ML SELECT FUTURES I LP - 10-Q Quarterly Report

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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 June 30, 2004

OR

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

For the transition period from _________ to _________

Commission File Number 0-05269

ML SELECT FUTURES I LP
(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
Princeton Corporate Campus
800 Scudders Mill Road - Section 2G
Plainsboro, New Jersey 08536
----------------------------
(Address of principal executive offices)
(Zip Code)

609-282-6996
------------------------------------------
(Registrant's 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 / /

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

ML SELECT FUTURES I LP
(A DELAWARE LIMITED PARTNERSHIP)

STATEMENTS OF FINANCIAL CONDITION

See notes to financial statements.

2

ML SELECT FUTURES I LP
(A DELAWARE LIMITED PARTNERSHIP)

STATEMENTS OF OPERATIONS
(unaudited)

See notes to financial statements.

3

ML SELECT FUTURES I LP
(A DELAWARE LIMITED PARTNERSHIP)

STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE SIX MONTHS ENDED JUNE 30, 2004 AND 2003
(unaudited)

See notes to financial statements.

4

ML SELECT FUTURES I LP
(A DELAWARE LIMITED PARTNERSHIP)

NOTES TO FINANCIAL STATEMENTS
(unaudited)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

In the opinion of management, the financial statements contain all
adjustments (consisting of only normal recurring adjustments) necessary to
present fairly the financial position of ML Select Futures I LP (the
"Partnership") as of June 30, 2004, and the results of its operations for
the three and six months ended June 30, 2004 and 2003. 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 have been omitted. It
is suggested that these financial statements be read in conjunction with
the financial statements and notes thereto included in the Partnership's
Annual Report on Form 10-K filed with the Securities and Exchange
Commission for the year ended December 31, 2003.

2. FAIR VALUE AND OFF-BALANCE SHEET RISK

The nature of this Partnership has certain risks, which cannot be
presented on the financial statements. The following summarizes some of
those risks.

MARKET RISK

Derivative instruments involve varying degrees of off-balance sheet 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 Partnership's net unrealized profit on such derivative
instruments as reflected in the Statements of Financial Condition. The
Partnership's 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.

Merrill Lynch Alternative Investments LLC ("MLAI"), the General Partner,
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
Capital Partners, LLC ("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 Partnership's market
exposure, MLAI may urge Sunrise to reallocate positions in an attempt to
avoid over-concentrations. However, such interventions are unusual. Except
in cases in which it appears that Sunrise has begun to deviate from past
practice or trading policies or to be trading erratically, MLAI's basic
risk control procedures consist simply of the ongoing process of advisor
monitoring, with the market risk controls being applied by Sunrise itself.

5

CREDIT RISK

The risks associated with exchange-traded contracts are typically
perceived to be less than those associated with over-the-counter
(non-exchange-traded) transactions, because exchanges typically (but not
universally) provide clearinghouse arrangements in which the collective
credit (in some cases limited in amount, in some cases not) of the members
of the exchange is pledged to support the financial integrity of the
exchange. In over-the-counter transactions, on the other hand, traders
must rely solely on the credit of their respective individual
counterparties. Margins, which may be subject to loss in the event of a
default, are generally required in exchange trading, and counterparties
may also require margin in the over-the-counter markets.

The credit risk associated with these instruments from counterparty
nonperformance is the net unrealized profit, if any, included in the
Statements of Financial Condition. The Partnership attempts to mitigate
this risk by dealing exclusively with Merrill Lynch entities as clearing
brokers.

The Partnership, in its normal course of business, enters into various
contracts, with Merrill Lynch Pierce Fenner & Smith Inc. ("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 from commodity futures trading accounts in the
Statements of Financial Condition.

Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations

MONTH-END NET ASSET VALUE PER UNIT

Performance Summary

JANUARY 1, 2004 TO JUNE 30, 2004

January 1, 2004 to March 31, 2004

The Partnership experienced gains for the quarter. All sectors were profitable.

The agriculture sector provided the greatest gains for the Partnership. Early in
the quarter, unusually tight grain inventory sent corn and bean prices to new
contract highs. In March, grains rallied to new highs supported by growing
global demand and a drastic reduction in grain inventories. Bean and corn prices
hit their highest levels since 1988 and 1996, respectively.

The metals sector also had significant gains for the quarter. Despite the
volatility in the market, copper and aluminum posted profits early in the
quarter, due to tight supplies. In February, copper hit an eight-year high. Base
metals, with the exception of nickel, continued to rise driven by strong demand,
U.S.

6

dollar weakness and declining stocks. In March, both gold and silver extended
their gains as demand continued to rise. Silver was the best performing market
overall, with the price reaching a 17-year high of $8.30 an ounce.

The Partnership posted gains for the interest rate sector. The quarter began
with volatility. In February, interest rate futures moved higher and generated
profits. In March, the Partnership benefited from long interest rate futures.
Both domestic and foreign interest rate positions posted solid gains.

Although the energy sector began with losses in January, it was profitable
overall for the quarter. Crude oil contributed to losses for the month of
January, as price movements were sensitive to weather and inventory related
reports. Conversely, crude oil was the most profitable market in February,
supported by an unusually high level of weather-related demand and tight U.S.
inventories. In March, crude oil remained strong as May crude oil contracts
reached a new contract high of $37.80 per barrel, but during the second half of
the month prices dropped on expectations that the OPEC nations will have
difficulties reducing output in the face of such high prices.

The currency forward and futures trading also had gains for the quarter.
Currencies were the most profitable in January as the U.S. dollar moved up
against all major and minor currencies, with the announcement from the Federal
Reserve preparing the markets for a period of rising interest rates. In
February, exceptional volatility characterized the currency markets. The U.S.
dollar began to make an upside breakout and gained some ground. One of the
factors pushing the U.S. dollar higher included speculation that the U.S.
Federal Reserve would raise interest rates if the U.S. economy continues to
improve. In March, market exposure was at very low levels and volatility
indicators prevented trading in new positions in most major currencies against
the U.S. dollar.

Trading in stock indices posted gains for the quarter. January was the most
profitable month despite a volatile trading market.

April 1, 2004 to June 30, 2004

The Partnership experienced an overall loss for the second quarter. Energy was
the only profitable sector.

The energy sector was the only profitable sector for the Partnership. Early in
the quarter, crude oil was profitable due to strong demand combined with tight
supplies. In May, the price of oil reached record highs on fears of supply-side
disruptions in the Middle East. The quarter ended with negative returns,
particularly in long crude oil, as the market lost its direction.

The agricultural commodities sector posted losses for the Partnership even
though the beginning of the quarter generated profits on a short position in
cotton. Volatile conditions in May prevented the Partnership from initiating any
new positions and the market exposure was reduced to historically low levels.
Even though the quarter ended with negative results the trading model proved to
be effective in reducing the overall decline during the month by minimizing
exposure to non-directional and erratic markets.

Trading in stock indices posted losses for the Partnership. However, June ended
with foreign stock indices producing marginal profits for the Partnership but
not enough to recover losses earlier in the quarter.

The currency sector posted losses for the Partnership. In April, the largest
losses in the currency sector came from short U.S. dollar positions versus minor
currency positions. Choppy trading in May was due to non-directional price
movements in the market. The quarter ended with currency trading exposure close
to a historic low for the month with few trading opportunities in the markets.
However, profits were generated in Swiss franc and Japanese yen options
positions.

7

The metals sector posted losses for the Partnership. News about a slowing
Chinese economy and possible decline in global demand for commodities put
down-ward pressure on commodity prices, especially metals.

The interest rate sector suffered the largest losses for the Partnership. In the
beginning of the quarter the market focused on growing expectation of higher
U.S. interest rates and began to prepare for the initial rate increase by the
U.S. Federal Reserve. Expectations of rising interest rates sent the prices of
long-term interest rate futures to their lowest levels in several months. In
May, the market was looking for a clear indication on the interest rate front
which resulted in choppy trading. Jobless claims and manufacturing data proved
to be slightly worse than expected and thus had a much bigger impact on the
market than the U.S. Federal Reserve's expected rate hike. The quarter ended
with interest rate futures moving higher, which resulted in the liquidation of
short positions.

JANUARY 1, 2003 TO JUNE 30, 2003

January 1, 2003 to March 31, 2003

Overall the Partnership experienced gains for the quarter. All sectors were
profitable except the metals sector.

The energy sector provided the greatest gains for the Partnership. As
Iraq-related events brought the possibility of war closer, petroleum products
moved to new highs. Crude oil was the best performing market in this category.
The natural gas market also strengthened during the month. Cold weather
conditions in the northeastern U.S. helped push prices to target levels causing
a portion of the Partnership's position to be liquidated to protect profits from
a downturn. As the trend reversed sharply in March, long positions in both
markets were gradually liquidated.

The currency forward and futures trading had significant gains for the quarter.
The Partnership started the year with short U.S. dollar positions versus other
major currencies. The Partnership capitalized on the persistent rise in the
value of these currencies against the U.S. dollar. Profits were also posted in
long European currencies against the Japanese yen in January. Trading in
currencies gave back profits in February and March. Short U.S. dollar positions
were maintained and exposure in the currency sector was below average. The
prolonged anxiety about the war was reflected in choppy and narrow price ranges
in most major currencies.

Interest rate future trading was profitable for the Partnership. The continued
rise in interest rate futures prices created a favorable trading environment in
January and February. Price reversals as well as choppiness and volatility in
March caused some losses and subsequently the Partnership's exposure was reduced
in the market.

Trading in stock indices posted gains for the quarter. January and February were
relatively flat. Foreign stock indices were the only positive sector. Short
positions in DAX and Nikkei produced small profits.

Agricultural commodities trading resulted in gains for the Partnership. Sugar
prices, like commodities in general, continued their upward trend. During
January, this trend accelerated thus producing significant profits. Soybeans
also contributed to profits with prices moving sharply upward.

The metals sector was the only unprofitable strategy for the quarter. Gold's
rise to a six-year high in January had a positive influence on the month. The
demand for gold rose because investors usually turn their attention to this
traditional "safe haven" market during uncertain times. Supply-side
considerations caused nickel prices to increase sharply as well. This uptrend
was reversed in February and March as

8

market actions were driven by the course of the war with Iraq. The risks and
potential impact on the global economy produced increased volatility, as
headlines about the war became the main focus.

April 1, 2003 to June 30, 2003

Gains were realized in the currency, interest rates and energy sectors. Losses
were posted in the metals, agricultural commodities and stock index sectors.
Overall, the Partnership was profitable.

Trading in the currency sector provided the greatest gains for the Partnership.
Currencies produced the largest profits in May, as the U.S. dollar remained on
the defensive throughout most of the quarter. The underlying factors driving the
U.S. dollar lower were low U.S. interest rates, the increasing U.S. deficit and
the Federal Reserve's use of the U.S. dollar as a tool to stabilize the U.S.
economy. The U.S. dollar's downtrend was also supported by technical indicators,
which further accelerated the pace of the U.S. dollar's decline. The biggest
beneficiary of the U.S. dollar's slide was the Euro, which hit four-year highs
against the U.S. dollar, the Japanese yen and the British pound. The largest
profits were posted in short U.S. dollar positions against the Euro and the
Swiss franc, as well as in long Euro positions against the Japanese yen. The
strong downward trend in the U.S. dollar that dominated the market for 18 months
came to a halt in June, reversing nearly half of the gains incurred in April and
May, causing some short U.S. dollar positions to be liquidated.

The interest rate sector was also profitable in April and May as market prices
continued to rally to falling U.S. interest rates. The yields declined to
45-year lows, generating profits for all interest rate positions. In June, the
interest rate markets reversed direction when the Federal Reserve announced the
decision to lower interest rates by 25 basis points was less than anticipated.
The market expressed their disappointment with the Federal Reserve's action by
selling debt futures. This, coupled with the flight to equities, caused long
positions to suffer during the month but stayed solidly profitable overall for
the quarter.

The energy sector incurred gains for the quarter, mostly in June. Volatility in
the first quarter caused exposure in this market to be reduced. Crude oil was
the best performer in June. Its price strengthened in response to declining
inventories.

The metals sector had losses for the quarter. Metal prices were stable and
produced marginal profits in May. Unfortunately, May's gains could not offset
unfavorable market conditions in June.

Trading in the agricultural commodities sector was unprofitable for the quarter.
Soybeans contributed to profits in April with prices moving sharply upward. The
direction of the markets shifted in May in reaction to weather and supply
reports. The worst performers in this sector were corn and cotton.

Trading in stock indices was the most unprofitable sector for the Partnership.
The largest losses came from short positions in stock index futures when equity
markets staged a postwar recovery.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable

Item 4. Controls and Procedures

Merrill Lynch Alternative Investments LLC, the General Partner of ML Select
Futures I LP, with the participation of the General Partner's Chief Executive
Officer and the Chief Financial Officer, has evaluated the effectiveness of the
design and operation of its disclosure controls and procedures with respect to
the Partnership within 90 days of the filing date of this quarterly report, and,
based on this evaluation, has concluded that these disclosure controls and
procedures are effective. Additionally, there were no significant changes in the
Partnership's internal controls or in other factors that could significantly
affect these controls subsequent to the date of this evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.

9

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

There are no pending proceedings to which the Partnership or MLAI LLC
is a party.

Item 2. Changes in Securities and Use of Proceeds

(a) None.
(b) None.
(c) None.
(d) None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Submission of Matters to a Vote of Security Holders

None.

Item 5. Other Information

None.

Item 6. Exhibits and Reports on Form 8-K.

(a) Exhibits.

There are no exhibits required to be filed as part of this document.

(b) Reports on Form 8-K.

There were no reports on Form 8-K filed during the six months of
fiscal 2004.

10

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 LP

By: MERRILL LYNCH ALTERNATIVE
INVESTMENTS LLC
(General Partner)

Date: August 13, 2004 By /s/ ROBERT M. ALDERMAN
-----------------------
Robert M. Alderman
Chief Executive Officer, President and Manager
(Principal Executive Officer)

Date: August 13, 2004 By /s/ MICHAEL L. PUNGELLO
-----------------------
Michael L. Pungello
Vice President, Chief Financial Officer
and Treasurer
(Principal Financial and Accounting Officer)

11

EXHIBIT 31.01

RULE 13a-14(a)/15d-14(a) CERTIFICATIONS

I, Robert M. Alderman, certify that:

1. I have reviewed this report on Form 10-Q of ML Select Futures I LP;

2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;

b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation;

c) Disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's most recent
fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial
reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of registrant's board of directors
(or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control
over financial reporting.

Date: August 13, 2004
- ---------------------

By /s/ ROBERT M. ALDERMAN
----------------------
Robert M. Alderman
Chief Executive Officer, President and Manager
(Principal Executive Officer)

12

EXHIBIT 31.02

RULE 13a-14(a)/15d-14(a) CERTIFICATIONS

I, Michael L. Pungello, certify that:

1. I have reviewed this report on Form 10-Q of ML Select Futures I LP;

2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;

b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation;

c) Disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's most recent
fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial
reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, of internal control over financial reporting to the
registrant's auditors and the audit committee of registrant's board of directors
(or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control
over financial reporting.

Date: August 13, 2004
- -----------------------

By /s/ MICHAEL L. PUNGELLO
-----------------------
Michael L. Pungello
Vice President, Chief Financial Officer
and Treasurer
(Principal Financial and Accounting Officer)

13

EXHIBIT 32.01

SECTION 1350 CERTIFICATION

In connection with this quarterly report of ML Select Futures I LP on Form 10-Q
for the period ended June 30, 2004 as filed with the Securities Exchange
Commission on the date hereof, I, Robert M. Alderman, certify, pursuant to 18
U.S.C. Section 1350, as adopted pursuant of the Sarbanes-Oxley Act of 2002,
that:

1. This quarterly report containing the financial statements fully complies with
the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of
1934; and

2. The information contained in this quarterly report fairly presents, in all
material respects, the financial condition and results of operations of ML
Select Futures I LP.

Date: August 13, 2004
- -----------------------

By /s/ ROBERT M. ALDERMAN
----------------------
Robert M. Alderman
Chief Executive Officer, President and Manager
(Principal Executive Officer)

14

EXHIBIT 32.02

SECTION 1350 CERTIFICATION

In connection with this quarterly report of ML Select Futures I LP on Form 10-Q
for the period ended June 30, 2004 as filed with the Securities Exchange
Commission on the date hereof, I, Michael L. Pungello, certify, pursuant to 18
U.S.C. Section 1350, as adopted pursuant of the Sarbanes-Oxley Act of 2002,
that:

1. This quarterly report containing the financial statements fully complies with
the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of
1934; and

2. The information contained in this quarterly report fairly presents, in all
material respects, the financial condition and results of operations of ML
Select Futures I LP.

Date: August 13, 2004
- -----------------------

By /s/ MICHAEL L. PUNGELLO
-----------------------
Michael L. Pungello
Vice President, Chief Financial Officer
and Treasurer
(Principal Financial and Accounting Officer)

15