<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: 0-17543
ML FUTURES INVESTMENTS L.P.
(a Delaware Limited Partnership)
(formerly, The Tudor Prime Advisors Fund L.P.)
--------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 36-3590615
------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
c/o Merrill Lynch Investment Partners Inc.
(formerly, ML Futures Investment Partners Inc.)
Merrill Lynch World Headquarters
World Financial Center
South Tower, 6th Fl., New York, NY 10080-6106
----------------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code: (212) 236-4161
--------------
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g)
of the Act: Limited Partnership Units
-------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No_____
---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Aggregate market value of the voting stock held by non-affiliates: the
registrant is a limited partnership and, accordingly, has no voting stock held
by non-affiliates or otherwise.
Documents Incorporated By Reference
The registrant's "1995 Annual Report and Independent Auditors' Report," the
annual report to security holders for the fiscal year ended December 31, 1995.
<PAGE>
ML FUTURES INVESTMENTS L.P.
(formerly The Tudor Prime Advisors 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 3
Item 4. Submission of Matters to a Vote of Security Holders 3
PART II
-------
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters 3
Item 6. Selected Financial Data 3
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 3
Item 8. Financial Statements and Supplementary Data 5
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 5
PART III
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Item 10. Directors and Executive Officers of the Registrant 5
Item 11. Executive Compensation 7
Item 12. Security Ownership of Certain Beneficial Owners and
Management 7
Item 13. Certain Relationships and Related Transactions 7
PART IV
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Item 14. Exhibits, Financial Statement
Schedules and Reports on Form 8-K 7
<PAGE>
PART I
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Item 1: Business
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(a) General Development of Business:
-------------------------------
ML Futures Investments L.P. (formerly The Tudor Prime Advisors Fund
L.P.) (the "Partnership" or the "Fund") was organized under the Delaware Revised
Uniform Limited Partnership Act on November 14, 1988 and commenced trading
operations on March 1, 1989. The Partnership changed its name to ML Futures
Investments L.P. on March 3, 1992. The Partnership engages in the speculative
trading of futures, options and forward contracts in a wide variety of commodity
markets.
Merrill Lynch Investment Partners Inc. (formerly ML Futures Investment
Partners Inc.) (the "General Partner" or "MLIP") acts as the general partner of
the Partnership and Merrill Lynch Futures Inc. (the "Commodity Broker" or "MLF")
has been selected as the Partnership's principal commodity broker. The General
Partner is currently a wholly-owned subsidiary of Merrill Lynch Group Inc.,
which in turn is a wholly-owned subsidiary of Merrill Lynch & Co., Inc. The
Commodity Broker is an indirect wholly-owned subsidiary of Merrill Lynch & Co.,
Inc. From its inception until April 1, 1992, Tudor Investment Corporation
("TIC") had been engaged as the trading manager of the Partnership's trading
activities. Effective April 1, 1992, the General Partner assumed the
responsibilities of trading manager for the Partnership.
The Partnership's initial capitalization equalled $86,500,700.
Units of Limited Partnership Interests ("Units") were offered for sale
to the general public through Merrill Lynch, Pierce, Fenner & Smith Incorporated
(the "Selling Agent") at an initial cost of $100 per Unit. The General Partner
and each Limited Partner share in the profits and losses of the Partnership.
(b) Financial Information about Industry Segments:
---------------------------------------------
The Partnership's business constitutes only one segment for financial
reporting purposes, i.e., a speculative "commodity pool."
(c) Narrative Description of Business:
---------------------------------
The Partnership is a speculative commodity pool and, as such, the
success of its operations depends entirely upon the profitability of the
"Trading Advisors" selected to manage the Partnership's assets.
The Partnership, through the Trading Advisors, engages in the buying
and selling of commodity futures contracts and options on futures contracts in
various commodity markets. The Partnership also enters into forward contracts
on currencies, which are transactions with a bank or dealer. These transactions
do not occur through regulated exchanges, as do futures contracts.
A significant part of the Partnership's trading strategy involves the
periodic reallocation of Partnership assets among existing Trading Advisors or
new Advisors selected by the General Partner. The purpose of the reallocations
is to direct Partnership assets to those Trading Advisors, who, in the opinion
of the General Partner, offer the best prospects for achieving the Partnership's
objectives of long term capital appreciation and portfolio diversification. The
General Partner evaluates existing and new trading advisor performance on an
ongoing basis.
From the Partnership's inception through April 1, 1992, TIC as trading
manager for the Partnership performed certain services for the Partnership,
including selecting Trading Advisors to manage the Partnership's assets,
monitoring the trading activity of the Trading Advisors and performing periodic
reallocation of Partnership assets among existing and new Trading Advisors. TIC
also performed as a trading advisor for the Partnership. As of April 1, 1992,
the General Partner assumed these responsibilities.
The Partnership pays to the Commodity Broker a brokerage fee of 0.83%
(a 10% annual rate) of average month-end Net Assets. Effective January 1, 1996,
the brokerage commission the Partnership pays to the Commodity Broker will be
reduced to .8125% (a 9.75% annual rate), and the Partnership will pay an
administrative fee to the General Partner of .020833% (a .25% annual rate). The
General Partner estimates that the round-turn equivalent commission rate charged
to the partnership during the years ended December 31, 1995, 1994 and 1993 was
approximately $119, $16 and $13, respectively (not including forward contracts
on a futures contract equivalent basis).
The Partnership trades forward contracts through a Foreign Exchange
Desk (the "F/X Desk") that contacts at least two counterparties along with
Merrill Lynch International Bank ("MLIB") for all of the Partnership's currency
trades. The F/X Desk contacts at least two counterparties in addition to MLIB
for a price quote on each trade. All counterparties other than MLIB are
unaffiliated with any Merrill Lynch entity. The F/X Desk charges a service fee
(at current exchange rates) equal to approximately $5.00 to $12.50 on each
purchase or sale of a futures-contract equivalent face amount of a foreign
currency on each transaction. No service fee is charged on trades awarded to
MLIB (on which MLIB receives a "bid-ask" spread). MLIB is awarded trades only
if its
1
<PAGE>
price is (without the service fee) equal to or better than the best price
(including the service charge) offered by any of the other counterparties
contacted.
The F/X Desk trades using credit lines provided by a Merrill Lynch
entity. The Partnership is not required to margin or otherwise guarantee its
F/X Desk trading.
Certain of the Partnership's currency trades are executed in the form
of "exchange of futures for physical" ("EFP") transactions involving MLIB and
MLF. In these transactions, a spot or forward (collectively referred to as
"cash") currency position is acquired and exchanged for an equivalent futures
position on the Chicago Mercantile Exchange's International Monetary Market
("IMM"). In its EFP trading with Merrill Lynch, the Partnership acquires cash
currency positions through the F/X Desk in the same manner and on the same terms
as in the case of the Partnership's other F/X Desk trading. When the
Partnership exchanges these positions for futures, there is a "differential"
between the prices of these two positions. This "differential" reflects, in
part, the different settlement dates of the cash and the futures contracts as
well as prevailing interest rates, but also includes a pricing spread in favor
of MLIB or another Merrill Lynch entity. The General Partner estimates the
Partnership's service fee and EFP differential costs to total no more than .25
of 1% of the partnership's average month-end Net Assets on an annual basis.
The Fund, to the extent that it has executed currency EFP transactions
in the past, has both acquired its cash positions and effected the exchange of
positions for futures contracts through brokers other than MLF (to which the
futures positions were ultimately given up to be cleared).
From the Partnership's inception through July 1, 1990, TIC was paid, by
the Commodity Broker, a monthly management fee of 0.3333 of 1% (a 4% annual
rate) of average month-end Net Assets. On July 1, 1990, the monthly management
fee was reduced to 0.229167 of 1% (a 2.75% annual rate). In addition, a
consulting fee of .1666 of 1% (a 2% annual rate) on average month-end Net Assets
was paid by the Commodity Broker to TIC. Starting from April 1, 1992, the
Commodity Broker pays the Trading Advisors a monthly consulting fee ranging from
1.75% to 4.00% annually.
From the Partnership's inception through April 1, 1992, the Partnership
had also paid to TIC a profit share of 22% of any New Trading Profit recognized
by each Trading Advisor individually as of the end of each calendar quarter.
Subsequent to April 1, 1992, the Partnership pays quarterly Profit Shares to
those Trading Advisors which have generated New Trading Profit, as defined.
Profit Shares range from 15% to 25% of New Trading Profits and are paid to each
Trading Advisor based upon their performance only. The Partnership pays no
additional expenses other than those described above. Any additional expenses
incurred are paid by the General Partner, not the Partnership.
The General Partner manages all the administrative affairs of the
Partnership and pays all ongoing operating costs, including legal, accounting,
audit and operational expenses. The General Partner maintains the books and
records of the Partnership and issues monthly unaudited and annual audited
financial reports to each partner as well as the annual Partnership tax
information necessary for Limited Partners to complete their income tax returns.
A substantial portion of the Partnership's assets are maintained as
cash in trading accounts with the Commodity Broker. The Commodity Broker
credits the Partnership's accounts with interest on its assets (not all of which
are available for investment) at a rate of 0.5% per annum below the 91-day
Treasury bill rate. Certain of the Partnership's assets are invested in short-
term sovereign debt obligations of foreign countries and used to margin futures
positions on such countries exchanges.
Limited Partners may redeem any or all of their Units at month-end upon
notifying the General Partner ten days before such month-end. Each Unit
redeemed will be paid the current month-end Net Asset Value, as calculated by
the General Partner.
The General Partner, TIC, the Trading Advisors and the Commodity Broker
are each subject to regulation by the Commodity Futures Trading Commission and
the National Futures Association. Other than in respect of its periodic
reporting requirements, the Partnership is generally not subject to regulation
by the Securities and Exchange Commission.
(i) through (xii) -- not applicable.
(xiii) The Partnership has no employees.
(d) Financial Information about Foreign and Domestic Operations and Export
----------------------------------------------------------------------
Sales:
-----
The Partnership does not engage in material operations in foreign
countries (although it does trade on certain foreign exchanges), nor is a
material portion of the Partnership's revenues derived from customers in foreign
countries.
Item 2: Properties
----------
The Partnership does not use any physical properties in the conduct of its
business.
2
<PAGE>
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
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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, less any applicable redemption charges. There were no
longer any early redemption charges due on Units redeemed after March 31, 1991.
(b) Holders:
-------
As of December 31, 1995, there were 1,192 holders of Units, including
the General Partner.
(c) Dividends:
---------
The Partnership has made no distributions since trading commenced, nor
does the General Partner presently intend to make any distributions in the
future.
Item 6: Selected Financial Data
-----------------------
The following is a summary of selected financial data of the Partnership:
<TABLE>
<CAPTION>
Year Year Year Year Year
Ended Ended Ended Ended 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 $ 5,778,268 $ 4,020,486 $ 6,185,406 $ 6,881,195 $ 2,756,947
Change in unrealized
(loss) gain (569,416) (498,136) 2,287,659 (1,406,510) 1,601,001
Interest income 1,423,730 1,044,838 697,516 1,035,439 2,446,082
----------- ----------- ----------- ----------- -----------
Total revenues 6,632,582 4,567,188 9,170,581 6,510,124 6,804,030
Expenses:
Brokerage commissions 2,942,578 3,027,292 3,273,230 3,756,143 5,452,517
Profit shares 412,897 739,862 1,045,716 1,604,647 937,218
----------- ----------- ----------- ----------- -----------
Total expenses 3,355,475 3,767,154 4,318,946 5,360,790 6,389,735
----------- ----------- ----------- ----------- -----------
Net Income $ 3,277,107 $ 800,034 $ 4,851,635 $ 1,149,334 $ 414,295
=========== =========== =========== =========== ===========
Total assets $28,661,014 $29,942,926 $32,592,946 $31,153,535 $44,772,051
Total partners' capital $27,811,737 $29,300,949 $31,777,773 $30,553,866 $42,934,308
Net Asset Value per Unit $194.73 $174.18 $169.19 $145.16 $139.50
</TABLE>
Item 7: Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations
-- ----------
Operational Overview; Advisor Selections
- ----------------------------------------
Due to the nature of the Fund's business, its results of operations
depend on MLIP's ability to select Advisors and determine the appropriate
percentage of each series' assets to allocate to them for trading, as well as
the Advisors' ability to recognize and capitalize on trends and other profit
opportunities in different sectors of the world commodity markets. MLIP's
Advisor selection procedure and leveraging analysis, as well as the Advisors'
trading methods, are confidential, so that substantially the only information
that can be furnished regarding the Fund's results of operations is contained in
the performance record of its trading. Unlike operating businesses, general
economic or seasonal conditions do not directly affect the profit potential of
the Fund, and its past performance is not necessarily indicative of future
results. Because of the speculative nature of its trading, operational or
economic trends have little relevance to the Fund's results. MLIP believes,
however, that there are certain market conditions, for example, markets with
strong price trends, in which the Fund has a better likelihood of being
profitable than in others.
3
<PAGE>
As of January 1, 1996, the Partnership's assets were allocated as
follows:
<TABLE>
<CAPTION>
TRADING ADVISOR MARKETS TRADED % ALLOCATION
- -------------------------------- ------------------- ------------
<S> <C> <C>
Chesapeake Capital Corporation Diversified Program 29.86
Sjo, Inc. Diversified Program 28.68
West Course Capital, Inc. Diversified Program 18.81
Hyman Back & Company, Inc. Diversified 16.21
Cash 6.44
------
100.00
</TABLE>
MLIP expects to continue to change both allocations and Advisor
selections from time to time without advance notice to existing investors.
Results of Operations - General
- -------------------------------
MLIP believes that multi-Advisor futures funds should be regarded as
medium- to long-term investments but, unlike an operating business, it is
difficult to identify "trends" in the Fund's operations and virtually impossible
to make any predictions regarding future results based on results to date.
Markets in which sustained price trends occur with some frequency tend
to be more favorable to managed futures investments than "whipsaw," "choppy"
markets, but (i) this is not always the case, (ii) it is impossible to predict
when trending markets will occur and (iii) different Advisors are affected
differently by trends in general as well as by particular types of trends.
The Fund controls credit risk in its trading in the derivatives markets
by trading only through Merrill Lynch entities which MLIP believes to be
creditworthy. The Fund attempts to control the market risk inherent in its
derivatives trading by utilizing a multi-advisor, multi-strategy structure.
This structure purposefully attempts to diversify the Fund's Advisor group among
different strategy types and market sectors in an effort to reduce risk
(although the Fund's portfolio currently emphasizes technical and trend-
following approaches).
Performance Summary
- -------------------
During 1993, the Fund's average month-end Net Assets equalled
$30,590,976, and the Fund recognized gross trading gains of $8,473,065 or 27.70%
of such average month-end Net Assets. Brokerage commissions of $3,273,230 or
10.70% and Profit Shares of $1,045,716 or 3.42% of average month-end Net Assets
were paid. Interest income of $697,516 or 2.28% of average month-end Net Assets
resulted in net income of $4,851,635 or 15.86% of average month-end Net Assets,
which resulted in a 16.55% increase in the Net Asset Value per Unit.
During 1994, the Fund's average month-end Net Assets equalled
$28,429,942 and the Fund recognized gross trading gains of $3,522,350 or 12.39%
of such average month-end Net Assets. Brokerage commissions of $3,027,292 or
10.65% and Profit Shares of $739,862 or 2.60% of average month-end Net Assets
were paid. Interest income of $1,044,838 or 3.68% of average month-end Net
Assets resulted in net income of $800,034 or 2.81% of average month-end Net
Assets, which resulted in a 2.95% increase in the Net Asset Value per Unit.
During 1995, the Fund's average month-end Net Assets equalled
$28,875,431, and the Fund recognized gross trading gains of $5,208,852 or 18.04%
of such average month-end Net Assets. Brokerage commissions of $2,942,578 or
10.19% and Profit Shares of $412,897 or 1.43% of average month-end Net Assets
were paid. Interest income of $1,423,730 or 4.93% of average month-end Net
Assets resulted in net income of $3,277,107 or 11.35% of average month-end Net
Assets which resulted in a 11.80% increase in the overall Net Asset Value of the
Fund.
In its past 36 months of trading, the Fund experienced 22 profitable
months and 14 unprofitable months.
<TABLE>
<CAPTION>
MONTH-END NET ASSET VALUE PER UNIT
Jan. Feb. Mar. Apr. May June July Aug. Sept. Oct. Nov. Dec.
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1993 $143.64 $154.02 $154.30 $156.51 $156.82 $163.85 $168.71 $172.69 $166.32 $164.88 $163.88 $169.19
1994 $161.95 $158.61 $159.83 $160.61 $169.83 $179.32 $172.48 $167.88 $171.26 $173.90 $173.99 $174.18
1995 $168.83 $170.34 $183.65 $185.36 $201.81 $196.63 $191.97 $188.44 $186.59 $184.99 $186.81 $194.73
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
Importance of Market Factors
- ----------------------------
Comparisons between the Fund's performance in a given period in one
fiscal year to the same period in a prior year are unlikely to be meaningful,
given the uncertainty of price movements in the markets traded by the Fund. In
general, MLIP expects that the Fund is most likely to trade successfully in
markets which exhibit strong and sustained price trends. The current Advisor
group emphasizes technical and trend-following methods. Consequently, one would
expect that in trendless, "choppy" markets the Fund would likely be
unprofitable, while in markets in which major price movements occur, the Fund
would have its best profit potential (although there could be no assurance that
the Fund would, in fact, trade profitably). However, trend-followers not
infrequently will miss major price movements, and market corrections can result
in rapid and material losses (sometimes as much as 5% in a single day).
Although MLIP monitors market conditions and Advisor performance
4
<PAGE>
on an ongoing basis in overseeing the Fund's trading, MLIP does not attempt to
"market forecast" or to "match" trading styles with predicted market conditions.
Rather, MLIP concentrates on quantitative and qualitative analysis of
prospective Advisors, as well as on statistical studies of the historical
performance parameters of different Advisor combinations in selecting Advisors
and allocating and reallocating Fund assets among them.
Because managed futures advisors' strategies are proprietary and
confidential and market movements unpredictable, selecting advisors to implement
speculative trading strategies involves considerable uncertainty. Furthermore,
the concentration of the Fund's current Advisor portfolio, both in terms of the
number of managers retained and the common emphasis of their strategies on
technical and trend-following methods, increases the risk that unexpectedly bad
performance, turbulent market conditions or a combination of the two will result
in significant losses.
MLIP's Advisor Selections
- -------------------------
MLIP has no timetable or schedule for making Advisor changes or
reallocations, and generally intends to make a medium- to long-term commitment
to all Advisors selected. However, there can be no assurance as to the
frequency or number of the Advisor changes which may take place in the future,
or as to how long any of the current Advisors will continue to manage assets for
the Fund.
Liquidity
- ---------
Most of the Partnership's assets are held as cash which, in turn, is
used to margin its futures positions and earn interest income and is withdrawn,
as necessary, to pay redemptions and fees.
The futures contracts in which the Partnership trades may become illiquid
under certain market conditions. Commodity exchanges limit fluctuations in
futures prices during a single day by regulations referred to as "daily limits."
During a single day no trades may be executed at prices beyond the daily limit.
Once the price of a futures contract for a particular commodity has increased or
decreased by an amount equal to the daily limit, positions in the commodity can
generally neither be taken nor liquidated unless traders are willing to effect
trades at or within the limit. Futures contracts have occasionally moved to the
daily limit for several consecutive days with little or no trading. Such market
conditions could prevent the Partnership from promptly liquidating its futures
(including its options) positions. There are no limitations on the daily price
moves in trading foreign currency forward contracts through banks, although
illiquidity may develop in the forward markets due to large spreads between
"bid" and "ask" prices quoted. (Forward contracts are the bank version of
currency futures contracts and are not traded on exchanges.)
Capital Resources
- -----------------
The Partnership does not have, nor does it expect to have, any capital
assets and has no material commitments for capital expenditures. The
Partnership uses its assets to supply the necessary margin or premiums for, and
to pay any losses incurred in connection with, its trading activity and to pay
redemptions and fees.
Inflation is not a significant factor in the Fund's profitability,
although inflationary cycles can give rise to the type of major price movements
which can have a materially favorable or adverse impact on the Fund's
performance.
Item 8: Financial Statements and Supplementary Data
-------------------------------------------
The financial statements required by this Item are included on pages E-1
through E-15.
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 on
behalf of the Partnership by the Trading Advisors.
Merrill Lynch Investment Partners Inc. (formerly ML Futures Investment
Partners Inc.), a Delaware corporation, was organized in 1986 in order to serve
as the general partner of commodity pools for which Merrill Lynch, Pierce,
Fenner & Smith Incorporated acts as selling
5
<PAGE>
agent. The offices of the General Partner are located at Merrill Lynch World
Headquarters, 6th Floor, South Tower, World Financial Center, New York, New York
10080-6106; telephone (212) 236-4161.
The directors and officers of the General Partner, and titles as of
December 31, 1995 are as follows:
John R. Frawley, Jr. President, Chief Executive Officer and
Director
James M. Bernard Chief Financial Officer, Senior Vice President
and Treasurer
Jeffrey F. Chandor Senior Vice President and Director of Sales,
Marketing and Research
William T. Maitland Secretary and Director
Allen N. Jones Chairman and Director
John R. Frawley, Jr. was born in 1943. Mr. Frawley is Chief Executive
Officer, President and a Director of MLIP and Co-Chairman of Merrill Lynch
Futures. He joined MLPF&S in 1966 and has served in various positions,
including Retail and Institutional Sales, Manager of New York Institutional
Sales, Director of Institutional Marketing, Senior Vice President of Merrill
Lynch Capital Markets and Director of International Institutional Sales. Mr.
Frawley holds a Bachelor of Science degree from Canisius College. From its
formation in 1990 through its dissolution in 1994, Mr. Frawley served on the
CFTC's Regulatory Coordination Advisory Committee. Mr. Frawley is currently a
member of the CFTC's Financial Products Advisory Committee. In January 1996,
Mr. Frawley was re-elected to a one-year term as Chairman of the Managed Futures
Association, the national trade association of the United States managed futures
industry. Mr. Frawley is also a Director of that organization and Vice Chairman
of the Futures Industry Institute.
James M. Bernard was born in 1950. Mr. Bernard is Chief Financial
Officer, Senior Vice President and Treasurer of MLIP. He joined Merrill Lynch
Futures in 1983. Prior to such time he was the Commodity Controller for Nabisco
Brands Inc. from November 1976 to 1982 and a Supervisor with Ernst & Whinney
from 1972 to November 1976. Mr. Bernard is a member of the American Institute
of Certified Public Accountants and holds a Bachelor of Science degree from St.
John's University and a Master of Business Administration degree from Fordham
University.
Jeffrey F. Chandor was born in 1945. Mr. Chandor is Senior Vice
President and the Director of Sales, Marketing and Research of MLIP. He joined
MLPF&S in 1971 and has served as the Product Manager of International
Institutional Equities, Derivatives and Mortgage-Backed Securities as well as
Managing Director of International Sales in the United States, and Managing
Director of Sales in Europe. Mr. Chandor holds a Bachelor of Arts degree from
Trinity College, Hartford, Connecticut.
William T. Maitland was born in 1949. From MLIP's inception in August
1986 through June 1, 1988, Mr. Maitland was the Secretary and a Director of MLIP
and, on August 15, 1992, he once again assumed these positions. Mr. Maitland is
the General Counsel for Futures & Options for MLPF&S, a position he has held
since November 1990, and is a member of the Board of Directors of Merrill Lynch
Futures. In 1971, Mr. Maitland graduated with a Bachelor of Arts degree from
Fordham University where his field of concentration was economics. In 1974, he
received his Juris Doctor degree from Fordham Law School. Mr. Maitland joined
MLPF&S in 1979. Mr. Maitland is presently a member of the Board of Directors of
the NFA and the Futures Industry Association ("FIA") and a past President of the
Executive Committee of the Law & Compliance Division of the FIA. He is a member
of the Committee on Commodities Regulation of the Association of the Bar of the
City of New York.
Allen N. Jones was born in 1942. Mr. Jones is Chairman and a Director
of MLIP. Mr. Jones graduated from the University of Arkansas with a Bachelor of
Science, Business Administration degree in 1964. Since June 1992, Mr. Jones has
held the position of Senior Vice President of MLPF&S. From June 1992 through
February 1994, Mr. Jones was the President and Chief Executive Officer of
Merrill Lynch Insurance Group, Inc. ("MLIG") and remains on the Board of
Directors of MLIG and its subsidiary companies. In February 1994, Mr. Jones
became the Director of Individual Financial Services of the Merrill Lynch
Private Client Group. From January 1992 to May 1992, he held the position of
First Vice President of MLPF&S. From January 1990 to June 1992, he held the
position of District Director of MLPF&S. Prior to January 1990, he held the
position of Senior Regional Vice President of MLPF&S.
(c) Identification of Certain Significant Employees:
-----------------------------------------------
None.
(d) Family Relationships:
--------------------
None.
(e) Business Experience:
-------------------
See Item 10(a)(b) above.
(f) Involvement in Certain Legal Proceedings:
----------------------------------------
None.
6
<PAGE>
(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
positions. The Partnership does not itself have any officers, directors or
employees. The Partnership pays brokerage commissions to an affiliate of the
General Partner. The directors and officers receive no "other compensation"
from the Partnership, and the directors receive no compensation for serving as
directors of the General Partner. There are no compensation plans or
arrangements relating to a change in control of either the Partnership or the
General Partner.
Item 12: Security Ownership of Certain Beneficial Owners and Management
--------------------------------------------------------------
(a) Security Ownership of Certain Beneficial Owners:
-----------------------------------------------
As of December 31, 1995, no person or "group" is known to be or have
been the beneficial owner of more than five percent of the Units. All of the
Partnership's units of general partnership interest are owned by the General
Partner.
(b) Security Ownership of Management:
--------------------------------
As of December 31, 1995, the General Partner owned 1,787 Units in the
Partnership, 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 Trading Advisors to manage the trading decisions for the
Partnership, managing the Partnership's affairs 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 the principal
commodity broker for the Partnership.
In 1995, the Partnership incurred an expense of $2,942,578 in
brokerage fees to the Commodity Broker, which includes $736,854 in consulting
fees earned by the Commodity Broker to the Trading Advisors.
See Item 1(c) "Narrative Description of Business" for a discussion of other
business dealings between MLIP affiliates and the Partnership.
(c) Indebtedness of Management:
--------------------------
The Partnership is prohibited from making any loans.
(d) Transactions with Promoters:
---------------------------
Not applicable.
PART IV
-------
Item 14: Exhibits, Financial Statement Schedules and Reports on Form 8-K
---------------------------------------------------------------
(a)1. Financial Statements:
---------------------
Page
----
Independent Auditors' Report E-5
Statements of Financial Condition as of
December 31, 1995 and 1994 E-6
For the Years Ended December 31, 1995, 1994
and 1993:
Statements of Income E-7
Statements of Changes in Partners' Capital E-8
Notes to Financial Statements E-9
7
<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:
--------
The following exhibits are incorporated by reference or are filed
herewith to this Annual Report on Form 10-K:
Designation Description
- ----------- -----------
1.01 Form of Selling Agreement among the Partnership, the General
Partner, the Trading Manager, each of the Partnership's initial
Trading Advisors, the Selling Agent and Merrill Lynch Futures
Inc.
Exhibit 1.01: Is incorporated by reference from Exhibit 1.01 contained in
- ------------ Amendment No. 2 to the Registration Statement on Form S-1
(File Number 33-22864).
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 Certificate of Limited Partnership, dated
March 3, 1992.
Exhibit 3.02: Is incorporated by reference from Exhibit 2.02 contained in the
- ------------ Partnership's report on Form 10-K for the Year Ended
December 31, 1991.
3.03 Amended and Restated Limited Partnership Agreement of the
Partnership (included as Exhibit A to the Prospectus).
Exhibit 3.03: Is incorporated by reference from Exhibit 3.01 contained in
- ------------ Amendment No. 2 to the Registration Statement on Form S-1 (File
Number 33-22864).
3.04 Amendment No. 1 to the Amended and Restated Limited Partnership
Agreement, dated March 1, 1990.
Exhibit 3.04: 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.
3.05 Amendment No. 2 to the Amended and Restated Limited Partnership
Agreement, dated March 3, 1992.
Exhibit 3.05: Is incorporated by reference from Exhibit 3.03 contained in the
- ------------ Partnership's report on Form 10-K for the Year Ended December 31,
1991.
3.06 Amended and Restated Certificate of Limited Partnership of the
Partnership, dated July 27, 1995.
Exhibit 3.06: Is incorporated by reference from Exhibit 3.06 contained in the
- ------------- Registrant's report on Form 10-Q for the Quarter Ended June 30,
1995.
10.02 Form of Customer Agreement between the Partnership and Merrill
Lynch Futures Inc.
Exhibit 10.02: Is incorporated by reference from Exhibit 10.02 contained in
- ------------- Amendment No. 2 to the Registration Statement on Form S-1 (File
Number 33-22864).
10.05 Form of Management Contract among TIC, the Partnership and the
General Partner.
Exhibit 10.05: Is incorporated by reference from Exhibit 10.05 contained in
- ------------- Amendment No. 2 to the Registration Statement on Form S-1 (File
Number 33-22864).
10.06 Form of Advisory Agreement among each Trading Advisor, the
Partnership and the General Partner.
Exhibit 10.06: Is incorporated by reference from Exhibit 10.06 contained in
- ------------- Amendment No. 2 to the Registration Statement on Form S-1 (File
Number 33-22864).
8
<PAGE>
10.06(r) Form of Advisory Agreement between the Partnership, Merrill Lynch
Investment Partners Inc., Merrill Lynch Futures Inc. and
prospective trading advisors.
Exhibit 10.06(r): Is incorporated by reference from Exhibit 10.06(r) contained
- ----------------- in the Registrant's report on Form 10-Q for the Quarter
Ended June 30 , 1995.
10.07 Form of Consulting Agreement between TIC and Merrill Lynch
Futures Inc.
Exhibit 10.07: Is incorporated by reference from Exhibit 10.07 contained in
- ------------- Amendment No. 2 to the Registration Statement on Form S-1 (File
Number 33-22864).
10.08 Form of Guarantee for each Trading Advisor.
Exhibit 10.08: Is incorporated by reference from Exhibit 10.08 contained in
- ------------- Amendment No. 2 to the Registration Statement on Form S-1 (File
Number 33-22864).
13.01 1995 Annual Report and Independent Auditors' Report.
Exhibit 13.01: Is filed herewith.
- -------------
99.01 Prospectus of the Partnership, dated December 19, 1988.
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 January 4, 1989.
(b) Report of Form 8-K:
-------------------
Form 8-K was filed by the Registrant on July 28, 1995 disclosing MLIP's
name change from ML Futures Investment Partners Inc.
9
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ML FUTURES INVESTMENTS L.P.
(formerly The Tudor Prime Advisors 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.
Signature Title Date
- ------------------------- ------------------------------------- --------------
/s/John R. Frawley, Jr. President and Chief Executive Officer March 28, 1996
- ------------------------- and Director
John R. Frawley, jr.
/s/James M. Bernard Chief Financial Officer, Treasurer March 28, 1996
- ------------------------- (Principal Financial and Accounting
James M. Bernard Officer) and Senior Vice President
/s/Jeffrey F. Chandor Senior Vice President and Director March 28, 1996
- ------------------------- of Sales, Marketing and Research
Jeffrey F. Chandor
/s/William T. Maitland Director March 28, 1996
- -------------------------
William T. Maitland
/s/Allen N. Jones Director March 28, 1996
- -------------------------
Allen N. Jones
(Being the principal executive officer, the principal financial and accounting
officer and a majority of the directors of Merrill Lynch Investment Partners
Inc.)
MERRILL LYNCH INVESTMENT General Partner of March 28, 1996
PARTNERS INC. Registrant
By:/s/ John R. Frawley, Jr.
------------------------
John R. Frawley, Jr.
10
<PAGE>
ML FUTURES INVESTMENTS L.P.
(formerly The Tudor Prime Advisors 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
ML FUTURES INVESTMENTS L.P.
(FORMERLY THE TUDOR PRIME ADVISORS FUND L.P.)
(A DELAWARE LIMITED PARTNERSHIP)
Financial Statements for the years ended
December 31, 1995, 1994 and 1993 and Independent
Auditors' Report
<PAGE>
To: The Limited Partners of ML FUTURES INVESTMENTS L.P.
ML Futures Investments L.P. (the "Fund") ended its seventh fiscal year of
trading on December 31, 1995 with a Net Asset Value ("NAV") per Unit of $194.73,
representing an increase of 11.80% from the December 31, 1994 NAV per Unit of
$174.18. During the fiscal year, trading profits were generated in the interest
rate, currency, energy, stock index and agriculture sectors while losses were
incurred in the metals sector.
In 1995, price trends which prevailed in several key markets enabled the Fund's
Trading Advisors to trade profitably for the Fund. Although trading in many of
the traditional commodity markets may have been lackluster, the currency and
financial markets offered exceptional trading opportunities. Soaring stock
prices and falling interest rates, coupled with significant currency moves,
resulted in profitable trading opportunities in these markets throughout the
year.
After months characterized by very difficult trading environments, solid price
trends across many markets began to emerge during the first quarter of 1995. In
February, bond markets worldwide recovered some of the ground lost in the
previous year. Specifically, U.S. Treasury prices improved, spurred by the
belief that growth in the U.S. economy was slowing enough for inflation to
stabilize. The Fund was also able to profit in the non-dollar markets, as German
and Japanese bonds rallied. In the currency markets, long positions in the
Deutsche mark versus the U.S. dollar resulted in strong profits for the Fund as
the Deutsche mark hit a two-year high of DM/US$ 1.4613 on February 24.
In the second quarter, market volatility once again began to cast its shadow on
trading as many previously strong price trends began to weaken and even reverse
in some cases. During April, the U.S. dollar hit new lows versus the Japanese
yen and Deutsche mark before sharply rebounding. The U.S. dollar experienced
another sharp rally in May, due to intervention on the part of major central
banks, potential trade sanctions against Japan and congressional action to
reduce the federal budget. In June, strong indications that the U.S. economy was
slowing, coupled with a failure of the Bundesbank to lower the Lombard rate,
stalled a rally in the German bond market.
In July, Alan Greenspan's optimistic comments concerning the U.S. economy led to
a sudden correction in U.S. bond prices after several months of a strong
uptrend. Throughout August and into September, the U.S. dollar rallied sharply
against the Japanese yen and the Deutsche mark. The dollar's rally was
supported by coordinated intervention on the part of major central banks and
further bolstered on August 30 by the potential impact of the growing banking
crisis in Japan.
Despite continued price volatility during the final quarter of 1995, the Fund's
Trading Advisors were able to single out some trends in key markets. U.S.
Treasury bond prices continued their strong move upward throughout November due
to weak economic data and optimism on Federal budget talks. By month-end, the
30-year Treasury bond rate was pushed to its lowest level in more than two
years. U.S. bond prices weakened during December as government budget talks
continued to stall. By month-end, however, prices strengthened somewhat as the
yield on the U.S. long bond fell below 6% for the first time in over two years.
<PAGE>
1995 proved to be a satisfactory year for the Fund. As General Partner and
Trading Manager of the Fund, we believe that the Fund's strategy of focused
diversification positioned the Fund well to profit from a variety of trading
opportunities during the year. We continue to work diligently with the Trading
Advisors to meet the Fund's objective of substantial capital appreciation over
the long-term and look forward to the new fiscal year and the trading
opportunities it may bring.
Sincerely,
John R. Frawley, Jr.
President
MERRILL LYNCH INVESTMENT PARTNERS INC.
(General Partner)
FUTURES TRADING IS SPECULATIVE AND INVOLVES A HIGH DEGREE OF RISK. PAST
PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
<PAGE>
ML FUTURES INVESTMENTS L.P.
(formerly The Tudor Prime Advisors Fund L.P.)
(A Delaware Limited Partnership)
------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Page
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 1995, 1994 AND 1993:
Statements of Financial Condition 2
Statements of Income 3
Statements of Changes in Partners' Capital 4
Notes to Financial Statements 5-10
<PAGE>
INDEPENDENT AUDITORS' REPORT
- ----------------------------
To the Partners of
ML Futures Investments L.P.
(formerly The Tudor Prime Advisors Fund L.P.)
We have audited the accompanying statements of financial condition of ML Futures
Investments L.P. (formerly The Tudor Prime Advisors Fund L.P.) (a Delaware
limited partnership; the "Partnership") as of December 31, 1995 and 1994, and
the related statements of income and of changes in partners' capital for each of
the three years in the period ended December 31, 1995. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of ML Futures Investments L.P. (formerly The
Tudor Prime Advisors Fund L.P.) as of December 31, 1995 and 1994, and the
results of its operations for each of the three years in the period ended
December 31, 1995 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
January 26, 1996
New York, New York
-1-
<PAGE>
ML FUTURES INVESTMENTS L.P.
(formerly The Tudor Prime Advisors Fund L.P.)
(A Delaware Limited Partnership)
------------------------------
STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1995 AND 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
ASSETS
- ------
Accrued interest (Note 2) $ 115,604 $ 121,266
Equity in commodity futures trading accounts:
Cash and option premiums 27,022,835 27,729,669
Net unrealized gain on open contracts 1,522,575 2,091,991
----------- -----------
TOTAL $28,661,014 $29,942,926
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
- --------------------------------------------------------
LIABILITIES:
- -----------
Redemptions payable $ 626,446 $ 242,459
Brokerage commissions payable (Note 2) 222,831 249,518
Profit shares payable -- 150,000
----------- -----------
Total liabilities 849,277 641,977
----------- -----------
PARTNERS' CAPITAL:
General Partner (1,787 and 2,027 Units) 347,972 353,061
Limited Partners (141,035 and 166,191 Units) 27,463,765 28,947,888
----------- -----------
Total partners' capital 27,811,737 29,300,949
=========== ===========
TOTAL $28,661,014 $29,942,926
=========== ===========
NET ASSET VALUE PER UNIT
(Based on 142,822 and 168,218 Units outstanding) $194.73 $174.18
=========== ===========
</TABLE>
See notes to financial statements.
-2-
<PAGE>
ML FUTURES INVESTMENTS L.P.
(formerly The Tudor Prime Advisors Fund L.P.)
(A Delaware Limited Partnership)
- ------------------------------
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
- ----------------------------------------------------
<TABLE>
<CAPTION>
REVENUES: 1995 1994 1993
------------ ----------- ------------
<S> <C> <C> <C>
Trading profits (loss):
Realized $ 5,778,268 $4,020,486 $ 6,185,406
Change in unrealized (569,416) (498,136) 2,287,659
------------ ----------- ------------
Total trading results 5,208,852 3,522,350 8,473,065
Interest income (Note 2) 1,423,730 1,044,838 697,516
------------ ----------- ------------
Total revenues 6,632,582 4,567,188 9,170,581
------------ ----------- ------------
EXPENSES:
Profit shares 412,897 739,862 1,045,716
Brokerage commissions (Note 2) 2,942,578 3,027,292 3,273,230
------------ ----------- ------------
Total expenses 3,355,475 3,767,154 4,318,946
------------ ----------- ------------
NET INCOME $ 3,277,107 $ 800,034 $ 4,851,635
============ =========== ============
NET INCOME PER UNIT:
Weighted average number of Units
outstanding (Note 5) 156,675 177,601 200,077
============ =========== ============
Weighted average net income
per Unit $20.92 $4.50 $24.25
============ =========== ============
</TABLE>
See notes to financial statements.
-3-
<PAGE>
ML FUTURES INVESTMENTS L.P.
(formerly The Tudor Prime Advisors Fund L.P.)
(A Delaware Limited Partnership)
- -------------------------------
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Limited General
Units Partners Partner Total
-------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
PARTNERS' CAPITAL, 210,482 $30,060,032 $ 493,834 $30,553,866
DECEMBER 31, 1992
Redemptions (22,663) (3,412,100) (215,628) (3,627,728)
Net income -- 4,786,896 64,739 4,851,635
-------- ----------- ---------- -----------
PARTNERS' CAPITAL, 187,819 31,434,828 342,945 31,777,773
DECEMBER 31, 1993
Redemptions (19,601) (3,276,858) -- (3,276,858)
Net income -- 789,918 10,116 800,034
-------- ----------- ---------- -----------
PARTNERS' CAPITAL, 168,218 28,947,888 353,061 29,300,949
DECEMBER 31, 1994
Redemptions (25,396) (4,721,921) (44,398) (4,766,319)
Net income -- 3,237,798 39,309 3,277,107
-------- ----------- ---------- -----------
PARTNERS' CAPITAL,
DECEMBER 31, 1995 142,822 $27,463,765 $ 347,972 $27,811,737
======== =========== ========== ===========
</TABLE>
See notes to financial statements.
-4-
<PAGE>
ML FUTURES INVESTMENTS L.P.
(formerly The Tudor Prime Advisors Fund L.P.)
(A Delaware Limited Partnership)
- -------------------------------
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 and 1993
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ML Futures Investments L.P. (formerly The Tudor Prime Advisors Partnership
L.P.) (the "Partnership") was organized under the Delaware Revised Uniform
Limited Partnership Act on November 14, 1988 and commenced trading
activities on March 1, 1989. The Partnership engages in the speculative
trading of futures, options and forward contracts on a wide range of
commodities. Merrill Lynch Investment Partners Inc. (formerly ML Futures
Investment Partners Inc.) ("MLIP" or the "General Partner"), a wholly-owned
subsidiary of Merrill Lynch Group, Inc. ("Merrill Lynch"), which in turn is
a wholly- owned subsidiary of Merrill Lynch & Co., Inc., is the general
partner of the Partnership, and Merrill Lynch Futures Inc. ("MLF"), also an
affiliate of Merrill Lynch, is its commodity broker. MLIP has agreed to
maintain a general partner's interest of at least 1% of the total capital in
the Partnership. MLIP and each Limited Partner share in the profits and
losses of the Partnership in proportion to their respective interests in it.
MLIP selects independent advisors (the "Advisors" or the "Trading Advisors")
to manage the Partnership's assets, and allocates and reallocates the
Partnership's assets among existing, replacement and additional Advisors.
Estimates
---------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue Recognition
-------------------
Commodity futures, options, and forward contract transactions are recorded
on the trade date and open contracts are reflected in the financial
statements at their fair value on the last business day of the reporting
period. The difference between the original contract amount and fair value
is reflected in income as an unrealized gain or loss. Fair value is based on
quoted market prices. All commodity futures, options and forward contracts
are reflected at fair value in the financial statements.
Operating Expenses
------------------
MLIP pays for all routine operating costs (including legal, accounting,
printing, postage and similar administrative expenses) of the Partnership.
MLIP receives a portion of the brokerage commission paid to MLF by the
Partnership as reimbursement for the foregoing expenses.
Income Taxes
------------
No provision for income taxes has been made in these 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.
-5-
<PAGE>
Distributions
-------------
The Unitholders are entitled to receive, equally per Unit, any distributions
which may be made by the Partnership. No such distributions have been made
as of December 31, 1995.
Redemptions
-----------
A Limited Partner may require the Partnership to redeem some or all of their
Units at the Net Asset Value as of the close of business on the last
business day of any month upon ten calendar days' notice.
Dissolution of the Partnership
------------------------------
The Partnership will terminate on December 31, 2008 or at an earlier date if
certain conditions occur, as well as under certain other circumstances, as
set forth in the Limited Partnership Agreement.
2. RELATED PARTY TRANSACTIONS
All of the Partnership's assets are deposited with MLF. As a means of
approximating the interest rate which would be earned by the Partnership had
100% of its Net Assets on deposit with MLF been invested in 91-day Treasury
bills, MLF pays the Partnership interest on its account equity on deposit
with MLF at a rate of 0.5 of 1% per annum below the prevailing 91-day
Treasury bill rate. In the case of its trading in certain foreign futures
contracts, the Partnership deposits margin in foreign currency denominated
instruments or cash and earns interest generally at a rate of 0.5 of 1% per
annum below the London Clearing Broker Rate. Any additional economic benefit
derived from possession of the Partnership's assets accrues to MLF or its
affiliates.
The Partnership paid brokerage commissions to MLF at a flat monthly rate of
1% (a 12% annual rate) of the Partnership's month-end Net Assets. This
monthly rate was reduced to .83 of 1% (a 10% annual rate) as of April 1,
1993. Month-end assets are not reduced for purposes of calculating brokerage
commissions by any accrued but unpaid brokerage commissions or any new
profit share. MLIP estimates that the round-turn equivalent commission rate
charged to the Partnership during the years ended December 31, 1995, 1994
and 1993, was approximately $119, $16 and $13, respectively (not including,
in calculating round-turn equivalents, forward contracts on a futures-
equivalent basis).
MLF pays the Advisors annual Consulting Fees ranging from 1.75% to 4% of the
Partnership's average month-end assets allocated to them for management,
after reduction for a portion of the brokerage commissions.
The Partnership trades forward contracts through a Foreign Exchange Desk
(the "F/X Desk") established by MLIP, that contacts at least two
counterparties along with Merrill Lynch International Bank ("MLIB"), for all
of the Partnership's currency trades. All counterparties other than MLIB are
unaffiliated with any Merrill Lynch entity. The F/X Desk charges a service
fee equal (at current exchange rates) to approximately $5.00 to $12.50 on
each purchase or sale of a futures contract-equivalent face amount of a
foreign currency. No service fees are charged on any trades awarded to MLIB
(which receives a "bid-ask" spread on such trades). MLIB is awarded trades
only if its price (which includes no service fee) is equal to or better than
the best price (including the service fee) offered by any of the other
counterparties contacted.
The F/X Desk trades on the basis of credit lines provided by a Merrill Lynch
entity. The Partnership is not required to margin or otherwise guarantee its
F/X Desk trading.
-6-
<PAGE>
Certain of the Partnership's currency trades are executed in the form of
"exchange of futures for physical" ("EFP") transactions involving MLIB and
MLF. In these transactions, a spot or forward (collectively referred to as
"cash") currency position is acquired and exchanged for an equivalent
futures position on the Chicago Mercantile Exchange's International Monetary
Market. In its EFP trading, the Partnership acquires cash currency positions
through the F/X Desk in the same manner and on the same terms as in the case
of the Partnership's other F/X Desk trading. When the Partnership exchanges
these positions for futures, there is a "differential" between the prices of
these two positions. This "differential" reflects, in part, the different
settlement dates of the cash and the futures contracts as well as prevailing
interest rates, but also includes a pricing spread in favor of MLIB or
another Merrill Lynch entity.
The Partnership's F/X Desk service fee and EFP differential costs have, to
date, totaled no more than 0.25 of 1% per annum of the Partnership's average
month-end Net Assets.
3. AGREEMENTS
The Partnership and the Advisors have each entered into Advisory Agreements.
These Advisory Agreements generally terminate one year after they are
entered into, subject to certain renewal rights exercisable by the
Partnership. The Advisors determine the commodity futures and forward
contract trades to be made on behalf of their respective Partnership
accounts, subject to certain Partnership trading policies and to certain
rights reserved for MLIP.
Profit shares, generally ranging from 15% to 25% of any New Trading Profit,
as defined, recognized by each Advisor considered individually irrespective
of the overall performance of the Partnership, as of the end of each
calendar quarter are paid by the Partnership to each Advisor. Profit shares
are also paid out in respect of Units redeemed as of the end of interim
months during a calendar quarter to the extent of the applicable percentage
of any New Trading Profit attributable to such Units.
4. WEIGHTED AVERAGE UNITS
The weighted average number of Units outstanding was computed for purposes
of disclosing net income per weighted average Unit. The weighted average
number of Units outstanding at December 31, 1995, 1994 and 1993 equals the
Units outstanding as of such date, adjusted proportionately for Units
redeemed based on the respective length of time each was outstanding during
the preceding period.
5. FAIR VALUE AND OFF-BALANCE SHEET RISK
The Partnership trades futures, options and forward contracts in interest
rates, stock indices, commodities, currencies, energy and metals. The
Partnership's revenues by reporting category were as follows:
1995
Total Trading Results
---------------------
Interest Rate and Stock Indices $ 5,512,504
Commodities 37,644
Currencies 689,813
Energy 452,971
Metals (1,484,080)
------------
$ 5,208,852
============
-7-
<PAGE>
Market Risk
-----------
Derivative instruments involve varying degrees of off-balance sheet market
risk, and changes in the level or volatility of interest rates, foreign
currency exchange rates or the market values of the financial instruments or
commodities underlying such derivative instruments frequently result in
changes in the Partnership's unrealized gain or loss on such derivative
instruments as reflected in the Statements of Financial Condition. The
Partnership's exposure to market risk is influenced by a number of factors,
including the relationships among the derivative instruments held by the
Partnership as well as the volatility and liquidity of the markets in which
the derivative instruments are traded.
The General Partner has procedures in place intended to control market risk,
although there can be no assurance that they will, in fact, succeed in doing
so. These procedures focus primarily on monitoring the trading of the
Advisors selected from time to time for the Partnership, calculating the Net
Asset Value of the Advisors' respective Partnership accounts as of the close
of business on each day and reviewing outstanding positions for over-
concentration -- both on an Advisor-by-Advisor and on an overall Partnership
basis. While the General Partner does not itself intervene in the markets to
hedge or diversify the Partnership's market exposure, the General Partner may
urge Advisors to reallocate positions, or itself reallocate Partnership assets
among Advisors (although typically only as of the end of a month) in an
attempt to avoid over-concentrations. However, such interventions are
unusual. Except in cases in which it appears that an Advisor has begun to
deviate from past practice or trading policies or to be trading erratically,
the General Partner's basic risk control procedures consist simply of the
ongoing process of Advisor monitoring and selection with the market risk
controls being applied by the Advisors themselves.
Fair Value
----------
The derivative instruments used in the Partnership's trading activities are
marked to market daily with the resulting unrealized gains or losses recorded
in the Statements of Financial Condition and the related profit or loss
reflected in trading revenues in the Statements of Income. 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 & Forwards) Options & Forwards) Options & Forwards) Options & Forwards)
------------------- ------------------- ------------------- ------------------
<S> <C> <C> <C> <C>
Interest Rate
and Stock
Indices $233,892,908 $62,165,959 $ 73,182,885 $120,117,655
Commodities 8,944,541 1,780,506 47,616,925 48,694,023
Currencies 22,533,449 23,426,238 1,006,012 538,830
Energy 4,790,522 -- 9,787,143 5,007,361
Metals 8,506,013 3,974,356 10,547,372 1,530,604
------------ ----------- ------------ ------------
$278,667,433 $91,347,059 $142,140,337 $175,888,473
============ =========== ============ ============
</TABLE>
Substantially all of the Partnership's derivative instruments outstanding as
of December 31, 1995 expire within one year.
-8-
<PAGE>
The contract/notional value of the Partnership's open exchange-traded and non-
exchange-traded open derivative instrument positions as of December 31, 1995
was as follows:
Commitment to Commitment to
Purchase (Futures, Sell (Futures,
Options & Forwards) Options & Forwards)
------------------ ------------------
Exchange-Traded $253,233,552 $67,844,388
Non-Exchange-Traded 25,433,881 23,502,671
------------ -----------
$278,667,433 $91,347,059
============ ===========
The average fair value of the Partnership's derivative instrument positions
which were open as of the end of each calendar month during the year ended
December 31, 1995 was as follows:
Commitment to Commitment to
Purchase (Futures, Sell (Futures,
Options & Forwards) Options & Forwards)
------------------- ------------------
Interest Rate and
Stock Indices $180,800,308 $20,386,155
Commodities 7,173,549 1,204,905
Currencies 34,970,478 31,883,215
Energy 1,605,552 528,913
Metals 8,842,427 5,677,989
------------ -----------
$233,392,314 $59,681,177
============ ===========
A portion of the amounts indicated as off-balance sheet risk reflects
offsetting commitments to purchase and sell the same derivative instrument on
the same date in the future. These commitments are economically offsetting
but are not, as a technical matter, offset in the forward market until the
settlement date.
Credit Risk
-----------
The risks associated with exchange-traded contracts are typically perceived to
be less than those associated with over-the-counter (non-exchange-traded)
transactions, because exchanges typically (but not universally) provide
clearinghouse arrangements in which the collective credit (in some cases
limited in amount, in some cases not) of the members of the exchange is
pledged to support the financial integrity of the exchange. In over-the-
counter transactions, on the other hand, traders must rely solely on the
credit of their respective individual counterparties. Margins, which may be
subject to loss in the event of a default, are generally required in exchange
trading, and counterparties may also require margin in the over-the-counter
markets.
The fair value amounts in the above tables represent the extent of the
Partnership's market exposure in the particular class of derivative instrument
listed, but not the credit risk associated with counterparty nonperformance.
The credit risk associated with these instruments from counterparty
nonperformance is the net unrealized gain, if any, included in the Statements
of Financial Condition. The Partnership also has credit risk because the sole
counterparty or broker with respect to most of the Partnership's assets is
MLF.
-9-
<PAGE>
As of December 31, 1995 and 1994, $18,809,783 and $11,607,244 of the
Partnership's assets, respectively, were held in segregated accounts at MLF in
accordance with Commodity Futures Trading Commission regulations.
The gross unrealized gain and the net unrealized gain (loss) on the
Partnership's open derivative instrument positions as of December 31, 1995
were as follows:
Gross Unrealized Net Unrealized
Gain Gain (Loss)
---------------- --------------
Exchange-Traded $1,852,088 $1,527,947
Non-Exchange-Traded 160,590 (5,372)
---------------- --------------
$2,012,678 $1,522,575
================ ==============
The Partnership controls credit risk by dealing almost exclusively with
Merrill Lynch entities as brokers and counterparties.
To the best of the knowledge and belief of the
undersigned, the information contained in this
report is accurate and complete.
James M. Bernard
Chief Financial Officer
ML Futures Investments 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> 28,661,014 29,942,926
<SECURITIES-RESALE> 0 0
<SECURITIES-BORROWED> 0 0
<INSTRUMENTS-OWNED> 0 0
<PP&E> 0 0
<TOTAL-ASSETS> 28,661,014 29,942,926
<SHORT-TERM> 0 0
<PAYABLES> 849,277 641,977
<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> 27,811,737 29,300,949
<TOTAL-LIABILITY-AND-EQUITY> 28,661,014 29,942,926
<TRADING-REVENUE> 5,208,852 3,522,350
<INTEREST-DIVIDENDS> 1,423,730 1,044,838
<COMMISSIONS> 3,355,475 3,767,154
<INVESTMENT-BANKING-REVENUES> 0 0
<FEE-REVENUE> 0 0
<INTEREST-EXPENSE> 0 0
<COMPENSATION> 0 0
<INCOME-PRETAX> 3,277,107 800,034
<INCOME-PRE-EXTRAORDINARY> 3,277,107 800,034
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 3,277,107 800,034
<EPS-PRIMARY> 20.92 4.50
<EPS-DILUTED> 20.92 4.50
</TABLE>
