<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, 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 0-16746
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 - 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
-- --
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ML FUTURES INVESTMENTS II L.P.
------------------------------
(a Delaware limited partnership)
------------------------------
STATEMENTS OF FINANCIAL CONDITION
---------------------------------
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
----------------- -----------------
ASSETS
- ------
<S> <C> <C>
Accrued interest $23,885 $26,760
Equity in commodity futures trading accounts:
Cash and option premiums 5,423,388 5,939,906
Net unrealized profit on open contracts 94,543 68,216
Investments 6,821,976 6,789,050
Receivable from outside investments 194,160 72,626
----------------- -----------------
TOTAL $12,557,952 $12,896,558
================= =================
LIABILITIES AND PARTNERS' CAPITAL
- ---------------------------------
LIABILITIES:
Redemptions payable $310,803 $97,997
Brokerage commissions payable 40,558 44,153
Profit shares payable - 3,398
Administrative fees payable 1,159 1,262
----------------- -----------------
Total liabilities 352,520 146,810
----------------- -----------------
PARTNERS' CAPITAL:
General Partners (1229 and 1229 Units) 218,148 218,182
Limited Partners (67534 and 70589 Units) 11,987,284 12,531,566
----------------- -----------------
Total partners' capital 12,205,432 12,749,748
----------------- -----------------
TOTAL $12,557,952 $12,896,558
================= =================
NET ASSET VALUE PER UNIT
(Based on 68763 and 71818 Units outstanding) $177.50 $177.53
================= =================
</TABLE>
See notes to financial statements.
2
<PAGE>
ML FUTURES INVESTMENTS II L.P.
------------------------------
(a Delaware limited partnership)
------------------------------
STATEMENTS OF OPERATIONS
------------------------
<TABLE>
<CAPTION>
For the three For the three
months ended months ended
March 31, December 31,
1998 1997
----------------- -----------------
<S> <C> <C>
REVENUES:
Trading (loss) profits:
Realized $(307,970) $388,490
Change in unrealized 26,327 34,211
----------------- -----------------
Total trading results (281,643) 422,701
----------------- -----------------
Interest income 72,968 90,954
Income from investments 332,992 349,575
----------------- -----------------
Total revenues 124,317 863,230
----------------- -----------------
EXPENSES:
Profit shares - 50,106
Brokerage commissions 124,123 165,959
Administrative fees 3,546 4,568
----------------- -----------------
Total expenses 127,669 220,633
----------------- -----------------
NET (LOSS) INCOME $(3,352) $642,597
================= =================
NET (LOSS) INCOME PER UNIT:
Weighted average number of units
outstanding 71,157 83,649
================= =================
Weighted average net (loss) income
per Limited Partner
and General Partner Unit $(0.05) $7.68
================= =================
</TABLE>
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, 1998 and 1997
--------------------------------------------------
<TABLE>
<CAPTION>
Units Limited Partners General Partner Total
---------------- ----------------- --------------- ----------------
<S> <C> <C> <C> <C>
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
================ ================= =============== ================
PARTNERS' CAPITAL,
December 31, 1997 71,818 $12,531,566 $218,182 $12,749,748
Net loss - (3,318) (34) (3,352)
Redemptions (3,055) (540,964) - (540,964)
---------------- ----------------- --------------- ----------------
PARTNERS' CAPITAL,
March 31, 1998 68,763 $11,987,284 $218,148 $12,205,432
================ ================= ================= ================
</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, 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. INVESTMENTS
As of March 31, 1998 and December 31, 1997, the Partnership had investments in
the ML Chesapeake Diversified L.L.C. ("Chesapeake LLC") and the ML Sjo
Prospect L.L.C. ("SJO LLC") as follows:
1998 1997
---------------- ----------------
Chesapeake LLC $ 3,482,893 $ 3,383,225
SJO LLC 3,339,083 3,405,825
---------------- ----------------
Total $ 6,821,976 $ 6,789,050
================ ================
Total revenues and fees with respect to such investments are set forth as
follows:
<TABLE>
<CAPTION>
For the three months Total Brokerage Administrative Profit Income from
ended March 31, 1998 Revenue Commissions Fees Shares Investments
---------------- ---------------- ------------------ ------------ --------------------
<S> <C> <C> <C> <C> <C>
Chesapeake LLC $392,589 $77,123 $2,204 $62,684 $250,578
SJO LLC 172,291 77,188 2,205 10,484 82,414
---------------- ---------------- ------------------ ------------ --------------------
Total $564,880 $154,311 $4,409 $73,168 $332,992
================ ================ ================== ============ ====================
<CAPTION>
For the three months Total Brokerage Administrative Profit Income from
ended March 31, 1997 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>
5
<PAGE>
Condensed statements of financial condition as of March 31, 1998 and
December 31, 1997 and statements of income for the three months ended March
31, 1998 and 1997 for Chesapeake LLC and SJO LLC are set forth as follows:
<TABLE>
<CAPTION>
1998 1997
----------------------------------- -----------------------------------
Chesapeake SJO Chesapeake SJO
LLC LLC LLC LLC
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Assets $17,505,551 $19,174,586 $17,195,182 $21,240,207
================= ================= ================= =================
Liabilities $764,584 $568,783 $704,681 $2,058,617
Members' Capital 16,740,967 18,605,803 16,490,501 19,181,590
----------------- ----------------- ----------------- -----------------
Total $17,505,551 $19,174,586 $17,195,182 $21,240,207
================= ================= ================= =================
Revenues $1,890,020 $972,284 $1,979,886 $1,409,347
Expenses 685,055 503,557 800,919 619,328
----------------- ----------------- ----------------- -----------------
Net Income $1,204,965 $468,727 $1,178,967 $790,019
================= ================= ================= =================
</TABLE>
3. FAIR VALUE AND OFF-BALANCE SHEET RISK
The Partnership's total trading results by reporting category for the
respective periods are as follows:
For the three For the three
months ended months ended
March 31, March 31,
1998 1997
-------------- -------------
Interest rates &
Stock indices $(42,660) $96,682
Commodities (19,637) (9,513)
Currencies (218,007) 315,680
Energy 7,576 23,517
Metals (8,915) (3,665)
-------------- -------------
$(281,643) $422,701
============== =============
6
<PAGE>
Fair Value
- ----------
The contract/notional values of the Partnership's open derivative instrument
positions as of March 31, 1998 and December 31, 1997 were as follows:
<TABLE>
<CAPTION>
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)
------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Interest rate &
Stock Indices $3,563,371 $2,283,490 $5,031,192 $742,619
Commodities - 106,300 26,500 253,889
Currencies 11,632,072 16,633,920 11,161,667 15,160,081
Energy 25,220 - - 456,740
Metals 59,888 - - 58,575
------------------- ------------------- ------------------- -------------------
$15,280,551 $19,023,710 $16,219,359 $16,671,904
=================== =================== =================== ===================
</TABLE>
The contract/notional values of the Partnership's exchange-traded and
non-exchange-traded open derivative instrument positions as of March 31, 1998
and December 31, 1997 were as follows:
<TABLE>
<CAPTION>
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)
------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Exchange
traded $4,444,003 $5,397,772 $5,419,491 $4,112,608
Non-Exchange
traded 10,836,548 13,625,938 10,799,868 12,559,296
------------------- ------------------- ------------------- -------------------
$15,280,551 $19,023,710 $16,219,359 $16,671,904
=================== =================== =================== ===================
</TABLE>
7
<PAGE>
The average fair values, based on contract/notional values, 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, 1998 and the year ended December
31, 1997 were as follows:
<TABLE>
<CAPTION>
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)
------------------ ----------------- ------------------ ------------------
<S> <C> <C> <C> <C>
Interest rate &
Stock Indices $6,350,831 $1,749,396 $6,524,597 $2,675,877
Commodities 90,904 70,538 316,417 237,959
Currencies 10,868,142 14,146,657 6,866,705 9,184,590
Energy 35,820 - 279,102 249,165
Metals 101,536 - 117,033 178,938
------------------ ----------------- ------------------ ------------------
$17,447,233 $15,966,591 $14,103,854 $12,526,529
================== ================= ================== ==================
</TABLE>
The gross unrealized profit and the net unrealized profit on the
Partnership's open derivative instrument positions as of March 31, 1998 and
December 31, 1997 were as follows:
<TABLE>
<CAPTION>
1998 1997
----------------------------------- ------------------------------------
Gross Net Gross Net
Unrealized Unrealized Unrealized Unrealized
Profit Profit Profit Profit
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Exchange
traded $53,896 $40,991 $69,448 $59,134
Non-Exchange
traded 192,622 53,552 286,112 9,082
-------------- -------------- -------------- --------------
$246,518 $94,543 $355,560 $68,216
============== ============== ============== ==============
</TABLE>
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations
MONTH-END NET ASSET VALUE PER UNIT
----------------------------------------
Jan. Feb. Mar.
----------------------------------------
1997 $173.97 $178.86 $177.05
----------------------------------------
1998 $176.25 $176.78 $177.50
----------------------------------------
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. January and
February proved profitable for currencies; however, losses were incurred in
March.
Global interest rate markets began the year on a volatile note, as
investors evaluated economic data for signs of inflation. Profits were incurred
in January and February. Losses were incurred in interest rates in March.
8
<PAGE>
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; however, February
proved 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 positions in the global interest rate markets were
profitable during the quarter. In Europe, 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.
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 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 unprofitable. In
particular, the Swiss franc weakened versus the U.S. dollar.
Agricultural commodity markets provided profitable trading results
overall. Live cattle and hog prices trended downward throughout the quarter.
Cotton prices moved mostly upward during the quarter, but prices dropped off
sharply at the end of March.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not Applicable
9
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There are no pending 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) None.
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.
The Fund will consolidate its trading accounts with those of certain
other MLIP sponsored multi-advisor funds effective June 1, 1998.
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 1998.
10
<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 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)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> BD
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> MAR-31-1998 MAR-31-1997
<CASH> 0 0
<RECEIVABLES> 12,557,952 14,704,154
<SECURITIES-RESALE> 0 0
<SECURITIES-BORROWED> 0 0
<INSTRUMENTS-OWNED> 0 0
<PP&E> 0 0
<TOTAL-ASSETS> 12,557,952 14,704,154
<SHORT-TERM> 0 0
<PAYABLES> 352,520 247,290
<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> 12,205,432 14,456,864
<TOTAL-LIABILITY-AND-EQUITY> 12,557,952 14,704,154
<TRADING-REVENUE> (281,643) 422,701
<INTEREST-DIVIDENDS> 72,968 90,954
<COMMISSIONS> 127,669 220,633
<INVESTMENT-BANKING-REVENUES> 332,992 349,575
<FEE-REVENUE> 0 0
<INTEREST-EXPENSE> 0 0
<COMPENSATION> 0 0
<INCOME-PRETAX> (3,352) 642,597
<INCOME-PRE-EXTRAORDINARY> (3,352) 642,597
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (3,352) 642,597
<EPS-PRIMARY> (.05) 7.68
<EPS-DILUTED> (.05) 7.68
</TABLE>
