ML SELECT FUTURES I LP - FORM 10-K/A - EX-13.01 - January 27, 2012

Attached files

file filename
10-K/A - ML SELECT FUTURES I LPefc12-59_10ka.htm
EX-31.02 - ML SELECT FUTURES I LPefc12-59_ex3102.htm
EX-31.01 - ML SELECT FUTURES I LPefc12-59_ex3101.htm
EX-32.02 - ML SELECT FUTURES I LPefc12-59_ex3202.htm
EX-32.01 - ML SELECT FUTURES I LPefc12-59_ex3201.htm
Exhibit 13.01
 
ML SELECT FUTURES I L.P.
(A Delaware Limited Partnership)
 
Financial Statements as of and for the years ended
December 31, 2010, 2009 and 2008 and
Reports of Independent Registered Public Accounting Firms
 
 
 
 

 
 
 

 
ML Select Futures I L.P.
(A Delaware Limited Partnership)
 
TABLE OF CONTENTS
 
 
Page
   
REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS
1
   
FINANCIAL STATEMENTS:
  
   
Statements of Financial Condition as of December 31, 2010 and 2009
3
   
Statements of Operations for the years ended December 31, 2010, 2009 and 2008
4
   
Statements of Changes in Partners’ Capital for the years ended December 31, 2010, 2009 and 2008
5
   
Financial Data Highlights for the years ended December 31, 2010, 2009 and 2008
6
   
Notes to Financial Statements
7
 
 

 
 
 

 
Report of Auditors - PWC
 
 
Report of Independent Registered Public Accounting Firm
 
 
To the Members of
ML Select Futures I L.P.:

 
In our opinion, the accompanying statements of financial condition, and the related statements of operations, changes in members' capital, and financial data highlights present fairly, in all material respects, the financial position of ML Select Futures I L.P. (the "Fund") at December 31, 2010 and December 31, 2009, and the results of its operations, the changes in its members' capital and its financial data highlights for the years then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and the financial data highlights (hereafter referred to as the "financial statements") are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
 
 
/s/ PricewaterhouseCoopers LLP
 
 
March 15, 2011
 
PricewaterhouseCoopers LLP, 300 Madison Avenue, New York, NY 10017
T: (646) 471 3000, F: (646) 471 8320, www.pwc.com/us
 
 

 
 
 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Partners of
ML Select Futures I L.P.:

We have audited the accompanying statements of operations, changes in partners’ capital and the financial data highlights of ML Select Futures I L.P. (the “Fund”) for the year ended December 31, 2008. These financial statements and financial data highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial data highlights based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial data highlights are free of material misstatement. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements and financial data highlights referred to above present fairly, in all material respects, the results of operations, changes in partners’ capital and the financial data highlights of ML Select Futures I L.P. for the year ended December 31, 2008, in conformity with accounting principles generally accepted in the United States of America.

/s/ Deloitte & Touche LLP
 
New York, New York
March 30, 2009
 
 

 
 
 

 
ML SELECT FUTURES I L.P.
(A Delaware Limited Partnership)
 
STATEMENTS OF FINANCIAL CONDITION
AS OF DECEMBER 31, 2010 AND 2009
 
   
2010
  
2009
  
ASSETS:
          
           
Equity in commodity trading accounts:
          
Cash (includes restricted cash of $8,492,711 for 2010 and $16,490,479 for 2009)
  
$
147,627,836
  
$
192,662,134
  
Net unrealized profit on open futures contracts
  
4,344,222
  
5,754,338
  
Net unrealized profit on open forwards contracts
  
2,172,926
  
—
  
Cash and cash equivalents
  
264,329
  
431,040
  
Accrued interest receivable
  
19,626
  
10,510
  
           
TOTAL ASSETS
  
$
154,428,939
  
$
198,858,022
  
           
LIABILITIES AND PARTNERS’ CAPITAL
          
           
LIABILITIES:
          
           
Net unrealized loss on open futures contracts
  
$
500,182
  
$
1,750,339
  
Net unrealized loss on open forward contracts
  
175,650
  
143,843
  
Brokerage commissions payable
  
704,702
  
902,720
  
Profit Shares payable
  
—
  
2,107,846
  
Administrative and filing fees payable
  
32,056
  
51,532
  
Redemptions payable
  
2,560,999
  
936,443
  
Total liabilities
  
3,973,589
  
5,892,723
  
           
PARTNERS’ CAPITAL:
          
           
General Partner (13,916 Units and 13,916 Units)
  
4,006,555
  
4,459,788
  
Limited Partners (508,654 Units and 588,190 Units)
  
146,448,795
  
188,505,511
  
           
Total partners’ capital
  
150,455,350
  
192,965,299
  
           
TOTAL LIABILITIES AND PARTNERS’ CAPITAL
  
$
154,428,939
  
$
198,858,022
  
           
NET ASSET VALUE PER UNIT
(Based on 522,570 and 602,106 Units outstanding; unlimited Units authorized)
  
$
287.9143
  
$
320.4839
  
 
See notes to financial statements.
 
3
 

 
 
 

 
ML SELECT FUTURES I L.P.
(A Delaware Limited Partnership)
 
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2010, 2009 AND 2008
 
   
2010
  
2009
  
2008
  
TRADING PROFIT (LOSS):
              
               
Realized, net
  
$
(13,126,930
)
$
16,697,398
  
$
81,364,923
  
Change in unrealized, net
  
1,981,160
  
(636,006
)
(3,074,698
)
               
Total trading profit (loss)
  
(11,145,770
)
16,061,392
  
78,290,225
  
               
INVESTMENT INCOME:
              
               
Interest
  
220,830
  
326,337
  
3,585,936
  
               
EXPENSES:
              
               
Brokerage commissions
  
8,866,475
  
10,958,446
  
13,184,374
  
Profit Shares
  
—
  
2,137,349
  
15,939,202
  
Administrative and filing fees
  
392,521
  
241,215
  
600,956
  
               
Total expenses
  
9,258,996
  
13,337,010
  
29,724,532
  
               
NET INVESTMENT INCOME (LOSS)
  
(9,038,166
)
(13,010,673
)
(26,138,596
)
               
NET INCOME (LOSS)
  
$
(20,183,936
)
$
3,050,719
  
$
52,151,629
  
               
NET INCOME (LOSS) PER UNIT:
              
               
Weighted average number of General Partner and Limited Partner Units outstanding
  
571,501
  
853,125
  
806,441
  
               
Net income (loss) per weighted average General Partner and Limited Partner Unit
  
$
(35.32
)
$
3.58
  
$
64.67
  
 
See notes to financial statements.
 
4
 

 
 
 

 
ML SELECT FUTURES I L.P.
(A Delaware Limited Partnership)
 
STATEMENTS OF CHANGES IN PARTNERS’ CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 2010, 2009 AND 2008
 
       
General
  
Limited
      
   
Units
  
Partner
  
Partners
  
Total
  
                   
PARTNERS’ CAPITAL, DECEMBER 31, 2007
  
901,053
  
3,483,352
  
222,271,011
  
225,754,363
  
                   
Subscriptions
  
18,634
  
—
  
5,149,267
  
5,149,267
  
                   
Net income (loss)
  
—
  
884,235
  
51,267,394
  
52,151,629
  
                   
Redemptions
  
(233,524
)
—
  
(67,500,565
)
(67,500,565
)
                   
PARTNERS’ CAPITAL, DECEMBER 31, 2008
  
686,163
  
4,367,587
  
211,187,107
  
215,554,694
  
                   
Subscriptions
  
12,962
  
—
  
3,974,755
  
3,974,755
  
                   
Net income (loss)
  
—
  
92,201
  
2,958,518
  
3,050,719
  
                   
Redemptions
  
(97,019
)
—
  
(29,614,869
)
(29,614,869
)
                   
PARTNERS’ CAPITAL, DECEMBER 31, 2009
  
602,106
  
$
4,459,788
  
$
188,505,511
  
$
192,965,299
  
                   
Subscriptions
  
—
  
—
  
—
  
—
  
                   
Net income (loss)
  
—
  
(453,233
)
(19,730,703
)
(20,183,936
)
                   
Redemptions
  
(79,536
)
—
  
(22,326,013
)
(22,326,013
)
                   
PARTNERS’ CAPITAL, DECEMBER 31, 2010
  
522,570
  
$
4,006,555
  
$
146,448,795
  
$
150,455,350
  
 
See notes to financial statements.
 
5
 

 
 
 

 
ML SELECT FUTURES I L.P.
(A Delaware Limited Partnership)
 
FINANCIAL DATA HIGHLIGHTS
FOR THE YEARS ENDED December 31, 2010, 2009 and 2008
 
The following per Unit data and ratios have been derived from information provided in the financial statements.
 
   
2010
  
2009
  
2008
  
               
Per Unit Operating Performance:
              
               
Net asset value, beginning of year
  
$
320.48
  
$
314.15
  
$
250.55
  
               
Net realized trading profit (loss)
  
(20.67
)
27.26
  
101.68
  
Change in unrealized, net
  
3.89
  
(0.42
)
(5.79
)
Interest income
  
0.39
  
0.50
  
4.31
  
Expenses (1)
  
(16.18
)
(21.01
)
(36.60
)
               
Net asset value, end of year
  
$
287.91
  
$
320.48
  
$
314.15
  
               
Total Return:
              
               
Total return (2) 
  
-10.16
%
2.60
%
25.38
%
               
Ratios to Average Partners’ Capital (1):
              
               
Expenses (2)
  
5.74
%
6.16
%
13.22
%
Net investment loss
  
-5.61
%
-6.00
%
-11.62
%
 
(1) Includes the impact of brokerage commission expenses.
(2) Includes the impact of Performance fees of 0%, -1.08% and -7.20%, respectively.
 
See notes to financial statements.
 
6
 

 
 
 

 
ML SELECT FUTURES I L.P.
(A Delaware Limited Partnership)
 
NOTES TO FINANCIAL STATEMENTS
 
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Organization
 
ML Select Futures I L.P. (the “Partnership”) was organized under the Delaware Revised Uniform Partnership Act in August 1995 and commenced trading activities on April 16, 1996. The Partnership issues new units of limited partner interest (“Units”) at Net Asset Value as of the beginning of each calendar month. The Partnership engages in the speculative trading of futures, options on futures and forward contracts on a wide range of commodities. Sunrise Capital Partners, LLC (“Sunrise” or trading advisor) is the trading advisor of the Partnership.
 
Merrill Lynch Alternative Investments LLC (“MLAI”or the “general partner”), is the general partner of the Partnership. MLAI is an indirect wholly-owned subsidiary of Merrill Lynch & Co., Inc. (“Merrill Lynch”). Merrill Lynch, Pierce, Fenner & Smith Incorporated (“MLPF&S”), a wholly-owned subsidiary of Merrill Lynch, is the Partnership’s commodity broker.  Merrill Lynch is a wholly-owned subsidiary of Bank of America. MLAI has agreed to maintain a general partner’s interest of at least 1% of the total capital in the Partnership.  MLAI and each Limited Partner share in the profits and losses of the Partnership in proportion to their respective interests in it.
 
Interests in the Partnership are not insured or otherwise protected by the Federal Deposit Insurance Corporation or any other government authority.  Interests are not deposits or other obligations of, and are not guaranteed by, Bank of America Corporation or any of its affiliates or by any bank.  Interests are subject to investment risks, including the possible loss of the full amount invested.
 
Estimates
 
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates and such differences could be material.
 
Reclassifications
 
Certain prior year items have been reclassified to conform to the current year presentation. A reclassification was made to prior year net unrealized profit (loss) on open contracts to the current presentation of disaggregation between futures and forwards.
 
Statement of Cash Flows
 
The Partnership is not required to provide a Statement of Cash Flows.
 
7
 

 
 
 

 
Revenue Recognition
 
Commodity futures, options on futures and forward contract transactions are recorded on trade date. Open contracts are reflected in Net unrealized profit (loss) on open contracts in the Statements of Financial Condition as the difference between the original contract value and the market value (for those commodity interests for which market quotations are readily available) or at fair value.  The change in unrealized profit (loss) on open contracts from one period to the next is reflected in Change in unrealized under Trading profit (loss) in the Statements of Operations.
 
Foreign Currency Transactions
 
The Partnership’s functional currency is the U.S. dollar; however, it transacts business in U.S. dollars and currencies other than the U.S. dollar.  Assets and liabilities denominated in currencies other than the U.S. dollar are translated into U.S. dollars at the rates in effect at the dates of the Statements of Financial Condition.  Income and expense items denominated in currencies other than the U.S. dollar are translated into U.S. dollars at the rates in effect during the year.  Gains and losses resulting from the translation to U.S. dollars are included in Trading Profit (Loss) in the Statements of Operations.
 
Cash and Cash Equivalents
 
The Partnership considers all highly liquid investments, with a maturity of three months or less when acquired, to be cash equivalents. Cash equivalents were recorded at amortized cost, as provided by the investment manager of the cash equivalent, which approximated fair value (Level II see Note 3). Cash was held at a nationally recognized financial institution.
 
Equity in Commodity Trading Accounts
 
A portion of the assets maintained at MLPF&S is restricted cash required to meet maintenance margin requirements.
 
Operating Expenses and Selling Commissions
 
MLAI pays all routine operating expenses excluding the State of New Jersey and State of New York filing fees (which are borne by the Partnership) but including legal, accounting, printing, postage and similar administrative expenses of the Partnership.  MLAI receives an administrative fee as well as a portion of the brokerage commissions paid to MLPF&S by the Partnership (see Note 4).
 
No selling commissions have been or are paid directly by the Limited Partners.  All selling commissions are paid by MLAI.
 
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 Partner’s share of the Partnership’s income and expenses as reported for income tax purposes.
 
The Partnership follows the Accounting Standard Codification (“ASC”) guidance on accounting for uncertainty in income taxes.  This guidance provides how uncertain tax positions should be recognized,
 
8
 

 
 
 

 
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 Partnership’s financial statements to determine whether the tax positions are “more-likely-than-not” to be sustained by the applicable tax authority.  Tax positions with respect to tax at the Partnership level not deemed to meet the “more-likely-than-not” threshold would be recorded as a tax benefit or expense in the current year.  MLAI has analyzed the Partnership’s tax positions and has concluded that no provision for income tax is required in the Partnership’s financial statements. The following are the major tax jurisdictions for the Partnership and the earliest tax year subject to examination: United States — 2007.
 
Distributions
 
The Limited Partners are entitled to receive, equally per Unit, any distributions which may be made by the Partnership.  No such distributions have been declared for the years ended December 31, 2010, 2009 and 2008.
 
Subscriptions
 
Currently, the Partnership is closed to new investors.  Existing investors only are allowed to add to their existing positions.  Units are offered as of the close of business at the end of each month.  Units are purchased as of the first business day of any month at Net Asset Value, but the subscription request must be submitted at least three calendar days before the end of the preceding month.  Subscriptions submitted less than three days before the end of a month will be applied to Unit subscriptions as of the beginning of the second month after receipt, unless revoked by MLAI.
 
Redemptions
 
A Limited Partner may redeem some or all of such Partner’s Units at Net Asset Value as of the close of business on the last business day of any calendar month upon ten days’ notice (“notice period”). Units redeemed on or before the end of the twelfth full month after purchase will be assessed an early redemption charge of 4% of their Net Asset Value as of the date of redemption.  If an investor makes multiple investments in the Partnership, investments are treated on a first-in, first-out basis in determining whether a redemption charge is applicable. Redemption charges are subtracted from redemption proceeds and paid to MLAI.
 
Redemption requests are accepted within the notice period.  The Partnership does not accept any redemption requests after the notice period.  All redemption requests received after the notice period will be processed for the following month.
 
Dissolution of the Partnership
 
The Partnership will terminate on December 31, 2020 or at an earlier date if certain conditions occur, as well as under certain other circumstances as set forth in the Limited Partnership Agreement.
 
9
 
 
 
 

 
2.
CONDENSED SCHEDULE OF INVESTMENTS
 
The Partnership’s investments, defined as Net unrealized profit (loss) on open contracts on the Statements of Financial Condition, as of December 31, 20010 and 2009, are as follows:
 
December 31, 2010
  
Long Positions
  
Short Positions
  
Net Unrealized
          
Commodity Industry
  
Number of
  
Unrealized
  
Percent of
  
Number of
  
Unrealized
  
Percent of
  
Profit (Loss)
  
Percent of
      
Sector
  
Contracts
  
Profit (Loss)
  
Partners’ Capital
  
Contracts
  
Profit (Loss)
  
Partners’ Capital
  
on Open Positions
  
Partners’ Capital
  
Maturity Dates
  
                                       
Agriculture
  
348
  
$
1,762,786
  
1.17
%
—
  
$
—
  
0.00
%
$
1,762,786
  
1.17
%
March 11
  
Currencies
  
1,330,860,517
  
2,355,094
  
1.57
%
(497,146,287
)
(171,750
)
-0.11
%
2,183,344
  
1.46
%
March 11
  
Interest rates
  
—
  
—
  
0.00
%
(780
)
(253,496
)
-0.17
%
(253,496
)
-0.17
%
March 11 - December 11
  
Energy
  
405
  
757,124
  
0.50
%
(28
)
(45,360
)
-0.03
%
711,764
  
0.47
%
January 11 - February 11
  
Metals
  
380
  
2,127,230
  
1.41
%
(165
)
(750,472
)
-0.50
%
1,376,758
  
0.91
%
January 11 - March 11
  
Stock indices
  
530
  
60,160
  
0.04
%
—
  
—
  
0.00
%
60,160
  
0.04
%
January 11 - March 11
  
                                       
Total
      
$
7,062,394
  
4.69
%
    
$
(1,221,078
)
-0.81
%
$
5,841,316
  
3.88
%
    
 
December 31, 2009
  
Long Positions
  
Short Positions
  
Net Unrealized
          
Commodity Industry
  
Number of
  
Unrealized
  
Percent of
  
Number of
  
Unrealized
  
Percent of
  
Profit (Loss)
  
Percent of
      
Sector
  
Contracts
  
Profit (Loss)
  
Partners’ Capital
  
Contracts
  
Profit (Loss)
  
Partners’ Capital
  
on Open Positions
  
Partners’ Capital
  
Maturity Dates
  
                                       
Agriculture
  
940
  
$
1,069,772
  
0.55
%
(158
)
$
144,174
  
0.07
%
$
1,213,946
  
0.62
%
March 10
  
Currencies
  
712,875,032
  
(1,504,842
)
-0.78
%
(613,875,032
)
(245,497
)
-0.13
%
(1,750,339
)
-0.91
%
March 10
  
Interest rates
  
343
  
(275,733
)
-0.14
%
—
  
—
  
0.00
%
(275,733
)
-0.14
%
March 10 - December 10
  
Energy
  
431
  
2,095,589
  
1.09
%
—
  
—
  
0.00
%
2,095,589
  
1.09
%
February 10 - June 10
  
Metals
  
661
  
1,479,680
  
0.77
%
(38
)
(41,672
)
-0.02
%
1,438,008
  
0.75
%
January 10 - March 10
  
Stock indices
  
1,034
  
1,138,685
  
0.59
%
—
  
—
  
0.00
%
1,138,685
  
0.59
%
March 10
  
                                       
Total
      
$
4,003,151
  
2.08
%
    
$
(142,995
)
-0.08
%
$
3,860,156
  
2.00
%
    
 
No individual contract’s unrealized profit or loss comprised greater than 5% of the Partners’ Capital as of December 31, 2010 and 2009.
 
10
 

 
 
 

 
3.
FAIR VALUE OF INVESTMENTS
 
The Financial Accounting Standards Board (“FASB”) issued the ASC which provide authoritative guidance on fair value measurement. This guidance defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements.
 
Fair value of an investment is the amount that would be received to sell the investment in an orderly transaction between market participants at the measurement date (i.e. the exit price).  All investments interests (including derivative financial instruments and derivative commodity instruments) are held for trading purposes.  The investments are recorded on trade date and open contracts are recorded at fair value (described below) at the measurement date. Investments denominated in foreign currencies are translated into U.S. dollars at the exchange rates prevailing at the measurement date.  Gains or losses are realized when contracts are liquidated.  Unrealized gains or losses on open contracts are included in Equity in commodity futures trading account.  Any change in net unrealized gain or loss from the preceding year is reported in the Statements of Operations.
 
The fair value measurement established a hierarchal disclosure framework which prioritizes and ranks the level of market price observability used in measuring investments at fair value. Market price observability is impacted by a number of factors, including the type of investment and the characteristics specific to the investment. Investments with readily available active quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value.
 
Investments measured and reported at fair value are classified and disclosed in one of the following categories:
 
Level I — Quoted prices are available in active markets for identical investments as of the reporting date. The type of investments included in Level I are publicly traded investments. As required by the fair market measurement, the Partnership does not adjust the quoted price for these investments even in situations where the Partnership holds a large position and a sale could reasonably impact the quoted price.
 
Level II — Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date, and fair value is determined through the use of generally accepted and understood models or other valuation methodologies. Investments which are generally included in this category are investments valued using market data.
 
Level III — Pricing inputs are unobservable and include situations where there is little, if any, market activity for the investment. Fair value for these investments are determined using valuation methodologies that consider a range of factors, including but not limited to the nature of the investment, local market conditions, trading values on public exchanges for comparable securities, current and projected operating performance and financing transactions subsequent to the acquisition of the investment. The inputs into the determination of fair value require significant management judgment. Due to the inherent uncertainty of these estimates, these values may differ materially from the values that would have been used had a ready market for these investments existed.
 
11
 

 
 
 

 
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. MLAI’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment.
 
Following is a description of the valuation methodologies used for investments, as well as the general classification of such investments pursuant to the valuation hierarchy.
 
Exchange traded investments are fair valued by the Partnership by using the reported closing price on the primary exchange where it trades such investments. These closing prices are observed through the clearing broker and third party pricing services. For non-exchange traded investments, quoted values and other data provided by nationally recognized independent pricing sources are used as inputs into its process for determining fair values.
 
The independent pricing sources obtain market quotations and actual transaction prices for securities that have quoted prices in active markets. Each source has its own proprietary method for determining the fair value of securities that are not actively traded. In general, these methods involve the use of “matrix pricing” in which the independent pricing source uses observable market inputs including, but not limited to, investment yields, credit risks and spreads, benchmarking of like securities, broker-dealer quotes, reported trades and sector groupings to determine a reasonable fair market value.
 
The Partnership has determined that Level I securities would include all of its futures and options contracts where it believes that quoted prices are available in an active market.
 
Where the Partnership believes that quoted market prices are not available or that the market is not active, fair values are estimated by using quoted prices of securities with similar characteristics, pricing models or matrix pricing and these are generally classified as Level II securities. The Partnership determined that Level II securities would include its forward contracts.
 
The Partnership’s net unrealized profit (loss) on open forward and futures contracts by the above fair value hierarchy levels for the years ended December 31, 2010 and 2009 are as follows:
 
Net unrealized profit (loss) on open contracts
 
2010
  
Total
  
Level I
  
Level II
  
Level III
  
                   
Futures
                  
Long
  
$
4,889,468
  
$
4,419,143
  
$
470,325
  
$
—
  
Short
  
$
(1,045,428
)
(294,956
)
(750,472
)
—
  
   
$
3,844,040
  
$
4,124,187
  
$
(280,147
)
$
—
  
                   
Forwards
                  
Long
  
$
2,172,926
  
$
—
  
$
2,172,926
  
$
—
  
Short
  
$
(175,650
)
—
  
(175,650
)
—
  
   
$
1,997,276
  
$
—
  
$
1,997,276
  
$
—
  
                   
December 31, 2010
  
$
5,841,316
  
$
4,124,187
  
$
1,717,129
  
$
—
  
 
12
 

 
 
 

 
Net unrealized profit (loss) on open contracts
 
2009
  
Total
  
Level I
  
Level II
  
Level III
  
                   
Futures
                  
Long
  
$
4,707,555
  
$
2,430,870
  
$
2,276,685
  
$
—
  
Short
  
$
102,502
  
144,177
  
(41,675
)
—
  
   
$
4,810,057
  
$
2,575,047
  
$
2,235,010
  
$
—
  
                   
Forwards
                  
Long
  
$
(704,404
)
$
—
  
$
(704,404
)
$
—
  
Short
  
$
(245,497
)
—
  
(245,497
)
—
  
   
$
(949,901
)
$
—
  
$
(949,901
)
$
—
  
                   
December 31, 2009
  
$
3,860,156
  
$
2,575,047
  
$
1,285,109
  
$
—
  
 
The Partnership’s volume of trading forwards and futures for the years ended December 31, 2010 and 2009, respectively, are representative of the activity throughout the year. There were no transfers to or from Level I or Level II during 2010 and 2009.
 
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 derivatives and hedging. The fair value amounts of and the gains and losses on derivative instruments is disclosed in the statements of financial condition and statements of operations, respectively. There are no credit related contingent features embedded in these derivative contracts.
 
The following table indicates the trading profit and losses, by type/commodity industry sector, on derivative instruments for the years ended December 31, 2010 and 2009:
 
 
Commodity Industry
  
December 31, 2010
  
December 31, 2009
  
 
Sector
  
Gain (loss) from trading
  
Gain (loss) from trading
  
             
 
Agriculture
  
$
10,848,627
  
$
1,848,990
  
 
Currencies
  
1,131,043
  
(1,176,863
)
 
Energy
  
(13,777,007
)
2,501,445
  
 
Interest rates
  
2,036,296
  
(1,743,507
)
 
Metals
  
(1,837,866
)
10,192,213
  
 
Stock indices
  
(9,546,863
)
4,439,114
  
             
 
Total
  
$
(11,145,770
)
$
16,061,392
  
 
13
 

 
 
 

 
The Partnership is subject to the risk of insolvency of a counterparty, an exchange, a clearinghouse or MLPF&S.  Partnership assets could be lost or impounded during lengthy bankruptcy proceedings.  Were a substantial portion of the Partnership’s 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. 
RELATED PARTY TRANSACTIONS
 
The Partnership’s U.S. dollar assets are maintained at MLPF&S. On assets held in U.S. dollars, Merrill Lynch credits the Partnership with interest at the prevailing 91-day U.S. Treasury bill rate.  The Partnership is credited with interest on any of its assets and net gains actually held by MLPF&S in non-U.S. dollar currencies at a prevailing local rate received by Merrill Lynch.  Merrill Lynch may derive certain economic benefit, in excess of the interest, which Merrill Lynch pays to the Partnership, from possession of such assets.
 
Merrill Lynch charges the Partnership, at prevailing local interest rates, for financing realized and unrealized losses on the Partnership’s non-U.S. dollar-denominated positions.  Such amounts are netted against interest income due to the insignificance of such amounts.
 
The Partnership pays brokerage commissions to MLPF&S at a flat monthly rate equal to 0.458 of 1% (a 5.50% annual rate) of the Partnership’s month-end trading assets. The Partnership pays administrative fees to MLAI at a flat monthly rate equal to 0.021 of 1% (a 0.25% annual rate) of the Partnership’s month-end trading assets. Month-end trading assets are not reduced, for purposes of calculating brokerage commissions and administrative fees, by any accrued brokerage commissions, administrative fees, Profit Shares or other fees or charges.
 
Until 2007, the Partnership reimbursed MLAI for payment of the actual State of New Jersey annual filing fee (“NJ filing fees”) assessed on a per partner basis.  Filing fees receivable represents refunds on such payments.   The Partnership pays all filing fees directly and no longer reimburses MLAI for such disbursements.
 
MLPF&S pays Sunrise a monthly consulting fee of 0.083 of 1% (a 1% annual rate) of the month-end trading assets, after reduction for a portion of the brokerage commissions.
 
Brokerage Commissions and Interest as presented on the Statements of Operations are all received from or paid to related parties.
 
The Fund holds cash at an unaffiliated bank which invests such cash in a money market fund which is managed by BlackRock, a related party to MLAI.  The Cash and cash equivalents as seen on the Statements of Financial Condition is the amount held by the related party.
 
14
 

 
 
 

 
5.
ADVISORY AGREEMENT
 
The Partnership entered into an Advisory Agreement with Sunrise.  The Advisory Agreement between the Partnership and Sunrise continues to be in effect, subject to certain renewal rights exercisable by the Partnership.  Sunrise determines the commodity futures, options on futures and forward contracts traded by the Partnership, subject to certain trading policies and to certain rights reserved by MLAI.
 
Profit Shares equal to 23% of any New Trading Profit, as defined in the limited partnership agreement, as of the end of each calendar year are paid to Sunrise.  Profit Shares are also paid out in respect of Units redeemed (to the extent they exceed the number of Units purchased) as of the end of interim months during a calendar year, to the extent of the applicable percentage of any New Trading Profit attributable to such Units.
 
6.
WEIGHTED AVERAGE UNITS
 
The weighted average number of Units outstanding is computed for purposes of calculating net income (loss) per weighted average Unit.  The weighted average number of Units outstanding for the years ended December 31, 2010, 2009 and 2008 equaled the Units outstanding as of such date, adjusted proportionately for Units sold or redeemed based on the respective length of time each was outstanding during such year.
 
7.
RECENT ACCOUNTING PRONOUNCEMENTS
 
In January 2010, the FASB issued an update to the fair value measurements disclosure. Pursuant to this update, additional disclosures in the financial statements relating to transfers in and out of Levels 1 and 2 fair value measurements and separate disclosure of purchases, sales, issuances, and settlements in Level 3 roll forward, will be required. In addition, this update provides clarifications on i) the level of aggregation of classes of assets and liabilities disclosed in the fair value measurement disclosures and ii) disclosures relating to the inputs and valuation techniques for Level 2 and Level 3 fair value measurements. The new disclosures and clarifications of existing disclosures are effective for annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the Level 3 roll forward which are effective for fiscal years beginning after December 15, 2010. This update further enhances the fair value disclosures and the General Partner has determined that the adoption of this update would not have a material impact to the Partnership’s financial statements.
 
8.
MARKET AND CREDIT RISKS
 
The nature of this Partnership has certain risks, which cannot all be presented on the financial statements.  The following summarizes some of those risks.
 
Market Risk
 
Derivative instruments involve varying degrees of market risk.  Changes in the level or volatility of interest rates, foreign currency exchange rates or the market values of the financial instruments or commodities underlying such derivative instruments frequently result in changes in the Partnership’s net unrealized profit (loss) 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
 
15
 

 
 
 

 
liquidity of the markets in which the derivative instruments are traded.  Investments in foreign markets may also entail legal and political risks.
 
MLAI has procedures in place intended to control market risk exposure, although there can be no assurance that they will, in fact, succeed in doing so.  These procedures focus primarily on monitoring the trading of Sunrise, calculating the Net Asset Value of the Partnership as of the close of business on each day and reviewing outstanding positions for over-concentrations.  While MLAI does not itself intervene in the markets to hedge or diversify the Partnership’s market exposure, MLAI may urge Sunrise to reallocate positions in an attempt to avoid over-concentrations.  However, such interventions are unusual and unless 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.
 
Credit Risk
 
The risks associated with exchange-traded contracts are typically perceived to be less than those associated with over-the-counter (non-exchange-traded) transactions, because exchanges typically (but not universally) provide clearinghouse arrangements in which the collective credit (in some cases limited in amount, in some cases not) of the members of the exchange is pledged to support the financial integrity of the exchange.  In over-the-counter transactions, on the other hand, traders must rely solely on the credit of their respective individual counterparties.  Margins, which may be subject to loss in the event of a default, are generally required in exchange trading, and counterparties may also require margin in the over-the-counter markets.
 
The credit risk associated with these instruments from counterparty nonperformance is the net unrealized profit on open contracts, if any, included in the Statements of Financial Condition.  The Partnership attempts to mitigate this risk by dealing exclusively with Merrill Lynch entities as clearing brokers.
 
The Partnership, in its normal course of business, enters into various contracts, with MLPF&S acting as its commodity broker.  Pursuant to the brokerage agreement 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 Net unrealized profit (loss) on open contracts on the Statements of Financial Condition.
 
Indemnifications
 
In the normal course of business the Fund has entered, or may in the future enter, into agreements that obligate the Fund to indemnify third parties, including affiliates of the Fund, for breach of certain representations and warranties made by the Fund. 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 Fund’s experience, MLAI expected the risk of loss to be remote and, therefore, no provision has been recorded.
 
9.
SUBSEQUENT EVENT
 
Management has evaluated the impact of subsequent events on the Fund and has determined that there were no subsequent events that require adjustments to, or disclosure in, the financial statements.
 
16
 

 
 
 

 
*     *     *     *     *     *     *     *     *     *      *
 
To the best of the knowledge and belief of the
undersigned, the information contained in this
report is accurate and complete.
 
 
/s/ Barbra E. Kocsis
  
 
Barbra E. Kocsis
  
 
Chief Financial Officer
  
 
Merrill Lynch Alternative Investments LLC
  
 
General Partner of
  
 
ML Select Futures I L.P.
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
17
 

ML SELECT FUTURES I LP Reports