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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 September 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.
- -------------------------------------------------------------------------------
Interim Statements of Financial Condition as of September 30,
2002 (unaudited) and December 31, 2001 (audited)..............................3
- -------------------------------------------------------------------------------
Interim Condensed Schedule of Investments as of September 30, 2002 (unaudited)
and December 31, 2001 (audited)...............................................4
- -------------------------------------------------------------------------------
Interim Statements of Operations For the Three Months Ended September 30, 2002
and 2001 and For The Nine Months Ended September 30, 2002 and 2001............5
- -------------------------------------------------------------------------------
Unaudited Interim Condensed Statement of Changes in Partners' Capital
for the Nine Months Ended September 30, 2002 and 2001.........................6
- -------------------------------------------------------------------------------
Notes to Unaudited Interim Condensed Financial Statements for the
Nine Months Ended September 30, 2002..........................................8
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Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................14
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Item 3 Quantitative and Qualitative Disclosures of Market Risk........17
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PART II - OTHER INFORMATION
- -------------------------------------------------------------------------------
Item 1 Legal Proceedings.............................................18
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Item 2 Changes in Securities and Use of Proceeds.....................18
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Item 3 Defaults Upon Senior Securities...............................19
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Item 4 Submission of Matters to a Vote of Security Holders............19
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Item 5 Other Information.............................................19
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Item 6 Exhibits and Reports on Form 8-K..............................19
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Signatures...................................................................20
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-2-
MLM Index Fund
INTERIM STATEMENTS OF FINANCIAL CONDITION
AS OF SEPTEMBER 30, 2002 (Unaudited) AND DECEMBER 31, 2001 (Audited)
September 30, December 31,
2002 2001
---------------------------------------
Assets
Cash and cash equivalents $ 176,085,337 $169,990,375
Due from broker 21,213,193 26,142,375
Certificate of deposit, at value (cost $13,800,000 and 13,800,096 4,502,290
$4,501,775)
Other assets 317,389 498,747
---------------------------------------
Total assets $ 211,416,015 $201,133,787
=======================================
Liabilities and investors' interest
Redemptions payable $ 3,112,594 $ 3,163,339
Brokerage commission payable 242,977 257,122
Management fee payable 264,722 255,466
Subscriptions received in advance - -
Accrued expenses 165,145 251,183
---------------------------------------
Total liabilities 3,785,438 3,927,110
Investors' interest 207,630,577 197,206,677
---------------------------------------
Total liabilities and investors' interest $ 211,416,015 $201,133,787
=======================================
See Notes to Financial Statements
-3-
MLM Index Fund
INTERIM CONDENSED SCHEDULES OF INVESTMENTS:
SEPTEMBER 30, 2002 (Unaudited)
Percentage of
Security Description Market Value Investors' Interest
- -------------------------------------------------------------------------------
Futures Contracts-7.03%
Long $16,732,082 8.06%
Short (2,135,231) (1.03%)
----------------- -----------------
Net unrealized appreciation on
futures contracts $14,596,851 7.03%
================= =================
Certificate of Deposit-6.65% $13,800,096 6.65%
================= =================
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 nine For the nine
months ended months ended months ended months ended
September 30, September 30, September 30, September 30,
2002 2001 2002 2001
Investment income
Interest $ 855,123 $ 1,458,197 $ 2,639,505 $ 3,983,859
Expenses
Brokerage commissions 703,504 572,999 2,109,358 1,352,971
Management fee 660,593 544,721 1,988,753 1,186,159
Operating expenses 183,167 202,815 529,819 475,095
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Total expenses 1,547,264 1,320,535 4,627,930 3,014,225
Net investment income (loss) (692,141) 137,662 (1,988,425) 969,634
Realized and unrealized gain (loss)
on investments
Net realized gain (loss) 1,826,777 (17,637,081) (27,264,496) (12,750,823)
Net change in unrealized
appreciation (depreciation)
on investments 7,829,067 12,947,361 7,307,674 11,436,363
---------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments 9,655,844 (4,689,720) (19,956,822) (1,314,460)
---------------------------------------------------------------------------
Net income (loss)
$ 8,963,703 $ (4,552,058) $ (21,945,247) $ (344,826)
===========================================================================
See Notes to Financial Statements
-5-
MLM Index Fund
UNAUDITED INTERIM STATEMENT OF CHANGES IN PARTNERS' CAPITAL
FOR THE NINE MONTHS ENDED SEPTEMBER 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
-----------------------------------------------------------------------------
Investors' interest at $153,689 $26,820,513 $4,193,995 $91,711,548 $4,024,210 $126,903,955
December 31, 2001
Subscriptions - 7,131,229 24,875 25,504,117 2,457,750 35,117,971
Redemptions (19,733) (1,969,598) (688,675) (9,708,347) - (12,386,353)
Transfers 54,046 (651,375) - (2,403,291) - (3,000,620)
Net loss (23,908) (4,234,190) (513,139) (14,042,353) (501,239) (19,314,829)
-----------------------------------------------------------------------------
Investors' interest at
September 30, 2002 $164,094 $27,096,579 $3,017,056 $91,061,674 $5,980,721 $127,320,124
=============================================================================
Shares at December 31, 2001 1,241 242,231 33,918 803,319 42,419 1,123,128
Subscriptions - 77,589 197 262,564 32,420 372,770
Redemptions (199) (20,122) (5,565) (99,188) - (125,074)
Transfers 526 (7,530) - (25,197) - (32,201)
-----------------------------------------------------------------------------
Shares at September 30, 2002 1,568 292,168 28,550 941.498 74,839 1,338,623
=============================================================================
Net asset value per share:
September 30,2002 $104.67 $ 92.74 $105.67 $96.72 $79,91
==============================================================
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 $910,801 $8,248,822 $1,985,391 $59,157,708 $70,302,722 $197,206,677
December 31, 2001
Subscriptions - 6,392,490 - 14,727,184 21,119,674 56,237,645
Redemptions (21,267) (576,051) (713,291) (10,171,537)(11,482,146) (23,868,499)
Transfers (54,046) (185,926) - 3,240,592 3,000,620 -
Net loss (42,040) (451,923) (52,182) (2,084,273) (2,630,418) (21,945,247)
------------------------------------------------------------------------------
Investors' interest at
September 30, 2002 $793,448 $13,427,412 $1,219,918 $64,869,674 $80,310,452 $207,630,576
==============================================================================
Shares at December 31, 2001 7,976 74,313 16,874 517,660 616,823 1,739,951
Subscriptions - 60,020 - 135,533 195,553 568,323
Redemptions (199) (5,522) (6,088) (90,641) (102,450) (227,524)
Transfers (500) (1,749) - 29,982 27,733 (4,468)
------------------------------------------------------------------------------
Shares at September 30, 2002 7,277 127,062 10,786 592,534 737,659 2,076,282
===============================================================================
Net asset value per share:
September 30,2002 $109.05 $105.68 $113.11 $109.48
==================================================
See Notes to Financial Statements
-6-
MLM Index Fund
UNAUDITED INTERIM STATEMENT OF CHANGES IN PARTNERS' CAPITAL
FOR THE NINE MONTHS ENDED SEPTEMBER 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
-------------------------------------------------------------------------
Investors' interest at
December 31, 2000 $154,798 $13,081,512 $4,828,988 $48,129,532 $ - $66,194,830
Subscriptions - 13,674,722 - 38,005,628 2,305,950 53,986,300
Redemptions - (3,345,854) (448,357) (5,989,257) - (9,783,468)
Transfers - 383,899 - (1,220,440) 1,689,200 852,659
Net income (500) (495,079) 34,779 (304,275) 49,078 (715,997)
-------------------------------------------------------------------------
Investors' interest at $154,298 $23,299,200 $4,415,410 $78,621,188 $4,044,228 $110,534,324
September 30, 2001 =========================================================================
Shares at December 31, 2000 1,241 116,013 39,358 420,014 - 576,626
Subscriptions - 120,591 - 327,265 24,250 472,106
Redemptions - (30,978) (3,657) (49,681) - (84,316)
Transfers - 3,367 - (11,060) 18,169 10,476
-------------------------------------------------------------------------
Shares at September 30, 2001 1,241 208,993 35,701 686,538 42,419 974,892
=========================================================================
Net asset value per share:
September 30, 2001 $124.36 $111.48 $123.68 $114.52 $95.34
==========================================================================
Unleveraged Series
---------------------------------------------------------------------------
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
Decembrr 31, 2000 $896,523 $2,202,280 $2,076,846 $10,863,434 $16,039,083 $82,233,913
Subscriptions - 4,952,712 - 47,918,681 52,871,393 106,857,693
Redemptions - (216,296) (143,760) (2,404,560) (2,764,616) (12,548,084)
Transfers - (488,741) - (363,918) (852,659) -
Net income 11,180 12,486 40,769 306,734 371,169 (344,828)
-----------------------------------------------------------------------------
Investors' interest at
Septemberr 30, 2001 $907,703 $6,462,441 $1,973,855 $56,320,371 $65,664,370 $176,198,694
=============================================================================
Shares at December 31, 2000 7,976 20,068 18,112 97,105 143,261 719,887
Subscriptions - 44,633 - 422,195 466,828 938,934
Redemptions - (1,965) (1,237) (20,879) (24,081) (108,397)
Transfers - (4,382) - (3,228) (7,610) 2,866
------------------------------------------------------------------------------
Shares at September 30, 2001 7,976 58,354 16,875 495,193 578,398 1,553,290
==============================================================================
Net asset value per share:
September 30, 2001 $113.82 $110.75 $116.97 $113.73
==============================================================================
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 September 30, 2002 and December 31, 2001,
the Fund had approximately $38,472,000 and $5,967,000, respectively, in
overnight funds with one major domestic bank and $149,522,717 and $162,340,000
at September 30, 2002 and December 31, 2001 invested in money market securities,
respectively.
Certificate of Deposit
At September 30, 2002 and December 31, 2001, the Fund held certificates of
deposits with a large financial institution in the amount of $13,800,096 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. 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 September 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 $22,292,886 and $24,020,446 at
September 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 nine months ended
September 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
September 30, 2002 December 31, 2001
----------------------- -------------------------
Assets Liabilities Assets Liabilities
--------------------------------------------------
Commodity Futures $16,309,939 $5,016,191 $10,080,167 $2,683,961
Financial Futures 4,002,011 698,908 1,409,545 1,801,909
--------------------------------------------------
$20,311,950 $5,715,099 $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 September 30, 2002:
Enhanced Series
------------------------
Class A-1 Class A Class B-1 Class B Class C
Shares Shares Shares Shares Shares
------------------------------------------------------
Per share operating performance:
Net asset value per share,
December 31, 2001 $123.84 $110.72 $123.65 $114.22 $94.87
Income from investment operations:
Net investment income (loss) (1.74) (2.39) (0.54) (1.35) (1.59)
Net realized and unrealizedf
gain (loss) on Investment (17.43) (15.59) (17.44) (16.15) (13.37)
transactions
-----------------------------------------------------------
Total from investment operations (19.17) (17.98) (17.98) (17.50) (14.96)
-----------------------------------------------------------
Net asset value per share, $104.67 $92.74 $105.67 $96.72 $79.91
September 30, 2002 ===========================================================
Total Return: (15.50%) (16.24%) (14.54%) (15.28%) (15.76%)
Ratio to Average Net Assets:
Net investment income (loss) (2.34%) (3.66%) (0.71%) (2.01%) (3.27%)
Expenses (4.40%) (5.69%) (2.63%) (4.05%) (5.56%)
-12-
Unleveraged Series
-----------------------
Class A-1 Class A Class B-1 Class B
Shares Shares Shares Shares
-------- --------------------------------------
Per share operating performance:
Net asset value per share,
December 31, 2001 $114.19 $111.00 $117.66 $114.28
Income from investment operations:
Net investment income (loss) (0.48) (0.73) 0.29 (0.01)
Net realized and unrealized
gain (loss) on Investment (4.66) (4.59) (4.84) (4.79)
transactions
-----------------------------------------------
Total from investment operations (5.14) (5.32) (4.55) (4.80)
-----------------------------------------------
Net asset value per share, $109.05 $105.68 $113.11 $109.48
September 30, 2002 ===============================================
Total Return: (4.51%) (4.80%) (3.87%) (4.20)%
Ratio to Average Net Assets:
Net investment income (loss) (0.63%) (1.13%) 0.37% (0.03%)
Expenses (2.62%) (3.42%) (1.49%) (2.13%)
Total return is calculated as the change in the net asset value per share for
nine months ending September 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 nine months
ended September 30, 2002.
-13-
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.
-14-
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.
-15-
Results of Operations
As of 9/30/2002, the Fund had assets of $211,416,015 compared with
assets of $201,133,787 on 12/31/2001. Liabilities of the Fund totaled
$3,785,438 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 nine-month period ending 9/30/2002,
subscriptions to the Fund totaled $56,237,645 and redemptions totaled
$(23,868,499). During the three-month period ending 9/30/2002, the Fund had
a net gain of $8,963,703 compared with a net loss of $(4,552,058) for the
same period in 2001. During the nine months ended 9/30/2002, the Fund had
net income of $(21,945,247). In comparison, during the nine months ended
9/30/2001, the Fund had net income of $(344,826). 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 gain and loss in the three and nine month periods respectively
are directly related to the performance of the MLM Index(TM), which the
Fund is designed to replicate. During the nine months ending 9/30/2001, the
MLM Index(TM) performance of 3.04% was higher than the -2.77% recorded in
the period ending 9/30/2002. The components of the return of the MLM
Index(TM) 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(TM), and the expenses of the Fund. In
general, the MLM Index(TM) requires substantial long-term trends in futures
prices in order to be profitable. During the nine months ended 9/30/2002, a
majority of the markets exhibited choppy behavior, which is not conducive
to profitability. For instance, 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 a principal cause of net losses during the
period. The metals sector, which includes copper, gold and silver, has also
been difficult. A dramatic reversal in copper during the month of July
coupled with consistent choppiness in the silver markets over the nine
month period are an additional cause of net losses for the period. During
the months of June and July, significant choppiness in the cotton and sugar
markets prevented profitable results. In addition, a dramatic reversal in
the price of coffee during the month of March participated in the period's
losses. Finally, as assets increase, the same percentage net gain (loss) in
the MLM Index(TM) will increase the dollar net gain (loss) of the Fund.
Gains and losses in the Fund will also be affected by the distribution of
the assets between the Unleveraged and Enhanced series of 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.
-16-
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 0.35%.
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 $5,770,584 on a
daily basis, and $26,017,287 on a monthly basis, assuming 9/30/2002 asset
levels. It is important to note that this calculation is only an estimate.
Furthermore, the Manager does not use the VAR calculation in its 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.
-17-
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
Jul-02 Subscriptions $ $0 $739,961 0 $2,562,458 $0
Subscriptions Units 0 8486 0 28495 0
# of Purchasers 0 11 0 34 0
Unit Price $87.20 0 $89.83
Aug-02 Subscriptions $ $0 $1,531,372 $0 $1,759,253 $0
Subscriptions Units 0 16961 0 18896 0
# of Purchasers 0 14 0 33 0
Unit Price $90.29 93.10
Sep-02 Subscriptions $ 0 $716,500 $0 $2,092,188 $0
Subscriptions Units 0 7660 0 21566 0
# of Purchasers 0 23 0 26 0
Unit Price $93.54 $97.01
-18-
Unleveraged Series
Class A-1 Class A Class B-1 Class B
$0 $823,975 $0 $1,704,934
0 7869 0 15945
0 9 0 24
$104.71 $106.93
$0 $1,133,000 $0 $1,954,591
0 10726 0 18037
0 6 0 29
$105.62 $108.37
$0 $165,000 $0 $1,242,961
0 1539 0 11304
0 5 0 23
$107.21 $109.96
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.
None.
Items 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
99.1 Certification pursuant to Section 906 of the
Sarbanes-Oxley Act.
99.1 Certification pursuant to Section 906 of the
Sarbanes-Oxley Act.
-19-
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
Date: November 14, 2002
-20-
MLM INDEX FUND
CERTIFICATION PURSUANT TO
SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, Timothy J. Rudderow certify that:
1) I have reviewed this quarterly report on Form 10-Q of MLM
Index Fund;
2) Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3) Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4) The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date") and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5) The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function);
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6) The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date November 14, 2002
/s/ Timothy J. Rudderow
- ------------------------------------
President
-21-
MLM INDEX FUND
CERTIFICATION PURSUANT TO
SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, James A. Mehling certify that:
1) I have reviewed this quarterly report on Form 10-Q of MLM Index Fund;
2) Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3) Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4) The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date") and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5) The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function);
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6) The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date November 14, 2002
/s/ James A. Mehling
- ------------------------------------------
Vice President and Chief Operating Officer