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ML MULTI-MANAGER PORTFOLIO LLC
(A DELAWARE LIMITED LIABILITY COMPANY)
Financial Statements for the years ended
December 31, 2003 and 2002
and Independent Auditors' Report
[MERRILL LYNCH LOGO]
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ML MULTI-MANAGER PORTFOLIO LLC
(A Delaware Limited Liability Company)
TABLE OF CONTENTS
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PAGE
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INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 2003 AND 2002:
Statements of Financial Condition 2
Statements of Income 3
Statements of Changes in Members' Capital 4
Notes to Financial Statements 5-10
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INDEPENDENT AUDITORS' REPORT
To the Members of
ML Multi-Manager Portfolio LLC:
We have audited the accompanying statements of financial condition of ML
Multi-Manager Portfolio LLC (the "Company") as of December 31, 2003 and 2002,
and the related statements of income and of changes in members' capital for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of ML Multi-Manager Portfolio LLC as of
December 31, 2003 and 2002, and the results of its operations and changes in its
members' capital for the years then ended in conformity with accounting
principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
New York, New York
March 10, 2004
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ML MULTI-MANAGER PORTFOLIO LLC
(A Delaware Limited Liability Company)
STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 2003 AND 2002
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2003 2002
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ASSETS
Equity in commodity futures trading accounts:
Cash and option premiums $ 144,643,694 $ 172,773,081
Net unrealized profit on open contracts (Note 2) 3,718,704 4,530,324
Accrued interest (Note 4) 113,821 182,180
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TOTAL $ 148,476,219 $ 177,485,585
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LIABILITIES AND MEMBERS' CAPITAL
LIABILITIES:
Brokerage commissions payable (Note 4) $ 480,455 $ 618,102
Profit Shares payable (Note 5) 1,200,000 1,400,129
Administrative fees payable (Note 4) 14,465 22,373
Due to Members 6,652,454 1,990,503
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Total liabilities 8,347,374 4,031,107
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MEMBERS' CAPITAL:
Voting Members 140,128,845 173,454,478
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Total Members' capital 140,128,845 173,454,478
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TOTAL $ 148,476,219 $ 177,485,585
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See notes to financial statements.
2
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ML MULTI-MANAGER PORTFOLIO LLC
(A Delaware Limited Liability Company)
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
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2003 2002
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REVENUES
Trading profit (loss):
Realized $ 16,148,311 $ 9,241,162
Change in unrealized (812,432) 2,453,406
Proceeds from Copper Settlement (Note 6) - 1,176,518
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Total trading results 15,335,879 12,871,086
Interest income (Note 4) 1,677,075 3,079,716
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Total revenues 17,012,954 15,950,802
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EXPENSES
Brokerage commissions (Note 4) 6,518,807 7,738,731
Profit Shares (Note 5) 2,244,341 2,301,983
Administrative fees (Note 4) 230,413 279,753
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Total expenses 8,993,561 10,320,467
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NET INCOME $ 8,019,393 $ 5,630,335
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See notes to financial statements.
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ML MULTI-MANAGER PORTFOLIO LLC
(A Delaware Limited Liability Company)
STATEMENTS OF CHANGES IN MEMBERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
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VOTING MEMBERS
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MEMBERS' CAPITAL,
DECEMBER 31, 2001 $ 201,463,783
Additions 2,491,994
Net income 5,630,335
Withdrawals (36,131,634)
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MEMBERS' CAPITAL,
DECEMBER 31, 2002 173,454,478
Additions 1,030,138
Net income 8,019,393
Withdrawals (42,375,164)
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MEMBERS' CAPITAL,
DECEMBER 31, 2003 $ 140,128,845
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See notes to financial statements.
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ML MULTI-MANAGER PORTFOLIO LLC
(A Delaware Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
ML Multi-Manager Portfolio LLC (the "Company") was organized under the
Delaware Limited Liability Company Act on May 11, 1998 and commenced
trading activities on June 1, 1998. The Company engages in the speculative
trading of futures, options on futures, forwards and options on forward
contracts on a wide range of commodities. Merrill Lynch Investment
Managers, LLC ("MLIM LLC"), a wholly-owned subsidiary of Merrill Lynch
Investment Managers, LP ("MLIM"), which in turn, is an indirect
wholly-owned subsidiary of Merrill Lynch & Co. Inc. ("Merrill Lynch"), has
been delegated administrative authority of the Company. Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("MLPF&S") is the Company's commodity
broker. The Company has one class of Membership Interests, Voting
Interests. Voting Interests are held by multi-advisor funds managed by MLIM
LLC (the "Members"). The Members control all business activities and
affairs of the Company by agreement of the majority interest of the
Members, subject to the discretionary trading authority vested in and
delegated to the independent trading advisors (the "Advisors") and the
administrative authority vested in and delegated to MLIM LLC. Each Member
is a "commodity pool" sponsored and controlled by MLIM LLC and shares in
the trading results of the Company in proportion to its respective capital
account.
MLIM LLC selects independent advisors to manage the Company's assets, and
allocates and reallocates the Company's assets among existing, replacement
and additional Advisors.
ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
REVENUE RECOGNITION
Commodity futures, options on futures, forwards and options on forward
contracts are recorded on the trade date and open contracts are reflected
in Net unrealized profit on open contracts in the Statements of Financial
Condition at the difference between the original contract value and the
market value (for those commodity interests for which market quotations are
readily available) or at fair value. The Change in unrealized profit on
open contracts from one period to the next is reflected in Change in
unrealized under Trading profit (loss) in the Statements of Income.
FOREIGN CURRENCY TRANSACTIONS
The Company's functional currency is the U.S. dollar; however, it transacts
business in currencies other than the U.S. dollar. Assets and liabilities
denominated in currencies other than the U.S. dollar are translated into
U.S. dollars at the rates in effect at the date of the Statements of
Financial Condition. Income and expense items denominated in currencies
other than the U.S. dollar are translated into U.S. dollars at the rates in
effect during the period. Gains and losses resulting from the translation
to U.S. dollars are reported in total trading results.
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OPERATING EXPENSES
MLIM pays for all operating costs (including all legal, accounting,
printing, postage and similar administrative expenses) of the Company.
INCOME TAXES
No provision for income taxes has been made in the accompanying financial
statements as each Member is individually responsible for reporting income
or loss based on such Member's respective share of the Company's income and
expenses as reported for income tax purposes.
DISTRIBUTIONS
The Members are entitled to receive any distributions, which may be made by
the Company in proportion to their respective capital accounts. No such
distributions were declared for the years ended December 31, 2003 or 2002.
WITHDRAWALS
Each Member may withdraw some or all of such Member's capital at the Net
Asset Value as of the close of business on any business day. There are no
withdrawal fees or charges.
DISSOLUTION OF THE COMPANY
The Company will terminate on December 31, 2028 or at an earlier date if
certain conditions occur, as well as under certain other circumstances as
set forth in the Organization Agreement.
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2. CONDENSED SCHEDULE OF INVESTMENTS
The Company's investments, defined as Net unrealized profit on open
contracts on the Statements of Financial Condition, as of December 31, 2003
and 2002, are as follows:
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LONG POSTIONS
2003 NUMBER UNREALIZED PERCENT OF NUMBER
COMMODITY INDUSTRY SECTOR OF CONTRACTS PROFIT (LOSS) NET ASSETS OF CONTRACTS
------------------------- ------------ ------------- ---------- ------------
Agriculture 534 $ 759,185 0.54% (463)
Currencies 2,801,267 2,506,141 1.79% (2,039,212)
Energy 256 64,506 0.05% (6)
Interest rates 1,715 429,424 0.31% (425)
Metals 535 1,920,760 1.37% (73)
Stock indices 411 495,501 0.35% (76)
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Total 2003 $ 6,175,517 4.41%
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SHORT POSITIONS
2003 UNREALIZED PERCENT OF NET UNREALIZED PERCENT OF
COMMODITY INDUSTRY SECTOR PROFIT (LOSS) NET ASSETS PROFIT (LOSS) NET ASSETS MATURITY DATES
------------------------- ------------- ---------- ---------------- ---------- --------------
Agriculture $ (732,340) -0.52% $ 26,845 0.02% January 04 - May 04
Currencies (1,044,940) -0.75% 1,461,201 1.04% January 04 - April 04
Energy (1,130) 0.00% 63,376 0.05% January 04 - March 04
Interest rates (287,757) -0.21% 141,667 0.10% February 04 - September 04
Metals (338,848) -0.24% 1,581,912 1.13% January 04 - October 04
Stock indices (51,798) -0.04% 443,703 0.31% January 04 - March 04
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Total 2003 $ (2,456,813) -1.76% $ 3,718,704 2.65%
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LONG POSTIONS
2002 NUMBER UNREALIZED PERCENT OF NUMBER
COMMODITY INDUSTRY SECTOR OF CONTRACTS PROFIT (LOSS) NET ASSETS OF CONTRACTS
------------------------- ------------ ------------- ---------- ------------
Agriculture 1,263 $ 258,170 0.15% (1,361)
Currencies 2,193,248 2,945,181 1.70% (3,207,564)
Energy 346 60,714 0.03% (4)
Interest rates 3,621 2,599,914 1.50% (370)
Metals 566 97,101 0.06% (260)
Stock indices 57 (51,080) -0.03% (176)
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Total 2002 $ 5,910,000 3.41%
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SHORT POSITIONS
2002 UNREALIZED PERCENT OF NET UNREALIZED PERCENT OF
COMMODITY INDUSTRY SECTOR PROFIT (LOSS) NET ASSETS PROFIT (LOSS) NET ASSETS
------------------------- ------------- ---------- ---------------- ----------
Agriculture $ 348,188 0.20% $ 606,358 0.35%
Currencies (1,592,929) -0.92% 1,352,252 0.78%
Energy (160) 0.00% 60,554 0.03%
Interest rates (226,998) -0.13% 2,372,916 1.37%
Metals 34,845 0.02% 131,946 0.08%
Stock indices 57,378 0.03% 6,298 0.00%
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Total 2002 $ (1,379,676) -0.80% $ 4,530,324 2.61%
=============== ================
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No individual contract's unrealized profit or loss comprised greater than
5% of the Company's net assets.
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3. FINANCIAL DATA HIGHLIGHTS
The following ratios have been derived from information provided in the
financial statements for the year ended December 31, 2003.
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TOTAL INVESTMENT RETURN, COMPOUNDED MONTHLY:
Investment return before Profit Shares 7.04%
Profit Shares -1.80%
Total investment return 5.20%
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RATIO TO AVERAGE NET ASSETS:
Operating expenses (not including Profit Shares) 4.30%
Profit Shares 1.42%
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Expenses 5.72%
=========
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4. RELATED PARTY TRANSACTIONS
Currently, all of the Company's U.S. dollar assets are maintained at
MLPF&S. On assets held in U.S. dollars, Merrill Lynch credits the Company
with interest at the prevailing 91-day U.S. Treasury bill rate. The Company
is credited with interest on any of its assets and net gains actually held
by Merrill Lynch in non-U.S. dollar currencies at a prevailing local rate
received by Merrill Lynch. Merrill Lynch may derive certain economic
benefit, in excess of the interest, which Merrill Lynch pays to the Company
from the possession of such assets.
Merrill Lynch charges the Company Merrill Lynch's cost of financing
realized and unrealized losses on the Company's non-U.S. dollar-denominated
positions.
Following the allocation of the Company's trading profit and interest
income among the Members' Capital Accounts, MLIM LLC calculates the
brokerage commissions, Profit Shares, administrative fees and other
expenses due from the Company to third parties, relating to the Company's
trading on behalf of the Members. Such brokerage commissions, fees and
expenses are calculated specifically for each Member (not pro rata based on
the Members' respective capital accounts) and deducted from the Members'
capital accounts and paid out by the Company. The Company pays brokerage
commissions to MLPF&S at a flat monthly rate reflecting the fee arrangement
between each Member and MLPF&S. For the years ended December 31, 2003 and
2002, the monthly rates for Members ranged from .291 of 1% (a 3.50% annual
rate) to .729 of 1% (an 8.75% annual rate) of each Member's month-end
assets invested in the Company.
The Company pays MLIM LLC a monthly administrative fee ranging from .021 of
1% (a 0.25% annual rate) to .083 of 1% (a 1.00% annual rate) of each
Member's month-end assets for the years ended December 31, 2003 and 2002.
Month-end assets are not reduced for purposes of calculating brokerage
commissions and administrative fees by any accrued brokerage commissions,
administrative fees, Profit Shares or other fees or charges.
MLPF&S pays the Advisors annual Consulting Fees up to 2.5% of the Company's
average month-end assets allocated to them for management after reduction
for a portion of the brokerage commissions.
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5. ADVISORY AGREEMENTS
Pursuant to the Advisory Agreements among the Advisors, the Company and
MLIM LLC, the Advisors determine the commodity futures, options on futures,
forwards and options on forward contracts traded on behalf of the Company,
subject to certain rights reserved by MLIM LLC. The Advisory Agreements
generally renew one year after they are entered into, subject to certain
renewal rights exercisable by the Company.
The Company pays, from the Capital Account of each Member, to the Advisors
quarterly or annual Profit Shares generally ranging from 20% to 25% of any
New Trading Profit, as defined, recognized by each Advisor, attributable to
each Member's Capital Account, considered individually irrespective of the
overall performance of the such Member's Capital Account. Profit Shares,
which are calculated separately in respect of each Member's Capital
Account, are determined as of the end of each calendar quarter or year and
are also paid to each Advisor upon the withdrawal of capital from the
Company by a Member.
6. COPPER SETTLEMENT
The Members, as parties of a class of plaintiffs, received a settlement
payment in August 2002 relating to certain copper trades made by a number
of investors, including the Members, during a period in the mid-1990's.
Parties of the class were those who purchased or sold Comex copper futures
or options contracts between June 24, 1993 and June 15, 1996. The amount of
the settlement was paid to MM LLC on behalf of each member, based upon each
Member's individual investment activity related to Comex copper futures or
options. The effect of the settlement was included in the Company's
performance in August 2002.
7. FAIR VALUE AND OFF-BALANCE SHEET RISK
The nature of this Company has certain risks, which cannot be presented on
the financial statements. The following summarizes some of those risks.
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 the market values of the financial instruments
or commodities underlying such derivative instruments frequently result in
changes in the Company's Net unrealized profit on such derivative
instruments as reflected in the Statements of Financial Condition. The
Company's exposure to market risk is influenced by a number of factors,
including the relationships among the derivative instruments held by the
Company as well as the volatility and liquidity of the markets in which the
derivative instruments are traded.
MLIM LLC 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, calculating the Net Asset Value of the Company as of the close of
business on each day and reviewing outstanding positions for
over-concentrations. While MLIM LLC does not itself intervene in the
markets to hedge or diversify the Company's market exposure, MLIM LLC may
urge the Advisors to reallocate positions in an attempt to avoid
over-concentrations. However, such interventions are unusual. Except in
cases in which it appears that the Advisors have begun to deviate from past
practice or trading policies or to be trading erratically, MLIM LLC's basic
risk control procedures consist simply of the ongoing process of advisor
monitoring, with the market risk controls being applied by the Advisors
themselves.
CREDIT RISK
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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 also require
margin in the over-the-counter markets.
The credit risk associated with these instruments from counterparty
nonperformance is the net unrealized profit on open contracts, if any,
included in the Statements of Financial Condition. The Company attempts to
mitigate this risk by dealing almost exclusively with Merrill Lynch
entities as clearing brokers.
The Company, in its normal course of business, enters into various
contracts, with MLPF&S acting as its commodity broker. Pursuant to the
brokerage agreement with MLPF&S (which includes a netting arrangement), to
the extent that such trading results in receivables from and payables to
MLPF&S, these receivables and payables are offset and reported as a net
receivable or payable and included in the Equity in commodity futures
trading accounts in the Statements of Financial Condition.
* * * * * * * *
To the best of the knowledge and belief of the
undersigned, the information contained in this
report is accurate and complete.
Patrick Hayward
Chief Financial Officer
Merrill Lynch Investment Managers, LLC
Commodity Pool Operator of
ML Multi-Manager Portfolio LLC
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