<PAGE>
Filed Pursuant to Rule 424(b)(3)
Registration No. 333-47439
PART ONE
ML JWH Strategic Allocation Fund L.P.
2,000,000
Limited Partnership Units
The Fund
Trades in the U.S. and international futures and forward markets
Seeks substantial, long-term capital appreciation
May provide a valuable element of diversification to a portfolio
The Fund Manager
John W. Henry & Company, Inc. ("JWH -Registered Trademark-"), a professional
managed futures advisor, allocates the Fund's assets across multiple JWH
trading programs.
The Units
As of June 1, 1998, had increased in Net Asset Value by 34% since the Fund began
trading on July 15, 1996. Past performance is not necessarily indicative of
future results.
Will be available on the first day of each month beginning August
1, 1998
The Risks
These are speculative securities. Before you decide whether to invest, read this
entire prospectus carefully and consider The Risks You Face beginning on page 8.
The Fund is speculative and leveraged.
Performance has been volatile. The Net Asset Value per Unit has fluctuated as
much as 10% in a single month.
You could lose all or substantially all of your investment in the Fund.
The use of a single advisor applying generally similar trading programs could
mean lack of diversification and high risk.
JWH has total discretionary trading authority over the Fund.
Substantial expenses must be offset by trading profits and interest income.
Minimum Investments
First-time investors:
50 Units or $5,000, whichever is less
IRAs, other tax-exempt accounts and current investors:
20 Units or $2,000, whichever is less
--------------------
THIS PROSPECTUS IS IN TWO PARTS. THESE PARTS ARE BOUND
TOGETHER, AND BOTH CONTAIN IMPORTANT INFORMATION.
--------------------
THE COMMODITY FUTURES TRADING COMMISSION HAS NOT PASSED UPON THE
MERITS OF PARTICIPATING IN THIS POOL NOR HAS THE COMMISSION PASSED
ON THE ADEQUACY OR ACCURACY OF THIS DISCLOSURE DOCUMENT.
--------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
--------------------
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
Selling Agent
MERRILL LYNCH INVESTMENT PARTNERS INC.
General Partner
July 6, 1998
<PAGE>
COMMODITY FUTURES TRADING COMMISSION
RISK DISCLOSURE STATEMENT
YOU SHOULD CAREFULLY CONSIDER WHETHER YOUR FINANCIAL CONDITION PERMITS
YOU TO PARTICIPATE IN A COMMODITY POOL. IN SO DOING, YOU SHOULD BE AWARE THAT
FUTURES AND OPTIONS TRADING CAN QUICKLY LEAD TO LARGE LOSSES AS WELL AS GAINS.
SUCH TRADING LOSSES CAN SHARPLY REDUCE THE NET ASSET VALUE OF THE POOL AND
CONSEQUENTLY THE VALUE OF YOUR INTEREST IN THE POOL. IN ADDITION, RESTRICTIONS
ON REDEMPTIONS MAY AFFECT YOUR ABILITY TO WITHDRAW YOUR PARTICIPATION IN THE
POOL.
FURTHER, COMMODITY POOLS MAY BE SUBJECT TO SUBSTANTIAL CHARGES FOR
MANAGEMENT, AND ADVISORY AND BROKERAGE FEES. IT MAY BE NECES SARY FOR THOSE
POOLS THAT ARE SUBJECT TO THESE CHARGES TO MAKE SUBSTANTIAL TRADING PROFITS TO
AVOID DEPLETION OR EXHAUSTION OF THEIR ASSETS. THIS DISCLOSURE DOCUMENT CONTAINS
A COMPLETE DESCRIPTION OF EACH EXPENSE TO BE CHARGED THIS POOL AT PAGES 23 TO 26
AND A STATEMENT OF THE PERCENTAGE RETURN NECESSARY TO BREAKEVEN, THAT IS, TO
RECOVER THE AMOUNT OF YOUR INITIAL INVESTMENT, AT PAGE 7.
THIS BRIEF STATEMENT CANNOT DISCLOSE ALL THE RISKS AND OTHER FACTORS
NECESSARY TO EVALUATE YOUR PARTICIPATION IN THIS COMMODITY POOL. THEREFORE,
BEFORE YOU DECIDE TO PARTICIPATE IN THIS COMMODITY POOL, YOU SHOULD CAREFULLY
STUDY THIS DISCLOSURE DOCUMENT, INCLUDING A DESCRIPTION OF THE PRINCIPAL RISK
FACTORS OF THIS INVESTMENT, AT PAGES 8 TO 12.
YOU SHOULD ALSO BE AWARE THAT THIS COMMODITY POOL MAY TRADE
FOREIGN FUTURES OR OPTIONS CONTRACTS. TRANSACTIONS ON MARKETS
LOCATED OUTSIDE THE UNITED STATES, INCLUDING MARKETS FORMALLY
LINKED TO A UNITED STATES MARKET, MAY BE SUBJECT TO REGULATIONS
WHICH OFFER DIFFERENT OR DIMINISHED PROTECTION TO THE POOL AND ITS
PARTICIPANTS. FURTHER, UNITED STATES REGULATORY AUTHORITIES MAY BE
UNABLE TO COMPEL THE ENFORCEMENT OF THE RULES OF REGULATORY
AUTHORITIES OR MARKETS IN NON-UNITED STATES JURISDICTIONS WHERE
TRANSACTIONS FOR THE POOL MAY BE EFFECTED.
--------------------------
THIS PROSPECTUS DOES NOT INCLUDE ALL OF THE INFORMATION OR EXHIBITS IN
THE FUND'S REGISTRATION STATEMENT. YOU CAN READ AND COPY THE ENTIRE REGISTRATION
STATEMENT AT THE PUBLIC REFERENCE FACILITIES MAINTAINED BY THE SEC IN
WASHINGTON, D.C.
THE FUND FILES QUARTERLY AND ANNUAL REPORTS WITH THE SEC. YOU
CAN READ AND COPY THESE REPORTS AT THE SEC PUBLIC REFERENCE
FACILITIES IN CHICAGO, NEW YORK OR WASHINGTON, D.C. PLEASE CALL
THE SEC AT 1-800-SEC-0300 FOR FURTHER INFORMATION.
THE FUND'S FILINGS ARE POSTED AT THE SEC WEBSITE AT HTTP://WWW.SEC.GOV.
-------------------------
MERRILL LYNCH INVESTMENT PARTNERS INC.
General Partner
South Tower
World Financial Center
New York, New York 10080-6106
(212) 236-4167
1
<PAGE>
ML JWH STRATEGIC ALLOCATION FUND L.P.
Organizational Chart
<TABLE>
<CAPTION>
<S> <C>
---------------------
Merrill Lynch
& Co., Inc.
ML & Co. Limited Partnership
---------------------
Wholly-owned Interest
- -----------------------------------------------------------------------------------------------------------------------------------
- --------------------- ------------------ ------------- ---------------------
Merrill Lynch, Pierce, Merrill Lynch Merrill Lynch Merrill Lynch
Fenner & Smith International Inc. Group Inc. Asset Management, L.F.
------------------ ------------- MLAM
Incorporated
Cash Management
Selling Agent Wholly-owned Wholly-owned Services
- --------------------- ------------ ----------------------
-------------------
Merrill Lynch Princeton General Partnership
International Banks Services, Inc. Interest
MLIB Wholly-owned
------------------- --------------
------------- -------------
General Partnership
Merrill Lynch Merrill Lynch Interest
Futures Inc. Investment -------------------
MLF Partners Inc.
------------- MLIP
-------------
Selling Agreement ML JWH Strategic Investment
- -------------------------------------------------------------------------------------
Allocation Advisory
Fund L.P. Agreement
Fund
--------------------
--------------------
ML JWH Strategic Investment
Customer Agreement Joint Venture Advisory
The Fund & Trading Agreement
F/X Desk Agreement Accounts
---------------------------------------------------------------------------------------------------------
--------------------
John W. Henry
& Company
Trading Advisor
---------------------
---------------------
International Futures
Markets
---------------------
</TABLE>
Other than John W. Henry & Company, Inc., all of the entities indicated
in the foregoing organizational chart are Merrill Lynch affiliates. See
"Conflicts of Interest" beginning at page 60 and "Transactions Between the Fund
and Merrill Lynch" at page 63.
For convenience, ML&Co. and entities affiliated with it are
sometimes collectively referred to as "Merrill Lynch."
2
<PAGE>
Contents
<TABLE>
<CAPTION>
PART ONE
<S> <C>
Summary..................................................................3
The Risks You Face.......................................................8
How the Fund Works......................................................12
Performance of the Fund.................................................14
Performance of Other MLIP Publicly-Offered
Single Advisor Funds.................................................16
Selected Financial Data.................................................17
Management's Analysis of Operations.....................................18
Interest Income Arrangements............................................20
Analysis of Fees and Expenses Paid
by the Fund..........................................................23
Managed Futures Funds in General........................................26
The Role of Managed Futures in
Your Portfolio.......................................................28
JWH Trading Programs....................................................31
John W. Henry & Company, Inc............................................37
JWH Principals..........................................................40
JWH Performance.........................................................44
Merrill Lynch Investment Partners Inc...................................56
Litigation..............................................................58
Net Asset Value.........................................................60
Conflicts of Interest...................................................60
Transactions Between the Fund and
Merrill Lynch........................................................63
Summary of the Limited Partnership
Agreement.............................................................63
Tax Consequences........................................................64
Selling Commissions.....................................................66
Lawyers; Accountants....................................................66
Financial Statements....................................................67
Performance of Other MLIP Funds.........................................87
PART TWO
Futures Markets and Trading Methods.....................................97
- ---------------
Exhibit A -- Limited Partnership
Agreement...........................................LPA-1
Exhibit B -- Subscription Requirements.................................SR-1
Exhibit C -- Subscription Agreement....................................SA-1
</TABLE>
---------------------------
Summary
General
The Fund trades speculatively in a wide range of U.S. and
international futures and forward markets with the primary objective of
substantial long-term capital appreciation. If successful, the Fund can
improve the risk/reward profile of an overall portfolio by providing both
profits and performance unrelated to the general U.S. stock and bond markets.
Merrill Lynch Investment Partners Inc. is the Fund's general partner. John W.
Henry & Company, Inc. is its trading advisor.
JWH-Registered Trademark- and Its Programs
JWH
JWH has been the sole trading advisor for the Fund since inception. JWH
manages capital in commodities, interest rate and foreign exchange markets
for international banks, brokerage firms, pension funds, institutions and
high net worth individuals. JWH trades a wide range of futures and forward
contracts--approximately 60 markets as of the date of this prosepctus--on a
24-hour basis in the United States, Europe and Asia. JWH is one of the
largest managed futures advisors in terms of assets under management, trading
approximately $2.1 billion in client captial as of May 1, 1998.
The Fund Uses Multiple JWH Programs
JWH makes use of a combination of trading programs to manage the Fund,
an approach JWH calls the JWH Strategic Allocation Program. There are no
formal JWH policies that determine the programs used for the Fund.
JWH's programs have certain basic similarities. The use of a single
advisor decreases diversification and increases risk compared to a
multi-advisor fund.
The Fund's Current Programs
To date, the Fund and its offshore counterpart are the only accounts
which have had access to the Strategic Allocation Program. As of the date of
this prosepctus, JWH allocated the Fund's assets among the following eight of
its eleven active trading programs.
3
<PAGE>
June 1, 1998 Fund Allocations
Among JWH Programs
Due to performance differences, the following portfolio allocations may
differ from the cash allocations among the programs. JWH changes the programs
and the allocations used for the Fund from time to time.
<TABLE>
<CAPTION>
% of
Name of Program Fund Assets
<S> <C>
Financial and Metals Portfolio 19.7%
Original Investment Program 18.6%
JWH GlobalAnalytics Programs 15.9%
Global Financial Portfolio 13.9%
G-7 Currency Portfolio 11.5%
Global Diversified Portfolio 9.0%
Dollar Program 6.8%
Worldwide Bond Program 4.6%
100%
</TABLE>
JUNE 1, 1998 FUND ALLOCATIONS
AMONG JWN PROGRAMS
<TABLE>
<CAPTION>
<S> <C>
Worldwide Bond Program 4.60%
JWB GlobalAnalytics(TM) Programs 15.90%
Dollar Program 6.80%
Financial and Metals Portfolio 19.70%
G-7 Currency Portfolio 11.50%
Global Diversified Portfolio 9.00%
Global Financial Portfolio 13.90%
Original Investment Program 18.60%
</TABLE>
See "JWH Trading Programs" beginning at page 31 and "JWH
Performance" beginning at page 44 for performance and other information
regarding the JWH programs.
Average Compounded
Annualized Rates of Return
<TABLE>
<CAPTION>
January 1, 1993-
Name of Program April 30, 1998
<S> <C>
Global Diversified Portfolio 20.0%
Original Investment Program 19.1
Financial and Metals Portfolio 18.0
The World Financial Perspective 15.6
International Currency and Bond Portfolio 14.5
Worldwide Bond Program 14.3
(7/1/96-4/30/98)
JWH GlobalAnalytics Family
of Programs N/A
(6/1/97-4/30/98)
Global Financial Portfolio 12.0
(6/1/94-4/30/98)
International Foreign Exchange Program 10.5
G-7 Currency Portfolio 8.8
Dollar Program 6.9
(7/1/96-4/30/98)
ML JWH Strategic Allocation Fund L.P. 16.6%
(7/15/96-5/31/98)
</TABLE>
The average compounded annualized rate of return is the annual rate of
return which would result in the same cumulative return if compounded yearly
over the same period.
Past performance is not necessarily indicative of future results.
The JWH Programs Are Technical and Trend-Following, Computerized Systems
JWH programs include the computerized system which generates the
trading signals and applies the risk management principles. See "JWH Trading
Programs" beginning at page 31.
The mathematical models used by the programs are technical systems,
generating trading signals on the basis of statistical research into past market
prices. JWH does not attempt to analyze underlying economic factors, identify
mispricings in the market or predict future prices. Its analysis focuses
exclusively on past price movements.
As a trend-following advisor, JWH's objective is to participate in
major price trends -- sustained price movements either up or down. Such price
trends may be relatively infrequent. Trend-following advisors anticipate that
over half of their positions will be
4
<PAGE>
unprofitable. Their strategy is based on making sufficiently large profits
from the trends which they identify and follow to generate overall profits
despite the more numerous but, hopefully, smaller losses incurred on the
majority of their positions.
See "The Risks You Face" beginning at page 8.
Markets Traded by the JWH Programs for the Fund
The JWH programs emphasize trading currencies and financial
instruments, but participate in most major sectors of the global economy,
including but not limited to:
Currencies
Australian Dollar Japanese Yen
*Belgian Franc *Malaysian Ringgit
British Pound *New Zealand Dollar
*Canadian Dollar Norwegian Krone
*Danish Krone *Singapore Dollar
Deutsche Mark *South African Rand
*French Franc *Spanish Peseta
Hong Kong Dollar *Swedish Krone
*Italian Lira Swiss Franc
Financial Instruments
Australian (90-day) French PIBOR
Bank Bills German Bonds
Australian (3-year and Italian Bonds
10-year) Treasury Bonds Japanese Bonds
*Canadian Bonds *Spanish Bonds
Eurodollar Spanish MIBOR
Eurolira U.K. Long "Gilts"
Euromark U.K. Short Sterling
Euroswiss U.S. 10-year Treasury
Euroyen Notes
French Notionnel Bonds U.S. Treasury Bonds
Stock Indices
*Australian All Ordinaries FTSE 100 (UK)
Index *New York Composite
*CAC 40 Stock Index Nikkei 225 Index
(France) (Japan)
*DAX (German) *S&P 500 Stock Index
Metals
*Aluminum *Palladium
Copper *Platinum
Gold Silver
*Lead *Tin
*Nickel *Zinc
Agricultural Products
*Cattle *Orange Juice
Cocoa Soybeans
Coffee Soymeal
Corn Soy Oil
Cotton Sugar
*Hogs *Wheat
*Lumber
Energy
Crude Oil No. 2 Heating Oil
Natural Gas Unleaded Gasoline
* These markets are traded if and when contract liquidity, legal constraints,
market conditions and data reliability standards meet JWH's specifications.
There is no way to predict which markets the Fund will trade or what
its relative commitments to the different markets will be.
As of June 1, 1998, the JWH trading programs used for the Fund had the
following approximate market sector commitments.
<TABLE>
<CAPTION>
<S> <C>
Financial Instruments 32%
Currencies 23%
Commodities 23%
Metals 13%
Stock Indices 9%
</TABLE>
The Fund's market sector weightings vary significantly over time.
MARKET SECTORS TRADED
AS OF JUNE 1, 1998
<TABLE>
<S> <C>
Currencies 23.00%
Stock Indices 9.00%
Financial Instruments 32.00%
Commodities 23.00%
Metals 13.00%
</TABLE>
The sector weightings may change substantially over time.
5
<PAGE>
Varying the Size of the Fund's Market Positions
JWH attempts to adjust the Fund's position sizes and market exposure
to meet its profit and risk-control objectives. Generally, only between 2%
and 15% of the face value of a futures or forward position is required as
margin to put on the position. Consequently, JWH has considerable flexibility
to make significant changes in the size of the Fund's open positions. For
example, the margin requirement for the Treasury bond futures contract is
only approximately 2% of the face value of each contract. This means that JWH
could acquire, for each $100,000 of Fund capital, positions ranging from a
single Treasury bond contract with a face value of $100,000 up to 50 such
contracts with a face value of $5,000,000. The greater the market exposure of
the Fund, the more profit or loss it will recognize as a result of the same
price movements, and the greater its risk, profit potential and expected
performance volatility.
MLIP
General
Offering hedge funds, managed futures and currency investments for
individuals, corporations and financial institutions, MLIP has operated with
one primary objective since its inception in 1986. This objective is to
provide investors with an opportunity for long-term capital appreciation and
diversification through professionally managed investments in equity, debt,
currency, interest rate, metals, energy and agricultural markets, utilizing a
wide variety of instruments and trading strategies. As of May 1, 1998, MLIP
was acting as trading manager or sponsor to funds in which approximately $3.1
billion of client assets were invested.
See the organizational chart of the Merrill Lynch entities at page 2
and "Transactions Between the Fund and Merrill Lynch" at page 63.
MLIP's Exclusive Access to the Strategic Allocation Program
JWH has granted MLIP the exclusive right to market both public and
private funds using the JWH Strategic Allocation Program. This exclusive
right will continue until the end of the twelfth full month after the initial
sale of Units under this prospectus. MLIP and JWH presently intend to extend
this exclusive arrangement on a year-to-year basis, but there can be no
assurance that they will do so.
Cash Management
Merrill Lynch Asset Management, L.P. provides cash management
services to the Fund, investing in U.S. Government and agency securities
within parameters established by MLIP for which MLAM assumes no
responsibility. As of May 1, 1998, the Asset Management Group of ML&Co.
(which includes MLAM) had a total of approximately $485 billion in investment
company and other portfolio assets under management. This figure includes
assets managed for some of MLAM's affiliates.
Major Risks of the Fund
The Fund is a speculative investment. It is not possible to predict
how the Fund will perform over either the long or short term.
Investors must be prepared to lose all or substantially all of their
investment in the Units.
There can be no assurance that the past performance of either the
Fund or JWH is indicative of how they will perform in the future.
The performance of the JWH programs is dependent upon market trends
of the type that their models are designed to identify. Trendless periods are
frequent, and during such periods the Fund is unlikely to be profitable.
The Fund is subject to substantial charges. The Fund must earn
overall trading profits and interest income of approximately 9%-10% of its
average Net Asset Value each year simply to break even after operating
expenses.
Because its performance is entirely unpredictable, there is no way
of telling when is a good time to invest in the Fund. Investors have no means
of knowing whether they are buying Units at a time when major price trends
followed by the JWH programs are ending, beginning, or not in progress.
The Net Asset Value per Unit has varied by as much as 10% in a single
month. Because investors
6
<PAGE>
must submit irrevocable subscriptions as well as redemption notices at least
10 days before the purchase or redemption of Units -- and can do so up to
approximately a month before -they cannot know the Net Asset Value at which
they will acquire or redeem Units. The Fund could incur material losses
between the time investors subscribe and the time they receive their Units.
In addition, investors cannot control the maximum losses on their Units
because they cannot be sure of the redemption value of their Units.
As limited partners, investors have no voice in the operation of the
Fund; they are entirely dependent on the management of MLIP and JWH for the
success of their investment.
Fees and Expenses
The Profit Share payable to JWH is calculated on a quarterly basis
and could be substantial even in a breakeven or losing year. The Fund's other
significant expenses are its Brokerage Commissions and Administrative Fees.
If the Fund's Net Asset Value increases, the absolute dollar amount of these
percentage-of-assets fees will also, but they will have the same effect on
the Fund's rate of return. The Fund's ongoing offering and currency trading
costs are estimated but small.
The Fund also pays redemption charges to MLIP (by reducing the
redemption proceeds otherwise payable to investors).
Breakeven Table
<TABLE>
<CAPTION>
Twelve-Month
Dollar
Twelve-Month Breakeven
Percentage ($5,000 Initial
Expenses Breakeven Investment)++
<S> <C> <C>
Ongoing Offering Costs* 0.25% $ 12.50
Brokerage Commissions 7.75% $ 387.50
Administrative Fees 0.25% $ 12.50
Profit Share* 1.00% $ 50.00
Currency Trading Costs* 0.25% $ 12.50
Interest Income* (5.00)% $(250.00)
TWELVE-MONTH
BREAKEVEN WITHOUT
REDEMPTION CHARGE 4.50% $225.00
----- -------
Redemption Charge
(first twelve months only) 3.00% $150.00
TWELVE-MONTH
BREAKEVEN WITH
REDEMPTION CHARGE 7.50% $375.00
----- -------
</TABLE>
- ---------------
* Estimated. The Profit Share is 15% of New Trading Profits quarterly;
consequently, a Profit Share could be due in a breakeven or losing year. Ongoing
offering costs paid by the Fund are capped at 0.25% of average Net Assets per
annum.
++ Assumes a constant $5,000 Net Asset Value.
See "Analysis of Fees and Expenses
Paid by the Fund" at page 23.
Principal Tax Aspects of Owning Units
Investors are taxed each year on any gains recognized by the Fund
whether or not they redeem any Units or receive any distributions from the
Fund.
40% of any trading profits on U.S. exchange-traded contracts are
taxed as short-term capital gains at the 39.6% ordinary income rate, while
60% of such gains are taxed as long-term capital gain at a 20% maximum rate
for individuals. The Fund's trading gains from other contracts will be
primarily short-term capital gain. This tax treatment applies regardless of
how long an investor holds Units. If, on the other hand, an investor held a
stock or bond for 18 months or longer, all the gain realized on its sale
would generally be taxed at a 20% maximum rate.
Losses on the Units may be deducted against capital gains. Any
losses in excess of capital gains may only be deducted against ordinary
income to the extent of $3,000 per year. Consequently, investors could pay
tax on the Fund's interest income even though they have lost money on their
Units. See "Tax Consequences" beginning at page 64.
An Investment in the Units Should be Considered as a Long-Term Commitment
The market trends which the programs attempt to follow occur
infrequently. An investor should plan to hold Units for long enough to have a
realistic opportunity for a number of such trends to develop.
MLIP believes that investors should consider the Units at least a 3-
to 5-year commitment.
See "Exhibit B -- Subscription Requirements."
7
<PAGE>
Is the Fund a Suitable Investment for You?
You should consider investing in the Fund if you are interested in
its potential to produce enhanced returns over the long-term that are
generally unrelated to the returns of the traditional debt and equity markets
and you are prepared to risk significant losses. Your Financial Consultant
can assist you in deciding whether the Units are suitable for your portfolio.
No one should invest more than 10% of their readily marketable
assets in the Fund.
The Risks You Face
Possible Total Loss of an Investment in the Fund
You could lose all or substantially all of your investment in the
Fund.
The Large Size of the Fund's Trading Positions Increases the Risk of Sudden,
Major Losses
The Fund takes positions with face values up to as much as
approximately 5 times its total equity. Consequently, even small price
movements can cause major losses.
Investors Must Not Rely on the Past Performance of Either JWH or the Fund in
Deciding Whether to Buy Units
The future performance of the Fund is entirely unpredictable, and
the past performance of the Fund as well as of JWH is not necessarily
indicative of their future results.
The price data which JWH has researched in developing its programs
may not reflect the changing dynamics of future markets. If not, the JWH
programs would have little chance of being profitable. A number of
trend-following systematic traders have had long losing periods immediately
after long periods of success. An influx of new market participants, changes
in market regulation, international political developments, demographic
changes and numerous other factors can contribute to once-successful
technical systems becoming outdated. Not all of these factors can be
identified, much less quantified. JWH regularly conducts research on the
markets and its programs, but there can be no assurance that it will be able
to continue to trade profitably.
JWH Analyzes Only Technical Market Data, Not Any Economic Factors External to
Market Prices
The JWH programs focus exclusively on statistical analysis of market
prices. Consequently, any factor external to the market itself which
dominates prices is likely to cause major losses. For example, a pending
political or economic event may be very likely to cause a major price
movement, but JWH would continue to maintain positions that would incur major
losses as a result of such movement, if its programs indicated that it should
do so.
The likelihood of the Units being profitable could be materially
diminished during periods when events external to the markets themselves have
an important impact on prices. During such periods, JWH's historical price
analysis could establish positions on the wrong side of the price movements
caused by such events.
Lack of Price Trends or of the Types of Price Trends Which JWH Programs Can
Identify Will Cause Major Losses
The Fund cannot trade profitably unless major price trends occur in
at least certain markets that it trades. Many markets are trendless most of
the time, and in static markets the JWH programs are likely to incur losses.
In fact, JWH expects more than half of its trades to be unprofitable; it
depends on significant gains from a few major trends to offset these losses.
Moreover, it is not just any price trend, but price trends of the type which
JWH's systems have been designed to identify, which are necessary for the
Fund to be profitable.
The Danger to the Fund of "Whipsaw" Markets
Often, the most unprofitable market conditions for the Fund are those
in which prices "whipsaw," moving quickly upward, then reversing, then moving
upward again, then reversing again. In such conditions, the programs may
establish positions based
8
<PAGE>
on incorrectly identifying both the brief upward or downward price movements
as trends, whereas in fact no trends sufficient to generate profits develop.
The Similarities Among the JWH Programs Reduce Diversification, Increasing
the Risk of Loss
The similarities among the programs, including the common
statistical models and data bases which they use, reduce the Fund's
diversification. The less diversification, the higher the risk that the
market will move against a large number of positions held by different
programs at the same time, increasing losses.
Overlap of the Markets Traded by JWH Also Reduces Diversification, Increasing
the Risk of Loss
In addition to the similarities among the programs, the markets they
trade overlap. As of the date of this prospectus, the programs concentrate
approximately 50% of their positions in the financial instrument and currency
markets. The degree of market overlap changes as different programs react
differently to changing market conditions and cannot be predicted. However,
in general, MLIP would expect approximately a minimum 50% concentration in
these two sectors. Market concentration increases the risk of major losses
and unstable Unit values, as the same price movements adversely affect many
of the Fund's concentrated positions at or about the same time.
As it is impossible to predict where price trends will occur,
certain trend-following managers attempt to maximize the chance of exploiting
such trends by taking positions in as many different markets and market
sectors as feasible. The Fund does not follow this approach and, as a result,
may not capture trends which would have been highly profitable. See "Summary
- -- JWH(R) and Its Programs -- Markets Traded by the JWH Programs for the
Fund" at page 5.
The JWH Strategic Allocation Program Is Not a Formal Program or System
The JWH Strategic Allocation Program is not a systematic selection
process, and JWH does not apply any formal selection policies or criteria in
choosing combinations of programs for the Fund. Such combinations are
developed solely on the basis of the subjective market judgment and
experience of certain JWH principals. Subjective, judgmental decision-making
may be less disciplined and objective than a more systematic method, and
there can be no assurance that JWH will select the optimal combinations of
programs for the Fund.
Its Substantial Expenses Will Cause Losses for the Fund Unless Offset by
Profits
The Fund pays fixed annual expenses of 8% of its average month-end
assets. Ongoing offering and currency trading costs, paid as incurred, could
also equal approximately 0.5% of the Fund's average month-end assets
annually. In addition to this 8.5% annual expense level, the Fund is also
subject to 15% quarterly Profit Shares during its profitable quarters.
Because these Profit Shares are calculated quarterly, they could represent a
substantial expense to the Fund even in a breakeven or losing year. Based on
MLIP's experience with its other funds, MLIP expects that approximately 1% of
the Fund's average month-end assets might be paid out in Profit Shares even
during a losing year. Overall, investors must expect that the Fund will pay
about 9.5% per year in expenses, 12.5% including the 3% redemption charge in
effect for the first twelve months after a Unit is issued. The Fund's
expenses could, over time, result in significant losses. Except for the
Profit Share, these expenses are not contingent and are payable whether or
not the Fund is profitable. See "Summary -- Fees and Expenses" at page 7.
Unit Values Are Unpredictable and Vary Significantly Month-to-Month
The Net Asset Value per Unit varies significantly month-to-month. In
October 1996, there was over a 10% change in the value of a Unit. Investors
cannot know at the time they submit a redemption request what the redemption
value of their Units will be.
The only way to take money out of the Fund is to redeem Units. You can
only redeem Units at month-end upon at least 10 days' advance notice and subject
to possible redemption charges. The restrictions imposed on redemptions limit
your ability
9
<PAGE>
to protect yourself against major losses by redeeming part or all of your
Units.
In addition, investors are unable to know whether they are
subscribing after a significant upswing in the Net Asset Value per Unit --
often a time when the Fund has an increased probability of entering into a
losing period.
Investing in the Units Might Not Diversify an Overall Portfolio
One of the objectives of the Fund is to add a valuable element of
diversification to a traditional securities portfolio. While the Fund may
perform in a manner largely independent from the general stock and bond
markets, there is no assurance it will do so. An investment in the Fund could
increase rather than reduce overall portfolio losses during periods when the
Fund as well as stocks and bonds decline in value. There is no way of
predicting whether the Fund will lose more or less than stocks and bonds in
declining markets. Investors must not rely on the Fund as any form of hedge
against losses in their core securities portfolios.
Prospective investors should consider whether diversification in
itself is worthwhile even if the Fund is unprofitable.
Increased Competition from Other Trend-Following Traders Could Reduce JWH's
Profitability
There has been a dramatic increase over the past 10 to 15 years in
the amount of assets managed by trend-following trading systems like the JWH
programs. In 1980, the amount of assets in the managed futures industry were
estimated at approximately $300 million; by the end of 1997, this estimate
had risen to approximately $34.9 billion. It is also estimated that over half
of all managed futures trading advisors rely primarily on trend-following
systems. This means increased trading competition. The more competition there
is for the same positions, the more costly and harder they are to acquire.
JWH's High Level of Equity Under Management Could Lead to Diminished Returns
As of the date of this prospectus, JWH has a significant amount of
assets under management. As of January 1, 1990, JWH had approximately $197
million under management; as of May 1, 1998, this figure had risen to
approximately $2.1 billion. The more money JWH manages, the more difficult it
may be for JWH to trade profitably because of the difficulty of trading
larger positions without adversely affecting prices and performance. Large
trades result in more price slippage than do smaller orders.
Illiquid Markets Could Make It Impossible for the Fund to Realize Profits or
Limit Losses
In illiquid markets, the Fund might not be able to execute the
trades indicated by the programs. JWH could be unable to close out positions
against which the market is moving so as to limit the Fund's losses or to
take positions in order to follow trends identified by the programs. There
are too many different factors which can contribute to market illiquidity to
predict when or where illiquid markets may occur. JWH attempts to limit its
trading to highly liquid markets, but there can be no assurance that a market
which has been highly liquid in the past will not experience periods of
unexpected illiquidity.
Unexpected market illiquidity has caused major losses in recent
years in such sectors as emerging markets and mortgage-backed securities.
There can be no assurance that the same will not happen to the Fund at any
time or from time to time. The large size of the positions which JWH acquires
for the Fund increases the risk of illiquidity by both making its positions
more difficult to liquidate and increasing the losses incurred while trying
to do so.
JWH Trades Extensively in Foreign Markets; These Markets Are Less Regulated
Than U.S. Markets and Are Subject to Exchange Rate, Market Practices and
Political Risks
The programs trade a great deal outside the U.S. From time to time,
as much as 30%-50% of the Fund's overall market exposure could involve
positions taken on foreign markets. Foreign trading involves
10
<PAGE>
risks -- including exchange-rate exposure, possible governmental intervention
and lack of regulation -- which U.S. trading does not. In addition, the Fund
may not have the same access to certain positions on foreign exchanges as do
local traders, and the historical market data on which JWH bases its
strategies may not be as reliable or accessible as it is in the United
States. Certain foreign exchanges may also be in a more or less developmental
stage so that prior price histories may not be indicative of current price
dynamics. The rights of clients in the event of the insolvency or bankruptcy
of a non-U.S. market or broker are also likely to be more limited than in the
case of U.S. markets or brokers.
The Fund's Cash Management Strategies Could Lose Both Yield and Principal
MLAM's cash management will try to generate yields in excess of the
91-day Treasury bill rate. However, there can be no assurance that the
securities MLAM invests in for the Fund will not lose value. If this occurs,
the Fund could lose not only the interest it hopes to gain, but also the
principal it originally invested with MLAM.
The Fund Could Lose Assets and Have Its Trading Disrupted Due to the
Bankruptcy of MLF or Others
The Fund is subject to the risk of MLF, exchange or clearinghouse
insolvency. Fund assets could be lost or impounded in such an insolvency
during lengthy bankruptcy proceedings. Were a substantial portion of the
Fund's capital tied up in a bankruptcy, MLIP might suspend or limit trading,
perhaps causing the Fund to miss significant profit opportunities. No MLIP
fund has ever lost any assets due to the bankruptcy or default of a broker,
exchange or clearinghouse, but there can be no assurance that this will not
happen in the future.
Regulatory Changes Could Restrict the Fund's Operations
The Fund implements a speculative, highly leveraged strategy. From
time to time there is governmental scrutiny of these types of strategies and
political pressure to regulate their activities. For example, the Malaysian
government during 1997 blamed the collapse of its currency on speculative
funds and called for international restrictions on their operations.
Regulatory changes could adversely affect the Fund by restricting
its markets, limiting its trading and/or increasing the taxes to which the
Unitholders are subject. As an example, in the mid-1980s the Commodity
Futures Trading Commission ("CFTC") raised doubts concerning the legality of
futures funds trading currency forwards. If JWH could not trade currency
forwards for the Fund, the effect on the Fund could be material and adverse.
MLIP is not aware of any pending or threatened regulatory developments which
might adversely affect the Fund. However, adverse regulatory initiatives
could develop suddenly and without notice.
--------------------
The following are not risks but rather important tax features of
investing in the Fund which all prospective investors should carefully
consider before deciding whether to purchase Units.
Investors Are Taxed Every Year on Their Share of the Fund's Profits --Not
Only When They Redeem as Would Be the Case if They Held Stocks or Bonds
Investors are taxed each year on their investment in the Fund,
irrespective of whether they redeem any Units. In contrast, an investor
holding stocks or bonds generally pays no tax on their capital appreciation
until the securities are sold. Over time, the deferral of tax on stock and
bond appreciation has a compounding effect.
All performance information included in this prospectus is presented
on a pre-tax basis; the investors who experienced such performance had to pay
the related taxes from other sources.
The Fund's Trading Gains Taxed at Higher Capital Gains Rate
Investors are taxed on their share of any trading profits of the
Fund at both short- and long-term capital gain rates depending on the mix of
U.S. exchange-traded contracts and non-U.S. contracts
11
<PAGE>
traded. These tax rates are determined irrespective of
how long an investor holds Units. Consequently, the tax rate on the Fund's
trading gains may be higher than those applicable to other investments held
by an investor for a comparable period.
Tax Could Be Due From Investors on Their Share of the Fund's Interest Income
Despite Overall Losses
Investors may be required to pay tax on their allocable share of the
Fund's interest income, even though the Fund incurs overall losses. Trading
losses can only be used to offset trading gains and $3,000 of interest income
each year. Consequently, if an investor were allocated $5,000 of interest
income and $10,000 of net trading losses, the investor would owe tax on
$2,000 of interest income even though the investor would have a $5,000 loss
for the year. The $7,000 capital loss would carry forward, but subject to the
same limitation on its deductibility against interest income.
How the Fund Works
Buying Units
You buy Units as of the first business day of any month at Net Asset
Value, but your subscription must be submitted by the 20th day of the
preceding month. Subscriptions submitted after the 20th of a month will be
applied to Unit sales as of the beginning of the second month after receipt,
unless revoked.
Units are purchased at Net Asset Value. Merrill Lynch officers and
employees subscribe at 97% of Net Asset Value. MLIP adds the remaining 3% to
their subscriptions, so that the Fund receives subscription proceeds of 100%
of the Net Asset Value per Unit.
Only first-time investors need to submit Subscription Agreements,
unless the Selling Agent feels it is necessary to reconfirm their suitability
in writing. To purchase additional Units, contact your Financial Consultant.
The minimum purchase for first-time investors is 50 Units or $5,000,
whichever is less; 20 Units or $2,000, whichever is less for IRAs, other
tax-exempt accounts and current investors.
You may only purchase whole Units. Subscription amounts which cannot
be invested in whole Units are never deducted from subscribers' customer
securities accounts.
You must have a Merrill Lynch customer securities account in order
to buy Units.
Use of Proceeds
100% of all subscription proceeds are invested directly into the
Fund. Neither the Fund nor any subscriber pays any selling commissions. MLIP
pays all such commissions as part of the ongoing syndication costs of the
Fund. In return, MLIP receives substantial revenues from the Fund over time.
The Fund uses subscription proceeds to margin its speculative
futures trading, as well as to pay trading losses and expenses. At the same
time that the Fund's assets are being used as margin, they are also available
for cash management. Substantially all the cash management return earned on
the Fund's assets is paid to the Fund, although Merrill Lynch does retain
certain economic benefits from possession of the Fund's assets, as described
in more detail under "Interest Income Arrangements" beginning at page 20.
The Fund's assets are held either in bank custodial accounts or in
regulated customer accounts maintained at one or more Merrill Lynch entities.
MLAM applies its yield-enhancement strategies to the approximately 80% of the
Fund's assets deposited in custodial accounts. As mentioned above, while
being managed by MLAM, these assets are also available to support the Fund's
futures and forward trading.
Redeeming Units
You can redeem Units monthly. To redeem at month-end, contact your
Financial Consultant by the 20th of the month. Financial Consultants may be
contacted by telephone; written redemption requests are not required. Your
Merrill Lynch customer securi-
12
<PAGE>
ties account will be credited with the proceeds within 10 business days of
redemption.
Those limited partners who no longer have a Merrill Lynch account
must send their redemption requests in writing (signature guaranteed)
directly to MLIP, Attention: Mr. Winston Clinton, Merrill Lynch World
Headquarters, South Tower, World Financial Center, New York, New York
10080-6106.
The proceeds of Units redeemed 12 months or less from the date of
purchase are reduced by a charge of 3% of their redemption date Net Asset
Value, which is paid to MLIP. If a limited partner acquires Units at more
than one closing, the Units purchased first by such investor and,
accordingly, least likely to be subject to redemption charges, are assumed to
be those first redeemed.
Uncertain Subscription and Redemption Value of Units
The Fund sells and redeems Units at subscription or redemption date
Net Asset Value, not at the Net Asset Value as of the date that subscriptions
or redemption requests are submitted. Investors must submit irrevocable
subscriptions and redemption requests at least 10 days prior to the effective
date of subscription or redemption. Because of the volatility of Unit values,
this delay means that investors cannot know the value at which they will
purchase or redeem their Units. Materially adverse changes in the Fund's
financial position could occur between the time an investor irrevocably
commits to acquire or redeem Units and the time the purchase or redemption is
made.
Mandatory Trading Suspension If Unit Value Falls 50% in One Month or to $50
or Less
In the event that the Net Asset Value per Unit declines either 50%
or more in one month or to $50 or less, the Fund must liquidate all open
positions, suspend trading and offer all limited partners an opportunity to
redeem their Units before trading resumes. Only if sufficient capital
remained in the Fund after any such special redemption date would the Fund
continue operations.
Distributions
The Fund does not anticipate making any distributions to investors.
No distributions have been made to date.
Small Minimum Investment
By investing in the Fund, you participate in multiple JWH trading
programs with a minimum investment of only 50 Units or $5,000, whichever is
less; 20 Units or $2,000, whichever is less, for IRAs, other tax-exempt
accounts and existing investors. Certain public futures funds, but not the
Fund, permit all investors, not just IRAs, other tax-exempt and existing
investors, to invest in $2,000 minimums.
Even if available, a direct investment in a single JWH program would
require a minimum account size of $5 million. A prospective investor could
trade futures directly or invest in other managed futures accounts for much
less than $5 million, but this is JWH's minimum account size.
Limited Liability for Fund Investors
Investors who open individual futures accounts are personally liable
for all losses, including margin calls potentially in excess of their
investment. As a Unitholder, you can never lose more than your investment and
profits.
Administrative Convenience
MLIP provides all administrative services needed for the Fund,
including trade processing and financial and tax reporting.
The Net Asset Value per Unit is available at any time upon request.
Contact your Financial Consultant or MLIP at (800) 765-0995.
Investors receive monthly financial summaries and annual audited
financials.
13
<PAGE>
Performance of the Fund
The following are the monthly rates of return and the month-end Net
Asset Value per Unit from the inception of the Fund through May 31, 1998.
There can be no assurance that the Fund will continue to perform in the
future the way it has in the past.
ML JWH STRATEGIC ALLOCATION FUND L.P.
July 15, 1996-May 31, 1998
Aggregate Subscriptions: $199,895,865
Current Capitalization: $204,923,068
Worst Monthly Decline (Month/Year): (3.38)% (4/98)
Worst Peak-to-Valley Decline (Month/Year): (4.74)% (1/98-4/98)
Net Asset Value per Unit, May 31, 1998: $134.18
Number of Limited Partners, May 31, 1998: 6,003
<TABLE>
<CAPTION>
Month Monthly Rates Month-End NAV per
of Return Unit
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1996
July (1/2month) (1.02)% $ 98.98
August (0.09) 98.89
September 5.49 104.32
October 10.20 114.86
November 6.62 122.68
December 0.47 123.16
Compound Rate of Return (5 1/2 months) 23.15%
1997
January 3.01% $126.87
February (0.03) 126.83
March 0.07 126.92
April (0.46) 126.34
May (3.11) 122.41
June 0.27 122.74
July 7.11 131.47
August (3.31) 127.12
September (0.66) 126.28
October 2.58 129.54
November 0.97 130.80
December 3.52 135.40
Compound Annual Rate of Return 9.93%
1998
January (1.51)% $133.35
February (0.66) 132.47
March 0.77 133.48
April (3.38) 128.97
May 4.04 134.18
Compound Rate of Return (5 months) (0.89) %
</TABLE>
CUMULATIVE STATISTICS
Correlation Coefficient vs. S&P 500: 0.30
Beta vs. S&P 500: 0.25
Sharpe Ratio: 0.92
All financial information relates to the
performance of the joint venture between the
Fund and JWH, not of the Fund itself.
See Notes to Performance of the Fund on page 15.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
14
<PAGE>
Notes to Performance of the Fund
Monthly Rates of Return are calculated by dividing the Fund's net
performance during a month by the Fund's Net Asset Value as of the beginning
of such month.
Compound (Annual) Rate of Return is calculated by compounding the monthly
rates of return. For example, the compound rate of return for 1996 was
calculated by multiplying (0.9898 x 0.9991 x 1.0549 x 1.1020 x 1.0662 x
1.0047) - 1 = 23.15%
Worst Peak-to-Valley Decline is the largest decline in the Net Asset Value
per Unit without such Net Asset Value per Unit being subsequently equaled or
exceeded. For example, if the Net Asset Value per Unit dropped (1)% in each
of January and February, rose 1% in March and dropped (2)% in April, the
peak-to-valley decline would still be continuing at the end of April in the
amount of approximately (3)%, whereas if the Net Asset Value per Unit had
risen approximately 2% or more in March, the peak-to-valley decline would
have ended as of the end of February at approximately the (2)% level.
Correlation Coefficient vs. S&P 500: Every investment asset, by
definition, has a correlation coefficient of 1.0 with itself; 1.0 indicates
100% positive correlation. Two investments that always move in the opposite
direction from each other have a correlation coefficient of -1.0; -1.0
indicates 100% negative correlation. Two investments that perform entirely
independently of each other have a correlation coefficient of 0; 0 indicates
100% non-correlation. Since inception, the Fund has had a positive
correlation coefficient of 0.30 with the S&P 500. For every up-move of the
S&P 500 above its average monthly return, the Fund has moved in the same
direction above its average monthly return in approximately 30% of the months.
The Fund has not been non-correlated, much less negatively correlated, to
the S&P 500. For the Fund to serve as a diversification from an investor's
stock position, the Fund would need to be non-correlated to the S&P 500, and
the more positively correlated the Fund is to the S&P 500, the less an
investment in the Fund constitutes a diversification from the equity markets.
Beta vs. S&P 500: The S&P 500 has, by definition, a Beta of 1. Any
investment with a Beta higher than 1 has greater variability in its monthly
rates of return than the S&P 500. Consequently, the Fund's Beta of 0.25 means
that it has to date been approximately one-quarter as volatile as the S&P 500.
Sharpe Ratio: The Sharpe Ratio compares the annualized rate of return
minus the annualized risk-free rate of return to the annualized variability
- -- often referred to as the "standard deviation" -- of the monthly rates of
return. A Sharpe Ratio of 1:1 or higher indicates that, according to the
measures used in calculating the Ratio, the rate of return achieved by a
particular strategy has equaled or exceeded the risks assumed by such
strategy.
The Fund's 0.92 Sharpe Ratio indicates that to date the Fund's return has
been marginally less than its risk, as compared to a "risk-free" 91- day
Treasury bill.
---------------
15
<PAGE>
Performance of Other MLIP Publicly-Offered Single Advisor Funds
Each of the following funds, other than ML JWH Strategic Allocation Fund
Ltd., is a materially different investment than the Fund. Their performance is
included here in this prospectus due to applicable CFTC regulations which
require that the performance summaries of all commodity pools of same "class" as
the pool being offered immediately follow the performance summary of such pool.
The Fund is a publicly-offered single advisor fund, as are the funds included in
the following table.
MERRILL LYNCH INVESTMENT PARTNERS INC. PUBLICLY-OFFERED SINGLE ADVISOR FUNDS
WITH AND WITHOUT "PRINCIPAL PROTECTION" FEATURES
MAY 31, 1998
<TABLE>
<CAPTION>
Worst Monthly Worst Peak-to-Valley
Decline Decline
NAME OF Type of Inception Aggregate May 31, 1998 ---------------- ----------------------
FUND Offering of Trading Subscriptions Capitalization % Month % Period
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ML JWH Private July 1996 $265,977,547 $180,240,514 (3.66)% (4/98) (5.30)% (1/98-4/98)
Strategic (Offshore)
Allocation Fund
Ltd.*
- --------------------------------------------------------------------------------------------------------------------------------
The Growth & Public Aug. 1987 $148,349,450 $ 11,322,073 (4.70)% (8/97) (6.93)% (2/94-6/94)
Guarantee Fund
L.P. -Series A
Units
- --------------------------------------------------------------------------------------------------------------------------------
The Futures Public Jan. 1987 $ 56,741,035 $ 8,801,296 (10.92)% (2/96) (13.7)% (8/97-4/98)
Expansion Fund
Limited
Partnership
- --------------------------------------------------------------------------------------------------------------------------------
World Currencies Private Aug. 1987 $ 47,814,293 dissolved as (9.14)% (11/94) (35.81)% (9/92-1/95)
Limited (Offshore) of 4/11/96
- --------------------------------------------------------------------------------------------------------------------------------
Supplemental
Information
Regarding
Cumulative
Rate of Return 1998 1997 1996 1995 1994 1993
Jan. 1, 1993 Compound Compound Compound Compound Compound Compound
(or inception) Rate of Annual Annual Annual Annual Annual
NAME OF to May 31, 1998 Return Rate of Rate of Rate of Rate of Rate of
FUND (or dissolution) (5 months) Return Return Return Return Return
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ML JWH 29.87% (1.57)% 8.32% 21.81% N/A N/A N/A
Strategic (5 1/2 mos.)
Allocation Fund
Ltd.*
- ----------------------------------------------------------------------------------------------------------------------------
The Growth & 114.30% 9.04% 23.76% 17.09% 32.01% (2.34)% 5.20%
Guarantee Fund
L.P. -Series A
Units
- ----------------------------------------------------------------------------------------------------------------------------
The Futures 47.56% (3.88)% 5.93% 8.93% 21.95% 5.55% 3.36%
Expansion Fund
Limited
Partnership
- ----------------------------------------------------------------------------------------------------------------------------
World Currencies (11.36)% N/A N/A 1.20% 12.23% (12.84)% (10.46)%
Limited (3 1/2 mos.)
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* This fund is the offshore counterpart of the Fund.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. THE MERRILL
LYNCH INVESTMENT PARTNERS INC. POOLS (OTHER THAN ML JWH STRATEGIC ALLOCATION
FUND LTD.) INCLUDED IN THE FOREGOING TABLE ARE MATERIALLY DIFFERENT
INVESTMENTS THAN THE FUND.
16
<PAGE>
Selected Financial Data
The Selected Financial Data, other than the unaudited information, is taken
from the 1996 and 1997 financial statements of the Fund audited by Deloitte &
Touche LLP. See "Financial Statements" beginning at page 67.
----------------------
<TABLE>
<CAPTION>
January 1, 1998 January 1, 1997 July 15, 1996
to to January 1, 1997 (commencement of
Income March 31, 1998 March 31, 1997 to operations) to
Statement Data (unaudited) (unaudited) December 31, 1997 December 31, 1996
- -------------- --------------- --------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Revenues:
Realized Gain $ 4,511,184 $ 8,668,317 $ 18,820,033 $ 29,800,074
Change in Unrealized (6,377,582) (92,283) 10,201,917 4,696,372
------------ ------------ ------------ ------------
Total Trading Results (1,866,398) 8,576,034 29,021,950 34,496,446
------------ ------------ ------------ ------------
Interest Income 3,135,548 2,773,698 12,021,263 3,030,330
Total Revenues 1,269,150 11,349,732 41,043,213 37,526,776
------------ ------------ ------------ ------------
Expenses:
Brokerage Commissions 4,264,908 4,263,014 17,377,236 4,873,368
Administrative Fees 137,578 137,516 560,556 157,205
------------ ------------ ------------ ------------
Total Expenses 4,402,486 4,400,530 17,937,792 5,030,573
------------ ------------ ------------ ------------
Net (Loss) Income before
Minority Interest and
Profit Share Allocation: (3,133,336) 6,949,202 23,105,421 32,496,203
Profit Share
Allocation -- -- (2,640,194) (4,683,010)
Minority interest in
income/(loss) 257 (978,363) (12,447) (23,383)
------------ ------------ ------------ ------------
Net (Loss) Income: $ (3,133,079) $ 5,970,839 $ 20,452,780 $ 27,789,810
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
<TABLE>
<CAPTION>
March 31, March 31, July 15, 1996
Balance 1998 1997 December 31, December 31, (commencement
Sheet Data* (unaudited) (unaudited) 1997 1996 of operations)
- ------------ ------------ ------------ ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
Aggregate Net
Asset Value $215,268,143 $227,049,177 $223,735,825 $172,844,448 $102,000,000
Net Asset Value
Per Unit $133.48 $126.92 $135.40 $123.16 $100.00
</TABLE>
* Balance sheet data is based on redemption values which differ immaterially
from Net Asset Values as determined under Generally Accepted Accounting
Principles ("GAAP") due to the treatment of organizational and initial offering
cost reimbursements.
--------------------
17
<PAGE>
Management's Analysis of Operations
Results of Operations
General
JWH programs do not predict price movements. No fundamental economic
supply or demand analysis is used in attempting to identify mispricings in
the market, and no macroeconomic assessments of the relative strengths of
different national economies or economic sectors. Instead, the programs apply
proprietary computer models to analyzing past market data, and from this data
alone attempt to determine whether market prices are trending. Technical
traders such as JWH base their strategies on the theory that market prices
reflect the collective judgment of numerous different traders and are,
accordingly, the best and most efficient indication of market movements.
However, there are frequent periods during which fundamental factors external
to the market dominate prices.
If JWH's models identify a trend, they signal positions which follow
it. When these models identify the trend as having ended or reversed, these
positions are either closed out or reversed. Due to their trend-following
character, the JWH programs do not predict either the commencement or the end
of a price movement. Rather, their objective is to identify a trend early
enough to profit from it and to detect its end or reversal in time to close
out the Fund's positions while retaining most of the profits made from
following the trend.
In analyzing the performance of JWH's trend-following programs,
economic conditions, political events, weather factors, etc., are not
directly relevant because only market data has any input into JWH's trading
results. There is no direct connection between particular market conditions
and price trends. There are so many influences on the markets that the same
general type of economic event may lead to a price trend in some cases but
not in others. The analysis is further complicated by the fact that the
programs are designed to recognize only certain types of trends and to apply
only certain criteria of when a trend has begun. Consequently, even though
significant price trends may occur, if these trends are not comprised of the
type of intra-period price movements which the programs are designed to
identify, the Fund may miss the trend altogether.
The following performance summary outlines certain major price
trends which the JWH programs have identified for the Fund since inception.
The fact that certain trends were captured does not imply that others,
perhaps larger and potentially more profitable trends, were not missed or
that JWH will be able to capture similar trends in the future. Moreover, the
fact that the programs were profitable in certain market sectors in the past
does not mean that they will be so in the future.
This performance summary is an outline description of how the Fund
performed in the past, not necessarily any indication of how it will perform
in the future. Furthermore, the general causes to which certain trends are
attributed may or may not in fact have caused such trends, as opposed to
simply having occurred at about the same time.
Performance Summary
1998 (3 months)
Much of the first quarter of 1998 offered a less-than-ideal trading
environment for the Fund. In January and February, a number of
well-established market trends were interrupted, and many markets traded
within a tight price range, reducing opportunities for profit. However, the
profit picture improved in March as the U.S. dollar and other currencies
returned to their prior price movement patterns. For the quarter, losses were
incurred in most currencies, metals, stock indices and agricultural
commodities. These losses more than offset gains in the energy markets which,
despite interim turbulence, ultimately succumbed to the bearish fundamentals
which had pressured prices downward for over six months. Small gains were
also recorded in positions in European interest rates, which continued to
decline as the markets of the European Monetary Union ("EMU") nations
converged.
The quarter began with political and financial scandals in Japan.
Even so, investor optimism supported the Nikkei and caused the Japanese yen
to gain against the U.S. dollar. Positions in the Nikkei and the yen were
18
<PAGE>
unprofitable. January was also a month of reversals in metal prices. The
price of gold rose as the dollar weakened, turning profitable positions into
losses. Gains were recorded in European and U.S. government bond markets as
well as in crude oil.
Financial markets lacked direction in February. Losses were incurred
in nearly all currencies traded. Trading was also unprofitable in U.S.
Treasury bonds, which traded within a narrow price range. Gains continued to
be recorded in European bond markets where yields approached post-war lows.
The silver market hit a 9 1/2 year high on news that a major investor had
purchased 20% of the world's yearly mining output. Strong gains were realized
in silver and in crude oil, as oil prices dropped in the face of weak demand
and oversupply.
The quarter ended with a sharp revival of the U.S. dollar in world
markets, especially against the yen, and a soaring British pound. Investment
programs with large currency components benefited from decisive moves in
these markets as well as in the Swiss franc and German mark. The price of
crude oil rose sharply, following the surprise decision by OPEC and non-OPEC
oil-producing nations to cut production. By month-end, however, investors had
judged the cutbacks insufficient and prices fell back. Positions in energy
markets were profitable, and positions in metals and agricultural commodities
unprofitable, overall.
1997
The Fund's most profitable positions in 1997 were in the currency
markets. Gains were realized in the German mark, which trended downward,
apparently as hopes for the EMU rose. The U.S. dollar, on the other hand,
moved sharply upward (setting new records against the mark, yen and Swiss
franc) in a trend followed by most of the programs.
Gains were also recognized in global interest rates, particularly in
Japanese Government bonds where yields trended to historic lows, generating
clearly defined price trends. Profits were achieved in Australian 10-year and
three-year bonds and in German and Italian bonds as each of these markets
trended and the programs followed. In the U.S., yields on the benchmark
30-year Treasury bond dipped below 6% in the final quarter of the year,
possibly reflecting an influx of foreign capital amid increasing turbulence
in Asian markets. The upward trend in the U.S. bond market was followed by
the Fund.
Positions in gold and the Nikkei were profitable. Gold prices
trended downward to the lowest level in over a decade during a period which
saw the metal declining in value as an alternative monetary asset as central
banks increased their willingness to sell or lease the precious metal. The
Nikkei suffered the same fate as the Japanese yen.
In marked contrast, the agricultural markets generated few trends
during the year despite strong upward pressure on coffee prices late in the
year. Energy markets were also generally trendless as ample world inventories
and mild weather kept supply and demand in balance. In this trendless
environment, the Fund incurred losses in these sectors.
1996 (5 1/2 months)
The Fund's programs outperformed the major stock markets of the
world during the period the Fund traded in 1996. The Worldwide Bond Program,
in particular, successfully followed upward trending interest rates in the
U.S. and downward trending rates elsewhere.
The Fund's trading began on July 15 amid sharp declines in U.S. and
global stock markets but without significant trends developing. The U.S.
dollar weakened against most major currencies. Performance was mixed
throughout the summer, with some programs following the major trends in the
energy markets while others traded unsuccessfully in the trendless global
interest rate and currency markets. The agricultural markets "whipsawed,"
causing losses.
All of the Fund's programs were up in September and October, as they
were able to follow the consensus upward trend of the U.S. dollar against
most major currencies. The one exception was the British pound, which soared
against the dollar in an environment of increasingly positive economic
indicators in the U.K. Positions in global interest rates and currencies
resulted in gains as these markets also trended broadly.
19
<PAGE>
By year-end, however, most markets were experiencing seasonal
illiquidity and trendless, "whipsaw" patterns. Early in December, JWH
completed a reduction in the size of the positions held by the Fund in order
to reduce its exposure to these unfavorable market conditions and help retain
the profits made in the second half of 1996.
Liquidity and Capital Resources
The amount of assets invested in the Fund generally does not affect
its performance, as typically this amount is not a limiting factor on the
positions acquired by JWH, and the Fund's expenses are primarily charged as a
fixed percentage of its asset base, however large.
The Fund sells no securities other than the Units. The Fund borrows
only to a limited extent and only on a strictly short-term basis in order to
finance losses on non-U.S. dollar denominated trading positions pending the
conversion of the Fund's dollar deposits. These borrowings are at a
prevailing short-term rate in the relevant currency. They have been
immaterial to the Fund's operation to date and are expected to continue to be
so. See "Interest Income Arrangements -- Interest Paid by Merrill Lynch on
the Fund's Non-U.S. Dollar Available Assets" at page 22.
The Fund's assets are held primarily in short-term debt securities
with maturities under one year, and to a lesser extent in short- and mid-term
debt securities with maturities up to five years, as well as in cash. The Net
Asset Value of the Fund's cash and financial instruments is not materially
affected by inflation. Changes in interest rates, which are often associated
with inflation, could cause the value of certain of the Fund's debt
securities to decline, but only to a limited extent. More importantly,
changes in interest rates could cause periods of strong up or down price
trends, during which the Fund's profit potential generally increases.
Inflation in commodity prices could also generate price movements which the
programs might successfully follow.
The Fund's assets are held in cash and highly liquid U.S. government
securities. Accordingly, except in very unusual circumstances, the Fund
should be able to close out any or all of its open trading positions and
liquidate any or all of its securities holdings quickly and at market prices.
This permits JWH to limit losses as well as reduce market exposure on short
notice should its programs direct it to do so in order to reduce market
exposure. In addition, because there is a readily available market value for
the Fund's positions and assets, the Fund's monthly Net Asset Value
calculations are precise, and investors need only wait 10 business days to
receive the full redemption proceeds of their Units.
Interest Income Arrangements
Custody of Assets
All of the Fund's assets are currently held either in custodial or
customer accounts at Merrill Lynch. Fund assets managed by MLAM are generally
held in custodial accounts at a major bank, separate from all other Merrill
Lynch or banking client assets. Assets held in customer accounts are held at
MLPF&S or MLF. These customer accounts are maintained in the Fund's name, but
the assets deposited by the Fund in such accounts are commingled with those
of other MLPF&S and MLF customers.
Available Assets
The Fund earns income, as described below, on its "Available
Assets," which can be generally described as the cash actually held by the
Fund or invested in Treasury bills or Government Securities. Available Assets
are held primarily in U.S. dollars or in U.S. dollar denominated Government
Securities, and to a lesser extent in foreign currencies, and are comprised
of the following: (a) the Fund's assets managed by MLAM and the Fund's cash
balances held in the offset accounts (as described below) -- which include
"open trade equity" (unrealized gain and loss on open positions) on United
States futures contracts, which is paid into or out of the Fund's account on
a daily basis; (b) short-term Treasury bills purchased by the Fund; and (c)
the Fund's cash balance in foreign currencies derived from its trading in
non-U.S. dollar denominated futures and options contracts, which includes
open trade equity on those exchanges which settle gains and losses on open
positions in such contracts prior to closing out such positions. Available
Assets do not include, and the Fund does not earn interest on, the Fund's
gains or losses on its open forward, commodity option and certain foreign
futures positions since such gains
20
<PAGE>
and losses are not collected or paid until such positions are closed out.
The Fund's Available Assets may be greater than, less than or equal
to the Fund's Net Asset Value (on which the redemption value of the Units is
based) primarily because Net Asset Value reflects all gains and losses on
open positions as well as accrued but unpaid expenses.
The Fund's U.S. Dollar Available Assets Managed by MLAM
Approximately 80% of the Fund's U.S. dollar Available Assets are
managed directly by MLAM, pursuant to guidelines established by MLIP for
which MLAM assumes no responsibility, in the Government Securities markets.
MLIP's objective in retaining MLAM to provide cash management services to the
Fund is to enhance the return earned on the Fund's U.S. dollar Available
Assets managed by MLAM to slightly above the 91-day Treasury bill rate.
However, cash management returns cannot be assured, and there may be losses
of principal.
The Government Securities acquired by MLAM on behalf of the Fund
are maintained in a custodial account at Merrill Lynch and are specifically
traceable to the Fund. All income earned on such Government Securities inures
to the benefit of the Fund. All fees due to MLAM are paid at no additional
cost to the Fund.
Interest Earned on the Fund's U.S. Dollar Available Assets Not Managed by MLAM
The following description relates to the approximately 20% of the
Fund's U.S. dollar Available Assets not managed by MLAM.
Offset Accounts and Short-Term Treasury Bills
The Fund's U.S. dollar Available Assets not managed by MLAM are held
in cash in offset accounts and in short-term Treasury bills purchased from
dealers unaffiliated with Merrill Lynch. Offset accounts are non-interest
bearing demand deposit accounts maintained with banks unaffiliated with
Merrill Lynch. An integral feature of the offset arrangements is that the
participating banks specifically acknowledge that the offset accounts are MLF
customer accounts, not subject to any Merrill Lynch liability.
MLF credits the Fund, as of the end of each month, with interest at
the effective daily 91-day Treasury bill rate on the average daily U.S.
dollar Available Assets held in the offset accounts during such month. The
Fund receives all the interest paid on the short-term Treasury bills in which
it invests.
Possible Discontinuation of the Offset Accounts
The use of the offset account arrangements for the Fund's U.S.
dollar Available Assets not managed by MLAM may be discontinued by Merrill
Lynch whether or not Merrill Lynch otherwise continues to maintain its offset
arrangements. The offset arrangements are dependent on the banks' continued
willingness to make overnight credits available to Merrill Lynch, which, in
turn, is dependent on the credit standing of ML&Co. If Merrill Lynch were to
determine that the offset arrangements had ceased to be practicable (either
because ML&Co. credit lines at participating banks were exhausted or for any
other reason), Merrill Lynch would thereafter attempt to invest all of the
Fund's U.S. dollar Available Assets not managed by MLAM to the maximum
practicable extent in short-term Treasury bills. All interest earned on the
U.S. dollar Available Assets so invested would be paid to the Fund, but MLIP
would expect the amount of such interest to be less than that available to
the Fund under the offset account arrangements. The remaining U.S. dollar
Available Assets of the Fund not managed by MLAM would be kept in cash to
meet variation margin payments and pay expenses, but would not earn interest
for the Fund.
Offset Account Benefit to Merrill Lynch
The banks at which the offset accounts are maintained make available
to Merrill Lynch interest-free overnight credits, loans or overdrafts in the
amount of the Fund's U.S. dollar Available Assets held in the offset
accounts, charging Merrill Lynch a small fee for this service. The economic
benefits derived by Merrill Lynch -- net of the interest credits paid to the
Fund and the fee (of approximately 0.25% per annum) paid to the offset banks
- -- from the offset accounts have not exceeded 0.75% per annum of the Fund's
average daily U.S. dollar Available Assets held in the offset accounts. These
benefits to Merrill Lynch are in addition to the Brokerage Commissions and
21
<PAGE>
Administrative Fees paid by the Fund to MLF and MLIP, respectively.
Interest Paid by Merrill Lynch on the Fund's Non-U.S. Dollar Available Assets
Under the single currency margining system implemented for the Fund,
the Fund itself does not deposit foreign currencies to margin trading in
non-U.S. dollar denominated futures contracts and options, if any, MLF
provides the necessary margin, permitting the Fund to retain the monies which
would otherwise be required for such margin as part of the Fund's U.S. dollar
Available Assets. The Fund does not earn interest on foreign margin deposits
provided by MLF. The Fund does, however, earn interest on its non-U.S. dollar
Available Assets. Specifically, the Fund is credited by Merrill Lynch with
interest at prevailing local short-term rate on realized and unrealized gains
on non-U.S. dollar denominated positions for such gains actually held in cash
by the Fund. Merrill Lynch charges the Fund Merrill Lynch's cost of financing
realized and unrealized losses on such positions.
The Fund holds foreign currency gains and finances foreign currency
losses on an interim basis until converted into U.S. dollars and either paid
into or out of the Fund's U.S. dollar Available Assets. Foreign currency
gains or losses on open positions are not converted into U.S. dollars until
the positions are closed. Assets of the Fund while held in foreign currencies
are subject to exchange-rate risk.
22
<PAGE>
Analysis of Fees and Expenses Paid by the Fund
Fees and Expenses to Date
<TABLE>
<CAPTION>
1/1/97 - 12/31/97 7/15/96 - 12/31/96 Dollar
----------------- ------------------
Dollar Dollar
Cost Amount Amount
---- ------ ------
<S> <C> <C>
Brokerage Commissions $17,377,236 $ 4,873,368
Profit Shares 2,640,194 4,683,010
Administrative Fees 560,556 157,205
Organizational and Initial
Offering Costs 298,039 232,956
Ongoing Offering Costs -- --
---------- ---------
Total $20,876,025 $ 9,946,539
----------- -----------
----------- -----------
</TABLE>
Fees and Expenses Paid by the Fund
The dollar amounts indicated in parentheses represent the amount of the
relevant flat-rate charge assuming an average Fund capitalization of $220
million.
<TABLE>
<CAPTION>
Paid To Type Amount
- ------- ---- ------
<S> <C> <C>
MLIP Reimbursement of $629,523 in organizational and
start-up costs initial offering costs was
reimbursed to MLIP by the Fund.
MLF Brokerage Monthly Brokerage Commissions are
Commissions paid on a percentage-of-assets
basis at the rate of 0.646 of 1% of the
Fund's month-end assets (a 7.75% annual rate;
$17,050,000).
MLF Use of Fund assets The benefit from the use of the Fund's U.S. dollar
Available Assets, net of interest credits. To date, this
benefit has not exceeded 3/4 of 1% of such average daily
Available Assets ($1,650,000).
MLIP Administrative Fees Monthly Administrative Fees of 0.021 of 1% of the Fund's
average month-end assets; a 0.25 of 1% annual rate
($550,000).
MLIB; Other Bid-ask spreads Bid-ask spreads on forward and related trades.
Counterparties
MLIP F/X Desk service fees A service fee on F/X Desk trades with counterparties other
than MLIB.
Government Bid-ask spreads Bid-ask spreads on Government Securities trades.
Securities
Dealers
All spreads and service fees are estimated not to exceed
0.25% of average month-end assets annually ($550,000).
</TABLE>
23
<PAGE>
Fees and Expenses Paid by the Fund (cont'd)
<TABLE>
<CAPTION>
Paid To Type Amount
- ------- ---- ------
<S> <C> <C>
Third Parties Ongoing offering costs The costs, other than selling commissions and ongoing
compensation, of the ongoing offering of the Units, subject
to a ceiling of 0.25% of the Fund's average month-end Net
Assets in any fiscal year. An estimated $600,000 of such
costs will be amortized in twelve equal monthly
installments beginning August 31, 1998.
JWH Profit Share 15% of any New Trading Profits as of the end of each
calendar quarter.
</TABLE>
Brokerage Commissions; Administrative Fees
Month-end assets are not reduced for purposes of calculating
Brokerage Commissions or Administrative Fees by any accrued but unpaid Profit
Shares, or by the accrued Brokerage Commissions or Administrative Fees being
calculated.
During 1996 and 1997, the Fund's percentage-of-assets Brokerage
Commissions were the equivalent of about $208 and $212, respectively, per
round-turn trade. A round-turn trade includes the purchase and sale or sale
and purchase of a single futures contract. However, these Brokerage
Commissions are an all-inclusive "wrap fee" which, together with the
Administrative Fee, cover all of the Fund's costs and expenses other than
extraordinary expenses and ongoing offering costs. The Fund could negotiate
lower rates from firms other than MLF.
The Fund's Brokerage Commissions and Administrative Fees constitute
a "wrap fee," which cover all of Merrill Lynch's costs and expenses, not just
the cost of brokerage executions.
The Brokerage Commissions and Administrative Fees may not be
increased above the current 8% level without the unanimous consent of all
limited partners.
Currency Trading Costs
The Fund trades currency forward contracts and converts foreign
currency gains and losses through the F/X Desk. The F/X Desk gives the Fund
access to MLIB as well as other counterparties. Merrill Lynch charges a
service fee of approximately $5.00 to $12.50 on each purchase or sale of a
futures contract-equivalent amount of a currency. This fee fluctuates with
exchange rates. No service fees are charged on trades awarded to MLIB because
MLIB receives bid-ask spreads on such trades.
In its exchange of futures for physical trading with Merrill Lynch,
the Fund acquires cash currency positions through the F/X Desk. The Fund pays
a spread when it exchanges these positions for futures.
Ongoing Offering Costs
Ongoing offering costs will be incurred in connection with the new
offering of Units under this prospectus. These costs are estimated at
$600,000 and will be charged in equal monthly installments beginning August
31, 1998; provided, that (i) such installments will not in the aggregate
exceed the ongoing offering costs actually incurred, and (ii) MLIP will
absorb all such costs to the extent that they exceed 0.25 of 1% of the Fund's
average month-end assets during any fiscal year.
24
<PAGE>
Extraordinary Expenses
The Fund will be required to pay any extraordinary expenses, such as
taxes, incurred in its operation. The Fund has had no such expenses to date,
and in MLIP's experience, such expenses have been negligible. Extraordinary
expenses, if any, would not reduce Trading Profits for purposes of
calculating the Profit Shares.
Profit Shares Allocated to JWH
Method of Calculating
The Fund allocates to JWH 15% of any New Trading Profit as of the
end of each calendar quarter. New Trading Profit is any cumulative Trading
Profit in excess of the highest level -- the "High Water Mark" -- of
cumulative Trading Profit as of any previous calendar quarter-end.
Trading Profit (i) includes realized and unrealized profits and
losses, (ii) excludes interest income and (iii) is reduced by annual
Brokerage Commissions and Administrative Fees of 5%, not 8.00%, of average
month-end assets and by no other costs.
Accrued Profit Shares on redeemed Units are allocated to JWH. Any
shortfall between cumulative Trading Profit and the High Water Mark is
proportionately reduced when Units are redeemed.
Trading Profit is not reduced by redemption charges.
For example, assume that as of January 1, 1999, the Fund is at a
High Water Mark. If, at the end of the month, Trading Profit equaled
$500,000, all of such Trading Profit would be New Trading Profit, resulting
in an accrued $75,000 Profit Share. Assume also that by the end of the next
month, losses and 5.00% Brokerage Commissions and Administrative Fees have
reduced the initial $500,000 Trading Profit to a loss of $(180,000). If the
Fund then withdrew 50% of its assets, this $(180,000) loss carryforward would
be reduced by 50% to ($90,000) for Profit Share calculation purposes. If
during the following month Trading Profit equaled $200,000, New Trading
Profit of $110,000 would be accrued as of the end of such quarter, and JWH
would be entitled to an additional Profit Share of $16,500.
Paid Equally by All Units
New Trading Profit may be generated even though the Net Asset Value
per Unit has declined below the purchase price of certain Units. Conversely,
if new Units are purchased at a Net Asset Value reduced by an accrued Profit
Share which is subsequently reversed, the reversal is allocated equally among
all Units, although the accrual itself was attributable only to the
previously outstanding Units.
--------------
Fees and Expenses Paid by Merrill Lynch
Selling Commissions; Ongoing Compensation
MLIP pays all selling commissions due to MLPF&S on initial Unit
sales, as well as all ongoing compensation on Units outstanding for more than
twelve months. See "Selling Commissions" at page 66.
JWH's Management Fees
MLF pays monthly Management Fees to JWH at a rate of 0.333% (a 4%
annual rate; $8,448,000 assuming a Fund average capitalization of $220
million) of the month-end assets of the Fund, after reduction by a portion of
the Brokerage Commissions and Administrative Fees charged, but before
reduction for any Profit Share or other costs. The Management Fees are not
affected by JWH's adjustments to the Fund's trading leverage.
During 1996 and 1997, MLF paid Management Fees of $2,507,682 and
$8,940,868, respectively, to JWH.
MLAM Fees
MLAM receives annual cash management fees of approximately 0.20 of
1% on the first $25 million of certain assets ("Capital"), including assets
of the Fund, managed by MLAM, 0.15 of 1% on the next $25 million of Capital,
0.125 of 1% on the next $50 million, and 0.10 of 1% on Capital in excess of
$100 million.
25
<PAGE>
During 1996 and 1997, MLIP paid fees of $136,000 and $173,853,
respectively, to MLAM.
---------------
Redemption Charges
A redemption charge of 3% of the redemption date Net Asset Value per
Unit is imposed on Units redeemed on or before the end of the first 12 months
after sale. This redemption charge is deducted from investors' redemption
proceeds and paid to MLIP.
Managed Futures Funds in General
The Fund is one of many different varieties of managed futures
funds. All of these investments offer, in varying degrees, the possibility of
achieving substantial capital appreciation as well as diversifying a portion
of a traditional portfolio. The purpose of this section is to give
prospective investors a general overview of where in the spectrum of managed
futures funds the Fund is positioned, and to indicate the general types of
other managed futures funds available for investment.
Managed Futures Funds
A futures fund is a professionally managed portfolio typically
trading in a wide range of markets. These markets may include global
currencies, interest rates, energy, metals and agriculture through futures,
forwards and options contracts. Futures funds trade either or both the short
or long side of the market, often on a 24-hour basis, and are generally
higher risk and have more volatile performance than many other investments.
Professional management can be an important advantage in this highly complex
and specialized investment area.
Not all managed futures funds are the same. Like other investment
products, futures funds are designed with a variety of risk/reward
parameters. The variety of available funds matches a wide range of individual
investment objectives.
The Different Types of Managed Futures Funds
Risk/reward parameters of a managed futures fund may be modified by
adjusting the number of trading advisors, trading strategies and/or markets
traded. Increasing diversification in one or more of these categories is
generally expected to produce lower but more consistent returns.
Certain managed futures funds are more aggressive than others. For
example, single advisor, single strategy funds are typically expected to have
higher profit potential as well as risk because of their dependence upon just
one advisor's performance and, in many cases, a limited number of markets
traded. Their returns often fluctuate significantly from month to month.
Volatility can be reduced by a multi-advisor approach. Multi-advisor
funds typically have lower returns, but also lower risk and volatility than
single-advisor managed futures funds (although more than many other
investments). The Fund is a single-advisor, multi- strategy, not a
multi-advisor, investment.
Investors can also choose "principal protected" funds which
guarantee at least the return of their initial investment at a future date.
If the fund is profitable, investors receive the benefits. If there are
losses, investors who remain in until the guarantee date are nevertheless
assured of the return of at least their initial subscription, limiting losses
to the time-value of their capital. The Fund has no "principal protection"
feature, and investors could lose all or substantially all of their
investment.
Managed Futures and the Asset Allocation Process
Traditional portfolios invested in stocks, bonds and cash
equivalents can be diversified by allocating a portion of their assets to
non-traditional investments such as managed futures. Because of its potential
non-correlation with the performance of stocks and bonds, the non-traditional
component
26
<PAGE>
can help to improve long-term returns and reduce portfolio
volatility. (In its performance to date, the Fund has demonstrated a certain
degree of positive correlation to the S&P 500 Stock Index.) Each investment
responds differently to different economic cycles and market conditions. An
investment's profit potential, risk and the relationship to the rest of the
portfolio are the primary objectives of asset allocation.
"Non-traditional" or "alternative" are terms commonly used to
describe strategies whose profitability is not based exclusively on long
positions in stocks and bonds, but rather on trading approaches whose success
should be largely independent of overall debt and equity market movements.
The Potential Benefits of Incorporating Managed Futures into a Portfolio
Managed futures investments have often performed differently from
stocks and bonds. This historical non-correlated performance suggests that
such investments can help diversify a portfolio. Diversification is one of
the primary potential benefits of investing in managed futures.
* * * *
You should carefully evaluate managed futures, weighing its return
and diversification potential against the risks, before you invest. These are
speculative investments and are not appropriate for everyone. There can be no
assurance that these investments will be profitable. However, if profitable,
managed futures can provide valuable portfolio diversification and capital
appreciation. Your Financial Consultant can help you decide whether the Fund
has a place in your portfolio.
27
<PAGE>
THE ROLE OF MANAGED FUTURES IN YOUR PORTFOLIO
The section outlines certain points to consider in deciding whether to
diversify a limited portion of your holdings into managed futures. There is
no assurance that an investment in the Fund will achieve any of its intended
objective.
THE FUND IN YOUR PORTFOLIO
The Fund is a speculative investment, and limited partners may lose all
or substantially all of their investment in the Units. If the Fund is not
successful, it cannot serve as a beneficial component of any asset allocation
strategy. However, the Fund does have the potential to be (i) non-correlated
(not, however, negatively correlated) with the debt and equity markets and
(ii) profitable. If the Fund is both, and only if it is both, a suitably
limited investment in the Units can be a beneficial component in an
investor's overall portfolio.
ASSET ALLOCATION STRATEGIES
World political and economic events often have a dramatic influence on
the markets. Stable, consistent asset growth can be difficult to achieve in
today's market environment. At the same time, the increasing globalization of
the world's economy offers significant new profit and diversification
opportunities.
Successful portfolios must have the ability to adapt to changing market
conditions resulting from a wide range of social, political and economic
factors. By committing assets to investments which would not otherwise be
represented in a portfolio, a well-diversified asset allocation strategy can
enhance this ability and offer a flexible approach to building and protecting
wealth.
An asset allocation strategy diversifies a portfolio into a variety of
different components, including non-traditional investments such as managed
futures. Managed futures investments do not assure diversification; they may
perform similarly to stocks and bonds during certain periods. However, managed
futures has the potential to produce returns generally non-correlated to the
stock and bond markets. Each investment responds differently to different
economic cycles and shifts in the financial markets, and each makes different
contributions to overall performance.
A wide range of non-traditional, alternative investments are available -
venture capital, hedge funds, natural resources, real estate, private lending
and managed futures are only a few of the options. Many of these investments
are expected to produce results generally non-correlated to the debt and
equity markets. However, managed futures investments, while significantly
less liquid than most stocks and bonds, are generally more liquid than many
alternative investments, and estimated net asset values are generally
available on a daily basis.
A successful managed futures investment may increase portfolio return
while reducing risk. The fund can be highly volatile, and there can be no
assurance that an investment in the Units will either increase returns or
reduce portfolio risk. However, if successful, the Fund has the potential to
help achieve both these objective.
GLOBAL MARKETS
In recent years, the futures markets have expanded to include a wide
range of instruments representing major sectors of the world's economy. The
expansion of trading on major exchanges in Chicago, Frankfurt, London, New
York, Paris, Singapore, Sydney and Tokyo gives investors assess to access to
international markets and global diversification. Futures managers can move
capital quickly across market, in contrast to the traditional portfolio's
dependence on a single nation's economy and currency.
The internationalization of the markets has greatly expanded the
opportunities for both profit and diversification. Rapid geographical
expansion and the introduction of an array of innovative products have
created new opportunities but also made trading markets under the direction
of professional advisors.
28
<PAGE>
Futures Volume By Market Sector
[Graphic Appears Here]
<TABLE>
<CAPTION>
1980 1997
---- ----
<S> <C> <C> <C>
Agriculture 64.20% Agriculture 10.48%
Currencies 4.60% Stock Indices 18.92%
Interest Rates 13.50% Currencies 6.10%
Energy 0.30% Interest Rates 52.71%
Metals 16.30% Energy 5.02%
Other 1.10% Metals 6.69%
Other 0.08%
</TABLE>
The futures volume figures and market sector distributions presented
above include both speculative and hedging transactions, as well as options
on futures. Source: Futures Industry Association. A signification portion of
currency trading is done in the forward rather than in the futures markets,
and accordingly, is not reflected in the foregoing chart.
SUBSTANTIAL INVESTOR PARTICIPATION
In 1980, client assets in the managed futures industry were estimated at
approximately $300 million. As of the end of 1997, the estimate had grown to
approximately $34.9 billion.
Growth in Managed Futures Industry
[Chart Appears Here]
<TABLE>
<CAPTION>
Source: Managed Account Reports, Inc. $ Billions
- ------------------------------------- ----------
<S> <C>
80 0.3
81 0.3
82 0.5
83 0.5
84 0.7
85 1
86 1.4
87 2.6
88 4.3
89 5.2
90 8.5
91 11.4
92 19
93 22.6
94 19.1
95 22.8
96 28.8
97 34.9
</TABLE>
The assets categorized above as invested in managed futures are Invested
in a wide range of different products, including single-advisor and
multi-advisor funds, "funds of funds," "principle protection" pools (in which
only a fraction of the assets invested are committed to trading) and
individual managed accounts.
NON-CORRELATION - A POTENTIALLY IMPORTANT COMPONENT OF RISK REDUCTION
Managed futures investments have often performed differently than stocks
and bonds. In addition, different types of alternative investments are
frequently non-correlated with each other. This creates the potential to
assemble a combination of alternative investments able to profit in different
economic cycles and international markets, while reducing the portfolio
concentration of traditional long equity and debt holdings. (Non-correlation
is not negative correlation; managed futures' performance is not expected to
be generally opposite, but rather unrelated, to stocks and bonds.)
The following chart compares the Fund's performance since inception with
the S&P Stock Index (assuming the reinvestment of all dividends), the ML
Domestic Bond Index (including all interest paid), the MAR (Managed Account
Reports, a managed futures industry trade publication) Public Funds Index and
91-day Treasury bills (including all interest paid). The chart begins with
1,000 as the arbitrary starting point for all five graphics and tracks the
monthly rates of return for each. the periods during which the graph of the
fund's performance diverges from that of an index indicates, when compared to
the periods during which their respective performance graphs are similar, the
extent of the non-correlation between them. Past performance, including past
non-correlation patterns, is not necessarily indicative of future results.
29
<PAGE>
Comparison of ML JWH Strategic Allocation Fund L.P.
And Certain General market Indices
July 96 - May 98
<TABLE>
<CAPTION>
ML Domestic Master S&P 500 Stock ML JWH Strategic
Bond Index (Total Index (Dividends U.S. 91-Day MAH Public Funds Allocation Fund
Return Basis Reinvested) Treasury Bills Index L.P.
------------------ ---------------- -------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Jul-1-96 1000 1000 1000 1000 1000
Jul-96 1002.84 955.84 1004.54 984.7 989.8
Aug-96 1001.315683 976.0311642 1009.070475 981.84437 988.9
Sep-96 1018.418155 1030.917301 1013.813107 1018.172612 1043.2
Oct-96 1040.874275 1059.339691 1018.152227 1091.175588 1149.6
Nov-96 1059.027123 1139.342083 1022.499737 1152.936126 1225.8
Dec-96 1049.485288 1116.771717 1027.019186 1125.150366 1231.6
Jan-97 1052.444837 1186.502943 1031.712663 1165.655779 1268.7
Feb-97 1054.328713 1195.816991 1035.736343 1194.330511 1268.3
Mar-97 1043.679993 1146.776536 1040.10715 1186.687193 1269.2
Apr-97 1059.575239 1215.178316 1045.068461 1164.021468 1263.4
May-97 1069.026651 1289.11341 1050.429662 1145.513526 1224.1
Jun-97 1081.780139 1346.836042 1054.263731 1154.792186 1227.4
Jul-97 1111.063927 1453.970114 1059.007917 1229.160803 1314.7
Aug-97 1101.55322 1372.591407 1063.540471 1181.715196 1271.2
Sep-97 1117.955347 1447.761376 1068.41187 1194.950406 1262.8
Oct-97 1134.456368 1399.464056 1072.96292 1176.070189 1295.4
Nov-97 1139.130328 1464.193467 1077.147475 1187.47807 1308
Dec-97 1150.817805 1489.320491 1081.768438 1210.871388 1354
Jan-98 1166.066141 1505.775993 1086.831114 1213.293131 1333.5
Feb-98 1165.086646 1614.316844 1090.689364 1202.616152 1324.7
Mar-98 1169.479022 1696.918208 1095.948325 1204.420076 1334.8
Apr-98 1175.16269 1713.984115 1100.788684 1155.641063 1289.7
May-98 1186.808553 1884.555008 1105.347882 1194.701731 1341.8
</TABLE>
The graph reflects the percentage changes in Net Asset Value per Unit
and in the indices. For comparative purposes, the performance of the indices
have been presented from a "normalized" starting point of 1,000 as of July 1,
1996.
Past results are not necessarily indicative of future performance. The
comparison of the fund, an actively managed investment, to passive indices of
general securities returns as well as to the MAR Public Funds Index has a
certain inherent material limitaaations.
The S&P 500 Stock Index is a capitalization-weighted index of the common
stocks of publicly-traded United States issuers. the ML Domestic Master Bond
Index is a total-return index comprised of 6,764 investment-grade corporate
bonds, Treasuries, and mortgage issues; average maturity 6.17 years
(calculated on a market-weighted basis as of May 31, 1998).
The MAR Public Funds Index represents the composite performance of a large
number of United States publicly-offered futures funds, weighting the returns
recognized by each such fund on the basis of relative capitalization. The
funds included in the MAR Public Funds Index represent a wide variety of
materially different products, including single and multi-advisor funds, as
well as funds with and without "principal protection" features. Combining
the results of funds with materially different performance objectives and fee
structures into a single index is subject to certain inherent and material
limitations. There can be no assurance that the MAR Public Funds Index
provides any meaningful indication of how managed futures investments, in
general, have performed in the past or will perform in the future.
Nevertheless, the MAR Public Funds Index is one of several widely-used
benchmarks of general U.S. managed futures industry performance.
Graphic comparisons of securities indices and the Fund may not adequately
reflect the differences between the securities and futures markets or between
passive and managed investments.
Prudence demands that you carefully evaluate managed futures, weighting
its profit and diversification potential against its significant risks. A
managed futures investment is not appropriate for all investors, and no one
should invest more than a limited portion of the risks segment of his or her
portfolio in managed futures. However, for the investor who finds the risks
acceptable, managed futures has the potential to provide profits as well as
portfolio diversification.
30
<PAGE>
JWH Trading Programs
The Programs
The following are brief summaries of the active JWH programs. Not
all of them are presently used by JWH in trading for the Fund, but any of
them may be.
All of the programs have been designed using the same basic
principles, and all rely on computerized, technical trading systems. However,
they employ computerized statistical models to analyze price movements
applying various different quantitative criteria in attempting to identify
price trends and reversals. They also trade in different (but frequently
overlapping) market sectors, as indicated in their respective descriptions.
From the inception of trading of the JWH programs (the performance
of the programs prior to January 1993 is not presented in this prospectus in
accordance with applicable CFTC policy), the greatest cumulative percentage
decline in daily net asset value experienced in any single program was nearly
60% on a composite basis, and certain individual accounts included in such
program experienced even greater declines. Certain JWH accounts have lost 10%
or more in a single trading day. Prospective investors should understand that
similar or greater drawdowns are possible in the future. There can be no
assurance that JWH will trade profitably for the Fund or avoid sudden and
severe losses.
See "JWH Performance" beginning on page 44.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
<TABLE>
<CAPTION>
Assets Managed
Financial and Metals Portfolio May 1, 1998
- ------------------------------ --------------
<S> <C>
Program Composition: $1,086,136,345
Global Interest Rates
Global Stock Indices
Foreign Exchange
Precious Metals
Worst Monthly Decline on
an Individual Account Basis: (9.8)% (7/94)
Worst Peak-to-Valley Decline
on an Individual Account Basis: (30.5)%
(6/94-1/95)
1998 Compound Rate of Return : (16.0)% (4 mos.)
1997 Compound Annual Rate of Return: 15.2%
1996 Compound Annual Rate of Return: 29.7%
1995 Compound Annual Rate of Return: 38.5%
1994 Compound Annual Rate of Return: (5.3)%
1993 Compound Annual Rate of Return: 46.8%
Average Compounded Annualized Rate
of Return since January 1993: 18.0%
Average Compounded Annualized Rate
of Return since inception in October 1984: 36.4%
</TABLE>
JWH's largest program, the Financial and Metals Portfolio, attempts
to deliver attractive risk-adjusted returns in global financial and precious
metals markets. Currency positions are held both as outrights -- trading
positions taken in foreign currencies versus the dollar -- and cross-rates --
trading foreign currencies against each other -- in the interbank market and
occasionally on futures exchanges. This program is designed to identify and
capitalize on intermediate and long-term price movements in these markets
using a systematic approach to ensure disciplined investment decisions. If a
trend is identified, the program attempts to take a position; in nontrending
market environments, the program may remain neutral or liquidate open
positions. This program began trading client capital in October 1984.
31
<PAGE>
<TABLE>
<CAPTION>
Assets Managed
Original Investment Program May 1, 1998
- --------------------------- --------------
<S> <C>
Program Composition: $362,882,534
Global Interest Rates
Global Stock Indices
Foreign Exchange
Fiber
Energy
Softs
Grains
Precious and Base Metals
Worst Monthly Decline on
an Individual Account Basis: (16.3)% (10/94)
Worst Peak-to-Valley Decline
on an Individual Account Basis: (31.0)% (7/94-10/94)
1998 Compound Rate of Return: (3.7)% (4 mos.)
1997 Compound Annual Rate of Return: 5.7%
1996 Compound Annual Rate of Return: 22.6%
1995 Compound Annual Rate of Return: 53.2%
1994 Compound Annual Rate of Return: (5.7)%
1993 Compound Annual Rate of Return: 40.6%
Average Compounded Annualized Rate of
Return since January 1993: 19.1%
Average Compounded Annualized Rate of
Return since inception in October 1982: 16.5%
</TABLE>
The Original Investment Program, the first program offered by JWH,
offers access to a spectrum of worldwide financial and non-financial futures
markets using a disciplined trend identification investment approach. The
Original Investment Program utilizes a long-term quantitative approach which
always maintains a position -- long or short -- in every market traded by the
program. This program began trading client capital in October 1982.
<TABLE>
<CAPTION>
Assets Managed
Global Diversified Portfolio May 1, 1998
- ---------------------------- --------------
<S> <C>
Program Composition: $171,847,783
Global Interest Rates
Global Stock Indices
Foreign Exchange
Fiber
Energy
Softs
Grains
Precious and Base Metals
Worst Monthly Decline on
an Individual Account Basis: (11.2)% (2/96)
Worst Peak-to-Valley Decline
on an Individual Account Basis: (24.1)% (6/95-10/95)
1998 Compound Rate of Return: (4.1)% (4 mos.)
1997 Compound Annual Rate of Return: 3.3%
1996 Compound Annual Rate of Return: 26.9%
1995 Compound Annual Rate of Return: 19.6%
1994 Compound Annual Rate of Return: 10.1%
1993 Compound Annual Rate of Return: 59.8%
Average Compounded Annualized Rate
of Return since January 1993: 20.0%
Average Compounded Annualized Rate
of Return since inception in June 1998: 21.7%
</TABLE>
The Global Diversified Portfolio is one of JWH's most diversified
programs. The Global Diversified Portfolio is designed to identify and
capitalize on long-term price movements in a spectrum of financial and
non-financial markets using a systematic approach. The program does not
maintain continuous positions and, in fact, may take a neutral stance (i.e.,
no position) if a long-term trend fails to develop or during periods of
non-trending markets. This program began trading client capital in June 1988.
32
<PAGE>
<TABLE>
<CAPTION>
Assets Managed
Global Financial Portfolio May 1, 1998
- -------------------------- --------------
<S> <C>
Program Composition: $138,988,648
Global Interest Rates
Global Stock Indices
Foreign Exchange
Energy
Precious Metals
Worst Monthly Decline on
an Individual Account Basis: (19.5)% (11/94)
Worst Peak-to-Valley Decline
on an Individual Account Basis: (48.9)% (7/94-1/95)
1998 Compound Rate of Return: (3.1)% (4 mos.)
1997 Compound Annual Rate of Return: 4.9%
1996 Compound Annual Rate of Return: 32.4%
1995 Compound Annual Rate of Return: 86.2%
1994 Compound Annual Rate of Return: (37.7)% (7 mos.)
Average Compounded Annualized Rate
of Return since ineption in June 1994: 12.0%
</TABLE>
The Global Financial Portfolio offers access to a small group of
energy and financial markets, including global currencies, interest rates and
stock indices. This program is designed to identify and capitalize on
long-term price movements using a disciplined trend identification approach.
This program always maintains a futures position -- long or short -- in every
market traded by the program. In 1997, the sector allocation for this program
was altered to include precious metals. This program began trading client
capital in June 1994.
<TABLE>
<CAPTION>
International Foreign Assets Managed
Exchange Program May 1, 1998
- --------------------- --------------
<S> <C>
Program Composition: $79,977,747
Foreign Exchange
Worst Monthly Decline on
an Individual Account Basis: (8.3)% (5/97)
Worst Peak-to-Valley Decline
on an Individual Account Basis: (35.9)% (9/92-1/95)
1998 Compound Rate of Return: (8.1)% (4 mos.)
1997 Compound Annual Rate of Return: 71.1%
1996 Compound Annual Rate of Return: 3.7%
1995 Compound Annual Rate of Return: 16.9%
1994 Compound Annual Rate of Return: (6.3)%
1993 Compound Annual Rate of Return: (4.5)%
Average Compounded Annualized Rate
of Return since January 1993: 10.5%
Average Compounded Annualized Rate
of Return since inception in August 1986: 16.0%
</TABLE>
The International Foreign Exchange Program ("Forex") is designed to
identify and capitalize on intermediate and long-term price movements in a
broad range of major and minor currencies in the interbank market. Positions
are taken as outrights against the dollar, or as cross-rates, which reduce
dependence on the dollar. Forex attempts to take a position if a trend is
identified, and attempts to eliminate the position quickly -- i.e., a neutral
stance is taken --if long-term trends fail to continue or during periods of
non-trending markets. This program began trading client capital in August
1986.
33
<PAGE>
<TABLE>
<CAPTION>
Assets Managed
G-7 Currency Portfolio May 1, 1998
- ---------------------- --------------
<S> <C>
Program Composition:$68,065,898
Foreign Exchange
Worst Monthly Decline on
an Individual Account Basis: (12.3)% (11/94)
Worst Peak-to-Valley Decline
on an Individual Account Basis: (31.4)% (10/92-1/95)
1998 Compound Rate of Return: (4.0)% (4 mos.)
1997 Compound Annual Rate of Return: 21.0%
1996 Compound Annual Rate of Return: 14.5%
1995 Compound Annual Rate of Return: 32.2%
1994 Compound Annual Rate of Return: (4.9)%
1993 Compound Annual Rate of Return: (6.3)%
Average Compounded Annualized Rate of
Return since January 1993: 8.8%
Average Compounded Annualized Rate of
Return since inception in February 1991: 14.5%
</TABLE>
The G-7 Currency Portfolio invests in the highly liquid currencies
of the Group of Seven industrialized nations and Switzerland. Not all of
these currencies are traded at all times. Forward positions are primarily
taken in the interbank market as outrights against the dollar, or as
cross-rates, which reduce dependence on the dollar. Because the G-7 Currency
Portfolio excludes minor currencies, which may be less liquid, and maintains
a lower degree of leverage, the performance characteristics are different
from those of Forex.
The program is designed to identify and capitalize on intermediate
and long-term price movements using a disciplined trend identification
methodology. The G-7 Currency Portfolio attempts to take a position if a
trend is identified, and attempts to eliminate the position quickly -- i.e.,
a neutral stance is taken -- if long-term trends fail to develop or during
periods of nontrending markets. This program began trading client capital in
February 1991.
<TABLE>
<CAPTION>
JWH GlobalAnalytics Assets Managed
Family of Programs May 1, 1998
- ----------------------- --------------
<S> <C>
Program Composition: $68,670,894
Global Interest Rates
Global Stock Indices
Foreign Exchange
Energy
Agriculture
Precious Metals
Worst Monthly Decline on
an Individual Account Basis: (5.0)% (4/98)
Worst Peak-to-Valley Decline
on an Individual Account Basis: (5.0)% (4/98)
1998 Compound Rate of Return: (3.2)% (4 mos.)
1997 Compound Rate of Return: 17.6% (7 mos.)
Average Compounded Annualized Rate
of Return since ineption in June 1997: N/A
</TABLE>
JWH GlobalAnalytics Family of Programs is an integrated investment
system consisting of a family of programs, collectively known as JWH
GlobalAnalytics. The family of programs combines different trend
identification methodologies into a single, broadly diversified investment
portfolio. JWH GlobalAnalytics trades a wide range of financial and commodity
markets. Certain energy and agricultural contracts not previously available
through other JWH investment programs are also included.
Unlike other JWH programs, which generally take an intermediate to
long-term perspective on markets, JWH GlobalAnalytics identifies, offsets and
invests in a broad spectrum of price trends -- from very short to
exceptionally long-term. The family of programs tracks key asset classes,
remaining neutral if no substantive trends are apparent, building or reducing
positions over time as appropriate.
JWH GlobalAnalytics is the result of an extensive period of research
and testing. This family of programs manages positions which can be modified
quickly, allowing timely substitution of one market for another. JWH's
research indicates that the potential benefits of this approach include
increased trend sensitivity and lower overall volatility. This program began
trading client capital in June 1997, when it was first used to manage assets
for the Fund.
34
<PAGE>
<TABLE>
<CAPTION>
International Currency Assets Managed
and Bond Portfolio May 1, 1998
- ---------------------- --------------
<S> <C>
Program Composition: $29,710,453
Foreign Exchange
Global Interest Rates
Worst Monthly Decline on
an Individual Account Basis: (7.8)% (7/94)
Worst Peak-to-Valley Decline
on an Individual Account Basis: (23.6)% (7/94-1/95)
1998 Compound Rate of Return: (4.1)% (4 mos.)
1997 Compound Annual Rate of Return: 17.0%
1996 Compound Annual Rate of Return: 19.9%
1995 Compound Annual Rate of Return: 36.5%
1994 Compound Annual Rate of Return: (2.3)%
1993 Compound Annual Rate of Return: 14.8%
Average Compounded Annualized Rate of
Return since inception in January 1993: 14.5%
</TABLE>
Using a more conservative approach to leverage compared to that used
in other JWH programs, the International Currency and Bond Portfolio ("ICB")
targets the long end of interest rate and currency futures of major
industrialized nations. Foreign exchange positions are held both as outrights
- --positions taken in foreign currencies versus the dollar -- and cross-rates
- --trading foreign currencies against each other. ICB is designed to identify
and capitalize on intermediate and long-term price movements in the world's
bond and foreign exchange markets using a systematic approach to ensure
disciplined investment decisions. If a trend is identified, the program will
take a position; in nontrending market environments, the program may
liquidate positions and remain neutral. This program began trading client
capital in January 1993.
<TABLE>
<CAPTION>
The World Financial Assets Managed
Perspective May 1, 1998
- ------------------- --------------
<S> <C>
Program Composition: $31,343,763
Global Interest Rates
Global Stock Indices
Foreign Exchange
Energy
Precious Metals
Worst Monthly Decline on
an Individual Account Basis: (11.6)% (3/93)
Worst Peak-to-Valley Decline
on an Individual Account Basis: (25.9)% (7/94-1/95)
1998 Compound Rate of Return: 2.7% (4 mos.)
1997 Compound Annual Rate of Return: 10.4%
1996 Compound Annual Rate of Return: 40.9%
1995 Compound Annual Rate of Return: 32.2%
1994 Compound Annual Rate of Return: (15.2)%
1993 Compound Annual Rate of Return: 13.7%
Average Compounded Annualized Rate
of Return since January 1993: 15.6%
Average Compounded Annualized Rate
of Return since inception in April 1987: 15.4%
</TABLE>
The World Financial Perspective seeks to capitalize on market
opportunities by holding positions from multiple currency perspectives,
including the British pound, German mark, Japanese yen, Swiss franc and
dollar. This program is designed to systematically identify long-term price
movements in financial, metals and energy markets. The World Financial
Perspective always maintains a futures position -- long or short -- in every
market traded by the program. This program began trading client capital in
April 1987.
35
<PAGE>
<TABLE>
<CAPTION>
Assets Managed
Dollar Program May 1, 1998
- --------------- ---------------
<S> <C>
Program Composition: $29,476,404
Foreign Exchange
Worst Monthly Decline on
an Individual Account Basis: (8.4)% (5/97)
Worst Peak-to-Valley Decline
on an Individual Account Basis: (11.6)% (5/97-9/97)
1998 Compound Rate of Return: (4.3)% (4 mos.)
1997 Compound Annual Rate of Return: 6.8%
1996 Compound Annual Rate of Return: 10.6% (6 mos.)
Average Compounded Annualized Rate
of Return since inception in July 1996: 6.9%
</TABLE>
The Dollar Program specializes in the foreign exchange sector using
outright trading, an approach that has significantly contributed to the
success of other JWH programs. The Dollar Program trades four of the world's
major currencies -- Japanese yen, German mark, Swiss franc and British pound
- -- versus the dollar. This program is designed to identify and capitalize on
intermediate and long-term price movements using a disciplined trend
identification methodology which attempts to employ a neutral stance during
periods of nontrending markets.
Unlike some JWH programs, the Dollar program does not participate in
cross-rates. Because this program invests in a limited number of contracts,
it may experience greater volatility than other JWH foreign exchange
programs. This program began trading client capital in July 1996.
<TABLE>
<CAPTION>
Assets Managed
Worldwide Bond Program May 1, 1998
- ---------------------- --------------
<S> <C>
Program Composition: $19,889,641
Interest Rates
Worst Monthly Decline on
an Individual Account Basis: (3.8)% (4/97)
Worst Peak-to-Valley Decline
on an Individual Account Basis: (6.2)% (12/96-5/97)
1998 Compound Rate of Return: (1.0)% (4 mos.)
1997 Compound Annual Rate of Return: 9.5%
1996 Compound Annual Rate of Return: 17.8% (6 mos.)
Average Compounded Annualized Rate
of Return since inception in July 1996: 14.3%
</TABLE>
The Worldwide Bond Program ("WWB") invests through financial futures
in the long-term portion of global interest rate markets, including the U.S.
30-year bond, U.S. 10-year note, British long gilt, the French, German and
Italian bond and the Australian 10-year bond. WWB is not limited to
investments that have the potential to profit in a stable or declining
interest rate environment; rather, the program attempts to capitalize on
dominant trends, whether rising or falling, in bond markets around the world.
Although WWB concentrates in one sector, diversification is achieved by
trading futures contracts on the interest rate instruments of numerous
countries.
WWB utilizes intermediate and long-term quantitative trend
identification models, some of which attempt to employ neutral stances during
periods of nontrending markets. In an effort to control risks, WWB's
investment methodology uses lower levels of leverage compared to JWH programs
that participate in multiple market sectors. This program began trading
client capital in July 1996.
----------------------
36
<PAGE>
JWH Program Selection
JWH's 11 active programs are all available to the JWH Strategic
Allocation Program. As of May 1, 1998, eight programs -- listed above at page
4 -- were being used for the Fund.
The Strategic Allocation Program is not a systematic or even a
formalized strategy for selecting combinations of JWH programs. On the
contrary, program selections and the size of the allocations among them are
made entirely by the subjective, collective judgment of certain JWH
principals. From time to time, these principals consider a wide range of
different factors in deciding which programs to use for the Fund. There is no
way to predict which programs will be used or what allocation of the Fund's
assets will be made among the various programs chosen at any given time or
over time. It is also not possible to predict which factors the JWH
principals may consider in selecting any individual program or program
combination.
There is no maximum allocation that may be made to any particular
trading program, but JWH does not expect any allocation to exceed 25% of the
Fund's total trading level (which may range from 50% to 150% of the Fund's
Net Assets).
Leverage Considerations
The larger the Fund's market commitment (generally equivalent to the
face amount of the positions held) in relation to its assets, the higher the
leverage at which the Fund is said to be trading. In general, the larger the
Fund's market commitment, the greater the profit potential as well as risk of
loss. JWH adjusts the Fund's market commitment to levels which JWH believes
are consistent with the Fund's desired internal risk/reward profile. For
example, in volatile markets, JWH might decide -- in order to reduce market
exposure and, accordingly, the risk of loss, but with a corresponding
decrease in profit potential -- that the positions ordinarily appropriate for
a $50 million Fund allocation are all a $75 million allocation should
acquire. On the other hand, market factors might cause JWH to decide -- in
order to increase market exposure and, accordingly, profit potential as well
as risk of loss -- that the positions ordinarily indicated for a $100 million
allocation are appropriate for a Fund allocation of only $50 million.
At certain times -- such as after substantial gains in several of
the programs -- JWH may conclude that the Fund's portfolio offers more risk
than reward. If so, JWH may reduce the Fund's market commitment, both taking
profits and controlling risk. Conversely, JWH may commit more than the total
assets of the Fund to the markets if the profit potential seems to justify
the added risk.
John W. Henry & Company, Inc.
Background
John W. Henry & Company began managing assets in 1981 as a sole
proprietorship and was later incorporated in the State of California as John
W. Henry & Co., Inc. to conduct business as a commodity trading advisor. JWH
reincorporated in Florida in 1997. JWH's offices are at 301 Yamato Road,
Suite 2200, Boca Raton, Florida 33431-4931, (561) 241-0018 and One
Glendinning Place, Westport, Connecticut 06880, (203) 221-0431. JWH's
registration as a Commodity Trading Advisor ("CTA"; a person which directs
the trading of futures accounts for clients, including commodity pools)
became effective in November 1980. JWH is a member of the National Futures
Association ("NFA") in this capacity.
For a description of the principals of JWH, see "JWH Principals"
beginning at page 40.
Trading Strategy
The following description of JWH's trading strategy relates to JWH
generally and not to the Fund itself.
General
JWH specializes in managing institutional and individual capital in
the global futures, interest rate and foreign exchange markets. Since 1981,
JWH has developed and implemented proprietary trend-following trading
techniques that focus on long-term rather than short-term, day-to-day trends.
As of the date of this prospectus, JWH operates eleven trading programs.
37
<PAGE>
A Disciplined Investment Process
Regardless of recent performance in any one market, or widely-held
opinions on future market direction, JWH maintains a disciplined investment
process. The consistent application of JWH's investment techniques
facilitates the ability to participate in rising or falling markets without
bias.
Implementing the Program
The first step in the JWH investment process is the identification
of sustained price movements -- or trends -- in a given market. While there
are many ways to identify trends, JWH uses mathematical models that attempt
to distinguish real trends from interim volatility. It also presumes that
trends often exceed in duration the expectation of the general marketplace.
JWH's historical performance demonstrates that, because trends often
last longer than most market participants expect, significant returns can be
generated from positions held over a long period of time. The first step in
the JWH investment process is the identification of a price trend. JWH
focuses on attempting to implement a trading methodology which identifies a
majority of the significant, as opposed to the more numerous small, price
trends in a given market.
JWH attempts to pare losing positions relatively quickly while
allowing profitable positions to mature. Most losing positions are closed
within a few days or weeks, while others -- those where a profitable trend
continues -- are retained. Positions held for two to four months are not
unusual, and positions have been held for more than one year. Historically,
only 30% to 40% of all trades made pursuant to the investment methods have
been profitable. Large profits on a few trades in positions that typically
exist for several months have produced favorable results overall. Generally,
most losing positions are liquidated within weeks.
Since the inception of trading of the JWH programs, the greatest
cumulative percentage decline in daily net asset value which JWH has
experienced in any single program was nearly 60% on a composite basis.
Prospective investors in the Fund should understand that similar or greater
drawdowns are possible in the future.
To reduce exposure to volatility in any particular market, most JWH
programs participate in several markets at one time. In total, JWH
participates in up to 60 markets, encompassing interest rates, foreign
exchange, and commodities such as agricultural products, energy and precious
metals. Most investment programs maintain a consistent portfolio composition
to allow opportunities in as many major market trends as possible.
Throughout the investment process, risk controls designed to reduce
the possibility of an extraordinary loss in any one market are maintained.
Proprietary research is conducted on an ongoing basis to refine the JWH
investment strategies and attempt to reduce volatility while maintaining the
potential for excellent performance.
JWH at its sole discretion may override computer-generated signals,
and may at times use discretion in the application of its quantitative models
which may affect performance positively or negatively. This could occur, for
example, when JWH determines that markets are illiquid or erratic, such as
may occur during holiday seasons. Subjective aspects of JWH's quantitative
models also include the determination of the size of the position to be
acquired in comparison with the size of an account, when an account should
commence trading, markets traded, contracts traded, contract month selection,
margin utilization and effective trade execution.
Program Modifications
In an effort to maintain and improve performance, JWH has engaged,
and continues to engage, in extensive research. While the basic philosophy
underlying the firm's investment methodology has remained intact throughout
its history, the potential benefits of employing more than one investment
methodology, alternatively, or in varying combinations, is a subject of
continual testing, review and evaluation. Extensive research and analysis may
suggest substitution of alternative investment methodologies with respect to
particular contracts in light of relative differences in historical
performance achieved through testing different methodologies. In addition,
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risk management research and analysis may suggest modifications regarding the
relative weighting among various contracts, the addition or deletion of
particular contracts for a program or a change in the degree of leverage
employed.
As capital in each JWH trading program increases, additional
emphasis and weighting may be placed on certain markets which have
historically demonstrated the greatest liquidity and profitability.
Furthermore, the weighting of capital committed to various markets in the
trading programs is dynamic, and JWH may vary the weighting at its discretion
as market conditions, liquidity, position limit considerations and other
factors warrant. MLIP will generally not be informed of any such changes.
Adjusting the Size of the Trading Positions Taken
Adjustments to the size of the trading positions taken for an
account with a given amount of equity (a relationship commonly referred to as
the "leverage" of the strategy) have been and continue to be an integral part
of JWH's investment strategy. At its discretion, JWH may adjust leverage in
certain markets or entire programs. Leverage adjustments may be made at
certain times for some accounts but not for others. Factors which may affect
the decision to adjust leverage include: ongoing research; program
volatility; current market volatility; risk exposure; and subjective judgment
and evaluation of these and other general market conditions. Such decisions
to change leverage may positively or negatively affect performance, and will
alter risk exposure for an account. Leverage adjustments may lead to greater
profits or losses, more frequent and larger margin calls and greater
brokerage expense. No assurance is given that such leverage adjustments will
be to the financial advantage of investors in the Fund. JWH reserves the
right, at its sole discretion, to adjust its leverage policy without
notification to MLIP.
Addition, Redemption and Reallocation of Capital for Commodity Pool
or Fund Accounts
Investors purchase or redeem Units at Net Asset Value on the close
of business on the last business day of the month. In order to provide market
exposure commensurate with the Fund's equity on the date of these
transactions, JWH's general practice is to adjust positions as near as
possible to the close of business on the last trading date of the month. The
intention is to provide for additions and redemptions at an NAV that will be
the same for each of these transactions, and to eliminate possible variations
in Net Asset Values that could occur as a result of inter-day price changes
if, for example, additions were calculated on the first day of the subsequent
month. Therefore, JWH may, at its sole discretion, adjust its investment of
the assets associated with the addition or redemption as near as possible to
the close of business on the last business day of the month to reflect the
amount then available for trading. Based on JWH's determination of liquidity
or other market conditions, JWH may decide to commence trading earlier in the
day on, or before, the last business day of the month, or at its sole
discretion, delay adjustments to trading for an account to a date or time
after the close of business on the last day of the month. No assurance is
given that JWH will be able to achieve the objectives described above in
connection with Fund equity level changes. The use of discretion by JWH in
the application of this procedure may affect performance positively or
negatively.
Physical and Cash Commodities
JWH may from time to time trade in physical or cash commodities for
immediate or deferred delivery, including specifically gold bullion, as well
as futures and forward contracts when JWH believes that cash markets offer
comparable or superior market liquidity or the ability to execute
transactions at a single price. The CFTC does not regulate cash transactions,
which are subject to the risk of counterparty failure, inability or refusal
to perform with respect to such contracts.
The Joint Venture Agreement
The advisory arrangement between the Fund and JWH is a joint
venture, a general partnership structure. The Joint Venture Agreement
establishing the joint venture terminates September 30, 1998, subject to one
one-year renewal, on the same terms, at the option of the Fund.
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The Fund has agreed to indemnify JWH and related persons for any
claims or proceedings involving the business or activities of the Fund,
provided that the conduct of such persons does not constitute gross
negligence, misconduct or breach of the Joint Venture Agreement or of any
fiduciary obligation to the Fund and was done in good faith and in a manner
reasonably believed to be in, or not opposed to, the best interests of the
Fund.
JWH and related persons will not be liable to the joint venture, the
Fund or any of the partners in connection with JWH's management of the Fund's
assets except (i) by reason of acts or omissions in breach of the Joint
Venture Agreement, (ii) due to their misconduct or negligence, or (iii) by
reason of not having acted in good faith and in the reasonable belief that
such actions or omissions were in, or not opposed to, the best interests of
the Fund. Mr. John W. Henry will not be liable except for his fraud and
wilful misconduct.
JWH has invested $100,000 in the joint venture.
JWH Principals
The following are the principals of JWH:
The sole shareholder of JWH is the John W. Henry Trust dated July
27, 1990. Mr. John W. Henry is chairman of the JWH Board of Directors and is
trustee and sole beneficiary of the John W. Henry Trust. Mr. Henry is also a
member of the Investment Policy Committee of JWH. He currently concentrates
his activities at JWH on portfolio management, business issues and frequent
dialogue with trading supervisors. Mr. Henry is the exclusive owner of
certain trading systems licensed to Elysian Licensing Corporation, a
corporation wholly-owned by Mr. Henry and sublicensed by Elysian Licensing
Corporation to JWH and utilized by JWH in managing client accounts.
Mr. Henry has served on the Board of Directors of the National
Association of Futures Trading Advisors ("NAFTA") and the Managed Futures
Trade Association, and has served on the Nominating Committee of the NFA. Mr.
Henry currently serves on the Board of Directors of the Futures Industry
Association ("FIA") and is chairman of the FIA Task Force on Derivatives for
Investment. He also currently serves on a panel created by the Chicago
Mercantile Exchange and the Chicago Board of Trade to study cooperative
efforts related to electronic trading, common clearing and issues regarding a
potential merger. In 1989, Mr. Henry established residency in Florida, and
since that time has performed services from that location as well as from the
offices of JWH in Westport, Connecticut. Mr. Henry is a principal of Westport
Capital Management Corporation, Global Capital Management Limited, JWH
Investment Management, Inc., JWH Asset Management, Inc. and JWH Financial
Products, Inc., all of which are affiliates of JWH. Since the beginning of
1987, Mr. Henry has devoted, and will continue to devote, considerable time
to activities in businesses other than JWH and its affiliates.
Mr. Mark H. Mitchell is vice chairman, counsel to the firm and a
member of the JWH Board of Directors. He is also vice chairman and a director
of JWH Investment Management, Inc., JWH Asset Management, Inc. and JWH
Financial Products, Inc. Prior to his employment at JWH commencing in January
1994, Mr. Mitchell was a partner at Chapman and Cutler, a Chicago law firm,
where he headed its futures law practice since August 1983. From August 1980
to March 1991, he served as General Counsel of NAFTA and, from March 1991 to
December 1993, he served as General Counsel of the Managed Futures
Association, now the Managed Funds Association ("MFA"). Mr. Mitchell is
currently a member of the Commodity Pool Operator/Commodity Trading Advisor
Advisory Committee and the Special Committee for the Review of Multi-tiered
Regulatory Approach to NFA Rules, both of the NFA. In addition, he has served
as a member of the Government Relations Committee of the MFA and the
Executive Committee of the Law and Compliance Division of the FIA. In 1985,
he received the Richard P. Donchian Award for Outstanding Contributions to
the Field of Commodity Money Management. He has been an editor of Futures
International Law Letter and its predecessor publication, Commodities Law
Letter. He received an A.B. with honors from Dartmouth College and a J.D.
from the University of California at Los Angeles, where he was named to the
Order of the Coif, the national legal honorary society.
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Mr. Verne O. Sedlacek is the chief operating officer of JWH. He will
be a principal of JWH as soon as his CFTC registration is granted. Mr.
Sedlacek is responsible for the day-to-day management of the firm. Prior to
joining JWH in July 1998, Mr. Sedlacek was the executive vice president and
chief financial officer of Harvard Management Company, Inc., a wholly-owned
subsidiary of Harvard University, which at the time of his departure managed
approximately $14 billion of University-related funds. He joined Harvard
Management Company in March 1983 and was responsible for managing the areas
of personnel, budgets, systems, performance analysis, contracts, credit,
compliance, custody, operations, cash management, securities lending and
market risk evaluation. Mr. Sedlacek currently serves on the Board of
Directors of the FIA and the Chicago Mercantile Exchange, and is a member of
the Global Markets Advisory Committee of the CFTC. Mr. Sedlacek received his
B.A. in Economics from Princeton University, M.B.A. in Accounting from New
York University and received his C.P.A. from the State of New York in 1978.
Mr. Mark S. Rzepczynski, Ph.D., is the director of research and
trading at JWH. Mr. Rzepczynski will be a principal of JWH as soon as his
CFTC registration is granted. He is responsible for overseeing research and
trading functions at the firm. Prior to joining JWH, Mr. Rzepczynski's last
management responsibility was as vice president and director of taxable
credit and quantitative research in the fixed-income division of Fidelity
Management and Research. While at Fidelity from May 1995 to April 1998, he
oversaw credit and quantitative research recommendations for all fidelity
taxable fixed-income funds. From April 1993 to April 1995, Mr. Rzepczynski
was a portfolio manager and director of research for CSI Asset Management,
Inc., a fixed-income money management subsidiary of Prudential Insurance. Mr.
Rzepczynski has a B.A. cum laude in Economics from Loyola University of
Chicago, and an A.M. and Ph.D. in Economics from Brown University.
Ms. Elizabeth A. M. Kenton is chief administrative officer, a senior
vice president and the director of compliance of JWH. Since joining JWH in
March 1989, Ms. Kenton has held positions of increasing responsibility in
research and development, administration and regulatory compliance. Ms.
Kenton is also senior vice president of JWH Investment Management, Inc., a
director of Westport Capital Management Corporation, the vice president of
JWH Asset Management, Inc. and JWH Financial Products, Inc., and a director
of Global Capital Management Limited. Prior to her employment at JWH, Ms.
Kenton was associate manager of Financial and Trading Operations at Krieger
Investments, a currency and commodity trading firm. From July 1987 to
September 1988, Ms. Kenton worked for Bankers Trust Company as a product
specialist for foreign exchange and treasury options trading. She received a
B.S. in Finance from Ithaca College.
Mr. David M. Kozak is general counsel, vice president and secretary
of JWH. He is also secretary of JWH Investment Management, Inc., JWH Asset
Management, Inc., and JWH Financial Products, Inc. and a director and
secretary of Westport Capital Management Corporation. Prior to joining JWH in
September 1995, Mr. Kozak was employed at Chapman and Cutler, where he was an
associate from September 1983 and a partner from 1989. Mr. Kozak has
concentrated in commodity futures law since 1981, with emphasis in the area
of commodity money management. Mr. Kozak is currently a director of the MFA,
chairman of the subcommittee on CTA and CPO issues of the Committee on
Futures Regulation of the Association of the Bar of the City of New York, a
member of the Government Relations Committee of the MFA, the NFA Special
Committee on CPO/CTA Disclosure Issues, and the Visiting Committee of The
University of Chicago Library. He received a B.A. from Lake Forest College,
an M.A. from The University of Chicago, and a J.D. from Loyola University of
Chicago.
Mr. Kevin S. Koshi is executive vice president and a member of the
Investment Policy Committee of JWH. He is responsible for the implementation
and oversight of the firm's proprietary strategies and investments. Mr. Koshi
joined JWH in August 1988 as a professional in the Finance Department, and
since 1990 has held positions of increasing responsibility in the Trading
Department. He received a B.S. in Finance from California State University at
Long Beach.
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Mr. Matthew J. Driscoll is chief trader, vice president, and a
member of the Investment Policy Committee of JWH. He is responsible for the
supervision and administration of all aspects of order execution strategies
and implementation of trading policies and procedures. Mr. Driscoll joined
JWH in March 1991 as a member of its trading department. Since joining the
firm he has held positions of increasing responsibility as they relate to the
development and implementation of JWH's trading strategies and procedures. In
1993, Mr. Driscoll was promoted to manager of JWH's overseas trading desk. He
has played a major role in the development of JWH's 24-hour trading
operation. Mr. Driscoll attended Pace University.
Mr. Christopher E. Deakins is director of investor services and a
vice president of JWH. Mr. Deakins is responsible for general business
development and investor services functions. Prior to joining JWH in August
1995, he was a vice president, national sales, and a member of the Management
Team for RXR Capital Management, Inc. His responsibilities consisted of
business development, institutional sales, and broker-dealer support. Prior
to joining RXR in August 1986, he was engaged as an account executive for
Prudential-Bache Securities starting in February 1985. Prior to that, Mr.
Deakins was an account executive for Merrill Lynch. He received a B.A. in
Economics from Hartwick College.
Mr. Edwin B. Twist is a director of JWH and has held that position
since August 1993. Mr. Twist is also a director of JWH Investment Management,
Inc., JWH Asset Management, Inc. and JWH Financial Products, Inc. Mr. Twist
joined JWH as internal projects manager in September 1991. Mr. Twist's
responsibilities include assisting with the day-to-day administration and
internal projects of JWH's Florida office. Mr. Twist was secretary and
treasurer of J. W. Henry Enterprises Corp., a Florida corporation engaged in
administrative and financial consulting services, for which he performed
financial, consulting and administrative services from January 1991 to August
1991.
Ms. Nancy O. Fox, C.P.A., is a vice president and director of
investment support. She is responsible for the day-to-day activities of the
Investment Support Department, including all aspects of operations and
performance reporting. Ms. Fox is also president and director of Global
Capital Management Limited. Prior to joining JWH in January 1992, Ms. Fox was
a senior accountant at Deloitte & Touche, where she served commodities and
security industry clients and held positions of increasing responsibility
since July 1987. Ms. Fox is a member of the AICPA and the New Jersey Society
of C.P.A.s. She received a B.S. in Accounting and Finance from Fairfield
University and an M.B.A. from the University of Connecticut.
Mr. Julius A. Staniewicz is the senior strategist in JWH's Product
Development Department and a member of the Investment Policy Committee of
JWH. He is also President of JWH Asset Management, Inc. and JWH Financial
Products, Inc. and a Vice President of Westport Capital Management
Corporation. Prior to joining JWH in March of 1992, Mr. Staniewicz was
employed with Shearson Lehman Brothers as a financial consultant starting in
April 1991. Prior to that, beginning in 1990, Mr. Staniewicz was a vice
president of Phoenix Asset Management, a commodity pool operator and
introducing broker, where he helped develop futures funds for syndication and
institutional investors. From 1986 to 1989, Mr. Staniewicz worked in the
managed futures department at Prudential-Bache Securities, Inc., lastly as an
assistant vice president and co-director of managed futures. In this
capacity, Mr. Staniewicz oversaw all aspects of forming and offering futures
funds, including the selection and monitoring of CTAs. Mr. Staniewicz
received a B.A. in Economics from Cornell University.
Ms. Eilene Nicoll is the vice president of trading administration
and is a member of the Investment Policy Committee of JWH. Prior to joining
JWH in July 1997, Ms. Nicoll was a vice president beginning in January 1997
at Commercial Materials, L.L.C., a newly-organized corporation which had not
yet begun operations. She was a vice president and director at West Course
Capital, Inc., a commodity trading advisor, from January 1994 until it
dissolved in December 1996. At West Course Capital, Inc. Ms. Nicoll was
responsible for operations and administration. Prior to joining West Course
Capital, Inc., she was a vice president at REFCO, Inc. from May 1991 to
December 1993. While at REFCO, Inc., she was also a principal of Nikkah &
Nicoll Asset
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Management, Inc., a commodity pool operator. Ms. Nicoll was at Shearson
Lehman Brothers from January 1987 to December 1990 as vice president-futures,
and subsequently from January 1991 to May 1991 at Moore Capital Management,
Inc. where she was involved in all aspects of the commodity trading advisor
business, including administration, marketing and allocation of proprietary
capital. Ms. Nicoll received her B.A. in Psychology from Brooklyn College.
Mr. Paul D. Braica, C.P.A. is the managing director of
administration of JWH. He is also treasurer of JWH Financial Products, Inc.
Since joining JWH in April 1996, Mr. Braica has held positions of increasing
responsibility in internal audit, risk management and administration. Prior
to joining JWH, he was employed with Ernst & Young LLP as an Auditor from
December 1994 to March 1996 and as a Tax Manager from July 1986 to September
1993. From October 1993 to November 1994 he was the director of fund
accounting at Organizer Systems, Inc. Mr. Braica received his B.A. in
Economics from Gettysburg College, his M.B.A. from Rutgers University and his
M.S. in Taxation from Seton Hall University.
Mr. Kevin J. Treacy, F.C.A., is vice president of JWH. He is also
treasurer of JWH Asset Management, Inc. Prior to joining JWH in September
1997, Mr. Treacy was the chief financial officer of Kenmar Advisory Corp., a
registered Commodity Pool Operator, from August 1993 to August 1997. While at
Kenmar, Mr. Treacy was also a principal of multiple Kenmar affiliates which
were registered as CTAs, Commodity Pool Operators and an Introducing Broker.
At Kenmar, he was responsible for corporate finance and administration for
the firm and its affiliates. Beginning in September 1986, Mr. Treacy worked
for E.S. Jacobs & Co., a corporation specializing in leveraged buy-outs and
venture capital investments, where he held positions of increasing
responsibility, lastly as the firm's chief financial officer until July 1993.
He received his Bachelor of Commerce and Master's in Accounting from
University College Dublin.
Ms. Florence Y. Sofer is director of marketing of JWH. She is
responsible for the development and implementation of strategic marketing and
communications programs. Ms. Sofer joined JWH as a marketing manager in June
1997 from GAM Funds, Inc., where she was a marketing manager from June 1994
to May 1997. From October 1993 to June 1994, Ms. Sofer was in the process of
relocating from Washington, D.C. to New York, New York. Prior to such time,
she was a senior marketing analyst with MCI Telecommunications, Inc. from May
1992 to October 1993. She received her B.A. in Economics and International
Relations from The American University and an M.B.A. with an emphasis on
marketing from George Washington University.
The additional principals of JWH have the following titles: Lynn
Rodlauer Lubell, Vice President of the Office of Chairman of JWH (Ms. Lubell
will be a principal of JWH as soon as her CFTC registration is granted);
Andrew D. Willard, Director of Technology; William G. Kelley, Vice President;
Robert B. Lendrim, Vice President; Wendy B. Goodyear, Assistant Vice
President; Mark W. Sprankel, Assistant Vice President; Kenneth S. Webster,
CPA, Assistant Vice President; and Michael P. Flannery, Assistant Vice
President.
The Investment Policy Committee
The Investment Policy Committee (the "IPC"), which is composed of
key professionals from throughout JWH, is one vehicle for decision-making at
JWH concerning the content and application of JWH investment programs. The
composition of the IPC, and the level of participation in its discussions and
decisions by non-members, may vary over time. The IPC is an interdepartmental
advisory body which meets periodically to discuss issues relating to the JWH
investment programs and their application to markets, including research on
markets and strategies in relation to the proprietary trading models employed
by JWH. JWH's proprietary research group may determine new markets which
should be traded in given portfolios, or determine markets which should be
removed from given portfolios. Non-proprietary recommendations from research
are then presented to and discussed by the IPC, which may recommend them to
the chairman for approval. Proprietary research findings are reviewed
directly by the chairman before implementation. All recommendations of the
IPC are subject to final approval by the chairman. The
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IPC does not make particular trading decisions. The Trading Department
initiates and liquidates positions and manages JWH portfolios in accordance
with the firm's proprietary trading methodology, which is not overridden
unless the chief trader or director of trading administration determines that
doing so is in the best interest of clients. No trade indications are
overruled without the express approval of the chairman. The chairman may also
notify the Trading Department at any time of special situations which he
deems may require a modification in applying the methodology.
JWH Performance
General
The following is the composite performance of all accounts managed
by JWH and JWH Investments, Inc., an affiliate of JWH which has ceased
operations All performance information is current as of April 30, 1998. Not
all of these programs are presently used by the Fund, but any of them might
be in the future.
From the inception of trading of the JWH programs (the performance
of the programs prior to January 1993 is not presented in this prospectus in
accordance with applicable CFTC policy), the greatest cumulative percentage
decline in daily net asset value experienced in any single program was nearly
60% on a composite basis, and certain individual accounts included in such
program experienced even greater declines. Certain JWH accounts have lost 10%
or more in a single trading day. Prospective investors should understand that
similar or greater drawdowns are possible in the future. There can be no
assurance that JWH will trade profitably for the Fund or avoid sudden and
severe losses.
An investor should note that the composite capsule performance
presentations include individual accounts which, even though traded according
to the same investment program, have materially different rates of return.
The reasons for this are numerous material differences among accounts: (a)
procedures governing timing for the commencement of trading and means of
moving toward full portfolio commitment of new accounts; (b) the period
during which accounts are active; (c) client trading restrictions, including
futures versus forward contracts and contract months; (d) trading size to
equity ratio resulting from procedures for the commencement of trading and
the appropriate means of moving toward full portfolio commitment of new
accounts and new capital; (e) the size of the account, which can influence
the size of positions taken and restrict the account from participating in
all markets available to a particular program; (f) the amount of interest
income earned by an account, which will depend on the rates paid by futures
commission merchants on equity deposits and/or on the portion of an account
invested in interest-bearing obligations such as Treasury bills; (g) the
amount of management and incentive fees paid to JWH and the amount of
brokerage commissions paid, which will vary and will depend on the fees
negotiated by the client with the broker; (h) the timing of orders to open or
close positions; (i) the market conditions, which in part determine the
quality of trade executions; (j) variations in fill prices; and (k) the
timing of additions and withdrawals. Notwithstanding these material
differences among accounts, the composite remains a valid representation of
the accounts included therein.
Composite performance presentation is only allowed for accounts
which are not materially different. To decide if there are material
differences among accounts traded pursuant to the same trading program, the
gross trading performance of each JWH investment program and each individual
JWH account within the relevant program is reviewed and the following
parameters established by interpretations of the Division of Trading and
Markets of the CFTC applied (i) if the arithmetic average of two percentages
is greater than 10 percentage points and the difference between the two is
less than 10% of their average; (ii) if the arithmetic average of the two
percentages is greater than 5 percentage points but less than 10 percentage
points and the difference between the two is 1.5 percentage points or less;
and (iii) if the arithmetic average of the two percentages is less than 5
percentage points and the difference between the two is 1.0 percentage point
or less. If one of the parameters (i) - (iii) is satisfied in the review,
then the results within the designated range are deemed "materially the same"
or "not materially differ-
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ent." The parameters (i) - (iii) determine if differences between accounts
are material. JWH further evaluates performance on a gross trading basis for
materiality in an overall context for each JWH investment program and each
individual JWH account within the relevant program not satisfying the above
parameters to determine whether any material differences that are detected
could produce misleading composite performance results after review of the
reasons for the differences. With the exception of accounts that were
established at levels below JWH's current minimum account size, JWH's policy
is to provide separate performance capsules when an account is consistently
performing differently on a gross trading basis than the other JWH accounts
traded pursuant to the same trading program and the continued inclusion of
that account in the composite would create a distortion in the composite rate
of return.
During the periods covered by the performance summaries, JWH
increased and decreased leverage in certain markets and entire trading
programs, and also altered the composition of the markets and contracts that
it traded for certain programs. In addition, the subjective aspects of JWH's
trading methods may have been utilized more often in recent years and,
therefore, have had a more pronounced effect on performance results during
recent periods. Additionally, the investment program used (although all
accounts may be traded in accordance with the same approach, such approach
may be modified periodically as a result of ongoing research and development
by JWH) may have an effect on performance results. In reviewing the JWH
capsule performance records, prospective investors should bear in mind the
possible effect of these variations on rate of return and in the application
of JWH's investment methods. JWH has decreased leverage in certain markets
and entire programs on several occasions over the last five years.
As a result of changes to the Fund's account made in May 1998,
pursuant to JWH's authority to reallocate assets for the Fund and to adjust
leverage, the Fund's account has traded differently than other accounts in
their respective programs since then, and the situation may continue, or
recur in the future.
The composite rates of return indicated should not be taken as
representative of the rates of return actually achieved by any of the
accounts represented in the performance summaries. The degree of leverage
utilized currently or in the future may be significantly different from that
used during previous time periods.
The JWH programs' performance summaries and monthly rate of return
table are presented on a cash basis except as otherwise stated below. The
recording of items on a cash basis should not, for most months, be materially
different to presenting such rates of return on an accrual basis. Beginning
with the change to the accrual basis of accounting for incentive fees in
December 1991 for JWH, and July 1992 for JWH Investments, Inc., the net
effect to monthly net performance and the rate of return in the performance
summaries and the monthly rate of return table of continuing to record
interest income, management fees, commissions and other expenses on a cash
basis is materially equivalent to the full accrual basis. In July 1992, JWH
began reflecting all items of net performance on an accrual basis for the G-7
Currency Portfolio, in January 1993 for the International Currency and Bond
Portfolio, in July 1996 for the Worldwide Bond Program and Dollar Program,
and in June 1997 for the GlobalAnalytics(TM) Family of Programs.
When JWH began to manage the Fund, it developed a new method for
treating the accrual of incentive fees for the multi-advisor funds and
multi-program accounts. This method calculates incentive fees due for each
program on a stand-alone basis irrespective of the actual incentive fees paid
by multi-program accounts. The new method was first applied to August 1996
performance. In that month, a one-time adjustment to rate of return was made
to each affected program to show the impact of this adjustment from program
inception through August 1996. In the case of certain programs, the
adjustments had a material, i.e., greater than 10%, impact on the rate of
return that otherwise would have been shown. In the case of accounts that
closed before JWH received an incentive fee due to the operation of such
netting arrangements, a balancing entry was made to offset the effect of
incentive fee accruals on ending equity.
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Advisory fees vary from account to account managed pursuant to all
programs. In addition, the calculation of management and incentive fees is
subject to variation due to agreed-upon definitions contained in each
account's advisory agreement. Management fees vary from 0% to 6% of assets
under management; incentive fees vary from 0% to 25% of profits. Such
variations in advisory fees may have a material impact on the performance of
an account from time to time.
Notes to JWH Programs' Capsule Performance Summaries and the Monthly Rates of
Return Table
Number of open accounts is the number of accounts directed by JWH
pursuant to the investment program shown as of April 30, 1998.
Assets under management in a program is the aggregate amount of
total equity, excluding "notional" equity under management, unless otherwise
noted, of JWH in the investment program shown as of April 30, 1998. Refer to
the additional note below for more information on notional funds.
Worst monthly decline on an individual account basis within the past
five years is the largest monthly loss experienced by any single account in
the relevant investment program in any calendar month covered by the capsule.
"Loss" for these purposes is calculated on the basis of the loss experienced
by the individual account, expressed as a percentage of total equity
(including "notional" equity) in the account. Worst monthly decline
information includes the month and year of such decline.
Worst peak-to-valley decline on an individual account basis is the
largest percentage decline by any single account in the relevant investment
program (after eliminating the effect of additions and withdrawals) during
the period covered by the capsule from any month-end net asset value, without
such month end net asset value being equaled or exceeded as of a subsequent
month-end by the individual account, expressed as a percentage of the total
equity (including "notional" equity) in the account. The worst peak-to-valley
decline since inception is the worst peak-to-valley decline by the program as
a composite.
Compound Annual Rate of Return is calculated by compounding the
monthly rates of return over the number of periods in a given year. For
example, each month's monthly rate of return in hundredths is added to one
(1) and the result is multiplied by the previous month's compounded monthly
rate of return similarly expressed. One (1) is then subtracted from the
product. For periods less than one year, the results are year to date.
Average Compounded Annualized Rate of Return is similarly calculated, except
that before subtracting one (1) from the product, the product is
exponentially changed by the factor of one (1) divided by the number of years
in the program's performance record, then one (1) is subtracted.
Monthly Rates of Return are calculated by dividing net performance
by the sum of beginning equity, plus additions minus withdrawals. For such
purposes all additions and withdrawals are effectively treated as if they had
been made on the first day of the month, even if, in fact, they occurred
later. Beginning in December 1991, if additions and withdrawals are material
to the program's performance, they are time-weighted. If time-weighting is
materially misleading, then the only accounts traded method is utilized.
Proprietary capital is included in the rates of return for the
Financial and Metals Portfolio, the Original Investment Program, the Global
Diversified Portfolio, the Global Financial Portfolio, the International
Currency and Bond Portfolio and the G-7 Currency Portfolio, but does not have
a material impact on the rates of return.
Additional Note to the Financial and Metals Portfolio Composite Performance
Summary and Monthly Rates of Return Table
The Financial and Metals Portfolio performance information includes
the performance of several accounts that do not participate in global markets
due to their smaller account equities which do not meet the minimums
established for this program. Accounts not meeting such minimums can
experience performance materially different from the performance of an
account which meets the minimum account size. The performance of such
accounts has no material effect on the overall Financial and Metals Portfolio
performance information.
46
<PAGE>
Additional Note to the Yen Financial Portfolio Performance Summary and
Monthly Rates of Return Table
The Yen Financial Portfolio began trading client capital in January
1992 and ceased trading in March 1997.
The Yen Financial Portfolio was traded from the Japanese yen
perspective. Accounts were opened with either U.S. dollar or Japanese yen
deposits. Accounts originally opened with U.S. dollars established additional
interbank positions in Japanese yen in an effort to enable such accounts to
generate returns similar to the returns generated by accounts with
yen-denominated balances. Over time, as profits and losses were recognized in
yen-denominated Japanese markets, accounts held varying levels of U.S.
dollars and Japanese yen. Additionally, the interbank positions were adjusted
periodically to reflect the actual portions of the account balances remaining
in U.S. dollars. As the equity mix between U.S. dollars and Japanese yen
varied, performance from each perspective also varied.
The performance of the Yen Financial Portfolio is presented on an
individual account basis due to material differences among accounts'
historical performance. Account performance varied historically due to a
number of factors unique to this portfolio, including whether the portfolio
was denominated in dollars or yen, the extent of hedging currency
conversions, the amounts and frequency of currency conversions, and account
size. Several of these factors that materially influenced performance
depended on clients' specific choices that effectively resulted in customized
client portfolios.
Additional Note to the Global Financial Portfolio Composite Performance
Summary and Monthly Rates of Return Table
Since the inception of the Global Financial Portfolio, the timing of
individual account openings has had a material impact on compound rates of
return. Based on the account startup methodology used by JWH, the performance
of individual accounts comprising the Global Financial Portfolio composite
performance summary has varied. In 1994, the two accounts that were open
generated separate rates of return of (44)% and (17)%, respectively. For the
period January 1995 through June 1995, the three open accounts achieved
separate rates of return of 101%, 75% and 67%, respectively. By the end of
June 1995, these accounts maintain mature positions and are performing
consistently with each other. Due to the six month period in 1995 of varied
performance, the three accounts achieved annual rates of return for 1995 of
122%, 92% and 78%, respectively. In April 1995, JWH established a new
leverage level for the Global Financial Portfolio. This new level trades at
one-half of the leverage level previously employed.
Additional Note to the Fully-Funded Subset Summaries (JWH Investments, Inc.
InterRate and the Global Diversified Portfolio)
"Notional" equity is the amount by which the trading level of an
account exceeds its actual assets. The amount of "notional" equity in the
accounts that comprise the Fully-Funded Subset Summaries requires additional
disclosure under current CFTC policy.
To qualify for the use of the Fully-Funded Subset method of
performance presentation (which permits including accounts which trade
"notional" equity in the same performance composite as accounts which do
not), the CFTC requires that certain computations be made. These computations
have been performed for the Global Diversified Portfolio from January 1, 1993
to June 30, 1996 (when JWH discontinued using the Fully-Funded Subset method
for the Global Diversified Portfolio) and for JWH Investments, Inc.'s
InterRate(TM) from January 1, 1993 to its close. Such computations were
designed to provide assurance that the performance presented in the
Fully-Funded Subset Summaries and calculated on a Fully-Funded Subset basis
would be representative of such performance calculated on a basis which
included "notional" funds in beginning equity. JWH and JWH Investments, Inc.
believe that both methods yielded substantially the same adjusted rates of
return, and that the rates of return presented in the Fully-Funded Subset
Summaries are representative of the performance of the programs in question
for the periods presented.
47
<PAGE>
Additional Note to the Performance Summaries of the Discontinued Programs
Performance summaries are included for InterRate, the Delevered Yen
Denominated Financial and Metals Profile, the KT Diversified Program and the
Yen Financial Portfolio. All of these programs have been discontinued.
----------------------
48
<PAGE>
JOHN W. HENRY & COMPANY, INC. PROGRAMS
January 1, 1993 - April 30, 1998
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
Name of Program: Financial and Original Global Global Financial International
Metals Investment Diversified Portfolio Foreign
Portfolio Program Portfolio Exchange
Program
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Inception of Client Account October 1984 October 1982 June 1988 June 1994 August 1986
Trading in Program:
----------------------------------------------------------------------------------------
Number of Open Accounts: 35 23 10 7 4
----------------------------------------------------------------------------------------
Aggregate Assets (excluding $1,086,136,345 $362,882,534 $171,847,783 $138,988,648 $79,977,747
notional" equity) in Program:
----------------------------------------------------------------------------------------
Aggregate Assets (including $1,086,136,345 $368,135,195 $171,847,783 $138,988,648 $79,977,747
notional" equity) in Program:
----------------------------------------------------------------------------------------
Aggregate assets (excluding $2.1 billion $2.1 billion $2.1 billion $2.1 billion $2.1 billion
'notional" equity) Overall
----------------------------------------------------------------------------------------
Aggregate Assets (including $2.1 billion $2.1 billion $2.1 billion $2.1 billion $2.1 billion
"notional" equity) Overall:
----------------------------------------------------------------------------------------
Worst Monthly Decline on an (9.8)% (7/94) (16.3)% (10/94) (11.2)% (2/96) (19.5)% (11/94) (8.3)% (5/97)
Individual Account Basis:
----------------------------------------------------------------------------------------
Worst Peak-to-Valley Decline (30.5)% (31.0)% (24.1)% (48.9)% (35.9)%
an Individual Account Basis: (6/94-1/95) (7/94-10/94) (6/95-10/95) (7/94-1/95) (9/92-1/95)
----------------------------------------------------------------------------------------
1998 Rate of Return (4 mos.) (16.0)% (3.7)% (4.1)% (3.1)% (8.1)%
----------------------------------------------------------------------------------------
1997 Compound Annual Rate of 15.2 % 5.7% 3.3% 4.9% 71.1%
Return:
----------------------------------------------------------------------------------------
1996 Compound Annual Rate of 29.7% 22.6% 26.9% 32.4% 3.7%
Return:
----------------------------------------------------------------------------------------
1995 Compound Annual Rate of 38.5% 53.2% 19.6% 86.2% 16.9%
Return:
----------------------------------------------------------------------------------------
1994 Compound Annual Rate of (5.3)% (5.7)% 10.1% (37.7)% (6.3)%
Return: (7 months)
----------------------------------------------------------------------------------------
1993 Compound Annual Rate of 46.8% 40.6% 59.8% N/A (4.5)%
Return:
----------------------------------------------------------------------------------------
------------------------------------------------
G-7 Currency JWH Global- International
Portfolio Analytics(TM) Currency and
Name of Program: Family of Bond Portfolio
Programs
------------------------------------------------
<S> <C> <C> <C>
Inception of Client Account February 1991 June 1997 January 1993
Trading in Program:
-----------------------------------------------
Number of Open Accounts: 6 2 2
-----------------------------------------------
Aggregate Assets (excluding $68,065,898 $68,670,894 $29,710,453
notional" equity) in Program:
-----------------------------------------------
Aggregate Assets (including $68,065,898 $68,670,894 $29,710,453
notional" equity) in Program:
-----------------------------------------------
Aggregate assets (excluding $2.1 billion $2.1 $2.1 billion
'notional" equity) Overall billion
-----------------------------------------------
Aggregate Assets (including $2.1 billion $2.1 $2.1 billion
"notional" equity) Overall: billion
-----------------------------------------------
Worst Monthly Decline on an (12.3)% (11/94) (5.0)% (7.8)% (7/94)
Individual Account Basis: (4/98)
-----------------------------------------------
Worst Peak-to-Valley Decline (31.4)% (5.0)% (23.6)%
an Individual Account Basis: (10/92-1/95) (4/98) (7/94-1/95)
-----------------------------------------------
1998 Rate of Return (4 mos.) (4.0)% (3.2)% (4.1)%
-----------------------------------------------
1997 Compound Annual Rate of 17.6% 17.0%*
Return: 21.0% (7 months)
-----------------------------------------------
1996 Compound Annual Rate of 14.5% N/A 19.9% *
Return:
-----------------------------------------------
1995 Compound Annual Rate of 32.2% N/A 36.5% *
Return:
-----------------------------------------------
1994 Compound Annual Rate of (4.9)% N/A (2.3)%
Return:
-----------------------------------------------
1993 Compound Annual Rate of (6.3) % N/A 14.8%
Return:
-----------------------------------------------
</TABLE>
* From October 1995 to July 1997, this program was comprised of one
proprietary account.
Worst Monthly Decline on an Individual Account Basis is the worst Monthly
Rate of Return during any month.
Worst Peak-to-Valley Decline is the largest percentage loss without such
loss being earned back. For example, if the Monthly Rate of Return was (1)%
in each of July and August, 1% in September and (2)% in October, the
"Peak-to-Valley Decline" would still be continuing at the end of October in
the amount of approximately (3)%, whereas if the Monthly Rate of Return had
been approximately 3% in September, the "Peak-to-Valley Decline" would have
ended as of the end of August at approximately the (2)% level.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
JOHN W. HENRY & COMPANY, INC. PROGRAMS
<PAGE>
<TABLE>
<CAPTION>
January 1, 1993 - April 30, 1998 (cont'd)
-----------------------------------------------------------------------------
Name of Program: Delevered Yen
The World Denominated
Financial Dollar Worldwide Financial and
Perspective Program Bond Program Metals Profile InterRate(TM)
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Inception of Client Account April 1987 July 1996 July 1996 October 1995; December 1988;
Trading in Program: ceased trading ceased trading
12/96 7/96
-----------------------------------------------------------------------------
Number of Open Accounts: 2 2 2 0 0
-----------------------------------------------------------------------------
Aggregate Assets (excluding $31,343,763 $29,476,404 $19,889,641 $0 $0
"notional" equity) in Program:
-----------------------------------------------------------------------------
Aggregate Assets (including $31,343,763 $29,476,404 $19,889,641 $0 $0
"notional" equity) in Program:
-----------------------------------------------------------------------------
Aggregate Assets (excluding $2.1 billion $2.1 $2.1 billion $2.1 billion $2.1 billion
"notional" equity) Overall: billion
-----------------------------------------------------------------------------
Aggregate Assets (including $2.1 billion $2.1 $2.1 billion $2.1 billion $2.1 billion
"notional" equity) Overall: billion
-----------------------------------------------------------------------------
Worst Monthly Decline on an (11.6)% (3/93) (8.4)% (3.8)% (3.2)% (2/96) (3.1)%
Individual Account Basis: (5/97) (4/97) (11/94)
-----------------------------------------------------------------------------
Worst Peak-to-Valley Decline on (25.9)% (11.6)% (6.2)% (5.1)% (19.7)%
an Individual Account Basis: (7/94-1/95) (5/97-9/97) (12/96-5/97) (2/96-8/96) (9/92-11/93)
-----------------------------------------------------------------------------
1998 Rate of Return (4 mos.) 2.7% (4.3)% (1.0)% N/A N/A
-----------------------------------------------------------------------------
1997 Compound Annual Rate of 10.4% 6.8% 9.5% N/A N/A
Return:
-----------------------------------------------------------------------------
1996 Compound Annual Rate of 40.9% 10.6% 17.8% 9.4% 5.79%
Return: (6 months) (6 months) (7 months)
-----------------------------------------------------------------------------
1995 Compound Annual Rate of 32.2% N/A N/A 0.2% 5.19%
Return: (3 months)
-----------------------------------------------------------------------------
1994 Compound Annual Rate of (15.2)% N/A N/A N/A 3.42%
Return:
-----------------------------------------------------------------------------
1993 Compound Annual Rate of 13.7% N/A N/A N/A (5.35)%
Return:
-----------------------------------------------------------------------------
-------------------------------------------------
Name of Program: JWH II
KT Diversified Financial and JWH II
Program Metals InterRate(TM) *
Portfolio*
-------------------------------------------------
<S> <C> <C> <C>
Inception of Client Account January 1984; September 1991; February 1992;
Trading in Program: ceased trading ceased trading ceased trading
2/94 7/95 11/93
-------------------------------------------------
Number of Open Accounts: 0 0 0
-------------------------------------------------
Aggregate Assets (excluding $0 $0 $0
"notional" equity) in Program:
-------------------------------------------------
Aggregate Assets (including $0 $0 $0
"notional" equity) in Program:
-------------------------------------------------
Aggregate Assets (excluding $2.1 billion $0 $0
"notional" equity) Overall:
-------------------------------------------------
Aggregate Assets (including $2.1 billion $0 $0
"notional" equity) Overall:
-------------------------------------------------
Worst Monthly Decline on an (19.6)% (8/93) (4.8)% (7/94) (4.0)%
Individual Account Basis: (11/93)
-------------------------------------------------
Worst Peak-to-Valley Decline on (33.9)% (12.2)% (20.6)%
an Individual Account Basis: (8/93-2/94) (7/94-12/94) (9/92 - 11/93)
-------------------------------------------------
1998 Rate of Return (4 mos.) N/A N/A N/A
-------------------------------------------------
1997 Compound Annual Rate of N/A N/A N/A
Return:
-------------------------------------------------
1996 Compound Annual Rate of N/A N/A N/A
Return:
-------------------------------------------------
1995 Compound Annual Rate of N/A 30.3% N/A
Return: (7 months)
-------------------------------------------------
1994 Compound Annual Rate of (14.0)% (0.8)% N/A
Return: (2 months)
-------------------------------------------------
1993 Compound Annual Rate of 20.6% 46.1% (9.9)%
Return: (11 months)
-------------------------------------------------
</TABLE>
* Managed by JWH Investments, Inc. which began managing client assets in
September 1991. JWH Investments, Inc. no longer manages client funds.
Worst Monthly Decline on an Individual Account Basis is the worst Monthly
Rate of Return during any month.
Worst Peak-to-Valley Decline is the largest percentage loss without such
loss being earned back. For example, if the Monthly Rate of Return was (1)%
in each of July and August, 1% in September and (2)% in October, the
"Peak-to-Valley Decline" would still be continuing at the end of October in
the amount of approximately (3)%, whereas if the Monthly Rate of Return had
been approximately 3% in September, the "Peak-to-Valley Decline" would have
ended as of the end of August at approximately the (2)% level.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
<PAGE>
JOHN W. HENRY & COMPANY, INC. PROGRAMS
January 1, 1993 - April 30, 1998
YEN FINANCIAL PORTFOLIO
Inception of Client Account Trading in Program: January 1992
Number of Open Accounts: 0
Aggregate Assets (excluding "notional" equity) in Program: $0
Aggregate Assets (including "notional" equity) in Program: $0
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Aggregate Worst Worst
Account No. Inception of Assets Compound Annual Rate Monthly Peak-to-Valley
Trading March 31, 1998 of Return % Decline % Decline %
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 1/92 closed - 3/97 1997: (3.3) (3 months) (7.3) - 7/95 (30.5) -4/95 - 7/96
1996: (8.5)
1995: 20.6
1994: (13.0)
1993: 76.4
- --------------------------------------------------------------------------------------------------------------------------
2 1/93 closed - 1/97 1997: (0.1) (1 month) (6.9) - 7/95 (29.0) - 4/95 - 7/96
1996: (9.9)
1995: 21.0
1994: (8.8)
1993: 71.4
- --------------------------------------------------------------------------------------------------------------------------
3 1/94 closed - 1/97 1997: (2.4) (1 month) (6.0) - 7/95 (26.6) - 4/95 - 7/96
1996: (10.9)
1995: 22.4
1994: (7.5)
- --------------------------------------------------------------------------------------------------------------------------
4 6/94 closed - 3/97 1997: 1.4 (3 months) (6.5) - 7/95 (22.3) - 4/95 - 7/96
1996: (0.6)
1995: 24.2
1994: (1.6) (7 months)
- --------------------------------------------------------------------------------------------------------------------------
5 8/94 closed - 3/97 1997: (2.4) (3 months) (7.1) - 7/95 (30.4) - 4/95 - 7/96
1996: (6.0)
1995: 21.1
1994: (4.3) (5 months)
- --------------------------------------------------------------------------------------------------------------------------
6 1/95 closed - 3/97 1997: (3.7) (3 months) (7.5) - 7/95 (35.5) - 4/95 - 7/96
1996: (13.5)
1995: 13.2
- --------------------------------------------------------------------------------------------------------------------------
7 3/94 closed-3/97 1997: 4.0 (3 months) (6.7) - 7/96 (15.9) - 2/96 - 7/96
1996: 7.8
1995: 28.1
1994: (11.2) (10 months)
- --------------------------------------------------------------------------------------------------------------------------
8 4/92 closed - 9/93 1993: 62.6 (9 months) (3.9) - 9/93 (3.9) - 9/93 - 9/93
- --------------------------------------------------------------------------------------------------------------------------
9 3/94 closed - 12/94 1994: (7.4) (10 months) (5.4) - 5/94 (10.5) - 4/94 - 12/94
- --------------------------------------------------------------------------------------------------------------------------
10 11/93 closed - 8/95 1995: 20.0 (8 months) (9.0) - 8/95 (18.8) - 4/95 - 8/95
1994: (13.4)
1993: 5.2 (2 months)
- --------------------------------------------------------------------------------------------------------------------------
11 11/93 closed - 1/95 1995: (0.6) (1 month) (6.3) - 5/94 (16.5) - 4/94 -1/95
1994: (15.0)
1993: 4.8 (2 months)
- --------------------------------------------------------------------------------------------------------------------------
12 12/92 closed - 3/96 1996: (4.1) (3 months) (4.9) - 7/95 (15.8) - 12/93 - 1/95
1995: 31.4
1994: (14.1)
1993: 69.2
- --------------------------------------------------------------------------------------------------------------------------
13 1/93 closed - 12/95 1995: 10.9 (6.2) - 7/95 (15.8) - 4/95 - 12/95
1994: (4.1)
1993: 43.6
- --------------------------------------------------------------------------------------------------------------------------
14 4/93 closed -9/94 1994: (19.0) (9 months) (5.8) - 5/94 (19.9) - 11/93 - 9/94
1993: 25.3 (9 months)
- --------------------------------------------------------------------------------------------------------------------------
15 1/94 closed - 8/94 1994: (6.7) (8 months) (5.5) - 5/94 (11.0) - 4/94 - 8/94
- --------------------------------------------------------------------------------------------------------------------------
16 12/92 closed - 1/96 1996: 0.3 (1 month) (6.0) - 7/95 (12.4) - 4/95 - 10/95
1995: 26.6
1994: (5.1)
1993: 73.9
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
51
<PAGE>
JOHN W. HENRY & COMPANY, INC. PROGRAMS
January 1, 1993 - April 30, 1998
YEN FINANCIAL PORTFOLIO (cont'd)
Inception of Client Account Trading in Program: January 1992
Number of Open Accounts: 0
Aggregate Assets (excluding "notional" equity) in Program: $0
Aggregate Assets (including "notional" equity) in Program: $0
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Aggregate Worst Worst
Account No. Inception of Assets Compound Annual Rate Monthly Peak-to-Valley
Trading March 31, 1998 of Return % Decline % Decline %
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
17 3/94 closed - 4/96 1996: (6.3) (4 months) (6.2) - 7/95 (18.5) - 4/95 - 4/96
1995: 18.5
1994: (10.1) (10 months)
- --------------------------------------------------------------------------------------------------------------------------
18 12/94 closed - 4/96 1996: (7.8) (4 months) (6.6) - 7/95 (21.1) - 4/95 - 4/96
1995: 18.3
1994: 0.2 (1 month)
- --------------------------------------------------------------------------------------------------------------------------
19 6/94 closed - 12/94 1994: (7.9) (7 months) (5.1) - 7/94 (10.4) - 6/94 - 11/94
- --------------------------------------------------------------------------------------------------------------------------
20 6/94 closed - 3/95 1995: 48.1 (3 months) (3.6) - 7/94 (9.9) - 6/94 - 1/95
1994: (6.6) (7 months)
- --------------------------------------------------------------------------------------------------------------------------
21 4/94 closed - 9/94 1994: (4.6) (6 months) (4.7) - 5/94 (7.0) - 4/94 - 9/94
- --------------------------------------------------------------------------------------------------------------------------
22 3/94 closed - 9/94 1994: (9.7) (7 months) (6.3) - 5/94 (11.0) - 4/94 - 9/94
- --------------------------------------------------------------------------------------------------------------------------
23 4/94 closed - 9/94 1994: (9.8) (6 months) (9.1) - 5/94 (12.9) - 4/94 - 9/94
- --------------------------------------------------------------------------------------------------------------------------
24 4/93 closed - 12/94 1994: (16.6) (6.1) - 5/94 (17.9) - 11/93 - 12/94
1993: 26.5 (9 months)
- --------------------------------------------------------------------------------------------------------------------------
25 9/93 closed - 12/94 1994: (12.4) (6.0) - 5/94 (14.1) - 4/94 - 12/94
1993: 3.2 (4 months)
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Yen Financial Portfolio closed in March 1997.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
52
<PAGE>
THE JWH PROGRAMS MONTHLY RATES OF RETURN
<TABLE>
<CAPTION>
International International
Financial Original Foreign The World Global G-7 Currency Global
and Metals Investment Exchange Financial Diversified Currency and Bond Financial
Portfolio Program Program Perspective Portfolio Portfolio Portfolio Portfolio
--------- ------- ------- ----------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1998
January (3.5)% (1.3)% (1.6)% 1.8% (3.2)% (4.1)% 1.0% (1.5)%
February (4.0) 2.2 (6.0) 2.5 3.8 (2.6) (2.3) (0.1)
March (1.6) (4.1) 2.9 1.6 (1.4) 4.7 1.3 2.0
April (7.9) (0.5) (3.4) (3.1) (3.2) (1.9) (4.0) (3.5)
Compound
ROR (4 mos.) (16.0)% (3.7)% (8.1)% 2.7% (4.1)% (4.0)% (4.1)% (3.1)%
1997
January 4.4% 3.4% 2.9% 1.1% 1.5% 2.5% 2.2% 2.7%
February (2.2) 0.2 9.7 0.2 (0.4) 3.9 1.4 (0.6)
March (0.7) 1.6 4.1 (2.3) (1.0) 0.4 0.0 (0.4)
April (2.9) 0.5 5.0 (0.8) (7.2) 3.1 (1.9) (0.4)
May (8.3) 1.1 (6.9) (5.2) (0.8) (3.3) (2.9) (3.7)
June 4.1 (4.4) 1.5 4.5 (2.1) 5.7 4.9 (2.2)
July 15.8 2.0 9.5 6.0 11.5 4.1 10.2 5.4
August (3.7) (0.8) 7.0 (6.4) (7.8) (3.5) (6.1) (1.4)
September 2.2 (6.0) 2.4 1.1 (0.2) (1.2) 2.8 (2.1)
October 2.0 3.6 5.1 (1.3) 4.5 1.2 2.7 4.2
November 2.5 (0.0) 6.5 8.4 (0.5) 6.0 2.0 (1.5)
December 2.9 4.9 9.2 5.9 7.3 0.9 1.3 5.3
Compound
Annual ROR 15.2% 5.7% 71.1% 10.4% 3.3% 21.0% 17.0%* 4.9%
1996
January 6.0% 5.3% 2.3% 7.4% (1.3)% 2.9% 3.6% 4.8%
February (5.5) (7.4) (4.8) (5.5) (9.8) (4.2) (4.6) (4.2)
March 0.7 1.0 2.9 6.7 1.3 (0.4) 1.1 2.4
April 2.3 3.8 1.0 2.4 7.1 2.2 0.1 1.3
May (1.7) (6.5) 2.0 (2.0) (9.1) 0.7 (0.3) (1.5)
June 2.2 8.0 1.0 2.7 1.7 1.8 (0.8) 1.4
July (1.1) (4.4) (3.0) (2.9) 2.2 (2.7) (2.5) (3.1)
August (0.8) (2.3) (8.1) 1.6 4.5 (4.3) (0.8) 4.3
September 3.2 8.2 1.2 7.8 7.6 1.6 5.2 8.1
October 14.3 10.4 6.1 9.3 14.6 10.9 12.2 8.8
November 10.9 5.2 3.1 9.1 9.1 4.1 7.6 6.3
December (2.6) 1.1 0.7 (0.6) (1.0) 1.8 (1.4) 0.8
Compound
Annual ROR 29.7% 22.6% 3.7% 40.9% 26.9% 14.5% 19.9%* 32.4%
1995
January (3.8)% 2.2% (6.1)% (3.7)% (6.9)% (3.0)% (3.7)% (4.7)%
February 15.7 17.9 7.2 13.7 13.5 9.6 11.1 25.6
March 15.3 16.6 22.2 18.3 8.5 21.2 11.2 44.4
April 6.1 9.1 2.5 3.7 7.3 2.2 3.7 7.0
May 1.2 (4.4) (5.3) (3.3) 1.2 (4.3) 7.7 (5.1)
June (1.7) 1.7 (0.6) (2.6) (1.7) (0.2) (2.0) (1.0)
July (2.3) (0.0) (5.5) 0.5 (8.9) (1.8) (2.8) 1.4
August 2.1 (3.9) 5.8 1.7 (5.0) 5.3 (0.3) 4.6
September (2.1) (3.9) 0.5 (3.9) (5.1) 1.8 0.7 (4.9)
October 0.3 3.3 1.5 3.9 (2.2) 2.0 0.6* 4.0
November 2.6 1.1 (2.8) (0.1) 5.9 (1.3) 5.1 0.4
December 1.7 6.8 (0.6) 2.4 14.9 (0.8) 1.5 1.8
Compound
Annual ROR 38.5% 53.2% 16.9% 32.2% 19.6% 32.2% 36.5%* 86.2%
</TABLE>
- ---------------
*From October 1995 to July 1997, this program was comprised of one proprietary
account.
Monthly Rate of Return is net performance divided by beginning equity;
"ROR" means "Rate of Return."
53
<PAGE>
THE JWH PROGRAMS MONTHLY RATES OF RETURN (cont'd)
<TABLE>
<CAPTION>
International International
Financial Original Foreign The World Global G-7 Currency Global
and Metals Investment Exchange Financial Diversified Currency and Bond Financial
Portfolio Program Program Perspective Portfolio Portfolio Portfolio Portfolio
--------- ------- ------- ----------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1994
January (2.9)% (2.9)% 1.0% (4.6)% (2.6)% (1.3)% (2.2)% N/A
February (0.6) 1.5 (3.0) (0.0) (0.8) (1.7) 1.5 N/A
March 7.2 4.4 (0.2) 9.2 4.0 0.9 5.4 N/A
April 0.9 0.2 (1.7) 0.9 0.9 (1.3) 3.0 N/A
May 1.3 5.5 (1.8) 2.4 7.9 (1.0) 4.3 N/A
June 4.5 6.6 3.2 1.7 10.8 7.9 4.8 9.8%
July (6.1) (7.1) (2.5) (8.9) (2.6) (3.5) (6.7) (7.4)
August (4.1) (4.7) (0.3) (3.1) (6.4) (0.3) (3.0) (8.8)
September 1.5 (2.8) 2.7 (0.0) 2.1 2.9 0.9 (4.0)
October 1.7 (14.1) 4.2 0.2 (3.6) 4.1 0.1 (8.3)
November (4.4) 10.2 (6.7) (5.8) 5.6 (7.2) (4.8) (17.4)
December (3.5) (0.0) (0.8) (6.8) (4.1) (3.6) (4.7) (7.7)
Compound
Annual ROR (5.3)% (5.7)% (6.3)% (15.2)% 10.1% (4.9)% (2.3)% (37.7)%
(7 mos.)
</TABLE>
<TABLE>
<CAPTION>
International International
Financial Original Foreign The World Global G-7 Currency
and Metals Investment Exchange Financial Diversified Currency and Bond
Portfolio Program Program Perspective Portfolio Portfolio Portfolio
--------- ------- ------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1993
January 3.3% (0.8)% (5.2)% (1.9)% 1.7% (4.4)% (1.6)%
February 13.9 9.5 5.3 11.0 16.6 7.9 7.3
March (0.3) (3.5) 0.4 (10.3) 2.9 (0.3) (0.9)
April 9.3 10.4 (2.7) 6.6 6.6 (1.8) (1.3)
May 3.3 0.1 1.9 2.7 1.5 (1.0) (0.3)
June 0.1 (4.1) 3.9 1.5 1.0 4.6 3.3
July 9.7 14.9 5.0 12.3 14.3 2.6 4.1
August (0.8) (3.6) (4.5) (5.2) (0.0) (5.0) 3.7
September 0.2 0.6 (1.0) 0.3 (4.2) (1.8) 0.1
October (1.1) (1.5) (4.0) (7.1) 0.1 (5.4) (1.6)
November (0.3) 3.5 (3.1) (2.6) 3.1 (0.6) (0.4)
December 2.9 11.4 0.4 8.4 6.1 (0.5) 1.9
Compound
Annual ROR 46.8% 40.6% (4.5)% 13.7% 59.8% (6.3)% 14.8%
</TABLE>
--------------------
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
54
<PAGE>
THE JWH PROGRAMS MONTHLY RATES OF RETURN (cont'd)
<TABLE>
<CAPTION>
Dollar Worldwide JWH GlobalAnalytics(TM)
Program Bond Program Family of Programs
------- ------------ ------------------
<S> <C> <C> <C>
1998
January (1.9)% 3.4% (1.8)%
February (3.5) (0.8) (1.1)
March 3.5 (0.7) 4.7
April (2.4) (2.8) (7.9)
Compound
ROR (4 mos.) (4.3)% (1.0)% (3.2)%
1997
January 7.2% 0.9% N/A
February 1.7 (0.6) N/A
March 1.1 (0.1) N/A
April 2.9 (3.7) N/A
May (8.4) (0.6) N/A
June (1.0) 1.8 3.2%
July 2.3 9.3 8.4
August (3.5) (3.1) (4.4)
September (1.0) 4.0 3.4
October 1.7 1.7 0.7
November 4.4 (1.5) 0.5
December (0.1) 1.7 5.0
Compound
Annual ROR 6.8% 9.5% 17.6%
(7 mos.)
1996
January N/A N/A N/A
February N/A N/A N/A
March N/A N/A N/A
April N/A N/A N/A
May N/A N/A N/A
June N/A N/A N/A
July (1.2)% 1.4% N/A
August (2.3) 1.4 N/A
September 0.1 3.7 N/A
October 7.4 6.9 N/A
November 3.8 5.9 N/A
December 2.7 (2.3) N/A
Compound
ROR 10.6% 17.8% N/A
(6 mos.) (6 mos.)
</TABLE>
- --------------
Monthly Rate of Return is net performance divided by beginning equity;
"ROR" means "Rate of Return."
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
55
<PAGE>
Merrill Lynch Investment
Partners Inc.
Background and Principals
Merrill Lynch Investment Partners Inc., an indirect subsidiary of ML&Co.,
has as its primary objective providing quality alternative investments for its
clients. MLIP is one of the largest sponsors of managed futures funds in terms
both of assets invested in funds for which it serves as trading manager or
sponsor, and of financial and personnel resources. Offering hedge fund, managed
futures and currency investments for individuals, corporations and financial
institutions, MLIP has operated with one primary objective since its inception
in 1986 -- to provide investors with an opportunity for long-term capital
appreciation and diversification through quality investments in equity, debt,
currency, interest rate, metals, energy and agricultural markets, utilizing a
variety of instruments and trading strategies. While MLIP concentrated its
efforts primarily on managed futures investments during its early years of
operation, since 1996 MLIP has offered a number of multi-advisor and
single-advisor hedge funds. MLIP has dedicated significant resources to the
growth of its hedge fund business, and has the investment management,
operational, administrative, research and risk management experience to manage
substantial assets in both hedge funds and managed futures investments in the
global financial markets. As of May 1, 1998, MLIP was acting as trading manager
or sponsor to futures and hedge funds in which approximately $3.1 billion of
client capital was invested.
MLIP's registration as a Commodity Pool Operator ("CPO"; a person which
organizes or manages investment funds which trade futures) became effective in
October 1986.
The following are the principal officers and the directors of MLIP.
John R. Frawley, Jr. Chairman, Chief Executive Officer,
President and Director
Jeffrey F. Chandor Senior Vice President, Director
of Sales, Marketing and Research and
Director
Jo Ann Di Dario Vice President, Chief Financial
Officer and Treasurer
Joseph H. Moglia Director
Allen N. Jones Director
Stephen G. Bodurtha Director
Steven B. Olgin Vice President, Secretary and
Director of Administration
John R. Frawley, Jr. was born in 1943. Mr. Frawley is Chairman, Chief
Executive Officer, President and a Director of MLIP and Co-Chairman of MLF. 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. Mr. Frawley served on the CFTC's
Regulatory Coordination Advisory Committee from its formation in 1990 through
its dissolution in 1994. Mr. Frawley is currently serving his fourth consecutive
one-year term as Chairman of the Managed Funds Association (formerly, the
Managed Futures Association), a national trade association that represents the
managed futures, hedge funds and fund of funds industry. Mr. Frawley is also a
Director of that organization. Mr. Frawley currently serves on a panel created
by the Chicago Mercantile Exchange and The Board of Trade of the City of Chicago
to study cooperative efforts related to electronic trading, common clearing and
the issues regarding a potential merger. Mr. Frawley also currently serves as a
member of the CFTC's Global Markets Advisory Committee.
Jeffrey F. Chandor was born in 1942. Mr. Chandor is Senior Vice President,
Director of Sales, Marketing and Research and a Director of MLIP. He joined
MLPF&S in 1971 and has served as the Product Manager of International
Institutional Equities, Equity Derivatives and Mortgage-Backed Securities as
well as Managing
56
<PAGE>
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.
Jo Ann Di Dario was born in 1946. Ms. Di Dario is Vice President, Chief
Financial Officer and Treasurer of MLIP. Before joining MLIP in May 1998, she
was unemployed for one year. From February 1996 to May 1997, she worked as a
consultant for Global Asset Management, an international mutual fund organizer
and operator headquartered in London, where she offered advice on restructuring
their back-office operations. From May 1992 to January 1996, she served as a
Vice President of Meridian Bank Corporation, a regional bank holding company.
She was responsible for managing the treasury operations of Meridian Bank
Corporation including its wholly-owned subsidiary, Meridian Investment Company
Inc. From September 1992 to May 1992, Ms. Di Dario managed the Domestic Treasury
Operations of First Fidelity Bank, a regional bank. From January 1991 to
September 1991, Ms. Di Dario was unemployed. For the previous five years,
beginning in December 1990, Ms. Di Dario was Vice President, Secretary and
Controller of Caxton Corporation, a Commodity Pool Operator and Commodity
Trading Advisor. Her background includes seven years of public accounting
experience, and she graduated with high honors from Stockton State College with
a Bachelor of Science degree in Accounting.
Joseph H. Moglia was born in 1949. Mr. Moglia is a Director of MLIP. In
1971, he graduated from Fordham University with a Bachelor of Arts degree in
Economics. He later received his Master of Science degree from the University of
Delaware. He taught at the high school and college level for sixteen years. Mr.
Moglia joined MLPF&S in 1984, and has served in a number of senior roles,
including Director of New York Fixed Income Institutional Sales, Director of
Global Fixed Income Institutional Sales, and Director of the Municipal Division.
He is currently Senior Vice President and Director of the Investment Strategy
and Product Group in Merrill Lynch Private Client, and Director of Middle
Markets.
Allen N. Jones was born in 1942. Mr. Jones is a Director of MLIP and, from
July 1995 until January 1998, Mr. Jones was also Chairman of the Board of
Directors 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. From February 1994 to April
1997, Mr. Jones was the Director of Individual Financial Services of the Merrill
Lynch Private Client Group. In April 1997, Mr. Jones became the Director of
Private Client marketing.
Stephen G. Bodurtha was born in 1958. Mr. Bodurtha is a Director of MLIP. In
1980, Mr. Bodurtha graduated from Wesleyan University, Middletown, Connecticut
with a Bachelor of Arts degree in Government, magna cum laude. From 1980 to
1983, Mr. Bodurtha worked in the Investment Banking Division of Merrill Lynch.
In 1985, he was awarded his Master of Business Administration degree from
Harvard University, where he also served as Associates Fellow (1985-1986). From
1986 to 1989, Mr. Bodurtha held the positions of Associate and Vice President
with Kidder, Peabody & Co., Incorporated where he worked in their Financial
Futures & Options Group. Mr. Bodurtha joined MLPF&S in 1989 and has held the
position of First Vice President since 1995. He has been the Director in charge
of the Structured Investments Group of MLPF&S since 1995.
Steven B. Olgin was born in 1960. Mr. Olgin is Vice President, Secretary
and the Director of Administration of MLIP. He joined MLIP in July 1994 and
became a Vice President in July 1995. From 1986 until July 1994, Mr. Olgin was
an associate of the law firm of Sidley & Austin. In 1982, Mr. Olgin graduated
from The American University with a Bachelor of Science degree in Business
Administration and a Bachelor of Arts degree in Economics. In 1986, he received
his Juris Doctor degree from The John Marshall Law
57
<PAGE>
School. Mr. Olgin is a member of the Managed Funds Association's Government
Relations Committee and has served as an arbitrator for the NFA. Mr. Olgin is
also a member of the Committee on Futures Regulation of the Association of the
Bar of the City of New York.
The performance of the other funds for which MLIP has acted as trading
manager or sponsor is set forth beginning at page 87 of this prospectus. Most of
these funds, however, are materially different investments from the Fund, either
using advisors other than JWH or multiple independent advisors in addition to
JWH.
Year 2000 Compliance
Merrill Lynch's modifications for Year 2000 systems compliance are
proceeding according to plan and are expected to be completed in early 1999.
These modifications will include all systems which affect the operations of the
Fund. Based on information currently available, the remaining expenditures are
estimated at $200 million and will cover hardware and software upgrades, systems
consulting and computer maintenance. These expenditures are not expected to have
a material adverse impact on Merrill Lynch's financial position, results of
operations or cash flows in future periods. However, the failure of Merrill
Lynch's securities exchanges, clearing organizations, vendors, clients or
regulators to resolve their own processing issues in a timely manner could
result in a material financial risk. Merrill Lynch is devoting the necessary
resources to address all Year 2000 issues in a timely manner.
JWH is taking immediate action to identify any of its computer systems that
are Year 2000 vulnerable. If such systems are identified that negatively affect
its services (e.g., trade details, fee information), it will take immediate
action to update those systems, extensively test the systems internally and, if
appropriate, with other parties, to ensure that system interdependencies have
been adequately addressed, and establish contingency plans and provide such
plans in the event of a malfunction of any part of the systems. If JWH has a
Year 2000 vulnerable system which is unable to be corrected by the year 2000, it
will notify MLIP in a timely manner, and MLIP will promptly notify investors.
JWH foresees no reason why it would not be ready to accept and process data
related to the Euro before January 1, 1999. A management working group is
responsible for planning and preparing for the Euro conversion. The group meets
on a regular basis to review information as it becomes available on this issue,
determine what actions are necessary and establish policies and monitor tasks as
appropriate. If unanticipated difficulties arise in connection with the
conversion, JWH will notify MLIP in a timely manner, and MLIP will promptly
notify investors.
Merrill Lynch Futures Inc.
MLF, the exclusive clearing futures broker for the Fund, is a clearing
member of The Board of Trade of the City of Chicago, the Chicago Mercantile
Exchange, the New York Mercantile Exchange and all other principal United States
commodity exchanges. The principal office of MLF is located at World Financial
Center, 250 Vesey Street, 23rd Floor, New York, New York 10281-1323.
The Customer Agreement between MLF and the Fund provides that MLF will not
be liable except for actions constituting negligence or misconduct, or for
actions taken by it in compliance with instructions given by JWH.
Litigation
JWH Litigation
Except as may be described below, there neither now exists nor has there
previously ever been any administrative, civil or criminal action against JWH or
its principals.
In September 1996, JWH was named as a co-defendant in class action lawsuits
brought in the California Superior Court, Los Angeles County, and in the New
York Supreme Court, New York County. Additional complaints containing the same
58
<PAGE>
allegations as the earlier California complaints were filed in California in
March 1997.
The actions in question purport to be brought on behalf of investors in
certain Dean Witter, Discover & Co. ("Dean Witter") commodity pools, some of
which are advised by JWH, and allege fraudulent selling practices in connection
with the marketing of those pools and breach of fiduciary duty on the part of
Dean Witter as general partner of these pools. No federal securities law
violations are alleged. JWH itself is alleged to have aided and abetted as well
as directly participated with Dean Witter in its fraudulent selling practices.
The actions in question seek both unspecified and compensatory damages. No
injunctive relief is requested.
JWH believes the allegations against it are without merit; it intends to
contest these allegations vigorously and is convinced that it will be shown to
have acted properly and in the best interest of investors. JWH manages, and has
managed, numerous managed futures accounts and funds other than the Dean Witter
pools involved in the litigation described below. There has never been any
litigation relating to any such other accounts.
The names and filing dates of the various original actions described above,
prior to their consolidations, are as follows:
California
In all California cases, the plaintiffs seek compensatory damages in an
amount to be proven, trebled in accordance with California law, punitive damages
and equitable and injunctive relief to be determined by the Court.
Kozlowski et al. v. John W. Henry & Co. et al., BC156941 (Superior Court of the
State of California, Los Angeles County, September 6, 1996).
Gurevitz et al. v. John W. Henry & Co. et al., BC156922 (Superior Court of the
State of California, Los Angeles County, September 10, 1996).
Shifflet et al. v. John W. Henry & Co. et al., BC157596 (Superior Court of the
State of California, Los Angeles County, September 20, 1996).
Redd et al. v. John W. Henry & Co. et al., BC167463; Gibson et al. v. John W.
Henry & Co. et al., BC167469; and Kendall et al. v. John W. Henry & Co. et al.,
BC167470 (Superior Court of the State of California, Los Angeles County, March
13, 1997; Krieger et al. v. John W. Henry & Co. et al., BC167636 (Superior Court
of the State of California, Los Angeles County, March 17, 1997).
New York
In the Malichio et al. suit compensatory, and in the Hamel et al. suit
compensatory and punitive, damages are sought.
Malichio et al. v. John W. Henry & Co. et al., #116698-96 (Superior Court of the
State of New York, New York County, September 18, 1996).
Hamel et al. v. John W. Henry & Co. et al. #604775/96 (Supreme Court of the
State of New York, New York County, September 20, 1996).
The California complaints were consolidated under the caption "In re Dean
Witter Managed Futures Litigation" in May 1997.
The New York complaints were consolidated under the caption "In re Dean
Witter Managed Futures Partnerships Litigation" in July 1997.
The foregoing claims do not vary significantly in the remedies they seek.
These remedies are generally the following:
(i) to recover damages sustained by all persons in the class in an amount
to be proven at trial;
(ii) to receive reasonable attorneys' fees, costs and expenses incurred;
(iii) to be awarded pre- and post-judgment interest;
59
<PAGE>
(iv) to be awarded punitive damages (in certain cases); and
(v) to receive such other and further relief as the Court may deem
necessary or appropriate.
None of the foregoing actions involve the Fund. Furthermore, the Fund's
operations, earnings and assets are largely unaffected by JWH's financial
condition. It would only be in the highly unlikely event that such financial
condition was impaired to the point that JWH could no longer effectively manage
the Fund's assets that the Fund would itself be affected by any of the
proceedings described above.
The outcome of all litigation is uncertain, but JWH believes -- based in
part on discussions with its counsel -- that the foregoing suits will not have a
material adverse effect on JWH's operations, earnings or assets. Based on this
conclusion, MLIP does not believe that any of the foregoing actions will have an
adverse effect on the Fund's operations, earnings or assets.
Merrill Lynch Litigation
MLIP has never been the subject of any material litigation.
Applicable CFTC rules require that the following proceeding be disclosed,
although MLIP does not consider it to be material.
On June 24, 1997, the CFTC accepted an Offer of Settlement from MLF and
others, in a matter captioned "In the Matter of Mitsubishi Corporation and
Merrill Lynch Futures Inc., et al.," CFTC Docket No. 97-10, pursuant to which
MLF, without admitting or denying the allegations against it, consented to a
finding by the CFTC that MLF had violated Section 4c(a)(A) of the Commodity
Exchange Act, relating to wash sales (the CFTC alleged that the customer entered
nearly simultaneous orders without the intent to engage in a bona fide trading
transaction), and CFTC Regulation 1.37(a), relating to recordkeeping
requirements. MLF agreed to cease and desist from violating Section 4c(a)(A) of
the Act and Regulation 1.37(a), and to pay a civil monetary penalty of $175,000.
Net Asset Value
The Net Asset Value of the Fund equals its assets less its liabilities, as
determined generally in accordance with Generally Accepted Accounting
Principles, including any unrealized profits and losses on its open positions.
More specifically, the Net Asset Value of the Fund equals the sum of all cash,
the liquidating value (or cost of liquidation, as the case may be) of all
futures, forward and options on futures positions and the fair market value of
all other assets of the Fund, less all liabilities of the Fund (including
accrued liabilities, irrespective of whether such liabilities -- for example,
Profit Shares -- may in fact never be paid), in each case as determined by MLIP
generally in accordance with Generally Accepted Accounting Principles.
Conflicts of Interest
General
Neither MLIP nor JWH has established any formal procedures to resolve the
following conflicts of interest. Consequently, there is no independent control
on how MLIP or JWH resolves these conflicts which can be relied upon by
investors as ensuring that the Fund is treated equitably with other MLIP or JWH
clients.
Because no formal procedures are in place for resolving conflicts, they may
be resolved by MLIP and/or JWH in a manner which causes the Fund losses. The
value of limited partners' investment may be diminished by actions or omissions
which independent third parties could have prevented or corrected.
Although the following conflicts of interest are present in the operation of
the Fund, MLIP does not believe that they are likely to have a material adverse
effect on its performance. This belief is based on a number of factors,
including the following.
60
<PAGE>
(i) JWH trades all similarly situated MLIP accounts in parallel, placing
bulk orders which are allocated among the JWH accounts pursuant to
pre-established procedures. Consequently, JWH has little opportunity to
prefer another MLF client over the Fund.
(ii) MLF simply receives and executes JWH's bulk orders based on
pre-established procedures. MLF has no ability in allocating positions
to favor one account over another.
(iii) JWH charges all similar accounts the same fees.
(iv) MLIP, as a fiduciary, is prohibited from benefiting itself at the
expense of the Fund.
In MLIP's view, the most important conflict of interest relating to the Fund
is that the business terms applicable to Merrill Lynch's dealings with the Fund
were not negotiated when they were initially established. These business terms
are described in detail in this prospectus in order to give prospective
investors ample opportunity to accept or reject such terms. However, it may be
difficult for investors to assess, for example, the extent of the adverse impact
which the high level of the Fund's brokerage commissions has on its long-term
prospects for profitability.
MLIP
MLIP has organized and controls the Fund. MLIP and its affiliates are the
primary service providers to the Fund and will remain so even if using other
firms might be better for the Fund. Futures trading is highly competitive. To
the extent that Merrill Lynch entities continue to be retained by the Fund
despite providing non-competitive services, the Fund is likely to incur losses.
MLIP allocates its resources among a number of different funds. MLIP has
financial incentives to favor certain funds over the Fund. To the extent that
MLIP actually does so, the Net Asset Value per Unit is likely to decline.
The business terms of the Fund -- other than the fees and Profit Shares due
to JWH which were negotiated between MLIP and JWH -- were not negotiated. MLIP
unilaterally established these terms, balancing marketing and performance
considerations and its interest in maximizing the revenues generated to MLIP.
MLIP's interest in maximizing its revenues could cause it to take actions
which are detrimental to the Fund in order to increase MLIP's income from the
Fund or decrease its costs in sponsoring the Fund. Also, because MLIP does not
have to compete with third parties to provide services to the Fund, there is no
independent check on the quality of such services. MLIP may lower the quality of
such services in order to maximize the net revenues which it receives from the
Fund, while at the same time causing the Net Asset Value per Unit to decline.
MLF; MLIB; MLAM
General
MLF executes trades for different clients in the same markets at the same
time. Consequently, other clients may receive better prices on the same trades
than the Fund, causing the Fund to pay higher prices for its positions.
Many MLF clients pay lower brokerage rates than the Fund. Brokerage
commissions are a major drag on the Fund's performance, and the cumulative
effect of the higher rates paid by the Fund is material.
MLF, MLIB and MLAM each must allocate their resources among many different
clients. They all have financial incentives to favor certain accounts over the
Fund. Because of the competitive nature of the markets in which they trade, to
the extent that any of MLF, MLIB or MLAM prefer other clients over the Fund, the
Fund is likely to incur losses.
MLF, MLIB and MLAM do not have to compete to provide services to the Fund;
consequently, there is no independent check on the quality of their services.
61
<PAGE>
JWH
General
JWH manages many accounts other than the Fund. Consequently, JWH may devote
less resources to the Fund's trading than JWH otherwise might, to the detriment
of the Fund.
Some of JWH's principals devote a substantial portion of their business time
to ventures other than managing the Fund, including ventures unrelated to
futures trading. The Fund may be at a competitive disadvantage to other accounts
which are managed by advisors whose principals devote their entire attention to
futures trading.
JWH may not be willing to make certain highly successful programs available
to the Fund due to the Fund's expense level or other reasons.
The less successful the programs chosen for the Fund by JWH, the less
successful the Fund. If JWH does not make certain programs available to the Fund
for reasons other than what JWH considers to be the Fund's best interests, the
Fund will suffer.
Financial Incentives to Disfavor the Fund
The Profit Shares received by JWH are based on the Fund's overall
performance, not the performance of any individual program. JWH could increase
the Profit Shares it could receive from some programs included in the Strategic
Allocation Program by using them on a stand-alone basis for clients other than
the Fund.
If the Fund has losses, JWH may have an incentive to prefer other clients
because JWH could begin to receive incentive compensation from such clients
without having to earn back any losses.
Any action which JWH takes to maximize its revenues by disfavoring the Fund,
either in respect of the resources devoted to its trading or the programs
selected for it, could adversely affect the Fund's performance, perhaps to a
material extent.
In selecting the programs for the Fund, JWH has an opportunity to promote
new programs, even if such programs are not yet proven managing client assets
and may cause significant losses to the Fund.
Financial Consultants
Financial Consultants are the individual Merrill Lynch brokers who deal
directly with Merrill Lynch clients. Financial Consultants are compensated, in
part, on the basis of the amount of securities commissions which they generate
from client transactions. Financial Consultants receive initial selling
commissions and ongoing compensation on the Units they sell and have a financial
incentive to encourage investors to purchase and not to redeem their Units.
If a Financial Consultant does not give a client the advice which the
Financial Consultant believes to be in the best interests of the client due to
the Financial Consultant's desire to increase his or her income, the client
could incur substantial losses and/or continue to invest in the Fund even though
the Units have become an unsuitable investment for such client.
Proprietary Trading
MLIP, its affiliates and related persons may trade in the commodity markets
for their own accounts as well as for the accounts of their clients. Such
persons may take positions which are the same as or opposite to those held by
the Fund.
JWH and Mr. Henry may engage in discretionary trading for their own
accounts, and may trade for the purpose of testing new investment programs and
concepts, as long as such trading does not amount to a breach of fiduciary duty.
In the course of such trading, JWH and Mr. Henry may take positions in their own
accounts which are the same as or opposite to client positions, due to testing a
new quantitative model or program, a neutral allocation system, and/or trading
pursuant to individual discretionary methods; on occasion, their orders may
receive better fills than client accounts. Records for these accounts will not
be made available to limited partners.
62
<PAGE>
Employees and principals of JWH (other than Mr. Henry) are not permitted to
trade on a discretionary basis in futures, options on futures or forward
contracts. However, such principals and employees may invest in investment
vehicles that trade futures, options on futures or forward contracts when an
independent trader manages trading in that vehicle, and in the JWH Employee
Fund, L.P., for which JWH is the trading advisor. Records of these accounts will
not be made available to limited partners.
Records of proprietary trading will not be available for inspection by
limited partners.
Proprietary trading by MLIP, JWH or their respective officers or employees
could, if substantial in size, cause losses for the Fund by increasing the cost
at which it must acquire and liquidate positions. Over time, the losses
resulting from such increased prices could make it difficult for the Fund to
earn profits even if its trading were otherwise successful.
Transactions Between Merrill Lynch and the Fund
All of the service providers to the Fund, other than JWH, are affiliates of
Merrill Lynch. Merrill Lynch negotiated with JWH over the level of its advisory
fees and Profit Shares. However, none of the fees paid by the Fund to any
Merrill Lynch party were negotiated, and they are higher than would have been
obtained in arm's-length bargaining.
The Fund pays Merrill Lynch substantial Brokerage Commissions and
Administrative Fees as well as currency trading costs. The Fund also pays MLF
interest on short-term loans extended by MLF to cover losses on foreign currency
positions and permits Merrill Lynch to retain a portion of the benefit derived
from possession of the Fund's assets.
Within the Merrill Lynch organization, MLIP is the direct beneficiary of the
revenues received by different Merrill Lynch entities from the Fund. MLIP
controls the management of the Fund and serves as its promoter. Although MLIP
has not sold any assets, directly or indirectly, to the Fund, MLIP makes
substantial profits from the Fund due to the foregoing revenues.
No loans have been, are or will be outstanding between MLIP or any of its
principals and the Fund.
MLIP pays substantial selling commissions (4% of the subscription price of
Units) and trailing commissions (2% annually of the average Net Asset Value per
Unit, beginning in the thirteenth month after a Unit is sold) to Merrill Lynch,
Pierce, Fenner & Smith Incorporated for distributing the Units. MLIP is
ultimately paid back for these expenditures from the revenues it receives from
the Fund.
Descriptions of the dealings between the Fund and Merrill Lynch are set
forth under "Selected Financial Data," "Interest Income Arrangements" and
"Analysis of Fees and Expenses Paid by the Fund."
Summary of the Limited Partnership Agreement
The Fund's Limited Partnership Agreement effectively gives MLIP, as general
partner, full control over the management of the Fund. Limited partners have no
voice in its operations. In addition, MLIP in its operation of the Fund is
specifically authorized to engage in the transactions described herein
(including those involving affiliates of MLIP), and is exculpated and
indemnified by the Fund against claims sustained in connection with the Fund,
provided that such claims were not the result of negligence or misconduct and
that MLIP determined that such conduct was in the best interests of the Fund.
Although as limited partners, investors have no right to participate in the
control or management of the Fund, they are entitled to: (i) vote on a variety
of different matters; (ii) receive annual audited financial statements,
unaudited monthly reports and timely tax information; (iii) inspect the Fund's
books and records; (iv) redeem Units; and (v) not to have the business terms of
the Fund changed in a manner which increases the
63
<PAGE>
compensation received by MLIP or its affiliates without their unanimous consent.
Limited partners' voting rights extend to any proposed change in the Limited
Partnership Agreement which would adversely affect them, as well as to their
right to terminate the Fund's contracts with affiliates of MLIP. Limited
partners also have the right to call meetings of the Fund in order to permit
limited partners to vote on any matter on which they are entitled to vote,
including the removal of MLIP as general partner of the Fund.
Limited partners or their duly authorized representatives may inspect the
Fund's books and records, for any purpose reasonably related to their status as
limited partners in the Fund, during normal business hours upon reasonable
written notice to the MLIP. They may also obtain copies of such records upon
payment of reasonable reproduction costs; provided, however, that such limited
partners represent that the inspection and/or copies of such records will not be
for commercial purposes unrelated to such limited partners' interest in the
Fund.
The Limited Partnership Agreement contains restrictions on MLIP's ability to
raise Brokerage Commissions, Administrative Fees and other revenues received by
Merrill Lynch from the Fund, as well as certain other limitations on the various
conflicts of interest to which MLIP is subject in operating the Fund.
The Limited Partnership Agreement provides for the economic and tax
allocations of the Fund's profit and loss. Economic allocations are based on
investors' capital accounts, and the tax allocations generally attempt to
equalize tax and capital accounts by, for example, making a priority allocation
of taxable income to limited partners who redeem at a profit.
The General Partner may amend the Limited Partnership Agreement in any
manner not adverse to the limited partners without need of obtaining their
consent.
Tax Consequences
In the opinion of Sidley & Austin, the following summary of the tax
consequences to United States taxpayers who are individuals is materially
correct. Sidley & Austin's opinion is filed as an Exhibit to the Registration
Statement of which this prospectus is a part.
Partnership Tax Status of the Fund
Both the Fund and the Fund/JWH joint venture are taxed as partnerships and
do not pay federal income tax. Based on the income expected to be earned by the
Fund and the Fund/JWH joint venture, neither will be taxed as a "publicly-traded
partnership."
Taxation of Partners on Profits or Losses of the Fund
Each Partner must pay tax on his share of the Fund's income and gains. Such
share must be included each year in a Partner's taxable income whether or not
such Partner has redeemed Units. In addition, a Partner may be subject to paying
taxes on the Fund's interest income even though the Net Asset Value per Unit has
decreased due to trading losses. See "-- Tax on Capital Gains and Losses;
Interest Income," below.
The Fund provides each Partner with an annual schedule of his share of tax
items. The Fund generally allocates these items equally to each Unit. However,
when a Partner redeems Units, the Fund allocates capital gains or losses so as
to eliminate any difference between the redemption proceeds and the tax accounts
of such Units.
Limited Deductibility of Fund Losses and Deductions
A Partner may not deduct Fund losses or deductions in excess of his tax
basis in his Units as of year-end. Generally, a Partner's tax basis in his Units
is the amount paid for such Units reduced (but not below zero) by his share of
any Fund distributions, losses and deductions and increased by his share of the
Fund's income and gains.
64
<PAGE>
Limited Deductibility for Certain Expenses
Individual taxpayers are subject to material limitations on their ability to
deduct investment advisory expenses and other expenses of producing income.
Sidley & Austin has opined that the amount, if any, of the Fund's expenses which
might be subject to this limitation should be de minimis. However, the IRS could
take a different position. The Fund's Profit Share is structured as a priority
allocation of the Fund's trading profits (if any) to JWH. The IRS could contend
that the Profit Share should be characterized as an investment advisory expense.
If the Profit Share were treated as an investment advisory expense, individual
taxpayers would pay tax on $100 of net profits for every $85 increase in Net
Asset Value of their Units, and the Profit Share would be subject to limited
deductibility.
Individuals cannot deduct investment advisory expenses in calculating their
alternative minimum tax.
Year-End Mark-to-Market of Open Positions
Section 1256 Contracts are futures, futures options traded on U.S.
exchanges, certain foreign currency contracts and stock index options. Certain
of the Fund's open positions are Section 1256 Contracts . Section 1256 Contracts
which remain open at the end of each year are treated for tax purposes as if
such positions had been sold and any gain or loss recognized. The gain or loss
on Section 1256 Contracts is characterized as 40% short-term capital gain or
loss and 60% long-term capital gain or loss regardless of how long any given
position has been held. Non-U.S. exchange-traded futures and forwards are
non-Section 1256 Contracts. Gain or loss on non-Section 1256 Contracts will be
recognized when sold by the Fund and will be primarily short-term gain or loss.
Tax on Capital Gains and Losses; Interest Income
As described under "-- Year-End Mark-to-Market of Open Positions," the
Fund's trading, not including its cash management which generates primarily
ordinary income, generates 60% long-term capital gains or losses and 40%
short-term capital gains or losses from its Section 1256 Contracts and primarily
short-term capital gain or loss from its non-Section 1256 Contracts. Individuals
pay tax on long-term capital gains, other than gains on assets held for more
than one year but less than 18 months, at a maximum rate of 20%. Short-term
capital gains are subject to tax at the same rates as ordinary income, with a
maximum rate of 39.6% for individuals.
Individual taxpayers may deduct capital losses only to the extent of their
capital gains plus $3,000. Accordingly, the Fund could incur significant losses
but a limited partner be required to pay taxes on his share of the Fund's
interest income.
If an individual taxpayer incurs a net capital loss for a year, he may elect
to carryback (up to three years) the portion of such loss which consists of a
net loss on Section 1256 Contracts. A taxpayer may deduct such losses only
against net capital gain for a carryback year to the extent that such gain
includes gains on Section 1256 Contracts. To the extent that a taxpayer could
not use such losses to offset gains on Section 1256 Contracts in a carryback
year, the taxpayer may carryforward such losses indefinitely as losses on
Section 1256 Contracts.
Syndication Expenses
The $629,523 in organizational and initial offering costs reimbursed by the
Fund to MLIP were non-deductible syndication expenses, as will be the estimated
$600,000 in costs associated with the offering of the Units under this
prospectus and any subsequent ongoing offering expenses incurred by the Fund.
The IRS could also contend that a portion of the Brokerage Commissions paid to
MLF and/or the Administrative Fees paid to MLIP constitute non-deductible
syndication expenses.
The 3% Employee Discount
MLIP contributes 3% of the purchase date Net Asset Value per Unit to the
Fund for each Unit purchased by Merrill Lynch officers and employees. These
officers and employees report the MLIP contribution as ordinary income in the
year of
65
<PAGE>
purchase, and acquire a tax basis in their Units of 100% of the purchase date
Net Asset Value of such Units.
Unrelated Business Taxable Income
Tax-exempt limited partners will not be required to pay tax on their share
of income or gains of the Fund, provided that such limited partners do not
purchase Units with borrowed funds.
IRS Audits of the Fund and Its Partners
The IRS is required to audit Fund-related items at the Fund rather than the
partner level. MLIP is the Fund's "tax matters partner" with general authority
to determine the Fund's responses to a tax audit. If an audit of the Fund
results in an adjustment, all partners may be required to pay additional taxes
plus interest as well as penalties, and could themselves be audited.
State and Other Taxes
In addition to the federal income tax consequences described above, the
Fund and the partners may be subject to various state and other taxes.
--------------------
PROSPECTIVE INVESTORS ARE
URGED TO CONSULT THEIR TAX
ADVISERS BEFORE DECIDING
WHETHER TO INVEST.
Selling Commissions
No selling commissions are paid from the proceeds of subscriptions. MLIP
provides production credits to the Selling Agent on Unit sales. Production
credits are internal bookkeeping entries, a percentage of which is paid by MLIP
in cash to the Selling Agent.
The Selling Agent receives initial production credits of 4% of the purchase
price of all Units. However, no initial production credits are provided on sales
of Units to officers and employees of Merrill Lynch at 97% of Net Asset Value.
MLIP also provides ongoing production credits on Units which remain
outstanding more than twelve months. Ongoing production credits are only paid on
Units sold by Financial Consultants registered with the CFTC and who have passed
either the Series 3 National Commodity Futures Examination or the Series 31
Managed Futures Funds Examination. Ongoing production credits equal 3% per annum
of the average month-end Net Asset Value per Unit, beginning in the second year
after sale.
In the Selling Agreement, JWH and MLIP have agreed to indemnify the Selling
Agent against certain liabilities that the Selling Agent may incur as a result
of their respective conduct in connection with the offering and sale of the
Units, including liabilities under the Securities Act of 1933 and the Commodity
Exchange Act.
Lawyers; Accountants
Sidley & Austin has advised MLIP, MLF and MLPF&S on the offering of the
Units. Sidley & Austin drafted "Tax Consequences."
The balance sheet of MLIP as of December 26, 1997 and the consolidated
financial statements of the Fund as of December 31, 1996 and 1997 included
herein have been audited by Deloitte & Touche LLP.
66
<PAGE>
Financial Statements
Schedules are 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.
---------------
INDEPENDENT AUDITORS' REPORT
To the Partners of
ML JWH Strategic Allocation Fund L.P.:
We have audited the accompanying consolidated statements of financial condition
of ML JWH Strategic Allocation Fund L.P. (a Delaware limited partnership; the
"Partnership") and its joint venture with John W. Henry & Company, Inc. (the
"Joint Venture") as of December 31, 1997 and 1996, and the related consolidated
statements of income and changes in partners' capital for the year ended
December 31, 1997 and the period from July 15, 1996 (commencement of operations)
to December 31, 1996. 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 consolidated financial statements present fairly, in all
material respects, the financial position of ML JWH Strategic Allocation Fund
L.P. and the Joint Venture as of December 31, 1997 and 1996 and the results of
their operations for the year ended December 31, 1997 and the period from July
15, 1996 (commencement of operations) to December 31, 1996 in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
February 6, 1998
New York, New York
67
<PAGE>
ML JWH STRATEGIC ALLOCATION FUND L. P.
(A Delaware Limited Partnership) AND JOINT VENTURE
--------------------------------------------------
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
MARCH 31, 1998 (UNAUDITED), DECEMBER 31, 1997 AND DECEMBER 31, 1996
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 31,
1998 December 31, December 31,
(unaudited) 1997 1996
ASSETS
<S> <C> <C> <C>
Cash on deposit at brokers $ -- $ -- $ 726
Accrued interest (Note 3) 2,228,109 196,088 184,577
U. S. Government obligations 178,087,357 172,586,264 121,535,012
Equity in commodity futures trading accounts:
Cash and options premiums 35,321,356 41,484,775 54,132,103
Net unrealized profit on open contracts 8,520,707 14,898,289 4,696,372
------------- ------------- -------------
TOTAL $ 224,157,529 $ 229,165,416 $ 180,548,790
------------- ------------- -------------
------------- ------------- -------------
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Broker payables $ 5,009,766 $ -- $ --
Profit share payable (Note 2) -- 2,640,194 4,683,010
Redemptions payable 2,266,624 1,116,238 1,661,675
Brokerage commissions payable (Note 3) 1,415,345 1,473,380 1,160,945
Administrative fees payable (Note 3) 45,655 47,527 37,450
Organizational and initial offering
costs payable (Note 1) 65,686 114,951 808,712
------------- ------------- -------------
Total liabilities 8,803,076 5,392,290 8,351,792
------------- ------------- -------------
MINORITY INTEREST 135,576 135,830 123,383
------------- ------------- -------------
PARTNERS' CAPITAL:
General Partner (18,177, 18,177 and 16,643 units) 2,421,698 2,455,940 2,038,044
Limited Partners (1,594,546, 1,634,252 and
1,534,953 units) 212,797,179 221,181,356 188,284,065
Subscriptions receivable (0, 0 and 148,169 units) -- -- (18,248,494)
------------- ------------- -------------
Total partners' capital 215,218,877 223,637,296 172,073,615
------------- ------------- -------------
TOTAL $ 224,157,529 $ 229,165,416 $ 180,548,790
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
NET ASSET VALUE PER UNIT (NOTE 4)
See notes to consolidated financial statements.
68
<PAGE>
ML JWH STRATEGIC ALLOCATION FUND L. P.
(A Delaware Limited Partnership) AND JOINT VENTURE
--------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME FOR
THE PERIODS JANUARY 1, 1997 TO MARCH 31, 1997 (UNAUDITED)
AND JANUARY 1, 1998 TO MARCH 31, 1998 (UNAUDITED),
THE YEAR ENDED DECEMBER 31, 1997
AND THE PERIOD FROM JULY 15, 1996
(COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1996
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
January 1, January 1, July 15,
1998 1997 January 1, 1996
to to 1997 (inception)
March 31, March 31, to to
1998 1998 December 31, December 31,
(unaudited) (unaudited) 1997 1996
----------- ----------- ---- ----
<S> <C> <C> <C> <C>
REVENUES:
Trading profit:
Realized $4,511,184 $8,668,317 $18,820,033 $ 29,800,074
Change in unrealized (6,377,582) (92,283) 10,201,917 4,696,372
------------------- ------------------- -------------------- ---------------------
Total trading results (1,866,398) 8,576,034 29,021,950 34,496,446
------------------- ------------------- -------------------- ---------------------
Interest income (Note 3) 3,135,548 2,773,698 12,021,263 3,030,330
Total revenues 1,269,150 11,349,732 41,043,213 37,526,776
------------------- ------------------- -------------------- ---------------------
EXPENSES:
Brokerage commissions (Note 3) 4,264,908 4,263,014 17,377,236 4,873,368
Administrative fees (Note 3) 137,578 137,516 560,556 157,205
------------------- ------------------- -------------------- ---------------------
Total expenses 4,402,486 4,400,530 17,937,792 5,030,573
------------------- ------------------- -------------------- ---------------------
NET (LOSS) INCOME BEFORE MINORITY
INTEREST AND PROFIT (3,133,336) 6,949,202 23,105,421 32,496,203
SHARE ALLOCATION
Profit Share Allocation (Note 2) -- -- (2,640,194) (4,683,010)
Minority interest in income/(loss) 257 (978,363) (12,447) (23,383)
------------------- ------------------- -------------------- ---------------------
NET (LOSS) INCOME $(3,133,079) $5,970,839 $ 20,452,780 $ 27,789,810
------------------- ------------------- -------------------- ---------------------
------------------- ------------------- -------------------- ---------------------
NET INCOME PER UNIT:
Weighted average number of Units
outstanding (Note 5) 1,641,697 1,713,819 1,739,531 1,163,568
------------------- ------------------- -------------------- ---------------------
------------------- ------------------- -------------------- ---------------------
Net income per weighted average
General Partner and Limited Partner Unit $(1.91) $3.48 $11.76 $23.88
------------------- ------------------- -------------------- ---------------------
------------------- ------------------- -------------------- ---------------------
</TABLE>
See notes to consolidated financial statements.
69
<PAGE>
ML JWH STRATEGIC ALLOCATION FUND L. P.
(A Delaware Limited Partnership) AND JOINT VENTURE
--------------------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE PERIODS JANUARY 1, 1998 TO MARCH 31, 1998 (UNAUDITED)
AND JANUARY 1, 1997 TO MARCH 31, 1997 (UNAUDITED),
THE YEAR ENDED DECEMBER 31, 1997
AND THE PERIOD FROM JULY 15, 1996
(COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1996
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Limited General Subscriptions
Units Partners Partner Receivable Total
-------------- ----------------- ---------------- ------------------ -----------------
<S> <C> <C> <C> <C> <C>
Initial offering 14,832 $100,516,800 $1,483,200 $ -- $102,000,000
Organizational and initial
offering costs -- (985,459) (14,541) -- (1,000,000)
Additions 1,565,526 64,575,292 198,925 -- 64,774,217
Redemptions (28,762) (3,241,918) -- -- (3,241,918)
Net Income -- 27,419,350 370,460 -- 27,789,810
Subscriptions Receivable (148,169) -- -- (18,248,494) (18,248,494)
-------------- ----------------- ---------------- ------------------ -----------------
PARTNERS' CAPITAL,
DECEMBER 31, 1996 1,403,427 188,284,065 2,038,044 (18,248,494) 172,073,615
Additions 409,237 32,927,078 194,571 18,248,494 51,370,143
Net Income -- 5,906,979 63,860 -- 5,970,839
Redemptions (23,703) (3,007,464) -- -- (3,007,464)
-------------- ----------------- ---------------- ------------------ -----------------
PARTNERS' CAPITAL,
MARCH 31, 1997 1,788,961 $224,110,658 $2,296,475 $ $226,407,133
(unaudited) -------------- ----------------- ---------------- ------------------ -----------------
-------------- ----------------- ---------------- ------------------ -----------------
Organizational and initial
offering cost recovery -- 366,712 3,765 -- 370,477
Additions 409,237 32,969,453 152,196 18,248,494 51,370,143
Redemptions (160,235) (20,629,719) -- -- (20,629,719)
Net Income -- 20,190,845 261,935 -- 20,452,780
-------------- ----------------- ---------------- ------------------ -----------------
PARTNERS' CAPITAL,
DECEMBER 31, 1997 1,652,429 221,181,356 2,455,940 -- 223,637,296
Net Loss -- (3,098,837) (34,242) -- (3,133,079)
Redemptions (39,706) (5,285,340) -- -- (5,285,340)
-------------- ----------------- ---------------- ------------------ -----------------
PARTNERS' CAPITAL,
MARCH 31, 1998 (unaudited) 1,612,723 $212,797,179 $2,421,698 $ -- $215,218,877
-------------- ----------------- ---------------- ------------------ -----------------
-------------- ----------------- ---------------- ------------------ -----------------
</TABLE>
See notes to consolidated financial statements.
70
<PAGE>
ML JWH STRATEGIC ALLOCATION FUND L. P.
(A Delaware Limited Partnership) AND JOINT VENTURE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIODS JANUARY 1, 1998 TO MARCH 31, 1998 (UNAUDITED)
AND JANUARY 1, 1997 TO MARCH 31, 1997 (UNAUDITED),
THE YEAR ENDED DECEMBER 31, 1997
AND THE PERIOD FROM JULY 15, 1996
(COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
ML JWH Strategic Allocation Fund L.P. (the "Partnership") was organized
under the Delaware Revised Uniform Limited Partnership Act on December 11,
1995 and commenced trading on July 15, 1996. When available for investment,
the Partnership issues new units of limited partnership interest ("Units") at
Net Asset Value as of the beginning of each calendar month. The Partnership
engages in the speculative trading of futures, options on futures and forward
contracts on a wide range of commodities through its joint venture (the
"Joint Venture") with John W. Henry & Company, Inc. ("JWH"), the trading
advisor for the Partnership, and investing in Government Securities, as
defined. MLIP (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. MLF is the Partnership's commodity broker and Merrill Lynch
Asset Management, L.P. ("MLAM"), also an affiliate of Merrill Lynch, provides
cash management services to the Partnership. Substantially all of the
Partnership's assets are held in accounts maintained at Merrill Lynch,
Pierce, Fenner & Smith Incorporated, also a Merrill Lynch affiliate.
The General Partner has agreed to maintain a general partner's interest
of at least 1% of the total capital in the Partnership. The General Partner
and each Limited Partner share in the profits and losses of the Partnership
in proportion to their respective interests in it.
The Joint Venture trades in the international futures and forward
markets, applying multiple proprietary trading strategies under the direction
of JWH. JWH selects, allocates and reallocates the Partnership's assets among
different combinations of JWH's programs--an approach which JWH refers to as
the "JWH Strategic Allocation Program."
The consolidated financial statements include the accounts of the Joint
Venture to which the Partnership has contributed substantially all of its
capital, representing a current controlling equity interest in the Joint
Venture of approximately 99%. All related transactions between the
Partnership and the Joint Venture are eliminated in consolidation.
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.
U.S. Government Securities
The Partnership invests a portion of its assets in obligations of the
U.S. Treasury and certain U.S. government agencies ("Government Securities")
under the direction of MLAM within the parameters established by MLIP for
which MLAM accepts no responsibility. These investments are carried at fair
value.
71
<PAGE>
ML JWH STRATEGIC ALLOCATION FUND L. P.
(A Delaware Limited Partnership) AND JOINT VENTURE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIODS JANUARY 1, 1998 TO MARCH 31, 1998 (UNAUDITED)
AND JANUARY 1, 1997 TO MARCH 31, 1997 (UNAUDITED),
THE YEAR ENDED DECEMBER 31, 1997
AND THE PERIOD FROM JULY 15, 1996
(COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1996
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 Consolidated Statements of
Financial Condition at the difference between the original contract amount
and the fair value. The change in net unrealized profit on open contracts
from one period to the next is reflected in change in unrealized in the
Consolidated Statements of Income. Fair value is based on quoted market
prices on the exchange or market on which the contract is traded.
Organizational and Initial Offering Costs,
Operating Expenses and Selling Commissions
The General Partner advanced all organizational and initial offering
costs relating to the Partnership. The Partnership is reimbursing the General
Partner for such costs in 24 monthly installments. For financial reporting
purposes, the Partnership deducted the estimated organizational and initial
offering reimbursement costs of $1,000,000 from the Partners' capital at
inception. For all other purposes (including determining the Net Asset Value
of the Units), the Partnership deducts the organizational and initial
offering cost reimbursements only as actually paid. Adjustments in the final
organizational and initial offering costs were added back to the Partners'
capital.
The General Partner pays for all routine operating costs (including
legal, accounting, printing and similar administrative expenses) of the
Partnership, including the Partnership's share of any such costs incurred by
the Joint Venture (Note 2), other than the costs of the ongoing offering of
the Units. The General Partner receives an administrative fee, as well as a
portion of the brokerage commissions paid to MLF by the Joint Venture, as
reimbursement for the foregoing expenses.
No selling commissions have been or are paid by the Limited Partners.
Income Taxes
No provision for income taxes has been made in the accompanying
consolidated financial statements as each Partner is individually responsible
for reporting income or loss based on such Partner's respective share of the
Partnership's income and expenses as reported for income tax purposes.
Redemptions
A Limited Partner may require the Partnership to redeem some or all of
such 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. Units redeemed
on or prior to the end of the twelfth full month after purchase are assessed
an early redemption charge of 3% of their Net Asset Value as of the date of
redemption. If an investor acquires Units at more than one time, such Units
are treated on a "first-in, first-out" basis for purposes of determining
whether redemption charges are applicable.
Dissolution of the Partnership
The Partnership will terminate on December 31, 2026 or at an earlier date
if certain conditions occur, as well as under certain other circumstances as
defined in the Limited Partnership Agreement.
72
<PAGE>
ML JWH STRATEGIC ALLOCATION FUND L. P.
(A Delaware Limited Partnership) AND JOINT VENTURE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIODS JANUARY 1, 1998 TO MARCH 31, 1998 (UNAUDITED)
AND JANUARY 1, 1997 TO MARCH 31, 1997 (UNAUDITED),
THE YEAR ENDED DECEMBER 31, 1997
AND THE PERIOD FROM JULY 15, 1996
(COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1996
2. JOINT VENTURE AGREEMENT
The Partnership and JWH entered into a Joint Venture Agreement whereby
JWH contributed $100,000 to the Joint Venture and the Partnership contributed
substantially all of its capital. The Joint Venture Agreement terminates
September 30, 1997, subject to two one-year renewals at the option of MLIP.
The first renewal option was exercised at September 30, 1997. The General
Partner is the manager of the Joint Venture, while JWH has sole discretion in
determining the commodity futures, options on futures and forward trades to
be made on its behalf, subject to the trading limitations outlined in the
Joint Venture Agreement.
Pursuant to the Joint Venture Agreement, JWH and the Partnership share in
the profits of the Joint Venture based on equity ownership before 15% of the
Partnership's quarterly New Trading Profits, as defined, are allocated to
JWH. Losses are allocated to JWH and the Partnership based on equity
ownership.
Pursuant to the Joint Venture Agreement, JWH's share of profits may earn
interest at the prevailing rates for 91-day U.S. Treasury bills or such share
of profits may participate in the profits and losses of the Joint Venture.
For the year ended December 31, 1997, JWH received a profit share allocation
of $2,601,187 and earned interest of $39,006 on such amount. For the period
from July 15, 1996 to December 31, 1996, JWH received a special profit share
allocation of $4,675,905, and earned interest of $7,105 on such amount.
3. RELATED PARTY TRANSACTIONS
Approximately 80% of the Joint Venture's U.S. dollar assets are managed
by MLAM, pursuant to guidelines established by MLIP for which MLAM assumes no
responsibility, in the Government Securities market. MLF pays MLAM annual
management fees of .20 of 1% on the first $25 million of certain assets
("Capital"), including assets of the Joint Venture managed by MLAM, .15 of 1%
on the next $25 million of Capital, .125 of 1% on the next $50 million, and
.10 of 1% on Capital in excess of $100 million. Such fees are paid quarterly
in arrears and are calculated on the basis of the average daily assets
managed by MLAM.
A portion of the Joint Venture's U.S. dollar assets are held at MLF in
cash. On the cash held at MLF, the Joint Venture 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 Joint Venture, from possession of such cash.
Merrill Lynch credits the Joint Venture with interest on the Joint
Venture's non-U.S. dollar-denominated assets based on local short-term rates.
Merrill Lynch charges the Joint Venture Merrill Lynch's cost of financing
realized and unrealized losses on the Joint Venture's non-U.S.
dollar-denominated positions.
The Joint Venture pays brokerage commissions to MLF at a flat rate of
.646 of 1% (a 7.75% annual rate) of the Joint Venture's month-end assets, and
pays MLIP a monthly administrative fee of .021 of 1% (a .25% annual rate) of
the Joint Venture's month-end assets.
73
<PAGE>
ML JWH STRATEGIC ALLOCATION FUND L. P.
(A Delaware Limited Partnership) AND JOINT VENTURE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIODS JANUARY 1, 1998 TO MARCH 31, 1998 (UNAUDITED)
AND JANUARY 1, 1997 TO MARCH 31, 1997 (UNAUDITED),
THE YEAR ENDED DECEMBER 31, 1997
AND THE PERIOD FROM JULY 15, 1996
(COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1996
Month-end assets are not reduced, for purposes of calculating brokerage and
administrative fees, by any accrued brokerage commissions, administrative
fees, Profit Shares or other fees or charges.
MLIP estimates that the round-turn equivalent commission rate charged to
the Joint Venture during the year ended December 31, 1997 and the period from
July 15, 1996 (commencement of operations) to December 31, 1996 was
approximately $212 and $208 (not including, in calculating round-turn
equivalents, forward contracts on a futures-equivalent basis).
MLF pays JWH annual Consulting Fees of 4% of the Partnership's average
month-end assets, after reduction for a portion of the brokerage commissions.
The Joint Venture 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, at current exchange rates, to
approximately $5.00 to $12.50 on each purchase or sale (not round-turn) of a
futures-contract equivalent face amount of a given foreign currency. 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 Joint Venture 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 Joint Venture's other F/X Desk trading. When the
Joint Venture 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. JWH, to date, has made little use of
EFPs.
The Joint Venture'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.
4. NET ASSET VALUE PER UNIT
For financial reporting purposes, the Partnership deducted the total
organizational and initial offering cost reimbursement payable to MLIP at
inception. For all other purposes (including computing Net Asset Value for
redemptions), the Partnership deducts the organizational and initial offering
cost reimbursement only as actually paid. Consequently, as of December 31,
1997 and 1996, the Net Asset Value per Unit was $135.34 and $122.61 for
financial reporting purposes and $135.40 and $123.16 for all other purposes,
respectively.
5. 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 and 1996 equals the Units
outstanding as of such date, adjusted proportionately for Units sold and
redeemed based on the respective length of time each was outstanding during
the preceding period.
74
<PAGE>
ML JWH STRATEGIC ALLOCATION FUND L. P.
(A Delaware Limited Partnership) AND JOINT VENTURE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIODS JANUARY 1, 1998 TO MARCH 31, 1998 (UNAUDITED)
AND JANUARY 1, 1997 TO MARCH 31, 1997 (UNAUDITED),
THE YEAR ENDED DECEMBER 31, 1997
AND THE PERIOD FROM JULY 15, 1996
(COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1996
6. FAIR VALUE AND OFF-BALANCE SHEET RISK
The Joint Venture trades futures, options on futures and forward contracts
in interest rates, stock indices, commodities, currencies, energy and metals.
The Joint Venture's total trading results by reporting category for the period
January 1, 1998 to March 31, 1998 and the years ended December 31, 1997 and 1996
were as follows:
<TABLE>
<CAPTION>
January 1, 1998-
March 31, 1998
Total Trading Results
---------------------
<S> <C>
Interest rates and stock indices......................... $(833,644)
Commodities.............................................. (862,512)
Currencies............................................... (1,864,832)
Energy................................................... 5,173,485
Metals................................................... (3,478,895)
-----------
$(1,866,398)
------------
------------
</TABLE>
<TABLE>
<CAPTION>
1997 Total 1996 Total
Trading Results Trading Results
<S> <C> <C>
Interest rates and stock indices............. $ 19,982,977 $ 18,719,739
Commodities.................................. (2,328,550) (2,473,692)
Currencies................................... 19,023,250 10,116,005
Energy....................................... (14,267,006) 6,404,320
Metals....................................... 6,611,279 1,730,074
------------ ------------
$ 29,021,950 $ 34,496,446
------------ -------------
------------ -------------
</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 underlying financial
instruments or commodities underlying such derivative instruments frequently
result in changes in the Partnership's unrealized profit on such derivative
instruments as reflected in the Consolidated Statements of Financial
Condition. The Joint Venture's exposure to market risk is influenced by a
number of factors, including the relationships among the derivative
instruments held by the Joint Venture as well as the volatility and liquidity
in the markets in which the financial 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. The procedures focus primarily on monitoring the trading
of JWH and reviewing outstanding positions for over-concentrations. While the
General Partner will not itself intervene in the markets to hedge or
diversify the Joint Venture's market exposure, the General Partner may urge
JWH to reallocate positions in an attempt to avoid over-concentrations.
However, such interventions are unusual. Except in cases in which it appears
that JWH has begun to deviate from past practice and trading policies or to
be trading erratically, the General Partner's basic risk control procedures
consist simply of monitoring JWH with the market risk controls being applied
by JWH itself.
Fair Value
The derivative instruments traded by the Joint Venture are marked to
market daily with the resulting unrealized profit recorded in the
Consolidated Statements of Financial Condition and the related profit
reflected in trading revenues in the Consolidated Statements of Income.
The contract/notional values of the open derivative instrument
positions as of March 31, 1998, December 31, 1997 and December 31, 1996 were
as follows:
75
<PAGE>
ML JWH STRATEGIC ALLOCATION FUND L. P.
(A Delaware Limited Partnership) AND JOINT VENTURE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIODS JANUARY 1, 1998 TO MARCH 31, 1998 (UNAUDITED)
AND JANUARY 1, 1997 TO MARCH 31, 1997 (UNAUDITED),
THE YEAR ENDED DECEMBER 31, 1997
AND THE PERIOD FROM JULY 15, 1996
(COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
March 31, 1998
---------------
Commitment Commitment
to Purchase to Sell
(Futures, Options (Futures, Options
and Forwards) and Forwards)
----------------- -------------------
<S> <C> <C>
Interest rates and stock indices.................... $ 895,592,636 $ 447,337,403
Commodities......................................... 14,092,382 36,834,563
Currencies.......................................... 137,956,391 287,767,740
Energy.............................................. 6,065,280 31,046,095
Metals.............................................. 13,197,771 11,511,355
-------------- --------------
$1,066,904,460 $ 814,497,156
-------------- ---------------
-------------- ---------------
</TABLE>
<TABLE>
<CAPTION>
1997
------
Commitment Commitment
to Purchase to Sell
(Futures, Options (Futures, Options
and Forwards) and Forwards)
<S> <C> <C>
Interest rates and stock indices................... $ 926,562,961 $ 351,175,040
Commodities........................................ 21,239,916 27,160,968
Currencies......................................... 199,371,182 390,721,620
Energy............................................. -- 39,106,920
Metals............................................. 18,503,375 43,958,106
-------------- ---------------
$1,165,677,434 $ 852,122,654
-------------- ---------------
-------------- ---------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
1996
-----
Commitment Commitment
to Purchase to Sell
(Futures, Options (Futures, Options
and Forwards) and Forwards)
<S> <C> <C>
Interest rates and stock indices................... $144,969,514 $ --
Commodities........................................ 6,083,206 17,321,100
Currencies......................................... 229,540,645 289,870,043
Energy............................................. 18,094,440 --
Metals............................................. 2,693,494 30,540,601
------------ ------------
$401,381,299 $337,731,744
------------- ------------
------------- ------------
</TABLE>
Substantially all of the Joint Venture's derivative financial instruments
outstanding as of March 31, 1998 and December 31, 1997 expire within one year.
The contract/notional values of the Joint Venture's exchange-traded and
non-exchange-traded derivative instrument positions as of March 31, 1998,
December 31, 1997 and December 31, 1996 were as follows:
<TABLE>
<CAPTION>
March 31, 1998
---------------
Commitment Commitment
to Purchase to Sell
(Futures, Options (Futures, Options
and Forwards) and Forwards)
<S> <C> <C>
Exchange-Traded..... $ 927,093,138 $ 523,411,092
Non-Exchange-Traded. 139,811,322 291,086,064
-------------- --------------
$1,066,904,460 $ 814,497,156
-------------- --------------
-------------- --------------
</TABLE>
<TABLE>
<CAPTION>
1997
-------
Commitment Commitment
to Purchase to Sell
(Futures, Options (Futures, Options
and Forwards) and Forwards)
<S> <C> <C>
Exchange-Traded..... $ 791,818,184 $ 468,259,393
Non-Exchange-Traded. 373,859,250 383,863,261
-------------- --------------
$1,165,677,434 $ 852,122,654
-------------- --------------
-------------- --------------
</TABLE>
76
<PAGE>
ML JWH STRATEGIC ALLOCATION FUND L. P.
(A Delaware Limited Partnership) AND JOINT VENTURE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIODS JANUARY 1, 1998 TO MARCH 31, 1998 (UNAUDITED)
AND JANUARY 1, 1997 TO MARCH 31, 1997 (UNAUDITED),
THE YEAR ENDED DECEMBER 31, 1997
AND THE PERIOD FROM JULY 15, 1996
(COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
1996
Commitment Commitment
to Purchase to Sell
(Futures, Options (Futures, Options
and Forwards) and Forwards)
<S> <C> <C>
Exchange-Traded..... $170,575,723 $ 46,596,770
Non-Exchange-Traded. 230,805,576 291,134,974
----------- ------------
$401,381,299 $337,731,744
----------- -------------
----------- -------------
</TABLE>
The average fair values, based on contract/notional values, of the Joint
Venture's derivative instrument positions which were open as of the end of
each calendar month for the period ended March 31, 1998 and for the years
ended December 31, 1997 and December 31, 1996 were as follows:
<TABLE>
<CAPTION>
March 31, 1998
----------------
Commitment Commitment
to Purchase to Sell
(Futures, Options (Futures, Options
and Forwards) and Forwards)
<S> <C> <C>
Interest rates and stock indices................... $1,063,270,597 $287,680,295
Commodities........................................ 16,584,173 36,485,817
Currencies......................................... 390,325,862 533,328,897
Energy............................................. 3,775,190 33,954,848
Metals............................................. 20,409,359 8,318,771
--------------- ---------------
$1,494,365,181 $899,768,628
--------------- ---------------
--------------- ---------------
</TABLE>
<TABLE>
<CAPTION>
1997
----
Commitment Commitment
to Purchase to Sell
(Futures, Options (Futures, Options
and Forwards) and Forwards)
<S> <C> <C>
Interest rates and stock indices................... $1,010,667,321 $263,783,626
Commodities........................................ 25,901,996 21,055,353
Currencies......................................... 395,236,535 484,258,015
Energy............................................. 22,168,532 21,307,623
Metals............................................. 9,266,297 36,089,734
-------------- ------------
$1,463,240,681 $826,494,351
-------------- ------------
-------------- ------------
</TABLE>
77
<PAGE>
ML JWH STRATEGIC ALLOCATION FUND L. P.
(A Delaware Limited Partnership) AND JOINT VENTURE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIODS JANUARY 1, 1998 TO MARCH 31, 1998 (UNAUDITED)
AND JANUARY 1, 1997 TO MARCH 31, 1997 (UNAUDITED),
THE YEAR ENDED DECEMBER 31, 1997
AND THE PERIOD FROM JULY 15, 1996
(COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
1996
-----
Commitment Commitment
to Purchase to Sell
(Futures, Options (Futures, Options
and Forwards) and Forwards)
<S> <C> <C>
Interest rates and stock indices................... $ 732,721,810 $ 97,200,016
Commodities........................................ 8,192,113 24,113,672
Currencies......................................... 300,537,708 312,830,219
Energy............................................. 22,546,285 --
Metals............................................. 3,818,246 39,804,586
--------------- ------------
$1,067,816,162 $473,948,493
</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 transactions
(non-exchange-traded), because exchanges typically (but not universally)
provide clearinghouse arrangements in which the collective credit (in some
cases limited in amount, in some cases not) of the members of the exchange is
pledged to support the financial integrity of the exchange. 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
Joint Venture'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 profit, if any, included in
the Consolidated Statements of Financial Condition.
The Joint Venture also has credit risk because the sole counterparty or
broker with respect to most of the Joint Venture's assets is MLF.
The gross unrealized profit and the net unrealized profit on the Joint
Venture's open derivative instrument positions as of March 31, 1998, December
31, 1997 and December 31, 1996 were as follows:
<TABLE>
<CAPTION>
March 31, 1998
--------------
Gross Net
Unrealized Profit Unrealized Profit
<S> <C> <C>
Exchange-Traded.................. $4,102,721 $1,329,995
Non-Exchange-Traded.............. 7,089,251 7,190,712
----------- ----------
$11,191,972 $8,520,707
----------- ----------
----------- ----------
</TABLE>
<TABLE>
<CAPTION>
1997
----
Gross Net
Unrealized Profit Unrealized Profit
<S> <C> <C>
Exchange-Traded................. $14,037,333 $12,316,384
Non-Exchange-Traded............. 8,613,088 2,581,905
----------- -----------
$22,650,421 $14,898,289
----------- -----------
----------- -----------
</TABLE>
78
<PAGE>
ML JWH STRATEGIC ALLOCATION FUND L. P.
(A Delaware Limited Partnership) AND JOINT VENTURE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIODS JANUARY 1, 1998 TO MARCH 31, 1998 (UNAUDITED)
AND JANUARY 1, 1997 TO MARCH 31, 1997 (UNAUDITED),
THE YEAR ENDED DECEMBER 31, 1997
AND THE PERIOD FROM JULY 15, 1996
(COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
1996
----
Gross Net
Unrealized Profit Unrealized Profit
<S> <C> <C>
Exchange-Traded................ $3,013,592 $1,424,907
Non-Exchange-Traded............ 6,937,127 3,271,465
---------- -----------
$9,950,719 $4,696,372
---------- -----------
---------- -----------
</TABLE>
The Joint Venture controls credit risk by dealing almost exclusively with
Merrill Lynch entities as brokers and counterparties.
The Joint Venture, in its normal course of business, enters into various
contracts with MLF acting as its commodity broker. Pursuant to the brokerage
arrangement with MLF (which includes a master netting arrangement), 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.
79
<PAGE>
ML JWH STRATEGIC ALLOCATION FUND L. P.
(A Delaware Limited Partnership) AND JOINT VENTURE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIODS JANUARY 1, 1998 TO MARCH 31, 1998 (UNAUDITED)
AND JANUARY 1, 1997 TO MARCH 31, 1997 (UNAUDITED),
THE YEAR ENDED DECEMBER 31, 1997
AND THE PERIOD FROM JULY 15, 1996
(COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1996
INDEPENDENT AUDITORS' REPORT
Merrill Lynch Investment Partners Inc.:
We have audited the accompanying balance sheet of Merrill Lynch Investment
Partners Inc. (the "Company") (formerly, ML Futures Investment Partners Inc.)
as of December 26, 1997. This financial statement is the responsibility of
the Company's management. Our responsibility is to express an opinion on this
financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the balance sheet is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the balance sheet. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall balance sheet
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, such balance sheet presents fairly, in all material respects,
the financial position of the Company as of December 26, 1997 in conformity
with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
February 6, 1998
New York, New York
80
<PAGE>
MERRILL LYNCH INVESTMENT PARTNERS INC.
(formerly, ML Futures Investment Partners Inc.)
BALANCE SHEETS
March 27, 1998 (unaudited) and December 26, 1997
<TABLE>
<CAPTION>
March 27,
1998 December 26,
(unaudited) 1997
----------- -------------
<S> <C> <C>
ASSETS
Cash $ 444,947 $ 78,186
Investments in affiliated partnerships 16,116,956 15,911,448
Due from parent and affiliate 129,888,782 136,766,271
Receivables from affiliated partnerships 4,090,155 4,292,430
Deferred charges 27,347,610 26,005,943
Advances and other receivables 12,116,201 12,410,505
Fixed assets -- net of accumulated depreciation of $1,274,340
and $1,227,840 471,409 356,102
Other assets 156,000 154,000
------------- -----------------
TOTAL ASSETS $190,632,060 $195,974,885
------------- -----------------
------------- -----------------
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES:
Accounts payable and accrued expenses $ 9,337,322 $ 11,194,543
Due to affiliate 4,812,037 23,907,704
Current and deferred income taxes 20,292,148 18,072,851
------------ --------------
Total liabilities 34,441,507 53,175,098
----------- --------------
STOCKHOLDER'S EQUITY:
Preferred stock, par value $10.00 per share --
1,000 shares authorized; none outstanding -- --
Common stock, par value $10.00 per share --
1,000 shares authorized; 100 shares outstanding 1,000 1,000
Additional paid-in capital 16,915,000 16,915,000
Retained earnings 139,274,553 125,883,787
----------- ---------------
Total stockholder's equity 156,190,553 142,799,787
----------- --------------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $190,632,060 $195,974,885
------------- -----------------
------------- -----------------
</TABLE>
PURCHASERS OF UNITS WILL
ACQUIRE NO INTEREST IN THIS COMPANY
81
<PAGE>
MERRILL LYNCH INVESTMENT PARTNERS INC.
(formerly, ML Futures Investment Partners Inc.)
NOTES TO BALANCE SHEETS
March 27, 1998 (unaudited) and December 26, 1997
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization
Merrill Lynch Investment Partners Inc. (formerly, ML Futures Investment
Partners Inc.) (the "Company") is a wholly-owned subsidiary of Merrill Lynch
Group, Inc., a wholly-owned subsidiary of Merrill Lynch & Co., Inc.
("ML&Co."). The Company is registered as a commodity pool operator and a
commodity trading advisor. The Company serves as the sole general partner of
The Futures Expansion Fund Limited Partnership, The Growth and Guarantee Fund
L.P., ML Futures Investments II L.P., ML Futures Investments L.P., John W.
Henry & Co./Millburn L.P., The S.E.C.T.O.R. Strategy Fund-SM- L.P. (Safety of
Equity Capital; Targeting Overall Return), The SECTOR Strategy Fund-SM- II
L.P., The JWH Global Asset Fund L.P., The SECTOR Strategy Fund-SM- V L.P., ML
Global Horizons L.P., ML/AIS L.P., ML Select Hedge I L.P., The SECTOR
Strategy Fund-SM- VI L.P., ML Principal Protection L.P., ML Chesapeake L.P.,
ML JWH Strategic Allocation Fund L.P. (collectively, the "Affiliated
Partnerships"). The Company is also an investor in a joint venture (ML/AIG
Asset Management L.L.C.) which is the general partner of ML/AIG
Multi-Strategy Fund L.P. Additionally, the Company has sponsored or initiated
the formation of various offshore entities engaged in the speculative trading
of futures, options and forward contracts.
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.
Investments in Affiliated Partnerships
The Company's investments in its Affiliated Partnerships are accounted
for under the equity method of accounting.
Deferred Charges
Deferred charges represent compensation to ML&Co. affiliates for the
sale of fund units to their customers. Such costs are amortized over 12, 24,
36 or 48-month periods.
2. RELATED PARTIES
The Company's officers and directors are also officers of other
subsidiaries of ML&Co. An affiliate bears all of the Company's facilities and
employee costs, for which it is reimbursed by the Company. Another affiliate,
Merrill Lynch Futures Inc., executes and clears the Affiliated Partnerships'
trades, as well as those of various offshore funds sponsored or managed by
the Company, for which it receives a fee, generally based on the net assets
of the Affiliated Partnerships and offshore funds.
PURCHASERS OF UNITS WILL
ACQUIRE NO INTEREST IN THIS COMPANY
82
<PAGE>
MERRILL LYNCH INVESTMENT PARTNERS INC.
(formerly, ML Futures Investment Partners Inc.)
NOTES TO BALANCE SHEETS
March 27, 1998 (unaudited) and December 26, 1997
ML&Co. is holder of the Company's excess cash, which is available on
demand to meet current liabilities. ML&Co. credits the Company with interest,
at a floating rate approximating ML&Co.'s average borrowing rate, based on
the Company's average daily balances receivable. At March 27, 1998,
approximately $129,900,000 and at December 26, 1997, approximately
$136,800,000 was subject to this agreement.
At March 27, 1998 and December 26, 1997, the Company had receivables
from Affiliated Partnerships and offshore funds for certain administrative,
management and redemption fees, all of which are expected to be collected
within 90 days. Additionally, the Company had receivables from certain
Affiliated Partnerships and offshore funds for organizational and initial
offering costs paid on behalf of such funds which are being reimbursed to the
Company over various time periods (not exceeding three years).
During 1997 and the first quarter of 1998, the Company did not declare
or pay a dividend.
The Company has determined that there may have been a miscalculation in
the interest credited by an affiliate of the Company to certain Affiliated
Partnerships and related offshore entities of which the Company is the
sponsor, for a period prior to November 1996. Accordingly, ML&Co. is
crediting current and former investors in affected funds, with additional
interest amounts totaling approximately $28,500,000, which includes compound
interest. Approximately $21,300,000 was paid to investors through March 31,
1998 with the remaining balance of $7,200,000 as a liability on the balance
sheet. The Company has determined that interest has been calculated
appropriately since November 1996.
PURCHASERS OF UNITS WILL
ACQUIRE NO INTEREST IN THIS COMPANY
83
<PAGE>
MERRILL LYNCH INVESTMENT PARTNERS INC.
(formerly, ML Futures Investment Partners Inc.)
NOTES TO BALANCE SHEETS
March 27, 1998 (unaudited) and December 26, 1997
3. INVESTMENTS IN AFFILIATED PARTNERSHIPS
The limited partnership agreements of the Affiliated Partnerships
require the Company to make certain minimum capital contributions to them. At
March 27, 1998 and December 26, 1997, the Company was in compliance with all
such requirements.
At March 27, 1998 and December 26, 1997, the Company's investments in the
Affiliated Partnerships were as follows:
<TABLE>
<CAPTION>
March 27, 1998
(unaudited) December 26, 1997
--------------- -----------------
<S> <C> <C>
ML Principal Protection L.P. $ 3,324,942 $ 3,328,707
ML Global Horizons L.P. 1,700,021 1,652,159
The SECTOR Strategy Fund-SM- II L.P 945,373 956,384
John W. Henry & Company/Millburn L.P. 890,735 936,678
The SECTOR Strategy Fund-SM- VI L.P. 814,972 820,070
The JWH Global Asset Fund L.P. 670,128 729,776
The S.E.C.T.O.R. Strategy Fund-SM- L.P. 440,499 465,225
ML Futures Investments L.P. 414,815 402,373
The SECTOR Strategy Fund-SM- V L.P. 379,464 391,026
ML Futures Investments II L.P. 217,580 218,183
The Growth and Guarantee Fund L.P. 440,303 332,114
The Futures Expansion Fund Limited Partnership 143,629 142,826
ML Chesapeake L.P. 89,899 90,570
ML/AIG Asset Management L.L.C. 2,349,068 2,309,068
ML JWH Strategic Allocation Fund L.P. 2,427,038 2,461,884
ML Select Hedge I L.P. 516,485 500,000
ML/AIS L.P. 352,005 174,405
------------ -----------
Total $ 16,116,956 $15,911,448
------------ -----------
------------ -----------
</TABLE>
PURCHASERS OF UNITS WILL
ACQUIRE NO INTEREST IN THIS COMPANY
84
<PAGE>
MERRILL LYNCH INVESTMENT PARTNERS INC.
(formerly, ML Futures Investment Partners Inc.)
NOTES TO BALANCE SHEETS
March 27, 1998 (unaudited) and December 26, 1997
The following represents condensed combined financial information of
the Affiliated Partnerships as of March 27, 1998 and December 26, 1997 (in
thousands):
<TABLE>
<CAPTION>
March 27, 1998
----------------
<S> <C>
Assets $827,978
----------
----------
Liabilities 30,622
Partners' capital 797,356
----------
Total $827,978
----------
----------
December 26, 1997
-----------------
Assets $877,131
----------
----------
Liabilities 17,325
Partners' capital 859,806
----------
Total $877,131
----------
----------
</TABLE>
The Company's Affiliated Partnerships trade various futures, options
and forward contracts. Risk to such partnerships arises from the possible
adverse changes in the market value of such contracts and the potential
inability of counterparties to perform under the terms of the contracts. The
risk to the Company is represented by the portion of its investments in
Affiliated Partnerships derived from the unrealized gains contained in such
Partnerships' net asset values.
4. INCOME TAXES
The results of operations of the Company are included in the
consolidated Federal and combined state and local income tax return of ML&Co.
It is the policy of ML&Co. to allocate current and deferred taxes associated
with such operating results to its respective subsidiaries in a manner which
approximates the separate company method. ML&Co. and its affiliates use the
asset and liability method in providing income tax on all transactions that
have been recognized in the financial statements.
The Company provides for deferred income taxes resulting from temporary
differences which arise from recording deferred charges in different years
for income tax reporting purposes than for financial reporting purposes. At
March 27, 1998 and December 26, 1997, the Company had no deferred tax assets.
Deferred tax liabilities consisted of the following:
<TABLE>
<CAPTION>
March 27, 1998
---------------
<S> <C>
State and local $2,734,903
Federal $8,614,604
$11,349,507
December 26, 1997
-----------------
State and local $2,600,736
Federal 8,191,979
$10,792,715
</TABLE>
As part of the consolidated group, the Company transfers to ML&Co. its
current Federal, state and local tax liabilities. During 1997, the Company
transferred $14,964,135, in current taxes payable to ML&Co. At March 27, 1998
and December 26, 1997, the Company had a current tax payable with ML&Co. of
$8,942,641 and $7,280,136, respectively.
PURCHASERS OF UNITS WILL
ACQUIRE NO INTEREST IN THIS COMPANY
85
<PAGE>
MERRILL LYNCH INVESTMENT PARTNERS INC.
(formerly, ML Futures Investment Partners Inc.)
NOTES TO BALANCE SHEETS
March 27, 1998 (unaudited) and December 26, 1997
MERRILL LYNCH INVESTMENT PARTNERS INC.
(formerly, ML Futures Investment Partners Inc.)
NOTES TO BALANCE SHEETS
March 27, 1998 (unaudited) and December 26, 1997
5. NET WORTH AGREEMENTS
Pursuant to the limited partnership agreements of the Affiliated
Partnerships, the Company is required to meet certain net worth requirements.
The Company's net worth, as defined, approximated $136,000,000 at March 27,
1998 and $122,600,000 at December 26, 1997, which, in the opinion of the
Company's counsel, met all such requirements.
6. COMMITMENTS
The Company is obligated to pay to affiliates, from its own funds and
without reimbursement by the Affiliated Partnerships, ongoing fees for units
in such Partnerships outstanding as of the end of various periods.
<PAGE>
Performance of Other
MLIP Funds
General
The following performance information is required by the CFTC. However,
the Fund and its offshore counterpart are the only MLIP Funds which use the
JWH Strategic Allocation Program.
The performance summaries for the other publicly-offered single advisor
funds sponsored by MLIP is included above at page 16.
MLIP deleverages the trading of its "principal protection" funds in
order to protect ML&Co. under its guarantee. Multi-advisor funds without
"principal protection" features typically trade on a fully-leveraged basis.
The Fund has no "principal protection" feature and may trade on either an
"upleveraged" or a "deleveraged" basis.
The "Managed Account Program" is MLIP's program of privately offered funds.
The CFTC defines a "multi-advisor" fund as one in which no advisor is
allocated more than 25% of the fund's assets available for trading.
"Selected-advisor" fund is the term used by MLIP to describe funds with a
number of advisors but in which certain advisors may, at least from time to
time, be allocated in excess of 25% of the fund's trading assets.
Performance prior to January 1, 1993 has not been included in accordance
with CFTC policy.
INTEREST INCOME MAY BE A SIGNIFICANT PORTION OF A COMMODITY POOL'S INCOME
AND CAN RESULT IN PROFITS DESPITE TRADING LOSSES.
--------------------
See the definitions of Worst Monthly Decline, Worst Peak-to-Valley
Decline and Monthly Rate of Return at page 46.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Pages
<S> <C>
A. MLIP Managed Account Program
Single-Advisor Funds (Without
"Principal Protection" Features)..................................................... 88-90
B. MLIP Selected-Advisor and Multi-Advisor
Funds (Without "Principal Protection" Features)...................................... 91-93
C. MLIP Selected-Advisor and Multi-Advisor
Funds (With "Principal Protection" Features)......................................... 94-95
</TABLE>
<PAGE>
MLIP MANAGED ACCOUNT PROGRAM SINGLE ADVISOR FUNDS
(WITHOUT "PRINCIPAL PROTECTION" FEATURES)
May 31, 1998
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Type Worst Monthly Worst
of Inception Aggregate May 31, 1998 Decline Peak-to-Valley
Name of Fund Offering of Trading Subscriptions Capitalization % Month % Period
- --------------------- -------- ----------- --------------- ---------------- ---------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
ML/AIS Ltd. Private July 1997 $43,698,119 $27,117,592 (10.81)% (3/98) (27.24)% (7/97-5/98)
ML/AIS L.P. Private July 1997 $42,448,690 $31,846,204 (10.73)% (3/98) (27.14)% (7/97-5/98)
ML Global Investments Private April 1997 $61,906,000 $74,707,280 (3.36)% (2/98) (3.56)% (1/98-2/98)
Fund Ltd.
ML/APAM Ltd. Private April 1997 $85,421,080 $66,437,882 (3.56)%( 3/98) (6.25)% (1/98-5/98)
ML Chesapeake L.P. Private April 1996 $9,606,574 $8,084,223 (7.86)% (8/97) (7.86)% (8/97)
ML Strategic Portfolio Private July 1995 $55,530,000 dissolved as of (1.58)% (6/97) (1.58)% (6/97)
Fund Ltd. 2/28/98
The JWH Global Asset Private June 1995 $195,104,782 $131,612,731 (8.17)% (5/97) (16.25)% (1/98-4/98)
Fund Ltd. - Series B
The RXR Defensive Private Nov. 1993 $45,455,000 dissolved as of (17.91)% (2/97) (42.98)% (1/94-12/9)
Equity Alternative 5/31/96
Account L.P. I
ML Chesapeake Ltd. Private Aug. 1993 $65,928,644 $23,022,518 (7.73)% (8/97) (8.58)% (5/96-7/96)
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Supplemental
Information
Regarding
Cumulative
Rate of Return
Jan. 1, 1993 1998 1997 1996 1995 1994 1993
(or inception) Compound Compound Compound Compound Compound Compound
to Rate of Annual Annual Annual Annual Annual
May 31, 1998 Return Rate of Rate of Rate of Rate of Rate of
Name of Fund (or dissolution) (5 months) Return Return Return Return Return
- --------------------- ---------------- ---------- --------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
ML/AIS Ltd. (27.24)% (23.09)% (5.40)% N/A N/A N/A N/A
(6 mos.)
ML/AIS L.P. (27.14)% (22.72)% (5.72)% N/A N/A N/A N/A
(6 mos.)
ML Global Investments 20.49% 7.33% 12.26% N/A N/A N/A N/A
Fund Ltd. composite* composite* (9 mos.)
composite*
ML/APAM Ltd. (2.89)% (6.25)% 3.58% N/A N/A N/A N/A
composite* composite* (9 mos.)
composite*
ML Chesapeake L.P. 27.17% 9.40% 9.43% 6.23% N/A N/A N/A
(9 mos.)
ML Strategic Portfolio 93.31% 1.31% 14.66% 38.69% 19.99% N/A N/A
Fund Ltd. (2 mos.) (6 mos.)
The JWH Global Asset 31.73% (13.68)% 20.50% 27.64% (0.78)% N/A N/A
Fund Ltd. - Series B (7 mos.)
The RXR Defensive (1.61)% N/A N/A (18.46)% 103.03% (42.98)% 4.23%
Equity Alternative (5 mos.) (2 mos)
Account L.P. I
ML Chesapeake Ltd. 69.41% 8.99% 8.71% 9.32% 8.29% 16.45% 3.72%
(5 mos)
</TABLE>
* The composite return of the fund, not the performance of any individual series
of units or shares.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
THE UNITS COULD INCUR SUBSTANTIAL LOSSES. THE MLIP POOLS INCLUDED IN THE
FOREGOING TABLE ARE MATERIALLY DIFFERENT INVESTMENTS THAN THE FUND.
88
<PAGE>
MLIP MANAGED ACCOUNT PROGRAM SINGLE ADVISOR FUNDS
(WITHOUT "PRINCIPAL PROTECTION" FEATURES)
May 31, 1998
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Type Worst Monthly Worst
of Inception Aggregate May 31, 1998 Decline Peak-to-Valley
Name of Fund Offering of Trading Subscriptions Capitalization % Month % Period
- --------------------- -------- ----------- --------------- ---------------- ---------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
ML Hyman Beck Ltd. Private Aug. 1993 $28,963,729 $7,006,175 (9.04)% (2/96) (19.02)% (7/95-2/96)
ML Mountain Partners Private July 1993 $29,571,566 dissolved as of (17.17)% (2/94) (60.57)% (8/93-8/94)
Ltd. 12/22/94
The JWH Global Asset Private Aug. 1991 $96,867,360 $44,415,260 (8.03)% (4/98) (15.50)% (1/98-4/98)
Fund L.P.
The JWH Global Asset Private June 1990 $97,112,854 $42,059,382 (6.53)% (2/96) (16.91)% (7/94-1/95)
Fund Ltd. - Series A
The Moore Capital Fund Private Sep. 1992 Ecu 7,763,565 Ecu 1,738,277 (8.10)% (11/94) (26.79)% (2/94-2/95)
II Ltd.
The Moore Global Private Sep. 1990 $77,853,580 dissolved as of (7.30)% (2/94) (23.05)% (2/94-2/95)
Investment Fund Ltd. 5/31/95
The Leyden Investment Private June 1991 $6,708,424 dissolved as of (17.91)% (2/96) (28.53)% (2/96-9/96)
Fund Ltd. 10/31/96
The Leyden Investment Private June 1991 $30,637,006 dissolved as of (19.68)% (3/94) (28.91)% (9/93-12/94)
Fund L.P. 12/31/94
ML Liberty Management Private Oct. 1992 $20,495,843 $1,821,708 (5.17)% (7/94) (10.25)% (11/92-6/93)
Fund Ltd.
ML North Cove Fund Ltd. Private Jan. 1993 $98,273,603 $37,593,934 (6.22)% (2/94) (23.99)% (2/94-2/95)
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Supplemental
Information
Regarding
Cumulative
Rate of Return
Jan. 1, 1993 1998 1997 1996 1995 1994 1993
(or inception) Compound Compound Compound Compound Compound Compound
to Rate of Annual Annual Annual Annual Annual
May 31, 1998 Return Rate of Rate of Rate of Rate of Rate of
Name of Fund (or dissolution) (5 months) Return Return Return Return Return
- --------------------- ---------------- ---------- --------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
ML Hyman Beck Ltd. 9.74% (7.92)% 21.08% 2.54% 6.79% (9.31)% (0.88)%
(5 mos.)
ML Mountain Partners (53.27)% N/A N/A N/A N/A (32.20)% (31.07)%
Ltd. (6 mos.)
The JWH Global Asset 116.79% (12.92)% 14.74% 29.83% 39.62% (4.86)% 25.81%
Fund L.P.
The JWH Global Asset 100.26% (4.60)% 7.13% 24.18% 38.19% (9.24)% 25.81%
Fund Ltd. - Series A
The Moore Capital Fund 160.64% 15.26% 27.15% 24.95% 21.27% (22.58)% 51.60%
II Ltd.
The Moore Global 18.08% N/A N/A N/A 1.65% (17.73)% 44.20%
Investment Fund Ltd. (5 mos.)
The Leyden Investment (4.00)% N/A N/A (20.98)% 24.93% (14.68)% 13.98%
Fund Ltd. (10 mos.)
The Leyden Investment (17.14)% N/A N/A N/A N/A (27.30)% 13.98%
Fund L.P.
ML Liberty Management 56.55% 8.87% 18.01% 5.55% 15.70% 4.15% (4.20)%
Fund Ltd.
ML North Cove Fund Ltd. 130.63% 15.93% 27.67% 27.70% 23.09% (17.07)% 19.54%
</TABLE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
THE UNITS COULD INCUR SUBSTANTIAL LOSSES. THE MLIP POOLS INCLUDED IN THE
FOREGOING TABLE ARE MATERIALLY DIFFERENT INVESTMENTS THAN THE FUND.
89
<PAGE>
MLIP MANAGED ACCOUNT PROGRAM SINGLE ADVISOR FUNDS
(WITHOUT "PRINCIPAL PROTECTION" FEATURES)
May 31, 1998
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Type Worst Monthly Worst
of Inception Aggregate May 31, 1998 Decline Peak-to-Valley
Name of Fund Offering of Trading Subscriptions Capitalization % Month % Period
- --------------------- -------- ----------- --------------- ---------------- ---------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
ML Harmon Cove Fund Ltd. Private Jan. 1993 $117,766,453 $69,273,539 (2.54)% (3/93) (2.54)% (3/93)
ML/Essex Fund Ltd. Private Aug. 1991 $1,870,286 dissolved as of (7.75)% (1/94) (11.18)% (4/96-7/96)
4/30/97
InterRate(TM)Limited Private Dec. 1988 $7,429,200 dissolved as of (1.88)% (10/93) (17.91)% (9/92-11/93)
1/31/94
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Supplemental
Information
Regarding
Cumulative
Rate of Return
Jan. 1, 1993 1998 1997 1996 1995 1994 1993
(or inception) Compound Compound Compound Compound Compound Compound
to Rate of Annual Annual Annual Annual Annual
May 31, 1998 Return Rate of Rate of Rate of Rate of Rate of
Name of Fund (or dissolution) (5 months) Return Return Return Return Return
- --------------------- ---------------- ---------- --------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
ML Harmon Cove Fund Ltd. 88.13% 5.56% 12.23% 14.45% 6.08% 17.35% 11.46%
composite* composite* composite* composite* composite* composite* composite*
ML/Essex Fund Ltd. 98.36% N/A 18.02% 17.46% 11.60% (6.54)% 37.19%
(4 months)
InterRate(TM)Limited (6.51)% N/A N/A N/A N/A 0.55% (7.02)%
(1 month)
</TABLE>
* The composite return of the fund, not the performance of any individual
series of units or shares.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
THE UNITS COULD INCUR SUBSTANTIAL LOSSES. THE MLIP POOLS INCLUDED IN THE
FOREGOING TABLE ARE MATERIALLY DIFFERENT INVESTMENTS THAN THE FUND.
90
<PAGE>
MLIP SELECTED-ADVISOR AND MULTI-ADVISOR FUNDS
(WITHOUT "PRINCIPAL PROTECTION" FEATURES)
May 31, 1998
<TABLE>
<CAPTION>
Worst Monthly Worst Peak-to-Valley
Decline Decline
NAME OF Type of Inception Aggregate May 31, 1998 ---------------- ---------------------
FUND Offering of Trading Subscriptions Capitalization % Month % Period
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ML Futures Public May 1988 $269,809,800 $ 11,552,266 (9.93)% (7/96) (16.76)% (5/96-7/96)
Investments II L.P.
- ------------------------------------------------------------------------------------------------------------------------------
ML Futures Public Mar. 1989 $ 86,500,700 $ 22,094,734 (5.43)% (4/98) (10.85)% (6/95-7/96)
Investments L.P.
- ------------------------------------------------------------------------------------------------------------------------------
The John W. Henry & Public Jan. 1990 $ 18,182,000 $ 12,584,958 (9.58)% (2/96) (19.33)% (7/94-1/95)
Co./Millburn L.P.
(Series A Units)
- ------------------------------------------------------------------------------------------------------------------------------
The John W. Henry & Public Jan. 1991 $ 50,636,000 $ 27,309,521 (9.41)% (2/96) (19.32)% (7/94-1/95)
Co./Millburn L.P.
(Series B Units)
- ------------------------------------------------------------------------------------------------------------------------------
The John W. Henry & Public Jan. 1992 $ 40,000,000 $ 14,252,417 (9.54)% (2/96) (19.20)% (7/94-1/95)
Co./Millburn L.P.
(Series C Units)
- ------------------------------------------------------------------------------------------------------------------------------
The SECTOR Strategy Public July 1992 $ 13,353,600 dissolved as (7.04)% (2/96) (11.45)% (2/96-7/96)
Fund IV L.P. of 6/30/97
(Series B Units)
- ------------------------------------------------------------------------------------------------------------------------------
The SECTOR Strategy Private July 1992 $ 9,131,000 dissolved as (7.32)% (2/96) (10.79)% (1/94-1/95)
Fund of 6/30/97
International IV
Ltd. (Series B
Shares)
- ------------------------------------------------------------------------------------------------------------------------------
ML Global Horizons Public Jan. 1994 $174,343,595 $127,327,279 (6.42)% (2/96) (6.42)% (2/96)
L.P.
- ------------------------------------------------------------------------------------------------------------------------------
ML Global Horizons Private Jan. 1994 $170,520,490 $ 86,799,796 (6.29)% (2/96) (6.29)% (2/96)
Ltd. (Series A)
- ------------------------------------------------------------------------------------------------------------------------------
ML Global Horizons Private Sept. 1994 $ 3,708,415 $ 2,242,435 (5.66)% (2/96) (6.05)% (8/97-10/97)
Ltd. (Series B)
- ------------------------------------------------------------------------------------------------------------------------------
The JLI Trading Private Mar. 1995 $ 14,300,136 dissolved as (6.93)% (2/96) (11.18)% (4/97-10/97)
Co. Fund of 2/28/98
- ------------------------------------------------------------------------------------------------------------------------------
Supplemental
Information
Regarding
Cumulative
Rate of Return 1998 1997 1996 1995 1994 1993
Jan. 1, 1993 Compound Compound Compound Compound Compound Compound
(or inception) Rate of Annual Annual Annual Annual Annual
NAME OF to May 31, 1998 Return Rate of Rate of Rate of Rate of Rate of
FUND (or dissolution) (5 months) Return Return Return Return Return
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ML Futures 43.47% (2.09)% 4.78% 2.05% 17.07% (1.36)% 18.67%
Investments II L.P.
- ------------------------------------------------------------------------------------------------------------------------------
ML Futures 53.44% (1.09)% 9.22% 5.87% 11.80% 2.95% 16.56%
Investments L.P.
- ------------------------------------------------------------------------------------------------------------------------------
The John W. Henry 81.70% (9.53)% 12.49% 20.09% 34.89% (8.64)% 20.64%
& Co./Millburn L.P.
(Series A Units)
- ------------------------------------------------------------------------------------------------------------------------------
The John W. Henry & 80.10% (9.52)% 12.46% 20.03% 34.49% (8.43)% 19.74%
Co./Millburn L.P.
(Series B Units)
- ------------------------------------------------------------------------------------------------------------------------------
The John W. Henry & 73.75% (9.52)% 12.47% 19.54% 35.08% (7.88)% 14.78%
Co./Millburn L. P.
(Series C Units)
- ------------------------------------------------------------------------------------------------------------------------------
The SECTOR Strategy 40.97% N/A 1.09% 12.50% 12.01% (7.44)% 19.56%
Fund IV L.P. (6 mos.)
(Series B Units)
- ------------------------------------------------------------------------------------------------------------------------------
The SECTOR Strategy 33.84% N/A 0.84% 6.97% 14.51% (9.37)% 19.56%
Fund (6 mos.)
International IV
Ltd. (Series B Shares)
- ------------------------------------------------------------------------------------------------------------------------------
ML Global Horizons 48.81% (3.27)% 7.61% 14.96% 19.48% 4.08% N/A
L.P.
- ------------------------------------------------------------------------------------------------------------------------------
ML Global Horizons 48.26% (3.12)% 6.21% 15.51% 19.77% 4.15% N/A
Ltd. (Series A)
- ------------------------------------------------------------------------------------------------------------------------------
ML Global Horizons 52.25% (3.11)% 6.71% 15.63% 22.62% 3.86% N/A
Ltd. (Series B) (4 mos.)
- ------------------------------------------------------------------------------------------------------------------------------
The JLI Trading 22.73% 3.99% 4.08% 10.68% 2.45% N/A N/A
Co. Fund (2 mos.) (10 mos.)
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
THE UNITS COULD INCUR SUBSTANTIAL LOSSES. THE MLIP POOLS INCLUDED IN THE
FOREGOING TABLE ARE MATERIALLY DIFFERENT INVESTMENTS THAN THE FUND.
91
<PAGE>
MLIP SELECTED-ADVISOR AND MULTI-ADVISOR FUNDS
(WITHOUT "PRINCIPAL PROTECTION" FEATURES)
May 31, 1998
<TABLE>
<CAPTION>
Worst Monthly Worst Peak-to-Valley
Decline Decline
NAME OF Type of Inception Aggregate May 31, 1998 ---------------- ----------------------
FUND Offering of Trading Subscriptions Capitalization % Month % Period
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Permal F/X, Financials Private July 1992 $106,495,710 MLIP resigned (5.67)% (2/94) (12.24)% (2/94-4/94)
& Futures Ltd. as trading
manager as of
3/31/96
- ---------------------------------------------------------------------------------------------------------------------------------
ML Japan Investment Private Aug. 1993 Y1,050,000,000 dissolved as of (3.52)% (7/94) (7.32)% (1/94-2/95)
Partners Ltd. 6/30/96
- ---------------------------------------------------------------------------------------------------------------------------------
ML Futures Investments Private Mar. 1989 $68,202,237 dissolved as of (6.17)% (2/94) (11.10)%(1/94-2/94)
Ltd. 8/31/94
- ---------------------------------------------------------------------------------------------------------------------------------
Currency Investment Private April 1991 $55,114,566 dissolved as of (2.39)% (7/94) (16.10)%(7/91-5/94)
Partners Ltd. 8/31/94
- ---------------------------------------------------------------------------------------------------------------------------------
The Managed Futures Private May 1991 $11,090,759 dissolved as of (1.00)% (3/93) (1.00)% (3/93)
Trust Fund L.P. 9/24/93
- ---------------------------------------------------------------------------------------------------------------------------------
Commodity Trading Private July 1991 $25,797,626 dissolved as of (6.47)% (2/94) (18.26)%(1/92-2/94)
Company, Ltd. 10/31/94
- ---------------------------------------------------------------------------------------------------------------------------------
Supplemental
Information
Regarding
Cumulative
Rate of Return 1998 1997 1996 1995 1994 1993
Jan. 1, 1993 Compound Compound Compound Compound Compound Compound
(or inception) Rate of Annual Annual Annual Annual Annual
NAME OF to May 31, 1998 Return Rate of Rate of Rate of Rate of Rate of
FUND (or dissolution) (5 months) Return Return Return Return Return
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Permal F/X, Financials 28.67% N/A N/A 6.63% 14.78% (5.33)% 11.05%
& Futures Ltd. (3 mos.)
- -----------------------------------------------------------------------------------------------------------------------------------
ML Japan Investment (2.80)% N/A N/A (1.69)% 3.95% (5.95)% 1.13%
Partners Ltd. (6 mos.) (5 mos.)
- -----------------------------------------------------------------------------------------------------------------------------------
ML Futures Investments 10.90% N/A N/A N/A N/A (3.78)% 15.26%
Ltd. (8 mos)
- -----------------------------------------------------------------------------------------------------------------------------------
Currency Investment (6.03)% N/A N/A N/A N/A (4.05)% (2.06)%
Partners Ltd. (8 mos)
- -----------------------------------------------------------------------------------------------------------------------------------
The Managed Futures 21.53% N/A N/A N/A N/A N/A 21.53%
Trust Fund L.P. (8-2/3 mos)
- -----------------------------------------------------------------------------------------------------------------------------------
Commodity Trading 7.77% N/A N/A N/A N/A 6.21% 14.91%
Company, Ltd. (10 mos)
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
THE UNITS COULD INCUR SUBSTANTIAL LOSSES. THE MLIP POOLS INCLUDED IN THE
FOREGOING TABLE ARE MATERIALLY DIFFERENT INVESTMENTS THAN THE FUND.
92
<PAGE>
MLIP SELECTED-ADVISOR AND MULTI-ADVISOR FUNDS
(WITHOUT "PRINCIPAL PROTECTION" FEATURES)
Mary 31, 1998
<TABLE>
<CAPTION>
Worst Monthly Worst Peak-to-Valley
Decline Decline
NAME OF Type of Inception Aggregate May 31, 1998 ---------------- --------------------
FUND Offering of Trading Subscriptions Capitalization % Month % Period
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ML Institutional Public Feb. 1992 $ 57,312,700 dissolved as (3.58)% (1/94) (8.78)% (10/93-4/94)
Partners L.P. of
12/31/94
- ----------------------------------------------------------------------------------------------------------------------------------
Daiwa Hudson River Private Feb. 1994 $ 7,044,701 dissolved as (4.72)% (3/94) (17.21)% (2/94-1/95)
Fund of
2/29/96
- ----------------------------------------------------------------------------------------------------------------------------------
ML/AIG Multi-Strategy Private July 1996 $ 107,827,571 $ 100,652,179 (1.43)% (10/97) (1.43)% (10/97)
Fund Ltd.
- ----------------------------------------------------------------------------------------------------------------------------------
ML/AIG Multi-Strategy Private Jan. 1997 $ 81,850,000 $ 87,833,293 (0.89)% (10/97) (0.89)% (10/97)
Fund L.P.
- ----------------------------------------------------------------------------------------------------------------------------------
ML Select Hedge I L.P. Private **Jan. 1998 $ 74,610,000 $ 77,702,380 -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
ML Select Hedge D L.P. Private **April $ 55,965,300 $ 56,834,666 -- -- -- --
1998
- ----------------------------------------------------------------------------------------------------------------------------------
ML Select Hedge I Ltd. Private **April $ 63,959,304 $ 63,954,724 (0.01)% (4/98) (0.01)% (4/98)
1998
- ----------------------------------------------------------------------------------------------------------------------------------
Supplemental
Information
Regarding
Cumulative
Rate of Return 1998 1997 1996 1995 1994 1993
Jan. 1, 1993 Compound Compound Compound Compound Compound Compound
(or inception) Rate of Annual Annual Annual Annual Annual
NAME OF to May 31, 1998 Return Rate of Rate of Rate of Rate of Rate of
FUND (or dissolution) (5 months) Return Return Return Return Return
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ML Institutional 3.28% N/A N/A N/A N/A (4.06)% 7.65%
Partners L.P. (composite)* (composite)* (composite)*
- ------------------------------------------------------------------------------------------------------------------------------
Daiwa Hudson River 0.65% N/A N/A 0.26% 19.82% (16.22)% N/A
Fund (2 mos.) (11 mos.)
- ------------------------------------------------------------------------------------------------------------------------------
ML/AIG Multi-Strategy 18.92% 2.15% 11.15% 4.74% N/A N/A N/A
Fund Ltd. (6 mos.)
- ------------------------------------------------------------------------------------------------------------------------------
ML/AIG Multi-Strategy 19.59% 2.65% 16.41% N/A N/A N/A N/A
Fund L.P.
- ------------------------------------------------------------------------------------------------------------------------------
ML Select Hedge I L.P. 8.42% 8.42% N/A N/A N/A N/A N/A
(4 mos.)
- ------------------------------------------------------------------------------------------------------------------------------
ML Select Hedge D L.P. 1.55% 1.55% N/A N/A N/A N/A N/A
(1 mo.)
- ------------------------------------------------------------------------------------------------------------------------------
ML Select Hedge I Ltd. (0.01)% (0.01%) N/A N/A N/A N/A N/A
(composite)* (1 mo.)
(composite)*
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* The composite return of the fund, not the performance of any individual
series of units or shares.
** Note: ML Select Hedge D L.P. and ML Select Hedge I Ltd. trading
information is available only for April 1998. ML Select Hedge I L.P. trading
information is through April 1998.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
THE UNITS COULD INCUR SUBSTANTIAL LOSSES. THE MLIP POOLS INCLUDED IN THE
FOREGOING TABLE ARE MATERIALLY DIFFERENT INVESTMENTS THAN THE FUND.
93
<PAGE>
MLIP SELECTED-ADVISOR AND MULTI-ADVISOR FUNDS
(WITH "PRINCIPAL PROTECTION" FEATURES)
May 31, 1998
<TABLE>
<CAPTION>
Worst Monthly Worst Peak-to-Valley
Decline Decline
NAME OF Type of Inception Aggregate May 31, 1998 ---------------- ----------------------
FUND Offering of Trading Subscriptions Capitalization % Month % Period
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ML Principal Public Oct. 1994 $162,582,775 $102,389,671 (3.70)% (2/96) (3.70)% (2/96)
Protection L.P.
- --------------------------------------------------------------------------------------------------------------------------------
ML Principal Private Oct. 1994 $1,097,219,508 $734,912,704 (3.72)% (2/96) (3.72)% (2/96)
Protection Plus
Ltd.
- --------------------------------------------------------------------------------------------------------------------------------
The S.E.C.T.O.R. Public July 1990 $125,853,001 $21,164,019 (6.13)% (8/97) (12.70)% (3/97-4/98)
Strategy Fund
L.P.
- --------------------------------------------------------------------------------------------------------------------------------
The SECTOR Public Dec. 1990 $136,410,000 $11,693,726 (4.73)% (2/96) (15.93)% (8/93-1/95)
Strategy Fund
II L.P. (SECTOR
II Units)
- --------------------------------------------------------------------------------------------------------------------------------
The SECTOR Private Dec. 1990 $55,181,600 dissolved as (4.56)% (8/94) (16.49)% (8/93-1/95)
Strategy Fund of
International II 12/31/95
Ltd.
- --------------------------------------------------------------------------------------------------------------------------------
The SECTOR Public July 1991 $194,005,000 $23,776,145 (8.64)% (2/96) (9.30)% (2/96-3/96)
Strategy Fund
II L.P. (SECTOR
III Units)
- --------------------------------------------------------------------------------------------------------------------------------
The SECTOR Private July 1991 $85,701,800 $4,111,259 (4.41)% (2/96) (6.77)% (4/95-9/95)
Strategy Fund
International II
Ltd.
(SECTOR III
Shares)
- --------------------------------------------------------------------------------------------------------------------------------
The SECTOR Public July 1992 $75,646,400 dissolved as (6.41)% (2/96) (10.45)% (2/96-7/96)
Strategy Fund of 6/30/97
IV L.P. (Series
A Units)
- --------------------------------------------------------------------------------------------------------------------------------
The SECTOR Private July 1992 $55,189,400 dissolved as (6.22)% (2/96) (8.30)% (1/94-1/95)
Strategy Fund of 6/30/97
International IV
Ltd. (Series A
Shares)
- --------------------------------------------------------------------------------------------------------------------------------
The SECTOR Public Jan. 1993 $137,500,000 $10,126,817 (7.51)% (2/96) (10.14)% (2/96-6/96)
Strategy Fund
V L.P.
- --------------------------------------------------------------------------------------------------------------------------------
Supplemental
Information
Regarding
Cumulative
Rate of Return 1998 1997 1996 1995 1994 1993
Jan. 1, 1993 Compound Compound Compound Compound Compound Compound
(or inception) Rate of Annual Annual Annual Annual Annual
NAME OF to May 31, 1998 Return Rate of Rate of Rate of Rate of Rate of
FUND (or dissolution) (5 months) Return Return Return Return Return
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ML Principal 29.22% (0.92)% 6.01% 9.36% 10.55% 1.76% N/A
Protection L.P. (composite)* (composite)* (composite)* (composite)* (composite)* (2 1/2mos.)
- --------------------------------------------------------------------------------------------------------------------------------
ML Principal 30.03% (1.60)% 6.54% 10.01% 11.10% 1.48% N/A
Protection Plus (composite)* (composite)* (composite)* (composite)* (composite)* (2 1/2mos.)
Ltd.
- --------------------------------------------------------------------------------------------------------------------------------
The S.E.C.T.O.R. 30.51% (10.10)% 0.03% 12.40% 19.25% (9.29)% 19.36%
Strategy Fund
L.P.
- --------------------------------------------------------------------------------------------------------------------------------
The SECTOR 26.29% (6.27)% 9.02% 14.60% 13.50% (9.93)% 5.49%
Strategy Fund
II L.P. (SECTOR
II Units)
- --------------------------------------------------------------------------------------------------------------------------------
The SECTOR 15.60% N/A N/A N/A 21.27% (9.64)% 5.49%
Strategy Fund
International II
Ltd.
- --------------------------------------------------------------------------------------------------------------------------------
The SECTOR 47.42% (3.09)% 12.98% 9.74% 9.30% (3.22)% 15.99%
Strategy Fund
II L.P. (SECTOR
III Units)
- --------------------------------------------------------------------------------------------------------------------------------
The SECTOR 38.76% (2.37)% 3.71% 14.01% 2.84% 0.77% 15.99%
Strategy Fund
International II
Ltd.
(SECTOR III
Shares)
- --------------------------------------------------------------------------------------------------------------------------------
The SECTOR 30.61% N/A 1.16% 10.02% 9.78% (5.73)% 13.40%
Strategy Fund (6 mos.)
IV L.P. (Series
A Units)
- --------------------------------------------------------------------------------------------------------------------------------
The SECTOR 26.57% N/A 0.46% 7.06% 11.84% (7.21)% 13.40%
Strategy Fund (6 mos.)
International IV
Ltd. (Series A
Shares)
The SECTOR 24.00% (6.20)% 11.00% 3.11% 14.22% (3.68)% 4.99%
Strategy Fund
V L.P.
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* The composite return of the fund, not the performance of any series of
units or shares.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
THE UNITS COULD INCUR SUBSTANTIAL LOSSES. THE MLIP POOLS INCLUDED IN THE
FOREGOING TABLE ARE MATERIALLY DIFFERENT INVESTMENTS THAN THE FUND.
94
<PAGE>
MLIP SELECTED-ADVISOR AND MULTI-ADVISOR FUNDS
(WITH "PRINCIPAL PROTECTION" FEATURES)
May 31, 1998
<TABLE>
<CAPTION>
Worst Monthly Worst Peak-to-Valley
Decline Decline
NAME OF Type of Inception Aggregate May 31, 1998 ---------------- ----------------------
FUND Offering of Trading Subscriptions Capitalization % Month % Period
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SECTOR Private Sept. 1993 $163,806,100 $3,906,651 (4.60)% (2/94) (10.42)% (9/93-2/94)
International
Limited
- --------------------------------------------------------------------------------------------------------------------------------
The SECTOR Private Jan. 1993 $81,252,600 dissolved as (3.53)% (8/97) (8.00)% (6/95-10/95)
Strategy Fund of 12/31/97
International V
Ltd.
- --------------------------------------------------------------------------------------------------------------------------------
Yen Linked ML Private Oct. 1995 (Y)37,997,300,000 (Y)33,627,991,930 (2.12)% (7/96) (3.54)% (3/97-4/98)
PPP Ltd.
- --------------------------------------------------------------------------------------------------------------------------------
MLIP Management Private Nov. 1997 DM132,553,500 DM132,731,771 (1.52)% (4/98) (1.74)% (3/98-4/98)
DM-PPP Portfolio
- --------------------------------------------------------------------------------------------------------------------------------
The SECTOR Public Sept. 1993 $108,693,900 $21,880,177 (5.89)% (7/96) (8.97)% (5/96-7/96)
Strategy Fund
VI L.P.
- --------------------------------------------------------------------------------------------------------------------------------
Supplemental
Information
Regarding
Cumulative
Rate of Return 1998 1997 1996 1995 1994 1993
Jan. 1, 1993 Compound Compound Compound Compound Compound Compound
(or inception) Rate of Annual Annual Annual Annual Annual
NAME OF to May 31, 1998 Return Rate of Rate of Rate of Rate of Rate of
FUND (or dissolution) (5 months) Return Return Return Return Return
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
SECTOR 8.72% (0.85)% 4.80% 4.63% 7.65% (3.99)% (3.25)%
International (3-2/3mos.)
Limited
- --------------------------------------------------------------------------------------------------------------------------------
The SECTOR 38.31% N/A 9.39% 12.87% 11.11% (3.94)% 4.99%
Strategy Fund
International V
Ltd.
- --------------------------------------------------------------------------------------------------------------------------------
Yen Linked ML 1.86% (1.75)% 0.71% 2.78% 0.16% N/A N/A
PPP Ltd. (composite)* (composite)* (composite)* (composite)* (3 mos.)
(composite)*
MLIP Management 0.99% 0.37% 0.62% N/A N/A N/A N/A
DM-PPP Portfoli (composite)* (composite)* (2 mos.)
(composite)*
- --------------------------------------------------------------------------------------------------------------------------------
The SECTOR 14.82% (2.41)% 8.08% 4.62% 6.72% (0.80)% (1.72)%
Strategy Fund (3-2/3mos.)
VI L.P.
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* The composite return of the fund, not the performance of any individual series
of units or shares.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
THE UNITS COULD INCUR SUBSTANTIAL LOSSES. THE MLIP POOLS INCLUDED IN THE
FOREGOING TABLE ARE MATERIALLY DIFFERENT INVESTMENTS THAN THE FUND.
95
<PAGE>
PART TWO
ML JWH STRATEGIC ALLOCATION FUND L.P.
2,000,000
Limited Partnership Units
-------------------------
This is a speculative, leveraged investment which involves the
risk of loss. Past performance is not necessarily
indicative of future results.
See "The Risks You Face" beginning at page 8 in Part One.
THIS PROSPECTUS IS IN TWO PARTS. THESE PARTS
ARE BOUND TOGETHER, AND BOTH CONTAIN
IMPORTANT INFORMATION.
Merrill Lynch, Pierce, Fenner Merrill Lynch
& Smith Incorporated Investment Partners Inc.
Selling Agent General Partner
-------------------------
<PAGE>
FUTURES MARKETS AND TRADING METHODS
The Futures and Forward Markets
Futures and Forward Contracts
Futures contracts in the United States can only be traded on
approved exchanges and call for the future delivery of various commodities.
These contractual obligations may be satisfied either by taking or making
physical delivery or by making an offsetting sale or purchase of a futures
contract on the same exchange.
Forward currency contracts are traded off-exchange through banks or
dealers. In such instances, the bank or dealer generally acts as principal in
the transaction and charges "bid-ask" spreads.
Futures and forward trading is a "zero-sum," risk transfer economic
activity. For every gain there is an equal and offsetting loss.
HEDGERS AND SPECULATORS
The two broad classifications of persons who trade futures are
"hedgers" and "speculators." Hedging is designed to minimize the losses that
may occur because of price changes, for example, between the time a
merchandiser contracts to sell a commodity and the time of delivery. The
futures and forward markets enable the hedger to shift the risk of price
changes to the speculator. The speculator risks capital with the hope of
making profits from such changes. Speculators, such as the Fund, rarely take
delivery of the physical commodity but rather close out their futures
positions through offsetting futures contracts.
EXCHANGES; POSITION AND DAILY LIMITS; MARGINS
Each of the commodity exchanges in the United States has an
associated "clearinghouse." Once trades made between members of an exchange
have been cleared, each clearing broker looks only to the clearinghouse for
all payments in respect of such broker's open positions. The clearinghouse
"guarantee" of performance on open positions does not run to customers. If a
member firm goes bankrupt, customers could lose money.
JWH trades for the Fund on a number of foreign commodity exchanges.
Foreign commodity exchanges differ in certain respects from their United
States counterparts and are not regulated by any United States agency.
The CFTC and the United States exchanges have established
"speculative position limits" on the maximum positions that JWH may hold or
control in futures contracts on certain commodities.
Most United States exchanges limit the maximum change in futures
prices during any single trading day. Once the "daily limit" has been
reached, it becomes very difficult to execute trades. Because these limits
apply on a day-to-day basis, they do not limit ultimate losses, but may
reduce or eliminate liquidity.
When a position is established, "initial margin" is deposited. On most
exchanges, at the close of each trading day "variation margin," representing the
unrealized gain or loss on the open positions, is either credited to or debited
from a trader's account. If "variation margin" payments cause a trader's
"initial margin" to fall below "maintenance margin" levels, a "margin call" is
made, requiring the trader to deposit additional margin or have his position
closed out.
TRADING METHODS
Managed futures strategies are generally classified as either (i)
systematic or discretionary; and (ii) technical or fundamental.
SYSTEMATIC AND DISCRETIONARY TRADING APPROACHES
A systematic trader relies on trading programs or models to generate
trading signals. Discretionary traders make trading decisions on the basis of
their own judgment.
Each approach involves inherent risks. For example, systematic traders
may incur substantial
<PAGE>
losses when fundamental or unexpected forces dominate the
markets, while discretionary traders may overlook price trends which would
have been signaled by a system.
TECHNICAL AND FUNDAMENTAL ANALYSIS
Technical analysis operates on the theory that market prices, momentum
and patterns at any given point in time reflect all known factors affecting the
supply and demand for a particular commodity. Consequently, technical analysis
focuses on market data as the most effective means of attempting to predict
future prices.
Fundamental analysis, in contrast, focuses on the study of factors
external to the markets, for example: weather, the economy of a particular
country, government policies, domestic and foreign political and economic
events, and changing trade prospects. Fundamental analysis assumes that markets
are imperfect and that market mispricings can be identified.
TREND-FOLLOWING
Trend-following advisors try to take advantage of major price
movements, in contrast with traders who focus on making many small profits on
short-term trades or through relative value positions. Trend-following traders
assume that most of their trades will be unprofitable. They look for a few large
profits from big trends. During periods with no major price movements, a
trend-following trading advisor is likely to have big losses.
RISK CONTROL TECHNIQUES
Trading advisors often adopt risk management principles. Such
principles typically restrict the size of positions taken as well as
establishing stop-loss points at which losing positions must be liquidated.
However, no risk control technique can assure that big losses will be avoided.
THE JWH PROGRAMS ARE SYSTEMATIC, TECHNICAL AND TREND-FOLLOWING.
<PAGE>
EXHIBIT A
ML JWH STRATEGIC ALLOCATION FUND L.P.
THIRD AMENDED AND RESTATED
LIMITED PARTNERSHIP AGREEMENT
Dated as of
July 1, 1998
MERRILL LYNCH INVESTMENT PARTNERS INC.
GENERAL PARTNER
<PAGE>
ML JWH STRATEGIC ALLOCATION FUND L.P.
THIRD AMENDED AND RESTATED
LIMITED PARTNERSHIP AGREEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
1. Formation and Name........................................................... LPA-1
2. Principal Office............................................................. LPA-1
3. Business..................................................................... LPA-1
4. Term, Fiscal Year and Net Assets............................................. LPA-1
(a) Term................................................................ LPA-1
(b) Fiscal Year......................................................... LPA-2
(c) Net Assets.......................................................... LPA-2
5. Net Worth of General Partner................................................. LPA-2
6. Capital Contributions........................................................ LPA-2
7. Allocation of Profits and Losses............................................. LPA-2
(a) Capital Accounts and Financial Allocations.......................... LPA-2
(b) Tax Allocations..................................................... LPA-2
(c) Expenses............................................................ LPA-3
(d) Limited Liability of Limited Partners............................... LPA-4
8. Management of the Partnership................................................ LPA-4
(a) General............................................................. LPA-4
(b) Fiduciary Duties.................................................... LPA-5
(c) Loans; Investments.................................................. LPA-5
(d) Certain Conflicts of Interest Prohibited............................ LPA-6
(e) Certain Agreements.................................................. LPA-6
(f) No "Pyramiding"..................................................... LPA-6
(g) Other Activities.................................................... LPA-6
(h) Status of Joint Venture............................................. LPA-6
9. Audits and Reports........................................................... LPA-6
10. Assigning Units.............................................................. LPA-7
11. Redeeming Units.............................................................. LPA-7
12. Offering of Units............................................................ LPA-8
13. Power of Attorney............................................................ LPA-8
14. Withdrawal of a Partner...................................................... LPA-9
15. Standard of Liability; Indemnification....................................... LPA-9
(a) Standard of Liability for the General Partner....................... LPA-9
(b) Indemnification of the General Partner by the Partnership........... LPA-9
(c) Indemnification of the Partnership by the Partners.................. LPA-11
16. Amendments; Meetings.......................................................... LPA-11
(a) Amendments with Consent of the General Partner...................... LPA-11
(b) Amendments and Actions without Consent of the General Partner....... LPA-11
(c) Meetings; Other Voting Matters...................................... LPA-12
17. Benefit Plan Investors....................................................... LPA-12
18. GOVERNING LAW................................................................ LPA-13
19. Miscellaneous................................................................ LPA-13
(a) Notices............................................................. LPA-13
(b) Binding Effect...................................................... LPA-13
(c) Captions............................................................ LPA-13
(d) Close of Business................................................... LPA-13
</TABLE>
---------------------------------------------
MERRILL LYNCH INVESTMENT PARTNERS INC.
General Partner
LPA-(i)
<PAGE>
ML JWH STRATEGIC ALLOCATION FUND L.P.
THIRD AMENDED AND RESTATED
LIMITED PARTNERSHIP AGREEMENT
THIS THIRD AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT (this
"Agreement") is made as of July 1, 1998, by and among MERRILL LYNCH
INVESTMENT PARTNERS INC., a Delaware corporation, as general partner (the
"General Partner"), and each LIMITED PARTNER.
WITNESSETH:
1. FORMATION AND NAME.
The parties hereby form and continue ML JWH STRATEGIC ALLOCATION FUND
L.P. (the "Partnership") under the Delaware Revised Uniform Limited
Partnership Act (the "Act").
2. PRINCIPAL OFFICE.
The principal office of the Partnership is c/o the General Partner,
South Tower, Merrill Lynch World Headquarters, World Financial Center, New
York, New York 10080-6106; telephone: (212) 236-4167. The registered office
and agent for service of process in the State of Delaware is c/o The
Corporation Trust Company, Corporation Trust Center, 1209 Orange Street,
Wilmington, New Castle County, Delaware 19801.
3. BUSINESS.
(a) Business. The Partnership's business is to trade futures and
forward contracts on all manner of commodities, financial instruments and
currencies; physical commodities; securities; and any rights, interests or
options relating to the foregoing. The Partnership may engage in all
activities necessary, convenient or incidental to the foregoing businesses
(b) Objective. The objective of the Partnership's business is
substantial capital appreciation of its assets through speculative trading.
(c) Joint Venture. The Partnership currently trades through a joint
venture (the "Joint Venture") with John W. Henry & Company, Inc. ("JWH"). As
the Partnership owns substantially all of the Joint Venture, the term
"Partnership" refers to the Partnership, the Joint Venture or both as the
context may require.
4. TERM, FISCAL YEAR AND NET ASSETS.
(a) Term. The Partnership began on December 11, 1995 and will dissolve
on the earlier of: (1) December 31, 2026; (2) receipt by the General Partner
of 90 days' notice to dissolve from Limited Partners owning more than 50% of
the outstanding Units; (3) withdrawal, insolvency or dissolution of the
General Partner, or any other event that causes the General Partner to cease
to be a general partner of the Partnership unless (i) at the time of such
event there is at least one remaining general partner of the Partnership who
carries on the business of the Partnership, or (ii) within 90 days after such
event all Partners agree in writing to continue the business of the
Partnership and to the appointment, effective as of the date of such event,
of one or more general partners of the Partnership; (4) a decline in the
aggregate Net Assets of the Partnership to less than $250,000; (5) a decline
in the Net Asset Value per Unit to $25 or less; (6) dissolution of the
Partnership as otherwise provided in this Agreement; or (7) any other event
requiring dissolution.
Upon dissolution of the Partnership, the General Partner, or another
person approved by a majority of the Units, shall act as liquidator trustee.
LPA-1
<PAGE>
(b) Fiscal Year. January 1 through December 31.
(c) Net Assets. Net Assets are determined in accordance with generally
accepted accounting principles.
A futures or futures option traded on a United States commodity
exchange is valued at its settlement price. If such a contract cannot be
liquidated, the settlement price on the first day on which it can be
liquidated is used or such other value as the General Partner deems fair and
reasonable. The liquidating value of a forward or of a futures or futures
option not traded on a United States commodity exchange is its liquidating
value as determined by the General Partner on a basis consistently applied
for each different type of contract.
The Partnership liability for reimbursing its organizational and
initial as well as ongoing offering costs to the General Partner reduced or
reduces Net Assets only as paid out or amortized.
Reserves may be created and charged against Net Assets in the discretion
of the General Partner.
5. NET WORTH OF GENERAL PARTNER.
The General Partner agrees that it will maintain a net worth of at
least 5% of the total contributions to the Partnership and all other
partnerships of which the General Partner is general partner. This agreement
may be modified if counsel opines that such change will not adversely affect
the partnership taxation of the Partnership, and if such change meets
applicable state securities laws or guidelines.
The General Partner will not permit its net worth to decline below $10
million without the consent of a majority of the Units.
6. CAPITAL CONTRIBUTIONS.
The Partners' respective capital contributions shall be as shown on the
books and records of the Partnership.
7. ALLOCATION OF PROFITS AND LOSSES.
(a) Capital Accounts and Financial Allocations. Each Unit has a capital
account, whose initial balance is the amount paid for such Unit.
As of the close of business (as determined by the General Partner) on the
last business day of each month, any increase or decrease in the Partnership's
Net Assets during such month shall be credited or charged equally to all
outstanding Units.
(b) Tax Allocations. As of each December 31, income and expense and
capital gain or loss shall be allocated among the Partners for tax purposes.
Capital gain and capital loss shall be allocated separately and not netted.
(1) First, items of ordinary income and expense, including all items of
gain and loss attributable to MLAM's cash management activities, shall be
allocated equally among the Units outstanding as of the end of each month in
which such items accrued.
(2) Second, Capital Gain or Loss shall be allocated as follows:
(A) Each Unit has a tax account with an initial balance equal to the
amount paid for such Unit. As of the end of each month through June 30, 1998,
the balance of such tax account shall be reduced by the Unit's allocable
share of the amount paid by the Partnership to the General Partner for
organizational and initial offering cost reimbursements, as well as by the
Unit's allocable share of any amount paid or amortized by the Partnership in
respect of such month for the costs of the ongoing offering of the Units.
These adjustments shall be made prior to the following allocations of capital
gain or loss.
As of the end of each fiscal year:
(i) Each tax account shall be increased by the amount of income or
Capital Gain allocated to each Unit pursuant to Sections 7(b)(1) and
7(b)(2)(C).
LPA-2
<PAGE>
(ii) Each tax account shall be decreased by the amount of expense
or Capital Loss allocated to each Unit pursuant to Sections 7(b)(1) and
7(b)(2)(E) and by the amount of any distributions paid to each Unit other
than upon redemption.
(iii) When a Unit is redeemed, its tax account is eliminated.
(B) Each Partner who redeems a Unit during or as of the end of a fiscal
year shall be allocated Capital Gain up to the amount of the excess of the
amount received on redemption (before taking into account any early
redemption charges) over the tax account allocable to such Unit (any such
excess being referred to as an "Excess"). In the event that the aggregate
amount of Capital Gain available to be allocated pursuant to this Section is
less than the aggregate amount of Capital Gain required to be so allocated,
the aggregate amount of available Capital Gain shall be allocated among all
such Partners in the ratio which each such Partner's aggregate Excess bears
to the aggregate Excess of all such Partners.
(C) Capital Gain remaining after the allocation described in Section
7(b)(2)(B) shall be allocated among all Partners with outstanding Units whose
capital accounts are in excess of their tax accounts based on the ratio of
each such Partner's Excess to the aggregate Excess of all such Partners. Any
remaining Capital Gain shall then be allocated equally to all Units.
(D) Each Partner who redeems a Unit during or as of the end of a fiscal
year shall be allocated Capital Loss up to the amount of the sum of the
excess of the tax account allocable to such Unit over the amount received on
redemption (before taking into account any early redemption charges; and such
excess being referred to as a "Negative Excess"). In the event the aggregate
amount of Capital Loss available to be allocated pursuant to this Section is
less than the aggregate amount required to be so allocated, the aggregate
amount of available Capital Loss shall be allocated among all such Partners
in the ratio that each such Partner's Negative Excess bears to the aggregate
Negative Excess of all such Partners.
(E) Capital Loss remaining after the allocation described in Section
7(b)(2)(D) shall be allocated among all Partners with outstanding Units whose
tax accounts are in excess of their capital accounts based on the ratio of
each such Partner's Negative Excess to the aggregate Negative Excess of all
such Partners. Any remaining Capital Loss shall then be allocated equally to
all Units.
(F) For purposes of this Section 7(b)(2), "Capital Gain" or "Capital Loss"
shall mean gain or loss characterized as gain or loss from the sale or exchange
of a capital asset by the Internal Revenue Code of 1986, as amended (the
"Code"), provided, however, that Capital Gain and Loss shall not include gain or
loss relating to MLAM's cash management activities which shall be allocated
pursuant to Section 7(b)(1).
(3) The Partnership's intent is to allocate taxable profit and loss the
same way as financial profit and loss, trying to eliminate any difference
between a Partner's capital account and his or her tax account, consistent
with principles set forth in Section 704 of the Code, including without
limitation a "Qualified Income Offset."
(4) The allocations of profit and loss shall not exceed the allocations
permitted under Subchapter K of the Code, as determined by the General Partner.
(5) The General Partner's interest in the Partnership is treated on a
Unit-equivalent basis for allocation purposes.
The General Partner may adjust the allocations set forth in this
Section 7(b), in its discretion, if the General Partner believes that doing
so will achieve more equitable allocations or ones more consistent with the
Code.
(c) Expenses. The General Partner was reimbursed by the Partnership for
organizational and
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initial offering costs in 24 monthly installments ending June 30, 1998.
The General Partner pays all of the Partnership's routine legal,
accounting and administrative expenses (other than as provided in the
following paragraph), and none of the General Partner's "overhead" expenses
(including, but not limited to, salaries, rent and travel expenses) are
charged to the Partnership. The General Partner receives a monthly
Administrative Fee of 0.02083 of 1% (0.25% annually) of the month-end assets
of the Partnership.
The Partnership pays the costs of the continuous offering of the Units
(other than selling commissions and ongoing compensation); provided, that the
General Partner absorbs all such costs in excess of 0.25% of the
Partnership's average month-end Net Assets in any fiscal year.
Any goods and services provided to the Partnership by the General
Partner shall be provided at rates and terms at least as favorable as those
which may be obtained from third parties in arm's-length negotiations. All of
the expenses which are for the Partnership's account shall be billed directly
to the Partnership.
The General Partner pays the selling commissions and ongoing compensation
due on the Units.
The Partnership will pay any taxes applicable to it and any charges
incidental to its trading.
(d) Limited Liability of Limited Partners. Each Unit, when purchased in
accordance with this Agreement, shall be fully-paid and nonassessable, except
as otherwise provided by law.
8. MANAGEMENT OF THE PARTNERSHIP.
(a) General. The General Partner shall manage the business of the
Partnership.
The General Partner shall determine what distributions, if any, shall be
made to the Partners.
The General Partner may take such actions relating to the business of the
Partnership as the General Partner deems necessary or advisable and which are
consistent with the terms of this Agreement.
All Limited Partners consent to the General Partner's selection of: (i)
John W. Henry & Company, Inc. as trading manager; (ii) MLAM as provider of
cash management services; (iii) Merrill Lynch Futures Inc. as the
Partnership's commodity broker; (iv) the General Partner's Foreign Exchange
Desk; and (v) Merrill Lynch, Pierce, Fenner & Smith Incorporated and Merrill
Lynch Futures Inc. as the Partnership's custodians.
The General Partner is specifically authorized by each Limited Partner
to enter into the cash management arrangements described under "Interest
Income Arrangements" in the prospectus for the Units current at the time such
Limited Partner last purchased Units (the "Prospectus").
The General Partner is hereby specifically authorized to enter into,
deliver and perform on behalf of the Partnership, the business arrangements
referred to in the Prospectus.
The General Partner may engage such persons as the General Partner in
its sole judgment shall deem advisable for operating the business of the
Partnership; provided, that no such arrangement shall allow brokerage
commissions and Administrative Fees above those described in the Prospectus
or permitted under applicable North American Securities Administrators
Association, Inc. Guidelines for the Registration of Commodity Pool Programs
(the "NASAA Guidelines") in effect as of the date of the Prospectus,
whichever is higher.
The General Partner will reimburse the Partnership, on an annual basis, to
the extent that the Partnership's brokerage commissions plus the annual
Administrative Fee have exceeded 14% of the
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Partnership's average month-end Net Assets during the preceding year.
The Partnership's brokerage commissions and Administrative Fees, taken
together, may not be increased above an annual level equal to 8.0% of the
Partnership's average month-end assets without the unanimous consent of all
Limited Partners.
The General Partner shall reimburse the Partnership for any fees paid
by the Partnership to any trading advisor during any fiscal year, to the
extent that such fees exceed the 6% annual management fees and the 15% of new
trading profits quarterly profit shares contemplated by the NASAA Guidelines
during such year. Any such reimbursement shall be made on a present value
basis, fully compensating the Partnership for having made payments at any
time during the year which would not otherwise have been due from it. The
General Partner shall disclose any such reimbursement in the Annual Report
delivered to Limited Partners.
No compensation paid by the Partnership to any party may be increased
without prior written notice to Limited Partners within sufficient time for them
to redeem prior to such increase becoming effective. Such notification shall
contain a description of Limited Partners' voting and redemption rights as well
as a description of any material effect of such increase.
Any material change in the Partnership's basic investment policies or
structure requires the approval of a majority of the Units.
The General Partner is the "tax matters partner" of the Partnership, and
the Partnership of the Joint Venture.
The General Partner has authority to cause the Partnership to take such
actions as manager of the Joint Venture as the General Partner may deem
appropriate, subject to the fiduciary obligations and other restrictions
applicable to the General Partner as general partner of the Partnership.
(b) Fiduciary Duties. The General Partner shall be under a fiduciary duty
to conduct the affairs of the Partnership in the best interests of the
Partnership. The Limited Partners will under no circumstances be deemed to have
contracted away the fiduciary obligations owed to them by the General Partner
under the common law.
The General Partner's fiduciary duty includes, among other things, the
safekeeping of all Partnership funds and assets and the use thereof for the
benefit of the Partnership. The funds of the Partnership will not be commingled
with the funds of any other person or entity (deposit of funds with a commodity
or securities broker, clearinghouse or forward dealer or entering into joint
ventures or partnerships shall not be deemed to constitute "commingling" for
these purposes).
The General Partner shall at all times act with integrity and good faith
and exercise due diligence in all activities relating to the conduct of the
business of the Partnership and in resolving conflicts of interest. The
Partnership's brokerage arrangements shall be non-exclusive, and the brokerage
commissions paid by the Partnership shall be competitive. The Partnership shall
seek the best price and services available for its commodity transactions.
(c) Loans; Investments. The Partnership shall not make loans. The General
Partner shall make no loans to the Partnership unless approved by the Limited
Partners in accordance with Section 16(a). If the General Partner makes a loan
to the Partnership, the General Partner shall not receive interest in excess of
its interest costs, nor may the General Partner receive interest in excess of
the amounts which would be charged to the Partnership (without reference to the
General Partner's financial resources or guarantees) by unrelated banks on
comparable loans for the same purpose. The General Partner shall not receive
"points" or other financing charges or fees regardless of the amount.
The Partnership shall not invest in any debt instruments other than
Government Securities and
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other CFTC-authorized investments, or invest in any equity security without
prior notice to Limited Partners.
(d) Certain Conflicts of Interest Prohibited. No person or entity may
receive, directly or indirectly, any advisory fees or profit shares from
entities in which the Partnership participates, for investment advice or
management who shares or participates in any commodity brokerage commissions
paid by the Partnership; and no broker may pay, directly or indirectly,
rebates or give-ups to any trading advisor, the General Partner or any of
their respective affiliates. Such prohibitions may not be circumvented by any
reciprocal business arrangements; provided, however, that the foregoing shall
not prohibit the payment, from the commodity brokerage commissions paid by
the Partnership, of fees for MLAM's cash management services to the
Partnership. No trading advisor for the Partnership shall be affiliated with
the Partnership's commodity broker, the General Partner or any of their
affiliates.
(e) Certain Agreements. Any agreements between the Partnership and the
General Partner or any affiliate of the General Partner shall be terminable by
the Partnership on no more than 60 days' written notice.
All trading advisors used by the Partnership must satisfy the experience
requirements of the NASAA Guidelines.
The maximum period covered by any contract entered into by the
Partnership, except for the various provisions of the Selling Agreement which
survive the final closing of the sale of the Units, shall not exceed one year.
(f) No "Pyramiding." The Partnership is prohibited from "pyramiding."
(g) Other Activities. The General Partner engages in other business
activities and shall not be required to refrain from any such activities,
whether or not in competition with the Partnership. Neither the Partnership nor
any of the Partners shall have any rights in such activities. Limited Partners
may similarly engage in any such other business activities.
The General Partner shall devote to the Partnership such time as the
General Partner deems advisable to conduct the Partnership's business.
(h) Status of Joint Venture. The General Partner is prohibited from using
the Joint Venture provide a means to do indirectly what the General Partner
could not do directly in managing the Partnership.
9. AUDITS AND REPORTS.
The Partnership's books shall be audited annually by an independent
certified public accountant. The Partnership will use its best efforts to cause
each Limited Partner to receive (i) within 90, but in no event later than 120
days, after the close of each fiscal year certified financial statements of the
Partnership for the fiscal year then ended, (ii) no later than March 15 all tax
information relating to the prior fiscal year necessary to complete his federal
income tax return and (iii) such other information as the CFTC may by regulation
require.
The General Partner shall include in the Annual Reports sent to Limited
Partners an estimate of the round-turn equivalent brokerage commission rate paid
by the Partnership during the preceding year.
The General Partner will, with the assistance of the Partnership's
commodity broker, make an annual review of the Partnership's commodity
brokerage arrangements. In connection with such review, the General Partner
will determine, to the extent practicable, the commodity brokerage rates
charged to other major commodity pools whose trading and operations are, in
the opinion of the General Partner, comparable to those of the Partnership,
in order to assess whether the rates charged to the Partnership are
competitive in light of the services it receives. If, as a result of such
review, the General Partner determines that such rates are not so
competitive, the General Partner will notify the Limited Partners, describing
the rates
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charged to the Partnership and several funds which are, in the General
Partner's opinion, comparable to the Partnership.
In addition to the undertakings in the preceding paragraph, the
Partnership will seek the best price and services available on its commodity
brokerage transactions. All brokerage transactions will be effected at com
petitive rates. The General Partner will annually review the brokerage rates
paid by the Partnership to guarantee that the criteria set forth in this
paragraph are followed. The General Partner may not rely solely on the rates
charged by other major commodity pools in complying with this paragraph.
Limited Partners or their duly authorized representatives may inspect
the Partnership's books and records, for any purpose reasonably related to
their status as Limited Partners in the Fund, during normal business hours
upon reasonable written notice to the General Partner. They may also obtain
copies of such records upon payment of reasonable reproduction costs;
provided, however, that such Limited Partners shall represent that the
inspection and/or copies of such records will not be for commercial purposes
unrelated to such Limited Partners' interest in the Partnership.
The General Partner shall calculate the approximate Net Asset Value per
Unit on a daily basis and furnish such information upon request to any Limited
Partner.
The General Partner will send written notice to each Limited Partner
within seven days of any decline in the Partnership's Net Asset Value or in
the Net Asset Value per Unit to 50% or less of such Net Asset Value as of the
previous month-end. Any such notice shall contain a description of Limited
Partners' voting rights.
The General Partner shall maintain and preserve all Partnership records
for a period of not less than 6 years.
10. ASSIGNING UNITS.
Each Limited Partner agrees that he will not assign, transfer or otherwise
dispose of any interest in his Units in violation of any applicable federal or
state securities laws or without giving written notice to the General Partner.
No assignment, transfer or disposition of Units shall be effective against the
Partnership or the General Partner until the first day of the month following
the month in which the General Partner receives such notice. The General Partner
may, in its sole discretion, waive any such notice.
No assignee, except with the consent of the General Partner, may become a
substituted Limited Partner. The General Partner intends to so consent, provided
that the General Partner and the Partnership receive an opinion of counsel to
the General Partner that such admission will not adversely affect the tax
classification of the Partnership as a partnership. If the General Partner
withholds consent, an assignee shall not become a substituted Limited Partner,
and shall not have any of the rights of a Limited Partner, except that the
assignee shall be entitled to receive that share of capital and profits and
shall have that right of redemption to which his assignor would otherwise have
been entitled.
Each Limited Partner agrees that with the consent of the General Partner
any assignee may become a substituted Limited Partner without the consent of any
Limited Partner.
11. REDEEMING UNITS.
Units may be redeemed as of the close of business on the last day of any
month, provided that all liabilities, contingent or otherwise, of the
Partnership have been paid or there remains property of the Partnership
sufficient to pay them.
Any number of whole Units may be redeemed.
Units redeemed on or before the end of the twelfth full calendar month
after issuance are subject
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to early redemption charges of 3% of the Net Asset Value at which they are
redeemed. Such charges will be paid to the General Partner. Units are issued,
for purposes of determining whether an early redemption charge is due, on the
first day of the month after the related subscription is received. No
redemption charges will be applicable to Limited Partners who redeem because
the Partnership's expenses have been increased.
If a Limited Partner acquires Units at more than one time, such Units
will be treated on a "first-in, first-out" basis for purposes of applying the
early redemption charges and the tax allocations in Section 7(b).
Requests for redemption must be received by the General Partner at
least 10 calendar days before the requested redemption date. Such requests
need not be in writing so long as the redeeming Limited Partner has a Merrill
Lynch customer securities account.
If, as of the close of business on any day, the Net Asset Value per
Unit has decreased (i) to $50 or less, after adding back all distributions or
(ii) to below 50% of the prior month's Net Asset Value per Unit, the
Partnership will liquidate all open positions as expeditiously as possible
and suspend trading. Within 10 business days after the suspension of trading,
the General Partner will declare a Special Redemption Date, which will be a
business day within 30 business days from the suspension of trading. The
General Partner shall mail notice of such date to each Limited Partner by
first-class mail, postage prepaid, not later than 10 business days prior to
such Special Redemption Date, together with instructions as to the procedure
such Limited Partner must follow to have his Units redeemed on such Date (in
general, Limited Partners will be required to redeem all of their Units on a
Special Redemption Date if any are redeemed). A Partner who redeems will
receive the Net Asset Value of his Units, determined as of the close of
business on such Special Redemption Date. No redemption charges will apply on
any such Date. If, after a Special Redemption Date, the Net Assets of the
Partnership are at least $250,000 and the Net Asset Value per Unit is in
excess of $25, the Partnership may, in the discretion of the General Partner,
resume trading.
The General Partner, in its discretion, may declare a Special Redemption
Date. If the General Partner does so, the General Partner need not again call a
Special Redemption Date.
The General Partner may, in its discretion, declare additional regular
redemption dates for Units, permit certain Limited Partners to redeem at other
than month-end and waive the 10-day notice period otherwise required to effect
redemptions.
Redemption payments will be made within 10 business days after the
month-end of redemption, except that under special circumstances, including, but
not limited to, inability to liquidate commodity positions as of a redemption
date or default or delay in payments due the Partnership, the Partnership may
correspondingly delay redemption payments.
The General Partner may require a Limited Partner to redeem all or part
of such Limited Partner's Units if the General Partner considers doing so to
be desirable for the protection of the Partnership, and will use best efforts
to do so to the extent necessary to prevent the Partnership from being deemed
to hold "plan assets" under the provisions of the Employee Retirement Income
Security Act of 1974 ("ERISA") or the Code.
12. OFFERING OF UNITS.
The General Partner may, in its discretion, continue or terminate the
offering of the Units on a public or private basis.
All sales of Units in the United States will be conducted by registered
brokers.
13. POWER OF ATTORNEY.
Each Limited Partner hereby irrevocably appoints the General Partner and
each officer of the General Partner, with full power of substitution, as his
true and lawful attorney-in-fact, in his name, place and stead, to execute,
acknowledge, swear to,
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deliver and file, record in public offices and publish: (i) this Agreement,
including any amendments; (ii) certificates of limited partnership or assumed
name, including amendments, with respect to the Partnership; (iii) all
conveyances and other instruments which the General Partner deems appropriate
to qualify or continue the Partnership in the State of Delaware and any other
jurisdictions in which the Partnership may conduct business, or which may be
required to be filed by the Partnership or the Partners under the laws of any
jurisdiction; and (iv) to file, prosecute, defend, settle or compromise
litigation, claims or arbitrations on behalf of the Partnership. The Power of
Attorney granted herein shall be deemed to be coupled with an interest, shall
survive and shall not be affected by the subsequent incapacity, disability or
death of a Limited Partner.
14. WITHDRAWAL OF A PARTNER.
The Partnership shall be dissolved upon the withdrawal, dissolution,
insolvency or removal of the General Partner, or any other event that causes
the General Partner to cease to be a general partner under the Act, unless
the Partnership is continued pursuant to the terms of Section 4(a)(3). In
addition, the General Partner may withdraw from the Partnership, without any
breach of this Agreement, at any time upon 120 days' written notice by first
class mail, postage prepaid, to each Limited Partner. If the General Partner
withdraws as general partner, and the Partnership's business is continued
pursuant to the terms of Section 4(a)(3)(ii), the withdrawing General Partner
shall pay all expenses incurred by the Partnership as a result of its
withdrawal.
The General Partner may not assign its general partner interest or its
obligation to direct the trading of the Partnership's assets without the
consent of each Limited Partner. The General Partner will notify all Limited
Partners of any change in the principals of the General Partner.
A Limited Partner ceasing to be a limited partner will not terminate or
dissolve the Partnership. No Limited Partner, including such Limited
Partner's estate, custodian or personal representative, shall have any right
to redeem or value such Limited Partner's interest in the Partnership except
as provided in Section 11. Each Limited Partner agrees that in the event of
his death, he waives on behalf of himself and of his estate, and directs the
legal representatives of his estate and any person interested therein to
waive, any inventory, accounting or appraisal of the assets of the
Partnership and any right to an audit or examination of the books of the
Partnership. Nothing in this Section 14 shall, however, waive any right for a
Limited Partner to be informed of the Net Asset Value of his Units, to
receive periodic reports, audited financial statements and other pertinent
information from the General Partner or the Partnership or to redeem or
transfer Units.
15. STANDARD OF LIABILITY; INDEMNIFICATION.
(a) Standard of Liability for the General Partner. The General Partner and
its Affiliates, as defined below, shall have no liability to the Partnership or
to any Partner for any loss suffered by the Partnership which arises out of any
action or inaction of the General Partner or its Affiliates if the General
Partner, in good faith, determined that such course of conduct was in the best
interests of the Partnership, and such course of conduct did not constitute
negligence or misconduct on behalf of the General Partner or its Affiliates.
(b) Indemnification of the General Partner by the Partnership. To the
fullest extent permitted by law, subject to this Section 15, the General Partner
and its Affiliates shall be indemnified by the Partnership against any losses,
judgments, liabilities, expenses and amounts paid in settlement of any claims
sustained by them in connection with the Partnership; provided, that such claims
were not the result of negligence or misconduct on the part of the General
Partner or its Affiliates, and the General Partner, in good faith, determined
that such conduct was in the best interests of the Partnership; and provided
further, that Affiliates of the General Partner shall be entitled to
indemnification only for losses incurred by such Affiliates in performing the
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duties of the General Partner and acting wholly within the scope of the
authority of the General Partner.
Notwithstanding anything to the contrary contained in the preceding
paragraph, none of the General Partner, its Affiliates or any persons acting
as selling agent for the Units shall be indemnified for any losses,
liabilities or expenses arising from or out of an alleged violation of
federal or state securities laws unless (1) there has been a successful
adjudication on the merits of each count involving alleged securities law
violations as to the particular indemnitee and the court approves
indemnification of the litigation costs, or (2) such claims have been
dismissed with prejudice on the merits by a court of competent jurisdiction
as to the particular indemnitee and the court approves indemnification of the
litigation costs, or (3) a court of competent jurisdiction approves a
settlement of the claims against a particular indemnitee and finds that
indemnification of the settlement and related costs should be made.
In any claim for indemnification for federal or state securities law
violations, the party seeking indemnification shall place before the court
the position of the Securities and Exchange Commission, the California
Department of Corporations, the Massachusetts Securities Division, the
Pennsylvania Securities Commission, the Tennessee Securities Division, the
Texas Securities Board and any other state or applicable regulatory authority
with respect to the issue of indemnification for securities law violations.
The Partnership shall not bear the cost of that portion of any
insurance which insures any party against any liability the indemnification
of which is herein prohibited.
For the purposes of this Section 15, the term, "Affiliates," shall mean
any person acting on behalf of or performing services on behalf of the
Partnership or Joint Venture who: (1) directly or indirectly controls, is
controlled by, or is under common control with the General Partner; or (2)
owns or controls 10% or more of the outstanding voting securities of the
General Partner; or (3) is an officer or director of the General Partner; or
(4) if the General Partner is an officer, director, partner or trustee, is
any entity for which the General Partner acts in any such capacity.
Advances from Partnership funds to the General Partner and its
Affiliates for legal expenses and other costs incurred as a result of any
legal action initiated against the General Partner by a Limited Partner are
prohibited.
Advances from Partnership funds to the General Partner and its
Affiliates for legal expenses and other costs incurred as a result of a legal
action will be made only if the following three conditions are satisfied: (1)
the legal action relates to the performance of duties or services by the
General Partner or its Affiliates on behalf of the Partnership (or Joint
Venture); (2) the legal action is initiated by a third party who is not a
Limited Partner; and (3) the General Partner or its Affiliates undertake to
repay the advanced funds, with interest from the initial date of such
advance, to the Partnership in cases in which they would not be entitled to
indemnification under the standard of liability set forth in Section 15(a).
In no event shall any indemnity or exculpation provided for herein be
more favorable to the General Partner or any Affiliate than that contemplated
by the NASAA Guidelines as in effect on the date of this Agreement.
In no event shall any indemnification permitted by this Section 15(b) be
made by the Partnership unless all provisions of this Section for the payment of
indemnification have been complied with in all respects. Further more, it shall
be a precondition of any such indemnification that the Partnership receive a
determination of qualified independent legal counsel in a written opinion that
the party which seeks to be indemnified hereunder has met the applicable
standard of conduct set forth herein. Receipt of any such opinion shall not,
however, in itself, entitle any such party to indemnification unless
indemnification is otherwise proper hereunder. Any indemnification payable by
the
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Partnership hereunder shall be made only as provided in the specific case.
In no event shall any indemnification obligations of the Partnership under
this Section 15(b) subject a Limited Partner to any liability in excess of that
contemplated by Section 7(d).
(c) Indemnification of the Partnership by the Partners. In the event
the Partnership is made a party to any claim, dispute or litigation or
otherwise incurs any loss or expense as a result of or in connection with any
Partner's activities, obligations or liabilities unrelated to the
Partnership's business, such Partner shall indemnify and reimburse the
Partnership for all such loss and expense incurred, including reasonable
attorneys' fees.
The General Partner shall indemnify and hold the Partnership harmless
from all loss or expense which the Partnership may incur (including, without
limitation, any indemnity payments) as a result of (i) the differences
between MLAM's standard of liability and indemnity under the Investment
Advisory Contract, (ii) the differences between Merrill Lynch, Pierce, Fenner
& Smith Incorporated's standard of liability and indemnity under the Custody
Agreement or (iii) the differences between John W. Henry & Company, Inc.'s
standard of liability and indemnity under the Joint Venture Agreement (in the
case of actions by third parties other than Limited Partners) and, in each
case, the General Partner's standard of liability as set forth herein.
The General Partner shall also indemnify and hold the Partnership
harmless from all loss and expense which the Partnership may incur
(including, without limitation, indemnity payments) as a result of the
commercial relationship between the Partnership and John W. Henry & Company,
Inc., or any other advisor selected for the Partnership, being structured as
a joint venture rather than through an advisory agreement.
16. AMENDMENTS; MEETINGS.
(a) Amendments with Consent of the General Partner. The General Partner
may amend this Agreement with the approval the majority of the Units. No
meeting procedure or specified notice period is required in the case of
amendments made with the consent of the General Partner, mere receipt of an
adequate number of unrevoked written consents being sufficient. The General
Partner may also amend this Agreement without the consent of the Limited
Partners in order: (i) to clarify any clerical inaccuracy or ambiguity or
reconcile any inconsistency (including any inconsistency between this
Agreement and the Prospectus); (ii) to effect the intent of the allocations
proposed herein to the maximum extent possible in the event of a change in
the Code or the interpretations thereof affecting such allocations; (iii) to
attempt to ensure that the Partnership is taxed as a partnership; (iv) to
qualify or maintain the qualification of the Partnership as a limited
partnership in any jurisdiction; (v) to change this Agreement as required by
the Staff of the Securities and Exchange Commission, any other federal agency
or any state "Blue Sky" official or in order to opt to be governed by any
amendment or successor statute to the Act; (vi) to make any amendment to this
Agreement which the General Partner deems advisable, provided that such
amendment is not adverse to the Limited Partners; and (vii) to make any
amendment to this Agreement required by law.
(b) Amendments and Actions without Consent of the General Partner. In
any vote called by the General Partner or pursuant to Section 16(c), upon the
affirmative vote of a majority of the Units, the following actions
may be taken, irrespective of whether the General Partner concurs: (i) this
Agreement may be amended, provided, however, that the approval of all Limited
Partners shall be required in the case of amendments changing or altering this
Section 16, extending the term of the Partnership or increasing the brokerage
commissions or Administrative Fees payable by the Partnership; (ii) the
Partnership may be dissolved; (iii) the General Partner may be removed and
replaced; (iv) a new general partner may be elected if the General
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Partner withdraws from the Partnership; (v) the sale of all or substantially
all of the assets of the Partnership may be approved; and (vi) any contract
with the General Partner or any of its affiliates may be disapproved of and
terminated upon 60 days' notice.
No reduction of any Limited Partner's capital account or modification
of the percentage of profits, losses or distributions to which a Limited
Partner is entitled shall be made without such Limited Partner's written
consent;
(c) Meetings; Other Voting Matters. Any Limited Partner may obtain from
the General Partner, provided that reasonable copying and mailing costs are
paid in advance, a list of the names, addresses and number of Units held by
each Limited Partner. Such list will be mailed by the General Partner within
10 days of the receipt of the request; provided, that the General Partner may
require any Limited Partner requesting such information to submit written
confirmation that such information will not be used for commercial purposes
unrelated to such Limited Partner's interest as a Limited Partner.
Upon receipt of a written proposal, signed by Limited Partners owning
at least 10% of the Units, that a meeting of the Partnership be called to
vote on any matter on which the Limited Partners are entitled to vote, the
General Partner will, by written notice to each Limited Partner of record
sent by certified mail within 15 days after such receipt, call the meeting.
Such meeting shall be held at least 30 but not more than 60 days after the
mailing of such notice, and such notice shall specify the date, a reasonable
place and time for such meeting, as well as its purpose.
In determining whether a majority of the Units has approved an action
or amendment, only Units owned by Limited Partners shall be counted. Any
Units acquired by the General Partner or any of its Affiliates will be
non-voting, and will not be considered outstanding for purposes of
determining whether the majority approval of the outstanding Units has been
obtained.
The General Partner may not restrict the voting rights of Limited Partners
as set forth herein.
In the event that this Agreement is to be amended in any material
respect, the amendment will not become effective prior to all Limited
Partners having an opportunity to redeem their Units.
17. BENEFIT PLAN INVESTORS.
Each Limited Partner that is an "employee benefit plan" as defined in
and subject to ERISA, or a "plan" as defined in Section 4975 of the Code
(collectively, a "Plan"), and each fiduciary who has caused a Plan to become
a Limited Partner (a "Plan Fiduciary"), represents and warrants that: (a) the
Plan Fiduciary has considered an investment in the Partnership in light of
the risks relating thereto; (b) the Plan Fiduciary has determined that the
investment in the Partnership is consistent with the Plan Fiduciary's
responsibilities under ERISA; (c) the investment in the Partnership does not
violate the terms of any legal document constituting the Plan or any trust
agreement thereunder; (d) the Plan's investment in the Partnership has been
duly authorized and approved by all necessary parties; (e) none of the
General Partner, John W. Henry & Company, Inc., any of their respective
affiliates or any of their respective agents or employees: (i) has investment
discretion with respect to the assets of the Plan used to purchase Units;
(ii) has authority or responsibility to or regularly gives investment advice
with respect to the assets of the Plan used to purchase Units for a fee and
pursuant to an agreement or understanding that such advice will serve as a
primary basis for investment decisions with respect to the Plan and that such
advice will be based on the particular investment needs of the Plan; or (iii)
is an employer maintaining or contributing to the Plan; and (f) the Plan
Fiduciary: (i) is authorized to make, and is responsible for, the decision of
the Plan to invest in the Partnership, including the determination that such
investment is consistent with the requirement imposed by Section 404 of ERISA
that Plan investments be diversified so as to minimize the risks of large
losses; (ii) is independent of the General Partner, John W. Henry & Company,
LPA-12
<PAGE>
Inc. and any of their respective affiliates; and (iii) is qualified to make
such investment decision.
18. GOVERNING LAW.
THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF DELAWARE
WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW; PROVIDED, THAT THE FOREGOING
CHOICE OF LAW SHALL NOT RESTRICT THE APPLICATION OF ANY STATE'S SECURITIES LAWS
TO THE SALE OF UNITS TO ITS RESIDENTS OR WITHIN SUCH STATE.
19. MISCELLANEOUS.
(a) Notices. All notices under this Agreement must be in writing and will
be effective upon personal delivery, or if sent by first class mail, postage
prepaid, upon the deposit of such notice in the United States mail.
(b) Binding Effect. This Agreement shall inure to and be binding upon all
of the parties hereto and all parties indemnified under Section 15, as well as
their respective successors and assigns, custodians, estates, heirs and personal
representatives.
For purposes of determining the rights of any Partner or assignee
hereunder, the Partnership and the General Partner may rely upon the
Partnership records as to who are Partners and assignees, and all Partners
and assignees agree that their rights shall be determined and they shall be
bound thereby.
(c) Captions. Captions are not part of this Agreement.
(d) Close of Business. The General Partner will decide when the close of
business occurs.
* * * * *
THE PARTIES HEREBY EXECUTE THIS THIRD AMENDED AND RESTATED LIMITED
PARTNERSHIP AGREEMENT AS OF THE DAY AND YEAR FIRST ABOVE WRITTEN.
GENERAL PARTNER: LIMITED PARTNERS:
MERRILL LYNCH INVESTMENT MERRILL LYNCH INVESTMENT
PARTNERS INC. PARTNERS INC.
Attorney-in-Fact
By /s/ JOHN R. FRAWLEY, JR. By /s/ JOHN R. FRAWLEY, JR.
------------------------ ------------------------
John R. Frawley, Jr. John R. Frawley, Jr.
President and President and
Chief Executive Officer Chief Executive Officer
LPA-13
<PAGE>
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<PAGE>
EXHIBIT B
ML JWH STRATEGIC ALLOCATION FUND L.P.
--------------------
SUBSCRIPTION REQUIREMENTS
GENERAL
By submitting a Subscription Agreement Signature Page, you (i)
subscribe to purchase Units, (ii) authorize the Selling Agent to debit your
subscription from your Merrill Lynch customer securities account and (iii)
agree to the terms of the Limited Partnership Agreement.
REPRESENTATIONS AND WARRANTIES
You represent and warrant to the Fund, MLIP and their respective
affiliates as follows:
(a) You are of legal age and legally competent to execute the Subscription
Agreement Signature Page.
(b) All information on your Subscription Agreement Signature Page is
correct and complete. You will immediately contact MLIP if there is any
change in such information.
(c) Your subscription is made with your own funds and for your own account.
(d) Your subscription, if made as custodian for a minor, is a gift you have
made to such minor or, if not a gift, the following representations as
to net worth and annual income apply to such minor personally.
(e) If you are subscribing in a representative capacity, you have full
power and authority to purchase the Units on behalf of the entity for
which you are acting, and such entity has full power and authority to
purchase such Units.
(f) You either are, or are not required to be, registered with the CFTC or
a member of the NFA.
(g) If you are acting on behalf of an "employee benefit plan," you confirm
the representations set forth in Section 17 of the Limited Partnership
Agreement.
INVESTOR SUITABILITY
YOU SHOULD NOT INVEST MORE THAN 10% OF YOUR READILY MARKETABLE ASSETS
IN THE FUND.
ELIGIBLE INVESTORS MUST HAVE (I) A NET WORTH OF AT LEAST $150,000
(EXCLUSIVE OF HOME, FURNISHINGS AND AUTOMOBILES) OR (II) AN ANNUAL GROSS INCOME
OF AT LEAST $45,000 AND A NET WORTH OF AT LEAST $45,000 (EXCLUSIVE OF HOME,
FURNISHINGS AND AUTOMOBILES).
THE FOLLOWING REQUIREMENTS APPLY TO RESIDENTS OF VARIOUS STATES (NET
WORTH FOR SUCH PURPOSES IN ALL CASES IS EXCLUSIVE OF HOME, FURNISHINGS AND
AUTOMOBILES).
1. Arizona, Massachusetts, Mississippi, North Carolina, Oklahoma,
Oregon, Tennessee and Texas -- Net worth of at least $225,000 or a net worth of
at least $60,000 and an annual income of at least $60,000.
2. California -- Net worth of at least $100,000 and an annual income of
at least $65,000 or, in the alternative, a net worth of at least $250,000.
3. Iowa -- Net worth of at least $225,000 or a net worth of at least
$60,000 and an annual taxable income of at least $60,000. Notwithstanding any
other provisions of the Prospectus, the minimum investment for individual
retirement accounts in Iowa is 25 Units or $2,500, if less, rather than 20 Units
or $2,000, if less.
4. Maine -- Net worth of at least $200,000 or a net worth of at least
$50,000 and an annual income of at least $50,000. ALL MAINE RESIDENTS, INCLUDING
EXISTING INVESTORS IN THE FUND SUBSCRIBING FOR ADDITIONAL UNITS, MUST EXECUTE A
SUBSCRIPTION AGREEMENT SIGNATURE PAGE. MAINE RESIDENTS MUST SIGN A SUBSCRIPTION
AGREEMENT SIGNATURE PAGE SPECIFICALLY PREPARED FOR MAINE RESIDENTS.
5. Michigan -- Net worth of at least $225,000 or a net worth of at
least $60,000 and
SR-1
<PAGE>
taxable income in 1997 of at least $60,000. ALL MICHIGAN RESIDENTS, INCLUDING
EXISTING INVESTORS IN THE FUND SUBSCRIBING FOR ADDITIONAL UNITS, MUST EXECUTE
A SUBSCRIPTION AGREEMENT SIGNATURE PAGE.
6. Minnesota -- Net worth of at least $225,000 or a net worth of at
least $60,000 and an annual income of at least $60,000. Minnesota residents are
deemed not to represent that their receipt of the Prospectus was accompanied by
summary Fund financial information current within 60 calendar days and are
deemed not to represent that the Prospectus that they received was dated within
nine months of their subscription for Units.
7. Missouri -- Net worth of at least $225,000 or a net worth of at
least $100,000 and an annual income of at least $100,000. Missouri residents are
deemed not to represent that their receipt of the Prospectus was accompanied by
summary Fund financial information current within 60 calendar days and are
deemed not to represent that the Prospectus that they received was dated within
nine months of the date of their subscription for Units.
8. New Hampshire -- Net worth of at least $250,000 or a net worth of at
least $125,000 and an annual income of at least $50,000.
9. Pennsylvania-- Net worth of a least $175,000 or a net worth of at
least $100,000 and an annual taxable income of at least $50,000. Pennsylvania
residents are deemed not to represent that their receipt of the Prospectus was
accompanied by summary Fund financial information current within 60 calendar
days and are deemed not to represent that the Prospectus that they received was
dated within nine months of their subscription for Units.
10. South Carolina -- Net worth of at least $100,000 or a net income in
1997 some portion of which was subject to maximum federal and state income tax.
11. South Dakota -- Net worth of at least $225,000 or a net worth of at
least $60,000 and an annual income of at least $60,000. South Dakota residents
are deemed not to represent that their receipt of the Prospectus was accompanied
by summary Fund financial information current within 60 calendar days and are
deemed not to represent that the Prospectus that they received was dated within
nine months of their subscription for Units.
12. Washington -- A Purchaser meets the necessary suitability standards
if: (1) the Purchaser acquires at least $150,000 of Units, and the Purchaser's
total investment does not exceed 20% of the Purchaser's net worth, or joint net
worth with the Purchaser's spouse (in each case, exclusive of home, furnishings
and automobiles); (2) irrespective of the number of Units purchased, the
Purchaser's net worth, or joint net worth with the Purchaser's spouse (in each
case, exclusive of home, furnishings and automobiles) exceeds $1,000,000; or (3)
irrespective of the number of Units purchased, the Purchaser's income has been
in excess of $200,000 in each of 1996 and 1997 and the Purchaser reasonably
expects income in excess of $200,000 in 1998. Any entity in which all of the
equity owners qualify under one or more of the foregoing clauses will also be
considered to have met the applicable suitability standards.
YOU MAY REVOKE YOUR SUBSCRIPTION AT ANY TIME WITHIN
FIVE BUSINESS DAYS OF SUBMISSION.
SR-2
<PAGE>
EXHIBIT C
ML JWH STRATEGIC ALLOCATION FUND L.P.
--------------------
SUBSCRIPTION INSTRUCTIONS
YOU SHOULD CAREFULLY READ AND REVIEW BOTH PARTS OF THE PROSPECTUS AND
THE ACCOMPANYING SUMMARY FUND FINANCIAL INFORMATION.
EXISTING INVESTORS SUBSCRIBING FOR ADDITIONAL UNITS (EXCEPT MAINE AND
MICHIGAN RESIDENTS) NEED NOT COMPLETE AN ADDITIONAL SUBSCRIPTION AGREEMENT
SIGNATURE PAGE. SUCH INVESTORS' MERRILL LYNCH FINANCIAL CONSULTANTS WILL
RECONFIRM THEIR SUITABILITY.
FILL IN ALL OF THE BOXES ON PAGES SA-4 AND SA-5 TYPE OR PRINT USING
BLACK INK ONLY AND ONE LETTER OR NUMBER PER BOX, AS FOLLOWS:
Item 1 --Financial Consultants must complete the information required.
Item 2 --Enter the number of Units to be purchased or check the
appropriate dollar amount of subscription. Only whole Units will be
sold. If a $5,000/ $2,000 minimum dollar amount subscription is
specified, the largest number of whole Units will be purchased.
Item 3 --Enter customer's Merrill Lynch Account Number.
Item 4 --Enter the Social Security Number or Taxpayer ID Number. In case
of joint ownership, either Social Security Number may be used.
The Signature Page is generally self-explanatory; however, we have
provided specific instructions for the following:
Trust -- Enter the Trust name on line 7 and the trustee's name on line
8, followed by "Trustee." If applicable, use line 9 for the custodian's name,
followed by "Custodian." Be sure to furnish the Taxpayer ID Number of the Trust.
Custodian Under Uniform Gifts to Minors Act -- Complete line 5 with the
name of minor followed by "UGMA." On line 8 enter the custodian's name, followed
by "Custodian." Be sure to furnish the minor's Social Security Number.
Partnership or Corporation -- The Partnership or Corporation name is
required on line 7. Enter an officer's or partner's name on line 8. Be sure to
furnish the Taxpayer ID Number of the Partnership or Corporation.
Items -- Enter the exact name in which the
5,6,7 Units are to be held.
Item 9 -- Complete information as required.
Item 10 --The investor(s) (except current investors in the Fund other
than residents of Maine or Michigan) must execute the Subscription
Agreement Signature Page (Item 10, Page SA-5) and review the
representation relating to backup withholding tax underneath the
signature and telephone number lines in Item 10.
Item 11 --Financial Consultants must complete the information required.
THE SPECIMEN COPY OF THE SUBSCRIPTION AGREEMENT SIGNATURE PAGE (PAGES
SA-2 AND SA-3) SHOULD NOT BE EXECUTED.
Instructions to Financial Consultants:
THE EXECUTED SUBSCRIPTION AGREEMENT
SIGNATURE PAGE MUST BE RETAINED
IN THE BRANCH OFFICE.
SUITABILITY RECONFIRMATIONS (I.E., SUBSCRIPTION AGREEMENT SIGNATURE
PAGES EXECUTED BY FINANCIAL CONSULTANTS OR ANOTHER FORM OF WRITTEN
RECONFIRMATION APPROVED BY THE BRANCH OFFICE) MUST ALSO BE RETAINED IN THE
BRANCH OFFICE.
SA-1
<PAGE>
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<PAGE>
ML JWH STRATEGIC ALLOCATION FUND L.P.
LIMITED PARTNERSHIP UNITS
--------------------
BY EXECUTING THIS SUBSCRIPTION AGREEMENT SUBSCRIBERS ARE
NOT WAIVING ANY RIGHTS UNDER THE SECURITIES ACT
OF 1933 OR THE SECURITIES EXCHANGE ACT OF 1934
--------------------
SUBSCRIPTION AGREEMENT
ML JWH STRATEGIC ALLOCATION FUND L.P.
c/o Merrill Lynch Investment Partners Inc.
General Partner
Merrill Lynch World Headquarters
South Tower
World Financial Center
New York, New York 10080-6106
Dear Sirs:
1. I subscribe for the amount of Units indicated on the
Subscription Agreement Signature Page.
The purchase price is the Net Asset Value per Unit -- 97% of
the Net Asset Value per Unit if I am a Merrill Lynch officer or employee
(retirement accounts do not qualify for discounts).
The purchase date for my Units is the first day of the
calendar month immediately following this subscription being accepted. My
Financial Consultant will tell me the settlement date for my purchase, which
will be not more than 5 business days after the purchase date. I will have the
subscription funds in my Merrill Lynch customer securities account on such
settlement date.
2. I have received both parts of the Prospectus together with
the accompanying summary Fund financial information. I understand that by
submitting this Subscription Agreement I am making the representations and
warranties set forth in Exhibit B -- Subscription Requirements in the
Prospectus.
3. I irrevocably appoint MLIP as my true and lawful
Attorney-in-Fact, with full power of substitution, to execute, deliver and
record any documents or instruments which MLIP considers appropriate to carry
out the provisions of the Limited Partnership Agreement.
4. THIS SUBSCRIPTION AGREEMENT IS GOVERNED BY THE LAWS OF
THE STATE OF NEW YORK.
NO ONE SHOULD INVEST MORE THAN 10% OF HIS OR HER
READILY MARKETABLE ASSETS IN THE FUND.
SA-1
<PAGE>
SPECIMEN
<TABLE>
<S> <C>
1 Financial Consultant
Name ___________________________ ____ _____________________________ ________________
First M.I. Last Sub. Order Ref.#
Financial Consultant _____-_____-________ Financial Consultant Number ________ Branch Wire Code ______
Phone Number
</TABLE>
ML JWH STRATEGIC ALLOCATION FUND L.P.
LIMITED PARTNERSHIP UNITS
SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY SIGNATURE PAGE
Please print or type. Use BLACK ink only and only one character per box.
I subscribe for Limited Partnership Units in ML JWH Strategic Allocation
Fund L.P. (the "Fund") and authorize Merrill Lynch, Pierce, Fenner & Smith
Incorporated to debit my customer securities account in the amount set-forth
below. The Units are sold at Net Asset Value (97% of such Net Asset Value for
Merrill Lynch officers and employees).
I acknowledge receipt of the Prospectus of the Fund together with summary
Fund financial information.
If I am a participant in a Merrill Lynch sponsored IRA, BASIC-TM- or SEP
account and am purchasing Units for such an account, I hereby acknowledge
that:
1. An amount at least equal to the purchase price for the Units is in an
IRA, BASIC-TM- or SEP account at Merrill Lynch, Pierce, Fenner & Smith
Incorporated;
2. The minimum value of all securities and funds in such IRA, BASIC-TM-
or SEP account is $20,000;
3. The minimum subscription is 20 Units ($2,000, if less) and the amount
of this subscription is no more than 10% of the value of the IRA, BASIC-TM-
or SEP account on the subscription date; and
4. Each separate IRA, BASIC-TM- or SEP account of the investor seeking
to purchase Units meets the above eligibility requirements.
<TABLE>
<S> <C> <C> <C>
2 __________________________________ $5,000 _____ $2,000 _____ 3 _______-_______________
Number of Units, Minimum 50 Units Merrill Lynch Account #
($5,000, if less); 20 Units
($2,000, if less) for IRAs,
tax-exempt investors and existing
Limited Partners subscribing for
additional Units; incremental
investments in one Unit multiples.
4 _______-_____-___________ ______-_________________
Social Security Number or Taxpayer ID Number
5 Limited Partner Name
___________________________ ____ __________________________________
First Name M.I. Last Name
6 Joint Limited Partner Name
___________________________ ____ __________________________________
First Name M.I. Last Name
7 Partnership, Corporate or Trust Limited Partner Name
__________________________________________________________________________
8 Partner, Officer, Trustee, Beneficiary, Power of Attorney or Custodian under UGMA/UTMA
______________________________________________________________________________________
9 Additional Information
______________________________________________________________________________________
Residence Address of Limited Partner (P.O. Box Numbers Are Not Acceptable for Residence Address)
______________ ___________________________________________________ ___________
Street Number Street Name Apt. Number
______________ ________________________________________ ______ ___________
Bldg. No. City State Zip Code
_________________________________
Country (If Other Than U.S.A.)
Mailing Address of Limited Partner (If Other Than Residence Address)
______________ ___________________________________________________ ___________
Street Number Street Name Apt. Number
______________ ____________ ________________________________________ ______ ___________
Bldg. No. P.O. Box No. City State Zip Code
_________________________________
Country (If Other Than U.S.A.)
____ Check box if Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") is custodian.
Name of Custodian, If Not Merrill Lynch
__________________________________________________________
Mailing Address of Custodian, Other Than Merrill Lynch
______________ ___________________________________________________ ___________
Street Number Street Name Apt. Number
______________ ____________ ________________________________________ ______ ___________
Bldg. No. P.O. Box No. City State Zip Code
_________________________________
Country (If Other Than U.S.A.)
</TABLE>
SA-2
<PAGE>
SPECIMEN
ML JWH STRATEGIC ALLOCATION FUND L.P.
LIMITED PARTNERSHIP UNITS
SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY SIGNATURE PAGE (continued)
10 FOR USE BY INVESTOR
X ---------------------------------- X ----------------------------------
Signature of Investor Date Signature of Joint Investor Date
(if any)
( ) - Subscription for the series of
---------------------------------- Units to be sold as of
Telephone Number of Investor
---------------------(insert date)
SUBMITTING THIS SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY SIGNATURE PAGE
IN NO RESPECT CONSTITUTES A WAIVER OF ANY RIGHTS UNDER THE SECURITIES ACT OF
1933 OR UNDER THE SECURITIES EXCHANGE ACT OF 1934. I ACKNOWLEDGE THAT I HAVE
RECEIVED THE PROSPECTUS OF THE FUND DATED JULY 6, 1998 TOGETHER WITH SUMMARY
FUND FINANCIAL INFORMATION.
I have checked the following box if I am subject to backup withholding under
the provisions of Section 3406a(l)(C) of the Internal Revenue Code: / /.
Under the penalties of perjury, by signature above I hereby certify that the
Social Security Number or Taxpayer ID Number shown on the front of this
Subscription Agreement and Power of Attorney Signature Page next to my name
is my true, correct and complete Social Security Number or Taxpayer ID Number
and that the information given in the immediately preceding sentence is true,
correct and complete.
- -------------------------------------------------------------------------------
11 FINANCIAL CONSULTANT MUST SIGN
I have reasonable grounds to believe, based on information obtained from the
investor concerning his/her investment objectives, other investments
financial situation and needs and any other information known by me, that
investment in the Fund is suitable for such investor in light of his/her
financial position, net worth and other suitability characteristics. I have
also informed the investor of the unlikelihood of a public trading market
developing for the Units.
The Financial Consultant MUST sign below in order to substantiate compliance
with NASD Business Conduct Rule 2810.
X ------------------------------------------------------------------------------
Financial Consultant Signature Date
Office Manager approval of Merrill Lynch sponsored retirement account purchases.
X ------------------------------------------------------------------------------
Office Manager Signature Date
FOR OFFICE USE ONLY
Date Received Country Code Additional Order Control Number
- ------------- ------------ ---------------- --------------
SA-3
<PAGE>
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<PAGE>
<TABLE>
<S> <C>
1 Financial Consultant EXECUTION COPY
Name ___________________________ ____ _____________________________ ________________
First M.I. Last Sub. Order Ref.#
Financial Consultant _____-_____-________ Financial Consultant Number ________ Branch Wire Code ______
Phone Number
</TABLE>
ML JWH STRATEGIC ALLOCATION FUND L.P.
LIMITED PARTNERSHIP UNITS
SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY SIGNATURE PAGE
Please print or type. Use BLACK ink only and only one character per box.
I subscribe for Limited Partnership Units in ML JWH Strategic Allocation
Fund L.P. (the "Fund") and Authorize Merrill Lynch, Pierce, Fenner & Smith
Incorporated to debit my customer securities account in the amount set forth
below. The Units are sold at Net Asset Value (97% of such Net Asset Value for
Merrill Lynch officers and employees).
I acknowledge receipt of the Prospectus of the Fund together with summary
Fund financial information.
If I am a participant in a Merrill Lynch sponsored IRA, BASIC-TM- or SEP
account and am purchasing Units for such an account, I hereby acknowledge
that:
1. An amount at least equal to the purchase price for the Units is in an
IRA, BASIC-TM- or SEP account at Merrill Lynch, Pierce, Fenner & Smith
Incorporated;
2. The minimum value of all securities and funds in such IRA, BASIC-TM-
or SEP account is $20,000;
3. The minimum subscription is 20 Units ($2,000, if less) and the amount
of this subscription is no more than 10% of the value of the IRA, BASIC-TM-
or SEP account on the subscription date; and
4. Each separate IRA, BASIC-TM- or SEP account of the investor seeking
to purchase Units meets the above eligibility requirements.
<TABLE>
<S> <C> <C> <C>
2 __________________________________ $5,000 _____ $2,000 _____ 3 _______-_______________
Number of Units, Minimum 50 Units Merrill Lynch Account #
($5,000, if less); 20 Units
($2,000, if less) for IRAs,
tax-exempt investors and existing
Limited Partners subscribing for
additional Units; incremental
investments in one Unit multiples.
4 _______-_____-___________ ______-_________________
Social Security Number or Taxpayer ID Number
5 Limited Partner Name
___________________________ ____ __________________________________
First Name M.I. Last Name
6 Joint Limited Partner Name
___________________________ ____ __________________________________
First Name M.I. Last Name
7 Partnership, Corporate or Trust Limited Partner Name
__________________________________________________________________________
8 Partner, Officer, Trustee, Beneficiary, Power of Attorney or Custodian under UGMA/UTMA
______________________________________________________________________________________
9 Additional Information
______________________________________________________________________________________
Residence Address of Limited Partner (P.O. Box Numbers Are Not Acceptable for Residence Address)
______________ ___________________________________________________ ___________
Street Number Street Name Apt. Number
______________ ________________________________________ ______ ___________
Bldg. No. City State Zip Code
_________________________________
Country (If Other Than U.S.A.)
Mailing Address of Limited Partner (If Other Than Residence Address)
______________ ___________________________________________________ ___________
Street Number Street Name Apt. Number
______________ ____________ ________________________________________ ______ ___________
Bldg. No. P.O. Box No. City State Zip Code
_________________________________
Country (If Other Than U.S.A.)
____ Check box if Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") is custodian.
Name of Custodian, If Not Merrill Lynch
__________________________________________________________
Mailing Address of Custodian, Other Than Merrill Lynch
______________ ___________________________________________________ ___________
Street Number Street Name Apt. Number
______________ ____________ ________________________________________ ______ ___________
Bldg. No. P.O. Box No. City State Zip Code
_________________________________
Country (If Other Than U.S.A.)
</TABLE>
SA-4
<PAGE>
ML JWH STRATEGIC ALLOCATION FUND L.P.
LIMITED PARTNERSHIP UNITS
SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY SIGNATURE PAGE (continued)
10 FOR USE BY INVESTOR
X ---------------------------------- X ----------------------------------
Signature of Investor Date Signature of Joint Investor Date
(if any)
( ) - Subscription for the series of
---------------------------------- Units to be sold as of
Telephone Number of Investor
---------------------(insert date)
SUBMITTING THIS SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY SIGNATURE PAGE
IN NO RESPECT CONSTITUTES A WAIVER OF ANY RIGHTS UNDER THE SECURITIES ACT OF
1933 OR UNDER THE SECURITIES EXCHANGE ACT OF 1934. I ACKNOWLEDGE THAT I HAVE
RECEIVED THE PROSPECTUS OF THE FUND DATED JULY 6, 1998 TOGETHER WITH SUMMARY
FUND FINANCIAL INFORMATION.
I have checked the following box if I am subject to backup withholding under
the provisions of Section 3406(a)(l)(C) of the Internal Revenue Code: / /.
Under the penalties of perjury, by signature above I hereby certify that the
Social Security Number or Taxpayer ID Number shown on the front of this
Subscription Agreement and Power of Attorney Signature Page next to my name
is my true, correct and complete Social Security Number or Taxpayer ID Number
and that the information given in the immediately preceding sentence is true,
correct and complete.
- -------------------------------------------------------------------------------
11 FINANCIAL CONSULTANT MUST SIGN
I have reasonable grounds to believe, based on information obtained from the
investor concerning his/her investment objectives, other investments
financial situation and needs and any other information known by me, that
investment in the Fund is suitable for such investor in light of his/her
financial position, net worth and other suitability characteristics. I have
also informed the investor of the unlikelihood of a public trading market
developing for the Units.
The Financial Consultant MUST sign below in order to substantiate compliance
with NASD Business Conduct Rule 2810.
X ------------------------------------------------------------------------------
Financial Consultant Signature Date
Office Manager approval of Merrill Lynch sponsored retirement account purchases.
X ------------------------------------------------------------------------------
Office Manager Signature Date
FOR OFFICE USE ONLY
Date Received Country Code Additional Order Control Number
- ------------- ------------ ---------------- --------------
SA-5
<PAGE>
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