-----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, FynjATUqQJtWfyaHViHIxB/MrGxKfvfEgU/kziDi18G+8xKSmp0k2OFqOceX1Gfg F9lUt/rKC5f/X5FLk3KtcA== 0000950130-98-002541.txt : 19980512 0000950130-98-002541.hdr.sgml : 19980512 ACCESSION NUMBER: 0000950130-98-002541 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980511 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ML PRINCIPAL PROTECTION LP CENTRAL INDEX KEY: 0000917259 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 133750642 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-25000 FILM NUMBER: 98615778 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 March 31, 1998 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. ---------------------------- ML PRINCIPAL PROTECTION 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) 212-236-9757 -------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- PART I - FINANCIAL INFORMATION Item 1. Financial Statements ML PRINCIPAL PROTECTION L.P. ---------------------------- (a Delaware limited partnership) CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION ----------------------------------------------
March 31, December 31, 1998 1997 ----------------- ----------------- ASSETS Cash $72,334 $1,423 Accrued interest 24,386 38,562 U.S. Government obligations 99,498,707 94,651,930 Broker receivable 2,712,867 - Equity in commodity futures trading accounts: Cash and options premiums 3,427,945 6,127,948 Net unrealized profit on open contracts 1,814,434 2,958,084 ----------------- ----------------- TOTAL $107,550,673 $103,777,947 ================= ================= LIABILITIES AND PARTNERS' CAPITAL LIABILITIES: Broker Payables $2,504,102 $ - Redemptions payable 2,254,308 636,155 Profit Shares payable 410,361 591,195 Brokerage commissions payable 508,884 494,349 Administrative fees payable 14,539 14,330 ----------------- ----------------- Total liabilities 5,692,194 1,736,029 ----------------- ----------------- Minority Interest 804,031 815,233 ----------------- ----------------- PARTNERS' CAPITAL: General Partners (23141.61 and 23141.61 Units) 2,540,230 2,564,153 Limited Partners (930214.73 and 989140.56 Units) 98,514,218 105,628,837 Subscriptions receivable (0 and 69,663.05 Units) - (6,966,305) ----------------- ----------------- Total partners' capital 101,054,448 101,226,685 ----------------- ----------------- TOTAL $107,550,673 $103,777,947 ================= ================= 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 months ended months ended March 31, March 31, 1998 1997 ------------------ ----------------- REVENUES: Trading profit (loss): Realized $1,249,237 $4,591,648 Change in unrealized (1,143,650) (1,197,662) ------------------ ----------------- Total trading results 105,587 3,393,986 ------------------ ----------------- Interest income 1,487,049 1,113,890 ------------------ ----------------- Total revenues 1,592,636 4,507,876 ------------------ ----------------- EXPENSES: Profit Shares 417,850 583,452 Brokerage commissions 1,561,580 1,073,504 Administrative fees 44,617 30,672 ------------------ ----------------- Total expenses 2,024,047 1,687,628 ------------------ ----------------- NET (LOSS) INCOME BEFORE MINORITY INTEREST (431,411) 2,820,248 ------------------ ----------------- Minority interest 11,203 (40,626) ------------------ ----------------- NET (LOSS) INCOME $(420,208) $2,779,622 ================== ================= NET (LOSS) INCOME PER UNIT: Weighted average number of units outstanding 997,147 706,361 ================== ================= Weighted average net (loss) income per Limited Partner and General Partner Unit $(0.42) $3.94 ================== ================= See notes to consolidated financial statements. 3 ML PRINCIPAL PROTECTION L.P. ---------------------------- (a Delaware limited partnership) -------------------------------- CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL ------------------------------------------------------- For the three months ended March 31, 1998 and 1997 --------------------------------------------------
Limited General Subscriptions Units Partners Partner Receivable Total ----------------- ------------------- ----------------- ---------- ---------------- PARTNERS' CAPITAL, December 31, 1996 723,659.97 $76,542,105 $2,301,180 $ - $78,843,285 Subscriptions - - - - - Distributions - (736,978) (19,978) - (756,956) Net Income - 2,697,509 82,113 - 2,779,622 Redemptions (43,349.36) (4,832,699) - - (4,832,699) ----------------- ------------------- ----------------- ------------------- ---------------- PARTNERS' CAPITAL, March 31, 1997 680,310.61 $73,669,937 $2,363,315 $ - $76,033,252 ================= =================== ================= =================== ================ PARTNERS' CAPITAL, December 31, 1997 942,619.12 $105,628,837 $2,564,153 $ (6,966,305) $101,226,685 Subscriptions - - - - - Subscriptions receivable 69,663.26 - - 6,966,305 6,966,305 Distributions - (377,241) (15,568) - (392,809) Net Income - (411,853) (8,355) - (420,208) Redemptions (58,926.04) (6,325,525) - - (6,325,525) ----------------- ------------------- ----------------- ------------------- ---------------- PARTNERS' CAPITAL, March 31, 1998 953,356.34 $98,514,218 $2,540,230 $ - $101,054,448 ================= =================== ================= =================== ================
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 consolidated financial position of ML Principal Protection L.P. (the "Partnership" or the "Fund") as of March 31, 1998 and the results of its operations for the three months ended March 31, 1998 and 1997. 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, 1997 (the "Annual Report"). 2. NET ASSET VALUE PER UNIT For financial reporting purposes, the Partnership deducted the total organizational and initial offering costs payable to the General Partner at inception for purposes of determining Net Asset Value. Such deduction was allocated pro-rata among the outstanding Units of each series based upon the aggregate Net Asset Value of each series, and then equally among all Units of the same series. For all other purposes (including computing Net Asset Value for redemptions) the Partnership deducts the organizational and initial offering cost reimbursements only as actually paid. The organizational and initial offering cost reimbursement was completed in October 1997. At March 31, 1998 the Net Asset Values of the different series of Units for financial reporting purposes and for all other purposes were: 5
March 31, 1998 Net Asset Number Net Asset Value Value of Units per Unit ------------------ ------------------- ------------------ Series A Units $16,724,812 147,522.00 $113.37 Series B Units 2,687,149 24,696.00 108.81 Series C Units 3,778,930 35,051.00 107.81 Series D Units 9,480,302 86,504.00 109.59 Series E Units 7,495,753 68,737.26 109.05 Series F Units 5,009,714 48,187.24 103.96 Series G Units 5,097,748 48,007.00 106.19 Series H Units 3,373,282 31,740.23 106.28 Series K Units 11,826,254 113,352.00 104.33 Series L Units 14,469,356 142,399.00 101.61 Series M Units 14,182,770 137,497.56 103.15 Series N Units 6,928,378 69,663.05 99.46 ------------------ ------------------- Totals $101,054,448 953,356.34 ================== ===================
6
December 31, 1997 Number Net Asset Net Asset Value of Units Value per Unit ---------------------- ------------------- ------------------ Series A Units $17,716,313 155,778.00 $113.73 Series B Units 2,865,130 25,100.00 114.15 Series C Units 4,061,256 37,551.00 108.15 Series D Units 10,499,613 95,504.00 109.94 Series E Units 7,685,677 70,255.86 109.40 Series F Units 6,136,370 56,275.48 109.04 Series G Units 5,470,415 51,354.50 106.52 Series H Units 5,610,794 52,626.22 106.62 Series K Units 12,127,411 115,752.00 104.77 Series L Units 14,732,144 144,314.00 102.08 Series M Units 14,321,562 138,108.06 103.70 -------------------- ------------------- Totals $101,226,685 942,619.12 ==================== ===================
7 3. ANNUAL DISTRIBUTIONS The Partnership makes annual fixed-rate distributions, payable irrespective of profitability, of between $2 and $5 per Unit on Units issued prior to July 16, 1996. The Partnership may also pay discretionary distributions on such Series of Units of up to 50% of any Distributable New Appreciation, as defined on such Units. No distributions are payable on Units issued after July 16, 1996. As of March 31, 1998, the Partnership has made the following distributions:
Series Distribution Fixed-Rate Discretionary Date Distribution Distribution --------- ------------------ ------------------ -------------------- 1998 - ----------- Series B 1/1/98 $ 3.50 $ 1.50 Series F 1/1/98 3.50 1.25 1997 - ----------- Series A 10/1/97 $ 3.50 $ - Series B 1/1/97 3.50 3.00 Series C 4/1/97 3.50 4.00 Series D 7/1/97 3.50 1.00 Series E 10/1/97 3.50 2.00 Series F 1/1/97 3.50 2.50 Series G 4/1/97 3.50 3.50 Series H 7/1/97 3.50 2.50 1996 - ----------- Series A 10/1/96 $ 3.50 $ 2.50 Series B 1/1/96 3.50 2.50 Series C 4/1/96 3.50 - Series D 7/1/96 3.50 - Series E 10/1/96 3.50 - 1995 - ----------- Series A 10/1/95 3.50 2.50
8 4. 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 months ended months ended March 31, 1998 March 31, 1997 --------------------- --------------------- Interest rates $519,711 $(504,828) Stock indices 212,737 357,947 Commodities 208,150 1,525,154 Currencies 422,105 2,080,230 Energy (1,163,062) (480,381) Metals (94,054) 415,864 --------------------- --------------------- $105,587 $3,393,986 ===================== ===================== The contract/notional values of the Trading Partnership's open derivative instrument positions as of March 31, 1998 and December 31, 1997 were as follows:
1998 1997 -------------------------------------------------- ------------------------------------------------- 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 rates $218,538,984 $175,585,158 $121,435,283 $85,620,621 Stock indices 16,009,545 860,408 1,665,588 8,854,122 Commodities 13,405,783 21,228,185 11,663,786 21,791,599 Currencies 78,125,912 130,210,017 70,272,888 147,312,282 Energy 3,671,093 3,580,864 1,085,885 9,041,759 Metals 7,474,304 12,567,237 4,412,002 19,039,071 -------------------- ------------------- -------------------- --------------------- $337,225,621 $344,031,869 $210,535,432 $291,659,454 ==================== =================== ==================== ====================
9 The contract/notional values of the Trading Partnership's exchange-traded and non-exchange-traded open derivative instrument positions as of March 31, 1998 and December 31, 1997 were as follows:
1998 1997 --------------------------------------------------- ---------------------------------------------------- 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 $277,532,994 $243,214,515 $142,565,779 $183,223,917 Non-Exchange traded 59,692,627 100,817,354 67,969,653 108,435,537 ------------------------- ------------------------- ------------------------- -------------------------- $337,225,621 $344,031,869 $210,535,432 $291,659,454 ========================= ========================= ========================= ==========================
The average fair value, based on contract/notional value, of the Trading Partnership's derivative instrument positions which were open as of the end of each calendar month during the three months ended March 31, 1998 and the year ended December 31, 1997 were as follows:
1998 1997 ------------------------------------------------------- ------------------------------------------------------- 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 rates $301,751,496 $103,900,423 $177,189,103 $68,697,138 Stock indices 11,943,656 2,977,850 7,544,449 4,040,832 Commodities 13,032,721 20,732,492 13,113,725 11,481,639 Currencies 95,921,568 151,526,194 70,061,899 113,287,725 Energy 2,573,421 6,361,228 3,621,533 3,415,726 Metals 7,931,693 15,769,009 7,369,251 14,913,348 --------------------------- --------------------------- --------------------------- --------------------------- $433,154,555 $301,267,196 $278,899,960 $215,836,408 =========================== =========================== =========================== ===========================
The gross unrealized profit and the net unrealized profit on the Trading Partnership's open derivative instrument positions as of March 31, 1998 and December 31, 1997 were as follows:
1998 1997 ---------------------------------------- ---------------------------------------- Gross Net Gross Net Unrealized Unrealized Unrealized Unrealized Profit Profit Profit Profit ------------------- -------------------- ------------------- ------------------- Exchange traded $2,402,540 $1,118,995 $3,263,519 $2,416,539 Non-Exchange traded 1,652,625 695,439 2,119,281 541,545 ------------------- -------------------- ------------------- ------------------- $4,055,165 $1,814,434 $5,382,800 $2,958,084 =================== ==================== =================== ===================
4. SUBSEQUENT EVENTS On April 1, 1998 distributions were announced with respect to Series C Units and Series G Units. Series C Units received an annual fixed rate distribution equal to $3.50 per Unit. Series G Units received an annual fixed rate distribution equal to $3.50 per Unit. 10 Item 2: Management's Discussion and Analysis of Financial Condition and --------------------------------------------------------------- Results of Operations --------------------- Performance Summary January 1, 1997 to March 31, 1997 In currency markets, the U.S. dollar rallied and started 1997 on a strong note, rising to a four-year high versus the Japanese yen and two-and-a-half year highs versus the Deutsche mark and the Swiss franc. Profitable results were seen throughout the quarter in currency trading. Global interest rate markets began the year on a volatile note, as investors evaluated economic data for signs of inflation. January and March were profitable months for interest rate trading. In energy markets, a slump in crude oil prices was characteristic of its lackluster performance from the beginning of the year. Early in 1997, volatility returned in the energy markets, reflecting the impact of a winter significantly warmer than normal. January and March saw losses in energy trading; February, however, was profitable. Agricultural commodity trading proved profitable in February and March. Soybean prices reached their highest level in over eight years, on continued demand and fears that inventories could fall to critically low levels before the next harvest. January 1, 1998 to March 31, 1998 The Fund's most profitable positions during the quarter were in the global interest rate markets, particularly in European bonds where an extended bond market rally continued despite an environment of robust growth in the United States, Canada and the United Kingdom, as well as a strong pick-up in growth in continental Europe. Specifically, strong gains were recorded in French and German bonds. Gold and crude oil trading resulted in losses. Gold prices drifted sideways and lower as Asian demand continued to slow and demand in the Middle East was affected by low oil prices. Initially buoyed on concerns about a U.S.-led military strike against Iraq, crude oil fell to a nine year low, as the globally warm winter, the return of Iraq as a producer and the Asian economic crisis added to OPEC's supply glut problems. Trading results in stock index markets were mixed, but marginally profitable, despite a strong first-quarter performance by the U.S. equity market as several consecutive weekly gains were recorded with most market averages setting new highs. Results in currency trading were also mixed, but marginally profitable. Strong gains were realized in positions on the Swiss franc, which weakened versus the U.S. dollar, while trading losses resulted from positions in the Deutsche mark and the Australian dollar. Agricultural commodity markets provided profits. Live cattle and hog prices trended downward throughout the quarter resulting in strong gains. Cotton prices moved mostly upward during the quarter, but dropped off sharply at the end of March, causing losses. MONTH-END NET ASSET VALUE PER SERIES A UNIT Jan. Feb. Mar. --------------------------------------------------- 1997 $113.00 (a) $114.63 (a) $114.69 (a) --------------------------------------------------- 1998 $113.84 (b) $113.25 (b) $113.37(b) --------------------------------------------------- (a) After reduction for $6.00 per Series A Unit distribution declared on October 1, 1995 and $6.00 per Series A Unit distribution declared on October 1, 1996. (b) After reduction for a $3.50 per Series A distribution declared on October 1, 1997 and the distributions described in (a), resulting in a total distribution of $15.50 inception to date. As of July 1, 1996, the Fund changed its name to ML Principal Protection L.P. Such change was 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. Item 3. Quantitative and Qualitative Disclosures About Market Risk Not Applicable 11 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. 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 1,468,909.77 Units of limited partnership interest, with an aggregate price of $146,890,977. Item 3. Defaults Upon Senior Securities None. Item 4. Submission of Matters to a Vote of Security Holders None. Item 5. Other Information Mr. Michael A. Karmelin, Chief Financial Officer, Vice President and Treasurer of Merrill Lynch Investment Partners Inc. ("MLIP"), has announced that he will resign from MLIP effective April 15, 1998 to pursue other business opportunities. MLIP expects to announce his successor in the near future. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits There are no exhibits required to be filed with this report. (b) Reports on Form 8-K There were no reports on Form 8-K filed during the first three months of fiscal 1998. 12 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ML PRINCIPAL PROTECTION L.P. ---------------------------- (formerly ML Principal Protection Plus L.P.) By: MERRILL LYNCH INVESTMENT PARTNERS INC. (General Partner) Date: May 11, 1998 By /s/ JOHN R. FRAWLEY, JR. ------------------------ John R. Frawley, Jr. Chairman, Chief Executive Officer, President and Director Date: May 11, 1998 By /s/ SERGIO M. PAVONE -------------------- Sergio M. Pavone Vice President and Controller (Chief Accounting Officer) 13 EX-27 2 FINANCIAL DATA SCHEDULE
BD 3-MOS 3-MOS DEC-31-1998 DEC-31-1997 JAN-01-1998 JAN-01-1997 MAR-31-1998 MAR-31-1997 72,334 958 7,979,632 8,458,073 0 0 0 0 102,211,574 70,836,861 0 0 110,263,540 79,295,892 0 0 9,209,092 3,262,640 0 0 0 0 0 0 0 0 0 0 0 0 0 0 101,054,448 76,033,252 110,263,540 79,295,892 105,587 3,893,986 1,487,049 1,113,890 2,012,844 1,647,002 0 0 0 0 0 0 0 0 (420,208) 2,779,622 (420,208) 2,779,622 0 0 0 0 (420,208) 2,779,622 (.42) 3.94 (.42) 3.94
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