<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, 1996
-------------
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 0-22448
ML PRINCIPAL PROTECTION L.P.
----------------------------
(formerly ML Principal Protection Plus L.P.)
ML PRINCIPAL PROTECTION TRADING L.P.
------------------------------------
(formerly ML Principal Protection Plus Trading L.P.)
(Rule 140 Co-Registrant)
(Exact Name of Registrant as
specified in its charter)
Delaware 13-3750642 (Registrant)
- ---------------------------------
(State or other jurisdiction of 13-3775509 (Co-Registrant)
---------------------------------
incorporation or organization) (IRS Employer Identification No.)
c/o Merrill Lynch Investment Partners Inc.
(formerly ML Futures 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)
212-236-4161
--------------------------------------------------
(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 13 pages.
There are no exhibits and no exhibit index filed with this document.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ML PRINCIPAL PROTECTION PLUS L.P.
---------------------------------
(a Delaware limited partnership)
------------------------------
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
----------------------------------------------
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
---- ----
<S> <C> <C>
ASSETS
- ------
Cash $ 150,524 $ 19,332
Accrued interest receivable 774,459 17,852
U.S. Government securities 78,437,029 74,280,477
Equity in commodity futures trading accounts:
Cash and option premiums 7,312,678 1,586,839
Net unrealized gain on open contracts 319,429 2,073,538
------------ ------------
TOTAL $86,994,119 $77,978,038
============ ============
LIABILITIES AND PARTNERS' CAPITAL
- ---------------------------------
LIABILITIES:
Settlement payment due to broker $ - $ 1,496,925
Redemptions payable 2,054,800 539,877
Organization and offering costs payable 108,481 148,331
Brokerage commissions payable (Note 2) 407,312 356,607
Profit shares payable 156,977 78,840
Administrative expense payable (Note 2) 11,008 -
------------ ------------
Total liabilities 2,738,578 2,620,580
------------ ------------
Minority interest 648,720 510,914
------------ ------------
PARTNERS' CAPITAL:
General Partner (19,785.98 and 16,603.42 Units) 2,115,818 1,766,403
Limited Partners (775,688.68 and 697,715.56 Units) 81,491,003 73,080,141
------------ ------------
Total partners' capital 83,606,821 74,846,544
------------ ------------
TOTAL $86,994,119 $77,978,038
============ ============
</TABLE>
NET ASSET VALUE PER UNIT (Note 3)
See notes to consolidated financial statements.
2
<PAGE>
ML PRINCIPAL PROTECTION PLUS L.P.
---------------------------------
(a Delaware limited partnership)
------------------------------
CONSOLIDATED STATEMENT OF OPERATIONS
------------------------------------
<TABLE>
<CAPTION>
For the three For the three For the six For the six
months ended months ended months ended months ended
June 30, 1996 June 30, 1995 June 30, 1996 June 30, 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
REVENUES:
Trading profits (loss):
Realized $ 3,347,221 $ 2,581,622 $ 3,956,033 $ 4,229,697
Change in unrealized (1,062,681) (1,555,331) (1,754,109) (561,845)
------------- ------------- ------------- -------------
Total trading results 2,284,540 1,026,291 2,201,924 3,667,852
------------- ------------- ------------- -------------
Interest income 1,161,849 739,550 2,289,595 1,351,723
------------- ------------- ------------- -------------
Total revenues 3,446,389 1,765,841 4,491,519 5,019,575
------------- ------------- ------------- -------------
EXPENSES:
Profit shares 156,978 143,940 243,603 474,205
Brokerage commissions (Note 2) 1,238,890 702,828 2,391,122 1,281,378
Administrative expense (Note 2) 33,483 - 64,625 -
------------- ------------- ------------- -------------
Total expenses 1,429,351 846,768 2,699,350 1,755,583
------------- ------------- ------------- -------------
INCOME BEFORE MINORITY INTEREST 2,017,038 919,073 1,792,169 3,263,992
Minority interest on income (18,870) (5,756) (13,806) (25,323)
------------- ------------- ------------- -------------
NET INCOME $ 1,998,168 $ 913,317 $ 1,778,363 $ 3,238,669
============= ============= ============= =============
NET INCOME PER UNIT:
Weighted average number of units
outstanding 840,119 446,167 823,744 415,968
======= ======= ======= =======
Weighted average net income
per unit $2.38 $2.05 $2.16 $7.79
===== ===== ===== =====
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
ML PRINCIPAL PROTECTION PLUS L.P.
---------------------------------
(a Delaware limited partnership)
------------------------------
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS'CAPITAL
-----------------------------------------------------
For the six months ended June 30, 1996 and 1995
-----------------------------------------------
<TABLE>
<CAPTION>
Limited General
Units Partners Partner Total
----- -------- ------- -----
<S> <C> <C> <C> <C>
PARTNERS' CAPITAL,
DECEMBER 31, 1994 317,562 $31,017,854 $1,074,985 $32,092,839
Additions 133,660 13,121,600 244,400 13,366,000
Net income - 3,135,256 103,413 3,238,669
Redemptions (8,078) (865,184) - (865,184)
-------------- -------------- -------------- --------------
PARTNERS' CAPITAL,
JUNE 30, 1995 443,144 $46,409,526 $1,422,798 $47,832,324
============== ============== ============== ==============
PARTNERS' CAPITAL,
DECEMBER 31, 1995 714,318.98 $73,080,141 $1,766,403 $74,846,544
Subscriptions 168,000.00 16,481,744 318,256 16,800,000
Distributions - (595,090) (12,775) (607,865)
Net income - 1,734,429 43,934 1,778,363
Redemptions (86,844.32) (9,210,221) - (9,210,221)
-------------- -------------- -------------- --------------
PARTNERS' CAPITAL,
JUNE 30, 1996 795,474.66 $81,491,003 $2,115,818 $83,606,821
============== ============== ============== ==============
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
ML PRINCIPAL PROTECTION PLUS L.P.
---------------------------------
(a Delaware Limited Partnership)
------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These financial statements have been prepared without audit. In the opinion
of management, the financial statements contain all adjustments (consisting
of only normal recurring adjustments) necessary to present fairly the
financial position of ML Principal Protection Plus L.P. (the "Partnership")
as of June 30, 1996 and the results of its operations for the six months
ended June 30, 1996 and 1995. 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, 1995 (the "Annual Report").
2. RELATED PARTY TRANSACTIONS
The Partnership pays brokerage commissions to MLF, at a flat monthly rate
equal to 0.7917 of 1% (a 9.5% annual rate) of the Partnership's month-end
assets allocated to trading. Effective January 1, 1996, the brokerage
commission the Partnership pays to the Commodity Broker was reduced to
.7708% (a 9.25% annual rate), and the Partnership began to pay an
administrative fee to the General Partner of .020833% (a .25% annual rate).
Assets committed to trading are not reduced for purposes of calculating
brokerage commissions by any accrued but unpaid brokerage commissions,
profit shares or other fees or charges. The General Partner estimates that
the round-turn equivalent commission rate charged to the Partnership during
the six months ended June 30, 1996 and 1995 was approximately $114 and $53,
respectively (not including, in calculating round-turn equivalents, forward
contracts on a futures-equivalent basis).
MLF pays MLAM annual management fees of 0.20 of 1% on the first $25 million
of Partnership capital managed by MLAM, 0.15 of 1% on the next $25 million
of capital, 0.125 of 1% on the next $50 million, and 0.10 of 1% on capital
in excess of $100 million. Such fees are paid quarterly in arrears and are
calculated on the basis of the average daily assets managed by MLAM.
MLF pays the Trading Advisors annual Consulting Fees, generally ranging
from 1% to 4% of the Partnership's average month-end assets allocated to
them for management, after reduction for a portion of the brokerage
commissions accrued in respect of such assets.
3. NET ASSET VALUE PER UNIT
For financial reporting purposes, the Partnership deducted the total
organization and initial offering costs payable to the General Partner at
inception for purposes of determining Net Asset Value. For all other
purposes (including computing Net Asset Value for redemptions), the
Partnership deducts the organization and initial offering cost
reimbursements only as actually paid. At June 30, 1996 and December 31,
1995, the Net Asset Values of the different series of Units for financial
reporting purposes and for all other purposes were:
5
<PAGE>
<TABLE>
<CAPTION>
Net Asset Value Net Asset Value per Unit
------------------------------------------- -------------------------------------------------------
June 30,
1996
All Other Financial Number of All Other Financial
Purposes Reporting Units Purposes Reporting
-------- --------- ----- -------- ----------
June 30, 1996
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Series A Units $25,607,399 $25,575,643 234,228.00 $109.33 $109.19
Series B Units 4,132,236 4,125,002 38,740.00 $106.67 $106.48
Series C Units 5,495,239 5,487,793 53,850.00 $102.05 $101.91
Series D Units 20,711,439 20,688,066 198,175.00 $104.51 $104.39
Series E Units 11,350,560 11,337,762 108,246.16 $104.86 $104.74
Series F Units 9,790,711 9,779,059 96,253.00 $101.72 $101.60
Series G Units 6,621,076 6,613,496 65,982.50 $100.35 $100.23
--------------- --------------- ---------------
Total $83,708,660 $83,606,821 795,474.66
=============== =============== ===============
<CAPTION>
December 31, 1995
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Series A Units $29,380,564 $29,321,472 274,693.00 $106.96 $106.74
Series B Units 7,011,988 6,999,016 63,540.00 $110.36 $110.15
Series C Units 6,800,466 6,788,236 65,800.00 $103.35 $103.16
Series D Units 20,522,519 20,485,530 200,540.00 $102.34 $102.15
Series E Units 11,272,696 11,252,290 109,745.98 $102.72 $102.53
--------------- --------------- ---------------
Total $74,988,233 $74,846,544 $714,318.98
=============== =============== ===============
</TABLE>
4. FAIR VALUE AND OFF-BALANCE SHEET RISK
The Partnership trades futures, options and forward contracts on interest
rates, stock indices, commodities, currencies, energy and metals. The
Partnership's revenues by reporting category for the six months ended June
30, 1996 were as follows:
<TABLE>
<CAPTION>
June 30, 1996
-------------
<S> <C>
Interest rate $ (863,343)
Stock indices 147,230
Commodities 36,109
Currencies 1,745,104
Energy 1,616,592
Metals (479,768)
--------------
$2,201,924
==============
</TABLE>
Market Risk
-----------
Derivative instruments involve varying degrees of off-balance sheet market
risk, and changes in the level or volatility of interest rates, foreign
currency exchange rates or the market values of the financial instruments
or commodities underlying such derivative instruments frequently result in
changes in the Partnership's unrealized gain or loss on such derivative
instruments as reflected in the Consolidated Statements of Financial
Condition as of the end of the period. The Partnership's exposure to market
risk is influenced by a number of factors, including the relationships
among the derivative instruments held by the Trading Partnership as well as
the volatility and liquidity of the markets in which the derivative
instruments are traded.
The General Partner has procedures in place intended to control market
risk, although there can be no assurance that they will, in fact, succeed
in doing so. These procedures focus primarily on
6
<PAGE>
monitoring the trading of the Advisors selected from time to time for the
Partnership, adjusting the percentage of the Partnership's total assets
allocated to trading with respect to each Series of Units, calculating the
Net Asset Value of the Advisors' respective Partnership accounts as of the
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 the General Partner will not itself intervene in the markets
to hedge or diversify the Partnership's market exposure, the General
Partner 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-concentrations. However, such
interventions are unusual. Except in cases in which it appears that an
Advisor has begun to deviate from past practice or trading policies or to
be trading erratically, the General Partner'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.
Fair Value
----------
The derivative instruments traded by the Trading Partnership are marked to
market daily with the resulting unrealized gains or losses recorded in the
Consolidated Statements of Financial Condition and the related income or
loss reflected in trading revenues in the Consolidated Statements of
Income. The contract/notional values of the Trading Partnership's open
derivative instrument positions as of June 30, 1996 and December 31, 1995
were as follows:
<TABLE>
<CAPTION>
1996 1995
------------------------------------------- -------------------------------------------
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 $ 89,919,833 $ 66,964,208 $230,060,441 $ 37,950,386
Stock indices 14,749,659 4,105,620 8,866,682 152,858
Commodities 16,877,358 6,167,692 17,582,456 3,850,643
Currencies 70,531,505 94,498,431 34,118,884 71,457,359
Energy 10,767,290 - 9,047,015 3,440,800
Metals 10,944,290 29,800,868 7,796,167 11,765,623
-------------- -------------- -------------- --------------
$213,789,935 $201,536,819 $307,471,645 $128,617,669
============== ============== ============== ==============
</TABLE>
Substantially all of the Trading Partnership's open derivative instruments
outstanding as of June 30, 1996 expire within one year.
The contract/notional value of the Trading Partnership's exchange-traded and
non-exchange-traded derivative instrument positions as of June 30, 1996 and
December 31, 1995 was as follows:
<TABLE>
<CAPTION>
1996 1995
---------------------------------------------- ----------------------------------------------
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 $150,718,121 $125,366,894 $238,654,840 $ 76,980,099
Non-Exchange traded 63,071,814 76,169,925 68,816,805 51,637,570
----------------- ----------------- ----------------- -----------------
$213,789,935 $201,536,819 $307,471,645 $128,617,669
================= ================= ================= =================
</TABLE>
7
<PAGE>
The average fair value of the Trading Partnership's derivative instrument
positions which were open as of the end of each calendar month during the
six months ended June 30, 1996 and the year ended December 31, 1995 was as
follows:
<TABLE>
<CAPTION>
1996 1995
------------------------------------------- -------------------------------------------
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 $162,375,225 $157,736,373 $170,252,009 $14,100,439
Stock indices 14,607,351 556,147 5,390,839 1,288,747
Commodities 16,577,987 5,721,223 9,360,681 2,915,357
Currencies 70,207,445 114,313,578 36,054,488 38,557,545
Energy 6,994,062 1,940,292 2,823,925 2,417,008
Metals 20,437,590 14,276,337 6,113,263 10,207,341
--------------- --------------- --------------- ---------------
$291,199,660 $294,543,950 $229,995,205 $69,486,437
=============== =============== =============== ===============
</TABLE>
A portion of the amounts indicated as off-balance sheet risk reflects
offsetting commitments to purchase and to sell the same derivative
instrument on the same date in the future. These commitments are
economically offsetting but are not, as a technical matter, offset in the
forward markets until the settlement 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 fair value amounts in the above tables represent the extent of the
Trading Partnership's market exposure in the particular class of derivative
instrument, but not the credit risk associated with counterparty
nonperformance. The credit risk associated with these instruments, from
counterparty nonperformance, is the net unrealized gain, if any, included
on the Consolidated Statements of Financial Condition. The Trading
Partnership also has credit risk because the sole counterparty or broker
with respect to most of the Trading Partnership's assets is MLF.
As of June 30, 1996 and December 31, 1995, $3,423,445 and $10,444,577 of
the Trading Partnership's assets, respectively, were held in segregated
accounts in accordance with U.S. Commodity Futures Trading Commission
regulations. Substantially all of the Partnership's assets were held in
unregulated accounts maintained at MLF, Merrill Lynch Pierce, Fenner &
Smith Incorporated or certain of their affiliates.
The gross unrealized gain and the net unrealized gain on the Trading
Partnership's open derivative instrument positions as of June 30, 1996 and
December 31, 1995 were as follows:
<TABLE>
<CAPTION>
1996 1995
----- -----
Gross Net Gross Net
Unrealized Unrealized Unrealized Unrealized
Gain Gain (Loss) Gain Gain (Loss)
---- ----------- ---- -----------
<S> <C> <C> <C> <C>
Exchange traded $1,976,626 $1,019,725 $2,942,622 $2,223,484
Non-Exchange traded 1,259,714 (700,296) 352,246 (149,946)
-------------- -------------- -------------- --------------
$3,236,340 $319,429 $3,294,868 $2,073,538
============== ============== ============== ==============
</TABLE>
The partnership controls credit risk by dealing almost exclusively with Merrill
Lynch entities as brokers and counterparties.
8
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations
-------------
Operational Overview: Advisor Selections
- ----------------------------------------
Due to the nature of the Fund's business, its results of operations
depend on MLIP's ability to select Advisors and determine the appropriate
percentage of each series' assets to allocate to them for trading, as well as
the Advisors' ability to recognize and capitalize on trends and other profit
opportunities in different sectors of the world commodity markets. MLIP's
Advisor selection procedure and leveraging analysis, as well as the Advisors'
trading methods, are confidential, so that substantially the only information
that can be furnished regarding the Fund's results of operations is contained in
the performance record of its trading. Unlike operating businesses, general
economic or seasonal conditions do not directly affect the profit potential of
the Fund, and its past performance is not necessarily indicative of future
results. Because of the speculative nature of its trading, operational or
economic trends have little relevance to the Fund's results. MLIP believes,
however, that there are certain market conditions, for example, markets with
strong price trends, in which the Fund has a better likelihood of being
profitable than in others.
As of July 1, 1996, the trading assets attributable to each series of
Units were allocated approximately as follows (approximately 60% of each series'
total capital being allocated to trading):
<TABLE>
<S> <C>
Chesapeake Capital Corporation 25.00
John W. Henry & Co., Inc. 25.00
Non-"Core" Advisors 50.00
------
Total 100.00%
</TABLE>
MLIP expects to continue to change both allocations and Advisor
selections from time to time without advance notice to existing investors.
Results of Operations - General
- -------------------------------
MLIP believes that multi-Advisor futures funds should be regarded as
medium- to long-term investments but, unlike an operating business, it is
difficult to identify "trends" in the Fund's operations and virtually impossible
to make any predictions regarding future results based on results to date.
Markets in which sustained price trends occur with some frequency tend
to be more favorable to managed futures investments than "whipsaw," "choppy"
markets, but (i) this is not always the case, (ii) it is impossible to predict
when trending markets will occur and (iii) different Advisors are affected
differently by trends in general as well as by particular types of trends.
The Fund controls credit risk in its trading in the derivatives
markets by trading only through Merrill Lynch entities which MLIP believes to be
creditworthy. The Fund attempts to control the market risk inherent in its
derivatives trading by utilizing a multi-advisor, multi-strategy structure. This
structure purposefully attempts to diversify the Fund's Advisor group among
different strategy types and market sectors in an effort to reduce risk
(although the Fund's portfolio currently emphasizes technical and trend-
following approaches). The market risk to the Fund is, in any event, limited by
the deleveraged character of its trading (initially, only 60% of each series'
assets, and in certain cases possibly less, is allocated to trading) and the
related "principal protection" feature of the Fund.
Performance Summary
- -------------------
During the first six months of 1995, the Fund's average month-end Net
Assets equalled $42,768,576, and the Fund recognized gross trading gains of
$3,667,852 or 8.58% of such average month-end Net Assets. Brokerage commissions
of $1,281,378 or 3.00% and Profit Shares of $474,205 or 1.11% of average month-
end Net Assets were paid. Interest income of $1,351,723 or 3.16% of average
month-end Net Assets resulted in net income of $3,238,669 (before organizational
and initial offering cost reimbursement payments of $ 39,850, and after
deduction of MLIP's "minority interest" in the Trading Partnership) or 7.57% of
average month-end Net Assets, which resulted in a 8.27% increase in the Net
Asset Value per Series A Units since December 31, 1994, a 7.46% increase in the
Net Asset Value per Series B Units since January 1995 and a .60% increase in the
Net Asset Value per Series C Units since April 1995. The performance of the
different Series of Units differs somewhat over the same period due primarily to
profit share calculation differences resulting from the different times at which
the various Series began trading
During the first six months of 1996, the Fund's average month-end Net
Assets equalled $83,909,857, and the Fund recognized gross trading gains of
$2,201,924 or 2.62% of such average month-end Net Assets. Brokerage commissions
of $2,391,122 or 2.85%, Administrative expenses of $64,625 or .08% and Profit
Shares of $243,603 or .29% of average month-end Net Assets were paid. Interest
income of $2,289,595 or 2.73% of average month-end Net Assets resulted in net
gain of $1,778,363 (before organizational and initial offering cost
reimbursement payments of $39,850,
9
<PAGE>
and after deduction of MLIP's "minority interest" in the Trading Partnership),
or 2.12% of average month-end Net Assets which resulted in a 2.22% increase in
the Net Asset Value per Series A Units, 2.09% increase (before distribution) in
the Net Asset Value per Series B Units, 2.13% increase (before distribution) in
the Net Asset Value per Series C Units, 2.12% increase in the Net Asset Value
per Series D Units, 2.08% increase in the Net Asset Value per Series E Units
since December 31, 1995, a 1.72% increase in the Net Asset Value per Series F
Units since January 1996 and a .35% increase in the Net Asset Value per Series G
Units since April 1996. The performance of the different Series of Units differs
somewhat over the same period due primarily to profit share calculation
differences resulting from the different times at which the various Series began
trading.
During the first six months of 1996 and 1995, the Fund experienced 8
profitable months and 4 unprofitable months.
<TABLE>
<CAPTION>
MONTH-END NET ASSET VALUE PER SERIES A UNIT
------------------------------------------------------------------------
Jan. Feb. Mar. April May June
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $101.36 $103.63 $107.94 $109.09 $110.40 $110.18
------------------------------------------------------------------------
1996 * $109.65 * $105.56 * $106.69 * $110.05 * $107.82 * $109.33
------------------------------------------------------------------------
</TABLE>
* After reduction for $6.00 per Series A Unit distribution declared on September
30, 1995.
<TABLE>
<CAPTION>
MONTH-END NET ASSET VALUE PER SERIES B UNIT
-----------------------------------------------------------------------------
Jan. Feb. Mar. April May June
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $ 98.82 $101.05 $105.24 $106.36 $107.67 $107.46
-----------------------------------------------------------------------------
1996 ** $106.98 ** $102.99 ** $104.09 ** $107.37 ** $105.20 ** $106.67
-----------------------------------------------------------------------------
</TABLE>
** After reduction for $6.00 per Series B Unit distribution declared on January
31, 1996.
<TABLE>
<CAPTION>
MONTH-END NET ASSET VALUE PER SERIES C UNIT
--------------------------------------------------------------------
Jan. Feb. Mar. April May June
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 N/A N/A N/A $ 99.66 $100.81 $100.60
--------------------------------------------------------------------
1996 $105.97 $102.00 $103.10 ***$102.73 ***$100.66 ***$102.05
--------------------------------------------------------------------
</TABLE>
*** After reduction for $3.50 per Series C Unit distribution declared on April
30, 1996.
<TABLE>
<CAPTION>
MONTH-END NET ASSET VALUE PER SERIES D UNIT
-------------------------------------------------------------------
Jan Feb Mar April May June
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 N/A N/A N/A N/A N/A N/A
-------------------------------------------------------------------
1996 $104.83 $100.94 $102.02 $105.21 $103.11 $104.51
-------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MONTH-END NET ASSET VALUE PER SERIES E UNIT
-------------------------------------------------------------------
Jan. Feb. Mar. April May June
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 N/A N/A N/A N/A N/A N/A
-------------------------------------------------------------------
1996 $105.17 $101.32 $102.40 $105.55 $103.49 $104.86
-------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MONTH-END NET ASSET VALUE PER SERIES F UNIT
-------------------------------------------------------------------
Jan. Feb. Mar. April May June
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 N/A N/A N/A N/A N/A N/A
-------------------------------------------------------------------
1996 $102.16 $ 98.45 $ 99.46 $102.34 $100.44 $101.72
-------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MONTH-END NET ASSET VALUE PER SERIES G UNIT
-------------------------------------------------------------------
Jan. Feb. Mar. April May June
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 N/A N/A N/A N/A N/A N/A
-------------------------------------------------------------------
1996 N/A N/A N/A $100.87 $ 98.95 $100.35
-------------------------------------------------------------------
</TABLE>
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
10
<PAGE>
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.
MLIP's Advisor Selections
- -------------------------
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.
Interest Income
- ---------------
The Fund's interest income varies from month to month due to a portion
of such income representing the yield enhancement return achieved by MLAM rather
than periodic interest accruals. Although there can be no assurance that the
Fund will not incur losses in its yield enhancement activities in the future, to
date MLAM has achieved a yield for the Fund (on the approximately 80% to 90% of
the Fund's assets managed by MLAM) of approximately 1.02% (annualized) over the
prevailing 91-day Treasury bill rate.
Liquidity
- ---------
The Fund's assets, including the assets managed by MLAM, are available
to margin the Fund's futures positions and earn interest income and to be
withdrawn, as necessary, to pay redemptions and expenses. Other than potential
limitations on liquidity, due, for example, to daily price fluctuation limits,
which are inherent in the Fund's futures and forward trading, the Fund's assets
are highly liquid and are expected to remain so. To date, the Fund has
experienced no meaningful periods of illiquidity in any of the numerous markets
traded by the Advisors.
Although Units may be redeemed at any month-end, no one who cannot
afford to commit funds to a comparatively illiquid investment should subscribe
to the Fund (redemption penalties apply through the end of the first twelve
months after the beginning of the calendar quarter as of which a Unit is
issued). MLIP believes that investors who are not prepared to regard the Fund
essentially as a medium- to long-term investment should not purchase Units.
MLIP makes annual fixed-rate and, possibly, additional discretionary
distributions to investors from the assets attributable to their respective
series of Units. Such distributions are made as of each Issuance Anniversary
for the various series. The Series A Units and Series B Units each received
both fixed-rate and discretionary distributions of $3.50 and $2.50 (a total
distribution of $6.00) as of their respective first Issuance Anniversaries. The
Series C Units received a fixed rate distribution of $3.50 on its respective
first Issuance Anniversary.
In making discretionary distributions from the Fund, even though such
distributions are made only from cumulative profits, if any (as opposed to
fixed-rate annual distributions, which are made irrespective of profitability),
MLIP considers the importance of not depleting the assets of any particular
series to the point that subsequent losses could result in MLIP further
deleveraging the trading of such series.
As of July 1, 1996, the Fund has changed its name to ML Principal
Protection LP. Such change is due to the General Partner restructuring the
continuous offerings to be sold without a guaranteed annual fixed-rate
distribution or a discretionary distribution as previously offered under
Principal Protection Plus LP.
Capital Resources
- -----------------
Units are offered for sale as of the beginning of each calendar
quarter, and may be redeemed as of the end of each month.
The amount of capital raised for the Fund does not have a significant
impact on its operations, as, other than a de minimis organizational and initial
offering cost reimbursement obligation, the Fund has no capital expenditure or
working capital requirements other than for moneys to pay trading losses,
brokerage commissions, Administrative Fees and Profit Shares (all of which
should be generally proportional to the capital available to a particular series
of Units). Within broad ranges of capitalization, the Advisors' trading
positions should increase or decrease in approximate proportion to the size of
the Fund account managed by each of them, respectively.
11
<PAGE>
The Fund raises additional capital only through the sale of Units. The
Fund is prohibited from borrowing under the terms of the Limited Partnership
Agreement.
Due to the nature of the Fund's business, substantially all of its
assets are and will be represented by cash, Government Securities and short-term
foreign sovereign debt obligations, while it maintains its primary market
exposure through futures and forward contract positions.
Inflation is not a significant factor in the Fund's profitability,
although inflationary cycles can give rise to the type of major price movements
which can have a materially favorable or adverse impact on the Fund's
performance.
Changes in the level of prevailing interest rates (a factor generally
associated with inflation) could have a material effect on the percentage of the
total capital attributable to various series of Units which is committed to
trading, as interest rates affect the calculation of the discounted minimum Net
Asset Value per Unit which ML&Co. has guaranteed to investors.
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 with this document.
(b) Reports on Form 8-K
-------------------
There were no reports on Form 8-K filed during the first six months of
fiscal 1996.
12
<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 PRINCIPAL PROTECTION PLUS L.P.
---------------------------------
By: MERRILL LYNCH INVESTMENT PARTNERS INC.
(General Partner)
Date: August 9, 1996 By /s/JOHN R. FRAWLEY, JR.
-----------------------
John R. Frawley, Jr.
President, Chief Executive Officer
and Director
Date: August 9, 1996 By /s/JAMES M. BERNARD
-------------------
James M. Bernard
Chief Financial Officer
Treasurer and Senior Vice President
<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>
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1994
<PERIOD-START> JAN-01-1996 JAN-01-1995
<PERIOD-END> JUN-30-1996 JUN-30-1995
<CASH> 150,524 0
<RECEIVABLES> 8,406,566 6,137,792
<SECURITIES-RESALE> 0 0
<SECURITIES-BORROWED> 0 0
<INSTRUMENTS-OWNED> 78,437,029 42,701,962
<PP&E> 0 0
<TOTAL-ASSETS> 86,994,119 48,839,754
<SHORT-TERM> 0 0
<PAYABLES> 3,387,298 1,007,430
<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> 83,606,821 47,832,324
<TOTAL-LIABILITY-AND-EQUITY> 86,994,119 48,839,754
<TRADING-REVENUE> 2,201,924 3,667,852
<INTEREST-DIVIDENDS> 2,289,595 1,351,723
<COMMISSIONS> 2,713,156 1,780,906
<INVESTMENT-BANKING-REVENUES> 0 0
<FEE-REVENUE> 0 0
<INTEREST-EXPENSE> 0 0
<COMPENSATION> 0 0
<INCOME-PRETAX> 1,778,363 3,238,669
<INCOME-PRE-EXTRAORDINARY> 1,778,363 3,238,669
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,778,363 3,238,669
<EPS-PRIMARY> 2.16 7.79
<EPS-DILUTED> 2.16 7.79
</TABLE>
