-----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, AdCtpHQGwL2j1gWpIOp8sQqLI7CDOw01qbxDa3JLiGmJZPxek233L92DSTMyY4ZH 1bC3iYhK6tdV8pO9vjQUTA== 0000950130-97-005049.txt : 19971117 0000950130-97-005049.hdr.sgml : 19971117 ACCESSION NUMBER: 0000950130-97-005049 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971114 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: SEC FILE NUMBER: 000-25000 FILM NUMBER: 97719247 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 QUARTERLY REPORT 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 September 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 15 pages. PART I - FINANCIAL INFORMATION Item 1. Financial Statements ML PRINCIPAL PROTECTION L.P. ---------------------------- (a Delaware limited partnership) -------------------------------- CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION ----------------------------------------------
September 30, December 31, 1997 1996 ---------------- ---------------- ASSETS - ------ Cash $1,294 $328 Accrued interest 963,423 23,501 U.S. Government obligations 84,091,473 72,815,648 Equity in commodity futures trading accounts: Cash and options premium 4,905,206 7,177,888 Net unrealized profit on open contracts 1,343,179 1,677,317 ---------------- ---------------- TOTAL $91,304,575 $81,694,682 ================ ================ LIABILITIES AND PARTNERS' CAPITAL - --------------------------------- LIABILITIES: Redemptions payable $1,235,629 $966,906 Profit shares payable 455,439 658,800 Brokerage commissions payable 426,186 378,291 Organization and offering costs payable 8,856 68,630 Administrative fees payable 12,177 10,224 ---------------- ---------------- Total liabilities 2,138,287 2,082,851 ---------------- ---------------- Minority Interest 789,855 768,546 ---------------- ---------------- PARTNERS' CAPITAL: General Partners (22525.74 and 20873.06 Units) 2,494,486 2,301,180 Limited Partners (807306.76 and 702786.91 Units) 85,881,947 76,542,105 ---------------- ---------------- Total partners' capital 88,376,433 78,843,285 ---------------- ---------------- TOTAL $91,304,575 $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 nine For the nine months ended months ended months ended months ended September 30, September 30, September 30, September 30, 1997 1996 1997 1996 ---------------- ---------------- ---------------- ---------------- REVENUES: Trading (loss) profit: Realized $(66,580) $(1,254,082) $3,655,767 $2,701,951 Change in unrealized 1,069,429 1,576,809 (334,138) (177,300) ---------------- ---------------- ---------------- ---------------- Total trading results 1,002,849 322,727 3,321,629 2,524,651 ---------------- ---------------- ---------------- ---------------- Interest income 1,290,326 1,175,775 3,473,238 3,465,370 ---------------- ---------------- ---------------- ---------------- Total revenues 2,293,175 1,498,502 6,794,867 5,990,021 ---------------- ---------------- ---------------- ---------------- EXPENSES: Profit shares 43,978 75,861 542,376 319,464 Brokerage commissions 1,276,885 1,197,147 3,418,130 3,588,269 Administrative fees 36,482 32,355 97,661 96,980 ---------------- ---------------- ---------------- ---------------- Total expenses 1,357,345 1,305,363 4,058,167 4,004,713 ---------------- ---------------- ---------------- ---------------- NET INCOME BEFORE MINORITY INTEREST 935,830 193,139 2,736,700 1,985,308 ---------------- ---------------- ---------------- ---------------- Minority interest (9,020) 2,672 (21,309) (11,134) ---------------- ---------------- ---------------- ---------------- NET INCOME $926,810 $195,811 $2,715,391 $1,974,174 ================ ================ ================ ================ NET INCOME PER UNIT: Weighted average number of units outstanding 869,337 837,769 772,306 828,420 ================ ================ ================ ================ Weighted average net income per Limited Partner and General Partner Unit $1.07 $0.23 $3.52 $2.38 ================ ================ ================ ================
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 nine months ended September 30, 1997 and 1996 ---------------------------------------------------
Limited General Total Units Partners Partner --------------- ---------------- ------------- ------------- PARTNERS' CAPITAL, December 31, 1995 714,318.98 $73,080,141 $1,766,403 $74,846,544 Subscriptions 254,468.36 25,102,217 344,619 25,446,836 Distributions - (1,279,994) (21,484) (1,301,478) Net Income - 1,838,327 135,847 1,974,174 Redemptions (189,786.52) (19,730,431) - (19,730,431) --------------- ---------------- ---------------- --------------- PARTNERS' CAPITAL, September 30, 1996 779,000.82 $79,010,260 $2,225,385 $81,235,645 =============== ================ ================ =============== PARTNERS' CAPITAL, December 31, 1996 723,659.97 $76,542,105 $2,301,180 $78,843,285 Subscriptions 263,933.00 26,228,032 165,268 26,393,300 Distributions - (2,447,252) (50,719) (2,497,971) Net Income - 2,636,634 78,757 2,715,391 Redemptions (157,760.47) (17,077,572) - (17,077,572) --------------- ---------------- ---------------- --------------- PARTNERS' CAPITAL, September 30, 1997 829,832.50 $85,881,947 $2,494,486 $88,376,433 =============== ================ ================ ===============
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 September 30, 1997 and December 31, 1996 and the results of its operations for the nine months ended September 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 September 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:
September 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 $18,527,056 $18,526,794 161,764.00 $114.53 $114.52(d) Series B Units 2,847,369 2,847,337 25,550.00 111.44 111.44(f) Series C Units 4,047,073 4,047,024 38,331.00 105.58 105.58(b) Series D Units 10,679,250 10,679,083 99,504.00 107.32 107.32(j) Series E Units 8,086,401 8,086,269 72,013.46 112.29 112.28(e) Series F Units 6,256,813 6,256,693 58,780.32 106.44 106.44(g) Series G Units 5,767,433 5,767,353 55,461.50 103.99 103.98(h) Series H Units 5,690,253 5,689,910 54,674.22 104.08 104.06(k) Series K Units 11,860,662 11,860,551 116,453.00 101.85 101.84 Series L Units 14,616,337 14,615,419 147,301.00 99.23 99.22 ----------------- ----------------- -------------------- Totals $88,378,647 $88,376,433 829,832.50 ================= ================= ====================
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 (j) After reduction for the $4.50 Distribution to Series D as of 7/1/97 (For a total distibution of $8.00 inception to date.) (k) Ater reduction for the $6.00 Distribution to Series H as of 7/1/97 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 nine For the nine months ended months ended months ended months ended September 30, 1997 September 30, 1996 September 30, 1997 September 30, 1996 -------------------- -------------------- ------------------- ------------------- Interest rate $2,447,990 $1,407,933 $1,395,869 $544,590 Stock indices 453,554 (1,064,205) 990,144 (916,975) Commodities (1,179,624) (140,241) 571,345 (104,132) Currencies 213,843 (1,185,501) 1,616,740 559,603 Energy (430,209) 1,499,750 (1,362,836) 3,116,342 Metals (502,705) (195,009) 110,367 (674,777) -------------------- -------------------- ------------------- ------------------- $1,002,849 $322,727 $3,321,629 $2,524,651 ==================== ==================== =================== ===================
The contract/notional values of the Trading Partnership's open derivative instrument positions as of September 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 $256,610,211 $19,321,710 $103,258,306 $38,270,540 Stock indices 9,207,761 3,465,833 4,259,475 2,340,013 Commodities 9,923,629 11,790,240 8,541,433 12,761,047 Currencies 63,531,402 111,766,127 53,592,111 86,479,803 Energy 8,695,496 598,538 5,566,768 - Metals 9,615,842 16,516,895 4,593,702 14,839,516 ------------------------ ----------------------- ----------------------- ----------------------- $357,584,341 $163,459,343 $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 September 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 $298,911,938 $74,149,567 $133,757,339 $85,639,298 Non-Exchange traded 58,672,403 89,309,776 46,054,456 69,051,621 ---------------------- ---------------------- ---------------------- ---------------------- $357,584,341 $163,459,343 $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 nine months ended September 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 $217,659,579 $68,540,689 $224,985,973 $91,029,835 Stock indices 8,848,452 1,906,939 10,235,486 2,492,230 Commodities 13,261,525 9,384,921 13,316,970 7,175,841 Currencies 61,251,497 102,972,370 94,601,907 115,671,672 Energy 3,476,576 2,635,892 6,862,906 1,348,945 Metals 8,416,985 13,421,169 13,579,528 19,196,951 ----------------------- ----------------------- ----------------------- ---------------------- $312,914,614 $198,861,980 $363,582,770 $236,915,474 ======================= ======================= ======================= ======================
As of September 30, 1997 and December 31, 1996, $4,036,246 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 September 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 $2,753,866 $1,756,150 $2,090,698 $1,611,482 Non-Exchange traded 1,054,031 (412,971) 1,172,965 65,835 --------------- ----------------- ---------------- ----------------- $3,807,897 $1,343,179 $3,263,663 $1,677,317 =============== ================= ================ =================
8 4. SUBSEQUENT EVENTS On October 1, 1997 distributions were announced with respect to Series A Units and Series E Units. Series A Units received an annual fixed rate distribution equal to $3.50 per Unit. Series E Units received an annual fixed rate distribution equal to $3.50 per Unit as well as a discretionary distribution equal to $2.00 per Unit. 5. RELATED PARTY TRANSACTIONS MLIP is currently reviewing certain aspects of the interest arrangements between the Partnership and certain affiliates of MLIP. The purpose of the review is to confirm that the Partnership received interest credits as described in its Prospectus. The results of this review have not been determined. 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 Inc.'s ("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 October 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 17.00 John W. Henry & Company, Inc. 15.00 Non-"Core" Advisors 68.00 ------- 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 nine months of 1996, the Fund's average month-end Net Assets equaled $83,687,751, and the Fund recognized trading gains of $2,524,651 or 3.02% of average month-end Net Assets. Brokerage commissions of $3,588,269 or 4.29%, Administrative fees of $96,980 or 0.12% and Profit Shares of $319,464 or 0.38% of average month-end Net Assets were paid. Interest income of $3,465,370 or 4.14% of average month-end Net Assets resulted in net gain of $1,974,174 (before organizational and initial offering cost reimbursement payments of $59,775, and after deduction of MLIP's "minority interest" of $11,134 in the Trading Partnership), or 2.36% of average month-end Net Assets which resulted in a 2.66% increase in the Net Asset Value per Series A Units (before distribution), 2.51% increase in the Net Asset Value per Series B Units (before distribution), 2.55% increase in the Net Asset Value per Series C Units (before distribution), 2.55% increase in the Net Asset Value per Series D 9 Units, 2.52% increase in the Net Asset Value per Series E Units since December 31, 1995, a 2.08% increase in the Net Asset Value per Series F Units since January 1996, a .71% increase in the Net Asset Value per Series G Units since April 1996 and a 10% decrease in the Net Asset Value per Series H Units since July 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 nine months of 1997, the Fund's average month-end Net Assets equaled $81,506,962 and the Fund recognized trading gains of $3,321,629 or 4.08% of average month-end Net Assets. Brokerage commissions of $3,418,130 or 4.19%, Administrative fees of $97,661 or .12% and Profit Shares of $542,376 or .67% of average month-end Net Assets were paid. Interest income of $3,473,238 or 4.26% of average month-end Net Assets resulted in a net gain of $2,715,391 (before organizational and initial offering cost reimbursement payments of $8,856 and after deduction of MLIP's "minority interest" of $21,309 in the Trading Partnership), or 3.33% of average month-end Net Assets which resulted in a 3.46% increase in the NAV per Series A Units, 3.24% increase (before distribution) in the NAV per Series B Units, 3.43% increase (before distribution) in the NAV per Series C Units, 3.36% increase (before distribution) in the NAV per Series D Units, 3.42% increase (before distribution) in the NAV per Series E Units, 3.23% increase (before distribution) in the NAV per Series F Units, 3.42% increase (before distribution) in the NAV per Series G Units, 3.39% increase (before distribution) in the NAV per Series H Units since December 31, 1996, a 1.85% increase in the NAV per Series K Units since May 1997 and a .77% decrease in the NAV per Series L Units since July 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 nine months of 1997 and 1996, the Fund experienced 12 profitable months and 6 unprofitable months.
MONTH-END NET ASSET VALUE PER SERIES A UNIT - ------------------------------------------------------------------------------------------------------- Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sep. - ------------------------------------------------------------------------------------------------------- 1996 $109.65(a) $105.56(a) $106.69(a) $110.05(a) $107.82(a) $109.33(a) $107.51(a) $108.04(a) $109.80(a) - -------------------------------------------------------------------------------------------------------- 1997 $113.00(b) $114.63(b) $114.69(b) $113.89(b) $112.28(b) $113.05(b) $116.48(b) $113.59(b) $114.53(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. Jul. Aug. Sep. - --------------------------------------------------------------------------------------------------------- 1996 $106.98(c) $102.99(c) $104.09(c) $107.37(c) $105.20(c) $106.67(c) $104.90(c) $105.41(c) $107.13(c) - --------------------------------------------------------------------------------------------------------- 1997 $109.96(d) $111.53(d) $111.59(d) $110.81(d) $109.25(d) $110.01(d) $113.33(d) $110.53(d) $111.44(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. Jul. Aug. Sep. - ------------------------------------------------------------------------------------------------------- 1996 $105.97 $102.00 $103.10 $102.73(e) $100.66(e) $102.05(e) $100.35(e) $100.85(e) $102.49(e) - ------------------------------------------------------------------------------------------------------- 1997 $111.57(e) $113.17(e) $113.23(e) $104.99(f) $103.51(f) $104.22(f) $107.38(f) $104.72(f) $105.58(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, 1997, 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. Jul. Aug. Sep. - -------------------------------------------------------------------------------------------------------- 1996 $104.83 $100.94 $102.02 $105.21 $103.11 $104.51 $99.33(g) $99.82(g) $101.45(g) - -------------------------------------------------------------------------------------------------------- 1997 $110.39(g) $111.98(g) $112.04(g) $111.25(g) $109.68(g) $110.44(g) $109.15(h) $106.45(h) $107.32(h) - --------------------------------------------------------------------------------------------------------
(g) After reduction for $3.50 per Series D Unit distribution declared on July 1, 1996. (h) After reduction for $4.50 per Series D Unit distribution declared on July 1, 1997, resulting in a total distribution of $8.00 inception to date.
MONTH-END NET ASSET VALUE PER SERIES E UNIT - --------------------------------------------------------------------------------------------------------- Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sep. - --------------------------------------------------------------------------------------------------------- 1996 $105.17 $101.32 $102.40 $105.55 $103.49 $104.86 $103.12 $103.62 $105.31 - --------------------------------------------------------------------------------------------------------- 1997 $110.79(i) $112.39(i) $112.45(i) $111.66(i) $110.07(i) $110.84(i) $114.21(i) $111.37(i) $112.29(i) - ---------------------------------------------------------------------------------------------------------
(i) 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. Jul. Aug. Sep. ------------------------------------------------------------------------------------------------------------------- 1996 $102.16 $98.45 $99.46 $102.34 $100.44 $101.72 $100.01 $100.49 $102.08 ------------------------------------------------------------------------------------------------------------------- 1997 $105.02(j) $106.53(j) $106.58(j) $105.84(j) $104.33(j) $105.06(j) $108.26(j) $105.57(j) $106.44(j) -------------------------------------------------------------------------------------------------------------------
(j) 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. Jul. Aug. Sep. - -------------------------------------------------------------------------------------------------------------------- 1996 N/A N/A N/A $100.87 $98.95 $100.35 $98.66 $99.14 $100.71 - -------------------------------------------------------------------------------------------------------------------- 1997 $109.50 $111.08 $111.14 $103.41(k) $101.94(k) $102.65(k) $105.76(k) $103.14(k) $103.99(k) - --------------------------------------------------------------------------------------------------------------------
(k) 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. Jul. Aug. Sep. - ------------------------------------------------------------------------------------------------------------------- 1996 N/A N/A N/A N/A N/A N/A $97.82 $ 98.32 $ 99.90 - ------------------------------------------------------------------------------------------------------------------- 1997 $108.69 $110.26 $110.31 $109.54 $107.98 $108.73 $105.86(l) $103.22(l) $104.08(l) - -------------------------------------------------------------------------------------------------------------------
(l) After reduction for $6.00 per Series H Unit distribution declared on July 1, 1997.
MONTH-END NET ASSET VALUE PER SERIES K UNIT - ------------------------------------------------------------------------------------------------------------------ Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sep. - ------------------------------------------------------------------------------------------------------------------ 1996 N/A N/A N/A 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 $104.26 $100.96 $101.85 - ------------------------------------------------------------------------------------------------------------------
MONTH-END NET ASSET VALUE PER SERIES L UNIT - ------------------------------------------------------------------------------------------------------------------ Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sep. - ------------------------------------------------------------------------------------------------------------------ 1996 N/A N/A N/A N/A N/A N/A N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------ 1997 N/A N/A N/A N/A N/A N/A $101.68 $98.26 $99.23 - ------------------------------------------------------------------------------------------------------------------
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 1.13% (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 11 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. 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 H 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 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. The Series D Units received both a fixed rate and discretionary distribution of $3.50 and $1.00, respectively, (a total distribution of $4.50) 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 15.00% of the Fund's assets committed to trading as of October 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 1996, 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. Item 2. Changes in Securities and Use of Proceeds (a) None. (b) None. (c) None. (d) The Fund has 2,250,000 Units of limited partnership interest registered, with an aggregate price of $225,000,000. The Fund has sold 807,306.76 Units of limited partnership interest, with an aggregate price of $85,881,947. Item 3. Defaults Upon Senior Securities None. Item 4. Submission of Matters to a Vote of Security Holders None. Item 5. Other Information Ms. Eilene Nicoll is the vice president of trading administration and a member of the Investment Policy Committee of John W. Henry & Company, Inc. ("JWH"). Prior to joining JWH in July 1997, Ms. Nicoll was a vice president beginning in January 1997 at Commercial Materials, L.L.C., a newly organized corporation which has not yet begun operations. She was a vice president and director at West Course Capital, Inc., a CTA, from January 1994 until it dissolved in December 1996. At West Course Capital, Inc., Ms. Nicoll was responsible for operations and administration. Prior to joining West Course Capital, Inc., she was a vice president at REFCO, Inc. from May 1991 to December 1993. While at REFCO, Inc., she was also a principal of Nikkhah & Nicoll Asset Management, Inc., a CPO. Ms. Nicoll was at Shearson Lehman Brothers from January 1987 to December 1990 as vice president-futures, and subsequently, from January 1991 to May 1991, at Moore Capital Management, Inc. where she was involved in all aspects of the commodity trading advisor business, including administration, marketing, and allocation of proprietary capital. From 1984 through 1986, she was an independent discretionary trader. Ms. Nicoll was employed at Commodities Corporation (USA) N.V. from 1978 to 1984 where she was an assistant vice president. Ms. Nicoll received her B.A. in psychology from Brooklyn College. Ms. Glenda G. Twist and Mr. John A. Ford are no longer principals of JWH effective August 1, 1997 and August 31, 1997, respectively. On August 11, 1997, AIS Futures Management, Inc. relocated to Connecticut and changed its form of organization from a corporation to a limited liability company for various corporate and tax reasons. The principals and management of the advisor remain the same in the newly-created limited liability company, AIS Futures Management LLC. 13 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 nine months of fiscal 1997. 14 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: November 14, 1997 By /s/JOHN R. FRAWLEY, JR. ----------------------- John R. Frawley, Jr. President, Chief Executive Officer and Director Date: November 14, 1997 By /s/MICHAEL A. KARMELIN ---------------------- Michael A. Karmelin Chief Financial Officer, Vice President and Treasurer EX-27 2 FINANCIAL DATA SCHEDULE
BD 9-MOS 9-MOS DEC-31-1996 DEC-31-1995 JAN-01-1997 JAN-01-1996 SEP-30-1997 SEP-30-1996 1,294 2,995 7,211,808 8,083,368 0 0 0 0 84,091,473 76,528,743 0 0 91,304,575 84,615,106 0 0 2,928,142 3,379,461 0 0 0 0 0 0 0 0 0 0 0 0 0 0 88,376,433 81,235,645 91,304,575 84,615,106 3,321,629 2,524,651 3,473,238 3,465,370 4,079,476 4,015,847 0 0 0 0 0 0 0 0 2,715,391 1,974,174 2,715,391 1,974,174 0 0 0 0 2,715,391 1,974,174 3.52 2.38 3.52 2.38
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