<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: 0-16110
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 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: 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]
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>
THE GROWTH AND GUARANTEE FUND L.P.
Annual Report for 1995 on Form 10-K
Table of Contents
-----------------
PART I
PAGE
----
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 2
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 4
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 6
Item 12. Security Ownership of Certain Beneficial Owners and
Management 6
Item 13. Certain Relationships and Related Transactions 6
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K 7
<PAGE>
PART I
------
Item 1: Business
--------
(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 Advisor"), the objective of which is to
limit losses in down S&P Stock Index 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 Advisor,
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 Advisor, 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 Series A Unit at the end of a time specified period
applicable to no more than 10% of the Net Asset Value per Series A Unit at the
beginning of such time period (the Series B Units are no longer outstanding).
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") is the Partnership's commodity broker. The General Partner is 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. The Partnership does not
trade directly but rather through a subsidiary limited partnership, The Growth
and Guarantee Fund Trading L.P. (the "Trading Partnership"), of which the
General Partner is the general partner and the Partnership the sole limited
partner.
The General Partner maintains a minimum account balance equal to at
least 1% of the total capital of the Fundand must do so as long as it remains
General Partner of the Partnership.
(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 Advisor 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 Partnership is structured so as to provide investors with
protection against certain losses. The maximum permissible decrease in the Net
Asset Value per Unit, as of the end of
1
<PAGE>
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"). At the
start of its operations, the Partnership provided the assurance of investors
receiving at least the protected minimum NAV through the use of the Aetna Surety
Bond. However, the Surety Bond was replaced on October 2, 1990 in respect of the
Series A Units by the Fund entering 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. 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.
Series A Units started 1995 with a Protected Minimum Net Assets Value
of $127.80. In order to assure this minimum value, the Fund purchases Treasury
STRIPS maturing at the end of the current Time Horizon in a face amount equal to
the Protected Minimum NAV. These STRIPS are not subject to the risk of market
losses.
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. The latest "New
Profits Lock-In" was established at an NAV per Series A Unit of $172.63 on July
27, 1995.
A 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.
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 Advisor 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, 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.
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 517 Unitholders, including the
General Partner.
2
<PAGE>
(c) Dividends:
---------
Other than the liquidation of the Series B Units and the payment out 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.
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,
1995 1994 1993 1992 1991
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues:
Realized gain
(loss) $2,374,649 $ (324,228) $ 382,507 $ 606,454 $ 2,647,870
Change in
unrealized
(loss) gain (367,336) (73,403) (87,474) (632,393) (10,889)
Interest income 407,304 355,496 353,974 545,896 1,217,365
---------- ---------- ---------- ---------- -----------
Total revenue
(loss) 2,414,617 (42,135) 649,007 519,957 3,854,346
Expenses:
Brokerage
commissions 4,225 8,247 9,891 12,382 19,761
Administrative
fees 144,696 142,881 164,052 177,764 331,753
---------- ---------- ---------- ---------- -----------
Total expenses 148,921 151,128 173,943 190,146 351,514
---------- ---------- ---------- ---------- -----------
Income before
Minority interest 2,265,696 (193,263) 475,064 329,811 3,502,832
Minority Interest
Income (12,942) - - - -
---------- ---------- ---------- ---------- -----------
Net income (loss) $2,252,754 $ (193,263) $ 475,064 $ 329,811 $ 3,502,832
========== ========== ========== ========== ===========
Total assets $8,704,978 $7,626,185 $8,971,537 $9,795,274 $16,702,790
Total partners'
capital $8,623,082 $7,566,511 $8,748,614 $9,733,691 $11,416,421
Net Asset Value per
Series A Unit $186.57 $141.33 $144.72 $137.57 $ 132.59
Net Asset Value per
Series B Unit $ - $ - $ - $ - $ -
Liquidating Net
Asset Value per
Series B Unit N/A N/A N/A N/A $ 117.79
</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 the Trading Advisor's ability to optimize the extent to which the Fund
participates in the significant upward movement in stock index levels. The
Trading Advisor's Dynamic Asset Allocation Risk Management Strategies 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. However, the Fund is dependent upon significant
upward movement in stock index levels for profitability.
Results of Operations - General
- -------------------------------
The Fund is materially different from most other futures funds in that
it does not attempt to achieve speculative profits from taking long or short
positions in a variety of markets. Rather, the Fund's objective is to capture a
substantial portion of significant upside movements in the S&P 500 Stock Index
(dividends not reinvested) while providing the protection of a maximum loss
which can be incurred during any 18 month Time Horizon. The Fund's ability to
capture upside S&P 500 Stock Index movements is based on a call options
strategy, and is path dependent - i.e., the extent to which the Fund is able to
capture upside movements in the S&P 500 depends on the patterns in which such
movements occur. For example, if the S&P 500 increased during a Time Horizon by
a total of 25%,
3
<PAGE>
but did so after incurring a 15% drop, it is likely that the Fund would
recognize little or none of the upward movement, because it would have lost all
that it had available to lose during the Time Horizon in question during the
course of the 15% drop.
During the past 36 months of trading ending December 31, 1995, the S&P
500 Stock Index (dividends not reinvested) increased a total of 41.36%, whereas
the Net Asset Value per Series A unit increased 35.62%.
Performance Summary
- -------------------
During 1993, the Fund's average month-end Net Assets equalled
$8,874,510, and the Fund recognized gross trading gains of $295,033 or 3.32% of
such average month-end Net Assets. Brokerage commissions of $9,891 or 0.11% and
Administrative expenses of $164,052 or 1.85% of average month-end Net Assets
were paid. Interest income of $353,974 or 3.99% of average month-end Net Assets
resulted in net income of $475,064 or 5.35% of average month-end Net Assets,
which resulted in a 5.20% increase in the Net Asset Value per Unit.
During 1994, the Fund's average month-end Net Assets equalled
$7,755,028, and the Fund recognized gross trading losses of $397,631 or 5.13% of
such average month-end Net Assets. Brokerage commissions of $8,247 or 0.11% and
Administrative expenses of $142,881 or 1.84% of average month-end Net Assets
were paid. Interest income of $355,496 or 4.58% of average month-end Net Assets
resulted in a net loss of $193,263 or 2.49% of average month-end Net Assets,
which resulted in a 2.34% decrease in the Net Asset Value per Unit.
During 1995, the Fund's average month-end Net Assets equalled
$8,107,763, and the Fund recognized gross trading gains of $2,007,313 or 24.76%
of such average month-end Net Assets. Brokerage commissions of $4,225 or 0.05%
and Administrative expenses of $144,696 or 1.78% of average month-end Net Assets
were paid. Interest income of $407,304 or 5.02% of average month-end Net Assets
resulted in net income of $2,252,754 (after deduction of MLIP's "Minority
Interest" in the Trading Partnership) or 27.79% of average month-end Net Assets
which resulted in a 32.01% increase in the overall Net Asset Value of the Fund.
In its past 36 months of trading, the Fund experienced 24 profitable
months and 12 unprofitable months.
MONTH-END NET ASSET VALUE PER UNIT
----------------------------------
<TABLE>
<CAPTION>
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 $138.74 $140.38 $141.95 $138.85 $141.07 $140.99 $140.05 $144.51 $142.22 $144.75 $143.30 $144.72
1994 $148.74 $144.86 $140.67 $140.72 $142.00 $138.44 $142.06 $146.14 $142.90 $145.19 $140.21 $141.33
1995 $144.95 $149.87 $152.99 $157.25 $163.05 $166.23 $171.58 $172.09 $178.01 $177.64 $184.56 $186.57
</TABLE>
Importance of Market Factors
- ----------------------------
Comparisons between the Fund's performance in one fiscal year to the
prior year are unlikely to be meaningful, given the uncertainty of price
movements in the markets traded by the Fund.
Liquidity
- ---------
A significant portion of the Partnership's assets were held in U.S.
Treasury STRIPS which, in turn, generate the protected minimum Net Asset Value.
The U.S. STRIPS are highly liquid but are acquired by the Fund on a buy-and-hold
basis for the course of a Time Horizon, except to the extent liquidated to fund
a portion of redemptions. A portion of the Partnership's assets are also held as
cash which, in turn, is used to margin its stock index futures positions and is
withdrawn, as necessary, to pay a portion of redemptions and fees.
The stock index futures contracts in which the Partnership trades may
become illiquid under certain market conditions. Stock Index futures contracts
in the U.S. are subject to "circuit breakers" which require the suspension of
trading after certain market movements. However, these "circuit breakers" have
rarely been "triggered," and because the Fund buys rather than sells options, it
is generally not exposed to risk of not being able to close out positions
against which the market is moving as a result of illiquidity.
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 (i) assure the investors the protected minimum Net Asset
Values as of the end of the Time Horizons and (ii) 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
stock index futures markets in which the Funds trades exclusively. The Fund
cannot be profitable during a Time Horizon unless the S&P 500 Stock Index market
rises.
Item 8: Financial Statements and Supplementary Data
-------------------------------------------
The financial statements required by this Item are included on pages E-
1 through E-13 of this report.
4
<PAGE>
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. The Trading Advisor manages
the Fund's stock index futures position on behalf of the Partnership.
Merrill Lynch Investment Partners Inc. (formerly ML Futures
Investment Partners Inc.), a Delaware corporation, was organized in 1986
principally 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, 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.
5
<PAGE>
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.
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, 1995, 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, 1995, 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 Advisor 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:
------------------------------
MLF, an affiliate of the General Partner, acts as commodity broker
for the Partnership at the selection of the General Partner. The General 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 1995 and 1994,
the Partnership incurred an expense of $4,225 and $8,247, respectively, for
brokerage commissions which was earned by 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 1995 and 1994, the
General Partner received a total of $144,696 and $142,881 in Administrative
Fees, from which the General Partner paid out $25,179 and $26,264 in advisory
fees and consulting fees to LOR, and $0 and $12,597 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.
6
<PAGE>
PART IV
-------
Item 14: Exhibits, Financial Statement Schedules and Reports on Form 8-K
---------------------------------------------------------------
(a)1. Financial Statements:
--------------------
Page
----
Independent Auditors' Report E-4
Statements of Financial Condition as of E-5
December 31, 1995 (consolidated) and 1994
For Each of the Three Years in the Period
Ended December 31, 1995 (consolidated with
respect to 1995):
Statements of Operations E-6
Statements of Changes in Partners' Capital E-7
Notes to Financial Statements E-8
(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 Advisor, 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.
3.04 Amended and Restated Certificate of Limited Partnership of the
Partnership, dated July 27, 1995.
Exhibit 3.04 Is incorporated by reference from Exhibit 3.04 contained in
the Registrant's report on Form 10-Q for the Quarter Ended
June 30 , 1995.
10.01(c) Form of Advisory Agreement between the Partnership, Merrill
Lynch Investment Partners Inc., Merrill Lynch Futures Inc. and
prospective trading advisors.
Exhibit 10.01(c) Is incorporated by reference from Exhibit 10.01(c) contained
in the Registrant's report on Form 10-Q for the Quarter Ended
June 30 , 1995.
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.
7
<PAGE>
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 Securit-
ies 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.
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 1995 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:
------------------
Form 8-K was filed by the Registrant on July 28, 1995 disclosing
MLIP's name change from ML Futures Investment Partners Inc.
8
<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: 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
- -----------------------
John R. Frawley, Jr. and Director
/s/James M. Bernard Chief Financial Officer, Treasurer March 28, 1996
- -------------------
James M. Bernard (Principal Financial and Accounting
Officer) and Vice President
/s/Jeffrey F. Chandor Senior Vice President and Director March 28, 1996
- ---------------------
Jeffrey F. Chandor of Sales, Marketing and Research
/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.)
<TABLE>
<S> <C> <C>
MERRILL LYNCH INVESTMENT General Partner of March 28, 1996
PARTNERS INC. Registrant
</TABLE>
By: /s/ John R. Frawley, Jr.
------------------------
John R. Frawley, Jr.
<PAGE>
THE GROWTH AND GUARANTEE FUND L.P.
1995 FORM 10-K
INDEX TO EXHIBITS
EXHIBIT PAGE
-------------------------------------- ----
Exhibit 13.01 1995 Annual Report and Independent Auditors' Report E-1
<PAGE>
EXHIBIT 13.01
THE GROWTH AND GUARANTEE FUND L.P.
(A DELAWARE LIMITED PARTNERSHIP)
Consolidated Financial Statements for
the year ended December 31, 1995, and
Financial Statements for the years ended
December 31, 1995, 1994 and 1993
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 ninth
fiscal year of trading on December 31, 1995 with a Net Asset Value ("NAV") per
Unit of $186.57, representing an increase of 32.01% from the December 31, 1994
NAV per Unit of $141.33. In 1995, the stock market, as measured by the Standard
& Poor's 500/(R)/ Stock Index (the "S&P 500"), increased 37.57%.
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 Unit is $155.37 for the current Time Horizon, which
ends at the close of business on January 31, 1997 The Fund is structured to
provide a "New Profits Lock-In" in the event that the NAV per Unit increases by
10% or more during a given Time Horizon. The Fund will experience a "New
Profits Lock-In" if the NAV per Unit reaches $189.89.
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. Unitholders are able to participate in market increases
with the Protected Minimum NAV $155.37 per Unit through a Time Horizon ending
January 31, 1997.
1995 proved to be a outstanding year for the Fund. As General Partner and
Trading Manager of the Fund, we continue to remain confident that the Fund is
well positioned to benefit from trading opportunities in 1996. We look forward
to the new fiscal year and the trading opportunities it may bring.
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>
THE GROWTH AND GUARANTEE FUND L.P.
(A Delaware Limited Partnership)
------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Page
----
INDEPENDENT AUDITORS' REPORT 1
CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED
DECEMBER 31, 1995, AND FINANCIAL STATEMENTS FOR THE
YEARS ENDED December 31, 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
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; the "Partnership") as
of December 31, 1995 (consolidated) and 1994, and the related statements of
operations and changes in partners' capital for each of the three years in the
period ended December 31, 1995 (consolidated with respect to 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, 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, 1995 (consolidated) and 1994
and the results of its operations for each of the three years in the period
ended December 31, 1995 (consolidated with respect to 1995) in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
January 26, 1996
New York, New York
-1-
<PAGE>
THE GROWTH AND GUARANTEE FUND L.P.
(A Delaware Limited Partnership)
------------------------------
STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1995 (CONSOLIDATED) AND 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS 1995 1994
- ------ ----------- -------------
<S> <C> <C>
Accrued interest $ 4,940 $ --
U.S. Government obligations 6,820,462 6,482,801
Equity in commodity futures trading accounts:
Cash and options premiums 1,985,376 738,208
Net unrealized gain on open contracts (105,800) 405,176
---------- -----------
TOTAL $8,704,978 $ 7,626,185
========== ===========
LIABILITIES AND PARTNERS' CAPITAL
- ---------------------------------
LIABILITIES:
Redemptions payable $ 39,739 $ 47,628
Administrative fees and brokerage
commissions payable 13,215 12,046
---------- -----------
Total liabilities 52,954 59,674
---------- -----------
Minority Interest 28,942 --
---------- -----------
PARTNERS' CAPITAL:
General Partner:
(680 and 680 units) 126,846 96,085
Limited Partners:
(45,539 and 52,857 units) 8,496,236 7,470,426
---------- -----------
Total partners' capital 8,623,082 7,566,511
---------- -----------
TOTAL $8,704,978 $7,626,185
========== ===========
NET ASSET VALUE PER UNIT $186.57 $141.33
========== ===========
</TABLE>
See notes to financial statements.
-2-
<PAGE>
THE GROWTH AND GUARANTEE FUND L.P.
(A Delaware Limited Partnership)
------------------------------
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995 (CONSOLIDATED), 1994 AND 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
REVENUES:
Trading profit (loss):
Realized:
Options and futures $2,323,415 $ (327,699) $ 376,880
U.S. Government obligations 51,234 3,471 5,627
Change in unrealized:
Options and futures (510,976) 49,200 (122,200)
U.S. Government obligations 143,640 (122,603) 34,726
---------- ---------- ----------
Total trading results 2,007,313 (397,631) 295,033
Interest income 407,304 355,496 353,974
---------- ---------- ----------
Total revenues 2,414,617 (42,135) 649,007
---------- ---------- ----------
EXPENSES:
Brokerage commissions 4,225 8,247 9,891
Administrative fees 144,696 142,881 164,052
---------- ---------- ----------
Total expenses 148,921 151,128 173,943
---------- ---------- ----------
INCOME BEFORE MINORITY
INTEREST 2,265,696 (193,263) 475,064
MINORITY INTEREST IN INCOME (12,942) -- --
---------- ---------- ----------
NET INCOME (LOSS) $2,252,754 $ (193,263) $ 475,064
========== ========== ==========
NET INCOME (LOSS) PER UNIT OF
PARTNERSHIP INTEREST:
Weighted average number of Units
outstanding (Note 3) 49,591 57,079 66,050
========== ========== ==========
Weighted average net income (loss)
per Unit $45.43 $(3.39) $7.19
========== ========== ==========
</TABLE>
See notes to financial statements.
-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, 1995 (CONSOLIDATED), 1994 AND 1993
- --------------------------------------------------------------------------------
Limited General
Units Partners Partner Total
------ ----------- -------- -----------
PARTNERS' CAPITAL
DECEMBER 31, 1992 70,754 $ 9,585,114 $148,577 $ 9,733,691
Redemptions (10,303) (1,403,713) (56,428) (1,460,141)
Net income -- 468,803 6,261 475,064
------ ----------- -------- -----------
PARTNERS' CAPITAL,
DECEMBER 31, 1993 60,451 8,650,204 98,410 8,748,614
Redemptions (6,914) (988,840) -- (988,840)
Net loss -- (190,938) (2,325) (193,263)
------ ----------- -------- -----------
PARTNERS' CAPITAL,
DECEMBER 31, 1994 53,537 7,470,426 96,085 7,566,511
Redemptions (7,318) (1,196,183) -- (1,196,183)
Net income -- 2,221,993 30,761 2,252,754
------ ----------- -------- -----------
PARTNERS' CAPITAL,
DECEMBER 31, 1995 46,219 $ 8,496,236 $126,846 $ 8,623,082
====== =========== ======== ===========
See notes to financial statements
-4-
<PAGE>
THE GROWTH AND GUARANTEE FUND L.P.
A Delaware Limited Partnership)
- ------------------------------
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 (CONSOLIDATED), 1994 AND 1993
- --------------------------------------------------------------------------------
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 Growth and Guarantee
Fund Trading L.P. (the "Trading Partnership") was organized on and commenced
trading activities on June 1, 1995. The Partnership engages in the
speculative trading of stock index futures and options, attempting to
replicate the performance of the S&P 500 Stock Index while assuring that the
Units do not decline in value by more than 10% over the course of any one
Time Horizon (a term defined in the Limited Partnership Agreement, generally
18 months in duration). On June 1, 1995, the Partnership began trading
through the Trading Partnership rather than directly. The formation of the
"subsidiary" Trading Partnership has been used as a means of assuring, by
isolating the necessary "reserve" assets from the risk of market loss, the
10% ceiling on the maximum loss which the Partnership can experience during
a Time Horizon. Leland O'Brien Rubinstein Associates Incorporated (the
"Advisor") is the trading advisor of the Trading Partnership. Merrill Lynch
Investment Partners Inc. (formerly, ML Futures Investment Partners Inc.)
(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 the
Trading Partnership, and Merrill Lynch Futures Inc. ("MLF") , also an
affiliate of Merrill Lynch, is the commodity broker of the Trading
Partnership. The General Partner has agreed to maintain a general partner's
interest of at least 1% of the total equity interest of the Partnership and
the Trading Partnership. The Partnership is the sole Limited Partner of the
Trading Partnership. The General Partner and each Limited Partner share in
the profits and losses of the Partnership, and the General Partner and the
Partnership share in the profits and losses of the Trading Partnership, in
proportion to the interest in the Partnership and the Trading Partnership
owned by each.
The consolidated statements include the accounts of the Trading Partnership.
All related transactions and intercompany balances between the Partnership
and the Trading Partnership are eliminated in consolidation.
The ownership by the General Partner in the Trading Partnership represents a
minority interest when the financial results of the Trading Partnership are
consolidated into those of the Partnership. The General Partner's share of
the Trading Partnership's profits and losses is deducted from the
Consolidated Statements of Operations, and the General Partner's interest in
the Trading Partnership reduces partners' capital on the Consolidated
Statements of Financial Condition and the Consolidated Statements of Changes
in Partners' Capital.
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
-5-
<PAGE>
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
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 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 unrealized gain or loss. Fair value is based on quoted
market prices. All commodity futures and options 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
securities. These investments are carried at 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 Assets (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. Prior to the change discussed under "Protected Minimum
Net Asset Value," 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
the Advisor totaling, 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 totaling,
on an annual basis, 0.375 of 1%. The General Partner currently pays the
consulting fees described in (ii).
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.
Protected Minimum Net Asset Value
---------------------------------
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 19, 1996 is guaranteed by the U.S. Government obligations which are
insulated from the risk of trading loss by the Partnership/Trading
Partnership structure. The Partnership will also utilize a "downside
protection" strategy which is designed to maximize profits while controlling
the risk of major drawdowns. Avoiding
-6-
<PAGE>
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 such partner's respective share of the Partnership's income
and expenses as reported for income tax purposes.
Redemptions
-----------
A Limited Partner may require the Partnership to redeem some or all of such
Limited Partner's Units at 100% of 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.
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 circumstances as set forth
in the Limited Partnership Agreement.
2. RELATED PARTY TRANSACTIONS
The portion of the Partnership's assets (approximately 10% to 15%) which are
not held by the Partnership in U.S. Government securities is invested in the
Trading Partnership. The Trading Partnership's assets are not held in U.S.
Government securities deposited with MLF or its affiliate, Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("MLPF&S"). As a means of approximating
the interest rate which would be earned by the Trading Partnership had 100%
of its Net Assets on deposit with MLF been invested in 91-day Treasury bills,
MLF pays the Trading 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. During the years ended December 31, 1995, 1994 and 1993,
MLF paid the Partnership approximately $49,000, $42,000 and $23,000 of
interest, respectively. Any additional economic benefit derived from
possession of the Partnership's assets accrues to MLF or its affiliates.
The Partnership pays MLF brokerage commissions of $25.00 per each round-turn,
which includes exchange clearing and NFA fees, on U.S. futures transactions
executed by the Partnership.
3. WEIGHTED AVERAGE UNITS
The weighted average number of Units outstanding was computed for purposes of
disclosing net income/(loss) 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>
4. FAIR VALUE AND OFF-BALANCE SHEET RISK
The Partnership trades futures and options on stock indices. The
Partnership's revenues by reporting category are as follows:
1995
Total Trading Results
---------------------
Interest Rates $ 199,460
Stock Indices 1,807,853
---------------------
$2,007,313
=====================
Market Risk
- -----------
Derivative instruments involve varying degrees of off-balance sheet market risk,
and changes in the level or volatility of interest rates or the S&P 500 Stock
Index will result in changes in the Partnership's unrealized gain or loss on
such derivative instruments as reflected in the Statements of Financial
Condition as of the end of the period. The Partnership's exposure to market risk
is influenced by a number of factors which affect stock index levels.
Fair Value
- ----------
The derivative instruments traded by the Trading Partnership are marked to
market daily with the resulting unrealized gains or losses recorded in the
Statements of Financial Condition and the related income 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:
<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 & Options & Options & Options
------------------ ------------- ----------------- ---------------
<S> <C> <C> <C> <C>
Stock Indices $6,052,025 -- $3,747,050 $6,100
================== ============= ================= ===============
</TABLE>
The majority of the Partnership's derivative financial instruments outstanding
at December 31, 1995, mature within one year.
-8-
<PAGE>
The contract/notional value of exchange traded and open contracts as of December
31, 1995 were as follows (the Partnership does not trade non-exchange-traded
derivative instruments):
Commitment to Commitment to
Purchase (Futures Sell (Futures
& Options) & Options)
------------------ -------------
Exchange Traded $6,052,025 --
================== =============
The average fair value of the derivative instruments held or issued as of the
end of each calendar month during the year ended December 31, 1995 was as
follows:
Commitment to Commitment to
Purchase (Futures Sell (Futures
& Options) & Options)
------------------ -------------
Stock Indices $5,341,896 $156,385
================== =============
Credit Risk
- -----------
The risks associated with exchange-traded contracts are typically perceived to
be less than those associated with over-the-counter transactions (non-exchange-
traded), 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, whereas 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
require margin in the over-the-counter markets. The Partnership does not trade
off-exchange instruments.
The contract amounts in the above tables represent the extent of the Trading
Partnership's market exposure in the relevant class of derivative instruments.
Because the Partnership trades only exchange-traded instruments, it has no
counterparty risk. The Partnership also has credit risk because the sole broker
with respect to the Partnership is MLF. At December 31, 1995 and 1994,
$8,697,334 and $7,319,733 of these assets, respectively, were held in segregated
accounts.
The gross unrealized gain and the net unrealized gain (loss) on open contracts
as of Deember 31, 1995 were as follows:
Gross Unrealized Net Unrealized
Gain Gain (Loss)
----------------- ---------------
Exchange-Traded -- $(105,800)
================= ===============
The Partnership controls credit risk by dealing almost exclusively with Merrill
Lynch entities as brokers and counterparties.
-9-
<PAGE>
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
The Growth and Guarantee Fund 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> 1,884,516 1,143,384
<SECURITIES-RESALE> 0 0
<SECURITIES-BORROWED> 0 0
<INSTRUMENTS-OWNED> 6,820,462 6,482,801
<PP&E> 0 0
<TOTAL-ASSETS> 8,704,978 7,626,185
<SHORT-TERM> 0 0
<PAYABLES> 52,954 59,674
<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> 8,652,024 7,566,511
<TOTAL-LIABILITY-AND-EQUITY> 8,704,978 7,626,185
<TRADING-REVENUE> 2,007,313 (397,631)
<INTEREST-DIVIDENDS> 407,304 355,496
<COMMISSIONS> 148,921 151,128
<INVESTMENT-BANKING-REVENUES> 0 0
<FEE-REVENUE> 0 0
<INTEREST-EXPENSE> 0 0
<COMPENSATION> 0 0
<INCOME-PRETAX> 2,265,696 (193,263)
<INCOME-PRE-EXTRAORDINARY> 2,265,696 (193,263)
<EXTRAORDINARY> (12,942) 0
<CHANGES> 0 0
<NET-INCOME> 2,252,754 (193,263)
<EPS-PRIMARY> 45.43 (3.39)
<EPS-DILUTED> 45.43 (3.39)
</TABLE>
