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 March 31, 2003,
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 0-49767
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
- -------------------------------------------------------------------------------
(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 to FORM 10Q
March 31, 2003
Contents
PART I - FINANCIAL INFORMATION
Page
Number
Item 1 Financial Statements:
Interim Statements of Financial Condition as of March 31,
2003 (unaudited) and December 31, 2002(audited) 3
Interim Condensed Schedule of Investments as of March 31,
2003 (unaudited) and December 31, 2002(audited) 4
Unaudited Interim Statements of Operations For the Three
Months Ended March 31, 2003 and 2002 5
Unaudited Interim Statement of Changes in Partners' Capital
for the Three Months Ended March 31, 2003 and 2002 6
Notes to Unaudited Interim Financial Statements for the
Three Months Ended March 31, 2003 8
Item 2 Management's Discussion and Analysis of Financial Condition 13
and Results of Operations
Item 3 Quantitative and Qualitative Disclosures of Market Risk 15
Item 4 Controls and Procedures 15
PART II - OTHER INFORMATION
Item 1 Legal Proceeding 16
Item 2 Changes in Securities and Use of Proceeds 16
Item 3 Defaults Upon Senior Securities 17
Item 4 Submission of Matters to a Vote of Security Holders 17
Item 5 Other Information 17
Item 6 Exhibits and Reports on Form 8-K 17
2
MLM Index Fund
INTERIM STATEMENTS OF FINANCIAL CONDITION
AS OF MARCH 31, 2003 (Unaudited) AND DECEMBER 31, 2002 (Audited)
March 31, December 31,
2003 2002
-------------------------------
Assets
Cash and cash equivalents $198,547,002 $195,744,016
Due from broker 26,848,772 16,239,584
- -
Other assets 159,642 33,157
-------------------------------
Total assets $225,555,416 $212,016,757
===============================
Liabilities and investors' interest
Redemptions payable $ 4,913,666 $7,377,075
Brokerage commission payable 285,497 237,304
Management fee payable 315,521 263,552
Subscriptions received in advance - -
Accrued expenses 283,153 144,413
-------------------------------
Total liabilities 5,797,837 8,022,344
Investors' interest 219,757,579 203,994,413
-------------------------------
Total liabilities and investors' interest $225,555,416 $212,016,757
===============================
See Notes to Financial Statements
3
MLM Index Fund
INTERIM CONDENSED SCHEDULES OF INVESTMENTS
MARCH 31, 2003 (Unaudited)
Percentage of
Security Description Market Value Investors' Interest
- -------------------------------------------------------------------------------
Futures Contracts-(0.41%)
Long $(1,328,378) (0.60%)
Short 415,866 0.19%
---------------------------------------
Net unrealized appreciation on
futures contracts $(912,512) (0.41%)
=======================================
DECEMBER 31, 2002 (Audited)
Percentage of
Security Description Market Value Investors' Interest
- -------------------------------------------------------------------------------
Futures Contracts- 8.87%
Long $17,832,683 8.74%
Short 271,250 0.13%
---------------------------------------
Net unrealized appreciation on
futures contracts $18,103,933 8.87%
=======================================
See Notes to Financial Statements
4
MLM Index Fund
UNAUDITED INTERIM STATEMENTS OF OPERATIONS
For the three For the three
months ended months ended
March 31, 2003 March 31, 2002
Investment income
Interest $ 669,110 $ 886,166
Expenses
Brokerage commissions 802,906 743,266
Management fee 768,774 703,549
Operating expenses 202,062 180,188
---------------------------------
Total expenses 1,773,742 1,627,003
Net investment income (loss) (1,104,632) (740,837)
Realized and unrealized gain (loss) on investments
Net realized gain (loss) 27,725,994 (10,453,517)
Net change in unrealized appreciation (depreciation)
on investments (19,004,780) (14,731,749)
---------------------------------
Net realized and unrealized gain (loss) on investments 8,721,214 (25,185,266)
---------------------------------
Net income (loss) $ 7,616,582 $ (25,926,103)
=================================
See Notes to Financial Statements
5
MLM Index Fund
UNAUDITED INTERIM STATEMENT OF CHANGES IN PARTNERS' CAPITAL
FOR THE THREE MONTHS ENDED MARCH 31, 2003
Enhanced Series
-----------------------------------------------------------------------------------------
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, 2002 $166,740 $27,666,865 $1,820,270 $90,368,012 $6,071,072 $126,092,959
Subscriptions - 1,661,521 - 5,472,448 99,500 7,233,469
Redemptions (58,786) (150,321) (153,602) (2,064,532) - (2,427,241)
Transfers - (41,027) - 161,149 - 120,122
Net loss 8,459 1,282,708 99,639 4,505,248 301,785 6,197,841
----------------------------------------------------------------------------------------
Investors' interest at
March 31, 2003 $116,413 $30,419,746 $1,766,307 $98,442,325 $6,472,357 $137,217,150
========================================================================================
Shares at December 31, 2002 1,567.81 294,432.67 16,888.48 918,690.21 74,838.99 1,306,418.16
Subscriptions - 16,450.82 - 51,114.85 1,168.47 68,734.14
Redemptions (526.06) (1,467.57) (1,350.56) (19,616.31) - (22,960.50)
Transfers - (435.88) - 1,402.21 - 966.33
----------------------------------------------------------------------------------------
Shares at March 31, 2003 1041.75 308,980.04 15,537.92 951,590.96 76,007.46 1,353,158.13
========================================================================================
Net asset value per share:
March 31, 2003 $111.75 $98.45 $113.67 $103.45 $85.15
======================================================================
Unleveraged Series
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Total
Total Investors' Interest
Class A-1 Class A Class B-1 Class B Unleveraged ($100 Par
Shares Shares Shares Shares Series Value/Share)
----------------------------------------------------------------------------------------------------
Investors' interest at
December 31, 2002 $ 800,249 $13,253,585 $1,233,316 $62,614,304 $ 77,901,454 $ 203,994,413
Subscriptions - 1,658,341 - 5,290,060 6,948,401 14,181,870
Redemptions (56,035) (239,349) (144) (3,312,517) (3,608,045) (6,035,286)
Transfers - (23,880) - (96,242) (120,122) -
Net loss 14,435 210,165 25,396 1,168,745 1,418,741 7,616,582
----------------------------------------------------------------------------------------------------
Investors' interest at
March 31, 2003 $ 758,649 $14,858,862 $1,258,568 $65,664,350 $ 82,540,429 $ 219,757,579
====================================================================================================
Shares at December 31, 2002 7,275.76 124,491.78 10,783.92 566,291.85 708,843.31 2,015,261.47
Subscriptions - 15,174.29 - 46,406.66 61,580.95 130,315.09
Redemptions (500.44) (2,199.93) (1.23) (29,342.61) (32,044.21) (55,004.71)
Transfers - (214.71) - (806.90) (1,021.61) (55.28)
----------------------------------------------------------------------------------------------------
Shares at March 31, 2003 6,775.32 137,251.43 10,782.69 582,548.99 737,358.44 2,090,516.57
====================================================================================================
Net asset value per share:
March 31, 2003 $111.97 $108.26 $116.72 $112.71
===========================================================
See Notes to Financial Statements
6
MLM Index Fund
UNAUDITED INTERIM STATEMENT OF CHANGES IN PARTNERS' CAPITAL
FOR THE THREE MONTHS ENDED MARCH 31, 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
December 31, 2001 $ 153,689 $26,820,513 $ 4,193,995 $ 91,711,548 $4,024,210 $ 126,903,955
Subscriptions - 2,312,458 24,875 8,335,974 - 10,673,307
Redemptions - (887,200) (683,211) (2,280,200) - (3,850,611)
Transfers 54,046 56,674 - 672,980 - 783,700
Net income (26,216) (4,665,952) (611,174) (16,308,742) (690,063) (22,302,147)
--------------------------------------------------------------------------------------------------
Investors' interest at
March 31, 2002 $ 181,519 $23,636,493 $ 2,924,485 $ 82,131,560 $3,334,147 $112,208,204
===================================================================================================
Shares at December 31, 2001 1,240.99 242,231.27 33,918.39 803,318.50 42,419.21 1,123,128.26
Subscriptions - 23,495.06 197.24 76,479.35 - 100,171.65
Redemptions - (8,079.54) (5,510.93) (20,319.49) - (33,909.96)
Transfers 526.06 502.94 - 7,146.09 - 8,175..09
--------------------------------------------------------------------------------------------------
Shares at March 31, 2002 1,766.81 258,149.73 28,604.70 866,624.45 42,419.21 1,197,565.04
==================================================================================================
Net asset value per share:
March 31, 2002 $ 102.74 $ 91.56 $ 102.24 $ 94.77 $ 78.60
============================================================================
Unleveraged Series
----------------------------------------------------------------------------------------------------
Total
Total Investors' Interest
Class A-1 Class A Class B-1 Class B Unleveraged ($100 Par
Shares Shares Shares Shares Series Value/Share)
----------------------------------------------------------------------------------------------------
Investors' interest at
December 31, 2001 $ 910,801 $ 8,248,822 $ 1,985,391 $ 59,157,708 $ 70,302,722 $ 197,206,677
Subscriptions - 3,215,496 - 4,876,369 8,091,865 18,765,172
Redemptions - - (600,464) (7,290,207) (7,890,671) (11,741,282)
Transfers (54,046) (56,674) - (672,980) (783,700) -
Net income (49,500) (578,731) (76,206) (2,919,519) (3,623,956) (25,926,103)
----------------------------------------------------------------------------------------------------
Investors' interest at
March 31, 2002 $ 807,255 $10,828,913 $ 1,308,721 $ 53,151,371 $ 66,096,260 $ 178,304,464
====================================================================================================
Shares at December 31, 2001 7,975.90 74,313.00 16,874.00 517,660.26 616,823.16 1,739,585.42
Subscriptions - 29,436.59 - 43,999.88 73,436.47 173,608.12
Redemptions - - (5,090.66) (63,748.95) (68,839.61) (102,749.57)
Transfers (500.44) (507.25) - (6,238.23) (7,245.92) 929.17
----------------------------------------------------------------------------------------------------
Shares at March 31, 2002 7,475.46 103,242.34 11,783.34 491,672.96 614,174.10 1,811,373.14
====================================================================================================
Net asset value per share:
March 31, 2002 $ 107.99 $ 104.89 $ 111.07 $ 108.10
============================================================
See Notes to Financial Statements
7
MLM Index Fund
Notes to Unaudited Interim Financial Statements
for the Three Months Ended March 31, 2003
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 March 31, 2003 and December 31, 2002, the
Fund had approximately $30,517,000 and $35,161,000, respectively, in overnight
funds with one major domestic bank and $166,287,351 and $158,778,566 at March
31, 2003 and December 31, 2002 invested in money market securities,
respectively.
Certificate of Deposit
At March 31, 2003 and December 31, 2002, the Fund did not hold any
certificates of deposits with a large financial institution.
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 2002, 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 2002, 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 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 March 31, 2003, 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 $27,062,355 and $23,884,268
at March 31, 2003 and December 31, 2002, 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 three months ended
March 31, 2003 and for the year ended December 31, 2002.
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
March 31, 2003 December 31, 2002
---------------------------------------------------------
Assets Liabilities Assets Liabilities
---------------------------------------------------------
Commodity Futures $1,808,891 $4,135,041 $15,872,442 $2,882,101
Financial Futures 1,517,230 103,593 5,116,842 3,250
---------------------------------------------------------
$3,326,121 $4,238,634 $20,989,284 $2,885,351
=========================================================
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 three months ended March 31, 2003:
Enhanced Series Unleveraged Series
------------------- ----------------------
Class A-1 Class A Class 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, December 31, 2002 $106.35 $93.97 $107.78 $ 98.37 $81.12 $109.99 $106.46 $114.37 $110.57
Income from investment
operations:
Net investment
income (loss) (0.39) (0.52) 0.06 (0.15) (0.28) (0.16) (0.22) 0.13 0.05
Net realized and
unrealized gain (loss)
on Investment transactions 5.79 5.00 5.83 5.23 4.31 2.14 2.02 2.22 2.09
---------------------------------------------------- -------------------------------------------
Total from
investment operations 5.40 4.48 5.89 5.08 4.03 1.98 1.80 2.35 2.14
---------------------------------------------------- -------------------------------------------
Net asset value
per share, March 31, 2003 $111.75 $98.45 $113.67 $103.45 $85.15 $111.97 $108.26 $116.72 $112.71
==================================================== ===========================================
Total Return: 5.07% 4.77% 5.47% 5.17% 4.97% 1.80% 1.69% 2.06% 1.94%
Ratio to Average
Net Assets:
Net investment
income (loss) (0.35%) (0.51%) 0.05% (0.14%) (0.32%) (0.13%) (0.20%) 0.12% 0.05%
Expenses (0.66%) (0.82%) (0.28%) (0.45%) (0.63%) (0.44%) (0.50%) (0.19%) (0.25%)
Total return is calculated as the change in the net asset value per share for three months ending March 31, 2003. 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 three months ended March 31, 2003.
12
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.
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 April 30, 2003, the Manager had
approximately $661 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.
13
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.
Results of Operations
As of 3/31/2003, the Fund had assets of $225,555,416 compared with
assets of $212,016,757 on 12/31/2002. Liabilities of the Fund totaled
$5,797,837 compared with $8,022,344 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 three-month period ending 3/31/2003,
subscriptions to the Fund totaled $14,181,870 and redemptions totaled
$(6,035,286). During the three-month period ending 3/31/2003, the Fund had
a net gain of $27,725,994 compared with a net loss of $(10,453,517) for the
same period in 2002. During the three months ended 3/31/2003, the Fund had
net income of $7,616,582. In comparison, during the three months ended
3/31/2002, the Fund had net income of $(25,926,103). 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 month periods are directly related
to the performance of the MLM Index(TM), which the Fund is designed to
replicate. During the three months ending 3/31/2002, the MLM Index(TM)
performance of -4.94% was lower than the 2.55% recorded in the period ending
3/31/2003. 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 three months ended 3/31/2003, a majority of the markets
exhibited strong trends, which are conducive to profitability. For instance,
the energy sector, which includes the crude oil, heating oil, unleaded
gasoline and natural gas markets, was particularly profitable. The tensions
over the situation with Iraq led to sustained price increases in the petroleum
markets. The long winter also put strains on heating oil and natural gas
supplies which caused those prices to inflate. However, the recent dramatic
reversal in these markets has taken away most of the gains earned during the
winter. Also, the currency sector has produced steady, but limited gains.
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.
14
Item 3 Quantitative and Qualitative Disclosures of 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 $6,619,700 on a daily basis, and $28,917,638 on a
monthly basis, assuming 3/31/2003 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.
Item 4. Controls and Procedures
Within ninety days prior to the filing of this Report, the President
and the Chief Operating Officer of the Manager evaluated the effectiveness of
the design and operation of the Trust's disclosure controls and procedures,
which are designed to insure that the Trust's records, processes, summarizes
and reports in a timely and effective manner the information required to be
disclosed in the reports filed with or submitted to the Securities and
Exchange Commission. Based upon this evaluation, they concluded that, as of
the date of the evaluation, the Trust's disclosure controls are effective.
Since the date of this evaluation, there have been no significant changes in
the Trust's internal controls or in other factors that could significantly
affect those controls.
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-03 Subscriptions $ $0 $459,169 0 $2,631,311 $0
Subscriptions Units 0 4886 0 26750 0
# of Purchasers 0 11 0 27 0
Unit Price $93.96 0 $98.37
Feb-03 Subscriptions $ $0 $237,122 $0 $1,832,181 $0
Subscriptions Units 0 2329 0 17172 0
# of Purchasers 0 8 0 23 0
Unit Price $101.80 $106.70
Mar-03 Subscriptions $ 0 $469,483 $0 $2,235,111 $0
Subscriptions Units 0 4392 0 19924 0
# of Purchasers 0 8 0 47 0
Unit Price $106.90 $112.18
16
Unleveraged Series
Class A-1 Class A Class B-1 Class B
Jan-03 Subscriptions $ $0 $548,063 $0 $4,195,548
Subscriptions Units 0 5148 0 37945
# of Purchasers 0 12 0 49
Unit Price $106.46 $110.57
Feb-03 Subscriptions $ $0 $106,850 $0 $796,369
Subscriptions Units 0 976 0 7002
# of Purchasers 0 2 0 21
Unit Price $109.42 $113.74
Mar-03 Subscriptions $ $0 $542,256 $0 $2,499,790
Subscriptions Units 0 4876 0 21605
# of Purchasers 0 11 0 38
Unit Price $111.22 $115.70
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.
99.2 Certification pursuant to Section 906 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
Date: May 15, 2003
18
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 May 15, 2003
/s/ Timothy J. Rudderow
- ------------------------------------
President
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 May 15, 2003
/s/ James A. Mehling
- ------------------------------------------
Vice President and Chief Operating Officer