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 September 30, 1997
--------------------
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 13-3590615
- ------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
c/o Merrill Lynch Investment Partners Inc.
Merrill Lynch World Headquarters - South Tower, 6th Fl.
World Financial Center New York, New York 10080-6106
-----------------------------------------------------
(Address of principal executive offices)
(Zip Code)
212-236-5662
--------------------------------------------
(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
----- -----
This document contains 13 pages.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ML FUTURES INVESTMENTS L.P.
---------------------------
(a Delaware limited partnership)
------------------------------
STATEMENTS OF FINANCIAL CONDITION
---------------------------------
September 30, December 31,
1997 1996
------------- ------------
ASSETS
- ------
Accrued interest $ 43,189 $ 60,983
Equity in commodity futures trading
accounts:
Cash and option premiums 10,419,287 17,891,525
Net unrealized profit on open 213,911 163,702
contracts
Investments 14,699,367 7,519,322
Receivable from outside investments 93,488 50,934
------------- ------------
TOTAL $25,469,242 $25,686,466
============= ============
LIABILITIES AND PARTNERS' CAPITAL
- ---------------------------------
LIABILITIES:
Redemptions payable $ 147,596 $ 170,082
Brokerage commissions payable 77,900 145,228
Profit shares payable 20,738 92,397
Administrative fees payable 2,226 3,773
------------- ------------
Total liabilities 248,460 411,480
------------- ------------
PARTNERS' CAPITAL:
General Partners (1787 and 1787 Units) 399,612 368,402
Limited Partners (110993 and 120810 24,821,170 24,906,584
Units)
------------- ------------
Total partners' capital 25,220,782 25,274,986
------------- ------------
TOTAL $25,469,242 $25,686,466
============= ============
NET ASSET VALUE PER UNIT
(Based on 112780 and 122597 $223.63 $206.16
Units outstanding)
============= ============
See notes to financial statements.
2
ML FUTURES INVESTMENTS L.P.
---------------------------
(a Delaware limited partnership)
------------------------------
STATEMENTS OF OPERATIONS
------------------------
For the three For the three For the nine For the nine
months ended months ended months ended months ended
September 30, September 30, September 30, September 30,
1997 1996 1997 1996
------------- ------------- ------------- -------------
REVENUES:
Trading profits (loss):
Realized $ 933,226 $ (350,573) $1,407,988 $ 518,233
Change in unrealized (140,446) 1,347,727 50,209 (54,838)
------------- ------------- ------------- -------------
Total trading results 792,780 997,154 1,458,197 463,395
------------- ------------- ------------- -------------
Interest income 135,862 275,017 407,370 877,858
Income from investments 495,657 - 1,036,043 -
------------- ------------- ------------- -------------
Total revenues 1,424,299 1,272,171 2,901,610 1,341,253
------------- ------------- ------------- -------------
EXPENSES:
Profit shares (60,371) 6,703 106,758 75,570
Brokerage commissions 245,034 596,822 696,950 1,903,923
Administrative fees 7,001 15,303 19,754 48,818
------------- ------------- ------------- -------------
Total expenses 191,664 618,828 823,462 2,028,311
------------- ------------- ------------- -------------
NET INCOME (LOSS) $1,232,635 $ 653,343 $2,078,148 $ (687,058)
============= ============= ============= =============
NET INCOME (LOSS) PER UNIT:
Weighted average number of units
outstanding 114,971 131,858 118,512 137,174
============= ============= ============= =============
Weighted average net income (loss)
per Limited Partner
and General Partner Unit $10.72 $4.95 $17.54 $(5.01)
============= ============= ============= =============
See notes to financial statements.
3
ML FUTURES INVESTMENTS L.P.
---------------------------
(a Delaware limited partnership)
------------------------------
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
------------------------------------------
For the nine months ended September 30, 1997 and 1996
-----------------------------------------------------
Units Limited General Total
Partners Partner
---------- ------------ ----------- ------------
PARTNERS' CAPITAL,
December 31, 1995 142,822 $27,463,765 $347,972 $27,811,737
Net loss - (678,899) (8,159) (687,058)
Redemptions (15,384) (2,890,524) - (2,890,524)
---------- ------------ ----------- ------------
PARTNERS' CAPITAL,
September 30, 1996 127,438 $23,894,342 $339,813 $24,234,155
========== ============ =========== ============
PARTNERS' CAPITAL,
December 31, 1996 122,597 $24,906,584 $368,402 $25,274,986
Net income - 2,046,938 31,210 2,078,148
Redemptions (9,817) (2,132,352) - (2,132,352)
---------- ------------ ----------- ------------
PARTNERS' CAPITAL,
September 30, 1997 112,780 $24,821,170 $399,612 $25,220,782
========== ============ =========== ============
See notes to financial statements.
4
ML FUTURES INVESTMENTS L.P.
---------------------------
(A Delaware Limited Partnership)
------------------------------
NOTES TO FINANCIAL STATEMENTS
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" or the "Fund") as of
September 30, 1997 and the results of its operations for the nine months ended
September 30, 1997 and 1996. 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 accordance with general accepted accounting
principles 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, 1996 (the "Annual Report").
2. INVESTMENTS
At September 30, 1997 the Partnership had investments in the ML Chesapeake
Diversified L.L.C. ("Chesapeake LLC") and the ML Sjo Prospect L.L.C. ("SJO
LLC").
Total revenues and fees with respect to such investments is set forth as
follows:
For the three months
ended September 30, Total Brokerage Administrative Profit Income from
1997 Revenue Commissions Fees Shares Investments
----------------------------------------------------------------------------
Chesapeake LLC $ 342,367 $ 162,932 $ 4,655 $ 35,174 $ 139,606
SJO LLC 581,611 166,834 4,766 53,960 356,051
----------------------------------------------------------------------------
Total $ 923,978 $ 329,766 $ 9,421 $ 89,134 $ 495,657
============================================================================
For the nine months Total Brokerage Administrative Profit Income from
ended September 30, 1997 Revenue Commissions Fees Shares Investments
----------------------------------------------------------------------------
Chesapeake LLC $ 891,986 $ 508,702 $14,350 $ 75,584 $ 293,350
SJO LLC 1,366,414 503,323 14,200 106,198 742,693
----------------------------------------------------------------------------
Total $2,258,400 $1,012,025 $28,550 $181,782 $1,036,043
============================================================================
5
As significant investees, income statement information for Chesapeake LLC and
SJO LLC is set forth as follows:
ML CHESAPEAKE DIVERSIFIED L.L.C
-------------------------------
(a Delaware limited partnership)
--------------------------------
STATEMENTS OF INCOME
--------------------
For the three For the nine
months ended months ended
September 30, September 30,
1997 1997
------------------------------
REVENUES:
Trading profits (loss):
Realized $422,790 $1,341,688
Change in unrealized 167,989 277,212
------------------------------
Total trading results 590,779 1,618,900
------------------------------
Interest income 215,193 718,860
------------------------------
Total revenues 805,972 2,337,760
------------------------------
EXPENSES:
Profit shares 83,811 208,198
Brokerage commissions 379,319 1,281,244
Administrative fees 10,837 36,163
------------------------------
Total expenses 473,967 1,525,605
------------------------------
NET INCOME $332,005 $ 812,155
==============================
6
ML SJO PROSPECT L.L.C
---------------------
(a Delaware limited partnership)
--------------------------------
STATEMENTS OF INCOME
--------------------
For the three For the nine
months ended months ended
September 30, September 30,
1997 1997
------------------------------
REVENUES:
Trading profits (loss):
Realized $ 908,298 $1,597,045
Change in unrealized 510,217 1,466,171
------------------------------
Total trading results 1,418,515 3,063,216
------------------------------
Interest income 286,126 816,260
------------------------------
Total revenues 1,704,641 3,879,476
------------------------------
EXPENSES:
Profit shares 158,538 303,774
Brokerage commissions 486,759 1,416,616
Administrative fees 13,908 40,011
------------------------------
Total expenses 659,205 1,760,401
------------------------------
NET INCOME $1,045,436 $2,119,075
==============================
7
3. FAIR VALUE AND OFF-BALANCE SHEET RISK
The Partnership's revenues by category for the respective periods were as
follows:
For the three For the three For the nine For the nine
months ended months ended months ended months ended
September 30, September 30, September 30, September 30,
1997 1996 1997 1996
----------------------------------------------------------------------
Interest rate &
Stock indices $ 17,797 $1,367,482 $ (475,664) $ 291,190
Commodities (93,018) (251,601) 72,740 (386,688)
Currencies 802,203 (149,006) 1,296,399 433,763
Energy (800) 325,957 (82,790) 993,466
Metals 66,598 (295,678) 647,512 (868,336)
--------------------------------------------------------------------
$792,780 $ 997,154 $1,458,197 $ 463,395
====================================================================
The contract/notional values of the Partnership's open derivative instrument
positions as of September 30, 1997 and December 31, 1996 were as follows:
1997 1996
------------------------------------ -----------------------------------------
Commitment to Commitment to Commitment to Commitment to
Purchase (Futures, Sell (Futures, Purchase (Futures, Sell (Futures,
Options & Forwards) Options & Forwards) Options & Forwards) Options & Forwards)
------------------ ------------------ ------------------ -------------------
Interest rate &
Stock Indices $17,881,795 $15,948,417 $23,233,479 $ 4,981,659
Commodities - 608,175 435,505 167,947
Currencies 3,444,340 5,931,171 4,329,546 8,191,986
Energy - - - -
Metals 9,641,749 6,266,323 1,788,579 3,100,766
-------------- --------------- ------------- -------------
$30,967,884 $28,754,086 $29,787,109 $16,442,358
=============== =============== ============= =============
The contract/notional value of the Partnership's exchange-traded and non-
exchange-traded open derivative instrument positions as of September 30, 1997
and December 31, 1996 were as follows:
1997 1996
----------------------------------------- -----------------------------------------
Commitment to Commitment to Commitment to Commitment to
Purchase (Futures, Sell (Futures, Purchase (Futures, Sell (Futures,
Options & Forwards) Options & Forwards) Options & Forwards) Options & Forwards)
----------------- ------------------- ------------------- -------------------
Exchange
traded $22,744,000 $18,529,226 $23,668,984 $ 7,277,636
Non-Exchange
traded 8,223,884 10,224,860 6,118,125 9,164,722
------------ ------------ ------------ ------------
$30,967,884 $28,754,086 $29,787,109 $16,442,358
============ ============ ============ ============
8
The average fair value of the Partnership's derivative instrument positions
which were open as of the end of each calendar month during the nine months
ended September 30, 1997 and the year ended December 31, 1996 were as follows:
1997 1996
----------------------------------------- ----------------------------------------
Commitment to Commitment to Commitment to Commitment to
Purchase (Futures, Sell (Futures, Purchase (Futures, Sell (Futures,
Options & Forwards) Options & Forwards) Options & Forwards) Options & Forwards)
----------------- ------------------ ------------------- -------------------
Interest rate &
Stock Indices $21,560,575 $38,546,832 $122,569,950 $56,764,487
Commodities 2,181,985 234,018 5,564,897 1,483,611
Currencies 10,115,529 16,373,522 28,363,350 29,061,432
Energy 866,145 841,680 2,652,894 41,980
Metals 7,114,209 3,157,007 10,444,937 6,273,290
------------ ------------ ------------ -------------
$41,838,443 $59,153,059 $169,596,028 $93,624,800
============ ============ ============ =============
As of September 30, 1997 and December 31, 1996, $6,179,137 and $13,229,366
of the Partnership's assets, respectively, were held in segregated accounts at
MLF in accordance with Commodity Futures Trading Commission regulations.
The gross unrealized profit and the net unrealized profit (loss) on the
Partnership's open derivative instrument positions as of September 30, 1997 and
December 31, 1996 were as follows:
1997 1996
-------------------------- ---------------------------
Gross Net Gross Net
Unrealized Unrealized Unrealized Unrealized
Profit Profit (Loss) Profit Profit (Loss)
----------- ------------ ------------ --------------
Exchange
traded $309,419 $272,720 $157,089 $154,714
Non-Exchange
traded 276,006 (58,809) 119,573 8,988
-------- -------- -------- --------
$585,425 $213,911 $276,662 $163,702
======== ======== ======== ========
4. RELATED PARTY TRANSACTIONS
MLIP is currently reviewing certain aspects of the interest arrangements
between the Partnership and certain affiliates of MLIP. The purpose of the
review is to confirm that the Partnership received interest credits as described
in its Prospectus. The results of this review have not been determined.
Item 2: Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations
- -------------
Operational Overview; Advisor Selections
- ----------------------------------------
Due to the nature of the Fund's business, its results of operations
depend on Merrill Lynch Investment Partners Inc.'s ("MLIP") ability to select
Advisors and determine the appropriate percentage of assets to allocate to them
for trading, as well as the Advisors' ability to recognize and capitalize on
trends and other profit opportunities in different sectors of the world
commodity markets. MLIP's Advisor selection procedure and leveraging analysis,
as well as the Advisors' trading methods, are confidential, so that
substantially the only information that can be furnished regarding the Fund's
results of operations is contained in the performance record of its trading.
Unlike operating businesses, general economic or seasonal conditions do not
directly affect the profit potential of the Fund, and its past performance is
not necessarily indicative of future results. Because of the speculative nature
of its trading, operational or economic trends have little relevance to the
Fund's results. MLIP believes, however, that there are certain market
conditions, for example, markets with strong price trends, in which the Fund has
a better likelihood of being profitable than in others.
9
As of October 1, 1997, the Partnership's assets were allocated as
follows:
TRADING ADVISOR MARKETS TRADED % ALLOCATION
- --------------- -------------- ------------
Chesapeake Capital Corporation Diversified 28.53
Sjo, Inc. Diversified 29.75
Hyman Beck & Co., Inc. Diversified 19.65
Willowbridge Associate Inc. Diversified 16.10
Coral Rock Investments, Inc. Currencies 5.97
-----
100.00%
MLIP expects to continue to change both allocations and Advisor
selections from time to time without advance notice to existing investors.
MLIP has no timetable or schedule for making Advisor changes or
reallocations, and generally intends to make a medium- to long-term commitment
to all Advisors selected. However, there can be no assurance as to the
frequency or number of the Advisor changes which may take place in the future,
or as to how long any of the current Advisors will continue to manage assets for
the Fund.
Results of Operations - General
- -------------------------------
MLIP believes that multi-Advisor futures funds should be regarded as
medium- to long-term investments but, unlike an operating business, it is
difficult to identify "trends" in the Fund's operations and virtually impossible
to make any predictions regarding future results based on results to date.
Markets in which sustained price trends occur with some frequency tend
to be more favorable to managed futures investments than "whipsaw," "choppy"
markets, but (i) this is not always the case, (ii) it is impossible to predict
when trending markets will occur and (iii) different Advisors are affected
differently by trends in general as well as by particular types of trends.
The Fund controls credit risk in its trading in the derivatives markets
by trading only through Merrill Lynch entities which MLIP believes to be
creditworthy. The Fund attempts to control the market risk inherent in its
derivatives trading by utilizing a multi-advisor, multi-strategy structure.
This structure purposefully attempts to diversify the Fund's Advisor group among
different strategy types and market sectors in an effort to reduce risk
(although the Fund's portfolio currently emphasizes technical and trend-
following approaches).
Performance Summary
- -------------------
During the first nine months of 1996, the Fund's average month-end Net
Assets equaled $25,833,815 and the Fund recognized gross trading gains of
$463,395 or 1.79% of average month-end Net Assets. Brokerage commissions of
$1,903,923 or 7.37%, Administrative fees of $48,818 or .19% and Profit Shares of
$75,570 or .29% of average month-end Net Assets were paid. Interest income of
$877,858 or 3.40% of average month-end Net Assets resulted in a net loss of
$687,058 or 2.66% of average month-end Net Assets, which resulted in a 2.35%
decrease in the overall Net Asset Value per Unit since December 31, 1995.
During the first nine months of 1997, the Fund's average month-end Net
Assets equaled $25,653,432 and the Fund recognized gross trading gains of
$1,458,197 or 5.68% of average month-end Net Assets. Brokerage commissions of
$696,950 or 2.71%, Administrative fees of $19,754 or .08% and Profit Shares of
$106,758 or .42% of average month-end Net Assets were paid. Interest income of
$407,370 or 1.59% and income from investments of $ 1,036,043 or 4.04% of average
month-end Net Assets resulted in net gain of $2,078,148 or 8.1% of average
month-end Net Assets which resulted in a 8.47% increase in the overall Net
Asset Value per Unit since December 31, 1996.
During the first nine months of 1997 and 1996, the Fund experienced 10
profitable months and 8 unprofitable months.
MONTH-END NET ASSET VALUE PER UNIT
Jan. Feb. Mar. Apr May Jun Jul Aug Sep
- -----------------------------------------------------------------------------------------
1996 $199.47 $192.27 $189.90 $194.60 $188.11 $184.97 $179.92 $182.48 $ 190.16
- ----------------------------------------------------------------------------------------
1997 $211.33 $219.04 $220.00 $212.65 $214.10 $212.93 $231.40 $218.21 $ 223.63
- ----------------------------------------------------------------------------------------
Importance of Market Factors
- ----------------------------
Comparisons between the Fund's performance in a given period in one
fiscal year to the same period in a prior year are unlikely to be meaningful,
given the uncertainty of price movements in the markets traded by the Fund. In
general, MLIP expects that the Fund is most likely to trade successfully in
markets which exhibit strong and sustained price trends. The current Advisor
group emphasizes technical and trend-following methods. Consequently, one would
expect that in trendless, "choppy"
10
markets the Fund would likely be unprofitable, while in markets in which major
price movements occur, the Fund would have its best profit potential (although
there could be no assurance that the Fund would, in fact, trade profitably).
However, trend-followers not infrequently will miss major price movements, and
market corrections can result in rapid and material losses (sometimes as much as
5% in a single day). Although MLIP monitors market conditions and Advisor
performance on an ongoing basis in overseeing the Fund's trading, MLIP does not
attempt to "market forecast" or to "match" trading styles with predicted market
conditions. Rather, MLIP concentrates on quantitative and qualitative analysis
of prospective Advisors, as well as on statistical studies of the historical
performance parameters of different Advisor combinations in selecting Advisors
and allocating and reallocating Fund assets among them.
Because managed futures advisors' strategies are proprietary and
confidential and market movements unpredictable, selecting advisors to implement
speculative trading strategies involves considerable uncertainty. Furthermore,
the concentration of the Fund's current Advisor portfolio, both in terms of the
number of managers retained and the common emphasis of their strategies on
technical and trend-following methods, increases the risk that unexpectedly bad
performance, turbulent market conditions or a combination of the two will result
in significant losses.
Liquidity
- ---------
Most of the Partnership's assets are held as cash which, in turn, is
used to margin its futures positions and earn interest income and is withdrawn,
as necessary, to pay redemptions and fees.
The futures contracts in which the Partnership trades may become illiquid
under certain market conditions. Commodity exchanges limit fluctuations in
futures prices during a single day by regulations referred to as "daily limits."
During a single day no trades may be executed at prices beyond the daily limit.
Once the price of a futures contract for a particular commodity has increased or
decreased by an amount equal to the daily limit, positions in the commodity can
generally neither be taken nor liquidated unless traders are willing to effect
trades at or within the limit. Futures contracts have occasionally moved to the
daily limit for several consecutive days with little or no trading. Such market
conditions could prevent the Partnership from promptly liquidating its futures
(including its options) positions. There are no limitations on the daily price
moves in trading foreign currency forward contracts through banks, although
illiquidity may develop in the forward markets due to large spreads between
"bid" and "ask" prices quoted. (Forward contracts are the bank version of
currency futures contracts and are not traded on exchanges.)
Capital Resources
- -----------------
The Partnership does not have, nor does it expect to have, any capital
assets and has no material commitments for capital expenditures. The
Partnership uses its assets to supply the necessary margin or premiums for, and
to pay any losses incurred in connection with, its trading activity and to pay
redemptions and fees.
Inflation is not a significant factor in the Fund's profitability,
although inflationary cycles can give rise to the type of major price movements
which can have a materially favorable or adverse impact on the Fund's
performance.
11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There are no pending proceedings to which the Partnership or the General
Partner is a party.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
---------
There are no exhibits required to be filed with this document.
(b) Reports on Form 8-K.
--------------------
There were no reports on Form 8-K filed during the first nine months of fiscal
1997.
12
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: MERRILL LYNCH INVESTMENT PARTNERS INC.
(General Partner)
Date: November 14, 1997 By /s/JOHN R. FRAWLEY, JR.
-----------------------
John R. Frawley, Jr.
President, Chief Executive Officer
and Director
Date: November 14, 1997 By /s/MICHAEL A. KARMELIN
----------------------
Michael A. Karmelin
Chief Financial Officer, Vice President
and Treasurer