MERRILL LYNCH KECALP L P 1997, N-2, 1996-10-29

MERRILL LYNCH KECALP L P 1997
N-2, 1996-10-29

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As filed with the Securities and Exchange Commission on October 29, 1996
Securities Act File No. 33-_____
Investment Company Act File No. 811-____

- --------------------------------------------------------------------------

U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------

FORM N-2
/x/ REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
/ / Pre-Effective Amendment No.
/ / Post-Effective Amendment No.
and/or
/x/ REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
/ / Amendment No.

------------------------------
MERRILL LYNCH KECALP L.P. 1997
(Exact name of registrant as specified in charter)

------------------------------
World Financial Center - South Tower
225 Liberty Street
New York, New York 10080-6123
(Address of principal executive offices)

Registrant Telephone Number, including Area Code: (212) 236-7302

KECALP INC.
World Financial Center - North Tower
250 Vesey Street
New York, New York 10281-1334
Attn: Rosemary T. Berkery
(Name and address of agent for service)

-----------------------------

Approximate date of commencement of proposed sale to the public: As
soon as practicable after this Registration Statement becomes effective.

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, other than securities offered only in connection
with dividend or interest reinvestment plans, check the following box. / /

<TABLE>
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
<CAPTION>
Proposed Proposed
Maximum Maximum
Amount Offering Aggregate Amount of
Being Price Per Offering Registration
Title of Securities Being Registered Registered Unit Price Fee
------------------------------------ ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Limited Partnership Interest . . . . . . . . . . 100,000 Units $1,000.00 $100,000,000 $30,303.04
------- ----------- ---------
</TABLE>

- -------------------

The registrant hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the
registrant files 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 the registration
statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.

Merrill Lynch KECALP L. P. 1997

CROSS REFERENCE SHEET

Between Items of Registration Statement (Form N-2)
and Prospectus
Pursuant to Rule 404 (c)

PARTS A and B

Item
No. Caption Location in Prospectus
------- ----------------------

1. Outside Front Cover Outside Front Cover
2. Inside Front and Outside
Back Cover Page Inside Front and Outside Back
Cover Page
3. Fee Table and Synopsis Prospectus Summary; Fund Expenses
4. Financial Highlights Not Applicable
5. Plan of Distribution Outside Front Cover; Offering
and Sale of Units
6. Selling Shareholders Not Applicable
7. Use of Proceeds The Partnership; Investment
Objective and Policies
8. General Description of the Cover Page of Prospectus;
Registrant The Partnership; Risk and Other
Important Factors; Investment
Objective and Policies; Fiduciary
Responsibility of the General
Partner; Summary of the
Partnership Agreement
9. Management Fiduciary Responsibility of the
General Partner; The General
Partner and Its Affiliates;
Summary of the Partnership
Agreement
10. Capital Stock, Long-Term
Debt, and Other Securities Summary of the Partnership
Agreement; Transferability of
the Units
11. Defaults and Arrears on
Senior Securities Not Applicable
12. Legal Proceedings Not Applicable
13. Table of Contents of the
Statement of Additional Not Applicable
14. Cover Page Not Applicable
15. Table of Contents Not Applicable
16. General Information and History Not Applicable
17. Investment Objective and Policies Investment Objective and
Policies
18. Management Fiduciary Responsibility of the
General Partner; The General
Partner and Its Affiliates;
Summary of the Partnership
Agreement
19. Control Persons and
Principal Holders of Securities Cover Page; The General
Partner and Its Affiliates
20. Investment Advisory and Other The General Partner and Its
Services Affiliates
21. Brokerage Allocation and Other Not Applicable
Practices
22. Tax Status Tax Aspects of Investment in the
Partnership
23. Financial Statements Financial Statements

PART C

Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C to this Registration Statement.

Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such State.

Subject to Completion
Preliminary Prospectus dated October 29, 1996

$100,000,000
100,000 Units of Limited Partnership Interest
Merrill Lynch KECALP L.P. 1997
$1,000 Per Unit Minimum Investment 5 Units ($5,000)

Merrill Lynch KECALP L.P. 1997 (the "Partnership") hereby offers
100,000 units of limited partnership interest (the "Units") in the
Partnership to certain employees of Merrill Lynch & Co., Inc. ("ML & Co.")
and its subsidiaries and to non-employee directors of ML & Co. Units are
also being offered to ML & Co. in connection with a deferred compensation
program of ML & Co. for certain of its key employees. The Partnership's
principal offices are at South Tower, World Financial Center, 225 Liberty
Street, New York, New York 10080-6123 and its telephone number is (212)
236-7302. KECALP Inc., a wholly-owned subsidiary of ML & Co., is the
general partner (the "General Partner") of the Partnership. The
Partnership will operate as a non-diversified, closed-end investment
company of the management type. The General Partner has obtained an order
from the Securities and Exchange Commission exempting the Partnership, as
an "employees' securities company", from certain provisions of the
Investment Company Act of 1940. See "Exemptions from the Investment
Company Act of 1940".

The investment objective of the Partnership is to seek long-term
capital appreciation. It is expected that a significant portion of the
proceeds of this offering will be invested in privately-offered equity
investments in U.S. and non-U.S. issuers. Investments in U.S. issuers may
include securities issued in leveraged buyout transactions, transactions
involving financial restructurings or recapitalizations of operating
companies. Investments made outside the United States may include
financings of companies in an early stage of development and other
international opportunities in both emerging markets and developed
countries. Investments may also be made in real estate opportunities.
The Partnership's investments may be made directly or through the purchase
of interests in other funds. The Partnership may make other investments
in equity and fixed income securities that the General Partner considers
appropriate in terms of their potential for long-term capital
appreciation. The Partnership's investment policies involve a very high
degree of risk. See "Investor Suitability Standards", "Conflicts of
Interest", "Risk and Other Important Factors" and "Investment Objective
and Policies". The Partnership may borrow funds for investment in
securities, which would have the effect of leveraging the Units. See
"Investment Objective and Policies Leverage".

The Units are being offered by Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("MLPF&S") on a "best efforts" basis. This offering will
terminate not later than ______________, 1997, or such other subsequent
date, not later than ______________, 1997, as MLPF&S and the General
Partner may agree upon (the "Offering Termination Date"). If
subscriptions for 5,000 Units have not been received by the Offering
Termination Date, no Units will be sold. Funds paid by subscribers will
be deposited in a bank escrow account and held in trust for the benefit of
subscribers, and, if the required minimum is not obtained or other
conditions not satisfied, will be refunded promptly with interest, if any.
Subscriptions deposited in the escrow account may not be terminated or
withdrawn by subscribers. See "Offering and Sale of Units".

------------------------
This Prospectus sets forth concisely information about the Partnership
that a prospective investor ought to know before investing. Investors are
advised to read this Prospectus and retain it for future reference.

------------------------

THE UNITS ARE A SPECULATIVE INVESTMENT AND THIS OFFERING INVOLVES
VARIOUS SUBSTANTIAL RISKS AS DESCRIBED IN THIS PROSPECTUS.

------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
Price to Public Sales Load(1) Proceeds to Partnership(2)
--------------- ------------- --------------------------
<S> <C> <C> <C>
Per Unit . . . . . . . . . . . . . . . . . . . . $ 1,000 -- $ 1,000
Total Minimum . . . . . . . . . . . . . . . . . . $ 5,000,000 -- $ 5,000,000
Total Maximum . . . . . . . . . . . . . . . . . . $ 100,000,000 -- $ 100,000,000

</TABLE>

(footnotes on next page)
Merrill Lynch & Co.

----------------------
The date of this Prospectus is , 1997.

(Continued from cover page)

(1) No sales commission will be charged purchasers of Units. The General
Partner has agreed to indemnify MLPF&S against certain liabilities,
including liabilities under the Securities Act of 1933. See "Offering and
Sale of Units".
(2) Before deducting organizational and offering expenses payable by the
Partnership, estimated at $_______ but not exceeding 0.5% of the proceeds of
the offering (1%, if the proceeds are less than $60 million). The General
Partner will bear the remaining costs, if any, of forming the Partnership and
registering the Units under the Securities Act of 1933 and
the securities laws of various states.

No dealer, salesman or any other person has been authorized to give
any information or to make any representations other than those contained
in this Prospectus and, if given or made, such information and
representations must not be relied upon. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any of
the securities offered hereby in any state to any person to whom it is
unlawful to make such offer.

Until _______, 1997, all dealers effecting transactions in the Units,
whether or not participating in this distribution, may be required to
deliver a current copy of this Prospectus. This is in addition to the
obligation of dealers to deliver a Prospectus when acting as underwriters.

INVESTOR SUITABILITY STANDARDS

Only employees of ML & Co. and its subsidiaries and non-employee
directors of ML & Co. who meet the suitability standards described below,
together with ML & Co., will be eligible to purchase Units. THE PURCHASE
OF UNITS INVOLVES SIGNIFICANT RISKS AND UNITS ARE NOT A SUITABLE
INVESTMENT FOR ALL QUALIFIED INVESTORS. See "Risk and Other Important
Factors".

1. Substantial Means and Net Worth. The purchase of Units is
suitable only for those persons who have no need for liquidity in this
investment and who have adequate means of providing for their current
needs and contingencies. Accordingly, no Units will be sold to an
employee of ML & Co. or its subsidiaries or a non-employee director of ML
& Co. unless such investor (i) in the case of employees of ML & Co. or its
subsidiaries, has a current annual salary in an amount which, together
with bonus received from ML & Co. or its subsidiaries in respect of 1996,
equals at least $100,000 or, if employed for less than a full calendar
year, is employed with an annualized gross income from ML & Co. or its
subsidiaries of at least $100,000, or (ii) in the case of non-employee
directors of ML & Co., (a) has a net worth (exclusive of homes, home
furnishings, personal automobiles and the amount to be invested in Units)
of not less than $125,000 in excess of the price of the Units for which
such investor has subscribed, or (b) has a net worth (exclusive of homes,
home furnishings, personal automobiles and the amount to be invested in
Units) of not less than $100,000 in excess of the price of the Units for
which such investor has subscribed and expects to have during each of the
current and the next three taxable years, gross income from all sources in
excess of $100,000. Investors will be required to represent in writing in
the Subscription Agreement that they meet the applicable requirements.
Investors who can make such representation, together with ML & Co., are
hereinafter referred to as "Qualified Investors". Certain maximum
purchase restrictions have been imposed on Qualified Investors. See
"Offering and Sale of Units Maximum Purchase by Qualified Investors".

2. Ability and Willingness to Accept Risks. The economic benefit
from an investment in the Partnership depends on many factors beyond the
control of the General Partner, including general economic conditions,
changes in governmental regulation, inflation, tax treatment of portfolio
investments and resale value of Partnership investments. See "Risk and
Other Important Factors". Accordingly, the suitability for any Qualified
Investor of a purchase of Units will depend on, among other things, such
investor's investment objectives and such investor's ability to accept
speculative risks.

3. Ability to Accept Limitations on Transferability. Purchasers of
Units should view their interest in the Partnership as a long-term,
illiquid investment. Limited partners may not be able to liquidate their
investment in the event of emergency or for any other reason because there
is not any public market for Partnership Units and there are restrictions
contained in the Amended and Restated Agreement of Limited Partnership
(the "Partnership Agreement"), the form of which is attached as Exhibit A
to this Prospectus, which are intended to prevent the development of a
public market for Units. Moreover, the transferability of Units is
subject to certain restrictions in the Partnership Agreement and may be
affected by restrictions on resales imposed by the laws of some states.
See "Transferability of Units".

SUMMARY OF THE OFFERING

The summary information below should be read in conjunction with the
detailed information provided elsewhere in this Prospectus.

Introduction: The Partnership is designed as a convenient
vehicle for Qualified Investors to acquire
interests in a portfolio of varied investments.
It is expected that a significant portion of the
Partnership's investments will be
privately-offered equity investments that have
been made available to ML & Co. or its affiliates
and are generally not available to individuals.
See "Investment Objective and Policies".

The Offering: 100,000 units of limited partnership interest in
the Partnership, each representing a capital
contribution of $1,000. MLPF&S is acting as
selling agent for the Partnership and the General
Partner. The minimum investment is five Units
($5,000) and additional Units may be purchased in
increments of $1,000. Certain maximum purchase
restrictions will be imposed on Qualified
Investors (see "Offering and Sale of
Units Maximum Purchase by Qualified Investor").
The offering will terminate not later than
______________, 1997, or such subsequent date,
not later than ______________, 1997, as the
General Partner and MLPF&S may determine. If
subscriptions for 5,000 Units are not received by
the Offering Termination Date, none will be
accepted, and all funds received will be refunded
with interest, if any, actually earned thereon.
If properly executed subscriptions for 5,000 or
more Units are received, the General Partner will
accept all such subscriptions (up to the maximum
of 100,000). If subscriptions for more than
100,000 Units are received, the General Partner
may reject any subscription in whole or part.

Funds paid for any subscription for Units that is
rejected will be refunded promptly. Qualified
Investors admitted as limited partners are
hereinafter referred to, together with the
initial limited partner and any substituted
limited partners, as the "Limited Partners". The
Units will be non-assessable. See "Offering and
Sale of Units".

The Partnership is also offering Units to ML &
Co. for purchase by it in connection with a 1997
deferred compensation plan offered by ML & Co. to
certain of its key employees. ML & Co. has
advised the Partnership that it may purchase up
to ____ Units as a result of participation by
eligible employees in such plan. See "Offering
and Sale of Units--Purchase of Units by ML & Co."

The Partnership: A Delaware limited partnership formed on October
28, 1996. Its address is South Tower, World
Financial Center, 225 Liberty Street, New York,
New York 10080-6123 (telephone: (212) 236-7302).
The Partnership will operate as a
non-diversified, closed-end investment company of
the management type under the Investment Company
Act of 1940. An order has been obtained from the
Securities and Exchange Commission exempting the
Partnership from certain provisions of such Act.
The functions and responsibilities of the General
Partner and the rights of the Limited Partners
are authorized by or specified in the Partnership
Agreement. See "The Partnership", "Summary of
the Partnership Agreement" and "Exemptions from
the Investment Company Act of 1940".

The General Partner: KECALP Inc. (the "General Partner"), a Delaware
corporation indirectly wholly-owned by ML & Co.,
a Delaware corporation, and located at South
Tower, World Financial Center, 225 Liberty
Street, New York, New York 10080-6123 (telephone:
(212) 236-7302). The General Partner will manage
and make investment decisions for the
Partnership. KECALP Inc. serves as the general
partner of seven limited partnerships which have
been established since 1983 for investment by
qualifying employees of ML & Co. (collectively,
the "KECALP Partnerships"), and it is
contemplated that in the future it will serve in
the same capacity for other similar partnerships
that may be offered to the same class of limited
partner investors. See "The General Partner and
Its Affiliates". The General Partner has also
been designated to serve as Tax Matters Partner
for the Partnership with respect to all
administrative and judicial proceedings relating
to an audit of the Partnership's U.S. Federal
income tax information return. See "Tax Aspects
of Investment in the Partnership".

Investment Objective: The investment objective of the Partnership is to
seek long-term capital appreciation. It is
expected that a significant portion of its assets
will be invested in privately-offered equity
investments in U.S. and non-U.S. issuers.
Investments in U.S. issuers may include
securities issued in leveraged buyout
transactions, transactions involving financial
restructurings or recapitalizations of operating
companies. Investments made outside the United
States may include financings by companies in an
early stage of development or other opportunities
in both emerging markets and developed countries.
Investments may also be made in real estate
opportunities. The Partnership's investments may
be made directly in portfolio companies or
through the purchase of interests in other
investment funds. The Partnership anticipates
that many of its investments will be made
available to it by ML & Co. or its affiliates.
Information concerning potential sources of
investments, including potential co-investment
opportunities, is set forth under "Investment
Objective and Policies--Sources of Investment
Opportunities". The Partnership may make other
investments in equity and fixed income securities
that the General Partner considers appropriate in
terms of their potential for capital
appreciation. Current income will not generally
be a significant factor in the selection of
investments. There can be no assurance that the
Partnership's investment objective will be
attained. See "Investment Objective and
Policies" and "Tax Aspects of Investment in the
Partnership".

Leverage: The Partnership is authorized to borrow funds
when it believes such action is desirable to
enable the Partnership to make new investments or
follow-on investments. Such use of leverage
would exaggerate increases or decreases in the
Partnership's net assets. See "Investment
Objective and Policies--Leverage".

Compensation and Fees: The Partnership will pay organizational and
offering expenses in an amount of up to 0.5% of
the proceeds of the offering (1%, if the proceeds
are less than $60 million). During the term of
the Partnership, the General Partner is obligated
to pay all expenses, fees, commissions and other
expenditures on behalf of the Partnership not
paid by ML & Co. or its other subsidiaries. The
General Partner will be entitled to receive
annual reimbursement from the Partnership, in
amounts up to 0.5% of Limited Partners' capital
contributions (1%, if the capital contributions
are less than $60 million), of operating expenses
incurred by the General Partner with respect to
the Partnership. Expenses paid by the General
Partner that are not reimbursed to it shall be
deemed a contribution to capital and be reflected
in the General Partner's capital account. Since
repayment of any positive amount in a Partner's
capital account is a priority item upon
dissolution, the General Partner may, upon
dissolution, recoup expenditures made on behalf
of the Partnership. In addition, the General
Partner will be entitled to a 1% interest in all
items of Partnership income, gain, deduction,
loss and credit, for which it has no obligation
to make a cash capital contribution upon the
admission of Qualified Investors as Limited
Partners. To the extent that investments are
made in transactions in which affiliates of the
General Partner are involved, certain other
benefits may accrue to affiliates. See
"Compensation and Fees".

Partnership Distributions
and Allocations: During the Partnership term, items of income,
gain, deduction, loss and credit will generally
be allocated 99% to the Limited Partners and 1%
to the General Partner. Cash distributions will
be made in the same manner. The General Partner
may make distributions of Partnership assets in
kind, in addition to cash distributions. Each
Limited Partner will be required to take into
account in computing his Federal income tax
liability his allocable share of the
Partnership's income, gain, loss, deductions,
credits and items of tax preference for any
taxable year of the Partnership ending within or
with the taxable year of such Limited Partner,
without regard to whether he has received or will
receive any distribution from the Partnership.
The Partnership has adopted a calendar year for
tax reporting purposes. To the extent the
Partnership invests in other investment funds, it
may experience delays in obtaining annual tax
information, which may require Limited Partners
to obtain extensions for filing income tax
returns. See "The Partnership" and "Tax Aspects
of Investment in the Partnership".

Reinvestment Policy: The General Partner has the discretion to
reinvest all Partnership revenues. To the extent
portfolio investments are disposed of within two
years after the closing of the sale of Units, the
General Partner will consider reinvesting all or
a substantial portion of the proceeds realized by
the Partnership. However, the General Partner
does not expect to reinvest proceeds from the
liquidation of portfolio investments (other than
temporary investments) occurring more than two
years after the closing of the sale of Units,
except in connection with follow-on investments
made in existing portfolio companies. The
General Partner may also cause the Partnership to
maintain reserves for follow-on investments or to
apply cash received from investments to the
prepayment of any borrowings made by the
Partnership. To the extent that cash received by
the Partnership is not required for such purposes
or to reimburse the General Partner for any
expenses incurred or held for reinvestment, it
will be distributed to the Partners at least
annually. See "Investment Objective and
Policies".

Dissolution: The Partnership term extends to December 31,
2037. However, pursuant to the Partnership
Agreement, the General Partner may dissolve the
Partnership, without the consent of the Limited
Partners, at any time after January 1, 2003. It
is not the General Partners intention to dissolve
the Partnership prior to the time when the
Partnership's equity investments have matured and
disposition of its other portfolio investments
can be effected. See "The Partnership" and
"Summary of the Partnership Agreement".

Risks: The purchase of Units involves a number of
significant risk factors. See "Risk and Other
Important Factors". Prospective investors should
also see the information set forth under
"Conflicts of Interest".

How to Subscribe: (a) The Qualified Investor completes, dates,
executes and delivers to KECALP Inc., a copy of
the Limited Partner Signature Page and Power of
Attorney attached as part of the Subscription
Agreement, a form of which is attached as Exhibit
B to this Prospectus.

(b) The Qualified Investor's MLPF&S securities
account will be debited in the amount of $1,000
for each Unit (minimum purchase of five Units)
that he desires to purchase. A securities
account will be opened by MLPF&S for any
Qualified Investor who does not have such an
account.

PARTNERSHIP EXPENSES

The following table is intended to assist potential investors in
understanding the various costs and expenses associated with investing in
the Partnership.

Limited Partner Transaction Expenses

Sales Load (as a percentage of offering price) None

Annual Expenses (as a percentage of net assets)

Management Fees Payable to General Partner (1) None
Other Expenses (audit, legal and administrative) (2) 1.0%
----

Total Annual Expenses 1.0%
=====
------------------
(1) Does not include management fees that may be payable to managers
of any investment funds in which the Partnership invests, which will be
accounted for as an item of Partnership expense.

(2) "Other Expenses" have been estimated for the current fiscal
year and assume Limited Partners' capital contributions of $5 million, the
minimum in the Partnership's offering. Although the Partnership does not pay
operating expenses directly, the General Partner is entitled to receive
annual reimbursements from the Partnership of Partnership expenses
paid by it, in amounts of up to 0.5% of the Limited Partners' capital
contributions (1%, if the capital contributions are less than $60 million).

Example

An investor would pay the following expenses on a hypothetical $1,000
investment in the Partnership, assuming a 5% annual return:

One Year Three Years Five Years Ten Years
-------- ----------- ---------- ---------
$10 $32 $55 $122

This "Example" assumes that all distributions are reinvested at net
asset value and that the percentage amounts listed under Annual Expenses
remain the same in the years shown. However, Limited Partners will not be
able to reinvest distributions of the Partnership. The above tables and
the assumption in the Example of a 5% annual return are required by
regulations of the Securities and Exchange Commission applicable to all
investment companies. The assumed 5% annual return and annual expenses
should not be considered a representation of actual or expected
Partnership performance or expenses, both of which may vary.

CONFLICTS OF INTEREST

The General Partner and its affiliates may be subject to various
conflicts of interest in their relationships with the Partnership. Such
conflicts of interest include:

1. Conflicts with Respect to Investment Opportunities. Affiliates
of the General Partner may in the future perform investment advisory
services for other investment entities with investment objectives and
policies similar to those of the Partnership and such entities may compete
with the Partnership for investment opportunities. Furthermore, ML & Co.
and its affiliates may invest directly in investments that would be
appropriate investments for the Partnership. While the General Partner is
obligated to use its best efforts to provide the Partnership with a
continuing and suitable investment program consistent with its investment
objective and policies, the General Partner is not required to present to
the Partnership any particular investment opportunity that has come to its
attention, even if such opportunity is within the investment objective and
policies of the Partnership. Because of different objectives or other
factors, a particular investment may be bought by the Partnership, the
General Partner or its affiliates or one of their clients at a time when
one of such entities is selling such investment. In addition, affiliates of
the General Partner,including its officers and directors, may benefit to the
extent the Partnership invests in securities offered to other investors by
MLPF&S in public offerings or private placements. See "Compensation and
Fees". The General Partner will endeavor to resolve conflicts with respect to
investment opportunities in a manner deemed equitable to all to the extent
possible under the prevailing facts and circumstances.

2. Relations with Issuers of Portfolio Investments. Affiliates of
the General Partner, including MLPF&S, may perform financial services for
issuers of securities held by the Partnership or for affiliates of such
issuers. These relationships could influence the General Partner to take
actions, or forbear from taking actions, that an independent general
partner might not take or forbear from taking.

3. Conflicts with Respect to Dissolution. The General Partner has
the authority to dissolve the Partnership, without the consent of the
Limited Partners, at any time after January 1, 2003. The General Partner
does not intend to dissolve the Partnership until its equity investments
have reached a level of maturity where their disposition can be considered
and the Partnership can dispose of its other portfolio securities.
However, the General Partner may dissolve the Partnership, for its
administrative convenience, at a time when some Limited Partners might
prefer to have the Partnership continue its operations.

4. Allocation of Management Time and Services. The Partnership
will not have independent management or employees and will rely on the
General Partner and its affiliates for management and administration of
the Partnership and its assets. Conflicts of interest may arise in
allocating management time, services or functions between the Partnership,
the established KECALP Partnerships and other entities for which officers
of the General Partner may provide services. The officers and directors
of the General Partner will devote such time to the affairs of the
Partnership as they, in their sole discretion, determine to be necessary
for the conduct of the business of the Partnership.

5. Participation by an Affiliate as Underwriter. As an affiliate of
the General Partner, MLPF&S may experience a conflict of interest in
performing its due diligence in connection with the public offering of the
Units. Although MLPF&S believes that its investigation of the General
Partner, the Partnership and their affairs for purposes of this offering
has in fact been as complete as would be the case in dealing with
nonaffiliated persons, the review performed by MLPF&S cannot be considered
independent.

6. Determination of Reserves. In determining the appropriate level
of working capital reserves, the interest of the General Partner in
assuring adequate funds for operation (which may reduce the potential
liability of the General Partner to certain Partnership creditors) may, in
some cases, be in conflict with the interest of the Limited Partners in
maximizing cash distributions.

7. Lack of Separate Representation. The Partnership, the General
Partner and MLPF&S are represented by the same legal counsel and auditors.
However, should a dispute arise between the Partnership and either the
General Partner or any affiliate, the General Partner anticipates that it
will retain separate counsel or auditors as required for the Partnership
for such matter.

8. Conflicts Resulting from ML & Co.'s Ownership of Units.
Individuals involved in the selection of investments for the Partnership
who participate in the ML & Co. deferred compensation plan may have
conflicts of interest in seeking to maximize total return (including the
receipt of ordinary income) for the Partnership, as opposed to capital
gains. Such individuals would receive no advantageous tax treatment for
capital gains in respect of their participation in such plan, while
Limited Partners would receive such advantageous treatment for capital
gains. In addition, ML & Co., in light of its anticipated significant
holdings in the Partnership, would have the ability to determine matters
submitted to the vote of Limited Partners. However, ML & Co. will agree
to vote its Units in the same proportion as other Limited Partners in
respect of any matter submitted to the vote of Limited Partners.

FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER

The General Partner is under a fiduciary duty to conduct the affairs
of the Partnership in the best interests of the Partnership and
consequently must exercise good faith and integrity in handling
Partnership affairs. Prospective Limited Partners who have questions
concerning the duties of the General Partner should consult with their
counsel.

The Partnership Agreement provides that neither the General Partner
nor any of its officers, directors, stockholders, employees, or agents
shall be liable to the Partnership or the Limited Partners for any act or
omission based on errors of judgment or other fault in connection with the
business or affairs of the Partnership so long as the person against whom
liability is asserted acted in good faith on behalf of the Partnership and
in a manner reasonably believed by such person to be within the scope of
his or its authority under the Partnership Agreement and in or not opposed
to the best interests of the Partnership, but only if such action or
failure to act does not constitute negligence or misconduct, and, with
respect to any criminal proceeding, such person had no reasonable cause to
believe his or its conduct was unlawful. The General Partner and its
officers, directors, stockholders, employees, and agents will be
indemnified by the Partnership to the fullest extent permitted by law for
any (a) fees (including, without limitation, legal fees), costs and
expenses incurred in connection with or resulting from any claim, action
or demand, or threatened claim, action or demand, against the General
Partner, the Partnership or any of their officers, directors,
stockholders, employees or agents that arise out of or in any way relate
to the Partnership, its properties, business or affairs and (b) losses or
damages resulting from such claims, actions and demands, or threatened
claims, actions or demands, including amounts paid in settlement or
compromise (if recommended by attorneys for the Partnership) of any such
claim, action or demand or threatened claims, actions or demands;
provided, however, that this indemnification shall apply only so long as
the person against whom a claim, action or demand is asserted or
threatened to be asserted has acted in good faith and in a manner
reasonably believed by such person to be within the scope of his or its
authority under the Partnership Agreement and in or not opposed to the
best interests of the Partnership, but only if such action or failure to
act does not constitute negligence or misconduct. Thus, the Limited
Partners may have a more limited right of action than would otherwise be
the case in the absence of such provisions. In the absence of a court
determination that the General Partner or officers or directors of the
General Partner were not liable on the merits or guilty of disabling
conduct within the meaning of Section 17(h) of the Investment Company Act
of 1940, the decision by the Partnership to indemnify the General Partner
or any such person must be based on the reasonable determination of
independent counsel, after review of the facts, that such disabling
conduct did not occur.

RISK AND OTHER IMPORTANT FACTORS

The purchase of Units offered hereby involves a number of significant
risk factors. In addition to risk factors set forth elsewhere in this
Prospectus, prospective purchasers should consider the following:

A. General Risks

1. Risk of Unspecified and Unprofitable Investments. The proceeds
of this offering are intended to be invested in speculative growth
securities most of which have not yet been selected by the General
Partner. See "Investment Objective and Policies". Therefore, persons who
purchase Units will not have an opportunity to evaluate for themselves the
specific investments in which funds of the Partnership will be invested or
the terms of any such investments, and, accordingly, the risk of investing
in Units may be substantially increased. In addition, there can be no
assurance that the Partnership's investments will prove to be profitable.
The purchasers of Units must depend solely on the ability of the General
Partner with respect to the selection and timing of investments. See "The
General Partner and Its Affiliates" and "Investment Objective and
Policies--Sources of Investment Opportunities".

2. Risks of Equity Investments. The Partnership is authorized to
make equity investments offering the potential for long-term capital
appreciation in U.S. and non-U.S. issuers. These investments may include
equity investments in leveraged buyout transactions, transactions
involving financial restructurings or recapitalization of operating
companies and, particularly with respect to investments made outside the
United States, financings by companies in an early stage of development.
Investments may also be made in real estate opportunities and, to a lesser
extent, in U.S. venture capital transactions. These investments involve a
high degree of business and financial risk that can result in substantial
losses. Among these are the risks associated with investment in companies
with little or no operating history and companies operating at a loss or
with substantial variations in operating results from period to period.
These companies may encounter intense competition from established
companies with greater resources. In addition, companies in
high-technology fields face special risks of product
obsolescence. Leveraged buyout investments typically involve a high
degree of debt financing and the highly leveraged financial structure of
these transactions introduces substantial additional risks. Investments
in companies that undertake financial recapitalization or restructuring
transactions involve the risk, among others, that the transaction may not
resolve financial or operational conditions that led to the
recapitalization or restructuring; in addition, to the extent that a
company remains leveraged following the completion of such a transaction,
an equity investment in the company may involve risks similar to an equity
investment in a leveraged buyout transaction. In addition, companies in
which the Partnership makes private equity investments may subsequently
require additional capital and may seek follow-on investments.

3. Illiquid Investments. Investments of the types to be made by the
Partnership are generally illiquid. Leveraged buyout and venture capital
investments may typically take from four to seven years to reach a state
of maturity where disposition can be considered. Real estate investments
are expected to be illiquid as described above. Investments in corporate
restructurings and recapitalization transactions may also require a
substantial time period before dispositions can be effected. In addition,
investments acquired by the Partnership in private transactions will
generally be subject to restrictions imposed by the Federal securities
laws on resale by the Partnership. Investments made by the Partnership in
issuers in which ML & Co. or its affiliates have significant investment
positions may be subject to further limitations imposed by the Federal
securities laws which may delay the disposition of publicly-traded
securities owned by the Partnership.

4. Delay in Partnership Investments. Although the General Partner
will use its best efforts to commit Partnership funds as promptly as
practicable, it is anticipated that there may be a significant period of
time (up to three to four years) before the proceeds from the offering
will be fully committed. In addition, investment funds in which the
Partnership invests may not draw down on the Partnership's commitment for
an additional period of up to four to five years.

5. Availability of and Competition for Investments. The success of
the Partnership depends upon the availability of appropriate investment
opportunities. The availability of investment opportunities generally
will be subject to market conditions. It may be expected that the
Partnership will encounter substantial competition for certain
investments, particularly from other entities having similar investment
objectives. There can be no assurance that the Partnership will be
successful in obtaining suitable investment opportunities or that a
desirable mix of investments will be achieved.

6. Risks of Real Estate Investments. Real estate investments are
subject to a number of risks, including uncertainty of cash flow to meet
fixed obligations, adverse changes in local market conditions and
neighborhoods, changes in interest rates, the need for unanticipated
renovation, changes in real estate taxes and increases in other operating
expenses. Real estate investments may be illiquid. Investments in real
estate of the type contemplated by the Partnership are usually long term
and can be as long as fifteen years. Real estate investment cycles
typically have lasted three to five years, but recently have been longer.

7. Risks of High Yield Debt Investments. The Partnership is
authorized to make investments in high yield corporate debt securities
(also referred to as "junk bonds") offering the potential for long-term
capital appreciation. High yield debt securities are predominantly
speculative with respect to the capacity to pay interest and repay
principal in accordance with the terms of the security and generally
involve a greater volatility of price than securities in higher rating
categories. In addition, to the extent that affiliates of the Partnership
hold securities of issuers in which the Partnership has invested, the
Partnership may be precluded by the Investment Company Act of 1940 (the
"Investment Company Act") from participating in sales or other
transactions in which such affiliates are participants unless it is able
to obtain exemptions under such statute from the Securities and Exchange
Commission. The inability to participate in such transactions may
adversely affect the Partnership in terms of the timing of dispositions of
such investments and the proceeds realized by the Partnership from such
investments.

8. Need for Investment Company Act Exemptions. In addition to the
restrictions described above, the Investment Company Act contains
restrictions on co-investments by a registered investment company (such as
the Partnership) and affiliates of its sponsor and on purchases of
securities by a registered investment company from affiliates of its
sponsor. Accordingly, as described under "Investment Objective and
Policies--Sources of Investment Opportunities", exemptions under the
Investment Company Act may be required before the Partnership can make
investments in transactions where ML & Co. or its affiliates are
co-investors or where ML & Co. or its affiliates seek to sell an
investment to the Partnership. In this regard, the General Partner has
obtained blanket exemptive relief from the Securities and Exchange
Commission permitting co-investments and other transactions with ML & Co.
and its affiliates in leveraged buyout and other equity investments. The
Partnership has applied for additional exemptive relief with respect to
co-investments by the Partnership and affiliated co-investors. There can
be no assurance that the Partnership will be able to obtain such requested
relief or similar exemptions in the future with respect to proposed
purchases and sales of portfolio securities in transactions in which
affiliates of the Partnership are participants and which do not qualify
under the terms of existing exemptions or those currently pending.

9. Reliance on the General Partner and Others. All decisions with
respect to the management of the Partnership will be made exclusively by
the General Partner. Limited Partners have no right or power to take part
in the management or control of the business of the Partnership.
Accordingly, no person should purchase Units unless such person is willing
to entrust all aspects of the management of the Partnership to the General
Partner. See "Summary of the Partnership Agreement" for the limitations
imposed on the Limited Partners' ability to remove the General Partner as
general partner. The Partnership may make minority equity investments in
corporations, general partnerships, limited partnerships, grantor trusts
or management programs where investors are permitted at most a limited
role in the management of such ventures. To the extent the Partnership
invests in or through such entities or programs, the success or failure of
such ventures will depend on the skills of the venture's sponsor, promoter
or manager and not on the General Partner.

10. Absence of Operating History and Management Experience. The
Partnership has been recently formed and has no operating history upon
which purchasers of Units may base an evaluation of its likely
performance. While the composition of its officers and directors has
changed over the years since the General Partner's formation, the General
Partner has managed similar partnerships for more than ten years. See
"The General Partner and Its Affiliates".

11. Use of Leverage. The Partnership has authority to utilize
leverage (i.e., borrowed funds or senior securities) in making investments
as will many of the entities in which the Partnership will make its
investments. The use of leverage, either by the Partnership or by the
entities in which it invests, would exaggerate increases or decreases in
the Partnership's net assets and, because of required debt service
obligations, may result in delays in the distribution of cash to Limited
Partners. The Partnership Agreement does not limit the amount of
indebtedness that the Partnership may incur. The Investment Company Act
generally limits the amount of indebtedness the Partnership may incur to
331/3% of its gross assets.

B. International Investment Risks

12. General. Investments on an international basis involve certain
risks not involved in domestic investments, including fluctuations in
foreign exchange rates, future political and economic developments,
different legal systems and the existence or possible imposition of
exchange controls or other foreign or U.S. government laws or restrictions
applicable to such investments. Investments in different countries are
subject to different economic, financial, political and social factors.
Because the Partnership may invest in securities denominated in currencies
other than the U.S. dollar, changes in foreign currency exchange rates may
affect the value of securities owned by the Partnership and the unrealized
appreciation or depreciation of investments. With respect to certain
countries, there may be the possibility of expropriation of assets,
confiscatory taxation, high rates of inflation, political or social
instability, changes in laws and rules or in interpretations thereof, or
diplomatic developments which could adversely affect investments, or
result in a total loss of investments, in issuers in those countries.
These risks may be heightened in countries that have only recently
permitted private ownership (including foreign private ownership) of
businesses. In addition, certain foreign investments may be subject to
foreign withholding taxes. Further, satisfactory custodial services for
investment securities may not be available in certain countries.

13. Regulatory Considerations. It is expected that the securities
purchased by the Partnership in international investments will not be
registered with the Securities and Exchange Commission and that the
issuers thereof will not be subject to the reporting requirements of such
agency. Accordingly, there will likely be less publicly available
information about a foreign company than about a U.S. company, and foreign
companies may not be subject to accounting, auditing and financial
reporting standards and requirements comparable to those to which U.S.
companies are subject. In addition, certain countries in which the
Partnership may invest may not have a comprehensive system of laws
protecting the rights and interests of investors (particularly foreign
investors), and the enforcement of existing laws may be inconsistent. The
profitability of foreign investments may also be impacted by regulatory
burdens, such as lengthy regulatory approval processes and strict
environmental regulation. Some countries prohibit or impose substantial
restrictions on investments in their countries by foreign entities such as
the Partnership. Certain countries may also limit the ability of the
Partnership to dispose of investments by requiring regulatory approvals
prior to such disposition or by other means, including limiting the
ability to convert local currencies.

14. Developing Country Considerations. It is anticipated that a
significant portion of the Partnership's international investments may be
in the developing countries of the world, including countries located in
the Far East, the Indian subcontinent, Eastern Europe and Latin America.
The risks noted above are heightened for investments in developing
countries.

C. Investment Fund Considerations

15. General. Investments by the Partnership in investment funds
involve considerations or risks not otherwise present in direct
investments. The managers of investment funds are usually compensated
from the assets of the funds based upon a fixed percentage of assets or
capital, and also may receive an incentive performance component such as a
carried interest in the profits generated by the funds. Further, to the
extent the Partnership invests in investment funds, it will surrender a
significant degree of control over the underlying investment. In
addition, investment funds incur certain administrative and other
expenses. As a result, the Partnership may incur additional, indirect
expenses with respect to investments in such funds in the form of
management compensation paid to such managers and other expenses incurred
by such funds. Furthermore, such funds may adopt time horizons for their
underlying investments that differ from that of the Partnership. As a
result, investments in such funds may cause the expected term of the
Partnership to continue beyond the date the Partnership would otherwise
have terminated.

16. Delays in Preparation of Tax Information. It is expected that
annual tax information from investment funds in which the Partnership
invests may not be received in sufficient time to permit the Partnership
to incorporate such information into its annual tax information and
distribute such information to Limited Partners prior to April 15 of each
year. As a result, limited partners may be required to obtain extensions
for filing federal, state and local income tax returns each year. Limited
Partners anticipating tax refunds in respect of such year will not be able
to file their tax return requesting such refund until receipt of the
annual tax information from the Partnership. To the extent practicable,
the Partnership anticipates that it will provide estimated annual tax
information in a timely manner in order to assist Limited Partners in
estimating their tax liabilities. The Partnership's ability to make such
estimates will be dependent upon its ability to obtain estimated annual
tax information from the investment funds.

D. Income Tax Risks

17. Fringe Benefits. The General Partner will incur various
expenses in connection with the organization and operation of the
Partnership and will pay any sales or brokerage commissions charged in
connection with the Partnership's investments. Since Units are being
offered solely to ML & Co. employees and non-employee directors, it is
possible that the IRS would view the General Partner's payment of such
expenses as an indirect method of compensating the employee-Limited
Partner (i.e., as a fringe benefit). If the IRS were successful in such
characterization, an amount equal to the fair market value of the
underlying goods and services provided by the General Partner in
connection with the Partnership might be includable in the Limited
Partner's gross income as additional compensation. The Limited Partner
may not, however, be allocated a Partnership deduction in an amount
corresponding to such income inclusion because some of such fees and
expenses incurred by the General Partner on behalf of the Partnership
would be attributable to nondeductible syndication expenses, or investment
expenses subject to the limitations on deductibility of itemized
miscellaneous expenses, or treated as part of the capitalized cost of the
Partnership's portfolio assets. See "Fringe Benefits" under "Tax Aspects
of Investment in the Partnership--Other Tax Considerations".

18. Possible Changes in Law. The rules dealing with Federal
income taxation are under continual review by Congress and the IRS,
resulting in frequent revisions of the Federal tax laws and regulations
promulgated thereunder and revised interpretations of established
concepts. No assurance can be given that, during the term of the
Partnership, applicable Federal income tax laws or the interpretations
thereof will not be changed in a manner that would have a material adverse
effect on an investment in the Partnership.

E. Partnership and Contractual Risks

19. Funds Available from Offering. The potential profitability of
the Partnership and the risks associated therewith could be affected by
the amount of funds at its disposal. In the event the Partnership
receives less than the maximum proceeds, its ability to invest in a
diversity of investments and obtain a spreading of risk will be lessened
and thus the risks associated with the investment may be increased. See
"Investment Objective and Policies".

20. Possible Loss of Limited Liability. The Partnership Agreement
provides certain rights for the Limited Partners by vote of a
majority-in-interest of the Limited Partners to, among other things,
remove and replace the General Partner, amend the Partnership Agreement,
dissolve the Partnership, approve or consent to certain actions of the
General Partner and approve the sale of all or substantially all of the
Partnership's assets. (As used in this Prospectus, "majority-in-interest"
means the Limited Partners whose aggregate capital contributions represent
over 50% of the aggregate capital contributions of all Limited Partners.)
Although under current law in Delaware, the jurisdiction of the
Partnership's organization, such rights are permitted without resulting in
a loss of limited liability of Limited Partners, in some jurisdictions
there is uncertainty as to whether the exercise of these rights under
certain circumstances could cause the Limited Partners to be deemed
general partners of the Partnership under applicable state laws with a
resulting loss of limited liability. If the Limited Partners were deemed
to be general partners of the Partnership, they would be generally liable
for Partnership obligations (other than nonrecourse obligations), which
could be satisfied out of their personal assets.

In order to minimize the risk of general liability, the exercise of
these rights by the Limited Partners is subject under the Partnership
Agreement to the prior receipt of an opinion of counsel to the effect that
the existence and exercise of such rights will not adversely affect the
status of the Limited Partners as limited partners of the Partnership. If
the Limited Partners receive such an opinion of counsel, the General
Partner will pay the cost involved in obtaining such an opinion. See
"Summary of the Partnership Agreement--Voting Rights". It should be noted
that due to present and possible future uncertainties in this area of
partnership law, it may be difficult or impossible to obtain an opinion of
counsel to the effect that the Limited Partners may exercise certain of
their rights without jeopardizing their status as Limited Partners.

21. Repayment of Certain Distributions. In the event that the
Partnership is unable otherwise to meet its obligations, its Limited
Partners may be required to pay to the Partnership or to pay to creditors
of the Partnership distributions previously received by them to the extent
such distributions are deemed to have been wrongfully paid to them. In
addition, Limited Partners may be required to repay to the Partnership any
amounts distributed which are required to be withheld by the Partnership
for tax purposes.

22. Absence of Market for Partnership Units. Purchasers of Units
should view their interest in the Partnership as a long-term, illiquid
investment. There is not now any market for Partnership Units and no
market is expected to develop. See "Transferability of Units". In
addition, Units will not be redeemable, except that the estate of any
deceased Limited Partner will be able to elect to have the Limited
Partner's Units repurchased by the General Partner or the Partnership for
a price equal to the value of the Limited Partner's interest determined at
the next succeeding annual appraisal date, which will generally occur as
of the last day of the fiscal year. To have Units repurchased, the
estate of a Limited Partner must notify the General Partner of its
election to have the Units repurchased within 30 days after the date the
annual appraisal is sent to Limited Partners.

23. Reinvestment. The General Partner has the discretion to
reinvest all Partnership revenues. See "Summary of the Offering--
Reinvestment Policy".

24. Dissolution. The General Partner has the right to dissolve the
Partnership without the consent of the Limited Partners at any time after
January 1, 2003. See "Summary of the Offering--Dissolution".

COMPENSATION AND FEES

The Partnership is designed to serve as an employee-benefit vehicle
for employees of ML & Co. and its subsidiaries satisfying certain income
requirements and is not intended to earn compensation or fees for ML & Co.
or its affiliates. However, due to the structure of the Partnership, its
management by an affiliate of ML & Co. and its proposed investment activities,
some benefits will accrue to affiliates of ML & Co. and their employees,
including the following:

(i) The General Partner will receive a 1% interest in all items of
Partnership income, gain, deduction, loss and credit, for which it will make
no cash capital contribution beyond the $99.00 it contributed upon formation
of the Partnership. However, the General Partner is generally obligated to
pay, on behalf of the Partnership, all expenses incurred by the Partnership
that are not paid by ML & Co. or its other subsidiaries, including brokerage
costs and sales commissions (including sales
commissions paid directly or indirectly to MLPF&S) and operating expenses.
The General Partner will be entitled to receive annual reimbursements from
the Partnership, in amounts of up to 0.5% of the Limited Partner's capital
contributions (1%, if the capital contributions are less than $60 million),
of operating expenses incurred by the General Partner with respect to the
Partnership. Expenses paid by the General Partner which are not reimbursed
to it will be treated as capital contributions of the
General Partner and reflected in its capital account. Under the terms of the
Partnership Agreement, upon dissolution of the Partnership, positive amounts
in a Partner's capital account will be a priority item in the distribution of
liquidated assets, and the General Partner will be entitled to such
distributions, if any.

(ii) To the extent that the Partnership invests in investment
partnerships or other investment vehicles offered by MLPF&S ("Sponsored
Programs"), the Partnership's purchase of such securities or assets will be
counted toward the minimum sales requirements often included as a condition
to "best efforts" offerings and therefore help satisfy conditions to MLPF&S's
receipt of any compensation in connection with such
offerings.

(iii) Employees of affiliates of ML & Co. (including certain
members of the Advisory Committee of the General Partner) are involved in the
origination of investments that may be acquired by the Partnership and
the sale or management of Sponsored Programs, and their compensation is in
large part determined by or related to the success of such offerings. If the
Partnership invests in these investments, such employees may benefit
accordingly.

(iv) If the Partnership invests in Sponsored Programs in which
affiliates of the General Partner issue securities and/or perform management
and other services for which they receive compensation, ML & Co. and its
subsidiaries will derive such benefits. The Partnership's investment will,
in all cases, be on the same terms as an investment offered to nonaffiliated
parties.

(v) To the extent the General Partner or its affiliates lend funds
to the Partnership or any partnership or other entity in which the
Partnership invests, the interest charges on such funds may be deemed to be
additional compensation to the General Partner or such affiliates.

THE PARTNERSHIP

The Partnership was formed on October 28, 1996, as a limited
partnership under Delaware law for the purpose of enabling Qualified
Investors to pool their investment resources in order to participate in
certain investment opportunities that are sponsored by or become available
to ML & Co. and its affiliates. It is intended that the Partnership serve
as an investment vehicle which provides access to investment opportunities
which are not otherwise available, thus serving as an incentive for
Qualified Investors to remain as employees of ML & Co. and its affiliates.

Upon the admission of Qualified Investors as Limited Partners, the
Initial Limited Partner will withdraw as a Partner of the Partnership.

The Partnership intends, whenever possible, to form, re-form or
otherwise qualify to do business in all jurisdictions where such
qualification is necessary to carry on Partnership business or to preserve
the limited liability of the Limited Partners.

The Partnership is a non-diversified, closed-end investment company.
See "Exemptions from the Investment Company Act of 1940" for a summary of
certain exemptions from the Investment Company Act applicable to the
Partnership.

Financial Status of the Partnership

The Partnership was formed with a minimal capitalization of $100.00,
consisting of capital contributions of $99.00 by the General Partner and
$1.00 by the Initial Limited Partner. The Partnership has not commenced
operations, other than temporarily to invest its start-up monies in a
money market fund sponsored by a subsidiary of ML & Co. Because the
General Partner is obligated to pay all the operating and overhead
expenses of the Partnership, the Partnership has no current or long-term
liabilities arising from such expenses. See "Financial Statements".

The Partnership has adopted a calendar year for tax reporting
purposes.

Use of Proceeds

All of the proceeds of the offering of Units will be contributed to
the Partnership as capital contributions of the Limited Partners. After
payment by the Partnership of organizational and offering expenses,
estimated at $_______, but not exceeding 0.5% of the proceeds of the
offering (1%, if the proceeds are less than $60 million), the net proceeds
will be available for investment.

The Partnership will expend substantially all of its funds for
Partnership investments as soon as practicable. Pending selection of
long-term investments, Partnership funds will be temporarily invested in
money market instruments, securities issued by other investment companies
and other marketable securities. The Partnership may maintain reserves
for follow-on investments and other investment contingencies. See
"Investment Objective and Policies". The Partnership may also maintain
reserves to the extent necessary to reimburse the General Partner for
expenses incurred by it as described below under "Capital Contributions;
Partnership Expenses".

Capital contributions of Limited Partners will be held by the
Partnership in a Partnership account for the benefit of the Limited
Partners and will be used only for the purposes set forth herein.

Capital Contributions; Partnership Expenses

The proceeds of the offering of Units will be contributed to the
Partnership as capital contributions of the Limited Partners. The General
Partner made an initial capital contribution of $99.00 to the Partnership
upon its formation and will not make any further cash capital contribution
upon the admission of subscribing Qualified Investors as Limited Partners;
however, the General Partner will incur various expenses in connection
with the operation of the Partnership for, among other items, legal and
accounting fees, telephone charges, postage and other general and
administrative items and out-of-pocket costs of examination, appraisal and
negotiation of investments, which expenses may exceed the amounts for such
expenses paid by ML & Co. or its other subsidiaries or reimbursed to it by
the Partnership. The General Partner will also be obligated to pay any
sales or brokerage commissions charged in connection with Partnership
investments, but will not be obligated to pay debt service or other
interest charges incurred in connection with Partnership investments. The
General Partner will be entitled to receive annual reimbursements from the
Partnership, in amounts of up to 0.5% of the Limited Partners' capital
contributions (1%, if the capital contributions are less than $60
million), of operating expenses incurred by the General Partner with
respect to the Partnership. Expenses paid by the General Partner which
are not reimbursed to it will be deemed to be a capital contribution by
the General Partner to the Partnership. See "Compensation and Fees". The
General Partner will deliver to the Partnership quarterly a certificate
itemizing the Partnership expenses it has paid and maintain adequate
records of such expenses.

Partnership Distributions and Allocations

In general, during the term of the Partnership, all items of
Partnership income, gain, deduction, loss or credit will be allocated 1%
to the General Partner and 99% to the Limited Partners (except that losses
will be allocated to the General Partner to the extent the Limited
Partners' capital accounts equal zero and the General Partner's capital
account is positive due to its payment of organizational and operating
expenses of the Partnership in excess of 1% of the Limited Partners'
capital contributions). Upon liquidation, gross income
from the sale of the Partnerships assets will be allocated to the Partners
in the amount of their negative capital account balances, then to the
General Partner to the extent the amount of the capital contribution made
by it to the Partnership is in excess of 1% of the Limited Partners'
capital contributions, and thereafter 99% to the Limited Partners and 1%
to the General Partner. These items will be allocated among the Limited
Partners in the ratio the capital contribution of each Limited Partner (or
the capital contribution attributable to the interest held by a transferee
Limited Partner) bears to the total capital contributions of all Limited
Partners.

Distributable Cash, as defined in the Partnership Agreement, will be
distributed 99% to the Limited Partners and 1% to the General Partner.
The General Partner may also make distributions in kind of securities or
assets held by the Partnership. Cash distributions will be credited to
the Limited Partner's MLPF&S securities account specified in his Signature
Page and Power of Attorney unless the General Partner is instructed
otherwise by a Limited Partner.

Allocations among the transferor and transferee of a Partnership
interest are described under "Transferability of Units".

Dissolution; Distributions on Liquidation

The Partnership term extends to December 31, 2037. However, pursuant
to the Partnership Agreement, the General Partner may dissolve the
Partnership, without the consent of the Limited Partners, at any time
after January 1, 2003. It is not the General Partner's intention to
dissolve the Partnership prior to the time when the Partnership's equity
investments have matured and the Partnership can dispose of its other
portfolio investments. Other events causing dissolution are summarized
under "Summary of the Partnership Agreement--Dissolution".

In settling accounts after the sale of all Partnership property upon
liquidation, the assets of the Partnership shall be paid out (i) to
creditors (including any creditor who is a Partner), in the order of
priority as provided by law; (ii) to each Partner in an amount equivalent
to the positive amount of his capital account on the date of distribution,
after giving effect to any allocation of profits or losses arising from
sales on liquidation; and (iii) the balance, 99% to the Limited Partners
and 1% to the General Partner.

Upon liquidation, the General Partner may distribute Partnership
assets in kind.

THE GENERAL PARTNER AND ITS AFFILIATES

KECALP Inc., an indirect wholly-owned subsidiary of ML & Co., is the
General Partner of the Partnership and as such will manage and control the
business and affairs of the Partnership and invest Partnership funds. The
General Partner is a Delaware corporation formed in June 1981 for the
purpose of serving as general partner of employee benefit partnerships
such as the Partnership, and has its business and executive offices at
South Tower, World Financial Center, 225 Liberty Street, New York, New
York 10080-6123 (telephone: (212) 236-7302). Although most of the
officers and directors of the General Partner have been employed in the
financial community for many years, the experience of the General Partner
in managing portfolios of investments has been limited to the management
of seven partnerships similar to the Partnership. The directors and
principal officers of the General Partner and their business experience
for the past five years are:

John L. Steffens President and Director
Rosemary T. Berkery Vice President and Director
James V. Caruso Vice President and Director
Andrew J. Melnick Vice President and Director
Walter Perlstein Director
Patrick J. Walsh Vice President and Director
Margaret E. Nelson Secretary
Robert F. Tully Vice President and Treasurer

John L. Steffens, age 54, President and Director. Mr. Steffens has
served as Executive Vice President, Private Client Group, of ML & Co.
since October, 1990. Prior to that, from July, 1985, he was President of
the Consumer Markets Sector of ML & Co.

Rosemary T. Berkery, age 43, Vice President and Director. Ms.
Berkery is Senior Vice President and the Associate General Counsel of ML &
Co. From 1988 to May, 1993, Ms. Berkery served as Assistant General
Counsel of MLPF&S and as General Counsel to the Investment Banking Group.
Ms. Berkery has been a First Vice President of MLPF&S since 1988.

James V. Caruso, age 45, Vice President and Director. Mr. Caruso is
a Director in the Investment Banking Group of ML & Co. Since September
1996, he is responsible for managing the IBK Finance Department and the
Controller's area of the Partnership Management Group. He also serves as
the Chief Financial Officer for Merrill Lynch's key employee investment
partnerships. He is Treasurer of Merrill Lynch Capital Partners, Inc.
("MLCP"), the general partner of two institutional leveraged buyout funds.
Since June, 1992, Mr. Caruso has also performed administrative services
for Merrill Lynch's retail partnerships.

Andrew J. Melnick, CFA, age 54, Vice President and Director. Since
joining Merrill Lynch in January, 1988, Mr. Melnick has served as Director
of the Global Fundamental Equity Research Department.

Walter Perlstein, age 77, Director. Mr. Perlstein was affiliated
with Merrill Lynch from 1972 to 1989, most recently as Executive Vice
President and Director of KECALP Inc., and as Vice President of MLPF&S,
Merrill Lynch Venture Capital Inc. and Merrill Lynch R&D Management Inc.
He presently is serving in a consulting role as Director of KECALP Inc.

Patrick J. Walsh, age 52, Vice President and Director. Mr. Walsh has
served as Senior Vice President, Director of Human Resources for ML & Co.
since January, 1991. Prior to that, from 1984 to 1991, Mr. Walsh managed
Asset Accumulation Services in the Consumer Markets Sector of ML & Co.,
where he was responsible for managing and marketing the various account
services which are tailored for the individual investor.

Margaret E. Nelson, age 47, Secretary. Ms. Nelson is a Vice
President and Senior Counsel in the General Counsel's office of ML & Co.
From 1983 to 1992, Ms. Nelson was an associate at the law firm of Skadden,
Arps, Slate, Meagher & Flom.

Robert F. Tully, age 49, Vice President and Treasurer. Since joining
Merrill Lynch in 1989, Mr. Tully has served as a Vice President in the
Investment Banking Group.

In addition, the General Partner has established an advisory
committee (the "Advisory Committee") to assist the directors and principal
officers of the General Partner in evaluating investment opportunities
presented to the Partnership. The members of the Advisory Committee and
their business experience for the past five years are:

Matthias B. Bowman
James J. Burke, Jr.
Kevin M. Cox
Robert J. Farrell
Alain Lebec
Alison J. Mass
E. Stanley O'Neal
Charles K. Sweeney
Nathan C. Thorne

Matthias B. Bowman, age 48. Mr. Bowman has been a Managing Director
in the Investment Banking Group of ML & Co. since 1978 and a First Vice
President of MLPF&S since July, 1988. During the last five years, Mr.
Bowman has managed a department that was responsible for maintaining ML &
Co.'s relationship with several corporate clients within the Investment
Banking Group and is presently the Manager of a department within the
Investment Banking Group that has responsibility for the Group's principal
investments.

James J. Burke, Jr., age 44. Mr. Burke is a Managing Partner and
Director of Stonington Partners, Inc., a private investment firm, a
position that he has held since 1993. He has also been a member of the
Board of Directors of MLCP since 1987. He was the Managing Partner of
MLCP from 1993 to July 1994 and President of MLCP from 1987 to 1994. Mr.
Burke was also a Managing Director of the Investment Banking Division of
MLPF&S from 1985 to 1994.

Kevin M. Cox, age 44. Mr. Cox is a Managing Director and head of the
Leveraged Finance Group in New York. Prior to that he was head of
MLPF&S's Investment Banking office in Tokyo. Mr. Cox, who has been with
Merrill Lynch since 1984, has also held various positions in the Merchant
Banking, High Yield and Treasury/Finance departments.

Robert J. Farrell, age 63. Mr. Farrell is Senior Investment Advisor
for MLPF&S. From 1968 to March, 1992, he served as Chief Market Analyst
and Manager of the Market Analysis Department of the Securities Research
Division of MLPF&S. Mr. Farrell has served as a Senior Vice President of
MLPF&S since January, 1986.

Alain Lebec, age 46. Mr. Lebec is a Vice Chairman of the Investment
Banking Group of ML & Co. Mr. Lebec joined ML & Co. as a Managing
Director in the Investment Banking Group and as a Vice President of MLPF&S
in 1984, and, within MLPF&S's Investment Banking Group, has been co-head
of its Mergers and Acquisitions Department from 1988 to 1993 and head or
co-head of its Telecommunications, Media and Technology Department from
1993 to 1996 before being named a Vice Chairman of Investment Banking in
1996.

Alison J. Mass, age 37. Ms. Mass is a Managing Director in the
Investment Banking Division of ML & Co. She has responsibility for the
Global Consumer Products Industry Group as well as investment banking
relationships with clients in the Leveraged Buyout sector. Ms. Mass also
serves as the Chair for the Investment Banking Promotions Committee. Ms.
Mass joined ML & Co. in 1990.

E. Stanley O'Neal, age 44. Mr. O'Neal is a Managing Director and
head of the Global Capital Markets. Mr. O'Neal joined ML & Co. in 1986.

Charles K. Sweeney, age 53. Mr. Sweeney joined MLPF&S in 1965 as a
member of the Junior Executive Training Program. Since 1966, he has
continued to work as a Financial Consultant within both the Private Client
and Capital Markets Groups of the firm. He has completed management
development, and was elected a Senior Vice President - Investments in
1989.

Nathan C. Thorne, age 42. Mr. Thorne has been a Managing Director in
the Investment Banking Group of ML & Co. since 1986. Mr. Thorne has
managed many different departments within MLPF&S's Investment Banking
Group including the High Yield Finance and Restructuring Group and is
presently a member of a department within the Investment Banking Group
that has responsibility for the Group's principal investments.

Authority of the General Partner

The General Partner will have the authority to make all decisions
regarding the acquisition, financing, operation, management and ultimate
disposition of Partnership investments, assets and properties. The Board
of Directors of the General Partner will approve all investments made by
the Partnership and will be responsible for the general supervision and
administration of Partnership activities. In investing the Partnership's
capital, the General Partner will consider those investments proposed by
unrelated third parties as well as opportunities presented to the
Partnership by affiliates of the General Partner. All investments chosen
by the General Partner for the Partnership, whether from third parties or
from other opportunities presented to the Partnership by affiliates, will
be evaluated independently of each other and chosen only if the General
Partner believes they are suitable for and in the best interest of the
Partnership. The General Partner is unable to predict to what extent
Partnership investments will be made in affiliate-proposed investments or
investment opportunities proposed by unrelated third parties. The General
Partner will execute or cause to be executed any and all agreements,
purchase orders, debt agreements, documents, certificates and other
instruments necessary for the purchase of, and investment in, assets by
the Partnership. See "Conflicts of Interest" and "Investment Objective
and Policies".

Financial Status of the General Partner

The General Partner was formed with minimal capitalization. The
General Partner has agreed to use its best efforts at all times to
maintain its net worth at a level necessary to meet any present or future
requirements of the Federal income tax law regarding the net worth of a
general partner of a limited partnership. ML & Co.
will issue a demand promissory note to the General Partner in an amount
necessary to meet current requirements and provide the General Partner
with such funds as are necessary to meet its other obligations under the
Partnership Agreement. See "Financial Statements".

Significant Affiliates of the General Partner

MLPF&S and the General Partner are both wholly-owned subsidiaries of
ML & Co. It is anticipated that ML & Co. and the Investment Banking
Group within MLPF&S will be important sources of Partnership investments,
particularly with respect to leveraged buyout, corporate restructuring and
recapitalization and real estate transactions, and that other groups
within MLPF&S and other subsidiaries of ML & Co. may also be sources of
investments.

Prior Partnerships

The General Partner also acts as the general partner for Merrill
Lynch KECALP L.P. 1994 (the "1994 Partnership"), Merrill Lynch KECALP L.P.
1991 (the "1991 Partnership"), Merrill Lynch KECALP L.P. 1989 (the "1989
Partnership"), Merrill Lynch KECALP L.P. 1987 (the "1987 Partnership"),
Merrill Lynch KECALP L.P. 1986 (the "1986 Partnership"), Merrill Lynch
KECALP L.P. 1984 (the "1984 Partnership") and Merrill Lynch KECALP Growth
Investments Limited Partnership 1983 (the "1983 Partnership", and together
with each of such other partnerships, the "KECALP Partnerships"). The
limited partnership interests in these partnerships were offered only to
certain employees and directors of ML & Co. and its subsidiaries. Set
forth below is information concerning these investments by the
partnerships. This information should not be construed to indicate that
the Partnership will or could make investments that will produce results
comparable to those of the investments made by the earlier partnerships.
The Partnership expects that the types of investments it will make will
more closely resemble those of the 1994 and 1991 Partnerships than the
earlier partnerships. In addition, the Partnership may invest in
international investments and investment funds to a greater extent than
have other KECALP Partnerships.

1994 Partnership

The 1994 Partnership closed its subscription offering on September
21, 1994, at which time it sold 40,384 units of partnership interest to
1,401 investors for $40,384,000. As of August 30, 1996, the Partnership
has invested or committed approximately $24.1 million of its initial $40.4
million in assets to 13 portfolio investments. As a result, at such date,
approximately $16.3 million remained to be invested or committed.
Existing investments consist of investments in seven leveraged buyout
transactions (with an aggregate cost of $9.8 million), one financial
restructuring and recapitalization (with an aggregate cost of $4.6
million), one real estate related transaction (with an aggregate cost of
$2.0 million) and four other types of transactions (with an aggregate cost
of $7.7 million).

Set forth below is a chart showing the results, as of August 31,
1996, of completed equity transactions with respect to the 1994
Partnership's investments. The dates of purchase refer to the dates on
which investments were acquired by or on behalf of the 1994 Partnership.

<TABLE>
<CAPTION>
Date of Date of
Classification Company Purchase Sale Cost Proceeds
-------------- ------- -------- ----- ---- --------
<S> <C> <C> <C> <C> <C>
Leveraged Buyout Mail-Well, Inc. 2/94 3/96 $ 263,089 $ 636,875
Leveraged Buyout Westlink Holdings, Inc. 7/94 5/96 2,114,825 4,672,000
Leveraged Buyout Mail-Well, Inc. 2/94 6/96 704,456 1,592,857
--------- ---------
Total $3,082,370 $6,901,732
--------- ---------
NET PROFIT REALIZED $3,819,362
=========

</TABLE>

1991 Partnership

The 1991 Partnership closed its subscription offering on September
11, 1991, at which time it sold 20,799 units of limited partnership
interest to 964 investors for $20,799,000. By July 20, 1995, the 1991
Partnership had invested in or committed to 18 investments with an
aggregate purchase price of $22.1 million. Eighteen were made in
leveraged buyouts ($20.5 million) and one in real estate ($1.6 million).

Set forth below is a chart showing the results, as of August 31,
1996, of completed equity transactions with respect to the 1991
Partnership's investments. The dates of purchase refer to the dates on
which investments were acquired by or on behalf of the 1991 Partnership.

<TABLE>
<CAPTION>
Date of Date of
Classification Company Purchase Sale Cost Proceeds
-------------- ------- -------- ------ ---- --------
<S> <C> <C> <C> <C> <C>
Leveraged Buyout First USA, Inc. 9/91 2/93 $ 52,913 $ 162,037
Leveraged Buyout First USA, Inc. 9/91 3/93 3,052 9,345
Leveraged Buyout Hospitality Franchise 1/92 7/93 345,751 1,009,411
Systems, Inc.
Leveraged Buyout First USA, Inc. 9/91 8/93 68,808 390,261
Leveraged Buyout Hospitality Franchise 1/92 11/93 315,159 1,244,700
Systems, Inc.
Leveraged Buyout Hospitality Franchise 1/92 2/94 339,090 1,726,943
Systems, Inc.
Leveraged Buyout First USA, Inc. 9/91 3/94 62,649 451,075
Leveraged Buyout First USA, Inc. 9/91 1/95 12,750 103,674
Leveraged Buyout First USA, Inc. 9/91 3/95 139,880 1,327,052
Leveraged Buyout Triarc Companies, Inc 4/93 7/95 1,500,000 1,963,158
Leveraged Buyout Mail-Well, Inc. 2/94 3/96 244,723 636,875
Leveraged Buyout American Re Corporation 9/92 3/96 1,500,000 5,967,188
Leveraged Buyout Westlink Holdings, Inc. 7/94 5/96 1,000,000 2,336,000
Leveraged Buyout Mail-Well, Inc. 2/94 6/96 655,277 1,592,857
--------- -----------
Total $6,240,052 $18,920,576
---------- -----------
NET PROFIT REALIZED $12,680,524
===========

</TABLE>

1989 Partnership

The 1989 Partnership closed its subscription offering on May 16,
1989, at which time it sold 21,096 units of limited partnership interest
to 843 investors for $21,096,000. By May 1, 1992, the 1989 Partnership
was fully invested in 24 investments with an aggregate purchase price of
$23.1 million. Of the 24 investments, 23 were in leveraged buyouts ($22.6
million) and one in venture capital ($500,000).

Set forth below is a chart showing the results, as of August 31,
1996, of completed equity transactions with respect to the 1989
Partnership. The dates of purchase refer to the dates on which
investments were acquired by or on behalf of the 1989 Partnership.

<TABLE>
<CAPTION>
Date of
Classification Company Purchase Date of Sale Cost Proceeds
______________ ------- -------- ------------ ---- --------
<S> <C> <C> <C> <C> <C>
Leveraged Buyout RJR Nabisco Holding 5/91 9/92 $ 5,071 $ 2,407,194
Corp.
Leveraged Buyout RJR Nabisco Holding 5/91 12/92 2,535,044 3,621,389
Corp.
Leveraged Buyout First USA, Inc. 5/91 2/93 83,961 379,830
Leveraged Buyout First USA, Inc. 8/91 2/93 316,370 968,837
Leveraged Buyout First USA, Inc. 5/91 3/93 17,193 77,778
Leveraged Buyout First USA, Inc. 5/91 8/93 376,132 3,151,488
Leveraged Buyout First USA, Inc. 5/91 8/93 17,463 146,317
Leveraged Buyout First USA, Inc. 5/91 3/94 358,358 3,811,597
Leveraged Buyout Eckerd Corporation 5/91 5/94 139,512 517,378
Leveraged Buyout Ann Taylor Stores 5/91 5/94 895,676 3,370,105
Corporation
Leveraged Buyout CMI Acquisition 5/91 8/94 252,581 0(A)
Corporation
Leveraged Buyout Ann Taylor Stores 5/91 12/94 297,510 1,423,450
Corporation
Leveraged Buyout Kash n' Karry Food 5/91 12/94 253,050 0
Stores, Inc.
Leveraged Buyout First USA, Inc. 5/91 1/95 74,801 898,508
Leveraged Buyout First USA, Inc. 5/91 3/95 798,261 11,187,510
Leveraged Buyout Eckerd Corporation 5/91 8/95 161,754 1,018,839
Leveraged Buyout Houlihan's Restaurant 5/91 8/95 1 69,660
Group, Inc.
Leveraged Buyout Esstar Incorporated 5/91 9/95 1,601,960 324,415
Leveraged Buyout London Fog Industries 5/91 5/95 2,259,221 0
Leveraged Buyout Caterair Holdings 5/91 11/95 138,817 0
Corporation
Leveraged Buyout Eckerd Corporation 5/91 12/95 264,141 2,362,673
Leveraged Buyout Caterair Holdings 5/91 12/95 788,769 26,008
Corporation
Venture Capital TranSwitch Corporation 7/89 12/95 183,232 748,173
Venture Capital TranSwitch Corporation 7/89 1/96 297,461 899,338
Leveraged Buyout El Holdings, Inc. 5/91 1/96 323,074 318,887
Leveraged Buyout Simmons Company 5/91 3/96 744,130 2,757,345
Leveraged Buyout Loehmann's Holdings 5/91 5/96 61,609 213,245
Leveraged Buyout Loehmann's Holdings 5/91 6/96 183,393 301,325
----------- -----------
Total $13,428,545 $41,001,289
----------- -----------
NET PROFIT REALIZED $27,572,744
===========

</TABLE>

_________________
(A) Received stock in Fleming Companies worth $231,044

1987 Partnership

The 1987 Partnership closed its subscription offering on May 28,
1987, at which time it sold 13,549 units of limited partnership interest
to 895 investors for $13,549,000. By May 23, 1991, the 1987 Partnership
was fully invested or committed to invest in 26 investments with an
aggregate purchase price of $15.3 million. Of the 26 investments or
commitments, 18 were in leveraged buyouts ($10.6 million), seven in
venture capital situations ($2.7 million) and one in real estate ($2.0
million).

Set forth below is a chart showing the results, as of August 31,
1996, of completed equity transactions with respect to the 1987
Partnership's investments. The dates of purchase indicated refer to the
dates on which investments were acquired by or on behalf of the 1987
Partnership.

<TABLE>
<CAPTION>
Date of Date of
Classification Company Purchase Sale Cost Proceeds
-------------- ------- -------- ------ ---- --------
<S> <C> <C> <C> <C> <C>
Leveraged Buyout Mueller Holdings, Inc. 11/88 11/88 $ 62,507 $ 169,124
Leveraged Buyout Apparel Marketing 5/89 5/89 158,872 1,262,544(A)
Industries, Inc.
Leveraged Buyout GU Acquisition Corporation 7/89 7/89 1,373,836 3,088,851(B)
Venture Capital Telecom USA 6/89 7/89 440,616 649,625
Venture Capital Magnesys 9/88 12/89 253,073 0
Venture Capital BBN Integrated Switch 3/89 3/90 542,978 0(C)
Partners, L.P.
Venture Capital TCOM Systems, Inc. 12/87 3/91 581,791 0
Venture Capital Meteor Message Corporation 9/88 9/91 308,086 0
Leveraged Buyout GND Holdings Corporation 7/89 6/92 591,612 1,215,869
Leveraged Buyout Peter J. Schmitt Co., Inc. 5/91 6/92 190,580 0
Venture Capital IDEC Pharmaceuticals 6/89 7/92 16,304 88,244
Corporation
Leveraged Buyout RJR Nabisco Holdings 5/91 9/92 2,901 1,374,093
Corporation
Leveraged Buyout John Alden Financial Group 5/89 10/92 248,476 230,257
Venture Capital Bolt, Barenek & Newman, 3/89 11/92 11,150 19,956
Inc.
Levaraged Buyout RJR Nabisco Holdings 5/91 12/92 1,450,665 2,066,766
Corporation
Leveraged Buyout General Felt Industries 5/91 3/93 237,846 359,023
Leveraged Buyout John Alden Financial Group 5/89 11/93 20,705 645,439
Leveraged Buyout Servam Corporation 5/91 12/93 26,048 0
Leveraged Buyout Ann Taylor Stores 5/91 5/94 42,456 159,748
Corporation
Leveraged Buyout John Alden Financial Group 5/89 6/94 2,797 116,223
Leveraged Buyout John Alden Financial Group 5/89 8/94 25,438 945,182
Leveraged Buyout Borg-Warner Automotive, 9/88 10/94 118,836 476,350
Inc.
Leveraged Buyout Borg-Warner Automotive, 9/88 11/94 1,429 5,728
Inc.
Leveraged Buyout Ann Taylor Stores 5/91 12/94 16,257 78,620
Corporation
Leveraged Buyout Kash 'N Karry Food Stores, 5/91 12/94 96,951 0
Inc.
Leveraged Buyout John Alden Financial Group 5/89 1/95 24,702 789,447
Leveraged Buyout ESSTAR Incorporated 5/91 9/95 1,181,250 239,216
Leveraged Buyout Apparel Marketing 5/89 12/95 137,594 179,079
Industries, Inc.
Venture Capital TranSwitch Corporation 12/88 12/95 72,800 406,300
Venture Capital TranSwitch Corporation 12/88 1/96 127,200 524,100
Leveraged Buyout El Holdings, Inc. 5/91 1/96 238,227 235,139(D)
Leveraged Buyout Simmons Company 5/91 3/96 858,253 3,180,222
Leveraged Buyout Loehmann's Holdings 5/91 5/96 61,609 213,245
Leveraged Buyout Loehmann's Holdings 5/91 6/96 183,393 301,325
Leveraged Buyout Borg-Warner Automotive, 9/88 8/96 419,400 2,513,242
Inc. ---------- ----------
Total $10,126,638 $21,532,957
----------- -----------
NET PROFIT REALIZED $11,406,319
===========

</TABLE>

- -----------------
(A) Includes value of preferred stock obtained in transaction.
(B) Proceeds include $591,612 which was used to purchase shares of GND
Holdings Corporation.
(C) Received shares of Bolt, Barenek & Newman as part of dissolution of
partnership.

1986 Partnership

The 1986 Partnership closed its subscription offering on April 15,
1986, at which time it sold 7,234 units of limited partnership interest to
approximately 500 investors for $7,234,000. By May 10, 1991, the
Partnership was fully invested in 26 investments with an aggregate
purchase price of $8.3 million. Of the 26 investments, 16 were in venture
capital situations ($4.4 million), nine in leveraged buyouts ($3.1
million) and one in a package of securities in connection with a
recapitalization ($759,000).

Set forth below is a chart showing the results, as of August 31,
1996, of completed equity transactions with respect to the 1986
Partnership's investments. The dates of purchase indicated refer to the
dates on which investments were acquired by or on behalf of the 1986
Partnership.

<TABLE>
<CAPTION>
Date of Date of
Classification Company Purchase Sale Cost Proceeds
-------------- ------- -------- ------ ---- --------
<S> <C> <C> <C> <C> <C>
Venture Capital FGIC Corporation 6/86 3/88 $1,084,447 $ 1,889,415
Venture Capital Dallas Semiconductor 4/86 5/88 203,867 470,412
Corporation
Venture Capital Data Recording Systems, 2/88 6/88 202,450 0
Inc.
Venture Capital Alliant Computer Systems 6/86 7/88 158,529 95,375
Corp.
Leveraged Buyout CMI Holdings, Inc. 1/88 4/89 45,349 153,451
Other Varity Corporation 4/89 4/89 758,842 1,906,283
Leveraged Buyout Printing Holdings, L.P. 4/89 4/89 649,949 2,135,285
Leveraged Buyout Amstar Corporation 1/88 7/89 354,728 1,303,520
Venture Capital Intek Diagnostics, Inc. 8/86 12/89 104,534 0
Leveraged Buyout Education Management Corp. 4/89 10/89 192,432 643,824
Venture Capital Qume Corporation 8/86 4/90 211,193 485,625
Venture Capital Computer-Aided Design 1/88 9/90 117,183 0
Group
Venture Capital International Power 2/87 9/90 208,592 61,466
Technology, Inc.
Venture Capital Robert Wooldridge & Co. 7/87 9/90 205,882 0
Venture Capital Shared Resource Exchange, 2/87 9/90 262,501 0
Inc.
Leveraged Buyout Prince Holdings, Inc. 5/89 10/90 147,601 1,400,807
Venture Capital IDEXX Corporation 2/87 6/91 33,583 66,388
Venture Capital Computer-Aided Design 1/88 9/91 39,061 0
Group
Venture Capital ViewLogic Systems, Inc. 6/86 12/91 212,874 1,474,388
Venture Capital IDEXX Corporation 2/87 1/92 178,312 580,571
Venture Capital Enhance Financial Services 4/89 2/92 238,366 332,558
Group
Leveraged Buyout ALLTEL Corporation 2/87 7/92 11,589 163,649
Venture Capital Enhance Financial Svcs. 4/89 8/92 251,042 369,949
Group Inc.
Venture Capital Zentec Corporation 12/86 9/92 277,500 0
Leveraged Buyout ALLTEL Corporation 2/87 3/93 24,277 428,451
Venture Capital BehaviorTech, Inc. 8/86 7/93 105,669 9,900
Leveraged Buyout ALLTEL Corporation 2/87 8/93 25,480 483,124
Leveraged Buyout ALLTEL Corporation 2/87 11/93 12,071 240,807
Leveraged Buyout Eckerd Corporation 4/89 5/94 91,725 381,088
Leveraged Buyout Borg-Warner Automotive, 9/88 11/94 24,076 96,419
Inc.
Leveraged Buyout Eckerd Corporation 4/89 12/94 17,561 110,000
Leveraged Buyout Eckerd Corporation 4/89 4/95 17,561 114,711
Leveraged Buyout Eckerd Corporation 4/89 8/95 95,400 673,195
Leveraged Buyout Eckerd Corporation 4/89 12/95 286,372 1,561,177
Venture Capital Shared Resource Exchange, 2/87 12/95 87,500 1
Inc.
Leveraged Buyout World Color Press, Inc. 4/89 1/96 480,806 922,012
Leveraged Buyout Borg-Warner Automotive, 9/88 8/96 83,960 502,661
Inc. --------- -----------
Total $7,502,863 $19,056,512
---------- -----------
NET PROFIT REALIZED $11,553,649
===========

</TABLE>

1984 Partnership

The 1984 Partnership closed its subscription offering on May 22,
1984, at which time it sold 3,747 units of limited partnership interest to
approximately 300 investors for $3,747,000. By February 3, 1988, the 1984
Partnership was fully invested in 23 investments with an aggregate
purchase price of $4.1 million. Of the 23 investments, six were in real
estate ($750,000), nine in venture capital ($1.6 million), five in
leveraged buyouts ($1.1 million), one in oil and gas ($350,000), one in
equipment leasing ($250,000) and one in research and development
($90,000).

Set forth below is a chart showing the results, as of August 31,
1996, of completed equity transactions with respect to the 1984
Partnership's investments. The dates of purchase indicated refer to the
dates on which investments were acquired by or on behalf of the 1984
Partnership.

<TABLE>
<CAPTION>
Date of Date of
Classification Company Purchase Sale Cost Proceeds
-------------- ------- -------- ------- ---- --------
<S> <C> <C> <C> <C> <C>
Real Estate Cortland 6/84 12/86 $ 70,498 $ 43,772
Venture Capital California Devices, Inc. 12/85 8/87 150,000 0
Leveraged Buyout Denny's, Inc. 9/86 9/87 399,968 1,898,631
Leveraged Buyout Ithaca Corporation 4/86 1/88 422,563 7,448,000(A)
Venture Capital FGIC Corp. 6/86 3/88 601,205 1,133,550
Venture Capital Alliant Computer Systems 6/86 7/88 101,225 63,563
Corp.
Venture Capital Data Recording Systems, 2/85 8/88 152,444 0
Inc.
Leveraged Buyout Printing Holdings, L.P. 4/89 4/89 115,706 376,815
Leveraged Buyout New Axia Holdings 9/86 12/89 31,225 262,500(B)
Corporation
Venture Capital Intek Diagnostics, Inc. 8/86 12/89 100,980 0
Leveraged Buyout C.C. Packaging, Inc. 9/86 3/90 11,223 15,110
Venture Capital Shared Resource Exchange, 2/87 9/90 74,999 0
Inc.
Oil and Gas Berresford Enterprises- 11/84 3/93 350,000 70
Jerry 1984
Venture Capital BehaviorTech, Inc. 8/86 7/93 70,973 6,930
Venture Capital Private Satellite Network, 8/84 9/93 158,575 30,665
Inc.
Leveraged Buyout Axia Incorporated 9/86 3/94 0 86,120
Equipment Financing Dry Van Trailers 11/84 9/94 250,572 149,650
Venture Capital Acuity Imaging Corporation 12/85 12/94 200,000 227,496
(Itran)
Real Estate JMB Income Properties, 11/85 12/95 34,335 12,010
Ltd. - VIII
Venture Capital Shared Resource Exchange, 2/87 12/95 25,000 1
Inc.
Leveraged Buyout World Color Press, Inc. 4/89 1/96 84,848 162,718
(Printing Holdings, L.P.) --------- -----------

Total $3,406,339 $11,917,601
---------- -----------
NET PROFIT REALIZED $ 8,511,262
===========
</TABLE>

- ----------------
(A) Includes dividend of $2,460,533.
(B) Includes dividend of $175,000.

1983 Partnership

The 1983 Partnership closed its subscription offering on May 20,
1983, at which time it sold 6,915 units of limited partnership interest to
approximately 600 investors for $6,915,000. By March 2, 1987, the 1983
Partnership was fully invested with 21 investments with an aggregate
purchase price of approximately $7.6 million. Of the 21 investments,
four were in venture capital ($1.3 million), three in leveraged buyouts
($1.0 million), six in real estate ($2.8 million), three in oil and gas
($900,000), three in equipment financing ($1.1 million) and two in
research and development ($500,000).

Set forth below is a chart showing the results as of August 31, 1996,
of completed equity transactions with respect to the 1983 Partnership's
investments. The dates of purchase indicated refer to the dates on which
investments were acquired by or on behalf of the 1983 Partnership.

<TABLE>
<CAPTION>
Date of
Classification Company Purchase Date of Sale Cost Proceeds
-------------- ------- -------- ------------ ---- --------
<S> <C> <C> <C> <C> <C>
Leveraged Buyout Signode Industries 12/85 9/86 $ 761,003 $ 8,096,509
Venture Capital UAS Automation Systems, Inc. 6/83 11/86 100,003 394,520
Equipment Financing Aztex Associates, L.P. 5/83 12/86 64,563 0
Research & Devlpmt. BRN R/S Expert, L.P. 6/84 5/87 230,000 769,531
Leveraged Buyout Denny's, Inc. 9/86 9/87 199,984 949,315
Venture Capital FGIC Corporation 6/86 3/88 1,000,000 1,649,840
Venture Capital Alliant Computer Systems Corp. 6/86 7/88 100,000 63,563
Leveraged Buyout Medical Disposables Company 6/86 4/90 65,000 162,070
Oil and Gas Posse Petroleum, Ltd. 10/83 2/91 176,469 60,000
Research and Devlpmt. NPI Plant Research, Ltd. 4/84 3/91 232,500 25,000
Equipment Financing Cortlandt Intermodal Leasing 6/83 4/92 432,882 180,624
Oil and Gas Berresford Enterprises-Jerry 1984 11/84 3/93 150,000 0
Oil and Gas Berresford Enterprises- 10/83 3/93 550,000 0
Margaret #1
Real Estate Casselberry-Oxford Associates, 6/83 12/95 780,822 140,000
L.P.
Research and Development Windpower Partners 1983-1 6/83 12/95 470,000 14,000
Real Estate Capital Realty Investors - II 6/83 2/96 452,500 19,385
---------- ----------
Total $5,765,726 $12,524,357
---------- -----------
NET PROFIT REALIZED $ 6,758,631
===========

</TABLE>

INVESTMENT OBJECTIVE AND POLICIES

General

The investment objective of the Partnership is to seek long-term
capital appreciation. It is expected that a significant portion of the
Partnership's assets will be invested in privately-offered equity
investments in U.S. and non-U.S. issuers. Investments in U.S. issuers may
include securities issued in leveraged buyout transactions, transactions
involving financial restructurings or recapitalizations of operating
companies. Investments made outside the United States may include
financings of companies in an early stage of development and other
international investment opportunities in both the emerging markets and
developed countries. Investments may also be made in real estate
opportunities and, to a lesser extent, in U.S. venture capital
transactions. These investments are described below. The Partnership may
make other investments in equity and fixed income securities that the
General Partner considers appropriate in terms of their potential for
capital appreciation. The Partnership's investments may be made directly
in portfolio companies or through the purchase of interests in other
investment funds. Current income will not generally be a significant
factor in the selection of investments. The Partnership may not change
its investment objective unless authorized by the vote of a
majority-in-interest of the Limited Partners of the Partnership. There
can be no assurance that the investment objective of the Partnership will
be realized.

While privately-offered equity investments of the types expected to
be acquired by the Partnership generally have the potential for achieving
greater appreciation than investments in publicly-traded securities of
established companies, these investments are highly speculative and
involve substantial risks which are increased by the long-term nature and
limited liquidity of such investments. It is anticipated that the
proceeds of the offering will be invested, or committed for investment,
within three to four years after the date the Partnership commences
operations. It is also anticipated that the Partnership will not reinvest
proceeds from the sale of portfolio investments except that the General
Partner may consider reinvestments to the extent initial investments are
disposed of within two years from the closing of the sale of Units or in
connection with follow-on investments made in existing portfolio
companies.

The Partnership may invest, without limit, in the securities of non-U.S.
corporations and other issuers. While there are no prescribed limits
on the geographic allocation of the Partnership's international
investments, the Partnership expects that a substantial portion of these
investments may be made in developing countries,
including developing countries located in the Far East, the Indian
subcontinent, Eastern Europe and Latin America. The General Partner
believes that private equity investments in growing companies in
developing countries are consistent with the Partnership's investment
objective and can provide attractive opportunities in light of the fact
that emerging capital markets are not as developed as those in Western
Europe and the United States.

In addition to its direct investments, the Partnership may invest in
U.S. or non-U.S. investment funds offering opportunities consistent with
its investment objective. The Partnership expects that domestic
investment funds in which it invests will generally emphasize the types of
equity securities in which the Partnership invests directly. Examples
include funds investing in buyout opportunities and recapitalizations.
The Partnership expects that investments in investment funds organized or
operating outside the United States will be made to facilitate the
Partnership's investments in selected regions or industries. In addition,
such investments may be made when it is considered more efficient to
invest in a particular market on an indirect basis rather than through
direct investments in non-U.S. issuers. The General Partner believes that
investment funds may have access to certain investment opportunities that
will not otherwise be available to the Partnership. In addition, managers
of investment funds may have specialized investment skills regarding
certain industries, types of investments or regions.

Type of Investments

Leveraged buyout transactions typically involve the purchase of
public or privately-held corporations, or divisions or subsidiaries of
such corporations, through financing provided by equity investors and debt
financing. The transactions generally involve a significant degree of
debt financing and the highly leveraged financial structure of these
investments may introduce substantial risks to equity investors apart from
those directly related to a company's operations. As described under
"Sources of Investment Opportunities" below, the Partnership anticipates
that it will seek to co-invest in a number of these investments with ML &
Co. or its affiliates.

The Partnership anticipates that it may also make equity investments
in transactions involving financial restructurings or recapitalizations of
operating companies. It is expected that these investments would be made
in connection with the restructuring or recapitalization of a leveraged
company pursuant to which a portion of its outstanding capitalization is
to be exchanged for, or repaid from the proceeds of the issuance of, one
or more classes of new securities. A company will generally undertake a
financial restructuring or recapitalization transaction because its
financial structure is overly leveraged in light of its current or
anticipated operations. These companies may also be encountering
financial difficulties in meeting current debt service payments. The
Partnership anticipates that it will seek to co-invest in financial
restructuring or recapitalization transactions with ML & Co. or its
affiliates.

The Partnership also expects that it may make investments in real
estate transactions offering investment potential consistent with the
Partnership's objective of seeking long-term capital appreciation. The
Partnership does not presently anticipate that it will invest a
significant portion of its assets in U.S. venture capital investments. To
the extent the Partnership makes such investments, it expects that these
investments will generally consist of investments in a limited number of
new companies or companies in an early stage of development that the
General Partner believes have outstanding appreciation and profit
potential. Typically venture capital investments may take from four to
seven years to reach a state of maturity where disposition can be
considered.

In considering international investments, the Partnership may seek
investments particularly in emerging markets, where there is generally
more limited access to capital than in developed countries. Such
international investments may include companies in a variety of sectors,
including manufacturing, telecommunications, infrastructure, and financial
and other services. In reviewing international investment opportunities,
the General Partner will consider factors such as whether companies have
an established record of profitability, proven management capability, the
potential for above average rates of growth, a significant market share
and competitive advantages in their markets (such as barriers to entry).
The General Partner will also review the potential exit strategies with
respect to international investments, and factors particular to the
location of a company such as the availability of trained labor,
political, economic and social conditions and tax and regulatory
considerations.

The international investments that the Partnership may make include
(i) the private purchase from an enterprise of an equity interest in the
enterprise in the form of shares of common stock or equity interests in
trusts, partnerships, joint ventures or similar enterprises, (ii) the
purchase of such an equity interest in an enterprise from an investor in
the enterprise and (iii) securities traded on exchanges in emerging
markets. It is expected that in certain cases, the Partnership may at the
time of making the investment, enter into a shareholder or similar
agreement with the enterprise or one or more other holders of equity
interests in the enterprise. These agreements may, in appropriate
circumstances, provide the Partnership or an affiliate of the General
Partner with the ability to appoint one or more representatives to the
board of directors or similar body of the enterprise and for eventual
disposition of the Partnership's investment in the enterprise.

The investment funds in which the Partnership may invest include
investment vehicles that are deemed to be "investment companies" under the
Investment Company Act and similar managed investment vehicles that are
outside the scope of such Act. The Investment Company Act contains
limitations on the ability of the Partnership to invest in entities that
are considered "investment companies" for purposes of such Act. Pursuant
to the Investment Company Act, the Partnership may invest generally no
more than 10% of its total assets in shares of other investment companies
(as defined in such Act) and no more than 5% of its total assets in any
one investment company. To the extent the Partnership and its "affiliated
persons" (as defined in the Investment Company Act) own no more than 3% of
the outstanding stock of an investment company, the Partnership's
ownership of the securities of such investment company is not subject to
the foregoing 5% and 10% limitations. There is pending legislation
regarding the Investment Company Act which, if enacted, would cause
certain investment funds no longer to be deemed "investment companies"
under such Act. If such legislation is enacted, the Partnership would be
able to acquire securities issued by such entities without regard to the
limits set forth in the Investment Company Act.

Following an initial equity investment in transactions described
above, the Partnership anticipates that it may, at times, provide
additional or follow-on funds to the issuer. Follow-on investments may be
made pursuant to rights to acquire additional securities, or otherwise in
order to increase the Partnership's position in a successful or promising
portfolio company. The Partnership may also be called on to provide
follow-on investments for a number of other reasons, including providing
additional capital to a company to implement fully its business plans, to
develop a new line of business or to recover from unexpected business
problems.

The Partnership may invest up to 5% of its total assets in high yield
corporate debt securities that the General Partner believes have
significant potential for capital appreciation. These securities may be
acquired in restructuring or reorganization transactions in which ML & Co.
or its affiliates are participating as financial adviser or in other
capacities. High yield debt securities, also referred to as "junk bonds",
are regarded as predominantly speculative as to the issuer's ability to
make payments of principal and interest. See "Risk and Other Important
Factors".

The Partnership does not intend to invest more than 15% of its assets
in any one portfolio company. The equity investments made by the
Partnership in portfolio companies will typically be structured in
negotiated private transactions and will generally be restricted as to the
manner of resale or disposition. The securities acquired by the
Partnership will primarily consist of common stocks and securities
convertible into common stocks, but may also consist of a combination of
equity and debt securities and warrants, options and other rights to
obtain such securities or, in the case of high yield debt securities, the
debt securities themselves.

Sources of Investment Opportunities

The Partnership expects to locate suitable investments from a variety
of sources, including affiliates of the General Partner and third parties.
Although the Partnership cannot predict what percentage of its investments
will be in opportunities presented by affiliates of the General Partner or
by third parties, it expects that a significant portion will be invested
in opportunities presented by affiliates of the General Partner. See "The
General Partner and Its Affiliates--Significant Affiliates of the General
Partner" and "Conflicts of Interest".

The Partnership will seek to invest in leveraged buyout and other
equity investments. Previous KECALP Partnerships (particularly the 1989
Partnership and the 1991 Partnership) co-invested to a significant degree
in buyout investments with partnerships managed by Merrill Lynch Capital
Partners Inc. ("MLCP"), a subsidiary of ML & Co. These investments were
made available to the KECALP Partnerships by ML & Co. from its
co-investments with such buyout partnerships. The investment
professionals of MLCP formed a new management company
in 1994 which is not affiliated with ML & Co. for the
purpose of managing buyout partnerships. The principals of such new
management company have advised the General Partner that the KECALP
Partnerships may co-invest with such partnership in an aggregate amount of
up to $2.5 million in each investment made by such partnership, subject to
a maximum investment by the KECALP Partnerships of a 3% interest in any
acquired company. Since ML & Co. invested in such partnership as a
limited partner, the General Partner obtained an exemptive order from the
Securities and Exchange Commission to enable the KECALP Partnerships to
make any such co-investments.

The Investment Company Act contains restrictions on co-investments by
a registered investment company (such as the Partnership) and affiliates
of its sponsor and on purchases of securities by a registered investment
company from affiliates of its sponsor. Accordingly, to the extent the
Partnership seeks to invest in transactions in which ML & Co. or any of
its affiliates is also a participant or to purchase securities from ML &
Co. or any of its affiliates, the Partnership may be required to obtain an
exemptive order from the Securities and Exchange Commission under such Act
before it can make the investment. The prior partnerships for which the
General Partner acts as general partner have been able to obtain such
exemptive orders under the Investment Company Act. In this regard, the
Partnership has obtained blanket exemptive relief from the Securities and
Exchange Commission permitting co-investments under certain circumstances
in leveraged buyout and other equity investments with ML & Co. and its
affiliates. There can be no assurance that the General Partner will be
able to obtain exemptions in the future with respect to investments that
do not qualify under the terms of existing exemptions.

Investment Factors

Prospective investments will be evaluated by the General Partner upon
selection factors established by the General Partner from time to time.
The following are typical of the factors which may be considered by the
General Partner:

(1) the potential return that may be earned from the
investment;
(2) the nature of the risks associated with such investment
(e.g., industry risks or risks related to the structure of
the investment opportunity);
(3) the degree of diversification in the Partnership's
investment portfolio;
(4) the financial stability, creditworthiness and reputation of
any proposed partners or joint venturers;
(5) in the case of Sponsored Programs or indirect investments
made through third parties, the background, experience and,
where applicable, prior performance of the issuer of the
constituent securities;
(6) the potential return available in alternative investments;
and
(7) other considerations relative to a specific investment
being considered.

Leverage

The Partnership Agreement permits the General Partner to borrow funds
on behalf of or lend funds to the Partnership. The General Partner will
obtain funds for making Partnership investments when it believes such
action is desirable. The Partnership may also borrow funds to enable it
to make follow-on investments with respect to any direct investments it
might make in portfolio companies. However, it is expected that the
Partnership would not otherwise incur substantial debt with respect to
other types of investments. The Partnership Agreement does not limit the
amount of indebtedness which the Partnership may incur. The Investment
Company Act generally limits the amount of indebtedness the Partnership
may incur to 331/3% of its gross assets. However, the General Partner has
obtained an order from the Securities and Exchange Commission applicable
to the Partnership which permits the Partnership to enter into nonrecourse
loans relating to investments other than securities without regard to such
limitation.

The use of leverage would exaggerate increases or decreases in the
Partnership's net assets. To the extent that Partnership revenues are
required to meet debt service obligations, the Partners may be allocated
income (and therefore tax liability) in excess of cash available for
distribution.

Liquidation of Investments

The Partnership intends to liquidate its portfolio investments prior
to dissolution. Leveraged buyout investments typically require from four
to seven years to reach a state of maturity before disposition can be
considered. Investments in corporate restructuring and recapitalization
transactions may also require a substantial holding period. Investments
in partnerships involved in real estate investments may also be illiquid
for significant periods, including periods extending for the term of the
underlying investment vehicle. As a result, the Partnership's
investments will generally be held for a significant time period until
disposition can be considered through negotiated private sales or sales
made in the public market pursuant to exemptions from registration under
the Federal securities laws. The Partnership expects to utilize the
services of MLPF&S, to the extent permitted by the Investment Company Act,
in executing transactions for the sale of its investments. In the absence
of a specific exemption, the Partnership is generally precluded by the
Investment Company Act from selling portfolio securities, including high
yield debt securities, to MLPF&S on a principal basis.

Reinvestment Policy

The General Partner has the discretion to reinvest all Partnership
revenues. To the extent portfolio investments are disposed of within two
years after the closing of the sale of Units, the General Partner will
consider reinvesting all or a substantial portion of the proceeds realized
by the Partnership. However, the General Partner does not expect to
reinvest proceeds from the liquidation of portfolio investments (other
than temporary investments) occurring more than two years after the
closing of the sale of Units, except in connection with follow-on
investments made in existing portfolio companies. The General Partner may
also cause the Partnership to maintain reserves for follow-on investments
or to apply cash received from investments to the prepayment of any
borrowings made by the Partnership. To the extent that cash received by
the Partnership is not required for such purposes or to reimburse the
General Partner for expenses incurred by it, such cash will be distributed
to the Partners at least annually.

Investment Restrictions

The Partnership has adopted the following investment restrictions
which may not be changed unless authorized by an amendment of the
Partnership Agreement by the vote of a majority-in-interest of the Limited
Partners of the Partnership. These restrictions provide that the
Partnership may not (i) issue senior securities other than in connection
with borrowings described in (iii) below, (ii) make short sales of
securities, purchase securities on margin, except for use of short-term
credit necessary for the clearance of transactions, or write put or call
options, (iii) borrow amounts in excess of 331/3% of its gross assets,
except that the Partnership may enter into nonrecourse loans relating to
investments other than securities without regard to such limitation, (iv)
underwrite securities of other issuers, except insofar as the Partnership
may be deemed an underwriter under the Securities Act of 1933 in selling
portfolio securities, (v) invest more than 25% of its Partners' capital
contributions in the securities of issuers in any particular industry,
except for temporary investments in United States Government and
Government agency securities, domestic bank money market instruments and
money market funds, or (vi) make loans to other persons in excess of
331/3% of its gross assets, provided that investments in privately offered
debt securities issued by entities in which the Partnership has an equity
participation or with which the Partnership has contracted to acquire an
equity participation are not considered loans for purposes of this
restriction. In addition, the Partnership will not invest any of its
assets in the securities of other investment companies, except to the
extent permitted by the Investment Company Act.

Temporary Investments

Prior to the expenditure of the capital contributions of the Limited
Partners, and pending distributions of available cash, the Partnership
will invest funds in various types of marketable securities. These
securities include money market instruments and securities issued by
taxable or tax-exempt money market funds (including funds sponsored by
affiliates of the General Partner). An exemptive order obtained from the
Securities and Exchange Commission permits the Partnership to purchase
money market instruments, shares of money market funds and certain other
securities from affiliates of ML & Co. in principal transactions.

TAX ASPECTS OF INVESTMENT IN THE PARTNERSHIP

EACH PROSPECTIVE LIMITED PARTNER IS URGED TO CONSULT A PERSONAL TAX
ADVISOR WITH RESPECT TO THE MATTERS DISCUSSED BELOW AS THEY RELATE TO SUCH
PROSPECTIVE LIMITED PARTNER'S CIRCUMSTANCES.

Scope and Limitation

The following discussion of the Federal income tax consequences of an
investment in the Partnership, together with the opinions of counsel
referred to below, are based upon the existing provisions of the Internal
Revenue Code of 1986, as amended to date (the "Code"), the regulations
promulgated or proposed thereunder (the "Regulations" or the "Proposed
Regulations"), current administrative rulings and practices of the
Internal Revenue Service (the "IRS") and existing court decisions, any of
which could be changed at any time. Any such changes may or may not be
retroactive with respect to transactions prior to the date of such changes
and could significantly modify the statements and opinions expressed
herein.

At the Closing of the offering of Units, the Partnership will receive
the opinion of Brown & Wood LLP ("Tax Counsel") to the effect that:

(i) the Partnership will be classified as a partnership for Federal
income tax purposes and not as an "association" taxable as a corporation
and will not be classified as a publicly traded partnership within the
meaning of Code Section 7704(b) (see "Classification as a Partnership"
below); and

(ii) the allocations of income, gain, loss, deduction and credit of
the Partnership will be respected for Federal income tax purposes, so long
as no Limited Partner's capital account becomes negative (see "General
Principles of Partnership Taxation--Allocations and Distributions" below).

The Partnership also will request additional opinions of Tax Counsel
with respect to the other material Federal income tax issues described in
this Prospectus as such matters arise in the course of the Partnership's
investment decisions. All such opinions of Tax Counsel will be subject
to, and limited by, the assumptions made and matters referred to in such
opinions, including the laws, rulings and regulations in effect as of the
date of such opinions, all of which are subject to change.

Partners should note that the opinions of Tax Counsel are not binding
on the IRS or the courts. The opinions of Tax Counsel regarding the
issues specifically identified represent Tax Counsel's judgment based on
its analysis of the law, and express what Tax Counsel believes a court
would conclude if properly presented with such issues. Accordingly, no
assurance can be given that the IRS will not challenge the tax treatment
of certain items or, if it does, that it will not be successful. The
opinions are based on the applicable statutes, regulations, cases and
rulings in effect on the date of the opinions. If any of the authorities
on which the opinions are based should change, the conclusions set forth
in the opinions may be affected. The opinions of Tax Counsel are also
based on certain representations by the General Partner, including a
representation that the factual matters referred to herein are accurate
and complete as of the date of Closing. If such facts or representations
are inaccurate, Tax Counsel's opinion may not apply to such changed
circumstances.

Overview of Tax Aspects

The Code provides that a partnership is not itself subject to Federal
income taxation. Rather, each Limited Partner will be required to take
into account in computing his of her Federal income tax liability his or
her allocable share of the Partnership's capital gains and capital losses
and other income, losses, deductions, credits and items of tax preference
for any taxable year of the Partnership ending within or with the taxable
year of such Limited Partner, without regard to whether he or she has
received or will receive any distribution from the Partnership.
Partnership revenues may be retained by the Partnership to be applied to
working capital reserves, or used to reduce outstanding debts or
borrowings or Partnership expenses. In addition, certain of the temporary
investments which the Partnership may purchase include zero coupon bonds
or other obligations having original issue discount. For Federal income
tax purposes, accrual of original issue discount will be
attributable to Partners as interest income even though the Partnership
does not realize any cash flow as a result of such accrual.

The Partnership is required to (i) file annually an information
return on Form 1065 and (ii) following the close of the Partnership's
taxable years, provide to each Partner a Schedule K-1 indicating such
Partner's allocable share of the Partnership's income, gain, losses,
deductions, credits, and items of tax preference. Assignees of Limited
Partners who are not admitted to the Partnership will not receive any tax
information from the Partnership. See "General Principles of Partnership
Taxation--Partners, Not Partnership, Subject to Tax" below.

Classification of a Partnership as a PTP

Under Section 7704 of the Code, generally a publicly traded
partnership ("PTP") is to be treated as a corporation for Federal income
tax purposes.

PTPs are defined in Code Section 7704(b) as partnerships whose
interests are (i) traded on an established securities market (i.e., a
national exchange, local exchange, or over-the-counter market) or (ii)
readily tradeable on a secondary market or the substantial equivalent
thereof. Units in the Partnership will not be listed for trading on an
established securities market and the General Partner will not participate
in the establishment of any secondary market or substantial equivalent
thereof and will not recognize any transfers made on any such market. A
Limited Partner may not transfer a Unit unless the Limited Partner
represents, and provides other documentation, satisfactory in form and
substance to the General Partner that such transfer was not effected
through a broker-dealer or matching agent which makes a market in Units or
which provides a readily available, regular and ongoing opportunity to
Partners to sell or exchange their Units through a public means of
obtaining or providing information of offers to buy, sell or exchange
Units. Prior to recognizing the sale of a Unit, the General Partner must
determine that such sale, assignment or transfer will not, by itself or
together with any other sales, transfers or assignments, substantially
increase the risk of the Partnership being classified as a publicly traded
partnership. A transferor will not be required to make the
representations described above if the transferor represents that the
transfer is effected through an agent whose procedures have been approved
by the General Partner as consistent with the requirements for avoiding
classification as a publicly traded partnership.

On November 21, 1995, the IRS issued final regulations on classifying
certain publicly traded partnerships as corporations (the "Final PTP
Regulations"). The Final PTP Regulations provide certain safe harbors
which, if satisfied by a partnership, will result in interests in the
partnership not being treated as readily tradeable on a secondary market
or the substantial equivalent thereof. The Final PTP Regulations provide,
in relevant part, that interests in a partnership will not be considered
readily tradeable on a secondary market or a substantial equivalent
thereof within the meaning of Section 7704(b) of the Code for a taxable
year of the partnership if the sum of the percentage interests in
partnership capital or profits represented by partnership interests that
are sold or otherwise disposed of during the taxable year does not exceed
2% of the total interest in partnership capital or profits (the "2% Safe
Harbor"). For this purpose, the following transfers, as well as certain
redemptions (collectively, "Safe Harbor Transfers"), will be disregarded:
(i) transfers in which the basis of the partnership interest in the hands
of the transferee is determined, in whole or in part, by reference to its
basis in the hands of the transferor or is determined under Section 732 of
the Code; (ii) transfers at death, including transfers from an estate or
testamentary trust; (iii) transfers between members of a family (as
defined in Section 267(c)(4) of the Code); (iv) the issuance of interests
by or on behalf of the partnership in exchange for cash, property, or
services; (v) distributions from a retirement plan qualified under Section
401(a); and (vi) block transfers. (The term "block transfer" means the
transfer by a partner in one or more transactions during any thirty
calendar day period of partnership interests representing in the aggregate
more than 2% of the total interest in partnership capital or profits.)

The Final PTP Regulations also provide that sales through a matching
service ("Matched Sales") will be disregarded (the "Matching Service Safe
Harbor") for purposes of determining whether partnership interests are to
be considered readily tradeable on a secondary market or the substantial
equivalent thereof if: (i) at least a 15 calendar day delay occurs between
the day the operator receives written confirmation from the listing
customer that an interest in a partnership is available for sale (the
"contact date") and the earlier of (A) the day information is made
available to potential buyers regarding the offering of such interest for
sale, or (B) the day information is made available to the listing customer
regarding the existence of any outstanding bids to purchase an interest in
such partnership at a stated price; (ii) the closing of the sale effected
through the matching service does not occur prior
to the 45th calendar day after the contact date;
(iii) the listing customer's information is removed from the matching
service within 120 calendar days after the contact date; (iv) following
any removal of the listing customer's information from the matching
service (other than removal by reason of a sale of any part of such
interest), no interest in the partnership is entered into the matching
service by such listing customer for at least 60 calendar days; and (v)
the sum of the percentage interests in partnership capital and profits
represented by partnership interests that are sold or otherwise disposed
of other than in Safe Harbor Transfers during the taxable year of the
partnership does not exceed 10 percent of the total interest in
partnership capital and profits.

The Partnership Agreement provides that the Partnership will satisfy
one of such safe harbors. The Partnership Agreement also provides that any
transfer of Units to a market maker will be null and void unless the
market maker certifies that it is holding such Units for investment
purposes. The General Partner has also represented that it intends to
exercise its discretion regarding transfers in a manner designed to
prevent the Partnership from becoming a PTP. Accordingly, it is not
anticipated that the Partnership will be a PTP. There can be no
assurance, however, that the General Partner will be successful in its
efforts.

Classification as a Partnership

Significance of Partnership Status

A limited partnership may be classified for Federal income tax
purposes as either a "partnership" or an association taxable as a
corporation. If the Partnership is classified as a partnership, the
Partners will be subject to tax currently on their respective distributive
shares of Partnership income and gain, and, subject to certain
limitations, will be entitled to claim currently their respective
distributive shares of any Partnership losses and credits. If the
Partnership were to be classified as an association taxable as a
corporation, the Partners therein would be treated as shareholders of a
corporation and, consequently, (i) items of income, gain, deduction, loss
and credit would not flow through to such Partners to be accounted for on
their individual Federal income tax returns, (ii) cash distributions would
be treated as corporate distributions to such Partners, some or all of
which might be taxable as dividends, and (iii) the taxable income of the
Partnership would be subject at the partnership level to the Federal
income tax imposed on corporations and, potentially, to state and local
corporate income and franchise taxes.

The Partnership will not seek a ruling from the IRS on the question
of its classification for Federal income tax purposes as a partnership but
rather will rely on an opinion of Tax Counsel as described below. The
opinion of Tax Counsel will not be binding upon the IRS.

Qualification of the Partnership as a Partnership

At the Closing of the offering of Units, Tax Counsel will deliver its
opinion that, under the present provisions of the Code, Regulations,
published rulings of the IRS and court decisions, all of which are subject
to change, assuming the activities of the Partnership are conducted as
described herein and in compliance with the provisions of the Partnership
Agreement, and based on certain representations of the General Partner,
for Federal income tax purposes, the Partnership will be treated as a
partnership.

Tax Counsel's opinion as to the partnership status of the Partnership
is based in part upon Section 301.7701-2 of the current Regulations which
provides that an organization that qualifies as a limited partnership
under the applicable state law will be classified as a partnership for
Federal income tax purposes unless it has more corporate characteristics
than noncorporate characteristics. The Regulations set forth four
principal characteristics of a corporation that must be considered for
this purpose: (i) centralized management, (ii) continuity of life, (iii)
free transferability of interests and (iv) limited liability. In Tax
Counsel's opinion, based upon the assumptions and representations of the
General Partner, the Partnership will not have more than two of the
foregoing corporate characteristics, and therefore, will be treated as a
partnership for Federal income tax purposes rather than an association
taxable as a corporation.

No assurance can be given that partnership status will not be lost as
a result of future changes in the applicable law or Regulations (which
changes might be applied retroactively) or due to changes in the manner in
which the Partnership in fact is operated. As more fully described below,
loss of partnership status and treatment of the
Partnership as an "association" taxable as a corporation
would have a material adverse effect of the tax treatment of the
Partnership, the Partners and on the value of the Units.

In addition to the foregoing considerations concerning classification
of the Partnership as a partnership, the General Partner has instituted
measures which are intended to reduce the risk of the Partnership being
treated as a PTP or an association taxable as a corporation for Federal
income tax purposes. Specifically, the General Partner will represent, at
the time of Closing, that it will take such actions and implement such
procedures as are necessary to enable the Partnership to comply with one
of the safe harbors enumerated in the Final PTP Regulations. In addition,
the General Partner will not recognize any transfer of Units if, in the
opinion of the Partnership's tax counsel, the manner of such transfer
could cause the Partnership to be classified as an association taxable as
a corporation for Federal income tax purposes or cause it to be a PTP.
Accordingly, at the Closing of the offering of Units, Tax Counsel will
deliver their opinion that the Partnership will not be a PTP within the
meaning of Section 7704(b) of the Code.

If for any reason the Partnership were treated as an "association"
taxable as a corporation, capital gains and losses and other income and
deductions of the Partnership would not be passed through to the Limited
Partners, and the Limited Partners would be treated as shareholders for
tax purposes. Any distributions by the Partnership to each Limited
Partner would be taxable to that Limited Partner as a dividend, to the
extent of the Partnership's current and accumulated earnings and profits,
and treated as gain from the sale of a Partnership interest to the extent
it exceeded both the current and accumulated earnings and profits of the
Partnership and the Limited Partner's tax basis for his or her interest.
_____________________

The remainder of the discussion under "Tax Aspects of Investment in
the Partnership", including observations as to the tax results of the
normal operation of the Partnership and of such events as the
Partnership's sale of an interest in portfolio companies or a Partner's
sale of an interest in the Partnership, is based on the assumption that
the Partnership will be classified as a partnership for Federal income tax
purposes. In general, this discussion is limited to the Federal income
tax aspects of investment in the Partnership, although reference is made
to other tax considerations. See "State and Local Taxes".

General Principles of Partnership Taxation

Partners, Not Partnership, Subject to Tax

As discussed above, the Partnership, if recognized as a partnership
for Federal income tax purposes, will not itself be liable for any Federal
income tax. Although the Partnership must annually file a U.S. Partnership
Return of Income, Form 1065, that return is merely an information return.
Instead, the Partnership will report to each Partner such Partner's
distributive share (generally, as determined under the Partnership
Agreement, as discussed under "Allocations and Distributions" below, and
reported on Schedule K-1 of Form 1065) of income, gain, loss, deduction,
credit and items of tax preference. Each Partner will then report on his
or her own Federal income tax return, much as if the Partner were directly
engaged in the investment activities of the Partnership, such Partner's
share of those items for the Partnership tax year that ends with or within
the Partner's tax year.

A Partner's share of items of Partnership income are included
directly in the computations of the Partner's adjusted gross income and
taxable income. The Partner's share of any Partnership deductions or
losses may, subject to certain exceptions discussed below (see "Basis of
Partnership Interest", "`At Risk' Limitation on Deducting Losses",
"Passive Activity Loss Limitation", " Deductibility of Operating Expenses"
and "Limitations on the Deductibility of Interest"), offset the Partner's
allocable share of Partnership income and, if sufficient in amount, a
Partner's income from other sources.

As a general rule, any cash distributions or constructive
distributions (e.g., a decrease in the Partner's share of Partnership
liabilities) by the Partnership will be taxable to a Partner only to the
extent that such distributions exceed the tax basis of the recipient
Partner in the year of receipt or are received in exchange for the
recipient Partner's interest in "unrealized receivables" or substantially
appreciated "inventory items" under Section 751 of the Code. See "Basis
of Partnership Interest" and "Transfer of a Partnership Interest" below.
Conversely, the mere absence of cash or constructive distributions will
not, of itself, limit or affect the recognition of taxable income by
Partners.

Basis of Partnership Interest

As a general matter, a partner's basis for his or her interest in a
partnership is significant in determining (i) taxable gain or loss to the
partner on disposition or liquidation of such partner's interest in the
partnership, (ii) the extent to which partnership expenses or losses are
deductible by the partner, and (iii) the extent to which partnership
distributions represent taxable income to the partner. In this respect, a
partner's basis for his or her partnership interest represents a measure
of the partner's "investment" in the partnership at any given time for
Federal income tax purposes.

A Limited Partner's basis for his or her interest in the Partnership
will initially be the amount of such Partner's cash contribution to the
capital of the Partnership, plus such Partner's share, as discussed below,
of any Partnership liabilities. Such basis will be increased by (i) the
Partner's distributive share of Partnership taxable income, including
capital gain, (ii) the Partner's distributive share of Partnership income
exempt from tax, if any, and (iii) any increase in the Partner's share of
Partnership liabilities. A Partner's basis will be decreased (but not
below zero) by (i) the Partner's distributive share of cash distributions,
(ii) the Partner's distributive share of Partnership losses and
deductions, (iii) any decrease in the Partner's share of Partnership
liabilities, and (iv) the Partner's distributive share of Partnership
expenditures that are neither deductible nor properly chargeable to his or
her capital account.

It is anticipated that the Partnership may incur borrowings to make
follow-on investments with respect to its direct equity investments. It
should also be anticipated that debt financing will be utilized by the
Sponsored Programs in which the Partnership may acquire interests. Such
borrowings will usually be nonrecourse liabilities by their terms secured
solely by the assets of the Partnership or the Sponsored Program and for
which no Partner will have any personal liability. Each Limited Partner
will be permitted to include his or her allocable share (as determined
under Code Section 752) of any such nonrecourse liabilities in the basis
of his or her Partnership interest, but only to the extent that the amount
of such liabilities does not exceed the fair market value of the property
securing such liabilities. However, even though a Limited Partner's
allocable share of Partnership nonrecourse borrowings will be includable
in the tax basis of his or her Partnership interest, such borrowings will
not increase the amount the Limited Partner is considered "at risk" for
purpose of the deductibility of Partnership losses. See "`At Risk'
Limitation on Deducting Losses".

If recognition of a Partner's distributive share of Partnership
losses would reduce the tax basis of the Partner's interest in the
Partnership below zero, the recognition of such losses is deferred until
such time as the recognition of such losses would not reduce the Partner's
basis below zero. To the extent that Partnership cash distributions, or
any decrease in a Partner's share of the nonrecourse liabilities of the
Partnership (which is considered a constructive cash distribution to the
Partners), would reduce a Partner's basis below zero, such distributions
constitute taxable income to the recipient Partner. If the Partner is not
a "dealer" in securities, the distribution will normally represent a
capital gain and, if the Partnership interest has been held for longer
than the capital gains holding period (currently one year), the
distribution will constitute a long-term capital gain.

`At Risk' Limitation on Deducting Losses

Under Section 465 of the Code, individuals and certain closely-held
corporations are entitled to deduct their distributive shares of
partnership losses attributable to partnership activities only to the
extent of the amount they are considered "at risk" with respect to their
partnership interests at the end of the taxable year.

A Limited Partner in the Partnership will initially be considered "at
risk" with respect to his or her Partnership interest to the extent of
the cash contributed to the Partnership for Units, provided such Units are
not financed with borrowings from persons with certain interests (other
than as a creditor) in the Partnership activities or with borrowings
solely secured by Units. While a Limited Partner's tax basis in his or
her Units will be increased by his or her allocable share of any
nonrecourse liabilities of the Partnership (see "Basis in Partnership
Interest" above), such liabilities are not includable in the Partner's
amount "at risk". However, the Code provides an exception to this general
rule that permits certain qualified nonrecourse financing secured by real
property to be included in an investor's amount "at risk". This exception
may have relevance if the Partnership indirectly invests in real estate
through a Sponsored Program.

The amount a Limited Partner is "at risk" in the Partnership will be
increased by, among other things, his or her share of Partnership ordinary
income and capital gain. A Limited Partner's amount "at risk" will be
reduced by (i) all Partnership distributions to, or on behalf of, the
Partner and (ii) his or her share of Partnership deductions and losses.
The Partner's share of Partnership deductions and losses over Partnership
income not allowable in any year as a result of the "at risk" limitation
is carried forward until such time, if ever, as it is allowable under the
"at risk" rules.

If, at the end of any taxable year, the amount a Partner is "at risk"
is less than zero (for example, as a result of a cash distribution from
the Partnership) the deficit amount "at risk" is "recaptured"; that is,
the taxpayer must include in gross income an amount equal to the negative
amount "at risk". However, the amount of gross income so recognized to
offset the deficit amount "at risk" may be treated as a deduction and
carried forward as a suspended loss until such time, if ever, as it is
allowable.

The timing, duration and extent of any deferral or "recapture" of
losses as a consequence of the "at risk" limitation will depend upon the
nature of the Partnership's investments, the amount of Partnership revenue
and expenses and the amount and the terms of Partnership leverage. In any
event, prospective investors should consider the effect of the "at risk"
rules in arranging any financing for a purchase of Units.

Passive Activity Loss Limitation

Under the passive activity loss provisions of Section 469 of the
Code, losses and credits from trade or business activities in which a
taxpayer does not materially participate (i.e., "passive activities") will
only be allowed against income from such activities. Therefore, such
losses cannot be used to offset salary or other earned income, active
business income or "portfolio income" (such as dividends, interest,
royalties and nonbusiness capital gains) of the taxpayer. Losses and
credits suspended under this limitation can be carried forward
indefinitely and can be used in later years against income from passive
activities. Moreover, a taxable disposition by a taxpayer of the entire
interest in a passive activity will cause the recognition of any suspended
losses attributable to that activity. The passive activity loss
limitation applies to individuals, estates, trusts, and most personal
service corporations. A modified form of the rule also applies to
closely-held corporations.

The primary activity of the Partnership will be the investment,
holding and eventual disposition of privately-offered securities acquired
in connection with direct equity investments. Prior to the commitment of
Partnership funds to such investments, and pending distributions of
available cash to the Partners, the Partnership will temporarily invest
funds in various types of marketable securities. Any ordinary income
(such as interest or dividend income) derived from either of such
investment activities, or capital gains realized upon disposition of such
investments, will be treated as portfolio income. Portfolio income is not
considered passive income and, thus, cannot be offset by a Partner's
passive losses from other activities of the Partnership (such as
investment in certain Sponsored Programs) or other sources. Accordingly, a
prospective Limited Partner should not invest in the Partnership with the
expectation of using his or her proportionate share of portfolio income
and capital gain from the Partnership to offset losses from his or her
interest in passive activities. On the other hand, a Limited Partner's
proportionate share of any capital loss from portfolio investments or any
ordinary expense (including any interest expense) allocable to portfolio
investments, although they may be subject to the limitations imposed on
deductibility of (i) capital losses (ii) itemized investment expenses
incurred in the production of portfolio income (see "Deductibility of
Operating Expenses") or (iii) investment interest (see "Other Tax
Considerations--Limitations on the Deductibility of Interest"), will not
be subject to the passive loss limitation rules described above.

Allocations and Distributions

Under Section 704 of the Code, a partner's distributive share of the
income, gain, loss and deduction of a partnership is determined in
accordance with the partnership agreement unless the allocation of such
items does not have a "substantial economic effect" independent of tax
consequences. The IRS has issued final Regulations relating to a
partner's distributive share of tax items and the "substantial economic
effect" test. Under such Regulations, an allocation of partnership
income, gain, loss or deduction (or item thereof) to a partner will be
considered to have "substantial economic effect" if it is determined that
(i) the allocation has "economic effect" and (ii) that economic effect is
"substantial". An allocation of tax items to partners will be considered
to have "economic effect" if (a) the partnership maintains capital
accounts in accordance with specific rules set forth in such Regulations
and such allocation is reflected through an appropriate increase or
decrease in the partners' capital accounts, (b)
liquidating distributions (including liquidations of
a partner's interest in the partnership) are required to be made in
accordance with the partners' respective capital account balances, and (c)
any partner with a deficit in his or her capital account following the
distribution of liquidation proceeds would be unconditionally required to
restore the amount of such deficit to the partnership. If the first two
of these requirements are met, but the partner to whom an allocation is
made is not obligated to restore the full amount of any deficit balance in
his capital account, the allocation still will be considered to have
"economic effect" to the extent the allocation does not cause or increase
a deficit balance in the partner's capital account (determined after
reducing that account for certain "expected" adjustments, allocations, and
distributions specified by the Regulations) if the partnership agreement
contains a "qualified income offset" provision.

The Partnership Agreement provides that a capital account is to be
maintained for each Partner, that the capital accounts are to be
maintained in accordance with applicable tax accounting principles set
forth in the Regulations, and that all allocations of Federal tax items to
a Partner are to be reflected by an appropriate increase or decrease in
the Partner's capital account. In addition, distributions on liquidation
of the Partnership (or of a Partner's interest) are to be made in
accordance with respective positive capital account balances. Although
the Partnership Agreement does not impose any obligation on the part of a
Limited Partner to restore any deficit in his or her capital account
balance following liquidation, the Partnership Agreement does contain a
"qualified income offset'' provision as defined in the Regulations.

In order for the "economic effect" of an allocation to be considered
"substantial", the Regulations require that the allocation must have a
"reasonable possibility" of "substantially" affecting the dollar amounts
to be received by the partners, independent of tax consequences. An
allocation is insubstantial if its after-tax consequences on at least one
partner, in present value, are enhanced and it is likely that the
allocation will not lessen such consequences for any partner. Also,
allocations are insubstantial if they just shift tax consequences within a
partnership's tax year or, if they will probably be offset by future
allocations.

Based on the Regulations, Tax Counsel is of the opinion that the tax
allocations of income, gain, loss, deduction and credit under the
Partnership Agreement for Federal income tax purposes will be considered
to have "substantial economic effect" (and thus should be respected by the
IRS) to the extent such allocations do not result in any Limited Partner
having a deficit in his or her capital account balance. Tax Counsel has
advised the Partnership that allocations to Limited Partners that actually
result in deficit capital account balances likely would not be recognized
for Federal income tax purposes in the absence of an obligation to restore
deficit capital account balances. It is extremely unlikely, however, that
the Partnership's operations will result in any Limited Partner having a
deficit balance in his or her capital account.

If any allocation fails to satisfy the "substantial economic effect"
requirement, the allocated items would be allocated among the Partners
based on their respective "interests in the Partnership", determined on
the basis of all of the relevant facts and circumstances. Such a
determination might result in the income, gains, losses, deductions or
credits allocated under the Partnership Agreement being reallocated among
the Limited Partners and the General Partner. Such a reallocation,
however, would not alter the distribution of cash flow under the
Partnership Agreement, resulting in a possible mismatching of taxable
income and cash distributed to the Partners.

Retroactive allocations of income, gain, deductions, losses and
credits are not permitted under the Federal income tax laws. Accordingly,
under the Partnership Agreement, items of income, gain, deduction, loss or
credit will be allocable to Partners only for the quarterly periods of the
tax year in which they are members of the Partnership. When the
Partnership recognizes a transfer of an interest by a Limited Partner the
distributive share of any Partnership income, gain, loss, deduction or
credit for the taxable year will be allocated between the transferor
Partner and the transferee based upon the quarterly periods during the
taxable year that each owned such Partnership interest.

Deductibility of Operating Expenses

The Code imposes limitations on individuals with respect to the
deductibility of investment expenses by allowing a deduction for itemized
expenses incurred for the production of income only to the extent such
expenses, combined with certain other itemized deductions, in the
aggregate exceed 2% of adjusted gross income. Accordingly, to the extent
certain Partnership expenses are not deductible as trade or business
expenses, but rather as investment expenses, the Limited Partners might
not be able to fully claim their proportionate shares
of these expenses as an itemized deduction on their individual
income tax returns. To the extent certain Partnership expenses
are nondeductible under this limitation, Limited Partners may have to
recognize taxable income in an amount greater than cash available from the
Partnership for distribution to the Partners. However, the effect of this
limitation should not be significant because the General Partner is
responsible for paying Partnership investment expenses in excess of the
amount of 0.5% of the aggregate capital contributions of the Limited
Partners (1%, if such capital contributions are less than $60 million)
(which payment will be treated as an additional capital contribution of
the General Partner to be reflected in its capital account). Moreover,
the General Partner may attempt to minimize the effect of the investment
expense limitation provision by investing funds not invested in equity
investments in short-term tax-exempt securities.

Organization and Syndication Expenses

For Federal income tax purposes, a partnership may not deduct
organizational or syndication expenses in the year in which they are paid
or incurred. Rather, Section 709(b) of the Code provides that a
partnership must amortize amounts paid or incurred to organize the
partnership over a period of not less than 60 months. Under Regulation
1.709-2 examples of organizational expenses of a partnership include
"legal fees for services incident to the organization of the partnership,
such as negotiation and preparation of a partnership agreement; accounting
fees for establishing a partnership accounting system; and necessary
filing fees." However, the expenses of syndicating a partnership, i.e.,
the expenses to promote the sale of, or to sell, interests in the
partnership (such as most of the printing costs and professional fees
incurred in connection with preparation and registration of this
Prospectus), are non-amortizable capital assets of the partnership.

The Partnership will pay expenses in connection with its organization
and the sale of Units in an amount up to 1% of the proceeds of this
offering. The General Partner will bear the remainder of any such costs.
The General Partner will allocate expenses between organizational
expenses, which can be amortized, and syndication expenses, which cannot
be amortized or deducted, but must be capitalized. There can be no
assurance, however, that the IRS would not challenge such allocation,
attributing a greater amount of such expenditures to nondeductible
syndication costs.

Transfer of a Partnership Interest

The amount of gain recognized on the sale by a Limited Partner of his
or her interest in the Partnership generally will be the excess of the
sales price received over his or her adjusted basis in such interest. The
sale by a Limited Partner of an interest held by him or her for more than
one year generally will result in his or her recognizing long-term capital
gain or loss (provided such Limited Partner is not deemed to be a "dealer"
in such property). However, to the extent the proceeds of sale are
attributable to such Limited Partner's allocable share of Partnership
"unrealized receivables" or "substantially appreciated inventory items",
as defined in Section 751 of the Code, any gain will be treated as
ordinary income. It is not anticipated that the Partnership will have
significant amounts, if any, of "unrealized receivables" or "substantially
appreciated inventory items". The sale by a Limited Partner of an
interest held by him or her for less than one year generally will result
in his or her recognizing short-term capital gain or loss. With respect
to the allocation of tax items between the transferor and the transferee
in the year in which an interest is transferred, see "Allocations and
Distributions" above.

It is not expected that a transfer of an interest in the Partnership
by gift or upon death will result in recognition of gain or loss. In
general, the recipient of an interest in the Partnership by gift will have
a tax basis in that interest equal to the transferor's basis increased by
the amount of any gift tax paid on the transfer. However, if the fair
market value of the interest at the time of the gift is less than this
amount, Section 1015 of the Code may reduce the amount of loss the
recipient can recognize on a subsequent sale. The recipient of such an
interest resulting from a transfer upon death generally would have a tax
basis in such interest equal to the fair market value of the interest at
the date of death or, where applicable, the estate tax alternate valuation
date.

No Election under Section 754

Section 754 of the Code permits a partnership to make an election to
adjust the basis of the partnership's assets in the event of a
distribution of partnership property to a partner or transfer of a
partnership interest. Depending upon particular facts at the time of any
such event, such an election could increase the value of a partnership
interest to the transferee (because the election would increase the basis
of the partnership's assets for the purpose of computing the transferee's
allocable share of partnership tax items) or decrease the value of a
partnership interest to the transferee (because the election would
decrease the basis of the partnership's assets for that purpose). Because
an election under Section 754, once made, cannot be revoked without
obtaining the consent of the IRS, because such an election may not
necessarily be advantageous to all the Limited Partners, and because of
the accounting complexities that can result from having such an election
in effect, it is unlikely that the General Partner would make such an
election on behalf of the Partnership. The General Partner will advise
the Limited Partners prior to any election under Section 754.

Termination of the Partnership for Tax Purposes

Because of the absence of an established market for the Units, and
because investments in the Partnership most likely will be made primarily
with a view toward realizing long-term capital appreciation, it is not
anticipated that 50% or more of the capital and profits interests in the
Partnership will be sold or exchanged within any single 12-month period.
However, if 50% or more of such interest were sold or exchanged within any
single 12-month period, the Partnership would be deemed terminated for
Federal income tax purposes. Among other tax consequences, the effect to a
Limited Partner of such a deemed termination would be that he or she would
recognize gain to the extent that his or her allocable share of the
Partnership's cash on the date of termination exceeded the adjusted tax
basis of his or her interest in the Partnership.

Liquidation of the Partnership

In the event of the liquidation of the Partnership, the Limited
Partner will recognize gain (i) to the extent that the cash received in
the liquidation exceeds the tax basis for such Partner's interest in the
Partnership, adjusted by such Partner's share of income, gain or loss
arising from normal operations or the sale of any property held by the
Partnership in the year of dissolution or (ii) if the cash so received
does not exceed such Partner's basis, as so adjusted, to the extent such
cash is treated as received in exchange for such Partner's interest in
"unrealized receivables" and substantially appreciated "inventory items".
Such gain would be capital gain, except to the extent treated as ordinary
income because attributable to "unrealized receivables" and substantially
appreciated "inventory items" held by the Partnership.

Capital loss will be recognized in the event only cash, "unrealized
receivables" and "inventory items" are distributed, and only to the extent
the adjusted basis of a Limited Partner's interest in the Partnership
exceeds the sum of money distributed and such Limited Partner's acquired
basis for "unrealized receivables" and substantially appreciated
"inventory items".

Income, gain, losses, deductions, credits and items of tax preference
of the Partnership realized prior to the liquidation of the Partnership
will be allocated to the Limited Partners in accordance with the
Partnership Agreement.

Tax Returns and Information; Audits

The Partnership has adopted the calendar year as its tax year. The
Code requires entities, such as the Partnership, in which interests are
publicly offered for sale pursuant to a registration statement under the
Securities Act of 1933, to adopt an accrual method of accounting for
Federal income tax purposes. Within 75 days or as soon as practicable,
after the close of the taxable year, the Partnership will furnish each
Limited Partner (and the assignees of the Partnership interest of any
Partner) copies of (i) the Partnership Schedule K-1 indicating the
Partner's distributive share of tax items and (ii) such additional
information as is reasonably necessary to permit the Limited Partners to
prepare their own Federal, state and local tax returns. However, it is
expected that annual tax information from investment funds in which the
Partnership invests may not be received in sufficient time to permit the
Partnership to incorporate such information into its annual tax
information and distribute such information to Limited Partners prior to
April 15 of each year. As a result, Limited Partners may be required to
obtain extensions for filing Federal, state and local income tax
returns each year. Limited Partners anticipating tax refunds in respect
of such year will not be able to file their tax return requesting such
refund until receipt of the annual tax information from the Partnership.
To the extent practicable, the Partnership anticipates that it will
provide estimated annual tax information in a timely manner in order to
assist Limited Partners in estimating their tax liabilities. The
Partnership's ability to make such estimates will be dependent upon its
ability to obtain estimated annual tax information from the investment
funds.

The Code provides for a single unified audit of partnerships at the
partnership level rather than separate audits of individual partners.
Under this procedure, a "Tax Matters Partner" must be appointed to
represent the partnership in connection with IRS audits and other
administrative and judicial proceedings. (The General Partner will act as
Tax Matters Partner of the Partnership.) The IRS must send notice of a
commencement of a partnership level audit to each partner with a 1% or
more interest in the partnership and to the Tax Matters Partner. All
partners may participate in administrative proceedings relating to the
determination of partnership items; however, the Tax Matters Partner has
the primary responsibility for representing the partnership in an audit
and for contesting any adverse determinations. A settlement agreement
between the IRS and one or more partners binds all parties to the
agreement, and all other partners have the right to enter into consistent
agreements. The final result of the partnership proceeding will be
binding on all partners (other than partners agreeing to or being bound by
a settlement with the IRS), and any resulting deficiency may be assessed
and collected by notice and demand at any time after the determination
becomes final.

The Code also provides that (i) a partner must report a partnership
item consistent with its treatment on the partnership return, unless the
partner files a statement which identifies the inconsistency, and (ii) the
statute of limitations for assessment of tax with respect to partnership
items (or affected items) under the partnership level proceedings will
generally be three years from the date of filing of the partnership return
or the last date without extension for filing such return, whichever date
is later. Notwithstanding the partnership level audit procedures, the IRS
may assess a deficiency against any partner where treatment of an item in
his or her individual return is inconsistent with the treatment on the
partnership return.

Any costs which the Partnership or the General Partner may incur with
respect to a "unified" partnership audit and related administrative or
judicial proceedings would reduce the cash otherwise available for
distribution to the Partners or otherwise be borne by the Partners.

The "unified" partnership audit procedures may increase the
likelihood of IRS audits for organizations such as the Partnership.

Other Tax Considerations

Foreign Source Income, Foreign Tax Credits and Investments in Passive
Foreign Investment Companies

Dividends and interest received by the Partnership from foreign
investments generally will be considered foreign source income and may be
subject to foreign withholding taxes. Each Limited Partner may be
entitled to credit his or her respective portion of any such taxes against
his or her U.S. federal income taxes or to deduct such taxes from his or
her U.S. taxable income. The amount of foreign withholding taxes that may
be credited against a Limited Partner's U.S. federal income tax liability
in any particular year will be limited, as a general rule, to an amount
equal to the Limited Partner's U.S. federal income tax rate multiplied by
such Limited Partner's foreign source taxable income. This limitation
must be applied separately to certain categories of foreign source income,
one category of which is foreign source "passive income". For this
purpose, foreign source "passive income" includes dividends and interest.
As a consequence, although certain Limited Partners may be able to carry
back or carry forward their unused foreign tax credits, certain Limited
Partners may not be able to claim a foreign tax credit for the full amount
of their proportionate share of foreign taxes paid by the Partnership.
Any gain or loss recognized on the sale or exchange of a foreign
investment generally will be considered United States source income.
Accordingly, if a foreign jurisdiction were to impose a tax on such gain,
Limited Partners may not be able to derive effective U.S. foreign tax
benefits in respect of such tax.

The Partnership may invest directly or indirectly in equity interests
of an investment company organized under foreign law that is treated as a
passive foreign investment company ("PFIC"). Generally, income from a
PFIC in excess of a certain average amount and any gain on sale or
exchange of an interest in a PFIC is subject to an additional level of tax
calculated in a manner that could substantially reduce, eliminate, or even
exceed such income or gain. Such income or gain earned by the Partnership is
treated as earned by the Limited Partners and a Limited Partner that sells
or exchanges an interest in the Partnership is deemed to have sold or
exchanged his or her pro rata share of any PFIC stock held directly or
indirectly by the Partnership. An election (the "QEF Election") can be
made by a U.S. shareholder of a PFIC that would eliminate such additional
tax but would require a current inclusion by such shareholder of its share
of the earnings of the PFIC, whether or not such earnings are distributed
by the PFIC. The QEF Election is permitted only if the PFIC makes certain
information available to shareholders. It is uncertain whether any PFIC
in which the Partnership acquires an interest will provide such
information. It should be noted, however, that only the first U.S. person
that owns stock in a PFIC may make the QEF election. Accordingly, Limited
Partners cannot make such election individually with respect to shares
owned by the Partnership, and if the Partnership owns its interest in a
PFIC through another U.S. partnership, the election can only be made by
that other partnership. Any such election by the first U.S. shareholder
would bind all direct and indirect partners of such partnership. To the
extent that the Partnership is eligible to make a QEF Election with
respect to a particular PFIC, the Partnership intends to make such an
election.

Limitations on the Deductibility of Interest

Section 163(d) of the Code substantially limits the deductibility of
interest on funds borrowed to purchase or hold property held for
investment. "Investment interest" generally is deductible by a
noncorporate taxpayer only to the extent of "net investment income". With
certain limitations, excess investment interest not allowed as a deduction
in one taxable year may be carried forward and deducted in subsequent
taxable years to the extent that there is sufficient net investment income
in such subsequent taxable years. The deductibility of interest also
affects an investor's potential minimum tax liability. See "Alternative
Minimum Tax".

Investment interest is broadly defined as interest which is paid or
accrued on indebtedness incurred or continued to purchase or carry
property held for investment including generally the purchase of Units.
Interest taken into account in determining a taxpayers passive losses,
including generally any interest incurred or continued by a taxpayer to
purchase or carry an interest in a partnership to which the passive loss
rules apply, is not considered investment interest for purposes of the
investment interest limitations. See "General Principles of Partnership

Taxation--Basis of Partnership Interest; Passive Activity Loss
Limitation".

In addition to the "investment interest" limitation described above,
Section 265 (a) (2) of the Code disallows certain deductions for interest
paid by a taxpayer or a related person on indebtedness incurred or
continued to purchase or carry tax-exempt obligations. A Limited Partner
for whom tax-exempt obligations constitute a significant portion of such
Limited Partners net worth should consider the impact of Section 265 (a)
(2) of the Code on his ability to deduct his allocable share of the
Partnership's interest expense.

Alternative Minimum Tax

The alternative minimum tax, which applies to individuals, is
determined by: (i) adding "tax preference" items to the individual's
adjusted gross income (as reduced by certain itemized deductions and as
otherwise adjusted pursuant to Sections 56 and 58 of the Code), (ii)
subtracting therefrom the statutory exemption ($33,750 for single
taxpayers, $45,000 for married taxpayers filing joint returns; but such
exemptions are phased out for alternative minimum taxable incomes above
$112,500 for single taxpayers and $150,000 for joint returns), and (iii)
computing a tax at the rate of 26% on the first $175,000 of alternative
minimum taxable income in excess of the exemption amount, and 28% on
alternative minimum taxable income that is more than $175,000 above the
exemption amount. For married individuals filing separate returns, the
28% rate applies to alternative minimum taxable income that is more than
$87,500 above the applicable exemption amount. If the alternative tax so
computed exceeds the individual's regular tax, then he or she must pay an
additional tax equal to the excess.

Each Limited Partner must include his or her allocable share of the
Partnership's tax preference items in the computation of the applicable
minimum tax. It is anticipated that the Partnership will not generate any
significant items of tax preference for Limited Partners. However, for
investors with substantial tax preference items from sources other than
the Partnership, the imposition of the alternative minimum tax could
reduce the after-tax economic benefits of investment in the Partnership.
Prospective investors are urged to consult their tax advisors with regard
to the specific effect of the new alternative minimum tax on an investment
in the Partnership.

Fringe Benefits

Unless excluded under Section 132 of the Code or some other statutory
provision, employee "fringe benefits" are includable in gross income.
Under the Partnership Agreement, the General Partner will bear various
expenses in connection with the organization of the Partnership (to the
extent such expenses exceed 0.5%, or 1% if proceeds from the offering are
less than $60 million) and operation of the Partnership (to the extent
such expenses exceed 0.5% of the proceeds of this offering, or 1% if such
proceeds are less than $60 million) and will bear any sales or brokerage
commissions charged in connection with the Partnerships investments.
Payment by the General Partner of such expenses in excess of such amounts
of the Limited Partners' capital contributions will be treated as an
additional capital contribution of the General Partner under the
Partnership Agreement and the General Partner's capital account will be
credited to reflect such additional contribution.

Since Units are being solely offered to ML & Co. and its employees
and non-employee directors, it is possible that the IRS would view the
General Partner's payment of such expenses as an indirect method of
compensating the employee-Limited Partner (i.e., a fringe benefit). If
the IRS were successful in such characterization, a Limited Partner's pro
rata share of such expenses (equal to the fair market value of the
underlying goods and services rendered the Limited Partner) might be
includable in the Limited Partner's gross income as additional
compensation. The Limited Partner may not, however, be allocated a
Partnership deduction for such fees and expenses in an amount
corresponding to such income inclusion because some of such fees and
expenses would be attributable to non-deductible syndication expenses, or
investment expenses subject to the new limitation imposed on the
deductibility of itemized miscellaneous expenses, or treated as part of
the capitalized cost of the Partnerships portfolio assets. See "General
Principles of Partnership Taxation--Deductibility of Operating Expenses;
Organization and Syndication Expenses" above.

State and Local Taxes

In addition to the Federal income tax consequences described above,
prospective Limited Partners should consider potential state and local tax
consequences of an investment in the Partnership. State and local laws
often differ from Federal income tax law with respect to the treatment of
specific items of income, gain, loss, deductions and credit. A Limited
Partner's distributive share of the taxable income or loss of the
Partnership generally will be required to be included in determining his
or her reportable income for state and local tax purposes in the
jurisdiction in which he or she is a resident. In addition, a number of
other states in which the Partnership may do business or own properties
may impose a tax on non-resident Limited Partners determined with
reference to their allocable shares of Partnership income derived by the
Partnership from such state. Partners may be subject to tax return filing
obligations and income, franchise, estate, inheritance or other taxes in
other jurisdictions in which the Partnership does business, as well as in
their own states or localities of residence or domicile. Also, any tax
losses derived through the Partnership from operations in such states may
be available to offset only income from other sources within the same
state. To the extent that a non-resident Limited Partner pays tax to a
state by virtue of Partnership operations within that state, he or she may
be entitled to a deduction or credit against tax owed to his or her state
of residence with respect to the same income. In addition, estate or
inheritance taxes might be payable in a jurisdiction in which the
Partnership owns property upon the death of a Limited Partner.
Prospective Limited Partners are urged to consult their tax advisors with
respect to possible state and local income and death tax consequences of
an investment in the Partnership.

Tax Considerations for Foreign Investors

The tax treatment applicable to a non-resident alien who invests in
the Partnership is complex and will vary depending upon the particular
circumstances of each Limited Partner. Each foreign investor is urged to
consult with his or her tax counsel concerning the U.S. Federal, state and
local and foreign tax treatment of his or her investment in the
Partnership. In general, the U.S. tax treatment will vary depending upon
whether the Partnership is deemed to be engaged in a U.S. trade or
business. At present, it is uncertain whether, or at which point in time,
the Partnership will be so engaged.

If the Partnership is not engaged in a U.S. trade or business in the
tax year, the foreign Limited Partner would, in general, be subject to a
30% (or lower treaty rate) withholding tax with respect to his or her
share of the Partnership's U.S. source interest, dividends and most other
portfolio or investment income for such year, but would be exempt from U.S.
taxation on his or her share of capital gains realized by the Partnership if
he or she is not present in the United States for 183 days or more in the
calendar year in which the Partnership's year ends.

If the Partnership is engaged in a U.S. trade or business in the tax
year, the foreign Limited Partner would be required to file a U.S. Federal
income tax return and would be taxed in the United States at graduated
Federal income rates upon that portion of his or her net income from the
Partnership for such year which is "effectively connected" with such
business. Moreover, under the Code, the Partnership would be required to
withhold an amount equal to the U.S. tax on the foreign partners
distributive share (whether or not actually distributed) of income which
is attributable to "effectively connected income" with the Partnerships
conduct of a trade or business in the United States. Such withholding tax
would be required to be made by the Partnership on a quarterly basis. For
tax treaty purposes, the foreign Limited Partner would generally be deemed
to have a "permanent establishment" in the United States in any year in
which the Partnership is engaged in a U.S. trade or business.

A non-resident alien's interest in the Partnership would be subject
to U.S. Federal estate taxation if the investor dies while owning such
interest.

The above general guidelines are subject to modification by a tax
treaty. Moreover, the internal tax rules of the foreign investor's home
country must also be considered in determining the advisability of an
investment in the Partnership.

Backup Withholding

When a Unit is sold through a broker, the proceeds of the sale may
constitute a "reportable payment" under the Federal income tax rules
regarding backup withholding. Backup withholding, however, would apply
only if the Limited Partner (i) failed to furnish and certify his or her
Social Security number or other taxpayer identification number to the
person subject to the backup withholding requirement (e.g., the broker) or
(ii) furnished an incorrect Social Security number or taxpayer
identification number. If backup withholding were applicable to a Limited
Partner, the person subject to the backup withholding requirement would be
required to withhold 31% of each distribution to such Partner and to pay
such amount to the IRS on behalf of such Partner.

Possible Changes in Law

The rules dealing with Federal income taxation are under continual
review by Congress and the IRS, resulting in frequent revisions of the
Federal tax laws and regulations promulgated thereunder and revised
interpretations of established concepts. No assurance can be given that,
during the term of the Partnership, applicable Federal income tax laws or
the interpretations thereof will not be changed in a manner that would
have a material adverse effect on an investment in the Partnership.

Importance of Obtaining Professional Advice

The foregoing analysis is not intended as a substitute for careful
tax planning. The tax matters relating to the Partnership and the
transactions described herein are complex and are subject to varying
interpretations. Moreover, the effect of existing income tax laws and
possible changes in such laws will vary with the particular circumstances
of each investor. In addition, with the exception of those issues
specifically referred to as the subject of the opinion of Tax Counsel to
the Partnership, no opinion as to the tax consequences of an investment in
the Partnership has been obtained by the Partnership. Accordingly, as
previously stated, each prospective Limited Partner should consult with
and rely on his or her own advisors with respect to the possible tax
consequences of an investment in the Partnership.

SUMMARY OF THE PARTNERSHIP AGREEMENT

The form of the Amended and Restated Agreement of Limited Partnership
(the "Partnership Agreement") is included as Exhibit A to this Prospectus.
It is recommended that each prospective purchaser read it in its entirety.

Certain provisions of the Partnership Agreement have been described
elsewhere in this Prospectus. With regard to various transactions and
relationships of the Partnership with the General Partner and its
affiliates, see "Conflicts of Interest", with regard to the management of
the Partnership, see "The Partnership" and "The General Partner and Its
Affiliates", with regard to the transfer of Limited Partners' Units, see
"Transferability of Units", and with regard to reports to be made to the
Limited Partners, see "Reports".

The following briefly summarizes certain provisions of the
Partnership Agreement which are not described elsewhere in this
Prospectus. All statements made below and elsewhere in this Prospectus
relating to the Partnership Agreement are hereby qualified in their
entirety by reference to the Partnership Agreement. Capitalized terms
used in this summary have the meanings ascribed to them in the Partnership
Agreement.

Term

The Partnership shall continue in full force and effect until
December 31, 2037, or until dissolution prior thereto.

Partnership Capital

No Partner shall be entitled to interest on any Capital Contribution
to the Partnership or on such Partner's Capital Account. No Partner,
other than the Initial Limited Partner, has the right to withdraw, or to
receive any return of, his or her Capital Contribution. However, upon the
death of a Limited Partner, the legal representative of such Partner may
cause the interest of such Partner to be purchased as described under
"Transferability of Units". No Partner has the right to receive property
other than cash in return for his or her Capital Contribution.

Annual Appraisal

The Partnership Agreement provides that, beginning December 31, 1997
and each succeeding December 31 (the "Valuation Date"), the General
Partner will make an Appraisal or have an Appraisal made of all of the
assets of the Partnership as of such date. The Appraisal, which may be
made by independent third parties appointed by the General Partner, is to
be based on such methods relating to the valuation of the Partnership's
assets and liabilities as are deemed appropriate by the General Partner or
an independent third party. A copy of the Appraisal will be sent to the
Limited Partners within 120 days, or as soon as practicable, after the end
of the Partnership's fiscal year, which ends December 31. See "Reports"
for information as to the valuation procedures expected to be utilized
with respect to private equity investments.

Voting Rights

Under the Partnership Agreement, either the General Partner or 10% or
more in Interest of the Limited Partners may propose any act or other
matter to which the Consent of any Partner is required. Within 20 days of
the making of any such proposal, the General Partner must give all
Partners Notification of such proposal (including the text of any
amendment or document, a statement of its purposes and a favorable opinion
of counsel, pursuant to Section 10.1A of the Partnership Agreement). Any
matter requiring the Consent of any or all of the Limited Partners may be
considered at a meeting of the Partners held not less than 15 nor more
than 30 days after Notification to the Limited Partners of any proposal.
Any Consent required by the Partnership Agreement shall be deemed to have
been given only when the General Partner has actually received the written
Consents of the Partners to the doing of the act or to such matter for
which the Consent was solicited, or after the affirmative vote of the
Partners to the doing of such act or to such matter at a meeting called
to consider the same. Any Consent so given will be nullified if a written
nullification by a Limited Partner of his Consent is actually received by
the General Partner prior to the time such proposed act or such matter is
actually voted upon.

Among other matters subject to approval by the Limited Partners are
admission of a successor General Partner, Removal of the General Partner,
Sale of all or substantially all of the assets of the Partnership, certain
amendments to the Partnership Agreement, and dissolution of the
Partnership prior to January 1, 2003. However, as provided in detail in
Section 11.3 of the Partnership Agreement, unless, at the time of the
giving or withholding of Consent for certain actions by the Limited
Partners, counsel retained by the Partnership at such
time is of the opinion that the giving or withholding of Consent for such
action is permitted by the Delaware Revised Uniform Limited Partnership
Act, does not impair the liability of the Limited Partners and does not
adversely affect the tax status of the Partnership, certain voting rights
of the Limited Partners may be restricted.

In light of its anticipated significant holdings in the Partnership,
ML & Co. will agree to vote its Units in the same proportion as other
Limited Partners in respect of any matter submitted to the vote of Limited
Partners.

Liability of Partners to Third Parties

The General Partner will be generally liable for all obligations of
the Partnership.

The Partnership Agreement provides that no Limited Partner shall be
personally liable for the debts of the Partnership beyond the amount
committed by such Limited Partner to the capital of the Partnership and
such Limited Partner's share of the Partnership's assets and undistributed
profits. See "Risk and Other Important Factors--Possible Loss of Limited
Liability". In the event the Partnership is unable otherwise to meet its
obligations, the Limited Partners might, under applicable law, be
obligated under some circumstances to return distributions previously
received by them. See "Risk and Other Important Factors--Repayment of
Certain Distributions".

Dissolution

The Partnership shall be dissolved upon: the expiration of its term;
the Incapacity, Removal or withdrawal of the General Partner and failure
to designate a successor; the Sale or other disposition at one time of all
or substantially all of the assets of the Partnership; an election prior
to January 1, 2003 to dissolve by the General Partner with the Consent of
a Majority-in-Interest of the Limited Partners; the failure of the Limited
Partners to approve, by Consent of a Majority-in-Interest, the admission
of a successor General Partner to the General Partner pursuant to Section
6.1A of the Partnership Agreement; after January 1, 2003, the General
Partner's election to dissolve the Partnership; or the occurrence of any
other event causing dissolution of the Partnership under the laws of the
State of Delaware.

Amendment

Subject to the provisions of Section 10.1 thereof, the Partnership
Agreement may be amended by action of a Majority-in-Interest of the
Limited Partners. However, without the Consent of all Partners, Section
4.3C of the Partnership Agreement (relating to certain restrictions on the
General Partner's authority), Article Ten (relating to amendment of the
Partnership Agreement) and Section 11.3 (relating to certain limitations
on Limited Partners' voting rights) may not be amended. Also, without the
Consent of each Partner who may be adversely affected, the Partnership
Agreement may not be amended to (i) enlarge the obligation of any Partner
under the Partnership Agreement or convert a Limited Partner's Interest
into a General Partner's Interest; (ii) modify the limited liability of a
Limited Partner; or (iii) alter the provisions of the Partnership
Agreement relating to distributions of Distributable Cash and allocations
of Profits and Losses. In addition, Sections 6.1 and 6.2 (relating to
successors to the General Partner) may not be amended without the Consent
of the General Partner. As a result of the limitations on Limited
Partners' voting rights described above under "Voting Rights", there may
be situations when Limited Partners are not permitted to vote on
amendments of the Partnership Agreement. However, in accordance with
Section 10.1 of the Partnership Agreement, under certain circumstances the
General Partner, without the Consent of a Majority-in-Interest of the
Limited Partners, may amend the Partnership Agreement if, in its opinion,
such amendment does not have a material adverse effect on the Limited
Partners or the Partnership.

Elections

All elections required or permitted to be made by the Partnership
under the Code may be made by the General Partner in such manner as it
deems most advantageous to individual taxpayers who are (i) married and
filing joint returns, (ii) not "dealers" for Federal income tax purposes,
and (iii) in the highest marginal Federal income tax bracket.

Appointment of General Partner as Attorney-in-Fact

Each Limited Partner irrevocably constitutes and appoints the General
Partner such Limited Partner's true and lawful attorney-in-fact, with full
power and authority in such Limited Partner's name, place and stead to
make, execute, acknowledge and file such documents, instruments and
conveyances as may be necessary or appropriate to carry out the provisions
of the Partnership Agreement.

Principal Office of the Partnership

The principal business office of the Partnership shall be at South
Tower, World Financial Center, 225 Liberty Street, New York, New York
10080-6123, unless changed by the General Partner. The business of the
Partnership may also be conducted at such additional places as the General
Partner may determine.

Applicable Law

The Partnership Agreement will be construed and enforced in
accordance with the laws of the State of Delaware.

OFFERING AND SALE OF UNITS

Offering of Units

MLPF&S has entered into an Agency Agreement with the Partnership and
the General Partner pursuant to which MLPF&S has agreed to act as selling
agent for the Partnership and the General Partner to assist in the sale of
the Units to Qualified Investors on a "best efforts" basis. MLPF&S and its
affiliates will not receive, directly or indirectly, any payments or
compensation in connection with the offering and sale of Units.

The Agency Agreement contains cross-indemnification clauses with
respect to certain liabilities under the Securities Act of 1933.

The offering will terminate not later than ___________, 1997, or such
subsequent date, not later than _________, 1997, as the parties may
determine (the "Offering Termination Date"), except that unless 5,000
Units are subscribed for by the Offering Termination Date, none will be
sold and all payments received will be refunded with interest, if any,
actually earned. If properly-executed subscriptions for 5,000 or more
Units (up to the maximum of 100,000) are received by the Offering
Termination Date, and all conditions precedent to closing are met, all
such subscriptions will be accepted and such investors will be admitted to
the Partnership as Limited Partners.

If properly-executed subscriptions for more than 100,000 Units are
received, the General Partner may, in its sole discretion, reject, in
whole or in part, any Limited Partner's subscription.

Investor Suitability Standards

Only Qualified Investors will be eligible to purchase Units. See
"Investor Suitability Standards" on page 2.

Maximum Purchase by Qualified Investors

The Partnership has imposed restrictions on the maximum amount of
Units which may be purchased by any Qualified Investor. An employee of ML
& Co. or its subsidiaries may only purchase Units in an amount which does
not exceed 15% of such employee's cash compensation from ML & Co. or its
subsidiaries received with respect to 1996 on an annualized basis unless
the employee either (x) has a net worth, individually or jointly with the
employee's spouse, in excess of $1,000,000 at the time of purchase of the
Units, or (y) had an individual income in excess of $200,000 in each of
1995 and 1996 or joint income with the employee's spouse in excess of
$300,000 in each of those years and reached or has a reasonable
expectation of reaching the same level in 1997. An employee of ML & Co.
who meets the requirements of clause (x) or (y) above may purchase Units
in an amount which does not exceed 75% of the employee's compensation in
respect of 1996 on an annualized basis. A non-employee director of ML &
Co. may only purchase Units in an amount which does not
exceed two times the director's fees (including committee fees, but not
including reimbursement of expenses) received from ML & Co. during 1996.
Notwithstanding the foregoing, a Qualified Investor (other than ML & Co.)
will only be permitted to purchase Units in the Partnership in an
aggregate amount in excess of $250,000 if the offering is not fully
subscribed. In the event that the offering is not fully subscribed,
Qualified Investors will be permitted to invest up to the specified
percentage of his or her 1996 compensation (or directors fees, as
applicable), provided that such amount is equal to less than 10% of the
outstanding limited partnership interests of the Partnership.

Purchase of Units by ML & Co.

The Partnership is also offering Units to ML & Co. ML & Co. has
advised the Partnership that it intends to offer a deferred compensation
plan to certain key employees of ML & Co. and its subsidiaries pursuant to
which such employees will be permitted to defer compensation earned during
1996 and to elect to receive a return from ML & Co. determined by
reference to the performance of the Partnership. ML & Co. intends to
acquire Units having a purchase price approximately equivalent to the
aggregate amount of compensation deferred under its plan. ML & Co. will
acquire such Units at the Closing for a purchase price of $1,000 per Unit.
Participants in the plan will not acquire any ownership interest in the
Units purchased by ML & Co. The ability of ML & Co. to purchase Units is
subject to receipt by the Partnership of an amendment to an order it
previously obtained from the Commission under the Investment Company Act
concerning eligible purchasers of interests in the KECALP Partnerships.

Subscription to Purchase Units

Each Qualified Investor who desires to purchase any Units must:

(a) subscribe to purchase five or more Units;

(b) complete, date, execute and deliver to KECALP Inc., South Tower,
World Financial Center, 225 Liberty Street, New York, NY 10080-6123, one
copy of the Signature Page and Power of Attorney, a form of which is
attached as part of the Subscription Agreement attached to this Prospectus
as Exhibit B; and

(c) authorize an amount equal to $1,000 for each Unit that the
prospective purchaser desires to purchase to be debited from his MLPF&S
securities account.

The General Partner will not, under any circumstances, accept
subscriptions for a fractional interest in a Unit.

Payment for Units

Each Qualified Investor who subscribes to purchase Units will, by
execution of the Subscription Agreement, agree to make a capital
contribution of $1,000 for each Unit subscribed for and authorize that
amount to be debited from his MLPF&S securities account specified on his
Signature Page and Power of Attorney. If sufficient funds are not already
available in the Qualified Investor's MLPF&S securities account, the
Qualified Investor must deposit additional funds so that the full amount
of the capital contribution for the Units for which the investor has
subscribed will be available in such account.

Not more than 30 days after any Qualified Investor enters into a
Subscription Agreement, the General Partner will notify such investor
whether such investor's subscription will be rejected (and any
subscription not so rejected will be accepted, subject to the satisfaction
of the conditions referred to below). Amounts paid by an investor whose
subscription is rejected will be promptly returned with interest, if any,
actually earned and received thereon, as provided below.

MLPF&S will promptly debit subscription amounts upon subscription
from subscribers' MLPF&S securities accounts and deposit such funds in an
escrow account with The Bank of New York, for the benefit of investors.
The bank escrow agent for such account may, at the direction of MLPF&S,
invest such payment in U.S. government securities, bank time deposits,
certificates of deposit of a domestic bank which mature prior to the
Closing of the purchase of Units or bank money market accounts. The
Qualified Investors' funds in such account, but not the
interest earned thereon, will be released to the Partnership only
if each of the following conditions has been satisfied:

(a) on the date of Closing, Qualified Investors have subscribed for
at least 5,000 Units;

(b) on the date of Closing, the escrow agent has received the full
payment of the capital contributions for the Units which the Partnership
will issue and sell at such Closing; and

(c) on the date of Closing, Brown & Wood LLP has delivered its
opinion that the Partnership will be treated as a partnership for Federal
income tax purposes and will not be treated as a publicly traded
partnership within the meaning of Section 7704(b) of the Internal Revenue
Code of 1986, as amended.

If such conditions are not timely satisfied, all the investors' funds
so held in such account will be returned to the investors. If all of such
conditions are timely satisfied, each investor who has subscribed to
purchase Units to be issued and sold at such Closing will become a Limited
Partner and thereafter (but only thereafter) such investor's capital
contributions will be paid to the Partnership, to be applied by it as
described in this Prospectus. Any interest earned on funds held in escrow
will be paid to subscribers in proportion to their respective subscription
amounts and the length of time their subscription amounts were on deposit.

Each Limited Partner will be entitled to the distributive share of
items of income, gain, deduction, loss or credit and cash distributions
allocable to such Limited Partners interest in the Partnership, as
provided in the Partnership Agreement, without regard to the dates on
which any Limited Partners may have subscribed to purchase Units.

TRANSFERABILITY OF UNITS

Restrictions

The Partnership is designed as an investment vehicle for Qualified
Investors only. The Partnership has obtained exemptions from certain
provisions of the Investment Company Act on the basis that, with certain
exceptions, only Qualified Investors will become Limited Partners.
Purchasers of Units should view their interest in the Partnership as a
long-term, illiquid investment.

No transfer or assignment by a Limited Partner of his or her interest
in the Partnership shall be effective unless made in accordance with the
provisions of the Partnership Agreement. The Partnership Agreement
prohibits transfer or assignment by a Limited Partner of his or her
interest in the Partnership to any person who is not a Qualified Investor,
except transfers to a member of his or her immediate family or transfers
resulting by operation of law. (For this purpose, the members of a
Limited Partner's immediate family consist of the partner's spouse and
children.) No transfer of a Limited Partner's interest may be made
without the consent of the General Partner, which consent may be withheld
in the sole discretion of the General Partner. No sale, assignment or
transfer of, or after which the transferor and transferee would each hold,
an interest representing a capital contribution of less than $1,000, will
be permitted or recognized for any purpose without the consent of the
General Partner, which consent will be granted only for good cause shown.

The sale or transfer of a Partnership interest may result in adverse
income tax consequences to the transferor. Limited Partners are advised
to consult their tax advisors prior to any such transfer. See "Tax
Aspects of Investment in the Partnership--Transfer of a Partnership
Interest".

No transfer, assignment or negotiation of an interest in the
Partnership will be recognized or effective if such transfer or
assignment, together with all other such transfers on the books of the
Partnership during the immediately preceding 12 months, would result in
the transfer of 50% or more of the Units. See "Tax Aspects of Investment
in the Partnership--General Principles of Partnership Taxation--Termination
of the Partnership for Tax Purposes". In addition, pursuant
to the Partnership Agreement, the Partnership will satisfy one or more
safe harbor limitations from classification as a publicly traded
partnership which would impose more restrictive numerical limitations on
the number of Units transferred. One safe harbor under current law would
restrict transfers (except for certain exempt transfers) of 5% or more
Units during the same taxable year. Transfers, assignments or
negotiations, the recognition and effectiveness of which are so suspended
and deferred, will be recognized (in chronological order to the extent
practicable) when, and to the extent that, such recognition will not result
in there having been transfers of Units in excess of the limitations referred
to above.

The General Partner has the authority to amend the transferability
provisions of the Partnership Agreement in such manner as may be necessary
or desirable to preserve the tax status of the Partnership.

Further, no sale, exchange, transfer or assignment of a Limited
Partner's interest may be made if the sale of such interest would, in the
opinion of counsel for the Partnership, result in a termination of the
Partnership for purposes of Section 708 of the Code, violate any
applicable Federal or state securities laws, cause the Partnership to be
treated as an association taxable as a corporation for Federal income tax
purposes, cause the Partnership to be classified as a publicly traded
partnership and taxable as a corporation for Federal income tax purposes,
or cause all or a portion of the Partnerships assets to be treated as
"tax-exempt use property" under Section 168(j) of the Code.

Acquisition of Certain Limited Partners' Interests
by the General Partner or the Partnership

Upon the death of a Limited Partner, the legal representative(s) of
such Limited Partner may tender, and the General Partner shall purchase
the interest in the Partnership held by such Limited Partner at a purchase
price equal to the value of the interest determined at the next annual
Valuation Date. To have Units repurchased, the estate of a Limited
Partner must notify the General Partner of its election to have the Units
repurchased within 30 days after the date the appraisal is sent to the
Limited Partners. The Partnership, rather than the General Partner, may
purchase such interest if it is determined the purchase is in the best
interests of the Partnership. If the General Partner purchases any such
interest for its own account pursuant to this provision, it shall be
entitled to the rights of an assignee of such interest, including the
right to vote as if it were a Substituted Limited Partner, and it may
become a Substituted Limited Partner. The General Partner may sell any
interest acquired pursuant to this provision and the purchaser will be
entitled to be admitted as a Substituted Limited Partner effective as of
the date of payment to the General Partner for such interest.

Assignees

An assignee of a Limited Partner does not automatically become a
Substituted Limited Partner, but has the right to receive the same share
of profits, losses and distributable cash of the Partnership to which the
assignor Limited Partner would have been entitled. A Limited Partner who
assigns all of his Partnership interest ceases to be a Limited Partner,
and shall not retain any statutory rights as a Limited Partner. The
assignee of a Partnership interest who does not become a Substituted
Limited Partner and desires to make further assignment of such interest is
subject to all of the restrictions on transferability of Partnership
interests described in this Prospectus and the Partnership Agreement.

In the event of the death, incapacity or bankruptcy of a Limited
Partner, his or her legal representatives will have all the rights of a
Limited Partner for the purpose of settling or managing his or her estate
and such power as the decedent, incompetent or bankrupt Limited Partner
possessed to assign all or any part of his interest in the Partnership,
and to join with such assignee in satisfying conditions precedent to such
assignees becoming a Substituted Limited Partner. In the event of the
death of a Limited Partner, but not in the event of adjudication of
incompetence or bankruptcy, the deceased Limited Partner's interest may be
distributed as part of the estate, transferred by operation of law,
tendered to the General Partner as described above, or assigned to another
Qualified Investor.

A purported sale, assignment or transfer of a Limited Partner's
interest will be recognized by the Partnership on the first day of the
fiscal quarter following the quarter in which the Partnership has received
written notice of such sale, assignment or transfer in form satisfactory
to the General Partner, signed by both parties, containing the
purchaser's, assignee's or transferee's acceptance of the terms of the
Partnership Agreement and a representation by the parties that the sale or
assignment was made in accordance with all applicable laws and
regulations.

Substituted Limited Partners

No Limited Partner has the right to substitute an assignee as a
Limited Partner in his or her place. The General Partner, however, has the
right in its sole and absolute discretion, to permit such assignee to
become a Substituted Limited Partner and any such permission by the
General Partner is binding and conclusive without the consent or approval
of any Limited Partner. Any Substituted Limited Partner must, as a
condition to receiving any interest in the Partnership, sign a Signature
Page and Power of Attorney, pay the reasonable legal fees and filing and
publication costs of the Partnership and the General Partner in connection
with his or her substitution as a Limited Partner and satisfy the other
conditions specified in Section 10.2 of the Partnership Agreement.
Notwithstanding the actual time of the admission of a Substituted Limited
Partner, for purposes of allocating profits, losses and distributable cash
(as those terms are defined in the Partnership Agreement), a person will
be treated as having become a Limited Partner as of the date on which the
sale, assignment or transfer of such persons interest was recognized by
the Partnership, as described above, even if that person does not in fact
become a Substituted Limited Partner.

REPORTS

Financial information contained in all reports to the Limited
Partners will be prepared on an accrual basis of accounting in accordance
with generally accepted accounting principles and will include, where
applicable, a reconciliation to information furnished to the Limited
Partners for income tax purposes. Federal and state tax information will
be provided to the Limited Partners within 75 days following the close of
each calendar year or as soon as practicable thereafter. (As described
under "Risk and Other Important Factors", to the extent the Partnership
invests in other investment funds, it may experience delays in obtaining
annual tax information, which may require Limited Partners to obtain
extensions for filing income tax returns.) Financial statements, which
will be prepared annually, will be certified by independent auditors and
will be furnished within 120 days following the close of the calendar
year. A statement of appraisal of the value of Partnership assets will be
provided with the financial statements. Limited Partners also have the
right under applicable law to obtain other information about the
Partnership and may, at their expense, obtain a list of the names and
addresses of all of the Limited Partners for any proper purpose.

In connection with the appraisal of the value of the Partnership's
investments in portfolio companies that are not publicly traded, there is
a range of values which is reasonable for such investments at any
particular time. The General Partner presently expects that the following
procedures will be utilized with respect to these investments. In the
early stages of development, these investments will typically be valued
based on their original cost to the Partnership (the "cost method"). The
cost method will be utilized until significant developments affecting the
portfolio company provide a basis for use of an appraisal valuation (the
"appraisal method"). The appraisal method will be based on such factors
affecting the portfolio company as earnings and net worth, the market
prices for similar securities of comparable companies and an assessment of
the company's future prospects. In the case of unsuccessful operations,
the appraisal may be based on liquidation value. Valuations based on the
appraisal method are necessarily subjective. The General Partner will
also use third party transactions (actual or proposed) in the portfolio
company's securities as the basis of valuation (the "private market
method"). The private market method will be used only with respect to
actual transactions or actual firm offers by sophisticated, independent
investors. The valuation of debt securities that are not publicly traded
will be determined by or under the direction of the General Partner. The
General Partner expects that the private market method of valuation will
be the primary method utilized with respect to these securities.
Securities with legal, contractual or practical restrictions on transfer
may be valued at a discount from their value determined by the foregoing
methods to reflect the effect of such restrictions.

EXPERTS

The financial statements included in this Prospectus have been
examined by Deloitte & Touche LLP, independent auditors, as indicated in
their opinions with respect thereto, and are included herein in reliance
upon the authority of that firm as experts in accounting and auditing.

LEGAL MATTERS

The legality of the securities offered hereby will be passed upon by
Brown & Wood LLP, One World Trade Center, New York, New York 10048, as
counsel to the Partnership and the General Partner, who may rely as to
matters of Delaware law upon the opinion of Richards, Layton & Finger, One
Rodney Square, Wilmington, Delaware 19801.

The statements under the heading "Tax Aspects of Investment in the
Partnership" have been reviewed by Brown & Wood LLP.

EXEMPTIONS FROM THE INVESTMENT COMPANY ACT OF 1940

The Partnership will operate as a non-diversified, closed-end,
management investment company registered with the Securities and Exchange
Commission (the "Commission") under the Investment Company Act. However,
an exemptive order was obtained from the Commission in 1982 pursuant to
Section 6(b) of the Act that exempts the Partnership, as an "employees
securities company" within the meaning of the Investment Company Act, from
certain provisions of such Act. The exemptive order relates to the
following provisions of the Investment Company Act and the rules and
regulations promulgated thereunder:

Section 8(b) to exempt the Partnership from filing annual amendments
to its Registration Statement under the Investment Company Act;

Section 10(a) to permit the Partnership to include the General
Partner as the sole general partner and to permit all of the directors and
officers of the General Partner to be persons who are employees of ML &
Co. or its affiliates;

Section 10(b) to permit the Partnership to employ subsidiaries of ML
& Co. to act as broker and principal underwriter for the Partnership;

Section 10(f) to permit the Partnership to purchase securities in
underwritten offerings, a principal underwriter of which may be an
affiliate of the General Partner;

Section 14(a) to permit the Partnership to offer Units to Qualified
Investors prior to the time the Partnership has a net worth of $100,000;

Section 15(a) to permit the General Partner to act from time to time
as investment adviser to the Partnership without a written contract and
without the approval of the Limited Partners;

Section 16(a) to permit ML & Co. to appoint and replace the directors
of the General Partner in accordance with the Partnership Agreement;

Section 17(a) to permit ML & Co. and its subsidiaries to engage in
certain transactions as principal with the Partnership in addition to
transactions as agent, including transactions involving money market
securities and real estate;

Section 17(d) to permit the Partnership to engage in transactions in
which certain affiliated persons of the Partnership may also be
participants;

Section 17(f) to permit ML & Co. or one of its subsidiaries to act as
custodian without a written contract;

Section 17(g) to permit the Partnership to comply with requirements
applicable to fidelity bonds without the necessity of having a majority of
the Board of Directors of the General Partner which are not "interested
persons" take such action and make such approvals as are set forth in Rule
17g-1 under the Investment Company Act;

Section 18(a)(1) to exempt the Partnership from certain limitations
on borrowings so that the Partnership may enter into nonrecourse loans
relating to investments other than securities without regard to the
restrictions on "asset coverage" contained in the Investment Company Act;

Section 18(i) to permit the Limited Partners to have only those
rights with respect to the management of the Partnership as are set forth
in the Partnership Agreement;

Section 19(b) to permit the Partnership to distribute long-term
capital gains more frequently than annually;

Section 20(a) to exempt the Partnership from the proxy requirements
set forth in the rules under the Investment Company Act;

Section 23(c) to permit the Partnership to repurchase Partnership
interests pursuant to the terms of the Partnership Agreement;

Section 30(a),(b) and (d) to exempt the Partnership from filing
annual and quarterly reports with the Commission and from sending
semi-annual reports to Limited Partners; and

Section 32(a) to permit the General Partner to select independent
certified public accountants for the Partnership without submitting their
selection to the Limited Partners for ratification or rejection.

In 1991, the Commission issued an order amending the order described
above to expand the categories of investments in which the Partnership and
other partnerships managed by the General Partner may participate with ML
& Co. and its affiliates. The transactions in which such joint
investments may be made relate generally to equity and equity-related
investments in buyout transactions and other transactions structured by ML
& Co. or its affiliates or in which ML & Co. or its affiliates have an
equity or equity-related investment. The order requires, among other
things, that the General Partner make specified findings before the
Partnership participates in such investments and that the General Partner,
at least annually, provide to the Limited Partners a list of such
investments in which the Partnership has invested with ML & Co. or its
affiliates.

ADDITIONAL INFORMATION

This Prospectus does not contain all the information set forth in the
Registration Statement that the Partnership has filed with the Securities
and Exchange Commission, Washington, D.C., under the Securities Act of
1933 and the Investment Company Act. For further information pertaining
to the securities offered hereby, reference is made to the Registration
Statement including the exhibits filed as a part thereof.

INDEX TO FINANCIAL STATEMENTS

Page
----

Merrill Lynch KECALP L.P. 1997
Independent Auditors' Report 51
Balance Sheet, ________ __, 1996 52
Notes to Balance Sheet 52

KECALP Inc. (Unaudited)
Balance Sheet, December 29, 1995 53
Notes to Balance Sheet 54

INDEPENDENT AUDITORS' REPORT

Merrill Lynch KECALP L.P. 1997:

We have audited the accompanying balance sheet of Merrill Lynch KECALP
L.P. 1997 as of , 1996. This financial statement is the
responsibility of the Partnership'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 financial statement is free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statement. 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 audit
provides a reasonable basis for our opinion.

In our opinion, such balance sheet presents fairly, in all material
respects, the financial position of Merrill Lynch KECALP L.P. 1997 at
, 1996, in conformity with generally accepted accounting principles.

New York, New York
____________, 1996

MERRILL LYNCH KECALP L.P. 1997

BALANCE SHEET

__________, 1996

Assets

Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $100
====
PARTNERS' CAPITAL ACCOUNT

Capital Contributions:
General Partner . . . . . . . . . . . . . . . . . . . . . . . $ 99
Initial Limited Partner . . . . . . . . . . . . . . . . . . . 1
----
$100
====
NOTES TO BALANCE SHEET

1. Organization and Purpose

Merrill Lynch KECALP L.P. 1997 (the "Partnership") was formed as of
October 28, 1996 and the Certificate of Limited Partnership was filed
under the Delaware Revised Uniform Limited Partnership Act on October 28,
1996. The only transactions to date have been capital contributions of
$99 by KECALP Inc. ("KECALP" or the "General Partner") and $1 by the
Initial Limited Partner. The Initial Limited Partner purchased an interest
in the Partnership for $1 to permit the formation of the Partnership.
KECALP is a Delaware corporation, formed in June 1981 and an indirect
wholly-owned subsidiary of Merrill Lynch & Co., Inc. The General Partner
is authorized to admit additional limited partners to the Partnership if,
after the admission of such additional limited partners, the capital
contributions of all additional limited partners would not be less than
$5,000,000. The Partnership is an "employees securities company" under
the Investment Company Act of 1940. KECALP will pay the organizational
expenses of the Partnership incurred prior to the commencement of the
offering of the Partnership's units. The Partnership has agreed to
reimburse KECALP for such costs. Deferred organizational expenses of the
Partnership will be amortized on a straight line basis over a period not
to exceed five years from the commencement of the Partnership's
operations. In the event that the Partnership liquidates before the
deferred organizational expenses are fully amortized, KECALP shall bear
such unamortized deferred organizational expenses for the Partnership.

2. Business

The Partnership intends to seek long-term capital appreciation. The
Partnership shall not engage in any other business or activity. The
Partnership term extends to December 31, 2037. However, pursuant to the
Partnership Agreement, the General Partner may dissolve the Partnership,
without the consent of the Limited Partners, at any time after January 1,
2003.

3. Fiscal Year

The fiscal year of the Partnership will be the year ending December
31 of each year.

INVESTORS WILL NOT ACQUIRE ANY INTEREST IN THIS COMPANY

KECALP Inc.

BALANCE SHEET (Unaudited)
December 29, 1995

ASSETS

Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 46,275
Other receivable . . . . . . . . . . . . . . . . . . . . . . 21,479
Due from Merrill Lynch & Co. Inc. (Note 4) . . . . . . . . . . 416,814
Investment in limited partnerships (Note 1) . . . . . . . . . . 853,750
---------

TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,338,318
============

LIABILITIES AND STOCKHOLDER'S EQUITY

Liabilities:

Deferred federal and state income taxes . . . . . . . . . . . $ 32,288
Accrued expenses . . . . . . . . . . . . . . . . . . . . . 22,316
-------------
Total liabilities . . . . . . . . . . . . . . . . . . . . . 54,604
-------------

STOCKHOLDER'S EQUITY: (Note 1)

Common stock $1 par value; authorized and
outstanding 1,000 shares (Note 3) . . . . . . . . . . . . 1,000
Additional paid-in-capital (Note 3) . . . . . . . . . . . . . 12,435,556
Capital contribution receivable (Note 2) . . . . . . . . . . (11,100,000)
Deficit . . . . . . . . . . . . . . . . . . . . . . . . . . ( 52,842)
-------------
Total stockholders equity . . . . . . . . . . . . . . . . 1,283,714
------------

TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,338,318
============

See notes to balance sheet.

KECALP INC.
NOTES TO BALANCE SHEET
(UNAUDITED)

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

KECALP Inc. ("KECALP"), a Delaware corporation, is a wholly-owned
subsidiary of Merrill Lynch Group Inc. ("ML Group"). ML Group is a
wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML & CO."). KECALP
is the General Partner of seven Delaware limited partnerships, Merrill
Lynch KECALP Growth Investments Limited Partnership 1983 (the "1983
Partnership"), Merrill Lynch KECALP L.P. 1984 (the "1984 Partnership"),
Merrill Lynch KECALP L.P. (the "1986 Partnership"), Merrill Lynch KECALP
L.P. 1987 (the "1987 Partnership"), Merrill Lynch KECALP L.P. 1989 (the
"1989 Partnership"), Merrill Lynch KECALP L.P. 1991 (the "1991
Partnership") and Merrill Lynch KECALP L.P. 1994 (the "1994 Partnership"),
collectively referred to as the "Partnerships". As General Partner,
KECALP manages the Partnerships, pays certain of their expenses and
maintains a 1% ownership interest in each of the Partnerships.

The 1983 Partnership and the 1984 Partnership intend to seek long-term
capital appreciation and the tax advantages associated with certain
investments, primarily through the purchase of speculative, tax-oriented
investments in real estate, oil and gas properties, personal property
and/or indirect interests therein. At least 25% of the total proceeds
will be invested in real estate. The investment objectives of the 1986,
1987, 1989, 1991 and 1994 Partnerships are to seek long-term capital
appreciation with a substantial portion of its total proceeds invested in
venture capital and leveraged buyout investments. The Partnerships may
purchase other investments that KECALP deems appropriate. The
Partnerships shall not engage in any other business or activity.

Investment in Partnerships The investment in the Partnerships is
accounted for using the cost method.

Capital Requirements As a condition to the closing of the sales of
units of limited partnership interest, KECALP has agreed to maintain a net
worth as required in accordance with applicable U.S. income tax
regulations and rulings of the Internal Revenue Service. ML & Co.
provides capital to KECALP by a demand promissory note or other investment
to satisfy the requirement that KECALP have such net worth (see Note 2).

2. CAPITAL CONTRIBUTION RECEIVABLE

The Capital Contribution receivable represents promissory notes from
ML & Co. The notes are due on demand and bear interest at the daily
brokers call rate. Intercompany interest and taxes are not paid, but
KECALP's obligations have been settled through an adjustment of the
intercompany receivable account.

3. RELATED PARTY TRANSACTIONS

KECALP is obligated to pay certain expenses, fees, sales or brokerage
commissions, and other expenditures (except for debt service and interest
expense) of the Partnerships.

KECALP is required to maintain an investment in the Partnerships of
approximately 1% of the Partnerships' net assets less (plus) unallocated
net unrealized appreciation (depreciation) of investments.

4. DUE FROM MERRILL LYNCH & CO.

The Corporation has been authorized to transfer funds, as required by
policy, to ML & Co. ML & Co. is to repay this loan with interest based on
the daily brokers call rate.

5. INCOME TAXES

The results of operations of KECALP are included in the consolidated
Federal income tax returns of ML & Co., Inc. It is the policy of ML &
Co., Inc. to allocate to KECALP the Federal and state tax expense
associated with such operating results in its consolidated tax return,
including the recognition of deferred tax assets.

EXHIBIT A

- --------------------------------------------------------------------------

MERRILL LYNCH KECALP L.P. 1997
(A Delaware Limited Partnership)

AMENDED AND RESTATED AGREEMENT

LIMITED PARTNERSHIP

- -------------------------------------------------------------------------

TABLE OF CONTENTS
-----------------

Caption Page
------- ----

ARTICLE ONE

DEFINED TERMS A-1

ARTICLE TWO

ORGANIZATION

SECTION 2.1 Governance A-3
SECTION 2.2 Name, Place of Business and Office;
Registered Agent A-3
SECTION 2.3 Purpose A-4
SECTION 2.4 Term A-4

ARTICLE THREE

PARTNERS AND CAPITAL

SECTION 3.1 General Partner A-4
SECTION 3.2 Initial Limited Partner A-4
SECTION 3.3 Additional Limited Partners A-4
SECTION 3.4 Partnership Capital A-5

SECTION 3.5 Liability of Partners A-5
SECTION 3.6 Lender as Partner A-5

ARTICLE FOUR

MANAGEMENT

SECTION 4.1 Powers of the General Partner A-6
SECTION 4.2 Prohibited Transactions A-7
SECTION 4.3 Restrictions on the Authority of the
General Partner A-8
SECTION 4.4 Duties and Obligations of the General
Partner A-8
SECTION 4.5 Compensation and Reimbursement of the
General Partner A-10
SECTION 4.6 Other Businesses of Partners A-10
SECTION 4.7 Indemnification A-10
SECTION 4.8 Management by Limited Partners A-11

ARTICLE FIVE

DISTRIBUTIONS OF PARTNERSHIP FUNDS;
ALLOCATIONS OF PROFITS AND LOSSES

SECTION 5.1 Distributions of Partnership Funds A-11
SECTION 5.2 Allocations of Profits and Losses A-11
SECTION 5.3 Determinations of Allocations and
Distributions Among Limited Partners A-12

ARTICLE SIX

TRANSFERABILITY OF THE GENERAL PARTNERS INTEREST

SECTION 6.1 Voluntary Withdrawal or Transfer by the
General Partner A-13
SECTION 6.2 Admission of Successor General Partner A-14
SECTION 6.3 Liability of a Withdrawn or Removed
General Partner A-14
SECTION 6.4 Incapacity of the General Partner A-14
SECTION 6.5 Removal of the General Partner A-14
SECTION 6.6 Distributions on Withdrawal or Removal of
the General Partner A-15

ARTICLE SEVEN

TRANSFERABILITY OF A LIMITED PARTNERS INTEREST

SECTION 7.1 Restrictions on Transfers of Interes A-15
SECTION 7.2 Incapacity of Limited Partner A-17
SECTION 7.3 Assignees A-17
SECTION 7.4 Substituted Limited Partners A-17
SECTION 7.5 Acquisition of Certain Limited Partners'
Interests by the General Partner or the
Partnership A-19

ARTICLE EIGHT

DISSOLUTION, LIQUIDATION AND
TERMINATION OF THE PARTNERSHIP

SECTION 8.1 Events Causing Dissolution A-19
SECTION 8.2 Liquidation A-20

ARTICLE NINE

BOOKS AND RECORDS; ACCOUNTING;
APPRAISAL; TAX ELECTIONS; ETC.

SECTION 9.1 Books and Records A-21
SECTION 9.2 Accounting Basis for Tax and Reporting
Purposes; Fiscal Year A-21
SECTION 9.3 Bank Accounts A-21
SECTION 9.4 Appraisal A-21
SECTION 9.5 Reports A-22
SECTION 9.6 Elections A-22

ARTICLE TEN

AMENDMENTS

SECTION 10.1 Proposal and Adoption of Amendments
Generally A-22
SECTION 10.2 Amendments on Admission or Withdrawal of
Partners A-23

ARTICLE ELEVEN

CONSENTS, VOTING AND MEETINGS

SECTION 11.1 Method of Giving Consent A-23
SECTION 11.2 Meetings of Partners A-24
SECTION 11.3 Limitations on Requirements for Consents A-24
SECTION 11.4 Submissions to Limited Partners A-25

ARTICLE TWELVE

MISCELLANEOUS PROVISIONS

SECTION 12.1 Appointment of the General Partner as
Attorney-in-Fact A-25
SECTION 12.2 Notification to the Partnership or the
General Partner A-26
SECTION 12.3 Binding Provisions A-26
SECTION 12.4 Applicable Law A-26
SECTION 12.5 Counterparts A-26
SECTION 12.6 Separability of Provisions A-26
SECTION 12.7 Entire Agreement A-26
SECTION 12.8 Headings A-26

AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP
OF MERRILL LYNCH KECALP L.P. 1997

Amended and Restated Agreement of Limited Partnership of Merrill
Lynch KECALP L.P. 1997 (the "Partnership") dated _________, 1997, among
KECALP Inc., a Delaware corporation, as General Partner, Robert F. Tully,
the Initial Limited Partner, and those Persons who shall be admitted as
Additional Limited Partners and as Substituted Limited Partners.

Whereas, pursuant to a Certificate of Limited Partnership dated as of
October 28, 1996, and filed with the Delaware Secretary of State on
October 28, 1996, and an Agreement of Limited Partnership, dated October
28, 1996 (the "Original Agreement"), KECALP Inc. and Robert F. Tully have
heretofore formed the Partnership under the Delaware Revised Uniform
Limited Partnership Act;

Whereas, KECALP Inc., the Initial Limited Partner, and the Additional
Limited Partners, as defined herein, desire to amend and restate in its
entirety the terms and provisions of the Original Agreement governing the
Partnership;

Now, Therefore, in consideration of the mutual promises made herein,
the parties, intending to be legally bound, hereby agree as follows:

ARTICLE ONE

Defined Terms

The defined terms used in this Agreement shall, unless the context
otherwise requires, have the meanings specified in this Article One. The
singular shall include the plural and the masculine gender shall include
the feminine, and vice versa, as the context requires.

"Act" means the Delaware Revised Uniform Limited Partnership Act (6
Del. C.17-101 et seq.), as amended from time to time and any successor to
the said Act.

"Additional Limited Partners" means those Persons admitted to the
Partnership pursuant to Section 3.3 and shown as limited partners of the
Partnership on the books and records of the Partnership.

"Affiliate" means when used with reference to a specified Person, (i)
any Person that, directly or indirectly through one or more
intermediaries, controls or is controlled by or is under common control
with the specified Person, (ii) any Person that is an officer, partner
(excluding unrelated third parties who are joint venturers or participants
in joint ventures electing to be taxed as partners for Federal income tax
purposes) or trustee of, or serves in a similar capacity with respect to,
the specified Person or of which the specified Person is an officer,
partner or trustee, or with respect to which the specified Person serves
in a similar capacity, (iii) any Person that, directly or indirectly, is
the beneficial owner of 5% or more of any class of equity securities of
the specified Person or of which the specified Person is directly or
indirectly the owner of 5% or more of any class of equity securities and
(iv) any member of the immediate family of the specified Person or his or
her spouse.

"Agreement" means this Amended and Restated Agreement of Limited
Partnership, as originally executed and as amended and restated from time
to time, as the context requires.

"Appraisal" means the statement of valuation of the assets of the
Partnership as described in Section 9.4.

"Auditors" means Deloitte & Touche LLP or such other nationally or
regionally recognized firm of independent auditors as shall be engaged by
the Partnership.

"Capital Account", as to any Partner, means the sum of a Partner's
Capital Contributions, increased by his share of any Profits, and
decreased by his share of any Losses and by his share of any Partnership
Distributable Cash reasonably expected to be distributed to such Partner
and other assets distributed to such Partner or on
behalf of such Partner in payment of any taxes or other expenses allocable
to such Partner and as otherwise increased or decreased in accordance with
the tax accounting principles set forth in Treasury Regulation Section
1.704-1(b)(2)(iv) of the Code.

"Capital Contribution" means the total amount of money contributed to
the Partnership by all Partners or any class of Partners or any one
Partner (or the predecessor holders of the Interests of such Partners or
Partner), as the context requires, upon the formation of the Partnership
or the admission of such Partner to the Partnership, or as that money is
contributed to the Partnership.

"Code" means the Internal Revenue Code of 1986, as amended (or any
corresponding provision of succeeding law).

"Consent" means the approval of a Person, given as provided in
Section 11.1, to do the act or thing for which the approval is solicited,
or the act of granting such approval, as the context may require.
Reference to the Consent of a specified percentage in Interest of the
Limited Partners means the Consent of Limited Partners whose combined
Capital Contributions represent, at the time in question, at least such
specified percentage of the Capital Contributions of all the then Limited
Partners.

"Distributable Cash" means, with respect to any fiscal period of the
Partnership, the cash assets of the Partnership on hand at the end of such
fiscal period (but not including the Capital Contribution to the
Partnership) less amounts required to be retained out of such cash assets
in the sole judgment of the General Partner to pay the Partnership's
liabilities whether accrued or anticipated to accrue in the future or to
make permissible investments.

"Fiscal Year" means the calendar year.

"General Partner" means KECALP Inc., a Delaware corporation whose
business address is South Tower, World Financial Center, 225 Liberty
Street, New York, New York 10080-6123, and any successor to it in its
capacity as general partner of the Partnership.

"Incapacity" or "Incapacitated" means the entry of an order for
relief in a case under Title 11 of the United States Code (the "Bankruptcy
Code") ("bankruptcy") (except that, in the case of the General Partner,
the term "bankruptcy" shall mean only the being subject to Chapter 7 of
the Bankruptcy Code) or the incompetence, insanity, interdiction, death,
incapacity, disability, dissolution or termination (other than by merger
or consolidation), as the case may be, of any Person.

"Income" means the gross income of the Partnership as determined for
Federal income tax purposes including capital gains and Code Section 1231
gains (but not losses).

"Initial Limited Partner" means Robert F. Tully.

"Interest" means the entire ownership interest of a Partner in the
Partnership at any particular time, including the right of such Partner to
any and all benefits to which a Partner may be entitled as provided in
this Agreement, together with the obligations of such Partner to comply
with all the terms and provisions of this Agreement. Reference to a
specified percentage in Interest of the Limited Partners shall mean
Limited Partners whose Capital Contributions represent, at the time in
question, at least such specified percentage of the Capital Contributions
of all the then Limited Partners.

"Limited Partner" means any Person who is a limited partner of the
Partnership as shown on the books and records of the Partnership (whether
the Initial Limited Partner, an Additional Limited Partner or a
Substituted Limited Partner) at the time of reference thereto, in such
Person's capacity as a limited partner of the Partnership.

"Majority-in-Interest" means the Limited Partners whose aggregate
Capital Contributions represent over 50% of the aggregate Capital
Contributions of all Limited Partners.

"Notification" means a writing, containing the information required
by this Agreement to be communicated to any Person, sent by first class
mail, postage prepaid, to such Person at the last known address of such
Person, five days after the mailing thereof being deemed the date of the
giving of Notification; provided however, that any communication
containing the information sent to the Person and actually received by the
Person shall constitute Notification for all purposes of this Agreement.

"Partner" means the General Partner or a Limited Partner.

"Partnership" means the limited partnership governed hereby, as said
limited partnership may from time to time be constituted.

"Partnership Account" means the bank account or bank accounts to be
maintained by the General Partner on behalf of the Partnership with any
bank in the United States having assets in excess of $100,000,000.

"Person" means any individual, partnership, corporation, trust or
other entity.

"Profits" or "Losses" means the profits or losses of the Partnership
for Federal income tax purposes including, without limitation, each item
of Partnership Income, gain, loss, deduction or credit.

"Prospectus" means the prospectus contained in the registration
statement filed by the Partnership on Form N-2 at the time such
registration statement was declared effective by the Securities and
Exchange Commission; except that if a prospectus filed by the Partnership
pursuant to Rule 497(b) or 497(d) under the Securities Act of 1933 differs
from the prospectus contained in the registration statement, as aforesaid,
then the term "Prospectus" refers to the Rule 497(b) or 497(d) prospectus
from and after the time it is mailed to the Securities and Exchange
Commission for filing.

"Remove", "Removed" or "Removal" when used in reference to the
removal of the General Partner means the termination of all management
powers, duties and responsibilities of the General Partner pursuant to
Section 6.5, but not the elimination of the General Partner as a Partner.

"Sale" means any event, action or transaction that is, for Federal
income tax purposes, considered a sale, exchange or abandonment by the
Partnership of any Partnership property.

"State" means the State of Delaware.

"Substituted Limited Partner" means any Person admitted to the
Partnership as a Limited Partner pursuant to the provisions of Section 7.4
and who is shown on the books and records of the Partnership as a limited
partner of the Partnership.

"Unit" means an Interest in the Partnership attributable to an
aggregate payment of $1,000 to the Partnership by, or on behalf of, the
Limited Partner who originally acquired the Interest.

"Valuation Date" means each of the dates described in Section 9.4.

ARTICLE TWO

Organization

Section 2.1 Governance

The undersigned parties hereto hereby agree that the rights and
liabilities of the Partners shall be as provided in the Act except as
herein otherwise expressly provided.

Section 2.2 Name, Place of Business and Office; Registered Agent

The name of the limited partnership heretofore formed and hereby
continued shall be Merrill Lynch KECALP L.P. 1997. The business of the
Partnership may be conducted under any other name deemed necessary or
desirable by the General Partner in order to comply with local law. The
Partnership shall maintain a registered office in the State c/o The
Corporation Trust Company, Corporation Trust Center, 1209 Orange Street,
Wilmington, New Castle County, Delaware 19801. The Partnership shall
maintain its principal office at South Tower, World Financial Center, 225
Liberty Street, New York, New York 10080-6123. The General Partner may at
any time change the location of the Partnership's offices and may
establish additional offices, if it deems it advisable. The name and
address of the Partnership's registered agent for service of process in
the State is The Corporation Trust Company, Corporation Trust Center, 1209
Orange Street, Wilmington, New Castle County, Delaware 19801. The General
Partner has filed the certificate of limited partnership of the
Partnership and shall file any amendment to the certificate of limited
partnership of the Partnership as required by the Act in the proper office
in the State and shall take such steps as are necessary to qualify the
Partnership to conduct business in other jurisdictions in which it owns
properties or conducts business and otherwise to insure that the Limited
Partners will have limited liability with respect to the activities of the
Partnership in such other jurisdictions.

Section 2.3 Purpose

The purpose and character of the business of the Partnership is to
invest the funds of the Partnership in various speculative and
non-speculative investments, seeking, among other things, long-term
capital appreciation, and to engage in any and all activities necessary or
incidental thereto.

Section 2.4 Term

The Partnership term commenced on October 28, 1996, and shall
continue in full force and effect until December 31, 2037, or until
dissolution prior thereto pursuant to the provisions hereof.

ARTICLE THREE

Partners and Capital

Section 3.1 General Partner

A. The name, residence, business or mailing address and Capital
Contribution of the General Partner are set forth in the books and records
of the Partnership, as amended from time to time, and are incorporated
herein by reference.

B. The General Partner, as general partner of the Partnership,
shall be deemed to have made additional Capital Contributions to the
Partnership to the extent it pays expenses of the Partnership pursuant to
this Agreement which are not reimbursed to it by either the Partnership or
an Affiliate of the General Partner.

Section 3.2 Initial Limited Partner

A. The name, business address and Capital Contribution of the
Initial Limited Partner are Robert F. Tully, South Tower, World Financial
Center, 225 Liberty Street, New York, N.Y. 10080-6123 and his Capital
Contribution is $1.00.

B. Upon the admission of Additional Limited Partners pursuant to
Section 3.3, the Initial Limited Partner shall withdraw from the
Partnership and receive forthwith the return of his Capital Contribution
without interest or deduction.

Section 3.3 Additional Limited Partners

A. The General Partner is authorized to admit Additional Limited
Partners to the Partnership pursuant to the terms contained in the
Prospectus and this Agreement. The manner of the offering of Additional
Limited Partners Units, the terms and conditions under which subscriptions
for such Units will be accepted, and the manner of and conditions to the
sale of Units to subscribers therefor and the admission of such
subscribers as Additional Limited Partners will be as provided in the
Prospectus and subject to any provisions thereof.

B. The name, residence, business or mailing address and Capital
Contribution of each Additional Limited Partner shall be set forth in the
books and records of the Partnership, as amended from time to time.

C. No Limited Partner shall be required to make any additional
contributions to the capital of the Partnership.

Section 3.4 Partnership Capital

A. No Partner shall be paid interest on any Capital Contribution to
the Partnership.

B. No Partner, other than the Initial Limited Partner pursuant to
Section 3.2, shall have the right to withdraw any part of his Capital
Contribution or to receive any return of any portion of his Capital
Contribution except as otherwise provided herein.

C. Under circumstances involving a return of any Capital
Contribution, no Partner shall have the right to receive property other
than cash, except as may be specifically provided in this Agreement.

D. The General Partner shall make additional contributions to the
capital of the Partnership in an amount sufficient to pay for Partnership
expenses allocable to it pursuant to Section 4.4A.

Section 3.5 Liability of Partners

A. No Limited Partner shall be liable for the debts, liabilities,
contracts or any other obligations of the Partnership, except to the
extent of his Capital Contribution and his share of the Partnership's
assets and undistributed profits, or for the debts or liabilities of any
other Partner. To the extent provided by law, a Limited Partner may,
under certain circumstances, be required to return, for the benefit of
Partnership creditors, amounts previously distributed to such Limited
Partner.

B. A Limited Partner shall be liable only to make the payment of
his Capital Contribution as set forth in Sections 3.2A and 3.3B.

C. No Limited Partner shall be required to lend funds to the
Partnership or make any further contribution to the capital of the
Partnership.

D. The General Partner shall not be required to contribute to the
capital of, or loan, the Partnership any funds other than the General
Partner's Capital Contributions to the capital of the Partnership as set
forth in Sections 3.1 and 3.4D. Neither the General Partner nor any of
its Affiliates shall have (i) any personal liability for the return or
repayment of the Capital Contribution of any Limited Partner or (ii) to
repay to the Partnership any portion or all of any negative amount of the
General Partner's Capital Account, except as otherwise provided in Section
8.2D.

Section 3.6 Lender as Partner

No creditor who makes a nonrecourse loan to the Partnership shall
have or acquire, at any time as a result of making the loan, any direct
interest in the profits, capital or property of the Partnership, other
than as a secured creditor.

ARTICLE FOUR

Management

Section 4.1 Powers of the General Partner

A. The General Partner shall manage the affairs of, and shall
control the business of, the Partnership and shall have all powers
necessary to manage and control the Partnership's affairs and business and
fulfill the purposes of the Partnership, including, by way of illustration
and not by way of limitation:

(i) The power and duty to invest the balance (after the
setting aside of suitable reserves) of the Capital Contributions of the
Partners and reinvest revenues of the Partnership in accordance with the
purpose of the Partnership and in keeping with its investment objectives as
stated in the Prospectus.

(ii) The power to acquire securities or property of all types
on behalf of the Partnership, including, without limitation, stocks,
bonds, debentures, notes, shares in investment companies, general and
limited partnership interests, investment contracts and interests in
trusts.

(iii) The power to enter into transactions and make investments
with or through Affiliates of the General Partner and to participate in
investment transactions sponsored or underwritten (either on a best efforts
or firm commitment basis) by Affiliates of the General Partner or in entities
as to which Affiliates of the General Partner serve as investment adviser or
placement agent.

(iv) The power to purchase interests in entities sponsored by
Affiliates of the General Partner or in which Affiliates of the General
Partner have an interest, including, but not limited to, limited partnership
interests in limited partnerships in which such Affiliates serve as general
partner.

(v) The power to cause securities owned by the Partnership to
be registered in the Partnership name or in the name of a nominee or to be
held in street name, as it shall elect.

(vi) The power and duty to maintain the books and records of
the Partnership in accordance with the provisions of Section 9.1.

(vii) The power to reserve funds out of Partnership Income or
borrow money in the name of the Partnership from any bank or other lending
institution in the United States or from an Affiliate of the General Partner
for the purpose of leveraging investments of the Partnership, paying
assessments levied on Partnership investments or paying other costs
of the Partnership (other than costs that the General Partner is obligated
to pay) and in connection with any borrowing, to mortgage, pledge, encumber,
and hypothecate the assets of the Partnership.

(viii) The power to lend money to the Partnership on
commercially reasonable terms.

(ix) The power to make temporary investments of Partnership
capital in all types of securities, including, without limitation,
short-term U.S. Government and Government agency securities, certificates of
deposit, interest-bearing deposits in U.S. banks, securities issued by or on
behalf of states, municipalities and their instrumentalities, the interest
from which is exempt from Federal income tax, securities issued by other
investment companies (including unit investment trusts and taxable and
tax-exempt money market funds sponsored and/or advised by Affiliates of the
General Partner) prior to long-term investment or pending cash distributions
to the Partners.

(x) The power to seek exemptions from provisions of the
Investment Company Act of 1940 from the Securities and Exchange
Commission.

(xi) The power to enter into a sales agency agreement relating
to the offering and sale of Units by the Partnership with Merrill Lynch,
Pierce, Fenner & Smith Incorporated, or any other Affiliate of the General
Partner.

(xii) In addition to and not in limitation of any rights and
powers conferred by law or other provisions of this Agreement, and except as
limited, restricted or prohibited by the express provisions of this
Agreement, the General Partner shall have and may exercise on behalf of the
Partnership all powers and rights necessary, proper, convenient or advisable
to effectuate and carry out the purpose, business and objectives
of the Partnership including the power to have investment opportunities
evaluated by an advisory committee selected by the General Partner.

B. In order to expedite the handling of the Partnership's business,
it is understood and agreed that any document executed by the General
Partner while acting in the name and on behalf of the Partnership shall be
deemed to be the action of the Partnership vis-a-vis any third parties
(including the Limited Partners as third parties for such purpose).

C. In the event the original General Partner withdraws as provided
in Article Six, is Incapacitated or is Removed, any additional or
successor General Partner or General Partners shall possess all the power
and authority of the original General Partner. Any remaining and any
additional and successor General Partner is authorized to and shall
continue the business of the Partnership. The General Partner may admit
an additional or successor General Partner provided that if it
subsequently wishes to withdraw or transfer its interest, Sections 6.1 and
6.2 shall be complied with as to the additional or successor General
Partner prior to its becoming a sole General Partner, and provided that
the following conditions are satisfied:

(i) appropriate filings are made under the Act and in such
other jurisdictions as the Partnership's business requires;

(ii) the Interest of Limited Partners will not be adversely
affected; and

(iii) the sole General Partner shall not be Incapacitated.

In the event an additional or successor General Partner is admitted,
the term "General Partner" as used in this Agreement shall include the
additional or successor General Partner.

Section 4.2 Prohibited Transactions

Notwithstanding anything to the contrary contained herein, the
following transactions are specifically prohibited to the Partnership:

(i) The Partnership shall not make any loans to the General
Partner or any of its Affiliates unless permitted by the Investment
Company Act of 1940 or an order of exemption therefrom;

(ii) The Partnership shall not sell or lease any property to
the General Partner or any of its Affiliates except on terms at least as
favorable as those obtainable from unaffiliated third parties and except that
this provision shall not prohibit any transaction contemplated by Section 8.2
or permitted by the terms of any partnership agreement or investment contract
into which the Partnership may enter by virtue of its investment as a general
or limited partner, where an Affiliate of the General Partner also acts as
general partner of such partnership;

(iii) No funds of the Partnership shall be kept in any account
other than a Partnership Account, and funds shall not be commingled with the
funds of any other Person, and the General Partner shall not employ, or
permit any other Person to employ, such funds in any manner except for the
benefit of the Partnership; it being understood that the General Partner may
invest temporarily Partnership funds in accordance with the provisions of
Section 4.1 (A) (ix); and

(iv) No expense of the Partnership shall be billed except
directly to the Partnership (but shall be paid pursuant to the terms of this
Agreement), and no reimbursements shall be made therefor to the General
Partner or any of its Affiliates except as permitted by Section 4.5.

Section 4.3 Restrictions on the Authority of the General Partner

A. The General Partner shall not have the authority to:

(i) do any act in contravention of the Investment Company Act
of 1940, as applied to the Partnership; or

(ii) do any act that would make it impossible to carry on the
ordinary business of the Partnership.

B. The General Partner shall not perform any act that would subject
any Limited Partner to liability as a general partner in any jurisdiction.

C. Without the Consent of a Majority-in-Interest of the Limited
Partners, the General Partner shall not have the authority to:

(i) lease, sell, or otherwise dispose of at any one time all or
substantially all of the assets of the Partnership;

(ii) elect to dissolve the Partnership prior to January 1, 2003;

(iii) issue senior securities other than in connection with the
borrowings described in (v) below;

(iv) make short sales of securities, purchase securities on
margin, except for use of short-term credit necessary for the clearance of
transactions, or write put or call options;

(v) borrow amounts in excess of 331/3% of the Partnership's
gross assets, or otherwise as permitted under the Investment Company Act of
1940, except that the Partnership may enter into nonrecourse loans relating
to investments other than securities without regard to such limitation;

(vi) underwrite securities of other issuers, except insofar as
the Partnership may be deemed an underwriter under the Securities Act of 1933
in selling portfolio securities;

(vii) invest more than 25% of its Partners' Capital Contributions
in the securities of issuers in any particular industry, except for real
estate investments and for temporary investments in U.S. Government and
Government agency securities, domestic bank money market instruments and
money market funds;

(viii) make loans to other Persons in excess of 331/3% of the
Partnership's gross assets, provided that investments in privately-offered
debt securities issued by entities in which the Partnership has an equity
participation or with which the Partnership has contracted to acquire an
equity participation shall not be considered loans for purposes of this
paragraph; or

(ix) alter the investment objective and business purpose of the
Partnership.

D. The General Partner shall not borrow funds on behalf of the
Partnership except in accordance with Section 4.1A (vii) and (xii).

E. The General Partner shall not cause the Partnership to consent
to, or join in, any waiver, amendment, or modification of the terms of any
partnership agreement, limited partnership agreement, management agreement
or investment contract to which it is a party unless, in the good faith
judgment of the General Partner, such waiver, amendment, or modification
would be in the best interest of the Partnership.

Section 4.4 Duties and Obligations of the General Partner

A. The General Partner shall pay all expenses (but not income,
personal property, franchise or other taxes) incurred in the organization
and operation of the Partnership, including, without limitation, Auditors'
fees, legal fees, postage, printing costs, Appraisal costs, general and
administrative costs and expenses and, in addition, any brokerage commissions,
selling agents' fees, advisory fees or similar charges incurred in investing
Partnership funds. The General Partner is not obligated to pay from its
own funds, debt service or other interest charges incurred in connection
with the making of Partnership investments and is entitled to
indemnification in accordance with Section 4.7.

B. The General Partner shall take all action that may be necessary
or appropriate for the continuation of the Partnership's valid existence
as a limited partnership under the laws of the State, and for the
acquisition, holding and disposition, in accordance with the provisions of
this Agreement and applicable laws and regulations, of the investments of
the Partnership.

C. The General Partner shall devote to the Partnership the time
that it deems to be necessary to conduct the Partnership business and
affairs in the best interests of the Partnership and use its best efforts
to obtain a suitable investment portfolio for the Partnership.

D. The General Partner shall be under an obligation to conduct the
affairs of the Partnership in the best interest (or not opposed to the
best interest) of the Partnership, including the safekeeping and use of
all Partnership funds and assets (whether or not in the immediate
possession or control of the General Partner) and the use thereof for the
benefit of the Partnership. Notwithstanding the foregoing, the General
Partner may, in its sole and absolute discretion, elect to dissolve the
Partnership at any time after January 1, 2003, and, upon liquidation, to
purchase Partnership assets in accordance with Section 8.2. 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.

E. The General Partner will use its best efforts at all times to
maintain its net worth at a level that is sufficient to meet all present
and future requirements set by statute, Treasury Regulations, the Internal
Revenue Service or the courts applicable to a corporate general partner in
a limited partnership to insure that the Partnership will not fail to be
classified for Federal income tax purposes as a partnership, rather than
as an association taxable as a corporation, on account of the net worth of
the General Partner.

F. The General Partner shall prepare or cause to be prepared and
shall file on or before the due date (or any extension thereof) any
Federal, state or local tax returns required to be filed by the
Partnership. The General Partner shall cause the Partnership to pay, from
Partnership funds, any taxes payable by the Partnership.

G. The General Partner shall, from time to time, submit to any
appropriate Federal or state securities administrator, or any other
regulatory authorities having jurisdiction, all documents, papers,
statistics and reports required to be filed with or submitted to such
authority.

H. The General Partner shall use its best efforts to cause the
Partnership to be formed, reformed, qualified to do business, or
registered under any applicable assumed or fictitious name statute or
similar law in any jurisdiction in which the Partnership then owns
property or transacts business, if such formation, reformation,
qualification or registration is necessary in order to protect the limited
liability of the Limited Partners or to permit the Partnership lawfully to
own property or transact business.

I. The General Partner shall, from time to time, prepare and file
all amendments to this Agreement, the certificate of limited partnership
of the Partnership and other similar documents that are required by law to
be filed and recorded for any reason, in the office or offices that are
required under the laws of the State or any other jurisdiction in which
the Partnership is then qualified or formed. The General Partner shall do
all other acts and things (including making publications or periodic
filings of this Agreement or amendments thereto or other similar
documents) that may now or hereafter be required, or deemed by the General
Partner to be necessary, (i) for the perfection and continued maintenance
of the Partnership as a limited partnership under the laws of the State
and each other state in which the Partnership is then qualified or formed,
(ii) to protect the limited liability of the Limited Partners under the
laws of the State and each other state in which the Partnership is then
qualified or formed, and (iii) to cause such certificates or other
documents to reflect accurately the agreement of the Partners, the
identity of the Limited Partners and the General Partner and the amounts
of their respective Capital Contributions as may be required by such laws.

J. The General Partner shall monitor the activities of entities
invested in by the Partnership and keep the Limited Partners informed of
such activities in the manner provided in this Agreement.

K. The General Partner shall inform each Limited Partner of all
administrative and judicial proceedings for an adjustment at the
Partnership level for Partnership tax items and forward to each Limited
Partner within 30 days of receipt all notices received from the Internal
Revenue Service regarding the commencement of a partnership level audit or
a final partnership administrative adjustment and will perform all other
duties imposed by Sections 6221 through 6232 of the Code on the General
Partner as "tax matters partner" of the Partnership, including (but not
limited to) the following: (a) the power to conduct all audits and other
administrative proceedings (including windfall profit tax audits) with
respect to Partnership tax items; (b) the power to extend the statute of
limitations for all Partners with respect to Partnership tax items; and
(c) the power to file a petition with an appropriate Federal court for
review of a final partnership administrative adjustment. The General
Partner shall be the "tax matters partner" of the Partnership.

Section 4.5 Compensation and Reimbursement of the General Partner

A. Except as provided in Article Five, the General Partner shall not
receive any salary, fees or Profits from the Partnership.

B. The General Partner shall be entitled to reimbursement from the
Partnership for expenses it incurs up to an amount equal to 0.5% of the
Limited Partners' Capital Contributions if such Capital Contributions
aggregate $60,000,000 or more, or, if such Capital Contributions aggregate
less than $60,000,000, up to an amount equal to 1% of the Limited
Partners' Capital Contributions, in connection with the organization of
the Partnership and the offering of the Units and, commencing in 1997 and
annually in each calendar year thereafter, for expenses it incurs up to an
annual amount equal to 0.5% of the Limited Partners' Capital Contributions
if such Capital Contributions aggregate $60,000,000 or more, or, if such
Capital Contributions aggregate less than $60,000,000, up to an amount
equal to 1% of the Limited Partners' Capital Contributions, in connection
with the operation of the Partnership. Except as provided in this
Article Four and Article Eight, neither the General Partner nor its
Affiliates shall be reimbursed out of Partnership funds for expenses
incurred by them on behalf of the Partnership.

Section 4.6 Other Businesses of Partners

Subject to Section 4.4C, any Partner, and any Affiliate of any
Partner may engage in or possess any interest in other business ventures
of any kind, nature or description, independently or with others, for his,
her or its own account or for the account of others. Neither the
Partnership nor any Partner as a result of this Agreement shall have any
rights or obligations in or to such independent ventures or the income or
profits or losses derived therefrom.

Section 4.7 Indemnification

Neither the General Partner nor any of its officers, directors,
stockholders, employees, or agents shall be liable to the Partnership or
the Limited Partners for any act or omission based on errors of judgment,
or other fault in connection with the business or affairs of the
Partnership so long as the Person against whom liability is asserted acted
in good faith on behalf of the Partnership and in a manner reasonably
believed by such Person to be within the scope of its authority under this
Agreement and in or not opposed to the best interests of the Partnership,
but only if such action or failure to act does not constitute negligence
or misconduct, and, with respect to any criminal proceeding, such Person
had no reasonable cause to believe its conduct was unlawful. The General
Partner and its officers, directors, stockholders, employees, and agents
will be indemnified by the Partnership to the fullest extent permitted by
law for any (a) fees (including, without limitation, legal fees), costs
and expenses incurred in connection with or resulting from any claim,
action or demand, or threatened claim, action or demand, against the
General Partner, the Partnership or any of their officers, directors,
stockholders, employees, or agents that arises out of or in any way
relates to the Partnership, its properties, business or affairs
and (b) losses or damages resulting from such claims, actions and demands,
or threatened claims, actions or demands, including amounts paid in
settlement or compromise (if recommended by attorneys for the Partnership)
of any such claim, action or demand or threatened claims, actions or
demands; provided, however, that this indemnification shall apply only so
long as the Person against whom a claim, action or demand is asserted or
threatened to be asserted has acted in good faith on behalf of the
Partnership and in a manner reasonably believed by such Person to be
within the scope of his or its authority under this Agreement and in or
not opposed to the best interests of the Partnership, but only if such
action or failure to act does not constitute negligence or misconduct.
Absent a court determination that the General Partner or officers or
directors of the General Partner were not liable on the merits or guilty
of disabling conduct within the meaning of Section 17(h) of the Investment
Company Act of 1940, the decision by the Partnership to indemnify the
General Partner or any such Person must be based upon the reasonable
determination of independent counsel, after review of the facts, that such
disabling conduct did not occur. The rights set forth above shall
continue as to the General Partner and its officers, directors,
stockholders, employees or agents who have ceased to serve in such
capacities and shall inure to the benefit of their heirs, successors,
assigns and administrators.

Section 4.8 Management by Limited Partners

No Limited Partner shall participate in the management or in the
control of the business of the Partnership or use his name in the
Partnership's business or perform any actions prohibited to limited
partners under the laws of the State or the laws of any other jurisdiction
where the Partnership is qualified or formed to conduct business. Limited
Partners hereby consent to the exercise by the General Partner of the
powers conferred on it by this Agreement.

ARTICLE FIVE

Distributions of Partnership Funds;
Allocations of Profits and Losses

Section 5.1 Distributions of Partnership Funds

Distributable Cash of the Partnership shall be distributed at least
annually, within 30 days after the end of the Fiscal Year, and
distributions may be made at such other times as the General Partner deems
advisable, and each such distribution shall be made 99% to the Limited
Partners and 1% to the General Partner. If the General Partner deems it
advisable, distributions of Partnership assets may be made in kind, in the
same manner and to the same Persons as Distributable Cash is then being
distributed. Cash distributions to Limited Partners will be credited to
each Limited Partner's securities account with Merrill Lynch, Pierce,
Fenner & Smith Incorporated or as otherwise instructed to the General
Partner by a Limited Partner.

Section 5.2 Allocations of Profits and Losses

A. The Profits and Losses of the Partnership shall be determined
and allocated with respect to each Fiscal Year of the Partnership as of
the end of, and within 75 days after the end of, such Fiscal Year.

B. Profits and Losses of the Partnership, other than arising from
Sales upon liquidation pursuant to Section 8.2, shall be allocated among
and credited to or charged against each Partner's Capital Account as
follows:

(i) With respect to Losses, (a) 99% to the Limited Partners and
1% to the General Partner until the Limited Partners' Capital Accounts equal
zero; (b) thereafter, 100% to the General Partner until the General Partner's
Capital Account equals zero; (c) thereafter, 99% to the Limited Partners and
1% to the General Partner or 100% to the General Partner, as appropriate, to
the extent necessary to make the Capital Account balances of the General
Partner and Limited Partners equal 1% and 99%, respectively, of the total
of the Partners' Capital Accounts; and (d) thereafter, 99% to the
Limited Partners and 1% to the General Partner; and

(ii) With respect to Profits, (a) 99% to the Limited Partners
and 1% to the General Partner or 100% to the General Partner, as
appropriate, to the extent necessary to make the Capital Account balances of
the General Partner and the Limited Partners equal 1% and 99%, respectively,
of the total of the Partners' Capital Accounts; and (b) thereafter, 99% to
the Limited Partners and 1% to the General Partner.

C. For purposes of determining the Capital Account balance of any
Limited Partner as of the end of any Fiscal Year under this Section 5.2,
any such Partner's Capital Account shall be reduced by:

(i) Allocations of Loss (or any item thereof) as of the end of
such Fiscal Year, which reasonably are expected to be made to such Partner
pursuant to Code Sections 704, 706, and 752 and Treasury Regulations
promulgated thereunder; and

(ii) Distributions that, as of the end of such Fiscal Year,
reasonably are expected to be made to such Partner to the extent they
exceed offsetting increases to such Partner's Capital Account that
reasonably are expected to occur during (or prior to) the Partnership's
Fiscal Year in which such distributions reasonably are expected to be made.

D. Notwithstanding any provision of this Agreement to the contrary,
if a Partner receives an unexpected adjustment, allocation or distribution
described in Treasury Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5) or
(6) which creates or increases a deficit balance in the Partner's Capital
Account, items of income and gain shall be allocated to such Partner in an
amount and manner sufficient to eliminate the Partner's Capital Account
deficit as quickly as possible. If any allocations are made pursuant to
the previous sentence, then future allocations of income or gain to such
Partner will be reduced by an amount of income or gain equal to the amount
previously allocated to the Partner under the previous sentence.

E. If there is a net decrease in the Partnership's Minimum Gain (as
defined in Treasury Regulations under Section 704(b) of the Code) during a
taxable year, each Partner with a deficit balance in his Capital Account
at the end of the taxable year will be allocated, before any other
allocation of Partnership items is made pursuant to this Agreement, items
of income and gain for the taxable year and, if necessary, subsequent
taxable years, in the amount necessary to eliminate such deficit as
quickly as possible. For the purpose of this Minimum Gain calculation and
for purposes of the preceding paragraph, there will be excluded from the
Partner's deficit balance in his Capital Account (i) any amount the
Partner is obligated to restore to his Capital Account and (ii) any
addition to his Capital Account represented by the Partner's share of
Minimum Gain. In addition, for the purpose of calculating the amount of
Minimum Gain, each Partner's Capital Account will be reduced for items
described in Treasury Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5) and
(6).

Section 5.3 Determinations of Allocations and Distributions Among
Limited Partners

A. All Distributable Cash distributed to the Limited Partners, as a
class, and all Profits and Losses allocated to the Limited Partners, as a
class, shall be distributed or allocated, as the case may be, to each
Limited Partner in the ratio that the Capital Contribution of such Limited
Partner (or of his predecessor in interest) bears to the total Capital
Contribution of all Limited Partners.

B. All Profits and Losses allocated to the Limited Partners shall
be allocated to the Persons who were Limited Partners as of the last day
of the fiscal quarter for which the allocation is made. If during any
Fiscal Year of the Partnership there is a change in any Partner's Interest
in the Partnership, then allocation of Profits and Losses among the
Partners shall be determined by the use of any method prescribed by
Section 706(d)(1) of the Code and the Treasury Regulations promulgated
thereunder. Allocations of "allocable cash basis items" shall be
determined in accordance with the method prescribed by Section 706(d)(2)
of the Code and the Treasury Regulations promulgated thereunder.

C. All Distributable Cash distributed to the Limited Partners shall
be distributed to the Persons who were Limited Partners as of the last day
of the fiscal quarter preceding the fiscal quarter in which the
distribution is made.

ARTICLE SIX

Transferability of the General
Partner's Interest

Section 6.1 Voluntary Withdrawal or Transfer by the General
Partner

A. Except as provided in Section 6.2, the General Partner
(including by definition any successor or additional General Partner) may
withdraw as General Partner at any time, but only upon compliance with all
of the following procedures:

(i) The General Partner shall give Notification to all Limited
Partners that it proposes to withdraw and that there be substituted in its
place a Person designated and described in such Notification.

(ii) Enclosed with the Notification shall be a certificate, duly
executed by or on behalf of such proposed successor General Partner, to the
effect that, (a) it is experienced in performing (or employs
sufficient personnel who are experienced in performing) functions of the type
then being performed by the resigning General Partner; (b) it has a net worth
of at least 10% of the Capital Contributions of the Partners or will
otherwise meet the net worth requirements of statutes, Treasury Regulations,
the Internal Revenue Service or the courts applicable to a corporate general
partner in a limited partnership in order to insure that
the Partnership will not fail to be classified for Federal income tax
purposes as a partnership rather than as an association taxable as a
corporation; and (c) it is willing to become the General Partner under this
Agreement without receiving any compensation for services from the
Partnership in excess of that payable under this Agreement to the withdrawing
General Partner or any interest in the Income or Profits of the Partnership
other than a transfer to the successor General Partner of
some or all of the withdrawing General Partner's Interest in the
Partnership, plus such other compensation as the successor General Partner
may receive from the withdrawing General Partner.

(iii) If the General Partner proposes to withdraw, there
shall be on file at the principal office of the Partnership, prior to such
withdrawal, audited financial statements of the proposed successor General
Partner, as of a date not earlier than 12 months prior to the date of the
Notification required by this Section 6.1A, certified by a nationally
recognized firm of independent auditors, together with a certificate duly
executed by the proposed successor General Partner, or on its behalf by its
principal financial officer, to the effect that no material adverse change in
its financial condition has occurred since the date of such audited financial
statements that has caused its net worth, apart from the
purchase price of its Interest in the Partnership, to be reduced to less than
the amount required under Section 6.1A(ii)(b). Such audited
statements and certificates shall be available for examination by any
Limited Partner during normal business hours.

(iv) The Consent of at least a Majority-in-Interest of the
Limited Partners approving the appointment of any successor General
Partner pursuant to this Section 6.1A is obtained.

(v) The withdrawing General Partner shall cooperate fully with
the successor General Partner so that the responsibilities of the
withdrawn General Partner may be transferred to the successor General
Partner with as little disruption of the Partnership's business and
affairs as is practicable.

B. Except as part of a transfer to a successor General Partner
pursuant to Section 6.1A, the General Partner shall not have the right to
withdraw or to transfer or assign its General Partner Interest, except
that the General Partner may (i) substitute in its stead as General
Partner any entity that has, by merger, consolidation or otherwise,
acquired substantially all of the assets or capital stock of the General
Partner and continued its business, (ii) substitute in its stead any other
wholly-owned subsidiary of its corporate parent, and (iii) pledge or
grant an interest in its right to receive payments and distributions under
this Agreement, in which event the General Partner shall continue to be
the general partner of the Partnership.

C. Subject to the provisions of Section 11.3, each Limited Partner
hereby Consents pursuant to Section 6.1A to the admission as a successor
General Partner of any Person meeting the requirements of Section 6.1A to
whose admission as such at least a Majority-in-Interest of the Limited
Partners has expressly approved, and no further express Consent or
approval shall be required.

D. Notwithstanding anything to the contrary in this Article Six,
the General Partner's Interest shall at all times be subject to any
restrictions on transfer imposed by Federal or state securities laws.

E. Any withdrawal of the General Partner, or transfer or assignment
of the General Partner's entire Interest shall occur immediately after the
admission of a successor General Partner.

Section 6.2 Admission of Successor General Partner

The admission of any successor General Partner pursuant to Section
6.1 shall be effective only if and after the following conditions are
satisfied:

(i) this Agreement and the certificate of limited partnership
of the Partnership shall be amended to reflect the admission of such
Person as successor General Partner prior to the withdrawal of the
withdrawing General Partner or the transfer of the withdrawing General
Partner's Interest, pursuant to Section 6.1;

(ii) the Interests of the Limited Partners shall not be affected
by the admission of such successor General Partner;

(iii) any Person designated as successor General Partner
pursuant to Section 6.1 shall have satisfied the requirements of Section
10.2; and

(iv) the withdrawing General Partner shall not have ceased to be
General Partner because of its Incapacity.

Any successor General Partner is hereby authorized to and shall
continue the business of the Partnership.

Section 6.3 Liability of a Withdrawn or Removed General Partner

Any General Partner who shall withdraw or be Removed from the
Partnership shall remain liable for any obligations and liabilities
incurred by it as General Partner prior to the time such withdrawal or
Removal shall have become effective, but it shall be free of any
obligation or liability incurred on account of the activities of the
Partnership from and after the time such withdrawal or Removal shall have
become effective.

Section 6.4 Incapacity of the General Partner

In the event of the Incapacity of the General Partner, the
Partnership shall be dissolved.

Upon the Incapacity of the General Partner, the General Partner shall
immediately cease to be General Partner and its General Partner's
Interest, as such, shall continue only for the purpose of determining the
amount, if any, that it is entitled to receive upon dissolution pursuant
to Section 8.2. Any termination or Removal of a General Partner shall not
affect any rights or liabilities of the Incapacitated or Removed General
Partner that matured prior to such Incapacity or Removal.

Section 6.5 Removal of the General Partner

A. Upon the delivery by counsel for the Partnership or counsel
designated by 10% in Interest of the Limited Partners of an opinion to the
effect that the possession and exercise by a Majority-in-Interest of the
Limited Partners of the power to Remove the General Partner will not
impair the liability of the Limited Partners, then the power shall be
vested in the Limited Partners to Remove the General Partner upon the
Consent of a Majority-in-Interest of the Limited Partners, but the
exercise of that power shall be subject to the conditions set forth in
Section 11.3. The Removal of any General Partner pursuant to this Section
6.5 shall be without prejudice to the rights, if any, the Limited Partners
may have against the General Partner for damages attributable to its
negligence or misconduct or other breach of duty.

B. Upon the delivery by counsel for the Partnership or counsel
designated by 10% in Interest of the Limited Partners of an opinion to the
effect that the possession and exercise by a Majority-in-Interest of the
Limited Partners of the power to designate a successor General Partner
will not impair the limited liability of the Limited Partners, then with
the Consent of a Majority-in-Interest of the Limited Partners to the
admission of a general partner, the Limited Partners may, subject to the
provisions of Section 6.2, at any time designate one or more Persons to be
successors to the General Partner being Removed pursuant to Section 6.5.
Any such Removal shall occur immediately after the admission of the
successor General Partner.

C. Upon the Removal of the General Partner (and failure to
designate a successor General Partner) pursuant to Section 6.5A, the
Partnership shall be dissolved.

Section 6.6 Distributions on Withdrawal or Removal of the General
Partner

In the event the General Partner (i) exercises its right to withdraw
from the Partnership in accordance with Section 6.1A or (ii) is Removed
pursuant to Section 6.5, the withdrawing or Removed General Partner shall
have its then existing Capital Account (to the extent not acquired by any
successor) converted into a capital account of a Limited Partner.

ARTICLE SEVEN

Transferability of a Limited Partner's Interest

Section 7.1 Restrictions on Transfers of Interest

A. Notwithstanding any other provisions of this Section 7.1, a sale,
exchange, transfer or assignment of a Limited Partner's Interest may not
be made if:

(i) such sale, exchange, transfer or assignment, when added to
the total of all other sales, exchanges, transfers or assignments of
Interests within the preceding 12 months, would result in the Partnership
being considered to have terminated within the meaning of Section 708 of the
Code;

(ii) such sale, exchange, transfer or assignment would violate
any U.S. securities laws, or any state securities or "blue sky" laws
(including any investor suitability standards) applicable to the
Partnership or the Interest to be sold, exchanged, transferred or
assigned;

(iii) such sale, exchange, transfer or assignment would
cause the Partnership to lose its status as a partnership for Federal
income tax purposes;

(iv) such sale, exchange, transfer or assignment would cause all
or any portion of the Partnership's property to be deemed "tax-exempt use
property" within the meaning of Section 168(j) of the Code; or

(v) such sale, exchange, transfer or assignment would cause the
Partnership to be classified as a publicly traded partnership within the
meaning of Section 7704(b) of the Code.

B. In no event shall all or any part of an Interest be assigned or
transferred to an Incapacitated Person except by operation of law.

C. Except as provided in Section 7.5B, no transfer or assignment by
a Limited Partner of all or any part of his Interest may be made to any
Person who (i) is not a Partner, (ii) is not a member of the immediate
family of a Limited Partner or (iii) does not meet the requirements to
become an Additional Limited Partner in accordance with the terms of the
offering of Units contained in the Prospectus and this Agreement, as
modified by the last sentence of this Section 7.1C; provided, however, no
Limited Partner's Interest or any fraction thereof may be sold, assigned
or transferred without the consent of the General Partner, which consent
may be withheld in the sole discretion of the General Partner. For
purposes of this Section 7.1C, the members of the immediate family of a
Limited Partner consist of persons within the meaning of such phrase as is
used in the definition of "employees' securities company" in the
Investment Company Act of 1940, and include the Partner's spouse and
children, including stepchildren and adopted children. With respect to
the requirements referenced in clause (iii), the requirement as to
compensation from Merrill Lynch & Co., Inc. shall be measured on the basis
of the current annual salary and the bonus with respect to the most
recently completed fiscal year.

D. Subject to Section 7.1C, no purported sale, assignment or
transfer by a transferor of, or after which the transferor and each
transferee would hold, an Interest representing a Capital Contribution of
less than $1,000 will be permitted or recognized for any purpose without
the consent of the General Partner, which consent shall be granted only
for good cause shown.

E. No purported sale, assignment or transfer by a transferor of, or
after which the transferor and each transferee would hold, an Interest
representing a Capital Contribution of less than $1,000 will be permitted
or recognized for any purpose without the consent of the General Partner,
which consent shall be granted only for good cause shown, except for any
sale, assignment or transfer (i) that consists of the entire Interest of
the transferor or (ii) that occurs by operation of law.

F. Each Limited Partner agrees that he will, upon request of the
General Partner, execute such certificates or other documents and perform
such acts as the General Partner deems appropriate after an assignment of
an Interest by the Limited Partner to preserve the limited liability of
the Limited Partners under the laws of any jurisdiction in which the
Partnership is doing business. For purposes of this Section 7.1F, any
transfer of an Interest, whether voluntary or by operation of law, shall
be considered an assignment.

G. Any sale, assignment or transfer of an Interest to a Person who
makes a market in securities shall be void ab initio unless such Person
shall certify to the General Partner that it has acquired such Interest
solely for investment purposes and not for the purpose of resale.

H. No purported sale, assignment or transfer by a transferor of an
Interest will be recognized unless (1) the transferor shall have
represented that such transfer (a) was effected through a broker-dealer or
matching agent whose procedures with respect to the transfer of Units have
been approved by the General Partner as not being incident to a public
trading market and not through any other broker-dealer or matching agent
or (b) otherwise was not effected through a broker-dealer or matching
agent which makes a market in Interests or which provides a readily
available, regular and ongoing opportunity to Limited Partners to sell or
exchange their Interests through a public means of obtaining or providing
information of offers to buy, sell or exchange Interests and (2) the
General Partner determines that such sale, assignment or transfer would
not, by itself or together with any other sales, transfers or assignments,
likely result in, as determined by the General Partner in its sole
discretion, the Partnership's being classified as a publicly traded
partnership.

I. No purported sale, assignment or transfer of a Unit will be
recognized if, after giving effect to such sale, assignment or transfer,
the Partnership would not satisfy at least one of the safe harbors
contained in Treasury regulation 1.7704-1 (the "Final PTP Regulations").
Without limiting the foregoing, no purported sale, assignment or transfer
of a Unit will be recognized if such sale, assignment or transfer,
together with all other such transfers during the same taxable year of the
Partnership would result in either (i) the transfer of more than 2% of the
Units (excluding excludable transfers and sales completed through a
matching service which meets the requirements of the Final PTP
Regulations) or (ii) the transfer and sale of more than 10% of the Units
(excluding excludable transfers) completed through a matching service
which meets the requirements of the Final PTP Regulations. For purposes
of the limitations described in the preceding sentence, the following
transfers ("excludable transfers") will be disregarded: (i) transfers in which
the basis of the Unit in the hands of the transferee is determined, in whole
or in part, by reference to its basis in the hands of the transferor or is
determined under Section 732 of the Code; (ii) transfers at death,
including transfers from an estate or testamentary trust; (iii) transfers
between members of a family (as defined in Section 267(c)(4) of the Code);
(iv) the issuance of Units by or on behalf of the Partnership in exchange
of cash, property or services; (v) distributions from a retirement plan
qualified under Section 401(a) of the Code; and (vi) block transfers; and
for purposes of the 2% limitation, there shall be disregarded transfers
through a matching service subject to the 10% limitation described in the
previous sentence. For purposes of the above limitations, the percentage
of Units transferred during a taxable year shall equal the sum of the
monthly percentage of Units transferred. The monthly percentage of Units
transferred in any month shall be the percentage equal to a fraction the
numerator of which is the number of Units transferred during such month
and the denominator of which is the number of Units outstanding on the
last day of such month, provided that the denominator shall not include
Units owned by the General Partner or any Person related to the General
Partner (within the meaning of Section 267(b) or 707(b)(1) of the Code).
The term "block transfer" means the transfer by a Partner in one or more
transactions during any thirty calendar day period of Units representing
in the aggregate more than 2% of the total Interests in Partnership
capital or profits.

J. Any purported assignment of an Interest which is not made in
compliance with this Agreement is hereby declared to be null and void and
of no force or effect whatsoever.

K. The General Partner may reasonably interpret, and is hereby
authorized to take such action as it deems necessary or desirable to
effect, the foregoing provisions of this Section 7.1. The General Partner
may, in its reasonable discretion, amend the provisions of this Section
7.1 in such manner as may be necessary or desirable (or eliminate or amend
such provisions to the extent they are no longer necessary or desirable)
to preserve the tax status of the Partnership.

Section 7.2 Incapacity of Limited Partner

If a Limited Partner dies, his executor, administrator or trustee,
or, if he becomes an adjudicated incompetent, his committee, guardian or
conservator, or, if he becomes bankrupt, the trustee or receiver of his
estate, shall have all the rights of a Limited Partner for the purpose of
settling or managing the estate of such Limited Partner, and such power as
the Incapacitated Limited Partner possessed to assign all or any part of
the Incapacitated Limited Partner's Interest and to join with such
assignee in satisfying conditions precedent to such assignee's becoming a
Substituted Limited Partner. In the event of death of a Limited Partner,
but not in the event of bankruptcy or adjudication of incompetence, the
deceased Limited Partner's Interest may be tendered to the General Partner
within 90 days of receipt of the next Appraisal pursuant to Section 7.5.

Section 7.3 Assignees

A. The Partnership shall not recognize for any purpose any
purported sale, assignment or transfer of all or any fraction of the
Interest of a Limited Partner unless the provisions of Section 7.1A shall
have been complied with and there shall have been filed with the
Partnership a written and dated Notification of such sale, assignment or
transfer, in form satisfactory to the General Partner, executed and
acknowledged by both the seller, assignor or transferor and the purchaser,
assignee or transferee, and such Notification (i) contains the acceptance
by the purchaser, assignee or transferee of all of the terms and
provisions of this Agreement, (ii) represents that such sale, assignment
or transfer was made in accordance with all applicable laws and
regulations and (iii) contains the purchaser's, assignee's or transferee's
power of attorney identical to that provided in Section 12.1. Any sale,
assignment or transfer shall be recognized by the Partnership as effective
as of the first day of the fiscal quarter following the quarter in which
such Notification is filed with the Partnership.

B. Any Limited Partner who shall assign all of his Interest shall
cease to be a Limited Partner as of the first day of the fiscal quarter
following the quarter in which such Notification is filed with the General
Partner.

C. A Person who is the assignee of all or any fraction of the
Interest of a Limited Partner, but does not become a Substituted Limited
Partner and desires to make a further assignment of such Interest, shall
be subject to all the provisions of this Article Seven to the same extent and
in the same manner as any Limited Partner desiring to make an assignment of
his Interest.

Section 7.4 Substituted Limited Partners

A. No Limited Partner shall have the right to substitute a
purchaser, assignee, transferee, donee, heir, legatee, distributee or
other recipient of all or any portion of such Limited Partner's Interest
as a Limited Partner in his place. Any such purchaser, assignee,
transferee, donee, heir, legatee, distributee or other recipient of an
Interest shall be admitted to the Partnership as a Substituted Limited
Partner only with the consent of the General Partner, which consent shall
be granted or withheld in the sole and absolute discretion of the General
Partner and may be arbitrarily withheld, and, if necessary, by an
amendment of this Agreement executed by all necessary parties and filed or
recorded in the proper records of each jurisdiction in which such filing
or recordation is necessary to qualify the Partnership to conduct business
or to preserve the limited liability of the Limited Partners. The Limited
Partners hereby consent to the admission of a Substituted Limited Partner
whose admission has been consented to by the General Partner. Any such
consent by the General Partner and the Limited Partners may be evidenced,
if necessary, by the execution by the General Partner of an amendment to
this Agreement on its behalf and on behalf of all Limited Partners
pursuant to Section 12.1 evidencing the admission of such Person as a
Limited Partner and the making of any filing required by law. The
admission of a Substituted Limited Partner shall be recorded on the books
and records of the Partnership.

B. No Person shall become a Substituted Limited Partner until such
Person shall have satisfied the requirements of Section 10.2; provided,
however, that for the purpose of allocating Profits, Losses and
Distributable Cash, a Person shall be treated as having become, and as
appearing in the books and records of the Partnership as, a Limited
Partner on such date as the sale, assignment or transfer to such Person
was recognized by the Partnership pursuant to Section 7.3A.

C. To the fullest extent permitted by law, each Limited Partner
shall indemnify and hold harmless the Partnership, the General Partner and
every Limited Partner who was or is a party or is threatened to be made a
party of any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of or
arising from any actual or alleged misrepresentation or misstatement of
facts or omission to state facts made (or omitted to be made) by such
Limited Partner in connection with any assignment, transfer, encumbrance
or other disposition of all or any part of an Interest, or the admission
of a Substituted Limited Partner to the Partnership, against expenses for
which the Partnership or such other Person has not otherwise been
reimbursed (including attorneys' fees, judgments, fines and amounts paid
in settlement) actually and reasonably incurred by him in connection with
such action, suit or proceeding.

D. (1) Each Limited Partner represents and warrants that the
information set forth on his Subscription Agreement is a true and correct
statement of his total direct and indirect, within the meaning of Section
318 of the Code, holdings of stock of the General Partner or any of its
Affiliates, as defined in Section 1504(a) of the Code. No Person shall be
accepted as a Limited Partner if the admission of such Person would cause
the Limited Partner to own, directly or indirectly, more than 20% of the
outstanding stock of the General Partner or any of its Affiliates as
defined in Section 1504(a) of the Code.

(2) Each Limited Partner further represents and warrants that
the following statements are true: (i) if such Limited Partner is an
individual, he is over 21 years of age; if such Limited Partner is a
corporation, it is authorized and otherwise duly qualified to hold an
Interest in the Partnership; (ii) he has thoroughly read the Prospectus
and this Agreement and understands the nature of the risks involved in the
proposed investment; (iii) he is experienced in investment and business
matters; (iv) in the case of an employee of Merrill Lynch & Co., Inc. or
its subsidiaries he has a current annual salary in an amount which,
together with bonus received from Merrill Lynch & Co., Inc. or its
subsidiaries in respect of 1996, equals at least $100,000 or, if employed
for less than a full calendar year, is employed with an annualized gross
income from Merrill Lynch & Co., Inc. or its subsidiaries of at least
$100,000 and the aggregate amount of Units he will invest in will not
exceed an amount that would result in the price of such Units exceeding
15% of his cash compensation from Merrill Lynch & Co., Inc. or its
subsidiaries with respect to the most recent calendar year on an
annualized basis unless he either (x) has a net worth, individually or
jointly with his spouse, in excess of $1,000,000 at the time of purchase
of the Units or (y) had an individual income in excess of $200,000 in each
of the two most recent calendar years or joint income with his spouse in
excess of $300,000 in each of those years and has a reasonable expectation of
reaching the same income level in the current calendar year, or in the case of
non-employee directors of Merrill Lynch & Co., Inc., (a)
has a net worth (exclusive of homes, home furnishings,
personal automobiles and the amount to be invested in
Units) of not less than $125,000 in excess of the price of the
Units for which such investor has subscribed, or (b) has a net worth
(exclusive of homes, home furnishings, personal automobiles and the amount
to be invested in Units) of not less than $100,000 in excess of the price
of the Units for which such investor has subscribed and expects to have
during each of the current and the next three taxable years, gross income
from all sources in excess of $100,000; (v) he recognizes that the
Partnership is newly organized and has no history of operations or
earnings and is subject to speculative risks; (vi) he understands that the
transferability of his Interest(s) in the Partnership is restricted
pursuant to the provisions of this Agreement and that he cannot expect to
be able to liquidate his investment readily in case of emergency; and
(vii) unless otherwise indicated in his Subscription Agreement, he is the
sole party in interest in his Interest and, as such, is vested with all
legal and equitable rights in such Interests. Investors will be required
to represent in writing in the Subscription Agreement that they meet all
applicable requirements and satisfy any more restrictive suitability
requirements imposed by applicable Blue Sky laws.

Section 7.5 Acquisition of Certain Limited Partners' Interests by
the General Partner or the Partnership

A. The General Partner shall purchase from its own funds for its
own account, or cause to be purchased by the Partnership, from the
Partnership's funds for the Partnership's account, any Limited Partner's
Interest tendered to it pursuant to Section 7.2. The purchase price shall
be the value of such Interest determined at the next annual Valuation Date
less any distribution paid in respect of such Interest subsequent to such
Valuation Date.

B. The Partnership may, but is not obliged to, purchase from the
Partnership's funds for the Partnership's account any Interest tendered to
the General Partner pursuant to Section 7.2 if such purchase is in the
best interests of the Partnership.

C. If the General Partner purchases any Interest pursuant to this
Section 7.5 for its own account and not for the account of the
Partnership, the General Partner shall be entitled to the rights of an
assignee of such Interest and be entitled to vote such Interest as if it
were a Substituted Limited Partner or be admitted as a Substituted Limited
Partner. The General Partner may sell any Interest acquired by it under
the provisions of this Section 7.5 on such terms as are acceptable to it,
and if the purchaser of such Interests is not a Partner of this
Partnership, he will be entitled to be admitted to the Partnership as a
Substituted Limited Partner with respect to such Interest. The effective
date of any such sale shall be the date on which payment has been made by
the purchaser of such Interest.

ARTICLE EIGHT

Dissolution, Liquidation and
Termination of the Partnership

Section 8.1 Events Causing Dissolution

A. Except as provided in Section 8.1(B), the Partnership shall be
dissolved and its affairs shall be wound up upon the happening of any of
the following events:

(i) the expiration of its term;

(ii) the Incapacity of the General Partner;

(iii) the Removal of the General Partner and the failure to
designate a successor;

(iv) the Sale or other disposition at one time of all or
substantially all of the Partnership's assets;

(v) the election to dissolve the Partnership prior to January
1, 2003 by the General Partner with the Consent of a Majority-in-Interest of
the Limited Partners, which Consent shall be subject to Article Eleven;

(vi) the election to dissolve the Partnership by the General
Partner at any time after January 1, 2003; or

(vii) the withdrawal of the General Partner without the
designation of a successor General Partner under Section 6.1.

The occurrence of any event described in Sections 17-402(a)(4) or 17-
402(a)(5) of the Act (other than an event that would cause the Incapacity
of the General Partner) shall not cause the General Partner to cease to be
a General Partner of the Partnership or cause the Partnership to dissolve.

B. Upon the happening of an event described in Section 8.1(A)(ii),
(iii) or (vii), the Partnership shall not be dissolved if, at the time of
the occurrence of such event there is at least one other General Partner,
or within ninety (90) days after the occurrence of such an event, all
remaining partners agree to continue the business of the Partnership and
to the appointment, effective as of the date of such event, of one or more
successor General Partners.

C. The Incapacity of any Limited Partner shall not dissolve the
Partnership and the seizure of the Interest of any Partner shall not
dissolve the Partnership. Dissolution of the Partnership shall be
effective on the day on which the event occurs giving rise to the
dissolution, but the Partnership shall not terminate until the
Partnership's certificate of limited partnership has been cancelled and
the assets of the Partnership have been distributed as provided in Section
8.2.

Section 8.2 Liquidation

A. Upon dissolution of the Partnership, its liabilities shall be
paid in the order provided herein. The General Partner shall cause
Partnership property to be sold in such manner as it, in its sole
discretion, shall determine in an effort to obtain the best price for such
property. In order for the Partnership to obtain a reasonable price for
any Partnership investments which are illiquid, the General Partner may,
to the extent permitted by applicable law, purchase from the Partnership
any Partnership investments upon which there are significant restrictions
as to transferability or for which a fair market price is not readily
obtainable. Payment of the fair market value of any such investment as
established by the annual Appraisal made in accordance with Section 9.4,
adjusted for any distributions or other significant events subsequent to
the Valuation Date, shall be deemed fair and reasonable and not a
violation of any General Partner's duty to the Partnership. Pending Sale
of Partnership property, the General Partner shall have the right to
continue to operate and otherwise deal with Partnership property. In the
event that the General Partner has been Removed and a successor General
Partner has not been designated, the Limited Partners shall elect, in
accordance with the provisions of Article Eleven, a Person to perform the
functions of the General Partner in liquidating the assets of the
Partnership and in winding up its affairs.

B. Profits and Losses arising from Sales upon liquidation shall be
allocated as follows:

(i) Profits shall be allocated (a) first, to the Partners in
amounts equal to the negative balances, if any, in their respective
Capital Accounts, without giving effect to any cash distributions arising
from Sales at liquidation; (b) second, to the General Partner up to the
amount of the Capital Contributions of the General Partner made to the
Partnership during its term under Section 3.1B in excess of 1% of the Limited
Partners' Capital Contributions, but not to exceed the amount of assets
payable to the General Partner under Section 8.2C(ii); and (c) third, all
remaining Profits, 99% to the Limited Partners and 1% to the General Partner.

(ii) Losses shall be allocated 99% to the Limited Partners and
1% to the General Partner.

C. In settling accounts after dissolution, the assets of the
Partnership shall be paid out in the following order:

(i) first, to any creditors (including any creditor who is a
Partner), in the order of priority as provided by law or the establishment
of reasonable reserves for the payment of obligations to creditors;

(ii) second, to each Partner in an amount equivalent to the
positive amount of his Capital Account on the date of distribution, after
giving effect to any allocation of Profits or Losses arising from Sales on
liquidation; and

(iii) third, the balance, 99% to the Limited Partners and 1% to
the General Partner.

D. In the event that following the final dissolution under Section
8.2C, the General Partner has a deficit balance in its Capital Account
balance, the General Partner shall contribute cash to the Partnership
necessary to eliminate said deficit balance.

ARTICLE NINE

Books and Records; Accounting; Appraisal;
Tax Elections; Etc.

Section 9.1 Books and Records

The books and records of the Partnership, including information
relating to the sale by the General Partner or any of its Affiliates of
securities, property, goods or services to the Partnership, and a list of
the name, residence, business or mailing address and Interest of each
Limited Partner, shall be maintained by the General Partner at the office
of the Partnership or of the General Partner and shall, for any purpose,
other than commercial purposes, reasonably related to a Limited Partner's
Interest as a limited partner, be available for examination there by any
Limited Partner or his duly authorized representative at any and all
reasonable times. Any Limited Partner, or his duly authorized
representatives, upon paying the costs of collection, duplication and
mailing, for any purpose reasonably related to a Limited Partner's
Interest as a limited partner, shall be entitled to a copy of the list of
name, residence, business or mailing address and Interest of each Limited
Partner. Such information shall be used for Partnership purposes only.
The Partnership may maintain such other books and records and may provide
such financial or other statements as the General Partner in its
discretion deems advisable.

Section 9.2 Accounting Basis for Tax and Reporting Purposes;
Fiscal Year

The books and records, and the financial statements and reports of
the Partnership, both for tax and financial reporting purposes, shall be
kept on an accrual basis. The Fiscal Year of the Partnership for both tax
and financial reporting purposes shall be the calendar year.

Section 9.3 Bank Accounts

The General Partner shall maintain the Partnership Account and
withdrawals shall be made only in the regular course of the Partnership
business on such signature or signatures as the General Partner may
determine. Temporary investments of the type permitted by Section
4.1A(ix) are deemed activities in the ordinary course of Partnership
business.

Section 9.4 Appraisal

Beginning December 31, 1997, and as of December 31, of each
succeeding year thereafter (the "Valuation Date"), the General Partner
will make or have made an appraisal of all of the assets of the
Partnership as of the Valuation Date (the "Appraisal"). The Appraisal of
the Partnerships assets may be by independent third parties
appointed by the General Partner and deemed qualified by the General
Partner to render an opinion as to the value of Partnership assets, using
such methods and considering such information relating to the investments,
assets and liabilities of the Partnership as such Persons may deem
appropriate, but in the case of an event subsequent to the Valuation Date
materially affecting the value of any Partnership asset or investment, the
General Partner may revise the Appraisal as it, in its good faith and sole
discretion, deems appropriate. For purposes of the Appraisal to be made
on December 31, 1997, the General Partner may use the purchase price of
Partnership assets as the value of such assets.

Section 9.5 Reports

Within 75 days after the end of each Fiscal Year or as soon as
practicable thereafter, the General Partner shall send to each Person who
was a Limited Partner at any time during the Fiscal Year then ended (i) a
statement (which shall be audited by the Auditors) showing the
Distributable Cash (or assets distributed in kind) distributed in respect
of such year; (ii) such tax information as shall be necessary for the
preparation by such Limited Partner of his Federal and state income tax
returns; and (iii) a report of the investment activities of the
Partnership during such year. Within 120 days after the end of each
Fiscal Year, the General Partner shall send to each Person who was a
Limited Partner at any time during the Fiscal Year then ended Partnership
financial statements audited by the Auditors and a copy of the Appraisal.
Within 45 days after the end of each quarter of a Fiscal Year the General
Partner shall send to the Partnership a certificate itemizing the
Partnership expenses it has paid during such quarter. The General Partner
shall not be required to deliver or mail a copy of the certificate of
limited partnership of the Partnership or any amendment thereof to the
Limited Partners.

Section 9.6 Elections

The General Partner may cause the Partnership to make all elections
required or permitted to be made by the Partnership under the Code and not
otherwise expressly provided for in this Agreement, in the manner that the
General Partner believes will be most advantageous to individual taxpayers
who (i) are married and filing joint Federal income tax returns, (ii) are
not "dealers" for Federal income tax purposes, and (iii) have income at
least part of which, without giving effect to any additional tax on
preference items, is subject to Federal income taxation at the then
highest marginal tax rate for persons set forth in (i).

ARTICLE TEN

Amendments

Section 10.1 Proposal and Adoption of Amendments Generally

A. Amendments to this Agreement to reflect the addition or
substitution of a Limited Partner, the admission of a successor General
Partner or the withdrawal of the General Partner, shall be made at the
time and in the manner referred to in Section 10.2. Any other amendment
to this Agreement may be proposed by the General Partner or by 10% in
Interest of the Limited Partners. The Partner or Partners proposing such
amendment shall submit (a) the text of such amendment, (b) a statement of
the purpose of such amendment, and (c) an opinion of counsel obtained by
the Partner or Partners proposing such amendment to the effect that such
amendment is permitted by the Act and the laws of any other jurisdiction
where the Partnership is qualified to do business, will not impair the
liability of the Limited Partner and will not adversely affect the
classification of the Partnership as a partnership for Federal income tax
purposes. The General Partner shall, within 20 days after receipt of any
proposal under this Section 10.1A, give Notification to all Partners of
such proposed amendment, of such statement of purpose and of such opinion
of counsel, together, in the case of an amendment proposed by Limited
Partners, with the views, if any, of the General Partner with respect to
such proposed amendment.

B. Amendments of this Agreement shall be adopted if:

(i) in the case of amendments referred to in Sections 10.2A and
10.2B, the conditions specified in Sections 6.1 and 6.2 shall have been
satisfactorily completed;

(ii) in the case of amendments referred to in Section 10.2C, the
conditions specified in Section 7.4 shall have been satisfactorily
completed; or

(iii) in the case of all amendments, subject to the provisions of
Section 11.3, such amendment shall have been Consented to by a
Majority-in-Interest of the Limited Partners; provided, however, that no such
amendment may:

(a) enlarge the obligations of any Partner under this Agreement
or convert the Interest of any Limited Partner into the Interest of a General
Partner or modify the liability of any Limited Partner without the
Consent of such Partner;

(b) modify the method provided in Article Five of determining,
allocating or distributing, as the case may be, Profits and Losses and
Distributable Cash without the Consent of each Partner adversely affected by
such modification;

(d) amend Section 4.3C, this Article Ten or Section 11.3
without the Consent of all the Partners; or

(e) allow additional contributions of capital by some or all of
the Limited Partners without the Consent of the General Partner and a
Majority-in-Interest of the Limited Partners.

C. Upon the adoption of any amendment to this Agreement, the
amendment shall be executed by the General Partner and the Limited
Partners and, if required by the Act, an amendment to the certificate of
limited partnership of the Partnership shall be filed or recorded in the
proper records of the State and of each jurisdiction in which filing or
recordation is necessary for the Partnership to conduct business or to
preserve the limited liability of the Limited Partners. Each Limited
Partner hereby irrevocably appoints and constitutes the General Partner as
his agent and attorney-in-fact to execute, file, and record any and all
such amendments including, without limitation, amendments to admit Limited
Partners and to increase or decrease the amount of the contribution to the
Partnership of any Partner. The power of attorney given herewith is
irrevocable, is coupled with an interest and shall survive and not be
affected by the subsequent Incapacity of any Limited Partner granting it.

D. Notwithstanding anything to the contrary contained herein, the
General Partner may, without prior notice or Consent of any Limited
Partner, amend any provision of this Agreement if, in its opinion, such
amendment does not have a material adverse effect upon the Limited
Partners.

Section 10.2 Amendments on Admission or Withdrawal of Partners

A. If this Agreement shall be amended to reflect the admission of a
General Partner, the amendment to this Agreement and to the certificate of
limited partnership of the Partnership shall be adopted, executed and
filed as required by the Act and this Agreement.

B. If this Agreement shall be amended to reflect the withdrawal or
Removal of the General Partner and the continuation of the business of the
Partnership, the amendment to this Agreement and to the certificate of
limited partnership shall be adopted, executed and filed as required by
the Act and this Agreement.

C. No Person shall become a Partner unless such Person shall have
become a party to, and adopted all of the terms and conditions of, this
Agreement, and except for the Initial Limited Partner or an Additional
Limited Partner, paid any reasonable legal fees of the Partnership and the
General Partner and filing and publication costs in
connection with such Person's becoming a Partner elected to be so
charged in the General Partner's discretion.

ARTICLE ELEVEN

Consents, Voting and Meetings

Section 11.1 Method of Giving Consent

Any Consent required by this Agreement may be given as follows:

(i) by a written Consent given by the approving Partner at or
prior to the date set by the General Partner for the delivery of the
Consent, provided that such Consent shall not have been nullified by
either (a) Notification to the General Partner by the approving Partner at
or prior to the time of, or the negative vote by such approving Partner at,
any meeting held to consider the doing of such act or thing, or (b)
Notification to the General Partner by the approving Partner prior to the
date set by the General Partner for the delivery of the Consent with respect
to actions the doing of which is not subject to approval at such meeting; or

(ii) by the affirmative vote by the approving Partner to the
doing of the act or thing for which the Consent is solicited at any
meeting called and held pursuant to Section 11.2 to consider the doing of
such act or thing.

Section 11.2 Meetings of Partners

The termination of the Partnership and any other matter requiring the
Consent of all or any of the Limited Partners pursuant to this Agreement
may be considered at a meeting of the Partners held not less than 15 nor
more than 30 days after Notification thereof shall have been given by the
General Partner to all Partners. Such Notification (i) may be given by
the General Partner, in its discretion, at any time and (ii) shall be
given by the General Partner within 15 days after receipt by the General
Partner of a request for such a meeting made by 10% in Interest of the
Limited Partners. Such meeting shall be held within or outside the State
at such reasonable place as shall be specified by the General Partner if
Notification of such meeting is given pursuant to this Section 11.2.

Section 11.3 Limitations on Requirements for Consents

Notwithstanding the provisions of Sections 4.3C, 6.1A(iv), 6.1C,
6.5A, 6.5B, 8.1(v) and 10.1B, as the case may be,

(i) the provision of Section 4.3C(i) requiring the Consent of a
Majority-in-Interest of the Limited Partners to the sale or other
disposition at any one time of all or substantially all of the assets of the
Partnership shall be void and the General Partner shall have authority
to sell or dispose at any one time all or substantially all of the assets of
the Partnership;

(ii) the provisions of Section 4.3C(ii) and 8.1(v) permitting
the General Partner to dissolve the Partnership prior to January 1, 2000 with
the Consent of the Majority-in-Interest of the Limited Partners shall
be void and the General Partner shall have the authority to dissolve the
Partnership at any time without the Consent of the Limited Partners;

(iii) the provisions of Section 4.3C(iii) through (ix) requiring
the Consent of a Majority-in-Interest of the Limited Partners as to the
taking of certain actions by the General Partner shall be void and the
General Partner may take such actions on behalf of the Partnership if not
prohibited by the Investment Company Act of 1940;

(iv) the provisions of Sections 6.1A(iv) and 6.1C permitting the
giving of the Consent of the Limited Partners by the express Consent of a
Majority-in-Interest of the Limited Partners shall be void;

(v) the power granted pursuant to the provisions of Section
6.5A and 6.5B to Remove the General Partner and designate a successor
General Partner upon the Consent of a Majority-in-Interest of the Limited
Partners may not be exercised; and

(vi) the provisions of Section 10.1B(iii) relating to the
amendment of this Agreement by or upon the Consent of a
Majority-in-Interest of the Limited Partners shall be void;
unless at the time of the giving or withholding of the Consent pursuant to
the provisions of Sections 4.3C, 6.1A(iv), 6.1C, 6.5A, 6.5B, 8.1(v) or
10.1B, as the case may be, counsel for the Partnership or counsel
designated by 10% in Interest of the Limited Partners shall have delivered
to the Partnership an opinion to the effect that the giving or withholding
of the Consent is permitted by the Act, will not impair the liability of
the Limited Partners and will not adversely affect the classification of
the Partnership as a partnership for Federal income tax purposes.

Section 11.4 Submissions to Limited Partners

The General Partner shall give all the Limited Partners Notification
of any proposal or other matters required by any provisions of this
Agreement or by law to be submitted for the consideration and approval of
the Limited Partners. Such Notification shall include any information
required by the relevant provision of this Agreement or by law.

ARTICLE TWELVE

Miscellaneous Provisions

Section 12.1 Appointment of the General Partner as Attorney-in-Fact

A. Each Limited Partner, by his execution hereof, hereby makes,
constitutes and appoints the General Partner and each of its officers his
true and lawful agent and attorney-in-fact, with full power of
substitution and full power and authority in his name, place and stead to
make, execute, sign, acknowledge, swear to, record and file, on behalf of
him and on behalf of the Partnership, such documents, instruments and
conveyances that may be necessary or appropriate to carry out the
provisions or purposes of this Agreement, including, without limitation:

(i) this Agreement and the certificate of limited partnership
of the Partnership and all amendments to this Agreement and the
certificate of limited partnership of the Partnership required or
permitted by law or the provisions of this Agreement including, without
limitation, such certificates, agreements and amendments thereto relating to
the admission to the Partnership of Partners and the increase or decrease of
the amount of the Capital Contributions of any Partner;

(ii) all certificates and other instruments deemed advisable by
the General Partner to carry out the provisions of this Agreement or to
permit the Partnership to become or to continue as a limited partnership or
partnership wherein the Limited Partners have limited liability in any
jurisdiction where the Partnership may be doing business;

(iii) all instruments that the General Partner deems appropriate
to reflect a change or modification of this Agreement, in accordance with
this Agreement, including, without limitation, the substitution of assignees
as Substituted Limited Partners pursuant to Sections 7.4 and 10.2C and, if
required, the filing of certificates to effect the same;

(iv) all conveyances and other instruments or papers deemed
advisable by the General Partner to effect the dissolution and termination
of the Partnership, including a certificate of cancellation;

(v) all fictitious or assumed name certificates required or
permitted to be filed on behalf of the Partnership;

(vi) all instruments or papers required by law to be filed in
connection with the issuance of limited partnership interests senior to the
Units;

(vii) all other instruments or papers which may be required or
permitted by law to be filed on behalf of the Partnership; and

(viii) all instruments and filings required by Section 6111 of the
Code ("Registration of Tax Shelters") and Section 6112 of the Code
relating to maintenance of lists of investors in tax shelters.

B. The foregoing power of attorney:

(i) is coupled with an interest, shall be irrevocable, shall
not be affected by and shall survive the subsequent Incapacity of each
Limited Partner;

(ii) may be exercised by the General Partner either by signing
separately or jointly as attorney-in- fact for each or all Limited
Partner(s) or, with or without listing all of the Limited Partners
executing an instrument, by a single signature of the General Partner
acting as attorney-in-fact for all of them; and

(iii) shall survive the delivery of an assignment by a Limited
Partner of the whole of his Interest; except that, where the assignee of the
whole of such Limited Partner's Interests has been approved by the General
Partner for admission to the Partnership as a Substituted Limited Partner,
the power of attorney of the assignor shall survive the delivery of such
assignment for the sole purpose of enabling the General Partner to
execute, swear to, acknowledge and file any instrument necessary or
appropriate to effect such substitution.

C. Each Limited Partner shall execute and deliver to the General
Partner within five days after receipt of the General Partner's request
therefor such further designations, powers-of-attorney and other
instruments as the General Partner deems necessary or appropriate to carry
out the terms of this Agreement.

Section 12.2 Notification to the Partnership or the General Partner

Any notification to the Partnership or the General Partner shall be
sent to the principal office of the Partnership.

Section 12.3 Binding Provisions

The covenants and agreements contained herein shall be binding upon
and inure to the benefit of the heirs, executors, administrators,
permitted successors and assigns of the respective parties hereto.

Section 12.4 Applicable Law

This Agreement shall be construed and enforced in accordance with the
laws of the State.

Section 12.5 Counterparts

This Agreement may be executed in several counterparts, all of which
together shall constitute one agreement binding on all parties hereto,
notwithstanding that not all the parties have signed the same counterpart
except that no counterpart shall be binding unless signed by the General
Partner. The General Partner may execute any document by facsimile
signature of a duly authorized officer.

Section 12.6 Separability of Provisions

If for any reason any provisions hereof that are not material to the
purposes or business of the Partnership or the Limited Partners' Interests
are determined to be invalid and contrary to any existing or future law,
such invalidity shall not impair the operation of or affect those portions
of this Agreement that are valid.

Section 12.7 Entire Agreement

This Agreement constitutes the entire agreement among the parties.
This Agreement supersedes any prior agreement or understanding among the
parties and may not be modified or amended in any manner other than as set
forth therein.

Section 12.8 Headings

The headings in this Agreement are for descriptive purposes only and
shall not control or alter the meaning of this Agreement as set forth in
the text.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first above written.

KECALP INC.
General Partner

By: ____________________________

Attest:

By: ______________________
Secretary

Withdrawing and Initial Limited
Partner

_______________________________________
Robert F. Tully

LIMITED PARTNERS

All Limited Partners now and
hereafter admitted as limited partners
to the Partnership, pursuant to Powers
of Attorney now and hereafter executed
in favor of, and delivered to, the
General Partner.

By: KECALP Inc.

By:
____________________________________

EXHIBIT B

SUBSCRIPTION AGREEMENT

MERRILL LYNCH KECALP L.P. 1997

KECALP Inc., General Partner of
Merrill Lynch KECALP L.P. 1997
South Tower
World Financial Center
225 Liberty Street
New York, New York 10080-6123

Gentlemen:

By signing the Limited Partner Signature Page and Power of Attorney
attached hereto, the undersigned hereby applies for the purchase of the
number of limited partner interests (the "Units"), set forth below, in
Merrill Lynch KECALP L.P. 1997, a Delaware limited partnership (the
"Partnership"), at a price of $1,000 per Unit (minimum purchase of five
Units), and authorizes Merrill Lynch, Pierce, Fenner & Smith Incorporated
to debit his securities account in the amount set forth below for such
Units. The undersigned understands that such funds will be held by The
Bank of New York, as Escrow Agent, and will be returned promptly in the
event that 5,000 Units of the Units offered by the Prospectus are not
subscribed for by _____________, 1997, or such subsequent date, not later
than _____________, 1997, as the Partnership and Merrill Lynch, Pierce,
Fenner & Smith Incorporated may agree upon. The undersigned hereby
acknowledges receipt of a copy of the Prospectus, as well as the Amended
and Restated Agreement of Limited Partnership (the "Partnership
Agreement") of the Partnership attached to the Prospectus as Exhibit A,
and hereby specifically accepts and adopts each and every provision of,
and executes, the Partnership Agreement and agrees to be bound thereby.

The undersigned hereby represents and warrants to you as follows:

1. The undersigned has carefully read the Prospectus and has relied
solely on the Prospectus and investigation made by the undersigned or his
or her representatives in making the decision to invest in the
Partnership.

2. The undersigned is aware that investment in the Units involves
certain risk factors and has carefully read and considered the matters set
forth under the captions "Investment Objective and Policies", "Conflicts
of Interest", "Risk and Other Important Factors" and "Tax Aspects of
Investment in the Partnership" in the Prospectus.

3. The undersigned is 21 years of age or over, has adequate means of
providing for his or her current needs and personal contingencies and has
no need for liquidity in this investment.

4. The undersigned represents that he or she (i) in the case of an
employee of Merrill Lynch & Co., Inc. ("ML & Co.") or its subsidiaries,
receives a current annual salary which, together with bonus received from
ML & Co. or its subsidiaries in respect of 1996, equals at least $100,000;
or, if employed for less than a full calendar year, is employed with an
annualized gross income from ML & Co. or its subsidiaries of at least
$100,000 or (ii) in the case of a non-employee director of ML & Co., (a)
has a net worth (exclusive of homes, home furnishings, personal
automobiles and the amount to be invested in Units) of not less than
$125,000 in excess of the price of the Units for which such investor has
subscribed, or (b) has a net worth (exclusive of homes, home furnishings,
personal automobiles and the amount to be invested in Units) of not less
than $100,000 in excess of the price of the Units for which such investor
has subscribed and expects to have during each of the current and the next
three taxable years, gross income from all sources in excess of $100,000.

5. The undersigned represents that the amount of Units to be
purchased hereby (i) in the case of an employee of ML & Co. or its
subsidiaries, does not exceed an amount that would result in the price of
such Units exceeding either (a) 15% of the employee's cash compensation
from ML & Co. or its subsidiaries received in respect of 1996 on an
annualized basis unless the employee either (x) has a net worth,
individually or jointly with the employee's spouse, in excess of
$1,000,000 at the time of purchase of the Units, or (y) had an individual
income in excess of $200,000 in each of 1995 and 1996 or joint income with
the employee's spouse in excess of $300,000 in each of those years and
reached or has a reasonable expectation of reaching the same income level
in 1997 or (b) 75% of his compensation received in respect of 1996 on an
annualized basis, provided that the employee meets the standards of (x) or
(y) above; or (ii) in the case of a non-employee director of ML & Co.,
does not exceed an amount equal to two times the director's fees
(including committee fees, but not including reimbursements of expenses)
received from ML & Co. during 1996.

6. The undersigned represents and warrants that the statements
contained in Section 7.4D of the Partnership Agreement are true insofar as
they relate to the undersigned:

The undersigned understands and recognizes that:

(a) The subscription may be accepted or rejected in whole or in
part by the General Partner in its sole and absolute discretion, except that,
if this subscription is to be accepted in part only, it shall not be
reduced to an amount less than $5,000.

(b) No Federal or state agency has made any finding or
determination as to the fairness for public investment, nor any
recommendation or endorsement, of the Units.

(c) There are restrictions on the transferability of the Units,
there will be no public market for Units, and accordingly, it may not be
possible for the undersigned readily, if at all, to liquidate his or her
investment in the Partnership in case of an emergency.

(d) Prior to any contrary notification to the General Partner
by the undersigned, the undersigned hereby authorizes all cash
distributions to be made by the Partnership to the undersigned as a
Limited Partner to be credited to the undersigned's securities account at
Merrill Lynch, Pierce, Fenner & Smith Incorporated as specified in the
Signature Page and Power of Attorney attached hereto.

The undersigned hereby acknowledges and agrees that the undersigned
is not entitled to cancel, terminate or revoke this subscription or any
agreements of the undersigned hereunder and that such subscription and
agreements shall survive the disability of the undersigned.

This Subscription Agreement and all rights hereunder shall be
governed by, and interpreted in accordance with, the laws of the State of
Delaware.

In Witness Whereof, the undersigned executes and agrees to be bound
by this Subscription Agreement by executing the Limited Partner Signature
Page and Power of Attorney attached hereto on the date therein indicated.

INSTRUCTIONS FOR PURCHASERS OF UNITS

Any person desiring to subscribe for Units should carefully read and
review the Prospectus and, if he or she desires to subscribe for Units in
the Partnership, complete the following steps:

1. Complete, date and execute the Limited Partner Signature Page
and Power of Attorney (sent with Prospectus, on green paper).

2. Use the sample that follows, to assist you in the accurate
completion of the Signature Page.

3. Indicate in the four boxes provided the number of Units you
would like to purchase (minimum 5 Units). If this amount is in excess of
250 Units, your subscription will be entered initially for 250 Units and,
if the offering is not fully subscribed at the offering termination date,
you will receive as many of the Units you have requested as are available
on a pro rata basis based on the amount of Units available subject to the
limitations described in the Prospectus.

4. Direct Investment Services will, upon receipt of the acceptance
of your subscription, enter and execute an order. An execution wire will
be generated to your branch office and a trade confirmation will be made
to you. Settlement date will be five (5) business days following
execution.

Your MLPF&S Securities Account will be debited in the amount of
$1,000 for each Unit that you purchase.

5. Cancellations and quantity reductions are difficult to handle
after an investor has been accepted and the funds placed in escrow.
Nonetheless, if you wish to cancel, contact Andrew Kaufman at (212)
236-7302.

MERRILL LYNCH KECALP L.P. 1997
LIMITED PARTNER SIGNATURE PAGE AND POWER OF ATTORNEY

The undersigned, desiring to become a Limited Partner of Merrill
Lynch KECALP L.P. 1997 (the "Partnership"), pursuant to Section 3.3 or 7.4
of the Amended and Restated Agreement of Limited Partnership (the
"Partnership Agreement"), a form of which is included as Exhibit A to the
Prospectus of the Partnership dated ___________, 1997 (the "Prospectus"),
hereby executes, and agrees to all of the terms of, the Partnership
Agreement of the Partnership and agrees to be bound by the terms and
provisions thereof. The undersigned further, by executing this Limited
Partner Signature Page and Power of Attorney, hereby executes, adopts and
agrees to all terms, conditions and representations of the Subscription
Agreement included as Exhibit B to the Prospectus. The undersigned
further irrevocably constitutes and appoints KECALP Inc., the General
Partner of the Partnership, and its successors and assigns with full power
of substitution, the true and lawful attorney for the undersigned and in
the name, place and stead of the undersigned to make, execute, sign,
acknowledge, swear to, deliver, record and file any documents or
instruments which may be considered necessary or desirable by the General
Partner to carry out fully the provisions of the Partnership Agreement,
including, without limitation, the Partnership Agreement, the certificate
of limited partnership of the Partnership and any amendment or amendments
thereto, including, without limitation, amendments thereof for the purpose
of increasing or decreasing the capital contribution of any partner and
adding and deleting the undersigned and others as the partners in the
Partnership, as contemplated by the Partnership Agreement (which
amendment(s) the undersigned hereby joins in and executes, hereby
authorizing his Limited Partner Signature Page and Power of Attorney to be
attached, if required, to any such amendment) and of otherwise amending
the Partnership Agreement from time to time, or cancelling the same. The
power of attorney hereby granted shall be deemed to be coupled with an
interest and shall be irrevocable and survive and not be affected by the
subsequent death, disability, incapacity or insolvency of the undersigned
or any delivery by the undersigned of an assignment of the whole or any
portion of the interest of the undersigned. The place of residence of the
undersigned is as shown below.
ALL INFORMATION MUST BE COMPLETED

Signature of Limited Partner:
-------------------------------

# of Units applied for (whole Units only) / // //2//5/ x $1,000. = Dollar
Amount to be debited from account listed below / // //2//5//0//0//0/

Does purchase price of Units applied for exceed 15% of your Merrill Lynch
compensation in respect of 1995? Yes /x/ No / /

If so, do you satisfy either of the exceptions specified under "Maximum
Purchase by Qualified Investors" on page 44 of the Prospectus?
Yes /x/ No / /

Limited Partner Name: /S//M//I//T//H// // // // // // // // // // // /
Last Name
/J//A//M//E//S// // // // // // // // / /Q/
First Name MI

Social Security
Number /1//2//3/-/4//5/-/6//7//8//9/

ML Account Number /1//0//0/-/9//9//2//0//0/

ML Employee Number /9//8//7//6//5/

Mailing Address: (As it is to appear on Envelopes)

Name: /J//A//M//E//S/ /Q/ /S//M//I//T//H/

Address: /2//2//5// // //L//I//B//E//R//T//Y// //S//T//R//E//E//T// // /
/A//P//T/ /2//F// // // //B//U//I//L//D//I//N//G////#//4// // // // /

City: /N//E//W/ /Y//O//R//K// // / State: /N//Y/ Zip Code:
/1//0//0//8//0/-/6//1//2//3/

Residence State if different from above: / // /

Home
Telephone: /2//1//2/-/2//3//6/-/7//3//2//3/

Office Telephone: /2//1//2/-/2//3//6/-/7//3//0//3/

Fax: /2//1//2/-/2//3//6/-/7//3//6//4/

Are you an active Financial Consultant? Yes /x/ No / / If No,
indicate Branch Office # and F.C. # below:

Branch Office # / // // / and F.C. # /0//0//0//0//0/

U.S. Citizen? Yes / / No / / If No, What Country or State are you a
Citizen of? / // // // // // // // // // // // // // // // // // // /

Resident alien / / Non-resident alien / /
(If non-resident alien, please submit Form W-8)

(THIS PAGE INTENTIONALLY LEFT BLANK)

- ----------------------------------- ---------------------------------

TABLE OF CONTENTS

100,000 UNITS OF
Page LIMITED PARTNERSHIP
---- INTEREST

Investor Suitability Standards 2
Summary of the Offering 3
Partnership Expenses 6
Conflicts of Interest 6
Fiduciary Responsibility of
the General Partner 7
Risk and Other Important
Factors 8
Compensation and Fees 12 MERRILL LYNCH
The Partnership 13 KECALP L.P.
The General Partner and Its 1997
Affiliates 15
Investment Objective and
Policies 24
Tax Aspects of Investment in
the Partnership 28
Summary of the Partnership
Agreement 41
Offering and Sale of Units 43
Transferability of Units 45
Reports 47
Experts 48
Legal Matters 48
Exemptions from the Investment
Company Act of 1940 48
Additional Information 49
Index to Financial Statements 50 , 1997

MERRILL LYNCH & CO.
------------------
Form of Amended and Restated
Agreement of Limited
Partnership Ex. A
Subscription Agreement Ex. B

- ----------------------------------- ---------------------------------

PART C

OTHER INFORMATION

ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS

(1) Financial Statements

Contained in Part A:

-- See "Index to Financial Statements" in the Prospectus.

Contained in Part B

-- Not Applicable

Contained in Part C

-- None

(2) Exhibits

(a)(i) -- Certificate of Limited Partnership of Merrill Lynch
KECALP L.P. 1997
(a)(ii) -- Form of Amended and Restated Agreement of Limited
Partnership of Merrill Lynch KECALP L.P. 1997 is included as Exhibit A in the
Prospectus
(a)(iii) -- Subscription Agreement is included in Exhibit B in the
Prospectus
(b) -- Not Applicable
(c) -- Not Applicable
(d) -- Copies of Instruments Defining the Rights of Unitholders/*/
(e) -- Not Applicable
(f) -- Not Applicable
(g) -- Not Applicable
(h) -- Form of Agency Agreement*
(i) -- Not Applicable
(j) -- Form of Escrow Deposit Agreement*
(k) -- Not Applicable
(l) -- Opinion and Consent of Brown & Wood LLP*
(m) -- Not Applicable
(n)(i) -- Consent of Independent Accountants*
(n)(ii) -- Form of opinion of Brown & Wood LLP as to certain tax
matters*
(o) -- Not Applicable
(p) -- Not Applicable
(q) -- Not Applicable

- -----------------
* Reference is made to the Amended and Restated Agreement of Limited
Partnership of Merrill Lynch KECALP L.P. 1997, a form of which is included
as Exhibit A in the Prospectus.

ITEM 25. MARKETING ARRANGEMENTS.

None.

ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth the estimated expenses to be incurred
in connection with the offering described in this Registration Statement.

Registration fees $ 30,303.04
National Association of Securities Dealers, Inc. fees 10,500.00

Printing *
Fees and expenses of qualifications under state
securities laws (including fees of counsel) *
Legal fees and expenses *
Accounting fees and expenses *
Miscellaneous *
-------

Total $ *
============
- -------------------
* To be completed by amendment

ITEM 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.

The General Partner of the Partnership is a wholly-owned subsidiary
of Merrill Lynch & Co., Inc.

ITEM 28. NUMBER OF HOLDERS OF SECURITIES.

Robert F. Tully, an employee of Merrill Lynch & Co., Inc. purchased a
limited partnership interest in the Partnership for $1.00 in order to
become the Initial Limited Partner and permit the filing of the Agreement
and Certificate of Limited Partnership. This sale was prior to the date
of effectiveness of this Registration Statement, as a "private offering"
pursuant to the exemption contained in Section 4(2) of the Securities Act
of 1933. Upon admission of the purchasers of Units to the Partnership as
Limited Partners, Mr. Tully will withdraw from the Partnership and receive
a return of his $1.00.

ITEM 29. INDEMNIFICATION.

Pursuant to Section 4.7 of the Partnership Agreement, neither the
General Partner nor any of its officers, directors or agents shall be
liable to the Partnership or the Limited Partners for any act or omission
based upon errors of judgment or other fault in connection with the
business or affairs of the Partnership so long as the person against whom
liability is asserted acted in good faith and in a manner reasonably
believed by such person to be within the scope of its authority under the
Partnership Agreement and in or not opposed to the best interests of the
Partnership, but only if such action or failure to act does not constitute
negligence, misconduct or any other breach of fiduciary duty. The General
Partner and its officers, directors and agents will be indemnified by the
Partnership to the fullest extent permitted by law for any (a) fees, costs
and expenses incurred in connection with or resulting from any claim,
action or demand against the General Partner, the Partnership or any of
their officers, directors and agents that arises out of or in any way
relates to the Partnership, its properties, business or affairs and (b)
such claims, actions and demands and any losses or damages resulting from
such claims, actions and demands, including amounts paid in settlement or
compromise (if recommended by attorneys for the Partnership) of any such
claim, action or demand; provided, however, that this indemnification
shall apply only so long as the person against whom a claim, action or
demand is asserted has acted in good faith and in a manner reasonably
believed by such person to be within the scope of his or its authority
under the Partnership Agreement and in or not opposed to the best
interests of the Partnership, but only if such action or failure to act
does not constitute negligence, misconduct or any other breach of
fiduciary duty.

Insofar as indemnification for liabilities under the Securities Act
of 1933 may be permitted to the General Partner, the Partnership has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against the public policy as expressed in such Act and
is therefore unenforceable. If a claim for indemnification against such
liabilities under the Securities Act of 1933 (other than for expenses
incurred in a successful defense) is asserted against the Partnership by
the General Partner under the Partnership Agreement or otherwise, the
Partnership 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 of whether such indemnification by it is against
public policy as expressed in such Act and will be governed by the final
adjudication of such issue.

Reference is made to Section 8 of the form of Agency Agreement to be
filed as Exhibit (h) hereto, which contains provisions requiring
indemnification of the Partnership's principal underwriter by the General
Partner and of the Partnership and the General Partner by the
Partnership's principal underwriter.

ITEM 30. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT ADVISER.

Information concerning the General Partner and biographical
information for each of the directors and executive officers of the
General Partner is contained in Part A of this Registration Statement
under the caption "The General Partner and Its Affiliates."

ITEM 31. LOCATION OF ACCOUNTS AND RECORDS.

The accounts and records of the Partnership will be maintained at the
office of the Partnership at South Tower, World Financial Center, 225
Liberty Street, New York, New York 10080-6123.

ITEM 32. MANAGEMENT SERVICES.

Not Applicable.

ITEM 33. UNDERTAKINGS.

(1) Registrant undertakes to suspend offering of the Common Stock
covered hereby until it amends its Prospectus contained herein if (i)
subsequent to the effective date of this Registration Statement, its net
asset value declines more than 10 percent from its net asset value as of
the effective date of this Registration Statement, or (ii) its net asset
value increases to an amount greater than its net proceeds as stated in
the Prospectus contained herein.

(2) Not applicable.

(3) Not applicable.

(4) Registrant undertakes:

(a) to file, during any period in which offers or sales
are being made, a post-effective amendment to the registration statement:

(1) to include any prospectus required by Section 10(a)(3)
of the 1933 Act (15 U.S.C. 77j(a)(3));

(2) to reflect in the prospect any facts or events 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; and

(3) 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;

(b) that, for the purpose of determining any liability
under the 1933 Act, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and
the offering of those securities at that time shall be deemed
to be the initial bona fide offering thereof; and

(c) 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.

(5) Registrant undertakes that:

(a) For the purposes of determining any liability under
the Act, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.

(b) For the purpose of determining any liability under the
Act, each post-effective amendment that contains a form of prospectus 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.

(6) Not applicable.

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933 AND THE
INVESTMENT COMPANY ACT OF 1940, THE REGISTRANT HAS DULY CAUSED THIS
REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED, IN THE CITY OF NEW YORK AND STATE OF NEW YORK
ON THE 28TH DAY OF OCTOBER, 1996.

Merrill Lynch KECALP L.P. 1997

By KECALP Inc., its General Partner

By /s/ Robert F. Tully
-------------------------------
Robert F. Tully
Vice President

EACH PERSON WHOSE SIGNATURE APPEARS BELOW HEREBY AUTHORIZES ROSEMARY
T. BERKERY, ROBERT F. TULLY AND JAMES V. CARUSO, OR ANY OF THEM, AS
ATTORNEY-IN-FACT, TO SIGN ON HIS OR HER BEHALF, INDIVIDUALLY AND IN EACH
CAPACITY STATED BELOW, ANY AMENDMENTS TO THIS REGISTRATION STATEMENT
(INCLUDING POST-EFFECTIVE AMENDMENTS) AND TO FILE THE SAME, WITH ALL
EXHIBITS THERETO, WITH THE SECURITIES AND EXCHANGE COMMISSION.

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN
THE CAPACITIES INDICATED AND ON THE 28TH DAY OF OCTOBER, 1996.

Signature Title
--------- -----

/s/ John L. Steffens President and Director (Chief
--------------------------------- Executive Officer)
(John L. Steffens) KECALP Inc.

Vice President and Treasurer
(Chief Financial and
Accounting Officer)
/s/ Robert F. Tully KECALP Inc.
----------------------------------
(Robert F. Tully)

/s/ James V. Caruso
---------------------------------- Vice President and Director
(James V. Caruso) KECALP Inc.

/s/ Rosemary T. Berkery
---------------------------------- Vice President and Director
(Rosemary T. Berkery) KECALP Inc.

/s/ Walter Perlstein
----------------------------------- Director
(Walter Perlstein) KECALP Inc.

/s/ Andrew J. Melnick
------------------------------------ Vice President and Director
(Andrew J. Melnick) KECALP Inc.

/s/ Patrick J. Walsh
------------------------------------ Vice President and Director
(Patrick J. Walsh) KECALP Inc.

EXHIBIT INDEX

Exhibit Page No.
- ------- --------

(a)(i) -- Certificate of Limited Partnership of Merrill
Lynch KECALP L.P. 1997

CERTIFICATE OF LIMITED PARTNERSHIP
OF
MERRILL LYNCH KECALP L.P. 1997

THIS Certificate of Limited Partnership of Merrill Lynch KECALP L.P.
1997 (the "Partnership"), dated as of October 28, 1996, is being duly
executed and filed by KECALP Inc., a corporation, as general partner, to form
a limited partnership under the Delaware Revised Uniform Limited Partnership
Act (6 Del.C. Section17-101, et seq.).
------ -- ---
1. Name. The name of the limited partnership formed hereby is
----
Merrill Lynch KECALP L.P. 1997.
2. Registered Office. The address of the registered office of the
-----------------
Partnership 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. Registered Agent. The name and address of the registered agent
----------------
for service of process on the Partnership in the State of Delaware is The
Corporation Trust Company, Corporation Trust Center, 1209 Orange Street,
Wilmington, New Castle County, Delaware 19801.
4. General Partner. The name and the business address of the sole
---------------
general partner of the Partnership is: KECALP Inc., South Tower, World
Financial Center, 225 Liberty Street, New York, New York 10080-6123.

IN WITNESS WHEREOF, the undersigned has executed this Certificate of
Limited Partnership as of the date first above written.

KECALP Inc.

By /s/Robert F. Tully
----------------------------
Robert F. Tully
Vice President