<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, 1994
or
( ) Transition Report Pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934
(No Fee Required)
Commission file number: 0-16110
THE GROWTH AND GUARANTEE FUND L.P.
----------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3407269
----------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
c/o ML Futures Investment Partners Inc.
Merrill Lynch World Headquarters
World Financial Center
South Tower, 6th Fl., New York, NY 10080-6106
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(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: Series A 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]
The registrant is a limited partnership and, accordingly, has no voting stock
held by nonaffiliates or otherwise.
Documents Incorporated By Reference
The registrant's "1994 Annual Report and Independent Auditors' Report," the
annual report to security holders for the fiscal year ended December 31, 1994,
and the registrant's Prospectus, dated June 12, 1987, are hereby incorporated by
reference into Parts II and IV, respectively, of this Form 10-K.
<PAGE>
THE GROWTH AND GUARANTEE FUND L.P.
Annual Report for 1994 on Form 10-K
Table of Contents
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PART I
PAGE
----
Item 1. Business 1
Item 2. Properties 3
Item 3. Legal Proceedings 4
Item 4. Submission of Matters to a Vote of Security Holders 4
PART II
Item 5. Market for Registrant's Common
Equity and Related Stockholder Matters 4
Item 6. Selected Financial Data 5
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6
Item 8. Financial Statements and Supplementary Data 11
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 11
PART III
Item 10. Directors and Executive Officers of the Registrant 11
Item 11. Executive Compensation 13
Item 12. Security Ownership of Certain Beneficial Owners and
Management 13
Item 13. Certain Relationships and Related Transactions 13
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K 14
<PAGE>
PART I
------
Item 1: Business
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(a) General Development of Business:
-------------------------------
The Growth and Guarantee Fund L.P. (the "Partnership" or the "Fund")
was organized under the Delaware Revised Uniform Limited Partnership Act on
January 21, 1987. The Partnership commenced its public offering of Series A and
Series B Units of Limited Partnership Interest ("Units") on June 12, 1987 and
commenced operations on August 5, 1987 with respect to the Series A Units and on
September 21, 1987 with respect to the Series B Units. Both Series of Units were
traded in an identical manner, except for the different time periods over which
their strategies operated.
The Partnership invests in stock index futures and options contracts
pursuant to asset allocation strategies developed by Leland O'Brien Rubinstein
Associates Inc. ("LOR" or the "Trading Manager"), the objective of which is to
limit losses in down markets while optimizing the extent to which the Net Asset
Value per Unit may participate, over time and on an unleveraged basis, in
significant upward movements in stock index levels.
From the commencement of operations through June 29, 1990 (with respect
to Series B Units) and September 28, 1990 (with respect to Series A Units),
Aetna Capital Management ("ACM") served as the Partnership's Trading Manager,
directing the trading activities of the Partnership, using principles associated
with the asset allocation strategies of LOR, which initially served as Trading
Consultant. On June 29, 1990 (with respect to Series B Units) and September 28,
1990 (with respect to Series A Units), LOR assumed the additional function of
Trading Manager, replacing ACM in that capacity.
A principal feature of the Partnership is the protection against
certain losses. The Limited Partnership Agreement limits the decrease of the
Net Asset Value per Unit for each series at the end of a time period applicable
to such series to no more than 10% of the Net Asset Value per Unit at the
beginning of such time period for each series.
From its inception through January 30, 1990, the Partnership's general
partner was Merrill Lynch Options/Futures Management Inc. Merrill Lynch
Options/Futures Management Inc. changed its name on January 30, 1990 to ML
Futures Investment Partners Inc. References herein to the "General Partner" are
to Merrill Lynch Options/Futures Management Inc. for the period prior to January
30, 1990 and to ML Futures Investment Partners Inc. ("MLFIP") for the period on
or after January 30, 1990. 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 Partnership's commodity broker is
Merrill Lynch Futures Inc. (the "Commodity Broker" or "MLF"), an indirect
wholly-owned subsidiary of Merrill Lynch & Co., Inc.
The General Partner has invested 1% of the total contributions of the
Partnership as a General Partner and must maintain this balance as long as it
remains General Partner of the Partnership.
1
<PAGE>
(b) Financial Information About Industry Segments:
---------------------------------------------
The Partnership's business constitutes only one segment for financial
reporting purposes, i.e., a "commodity pool."
(c) Narrative Description of Business:
---------------------------------
On June 12, 1987, the Partnership entered into an Advisory Agreement
with ACM pursuant to which ACM implemented certain asset allocation strategies
and directed the purchase and sale of other "Eligible Assets," as defined in the
Limited Partnership Agreement. The Partnership also entered into a Consulting
Agreement with LOR pursuant to which LOR, as the Partnership's Trading
Consultant, made available to ACM its Dynamic Asset Allocation Risk Management
Strategies program and agreed to consult with ACM concerning such program.
The Partnership's trading strategy is to apply the asset allocation
techniques in an attempt to maximize the Partnership's upside participation in
upward movements in stock index levels while preserving its ability to liquidate
positions prior to incurring losses in excess of the Downside Protection
parameters. The trading strategy is primarily reactive, i.e., it responds to
market movements without attempting to forecast trends or future prices (as
would, for example, a trend-following system). This strategy is applied
directly to the futures markets, attempting to assure the Downside Protection
through liquidating long stock index futures positions.
LOR, which initially served as the Trading Consultant for the
Partnership, replaced ACM as the Trading Manager effective June 29, 1990 for
Series B Units and September 28, 1990 for Series A Units. LOR utilizes the same
Dynamic Asset Allocation Risk Management Strategies program used previously by
ACM. As of June 29, 1990 and September 28, 1990, the Partnership and LOR
entered into Advisory Agreements relating to the management of the assets for
the Series B Units and Series A Units, respectively. The Advisory Agreement
with respect to the Series B Units terminated effective December 31, 1991 upon
the cessation of the trading activities with respect to the Series B Units. The
Advisory Agreement, with respect to Series A Units, may be terminated by the
General Partner upon sixty days' advance written notice to LOR.
The Limited Partnership Agreement provides protection against certain
losses. The maximum permissible decrease in the Net Asset Value per Unit, as of
the end of successive Time Horizons (a term defined in the Limited Partnership
Agreement, generally 18 months in duration) is 10% of the Net Asset Value per
Unit as of the beginning of each such Time Horizon (the "Protected Minimum
NAV"). The Partnership had entered into an agreement with Chase Manhattan Bank,
N.A. ("Chase") whereby a letter of credit issued by Chase served to ensure the
Protected Minimum NAV. The letter of credit was issued in favor of State Street
Bank and Trust Company of Connecticut, N.A., which served as the paying agent
for the Limited Partners of the Partnership. The amounts of the letters of
credit varied from time to time as a result of units redeemed, or the occurrence
of a New Profit Lock-In, as defined in the Letter of Credit and Reimbursement
Agreement.
Time Horizons will now all be 18 months in duration, as opposed to 12
to 17 months, as was required by the Aetna Surety Bonds.
2
<PAGE>
The Partnership has opened commodity trading accounts at the Commodity
Broker in order to effect trading operations. At any point in time, a portion
of the assets deposited into these accounts are pledged as margin against open
futures contracts. In 1990, the Partnership entered into an arrangement with
the Commodity Broker whereby the average daily "available assets" in these
accounts are credited with a monthly interest credit from the Commodity Broker
as if such "available assets" had been continuously invested in 91-day U.S.
Treasury securities.
Series A Units and Series B Units started 1991 with Protected Minimum
Net Assets Values of $92.00 and $101.00, respectively. Series A Units
established a revised Protected Minimum Net Asset Value of $112.00 per Unit at
August 14, 1991 and Series B Units Protected Minimum Net Asset Value remained at
$101.00 per Unit.
With respect to Series B, the June 29, 1990 Letter of Credit issued by
the Chase expired on December 31, 1991. The Partnership did not renew the
Letter of Credit, ceased all trading activities, and liquidated The Growth and
Guarantee Fund -Series B Limited Partnership effective December 31, 1991. With
respect to Series A, the October 2, 1990 Letter of Credit issued by Chase was
canceled effective December 21, 1992. The Letter of Credit and Reimbursement
Agreement was amended as of December 18, 1992, a new Letter of Credit was
issued, a new Protected Minimum Net Asset Value of $123.79 was established
through May 31, 1994, and a new Time Horizon end date of June 30, 1994. The
Letter of Credit expired in June 1994 and was not renewed. The Protected
Minimum NAV for the Time Horizon ending November 29, 1995 is guaranteed by U.S.
Government Obligations. The Partnership will also utilize a "downside
protection" strategy which is designed to maximize profits while controlling the
risk of major drawdowns. Avoiding significant losses is of particular
importance to the Partnership's long-term prospects for profitability due to its
"downside protection" feature.
The General Partner, the Trading Manager and Merrill Lynch Futures Inc.
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, 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.
3
<PAGE>
Item 3: Legal Proceedings
-----------------
The General Partner is not aware of any 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.
PART II
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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. During the first twenty-four months of the
Partnership's operations, all redemptions were subject to an early redemption
charge. During 1992 and 1991, all redemptions were paid at Net Asset Value
without a redemption charge.
(b) Holders:
-------
As of December 31, 1994, there were 596 Unitholders, including the
General Partner.
(c) Dividends:
---------
Other than the liquidation of the Series B Units and the payment to
Series B Limited Partners of their interests in the Partnership, the Partnership
has made no distributions since trading commenced, nor does the General Partner
presently intend to make any distributions in the future.
4
<PAGE>
Item 6: Selected Financial Data
-----------------------
The following is a summary of selected 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,
1994 1993 1992 1991 1990
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Revenues:
Realized (loss) gain $ (324,228) $ 382,507 $ 606,454 $ 2,647,870 $(2,509,266)
Change in unrealized loss (73,403) (87,474) (632,393) (10,889) (515,542)
Interest income 355,496 353,974 545,896 1,217,365 2,063,331
---------- ---------- ---------- ----------- -----------
Total (loss) revenue (42,135) 649,007 519,957 3,854,346 (961,477)
Expenses:
Brokerage commissions 8,247 9,891 12,382 19,761 19,238
Administrative fees 142,881 164,052 177,764 331,753 496,771
---------- ---------- ---------- ----------- -----------
Total expenses 151,128 173,943 190,146 351,514 516,009
---------- ---------- ---------- ----------- -----------
Net (loss) income $ (193,263) $ 475,064 $ 329,811 $ 3,502,832 $(1,477,486)
========== ========== ========== =========== ===========
Total assets $7,626,185 $8,971,537 $9,795,274 $16,702,790 $20,970,906
Total partners' capital $7,566,511 $8,748,614 $9,733,691 $11,416,421 $20,318,916
Net asset value per
Series A Unit $141.33 $144.72 $137.57 $ 132.59 $ 107.53
Net asset value per
Series B Unit $ - $ - $ - $ - $ 105.38
Liquidating net
asset value per
Series B Unit N/A N/A $ N/A $ 117.79 N/A
</TABLE>
5
<PAGE>
Item 7: Management's Discussion and Analysis of Financial
Condition and Results of Operations
----------------------------------------------------------
Operational Overview:
--------------------
Due to the nature of the Fund's business, its results of operations depend
on the Trading Manager's ability to recognize and capitalize on trends or other
profit opportunities in futures and forward contracts and related options in
different sectors of the world commodity markets. However, the Trading Manager's
methods are confidential, and therefore the only information that can be
furnished regarding the Fund's results of operations is contained in the
performance record of its trading. Unlike many businesses, general economic or
seasonal conditions will not necessarily affect the profit potential of the
Fund, and its past performance is not necessarily indicative of future results.
Liquidity:
---------
A significant portion of the Partnership's assets were held in U.S.
Treasury strips which, in turn, were used to protect the Net Asset Value and
margin its futures positions and liquidated, as necessary, to pay trading losses
and redemptions when incurred. U.S. Treasury strips are highly liquid.
In 1990, the Partnership entered into an arrangement with Merrill Lynch
Futures Inc. regarding the maintenance of the Partnership's assets, which
eliminates the interest loss resulting from being unable to invest 100% of the
Partnership's available assets in U.S. Treasury bills. Under the arrangement, a
portion of the Partnership's assets are ordinarily deposited as cash rather than
invested in U.S. Treasury bills and Merrill Lynch Futures Inc. credits the
Partnership with interest as if 100% of its cash assets were continuously
invested in 91-day Treasury bills. As a result, the Partnership is able to earn
a yield on all of its available assets.
The stock index futures contracts in which the Partnership trades may
become illiquid under certain market conditions. "Daily limits," which limit
fluctuations in futures prices during a single day, have been made applicable to
stock index futures contracts, in response to the market turbulence of October
1987. 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. As a result of such limits,
market conditions could prevent the Partnership from promptly liquidating its
stock index futures positions. Although "circuit breaker" trading halts are in
effect, daily limits are applicable to the "cash" market in the stocks on which
the stock indexes on which the futures contracts traded by the Partnership are
based.
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 solely to supply the necessary margin or premiums
for, and to pay any losses incurred in connection with, its investment in stock
index futures contracts and options on stock index futures contracts 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 material impact on the Fund's profitability.
6
<PAGE>
1994:
----
Total assets of the Partnership and partners' capital at December 31, 1994
were $7,626,185 and $7,566,511, respectively. The Partnership permits Units to
be redeemed on a monthly basis. During 1994, 6,914 Units were redeemed, for an
aggregate redemption value of $988,840.
1993:
----
Total assets of the Partnership and partners' capital at December 31, 1993
were $8,971,537 and $8,748,614, respectively. During 1993, 10,303 Units were
redeemed, for an aggregate redemption value of $1,460,141.
1992:
----
Total assets of the Partnership and partners' capital at December 31, 1992
were $9,795,274 and $9,733,691, respectively. During 1992, 15,346 Units were
redeemed, for an aggregate redemption value of $2,012,541.
Results of Operations - General:
-------------------------------
Unlike many businesses, 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. In general, markets in which sustained price
trends occur with some frequency tend to be favorable to managed futures
investments, but this is not always the case. It is impossible to predict when
trending markets will occur and the Trading Manager is affected differently by
trends in general and particular types of trends. Consequently, the results of
operations of the Fund are difficult to discuss other than in terms of how it
has performed in the past.
1994 was the eighth year of operations and the seventh full year of
trading for the Partnership.
At December 31, 1994, the Net Asset Value per Unit was $141.33, a 2.34%
decrease from the Net Asset Value per Unit of $144.72 at December 31, 1993.
During January 1994, the Fund's Net Asset Value increased 2.8%, while the
S & P 500 Stock Index increased 3.4% for the month.
During February 1994, the Fund's Net Asset Value decreased 2.6%, while the
S & P 500 Stock Index increased 2.7% for the month.
During March 1994, the Fund's Net Asset Value decreased 2.9%, while the S
& P 500 Stock Index decreased 4.4% for the month.
During April 1994, the Fund's Net Asset Value increased less than 1%,
while the S & P 500 Stock Index increased 1.3% for the month.
During May 1994, the Fund's Net Asset Value increased less than 1%, while
the S & P 500 Stock Index increased 1.6% for the month.
7
<PAGE>
During June 1994, the Fund's Net Asset Value decreased 2.5%, while the S &
P 500 Stock Index decreased 2.5% for the month.
During July 1994, the Fund's Net Asset Value increased 2.6%, while the S &
P 500 Stock Index increased 3.3% for the month.
During August 1994, the Fund's Net Asset Value increased 2.9%, while the S
& P 500 Stock Index increased 4.1% for the month.
During September 1994, the Fund's Net Asset Value decreased 2.2%, while
the S & P 500 Stock Index decreased 2.5% for the month.
During October 1994, the Fund's Net Asset Value increased 1.6%, while the
S & P 500 Stock Index increased 2.3% for the month.
During November 1994, the Fund's Net Asset Value decreased 3.4%, while the
S & P 500 Stock Index decreased 3.6% for the month.
During December 1994, the Fund's Net Asset Value increased 0.8%, while the
S & P 500 Stock Index increased 1.5% for the month.
The Partnership's operations were unprofitable during 1994 with gross
trading losses of $397,631 and interest income of $355,496, less operating
expenses of $151,128 (comprised of brokerage commissions of $8,247 and
administrative fees of $142,881), resulting in a net loss of $193,263.
During the 12 months of 1994, the Fund experienced seven profitable months
and five unprofitable months of trading operations.
The Net Asset Value of a Unit purchased on August 5, 1987 for $100 had
increased to $141.33 as of December 31, 1994.
1993 was the seventh year of operations and the sixth full year of trading
for the Partnership.
At December 31, 1993, the Net Asset Value per Unit was $144.72, a 5.2%
increase from the Net Asset Value per Unit of $137.57 at December 31, 1992.
During January 1993, the Fund's Net Asset Value for the Series A Units
increased less than 1%, while the S & P 500 Stock Index also increased less than
1 % for the month.
During February 1993, the Fund's Net Asset Value for the Series A Units
increased 1.2%, while the S & P 500 Stock Index increased 1.4% for the month.
During March 1993, the Fund's Net Asset Value for the Series A Units
increased 1.1%, while the S & P 500 Stock Index increased 2.1% for the month.
8
<PAGE>
During April 1993, the Fund's Net Asset Value for the Series A Units
decreased 2.2%, while the S & P 500 Stock Index decreased 2.4% for the month.
During May 1993, the Fund's Net Asset Value for the Series A Units
increased 1.6%, while the S & P 500 Stock Index increased 2.7% for the month.
During June 1993, the Fund's Net Asset Value for the Series A Units
decreased less than 1%, while the S & P 500 Stock Index increased less than 1%
for the month.
During July 1993, the Fund's Net Asset Value for the Series A Units
decreased less than 1%, while the S & P 500 Stock Index also decreased less than
1% for the month.
During August 1993, the Fund's Net Asset Value for the Series A Units
increased 3.2%, while the S & P 500 Stock Index increased 3.8% for the month.
During September 1993, the Fund's Net Asset Value for the Series A Units
decreased 1.6%, while the S & P 500 Stock Index decreased less than 1% for the
month.
During October 1993, the Fund's Net Asset Value for the Series A Units
increased 1.8%, while the S & P 500 Stock Index increased 2.1% for the month.
During November 1993, the Fund's Net Asset Value for the Series A Units
decreased 1%, while the S & P 500 Stock Index also decreased 1% for the month.
During December 1993, the Fund's Net Asset Value for the Series A Units
increased 1%, while the S & P 500 Stock Index increased 1.2% for the month.
The Partnership's operations were profitable during 1993 with gross
trading gains of $295,033 and interest income of $353,974, less operating
expenses of $173,943 (comprised of brokerage commissions of $9,891 and
administrative fees of $164,052), resulting in net income of $475,064.
During the 12 months of 1993, the Fund experienced seven profitable months
and five unprofitable months of trading operations.
The Net Asset Value of a Unit purchased on August 5, 1987 for $100 had
increased to $144.72 as of December 31, 1993.
1992 was the sixth year of operations and the fifth full year of trading
for the Partnership.
At December 31, 1992, the Net Asset Value per Unit was $137.57, a 3.76%
increase from the Net Asset Value per Unit of $132.59 at December 31, 1991.
During January 1992, the Fund's Net Asset Value for the Series A Units
decreased 1.9%, while the S & P 500 Stock Index also decreased 1.9% for the
month.
9
<PAGE>
During February 1992, the Fund's Net Asset Value for the Series A Units
increased less than 1%, while the S & P 500 Stock Index decreased 1.9% for the
month.
During March 1992, the Fund's Net Asset Value for the Series A Units
decreased 2.2%, while the S & P 500 Stock Index decreased 1.9% for the month.
During April 1992, the Fund's Net Asset Value for the Series A Units
increased 2.4%, while the S & P 500 Stock Index increased 2.9% for the month.
During May 1992, the Fund's Net Asset Value for the Series A Units
decreased less than 1%, while the S & P 500 Stock Index increased less than 1%
for the month.
During June 1992, the Fund's Net Asset Value for the Series A Units
decreased 1.3%, while the S & P 500 Stock Index decreased 1.5% for the month.
During July 1992, the Fund's Net Asset Value for the Series A Units
increased 2.9%, while the S & P 500 Stock Index increased 4.1% for the month.
During August 1992, the Fund's Net Asset Value for the Series A Units
decreased 2.0%, while the S & P 500 Stock Index also decreased 2.0% for the
month.
During September 1992, the Fund's Net Asset Value for the Series A Units
increased less than 1%, while the S & P 500 Stock Index increased 1.2% for the
month.
During October 1992, the Fund's Net Asset Value for the Series A Units
decreased less than 1%, while the S & P 500 Stock Index increased less than 1%
for the month.
During November 1992, the Fund's Net Asset Value for the Series A Units
increased 2.8%, while the S & P 500 Stock Index increased 3.4% for the month.
During December 1992, the Fund's Net Asset Value for the Series A Units
increased 1.7%, while the S & P 500 Stock Index increased 1.2% for the month.
The Partnership's operations were profitable during 1992 with gross
trading losses of $25,939 and interest income of $545,896, less operating
expenses of $190,146 (comprised of brokerage commissions of $12,382 and
administrative fees of $177,764), resulting in a net income of $329,811.
During the 12 months of 1992, the Fund experienced five profitable months
and seven unprofitable months of trading operations.
The Net Asset Value of a Unit purchased on August 5, 1987 for $100 had
increased to $137.57 as of December 31, 1992.
MLFIP anticipates that the Fund will from time to time undergo
unprofitable cycles of comparable, or perhaps even longer, duration, as it has
since the inception of trading and that doing so is not necessarily inconsistent
with the Fund ultimately achieving its long-term goals.
10
<PAGE>
Item 8: Financial Statements and Supplementary Data
-------------------------------------------
The financial statements required by this Item are included on pages E-1
through E-8 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 Manager on behalf of the Partnership.
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 principal 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.
The directors and officers of the General Partner, and titles as of
December 31, 1994, are as follows:
Joseph A. Boccuzzi Chairman, Chief Executive Officer and Director
John R. Frawley, Jr. President, Chief Operating Officer and Director
James M. Bernard Chief Financial Officer, Vice President and Treasurer
William T. Maitland Secretary and Director
Allen N. Jones Director
Joseph A. Boccuzzi was born in 1945. Mr. Boccuzzi is the Chairman,
Chief Executive Officer and a Director of the General Partner. He joined
Merrill Lynch, Pierce, Fenner & Smith Incorporated in 1972 and has served in
various marketing and sales positions with the firm in options, futures and
equity products. Mr. Boccuzzi currently serves on several options and futures
advisory committees for the commodity and securities industry and for various
exchanges. He holds a Bachelor of Science degree in finance from Rider College.
11
<PAGE>
John R. Frawley, Jr. was born in 1943. Mr. Frawley is President,
Chief Operating Officer and a Director of MLFIP. He joined Merrill Lynch,
Pierce, Fenner & Smith 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. Since its formation
in 1990, Mr. Frawley has served on the CFTC's Regulatory Coordination Advisory
Committee. In January 1995, Mr. Frawley was 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 currently a
Director of the Managed Futures Association.
James M. Bernard was born in 1950. Mr. Bernard is Vice-President,
Treasurer and Chief Financial Officer of the General Partner. He joined Merrill
Lynch Futures Inc. in 1983. Prior to such time, he was the Commodity Controller
for Nabisco Brands Inc. from November 1976 to 1982 and a Supervisor in 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 Master of Business Administration degree from
Fordham University.
William T. Maitland was born in 1949. From its inception in August
1986 through June 1, 1988, Mr. Maitland was the Secretary and a Director of the
General Partner and, on August 15, 1992, he once again assumed these positions.
Mr. Maitland is the General Counsel for Futures & Options for Merrill Lynch,
Pierce, Fenner & Smith Incorporated, 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 Merrill Lynch, Pierce,
Fenner & Smith Incorporated in 1979. Mr. Maitland is a past president of the
Executive Committee of the Law & Compliance Division of the Futures Industry
Association and 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 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 Merrill Lynch,
Pierce, Fenner & Smith Incorporated. From January 1990 to June 1992, he held
the position of District Director of Merrill Lynch, Pierce, Fenner & Smith
Incorporated. Prior to January 1990, he held the position of Senior Regional
Vice President of Merrill Lynch, Pierce, Fenner & Smith Incorporated.
(c) Identification of Certain Significant Employees:
-----------------------------------------------
None.
12
<PAGE>
(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.
Item 11: Executive Compensation
----------------------
The officers of the General Partner are remunerated in their
respective capacities by the General Partner. The Partnership does not itself
have any officers, directors or employees. The Partnership pays an
administrative fee to the General Partner and brokerage commissions to the
Commodity Broker, 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, 1994, no person or "group" is known to be or have
been the beneficial owner of more than five percent of the Units of either
Series. All of the units of general partnership interest are owned by the
General Partner.
(b) Security Ownership of Management:
--------------------------------
As of December 31, 1994, the General Partner owned 680 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 include selecting a trading manager 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, at no cost to the Partnership.
(b) Certain Business Relationships:
------------------------------
Merrill Lynch Futures Inc., an affiliate of the General Partner, acts
as commodity broker for the Partnership at the selection of the General Partner.
The General
13
<PAGE>
Partner will not negotiate for lower commissions to be charged to the
Partnership and the commissions charged to the Partnership have not been
negotiated at arm's length between the General Partner and the Commodity Broker.
In 1994 and 1993, the Partnership incurred an expense of $8,247 and $9,891,
respectively, for brokerage commissions which was payable to the Commodity
Broker. The Partnership incurred an expense of an Administrative Fee payable to
the General Partner at an annual rate of 1.75% of average month-end Net Assets.
In 1994 and 1993, the General Partner received a total of $142,881 and $164,052
in Administrative Fees, from which the General Partner paid out $26,294 and
$29,389 in advisory fees and consulting fees to LOR, and $12,597 and $34,874 to
The Chase Manhattan Bank, N.A. for Letters of Credit, respectively.
(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:
--------------------
The following financial statements are included in the "1994 Annual
Report and Independent Auditors' Report," a copy of which is filed herein as
Exhibit 13.01.
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report E-3
Statements of Financial Condition as of E-3
December 31, 1994 and 1993
For Each of the Three Years in the Period
Ended December 31, 1994:
Statements of Operations E-4
Statements of Changes in Partners' Capital E-5
Notes to Financial Statements E-6
</TABLE>
14
<PAGE>
(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.
(a)3. Exhibits:
--------
Exhibits which are filed herewith and incorporated by reference to
this Annual Report on Form 10-K are as follows:
Designation Description
----------- -----------
1.01 Form of Selling Agreement among the Partnership, the General
Partner, Merrill Lynch Futures Inc., the Standard Fire Insurance
Company, the Trading Manager, the Trading Consultant and the
Selling Agent
Exhibit 1.01: Is incorporated by reference from Exhibit 1.01 contained in
------------ Amendment No. 2 to the Registration Statement (File No.
33-13175) filed on June 10, 1987, on Form S-1 under the
Securities Act of 1933.
3.01 Amended and Restated Certificate of Limited Partnership dated
March 1, 1990
Exhibit 3.01: Is incorporated by reference from Exhibit 2.01 contained in the
------------ Partnership's report on Form 10-K for the fiscal year ended
December 31, 1989.
3.02 Amended and Restated Limited Partnership Agreement of the
Partnership
Exhibit 3.02: Is incorporated by reference from Exhibit 3.01 contained in
------------ Amendment No. 2 to the Registration Statement (File No.
33-13175) filed on June 10, 1987, on Form S-1 under the
Securities Act of 1933.
3.03 Amendment No. 1 to the Amended and Restated Limited Partnership
Agreement dated March 1, 1990
Exhibit 3.03: Is incorporated by reference from Exhibit 3.02 contained in the
------------ Partnership's report on Form 10-K for the fiscal year ended
December 31, 1989.
10.01(a) Advisory Agreement among the Partnership, the General Partner
and the Trading Manager dated June 29, 1990
15
<PAGE>
Exhibit 10.01: Is incorporated by reference from Exhibit 10.01(a) contained
------------- in the Partnership's report on Form 10-K for the Fiscal Year
ended December 31, 1990.
10.01(b) Advisory Agreement among the Partnership, the General Partner
and the Trading Manager dated September 28, 1990
Exhibit 10.01(b): Is incorporated by reference from Exhibit 10.01(b) contained
---------------- on the Partnership's report on Form 10-K for the Fiscal Year
ended December 31, 1990.
10.04 Form of Customer Agreement between the Partnership and Merrill
Lynch Futures Inc.
Exhibit 10.04: Is incorporated by reference from Exhibit 10.04 contained in
------------- Amendment No. 2 to the Registration Statement (File No.
33-13175) filed on June 10, 1987 on Form S-1 under the
Securities Act of 1933.
10.05 Form of Security Customer Agreement between the Partnership
and Merrill Lynch, Pierce, Fenner & Smith Incorporated
Exhibit 10.05: Is incorporated by reference from Exhibit 10.05 contained in
------------- Amendment No. 2 to the Registration Statement (File No.
33-13175) filed on June 10, 1987 on Form S-1 under the
Securities Act of 1933.
10.06(a) Letter of Credit and Reimbursement Agreement relating to the
Series A Units among the General Partner, the Partnership and
The Chase Manhattan Bank, N.A., dated October 2, 1990
Exhibit 10.06(a): Is incorporated by reference from Exhibit 10.06(a) contained
---------------- in the Partnership's report on Form 10-K for the Fiscal Year
ended December 31, 1990.
10.06(c) Amendment No. 1 to the Letter of Credit and Reimbursement
Agreement relating to the Series A Units
Exhibit 10.06(c): Is incorporated by reference from Exhibit 10.06(c) contained
---------------- in the Partnership's report on Form 10-K for the fiscal
year ended December 31, 1992.
10.07(a) Letter of Credit relating to the Series A Units issued by The
Chase Manhattan Bank, N.A. on October 2, 1990
Exhibit 10.07(a): Is incorporated by reference from Exhibit 10.07(a) contained
---------------- in the Partnership's report on Form 10-K for the Fiscal Year
ended December 31, 1990.
16
<PAGE>
10.08(a) Pledge and Security Agreement relating to the Series A Units
among the General Partner, the Partnership and The Chase
Manhattan Bank, N.A., dated October 2, 1990
Exhibit 10.08(a): Is incorporated by reference from Exhibit 10.08(a) contained
---------------- in the Partnership's report on Form 10-K for the Fiscal Year
ended December 31, 1990.
10.09(a) Paying Agency Agreement relating to the Series A Units among
the Partnership, the limited partners of the Partnership, the
General Partner and State Street Bank and Trust Company of
Connecticut, N.A., dated October 2, 1990
Exhibit 10.09(a): Is incorporated by reference from Exhibit 10.09(a) contained
---------------- in the Partnership's report on Form 10-K for the Fiscal Year
ended December 31,1990.
13.01 1994 Annual Report and Independent Auditor's Report
Exhibit 13.01: Is filed herewith.
-------------
99.01 Prospectuses of the Partnership, dated June 12, 1987
Exhibit 99.01: 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 June 12, 1987.
(b) Report on Form 8-K
------------------
No report on Form 8-K was filed by the Partnership during the fourth
quarter of fiscal 1994.
17
<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.
THE GROWTH AND GUARANTEE FUND L.P.
By: ML FUTURES INVESTMENT PARTNERS INC.
General Partner
By: /s/ Joseph A. Boccuzzi
----------------------
Joseph A. Boccuzzi
Chairman, 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, 1995 by the
following persons on behalf of the Registrant and in the capacities indicated.
Signature Title Date
--------- ----- ----
/s/ John R. Frawley, Jr. President and Chief Operating Officer March 28, 1995
------------------------ and Director
John R. Frawley, Jr.
/s/ James M. Bernard Chief Financial Officer, Treasurer March 28, 1995
------------------------ (Principal Financial and Accounting
James M. Bernard Officer) and Vice President
/s/ Joseph A. Boccuzzi Director March 28, 1995
------------------------
Joseph A. Boccuzzi
/s/ William T. Maitland Director March 28, 1995
------------------------
William T. Maitland
/s/ Allen N. Jones Director March 28, 1995
------------------------
Allen N. Jones
(Being the principal executive officer, the principal financial and accounting
officer and a majority of the directors of ML Futures Investment Partners Inc.)
ML FUTURES INVESTMENT General Partner of March 28, 1995
PARTNERS INC. Registrant
By: /s/ Joseph A. Boccuzzi
-----------------------
Joseph A. Boccuzzi
<PAGE>
THE GROWTH AND GUARANTEE FUND L.P.
1994 FORM 10-K
INDEX TO EXHIBITS
EXHIBIT PAGE
------- ----
Exhibit 13.01 1994 Annual Report and Independent Auditors' Report E-1
<PAGE>
EXHIBIT 13.01
THE GROWTH AND GUARANTEE FUND L.P.
(A DELAWARE LIMITED PARTNERSHIP)
Financial Statements for the Years Ended
December 31, 1994, 1993 and 1992
and Independent Auditors' Report
<PAGE>
To: The Limited Partners of THE GROWTH AND GUARANTEE FUND L.P. - SERIES A
The Growth and Guarantee Fund L.P. - Series A (the "Fund") ended its eighth
fiscal year of trading on December 31, 1994 with a Net Asset Value ("NAV") per
Unit of $141.33, representing a decrease of 2.3% from the December 31, 1993 NAV
per Unit of $144.72.
In 1994, the stock market, as measured by the Standard & Poor's 500(R) Stock
Index (the "S&P 500"), increased 1.3%. The design of the Fund allows investors
the opportunity to participate in stock market advances (as measured by the S&P
500) while protecting investors against large losses through the "Downside
Protection" feature of the Fund. The Protected Minimum NAV per Series A Unit is
$127.80 for the current Time Horizon, which ends at the close of business on
November 29, 1995. The Fund is structured to provide a "New Profits Lock-In" in
the event that the NAV per Series A Unit increases by 10% or more during a
given Time Horizon. The Fund will experience a "New Profits Lock-In" if the NAV
per Series A Unit reaches $156.20
The stock market's lackluster performance during 1994 was due in large part to
the extreme volatility experienced in the financial markets. Rallies in
response to rate changes by the U.S. Federal Reserve were short-lived, as were
their gains. But by year-end, stock prices managed to finish mostly positive
despite the major decline in bond prices and the resultant rise in interest
rates.
The Fund's goal is to capture a substantial portion of stock market increases.
Through an investment in the Fund, investors have the opportunity to participate
in any such advances. At the same time, investors are protected through each
Time Horizon End Date. Series A Unitholders are able to participate in market
increases with the Protected Minimum NAV $127.80 per Unit through a Time Horizon
ending November 29, 1995.
ML Futures Investment Partners Inc.
(General Partner)
FUTURES TRADING IS SPECULATIVE AND INVOLVES A HIGH DEGREE OF RISK. PAST RESULTS
ARE NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE.
<PAGE>
THE GROWTH AND GUARANTEE FUND L.P.
(A Delaware Limited Partnership)
------------------------------
TABLE OF CONTENTS
----------------------------------------------------
Page
---
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 1994, 1993 AND 1992:
Statements of Financial Condition 2
Statements of Operations 3
Statements of Changes in Partners' Capital 4
Notes to Financial Statements 5-7
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Partners of
The Growth and Guarantee Fund L.P.
We have audited the accompanying statements of financial condition of The Growth
and Guarantee Fund L.P. (a Delaware limited partnership) as of December 31, 1994
and 1993, and the related statements of operations and changes in partners'
capital for each of the three years in the period ended December 31, 1994.
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, such financial statements present fairly, in all material
respects, the financial position of The Growth and Guarantee Fund L.P. (a
Delaware limited partnership) as of December 31, 1994 and 1993 and the results
of its operations for each of the three years in the period ended December 31,
1994 in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
January 25, 1995
New York, New York
- 1 -
<PAGE>
THE GROWTH AND GUARANTEE FUND L.P.
(A Delaware Limited Partnership)
------------------------------
STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1994 AND 1993
-----------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS 1994 1993
------ ---- ----
<S> <C> <C>
U.S. Government obligations $6,482,801 $7,611,450
Equity in commodity futures trading accounts:
Cash and options contracts 738,208 1,004,111
Net unrealized profit on open contracts 405,176 355,976
---------- ----------
TOTAL $7,626,185 $8,971,537
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
LIABILITIES:
Redemptions payable $ 47,628 $ 208,252
Administrative fees and brokerage
commissions payable 12,046 14,671
---------- ----------
Total liabilities 59,674 222,923
---------- ----------
PARTNERS' CAPITAL:
General Partner:
(680 and 68 units outstanding) 96,085 98,410
Limited Partners:
(52,857 and 5,971 units outstanding) 7,470,426 8,650,204
---------- ----------
Total partners' capital 7,566,511 8,748,614
---------- ----------
TOTAL $7,626,185 $8,971,537
========== ==========
NET ASSET VALUE PER UNIT $141.33 $144.72
======= =======
See notes to financial statements.
</TABLE>
- 2 -
<PAGE>
THE GROWTH AND GUARANTEE FUND L.P.
(A Delaware Limited Partnership)
------------------------------
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
---------------------------------------------------------------------------
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
REVENUES:
Trading (loss) profit:
Realized:
Options and futures $(327,699) $ 376,880 $ 547,215
U.S. Government obligations 3,471 5,627 59,239
Change in unrealized:
Options and futures 49,200 (122,200) (436,750)
U.S. Government obligations (122,603) 34,726 (195,643)
--------- --------- ---------
Total trading results (397,631) 295,033 (25,939)
Interest income 355,496 353,974 545,896
--------- --------- ---------
Total revenues (42,135) 649,007 519,957
--------- --------- ---------
EXPENSES:
Brokerage commissions 8,247 9,891 12,382
Administrative fees 142,881 164,052 177,764
--------- --------- ---------
Total expenses 151,128 173,943 190,146
--------- --------- ---------
NET (LOSS) INCOME $(193,263) $ 475,064 $ 329,811
========= ========= =========
NET (LOSS) INCOME PER UNIT OF
PARTNERSHIP INTEREST:
Weighted average number of units
outstanding 57,079 66,050 76,976
====== ====== ======
Weighted average net (loss) income
per unit $(3.39) $7.19 $4.28
====== ====== ======
See notes to financial statements.
</TABLE>
- 3 -
<PAGE>
THE GROWTH AND GUARANTEE FUND L.P.
(A Delaware Limited Partnership)
------------------------------
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
Series A Series A Series A
Units Limited Partners General Partner Total
--------- ---------------- --------------- -----------
<S> <C> <C> <C> <C>
PARTNERS' CAPITAL,
DECEMBER 31, 1991 86,100 $11,273,219 $143,202 $11,416,421
Net income - 324,436 5,375 329,811
Redemptions (15,346) (2,012,541) - (2,012,541)
------- ----------- -------- -----------
PARTNERS' CAPITAL,
DECEMBER 31, 1992 70,754 9,585,114 148,577 9,733,691
Net income - 468,803 6,261 475,064
Redemptions (10,303) (1,403,713) (56,428) (1,460,141)
------- ----------- -------- -----------
PARTNERS' CAPITAL,
DECEMBER 31, 1993 60,451 8,650,204 98,410 8,748,614
Net loss - (190,938) (2,325) (193,263)
Redemptions (6,914) (988,840) - (988,840)
------- ----------- -------- -----------
PARTNERS' CAPITAL,
DECEMBER 31, 1994 53,537 $ 7,470,426 $ 96,085 $ 7,566,511
====== =========== ======== ===========
See notes to financial statements.
</TABLE>
- 4 -
<PAGE>
THE GROWTH AND GUARANTEE FUND L.P.
(A Delaware Limited Partnership)
------------------------------
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
--------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Growth and Guarantee Fund L.P. (the "Partnership") was organized on
January 21, 1987 under the Delaware Revised Uniform Limited Partnership Act
and commenced trading activities on August 5, 1987. The Partnership engages
in the speculative trading of stock index futures and options. ML Futures
Investment Partners Inc. (the "General Partner") (a wholly-owned subsidiary
of Merrill Lynch Group, Inc., which in turn is a wholly-owned subsidiary of
Merrill Lynch & Co., Inc.) invests for its account at least 1% of the total
contributions to the Partnership. The General Partner and each Limited
Partner share in the profits and losses of the Partnership attributable to
the series of units held by them in proportion to the amount of such units
owned by each.
Revenue Recognition
-------------------
Commodity futures and option contracts and securities transactions are
recorded on the trade date and open contracts are reflected in the financial
statements at the market value on the last business day of the reporting
period. The difference between the original contract amount and the market
value is reflected in income as unrealized gain or loss. Market value or
fair value is based on quoted market prices. All commodity futures, options
and forward contracts are reflected at fair value in the financial
statements.
U.S. Government Obligations
---------------------------
The Partnership invests a portion of its assets in U.S. Government
obligations. These investments are carried at amortized cost which
approximates market value or fair value.
Fees
----
The Partnership pays a monthly administrative fee to the General Partner
equal to 0.1458 of 1% of the Partnership's month-end net asset value each
month (a 1.75% annual rate). The General Partner pays, at no additional cost
to the Partnership, ongoing quarterly fees of $0.0625 per unit for offering
and organizational costs beginning at the end of the twelfth full month of
operations. Prior to the change discussed below, the General Partner also
paid the following additional fees which were based on the Partnership's
average month-end net assets: (i) monthly advisory fees to Aetna Capital
Management, Inc. ("ACM") totaling, on an annual basis, 0.275 of 1% of the
first $100 million and 0.125 of 1% on amounts in excess of $100 million;
(ii) monthly consulting fees to Leland O'Brien Rubinstein Associates
Incorporated ("LOR") totalling, on an annual basis, 0.04375 of 1% of the
first $100 million and 0.02 of 1% on amounts in excess of $100 million; and
(iii) monthly insurance premiums to The Standard Fire Insurance Company
totalling, on an annual basis, 0.375 of 1%.
The General Partner, at no additional expense to the Partnership, pays all
normal ongoing administrative costs of the Partnership, such as legal,
printing and accounting expenses.
- 5 -
<PAGE>
Protected Net Asset Value
-------------------------
The Limited Partnership Agreement provides protection against certain
losses. The maximum permissible decrease in the Net Asset Value per unit, as
of the end of successive Time Horizons (a term defined in the Limited
Partnership Agreement, generally 18 months in duration) is 10% of the Net
Asset Value per unit as of the beginning of each such Time Horizon (the
"Protected Minimum NAV"). The Partnership had entered into an agreement with
Chase Manhattan Bank N.A. ("Chase") whereby a letter of credit issued by
Chase served to ensure the Protected Minimum NAV. The letter of credit was
issued in favor of State Street Bank and Trust Company of Connecticut, N.A.,
which served as the paying agent for the Limited Partners of the
Partnership. The amounts of the letters of credit varied from time to time
as a result of units redeemed, or the occurrence of a New Profit Lock-In, as
defined in the Letter of Credit and Reimbursement Agreement. The Letter of
Credit expired in June 1994 and was not renewed. The Protected Minimum NAV
for the Time Horizon ending November 29, 1995 is guaranteed by the U.S.
Government obligations. The Partnership will also utilize a "downside
protection" strategy which is designed to maximize profits while controlling
the risk of major drawdowns. Avoiding significant losses is of particular
importance to the Partnership's long-term prospects for profitability due to
its "downside protection" feature.
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.
Dissolution of the Partnership
------------------------------
The Partnership will terminate on December 31, 2007 or at an earlier date if
certain conditions occur, regarding, among other things, a decline in net
assets to less than $250,000, a decline in Net Asset Value to less than $25
or under certain circumstances as defined in the Limited Partnership
Agreement.
Redemptions
-----------
A Limited Partner may require the Partnership to redeem some or all of their
units at 100% of actual Net Asset Value as of the last business day of any
month, and at 100% of actual Net Asset Value plus any amounts due under the
Protected Minimum NAV as of the last business day of any month which is also
the last day of a Time Horizon, upon ten days' written notice to the General
Partner.
2. RELATED PARTY TRANSACTIONS
All of the Partnership's assets except for the U.S. Government obligations
are held by Merrill Lynch Futures Inc. ("MLF") (the commodity broker for the
Partnership), an affiliate of the General Partner, as margin deposits in
respect of the Partnership's futures and options trading. All brokerage
commissions are paid to MLF. During the years ended December 31, 1994, 1993
and 1992, MLF paid the Partnership approximately $42,000, $23,000 and
$39,000 of interest, respectively, which approximated the prevailing 91-day
U.S. Treasury bill rate on the Partnership's average daily "available
assets". Available assets are all of the Partnership's assets except for
those assets invested in U.S. Government obligations and excluding the
unrealized profit and loss on open forward or options positions or assets
being held by other commodity brokers.
- 6 -
<PAGE>
3. WEIGHTED AVERAGE UNITS
Weighted average number of units outstanding was computed for purposes of
disclosing net income per weighted average unit. The weighted average units
are equal to the number of units outstanding at the period end, adjusted
proportionately for units redeemed based on their respective time
outstanding during such period.
4. OFF-BALANCE SHEET RISK
The Partnership trades futures and options contracts. Risk arises from
changes in the value of these contracts (market risk) and the potential
inability of counterparties or brokers to perform under the terms of the
contracts (credit risk). Although numerous factors could have significant
influences on the market risk of these contracts, they are very interest
rate sensitive. At December 31, 1994 and 1993, open contracts were:
<TABLE>
<CAPTION>
1994 1993
---------------------------------------- ----------------------------------------
Commitment to Commitment to Commitment to Commitment to
Purchase Sell Purchase Sell
(Futures & Options) (Futures & Options) (Futures & Options) (Futures & Options)
------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Stock
Indices $3,747,050 $6,100 $752,400 $103,725
---------- ------ -------- --------
$3,747,050 $6,100 $752,400 $103,725
========== ====== ======== ========
</TABLE>
The contract amounts in the above table represent the Partnership's extent of
involvement in the particular class of financial instrument, but not the
credit risk associated with counterparty nonperformance. The credit risk
associated with these instruments, from counterparty nonperformance, is the
net unrealized gain, if any, included on the 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
(except for the Government Obligations) is MLF. At December 31, 1994 and
1993, $7,319,733 and $1,356,999 of these assets, respectively, were held in
segregated accounts in accordance with Commodity Futures Trading Commission
regulations.
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 Investment Partners Inc.
The Growth and Guarantee Fund L.P.
- 7 -
