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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001
-------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
---------------- ----------------
Commission File Number 33-22864
ML FUTURES INVESTMENTS L.P.
(Exact Name of Registrant as
specified in its charter)
Delaware 36-3590615
- ------------------------------- ----------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
c/o MLIM Alternative Strategies LLC
(formerly Merrill Lynch Investment Partners, Inc.)
Princeton Corporate Campus
800 Scudders Mill Road - Section 2G
Plainsboro, New Jersey 08536
----------------------------
(Address of principal executive offices)
(Zip Code)
609-282-6996
----------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ML FUTURES INVESTMENTS L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENTS OF FINANCIAL CONDITION
<Table>
<Caption>
June 30, December 31,
2001 2000
(unaudited)
---------------- -----------------
ASSETS
Investment in MM LLC $ 13,312,240 $ 14,260,889
Receivable from investment in MM LLC 351,347 250,414
---------------- -----------------
TOTAL $ 13,663,587 $ 14,511,303
================ =================
LIABILITY AND PARTNERS' CAPITAL
Redemptions payable $ 351,347 $ 250,414
---------------- -----------------
Total liabilities 351,347 250,414
---------------- -----------------
PARTNERS' CAPITAL:
General Partner (613 and 613 Units) 155,504 154,104
Limited Partners (51,864 and 56,108 Units) 13,156,736 14,106,785
---------------- -----------------
Total partners' capital 13,312,240 14,260,889
---------------- -----------------
TOTAL $ 13,663,587 $ 14,511,303
================ =================
NET ASSET VALUE PER UNIT
(Based on 52,477 and 56,721 Units outstanding) $ 253.68 $ 251.42
================ =================
</Table>
See notes to financial statements.
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ML FUTURES INVESTMENTS L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
(unaudited)
<Table>
<Caption>
For the three For the three For the six For the six
months ended months ended months ended months ended
June 30, June 30, June 30, June 30,
2001 2000 2001 2000
---------------- --------------- -------------- --------------
REVENUES:
Income (loss) from investment in MM LLC (555,229) 62,480 126,558 (288,057)
---------------- --------------- -------------- --------------
NET INCOME (LOSS) $ (555,229) $ 62,480 $ 126,558 $ (288,057)
================ =============== ============== ==============
NET INCOME (LOSS) PER UNIT:
Weighted average number of General Partner
and Limited Partner Units outstanding 54,241 65,546 55,031 67,785
================ =============== ============== ==============
Net income (loss) per weighted average
General Partner and Limited Partner Unit $ (10.24) $ 0.95 $ 2.30 $ (4.25)
================ =============== ============== ==============
</Table>
See notes to financial statements.
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ML FUTURES INVESTMENTS L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000
(unaudited)
<Table>
<Caption>
Units General Partner Limited Partners Total
---------------- --------------- ---------------- --------------
PARTNERS' CAPITAL,
December 31, 1999 71,633 $ 244,458 $ 16,807,496 $ 17,051,954
Net loss - (3,562) (284,495) (288,057)
Redemptions (9,274) (59,265) (2,126,343) (2,185,608)
---------------- --------------- ---------------- --------------
PARTNERS' CAPITAL,
June 30, 2000 62,359 $ 181,631 $ 14,396,658 $ 14,578,289
================ =============== ================ ==============
PARTNERS' CAPITAL,
December 31, 2000 56,721 $ 154,104 $ 14,106,785 $ 14,260,889
Net income - 1,400 125,158 126,558
Redemptions (4,244) - (1,075,207) (1,075,207)
---------------- --------------- ---------------- --------------
PARTNERS' CAPITAL,
June 30, 2001 52,477 $ 155,504 $ 13,156,736 13,312,240
================ =============== ================ ==============
</Table>
See notes to financial statements.
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ML FUTURES INVESTMENTS L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
(unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These financial statements have been prepared without audit. In the opinion of
management, the financial statements contain all adjustments (consisting of
only normal recurring adjustments) necessary to present fairly the financial
position of ML Futures Investments L.P. (the "Partnership") as of June 30,
2001, and the results of its operations for the three and six months ended
June 30, 2001 and 2000. However, the operating results for the interim periods
may not be indicative of the results expected for the full year.
Certain information and footnote disclosures normally included in annual
financial statements prepared in conformity with accounting principles
generally accepted in the United States of America have been omitted. It is
suggested that these financial statements be read in conjunction with the
financial statements and notes thereto included in the Partnership's Annual
Report on Form 10-K filed with the Securities and Exchange Commission for the
year ended December 31, 2000 (the "Annual Report").
2. INVESTMENTS
As of June 30, 2001 and December 31, 2000, the Partnership had an investment in
ML Multi Manager Portfolio LLC ("MM LLC") of $13,312,240 and $14,260,889,
respectively.
Total revenues and fees with respect to the Partnership's investment are set
forth as follows:
<Table>
<Caption>
For the three months Total Brokerage Administrative Profit Loss from
ended June 30, 2001 Revenue Commissions Fees Shares Investment
------------- ----------------- -------------------- ------------ ----------------
MM LLC (unaudited) $ (297,472) $ 305,775 $ 8,736 $ (56,754) $ (555,229)
------------- ----------------- -------------------- ------------ ----------------
For the three months Total Brokerage Administrative Profit Income from
ended June 30, 2000 Revenue Commissions Fees Shares Investment
------------- ----------------- -------------------- ------------ ----------------
MM LLC (unaudited) $ 404,846 316,359 9,039 16,968 $ 62,480
------------- ----------------- -------------------- ------------ ----------------
For the six months Total Brokerage Administrative Profit Income from
ended June 30, 2001 Revenue Commissions Fees Shares Investment
------------- ----------------- -------------------- ------------ ----------------
MM LLC (unaudited) $ 930,911 593,952 16,970 193,431 $ 126,558
------------- ----------------- -------------------- ------------ ----------------
For the six months Total Brokerage Administrative Profit Loss from
ended June 30, 2000 Revenue Commissions Fees Shares Investment
------------- ----------------- -------------------- ------------ ----------------
MM LLC (unaudited) $ 431,506 681,376 19,468 18,719 $ (288,057)
------------- ----------------- -------------------- ------------ ----------------
</Table>
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Condensed statements of financial condition and statements of operations for
MM LLC are set forth as follows:
<Table>
<Caption>
MM LLC MM LLC
------------------- --------------------
June 30, December 31,
2001 2000
(unaudited)
------------------- --------------------
Assets $ 230,082,899 $ 252,995,756
=================== ====================
Liabilities $ 2,269,975 $ 5,383,789
Members' Capital 227,812,924 247,611,967
------------------- --------------------
Total $ 230,082,899 $ 252,995,756
=================== ====================
</Table>
<Table>
<Caption>
For the three months For the three months For the six months For the six months
ended June 30, 2001 ended June 30, 2000 ended June 30, 2001 ended June 30, 2000
(unaudited) (unaudited) (unaudited) (unaudited)
------------------------ ------------------------ ----------------------- -----------------------
Revenues $ (3,382,848) $ 2,293,884 $ 13,625,090 $ 2,451,925
Expenses 3,064,693 1,888,994 9,992,122 3,986,134
------------------------ ------------------------ ----------------------- -----------------------
Net Income (Loss) $ (6,447,541) $ 404,890 $ 3,632,968 $ (1,534,209)
======================== ======================== ======================= =======================
</Table>
3. FAIR VALUE AND OFF-BALANCE SHEET RISK
The Partnership invests all of its assets in MM LLC. Accordingly, the
Partnership invests indirectly in derivative instruments, but does not itself
hold any derivative instrument positions. The application of the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 133, as amended by
SFAS No. 137 and SFAS No. 138, did not have a significant effect on the
financial statements of the Partnership.
MARKET RISK
Derivative instruments involve varying degrees of off-balance sheet market
risk. Changes in the level or volatility of interest rates, foreign currency
exchange rates or market values of the financial instruments or commodities
underlying such derivative instruments frequently result in changes in the
Partnership's net unrealized profit on such derivative instruments as
reflected in the Statements of Financial Condition or, with respect to
Partnership assets invested in MM LLC, the unrealized profit (loss) as
reflected in the respective Statements of Financial Condition of MM LLC. The
Partnership's exposure to market risk is influenced by a number of factors,
including the relationships among the derivative instruments held by MM LLC,
as well as the volatility and liquidity of the markets in which such
derivative instruments are traded.
The General Partner, MLIM Alternative Strategies LLC, ("MLIM AS LLC")
(formerly, Merrill Lynch Investment Partners, Inc.) has procedures in place
intended to control market risk exposure, although there can be no assurance
that they will, in fact, succeed in doing so. These procedures focus
primarily on monitoring the trading of the Advisors selected from time to
time for MM LLC, and include calculating the Net Asset Value of the Advisors'
respective MM LLC accounts as of the close of business on each day and
reviewing outstanding positions for over-concentrations both on an
Advisor-by-Advisor and on an overall Partnership basis. While MLIM AS LLC
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does not itself intervene in the markets to hedge or diversify the
Partnership's market exposure through MM LLC, MLIM AS LLC may urge Advisors to
reallocate positions, or itself reallocate Partnership assets among Advisors
through Advisors (although typically only as of the end of a month) in an
attempt to avoid over-concentration. However, such interventions are unusual.
Except in cases in which it appears that an Advisor has begun to deviate from
past practice and trading policies or to be trading erratically, MLIM AS LLC's
basic risk control procedures consist simply of the ongoing process of advisor
monitoring and selection, with the market risk controls being applied by the
Advisors themselves.
CREDIT RISK
The risks associated with exchange-traded contracts are typically perceived to
be less than those associated with over-the-counter (non-exchange-traded)
transactions, because exchanges typically (but not universally) provide
clearinghouse arrangements in which the collective credit (in some cases
limited in amount, in some cases not) of the members of the exchange is
pledged to support the financial integrity of the exchange. In
over-the-counter transactions, on the other hand, traders must rely solely on
the credit of their respective individual counterparties. Margins, which may
be subject to loss in the event of a default, are generally required in
exchange trading, and counterparties may require margin in the
over-the-counter markets.
The Partnership, through MM LLC, has credit risk in respect of its
counterparties and brokers, but attempts to mitigate this risk by dealing
almost exclusively with Merrill Lynch entities as clearing brokers.
The Partnership, through MM LLC, in its normal course of business, enters into
various contracts, with Merrill Lynch Futures ("MLF") acting as its commodity
broker. Pursuant to the brokerage agreement with MLF (which includes a netting
arrangement), to the extent that such trading results in receivables from and
payables to MLF, these receivables and payables are offset and reported as a
net receivable or payable in the financial statements of MM LLC in the Equity
in commodity futures trading accounts in the Statements of Financial
Condition.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MONTH-END NET ASSET VALUE PER UNIT
<Table>
<Caption>
Jan. Feb. Mar. Apr. May. Jun.
2000 $238.86 $237.06 $232.93 $233.23 $236.68 $233.78
2001 $249.58 $251.97 $263.85 $256.16 $253.51 $253.68
</Table>
Performance Summary
All of the Partnership's assets are invested in MM LLC. The Partnership
recognizes trading profits or losses as an investor in MM LLC. The following
commentary describes the trading results of MM LLC.
JANUARY 1, 2001 to JUNE 30, 2001
- --------------------------------
January 1, 2001 to March 31, 2001
Trading in the interest rate sector was highly profitable for the Partnership
during the quarter. Long positions in the Euro resulted in gains in January. The
impact of the weakening U.S. economy and the Federal Reserve's move to cut
interest rates was felt throughout the interest rate futures market, as Euro
futures contracts rose dramatically since December 2000. Euro-yen and Euro-bund
cross futures trading produced gains for the sector.
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Agricultural trading was profitable despite losses sustained early in the
quarter. During January, the agricultural sector faced weak grain and oilseed
prices. Excellent growing weather in the U.S., Argentina and Brazil, concerns
about U.S. export potential and inventories at historically high levels, kept
the markets on the defensive. Contract lows in cotton produced gains for short
positions. The cotton market sank to a 15 year low as a result of short supply
and increased demand. Potential increased planting, paired with a drop in
demand, forced prices lower.
Currency trading resulted in gains for the Partnership. Losses were realized
during January and February on long Euro and Swiss franc trading. After rallying
from a low of 82--83 cents to 96 cents, the Euro fell back to the 90 cent level,
despite strong fundamentals. This resulted in losses for the Partnership's long
positions. The sector rebounded strongly in March on substantial gains from
short Japanese yen positions.
Trading in the metals markets was successful. Losses from short silver positions
were sustained in January as silver had a minor technical run as it reached
it's four month high. Short silver positions were profitable in February as
silver prices reversed its earlier trend and declined as the market was
generally weak and on gold's failure to rally weighed on the market. March was
a volatile trading month as another attempted gold rally failed, resulting in
gains in short positions.
Stock index trading was moderately successful despite uncertainty in equity
markets. Short S&P 500 and NASDAQ positions resulted in gains as global equity
markets remain caught between negative news about earnings and the potential
positive effects of further monetary easing.
Energy trading was the only unprofitable sector during the quarter. Natural gas
prices pulled back in January after rallying during the last few months,
resulting in losses. Crude oil prices were driven lower by both a seasonal
downturn in global oil usage and heavier than normal refinery maintenance work,
reducing the demand. Short natural gas positions were unprofitable in March on
concerns over supply availability.
April 1, 2001 to June 30, 2001
Trading in agricultural commodities was profitable despite a sluggish start to
the quarter. The market for grains has been weak throughout the beginning of
2001. Excellent crops in Argentina and Brazil and a good start to the U.S.
growing season has resulted in weakness in the grain complex. Also, during the
quarter, profits from short corn and cotton positions outweighed losses from
soybeans.
Stock index trading was profitable for the Partnership as long NASDAQ 100
positions outweighed losses from DAX German Stock Index trading. Trading in S&P
contracts was successful despite continued volatility.
Trading in the energy sector was down slightly. Despite profitable unleaded gas
trading, losses were posted on long light crude oil and heating oil positions.
Crude prices fell due to increased total inventories, stemming from the effects
of crude oil stores rising more than 42 million barrels over the last few
months. The energy sector faded from downside pressure from a slowing global
economy, inventory surplus and OPEC's decision to leave production levels
unchanged.
Currency trading suffered losses, particularly in Euro and Japanese yen
positions. The further weakening of the Euro and yen displayed how the global
economy is not immune to the slowdown of the U.S. economy. Gains were posted in
the Canadian dollar at quarter end due to a healthy trade surplus and a
favorable short-term interest rate differential.
The metals sector performed poorly. Weakness in the Euro, a decline in the
Australian dollar to all time lows and producer and central bank selling sent
gold prices lower. Silver trading was volatile, as China's silver exports have
been high due to poor domestic demand, adversely affecting prices.
Trading in the interest rate markets was accounted for most of the Partnership's
trading losses for the quarter. Positions in Euro-bund futures, three-month
Euribor futures and U.S. 10-year notes were unprofitable.
JANUARY 1, 2000 to JUNE 30, 2000
- --------------------------------
January 1, 2000 to March 31, 2000
Energy trading was profitable for the quarter due to long crude oil and unleaded
gas positions. Despite the possibility of OPEC increasing oil production by 5%,
crude oil prices continued to rise as such a hike would still leave oil
inventories at levels much below normal during the balance of the year. Prices
began to decline in mid-March as Iran backed down from its position on the point
of "no increase" and again later in the month as OPEC announced a production
increase of 1.716 million barrels per day offsetting some gains from the
previous two months.
Stock Index trading was profitable for the quarter. During the month of January,
the Hang Seng Index found market conditions to be difficult. Stock index
trading returned in February and March with gains in positions in CAC 40 Euro
futures, DAX German Stock Index and long S&P 500 positions resulted in gains as
investors focused more on value stocks near the end of the quarter.
Metals trading alternated from profitable to unprofitable during the quarter. In
January, gains in aluminum positions outweighed losses in zinc and copper.
Losses in aluminum and gold positions outweighed gains in nickel positions
during February. In March, metals trading was slightly profitable as gains in
silver positions outweighed losses in zinc and copper.
Short Swiss franc and Euro positions launched the quarter with gains after
officials from the Group of Seven met and failed to express concern about the
low levels of the European currency, however, the
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positions were unprofitable in February offsetting gains in Japanese yen
positions. Short Euro positions then bounced back in March but were outweighed
by losses in Japanese yen and British pound positions.
Agriculture trading resulted in losses for the quarter. In January and February,
gains in sugar positions were outweighed by losses in corn positions. In
March, corn positions were profitable as prices rose, but were outweighed by
unprofitable soyoil and sugar positions. Corn prices fluctuated as changes in
weather forecasts occurred throughout the quarter.
Short Eurodollar trading was profitable as the currency continued to decline in
January. The European Union ministers blamed the currency's slide in January on
rapid U.S. growth and fears that the Federal Reserve will increase U.S. interest
rates. These profits were far outweighed by losses in the Japanese 10-year bond,
U.S. 10-year Treasury note positions and long U.S. Treasury positions as the
yield curve fluctuated widely during the quarter.
April 1, 2000 to June 30, 2000
Long natural gas positions proved to be profitable throughout the quarter;
however, crude oil faced whipsaw market conditions. Prices on crude oil declined
early in the quarter in the wake of OPEC's March decision to increase
production; however, prices later rose as the International Energy Agency
reported the need for additional OPEC oil to prevent a shortage in inventory. In
June, long positions of light crude oil resulted in profits despite OPEC's
agreement to raise the production ceiling effective July 1. Prices sustained
their levels because the market was looking for a larger production hike.
Agriculture trading was profitable in the quarter as sugar and live hog
positions outweighed losses from soybean trading. An exporter made the first
sale of U.S. pork to China under a 1999 bilateral agricultural agreement,
providing a new avenue of opportunity for U.S. pork producers. The mid-month
USDA grain crop report projected a 12% rise in soybean inventories from last
season. This resulted in fears of an abundance of supply and therefore, lower
prices for the commodity. Forecasts of reduced Brazilian exports and crop damage
in China and Pakistan combined with greater than expected demand from Russia,
resulted in gains for the Partnership's long sugar positions.
Currency trading proved profitable for the Partnership. Gains from short Euro
currency and long Swiss franc positions outweighed losses sustained in other
currencies. Despite the dramatic interest rate hikes by the Swiss National Bank
("SNB") and the weakness of the Euro, the SNB said it will not keep the Swiss
franc from rising. Short positions in the British pound and Canadian dollar
resulted in gains for the sector during May. The pound was particularly weak in
the wake of the Bank of England's references to "sterling overvaluation." The
Euro rallied to U.S. $0.97 early in the month, but faced profit-taking after
news of some capital outflow from Euroland.
Stock index trading was unprofitable due to losses sustained in Nikkei 225 and
S&P 500 positions early in the quarter. Signs of rising inflation fueled fears
that the Federal Reserve will continue to raise interest rates aggressively to
slow the robust economy. However, the Nikkei 225 trading showed gains at the end
of the quarter as well as did the All Ordinaries Index as the Australian Index
finished higher in June.
In metals trading, short aluminum positions were profitable early in the quarter
as a refinery indicated that it will return to operation this year, adding
supply to the market. During the middle of the quarter, copper trading resulted
in losses for the sector. A Freeport, Indonesia mine announced output cuts would
not be as large as the Indonesian government had forecast, resulting in losses
for the Partnership's long positions. Losses continued through the quarter as
trading in both base and precious metals was unprofitable as losses were
sustained in gold and aluminum positions. As has been the ongoing pattern, gold
showed virtually no response to activities in the financial and equity markets,
including the surge in energy prices.
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Interest rate trading results were unprofitable for the quarter. Early on losses
were incurred from U.S. Treasury bond and Euro 10-year bond trading. U.S. bond
yields fell during the month as investors shifted to Treasuries due to increased
volatility in the NASDAQ and other equity markets. The Euro traded higher during
May on reports that the European Central Bank may buy the currency to boost its
value, but finally trading was again unprofitable as losses were incurred in
Euro dollar and Japanese government bond positions. Short positions resulted in
losses as the Euro dollar improved after the European Central Bank's 50 basis
point repo rate hike.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There are no pending proceedings to which the Partnership or MLIM
AS LLC is a party.
Item 2. Changes in Securities and Use of Proceeds
(a) None.
(b) None.
(c) None.
(d) None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
Effective May 31, 2001, Merrill Lynch Investment Partners, Inc.
("MLIP"), a Delaware corporation and General Partner of the
Partnership, converted to a Delaware limited liability company. In
connection with the conversion, MLIP's name was changed to MLIM
Alternative Strategies LLC ("MLIM AS LLC"). This step was taken in
connection with the ongoing reorganization of the various
alternative investment groups under the Merrill Lynch Investment
Managers umbrella. The change will have no impact on the
Partnership's investors.
All of the officers of MLIP continue in their former roles with
MLIM AS LLC, except that also effective May 31, 2001, Ronald S.
Rosenberg, formerly Chief Executive Officer of MLIP, became
President of MLIM AS LLC and Fabio P. Savoldelli, formerly
President of MLIP, became Chairman and Chief Executive Officer of
MLIM AS LLC. In addition, each of the four directors of MLIP now
serve on the board of managers of MLIM AS LLC.
Item 6. Exhibits and Reports on Form 8-K.
(a) EXHIBITS.
There are no exhibits required to be filed with this report.
(b) REPORTS ON FORM 8-K.
There were no reports on Form 8-K filed during the first six months
of fiscal 2001.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ML FUTURES INVESTMENTS L.P.
By: MLIM ALTERNATIVE
STRATEGIES LLC
(formerly Merrill Lynch
Investment Partners, Inc.)
(General Partner)
Date: August 13, 2001 By /s/ FABIO SAVOLDELLI
--------------------
Fabio Savoldelli
Chairman, Chief Executive Officer
and Manager
Date: August 13, 2001 By /s/ MICHAEL L. PUNGELLO
-----------------------
Michael L. Pungello
Vice President, Chief Financial Officer
and Treasurer
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