,341 |
|
0.02 |
% |
28,364 |
|
17,225 |
| |||
Energy |
|
2,347,184 |
|
2.05 |
% |
2,852,257 |
|
1,732,150 |
| |||
Agricultural Commodities |
|
1,765,361 |
|
1.54 |
% |
2,145,236 |
|
1,302,783 |
| |||
TOTAL |
|
$ |
8,626,937 |
|
7.52 |
% |
$ |
10,483,302 |
|
$ |
6,366,416 |
|
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. 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, 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 March 31, 2013 by market sector.
Interest Rates
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. However, the Partnerships major exposures have typically been in the U.S. dollar/Japanese yen, U.S. dollar/Euro, and 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, Nikkei 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 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, cotton and sugar accounted for the substantial bulk of the Partnerships agricultural commodities exposure as of March 31, 2013. 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 March 31, 2013
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 in cash at MLPF&S and MLIB. 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. Based on this evaluation, the Chief Executive officer and Chief Financial Officer have concluded that these disclosure controls and procedures are effective. No change in internal control over financial reporting (in connection with 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 March 31, 2013 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 report on Form 10-K for the year ended December 31, 2012, filed with the Securities and Exchange Commission on March 27, 2013.
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-13 |
|
$ |
|
|
|
|
$ |
219.6744 |
|
Feb-13 |
|
|
|
|
|
227.3940 |
| ||
Mar-13 |
|
|
|
|
|
214.0573 |
| ||
Apr-13 |
|
|
|
|
|
219.7681 |
| ||
(b) Not applicable.
(c) Not applicable.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
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 month period ended March 31, 2013 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: May 15, 2013 |
By: |
/s/ DEANN MORGAN |
|
|
Deann Morgan |
|
|
Chief Executive Officer and President |
|
|
(Principal Executive Officer) |
|
|
|
|
|
|
Date: May 15, 2013 |
By: |
/s/ BARBRA E. KOCSIS |
|
|
Barbra E. Kocsis |
|
|
Chief Financial Officer |
|
|
(Principal Financial Officer) |