<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 June 30, 2000
----------------
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 33-22864
ML FUTURES INVESTMENTS L.P.
---------------------------
(Exact Name of Registrant as
specified in its charter)
Delaware 36-3590615
------------------------------- --------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
c/o Merrill Lynch Investment Partners Inc.
Princeton Corporate Campus
800 Scudders Mill Road - Section 2G
Plainsboro, New Jersey 08536
----------------------------
(Address of principal executive offices)
(Zip Code)
609-282-6996
----------------------------------------------
(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
--- ---
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ML FUTURES INVESTMENTS L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
(unaudited)
---------------- -----------------
<S> <C> <C>
ASSETS
------
Investment $ 14,578,289 $17,051,954
Receivable from investment 266,509 239,240
---------------- -----------------
TOTAL $ 14,844,798 $17,291,194
================ =================
LIABILITY AND PARTNERS' CAPITAL
-------------------------------
Liability - Redemptions payable $ 266,509 $ 239,240
PARTNERS' CAPITAL:
General Partner (777 and 1,027 Units) 181,631 244,458
Limited Partners (61,582 and 70,606 Units) 14,396,658 16,807,496
---------------- -----------------
Total partners' capital 14,578,289 17,051,954
---------------- -----------------
TOTAL $ 14,844,798 $17,291,194
================ =================
NET ASSET VALUE PER UNIT
(Based on 62,359 and 71,633 Units outstanding) $ 233.78 $ 238.05
================ =================
</TABLE>
See notes to financial statements.
2
<PAGE>
ML FUTURES INVESTMENTS L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
For the three For the three For the six For the six
months ended months ended months ended months ended
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Income (Loss) from investments $ 62,480 $ 135,786 $ (288,057) $ 23,801
----------------- ----------------- ----------------- -----------------
NET INCOME (LOSS) $ 62,480 $ 135,786 $ (288,057) $ 23,801
================= ================= ================= =================
NET INCOME (LOSS) PER UNIT:
Weighted average number of units
outstanding 65,546 82,357 67,785 84,255
================= ================= ================= =================
Weighted average net income (loss)
per General Partner
and Limited Partner Unit $ 0.95 $ 1.65 $ (4.25) $ 0.28
================= ================= ================= =================
</TABLE>
See notes to financial statements.
3
<PAGE>
ML FUTURES INVESTMENTS L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND JUNE 30, 1999
(unaudited)
<TABLE>
<CAPTION>
Units General Partner Limited Partners Total
---------------- ----------------- ----------------- ----------------
<S> <C> <C> <C> <C>
PARTNERS' CAPITAL,
December 31, 1998 87,302 $ 247,344 $ 20,779,919 $ 21,027,263
Net income - 356 23,445 23,801
Redemptions (7,345) - (1,765,185) (1,765,185)
---------------- ----------------- ----------------- ----------------
PARTNERS' CAPITAL,
June 30, 1999 79,957 $ 247,700 $ 19,038,179 $ 19,285,879
================ ================= ================= ================
PARTNERS' CAPITAL,
December 31, 1999 71,633 $ 244,458 $ 16,807,496 $ 17,051,954
Net loss - (3,562) (284,495) (288,057)
Redemptions (9,274) (59,265) (2,126,343) (2,185,608)
---------------- ----------------- ----------------- ----------------
PARTNERS' CAPITAL,
June 30, 2000 62,359 $ 181,631 $ 14,396,658 $ 14,578,289
================ ================= ================= ================
</TABLE>
See notes to financial statements.
4
<PAGE>
ML FUTURES INVESTMENTS L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
(unaudited)
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 L.P. (the "Partnership") as of
June 30, 2000, and the results of its operations for the six months ended
June 30, 2000 and June 30, 1999. 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 generally 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, 1999 (the "Annual Report").
2. INVESTMENTS
As of June 30, 2000 and December 31, 1999, the Partnership had an investment in
ML Multi Manager Portfolio LLC (MM LLC) of $14,578,289 and $17,051,954,
respectively.
Total revenues and fees with respect to the Partnership's investment are set
forth as follows:
<TABLE>
<CAPTION>
For the three months Total Brokerage Administrative Profit Gain from Investments
ended June 30, 2000 Revenue Commissions Fees Shares
-------------- ---------------- ----------------- ------------- ----------------------
<S> <C> <C> <C> <C> <C>
Investment in MM LLC 404,846 316,359 9,039 16,968 62,480
-------------- ---------------- ----------------- ------------- --------------------
For the three months Total Brokerage Administrative Profit Gain from Investments
ended June 30, 1999 Revenue Commissions Fees Shares
-------------- ---------------- ----------------- ------------- ----------------------
Investment in MM LLC 621,776 439,344 12,553 34,093 135,786
-------------- ---------------- ----------------- ------------- --------------------
For the six months Total Brokerage Administrative Profit Loss from Investments
ended June 30, 2000 Revenue Commissions Fees Shares
-------------- ---------------- ----------------- ------------- ----------------------
Investment in MM LLC 431,506 681,376 19,468 18,719 (288,057)
-------------- ---------------- ----------------- ------------- --------------------
For the six months Total Brokerage Administrative Profit Gain from Investments
ended June 30, 1999 Revenue Commissions Fees Shares
-------------- ---------------- ----------------- ------------- ----------------------
Investment in MM LLC 1,013,612 894,713 25,563 69,535 23,801
-------------- ---------------- ----------------- ------------- --------------------
</TABLE>
5
<PAGE>
Condensed statements of financial condition and statements of operations for MM
LLC are set forth as follows:
<TABLE>
<CAPTION>
MM LLC MM LLC
---------------------- ----------------------
June 30, December 31,
2000 1999
(unaudited)
---------------------- ----------------------
<S> <C> <C>
Assets $ 86,299,721 $ 100,901,677
====================== ======================
Liabilities $ 2,106,512 $ 2,906,392
Members' Capital 84,193,209 97,995,285
---------------------- ----------------------
Total $ 86,299,721 $ 100,901,677
====================== ======================
</TABLE>
<TABLE>
<CAPTION>
For the three months For the three months For the six months For the six months
ended June 30, 2000 ended June 30, 1999 ended June 30, 2000 ended June 30, 1999
(unaudited) (unaudited) (unaudited) (unaudited)
---------------------- ---------------------- ----------------------- ---------------------
<S> <C> <C> <C> <C>
Revenues $ 2,293,884 $ 3,525,206 $ 2,451,925 $ 5,756,093
Expenses 1,888,994 2,686,982 3,986,134 5,492,766
---------------------- ---------------------- ----------------------- ---------------------
Net Income $ 404,890 $ 838,224 $ (1,534,209) $ 263,327
====================== ====================== ======================= =====================
</TABLE>
3. FAIR VALUE AND OFF-BALANCE SHEET RISK
As of June 1, 1998, the Partnership invested all of its assets in MM LLC.
Accordingly, the Partnership invested indirectly in derivative instruments, but
does not itself hold any derivative instrument positions. As such, MLIP does not
believe that the adoption of the provisions of Statement of Financial Accounting
Standards No. 133 had a significant effect on the financial statements of the
Partnership. Consequently, no such positions subsequent to May 31, 1998 are
reflected in these financial statements.
MARKET RISK
Derivative instruments involve varying degrees of off-balance sheet market risk.
Changes in the level or volatility of interest rates, foreign currency exchange
rates or market values of the financial instruments or commodities underlying
such derivative instruments frequently result in changes in the Partnership's
net unrealized profit on such derivative instruments as reflected in the
Statements of Financial Condition or, with respect to Partnership assets
invested in MM LLC, the unrealized profit (loss) as reflected in the respective
Statements of Financial Condition of MM LLC. The Partnership's exposure to
market risk is influenced by a number of factors, including the relationships
among the derivative instruments held by the Partnership, and MM LLC, as well as
the volatility and liquidity of the markets in which such derivative instruments
are traded.
MLIP has procedures in place intended to control market risk exposure, although
there can be no assurance that they will, in fact, succeed in doing so. These
procedures focus primarily on monitoring the trading of the Advisors selected
from time to time for the Partnership or MM LLC, and include adjusting the
percentage of the Partnership's, or MM LLC's total assets allocated to trading,
calculating the Net Asset Value of the Advisors' respective Partnership accounts
and MM LLC accounts, as of the
6
<PAGE>
close of business on each day and reviewing outstanding positions for
over-concentrations both on an Advisor-by-Advisor and on an overall Partnership
basis. While MLIP does not itself intervene in the markets to hedge or diversify
the Partnership's market exposure (although MLIP may adjust the percentage of
the Partnership's total assets allocated to trading), MLIP may urge Advisors to
reallocate positions, or itself reallocate Partnership assets among Advisors
(although typically only as of the end of a month) in an attempt to avoid
over-concentration. However, such interventions are unusual. Except in cases in
which it appears that an Advisor has begun to deviate from past practice and
trading policies or to be trading erratically, MLIP's basic risk control
procedures consist simply of the ongoing process of advisor monitoring and
selection, with the market risk controls being applied by the Advisors
themselves.
One important aspect of MLIP's risk controls is its adjustments to the leverage
at which the Partnership trades. By controlling the percentage of the
Partnership's assets allocated to trading, MLIP can directly affect the market
exposure of the Partnership. Leverage control is the principal means by which
MLIP hopes to be able to ensure that Merrill Lynch is never required to make any
payments under its guarantee that the Net Asset Value per Unit will equal no
less than a specified minimum as of the Principal Assurance Date.
CREDIT RISK
The risks associated with exchange-traded contracts are typically perceived to
be less than those associated with over-the-counter (non-exchange-traded)
transactions, because exchanges typically (but not universally) provide
clearinghouse arrangements in which the collective credit (in some cases limited
in amount, in some cases not) of the members of the exchange is pledged to
support the financial integrity of the exchange. In over-the-counter
transactions, on the other hand, traders must rely solely on the credit of their
respective individual counterparties. Margins, which may be subject to loss in
the event of a default, are generally required in exchange trading, and
counterparties may require margin in the over-the-counter markets.
The Partnership has credit risk in respect of its counterparties and brokers,
but attempts to control this risk by dealing almost exclusively with Merrill
Lynch entities as counterparties and clearing brokers.
The Partnership, through MM LLC, in its normal course of business, enters into
various contracts, with MLF acting as its commodity broker. Pursuant to the
brokerage agreement with MLF (which includes a netting arrangement), to the
extent that such trading results in receivables from and payables to MLF, these
receivables and payables are offset and reported as a net receivable or payable
in the financial statements of MM LLC in the Equity in commodity future trading
accounts in the Statements of Financial Condition.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
<TABLE>
<CAPTION>
MONTH-END NET ASSET VALUE PER UNIT
----------------------------------------------------------------------------------------------------
Jan. Feb. Mar. Apr. May Jun.
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 $237.81 $240.67 $239.59 $242.21 $240.30 $241.20
----------------------------------------------------------------------------------------------------
2000 $238.86 $237.06 $232.93 $233.23 $236.68 $233.78
----------------------------------------------------------------------------------------------------
</TABLE>
Performance Summary
January 1, 1999 to June 30, 1999
--------------------------------
January 1 1999 to March 30, 1999
7
<PAGE>
The Partnership profited from trading in crude oil, heating oil, and unleaded
gas. As the year opened, the global oil balance continued to show signs of
being lopsided with estimated year-end 1998 inventories at their highest
levels since 1984. During January, petroleum stocks rose by 21 million
barrels compared with a typical gain of 6 to 7 million barrels. Then, on
March 23, OPEC ratified new production cuts totaling 1.716 million barrels
per day at its conference. These new production cuts were scheduled to go
into effect on April 1 and proved to be harbingers of higher prices for crude.
Agricultural trading was also profitable overall, as gains in live hogs and live
cattle offset losses in corn positions. Hog prices plummeted due to a glut of
hogs in the market. At the beginning of the quarter, the corn market continued
to struggle despite a stretch of solid export business. The market's negative
sentiment was deepened by ongoing favorable weather in South America which
continued through February, even though there was a sharp reduction in
Argentina's planted area. Lack of enthusiasm for new crop and less than
spectacular demand continued to depress the corn market throughout the quarter.
Interest rate trading proved profitable for the Partnership as well, as
losses in Japanese 10-year government bonds were offset by gains in 10-year
U.S. Treasury notes and German 10-year bonds. Early in January, the yield on
the Japanese government 10-year bond increased to 1.8%, sharply above the
record low of 0.695% it reached on October 7, 1998. This was triggered by the
Japanese Trust Fund Bureau's decision to absorb a smaller share of future
issues, leaving the burden of financing future budget deficits to the private
sector.
Losses in aluminum overshadowed slight gains in copper during the first quarter.
In January, burdensome warehouse stocks and questionable demand prospects
weighed on base metals as aluminum fell to a 5-year low and copper fell to
nearly an 11-year low. Major surpluses in both metals were expected, keeping
prices down, and there was no supply side response to weak demand and lower
prices. However, the end of March showed copper and aluminum leading a surge in
base metals as prices recovered from multi-year lows.
The Partnership also suffered losses in currency trading during the quarter,
as losses in Japanese yen overpowered gains in Swiss francs. On a
trade-weighted basis, the Swiss franc ended the quarter at close to a
seven-month low, mostly as a result of the stronger U.S. dollar. In January,
the yen had advanced by nearly 35% against the dollar since early in August,
and the Bank of Japan lowered rates to keep the economy sufficiently liquid
so as to allow fiscal spending to restore some growth to the economy and to
drive down the surging yen.
Stock index trading was also unprofitable, as losses were sustained in Hang Seng
and CAC40 positions. Also of note, the Dow Jones Industrial Average closed above
the 10,000 mark for the first time ever at the end of March, setting a record
for the index.
April 1, 1999 to June 30, 1999
The Partnership profited in interest rate trading from short positions in
Euro dollars, U.S. 10-year Treasury notes and U.S. Treasury bonds as the
flight to quality in the bond market reversed during the first half of 1999
and concerns about higher interest rates continued to rattle the financial
markets.
Stock indices trading also resulted in gains overall for the quarter, as
positions in the Hang Seng, Nikkei 225 and Topix Indices all generated profits
as the equity indices rallied worldwide in April and June.
Trading in the agricultural markets also proved profitable for the
Partnership. Gains from live cattle and live hog positions offset losses from
short corn positions. Agricultural commodities, in particular corn, were weak
almost across the board as they are saddled with supply/demand imbalances. In
the beginning of the quarter, continued wetness across the corn belt led to
early planting delays.
8
<PAGE>
The energy sector was profitable as positions in crude oil offset losses from
short positions in natural gas and gas oil trading. The focus of attention in
the natural gas markets since the end of winter was the sharply lower than
year-ago storage injection activity. Crude oil prices rallied much higher and
faster than expected following last quarter's ratification of an OPEC/non-OPEC
agreement to cut production by over 2 million barrels per day. Natural gas
prices also rallied sharply over the quarter, reflecting, in part, growing
concerns about a decline in US natural gas production.
Currency trading resulted in losses for the Partnership. Gains in Euro
trading were offset by losses sustained in British pound trading and from
short positions in the Canadian dollar. After suffering under the weight of
lower commodity prices and the Asian recession, the Canadian dollar underwent
a significant rally in the first half of 1999, moving up about 3 cents from
the end of 1998.
In the metals sector, gains from short gold positions were overshadowed by
losses in copper and nickel trading. Throughout the first half of 1999, gold
prices were in a state of gradual erosion and in early June, prices hit their
lowest levels in over 20 years. Gold continued to show a lack of response to
political and military events such as Kosovo and also lost much of its role as a
monetary asset and flight to safety vehicle. The economic scenario for Asia,
Brazil, emerging market nations and Europe helped keep copper and other base
metals on the defensive as demand receded with virtually no supply side
response.
January 1, 2000 to June 30, 2000
--------------------------------
January 1 2000 to March 30, 2000
Energy trading was profitable for the quarter due to long crude oil and unleaded
gas positions. Despite the possibility of OPEC increasing oil production by 5%,
crude oil prices continued to rise as such a hike would still leave oil
inventories at levels much below normal during the balance of the year. Prices
began to decline in mid-March as Iran backed down from its position on the point
of "no increase" and again later in the month as OPEC announced a production
increase of 1.716 million barrels per day offsetting some gains from the
previous two months.
Stock Index trading was profitable for the quarter. During the month of January,
the Hang Seng Index found market conditions to be difficult. However stock index
trading returned in February and March with gains in positions in CAC 40 Euro
futures, DAX German Stock Index and long S&P 500 positions resulted in gains as
investors focused more on value stocks near the end of the quarter.
Metals trading alternated from profitable to unprofitable during the quarter. In
January gains in aluminum positions outweighed losses in zinc and copper,
however losses in aluminum and gold positions outweighed gains in nickel
positions during February. In March metals trading was slightly profitable as
gains in silver positions outweighed losses in zinc and copper.
Short Swiss franc and Euro positions launched the quarter with gains after
officials from the Group of Seven met and failed to express concern about the
low levels of the European currency, however the positions were unprofitable in
February offsetting gains in Japanese yen positions. Short Euro positions then
bounced back in March but were outweighed by losses in Japanese yen and British
pound positions.
Agriculture trading resulted in losses for the quarter. In January and February
gains in sugar positions were outweighed by losses in corn positions, however in
March corn positions were profitable as prices rose, but were outweighed by
unprofitable soyoil and sugar positions. Corn prices fluctuated as changes in
weather forecasts occurred throughout the quarter.
Short Eurodollar trading was profitable as the currency continued to decline in
January. The European Union ministers blamed the currency's slide in January on
rapid U.S. growth and fears that the Federal Reserve will increase U.S. interest
rates. These profits were far outweighed by losses in the Japanese 10-
9
<PAGE>
year bond, U.S. 10-year Treasury note positions and long U.S. Treasury positions
as the yield curve fluctuated widely during the quarter.
April 1, 2000 to June 30, 2000
Long natural gas positions proved to be profitable throughout the quarter;
however, crude oil faced whipsaw market conditions. Prices on crude oil declined
early in the quarter in the wake of OPEC's March decision to increase
production; however, prices later rose as the International Energy Agency
reported the need for additional OPEC oil to prevent a shortage in inventory. In
June, long positions of light crude oil resulted in profits despite OPEC's
agreement to raise the production ceiling effective July 1. Prices sustained
their levels because the market was looking for a larger production hike.
Agriculture trading was profitable in the quarter as sugar and live hog
positions outweighed losses from soybean trading. An exporter made the first
sale of U.S. pork to China under a 1999 bilateral agricultural agreement,
providing a new avenue of opportunity for U.S. pork producers. The mid-month
USDA grain crop report projected a 12% rise in soybean inventories from last
season. This resulted in fears of an abundance of supply and therefore, lower
prices for the commodity. Forecasts of reduced Brazilian exports and crop damage
in China and Pakistan combined with greater than expected demand from Russia,
resulted in gains for the Partnership's long sugar positions.
Currency trading proved profitable for the Partnership. Gains from short Euro
currency and long Swiss franc positions outweighed losses sustained in other
currencies. Despite the dramatic interest rate hikes by the Swiss National Bank
("SNB") and the weakness of the Euro, the SNB said it will not keep the Swiss
franc from rising. Short positions in the British pound and Canadian dollar
resulted in gains for the sector during May. The pound was particularly weak in
the wake of the Bank of England's references to "sterling overvaluation." The
Euro rallied to U.S. $0.97 early in the month, but faced profit-taking after
news of some capital outflow from Euroland.
Stock index trading was unprofitable due to losses sustained in Nikkei 225 and
S&P 500 positions early in the quarter. Signs of rising inflation fueled fears
that the Federal Reserve will continue to raise interest rates aggressively to
slow the robust economy. However, the Nikkei 225 trading showed gains at the end
of the quarter as well as did the All Ordinaries Index as the Australian Index
finished higher in June.
In metals trading, short aluminum positions were profitable early in the quarter
as a refinery indicated that it will return to operation this year, adding
supply to the market. During the middle of the quarter, copper trading resulted
in losses for the sector. A Freeport, Indonesia mine announced output cuts would
not be as large as the Indonesian government had forecast, resulting in losses
for the Partnership's long positions. Losses continued through the quarter as
trading in both base and precious metals was unprofitable as losses were
sustained in gold and aluminum positions. As has been the ongoing pattern, gold
showed virtually no response to activities in the financial and equity markets,
including the surge in energy prices.
Interest rate trading results were unprofitable for the quarter. Early on losses
were incurred from U.S. Treasury bond and Euro 10-year bond trading. U.S. bond
yields fell during the month as investors shifted to Treasuries due to increased
volatility in the NASDAQ and other equity markets. The Euro traded higher during
May on reports that the European Central Bank may buy the currency to boost its
value, but finally trading was again unprofitable as losses were incurred in
Euro dollar and Japanese government bond positions. Short positions resulted in
losses as the Euro dollar improved after the European Central Bank's 50 basis
point repo rate hike.
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
None.
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 six months
of fiscal 2000.
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 L.P.
By: MERRILL LYNCH INVESTMENT PARTNERS INC.
(General Partner)
Date: August 15, 2000 By /s/ JOHN R. FRAWLEY, JR.
------------------------
John R. Frawley, Jr.
Chairman, Chief Executive Officer,
President and Director
Date: August 15, 2000 By /s/ MICHAEL L. PUNGELLO
-----------------------
Michael L. Pungello
Vice President, Chief Financial Officer
and Treasurer
11
