<PAGE>
As filed with the Securities and Exchange Commission on March 6, 1998
REGISTRATION NO. 333-___
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
ML JWH STRATEGIC ALLOCATION FUND L.P.
ML JWH STRATEGIC JOINT VENTURE LLC
(Rule 140 Co-Registrant)
(Exact name of registrant as specified in its charter)
DELAWARE 6793 13-3887922 (REGISTRANT)
(State of Organization) (Primary Standard Industrial APPLIED FOR
Classification Code Number) (CO-REGISTRANT)
(IRS Employer
Identification Number)
C/O MERRILL LYNCH INVESTMENT PARTNERS INC.
SIXTH FLOOR, SOUTH TOWER
MERRILL LYNCH WORLD HEADQUARTERS
WORLD FINANCIAL CENTER
NEW YORK, NEW YORK 10080-6106
(212) 236-4167
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
JOHN R. FRAWLEY, JR.
MERRILL LYNCH INVESTMENT PARTNERS INC.
SIXTH FLOOR, SOUTH TOWER
MERRILL LYNCH WORLD HEADQUARTERS
WORLD FINANCIAL CENTER
NEW YORK, NEW YORK 10080-6106
(212) 236-4167
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------------------
COPIES TO:
David R. Sawyier
Joshua B. Rovine
Sidley & Austin
One First National Plaza
Chicago, Illinois 60603
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
--------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 (the "Securities Act") check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 426(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
---------------------
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
===================================================================================================
Title of Each Class of Amount of
Additional Securities Additional Amount Maximum Offering Maximum Aggregate Additional
to be Registered being Registered Price Per Unit Offering Price Registration Fee
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Units of Limited 2,000,000 Units Net Asset Value $264,840,000* $78,128
Partnership Interest
===================================================================================================
Limited Liability 2,000,000 Net Asset Value $264,840,000* None**
Company Interest
- ---------------------------------------------------------------------------------------------------
</TABLE>
*Calculated pursuant to Rule 457(d) based on the Net Asset Value per Unit
within fifteen days prior to the date of this filing.
**Registered solely due to the "co-registrant" status of ML JWH Strategic
Joint Venture LLC $264,840,000 is the estimated maximum aggregate offering
price of all securities registered hereby.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE>
ML JWH STRATEGIC ALLOCATION FUND L.P.
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
ITEM
NO. PROSPECTUS HEADING
- ----- --------------------------
<C> <S> <C>
1. Forepart of the Registration Statement
and Outside Front Cover Page of
Prospectus............................... Cover Page
2. Inside Front and Outside Back Cover
Pages of Prospectus...................... Inside Cover Page; Table of Contents
3. Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges....... Overview of the Fund; Summary; The Risks You Face;
Performance of the Fund; Selected Financial Data;
Management's Analysis of Operations
4. Use of Proceeds........................... Overview of the Fund; How the Fund Works--Use of
Proceeds
5. Determination of Offering Price........... Cover Page; How the Fund Works--Buying Units
6. Dilution.................................. Not Applicable
7. Selling Security Holders.................. Not Applicable
8. Plan of Distribution...................... Cover Page; How the Fund Works--Buying Units;
Selling Commissions
9. Description of Securities to Be
Registered............................... Cover Page; Overview of the Fund; Summary; The
Risks You Face; How the Fund Works;
Performance of the Fund; Selected Financial Data;
Management's Analysis of Operations; Net Asset
Value; Interest Income Arrangements; Summary of
the Limited Partnership Agreement; Tax
Consequences
10. Interests of Named Experts and
Counsel................................. Lawyers; Accountants
11. Information with Respect to the
Registrant.............................. Cover Page; Overview of the Fund; Summary; The
Risks You Face; How the Fund Works;
Performance of the Fund; Selected Financial Data;
Management's Analysis of Operations; JWH
Trading Programs; John W. Henry & Company,
Inc.; Merrill Lynch Investment Partners Inc.; Net
Asset Value; Interest Income Arrangements;
Analysis of Fees and Expenses Paid By the Fund;
Conflicts of Interest; Summary of the Limited
Partnership Agreement; Tax Consequences; Selling
Commissions; Financial Statements; Futures
Markets and Trading Methods
12. Disclosure of Commission Position
on Indemnification for Securities
Act Liabilities......................... Not Applicable
</TABLE>
<PAGE>
[LOGO]
PART ONE
- --------------------------------------------------------------------------------
ML JWH STRATEGIC ALLOCATION FUND L.P.
$2,000,000
LIMITED PARTNERSHIP UNITS
. THE FUND IS A PROFESSIONALLY MANAGED INVESTMENT FUND WHICH TRADES IN THE
INTERNATIONAL FUTURES MARKETS.
. THE FUND IS A SPECULATIVE, LEVERAGED INVESTMENT.
. LIMITED PARTNERS MAY LOSE ALL OR SUBSTANTIALLY ALL OF THEIR INVESTMENT IN THE
FUND.
. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
. THE PERFORMANCE OF THE FUND TO DATE HAS BEEN VOLATILE; THE NET ASSET VALUE
PER UNIT HAS FLUCTUATED MATERIALLY BOTH INTRA- AND INTER-MONTH. BECAUSE OF
ITS SINGLE ADVISOR STRUCTURE, THE FUND IS EXPECTED TO BE MORE VOLATILE THAN
MULTI-ADVISOR FUTURES FUNDS.
. THE FUND IS SUBJECT TO SUBSTANTIAL EXPENSES WHICH MUST BE OFFSET BY TRADING
PROFITS AND INTEREST INCOME FOR THE FUND TO BREAKEVEN.
____________________
. THE FUND'S TRADING IS DIRECTED BY JOHN W. HENRY & COMPANY, INC. ("JWH/(R)/"),
ALLOCATING THE FUND'S ASSETS AMONG MULTIPLE JWH TRADING PROGRAMS.
. THE FUND'S OBJECTIVE IS SUBSTANTIAL LONG-TERM CAPITAL APPRECIATION WHILE
REDUCING PERFORMANCE VOLATILITY AND RISK BY COMBINING DIFFERENT JWH TRADING
PROGRAMS.
. THE UNITS HAVE THE POTENTIAL TO PROVIDE A VALUABLE ELEMENT OF DIVERSIFICATION
TO A PORTFOLIO.
. THE FUND BEGAN TRADING JULY 15, 1996 WITH AN INITIAL NET ASSET VALUE PER UNIT
OF $100 AND A TOTAL NET ASSET VALUE OF $102 MILLION. AS OF FEBRUARY 1, 1998,
THE NET ASSET VALUE PER UNIT WAS $133.35, AND THE FUND'S TOTAL NET ASSET
VALUE, INCLUDING THE PROCEEDS OF UNIT SALES AFTER THE INITIAL OFFERING, WAS
$219,085,096.
. THE UNITS HAVE NOT BEEN AVAILABLE FOR SALE SINCE FEBRUARY 1997. THEY WILL
NOW BE SOLD, AT NET ASSET VALUE, AS OF THE FIRST DAY OF EACH MONTH BEGINNING
MAY 1, 1998, FOR AS LONG AS THIS OFFERING CONTINUES.
. THE MINIMUM SUBSCRIPTION FOR FIRST-TIME INVESTORS IS 50 UNITS ($5,000, IF
LESS); 20 UNITS ($2,000, IF LESS) FOR IRAS, OTHER TAX-EXEMPT ACCOUNTS AND
EXISTING INVESTORS. YOU MAY BUY ANY GREATER NUMBER OF WHOLE UNITS.
------------------------------------
SEE "THE RISKS YOU FACE" BEGINNING AT PAGE 5 AND "ANALYSIS OF FEES AND
EXPENSES PAID BY THE FUND" AT PAGE 32.
------------------------------------
THIS PROSPECTUS IS IN TWO PARTS. THESE PARTS ARE BOUND TOGETHER, AND BOTH
CONTAIN IMPORTANT INFORMATION.
------------------------------------
THE UNITS HAVE NOT BEEN APPROVED BY THE SEC, CFTC OR ANY STATE SECURITIES
COMMISSION, NOR HAS ANY SUCH AGENCY APPROVED 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
MARCH __, 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 NECESSARY 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 PAGE
32 AND A STATEMENT OF THE PERCENTAGE RETURN NECESSARY TO BREAKEVEN, THAT IS, TO
RECOVER THE AMOUNT OF YOUR INITIAL INVESTMENT, AT PAGE 3.
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 5 AND 6.
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, 6TH FLOOR
WORLD FINANCIAL CENTER
NEW YORK, NEW YORK 10080-6106
(212) 236-4167
-i-
<PAGE>
CONTENTS
PART ONE
Overview of the Fund................... 1
Summary................................ 3
The Risks You Face..................... 5
How the Fund Works..................... 7
Performance of the Fund................ 8
Selected Financial Data................ 11
Management's Analysis of Operations.... 11
Managed Futures Funds in General....... 13
The Role of Managed Futures in
Your Portfolio....................... 14
JWH Trading Programs................... 17
John W. Henry & Company, Inc........... 23
Merrill Lynch Investment Partners Inc.. 26
Certain Litigation..................... 28
Net Asset Value........................ 30
Interest Income Arrangements........... 30
Analysis of Fees and Expenses Paid
by the Fund.......................... 32
Conflicts of Interest.................. 35
Summary of the Limited Partnership
Agreement............................. 37
Tax Consequences....................... 37
Selling Commissions.................... 39
Lawyers; Accountants................... 39
Financial Statements................... 40
PART TWO
JWH Principals......................... 59
JWH Performance........................ 63
Performance of Other MLIP Publicly-
Offered Single-Advisor Funds......... 74
Performance of Other MLIP Funds........ 75
Futures Markets and Trading Methods.... 84
- ---------------
Exhibit A -- Limited Partnership
Agreement............................LPA-1
Exhibit B -- Subscription Requirements. SR-1
Exhibit C -- Subscription Agreement.... SA-1
OVERVIEW OF THE FUND
ML JWH STRATEGIC ALLOCATION FUND L.P. (THE "FUND") is a Delaware limited
partnership which began operations on July 15, 1996. The Fund, with MERRILL
LYNCH INVESTMENT PARTNERS INC. ("MLIP") as its general partner, trades in the
international futures and forward markets, applying the multiple proprietary
trading strategies of JOHN W. HENRY & COMPANY, INC. ("JWH(R)"). JWH has been
retained by MLIP as the Fund's trading advisor. In managing the Fund's trading,
JWH uses its "JWH STRATEGIC ALLOCATION PROGRAM" in whichJWH selects, and
allocates and reallocates Fund assets among, different combinations of the JWH
trading programs ("PROGRAMS").
JWH has granted Merrill Lynch (MERRILL LYNCH & CO., INC. ["ML&CO."] and
entities affiliated with ML&Co. are hereinafter referred to as "MERRILL LYNCH")
the exclusive right to market funds (public or private) for which JWH implements
the JWH Strategic Allocation Program until the end of the twelfth full month
after the initial sale of Units pursuant to 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, in fact, do so.
The Fund's primary objective is substantial capital appreciation. At the
same time, the use of multiple JWH Programs has the potential to reduce the
expected volatility and risk of loss which would typically be associated with
the use of any single Program.
JWH adjusts the overall trading leverage of certain of the Programs used by
the Fund and, accordingly, of the Fund itself, on an ongoing basis, decreasing
open positions during difficult periods in an attempt to preserve equity, while
increasing market exposure when favorable price trends develop. JWH can also
adjust the overall level of the Fund's leverage, in addition to making leverage
adjustments to the individual JWH Programs. By dynamically adjusting the
leverage of the Fund's portfolio of JWH strategies, as well as the trading
leverage within these strategies, in response to performance and changing market
conditions, JWH attempts to position the Fund so as to be able to capitalize on
global market opportunities while maintaining an advantageous reward/risk
profile.
MERRILL LYNCH ASSET MANAGEMENT, L.P. ("MLAM") provides cash management
services to the Fund within parameters established by MLIP (for which MLAM
assumes no responsibility). As of December 31, 1997, MLAM and its affiliates
were managing approximately $234.1 billion in investment company and other
portfolio assets, including accounts of certain of such affiliates.
A total of $199,795,866 had been invested in the Fund through January 31,
1998 (last sale of Units, February 1, 1997), and Units with an aggregate Net
Asset Value of $25,134,728 had been redeemed. As of February 1,1998, the
aggregate capitalization of the Fund was $219,085,096, and the Net Asset Value
per Unit, originally $100 as of July 15, 1996, had risen to $133.35. As of
February 1, 1998, the Fund had 5,324 Limited Partners.
-1-
<PAGE>
Through February 1, 1998, the highest month-end Net Asset Value per Unit
was $135.40 (December 31, 1997) and the lowest $98.89 (August 31, 1996). In its
first 18 1/2 months of trading (through January 1998), the Fund had 11
profitable and 7 1/2 unprofitable months. See "Performance of the Fund," below
at page 8, and "Selected Financial Data" at page 11.
MERRILL LYNCH INVESTMENT PARTNERS INC., a Delaware corporation, is the
general partner of the Fund. Offering hedge funds, managed futures and currency
investments for individuals 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
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 February 1, 1998, MLIP was acting as trading
manager or sponsor to funds in which approximately $3.1 billion of client assets
were invested.
JOHN W. HENRY & COMPANY, INC. 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 on a 24-hour basis in the United States, Europe
and Asia, and is one of the largest advisors in the managed futures industry in
terms of assets under management, trading approximately $2.3 billion in client
capital as of February 1, 1998.
GENERAL RISKS
The Fund is a speculative, highly leveraged investment. Investors must be
prepared to lose all or substantially all of their investment. There can be no
assurance that the past performance of either the Fund or JWH will be indicative
of how they will perform in the future. Furthermore, in certain market
conditions it is unlikely that any of the JWH Programs will be profitable.
The Fund is subject to substantial charges, so that its trading must be
profitable or its assets will bedepleted, irrespective of trading losses.
Furthermore, investors may only redeem Units as of month-end upon no less than
10 days' notice. Consequently, Limited Partners cannot predict the Net Asset
Value per Unit they will receive upon redemption and cannot, through redemption,
control the maximum loss on their investment with any degree of certainty.
All service providers to the Fund, other than JWH, are Merrill Lynch
affiliates. The business terms of the Fund -- other than JWH's advisory fees
and Profit Share -- were not negotiated, but rather unilaterally established by
MLIP and JWH itself has numerous clients other than the Fund, and financial
incentives to favor many of these clients over the Fund. There are no outside
directors or the equivalent to oversee the manner in which MLIP and JWH resolve
the conflicts of interest to which they are subject in operating the Fund or
that they are not benefiting themselves at the Fund's expense.
FEES AND EXPENSES
The following table itemizes the substantial costs payable by the Fund, as
well as its estimated interest income. Redemption charges of 3% of the
redemption date Net Asset Value per Unit are paid only on Units redeemed on or
before the end of the twelfth month after purchase.
Estimated costs, in particular, the Profit Share, may exceed the amounts
included in the following table; however, in its operations to date, the Fund's
costs have been generally consistent with these estimates. If the Fund's Net
Asset Value increases, the dollar amount of the Fund's flat-rate fees will also.
-2-
<PAGE>
TWELVE-MONTH
DOLLAR
TWELVE-MONTH BREAKEVEN
PERCENTAGE ($5,000 INITIAL
EXPENSES BREAKEVEN INVESTMENT)++
----------- ----------------
Ongoing Offering Costs 0.20% $ 10.00
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 4.45% $ 222.50
------ --------
Redemption Charge
(first twelve months only) 3.00% $ 150.00
TWELVE-MONTH
BREAKEVEN WITH
REDEMPTION CHARGE 7.45% $ 372.50
----- --------
_______________
* Estimated
++ Assumes a constant $5,000 Net Asset Value.
Organizational and initial offering cost reimbursement payments of $16,421 per
month end June 30, 1998.
SEE "ANALYSIS OF FEES AND EXPENSES
PAID BY THE FUND" AT PAGE 32.
CERTAIN TAX CONSIDERATIONS
Investors are taxed each year on any gains recognized by the Fund whether
or not investors redeem any Units or receive any distributions. A substantial
portion of any such gains will be taxed as short-term capital gain at ordinary
income rates, irrespective of how long an investor holds the Units. On the other
hand, losses generated by an investment in the Fund will be capital losses which
individual investors may only deduct against ordinary income to the extent of
$3,000 per year. Consequently, due to the interest income received by the Fund,
investors could be subject to tax on their investment even though their
investment has been unprofitable. A significant portion of the taxable income
allocated to a Limited Partner in respect of such Partner's Units will be taxed
at short-term capital gain rates, irrespective of how long such Units have been
outstanding. See "Tax Consequences at page 37."
SUITABILITY
No one should invest more than 10% of their readily marketable assets in
the Fund.
SUMMARY
There can be no assurance that the Fund will achieve its objectives or
avoid substantial losses. Past results are not necessarily indicative of future
performance.
1. THE FUND'S OBJECTIVE
The Fund's objective is substantial long-term capital appreciation with
reduced performance volatility and risk. JWH attempts to accomplish this
objective by combining different strategies included in the JWH Strategic
Allocation Program.
2. THE FUND'S RISK/REWARD PROFILE
Because the Fund has a single advisor, it falls towards the aggressive end
of MLIP's spectrum of funds. Using multiple JWH Trading Programs can reduce the
risks of the Fund's single-advisor approach, but these risks remain substantial.
The Fund is a multi-strategy, single-advisor investment, and its performance to
date has been volatile. Significant gains (over 6.6%) as well as significant
losses (over 3.3%) have been sustained in certain months. See "Performance of
the Fund" at page 8.
3. ADJUSTING THE FUND'S MARKET EXPOSURE
JWH attempts to adjust the Fund's market exposure to meet its profit as
well as risk-control objectives. The low margin requirements applicable to
futures and forward trading permit an advisor to make significant changes in the
size of an account's market positions, and, accordingly, in the risk as well as
profit potential of such account. For example, the margin requirement for the
Treasury bond futures contract is only approximately 2% of the contract value.
This means that an advisor which decided to trade Treasury bonds theoretically
could acquire positions with a face value ranging from only $100,000 (the size
of a single Treasury bond contract) to 50 times the total equity in the account.
The greater the market exposure of an account in a particular contract, the more
profit and loss will be recognized as a result of the same price movements in
such contract. Adjusting market exposure alters profit potential and risk of
loss.
-3-
<PAGE>
4. JWH SELECTING TRADING PROGRAMS WHICH JWH ITSELF HAS DEVELOPED
MLIP and JWH each believes that it is a potentially significant advantage
to the Fund that JWH selects the JWH Programs used for it. Mr. John W. Henry
developed the Programs, and JWH uses them on a proprietary basis. Consequently,
JWH is well aware of the Programs' capabilities and limitations under a wide
range of different market conditions, as well as of the trading leverage and
risk adjustments which they incorporate.
5. JWH TRADING PROGRAMS
As of the date of this Prospectus, JWH has allocated the Fund's assets
among the following eight Trading Programs.
DIVERSIFIED
-----------
GlobalAnalytics(TM)
Global Diversified Portfolio
Original Investment Program
FINANCIAL
---------
Financial and Metals Portfolio
Global Financial Portfolio
Worldwide Bond Program
FOREIGN EXCHANGE
----------------
Dollar Program
G-7 Currency Portfolio
See "JWH Trading Programs" at page 17 and "JWH Performance" at page 63 for
performance and other information regarding the JWH Programs.
6. PROFESSIONAL MANAGEMENT
An investor who is not prepared to devote substantial time to trading can
participate in the 24-hour global marketplace through this professionally
managed futures fund.
7. LONG-TERM COMMITMENT
JWH takes a long-term view of the markets focusing on profitability over
time despite short-term performance volatility. MLIP believes that an
investment in the Fund should be considered at least a 3 to 5 year commitment.
8. SMALL MINIMUM INVESTMENT
Even if available, a direct investment in a single Program with JWH
requires a minimum account size of $5 million. By investing in the Fund, you
participate in multiple JWH Trading Programs with a minimum investment of only
50 Units ($5,000, if less); 20 Units ($2,000, if less) for IRAs, other tax-
exempt accounts and existing investors.
9. LIMITED LIABILITY FOR INVESTORS
Investors who open individual futures accounts are personally liable for
all losses, including margin calls in excess of their investment. As a
Unitholder, you can never lose more than your investment and profits.
10. ADMINISTRATIVE CONVENIENCE
MLIP performs all administrative services 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 (212) 236-4167.
Investors receive monthly financial summaries and annual audited
financials.
11. IS THE FUND APPROPRIATE FOR YOU?
Although the Fund is aggressive and speculative, it may provide valuable
diversification and enhanced returns over the long-term. If you are interested
in an investment that has the potential to produce substantial returns non-
correlated with the general debt and equity markets, and are prepared to risk
incurring significant losses, you should consider investing in the Units.
-4-
<PAGE>
THE RISKS YOU FACE
1. RISK OF LOSS. You could lose all or substantially all of your investment
in the Fund. Losses can result from market conditions, inadequate Program
design, the Fund's substantial costs or a combination of the foregoing. If
losses are incurred, the potential diversification benefits of investing in
the Fund may not be realized.
2. SPECULATIVE, HIGHLY LEVERAGED INVESTMENT. The Fund trades speculatively at
a high degree of leverage, i.e., the Fund will often acquire positions with
a face value several or more times its total Net Asset Value. High
leverage involves high risk and generally increases performance volatility.
3. PAST AND FUTURE PERFORMANCE COULD DIFFER MATERIALLY. The Fund and the JWH
Programs may not perform in the future as they have in the past.
4. IMPORTANCE OF GENERAL MARKET CONDITIONS. Under certain general types of
market conditions -- for example, static, trendless markets (often
associated with periods of political stability, the absence of natural
disasters and lack of other factors contributing to the development of
strong price trends) -- JWH Programs are unlikely to be profitable.
5. FLUCTUATING UNIT VALUES. The Fund's trading to date, although cumulatively
profitable, has been volatile. Volatility is one commonly accepted measure
of risk. The Fund is a higher risk investment than multi-advisor futures
funds because of its single-advisor strategy.
6. SUBSTANTIAL EXPENSES. Annual trading profits of almost 5% are needed to
defray the Fund's expenses (almost 8% adding in the 12-month redemption
charge). The Fund's expenses could, over time, result in significant
losses.
7. DISCRETIONARY, NOT SYSTEMATIC, PROGRAM SELECTION PROCESS. JWH's
performance record has been achieved implementing computerized trading
models. However, the JWH Strategic Allocation Program andJWH's Program
selection for the Fund are based on JWH's subjective judgment and
discretion.
8. BRIEF OPERATING HISTORY. When the Fund began trading in July 1996, it was
the first account managed pursuant to the JWH Strategic Allocation Program.
The trading history of this Program is too short for any meaningful
evaluation of its prospects for success.
9. PROGRAM SIMILARITY REDUCES DIVERSIFICATION. The similarities among the
Programs reduce the Fund's diversification. The less diversification, the
higher the risk and the greater the expected volatility of performance.
10. OVERLAP OF MARKETS TRADED REDUCES DIVERSIFICATION. The markets traded by
the Programs overlap. Increased market concentration increases risk.
11. INVESTING IN UNITS MIGHT NOT DIVERSIFY AN OVERALL PORTFOLIO. During
periods when the Fund's performance is positively correlated with an
investment in the general equity and debt markets, the portfolio
diversification objective of the Fund will not be achieved. 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.
Because the periods of positive correlation between the Fund and the
general debt and equity markets cannot be predicted, investors must not
rely on the Fund as a hedge against losses in their core portfolios. Not
only are the periods of positive correlation between the Fund and the
broader markets unpredictable, but also it is not the objective of the Fund
for its performance to be negatively correlated (i.e., moving inversely to)
as opposed to non-correlated (i.e., moving in a manner unrelated to) equity
and debt prices.
12. INCREASED COMPETITION. Many technical traders (like JWH) often attempt to
execute similar trades at or about the same time. Increased competition for
trades can reduce the profit potential of the JWH Programs.
-5-
<PAGE>
13. RISK OF ILLIQUID MARKETS. In illiquid markets, the Fund might not be able
to execute the trades indicated by the Programs. Illiquid markets can
occur due to a scarcity of market participants (which, in turn, may be due
to the unfamiliar character of the instruments traded, the unusual risks
perceived to be associated with a particular market, oversupplying or other
factors) or due to a price trend of sufficient force that there are few
traders willing to take the opposite side of the market.
14. INCREASED EQUITY UNDER MANAGEMENT CAN CAUSE LOWER RETURNS. The more assets
traded by JWH, the harder it may be for JWH to trade profitably, because of
the difficulty of acquiring, and subsequently liquidating, larger and
larger, positions.
15. SPECIAL RISKS OF FOREIGN TRADING. The Programs trade a great deal outside
the U.S. Foreign trading involves risks -- including exchange-rate
exposure, possible governmental intervention and lack of regulation --
which U.S. trading does not. During certain periods, as much as 30% to 50%
of the market exposure of the Fund may be in non-U.S. markets (including
inter-bank positions in currencies other than the U.S. dollar).
16. CONFLICTS OF INTEREST. MLIP and its affiliates control the Fund and are
its principal service providers. The business terms of the Fund (other
than JWH's advisory fees and Profit Share) have not been negotiated. See
"Conflicts of Interest" beginning at page 35.
MLIP and JWH each have many other clients as well as incentives to favor
certain of such clients over the Fund.
17. CASH MANAGEMENT INVOLVES RISK. There can be no assurance that MLAM's cash
management will not lose money. The potential for increased returns
implies increased risk.
18. LIMITED REDEMPTION RIGHTS. You may only redeem Units at month-end and only
on at least 10 days' advance notice. 3% of the redemption value of all
Units redeemed on orbefore the end of the twelfth full calendar month after
issuance are deducted from the redemption proceeds of such Units and paid
to MLIP.
19. UNCERTAIN REDEMPTION AND SUBSCRIPTION PRICES. You cannot know what the
exact redemption value of your Units will be. You will not know the
precise subscription price of your Units when you subscribe.
20. INVESTORS TAXED EVERY YEAR. Investors are taxed each year on their
investment in the Fund, irrespective of whether they redeem any Units.
Consequently, they must pay such taxes from other sources.
21. TAX COULD BE DUE ON THE FUND'S INTEREST INCOME DESPITE OVERALL LOSSES.
Investors may be required to pay tax on the Fund's interest income, even
though the Fund incurs overall losses due to the limitations on the
deductibility of capital (trading) losses against ordinary (interest)
income.
22. POTENTIALLY HIGHER CAPITAL GAINS TAX RATE. Investors are taxed on their
share of any trading profits of the Fund at short- and long-term capital
gain rates, irrespective of how long an investor holds the Units. The
effective rate may be higher than those applicable to other investments
held by them for a comparable period of time.
23. BANKRUPTCY RISK. The Fund is subject to the risk of broker, exchange or
clearinghouse failure. Fund assets could be lost in such a failure, as
well as becoming unavailable to the Fund during lengthy bankruptcy
proceedings.
24. RISK OF REGULATORY CHANGE. Regulatory changes could adversely affect the
Fund by restricting its markets, limiting its trading, increasing taxes and
in numerous other ways.
-----------------------------
-6-
<PAGE>
HOW THE FUND WORKS
BUYING UNITS
You can buy Units on the first day of any month. Your subscription must be
submitted by the 20th of a month to purchase Units at the beginning of the next
month. Because Units are purchased at month-end Net Asset Values, you will not
know the exact per-Unit purchase price when your subscription is submitted.
Generally, only first-time investors need to submit Subscription
Agreements. To purchase additional Units, just contact your Financial
Consultant.
Units are sold at Net Asset Value. Merrill Lynch officers and employees
subscribe at 97% of Net Asset Value, with MLIP paying the difference to the
Fund.
The minimum purchase for first-time investors is 50 Units ($5,000, if
less); 20 Units ($2,000, if less) for IRAs, other tax-exempt accounts and
existing investors.
Only whole Units are sold. Subscription amounts which cannot be invested
in whole Units are retained by investors.
Contact your Financial Consultant for more details.
USE OF PROCEEDS
MLIP itself pays all selling commissions on the Units, so that 100% of all
subscription proceeds are received by the Fund. See "Selling Commissions" at
page 39. The Fund uses these proceeds to margin its speculative futures trading,
as well as to pay trading losses and expenses incurred. 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" at page 30.
The Fund's assets will be 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.
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 notice of redemption is not required. Your
Merrill Lynch customer securities 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, Sixth Floor,
South Tower, World Financial Center, New York, New York 10080-6106.
The Fund redeems Units at redemption date Net Asset Value on the Units (not
as of the date that redemption notices are submitted). The proceeds of Units
redeemed within 12 months of purchase are reduced by a charge of 3% of such Net
Asset Value, paid to MLIP. If a Limited Partner acquires Units at more than one
closing, a first-out convention will be applied in determining whether
redemption charges apply.
DISTRIBUTIONS
The Fund does not anticipate making any distributions of profits on
capital to investors.
-7-
<PAGE>
PERFORMANCE OF THE FUND
The following are the monthly rates of return and the month-end Net
Asset Value ("NAV") per Unit of the Fund from inception through January 31,
1998. Monthly rate of return is determined by dividing the net performance of
the Fund during a month by its Net Asset Value as of the beginning of such
month.
ML JWH STRATEGIC ALLOCATION FUND L.P.
JULY 15, 1996-JANUARY 31, 1998
AGGREGATE SUBSCRIPTIONS: $199,895,865
CURRENT CAPITALIZATION: $219,085,096
WORST MONTHLY DECLINE (MONTH/YEAR): (3.31)% (8/97)
WORST PEAK-TO-VALLEY DECLINE (MONTH/YEAR): (3.95)% (8/97-9/97)
NET ASSET VALUE PER UNIT, JANUARY 31, 1998: $133.35
NUMBER OF LIMITED PARTNERS, JANUARY 31, 1998: 5,324
MONTHLY RATES MONTH-END
OF RETURN NAV PER UNIT
1996
July ( 1/2 month) (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 23.15%
RETURN (5 1/2 MONTHS)
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 9.93%
RATE OF RETURN
THE FUND'S RATE OF RETURN FOR JANUARY 1998 WAS (1.51)% AND
THE JANUARY 31, 1998 NET ASSET VALUE PER UNIT $133.35
------------------------
CUMULATIVE STATISTICS
CORRELATION COEFFICIENT VS. S&P 500: 0.40
BETA VS. S&P 500: 0.34
SHARPE RATIO: 1.16
-8-
<PAGE>
Monthly rates of return are calculated by dividing monthly net performance
by the net asset value at the beginning of that month. Quarterly rates of
return are calculated by compounding the monthly rates of return over the months
in a given quarter in the same manner as described below for purposes of
calculating the Compound Annual Rate of Return.
Compound Annual Rate of Return (or Compound Rate of Return) means the
annual (or year-to-date) rate of return calculated by compounding the monthly
rates of return over the months in a given year -- i.e., each monthly rate of
return, in hundredths, is added to one (1) and the result is multiplied by the
subsequent monthly rate of return similarly expressed; one (1) is then
subtracted from the product and the result is multiplied by one hundred (100).
Worst peak-to-valley decline is measured on the basis of month-end Net
Asset Values. It is the largest decline in the Net Asset Value per Unit without
such Net Asset Value per Unit being subsequently equalled 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: Correlation coefficients range from
+1 to -1. If two investments, A and B, have a negative correlation coefficient
of -0.4, it means that, generally, for every up-move of A above its average
monthly return, B moves in the opposite direction (below its average monthly
return) in approximately 40% of the investment track period/months.
Beta vs. S&P 500: "Beta" is a coefficient measuring relative volatility
compared to that of the S&P 500, i.e., covariance in relation to the overall
stock market. Any investment with a Beta higher than 1 is more volatile than
the market.
Sharpe Ratio: The Sharpe Ratio is one of several measures used to evaluate
the reward-to-risk ratio of speculative trading strategies. The Sharpe Ratio
compares the annualized rate of return minus the annualized risk-free rate of
return to the annualized standard deviation of monthly rates of return. By
comparing the incremental returns over the risk-free (91-day Treasury bill) rate
to the standard deviation of such returns (assumed in the case of the risk-free
return to be approximately 0%), the Sharpe Ratio attempts to indicate the
incremental returns achieved in comparison to the risk assumed. 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 risk assumed by such strategy.
_______________
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
THE UNITS COULD INCUR SUBSTANTIAL LOSSES.
-9-
<PAGE>
[THIS PAGE IS INTENTIONALLY LEFT BLANK]
-10-
<PAGE>
SELECTED FINANCIAL DATA
The Selected Financial Data for 1996 and 1997 is taken from the 1996 and
1997 financial statements of the Fund audited by Deloitte & Touche llp. See
"Financial Statements" at page 40.
JULY 15, 1996
JANUARY 1, 1997 (INCEPTION)
INCOME TO TO
STATEMENT DATA DECEMBER 31, 1997 DEC. 31, 1996
- -------------- ----------------- --------------
REVENUES:
- --------
Realized Gain $ 18,820,033 $ 29,800,074
Change in Unrealized 10,201,917 4,696,372
------------ ------------
Total Trading Results 29,021,950 34,496,446
Interest Income 12,021,263 3,030,330
Total Revenues 41,043,213 37,526,776
------------ ------------
EXPENSES:
- --------
Administrative Fees 560,556 157,205
Brokerage Commissions 17,377,236 4,873,368
Total Expenses 17,937,792 5,030,573
------------ ------------
INCOME BEFORE PROFIT
SHARE ALLOCATION AND
MINORITY INTEREST: 23,105,421 32,496,203
- -----------------
Special Profit Share (2,640,194) (4,683,010)
Allocation (12,447) (23,383)
Minority interest on
income/(loss)
NET INCOME: $ 20,452,780 $ 27,789,810
- ----------
JULY 15,
BALANCE DECEMBER 31, DECEMBER 31, 1996
SHEET DATA 1997 1996 (INCEPTION)
- ---------- ------------ ------------ -----------
Aggregate Net
Asset Value $223,637,296 $172,073,615 $102,000,000
Net Asset Value
Per Unit $135.34 $122.61 $ 100.00
____________________
MANAGEMENT'S ANALYSIS
OF OPERATIONS
RESULTS OF OPERATIONS
General
- -------
Because JWH's systems are designed with the objective of identifying and
profiting from long-term price trends, they are unlikely to be profitable in
markets in which such trends do not occur. Static or erratic prices are likely
to result in losses. Similarly, unexpected events (for example, a political
upheaval, natural disaster or governmental intervention) can lead to major
short-term losses as well as gains.
While there can be no assurance that the JWH Programs will be profitable
even in trending markets, markets in which substantial and sustained price
movements occur offer the best profit potential for the Fund.
Performance Summary
- -------------------
1997
The Fund's most profitable positions in 1997 were in the currency markets.
Strong gains were realized in positions on the German mark, which weakened in
world markets as hopes for European Monetary Union rose. Reflecting sound
economic fundamentals in the U.S., the dollar dominated world currencies,
setting new records against the mark, yen and Swiss franc.
Solid gains were generated for the year in global interest rate markets,
particularly in Japanese Government bonds where yields plummeted to historic
lows as the nation sank relentlessly into a recession and a string of financial
sector bankruptcies followed. Strong gains were also recorded in Australian 10-
year and three-year bonds and in German and Italian bonds. In the U.S., yields
on the benchmark 30-year Treasury bond dipped below 6% in the final quarter of
the year, reflecting the flight of foreign capital to quality amid increasing
turbulence in Asian markets; positions in U.S. government bonds were profitable
overall.
-11-
<PAGE>
Positions in gold and the Nikkei also resulted in profits for the year.
Gold prices declined to the lowest level in over a decade reflecting its
declining 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. Losses were incurred in agricultural markets,
despite a strong performance by coffee futures earlier in the year. Energy
markets were also disappointing as ample world inventories and mild weather kept
supply and demand in balance.
1996 (5 1/2 months)
Gains in 1996 were considerable, as the Fund's investment programs
outperformed the major stock markets of the world. The Worldwide Bond Program
capitalized both on rising interest rates in the U.S. and falling rates
elsewhere.
Trading began on July 15 amid sharp declines in U.S. and global stock
markets. The U.S. dollar weakened against most major currencies as investors
fled U.S. assets in search of safe havens overseas. Investors remained cautious
through August, unwilling to take positions prior to key central bank policy
meetings and economic reports slated at month-end. Performance was mixed in
July and August, with some investment programs benefiting from the soaring
energy markets while others reflected the difficult trading environments for
global interest rates and currencies. Changing weather patterns buffeted
agricultural commodity markets.
By September, a combination of global economic and political developments
reduced the level of volatility in major interest rate and currency markets.
Chief among these was the decision by the U.S. Federal Reserve Board's policy
making committee to keep interest rates at current levels. Convinced that
European nations seeking membership in the European Monetary Union would
continue to keep rates low, investors turned again to higher yielding U.S.
dollar-denominated assets. Foreign central banks were heavy buyers of U.S.
bonds. The U.S. dollar strengthened. Performance was strong in all markets.
All of the Fund's investment programs recorded strong performance in
October. Soundeconomic fundamentals kept the U.S. dollar strong against most
major currencies. The one exception was the British pound, which soared against
the dollar as a result of positive economic indicators. Cash flooded the bond
and equity markets in October and November. Positions in global interest rates
and currencies resulted in gains.
By year-end, however, most markets were experiencing seasonal illiquidity
and were becoming highly volatile. Early in December, JWH completed a
significant reduction in leverage in some investment programs to reduce
investors' exposure to that volatility and to help retain the substantial
profits made in the second half of 1996.
LIQUIDITY AND CAPITAL RESOURCES
The level of the Fund's capitalization generally does not affect its
performance.
The Fund does not borrow (except on an interim basis in order to facilitate
multi-currency margining), and sells no securities other than the Units.
Inflation by itself does not affect profitability, but it can cause price
movements that do so.
The Fund's assets and open positions are generally highly liquid.
_______________
The Fund changes its positions and market focus frequently. Consequently, the
fact that the Fund realized gains or incurred losses in certain markets (gold,
stock indices, currencies, etc.) in the past is not necessarily indicative of
whether the Fund will do so in the future.
-12-
<PAGE>
MANAGED FUTURES FUNDS IN GENERAL
MANAGED FUTURES FUNDS
A futures fund is a professionally managed portfolio typically trading in a
wide range of markets, they may include global currencies, interest rates,
energy, metals and agriculture through futures, forwards and options contracts.
These funds trade either side of the market (short or long) on a 24-hour basis
under the direction of independent trading advisors, although these funds 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,
these 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 managers, 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, often, 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 returnof 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.
MANAGED FUTURES AND THE ASSET ALLOCATION PROCESS
Traditional portfolios invested in stocks, bonds and cash equivalents can be
diversified by allocating a portion of the 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 can help to
improve long-term returns and reduce portfolio volatility. 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 per formed 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, 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.
-13-
<PAGE>
THE ROLE OF MANAGED FUTURES IN YOUR PORTFOLIO
This 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
objectives.
THE FUND IN YOUR PORTFOLIO
The Fund is a speculative investment, and Limited Partners may lose all
or substantially 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 objectives.
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 access to international
markets and global diversification. Futures managers can move capital quickly
across markets, 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 much more complex. Managed futures funds
provide an opportunity to participate in global markets under the direction of
professional advisors.
-14-
<PAGE>
Futures Volume by Market Sector
1980 1996
[GRAPHIC APPEARS HERE]
Agriculture 64.20% 15.26%
Currencies 4.60% 6.41%
Interest Rates 13.50% 54.64%
Energy 0.30% 13.04%
Metals 16.30% 5.56%
Other 1.10% 5.09%
Total Volume: Total Volume:
92 million contracts 1.6 billion contracts
The futures volume figures and market sector distributions presented above
include both speculative and hedging transactions, as well as option on futures.
Source: Futures Industry Association. 1997 figures are not yet available.
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," "principal 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.
-15-
<PAGE>
COMPARISON OF ML JWH STRATEGIC ALLOCATION FUND L.P. AND
CERTAIN GENERAL SECURITIES MARKET AND
MANAGED FUTURES INDICES
Jul. 15, 1996 - Jan. 31, 1998
VALUE OF AN INITIAL $1,000 INVESTMENT
[Chart appears here]
<TABLE>
<CAPTION>
ML Domestic Master S&P 500 Stock U.S. 91-Day MAR Public Funds ML JWH Strategic
Bond Index (Total Index (Dividends Treasury Bills Index Allocation Fund
Return Basis) Reinvested) 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 1194.330911 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 1068.411487 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
</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 15, 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 certain
inherent material limitations.
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 6,632 investment-grade corporate bonds,
Treasuries, and mortgage issues; average maturity 12.70 years (calculated on a
market-weighted basis as of January 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, weighing
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 risk 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.
-16-
<PAGE>
JWH TRADING PROGRAMS
JWH's 11 active Programs are all available to the JWH Strategic Allocation
Program. As of February 1, 1998, eight Programs were being used for the Fund.
A number of factors -- including recent trading performance, market sector
opportunities, overall economic conditions, range of markets traded, volatility,
inter-Program correlation and inter-Program market overlap -- affect JWH's
Program selection. Some of these are Program-specific; others relate to general
market conditions.
The Fund's Programs provide exposure to a wide range of markets, using
different quantitative filters.
SEE "THE RISKS YOU FACE" AT PAGE 5 AND "JWH PERFORMANCE" AT PAGE 63.
% OF
FUND ASSETS
-----------
DOLLAR PROGRAM 7.5%
FINANCIAL AND METALS PORTFOLIO 12.5%
G-7 CURRENCY PORTFOLIO 12.5%
GLOBAL DIVERSIFIED PORTFOLIO 10.0%
GLOBAL FINANCIAL PORTFOLIO 15.0%
ORIGINAL INVESTMENT PROGRAM 20.0%
WORLDWIDE BOND PROGRAM 5.0%
JWH GLOBALANALYTICS FAMILY 17.5%
-----
100%
=====
AVERAGE COMPOUNDED ANNUALIZED RATES OF RETURN
JANUARY 1, 1993-
NAME OF PROGRAM DECEMBER 31, 1997
- --------------- -----------------
FINANCIAL AND METALS PORTFOLIO 23.5%
ORIGINAL INVESTMENT PROGRAM 21.4
GLOBAL DIVERSIFIED PORTFOLIO 22.5
GLOBAL FINANCIAL PORTFOLIO 14.2
(6/1/94-12/31/97)
INTERNATIONAL FOREIGN EXCHANGE PROGRAM 13.2
G-7 CURRENCY PORTFOLIO 10.3
JWH GLOBALANALYTICS FAMILY
OF PROGRAMS 17.6*
(6/1/94-12/31/97)
INTERNATIONAL CURRENCY AND BOND PORTFOLIO 16.5
THE WORLD FINANCIAL PERSPECTIVE 14.7
DOLLAR PROGRAM 11.8 (7/1/96-12/31/97)
WORLDWIDE BOND PROGRAM 18.6 (7/1/96-12/31/97)
*THIS NUMBER IS THE COMPOUND ANNUAL RATE OF RETURN FOR THIS PROGRAM AS
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 OF 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
OF THE PROGRAM'S PERFORMANCE RECORD AND THEN ONE (1) IS SUBTRACTED.
The following are brief summaries of the active JWH Programs.
APPROXIMATE
ASSETS MANAGED
FINANCIAL AND METALS PORTFOLIO FEBRUARY 1, 1998
- ------------------------------ ----------------
Program Composition: $1.3 BILLION
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)% (6/94-6/95)
1997 COMPOUND RATE OF RETURN: 15.2%
1996 COMPOUND RATE OF RETURN: 29.7%
1995 COMPOUND RATE OF RETURN: 38.5%
1994 COMPOUND RATE OF RETURN: (5.3)%
1993 COMPOUND RATE OF RETURN: 46.8%
ANNUAL COMPOUND RATE OF RETURN: 23.5%
-17-
<PAGE>
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 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.
APPROXIMATE
ASSETS MANAGED
ORIGINAL INVESTMENT PROGRAM FEBRUARY 1, 1998
- --------------------------- ----------------
Program Composition: $377.2 MILLION
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)
1997 COMPOUND RATE OF RETURN: 5.7%
1996 COMPOUND RATE OF RETURN: 22.6%
1995 COMPOUND RATE OF RETURN: 53.2%
1994 COMPOUND RATE OF RETURN: (5.7)%
1993 COMPOUND RATE OF RETURN: 40.6%
ANNUAL COMPOUND RATE OF RETURN: 21.4%
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.
APPROXIMATE
ASSETS MANAGED
GLOBAL DIVERSIFIED PORTFOLIO FEBRUARY 1, 1998
- ---------------------------- ----------------
Program Composition: $181.7 MILLION
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)
1997 COMPOUND RATE OF RETURN: (3.3)%
1996 COMPOUND RATE OF RETURN: 26.9%
1995 COMPOUND RATE OF RETURN: 19.6%
1994 COMPOUND RATE OF RETURN: 10.1%
1993 COMPOUND RATE OF RETURN: 59.8%
ANNUAL COMPOUND RATE OF RETURN: 22.5%
Trading futures and forwards in up to 60 markets, 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 nonfinancial 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.
-18-
<PAGE>
APPROXIMATE
ASSETS MANAGED
GLOBAL FINANCIAL PORTFOLIO FEBRUARY 1, 1998
- -------------------------- ----------------
Program Composition: $156.1 MILLION
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)% (1/94-1/95)
1997 COMPOUND RATE OF RETURN: 4.9%
1996 COMPOUND RATE OF RETURN: 32.4%
1995 COMPOUND RATE OF RETURN: 86.2%
1994 COMPOUND RATE OF RETURN: (37.7)% (7 MOS.)
ANNUAL COMPOUND RATE OF RETURN: 14.2%
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.
APPROXIMATE
INTERNATIONAL FOREIGN ASSETS MANAGED
EXCHANGE PROGRAM FEBRUARY 1, 1998
- ---------------- ----------------
Program Composition: $89.2 MILLION
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)
1997 COMPOUND RATE OF RETURN: 71.1%
1996 COMPOUND RATE OF RETURN: 3.7%
1995 COMPOUND RATE OF RETURN: 16.9%
1994 COMPOUND RATE OF RETURN: (6.3)%
1993 COMPOUND RATE OF RETURN: (4.5)%
ANNUAL COMPOUND RATE OF RETURN: 13.2%
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 on the interbank market. Positions are
taken as outrights against the dollar, or 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 nontrending markets.
This Program began trading client capital in August 1986.
APPROXIMATE
ASSETS MANAGED
G-7 CURRENCY PORTFOLIO FEBRUARY 1, 1998
- ---------------------- ----------------
Program Composition: $80.9 MILLION
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)
1997 COMPOUND RATE OF RETURN: 21.0%
1996 COMPOUND RATE OF RETURN: 14.5%
1995 COMPOUND RATE OF RETURN: 32.2%
1994 COMPOUND RATE OF RETURN: (4.9)%
1993 COMPOUND RATE OF RETURN: (6.3)%
ANNUAL COMPOUND RATE OF RETURN: 10.3%
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.
-19-
<PAGE>
This Program began trading client capital in February 1991.
APPROXIMATE
JWH GLOBALANALYTICS ASSETS MANAGED
FAMILY OF PROGRAMS FEBRUARY 1, 1998
- ------------------ ----------------
Program Composition: $46.1 MILLION
Global Interest Rates
Global Stock Indices
Foreign Exchange
Energy
Agriculture
Precious Metals
WORST MONTHLY DECLINE ON
AN INDIVIDUAL ACCOUNT BASIS: (4.5)% (8/97)
WORST PEAK-TO-VALLEY DECLINE
ON AN INDIVIDUAL ACCOUNT BASIS: (4.5)% (8/97)
1997 COMPOUND RATE OF RETURN: 17.6% (7 MOS.)
ANNUAL COMPOUND RATE OF RETURN: 17.6%
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 overallvolatility. This Program began trading client
capital in June 1997, when this Program was first used to manage assets for the
Fund.
APPROXIMATE
INTERNATIONAL CURRENCY ASSETS MANAGED
AND BOND PORTFOLIO FEBRUARY 1, 1998
- ----------------------- ----------------
Program Composition: $31.7 MILLION
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)
1997 COMPOUND RATE OF RETURN: 17.0%
1996 COMPOUND RATE OF RETURN: 19.9%
1995 COMPOUND RATE OF RETURN: 36.5%
1994 COMPOUND RATE OF RETURN: (2.3)%
1993 COMPOUND RATE OF RETURN: 14.8%
ANNUAL COMPOUND RATE OF RETURN: 16.5%
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.
-20-
<PAGE>
APPROXIMATE
THE WORLD FINANCIAL ASSETS MANAGED
PERSPECTIVE FEBRUARY 1, 1998
- -------------------------- ----------------
Program Composition: $31.2 MILLION
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)
1997 COMPOUND RATE OF RETURN: 10.4%
1996 COMPOUND RATE OF RETURN: 40.9%
1995 COMPOUND RATE OF RETURN: 32.2%
1994 COMPOUND RATE OF RETURN: (15.2)%
1993 COMPOUND RATE OF RETURN: 13.7%
ANNUAL COMPOUND RATE OF RETURN: 14.7%
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.
APPROXIMATE
ASSETS MANAGED
DOLLAR PROGRAM FEBRUARY 1, 1997
- -------------- ----------------
Program Composition: $24.8 MILLION
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)
1997 COMPOUND RATE OF RETURN: 6.8%
1996 COMPOUND RATE OF RETURN: 10.6% (6 MOS.)
ANNUAL COMPOUND RATE OF RETURN: 11.8%
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 toidentify 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.
APPROXIMATE
ASSETS MANAGED
WORLDWIDE BOND PROGRAM FEBRUARY 1, 1998
- ---------------------- ----------------
Program Composition: $19.7 MILLION
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)
1997 COMPOUND RATE OF RETURN: 7.7% (11 MOS.)
1996 COMPOUND RATE OF RETURN: 17.8% (6 MOS.)
ANNUAL COMPOUND RATE OF RETURN: 18.6%
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.
___________
-21-
<PAGE>
SEE "JWH PERFORMANCE" BEGINNING
AT PAGE 63.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
JWH PROGRAM SELECTION
JWH may change the Fund's Program combination at any time.
The JWH Trading Programs are highly systematic and technical in nature.
The allocations among such Programs made by the JWH Strategic Allocation
Program are in marked contrast, based entirely on JWH's discretion and market
experience. In implementing the JWH Strategic Allocation Program, JWH is able to
draw upon its considerable experience trading the different Programs under a
wide variety of different market conditions, as well as on its extensive and
proprietary knowledge of the functionality and limitations of these Programs.
However, JWH's selection of Programs for the Fund and allocation of the Fund's
trading level among the Programs so selected is not made on the basis of any
statistical model or quantitative analysis, but solely in JWH's best judgment.
JWH will review the Fund's Program combinations in light of a number of
factors, including (without limitation) the recent trading performance of the
Fund as a whole and of the Programs themselves, perceived market sector
opportunities and overall market conditions, range of markets traded,
volatility, inter-Program correlation and inter-Program market overlap. Other
factors which will be weighed in reviewing the Fund's portfolio are not specific
to any one Program, but instead will relate to the market position of the Fund
as a whole -- for example, monitoring appropriate levels of leverage, liquidity,
market sector concentration, degree of exposure to any single market, overall
open position exposure and ability to react to possible market volatility.
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).
See "-- Leverage Considerations," below.
The maximum peak-to-valley decline JWH has experienced in any single
Program was over sixty percent (60)%. Certain Programs have lost over ten
percent (10%) in a single day.
MARKETS TRADED
The JWH Programs trade in the futures, forward and spot markets,
emphasizing currencies and financial instruments, and the Fund trades in major
sectors of the global economy, including but not limited to:
CURRENCIES
- --------------------------------------------------------------------------------
Australian Dollar *Italian Lira
*Belgian Franc Japanese Yen
British Pound *Malaysian Ringgit
*Canadian Dollar *New Zealand Dollar
*Danish Krone Norwegian Krone
Deutsche Mark *Singapore Dollar
*French Franc *South African Rand
Hong Kong Dollar *Spanish Peseta
*Swedish Krone
Swiss Franc
FINANCIAL INSTRUMENTS
Australian (90-day) German Bonds
Bank Bills Italian Bonds
Australian (3-year and Japanese Bonds
10-year) Treasury Bonds *Spanish Bonds
*Canadian Bonds Spanish MIBOR
Eurodollar U.K. Long "Gilts"
Eurolira U.K. Short Sterling
Euromark U.S. 10-year Treasury
Euroswiss Notes
Euroyen U.S. Treasury Bonds
French Notionnel Bonds
French PIBOR
-22-
<PAGE>
STOCK INDICES
- --------------------------------------------------------------------------------
*Australian All Ordinaries FTSE 100 (UK)
Index *New York
*CAC 40 Stock Index Composite
(France) Nikkei 225 Index
*DAX (German) (Japan)
*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 integrated into the JWH Trading Programs as contract
liquidity, legal constraints, market conditions and data reliability standards
meet JWH's specifications.
There is no way to predict what markets
the Fund will trade.
LEVERAGE CONSIDERATIONS
Due to the leverage available in the futures and forward markets, JWH can
adjust the Fund's market commitment to levels JWH believes are consistent with
its intended risk/reward profile. The larger the market commitment (generally
equivalent to the face amount of the positions held) in relation to a fixed
amount of assets managed in one account, the higher the leverage at which it is
said to be trading. Larger market commitments, unless they are only one part of
a hedged or spread position, generally result in correspondingly greater profit
potential as well as risk of loss. For example, involatile markets, JWH might
decide -- in order to reduce market exposure and, accordingly, the risk of loss,
but with a possible decrease in profit potential -- that the positions
ordinarily appropriate for a $50 million account are all a $75 million account
should hold. On the other hand, market factors might cause JWH to decide -- in
order to increase market exposure and, accordingly, the profit potential, but
with a possible increase in the risk of loss -- that the positions ordinarily
indicated for a $100 million account are appropriate for an account of only $50
million.
At certain times -- often 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 One Glendinning Place,
Westport, Connecticut 06880, (203) 221-0431 and 301 Yamato Road, Suite 2200,
Boca Raton, Florida 3343-4931, (561) 241-0018. 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, and
its registration as a Commodity Pool Operator ("CPO"; a person which organizes
or manages investment funds which trade futures) in July 1989. JWH is a member
of the National Futures Association ("NFA") in these capacities.
For a description of the principals of JWH, see "JWH Principals" at page
59.
-23-
<PAGE>
TRADING STRATEGY
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.
A DISCIPLINED INVESTMENT PROCESS
Regardless of recent performance in any one market, or widely held opinions
on futures 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.
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 mathe matical 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 positionsthat typically exist for several months have
produced favorable results overall.
The maximum equity retracement JWH has experienced in any single program
was nearly sixty percent. Clients 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 oppor
tunities in as many major market trends as possible.
Throughout the investment process, risk controls are maintained to reduce
the possibility of an extraordinary loss in any one market. 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 program leverage, com mencement of trading in an
account, 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
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contracts in light of relative differences in historical performance achieved
through testing different methodologies. In addition, risk management research
and analysis may suggest modifications regarding the relative weighting among
various con tracts, 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 consider ations and other factors warrant. MLIP will generally not be
informed of any such changes.
LEVERAGE
Leverage adjustments 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. JWH reserves the right, at its sole discretion, to
adjust its leverage policy without notification to MLIP. 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 adjust ments 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.
ADDITION, REDEMPTION AND REALLOCATION OF CAPITAL FOR COMMODITY POOL OR FUND
ACCOUNTS
JWH has developed the following procedures which it applies in adjusting to
additions and redemptions of Units. 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 commensuratewith the Fund's equity on the date
of these transac tions, 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
NAVs 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 these entities' failure, inability or refusal to perform
with respect to such contracts.
THE LIMITED LIABILITY COMPANY AGREEMENT
The advisory arrangement between the Fund and JWH is a limited liability
company (effectively, a general partnership but with limited liability for both
the Fund and JWH) structure. The Organization Agreement for the limited
liability company 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 negligence, misconduct or breach of
the Organization 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 limited liability
company, 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
Organization 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 or wilful misconduct.
JWH has invested $100,000 in the limited liability company.
MERRILL LYNCH INVESTMENT
PARTNERS INC.
BACKGROUND AND PRINCIPALS
Merrill Lynch Investment Partners Inc., a 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 ofits 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 February 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.
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
JOSEPH H. MOGLIA Director
ALLEN N. JONES Director
STEPHEN G. BODURTHA Director
MICHAEL A. KARMELIN Chief Financial Officer, Vice
President and Treasurer
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 Merrill
Lynch Futures. He joined Merrill Lynch, Pierce, Fenner & Smith Incorporated
("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 U.S. Managed Funds Association (formerly, the
Managed Futures Association), a U.S. 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
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<PAGE>
efforts related to electronic trading, common clearing and the issues regarding
a potential merger.
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 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.
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 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.
Michael A. Karmelin was born in 1947. Mr. Karmelin is Chief Financial
Officer, Vice President and Treasurer of MLIP. Prior to joining MLIP in April
1997, Mr. Karmelin was Chief Financial Officer of Merrill Lynch, Hubbard Inc.
("ML Hubbard"), a sponsor of real estate limited partnerships. Mr. Karmelin
joined ML Hubbard in January 1994 and was a Vice President of ML Hubbard. From
May 1994 to April 1997, he was the Chief Financial Officer of ML Hubbard,
responsible for its accounting, treasury and tax functions. Prior to joining ML
Hubbard, Mr. Karmelin held several senior financial positions with ML&Co. and
MLPF&S from December 1985 to December 1993, including Vice President/Senior
Financial Officer Corporate Real Estate and Purchasing, Manager Commitment
Control/Capital Budgeting, and Senior Project Manager/Project Analysis. Prior
to joining ML&Co., Mr. Karmelin was employed at Avco Corporation for 17 years,
where he held a variety of financial positions. Mr. Karmelin holds a B.B.A.
degree in Accounting from Baruch College, C.U.N.Y. and a Master of Business
Administration degree in Corporate Strategy and Finance from New York
University. Mr. Karmelin passed the Certified Public Accounting examination in
1974 and is a member of the Treasury Management Association, the Institute of
Management Accountants and The Strategic Leadership Forum.
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
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<PAGE>
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 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 74 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.
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 material financial risk. Merrill Lynch is devoting necessary resources
to address all Year 2000 issues in a timely manner.
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.
CERTAIN LITIGATION
JWH LITIGATION
There neither now exists nor has there previously ever been any
administrative, civil or criminal action against JWH or its principals which is
material, except that 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. In November 1996,
JWH was named as a co-defendant in a class actioncomplaint filed in the Superior
Court of the State of Delaware for Newcastle County that contained the same
allegations as the New York and California complaints. Additional complaints
containing the same allegations as the earlier California complaints were filed
in California in March 1997. The actions, which seek unspecified damages,
purport to be brought on behalf of investors in certain Deal Witter, Discover &
Co. commodity pools, some of which are advised by JWH, and are primarily
directed at Dean Witter's alleged fraudulent selling practices in connection
with the marketing of those pools. JWH is essentially alleged to have aided and
abetted or directly participated with Dean Witter in those practices. 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.
The names and filing dates of the various actions described above are as
follows:
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).
Malichio et al. v. John W. Henry & Co. et al., #116698-96
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<PAGE>
(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).
Shifflet et al. v. John W. Henry & Co. et al., BC157596 (Superior Court of the
State of California, Los Angeles County, September 20, 1996).
Liptak et al. v. Dean Witter Reynolds Inc. et al., #966C-11-115VAB (Superior
Court of the State of Delaware, New Castle County, November 14, 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).
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;
(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 . Consequently, MLIP does not believe that any of
the foregoing actions will have an adverse effect on the Fund's operations,
earnings or assets.
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.
MERRILL LYNCH LITIGATION
ML&Co. -- the sole stockholder of Merrill Lynch Group, Inc. (which is the
sole stockholder of MLIP and MLF and the 100% indirect owner of all Merrill
Lynch entities involved in the operation of the Fund) -- as well as certain of
its subsidiaries and affiliates have been named as defendants in civil actions,
arbitration proceedings and claims arising out of their respective business
activities. Although the ultimate outcome of these actions cannot be
ascertained at this time and the results of legal proceedings cannot be
predicted with certainty, it is the opinion of management that the result of
these matters will not be materially adverse to the business operations or
financial condition of MLIP or the Fund.
MLIP itself 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 Commission that MLF had violated Section 4c(a)(A) of the
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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,
generally as determined 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 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.
INTEREST INCOME ARRANGEMENTS
CUSTODY OF ASSETS
All of the Fund's assets are currently held either in custodial or customer
accounts at Merrill Lynch. (ML&Co. and entities affiliated with it are herein
sometimes collectively referred to as "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 Merrill Lynch, Pierce, Fenner & Smith Incorporated 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 Merrill Lynch,
Pierce, Fenner & Smith Incorporated and Merrill Lynch Futures Inc. 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'saccount 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 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. MLF pays all fees due to MLAM at no additional cost
to the Fund.
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MLAM does business as Merrill Lynch Asset Management. MLAM is a limited
partnership. ML&Co. is its limited partner, and Princeton Services, Inc., a
wholly-owned indirect subsidiary of ML&Co., is the general partner. As of
December 31, 1997, MLAM and its affiliates, collectively, had a total of
approximately $234.1 billion in investment company and other portfolio assets
under management, including accounts of certain affiliates of MLAM.
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 tomeet 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 of 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 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. 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.
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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.
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
----------------------- --------------------------
Cost DOLLAR Dollar
---- 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 $ 298,039 149,621
Ongoing Offering Costs -- --
----------- ----------
Total $20,876,025 $9,863,204
=========== ==========
</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 $660,895 in organizational and initial offering
start-up costs costs is being reimbursed to MLIP by the Fund. The
final three installments of
$16,421 are payable as of the end
of April, May and June 1998.
MLF Brokerage Commissions Flat-rate monthly Brokerage Commissions 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).
</TABLE>
-32-
<PAGE>
FEES AND EXPENSES PAID BY THE FUND
<TABLE>
<CAPTION>
PAID TO TYPE AMOUNT
- ------- ---- ------
<S> <C> <C>
MLIP Administrative Fees Annual Administrative Fees of 0.25% of the
Fund's average month-end assets ($550,000).
MLIB; Bid-ask spreads Bid-ask spreads on forward and related trades.
Other
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
Securities Dealers trades.
All spreads and service fees are estimated not
to exceed 0.25% of average month-end assets
annually ($550,000).
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
July 31, 1998.
JWH Profit Share 15% of any New Trading Profits as of the end
of each calendar quarter.
</TABLE>
--------------------
BROKERAGE COMMISSIONS
Month-end assets are not reduced for purposes of calculating Brokerage
Commissions by any accrued but unpaid Profit Shares, Administrative Fees or the
accrued Brokerage Commissions being calculated.
During 1996 and 1997, the Fund's Brokerage Commissions were the equivalent
of about $208 and $212, respectively, per round-turn trade (each 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, covers all of the Fund's costs and expenses. The Fund could
negotiate lower rates from firms other than MLF.
THE FUND'S BROKERAGE COMMISSIONS AND ADMINISTRATIVE FEES CONSTITUTE A "WRAP
FEE," WHICH COVERS 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
ABOVETHE 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
counterparties in addition to (but also including) MLIB. Merrill Lynch charges
a service fee of approximately
-33-
<PAGE>
$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 ("EFP") 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 pursuant
to this Prospectus. These costs are estimated at $600,000 and will be charged
in equal monthly installments beginning July 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 they
exceed 0.25 of 1% of the Fund's average month-end Net Assets during any fiscal
year.
EXTRAORDINARY EXPENSES
The Fund will be required to pay any extraordinary expenses (such as taxes)
incidental to its operation. The Fund has not incurred any such expenses to
date. In MLIP's experience, such charges have been negligible. Extraordinary
expenses, if any, will 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 of cumulative Trading Profit as of any previous
calendar quarter-end (the "High Water Mark").
Trading Profit (i) includes realized and unrealized profits and losses,
(ii) excludes interest income and (iii) is reduced by annual Brokerage
Commissions of 5%, not 7.75%, 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, 1998, the Fund is at a High Water
Mark and its Net Asset Value is $100,000,000. 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 havereduced 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.
______________
-34-
<PAGE>
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 38.
JWH'S MANAGEMENT FEES
MLF pays monthly Management Fees to JWH at a rate of 0.333% (a 4% annual
rate; $8,800,000 assuming a Fund average capitalization of $220,000,000) of the
month-end assets of the Fund (after reduction of such assets by a portion of the
Brokerage Commissions 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
MLF pays MLAM 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.
During 1996 and 1997, MLIP paid fees of $136,000 and $173,853,
respectively, to MLAM.
_______________
REDEMPTION CHARGES
Units redeemed on or prior to the end of the twelfth full month after sale
pay a 3% redemption charge to MLIP.
During 1996 and 1997, MLIP received a total of $97,257 and $145,383,
respectively, in redemption charges.
CONFLICTS OF INTEREST
GENERAL
Neither Merrill Lynch nor JWH has established any formal procedures to
resolve the following conflicts of interest.
Because no formal procedures are in place for resolving conflicts, they may
be resolved by MLIP and/or JWH in a manner adverse to the Fund. Investors will
have no means of being aware of whether the Fund has been harmed by the
conflicts of interest involved in its operations.
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.
MLIP allocates its resources among a number of different funds. MLIP has
financial incentives to favor certain funds over the Fund.
The business terms of the Fund (other than the fees and Profit Shares due
to JWH which werenegotiated between MLIP and JWH) were not negotiated. MLIP
unilaterally established these terms, balancing marketing 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.
MLF; MLIB; MLAM
General
MLF executes trades for different clients in the same markets at the same
time.
-35-
<PAGE>
Many MLF clients pay lower brokerage rates than the Fund.
MLF, MLAM and MLIB do not have to compete to provide services to the Fund;
consequently, there is no independent check on the quality of their services.
JWH
General
JWH manages many accounts other than the Fund.
JWH and its principals devote a substantial portion of their business time
to ventures other than managing the Fund, including ventures unrelated to
futures trading.
JWH may not be willing to make certain highly successful Programs available
to the Fund.
To the extent that JWH devotes resources that could be used to improve its
management of the Fund's to other business activities or 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 may be adversely affected.
Financial Incentives to Disfavor the Fund
Because Profit Shares are based on the Fund's overall performance, not the
performance of any individual Program, JWH could reduce the Profit Shares it
would receive from some Programs by using them for 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.
In selecting the Programs for the Fund, JWH has an opportunity to promote
new Programs.
Any action which JWH takes to maximize its revenues by disfavoring the Fund
could adversely affect the Fund's performance, perhaps to a material extent.
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.
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 or opposite from 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.
Records of proprietary trading will not be available for inspection by
Limited Partners.
MLIP, JWH and related parties may have incentives to devote more attention
to their proprietary trading than to the management of the Fund.
-36-
<PAGE>
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.
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 is materially
correct.
PARTNERSHIP TAX STATUS OF THE FUND
Both the Fund and the Fund/JWH limited liability company 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 limited liability company, neither should
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 purchased or 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 such
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.
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
-37-
<PAGE>
income. MLIP believes that the amount, if any, of the Fund's expenses which
might be subject to this limitation is 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,
in which case individual taxpayers would likely pay tax on $100 of net profits
for every $85 increase in Net Asset Value of their Units. 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
Substantially all of the Fund's open positions at the end of each year are
treated for tax purposes as if such positions had been sold and any gain or loss
recognized. In general, such gain or loss will be 40% short-term capital gain or
loss and 60% long-term capital gain or loss.
TAX ON CAPITAL GAINS AND LOSSES; INTEREST INCOME
The Fund's trading generates almost exclusively capital gains or losses.
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.
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 (e.g.futures and futures options traded
on U.S. exchanges and certain foreign currency 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 $660,895 in organizational and initial offering costs and any ongoing
offering expenses paid by the Fund, and being reimbursed to MLIP through June
30, 1998 for purposes of determining Net Asset Value, are non-deductible
syndication expenses, as will be the estimated $600,000 in costs associated with
the offering of the Units pursuant to this Prospectus. The IRS could also
contend that a portion of the Brokerage Commissions paid to MLF and/or the
Administrative Fees paid to MLIP also 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. The
officers and employees report the MLIP contribution as ordinary income in the
year of purchase, and acquire a tax basis of 100% of the purchase date Net Asset
Value of their 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 plans and entities 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.
-38-
<PAGE>
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 are 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 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.
-39-
<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 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. (a Delaware limited partnership) and its 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
-40-
<PAGE>
ML JWH STRATEGIC ALLOCATION FUND L. P.
(A DELAWARE LIMITED PARTNERSHIP) AND JOINT VENTURE
-------------------------------------------------
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1997 AND DECEMBER 31, 1996
<TABLE>
<CAPTION>
1997 1996
------------- -------------
ASSETS
<S> <C> <C>
Cash on deposit at brokers $ -- $ 726
Accrued interest (Note 3) 1,848,520 184,577
U. S. Government obligations 170,933,832 121,535,012
Equity in commodity futures trading accounts
Cash and options premiums 41,484,775 54,132,103
Net unrealized profit on open contracts 14,898,289 4,696,372
--------------- ------------
TOTAL $229,165,416 $180,548,790
=============== ============
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Profit share payable (Note 2) $ 2,640,194 $ 4,683,010
Redemptions payable 1,116,238 1,661,675
Brokerage commissions payable (Note 3) 1,473,380 1,160,945
Administrative fees payable (Note 3) 47,527 37,450
Organization and initial offering costs payable (Note 1) 114,951 808,712
--------------- ------------
Total liabilities 5,392,290 8,351,792
--------------- ------------
MINORITY INTEREST 135,830 123,383
--------------- ------------
PARTNERS' CAPITAL:
General Partner (18, 177 and 16,643 units) 2,455,940 2,038,044
Investors (1,634,252 and 1,534,953 units) 221,181,356 188,284,065
Subscriptions receivable (0 and 148,169 units) -- (18,248,494)
--------------- ------------
Total partners' capital 223,637,296 172,073,615
--------------- ------------
TOTAL $229,165,416 $180,548,790
=============== ============
NET ASSET VALUE PER UNIT (NOTE 4)
See notes to consolidated financial statements.
</TABLE>
-41-
<PAGE>
ML JWH STRATEGIC ALLOCATION FUND L. P.
(A DELAWARE LIMITED PARTNERSHIP) AND JOINT VENTURE
-------------------------------------------------
CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997
AND THE PERIOD FROM JULY 15, 1996
(COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1996
REVENUES:
Trading profit:
Realized $18,820,033 $29,800,074
Change in unrealized 10,201,917 4,696,372
----------- -----------
Total trading results 29,021,950 34,496,446
Interest income (Note 3) 12,021,263 3,030,330
----------- -----------
Total revenues 41,043,213 37,526,776
----------- -----------
EXPENSES:
Brokerage commissions (Note 3) 17,377,236 4,873,368
Administrative fees (Note 3) 560,556 157,205
----------- -----------
Total expenses 17,937,792 5,030,573
----------- -----------
INCOME BEFORE SPECIAL PROFIT SHARE
ALLOCATION AND MINORITY INTEREST 23,105,421 32,496,203
Special Profit Share Allocation (Note 2) (2,640,194) (4,683,010)
Minority interest on income/(loss) (12,447) (23,383)
---------- -----------
NET INCOME $20,452,780 $27,789,810
=========== ===========
NET INCOME PER UNIT:
Weighted average number of Units
outstanding (Note 5) 1,739,531 1,163,568
=========== ===========
Net income per weighted average General Partner
and Investor Unit $11.76 $23.88
=========== ===========
See notes to consolidated financial statements.
-42-
<PAGE>
ML JWH STRATEGIC ALLOCATION FUND L. P.
(A DELAWARE LIMITED PARTNERSHIP) AND JOINT VENTURE
-------------------------------------------------
CONSOLIDATED STATEMENT OF 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
<TABLE>
<CAPTION>
LIMITED GENERAL SUBSCRIPTIONS
UNITS PARTNER PARTNER RECEIVABLE TOTAL
----------- ----------- ----------- -------------- ---------
<S> <C> <C> <C> <C> <C>
Initial offering 14,832 $100,516,800 $1,483,200 $ - $102,000,000
Organization 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
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
========== ============ ========== ============ ============
</TABLE>
See notes to consolidated financial statements.
-43-
<PAGE>
ML JWH STRATEGIC ALLOCATION FUND L. P.
(A DELAWARE LIMITED PARTNERSHIP) AND JOINT VENTURE
-------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR 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. Merrill Lynch
Investment Partners Inc. ("MLIP" or the "General Partner"), a wholly-owned
subsidiary of Merrill Lynch Group Inc., which, in turn, is a wholly-owned
subsidiary of Merrill Lynch & Co., Inc. ("Merrill Lynch"), is the general
partner of the Partnership. Merrill Lynch Futures Inc. ("MLF") is the
Partnership's commodity broker and Merrill Lynch Asset Management Inc. ("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 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.
-44-
<PAGE>
ML JWH STRATEGIC ALLOCATION FUND L. P.
(A DELAWARE LIMITED PARTNERSHIP) AND JOINT VENTURE
-------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR 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
thebrokerage 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.
-45-
<PAGE>
ML JWH STRATEGIC ALLOCATION FUND L. P.
(A DELAWARE LIMITED PARTNERSHIP) AND JOINT VENTURE
-------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR 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 the 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. Month-end assets are not reduced, for
purposes of calculating brokerage
-46-
<PAGE>
ML JWH STRATEGIC ALLOCATION FUND L. P.
(A DELAWARE LIMITED PARTNERSHIP) AND JOINT VENTURE
-------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1997
AND THE PERIOD FROM JULY 15, 1996
(COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1996
- --------------------------------------------------------------------------------
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 approxi
mately $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 twopositions. 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, totalled no more than .25 of 1% 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.
-47-
<PAGE>
ML JWH STRATEGIC ALLOCATION FUND L. P.
(A DELAWARE LIMITED PARTNERSHIP) AND JOINT VENTURE
-------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR 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 years
ended December 31, 1997 and 1996 were as follows:
1997 TOTAL 1996 TOTAL
TRADING RESULTS TRADING RESULTS
--------------- ---------------
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
============ ===========
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 onmonitoring 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 December 31, 1997 and 1996 were as follows:
1997
--------------------------------------
COMMITMENT COMMITMENT
TO PURCHASE TO SELL
(FUTURES, OPTIONS (FUTURES, OPTIONS
AND FORWARDS) AND FORWARDS)
------------------ ------------------
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
=============== ============
-48-
<PAGE>
ML JWH STRATEGIC ALLOCATION FUND L. P.
(A DELAWARE LIMITED PARTNERSHIP) AND JOINT VENTURE
-------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1997
AND THE PERIOD FROM JULY 15, 1996
(COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1996
- --------------------------------------------------------------------------------
1996
------------------
COMMITMENT COMMITMENT
TO PURCHASE TO SELL
(FUTURES, OPTIONS (FUTURES, OPTIONS
AND FORWARDS) AND FORWARDS)
------------------ ------------------
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
============ =================
Substantially all of the Joint Venture's derivative financial instruments
outstanding as of December 31, 1997, expire within one year.
The contract/notional values of the Joint Venture's open exchange-traded
and non-exchange-traded open derivative instrument positions as of December 31,
1997 and 1996 were as follows:
1997
---------------------
COMMITMENT COMMITMENT
TO PURCHASE TO SELL
(FUTURES, OPTIONS (FUTURES, OPTIONS
AND FORWARDS) AND FORWARDS)
------------------ --------------
Exchange-Traded $ 791,818,184 $468,259,393
Non-Exchange-
Traded 373,859,250 383,863,261
-------------- -------------
$1,165,677,434 $852,122,654
============== =============
1996
---------------------
COMMITMENT COMMITMENT
TO PURCHASE TO SELL
(FUTURES, OPTIONS (FUTURES,OPTIONS
AND FORWARDS) AND FORWARDS)
----------------- ----------------
Exchange-Traded $ 170,575,723 $ 46,596,770
Non-Exchange-
Traded 230,805,576 291,134,974
-------------- -------------
$ 401,381,299 $337,731,744
============== =============
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 during the year ended December 31, 1997 and 1996 were as follows:
1997
--------------
COMMITMENT COMMITMENT
TO PURCHASE TO SELL
(FUTURES, OPTIONS (FUTURES, OPTIONS
AND FORWARDS) AND FORWARDS)
------------- -------------
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
============== ============
-49-
<PAGE>
ML JWH STRATEGIC ALLOCATION FUND L. P.
(A DELAWARE LIMITED PARTNERSHIP) AND JOINT VENTURE
-------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1997
AND THE PERIOD FROM JULY 15, 1996
(COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1996
- --------------------------------------------------------------------------------
1996
--------------------
COMMITMENT COMMITMENT
TO PURCHASE TO SELL
(FUTURES, OPTIONS (FUTURES, OPTIONS
AND FORWARDS) AND FORWARDS)
------------- -------------
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
============== ============
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 arrange ments 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 marketexposure 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 on 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 December 31, 1997 and 1996
were as follows:
1997
-----------------
GROSS NET
UNREALIZED PROFIT UNREALIZED PROFIT
----------------- -----------------
Exchange-
Traded $14,037,333 $12,316,384
Non-Exchange-
Traded 8,613,088 2,581,905
----------- -----------
$22,650,421 $14,898,289
=========== ===========
1996
---------------
GROSS NET
UNREALIZED PROFIT UNREALIZED PROFIT
----------------- -----------------
Exchange-
Traded $ 3,013,592 $ 1,424,907
Non-Exchange-
Traded 6,937,127 3,271,465
----------- -----------
$9,950,719 $ 4,696,372
=========== ===========
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
-50-
<PAGE>
ML JWH STRATEGIC ALLOCATION FUND L. P.
(A DELAWARE LIMITED PARTNERSHIP) AND JOINT VENTURE
-------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1997
AND THE PERIOD FROM JULY 15, 1996
(COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1996
- --------------------------------------------------------------------------------
brokerage arrangement with MLF, to the extent that such trading results in
receivables from and payables to MLF, these receivables and payables are offset
and reported as a net receivable or payable.
-51-
<PAGE>
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
-52-
<PAGE>
MERRILL LYNCH INVESTMENT PARTNERS INC.
(FORMERLY, ML FUTURES INVESTMENT PARTNERS INC.)
BALANCE SHEET
DECEMBER 26, 1997
- --------------------------------------------------------------------------------
ASSETS
Cash $ 78,186
Investments in affiliated partnerships 15,911,448
Due from parent and affiliate 136,766,271
Receivables from affiliated partnerships 4,292,430
Deferred charges 26,005,943
Advances and other receivables 12,410,505
Fixed assets -- net of accumulated depreciation of $1,227,840 356,102
Other assets 154,000
------------
TOTAL ASSETS $195,974,885
============
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES:
Accounts payable and accrued expenses $ 11,194,543
Due to affiliate 23,907,704
Current and deferred income taxes 18,072,851
------------
Total liabilities 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
Additional paid-in capital 16,915,000
Retained earnings 125,883,787
------------
Total stockholder's equity $142,799,787
------------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $195,974,885
============
PURCHASERS OF UNITS WILL
ACQUIRE NO INTEREST IN THIS COMPANY
-53-
<PAGE>
MERRILL LYNCH INVESTMENT PARTNERS INC.
(FORMERLY, ML FUTURES INVESTMENT PARTNERS INC.)
NOTES TO BALANCE SHEET
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 L.P. (Safety of Equity Capital; Targeting
Overall Return), The SECTOR Strategy Fund II L.P., The JWH Global Asset Fund
L.P., The SECTOR Strategy Fund V L.P., ML Global Horizons L.P., ML/AIS L.P., ML
Select Hedge I L.P., The SECTOR Strategy Fund VI L.P., ML Principal Protection
L.P., ML Chesapeake L.P. and 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. Addi tionally, 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
-54-
<PAGE>
MERRILL LYNCH INVESTMENT PARTNERS INC.
(FORMERLY, ML FUTURES INVESTMENT PARTNERS INC.)
NOTES TO BALANCE SHEET
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 December 26, 1997, approximately
$136,800,000 was subject to this agreement.
At 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, 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 $20,000,000 was paid to investors during December 1997 with the
remaining balance of $8,500,000 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
-55-
<PAGE>
MERRILL LYNCH INVESTMENT PARTNERS INC.
(FORMERLY, ML FUTURES INVESTMENT PARTNERS INC.)
NOTES TO BALANCE SHEET
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 December
26, 1997, the Company was in compliance with such requirements.
At December 26, 1997, the Company's investments in its Affiliated
Partnerships were as follows:
ML Principal Protection L.P. $ 3,328,707
ML Global Horizons L.P. 1,652,159
The SECTOR Strategy Fund II L.P 956,384
John W. Henry & Company/Millburn L.P. 936,678
The SECTOR Strategy Fund VI L.P. 820,070
The JWH Global Asset Fund L.P. 729,776
The S.E.C.T.O.R. Strategy Fund L.P. 465,225
ML Futures Investments L.P. 402,373
The SECTOR Strategy Fund V L.P. 391,026
ML Futures Investments II L.P. 218,183
The Growth and Guarantee Fund L.P. 332,114
The Futures Expansion Fund Limited Partnership 142,826
ML Chesapeake L.P. 90,570
ML/AIG Asset Management L.L.C. 2,309,068
ML JWH Strategic Allocation Fund L.P. 2,461,884
ML Select Hedge I L.P. 500,000
ML/AIS L.P. 174,405
-----------
Total $15,911,448
===========
PURCHASERS OF UNITS WILL
ACQUIRE NO INTEREST IN THIS COMPANY
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<PAGE>
MERRILL LYNCH INVESTMENT PARTNERS INC.
(FORMERLY, ML FUTURES INVESTMENT PARTNERS INC.)
NOTES TO BALANCE SHEET
DECEMBER 26, 1997
- --------------------------------------------------------------------------------
The following represents condensed combined financial information of the
Affiliated Partnerships as of December 26, 1997 (in thousands):
Assets $877,131
========
Liabilities 17,325
Partners' capital 859,806
--------
Total $877,131
========
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
December 26,1997, the Company had no deferred tax assets. Deferred tax
liabilities consisted of the following:
State and local $2,600,736
Federal 8,191,979
-----------
$10,792,715
===========
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 December 26,
1997, the Company had a current tax payable with ML&Co. of $7,280,136.
5. NET WORTH AGREEMENTS
Pursuant to the limited partnership agree ments of the Affiliated
Partnerships, the Company is required to meet certain net worth requirements.
The Company's net worth, as defined, approximated $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 its Affiliated Partnerships, ongoing fees for units in
such partnerships outstanding as of the end of various periods.
PURCHASERS OF UNITS WILL
ACQUIRE NO INTEREST IN THIS COMPANY
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<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 5 IN PART ONE.
- --------------------------------------------------------------------------------
THIS PROSPECTUS IS IN TWO PARTS, BOTH OF WHICH CONTAIN IMPORTANT
INFORMATION.
- --------------------------------------------------------------------------------
MERRILL LYNCH, PIERCE, FENNER MERRILL LYNCH
& SMITH INCORPORATED INVESTMENT PARTNERS INC.
SELLING AGENT GENERAL PARTNER
_________________________
MARCH __, 1998
[LOGO]
<PAGE>
ML JWH STRATEGIC ALLOCATION FUND L.P.
TABLE OF CONTENTS
PART TWO
<TABLE>
<CAPTION>
PROSPECTUS SECTION PAGE
- ------------------ ----
<S> <C>
JWH Principals 59
JWH Performance 63
Performance of Other MLIP Publicly-Offered Single Advisor Funds 74
Performance of Other MLIP Funds 75
Futures Markets and Trading Methods 84
</TABLE>
____________________
Exhibit A -- Limited Partnership Agreement LPA-1
Exhibit B -- Subscription Requirements SR-1
Exhibit C -- Subscription Agreement SA-(i)
____________________
MERRILL LYNCH INVESTMENT PARTNERS INC.
GENERAL PARTNER
SOUTH TOWER, 6TH FLOOR
WORLD FINANCIAL CENTER
NEW YORK, NEW YORK 10080-6106
(212) 236-4167
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<PAGE>
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 U.S. National
Association of Futures Trading Advisors ("NAFTA") and the U.S. 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 U.S. 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 Risk 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 directorof JWH Risk
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.
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
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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 assistant 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.
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.
Driscollwas 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. Barry S. Fox is the director of research and is a member of the
Investment Policy Committee of JWH. Mr. Fox is responsible for the design and
testing of new programs. He also supports and maintains the proprietary systems
used to generate JWH trades. Mr. Fox joined JWH in March 1991 and since that
time has held positions of increasing responsibility in the Research and Product
Development Departments. Prior to his employment at JWH, Mr. Fox provided sales
and financial analysis support for Spreadsheet Solutions, a financial software
development company. Prior to joining Spreadsheet Solutions in October 1990,
Mr. Fox operated a trading company where he traded his own proprietary capital.
Before that, he was employed with Bankers Trust Company as a product specialist
for foreign exchange and treasury options trading. He received a B.S. in
Business Administration from the University of Buffalo.
Mr. Michael J. Scoyni is a managing director of JWH. Mr. Scoyni has been
associated with Mr. Henry since 1974 and with JWH since 1982. He was engaged in
research and development for John W. Henry & Company (JWH's predecessor) from
November 1981 to December 1982 and subsequently has been employed in positions
of increasing responsibility. He received a B.A. in Anthropology from
California State University.
Mr. Christopher E. Deakins is director of investor services 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
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<PAGE>
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. 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. Prior to joining JWH in March of 1993, 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 presidentand 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 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
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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. Prior to joining JWH
in September 1997, Mr. Treacy was the chief financial officer of Kenmar Advisory
Corp., a registered CPO, from August 1993 to August 1997. While at Kenmar, Mr.
Treacy was also a principal of multiple Kenmar affiliates which were registered
as CTAs, CPOs 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: Wendy B.
Goodyear, Director of the Office of the Chairman of JWH; Andrew D. Willard,
Director of Technology; William G. Kelley, Vice President; Robert B. Lendrim,
Vice President; Mark W. Sprankel, 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 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.
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<PAGE>
JWH PERFORMANCE
GENERAL
The following is the composite performance of all accounts managed by JWH and
JWH Investments, Inc. All performance information is current as of December 31,
1997.
Performance information prior to January 1, 1993 has not been included in
accordance with CFTC policy.
THE LARGEST COMPOSITE DECLINE OF ANY PROGRAM WAS OVER 60%, AND INDIVIDUAL
ACCOUNTS HAVE LOST MORE. CERTAIN PROGRAMS HAVE HAD DECLINES OF OVER 10% IN A
SINGLE DAY, AND OVER 30% IN A SINGLE MONTH.
Different accounts, even though traded according to the same investment
program, have materially different results. The reasons for this involve
numerous potentially material differences among accounts including, but not
limited to: (a) the periods during which accounts are active; (b) the Program
used (even if all accounts are traded in accordance with the same JWH Program,
such Program may be modified periodically as a result of ongoing Program and
portfolio research and development by JWH); (c) the leverage employed; (d) 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; (e) 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; (f) the amount of management and incentive fees paid to
JWH and/or a trading manager which selected JWH to manage the account in
question; (g) the brokerage commissions paid; (h) the timing of orders to open
or close positions; (i) market conditions, which in part determine the quality
of trade executions; (j) the trading instructions/ restrictions of the client;
and (k) procedures governing the timing for the commencement oftrading and the
method of moving toward full portfolio commitment for new accounts.
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 not 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 different."
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
be misleading 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
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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.
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 currently utilized 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 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.
Advisory fees vary from account to account managed pursuant to all programs.
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 December 31, 1997.
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 December 31, 1997. Refer to the additional
note below for more information on notional funds.
Worst monthly decline within the past five years is the largest monthly loss
experienced by any single account in the relevant investment program in
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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 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.
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 all JWH, programs,
except for The World Financial Perspective, the Delevered Yen Financial and
Metals Profile, the Worldwide Bond Program, the International Foreign Exchange
Program, theDollar Program, InterRate and GlobalAnalytics, 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.
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.
-65-
<PAGE>
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 SubsetSummaries 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 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.
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.
______________________
-66-
<PAGE>
<TABLE>
<CAPTION>
JOHN W. HENRY & COMPANY, INC. PROGRAMS
JANUARY 1, 1993 - DECEMBER 31, 1997
- ----------------------------------------------------------------------------------------------------------------------
International
Financial Original Global Global Foreign
and Metals Investment Diversified Financial Exchange G-7 Currency
NAME OF PROGRAM: Portfolio Program Portfolio Portfolio Program Portfolio
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INCEPTION OF CLIENT ACCOUNT October 1984 October 1982 June 1988 June 1994 August 1986 February 1991
TRADING IN PROGRAM:
- ----------------------------------------------------------------------------------------------------------------------
NUMBER OF OPEN ACCOUNTS: 36 23 10 7 4 6
- ----------------------------------------------------------------------------------------------------------------------
AGGREGATE ASSETS (EXCLUDING $1.3 $371.4 $181.7 $156.1 $89.2 million $80.9
"NOTIONAL" EQUITY) IN billion million million million million
PROGRAM:
- ----------------------------------------------------------------------------------------------------------------------
AGGREGATE ASSETS (INCLUDING $1.3 $377.2 $181.7 $156.1 $89.2 million $80.9
"NOTIONAL" EQUITY) IN billion million million million million
PROGRAM:
- ----------------------------------------------------------------------------------------------------------------------
AGGREGATE ASSETS (INCLUDING $2.4 $2.4 billion $2.4 billion $2.4 $2.4 billion $2.4 billion
"NOTIONAL" EQUITY) billion billion
OVERALL:
- ----------------------------------------------------------------------------------------------------------------------
WORST MONTHLY DECLINE ON AN (9.8)% (16.3)% (11.2)% (19.5)% (8.3)% (12.3)%
INDIVIDUAL ACCOUNT BASIS: (7/94) (10/94) (2/96) (11/94) (5/97) 11/94)
- ----------------------------------------------------------------------------------------------------------------------
WORST PEAK-TO-VALLEY (30.5)% (31.0)% (24.1)% (48.9)% (35.9)% (31.4)%
DECLINE (6/94-1/95) (7/94-10/94) (6/95-10/95) (7/94-1/95) (9/92-1/95) (10/92-1/95)
ON AN INDIVIDUAL ACCOUNT
BASIS:
- ----------------------------------------------------------------------------------------------------------------------
1997 COMPOUND ANNUAL RATE 15.2 % 5.7% 3.3% 4.9% 71.1% 21.0%
OF RETURN:
- ----------------------------------------------------------------------------------------------------------------------
1996 COMPOUND ANNUAL RATE 29.7% 22.6% 26.9% 32.4% 3.7% 14.5%
OF RETURN:
- ----------------------------------------------------------------------------------------------------------------------
1995 COMPOUND ANNUAL RATE 38.5% 53.2% 19.6% 86.2% 16.9% 32.2%
OF RETURN:
- ----------------------------------------------------------------------------------------------------------------------
1994 COMPOUND ANNUAL RATE (5.3)% (5.7)% 10.1% (37.7)% (6.3)% (4.9)%
OF RETURN: (7 months)
- ----------------------------------------------------------------------------------------------------------------------
1993 COMPOUND ANNUAL RATE 46.8% 40.6% 59.8% N/A (4.5)% (6.3)%
OF RETURN:
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- -----------------------------------------------------------------
JWH
Global-Analytics International
Family of Currency and
NAME OF PROGRAM: Programs Bond Portfolio
- -----------------------------------------------------------------
<S> <C> <C>
INCEPTION OF CLIENT ACCOUNT June 1997 January 1993
TRADING IN PROGRAM:
- -----------------------------------------------------------------
NUMBER OF OPEN ACCOUNTS: 2 2
- -----------------------------------------------------------------
AGGREGATE ASSETS (EXCLUDING $46.1 million $31.7 million
"NOTIONAL" EQUITY) IN
PROGRAM:
- -----------------------------------------------------------------
AGGREGATE ASSETS (INCLUDING $46.1 million $31.7 million
"NOTIONAL" EQUITY) IN
PROGRAM:
- -----------------------------------------------------------------
AGGREGATE ASSETS (INCLUDING $2.4 billion $2.4 billion
"NOTIONAL" EQUITY)
OVERALL:
- -----------------------------------------------------------------
WORST MONTHLY DECLINE ON AN (4.5)% (7.8)%
INDIVIDUAL ACCOUNT BASIS: (8/97) (7/94)
- -----------------------------------------------------------------
WORST PEAK-TO-VALLEY (4.5)% (23.6)%
DECLINE (8/97) (7/94-1/95)
ON AN INDIVIDUAL ACCOUNT
BASIS:
- -----------------------------------------------------------------
1997 COMPOUND ANNUAL RATE 17.6% 17.0%
OF RETURN: (7 months)
- -----------------------------------------------------------------
1996 COMPOUND ANNUAL RATE N/A 19.9%
OF RETURN:
- -----------------------------------------------------------------
1995 COMPOUND ANNUAL RATE N/A 36.5%
OF RETURN:
- -----------------------------------------------------------------
1994 COMPOUND ANNUAL RATE N/A (2.3)%
OF RETURN:
- -----------------------------------------------------------------
1993 COMPOUND ANNUAL RATE N/A 14.8%
OF RETURN:
- -----------------------------------------------------------------
</TABLE>
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.
-67-
<PAGE>
<TABLE>
<CAPTION>
JOHN W. HENRY & COMPANY, INC. PROGRAMS
JANUARY 1, 1993 - DECEMBER 31, 1997 (CONT'D)
- ----------------------------------------------------------------------------------------------------
Delevered
Yen
Denominated
The World Financial
Financial Dollar Worldwide and Metals
NAME OF PROGRAM: Perspective Program Bond Program Profile InterRate(TM)*
- ----------------------------------------------------------------------------------------------------
INCEPTION OF CLIENT April 1987 July 1996 July 1996 October December
ACCOUNT TRADING IN 1995; 1988;
PROGRAM: ceased ceased
trading trading 7/96
12/96
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NUMBER OF OPEN ACCOUNTS: 2 2 2 0 0
- ----------------------------------------------------------------------------------------------------
AGGREGATE ASSETS $31.2 $24.8 $19.7 $0 $0
(EXCLUDING "NOTIONAL" million million million
EQUITY) IN PROGRAM:
- ----------------------------------------------------------------------------------------------------
AGGREGATE ASSETS $31.2 $24.8 $19.7 $0 $0
(INCLUDING "NOTIONAL" million million million
EQUITY) IN PROGRAM:
- ----------------------------------------------------------------------------------------------------
AGGREGATE ASSETS $2.4 $2.4 $2.4 billion $2.4 $2.4 billion
(INCLUDING "NOTIONAL" billion billion billion
EQUITY) OVERALL:
- ----------------------------------------------------------------------------------------------------
WORST MONTHLY DECLINE ON (11.6)% (8.4)% (3.8)% (3.2)% (3.1)%
AN INDIVIDUAL ACCOUNT (3/93) (5/97) (4/97) (2/96) (11/94)
BASIS:
- ----------------------------------------------------------------------------------------------------
WORST PEAK-TO-VALLEY (25.9)% (11.6)% (6.2)% (5.1)% (19.7)%
DECLINE ON AN INDIVIDUAL (7/94-1/95) (5/97-9/97 (12/96-5/97) (2/96-8/96) (9/92-11/93)
ACCOUNT BASIS:
- ----------------------------------------------------------------------------------------------------
1997 COMPOUND ANNUAL RATE 10.4% 6.8% 9.5% N/A N/A
OF RETURN:
- ----------------------------------------------------------------------------------------------------
1996 COMPOUND ANNUAL RATE 40.9% 10.6% 17.8% 9.4% 5.79%
OF RETURN: (6 months) (6 months) (7 months)
- ----------------------------------------------------------------------------------------------------
1995 COMPOUND ANNUAL RATE 32.2% N/A N/A 0.2% 5.19%
OF RETURN: (3 months)
- ----------------------------------------------------------------------------------------------------
1994 COMPOUND ANNUAL RATE (15.2)% N/A N/A N/A 3.42%
OF RETURN:
- ----------------------------------------------------------------------------------------------------
1993 COMPOUND ANNUAL RATE 13.7% N/A N/A N/A (5.35)%
OF RETURN:
- ----------------------------------------------------------------------------------------------------
<CAPTION>
- -------------------------------------------------------------------------
KT Financial and
Diversified Metals
NAME OF PROGRAM: Program Portfolio* InterRate(TM)*
- -------------------------------------------------------------------------
<S> <C> <C> <C>
February
January September 1992;
INCEPTION OF CLIENT 1984; 1991; ceased
ACCOUNT TRADING IN ceased ceased trading
PROGRAM: trading 2/94 trading 7/95 11/93
- -------------------------------------------------------------------------
NUMBER OF OPEN ACCOUNTS: 0 0 0
- -------------------------------------------------------------------------
AGGREGATE ASSETS $0 $0 $0
(EXCLUDING "NOTIONAL"
EQUITY) IN PROGRAM:
- -------------------------------------------------------------------------
AGGREGATE ASSETS $0 $0 $0
(INCLUDING "NOTIONAL"
EQUITY) IN PROGRAM:
- -------------------------------------------------------------------------
AGGREGATE ASSETS $2.4 $0 $0
(INCLUDING "NOTIONAL" billion
EQUITY) OVERALL:
- -------------------------------------------------------------------------
WORST MONTHLY DECLINE ON (19.6)% (4.8)% (4.0)%
AN INDIVIDUAL ACCOUNT (8/93) (7/94) (11/93)
BASIS:
- -------------------------------------------------------------------------
WORST PEAK-TO-VALLEY (33.9)% (12.2)% (20.6)%
DECLINE ON AN INDIVIDUAL (8/93-2/94) (7/94-12/94) (9/92 -
ACCOUNT BASIS: 11/93)
- -------------------------------------------------------------------------
1997 COMPOUND ANNUAL RATE N/A N/A N/A
OF RETURN:
- -------------------------------------------------------------------------
1996 COMPOUND ANNUAL RATE N/A N/A N/A
OF RETURN:
- -------------------------------------------------------------------------
1995 COMPOUND ANNUAL RATE N/A 30.3% N/A
OF RETURN: (7 months)
- -------------------------------------------------------------------------
1994 COMPOUND ANNUAL RATE (14.0)% (0.8)% N/A
OF RETURN: (2 months)
- -------------------------------------------------------------------------
1993 COMPOUND ANNUAL RATE 20.6% 46.1% (9.9)%
OF 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
-68-
<PAGE>
JOHN W. HENRY & COMPANY, INC. PROGRAMS
JANUARY 1, 1993 - DECEMBER 31, 1997
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
INCEPTION OF ASSETS COMPOUND ANNUAL RATE MONTHLY PEAK-TO-VALLEY
ACCOUNT NO. TRADING DECEMBER 31, 1997 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 4/93 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 1/92 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 1/93 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 1/93 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 2/92 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 2/92 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.
-69-
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
AGGREGATE WORST WORST
INCEPTION OF ASSETS COMPOUND ANNUAL RATE MONTHLY PEAK-TO-VALLEY
ACCOUNT NO. TRADING DECEMBER 31, 1997 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.
-70-
<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>
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 9.5 5.9 7.2 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%
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>
*Beginning in October 1995, this Program is comprised of one proprietary
account.
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.
-71-
<PAGE>
THE JWH PROGRAMS MONTHLY RATES OF RETURN (CONT'D)
<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%
<CAPTION>
DOLLAR WORLDWIDE JWH GLOBALANALYTICS (TM)
PROGRAM BOND PROGRAM FAMILY OF PROGRAMS
------- ------------ ------------------------
<S> <C> <C> <C>
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
ANNUAL 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.
-72-
<PAGE>
THE JWH PROGRAMS MONTHLY RATES OF RETURN (CONT'D)
AVERAGE COMPOUNDED ANNUALIZED RATES OF RETURN
<TABLE>
<CAPTION>
PROGRAM JANUARY 1, 1993-
(IN ORDER OF PROGRAM INCEPTION DATE) DECEMBER 31, 1997
------------------------------------- -----------------
<S> <C>
ORIGINAL INVESTMENT PROGRAM 21.4%
FINANCIAL AND METALS PORTFOLIO 23.5
INTERNATIONAL FOREIGN EXCHANGE PROGRAM 13.2
THE WORLD FINANCIAL PERSPECTIVE 14.7
GLOBAL DIVERSIFIED PORTFOLIO 22.5
G-7 CURRENCY PORTFOLIO 10.3
INTERNATIONAL CURRENCY AND BOND PORTFOLIO 16.5
GLOBAL FINANCIAL PORTFOLIO 14.2 (6/1/94-12/31/97)
DOLLAR PROGRAM 11.8 (7/1/96-12/31/97)
WORLDWIDE BOND PROGRAM 18.6 (7/1/96-12/31/97)
JWH GLOBALANALYTICS FAMILY OF PROGRAMS 17.6* (6/1/97-12/31/97)
</TABLE>
____________________
*This number is the Compound Annual Rate of Return. See "-- Notes to JWH
Programs' Capsule Performance Summaries and the Monthly Rates of Return Table,"
beginning on page 64.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
___________________
-73-
<PAGE>
PERFORMANCE OF OTHER MLIP PUBLICLY-OFFERED SINGLE-ADVISOR FUNDS
Each of the following funds is a materially different investment than
the Fund. Their performance is included at this point in the 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.
<TABLE>
<CAPTION>
MLIP PUBLICLY-OFFERED SINGLE ADVISOR FUNDS
WITH AND WITHOUT "PRINCIPAL PROTECTION" FEATURES
DECEMBER 31, 1997
- -----------------------------------------------------------------------------------------------------------------
WORST WORST
MONTHLY PEAK-TO-VALLEY
TYPE OF INCEPTION DECLINE DECLINE
OFFERING OF AGGREGATE DEC. 31, 1997
NAME OF FUND TRADING SUBSCRIPTIONS CAPITALIZATION % MONTH % PERIOD
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ML JWH Strategic Private July 1996 $227,469,238 $205,151,205 (3.41)% (5/97) (4.23)% (8/97-9/97)
Allocation Fund Ltd.*
- -------------------------------------------------------------------------------------------------------------------
The Growth & Guarantee Public Aug. 1987 $148,349,450 $ 10,762,615 (4.70)% (8/97) (6.93)% (2/94-6/94)
Fund L.P. - Series A Units
- -------------------------------------------------------------------------------------------------------------------
The Futures Expansion Fund Public Jan. 1987 $ 56,741,035 $ 9,640,738 (10.92)% (2/96) (12.90)% (2/96-5/96)
Limited Partnership
- -------------------------------------------------------------------------------------------------------------------
World Currencies Limited Private Aug. 1987 $ 47,814,293 dissolved as (13.41)% (4/92) (35.81)% (9/92-1/95)
of 4/11/96
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL
INFORMATION
REGARDING
CUMULATIVE RATE
OF RETURN
JAN. 1, 1993 1997 1996 1995 1994 1993 1992
(OR INCEPTION) COMPOUND COMPOUND COMPOUND COMPOUND COMPOUND COMPOUND
TO ANNUAL ANNUAL ANNUAL ANNUAL ANNUAL ANNUAL
DEC. 31, 1997 RATE OF RATE OF RATE OF RATE OF RATE OF RATE OF
NAME OF FUND OR DISSOLUTION) RETURN RETURN RETURN RETURN RETURN RETURN
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ML JWH Strategic 31.94% 8.31% 21.82% N/A N/A N/A N/A
Allocation Fund Ltd.* (6 mos.)
- ----------------------------------------------------------------------------------------------------------------
The Growth & Guarantee 96.52% 23.76% 17.09% 32.01% (2.34)% 5.20% 3.75%
Fund L.P. - Series A Unit
- ----------------------------------------------------------------------------------------------------------------
The Futures Expansion Fund 53.53% 5.93% 8.93% 21.95% 5.55% 3.36% 9.23%
Limited Partnership
- ----------------------------------------------------------------------------------------------------------------
World Currencies Limited (14.53% N/A 1.20% 12.23% (12.84)% (10.46)% (3.10)%
(3 1/2 mos.)
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
* This fund is the offshore counterpart of the Fund.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
THE MLIP POOLS INCLUDED IN THE FOREGOING TABLE ARE
MATERIALLY DIFFERENT INVESTMENTS THAN THE FUND.
-74-
<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 74.
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 PAGES 64 TO 65.
TABLE OF CONTENTS
Pages
-----
A. MLIP Managed Account Program
Single-Advisor Funds (Without
"Principal Protection" Features)................. 76-78
B. MLIP Selected-Adviso and Multi-Advisor
Funds (Without "Principal Protection" Features).. 79-81
C. MLIP Selected-Advisor and Multi-Advisor
Funds (With "Principal Protection" Features)..... 82-83
-75-
<PAGE>
MLIP MANAGED ACCOUNT PROGRAM SINGLE ADVISOR POOLS
(WITHOUT "PRINCIPAL PROTECTION" FEATURES)
December 31, 1997
<TABLE>
<CAPTION>
WORST
WORST MONTHLY PEAK-TO-VALLEY
TYPE OF INCEPTION AGGREGATE DEC. 31, 1997 DECLINE DECLINE
NAME OF FUND OFFERING OF TRADING SUBSCRIPTIONS CAPITALIZATION % MONTH % PERIOD
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ML/AIS Ltd. Private July 1997 $42,867,563 $39,849,514 (8.33)% (8/97) (14.76)% (7/97-10/97)
ML/AIS L.P. Private July 1997 $38,598,399 $38,100,997 (8.28)% (8/97) (14.98)% (7/97-10/97)
ML Global Investments Fund Ltd. Private April 1997 $61,906,000 $69,614,596 (3.13)% (8/97) (3.13)% (8/97)
ML/APAM Ltd. Private April 1997 $85,322,900 $87,967,111 (1.27)% (3/97) (1.27)% (7/97)
ML Chesapeake L.P. Private April 1996 $9,172,869 $7,836,232 (7.86)% (8/97) (7.86)% (8/97)
ML Strategic Portfolio Fund Private July 1995 $55,530,000 $101,009,512 (1.58)% (6/97) (1.58)% (6/97)
The JWH Global Asset Fund Ltd. Private June 1995 $175,777,891 $147,377,750 (8.17)% (5/97) (11.57)% (3/97-5/97)
Series B
dissolved as of
The RXR Defensive Equity Private Nov. 1993 $45,455,000 5/31/96 (17.91)% (2/96) (42.98)% (1/94-12/94)
Alternative Account L.P.I.
ML Chesapeake Ltd. Private Aug. 1993 $65,543,644 $28,407,311 (7.73)% (8/97) (.58)% (5/96-7/96)
ML Hyman Beck Ltd. Private Aug. 1993 $24,184,322 $2,792,720 (9.04)% (2/96) (19.02)% (7-95-2/96)
<CAPTION>
NAME OF FUND SUPPLEMENTAL
INFORMATION
REGARDING
CUMULATIVE RATE
OF RETURN
JAN. 1, 1993 1997 1996 1995 1994 1993
(OR INCEPTION) COMPOUND COMPOUND COMPOUND COMPOUND COMPOUND
TO ANNUAL ANNUAL ANNUAL ANNUAL ANNUAL
DEC. 31, 1997 RATE OF RATE OF RATE OF RATE OF RATE OF
(OR DISSOLUTION) RETURN RETURN RETURN RETURN RETURN
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ML/AIS Ltd. (5.40)% (5.40)% N/A N/A N/A N/A
(6 mos.) (6 mos.)
ML/AIS L.P. (5.72)% (5.72)% N/A N/A N/A N/A
(6 mos.) (6 mos.)
ML Global Investments Fund Ltd. (12.26)% 12.26% N/A N/A N/A N/A
(9 mos.) (9 mos.)
ML/APAM Ltd. 3.58% 3.58% N/A N/A N/A N/A
(8 mos.) (8 mos.)
ML Chesapeake L.P. 16.22% 9.43% 6.21% N/A N/A N/A
ML Strategic Portfolio Fund 90.83% 14.66% 38.69% 19.99%(6 N/A N/A
months)
The JWH Global Asset Fund Ltd. 52.58% 20.50% 27.64% (0.78)% N/A N/A
Series B (7 months)
The RXR Defensive Equity (1.61)% N/A (18.46)% 103.03% (42.98)% 4.23%
Alternative Account L.P.I. (2 months)
ML Chesapeake Ltd. 55.45% 8.71% 9.32% 8.29% 16.45% 3.72%
(5 months)
ML Hyman Beck Ltd. 19.18% 21.08% 2.54% 6.79% (9.31)% (0.88)%
(5 months)
</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.
-76-
<PAGE>
MLIP MANAGED ACCOUNT PROGRAM SINGLE ADVISOR POOLS
(WITHOUT "PRINCIPAL PROTECTION" FEATURES)
December 31, 1997
<TABLE>
<CAPTION>
WORST
WORST MONTHLY PEAK-TO-VALLEY
TYPE OF INCEPTION AGGREGATE DEC. 31, 1997 DECLINE DECLINE
NAME OF FUND OFFERING OF TRADING SUBSCRIPTIONS CAPITALIZATION % MONTH % PERIOD
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
dissolved as of
ML Mountain Partners Ltd. Private July 1993 $29,571,566 12/22/94 (17.17)% (2/94) (60.57)% (8/93-8/94)
The JWH Global Asset Fund L.P. Private Aug. 1991 $96,867,360 $55,183,869 (7.99)% (5/97) (13.26)% (2/97-5/97)
The JWH Global Asset Fund Ltd. Private June 1990 $97,112,854 $49,168,336 (6.53)% (2/96) (16.91)% (7/94-1/95)
Series A
The Moore Capital Fund II Ltd. Private Sep. 1992 Ecu 7,763,565 Ecu 1,508,204 (8.10)% (11/94) (26.79)% (2/94-2/95)
The Moore Global Investment Private Sep. 1990 $77,853,580 dissolved as of (7.30)% (2/94) (23.05)% (2/94-2/95)
Fund Ltd. 5/31/95
The Leyden Investment Fund Ltd. Private June 1991 $6,708,424 dissolved as of (17.91)% (2/96) (28.53)% (2/96-9/96)
10/31/96
The Leyden Investment Fund L.P. Private June 1991 $30,637,006 dissolved as of (19.68)% (3/94) (28.91)% (9/93-12/94)
12/31/94
ML Liberty Management Fund Ltd. Private Oct. 1992 $20,495,843 $1,745,617 (5.17)% (7/94) (6.76)% (2/94-5/94)
ML North Cove Fund Ltd. Private Jan. 1993 $98,273,603 $32,889,022 (6.22)% (2/94) (23.99)% (2/94-2/95)
ML Harmon Cove Fund Ltd. Private Jan. 1993 $112,516,453 $65,479,168 (2.54)% (3/93) (2.54)% (3/93)
<CAPTION>
NAME OF FUND SUPPLEMENTAL
INFORMATION
REGARDING
CUMULATIVE RATE
OF RETURN
JAN. 1, 1993 1997 1996 1995 1994 1993
(OR INCEPTION) COMPOUND COMPOUND COMPOUND COMPOUND COMPOUND
TO ANNUAL ANNUAL ANNUAL ANNUAL ANNUAL
DEC. 31, 1997 RATE OF RATE OF RATE OF RATE OF RATE OF
(OR DISSOLUTION) RETURN RETURN RETURN RETURN RETURN
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ML Mountain Partners Ltd. (53.27)% N/A N/A N/A (32.20)% (31.07)%
(6 months)
The JWH Global Asset Fund L.P 148.99% 14.74% 29.83% 39.62% (4.86)% 25.81%
The JWH Global Asset Fund Ltd. 124.43% 7.13% 28.14% 38.19% (9.24)% 25.81%
Series A
The Moore Capital Fund II Ltd. 166.48% 27.15% 24.95% 21.27% (22.58)% 51.60%
The Moore Global Investment 68.14% N/A N/A 1.65% (17.73)% 44.20%
Fund Ltd. (5 months)
The Moore Capital Fund L.P.I. 22.29% N/A N/A N/A N/A N/A
The Leyden Investment Fund Ltd. 10.64% N/A (20.98)% 24.93% (14.68)% 13.98%
(10 months)
The Leyden Investment Fund (4.50)% N/A N/A N/A (27.30)% 13.98%
ML Liberty Management Fund Ltd. 43.80% 18.01% 5.55% 15.70% 4.15% (4.20)%
ML North Cove Fund Ltd. 98.91% 27.67% 27.70% 23.09% (17.07)% 19.54%
ML Harmon Cove Fund Ltd. 78.20% 12.23% 14.45% 6.08% 17.35% 11.46%
</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.
-77-
<PAGE>
MLIP MANAGED ACCOUNT PROGRAM SINGLE ADVISOR POOLS
(WITHOUT "PRINCIPAL PROTECTION" FEATURES)
December 31, 1997
<TABLE>
<CAPTION>
WORST
WORST MONTHLY PEAK-TO-VALLEY
TYPE OF INCEPTION AGGREGATE DEC. 31, 1997 DECLINE DECLINE
NAME OF FUND OFFERING OF TRADING SUBSCRIPTIONS CAPITALIZATION % MONTH % PERIOD
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
dissolved as of
ML/Essex Fund Ltd. Private Aug. 1991 $1,870,286 4/30/97 (7.75)% (1/94) (11.87)% (1/92-4/92)
InterRate(TM)Limited Private Dec. 1988 $7,429,200 dissolved as of (10.08)% (9/92) (13.49)% (9/92-1/93)
1/31/94
<CAPTION>
NAME OF FUND SUPPLEMENTAL
INFORMATION
REGARDING
CUMULATIVE RATE
OF RETURN
JAN. 1, 1993 1997 1996 1995 1994 1993
(OR INCEPTION) COMPOUND COMPOUND COMPOUND COMPOUND COMPOUND
TO ANNUAL ANNUAL ANNUAL ANNUAL ANNUAL
DEC. 31, 1997 RATE OF RATE OF RATE OF RATE OF RATE OF
(OR DISSOLUTION) RETURN RETURN RETURN RETURN RETURN
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
138.08% 18.02%
ML/Essex Fund Ltd. (4 months) 17.46% 11.60% (6.54)% 37.19%
InterRate(TM)Limited (8.97)% N/A N/A N/A 0.55% (1 (7.02)%
month)
</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.
-78-
<PAGE>
MLIP SELECTED-ADVISOR AND MULTI-ADVISOR FUNDS
(WITHOUT "PRINCIPAL PROTECTION" FEATURES)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
WORST
WORST MONTHLY PEAK-TO-VALLEY
TYPE OF INCEPTION AGGREGATE DEC. 31, 1997 DECLINE/1//2/ DECLINE/3/
NAME OF FUND OFFERING OF TRADING SUBSCRIPTIONS CAPITALIZATION % MONTH % PERIOD
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ML Futures Investments II L.P. Public May 1988 $269,809,800 $12,749,748 (9.93)% (7/96) (16.76)% (5/96-7/96)
ML Futures Investments L.P. Public Mar. 1989 $86,500,700 $24,385,405 (5.14)% (12/96) (10.85)% (6/95-7/96)
The John W. Henry &
Co./Millburn L.P.
(Series A Units) Public Jan. 1990 $18,182,000 $14,709,079 (9.58)% (2/96) (19.33)% (7/94-1/95)
The John W. Henry &
Co./Millburn L.P.
(Series B Units) Public Jan. 1991 $50,636,000 $31,679,477 (9.41)% (2/96) (19.32)% (7/94-1/95)
The John W. Henry &
Co./Millburn L. P.
(Series C Units) Public Jan. 1992 $40,000,000 $16, 635,608 (9.54)% (2/96) (19.20)% (7/94-1/95)
The SECTOR Strategy
Fund(sm) IV L.P. dissolved as of
(Series B Units) Public July 1992 $13,353,600 6/30/97 (7.04)% (2/96) (11.45)% (2/96-7/96)
The SECTOR Strategy
Fund(sm) International IV Ltd. dissolved as of
(Series B Shares) Private July 1992 $9,131,000 6/30/97 (7.32)% (2/96) (10.79)% (1/94-1/95)
ML Global Horizons L.P. Public Jan. 1994 $165,566,206 $134,044,364 (6.42)% (2/96) (6.42)% (2/96)
ML Global Horizons Ltd.
(Series A) Private Jan. 1994 $151,076,732 $94,296,904 (6.29)% (2/96) (6.29)% (2/96)
ML Global Horizons Ltd.
(Series B) Private Sept. 1994 $3,708,415 $2,388,362 (5.66)% (2/96) (6.05)% (8/97-10/97)
<CAPTION>
NAME OF FUND SUPPLEMENTAL
INFORMATION
REGARDING
CUMULATIVE RATE
OF RETURN
JAN. 1, 1993 1997 1996 1995 1994 1993
(OR INCEPTION) COMPOUND COMPOUND COMPOUND COMPOUND COMPOUND
TO ANNUAL ANNUAL ANNUAL ANNUAL ANNUAL
DEC. 31, 1997 RATE OF RATE OF RATE OF RATE OF RATE OF
(OR DISSOLUTION) RETURN RETURN RETURN RETURN RETURN
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ML Futures Investments II L.P. 46.50% 4.78% 2.05% 17.07% (1.36)% 18.67%
ML Futures Investments L.P. 55.08% 9.22% 5.87% 11.80% 2.95% 16.56%
The John W. Henry &
Co./Millburn L.P.
(Series A Units) 100.85% 12.49% 20.09% 34.89% (8.64)% 20.64%
The John W. Henry &
Co./Millburn L.P. 99.05% 12.46% 20.03% 34.49% (8.43)% 19.74%
(Series B Units)
The John W. Henry &
Co./Millburn L. P. 91.98% 12.47% 19.54% 35.08% (7.88)% 14.78%
(Series C Units)
The SECTOR Strategy
Fund(sm) IV L.P. 42.04% 1.09% 12.50% 12.01% (7.44)% 19.56%
(Series B Units) (6 months)
The SECTOR Strategy
Fund(sm) International IV Ltd. 34.86% 0.84% 6.97% 14.51% (9.37)% 19.56%
(Series B Shares) (6 months)
ML Global Horizons L.P. 53.83% 7.61% 14.96% 19.48% 4.08% N/A
ML Global Horizons Ltd.
(Series A) 53.06% 6.21% 15.51% 19.77% 4.15% N/A
ML Global Horizons Ltd.
(Series B) 57.12% 6.71% 15.63% 22.62% 3.86% N/A
(4 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.
-79-
<PAGE>
MLIP SELECTED-ADVISOR AND MULTI-ADVISOR FUNDS
(WITHOUT "PRINCIPAL PROTECTION" FEATURES)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
WORST
WORST MONTHLY PEAK-TO-VALLEY
TYPE OF INCEPTION AGGREGATE DEC. 31, 1997 DECLINE/1//2/ DECLINE/3/
NAME OF FUND OFFERING OF TRADING SUBSCRIPTIONS CAPITALIZATION % MONTH % PERIOD
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
The JL I Trading Co. Fund Private Mar. 1995 $14,300,136 $15,440,196 (6.93)% (2/96) (11.18)% (4-97-10/97)
MLIP resigned as
trading manager
Permal F/X, Financials & as of
Futures Ltd. Private July 1992 $106,495,710 3/31/96 (5.67)% (2.94) (12.24)% (2/94-4/94)
ML Japan Investment dissolved as of
Partners Ltd. Private Aug. 1993 (Y)1,050,000,000 6/30/96 (3.52)% (7/94) (7.32)% (1/94-2/95)
dissolved as of
ML Futures Investments Ltd. Private Mar. 1989 $68,202,237 8/31/94 (6.17)% (2/94) (11.10)% (1/94-2/94)
Currency Investment Partner dissolved as of
Ltd. Private April 1991 $55,114,566 8/31/94 (3.44)% (12/92) (16.10)% (7/91-5/94)
The Managed Futures Trust dissolved as of
Fund L.P. Private May 1991 $11,090,759 9/24/93 (6.18)% (1/92) (14.50)% (1/92-5/92)
Commodity Trading Company, Private July 1991 $25,797,626 dissolved as of (6.47)% (2/94) (23.31)% (1/92-12/92)
Ltd. 10/31/94
<CAPTION>
NAME OF FUND
SUPPLEMENTAL
INFORMATION
REGARDING
CUMULATIVE RATE
OF RETURN 1997 1996 1995 1994 1993
JAN. 1, 1993 COMPOUND COMPOUND COMPOUND COMPOUND COMPOUND
(OR INCEPTION) ANNUAL ANNUAL ANNUAL ANNUAL ANNUAL
TO RATE OF RATE OF RATE OF RATE OF RATE OF
DEC. 31, 1997 RETURN RETURN RETURN RETURN RETURN
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
The JL I Trading Co. Fund 18.02% 4.08% 10.68% 2.45% N/A N/A
(10 mos.)
Permal F/X, Financials & Futures
Ltd. 21.22% N/A 6.63% 14.78% (5.33)% 11.05%
(3 mos.)
ML Japan Investment
Partners Ltd. (2.80)% N/A (1.69)% 3.95% (5.95)% 1.13%
(6 mos.) (5 mos.)
ML Futures Investments Ltd. 14.36% N/A N/A N/A (3.78)% 15.26%
(8 mos.)
Currency Investment Partner
Ltd. (7.50)% N/A N/A N/A (4.05)% (2.06)%
(8 mos.)
The Managed Futures Trust Fund 21.53%
L.P. 24.73% N/A N/A N/A N/A (8-2/3 mos.)
Commodity Trading Company,
Ltd. (6.40)% N/A N/A N/A 6.21% 14.91%
(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.
-80-
<PAGE>
MLIP SELECTED-ADVISOR AND MULTI-ADVISOR FUNDS
(WITHOUT "PRINCIPAL PROTECTION" FEATURES)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
WORST
WORST MONTHLY PEAK-TO-VALLEY
TYPE OF INCEPTION AGGREGATE DEC. 31, 1997 DECLINE/1//2/ DECLINE/3/
NAME OF FUND OFFERING OF TRADING SUBSCRIPTIONS CAPITALIZATION % MONTH % PERIOD
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
dissolved as of
ML Institutional Partners L.P. Public Feb. 1992 $57,312,700 12/31/94 (3.58)% (1/94) (8.78)% (10/93-4/94)
dissolved as of
Daiwa Hudson River Fund Private Feb. 1994 $7,044,701 2/29/96 (4.72)% (3/94) (17.21)% (2/94-1/95)
ML/AIG Multi-Strategy Fund Private July 1996 $85,629,571 $81,178,386 (1.43)% (10/97) (1.43)% (10/97)
Ltd.
ML/AIG Multi-Strategy Fund Private Jan. 1997 $58,100,000 $63,503,335 (0.89)% (10/97) (0.89)% (10/97)
L.P.
<CAPTION>
NAME OF FUND SUPPLEMENTAL
INFORMATION
REGARDING
CUMULATIVE RATE
OF RETURN
JAN. 1, 1993 1997 1996 1995 1994 1993
(OR INCEPTION) COMPOUND COMPOUND COMPOUND COMPOUND COMPOUND
TO ANNUAL ANNUAL ANNUAL ANNUAL ANNUAL
DEC. 31, 1997 RATE OF RATE OF RATE OF RATE OF RATE OF
(OR DISSOLUTION) RETURN RETURN RETURN RETURN RETURN
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ML Institutional Partners L.P. (0.35)% N/A N/A N/A (4.06)% 7.65%
(composite)* (composite)* (composite)*
Daiwa Hudson River Fund 0.65% N/A 0.26% 19.82% (16.22)% N/A
(2 mos.) (11 mos.)
ML/AIG Multi-Strategy Fund 16.42% 11.15% 4.74% N/A N/A N/A
Ltd. (6 mos.)
ML/AIG Multi-Strategy Fund 16.41% 16.41% N/A N/A N/A N/A
L.P.
</TABLE>
* The composite return of the fund, not the performance of any individual
series of units.
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.
-81-
<PAGE>
MLIP SELECTED-ADVISOR AND MULTI-ADVISOR FUNDS
(WITH "PRINCIPAL PROTECTION" FEATURES)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
WORST MONTHLY
TYPE OF INCEPTION AGGREGATE DEC. 31, 1997 DECLINE/1//2/
NAME OF FUND OFFERING OF TRADING SUBSCRIPTION CAPITALIZATION % MONTH
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ML Principal Protection L.P. Public Oct. 1994 $142,613,421 $101,226,685 (3.70)% (2/96)
ML Principal Protection Plus Ltd. Private Oct. 1994 $946,604,050 $694,731,314 (3.72)% (2/96)
The S.E.C.T.O.R. Strategy Fund(sm) L.P. Public July 1990 $125,853,001 $26,576,283 (6.13)% (8/97)
The SECTOR Strategy Fund(sm) II L.P.
(SECTOR II Units) Public Dec. 1990 $136,410,000 $13,820,930 (4.73)% (2/96)
The SECTOR Strategy Fund(sm) III L.P
(SECTOR III Units) Public July 1991 $194,005,000 $26,820,527 (8.64)% (2/96)
The SECTOR Strategy Fund(sm)
International II Ltd.
(SECTOR III Shares) Private July 1991 $85,701,800 $4,386,942 (4.41)% (2/96)
The SECTOR Strategy Fund(sm) IV L.P. dissolved as of
(Series A Units) Public July 1992 $75,646,400 6/30/97 (6.41)% (2/96)
The SECTOR Strategy Fund(sm) dissolved as of
International IV Ltd. (Series A Shares) Private July 1992 $55,189,400 6/30/97 (6.22)% (2/96)
The SECTOR Strategy Fund(sm) V.L.P. Public Jan. 1993 $137,500,000 $12,210,715 (7.51)% (2/96)
The SECTOR Strategy Fund(sm) dissoloved as of
International V Ltd. Private Jan. 1993 $81,252,600 12/31/97 (3.53)% (8/97)
SECTOR(sm) International Limited Private Sept. 1993 $163,806,100 $4,808,796 (4.60)% (2/94)
The SECTOR Strategy Fund(sm) VI L.L.P. Public Sept. 1993 $108,693,900 $26,918,480 (5.89)% (7/96)
Yen Linked ML PPP Ltd. Private Oct. 1995 (Y)37,997,300,000 (Y)35,056,396,281 (2.12)% (7/96)
<CAPTION>
SUPPLEMENTAL
INFORMATIONAL
REGARDING
CUMULATIVE
RATE OF
RETURN 1997 1996 1995
WORST JAN. 1, 1993 COMPOUND COMPOUND COMPOUND
PEAK-TO-VALLEY (OR INCEPTION) ANNUAL ANNUAL ANNUAL
DECLINE/3/ DEC. 31, 1997 RATE OF RATE OF RATE OF
% PERIOD (OR DISSOLUTION) RETURN RETURN RETURN
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
30.33% 6.01% 9.36% 10.55%
ML Principal Protection L.P. (3.70)% (2.96) (composite)* (composite)* (composite)* (composite)*
32.15% 6.54% 10.01% 11.10%
ML Principal Protection Plus Ltd. (3.72)% (2/96) (composite)* (composite)* (composite)* (composite)*
The S.E.C.T.O.R. Strategy Fund(sm) L.P. (11.35)% (8/93-1/95) 45.10% (0.03)% 12.40% 19.25%
The SECTOR Strategy Fund(sm) II L.P.
(SECTOR II Units) (15.93)% (8/93-1/95) 34.74% 9.02% 14.60% 13.50%
The SECTOR Strategy Fund(sm) III L.P
(SECTOR III Units) (9.30)% (2/96-3/96) 52.09% 12.98% 9.74% 9.30%
The SECTOR Strategy Fund(sm)
International II Ltd.
(SECTOR III Shares) (6.77)% (4/95-9/95) 42.13% 3.71% 14.01% 2.84%
The SECTOR Strategy Fund(sm) IV L.P.
(Series A Units) (10.45)% (2/96-7/96) 31.32% 1.16% 10.02% 9.78%
The SECTOR Strategy Fund(sm)
International IV Ltd. (Series A Shares) (8.30)% (1/94-1/95) 27.22% 0.46% 7.06% 11.84%
The SECTOR Strategy Fund(sm) V.L.P. (10.14)% (2/96-6/96) 32.19% 11.00% 3.11% 14.22%
The SECTOR Strategy Fund(sm)
International V Ltd. (8.00)% (6/95-10/95) 38.31% 9.39% 12.87% 11.11%
SECTOR(sm) International Limited (10.42)% (9/93-2/94) 9.65% 4.80% 4.63% 7.65%
The SECTOR Strategy Fund(sm) VI L.L.P. (8.97)% (5/96-7/96) 17.65% 8.08% 4.62% 6.72%
Yen Linked ML PPP Ltd. (3.25)% (3/97-10/97) 3.67% 0.71% 2.78% 0.16% (3 mos.)
(composite)* ( composite)* (composite)* (composite)*
<CAPTION>
1994 1993
COMPOUND COMPOUND
ANNUAL ANNUAL
RATE OF RATE OF
NAME OF FUND RETURN RETURN
- ---------------------------------------------------------------------
ML Principal Protection L.P. 1.76% N/A
(2 1/2mos.)
ML Principal Protection Plus Ltd. 1.48% N/A
(2 1/2mos.)
The S.E.C.T.O.R. Strategy Fund(sm) L.P. (9.29)% 19.36%
The SECTOR Strategy Fund(sm) II L.P.
(SECTOR II Units) (9.93)% 5.49%
The SECTOR Strategy Fund(sm) III L.P
(SECTOR III Units) (3.22)% 15.99%
The SECTOR Strategy Fund(sm)
International II Ltd.
(SECTOR III Shares) 0.77% 15.99%
The SECTOR Strategy Fund(sm) IV L.P.
(Series A Units) (5.73)% 13.40%
The SECTOR Strategy Fund(sm)
International IV Ltd. (Series A Shares) (7.21)% 13.40%
The SECTOR Strategy Fund(sm) V.L.P. (3.68)% 4.99%
The SECTOR Strategy Fund(sm)
International V Ltd. (3.94)% 4.99%
SECTOR(sm) International Limited (3.99)% (3.25)%
(3-2/3 mos.)
The SECTOR Strategy Fund(sm) VI L.L.P. (0.80)% (1.72)%
Yen Linked ML PPP Ltd. N/A N/A
</TABLE>
* The composite return of the fund, not the performance of any individual
series of shares/participating notes.
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.
-82-
<PAGE>
MLIP MANAGED ACCOUNT PROGRAM SINGLE ADVISOR POOLS
(WITHOUT "PRINCIPAL PROTECTION" FEATURES)
December 31, 1997
<TABLE>
<CAPTION>
WORST
WORST MONTHLY PEAK-TO-VALLEY
TYPE OF INCEPTION AGGREGATE DEC. 31, 1997 DECLINE DECLINE
NAME OF FUND OFFERING OF TRADING SUBSCRIPTIONS CAPITALIZATION % MONTH % PERIOD
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
The SECTOR Strategy Fund(sm) Private Dec. 1990 $55,181,600 dissolved as of (4.56)% (8/94) (16.49)% (8/93-1/95)
International II Ltd. 12/31/95
MLP Management DM-PPP Private Nov. 1987 $72,435,922 $71,804,519 (0.27)% (11/97) (0.27)% (11/97)
Portfolio
<CAPTION>
NAME OF FUND SUPPLEMENTAL
INFORMATION
REGARDING
CUMULATIVE RATE
OF RETURN
JAN. 1, 1993 1997 1996 1995 1994 1993
(OR INCEPTION) COMPOUND COMPOUND COMPOUND COMPOUND COMPOUND
TO ANNUAL ANNUAL ANNUAL ANNUAL ANNUAL
DEC. 31, 1997 RATE OF RATE OF RATE OF RATE OF RATE OF
(OR DISSOLUTION) RETURN RETURN RETURN RETURN RETURN
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
The SECTOR Strategy Fund(sm) 12.4138.08% NA NA 21.27% (9.64%) 5.94%
International II Ltd.
MLIP Management DM-PPP Portfolio (0.62)% (0.62)% N/A N/A N/A N/A
(2 months) (2 months)
</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.
-83-
<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 doesnot 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 losses when fundamental or unexpected forces
-84-
<PAGE>
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. No risk control technique
can assure that big losses will be avoided.
THE JWH PROGRAMS ARE SYSTEMATIC, TECHNICAL AND TREND-FOLLOWING.
-85-
<PAGE>
EXHIBIT A
ML JWH STRATEGIC ALLOCATION FUND L.P.
THIRD AMENDED AND RESTATED
LIMITED PARTNERSHIP AGREEMENT
DATED AS OF
MARCH 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
PAGE
-------
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-9
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 LAW....................................................LPA-13
(a) Notices........................................................LPA-13
(b) Binding Effect.................................................LPA-13
(c) Captions.......................................................LPA-13
(d) Close of Business..............................................LPA-13
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 March 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, Sixth
Floor, 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
capitalappreciation 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 liqui dated, 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
offering costs to the General Partner reduces Net Assets only as paid out in 24
monthly installments.
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 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).
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(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 net Excess bears to the aggregate net 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 accounts allocable to the Units so redeemed over the amount received in
respect of such Units (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 thateach 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 initial offering costs in 24 monthly installments
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ending June 30, 1998. The Partnership will also pay its ongoing offering costs.
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 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.
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<PAGE>
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 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
deemappropriate, 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 Partner ship 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
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<PAGE>
"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 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 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
LPA-6
<PAGE>
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 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 competitive 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.
LPA-7
<PAGE>
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 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 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 to $50 or less, after adding back all distributions, 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 or her 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. Noredemption 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.
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<PAGE>
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 or her
true and lawful attorney-in-fact, in his or her name, place and stead, to
execute, acknowledge, swear to, 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 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 assets without the consent
of each Limited Partner. The General Partner will notify allLimited 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
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<PAGE>
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
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. Furthermore, it shall
be a precondition of any such indemnification that the Partnership receive a
determination of qualified
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<PAGE>
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 indemni fication unless indemnification is otherwise proper
hereunder. Any indemnification payable by the 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 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, beingstructured 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 (c) of this Section
16, 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
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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 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 affiliate 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 beconsidered 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
LPA-12
<PAGE>
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,
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 RESI DENTS 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>
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 contained in Part Two.
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 Agree ment 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
represen tations 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. Arkansas -- ARKANSAS RESIDENTS MUST SIGN A SUBSCRIPTION AGREEMENT
SIGNATURE PAGE SPECIFICALLY PREPARED FOR ARKANSAS RESIDENTS. A SPECIAL SET OF
SUBSCRIPTION REQUIREMENTS HAS ALSO BEEN PREPARED FOR ARKANSAS RESIDENTS.
3. 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.
4. 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, rather than 20 Units or $2,000.
SR-1
<PAGE>
5. Maine -- Minimum subscription per investment, both initial and subsequent,
of $5,000; 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.
6. Michigan -- Net worth of at least $225,000 or a net worth of at least
$60,000 and 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.
7. 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.
8. 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 resi dents 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 subscription for Units.
9. 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.
10. 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.
11. 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.
12. 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.
13. Washington -- A Purchaser meets the necessary suitability standards if: (1)
the Purchaser acquires at least $150,000 of Units, and the Pur chaser'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 1995 and 1996 and the Purchaser reason ably
expects income in excess of $200,000 in 1997. 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 ADDI TIONAL UNITS (EXCEPT ARKANSAS, 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 fol lowed 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 Part nership 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 5,6,7 -- Enter the exact name in which the 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 ARKANSAS, MAINE OR MICHIGAN) must execute the
Subscrip tion Agreement Signature Page (Item 10, Page SA-5) and
review the repre sentation 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 RECONFIRMA-TION
APPROVED BY THE BRANCH OFFICE) MUST ALSO BE RETAINED IN THE BRANCH OFFICE.
SA-i
<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, 6th Floor
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>
<TABLE>
<S> <C>
S P E C I M E N
----------------------------------------------------------------------------------------------------------------------------------
1 Financial Consultant [_][_][_][_][_][_][_][_][_][_][_][_] [_] [_][_][_][_][_][_][_][_][_][_][_][_][_][_][_] [_][_][_][_][_][_]
Name First M.I. Last Sub. Order Ref. #
Financial Consultant [_][_][_] - [_][_][_] - [_][_][_][_] Financial Consultant Number [_][_][_][_] Branch Wire Code [_][_][_]
Phone Number
----------------------------------------------------------------------------------------------------------------------------------
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 & Co., Inc. officers and employees).
I acknowledge receipt of the Prospectus of the Fund dated March ______, 1998 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.
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 Partnership sub-
scribing for additional Units; incremental
investments in one Unit multiples)
4 [_][_][_] - [_][_] - [_][_][_][_] [_][_] - [_][_][_][_][_][_][_]
Social Security Number or Taxpayer ID Number
Limited Partner Name
5 [_][_][_][_][_][_][_][_][_][_][_][_][_][_][_] [_] [_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_]
First Name M.I. Last Name
Joint Partner Name
6 [_][_][_][_][_][_][_][_][_][_][_][_][_][_][_] [_] [_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_]
First Name M.I. Last Name
Partnership, Corporate or Trust Limited Partner Name
7 [_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_]
Partner, Officer, Trustee, Beneficiary, Power of Attorney or Custodian under UGMA/UTMA
8 [_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_]
Additional Information
9 [_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_]
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>
S P E C I M E N
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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
( ) - [insert date]
----------------------------------- -----------------------------------
Telephone Number of Investor
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 March ___, 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)(1)(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 Appendix F to Article 3, Section 34 of the NASD's Rules of Fair Practice.
X
-----------------------------------------------------------------------------
Financial Consultant Signature Date
Office Manager approval of Merrill Lynch sponsored retirement account purchases.
X
------------------------------------------------------------------------------
Office Manager Signature Date
- --------------------------------------------------------------------------------
================================================================================
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Date Received Country Code Additional Order Control Number
For Office Use Only [_][_][_][_][_][_] [_][_] [_] [_][_][_][_][_]
</TABLE>
SA-3
<PAGE>
<TABLE>
<S> <C>
EXECUTION COPY
----------------------------------------------------------------------------------------------------------------------------------
1 Financial Consultant [_][_][_][_][_][_][_][_][_][_][_][_] [_] [_][_][_][_][_][_][_][_][_][_][_][_][_][_][_] [_][_][_][_][_][_]
Name First M.I. Last Sub. Order Ref. #
Financial Consultant [_][_][_] - [_][_][_] - [_][_][_][_] Financial Consultant Number [_][_][_][_] Branch Wire Code [_][_][_]
Phone Number
----------------------------------------------------------------------------------------------------------------------------------
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 & Co., Inc. officers and employees).
I acknowledge receipt of the Prospectus of the Fund dated March ______, 1998 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.
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 Partnership sub-
scribing for additional Units; incremental
investments in one Unit multiples)
4 [_][_][_] - [_][_] - [_][_][_][_] [_][_] - [_][_][_][_][_][_][_]
Social Security Number or Taxpayer ID Number
Limited Partner Name
5 [_][_][_][_][_][_][_][_][_][_][_][_][_][_][_] [_] [_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_]
First Name M.I. Last Name
Joint Partner Name
6 [_][_][_][_][_][_][_][_][_][_][_][_][_][_][_] [_] [_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_]
First Name M.I. Last Name
Partnership, Corporate or Trust Limited Partner Name
7 [_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_]
Partner, Officer, Trustee, Beneficiary, Power of Attorney or Custodian under UGMA/UTMA
8 [_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_]
Additional Information
9 [_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_]
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>
EXECUTION COPY
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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
( ) - [insert date]
----------------------------------- ----------------------------------
Telephone Number of Investor
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 March ___, 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)(1)(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 Appendix F to Article 3, Section 34 of the NASD's Rules of Fair Practice.
X
-----------------------------------------------------------------------------
Financial Consultant Signature Date
Office Manager approval of Merrill Lynch sponsored retirement account purchases.
X
------------------------------------------------------------------------------
Office Manager Signature Date
- --------------------------------------------------------------------------------
================================================================================
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Date Received Country Code Additional Order Control Number
For Office Use Only [_][_][_][_][_][_] [_][_] [_] [_][_][_][_][_]
</TABLE>
SA-5
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Merrill Lynch Investment Partners Inc. will advance all ongoing offering
costs, as described in the Prospectus, for which it shall be reimbursed by the
Registrant in 12 equal monthly installments beginning July 31, 1998. Such
ongoing offering costs are estimated at $600,000. The following is an estimate
of such costs:
<TABLE>
<CAPTION>
Approximate
Amount
------------
<S> <C>
Securities and Exchange Commission Registration Fee.......... $ 78,128*
National Association of Securities Dealers, Inc. Filing Fee.. $ 26,984*
Printing Expenses............................................ $125,000
Fees of Certified Public Accountants......................... $ 50,000
Blue Sky Expenses (Excluding Legal Fees)..................... $ 50,000
Fees of Counsel.............................................. $150,000
Escrow Fees.................................................. $ 25,000
Advertising and Sales Literature............................. $ 25,000
Miscellaneous Offering Costs................................. $ 69,888
--------
Total........................................................ $600,000
========
</TABLE>
_______________________
* Fees marked with an asterisk are exact rather than estimated and approximate.
___________________
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 16 of the Limited Partnership Agreement (attached as Exhibit A to
the prospectus which forms a part of the Registration Statement) provides for
the indemnification of Merrill Lynch Investment Partners Inc. ("MLIP"), the
general partner of the Registrant, and certain of its Affiliates by the
Registrant. "Affiliates" shall mean any person performing services on behalf of
the Registrant who: (1) directly or indirectly controls, is controlled by, or is
under common control with MLIP; or (2) owns or controls 10% or more of the
outstanding voting securities of MLIP; or (3) is an officer or director of MLIP;
or (4) if MLIP is an officer, director, partner or trustee, is any entity for
which MLIP acts in any such capacity. Indemnification is to be provided for any
loss suffered by the registrant which arises out of any action or inaction, if
the party, in good faith, determined that such course of conduct was in the best
interest of the Registrant and such conduct did not constitute negligence or
misconduct. MLIP and its affiliates will only be entitled to indemnification
for losses incurred by such affiliates in performing the duties of MLIP and
acting wholly within the scope of the authority of MLIP.
In the Selling Agreement, John W. Henry & Co., Inc. ("JWH") has agreed to
indemnify each person who controls MLIP within the meaning of Section 15 of the
Securities Act of 1933 and each person who signed this Registration Statement or
is a director of MLIP against losses, claims, damages, liabilities or expenses
arising out of or based upon any untrue statement or omission or alleged untrue
statement or omission relating or with respect to JWH or any principal of JWH
or their operations, trading systems, methods or performance, which was made in
any preliminary prospectus, this Registration Statement as declared effective,
the Prospectus included in this Registration Statement when declared effective,
or in any amendment or supplement thereto and furnished by or approved by JWH
for inclusion therein. JWH has also agreed to contribute to the amounts paid by
such controlling persons, signatees or directors in respect of any such losses,
claims, damages, liabilities or expenses in the event that the foregoing
indemnity is unavailable or insufficient.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
None.
II-1
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
The following documents (unless otherwise indicated) are filed herewith and
made a part of this Registration Statement:
(a) Exhibits.
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
- ------- -----------------------
<S> <C>
THE FOLLOWING EXHIBITS ARE FILED HEREWITH:
3.02 Amended and Restated Limited Partnership Agreement of the Registrant (included as
(amended) Exhibit A to the Prospectus).
3.03 Form of Certificate of Formation of ML JWH Strategic Joint
Venture LLC.
5.01(a) Opinion of Sidley & Austin relating to the legality of the Units.
8.01 Opinion of Sidley & Austin with respect to federal income tax consequences.
10.05 Form of Subscription Agreements and Power of Attorney (included as Exhibit C to
(amended) the Prospectus).
10.08 Limited Liability Company Operating Agreement of ML JWH Strategic Joint Venture LLC.
10.09 Amendatory Agreement of Selling Agreement, Customer Agreement, Foreign Exchange
Desk Service Agreement, Investment Advisory Contract and Custody Agreement to
reflect formation of ML JWH Strategic Joint Venture LLC.
23.07 Consent of Deloitte & Touche LLP.
23.08 Consent of Sidley & Austin.
</TABLE>
__________________
THE FOLLOWING EXHIBITS ARE INCORPORATED BY REFERENCE HEREIN FROM THE
EXHIBITS OF THE SAME DESCRIPTION AND NUMBER FILED WITH AMENDMENT NO. 2 TO THE
REGISTRANT'S REGISTRATION STATEMENT ON FORM S-1 (REGISTRATION NO. 33-80509),
FILED WITH THE COMMISSION ON APRIL 23, 1996, WHICH BECAME EFFECTIVE APRIL 25,
1996).
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
- ------- -----------------------
<S> <C>
1.01 Form of Selling Agreement among the Registrant, MLIP, Merrill Lynch Futures Inc.
(amended) ("Merrill Lynch Futures"), Merrill Lynch, Pierce, Fenner & Smith Incorporated (the
"Selling Agent") and JWH.
3.01(i) Certificate of Limited Partnership of the Registrant.
5.01(b) Opinion of Richards, Layton & Finger relating to the legality of the Units.
10.02 Form of Customer Agreement between the Registrant and Merrill Lynch Futures.
10.03 Foreign Exchange Desk Service Agreement.
10.06 Form of Investment Advisory Contract among the Registrant's joint venture with JWH,
MLIP, Merrill Lynch Futures and Merrill Lynch Asset Management, L.P.
10.07 Form of Custody Agreement among the Registrant, MLIP and the Selling Agent.
</TABLE>
II-2
<PAGE>
<TABLE>
<S> <C>
99.01 Securities and Exchange Commission Release No. 33-6815--Interpretation and Request
for Public Comment--Statement of the Commission Regarding Disclosure by Issuers of
Interests in Publicly Offered Commodity Pools (54 Fed. Reg. 5600; February 6, 1989).
99.02 Commodity Futures Trading Commission--Interpretative Statement and Request for
Comments --Statement of the Commodity Futures Trading Commission Regarding
Disclosure by Commodity Pool Operators of Past Performance Records and Pool
Expenses and Requests for Comments (54 Fed. Reg. 5597; February 6, 1989).
99.03 North American Security Administrators Association Guidelines for Registration of
Commodity Pool Programs.
</TABLE>
__________________
ITEM 17.
The undersigned registrant hereby undertakes:
(a) Rule 415 Offerings
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement;
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the registration statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
(b) Indemnification
Insofar as indemnification for liabilities under the Securities Act of 1933
may be permitted to officers, directors or controlling persons of the registrant
pursuant to the provisions described in Item 14 above, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by an officer, director, or
controlling person of the registrant in the successful defense of any such
action, suit or proceeding) is asserted by such officer, director or controlling
person in connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the General
Partner of the Registrant has duly caused this Registration Statement or
Registration Statement Amendment to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New York in the State of New York on
the 6th day of March, 1998.
ML JWH Strategic Allocation Fund L.P.
By: Merrill Lynch Investment Partners Inc.
General Partner
By: /s/ JOHN R. FRAWLEY, JR.
-----------------------------
John R. Frawley, Jr.
Chairman, President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement or Registration Statement Amendment has been signed below
by the following person on behalf of Merrill Lynch Investment Partners Inc.,
General Partner of the Registrant, in the capacities and on the date indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ JOHN R. FRAWLEY, JR. Chairman, Chief Executive March 6, 1998
- ---------------------------- Officer, President and Director
John R. Frawley, Jr. (Principal Executive Officer)
/s/ MICHAEL A. KARMELIN Vice President, Chief March 6, 1998
- ---------------------------- Financial Officer and Treasurer
Michael A. Karmelin (Principal Financial
and Accounting Officer)
/s/ JEFFREY F. CHANDOR Senior Vice President, March 6, 1998
- ---------------------------- Director of Sales,
Jeffrey F. Chandor Marketing and Research and Director
/s/ STEPHEN G. BODURTHA Director March 6, 1998
- ----------------------------
Stephen G. Bodurtha
/s/ ALLEN N. JONES Director March 6, 1998
- ----------------------------
Allen N. Jones
/s/ JOSEPH H. MOGLIA Director March 6, 1998
- ----------------------------
Joseph H. Moglia
<CAPTION>
(Being the principal executive officer, the principal financial and
accounting officer and a majority of the directors of Merrill Lynch Investment
Partners Inc.)
MERRILL LYNCH INVESTMENT PARTNERS INC.
General Partner of Registrant
By /s/ JOHN R. FRAWLEY, JR. March 6, 1998
--------------------------------
John R. Frawley, Jr.
Chairman, Chief Executive
Officer and President
</TABLE>
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, ML Strategic
Joint Venture LLC (the Co-Registrant) has duly caused this Registration
Statement or Registration Statement Amendment to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York in the State of
New York on the 6th day of March, 1998.
ML JWH Strategic Joint Venture LLC
By: ML JWH Strategic Allocation Fund L.P.
Manager
By: Merrill Lynch Investment Partners Inc.
General Partner of the Manager
By: /s/ JOHN R. FRAWLEY, JR.
-----------------------------
John R. Frawley, Jr.
Chairman, President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement or Registration Statement Amendment has been signed below
by the following person on behalf of Merrill Lynch Investment Partners Inc.,
Manager of the Registrant, in the capacities and on the date indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ JOHN R. FRAWLEY, JR. Chairman, Chief Executive March 6, 1998
- ---------------------------- Officer, President and Director
John R. Frawley, Jr. (Principal Executive Officer)
/s/ MICHAEL A. KARMELIN Vice President, Chief March 6, 1998
- ---------------------------- Financial Officer and Treasurer
Michael A. Karmelin (Principal Financial
and Accounting Officer)
/s/ JEFFREY F. CHANDOR Senior Vice President, March 6, 1998
- ---------------------------- Director of Sales,
Jeffrey F. Chandor Marketing and Research and Director
/s/ STEPHEN G. BODURTHA Director March 6, 1998
- ----------------------------
Stephen G. Bodurtha
/s/ ALLEN N. JONES Director March 6, 1998
- ----------------------------
Allen N. Jones
/s/ JOSEPH H. MOGLIA Director March 6, 1998
- ----------------------------
Joseph H. Moglia
<CAPTION>
(Being the principal executive officer, the principal financial and
accounting officer and a majority of the directors of Merrill Lynch Investment
Partners Inc.)
MERRILL LYNCH INVESTMENT PARTNERS INC.
General Partner of Manager
of Co-Registrant
By /s/ JOHN R. FRAWLEY, JR. March 6, 1998
--------------------------------
John R. Frawley, Jr.
Chairman, Chief Executive
Officer and President
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
- ------- -----------------------
<S> <C>
3.03 Form of Certificate of Formation of ML JWH Strategic Joint
Venture LLC.
5.01 Opinion of Sidley & Austin relating to the legality of the Units.
8.01 Opinion of Sidley & Austin with respect to federal income tax consequences.
10.08 Limited Liability Company Operating Agreement of ML JWH Strategic Joint Venture LLC.
10.09 Amendatory Agreement of Selling Agreement, Customer Agreement, Foreign Exchange
Desk Service Agreement, Investment Advisory Contract and Custody Agreement to
reflect formation of ML JWH Strategic Joint Venture LLC.
23.07 Consent of Deloitte & Touche LLP.
23.08 Consent of Sidley & Austin.
</TABLE>
<PAGE>
EXHIBIT 3.03
CERTIFICATE OF FORMATION
OF
ML JWH STRATEGIC JOINT VENTURE LLC
This Certificate of Formation of ML JWH STRATEGIC JOINT VENTURE LLC
(the "LLC"), dated as of February 27, 1998, is being duly executed and filed by
ML JWH Strategic Allocation Fund L.P., a Delaware limited partnership and the
Manager of the LLC, to form a limited liability company under the Delaware
Limited Liability Company Act (6 Del. C. (S)18-101 et seq.)(the "Act").
FIRST. The name of the limited liability company formed hereby is
ML JWH STRATEGIC JOINT VENTURE LLC.
SECOND. The address of the registered office of the LLC in the State
of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle. The name of its registered agent at such
address is The Corporation Trust Company.
THIRD. The latest date on which the LLC is to dissolve is December
31, 2028.
FOURTH. The LLC shall be formed as of the filing of the Certificate
of Formation.
FIFTH. The LLC will engage in any lawful business or activity which
a limited liability company may carry on under the Act.
SIXTH. Each Member of the LLC will be shielded from unlimited
liability for the acts of the other Members of the LLC consistent with the Act.
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Certificate of
Formation as of the date first above written.
ML JWH STRATEGIC ALLOCATION
FUND L.P.
By: MERRILL LYNCH INVESTMENT
PARTNERS INC., its general partner
By: /s/ Steven B. Olgin
---------------------------------
Name: Steven B. Olgin
Title: VP and Secretary
<PAGE>
EXHIBIT 5.01
SIDLEY & AUSTIN
A PARTNERSHIP INCLUDING PROFESSIONAL CORPORATIONS
DALLAS One First National Plaza WASHINGTON, D.C.
______ Chicago, Illinois 60603 ______
LOS ANGELES Telephone 312 853 7000 LONDON
______ Facsimile 312 853 7036 ______
NEW YORK SINGAPORE
Founded 1866 ______
TOKYO
WRITER'S DIRECT NUMBER
March 5, 1998
Merrill Lynch Investment Partners Inc.,
as general partner of ML JWH Strategic Allocation Fund L.P.
Merrill Lynch World Headquarters
South Tower, 6th Floor
World Financial Center
New York, New York 10080-6106
RE: ML JWH STRATEGIC ALLOCATION FUND L.P.
2,000,000 UNITS OF LIMITED PARTNERSHIP INTEREST (THE "UNITS")
Dear Sir or Madam:
We refer to the Registration Statement on Form S-1 (the "Registration
Statement") filed by ML JWH Strategic Allocation Fund L.P., a Delaware limited
partnership (the "Partnership"), and ML JWH Strategic Joint Venture LLC, a
Delaware limited liability company (the "LLC"), with the Securities and Exchange
Commission under the Securities Act of 1933, as amended (the "Securities Act"),
on or about March 6, 1998. Capitalized terms not defined herein have the
meanings specified in the Registration Statement.
We are familiar with the proceedings to date with respect to the
proposed issuance and sale of the Units pursuant to the Prospectus and have
examined such records, documents and questions of law, and satisfied ourselves
as to such matters of fact, as we have considered relevant and necessary as a
basis for this opinion.
For purposes of rendering this opinion, we have assumed the genuineness
of all signatures, the legal capacity of natural persons, the authenticity of
all documents submitted to us as originals, the conformity to originals of all
documents submitted to us as certified or photostatic copies and the
authenticity of the original of such copies.
Based on the foregoing, we are of the opinion that:
1. The Partnership and the LLC have each been duly formed and are
validly existing in good standing as a limited partnership under the Delaware
Revised Uniform Limited Partnership Act (the "Act") and a limited liability
company under the Delaware Limited Liability Company Act, respectively.
2. The General Partner has taken all necessary corporate action
required to be taken by it to authorize the issuance and sale of the Units to
the Limited Partners and to authorize the admission to the Partnership of the
Limited Partners as limited partners of the Partnership.
3. Assuming (i) the due authorization, execution and delivery to the
General Partner of a Subscription Agreement by each subscriber for Units (the
"Subscribers"), (ii) the due acceptance by the General Partner of each
Subscription Agreement and the due acceptance by the General Partner of the
admission of each of the Subscribers as limited partners of the Partnership,
(iii) the payment by each Subscriber of the full consideration due for
<PAGE>
Merrill Lynch Investment Partners Inc.
March 5, 1998
Page 2
the Units to which it subscribed, (iv) that the books and records of the
Partnership set forth all information required by the Limited Partnership
Agreement and the Act, including all information with respect to all persons and
entities to be admitted as Partners and their contributions to the Partnership,
(v) that the Subscribers, as limited partners of the Partnership, do not
participate in the control of the business of the Partnership within the meaning
of the Act, (vi) that the Units are offered and sold as described in the
Prospectus and the Limited Partnership Agreement and (vii) that the Subscribers
meet all of the applicable suitability standards set forth in the Prospectus and
that the representations and warranties of the Subscribers in their respective
Subscription Agreements are true and correct, the Units to be issued to the
Subscribers will represent valid and legally issued limited partner interests in
the Partnership and will be fully paid and nonassessable limited partner
interests in the Partnership, as to which the Subscribers, as limited partners
of the Partnership, will have no liability in excess of their obligations to
make contributions to the Partnership, their obligations to make other payments
provided for in the Limited Partnership Agreement and their share of the
Partnership's assets and undistributed profits (subject to the obligation of a
Limited Partner to repay funds distributed to such Limited Partner by the
Partnership in certain circumstances).
4. There are no provisions in the Limited Partnership Agreement the
inclusion of which, subject to the terms and conditions therein, would cause the
Limited Partners, as limited partners of the Partnership, to be deemed to be
participating in the control of the business of the Partnership within the
meaning of the Act.
This opinion is limited to the Act and the General Corporation Law of
the State of Delaware. We express no opinion as to the application of the
securities or blue sky laws of the various states (including the State of
Delaware) to the sale of the Units.
We hereby consent to the filing of this opinion as an Exhibit to the
Registration Statement and to all references to our firm included in or made a
part of the Registration Statement.
Very truly yours,
SIDLEY & AUSTIN
<PAGE>
EXHIBIT 8.01
March 5, 1998
Merrill Lynch Investment Partners Inc.
General Partner of
ML JWH Strategic
Allocation Fund L.P.
Merrill Lynch World Headquarters
South Tower, 6th Floor
World Financial Center
New York, New York 10080-6106
Re: Registration Statement on Form S-1
----------------------------------
Dear Sir or Madam:
We have acted as your counsel in connection with the preparation and
filing with the Securities and Exchange Commission (the "SEC") under the
Securities Act of 1933, as amended, of the Registration Statement on Form S-1,
to be filed with the SEC on or about March 6, 1998 (the "Registration
Statement"), of ML JWH Strategic Allocation Fund L.P. (the "Fund"), a limited
partnership organized under the Delaware Revised Uniform Limited Partnership
Act, and ML JWH Strategic Joint Venture LLC, a limited liability company
organized under the Delaware Limited Liability Company Act.
We have reviewed such data, documents, questions of law and fact and
other matters as we have deemed pertinent for the purpose of this opinion.
Based upon the foregoing, we hereby confirm our opinion that the description set
forth under the caption "Tax Consequences" in the Prospectus (the "Prospectus")
constituting a part of the Registration Statement correctly describes (subject
to the uncertainties referred to therein) the material aspects of the United
States federal income tax treatment to a United States individual taxpayer, as
of the date hereof, of an investment in the Fund.
Very truly yours,
SIDLEY & AUSTIN
<PAGE>
EXHIBIT 10.08
LIMITED LIABILITY COMPANY OPERATING AGREEMENT
OF
ML JWH STRATEGIC JOINT VENTURE LLC
DATED AS OF _____ __, 1998
<PAGE>
ML JWH STRATEGIC JOINT VENTURE LLC
TABLE OF CONTENTS
Section Page
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1. Formation of Company; Capital Contributions. ....................... 2
2. Registered Office; Books and Records. .............................. 3
3. Undertakings in Respect of the Continuous Public Offering
of the Units and the Offering of the Shares ..................... 3
4. Undertaking of the Partnership and the Fund in Respect of
the Public Offering of the Units and the Exclusively
Non-U.S. Offering of the Shares .................................... 4
5. Management of the Company .......................................... 5
6. Confidentiality .................................................... 7
7. Management Fee ..................................................... 8
8. Capital Accounts; Allocations and Distributions .................... 8
9. Representations, Warranties and Covenantsof JWH, the
Partnership and the Fund .......................................... 11
10. Amendment.......................................................... 11
11. Indemnification and Standard of Liability of JWH. ................. 11
12. Indemnification of the Partnership and the Fund ................... 13
13. Term .............................................................. 14
14. Termination ....................................................... 14
15. Expenses .......................................................... 15
16. Bank Accounts ..................................................... 15
17. Accounting Decisions .............................................. 15
18. Books and Records ................................................. 15
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TABLE OF CONTENTS (CONT'D)
Section Page
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19. Annual Reports ................................................... 16
20. Fiscal Year ...................................................... 16
21. Dissolution ...................................................... 16
22. Liquidator ....................................................... 16
23. Freedom of Action ................................................ 16
24. Transactions with Affiliates ..................................... 17
25. Notices .......................................................... 17
26. GOVERNING LAW .................................................... 18
27. Entire Agreement ................................................. 18
28. Representations and Warranties in the Registration
Statement and the Offering Memorandum ............................ 18
29. Exclusivity ...................................................... 18
30. Purpose of Company ............................................... 18
31. Submission to Jurisdiction; Waivers .............................. 19
32. Severability ..................................................... 19
33. Counterparts ..................................................... 19
34. Arbitration ...................................................... 20
Schedule: Sample New Profits Account Credit ...................... 22
Exhibit: Acknowledgment of Receipt of Disclosure Document ....... 23
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ML JWH STRATEGIC JOINT VENTURE LLC
LIMITED LIABILITY COMPANY OPERATING AGREEMENT
This Limited Liability Company Operating Agreement (this "Agreement")
made as of this ____ day of _____, 1998 by and among ML JWH Strategic Allocation
Fund Ltd., a Cayman Islands company (the "Fund"), ML JWH Strategic Allocation
Fund L.P., a Delaware limited partnership (the "Partnership"), and John W. Henry
& Company, Inc., a Florida corporation ("JWH"); and, not as members but for the
limited purposes set forth herein, Merrill Lynch Futures Inc., a Delaware
corporation ("MLF"), and Merrill Lynch Investment Partners Inc., a Delaware
corporation (the "General Partner" or the "Sponsor"). The Partnership, the Fund
and JWH are the members of the Delaware limited liability company (the
"Company") formed hereby, to be known as ML JWH Strategic Joint Venture LLC.
W I T N E S S E T H:
WHEREAS, the Partnership was organized in 1996 as a limited
partnership, and the Fund was organized, also in 1996, as a Cayman Islands
company, in each case to engage in commodity trading;
WHEREAS, each of the Partnership and the Fund is a party to a separate
Joint Venture Agreement each dated as of April 25, 1996 with JWH, and the joint
ventures (the "Offshore Joint Venture" and the "U.S. Joint Venture" and,
collectively, the "Joint Ventures") formed thereby were the entities through
which the Partnership and the Fund have traded commodity interests prior to the
establishment of the Company;
WHEREAS, all assets and liabilities of the Joint Ventures (including
open commodity interest positions) will be contributed to the Company as soon as
practicable after the date hereof, and the Partnership and the Fund will
thereafter trade commodity interests through the Company rather than through the
Joint Ventures, which will be dissolved;
WHEREAS, JWH has extensive experience trading in the commodity markets
and is willing to participate with the Partnership and the Fund in the Company;
WHEREAS, JWH implements the JWH Strategic Allocation Program pursuant
to which JWH allocates and reallocates assets among a number of JWH's various
trading programs ("Programs") and the Partnership and the Fund are (to date,
through the Joint Ventures and, in the future, through the Company) the only
client or proprietary accounts managed pursuant to the JWH Strategic Allocation
Program;
WHEREAS, the General Partner is the sole general partner of the
Partnership and is the sole Sponsor of the Fund and has negotiated this
Agreement on behalf of the Partnership and the Fund;
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WHEREAS, MLF is the commodity broker for the Company and has agreed to
undertake certain financial obligations in connection with inducing JWH to
become a member of the Company, as contemplated hereby;
WHEREAS, the Partnership plans to offer units of limited partnership
interest ("Units") for sale to the public as described in a Registration
Statement on Form S-1, Registration No. 333-_____, originally filed on March 6,
1998 with the Securities and Exchange Commission (the "SEC") pursuant to the
Securities Act of 1933, as amended (the "Securities Act") (such Registration
Statement in the form in which it became effective as of the date hereof, being
herein referred to as the "Registration Statement"; and the prospectus included
therein or, if so filed, as first filed pursuant to SEC Rule 424(b) as the
"Prospectus");
WHEREAS, the Fund plans to offer Shares to non-U.S. investors pursuant
to an Offering Memorandum (the "Offering Memorandum") dated February 25, 1998;
WHEREAS, the proceeds of the Units will be used to increase the
Partnership's capital contribution to the Company;
WHEREAS, the proceeds of the Shares will be used to fund the Fund's
capital contribution to the Company;
WHEREAS, the Partnership, the Fund and JWH wish to enter into this
Agreement, which, among other things, sets forth certain terms and conditions
upon which the Partnership, the Fund and JWH will form the Company and continue
to engage in commodity interest trading; and
WHEREAS, the General Partner and MLF wish to confirm certain of the
obligations which they have agreed to undertake to the Company.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of all of which are hereby acknowledged, the parties
hereto agree as follows:
1. Formation of Company; Capital Contributions.
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The Company was formed upon the filing of a Certificate of Formation
with the Secretary of State of Delaware. The Partnership, the Fund and JWH
hereby enter into this Agreement for the purpose of providing for the governance
of the Company as it engages in commodity interest trading, implementing the JWH
Strategic Allocation Program. The assets and liabilities of each Joint Venture
(including open commodity interest positions) will be contributed to the Company
as soon as practicable after the date hereof, and the Partnership and the Fund
shall subsequently contribute substantially all the net proceeds raised from the
sale of the Units and the Shares, respectively, to the Company. The Partnership
and the Fund may each retain an
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administrative reserve, not to exceed $250,000 at any one time outstanding, of
funds not contributed to the Company.
The Partnership and the Fund may each withdraw funds from the Company
(to the extent of their respective investment therein) on three (3) business
days' notice; provided, that (i) the Partnership will utilize the proceeds of
such withdrawals to pay the redemption price of Units, make distributions to the
limited partners ("Limited Partners") of the Partnership or pay Partnership
expenses and (ii) the Fund will utilize the proceeds of such withdrawals to pay
the redemption price of Shares, make distributions to the shareholders
("Shareholders") of the Fund or pay Fund expenses. For greater certainty, it is
the intent of the Partnership, the Fund and JWH that the withdrawal rights of
the Partnership and the Fund in no respect abrogate or qualify the provisions
hereof regarding the intended term of, and the parties' respective options to
terminate, this Agreement.
JWH agrees not to withdraw any funds from the Company -- other than in
respect of credits made to JWH's capital account in respect of bookkeeping
entries to the New Profits Account as described in Section 8 hereof -- prior to
the dissolution of the Company.
2. Registered Office; Books and Records.
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The address of the registered office of the Company is Corporation
Trust Center, 1209 Orange Street, Wilmington, Delaware. The books and records
of the Company shall be kept at the office of the Partnership, World Financial
Center, Sixth Floor, South Tower, New York, New York 10080-6106.
3. Undertakings in Respect of the Continuous Public Offering of the
Units and the Offering of the Shares.
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(a) JWH agrees to cooperate and use its best efforts in connection
with: (i) the Partnership's preparation of the Registration Statement, provided
that the Registration Statement is not inconsistent with this Agreement; (ii)
the Partnership's filing of any supplement or amendments to the Prospectus with
the SEC, CFTC and the NFA; (iii) the Partnership's preparation and filing with
appropriate governmental authorities of any amendments to, or supplementary
information relating to, applications for registration of the Units under the
securities or Blue Sky laws of such jurisdictions as the Partnership may deem
advisable and the taking of such other actions not inconsistent with this
Agreement as the Partnership may determine to be necessary or advisable in order
to make the proposed offer and sale of Units lawful in such jurisdictions as the
Partnership may deem advisable; and (iv) causing the Registration Statement, as
it may be amended, and such applications, as they may be amended, to become
effective under the Securities Act and the securities or Blue Sky laws of such
jurisdictions as the Partnership may deem appropriate. JWH agrees to make all
necessary or appropriate disclosures regarding itself and its principals, their
trading performance, method and systems, customer accounts and otherwise as may
be required or advisable, in the reasonable judgment of the Partnership, to be
made in the Registration Statement and such applications and any amendments
thereto.
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Notwithstanding the foregoing, JWH shall not be required to take any steps which
might reasonably be deemed to constitute JWH a "co-issuer" or promoter of the
Partnership or of any other issuer created in connection with the transactions
contemplated hereby which may be deemed to be issuing securities to the public.
The Company shall be a "co-issuer" with the Partnership of the Units
for purposes of the Securities Act.
The Partnership may, in its sole discretion, discontinue the offering
of the Units at any time.
(b) JWH agrees to cooperate and use its best efforts in connection
with: (a) the Fund's preparation of any amendments to the Offering Memorandum
not inconsistent with this Agreement; (b) the taking of such other actions not
inconsistent with this Agreement as the Fund may determine to be necessary or
advisable in order to make the proposed offer and sale of Shares lawful in such
jurisdictions as the Fund may deem appropriate. JWH agrees to make all
necessary or appropriate disclosures regarding itself and its principals, their
trading performance, method and systems, customer accounts and otherwise as may
be required or advisable, in the reasonable judgment of the Fund, to be made in
the Offering Memorandum. Notwithstanding the foregoing, JWH shall not be
required to take any steps which might reasonably be deemed to constitute JWH a
"co-issuer" or promoter of the Fund or of any other issuer created in connection
with the transactions contemplated hereby.
The Fund may, in its sole discretion, discontinue the offering of the
Shares at any time.
4. Undertaking of the Partnership and the Fund in Respect of the
Public Offering of the Units and the Exclusively Non-U.S. Offering
of the Shares.
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(a) The Partnership agrees that it will use best efforts in offering
the Units as contemplated by the Registration Statement and Prospectus.
Notwithstanding the foregoing, the Partnership shall at all times have sole
discretion in the direction and management of the offering of the Units and in
doing so shall be empowered in its absolute discretion to, among other things:
withdraw the Registration Statement and any amendments thereto from both or
either of the SEC and the CFTC (and so notify the NFA), as the Partnership may
deem appropriate; withdraw the applications filed under the securities or Blue
Sky laws of the various jurisdictions from any or all of such jurisdictions, as
the Partnership may deem appropriate; amend, enlarge, reduce or modify the terms
of the offering of the Units; and terminate the offering or the registration of
the Units with the SEC or any of such jurisdictions at any time.
The Partnership, the General Partner and MLF each agrees to make all
necessary or appropriate disclosures regarding itself and each of its respective
principals as may be required or advisable, in the reasonable judgment of the
Partnership, to be made in the Registration
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Statement and in any applications made in respect of the sale of the Units to
state securities or Blue Sky commissioners.
(b) The Fund agrees that it will use best efforts in offering the
Shares as contemplated by the Offering Memorandum. Notwithstanding the
foregoing, the Fund shall at all times have sole discretion in the direction and
management of the offering of the Shares and in doing so shall be empowered in
its absolute discretion to, among other things, amend, enlarge, reduce or modify
the terms of the offering of the Shares; and terminate the offering of the
Shares at any time.
The Fund, the Sponsor and MLF each agrees to make all necessary or
appropriate disclosures regarding itself and each of its respective principals
as may be required or advisable, in the reasonable judgment of the Fund, to be
made in the Offering Memorandum.
5. Management of the Company.
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It is the intent of the Partnership, the Fund and JWH that the
Partnership and JWH shall divide the managerial responsibility for the operation
of the Company, with the Partnership managing the operations of the Company
(effectively in the same capacity as a sole general partner of a limited
partnership) while JWH directs its commodity trading pursuant to the JWH
Strategic Allocation Program, as described in the Prospectus (effectively in the
same capacity as a special limited partner in a limited partnership). The Fund
itself shall act in the equivalent capacity of a limited partner, taking no part
in the control, management or trading of the Company. To that end, the
Partnership, the Fund and JWH have agreed upon the following allocations of
manage ment responsibilities for the Company.
(a) Partnership to Act as Manager. The Partnership shall act as the
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manager of the Company and shall have charge of its day-to-day operations. The
Partnership's authority as manager of the Company shall include, without
limitation, the authority (i) to act as the "tax matters partner" of the Company
pursuant to the Internal Revenue Code and to make, or refrain from making, any
election as contemplated by Section 754 of the Internal Revenue Code, (ii) to
pay from the Company's assets any expenses of the Company and determine the
profit-sharing allocations contemplated by Section 8 hereof, (iii) to select the
Company's commodity broker(s) and the banks or forward contract dealers with
which the Company will trade in the forward markets, (iv) to deposit assets of
the Company with such brokers, dealers or banks, as the Company may deem
advisable, (v) to keep such records of the Company's activities as the
Partnership may deem appropriate or as required by law, (vi) to cause to be
prepared all tax returns and to effect the payment of all taxes required of the
Company, (vii) to contest any taxes described in (vi) by appropriate legal
proceedings to the extent that the Partnership in good faith determines that
doing so is in the best interests of the Company, (viii) to determine how to
classify various items for federal and state income tax purposes on the Company
tax return and (ix) to direct all investment of the Company's assets, other than
in commodity interests.
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Except as otherwise expressly set forth in Section 6(b) below, the
Partnership alone shall have full authority and responsibility to conduct all
operations of the business of the Company and to enforce (or waive) the
Company's rights under any instrument or agreement to which it may be or become
a party.
The Partnership shall elect on behalf of the Company for the Company
to be treated as a qualified fund under Section 988(c)(i)(E)(iii)(V) of the
Internal Revenue Code and regulations promulgated thereunder.
The Partnership will review and approve or disapprove all executing
brokers proposed by JWH for the Company. The Partnership agrees that it will
only disapprove a proposed executing broker suggested by JWH for cause and that
if approved, the Partnership and the Company will not hold JWH liable for any
error or breach of contract by any such executing broker, barring negligence,
misconduct or bad faith on the part of JWH.
Irrespective of what broker executes the Company's trades, such trades
shall in all instances be cleared at MLF, and MLF shall bear all the costs
associated with the "give-ups" of trades executed by non-MLF brokers to MLF from
the brokerage commissions paid to MLF by the Company.
In the event that JWH becomes disabled (by reason of its bankruptcy or
insolvency or by reason of the incapacity or death of Mr. John W. Henry) from
discharging its managerial responsibilities under Section 6(b) hereof, the
Partnership, as manager, may assume such responsibilities.
(b) Trading Authority of JWH. JWH shall determine the investment and
------------------------
reinvestment of the assets and funds of the Company in futures and forward
contracts in commodities and in commodity options (and any related transactions
in physical commodities to the extent contemplated by JWH's trading method and
systems) on the terms and conditions set forth in this Agreement. As set forth
in the Prospectus and the Offering Memorandum, JWH's trading management of the
Company will include allocating Partnership and Fund assets among the different
JWH Trading Programs selected from time to time by JWH for the Partnership and
the Fund.
Neither the Partnership nor the Fund will participate with JWH in
determining the investment and reinvestment of the assets and funds of the
Company, except that the Partnership, as manager of the Company, may override
the trading instructions of JWH to the extent that the Partnership determines
that doing so is necessary for the protection of the Company. The Partnership,
as manager of the Company, may withdraw capital at any time to pay any expenses
of the Company and the Partnership and the Fund may withdraw capital from the
Company as contemplated by Section 1. JWH shall have no liability as a result
of liquidating market positions as a result of any such withdrawals.
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The Company will instruct all brokers with which the Company opens an
account to deliver copies of trading confirmations and statements for such
account directly to JWH.
JWH may, in its discretion, alter the trading method and systems it
uses in participating in the management of the Company's assets, provided that
JWH determines that such alteration is in the best interests of the Company.
JWH will give prompt notice in writing to the Partnership and the Fund of any
material change in such trading methods or systems, in the management of JWH or
in the personnel overseeing the Company trading, but, as set forth in the
Prospectus and the Offering Memorandum, shall not be required to notify the
Partnership or the Fund of changes in commodity futures traded or of
modifications, additions or deletions to JWH's computer programs or trading
systems. JWH will provide the Partnership and the Fund with such assistance in
preparing such monthly and annual reports for their investors reflecting the
trading results of the Company as the Partnership or the Fund may reasonably
request.
JWH shall participate to the extent that the Partnership or the Fund
may reasonably request, in "road shows" and other promotional activities
relating to the marketing of the Units or the Shares, provided that such
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participation shall in no respect adversely affect JWH's trading activities on
behalf of other clients on its own account or cause JWH to register as a broker-
dealer or as doing business in any state where JWH would not otherwise be
required to do so. JWH shall pay the costs of its reasonably requested
participation in such road shows. JWH shall have the right to review and give
written approval in advance of all sales, promotional or informational material
using its name relating to the Partnership or the Fund.
In the event that the Partnership becomes disabled (by reason of its
bankruptcy or insolvency or by reason of the resignation of MLIP as its general
partner) from discharging its managerial responsibility under Section 6(a)
hereof, JWH, as a member of the Company, may assume such responsibilities.
(c) Standard of Liability of JWH. Notwithstanding the fiduciary
----------------------------
duty imposed by applicable law on JWH as a member of the Company, in recognition
of the nature of JWH's participation in the management of the Company and the
unusual risk of liability to which such participation might expose JWH, the
Partnership and the Fund herewith agree that in respect of JWH's participation
in the commodity trading decisions of the Company none of JWH, its affiliates,
any employees of JWH or any of its affiliates or any person who controls JWH or
any of its affiliates (within the meaning of Section 15 of the Securities Act)
shall be liable to the Company, the Fund or the Partnership except by reason of
acts or omissions due to misconduct or negligence or by reason of not having
acted in good faith in the reasonable belief that such actions or omissions were
in, or not opposed to, the best interests of the Company.
(d) Standard of Liability of John W. Henry. John W. Henry shall have
--------------------------------------
no liability to the Partnership, the Fund or the Company under this Agreement or
in connection with the transactions contemplated by this Agreement except for
the fraud or willful misconduct by John W. Henry.
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6. Confidentiality.
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The Partnership, the Fund, the General Partner and MLF each
acknowledges that the trading instructions, method and systems of JWH are the
property of JWH; the Partnership, the Fund, the General Partner and MLF each
further agrees that it will keep confidential and will not disseminate such
instructions, method or systems (or any such system) to any of its limited
partners or shareholders (as the case may be), any of the customers, employees,
agents, officers or directors of its commodity broker or to any others. Any
such information acquired by the Partnership, the Fund, the General Partner or
MLF shall be used solely to monitor JWH's trading on behalf of the Company. JWH
is a member of the Company, but JWH is in no respect contributing its
proprietary trading method or systems to the Company, except to the extent that
JWH uses such method and systems in participating in the management of the
Company. Nothing here shall require JWH to disclose any details concerning its
trading method or systems that it deems to be proprietary information.
7. Management Fee.
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MLF shall pay JWH a monthly Management Fee equal to .33 of 1% of the
sum of the month-end Net Assets of the Company, increased or decreased by the
trading profits (losses) and interest income of the Company during the month.
For this purpose, Net Assets shall have the same meaning as provided in the
Registration Statement and the Offering Memorandum; provided, however, that the
accrued brokerage commissions due as of each month-end and taken into account in
calculating Net Assets of the Partnership and the Fund shall be reduced, for
purposes of calculating such Management Fees by the amount of the accrued
Management Fee then being calculated.
8. Capital Accounts; Allocations and Distributions.
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(a) Capital Accounts. A capital account shall be maintained by the
----------------
Company for each of JWH, the Partnership and the Fund, and the initial capital
accounts of JWH, the Partnership and the Fund shall be the amount of their
respective contributions to the Company (initially, their respective capital
accounts in the Joint Ventures and, subsequently, the proceeds of additional
sales of Units and Shares). Such initial capital accounts shall be increased by
income ("Income"), gain ("Gain") and losses allocated to such capital accounts
and decreased by expenses and losses ("Losses") allocated to, and any
withdrawals from, such capital accounts. No interest shall be paid by the
Company on any capital account in the Company, although such capital accounts
will be entitled to their respective allocable shares of the interest income
earned on the assets of the Company.
(b) Trading Profits; New Profits Account. For purposes of
------------------------------------
determining the allocations and distributions described in this Section 8, the
Company shall calculate Trading Profit (Loss) and maintain a New Profits Account
in the following manner.
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(i) For the first quarter of the Company's operation, Trading Profit
(Loss) will equal the net of realized gains and losses from closed
commodity futures (or forward) transactions, plus or minus the net
unrealized gains and losses from open commodity futures (or forward)
transactions, not including interest income, and less brokerage commissions
at an aggregate annual rate of 5% of the Company's month-end assets, but
not including Administrative Fees or ongoing offering costs (as set forth
in the Prospectus and the Offering Memorandum). For each calendar quarter
thereafter, Trading Profit (Loss) will equal the net of realized gains and
losses from closed commodity futures (or forward) transactions during such
calendar quarter, not including interest income, plus or minus the net
change in unrealized gains and losses from open commodity futures (or
forward) transactions minus 5% annual brokerage commissions (but not
including the Administrative Fee or ongoing offering costs) and any
cumulative losses since the most recent quarter-end as of which there
existed Trading Profit with respect to the Partnership or the Fund.
Trading Profit shall be reduced by any "loss carryforwards"
(calculated in the same manner as cumulative losses since the most recent
quarter-end as of which there existed Trading Profit with respect to the
capital account of the Partnership or the Fund, as described in the
preceding paragraph) attributable to the capital accounts of the
Partnership and the Fund in their respective Joint Ventures, immediately
prior to the initial contribution of the assets and liabilities of the
Joint Ventures to the Company.
(ii) Fifteen percent (15%) of any Trading Profit as of the end of
each calendar quarter during the term of this Agreement shall be credited,
as a bookkeeping entry only, to the New Profits Account. The New Profits
Account is not a capital account of the Company or of any member, and
credits to such Account shall in no respect reduce any member's capital
account.
(iii) In the event that the Partnership or the Fund makes any
withdrawals from the Company as of a month-end (or other date) which is not
a quarter-end, credits shall be made to the New Profits Account in the
amount of 15% of any Trading Profit attributable to the amounts so
withdrawn. Trading Profit shall also be proportionately reduced as of such
withdrawal date for purposes of determining whether any Trading Profit
remains as of the end of the quarter in which such withdrawal occurs. In
the event that cumulative Trading Losses (including any Trading Losses
carried over in respect of "loss carryforwards" attributable to the
respective capital accounts of the Partnership and the Fund in their
respective Joint Ventures at the time of the Joint Ventures' contribution
of all of their assets and liabilities to the Company) exist at the time of
any such withdrawal (net of any new capital contributions made at the time
of such withdrawals from the proceeds of any new Units or Shares then sold
by the Partnership or the Fund, respectively), such losses shall also be
proportionately reduced for purposes of determining future credits to the
New Profits Account.
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(iv) An example of the calculation of the Company's New Profits
Account allocations is set forth in Schedule I hereto and incorporated by
reference herein; Net Profits Account allocations shall be calculated
separately in respect of the capital accounts of the Partnership and the
Fund, respectively.
(c) Allocation of Income and Gains. Income and Gains of the Company
------------------------------
(allocating Gains and Losses from each of the Company's trades for such purposes
on a gross, not a net, basis during any period when a mixed straddle account
election is not in effect for the Company) shall be allocated as of the end of
each calendar year as follows:
(i) First, Gains shall be allocated to JWH until the aggregate amount
of Gains allocated to JWH pursuant to this Section 8(c)(i) for the current
and all prior periods equals the sum of the bookkeeping credits to the New
Profits Account during the current and all prior periods (including the
additional bookkeeping credits contemplated by Section 8(h) below); and
(ii) Second, all Income and all remaining Gains shall be allocated to
the Partnership, the Fund and JWH in proportion to their beginning of the
month capital account balances for each month when such Income and
remaining Gain accrued.
(d) Allocation of Losses. Losses of the Company (allocating Gains
--------------------
and Losses from each of the Company's trades for such purposes on a gross, not a
net, basis during any period where a mixed straddle account election is not in
effect for the Company) shall be allocated, as of the end of each calendar year
to the Partnership, the Fund and JWH in proportion to their beginning of the
month capital account balances for each month when such Losses accrued.
(e) Pro Rata Allocations. All allocations of gains, income, losses
--------------------
and deductions for federal income tax purposes shall be made to the members in
proportion to the manner in which Income, Gain and Losses are allocated to them
pursuant to paragraphs (c) and (d) hereof. All allocations made hereunder shall
for federal income tax purposes be made pro rata from each class or kind of
income, including, for example, short-term capital gain or loss and long-term
capital gain or loss and operating income or loss (to the extent that the
federal income tax law distinguishes between long- and short-term gain).
(f) Distributions. Distributions shall be made to the Partnership,
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the Fund and JWH as follows:
(i) Subject to Section 1 hereof, the Partnership and the Fund may
withdraw amounts only so long as such distributions do not exceed the
amount of cash that would be distributable to the Partnership or the Fund,
as applicable pursuant to Section 20 hereof, if the Company were dissolved,
all its assets liquidated, and gains and losses allocated pursuant to
Section 8(c) and (d) hereof, and such distributions may be made at the end
of any month;
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(ii) JWH may withdraw amounts at the end of each year or period for
which allocations are made that do not exceed the balance of its
allocations made with respect to the Profit Sharing Account.
(g) Dissolution of the Company. Upon any dissolution of the Company,
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the Partnership and the Fund each agree to change its name so that it no longer
includes the phrase "JWH Strategic Allocation."
(h) Additional New Profits Account Credit. Additional credits to the
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New Profits Account shall accrue from time to time at prevailing rates for 91-
day Treasury bills to the extent credits have been made to the New Profits
Account but there have been no allocations of Gains with respect to such New
Profits Account credits. Alternatively, JWH may elect to have the New Profits
Account participate in the profits and losses of the Company as if such New
Profits Account were a capital account in the Company (with the parties agreeing
in writing that appropriate adjustments to the capital and tax allocations
provided herein shall be made in the event that JWH elects such alternative).
9. Representations, Warranties and Covenants
of JWH, the Partnership and the Fund
-------------------------------------------
(a) JWH hereby restates all representations and warranties made by it
in the Selling Agreements (as amended) relating to the offering of the Units and
the Shares, with the same effect as if such representations and warranties were
set forth verbatim herein.
(b) The General Partner hereby restates all representations and
warranties made by it in the Selling Agreements (as amended) relating to the
offering of the Units and the Shares with the same effect as if such
representations and warranties were set forth verbatim herein.
(c) The Partnership hereby makes, on its own behalf, the
representations and warranties made by the General Partner in the Selling
Agreement (as amended) relating to the Partnership, as if such representations
and warranties were set forth verbatim herein as represen tations and
warranties of the Partnership.
(d) The Fund hereby makes on its own behalf, the representations and
warranties made by it in the Selling Agreement (as amended) relating to the
Fund, as if such representations and warranties were set forth verbatim herein
as representations and warranties of the Fund.
-11-
<PAGE>
10. Amendment.
---------
This Agreement may not be amended except by the written consent of
each of the parties hereto. Each party hereto further agrees that the Company
is an arrangement based upon mutual consent and that such party will not
withdraw its consent to the Company provided that the Company is operated in
accordance with the terms hereof.
11. Indemnification and Standard of Liability of JWH.
------------------------------------------------
In view of the nature of the managerial responsibilities which JWH has
agreed to assume on behalf of the Company, the Partnership, the Fund and the
Company agree that JWH is exposed to potential liabilities to a degree greater
than the Partnership and the Fund in participating in the Company and that,
accordingly, the following indemnification of JWH is appropriate.
(a) In Actions by Third Parties. The Partnership or the Fund (as
---------------------------
applicable) shall each indemnify, defend and hold harmless JWH, its affiliates
and their respective officers, directors, employees, shareholders and
controlling persons (within the meaning of Section 15 of the Securities Act)
from and against any and all losses, claims, damages, liabilities (joint and
several), costs and expenses (including any investigatory, legal and other
expenses incurred in connection with, and any amounts paid in, any settlement;
provided, that the Partnership or the Fund (as applicable) shall have approved
- --------
such settlement) resulting from a demand, claim, lawsuit, action or proceeding
relating to any of such person's actions or capacities relating to the business
or activities of the Partnership, the Fund or the Company (other than a demand,
claim, lawsuit, action or proceeding described in the next paragraph); provided,
--------
that the conduct of such person which was the subject of the demand, claim,
lawsuit, action or proceeding did not constitute gross negligence, willful or
wanton misconduct, a breach of this Agreement or a breach of fiduciary
obligations, arising under applicable law or a violation of applicable law, to
the Company and was done in good faith and in a manner such person reasonably
believed to be in, or not opposed to, the best interests of the Company. The
termination of any demand, claim, lawsuit, action or proceeding by settlement
shall not, of itself, create a presumption that the conduct in question was not
undertaken in good faith and in a manner reasonably believed to be in, or not
opposed to, the best interests of the Company.
MLIP shall indemnify the Partnership and the Fund to the extent that
the foregoing indemnity exceeds in liability to the Partnership or the Fund the
indemnity that would have been due pursuant to Section 11(b) hereof.
(b) In Actions by the Partnership or the Fund or in Right of the
------------------------------------------------------------
Partnership or the Fund. In any demand, claim, lawsuit, action or proceeding
- -----------------------
brought by the Partnership or the Fund in and relating to its capacity as a
member or brought by a partner (including the General Partner) in the
Partnership in right of the Partnership or by a Shareholder of the Fund in right
of the Fund alleging damages arising from activities of JWH as such member, its
affiliates, and their respective officers, directors, employees, shareholders
and controlling persons (within the meaning
-12-
<PAGE>
of Section 15 of the Securities Act) shall be indemnified to the extent and
subject to the conditions described in the preceding paragraph, but with the
qualification that the term "negligence" shall be substituted for the term
"gross negligence" and the term "misconduct" shall be substituted for the term
"willful or wanton misconduct" in such paragraph.
No indemnity under this Section 11 shall, however, be available for
JWH, its affiliates, their respective officers, directors, employees,
shareholders and controlling persons (within the meaning of Section 15 of the
Securities Act) for losses, claims, damages, liabilities (joint and several),
costs or expenses resulting from actions for which JWH has agreed to indem nify
various parties pursuant to the Selling Agreement relating to the offering of
the Units or the Shares. No indemnification under this Section 11 shall be made
in respect of any demand, claim, lawsuit, action or proceeding relating to
activities of the person to be indemnified which have been adjudged, by a court
having jurisdiction with respect to the matter upon entry of a final judgment,
not to have met the foregoing standards of indemnity, as the case may be,
unless, and except to the extent that, such court determines that, despite such
judgment, such person is fairly and reasonably entitled to indemnity.
To the extent that JWH or any other indemnified party described in the
first two paragraphs of this Section 11 is successful, on the merits or
otherwise, in the defense of any demand, claim, lawsuit, action or proceeding
referred to in such paragraphs, the Company shall indemnify such person against
the costs and expenses (including any investigatory, legal and other expenses)
actually and reasonably incurred by such indemnified party in connection
therewith.
Any indemnification required by the first two paragraphs of this
Section 11, unless ordered or expressly permitted by a court, shall be made by
the Company, the Partnership or the Fund (as applicable) only upon a
determination by independent legal counsel in a written opinion that the conduct
which is the subject of the claim, demand, lawsuit, action or proceeding with
respect to which indemnification is sought meets the applicable standard set
forth in either of the first two paragraphs of this Section 11, as the case may
be.
The indemnification provisions of this Section 11 shall not increase
the liability of any partner in the Partnership or Shareholder in the Fund
beyond his or her capital and profits (exclusive of distributions or other
returns of capital, including redemptions, if any) in the Partnership or the
Fund, as applicable; furthermore, the General Partner shall make whole the
Partnership for any indemnification claim to which it is made subject under
Section 11(a) for which it would not have been liable had the indemnification
standard set forth in Section 11(b) been applicable to such claim.
(c) Standard of Liability. JWH, its affiliates and their respective
---------------------
officers, directors, employees, shareholders and controlling persons (within the
meaning of Section 15 of the Securities Act) shall not be liable to the Company,
the Fund or any of the Shareholders in the Fund, the Partnership, or any of the
Partners in the Partnership except (i) by reason of acts or omissions in breach
of this Agreement, (ii) due to misconduct or negligence, or (iii) by reason of
-13-
<PAGE>
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 Partnership or
the Fund, as applicable.
12. Indemnification of the Partnership and the Fund.
-----------------------------------------------
JWH shall indemnify, defend and hold harmless the Partnership, the
General Partner, the Fund, their respective affiliates and their respective
directors, officers, shareholders, employees and controlling persons from and
against any and all losses, claims, damages, liabilities (joint and several),
costs and expenses (including any reasonable investigatory, legal and other
expenses incurred in connection with, and any amounts paid in, any settlement;
provided that JWH shall have approved such settlement) resulting from a demand,
claim, lawsuit, action or proceeding relating to any action or omission of JWH
or any of its respective officers, directors or employees relating to the
business or activities of such person under this Agreement or relating to the
management of the account of the Partnership or the Fund (as applicable); and
provided further that the action or omission of such person which was the
subject of the demand, claim, lawsuit, action or proceeding constituted
negligence or misconduct or a breach of this Agreement or was an action or
omission taken otherwise than in good faith and in a manner reasonably believed
to be in, or not opposed to, the best interests of the Partnership or the Fund
(as applicable). No indemnification shall be due hereunder, however, for any
matters for which the Partnership, the General Partner, the Fund, its affiliates
and their respective directors, officers, shareholders, employees or controlling
persons are indemnified under the Selling Agreement (although indemnity shall be
due under the Selling Agreement).
13. Term.
----
Unless sooner terminated pursuant to Section 14 hereof, this Agreement
shall continue in effect until (i) September 30, 1998 in which the Company
commences trading or (ii) the earlier termination of the Partnership and the
Fund (and hence of the Company); provided, however, that the indemnity
-------- -------
provisions set forth in Sections 11 and 12 of this Agreement shall survive any
such termination and remain in effect for 3 years from the date of the
termination of this Agreement.
This Agreement may be renewed, as of September 30, 1998, on the same
terms for one additional one-year period at the option of the Partnership and
the Fund (JWH hereby consenting in advance to such renewal), such option to be
exercised in respect of each renewal by written notice delivered to JWH no more
than 60 and no less than 30 days prior to the date this Agreement would
otherwise terminate.
-14-
<PAGE>
14. Termination.
-----------
The Partnership and the Fund may, as of the end of any calendar month
upon 30 calendar days' notice, terminate this Agreement and thereby dissolve the
Company.
This Agreement may be terminated at the discretion of JWH, as of the
following month-end, should any of the following occur: (1) the Company's Net
Asset Value decreases to less than $40,000,000 as of the close of business on
the last business day of a month; (2) JWH has determined to cease managing any
customer accounts pursuant to the Strategic Allocation Program (in which case,
however, JWH will negotiate in good faith with MLIP in an attempt to restructure
the trading program of the Company); (3) the Partnership elects, other than as
provided in Section 5, to override the trading signals of JWH against the advice
of JWH; (4) in the event that the trading policies applicable to the Company are
amended without the consent of JWH and as amended, would, in the reasonable
judgment of JWH, materially and adversely affect the trading approach used by
JWH for the Company, the Partnership or the Fund; or (5) the General Partner's
registration as a commodity pool operator is terminated.
Subsequent to September 30, 1999 (assuming that the Partnership and
the Fund renew this Agreement as of September 30, 1998 for an additional one-
year term, JWH may, as of the end of any calendar month upon 30 calendar days'
notice, terminate this Agreement, unless this Agreement, as then extended
contains other termination provisions.
This Agreement shall also terminate and the Company shall dissolve
upon (a) the mutual decision of JWH, the Fund and the Partnership, (b) the
bankruptcy of JWH or both the Partnership and the Fund, (c) the involuntary
dissolution of JWH, the Partnership or the Fund, (d) any event which makes it
unlawful to carry on the business of the Company or (e) December 31, 2028.
For purposes of the foregoing paragraph of this Agreement, the
"bankruptcy" of JWH, the Company, the Partnership or the Fund shall be deemed to
have occurred upon the happening of any of the following: (i) the filing of an
application by such member for, or a consent to, the appointment of a trustee of
its assets; (ii) the filing by such member of a voluntary petition in bankruptcy
or the filing of a pleading in any court of record admitting in writing its
inability to pay its debts as they come due; (iii) the making by such member of
a general assignment for the benefit of creditors; (iv) the filing by such
member of an answer admitting the material allegations of, or its consenting to,
or defaulting in answering a bankruptcy petition filed against it in, any
bankruptcy proceeding; or (v) the entry of an order, judgment or decree by any
court or competent jurisdiction adjudicating such member as bankrupt or
appointing a trustee of its assets, and such order, judgment or decree
continuing unstayed and in effect for a period of sixty (60) consecutive days.
-15-
<PAGE>
15. Expenses.
--------
Each party shall, in all events, bear its own expenses in connection
with the negotiation, execution and performance of this Agreement and the
preparation for and consum mation of the offering of the Units and the Shares.
16. Bank Accounts.
-------------
All of the Company's cash receipts shall be deposited in such banks or
other depositories as from time to time shall be chosen by the Partnership.
Withdrawals from said accounts shall be made by the signature, facsimile or
otherwise, of such person or persons, and in such manner, as shall be authorized
by the Partnership.
17. Accounting Decisions.
--------------------
All decisions for the Company as to accounting principles, for its
book, tax or other purposes (such decisions may be different for each such
purpose), shall be made by the Partnership in consultation with and with the
approval of the Fund and JWH.
18. Books and Records.
-----------------
Each of the parties hereto or its authorized representatives may
examine (and make copies at its own expense) of any of the books and records of
the Company at any time, and without notice, during regular business hours, at
the address set forth in Section 2 hereof.
19. Annual Reports.
--------------
As soon as practicable after the end of each fiscal year of the
Company, the Partnership shall cause the Company to furnish to the Partnership
the Schedule K-1 required by the Internal Revenue Service in respect of the
Company.
20. Fiscal Year.
-----------
The fiscal year of the Company shall end on the 31st day of December
in each year, unless the Internal Revenue Service requires the Company to adopt
a different fiscal year or the Company terminates during a calendar year
(thereby terminating the Company's final fiscal year).
-16-
<PAGE>
21. Dissolution.
-----------
Upon dissolution of the Company, the assets shall be liquidated and
the proceeds shall be applied to: (i) payment of Company debts, including the
expenses of the liquidation; and (ii) the deposit in a trust account of a
reasonable reserve for payment of contingent liabilities and expenses of the
Company, as determined by the Partnership. As soon as reasonably possible and
after payment of any contingencies arising during that time, the balance
remaining in the trust account shall be distributed to JWH, the Partnership and
the Fund in proportion to their respective general capital accounts as of the
date of dissolution.
22. Liquidator.
----------
The Partnership shall act as liquidator of the Company upon any
dissolution thereof, other than one due to the bankruptcy or involuntary
dissolution of the Partnership. During the liquidation and dissolution of the
Company, the Partnership may continue to act on behalf of the Company for the
sole purpose of winding up the Company.
23. Freedom of Action.
-----------------
Nothing contained in this Agreement shall be construed to prevent or
prohibit the Partnership, the Fund or JWH from engaging separately from the
Company in any lawful fashion, whether individually or together with third
parties, in trading in the commodity markets or in any other activity, without
any obligation to account to either the other party or to the Company for such
activities. Nothing contained in this Agreement shall be construed to
constitute any of JWH, the Partnership or the Fund, the agent, attorney-in-fact
(except as may be otherwise explicitly set forth herein) or general partner of
any other member, nor in any manner to restrict them in the conduct of their
respective businesses or activities other than the activities included with the
scope of this Agreement. This Agreement shall not confer on any member any
proprietary interest in, or subject any member to any liability for, the
business, assets, profits, losses or obligations of this other, except as and to
the extent that the members have explicitly become members pursuant to the terms
of this Agreement. In no event shall this Agreement be deemed to create any
relationship whereby one member might be held liable for the omission or
commission of the other.
24. Transactions with Affiliates.
----------------------------
The validity of any transaction, agreement or payment involving the
Company and any affiliate of JWH, the Fund or the Partnership shall not be
affected by reason of the relation ship between such member and such affiliate.
25. Notices.
-------
-17-
<PAGE>
All notices required to be delivered under this Agreement shall be in
writing (including telegraphic communication) or telephone confirmed in writing,
all such writings to be delivered personally or sent by first class mail,
postage prepaid, as follows:
if to the Partnership to:
ML JWH STRATEGIC ALLOCATION FUND L.P.
c/o Merrill Lynch Investment Partners Inc.
General Partner
World Financial Center
South Tower, Sixth Floor
New York, New York 10080-6106
Attn: John R. Frawley, Jr.
if to the Fund to:
ML JWH STRATEGIC ALLOCATION FUND LTD.
c/o Merrill Lynch Bank & Trust Co.
(Cayman) Ltd.
P.O. Box 694
British American Centre, Phase III
Fifth Floor
Grand Cayman, Cayman Islands
British West Indies
if to JWH to:
JOHN W. HENRY & COMPANY, INC.
One Glendinning Place
Westport, Connecticut 06880
Attn: David M. Kozak
Notices shall be effective when actually received.
26. GOVERNING LAW.
-------------
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF
LAWS.
-18-
<PAGE>
27. Entire Agreement.
----------------
This Agreement sets forth the entire agreement of the parties relating
to the subject matter hereof except as otherwise set forth herein. This
Agreement shall be deemed to constitute the written Power of Attorney
(notwithstanding the fact that JWH as the Fund's and Partnership's fellow member
should not require any such instrument) required by regulatory authorities to
authorize JWH to exercise discretionary control over the trading of the
Company's account. The Partnership and the Fund each agrees, however, to
execute and deliver, on behalf of the Company, a separate Power of Attorney in
respect of such trading in event that JWH should so request.
28. Representations and Warranties in the Registration
Statement and the Offering Memorandum
---------------------------------------------------
JWH and the General Partner/Sponsor each acknowledge, on behalf of
itself and its principals, that the Registration Statement and the Offering
Memorandum each states that JWH, the General Partner/Sponsor and their
respective principals have made various representations and warranties, and that
the accuracy of the Registration Statement and the Offering Memorandum is of
material importance to the success of the Company. JWH and the General
Partner/Sponsor will have the opportunity to approve any such references in the
Prospectus and each agrees, on behalf of itself and its principals, that all
such statements shall be incorporated by reference herein and made a part hereof
as set forth verbatim herein.
29. Exclusivity.
-----------
JWH agrees that it will not manage the assets of any fund pursuant to
the JWH Strategic Allocation Program other than funds sponsored by MLIP or an
affiliate until the end of the twelfth full month after the first sale of Units
by the Partnership pursuant to the Registration Statement.
30. Purpose of Company.
------------------
The members intend to create a limited liability company separate from
JWH, the Partnership and the Fund, and the purpose of the Company is to conduct
the commodities trading activities described in the Prospectus and the Offering
Memorandum. The members agree to report for accounting, tax and other purposes
the transactions contemplated by this Agreement consistently with the terms of
this Agreement and the intent expressed hereby.
31. Submission to Jurisdiction; Waivers. Each party hereby
-----------------------------------
irrevocably and unconditionally:
(a) submits for itself and its property in any legal action or
proceeding relating to this agreement or any other credit document, or for
recognition and enforcement of any judgement in respect thereof, to the
non-exclusive general jurisdiction of the courts of the
-19-
<PAGE>
State of New York, the courts of the United States of America for the
Southern District of New York, and the appellate courts from any thereof;
(b) consents that any such action or proceeding may be brought in such
courts, and waives trial by jury and any objection that it may now or
hereafter have to the venue of any such action or proceeding in any such
court or that such action or proceeding was brought in an inconvenient
court and agrees not to plead or claim the same;
(c) agrees that, if it shall not have a registered agent for service
of process in the State of New York, then service of process may be
effected by mailing a copy thereof by registered or certified mail (or any
substantially similar form of mail), as the case may be, at its address set
forth in Section 25 or at such other address of which the other parties
hereto shall have been notified; and
(d) agrees that nothing herein shall affect the right to effect
service of process in any other manner permitted by law or shall limit the
right to sue in any other jurisdiction.
32. Severability.
------------
If any provision of this Agreement, or the application of any
provision to any person or circumstance, shall be held to be inconsistent with
any present or future law, ruling, rule, or regulation of any court or
governmental or regulatory authority having jurisdiction over the subject matter
hereof, such provision shall be deemed to be rescinded or modified in accordance
with such law, ruling, rule, or regulation or modified in accordance with such
law, ruling, rule, or regulation, and the remainder of this Agreement, or the
application of such provision to persons or circumstances other than those as to
which it shall be held inconsistent, shall not be affected thereby; provided
that alteration of this Agreement in this manner shall not have a material
effect on the terms hereof.
33. Counterparts.
------------
This Agreement may be executed in counterparts, each of which shall be
deemed an original but all of which together shall constitute one and the same
instrument.
34. Arbitration.
-----------
Each party hereto consents and submits to the jurisdiction of any
applicable arbitral body located within the County of New York, City of New York
and State of New York. The parties hereto agree to execute and deliver a
consent to arbitration separate and distinct from this Agreement, as required by
applicable CFTC rules.
-20-
<PAGE>
IN WITNESS WHEREOF, this Limited Liability Company Agreement has been
executed by the parties hereto as of the day and year first above written.
ML JWH STRATEGIC ALLOCATION
FUND L.P.
By: MERRILL LYNCH INVESTMENT
PARTNERS INC.
General Partner
By ______________________________
John R. Frawley, Jr.
President and Chief
Executive Officer
ML JWH STRATEGIC ALLOCATION
FUND LTD.
By ______________________________
Name:
Title:
JOHN W. HENRY & COMPANY, INC.
By ______________________________
Name:
Title:
-21-
<PAGE>
Confirmed:
not as a Member, but solely for the limited
purposes set forth herein
MERRILL LYNCH INVESTMENT
PARTNERS INC.
By ______________________________
John R. Frawley, Jr.
President and Chief
Executive Officer
Confirmed:
not as a Member, but solely for the limited
purposes set forth herein
MERRILL LYNCH FUTURES INC.
By ______________________________
-22-
<PAGE>
SCHEDULE
SAMPLE NEW PROFITS ACCOUNT CREDIT
---------------------------------
Assume that the Net Asset Value of the Partnership's Capital Account
in the Company on July 1, 1998 is $100,000,000 and that no loss carryforwards
exist. If at the end of July 1998, trading profit recognized on both open and
closed futures positions, less brokerage commissions and Administrative Fees
calculated together at a 5% of month-end assets annual rate, not including
interest income and not reduced by organizational and initial offering cost
reimbursement payments and ongoing offering costs, equaled $5,000,000, all of
such profit would constitute Trading Profit. Consequently, Limited Partners who
redeemed their Units at such time would receive a redemption price reflecting a
Partnership Net Asset Value of approximately $104,250,000. Assume that by the
end of August 1998 subsequent losses and brokerage commissions have reduced the
initial $5,000,000 gain to a loss of ($1,800,000). A cumulative trading loss of
$1,800,000 would exist (irrespective of the fact that $6.8 million had been lost
since the previous month-end -- as opposed to quarter-end -- high). If the
Partnership thereupon withdrew 50% of its interest in the Company to fund
redemptions, such trading loss would, for purposes of future New Profits Account
credits, be reduced to $900,000. If during September 1998, trading profit
recognized on both open and closed futures positions, not including interest
income, less brokerage and Administrative Fees calculated together at a 5% of
month-end assets annual rate, and not reduced by organizational and initial
offering cost reimbursement payments, equalled $2,000,000, Trading Profit of
$1,100,000 would be accrued as of such quarter. Thus the New Profits Account
would be increased by 15% of $1,100,000, or $165,000, and JWH would be entitled
to a priority profit allocation of $165,000 as profits accrued to the
Partnership's Capital Account in the Company.
-23-
<PAGE>
EXHIBIT
ACKNOWLEDGMENT OF RECEIPT OF DISCLOSURE DOCUMENT
The undersigned hereby acknowledges receipt of the Disclosure Document
dated ___________, 1998 of John W. Henry & Company, Inc. in connection with John
W. Henry & Company, Inc.'s implementation of the Strategic Allocation Program
for ML JWH Strategic Allocation Fund L.P.
ML JWH STRATEGIC ALLOCATION
FUND L.P.
By: MERRILL LYNCH INVESTMENT
PARTNERS INC.,
General Partner
By ______________________________
Name:
Title:
The undersigned hereby acknowledges receipt of the Disclosure Document
dated ___________, 1998 of John W. Henry & Company, Inc. in connection with John
W. Henry & Company, Inc.'s implementation of the Strategic Allocation Program
for ML JWH Strategic Allocation Fund Ltd.
ML JWH STRATEGIC ALLOCATION
FUND LTD.
By ______________________________
Name:
Title:
-24-
<PAGE>
EXHIBIT 10.09
AMENDATORY AGREEMENT
THIS AMENDATORY AGREEMENT ("Agreement") is entered into by and among the
signatories hereto (the "Signatories") as of March ___, 1998.
W I T N E S S E T H
WHEREAS, the Signatories (or certain thereof) have previously entered into
a Selling Agreement, a Customer Agreement, a Foreign Exchange Desk Services
Agreement, an Investment Advisory Contract and a Custody Agreement
(collectively, the "Original Agreements") relating to the distribution of units
of limited partnership ("Units") in, and the operation, trading and safekeeping
the assets of, ML Strategic Allocation Fund L.P. (the "Partnership");
WHEREAS, all of the Original Agreements were filed as exhibits to the
Partnership's Registration Statement No. 33-80509, which became effective under
the Securities Act of 1933 (the "Securities Act") as of April 25, 1996 for the
initial offering of the Units (the "First Offering");
WHEREAS, the Partnership filed a new Registration Statement (Reg. No. 333-
________) on March 6, 1998 pursuant to which the Partnership is registering
2,000,000 additional Units for public sale (the "Second Offering");
WHEREAS, the Partnership has previously traded commodity interests through
participating in a joint venture (the "Joint Venture") with John W. Henry &
Company, Inc. ("JWH(R)"), and in conjunction with the Second Offering the Joint
Venture has been converted into a limited liability company (ML JWH Strategic
Joint Venture LLC), formed under the Delaware Limited Liability Company Act (the
"Company"), and to which the offshore counterpart fund to the Partnership, ML
JWH Strategic Allocation Fund Ltd., a Cayman Islands company (the "Fund"), has
also been admitted as a member, together with the Partnership and JWH;
WHEREAS, no other members shall be admitted to the Company;
WHEREAS, the Partnership is the manager of the Company, and Merrill Lynch
Investment Partners Inc. ("MLIP") is the general partner of the Partnership and
the sponsor of the Fund;
WHEREAS, all the Signatories other than JWH are affiliates of MLIP; and
WHEREAS, the Signatories wish to amend the Original Agreements to reflect
the formation of the Company and the Second Offering, but without otherwise
effecting any substantive change therein.
<PAGE>
NOW THEREFORE, the Signatories agree as follows.
1. DEFINED TERMS. Capitalized terms not otherwise defined herein are used
--------------
with the meanings set forth in the Original Agreements.
2. THE SELLING AGREEMENT. The Selling Agreement is hereby amended to
---------------------
reflect the registration and public offering of an additional 2,000,000 Units
and the elimination of the use of an escrow account. As the Partnership is an
operating entity, there is no minimum number of new Units which must be sold as
of the beginning of any calendar month during the Second Offering for Units then
to be sold, and -- as provided in the Selling Agreement in the case of the
ongoing offering of the Units following the initial Closing Date during the
First Offering -- subscriptions are debited directly from investors' Merrill
Lynch Customer Securities Accounts as of each month-end settlement date directly
into the Partnership's account without being previously collected into an escrow
account.
The initial Closing of the Second Offering shall be subject to the same
closing conditions as was the initial Closing of the First Offering, adjusted,
as relevant, to reflect the existence of the Company as opposed to the Joint
Venture.
In respect of the amendment and extension of the Selling Agreement, the
Selling Agent agrees that it shall, for all liability and indemnification
provisions and for all other purposes under the Selling Agreement, look only to
the Partnership and its assets, and not to any other assets of the Company to
satisfy any obligation of the Partnership under the Selling Agreement,
irrespective of the fact that the Company is, for purposes of the Securities
Act, a "co-issuer" with the Partnership.
In all other respects, the terms of the Selling Agreement are restated in
their entirety; provided, that the Company as "co-issuer" with the Partnership
is herewith made a signatory of the Selling Agreement (the Company's obligations
thereunder to be limited to the Partnership's capital account in the Company, as
provided in the preceding paragraph).
3. THE CUSTOMER AGREEMENT. The Customer Agreement is hereby amended to
----------------------
reflect the fact that the Company, rather than the Joint Venture, is MLF's
client under the Customer Agreement. Otherwise, the terms of the original
Customer Agreement are restated in their entirety; provided, that the interest
credit arrangements shall be as set forth under "Interest Income Arrangements"
in the Prospectus and the Offering Memorandum.
4. FOREIGN EXCHANGE DESK SERVICES AGREEMENT. The Foreign Exchange Desk
----------------------------------------
Services Agreement is hereby amended to reflect the fact that the Company, not
the Joint Venture, is the relevant party thereto.
In all other respects, the Foreign Exchange Desk Services Agreement is
restated in its entirety; provided, that the description of the process of
contacting counterparties in the
-2-
<PAGE>
Prospectus and Offering Memorandum shall supersede the description in the
Foreign Exchange Desk Services Agreement.
5. INVESTMENT ADVISORY CONTRACT, The Investment Advisory Contract is
----------------------------
hereby amended to reflect the fact that the Company, not the Joint Venture, is
the relevant party thereto. In addition, Merrill Lynch Asset Management, L.P.
acknowledges that the loss incurred/return earned on the monies managed by it
for the Company pursuant to the Investment Advisory Contract shall be allocated
exclusively to the capital account of the Partnership in the Company, not to the
capital account of the Fund.
In all other respects, the terms of the Investment Advisory Contract are
restated in their entirety.
6. CUSTODY AGREEMENT. The Custody Agreement is hereby amended to reflect
-----------------
the fact that the Company, not the Joint Venture, is the relevant party thereto.
In addition, the Selling Agent acknowledges that the assets held in custody by
it pursuant to the Custody Agreement shall be solely attributed to the capital
account of the Partnership in the Company, not to the capital account of the
Fund.
In all other respects, the terms of the Custody Agreement are restated in
their entirety.
7. REPRESENTATIONS AND WARRANTIES OF THE MLIP PARTIES. The MLIP Parties,
--------------------------------------------------
other than MLIP itself, hereby restate and reaffirm the representations and
warranties made by them in the Original Agreements in respect of such Agreements
as hereby amended (the "Amended Agreements").
8. REPRESENTATIONS AND WARRANTIES OF MLIP. MLIP represents and warrants
--------------------------------------
to the Signatories, as follows:
(a) The Partnership has provided to the MLIP Parties and filed with
the SEC a registration statement on Form S-1 (Registration No. 333-______),
as filed with the SEC on March 6, 1998 for the registration of 2,000,000
Units under the Securities Act, has filed two copies thereof with the CFTC
under the Commodity Act and one copy with the NFA in accordance with NFA
Compliance Rule 2-13. The term, "Registration Statement," shall, from and
after the declaration of the effectiveness of the Registration Statement,
refer to the Registration Statement as it becomes effective, and the term,
"Prospectus" shall refer to the prospectus then on file with the SEC as
part of the Registration Statement, or if a subsequent prospectus is filed
by the Partnership pursuant to Rule 424 of the SEC Regulations, the term,
"Prospectus," shall refer to the prospectus most recently filed pursuant to
such Rule from and after the date on which it shall have been first used.
Except as required by law, the Partnership will not file any amendment to
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<PAGE>
the Registration Statement or any amendment or supplement to the Prospectus
which shall be reasonably objected to in writing by any MLIP Party, upon
reasonable prior notice.
(b) The Certificate of Limited Partnership pursuant to which the
Partnership was formed and the Limited Partnership Agreement each provides
for the subscription for and sale of the Units; all action required to be
taken by MLIP and the Partnership as a condition to the sale of the Units
to qualified subscribers therefor has been, or prior to the initial Closing
Time of the Second Offering and Subsequent Closing Times during the Second
Offering will have been taken; and, upon payment of the consideration
therefor specified in all accepted Subscription Agreements and Powers of
Attorney, the Units will constitute valid limited partnership interests in
the Partnership.
(c) The Fund is a limited partnership duly organized pursuant to the
Certificate of Limited Partnership, the Limited Partnership Agreement and
the DRULPA and validly existing under the laws of the State of Delaware
with full power and authority to engage in the trading of futures, forward
and option contracts, as described in the Prospectus; the Fund has received
(or will receive prior to the Initial Closing Time, as defined in Section
4(c)) a certificate of authority to do business in the State of New York as
provided by Article 8-A of the New York Uniform Limited Partnership Act.
(d) The Certificate of Formation pursuant to which the Company was
formed and the Organization Agreement each provides for the Company to act
as "co-issuer" in the subscription for and sale of the Units; and all
action required to be taken by MLIP and the Company as a condition to the
Company as "co-issuer" participating in the sale of the Units to qualified
subscribers therefor has been, or prior to the initial Closing Time of the
Second Offering and subsequent Closing Times during the Second Offering
will have been taken; and, upon payment of the consideration therefor
specified in all accepted Subscription Agreements and Powers of Attorney,
the Units will constitute valid limited partnership interests in the
Company.
(e) The Company is a limited liability company duly organized
pursuant to the Certificate of Formation, the Organization Agreement and
the Limited Liability Company Act of the State of Delaware and validly
existing under the laws of the State of Delaware with full power and
authority to engage in the trading of futures, forward and option
contracts, as described in the Prospectus.
(f) MLIP is duly organized and validly existing and in good standing
as a corporation under the laws of the State of Delaware and in good
standing as a foreign corporation under the laws of the State of New York
and in each other
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<PAGE>
jurisdiction in which the nature or conduct of its business requires such
qualifica tion and the failure to so qualify would materially adversely
affect the Partnership or MLIP's ability to perform its obligations
hereunder.
(g) The Company, the Partnership and MLIP have partnership or
corporate power and authority under applicable law to perform their
respective obligations under the Organization Agreement, Limited
Partnership Agreement, the Customer Agreement, the Foreign Exchange Desk
Service Agreement, the Advisory Agreement, the Custody Agreement and this
Agreement (as the case may be), as described in the Registration Statement
and Prospectus.
(h) The Registration Statement and Prospectus contain all statements
and information regarding the Company, the Partnership and MLIP required to
be included therein by the Commodity Act and the rules and regulations
thereunder. When the Registration Statement becomes effective under the
1933 Act and at all times subsequent thereto up to and including the
initial Closing Time of the Second Offering, the Registration Statement and
Prospectus will comply in all material respects with the requirements of
the 1933 Act, the Commodity Act and the rules and regulations under such
Acts. The Registration Statement as of its effective date will not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading. The Prospectus as of its date of issue and at the initial
Closing Time of the Second Offering will not contain an untrue statement of
a material fact or omit to state a material fact necessary to make the
statements therein, in light of the circumstances under which such
statements were made, not misleading. This representation and warranty
shall not, however, apply to any statement or omission in the Registration
Statement or Prospectus made in reliance upon and in conformity with
information relating to JWH or furnished or approved in writing by JWH.
(i) Deloitte & Touche, the accountants who certified the financial
statements filed with the SEC as part of the Registration Statement, are,
with respect to the Company, the Partnership and MLIP, independent public
accountants as required by the 1933 Act and the SEC Regulations.
(j) The financial statements filed as part of the Registration
Statement and those included in the Prospectus present fairly the financial
position of the Partnership and of MLIP as of the dates indicated; and said
financial statements have been prepared in conformity with generally
accepted accounting principles (as described therein) applied on a basis
which is consistent in all material respects for each balance sheet date
presented.
-5-
<PAGE>
(k) Since the respective dates as of which information is given in
the Registration Statement and the Prospectus, there has not been any
material adverse change in the condition, financial or otherwise, business
or prospects of the Company, the Partnership or MLIP, whether or not
arising in the ordinary course of business.
(l) The Advisory Agreement, the Organization Agreement, the Limited
Partnership Agreement and this Agreement have each been duly and validly
authorized, executed and delivered by MLIP on behalf of the Partnership or
by the Partnership on behalf of the Company and each constitutes a legal,
valid and bind ing agreement of the Company enforceable in accordance with
its terms. The Customer Agreement and the Foreign Exchange Desk Service
Agreement have each been duly and validly authorized, executed and
delivered by the Partnership on behalf of the Company.
(m) The execution and delivery of the Organization Agreement, the
Limited Partnership Agreement, the Customer Agreement, the Foreign Exchange
Desk Service Agreement, the Advisory Agreement, the Custody Agreement and
this Agreement, the incurrence of the obligations set forth in each of such
agreements and the consummation of the transactions contemplated therein
and in the Prospectus will not constitute a breach of, or default under,
any instrument by which the Company, the Partnership or MLIP, as the case
may be, is bound or any order, rule or regulation applicable to the
Company, the Partnership or MLIP of any court or any governmental body or
administrative agency having jurisdiction over the Company, the Partnership
or MLIP.
(n) There is not pending, or, to the best of MLIP's knowledge
threatened, any action, suit or proceeding before or by any court or other
governmental body to which the Company, the Partnership or MLIP is a party,
or to which any of the assets of the Company, the Partnership or MLIP is
subject, which is not referred to in the Prospectus and which might
reasonably be expected to result in any material adverse change in the
condition (financial or otherwise), business or prospects of the Company,
the Partnership or MLIP or is required to be disclosed in the Prospectus
pursuant to applicable CFTC regulations. MLIP has not received any notice
of an investigation or warning letter from the NFA or the CFTC regarding
non-compliance by MLIP with the Commodity Act or the regulations
thereunder.
(o) MLIP has all Federal and state governmental, regulatory and
commodity exchange approvals and licenses, and has effected all filings and
registrations with Federal and state governmental agencies required to
conduct its business and to act as described in the Registration Statement
and Prospectus or required to perform its obligations as described under
the Limited Partnership
-6-
<PAGE>
Agreement and this Agreement (including, without limitation, registration
as a commodity pool operator under the Commodity Act and membership in the
NFA as a commodity pool operator), and the performance of such obligations
will not contravene or result in a breach of any provision of its
certificate of incorporation, by-laws or any agreement, order, law or
regulation binding upon it. The principals of MLIP identified in the
Registration Statement are all of the principals of MLIP, as "principals"
is defined by the CFTC regulations. Such principals are duly regis tered
as such on MLIP's commodity pool operator Form 7-R registration.
(p) Neither the Company nor the Partnership requires any Federal or
state governmental, regulatory or commodity exchange approvals or licenses,
or needs to effect any filings or registrations with any Federal or state
governmental agencies in order to conduct its businesses and to act as
contemplated by the Regi stration Statement and Prospectus and to issue
and sell the Units (other than filings relating solely to the offering of
the Units), and to trade in the commodity markets.
9. COVENANTS. The Signatories each restate and recommit to the
---------
respective covenants made by them in the Original Agreements, adopting such
covenants to reflect the formation of the Company.
10. FURTHER ASSURANCES AND DOCUMENTATION. The Signatories each agree
------------------------------------
that they will execute all such other documents and instruments as any Signatory
may reasonably request of any other Signatory to evidence the intent and purpose
of this Amendatory Agreement so as to achieve the purpose of substituting the
Company for the Partnership as the relevant party to all of the Original
Agreements other than the Selling Agreement, as well as the purpose of providing
under the Selling Agreement for the Second Offering.
11. PROTECTION OF THE FUND. The Signatories each acknowledges that
----------------------
the Fund is a member of the Company, together with the Partnership. Each
Signatory agrees that, to the fullest extent permitted by law, it will in no
event seek to collect any debt or liability properly attributable to the
Partnership as a member of the Company from any Company assets properly
attributable to the Fund's capital account in the Company.
12. EXPENSES. MLIP shall advance all costs incurred by any of the
--------
Signatories in the preparation, review, execution and delivery of this Agreement
as well as all related documentation and instruments required to reflect the
substitution of the Company for the Joint Venture in all of the Original
Agreements other than the Selling Agreement, and the Second Offering under the
Selling Agreement. Such costs shall constitute "ongoing offering costs" subject
to reimbursement by the Partnership and the Fund, as described in the Prospectus
or the Offering Memorandum.
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<PAGE>
IN WITNESS WHEREOF, the undersigned have hereto set their hands as of
the day and year first above written.
ML JWH STRATEGIC JOINT VENTURE LLC
By: ML JWH Strategic Allocation Fund L.P.
Manager
By: Merrill Lynch Investment Partners Inc.
General Partner
By:
----------------------------------------
Name:
Title:
ML JWH STRATEGIC ALLOCATION FUND L.P.
By: Merrill Lynch Investment Partners Inc.
General Partner
By:
----------------------------------------
Name:
Title:
MERRILL LYNCH INVESTMENT PARTNERS INC.
By:
----------------------------------------
Name:
Title:
MERRILL LYNCH FUTURES INC.
By:
----------------------------------------
Name:
Title:
MERRILL LYNCH, PIERCE, FENNER & SMITH,
INCORPORATED
By:
----------------------------------------
Name:
Title:
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<PAGE>
MERRILL LYNCH INTERNATIONAL BANK
By:
----------------------------------------
Name:
Title:
MERRILL LYNCH ASSET MANAGEMENT, L.P.
By: Princeton Services, Inc.
General Partner
By: Merrill Lynch Group, Inc.
General Partner
By:
----------------------------------------
Name:
Title:
JOHN W. HENRY & COMPANY, INC.
By:
----------------------------------------
Name:
Title:
ML JWH STRATEGIC JOINT VENTURE
By: ML JWH Strategic Allocation Fund L.P.
Manager
By: Merrill Lynch Investment Partners Inc.
General Partner
By:
----------------------------------------
Name:
Title:
As third-party beneficiaries:
ML JWH OFFSHORE STRATEGIC JOINT VENTURE
By: ML JWH Strategic Allocation Fund Ltd.
Manager
By:
-----------------------------------------
Name:
Title:
ML JWH STRATEGIC ALLOCATION FUND LTD.
By:
----------------------------------------
Name:
Title:
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<PAGE>
EXHIBIT 23.07
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of ML JWH Strategic
Allocation Fund L.P. (a Delaware limited partnership) on Form S-1 of our report
dated February 6, 1998 relating to the financial statements of ML JWH Strategic
Allocation Fund L.P. and of our report dated February 6, 1998 relating to the
balance sheet of Merrill Lynch Investment Partners Inc. (formerly, ML Futures
Investment Partners Inc.), appearing in the Prospectus, which is a part of such
Registration Statement, and to the reference to us under the headings "Selected
Financial Data" and "Lawyers; Accountants" in such Prospectus.
DELOITTE & TOUCHE LLP
March 4, 1998
New York, New York
<PAGE>
EXHIBIT 23.08
SIDLEY & AUSTIN
A PARTNERSHIP INCLUDING PROFESSIONAL CORPORATIONS
CHICAGO 875 Third Avenue WASHINGTON, D.C.
______ New York, New York 10022 ______
DALLAS Telephone 212 906 2000 LONDON
______ Facsimile 212 906 2021 ______
LOS ANGELES SINGAPORE
Founded 1866 ______
TOKYO
WRITER'S DIRECT NUMBER WRITER'S E-MAIL ADDRESS
CONSENT OF SIDLEY & AUSTIN
Sidley & Austin hereby consents to all references made to it in the
Registration Statement on Form S-1 of ML JWH Strategic Allocation Fund L.P. and
ML JWH Strategic Joint Venture LLC, as filed with the Securities and Exchange
Commission on March 6, 1998.
Date: March 6, 1998
Very truly yours,
Sidley & Austin
