Attached files
file | filename |
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EX-32.02 - EX-32.02 - ML SELECT FUTURES I LP | a15-23233_1ex32d02.htm |
EX-31.01 - EX-31.01 - ML SELECT FUTURES I LP | a15-23233_1ex31d01.htm |
EX-31.02 - EX-31.02 - ML SELECT FUTURES I LP | a15-23233_1ex31d02.htm |
EX-32.01 - EX-32.01 - ML SELECT FUTURES I LP | a15-23233_1ex32d01.htm |
EX-13.01 - EX-13.01 - ML SELECT FUTURES I LP | a15-23233_1ex13d01.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
x Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended: December 31, 2015
or
o Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Commission file number: 0-50269
ML SELECT FUTURES I L.P.
(Exact name of registrant as specified in its charter)
Delaware |
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13-3879393 |
(State or other jurisdiction of |
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(I.R.S. Employer |
incorporation or organization) |
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Identification No.) |
c/o Merrill Lynch Alternative Investments LLC
250 Vesey Street, 11th Floor
New York, New York 10281
(Address of principal executive offices)
(Zip Code)
609-274-5838
(Registrants telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Limited Partnership Units
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes o No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.
Yes o No x
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 Noo
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. 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 |
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Accelerated filer o |
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Non-accelerated filer x |
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Smaller reporting company o |
(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes o No x
The Units of limited partnership interest of the registrant are not publicly traded. Accordingly, there is no aggregate market value for the registrants outstanding equity that is readily determinable.
As of February 29, 2016, limited partnership units with an aggregate Net Asset Value of $24,581,157 were outstanding and held by non-affiliates.
Documents Incorporated by Reference
The registrants 2015 Annual Report and Report of Independent Registered Public Accounting Firm, the annual report to security holders for the fiscal year ended December 31, 2015, is incorporated by reference into Part II, Item 8, and Part IV hereof and filed as an Exhibit herewith. Copies of the annual report are available free of charge by contacting Alternative Investments Client Services at 1-866-657-3784.
ML SELECT FUTURES I L.P.
ANNUAL REPORT FOR 2015 ON FORM 10-K
Table of Contents
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PART I |
PAGE |
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Item 1. |
Business |
1 |
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Item 1A. |
Risk Factors |
10 |
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Item 1B. |
Unresolved Staff Comments |
19 |
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Item 2. |
Properties |
19 |
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Item 3. |
Legal Proceedings |
19 |
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Item 4. |
Mine Safety Disclosures |
19 |
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PART II |
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Item 5. |
Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
20 |
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Item 6. |
Selected Financial Data |
21 |
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Item 7. |
Managements Discussion and Analysis of Financial Condition and Results of Operations |
23 |
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Item 7A. |
Quantitative and Qualitative Disclosures About Market Risk |
35 |
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Item 8. |
Financial Statements and Supplementary Data |
39 |
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Item 9. |
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure |
39 |
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Item 9A. |
Controls and Procedures |
39 |
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Item 9B. |
Other Information |
40 |
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PART III |
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Item 10. |
Directors, Executive Officers and Corporate Governance |
40 |
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Item 11. |
Executive Compensation |
42 |
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Item 12. |
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
42 |
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Item 13. |
Certain Relationships and Related Transactions and Director Independence |
43 |
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Item 14. |
Principal Accounting Fees and Services |
43 |
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PART IV |
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Item 15. |
Exhibits, Financial Statement Schedules |
44 |
PART I
Item 1: Business
(a) General Development of Business:
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 (Sunrise or Trading Advisor) is the trading advisor of the Partnership. The Trading Advisor trades its Expanded Diversified Program (the Trading Program) for the Partnership.
Merrill Lynch Alternative Investments LLC (MLAI, 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 BofA Corp. 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 BofA Corp. affiliates. MLAI and each limited partner share in the profits and losses of the Partnership in proportion to their respective interests in it.
In the Trading Program, the Trading Advisor applies its trend-following and related pattern recognition systems to a broadly-diversified portfolio of futures and forwards on underlying interests, including, but not limited to, precious and industrial metals, grains, petroleum products, soft commodities, U.S. and non-U.S. interest rates, U.S. and non-U.S. stock indices and sector indices, currencies and their cross rates (collectively Commodity Interests). The Trading Advisor may trade these investments on any U.S. or non-U.S. exchange. See Trading Advisors Trading Program, below. The Trading Advisor is registered under the Investment Advisers Act of 1940, as amended (the Advisers Act).
The Partnership issues limited partnership units (Units) which are privately offered pursuant to Regulation D of the Securities Act of 1933, as amended (the Securities Act).
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 Brokerage Commission, Administrative Fee, Profit Share (as such terms are defined in Current Charges below), and other liabilities of the Partnership. MLAI is authorized to make all Net Asset Value determinations.
As of December 31, 2015, the Net Asset Value of the Partnership was $24,423,296 and the Net Asset Value per Unit, originally $100 as of April 1, 1996, had risen to $224.9680.
The highest month-end Net Asset Value per Unit since Sunrise began trading the Partnership was $326.4906 (November 30, 2009) and the lowest was $127.0118 (July 31, 1998).
The Net Asset Value of the Partnership is generally calculated in accordance with generally accepted accounting principles in the United States of America (U.S. GAAP). However, the Partnerships Limited Liability Partnership Agreement allows the General Partner to depart from U.S. GAAP in calculating the Partnerships Net Asset Value for all purposes other than for financial statement purposes, including for purposes of subscriptions and redemptions and fee calculations, if the General Partner determines in its good-faith discretion that this departure is advisable in order to better reflect the true value of any asset or amount of any liability, or to further the fair and equitable treatment of investors. The General Partner may depart from U.S. GAAP in calculating the Partnerships Net Asset
Value for these purposes if, for example, it determines that application of U.S. GAAP would cause an expense to be taken in a particular fiscal period and therefore borne only by investors who hold Units during such period but the General Partner determines that it is more appropriate to spread such expense over additional fiscal periods. In the event that the General Partner departs from U.S. GAAP in calculating the Partnerships Net Asset Value for purposes of subscriptions and redemptions, calculation of fees and other non-financial statement purposes, the Partnerships audited financial statements will continue to be determined in accordance with U.S. GAAP.
(b) Financial Information about Segments:
The Partnerships business constitutes only one segment for financial reporting purposes, i.e., a speculative commodity pool. The Partnership does not engage in sales of goods or services.
(c) Narrative Description of Business:
Advisory Agreement Term
The Advisory Agreement will be automatically renewed for successive one-year periods, on the same terms, unless terminated by either the Trading Advisor or the Partnership upon notice to the other party. The Advisory Agreement may, however, be terminated at any time pursuant to any of the following: (i) MLAI may terminate the Advisory Agreement upon 24 hours notice; (ii) the Trading Advisor may terminate the Advisory Agreement upon 20 days notice as of any month-end if (a) the Trading Advisor notifies MLAI of a proposed material change to the strategies to be used in the Trading Advisors managing the Partnerships account and MLAI instructs the Trading Advisor not to implement such change, (b) the Trading Advisor has determined to cease managing any customer accounts, (c) the Trading Advisors instructions are overridden, or (d) the Partnership has a Net Asset Value as of the close of business on any day less than $1 million; and (iii) MLAI may terminate the Advisory Agreement as a result of a material breach by the Trading Advisor, or the Trading Advisor may terminate the Advisory Agreement as a result of a material breach by MLAI or the Partnership.
Trading Advisors Trading Program
The Trading Advisors Trading Program attempts to detect a trend or related price pattern, or lack thereof, with respect to a particular Commodity Interest by analyzing price movement and volatility over time. This program consists of multiple, independent and parallel systems, each designed and tested to seek out and extract different market inefficiencies on different time horizons. These systems will generate a signal to sell a short contract or purchase a long contract based upon their identification of a price trend or related price pattern in the particular Commodity Interest. If the systems do not detect a price trend or related price pattern, a neutral trading signal will be generated. While this neutral signal is designed to filter out high-risk whipsaw markets, it is successful on only a limited basis. Successful speculative commodity trading employing trend-following and price pattern recognition techniques, such as the Trading Advisors system, depends to a large degree upon not trading in non-directional markets.
Long-term, trend-following and pattern recognition trading systems, such as those employed by the Trading Advisor, will seldom effect market entry or exit at the most favorable price in the particular market trend or price pattern. Rather, this type of trading system seeks to close out losing positions quickly and to hold portions of profitable positions for as long as the trading system determines that the particular market trend or favorable price pattern continues to offer reasonable profit potential. The number of losing transactions may exceed substantially the number of profitable transactions. However, if the Trading Advisors approach is successful, these losses should be more than offset by gains. In using this trading methodology, it is anticipated that The Trading Advisor will commit to margin between 5% and 30% of assets managed. Margin requirements may from time to time exceed this range.
While the Trading Advisor relies on mechanical technical trading systems in making investment decisions using the methodology described, the overall strategy does include the latitude to depart from this approach if market conditions are such that, in the opinion of the Trading Advisor, execution of trades recommended by the mechanical systems would be difficult or unusually risky to an account.
A technical trading system consists of a series of fixed rules applied systematically. However, the system still requires that the Trading Advisor make certain subjective judgments. For example, the Trading Advisor must select the markets it will follow and Commodity Interests it will actively trade, along with the contract months in which it will maintain positions. The Trading Advisor must also subjectively determine when to liquidate positions in a contract month which is about to expire and initiate a position in a more distant contract month.
Although the Trading Advisors Trading Program is continually evolving, there were no fundamental or material changes to the Trading Program during 2015.
Markets
The Trading Program follows approximately 85 different markets. These markets include, but are not limited to, precious and industrial metals, energy products, agricultural and soft commodities, U.S. and non-U.S. interest rate futures, U.S. and non-U.S. stock indices, minor currencies, major currencies and cross rates between them. The Trading Advisor will adjust markets followed by the Trading Program, sometimes frequently.
The Partnerships commitment to different types of markets U.S. and non-U.S., regulated and non-regulated may differ from time to time, as well as over time. The Partnership has no policy restricting its relative commitment to any of these different types of markets
Forward Contracts and Counterparties
Currently, the only forward contracts entered into by the Partnership are currency forwards. MLI is the only counterparty to these forward contracts. In the future the Partnership may enter into other types of forwards and/or use other counterparties. The standard terms of forward contracts entered into by the Partnership are the term, the currency, the exchange rate, the principal amount and, in some cases the definition of a disruption event, i.e., a contingency pricing and settlement mechanism if an event occurs that causes the unavailability of the relevant exchange rate. Forwards are governed by International Swaps and Derivatives Association documentation, and, in some cases, also by EMTA, Inc. documentation.
Employees
The Partnership has no employees.
Use of Proceeds and Cash Management Income
Subscription Proceeds
The Partnerships cash is used as security for and to pay the Partnerships trading losses as well as its expenses and redemptions. The primary use of the proceeds of the sale of the Units is to permit Sunrise to trade on a speculative basis in a wide range of commodities on behalf of the Partnership. While being used for this purpose, the Partnerships assets are also generally available for cash management, as more fully described below under Cash Management and Interest.
CONDENSED SCHEDULES OF INVESTMENTS
The Partnerships investments, defined as unrealized profit (loss) on open contracts in the Statements of Financial Condition, as of December 31, 2015 and 2014, are as follows:
December 31, 2015
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Long Positions |
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Short Positions |
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Net Unrealized |
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Commodity Industry |
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Number of |
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Unrealized |
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Percent of |
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Number of |
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Unrealized |
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Percent of |
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Profit (Loss) |
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Percent of |
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Sector |
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Contracts/Notional* |
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Profit (Loss) |
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Partners Capital |
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Contracts/Notional* |
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Profit (Loss) |
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Partners Capital |
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on Open Positions |
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Partners Capital |
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Maturity Dates |
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Agriculture |
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$ |
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0.00 |
% |
(78 |
) |
$ |
(8,544 |
) |
-0.03 |
% |
$ |
(8,544 |
) |
-0.03 |
% |
February 2016 - May 2016 |
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Currencies - Futures |
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0.00 |
% |
(1 |
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1,215 |
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0.00 |
% |
1,215 |
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0.00 |
% |
March 2016 |
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Currencies - Forwards* |
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38,743 |
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1,123 |
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0.00 |
% |
(1,966,349 |
) |
20,475 |
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0.08 |
% |
21,598 |
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0.08 |
% |
March 2016 |
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Interest rates |
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0.00 |
% |
(14 |
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1,904 |
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0.01 |
% |
1,904 |
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0.01 |
% |
June 2016 |
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Energy |
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0.00 |
% |
(68 |
) |
(27,109 |
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-0.11 |
% |
(27,109 |
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-0.11 |
% |
January 2016 - February 2016 |
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Metals |
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27 |
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15,316 |
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0.06 |
% |
(74 |
) |
(30,727 |
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-0.13 |
% |
(15,411 |
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-0.07 |
% |
February 2016 - March 2016 |
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Stock indices |
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70 |
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77,380 |
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0.32 |
% |
(28 |
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(5,753 |
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-0.02 |
% |
71,627 |
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0.30 |
% |
January 2016 - March 2016 |
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Total |
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$ |
93,819 |
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0.38 |
% |
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$ |
(48,539 |
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-0.20 |
% |
$ |
45,280 |
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0.18 |
% |
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December 31, 2014
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Long Positions |
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Short Positions |
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Net Unrealized |
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Commodity Industry |
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Number of |
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Unrealized |
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Percent of |
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Number of |
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Unrealized |
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Percent of |
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Profit (Loss) |
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Percent of |
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Sector |
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Contracts/Notional* |
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Profit (Loss) |
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Partners Capital |
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Contracts/Notional* |
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Profit (Loss) |
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Partners Capital |
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on Open Positions |
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Partners Capital |
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Maturity Dates |
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Agriculture |
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102 |
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$ |
(31,588 |
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-0.10 |
% |
(43 |
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$ |
22,166 |
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0.07 |
% |
$ |
(9,422 |
) |
-0.03 |
% |
February 2015 - May 2015 |
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Currencies - Futures |
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19 |
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4,475 |
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0.01 |
% |
(186 |
) |
105,885 |
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0.33 |
% |
110,360 |
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0.34 |
% |
March 2015 |
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Currencies - Forwards* |
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531,051 |
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(9,421 |
) |
-0.03 |
% |
(9,423,066 |
) |
109,071 |
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0.34 |
% |
99,650 |
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0.31 |
% |
March 2015 |
| |||
Interest rates |
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109 |
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32,879 |
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0.10 |
% |
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|
0.00 |
% |
32,879 |
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0.10 |
% |
March 2015 - December 2015 |
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Energy |
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0.00 |
% |
(37 |
) |
302,195 |
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0.94 |
% |
302,195 |
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0.94 |
% |
January 2015 - November 2015 |
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Metals |
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25 |
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(69,844 |
) |
-0.22 |
% |
(58 |
) |
63,050 |
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0.20 |
% |
(6,794 |
) |
-0.02 |
% |
February 2015 - March 2015 |
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Stock indices |
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300 |
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570,235 |
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1.77 |
% |
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|
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|
0.00 |
% |
570,235 |
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1.77 |
% |
January 2015 - March 2015 |
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Total |
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$ |
496,736 |
|
1.53 |
% |
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|
$ |
602,367 |
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1.88 |
% |
$ |
1,099,103 |
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3.41 |
% |
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*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 December 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 (losses) of long positions and short positions, 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.
Margin
When a futures or options on futures position is established, initial margin is calculated by the exchange on which the position is listed and deposited with a Futures Commission Merchant (FCM) that is a member of the clearinghouse through which transactions on the relevant exchange are cleared. An FCM must, in turn, deposit initial margin with the clearinghouse to secure its obligations to the clearinghouse with respect to the positions of its customers. The amount of both the traders initial margin payment to the FCM and the FCMs initial margin payment to the clearinghouse are determined on the basis of risk, taking into account the price and volatility of the commodity underlying the position and, in certain cases, the offsetting risks that exist within a portfolio of positions. On most exchanges, at the close of each trading day variation margin, representing the unrealized gain or loss on the open positions, is either credited to or debited from an account. A trader must maintain a minimum margin level for each outstanding futures position known as maintenance margin, which is set by the relevant exchange and based on the risk of the futures position, often a set percentage of the initial margin. If variation margin payments cause the initial margin to fall below maintenance margin levels, a margin call is made, requiring the trader to deposit additional margin or have its position closed out. A clearinghouse may have maintenance margin requirements for member FCMs. An FCM may require a higher level of initial margin and maintenance margin from the trader than the clearinghouse requires from the FCM, but generally will not allow lower margin levels. Margin is also required to be posted with counterparties when making investments through forward, swap or other OTC instruments. The counterparties calculate margin based on the risk of the underlying commodity and will deposit margin with each other based on a previously agreed upon schedule. In general, approximately 10% to 30% of the Partnerships assets are expected to be committed as margin for futures or options on futures positions at any one time, although these amounts could be substantially higher or lower. The Partnerships exposure and liability are not limited to the amount placed on margin, but are based on the total value of the futures contracts being traded. Partnership assets not committed to margin will be held in cash or cash equivalents and will earn interest as described below.
As of December 31, 2015 the Partnership employed $1,064,831 and $101,598 as initial margin to support futures and forward positions, respectively, representing approximately 4.23% and 0.40%, respectively, of the Partnerships total assets as of such date.
Custody of Assets
The Partnerships financial assets consist primarily of cash, futures and OTC FX forward and spot positions. In addition, the Partnership has authority to trade options on futures and forwards, but these contracts typically represent a small percentage of the Partnerships financial assets, if any are traded at all.
Futures and OTC forwards and other instruments typically constitute a predominant amount of the Partnerships investment risk, but the notional value of these instruments is not included on the Partnerships balance sheet.
The vast majority of the net assets of the Partnership is, and has historically been, held in the form of cash. The Partnerships cash is used in various ways. It can be:
· posted as margin with MLPF&S in segregated or secured accounts in connection with commodities trading on regulated exchanges;
· pledged as collateral to MLI for OTC forwards or options on forwards or to other OTC prime brokers for other OTC investments;
· deposited in savings or demand deposit accounts with the Partnerships custodian or other banking institutions, both in the United States and internationally;
· held in securities brokerage accounts maintained with MLPF&S; and
· held in segregated or secured accounts with MLPF&S, which generally invests the cash in short-term high-quality securities or other instruments viewed as cash equivalents.
Typically the vast majority of the Partnerships assets are held in segregated or secured accounts with MLPF&S. In general, approximately 10% to 30% of the Partnerships assets are expected to be required as margin or collateral at any one time. Approximately 90% of the Partnerships assets are held in customer segregated accounts at MLPF&S pursuant to applicable Commodity Futures Trading Commission (CFTC) regulations to margin U.S. exchange-traded futures contracts and options thereon, or in customer secured accounts at MLPF&S and used to margin futures trading on non-U.S. exchanges pursuant to CFTC regulations. The remaining approximately 10% is expected to be deposited with
MLI, other OTC prime brokers, or one or more third-party collateral custodians as margin for OTC trades. These amounts could be substantially higher or lower and there is no obligation to maintain margin or collateral within these or any other specific ranges.
Assets held in segregated or secured accounts at MLPF&S may be invested only in CFTC-permitted investments, which include U.S. government and government agency securities, commercial paper and corporate notes and bonds guaranteed by the U.S. government and money market mutual Partnerships. Under the applicable regulations, such permitted investments are subject to instrument and issuer based concentration and time to maturity limits and must be managed with the objectives of preserving principal and maintaining liquidity.
Cash deposited in savings or demand deposit accounts with the Partnerships custodian or other banking institutions may be in excess of the limits on federal insurance for deposits, and thus not insured by the Federal Deposit Insurance Corporation (FDIC), and would be subject to the risk of bank failure.
The General Partner, as sponsor of the Partnership, has a general policy of maintaining clearing and prime brokerage arrangements with its BofA Corp. affiliates, such as MLPF&S and MLI, although the General Partner may, nevertheless, engage unaffiliated service providers as clearing brokers or prime brokers for the Partnership. Other affiliates may from time to time be involved in the clearing, custody or investment of the Partnerships assets, including as prime brokers. However, the vast majority of the Partnerships assets are held with, and therefore subject to the credit risk of, MLPF&S. The General Partner believes that its policy is in the best interest of investors due to the enhanced dependability and quality of service provided by MLPF&S and MLI to the Partnership as a result of the General Partners relationship and shared corporate infrastructure with these affiliates. In addition, the General Partner believes that MLPF&S is well capitalized and that the Partnership benefits from the transparency provided to the General Partner, as an affiliate of MLPF&S, into the controls MLPF&S has implemented to comply with the various regulatory requirements designed to protect customer funds. However, there nonetheless exists a substantial risk of loss with respect to each of the above custody arrangements in the event of the bankruptcy or insolvency of MLI or MLPF&S if it does not properly segregate customer funds. See Risk Factors Risk of Loss Due to the Bankruptcy or Failure of Counterparties, Custodians, Brokers and Exchanges below for a more detailed discussion of these risks.
Subject to the interest income arrangements discussed below, each BofA Corp. entity holding Partnership assets, including MLPF&S, retains the additional economic benefit derived from possession and investment of those assets for the entitys own account.
Cash Management and Interest
The General Partner is primarily responsible for the placement of the Partnerships cash assets. In exercising this responsibility, the General Partners primary considerations are safety of assets, seeking interest income, and the services provided by custodians. A vast majority of the Partnerships cash has historically been held in futures brokerage accounts with affiliates. To a smaller degree, the Partnerships cash assets may be held with the Partnerships bank custodian, which is at present the administrator.
The General Partner retains the ability to change its cash management practices at any time, including by transferring a majority of the Partnerships cash assets to the Partnerships custodial bank accounts or other bank accounts. Bank deposits may be in either savings accounts that pay interest, or demand deposit accounts, which may or may not pay interest and which may or may not be subject to FDIC insurance. Any of these banks may be affiliated with the General Partner if the General Partner believes that to be in the best interests of the investors in the Partnership.
MLPF&S and any other BofA Corp. affiliates that hold the Partnerships cash receive economic benefits, which may be substantial, from holding this cash, even in low interest rate environments in which the Partnership receives little or no interest on these cash assets.
BofA Corp.s Interest Earning Program, which offers interest on cash balances subject to a negotiated schedule, will generally apply to Partnership cash assets during any time they are maintained by the General Partner with its affiliates. The present interest rate under the Interest Earning Program on U.S. dollar cash balances is the daily effective federal funds rate less 20 basis points, recalculated and accrued daily, and subject to a floor of 0%. The daily effective federal funds rate is a volume-weighted average of rates on trades arranged by major brokers and is calculated by the Federal Reserve Bank of New York using data provided by the brokers. Interest is computed based upon the daily net equity balance of the Partnerships account and is posted to the Partnerships account on a monthly basis.
MLPF&S, in the course of acting as commodity broker for the Partnership, will have use of Partnership cash and earn interest and receive other economic benefits as a result. The interest income arrangements with regard to cash held with MLPF&S will be equivalent with those under the Interest Earning Program as discussed above.
Charges
The following table summarizes the charges incurred by the Partnership for the years ended 2015, 2014 and 2013. The Partnerships brokerage commissions and administrative fees are included in the wrap fee which covers all of BofA Corp.s costs and expenses, other than bid-ask spreads, certain trading fees and extraordinary expenses.
|
|
2015 |
|
2014 |
|
2013 |
| |||||||||
Charges |
|
Dollar |
|
% of Average |
|
Dollar |
|
% of Average |
|
Dollar |
|
% of Average |
| |||
Wrap Fee |
|
$ |
1,704,741 |
|
5.81 |
% |
$ |
2,215,044 |
|
5.87 |
% |
$ |
3,446,043 |
|
5.90 |
% |
Total Expenses |
|
$ |
1,704,741 |
|
5.81 |
% |
$ |
2,215,044 |
|
5.87 |
% |
$ |
3,446,043 |
|
5.90 |
% |
The foregoing table does not reflect: (i) the bid-ask spreads paid by the Partnership on forward trading or (ii) the benefits which may be derived by BofA Corp. from the deposit of certain of the Partnerships U.S. dollar assets maintained at MLPF&S. Bid-ask spreads and brokerage commissions are components of the trading profit or loss of the Partnership which are netted against realized and unrealized trading gains or losses in determining trading profit or loss. Benefits derived by BofA Corp. from the deposit of the Partnerships assets at MLPF&S are neither a direct expense of the Partnership nor readily quantifiable.
The Partnerships average month-end Net Asset Values during 2015, 2014 and 2013 equaled $29,343,784, $37,733,171 and $58,433,968, respectively.
During 2015, 2014 and 2013 the Partnership earned $15,111, $14,161 and $36,955 in interest income, or approximately 0.05%, 0.04% and 0.06% of the Partnerships average month-end Net Asset Values.
Description of Current Charges
Recipient |
|
Nature of Payment |
|
Amount of Payment |
MLPF&S |
|
Brokerage commissions |
|
A flat-rate monthly brokerage commission of 1/12 of 5.5% (approximately 0.458%) of the Partnerships month-end assets (a 5.5% annual rate) (including the monthly interest credit and before reduction for accrued month-end redemptions, distributions, Administrative Fees (defined below) or Profit Share (defined below), in each case as of the end of the month of determination). Such brokerage commission covers Sunrises monthly consulting fee as well as ongoing operating costs such as floor brokerage and exchange, clearing and National Futures Association (NFA) fees incurred in the Partnerships trading (which include the clearing fees and sales commissions charged by MLPF&S and the prime brokerage fees charged by MLI). |
|
|
|
|
|
MLPF&S |
|
Use of Partnership assets |
|
BofA Corp. may derive an economic benefit from the deposit of certain of the Partnerships U.S. dollar assets in accounts maintained at MLPF&S. |
|
|
|
|
|
MLAI |
|
Administrative fees |
|
A flat monthly rate equal to 1/12 of 0.25% (approximately 0.021%) of the Partnerships month-end assets (a 0.25% annual rate) (Administrative Fees). For purpose of calculating the Administrative Fees, month-end assets are not reduced by any accrued but unpaid Profit Share, or by the accrued brokerage commission and the Administrative Fee then being calculated. |
|
|
|
|
|
MLI (or a BofA Corp. affiliate); Other counterparties |
|
Bidask spreads |
|
Bidask spreads are not accounted for separately as an accounting item because bid-ask spreads are an integral part of the price paid or received on all contracts for the purpose of generally accepted accounting principles. |
|
|
|
|
|
MLI (or a BofA Corp. affiliate); Other counterparties |
|
EFP differentials |
|
Certain of the Partnerships currency trades may be executed in the form of exchange of futures for physical transactions, in which a counterparty (which may be MLI or a BofA Corp. affiliate) receives an additional differential spread for exchanging the Partnerships cash currency positions for equivalent futures positions. |
|
|
|
|
|
Sunrise |
|
Annual Profit Share |
|
23% of any New Trading Profits generated by the Partnership as of the end of each calendar year (or upon redemption of Units). (Profit Share) New Trading Profits means the increase, if any, in cumulative net trading profits as of the end of any calendar year over the previous all-time high in cumulative net trading profits as of the end of any previous calendar year. New Trading Profits include all net trading profits but not interest income and after reduction for 3.75% of the annual brokerage commission. |
Sunrise |
|
Consulting fees |
|
MLPF&S pays Sunrise monthly consulting fees of 1/12 of 1% (approximately 0.083%) of the Partnerships month-end assets (a 1% annual rate), provided that for such calculation the month-end assets will be reduced by 4.75% which is the brokerage commission rate plus the Administrative Fee rate less the consulting fee rate. |
|
|
|
|
|
MLPF&S; Others |
|
Reimbursement of delivery, insurance, storage and any other extraordinary charges; taxes (if any) |
|
Actual payments to third parties, which are expected to be negligible. |
|
|
|
|
|
MLPF&S; Others |
|
Extraordinary expenses |
|
Actual costs incurred; none paid to date. |
Regulation
The CFTC has delegated to the National Futures Association (NFA) responsibility for the registration of commodity trading advisors, commodity pool operators, futures commission merchants, introducing brokers and their respective associated persons, and floor brokers and floor traders. The Commodity Exchange Act (CEA) requires commodity pool operators such as MLAI, commodity trading advisors such as the Trading Advisor and commodity brokers or FCMs such as MLPF&S to be registered and to comply with various reporting and record keeping requirements. CFTC regulations also require FCMs to maintain a minimum level of net capital. In addition, the CFTC and certain commodities exchanges have established limits referred to as speculative position limits on the maximum net long or net short speculative positions that any person may hold or control in any particular futures or options contracts traded on U.S. commodities exchanges. All accounts owned or managed by the Trading Advisor will be combined for position limit purposes. The Trading Advisor could be required to liquidate positions in order to comply with such limits. Any such liquidation could result in substantial costs to the Partnership. In addition, many futures exchanges impose limits beyond which the price of a futures contract may not trade during the course of a trading day, and there is a potential for a futures contract to reach its daily price limit for several days in a row, making it impossible for the Trading Advisor to liquidate a position and thereby experiencing dramatic losses. Currency forward contracts are not regulated as swaps under the CEA, but are subject to governmental regulation such as mandatory reporting and business conduct standards for swap dealers and major swap participants to the extent otherwise applicable to swaps under the CEA and applicable rules of the CFTC, see Item 1A Risk Factors¾F/X Forward Trading and ¾Regulatory Changes Could Restrict the Partnerships Operations.
Other than in respect of the registration requirements pertaining to the Partnerships securities under Section 12(g) of the Securities Exchange Act of 1934, (the Securities Exchange Act), the Partnership is generally not subject to regulation by the Securities and Exchange Commission (the SEC). However, MLAI is registered as an investment adviser under the Investment Advisers Act of 1940. MLPF&S is also regulated by the SEC and the Financial Industry Regulatory Authority (FINRA).
(d) Financial Information about Geographic Areas
The Partnership does not engage in material operations in foreign countries, nor is a material portion of the Partnerships revenue derived from customers in foreign countries.
The Partnership trades on a number of foreign commodity exchanges. The Partnership does not engage in the sales of goods or services.
Item 1A: Risk Factors
Past Performance Not Necessarily Indicative of Future Results
There can be no assurance that the Trading Program will produce profitable results. The past performance of the Partnership or the Trading Advisor is not necessarily indicative of how the Partnership or the Trading Advisor may perform in the future. There can be no assurance that the Partnership will achieve its investment objectives or avoid substantial or total loss. The Partnership may sustain losses under future market conditions that are similar to conditions in which it may have achieved gains in the past.
The price data which Sunrise has researched in developing its programs may not reflect the changing dynamics of future markets, and if it does not, the Expanded Diversified Program would have little chance of being profitable. An influx of new market participants, changes in market regulation, international political developments, demographic changes and numerous other factors can contribute to once-successful strategies becoming outdated. Not all of these factors can be identified, much less quantified. There can be no assurance that Sunrise will trade profitably for the Partnership.
The Large Size of the Partnerships Trading Positions Increases the Risk of Sudden, Major Losses
The low margin requirements normally required in futures and OTC trading permit traders to use an extraordinarily high degree of economic leverage. The Partnership may take positions with a face value of up to approximately 15 times the total equity of the Partnership. Consequently, even small price movements can cause major losses.
Futures and forward trading is highly leveraged, and market price levels are volatile and materially affected by unpredictable factors such as weather and governmental intervention. This combination of leverage and volatility creates a high degree of risk. Additionally, although Sunrise may initiate stop-loss orders on certain positions to limit this risk, there can be no assurance that any stop-loss order will be executed at the desired price or time. In any event, Sunrise anticipates that stop-loss orders will not be employed with respect to the majority of positions established for the Partnership.
Sunrise Analyzes Only Technical Market Data, Not Any Economic Factors External to Market Prices
The Sunrise programs focus exclusively on statistical analysis of market prices. Technical strategies rely on information intrinsic to the market itself to determine trades, such as prices, price patterns, volume and volatility. Consequently, technical strategies can incur major losses when factors exogenous to the markets themselves, including political events, natural catastrophes, acts of war or terrorism dominate the markets. During such periods, Sunrises historical price analysis could establish positions on the wrong side of the price movements caused by such events. The widespread use of technical trading systems frequently results in numerous managers attempting to execute similar trades at or about the same time, altering trading patterns and affecting market liquidity.
The likelihood of the Units being profitable could be materially diminished during periods when events external to the markets themselves have an important impact on prices.
Notwithstanding the foregoing, market judgment and discretion generally play some part in all managed futures strategies. To the extent Sunrise exercises subjective trading judgment, less consistent results may be produced than would be obtained in the absence of such judgment.
Derivatives Risks
Sunrise uses derivative instruments, primarily futures, in implementing its trading program. It also has authority to trade, and has in the past traded, currencies in the OTC F/X markets, in addition to its trading in the futures markets. The market for many types of these derivative instruments is comparatively illiquid and inefficient, creating the potential for substantial mispricings, as well as sustained deviations between theoretical and market value. In addition, the derivatives market is, in comparison to other markets, a relatively new market, and the events of 2008 and 2009, including the bailout of American International Group, Inc., demonstrated that even the most sophisticated market participants may misunderstand how the market in derivatives will perform during periods of unusual price volatility or instability, market illiquidity, or credit distress. The primary risks associated with the use of derivatives are model risk, market risk and counterparty risk.
The Partnerships investments in uncleared OTC derivatives are subject to greater risk of counterparty default and less liquidity than exchange-traded derivatives, although derivatives traded on regulated exchanges or execution facilities are subject to risk of failure of the exchange or facility on which they are traded and the clearinghouse through which they are guaranteed. Counterparty risk includes not only the risk of default and failure to pay mark-to-market amounts and return risk premium, if any, but also the risk that the market value of OTC derivatives will fall if the creditworthiness of the counterparties to those derivatives weakens.
In addition, there are increased risks associated with offshore OTC trading, including the risk that assets held by offshore brokers and unregulated trading counterparties may not benefit from the protection afforded to customer funds deposited with regulated FCMs or broker-dealers.
The prices of derivative instruments can be highly volatile. Price movements of derivative instruments are influenced by, among other things, interest rates, changing supply and demand relationships, trade, fiscal, monetary and exchange control programs and policies of governments, and national and international political and economic events and policies. In addition, governments from time to time intervene, directly and by regulation, in certain markets. This intervention often is intended directly to influence prices and may, together with other factors, cause all of such markets to move rapidly in the same direction because of, among other things, interest rate fluctuations.
There was substantial disruption in the derivatives markets related to the bankruptcies of Lehman Brothers Holdings, Inc. and MF Global Inc. and uncertainty relating to the government bailout of American International Group, Inc. This disruption and uncertainty can cause substantial losses if transactions are prematurely terminated, especially due to default when payment may be delayed or completely lost. Uncertainties in the derivatives markets continue due to proposed regulatory initiatives, new regulations requiring OTC derivatives clearing, and allegations of inappropriate behavior by market participants to cause or avoid payments under credit default swaps.
F/X Forward Trading
The Partnership may trade currencies in the F/X markets, in addition to its trading in the futures markets, including by trading in F/X forward contracts. Prospective investors must recognize that F/X forward trading takes place in unregulated markets, rather than on futures exchanges or swap execution facilities, and may, but does not now, take place through retail F/X Markets subject to the jurisdiction of the CFTC or other regulatory bodies. The responsibility for performing under a particular forward transaction currently rests solely with the counterparties to that transaction, not with any exchange or clearinghouse. As a result, the Partnership is exposed to the credit risk of the OTC counterparties with which it trades F/X forwards and deposits collateral, including that of MLI. See Risk of Loss Due to the Bankruptcy or Failure of Counterparties, Custodians, Brokers and Exchanges in this section below.
The Partnership is also subject to the risk that a forward counterparty may not settle a transaction in accordance with its terms, because the counterparty is unwilling or unable to do so, potentially resulting in significant losses. A counterpartys failure to perform could occur in respect of an offsetting forward contract on which the Partnership remains obligated to perform. The Partnership will not, however, be excused from performance under any forward contracts into which it has entered due to defaults under other forward contracts. In addition, counterparties to forwards generally have the right to terminate trades under a number of circumstances including, for example, declines in the Partnerships net assets and certain key person events. Any premature termination of the Partnerships currency forward trades could result in significant losses for the Partnership, because the Partnership may be unable to quickly re-establish those trades and may only be able to do so at disadvantageous prices. Forward market counterparties are under no obligation to enter into forward transactions with the Partnership, including transactions through which the Partnership is attempting to liquidate open positions. In addition, the prices offered for the same forward contract may vary significantly among different forward market participants.
As a result of The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), the CFTC now regulates non-deliverable forwards as swaps, including deliverable forwards where the parties do not take delivery. Although non-deliverable forwards are not currently required to be executed in regulated markets, such as futures exchanges or swap execution facilities, this may change in the future. See Regulatory Changes Could Restrict the Partnerships Operations in this section below.
Dodd-Frank amended the definition of eligible contract participant, and the Partnership expects to meet the amended definition so long as its total assets exceed $10 million. If the Partnership does not meet the definition of eligible contract participant, it could lead to the Partnerships bearing higher upfront and mark-to-market margin, less favorable trade pricing, and the possible imposition of new or increased fees. Retail forex markets 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 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.
The imposition of credit controls by governmental authorities or the implementation of regulations pursuant to Dodd-Frank might limit forward trading to less than that which the Sponsor would otherwise recommend, to the possible detriment of the Partnership.
The Partnership May Trade Options
The Partnership may trade options on futures contracts. Although successful, options trading requires many of the same skills as successful futures and forward trading, the risks involved are different. For example, the assessment of near-term market volatility which is directly reflected in the price of outstanding options can be of much greater significance in trading options than it is in many long-term futures strategies. The use of options can be extremely expensive if market volatility is incorrectly predicted. A purchaser of options is exposed to the risk of loss of the entire premium paid; a seller, or writer, of call options is exposed to the risk of theoretically unlimited loss, and the seller of put options is exposed to the risk of substantial loss far in excess of the premium received.
The Partnership May Engage in Exchange of Futures for Physicals Transactions
Sunrise may engage in EFP transactions on behalf of the Partnership. As is the case with executing a transaction purely on an exchange or purely in the OTC market, EFP transactions, which are done partially on a futures exchange and partially in the OTC market, involve transaction costs.
Whipsaw Markets; Lack of the Types of Price Trends Which the Expanded Diversified Program Can Identify Will Cause Major Losses
Many technical trading systems are trend-following. Trend-following systems generally anticipate that a majority of their trades will be unprofitable and seek to achieve overall profitability by substantial gains made on a limited number of positions. These strategies are generally only successful in markets in which strong price trends occur. In stagnant markets in which these trends do not occur, or in whipsaw markets in which apparent trends develop but then quickly reverse, trend-following trading systems are likely to incur substantial losses.
Increased Competition from Other Trend-Following Traders Could Reduce Sunrises Profitability
The aggregate capital committed to the managed futures sector in general is near its all-time high. The more capital that is traded in these markets, or that is committed to any one particular strategy, the greater the competition for a finite number of positions and the less the profit potential for all strategies or for any particular strategy.
The widespread use of technical trading systems frequently results in numerous managers attempting to execute similar trades at or about the same time, altering trading patterns and affecting market liquidity. Furthermore, the profit potential of trend-following systems may be diminished by the changing character of the markets, which may make historical price data (on which technical trading systems are based) only marginally relevant to future market patterns.
Sunrises High Level of Equity Under Management Could Lead to Diminished Returns
There appears to be a tendency for the rates of return achieved by managed futures advisors to decline as assets under management increase. Sunrise has not agreed to limit the amount of additional equity which it may manage, and although Sunrises equity under management is not at or near its all-time high, it may reach such level in the future.
The more money Sunrise manages, the more difficult it may be for Sunrise to trade profitably because of the difficulty of trading larger positions without adversely affecting prices and performance. Large trades may result in more price slippage than smaller orders.
Illiquid Markets Could Make It Impossible for Sunrise to Realize Profits or Limit Losses
In illiquid markets, certain positions held by the Partnership may become illiquid, preventing Sunrise from acquiring positions otherwise indicated by its strategy or making it impossible for Sunrise to close out positions against which
the market is moving. There are numerous factors which can contribute to market illiquidity, far too many for Sunrise to be able to predict. There can be no assurance that a market which has been highly liquid in the past will not experience periods of unexpected illiquidity.
Most U.S. futures exchanges, limit fluctuations in some futures contract prices during a single day by regulations referred to as daily price limits. During a single trading day no trades may be executed in these contracts at prices beyond the daily price limit. Once the price of a futures contract has increased or decreased to the limit point, positions can be neither taken nor liquidated. Futures prices have occasionally moved to the daily limit for several consecutive days with little or no trading. Similar occurrences could prevent the Partnership from promptly liquidating unfavorable positions and subject the Partnership to substantial losses. Also, the CFTC or exchanges may suspend or limit trading. Trading on non-U.S. exchanges may also be subject to price fluctuation limits and are subject to periods of significant illiquidity. Trading in the forward currency and other OTC markets is not subject to daily limits, although such trading is also subject to periods of significant illiquidity.
Possible Effects of Speculative Position Limits
The CFTC and U.S. commodities exchanges have established limits referred to as speculative position limits on the maximum net long or net short speculative positions that any person may hold or control in any particular futures or options on futures contracts traded on U.S. commodities exchanges. All proprietary or client accounts owned or managed by the Trading Advisor are combined for purposes of calculating position limits. The Trading Advisor could be required to liquidate positions held for the Partnership, or may not be able to fully implement the Trading Program, in order to comply with such limits, even though the positions attributable to the Partnership do not themselves trigger the position limits or are a small portion of the aggregate positions directed by the Trading Advisor. Position limits could force the Partnership to liquidate profitable positions, result in a tracking error between the Partnerships portfolio and the Trading Advisors standard trading program and cause the Partnership to incur substantial transaction costs.
In October 2011, the CFTC adopted rules that, among other things, established a separate position limits regime for 28 so-called exempt, i.e., metals and energy, and agricultural futures and options contracts and their economically equivalent swap contracts. Position limits in spot months were generally set at 25% of the official estimated deliverable supply of the underlying commodity while position limits related to non-spot months were generally set at 10% of open interest in the first 25,000 contracts and 2.5% of the open interest thereafter. Those proposed speculative position limits were vacated by a United States District Court, but the CFTC has proposed a new set of speculative position limits which are not yet finalized. If the current proposal is approved, the size or duration of positions available to the Partnership may be further limited.
In addition, Dodd-Frank significantly expands the CFTCs authority to impose position limits with respect to futures contracts, options on futures contracts, swaps that are economically equivalent to futures or options on futures, swaps that are traded on a regulated exchange and certain swaps that perform a significant price discovery function.
The Sponsor is subject to CFTC-imposed position limits through its control of the Partnership, and will have to aggregate positions of certain other investment funds managed by the Sponsor (Other Sponsored Funds) in determining whether the position limits are reached. The CFTCs current position limit proposal would, if implemented in substance, in addition to expanding the contracts subject to CFTC-imposed position limits, narrow certain exemptions from the aggregation requirements, making it more likely that a party such as the Sponsor hiring multiple trading advisors may be required to aggregate the positions controlled by the various trading advisors. Although the Sponsor may claim an exemption from the aggregation requirements for the majority of the Other Sponsored Funds, the aggregation of positions of certain Others Sponsored Funds may be required. If aggregation is required in the Partnerships case, the Trading Advisor may not be able to implement the Trading Program for the Partnership in the same manner as for its other clients, causing the Partnership to underperform other accounts utilizing the Trading Program, or the Partnership may have to liquidate trading positions when the Trading Advisor would otherwise not advise doing so, resulting in losses to the Partnership.
Any of the regulations discussed above could adversely affect the Partnership in certain circumstances.
The Partnership Trades Extensively in Non-U.S. Markets; These Markets Are Less Regulated Than U.S. Markets and Are Subject to Exchange Rate, Market Practice and Political Risks
The Expanded Diversified Program trades a great deal outside the United States. From time to time, as much as 40% of the Partnerships overall market exposure could involve positions taken on non-U.S. markets (excluding non-
U.S. exchange transactions in U.S. markets). Non-U.S. trading involves risks including exchange-rate exposure, possible governmental intervention and lack of regulation which U.S. trading may not. In addition, the Partnership may not have the same access to certain positions on non-U.S. exchanges as do local traders, and the historical market data on which Sunrise bases its strategies may not be as reliable or accessible as it is in the United States. Certain non-U.S. exchanges may also be in a more or less developmental stage so that prior price histories may not be indicative of current price dynamics. The rights of clients in the event of the insolvency or bankruptcy of a non-U.S. market or broker are also likely to be more limited than in the case of U.S. markets or brokers.
Trading on non-U.S. exchanges is not regulated by any U.S. government agency and may involve certain risks not applicable to trading on U.S. exchanges. For example, some non-U.S. exchanges, in contrast to U.S. exchanges, are principals markets similar to the forward markets in which performance is the responsibility only of the individual member with whom the Partnership has entered into a futures contract and not of any exchange or clearing corporation. In such cases, the Partnership will be subject to the risk of the inability or refusal to perform with respect to the individual member with whom the Partnership has entered into a futures contract. Trading on non-U.S. exchanges may involve the additional risks of expropriation, burdensome or confiscatory taxation (including taxes on specific trading activities), moratoriums, exchange or investment controls and political or diplomatic disruptions, each of which might materially adversely affect the Partnerships trading activities. The Partnership could incur substantial losses trading on non-U.S. exchanges to which it would not have been subject had Sunrise limited its trading to U.S. markets.
The U.S. tax treatment of non-U.S. futures trading may be adverse compared to the tax treatment of U.S. futures trading. The profits and losses derived from trading non-U.S. futures and options will generally be denominated in non-U.S. currencies. Consequently, the Partnership will be subject to exchange-rate risk in trading those contracts.
Governments in non-U.S. markets may impose F/X controls at will, making it impossible to convert local currency into other currencies. Should the Partnership trade on futures exchanges outside the United States or otherwise invest in non-U.S. markets, these controls may effectively prevent Partnership capital from being removed from a country where its futures contracts and other investments are traded. In addition, some countries do not have fully convertible currencies as a matter of policy, adding cost or delay to the trading of currency investments by the Partnership. The imposition of currency controls by a non-U.S. government may negatively affect performance and liquidity in the Partnership as capital becomes trapped in that country.
Further, U.S. regulatory authorities may be unable to compel the enforcement of the rules of regulatory authorities or markets in non-U.S. jurisdictions where transactions for the Partnership may be effected.
Risk of Loss Due to the Bankruptcy or Failure of Counterparties, Brokers and Exchanges
The Partnership is exposed to the risk that the bankruptcy or insolvency of its trading counterparties and other entities holding Partnership assets such as broker-dealers, FCMs, futures exchanges, clearinghouses, banks or other financial institutions, particularly MLPF&S, MLI and their affiliates could result in all or a substantial portion of the Partnerships assets being lost permanently or impounded for a matter of years pending the final disposition of legal proceedings. A bankruptcy or insolvency of this kind, or the threat of one, may cause the General Partner to decide to liquidate the Partnership or suspend, limit or otherwise alter trading, perhaps causing the Partnership to miss significant profit opportunities.
MLAI has historically preferred BofA Corp. affiliates in clearing and prime brokerage relationships, and as a result has maintained the vast majority of its cash in futures brokerage accounts with its affiliates. This policy exposes the Partnership to the specific credit risk of these BofA Corp. affiliates because balances in these accounts are not subject to FDIC or other form of deposit insurance against loss from failure of the BofA Corp. affiliate. Balances maintained with clearing brokers are, however, subject to the protections for customer segregated cleared swaps customer accounts and secured accounts discussed below.
MLAIs policy that the Trading Advisor use MLPF&S and MLI may increase the risks of insolvency described above by preventing the diversification of brokers and counterparties used by the Partnership.
MLAI may have limited control over the selection of counterparties by the Partnership. The Partnership also may not be restricted from dealing with any particular counterparty, regulated or unregulated, or from concentrating any or all of its transactions with a single counterparty or limited number of counterparties or from initially transacting, clearing or brokering with a non-BofA Corp. broker and from giving up those trades to MLPF&S or the MLI. In addition, to the extent
assets are held at entities other than MLPF&S and the MLI, MLAI may have limited ability to assess the extent to which the Trading Advisor maintains the Partnerships assets in unregulated accounts subject to the bankruptcy of the counterparties holding such assets.
The following paragraphs discuss the various uses of the Partnerships assets and the risks of loss in addition to losses from trading associated with each use.
Margin for Commodities Trading. Although the General Partner believes that MLPF&S is appropriately capitalized to function as the Partnerships FCM, cash posted as margin for commodities trading with MLPF&S is nevertheless subject to the risk of insolvency of MLPF&S. The Partnership maintains cash deposits with MLPF&S in segregated accounts, which are required by CFTC regulations to be separate from its proprietary assets for futures and options trading on U.S. exchanges. Funds held in segregated accounts are intended to be readily identifiable as customer funds in the event of MLPF&Ss bankruptcy and are expected to be reserved for distribution to customers of MLPF&S. If MLPF&S did not comply with the segregation requirement, however, the assets of the Partnership might not be fully protected. Even given proper segregation, the Partnership may be subject to a risk of loss of its funds because, although CFTC regulations require that FCMs invest customer funds only in certain types of interest bearing financial instruments, these instruments are still subject to credit and market risk. As a result, if the instruments in which customer segregated funds are invested lose value, there would be a shortfall in customer segregated funds held by MLPF&S in the event of MLPF&Ss insolvency.
In addition, there may be a shortfall in customer segregated funds held by MLPF&S in the event of a substantial default by one or more of MLPF&Ss other customers. If MLPF&S becomes insolvent, only a pro rata share of all property available for distribution to all of MLPF&Ss customers would be recovered, whether or not another customer also defaults and even if this property is held in segregated accounts.
MLPF&S is required by CFTC regulations to maintain in a secured account the amount required to margin futures and options positions established on non-U.S. futures exchanges in order to protect customer funds in the event of MLPF&Ss bankruptcy. While the secured account requirement relating to trading non-U.S. futures exchanges is similar in some respects to the segregation requirement relating to trading on U.S. futures exchanges, they are not identical and there are special risks associated with funds maintained in a secured account. Funds held in a secured account may be commingled with funds of non-U.S. persons and, because they are by necessity held in a non-U.S. jurisdiction, are subject to different insolvency laws and customer protection regulations, which may be less favorable than U.S. laws and regulations. Moreover, funds transferred from a secured account to a non-U.S. FCM, exchange or clearing agency to margin trading on non-U.S. futures exchanges are not subject to the same limitations on permissible investments as funds held by U.S. FCMs. In addition to these special risks, funds held in a secured account are subject to risks comparable to those applicable to funds in a segregated account, namely that MLPF&S will not comply with the relevant regulations, that investments in the account will decline in value, of a shortfall in the event of the default by another customer, and that, if, BofA Corp. owns 10% or more of the Partnership, the Partnerships assets will not be protected as customer funds.
If the Partnership deposits assets with a particular entity and those assets are not held in segregation or in a secured account as customer funds for any of the reasons discussed above, in the event of the entitys insolvency the Partnership could be a general creditor of the entity even with regard to property specifically traceable to the Partnerships account. As a result, the Partnerships claim would be paid along with the claims of other general creditors and the Partnership would be subject to the loss of its entire deposit with the party.
To the extent the Partnership enters into cleared swap transactions, the Partnership will deposit collateral with MLPF&S in cleared swaps customer accounts, which are required by CFTC regulations to be separate from its proprietary collateral posted for cleared swaps transactions. Cleared swap customer collateral is subject to regulations that closely parallel the regulations governing customer segregated funds but provide certain additional protections to cleared swaps collateral in the event of an FCM or FCM customer default. For example, in the event of a default of both the FCM and a customer of the FCM, a clearing house is only permitted to access the cleared swaps collateral in the legally separate (but operationally commingled) account of the defaulting cleared swap customer of the FCM, as opposed to the treatment of customer segregated funds, under which the clearing house may access all of the commingled customer segregated funds of a defaulting FCM.
Collateral for OTC Transactions. Cash pledged as collateral with MLI or any other OTC prime broker for uncleared OTC trades is subject to the risk of the insolvency of the prime broker. Unlike cash posted as margin for commodities trading on regulated exchanges, cash margin for OTC trades is not required to be segregated or held in a secured account. With respect to cleared OTC trades, the Partnership will not face a clearinghouse directly, but rather will do so through MLI or any other OTC prime broker that is registered with the CFTC and that acts as a clearing member. The
Partnership may face the indirect risk of the failure of another clearing member customer to meet its obligations to its clearing member. Such scenario could arise due to a default by the clearing member on its obligations to the clearinghouse triggered by a customers failure to meet its obligations to the clearing member.
Bank Deposits. The vast majority of the cash deposited with banks would be in excess of the limits on federal insurance for deposits, and thus not insured by the FDIC, and would be subject to the risk of bank failure. Only up to $250,000 held in the interest bearing demand deposit accounts is insured under the FDICs general deposit insurance rules.
Cash in Securities Brokerage Accounts. Cash in securities brokerage accounts with MLPF&S is subject to the risk of insolvency of MLPF&S. While brokers are required to keep customer cash in a special reserve account for the benefit of customers, it is possible that a shortfall could exist in this account, in which case the Partnership, along with other customers, would suffer losses. The Securities Investor Protection Corporation provides protection against these losses, up to a limit, but the cash deposited by the Partnership in a securities brokerage account would far exceed the limit.
Direct Investments. Partnership investments in U.S. government securities are backed by the full faith and credit of the U.S. government. To the extent the Partnership makes investments in non-government securities it would be subject to a risk of loss that depended on the type of security.
Historical events underscore the risks described above. Significant losses incurred by many investment funds in relation to the bankruptcy and/or administration of Lehman Brothers Holdings Inc. and its affiliates illustrate the risks incurred in both derivatives trading and custody/brokerage arrangements. The bankruptcy liquidation of MF Global Inc. also demonstrates that even customer funds subject to segregation requirements may be difficult for an FCM to locate, and customer funds held by an FCM in bankruptcy may not be distributed promptly and may be subject to a lengthy claims process.
Government Intervention; Market Disruptions
The global financial markets have in the past several years experienced pervasive and fundamental disruptions that have led to extensive and unprecedented governmental intervention. Government intervention has in certain cases been implemented on an emergency basis, suddenly and substantially eliminating market participants ability, at least on a temporary basis, to continue to implement certain strategies or manage the risk of their outstanding positions. In addition as one would expect given the complexities of the financial markets and the limited time frame within which governments have taken action these interventions typically have been difficult to interpret and unclear in scope and application, resulting in confusion and uncertainty. This confusion and uncertainty in itself has been materially detrimental to the efficient functioning of the markets as well as previously successful investment strategies.
The Partnership may incur substantial losses in the event of disrupted markets and other extraordinary events in which historical pricing relationships become materially distorted, the availability of credit is restricted or the ability to trade or invest capital, including exiting existing positions, is otherwise impaired. The risk of loss from pricing distortions is compounded by the fact that in disrupted markets many positions become illiquid, making it difficult or impossible to close out positions against which the markets are moving. The financing available to private investment funds such as the Partnership from banks, dealers and other counterparties is typically reduced in disrupted markets. Any reduction may result in substantial losses to the Partnership. Market disruptions may from time to time cause dramatic losses for the Partnership and these events can result in otherwise historically low-risk strategies performing with unprecedented volatility and risk.
Regulatory Changes Could Restrict the Partnerships Operations
The Partnership implements speculative, highly leveraged strategies. From time to time there is governmental scrutiny of these types of strategies and political pressure to regulate their activities. The CFTC and the exchanges are authorized to take extraordinary actions in the event of a market emergency, including, for example, the retroactive implementation of speculative position limits or higher margin requirements, the establishment of daily price limits and the suspension of trading. The regulation of futures, swaps, forward and options transactions in the United States is a rapidly changing area of law and is subject to modification by government and judicial action. In addition, as described in further detail above under Possible Effects of Speculative Position Limits, the U.S. Congress and the CFTC have expressed the concern that speculative traders, and commodity funds in particular, may be responsible for unwarranted and dramatic swings in the prices of commodities and the CFTC enacted position limits designed to address such speculative trading. Non-U.S. governments have from time to time blamed the declines of their currencies on speculative currency trading and imposed restrictions on speculative trading in certain markets.
Regulatory changes could adversely affect the Partnership by restricting the markets in which it trades, otherwise limiting its trading and/or increasing the taxes to which investors are subject. Adverse regulatory initiatives could develop suddenly and without notice.
Dodd-Frank includes provisions that substantially increase the regulation of the OTC derivatives markets. Regulations implementing Dodd-Frank will ultimately require that a substantial portion of derivatives currently traded over the counter be executed in regulated markets and/or be submitted for clearing to regulated clearinghouses. Those OTC derivatives may include OTC F/X forwards and swaps which may be traded by the Partnership.
Although the U.S. Treasury has the discretion to exclude F/X forwards and swaps from certain of the new regulatory requirements, it has done so to date only in limited circumstances. Forwards and swaps that are not so excluded may be required by Dodd-Frank to be centrally cleared or traded on a regulated market. Dodd-Frank may also require other OTC derivatives traded by the Partnership, if any, to be centrally cleared or traded on a regulated market. This may subject the Partnership, the Trading Advisor, MLAI and/or the Partnerships counterparties to additional regulatory requirements. Certain of these regulatory requirements could affect the Partnership, the Trading Advisor or MLAI directly, while others could impact the Partnership, the Trading Advisor or MLAI indirectly due to the impact of the requirements on the Partnerships counterparties. For example, OTC derivative dealers are now required to be registered with the CFTC (and ultimately will be required to register with the SEC) and are subject to new minimum capital and margin requirements, business conduct standards, disclosure requirements, reporting and recordkeeping requirements, transparency requirements, position limits, limitations on conflicts of interest and other regulatory burdens. These new regulatory burdens have and will continue to increase the counterparties costs, which are generally passed through to other market participants such as the Partnership in the form of higher fees, including clearing account maintenance fees, and less favorable dealer marks. They may also render certain strategies in which the Trading Advisor might otherwise engage impossible, or so costly that they will no longer be economical, to implement.
The CFTC also now requires certain derivative transactions that were previously executed on a bi-lateral basis in the OTC markets to be executed through a regulated futures or swap exchange or execution facility. These requirements may make it more difficult and costly for investment funds, including the Partnership, to enter into highly tailored or customized transactions. They may also render certain strategies in which the Partnership might otherwise engage impossible or so costly that they will no longer be economical to implement. If the Partnership decides to execute derivatives transactions through these exchanges or execution facilitiesand especially if it decides to become a direct member of one or more of these exchanges or execution facilitiesthe Partnership would be subject to the rules of the exchange or execution facility, which would bring additional risks and liabilities, and potential requirements under applicable regulations and under rules of the relevant exchange or execution facility. Even if the Partnership indirectly participates in an exchange or execution facility, the Partnership and/or the Trading Advisor may be required to consent to the exchanges or execution facilitys jurisdiction and to the relevant rulebook, which could subject it to a wide range of regulations and other obligations, together with associated costs. Like any other self-regulatory organization, exchanges and execution facilities regularly revise and interpret their rules, and such revisions and interpretations could adversely affect the Partnership.
Although Dodd-Frank requires certain OTC derivative transactions previously entered into on a principal-to-principal basis to be submitted for clearing by a regulated clearinghouse, some of the derivatives that may be traded by the Partnership may not be centrally cleared. The risk of counterparty non-performance can be significant in the case of these OTC instruments, and bid-ask spreads may be unusually wide in these heretofore substantially unregulated markets. While Dodd-Frank is intended in part to reduce these risks, its success in this respect may not be evident for some time after Dodd-Frank is fully implemented, a process that may take several years. In addition, while Dodd-Franks requirement that certain swaps be traded on a regulated market is intended to improve transparency in the market for these swaps, and may for more liquid swaps decrease trading costs, it may actually increase trading costs for less liquid swaps.
While Dodd-Frank is intended to bring more stability and lower counterparty risk to derivatives markets by requiring central clearing of certain standardized derivatives trades, not all of the Partnerships trades will be subject to a clearing requirement because the trades are grandfathered or because they are bespoke, or because they are within a class that is not currently subject to mandatory clearing. Furthermore, it is yet to be seen whether Dodd-Frank will be effective in reducing counterparty risk or if such risk may actually increase as a result of market uncertainty, mutuality of loss to clearinghouse members, or other reasons.
The overall impact of Dodd-Frank on the Partnership remains highly uncertain and it is unclear how the OTC derivatives markets will adapt to this new regulatory regime, along with additional, sometimes overlapping, regulatory requirements imposed by non-U.S. regulators.
The Volcker Rule component of the Dodd-Frank materially restricts proprietary speculative trading by banks, bank holding companies and other regulated entities. As a result, there has been a significant influx of new portfolio managers into private investment funds who had previously traded institutional proprietary accounts. Such influx can only increase the competition for the Partnership from other talented portfolio managers trading in the Partnerships investment sector.
On August 16, 2012, the European Market Infrastructure Regulation became effective (EMIR). EMIR introduces certain requirements in respect of derivative contracts, which applies primarily to financial counterparties (FCs) such as European Union (E.U.) authorized investment firms, credit institutions, insurance companies, funds regulated under the E.U. Undertakings for Collective Investment in Transferable Securities Directives, referred to as UCITS, and alternative investment funds managed by E.U. authorized alternative investment fund managers, and non-financial counterparties (NFCs), which are entities established in the E.U. that are not financial counterparties. NFCs whose transactions in OTC derivative contracts exceed EMIRs prescribed clearing threshold (NFC+s) are generally subject to more stringent requirements under EMIR than NFCs whose transactions in OTC derivative contracts do not exceed such clearing threshold, including because such contracts are excluded from the threshold calculation on the basis that they are concluded in order to reduce risks directly relating to the NFCs commercial activity or treasury financing activity (NFC-s).
Broadly, EMIRs requirements in respect of derivative contracts are (i) mandatory clearing of OTC derivative contracts declared subject to the clearing obligation; (ii) risk mitigation techniques in respect of uncleared OTC derivative contracts; and (iii) reporting and record-keeping requirements in respect of all derivative contracts.
As FCs and NFCs are required to comply with EMIRs risk mitigation obligations regardless of the identity of their counterparties, non-E.U. counterparties such as the Partnership are likely to become indirectly subject to such requirements when they transact with E.U. counterparties, which will require compliance by their non-E.U. counterparties in order to satisfy their own obligations under EMIR. E.U. FCs or NFC+s which transact with a non-E.U. counterparty that would be classed as an FC or an NFC+ if it had been established in the E.U. will also be required to ensure that certain specified OTC derivative contracts are cleared through a duly authorized central counterparty. No class of OTC derivative contracts has as yet been declared subject to mandatory clearing in the E.U., although draft legislation covering various classes has been proposed.
The E.U. regulatory framework and legal regime relating to derivatives is set not only by EMIR but also by a new Directive and Regulation containing a package of reforms to the existing Markets in Financial Instruments Directive (Directive 2004/39/EC), collectively referred to as MiFID II. MiFID II was published on June 12, 2014 in the Official Journal of the European Union but the majority of MiFID IIs provisions will only become effective on January 3, 2017. In particular, MiFID II is expected to require transactions between FCs and NFC+s in sufficiently liquid OTC derivatives to be executed on a trading venue which meets the requirements of the MiFID II regime. This trading obligation will also extend to FCs and NFC+s which trade with third country counterparties that would be classed as FCs or NFC+s if they were established in the E.U.
It is difficult to predict the full impact of these regulatory developments on the Partnership Prospective investors should be aware that the regulatory changes arising from EMIR and MiFID II may in due course significantly raise the costs of entering into derivative contracts and may adversely affect the Partnerships ability to engage in transactions in derivatives.
Banking Regulation
BofA Corp. is subject to certain U.S. banking laws, including the Bank Holding Company Act of 1956 (the BHCA), and to regulation by the Board of Governors of the Federal Reserve System. If BofA Corp. directly, or indirectly through its subsidiaries, makes capital contributions to the Partnership in an aggregate amount such that BofA Corp. may be deemed to control the Partnership for purposes of the BHCA, or if BofA Corp. is otherwise deemed to control the Partnership for purposes of the BHCA, the Partnership may be subject to certain investment and other limitations.
Concerns Regarding the Downgrade of the U.S. Credit Rating and the Sovereign Debt Crisis in Europe
On August 5, 2011, Standard & Poors lowered its long term sovereign credit rating on the United States of America from AAA to AA+. This downgrade or future downgrades by Standard & Poors or other credit rating agencies could have material adverse effects on financial markets and economic conditions in the United States and throughout the
world and, in turn, the markets anticipation of these impacts could have a material adverse effect on the investments made by the Partnership and thereby the Partnerships financial condition and liquidity. The ultimate impact on global markets and the Partnerships business is unpredictable.
Global markets and economic conditions have been negatively affected by the ability of E.U. member states to service their sovereign debt obligations. The continued uncertainty over the outcome of the E.U.s financial support programs and financial troubles could have an adverse effect on the Partnership.
Risks Associated with Sunrise
The Partnership is subject to the risk of the bad judgment, negligence or misconduct of Sunrise. There have been a number of instances in recent years in which private investment funds have incurred substantial losses due to manager misconduct.
Withdrawals by Other Sunrise Partnership Investors
Investors in other funds or accounts implementing the Expanded Diversified Program or similar strategies may be able to withdraw their investments more frequently or on less prior notice than investors in the Partnership. Withdrawals by investors in these funds or withdrawals from accounts that have less restrictive withdrawal terms could have a material adverse impact on the Partnerships portfolio and could disadvantage Investors in certain circumstances.
Trade Error Execution Risk
Sunrise may use certain executing brokers unaffiliated with BofA Corp. In the event of a trading error, the Partnership may have no effective remedy against such executing brokers.
Changes in Trading Strategy
Sunrise may make material changes in its trading strategies without the knowledge of the General Partner. It is virtually impossible for MLAI to detect any such changes particularly given the confidential, proprietary, systematic and/or quantitative nature of the Expanded Diversified Program strategies, such strategies customarily referred to as black box strategies.
Item 1B: Unresolved Staff Comments
Not applicable
Item 2: Properties
The Partnership does not use any physical properties in the conduct of its business.
The Partnerships offices are the administrative offices of MLAI (Merrill Lynch Alternative Investments LLC, 250 Vesey Street, 11th Floor, New York, New York 10281). MLAI performs administrative services for the Partnership from MLAIs offices.
Item 3: Legal Proceedings
None.
Item 4: Mine Safety Disclosures
Not applicable
PART II
Item 5: Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
(a) Market Information:
There is no established public trading market for the Units.
(b) Holders:
As of December 31, 2015, there were 390 holders of Units, with one Unit holder who owned 11.09% of the Partnerships Units.
(c) Dividends:
MLAI has not made and does not contemplate making any distributions on the Units.
(d) Securities Authorized for Issuance Under Equity Compensation Plans:
(e) Performance Graph:
Not applicable.
(f) Recent Sales of Unregistered Securities:
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 is MLPF&S.
During 2015, the Partnership issued Units as set forth in the following chart.
|
|
Subscription |
|
Units |
|
NAV (1) |
| ||
Jan-15 |
|
$ |
|
|
|
|
$ |
250.8188 |
|
Feb-15 |
|
|
|
|
|
260.1297 |
| ||
Mar-15 |
|
|
|
|
|
262.9219 |
| ||
Apr-15 |
|
|
|
|
|
262.8601 |
| ||
May-15 |
|
|
|
|
|
255.4829 |
| ||
Jun-15 |
|
|
|
|
|
255.2755 |
| ||
Jul-15 |
|
|
|
|
|
252.7902 |
| ||
Aug-15 |
|
|
|
|
|
244.3594 |
| ||
Sep-15 |
|
|
|
|
|
230.0392 |
| ||
Oct-15 |
|
|
|
|
|
232.3179 |
| ||
Nov-15 |
|
|
|
|
|
224.9796 |
| ||
Dec-15 |
|
|
|
|
|
228.5339 |
| ||
Jan-16 |
|
|
|
|
|
224.9680 |
| ||
Feb-16 |
|
|
|
|
|
227.1967 |
| ||
(1) Beginning of the month Net Asset Value
Units are not subject to any sales commissions.
Item 5(b)
Not applicable.
Item 5(c)
Not applicable.
Item 6: Selected Financial Data
The following selected financial data has been derived from the financial statements of the Partnership.
Statements of Operations |
|
For the year |
|
For the year |
|
For the year |
|
For the year |
|
For the year |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
TRADING PROFIT (LOSS), NET: |
|
|
|
|
|
|
|
|
|
|
| |||||
Realized, net |
|
$ |
(234,937 |
) |
$ |
4,450,248 |
|
$ |
5,064,626 |
|
$ |
(18,809,252 |
) |
$ |
12,292,987 |
|
Change in unrealized, net |
|
(1,053,823 |
) |
(554,874 |
) |
1,789,516 |
|
11,603 |
|
(5,988,458 |
) | |||||
Total trading profit (loss), net |
|
$ |
(1,288,760 |
) |
3,895,374 |
|
6,854,142 |
|
(18,797,649 |
) |
6,304,529 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
INVESTMENT INCOME (EXPENSE): |
|
|
|
|
|
|
|
|
|
|
| |||||
Interest, net |
|
15,111 |
|
14,161 |
|
36,955 |
|
84,330 |
|
85,533 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
EXPENSES: |
|
|
|
|
|
|
|
|
|
|
| |||||
Wrap Fee |
|
1,704,741 |
|
2,215,044 |
|
3,446,043 |
|
5,491,333 |
|
7,959,412 |
| |||||
Total expenses |
|
1,704,741 |
|
2,215,044 |
|
3,446,043 |
|
5,491,333 |
|
7,959,412 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
NET INVESTMENT LOSS |
|
(1,689,630 |
) |
(2,200,883 |
) |
(3,409,088 |
) |
(5,407,003 |
) |
(7,873,879 |
) | |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
NET INCOME (LOSS) |
|
$ |
(2,978,390 |
) |
$ |
1,694,491 |
|
$ |
3,445,054 |
|
$ |
(24,204,652 |
) |
$ |
(1,569,350 |
) |
Balance Sheet Data |
|
December 31, |
|
December 31, |
|
December 31, |
|
December 31, |
|
December 31, |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Partners Capital |
|
$ |
24,423,296 |
|
$ |
32,186,571 |
|
$ |
47,358,483 |
|
$ |
67,504,251 |
|
$ |
119,304,071 |
|
Net Asset Value per Unit |
|
$ |
224.9680 |
|
$ |
250.8188 |
|
$ |
233.9835 |
|
$ |
219.6744 |
|
$ |
284.1791 |
|
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 limited partners of the Partnership. Therefore, the charts below are referencing Net Asset Value at each Calculation Date.
MONTH-END NET ASSET VALUE PER UNIT
|
|
Jan. |
|
Feb. |
|
Mar. |
|
Apr. |
|
May |
|
Jun. |
|
Jul. |
|
Aug. |
|
Sep. |
|
Oct. |
|
Nov. |
|
Dec. |
|
2011 |
|
288.6250 |
|
297.7954 |
|
293.7558 |
|
306.9529 |
|
288.3932 |
|
281.6155 |
|
281.2604 |
|
282.6780 |
|
299.4734 |
|
277.7507 |
|
283.8444 |
|
284.1791 |
|
2012 |
|
273.8266 |
|
272.7583 |
|
277.3155 |
|
273.4723 |
|
261.5746 |
|
240.2625 |
|
256.1229 |
|
245.2881 |
|
234.7385 |
|
223.6726 |
|
221.6742 |
|
219.6744 |
|
2013 |
|
227.3940 |
|
214.0573 |
|
219.7681 |
|
221.9490 |
|
226.4065 |
|
225.6605 |
|
222.4313 |
|
219.8696 |
|
213.3512 |
|
218.5052 |
|
226.1277 |
|
233.9835 |
|
2014 |
|
220.9897 |
|
222.6933 |
|
220.7362 |
|
224.3074 |
|
226.4602 |
|
227.0699 |
|
225.6986 |
|
231.3856 |
|
240.3376 |
|
230.7196 |
|
244.5062 |
|
250.8188 |
|
2015 |
|
260.1297 |
|
262.9219 |
|
262.8601 |
|
255.4829 |
|
255.2755 |
|
252.7902 |
|
244.3594 |
|
230.0392 |
|
232.3179 |
|
224.9796 |
|
228.5339 |
|
224.9680 |
|
ML SELECT FUTURES I L.P.
December 31, 2015
Type of Pool: Single Advisor/Publicly-Offered/Non-Principal Protected(1)
Inception of Trading: April 1996
Aggregate Subscriptions: $560,357,219
Current Capitalization: $24,423,296
Worst Monthly Drawdown(2): (14.94)% (August 2007)
Worst Peak-to-Valley Drawdown(3): (34.65)% (December 2009 December 2015)
Net Asset Value per Unit, December 31, 2015: $224.9680
Monthly Rates of Return (4)
Month |
|
2015 |
|
2014 |
|
2013 |
|
2012 |
|
2011 |
|
January |
|
3.71 |
% |
(5.55 |
)% |
3.51 |
% |
(3.64 |
)% |
0.25 |
% |
February |
|
1.07 |
|
0.77 |
|
(5.87 |
) |
(0.39 |
) |
3.18 |
|
March |
|
(0.02 |
) |
(0.88 |
) |
2.67 |
|
1.67 |
|
(1.36 |
) |
April |
|
(2.81 |
) |
1.62 |
|
0.99 |
|
(1.39 |
) |
4.49 |
|
May |
|
(0.08 |
) |
0.96 |
|
2.01 |
|
(4.35 |
) |
(6.05 |
) |
June |
|
(0.97 |
) |
0.27 |
|
(0.33 |
) |
(8.15 |
) |
(2.35 |
) |
July |
|
(3.34 |
) |
(0.60 |
) |
(1.43 |
) |
6.60 |
|
(0.13 |
) |
August |
|
(5.86 |
) |
2.52 |
|
(1.15 |
) |
(4.23 |
) |
0.50 |
|
September |
|
0.99 |
|
3.87 |
|
(2.96 |
) |
(4.30 |
) |
5.94 |
|
October |
|
(3.16 |
) |
(4.00 |
) |
2.42 |
|
(4.71 |
) |
(7.25 |
) |
November |
|
1.58 |
|
5.98 |
|
3.49 |
|
(0.89 |
) |
2.19 |
|
December |
|
(1.56 |
) |
2.58 |
|
3.47 |
|
(0.90 |
) |
0.12 |
|
Compound Annual Rate of Return |
|
(10.31 |
)% |
7.20 |
% |
6.51 |
% |
(22.70 |
)% |
(1.30 |
)% |
(1) Certain funds are structured so as to guarantee to investors that their investment will be worth no less than a specified amount (typically, the initial purchase price) as of a date certain after the date of investment. The CFTC refers to such funds as principal protected. The Partnership has no such feature.
(2) Worst Monthly Drawdown represents the largest negative Monthly Rate of Return experienced since April 1, 1996 by the Partnership; a drawdown is measured on the basis of month-end Net Asset Value only, and does not reflect intra-month figures.
(3) Worst Peak-to-Valley Drawdown represents the greatest percentage decline since April 1, 1996 from a month-end cumulative Monthly Rate of Return without such cumulative Monthly Rate of Return being equaled or exceeded as of a subsequent month-end. For example, if the Monthly Rate of Return was (1)% in each of January and February, 1% in March and (2)% in April, the Peak-to-Valley Drawdown would still be continuing at the end of April in the amount of approximately (3)%, whereas if the Monthly Rate of Return had been approximately 3% in March, the Peak-to-Valley Drawdown would have ended as of the end of February at approximately the (2)% level.
(4) Monthly Rate of Return is the net performance of the Partnership during the month of determination (including interest income and after all expenses have been accrued or paid) divided by the total equity of the Partnership as of the beginning of such month.
Item 7: Managements Discussion and Analysis of Financial Condition and Results of Operations
Critical Accounting Policies
The Partnerships critical accounting policies are as follows:
· 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. Actual results could differ from those estimates and such differences could be material.
· The fair value of a financial instrument 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.
· 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.
· Realized profits (losses) and changes in unrealized profits (losses) on open positions are recognized in the period in which the contract is closed or the changes occur, respectively and are included in the Statements of Operations.
Results of Operations
General
In the Trading Program, Sunrise applies its trend-following and related pattern recognition systems to a broadly-diversified portfolio of futures and forwards on underlying interests, including, but not limited to, precious and industrial metals, grains, petroleum products, soft commodities, U.S. and non-U.S. stock indices, currencies and their cross rates. Sunrise may trade these investments on any U.S. or non-U.S. exchange.
Performance Summary
This performance summary is an outline description of how the Partnership performed in the past, not necessarily any indication of how it will perform in the future. In addition, the general causes to which certain price movements are attributed may or may not have caused such movements, but simply occurred at or about the same time.
|
|
Total Trading |
| |
Year ended December 31, 2015 |
|
Profit (Loss) |
| |
Energy |
|
$ |
401,000 |
|
Currencies |
|
(1,024,801 |
) | |
Agricultural Commodities |
|
(409,117 |
) | |
Interest Rates |
|
(231,887 |
) | |
Stock Indices |
|
(384,125 |
) | |
Metals |
|
360,170 |
| |
|
|
$ |
(1,288,760 |
) |
The Partnership experienced a net trading loss of $1,288,760 before brokerage commissions and related fees for the year ended December 31, 2015. The Partnerships profits were primarily attributable to energy and metals sectors. The interest rates, stock indices, agriculture and currency sectors posted losses.
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 first 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 first 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. Losses were posted to the Partnership at the beginning of the second quarter. In April, prices bolted upward to buck what had been a sustained downward move in recent months. The result for the Partnership was losses short the entire product spectrum: crude, Brent crude, gasoil, heating oil, natural gas, and RBOB gasoline. Losses were posted to the Partnership in the middle of the second quarter. In the energy markets prices whipped back and forth and ultimately caused losses for the Partnerships short positions in natural gas and crude oil and long positions across other markets including Brent crude, gasoil, and heating oil. Losses were posted to the Partnership at the end of the second quarter. In the energy sector, general market uncertainty characterized June as neither the Partnerships short positions in natural gas and crude oil nor its long positions in Brent crude oil, crude oil, gasoil or heating oil were able to find their way to profitability. Profits were posted to the Partnership at the beginning of the third quarter as the Partnerships short positions aligned nicely with downward price moves in crude oil, Brent crude oil, gasoil, and heating oil. Losses were posted to the Partnership in the middle of the third quarter. In energy, losses were largely uniform as the markets climbed during August against the Partnerships short positions. Profits were posted to the Partnership at the end of the third quarter. Investor concerns about waning global economic strength appeared to drive falling prices in Brent crude, oil, gasoil, natural gas and RBOB gasoline as they all conformed nicely to the Partnerships short positions and the result was a profitable September across the board in energies. Losses were posted to the Partnership at the beginning of the fourth quarter due to the Partnerships short positions in natural gas, crude, brent crude, heating oil, and gasoil. Profits were posted to the Partnership in the middle of the fourth quarter. In energies, November was driven by falling prices in natural gas, WTI crude, Brent crude, heating oil and gasoil, all of which appear to be in far greater supply than demand globally. Only the Trading Programs small investment short RBOB gasoline went against the Trading Program as global investors seemed to unite in a bearish outlook on energy that synched nicely with the Trading Programs short positions. Profits were posted to the Partnership at the end of the fourth quarter. The Trading Program was able to capitalize on the ongoing energy slump with short positions in crude oil, gasoil, Brent crude and heating oil.
The metals sector posted profits 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 first 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 first 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. Losses were posted to the Partnership at the beginning of the second quarter. In April, there was a price resurgence which caused the Partnership to sustain losses shorting industrial metals, aluminum, copper and nickel. Profits were posted to the Partnership in the middle of the second quarter. Global metals markets delivered positive results in May as a general downward price move lined up nicely with the Partnerships short positions. Base metals were the story for May as the Partnership booked profits on short positions in aluminum, copper and nickel but avoided the precious metals sector completely due to lack of opportunity. Profits were posted to the Partnership at the end of the second quarter. The global metals sector yielded profits for the Partnership in June as investor concerns about China and other factors drove industrial metal prices further downward throughout June. Specifically, the Partnership found profits on short positions in aluminum, copper and nickel. Profits were posted to the Partnership at the beginning of the third quarter. In July, the Partnership captured gold and silvers plummeting price moves for profits and added gains short several industrial metals including aluminum, copper, and nickel. Losses were posted to the Partnership in the middle of the third quarter. In metals, gold was the big story, spiking sharply in late August against the Partnerships short positions. Profits were posted to the Partnership at the end of the third quarter. The Partnership held short positions across the sector and by the end of September, nearly all of those positions, particularly those in industrial metals, resulted in profits including aluminum, copper, gold, nickel, silver and zinc. Losses were posted to the Partnership at the beginning of the fourth quarter. Gold would not pick a consistent path as it swayed on investor concerns regarding the U.S. Federal Reserve and other factors. Silver followed golds indecisive lead to some degree and added to losses along with zinc. Profits were posted to the Partnership in the middle of the fourth quarter. Leading the way for the Trading Program was the global metals sector which moved downward substantially as November unfolded. Whether driven by investors lingering concerns regarding Chinas demand for industrial metals or a weakening of the view that precious metals equal safety, the downward move in metals markets allowed the Trading Program to find profits. Losses were posted to the Partnership at the end of the fourth quarter. The Trading Programs gains on short positions in gold, silver, platinum, and nickel were offset by losses on short positions in industrial metals including copper, zinc, aluminum and lead.
The interest rate sector posted losses 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 first 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 first 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. Losses were posted to the Partnership at the beginning of the second quarter. Long positions in the German Bund and French OAT 10 year were shaken out when prices in those markets dove and small profits across the U.S. yield curve and in Italian BTP 10 years were insufficient to offset those losses. Losses were posted to the Partnership in the middle of the second quarter. In global bonds, price choppiness was pronounced as prices ebbed downward for much of the first part of May and then shot back upward as May wound down. The net results of this vacillation were losses short the German Bund, French OAT and long the U.S. 10 year. Profits were posted to the Partnership at the end of the second quarter. The key to the Partnerships relative success in June was a strong month of global bond trading. Short positions in the German Bund and Bobl as well as the French OAT 10 year generated profits as those markets plummeted in the wake of emerging European chaos. Adding to the Partnerships gains were successful short positions in the U.S. 30 year and 5 year markets. Losses were posted to the Partnership at the beginning of the third quarter. The global bond sectors profits were elusive almost across the board. Just as many of the Partnerships models began to take short positions in the wake of a burst of European bond price softening, many global markets rallied causing the Partnership to incur losses in BTP Italian 10 years, German Bobls and Bunds and OAT French 10 years. Shorts versus the U.S. 30 and 10 year markets also lost money. Losses were posted to the Partnership in the middle of the third quarter. The bond market which at times vacillated with stock market twists and turns found itself predominantly long throughout August and ultimately was undercut by a downward chop across the U.S. yield curve in 2, 5, 10 and 30 year U.S. Treasuries. Bond markets outside of the U.S. proved indecisive for the Partnership and stayed neutral everywhere else with the exception of Canada where a small long position yielded a flat result for August. Profits were posted to the Partnership at the end of the third quarter as the Partnership generated a slight profit on long positions in both U.S. 2 years and 5 years bonds. Losses were posted to the Partnership at the beginning of fourth quarter. In the bond sector, the Trading Programs losses were primarily domestic as the Trading Programs long positions for October did not align with the U.S. yield curve. Losses were posted to the Partnership in the middle of the fourth quarter. In November global bonds bounced up and down on conflicting narratives about what the U.S. Federal Reserve might do with interest rates and other related factors. The Trading Program suffered losses with long positions in the Italian 10 year, and U.S. 2, 5 and 10 year bonds. Profits were posted to the Partnership at the end of the fourth quarter due to the Trading Programs long positions in the Italian 10 year bonds.
The stock indices sector posted losses 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 first 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 first quarter as the Trading Program suffered losses in the S&P 500, NASDAQ and the Dow. Profits were posted to the Partnership at the beginning of the second quarter. In April markets trended upward around the globe and the Partnership capitalized. Leading the way were long positions in Hong Kongs Hang Seng, Chinas H-Shares, Japanese Topix, German DAX, and EuroStoxx. The Partnership made money in several global equity markets. Profits were posted to the Partnership in the middle of the second quarter as the Partnership generated profits long the Dow, NASDAQ, S&P 500, and the Japanese Nikkei and Topix. Losses were posted to the Partnership at the end of the second quarter as the late-June panic over Greece caused sizable equity losses, bucking a trend that to that point had been largely positive for June. Losses were posted to the Partnership at the beginning of the third quarter because of long positions in various European indices such as the AEX, OMX EuroStoxx 50 as well as long positions in the Japanese Nikkei and Topix. Losses were posted to the Partnership in the middle of the third quarter. The damage was predominantly on the U.S. side of the ledger as the NASDAQ and the S&P 500 were erratic and uncooperative with the Partnerships systematic approach. On the global side of the ledger, the Italian FTSE MIB and South African FTSE JSE added to the losses. Losses were posted to the Partnership at the end of the third quarter as the Partnership sustained losses on long positions in the S&P 500 and short positions in the NASDAQ, the Dow, the German Dax, and Indias Nifty. Losses were
posted to the Partnership at the beginning of the fourth quarter. Sharply down in the early part of October then back upward and then, in some cases, back downward again, the least cooperative equity markets were Hong Kongs Hang Seng, Swedens OMX and Japans Topix and Nikkei. Profits were posted to the Partnership in the middle of the fourth quarter. The global equity sector began to show a somewhat consistent upward pattern over the second half of November allowing the Trading Program to finish the month profitably in this sector. Specifically, the Partnership had profits long positions in the Dow Jones Industrial Average, Hong Kongs Hang Seng, Chinas H Shares, the German DAX, Hollands AEX, and the Indian Nifty. Losses were posted to the Partnership at the end of the fourth quarter. Most challenging for the Trading Program in December were global equity markets. Down, up and then down again, stocks wavered throughout December on a variety of factors including sagging energy prices, the U.S. Federal Reserves decision to slightly raise interest rates, and a myriad of geopolitical matters ranging from Middle East conflict to the U.S. election cycle. The Partnership had a profit short Euro Stoxx and Hollands AEX but beyond that, a series of relatively small losses across markets in Asia, Europe and the U.S. collectively overshadowed the Trading Programs few monthly gains.
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 the Partnership in long corn and short rubber and cotton positions. Profits were posted to the Partnership in the middle of the first 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 first 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. Losses were posted to the Partnership at the beginning of the second quarter due to short positions in sugar. Profits were posted to the Partnership in the middle of the second quarter as downward price moves in coffee and sugar aligned well with the Partnerships ongoing short positions and rubber moved up slightly in support of a long position built by the Partnership as May unfolded. Losses were posted to the Partnership at the end of the second quarter as heavy rains and flooding in parts of the U.S. led to a negative crop report in late June. For the Partnership, the results were losses in short positions in coffee, corn, wheat and soybeans, along with losses on long positions in rubber. Losses were posted to the Partnership at the beginning of the third quarter. Most notable losses for the Partnership were long positions in wheat, soy products, and corn. Profits were posted to the Partnership in the middle of the third quarter. Leading the way were gains long positions in wheat and soybean meal and short positions in sugar and rubber. Profits were posted to the Partnership at the end of the third quarter. Profitable for the Partnership were short positions in live cattle, soybeans, coffee and rubber and those profits were sufficient to outpace relatively small monthly losses. Losses were posted to the Partnership at the beginning of the fourth quarter as gains in the Trading Programs short positions in soybeans were offset by losses in short positions in cattle and, to a lesser extent, sugar. Profits were posted to the Partnership in the middle of the fourth quarter due to the Trading Programs short positions in wheat, soybeans and coffee. Profits were posted to the Partnership at the end of the fourth quarter due to the Trading Programs short positions in soymeal, soybeans and corn.
The currency sector posted losses 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 first 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 first 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. Losses were posted to the Partnership at the beginning of the second quarter. In April, the Partnership sustained losses across its entire currency book including British pound, Australian dollar, Euro, Japanese yen, South African rand, and others. Profits were posted to the Partnership in the middle of the second quarter. Most successful for the Partnership was the global currency sector which delivered opportunities on both the long and short side. Specifically, after opening May with significant short positions in the British pound, the Partnership ended May long and over the course of several weeks, booked profits on both sides of the market. In respect of the Japanese yen, the Partnership was solidly long to start May, shifted to short by Mays month end, and banked some profits on both sides. Adding to solid performance in the pound and yen, the Partnership booked profits short the New Zealand dollar, South African rand, and Euro and long the Swiss franc. Profits were posted to the Partnership at the end of the quarter. Key to Junes success were the Partnerships positions long the British pound and short the New Zealand dollar as those two currencies moved nicely in opposite directions. Losses were posted to the Partnership at the beginning of the third quarter. In July, Europe was a flashpoint as the Partnership lost money long both the British pound and the Euro, and Asia proved tricky as well as an upward move against the Partnerships short positions in the Japanese yen was also unsuccessful. Losses were posted to the Partnership in the middle of the third quarter. Worst for August were the Partnerships short and later long positions in the Euro and Japanese yen. Profits were posted to the Partnership at the end of the third quarter. Global currencies also proved fruitful for the Partnership as the Partnership harnessed opportunities throughout September. In particular, the Partnership found profits through short positions in the South African rand, Singapore,
Canadian and Australian dollars, and long positions in the Japanese yen. Losses were posted to the Partnership at the beginning of the fourth quarter due to the Partnerships short positions in the Australian dollar, Japanese yen, British pound, and various minor currencies including the Singapore and New Zealand dollars. Profits were posted to the Partnership in the middle of the fourth quarter. In November global currencies were profitable for the Trading Program as the U.S. dollar strengthened versus other global currencies. Leading the way for November was the Trading Programs short euro and Swiss franc positions. Losses were posted to the Partnership at the end of the fourth quarter as global currencies wavered indecisively as December unfolded. Small profits were posted to the Partnership from the Trading Programs short positions in the South African rand, Singapore dollar, and Norwegian kroner and similarly small profits were found investing in the Japanese yen, British pound and Canadian dollar. However, losses in the Trading Programs short positions in the Euro, Swiss franc, and Australian dollar outweighed other currency gains and resulted in a net loss for the Partnership in December.
|
|
Total Trading |
| |
Year ended December 31, 2014 |
|
Profit (Loss) |
| |
Energy |
|
$ |
2,224,231 |
|
Currencies |
|
1,956,862 |
| |
Agricultural Commodities |
|
262,187 |
| |
Interest Rates |
|
368,190 |
| |
Stock Indices |
|
196,685 |
| |
Metals |
|
(1,112,781 |
) | |
|
|
$ |
3,895,374 |
|
The Partnership experienced a net trading profit before brokerage commissions and related fees for the year ended December 31, 2014 of $3,895,374. Profits were primarily attributable to the Partnership trading in the energy, currencies, interest rates, agriculture and stock indices sectors posting profits. The metals sector 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 first 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 first quarter as the energy sector calmed significantly in March. As a result, the Partnership was flat for March. Profits were posted to the Partnership at the beginning of the second quarter as the Partnership benefitted from a generally inactive energy sector. In April profits earned on long natural gas and Brent crude oil slightly outweighed losses in U.S. crude oil and RBOB. Losses were posted to the Partnership in the middle of the second quarter as small profits were earned long the crude oil market, but were outweighed with losses incurred long Brent crude, natural gas and RBOB gasoline. Losses were posted to the Partnership at the end of the second quarter. The Partnerships long positions across the oil and gas complex were largely bucked by a sector-wide downward price move for June. The Partnerships profits in crude oil were not enough to offset losses in other energy markets. Losses were posted to the Partnership at the beginning of the third quarter as investors apparently lost confidence in global energy demand. As a result, the Partnership suffered losses long Brent crude oil, WTI crude oil and RBOB gasoline. Those losses were too significant to overcome the Trading Programs gain short natural gas. Profits were posted to the Partnership in the middle of the third quarter as the Trading Program profited from the short gasoil and heating oil. Profits were posted to the Partnership at the end of the third quarter. Global energy markets offered investment opportunities as well. Specifically, the Partnership capitalized on sagging prices with short positions in gasoil, heating oil, Brent crude, natural gas, and RBOB gasoline. Profits were posted to the Partnership at the beginning of the fourth quarter due to the plummeting oil prices. As a result, continuing short positions in crude, Brent crude, gasoil, heating oil and RBOB gasoline all generated tidy profits. These energy profits where undercut only by a relatively small loss short the natural gas market which, as is often the case, bucked the broader downward price trend in energy. Profits were posted to the Partnership in the middle of the fourth quarter as energy prices plummeted throughout November and lead to profits for the Trading Programs short positions in crude, Brent crude, gasoil, heating oil, and RBOB unleaded gasoline. Profits were posted to the Partnership in the end of the fourth quarter. Most profitable in December was the plummeting energy sector which continued to unravel upon headline after headline regarding a global over-supply of energy products of all types. The Trading Program held short positions across the energy complex for December and all positions yielded profits whether in crude oil, Brent crude oil, Gasoil, heating oil, RBOB gasoline or even, natural gas.
The currency sector posted profits 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 first 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 first quarter due to the Partnerships long positions in the British pound and on both sides of the euro market. Profits were posted to the Partnership at the beginning of the second quarter. Currencies such as the British pound and Swiss franc moved upward in April and the Partnerships long positions in both markets benefitted as a result. Gains in these two currencies outweighed small losses short the Japanese yen and long the Australian dollar. The Partnership suffered losses in the middle of the second quarter due to a sharp reversal in the Euro, a downward movement in the Danish krone and New Zealand dollar, and an uptick in the South African rand. Profits were posted to the Partnership at the end of the second quarter. In June profits were obtained from the Japanese yen, British pound, New Zealand dollar, and Australian dollar as well as the short euro. Profits were posted to the Partnership at the beginning of the third quarter as short dollar positions bolstered gains. The strongest performers were short Euro and short Swiss franc, followed up by positions short Japanese yen, Czech koruna and Swedish krona. Profits were posted to the Partnership in the middle of the third quarter as the Trading Program benefitted from short the foreign currencies and long the dollar as the Euro, Japanese yen, Swiss franc, and Czech koruna all moved downward sharply in support of the Trading Programs investment approach. Profits were posted to the Partnership at the end of the third quarter. Leading the way were short positions in Swiss franc, Euro, and Japanese yen, all of which fell sharply at various points in September. Adding to the profits were investments short the Australian dollar, Danish krone, New Zealand dollar, Czech koruna, Norwegian krone, Swedish krona, and Polish zloty, all of which moved downward sharply as the world dealt with various macro developments. Overall, but for a loss generated by investing long the British pound, the Partnership found profits in currencies in which it invested. Losses were posted to the Partnership at the beginning of the fourth quarter due to the short Japanese yen, British pound, Singapore dollar and South African rand. Profits were posted to the Partnership in the middle of the fourth quarter. Most beneficial for the Partnership were short positions in Japanese yen and Singapore dollars. Additionally helpful were short positions in the British pound, euro, Australian dollar and Norwegian krone. Profits were posted to the Partnership in the end of the fourth quarter.
The interest rate sector posted profits 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 first 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 first 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. Profits were posted to the Partnership at the beginning of the second quarter as rates largely moved downward and bond prices, conversely, upward in the U.S., Europe and Asia. In April leading the way for the Partnership were long positions of Japanese, German, and British longer-term bonds. Profits were posted to the Partnership in the middle of the second quarter as the Partnerships long positions rose across the yield curve. In May profits with no offsetting bond losses were in Europe (Bund, Bobl and Long Gilt), Asia (JGBs), and in the U.S. (medium and long-term treasuries). Losses were posted to the Partnership at the end of the second quarter. With the Partnership long (short interest rates) across the board, most of the markets moved sideways (Australia, Canada, and Europe) or downward (U.S.). Profits were posted to the Partnership at the beginning of the third quarter due to long bond positions. Specifically, the Partnership found profits on three continents North America, Asia and Europe as investors took cover from market unrest in fixed income investments of various durations. Profits were posted to the Partnership in the middle of the third quarter from the global bond sector where its long bond/short interest rate combination continued to bear gains for investors. Particularly productive in August were the Trading Programs positions long the U.S. 30 year and long bonds in Japan, Canada, and Germany. Losses were posted to the Partnership at the end of the third quarter. In the global bond markets, the price action was uniformly bad across geographies and durations. As a result, the Partnership lost money in each of its positions with the worst investments being U.S. 5, 10 and 30 years instruments. Losses were posted to the Partnership at the beginning of the fourth quarter due to German bund and European bobl markets. Profits were posted to the Partnership in the middle of the fourth quarter. Most successful for the Partnership were positions in U.S. 30, 10 and 5 year treasuries, Canadian Government Bonds, and German Bund as investors continued to flock to those markets and interest rates continued to stay low around the globe. Profits were posted to the Partnership in the end of the fourth quarter as global bonds which generally moved upward in price in stride with long positions across the Trading Programs portfolio. Most profitable in December were Japanese Government Bonds, U.S. 10 Year Treasuries, German Bobl and Bunds, British Gilts, and Australian and Canadian issues. Profits in these markets easily outweighed a slight loss in U.S. 5 Year and 30 Year Treasuries which did not follow suit with the other markets in the sector for December.
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 first 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 first 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. Profits were posted to the Partnership at the beginning of the second quarter as rallying food-based commodities benefitted the Partnership. Specifically, the Partnerships long positions in corn, coffee, soybeans and soy meal combined to outweigh a loss long the cotton market. Complementing the gains in food products were profits generated short the rubber market. Losses were posted to the Partnership in the middle of the second quarter as downward price moves in wheat and coffee bucked the previously profitable long positions the Partnership held coming out of April. Slight profits in corn, soybeans and rubber helped to offset the larger losses in wheat and coffee. Losses were posted to the Partnership at the end of the second quarter as the agricultural sector provided the Partnership with a mixed bag that ultimately edged in the direction of unprofitability by the end of June. The Partnership suffered the losses in the soy complex (both beans and meal) as prices reversed against the long positions. Profits were posted to the Partnership at the beginning of the third quarter as short positions in wheat, corn and cotton paid off in the face of downward price pressure. Simultaneously, the Partnership found profits long the cattle market as it continued to move inversely to most other agricultural markets. Losses were posted to the Partnership in the middle of the third quarter. Losses incurred by the Trading Program involved short cotton and Kansas City wheat and long cattle. Profits were posted to the Partnership at the end of the third quarter as profits were generated in the markets in which the Partnership invested. Other than cattle, where rising prices helped long positions generate profitable returns, short was the place to be as falling prices in corn, cotton, wheat, rubber, soy products, and sugar resulted in positive outcomes for the Partnership. Losses were posted to the Partnership at the beginning of the fourth quarter as the agricultural sector, which reversed upward sharply in October whittled away many of its gains that the Partnership had made at the end of the third quarter. Coffee, corn, cotton, wheat, rubber, soy products and sugar all spiked against the Trading Programs short positions for October and the only mitigation came from an ongoing long position in cattle which generated profits. Profits were posted to the Partnership in the middle of the fourth quarter due to the investments short cotton, sugar and long cattle. Losses were posted to the Partnership in the end of the fourth quarter. Winning positions short sugar were offset by losing positions short long corn, wheat and live cattle.
The stock indices sector posted profits 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 first 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 first quarter due to the Partnerships long positions in the Scandinavian OMX, the Italian FTSE MIB, Taiwan, and the S&P 500. Profits were posted to the Partnership at the beginning of the second quarter as positive returns were generated on the long position of the Italian Stock Index, the S&P 500 index and the Dow Jones index, as well as on the short position of the TOPIX index. Returns from these positions buffered losses incurred long the NASDAQ and short Chinese H-Shares. The Partnerships diversified approach paid off in the middle of the second quarter as the profits in Asia (India and Taiwan), Europe (AEX, EuroStoxx and OMX), and the U.S. (S&P and Dow) were posted. Profits were posted to the Partnership at the end of the second quarter. The primary drivers for the Partnerships success over the course of June were profitable positions long various indices including the NASDAQ, S&P 500, Dow, Taiwan, India and South Africa. The Nikkei position, however, had a small loss for June, but overall, the sector proved to be a positive source of return for the Partnership. Profits were posted to the Partnership at the beginning of the third quarter. The Trading Program found profits long various Asian markets, South Africa, and the NASDAQ. Profits were posted to the Partnership in the middle of third quarter. The most profitable investments for the Trading Program in August were positions long the NASDAQ, Hong Kongs Hang Seng and the S&P 500. Additional profits were found long equity indices in China and India and long the Dow Jones Industrial Average. Losses were posted to the Partnership at the end of the third quarter. With China and Hong Kong leading the way downward, many equity markets wilted in the face of growing concern about the Chinese economy and other global macro challenges such as the battle with ISIS in the Middle East. Losses were posted to the Partnership at the beginning of the fourth quarter as many markets swung from peak to trough over the course of October. The types of whippy, irrational equity moves witnessed in view defy explanation but fundamentalists will point to everything from the Ebola crisis, to the Middle East, to perceptions of a softening Chinese economy. Whatever the cause, within just a few weeks time, global equity markets collapsed and then recovered in a way that confounded. As a result of this tumult, the Trading Program lost money across the global equities sector on both the long and short side of various markets in the U.S., Europe and Asia. Profits were posted to the Partnership in the middle of the fourth quarter as sector continued an upward surge that began toward the end of October and carried through November. The Trading Program seized upon the renewed enthusiasm of
equity investors around the globe and captured profits in many different markets. The best outcomes stemmed from long positions in the Japanese Nikkei and Topix, Chinese H-Shares, the NASDAQ, and the S&P. Losses were posted to the Partnership in the end of the fourth quarter due to the losing positions in Chinese H-Shares, the U.S. Nasdaq, the Indian Nifty, and Japanese Topix.
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 first quarter. While the Partnership generated profits in short 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 first quarter when gold, platinum and zinc prices failed to follow through on upward moves seized upon by the Partnerships trading program during March. Profits were posted to the Partnership at the beginning of the second quarter as the Partnership found profits with long positions instead of shorts. Price rallies in nickel and precious metals such as gold and platinum carried April. The metals sector was flat in the middle of the second quarter. Losses were posted to the Partnership at the end of the second quarter as short positions in gold, silver and copper did not meld well with a late June price upswing across the sector. Only a relatively small long zinc position found profit for June, but not enough to offset the losses in the other metals markets. Profits were posted to the Partnership at the beginning of the third quarter. Most productive for July were positions in long zinc, aluminum and platinum which outweighed losses incurred short copper and gold and long nickel. Profits were posted to the Partnership in the middle of the third quarter due to long aluminum investment and long nickel. Losses were posted to the Partnership at the end of the third quarter. There was a distinct split in the sector with precious metals largely moving upward in September and industrial metals doing the opposite. As a result, larger losses long aluminum, nickel and zinc were posted. Profits were posted to the Partnership at the beginning of the fourth quarter. The Partnership found profits long aluminum, zinc, copper and nickel on the one hand and short silver and platinum on the other. Profits were posted to the Partnership in the middle of the fourth quarter due to the investments in nickel and silver. Losses were posted to the Partnership in the end of the fourth quarter. In the metals sector, a challenging year ended fittingly with indecisive markets bounding back upward in the face of the Trading Programs short positions in aluminum, gold and silver. The only saving grace for the month was a profitable investment short U.S. copper.
|
|
Total Trading |
| |
Year ended December 31, 2013 |
|
Profit (Loss) |
| |
Energy |
|
$ |
(1,974,070 |
) |
Currencies |
|
488,421 |
| |
Agricultural Commodities |
|
478,801 |
| |
Interest Rates |
|
(1,225,655 |
) | |
Stock Indices |
|
7,191,876 |
| |
Metals |
|
1,894,769 |
| |
|
|
$ |
6,854,142 |
|
The Partnership experienced a net trading profit before brokerage commissions and related fees for the year ended December 31, 2013 of $6,854,142. Profits were primarily attributable to the Partnership trading in the stock indices, metals currencies and agriculture sector posting profits. The interest rates and energy sectors posted losses.
The stock indices posted profits to the Partnership. Profits were posted to the Partnership at the beginning of the first quarter as investor confidence drove prices up across numerous markets traded. Leading the charge for the Trading Program were Japanese equities which continued their late 2012 run in the wake of continued efforts by the new government to stimulate its economy by weakening the Japanese yen. Losses were posted to the Partnership in the middle of the first quarter. Trading in the U.S. markets generated small profits that were offset by losses in international equities in the face of Italian politics and other perceived indicators of global economic weakness. As a result, the Trading Program continued profitable trading of U.S. stock indices and trending S&P sub-sectors was outweighed by losses in both Europe and Asia for February. Profits were posted to the Partnership at the end of the first quarter due to the surging U.S. stock markets. Large gains in the S&P, NASDAQ, Dow Jones and various U.S. equity sub-sectors generated the bulk of equity profits. Profits were posted to the Partnership at the beginning of the second quarter resulting from the Trading Programs long U.S. index trades as well as various S&P sub-sectors responsive to the ongoing U.S. stock market surge. Also, the Trading Programs long equity positions in Japan, Taiwan and Sweden and a profitable short position in India resulted in profits. Profits were posted to the Partnership in the middle of the second quarter as U.S. and European equity markets climbed higher. Through the first
two- thirds of May, the S&P, NASDAQ, DAX and EuroStoxx, among others, moved up. Losses were posted to the Partnership at the end of the second quarter as stocks dropped in June. Profits were posted to the Partnership at the beginning of the third quarter. U.S. markets were profitable in July (long Dow, S&P and Nasdaq positions), as well as the Trading Programs ongoing long positions in a wide range of S&P 500 sectors, including healthcare, consumer discretionary and consumer staples. Global equity markets lagged the United States but small profits in Asian and European markets rounded out the Trading Programs profitable July of equity investing. Losses were posted to the Partnership in the middle of third quarter. A variety of factors appeared to knock U.S equities off their bullish stride including some poor real estate numbers in the early part of August and then late August uncertainty regarding potential U.S. involvement in Syria. The net result for the Partnership were losses in the S&P and Dow Jones index futures markets as well as in the health care, consumer staples, industrial, technology, utilities, consumer discretionary, and financial sub-sectors of the S&P. Profits were posted to the Partnership at the end of the third quarter. Profits were posted to the Partnership at the beginning of the fourth quarter as stock markets rallied almost uniformly around the globe and the Trading Program captured the move. As it has for much of the year, the U.S. set the equity pace in October with the NASDAQ and S&P moving strongly upward once the government shutdown was resolved. Adding to the Trading Programs equity profits were gains in the Italian, European, and German stock indices as well as profits in various Asian markets. Profits were posted to the Partnership in the middle of the quarter where the 2013 bull market continued to run upward in November. Leading the charge were China H-shares and the S&P which surged on positive economic indicators as November came to a close. Also, the NASDAQ, Japans Nikkei and Germanys DAX, all added profits from an equity index standpoint. Profits were posted to the Partnership at the end of the fourth quarter. Due to ongoing long positions as well as some timely intra-month shorting, the equities sector delivered strong performance in December. As was often the case in 2013, the U.S. drove profits with the Dow Jones, S&P, and NASDAQ markets all posting positive returns for December. Globally, various European and Japanese markets contributed returns as well and collectively with the strong U.S. results, they overshadowed December losses incurred in the Chinese, Italian and South African equity markets.
The metals sector posted profits to the Partnership. Losses were posted to the Partnership at the beginning of the first quarter as gold and copper pushed upward against the Trading Programs short positions. Also challenging was the zinc market, wherein the Trading Program entered into a long position only to sharply reverse resulting in losses posted to the Partnership. Losses were posted to the Partnership in the middle of the first quarter with zinc losses offsetting gains in gold and copper. Profits were posted to the Partnership at the end of the first quarter as the Trading Programs short copper and gold positions continued to track ongoing reversals in each of those markets and offset a small loss incurred on a long zinc trade. Profits were posted to the Partnership at the beginning of the second quarter as copper and gold continued their 2013 price free fall in line with the Trading Programs short positions in each market. Adding to profits was a short silver position toward the end of April. Profits were posted to the Partnership in the middle of the second quarter. The metals sector diverged during May, with base metals, aluminum and copper, losing money in their short positions. Precious metals, gold and silver, conversely profited from short positions with gold and silver prices dropping during May. Profits were posted to the Partnership at the end of the second quarter. The Trading Program short position benefitted from Golds mid June drop. Also short positions in copper, nickel, aluminum and silver posted profits for the Partnership. Losses were posted to the Partnership at the beginning of the third quarter when collapsing metal prices took a bit of a respite. Most harmful to the Trading Program was a price rally in gold and copper. Losses were posted to the Partnership in the middle of the third quarter as the downward trend that has prevailed for much of 2013 stalled and then reversed course for much of August. Losses across the board against the Trading Programs short positions in silver, aluminum, gold, and copper drove unprofitable trading with nickel being the only metals market from which the Trading Program emerged unscathed. Profits were posted to the Partnership at the end of the third quarter. Losses were posted to the Partnership at the beginning of the fourth quarter. No news was good news for the Partnership in metals as a relatively low volatility environment kept the Trading Program largely inactive for October and out of any trouble that might have undercut the profits generated in other sectors. Profits were posted to the Partnership in the middle of the fourth quarter due to the Trading Programs sizable profits with its short positions against global metals markets. Tumbling prices in the copper markets led the way for the Trading Programs profitable November in metals with gold closely following suit. Also adding meaningful returns were the silver, zinc and platinum markets, all of which moved downward in November in congruence with copper and gold. Losses were posted to the Partnership at the end of the fourth quarter The Trading Program ended the year by giving back some of the profits it had earned in the metals sector in previous months. While the Trading Program remained short across the entire metals spectrum, prices in nearly every metals market spiked upward at points in December leading to losses in aluminum, copper, nickel and platinum.
The currency sector posted profits to the Partnership. Profits were posted to the Partnership at the beginning of the first quarter. The sharp downward move in the Japanese yen that began late 2012 accelerated in January and led to profit taking by the Trading Program. Complementing the Japanese yens productive move was an upward surge in the euro and European minor currencies. Profits were also found shorting the South African rand which continued a downward trend and further bolstered the Trading Programs January performance in currency. These trading gains were sufficient to offset
losses suffered when the Swiss franc and Australian dollar moved against the Trading Programs long positions and the British pound spiked upward against the Trading Programs short position. Losses in the euro, Swiss franc, Australian dollar and a range of minor European currencies outweighed gains in the British pound, Japanese yen, and South African rand resulting in losses posted to the Partnership in the middle of the first quarter. Profits were posted to the Partnership at the end of the first quarter. March began with the Trading Programs short euro trade causing a loss, which was offset by winning short positions in the Japanese yen, Swiss franc and South African rand. Profits were posted to the Partnership at the beginning of the second quarter. Currency trading was essentially flat for April as profitable trades such as long positions in the euro and Swiss franc and short positions in the Japanese yen were offset by long positions in the Australian dollar and short positions in the British pound and South African rand. Profits were posted to the Partnership in the middle of the second quarter. The Trading Programs short trades in the Australian dollar made money as it declined amid numbers out of China that pointed to a slowing economy and the prospect of softening demand for Australian commodities. The Trading Program short Japanese yen plays against the U.S. dollar, British pound and Euro were all profitable. The South African rand weakening against the U.S. dollar benefitted the Trading Program. Losses were posted to the Partnership at the end of the second quarter. Profits from the Trading Programs Australian dollar and buying British pounds and Euros were not enough to offset losses incurred shorting the Japanese yen, Singapore dollar, New Zealand dollar, and South African rand. Losses were posted to the Partnership at the beginning of the third quarter as the British pound (long), Japanese yen (short), and New Zealand dollar (short) all moved against the Trading Program. Profits were posted to the Partnership in the middle of the third quarter as the Trading Program captured profits in short Australian dollar and Japanese yen positions. Long Swiss franc and short New Zealand and Singapore dollar positions also generated profits. Losses were posted to the Partnership at the end of the third quarter. Most damaging was the Australian dollar which spiked upward sharply against the Trading Programs short position such that it turned many of the models to the long side by month end. Compounding the harm were losses in the Singapore dollar, South African rand, New Zealand dollar, and Japanese yen, all of which strengthened against the U.S. dollar upon the U.S. Federal Reserves decision not to taper quantitative easing. However, the British pound and Euro moved upward in support of the Trading Programs long positions in those markets and mitigated some losses. Profits were posted to the Partnership at the beginning of the fourth quarter. No news was good news for the Partnership in currencies as a relatively low volatility environment kept the Trading Program largely inactive for October and out of any trouble that might have undercut the profits generated in other sectors. Profits were posted to the Partnership in the middle of the fourth quarter as the Japanese yens accelerating weakness meshed well with the short positions the Trading Program favored for much of 2013. Adding to the Trading Programs profits shorting the yen were positive returns being long the Australian dollar and British pound Profits were posted to the Partnership at the end of the fourth quarter. Leading the way for December was the Japanese yen which continued to track sharply downward in synchronization with the Trading Programs longer and shorter duration short positions. Conversely, the Trading Program benefitted from an upward turn in the British pound. Additional profits were long the Swiss franc, and short the Australian dollar and euro.
The agriculture sector posted profits to the Partnership. Profits were posted to the Partnership at the beginning of the first quarter in which sugar prices spiraled downward in support of the Trading Programs short position. Profits were posted to the Partnership in the middle of through the end of the first quarter due to the Trading Programs short positions in sugar and coffee. Losses were posted to the Partnership at the beginning of the second quarter resulting from the Trading Programs long positions in cotton and short positions in soy meal and wheat. Profits were posted to the Partnership in the middle of the second quarter resulting from the Trading Programs short positions in grains and softs. Profits were posted to the Partnership at the end of the second quarter resulting from the Trading Programs short position in wheat. Profits were posted to the Partnership at the beginning of the third quarter as falling corn, soybean and soymeal prices made for good trading opportunities, particularly for some of the Trading Programs shorter term investment models. Wheat and rubber generated small losses which were overshadowed by the Trading Programs gains in corn and the soybean complex. Profits were posted to the Partnership in the middle of the third quarter in spite of the Trading Programs challenging trading days in several grain markets. The most profitable trades were short wheat and sugar, which collectively offset losses in soybeans for August. Losses were posted to the Partnership at the end of the third quarter. Wheat and sugar prices spiked upward against the Trading Programs short positions. Also soybeans and soymeal prices moved lower against the Trading Programs long positions. Profits were posted to the Partnership at the beginning of the fourth quarter. The Trading Programs long soybean and short corn and coffee positions all had profits for October. Gains in these three markets offset small losses in sugar and wheat. Profits were posted to the Partnership in the middle of the fourth quarter as corn and wheat prices fell in line with the Trading Programs short positions and soymeal prices rose in conjunction with the Trading Programs long positions. Profits were posted to the Partnership at the end of the fourth quarter. The Trading Program was short in the wheat markets as prices in that grain dropped over December as slight additions to wheat profits were found in sugar and corn.
The interest rate sector posted losses to the Partnership. Losses were posted to the Partnership at the beginning of the first quarter. In particular, the U.S. and European interest rates moved downward against the Trading Programs short bond positions. Losses were posted to the Partnership in the middle of the first quarter due to small losses in
European interest rates. Profits were posted to the Partnership at the end of the first quarter due to the Trading Programs long bond/short interest rate positions across Europe and in Japan and long T- note/short rate positions in the U.S. Profits were posted to the Partnership at the beginning of the second quarter. Fixed income trading was profitable April as long bond/short rate positions in both Germany and across the U.S. yield curve all turned profits posted to the Partnership which offset losses on the Trading Programs long bond/short rate position in Japan. Losses were posted to the Partnership in the middle of the second quarter. The interest rate sector lost money across the board, appearing to be principally driven by U.S. Federal Reserve Chairman Ben Bernankes comments that the Federal Reserve may reduce its bond purchasing program given recent signs of an improving economy. Markets reacted strongly to this, with the yield on the U.S. ten year Treasury note. This material move caused the Trading Program to exit its long positions held at the beginning of the month and go short U.S. treasuries across the yield curve. Profits were posted to the Partnership at the end of the second quarter. The Trading Program captured profits with short positions across the U.S. yield curve and Canada. Losses were posted to the Partnership at the beginning of the third quarter. Fixed income markets, after offering some good shorting opportunities early in July, settled into a fairly indecisive pattern that ultimately led to small Trading Program losses for the month. The least helpful markets were in Europe where bobl and bund futures turned against the Trading Programs short positions. The Trading Programs ongoing short positions along the U.S. yield curve garnered nearly offsetting profits as U.S. bonds continue to lose value. Profits were posted to the Partnership in the middle of the third quarter from the Trading Programs short positions in the global bond market. The Trading Programs short positions in the back end of the curve in the United States, Canada and Europe proved profitable. Losses were posted to the Partnership at the end of the third quarter as the downward move in bond prices and corresponding uptick in interest rates that had characterized the previous several months reversed course sharply upon the U.S. Federal Reserves decision to maintain its current level of quantitative easing. Also corresponding losses in Europes bund market added to the losses at the end of September. Profits were posted to the Partnership at the beginning of the fourth quarter. Profits were posted to the Partnership in the middle of the fourth quarter. In the bond markets, the Trading Program was essentially flat for November as there was little price action in any of the global markets the Partnership trades in and a limited book of existing positions, a mix of longs and shorts, largely held steady for November. Profits were posted to the Partnership at the end of the fourth quarter as interest rates started to creep upward on the U.S. Federal Reserves tapering indication and drove bond prices into a downward move. While not all markets were as responsive to the U. S. Federal Reserves tapering indication as others, profits resulted from short positions in the German bund market and on longer term segments of the U.S. yield curve. These profits were sufficient to outweigh losses in the European BOBL market.
The energy sector posted losses to the Partnership. Profits were posted to the Partnership at the beginning of the first quarter. Most notably, crude oil spiked sharply yielding profits for the Trading Program. Supplementing these profits were favorable trades in heating oil, and various gasoline markets. Losses were posted to the Partnership in the middle of the first quarter. Strong upward trends and seemingly orderly pullbacks were disrupted by unpredicted price turmoil when an unidentified investor sold large quantities of crude oil futures within a very short time window toward the end of February. This occurrence reduced prices below the Trading Programs risk tolerances and forced the Trading Program out of trading positions that otherwise appeared on track to produce positive returns. The Trading Program also generated losses in unleaded gas, gas oil, heating oil and Brent crude. Profits were posted to the Partnership at the end of the first quarter as the Trading Programs long natural gas trade toward the end of March generated gains to offset losses realized by shorting the same market in early March. Losses were posted to the Partnership at the beginning of the second quarter resulting from the downward price movement that persisted for much of the year in oil and gas products stalled and reversed just enough to undercut many of the Trading Programs short positions. Losses were posted to the Partnership in the middle of the second quarter. Volatility in natural gas led to losses that tipped the sector into negative territory in May. Profits were posted to the Partnership at the end of the second quarter resulting from price fall-offs in RBOB gasoline, gasoil and Brent crude. Losses were posted to the Partnership at the beginning of the third quarter. The energy sector was neutral for the month of July as small profits buying Brent crude, crude and gasoil and selling natural gas were offset by small losses in the heating oil and RBOB markets. Profits were posted to the Partnership in the middle of the third quarter as the Trading Program profited from the long positions that captured sharp price spikes in the Brent and crude oil markets. The gains in these trades outpaced small losses in natural gas and heating oil. Losses were posted to the Partnership at the end of the third quarter. After the prospect of military action in Syria seemed to subside, energy prices, which had risen due to the possibility of conflict in the Middle East, sold off across the board. Gas and crude oil proved to be particularly troublesome and heating oil, Brent crude, RBOB and even natural gas added to the Trading Programs negative performance in energy for September. Losses were posted to the Partnership at the beginning of the fourth quarter. No news was good news for the Partnership in energy as a relatively low volatility environment kept the Trading Program largely inactive for October and out of any trouble that might have undercut the profits generated in other sectors. Losses were posted to the Partnership in the middle of the fourth quarter. The volatility patterns that characterized 2013 continued in November when upward price moves in natural gas and Brent crude suddenly bucked the Trading Programs short positions and caused additional losses in energies. Profits were posted to the Partnership at the end of the fourth quarter. After a year in which opportunities in the sector were far and few between, energies delivered positive returns for December. Most of the profit came from various long trades in natural gas which spiked significantly
during December as an early winter enveloped much of the U.S. Adding to the months results were profitable long positions in the crude oil market.
Variables Affecting Performance
The principal variables that determine the net performance of the Partnership are gross profitability from the Partnerships trading activities and interest income.
The Partnership receives an interest based on the daily effective federal funds rate less 20 basis points on their U.S. dollar deposits. Other rates exist for the 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.
During all periods set forth above in Selected Financial Data, the interest rates in many countries were at unusually low levels. In addition, low interest rates are frequently associated with reduced fixed income market volatility, and in static markets the Partnerships profit potential generally tends to be diminished. On the other hand, during periods of higher interest rates, the relative attractiveness of a high risk investment such as the Partnership may be reduced as compared to high yielding and much lower risk fixed-income investments.
The Partnerships brokerage commissions and administrative fees are a constant percentage of the Partnership costs, other than the insignificant currency trading costs which are not based on a percentage of the Partnerships assets allocated to trading or total. The Profit Shares payable to the Trading Advisor are based on the New Trading Profits generated by the Partnership excluding interest and after reduction for a portion of the brokerage commissions.
Unlike many investment fields, there is no meaningful distinction in the operation of the Partnership between realized and unrealized profits. Most of the contracts traded by the Partnership are highly liquid and can be closed out at any time.
Except in unusual circumstances, factorsregulatory approvals, cost of goods sold, employee relations and the likewhich often materially affect an operating business, have no material impact on the Partnership.
Liquidity; 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 with the brokers. Changes in interest rates could cause periods of strong up or down price trends, during which the Partnerships profit or loss 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.
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.
Recent Accounting Developments
Recent accounting developments, if any, are discussed in the notes to the financial statements, which are included in Exhibit 13.01
Item 7A: 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 is a measure of the maximum amount which the Partnership could reasonably be expected to lose in a given market sector. However, the inherent uncertainty of the Partnerships speculative trading and the recurrence in the markets traded by the Partnership of market movements far exceeding expectations could result in actual trading or non-trading losses far beyond the indicated Value at Risk or the Partnerships experience to date (i.e., risk of ruin). In light of the foregoing, as well as the risks and uncertainties intrinsic to all future projections, the quantifications included in this section should not be considered to constitute any assurance or representation that the Partnerships losses in any market sector will be limited to Value at Risk or by the Partnerships attempts to manage its market risk.
Quantifying The Partnerships Trading Value At Risk
Quantitative Forward-Looking Statements
The following quantitative disclosures regarding the Partnerships market risk exposures contain forward-looking statement within the meaning of the safe harbor from civil liability provided for such statements by the Private Securities Litigation Reform Act of 1995 (set forth in Section 27A of the Securities Act of 1933 (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 Sunrise is quantified below in terms of Value at Risk. Due to the Partnerships fair value accounting, any loss in the fair value of the Partnerships open positions is directly reflected in the Partnerships earnings (realized or unrealized) and cash flow (at least in the case of exchange-traded contracts in which profits and losses on open positions are settled daily through variation margin).
Exchange maintenance margin requirements have been used by the Partnership as the measure of its Value at Risk. Maintenance margin requirements are set by exchanges to equal or exceed the maximum loss in the fair value of any given contract incurred in 95%-99% of the one-day time periods included in the historical sample (generally approximately one year) researched for purposes of establishing margin levels. The maintenance margin levels are established by dealers and exchanges using historical price studies as well as an assessment of current market volatility (including the implied volatility of the options on a given futures contract) and economic fundamentals to provide a probabilistic estimate of the maximum expected near-term one-day price fluctuation.
In the case of market sensitive instruments which are not exchange-traded (almost exclusively currencies in the case of the Partnership), the margin requirements for the equivalent futures positions have been used as Value at Risk. In those rare cases in which a futures-equivalent margin is not available, dealers margins have been used.
100% positive correlation in the different positions held in each market risk category has been assumed. Consequently, the margin requirements applicable to the open contracts have been aggregated to determine each trading categorys aggregate Value at Risk. The diversification effects resulting from the fact that the Partnerships positions are rarely, if ever, 100% positively correlated have not been reflected.
The Partnerships Trading Value at Risk in Different Market Sectors
The following table indicates the average, highest and lowest trading Value at Risk associated with the Partnerships open positions by market category for the fiscal years 2015 and 2014. During the fiscal year 2015, the Partnerships average capitalization was $29,343,784. During the fiscal year 2014, the Partnerships average capitalization was $37,733,171.
December 31, 2015
|
|
Average |
|
% of Average |
|
Highest Value |
|
Lowest Value |
| |||
Market Sector |
|
Value at Risk |
|
Capitalization |
|
At Risk |
|
At Risk |
| |||
|
|
|
|
|
|
|
|
|
| |||
Currencies |
|
$ |
307,508 |
|
1.05 |
% |
$ |
639,708 |
|
$ |
21,979 |
|
Metals |
|
341,439 |
|
1.16 |
% |
511,880 |
|
128,061 |
| |||
Stock Indices |
|
569,416 |
|
1.94 |
% |
1,089,713 |
|
274,666 |
| |||
Interest Rates |
|
90,819 |
|
0.31 |
% |
201,377 |
|
20,101 |
| |||
Energy |
|
215,431 |
|
0.73 |
% |
441,992 |
|
44,620 |
| |||
Agricultural Commodities |
|
343,055 |
|
1.17 |
% |
645,006 |
|
111,296 |
| |||
|
|
|
|
|
|
|
|
|
| |||
TOTAL |
|
$ |
1,867,668 |
|
6.36 |
% |
$ |
3,529,676 |
|
$ |
600,723 |
|
December 31, 2014
|
|
Average |
|
% of Average |
|
Highest Value |
|
Lowest Value |
| |||
Market Sector |
|
Value at Risk |
|
Capitalization |
|
At Risk |
|
At Risk |
| |||
|
|
|
|
|
|
|
|
|
| |||
Currencies |
|
$ |
367,587 |
|
0.97 |
% |
$ |
761,777 |
|
$ |
114,944 |
|
Metals |
|
652,556 |
|
1.73 |
% |
1,772,040 |
|
123,822 |
| |||
Stock Indices |
|
1,179,620 |
|
3.13 |
% |
3,008,059 |
|
501,207 |
| |||
Interest Rates |
|
221,227 |
|
0.59 |
% |
642,800 |
|
52,263 |
| |||
Energy |
|
428,792 |
|
1.14 |
% |
1,044,418 |
|
14,652 |
| |||
Agricultural Commodities |
|
374,701 |
|
0.99 |
% |
628,160 |
|
66,239 |
| |||
|
|
|
|
|
|
|
|
|
| |||
TOTAL |
|
$ |
3,224,483 |
|
8.55 |
% |
$ |
7,857,254 |
|
$ |
873,127 |
|
Material Limitations on Value at Risk as an Assessment of Market Risk
The face value of the market sector instruments held by the Partnership is typically many times the applicable maintenance margin requirement (maintenance margin requirements generally ranging between approximately 1% and 10% of contract face value) as well as many times the capitalization of the Partnership. The magnitude of the Partnerships open positions creates a risk of ruin not typically found in most other investment vehicles. Because of the size of its positions, certain market conditions unusual, but historically recurring from time to time could cause the Partnership to incur severe losses over a short period of time. The foregoing Value at Risk table as well as the past performance of the Partnership gives no indication of this risk of ruin.
Non-Trading Risk
Foreign Currency Balances; Cash on Deposit with MLPF&S 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 the 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 December 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 materially impact the Partnerships profitability. The Partnerships primary interest rate exposure is to interest rate fluctuations in the United States and the other G-7 countries. However, the Partnership also takes positions in the government debt of smaller nations e.g., Australia. The Partnership 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/ South African rands and U.S. dollar/Norwegian 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 Value at Risk figure includes foreign margin amounts converted into U.S. dollars with an incremental adjustment to reflect the exchange rate risk of maintaining Value at Risk in a functional currency other than U.S. dollars.
Stock Indices
The Partnerships primary equity exposure is to S&P 500, Nikkei and German DAX equity index price movements. The Partnership is primarily exposed to the risk of adverse price trends or static markets in the major U.S., European and Asian indices.
Metals
The Partnerships metals market exposure is to fluctuations in the price of precious and non-precious metals.
Agricultural Commodities
The Partnerships primary agricultural commodities exposure is to agricultural price movements which are often directly affected by severe or unexpected weather conditions. Corn, soybeans and livestock accounted for the substantial bulk of the Partnerships agricultural commodities exposure as of December 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 December 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 Partnerships 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 process of monitoring the Trading Advisor with the market risk controls being applied by the Trading Advisor itself.
Risk Management
While Sunrise 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 Sunrise, exertion of trades recommended by the mechanical systems would be difficult or unusually risky to an account.
Non-Trading Risk
The Partnership controls the non-trading exchange rate risk by regularly converting foreign currency balances back into U.S. dollars at least once per week, and more frequently if a particular foreign currency balance becomes unusually high.
The Partnership 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 Partnership 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 8: Financial Statements and Supplementary Data
The following quarterly information is unaudited.
Net Income (Loss) per quarter
Eight quarters through December 31, 2015
|
|
Fourth |
|
Third |
|
Second |
|
First |
|
Fourth |
|
Third |
|
Second |
|
First |
| ||||||||
|
|
Quarter |
|
Quarter |
|
Quarter |
|
Quarter |
|
Quarter |
|
Quarter |
|
Quarter |
|
Quarter |
| ||||||||
|
|
2015 |
|
2015 |
|
2015 |
|
2015 |
|
2014 |
|
2014 |
|
2014 |
|
2014 |
| ||||||||
Total Income (Loss) |
|
$ |
(469,197 |
) |
$ |
(2,027,841 |
) |
$ |
(797,622 |
) |
$ |
2,021,011 |
|
$ |
1,832,676 |
|
$ |
2,321,539 |
|
$ |
1,797,082 |
|
$ |
(2,041,762 |
) |
Total Expenses |
|
368,970 |
|
402,186 |
|
453,307 |
|
480,278 |
|
469,070 |
|
509,397 |
|
603,824 |
|
632,753 |
| ||||||||
Net Income (Loss) |
|
$ |
(838,167 |
) |
$ |
(2,430,027 |
) |
$ |
(1,250,929 |
) |
$ |
1,540,733 |
|
$ |
1,363,606 |
|
$ |
1,812,142 |
|
$ |
1,193,258 |
|
$ |
(2,674,515 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Net Income (Loss) per weighted average Unit (1) |
|
$ |
(7.42 |
) |
$ |
(20.56 |
) |
$ |
(10.15 |
) |
$ |
12.14 |
|
$ |
10.16 |
|
$ |
11.92 |
|
$ |
6.45 |
|
$ |
(13.52 |
) |
(1) The Net Income (Loss) per weighted average unit is based on the weighted average of the total units for each quarter.
The financial statements required by this Item are included in Exhibit 13.01.
The supplementary financial information (information about oil and gas producing activities) specified by Item 302(b) of Regulation S-K is not applicable.
Item 9: Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None.
Item 9A: 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 year which ended December 31, 2015, and, based on their evaluation, concluded that these disclosure controls and procedures are effective.
Managements Annual Report on Internal Control over Financial Reporting:
The Partnerships management is responsible for establishing and maintaining adequate internal control over financial reporting. The Partnerships internal control over financial reporting is a process designed under the supervision of MLAIs Chief Executive Officer and the Chief Financial Officer, on behalf of the Partnership and is effected by management, other personnel and service providers to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and included those policy and procedures that:
· Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Partnership.
· Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Partnership are being made only in accordance with authorizations of management and directors of the Partnership; and
· Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisitions, use or disposition of the Partnerships assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting can provide only reasonable assurance with respect to financial statement preparation and presentation. Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in condition, or that the degree of compliance with the policies or procedures may deteriorate.
The Partnerships management assessed the effectiveness of the Partnerships internal control over financial reporting as of December 31, 2015. In making this assessment, management used the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) in its report entitled Internal Control Integrated Framework (2013).
Based on its assessment the Partnerships management concluded that at December 31, 2015, the Partnerships internal control over financial reporting was 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 December 31, 2015 that has materially affected, or is reasonably likely to materially affect, the Partnerships internal control, over financial reporting.
Item 9B: Other Information
Not applicable
PART III
Item 10: Directors, Executive Officers and Corporate Governance
10(a) and 10(b) Identification of Directors and Executive Officers:
The Partnership has no officers or directors and is managed by its general partner MLAI. Trading decisions are made by the Trading Advisor on behalf of the Partnership.
The managers and executive officers of MLAI and their respective business backgrounds are as follows:
Nancy Fahmy |
|
Chief Executive Officer, President and Manager |
|
|
|
Barbra E. Kocsis |
|
Chief Financial Officer and Vice President |
|
|
|
Dominick A. Carlino |
|
Vice President and Manager |
|
|
|
Ninon Marapachi |
|
Vice President and Manager |
|
|
|
Jeff McGoey |
|
Vice President and Manager |
|
|
|
Greg Parets |
|
Vice President and Manager |
|
|
|
Devesh Saksena |
|
Vice President and Manager |
Nancy Fahmy, age 41, has been the Chief Executive Officer and President of MLAI since October 2015. Ms. Fahmy was a Vice President of MLAI from January 2014 until her appointment as the Chief Executive Officer and President. Ms. Fahmy has been registered with the CFTC as an associated person of MLAI since October 22, 2015, and she has been listed as a principal of MLAI since January 9, 2014. Ms. Fahmy was previously a NFA associate member and registered as an associated person of MLPF&S from March 2009 to November 2010. Ms. Fahmy has been a Managing Director within the Global Wealth and Retirement Services group (GWRS), which is a business unit within the BofA Corp. Global Wealth & Investment Management group (GWIM), a division within BofA Corp. and responsible for Private Equity and Real Assets Technical Sales and Origination within MLAI from December 2012 until her appointment as Chief Executive Officer. She joined MLAI as a Director in November 2008 and was head of Private Equity and Real Assets Technical Sales from that date to December 2012. In these capacities, Ms. Fahmy was responsible for a team of private equity and real assets specialists that worked with financial advisors, portfolio managers and clients to educate and raise capital. Ms. Fahmy holds a B.S. degree in Business Administration and Finance with a minor in Economics from the University of Delaware.
Barbra E. Kocsis, age 49, is the Chief Financial Officer for MLAI and is a Director within BofA Corp.s Global Technology and Operations group, positions she has held since October 2006. She has been listed with the CFTC as a principal of MLAI since May 21, 2007. Ms. Kocsis responsibilities include providing a full range of specialized financial and tax accounting services for the Alternative Investment products offered through the Selling Agent. She graduated cum laude from Monmouth College with a Bachelor of Science in Business Administration Accounting.
Dominick A. Carlino, age 43, has been a Managing Director of MLAI, heading Relationship Management and Business Development, since May 2013. Mr. Carlino has been listed as a principal of MLAI since January 2, 2014. In his role, he is responsible for enhancing and driving relationships between MLAI and key asset management partners. Mr. Carlino was on a garden leave from July 2012 through May 2013. Prior to joining Merrill Lynch, Mr. Carlino was Senior Managing Director and Head of Business Development at AlphaOne Capital Partners LLC, an equity-focused alternative asset management firm, from March 2011 through July 2012. From April 2005 through March 2011, he served as an Executive Director within Morgan Stanley Alternative Investment Partners LP, a registered commodity pool operator, focused on business development and distribution. Mr. Carlino has been listed as a principal of MLAI since January 2, 2014. Mr. Carlino holds an M.B.A. and a B.S. degree in Finance from Villanova University.
Ninon Marapachi, age 38, has been the head of the Hedge Fund Origination and Product Management team within the BofA Corp. Alternative Investments Group, a division within BofA Corp. that provides investment professionals and their clients with access to investment products and other services, since September 2008. Ms. Marapachi has been listed as a principal of MLAI since January 3, 2014. She has been an NFA associate member since February 2011 and registered as an associated person of MLPF&S since March 2011. Her team is responsible for sourcing, structuring, negotiating and managing hedge funds and managed futures products on the GWIM hedge fund platform. In addition, since September 2013 she has been a Director for the Board of Sponsors for Educational Opportunities, a non-profit organization with a goal to provide educational and career programs to young people from underserved communities to maximize their opportunities for higher education and future success. Ms. Marapachi graduated magna cum laude with a B.A. degree in Economics from Mount Holyoke College.
Jeff McGoey, age 39, has been a Vice President of MLAI and a Director within GWIM responsible for Alternative Investment Platform Oversight for BofA Corp. since December 2010. Mr. McGoey has been listed as a principal of MLAI since January 13, 2014. Mr. McGoey served as a Vice President with portfolio oversight to ten derivative based closed end funds from March 2009 through December 2010. Within GWIM Alternative Investments, from May 2008 through December 2010, Mr. McGoey was a Vice President holding various roles including hedge fund and private equity origination, exchange fund and customized fund oversight, and managing various strategic initiatives across the organization until December 2010. Mr. McGoey is a CFA Charter holder, maintains the CAIA designation and holds a B.A. degree in Economics from Rutgers College in New Jersey.
Greg Parets, age 39, has been Head of Cross Platform Initiatives for the Alternative Investments Group of GWIM since June 2013. Mr. Parets joined BofA Corp. in September 2010 as Head of Strategic Initiatives in the Alternative Investments Groups Origination & Product Management team and remained in this role until June 2013. In this role, he led creation and implementation of an industry-leading platform to offer hedge funds, managed futures, and select private equity funds to advisory accounts. Mr. Parets was in between employers from April 2010 to September 2010. Prior to joining BofA Corp., he worked at UBS Wealth Management Americas, a provider of wealth management products and services, where he was Team Lead for the Strategy & Business Development Group from July 2006 through January 2009 and Head of Segment Strategy & Client Experience from February 2009 through April 2010. Mr. Parets has been listed as a principal of MLAI since January 2, 2014. Mr. Parets graduated summa cum laude from The George Washington University with a B.B.A. degree in International Business and cum laude from Harvard Law School with a J.D.
Devesh Saksena, age 37, has been a Vice President of MLAI since October 2015. He has been listed with the CFTC as a principal of MLAI since November 2015. Mr. Saksena has been the Head of Business Management and Governance for MLAI since he joined MLAI in June 2015. Prior to joining MLAI, Mr. Saksena was previously listed as a principal of Dicken Commodities Inc. (Dicken) where Mr. Saksena was Chief Operating Officer from January 2013 to January 2015. Prior to that, Mr. Saksena was Head of Operational Due Diligence and Director of North American Business for Schroders NewFinance Capital LLP from June 2008 to October 2012. Mr. Saksena is a qualified chartered accountant from the UK and is a Fellow of the Institute of Chartered Accountants in England & Wales, and holds a B.A. degree with honors in Industrial Economics from the University of Nottingham (U.K.).
MLAI acts as the sponsor, general partner or manager to five public futures funds whose units of limited partnership interests or limited liability company interests are registered under the Securities Exchange Act: Aspect FuturesAccess LLC, ML BlueTrend FuturesAccess LLC, ML Select Futures I L.P., ML Transtrend DTP Enhanced FuturesAccess LLC, and ML Winton FuturesAccess LLC. Because MLAI serves as the sole sponsor, general partner or manager of each of these funds, the officers and managers of MLAI effectively manage them as officers and directors of such funds.
(c) Identification of Certain Significant Employees:
None.
(d) Family Relationships:
None.
(e) Business Experience:
See Items 10(a) and (b) above.
(f) Involvement in Certain Legal Proceedings:
None.
(g) Promoters and Control Persons:
Not applicable.
(h) Section 16(a) Beneficial Ownership Reporting Compliance:
During the fiscal year ended December 31, 2015, there was a late Form 3 filing by Devesh Saksena, a manager of MLAI. Except as disclosed in the preceding sentence to the Partnerships knowledge, all required Section 16(a) filings during the fiscal year ended December 31, 2015 were timely and correctly made.
Code of Ethics:
MLAI and BofA Corp. have adopted a code of ethics which applies to the Partnerships (MLAIs) principal executive officer and principal financial officer or persons performing similar functions on behalf of the Partnership. A copy of the code of ethics is available to any person, without charge, upon request by calling 1-866-MER-ALTS.
Nominating Committee:
Not applicable. (Neither the Partnership nor MLAI has nominating committee.)
Audit Committee: Audit Committee Financial Expert:
Not applicable. (Neither the Partnership nor MLAI has an audit committee. There are no listed shares of the Partnership or MLAI.)
Item 11: Executive Compensation
The managers and officers of MLAI are remunerated by BofA Corp. in their respective positions. The Partnership does not have any officers or employees. The Partnership pays brokerage commissions to MLPF&S, which is a BofA Corp. affiliate and administrative fees to MLAI. MLAI or BofA Corp. affiliates may also receive certain economic benefits from possession of the Partnerships U.S. dollar assets. The managers and officers receive no compensation from the Partnership. See Item 1(c) Narrative Description of BusinessDescription of Current Charges.
Item 12: Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
(a) Security Ownership of Certain Beneficial Owners:
Not applicable (The Units represent limited partnership interests. The Partnership is managed by MLAI, its general partner.)
(b) Security Ownership of Management:
As of December 31, 2015, MLAI owned 0.41 Unit-equivalent general partnership interests, which constituted 0.00% of the total Units outstanding, and the managers and executive officers of MLAI do not own any Units.
(c) Changes in Control:
None.
(d) Securities Authorized for Issuance Under Equity Compensation Plans:
Not applicable.
Item 13: Certain Relationships and Related Transactions and Director Independence
Not applicable.
Director Independence
No person who served as a manager of MLAI during 2015 could be considered an independent (based on the definition of an independent director under the NASDAQ rules).
Item 14: Principal Accounting Fees and Services
(a) Audit Fees
Aggregate fees billed directly to the Partnership for professional services rendered by the principal accountant, PricewaterhouseCoopers LLP, for the audit of the Partnerships annual financial statements and review of financial statements included in the Partnerships Form 10-Q or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for the years ended December 31, 2015 and 2014 were $182,400 and $177,067, respectively.
(b) Audit Related Fees
There were no other audit-related fees billed for the years ended December 31, 2015 or 2014 related to the Partnership.
(c) Tax Fees
No fees were billed by PricewaterhouseCoopers LLP or any member firms of PricewaterhouseCoopers and their respective affiliates for the years ended December 31, 2015 and 2014 for professional services rendered to the Partnership in connection with tax compliance, tax advice and tax planning.
(d) All Other Fees
Not applicable.
No other fees were billed by PricewaterhouseCoopers LLP or any member firms of PricewaterhouseCoopers and their respective affiliates for the years ended December 31, 2015 and 2014 for professional services rendered to the Partnership, other than as set forth in the preceding paragraph (a).
(e) Neither the Partnership nor MLAI has an audit committee to pre-approve principal accountant fees and services. In lieu of an audit committee, the managers and the principal financial officer pre-approve all services prior to the commencement of services.
PART IV
Item 15: Exhibits, Financial Statement Schedules
1. Financial Statements (found in Exhibit 13.01):
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Page: |
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM |
1 |
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FINANCIAL STATEMENTS: |
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Statements of Financial Condition as of December 31, 2015 and 2014 |
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Statements of Operations for the years ended December 31, 2015, 2014 and 2013 |
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Statements of Changes in Partners Capital for the years ended December 31, 2015, 2014 and 2013 |
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Financial Data Highlights for the years ended December 31, 2015, 2014 and 2013 |
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Notes to Financial Statements |
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2. Financial Statement Schedules:
Financial statement schedules not included in this Form 10-K have been omitted for the reason that they are not required or are not applicable or that equivalent information has been included in the financial statements or notes thereto.
3. Exhibits:
The following exhibits are incorporated by reference or are filed herewith to this Annual Report on Form 10-K:
Designation |
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Description |
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3.01 |
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Amended and Restated Certificate of Limited Partnership of ML Select Futures I L.P. |
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Exhibit 3.01: |
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Is incorporated herein by reference from Exhibit 3.01 contained in the registrants Registration Statement on Form 10 filed on April 30, 2003 (the Registration Statement). |
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3.02 |
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ML Select Futures I L.P. Twelfth Amended and Restated Limited Partnership Agreement. |
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Exhibit 3.02 |
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Is incorporated by reference from Exhibit 3.01 contained in the registrants Report on Form 8-K, filed on March 16, 2011. |
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3.03 |
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Amendment to ML Select Futures I L.P. Twelfth Amended and Restated Limited Partnership Agreement. |
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Exhibit 3.03: |
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Is incorporated by reference from Exhibit 3.02(i) contained in the registrants Report on Form 8-K filed on November 11, 2013. |
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3.04 |
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Amendment to ML Select Futures I L.P. Twelfth Amended and Restated Limited Partnership Agreement. |
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Exhibit 3.04: |
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Is incorporated by reference from Exhibit 3.02(i) contained in the registrants Report on Form 8-K filed on May 19, 2015. |
10.01 |
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Advisory Agreement among ML Select Futures I L.P., Merrill Lynch Investment Partners Inc. and Sunrise Capital Partners LLC. |
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Exhibit 10.01: |
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Is incorporated by reference from Exhibit 10.03 contained in the Registration Statement. |
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10.02 |
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Customer Agreement between ML Select Futures I L.P. and Merrill Lynch Futures Inc. |
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Exhibit 10.03: |
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Is incorporated by reference from Exhibit 10.02 contained in the Registration Statement. |
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13.01 |
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2015 Annual Report and Report of Independent Registered Public Accounting Firm. |
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Exhibit 13.01: |
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Is filed herewith. |
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31.01 and 31.02 |
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Rule 13a-14(a)/15d-14(a) Certifications. |
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Exhibit 31.01 and 31.02: |
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Are filed herewith. |
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32.01 and 32.02 |
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Section 1350 Certifications. |
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Exhibit 32.01 and 32.02: |
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Are filed herewith. |
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101 |
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The following materials from the Partnerships Annual Report on Form 10-K for the fiscal year ended December 31, 2015 formatted in XBRL (Extensible Business Reporting Language): (i) Statements of Financial Condition (ii) Statements of Operations (iii) Statements of Changes in Members Capital (iv) Financial Data Highlights and (v) Notes to Financial Statements, tagged as blocks of text. |
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Exhibit 101 |
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Is filed herewith. |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
ML SELECT FUTURES I L.P.
By: MERRILL LYNCH ALTERNATIVE INVESTMENTS, GENERAL PARTNER
By: |
/s/Nancy Fahmy |
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Nancy Fahmy |
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Chief Executive Officer and President |
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(Principal Executive Officer) |
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Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature |
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Title |
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Date |
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/s/Nancy Fahmy |
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Chief Executive Officer, President and Manager |
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March 18, 2016 |
Nancy Fahmy |
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(Principal Executive Officer) |
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/s/ Barbra E. Kocsis |
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Chief Financial Officer and Vice President |
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March 18, 2016 |
Barbra E. Kocsis |
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(Principal Financial Officer) |
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/s/Dominick A. Carlino |
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Vice President and Manager |
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March 18, 2016 |
Dominick A. Carlino |
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/s/Ninon Marapachi |
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Vice President and Manager |
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March 18, 2016 |
Ninon Marapachi |
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/s/Jeff McGoey |
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Vice President and Manager |
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March 18, 2016 |
Jeff McGoey |
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/s/ Greg Parets |
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Vice President and Manager |
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March 18, 2016 |
Greg Parets |
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/s/Devesh Saksena |
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Vice President and Manager |
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March 18, 2016 |
Devesh Saksena |
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ML SELECT FUTURES I L.P.
2015 FORM 10-K
INDEX TO EXHIBITS
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Exhibit |
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Exhibit 13.01 |
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2015 Annual Report and Report of Independent Registered Public Accounting Firm |
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Exhibit 31.01 and 31.02 |
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Rule 13a - 14(a) / 15d - 14(a) Certifications |
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Exhibit 32.01 and 32.02 |
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Sections 1350 Certifications |
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Exhibit 101 |
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The following materials from the Partnerships Annual Report on Form 10-K for the fiscal year ended December 31, 2015 formatted in XBRL (Extensible Business Reporting Language): (i) Statements of Financial Condition (ii) Statements of Operations (iii) Statements of Changes in Members Capital (iv) Financial Data Highlights and (v) Notes to Financial Statements, tagged as blocks of text. |