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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 30, 2002,
or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
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COMMISSION FILE NUMBER 0-49767
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MLM INDEX FUND
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(Exact name of registrant as specified in its charter)
DELAWARE
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(State or other jurisdiction of incorporation or organization)
47 Hulfish Street, Suite 510, Princeton, New Jersey
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(Address of principal executive offices)
Unleveraged Series: 22-2897229
Enhanced Series: 22-3722683
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(IRS Employer Identification Number)
08542
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(Zip Code)
(609) 924-8868
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(Registrant's telephone number including area code)
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(Former name, former address and former fiscal year, if
changed since last report)
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, and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
----- -----
-1-
MLM INDEX FUND
INDEX
PAGE
PART I - FINANCIAL INFORMATION NO.
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Interim Statements of Financial Condition as of June 30,
2002 (unaudited) and December 31, 2001 (audited)..............................3
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Interim Condensed Schedule of Investments as of June 30, 2002 (unaudited)
and December 31, 2001 (audited)...............................................4
- -------------------------------------------------------------------------------
Interim Statements of Operations For the Three Months Ended June 30, 2002
and 2001 and For The Six Months Ended June 30, 2002 and 2001..................5
- -------------------------------------------------------------------------------
Unaudited Interim Condensed Statement of Changes in Partners' Capital
for the Six Months Ended June 30, 2002 and 2001...............................6
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Notes to Unaudited Interim Condensed Financial Statements for the
Six Months Ended June 30, 2002................................................8
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Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................12
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Item 3 Quantitative and Qualitative Disclosures of Market Risk........15
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PART II - OTHER INFORMATION
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Item 1 Legal Proceedings.............................................16
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Item 2 Changes in Securities and Use of Proceeds.....................16
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Item 3 Defaults Upon Senior Securities...............................17
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Item 4 Submission of Matters to a Vote of Security Holders............17
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Item 5 Other Information.............................................17
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Item 6 Exhibits and Reports on Form 8-K..............................17
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Signatures...................................................................18
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-2-
MLM Index Fund
INTERIM STATEMENTS OF FINANCIAL CONDITION
AS OF JUNE 30, 2002 (Unaudited) AND DECEMBER 31, 2001 (Audited)
June 30, December 31,
2002 2001
---------------------------------------
Assets
Cash and cash equivalents $ 163,699,453 $169,990,375
Due from broker 15,873,877 26,142,375
Certificate of deposit, at value (cost $14,120,000
and $4,501,775) 14,120,063 4,502,290
Other assets 284,466 498,747
---------------------------------------
Total assets $ 193,977,859 $201,133,787
=======================================
Liabilities and investors' interest
Redemptions payable $ 2,844,788 $ 3,163,339
Brokerage commission payable 285,879 257,122
Management fee payable 238,775 255,466
Subscriptions received in advance 25,000 -
Accrued expenses 189,286 251,183
---------------------------------------
Total liabilities 3,583,728 3,927,110
Investors' interest 190,394,131 197,206,677
---------------------------------------
Total liabilities and investors' interest $ 193,977,859 $201,133,787
=======================================
See Notes to Financial Statements
-3-
MLM Index Fund
INTERIM CONDENSED SCHEDULES OF INVESTMENTS:
JUNE 30, 2002 (Unaudited)
Percentage of
Security Description Market Value Investors' Interest
- -------------------------------------------------------------------------------
Futures Contracts-3.54%
Long $5,638,984 2.96%
Short 1,100,007 .58%
----------------- -----------------
Net unrealized appreciation on
futures contracts $6,738,991 3.54%
================= =================
Certificate of Deposit-7.42% $14,120,063 7.42%
================= =================
December 31, 2001 (Audited)
Percentage of
Security Description Market Value Investor's Interest
- -------------------------------------------------------------------------------
Futures Contracts- 3.55%
Long $(1,690,259) (0.86%)
Short 8,694,100 4.41%
----------------- -----------------
Net unrealized appreciation on
futures contracts $7,003,841 3.55%
================== =================
Certificate of Deposit-2.28% $4,502,290 2.28%
================== ==================
See Notes to Financial Statements
-4-
MLM Index Fund
UNAUDITED INTERIM STATEMENTS OF OPERATIONS
For the three For the three For the six For the six
months ended months ended months ended months ended
June 30, 2002 June 30, 2001 June 30, 2002 June 30, 2001
Investment income
Interest $ 898,217 $ 1,268,265 $ 1,784,382 $ 2,525,662
Expenses
Brokerage commissions 662,588 430,502 1,405,854 779,972
Management fee 624,612 354,733 1,328,160 641,438
Operating expenses 166,462 156,104 346,652 272,280
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Total expenses 1,453,662 941,339 3,080,666 1,693,690
Net investment income (loss) (555,445) 326,926 (1,296,284) 831,972
Realized and unrealized gain (loss)
on investments
Net realized gain (loss) (18,637,756) (30,005) (29,091,273) 4,886,258
Net change in unrealized
appreciation (depreciation)
on investments 14,210,356 (2,166,779) (521,393) (1,510,998)
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Net realized and unrealized gain
(loss) on investments (4,427,400) (2,196,784) (29,612,666) 3,375,260
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Net income (loss)
$ (4,982,845) $ (1,869,858) $ (30,908,950) $ 4,207,232
===========================================================================
See Notes to Financial Statements
-5-
MLM Index Fund
UNAUDITED INTERIM STATEMENT OF CHANGES IN PARTNERS' CAPITAL
FOR THE SIX MONTHS ENDED JUNE 30, 2002
Enhanced Series
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Total
Class A-1 Class A Class B-1 Class B Class C Enhanced
Shares Shares Shares Shares Shares Series
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Investors' interest at $153,689 $26,820,513 $4,193,995 $91,711,548 $4,024,210 $126,903,955
December 31, 2001
Subscriptions - 4,391,365 24,875 20,465,537 2,457,750 27,339,527
Redemptions (19,733) (1,636,332) (685,975) (6,288,372) - (8,630,412)
Transfers 54,046 (651,375) - (2,061,256) - (2,658,585)
Net (loss) (33,256) (5,659,071) (695,754) (19,381,087) (836,448) (26,605,616)
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Investors' interest at
June 30, 2002 $154,746 $23,265,100 $2,837,141 $84,446,370 $5,645,512 $116,348,869
=============================================================================
Shares at December 31, 2001 1,241 242,231 33,918 803,319 42,419 1,123,128
Subscriptions - 46,920 197 207,906 32,420 287,443
Redemptions (199) (16,370) (5,538) (63.174) - (85,281)
Transfers 526 (7,530) - (21.367) - (28,371)
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Shares at June 30, 2002 1,568 265,251 28,577 926.684 74,839 1,296,919
=============================================================================
Net asset value per share:
June 30,2002 $98.70 $ 87.71 $99.28 $91.13 $75.44
==============================================================
Unleveraged Series
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Total
Total Investors'
Class A-1 Class A Class B-1 Class B Unleveraged Interest
Shares Shares Shares Shares Series ($100 Par
Value/Share)
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Investors' interest at $910,801 $8,248,822 $1,985,391 $59,157,708 $70,302,722 $197,206,677
December 31, 2001
Subscriptions - 4,301,330 - 10,690,287 14,991,617 42,331,144
Redemptions (21,267) (114,852) (600,605) (8,867,604) (9,604,328) (18,234,740)
Transfers (54,046) (85,290) - 2,797,921 2,658,585 -
Net (loss) (58,068) (707,871) (82,364) (3,455,031) (4,303,334) (30,908,950)
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Investors' interest at
June 30, 2002 $777,420 $11,642,139 $1,302,422 $60,323.281 $74,045,262 $190,394,131
==============================================================================
Shares at December 31, 2001 7,976 74,313 16,874 517,660 616,823 1,739,951
Subscriptions - 39,885 - 98,118 138,003 425,446
Redemptions (199) (1,102) (5,092) (78,470) (84,863) (170,144)
Transfers (500) (783 - 25,836 24,553 (3,818)
------------------------------------------------------------------------------
Shares at June 30, 2002 7,277 112,313 11,782 563,144 694,516 1,991,435
===============================================================================
Net asset value per share:
June 30,2002 $106.85 $103.66 $110.55 $107.12
==================================================
See Notes to Financial Statements
-6-
MLM Index Fund
UNAUDITED INTERIM STATEMENT OF CHANGES IN PARTNERS' CAPITAL
FOR THE SIX MONTHS ENDED JUNE 30, 2001
Enhanced Series
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Total
Class A-1 Class A Class B-1 Class B Class C Enhanced
Shares Shares Shares Shares Shares Series
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Investors' interest at $154,798 $13,081,512 $4,828,988 $48,129,532 $ - $
December 31, 2000 66,194,830
Subscriptions - 7,454,082 - 25,719,424 696,500 33,870,006
Redemptions - (3,122,584) (70,475) (5,515,949) - (8,709,008)
Transfers - 280,601 - 77,505 - 358,106
Net income 6,772 313,113 248,703 2,736,325 - 3,304,913
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Investors' interest at
June 30, 2001 $161,570 $18,006,724 $5,007,216 $71,146,837 $696,500 $95,018,847
=============================================================================
Shares at December 31, 2000 1,241 116,013 39,358 420,014 - 576,626
Subscriptions - 64,287 - 218,713 6,965 289,965
Redemptions - (28,939) (547) (45,539) - (75,025)
Transfers - 2,439 - 647 - 3,086
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Shares at June 30, 2001 1,241 153,800 38,811 593,835 6,965 794,652
=============================================================================
Net asset value per share:
June 30,2001 $130.22 $117.08 $129.01 $119.81 $100.00
==============================================================
Unleveraged Series
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Total
Total Investors'
Class A-1 Class A Class B-1 Class B Unleveraged Interest
Shares Shares Shares Shares Series ($100 Par
Value/Share)
----------------------------------------------------------------------------
Investors' interest at $896,523 $2,202,280 $2,076,846 $10,863,434 $16,039,083 $82,233,913
December 31, 2000
Subscriptions - 2,094,112 - 37,610,592 39,704,704 73,574,710
Redemptions - (39,927) (381) (2,298,056) (2,338,364) (11,047,372)
Transfers - (501,078) - 142,972 (358,106) -
Net income 22,300 52,298 62,254 765,467 902,319 4,207,232
----------------------------------------------------------------------------
Investors' interest at $918,823 $3,807,685 $2,138,719 $47,084,409 $53,949,636 $148,968,483
June30, 2001
============================================================================
Shares at December 31, 2000 7,976 20,068 18,112 97,105 143,261 719,887
Subscriptions - 18,713 - 331,135 349,848 639,813
Redemptions - (359) (3) (19,942) (20,304) (95,329)
Transfers - (4,494) - 1,244 (3,250) (164)
-----------------------------------------------------------------------------
Shares at June 30, 2001 7,976 33,928 18,109 409,542 469,555 1,264,207
=============================================================================
Net asset value per share:
June 30,2001 $115.21 $112.23 $118.11 $114.97
=================================================
See Notes to Financial Statements
-7-
MLM Index Fund
Notes to Financial Statements
1. Significant Accounting Policies
Organization and Basis of Financial Statements
MLM Index Fund (the "Fund") was formed under the Business Trust Statute of
the State of Delaware as a business trust in December 1997 and commenced
operations on January 4, 1999. The Fund was organized for the primary
purpose of seeking capital appreciation through the speculative trading of
a diversified portfolio of futures contracts traded on U.S. exchanges using
the MLM Index Trading Program, which is based upon the MLM Index. The MLM
Index is a benchmark of the hypothetical returns available to a futures
investor. The Index is comprised of a diverse portfolio of futures markets,
including both financial and tangible markets. Only highly-liquid U.S.
futures markets are currently included in the MLM Index.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to
make estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Management believes that the
estimates utilized in preparing the financial statements are reasonable and
prudent; however, actual results could differ from those estimates.
Cash and Cash Equivalents
Cash equivalents consist of short term money market investments and
deposits in money market mutual funds, which are carried at cost plus
accrued interest, which approximates market value. At June 30, 2002 and
December 31, 2001, the Fund had approximately $31,356,000 and $5,967,000,
respectively, in overnight funds with one major domestic bank and
$144,786,565 and $162,340,000 at June 30, 2002 and December 31, 2001
invested in money market securities, respectively.
Certificate of Deposit
At June 30, 2002 and December 31, 2001, the Fund held certificates of
deposits with a large financial institution in the amount of $14,120,063
and $4,502,290, which mature on various dates throughout 2002.
-8-
MLM Index Fund
Notes to Financial Statements (continued)
1. Significant Accounting Policies (continued)
Valuation of Trading Positions
The Fund's trading positions are valued at market value, including accrued
interest where applicable, and are included in amounts due from broker.
Market value is principally based on listed market prices or broker or
dealer price quotations. The resulting change in unrealized profit or loss
is reflected in trading results for the period.
Income Taxes
The Unleveraged Series and the Enhanced Series each will be classified for
federal income tax purposes as a separate partnership. Interest Holders of
a Series will reflect their proportionate share of realized profit or loss
on their separate tax returns. Accordingly, no provisions for income taxes
are required for the Fund.
2. Investors' Interest
The Fund is comprised of two series: the Unleveraged Series, which attempts
to replicate the MLM Index without leverage, and the Enhanced Series, which
trades the MLM Index at three times leverage. Prior to June 2001, each
Series had four classes of shares: Class A-1, Class A (formerly Class A-2),
Class B-1, and Class B (formerly Class B-2). In June 2001, an additional
class of shares, Class C, was offered under the Enhanced Series. Class A-1
and Class B-1 Interests are no longer offered to new interestholders. Class
A, Class B and Class C Interests are sold by authorized selling agents
appointed by Mount Lucas Management Corporation (the "Manager") to
accredited investors at a price equal to such Class' net asset value.
Interests may be redeemed at net asset value as of the last day of any
month upon at least ten business days written notice to the Manager.
The Manager allocates profits and losses among the investors of a Series
based on the balance in each investor's capital account.
The Manager paid all of the expenses associated with the organization of
the Fund and the offered interests. As a result, each investor pays the
Manager an organizational fee in the amount of 0.5% of their initial
investment (net of any selling commission) in any Series and any subsequent
investment. The organizational fee is not charged once an investor has
invested $1,000,000 or more.
-9-
MLM Index Fund
Notes to Financial Statements (continued)
2. Investors' Interest (continued)
The Class A Interests of the Unleveraged and Enhanced Series are subject to
a sales commission of up to 4% of the subscription amount, payable to the
selling agent from the investor's investment for each series. The amount of
the sales commission will be determined by the selling agent.
As of June 30,2002, the Manager of the Fund had contributed $1,000 to each
Series of the Fund.
3. Margin Requirements
The Fund had margin requirements of approximately $19,581,405 and
$24,020,446 at June 30, 2002 and December 31, 2001, respectively, which
were satisfied by net unrealized profits and cash at the brokers.
4. Management Fee, Administrative Services and Other Transactions
The Fund pays the Manager a management fee as a percentage of net assets,
as of the first day of each month at the annualized rates of 2.15% for
Class A-1, 2.8% for Class A, 0.65% for Class B-1, 1.3% for Class B and
2.05% for Class C for the Enhanced Series and 1.25% for Class A-1, 1.5% for
Class A, 0.25% for Class B-1 and 0.5% for Class B for the Unleveraged
Series.
The Fund pays the introducing broker a brokerage fee as a percentage of net
assets, as of the first day of each month at the annualized rates of 1.35%
for Class A-1, 1.85% for Class A, 1.35% for Class B-1, 1.85% for Class B
and 1.85% for Class C for the Enhanced Series and 0.65% for Class A-1,
0.85% for Class A, 0.65% for Class B-1 and 0.85% for Class B for the
Unleveraged Series.
The Fund pays its legal, accounting, auditing and other operating expenses
and fees. The manager will reimburse any Series for these expenses to the
extent that they exceed 0.5% of the average net assets of such Series of
the Fund in any calendar year. There were no reimbursements for the six
months ended June 30, 2002 and for the year ended December 31, 2001.
-10-
MLM Index Fund
Notes to Financial Statements (continued)
5. Derivative Financial Instruments
Derivatives are financial instruments whose values are based upon an
underlying asset (e.g., treasury bond), index (e.g., S&P 500) or reference
rate (e.g., LIBOR). Over-the-counter ("OTC") derivative products are
privately negotiated contractual agreements that can be tailored to meet
individual client needs, and include forwards, swaps and certain options.
Exchange traded derivative products are standardized contracts transacted
through regulated exchanges and include futures, and certain option
contracts listed on an exchange.
Derivatives are subject to various risks similar to non-derivative
financial instruments including market, credit, liquidity and operational
risk. The risk of derivatives should not be viewed in isolation but rather
should be considered on an aggregate basis along with the Fund's other
trading related activities.
The Fund purchases and sells futures in financial instruments and
commodities. The Fund records its derivative activities on a mark-to-market
basis with realized and unrealized gains (losses) recognized currently in
the statements of operations and in due from brokers on the statements of
financial condition.
The following table reflects the fair value of the Fund's derivative
financial instruments.
Fair Value at
June 30, 2002 December 31, 2001
------------------------------------------------------------
Assets Liabilities Assets Liabilities
------------------------------------------------------------
Commodity Futures $4,247,171 $2,185,972 $10,080,167 $2,683,961
Financial Futures 4,767,283 89,490 1,409,545 1,801,909
------------------------------------------------------------
$9,014,454 $2,275,462 $11,489,712 $4,485,870
============================================================
-11-
MLM Index Fund
Notes to Financial Statements (continued)
6. Financial Highlights
The following represents the per share operating performance ratios to
average limited partners' capital and other supplemental information for
the six months ended June 30, 2002:
Enhanced Series Unleveraged Series
------------------------ -----------------------
Class A-1 Class A lass B-1 Class B Class C Class A-1 Class A Class B-1 Class B
Shares Shares Shares Shares Shares Shares Shares Shares Shares
-----------------------------------------------------------------------------------------------
Per share operating performance:
Net asset value per share, $123.84 $110.72 $123.65 $114.22 $94.87 $114.19 $111.00 $117.66 $114.28
December 31, 2001
Income from investment
operations:
Net investment income (loss) (1.17) (1.64) (0.37) (0.98) (1.10) (0.30) (0.45) 0.20 0.01
Net realized and unrealized
gain (loss) on Investment (23.97) (21.37) (24.00) (22.11) (18.33) (7.04) (6.89) (7.31) (7.17)
transactions
----------------------------------------------------------------------------------------
Total from investment (25.14) (23.01) (24.37) (23.09) (19.43) (7.34) (7.34) (7.11) (7.16)
operations
----------------------------------------------------------------------------------------
Net asset value per share, $98.70 $87.71 $99.28 $91.13 $75.44 $106.85 $103.66 $110.55 $107.12
June 30, 2002
========================================================================================
Total Return: (20.32%) (20.78%) (19.71%) (20.18%) (20.48%) (6.44%) (6.62%) (6.05%) (6.27%)
Ratio to Average Net Assets:
Net investment income (loss) (1.05%) (1.63%) (0.33%) (0.89%) (1.28%) (0.27%) (0.43%) 0.17% 0.01%
Expenses (1.99%) (2.57%) (1.24%) (1.82%) (2.19%) (1.20%) (1.43%) (0.70%) (0.93%)
Total return is calculated as the change in the net asset value per share
for six months ending June 30, 2002. The per share operating performance
and ratios are computed based upon the weighted average shares outstanding
and weighted average net assets, respectively, for each class, for the six
months ended June 30, 2002.
Item 2. Management's Discussion and Analysis of Financial Condition and the
Results of Operation.
General
MLM Index(TM) Fund is a business trust organized under the laws of
Delaware. The Fund engages primarily in the speculative trading of a
diversified portfolio of futures contracts traded on U.S. exchanges using
the MLM Index(TM) Trading Program. Futures contracts are standardized
contracts made on or through a commodity exchange and provide for future
delivery of commodities, precious metals, foreign currencies or financial
instruments and, in the case of certain contracts such as stock index
futures contracts and Eurodollar futures contracts, provide for cash
settlement. The Fund's objective is the appreciation of its assets through
speculative trading. The Fund began trading on January 4, 1999.
-12-
The Fund trades speculatively in a wide range of futures
contracts traded on U.S. exchanges using the MLM Index(TM) Trading Program,
which is based upon the MLM Index(TM). The MLM Index(TM) and the MLM
Index(TM) Trading Program are both proprietary products of the Manager. The
MLM Index(TM) Trading Program attempts to replicate the MLM Index(TM),
before fees and expenses. Currently the Fund has two series of interests;
the Unleveraged Series and the Enhanced Series. The Unleveraged Series
attempts to replicate the MLM Index(TM) without any leverage, while the
Enhanced Series trades the MLM Index(TM) Trading Program at three times
leverage. Leverage is the ability to control large dollar amounts of a
commodity with a comparatively small amount of capital. The Enhanced Series
purchases or sells $3 market value of contracts for every $1 invested in
the Series.
In attempting to replicate the MLM Index(TM), the Manager will
invest in the same markets as the MLM Index(TM); use the same algorithm to
determine long versus short positions; make the same allocations to each
market; and generally execute positions at almost the same time. The
success of the trading program and hence the success of the Fund will
depend upon the results of the MLM Index and the manager's ability to
replicate those results in the futures markets. The success of the MLM
Index depends on the existence of substantial long term price trends,
either up or down, in the constituent markets of the MLM Index. Whether the
Manager can capture those returns depends on its ability to execute the
orders in the futures markets to replicate the MLM Index results. In
addition, the success of the Fund will depend on the level of short term
interest rates, since the majority of the assets of the Fund are held in
short term interest rate instruments.
Mount Lucas Management Corporation, a Delaware corporation, acts as
the manager and trading advisor of the Fund. The Manager was formed in
1986 to act as an investment manager. As part of a planned merger in
October 1999, the Manager combined operations with Mount Lucas Index
Management Corporation (the former manager of the Fund), CA Partners, Inc.
and Little Brook Corporation of New Jersey. The purpose of the merger was
to streamline and consolidate the operations of the affiliated entities. As
of June 30, 2002, the Manager had approximately $500 million of assets
under advisement. The Manager is a registered investment adviser under the
Investment Advisers Act of 1940 and is a registered commodity trading
advisor and commodity pool operator with the Commodity Futures Trading
Commission (the "CFTC") and a member of the National Futures Association
(the "NFA"). The Manager may from time to time operate other investment
vehicles.
The Fund and the Manager maintain their principal business office at
47 Hulfish Street, Suite 510, Princeton, New Jersey 08542 and their
telephone number is (609) 924-8868.
Summary of Critical Accounting Policies
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to
make estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Management believes that the
estimates utilized in preparing the financial statements are reasonable and
prudent; however, actual results could differ from those estimates. The
Fund's significant accounting policies are described in detail in Note 1
of the Notes to Financial Statements.
The Fund records all investments at fair value in its financial
statements, with changes in fair value reported as a component of realized and
unrealized gain (loss) on investments in the Statements of Operations.
Generally, fair values are based on market prices; however, in certain
circumstances, significant judgments and estimates are involved in determining
fair value in the absence of an active market closing price.
-13-
Results of Operations
As of 6/30/2002, the Fund had assets of $193,977,859 compared with
assets of $201,133,787 on 12/31/2001. Liabilities of the Fund totaled
$3,583,728 compared with $3,927,110 for the previous fiscal year. In
general, changes in the net assets of the Fund are the result of
subscriptions and redemptions to the Fund, and the net income from
operations, including the results from futures trading, interest income,
and fees and expenses. For the six month period ending 6/30/2002,
subscriptions to the Fund totaled $42,331,144 and redemptions totaled
(18,234,740). During the 3 month period ending 6/30/2002, the Fund had a net
loss of $(4,982,845) compared with a net loss of $(1,869,858) for the same
period in 2001. During the six months ended 6/30/2002, the Fund had net
income of $(30,908,950). In comparison, during the six months ended
6/30/2001, the Fund had net income of $4,207,232. During both periods,
expenses increased. All expenses of the Fund are based on a percentage of
assets, and therefore increase as the assets of the Fund increase.
The losses in both the three and six month periods are directly related
to the performance of the MLM Index, which the Fund is designed to replicate.
During the 6 months ending 6/30/2001, the MLM Index performance of +4.0%
was higher than the -5.43% recorded in the period ending
6/30/2002. The components of the return of the MLM Index are the capital
gains earned from the changes in futures market prices, and the interest
income earned on cash balances. The interest earned on the Fund's assets
declined as a result of a decline in short term interest rates. The Fund
had net capital losses that resulted directly from its replication of the
MLM Index, and the expenses of the Fund. In general, the MLM Index
requires substantial long term trends in futures prices in order to be
profitable. During the six months ended 6/30/2002, a majority of the
markets exhibited choppy behavior, which is not conducive to profitability.
In particular, the energy sector, which includes the crude oil, heating
oil, unleaded gasoline and natural gas markets were particularly difficult.
A dramatic reversal in the prices in these markets during the month of
March was the principal cause of net losses during the period. In addition, as
assets increase, the same percentage net gain (loss) in the MLM Index will
increase the dollar net gain (loss) of the Fund. Gains and losses in the
Fund will also be effected by the distribution of the assets between the
unleveraged and enhanced series of the the Fund, which is entirely
determined by the investors.
Liquidity
The majority of the Fund's assets are held in liquid short term interest
rate instruments. The Fund takes substantial exposure in futures markets,
which require relatively small deposits, called margin, to hold the
positions. In general, the Fund will have about 10% of its assets on
deposit with brokers as margin, with the balance held in accounts with
major financial institutions.
Investors in the Fund can redeem their investments at month end, after
giving 10 days notice to the Manager.
-14-
Item 3 Quantitative and Qualitative Disclosures of Market Risk
Quantitative and Qualitative Disclosures About Market Risk
The following is a discussion of the quantification of market risk for
the Fund. Such calculations are often referred to as Value-at-Risk, or
VAR. The method used here may or may not differ from other methods used for
VAR calculations by other firms. There is no one fixed method of VAR
calculation, and this method may not be comparable to other methods.
The market risk, or VAR of the Fund is directly related to the
composition of the MLM Index. The MLM Index consists of 25 liquid US
futures markets. Each month, the position of the MLM Index can be either
long or short based on a 12 month moving average rule. Since positions can
be offset inside of sectors (one contract long in a particular commodity
and one contract short in a related commodity), specific sector risk is
less relevant than the historical risk of the MLM Index as a whole. Since
the object of the Fund is to replicate the MLM Index, it is reasonable to
use the historic values of that Index to estimate market risk.
The VAR of the Fund is calculated as follows: The standard
deviation of daily returns of the MLM Index is estimated to be 0.38%.
However, it is well known that standard deviation underestimates the
magnitude of possible changes, certainly in a portfolio with a relatively
small number of instruments. The VAR calculation uses the standard
deviation of returns of the MLM Index over the last 10 years, multiplied by
2.35 for the normal 99% confidence interval and by 1.5 to account for the
statistical nature of the distribution. Given that, management estimates
that the Fund as a whole could reasonably expect to lose $5,669,432 on a
daily basis, and $24,623,946 on a monthly basis, assuming 6/30/2002 asset
levels. It is important to note that this calculation is only an estimate.
Furthermore, the Manager does not use the VAR calculation is it trading
operations. The purpose of the Fund is to replicate the MLM Index, thus
the Manager has a very limited mandate and does not adjust trading away
from the MLM Index based on the then current market environment.
-15-
Part II. OTHER INFORMATION
Item 1. Legal Proceedings.
The Manager is not aware of any proceedings threatened or pending
against the Fund and its affiliates which, if determined adversely, would
have a material adverse effect on the financial condition or results of
operations of the Fund.
Item 2. Changes in Securities and Use of Proceeds.
Enhanced Series
Class A-1 Class A Class B-1 Class B Class C
Jan-02 Subscriptions $ $0 $628,630 $25,000 $3,498,893 $0
Subscriptions Units 0 5579 197.23845 30076 0
# of Purchasers 0 15 1 22 0
Unit Price $112.69 $126.75 $116.33
Feb-02 Subscriptions $ $0 $314,267 $0 $2,573,909 $0
Subscriptions Units 0 2843 0 22523 0
# of Purchasers 0 8 0 28 0
Unit Price $110.56 $114.28
Mar-02 Subscriptions $ $50,997 $1,451,839 $0 $2,961,152 $0
Subscriptions Units 526 15651 0 31245 0
# of Purchasers 1 27 0 48 0
Unit Price $96.94 $92.77 $94.77
Apr-02 Subscriptions $ $0 $534,600 $0 $3,365,775 $0
Subscriptions Units 0 5790 0 35478 0
# of Purchasers 0 13 0 52 0
Unit Price $92.33 $94.87
May-02 Subscriptions $ $0 $760,422 $0 $7,557,800 $2,457,750
Subscriptions Units 0 8584 0 82578 32420
# of Purchasers 0 19 0 112 3
Unit Price $88.58 $91.52 $75.81
Jun-02 Subscriptions $ $0 $1,309,729 $0 $2,242,222 $0
Subscriptions Units 0 13545 0 24605 0
# of Purchasers 0 13 0 43 0
Unit Price $96.69 $91.13
16
Unleveraged Series
Class A-1 Class A Class B-1 Class B
$0 $1,728,560 $0 $1,519,997
0 15471 0 13203
0 6 0 12
$111.73 $115.12
$0 $401,070 $0 $512,594
0 3613 0 4478
0 8 0 19
$111.01 $114.48
$0 $1,085,866 $0 $2,868,779
0 10353 0 26537
0 16 0 18
$104.89 $108.10
$0 $205,513 $0 $5,485,121
0 1959 0 50695
0 6 0 28
$104.89 $108.20
$0 $649,725 $0 $1,282,395
0 6265 0 11975
0 8 0 22
$103.71 $107.09
$0 $289,558 $0 $2,822,723
0 2793 0 26351
0 6 0 32
$103.66 $107.12
The purchasers represented they were Accredited Investors under Regulation D.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
In April of 2002, the Manager submitted an amendment to the
Declaration of Trust and Trust Agreement of the Fund and
received signatures from the requisite number of interest
holders for the Amendment to become effective. The
Amendment was dated April 29, 2002, and clarified that
the Class C interests which were previously issued by the
Fund were Class C interests in the Enhanced Series and
created Class C interests in the Unleveraged Series.
Items 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
99.1 Certification pursuant to Section 96 of the
Sarbanes-Oxley Act.
-17-
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.
MLM INDEX FUND
By: Mount Lucas Management Corporation
Its: Manager
By: /s/ Timothy J. Rudderow
-------------------------------
Timothy J. Rudderow, President
18