-----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, IxOpwpY8C7zoHOnhazAgGVc6umE2U2Z+FAyVvXUNe+TioyxjN184SwYF5UpwGSnm EGabYOjBrY59zwtF9GiDQw== 0000950130-96-003176.txt : 19960816 0000950130-96-003176.hdr.sgml : 19960816 ACCESSION NUMBER: 0000950130-96-003176 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ML PRINCIPAL PROTECTION LP CENTRAL INDEX KEY: 0000917259 STANDARD INDUSTRIAL CLASSIFICATION: SECURITY & COMMODITY BROKERS, DEALERS, EXCHANGES & SERVICES [6200] 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: 96611485 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: ML PRINCIPAL PROTECTION PLUS LP DATE OF NAME CHANGE: 19940616 FORMER COMPANY: FORMER CONFORMED NAME: SECTOR STRATEGY FUND VII LP DATE OF NAME CHANGE: 19940107 10-Q 1 FORM 10-Q (ML PRINCIPAL PROTECTION L.P.) 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, 1996 ------------- 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 0-22448 ML PRINCIPAL PROTECTION L.P. ---------------------------- (formerly ML Principal Protection Plus L.P.) ML PRINCIPAL PROTECTION TRADING L.P. ------------------------------------ (formerly ML Principal Protection Plus Trading L.P.) (Rule 140 Co-Registrant) (Exact Name of Registrant as specified in its charter) Delaware 13-3750642 (Registrant) - --------------------------------- (State or other jurisdiction of 13-3775509 (Co-Registrant) --------------------------------- incorporation or organization) (IRS Employer Identification No.) c/o Merrill Lynch Investment Partners Inc. (formerly ML Futures 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) 212-236-4161 -------------------------------------------------- (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. There are no exhibits and no exhibit index filed with this document. PART I - FINANCIAL INFORMATION Item 1. Financial Statements ML PRINCIPAL PROTECTION PLUS L.P. --------------------------------- (a Delaware limited partnership) ------------------------------ CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION ----------------------------------------------
June 30, December 31, 1996 1995 ---- ---- ASSETS - ------ Cash $ 150,524 $ 19,332 Accrued interest receivable 774,459 17,852 U.S. Government securities 78,437,029 74,280,477 Equity in commodity futures trading accounts: Cash and option premiums 7,312,678 1,586,839 Net unrealized gain on open contracts 319,429 2,073,538 ------------ ------------ TOTAL $86,994,119 $77,978,038 ============ ============ LIABILITIES AND PARTNERS' CAPITAL - --------------------------------- LIABILITIES: Settlement payment due to broker $ - $ 1,496,925 Redemptions payable 2,054,800 539,877 Organization and offering costs payable 108,481 148,331 Brokerage commissions payable (Note 2) 407,312 356,607 Profit shares payable 156,977 78,840 Administrative expense payable (Note 2) 11,008 - ------------ ------------ Total liabilities 2,738,578 2,620,580 ------------ ------------ Minority interest 648,720 510,914 ------------ ------------ PARTNERS' CAPITAL: General Partner (19,785.98 and 16,603.42 Units) 2,115,818 1,766,403 Limited Partners (775,688.68 and 697,715.56 Units) 81,491,003 73,080,141 ------------ ------------ Total partners' capital 83,606,821 74,846,544 ------------ ------------ TOTAL $86,994,119 $77,978,038 ============ ============
NET ASSET VALUE PER UNIT (Note 3) See notes to consolidated financial statements. 2 ML PRINCIPAL PROTECTION PLUS L.P. --------------------------------- (a Delaware limited partnership) ------------------------------ CONSOLIDATED STATEMENT OF OPERATIONS ------------------------------------
For the three For the three For the six For the six months ended months ended months ended months ended June 30, 1996 June 30, 1995 June 30, 1996 June 30, 1995 ------------- ------------- ------------- ------------- REVENUES: Trading profits (loss): Realized $ 3,347,221 $ 2,581,622 $ 3,956,033 $ 4,229,697 Change in unrealized (1,062,681) (1,555,331) (1,754,109) (561,845) ------------- ------------- ------------- ------------- Total trading results 2,284,540 1,026,291 2,201,924 3,667,852 ------------- ------------- ------------- ------------- Interest income 1,161,849 739,550 2,289,595 1,351,723 ------------- ------------- ------------- ------------- Total revenues 3,446,389 1,765,841 4,491,519 5,019,575 ------------- ------------- ------------- ------------- EXPENSES: Profit shares 156,978 143,940 243,603 474,205 Brokerage commissions (Note 2) 1,238,890 702,828 2,391,122 1,281,378 Administrative expense (Note 2) 33,483 - 64,625 - ------------- ------------- ------------- ------------- Total expenses 1,429,351 846,768 2,699,350 1,755,583 ------------- ------------- ------------- ------------- INCOME BEFORE MINORITY INTEREST 2,017,038 919,073 1,792,169 3,263,992 Minority interest on income (18,870) (5,756) (13,806) (25,323) ------------- ------------- ------------- ------------- NET INCOME $ 1,998,168 $ 913,317 $ 1,778,363 $ 3,238,669 ============= ============= ============= ============= NET INCOME PER UNIT: Weighted average number of units outstanding 840,119 446,167 823,744 415,968 ======= ======= ======= ======= Weighted average net income per unit $2.38 $2.05 $2.16 $7.79 ===== ===== ===== =====
See notes to consolidated financial statements. 3 ML PRINCIPAL PROTECTION PLUS L.P. --------------------------------- (a Delaware limited partnership) ------------------------------ CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS'CAPITAL ----------------------------------------------------- For the six months ended June 30, 1996 and 1995 -----------------------------------------------
Limited General Units Partners Partner Total ----- -------- ------- ----- PARTNERS' CAPITAL, DECEMBER 31, 1994 317,562 $31,017,854 $1,074,985 $32,092,839 Additions 133,660 13,121,600 244,400 13,366,000 Net income - 3,135,256 103,413 3,238,669 Redemptions (8,078) (865,184) - (865,184) -------------- -------------- -------------- -------------- PARTNERS' CAPITAL, JUNE 30, 1995 443,144 $46,409,526 $1,422,798 $47,832,324 ============== ============== ============== ============== PARTNERS' CAPITAL, DECEMBER 31, 1995 714,318.98 $73,080,141 $1,766,403 $74,846,544 Subscriptions 168,000.00 16,481,744 318,256 16,800,000 Distributions - (595,090) (12,775) (607,865) Net income - 1,734,429 43,934 1,778,363 Redemptions (86,844.32) (9,210,221) - (9,210,221) -------------- -------------- -------------- -------------- PARTNERS' CAPITAL, JUNE 30, 1996 795,474.66 $81,491,003 $2,115,818 $83,606,821 ============== ============== ============== ==============
See notes to consolidated financial statements. 4 ML PRINCIPAL PROTECTION PLUS L.P. --------------------------------- (a Delaware Limited Partnership) ------------------------------ NOTES TO CONSOLIDATED 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 Principal Protection Plus L.P. (the "Partnership") as of June 30, 1996 and the results of its operations for the six months ended June 30, 1996 and 1995. 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, 1995 (the "Annual Report"). 2. RELATED PARTY TRANSACTIONS The Partnership pays brokerage commissions to MLF, at a flat monthly rate equal to 0.7917 of 1% (a 9.5% annual rate) of the Partnership's month-end assets allocated to trading. Effective January 1, 1996, the brokerage commission the Partnership pays to the Commodity Broker was reduced to .7708% (a 9.25% annual rate), and the Partnership began to pay an administrative fee to the General Partner of .020833% (a .25% annual rate). Assets committed to trading are not reduced for purposes of calculating brokerage commissions by any accrued but unpaid brokerage commissions, profit shares or other fees or charges. The General Partner estimates that the round-turn equivalent commission rate charged to the Partnership during the six months ended June 30, 1996 and 1995 was approximately $114 and $53, respectively (not including, in calculating round-turn equivalents, forward contracts on a futures-equivalent basis). MLF pays MLAM annual management fees of 0.20 of 1% on the first $25 million of Partnership capital managed by MLAM, 0.15 of 1% on the next $25 million of capital, 0.125 of 1% on the next $50 million, and 0.10 of 1% on capital in excess of $100 million. Such fees are paid quarterly in arrears and are calculated on the basis of the average daily assets managed by MLAM. MLF pays the Trading Advisors annual Consulting Fees, generally ranging from 1% to 4% of the Partnership's average month-end assets allocated to them for management, after reduction for a portion of the brokerage commissions accrued in respect of such assets. 3. NET ASSET VALUE PER UNIT For financial reporting purposes, the Partnership deducted the total organization and initial offering costs payable to the General Partner at inception for purposes of determining Net Asset Value. For all other purposes (including computing Net Asset Value for redemptions), the Partnership deducts the organization and initial offering cost reimbursements only as actually paid. At June 30, 1996 and December 31, 1995, the Net Asset Values of the different series of Units for financial reporting purposes and for all other purposes were: 5
Net Asset Value Net Asset Value per Unit ------------------------------------------- ------------------------------------------------------- June 30, 1996 All Other Financial Number of All Other Financial Purposes Reporting Units Purposes Reporting -------- --------- ----- -------- ---------- June 30, 1996 ------------------------------------------------------------------------------------------------------- Series A Units $25,607,399 $25,575,643 234,228.00 $109.33 $109.19 Series B Units 4,132,236 4,125,002 38,740.00 $106.67 $106.48 Series C Units 5,495,239 5,487,793 53,850.00 $102.05 $101.91 Series D Units 20,711,439 20,688,066 198,175.00 $104.51 $104.39 Series E Units 11,350,560 11,337,762 108,246.16 $104.86 $104.74 Series F Units 9,790,711 9,779,059 96,253.00 $101.72 $101.60 Series G Units 6,621,076 6,613,496 65,982.50 $100.35 $100.23 --------------- --------------- --------------- Total $83,708,660 $83,606,821 795,474.66 =============== =============== =============== December 31, 1995 ------------------------------------------------------------------------------------------------------- Series A Units $29,380,564 $29,321,472 274,693.00 $106.96 $106.74 Series B Units 7,011,988 6,999,016 63,540.00 $110.36 $110.15 Series C Units 6,800,466 6,788,236 65,800.00 $103.35 $103.16 Series D Units 20,522,519 20,485,530 200,540.00 $102.34 $102.15 Series E Units 11,272,696 11,252,290 109,745.98 $102.72 $102.53 --------------- --------------- --------------- Total $74,988,233 $74,846,544 $714,318.98 =============== =============== ===============
4. FAIR VALUE AND OFF-BALANCE SHEET RISK The Partnership trades futures, options and forward contracts on interest rates, stock indices, commodities, currencies, energy and metals. The Partnership's revenues by reporting category for the six months ended June 30, 1996 were as follows:
June 30, 1996 ------------- Interest rate $ (863,343) Stock indices 147,230 Commodities 36,109 Currencies 1,745,104 Energy 1,616,592 Metals (479,768) -------------- $2,201,924 ==============
Market Risk ----------- Derivative instruments involve varying degrees of off-balance sheet market risk, and 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 unrealized gain or loss on such derivative instruments as reflected in the Consolidated Statements of Financial Condition as of the end of the period. The Partnership's exposure to market risk is influenced by a number of factors, including the relationships among the derivative instruments held by the Trading Partnership as well as the volatility and liquidity of the markets in which the derivative instruments are traded. The General Partner has procedures in place intended to control market risk, although there can be no assurance that they will, in fact, succeed in doing so. These procedures focus primarily on 6 monitoring the trading of the Advisors selected from time to time for the Partnership, adjusting the percentage of the Partnership's total assets allocated to trading with respect to each Series of Units, calculating the Net Asset Value of the Advisors' respective Partnership 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 the General Partner will not itself intervene in the markets to hedge or diversify the Partnership's market exposure, the General Partner 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, the General Partner'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. Fair Value ---------- The derivative instruments traded by the Trading Partnership are marked to market daily with the resulting unrealized gains or losses recorded in the Consolidated Statements of Financial Condition and the related income or loss reflected in trading revenues in the Consolidated Statements of Income. The contract/notional values of the Trading Partnership's open derivative instrument positions as of June 30, 1996 and December 31, 1995 were as follows:
1996 1995 ------------------------------------------- ------------------------------------------- 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 $ 89,919,833 $ 66,964,208 $230,060,441 $ 37,950,386 Stock indices 14,749,659 4,105,620 8,866,682 152,858 Commodities 16,877,358 6,167,692 17,582,456 3,850,643 Currencies 70,531,505 94,498,431 34,118,884 71,457,359 Energy 10,767,290 - 9,047,015 3,440,800 Metals 10,944,290 29,800,868 7,796,167 11,765,623 -------------- -------------- -------------- -------------- $213,789,935 $201,536,819 $307,471,645 $128,617,669 ============== ============== ============== ==============
Substantially all of the Trading Partnership's open derivative instruments outstanding as of June 30, 1996 expire within one year. The contract/notional value of the Trading Partnership's exchange-traded and non-exchange-traded derivative instrument positions as of June 30, 1996 and December 31, 1995 was as follows:
1996 1995 ---------------------------------------------- ---------------------------------------------- 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 $150,718,121 $125,366,894 $238,654,840 $ 76,980,099 Non-Exchange traded 63,071,814 76,169,925 68,816,805 51,637,570 ----------------- ----------------- ----------------- ----------------- $213,789,935 $201,536,819 $307,471,645 $128,617,669 ================= ================= ================= =================
7 The average fair value of the Trading Partnership's derivative instrument positions which were open as of the end of each calendar month during the six months ended June 30, 1996 and the year ended December 31, 1995 was as follows:
1996 1995 ------------------------------------------- ------------------------------------------- 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 $162,375,225 $157,736,373 $170,252,009 $14,100,439 Stock indices 14,607,351 556,147 5,390,839 1,288,747 Commodities 16,577,987 5,721,223 9,360,681 2,915,357 Currencies 70,207,445 114,313,578 36,054,488 38,557,545 Energy 6,994,062 1,940,292 2,823,925 2,417,008 Metals 20,437,590 14,276,337 6,113,263 10,207,341 --------------- --------------- --------------- --------------- $291,199,660 $294,543,950 $229,995,205 $69,486,437 =============== =============== =============== ===============
A portion of the amounts indicated as off-balance sheet risk reflects offsetting commitments to purchase and to sell the same derivative instrument on the same date in the future. These commitments are economically offsetting but are not, as a technical matter, offset in the forward markets until the settlement date. 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 fair value amounts in the above tables represent the extent of the Trading Partnership's market exposure in the particular class of derivative instrument, but not the credit risk associated with counterparty nonperformance. The credit risk associated with these instruments, from counterparty nonperformance, is the net unrealized gain, if any, included on the Consolidated Statements of Financial Condition. The Trading Partnership also has credit risk because the sole counterparty or broker with respect to most of the Trading Partnership's assets is MLF. As of June 30, 1996 and December 31, 1995, $3,423,445 and $10,444,577 of the Trading Partnership's assets, respectively, were held in segregated accounts in accordance with U.S. Commodity Futures Trading Commission regulations. Substantially all of the Partnership's assets were held in unregulated accounts maintained at MLF, Merrill Lynch Pierce, Fenner & Smith Incorporated or certain of their affiliates. The gross unrealized gain and the net unrealized gain on the Trading Partnership's open derivative instrument positions as of June 30, 1996 and December 31, 1995 were as follows:
1996 1995 ----- ----- Gross Net Gross Net Unrealized Unrealized Unrealized Unrealized Gain Gain (Loss) Gain Gain (Loss) ---- ----------- ---- ----------- Exchange traded $1,976,626 $1,019,725 $2,942,622 $2,223,484 Non-Exchange traded 1,259,714 (700,296) 352,246 (149,946) -------------- -------------- -------------- -------------- $3,236,340 $319,429 $3,294,868 $2,073,538 ============== ============== ============== ==============
The partnership controls credit risk by dealing almost exclusively with Merrill Lynch entities as brokers and counterparties. 8 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 MLIP's ability to select Advisors and determine the appropriate percentage of each series' 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. As of July 1, 1996, the trading assets attributable to each series of Units were allocated approximately as follows (approximately 60% of each series' total capital being allocated to trading): Chesapeake Capital Corporation 25.00 John W. Henry & Co., Inc. 25.00 Non-"Core" Advisors 50.00 ------ Total 100.00%
MLIP expects to continue to change both allocations and Advisor selections from time to time without advance notice to existing investors. 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). The market risk to the Fund is, in any event, limited by the deleveraged character of its trading (initially, only 60% of each series' assets, and in certain cases possibly less, is allocated to trading) and the related "principal protection" feature of the Fund. Performance Summary - ------------------- During the first six months of 1995, the Fund's average month-end Net Assets equalled $42,768,576, and the Fund recognized gross trading gains of $3,667,852 or 8.58% of such average month-end Net Assets. Brokerage commissions of $1,281,378 or 3.00% and Profit Shares of $474,205 or 1.11% of average month- end Net Assets were paid. Interest income of $1,351,723 or 3.16% of average month-end Net Assets resulted in net income of $3,238,669 (before organizational and initial offering cost reimbursement payments of $ 39,850, and after deduction of MLIP's "minority interest" in the Trading Partnership) or 7.57% of average month-end Net Assets, which resulted in a 8.27% increase in the Net Asset Value per Series A Units since December 31, 1994, a 7.46% increase in the Net Asset Value per Series B Units since January 1995 and a .60% increase in the Net Asset Value per Series C Units since April 1995. The performance of the different Series of Units differs somewhat over the same period due primarily to profit share calculation differences resulting from the different times at which the various Series began trading During the first six months of 1996, the Fund's average month-end Net Assets equalled $83,909,857, and the Fund recognized gross trading gains of $2,201,924 or 2.62% of such average month-end Net Assets. Brokerage commissions of $2,391,122 or 2.85%, Administrative expenses of $64,625 or .08% and Profit Shares of $243,603 or .29% of average month-end Net Assets were paid. Interest income of $2,289,595 or 2.73% of average month-end Net Assets resulted in net gain of $1,778,363 (before organizational and initial offering cost reimbursement payments of $39,850, 9 and after deduction of MLIP's "minority interest" in the Trading Partnership), or 2.12% of average month-end Net Assets which resulted in a 2.22% increase in the Net Asset Value per Series A Units, 2.09% increase (before distribution) in the Net Asset Value per Series B Units, 2.13% increase (before distribution) in the Net Asset Value per Series C Units, 2.12% increase in the Net Asset Value per Series D Units, 2.08% increase in the Net Asset Value per Series E Units since December 31, 1995, a 1.72% increase in the Net Asset Value per Series F Units since January 1996 and a .35% increase in the Net Asset Value per Series G Units since April 1996. The performance of the different Series of Units differs somewhat over the same period due primarily to profit share calculation differences resulting from the different times at which the various Series began trading. During the first six months of 1996 and 1995, the Fund experienced 8 profitable months and 4 unprofitable months.
MONTH-END NET ASSET VALUE PER SERIES A UNIT ------------------------------------------------------------------------ Jan. Feb. Mar. April May June ------------------------------------------------------------------------ 1995 $101.36 $103.63 $107.94 $109.09 $110.40 $110.18 ------------------------------------------------------------------------ 1996 * $109.65 * $105.56 * $106.69 * $110.05 * $107.82 * $109.33 ------------------------------------------------------------------------
* After reduction for $6.00 per Series A Unit distribution declared on September 30, 1995.
MONTH-END NET ASSET VALUE PER SERIES B UNIT ----------------------------------------------------------------------------- Jan. Feb. Mar. April May June ----------------------------------------------------------------------------- 1995 $ 98.82 $101.05 $105.24 $106.36 $107.67 $107.46 ----------------------------------------------------------------------------- 1996 ** $106.98 ** $102.99 ** $104.09 ** $107.37 ** $105.20 ** $106.67 -----------------------------------------------------------------------------
** After reduction for $6.00 per Series B Unit distribution declared on January 31, 1996.
MONTH-END NET ASSET VALUE PER SERIES C UNIT -------------------------------------------------------------------- Jan. Feb. Mar. April May June -------------------------------------------------------------------- 1995 N/A N/A N/A $ 99.66 $100.81 $100.60 -------------------------------------------------------------------- 1996 $105.97 $102.00 $103.10 ***$102.73 ***$100.66 ***$102.05 --------------------------------------------------------------------
*** After reduction for $3.50 per Series C Unit distribution declared on April 30, 1996.
MONTH-END NET ASSET VALUE PER SERIES D UNIT ------------------------------------------------------------------- Jan Feb Mar April May June ------------------------------------------------------------------- 1995 N/A N/A N/A N/A N/A N/A ------------------------------------------------------------------- 1996 $104.83 $100.94 $102.02 $105.21 $103.11 $104.51 -------------------------------------------------------------------
MONTH-END NET ASSET VALUE PER SERIES E UNIT ------------------------------------------------------------------- Jan. Feb. Mar. April May June ------------------------------------------------------------------- 1995 N/A N/A N/A N/A N/A N/A ------------------------------------------------------------------- 1996 $105.17 $101.32 $102.40 $105.55 $103.49 $104.86 -------------------------------------------------------------------
MONTH-END NET ASSET VALUE PER SERIES F UNIT ------------------------------------------------------------------- Jan. Feb. Mar. April May June ------------------------------------------------------------------- 1995 N/A N/A N/A N/A N/A N/A ------------------------------------------------------------------- 1996 $102.16 $ 98.45 $ 99.46 $102.34 $100.44 $101.72 -------------------------------------------------------------------
MONTH-END NET ASSET VALUE PER SERIES G UNIT ------------------------------------------------------------------- Jan. Feb. Mar. April May June ------------------------------------------------------------------- 1995 N/A N/A N/A N/A N/A N/A ------------------------------------------------------------------- 1996 N/A N/A N/A $100.87 $ 98.95 $100.35 -------------------------------------------------------------------
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" 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 10 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. MLIP's Advisor Selections - ------------------------- 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. Interest Income - --------------- The Fund's interest income varies from month to month due to a portion of such income representing the yield enhancement return achieved by MLAM rather than periodic interest accruals. Although there can be no assurance that the Fund will not incur losses in its yield enhancement activities in the future, to date MLAM has achieved a yield for the Fund (on the approximately 80% to 90% of the Fund's assets managed by MLAM) of approximately 1.02% (annualized) over the prevailing 91-day Treasury bill rate. Liquidity - --------- The Fund's assets, including the assets managed by MLAM, are available to margin the Fund's futures positions and earn interest income and to be withdrawn, as necessary, to pay redemptions and expenses. Other than potential limitations on liquidity, due, for example, to daily price fluctuation limits, which are inherent in the Fund's futures and forward trading, the Fund's assets are highly liquid and are expected to remain so. To date, the Fund has experienced no meaningful periods of illiquidity in any of the numerous markets traded by the Advisors. Although Units may be redeemed at any month-end, no one who cannot afford to commit funds to a comparatively illiquid investment should subscribe to the Fund (redemption penalties apply through the end of the first twelve months after the beginning of the calendar quarter as of which a Unit is issued). MLIP believes that investors who are not prepared to regard the Fund essentially as a medium- to long-term investment should not purchase Units. MLIP makes annual fixed-rate and, possibly, additional discretionary distributions to investors from the assets attributable to their respective series of Units. Such distributions are made as of each Issuance Anniversary for the various series. The Series A Units and Series B Units each received both fixed-rate and discretionary distributions of $3.50 and $2.50 (a total distribution of $6.00) as of their respective first Issuance Anniversaries. The Series C Units received a fixed rate distribution of $3.50 on its respective first Issuance Anniversary. In making discretionary distributions from the Fund, even though such distributions are made only from cumulative profits, if any (as opposed to fixed-rate annual distributions, which are made irrespective of profitability), MLIP considers the importance of not depleting the assets of any particular series to the point that subsequent losses could result in MLIP further deleveraging the trading of such series. As of July 1, 1996, the Fund has changed its name to ML Principal Protection LP. Such change is due to the General Partner restructuring the continuous offerings to be sold without a guaranteed annual fixed-rate distribution or a discretionary distribution as previously offered under Principal Protection Plus LP. Capital Resources - ----------------- Units are offered for sale as of the beginning of each calendar quarter, and may be redeemed as of the end of each month. The amount of capital raised for the Fund does not have a significant impact on its operations, as, other than a de minimis organizational and initial offering cost reimbursement obligation, the Fund has no capital expenditure or working capital requirements other than for moneys to pay trading losses, brokerage commissions, Administrative Fees and Profit Shares (all of which should be generally proportional to the capital available to a particular series of Units). Within broad ranges of capitalization, the Advisors' trading positions should increase or decrease in approximate proportion to the size of the Fund account managed by each of them, respectively. 11 The Fund raises additional capital only through the sale of Units. The Fund is prohibited from borrowing under the terms of the Limited Partnership Agreement. Due to the nature of the Fund's business, substantially all of its assets are and will be represented by cash, Government Securities and short-term foreign sovereign debt obligations, while it maintains its primary market exposure through futures and forward contract positions. 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. Changes in the level of prevailing interest rates (a factor generally associated with inflation) could have a material effect on the percentage of the total capital attributable to various series of Units which is committed to trading, as interest rates affect the calculation of the discounted minimum Net Asset Value per Unit which ML&Co. has guaranteed to investors. PART II - OTHER INFORMATION Item 1. Legal Proceedings None. 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 six months of fiscal 1996. 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 PRINCIPAL PROTECTION PLUS L.P. --------------------------------- By: MERRILL LYNCH INVESTMENT PARTNERS INC. (General Partner) Date: August 9, 1996 By /s/JOHN R. FRAWLEY, JR. ----------------------- John R. Frawley, Jr. President, Chief Executive Officer and Director Date: August 9, 1996 By /s/JAMES M. BERNARD ------------------- James M. Bernard Chief Financial Officer Treasurer and Senior Vice President EX-27 2 FINANCIAL DATA SCHEDULE
BD THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION, CONSOLIDATED STATEMENTS OF OPERATIONS, CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 6-MOS 6-MOS DEC-31-1995 DEC-31-1994 JAN-01-1996 JAN-01-1995 JUN-30-1996 JUN-30-1995 150,524 0 8,406,566 6,137,792 0 0 0 0 78,437,029 42,701,962 0 0 86,994,119 48,839,754 0 0 3,387,298 1,007,430 0 0 0 0 0 0 0 0 0 0 0 0 0 0 83,606,821 47,832,324 86,994,119 48,839,754 2,201,924 3,667,852 2,289,595 1,351,723 2,713,156 1,780,906 0 0 0 0 0 0 0 0 1,778,363 3,238,669 1,778,363 3,238,669 0 0 0 0 1,778,363 3,238,669 2.16 7.79 2.16 7.79
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