<PAGE>
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, 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 0-16746
ML FUTURES INVESTMENTS II L.P.
------------------------------
(Exact Name of Registrant as
specified in its charter)
Delaware 13-3481305
- ------------------------------------ ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
c/o Merrill Lynch Investment Partners Inc.
Merrill Lynch World Headquarters months - South Tower, 6th Fl.
World Financial Center New York, New York 10080-6106
-----------------------------------------------------
(Address of principal executive offices)
(Zip Code)
212-236-4161
----------------------------------------------------
(Registrant's telephone number, including area code)
----------------------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
This document contains 10 pages.
There are no exhibits and no exhibit index filed with this document.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ML FUTURES INVESTMENTS II L.P.
------------------------------
(a Delaware limited partnership)
------------------------------
STATEMENTS OF FINANCIAL CONDITION
---------------------------------
March 31, December 31,
1997 1996
---- ----
ASSETS
- ------
Accrued interest $ 31,858 $ 43,202
Equity in commodity futures trading
accounts:
Cash and option premiums 7,080,931 10,849,816
Net unrealized profit on open
contracts 38,103 3,892
Investments 7,532,818 3,680,154
Receivable from investments 20,444 39,689
----------- -----------
TOTAL $14,704,154 $14,616,753
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
- ---------------------------------
LIABILITIES:
Redemptions payable $ 143,410 $ 153,870
Brokerage commissions payable 52,280 88,521
Profit shares payable 50,106 75,440
Administrative fees payable 1,494 2,270
----------- -----------
Total liabilities 247,290 320,101
----------- -----------
PARTNERS' CAPITAL:
General Partner (1,229 and 1,229
units) 217,595 208,266
Limited Partners ( 80,425 and
83,137 units) 14,239,269 14,088,386
----------- -----------
Total partners' capital 14,456,864 14,296,652
----------- -----------
TOTAL $14,704,154 $14,616,753
=========== ===========
NET ASSET VALUE PER UNIT
(Based on 81,654 and 84,366 Units
outstanding) $ 177.05 $ 169.46
======== ========
See notes to financial statements.
2
<PAGE>
ML FUTURES INVESTMENTS II L.P.
------------------------------
(a Delaware limited partnership)
------------------------------
STATEMENTS OF INCOME
--------------------
For the three For the three
months ended months ended
March 31, March 31,
1997 1996
------------- -------------
REVENUES:
Trading profit (loss):
Realized $ 388,490 $ 1,182,148
Change in unrealized 34,211 (205,254)
------------- -------------
Total trading results 422,701 976,894
------------- -------------
Interest income 90,954 182,640
Income from investments 349,575 -
------------- -------------
Total revenues 863,230 1,159,534
------------- -------------
EXPENSES:
Profit shares 50,106 222,942
Brokerage commissions 165,959 408,185
Administrative fees 4,568 10,466
------------- -------------
Total expenses 220,633 641,593
------------- -------------
NET INCOME $ 642,597 $ 517,941
============= =============
NET INCOME PER UNIT:
Weighted average number of units
outstanding 83,649 96,239
====== ======
Weighted average net income
per General Partner and $ 7.68 $ 5.38
====== ======
Limited Partner Unit
See notes to financial statements.
3
<PAGE>
ML FUTURES INVESTMENTS II L.P.
------------------------------
(a Delaware limited partnership)
------------------------------
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
------------------------------------------
For the three months ended March 31, 1997 and 1996
--------------------------------------------------
<TABLE>
<CAPTION>
Limited General
Units Partners Partner Total
----- -------- ------- -----
<S> <C> <C> <C> <C>
PARTNERS' CAPITAL,
DECEMBER 31, 1995 97,165 $15,931,370 $ 204,068 $ 16,135,438
Net income - 511,339 6,602 517,941
Redemptions (3,557) (605,741) - (605,741)
----------- ------------ ----------- -------------
PARTNERS' CAPITAL,
MARCH 31, 1996 93,608 $15,836,968 $ 210,670 $ 16,047,638
=========== ============ =========== =============
PARTNERS' CAPITAL,
DECEMBER 31, 1996 84,366 $14,088,386 $ 208,266 $ 14,296,652
Net income - 633,268 9,329 642,597
Redemptions (2,712) (482,385) - (482,385)
----------- ------------ ----------- -------------
PARTNERS' CAPITAL,
MARCH 31, 1997 81,654 $14,239,269 $ 217,595 $ 14,456,864
=========== ============ =========== =============
</TABLE>
See notes to financial statements.
4
<PAGE>
ML FUTURES INVESTMENTS II L.P.
(A Delaware Limited Partnership)
NOTES TO 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 Futures Investments II L.P. (the "Partnership" or
the "Fund") as of March 31, 1997 and the results of its operations for the
three months ended March 31, 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. INVESTMENT
At March 31, 1997 the Partnership had investment in the ML Chesapeake
Diversified L.L.C. ("Chesapeake LLC") and effective January 1, 1997, the
Partnership had an additional investment in the SJO Prospect Diversified
Portfolio L.L.C. ("SJO LLC").
Total revenues and fees with respect to such investments are set forth as
follows:
<TABLE>
<CAPTION>
Total Brokerage Administrative Profit Income from
Revenue Commissions Fees Shares Investments
---------------- ---------------- ---------------- ---------------- -----------------
<S> <C> <C> <C> <C> <C>
Chesapeake LLC $ 354,211 $ 88,489 $ 2,438 $ 53,478 $ 209,806
SJO LLC 249,510 86,299 2,376 21,066 139,769
---------------- ---------------- ---------------- ---------------- -----------------
Total $ 603,721 $ 174,788 $ 4,814 $ 74,544 $ 349,575
================ ================ ================ ================ =================
</TABLE>
3. FAIR VALUE AND OFF-BALANCE SHEET RISK
The Partnership's revenues by reporting category for the three months ended
March 31, 1997 and March 31, 1996 were as follows:
1997 1996
---- ----
Interest rate and Stock indices $ 96,682 $ 116,008
Commodities (9,513) 12,764
Currencies 315,680 382,860
Energy 23,517 338,439
Metals (3,665) 126,823
----------- -----------
$ 422,701 $ 976,894
=========== ===========
5
<PAGE>
Fair Value
- ----------
The contract/notional values of the Partnership's open derivative instrument
positions as of March 31, 1997 and December 31, 1996 were as follows:
<TABLE>
<CAPTION>
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)
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Interest rate
and Stock
indices $ 1,927,603 $ 8,055,686 $ - $ -
Commodities 701,431 298,768 - -
Currencies 8,820,240 12,773,928 4,983,334 8,047,276
Energy - 286,903 - -
Metals 56,500 293,850 203,772 203,772
------------------ ----------------- ------------------ -----------------
$ 11,505,774 $ 21,709,135 $5,187,106 $8,251,048
================== ================= ================== =================
</TABLE>
Substantially all of the Partnership's derivative instruments outstanding as of
March 31, 1997 expire within one year.
The contract/notional values of the Partnership's exchange-traded and non-
exchange-traded open derivative instrument positions as of March 31, 1997 and
December 31, 1996 were as follows:
<TABLE>
<CAPTION>
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)
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Exchange
traded $ 3,384,434 $ 10,043,742 $ - $ -
Non-Exchange
traded 8,121,340 11,665,393 5,187,106 8,251,048
------------------ ----------------- ------------------ -----------------
$ 11,505,774 $ 21,709,135 $ 5,187,106 $ 8,251,048
================== ================= ================== =================
</TABLE>
The average fair value of the Partnership's derivative instrument positions
which were open as of the end of each calendar month during the three months
ended March 31, 1997 and the year ended December 31, 1996 were as follows:
<TABLE>
<CAPTION>
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)
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Interest rate
and Stock
indices $ 3,842,234 $ 4,965,408 $ 63,801,511 $ 29,975,829
Commodities 552,439 296,036 7,411,870 670,528
Currencies 5,770,318 10,152,635 9,913,048 12,448,727
Energy 94,840 250,951 2,537,389 613,726
Metals 119,525 197,746 9,385,390 2,926,264
------------------ ----------------- ------------------ -----------------
$ 10,379,356 $ 15,862,776 $ 93,049,208 $ 46,635,074
================== ================= ================== =================
</TABLE>
As of March 31, 1997 and December 31, 1996, $2,835,622 and $ 6,275,690 of the
Partnership's assets, respectively, were held in segregated accounts at MLF in
accordance with Commodity Futures Trading Commission regulations.
6
<PAGE>
The gross unrealized profit and the net unrealized profit on the Partnership's
open derivative instrument positions as of March 31, 1997 and December 31, 1996
were as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
Gross Net Gross Net
Unrealized Unrealized Unrealized Unrealized
Profit Profit (Loss) Profit Profit (Loss)
---------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Exchange
traded $ 74,254 $ 66,357 $ - $ -
Non-Exchange
traded 29,683 (28,254) 59,798 3,892
============= =============== ============ ===============
$ 103,937 $ 38,103 $ 59,798 $ 3,892
============= =============== ============ ===============
</TABLE>
Item 2: Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operation
------------
Operational Overview: Advisor Selections
- ----------------------------------------
Due to the nature of the Fund's business, its results of operations
depend on Merrill Lynch Investment Partners Inc. ("MLIP")'s ability to select
Advisors and determine the appropriate percentage of 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 April 1, 1997, the Partnership's assets were allocated as
follows:
TRADING ADVISOR MARKETS TRADED % ALLOCATION
- --------------- -------------- ------------
Chesapeake Capital Corporation Diversified 26.04
SjO, Inc. Diversified 25.56
Northfield Trading L.P. Diversified 21.06
Trendstat Capital Management, Inc. Currencies 27.34
------
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
7
<PAGE>
types and market sectors in an effort to reduce risk (although the Fund's
portfolio currently emphasizes technical and trend-following approaches).
Performance Summary
- -------------------
During the first three months of 1996, the Fund's average month-end
Net Assets equalled $16,282,507, and the Fund recognized gross trading gains of
$976,894 or 6.00% of such average month-end Net Assets. Brokerage commissions
of $408,185 or 2.51%, Administrative fees of $ 10,466 or .06%, and Profit Shares
of $222,942 or 1.37% of average month-end Net Assets were paid. Interest income
of $ 182,640 or 1.12% of average month-end Net Assets resulted in a net gain of
$ 517,941 or 3.18% of average month-end Net Assets, which resulted in a 6.26%
increase in the Net Asset Value per Unit since December 31, 1995.
During the first three months of 1997, the Fund's average month-end Net
Assets equalled $14,586,837, and the Fund recognized gross trading gains of $
422,701 or 2.90% of such average month-end Net Assets. Brokerage commissions of
$ 165,959 or 1.14%, Administrative fees of $ 4,568 or .03% and Profit Shares of
$50,106 or .34% of average month-end Net Assets were paid. Interest income of $
90,955 or .62% and Earnings from Investments of $349,574 or 2.40% of average
month-end Net Assets resulted in net income of $ 642,597 or 4.41% of average
month-end Net Assets which resulted in a 4.48% increase in the Net Value per
Unit since December 31, 1996.
During the first three months of 1997 and 1996, the Fund experienced 4
profitable months and 2 unprofitable months.
MONTH-END NET ASSET VALUE PER UNIT
Jan. Feb. Mar.
------- ------- -------
1996 $176.46 $165.47 $171.43
1997 $173.97 $178.86 $177.05
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.
Liquidity
- ---------
Most of the Partnership's assets are held as cash which, in turn, is
used to margin its futures positions and earn interest income and is withdrawn,
as necessary, to pay redemptions and fees.
The futures contracts in which the Partnership trades may become illiquid
under certain market conditions. Commodity exchanges limit fluctuations in
futures prices during a single day by regulations referred to as "daily limits."
During a single day no trades may be executed at prices beyond the daily limit.
Once the price of a futures contract for a particular commodity has increased or
decreased by an amount equal to the daily limit, positions in the commodity can
generally neither be taken nor liquidated unless traders are willing to effect
trades at or within the limit. Futures contracts have occasionally moved to the
daily limit for several consecutive days with little or no trading. Such market
conditions could prevent the Partnership from promptly liquidating its futures
(including its options) positions. There are no limitations on the daily price
moves in trading foreign currency forward contracts through banks, although
illiquidity may develop in the forward markets due to large spreads between
"bid" and "ask" prices quoted. (Forward contracts are the bank version of
currency futures contracts and are not traded on exchanges.)
8
<PAGE>
Capital Resources
- -----------------
The Partnership does not have, nor does it expect to have, any
capital assets and has no material commitments for capital expenditures. The
Partnership uses its assets to supply the necessary margin or premiums for, and
to pay any losses incurred in connection with, its trading activity and to pay
redemptions and fees.
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.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
--------
There are no exhibits required to be filed as part of this
document.
(b) Reports on Form 8-K
-------------------
There were no reports on Form 8-K filed during the first three
months of fiscal 1997.
9
<PAGE>
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 FUTURES INVESTMENTS II L.P.
By: MERRILL LYNCH INVESTMENT PARTNERS INC.
(General Partner)
Date: May 13, 1997 By /s/JOHN R. FRAWLEY, JR.
-----------------------
John R. Frawley, Jr.
President, Chief Executive Officer
and Director
Date: May 13, 1997 By /s/MICHAEL A. KARMELIN
----------------------
Michael A. Karmelin
Chief Financial Officer,
and Director
<TABLE> <S> <C>
<PAGE>
<ARTICLE> BD
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION, CONSOLIDATED STATEMENTS
OF OPERATIONS, CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0000811533
<NAME> ML FUTURES INVESTMENTS II L.P.
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1997 JAN-01-1996
<PERIOD-END> MAR-31-1997 MAR-31-1996
<CASH> 0 0
<RECEIVABLES> 14,704,154 16,669,885
<SECURITIES-RESALE> 0 0
<SECURITIES-BORROWED> 0 0
<INSTRUMENTS-OWNED> 0 0
<PP&E> 0 0
<TOTAL-ASSETS> 14,704,154 16,669,885
<SHORT-TERM> 0 0
<PAYABLES> 247,290 622,247
<REPOS-SOLD> 0 0
<SECURITIES-LOANED> 0 0
<INSTRUMENTS-SOLD> 0 0
<LONG-TERM> 0 0
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 14,456,864 16,047,638
<TOTAL-LIABILITY-AND-EQUITY> 14,704,154 16,669,885
<TRADING-REVENUE> 422,701 976,894
<INTEREST-DIVIDENDS> 90,954 182,640
<COMMISSIONS> 220,633 641,593
<INVESTMENT-BANKING-REVENUES> 349,575 0
<FEE-REVENUE> 0 0
<INTEREST-EXPENSE> 0 0
<COMPENSATION> 0 0
<INCOME-PRETAX> 642,597 517,941
<INCOME-PRE-EXTRAORDINARY> 642,597 517,941
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 642,597 517,941
<EPS-PRIMARY> 7.68 5.38
<EPS-DILUTED> 7.68 5.38
</TABLE>
