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, 1998
-----------------
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 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
--- ---
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ML FUTURES INVESTMENTS L.P.
---------------------------
(a Delaware limited partnership)
--------------------------------
STATEMENTS OF FINANCIAL CONDITION
---------------------------------
June 30, December 31,
1998 1997
----------- -----------
ASSETS
------
Accrued interest $ 2,038 $ 45,161
Equity in commodity futures trading accounts:
Cash and option premiums 31,856 9,749,760
Net unrealized profit on open contracts (28,396) 550,739
Investments 21,778,562 14,266,512
Receivable from investments 249,937 299,255
Other receivable 81,165 51,715
----------- -----------
TOTAL 22,115,162 $24,963,142
========== ===========
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
LIABILITIES:
Redemptions payable $ 253,437 $ 45,161
Brokerage commissions payable - 76,811
Profit Shares payable - -
Administrative fees payable - 2,174
----------- -----------
Total liabilities 253,437 577,737
----------- -----------
PARTNERS' CAPITAL:
General Partner (1027 and 1787 Units) 228,908 402,372
Limited Partners (97050 and 106509 Units) 21,632,817 23,983,033
----------- -----------
Total partners' capital 21,861,725 24,385,405
----------- -----------
TOTAL $22,115,162 $24,963,142
=========== ===========
NET ASSET VALUE PER UNIT
(Based on 98077 and 108296 Units
outstanding) $ 222.90 $ 225.17
=========== ===========
See notes to financial statements.
2
ML FUTURES INVESTMENTS L.P.
---------------------------
(a Delaware limited partnership)
--------------------------------
STATEMENTS OF OPERATIONS
------------------------
For the For the For the For the
three three six six
months months months months
ended ended ended ended
June 30, June 30, June 30, June 30,
1998 1997 1998 1997
------------ ----------- --------- ----------
REVENUES:
Trading (loss) profits:
Realized $(756,703) $ (31,749) $(226,528) $ 474,762
Change in unrealized (208,285) (547,046) (579,135) 190,655
------------ ---------- --------- -----------
Total trading results (964,988) (578,795) (805,663) 665,417
------------ ---------- --------- -----------
Interest income 76,870 134,051 205,043 271,508
Income (loss) from investments 47,522 (166,731) 745,337 540,386
------------ ---------- --------- -----------
Total revenues (840,596) (611,475) 144,717 1,477,311
------------ ---------- --------- -----------
EXPENSES:
Profit shares - (4,429) - 167,129
Brokerage commissions 128,223 231,846 351,494 451,916
Administrative fees 3,663 6,624 10,042 12,753
------------ ---------- --------- -----------
Total expenses 131,886 234,041 361,536 631,798
------------ ---------- --------- -----------
NET (LOSS) INCOME $ (972,482) $ (845,516) $(216,819) $ 845,513
============ ========== ========= ===========
NET (LOSS) INCOME PER UNIT:
Weighted average number
of units outstanding 101,967 118,734 104,290 120,283
============ =========== ========= ===========
Weighted average net income
per Limited Partner
and General Partner Unit $ (9.54) $ (7.12) $ (2.08) $ 7.03
============ =========== ========= ===========
See notes to financial statements.
3
ML FUTURES INVESTMENTS L.P.
---------------------------
(a Delaware limited partnership)
------------------------------
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
------------------------------------------
For the six months ended June 30, 1998 and 1997
-----------------------------------------------
Units Limited Partners General Partner Total
----------------- ------------------ ------------------ -----------------
PARTNERS' CAPITAL,
December 31, 1996 122,597 $24,906,584 $ 368,402 $25,274,986
Net income 833,420 12,093 845,513
Redemptions (6,641) (1,429,963) - (1,429,963)
----------------- ------------------ ------------------ -----------------
PARTNERS' CAPITAL,
June 30, 1997 115,956 $24,310,041 $ 380,495 $24,690,536
================= ================== ================== =================
PARTNERS' CAPITAL,
December 31, 1997 108,296 $23,983,033 $ 402,372 $24,385,405
Net loss - (212,606) (4,213) (216,819)
Redemptions (10,219) (2,137,610) (169,251) (2,306,861)
----------------- ------------------ ------------------ -----------------
PARTNERS' CAPITAL,
June 30, 1998 98,077 $21,632,817 $ 228,908 $21,861,725
================= ================== ================== =================
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 June 30,
1998 and the results of its operations for the six months ended June 30, 1998
and 1997. 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 generally 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, 1997 (the "Annual Report").
2. INVESTMENTS
Many of the multi-advisor funds (the "Multi-Advisor Funds") sponsored by
Merrill Lynch Investment Partners Inc. ("MLIP") allocate their assets to a
number of the same Trading Advisors. However, because different Multi-Advisor
Funds have historically allocated assets to slightly different Advisor groups,
the Multi-Advisor Funds have often been required to open and maintain
individual trading accounts with each Advisor. MLIP has decided to
consolidate the trading accounts of nine of its Multi-Advisor Funds (including
the Partnership) as of June 1, 1998. The consolidation is achieved by having
these Multi-Advisor Funds close their existing trading accounts and invest in
a limited liability company, ML Multi-Manager Portfolio L.L.C. ("MM LLC ")
which will open a single account with each Advisor selected. MM LLC is managed
by MLIP, initially has no investors other than the Multi-Advisor Funds and
serves solely as the vehicle through which the assets of such Multi-Advisor
Funds are combined in order to be managed through single rather than multiple
accounts.
As of June 30, 1998 the Partnership had an investment in MM LLC and as of
December 31, 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") as follows:
1998 1997
------------------ ---------------------
MM LLC $21,778,562 $ -
Chesapeake LLC - 7,176,214
SJO LLC - 7,090,298
------------------ ---------------------
Total $21,778,562 $14,266,512
================== =====================
During the second quarter of 1998, the Partnership withdrew its investments in
Chesapeake LLC and SJO LLC.
5
Total revenues and fees with respect to such investments is set forth as
follows:
For the three months Total Brokerage Administrative Profit Income (loss) from
ended June 30, 1998 Revenue Commissions Fees Shares Investments
---------------- ----------------- ------------------- -------------- -----------------------
Chesapeake LLC $ 45,880 $108,083 $ 3,088 $(13,332) $(51,959)
MM LLC 234,031 161,203 4,606 47,939 20,283
SJO LLC 192,515 101,205 2,892 9,220 79,198
---------------- ----------------- ------------------- -------------- -----------------------
Total $ 472,426 $370,491 $10,586 $ 43,827 $ 47,522
================ ================= =================== ============== =======================
For the three months Total Brokerage Administrative Profit (Loss)Income from
ended June 30, 1997 Revenue Commissions Fees Shares Investments
---------------- ----------------- ------------------- -------------- -----------------------
Chesapeake LLC $(172,669) $164,570 $ 4,702 $(68,483) $(273,458)
SJO LLC 284,581 163,117 4,660 10,077 106,727
---------------- ----------------- ------------------- -------------- -----------------------
Total $ 111,912 $327,687 $ 9,362 $(58,406) $(166,731)
================ ================= =================== ============== =======================
For the six months Total Brokerage Administrative Profit Income from
ended June 30, 1998 Revenue Commissions Fees Shares Investments
---------------- ----------------- ------------------- -------------- ----------------------
Chesapeake LLC $ 870,260 $270,588 $ 7,731 $118,361 $473,580
MM LLC 234,031 161,203 4,606 47,939 20,283
SJO LLC 551,017 260,867 7,454 31,222 251,474
---------------- ----------------- ------------------- -------------- ----------------------
Total $1,655,308 $692,658 $19,791 $197,522 $745,337
================ ================= =================== ============== ======================
For the six months Total Brokerage Administrative Profit Income from
ended June 30, 1997 Revenue Commissions Fees Shares Investments
---------------- ----------------- ------------------- -------------- ----------------------
Chesapeake LLC $ 549,619 $345,770 $ 9,695 $ 40,410 $153,744
SJO LLC 784,803 336,489 9,434 52,238 386,642
---------------- ----------------- ------------------- -------------- ----------------------
Total $1,334,422 $682,259 $19,129 $ 92,648 $540,386
================ ================= =================== ============== ======================
6
Condensed statements of financial condition as of June 30, 1998 and December
31, 1997 and statements of income for the six months ended June 30, 1998 and
1997 are set forth as follows:
MM LLC Chesepeake LLC SJO LLC
June 30, 1998 December 31, 1997 December 31, 1997
-------------------------- -------------------------- ----------------------------
Assets $ 123,484,970 $ 17,195,182 $ 21,240,207
========================== ========================== ============================
Liabilities $ 3,872,011 $ 704,681 $ 2,058,617
Members' Capital 119,612,959 16,490,501 19,181,590
-------------------------- -------------------------- ----------------------------
Total $ 123,484,970 $ 17,195,182 $ 21,240,207
========================== ========================== ============================
MM LLC MM LLC
For the three months For the six months
ended June 30, 1998 ended June 30, 1998
---------------------------- ------------------------------
Revenues $ 1,307,775 $ 1,307,775
Expenses 1,187,403 1,187,403
-------------------------- ------------------------------
Net Income $ 120,372 $ 120,372
========================== ==============================
Chesapeake LLC
For the three months ended For the three months ended For the six months ended For the six months ended
June 30, 1998 June 30, 1997 June 30, 1998 June 30, 1997
-------------------------- -------------------------- --------------------------- --------------------------
Revenues $ 95,555 $ (448,098) $ 1,985,575 1,531,788
Expenses 299,321 250,719 903,412 1,051,638
-------------------------- -------------------------- --------------------------- --------------------------
Net (Loss) Income $ (203,766) $ (698,817) $ 1,082,163 480,150
========================== ========================== =========================== ==========================
SJO LLC
For the three months ended For the three months ended For the six months ended For the six months ended
June 30, 1998 June 30, 1997 June 30, 1998 June 30, 1997
-------------------------- -------------------------- --------------------------- --------------------------
Revenues $ 500,566 $ 765,489 $ 1,472,849 $ 2,174,836
Expenses 299,321 481,869 802,877 1,101,197
-------------------------- -------------------------- --------------------------- --------------------------
Net Income $ 201,245 $ 283,620 $ 669,972 $ 1,073,639
========================== ========================== =========================== ==========================
7
3. FAIR VALUE AND OFF-BALANCE SHEET RISK
As of June 1, 1998, the Partnership invested all of its assets in MM LLC. The
Partnership is thus, invested indirectly in the trading of derivative
instruments. The only derivative instruments held by the Partnership were
offsetting commitments to purchase and sell the same derivative instruments on
the same date in the future. These commitments were economically offsetting but
were not, as a technical matter, offset in the forward market until settlement
date.
The Partnership's total trading results by reporting category for the
respective periods were as follows:
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,
1998 1997 1998 1997
------------------ ------------------ ---------------- ----------------
Interest rate &
Stock indices $(192,268) $(731,626) $ 151,114 $(493,461)
Commodities (5,406) (203,063) (38,478) 165,758
Currencies (412,351) 226,002 (610,635) 494,196
Energy (14,150) (67,090) (12,000) (81,990)
Metals (340,813) 196,982 (295,664) 580,914
------------------ ------------------ ---------------- ----------------
$(964,988) $(578,795) $(805,663) $ 665,417
================== ================== ================ ================
The contract/notional values of the Partnership's open derivative instrument
positions as of June 30, 1998 and December 31, 1997 were as follows:
1998 1997
---------------------------------------------------- --------------------------------------------
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 $ - $ - $44,385,611 $11,883,229
Commodities - - - 570,095
Currencies - - 2,030,107 14,234,764
Metals 1,354,359 1,354,359 1,353,394 1,703,304
---------------------- ---------------------- ------------------ ------------------
$1,354,359 $1,354,359 $47,769,112 $28,391,392
====================== ====================== ================== ==================
The contract/notional values of the Partnership's exchange-traded and non-
exchange-traded open derivative instrument positions as of June 30, 1998 and
December 31, 1997 were as follows:
1998 1997
--------------------------------------------- ---------------------------------------------
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 $ - $ - $45,970,412 $24,361,153
Non-Exchange
traded 1,354,359 1,354,359 1,798,700 4,030,239
------------------ ------------------ ------------------ ------------------
$1,354,359 $1,354,359 $47,769,112 $28,391,392
================== ================== ================== ==================
8
The average fair values, based on contract/notional values, of the Partnership's
derivative instrument positions which were open as of the end of each calendar
month during the six months ended June 30, 1998 and the year ended December 31,
1997 were as follows:
1998 1997
--------------------------------------------- ---------------------------------------------
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 $31,221,962 $14,105,150 $23,451,890 $30,553,601
Commodities 387,145 698,773 1,662,055 398,620
Currencies 9,834,785 9,514,085 9,044,965 14,258,465
Energy - - 866,145 841,680
Metals 2,279,921 1,249,665 5,754,718 2,949,551
------------------ ------------------ ------------------ ------------------
$43,723,813 $25,567,673 $40,779,773 $49,001,917
================== ================== ================== ==================
The gross unrealized profit and the net unrealized profit (loss) on the
Partnership's open derivative instrument positions as of June 30, 1998 and
December 31, 1997 were as follows:
1998 1997
----------------------------------- ------------------------------------
Gross Net Gross Net
Unrealized Unrealized Unrealized Unrealized
Profit Loss Profit Profit
--------------- --------------- --------------- ---------------
Exchange
traded $ - $ - $552,949 $481,945
Non-Exchange
traded 82,488 (28,396) 101,308 68,794
--------------- --------------- --------------- ---------------
$82,488 $(28,396) $654,257 $550,739
=============== =============== =============== ===============
Item 2: Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations
-------------
The significant variations in both the statement of financial condition and the
statement of operations line items is primarily due to the Partnership placing
assets under the management of Advisors not through opening managed accounts
with them but rather through investing in MM LLC.
MONTH-END NET ASSET VALUE PER UNIT
Jan. Feb. Mar. Apr. May Jun.
- ----------------------------------------------------------------------------
1997 $211.33 $219.04 $220.00 $212.65 $214.10 $212.93
- ----------------------------------------------------------------------------
1998 $229.37 $231.94 $232.21 $219.61 $222.70 $222.90
- ----------------------------------------------------------------------------
Performance Summary
January 1, 1997 to June 30, 1997
In currency markets, the U.S. dollar rallied and started 1997 on a strong note,
rising to a four-year high versus the Japanese yen and two-and-a-half year highs
versus the Deutsche mark and the Swiss franc. January and February proved
profitable for currencies; however, losses were incurred in March.
Global interest rate markets began the year on a volatile note, as investors
evaluated economic data for signs of inflation. Profits resulted from interest
rate trading in February and March.
9
In energy markets, a slump in crude oil prices was characteristic of its
lackluster performance from the beginning of the year. Early in 1997,
volatility returned in the energy markets, reflecting the impact of a winter
significantly warmer than normal. January and March saw losses in energy;
however, February proved profitable.
Agricultural commodity trading proved profitable throughout the quarter.
Soybean prices reached their highest level in over eight years, on continued
demand and fears that inventories could fall to critically low levels before the
next harvest.
April 1, 1997 to June 30, 1997
In the currency markets, the dollar underwent a significant correction in
the Spring against the Japanese yen due to the G7 finance ministers'
determination that a further dollar advance would be counter-productive to their
current goals. Currency trading was profitable in April and June.
Global interest rate trading provided varied results for the quarter.
Profits were incurred in May and June. April's losses were due to U.S. bond
prices moving in a directionless pattern, as investors remained concerned over
inflation and its impact on further increases in interest rates by the U.S.
Federal Reserve.
Energy trading was unprofitable throughout the quarter. In June crude oil
trended downward during the beginning of the month, before a sudden price
reversal occurred amid speculation that Iraq exports could delayed until August.
Price movement of heating oil and unleaded gas proved to be trendless.
be
Agricultural commodity trading was profitable in April and May. May's
profits were due to coffee prices surging beyond three dollars a pound for the
first time in twenty years, on the possibility of frost in Brazil and reports of
poor crops in smaller countries.
January 1, 1998 to June 30, 1998
January 1, 1998 to March 31, 1998
The Fund's positions in the global interest rate markets were profitable during
the quarter. In Europe, an extended bond market rally continued despite an
environment of robust growth in the United States, Canada and the United
Kingdom, as well as a strong pick-up in growth in continental Europe.
Gold prices drifted sideways and lower as Asian demand continued to slow and
demand in the Middle East was affected by low oil prices. Initially buoyed on
concerns about a U.S.-led military strike against Iraq, crude oil fell to a nine
year low, as the globally warm winter, the return of Iraq as a producer and the
Asian economic crisis added to OPEC's supply glut problems.
Trading results in stock index markets were mixed, but profitable, despite a
strong first-quarter performance by the U.S. equity market as several
consecutive weekly gains were recorded with most market averages setting new
highs. Results in currency trading were also mixed, but unprofitable. In
particular, the Swiss franc weakened versus the U.S. dollar.
Agricultural commodity markets provided profitable trading results overall.
Live cattle and hog prices trended downward throughout the quarter. Cotton
prices moved mostly upward during the quarter, but prices dropped off sharply at
the end of March.
April 1, 1998 to June 30, 1998
As swings in the U.S. dollar and developments in Japan affected bond markets,
the Fund's interest rate trading during the quarter resulted in losses,
particularly in Eurodollar deposits and U.S. Treasury bonds. Early in the
quarter, Treasury trading was range-bound, as concern that the economy might be
overheating was balanced by the potential impact of the Asian recession.
Additionally, Australian bonds and bills saw a dramatic drop in prices in early
June, as dollar-bloc currencies remained under pressure versus the U.S. dollar
due to the Japanese/Asian crisis.
Metals and energy trading also resulted in losses. The depressed gold market
weakened further following news of a European Central Bank consensus that ten to
fifteen percent of reserves should be made up of gold bullion which was at the
low end of expectations. Despite production cuts initiated by OPEC at the end
of March, world oil supplies remained excessive and oil prices stood at
relatively low levels throughout the quarter.
Results in currency trading were unprofitable, as the Japanese yen weakened
during June to an eight-year low versus the U.S. dollar. Trading results in
stock index markets were also unprofitable, as the Asia-Pacific region's equity
markets weakened across the board. In particular, Hong Kong's Hang Seng index
trended downward during most of the quarter and traded at a three-year low.
10
Agricultural commodity trading produced profits. The U.S. soybean crop got off
to a good start which contributed to higher yield expectations and a more
burdensome supply outlook and soybean prices traded in a volatile pattern for
the second half of the quarter. Sugar futures maintained mostly a downtrend, as
no major buyers emerged to support the market. Similarly, coffee prices trended
downward, as good weather conditions in Central America and Mexico increased the
prospects of more output from these countries.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not Applicable
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 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 11, 1998, Jo Ann Di Dario became a Vice President, Treasurer
and Chief Financial Officer of Merrill Lynch Investment Partners Inc. ("MLIP").
Ms. Di Dario was born in 1946. Before joining MLIP, she was self-employed for
one year. From February 1996 to May 1997, she worked as a consultant for Global
Asset Management, an international mutual fund organizer and operator
headquartered in London, where she offered advice on restructuring the back
office operations. From May 1992 to January 1996, Ms. Di Dario served as Vice
President of Meridian Bank Corporation, a regional bank holding company. She
was responsible for managing the treasury operations of the bank holding company
and its wholly-owned subsidiary, Meridian Investment Company Inc. Ms. Di Dario
managed the domestic treasury operation of First Fidelity Bank, a regional bank,
from September 1991 to May 1992. From 1985 until December 1990, Ms. Di Dario
was Vice President, Secretary and Controller of Caxton Corporation, a commodity
pool operator and commodity trading advisor. Her background includes seven
years of public accounting experience. She graduated with high honors from
Stockton State College with a Bachelor of Science Degree in Accounting.
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 1998.
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: August 11, 1998 By /s/ JOHN R. FRAWLEY, JR.
------------------------
John R. Frawley, Jr.
Chairman, Chief Executive Officer,
President and Director
Date: August 11, 1998 By /s/ JO ANN DI DARIO
-------------------
Jo Ann Di Dario
Vice President, Chief Financial Officer
and Treasurer