-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IaqYyDaYSrsgk7+V73wh5OADLrY8UEx0IbRjYj6onx3t+Y1LjrlBcZ49bcQ/dpBV /AM+fLdY6aiAUQ5eg2p1ig== 0000912057-02-020599.txt : 20020515 0000912057-02-020599.hdr.sgml : 20020515 20020515130854 ACCESSION NUMBER: 0000912057-02-020599 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020331 FILED AS OF DATE: 20020515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ML PRINCIPAL PROTECTION LP CENTRAL INDEX KEY: 0000917259 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 133750642 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-25000 FILM NUMBER: 02650147 BUSINESS ADDRESS: STREET 1: 6TH FL, SOUTH TOWER, M L WORLD HDQR STREET 2: C/O ML FUTURES INVESTMENT PARTNERS INC CITY: NEW YORK STATE: NY ZIP: 10080-6106 BUSINESS PHONE: 2122364161 MAIL ADDRESS: STREET 1: C/O MERRILL LYNCH INVESTMENT PARTNERS IN STREET 2: WORLD FINANCIAL CENTER S TOWER 6TH FL CITY: NEW YORK STATE: NY ZIP: 10080-6106 FORMER COMPANY: FORMER CONFORMED NAME: SECTOR STRATEGY FUND VII LP DATE OF NAME CHANGE: 19940107 FORMER COMPANY: FORMER CONFORMED NAME: ML PRINCIPAL PROTECTION PLUS LP DATE OF NAME CHANGE: 19940616 10-Q 1 a2078552z10-q.txt 10-Q 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 March 31, 2002 -------------- 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 0-25000 ML PRINCIPAL PROTECTION L.P. ---------------------------- (Exact Name of Registrant as specified in its charter) Delaware 13-3750642 (Registrant) - ------------------------------- ------------------------ (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) c/o MLIM Alternative Strategies LLC 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 ----- ----- PART I - FINANCIAL INFORMATION Item 1. Financial Statements ML PRINCIPAL PROTECTION L.P. (A DELAWARE LIMITED PARTNERSHIP) CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
MARCH 31, DECEMBER 31, 2002 2001 (unaudited) ------------------- ------------------- ASSETS Equity in commodity futures trading accounts: Cash and options premiums $ 5,325,389 $ 3,978,866 Investment in MM LLC 14,752,013 17,346,923 Receivable from Investment in MM LLC - 158,259 Accrued interest receivable 8,003 5,933 ------------------- ------------------- TOTAL $ 20,085,405 $ 21,489,981 =================== =================== LIABILITIES AND PARTNERS' CAPITAL LIABILITIES: Redemptions payable $ 230,478 $ 184,701 Payable to MM LLC 412,568 - ------------------- ------------------- Total liabilities 643,046 184,701 ------------------- ------------------- PARTNERS' CAPITAL: General Partners (2,105 and 2,105 Units) 226,779 233,900 Limited Partners (178,333 and 189,440 Units) 19,215,580 21,071,380 ------------------- ------------------- Total partners' capital 19,442,359 21,305,280 ------------------- ------------------- TOTAL $ 20,085,405 $ 21,489,981 =================== ===================
See notes to consolidated financial statements. 2 ML PRINCIPAL PROTECTION L.P. (A DELAWARE LIMITED PARTNERSHIP) CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
FOR THE THREE FOR THE THREE MONTHS ENDED MONTHS ENDED MARCH 31, MARCH 31, 2002 2001 ------------------- -------------------- REVENUES: Interest income $ 18,856 $ 86,416 ------------------- -------------------- INCOME (LOSS) FROM INVESTMENT IN MM LLC (625,445) 1,035,636 ------------------- -------------------- NET INCOME (LOSS) $ (606,589) $ 1,122,052 =================== ==================== NET INCOME (LOSS) PER UNIT: Weighted average number of General Partner and Limited Partner Units outstanding 186,256 237,470 =================== ==================== Net income (loss) per weighted average General Partner and Limited Partner Unit $ (3.26) $ 4.73 =================== ====================
See notes to consolidated financial statements. 3 ML PRINCIPAL PROTECTION L.P. (A DELAWARE LIMITED PARTNERSHIP) CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND 2001 (unaudited)
GENERAL LIMITED UNITS PARTNER PARTNERS TOTAL -------------------- ----------------- --------------------- --------------------- PARTNERS' CAPITAL, DECEMBER 31, 2000 242,336 $ 298,960 $ 26,399,891 $ 26,698,851 Net income - 12,808 1,109,244 1,122,052 Distributions - (630) (58,547) (59,177) Redemptions (10,471) - (1,160,922) (1,160,922) -------------------- ----------------- --------------------- --------------------- PARTNERS' CAPITAL, MARCH 31, 2001 231,865 $ 311,138 $ 26,289,666 $ 26,600,804 ==================== ================= ===================== ===================== PARTNERS' CAPITAL, DECEMBER 31, 2001 191,545 $ 233,900 $ 21,071,380 $ 21,305,280 Net loss - (6,628) (599,961) (606,589) Distributions - (493) (44,420) (44,913) Redemptions (11,107) - (1,211,419) (1,211,419) -------------------- ----------------- --------------------- --------------------- PARTNERS' CAPITAL, MARCH 31, 2002 180,438 $ 226,779 $ 19,215,580 $ 19,442,359 ==================== ================= ===================== =====================
See notes to consolidated financial statements. 4 ML PRINCIPAL PROTECTION L.P. (A DELAWARE LIMITED PARTNERSHIP) NOTES TO CONSOLIDATED 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 consolidated financial position of ML Principal Protection L.P. (the "Partnership") as of March 31, 2002, and the results of its operations for the three months ended March 31, 2002 and 2001. 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 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, 2001 (the "Annual Report"). 2. INVESTMENT IN MM LLC As of March 31, 2002 and December 31, 2001, the Partnership had an investment in ML Multi-Manager Portfolio LLC ("MM LLC") of $14,752,013 and $17,346,923, respectively. As of March 31, 2002, and December 31, 2001, the Partnership's percentage ownership share of MM LLC was 7.93% and 8.61%, respectively. Total revenues and fees with respect to the Partnership's investment are set forth as follows:
FOR THE THREE MONTHS FOR THE THREE MONTHS ENDED MARCH 31, 2002 ENDED MARCH 31, 2001 (unaudited) (unaudited) ----------------------------- ---------------------------- Realized profit (loss) $ (395,862) $ 1,855,481 Change in unrealized profit/loss (15,569) (388,631) Interest income 81,957 236,382 Brokerage commissions 286,098 343,609 Administrative fees 9,537 11,454 Profit shares 336 312,533 ----------------------------- ---------------------------- Income (loss) from investment $ (625,445) $ 1,035,636 ============================= ============================
5 A condensed statements of financial condition and statements of operations for MM LLC are set forth as follows:
MARCH 31, DECEMBER 31, 2002 2001 (unaudited) ----------------------------- ----------------------------- Assets $ 193,183,798 $ 207,788,190 ============================= ============================= Liabilities $ 7,166,433 $ 6,324,407 Members' Capital 186,017,365 201,463,783 ----------------------------- ----------------------------- Total $ 193,183,798 $ 207,788,190 ============================= ============================= FOR THE THREE MONTHS FOR THE THREE MONTHS ENDED MARCH 31, 2002 ENDED MARCH 31, 2001 (UNAUDITED) (UNAUDITED) ----------------------------- ----------------------------- Revenues $ (1,913,688) $ 17,007,938 Expenses 2,151,469 6,927,429 ----------------------------- ----------------------------- Net Income (loss) $ (4,065,157) $ 10,080,509 ============================= =============================
3. NET ASSET VALUE PER UNIT At March 31, 2002 and December 31, 2001, the Net Asset Values of the different series of Units were: March 31, 2002
NET ASSET VALUE NUMBER OF UNITS NET ASSET VALUE PER UNIT ---------------------- ---------------------------- ----------------------------------- Series A Units $ 4,796,175 44,278.0000 $108.32 Series B Units 426,672 4,093.0000 $104.24 Series C Units 798,621 7,489.0000 $106.64 Series D Units 2,433,761 23,086.0000 $105.42 Series E Units 1,499,044 14,164.8800 $105.83 Series F Units 862,490 8,351.3400 $103.28 Series G Units 610,386 5,786.0300 $105.49 Series H Units 687,078 6,617.6650 $103.82 Series K Units 2,355,679 20,897.0000 $112.73 Series L Units 1,326,637 12,074.2800 $109.87 Series M Units 1,867,461 16,760.9607 $111.42 Series N Units 221,488 2,061.6778 $107.43 Series O Units 581,108 5,393.7419 $107.74 Series P Units 222,652 2,026.0000 $109.90 Series Q Units 229,979 2,263.6908 $101.59 Series R Units 472,974 4,610.0000 $102.60 Series S Units 50,154 485.0000 $103.41 ---------------------- ---------------------------- Totals $ 19,442,359 180,438.2662 ====================== ============================
6 December 31, 2001
NET ASSET VALUE NUMBER OF UNITS NET ASSET VALUE PER UNIT ---------------------- ---------------------------- ----------------------------------- Series A Units $ 5,306,952 47,168.0000 $112.51 Series B Units 463,202 4,143.0000 $111.80 Series C Units 824,171 7,647.0000 $107.78 Series D Units 2,511,793 23,486.0000 $106.95 Series E Units 1,596,682 14,730.6800 $108.39 Series F Units 931,116 8,689.3400 $107.16 Series G Units 718,712 6,786.0300 $105.91 Series H Units 779,108 7,479.9150 $104.16 Series K Units 2,909,351 24,847.0000 $117.09 Series L Units 1,392,555 12,202.0300 $114.12 Series M Units 1,975,029 17,065.9607 $115.73 Series N Units 230,060 2,061.6778 $111.59 Series O Units 610,319 5,453.7419 $111.91 Series P Units 231,271 2,026.0000 $114.15 Series Q Units 244,155 2,313.6908 $105.53 Series R Units 512,598 4,810.0000 $106.57 Series S Units 68,206 635.0000 $107.41 ---------------------- ---------------------------- Totals $ 21,305,280 191,545.0662 ====================== ============================
4. ANNUAL DISTRIBUTIONS The Partnership makes annual fixed-rate distributions, payable irrespective of profitability, of $3.50 per Unit on Units issued prior to May 1, 1997. The Partnership may also pay discretionary distributions on such Series of Units of up to 50% of any Distributable New Appreciation, as defined on such Units. No distributions are payable on Units issued after May 1, 1997. The Partnership has made the following distributions for the fiscal year ended December 31, 2001, and for the three month period ended March 31, 2002:
DISTRIBUTION FIXED-RATE DISCRETIONARY SERIES DATE DISTRIBUTION DISTRIBUTION -------- ------------------ ---------------- ---------------- 2002 ------- Series B 1/1/2002 $ 3.50 $ - Series F 1/1/2002 3.50 - 2001 ------- Series A 10/1/2001 $ 3.50 $ - Series B 1/1/2001 3.50 - Series C 4/1/2001 3.50 - Series D 7/1/2001 3.50 - Series E 10/1/2001 3.50 - Series F 1/1/2001 3.50 - Series G 4/1/2001 3.50 - Series H 7/1/2001 3.50 -
7 5. FAIR VALUE AND OFF-BALANCE SHEET RISK The nature of this Partnership has certain risks, which can not 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 Partnership's net unrealized profit (loss) on such derivative instruments as reflected in the Statements of Financial Condition or, with respect to Partnership assets invested in MM LLC, the net 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 the Partnership and MM LLC as well as the volatility and liquidity of the markets in which such derivative instruments are traded. MLIM Alternative Strategies LLC ("MLIM AS 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 selected from time to time by the Partnership or MM LLC, and include calculating the Net Asset Value of their respective Partnership accounts and 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 does not itself intervene in the markets to hedge or diversify the Partnership's market exposure, MLIM AS LLC may urge Advisors to reallocate positions, or itself reallocate Partnership assets among Advisors (although typically only as of the end of a month) in an attempt to avoid over-concentrations. However, such interventions are unusual. Except in cases in which it appears that an Advisor has begun to deviate from past practice or 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. 8 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 Pierce Fenner & Smith ("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 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 SERIES A UNIT
JAN. FEB. MAR. ---------------------------------------------------- 2001 $112.97 (a) $113.94 (a) $117.81 (a) ---------------------------------------------------- 2002 $109.41 (b) $106.60 (b) $108.32 (b) ----------------------------------------------------
(a) After reduction of $26.00 per Series A Unit distributions from inception to date. (b) After reduction of $29.50 per Series A Unit distributions from inception to date. Performance Summary All of the Partnership's trading 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, 2002 to March 31, 2002 The energy sector was the only profitable trading strategy for the quarter. Natural gas short positions were profitable as the positions benefited from the mild weather in the United States. The sector experienced large declines in February due to increased concerns of the health of world economies. This lead to price instability. Gains were realized in March in the physical commodity markets, as fears of increased conflicts in the Middle East could potentially result in a shortage of oil supplies. Trading in stock indices resulted in losses for the quarter. Long equity exposures suffered losses in choppy market conditions as profit forecasts fell short and concern over the Enron accounting situation deepened. Uncertainty in the global market place prevailed, making for extremely difficult trading conditions. Long positions appreciated in March, notably in Japan, Germany and France, but not enough to offset earlier losses. Conflicting economic reports was the cause for losses in the interest rate sector. These reports prompted the Fund's managers to flip exposures from long positions to short positions in most major international bond markets during the quarter. European fixed income exposures posted losses under particularly direction-less markets. Global bond prices declined on growing optimism for as stronger economic outlook for the remainder of 2002. Trading in the metals sector was down for the quarter. Short positions in base metals were unsuccessful early on as base metals prices soared on the hope that an economic recovery in the United States would boost demand. Precious metal prices declined as the U. S. economy continued to show signs of stabilizing and inflation concerns waned. Long gold positioning generated gains as prices rose above $300 for the first time in two years. Currency trading resulted in losses for the Partnership. In January, gains were generated in short Japanese yen positions as the Japanese yen continued to depreciate against the U. S. dollar due to continued deterioration of economic fundamentals in Japan. In February, all of the futures traded currencies appreciated against the U.S. dollar, except the Canadian dollar. March was a relatively volatile month for G-7 currencies. The U.S. dollar fell from 133 to 127.50 Japanese Yen during the first week, and then almost completely reversed the move by month-end, causing losses. Agricultural trading was the least successful strategy. During January and February, coffee prices were in a downward trend. This trend sharply reversed in March as reduced exports from Mexico and Central America trimmed inventories of exchange-approved beans in U.S. warehouses. As prices rose, the Partnership's short positions sustained losses. 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-bond cross futures trading produced gains for the sector. 9 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 corrected back to the 90 cent level, despite strong fundamentals. This resulted in losses for the Partnership's long positions. The sector rebounded strongly on March on substantial gains from short Japanese yen positions. Trading in the metals market was successful. Losses from 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. Gold's failure to rally weighted 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 by both a seasonal downturn in global oil usage and heavier than normal refinery maintenance work, reducing demand. Short natural gas positions were unprofitable in March on concerns over supply availability. 10 PART II - OTHER INFORMATION Item 1. Legal Proceedings There are no pending legal 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) The Partnership has units registered with an aggregate price of $462,114,000. Through March 31, 2002 the Partnership has sold units with an aggregate price of $164,506,495. Item 3. Defaults Upon Senior Securities None. Item 4. Submission of Matters to a Vote of Security Holders None. Item 5. Other Information Effective March 1, 2002, Mr. Robert Alderman was elected a manager of MLIM Alternative Strategies LLC, the Partnership's General Partner. Mr. Alderman is a Managing Director of MLIM and global head of Retail Sales and Business Management for Alternative Investments. In this capacity, he is responsible for coordinating a global sales effort and managing the retail product line, which includes hedge fund, private equity opportunities, managed futures and exchange funds. 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 three months of fiscal 2002. 11 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 PRINCIPAL PROTECTION L.P. By: MLIM ALTERNATIVE STRATEGIES LLC (General Partner) Date: May 15, 2002 By /s/ FABIO P. SAVOLDELLI -------------------------- Fabio P. Savoldelli Chairman, Chief Executive Officer and Manager (Principal Executive Officer) Date: May 15, 2002 By /s/ MICHAEL L. PUNGELLO -------------------------- Michael L. Pungello Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) 12 -----END PRIVACY-ENHANCED MESSAGE-----