<PAGE>
 
                                                                   EXHIBIT 13.01


                          ML FUTURES INVESTMENTS L.P.
                       (A DELAWARE LIMITED PARTNERSHIP)




                   Financial Statements for the years ended
                       December 31, 1997, 1996 and 1995
                       and Independent Auditors' Report
<PAGE>
 
To:     The Limited Partners of ML FUTURES INVESTMENTS L.P.

ML Futures Investments L.P. (the "Fund" or "Partnership") ended its ninth fiscal
year of trading on December 31, 1997 with a Net Asset Value ("NAV") per Unit of
$225.17, representing an increase of 9.22% from the December 31, 1996 NAV per
Unit of $206.16.  During 1997, trading profits were generated in the currency,
metals, interest rate and agriculture markets while losses were incurred in
energy and stock index trading.  (Trading results include that of the Advisors,
as well as, the Trading LLCs (defined in Note 5 to the financial statements)).

Trend reversals and extreme market volatility, affected by such factors as the
Asian flu and El Nio, were characteristic of most of 1997.  However, the year
proved to be a profitable one overall for the Fund as trends in several key
markets enabled the Trading Advisors to profit despite the significant
obstacles.  Although trading results in several sectors may have been
lackluster, the global currency and bond markets offered noteworthy trading
opportunities, which resulted in significant profits in these markets during the
year.  Additionally, the currency and interest rate sectors of the Fund's
portfolio represented its largest percentage of market commitments.

In currency markets, the U.S. dollar rallied and started 1997 on a strong note,
rising to a four-year high versus the Japanese yen and two-and-a-half year highs
versus the Deutsche mark and the Swiss franc.  However, the dollar underwent two
significant corrections during the year.  The first correction occurred in the
Spring against the Japanese yen, due to the G7 finance ministers' determination
that a further dollar advance would be counter-productive to their current
goals.  From August through mid-November, the dollar corrected against the
Eurocurrencies in advance of a well-advertised tightening by the Bundesbank.  By
mid-December the dollar had bounced back to new highs against the yen and was
rallying against the mark.

Global interest rate markets began the year on a volatile note, as investors
evaluated economic data for signs of inflation.  By the middle of the year,
economic data in key countries was positive indicating lower inflation and
igniting a worldwide rally in the bond markets.  Specifically, investor
sentiment was particularly strong in the U.S., where prices on the 30-year
Treasury bond and 10-year Treasury note rose to their highest levels in over two
years.  This followed a largely positive economic report delivered by Federal
Reserve Chairman Greenspan in testimony before Congress.  Effects of the plunge
in the Hong Kong stock market in late October spread rapidly throughout the
world's financial markets, including global bond markets.  After continued
volatility in subsequent months made trading difficult, 1997 interest rate
trading ended on a positive note when U.S. and Japanese bond markets rallied as
a flight to safety from plunging stock markets around the world occurred in
December.

In energy markets, a slump in crude oil prices was characteristic of its
lackluster performance from the beginning of the year.  Early in 1997,
volatility returned in the energy markets, reflecting the impact of a winter
significantly warmer than normal.  By mid-year, the decline in prices reversed
sharply as Saudi Arabia and Iran, together representing about 45% of OPEC's oil
production, joined forces to pressure oil-producing nations to stay within OPEC
production quotas.  In December, financial and economic problems in Asia reduced
demand for oil, and in combination with ample supplies, resulted in crude oil
prices declining once again.

Although the overall return for the Fund might have paled in comparison to some
of the popular market indices during 1997, a significant observation is worth
noting.  From the time the Dow Jones industrial average hit its high of 8259.31
in August through the end of the year, it declined 4.25% with a continued
increase in volatility.  Conversely, the Fund, which has been designed with the
objective of producing returns non-correlated to traditional debt and equity
markets, steadily improved performance during the same time period.  We
appreciate your continued investment in the Fund and look forward to 1998 and
the trading opportunities it may bring.
<PAGE>
 
                              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.
(A Delaware Limited Partnership)
 ------------------------------ 

 
TABLE OF CONTENTS
----------------------------------------------------
 
                                                Page
                                                ----
 
INDEPENDENT AUDITORS' REPORT                       1
 
FINANCIAL STATEMENTS FOR THE YEARS ENDED
  DECEMBER 31, 1997, 1996 AND 1995:
 
  Statements of Financial Condition                2
 
  Statements of Income                             3
 
  Statements of Changes in Partners' Capital       4
 
  Notes to Financial Statements                 5-12
 
<PAGE>
 
INDEPENDENT AUDITORS' REPORT
----------------------------



To the Partners of
ML Futures Investments L.P.:

We have audited the accompanying statements of financial condition of ML Futures
Investments L.P. (a Delaware limited partnership; the "Partnership") as of
December 31, 1997 and 1996, and the related statements of income and changes in
partners' capital for each of the three years in the period ended December 31,
1997.  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 ML Futures Investments L.P. as of December
31, 1997 and 1996, and the results of its operations for each of the three years
in the period ended December 31, 1997 in conformity with generally accepted
accounting principles.


DELOITTE & TOUCHE LLP

February 6, 1998
New York, New York
<PAGE>
 
ML FUTURES INVESTMENTS L.P.
(A Delaware Limited Partnership)
 ------------------------------ 

STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1997 AND 1996
--------------------------------------------------------------------------------

<TABLE> 
<CAPTION> 
                                                                 1997           1996            
                                                             -----------     -----------        
<S>                                                          <C>             <C> 
ASSETS                                                                                          
                                                                                                
Accrued interest (Note 2)                                    $    45,161     $    60,983        
Equity in commodity futures trading accounts:                                                   
  Cash and option premiums                                     9,749,760      17,891,525        
  Net unrealized profit on open contracts                        550,739         163,702        
Investments (Note 5)                                          14,266,512       7,519,322        
Receivable from investments (Note 5)                             299,255          50,934        
Other receivable                                                  51,715               -        
                                                             -----------     -----------        
                                                                                                
      TOTAL                                                  $24,963,142     $25,686,466        
                                                             ===========     ===========        
                                                                                                
LIABILITIES AND PARTNERS' CAPITAL                                                               
                                                                                                
LIABILITIES:                                                                                    
  Redemptions payable                                            498,752         170,082        
  Brokerage commissions payable (Note 2)                          76,811         145,228        
  Administrative fees payable (Note 2)                             2,174           3,773        
  Profit Shares payable (Note 3)                                       -          92,397        
                                                             -----------     -----------        
                                                                                                
    Total liabilities                                            577,737         411,480        
                                                             -----------     -----------        
                                                                                                
PARTNERS' CAPITAL:                                                                              
  General Partner (1,787 Units and 1,787 Units)                  402,372         368,402        
  Limited Partners (106,509 Units and 120,810 Units)          23,983,033      24,906,584        
                                                             -----------     -----------        
                                                                                                
    Total partners' capital                                   24,385,405      25,274,986        
                                                             -----------     -----------        
                                                                                                
      TOTAL                                                  $24,963,142     $25,686,466        
                                                             ===========     ===========        
                                                                                                
NET ASSET VALUE PER UNIT                                                                        
 (Based on 108,296 and 122,597 Units outstanding)                $225.17         $206.16        
                                                             ===========     ===========
</TABLE>

                                      -2-
<PAGE>
 
ML FUTURES INVESTMENTS L.P.
(A Delaware Limited Partnership)
 ------------------------------ 

STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
--------------------------------------------------------------------------------

<TABLE> 
<CAPTION> 
                                           1997               1996                1995
                                     ----------------   ----------------    ----------------
<S>                                  <C>                <C>                 <C> 
REVENUES:
 Trading profit (loss)
  Realized                             $    1,195,296     $    4,233,931      $    5,778,268
  Change in unrealized                        387,037         (1,358,873)           (569,416)
                                     ----------------   ----------------    ----------------

    Total trading results                   1,582,333          2,875,058           5,208,852

Interest income (Note 2)                      537,761          1,097,560           1,423,730
                                     ----------------   ----------------    ----------------

    Total revenues                          2,120,094          3,972,618           6,632,582
                                     ----------------   ----------------    ----------------

EXPENSES:
 Profit Shares (Note 3)                       115,595            194,674             412,897
 Brokerage commissions (Note 2)               922,012          2,422,074           2,942,578
 Administrative fees (Note 2)                  26,159             62,103                   -
                                     ----------------   ----------------    ----------------

    Total expenses                          1,063,766          2,678,851           3,355,475
                                     ----------------   ----------------    ----------------

INCOME FROM INVESTMENTS (Note 5)            1,181,613             83,713                   -
                                     ----------------   ----------------    ----------------

NET INCOME                             $    2,237,941     $    1,377,480      $    3,277,107
                                     ================   ================    ================

NET INCOME PER UNIT OF
 PARTNERSHIP INTEREST: 
 Weighted average number of Units
  outstanding (Note 4)                        116,746            134,302             156,675
                                     ================   ================    ================

Net income per weighted average
 General Partner and Limited
 Partner Unit                          $        19.17     $        10.26      $        20.92
                                     ================   ================    ================
</TABLE> 
See notes to financial statements.
         
                                      -3-
<PAGE>
 
ML FUTURES INVESTMENTS L.P.
(A Delaware Limited Partnership)
 ------------------------------ 

STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
--------------------------------------------------------------------------------

<TABLE> 
<CAPTION> 
                                                 Limited            General                    
                               Units            Partners            Partner              Total 
                            ---------       --------------       -----------       --------------
<S>                         <C>             <C>                  <C>               <C>
 PARTNERS' CAPITAL,
  DECEMBER 31, 1994           168,218          $28,947,888          $353,061          $29,300,949

 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

 Redemptions                  (20,225)          (3,914,231)                -           (3,914,231)

 Net income                         -            1,357,050            20,430            1,377,480
                            ---------       --------------       -----------       --------------

 PARTNERS' CAPITAL,
  DECEMBER 31, 1996           122,597           24,906,584           368,402           25,274,986

 Redemptions                  (14,301)          (3,127,522)                -           (3,127,522)

 Net income                         -            2,203,971            33,970            2,237,941
                            ---------       --------------       -----------       --------------

 PARTNERS' CAPITAL,
  DECEMBER 31, 1997           108,296          $23,983,033          $402,372          $24,385,405
                            =========       ==============       ===========       ==============
</TABLE> 
See notes to financial statements.

                                      -4-
<PAGE>
 
ML FUTURES INVESTMENTS L.P.
(A Delaware Limited Partnership)
 ------------------------------ 

NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
--------------------------------------------------------------------------------

1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

  Organization
  ------------

  ML Futures Investments 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 on futures 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., which, in turn, is a
  wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("Merrill Lynch"), 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 as
  well as the reported amounts of revenues and expenses during the reporting
  period.  Actual results could differ from those estimates.

  Revenue Recognition
  -------------------

  Commodity futures, options on futures and forward contract transactions are
  recorded on the trade date and open contracts are reflected in net unrealized
  profit on open contracts in the Statements of Financial Condition at the
  difference between the original contract value and the fair value.  The change
  in net unrealized profit (loss) on open contracts from one period to the next
  is reflected in change in unrealized in the Statements of Income.  Fair value
  is based on quoted market prices on the exchange or market on which the
  contract is traded.

  Operating Expenses
  ------------------

  MLIP pays for all routine operating costs (including legal, accounting,
  printing, postage and similar administrative expenses) of the Partnership.
  MLIP receives an administrative fee as well as a portion of the brokerage
  commissions paid to MLF by the Partnership as reimbursement for the foregoing
  expenses.

                                      -5-
<PAGE>
 
  Income Taxes
  ------------

  No provision for income taxes has been made in these 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.

  Distributions
  -------------

  The Unitholders are entitled to receive, equally per Unit, any distributions
  which may be made by the Partnership.  No such distributions had been made as
  of December 31, 1997.
 
  Redemptions
  -----------

  A Limited Partner may require the Partnership to redeem some or all of such
  Partner's Units at Net Asset Value as of the close of business on the last
  business day of any month upon ten calendar days' notice.

   Dissolution of the Partnership
   ------------------------------

   The Partnership will terminate on December 31, 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

   The Partnership's U.S. dollar assets are held at MLF in cash. On the cash
   held at MLF, the Partnership receives interest from Merrill Lynch at the
   prevailing 91-day U.S. Treasury bill rate. Merrill Lynch may derive certain
   economic benefits, in excess of the interest which Merrill Lynch pays to the
   Partnership, from possession of such cash.

   Merrill Lynch credits the Partnership with interest on the Partnership's non-
   U.S. dollar-denominated assets based on local short-term rates. Merrill Lynch
   charges the Partnership Merrill Lynch's cost of financing realized and
   unrealized losses on the Partnership's non-U.S. dollar-denominated positions.

   The General Partner has determined that there may have been a miscalculation
   in the interest credited to the Partnership for a period prior to November
   1996 (such period may extend prior to that covered by these financial
   statements). Accordingly, the General Partner credited current and former
   investors who maintained a Merrill Lynch customer account in December 1997
   with interest which was compounded. Former investors who do not maintain a
   Merrill Lynch customer account will be credited as their response forms are
   processed. The total amount of the adjustment is approximately $1,143,000.
   Since this amount was paid directly to investors by the General Partner, it
   is not reflected in these financial statements. The General Partner has
   determined that interest has been calculated appropriately since November
   1996.

   The Partnership paid brokerage commissions to MLF at a flat monthly rate
   equal to .833 of 1% (a 10% annual rate) of the Partnership's month-end
   assets. Effective January 1, 1996, the percentage was reduced to .813 of 1%
   (a 9.75% annual rate) of the Partnership's month-end assets and the
   Partnership began to pay MLIP a monthly administrative fee of .021 of 1% (a
   .25% annual rate) of the Partnership's month-end assets (this
   recharacterization had no economic effect on the Partnership). Effective
   February 1, 1997, the Partnership's brokerage commission percentage was
   reduced to .729 of 1% (an 8.75% annual rate) of the Partnership's month-end
   assets. Month-end assets are not reduced for purposes of

                                      -6-
<PAGE>
 
  calculating brokerage commissions and administrative fees by any accrued
  brokerage commissions, administrative fees, Profit Shares or other fees or
  charges.

  The General Partner estimates that the round-turn equivalent commission rate
  charged to the Partnership during the years ended December 31, 1997, 1996 and
  1995, was approximately $116, $89 and $119, respectively (not including, in
  calculating round-turn equivalents, forward contracts on a futures-equivalent
  basis).

  MLF pays the Advisors annual Consulting Fees ranging up to 2% 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 service
  desk (the "F/X Desk") established by MLIP.  The F/X Desk gives the Partnership
  access to counterparties in addition to (but also including) Merrill Lynch
  International Bank ("MLIB").  MLIP or another Merrill Lynch entity charges a
  service fee equal to, at current exchange rates, approximately $5.00 to $12.50
  on each purchase or sale (not round-turn) of a futures contract-equivalent
  face amount of a given currency traded in the forward markets.  No service
  fees are charged on trades awarded to MLIB (which receives bid-ask spreads on
  such trades).

  In its exchange of futures for physical ("EFP") trading with Merrill Lynch,
  the Partnership acquires spot or forward (collectively, "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 the two positions. This differential reflects, in part, the
  different settlement dates of the cash and the futures contracts and
  prevailing interest rates, but also includes a pricing spread in favor of MLIB
  or another Merrill Lynch entity. The Advisors, to date, have made little use
  of EFPs.

  The Partnership's F/X Desk service fee and EFP differential costs have, to
  date totaled no more than .25 of 1% per annum of the Partnership's average
  month-end assets.

3. AGREEMENTS

  The Partnership and the Advisors have each entered into Advisory Agreements.
  These Advisory Agreements generally terminate one year after they are entered
  into, subject to certain renewal rights exercisable by the Partnership.  The
  Advisors determine the commodity futures and forward contract trades to be
  made on behalf of their respective Partnership accounts, subject to certain
  Partnership trading policies and to certain rights reserved by MLIP.

  In the case of the Trading LLCs, as defined in Note 5, each Trading LLC
  entered into an Advisory Agreement with an Advisor.

  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, either as of the end of each
  calendar quarter or year, will be paid by the Partnership to each of the
  Advisors.  Profit Shares are also paid out in respect of Units redeemed as of
  the end of interim months to the extent of the applicable percentage of any
  New Trading Profit attributable of such Units.

                                      -7-
<PAGE>
 
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 Units
  outstanding at December 31, 1997, 1996 and 1995 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. INVESTMENTS

  The Partnership places assets under the management of certain of the
  Advisors not through opening managed accounts with them but rather through
  investing in private limited liability companies ("Trading LLCs") sponsored by
  MLIP.  The only members of the Trading LLCs are commodity pools sponsored by
  MLIP.  Each Trading LLC trades under the management of a single Advisor
  pursuant to a single strategy and at a uniform degree of leverage.  Placing
  assets with an Advisor through investing in a Trading LLC rather than a
  managed account has no economic effect on the Partnership, except to the
  extent that the Partnership benefits from the Advisor not having to allocate
  trades among a number of different accounts (rather than acquiring a single
  position for the Trading LLC as a whole).

  The investments are reflected in the financial statements at fair value
  based upon the Partnership's interest in the Trading LLCs.  Fair value is
  equal to the market value of the net assets of the Trading LLCs.  The
  resulting difference between cost and fair value is reflected on the
  Statements of Income as income or loss from investments.

  As of December 31, 1997 and 1996 the Partnership had investments in the ML
  Chesapeake Diversified L.L.C. ("Chesapeake LLC") and ML Sjo Prospect L.L.C
  ("SJO LLC") as follows:

                       
                       
                                 1997                 1996
                          -----------------    -----------------
 
        Chesapeake LLC     $      7,176,214     $      7,519,322
        
        SJO LLC                   7,090,298                    -
                          -----------------    -----------------
        Total              $     14,266,512     $      7,519,322
                          =================    =================


  Total revenues and fees with respect to such investments are set forth as
  follows:

<TABLE>
<CAPTION>
For the year ended       Total                  Brokerage               Administrative              Profit             Income from
December 31, 1997       Revenue                Commissions                   Fees                   Shares             Investments
 
<S>                <C>                      <C>                     <C>                          <C>                 <C> 
   Chesapeake LLC        $1,391,741              $  667,808                      $18,896            $142,849             $  562,188
   SJO LLC                1,376,159                 661,885                       18,730              76,119                619,425
                 ------------------       -----------------       ----------------------       -------------       ----------------
   Total                 $2,767,900              $1,329,693                      $37,626            $218,968             $1,181,613
                 ==================       =================       ======================       =============       ================
 
<CAPTION>  
For the year ended      Total                  Brokerage               Administrative              Profit             Income from
December 31, 1996      Revenue                Commissions                   Fees                   Shares              Investment
<S>                <C>                      <C>                     <C>                          <C>                 <C>  
   Chesapeake LLC        $  222,948              $  130,335                      $ 3,342            $  5,558             $   83,713
                 ==================       =================       ======================       =============       ================
</TABLE>

                                      -8-
<PAGE>
 
  Condensed statements of financial condition as of December 31, 1997 and 1996
  and statements of income for the periods ended December 31, 1997 and 1996 for
  Chesapeake LLC and SJO LLC are set forth as follows:

<TABLE> 
<CAPTION>                        
                                        1997                          1996
                      --------------------------------------   --------------------
                            Chesapeake             SJO               Chesapeake
                               LLC                 LLC                  LLC
                      ---------------------   --------------   --------------------  
<S>                   <C>                        <C>           <C> 
 Assets                  $      17,195,182       $21,240,207     $       21,273,568
                      =====================   ==============   ====================  

 Liabilities             $         704,681    $    2,058,617     $          579,289
 Members' Capital               16,490,501        19,181,590             20,694,279
                      ---------------------   --------------   --------------------  

 Total                   $      17,195,182    $   21,240,207     $       21,273,568
                      =====================   ==============   ====================  

 Revenues                $       3,480,490    $    3,903,267     $          608,594

 Expenses                        2,055,125         2,144,078                382,949
                      ---------------------   --------------   -------------------- 

 Net Income              $       1,425,365    $    1,759,189     $          225,645
                      =====================   ==============   ====================  
</TABLE>

6. 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 total trading results by reporting category for the years ended
   December 31, 1997, 1996 and 1995 were as follows:

<TABLE>
<CAPTION>
                                                        Total Trading Results
                                     ------------------------------------------------------------------------
                                            1997                        1996                       1995
                                     -----------------         ---------------------       ------------------
<S>                                   <C>                       <C>                          <C>
Interest Rates and Stock Indices       $      (537,115)          $         2,081,406         $      5,512,504
Commodities                                     58,137                      (242,177)                  37,644
Currencies                                   1,536,465                       774,656                  689,813
Energy                                        (136,640)                    1,271,994                  452,971
Metals                                         661,486                    (1,010,821)              (1,484,080)
                                     -----------------         ---------------------        -----------------
                                       $     1,582,333           $       $ 2,875,058         $      5,208,852
                                     =================         =====================        =================
</TABLE>

   Market Risk
   -----------

   Derivative instruments involve varying degrees of off-balance sheet market
   risk, and changes in the level or volatility of interest rates, foreign
   currency exchange rates or market values of the financial instruments or
   commodities underlying such derivative instruments frequently result in
   changes in the Partnership's unrealized profit (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.

                                      -9-
<PAGE>
 
   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.  The procedures focus primarily on monitoring the trading of the Advisors
   selected from time to time by the Partnership, calculating the Net Asset
   Value of their respective Partnership accounts as of the close of business on
   each day and reviewing outstanding positions for over-concentrations--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 traded by the Partnership are marked to market
   daily with the resulting unrealized profit (loss) recorded in the Statements
   of Financial Condition and the related profit (loss) reflected in trading
   revenues in the Statements of Income.

   The contract/notional values of open contracts as of December 31, 1997 and
   1996 were as follows:

<TABLE> 
<CAPTION>                        
                                         1997                                                 1996
                    ---------------------------------------------        -----------------------------------------------
                        Commitment to             Commitment to              Commitment to               Commitment to
                      Purchase (Futures,          Sell (Futures,           Purchase (Futures,           Sell (Futures,
                          Options &                 Options &                  Options &              Options & Forwards)
                          Forwards)                 Forwards)                  Forwards)
                    -------------------       -------------------        -------------------        --------------------
<S>                   <C>                       <C>                        <C>                        <C>
Interest Rates                                                                                                           
 and Stock Indices   $       44,385,611        $       11,883,229         $       23,233,479         $         4,981,659 
Commodities                           -                   570,095                    435,505                     167,947
Currencies                    2,030,107                14,234,764                  4,329,546                   8,191,986
Energy                                -                         -                          -                           -
Metals                        1,353,394                 1,703,304                  1,788,579                   3,100,766
                    -------------------       -------------------        -------------------        --------------------
                     $       47,769,112        $       28,391,392         $       29,787,109         $        16,442,358
                    ===================       ===================        ===================        ====================
</TABLE>

  Substantially all of the Partnership's derivative instruments outstanding as
  of December 31, 1997, expire within one year.

                                     -10-
<PAGE>
 
  The contract/notional values of the Partnership's open exchange-traded and
  non-exchange-traded open derivative instrument positions as of December 31,
  1997 and 1996 were as follows:

<TABLE> 
<CAPTION>                                 
                                             1997                                                      1996
                     ------------------------------------------------------- --------------------------------------------------
                            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>
Exchange-                                                                                             
 Traded                 $          45,970,412      $           24,361,153      $           23,668,984                $ 7,277,636
Non-Exchange-                                                                                         
 Traded                             1,798,700                   4,030,239                   6,118,125                  9,164,722
                      -----------------------    ------------------------    ------------------------   ------------------------
                        $          47,769,112      $           28,391,392      $           29,787,109                $16,442,358
                      =======================    ========================    ========================   ========================
</TABLE>

  The average fair values, based on contract/notional values, of the
  Partnership's derivative instrument positions which were open as of the end of
  each calendar month during the years ended December 31, 1997 and 1996 were as
  follows:

<TABLE>
<CAPTION>
                                        1997                                               1996
                     --------------------------------------------       ------------------------------------------
                         Commitment to                                     Commitment to                           
                           Purchase                Commitment to              Purchase              Commitment to  
                           (Futures,              Sell (Futures,             (Futures,             Sell (Futures,  
                           Options &                 Options &               Options &                Options &
                           Forwards)                 Forwards)               Forwards)                Forwards)
                     ------------------        ------------------       -----------------       ------------------
<S>                    <C>                       <C>                      <C>                     <C>
 Interest Rates        $     23,451,890           $   $30,553,601         $   122,569,950          $    56,764,487
  and Stock Indices      
 Commodities                  1,662,055                   398,620               5,564,897                1,483,611
 Currencies                   9,044,965                14,258,465              28,363,350               29,061,432
 Energy                         866,145                   841,680               2,652,894                   41,980
 Metals                       5,754,718                 2,949,551              10,444,937                6,273,290
                     ------------------        ------------------       -----------------       ------------------
                       $     40,779,773           $    49,001,917         $   169,596,028          $    93,624,800
                     ==================        ==================       =================       ==================
</TABLE>

  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 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 

                                     -11-
<PAGE>
 
  nonperformance. The credit risk associated with these instruments from
  counterparty nonperformance is the net unrealized gain, if any, included on
  the Statements of Financial Condition.

  The Partnership also has credit risk because the sole counterparty or broker
  with respect to most of the Partnership's assets is MLF.

  The gross unrealized profit and the net unrealized profit on the Partnership's
  open derivative instrument positions as of December 31, 1997 and 1996 were as
  follows:

<TABLE> 
<CAPTION>      
                                 1997                                      1996
                -----------------------------------      ---------------------------------------
                      Gross                 Net            Gross Unrealized             Net
                    Unrealized          Unrealized              Profit               Unrealized
                      Profit              Profit                                       Profit
                ----------------      -------------      -------------------      --------------
<S>               <C>                   <C>                <C>                      <C>
Exchange
 Traded           $      552,949        $   481,945        $         157,089        $    154,714
Non-Exchange
 Traded                  101,308             68,794                  119,573               8,988
                ----------------      -------------      -------------------      --------------
                  $      654,257        $   550,739        $         276,662        $    163,702
                ================      =============      ===================      ==============
</TABLE>


  The Partnership controls credit risk by dealing almost exclusively with
  Merrill Lynch entities as brokers and counterparties.

  The Partnership, in its normal course of business, enters into various
  contracts, with MLF acting as its commodity broker.  Pursuant to the brokerage
  arrangement with MLF, to the extent that such trading results in receivables
  from and payables to MLF, these receivables and payables are offset and
  reported as a net receivable or payable.

                 To the best of the knowledge and belief of the
                 undersigned, the information contained in this
                        report is accurate and complete.

                          /s/ Michael A. Karmelin

                              Michael A. Karmelin
                            Chief Financial Officer
                     Merrill Lynch Investment Partners Inc.
                               General Partner of
                          ML Futures Investments L.P.


                                     -12-