May 13, 2016 - 2:10 AM EDT
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ML SELECT FUTURES I LP - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations

MONTH-END NET ASSET VALUE PER UNIT

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 (each, a "Calculation Date"). The Partnership's Net Asset Value will generally equal the value of the Partnership's account under the management of its Trading Advisor as of such date, plus any other assets held by the Partnership, minus accrued wrap fee, profit share and other liabilities of the Partnership. MLAI is authorized to make all Net Asset Value determinations.

MLAI believes that the Net Asset Value used to calculate subscription and redemption value and to report performance to investors is a useful performance measure for the investors of the Partnership. Therefore, the charts below are referencing Net Asset Value at each Calculation Date.


                  PERIOD-END NET ASSET VALUE PER INITIAL UNIT



          Jan.         Feb.         Mar.
2015   $ 260.1297   $ 262.9219   $ 262.8601
2016   $ 227.1967   $ 230.2900   $ 234.1081



Liquidity and Capital Resources

The Partnership borrows only to a limited extent and only on a strictly short-term basis in order to finance losses on non-U.S. dollar denominated trading positions pending the conversion of the Partnership's U.S. dollar deposits. These borrowings are at a prevailing short-term rate in the relevant currency.

Substantially all of the Partnership's 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 Partnership's profit or loss potential might increase. Inflation in commodity prices could also generate price movements, which the strategies might successfully follow.

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The Partnership should be able to close out its open trading positions and liquidate its holdings relatively quickly and at market prices, except in unusual circumstances. This typically permits the Partnership to limit losses as well as reduce market exposure on short notice should its strategies indicate doing so.

As a commodity pool, the Partnership maintains an extremely large percentage of its assets in cash, which it must have available to post initial and variation margin on futures contracts. This cash is also used to fund redemptions. While the Partnership has the ability to fund redemption proceeds from liquidating positions, as a practical matter positions are not liquidated to fund redemptions. In the event that positions were liquidated to fund redemptions, MLAI, as the General Partner of the Partnership, has the ability to override decisions of the Trading Advisor to fund redemptions if necessary, but in practice the Trading Advisor would determine in its discretion which investments should be liquidated.

For the three months ended March 31, 2016, Partnership capital increased 0.88% from $24,423,296 to $24,639,036. This increase was attributable to the net income from operations of $982,594 coupled with the redemption of 3,317 redeemable Units resulting in an outflow of $766,854. Future redemptions could impact the amount of funds available for investment in commodity contract positions in subsequent months.


Critical Accounting Policies



Statement of Cash Flows


The Partnership is not required to provide a Statement of Cash Flows.


Investments


All investments (including derivatives) are held for trading purposes. Investments are recorded on trade date and open contracts are recorded at fair value (as described below) at the measurement date. Investments denominated in foreign currencies are translated into U.S. dollars at the exchange rates prevailing at the measurement date. Profits or losses are realized when contracts are liquidated. Unrealized profits or losses on open contracts are included as a component of equity in commodity trading accounts on the Statements of Financial Condition. Realized profits or losses and any change in net unrealized profits or losses from the preceding period are reported in the Statements of Operations.



Fair Value Measurements



Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. For more information on the Partnership's treatment of fair value see Financial Statements Note 3, Fair Value of Investments.



Futures Contracts



The Partnership trades exchange listed futures contracts. A listed futures contract is a firm commitment to buy or sell a standardized quantity of an underlying asset over a specified duration. The Partnership buys and sells contracts based on indices of financial assets such as stocks, domestic and global stock indices, as well as contracts on various physical commodities. Prices paid or received on these contracts are determined by the ask or bid provided by the exchanges on which they are traded. Contracts may be settled in physical form or cash settled depending upon the contract. Upon the execution of a trade, margin requirements determine the amount of cash that must be on deposit to secure the transaction. These amounts are considered restricted cash on the Partnership's Statements of Financial Condition. Contracts are priced daily by the Partnership and the profit or loss is based on the daily mark to market and is



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recorded as unrealized profit (loss). When the contract is closed, the Partnership records a realized profit or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. Because transactions in futures contracts require participants to make both initial margin deposits of cash or other assets and variation margin deposits, through the futures broker or directly with the exchange on which the contracts are traded, credit exposure is limited. Realized profit (loss), net and change in unrealized profit (loss), net on futures contracts are recognized in the period in which the contract is closed or the changes occur, respectively and are included in the Statements of Operations. The Partnership also trades futures contracts on the London Metals Exchange (LME). The valuation pricing for LME contracts is based on action of a committee that incorporates prices from the most liquid trading sessions of the day and can also rely on other inputs such as supply and demand factors and bids and asks from open outcry sessions.

Forward Foreign Currency Contracts

Foreign currency contracts are those contracts where the Partnership agrees to receive or deliver a fixed quantity of foreign currency for an agreed-upon price on an agreed future date. Foreign currency contracts are valued daily, and the Partnership's net equity therein, representing unrealized profit or loss on the contracts as measured by the difference between the forward foreign exchange rates at the dates of entry into the contracts and the forward rates at the reporting date, is included in the Statements of Financial Condition. Realized profit (loss), net and change in unrealized profit (loss), net on foreign currency contracts are recognized in the period in which the contract is closed or the changes occur, respectively and are included in the Statements of Operations.



Interest Rates and Income



BofA Corp.'s "Interest Earning Program," which offers interest on cash balances subject to a negotiated schedule, will generally apply to Fund cash assets during any time they are maintained by the Sponsor 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%, except for currencies designated by MLPF&S as "negative interest rate currencies." MLPF&S deposits certain of the Fund's assets as margin or collateral with clearinghouses and/or depositories. As a result of the present low interest rate environment, clearinghouses and depositories charge MLPF&S fees to account for the negative interest rates on cash balances for certain currencies, which may change from time to time. Accordingly, MLPF&S will charge the Fund a "negative interest rate fee" for any currencies designated by MLPF&S as a "negative interest rate currency."


Income Taxes


No provision for income taxes has been made in the accompanying financial statements as each limited partner is individually responsible for reporting income or loss based on such partner's share of the Partnership's income and expenses as reported for income tax purposes.

The Partnership follows the ASC guidance on accounting for uncertainty in income taxes. This guidance provides how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. This guidance also requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Partnership's financial statements to determine whether the tax positions are "more-likely-than-not" to be sustained by the applicable tax authority. Tax positions with respect to tax at the Partnership level not deemed to meet the "more-likely-than-not" threshold would be recorded as a tax benefit or expense in the current year. A prospective investor should be aware that, among other things, income taxes could have a material adverse effect on the periodic calculations of the Net Asset Value of the Partnership, including reducing the Net Asset Value of the Partnership to reflect

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reserves for income taxes, such as foreign withholding taxes, that may be payable by the Partnership. This could cause benefits or detriments to certain investors, depending upon the timing of their entry and exit from the Partnership. MLAI has analyzed the Partnership's tax positions and has concluded that no provision for income tax is required in the Partnership's financial statements. The following is the major tax jurisdiction for the Partnership and the earliest tax year subject to examination: United States - 2012.


Reform Act


The Dodd-Frank Wall Street Reform and Consumer Protection Act amended the definition of "eligible contract participant" and the Partnership expects to meet the amended definition as it applies to trading in "retail forex" transactions so long as its total assets exceed $10 million. If the Partnership does not meet the definition of "eligible contract participant" for purposes of trading in "retail forex" transactions, it could lead to the Partnership being unable to trade such transactions in the interbank market and bearing higher upfront and mark-to-market margin, less favorable trade pricing, and the possible imposition of new or increased fees. "Retail forex" markets available to parties that do not meet the definition of "eligible contract participant" could also be significantly less liquid than the interbank market. Moreover, the creditworthiness of the counterparties with whom the Partnership may be required to trade in such circumstances could be significantly weaker than the creditworthiness of MLI and the currency forward counterparties with which the Partnership would otherwise engage for its currency forward transactions.


Results of Operations


January 1, 2016 to March 31, 2016

January 1, 2016 to March 31, 2016

The Partnership experienced a net trading profit of $1,323,526 before brokerage commissions and related fees in the first quarter of 2016. The Partnership's profits were primarily attributable to the interest rates, stock indices, currency, metals and energy sectors. The agriculture sector posted losses.

The interest rate sector posted profits to the Partnership. Profits were posted to the Partnership at the beginning of the first quarter as global bond markets spiked sharply as investors rushed to shelter when equity and commodity markets melted down. As opportunities arose in the bond sector, the Trading Program rolled into long positions across the globe and captured solid returns. Specifically beneficial were long positions across the U.S. yield curve and in the German bund, with profits long Japanese government bonds and German bobl. Profits were posted to the Partnership in the middle of the quarter as global bonds offered a variety of divergent opportunities. In the first half of February, long positions were effective as investors fled to safety and drove global bond values upward. As markets calmed, bond prices trailed off and a variety of shorting opportunities emerged upon which the Trading Program capitalized on. The best markets for the Trading Program were German bunds, bobl and longer term U.S. bonds. Profits were posted to the Partnership at the end of the quarter. Global bond markets offered the Trading Program some solid opportunities, most notably, in the Italian 10 year market which had a general upward trend throughout March and some very choppy price action along the way down. The Trading Program found additional profits in other European markets including the long gilt, French 10 year, and German bund and these gains were sufficient to offset small losses in short and medium term U.S. Treasuries and the Bobl.

The stock indices sector posted profits the Partnership. Losses were posted to the Partnership at the beginning of the first quarter. January was tumultuous to portfolios. In the U.S., major equity indices were down and outside the U.S. outcomes were even worse with many emerging equity markets down. Profits were posted to the Partnership in the middle of the quarter as global equity offered opportunities on both the long and short positions, depending on the timing and duration of investments made by the Trading

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Program. In early February, longer term long positions were battered but some of the shorter term positions found opportunities when prices continued their collapse. Later in February, the opportunities reversed. Come month end, the Trading Program's most profitable investments were in Hong Kong's Hang Seng, China's H-shares, Japan's Topix, and India's Nifty. Profits were posted to the Partnership at the end of the quarter due to the Trading Program's long positions the S&P, Russell and NASDAQ.

The currency sector posted profits to the Partnership. Profits were posted to the Partnership at the beginning of the quarter where the Trading Program's investment approach took short positions in multiple foreign markets (long the U.S. dollar) which trended downward as the month's chaos unfolded. The Trading Program found profits in the short positions in the British pound, Canadian dollar, Euro, Polish zloty, and Singapore dollar while only losing money in two markets, short positions in the Australian dollar and long Japanese yen. Profits were posted to the Partnership in the middle of the quarter as the Japanese yen offered a shorting opportunity early in the month before stabilizing. In addition, the Trading Program found profits in the Swiss franc which dropped sharply to start the month, however it later rallied and stabilized as February progressed. Profits were posted to the Partnership at the end of the quarter. The Trading Program's best returns were found trading the ebbs and flows of the Australian dollar and Euro which while both moving upward during March, also vacillated enough over the course of the month to agree with some of the Trading Program's shorter term investment approaches.

The metals sector posted profits to the Partnership. Profits were posted to the Partnership at the beginning of the quarter from industrial metals such as copper and nickel. Losses were posted to the Partnership in the middle of the quarter. The big winner in February was gold where the Trading Program's long positions profited with the month's early price spike and subsequent stabilization. Zinc, copper, silver and aluminum were losses with the Trading Program and collective losses in those markets offset gains in gold. Profits were posted to the Partnership at the end of quarter. In the global metals sector, gold, copper and silver each presented shorter term opportunities upon which the Trading Program's systems were able to capitalize.

The energy sector posted profits to the Partnership. Profits were posted to the Partnership at the beginning of the quarter as the downward price aligned well with the Trading Program's range of short positions. By month end, the Trading Program booked solid profits shorting RBOB gasoline, crude oil, natural gas, heating oil, and gasoil, however there was a flat outcome in brent crude. Losses were posted to the Partnership in the middle of the quarter. The gains which were earned investing in brent crude's and natural gas' slight price recoveries were offset by losses in RBOB gasoline, gasoil and heating oil. Losses were posted to the Partnership at the end of the quarter. The Trading Program profited on upticks in the brent crude and gasoil markets but less successfully navigated RBOB Gasoline, Heating Oil, Crude Oil and Natural Gas which rose fairly steadily off of a late February floor.

The agriculture sector posted losses to the Partnership. Losses were posted to the Partnership at the beginning of the first quarter. Corn, soybeans and soymeal moved upward against the Trading Program's positions to offset profits earned in cattle and coffee. Profits were posted to the Partnership in the middle of the quarter. The Trading Program's short positions in sagging prices led to gains across nearly every market in which the Trading Program invested. Best for January was corn and additional profits were found in soybeans, cotton, soymeal, wheat, coffee and rubber. Only cattle bucked the downward commodity trend enough to generate a loss for the Trading Program in February. Losses were posted to the Partnership at the end of the quarter. Other than a small profit in corn, losses for the Trading Program were uniformly spread across cotton, the soy complex, rubber, wheat, cattle, sugar and coffee, none of which cooperated with our investment approach.



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January 1, 2015 to March 31, 2015

January 1, 2015 to March 31, 2015

The Partnership experienced a net trading profit of $2,018,998 before brokerage commissions and related fees in the first quarter of 2015. The Partnership's profits were primarily attributable to the stock indices, interest rate, currency and energy sectors. The metals and agriculture sectors posted losses.

The stock indices sector posted profits to the Partnership. Losses were posted to the Partnership at the beginning of the first quarter due to the long positions in many facets of sagging U.S. equity markets. Profits were posted to the Partnership in the middle of the quarter. The Trading Program was successful in the equities sector for February. Global markets rallied on solid economic and earnings data, constructive input from the U.S. Federal Reserve, and other inputs finding their way upward after a rough January correction from Australian SPI 200, NASDAQ, S&P 500, Dow Jones, Swedish OMX, German DAX and EU Euro Stoxx. Losses were posted to the Partnership at the end of the quarter as the Trading Program suffered losses in the S&P 500, NASDAQ and the Dow.

The interest rate sector posted profits to the Partnership. Profits were posted to the Partnership at the beginning of the first quarter. Global bonds led the way for the Trading Program in January as investors reached for safety in the face of equity market retracement and ongoing downward price pressure on commodities. With bond prices rising around the world, most of the Trading Program's 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 Program's positions in the British Short Sterling and the U.S. 2 year treasury markets failed to make profits for the Partnership in January. Losses were posted to the Partnership in the middle of the quarter. Global bond markets were challenging for February and the Trading Program was largely unprofitable across the board in the various markets in which the Partnership invests. Particularly challenging were the British Long Gilt and U.S. 30, 10 and 5 year treasuries, each of which whipped around and ultimately trended downward against the Trading Program's long positions during February as investor fears eased after a panicky January. Losses were posted to the Partnership at the end of the quarter. Global bonds were perhaps the trickiest sector during March with prices vacillating in connection with commentary and speculation on the potential timing and magnitude of anticipated U.S. rate hikes resulting in losses incurred long the German bund and U.S. 30 year treasury.

The currency sector posted profits to the Partnership. Profits were posted to the Partnership at the beginning of the first quarter. A sharp loss short the Swiss franc on the Swiss government's mid-month bolstering effort was offset by gains short the Euro, Australian dollar, New Zealand dollar, Danish krone, and Singapore dollar, among other currencies. Losses were posted to the Partnership in the middle of the quarter as the Trading Program incurred another monthly loss in Swiss francs as the Swiss National Bank continued a series of measures at intervention. Profits were posted to the Partnership at the end of the quarter. In this sector, the U.S. dollar continued to surge versus most currencies and the outcome for the Partnership was profitable investing short the Euro, British pound, South African rand, and various other global denominations.

The energy sector posted profits to the Partnership. Profits were posted to the Partnership at the beginning of the first quarter. The Partnership's short positions across the sector were profitable with natural gas and gasoil leading the way. Only RBOB gasoline failed to yield profit in January as, overall, energy continued to be a source of opportunity for the Trading Program. Losses were posted to the Partnership in the middle of the quarter. February saw a waning of the downward price move as markets across the energy sector rallied and appeared to set a potential bottom after months of gloom. The Trading Program was hit hardest on its positions short Brent crude, gasoil, heating oil and RBOB gasoline and also suffered a slight loss for

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February in WTI crude. Profits were posted to the Partnership at the end of the quarter. The Trading Program found its best opportunities in the energy sector. Despite a lot of intra-month price vacillation, prices ultimately moved downward in March and as a result the Partnership was able to capitalize on short positions in various components of its diversified investment models. Brent crude, heating oil, and RBOB gasoline offered the best outcomes and ultimately, only the Partnership's short position in crude oil lost money for March.

The metals sector posted losses to the Partnership. Profits were posted to the Partnership at the beginning of the first quarter. Driving January's 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 Program's short positions were not as successful in nickel and whippy gold and silver markets continued to test investment approach but, overall, profits in the sector outweighed losses to lead to a successful January in metals for the Partnership. Losses were posted to the Partnership in the middle of the quarter. The Trading Program suffered losses shorting copper in the face of a solid rally in that market and also misplayed gold with an unsuccessful long trade and platinum with an unsuccessful short trade. Losses were posted to the Partnership at the end of the quarter. The global metals sector was unprofitable for the Trading Program, particularly gold and silver markets that did not settle into any defined pattern. The industrial metals provided little sanctuary as only a short position in nickel yielded a profit for the Trading Program in March versus losing positions in copper, zinc and aluminum.

The agriculture sector posted losses to the Partnership. Losses were posted to the Partnership at the beginning of the first quarter where wheat backtracked sharply against the Partnership's long position and caused a loss that outweighed small gains earned for Partnership in long corn and short rubber and cotton positions. Profits were posted to the Partnership in the middle of the quarter due to the Partnership's short positions in coffee and wheat, which aligned nicely with falling prices in those markets. Profits were posted to the Partnership at the end of the quarter. Leading the way were short positions that captured a sharp drop in sugar prices and a less significant, but still profitable drop in coffee prices during March.

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.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer


Source: Equities.com News (May 13, 2016 - 2:10 AM EDT)

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