<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(x) Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
(Fee Required)
For the fiscal year ended: December 31, 1995
or
( ) Transition Report Pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934
(No Fee Required)
Commission file number: 0-16746
ML FUTURES INVESTMENTS II L.P.
------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3481305
-------------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
c/o Merrill Lynch Investment Partners Inc.
(formerly, ML Futures Investment Partners Inc.)
Merrill Lynch World Headquarters
World Financial Center
South Tower, 6th Fl., New York, NY 10080-6106
----------------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code: (212) 236-4161
--------------
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Limited Partnership Units
-------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No_____
---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
[X]
Aggregate market value of the voting stock held by non-affiliates: the
registrant is a limited partnership and, accordingly, has no voting stock held
by non-affiliates or otherwise.
Documents Incorporated By Reference
The registrant's "1995 Annual Report and Independent Auditors' Report," the
annual report to security holders for the fiscal year ended December 31, 1995.
<PAGE>
ML FUTURES INVESTMENTS II L.P.
Annual Report for 1995 on Form 10-K
Table of Contents
-----------------
<TABLE>
<CAPTION>
PART I PAGE
------ ----
<S> <C> <C>
Item 1. Business 1
Item 2. Properties 2
Item 3. Legal Proceedings 2
Item 4. Submission of Matters to a Vote of
Security Holders 2
PART II
Item 5. Market for Registrant's Common
Equity and Related Stockholder Matters 3
Item 6. Selected Financial Data 3
Item 7. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 3
Item 8. Financial Statements and Supplementary Data 5
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 5
PART III
Item 10. Directors and Executive Officers of the Registrant 5
Item 11. Executive Compensation 7
Item 12. Security Ownership of Certain Beneficial Owners
and Management 7
Item 13. Certain Relationships and Related Transactions 7
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 7
</TABLE>
<PAGE>
PART I
------
Item 1: Business
--------
(a) General Development of Business:
-------------------------------
ML Futures Investments II L.P. (the "Partnership" or the "Fund") was
organized under the Delaware Revised Uniform Limited Partnership Act on January
20, 1987. The original public offering of units of limited partnership interest
(the "Original Units") commenced on February 2, 1988 and the Partnership began
trading on May 2, 1988. A reopening of units of limited partnership interest
(the "Additional Units") commenced on July 5, 1988 and was completed on July 28,
1988. The Additional Units began trading on July 29, 1988. The Original Units
and the Additional Units are collectively referred to herein as the "Units."
From its inception through December 31, 1991, the Partnership, through a joint
venture (the "Joint Venture") with Commodities Corporation (U.S.A.) N.V. (the
"Trading Manager"), engaged in speculative trading of commodity futures, forward
and options contract. The Joint Venture with the Trading Manager was terminated
on December 31, 1991. The General Partner assumed all responsibilities of the
Partnership, including the "trading manager" role previously the responsibility
of the Trading Manager. Effective January 1, 1992, the Partnership's assets
were allocated by the General Partner to several "Trading Advisors" utilizing
different trading approaches.
Merrill Lynch Investment Partners Inc. (formerly ML Futures Investment
Partners Inc.) (the "General Partner" or "MLIP") acts as the general partner of
the Partnership and Merrill Lynch Futures Inc. (the "Commodity Broker" or "MLF")
has been selected as the Partnership's principal commodity broker. The General
Partner is currently a wholly-owned subsidiary of Merrill Lynch Group Inc.,
which in turn is a wholly-owned subsidiary of Merrill Lynch & Co., Inc. The
Commodity Broker is an indirect wholly-owned subsidiary of Merrill Lynch & Co.,
Inc.
(b) Financial Information about Industry Segments:
---------------------------------------------
The Partnership's business constitutes only one segment for financial
reporting purposes, i.e., a speculative "commodity pool."
(c) Narrative Description of Business:
---------------------------------
The Partnership is a speculative commodity pool and, as such, the
success of its operations depends entirely upon the profitability of the trading
decisions made by the multiple Trading Advisors selected to manage its assets.
The Partnership has been structured so as to provide the benefits of
broad diversification not only of commodities traded but also of trading
approaches. The Trading Manager initially selected ten trading methods to be
implemented by eight Trading Advisors. Each method had been allocated a certain
percentage of the Joint Venture's assets and traded independently of each other.
The proceeds of the Additional Units sold have been similarly allocated, but
among eight trading methods rather than ten methods. The initial Trading
Advisors and their trading methods were chosen so as to, collectively, represent
a mixture of both discretionary and systematic trading methods utilizing
fundamental and technical analysis and trading, from time to time, in each of
the six sectors of the world economy, namely, currencies, financial instruments,
stock indexes, metals and petroleum and agricultural products. The Trading
Manager, with the consent of the General Partner, reallocated the assets of the
Joint Venture among existing Trading Advisors and added to or deleted from the
Partnership line-up Trading Advisors as the conditions warranted.
MLF, an affiliate of the General Partner, acts as principal commodity
broker for the Partnership. From its inception of trading through December 31,
1991, the Partnership paid MLF brokerage commissions at a flat monthly rate of
1.0% (a 12% annual rate) of the Partnership's month-end Net Assets, before
reduction for such commissions or for any New Profits Account accruals.
Effective January 1, 1992, this rate was reduced to a flat monthly rate of 0.83%
(a 10% annual rate). Effective January 1, 1996, the brokerage commission the
Partnership pays to the Commodity Broker will be reduced to .8125% (a 9.75%
annual rate), and the Partnership will pay an administrative fee to the General
Partner of .020833% (a .25% annual rate). The General Partner estimates that
the round-turn equivalent commission rate charged to the Partnership during the
years ended December 31, 1995, 1994 and 1993 was approximately $90, $24 and $28,
respectively (not including forward contracts on a futures contract equivalent
basis).
The Partnership trades forward contracts through a Foreign Exchange
Desk (the "F/X Desk") that contacts at least two counterparties along with
Merrill Lynch International Bank ("MLIB") for all of the Partnership's currency
trades. The F/X Desk contacts at least two counterparties in addition to MLIB
for a price quote on each trade. All counterparties other than MLIB are
unaffiliated with any Merrill Lynch entity. The F/X Desk charges a service fee
(at current exchange rates) equal to approximately $5.00 to $12.50 on each
purchase or sale of a futures-contract equivalent face amount of a foreign
currency on each transaction. No service fee is charged on trades awarded to
MLIB (on which MLIB receives a "bid-ask" spread). MLIB is awarded trades only
if its price is (without the service fee) equal to or better than the best price
(including the service charge) offered by any of the other counterparties
contacted.
The F/X Desk trades using credit lines provided by a Merrill Lynch
entity. The Partnership is not required to margin or otherwise guarantee its
F/X Desk trading.
1
<PAGE>
Certain of the Partnership's currency trades are executed in the form
of "exchange of futures for physical" ("EFP") transactions involving MLIB and
MLF. In these transactions, a spot or forward (collectively referred to as
"cash") currency position is acquired and exchanged for an equivalent futures
position on the Chicago Mercantile Exchange's International Monetary Market
("IMM"). In its EFP trading with Merrill Lynch, the Partnership acquires cash
currency positions through the F/X Desk in the same manner and on the same terms
as in the case of the Partnership's other F/X Desk trading. When the
Partnership exchanges these positions for futures, there is a "differential"
between the prices of these two positions. This "differential" reflects, in
part, the different settlement dates of the cash and the futures contracts as
well as prevailing interest rates, but also includes a pricing spread in favor
of MLIB or another Merrill Lynch entity. The General Partner estimates the
Partnership's service fee and EFP differential costs to total no more than .25
of 1% of the partnership's average month-end Net Assets on an annual basis.
The Fund, to the extent that it has executed currency EFP transactions
in the past, has both acquired its cash positions and effected the exchange of
positions for futures contracts through brokers other than MLF (to which the
futures positions were ultimately given up to be cleared).
The Commodity Broker pays each Trading Advisor a monthly Consulting
Fee ranging from 2%-4% annually of the Partnership's month-end Net Assets
allocated to the respective Trading Advisors. In addition, each Trading Advisor
will receive a quarterly profit share from the Partnership ranging from 15%-25%
of any New Trading Profit.
The Trading Advisors also engage in trading on commodity exchanges
outside the United States on behalf of the Partnership. Trading on such
exchanges is not regulated by any United States government agency and may
involve certain risks not applicable to trading on United States exchanges.
Furthermore, as the Partnership determines its Net Asset Value in United States
dollars, with respect to trading on foreign markets the Partnership is subject
to the risk of fluctuations in the exchange rate between the local currency and
dollars and to the possible imposition of exchange controls.
A substantial portion of the Partnership's assets are maintained as
cash in trading accounts with the Commodity Broker. The Commodity Broker
credits the Partnership's accounts with interest on its assets (not all of which
are available for investment) at a rate of 0.5% per annum below the 91-day
Treasury bill rate. Certain of the Partnership's assets are invested in short-
term sovereign debt obligations of foreign countries and used to margin futures
positions on such countries exchanges.
Each Limited Partner may redeem any or all of their Units at month-end
upon notifying the General Partner ten days prior to such month-end. Each Unit
redeemed is paid the current month-end Net Asset Value as calculated by the
General Partner.
The General Partner, the Trading Advisors and the Commodity Broker are
each subject to regulation by the Commodity Futures Trading Commission and the
National Futures Association. Other than in respect of its periodic reporting
requirements, the Partnership is generally not subject to regulation by the
Securities and Exchange Commission.
(i) through (xii) -- not applicable.
(xiii) The Partnership has no employees.
(d) Financial Information about Foreign and Domestic Operations and
---------------------------------------------------------------
Export Sales:
- ------------
The Partnership does not engage in material operations in foreign
countries (although it does trade on certain foreign exchanges), nor is a
material portion of the Partnership's revenues derived from customers in foreign
countries.
Item 2: Properties
----------
The Partnership does not use any physical properties in the conduct of
its business.
The Partnership's principal place of business is the principal place of
business of the General Partner (see Item 10 herein). The General Partner
performs all administrative services for the Partnership from its offices.
Item 3: Legal Proceedings
-----------------
There are no pending legal proceedings to which the Partnership is a
party.
Item 4: Submission of Matters to a Vote of Security Holders
---------------------------------------------------
The Partnership has never submitted any matters to a vote of its
Limited Partners.
2
<PAGE>
PART II
-------
Item 5: Market for Registrant's Common Equity and Related Stockholder Matters
---------------------------------------------------------------------
(a) Market Information:
------------------
There is no established public trading market for the Units, nor will
one develop. Rather, Limited Partners may redeem Units as of the end of each
month at Net Asset Value.
(b) Holders:
-------
As of December 31, 1995, there were 1,192 Unitholders, including the
General Partner.
(c) Dividends:
---------
The Partnership has made no distributions since trading commenced, nor
does the General Partner presently intend to make any such distributions in the
future.
Item 6: Selected Financial Data
-----------------------
The following is a summary of selected consolidated financial data of the
Partnership:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31, December 31,
1995 1994 1993 1992 1991
------------- ------------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Revenues:
Realized gain (loss) $ 3,732,452 $ 1,431,115 $ 5,305,174 $ 817,378 $ (364,421)
Change in unrealized
(loss) gain (120,416) (270,445) 729,583 635,336 (992,609)
Interest income 806,886 614,734 451,294 714,596 2,200,091
----------- ----------- ----------- ----------- -----------
Total revenues 4,418,922 1,775,404 6,486,051 2,167,310 843,061
Expenses:
Brokerage commissions 1,622,255 1,764,298 2,148,038 2,645,916 4,968,584
Profit Shares 293,724 380,332 654,698 737,762 -0-
----------- ----------- ----------- ----------- -----------
Total expenses 1,915,979 2,144,630 2,802,736 3,383,678 4,968,584
Income (Loss) before
minority interest 2,502,943 (369,226) 3,683,315 (1,216,368) (4,125,523)
Minority interest in
earnings of
Joint Venture - - - - 773,192
----------- ----------- ----------- ----------- -----------
Net Income (Loss): $ 2,502,943 $ (369,226) $ 3,683,315 $(1,216,368) $(3,352,331)
=========== =========== =========== =========== ===========
Total Assets $16,706,533 $17,152,736 $20,106,543 $22,753,531 $36,074,008
Total Partners' Capital $16,135,438 $16,768,729 $19,683,900 $21,731,518 $33,036,777
Net Asset Value
per Unit
at December 31: $166.06 $141.84 $143.81 $121.17 $125.14
</TABLE>
Item 7: Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations
-------------
Operational Overview; Advisor Selections
- ----------------------------------------
Due to the nature of the Fund's business, its results of operations
depend on MLIP's ability to select Advisors and determine the appropriate
percentage of each series' assets to allocate to them for trading, as well as
the Advisors' ability to recognize and capitalize on trends and other profit
opportunities in different sectors of the world commodity markets. MLIP's
Advisor selection procedure and leveraging analysis, as well as the Advisors'
trading methods, are confidential, so that substantially the only information
that can be furnished regarding the Fund's results of operations is contained in
the performance record of its trading. Unlike operating businesses, general
economic or seasonal conditions do not directly affect the profit potential of
the Fund, and its past performance is not necessarily indicative of future
results. Because of the speculative nature of its trading, operational or
economic trends have little relevance to the Fund's results. MLIP believes,
however, that there are certain market conditions, for example, markets with
strong price trends, in which the Fund has a better likelihood of being
profitable than in others.
3
<PAGE>
As of January 1, 1996, the Partnership's assets were allocated as
follows:
<TABLE>
<CAPTION>
TRADING ADVISOR MARKETS TRADED % ALLOCATION
- --------------- -------------- ------------
<S> <C> <C>
Chesapeake Capital Corporation Diversified 24.05
Sjo, Inc. Diversified 23.72
West Course Capital, Inc. Diversified 22.76
Red Oak Commodity Advisors Inc. Currencies 18.66
Blenhiem Investments, Inc. Diversified Program 10.81
------
100.00
</TABLE>
MLIP expects to continue to change both allocations and Advisor
selections from time to time without advance notice to existing investors.
Results of Operations - General
- -------------------------------
MLIP believes that multi-Advisor futures funds should be regarded as
medium- to long-term investments but, unlike an operating business, it is
difficult to identify "trends" in the Fund's operations and virtually impossible
to make any predictions regarding future results based on results to date.
Markets in which sustained price trends occur with some frequency tend
to be more favorable to managed futures investments than "whipsaw," "choppy"
markets, but (i) this is not always the case, (ii) it is impossible to predict
when trending markets will occur and (iii) different Advisors are affected
differently by trends in general as well as by particular types of trends.
The Fund controls credit risk in its trading in the derivatives markets
by trading only through Merrill Lynch entities which MLIP believes to be
creditworthy. The Fund attempts to control the market risk inherent in its
derivatives trading by utilizing a multi-advisor, multi-strategy structure.
This structure purposefully attempts to diversify the Fund's Advisor group among
different strategy types and market sectors in an effort to reduce risk
(although the Fund's portfolio currently emphasizes technical and trend-
following approaches).
Performance Summary
- -------------------
During 1993, the Fund's average month-end Net Assets equalled
$19,854,227, and the Fund recognized gross trading gains of $6,034,757 or 30.40%
of such average month-end Net Assets. Brokerage commissions of $2,148,038 or
10.82% and Profit Shares of $654,698 or 3.30% of average month-end Net Assets
were paid. Interest income of $451,294 or 2.27% of average month-end Net Assets
resulted in net income of $3,683,315 or 18.55% of average month-end Net Assets,
which resulted in a 18.68% increase in the Net Asset Value per Unit.
During 1994, the Fund's average month-end Net Assets equalled
$16,535,591, and the Fund recognized gross trading gains of $1,160,670 or 7.02%
of such average month-end Net Assets. Brokerage commissions of $1,764,298 or
10.67% and Profit Shares of $380,332 or 2.30% of average month-end Net Assets
were paid. Interest income of $614,734 or 3.72% of average month-end Net Assets
resulted in a net loss of $369,226 or 2.23% of average month-end Net Assets,
which resulted in a 1.37% decrease in the Net Asset Value per Unit.
During 1995, the Fund's average month-end Net Assets equalled
$15,805,702, and the Fund recognized gross trading gains of $3,612,036 or 22.85%
of such average month-end Net Assets. Brokerage commissions of $1,622,255 or
10.26% and Profit Shares of $293,724 or 1.86% of average month-end Net Assets
were paid. Interest income of $806,886 or 5.11% of average month-end Net Assets
resulted in net income of $2,502,943 or 15.84% of average month-end Net Assets
which resulted in a 17.08% increase in the overall Net Asset Value of the Fund.
In its past 36 months of trading, the Fund experienced 20 profitable
months and 16 unprofitable months.
<TABLE>
<CAPTION>
MONTH-END NET ASSET VALUE PER UNIT
----------------------------------------------------------------------------------------------------------
Jan. Feb. Mar. Apr. May June July Aug. Sept. Oct. Nov. Dec.
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1993 $119.92 $129.35 $131.25 $133.52 $133.12 $138.58 $144.47 $147.25 $142.23 $140.00 $137.99 $143.81
1994 $136.63 $131.58 $128.36 $127.05 $136.94 $142.63 $139.91 $134.39 $139.23 $140.42 $141.56 $141.84
1995 $137.22 $137.47 $145.26 $145.14 $154.53 $147.52 $145.50 $150.48 $151.82 $150.72 $155.36 $166.06
</TABLE>
Importance of Market Factors
- ----------------------------
Comparisons between the Fund's performance in a given period in one
fiscal year to the same period in a prior year are unlikely to be meaningful,
given the uncertainty of price movements in the markets traded by the Fund. In
general, MLIP expects that the Fund is most likely to trade successfully in
markets which exhibit strong and sustained price trends. The current Advisor
group emphasizes technical and trend-following methods. Consequently, one would
expect that in trendless, "choppy" markets the Fund would likely be
unprofitable, while in markets in which major price movements occur, the Fund
would have its best profit potential (although there could be no assurance that
the Fund would, in fact, trade profitably). However, trend-followers not
infrequently will miss major price movements, and market corrections can result
in rapid and material losses (sometimes as much as 5% in a single day).
Although MLIP monitors market conditions and Advisor performance on an ongoing
basis in overseeing the Fund's trading, MLIP does not attempt to "market
forecast" or to "match" trading styles with predicted market conditions.
Rather, MLIP concentrates on quantitative
4
<PAGE>
and qualitative analysis of prospective Advisors, as well as on statistical
studies of the historical performance parameters of different Advisor
combinations in selecting Advisors and allocating and reallocating Fund assets
among them.
Because managed futures advisors' strategies are proprietary and
confidential and market movements unpredictable, selecting advisors to implement
speculative trading strategies involves considerable uncertainty. Furthermore,
the concentration of the Fund's current Advisor portfolio, both in terms of the
number of managers retained and the common emphasis of their strategies on
technical and trend-following methods, increases the risk that unexpectedly bad
performance, turbulent market conditions or a combination of the two will result
in significant losses.
MLIP's Advisor Selections
- -------------------------
MLIP has no timetable or schedule for making Advisor changes or
reallocations, and generally intends to make a medium- to long-term commitment
to all Advisors selected. However, there can be no assurance as to the
frequency or number of the Advisor changes which may take place in the future,
or as to how long any of the current Advisors will continue to manage assets for
the Fund.
Liquidity
- ---------
Most of the Partnership's assets are held as cash which, in turn, is
used to margin its futures positions and earn interest income and is withdrawn,
as necessary, to pay redemptions and fees.
The futures contracts in which the Partnership trades may become illiquid
under certain market conditions. Commodity exchanges limit fluctuations in
futures prices during a single day by regulations referred to as "daily limits."
During a single day no trades may be executed at prices beyond the daily limit.
Once the price of a futures contract for a particular commodity has increased or
decreased by an amount equal to the daily limit, positions in the commodity can
generally neither be taken nor liquidated unless traders are willing to effect
trades at or within the limit. Futures contracts have occasionally moved to the
daily limit for several consecutive days with little or no trading. Such market
conditions could prevent the Partnership from promptly liquidating its futures
(including its options) positions. There are no limitations on the daily price
moves in trading foreign currency forward contracts through banks, although
illiquidity may develop in the forward markets due to large spreads between
"bid" and "ask" prices quoted. (Forward contracts are the bank version of
currency futures contracts and are not traded on exchanges.)
Capital Resources
- -----------------
The Partnership does not have, nor does it expect to have, any capital
assets and has no material commitments for capital expenditures. The
Partnership uses its assets to supply the necessary margin or premiums for, and
to pay any losses incurred in connection with, its trading activity and to pay
redemptions and fees.
Inflation is not a significant factor in the Fund's profitability,
although inflationary cycles can give rise to the type of major price movements
which can have a materially favorable or adverse impact on the Fund's
performance.
Item 8: Financial Statements and Supplementary Data
-------------------------------------------
The financial statements required by this Item are included on pages E-
1 through E-15 of this report.
The supplementary financial information ("selected quarterly financial
data" and "information about oil and gas producing activities") specified by
Item 302 of Regulation S-K is not applicable.
Item 9: Changes in and Disagreements with Accountants on Accounting and
---------------------------------------------------------------
Financial Disclosure
--------------------
There were no changes in or disagreements with accountants on
accounting and financial disclosure.
PART III
--------
Item 10: Directors and Executive Officers of the Registrant
--------------------------------------------------
(a,b) Identification of Directors and Executive Officers:
--------------------------------------------------
As a limited partnership, the Partnership itself has no officers or
directors and is managed by the General Partner. Trading decisions are made by
the Trading Advisors on behalf of the Partnership.
Merrill Lynch Investment Partners Inc. (formerly ML Futures
Investment Partners Inc.), a Delaware corporation, was organized in 1986 in
order to serve as the general partner of commodity pools for which Merrill
Lynch, Pierce, Fenner & Smith Incorporated acts as selling agent. The offices of
the General Partner are located at Merrill Lynch World Headquarters, 6th Floor,
South Tower, World Financial Center, New York, New York 10080-6106; telephone
(212) 236-4161.
5
<PAGE>
The directors and officers of the General Partner, and titles as of
December 31, 1995 are as follows:
John R. Frawley, Jr. President, Chief Executive Officer and Director
James M. Bernard Chief Financial Officer, Senior Vice President and
Treasurer
Jeffrey F. Chandor Senior Vice President and Director of Sales,
Marketing and Research
William T. Maitland Secretary and Director
Allen N. Jones Chairman and Director
John R. Frawley, Jr. was born in 1943. Mr. Frawley is Chief Executive
Officer, President and a Director of MLIP and Co-Chairman of Merrill Lynch
Futures. He joined MLPF&S in 1966 and has served in various positions, including
Retail and Institutional Sales, Manager of New York Institutional Sales,
Director of Institutional Marketing, Senior Vice President of Merrill Lynch
Capital Markets and Director of International Institutional Sales. Mr. Frawley
holds a Bachelor of Science degree from Canisius College. From its formation in
1990 through its dissolution in 1994, Mr. Frawley served on the CFTC's
Regulatory Coordination Advisory Committee. Mr. Frawley is currently a member of
the CFTC's Financial Products Advisory Committee. In January 1996, Mr. Frawley
was re-elected to a one-year term as Chairman of the Managed Futures
Association, the national trade association of the United States managed futures
industry. Mr. Frawley is also a Director of that organization and Vice Chairman
of the Futures Industry Institute.
James M. Bernard was born in 1950. Mr. Bernard is Chief Financial
Officer, Senior Vice President and Treasurer of MLIP. He joined Merrill Lynch
Futures in 1983. Prior to such time he was the Commodity Controller for Nabisco
Brands Inc. from November 1976 to 1982 and a Supervisor with Ernst & Whinney
from 1972 to November 1976. Mr. Bernard is a member of the American Institute
of Certified Public Accountants and holds a Bachelor of Science degree from St.
John's University and a Master of Business Administration degree from Fordham
University.
Jeffrey F. Chandor was born in 1945. Mr. Chandor is Senior Vice
President and the Director of Sales, Marketing and Research of MLIP. He joined
MLPF&S in 1971 and has served as the Product Manager of International
Institutional Equities, Derivatives and Mortgage-Backed Securities as well as
Managing Director of International Sales in the United States, and Managing
Director of Sales in Europe. Mr. Chandor holds a Bachelor of Arts degree from
Trinity College, Hartford, Connecticut.
William T. Maitland was born in 1949. From MLIP's inception in August
1986 through June 1, 1988, Mr. Maitland was the Secretary and a Director of MLIP
and, on August 15, 1992, he once again assumed these positions. Mr. Maitland is
the General Counsel for Futures & Options for MLPF&S, a position he has held
since November 1990, and is a member of the Board of Directors of Merrill Lynch
Futures. In 1971, Mr. Maitland graduated with a Bachelor of Arts degree from
Fordham University where his field of concentration was economics. In 1974, he
received his Juris Doctor degree from Fordham Law School. Mr. Maitland joined
MLPF&S in 1979. Mr. Maitland is presently a member of the Board of Directors of
the NFA and the Futures Industry Association ("FIA") and a past President of the
Executive Committee of the Law & Compliance Division of the FIA. He is a member
of the Committee on Commodities Regulation of the Association of the Bar of the
City of New York.
Allen N. Jones was born in 1942. Mr. Jones is Chairman and a Director
of MLIP. Mr. Jones graduated from the University of Arkansas with a Bachelor of
Science, Business Administration degree in 1964. Since June 1992, Mr. Jones has
held the position of Senior Vice President of MLPF&S. From June 1992 through
February 1994, Mr. Jones was the President and Chief Executive Officer of
Merrill Lynch Insurance Group, Inc. ("MLIG") and remains on the Board of
Directors of MLIG and its subsidiary companies. In February 1994, Mr. Jones
became the Director of Individual Financial Services of the Merrill Lynch
Private Client Group. From January 1992 to May 1992, he held the position of
First Vice President of MLPF&S. From January 1990 to June 1992, he held the
position of District Director of MLPF&S. Prior to January 1990, he held the
position of Senior Regional Vice President of MLPF&S.
(c) Identification of Certain Significant Employees:
-----------------------------------------------
None.
(d) Family Relationships:
--------------------
None.
(e) Business Experience:
-------------------
See Item 10(a)(b) above.
(f) Involvement in Certain Legal Proceedings:
----------------------------------------
None.
(g) Promoters and Control Persons:
------------------------------
The General Partner is the sole promoter and controlling person of the
Partnership.
6
<PAGE>
Item 11: Executive Compensation
----------------------
The officers of the General Partner are remunerated in their
respective positions. The Partnership does not itself have any officers,
directors or employees. The Partnership pays brokerage commissions to an
affiliate of the General Partner. The directors and officers receive no "other
compensation" from the Partnership, and the directors receive no compensation
for serving as directors of the General Partner. There are no compensation plans
or arrangements relating to a change in control of either the Partnership or the
General Partner.
Item 12: Security Ownership of Certain Beneficial Owners and Management:
--------------------------------------------------------------
(a) Security Ownership of Certain Beneficial Owners:
-----------------------------------------------
As of December 31, 1995, no person or "group" is known to be or have
been the beneficial owner of more than five percent of the Units. All of the
Partnership's units of general partnership interest are owned by the General
Partner.
(b) Security Ownership of Management:
--------------------------------
As of December 31, 1995, none of the officers or directors of the
General Partner owned Units.
As of December 31, 1995, the General Partner owned 1,229 Units, which
was less than 2% of the total Units outstanding.
(c) Changes in Control:
------------------
None.
Item 13: Certain Relationships and Related Transactions
----------------------------------------------
(a) Transactions with Management and Others:
---------------------------------------
The General Partner performs certain services for the Partnership,
which includes serving as trading manager to select Trading Advisors to direct
trading decisions for the Partnership and providing for all normal ongoing
administrative functions of the Partnership, such as accounting, legal and
printing services. The General Partner pays all expenses relating to such
services.
(b) Certain Business Relationships:
------------------------------
MLF, an affiliate of the General Partner, acts as the principal
commodity broker for the Partnership.
In 1995, the Partnership incurred an expense of $1,622,255 in
brokerage commissions to the Commodity Broker, which includes $405,279 in
consulting fees earned by the Commodity Broker to the Trading Advisors.
See Item 1(c) "Narrative Description of Business" for a discussion of
other business dealings between MLIP affiliates and the Partnership.
(c) Indebtedness of Management:
--------------------------
The Partnership is prohibited from making any loans.
(d) Transactions with Promoters:
---------------------------
Not applicable.
PART IV
-------
Item 14: Exhibits, Financial Statement Schedules and Reports on Form 8-K
---------------------------------------------------------------
(a)1. Financial Statements:
--------------------
Page
----
Independent Auditors' Report E-5
Statements of Financial Condition
as of December 31, 1995 and 1994 E-6
For the Years Ended December 31,
1995, 1994 and 1993:
Statements of Operations E-7
Statements of Changes in Partners' Capital E-8
Notes to Financial Statements E-9
(a)2. Financial Statement Schedules:
-----------------------------
Financial statement schedules not included in this Form 10-K have
been omitted for the reason that they are not required or are not applicable or
that equivalent information has been included in the financial statements or
notes thereto.
7
<PAGE>
(a)3. Exhibits:
--------
The following exhibits are incorporated by reference or are filed
herewith to this Annual Report on Form 10-K:
Designation Description
- ----------- -----------
1.01 Form of Selling Agreement among the Partnership, the General
Partner, Merrill Lynch Futures Inc., the Trading Manager, each
Trading Advisor and the Selling Agent.
Exhibit 1.01: Is incorporated by reference from Exhibit 1.01 contained in
- ------------ Amendment No. l to the Registration Statement (File No.
33-12645) filed on February 2, 1988, on Form S-l under the
Securities Act of 1933.
3.01 Limited Partnership Agreement of the Partnership.
Exhibit 3.01: Is incorporated by reference from Exhibit 3.0l contained in
- ------------ Amendment No. l (as Exhibit A) to the Registration Statement
(File No. 33-12645) filed on February 2, 1988, on Form S-l
under the Securities Act of 1933.
3.01(a) Amended and Restated Limited Partnership Agreement.
Exhibit 3.01(a): Is incorporated by reference from Exhibit 3.03 contained in
- --------------- Amendment No. 2 to the Registration Statement (File No.
33-12645) filed on February 2, 1988, on Form S-l under the
Securities Act of 1933.
3.01(b) Amendment No. 2 to the Amended and Restated Limited
Partnership Agreement, dated March 1, 1990.
Exhibit 3.01(b): Is incorporated by reference from Exhibit 3.01(b) contained in
- --------------- the Partnership's report on Form 10-K for the fiscal year
ended December 31, 1989.
3.01(c) Amendment No. 3 to the Amended and Restated Limited
Partnership Agreement, dated June 10, 1992.
Exhibit 3.01(c): Is incorporated by reference from Exhibit 3.01(c) contained in
- --------------- the Partnership's report on Form 10-K for the fiscal year
ended December 31, 1992.
3.01(d) Amendment No. 4 to the Amended and Restated Limited
Partnership Agreement, dated June 18, 1992.
Exhibit 3.01(d): Is incorporated by reference from Exhibit 3.01(d) contained in
- --------------- the Partnership's report on Form 10-K for the fiscal year
ended December 31, 1992.
3.01(e) Amended and Restated Certificate of Limited Partnership of the
Partnership, dated July 27, 1995.
Exhibit 3.01(e): Is incorporated by reference from Exhibit 3.01(e) contained in
- --------------- the Registrant's report on Form 10-Q for the Quarter Ended
June 30, 1995.
3.03 Amended and Restated Certificate of Limited Partnership of the
Partnership, dated March 1, 1990.
Exhibit 3.03: Is incorporated by reference from Exhibit 3.03 contained in
- ------------ the Partnership's report on Form 10-K for the fiscal year
ended December 31, 1989.
3.03(a) Amended and Restated Certificate of Limited Partnership of the
Partnership, dated June 10, 1992.
Exhibit 3.03(a): Is incorporated by reference from Exhibit 3.03(a) contained in
- --------------- the Partnership's report on Form 10-K for the fiscal year
ended December 31, 1992.
3.03(b) Amended and Restated Certificate of Limited Partnership of the
Partnership, dated June 18, 1992.
Exhibit 3.03(b): Is incorporated by reference from Exhibit 3.03(b) contained in
- --------------- the Partnership's report on Form 10-K for the fiscal year
ended December 31, 1992.
10.14(j) Form of Advisory Agreement between the Partnership, Merrill
Lynch Investment Partners Inc., Merrill Lynch Futures Inc. and
prospective trading advisors.
Exhibit 10.14(j): Is incorporated by reference from Exhibit 10.14(j) contained
- ----------------- in the Registrant's report on Form 10-Q for the Quarter Ended
June 30, 1995.
13.01 1995 Annual Report and Independent Auditors' Report.
8
<PAGE>
Exhibit 13.01: Is filed herewith.
- -------------
99.01(a) Prospectus of the Partnership, dated February 2, 1988.
Exhibit 99.01(a): Is incorporated by reference as filed with the Securities and
- ---------------- Exchange Commission pursuant to Rule 424 under the Securities
Act of 1933, as amended, on February 5, 1988.
99.01(b) Prospectus of the Partnership, dated July 5, 1988.
Exhibit 99.01(b): Is incorporated by reference as filed with the Securities and
- ---------------- Exchange Commission pursuant to Rule 424 under the Securities
Act of 1933, as amended, on July 6, 1988.
99.01(c) Supplement to the Prospectus accompanying the Partnership's
December 1990 monthly report.
Exhibit 99.01(c): Is incorporated by reference from Exhibit 28.01(b) contained
- ---------------- in the Partnership's report on Form 10-K for the fiscal year
ended December 31, 1991.
(b) Reports on Form 8-K:
-------------------
Form 8-K was filed by the Registrant on July 28, 1995 disclosing MLIP's
name change from ML Futures Investment Partners Inc.
9
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ML FUTURES INVESTMENTS II L.P.
By: MERRILL LYNCH INVESTMENT PARTNERS INC.
General Partner
By: /s/ John R. Frawley, Jr.
------------------------
John R. Frawley, Jr.
President, Chief Executive Officer and
Director (Principal Executive Officer)
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, this report has been signed on March 28, 1996 by the following
persons on behalf of the Registrant and in the capacities indicated.
<TABLE>
<CAPTION>
Signature Title Date
- ------------------------- ------------------------------------- --------------
<S> <C> <C>
/s/John R. Frawley, Jr. President and Chief Executive Officer March 28, 1996
- ------------------------- and Director
John R. Frawley, Jr.
/s/James M. Bernard Chief Financial Officer, Treasurer March 28, 1996
- ------------------------- (Principal Financial and Accounting
James M. Bernard Officer) and Senior Vice President
/s/Jeffrey F. Chandor Senior Vice President and Director March 28, 1996
- ------------------------- of Sales, Marketing and Research
Jeffrey F. Chandor
/s/William T. Maitland Director March 28, 1996
- -------------------------
William T. Maitland
/s/Allen N. Jones Director March 28, 1996
- -------------------------
Allen N. Jones
</TABLE>
(Being the principal executive officer, the principal financial and accounting
officer and a majority of the directors of Merrill Lynch Investment Partners
Inc.)
MERRILL LYNCH INVESTMENT General Partner of March 28, 1996
PARTNERS INC. Registrant
By:/s/ John R. Frawley, Jr.
------------------------
John R. Frawley, Jr.
<PAGE>
ML FUTURES INVESTMENTS II L.P.
1995 FORM 10-K
INDEX TO EXHIBITS
-----------------
EXHIBIT PAGE
----------------------------------- ----
Exhibit 13.01 1995 Annual Report and Independent E- 1
Auditor's Report
<PAGE>
EXHIBIT 13.01
ML FUTURES INVESTMENTS II L.P.
(A DELAWARE LIMITED PARTNERSHIP)
Financial Statements for the years ended
December 31, 1995, 1994 and 1993
and Independent Auditors' Report
<PAGE>
To: The Limited Partners of ML FUTURES INVESTMENTS II L.P.
ML Futures Investments II L.P. (the "Fund") ended its eighth fiscal year of
trading on December 31, 1995 with a Net Asset Value ("NAV") per Unit of $166.06,
representing an increase of 17.08% from the December 31, 1994 NAV per Unit of
$141.84. During the fiscal year, trading profits were generated in the interest
rate, currency, energy, stock index and agriculture sectors while losses were
incurred in the metals sector.
In 1995, price trends which prevailed in several key markets enabled the Fund's
Trading Advisors to trade profitably for the Fund. Although trading in many of
the traditional commodity markets may have been lackluster, the currency and
financial markets offered exceptional trading opportunities. Soaring stock
prices and falling interest rates, coupled with significant currency moves,
resulted in profitable trading opportunities in these markets throughout the
year.
After months characterized by very difficult trading environments, solid price
trends across many markets began to emerge during the first quarter of 1995. In
February, bond markets worldwide recovered some of the ground lost in the
previous year. Specifically, U.S. Treasury prices improved, spurred by the
belief that growth in the U.S. economy was slowing enough for inflation to
stabilize. The Fund was also able to profit in the non-dollar markets, as German
and Japanese bonds rallied. In the currency markets, the Deutsche mark hit a
two-year high of DM/US$ 1.4613 on February 24.
In the second quarter, market volatility once again began to cast its shadow on
trading as many previously strong price trends began to weaken and even reverse
in some cases. During April, the U.S. dollar hit new lows versus the Japanese
yen and Deutsche mark before sharply rebounding. The U.S. dollar experienced
another sharp rally in May, due to intervention on the part of major central
banks, potential trade sanctions against Japan and congressional action to
reduce the federal budget. In June, strong indications that the U.S. economy was
slowing, coupled with a failure of the Bundesbank to lower the Lombard rate,
stalled a rally in the German bond market.
In July, Alan Greenspan's optimistic comments concerning the U.S. economy led to
a sudden correction in U.S. bond prices after several months of a strong
uptrend. Throughout August and into September, the U.S. dollar rallied sharply
against the Japanese yen and the Deutsche mark. The dollar's rally was
supported by coordinated intervention on the part of major central banks and
further bolstered on August 30 by the potential impact of the growing banking
crisis in Japan.
Despite continued price volatility during the final quarter of 1995, the Fund's
Trading Advisors were able to single out some trends in key markets. U.S.
Treasury bond prices continued their strong move upward throughout November due
to weak economic data and optimism on Federal budget talks. By month-end, the
30-year Treasury bond rate was pushed to its lowest level in more than two
years. U.S. bond prices weakened during December as government budget talks
continued to stall. By month-end, however, prices strengthened somewhat as the
yield on the U.S. long bond fell below 6% for the first time in over two years.
<PAGE>
1995 proved to be a good year for the Fund. As General Partner and Trading
Manager of the Fund, we believe that the Fund's strategy of focused
diversification positioned the Fund well to profit from a variety of trading
opportunities during the year. We continue to work diligently with the Trading
Advisors to meet the Fund's objective of substantial capital appreciation over
the long-term and look forward to the new fiscal year and the trading
opportunities it may bring.
Sincerely,
John R. Frawley, Jr.
President
MERRILL LYNCH INVESTMENT PARTNERS INC.
(General Partner)
FUTURES TRADING IS SPECULATIVE AND INVOLVES A HIGH DEGREE OF RISK. PAST
PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
<PAGE>
ML FUTURES INVESTMENTS II L.P.
(A Delaware Limited Partnership)
------------------------------
TABLE OF CONTENTS
- ----------------------------------------------------
Page
----
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 1995, 1994 and 1993:
Statements of Financial Condition 2
Statements of Operations 3
Statements of Changes in Partners' Capital 4
Notes to Financial Statements 5-10
<PAGE>
INDEPENDENT AUDITORS' REPORT
- ----------------------------
To the Partners of
ML Futures Investments II L.P.
We have audited the accompanying statements of financial condition of ML Futures
Investments II L.P. (a Delaware limited partnership; the "Partnership") as of
December 31, 1995 and 1994, and the related statements of operation and of
changes in partners' capital for each of the three years in the period ended
December 31, 1995. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of ML Futures Investments II L.P. (a Delaware
limited partnership) as of December 31, 1995 and 1994, and the results of its
operations for each of the three years in the period ended December 31, 1995 in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
January 26, 1996
New York, New York
-1-
<PAGE>
ML FUTURES INVESTMENTS II L.P.
(A Delaware Limited Partnership)
------------------------------
STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1995 AND 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994
------------ -----------
ASSETS
- ------
<S> <C> <C>
Accrued interest (Note 2) $ 65,021 $ 70,399
Equity in commodity futures trading accounts:
Cash and option premiums 14,612,463 14,932,872
Net unrealized gain on open contracts 2,029,049 2,149,465
----------- -----------
TOTAL $16,706,533 $17,152,736
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
- ---------------------------------
LIABILITIES:
Redemptions payable $ 351,715 $ 150,634
Brokerage commissions payable (Note 2) 139,221 142,935
Profit shares payable 80,159 90,438
----------- -----------
Total liabilities 571,095 384,007
----------- -----------
PARTNERS' CAPITAL:
General Partner (1,229 and 1,629 Units) 204,068 231,044
Limited Partners (95,936 and 116,590 Units) 15,931,370 16,537,685
----------- -----------
Total partners' capital 16,135,438 16,768,729
----------- -----------
TOTAL $16,706,533 $17,152,736
=========== ===========
NET ASSET VALUE PER UNIT
(Based on 97,165 and 118,219 outstanding) $166.06 $141.84
=========== ===========
</TABLE>
See notes to financial statements.
-2-
<PAGE>
ML FUTURES INVESTMENTS II L.P.
(A Delaware Limited Partnership)
------------------------------
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994 1993
---------- ----------- -----------
<S> <C> <C> <C>
REVENUES:
Trading profits (loss):
Realized $3,732,452 $ 1,431,115 $ 5,305,174
Change in unrealized (120,416) (270,445) 729,583
---------- ----------- -----------
Total trading results 3,612,036 1,160,670 6,034,757
Interest income (Note 2) 806,886 614,734 451,294
---------- ----------- -----------
Total revenues 4,418,922 1,775,404 6,486,051
---------- ----------- -----------
EXPENSES:
Profit shares 293,724 380,332 654,698
Brokerage commissions (Note 2) 1,622,255 1,764,298 2,148,038
---------- ----------- -----------
Total expenses 1,915,979 2,144,630 2,802,736
---------- ----------- -----------
NET INCOME (LOSS) $2,502,943 $ (369,226) $ 3,683,315
========== =========== ===========
NET INCOME (LOSS) PER UNIT:
Weighted average number of Units
outstanding (Note 4) 107,979 127,755 155,275
========== =========== ===========
Weighted average net income (loss)
per Unit $23.18 $(2.89) $23.72
========== =========== ===========
</TABLE>
See notes to financial statements.
-3-
<PAGE>
ML FUTURES INVESTMENTS II L.P.
(A Delaware Limited Partnership)
------------------------------
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Limited General
Units Partners Partner Total
------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
PARTNERS' CAPITAL,
DECEMBER 31, 1992 179,342 $21,340,267 $ 391,251 $21,731,518
Redemptions (42,463) (5,517,941) (212,992) (5,730,933)
Net income -- 3,627,336 55,979 3,683,315
------- ----------- ----------- -----------
PARTNERS' CAPITAL,
DECEMBER 31, 1993 136,879 19,449,662 234,238 19,683,900
Redemptions (18,660) (2,545,945) -- (2,545,945)
Net loss -- (366,032) (3,194) (369,226)
------- ----------- ----------- -----------
PARTNERS' CAPITAL,
DECEMBER 31, 1994 118,219 16,537,685 231,044 16,768,729
Redemptions (21,054) (3,075,946) (60,288) (3,136,234)
Net income -- 2,469,631 33,312 2,502,943
------- ----------- ----------- -----------
PARTNERS' CAPITAL,
DECEMBER 31, 1995 97,165 $15,931,370 $ 204,068 $16,135,438
======= =========== =========== ===========
</TABLE>
See notes to financial statements.
-4-
<PAGE>
ML FUTURES INVESTMENTS II L.P.
(A Delaware Limited Partnership)
------------------------------
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ML Futures Investments II L.P. (the "Partnership") was organized under the
Delaware Revised Uniform Limited Partnership Act on January 20, 1987 and
completed its initial Public offering of units of limited partnership interest
("Initial Units") on April 28, 1988. The Partnership commenced trading
activities on May 2, 1988. The Partnership engages in the speculative trading
of futures, options and forward contracts on a wide range of commodities.
Merrill Lynch Investment Partners Inc. (formerly ML Futures Investment Partners
Inc.) ("MLIP" or the "General Partner"), a wholly-owned subsidiary of Merrill
Lynch Group, Inc. ("Merrill Lynch"), which in turn is a wholly-owned subsidiary
of Merrill Lynch & Co., Inc., is the general partner of the Partnership, and
Merrill Lynch Futures Inc. ("MLF"), also an affiliate of Merrill Lynch, is its
commodity broker. MLIP has agreed to maintain a general partner's interest of at
least 1% of the total capital in the Partnership. MLIP and each Limited Partner
share in the profits and losses of the Partnership in proportion to their
respective interests in it.
MLIP selects independent advisors (the "Advisors" or the "Trading Advisors") to
manage the Partnership's assets, and allocates and reallocates the Partnership's
assets among existing, replacement and additional Advisors.
Estimates
- ---------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Revenue Recognition
- -------------------
Commodity futures, options, and forward contract transactions are recorded on
the trade date and open contracts are reflected in the financial statements at
their fair value on the last business day of the reporting period. The
difference between the original contract amount and fair value is reflected in
income as an unrealized gain or loss. Fair value is based on quoted market
prices. All commodity futures, options and forward contracts are reflected at
fair value in the financial statements.
Operating Expenses
- ------------------
MLIP pays all routine operating expenses (including legal, accounting, printing,
postage and similar administrative expenses) of the Partnership. MLIP receives
a portion of the brokerage commissions paid to MLF by the Partnership as
reimbursement for the foregoing expenses.
-5-
<PAGE>
Income Taxes
- ------------
No provision for income taxes has been made in the accompanying financial
statements as each partner is individually responsible for reporting income or
loss based on their respective share of the Partnership's income and expenses as
reported for income tax purposes.
Distributions
- -------------
The Unitholders are entitled to receive, equally per Unit, any distributions
which may be made by the Partnership. No such distributions have been made as
of December 31, 1995.
Redemptions
- -----------
A Limited Partner may require the Partnership to redeem some or all their
Limited Partner's Units at Net Asset Value as of the close of business on the
last business day of any month upon ten calendar days' notice.
Dissolution of the Partnership
- ------------------------------
The Partnership will terminate on December 31, 2007 or at an earlier date if
certain conditions occur, as well as under certain other circumstances, as set
forth in the Limited Partnership Agreement.
2. RELATED PARTY TRANSACTIONS
All of the Partnership's assets are deposited with MLF. As a means of
approximating the interest rate which would be earned by the Partnership had
100% of its Net Assets on deposit with MLF been invested in 91-day Treasury
bills, MLF pays the Partnership interest on its account equity on deposit with
MLF at a rate of 0.5 of 1% per annum below the prevailing 91-day Treasury bill
rate. In the case of its trading in certain foreign futures contracts, the
Partnership deposits margin in foreign currency denominated instruments or cash
and earns interest generally at a rate of 0.5 of 1% per annum below the London
Clearing Broker Rate. Any additional economic benefit derived from possession
of the Partnership's assets accrues to MLF or its affiliates.
The Partnership pays brokerage commissions to MLF at a flat monthly rate of 0.83
of 1% (a 10% annual rate) of the Partnership's month-end assets. Month-end
assets are not reduced for purposes of calculating brokerage commissions by any
accrued but unpaid brokerage commissions, Profit shares or other fees or
charges. MLIP estimates that the round-turn equivalent commission rate charged
to the Partnership during the years ended December 31, 1995, 1994 and 1993, was
approximately $90, $24 and $28, respectively (not including, in calculating
round-turn equivalents, forward contracts on a futures-equivalent basis).
MLF pays the Advisors annual Consulting Fees ranging from 2% to 4% of the
Partnership's average month-end assets, after reduction for a portion of
brokerage commissions.
The Partnership trades forward contracts through a Foreign Exchange Desk (the
"F/X Desk") established by MLIP, that contacts at least two counterparties along
with Merrill Lynch International Bank ("MLIB"), for all of the Partnership's
currency trades. All counterparties other than MLIB are unaffiliated with any
Merrill Lynch entity. The F/X Desk charges a service fee equal (at current
exchange rates) to approximately $5.00 to $12.50 on each purchase or sale of a
futures contract-equivalent face amount of a foreign currency. No service fees
are charged on any trades awarded to MLIB (which receives a "bid-ask" spread on
such trades). MLIB is awarded trades only if its price (which includes no
service fee) is equal to or better than the best price (including the service
fee) offered by any of the other counterparties contacted.
-6-
<PAGE>
The F/X Desk trades on the basis of credit lines provided by a Merrill Lynch
entity. The Partnership is not required to margin or otherwise guarantee its
F/X Desk trading.
Certain of the Partnership's currency trades are executed in the form of
"exchange of futures for physical" ("EFP") transactions involving MLIB and MLF.
In these transactions, a spot or forward (collectively referred to as "cash")
currency position is acquired and exchanged for an equivalent futures position
on the Chicago Mercantile Exchange's International Monetary Market. In its EFP
trading, the Partnership acquires cash currency positions through the F/X Desk
in the same manner and on the same terms as in the case of the Partnership's
other F/X Desk trading. When the Partnership exchanges these positions for
futures, there is a "differential" between the prices of these two positions.
This "differential" reflects, in part, the different settlement dates of the
cash and the futures contracts as well as prevailing interest rates, but also
includes a pricing spread in favor of MLIB or another Merrill Lynch entity.
The Partnership's F/X Desk service fee and EFP differential costs have, to date,
totaled no more than 0.25 of 1% per annum of the Partnership's average month-end
Net Assets.
3. AGREEMENTS
The Partnership and the Advisors have each entered into Advisory Agreements.
These Advisory Agreements generally terminate one year after they are entered
into, subject to certain renewal rights exercisable by the Partnership. The
Advisors determine the commodity futures and forward contract trades to be made
on behalf of their respective Partnership accounts, subject to certain
Partnership trading policies and to certain rights reserved by MLIP.
Profit shares, generally ranging from 15% to 25% of any New Trading Profit, as
defined, recognized by each Advisor, considered individually irrespective of the
overall performance of the Partnership, as of the end of each calendar quarter
are paid by the Partnership to each Advisor. Profit shares are also paid out in
respect of Units redeemed as of the end of interim months during a calendar
quarter to the extent of the applicable percentage of any New Trading Profit
attributable to such Units.
4. WEIGHTED AVERAGE UNITS
The weighted average number of Units outstanding was computed for purposes of
disclosing net income per weighted average Unit. The weighted average number of
Units outstanding at December 31, 1995, 1994 and 1993 equals the Units
outstanding as of such date, adjusted proportionately for Units redeemed based
on the respective length of time each was outstanding during the preceding
period.
-7-
<PAGE>
5. FAIR VALUE AND OFF-BALANCE SHEET RISK
The Partnership trades futures, options and forward contracts in interest rates,
stock indices, commodities, currencies, energy and metals. The Partnership's
revenues by reporting category were as follows:
<TABLE>
<CAPTION>
1995
Total Trading Results
---------------------
<S> <C>
Interest Rate
and Stock Indices $ 3,053,438
Commodities 164,606
Currencies 1,104,325
Energy 476,395
Metals (1,186,728)
-----------
$ 3,612,036
===========
</TABLE>
Market Risk
- -----------
Derivative instruments involve varying degrees of off-balance sheet market risk,
and changes in the level or volatility of interest rates, foreign currency
exchange rates or the market values of the financial instruments or commodities
underlying such derivative instruments frequently result in changes in the
Partnership's unrealized gain or loss on such derivative instruments as
reflected in the Statements of Financial Condition. The Partnership's exposure
to market risk is influenced by a number of factors, including the relationships
among the derivative instruments held by the Partnership as well as the
volatility and liquidity of the markets in which the derivative instruments are
traded.
The General Partner has procedures in place intended to control market risk,
although there can be no assurance that they will, in fact, succeed in doing so.
These procedures focus primarily on monitoring the trading of the Advisors
selected from time to time for the Partnership, calculating the Net Asset Value
of the Advisors' respective Partnership accounts as of the close of business on
each day and reviewing outstanding positions for over-concentration -- both on
an Advisor-by-Advisor and on an overall Partnership basis. While the General
Partner will not itself intervene in the markets to hedge or diversify the
Partnership's market exposure, the General Partner may urge Advisors to
reallocate positions, or itself reallocate Partnership assets among Advisors
(although typically only as of the end of a month) in an attempt to avoid over-
concentrations. However, such interventions are unusual. Except in cases in
which it appears that an Advisor has begun to deviate from past practice or
trading policies or to be trading erratically, the General Partner's basic risk
control procedures consist simply of the ongoing process of Advisor monitoring
and selection, with the market risk controls being applied by the Advisors
themselves.
Fair Value
- ----------
The derivative instruments used in the Partnership's trading activities are
marked to market daily with the resulting unrealized gains or losses recorded in
the Statements of Financial Condition and the related profit or loss reflected
in trading revenues in the Statements of Operations. The contract/notional
values of open contracts as of December 31, 1995 and 1994 were as follows:
-8-
<PAGE>
<TABLE>
<CAPTION>
December 31, 1995 December 31, 1994
---------------------------------------- ----------------------------------------
Commitment to Commitment to Commitment to Commitment to
Purchase (Futures, Sell (Futures, Purchase (Futures, Sell (Futures,
Options & Forwards) Options & Forwards) Options & Forwards) Options & Forwards)
-------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Interest Rate
and Stock Indices $129,489,560 $31,263,822 $36,656,901 $52,422,164
Commodities 7,069,814 488,365 7,799,867 808,654
Currencies 4,837,858 7,541,184 18,918,896 24,870,676
Energy 3,753,322 1,008,952 5,984,265 1,763,110
Metals 9,115,049 1,405,316 9,865,956 2,923,934
------------ ----------- ----------- -----------
$154,265,603 $41,707,639 $79,225,885 $82,788,538
============ =========== =========== ===========
</TABLE>
Substantially all of the Partnership's derivative instruments outstanding as of
December 31, 1995 expire within one year.
The contract/notional value of the Partnership's open exchange-traded and non-
exchange-traded open derivative instrument positions as of December 31, 1995 was
as follows:
<TABLE>
<CAPTION>
Commitment to Commitment to
Purchase (Futures, Sell (Futures,
Options & Forwards) Options & Forwards)
------------------- -------------------
<S> <C> <C>
Exchange-Traded $149,690,079 $39,752,029
Non-Exchange-Traded 4,575,524 1,955,610
------------ -----------
$154,265,603 $41,707,639
============ ===========
</TABLE>
The average fair value of the Partnership's derivative instrument positions
which were open as of the end of each calendar month during the year ended
December 31, 1995 was as follows:
<TABLE>
<CAPTION>
Commitment to Commitment to
Purchase (Futures, Sell (Futures,
Options & Forwards) Options & Forwards)
------------------- -------------------
<S> <C> <C>
Interest Rate and
Stock Indices $ 87,503,045 $ 9,790,296
Commodities 6,850,876 1,132,188
Currencies 9,693,546 11,307,390
Energy 2,831,169 677,595
Metals 7,755,902 2,700,777
------------ -----------
$114,634,538 $25,608,246
============ ===========
</TABLE>
-9-
<PAGE>
A portion of the amounts indicated as off-balance sheet risk reflects offsetting
commitments to purchase and sell the same derivative instrument on the same date
in the future. These commitments are economically offsetting but are not, as a
technical matter, offset in the forward market until the settlement date.
Credit Risk
- -----------
The risks associated with exchange-traded contracts are typically perceived to
be less than those associated with over-the-counter (non-exchange-traded)
transactions, because exchanges typically (but not universally) provide
clearinghouse arrangements in which the collective credit (in some cases limited
in amount, in some cases not) of the members of the exchange is pledged to
support the financial integrity of the exchange. In over-the-counter
transactions, on the other hand, traders must rely solely on the credit of their
respective individual counterparties. Margins, which may be subject to loss in
the event of a default, are generally required in exchange trading, and
counterparties may also require margin in the over-the-counter markets.
The fair value amounts in the above tables represent the extent of the
Partnership's market exposure in the particular class of derivative instrument
listed, but not the credit risk associated with counterparty nonperformance.
The credit risk associated with these instruments from counterparty
nonperformance is the net unrealized gain, if any, included in the Statements of
Financial Condition. The Partnership also has credit risk because the sole
counterparty or broker with respect to most of the Partnership's assets is MLF.
As of December 31, 1995 and 1994, $13,723,065 and $5,434,990 of the
Partnership's assets, respectively, were held in segregated accounts at MLF in
accordance with Commodity Futures Trading Commission regulations.
The gross unrealized gain and the net unrealized gain (loss) on the
Partnership's open derivative instrument positions as December 31, 1995 were as
follows:
<TABLE>
<CAPTION>
Gross Unrealized Net Unrealized
Gain Gain (Loss)
---------------- --------------
<S> <C> <C>
Exchange-Traded $1,523,390 $1,128,424
Non-Exchange-Traded 54,965 900,625
---------- ----------
$1,578,355 $2,029,049
========== ==========
</TABLE>
The Partnership controls credit risk by dealing almost exclusively with Merrill
Lynch entities as brokers and counterparties.
To the best of the knowledge and belief of the
undersigned, the information contained in this
report is accurate and complete.
James M. Bernard
Chief Financial Officer
ML Futures Investments II L.P.
Merrill Lynch Investment Partners Inc.
-10-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> BD
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
STATEMENTS OF FINANCIAL CONDITION, CONSOLIDATED STATEMENTS OF OPERATIONS,
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1994
<PERIOD-START> JAN-01-1995 JAN-01-1994
<PERIOD-END> DEC-31-1995 DEC-31-1994
<CASH> 0 0
<RECEIVABLES> 16,706,533 17,152,736
<SECURITIES-RESALE> 0 0
<SECURITIES-BORROWED> 0 0
<INSTRUMENTS-OWNED> 0 0
<PP&E> 0 0
<TOTAL-ASSETS> 16,706,533 17,152,736
<SHORT-TERM> 0 0
<PAYABLES> 571,095 384,007
<REPOS-SOLD> 0 0
<SECURITIES-LOANED> 0 0
<INSTRUMENTS-SOLD> 0 0
<LONG-TERM> 0 0
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 16,135,438 16,768,729
<TOTAL-LIABILITY-AND-EQUITY> 16,706,533 17,152,736
<TRADING-REVENUE> 3,612,036 1,160,670
<INTEREST-DIVIDENDS> 806,886 614,734
<COMMISSIONS> 1,915,979 2,144,630
<INVESTMENT-BANKING-REVENUES> 0 0
<FEE-REVENUE> 0 0
<INTEREST-EXPENSE> 0 0
<COMPENSATION> 0 0
<INCOME-PRETAX> 2,502,943 (369,226)
<INCOME-PRE-EXTRAORDINARY> 2,502,943 (369,226)
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 2,502,943 (369,226)
<EPS-PRIMARY> 23.18 (2.89)
<EPS-DILUTED> 23.18 (2.89)
</TABLE>
