Attached files
file | filename |
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EXCEL - IDEA: XBRL DOCUMENT - ML SELECT FUTURES I LP | Financial_Report.xls |
EX-32.01 - EX-32.01 - ML SELECT FUTURES I LP | a15-7568_1ex32d01.htm |
EX-31.02 - EX-31.02 - ML SELECT FUTURES I LP | a15-7568_1ex31d02.htm |
EX-31.01 - EX-31.01 - ML SELECT FUTURES I LP | a15-7568_1ex31d01.htm |
EX-32.02 - EX-32.02 - ML SELECT FUTURES I LP | a15-7568_1ex32d02.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, 2015
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 |
|
(I.R.S. Employer Identification No.) |
incorporation or organization) |
|
|
c/o Merrill Lynch Alternative Investments LLC
250 Vesey Street, 11th Floor
New York, New York 10080
(Address of principal executive offices)
(Zip Code)
609-274-5838
(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:
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 in Rule 12b-2 of the Exchange Act).
Yes o No x
As of March 31, 2015, 122,135 units of limited partnership interest were outstanding.
ML SELECT FUTURES I L.P.
QUARTERLY REPORT FOR MARCH 31, 2015 ON FORM 10-Q
|
|
PAGE |
|
PART IFINANCIAL INFORMATION |
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|
|
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Item 1. |
Financial Statements |
1 |
|
|
|
Item 2. |
Managements Discussion and Analysis of Financial Condition and Results of Operations |
13 |
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|
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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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|
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Item 1. |
Legal Proceedings |
24 |
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Item 1A. |
Risk Factors |
24 |
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|
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Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds |
24 |
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Item 3. |
Defaults Upon Senior Securities |
24 |
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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 |
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, |
| ||
|
|
2015 |
|
2014 |
| ||
ASSETS: |
|
|
|
|
| ||
|
|
|
|
|
| ||
Equity in commodity futures trading accounts: |
|
|
|
|
| ||
Cash (includes restricted cash of $2,383,638 for 2015 and $2,811,494 for 2014) |
|
$ |
32,694,992 |
|
$ |
31,411,744 |
|
Unrealized profit on open futures contracts |
|
1,277,020 |
|
1,151,066 |
| ||
Unrealized profit on open forwards contracts |
|
8,355 |
|
124,608 |
| ||
Cash and cash equivalents |
|
493,411 |
|
508,449 |
| ||
Accrued interest receivable |
|
696 |
|
970 |
| ||
|
|
|
|
|
| ||
TOTAL ASSETS |
|
$ |
34,474,474 |
|
$ |
33,196,837 |
|
|
|
|
|
|
| ||
LIABILITIES AND PARTNERS CAPITAL |
|
|
|
|
| ||
|
|
|
|
|
| ||
LIABILITIES: |
|
|
|
|
| ||
|
|
|
|
|
| ||
Unrealized loss on open futures contracts |
|
$ |
1,141,301 |
|
$ |
151,613 |
|
Unrealized loss on open forward contracts |
|
106,952 |
|
24,958 |
| ||
Redemptions payable |
|
176,379 |
|
675,455 |
| ||
Wrap fee payable |
|
159,209 |
|
158,222 |
| ||
Other liabilities |
|
3 |
|
18 |
| ||
Total liabilities |
|
1,583,844 |
|
1,010,266 |
| ||
|
|
|
|
|
| ||
PARTNERS CAPITAL: |
|
|
|
|
| ||
|
|
|
|
|
| ||
General Partner (2,991 Units and 2,991 Units) |
|
786,207 |
|
750,192 |
| ||
Limited Partners (122,135 Units and 125,335 Units) |
|
32,104,423 |
|
31,436,379 |
| ||
|
|
|
|
|
| ||
Total partners capital |
|
32,890,630 |
|
32,186,571 |
| ||
|
|
|
|
|
| ||
TOTAL LIABILITIES AND PARTNERS CAPITAL |
|
$ |
34,474,474 |
|
$ |
33,196,837 |
|
|
|
|
|
|
| ||
NET ASSET VALUE PER UNIT |
|
|
|
|
| ||
(Based on 125,126 and 128,326 Units outstanding; unlimited Units authorized) |
|
$ |
262.8601 |
|
$ |
250.8188 |
|
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, |
| ||
|
|
2015 |
|
2014 |
| ||
TRADING PROFIT (LOSS): |
|
|
|
|
| ||
|
|
|
|
|
| ||
Realized, net |
|
$ |
3,080,979 |
|
$ |
(580,998 |
) |
Change in unrealized, net |
|
(1,061,981 |
) |
(1,466,835 |
) | ||
|
|
|
|
|
| ||
Total trading profit (loss), net |
|
2,018,998 |
|
(2,047,833 |
) | ||
|
|
|
|
|
| ||
INVESTMENT INCOME (LOSS) |
|
|
|
|
| ||
|
|
|
|
|
| ||
Interest, net |
|
2,013 |
|
6,071 |
| ||
|
|
|
|
|
| ||
EXPENSES: |
|
|
|
|
| ||
|
|
|
|
|
| ||
Wrap fee |
|
480,278 |
|
632,753 |
| ||
|
|
|
|
|
| ||
Total expenses |
|
480,278 |
|
632,753 |
| ||
|
|
|
|
|
| ||
NET INVESTMENT INCOME (LOSS) |
|
(478,265 |
) |
(626,682 |
) | ||
|
|
|
|
|
| ||
NET INCOME (LOSS) |
|
$ |
1,540,733 |
|
$ |
(2,674,515 |
) |
|
|
|
|
|
| ||
NET INCOME (LOSS) PER UNIT: |
|
|
|
|
| ||
|
|
|
|
|
| ||
Weighted average number of General Partner and Limited Partner Units outstanding |
|
126,930 |
|
197,798 |
| ||
|
|
|
|
|
| ||
Net income (loss) per weighted average General Partner and Limited Partner Unit |
|
$ |
12.14 |
|
$ |
(13.52 |
) |
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, 2015 AND 2014
(unaudited)
|
|
|
|
General |
|
Limited |
|
|
| |||
|
|
Units |
|
Partner |
|
Partners |
|
Total |
| |||
|
|
|
|
|
|
|
|
|
| |||
PARTNERS CAPITAL, December 31, 2013 |
|
202,401 |
|
$ |
699,838 |
|
$ |
46,658,645 |
|
$ |
47,358,483 |
|
|
|
|
|
|
|
|
|
|
| |||
Subscriptions |
|
72 |
|
|
|
16,000 |
|
16,000 |
| |||
|
|
|
|
|
|
|
|
|
| |||
Net income (loss) |
|
|
|
(39,622 |
) |
(2,634,893 |
) |
(2,674,515 |
) | |||
|
|
|
|
|
|
|
|
|
| |||
Redemptions |
|
(9,970 |
) |
|
|
(2,207,500 |
) |
(2,207,500 |
) | |||
|
|
|
|
|
|
|
|
|
| |||
PARTNERS CAPITAL, March 31, 2014 |
|
192,503 |
|
$ |
660,216 |
|
$ |
41,832,252 |
|
$ |
42,492,468 |
|
|
|
|
|
|
|
|
|
|
| |||
PARTNERS CAPITAL, December 31, 2014 |
|
128,326 |
|
$ |
750,192 |
|
$ |
31,436,379 |
|
$ |
32,186,571 |
|
|
|
|
|
|
|
|
|
|
| |||
Subscriptions |
|
|
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
|
|
| |||
Net income (loss) |
|
|
|
36,015 |
|
1,504,718 |
|
1,540,733 |
| |||
|
|
|
|
|
|
|
|
|
| |||
Redemptions |
|
(3,200 |
) |
|
|
(836,674 |
) |
(836,674 |
) | |||
|
|
|
|
|
|
|
|
|
| |||
PARTNERS CAPITAL, March 31, 2015 |
|
125,126 |
|
$ |
786,207 |
|
$ |
32,104,423 |
|
$ |
32,890,630 |
|
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, 2015 AND 2014 (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, 2015 |
|
March 31, 2014 |
| ||
|
|
|
|
|
| ||
Per Unit Operating Performance: |
|
|
|
|
| ||
|
|
|
|
|
| ||
Net asset value, beginning of period |
|
$ |
250.8188 |
|
$ |
233.9835 |
|
|
|
|
|
|
| ||
Realized trading profit (loss) |
|
24.2567 |
|
(2.8621 |
) | ||
Change in unrealized, net |
|
(8.4473 |
) |
(7.2168 |
) | ||
Interest income, net |
|
0.0158 |
|
0.0307 |
| ||
Expenses (1) |
|
(3.7839 |
) |
(3.1991 |
) | ||
|
|
|
|
|
| ||
Net asset value, end of period |
|
$ |
262.8601 |
|
$ |
220.7362 |
|
|
|
|
|
|
| ||
Total Return: (2) |
|
|
|
|
| ||
|
|
|
|
|
| ||
Total return (3) |
|
4.80 |
% |
-5.66 |
% | ||
|
|
|
|
|
| ||
Ratios to Average Partners Capital (1) (3): |
|
|
|
|
| ||
|
|
|
|
|
| ||
Expenses |
|
1.46 |
% |
1.43 |
% | ||
Net investment loss |
|
-1.45 |
% |
-1.42 |
% |
(1) Includes the impact of brokerage commission expenses which are included in the wrap fee.
(2) The total return is based on compounded monthly returns and is calculated for limited partner units taken as a whole. An individual limited partners return may vary from these returns based on timing of capital transactions.
(3) The ratios and total return are not annualized.
See notes to financial statements.
ML SELECT FUTURES I L.P.
(a Delaware Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
(unaudited)
1. ORGANIZATION
ML Select Futures I L.P. (the Partnership), which is an investment company as defined by Accounting Standards Codification (ASC) guidance, was organized under the Delaware Revised Uniform Limited 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 (Trading Advisor) is the trading advisor of the Partnership.
Merrill Lynch Alternative Investments LLC (MLAI, 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 (MLI) is the primary foreign exchange (F/X) forward prime broker for the Partnership. The General Partner may select other of its affiliates or third parties as F/X or other over-the counter (OTC) prime brokers. MLPF&S and MLI 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.
The Partnership considers all highly liquid investments, with a maturity of three months or less when acquired, to be cash equivalents. As of March 31, 2015 the Partnership holds cash equivalents. Cash was held at a nationally recognized financial institution.
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, 2015 and December 31, 2014 and the results of its operations for the three month periods ended March 31, 2015 and 2014. 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, 2014.
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 SCHEDULES OF INVESTMENTS
The Partnerships investments, defined as unrealized profit (loss) on open contracts on the Statements of Financial Condition, as of March 31, 2015 and December 31, 2014, are as follows:
March 31, 2015
|
|
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 |
|
6 |
|
$ |
(3,656 |
) |
-0.01 |
% |
(50 |
) |
$ |
128,047 |
|
0.39 |
% |
$ |
124,391 |
|
0.38 |
% |
April 2015 - August 2015 |
|
Currencies - Futures |
|
83 |
|
(43,000 |
) |
-0.13 |
% |
(84 |
) |
18,228 |
|
0.06 |
% |
(24,772 |
) |
-0.07 |
% |
June 2015 |
| |||
Currencies - Forwards* |
|
1,285,118 |
|
(12,658 |
) |
-0.04 |
% |
(4,659,573 |
) |
(85,939 |
) |
-0.26 |
% |
(98,597 |
) |
-0.30 |
% |
June 2015 |
| |||
Energy |
|
|
|
|
|
0.00 |
% |
(33 |
) |
63,315 |
|
0.19 |
% |
63,315 |
|
0.19 |
% |
April 2015 - November 2015 |
| |||
Interest rates |
|
59 |
|
38,838 |
|
0.12 |
% |
|
|
|
|
0.00 |
% |
38,838 |
|
0.12 |
% |
June 2015 - December 2015 |
| |||
Metals |
|
92 |
|
(767,048 |
) |
-2.33 |
% |
(136 |
) |
798,741 |
|
2.43 |
% |
31,693 |
|
0.10 |
% |
May 2015 - June 2015 |
| |||
Stock indices |
|
323 |
|
(92,233 |
) |
-0.28 |
% |
(41 |
) |
(5,513 |
) |
-0.02 |
% |
(97,746 |
) |
-0.30 |
% |
April 2015 - June 2015 |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Total |
|
|
|
$ |
(879,757 |
) |
-2.67 |
% |
|
|
$ |
916,879 |
|
2.79 |
% |
$ |
37,122 |
|
0.12 |
% |
|
|
December 31, 2014
|
|
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 |
|
102 |
|
$ |
(31,588 |
) |
-0.10 |
% |
(43 |
) |
$ |
22,166 |
|
0.07 |
% |
$ |
(9,422 |
) |
-0.03 |
% |
February 2015 - May 2015 |
|
Currencies - Futures |
|
19 |
|
4,475 |
|
0.01 |
% |
(186 |
) |
105,885 |
|
0.33 |
% |
110,360 |
|
0.34 |
% |
March 2015 |
| |||
Currencies - Forwards* |
|
531,051 |
|
(9,421 |
) |
-0.03 |
% |
(9,423,066 |
) |
109,071 |
|
0.34 |
% |
99,650 |
|
0.31 |
% |
March 2015 |
| |||
Interest rates |
|
109 |
|
32,879 |
|
0.10 |
% |
|
|
|
|
0.00 |
% |
32,879 |
|
0.10 |
% |
March 2015 - December 2015 |
| |||
Energy |
|
|
|
|
|
0.00 |
% |
(37 |
) |
302,195 |
|
0.94 |
% |
302,195 |
|
0.94 |
% |
January 2015 - November 2015 |
| |||
Metals |
|
25 |
|
(69,844 |
) |
-0.22 |
% |
(58 |
) |
63,050 |
|
0.20 |
% |
(6,794 |
) |
-0.02 |
% |
February 2015 - March 2015 |
| |||
Stock indices |
|
300 |
|
570,235 |
|
1.77 |
% |
|
|
|
|
0.00 |
% |
570,235 |
|
1.77 |
% |
January 2015 - March 2015 |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Total |
|
|
|
$ |
496,736 |
|
1.53 |
% |
|
|
$ |
602,367 |
|
1.88 |
% |
$ |
1,099,103 |
|
3.41 |
% |
|
|
*Currencies-Forwards present notional amounts as converted to USD.
No individual contracts unrealized profit or loss comprised greater than 5% of Partners Capital as of March 31, 2015 and December 31, 2014. 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 accounts 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 hierarchical 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.
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.
The 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 the process for determining fair values.
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 observable prices of investments with similar characteristics and these are generally classified as Level II investments. The Partnership determined that Level II investments would include its forwards and certain futures contracts.
Transfers of investments between different levels of the fair value hierarchy, if any, are recorded as of the beginning of the reporting period.
The Partnerships unrealized profit (loss) on open forwards and futures contracts by the above fair value hierarchy levels, as of March 31, 2015 and December 31, 2014 are as follows:
Net unrealized profit (loss) |
|
|
|
|
|
|
|
|
| ||||
on open contracts |
|
Total |
|
Level I |
|
Level II |
|
Level III |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Assets |
|
|
|
|
|
|
|
|
| ||||
Futures |
|
$ |
1,277,020 |
|
$ |
355,497 |
|
$ |
921,523 |
|
$ |
|
|
Forwards |
|
8,355 |
|
|
|
8,355 |
|
|
| ||||
|
|
$ |
1,285,375 |
|
$ |
355,497 |
|
$ |
929,878 |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Liabilities |
|
|
|
|
|
|
|
|
| ||||
Futures |
|
$ |
1,141,301 |
|
$ |
242,785 |
|
$ |
898,516 |
|
$ |
|
|
Forwards |
|
106,952 |
|
|
|
106,952 |
|
|
| ||||
|
|
$ |
1,248,253 |
|
$ |
242,785 |
|
$ |
1,005,468 |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
| ||||
March 31, 2015 |
|
$ |
37,122 |
|
$ |
112,712 |
|
$ |
(75,590 |
) |
$ |
|
|
Net unrealized profit (loss) |
|
|
|
|
|
|
|
|
| ||||
on open contracts |
|
Total |
|
Level I |
|
Level II |
|
Level III |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Assets |
|
|
|
|
|
|
|
|
| ||||
Futures |
|
$ |
1,151,066 |
|
$ |
1,129,816 |
|
$ |
21,250 |
|
$ |
|
|
Forwards |
|
124,608 |
|
|
|
124,608 |
|
|
| ||||
|
|
$ |
1,275,674 |
|
$ |
1,129,816 |
|
$ |
145,858 |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Liabilities |
|
|
|
|
|
|
|
|
| ||||
Futures |
|
$ |
151,613 |
|
$ |
65,519 |
|
$ |
86,094 |
|
$ |
|
|
Forwards |
|
24,958 |
|
|
|
24,958 |
|
|
| ||||
|
|
$ |
176,571 |
|
$ |
65,519 |
|
$ |
111,052 |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
| ||||
December 31, 2014 |
|
$ |
1,099,103 |
|
$ |
1,064,297 |
|
$ |
34,806 |
|
$ |
|
|
The Partnerships volume of trading forwards and futures as of the three month period ended March 31, 2015 and year ended December 31, 2014 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, 2015 or the year ended December 31, 2014.
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, number of contracts and fair values of derivative instruments by contract type/commodity sector are disclosed in Note 2.
The Partnership maintains margin deposits and cash collateral with its futures and forwards brokers, respectively, based on the greater of exchange margin or amounts determined by the respective broker. At March 31, 2015 and December 31, 2014, the initial margin deposits (cash) are used to satisfy the margin requirements to establish the futures or forward contracts and are presented on the Statements of Financial Condition in Cash in the Equity in commodity trading accounts. The variation margin on open contracts is presented gross on the Statements of Financial Condition in Unrealized profit or loss on futures or forwards contracts, respectively. The Partnership is subject to agreements which support the ability to settle net with their counterparties; however, the Partnership has elected to present the related balances on the Statements of Financial Condition on a gross basis. The net of these amounts less the restricted cash presented within the Cash in the Equity in commodity trading accounts on the Statements of Financial Condition represents the Partnerships net exposure.
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, 2015 and 2014:
|
|
For the three months ended |
|
For the three months ended |
| ||
|
|
March 31, 2015 |
|
March 31, 2014 |
| ||
Commodity Industry Sector |
|
Profit (loss) from trading, net |
|
Profit (loss) from trading, net |
| ||
|
|
|
|
|
| ||
Agriculture |
|
$ |
(51,012 |
) |
$ |
101,007 |
|
Currencies |
|
174,022 |
|
(839,490 |
) | ||
Energy |
|
151,343 |
|
347,334 |
| ||
Interest rates |
|
768,828 |
|
(248,761 |
) | ||
Metals |
|
(44,701 |
) |
(507,945 |
) | ||
Stock indices |
|
1,020,518 |
|
(899,978 |
) | ||
|
|
|
|
|
| ||
Total, net |
|
$ |
2,018,998 |
|
$ |
(2,047,833 |
) |
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 in 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 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 it will, in fact, succeed in doing so. These procedures focus primarily on monitoring the trading of the Trading Advisor, 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 the Trading Advisor 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 the Trading Advisor.
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 traded contracts and in the over the counter markets counterparties may also require margin.
The credit risk associated with these instruments from counterparty nonperformance is the 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 MLI, although MLAI may engage non-BAC affiliated service providers as clearing brokers or prime brokers for the Partnership. This policy may increase risk to the Partnership by preventing the diversification of brokers used by the Partnership.
The Partnership, in its normal course of business, enters into various contracts, with MLPF&S acting as its futures clearing broker. Due to the relationship with MLPF&S, in the event of default, all futures balances are eligible for offset with a net settlement due to MLPF&S. Due to the relationship with MLI, in the event of default, all forwards balances are eligible for offset with a net settlement due to MLI.
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 certain parties, including BAC affiliates. 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 expects the risk of loss to be remote and, therefore, no provision has been recorded.
5. RELATED PARTY TRANSACTIONS
MLAI and the Partnership entered into a transfer agency and investor services agreement with Financial Data Services, Inc. (the Transfer Agent) a wholly-owned subsidiary of BAC and affiliate of MLAI. The Transfer Agent provides registrar, distribution disbursing agent, transfer agent and certain other services related to the issuance, redemption, exchange and transfer of Units. The fees charged by the Transfer Agent for its services are based on the aggregate net assets of funds managed or sponsored by MLAI. The fee rate ranges from 0.016% to 0.02% per year of the aggregate net assets managed or sponsored by MLAI. During the quarter ended March 31, 2015, the rate ranged from 0.018% to 0.02%. The fee is payable monthly in arrears. MLAI allocates the Transfer Agent fees to each of the managed or sponsored funds, including the Partnership, on a monthly basis based on each funds net assets. The Transfer Agent fee allocated to the Partnership for the three month periods ended March 31, 2015 and 2014 is paid on behalf of the Partnership by the Sponsor. These fees are included in the wrap fees discussed further below.
The Partnerships brokerage commissions and administrative fees are included in the wrap fee which covers all of BACs costs and expenses, other than bid-ask spreads, certain trading fees and extraordinary expenses.
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 Unrealized profit/loss, as presented on the Statements of Financial Condition are held with a related party.
6. RECENT ACCOUNTING PRONOUNCEMENTS
In May 2015, the Financial Accounting Standards Board (FASB) issued ASU 2015-07, Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent. ASU 2015-07 removes the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient. It also removes the requirement to make certain disclosures for all investments that are eligible to be measured at fair value using the net asset value per share practical expedient. Rather, those disclosures are limited to investments for which the entity has elected to measure the fair value using that practical expedient. ASU 2015-07 will be effective for the Partnership beginning in the first quarter of 2016, with early adoption permitted, and will be applied retrospectively. MLAI is currently evaluating the standard and does not believe it 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 through the date the financial statements were 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
MONTH-END NET ASSET VALUE PER UNIT
MLAI believes that the Net Asset Value used to calculate subscription and redemption value and to report performance to investors 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 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 wrap fee, Profit Share and other liabilities of the Partnership. MLAI is authorized to make all Net Asset Value determinations.
MONTH-END NET ASSET VALUE PER INITIAL UNIT
|
|
Jan. |
|
Feb. |
|
Mar. |
| |||
2014 |
|
$ |
220.9897 |
|
$ |
222.6933 |
|
$ |
220.7362 |
|
2015 |
|
$ |
260.1297 |
|
$ |
262.9219 |
|
$ |
262.8601 |
|
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 might increase. 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.
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, 2015, Partnership capital increased 2.19% from $32,186,571 to $32,890,630. This increase was attributable to the net profit from operations of $1,540,733 coupled with the redemption of 3,200 Redeemable Units of Interest resulting in an outflow of $836,674. 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 Financial Statements Note 3, Fair Value of Investments.
Futures Contracts
The Fund 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 Fund 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 Funds Statements of Financial Condition. Contracts are priced daily by the Fund and the profit or loss is based on the daily mark to market and is recorded as unrealized profit (loss). When the contract is closed, the Fund 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 profit (loss), net and change in unrealized profit (loss), net on futures 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. The Fund 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 bids and asks from open outcry sessions.
Forward Foreign Currency Contracts
Foreign currency contracts are those contracts where the Fund 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 Funds 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 profit (loss), net and change in unrealized profit (loss) 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. A prospective investor should be aware that, among other things, income taxes could have a material adverse effect on the periodic calculations of the net asset value of the Partnership, including reducing the net asset value of the Partnership to reflect reserves for income taxes, such as foreign withholding taxes, that may be payable by the Partnership. This could cause benefits or detriments to certain investors, depending upon the timing of their entry and exit from the Partnership. 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 2011.
Reform Act
The Dodd-Frank Wall Street Reform and Consumer Protection Act amended the definition of eligible contract participant, and the Partnership expects to meet the amended definition as it applies to trading in retail forex transactions so long as its total assets exceed $10 million. If the Partnership does not meet the definition of eligible contract participant for purposes of trading in retail forex transactions, it could lead to the Partnership being unable to trade such transactions in the interbank market and bearing higher upfront and mark-to-market margin, less favorable trade pricing, and the possible imposition of new or increased fees. Retail forex markets available to parties that do not meet the definition of eligible contract participant could also be significantly less liquid than the interbank market. Moreover, the creditworthiness of the counterparties with whom the Partnership may be required to trade in such
circumstances could be significantly weaker than the creditworthiness of MLI and the currency forward counterparties with which the Partnership would otherwise engage for its currency forward transactions.
Results of Operations
January 1, 2015 to March 31, 2015
January 1, 2015 to March 31, 2015
The Partnership experienced a net trading profit of $2,018,998 before brokerage commissions and related fees in the first quarter of 2015. The Partnerships profits were primarily attributable to the stock indices, interest rate, currency and energy sectors posting profits. The metals and agriculture sectors posted losses.
The stock indices sector posted profits to the Partnership. Losses were posted to the Partnership at the beginning of the first quarter due to the long positions in many facets of sagging U.S. equity markets. Profits were posted to the Partnership in the middle of the quarter. The Trading Program was successful in the equities sector for February. Global markets rallied on solid economic and earnings data, constructive input from the U.S. Federal Reserve, and other inputs finding their way upward after a rough January correction from Australian SPI 200, NASDAQ, S&P 500, Dow Jones, Swedish OMX, German DAX and EU Euro Stoxx. Losses were posted to the Partnership at the end of the quarter as the Trading Program suffered losses in the S&P 500, NASDAQ and the Dow.
The interest rate sector posted profits to the Partnership. Profits were posted to the Partnership at the beginning of the first quarter. Global bonds led the way for the Trading Program in January as investors reached for safety in the face of equity market retracement and ongoing downward price pressure on commodities. With bond prices rising around the world, most of the Trading Programs long positions were profitable in January with the best returns emerging in U.S. 30, 10 and 5 year treasuries, Japanese government bonds, and European bobl. Additional profits were added in Australian and Canadian bond markets, and only the Trading Programs positions in the British Short Sterling and the U.S. 2 year treasury markets failed to make profits for the Partnership in January. Losses were posted to the Partnership in the middle of the quarter. Global bond markets were challenging for February and the Trading Program was largely unprofitable across the board in the various markets in which the Partnership invests. Particularly challenging were the British Long Gilt and U.S. 30, 10 and 5 year treasuries, each of which whipped around and ultimately trended downward against the Trading Programs long positions during February as investor fears eased after a panicky January. Losses were posted to the Partnership at the end of the quarter. Global bonds were perhaps the trickiest sector during March with prices vacillating in connection with commentary and speculation on the potential timing and magnitude of anticipated U.S. rate hikes resulting in losses incurred long the German bund and U.S. 30 year treasury.
The currency sector posted profits to the Partnership. Profits were posted to the Partnership at the beginning of the first quarter. A sharp loss short the Swiss franc on the Swiss governments mid-month bolstering effort was offset by gains short the euro, Australian dollar, New Zealand dollar, Danish krone, and Singapore dollar, among other currencies. Losses were posted to the Partnership in the middle of the quarter as the Trading Program incurred another monthly loss in Swiss francs as the Swiss National Bank continued a series of measures at intervention. Profits were posted to the Partnership at the end of the quarter. In this sector, the U.S. dollar continued to surge versus most currencies and the outcome for the Partnership was profitable investing short the euro, British pound, South African rand, and various other global denominations.
The energy sector posted profits to the Partnership. Profits were posted to the Partnership at the beginning of the first quarter. The Partnerships short positions across the sector were profitable with natural gas and
gasoil leading the way. Only rbob gasoline failed to yield profit in January as, overall, energy continued to be a source of opportunity for the Trading Program. Losses were posted to the Partnership in the middle of the quarter. February saw a waning of the downward price move as markets across the energy sector rallied and appeared to set a potential bottom after months of gloom. The Trading Program was hit hardest on its positions short Brent crude, gasoil, heating oil and rbob gasoline and also suffered a slight loss for February in WTI crude. Profits were posted to the Partnership at the end of the quarter. The Trading Program found its best opportunities in the energy sector. Despite a lot of intra-month price vacillation, prices ultimately moved downward in March and as a result the Partnership was able to capitalize on short positions in various components of its diversified investment models. Brent crude, heating oil, and rbob gasoline offered the best outcomes and ultimately, only the Partnerships short position in crude oil lost money for March.
The metals sector posted losses to the Partnership. Profits were posted to the Partnership at the beginning of the first quarter. Driving Januarys success were sharp downward moves in the copper and aluminum markets as industrial metals got caught in the downdraft of energy and equity prices. The Trading Programs short positions were not as successful in nickel and whippy gold and silver markets continued to test investment approach but, overall, profits in the sector outweighed losses to lead to a successful January in metals for the Partnership. Losses were posted to the Partnership in the middle of the quarter. The Trading Program suffered losses shorting copper in the face of a solid rally in that market and also misplayed gold with an unsuccessful long trade and platinum with an unsuccessful short trade. Losses were posted to the Partnership at the end of the quarter. The global metals sector was unprofitable for the Trading Program, particularly gold and silver markets that did not settle into any defined pattern. The industrial metals provided little sanctuary as only a short position in nickel yielded a profit for the Trading Program in March versus losing positions in copper, zinc and aluminum.
The agriculture sector posted losses to the Partnership. Losses were posted to the Partnership at the beginning of the first quarter where wheat backtracked sharply against the Partnerships long position and caused a loss that outweighed small gains earned for Partnership in long corn and short rubber and cotton positions. Profits were posted to the Partnership in the middle of the quarter due to the Partnerships short positions in coffee and wheat, which aligned nicely with falling prices in those markets. Profits were posted to the Partnership at the end of the quarter. Leading the way were short positions that captured a sharp drop in sugar prices and a less significant, but still profitable drop in coffee prices during March.
January 1, 2014 to March 31, 2014
January 1, 2014 to March 31, 2014
The Partnership experienced a net trading loss of $2,047,833 before brokerage commissions and related fees for the first quarter of 2014. Profits were primarily attributable to the Partnership trading in the energy and agriculture sectors posting profits. The interest rate, metals, currency and stock indices sectors posted losses.
The energy sector posted profits to the Partnership. Profits were posted to the Partnership at the beginning of the first quarter as the Partnership captured the price move of natural gas triggered by winter weather across the U.S. Small losses in the Partnerships long crude oil positions were insufficient to offset the strong performance in natural gas. Profits were posted to the Partnership in the middle of the quarter due to the Partnerships long positions in natural gas, crude oil and rbob gasoline. Losses were posted to the Partnership at the end of the quarter as the energy sector calmed significantly in March. As a result, the Partnership was flat for March.
The agriculture sector posted profits to the Partnership. Profits were posted to the Partnership at the beginning of the first quarter due to the Partnerships trading program buying cattle and soy meal and selling sugar, wheat and rubber. Gains in these markets were sufficient to outweigh January losses in coffee and corn where the Partnerships short positions were not profitable. Profits were posted to the Partnership in the middle of the quarter due to the Partnerships long positions in coffee, cattle, the soy complex and rubber. Losses were posted to the Partnership at the end of the quarter. The agricultural markets offered a mixed bag that ultimately resulted in a small loss for the Partnership. The Partnerships long positions in soy beans and soy meal generated profits which was offset by losses on both sides of a choppy wheat market and long positions in the cotton market.
The interest rate sector posted losses to the Partnership. Losses were posted to the Partnership at the beginning of the first quarter. The bond sector was a disappointment in January. The Partnerships directional basket of global positions failed to gain profits, even with the U.S. Federal Reserves reaffirmation of its plans to taper its easing policy. Overall, small gains in the U.S. and Japanese bond markets were insufficient to offset losses selling European markets such as the bund and gilt. Profits were posted to the Partnership in the middle of the quarter. There were profits from the Partnerships long positions in the U.S. 5 and 10 year Treasury note markets as well as in Japanese, Canadian and British bonds that slightly outweighed losses long U.S. treasury bonds and German bunds. Profits were posted to the Partnership at the end of the quarter. The Partnerships long positions in the German, British and longer-term U.S. treasuries generated profits that were sufficient to outweigh losses on the long side of Japanese bonds and shorter-term U.S. treasuries.
The metals sector posted losses to the Partnership. Losses were posted to the Partnership at the beginning of the first quarter. The Partnerships profits in copper were not enough to offset losses from selling precious metals such as platinum, gold, silver and nickel. Losses were posted to the Partnership in the middle of the quarter. While the Partnership generated profits in shorter term long position gold trades, those profits were outweighed by losses incurred shorting silver, nickel and copper. Losses were posted to the Partnership at the end of the quarter when gold, platinum and zinc prices failed to follow through on upward moves seized upon by the Partnerships trading program during March.
The currency sector posted losses to the Partnership. Losses were posted to the Partnership at the beginning of the first quarter due to the sharp upward move in the Japanese yen that bucked 2013s downward trend and the Partnerships carryover short position from 2013. Adding to the losses were downward moves in the Swiss franc and euro that went against the Partnerships long positions. These outcomes could not be overcome by winning short trades against the Australian dollar and South African rand. Losses were posted to the Partnership in the middle of the quarter as profits were outweighed by losses incurred shorting the Japanese yen, Australian dollar, and the South African rand. Losses were posted to the Partnership at the end of the quarter due to the Partnerships long positions in the British pound and on both sides of the euro market.
The stock indices sector posted losses to the Partnership. Losses were posted to the Partnership at the beginning of the first quarter. The global stock markets generally had strong market corrections in January and as a result, the Partnerships long positions lost money across the board. Profits were posted to the Partnership in the middle of the quarter due to the Partnerships long positions stock indices in Sweden, Italy, Taiwan and the Netherlands. Profits were posted to the Partnership at the end of the quarter due to the Partnerships long positions in the Scandinavian OMX, the Italian FTSE MIB, Taiwan, and the S&P 500.
(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 the Trading Advisor, 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 (VaR) 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 VaR 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 VaR 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 (Securities Act) and Section 21E of the Securities Exchange Act of 1934 (Securities Exchange Act)). 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 Trading Advisor is quantified below in terms of VaR. 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 settled daily through variation margin).
Exchange maintenance margin requirements have been used by the Partnership as the measure of its VaR. 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 VaR. 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 VaR. The diversification effects resulting from the fact that the Partnerships positions are rarely, if ever, 100% positively correlated have not been reflected.
The Partnerships Trading Value at Risk in Different Market Sectors
The following table indicates the average, highest and lowest trading VaR associated with the Partnerships open positions by market category for the fiscal period. For the three month periods ended March 31, 2015 and 2014, the Partnerships average capitalization was $32,775,392 and $44,142,816, respectively.
|
|
March 31, 2015 |
| |||||||||
|
|
Average |
|
% of Average |
|
Highest Value |
|
Lowest Value |
| |||
Market Sector |
|
Value at Risk |
|
Capitalization |
|
At Risk |
|
At Risk |
| |||
|
|
|
|
|
|
|
|
|
| |||
Currencies |
|
$ |
553,312 |
|
1.69 |
% |
$ |
639,708 |
|
$ |
498,481 |
|
Metals |
|
142,148 |
|
0.43 |
% |
164,343 |
|
128,061 |
| |||
Stock Indices |
|
438,390 |
|
1.34 |
% |
506,842 |
|
394,947 |
| |||
Interest Rates |
|
174,180 |
|
0.53 |
% |
201,377 |
|
156,920 |
| |||
Energy |
|
283,969 |
|
0.87 |
% |
328,309 |
|
255,829 |
| |||
Agricultural Commodities |
|
557,894 |
|
1.70 |
% |
645,006 |
|
502,609 |
| |||
|
|
|
|
|
|
|
|
|
| |||
TOTAL |
|
$ |
2,149,893 |
|
6.56 |
% |
$ |
2,485,585 |
|
$ |
1,936,847 |
|
|
|
March 31, 2014 |
| |||||||||
|
|
Average |
|
% of Average |
|
Highest Value |
|
Lowest Value |
| |||
Market Sector |
|
Value at Risk |
|
Capitalization |
|
At Risk |
|
At Risk |
| |||
|
|
|
|
|
|
|
|
|
| |||
Currencies |
|
$ |
153,209 |
|
0.35 |
% |
$ |
198,686 |
|
$ |
114,944 |
|
Metals |
|
1,366,444 |
|
3.10 |
% |
1,772,040 |
|
1,025,161 |
| |||
Stock Indices |
|
2,319,554 |
|
5.25 |
% |
3,008,059 |
|
1,740,223 |
| |||
Interest Rates |
|
146,789 |
|
0.33 |
% |
190,360 |
|
110,127 |
| |||
Energy |
|
19,530 |
|
0.04 |
% |
25,327 |
|
14,652 |
| |||
Agricultural Commodities |
|
470,626 |
|
1.07 |
% |
610,319 |
|
353,082 |
| |||
|
|
|
|
|
|
|
|
|
| |||
TOTAL |
|
$ |
4,476,152 |
|
10.14 |
% |
$ |
5,804,791 |
|
$ |
3,358,189 |
|
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 VaR 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 and MLI
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 approximately 90% 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 the Trading Advisor for managing such exposures are subject to numerous uncertainties, contingencies and risks, any one of which could cause the actual results of the 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, 2015 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 may 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 may also take 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/Singapore dollar, U.S. dollar/New Zealand dollar and U.S. dollar/Danish krone positions. The Partnership does not anticipate that the risk profile of the Partnerships currency sector will change significantly in the future. The currency trading VaR figure includes foreign margin amounts converted into U.S. dollars with an incremental adjustment to reflect the exchange rate risk of maintaining VaR 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. Corn, grains, cotton, coffee and sugar accounted for the substantial bulk of the Partnerships agricultural commodities exposure as of March 31, 2015.
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 primary non-trading risk exposures of the Partnership as of March 31, 2015.
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 the vast majority of its U.S. dollars in cash at MLPF&S and MLI. 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.
Qualitative Disclosures Regarding Means of Managing Risk Exposure
Trading Risk
MLAI has procedures in place intended to control market risk, although there can be no assurance that they will, in fact, succeed in doing so. While MLAI does not itself intervene in the markets to hedge or diversify the Funds market exposure, MLAI may urge the Trading Advisor to reallocate positions in an attempt to avoid over-concentrations. However, such interventions are unusual, except in cases in which it appears that the Trading Advisor has begun to deviate from past practice and trading policies or to be trading erratically. MLAIs basic control procedures consist of the ongoing process of monitoring the Trading Advisor with the market risk controls being applied by the Trading Advisor itself.
Risk Management
While the Trading Advisor relies on mechanical technical trading systems in making investment decisions, the overall strategy does include the latitude to depart from this approach if market conditions are such that, in the opinion of Trading Advisor, execution of trades recommended by the mechanical systems would be difficult or unusually risky to an account.
Non-Trading Risk
The Fund controls the non-trading exchange rate risk by regularly converting foreign balances back into U.S. dollars at least once per week, and more frequently if a particular foreign currency balance becomes unusually high.
The Fund has 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. However, a certain amount of cash or cash equivalents must be held by the Fund in order to facilitate margin payments and pay expenses and redemptions. MLAI does not take any steps to limit the cash flow risk on its cash held on deposit at MLPF&S.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
MLAIs Chief Executive Officer and Chief Financial Officer, on behalf of the Partnership, have 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) with respect to the Partnership as of and for the quarter which ended March 31, 2015, and, based on their evaluation, have concluded that these disclosure controls and procedures are effective.
Changes in Internal Control over Financial Reporting
No change in internal control over financial reporting (in connection with Rule 13a-15 or Rule 15d-15 under the Securities Exchange Act) occurred during the quarter ended March 31, 2015 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 Partnerships report on Form 10-K for the year ended December 31, 2014, filed with the Securities and Exchange Commission on March 20, 2015.
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-15 |
|
$ |
|
|
|
|
$ |
250.8188 |
|
Feb-15 |
|
|
|
|
|
260.1297 |
| ||
Mar-15 |
|
|
|
|
|
262.9219 |
| ||
Apr-15 |
|
|
|
|
|
262.8601 |
| ||
(1) Beginning of the month Net Asset Value
(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, 2015 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.
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.
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ML SELECT FUTURES I L.P. | |
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By: |
MERRILL LYNCH ALTERNATIVE |
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INVESTMENTS LLC |
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(General Partner) |
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Date: May 15, 2015 |
By: |
/s/ KEITH GLENFIELD |
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Keith Glenfield |
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Chief Executive Officer and President |
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(Principal Executive Officer) |
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Date: May 15, 2015 |
By: |
/s/ BARBRA E. KOCSIS |
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Barbra E. Kocsis |
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Chief Financial Officer |
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(Principal Financial Officer) |