-----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, A8inOL5H3OQlUnbNWrm35gSvBYQtNSwbmAv1ZlukTUes4FTILQDrdMrG8xojRA7c /7ySwr3tdd+jYGl2a9OtBA== 0000950130-97-003674.txt : 19970815 0000950130-97-003674.hdr.sgml : 19970815 ACCESSION NUMBER: 0000950130-97-003674 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970814 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: 97660820 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 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, 1997 --------------- OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________ to ________________ Commission File Number 0-25000 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) - ------------------------------------ 13-3775509 (Co-Registrant) (State or other jurisdiction of --------------------------------- incorporation or organization) (IRS Employer Identification No.) c/o Merrill Lynch Investment Partners Inc. Merrill Lynch World Headquarters - South Tower, 6th Fl. World Financial Center New York, New York 10080-6106 ----------------------------------------------------- (Address of principal executive offices) (Zip Code) 212-236-5662 -------------------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- This document contains 14 pages. PART I - FINANCIAL INFORMATION Item 1. Financial Statements ML PRINCIPAL PROTECTION L.P. ---------------------------- (a Delaware limited partnership) -------------------------------- CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION ---------------------------------------------- June 30, December 31, 1997 1996 ------------- ------------ ASSETS - ------ Cash $ 58,840 $ 328 Accrued interest 732,236 23,501 U.S. Government obligations 74,342,651 72,815,648 Equity in commodity futures trading accounts: Cash and options premium 7,688,143 7,177,888 Net unrealized profit on open 273,750 1,677,317 contracts ------------- ------------ TOTAL $83,095,620 $81,694,682 ============= ============ LIABILITIES AND PARTNERS' CAPITAL - --------------------------------- LIABILITIES: Redemptions payable $ 1,139,104 $ 966,906 Profit shares payable 420,220 658,800 Brokerage commissions payable 378,305 378,291 Organization and offering costs 28,780 68,630 payable Administrative fees payable 10,809 10,224 ------------- ------------ Total liabilities 1,977,218 2,082,851 ------------- ------------ Minority Interest 780,834 768,546 ------------- ------------ PARTNERS' CAPITAL: General Partners (20873.06 and 20873.06 Units) 2,317,164 2,301,180 Limited Partners (723589.53 and 702786.91 Units) 78,020,404 76,542,105 ------------- ------------ Total partners' capital 80,337,568 78,843,285 ------------- ------------ TOTAL $83,095,620 $81,694,682 ============= ============ NET ASSET VALUE PER UNIT (NOTE 2) See notes to consolidated financial statements. 2 ML PRINCIPAL PROTECTION L.P. ---------------------------- (a Delaware limited partnership) -------------------------------- CONSOLIDATED STATEMENTS OF OPERATIONS -------------------------------------
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, 1997 1996 1997 1996 ---------------- -------------- ------------- ------------ REVENUES: Trading (loss) profit: Realized $ (869,301) $ 3,347,221 $ 3,722,347 $ 3,956,033 Change in unrealized (205,905) (1,062,681) (1,403,567) (1,754,109) ---------------- -------------- ------------- ------------ Total trading results (1,075,206) 2,284,540 2,318,780 2,201,924 ---------------- -------------- ------------- ------------ Interest income 1,069,022 1,161,849 2,182,912 2,289,595 ---------------- -------------- ------------- ------------ Total revenues (6,184) 3,446,389 4,501,692 4,491,519 ---------------- -------------- ------------- ------------ EXPENSES: Profit shares (85,054) 156,978 498,398 243,603 Brokerage commissions 1,067,741 1,238,890 2,141,245 2,391,122 Administrative fees 30,507 33,483 61,179 64,625 ---------------- -------------- ------------- ------------ Total expenses 1,013,194 1,429,351 2,700,822 2,699,350 ---------------- -------------- ------------- ------------ NET INCOME (LOSS) BEFORE MINORITY INTEREST (1,019,378) 2,017,038 1,800,870 1,792,169 ---------------- -------------- ------------- ------------ Minority interest 28,337 (18,870) (12,289) (13,806) ---------------- -------------- ------------- ------------ NET INCOME (LOSS) $ (991,041) $ 1,998,168 $ 1,788,581 $ 1,778,363 ================ ============== ============= ============ NET INCOME (LOSS) PER UNIT: Weighted average number of units outstanding 741,218 840,119 723,788 823,744 ================ ============== ============= ============ Weighted average net income (loss) per Limited Partner and General Partner Unit $(1.34) $2.38 $2.47 $2.16 ================ ============== ============= ============ 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 six months ended June 30, 1997 and 1996 -----------------------------------------------
Limited General Units Partners Partner Total ------------ ------------- ----------- ------------ 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 ============ ============ =========== ============= PARTNERS' CAPITAL, December 31, 1996 723,659.97 $ 76,542,105 $2,301,180 $ 78,843,285 Subscriptions 116,453.00 11,645,300 - 11,645,300 Distributions - (1,481,675) (33,522) (1,515,197) Net Income - 1,739,075 49,506 1,788,581 Redemptions (95,650.38) (10,424,401) - (10,424,401) ------------ ------------ ----------- ------------- PARTNERS' CAPITAL, June 30, 1997 744,462.59 $ 78,020,404 $2,317,164 $ 80,337,568 ============ ============ =========== =============
See notes to consolidated financial statements. 4 ML PRINCIPAL PROTECTION L.P. ---------------------------- (formerly 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 L.P. (the "Partnership" or the "Fund") as of June 30, 1997 and December 31, 1996 and the results of its operations for the six months ended June 30, 1997 and 1996. However, the operating results for the interim periods may not be indicative of the results expected for the full year. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with general accepted accounting principles have been omitted. It is suggested that these financial statements be read in conjunction with the financial statements and notes thereto included in the Partnership's Annual Report on Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 1996 (the "Annual Report"). 2. 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, 1997 and December 31, 1996, the Net Asset Values of the different series of Units for financial reporting purposes and for all other purposes were:
June 30, 1997 ------------------------------ ------------------------------------------ Net Asset Value Net Asset Value per Unit ------------------------------ ------------------------------------------ All Other Financial Number All Other Financial Purposes Reporting of Units Purposes Reporting ------------------------------ ------------------------------------------ Series A Units $19,392,551 $19,387,414 171,534.00 $113.05 $113.02 (d) Series B Units 2,890,446 2,889,678 26,275.00 110.01 109.98 (f) Series C Units 4,156,446 4,155,361 39,881.00 104.22 104.19 (b) Series D Units 11,638,806 11,635,642 105,389.00 110.44 110.41 (c) Series E Units 8,588,738 8,586,359 77,490.04 110.84 110.81 (e) Series F Units 6,814,581 6,812,037 64,865.32 105.06 105.02 (g) Series G Units 5,935,349 5,933,667 57,821.50 102.65 102.62 (h) Series H Units 9,215,335 9,212,920 84,753.73 108.73 108.70 Series K Units 11,727,455 11,724,490 116,453.00 100.71 100.68 ------------------------------ ------------------------------------- Totals $80,359,707 $80,337,568 744,462.59 ============================== ===============
5 December 31, 1996
Net Asset Value Net Asset Value per Unit ------------------------------ ------------------------------------------- All Other Financial Number All Other Financial Purposes Reporting of Units Purposes Reporting ----------------- ----------- ---------------- ---------- -------------- Series A Units $21,048,780 $21,031,369 190,136.00 110.70 110.61 (d) Series B Units 3,447,686 3,444,936 30,179.00 124.24 114.15 (a) Series C Units 4,996,014 4,992,389 45,696.00 109.33 109.25 (i) Series D Units 12,582,502 12,567,310 116,303.00 108.19 108.06 (c) Series E Units 10,484,159 10,476,812 96,561.50 108.58 108.50 (e) Series F Units 10,179,910 10,173,793 93,465.62 108.92 108.85 Series G Units 6,967,116 6,962,973 64,920.50 107.32 107.25 Series H Units 9,199,107 9,193,703 86,398.35 106.47 106.41 ----------------- ----------- ---------------- Totals $78,905,274 $78,843,285 723,659.97 ================= =========== ================
(a) After reduction for the $6.00 Distribution to Series B as of 1/1/96 (b) After reduction for the $7.50 Distribution to Series C as of 4/1/97 (For a total distibution of $11.00 inception to date.) (c) After reduction for the $3.50 Distribution to Series D as of 7/1/96 (d) After reduction for the $6.00 Distribution to Series A as of 10/1/96 (For a total distibution of $12.00 inception to date.) (e) After reduction for the $3.50 Distribution to Series E as of 10/1/96 (f) After reduction for the $6.50 Distribution to Series B as of 1/1/97 (For a total distibution of $12.50 inception to date.) (g) After reduction for the $6.00 Distribution to Series F as of 1/1/97 (h) After reduction for the $7.00 Distribution to Series G as of 4/1/97 (i) Ater reduction for the $3.50 Distribution to Series C as of 4/1/96 6 3. FAIR VALUE AND OFF-BALANCE SHEET RISK The Partnership's revenues 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, 1997 June 30, 1996 June 30, 1997 June 30, 1996 -------------- -------------- -------------- ------------- Interest rate $ (547,293) $ (517,039) $(1,052,121) $(863,343) Stock indices 178,643 105,203 536,590 147,230 Commodities 225,815 432,078 1,750,969 36,109 Currencies (677,333) 1,272,145 1,402,897 1,745,104 Energy (452,246) 984,609 (932,627) 1,616,592 Metals 197,208 7,544 613,072 (479,768) -------------- -------------- -------------- ------------- $(1,075,206) $2,284,540 $2,318,780 $2,201,924 ============== ============== ============== =============
The contract/notional values of the Trading Partnership's open derivative instrument positions as of June 30, 1997 and December 31, 1996 were as follows:
1997 1996 ---------------------------------------------- ---------------------------------------------- Commitment to Commitment to Commitment to Commitment to Purchase (Futures, Sell (Futures, Purchase (Futures, Sell ( Futures, Options & Forwards) Options & Fowards) Options & Forwards) Options & Forwards) ------------------- ------------------ ------------------- ------------------- Interest rate $203,121,331 $ 54,472,208 $103,258,306 $ 38,270,540 Stock indices 13,571,343 191,684 4,259,475 2,340,013 Commodities 10,682,755 10,220,363 8,541,433 12,761,047 Currencies 64,000,683 76,156,750 53,592,111 86,479,803 Energy 714,404 4,379,787 5,566,768 - Metals 8,775,166 16,176,348 4,593,702 14,839,516 ------------------- ------------------ ------------------- ------------------- $300,865,682 $161,597,140 $179,811,795 $154,690,919 ================== ================== =================== ===================
7 The contract/notional values of the Trading Partnership's exchange-traded and non-exchange-traded open derivative instrument positions as of June 30, 1997 and December 31, 1996 were as follows:
1997 1996 ------------------------------------------ ------------------------------------------ Commitment to Commitment to Commitment to Commitment to Purchase (Futures, Sell (Futures, Purchase (Futures, Sell (Futures, Options & Forwards) Options & Forwards) Options & Forwards) Options & Forwards) ------------------- ------------------- ------------------- ------------------- Exchange traded $246,723,529 $ 98,208,046 $133,757,339 $ 85,639,298 Non-Exchange traded 54,142,153 63,389,094 46,054,456 69,051,621 ------------------- ------------------- ------------------- ------------------- $300,865,682 $161,597,140 $179,811,795 $154,690,919 =================== =================== =================== ===================
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, 1997 and the year ended December 31, 1996 were as follows:
1997 1996 ------------------------------------------ ------------------------------------------ Commitment to Commitment to Commitment to Commitment to Purchase (Futures, Sell (Futures, Purchase (Futures, Sell (Futures, Options & Forwards) Options & Forwards) Options & Forwards) Options & Forwards) ------------------- ------------------- ------------------- ------------------- Interest rate $161,869,536 $ 78,910,092 $224,985,973 $91,029,835 Stock indices 7,814,075 1,542,287 10,235,486 2,492,230 Commodities 13,747,656 8,300,082 13,316,970 7,175,841 Currencies 57,911,284 87,987,956 94,601,907 115,671,672 Energy 2,157,577 2,507,549 6,862,906 1,348,945 Metals 8,598,130 10,939,989 13,579,528 19,196,951 ------------------- ----------------- ----------------- ---------------- $252,098,258 $190,187,955 $363,582,770 $236,915,474 ==================== ================= ================= ================
As of June 30, 1997 and December 31, 1996, $5,483,140 and $2,997,536 of the Trading Partnership's assets, respectively, were held in segregated accounts in accordance with U.S. Commodity Futures Trading Commission regulations. The gross unrealized profit and the net unrealized profit (loss) on the Trading Partnership's open derivative instrument positions as of June 30, 1997 and December 31, 1996 were as follows:
1997 1996 --------------------------- ------------------------ Gross Net Gross Net Unrealized Unrealized Unrealized Unrealized Profit Profit (Loss) Profit Profit (Loss) ------------ ------------- ---------- ------------ Exchange traded $2,044,722 $ 944,476 $2,090,698 $1,611,482 Non-Exchange traded 744,701 (670,726) 1,172,965 65,835 ------------ ------------- ---------- ------------ $2,789,423 $ 273,750 $3,263,663 $1,677,317 ============ ============ =========== ============
8 4. SUBSEQUENT EVENTS On July 1, 1997 distributions were announced with respect to Series D Units and Series H Units. Series D Units received an annual fixed rate distribution equal to $3.50 per Unit as well as a discretionary distribution equal to $1.00 per Unit. Series H Units received an annual fixed rate distribution equal to $3.50 per Unit as well as a discretionary distribution equal to $2.50 per Unit. Item 2: Management's Discussion and Analysis of Financial Condition and Results ----------------------------------------------------------------------- of Operations - ------------- Operational Overview: Advisor Selections - ---------------------------------------- Due to the nature of the Fund's business, its results of operations depend on Merrill Lynch Investment Partners' ("MLIP") 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, 1997, the trading assets attributable to each series of Units were allocated approximately as follows (either 60% or 75% of each series' total capital being allocated to trading): Chesapeake Capital Corporation 19.00 John W. Henry & Company, Inc. 15.00 Non-"Core" Advisors 66.00 ------ Total 100.00% MLIP expects to continue to change both allocations and Advisor selections from time to time without advance notice to existing investors. MLIP has no timetable or schedule for making Advisor changes or reallocations, and generally intends to make a medium- to long-term commitment to all Advisors selected. However, there can be no assurance as to the frequency or number of the Advisor changes which may take place in the future, or as to how long any of the current Advisors will continue to manage assets for the Fund. Results of Operations - General - ------------------------------- MLIP believes that multi-Advisor futures funds should be regarded as medium- to long-term investments but, unlike an operating business, it is difficult to identify "trends" in the Fund's operations and virtually impossible to make any predictions regarding future results based on results to date. Markets in which sustained price trends occur with some frequency tend to be more favorable to managed futures investments than "whipsaw," "choppy" markets, but (i) this is not always the case, (ii) it is impossible to predict when trending markets will occur and (iii) different Advisors are affected differently by trends in general as well as by particular types of trends. The Fund controls credit risk in its trading in the derivatives markets by trading only through Merrill Lynch entities which MLIP believes to be creditworthy. The Fund attempts to control the market risk inherent in its derivatives trading by utilizing a multi-advisor, multi-strategy structure. This structure purposefully attempts to diversify the Fund's Advisor group among different strategy types and market sectors in an effort to reduce risk (although the Fund's portfolio currently emphasizes technical and trend- following approaches). The market risk to the Fund is, in any event, limited by the deleveraged character of its trading (initially, either 60% or 75% 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 1996, the Fund's average month-end Net Assets equaled $83,909,857, and the Fund recognized trading gains of $2,201,924 or 2.62% of average month-end Net Assets. Brokerage commissions of $2,391,122 or 2.85%, Administrative fees of $64,625 or 0.08% and Profit Shares of $243,603 or 0.29% 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, and after deduction of MLIP's "minority interest" of 13,806 in the Trading Partnership), or 2.12% of average month-end Net Assets which resulted in 2.22% increase in the Net Asset Value per Series A Units (before distribution), 2.09% increase in the Net Asset Value per Series B Units (before distribution), 2.13% increase in the Net Asset Value per Series C Units (before distribution), 2.12% increase in the Net Asset Value per Series D 9 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 1997, the Fund's average month-end Net Assets equaled $77,560,546 and the Fund recognized trading gains of $2,318,780 or 2.99% of average month-end Net Assets. Brokerage commissions of $2,141,245 or 2.76%, Administrative fees of $61,179 or .08% and Profit Shares of $498,398 or .64% of average month-end Net Assets were paid. Interest income of $2,182,912 or 2.81% of average month-end Net Assets resulted in a net gain of $1,788,581 (before organizational and initial offering cost reimbursement payments of $39,851 and after deduction of MLIP's "minority interest" of $12,289 in the Trading Partnership), or 2.31% of average month-end Net Assets which resulted in a 2.12% increase in the NAV per Series A Units, 1.99% increase (before distribution) in the NAV per Series B Units, 2.19% increase (before distribution) in the NAV per Series C Units, 2.08% increase (before distribution) in the NAV per Series D Units, 2.08% increase (before distribution) in the NAV per Series E Units, 1.96% increase (before distribution) in the NAV per Series F Units, 2.17% increase (before distribution) in the NAV per Series G Units, 2.12% increase (before distribution) in the NAV per Series H Units since December 31, 1996 and a .71% increase in the NAV per Series K Units since May 1997. The performance of different Series of Units differs somewhat over the period due primarily to the profit share calculation differences resulting from the different times at which the various Series began trading. During the first six months of 1997 and 1996, the Fund experienced 8 profitable months and 4 unprofitable months.
MONTH-END NET ASSET VALUE PER SERIES A UNIT Jan. Feb. Mar. Apr May Jun - --------------------------------------------------------------------------------------------------------------- 1996 $109.65 (a) $105.56 (a) $106.69 (a) $110.05 (a) $107.82 (a) $109.33 (a) - --------------------------------------------------------------------------------------------------------------- 1997 $113.00 (b) $114.63 (b) $114.69 (b) $113.89 (b) $112.28 (b) $113.05 (b) - ---------------------------------------------------------------------------------------------------------------
(a) After reduction for $6.00 per Series A Unit distribution declared on October 1, 1995. (b) After reduction for $6.00 per Series A Unit distribution declared on October 1, 1996, resulting in a total distribution of $12.00 inception to date. MONTH-END NET ASSET VALUE PER SERIES B UNIT
Jan. Feb. Mar. Apr May Jun - --------------------------------------------------------------------------------------------------------------- 1996 $106.98 (c) $102.99 (c) $104.09 (c) $107.37 (c) $105.20 (c) $106.67 (c) - --------------------------------------------------------------------------------------------------------------- 1997 $109.96 (d) $111.53 (d) $111.59 (d) $110.81 (d) $109.25 (d) $110.01 (d) - ---------------------------------------------------------------------------------------------------------------
(c) After reduction for $6.00 per Series B Unit distribution declared on January 1, 1996. (d) After reduction for $6.50 per Series B Unit distribution declared on January 1, 1997, resulting in a total distribution of $12.50 inception to date. MONTH-END NET ASSET VALUE PER SERIES C UNIT
Jan. Feb. Mar. Apr May Jun - --------------------------------------------------------------------------------------------------------------- 1996 $105.97 $102.00 $103.10 $102.73 (e) $100.66 (e) $102.05 (e) - --------------------------------------------------------------------------------------------------------------- 1997 $111.57 (e) $113.17 (e) $113.23 (e) $104.99 (f) $103.51 (f) $104.22 (f) - ---------------------------------------------------------------------------------------------------------------
(e) After reduction for $3.50 per Series C Unit distribution declared on April 1, 1996. (f) After reduction for $7.50 per Series C Unit distribution declared on April 1, 997, resulting in a total distribution of $11.00 inception to date. MONTH-END NET ASSET VALUE PER SERIES D UNIT
Jan. Feb. Mar. Apr May Jun - ------------------------------------------------------------------------------------------------------ 1996 $104.83 $100.94 $102.02 $105.21 $103.11 $104.51 - ------------------------------------------------------------------------------------------------------ 1997 $110.39 (g) $111.98 (g) $112.04 (g) $111.25 (g) $109.68 (g) $110.44 (g) - ------------------------------------------------------------------------------------------------------
(g) After reduction for $3.50 per Series D Unit distribution declared on July 1, 1996. MONTH-END NET ASSET VALUE PER SERIES E UNIT
Jan. Feb. Mar. Apr May Jun - -------------------------------------------------------------------------------------------------- 1996 $105.17 $101.32 $102.40 $105.55 $103.49 $104.86 - -------------------------------------------------------------------------------------------------- 1997 $110.79 (h) $112.39 (h) $112.45 (h) $111.66 (h) $110.07 (h) $110.84 (h) - --------------------------------------------------------------------------------------------------
(h) After reduction for $3.50 per Series E Unit distribution declared on October 1, 1996. 10 MONTH-END NET ASSET VALUE PER SERIES F UNIT
Jan. Feb. Mar. Apr May Jun - ----------------------------------------------------------------------------------------------------- 1996 $102.16 $ 98.45 $ 99.46 $102.34 $100.44 $101.72 - ----------------------------------------------------------------------------------------------------- 1997 $105.02 (i) $106.53 (i) $106.58 (i) $105.84 (i) $104.33 (i) $105.06 (i) - -----------------------------------------------------------------------------------------------------
(i) After reduction for $6.00 per Series F Unit distribution declared on January 1, 1997. MONTH-END NET ASSET VALUE PER SERIES G UNIT
Jan. Feb. Mar. Apr May Jun - ----------------------------------------------------------------------------------------------------- 1996 N/A N/A N/A $100.87 $ 98.95 $100.35 - ----------------------------------------------------------------------------------------------------- 1997 $109.50 $111.08 $111.14 $103.41 (j) $101.94 (j) $102.65 (j) - -----------------------------------------------------------------------------------------------------
(j) After reduction for $7.00 per Series G Unit distribution declared on April 1, 1997. MONTH-END NET ASSET VALUE PER SERIES H UNIT
Jan. Feb. Mar. Apr May Jun - ----------------------------------------------------------------------------------------------------- 1996 N/A N/A N/A N/A N/A N/A - ----------------------------------------------------------------------------------------------------- 1997 $108.69 $110.26 $110.31 $109.54 $107.98 $108.73 - -----------------------------------------------------------------------------------------------------
MONTH-END NET ASSET VALUE PER SERIES K UNIT
Jan. Feb. Mar. Apr May Jun - ----------------------------------------------------------------------------------------------------- 1996 N/A N/A N/A N/A N/A N/A - ----------------------------------------------------------------------------------------------------- 1997 N/A N/A N/A N/A $ 99.97 $100.71 - -----------------------------------------------------------------------------------------------------
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 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. 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 approximately 80% to 90% of the Fund's assets managed by MLAM) of approximately 2.89% (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. 11 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. The Series D Units received a fixed rate distribution of $3.50 on its respective first Issuance Anniversary. The Series E Units received a fixed rate distribution of $3.50 on its first Issuance Anniversary. The Series F Units received both a fixed rate and discretionary distribution of $3.50 and $2.50 (a total distribution of $6.00), respectively, on its first Issuance Anniversary. The Series G Units received both a fixed rate and discretionary distribution of $3.50 and $3.50 (a total distribution of $7.00), respectively, on its first Issuance Anniversary. The Series A Units received both a fixed rate and discretionary distribution of $3.50 and $2.50, respectively, (a total distribution of $6.00), respectively, on its second Issuance Anniversary. The Series B Units received both a fixed rate and discretionary distribution of $3.50 and $3.00 (a total distribution of $6.50) on its second Issuance Anniversary. The Series C Units received both a fixed rate and discretionary distribution of $3.50 and $4.00, respectively, (a total distribution of $7.50) on its second 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 L.P. 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 ML Principal Protection Plus L.P. 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 minims 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. 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. 12 PART II - OTHER INFORMATION Item 1. Legal Proceedings There are no pending legal proceedings to which the Partnership or the General Partner is a party. John W. Henry & Company, Inc. ("JWH") is one of the Advisors retained by the Fund, managing approximately 15% of the Fund's assets committed to trading as of July 1, 1997. In September 1996, JWH was named in a co-defendant in a class action lawsuit brought in the California Superior Court, Los Angeles County and in the New York Supreme Court, New York County. In November, JWH was named as a co-defendant in a class action complaint filed in Superior Court of the State of Delaware for Newcastle County unspecified damages, purport to be brought on behalf of investors in certain Dean Witter, Discover & Co. ("Dean Witter") commodity pools, some of which are advised by JWH, and are primarily directed at Dean Witter alleged fraudulent selling practices in connection with the marketing of those pools. JWH is essentially alleged to have aided and abetted or directly participated with Dean Witter in those practices. JWH believes the allegations against it are without merit; it intends to contest these allegations vigorously, and is convinced that it will be shown to have acted properly and in the best interest of the investors. On June 24, 1997, the Commodity Futures Trading Commission("CFTC") accepted an Offer of Settlement from Merrill Lynch Futures Inc. ("MLF") and others, in a matter captioned "In the Matter of Mitsubishi Corporation and Merrill Lynch Futures Inc., et al.", CFTC Docket No. 97-10, pursuant to which MLF, without admitting or denying the allegations against it, consented to a finding by the CFTC that MLF had violated Section 4c(a)(A) of the Commodity Exchange Act (the "Act"), relating to wash sales, and CFTC Regulation 1.37(a), relating to recordkeeping requirements . MLF agreed to cease and desist from violating Section 4c(a)(A) of the Act and Regulation 1.37(a), and to pay a civil monetary penalty of $175,000. 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 James M. Bernard, formerly a Senior Vice President of MLIP, is no longer with the firm. Michael A. Karmelin has been appointed Chief Financial Officer, Vice President and Treasurer of MLIP. Mr. Karmelin assumed these positions on April 14, 1997, when he completed his tenure as Chief Financial Officer of Merrill Lynch, Hubbard Inc. ("ML Hubbard"), a sponsor of real estate limited partnerships. Mr. Karmelin was born in 1947. Mr. Karmelin joined ML Hubbard in January 1994 as a Vice President. From May 1994 until he joined MLIP, Mr. Karmelin was the Chief Financial Officer of ML Hubbard, responsible for its accounting, treasury and tax functions. Prior to joining ML Hubbard, Mr. Karmelin held several senior financial positions with Merrill Lynch & Co., Inc. ("ML&Co.") and Merrill Lynch, Pierce, Fenner & Smith Incorporated from December 1985 to December 1993, including Vice President/Senior Financial Officer Corporate Real Estate and Purchasing, Manager Commitment Control/Capital Budgeting, and Senior Project Manager/Project Analysis. Prior to joining ML&Co., Mr. Karmelin was employed at Avco Corporation for 17 years, where he held a variety of financial positions. Mr. Karmelin holds a B.B.A. degree in Accounting from Baruch College, C.U.N.Y. and a Master of Business Administration degree in Corporate Strategy and Finance from New York University. Mr. Karmelin passed the Certified Public Accountant examination in 1974 and is a member of the Treasury Management Association, the Institute of Management Accountants and The Strategic Leadership Forum. 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 1997. 13 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. ---------------------------- (formerly ML Principal Protection Plus L.P.) By: MERRILL LYNCH INVESTMENT PARTNERS INC. (General Partner) Date: August 14, 1997 By /s/JOHN R. FRAWLEY, JR. ----------------------- John R. Frawley, Jr. President, Chief Executive Officer and Director Date: August 14, 1997 By /s/MICHAEL A. KARMELIN ---------------------- Michael A. Karmelin Chief Financial Officer, Vice President and Treasurer 14 EX-27 2 FINANCIAL DATA SCHEDULE
BD 6-MOS 6-MOS DEC-31-1996 DEC-31-1995 JAN-01-1997 JAN-01-1996 JUN-30-1997 JUN-30-1996 58,840 150,524 8,694,129 8,406,566 0 0 0 0 74,342,651 78,437,029 0 0 83,095,620 86,994,119 0 0 2,758,052 3,387,298 0 0 0 0 0 0 0 0 0 0 0 0 0 0 80,337,568 83,606,821 83,095,620 86,994,119 2,318,780 2,201,924 2,182,912 2,289,595 2,713,111 2,713,156 0 0 0 0 0 0 0 0 1,788,581 1,778,363 1,788,581 1,778,363 0 0 0 0 1,788,581 1,778,363 2.47 2.16 2.47 2.16
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