<PAGE>
As filed with the Securities and Exchange Commission on October 23, 1996
REGISTRATION NO. 333-10749
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________________
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
______________________
ML GLOBAL HORIZONS L.P.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 6793 13-3716393
(State of Organization) (Primary Standard Industrial (IRS Employer
Classification Code Number) Identification Number)
</TABLE>
C/O MERRILL LYNCH INVESTMENT PARTNERS INC.
MERRILL LYNCH WORLD HEADQUARTERS
SIXTH FLOOR, SOUTH TOWER
WORLD FINANCIAL CENTER
NEW YORK, NEW YORK 10080-6106
(212) 236-4167
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
JOHN R. FRAWLEY, JR.
C/O MERRILL LYNCH INVESTMENT PARTNERS INC.
MERRILL LYNCH WORLD HEADQUARTERS
SIXTH FLOOR, SOUTH TOWER
WORLD FINANCIAL CENTER
NEW YORK, NEW YORK 10080-6106
(212) 236-4167
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
______________________
COPY TO:
Kathleen H. Pender
Steven Zoric
Sidley & Austin
One First National Plaza
Chicago, Illinois 60603
______________________
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
______________________
PURSUANT TO THE PROVISIONS OF RULE 429 OF THE RULES AND REGULATIONS OF THE
SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF 1933, THE FORM OF
PROSPECTUS SET FORTH HEREIN ALSO RELATES TO THE REGISTRANT'S REGISTRATION
STATEMENT ON FORM S-1 (REG. NO. 33-80202) DECLARED EFFECTIVE JUNE 17, 1994 AND
TO THE REGISTRANT'S REGISTRATION STATEMENT ON FORM S-1 (REGISTRATION NO. 33-
88994) DECLARED EFFECTIVE ON MARCH 1, 1995. THIS REGISTRATION STATEMENT
CONSTITUTES POST-EFFECTIVE AMENDMENT NO. 4 WITH RESPECT TO REGISTRATION
STATEMENT NO. 33-80202 AND POST-EFFECTIVE AMENDMENT NO. 3 WITH RESPECT TO
REGISTRATION STATEMENT NO. 33-88994.
================================================================================
<PAGE>
ML GLOBAL HORIZONS L.P.
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
ITEM
NO. PROSPECTUS HEADING
- ----- ---------------------------------------
<S> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus........... Cover Page
2. Inside Front and Outside Back Cover
Pages of Prospectus.............................. Inside Cover Page; Table of Contents
3. Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges............... Summary; Risk Factors
4. Use of Proceeds................................... Use of Proceeds
5. Determination of Offering Price................... Inside Cover Page; Plan of Distribution
6. Dilution Not Applicable
7. Selling Security Holders.......................... Not Applicable
8. Plan of Distribution.............................. Inside Cover Page; Plan of Distribution
9. Description of Securities to Be
Registered....................................... Cover Page; The Limited Partnership Agreement
10. Interests of Named Experts and
Counsel.......................................... Legal Matters; Experts
11. Information with Respect to the
Registrant....................................... Summary; Risk Factors; Investment Factors;
Performance of the Fund; Selected Financial Data;
Management's Discussion and Analysis of Financial
Condition and Results of Operations; The Advisor
Selection Process; The Advisors; MLIP and MLF; Use
of Proceeds; Charges; Conflicts of Interest; The
Limited Partnership Agreement; Index to Financial
Statements
12. Disclosure of Commission Position
on Indemnification for Securities
Act Liabilities.................................. Not Applicable
</TABLE>
<PAGE>
ML GLOBAL HORIZONS L.P.
PROSPECTUS SUPPLEMENT DATED OCTOBER __, 1996
TO
PROSPECTUS DATED OCTOBER __, 1996
The Prospectus sets forth more detailed information concerning the
"core" Advisors. The non-"core" Advisors are identified below. As of October 1,
1996, the allocation of the Fund's trading assets among the Advisors is set
forth below in the parentheses following the Advisors' names. See "The
Advisors" in the Prospectus.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 1, 1996
-----------------------------------------------------------------------------------
ANNUALIZED
WORST/BEST STANDARD GENERAL
MONTHLY DEVIATION ASSETS UNDER TRADING
RATE OF RETURN/1/ OF RETURN/2/ MANAGEMENT/3/ STRATEGY
----------------- ------------ ----------------- ---------------
<S> <C> <C> <C> <C>
"CORE" ADVISORS
ARA Portfolio Management Company, L.L.C. (13.30)%/14.48% 21.5% $98.7 million Technical;
Gamma Program (15%) trend-following
Chesapeake Capital Corporation (10.98)%/15.99% 17.8% $735 million Technical;
Diversified Program (38%) trend-following
John W. Henry & Company, Inc. (18.0)%/39.4% 31.2% $912 million Technical;
Financial and Metals Portfolio (38%) trend-following
NON-"CORE" ADVISORS
Di Tomasso Group Inc. (6.07)%/6.97% 31.4% $12.5 million Discretionary;
Turbo Trading Program (4.5%) fundamental
West Course Capital Inc. (9.54)%/14.12% 17.0% $119 million Discretionary;
Higher Leverage Program (4.5%) fundamental
</TABLE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
_________________________
Futures trading is highly leveraged, as is each Advisor's trading
program. No Advisor has been asked to make any special adjustments to its
leveraging policies in the case of the Fund. See "Risk Factors" in the
Prospectus. MLIP expects that, in general, the non-"core" Advisors trading at
"standard" leverage will hold positions in the range of 200% to 400% of the net
equity in their accounts and commit as margin 15% to 30% of the Fund's assets
allocated to them. Trading at this degree of leverage implies that any non-
"core" Advisor whose open positions incur a 10% loss will cause a 20% to 40%
loss to its Fund account.
In considering the leverage and volatility at which the different non-
"core" Advisors trade, prospective investors should recognize that due to the
limited percentage of the Fund's assets allocated to each of them, none of these
Advisors, individually, is likely to make a material contribution over the
short-term to either the return achieved by, or the performance volatility of,
the Fund. It would require (i) monthly returns outside of historical highs and
lows for the non-"core" Advisors with the largest percentage asset allocation to
affect the Fund's overall monthly rate of return by as much as 2% (e.g., from a
10% to an 8% or 12% rate of return), and (ii) historical volatility increased by
a factor of approximately 4 for such non-"core" Advisor's performance to
increase the range of the Fund's overall standard deviation by as much as 30%.
The smaller the allocations to a non-"core" Advisor, the less the contribution
of such Advisor's performance and volatility to the overall performance and
volatility of the Fund. The non-"core" Advisors as a whole can have a
significant effect on performance.
_________________________
1 The lowest and the highest monthly rate of return through September 1, 1996
for the program traded for the Fund since January 1, 1991 (or the inception
of trading if later).
2 An annualized standard deviation of 2% and a mean return of 1% would mean
that most (approximately two-thirds) of all monthly returns during a year
have historically fallen between (1)% and 3%, i.e., within a range
(deviation) of 2% above or below the mean. Standard deviation is one widely
accepted measure of risk, as standard deviation indicates the variability of
the returns. The more variable an Advisor's historical returns, the greater
the risk that substantial losses have been included within the historical
range of returns. Annualized Standard Deviation of Return is with respect to
the program traded for the Fund and covers the period beginning with January
1, 1991 (or the inception of trading if later) through September 1,
1996.
3 Assets under management in the program used for the Fund ("notional" funds
excluded).
_________________________
THE COMMODITY FUTURES TRADING COMMISSION HAS NOT PASSED UPON THE MERITS OF
PARTICIPATING IN THIS POOL NOR HAS THE COMMISSION PASSED UPON THE ADEQUACY OR
ACCURACY OF THIS DISCLOSURE DOCUMENT AS SUPPLEMENTED.
_________________________
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 AS SUPPLEMENTED. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
_________________________
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
Selling Agent
MERRILL LYNCH INVESTMENT PARTNERS INC.
General Partner
<PAGE>
Preliminary Prospectus dated October 23, 1996 - Subject to Completion
ML GLOBAL HORIZONS L.P.
$100,000,000
UNITS OF LIMITED PARTNERSHIP INTEREST
ML GLOBAL HORIZONS L.P. (THE "FUND") is a limited partnership which
trades in the international futures and forward markets under the direction of
multiple independent professional advisors applying proprietary strategies. The
Fund's objective is achieving substantial capital appreciation over time.
MERRILL LYNCH INVESTMENT PARTNERS INC. ("MLIP") is the general partner of the
Fund, and MERRILL LYNCH FUTURES INC. ("MLF") is its commodity broker. The Fund
trades under the direction of multiple independent trading advisors (THE
"TRADING ADVISORS" OR THE "ADVISORS") selected and monitored by MLIP. The Fund
currently implements a more "concentrated" multiple advisor strategy than many
multi-advisor funds, allocating the predominant portion of its assets among a
limited group of Advisors.
The Fund began trading January 4, 1994 with an initial capitalization
of approximately $35.8 million. The Units are continuously offered and sold as
of the beginning of each calendar month at Net Asset Value. As of October 1,
1996, the Fund's aggregate capitalization was approximately $81,077,111, and the
Net Asset Value per Unit, originally $100, was $128.97.
The minimum initial investment is 50 Units (or $5,000, if less); the
minimum investment for existing Limited Partners is 20 Units (or $2,000, if
less). Any whole number of Units over the minimum may be purchased.
Units may be redeemed as of the end of any calendar month, subject to
3% redemption charges payable to MLIP through the end of the twelfth month after
sale.
No distributions to the Unitholders have been made or are presently
contemplated.
_________________________
THE UNITS ARE SPECULATIVE SECURITIES.
AN INVESTMENT IN THE FUND INVOLVES SIGNIFICANT RISKS.
_________________________
. INVESTORS MAY LOSE ALL OR SUBSTANTIALLY ALL OF THEIR INVESTMENT IN THE FUND.
UNLIKE A NUMBER OF OTHER FUNDS SPONSORED BY MLIP, THE FUND HAS NO "PRINCIPAL
PROTECTION" FEATURE ASSURING THE RETURN OF INVESTORS' INITIAL INVESTMENTS.
. PAST PERFORMANCE OF THE FUND AND ITS ADVISORS IS NOT NECESSARILY INDICATIVE
OF FUTURE RESULTS.
. THE FUND TRADES WITH A HIGH DEGREE OF LEVERAGE IN VOLATILE MARKETS.
. THE FUND IS SUBJECT TO SUBSTANTIAL CHARGES. ESTIMATED GROSS TRADING PROFITS
OF APPROXIMATELY 8.16% OF THE FUND'S AVERAGE MONTH-END NET ASSETS MUST BE
EARNED DURING THE FIRST YEAR AFTER A UNIT IS SOLD IN ORDER FOR THE REDEMPTION
VALUE OF SUCH UNIT TO EQUAL ITS INITIAL SUBSCRIPTION PRICE.
. CERTAIN GENERAL TYPES OF MARKET CONDITIONS -- IN PARTICULAR, TRENDLESS
PERIODS WITHOUT MAJOR PRICE MOVEMENTS -- SIGNIFICANTLY REDUCE THE ADVISORS'
ABILITY TO TRADE SUCCESSFULLY.
SEE "RISK FACTORS" BEGINNING AT PAGE 9.
_________________________
SUBSCRIBERS WILL BE REQUIRED TO MAKE CERTAIN REPRESENTATIONS AND WARRANTIES
IN THE SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY.
_________________________
THE COMMODITY FUTURES TRADING COMMISSION HAS NOT PASSED UPON THE MERITS OF
PARTICIPATING IN
THIS POOL NOR HAS THE COMMISSION PASSED UPON THE ADEQUACY OR ACCURACY OF 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 (1) SELLING COMMISSIONS (2)(3) PROCEEDS TO FUND (1)(2)(3)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER UNIT NET ASSET VALUE NONE NET ASSET VALUE
- -----------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES ON PAGE (I).
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
SELLING AGENT
MERRILL LYNCH INVESTMENT PARTNERS INC.
GENERAL PARTNER
THE DATE OF THIS PROSPECTUS IS ___________, 1996
(NOT FOR USE AFTER ___________, 1997)
<PAGE>
NOTES TO COVER PAGE
(1) The Units are continuously offered on a "best efforts" basis
without any firm underwriting commitment exclusively through Merrill Lynch,
Pierce, Fenner & Smith Incorporated and its affiliates ("MLPF&S" or the "Selling
Agent").
All Units sold during a month are issued at a single closing date as
of the beginning of the immediately following month. Units participate in the
profits and losses of the Fund on and after the date of such closing, and
subscribers' Merrill Lynch customer securities accounts are debited in the
amount of their subscription on a designated settlement date, not more than five
business days after such closing date.
There is no minimum number of Units that must be sold at the beginning
of any given calendar month for any Units then to be sold.
(2) See "Plan of Distribution -- Selling Agent Compensation" at page
57 for information relating to indemnification arrangements with respect to the
Selling Agent.
(3) No selling commissions are paid from the proceeds of
subscriptions. MLIP credits the Selling Agent with "production credits" of 5%
per Unit on all Units at the time of sale. (No such initial production credits
are payable on sales to officers and employees of ML&Co. and its affiliates, who
purchase Units at 97% rather than 100% of the Net Asset Value per Unit.)
Beginning with the thirteenth full month after the Units are sold, the
Selling Agent receives ongoing production credits on all outstanding Units
(including Units sold at a 3% discount to officers and employees of ML&Co. and
its affiliates) sold by Financial Consultants (the individual MLPF&S brokers)
who are registered with the Commodity Futures Trading Commission (the "CFTC")
and who have passed either the Series 3 National Commodity Futures Examination
or the Series 31 Managed Futures Fund Examination. Such ongoing production
credits continue to accrue from the beginning of the thirteenth month after the
sale of a Unit for as long as such Unit remains outstanding, at the rate of 2%
per annum of the average month-end Net Asset Value per Unit.
_________________________
THIS PROSPECTUS MUST BE ACCOMPANIED BY: (1) A PROSPECTUS SUPPLEMENT
CONTAINING CERTAIN CFTC-REQUIRED INFORMATION REGARDING THE CURRENT ADVISORS; AND
(2) SUMMARY FINANCIAL INFORMATION FOR THE FUND CURRENT WITHIN 60 CALENDAR DAYS.
_________________________
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION ABOUT THE FUND OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN
THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND, MLIP, THE SELLING
AGENT, ANY TRADING ADVISOR OR ANY OTHER PERSON.
_________________________
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY THE SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANYONE IN
ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION MAY NOT LAWFULLY BE MADE.
_________________________
-i-
<PAGE>
THE BOOKS AND RECORDS OF THE FUND ARE MAINTAINED AT ITS PRINCIPAL
OFFICE, C/O MERRILL LYNCH INVESTMENT PARTNERS INC., MERRILL LYNCH WORLD
HEADQUARTERS, SIXTH FLOOR, SOUTH TOWER, WORLD FINANCIAL CENTER, NEW YORK, NEW
YORK 10080-6106. LIMITED PARTNERS MAY INSPECT AND COPY SUCH BOOKS AND RECORDS
DURING NORMAL BUSINESS HOURS, FOR ANY PURPOSE REASONABLY RELATED TO THEIR
INTEREST AS LIMITED PARTNERS.
MLIP DISTRIBUTES MONTHLY REPORTS INCLUDING SUMMARY PERFORMANCE
INFORMATION FOR THE FUND TO ALL LIMITED PARTNERS. LIMITED PARTNERS ALSO RECEIVE
CERTIFIED AUDITED FINANCIAL STATEMENTS AND ALL TAX INFORMATION RELATING TO THE
FUND NECESSARY FOR THE PREPARATION OF LIMITED PARTNERS' ANNUAL FEDERAL INCOME
TAX RETURNS.
_________________________
THE FUND IS SUBJECT TO THE INFORMATIONAL REQUIREMENTS OF THE
SECURITIES EXCHANGE ACT OF 1934, AND IN ACCORDANCE THEREWITH FILES REPORTS AND
OTHER INFORMATION WITH THE SECURITIES AND EXCHANGE COMMISSION (THE "SEC").
REPORTS, PROXIES (IF ANY), INFORMATION STATEMENTS (IF ANY), AND OTHER
INFORMATION FILED BY THE FUND, CAN BE INSPECTED AND COPIED AT THE PUBLIC
REFERENCE FACILITIES MAINTAINED BY THE SEC AT 450 FIFTH STREET, N.W. WASHINGTON,
DC 20549 AND AT ITS REGIONAL OFFICES LOCATED AT 7 WORLD TRADE CENTER, SUITE
1300, NEW YORK, NY 10048 AND CITICORP CENTER, 500 WEST MADISON STREET, SUITE
1400, CHICAGO, IL 60661. COPIES OF SUCH MATERIAL CAN BE OBTAINED FROM THE PUBLIC
REFERENCE SECTION OF THE SEC, 450 FIFTH STREET, N.W., WASHINGTON, DC 20549, AT
PRESCRIBED RATES. THE FUND IS AN ELECTRONIC FILER. THE SEC MAINTAINS A WEB SITE
THAT CONTAINS REPORTS, PROXY AND INFORMATION STATEMENTS, AND OTHER INFORMATION
REGARDING REGISTRANTS THAT FILE ELECTRONICALLY WITH THE SEC, AT
HTTP://WWW.SEC.GOV.
_________________________
ML GLOBAL HORIZONS L.P. IS NOT A "MUTUAL FUND" OR ANY OTHER TYPE OF
"INVESTMENT COMPANY" WITHIN THE MEANING OF THE INVESTMENT COMPANY ACT OF 1940,
AND IS NOT SUBJECT TO REGULATION THEREUNDER.
-ii-
<PAGE>
COMMODITY FUTURES TRADING COMMISSION
RISK DISCLOSURE STATEMENT
YOU SHOULD CAREFULLY CONSIDER WHETHER YOUR FINANCIAL CONDITION PERMITS
YOU TO PARTICIPATE IN A COMMODITY POOL. IN SO DOING, YOU SHOULD BE AWARE THAT
FUTURES AND OPTIONS TRADING CAN QUICKLY LEAD TO LARGE LOSSES AS WELL AS GAINS.
SUCH TRADING LOSSES CAN SHARPLY REDUCE THE NET ASSET VALUE OF THE POOL AND
CONSEQUENTLY THE VALUE OF YOUR INTEREST IN THE POOL. IN ADDITION, RESTRICTIONS
ON REDEMPTIONS MAY AFFECT YOUR ABILITY TO WITHDRAW YOUR PARTICIPATION IN THE
POOL.
FURTHER, COMMODITY POOLS MAY BE SUBJECT TO SUBSTANTIAL CHARGES FOR
MANAGEMENT, AND ADVISORY AND BROKERAGE FEES. IT MAY BE NECESSARY FOR THOSE POOLS
THAT ARE SUBJECT TO THESE CHARGES TO MAKE SUBSTANTIAL TRADING PROFITS TO AVOID
DEPLETION OR EXHAUSTION OF THEIR ASSETS. THIS DISCLOSURE DOCUMENT CONTAINS A
COMPLETE DESCRIPTION OF EACH EXPENSE TO BE CHARGED THIS POOL AT PAGE 35 AND A
STATEMENT OF THE PERCENTAGE RETURN NECESSARY TO "BREAKEVEN," THAT IS, TO RECOVER
THE AMOUNT OF YOUR INITIAL INVESTMENT, AT PAGE 7.
THIS BRIEF STATEMENT CANNOT DISCLOSE ALL THE RISKS AND OTHER FACTORS
NECESSARY TO EVALUATE YOUR PARTICIPATION IN THIS COMMODITY POOL. THEREFORE,
BEFORE YOU DECIDE TO PARTICIPATE IN THIS COMMODITY POOL, YOU SHOULD CAREFULLY
STUDY THIS DISCLOSURE DOCUMENT, INCLUDING A DESCRIPTION OF THE PRINCIPAL RISK
FACTORS OF THIS INVESTMENT, AT PAGES 9-12.
YOU SHOULD ALSO BE AWARE THAT THIS COMMODITY POOL MAY TRADE FOREIGN
FUTURES OR OPTIONS CONTRACTS. TRANSACTIONS ON MARKETS LOCATED OUTSIDE THE UNITED
STATES, INCLUDING MARKETS FORMALLY LINKED TO A UNITED STATES MARKET, MAY BE
SUBJECT TO REGULATIONS WHICH OFFER DIFFERENT OR DIMINISHED PROTECTION TO THE
POOL AND ITS PARTICIPANTS. FURTHER, UNITED STATES REGULATORY AUTHORITIES MAY BE
UNABLE TO COMPEL THE ENFORCEMENT OF THE RULES OF REGULATORY AUTHORITIES OR
MARKETS IN NON-UNITED STATES JURISDICTIONS WHERE TRANSACTIONS FOR THE POOL MAY
BE EFFECTED.
-1-
<PAGE>
ML GLOBAL HORIZONS L.P.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PROSPECTUS SECTION PAGE
- ------------------ ----
<S> <C>
SUMMARY..............................................4
The Fund...........................................4
Risk Factors.......................................4
Performance of the Fund............................5
The Fund and Its Objectives........................6
Charges............................................7
Federal Income Tax Consequences....................8
Suitability........................................8
RISK FACTORS.........................................9
(1) Investors May Lose All or
Substantially All of Their Investment......9
(2) Past Performance not necessarily
indicative of future results...............9
(3) Volatile Markets; Highly Leveraged
Trading....................................9
(4) Substantial Charges..........................9
(5) Importance of General Market
Conditions.................................9
(6) No Diversification Benefits if the
the Fund Is Not Profitable.................9
(7) Combining Independent Strategies.............9
(8) Systematic Strategies.......................10
(9) Discretionary Strategies....................10
(10) Increased Assets Under Management...........10
(11) No Assurance of Advisors' Continued
Services..................................10
(12) Changes in Trading Strategy.................10
(13) Illiquid Markets............................10
(14) Non-Correlation Not
Negative Correlation......................10
(15) Redemptions Restricted......................11
(16) Trading on Non-U.S. Exchanges...............11
(17) Conflicts of Interest.......................11
(18) Limited Partners Taxed Currently............11
(19) "Investment Advisory Fees"..................11
(20) Taxation of Interest Income.................11
(21) Tax Audit...................................11
(22) Bankruptcy or Default.......................12
(23) Regulatory Change...........................12
INVESTMENT FACTORS..................................12
PERFORMANCE OF THE OTHER MLIP
MULTI-ADVISOR FUNDS...............................14
SELECTED FINANCIAL DATA.............................19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.....................................20
THE ADVISOR SELECTION PROCESS.......................23
THE ADVISORS........................................26
MLIP AND MLF........................................28
Background........................................28
Principals........................................28
MLF...............................................29
FIDUCIARY OBLIGATIONS OF MLIP.......................30
USE OF PROCEEDS.....................................31
CHARGES.............................................35
Charges Paid by the Fund..........................35
Brokerage Commissions..........................36
Administrative Fees............................37
"Bid-Ask" Spreads..............................37
Service Fees; "EFP" Differentials..............37
Incentive Overrides............................38
Profit Shares..................................40
Extraordinary Expenses.........................41
Charges Paid by Merrill Lynch.....................42
Selling Commissions; Ongoing
Compensation..................................42
Consulting Fees................................42
Redemption Charges................................42
CERTAIN LITIGATION..................................42
CONFLICTS OF INTEREST...............................48
Merrill Lynch Affiliated Entities.................48
General...........................................48
MLIP..............................................48
MLF; MLIB.........................................49
The Trading Advisors..............................49
Financial Consultants.............................50
Proprietary Trading...............................50
THE LIMITED PARTNERSHIP AGREEMENT...................50
FEDERAL INCOME TAX CONSEQUENCES.....................52
PLAN OF DISTRIBUTION................................55
General...........................................55
Subscription Procedure............................55
Purchases by Employee Benefit Plans...............56
Selling Agent Compensation........................57
ADVISORS' INVESTMENTS IN THE FUND.................57
</TABLE>
-2-
<PAGE>
ML GLOBAL HORIZONS L.P.
TABLE OF CONTENTS (CONT'D)
<TABLE>
PROSPECTUS SECTION PAGE
- ------------------ ----
<S> <C>
LEGAL MATTERS.......................................57
EXPERTS.............................................57
ADDITIONAL INFORMATION..............................58
RECENT FINANCIAL INFORMATION........................58
INDEX OF DEFINED TERMS..............................59
INDEX TO FINANCIAL STATEMENTS.......................60
THE "CORE" ADVISORS.................................77
PERFORMANCE OF THE PUBLIC
SINGLE-ADVISOR FUTURES FUNDS
OPERATED BY MLIP.................................108
THE ROLE OF MANAGED FUTURES
IN AN INVESTMENT PORTFOLIO.......................110
APPENDIX I -- INCENTIVE OVERRIDE AND
PROFIT SHARE CALCULATIONS IN AN
OPEN-END FUND................................ APPI-1
APPENDIX II -- BLUE SKY GLOSSARY...............APPII-1
EXHIBIT A -- LIMITED PARTNERSHIP
AGREEMENT.................................... A-1
EXHIBIT B -- SUBSCRIPTION REQUIREMENTS......... SR-1
EXHIBIT C -- SUBSCRIPTION AGREEMENT
AND POWER OF ATTORNEY........................ SA-(i)
</TABLE>
____________________
MERRILL LYNCH INVESTMENT PARTNERS INC.
GENERAL PARTNER
SOUTH TOWER, 6TH FLOOR
WORLD FINANCIAL CENTER
NEW YORK, NEW YORK 10080-6106
TELEPHONE: (212) 236-4167
-3-
<PAGE>
- --------------------------------------------------------------------------------
SUMMARY
The nature of an investment in the Fund is complex and must be carefully
reviewed by any person considering purchasing Units. The following summary is
qualified in its entirety by the information set forth elsewhere in this
Prospectus.
____________________
THE FUND
ML Global Horizons L.P. (the "Fund") is a limited partnership which
trades in the international futures and forward markets with the objective of
achieving significant profits over time. The general partner of the Fund is
Merrill Lynch Investment Partners Inc. ("MLIP").
The Fund's assets are allocated and reallocated by MLIP to the trading
management of independent professional advisors (the "Advisors") applying
proprietary strategies in numerous markets.
The Fund began trading on January 4, 1994 with an initial
capitalization of $35,835,000. The Fund offers its Units, and receives and
processes subscriptions, on a continuous basis throughout each month. Investors
whose subscriptions are accepted during a month have their customer securities
accounts debited in the amount of their subscriptions on a single settlement
date as of the beginning of the next month. A total of an additional $80,346,819
was invested in the Units through October 1, 1996, and Units with an aggregate
Net Asset Value of $53,776,736 had been redeemed. As of October 1, 1996, the
aggregate Net Asset Value of the Fund was $81,077,111, and the Net Asset Value
per Unit, originally $100 as of January 4, 1994, had risen to $128.97. As of
October 1, 1996, the Fund had 3,064 Limited Partners.
Through October 1, 1996, the net gain in the Net Asset Value per Unit
was 28.97%. The highest month-end Net Asset Value per Unit to date has been
$128.97 and the lowest $97.36. See "--Performance of the Fund" at page 5 and
"Selected Financial Data" at page 19.
RISK FACTORS
THE FOLLOWING ARE CERTAIN OF THE SIGNIFICANT RISKS OF THIS INVESTMENT.
. INVESTORS MAY LOSE ALL OR SUBSTANTIALLY ALL OF THEIR INVESTMENT. UNLIKE A
NUMBER OF OTHER FUNDS SPONSORED BY MLIP, THE FUND HAS NO "PRINCIPAL
PROTECTION" FEATURE ASSURING THE RETURN OF INVESTORS' INITIAL INVESTMENTS.
SEE "THE ADVISOR SELECTION PROCESS" AT PAGE 23 AND "RISK FACTORS -- (1)
INVESTORS MAY LOSE ALL OR SUBSTANTIALLY ALL OF THEIR INVESTMENT" AT PAGE
9.
. PAST PERFORMANCE OF THE FUND AND OF ITS ADVISORS IS NOT NECESSARILY
INDICATIVE OF FUTURE RESULTS. SEE "COMMODITY FUTURES TRADING COMMISSION--
RISK DISCLOSURE STATEMENT" AT PAGE 1 AND "RISK FACTORS -- (2) PAST
PERFORMANCE NOT NECESSARILY INDICATIVE OF FUTURE RESULTS" AT PAGE 9.
. THE FUND TRADES WITH A HIGH DEGREE OF LEVERAGE IN VOLATILE MARKETS. SEE
"RISK FACTORS -- (3) VOLATILE MARKETS; HIGHLY LEVERAGED TRADING" AT PAGE
9.
. THE FUND IS SUBJECT TO SUBSTANTIAL CHARGES. ESTIMATED GROSS TRADING PROFITS
OF APPROXIMATELY 8.16% OF THE FUND'S AVERAGE MONTH-END NET ASSETS MUST BE
EARNED DURING THE FIRST YEAR AFTER A UNIT IS SOLD IN ORDER FOR THE
REDEMPTION VALUE OF SUCH UNIT TO EQUAL ITS INITIAL SUBSCRIPTION PRICE. SEE
"-- BREAKEVEN TABLE" BELOW AT PAGE 7, "CHARGES" AT PAGE 35 AND "RISK
FACTORS -- (4) SUBSTANTIAL CHARGES" AT PAGE 9.
. CERTAIN GENERAL TYPES OF MARKET CONDITIONS -- IN PARTICULAR, TRENDLESS
PERIODS WITHOUT MAJOR PRICE MOVEMENTS -- SIGNIFICANTLY REDUCE THE ADVISORS'
ABILITY TO TRADE SUCCESSFULLY. SEE "RISK FACTORS -- (5) IMPORTANCE OF
GENERAL MARKET CONDITIONS" AT PAGE 9.
NO SUBSCRIBER SHOULD INVEST MORE THAN 10% OF HIS OR
-4-
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
SUMMARY (CONT'D)
HER READILY MARKETABLE ASSETS IN THE FUND.
SEE "RISK FACTORS" AT PAGES 9 THROUGH 12.
PERFORMANCE OF THE FUND
ML GLOBAL HORIZONS L.P.
OCTOBER 1, 1996
Type of Pool: Selected-Advisor/Publicly-Offered/Non-"Principal
Protected"
Inception of Trading: January 4, 1994
Aggregate Subscriptions: $116,181,819
Current Capitalization: $81,077,111
Worst Monthly Drawdown (Month/Year): (6.42)% (2/96)
Worst Peak-to-Valley Drawdown (Month/Year): (6.42)% (2/96)
____________________
Net Asset Value per Unit (October 1, 1996): $128.97
<TABLE>
<CAPTION>
---------------------------------------------------------------------
MONTHLY RATES OF RETURNS
---------------------------------------------------------------------
MONTH 1996 1995 1994
---------------------------------------------------------------------
<S> <C> <C> <C>
January 1.25% (2.75)% (1.40)%
---------------------------------------------------------------------
February (6.42)% 5.48% (1.26)%
---------------------------------------------------------------------
March 1.37% 9.13% 1.28%
---------------------------------------------------------------------
April 7.63% 1.76% 0.40%
---------------------------------------------------------------------
May (3.87)% 2.09% 3.29%
---------------------------------------------------------------------
June 3.35% (0.29)% 2.67%
---------------------------------------------------------------------
July (3.12) (3.15)% (2.23)%
---------------------------------------------------------------------
August 0.45 (0.29)% (1.96)%
---------------------------------------------------------------------
September 3.77 (1.21)% 1.52%
---------------------------------------------------------------------
October -- (0.11)% 2.06%
---------------------------------------------------------------------
November -- 1.89% (0.37)%
---------------------------------------------------------------------
December -- 6.12% 0.18%
---------------------------------------------------------------------
Compound Annual 3.72% 19.48% 4.08%
Rate of Return (9 mos.)
----------------------------------------------------------------------
</TABLE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
_________________________
(1) PURSUANT TO APPLICABLE CFTC REGULATIONS, A "MULTI-ADVISOR" FUND
IS DEFINED AS ONE THAT ALLOCATES NO MORE THAN 25% OF ITS TRADED ASSETS TO ANY
SINGLE MANAGER. AS THE FUND CURRENTLY ALLOCATES MORE THAN 25% OF ITS TRADING
ASSETS TO CERTAIN ADVISORS, IT IS REFERRED TO AS A "SELECTED-ADVISOR" FUND.
APPLICABLE CFTC REGULATIONS DEFINE A "PRINCIPAL PROTECTED" FUND AS ONE WHICH IS
DESIGNED TO LIMIT THE LOSS OF PARTICIPANTS' INITIAL INVESTMENT. THE FUND HAS NO
SUCH FEATURE. CONSEQUENTLY, INVESTORS MUST BE PREPARED TO LOSE ALL OR
SUBSTANTIALLY ALL OF THEIR INVESTMENT IN THE FUND.
(2) "WORST MONTHLY DRAWDOWN" REPRESENTS THE LARGEST NEGATIVE MONTHLY
RATE OF RETURN EXPERIENCED BY THE FUND, A "DRAWDOWN" IS MEASURED ON THE BASIS OF
MONTH-END NET ASSET VALUE ONLY, AND DOES NOT REFLECT INTRA-MONTH FIGURES.
(3) "WORST PEAK-TO-VALLEY DRAWDOWN" REPRESENTS THE GREATEST
PERCENTAGE DECLINE FROM A MONTH-END CUMULATIVE MONTHLY RATE OF RETURN WITHOUT
SUCH CUMULATIVE MONTHLY RATE OF RETURN BEING EQUALLED OR EXCEEDED AS OF A
SUBSEQUENT MONTH-END. FOR EXAMPLE, IF THE MONTHLY RATE OF RETURN WAS (1)% IN
EACH OF JANUARY AND FEBRUARY, 1% IN MARCH AND (2)% IN APRIL, THE "PEAK-TO-VALLEY
DRAWDOWN" WOULD STILL BE CONTINUING AT THE
-5-
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
SUMMARY (CONT'D)
END OF APRIL IN THE AMOUNT OF APPROXIMATELY (3)%, WHEREAS IF THE MONTHLY RATE OF
RETURN HAD BEEN APPROXIMATELY 3% IN MARCH, THE "PEAK-TO-VALLEY DRAWDOWN" WOULD
HAVE ENDED AS OF THE END OF FEBRUARY AT APPROXIMATELY THE (2)% LEVEL.
(4) MONTHLY RATE OF RETURN IS THE NET PERFORMANCE OF THE FUND DURING
THE MONTH OF DETERMINATION (INCLUDING INTEREST INCOME AND AFTER ALL EXPENSES
ACCRUED OR PAID) DIVIDED BY THE TOTAL EQUITY OF THE FUND AS OF THE BEGINNING OF
SUCH MONTH.
THE FUND AND ITS OBJECTIVES
THE FUND'S MULTI-ADVISOR APPROACH
The Fund trades in diverse international futures and forward markets
with the ability rapidly to deploy and redeploy its capital across different
sectors of the global economy. The Fund's use of a limited number of Advisors,
and allocation of the predominant portion of its assets to no more than three or
four such Advisors, has been intended to enhance its profit potential beyond
that of the broadly diversified multi-advisor funds while retaining the risk
control benefits of combining independent non-correlated strategies into an
overall trading portfolio.
The Fund offers investors the opportunity to diversify into an
investment field that has historically often demonstrated a low degree of
performance correlation with traditional stock and bond holdings, giving the
Fund the potential to enhance the risk/reward ratio of an overall portfolio.
During the period in which it has been trading, the Fund's returns have been
significantly non-correlated (not, however, negatively correlated) with the
United States stock and bond markets. See "The Role of Managed Futures in an
Investment Portfolio" at page 110.
MLIP
MLIP, a Delaware corporation, is one of the largest managed futures
sponsors in the United States (or elsewhere) in terms of both financial and
personnel resources and amount under management. As of October 1, 1996, MLIP was
serving as sponsor or trading manager for futures funds with total capital of
approximately $1.6 billion.
THE ADVISORS
From the commencement of trading until early December 1994
(approximately its first year of trading), the Fund allocated its assets
approximately equally among three Advisors, Athena Global Investments, L.P.
("Athena"), Chesapeake Capital Corporation ("Chesapeake") and John W. Henry &
Company, Inc. ("JWH"). In early December 1994, Athena ceased managing its Fund
account in conjunction with Athena discontinuing its advisory operations in
general. As of January 1, 1995, ARA Portfolio Management Company, L.L.C. ("ARA")
was added as an Advisor, and the Fund's assets allocated 20% to ARA, 40% to
Chesapeake and 40% to JWH. As of July 1, 1996, the Fund added two new Advisors,
Di Tomasso Group Inc. ("Di Tomasso") and West Course Capital Inc. ("West
Course"), each of which received allocations of 4.5% and the balance of the
Fund's assets were reallocated 15% to ARA, 38% to Chesapeake and 38% to JWH. To
date, the Fund's Advisor combination has been subject to significantly fewer
changes than those of most MLIP multi-advisor funds.
As of September 1, 1996, the current "core" Advisors ("core" Advisors
is the term used by MLIP to refer to Advisors which are allocated 10% or more of
the Fund's assets for management) were collectively managing approximately $2.4
billion in managed futures accounts in which their clients (and in certain cases
the Advisors themselves) had invested, and approximately $1.75 billion in the
trading programs used for the Fund.
See "The 'Core' Advisors" at page 77 for certain performance and
other information relating to the current "core" Advisors.
THERE CAN BE NO ASSURANCE THAT THE FUND WILL ACHIEVE ITS OBJECTIVE OR
AVOID SUBSTANTIAL LOSSES. NO MERRILL LYNCH ENTITY OR ADVISOR HAS IN ANY RESPECT
GUARANTEED THE SUCCESS OF THE FUND.
-6-
- --------------------------------------------------------------------------------
<PAGE>
_______________________________________________________________________________
SUMMARY (CONT'D)
CHARGES
"BREAKEVEN TABLE"
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
COLUMN I COLUMN II
EXPENSES PERCENTAGE RETURN DOLLAR RETURN
WHICH MUST BE OFFSET REQUIRED REQUIRED
TO "BREAKEVEN" FIRST TWELVE MONTHS ($5,000 INITIAL INVESTMENT)
OF INVESTMENT FIRST TWELVE MONTHS
OF INVESTMENT
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Brokerage commissions/(1)/ 7.25% $ 362.50
- -----------------------------------------------------------------------------------------------
Administrative Fee/(2)/ 0.25% $ 12.50
- -----------------------------------------------------------------------------------------------
F/X Desk Service and Related Fees/(3)/ 0.25% $ 12.50
- -----------------------------------------------------------------------------------------------
Profit Shares/(4)/ 2.00% $ 100.00
- -----------------------------------------------------------------------------------------------
Incentive Override/(5)/ 0.31% $ 15.50
- -----------------------------------------------------------------------------------------------
Redemption Charge/(6)/ 3.10% $ 155.00
- -----------------------------------------------------------------------------------------------
Interest Income/(7)/ (5.00)% $(250.00)
- -----------------------------------------------------------------------------------------------
RETURN ON $5,000 INITIAL
INVESTMENT REQUIRED FOR 8.16% $ 408.00
"BREAKEVEN"
- -----------------------------------------------------------------------------------------------
</TABLE>
NOTES TO "BREAKEVEN TABLE"
(1) Brokerage commissions include the Consulting Fees payable to the
Advisors by Merrill Lynch Futures, which range from 2% to 4% annually,
and, prior to October 1, 1996, reimbursement to MLIP for
administrative expenses incurred.
(2) Beginning October 1, 1996, the brokerage commission wrap fee payable
to MLF was reduced to 7.25%, with 0.25% per annum recharacterized as
an Administrative Fee payable to MLIP.
(3) Estimated; paid on a per-transaction basis. "Bid-ask" spreads are
difficult to estimate and are not included as an expense in the
"Breakeven Table." The F/X Service Desk is the Foreign Exchange
Service Desk organized by MLIP through which the Fund trades forward
currency contracts. The F/X Service Desk has, MLIP believes, reduced
the overall risk of the Fund's currency trading. See "Charges" at page
35.
(4) It is not possible to predict the Profit Shares which might be paid in
a "breakeven" year. MLIP believes, based on the experience of the Fund
to date, that 2.0% of average month-end capitalization is a reasonable
estimate of "breakeven" Profit Share expense, but actual Profit Shares
could differ.
(5) No Incentive Override might, in fact, be due despite the approximately
3.1% Net Asset Value gain necessary to offset the redemption charge of
$155 (based on an initial $5,000 investment). See "Charges --Incentive
Overrides" at page 38. However, for purposes of the "Breakeven Table,"
the Incentive Override has been estimated at 10% of such 3.1%
gain.
-7-
________________________________________________________________________________
<PAGE>
________________________________________________________________________________
SUMMARY (CONT'D)
(6) Redemption charges would equal 3.1% of the initial $5,000 investment
because these charges would equal 3% of the $5,155 Net Asset Value in
order for the investor to receive net redemption proceeds of $5,000
after subtracting the 3% redemption charge.
(7) Estimated; based on current 91-day Treasury bill rates.
FEDERAL INCOME TAX CONSEQUENCES
In the opinion of counsel, the Fund is properly characterized as a
partnership for federal income tax purposes. Limited Partners will pay tax each
year on their allocable share of the Fund's taxable income, if any, whether or
not they receive any distributions from the Fund or redeem any Units.
Substantially all of the Fund's trading gains and losses will be treated as
capital gains or losses for tax purposes; interest income received by the Fund
will be treated as ordinary income. The Fund could incur significant capital
losses, and investors nevertheless be required to pay tax on their allocable
share of the Fund's ordinary income.
SUITABILITY
THE FUND TRADES AT A HIGH DEGREE OF LEVERAGE IN HIGHLY VOLATILE
MARKETS. AN INVESTMENT IN THE UNITS IS SPECULATIVE AND INVOLVES A HIGH DEGREE OF
RISK. THERE CAN BE NO ASSURANCE THAT THE FUND WILL ACHIEVE ITS OBJECTIVE OR
AVOID SUBSTANTIAL LOSSES.
NO SUBSCRIBER SHOULD INVEST MORE THAN 10% OF HIS OR HER READILY
MARKETABLE ASSETS IN THE FUND. SUBSCRIBERS MUST BE PREPARED TO LOSE ALL OR
SUBSTANTIALLY ALL OF THEIR INVESTMENT.
THE UNITS ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK.
-8-
________________________________________________________________________________
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE FUND IS SPECULATIVE AND INVOLVES A HIGH DEGREE OF RISK.
NO SUBSCRIBER SHOULD INVEST MORE THAN 10% OF HIS OR HER
READILY MARKETABLE ASSETS IN THE FUND.
_______________
(1) INVESTORS MAY LOSE ALL OR SUBSTANTIALLY ALL OF THEIR INVESTMENT
INVESTORS MUST BE PREPARED TO LOSE ALL OR SUBSTANTIALLY ALL OF THEIR
INVESTMENT. THE FUND DOES NOT OFFER ANY "PRINCIPAL PROTECTION" FEATURE ASSURING
THE RETURN OF INVESTORS' INITIAL INVESTMENTS.
(2) PAST PERFORMANCE NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
Past performance is not necessarily indicative of future results.
Neither the Advisors' nor the Fund's past performance to date is representative
of how they or it, respectively, will trade in the future.
(3) VOLATILE MARKETS; HIGHLY LEVERAGED TRADING
Futures and forward trading is highly leveraged, and market price
levels are volatile and materially affected by unpredictable factors such as
weather and governmental intervention. The combination of leverage and
volatility creates a high degree of risk.
(4) SUBSTANTIAL CHARGES
The Fund is subject to substantial charges. The Profit Shares paid to
the Advisors are based on the individual performance of each Advisor, not the
overall performance of the Fund. Historically, the Fund has paid substantial
Profit Shares to certain Advisors during periods when the performance of the
Fund as a whole was "breakeven" or unprofitable. The Incentive Override is paid
to MLIP on the basis of the overall cumulative profitability (if any) of the
Fund, but cumulative profitability on an overall Fund basis may not correspond
to the investment experience of any given investor. Units may be subject to
paying their pro rata share (allocated equally to each outstanding Unit) of an
Incentive Override despite the Net Asset Value of such Units having dropped
below their initial purchase price.
(5) IMPORTANCE OF GENERAL MARKET CONDITIONS
Overall market or economic conditions -- which neither MLIP nor any
Advisor can predict or control -- have a material effect on performance.
Furthermore, such overall conditions can adversely affect the performance of
numerous Advisors at or about the same time, despite their implementing
different and independent strategies. Consequently, the multi-advisor structure
of the Fund does not assure that its performance will not be adversely affected
by future market or economic conditions.
(6) NO DIVERSIFICATION BENEFITS IF THE FUND IS NOT PROFITABLE
If the Fund does not trade successfully -- after deduction of all fees
and charges -- it cannot serve as an effective diversification for a traditional
portfolio.
(7) COMBINING INDEPENDENT STRATEGIES
Combining independent trading strategies involves substantial
opportunity costs, as one Advisor's profits are frequently offset by another
Advisor's losses. Different Advisors often take opposite positions for the Fund,
eliminating the profit potential of the combined positions.
-9-
<PAGE>
(8) SYSTEMATIC STRATEGIES
Most of the Fund's assets have been allocated since inception to
Advisors which rely on technical, systematic strategies. The widespread use of
technical trading systems frequently results in numerous managers attempting to
execute similar trades at or about the same time, altering trading patterns and
affecting market liquidity. Furthermore, the profit potential of trend-following
systems may be diminished by the changing character of the markets, which may
make historical price data (on which technical programs are based) only
marginally relevant to future market patterns.
(9) DISCRETIONARY STRATEGIES
Some of the Fund's current Advisors are discretionary rather than
systematic traders. Discretionary trading managers may be prone to
"emotionalism" and a lack of discipline in their trading. Relying on subjective
trading judgment may produce less consistent results than those obtained by
using more systematic approaches.
(10) INCREASED ASSETS UNDER MANAGEMENT
There appears to be a tendency for the rates of return achieved by
managed futures advisors to decline as assets under management increase. None of
the Advisors has agreed to limit the amount of additional equity which it may
manage, and each is at or near its all-time high in terms of assets under
management.
(11) NO ASSURANCE OF ADVISORS' CONTINUED SERVICES
There is no assurance that any Advisor will be willing or able to
continue to provide advisory services to the Fund. There is severe competition
for the services of qualified Advisors, and the Fund may not be able to retain
satisfactory replacement or additional Advisors on acceptable terms. MLIP must
allocate Advisor availability among its different funds, including the Fund,
and, accordingly may not at all times select for the Fund those Advisors which
MLIP would otherwise believe to be in its best interests.
(12) CHANGES IN TRADING STRATEGY
An Advisor may make certain changes in its trading strategies without
the knowledge of MLIP (i.e., changing certain of the futures contracts in the
markets in which it trades).
(13) ILLIQUID MARKETS
Certain positions held by the Fund may become illiquid, preventing a
Trading Advisor from acquiring positions otherwise indicated by its strategy or
making it impossible for a Trading Advisor to close out positions against which
the market is moving.
(14) NO ASSURANCE OF NON-CORRELATION; LIMITATIONS ON NON-CORRELATION IF ACHIEVED
Not only is the past performance of the Fund not necessarily
indicative of its future results (due to the speculative character of managed
futures), but also there can be no assurance that, however the Fund may perform,
the Fund's results will be non-correlated with the general stock and bond
markets. If the Fund is not non-correlated to these markets, the Fund cannot
fulfill its objective of diversifying an overall portfolio. Furthermore,
investors must evaluate an investment in the Fund in terms of the alternative of
an investment in a cash equivalent, such as 91-day Treasury bills, which can be
relied upon to (i) be generally non-correlated with equity and debt price
levels, (ii) generate a positive yield and cash flow, (iii) be highly liquid and
(iv) incur virtually no loss of principal.
Even if the Fund's performance is both profitable and non-correlated
to the general stock and bond markets, there are highly likely to be significant
periods during which the Fund's results are similar to those of an investor's
stock and bond holdings. Consequently, during unfavorable economic cycles, an
investment in the Fund may increase rather than mitigate a portfolio's aggregate
losses.
-10-
<PAGE>
(15) REDEMPTIONS RESTRICTED
Investors' limited ability to redeem Units could result in there being
a significant difference between a Unit's redemption value and its Net Asset
Value as of the date by which irrevocable redemption requests must be received.
Redemption charges of 3% apply through the end of the twelfth month after a Unit
is sold.
(16) TRADING ON NON-U.S. EXCHANGES
The Trading Advisors trade extensively on non-U.S. exchanges. These
exchanges are not regulated by any United States governmental agency. The Fund
could incur substantial losses trading on foreign exchanges to which it would
not have been subject had the Trading Advisors limited their trading to U.S.
markets.
The trading profits and losses derived from trading foreign futures
and options (as well as the margin deposits made available to the Fund by MLF)
will generally be denominated in foreign currencies so that the Fund will be
subject to a certain degree of exchange rate risk in trading such contracts.
(17) CONFLICTS OF INTEREST
The Fund is subject to a number of material actual and potential
conflicts of interest, raising the possibility that investors will be
disadvantaged to the benefit of MLIP, the Trading Advisors or their respective
principals and affiliates. No formal policies or procedures have been adopted to
resolve these conflicts. See "Conflicts of Interest" at page 48.
(18) LIMITED PARTNERS TAXED CURRENTLY
Each year, Limited Partners are taxed on their allocable share of any
Fund profits. If an investor purchased stocks or bonds, on the other hand, there
would generally be no tax due on the appreciation in the value of such holdings
until disposition.
The performance information included in this Prospectus is presented
exclusively on a pre-tax basis.
(19) "INVESTMENT ADVISORY FEES"
Limited Partners could be required to treat the Profit Shares and
Incentive Overrides, as well as certain other expenses of the Fund, as
"investment advisory fees," which are subject to substantial restrictions on
deductibility for individual taxpayers. MLIP has not been classifying the Profit
Shares, the Incentive Overrides or such expenses as "investment advisory fees,"
a position to which the Internal Revenue Service (the "IRS") may object.
(20) TAXATION OF INTEREST INCOME
The Fund's trading losses will be almost exclusively capital losses.
Capital losses may be offset against ordinary income only to the extent of
$3,000 per year for individual taxpayers. If an individual Limited Partner had,
for example, an allocable trading loss of $10,000 and allocable interest income
of $5,000, he or she would incur a net loss of $5,000 but would recognize
taxable interest income of $2,000.
(21) TAX AUDIT
There can be no assurance that the Fund's tax returns will not be
audited by the IRS. If such an audit results in an adjustment, Limited Partners
could be required to pay back taxes, interest and penalties, and could
themselves be audited.
Prospective investors are strongly urged to consult their own tax
advisers and counsel with respect to the possible tax consequences of an
investment in the Fund, particularly since the tax consequences of any such
investment may differ for different investors. See "Federal Income Tax
Consequences" at page 52.
-11-
<PAGE>
(22) BANKRUPTCY OR DEFAULT
The Fund could be unable to recover its assets from MLF in the event
of the bankruptcy of MLF. Investors could incur substantial losses, despite the
Fund having been otherwise highly profitable, in the event of the bankruptcy or
default of MLF. Certain of the assets of the Fund will be held in "unregulated"
or partially regulated accounts, which, in the event of the bankruptcy of MLF,
would have less protection than the assets of certain other MLF customers. The
Fund would constitute no more than a general, unsecured creditor of MLF with
respect to its assets on deposit in MLF unregulated accounts.
(23) REGULATORY CHANGE
In the past several years, considerable international regulatory
attention has been focused on the activities of "non-traditional" investment
funds such as the Fund. Future regulatory change could have material negative
consequences for an investment in the Units.
____________________
INVESTMENT FACTORS
The following summarizes certain of the principal potential advantages
which MLIP believes may be associated with an investment in the Fund. There are
also substantial risks associated with such an investment. See "Risk Factors"
beginning at page 9.
____________________
(1) MLIP
MLIP is a major sponsor of futures funds. MLIP's experience and
familiarity with the industry assist MLIP in its ongoing monitoring of the
Trading Advisors' performance as well as in the administration of the Fund. MLIP
combines experience in its trading advisor selection process with an active
approach to its general partner and trading manager roles.
(2) THE TRADING ADVISORS
All Advisors selected by MLIP for the Fund have been successful. In
evaluating what levels of performance volatility -- one commonly used measure of
risk -- are acceptable in the Advisors which are candidates to manage assets for
its funds, MLIP considers both (i) the relationship of an Advisor's rates of
return to its performance volatility and (ii) the absolute level of such
performance volatility. The "risk/reward ratio" of returns to volatility
provides some indication -- based on historical performance which is not
necessarily indicative of future results -- of the profits achieved in relation
to the level of risk assumed. However, certain prospective Advisors, even if
they have achieved significant profits over time, exhibit a high degree of
performance variability -- to a degree which might not be appropriate to include
in the Fund's portfolio. One of the overall performance objectives of the Fund
is to produce returns exhibiting a relatively low degree of volatility, an
objective consistent with many investors' portfolio expectations.
(3) MARKET AND STRATEGY DIVERSIFICATION
In its Advisor selections, MLIP emphasizes broad diversification and
participation in numerous global markets. MLIP focuses on combining Advisors
that collectively implement a wide range of qualitatively different strategies
and trading methods. Although since inception the Advisor group selected for the
Fund has emphasized technical, trend-following methods, in the future MLIP may
favor fundamental and/or discretionary Advisors in its selections for the Fund.
See "The 'Core' Advisors -- Futures Trading Methods in General" at pages
77-78.
-12-
<PAGE>
(4) PORTFOLIO DIVERSIFICATION
The performance of the Fund should exhibit a substantial degree of
non-correlation (not, however, necessarily negative correlation) with the
performance of traditional stock and bond portfolio components. Unlike short
selling in the securities markets, selling futures short is no more difficult
than establishing a long position. The profit and loss potential of futures
trading is not dependent upon economic prosperity or interest rate or currency
stability. Diversifying assets among different investments that generate
positive but non-correlated returns has the potential to decrease risk without a
corresponding decrease in returns -- enhancing the risk/reward profile of a
portfolio. However, non-correlation without positive performance will not
provide any diversification advantages, and there can be no assurance that the
Fund will trade profitably.
Non-correlated performance must be distinguished from negatively
correlated performance. MLIP has no expectation that the performance of the Fund
will be inversely related to that of the general debt and equity markets, i.e.,
likely to be profitable when the latter are unprofitable or vice versa. This
would be negative correlation. Non-correlation means only that the performance
of the Fund has, in MLIP's judgment, a good likelihood of being unrelated to the
performance of stocks and bonds. Non-correlation means only that certain factors
which affect stock and bond prices may affect the Fund differently and that
certain factors which affect the former may not affect the latter. The Net Asset
Value per Unit may decline more or less than, or be more or less profitable
than, stocks and bonds during both "bear" and "bull" markets.
An investment cannot be described as a "hedge" against another to
which the former is only non- as opposed to negatively correlated, because there
is no necessary, or even expected, offsetting of the losses incurred by one by
gains achieved by the other. Prospective investors must not consider an
investment in the Units as a hedge against their overall debt and equity market
exposure. Even if successful, the Fund can at most serve as a diversification
from, not a hedge against, a subscriber's stock and bond portfolio. See "The
Role of Managed Futures in an Investment Portfolio" at page 110.
(5) GLOBAL TRADING
As global markets and investing become more complex, professionally
managed futures may increasingly be included in traditional portfolios of stocks
and bonds managed by advisors seeking improved balance and diversification. By
allocating a portion of the risk segment of their portfolios to selected
advisors specializing in global futures and forward trading with the ability to
move capital rapidly among the world's economies and markets, investors have the
potential, if their futures investment is successful, to enhance their prospects
for superior performance as well as to reduce both the volatility of their
portfolios over time and their dependence on a single nation's economy. As in
the case of "-- (4) Portfolio Diversification," above, if the Fund does not
trade profitably, the fact that it will trade in diversified global markets will
be of no benefit to investors.
(6) CHARGES APPLICABLE TO THE FUND
MLIP structured the Fund to provide for an annual Incentive Override
payable to MLIP, in return for a reduction in brokerage commissions from MLIP's
typical rates for public funds of 9% or 10% of average month-end assets per
annum to 7.50% per annum (which effective as of October 1, 1996 was restructured
to 7.25% per annum plus a 0.25% annual Administrative Fee). Because of the
Incentive Override, a potentially significant portion of MLIP's net compensation
from the Fund is directly linked to the Fund's overall profitability.
(7) SMALL MINIMUM INVESTMENT; SMALLER MINIMUM ADDITIONAL INVESTMENT
The initial minimum investment in the Fund is 50 Units (or $5,000, if
less), and the minimum additional investment for existing Limited Partners only
20 Units (or $2,000, if less). Investments in excess of these minimums are
permitted in any whole Unit multiples.
The small minimum investment required by the Fund makes it possible
for first-time investors to gain exposure to managed futures without having to
commit large amounts of capital and also permits smaller investors who wish to
do so to include an investment in the Fund as a limited portion of the risk
segment of their portfolios.
-13-
<PAGE>
(8) MERRILL LYNCH EMPLOYEE DISCOUNT
Officers and employees of ML&Co. and its affiliates subscribe for
Units at the discounted price of 97% of the Net Asset Value per Unit. MLIP
contributes the remaining 3% of the Net Asset Value per Unit so that other
subscribers' investments are not diluted. (Due to regulatory considerations, the
employee discount is not available to retirement accounts. Such accounts are
free to purchase Units, but must do so at 100% of the Net Asset Value per Unit.)
The discount permits qualified investors to share in a portion of the
benefit derived by MLIP from not having to pay initial selling commissions on
sales of Units within the Merrill Lynch organization.
(9) ADMINISTRATIVE CONVENIENCE
The Fund is structured in order to minimize the administrative burden
to Limited Partners. Limited Partners receive, directly from MLIP, monthly
unaudited statements of account and annual certified financial reports as well
as all Fund-related tax information necessary for Limited Partners to complete
their federal income tax returns. The approximate Net Asset Value per Unit is
available at any time upon request.
PERFORMANCE OF THE OTHER MLIP
MULTI-ADVISOR FUTURES FUNDS
The following performance summaries present the past performance of
other funds sponsored by MLIP which allocate their assets to more than one
advisor. The performance of the publicly offered "single advisor" funds
sponsored by MLIP is set forth beginning at page 108. MLIP, in general,
specializes in sponsoring "multi-advisor" and "selected advisor" funds.
The MLIP funds without "principal protection" features, such as the
Fund, generally trade at 100% leverage -- i.e., with 100% of their capital
allocated to trading. MLIP funds with "principal protection" features generally
allocate less than all of their capital to trading as a means of managing the
risk of major losses. The MLIP "principal protection" funds have, however, come
over time to allocate substantially different percentages of their assets to
trading. ML Principal Protection L.P. and ML Principal Protection Plus Ltd. each
have allocated only 60% of their respective assets to trading since inception.
The SECTOR Strategy Funds' (with the exception of The SECTOR Strategy Fund' IV
L.P. (Series B Units) and The SECTOR Strategy Fund(SM) International IV Ltd.
(Series B Shares) which do not have "principal protection" features) each began
trading with approximately 70% of their respective assets allocated to trading,
although certain of these Funds have traded at significantly more or less than
70% leverage over time (see page 17).
The fee structures of the various MLIP multi-manager funds vary
somewhat, and certain of such funds implement yield enhancement strategies.
Further, the Fund is the only such fund from which MLIP receives incentive
compensation comparable to the Incentive Override. However, to date, the
aggregate fees of such funds, as a percentage of the respective assets allocated
to trading, have not differed materially.
ML Global Horizons Ltd. (see page 15) operates as the offshore
"counterpart" of the Fund.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS, AND
MATERIAL DIFFERENCES EXIST BETWEEN THE FUNDS WHOSE PERFORMANCE SUMMARIES ARE SET
FORTH ON THE FOLLOWING PAGES AND THE FUND.
INVESTORS SHOULD NOTE THAT INTEREST INCOME MAY CONSTITUTE A
SIGNIFICANT PORTION OF A COMMODITY POOL'S INCOME AND, IN CERTAIN INSTANCES, MAY
GENERATE PROFITS WHERE THERE HAVE BEEN REALIZED AND UNREALIZED LOSSES FROM
COMMODITY TRADING.
-14-
<PAGE>
- --------------------------------------------------------------------------------
MLIP SELECTED-ADVISOR AND MULTI-ADVISOR FUNDS
WITHOUT "PRINCIPAL PROTECTION" FEATURES
SEPTEMBER 1, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
WORST
WORST MONTHLY PEAK-TO-VALLEY
NAME OF FUND TYPE OF INCEPTION AGGREGATE CURRENT DRAWDOWN DRAWDOWN
OFFERING OF TRADING SUBSCRIPTIONS CAPITALIZATION % MONTH % PERIOD
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ML Global Horizons Ltd.
(Series A) (offshore Private Jan. 1994 $89,637,253 $42,727,028 (6.29)% (2/96) (6.29)% (2/96)
counterpart of the Fund)
- ----------------------------------------------------------------------------------------------------------------------------------
ML Global Horizons Ltd.
(Series B) Private Sept. 1994 $3,708,415 $2,163,629 (5.66)% (2/96) (5.73)% (6/95-9/95)
- ----------------------------------------------------------------------------------------------------------------------------------
ML Futures Investments II Public May 1988 $269,809,880 $13,467,354 (10.34)% (1/91) (17.81)% (11/90-8/91)
L.P.
- ----------------------------------------------------------------------------------------------------------------------------------
Canadian Diversified
Futures Fund Limited Public July 1989 $13,060,222 ceased trading (6.42)% (4/91) (18.38)% (12/90-8/91)
Partnership 12/31/93
- ----------------------------------------------------------------------------------------------------------------------------------
The John W. Henry &
Co./Millburn L.P. Public Jan. 1990 $18,182,000 $11,829,594 (15.99)% (1/92) (34.39)% (1/92-5/92)
(Series A Units)
- ----------------------------------------------------------------------------------------------------------------------------------
The John W. Henry &
Co./Millburn L.P. Public Jan. 1991 $50,636,000 $25,202,606 (15.01)% (1/92) (32.28)% (1/92-5/92)
(Series B Units)
- ----------------------------------------------------------------------------------------------------------------------------------
The John W. Henry &
Co./Millburn L. P. Public Jan. 1992 $40,000,000 $13,665,489 (9.54)% (2/96) (24.13)% (1/92-5/92)
(Series C Units)
- ----------------------------------------------------------------------------------------------------------------------------------
The SECTOR Strategy
Fund(TM) IV L.P. Public July 1992 $13,353,600 $922,319 (7.04)% (2/96) (11.45)% (2/96-7/96)
(Series B Units)
- ----------------------------------------------------------------------------------------------------------------------------------
The SECTOR Strategy
Fund(TM) International IV Private July 1992 $9,131,000 $499,712 (7.32)% (2/96) (10.79)% (1/94-1/95)
Ltd. (Series B Shares)
- ----------------------------------------------------------------------------------------------------------------------------------
ML Futures Investments L.P. Public Mar. 1989 $86,500,700 $23,557,474 (5.09)% (2/91) (10.85)% (6/95-7/96)
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
CUMULATIVE
RATE OF
RETURN 1996 1995 1994 1993 1992 1991
JAN. 1991- COMPOUND COMPOUND COMPOUND COMPOUND COMPOUND COMPOUND
AUG. 1996 RATE OF RATE OF RATE OF RATE OF RATE OF RATE OF
(OR DISSOLU- RETURN RETURN RETURN RETURN RETURN RETURN
TION (8 MONTHS)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ML Global Horizons Ltd.
(Series A) (offshore 25.21% 0.38% 19.77% 4.15% N/A N/A N/A
counterpart of the Fund)
- --------------------------------------------------------------------------------------------------------------------------------
ML Global Horizons Ltd.
(Series B) 27.95% 0.47% 22.62% 3.86% N/A N/A N/A
(4 mos.)
- --------------------------------------------------------------------------------------------------------------------------------
ML Futures Investments II 18.07% (7.36)% 17.07% (1.36)% 18.67% (3.17)% (3.95)%
L.P.
- --------------------------------------------------------------------------------------------------------------------------------
Canadian Diversified
Futures Fund Limited (15.21)% N/A N/A N/A N/A N/A (15.21)%
Partnership
- --------------------------------------------------------------------------------------------------------------------------------
The John W. Henry &
Co./Millburn L.P. 53.00% (3.97)% 34.89% (8.64)% 20.64% (16.65)% 28.57%
(Series A Units)
- --------------------------------------------------------------------------------------------------------------------------------
The John W. Henry &
Co./Millburn L.P. 64.23% (3.97)% 34.49% (8.43)% 19.74% (13.88)% 34.67%
(Series B Units)
- --------------------------------------------------------------------------------------------------------------------------------
The John W. Henry &
Co./Millburn L. P. 28.11% (4.27)% 35.08% (7.88)% 14.78% (6.30)% N/A
(Series C Units)
- --------------------------------------------------------------------------------------------------------------------------------
The SECTOR Strategy
Fund(TM) IV L.P. 15.38% (7.62)% 12.01% (7.44)% 19.56% 0.76% N/A
(Series B Units) (6 mos.)
- --------------------------------------------------------------------------------------------------------------------------------
The SECTOR Strategy
Fund(TM) International IV 18.96% (4.85)% 14.51% (9.37)% 19.56% 0.76% N/A
Ltd. (Series B Shares) (6 mos.)
- --------------------------------------------------------------------------------------------------------------------------------
ML Futures Investments L.P. 34.28% (6.29)% 11.80% 2.95% 16.56% 4.06% 2.64%
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
PURCHASERS OF UNITS WILL ACQUIRE NO INTEREST IN THESE FUNDS. PAST PERFORMANCE
IS NOT NECESSARILY INDICATIVE
OF FUTURE RESULTS, AND (OTHER THAN ML GLOBAL HORIZONS LTD.) THESE FUNDS ARE EACH
TRADED PURSUANT TO
MATERIALLY DIFFERENT PROGRAMS AND WITH MATERIALLY DIFFERENT OBJECTIVES THAN THE
FUND.
THE NOTES ON PAGE 18 ARE AN INTEGRAL PART OF, AND MUST BE READ IN CONJUNCTION
WITH, THE ABOVE PERFORMANCE INFORMATION.
-15-
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
MLIP SELECTED-ADVISOR AND MULTI-ADVISOR FUNDS
WITHOUT "PRINCIPAL PROTECTION" FEATURES
SEPTEMBER 1, 1996
- ------------------------------------------------------------------------------------------------------------------------------------
WORST
WORST MONTHLY PEAK-TO-VALLEY
TYPE OF INCEPTION AGGREGATE CURRENT DRAWDOWN DRAWDOWN
NAME OF FUND OFFERING OF TRAINING SUBSCRIPTION CAPITALISATION % MONTH % PERIOD
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ML Futures Investments Ltd. Private Mar. 1989 $ 68,202,237 dissolved as of (6.17)% (2/94) (11.10)% (1/94-2/94)
8/31/94
- ------------------------------------------------------------------------------------------------------------------------------------
Currency Investment Private April 1991 $ 55,114,566 dissolved as of (5.13)% (8/91) (16.10)% (7/91-5/94)
Partners Ltd. 8/31/94
- ------------------------------------------------------------------------------------------------------------------------------------
dissolved as of
The Managed Futures Trust Private May 1991 $ 11,090,759 9/24/93 (6.22)% (7/91) (14.50)% (1/92-5/92)
Fund L.P.
- ------------------------------------------------------------------------------------------------------------------------------------
dissolved as of
Commodity Trading Company, Private July 1991 $ 25,797,626 10/31/94 (6.47)% (2/94) (23.31)% (1/92-12/92)
Ltd.
- ------------------------------------------------------------------------------------------------------------------------------------
Permal F/X, Financials & Private July 1992 $106,495,710 MLIP ceased (5.67)% (2/94) (12.24)% (2/94-4/94)
Futures Ltd. functioning as
trading manager
as of 3/31/96
- ------------------------------------------------------------------------------------------------------------------------------------
dissolved as of
ML Institutional Partners Public Feb. 1992 $ 57,312,700 12/31/94 (3.58)% (1/94) (8.78)% (10/93-4/94)
L.P.
- ------------------------------------------------------------------------------------------------------------------------------------
dissolved as of
Futures Opportunities Private Dec. 1988 $ 45,310,202 7/31/92 (8.94)% (1/92) (17.34)% (1/92-5/92)
Limited
- ------------------------------------------------------------------------------------------------------------------------------------
dissolved as of
Daiwa Hudson River Fund Private Feb. 1994 $ 7,044,701 2/29/96 (4.72)% (3/94) (17.21)% (2/94-1/95)
- ------------------------------------------------------------------------------------------------------------------------------------
The JLI Trading Co. Fund Private Mar. 1995 $ 14,300,136 $ 14,968,310 (6.93)% (2/96) (8.22)% (5/96-7/96)
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
MLIP SELECTED-ADVISOR AND MULTI-ADVISOR FUNDS
WITHOUT "PRINCIPAL PROTECTION" FEATURES
SEPTEMBER 1, 1996
- ------------------------------------------------------------------------------------------------------------------------------------
CUMMULATIVE
RATE OF
RETURN 1996
JAN. 1991- COMPOUND 1995 1994 1993 1992 1991
AUG. 1996 RATE OF COMPOUND COMPOUND COMPOUND COMPOUND COMPOUND
OR RETURN RATE OF RATE OF RATE OF RATE OF RATE OF
NAME OF FUND DISSOLUTION (8 MONTHLY) RETURN RETURN RETURN RETURN RETURN
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ML Futures Investments Ltd. 13.39% N/A N/A (3.78)% 15.26% 3.12% (0.85)%
(8 mos.)
- ------------------------------------------------------------------------------------------------------------------------------------
Currency Investment (14.25)% N/A N/A (4.05)% (2.06)% (1.57)% (7.52)%
Partners Ltd. (8 mos.) (9 mos.)
- ------------------------------------------------------------------------------------------------------------------------------------
The Managed Futures Trust 36.19% N/A N/A N/A 20.58% 2.63% 10.06%
Fund L.P. (8-2/3 mos.) (8 mos.)
- ------------------------------------------------------------------------------------------------------------------------------------
Commodity Trading Company, (14.46) N/A N/A (6.21)% 14.91% (23.31)% 3.50%
Ltd. (10 mos.) (6 mos.)
- ------------------------------------------------------------------------------------------------------------------------------------
Permal F/X, Financials & 21.22% 6.63% 14.78% (5.33)% 11.05% (5.79)% N/A
Futures Ltd. (3 mos) (6 mos.)
- ------------------------------------------------------------------------------------------------------------------------------------
ML Institutional Partners (0.35)% N/A N/A (4.06)% 7.65% (3.51)% N/A
L.P. (composite) (11 mos.)
- ------------------------------------------------------------------------------------------------------------------------------------
Futures Opportunities (1.86)% N/A N/A N/A N/A (13.56)% 13.54%
Limited (7 mos.)
- ------------------------------------------------------------------------------------------------------------------------------------
Daiwa Hudson River Fund 0.65% 0.26% 19.82% (16.22)% N/A N/A N/A
(2 mos) (11 mos.)
- ------------------------------------------------------------------------------------------------------------------------------------
The JLI Trading Co. Fund 4.67% 2.17% 2.45% N/A N/A N/A N/A
(10 mos.)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
MLIP SELECTED-ADVISOR AND MULTI-ADVISOR FUNDS
WITH "PRINCIPAL PROTECTION" FEATURES
SEPTEMBER 1, 1996
- ---------------------------------------------------------------------------------------------------------------------------------
WORST
INCEPTION WORST MONTHLY PEAK-TO-VALLEY
TYPE OF OF AGGREGATE CURRENT DRAWDOWN DRAWDOWN
NAME OF FUND OFFERING TRADING SUBSCRIPTIONS CAPITALIZATION % Date % PERIOD
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
The S.E.C.T.O.R. Strategy
Fund(SM) L.P. Public July 1990 $125,853,001 $ 30,151,254 (6.09)% (2/96) (13.78)% (1/92-5/92)
- ---------------------------------------------------------------------------------------------------------------------------------
The SECTOR Strategy Fund(SM)
II L.P. (SECTOR II Units) Public Dec. 1990 $136,410,000 $ 14,681,835 (4.73)% (2/96) (15.93)% (8/93-1/95)
- ---------------------------------------------------------------------------------------------------------------------------------
The SECTOR Strategy Fund(SM)
II L.P. (SECTOR III Units) Public July 1991 $194,005,000 $ 26,906,145 (8.64)% (2/96) (14.25)% (1/92-5/92)
- ---------------------------------------------------------------------------------------------------------------------------------
The SECTOR Strategy Fund(SM)
IV L.P. (Series A Units) Public July 1992 $ 75,646,400 $ 4,154,937 (6.41)% (2/96) (8.98)% (6/95-10/95)
- ---------------------------------------------------------------------------------------------------------------------------------
The SECTOR Strategy Fund(SM)
V L.P. Public Jan. 1993 $137,500,000 $ 13,772,259 (7.51)% (2/96) (10.14)% (2/96-6/96)
- ---------------------------------------------------------------------------------------------------------------------------------
The SECTOR Strategy Fund(SM)
VI L.P. Public Sept. 1993 $108,693,900 $ 31,916,415 (5.89)% (7/96) (8.97)% (5/96-7/96)
- ---------------------------------------------------------------------------------------------------------------------------------
ML Principal Protection
L.P. (formerly, ML
Principal Protection Plus
L.P.) Public Oct. 1994 $102,373,215 $ 82,100,574 (3.70)% (2/96) (3.70)% (2/96)
- ---------------------------------------------------------------------------------------------------------------------------------
ML Principal Protection
Plus Ltd. Private Oct. 1994 $437,301,323 $351,018,773 (3.72)% (2/96) (3.72)% (2/96)
- ---------------------------------------------------------------------------------------------------------------------------------
The SECTOR Strategy Fund(SM) dissolved as
International II Ltd. Private Dec. 1990 $ 55,181,600 of 12/31/95 (4.56)% (8/94) (16.49)% (8/93-1/95)
- ---------------------------------------------------------------------------------------------------------------------------------
The SECTOR Strategy Fund(SM)
International II Ltd.
(SECTOR III Shares) Private July 1991 $ 85,701,800 $ 8,230,204 (7.10)% (1/92) (14.25)% (1/92-5/92)
- ---------------------------------------------------------------------------------------------------------------------------------
The SECTOR Strategy Fund(SM)
International IV Ltd.
(Series A Shares) Private July 1992 $ 55,189,400 $ 3,825,437 (6.22)% (2/96) (8.30)% (1/94-1/95)
- ---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
CUMULATIVE
RATE OF
RETURN 1996
JAN. 1991- COMPOUND 1995 1994 1993 1992 1991
AUG. 1996 (OR RATE OF COMPOUND COMPOUND COMPOUND COMPOUND COMPOUND
DISSOLU- RETURN RATE OF RATE OF RATE OF RATE OF RATE OF
NAME OF FUND TION (8 MONTHS) RETURN RETURN RETURN RETURN RETURN
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
The S.E.C.T.O.R. Strategy
Fund(SM) L.P. 55.89% 1.50% 19.25% (9.29)% 19.36% (3.43)% 23.18%
- -----------------------------------------------------------------------------------------------------------------------------
The SECTOR Strategy Fund(SM)
II L.P. (SECTOR II Units) 25.15% (0.96)% 13.50% (9.93)% 5.49% (2.76)% 20.50%
- -----------------------------------------------------------------------------------------------------------------------------
The SECTOR Strategy Fund(SM) 13.99%
II L.P. (SECTOR III Units) 22.88% (4.19)% 9.30% (3.22)% 15.99% (8.30)% (6 mos.)
- -----------------------------------------------------------------------------------------------------------------------------
The SECTOR Strategy Fund(SM) 0.51%
IV L.P. (Series A Units) 9.36% (7.29)% 9.78% (5.73)% 13.40% (6 mos.) N/A
- -----------------------------------------------------------------------------------------------------------------------------
The SECTOR Strategy Fund(SM)
V L.P. 5.68% (8.51)% 14.22% (3.68)% 4.99% N/A N/A
- -----------------------------------------------------------------------------------------------------------------------------
The SECTOR Strategy Fund(SM) (1.72)%
VI L.P. 8.25% 4.04% 6.72% (0.80)% (4 mos.) N/A N/A
- -----------------------------------------------------------------------------------------------------------------------------
ML Principal Protection
L.P. (formerly, ML
Principal Protection Plus 13.52% 1.76%
L.P.) (composite) 0.91% 10.55% (2 1/2 mos) N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------------------------
ML Principal Protection 14.27% 1.35% 11.10% 1.48% N/A N/A N/A
Plus Ltd. (composite) (2 1/2 mos.)
- -----------------------------------------------------------------------------------------------------------------------------
The SECTOR Strategy Fund(SM)
International II Ltd. 35.45% N/A 21.27% (9.64)% 5.49% (2.76)% 20.50%
- -----------------------------------------------------------------------------------------------------------------------------
The SECTOR Strategy Fund(SM)
International II Ltd. 13.99%
(SECTOR III Shares) 28.23% 2.06% 2.84% 0.77% 15.99% (8.30)% (6 mos.)
- -----------------------------------------------------------------------------------------------------------------------------
The SECTOR Strategy Fund(SM)
International IV Ltd. 0.51%
(Series A Shares) 12.59% (4.81)% 11.84% (7.21)% 13.40% (6 mos.) N/A
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
PURCHASERS OF UNIT WILL ACQUIRE NO INTEREST IN THESE FUNDS. PAST PERFORMANCE
IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS, AND THESE FUNDS ARE
EACH TRADED PURSUANT TO MATERIALLY DIFFERENT PROGRAMS AND WITH
MATERIALLY DIFFERENT OBJECTIVES THAN THE FUND.
THE NOTES ON PAGE 18 ARE AN INTEGRAL PART OF, AND MUST BE READ IN
CONJUNCTION WITH, THE ABOVE PERFORMANCE INFORMATION.
-17-
<PAGE>
- --------------------------------------------------------------------------------
MLIP SELECTED-ADVISOR AND MULTI-ADVISOR FUNDS
WITH "PRINCIPAL PROTECTION" FEATURES
SEPTEMBER 1, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
WORST
WORST MONTHLY PEAK-TO-VALLEY
TYPE OF INCEPTION OF AGGREGATE CURRENT DRAWDOWN DRAWDOWN
NAME OF FUND OFFERING TRADING SUBSCRIPTIONS CAPITALIZATION % Date % PERIOD
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
The SECTOR Strategy Fund(SM)
International V Ltd. Private Jan. 1993 $ 81,252,600 $5,924,535 (3.41)% (7/95) (8.00)% (6/95-10/95)
- ------------------------------------------------------------------------------------------------------------------------------------
ML Japan Investment dissolved as of
Partners Ltd. Private Aug. 1993 (Yen)1,050,000,000 6/30/96 (3.52)% (7/94) (7.32)% (1/94-2/95)
- ------------------------------------------------------------------------------------------------------------------------------------
SECTOR(SM) International
Limited Private Sept. 1993 $163,806,100 $14,203,992 (4.60)% (2/94) (10.43)% (9/93-2/94)
- ------------------------------------------------------------------------------------------------------------------------------------
Yen Linked ML PPP Ltd. Private Oct. 1995 (Yen)8,723,000,000 (Yen)8,674,648,656 (1.67)% (2/96) (1.67)% (2/96)
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
CUMULATIVE
RATE OF
RETURN 1996
JAN. 1991- COMPOUND 1995 1994 1993 1992 1991
AUG. 1996 (OR RATE OF COMPOUND COMPOUND COMPOUND COMPOUND COMPOUND
DISSOLU- RETURN RATE OF RATE OF RATE OF RATE OF RATE OF
TION (8 MONTHS) RETURN RETURN RETURN RETURN RETURN
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
The SECTOR Strategy Fund(SM) 9.16% (2.59)% 11.11% (3.94)% 4.99% N/A N/A
International V Ltd.
- ----------------------------------------------------------------------------------------------------------------------------
1.13%
ML Japan Investment (2.80)% (1.69)% 3.95% (5.95)% (5 mos.) N/A N/A
Partners Ltd.
- ----------------------------------------------------------------------------------------------------------------------------
SECTOR(SM) International (0.66)% (0.66)% 7.65% (3.99)% (3.25)% N/A N/A
Limited (3-2/3 mos.)
- ----------------------------------------------------------------------------------------------------------------------------
0.16%
Yen Linked ML PPP Ltd. (0.30)% (0.46)% (3 mos.) N/A N/A N/A N/A
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) "WORST MONTHLY DRAWDOWN" REPRESENTS THE LARGEST NEGATIVE MONTHLY RATE
OF RETURN EXPERIENCED BY THE FUND; A "DRAWDOWN" IS MEASURED ON THE BASIS OF
MONTH-END NET ASSET VALUE ONLY, AND DOES NOT REFLECT INTRA-MONTH FIGURES.
(2) "WORST PEAK-TO-VALLEY DRAWDOWN" REPRESENTS THE GREATEST PERCENTAGE
DECLINE FROM A MONTH-END CUMULATIVE MONTHLY RATE OF RETURN WITHOUT SUCH
CUMULATIVE MONTHLY RATE OF RETURN BEING EQUALLED OR EXCEEDED AS OF A SUBSEQUENT
MONTH-END. FOR EXAMPLE, IF THE MONTHLY RATE OF RETURN WAS (1)% IN EACH OF
JANUARY AND FEBRUARY, 1% IN MARCH AND (2)% IN APRIL, THE "PEAK-TO-VALLEY
DRAWDOWN" WOULD STILL BE CONTINUING AT THE END OF APRIL IN THE AMOUNT OF
APPROXIMATELY (3)%, WHEREAS IF THE MONTHLY RATE OF RETURN HAD BEEN APPROXIMATELY
3% IN MARCH, THE "PEAK-TO-VALLEY DRAWDOWN" WOULD HAVE ENDED AS OF THE END OF
FEBRUARY AT APPROXIMATELY THE (2)% LEVEL.
(3) MONTHLY RATE OF RETURN IS THE NET PERFORMANCE OF THE FUND DURING THE
MONTH OF DETERMINATION (INCLUDING INTEREST INCOME AND AFTER ALL EXPENSES ACCRUED
OR PAID) DIVIDED BY THE TOTAL EQUITY OF THE FUND AS OF THE BEGINNING OF SUCH
MONTH.
PURCHASERS OF UNIT WILL ACQUIRE NO INTEREST IN THESE FUNDS. PAST PERFORMANCE
IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS, AND THESE FUNDS ARE
EACH TRADED PURSUANT TO MATERIALLY DIFFERENT PROGRAMS AND WITH
MATERIALLY DIFFERENT OBJECTIVES THAN THE FUND.
THE NOTES ON PAGE 18 ARE AN INTEGRAL PART OF, AND MUST BE READ IN
CONJUNCTION WITH, THE ABOVE PERFORMANCE INFORMATION.
-18-
<PAGE>
SELECTED FINANCIAL DATA
The following Selected Financial Information is derived: (i) from the
interim financial statements of the Fund for the period from January 1, 1996 to
September 30, 1996 (unaudited) and January 1, 1995 to September 30, 1995
(unaudited) and (ii) from the financial statements of the Fund for the year
ended December 31, 1995 and the period from January 4, 1994 (commencement of
operations) to December 31, 1994, which have been audited by Deloitte & Touche
llp, independent auditors, as stated in their report included in this Prospectus
(see "Index to Financial Statements" at page 60), and which are included herein
in reliance upon the authority of Deloitte & Touche llp as experts in auditing
and accounting.
_________________________
<TABLE>
<CAPTION>
INCOME STATEMENT DATA JANUARY 1, 1996 JANUARY 1, 1995
- ----------------------
TO TO JANUARY 1, 1995 JANUARY 4, 1994
SEPTEMBER 30, 1996 SEPTEMBER 30, 1995 TO TO
(UNAUDITED) (UNAUDITED) DECEMBER 31, 1995 DECEMBER 31, 1994
--------------- --------------- ------------------ -----------------
<S> <C> <C> <C> <C>
Revenues:
Realized Gain $ 4,610,717 $14,314,748 $17,455,764 $ 453,726
Change in Unrealized 768,003 (4,758,175) 299,233 5,331,556
----------- ----------- -----------
Total Trading Results $ 5,378,720 $ 9,556,573 17,754,997 5,785,282
Interest Income 2,996,535 2,819,800 3,786,925 1,972,722
----------- ----------- ----------- -----------
Total Revenues 8,375,255 12,376,373 21,541,922 7,758,004
----------- ----------- ----------- -----------
Expenses:
Profit Shares 373,820 1,492,857 1,492,857 1,103,649
Incentive Override 5,117 147,489 965,454 41,867
Brokerage Commissions 4,990,367 4,128,889 5,723,755 3,859,267
----------- ----------- ----------- -----------
Total Expenses 5,369,304 5,769,235 8,182,066 5,004,783
Net Income $ 3,005,951 $ 6,607,138 $13,359,856 $ 2,753,221
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996 SEPTEMBER 30, 1995
BALANCE SHEET DATA* (UNAUDITED) (UNAUDITED) DECEMBER 31, 1995 DECEMBER 31, 1994
- ------------------- --------------- --------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Aggregate Net Asset Value $81,077,111 $83,631,110 $92,761,068 $67,055,115
Net Asset Value per Unit $128.97 $115.14 $124.35 $104.08
</TABLE>
* Balance sheet information is based on redemption values which differ
immaterially from Generally Accepted Accounting Principles ("GAAP") Net Asset
Values due to the treatment of organization and initial offering cost
reimbursements.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
MONTH-END NET ASSET VALUE PER UNIT
- ------------------------------------------------------------------------------------------------------------------
JAN. FEB. MAR. APR. MAY JUNE JULY AUG. SEPT. OCT. NOV. DEC.
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
1994 $ 98.60 $ 97.36 $ 98.60 $ 98.99 $102.25 $104.98 $102.64 $100.63 $102.16 $104.27 $103.89 $104.08
- ------------------------------------------------------------------------------------------------------------------
1995 $101.22 $106.76 $116.51 $118.56 $121.04 $120.69 $116.88 $116.54 $115.14 $115.01 $117.18 $124.35
- ------------------------------------------------------------------------------------------------------------------
1996 $125.91 $117.82 $119.43 $128.54 $123.56 $127.71 $123.72 $124.28 $128.97 N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
ALTHOUGH THE NET ASSET VALUE PER UNIT IS THE SAME FOR ALL UNITS, UNITS
PURCHASED AT DIFFERENT TIMES WILL HAVE DIFFERENT INVESTMENT EXPERIENCES IN THE
FUND. CERTAIN UNITS MAY HAVE INCREASED IN NET ASSET VALUE FROM THE DATE OF
PURCHASE WHILE OTHERS HAVE DECREASED.
-19-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OPERATIONAL OVERVIEW; ADVISOR SELECTIONS
The Fund's results of operations depend on MLIP's ability to select
Advisors and the Advisors' ability to trade profitably. The Advisors' trading
methods are confidential, so that substantially the only available information
relevant to the Fund's results of operations is its actual performance record to
date. Because of the speculative nature of its trading, the Fund's past
performance is not necessarily indicative of its future results.
MLIP has not to date made frequent changes in the Fund's Advisors or
in the allocation of its assets among them, although there can be no assurance
that it will not do so in the future. MLIP's approach to the selection of the
Fund's Advisors has generally reflected a "buy and hold" allocation strategy.
Only two Advisor changes have been made since the Fund began trading in January
1994: (i) replacing Athena (which discontinued operations) with ARA as of
January 1, 1995 and (ii) adding Di Tomasso and West Course as non-"core"
Advisors as of July 1, 1996.
As of October 1, 1996, the Fund's assets were allocated approximately
as follows:
ARA Portfolio Management
Company, L.L.C. 15%
Chesapeake Capital Corporation 38%
John W. Henry & Company, Inc. 38%
Di Tomasso Group Inc. 4.5%
West Course Capital Inc. 4.5%
---
100%
===
MLIP's decision to terminate or reallocate assets among Trading
Advisors is based on a combination of the numerous factors described under "The
Advisor Selection Process" at page 23. Advisors are, in general, terminated
primarily for unsatisfactory performance, but other factors --for example, a
change in MLIP's or an Advisor's market outlook, apparent deviation from
announced risk control policies, excessive turnover of positions, changes in
principals, commitment of resources to other business activities, etc. -- may
also have a role in the termination or reallocation decision. The market
judgment and experience of MLIP's principals is an important factor in its
allocation decisions.
MLIP has no timetable or schedule for making Advisor changes or
reallocations, and generally makes a medium- to long-term commitment to all
Advisors selected. In particular, MLIP has to date retained the Advisors for the
Fund with less reallocations and adjustments than in the case of many of its
funds. However, there can be no assurance as to the frequency or number of
Advisor changes that may take place in the future, or as to how long any of the
current Advisors will continue to manage assets for the Fund.
RESULTS OF OPERATIONS
General
- -------
MLIP believes that futures funds should be regarded as medium-to long-
term (i.e. three to five years) investments, but it is difficult to identify
"trends" in the Fund's operations and virtually impossible to make any
predictions regarding future results based on the results to date.
<PAGE>
Markets with sustained price trends tend to be more favorable to
managed futures investments than "whipsaw," "choppy" markets, but (i) this is
not always the case, (ii) it is impossible to predict when price trends will
occur and (iii) different Advisors are affected differently by trending markets
as well as by particular types of trends.
MLIP attempts to control credit risk in the Fund's futures and forward
trading (the Fund does not trade derivatives other than futures and forward
contracts and related options) by trading only through MLF. MLF acts solely as a
broker or counterparty to the Fund's trades; it does not advise with respect to,
or direct, any such trading.
The Fund attempts to control the market risk inherent in its trading
through the multiple advisor approach described under "The Advisor Selection
Process -- MLIP and Its Advisor Selection and Monitoring Process" at page 23.
MLIP reviews the positions acquired by the Advisors on a daily basis in an
effort to determine whether the overall positions of the Fund may have become
what MLIP analyzes as being excessively concentrated in a limited number of
markets -- in which case MLIP may, as of the next month-end or quarter-end,
adjust the Fund's Advisor combination and/or allocations so as to attempt to
minimize the risk of such over-concentration occurring in the future.
MLIP may consider making distributions to investors under certain
circumstances (for example, if substantial profits are recognized); however,
MLIP has not done so to date and does not presently intend to do so.
Performance Summary
- -------------------
1994
STATISTICS. During 1994, the Fund's average month-end Net Assets
equalled $53,119,205. The Fund recognized gross trading gains of $5,785,282, and
incurred brokerage commissions of $3,859,267, Profit Shares of $1,103,649 and
Incentive Overrides of $41,867 (or 10.89%, 7.27%, 2.08% and 0.08%, respectively,
of average month-end Net Assets). Interest income of $1,972,722 or 3.71% of
average month-end Net Assets resulted in net income (without reduction for
organization and initial offering cost reimbursement payments) of $2,753,221,
and a 4.08% increase in the Net Asset Value per Unit.
OVERVIEW. 1994 was characterized by relatively quiet markets without
noticeable major trends. United States interest rates generally declined during
the period, and as they did, so did the U.S. dollar as compared to the
Deutschemark and certain other major currencies. During this period, the Fund
recorded a modest gain, of which approximately 40% was allocated to Profit
Shares as different Advisors had significantly different trading performance in
largely trendless markets.
1995
STATISTICS. During 1995, the Fund's average month-end Net Assets
equalled $74,120,244. The Fund recognized gross trading gains of $17,754,997,
and incurred brokerage commissions of $5,723,755, Profit Shares of $1,492,857
and Incentive Overrides of $965,454 (or 23.95%, 7.72%, 2.01% and 1.30%,
respectively, of average month-end Net Assets). Interest income of $3,786,925 or
5.11% of average month-end Net Assets resulted in net income (without reduction
for organization and initial offering cost reimbursement payments) of
$13,359,856, and a 19.48% increase in the Net Asset Value per Unit.
OVERVIEW. In 1995, prevailing price trends in several key markets
enabled the Trading Advisors to trade profitably for the Fund. Although trading
in many of the traditional commodity markets may have been lackluster, the
currency and financial markets offered exceptional trading opportunities.
Soaring stock prices and falling interest rates, coupled with significant
currency moves, resulted in profitable trading opportunities in these markets
throughout the year.
After months characterized by very difficult trading environments,
solid price trends across many markets began to emerge during the first quarter
of 1995. In February, bond markets worldwide recovered some of the ground lost
in the previous year. Specifically, U.S. Treasury prices improved, a development
spurred by the belief that growth in the U.S. economy was slowing enough for
inflation to stabilize. The Fund was also able to profit in the non-dollar
markets, as
-21-
<PAGE>
German and Japanese bonds rallied. In the currency markets, long positions in
the Deutschemark versus the U.S. dollar resulted in strong profits for the Fund
as the Deutschemark hit a two-year high against the U.S. dollar on February 24,
1995.
In the second quarter of 1995, market volatility once again began to
affect trading, as many previously strong price trends began to weaken and, in
some cases, reverse. During April, the U.S. dollar hit new lows versus the
Japanese yen and Deutschemark before rebounding sharply. The U.S. dollar enjoyed
another sharp rally in May, due to the intervention of major central banks,
potential trade sanctions against Japan and United States Congressional action
to reduce the federal deficit. In June, strong indications that the U.S.
economy was slowing, coupled with a failure of the German Central Bank to lower
interest rates, stalled a rally in the German bond market.
In July, the Federal Reserve Board Chairman Alan Greenspan's
optimistic comments concerning the U.S. economy led to a sudden correction in
U.S. bond prices after several months of a strong uptrend. Despite exposure to
the global interest-rate markets, the Fund's long positions in U.S. Treasury
bonds had a negative impact on the Fund. Throughout August and into September,
the U.S. dollar rallied sharply against the Japanese yen and the Deutschemark.
The U.S. dollar's rally was supported by coordinated intervention by major
central banks and further bolstered on August 30 by widespread recognition of
the growing banking crisis in Japan.
Despite continued price volatility during the final quarter of 1995,
the Trading Advisors were able to identify several trends in key markets. U.S.
Treasury bond prices continued their strong move upward throughout November, due
both to weak economic data and optimism on Federal budget talks. By month-end,
the 30-year Treasury bond rate was pushed to its lowest level in more than two
years. During December, U.S. bond prices weakened further as government budget
talks continued to stall. By year-end, however, prices strengthened somewhat as
the yield on the U.S. long bond fell below 6% for the first time in over two
years.
1996 (9 months)
STATISTICS. From January 1, 1996 through September 30, 1996, the
Fund's average month-end Net Assets equalled $88,631,646. The Fund recognized
gross trading gains of $5,378,720, and incurred brokerage commissions of
$4,990,367, Profit Shares of $373,820 and Incentive Overrides of $5,117 (or
6.07%, 5.63%, 0.42% and 0.01%, respectively, of average month-end Net Assets).
Interest income of $2,996,535 or 3.38% of average month-end Net Assets resulted
in a net gain of $3,005,951 and a 3.72% increase in the Net Asset Value per
Unit.
OVERVIEW. The first nine months of 1996 included the two largest
single monthly drawdowns as well as one of the three most profitable months in
the Fund's history. The year began with the East Coast blizzard, continuing
difficulties in the U.S. federal budget talks and an economic slowdown having a
negative impact on many markets. The Fund was profitable in January due to the
strong profits in currency trading as the U.S. dollar reached a 23-month high
against the Yen. In February, however, the Fund incurred its largest monthly
loss due to the sudden reversals in several strong price trends and considerable
volatility in the currency and financial markets. During March, large profits
were taken in the crude oil and gasoline markets as strong demand continued and
talks between the United Nations and Iraq were suspended. This trend continued
into the second quarter, during which strong gains were also recognized in the
agricultural markets as a combination of drought and excessive rain drove wheat
and grain prices to historic highs. In the late spring and summer months,
however, the Fund gave back much of these gains as difficult trading conditions
in many markets prevailed and a lack of clear price trends in key markets
negatively impacted the Fund's performance.
RESULTS OF OPERATIONS IN GENERAL
The principal variables which determine the net performance of the
Fund are gross profitability and interest income. As the Fund's brokerage
commissions (and, as of October 1, 1996, the Fund's Administrative Fees) are
constant flat-rate charges, these costs do not vary as a percentage of Net
Assets from period to period. The only marginal costs which the Fund has are the
Profit Shares payable to the Trading Advisors on an Advisor-by-Advisor basis and
the Incentive Override payable to MLIP on the basis of the overall Fund
performance. During periods when Profit Shares are a high percentage of net
trading gains, it is likely that there has been substantial non-correlation (so
that the total Profit Shares paid to those Advisors which have traded profitably
are a high percentage of total profits recognized, as other
-22-
<PAGE>
Advisors have incurred offsetting losses) among the Advisors -- suggesting the
likelihood of generally trendless, non-consensus markets.
During all periods set forth in "Selected Financial Data," United
States interest rates were at historically low levels. This negatively impacts
performance because interest income is typically a major component of commodity
pool profitability. In addition, low interest rates are frequently associated
with reduced fixed-income market volatility, and in static markets the Fund's
profit potential generally tends to be diminished. On the other hand, during
periods of higher interest rates, the relative attractiveness of a high risk
investment such as the Fund may be reduced as compared to high yielding and much
lower risk fixed-income investments.
The events that determine the Fund's profitability are those that
produce sustained and major price movements. It does not matter whether such
movements are up or down -- the Advisors are generally likely to be able to
profit from sustained trends, irrespective of their direction. During the course
of the Fund's performance to date, such events have ranged from Federal Reserve
Board reductions in interest rates, the apparent refusal of Iraq to arrive at a
settlement which would permit it to sell oil internationally, the inability of
the U.S. government to agree upon a federal budget and a combination of drought
and excessive rain negatively impacting U.S. agricultural harvesting as well as
planting. While these events are representative of the type of circumstances
which materially affect the Fund, the specific events which will do so in the
future cannot be predicted or identified.
Unlike many investment fields, there is no meaningful distinction in
the operation of the Fund between realized and unrealized profits. Most of the
contracts traded by the Fund are highly liquid and can be closed out at any
time. Furthermore, the profits on many open positions are effectively realized
on a daily basis through the payment of "variation margin."
Except in unusual circumstances, factors -- regulatory approvals, cost
of goods sold, employee relations and the like -- which often materially affect
an operating business have virtually no impact on the Fund.
LIQUIDITY AND CAPITAL RESOURCES
The amount of capital raised for the Fund does not have a significant
impact on its operations. This is because the Fund has no capital expenditure or
working capital requirements other than paying trading losses and costs, both of
which should be generally proportional to the Fund's capitalization. In
addition, within broad ranges of capitalization, the Advisors' trading positions
should increase or decrease in approximate proportion to the size of the Fund
account managed by each of them, respectively.
The Fund raises additional capital only through the continuous
offering of its Units. The Fund does not borrow and sells no form of security
other than the Units.
Inflation per se is not a significant factor in the Fund's
profitability, although inflationary cycles can give rise to the type of major
price movements that can have a materially favorable or adverse impact on the
Fund's performance.
In its trading to date, the Fund has from time to time had substantial
unrealized gains and losses on its open positions. These gains or losses are
paid on a periodic basis as part of the routine clearing cycle on the exchanges
or in the unregulated markets (in the case of the Fund, exclusively the inter-
bank forward market in currencies) in which the Fund trades. In highly unusual
circumstances, market illiquidity could make it difficult for certain Advisors
to close out open positions, and any such illiquidity could expose the Fund to
significant losses, or cause it to be unable to recognize unrealized gains.
However, in general, there is no meaningful difference between the Fund's
realized and unrealized gains.
In terms of cash flow, it makes little difference whether a market
position remains open, as cash settlement of "unrealized" gains and losses
occurs periodically whether or not positions are closed out. The only meaningful
difference between realized and unrealized gains or losses in the case of the
Fund is that unrealized items reflect gains or losses on positions which the
Advisors have determined not to close out (presumably, in the expectation of
future profits), whereas realized gains or losses reflect amounts received or
paid in respect of positions no longer being maintained.
-23-
<PAGE>
THE ADVISOR SELECTION PROCESS
MLIP AND ITS ADVISOR SELECTION AND MONITORING PROCESS
MLIP, a wholly-owned indirect subsidiary of ML&Co., is an integrated
business whose capabilities include research, trading, finance, administration,
systems, operations, sales and marketing. Since its inception, MLIP has
concentrated primarily on the structuring of multi-advisor products, and has
devoted substantial resources to the development of the capacity to formulate
advantageous trading advisor combinations, as well as to assess trading advisors
on an individual basis. Advisor analysis includes the quantitative appraisal of
an Advisor's strategy and performance combined with quantitative statistical
evaluation of the performance of individual advisors and of different possible
Advisor combinations.
MLIP's trading advisor analysis professionals monitor the performance
of several hundred advisors. Both quantitative and qualitative criteria have
been factored into MLIP's selection process, including the following: type of
trading program; risk control; duration and speed of recovery from drawdowns;
experience; organizational infrastructure; and low correlation with traditional
investments such as stocks and bonds. Advisors' past records are evaluated
comparatively with a view to combining Advisors whose respective trading results
have historically demonstrated not only a low degree of correlation with stocks
and bonds but also with the other advisors selected. Certain mathematical
optimization procedures are then used to develop an advisor combination which,
based on a hypothetical composite of the past performance of the respective
advisors, exhibits a risk/reward profile consistent with MLIP's objectives. By
identifying advisor combinations on this basis, MLIP hopes to maintain profit
potential while also materially reducing the risk of major equity declines.
In selecting advisors for the Fund, MLIP emphasizes retaining multiple
Advisors, trading in multiple markets and implementing multiple strategies. MLIP
also evaluates the overall market diversification and emphasis that different
possible Advisor combinations would give the Fund. Discretionary as well as
systematic, fundamental as well as technical, Advisors may be retained. See "The
'Core' Advisors -- Futures Trading Methods in General" at pages 77-78. By
diversifying strategies as well as markets, MLIP can, if successful, create
advisor combinations for the Fund that should have good profit potential across
a wide range of different market cycles. Since inception, the Fund's Advisor
portfolio has emphasized technical and trend-following methods.
MLIP's primary emphasis is on a qualitative assessment of each
Advisor, including, among other considerations, an evaluation of each Advisor's
basic investment management approach, markets traded, prior experience, past
performance, fee requirements and assets under management. Although different
factors may be considered in the case of different advisors (and no
representation is made that any given factor will be considered in selecting any
given Advisor), subjective evaluation of each prospective advisor by principals
of MLIP is an important factor in all of MLIP's Advisor selections. Quantitative
non-correlation analysis and volatility studies are employed in developing the
overall Advisor mix, but the principal objective is to identify Advisors MLIP
believes to have excellent potential to trade successfully.
No Advisor selected by MLIP has any affiliation with Merrill Lynch,
other than managing the trading of the Fund and other futures funds or accounts
sponsored or managed by MLIP. Furthermore, none of the Advisors is affiliated
with any other Advisor.
MLIP monitors the performance of the Fund and its Advisors on a
day-to-day basis, and, from time to time, reallocates assets among, terminates
and/or appoints new Advisors. At least quarterly, MLIP formally reviews the
performance of the Fund and each Advisor in order to assess whether to change
Advisor selections or allocations. MLIP anticipates that a number of additional
adjustments may be made over time, as they have been to date; but there can be
no assurance that the Fund's Advisor portfolio may not remain static for
significant periods of time. On the other hand, MLIP may, on short notice,
terminate or allocate assets away from an Advisor if MLIP has reason to believe
that the Advisor is deviating from historical trading patterns, violating the
Advisor's risk management policies or has otherwise given MLIP what it considers
to be cause for termination.
-24-
<PAGE>
ACCESS TO GLOBAL MARKETS
The Fund has access to global markets including, but not limited
to, the following:
<TABLE>
<S> <C>
CURRENCIES
---------------------------------------------------------------------------------
Australian Dollar Irish Punt
Belgian Franc Italian Lira
British Pound Japanese Yen
Canadian Dollar New Zealand Dollar
Danish Krone Norwegian Krone
Deutschemark Singapore Dollar
Dutch Guilder Spanish Peseta
European Currency Unit Swedish Krona
Finnish Markka Swiss Franc
French Franc United States Dollar
FINANCIAL INSTRUMENTS
---------------------------------------------------------------------------------
Australian Bonds Major Market Stock Index (U.S.)
Australian Treasury Bills MEFF&S Stock Index (Spain)
Canadian Bonds Nikkei Stock Average (Japan)
CAC 40 Stock Index (France) PIBOR
Eurodollars S&P 500 Stock Index (U.S.)
Eurolira Spanish Bonds
Euromarks Tokyo Stock Price Index
Euroswiss U.K. "Gilts"
Euroyen U.K. Short Sterling
Financial Times 100 Stock Index (U.K.) U.S. Dollar Index
French Bonds U.S. Treasury Bills
German Bonds U.S. Treasury Bonds
Italian Bonds U.S. Treasury Notes
Japanese Bonds Value Line Stock Index (U.S.)
METALS
---------------------------------------------------------------------------------
Aluminum Platinum
Gold Silver
Lead Tin
Nickel Zinc
ENERGY PRODUCTS
---------------------------------------------------------------------------------
Crude Oil No. 2 Heating Oil
Gas Oil Propane
Heavy Fuel Oil Residual Fuel Oil
Natural Gas Unleaded Gasoline
AGRICULTURAL PRODUCTS
---------------------------------------------------------------------------------
Cocoa Orange Juice
Coffee Pork Bellies
Corn Soybeans
Cotton Soymeal
Feeder Cattle Soy Oil
Live Hogs Sugar
Oats Wheat
</TABLE>
The Fund has not traded, and may never trade, in all of the foregoing
markets.
There can be no assurance as to which markets the Fund will trade in
over time.
-25-
<PAGE>
THE ADVISORS
ADVISOR SUMMARIES
As of September 1, 1996, the three "core" Advisors which were, in the
aggregate, managing 91% of the Fund's assets were responsible for more than $2.4
billion of customer assets in the futures, cash and forward markets, of which
approximately $1.75 billion was being traded in the programs used for the
Fund.
THE CURRENT "CORE" ADVISORS ARE AS FOLLOWS:
<TABLE>
<CAPTION>
APPROXIMATE ASSETS
OCTOBER 1, 1996 UNDER MANAGEMENT*
ADVISOR ALLOCATION SEPTEMBER 1, 1996
------- ---------- -----------------
<S> <C> <C>
ARA Portfolio 15% $138.3 million (total)
Management $ 98.7 million (Gamma Program)
Company, L.L.C.
Chesapeake Capital 38% $780 million (total)
Corporation $735 million (Diversified Program)
John W. Henry 38% $1.5 billion (total)
& Company, Inc. $912 million (Financial and Metals Portfolio)
</TABLE>
_______________
*Excluding "notional funds." "Notional funds" represent the difference
between the level at which an advisor is instructed to trade an
account and the capital actually committed to the account. The Fund
does not trade "notional funds."
Each of the current "core" Advisors is a systematic, technical, trend-
following trader.
ARA PORTFOLIO MANAGEMENT COMPANY, L.L.C. (15% ALLOCATION AS OF OCTOBER
1, 1996) -- ARA was organized (through a predecessor corporation) in 1992 to
design diversified portfolios of commodity futures contracts, each having what
ARA evaluates as a predictable level of anticipated risk, with risk tolerance
levels set in advance by the client. The ARA system is composed of two distinct
components: a Buy/Sell generator which has been used in actual trading since
1979; and a technique of risk management based upon the daily monitoring and
attempt to control each account's volatility. The ARA system can, if successful,
produce a commodity portfolio having virtually any level of anticipated risk
that is sought by the client. Each ARA portfolio is comprised of the same
eighteen commodity futures contracts -- including currencies, financial
instruments, metals, energy and agriculturals -- which offer what ARA believes
to be a combination of diversity and liquidity. For the Fund, ARA trades
pursuant to its Gamma Program, which has been designed with the objective of
having an average volatility of approximately two times that of an unleveraged
S&P 500 stock portfolio. As of September 1, 1996, ARA was managing approximately
$98.7 million ("notional" funds excluded) of customer funds in the Gamma Program
and approximately $138.3 million ("notional" funds excluded) of customer funds
in all of its programs.
ARA has traded the Gamma Program since June 1992. Since inception,
this Program has been traded at generally the same degree of leverage although
under certain market conditions, ARA may reduce position size or even withdraw
from the market altogether. The compound annual rates of return achieved by the
Gamma Program since June 1992 have been 27.3% (7 months), 29.5%, 38.0%, 5.2% and
(3.8)% (8 months), respectively. During such period, the largest monthly
drawdown was (13.3)% (2/96) and the largest peak-to-valley drawdown (22.73)%
(4/95-2/96). ("Largest" drawdown is the equivalent for Advisors of "worst"
drawdown in the case of the Fund; see "Summary -- Performance of the Fund" at
page 5).
See pages 79 through 82 for performance information relating to
ARA.
-26-
<PAGE>
CHESAPEAKE CAPITAL CORPORATION (38% ALLOCATION AS OF OCTOBER 1,
1996) -- Chesapeake has offered investment advisory and portfolio management
services to clients since 1988. Chesapeake currently trades three programs,
relying primarily on technical analysis and "charting" in its evaluation of
historical commodity price movements. In the Diversified Program which
Chesapeake trades for the Fund, Chesapeake applies its trend-following system to
a global portfolio of futures and forward markets, including agricultural
products, precious and industrial metals, currencies, financial instruments and
stock, financial and economic indices. Chesapeake may trade these markets on any
U.S. or foreign exchange. As of September 1, 1996, Chesapeake was managing
approximately $735 million ("notional" funds excluded) of customer funds in the
Diversified Program and approximately $780 million ("notional" funds excluded)
of customer funds in all of its programs.
Chesapeake has traded the Diversified Program since February 1988. The
compound annual rates of return achieved by the Diversified Program since
January 1, 1991 have been 12.51%, 1.81%, 61.82%, 15.87%, 14.09% and 0.37% (8
month estimate), respectively. During such period, the largest monthly drawdown
was (10.98)% (1/92) and the largest peak-to-valley drawdown (16.62)% (1/92-
5/92).
See pages 83 through 88 for performance information relating to
Chesapeake.
JOHN W. HENRY & COMPANY, INC. (38% ALLOCATION AS OF OCTOBER 1,
1996) -- JWH operates twelve trading programs for U.S. and non-U.S. investors.
These programs emphasize intermediate- and long-term quantitative trend analysis
models. The Financial and Metals Portfolio, which is traded for the Fund,
implements a technical, trend-following system which participates in four major
market sectors -- global interest rates, foreign exchange, global stock indices
and precious metals -- and seeks to capitalize on sustained moves in global
financial markets. As of September 1, 1996, JWH was trading approximately $912
million ("notional" funds excluded) of customer funds in the Financial and
Metals Portfolio and approximately $1.5 billion ("notional" funds excluded) of
customer funds in all of its programs.
JWH has traded the Financial and Metals Portfolio since October 1984.
Since inception, the Financial and Metals Portfolio has been traded at generally
the same degree of leverage although under certain market conditions, JWH may
reduce position size or even withdraw from the market altogether. The compound
annual rates of return achieved by the Financial and Metals Portfolio since
January 1, 1991 have been 61.88%, (10.89)%, 46.82%, (5.32)%, 38.53% and 1.61% (8
months), respectively. During such period the largest monthly drawdown on a
composite basis was (18.0)% (1/92), the largest monthly drawdown on an
individual account basis was (27.7)% (1/92), and the largest peak-to-valley
drawdown (39.5)% (12/91-5/92).
See pages 89 through 104 for performance information relating to
JWH.
MORE COMPLETE DESCRIPTIONS AND THE PERFORMANCE SUMMARIES FOR THE "CORE"
ADVISORS ARE INCLUDED UNDER "THE 'CORE' ADVISORS." SEE "RISK FACTORS
-- (2) PAST PERFORMANCE NOT NECESSARILY INDICATIVE
OF FUTURE RESULTS" AT PAGE 9.
THE ADVISORY AGREEMENTS
The Advisory Agreements among the Fund, MLIP and each Advisor
terminate at various times. MLIP generally attempts to negotiate advisory
agreements with comparable terms (although advisory fees differ) for all of the
public funds which MLIP sponsors. MLIP, but generally not the Advisors, retains
the right to terminate any Advisory Agreement at will and upon short notice.
Each Advisory Agreement provides that the Fund will indemnify the
Advisor party to the Advisory Agreement and its affiliates, as well as their
respective officers, shareholders, directors, employees, partners and
controlling persons for conduct taken as an Advisor or in connection with the
Advisory Agreement, provided that such conduct does not constitute negligence,
misconduct or breach of the Advisory Agreement or of any fiduciary obligation to
the Fund and was done in good faith and in a manner reasonably believed to be
in, or not opposed to, the best interests of the Fund. Each Advisory Agreement
further provides that this indemnity provision will not increase the liability
of any Limited Partner to the Fund beyond the amount of such Limited Partner's
capital and profits, if any, in the Fund (exclusive of previously received
distributions or other returns of capital, including redemptions).
-27-
<PAGE>
Under the exculpatory provisions of the Advisory Agreements, none of
the Advisors or any related parties will be liable to the Fund or to any of the
Partners except by reason of conduct in violation of the foregoing standards for
indemnification by the Fund.
MLIP AND MLF
BACKGROUND
MLIP is the sole promoter of the Fund. None of MLF, Merrill Lynch
International Bank ("MLIB") or Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("MLPF&S") acts as a promoter with respect to the organization of
the Fund or the offering of the Units.
Merrill Lynch Investment Partners Inc., a Delaware corporation, was
organized in 1986 principally in order to serve as the general partner and
commodity pool operator of commodity pools for which MLF -- the "futures
commission merchant" for the Fund -- acts as commodity broker and MLPF&S acts as
selling agent. MLIP became registered with the CFTC as a commodity pool operator
and commodity trading advisor in October 1986 and April 1990, respectively, and
is a member of the National Futures Association ("NFA") in such capacities. MLIP
has sponsored in excess of 35 managed futures funds and, as of October 1, 1996,
there was approximately $1.6 billion in funds for which MLIP serves as trading
manager or sponsor. The principal offices of MLIP are located at Merrill Lynch
World Headquarters, Sixth Floor, South Tower, World Financial Center, New York,
New York 10080-6106; telephone: (212) 236-4167. MLIP is a wholly-owned
subsidiary of Merrill Lynch Group, Inc., which, in turn, is wholly-owned by
Merrill Lynch & Co., Inc.
The registration of MLIP with the CFTC, and MLIP's membership in the
NFA, must not be taken as an indication that any such agency or self-regulatory
body has recommended or approved either MLIP or an investment in the Fund.
Since its inception in 1986, MLIP has operated with one primary
objective -- to provide investors with an opportunity for long-term capital
appreciation and diversification through quality investments in the futures,
commodity options and forward markets. MLIP, as general partner or sponsor,
structures and promotes managed futures investments in an effort to meet the
objectives of a wide variety of clients. MLIP attempts to combine a detailed
advisor selection process with active monitoring of its existing funds and their
advisors. MLIP does not manage client assets directly, but rather specializes in
selecting groups of independent trading advisors to do so.
MLIP acts as general partner to thirteen public futures funds whose
units of limited partnership interest are registered under the Securities
Exchange Act of 1934: The Futures Expansion Fund Limited Partnership, The Growth
and Guarantee Fund L.P., ML Futures Investments II L.P. (formerly, The Futures
Dimension Fund II L.P.), ML Futures Investments L.P. (formerly, The Tudor Prime
Advisors Fund L.P.), John W. Henry & Co./Millburn L.P., The S.E.C.T.O.R.
Strategy Fund' L.P., The SECTOR Strategy Fund' II L.P., The SECTOR Strategy
Fund' IV L.P., The SECTOR Strategy Fund' V L.P., The SECTOR Strategy Fund' VI
L.P., ML Principal Protection L.P. (formerly, ML Principal Protection Plus
L.P.), ML JWH Strategic Allocation Fund L.P. and the Fund. Because MLIP serves
as the sole general partner of each of these funds, the officers and directors
of MLIP effectively manage them as officers and directors of such funds.
PRINCIPALS
The officers of MLIP and their business backgrounds are as follows.
John R. Frawley, Jr. Chief Executive Officer, President
and Director
James M. Bernard Chief Financial Officer,
Senior Vice President and Treasurer
Jeffrey F. Chandor Senior Vice President and Director of
Sales, Marketing and Research
-28-
<PAGE>
Allen N. Jones Chairman and Director
John R. Frawley, Jr. was born in 1943. Mr. Frawley is Chief Executive
Officer, President and a Director of MLIP and Co-Chairman of MLF. He joined
MLPF&S in 1966 and has served in various positions, including Retail and
Institutional Sales, Manager of New York Institutional Sales, Director of
Institutional Marketing, Senior Vice President of Merrill Lynch Capital Markets,
and Director of International Institutional Sales. Mr. Frawley holds a Bachelor
of Science degree from Canisius College. Mr. Frawley served on the CFTC's
Regulatory Coordination Advisory Committee from its inception in 1990 through
its dissolution in 1994. Mr. Frawley is currently a member of the CFTC's
Financial Products Advisory Committee. In January 1996, he was re-elected to a
one-year term as Chairman of the Managed Futures Association, the national trade
association of the United States managed futures industry. Mr. Frawley is also a
Director of that organization, and a Director of the Futures Industry Institute.
James M. Bernard was born in 1950. Mr. Bernard is Chief Financial
Officer, Senior Vice President and Treasurer of MLIP. He joined MLF in 1983.
Before that he was the Commodity Controller for Nabisco Brands Inc. from
November 1976 to 1982 and a Supervisor at Ernst & Whinney from 1972 to November
1976. Mr. Bernard is a member of the American Institute of Certified Public
Accountants and holds a Bachelor of Science degree from St. John's University
and a Master of Business Administration degree from Fordham University.
Jeffrey F. Chandor was born in 1942. Mr. Chandor is Senior Vice
President and the Director of Sales, Marketing and Research of MLIP. He joined
MLPF&S in 1971 and has served as the Product Manager of International
Institutional Equities, Derivatives and Mortgage-Backed Securities as well as
Managing Director of International Sales in the United States, and Managing
Director of Sales in Europe. Mr. Chandor holds a Bachelor of Arts degree from
Trinity College, Hartford, Connecticut.
Allen N. Jones was born in 1942. Mr. Jones is Chairman and a Director
of MLIP. Mr. Jones graduated from the University of Arkansas with a Bachelor of
Science, Business Administration degree in 1964. Since June 1992, Mr. Jones has
held the position of Senior Vice President of MLPF&S. From June 1992 through
February 1994, Mr. Jones was the President and Chief Executive Officer of
Merrill Lynch Insurance Group, Inc. ("MLIG") and remains on the Board of
Directors of MLIG and its subsidiary companies. In February 1994, Mr. Jones
became the Director of Individual Financial Services of the Merrill Lynch
Private Client Group. From January 1992 to June 1992, he held the position of
First Vice President of MLPF&S. From January 1990 to June 1992, he held the
position of District Director of MLPF&S. Before January 1990, he held the
position of Senior Regional Vice President of MLPF&S.
As of October 1, 1996, the principals of MLIP had a $88,989 total
investment in the Fund, and MLIP's interest in the Fund was valued at
$1,150,979. Under currently effective tax regulations, MLIP is required to
maintain at least a 1% interest in the Fund at all times in order to ensure that
the Fund will be treated as a partnership for federal income tax purposes.
MLF
MLF, the exclusive clearing "futures commission merchant" for the
Fund, is a clearing member of The Board of Trade of the City of Chicago, the
Chicago Mercantile Exchange, the New York Mercantile Exchange and all other
principal United States commodity exchanges. The principal office of MLF is
located at World Financial Center, 250 Vesey Street, 23rd Floor, New York, New
York 10281-1323.
The Customer Agreement between MLF and the Fund provides that MLF
shall not be liable for actions taken pursuant to the Customer Agreement except
for actions constituting negligence or misconduct, and that MLF shall not be
responsible for actions taken by it under the Customer Agreement in compliance
with instructions given by any Trading Advisor or the Fund.
-29-
<PAGE>
FIDUCIARY OBLIGATIONS OF MLIP
NATURE OF FIDUCIARY OBLIGATIONS; CONFLICTS OF INTEREST
As general partner of the Fund, MLIP is a "fiduciary" to the Limited
Partners under both statutory and common law and has a responsibility to
exercise good faith, fairness and loyalty in all dealings affecting the Fund.
The scope of MLIP's fiduciary obligations is defined and established, in large
part, by the consent of each subscribing Limited Partner to the business terms
of the Fund as embodied in the Limited Partnership Agreement and as described in
this Prospectus. Certain of the conflicts of interest involved in the operation
of the Fund-- for example, the Fund's trading currency forward contracts with an
affiliate of MLIP -- might be impermissible under the fiduciary principles
applied in certain other investment contexts -- for example, "investment
advisers" are prohibited from trading securities with their clients on a
principal-to-principal basis. In the case of the Fund, such activities are
authorized by disclosure and the informed consent of subscribers. There are
substantial and inherent conflicts of interest in the structure of the Fund. One
of the purposes underlying the disclosures set forth in this Prospectus is to
disclose these conflicts of interests to all prospective Limited Partners so
that MLIP may have the opportunity to obtain their informed consent to these
conflicts prior to, and as a condition of, their becoming Limited Partners.
Prospective investors who are not willing to consent to the various conflicts of
interest described herein are ineligible to invest in the Fund. See "Conflicts
of Interest" at page 48.
Having once established the business terms of the Fund, MLIP is
effectively precluded from changing these terms in a manner that
disproportionately benefits MLIP, since any such change could constitute self-
dealing under common law fiduciary standards, and it is virtually impossible to
obtain the consent of the existing Limited Partners to any such self-dealing,
particularly as fiduciaries (such as MLIP) are, presumed not to be in a position
to bargain at arm's-length with their beneficiaries (such as the Limited
Partners) (given adequate disclosure, on the other hand, new investors to the
Fund should be deemed to have given their consent to its business terms by the
act of subscribing).
The Trading Advisors selected by MLIP are required to clear (although
not to execute) the Fund's futures trades through MLF, as well as to execute and
maintain the Fund's forward currency trades through the Foreign Exchange Desk
(the "F/X Desk"), established by MLIP. See "Charges" at page 35. MLIP has no
control or input into the trades ordered for the Fund by the Trading Advisors,
and the brokerage commissions paid by the Fund are assessed on a flat-rate, not
a per-trade, basis. Nevertheless, prospective investors must recognize that by
subscribing to the Fund they have consented to its basic structure, in which
affiliates of MLIP, and MLIP itself, receive substantial revenues from the Fund
and do not negotiate on behalf of the Fund to achieve lower rates from the
Merrill Lynch entities which provide services to it.
The Fund, as a publicly-offered "commodity pool," is subject to the
Statement of Policy of the North American Securities Administrators Association,
Inc. relating to the registration, for public offering, of commodity pool
interests (the "NASAA Guidelines"). These NASAA Guidelines explicitly prohibit a
general partner of a commodity pool from "contracting away the fiduciary
obligation owed to [investors] under the common law."
The Limited Partnership Agreement provides that MLIP and its
affiliates shall have no liability to the Fund or to any Limited Partner for any
loss suffered by the Fund that arises out of any action or inaction of MLIP or
its affiliates if MLIP or its affiliates, in good faith, determined that such
course of conduct was in the best interests of the Fund, and such course of
conduct did not constitute negligence or misconduct by MLIP or its affiliates.
The Fund has agreed to indemnify MLIP and certain of its affiliates against
claims, losses or liabilities based on their conduct relating to the Fund,
provided that the conduct resulting in the claims, losses or liabilities for
which indemnity is sought did not constitute negligence or misconduct and was
done in good faith and in a manner reasonably believed to be in the best
interests of the Fund. The NASAA Guidelines prescribe the maximum permissible
extent to which the Fund can indemnify MLIP and its affiliates, and prohibit the
Fund from purchasing insurance to cover indemnification of MLIP which the Fund
itself could not undertake directly.
The Limited Partnership Agreement provides that MLIP and its
affiliates (as well as any persons acting as selling agent for the Units) shall
not be indemnified for any losses, liabilities or expenses arising from or out
of an alleged violation of federal or state securities laws unless (1) there has
been a successful adjudication on the merits of each count involving alleged
securities law violations as to the particular indemnitee and the court approves
indemnification of the litigation costs, or (2) such claims have been dismissed
with prejudice on the merits by a court of competent jurisdiction as to the
particular indemnitee and the court approves indemnification of the
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<PAGE>
litigation costs, or (3) a court of competent jurisdiction approves a settlement
of the claims against a particular indemnitee and finds that indemnification of
the settlement and related costs should be made.
Furthermore, in the Limited Partnership Agreement it is provided that
in the event of any claim for indemnification for federal or state securities
law violations, the party seeking indemnification shall place before the court
the position of the Securities and Exchange Commission with respect to the issue
of indemnification for securities law violations. In the view of the Securities
and Exchange Commission, any such indemnification is contrary to the federal
securities laws and therefore unenforceable.
REMEDIES AVAILABLE TO LIMITED PARTNERS
Under Delaware law, a limited partner may, in certain circumstances,
institute legal action on behalf of himself or herself and all other similarly
situated limited partners (a "class action") to recover damages from a general
partner for violations of fiduciary duties, or on behalf of a partnership (a
partnership "derivative action") to recover damages from a third party where a
general partner has failed or refused to institute proceedings to recover such
damages. In addition, limited partners may have the right, subject to applicable
procedural, jurisdictional and substantive requirements, to bring actions in
federal court to enforce their rights under the federal securities laws and the
rules and regulations promulgated thereunder by the SEC. For example, limited
partners who have suffered losses in connection with the purchase or sale of
their interests in a limited partnership may be able to recover such losses from
a general partner where the losses result from his violating of the anti-fraud
provisions of the federal securities laws.
In certain circumstances, Limited Partners also have the right to
institute a reparations proceeding before the CFTC against MLIP (a registered
commodity pool operator), MLF (a registered futures commission merchant) and the
Trading Advisors (registered commodity trading advisors), as well as those of
their respective employees who are required to be registered under the Commodity
Exchange Act and the rules and regulations promulgated thereunder. There is a
private right of action under the Commodity Exchange Act. Investors in
commodities and commodity pools (such as the Fund) may, therefore, invoke its
protections.
In the case of most public companies, the management is required to
make numerous decisions in the course of the day-to-day operations of the
company and is protected in doing so by the so-called "business judgment rule."
This rule protects management from liability for decisions made in the course of
operating a business if the decisions are made on an informed basis and with the
honest belief that the decision is in the best interests of the corporation.
MLIP believes that similar principles apply to MLIP in its management of the
Fund.
Limited Partners should, in the event that the occasion arises,
consult their own counsel regarding their possible rights of action in respect
of the Fund.
USE OF PROCEEDS
MARKET SECTORS
The Fund trades in diversified markets under the direction of multiple
independent Advisors. These Advisors can, and do, materially and frequently
alter the allocation of their overall trading commitments among different market
sectors (furthermore, the scope of the market sectors themselves vary and
overlap over time as new contracts and instruments become available). Except in
the case of certain trading programs which are purposefully limited in the
markets which they trade, there is essentially no restriction on the commodity
interests traded by any Advisor or the rapidity with which an Advisor may alter
its market sector allocations.
The market sectors traded by the current "core" Advisors can be
summarized as follows.
ARA PORTFOLIO MANAGEMENT COMPANY, L.L.C. The Gamma Program which is
traded for the Fund implements a strictly technical trend-following system which
uses a portfolio of eighteen U.S. exchange-traded commodities, including
currencies, financial instruments, metals, energy and agriculturals. ARA
maintains a position in each commodity in its diversified portfolio at all
times, although such positions will vary in magnitude.
CHESAPEAKE CAPITAL CORPORATION. In the Diversified Program which is
traded for the Fund, Chesapeake applies its trend-following system to a global
portfolio of futures and forward markets, including
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<PAGE>
agricultural products, precious and industrial metals, currencies, financial
instruments, and stock, financial and economic indices. Chesapeake's risk
management techniques include diversification. Also, the Diversified Program
adheres to the requirements of a money management system which determines and
limits the equity committed to each trade, each market, each commodity complex
and each account.
JOHN W. HENRY & COMPANY, INC. The Financial and Metals Portfolio
which is traded for the Fund utilizes intermediate- and long-term quantitative
trend analysis models which participate in four major market sectors -- global
interest rates, foreign exchange, global stock indices and precious metals --
and seeks to capitalize on sustained moves in global financial markets. The
Financial and Metals Portfolio may take long, short or neutral positions in up
to 39 markets within the four market sectors traded. Because assets are
concentrated in interest rates, currencies, stock indices and metals only,
volatility can be higher than in a more diversified portfolio.
The Fund's Annual Report, which includes the audited financial
statements of the Fund for the preceding fiscal year, contains additional
information relating to the market sectors traded by the Fund. There can,
however, be no assurance as to in which market sectors the Fund's trading may be
concentrated at any one time or over time.
MARKET TYPES
The Fund trades in a variety of United States and foreign regulated
markets. Although all such trading takes place on established exchanges, the
rules governing such trading differ significantly between different countries.
Substantially all of the Fund's unregulated trading takes places in the highly
liquid, institutionally based currency forward markets. The Fund's forward
currency trading is executed exclusively through the F/X Desk, with MLF as the
"back-to-back" intermediary counterparty to the ultimate counterparties with
which the Advisors trade on behalf of the Fund. Consequently, the Fund's
financial exposure to defaults in its forward trading is effectively no
different than in its regulated futures trading through MLF.
As in the case of its market sector allocations, the Fund's
commitments to different types of markets -- U.S. and non-U.S., regulated and
unregulated -- differs substantially from time to time as well as over time. The
Fund has no policy restricting its relative commitment to any of these different
types of markets. The following table presents the approximate distribution of
the Fund's positions, again based on the face value of the positions held, in
the various markets in which the Fund participated as of the end of its most
recent fiscal year.
APPROXIMATE
MARKET TYPE ALLOCATIONS
-----------------------
DECEMBER 31, 1995
-----------------
U.S. Exchanges 36%
Non-U.S. Exchanges 56%
Forward Currency Markets 8%
-----
100%
The Fund's Annual Report, which includes the audited financial
statements of the Fund for the preceding fiscal year, contains additional
information relating to the types of markets traded by the Fund. There can,
however, be no assurance as to in which type of markets the Fund's trading may
be concentrated at any one time or over time.
SUBSCRIPTION PROCEEDS; CUSTODY OF FUNDS; INTEREST INCOME
MLIP pays from its own funds all selling commissions incurred on the
sale of the Units. Consequently, 100% of the proceeds of such sales are
available to the Fund for use in its speculative trading.
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<PAGE>
Because of the low margin requirements generally applicable to futures
and forward trading, as well as the fact that the positions held by the
different Advisors (each of which trades entirely independently of the others)
on behalf of the Fund are frequently at least partially offsetting and therefore
"netted" for margining purposes, the overall margin requirements imposed on the
Fund's trading generally represent no more than approximately 30% of its total
capital. However, the Fund does not hold any specific percentage of its assets
"in reserve," isolated from the risk of trading losses. All the assets of the
Fund are held in its trading accounts with MLF.
Substantially all of the Fund's assets are maintained in its trading
accounts in cash. While pursuant to applicable CFTC regulations MLF holds such
cash in one of three generic types of accounts -- "customer segregated,"
"foreign futures and foreign options" and "unregulated" -- the assets held in
such accounts earn interest on the same basis. (The only relevant difference
among these different types of accounts relates to the degree to which their
assets would be segregated from the claims of MLF's non-customer creditors in
the event of an MLF bankruptcy.) MLF credits the Fund with interest on the
Fund's "assets" held by MLF (i.e., on the cash so deposited adjusted to include
open-trade equity and funds in collection or settlement) at the prevailing
91-day Treasury bill rates less 0.50% per annum. Historically, the total
interest earned on the Fund's "assets" has equalled approximately the 91-day
Treasury bill rate on its average daily cash balances at MLF.
A limited number of MLIP accounts apply certain yield enhancement
strategies to their assets on deposit with MLF (or certain of its affiliates) in
an attempt to increase their non-trading income. The Fund has not done so to
date, and MLIP does not anticipate doing so in the foreseeable future.
<TABLE>
<CAPTION>
ML GLOBAL HORIZONS L.P.
CUSTODY OF ASSETS
PURPOSE CASH HELD AS A % OF CAPITAL HELD IN CUSTODY AT MLF IN:
<S> <C> <C>
Margin on U.S. Exchanges 15%-25% "Customer segregated funds accounts"
Margin on Foreign Exchanges 10%-20% "Foreign futures and foreign options
secured amount accounts"
Reserves 50%-70% "Unregulated accounts"
</TABLE>
_______________________
Substantially all of the Fund's assets are held by MLF in cash and
maintained in "offset accounts" ("customer segregated funds" as well as funds
held in "foreign futures and foreign options" and "unregulated" accounts may be
held in "offset").
"Offset accounts," which are widely used in the managed futures
industry, involve the banks with which MLF maintains its customer funds making
available to ML&Co. and certain of its affiliates credits against their
outstanding borrowings in the amount of the daily cash balances in such
accounts. The Merrill Lynch organization, in the ordinary course of its
brokerage operations, maintains substantial overnight borrowings from the banks
at which the MLF customer "offset accounts" are maintained. By depositing
"customer segregated funds" with the offset banks, Merrill Lynch effectively
eliminates such banks' cost of funding such overnight borrowings,
correspondingly reducing Merrill Lynch's borrowing costs. The net benefit to
Merrill Lynch from the "offset account" arrangements -- i.e., the difference
between the savings recognized by Merrill Lynch entities on their overnight
borrowings and the 0.50% below the 91-day Treasury bill rate which MLF pays to
the Fund -- has not to date exceeded approximately 0.25% to 0.50% per annum of
the average daily cash balances held in "offset."
It is a fundamental feature of the "offset account" arrangements that
the "offset" banks acknowledge that the "customer segregated funds" deposited
with them are not the property of any Merrill Lynch entity and are not subject
to any liability of Merrill Lynch. In this respect, "offset accounts" differ
substantially from "compensating balances," in which the assets so held are
subject to the depository bank's other claims against
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<PAGE>
the depositor. The maximum risk to which the Fund is exposed on its cash
balances held in "offset" is the risk of MLF defaulting on the interest which it
owes daily to the Fund.
MLF invests a small portion of the Fund's assets in Treasury bills of
up to one-year duration. In crediting the Fund with interest on such assets at
0.50% per annum below the 91-day Treasury bill rate, MLF earns a spread
comparable to the net benefit which it receives from maintaining such assets in
"offset."
The assets of the Fund not held to margin U.S. and foreign futures
trading are held in "unregulated" accounts at MLF (no regulatory capital
requirements are imposed on MLF in respect of Fund assets held in "unregulated"
accounts).
Assets held in MLF's "foreign futures and options secured amount
account" or in "unregulated" MLF accounts would not have the benefit of the same
protections that are afforded "customer segregated funds" in the event of the
bankruptcy of MLF.
FORWARD TRANSACTIONS
Spot and forward contracts are the only non-CFTC regulated instruments
(other than foreign currencies and foreign futures and options contracts) traded
by the Fund. The forward markets are unregulated and involve certain risks
additional to the risks of trading CFTC-regulated or foreign exchange traded
futures contracts.
To date, approximately 20% to 30% of the Fund's trades by volume have
been in forward currency contracts, but from time to time the percentage of the
Fund's trading represented by forward currency trades may fall substantially
outside this range. MLIP, through the F/X Desk, has arranged for the Fund to
trade through MLF as its "back-to-back" counterparty with MLIB and the other
entities with which the Fund trades. Because the Fund need not deposit any
margin with MLF in respect of the Fund's currency forward trades, the Fund's
additional risk in trading in such unregulated markets should be limited to a
possible loss of unrealized profits on open forward positions which a
counterparty accessed through MLF would not, in the event of its bankruptcy, be
able to pay to MLF for the account of the Fund.
Having the Fund (and the other MLIP clients using the F/X Desk) trade
through the F/X Desk on the basis of MLIP's credit lines (and without any
requirement to deposit margin in respect of such trading with MLF) permits the
F/X Desk to access a wide range of counterparties without need of such
counterparties evaluating the individual credit of the Fund or requiring margin
from it.
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<PAGE>
CHARGES
The following table summarizes the charges incurred by the Fund during
1994, 1995 and 1996 (9 months).
<TABLE>
<CAPTION>
1/1/96 - 9/30/96 1/1/95 - 12/31/95 1/4/94 - 12/31/94
---------------- ----------------- -----------------
COST AS A %
OF
AVERAGE COST AS A % OF COST AS A % OF
MONTH-END AVERAGE AVERAGE
DOLLAR NET ASSETS DOLLAR MONTH-END DOLLAR MONTH-END
COST AMOUNT (ANNUALIZED) AMOUNT NET ASSETS AMOUNT NET ASSETS
---- ------ ------------ ------ ---------- ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Brokerage Commissions $4,990,367 7.51% $5,723,755 7.72% $3,859,267 7.27%
Incentive Override 5,117 0.01 965,454 1.30 41,867 0.08
Profit Shares 373,820 0.56 1,492,857 2.01 1,103,649 2.08
---------- ----- ---------- ----- ---------- ----
Total $5,369,304 8.08% $8,182,066 11.03% $5,004,783 9.43%
========== ===== ========== ===== ========== ====
</TABLE>
The Fund's average month-end Net Assets during 1994, 1995 and 1996 (9
months) equalled $53,119,205, $74,120,244 and $88,631,646, respectively.
The foregoing table does not reflect the "bid-ask" spreads paid
by the Fund on its forward trading.
During 1994, 1995 and 1996 (9 months), the Fund earned $1,972,722,
$3,786,925 and $2,996,535, respectively, in interest income, or approximately
3.71%, 5.11% and 3.38%, respectively, of the Fund's average month-end Net
Assets.
See also the "Breakeven Table" included in the "Summary" at page
7.
______________________________
CHARGES PAID BY THE FUND
<TABLE>
<CAPTION>
<S> <C> <C>
RECIPIENT NATURE OF PAYMENT AMOUNT OF PAYMENT
- --------- ----------------- -----------------
Merrill Lynch Brokerage commissions A flat-rate monthly commission
Futures of 0.604 of 1% of the month-
end assets committed to
trading (a 7.25% annual
rate).
</TABLE>
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<PAGE>
MLIP Administrative Fee As of October 1, 1996 the
brokerage commissions payable
by the Fund were reduced to
7.25% annually, and the Fund
now pays MLIP a monthly
Administrative Fee equal to
0.020833 of 1% of the month-
end assets (0.25% annually).
MLIP pays all of the Fund's
routine administrative
costs.
MLIB "Bid-ask" spreads Under MLIP's F/X Desk
arrangements, MLIB receives
"bid-ask" spreads on all
forward trades executed on
behalf of the Fund with MLIB.
Other "Bid-ask" spreads The counterparties other than
Counterparties MLIB with which the F/X Desk
deals each receive "bid-ask"
spreads on the forward trades
executed with the Fund.
MLIP Service fees Under the F/X Desk
arrangements, MLIP or another
Merrill Lynch entity receives
a service fee equal, at
current exchange rates, to
approximately $5.00 to $12.50
on each purchase or sale of
each futures contract-
equivalent forward contract
exe-cuted with counterparties
other than MLIB.
MLIB EFP "differentials" MLIB or an affiliate receives
a "differential" spread for
exchanging the Fund's cash
currency positions for
equivalent futures positions.
MLIP Incentive Overrides Paid by the Fund as a whole on
an annual basis and by
reduction of the Net Asset
Value of Units when redeemed.
The Incentive Override equals
10% of any Net New Gain (as
defined). Units may generate
Net New Gain and be subject to
paying an Incentive Override
even though the Net Asset
Value per Unit has declined
from the purchase price of
such Units.
Trading Advisors Quarterly Profit Shares Currently, 15% or 20%
(depending on the Trading
Advisor) of any New Trading
Profit as of the end of each
calendar quarter and upon
redemption of Units. New
Trading Profit is calculated
separately in respect of each
Advisor's individual per-
formance for the Fund, not the
overall performance of the
Fund.
MLF; Extraordinary charges Actual costs; none incurred to
Others date, and expected to be
negligible.
_____________________
BROKERAGE COMMISSIONS
Commodity brokerage commissions for futures trades are typically paid
on the completion or liquidation of a trade and are referred to as "round-turn
commissions," which cover both the initial purchase (or sale) of a commodity
futures contract and the subsequent offsetting sale (or purchase). However, the
Fund pays commissions at a monthly flat rate of 0.604 of 1% (a 7.25% annual
rate) of the Fund's month-end assets. These commissions include the Advisors'
Consulting fees and all execution and clearing costs. Assets are not reduced for
purposes of calculating brokerage commissions by any accrued but
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<PAGE>
unpaid Profit Shares, Incentive Overrides, Administrative Fees or the brokerage
commissions being calculated. The Fund could obtain lower rates for similar
brokerage services at other firms.
During 1994, 1995 and 1996 (9 months), the Fund paid brokerage
commissions of $3,859,267, $5,723,755 and $4,990,367 respectively; these flat-
rate brokerage commissions were the approximate equivalent of per-trade
commissions of $13, $88 and $71, respectively, per "round-turn" futures trade.
These "round-turn" equivalent rates were somewhat higher than those of most MLIP
funds. The per-trade equivalent of the Fund's flat-rate commissions varies over
time with market conditions and different Advisor combinations.
The annual reports distributed by MLIP to Limited Partners include the
approximate round-turn equivalent commission rate paid by the Fund during the
previous year.
State securities administrators require MLIP to state that brokerage
commissions paid by the Fund shall not be increased while redemption charges are
in effect. Moreover, MLIP has undertaken to various state securities commissions
that in no event will MLIP increase the 7.50% annual "wrap fee" (which as of
October 1, 1996 includes the 7.25% annual brokerage commissions and 0.25% annual
Administrative Fee) without the unanimous consent of all Limited Partners. In
fact, MLIP has never raised the futures brokerage commissions paid by any of its
funds and has on a number of occasions reduced such charges. In addition, MLIP
has been required by various state regulators to make the following
disclosure:
The Fund's "brokerage commissions" and Administrative Fees constitute
a "wrap fee." This "wrap fee" is ML&Co.'s only source of revenues from the
Fund (other than "offset account" and interest credit benefits as described
under "Use of Proceeds" and the contingent Incentive Override), from which
revenues ML&Co. must pay a variety of different costs and expenses. The
level of the "wrap fee" is set with these costs and expenses in mind.
Different ML&Co. entities pay the following costs and expenses with respect
to the operation of the Fund: (a) administrative expenses; (b) selling
commissions; (c) ongoing compensation to Financial Consultants; (d) all
costs of executing the Fund's futures trades; (e) the Advisors' consulting
fees; and (f) ML&Co. employee discounts. All of these costs and expenses,
not only execution costs, are reflected in the 7.50% annual "wrap fee"
(including both the brokerage commissions and the Administrative Fees)
charged to the Fund.
PROSPECTIVE INVESTORS MUST BE AWARE THAT THE "BROKERAGE COMMISSIONS"
AND "ADMINISTRATIVE FEES" CHARGED TO THE FUND IN FACT INCLUDE A SIGNIFICANT
NUMBER OF COSTS OTHER THAN THOSE OF ACTUALLY EXECUTING THE FUND'S TRADES OR
PROVIDING ADMINISTRATIVE SERVICES TO IT. SUCH FLAT-RATE "BROKERAGE
COMMISSIONS" AND "ADMINISTRATIVE FEES" MAY NOT BE INCREASED, IN THE
AGGREGATE, ABOVE THE CURRENT ANNUAL LEVEL OF 7.50% OF THE AVERAGE MONTH-END
NET ASSETS COMMITTED TO TRADING WITHOUT THE UNANIMOUS CONSENT OF ALL
LIMITED PARTNERS.
MLF pays, from the brokerage commissions received by it, all costs of
executing the Fund's futures trades, including the NFA transaction fees assessed
on the Fund's futures trading on United States exchanges. Such fees currently
equal $0.14 per round-turn trade of a futures contract and $0.07 for each trade
of a commodity option contract.
ADMINISTRATIVE FEES
As of October 1, 1996, MLIP began charging flat-rate monthly
Administrative Fees of 0.021 of 1% of the Fund's month-end assets (a 0.25 of 1%
annual rate). Month-end assets for such purposes will not be reduced by accrued
but unpaid Profit Shares, Incentive Overrides, brokerage commissions or the
Administrative Fees being calculated. As of October 1, 1996, the Fund's flat-
rate brokerage commissions were reduced in an amount corresponding to the
Administrative Fees, so that there is no increased expense to the Fund. MLIP has
been advised by its counsel that it would be difficult if not impossible for
MLIP to raise the fees which the ML&Co. organization receives from the Fund due
to MLIP's fiduciary relationship to the Fund as its general partner. The
reclassification of a 7.5% annual brokerage commission as a 7.25% annual
brokerage fee and a 0.25% Administrative Fee did not increase the costs paid by
the Fund.
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"BID-ASK" SPREADS
Many of the Fund's currency trades are executed in the forward
markets, in which partic ipants include in their pricing a spread between the
prices at which they are prepared to buy and sell a particular currency. The
fact that the Fund pays such "spreads" does not reduce the flat-rate brokerage
commissions paid by the Fund.
SERVICE FEES; "EFP" DIFFERENTIALS
The Fund trades forward contracts through the F/X Desk. The F/X Desk
gives the Fund access to counterparties in addition to (but also including)
MLIB. MLIP (or another Merrill Lynch entity) charges a service fee equal to, at
current exchange rates, approximately $5.00 to $12.50 on each purchase or sale
of a futures contract-equivalent face amount of a given currency traded in the
forward markets. No service fees are charged on trades awarded to MLIB (which
receives "bid-ask" spreads on such trades).
In its EFP trading with Merrill Lynch, the Fund acquires spot or
forward (collectively, "cash") currency positions through MLIP's F/X Desk in the
same manner and on the same terms as in the case of the Fund's other F/X Desk
trading. EFPs are used relatively infrequently by the Advisors, but are a
trading technique which effectively permits an Advisor to establish a futures
position out of normal exchange hours as well as to obtain a single price for an
entire large order, whereas when large orders are executed on the futures
exchange floor, they tend to be broken up into a number of different futures
trades, each of which may be bought or sold at a different price. The current
Advisor group makes very little use of the EFP technique. When the Fund
exchanges these positions for futures, there is a "differential" between the
prices of the two positions. This "differential" reflects, in part, the
different settlement dates of the cash and the futures contracts and prevailing
interest rates, but also includes a pricing spread in favor of MLIB or another
Merrill Lynch entity.
These F/X Desk service fees and EFP differentials, combined, have not
to date exceeded 0.25 of 1% of the Fund's average month-end assets on an annual
basis.
INCENTIVE OVERRIDES
Certain Definitions
In the following description of the calculation of Net New Gain and
the Incentive Override, it is important to distinguish: (a) the Net Asset Value
per Unit prior to adjustment to reflect the Incentive Override accrual or
reversal being calculated; and (b) the Net Asset Value per Unit following such
adjustment. The former is referred to as the Unadjusted NAV. The Net Asset Value
per Unit as of the end of the month for which the Incentive Override is being
calculated, after adjustment for such Incentive Override, is referred to as the
Adjusted NAV. The Adjusted NAV represents the purchase as well as the redemption
value (prior to applicable redemption charges) of the Units. Incentive Overrides
are, other than as described below in the case of Units purchased during the
current calendar year, calculated by comparing the current Unadjusted NAV to the
highest Adjusted NAV as of any previous calendar year-end. Such highest previous
Adjusted NAV to which the current Unadjusted NAV is compared is referred to
below as the High Water Mark NAV.
Calculation of Net New Gain
For purposes of the computation of Net New Gain and Incentive
Overrides (including calculating the High Water Mark NAV), interest income is
excluded, and Net New Gain is calculated after all fees (other than the
Incentive Override itself).
MLIP receives, as of December 31 of each year, an Incentive Override
equal to 10% of the aggregate Net New Gain (as defined) generated during the
year.
Except as described in the following paragraph, cumulative Net New
Gain is calculated for each month in a calendar year by determining the change
(positive or negative) between (i) the Adjusted NAVs at which Units were
purchased or the High Water Mark NAV -- which High Water Mark NAV may be
substantially below the Net Asset Value per Unit at which an investor
subscribed -- and (ii) the Unadjusted NAV as of the end of such month.
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For the calendar year in which a Unit is purchased: (A) Net New Gain
is generated by such Unit only to the extent that the year-end Unadjusted NAV
exceeds the Adjusted NAV at which such Unit was purchased; (B) negative Net New
Gain is generated by such Unit to the extent that the Unadjusted NAV falls below
such purchase price; provided that no negative Net New Gain is recorded to the
extent that the Unadjusted NAV falls below the High Water Mark NAV; and (C) Net
New Gain is only recorded to the extent that Unadjusted NAV exceeds the High
Water Mark NAV, irrespective of the Adjusted NAV at which a Unit was purchased.
Similar procedures are applied in determining Units' contribution to Net New
Gain for each month that such Units are outstanding in the calendar year of
purchase. Because Units are purchased at beginning of the month Net Asset
Values, the contributions to Net New Gain generated by each "tranche" of Units
purchased as of the beginning of different months during a particular year is
likely to be different.
In years subsequent to the year in which a Unit is purchased, the
Adjusted NAV at which such Unit was purchased becomes irrelevant to the
calculation of the Net New Gain (if any) generated by such Unit, because such
Net New Gain is calculated in respect of all Units purchased in prior years
based on increases in the Unadjusted NAV over the applicable High Water Mark
NAV, irrespective of the purchase price of such Unit.
Redemptions; No "Earn Back" of Incentive Overrides
When a Unit is redeemed, the redemption value of such Unit is its
Adjusted NAV, which reflects any accrued Incentive Override. Incentive Overrides
will be accrued against all Units equally, although Units sold at different
times will generate different amounts (positive or negative) of Net New Gain.
The amount by which the Adjusted NAV is reduced to reflect any such Incentive
Override accrual is, upon redemption of a Unit, paid to MLIP. Such accruals once
paid to MLIP are not subject to refund, irrespective of subsequent losses.
Redemption charges do not reduce Net New Gain.
Because the High Water Mark NAV is reduced by the Incentive Override
due at the year-end when such High Water Mark NAV was realized, MLIP does not
have to "earn back" Incentive Overrides previously paid in order for the Fund to
generate additional Net New Gain on which an incremental Incentive Override will
accrue.
Allocation of Incentive Overrides among Investors
Units may, during years subsequent to the year of purchase, generate
Net New Gain from profits which serve only to earn back declines in the Adjusted
NAVs at which such Units were purchased. On the other hand, if Units are
purchased at Adjusted NAVs below the High Water Mark NAV, such Units will also
generate Net New Gain only to the extent that such High Water Mark NAV is
exceeded. Consequently, certain Units may realize substantial profits none of
which generate Net New Gain, while others may generate substantial Net New Gain
after the year of purchase even though their Adjusted NAV has declined
significantly from their purchase price.
Net New Gain is calculated on an aggregate basis, not in respect of
the investment experience of any particular Unit. For example, assume Units are
sold during the first calendar year of operations at Adjusted NAVs of $100, $110
and $105. If a Unit is subsequently redeemed when the Unadjusted NAV per Unit is
$107, the same accrued Incentive Override will be reflected as a reduction of
its redemption price, irrespective of what the purchase price of the Unit being
redeemed had been. The purchase price of a Unit is, in the year of purchase, the
Adjusted NAV from which the Net New Gain (positive or negative) generated by
such Unit is measured. In the foregoing example, the Unit purchased at $110
would have generated negative Net New Gain of ($3) as of the redemption date,
while the Units purchased at $100 and $105 would have generated positive Net New
Gain of $7 and $2, respectively. The aggregate Net New Gain generated by all
Units would be combined, multiplied by 10% and would reduce the Net Asset Value
of the Fund as an Incentive Override accrual, in which all Units share equally.
The Fund's method of Incentive Override calculation attempts to strike
a compromise between avoiding misallocations of Incentive Overrides among
investors and maintaining a uniform Net Asset Value per Unit. During the
calendar year in which Units are purchased, certain misallocations of the
Incentive Override are prevented by MLIP agreeing (i) to give investors which
purchase Units below the High Water Mark NAV for such year a "free ride," i.e.,
no Net New Gain is generated on increases in the Unadjusted NAV of their Units
until such Unadjusted NAV exceeds the High Water Mark NAV and (ii) that Units
will contribute negative Net New Gain to the extent that their Unadjusted NAV
declines below their purchase price (negative Net New Gain stops being generated
if such Unadjusted NAV declines below the High Water Mark NAV, as positive
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Net New Gain is only generated to the extent that the Unadjusted NAV exceeds the
High Water Mark NAV). In years subsequent to the calendar year of purchase, the
Incentive Override is calculated in respect of all Units sold in prior years
based solely on the current High Water Mark NAV, irrespective of the various
purchase prices of these Units as of the beginning of numerous different months
during prior years.
There is no direct connection between the appreciation in the Net
Asset Value of a particular Unit and the Incentive Override applicable to that
Unit (equally, together with all other outstanding Units). For example, if one
Unit were sold as of January 1, 1997 (assumed for simplicity's sake to be the
commencement of trading) for $100, ten Units as of July 1, 1997 at an Adjusted
NAV of $110 and as of November 30, 1997 the initial Unit was redeemed at an
Adjusted NAV of $105, despite the profit made on the redeemed Unit, there would
be no accrued Incentive Override reflected in such Adjusted NAV because the $10
in Net New Gain generated through June 30, 1997 would have been offset by the
July 1, 1997 -- November 30, 1997 losses incurred by a greater number of Units.
As of December 31, 1994 and 1995 and September 30, 1996, MLIP received
or had accrued to its benefit Incentive Overrides of $41,867, $965,454 and
$5,117, respectively, or approximately 0.08%, 1.30% and 0.01% of the Fund's
average month-end Net Assets during these periods, respectively.
The fact that MLIP receives an Incentive Override may lead it to
select Advisors which trade in a more "risky" or speculative manner than would
otherwise be the case. See "Conflicts of Interest" at page 48.
Net New Gain includes unrealized appreciation as well as
realized gain.
The method by which the Incentive Override is calculated results in
certain misallocations of the Incentive Override as well as of reversals of
accrued Incentive Overrides, and, consequently, possible equity dilution among
Limited Partners purchasing Units at different times.
See Appendix I -- Incentive Override and Profit Share Calculations
in an Open-End Fund.
PROFIT SHARES
Calculation of New Trading Profit
Each current Advisor receives a Profit Share of either 15% or 20% of
any cumulative New Trading Profit generated by such Advisor, as of the end of
each calendar quarter. The percentage Profit Shares which are paid to the
current Advisors are as follows: ARA Portfolio Management Company, L.L.C. --
20%; Chesapeake Capital Corporation -- 20%; John W. Henry & Company, Inc. --
15%; Di Tomasso Group, Inc. -- 20%; and West Course Capital, Inc. -- 20%.
The Net Asset Value per Unit for purposes of calculating New Trading
Profit does not include interest income, and is not reduced by accrued Incentive
Overrides or redemption charges.
For example, assume that Chesapeake were the sole Advisor for the Fund
and that Units are sold as of January 1, 1997 (assumed for simplicity to be the
beginning of trading) at $100 per Unit, again at February 1, 1997 at $105 (after
reduction for accrued Profit Shares) and that as of March 31, 1997 the Net Asset
Value per Unit (prior to calculating the Profit Shares and without including
interest income) equals $102. New Trading Profit would be generated in respect
of the Units sold at $100 in the amount of $2.00 per Unit, whereas negative New
Trading Profit of $3.00 per Unit would be generated in respect of Units sold at
$105. Depending upon the number of Units sold as of January 1, 1997 and February
1, 1997, respectively, a Profit Share might or might not be due to Chesapeake as
of March 31, 1997. Subsequent to March 31, 1997, New Trading Profit would be
generated in respect of both the January 1, 1997 and the February 1, 1997
"tranches" of Units to the extent that the Chesapeake attributable Net Asset
Value per Unit (without including interest income) exceeded (i) $102 less (ii)
the per-Unit Profit Share, if any, paid to Chesapeake on March 31, 1997. If
Units were subsequently purchased at an attributable Net Asset Value less than
the attributable Net Asset Value per Unit (after payment of the per-Unit Profit
Share, if any) as of March 31, 1997, it would not be until the attributable Net
Asset Value per Unit (prior to accrual of the Profit Share) exceeded the March
31, 1997 "high water mark" attributable Net Asset Value that any New Trading
Profit would be generated by such Units. The above example of a Profit Share
calculation relates only to one Advisor. As the Fund pays Profit Shares to each
Advisor based on each
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Advisor based on each such Advisor's individual performance rather than the
overall performance of the Fund, it is likely that there will be periods when
the aggregate Net Asset Value per Unit declines but Profit Shares are paid to
one or more Advisors. Historically, both the Fund and MLIP's other multi-advisor
funds have paid substantial Profit Shares even during losing periods.
New Trading Profit is calculated, in respect of each Advisor's
Fund account, on the same basis as Net New Gain, except that New Trading Profit
is generated each month to the extent that the current Net Asset Value per Unit
(excluding interest income and prior to reduction for any accrued Profit Share
or Incentive Override) attributable to such an account exceeds the highest such
attributable Net Asset Value per Unit (excluding interest income and after
reduction for the Profit Share and Incentive Override) as of any previous
calendar quarter-end (the attributable Net Asset Value per Unit as of the date
an Advisor begins managing an account for the Fund, or, in the calendar quarter
of sale, as of the date that particular Units are sold, if higher).
In the case of certain Advisors, New Trading Profit might not be
reduced by the full amount of the brokerage commissions paid by their Fund
account.
In the case of Units redeemed as of the end of any month that is
not the end of a calendar quarter, the Net Asset Value at which such Units are
redeemed will reflect a reduction for the per-Unit Profit Share accrued in
respect of each Advisor's account (equally reducing the attributable Net Asset
Value of all Units), as if the redemption date were at calendar quarter-end. The
amounts so deducted will be paid to the appropriate Advisor(s) and will not be
subject to being returned to the Fund or the redeeming Limited Partners,
irrespective of subsequent losses during the quarter. The Adjusted NAV at which
Units are redeemed reflects a reduction for both Profit Shares and the accrued
Incentive Override liability of the Fund. Although the accrued Profit Shares
will reduce the accrued Incentive Override (but not vice versa), both forms of
incentive compensation will reduce the Net Asset Value of any redeemed Unit.
In calculating the Profit Shares due in calendar quarters
subsequent to the quarter of purchase, the highest attributable Net Asset Value
per Unit to which the current attributable Net Asset Value per Unit is compared
reflects a reduction for the Profit Shares payable as of the calendar quarter-
end when such highest attributable Net Asset Value per Unit was attained.
Accordingly (as is the case with MLIP and the Incentive Override), the Advisors
do not have to "earn back" Profit Shares previously paid to them in order for
the Fund account managed by them to generate additional New Trading Profits on
which an incremental Profit Share will accrue.
Termination of an Advisory Agreement is treated as if the date
of termination were at calendar quarter-end for purposes of calculating the
Profit Share due to an Advisor. If a new or replacement Advisor is retained,
such Advisor calculates its Profit Shares without regard to any losses
previously incurred by the Fund.
In the event that MLIP reallocates assets away from an Advisor
(to fund redemptions or for other purposes), any shortfall between the
attributable Net Asset Value per Unit as of the date of such reallocation and
the "high water mark" attributable Net Asset Value per Unit shall be reduced in
proportion to the percentage of the Fund's assets managed by such Advisor that
are reallocated away. Conversely, any Profit Shares accrued as of the date of
any such reallocation shall be proportionately paid to such Advisor.
During 1994, 1995 and the first three quarters of 1996, the Net Asset
Value per Unit increased approximately 4.08%, 19.48% and 3.72%, respectively,
and total Profit Shares of $1,103,649, $1,492,857 and $373,820, or approximately
2.08%, 2.01% and 0.42% of the Fund's average month-end Net Assets in each
period, were paid. (The 1996 figure, when annualized, equals the 0.56% Profit
Share expense indicated in the table at the beginning of this "Charges"
section.)
General
Because the Profit Shares are calculated on a quarterly basis,
it is possible, irrespective of the fact that the Profit Shares are paid
separately to each Advisor based on its individual performance, that the Fund
will pay substantial Profit Shares during a year even though the Net Asset Value
per Unit declines substantially during such year.
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The method by which the Profit Shares are calculated results in
certain misallocations of Profit Shares as well as of reversals of accrued
Profit Shares, and, consequently, possible equity dilution among Limited
Partners purchasing Units at different times. These misallocations are analogous
to those which occur in the case of the Incentive Override.
EXTRAORDINARY EXPENSES
The Fund is required to pay any extraordinary charges (such as
taxes) incidental to its trading. No extraordinary charges have been paid by the
Fund to date, and in MLIP's experience such charges have been negligible.
______________________
MLIP sends each Limited Partner a monthly statement that includes
a description of performance during the prior month and year-to-date and sets
forth, among other things, the brokerage commissions, Administrative Fees,
Incentive Overrides and Profit Shares paid or accrued during such month and on a
year-to-date basis.
______________________
CHARGES PAID BY MERRILL LYNCH
The following costs are paid by the Merrill Lynch entities indicated
below. In each case, these entities receive substantial revenues, directly or
indirectly, from the Fund.
SELLING COMMISSIONS; ONGOING COMPENSATION
MLIP pays the selling commissions due on the Units, as well as the
ongoing compensation on Units which remain outstanding for more than twelve
months. See "Plan of Distribution -- Selling Agent Compensation" at page
57.
Through September 30, 1996, MLIP had paid a total of $5,595,249
in selling commissions (in the form of "production credits," not cash out-of-
pocket) on sales of the Units.
The first monthly installments of ongoing compensation began to
accrue as of January 1, 1995 on the Units sold as of January 4, 1994.
Through September 30, 1996, MLIP paid a total of $1,323,788 in ongoing
compensation (in the form of "production credits," not cash out-of-pocket).
CONSULTING FEES
The Trading Advisors each enter into a Consulting Agreement with
MLF. Pursuant to such Consulting Agreements, MLF pays monthly consulting fees to
each of the Advisors. Chesapeake, ARA, Di Tomasso and West Course each receive
0.167% (2% annually), and JWH 0.333% (4% annually), of the month-end assets of
the Fund allocated to each of them, respectively.
MLIP anticipates that the consulting fees paid to Advisors in the
future will generally fall within the range of 1% to 4% annual rate, but
such fees could fall outside of such range in certain cases.
During 1994, 1995 and 1996 (9 months), MLF paid consulting fees
of $1,376,882, $2,156,311 and $2,477,438, respectively, or approximately
2.59%, 2.91% and 2.80% of the Fund's average month-end Net Assets during
these periods.
_________________
REDEMPTION CHARGES
Units redeemed on or prior to the end of the twelfth full month
after issuance are subject to redemption charges of 3% of the Net Asset
Value at which they are redeemed. Such charges are paid to MLIP and are
intended to compensate MLIP for the financial burden to MLIP associated
with paying selling commissions on short-term investments.
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During 1994, 1995 and 1996 (9 months), MLIP received a total of
$53,976, $132,030 and $62,252, respectively, in redemption charges.
CERTAIN LITIGATION
JWH
MLIP has received the following information from JWH:
"In September 1996, JWH was named as a co-defendant in class action
lawsuits brought in the California Superior Court, Los Angeles County and in the
State Supreme Court, New York County. The actions, which seek unspecified
damages, purport to be brought on behalf of investors in certain Dean Witter
commodity pools, some of which are advised by JWH, and are primarily directed at
Dean Witter's alleged fraudulent selling practices in connection with the
marketing of those pools. JWH is essentially alleged to have aided and abetted
or directly participated with Dean Witter in those practices. JWH believes the
allegations against it are without merit; it intends to contest these
allegations vigorously and is convinced that it will be shown to have acted
properly and in the best interest of the investors."
MLIP
ML&Co. -- the sole stockholder of Merrill Lynch Group, Inc. (which is
the sole stock holder of MLIP and MLF) and of MLPF&S, and the 100% indirect
owner of all Merrill Lynch entities involved in the operation of the Fund -- as
well as certain of its subsidiaries have been named as defendants in numerous
civil actions and arbitration proceedings arising out of their respective
business activities.
The following actions have been filed against or on behalf of
ML&Co. in connection with ML&Co.'s business activities with the Treasurer-Tax
Collector of Orange County, California ("Orange County") or from the purchase of
debt instruments issued by Orange County that were underwritten by MLPF&S. On
December 6, 1994, bankruptcy petitions were filed on behalf of Orange County and
the Orange County Investment Pools (the "Pools") in the United States Bankruptcy
Court for the Central District of California (the "Bankruptcy Court"). The
Pools' bankruptcy petition subsequently was dismissed. The currently pending
actions involving ML&Co. and Orange County include, in the order summarized
below: an action in the names of Orange County and the current Orange County
Treasurer-Tax Collector; actions by investors and participants in the Pools;
actions by investors in ML&Co. or affiliated entities; and actions by holders of
bonds or other debt instruments issued by or on behalf of Orange County and
other public entities which had funds controlled by the Orange County Treasurer-
Tax Collector.
On January 12, 1995, an action was commenced in the Bankruptcy Court
by Orange County and the Pools against ML&Co. and certain of its subsidiaries
(the "Orange County Action"). Orange County filed a first amended complaint on
June 6, 1995, which was dismissed on October 17, 1995. Orange County filed a
second amended complaint on October 25, 1995 adding John M.W. Moorlach, the
current Orange County Treasurer-Tax Collector, as a plaintiff, and alleging,
among other things, that ML&Co.'s liquidation of certain securities entitles the
plaintiffs to relief under Sections 362, 502, 510, 549 and 922 of Title 11 of
the United States Code (the "Bankruptcy Code"), that various securities
transactions between Orange County and/or the Pools and ML&Co. and its
subsidiaries violated California law and are null and void, that ML&Co. and its
subsidiaries violated Section 10(b) of the Securities Exchange Act of 1934 (the
"Exchange Act") and Rule 10b-5 promulgated thereunder, Section 25401 of the
California Corporations Code (the "California Code"), Section 17200 of the
California Business and Professions Code, Sections 1709-10 of the California
Civil Code, breached fiduciary duties, aided and abetted breaches of fiduciary
duty and conspired to make unauthorized use of public funds. Damages in excess
of $2 billion, injunctive and declaratory relief are sought.
On March 1, 1995, the parties entered into an agreement pursuant to
which the proceeds from the sale of securities purchased by ML&Co. from Orange
County pursuant to certain master repurchase agreements are to be used to
purchase short-term Treasury bills or Treasury notes that will be identifiable
and held separate and subject to any rights that
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ML&Co. may have in the master repurchase agreements. This agreement may be
terminated by ML&Co. upon 30 days' written notice.
On October 17, 1996, the United States District Court for the Central
District of California withdrew the reference to the Bankruptcy Court of the
Orange County Action. The case is now pending in the District Court.
On December 13, 1994, a purported class action was commenced in the
Superior Court of the State of California, Orange County, on behalf of
individuals whose funds were deposited with the Orange County Treasurer-Tax
Collector pursuant to proceedings in California Superior Court (the "DeLeon
Action"). On December 27, 1994, plaintiffs filed a first amended class action
complaint; on April 19, 1995, plaintiffs filed a second amended complaint which
was dismissed on November 13, 1995; and on December 18, 1995 plaintiffs filed a
third amended complaint. As amended, the DeLeon Action is brought on behalf of
the same individuals on whose behalf the action was originally brought and on
behalf of individuals who invested funds in the Pools representing deferred
compensation and/or retirement funds. The defendants include ML&Co., a
subsidiary of ML&Co. and an employee of ML&Co. Plaintiffs allege, among other
things, that the defendants breached fiduciary duties, aided and abetted
breaches of fiduciary duties, conspired to breach a fiduciary duty and committed
professional negligence in connection with ML&Co.'s business activities with the
Orange County Treasurer-Tax Collector. Damages in an unspecified amount are
sought. On May 10, 1996, pursuant to agreement of the parties, the court entered
an order staying this action pending final resolution of the Orange County
Action described above.
On January 10, 1995, a purported class action was commenced in the
Superior Court of the State of California, Orange County, on behalf of persons
whose funds were deposited in the Pools pursuant to proceedings in California
Superior Court (the "Small Action"). ML&Co., a subsidiary of ML&Co., an employee
of ML&Co. and Robert L. Citron, formerly the Treasurer-Tax Collector of Orange
County, are named as defendants. Plaintiffs allege claims for breach of
fiduciary duty and fraud in connection with ML&Co.'s business activities with
the Orange County Treasurer-Tax Collector. Injunctive relief and damages in an
unspecified amount are sought. The complaint in this action was never served.
On September 15, 1995, an action was commenced in the Superior
Court of the State of California, San Francisco County, by twelve California
public entities (the "Atascadero State Court Action"). On April 10, 1996, a
first amended complaint was filed. Named as defendants are ML&Co., certain
subsidiaries of ML&Co. and three past or present employees of ML& Co. (two of
whom have been dismissed without prejudice by agreement of the parties). As
amended, the complaint alleges, among other things, that the defendants
committed fraud and deceit, negligence, negligent misrepresentation, conversion,
breached fiduciary duties, aided and abetted breaches of fiduciary duty and
violated California Penal Code Section 496 and the California Unfair Business
Practices Act, Sections 25400, 25401, 25500 and 25501 of the California Code and
the Racketeer Influenced and Corrupt Organizations Act ("RICO"), in connection
with ML&Co.'s business activities with the Orange County Treasurer-Tax
Collector. Injunctive relief, rescission, restitution and damages in excess of
$50 million are sought. The case has been transferred to Contra Costa County,
California.
On November 27, 1995, an action was commenced in the United States
District Court for the Central District of California by fourteen California
public entities (the "Atascadero Federal Court Action"). On March 22, 1996, an
amended complaint was filed. Named as defendants are ML&Co., certain
subsidiaries of ML&Co. and three past or present employees of ML&Co. (two of
whom have been dismissed without prejudice by agreement of the parties). John
Moorlach is named as a nominal defendant. As amended, the complaint alleges,
among other things, that defendants violated Sections 10(b) and 20(a) of the
Exchange Act and Rule 10b-5 promulgated thereunder, Sections 25400, 25401, 25500
and 25501 of the California Code, Section 496 of the California Penal Code, the
California Unfair Business Practices Act, and RICO, committed fraud and deceit,
negligence and negligent misrepresentation, conversion, breached fiduciary
duties, and aided and abetted breaches of fiduciary duty, in connection with
ML&Co.'s business activities with the Orange County Treasurer-Tax Collector.
Rescission, restitution and damages in excess of $50 million are sought.
Beginning on December 5, 1994, five derivative actions purportedly
brought on behalf of ML&Co. were filed in the Supreme Court of the State of New
York, New York County (the "Wilson Actions"). On February 21, 1995, the court
consolidated the actions and an amended consolidated complaint was filed on June
5, 1995 naming as defendants 22 present or past directors, officers or employees
of ML&Co. and/or certain of its subsidiaries. The amended complaint alleges,
among other things, breach of fiduciary duty and oversight failures, waste of
corporate assets and claims for indemnification in connection with ML&Co.'s
business activities with the Orange County Treasurer-Tax Collector. ML&Co. is
named as a nominal
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defendant in these actions. Damages in an unspecified amount are sought on
behalf of ML&Co. against the individuals named as defendants. The Court
dismissed this action on August 7, 1996. A notice of appeal was filed on
September 11, 1996.
On December 16, 1994, a purported class action was commenced in the
United States District Court for the Southern District of New York (the "Balan
Action"). An amended complaint was filed on May 15, 1995. As amended, the Balan
Action is brought on behalf of purchasers of ML&Co.'s common stock between March
31, 1994 and December 6, 1994, and names as defendants ML&Co. and two of its
directors and officers. The plaintiff alleges, among other things, violations of
Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated
thereunder in connection with ML&Co.'s disclosure with respect to its business
activities with the Orange County Treasurer-Tax Collector. Damages in an
unspecified amount are sought.
Beginning on December 8, 1994, ten purported class actions were
commenced in the United States District Court for the Central District of
California on behalf of individuals who purchased bonds or other debt
instruments issued by or on behalf of Orange County during various periods of
time (the "Smith Federal Court Action"). Plaintiffs filed an amended
consolidated complaint on January 27, 1995, and a first amended consolidated
complaint on February 27, 1995. As amended, the Smith Federal Court Action
purports to be brought on behalf of all persons who purchased bonds or other
debt instruments between July 1, 1992 and December 6, 1994 that were issued by
Orange County or other public entities with funds controlled by the Orange
County Treasurer-Tax Collector. The defendants in the first amended consolidated
complaint are ML&Co., an employee of ML&Co., PaineWebber, Inc., CS First Boston
Corp., Smith Barney, Inc., Lehman Brothers, Inc., Donaldson, Lufkin & Jenrette,
Inc., Kidder, Peabody & Co., Inc., Stone & Youngberg, Rauscher Pierce Refsnes,
Inc., Leifer Capital, Inc., Fieldman Rolapp & Associates, Inc., CGMS, Inc. and
O'Brien Partners, Inc. Following a stipulation and order filed on July 17, 1995
dismissing certain state law claims without prejudice, the plaintiffs allege,
among other things, that the defendants affiliated with ML&Co. violated Section
10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder with respect to
the sale of bonds and other debt instruments issued by Orange County and other
public entities. Damages in an unspecified amount are sought. On April 1, 1996,
the court granted a motion by plaintiffs to dismiss this action without
prejudice.
On September 28, 1995, a purported class action was commenced in
the Superior Court for the State of California, Orange County, asserting the
state law claims previously dismissed in the Smith Federal Court Action (the
"Smith State Court Action"). The Smith State Court Action is brought on behalf
of the same purported class as the Smith Federal Court Action. Named as
defendants are ML&Co., an employee of ML&Co. and the same defendants not
affiliated with ML&Co. as in the Smith Federal Court Action and, in addition,
KPMG Peat Marwick. Violations of Sections 25400, 25401, 25500, 25501 and 25504.1
of the California Code and fraud and deceit are alleged in connection with
disclosure made with respect to the sale of bonds and other debt instruments
issued by Orange County or other public entities with funds controlled by the
Orange County Treasurer-Tax Collector. Damages in an unspecified amount are
sought. Certain of the defendants in the Smith State Court Action other than
ML&Co. and the employee of ML&Co. named as a defendant have entered into
settlement agreements with the plaintiffs in these cases.
On March 9, 1995, an action (the "Kemper Action") was commenced
in the Circuit Court of Cook County, Illinois, Chancery Division, by five Fund,
Kemper Money Market Fund and Kemper Portfolios). Named as defendants are a
subsidiary of ML&Co. and an employee of ML&Co. The complaint alleges, among
other things, that the defendants violated Sections 12A, 12F, 12G and 12I of the
Illinois Securities Act and committed common law fraud with respect to
disclosure made in connection with the issuance and sale of 1994-95 Taxable
Notes that were issued by Orange County on July 8, 1994. Rescission and damages
in an unspecified amount are sought. This action had been stayed until June 30,
1996. The court dismissed this action without prejudice on September 4, 1996
pursuant to agreement of the parties.
ML&Co. has also received formal and informal inquiries from various
governmental entities and agencies examining the events underlying the above
described litigation and is cooperating with these inquiries.
On December 16, 1994, a consolidated amended complaint was filed in
In Re NASDAQ Market-Makers Antitrust Litigation, MDL No. 1023, in the United
States District Court for the Southern District of New York. As subsequently
amended, the complaint alleges that 33 market-makers, including MLPF&S, engaged
in a conspiracy with respect to the "spread" between "bid" and "ask" prices for
certain securities traded on NASDAQ by refusing to quote "bid" and "ask" prices
in so-called "odd-eighths." The complaint purports to be brought on behalf of
all persons who purchased or sold these securities between
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May 1, 1989 and May 27, 1994. The complaint alleges violations of antitrust laws
and seeks compensatory damages in an unspecified amount, treble damages,
declaratory and injunctive relief, and attorneys' fees and costs. Judgment
against each of the defendants is sought on a joint and several basis. MLPF&S
has filed an answer denying the allegations in the complaint. Discovery is
proceeding.
In connection with their industry-wide investigations into the NASDAQ
market, ML&Co., along with other named defendants, has received inquiries from
the Antitrust Division of the Department of Justice and the SEC and is
cooperating with these inquiries.
On July 17, 1996 the Antitrust Division of the United States
Department of Justice filed a civil antitrust complaint against firms that make
markets in NASDAQ securities, including MLPF&S. The complaint alleged that the
firms violated Section 1 of the Sherman Act through a "common understanding" to
follow a "quoting convention" that the complaint asserts had inflated the
"inside spread" (the difference between the best quoted buying price and the
best quoted selling price on NASDAQ) in certain NASDAQ stocks. This allegedly
resulted in investors having to pay higher transaction costs for buying and
selling stocks than they would have paid otherwise. At the same time the
complaint was filed, a proposed settlement of the action was announced, pursuant
to which the market maker defendants in the action have agreed not to engage in
certain conduct. The proposed settlement, which is subject to court approval,
provides, among other things, for the monitoring and tape recording by each of
the market maker defendants of not less than 3.5 percent, or a maximum of 70
hours per week, of telephone conversations by its over-the-counter desk traders;
the provision to the Department of Justice of any taped conversation that may
violate the terms of the settlement; and for Department of Justice
representatives to appear unannounced, during regular business hours, for the
purpose of monitoring trader conversations as the conversations occur.
In each of the legal proceedings described below except for the
stockholder derivative actions, the claims against the Merrill Lynch
defendants (as defined below) have now either been dismissed pursuant to
settlements or under the terms of a settlement for which court approval is
being sought.
All the actions arise from certain securities trading transactions
that occurred at year-end 1984, 1985, 1986 and 1988 between MLPF&S and Merrill
Lynch Government Securities Inc. ("MLGSI") and a Florida insurance company,
Guarantee Security Life Insurance Company ("GSLIC"), which was taken into
liquidation. A principal focus of the allegations in the following civil
proceedings is an assertion that purpose in engaging in the year-end
transactions was to distort its apparent financial condition. It is claimed that
GSLIC's former officers and employees improperly took assets from the company
and its investment portfolio declined substantially in value before its true
financial condition became known to insurance regulators, GSLIC's policyholders,
and the creditors of GSLIC and its parent company, Transmark USA, Inc.
("Transmark").
On December 20, 1991, an action (the "Receiver Action") was commenced
by the Florida Department of Insurance as Receiver of GSLIC (the "Receiver") in
the Fourth Judicial Circuit Court in Duval County, Florida naming as defendants
former officers, directors and shareholders of GSLIC and Transmark, GSLIC's
former outside attorneys and accountants, MLPF&S, MLGSI and a former managing
director of MLPF&S (the Merrill Lynch parties in the Receiver Action being
referred to collectively as the "Merrill Lynch defendants"). The complaint
alleges state law claims against the above-mentioned Merrill Lynch defendants
for fraud, breach of fiduciary duty, conspiracy and aiding and abetting a breach
of duty arising from their involvement in the year-end trades with GSLIC,
alleges that GSLIC was damaged in excess of $300 million and seeks relief in an
unspecified amount from the Merrill Lynch defendants. On July 14, 1995, an
agreement was signed among the Receiver of GSLIC, the Merrill Lynch defendants,
along with certain other named defendants, to settle this action. The court has
entered an order severing for purposes of trial the claims against the settling
defendants and otherwise staying all further proceedings in respect of such
defendants. Pursuant to the terms of the final settlement agreement (executed on
October 19, 1995) and subject to the finality of the court's Order of Final
Approval of Settlement dated March 8, 1996, the Merrill Lynch defendants will
pay $45 million to the Receiver, and the Receiver's claims against them will be
dismissed in their entirety. On July 12, 1996, the plaintiffs in the Receiver
Action entered a stipulation of discontinuance with prejudice with respect to
all claims asserted against all defendants, including the Merrill Lynch
defendants.
Substantially the same defendants are named in two consolidated
lawsuits brought in federal court in Jacksonville, Florida on October 15, 1991
and on February 28, 1992 on behalf of an uncertified alleged class of purchasers
of GSLIC insurance policies and annuities between 1984 and 1991 (the
"Haag/Levine Action"). The complaint alleges substantially the same claims as
the Receiver Action as well as claims under RICO and Section 10(b) of the
Exchange Act and seeks unspecified money damages. The court has stayed the
Haag/Levine Action pending the resolution of the Receiver Action.
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A condition of the settlement in the Receiver Action is dismissal of the claims
in the Haag/Levine Action against the Merrill Lynch defendants, at no further
cost to the Merrill Lynch defendants. Unopposed motions seeking this dismissal
have been submitted to the court.
The Resolution Trust Corporation ("RTC"), as receiver for four failed
savings institutions (CenTrust Association Savings Bank, Imperial Savings
Association, FarWest Savings and Loan Association and Columbia Savings and Loan
Association) in January 1993 and April 1993 filed civil actions in federal court
in Jacksonville, Florida against ML&Co., MLPF&S, MLGSI, a former MLPF&S managing
director, and former officers, directors and employees of Transmark and GSLIC
(the "RTC Action"). The action seeks to recover damages as a result of purchases
by the four above-named institutions of securities issued by Transmark, GSLIC's
parent corporation. The claims alleged are substantially similar to those in the
Haag/Levine Action mentioned above. In April 1993, Trans-Resources Inc., a
company that alleges it also purchased Transmark securities, filed a complaint
in the federal court in Jacksonville, Florida substantially following the
allegations of the RTC Action and naming substantially the same defendants (the
"Trans-Resources Action"). The RTC Action and Trans-Resources Action each seek
compensatory and punitive damages in unspecified amounts, trebling of damages
under the RICO claim, rescissory relief and reimbursement of the costs of suit.
On August 10, 1995, an agreement was signed among the RTC and these Merrill
Lynch defendants to settle the RTC Action, as well as all other pending
litigation brought by the RTC against ML&Co. or its affiliates. Pursuant to the
agreement, $4.5 million has been paid to the RTC in respect of the RTC Action,
and the RTC's claims against these Merrill Lynch defendants have been dismissed
in their entirety. On December 22, 1995, an agreement was signed among Trans-
Resources and these Merrill Lynch defendants to settle the Trans-Resources
Action. Pursuant to the agreement, $150,000 has been paid to Trans-Resources,
and claims against the Merrill Lynch defendants in this action have been
dismissed in their entirety.
In October 1991, two derivative actions purportedly brought on behalf
of ML&Co. were filed in the Supreme Court of the State of New York, New York
County, naming as defendants directors of ML&Co. who were directors at the time
of the year-end securities transactions in question, among others. These cases,
now consolidated, assert claims of breach of fiduciary duties in connection with
the year-end securities transactions with GSLIC and other claims against
Transmark and one of Transmark's principals. The damages sought in this action
are unspecified. The court has stayed the action for all purposes pending a
resolution of the above-mentioned related litigation in Florida.
ML&Co. believes it has strong defenses to, and will vigorously
contest, the actions described above. Although the ultimate outcome of the
actions described above and other civil actions, arbitration proceedings and
claims pending against ML&Co. or its subsidiaries as of the date of this
Prospectus cannot be ascertained at this time and the results of legal
proceedings cannot be predicted with certainty, it is the opinion of the
management of ML&Co. that the resolution of these actions will not have a
material adverse effect on the financial condition or the results of operations
of ML&Co.
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CONFLICTS OF INTEREST
MERRILL LYNCH AFFILIATED ENTITIES
Other than the Trading Advisors, all parties involved in the
operations of the Fund are affiliated with Merrill Lynch. Consequently, many of
the business terms of the Fund have not been negotiated at arm's-length. Were
investors to seek redress from Merrill Lynch for damages relating to the
offering of the Units or the operations of the Fund, they (i) would be unlikely
to have recourse against any Merrill Lynch entity (other than MLIP or the Fund
itself or Merrill Lynch, Pierce, Fenner & Smith Incorporated in the case of
claims relating to offering of the Units) which is not in direct privity with
the Fund, and (ii) would be likely only to have such recourse even in the case
of entities which are in such privity only on a derivative basis, suing not
individually but in the right of the Fund.
ML GLOBAL HORIZONS L.P.
ASSOCIATED MERRILL LYNCH ENTITIES
[GRAPH OF MERRILL LYNCH ENTITIES APPEARS HERE]
GENERAL
No Merrill Lynch entity or Trading Advisor has established any formal
procedures to resolve the conflicts of interest described below. Limited
Partners are dependent on the good faith of the respective parties subject to
such conflicts to resolve such conflicts equitably.
MLIP and its affiliates will, should the occasion arise, assert
that Limited Partners have consented to the following conflicts of interest by
subscribing to the Fund.
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MLIP
Relationship among the Merrill Lynch Entities
As MLIP sponsored the Fund, MLIP and its affiliates are its service
providers, other than the Trading Advisors, and will continue to be so even if
using other firms in such capacities might be more advantageous for the Fund.
Other Funds Sponsored by MLIP
MLIP might be able to add more value to the Fund were certain MLIP
personnel to focus exclusively on managing the Fund, but none do so. MLIP
benefits from accounts other than the Fund because such accounts generate
significant revenues for it, and also diversify MLIP's exposure to one or more
of such accounts performing poorly.
There is, in general, a shortage of qualified futures trading
advisors available to manage customer assets. MLIP has a conflict of interest in
selecting Trading Advisors for the Fund and for other accounts sponsored by
MLIP.
MLIP has a conflict of interest in allocating assets among the
Trading Advisors in that MLF receives more net benefit from the brokerage
commissions paid by the Fund the more infrequently an Advisor trades. MLF
receives a flat-rate fee for executing the Fund's futures trades. However, MLF
incurs an out-of-pocket cost in executing each such trade. The less frequently a
Trading Advisor trades, the less these out-of-pocket costs to MLF and the
greater its net revenues from the Fund (brokers which require per-trade
compensation, and their affiliates, have a conflict of interest in that they
will receive more revenues the more frequently an Advisor trades; brokers which
receive a flat-rate will have exactly the opposite conflict).
MLIP sponsors numerous funds and has financial incentives to favor
certain such funds over the Fund.
The fact that a principal potential source of MLIP's revenues is
the Incentive Override, which is based on the overall profitability of the
Fund, may partially resolve certain of MLIP's conflicts of interest in
operating the Fund.
MLF; MLIB
MLF has numerous different clients and executes trades for a wide
range of such clients in the same markets at or about the same time. Executing
orders for different, and possibly competing, customers at the same time
involves an inherent conflict of interest. As a result of executing orders for
many other clients, MLF also has fewer resources to allocate to the Fund's
account.
Certain clients of MLF pay materially lower brokerage rates than does
the Fund. In the case of a number of such clients, particularly clients with an
account as large as that of the Fund, the lower fees paid by its clients can be
in large part attributable to the fact that the significant costs incurred by
MLIP and the ML&Co. group in sponsoring the Fund become embedded in the Fund's
brokerage commission structure, as it is only through receipt of brokerage
commissions that the ML&Co. group can be reimbursed for the amounts so expended.
In the case of institutional accounts, these costs are not incurred by the
Merrill Lynch organization, so that the brokerage commissions charged to such
accounts can be correspondingly reduced without reducing the net revenue
received by Merrill Lynch. See "Charges -- Charges Paid by Merrill Lynch" at
page 42 above. Nevertheless, even in terms of the "net brokerage commissions,"
certain institutional clients of MLF receive, as a result of arm's-length
negotiations, a better rate than the Fund.
MLIB has numerous clients and has financial incentives to favor
certain accounts over the Fund.
THE TRADING ADVISORS
Other Clients and Business Activities of the Trading Advisors
The Fund might benefit significantly from an exclusive focus on
the Fund by certain of the Trading Advisors rather than on their other accounts,
including accounts owned by their principals. The Fund could be adversely
affected by the fact that the Trading Advisors trade other accounts at the same
time that they are managing the Fund's account.
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The Trading Advisors and their principals devote a substantial
portion of their business time to ventures and accounts other than managing
their Fund account, including, in some cases, ventures which are unrelated to
futures trading.
Certain of the Trading Advisors do now, or may in the future, act as
sponsors of their own single- or multi-advisor futures funds which may, from
time to time, be in direct competition with the Fund for positions in the
market.
Other client accounts managed by a Trading Advisor may significantly
outperform its Fund account.
Each Trading Advisor has numerous clients and financial incentives
to favor certain accounts over the Fund.
Brokers and Dealers Selected by Trading Advisors
Certain of the Trading Advisors have required, as a condition of
their management of a Fund account, that such account trade through certain non-
Merrill Lynch brokers (even though MLF remains the clearing broker) with which
such Trading Advisors have ongoing business dealings. Such Trading Advisors may
have a conflict of interest between insisting on the use of such brokers and
using the brokers most advantageous for the Fund.
Certain of the Trading Advisors execute a number of the trades for
their Fund accounts through affiliated floor brokers.
FINANCIAL CONSULTANTS
Financial Consultants (the individual MLPF&S brokers) receive
initial selling commissions and ongoing compensation on the Units. Consequently,
Financial Consultants have a financial incentive to encourage investors to
purchase Units and to discourage them from redeeming Units.
PROPRIETARY TRADING
The Trading Advisors, MLIP, their respective principals, their
respective affiliates and such affiliates' respective principals may trade in
the commodity markets for their own accounts and for the accounts of their
clients, and in doing so may take positions which are the same as or opposite to
those held by the Fund. Prospective investors should be aware that -- as a
result of a neutral allocation system, testing a new trading system, trading
their proprietary accounts more aggressively or other actions not in violation
of their fiduciary or other duties -- such persons may from time to time take
positions in their proprietary accounts ahead of the positions taken for the
Fund and on occasion orders may be filled more advantageously for the account of
one or more such persons than for the Fund's account. Records of this trading
will not be available for inspection by Limited Partners.
___________________
While it is generally true that it is in the best interests of MLIP,
the Trading Advisors and their respective affiliates and principals for the Fund
to trade successfully, in particular circumstances any of the foregoing parties
may receive significantly more benefit from acting in a manner adverse to the
Fund than from acting in, or not opposed to, the Fund's best interests. It is
very difficult, if not impossible, for Limited Partners to know or confirm that
any of the foregoing persons is equitably resolving the conflicts of interest
described above.
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THE LIMITED PARTNERSHIP AGREEMENT
A copy of the Limited Partnership Agreement is included as Exhibit A
to this Prospectus and is incorporated herein by reference. Section and page
references below are to the Limited Partnership Agreement.
LIMITED LIABILITY OF SUBSCRIBERS
The Limited Partnership Agreement provides that (except as provided
by law -- for example, if the Fund is bankrupt or insolvent at the time that a
distribution is made to a Limited Partner) no Limited Partner shall be
personally liable for the debts of the Fund beyond the amount invested by such
Limited Partner in the Fund, plus his share of any undistributed profits.
(Section 7(e) at LPA-5).
ASSIGNMENTS; REDEMPTIONS
Units may only be transferred with the consent of the General
Partner, although the assignment of the economic interest represented by the
Units (but not any of the other rights, such as the right to vote and receive
monthly reports) does not require such consent. The General Partner will
generally consent to assignees being substitute Limited Partners unless doing so
would have adverse federal income tax consequences.
A Limited Partner may redeem any or all of his Units at Net Asset
Value as of the last business day of any month upon ten calendar days'
irrevocable notice to his Merrill Lynch Financial Consultant. Payment of the
redemption price of Units is generally made within ten business days of the
effective date of redemption.
If Units are redeemed on or prior to the end of the twelfth full
calendar month after their sale, 3% of such Units' redemption proceeds are
paid to MLIP as an early redemption charge.
In general, redemption requests need not be made in writing. Limited
Partners may simply contact their Merrill Lynch Financial Consultant. A Limited
Partner who no longer has a Merrill Lynch account must request redemption in
writing (signature guaranteed), by corresponding with MLIP at: Merrill Lynch
World Headquarters, Sixth Floor, South Tower, World Financial Center, New York,
New York 10080-6106. (Section 11 at LPA-8).
MANAGEMENT OF PARTNERSHIP AFFAIRS; VOTING RIGHTS
Limited Partners take no part in the management and have no voice in
the operation of the Fund. (Section 8 at LPA-5). Limited Partners may remove and
replace MLIP as general partner of the Fund, and may, with the consent of MLIP,
amend the Limited Partnership Agreement, except in certain limited respects, by
the affirmative vote of holders of Units representing more than fifty percent
(50%) of the outstanding Units owned by Limited Partners. (Section 17(b) at LPA-
12). A majority of the Units held by Limited Partners may also compel
dissolution of the Fund. (Section 17(b) at LPA-12). Ten percent (10%) of the
Units held by Limited Partners have the right to bring a matter before a vote of
the Limited Partners. (Section 17(c) at LPA-13).
MLIP has no power under the Limited Partnership Agreement to restrict
any of the Limited Partners' voting rights. (Section 17(c) at LPA-13). Any Units
purchased by MLIP or its affiliates are non-voting. (Section 6 at LPA-2).
MLIP has the right unilaterally to amend the Limited Partnership
Agreement to the extent that such amendment is not adverse to the Limited
Partners and also in certain unusual circumstances -- for example, if doing so
is necessary to effect the intent of the Fund's tax allocations or to comply
with certain regulatory requirements. (Section 17(a) at LPA-12).
In the event that MLIP or the Limited Partners vote to amend the
Limited Partnership Agreement in any material respect, the amendment will not
become effective prior to all Limited Partners having an opportunity to redeem
their Units. (Section 17(c) at LPA-13).
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REPORTS TO LIMITED PARTNERS AND ACCESS TO RECORDS
The books and records of the Fund (including a list of Limited
Partners and their addresses) are maintained at MLIP's principal office, and
Limited Partners and their duly authorized representatives have the right during
normal business hours upon reasonable notice to MLIP to inspect such books and
records for any purpose reasonably related to their interest as Limited
Partners. MLIP will also mail copies of such books and records to Limited
Partners upon request and receipt of reasonable reproduction and mailing costs.
(Section 9 at LPA-7).
Each month MLIP distributes summary statements of accounts to all
Limited Partners. All tax information relating to the Fund necessary for the
preparation of Limited Partners' federal income tax is distributed no later than
March 15 of each year. Audited financial statements are distributed by March 31
of each year. (Section 9 at LPA-7).
GENERAL
In compliance with the Statement of Policy of the North American
Securities Administrators Association, Inc. relating to the registration of
commodity pool programs under state securities or "Blue Sky" laws (the
"Guidelines"), the Limited Partnership Agreement provides that: (i) the Fund
will make no loans (Section 8 at LPA-6); (ii) no rebates or give-ups, among
other things, may be received from the Fund by any Trading Advisor, MLIP, MLF,
MLIB or any affiliate of the foregoing, and such restriction may not be
circumvented by reciprocal business arrangements among any Trading Advisor,
MLIP, MLF, MLIB or any of their respective affiliates and the Fund (Section 8 at
LPA-6); (iii) any agreements between the Fund and MLIP, MLF, MLIB or any
affiliate of MLIP, MLF or MLIB must be terminable by the Fund upon no more than
60 days' written notice (Section 8 at LPA-6); and (iv) the assets of the Fund
will not be commingled with the assets of any other person (deposit of assets
with a commodity broker, clearinghouse or forward dealer does not constitute
commingling for these purposes). (Section 8 at LPA-6).
All Advisors must meet the experience requirements of the
Guidelines. (Section 8 at LPA-6).
MLIP has agreed in the Limited Partnership Agreement to reimburse
the Fund, with interest, for any advisory or other fees paid by the Fund during
any fiscal year to any Advisor which exceed the 6% annual management fees and
15% quarterly incentive fees permitted by the Guidelines. (Section 8 at LPA-7).
FEDERAL INCOME TAX CONSEQUENCES
MLIP has been advised by its counsel, Sidley & Austin, that, in its
opinion, the following Summary correctly describes the material federal income
tax consequences, as of the date hereof, to a United States individual taxpayer
of acquiring, owning and disposing of Units.
PARTNERSHIP TAX STATUS OF THE FUND
MLIP has been advised by its counsel, Sidley & Austin, that, in its
opinion, the Fund is properly classified as a partnership for federal income tax
purposes. MLIP believes that all of the income generated by the Fund to date has
constituted and all income expected to be generated will constitute "qualifying
income." Accordingly, Sidley & Austin has advised MLIP that, in its opinion, the
Fund will not be subject to federal income tax as a corporation under the
provisions applicable to "publicly-traded partnerships."
TAXATION OF PARTNERS ON PROFITS OR LOSSES OF THE FUND
Each Partner is required for federal income tax purposes to take
into account his allocable share of all items of Fund income, gain, loss or
deduction. A Partner's share of such items for tax purposes generally is
determined by the allocations in the Limited Partnership Agreement unless such
allocations do not have "substantial economic effect" or are not in accordance
with the Partners' interests in the Fund. Under the Limited Partnership
Agreement, allocations are generally made in proportion to the capital accounts
of each Unit, and therefore such allocations should have substantial economic
effect. However, in cases in which a Partner redeems part or all of his Units in
the Fund the allocations of capital gain or loss specified in the Limited
Partnership Agreement will not be in proportion to capital accounts. Because
such allocations are consistent with the economic effect of the Limited
Partnership Agreement, MLIP files the Fund's tax return based upon such
allocations. In the
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<PAGE>
opinion of Sidley & Austin, the foregoing allocations should be upheld if
audited by the IRS. Nevertheless, a legal opinion is not binding on the IRS and
it is not certain that such allocations would, in fact, be respected upon audit.
If such allocations were challenged and not sustained, some or all of a
redeeming Partner's capital gain or loss could be converted from short-term to
long-term, and each remaining Partner's share of the capital gain or loss that
is the subject of such allocations could be increased (solely for tax purposes).
LIMITATIONS ON DEDUCTIBILITY OF FUND LOSSES
The amount of any Fund loss that a Partner is entitled to include
in his personal income tax return is limited to his tax basis for his Units as
of the end of the year in which such loss occurred. Generally, a Partner's tax
basis for his Units is the amount paid for such Units reduced (but not below
zero) by his share of any Fund distributions, realized losses and expenses and
increased by his share of the Fund's realized income and gains. In addition,
losses of the Fund may be limited under the "at risk" rules.
Because of the limitations imposed upon the deductibility of capital
losses (see "-- Tax on Capital Gains and Losses," at page 53 below), a Partner's
distributive share of any capital losses of the Fund will not materially reduce
the federal income tax payable on his ordinary income (including his allocable
share of the Fund's ordinary income).
TREATMENT OF INCOME AND LOSS UNDER THE "PASSIVE ACTIVITY LOSS RULES"
The Internal Revenue Code of 1986 (the "Code") contains rules (the
"Passive Activity Loss Rules") designed to prevent the deduction of losses from
"passive activities" against income not derived from such activities, including
salary income from investment activities not constituting a trade or business,
such as interest and dividends ("Portfolio Income"). The trading activities of
the Fund will not constitute a "passive activity," and income derived from the
Fund will constitute Portfolio Income or other income not from a "passive
activity."
REDEMPTIONS OF UNITS
Cash received from the Fund by a Partner generally is not reportable
as taxable income by a Partner, except as described below. Rather, such receipt
reduces (but not below zero) the total tax basis of all of the Units held by the
Partner after the redemption.
Redemption for cash of all of a Partner's Units will result in the
recognition of gain or loss for federal income tax purposes. Such gain or loss
will be equal to the difference, if any, between the amount received and the
Partner's adjusted tax basis for his Units. Assuming that the Partner has held
his Units for more than one year, such gain or loss will be long-term capital
gain or loss.
GAIN OR LOSS ON SECTION 1256 CONTRACTS
Under the "mark-to-market" system of taxing futures and commodity
options contracts traded on United States exchanges and certain foreign currency
forward contracts ("Section 1256 Contracts"), any unrealized profit or loss on
positions in such Section 1256 Contracts open of the end of a fiscal year is
treated as if such profit or loss had been realized for tax purposes as of such
time. In general, 60% of the net gain or loss which is generated as a result of
the "mark-to-market" system is treated as long-term capital gain or loss, and
the remaining 40% of such net gain or loss is treated as short-term capital gain
or loss.
GAIN OR LOSS ON NON-SECTION 1256 CONTRACTS
Except as described below with respect to Section 988 transactions
entered into by a qualified fund, gain or loss with respect to contracts that
are non-Section 1256 Contracts is taken into account for tax purposes only when
realized.
"Section 988 transactions" include entering into or acquiring any
forward contract, futures contract or similar instrument if the amount paid or
received is denominated in terms of (or determined by reference to the value of)
a foreign currency other than the taxpayer's functional currency or if the
underlying property to which the contract or instrument ultimately relates is a
foreign currency other than the taxpayer's functional currency. In general,
foreign currency gain or loss on Section 988 transactions is treated as ordinary
income or loss. However, under the "qualified fund election" made by the Fund,
gain or loss with respect to certain Section 988 transactions will be capital
gain or loss. In addition, all such transactions are subject to the "mark-to-
market" rules (see "-- Gain or Loss on Section 1256 Contracts," above).
-53-
<PAGE>
TAX ON CAPITAL GAINS AND LOSSES
Net capital gains (i.e., the excess of net long-term capital gain
over net short-term capital loss) will be taxed for individual taxpayers at a
maximum rate of 28%. See "-- Limitation on Deductibility of Interest on
Investment Indebtedness," below, for a discussion of the reduction in the amount
of an individual taxpayer's net capital gain for a taxable year to the extent
such gain is taken into account as investment income The Fund's trading
generates almost exclusively capital gain or loss. Capital losses are deductible
by individual taxpayers only to the extent of capital gains for the taxable year
plus $3,000. Accordingly, the Fund could incur significant capital losses but an
investor, nevertheless, would be required to pay substantial taxes in respect of
such investor's allocable share of the Fund's interest and other ordinary
income. See "Risk Factors -- (20) Taxation of Interest Income" at page 11.
If an individual taxpayer incurs a net capital loss for a year, the
portion thereof, if any, which consists of a net loss on Section 1256 Contracts
may, at the election of the taxpayer, be carried back three years. Losses so
carried back may be deducted only against net capital gain for such year to the
extent that such gain includes gains on Section 1256 Contracts. Losses so
carried back will be deemed to consist of 60% long-term capital loss and 40%
short-term capital loss (see "-- Gain or Loss on Section 1256 Contracts,"
above). To the extent that such losses are not used to offset gains on Section
1256 Contracts in a carryback year, they will carry forward indefinitely as
losses on Section 1256 Contracts in future years.
LIMITED DEDUCTION FOR CERTAIN EXPENSES
The Code provides that, for individual taxpayers who itemize ductions
when computing taxable income, expenses of producing income, including
"investment advisory fees," are aggregated with unreimbursed employee business
expenses, other expenses of producing income and certain other deductions
(collectively, "Aggregate Investment Expenses"), and that the aggregate amount
of such expenses is deductible only to the extent that such amount exceeds 2%
(the "2% floor") of an individual taxpayer's adjusted gross income. In addition,
Aggregate Investment Expenses in excess of the 2% floor, when combined with a
taxpayer's deductions for certain other items, are subject to a reduction (the
"3% phase-out") equal to, generally, 3% of the taxpayer's adjusted gross income
in excess of a certain threshold amount. Moreover, such Aggregate Investment
Expenses are miscellaneous itemized deductions which are not deductible by
individual taxpayers in calculating his alternative minimum tax.
Based on the contemplated trading activities of the Fund, in the
opinion of Sidley & Austin, the Fund should be treated as engaged in the conduct
of a trade or business for federal income tax purposes. As a result, the
ordinary and necessary business expenses incurred by the Fund in conducting its
commodity futures trading business should not be subject to the 2% Floor or the
3% Phase-Out. Investors should be aware that an opinion of counsel is not
binding on the IRS or on any court and it is possible that the IRS could
contend, or that a court could decide, that the contemplated trading activities
of the trading partnership do not constitute a trade or business for federal
income tax purposes. To the extent the characterization of the Fund's expenses
as investment advisory expenses were to be sustained, each non-corporate
Partner's pro rata share of the amounts so characterized would be deductible
only to the extent that such non-corporate Partner's Aggregate Investment
Expenses exceeded the 2% Floor and, when combined with certain other itemized
deductions, exceeded the 3% Phase-Out. In addition, each non-corporate Partner's
distributive share of the income would be increased (solely for tax purposes) by
such Partner's pro rata share of the amounts so recharacterized.
SYNDICATION FEES
The $447,000 in organization and initial offering costs, for which
MLIP was reimbursed by the Fund, have been treated as a non-deductible, non-
amortizable, syndication expense by the Fund. The IRS could take the position
that a portion of the brokerage commissions paid to MLF constitutes non-
deductible syndication expenses.
LIMITATION ON DEDUCTIBILITY OF INTEREST ON INVESTMENT INDEBTEDNESS
Interest paid or accrued on indebtedness properly allocable to
property held for investment constitutes "investment interest." Interest expense
incurred by a Limited Partner to acquire or carry his Units (as well as other
investments) will constitute "investment interest." Such interest is generally
deductible by individual taxpayers only to the extent that it does not exceed
net investment income (that is, generally, the excess of (i) gross income from
interest, dividends, rents and royalties, which would include a Partner's share
of the Fund's interest income, and (ii) certain gains from the disposition of
investment property, over the expenses directly connected with the production of
such investment income). Any investment interest expense disallowed as a
deduction in a taxable year solely by reason of the above limitation is treated
as investment interest paid or accrued in the succeeding taxable year. An
individual taxpayer's net capital gain from the disposition of investment
property
-54-
<PAGE>
is included in clause (ii) of the second preceding sentence only to the extent
that such taxpayer elects to make a corresponding reduction in the amount of net
capital gain that is subject to tax at the maximum 28% rate described above.
(See "-- Tax on Capital Gains and Losses," at page 53 above.)
MLIP'S CONTRIBUTION TO THE PURCHASE PRICE OF CERTAIN UNITS
MLIP contributes 3% of the purchase date Net Asset Value to the Fund
for each Unit purchased by officers and employees of ML&Co. or its affiliates.
The MLIP contribution is taxed as ordinary income in the year of purchase, and
subscribers will acquire a tax basis of 100% of Net Asset Value in their Units.
"UNRELATED BUSINESS TAXABLE INCOME"
In the opinion of Sidley & Austin, income earned by the Fund will not
constitute "unrelated business taxable income" under Section 511 of the Code to
employee benefit plans and other tax-exempt entities which purchase Units;
provided that Units purchased by such plans and entities are not "debt-
financed."
IRS AUDITS OF THE FUND AND ITS PARTNERS
The tax treatment of Fund-related items is determined at the Fund
level rather than at the Partner level. MLIP is the Fund's "tax matters partner"
with general authority to determine the Fund's responses to an audit. The
limitations period for assessment of deficiencies and claims for refunds with
respect to items related to the Fund is three years after the Fund's return for
the taxable year in question is filed, and MLIP has the authority to extend such
period with respect to all Limited Partners.
If an audit results in an adjustment, all Partners may be required to
pay additional taxes plus interest as well as penalties. Partners may themselves
also be subject to audits as the result of an audit of the Fund.
FOREIGN LIMITED PARTNERS NOT PERMITTED
No person who is a non-resident alien individual, foreign corporation,
foreign partnership, foreign trust or foreign estate for federal income tax
purposes may invest in the Fund.
STATE AND OTHER TAXES
In addition to the federal income tax consequences described above,
the Fund and the Partners may be subject to various state and other taxes.
Certain of such taxes could, if applicable, have a significant effect on the
amount of tax payable in respect of an investment in the Fund.
____________________
THE FOREGOING DISCUSSION IS NOT INTENDED AS TAX ADVICE, PARTICULARLY
AS CERTAIN OF THE INCOME TAX CONSEQUENCES OF AN INVESTMENT IN THE FUND MAY NOT
BE THE SAME FOR ALL TAXPAYERS. ACCORDINGLY, PROSPECTIVE INVESTORS IN THE FUND
ARE URGED TO CONSULT THEIR TAX ADVISERS WITH SPECIFIC REFERENCE TO THEIR
SITUATION UNDER FEDERAL, STATE AND OTHER LAWS BEFORE DETERMINING WHETHER TO
SUBSCRIBE FOR UNITS.
-55-
<PAGE>
PLAN OF DISTRIBUTION
GENERAL
The Units are offered to the public on a continuous basis.
Subscriptions may be submitted at any time for investment (if accepted) in the
Units as of a single settlement date on the first day of the immediately
following calendar month. There is no minimum number of Units which must be sold
as of the beginning of any calendar month for any Units then to be sold, and
given the "best efforts" nature of the offering, there can be no assurance as to
how many Units will be sold. MLPF&S acts as the exclusive Selling Agent for the
Units; see "-- Selling Agent Compensation" below. There is no market for the
Units and MLPF&S will not engage in any form of market-making activities with
respect to the Units.
SUBSCRIPTION PROCEDURE
In order to purchase Units, an investor must complete, execute and
deliver to the Selling Agent a copy of the Signature Page to the Subscription
Agreement and Power of Attorney included in Exhibit C to this Prospectus.
Subscription payments are made by authorizing the Selling Agent to debit an
investor's customer securities account in the amount of his subscription.
(Prospective subscribers must open an MLPF&S customer securities account in
order to purchase Units.) Accounts are debited, and subscriptions transmitted
directly by the Selling Agent to the Fund's account on settlement dates
specified by the Selling Agent and occurring not later than five business days
following the beginning of the month as of which Units are purchased and of the
acceptance of an investor's subscription (which will be received within five
business days of subscription). No sale of Units will be completed until at
least five (5) business days after the date a subscriber has executed, dated and
submitted the Signature Page to the Subscription Agreement and Power of
Attorney. Subscriptions must generally be received no less than five (5)
business days prior to issuance of the Units to be purchased.
Existing Limited Partners subscribing for additional Units need not
(except in certain states) submit a new Signature Page to the Subscription
Agreement and Power of Attorney, but must be in possession of a current
Prospectus as well as recent summary financial information relating to the Fund
(current within 60 calendar days).
FINANCIAL CONSULTANTS (THE INDIVIDUAL MLPF&S BROKERS) ARE REQUIRED TO
RECONFIRM THE SUITABILITY OF EXISTING LIMITED PARTNERS TO MAKE AN ADDITIONAL
INVESTMENT IN THE FUND.
The Units are being sold when, as and if subscriptions are accepted by
MLIP, subject to the satisfaction of certain conditions set forth in the Selling
Agreement and to the approval by counsel of certain legal matters. The Units are
offered on a continuous basis. MLIP may terminate but not suspend the offering.
PURCHASES BY EMPLOYEE BENEFIT PLANS
SPECIAL INVESTMENT CONSIDERATIONS. In general, the terms "employee
benefit plan" as defined in the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), and "plan" as defined in Section 4975 of the Code together
refer to any plan or account of various types which provide retirement benefits
or welfare benefits. Such plans and accounts include, but are not limited to,
corporate pension and profit sharing plans, "simplified employee pension plans,"
KEOGH plans for self-employed individuals (including partners), individual
retirement accounts and medical plans (collectively, "Plans," and the
fiduciaries of such plans with investment discretion, "Plan Fiduciaries").
Each Plan Fiduciary must give appropriate consideration to the facts
and circumstances that are relevant to an investment in the Fund, including the
role that an investment in the Fund plays in the Plan's overall investment
portfolio. Each Plan Fiduciary, before deciding to invest in the Fund, must
carefully consider that the Plan may lose all or substantially all of its
investment in the Fund, and such Plan Fiduciary be satisfied that investment in
the Fund is a prudent investment for the Plan, that the investments of the Plan,
including the investment in the Fund, are diversified so as to minimize the risk
of large losses and that an investment in the Fund complies with the Plan and
related trust documentation.
THE FUND DOES NOT HOLD "PLAN ASSETS." A regulation issued under ERISA
contains rules for determining when an investment by a Plan in an equity
interest of a limited partnership will result in the underlying assets of the
partnership being considered to constitute assets of the Plan for purposes of
ERISA and Section 4975 of the Code (i.e., "plan assets"). Those rules provide in
pertinent part that assets of a limited partnership will not be considered
assets of a Plan which purchases an equity interest if such interest is a
"publicly-offered security." This exception is satisfied with respect to the
Units. Therefore, the underlying assets of the Fund are not considered to
constitute "plan assets."
-56-
<PAGE>
INELIGIBLE PURCHASERS. Units may not be purchased with the assets of a
Plan if MLIP, any Advisor, the Selling Agent, any Financial Consultant, MLF,
MLIB, or any of their respective affiliates either: (a) has investment
discretion with respect to the investment of such plan assets; (b) has authority
or respon sibility to give or regularly gives investment advice with respect to
such plan assets, for a fee, and pursuant to an agreement or understanding that
such advice will serve as a primary basis for investment decisions with respect
to such plan assets and that such advice will be based on the particular
investment needs of the plan; or (c) is an employer maintaining or contributing
to such plan.
As a matter of policy, MLIP limits each investor's subscriptions to
the Fund to no more than 10% of such investor's readily marketable assets. In
the case of IRA, BASIC and SEP accounts, this 10% limitation applies to the
beneficiary of such accounts, while such accounts themselves may not invest more
than 50% of their readily marketable assets in the Fund.
ACCEPTANCE OF SUBSCRIPTIONS ON BEHALF OF INDIVIDUAL RETIRE MENT
ACCOUNTS OR OTHER EMPLOYEE BENEFIT PLANS IS IN NO RESPECT A REPRE SENTATION BY
ANY PARTY THAT AN INVESTMENT IN THE UNITS IS APPROPRIATE OR AUTHORIZED FOR ANY
PARTICULAR PLAN. EACH PLAN FIDUCIARY CONSIDERING ACQUIRING UNITS MUST CONSULT
WITH ITS OWN LEGAL AND TAX ADVISERS BEFORE DOING SO.
SELLING AGENT COMPENSATION
No selling commissions are paid from the proceeds of subscriptions.
MLIP credits the Selling Agent with "production credits," a portion of which are
paid to the Selling Agent in cash by MLIP. "Production credits" do not represent
actual cash payments but rather internal bookkeeping entries relating to the
securities sold through different Financial Consultants. Pursuant to standard
Selling Agent compensation procedures, a percentage of the amount credited to
the Selling Agent is paid out in cash by the Selling Agent to Financial
Consultants who sell Units. The Selling Agent is credited with production
credits of 5% per Unit on all sales, provided that no initial production credits
accrue to the Selling Agent or Financial Consultants in respect of sales of
Units at 97% per Unit to officers and employees of ML&Co. and its affiliates.
MLIP credits the Selling Agent with ongoing production credits, a
portion of which are paid in cash, with respect to Units which remain
outstanding more than twelve months. Such ongoing production credits will begin
to accrue with the start of the thirteenth month after sale on Units sold by
Financial Consultants who are registered with the CFTC, have passed either the
Series 3 National Commodity Futures Examination or the Series 31 Managed Futures
Fund Examination and agree to provide certain ongoing services to investors,
upon request. Such production credits equal 2% per annum of the average month-
end Net Asset Value per Unit. The Selling Agent will, in turn, pay out a portion
of the amounts so received to qualified Financial Consultants (the individual
MLPF&S brokers).
Ongoing production credits accrue monthly and are paid quarterly.
In the Selling Agreement, each Trading Advisor and MLIP have agreed to
indemnify the Selling Agent against certain liabilities that the Selling Agent
may incur in connection with the offering and sale of the Units, including
liabilities under the Securities Act of 1933 and the Commodity Exchange Act. The
SEC is of the view that indemnification for liabilities arising under the
Securities Act of 1933 is against public policy as expressed in such Act and is,
therefore, unenforceable.
Certain of the ongoing offering costs paid by MLIP might be deemed to
have constituted costs properly allocated to the account of the Selling Agent.
Such costs, which included the expense of producing a revised sales brochure and
organizing certain seminars (such costs did not exceed $65,000 in the
aggregate), were in addition to the selling commissions credited to the Selling
Agent.
MLIP pays the costs of the ongoing offering of the Units. In no event
will any such costs, properly allocated to the account of the Selling Agent,
when added to the selling commissions paid by MLIP, exceed an aggregate of 10%
of the aggregate subscription prices of the Units.
-57-
<PAGE>
ADVISORS' INVESTMENTS IN THE FUND
All Advisors which would not, due to their "non-U.S. person" status,
incur adverse U.S. income tax consequences, or are not otherwise prohibited by
applicable non-United States securities, tax or other laws from doing so, invest
$10,000 in the Fund during their tenure of providing advisory services to it.
MLIP has, for some years, required such investments from all Advisors selected
for its domestic funds.
LEGAL MATTERS
Sidley & Austin passes upon legal matters for MLIP, Merrill Lynch
Futures and the Selling Agent in connection with the Units being offered hereby.
Sidley & Austin advises MLIP (and its affiliates) with respect to its
responsibilities as general partner of, and with respect to matters relating to,
the Fund. Sidley & Austin has reviewed the statements under "Federal Income Tax
Consequences."
EXPERTS
The balance sheet of MLIP as of December 30, 1994 and December 29,
1995 and the financial statements of the Fund as of December 31, 1994 and 1995
included in this Prospectus have been audited by Deloitte & Touche llp,
independent auditors, as stated in their reports appearing herein, and have been
so included in reliance upon such reports given upon the authority of that firm
as experts in auditing and accounting.
ADDITIONAL INFORMATION
This Prospectus constitutes part of the Registration Statement filed
by the Fund with the SEC in Washington, D.C. This Prospectus does not contain
all of the information set forth in such Registration Statement, certain
portions of which have been omitted pursuant to the rules and regulations of the
SEC, including, without limitation, certain exhibits thereto (for example, the
forms of the Selling Agreement, the Advisory Agreements, the Customer Agreement
and the Foreign Exchange Desk Service Agreement). The descriptions contained
herein of agreements included as exhibits to the Registration Statement are
necessarily summaries; the exhibits themselves may be inspected without charge
at the public reference facilities maintained by the SEC in Washington, D.C.,
and copies of all or part thereof may be obtained from the SEC upon payment of
the prescribed fees. The SEC maintains a Web Site that contains reports, proxy
and information statements and other information regarding registrants, such as
the Fund, that file electronically with the SEC at http://www.sec.gov.
RECENT FINANCIAL INFORMATION
Pursuant to applicable CFTC regulations, prospective subscribers must
receive recent financial information (current within 60 calendar days) relating
to the Fund together with this Prospectus, unless the material that would
otherwise be included in such Report or information has been otherwise included
herein.
-58-
<PAGE>
INDEX OF DEFINED TERMS
A number of defined terms are used in this Prospectus. The respective
definitions or descriptions of such terms may be found on the following
pages of this Prospectus.
<TABLE>
<CAPTION>
PAGE(S)
-------
<S> <C>
Adjusted NAV................................ 38
Advisors.................................... Cover
"Bid-ask" spreads........................... 37
CFTC........................................ i
Consulting fees............................. 42
Differential................................ 37
EFP......................................... 37
Employee benefit plan....................... 56
Fund........................................ Cover
F/X Desk.................................... 30
High Water Mark NAV......................... 38
Incentive Override.......................... 38
Investment advisory fees.................... 11
Limited Partner............................. LPA-1
Merrill Lynch Futures....................... Cover
MLF......................................... Cover
MLIP........................................ Cover
MLPF&S...................................... i
MLIB........................................ 28
Net New Gain................................ 38
New Trading Profit.......................... 40
NFA......................................... 28
Profit Share................................ 40
Redemption charges.......................... 42
Round-turn commissions...................... 36
SEC......................................... ii
Selling Agent............................... i
Service fee................................. 37
Standard deviation.......................... Prospectus Supplement
Unadjusted NAV.............................. 38
Variation margin............................ 23
Worst monthly drawdown...................... 5
Worst peak-to-valley drawdown............... 5
</TABLE>
-59-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
ML GLOBAL HORIZONS L.P.
<S> <C>
Independent Auditors' Report................ 61
Statements of Financial Condition........... 62
Statements of Income........................ 63
Statements of Changes in Partners' Capital.. 64
Notes to Financial Statements............... 65
MERRILL LYNCH INVESTMENT PARTNERS INC.
Independent Auditors' Report................ 72
Balance Sheets.............................. 73
Notes to Balance Sheets..................... 74
</TABLE>
Schedules are omitted for the reason that they are not required or are
not applicable or that equivalent information has been included in the
financial statements or notes thereto.
-60-
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE PARTNERS OF
ML GLOBAL HORIZONS L.P.
We have audited the accompanying statements of financial condition of
ML Global Horizons L.P. (a Delaware limited partnership (the "Partnership")) as
of December 31, 1995 and 1994, and the related statements of income and of
changes in partners' capital for the year ended December 31, 1995 and the period
January 4, 1994 (commencement of operations) to December 31, 1994. These
financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, these financial statements present fairly, in all
material respects, the financial position of ML Global Horizons L.P. as of
December 31, 1995 and 1994, and the results of its operations for the year ended
December 31, 1995 and the period January 4, 1994 (commencement of operations) to
December 31, 1994 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
January 26, 1996
New York, New York
-61-
<PAGE>
ML GLOBAL HORIZONS L.P.
(A DELAWARE LIMITED PARTNERSHIP)
------------------------------
STATEMENTS OF FINANCIAL CONDITION
SEPTEMBER 30, 1996 (UNAUDITED), DECEMBER 31, 1995
AND DECEMBER 31, 1994
________________________________________________________________________________
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
1996
(UNAUDITED) 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Accrued interest (Note 2) $ 307,250 $ 357,496 $ 280,548
Equity in commodity futures trading accounts:
Cash and option premiums 81,390,091 85,254,980 63,196,166
Net unrealized gain on open contracts 6,398,792 5,630,789 5,331,556
Other receivable -- -- 23,418
----------- ----------- -----------
TOTAL $88,096,133 $91,243,265 $68,831,688
=========== =========== ===========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Redemptions payable $ 6,404,005 $ 674,724 $ 1,021,962
Brokerage commissions payable (Note 2) 551,003 551,853 315,671
Profit shares payable 58,897 -- 355,030
Incentive override payable (Note 2) 5,117 855,796 41,867
Organization and initial offering costs payable (Note 1) -- 20,399 243,899
----------- ----------- -----------
Total liabilities $ 7,019,022 $ 2,102,772 $ 1,978,429
----------- ----------- -----------
PARTNERS' CAPITAL:
General Partner (8,895; 8,530; and 6,456 Units) 1,158,779 1,052,896 669,580
Limited Partners (619,673; 737,413; and 638,063 Units) 79,918,332 91,708,172 66,183,679
Subscriptions receivable (0; 29,116; and 0 Units) -- (3,620,575) --
----------- ----------- -----------
Total partners' capital 81,077,111 89,140,493 66,853,259
----------- ----------- -----------
TOTAL $88,096,133 $91,243,265 $68,831,688
=========== =========== ===========
NET ASSET VALUE PER UNIT (Note 4)
</TABLE>
See Notes to Financial Statements.
__________________________
Past Performance is not necessarily indicative of future results.
-62-
<PAGE>
ML GLOBAL HORIZONS L.P.
(A DELAWARE LIMITED PARTNERSHIP)
------------------------------
STATEMENTS OF INCOME
FOR THE PERIOD FROM JANUARY 1, 1996 TO
SEPTEMBER 30, 1996 (UNAUDITED), JANUARY 1, 1995 TO
SEPTEMBER 30, 1995 (UNAUDITED), THE YEAR ENDED DECEMBER 31, 1995
AND THE PERIOD FROM JANUARY 4, 1994
(COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1994
________________________________________________________________________________
<TABLE>
<CAPTION>
JANUARY 1, 1996 JANUARY 1, 1995
TO TO
SEPTEMBER 30, SEPTEMBER 30,
1996 1995
(UNAUDITED) (UNAUDITED) 1995 1994
--------------- --------------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Trading profit (loss):
Realized $4,610,717 $14,314,748 $17,455,764 $ 453,726
Change in Unrealized 768,003 (4,758,175) 299,233 5,331,556
---------- ----------- ----------- -----------
Total trading results 5,378,720 9,556,573 17,754,997 5,785,282
Interest income (Note 2) 2,996,535 2,819,800 3,786,925 1,972,722
---------- ----------- ----------- -----------
Total revenues 8,375,255 12,376,373 21,541,922 7,758,004
---------- ----------- ----------- -----------
EXPENSES:
Profit shares 373,820 1,492,857 1,492,857 1,103,649
Incentive override (Note 2) 5,117 147,489 965,454 41,867
Brokerage commissions (Note 2) 4,990,367 4,128,889 5,723,755 3,859,267
---------- ----------- ----------- -----------
Total expenses 5,369,304 5,769,235 8,182,066 5,004,783
---------- ----------- ----------- -----------
NET INCOME $3,005,951 $ 6,607,138 $13,359,856 $ 2,753,221
========== =========== =========== ===========
NET INCOME PER UNIT:
Weighted average number of
Units outstanding (Note 5) 720,600 641,622 663,663 523,953
========== =========== =========== ===========
Weighted average net income
per General Partner and
Limited Partner Unit $4.17 $10.30 $20.13 $5.25
========== =========== =========== ===========
</TABLE>
See Notes to Financial Statements.
__________________________
Past Performance is not necessarily indicative of future results.
-63-
<PAGE>
ML GLOBAL HORIZONS L.P.
(A DELAWARE LIMITED PARTNERSHIP)
------------------------------
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE PERIOD FROM JANUARY 1, 1996 TO SEPTEMBER 30, 1996 (UNAUDITED),
THE YEAR ENDED DECEMBER 31, 1995
AND THE PERIOD FROM JANUARY 4, 1994
(COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1994
________________________________________________________________________________
<TABLE>
<CAPTION>
UNITS OF
PARTNERSHIP LIMITED GENERAL SUBSCRIPTIONS
INTEREST PARTNERS PARTNER RECEIVABLE TOTAL
----------- ------------ ---------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Initial offering 358,350 $ 35,467,300 $ 367,700 $ -- $ 35,835,000
Organizational and initial
offering costs -- (442,366) (4,634) -- (447,000)
Subscriptions 317,083 31,598,577 275,531 -- 31,874,108
Redemptions (30,914) (3,162,070) -- -- (3,162,070)
Net income -- 2,722,238 30,983 -- 2,753,221
----------- ------------ ---------- ------------- ------------
PARTNERS' CAPITAL
DECEMBER 31, 1994 644,519 66,183,679 669,580 -- 66,853,259
Subscriptions 298,294 35,021,556 244,397 -- 35,265,953
Subscriptions receivable (29,116) -- -- (3,620,575) (3,620,575)
Redemptions (196,870) (22,718,000) -- -- (22,718,000)
Net income -- 13,220,937 138,919 -- 13,359,856
----------- ------------ ---------- ------------- ------------
PARTNERS' CAPITAL
DECEMBER 31, 1995 716,827 91,708,172 1,052,896 (3,620,575) 89,140,493
Subscriptions 135,271 13,149,858 56,900 3,620,575 16,827,333
Redemptions (223,440) (27,896,666) -- -- (27,896,666)
Net Income -- 2,964,768 41,183 -- 3,005,951
----------- ------------ ---------- ------------- ------------
PARTNER'S CAPITAL
SEPTEMBER 30, 1996 628,658 $ 79,926,132 $1,150,979 -- $ 81,077,111
(Unaudited) =========== ============ ========== ============= ============
</TABLE>
__________________________
Past performance is not necessarily indicative of future results
-64-
<PAGE>
ML GLOBAL HORIZONS L.P.
(A DELAWARE LIMITED PARTNERSHIP)
------------------------------
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIODS JANUARY 1, 1996 TO SEPTEMBER 30, 1996 (UNAUDITED),
JANUARY 1, 1995 TO SEPTEMBER 30, 1995 (UNAUDITED),
THE YEAR ENDED DECEMBER 31, 1995 AND THE PERIOD FROM
JANUARY 4, 1994 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1994
________________________________________________________________________________
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ML Global Horizons L.P. (the "Partnership") was organized as an open-
end fund under the Delaware Revised Uniform Limited Partnership Act on May 11,
1993 and commenced trading activities on January 4, 1994. The Partnership
engages in the speculative trading of futures, opinions and forward contracts on
a wide range of commodities. The Partnership issues new units of limited
partnership interest ("Units") at the Net Asset Value as of the beginning of
each month. Merrill Lynch Investment Partners Inc. (formerly ML Futures
Investment Partners Inc.) ("MLIP" or the "General Partner"), a wholly-owned
subsidiary of Merrill Lynch Group, Inc. ("Merrill Lynch"), which in turn is a
wholly-owned subsidiary of Merrill Lynch & Co., Inc., is the general partner of
the Partnership, and Merrill Lynch Futures Inc. ("MLF"), also an affiliate of
Merrill Lynch, is its commodity broker. MLIP has agreed to maintain a general
partner interest of at least 1% of the total capital in the Partnership. MLIP
and each Limited Partner share in the profits and losses of the Partnership in
proportion to their respective interests in it.
MLIP selects independent advisors (the "Advisors" or the "Trading
Advisors") to manage the Partnership's assets, and allocates and reallocates the
Partnership's assets among existing, replacement and additional Advisors.
ESTIMATES
- ---------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION
- -------------------
Commodity futures, options, and forward contract transactions are
recorded on the trade date and open contracts are reflected in the financial
statements at their fair value on the last business day of the reporting period.
The difference between the original contract amount and fair value is reflected
in income as an unrealized gain or loss. Fair value is based on quoted market
prices. All commodity futures, options and forward contracts are reflected at
fair value in the financial statements.
ORGANIZATION AND INITIAL OFFERING COSTS, OPERATING EXPENSES AND SELLING
- -----------------------------------------------------------------------
COMMISSIONS
- -----------
MLIP advanced all organization and initial offering costs relating to
the Partnership. The Partnership reimbursed MLIP for such costs over a two-year
period in 24 equal monthly installments. For financial reporting purposes, the
Partnership deducted the total organization and initial offering costs of
$447,000 from Partners' capital at inception. For all other purposes, including
determining the Net Asset Value per Unit for redemption purposes, the
Partnership deducted organization and initial offering cost reimbursements only
as actually paid.
MLIP pays for all routine operating costs (including legal,
accounting, printing, postage and similar administrative expenses) of the
Partnership, including the costs of the ongoing offering of the Units. MLIP
receives a portion of the brokerage commissions paid to MLF by the Partnership
as reimbursement for the foregoing expenses.
No selling commissions are paid by Limited Partners.
__________________________
Past performance is not necessarily indicative of future results
-65-
<PAGE>
ML GLOBAL HORIZONS L.P.
(A DELAWARE LIMITED PARTNERSHIP)
------------------------------
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIODS JANUARY 1, 1996 TO SEPTEMBER 30, 1996 (UNAUDITED),
JANUARY 1, 1995 TO SEPTEMBER 30, 1995 (UNAUDITED),
THE YEAR ENDED DECEMBER 31, 1995 AND THE PERIOD FROM
JANUARY 4, 1994 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1994
(CONTINUED)
________________________________________________________________________________
INCOME TAXES
- ------------
No provision for income taxes has been made in the accompanying
financial statements as each partner is individually responsible for reporting
income or loss based on their respective share of the Partnership's income and
expenses as reported for income tax purposes.
DISTRIBUTIONS
- -------------
The Unitholders are entitled to receive, equally per Unit, any
distributions which may be made by the Partnership. No such distributions have
been made as of September 30, 1996.
REDEMPTIONS
- -----------
A Limited Partner may require the Partnership to redeem some or all of
their Units at Net Asset Value as of the close of business on the last business
day of any month upon ten calendar days' notice. Units redeemed on or prior to
the end of the twelfth full month after subscription proceeds are invested in
the Partnership are assessed an early redemption charge of 3% of their Net Asset
Values as of the date of redemption. If an investor acquires Units at more than
one time, such Units are treated on a "first-in, first-out" basis for purposes
of determining whether redemption charges are applicable.
DISSOLUTION OF THE PARTNERSHIP
- ------------------------------
The Partnership will terminate on December 31, 2023 or at an earlier
date if certain conditions occur, as well as under certain other circumstances,
as set forth in the Limited Partnership Agreement.
(2) RELATED PARTY TRANSACTIONS
All of the Partnership's assets are deposited with MLF. As a means of
approximating the interest rate which would be earned by the Partnership had
100% of its Net Assets on deposit with MLF been invested in 91-day Treasury
bills, MLF pays the Partnership interest on its account equity on deposit with
MLF at a rate of 0.5 of 1% per annum below the prevailing 91-day Treasury bill
rate. In the case of its trading in certain foreign futures contracts, the
Partnership deposits margin in foreign currency denominated instruments or cash
and earns interest generally at a rate of 0.5 of 1% per annum below the London
Clearing Broker Rate. Any additional economic benefit derived from possession of
the Partnership's assets accrues to MLF or its affiliates.
The Partnership pays brokerage commissions to MLF at a flat monthly
rate of 0.625 of 1% (a 7.5% annual rate) of the Partnership's month-end assets.
(Effective October 1, 1996, 0.25% of 1% of the brokerage commissions was
recharacterized as an Administrative Fee payable to MLIP.) Month-end assets are
not reduced for purposes of calculating brokerage commissions by any accrued but
unpaid brokerage commissions, profit shares or other accrued fees or charges.
MLIP estimates that the round-turn equivalent commission rate charged to the
Partnership during the nine months ended September 30, 1996 and the years ended
December 31, 1995 and 1994 was approximately $71, $88 and $13, respectively (not
including, in calculating round-turn equivalents, forward contracts on a
futures-equivalent basis).
MLF pays the Advisors annual Consulting Fees ranging from 2% to 4% of
the Partnership's average month-end assets after reduction for a portion of the
brokerage commissions.
__________________________
Past performance is not necessarily indicative of future results
-66-
<PAGE>
ML GLOBAL HORIZONS L.P.
(A DELAWARE LIMITED PARTNERSHIP)
------------------------------
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIODS JANUARY 1, 1996 TO SEPTEMBER 30, 1996 (UNAUDITED),
JANUARY 1, 1995 TO SEPTEMBER 30, 1995 (UNAUDITED),
THE YEAR ENDED DECEMBER 31, 1995 AND THE PERIOD FROM
JANUARY 4, 1994 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1994
(CONTINUED)
________________________________________________________________________________
The Partnership paid to MLIP an Incentive Override equal to 10% of the
Net New Gain, as defined, as of December 31, 1995 and 1994, and will do so as of
each subsequent December 31 in respect of any Net New Gain then outstanding.
Such payments are also made to MLIP from the redemption value of Units redeemed
as of the end of interim months during a year, to the extent of any Net New Gain
attributable to such Units when redeemed. Prior to December 31, 1994, the
Partnership retained any accrued Incentive Overrides reflected as a reduction in
the Net Asset Value of Units when redeemed.
The Partnership trades forward contracts through a Foreign Exchange
Desk (the "F/X Desk"), established by MLIP, that contacts at least two
counterparties along with Merrill Lynch International Bank ("MLIB"), for all of
the Partnership's currency trades. All counterparties other than MLIB are
unaffiliated with any Merrill Lynch entity. The F/X Desk charges a service fee
equal (at current exchange rates) to approximately $5.00 to $12.50 on each
purchase or sale of a futures contract equivalent face amount of a foreign
currency. No service fees are charged on any trades awarded to MLIB (which
receives a "bid-ask" spread on such trades). MLIB is awarded trades only if its
price (which includes no service fee) is equal to or better than the best price
(including the service fee) offered by any of the other counterparties
contacted.
The F/X Desk trades using credit lines provided by a Merrill Lynch
entity. The Partnership is not required to margin or otherwise guarantee its F/X
Desk trading.
Certain of the Partnership's currency trades are executed in the form
of "exchange of futures for physical" ("EFP") transactions involving MLIB and
MLF. In these transactions, a spot or forward (collectively referred to as
"cash") currency position is acquired and exchanged for an equivalent futures
position on the Chicago Mercantile Exchange's International Monetary Market. In
its EFP trading, the Partnership acquires cash currency positions through the
F/X Desk in the same manner and on the same terms as in the case of the
Partnership's other F/X Desk trading. When the Partnership exchanges these
positions for futures, there is a "differential" between the prices of these two
positions. This "differential" reflects, in part, the different settlement dates
of the cash and the futures contracts as well as prevailing interest rates, but
also includes a pricing spread in favor of MLIB or another Merrill Lynch entity.
The Partnership's F/X Desk service fee and EFP differential costs
have, to date, totalled no more than 0.25 of 1% per annum of the Partnership's
average month-end Net Assets.
(3) AGREEMENTS
The Partnership and the Advisors have each entered into Advisory
Agreements. These Advisory Agreements generally terminate one year after they
are entered into, subject to certain renewal rights exercisable by the
Partnership. The Advisors determine the commodity futures and forward contract
trades to be made on behalf of their respective Partnership accounts, subject to
certain Partnership trading policies and to certain rights reserved by MLIP.
Profit shares, generally ranging from 15% to 25% of any New Trading
Profit, as defined, recognized by each Advisor, considered individually
irrespective of the overall performance of the Partnership, as of the end of
each calendar quarter are paid by the Partnership to each Advisor. Profit shares
are also paid out in respect of Units redeemed as of the end of interim months
during a calendar quarter to the extent of the applicable percentage of any New
Trading Profit attributable to such Units.
The methods by which profit shares and the Incentive Override are
calculated may result in certain disproportionate allocations of such fees and
possible equity dilution among Partners purchasing Units at different times.
__________________________
Past performance is not necessarily indicative of future results
-67-
<PAGE>
ML GLOBAL HORIZONS L.P.
(A DELAWARE LIMITED PARTNERSHIP)
------------------------------
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIODS JANUARY 1, 1996 TO SEPTEMBER 30, 1996 (UNAUDITED),
JANUARY 1, 1995 TO SEPTEMBER 30, 1995 (UNAUDITED),
THE YEAR ENDED DECEMBER 31, 1995 AND THE PERIOD FROM
JANUARY 4, 1994 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1994
(CONTINUED)
________________________________________________________________________________
(4) NET ASSET VALUE PER UNIT
For financial reporting purposes, the Partnership deducted the total
organization and initial offering costs payable to MLIP at inception, for
purposes of determining Net Asset Value. For all other purposes (including
computing Net Asset Value for redemptions), the Partnership deducted the
organization and initial offering costs reimbursement only as actually paid.
Consequently, as of September 30, 1996, December 31, 1995 and 1994, the Net
Asset Value per Unit was $128.97, $124.35 and $103.73 for financial reporting
purposes and $128.97, $124.35 and $104.08 for all other purposes,
respectively.
(5) WEIGHTED AVERAGE UNITS
The weighted average number of Units outstanding was computed for
purposes of disclosing net income per weighted average Unit. The weighted
average number of Units outstanding at September 30, 1996, December 31, 1995 and
1994 equals the Units outstanding as of such date, adjusted proportionately for
Units sold and redeemed based on the respective length of time each was
outstanding during the preceding period.
(6) FAIR VALUE AND OFF-BALANCE SHEET RISK
The Partnership trades futures, options and forward contracts in
interest rates, stock indices, commodities, currencies, energy and metals. The
Partnership's revenues by reporting category were as follows:
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995
Total Trading Results Total Trading Results
--------------------- ---------------------
<S> <C> <C>
Interest Rates $ 3,130,911 $11,850,333
Stock Indices (2,543,650) 1,309,308
Commodities (269,789) (2,344,653)
Currencies 1,181,300 9,620,327
Energy 3,850,373 1,362,895
Metals 29,575 (4,043,213)
----------- -----------
Total $ 5,378,720 $17,754,997
=========== ===========
-----------------------------------------------------------------
</TABLE>
MARKET RISK
- -----------
Derivative instruments involve varying degrees of off-balance sheet
market risk, and changes in the level or volatility of interest rates, foreign
currency exchange rates or the market values of the financial instruments or
commodities underlying such derivative instruments frequently result in changes
in the Partnership's unrealized gain or loss on such derivative instruments as
reflected in the Statements of Financial Condition. The Partnership's exposure
to market risk is influenced by a number of factors, including the relationships
among the derivative instruments held by the Partnership as well as the
volatility and liquidity of the markets in which the derivative instruments are
traded.
__________________________
Past performance is not necessarily indicative of future results.
-68-
<PAGE>
ML GLOBAL HORIZONS L.P.
(A DELAWARE LIMITED PARTNERSHIP)
------------------------------
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIODS JANUARY 1, 1996 TO SEPTEMBER 30, 1996 (UNAUDITED),
JANUARY 1, 1995 TO SEPTEMBER 30, 1995 (UNAUDITED),
THE YEAR ENDED DECEMBER 31, 1995 AND THE PERIOD FROM
JANUARY 4, 1994 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1994
(CONTINUED)
________________________________________________________________________________
The General Partner has procedures in place intended to control market
risk, although there can be no assurance that they will, in fact, succeed in
doing so. These procedures focus primarily on monitoring the trading of the
Advisors selected from time to time for the Partnership, calculating the Net
Asset Value of the Advisors' respective Partnership accounts as of the close of
business on each day and reviewing outstanding positions for over-concentration
both on an Advisor-by-Advisor and on an overall Partnership basis. While the
General Partner does not itself intervene in the markets to hedge or diversify
the Partnership's market exposure, the General Partner may urge Advisors to
reallocate positions, or itself reallocate Partnership assets among Advisors
(although typically only as of the end of a month) in an attempt to avoid over-
concentrations. However, such interventions are unusual. Except in cases in
which it appears that an Advisor has begun to deviate from past practice or
trading policies or to be trading erratically, the General Partner's basic risk
control procedures consist simply of the ongoing process of Advisor monitoring
and selection, with the market risk controls being applied by the Advisors
themselves.
FAIR VALUE
- ----------
The derivative instruments used in the Partnership's trading
activities are marked to market daily with the resulting unrealized gains or
losses recorded in the Statements of Financial Condition and the related profit
or loss reflected in trading revenues in the Statements of Income. The
contract/notional values of open contracts as of September 30, 1996, December
31, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
September 30, 1996
----------------------------------------------
Commitment to Commitment to
Purchase (Futures, Sell (Futures,
Options & Forwards) Options & Forwards)
------------------- -------------------
<S> <C> <C>
Interest rates $550,406,366 $ 29,579,996
Stock indices 13,927,945 387,071
Commodities 29,586,590 15,740,206
Currencies 101,576,608 140,790,591
Energy 12,457,490 --
Metals 8,390,854 72,267,418
------------ ------------
Total $716,345,853 $258,765,282
============ ============
</TABLE>
<TABLE>
<CAPTION>
December 31, 1995 December 31, 1994
------------------------------------------- --------------------------------------------
Commitment to Commitment to Commitment to Commitment to
Purchase (Futures, Sell (Futures, Purchase (Futures, Sell (Futures,
Options & Forwards) Options & Forwards) Options & Forwards) Options & Forwards)
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Interest rates $366,794,659 $115,962,614 $136,897,304 $231,086,673
Stock indices 5,256,825 -- -- --
Commodities 43,376,228 13,773,026 18,682,900 4,490,146
Currencies 31,823,922 113,887,626 47,829,797 80,514,237
Energy 28,209,814 -- -- 1,650,990
Metals 7,101,823 23,355,741 17,480,867 52,431,693
------------ ------------ ------------ ------------
Total $482,563,271 $266,979,007 $220,890,868 $370,173,739
============ ============ ============ ============
</TABLE>
__________________________
Past performance is not necessarily indicative of future results.
-69-
<PAGE>
ML GLOBAL HORIZONS L.P.
(A DELAWARE LIMITED PARTNERSHIP)
------------------------------
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIODS JANUARY 1, 1996 TO SEPTEMBER 30, 1996 (UNAUDITED),
JANUARY 1, 1995 TO SEPTEMBER 30, 1995 (UNAUDITED),
THE YEAR ENDED DECEMBER 31, 1995 AND THE PERIOD FROM
JANUARY 4, 1994 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1994
(CONTINUED)
________________________________________________________________________________
Substantially all of the Partnership's derivative instruments
outstanding as of September 30, 1996 expire within one year.
The contract/notional value of the Partnership's open exchange-traded
and non-exchange-traded open derivative instrument positions as of September 30,
1996 and December 31, 1995 were as follows:
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995
-------------------------------------------------------------------------------------
Commitment to Commitment to Commitment to Commitment to
Purchase (Futures, Sell (Futures, Purchase (Futures, Sell (Futures,
Options &Forwards) Options &Forwards) Options & Forwards) Options & Forwards)
------------------- ------------------ ------------------- -------------------
<S> <C> <C> <C> <C>
Exchange-Traded $652,652,970 $188,031,906 $451,632,138 $210,729,655
Non-Exchange-
Traded 63,692,883 70,733,376 30,931,133 56,249,352
------------ ------------ ------------ ------------
Total $716,345,853 $258,765,282 $482,563,271 $266,979,007
============ ============ ============ ============
</TABLE>
__________________________
Past performance is not necessarily indicative of future results.
-70-
<PAGE>
ML GLOBAL HORIZONS L.P.
(A DELAWARE LIMITED PARTNERSHIP)
------------------------------
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIODS JANUARY 1, 1996 TO SEPTEMBER 30, 1996 (UNAUDITED),
JANUARY 1, 1995 TO SEPTEMBER 30, 1995 (UNAUDITED),
THE YEAR ENDED DECEMBER 31, 1995 AND THE PERIOD FROM
JANUARY 4, 1994 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1994
(CONTINUED)
________________________________________________________________________________
The average fair value of the Partnership's derivative instrument positions
which were open as of the end of each calendar month during the year ended
September 30, 1996 and December 31, 1995 was as follows:
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995
--------------------------------------------------------------------------------------
Commitment to Commitment to Commitment to Commitment to
Purchase (Futures, Sell (Futures, Purchase (Futures, Sell (Futures,
Options & Forwards) Options & Forwards) Options & Forwards) Options & Forwards)
------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Interest rates $349,253,611 $285,157,440 $392,684,358 $ 52,525,025
Stock indices 21,165,289 8,117,059 11,263,970 4,597,664
Commodities 37,644,825 13,686,858 23,210,531 11,584,575
Currencies 123,833,510 169,748,398 96,987,577 95,012,878
Energy 11,549,200 992,948 8,271,275 6,430,540
Metals 19,618,749 37,435,249 12,245,216 31,011,275
------------ ------------ ------------ ------------
Total $563,065,184 $515,137,952 $544,662,927 $201,161,957
============ ============ ============ ============
</TABLE>
A portion of the amounts indicated as off-balance sheet risk reflects offsetting
commitments to purchase and sell the same derivative instrument on the same date
in the future. These commitments are economically offsetting but are not, as a
technical matter, offset in the forward market until the settlement date.
CREDIT RISK
- -----------
The risks associated with exchange-traded contracts are typically
perceived to be less than those associated with over-the-counter (non-exchange-
traded) transactions, because exchanges typically (but not universally) provide
clearinghouse arrangements in which the collective credit (in some cases limited
in amount, in some cases not) of the members of the exchange is pledged to
support the financial integrity of the exchange. In over-the-counter
transactions, on the other hand, traders must rely solely on the credit of their
respective individual counterparties. Margins, which may be subject to loss in
the event of a default, are generally required in exchange trading, and
counterparties may also require margin in the over-the-counter markets.
The fair value amounts in the above tables represent the extent of the
Partnership's market exposure in the particular class of derivative instrument
listed, but not the credit risk associated with counterparty nonperformance. The
credit risk associated with these instruments from counterparty nonperformance
is the net unrealized gain, if any, included in the Statements of Financial
Condition. The Partnership also has credit risk because the sole counterparty or
broker with respect to most of the Partnership's assets is MLF.
__________________________
Past performance is not necessarily indicative of future results.
-71-
<PAGE>
ML GLOBAL HORIZONS L.P.
(A DELAWARE LIMITED PARTNERSHIP)
------------------------------
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIODS JANUARY 1, 1996 TO SEPTEMBER 30, 1996 (UNAUDITED),
JANUARY 1, 1995 TO SEPTEMBER 30, 1995 (UNAUDITED),
THE YEAR ENDED DECEMBER 31, 1995 AND THE PERIOD FROM
JANUARY 4, 1994 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1994
(CONTINUED)
________________________________________________________________________________
As of September 30, 1996, December 31, 1995 and 1994, $63,250,719,
$71,297,472 and $54,413,969 of the Partnership's assets, respectively, were held
in segregated accounts in MLF in accordance with Commodity Futures Trading
Commission regulations.
The gross unrealized gain and the net unrealized gain (loss) on the
Partnership's open derivative instrument positions as of September 30, 1996 and
December 31, 1995 were as follows:
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995
-------------------------------------------------
Gross Net Gross Net
Unrealized Unrealized Unrealized Unrealized
Gain Gain (Loss) Gain Gain (Loss)
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Exchange-Traded $8,032,178 $6,064,776 $7,029,085 $5,952,033
Non-Exchange- 991,995 334,016 338,067 (321,244)
Traded ---------- ---------- ---------- -----------
$9,024,173 $6,398,792 $7,367,152 $5,630,789
========== ========== ========== ===========
</TABLE>
The Partnership controls credit risk by dealing almost exclusively
with Merrill Lynch entities as brokers and counterparties.
The Partnership through its normal course of business enters into
various contracts with MLF acting as its commodity broker. Pursuant to the
brokerage arrangement with MLF, such trading which results in receivables from
and payables to MLF will be offset and reported as a net receivable or
payable.
-72-
<PAGE>
INDEPENDENT AUDITORS' REPORT
MERRILL LYNCH INVESTMENT PARTNERS INC.
We have audited the accompanying balance sheet of Merrill Lynch Investment
Partners Inc. (the "Company") (formerly, ML Futures Investment Partners Inc.) as
of December 29, 1995. This financial statement is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the balance sheet is free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the balance sheet. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall balance sheet presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, such balance sheet presents fairly, in all material respects,
the financial position of the Company as of December 29, 1995 in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
January 26, 1996
New York, New York
-73-
<PAGE>
MERRILL LYNCH INVESTMENT PARTNERS INC.
(FORMERLY, ML FUTURES INVESTMENT PARTNERS INC.)
BALANCE SHEETS
DECEMBER 29, 1995 AND SEPTEMBER 27, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 27, 1996
(UNAUDITED) DECEMBER 29, 1995
------------------ ------------------
<S> <C> <C>
ASSETS
Cash $ 622,262 $ 17,738
Investments in affiliated partnerships 10,102,462 8,397,789
Other investments 538,066 579,127
Due from parent and affiliate 81,289,579 69,476,980
Receivables from affiliated partnerships 4,112,791 3,525,337
Deferred charges 16,039,548 11,759,885
Advances and other receivables 10,977,972 7,742,943
Fixed assets-net of accumulated depreciation of $1,095,428 and
and $1,016,602 130,292 119,823
Other assets 110,000 130,000
------------ ------------
TOTAL ASSETS $123,362,972 $101,749,622
============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES:
Accounts payable and accrued expenses $ 590,038 $ 1,759,019
Due to affiliate 2,849,361 1,568,396
Current and deferred income taxes 11,359,167 7,162,014
------------- ------------
Total liabilities 14,798,566 10,489,429
------------- ------------
STOCKHOLDER'S EQUITY:
Preferred stock, par value $10.00 per share; 1,000 shares authorized
none outstanding -- --
Common stock, par value $10.00 per share; 1,000 shares authorized
100 shares outstanding 1,000 1,000
Additional paid-in capital 16,915,000 16,915,000
Retained earnings 91,648,406 74,344,193
------------ ------------
Total stockholder's equity 108,564,406 91,260,193
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $123,362,972 $101,749,622
============ ============
</TABLE>
See Notes to Balance Sheet.
PURCHASERS OF UNITS WILL
ACQUIRE NO INTEREST IN THIS COMPANY
-74-
<PAGE>
MERRILL LYNCH INVESTMENT PARTNERS INC.
(FORMERLY, ML FUTURES INVESTMENT PARTNERS INC.)
NOTES TO BALANCE SHEETS
DECEMBER 29, 1995 AND SEPTEMBER 27, 1996 (UNAUDITED)
________________________________________________________________________________
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION - Merrill Lynch Investment Partners Inc. (formerly, ML Futures
Investment Partners Inc.) (the "Company") is a wholly-owned subsidiary of
Merrill Lynch Group Inc., a wholly-owned subsidiary of Merrill Lynch & Co., Inc.
("ML&Co."). The Company is registered as a commodity pool operator and a
commodity trading advisor. The Company serves as the sole general partner of The
Futures Expansion Fund Limited Partnership, The Growth and Guarantee Fund L.P.,
ML Futures Investments II L.P. (formerly, The Futures Dimension Fund II L.P.),
ML Futures Investments L.P. (formerly The Tudor Prime Advisors Fund L.P.), John
W. Henry & Co./Millburn L.P., The S.E.C.T.O.R. Strategy Fund L.P., The SECTOR
Strategy FundSM II L.P., The JWH Global Asset Fund L.P., The SECTOR Strategy
FundSM IV L.P., The SECTOR Strategy FundSM V L.P., ML Global Horizons L.P., ML
Chesapeake L.P., The SECTOR Strategy FundSM VI L.P., RXR Defensive Equity
Alternative Account L.P. I (ceased trading on August 20, 1996), ML Principal
Protection L.P. (formerly ML Principal Protection Plus L.P.) and ML JWH
Strategic Allocation Fund L.P. (collectively, the "Affiliated Partnerships").
Additionally, the Company has sponsored or initiated the formation of various
offshore entities engaged in the speculative trading of futures and forward
contracts.
ESTIMATES - The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
INVESTMENTS IN AFFILIATED PARTNERSHIPS - The Company's investments in its
Affiliated Partnerships are accounted for under the equity method of accounting.
DEFERRED CHARGES - Deferred charges represent compensation to ML&Co. affiliates
for the sale of fund units to their customers. Such costs are amortized over 6,
12, 24, 36 or 48-month periods.
2. RELATED PARTIES
Certain of the Company's officers and directors are also officers of other
subsidiaries of ML&Co. An affiliate bears all of the Company's facilities and
employee costs, for which it is reimbursed by the Company. Another affiliate,
Merrill Lynch Futures Inc., executes and clears the Affiliated Partnerships'
trades, as well as those of various offshore funds sponsored or managed by the
Company, for which it receives a fee, generally based on the net assets of the
Affiliated Partnerships and offshore funds.
ML&Co. is holder of the Company's excess cash, which is available on demand to
meet current liabilities. ML&Co. credits the Company with interest, at a
floating rate approximating ML&Co.'s average borrowing rate, based on the
Company's average daily balances receivable. At December 29, 1995 and September
27, 1996, approximately $69,500,000 and $81,300,000, respectively, was subject
to this agreement.
At December 29, 1995 and September 27, 1996, the Company had receivables from
Affiliated Partnerships and offshore funds for certain administrative,
management and redemption fees, all of which are expected to be collected within
90 days. Additionally, the Company had receivables from certain Affiliated
Partnerships and offshore funds for organization and initial offering costs paid
on behalf of such funds which are being reimbursed to the Company over various
time periods (not exceeding three years).
PURCHASERS OF UNITS WILL
ACQUIRE NO INTEREST IN THIS COMPANY
-75-
<PAGE>
MERRILL LYNCH INVESTMENT PARTNERS INC.
(FORMERLY, ML FUTURES INVESTMENT PARTNERS INC.)
NOTES TO BALANCE SHEETS
DECEMBER 29, 1995 AND SEPTEMBER 27, 1996 (UNAUDITED)
(CONTINUED)
________________________________________________________________________________
During 1995 and the first nine months of 1996, the Company did not declare or
pay a dividend.
3. INVESTMENTS IN AFFILIATED PARTNERSHIPS
Under the terms of the limited partnership agreements of the Affiliated
Partnerships, the Company is required to maintain an investment in each
Affiliated Partnership of at least one percent of the total contributions to
such partnership.
At September 27, 1996 and December 29, 1995, the Company's investments in its
Affiliated Partnerships were as follows:
<TABLE>
<CAPTION>
September 27, 1996 December 29, 1995
<S> <C> <C>
ML Principal Protection L.P. (formerly ML Principal Protection Plus L.P.).. $ 2,909,601 $2,324,996
ML Global Horizons L.P..................................................... 1,144,158 1,068,112
The SECTOR Strategy Fund(SM) II L.P........................................ 766,218 770,619
John W. Henry & Company/Millburn L.P....................................... 687,073 728,350
The SECTOR Strategy Fund(SM) VI L.P........................................ 707,556 725,174
RXR Defensive Equity Alternative Account L.P. I............................ -- 546,428
The JWH Global Asset Fund L.P.............................................. 516,694 492,278
The S.E.C.T.O.R. Strategy Fund(SM) L.P..................................... 422,756 441,992
ML Futures Investments L.P................................................. 339,813 356,788
The SECTOR Strategy Fund(SM) V L.P......................................... 323,602 339,622
ML Futures Investments II L.P.............................................. 191,465 213,181
The Growth and Guarantee Fund L.P.......................................... 180,874 155,787
The Futures Expansion Fund Limited Partnership............................. 119,250 121,808
The SECTOR Strategy Fund(SM) IV L.P........................................ 99,731 111,654
ML JWH Strategic Allocation Fund L.P....................................... 1,617,236 1,000
ML Chesapeake L.P.......................................................... 76,435 --
----------- ----------
Total...................................................................... $10,102,462 $8,397,789
=========== ==========
</TABLE>
PURCHASERS OF UNITS WILL
ACQUIRE NO INTEREST IN THIS COMPANY
-76-
<PAGE>
MERRILL LYNCH INVESTMENT PARTNERS INC.
(FORMERLY, ML FUTURES INVESTMENT PARTNERS INC.)
NOTES TO BALANCE SHEETS
DECEMBER 29, 1995 AND SEPTEMBER 27, 1996 (UNAUDITED)
(CONTINUED)
________________________________________________________________________________
The following represents condensed combined financial information of the
Affiliated Partnerships as of September 27, 1996 and December 29, 1995 (in
thousands):
<TABLE>
<CAPTION>
September 30, 1996 December 29, 1995
<S> <C> <C>
Assets.................................. $552,160 $528,180
======== ========
Liabilities............................. 21,145 15,836
Partners' capital....................... 531,015 512,344
-------- --------
Total.............................. $552,160 $528,180
======== ========
</TABLE>
The Company's Affiliated Partnerships trade various futures, options and forward
contracts. Risk to such partnerships arises from the possible adverse changes in
the market value of such contracts and the potential inability of counterparties
to perform under the terms of the contracts. The risk to the Company is
represented by the portion of its investments in Affiliated Partnerships derived
from the unrealized gains contained in such partnerships' net asset values.
4. INCOME TAXES
The results of operations of the Company are included in the consolidated
Federal and combined state and local income tax return of ML&Co. It is the
policy of ML&Co. to allocate current and deferred taxes associated with such
operating results to its respective subsidiaries in a manner which approximates
the separate Company method. ML&Co. and its affiliates use the asset and
liability method in providing income tax on all transactions that have been
recognized in the financial statements.
The Company provides for deferred income taxes resulting from temporary
differences which arise from recording deferred charges in different years for
income tax reporting purposes than for financial reporting purposes. At
September 27, 1996 and December 29, 1995, the Company had no deferred tax
assets. Deferred tax liabilities consisted of the following:
<TABLE>
<CAPTION>
September 27,1996 December 29, 1995
<S> <C> <C>
State and local $1,604,096 $1,176,130
Federal 5,052,565 3,704,471
---------- ----------
$6,656,661 $4,880,601
========== ==========
</TABLE>
As part of the consolidated group, the Company transfers to ML&Co. its current
Federal, state and local tax liabilities. During 1995 and the first nine months
of 1996, the Company transferred $10,707,045 and $7,388,919, respectively, in
current taxes payable to ML&Co. At September 27, 1996 and December 29, 1995, the
Company had a current tax payable with ML&Co. of $4,702,506 and $2,281,413,
respectively.
5. NET WORTH AGREEMENTS
PURCHASERS OF UNITS WILL
ACQUIRE NO INTEREST IN THIS COMPANY
-77-
<PAGE>
MERRILL LYNCH INVESTMENT PARTNERS INC.
(FORMERLY, ML FUTURES INVESTMENT PARTNERS INC.)
NOTES TO BALANCE SHEETS
DECEMBER 29, 1995 AND SEPTEMBER 27, 1996 (UNAUDITED)
(CONTINUED)
________________________________________________________________________________
Pursuant to the limited partnership agreements of the Affiliated Partnerships,
the Company is required to maintain a "substantial net worth," as defined. The
Company's net worth, as defined, approximated $94,376,053 and $79,337,067 at
September 27, 1996 and December 29, 1995, respectively, which, in the opinion of
the Company's counsel, met the definition of "substantial net worth."
6. COMMITMENTS
The Company is obligated to pay to affiliates, from its own funds and without
reimbursement by its Affiliated Partnerships, ongoing fees for units in such
partnerships outstanding as of the end of various periods.
PURCHASERS OF UNITS WILL
ACQUIRE NO INTEREST IN THIS COMPANY
-78-
<PAGE>
MERRILL LYNCH INVESTMENT PARTNERS INC.
(FORMERLY, ML FUTURES INVESTMENT PARTNERS INC.)
NOTES TO BALANCE SHEETS
DECEMBER 29, 1995 AND SEPTEMBER 27, 1996 (UNAUDITED)
(CONTINUED)
________________________________________________________________________________
THE "CORE" ADVISORS
____________
AS OF OCTOBER 1, 1996, APPROXIMATELY 91% OF THE FUND'S TRADING ASSETS
WERE ALLOCATED BETWEEN THE THREE CURRENT "CORE" TRADING ADVISORS. BRIEF
DESCRIPTIONS AND PERFORMANCE SUMMARIES FOR THESE ADVISORS ARE INCLUDED HEREIN.
HOWEVER, ADVISORS' TRADING METHODS ARE CONFIDENTIAL AND PROPRIETARY AND PAST
PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. THE SIGNIFICANCE OF
THE FOLLOWING DESCRIPTIONS AND PERFORMANCE RECORDS TO A DECISION WHETHER TO
INVEST IN THE FUND MUST BE CONSIDERED IN LIGHT OF THESE MATERIAL
QUALIFICATIONS.
FUTURES TRADING METHODS IN GENERAL
Systematic and Discretionary Trading Approaches
Managed futures strategies are generally classified as either
systematic or discretionary (or both).
A systematic trader will generally rely to some degree on judgmental
decisions concerning, for example, what markets to follow and commodities to
trade, but his primary reliance is on trading programs or models which generate
trading signals. The systems utilized to generate trading signals are changed
from time to time (although generally infrequently), but the trading
instructions generated by the systems being used are followed without
significant additional analysis or interpretation. Discretionary traders, on the
other hand, while they may utilize market charts, computer programs and
compilations of quantifiable fundamental information to assist them in making
trading decisions, make such decisions on the basis of their own judgment and
"trading instinct," not on the basis of trading signals generated by any program
or model.
Each approach involves certain inherent risks. For example, systematic
traders may incur substantial losses when fundamental or unexpected forces
dominate the markets, while discretionary traders may overlook price trends
which would have been clearly signaled by a trading system. Systematic traders
tend to rely more on computerized programs than do discretionary traders, and
some consider the discipline of a systematic trading process to be advantageous.
However, any trader, systematic or discretionary, may suffer substantial losses
by misjudging the market analysis.
Technical and Fundamental Analysis
Managed futures trading analysts are generally classified as either
technical or fundamental (or both).
Technical analysis is based on the theory that the commodities markets
themselves provide a means of anticipating future prices. Technical analysis
operates on the theory that market prices and momentum at any given point in
time reflect all known factors affecting the supply and demand for a particular
commodity. Consequently, technical analysis focuses not on evaluating those
factors directly but on an analysis of price histories, movements and patterns,
theorizing that a detailed analysis of market date is the most effective means
of attempting to predict the future course of prices.
Fundamental analysis, in contrast, focuses on the study of factors
external to the trading markets that affect the supply and demand of a
particular commodity. Such factors might include weather, the economy of a
particular country, government policies, domestic and foreign political and
economic events, and changing trade prospects. Fundamental analysis theorizes
that by monitoring relevant supply and demand factors for a particular
commodity, a state of current or potential disequilibrium of market conditions
may be identified that has yet to be reflected in the price level of that
commodity. Fundamental analysis assumes that markets are imperfect, that
information is not instantaneously assimilated or disseminated and that
econometric models can be constructed that generate equilibrium prices that
reflect "true value" and may indicate market mispricing.
Trend-Following
"Trend-following" advisors gear their trading approaches towards
positioning themselves to take advantage of major price movements. "Trend-
following" traders are to be contrasted with traders who seek to achieve overall
profitability by making numerous small profits on short-term trades, or through
arbitrage techniques. "Trend-following" traders assume that most of their trades
will be unprofitable. Their objective is to make a few large profits, more than
offsetting their more numerous
-79-
<PAGE>
but (hopefully) smaller losses, from capitalizing on major trends. During
periods when no major price trends develop in a market, a "trend-following"
trading advisor is likely to incur substantial losses.
Risk Control Techniques
Trading advisors often adopt fairly rigid "risk management" or "money
management" principles. Such principles typically restrict the size of positions
which will be taken as well as establishing "stop-loss" points at which losing
positions must be liquidated. No risk control technique is "fail safe," and none
can, in fact, assure that major drawdowns will be avoided. Not only do estimates
of market volatility themselves require judgmental input, but also market
illiquidity can make it impossible for an account to liquidate a position
against which the market is moving strongly, whatever risk management principles
are utilized. The Advisors' risk management principles should be seen more as a
discipline applied to their trading in highly speculative markets than as an
effective protection against loss.
THE "CORE" TRADING ADVISORS
The following descriptions of the current "core" Advisors, their
respective trading systems, methods and strategies and their respective
principals are general and are not intended to be exhaustive. Trading methods
are proprietary and confidential. No attempt has been or could be made to
provide a precise description of any Advisor's method. MLIP believes that the
following descriptions may be of interest to prospective investors. However,
investors must be aware of the inherent limitations of such descriptions.
FUTURES TRADING IS SPECULATIVE AND INVOLVES A HIGH DEGREE
OF RISK. THERE CAN BE NO ASSURANCE THAT ANY ADVISOR
WILL TRADE PROFITABLY OR AVOID SUBSTANTIAL LOSSES.
__________________________
-80-
<PAGE>
ARA PORTFOLIO MANAGEMENT COMPANY, L.L.C.
OCTOBER 1, 1996 ALLOCATION OF TRADED ASSETS: 15%
BACKGROUND
ARA Portfolio Management Company was incorporated in Delaware in 1992.
On October 16, 1995, ARA Portfolio Management Company was merged into ARA
Portfolio Management Company, L.L.C., a limited liability company organized in
Delaware on September 25, 1995. References herein to "ARA" refer to the Delaware
corporation prior to October 16, 1995 and the Delaware limited liability company
on and after October 16, 1995. ARA has been registered with the Commodity
Futures Trading Commission (the "CFTC") as a commodity trading advisor ("CTA")
and commodity pool operator ("CPO") since May 12, 1992 and is a member of the
National Futures Association (the "NFA") in such capacities.
A.R. Arulpragasam, age 39, is the President and Chief Executive
Officer of ARA. From August 1987 to March 1992, when ARA was formed, Mr.
Arulpragasam, through his own financial systems consulting firm, ARA Consulting,
acted as an independent consultant in the areas of financial systems modeling,
options analysis and operations research. From 1979 to 1987, Mr. Arulpragasam
was employed by Fairfield Financial Corp. ("Fairfield"), a company formed to
capitalize on the emerging area of yield curve arbitrage. At Fairfield he was in
charge of product research and development and was an assistant trader. Mr.
Arulpragasam received his B.S. in Mathematics from the Massachusetts Institute
of Technology in 1977 and pursued graduate studies in Operations Research at
Stanford University.
William L. Brown, age 50, has been a principal of ARA since May 1992;
however, he is not involved in the management, decision-making or daily
operations of ARA. Mr. Brown developed the price-trend identification algorithm
(Phase I Model) which forms a key element in ARA's investment products. Mr.
Brown has been an officer and director since 1975 of Ross Hall Corp., a private
investment company. Mr. Brown was a principal of George Booth & Associates, Inc.
("Booth"), a CTA and CPO, from July 1979 to December 1991, where he was a
passive shareholder with no role in the operation of Booth.
TRADING STRATEGY
ARA employs a fully-automated, strictly technical, trend-following
trading system (the "ARA Portfolio System") which maintains a diversified
portfolio of commodities at all times. ARA maintains a position (although not
necessarily of the same magnitude) in each commodity in its portfolio at all
times.
The ARA Portfolio System utilizes a trend identification algorithm to
identify price trends and their relative strengths for each commodity traded.
The algorithm is purely technical in nature, requiring only historical price
data. The important difference between this system and many other trend-
following programs is the mathematical determination of the size of the
component portfolio positions based on the volatility characteristics of the
individual commodities and the overall strength of the price trend.
The ARA Portfolio System currently uses a portfolio of eighteen
commodities which, because of the co-variance of their price movements, ARA
believes to be an advantageous combination of markets. ARA currently trades
exclusively in the following eighteen domestic exchange-traded markets: British
pounds; German marks; Japanese yen; Swiss francs; Eurodollars; U.S. Treasury
bonds; gold; copper; heating oil; crude oil; corn; soybeans; soybean oil; live
cattle; live hogs; coffee; sugar; and cotton.
ARA administers two different trading programs: the ARA Alpha Program
and the ARA Gamma Program, both of which employ the trading method described
above. The ARA Alpha Program is designed to have an average volatility
approximately equal to that of an unleveraged S&P 500 stock index portfolio. The
ARA Gamma Program, which is traded for the Fund, is designed to have an average
volatility approximately equal to two times that of an unleveraged S&P 500 stock
index portfolio. There can be no assurance as to the actual performance
volatility which will be experienced by the ARA Gamma Program used for the Fund.
The greater the volatility of a program, the greater the risk of loss.
-81-
<PAGE>
PAST PERFORMANCE
The following information describes the composite performance of all
customer accounts managed by ARA. ARA trades its Gamma Program on behalf of the
Fund. As of August 31, 1996, ARA was managing approximately $138.3 million
(excluding "notional" funds) of customer funds in the futures and forward
markets. All performance information is current as of August 31, 1996.
As both ARA Trading Programs have been trading for less than five
years, performance information is set forth from the inception of trading.
As a general matter, the fees paid by the Fund to ARA have not
differed materially from, and in some cases are lower than, those paid by ARA's
other clients.
The "Notes to the Performance Summaries" are set forth on pages 105
through 107.
The following information presented has not been audited. However, ARA
believes that such information is accurate and fairly presented.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
FURTHERMORE, THE RATES OF RETURN EARNED WHEN AN ADVISOR IS MANAGING A LIMITED
AMOUNT OF EQUITY MAY HAVE LITTLE RELATIONSHIP TO THE RATES OF RETURN WHICH SUCH
ADVISOR MAY BE ABLE TO ACHIEVE MANAGING LARGER AMOUNTS OF EQUITY.
THE FOLLOWING FIGURES HAVE IN NO RESPECT BEEN ADJUSTED TO REFLECT THE
CHARGES TO THE FUND. CERTAIN OF THE ACCOUNTS INCLUDED IN THE FOLLOWING
PERFORMANCE SUMMARIES PAID FEES MATERIALLY DIFFERENT FROM THOSE CHARGED TO THE
FUND.
COMMODITY INTEREST TRADING IS SPECULATIVE AND INVOLVES A HIGH DEGREE
OF RISK. THERE CAN BE NO ASSURANCE THAT THE TRADING ADVISOR WILL TRADE
PROFITABLY OR AVOID INCURRING SUBSTANTIAL LOSSES.
INVESTORS SHOULD NOTE THAT INTEREST INCOME MAY CONSTITUTE A
SIGNIFICANT PORTION OF A COMMODITY TRADING ADVISOR'S TOTAL INCOME AND, IN
CERTAIN INSTANCES, MAY GENERATE PROFITS WHERE THERE HAVE BEEN REALIZED OR
UNREALIZED LOSSES FROM COMMODITIES TRADING.
PAST PERFORMANCE IS NOT NECESSARILY
INDICATIVE OF FUTURE RESULTS.
See "Risk Factors -- (2) Past Performance Not Necessarily Indicative of Future
Results."
-82-
<PAGE>
ARA PORTFOLIO MANAGEMENT COMPANY, L.L.C.
GAMMA PROGRAM
JUNE 1992 - AUGUST 1996
The following performance summary and chart reflect the composite
performance results from June 1992 through August 1996 of ARA's Gamma Program.
ARA trades this program on behalf of the Fund. The program has been utilized in
trading for 45 accounts since its inception. As of August 31, 1996, 20 accounts
had been closed and 25 accounts remained open. Of the closed accounts, 14 were
profitable and 6 were unprofitable at their closing. Of the 25 open accounts, 21
were profitable and 4 unprofitable as of August 31, 1996.
Name of CTA: ARA Portfolio Management Company, L.L.C.
Name of program: Gamma Program
Inception of client account trading by CTA: June 1992
Inception of client account trading in program: June 1992
Number of open accounts: 25
Aggregate assets (excluding "notional" equity) overall: $138.3 million
Aggregate assets (excluding "notional" equity) in program: $ 98.7
million
Aggregate assets (including "notional" equity) overall: $138.3 million
Aggregate assets (including "notional" equity) in program: $98.7
million
Largest monthly drawdown: (13.30)% (2/96)
Largest peak-to-valley drawdown: (22.73)% (4/95-2/96)
<TABLE>
<CAPTION>
=============================================================================
Monthly Rates of Return 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------
January (5.48) 0.07% 1.24% 0.05%
- -----------------------------------------------------------------------------
February (13.30) 6.08 (2.16) 9.05
- -----------------------------------------------------------------------------
March 5.47 5.09 3.41 0.51
- -----------------------------------------------------------------------------
April 14.44 (5.22) 2.83 8.56
- -----------------------------------------------------------------------------
May (9.57) (4.42) 13.54 (1.41)
- -----------------------------------------------------------------------------
June 5.94 (0.30) 11.90 3.58 11.69%
- -----------------------------------------------------------------------------
July 0.87 (6.75) (1.92) 3.18 4.51
- -----------------------------------------------------------------------------
August 0.67 (0.37) (8.34) (5.63) 3.85
- -----------------------------------------------------------------------------
September (4.19) (3.05) (4.43) (1.84)
- -----------------------------------------------------------------------------
October 3.51 1.33 0.30 (2.05)
- -----------------------------------------------------------------------------
November 2.69 14.48 6.71 8.37
- -----------------------------------------------------------------------------
December 10.32 2.00 6.98 0.76
- -----------------------------------------------------------------------------
Compound Annual (3.8)% 27.3%
Rate of Return (8 months) 5.2% 38.0% 29.5% (7 months)
=============================================================================
</TABLE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
SEE THE "NOTES TO THE PERFORMANCE SUMMARIES" ON PAGES 105 THROUGH 107.
-83-
<PAGE>
OTHER ARA PORTFOLIO MANAGEMENT
COMPANY, L.L.C. PROGRAM
-------------------------
NAME OF CTA: ARA Portfolio
Management Company,
L.L.C.
-------------------------
NAME OF PROGRAM: Alpha Trading Program
-------------------------
INCEPTION OF CLIENT ACCOUNT TRADING BY CTA: June 1992
-------------------------
INCEPTION OF CLIENT ACCOUNT TRADING IN PROGRAM: February 1993
-------------------------
NUMBER OF OPEN ACCOUNTS: 6
-------------------------
AGGREGATE ASSETS (EXCLUDING "NOTIONAL" EQUITY) OVERALL: $138.3 million
-------------------------
AGGREGATE ASSETS (EXCLUDING "NOTIONAL" EQUITY) IN $39.6 million
PROGRAM:
-------------------------
AGGREGATE ASSETS (INCLUDING "NOTIONAL" EQUITY) OVERALL: $138.3 million
-------------------------
AGGREGATE ASSETS (INCLUDING "NOTIONAL" EQUITY) IN $39.6 million
PROGRAM:
-------------------------
LARGEST MONTHLY DRAWDOWN: (6.7)% (2/96)
-------------------------
LARGEST PEAK-TO-VALLEY DRAWDOWN: (9.62)% (4/95-2/96)
-------------------------
1996 COMPOUND RATE OF RETURN: 1.2% (8 months)
-------------------------
1995 COMPOUND RATE OF RETURN: 7.8%
-------------------------
1994 COMPOUND RATE OF RETURN: 20.7%
-------------------------
1993 COMPOUND RATE OF RETURN: 12.1%
(11 months)
-------------------------
1992 COMPOUND RATE OF RETURN: N/A
-------------------------
1991 COMPOUND RATE OF RETURN: N/A
-------------------------
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
THE FUND'S ACCOUNT IS NOT TRADED PURSUANT TO FOREGOING PROGRAM.
__________________
SEE THE "NOTES TO THE PERFORMANCE SUMMARIES" ON PAGES 105 THROUGH 107.
-84-
<PAGE>
CHESAPEAKE CAPITAL CORPORATION
OCTOBER 1, 1996 ALLOCATION OF TRADED ASSETS: 38%
BACKGROUND
Chesapeake was incorporated under the laws of the Commonwealth of
Virginia in February 1988 for the purpose of offering investment advisory and
portfolio management services to both retail and institutional investors in
trading in the futures and forward markets. On August 19, 1991, Chesapeake was
merged into Chesapeake Capital Corporation, an Illinois corporation formed on
August 13, 1991. References herein to "Chesapeake" refer to the Virginia
corporation prior to August 19, 1991 and to the Illinois corporation on and
after August 19, 1991. Chesapeake is registered as a CTA and a CPO with the
CFTC, and is also a member in good standing of the NFA. Chesapeake has been
registered with the CFTC as a CTA and a CPO since June 20, 1988 and May 8, 1991,
respectively, and a member of the NFA since June 20, 1988.
Mr. R. Jerry Parker, Jr. is the Chairman, Chief Executive Officer,
Director, sole shareholder and a principal of Chesapeake. Mr. Parker received
his B.S. in Commerce, with an emphasis in Accounting, from the University of
Virginia in January 1980. Mr. Parker worked in the accounting field for four
years after graduating from college and became a licensed Certified Public
Accountant in Virginia in 1982. From January 1983 until November 1983, Mr.
Parker was a CPA at Wilkinson & Lester, a certified public accounting firm based
in Richmond, Virginia. From November 1983 until January 1987, Mr. Parker was
employed as an exempt CTA by Richard J. Dennis, a principal and shareholder of
Richard J. Dennis & Company (a Chicago-based CTA and CPO registered with the
CFTC) in his "Turtle" training program. From January 1987 until February 1988,
Mr. Parker traded for Mr. Thomas Dennis as an exempt CTA. During these periods,
Mr. Parker had complete discretionary trading authority over a futures account
of $1 million to $1.5 million. In February 1988, Mr. Parker ceased trading for
Mr. Thomas Dennis and formed Chesapeake, where he serves as the Chairman, Chief
Executive Officer and Chief Trader.
Mr. John M. Hoade is President, Secretary and a principal of
Chesapeake. Mr. Hoade received a B.S. degree in Business Administration from
Lynchburg College in 1978. From 1976 through 1990, Mr. Hoade was employed by
Thurston Metals, Inc., located in Lynchburg, Virginia, in sales, marketing and
general management. Mr. Hoade joined Chesapeake in December 1990 to direct its
operations and marketing efforts.
TRADING STRATEGY
Chesapeake trades pursuant to its "Diversified Program" for the Fund.
The Diversified Program emphasizes diversification with a global portfolio of
futures, forward and cash markets which include, but are not limited to,
agricultural products, precious and industrial metals, currencies, financial
instruments, and stock, financial and economic indices. Chesapeake trades on
numerous U.S. and non-U.S. exchanges.
The investment portfolios currently offered by Chesapeake are the
"Diversified Program," the "Diversified 2XL Program" and the "Financials and
Metals Program" (the "Trading Programs"). The Diversified Program is
Chesapeake's longest operating investment portfolio, with a performance record
beginning in February 1988. While all of the Trading Programs employ the same
general trading methodology, as described below, they differ in their emphasis
on certain markets or market sectors and the exclusion of others. The following
overview is not intended as a detailed or exhaustive description of the trading
methodologies or strategies employed by Chesapeake, as the exact nature of these
methods and strategies is proprietary and confidential.
Relying primarily on technical analysis, Chesapeake believes that
future price movements in all markets may be more accurately anticipated by
analyzing historical price movements within a quantitative framework than by
attempting to predict or forecast changes in price through fundamental economic
analysis. The trading methodologies employed by Chesapeake are based on programs
analyzing a large number of interrelated mathematical and statistical formulas
and techniques which are quantitative, proprietary in nature and which have been
either learned or developed by Mr. Parker.
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In addition to such mathematical evaluations, Chesapeake employs a
technique of technical analysis generally known as "charting" in order to
attempt to determine optimal support and resistance levels and entry and exit
points in the various markets. In an effort to determine the overall technical
condition of the market and as a timing mechanism for trades, Chesapeake also
makes extensive use of internally-generated market information, which includes
but is not limited to price volatility, open interest, daily price action,
volume and market psychology or sentiment.
The profitability of the Chesapeake Trading Programs, traded pursuant
to technical analysis emphasizing mathematical and charting approaches, will
depend upon the occurrence in the future, as in the past, of major trends in
some markets. If there are no trends, the Trading Programs are likely to be
unprofitable. There have been trendless periods in the past which can be
expected to recur, and any factor which lessens the prospect of trends in the
future, such as increased governmental control, regulation, or participation as
a purchaser or seller in the futures markets (including joint governmental
control or regulation of, or participation in, international currency markets),
lessens the prospect that programs utilizing technical analysis, including the
Chesapeake Trading Programs, will be profitable in the future. In addition, the
future profitability of the Trading Programs would also be adversely affected by
factors which increase the number of signals leading to unprofitable trades. For
example, a significant increase in technically-oriented trading (trend-following
or otherwise) in a particular commodity might cause a change in the pattern of
price movements in a manner which might be unfavorable.
Trend-following trading systems, such as those employed by Chesapeake,
will seldom effect market entry or exit at the most favorable price in the
particular market trend. Rather, this type of trading system seeks to close out
losing positions quickly and to hold portions of profitable positions for as
long as the trading system determines that the particular market trend continues
to exist. There can be no assurance, however, that profitable positions can be
liquidated at the most favorable price in a particular trend. As a result, the
number of losing transactions may exceed substantially the number of profitable
transactions. However, if Chesapeake's approach is successful, these losses
should generally be relatively small and more than offset by gains on profitable
transactions.
The Trading Programs are oriented toward the preservation of original
equity. The commencement of trading or a drawdown from starting equity are
considered the situations of highest risk, and risk management techniques at
this point are emphasized over those which invite greater risk in the interest
of enhancing performance. These risk management techniques include
diversification. Also, the Trading Programs adhere to the requirements of a
money management system which determines and limits the equity committed to each
trade, each market, each commodity complex (in Trading Programs which trade in
more than one commodity complex) and each account.
Chesapeake believes that a long-term commitment to its Trading
Programs is necessary for profitable trading. Chesapeake attempts to take a
limited number of positions over the long term in an attempt to capture major
price movements while limiting downside risk on open positions.
Decisions concerning the liquidation of positions, the commodities to
be traded and the size of positions to be taken or maintained will require to
some degree the exercise of judgment by Chesapeake. The decision not to trade
futures interest contracts for a certain period, or not to trade certain futures
interest contracts due to lack of discernible price movements (trends) or lack
of liquidity, may result at times in clients (such as the Fund) missing
significant profit opportunities which might otherwise have been captured by
Chesapeake.
Futures contracts which are traded by Chesapeake may include, but are
not limited to, agricultural products, precious and industrial metals,
currencies, financial instruments, and stock, financial and economic indices.
Exchanges on which these transactions take place include, but are not limited
to, all exchanges in the United States, as well as non-U.S. exchanges (e.g., the
Belgian Futures and Options Exchange (BELFOX), the London International
Financial Futures and Options Exchange Ltd. (LIFFE), the International Petroleum
Exchange of London Ltd., the London Metal Exchange, the London Commodity
Exchange (LCE), the Italian Derivatives Market (IDEM), the Marche a Terme
International de France (MATIF), the Deutsche Terminborse, the Hong Kong Futures
Exchange Ltd., the Montreal Exchange (ME), the Tokyo Commodity Exchange, the
Tokyo International Financial Futures Exchange (TIFFE), the Tokyo Stock Exchange
(TSE), the Singapore International Monetary Exchange (SIMEX), the Sydney Futures
Exchange Ltd., and the Winnipeg Commodity Exchange). In addition, Chesapeake
continually monitors numerous markets, both U.S. and non-U.S., and will
generally initiate trades at such point that Chesapeake determines that a market
is sufficiently liquid and tradeable using the methods employed by Chesapeake.
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Chesapeake engages in transactions in physical commodities, including
EFPs.
Chesapeake generally uses between 15% and 30% of an account's assets
as original margin for trading in the Diversified Program, but at times this
percentage can be higher.
The trading strategy utilized by Chesapeake's Trading Programs,
including the Diversified Program, may be revised from time to time by
Chesapeake as a result of ongoing research and development which seeks to devise
new trading systems, as well as test methods currently employed. The trading
methods used by Chesapeake in the future may differ significantly from those
presently used, due to the changes which may result from this research.
Since the Trading Programs utilized by Chesapeake are proprietary and
confidential, the above discussion is general in nature and is not intended to
be exhaustive.
PAST PERFORMANCE
The following information describes the composite actual performance
of all customer accounts managed by Chesapeake. Chesapeake trades its
Diversified Program on behalf of the Fund. As of August 31, 1996, Chesapeake was
managing approximately $780 million (excluding "notional" funds) of customer
funds in the futures and forwards markets. Performance information of the
program traded on behalf of the Fund is current as of August 31, 1996.
Performance information is current as of July 31, 1996 for the Chesapeake
programs not traded for the Fund.
Performance information is set forth for the most recent five full
years for each Chesapeake Trading Program or, in the event that a Trading
Program has been trading for less than five years, performance information is
set forth from the inception of trading. Performance information prior to
January 1, 1991 has been excluded in accordance with CFTC regulations.
Chesapeake has adopted a method of computing rate of return and
performance disclosure, referred to as the "Fully-Funded Subset" method,
pursuant to an Advisory (the "Fully-Funded Subset Advisory") published in
February 1993 by the CFTC. To qualify for the use of the Fully-Funded Subset
method, the Fully-Funded Subset Advisory requires that certain computations be
made in order to arrive at the Fully-Funded Subset and that the accounts for
which performance is so reported meet two tests which are designed to provide
assurance that the Fully-Funded Subset and the resultant rates of return are
representative of the trading program. Chesapeake has performed these
computations for periods subsequent to January 1, 1992. However, for periods
prior to January 1, 1992, due to cost considerations, the Fully-Funded Subset
method has not been used. Instead, the rates of return reported are based on a
computation which uses the nominal account sizes of all of the accounts
included, calculated in accordance with the "Only Accounts Traded" ("OAT")
method, also permitted in certain circumstances by the CFTC. Chesapeake believes
that this method yields substantially the same rates of return as would the
Fully-Funded Subset method and that the rates of return in the performance
summaries are representative of the Trading Programs for the periods presented.
For the periods from January 1, 1992 through December 31, 1993, Chesapeake
compared the OAT method and the Fully-Funded Subset method and found that the
two methods yielded substantially the same rates of return. Consequently,
Chesapeake continued to use the OAT method until the end of 1993 (the Fully-
Funded Subset Advisory was released in February 1993). From January 1, 1994 on,
Chesapeake has been using the Fully-Funded Subset method.
In reviewing the following information, prospective investors should
understand that performance is "net" of all actual fees and charges and includes
interest income applicable to the accounts comprising each composite performance
summary. Such composite performance is not necessarily indicative of the
performance of any individual account. The fees and charges applicable to
individual accounts are not specifically described herein. However, set forth
below is a general description of the charges applicable to such accounts.
Brokerage commissions are accounted for monthly and include the total
amount of all brokerage commissions and other trading fees paid during the month
plus or minus the change in brokerage commissions and other trading fees accrued
on open positions from the preceding month. Brokerage commissions are calculated
on a round-turn or flat-rate basis. Round-turn commissions have ranged from
approximately $7 per round-turn trade to approximately $50 per round-turn trade.
Flat-rate commissions have ranged from approximately 2% of equity to
approximately 9% of equity. Interest income is earned on U.S. government
obligations and cash on deposit with futures commission merchants and is
recorded on the accrual basis. Management fees are accrued monthly and are
charged at rates ranging from 0% to 8% of
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equity. Incentive fees are accrued monthly and are charged at rates ranging from
12.5% to 30% of new trading profits. On certain accounts, incentive fees are
reduced by the management fees paid over an agreed upon period.
The "Notes to the Performance Summaries" are set forth on pages 105
through 107.
The information presented has not been audited. However, Chesapeake
believes that such information is accurate and fairly presented.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
FURTHERMORE, THE RATES OF RETURN ACHIEVED WHEN AN ADVISOR IS MANAGING A LIMITED
AMOUNT OF EQUITY MAY HAVE LITTLE RELATIONSHIP TO THE RATES OF RETURN WHICH SUCH
ADVISOR MAY BE ABLE TO ACHIEVE MANAGING LARGER AMOUNTS OF EQUITY.
THE FOLLOWING FIGURES HAVE IN NO RESPECT BEEN ADJUSTED TO REFLECT THE
CHARGES TO THE FUND. CERTAIN OF THE ACCOUNTS INCLUDED IN THE FOLLOWING
PERFORMANCE SUMMARIES PAID FEES MATERIALLY DIFFERENT FROM, AND IN SOME CASES
MATERIALLY LOWER THAN, THOSE CHARGED TO THE FUND.
COMMODITY INTEREST TRADING IS SPECULATIVE AND INVOLVES A HIGH DEGREE
OF RISK. THERE CAN BE NO ASSURANCE THAT THE TRADING ADVISOR WILL TRADE
PROFITABLY OR AVOID INCURRING SUBSTANTIAL LOSSES.
INVESTORS SHOULD NOTE THAT INTEREST INCOME MAY CONSTITUTE A
SIGNIFICANT PORTION OF A COMMODITY TRADING ADVISOR'S TOTAL INCOME AND, IN
CERTAIN INSTANCES, MAY GENERATE PROFITS WHERE THERE HAVE BEEN REALIZED OR
UNREALIZED LOSSES FROM COMMODITIES TRADING.
PAST PERFORMANCE IS NOT NECESSARILY
INDICATIVE OF FUTURE RESULTS.
See "Risk Factors -- (2) Past Performance Not Necessarily Indicative of Future
Results."
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CHESAPEAKE CAPITAL CORPORATION
DIVERSIFIED PROGRAM
JANUARY 1991 - AUGUST 1996
The following performance summary and chart reflect the composite
performance results from January 1991 through August 1996 of the Diversified
Program. Chesapeake trades this program on behalf of the Fund. The performance
of the program from February 1988 (inception) through December 1990, while
profitable, includes the program's two largest drawdowns, the larger of which
occurred during the period August 1989 through October 1989 and was (20.58)%.
The program has been utilized in trading for 177 accounts since January 1991. As
of August 31, 1996, 114 accounts had been closed and 63 accounts remained open.
Of the closed accounts, 98 were profitable and 16 were unprofitable at their
closing. Of the 63 open accounts, 62 were profitable and one was unprofitable as
of August 31, 1996.
Name of CTA: Chesapeake Capital Corporation
Name of program: Diversified Program
Inception of client account trading by CTA: February 1988
Inception of client account trading in program: February 1988
Number of open accounts: 63
Aggregate assets (excluding "notional" equity) overall: $780 million
Aggregate assets (excluding "notional" equity) in program: $735 million
Aggregate assets (including "notional" equity) overall: $918 million
Aggregate assets (including "notional" equity) in program: $861 million
Largest monthly drawdown: (10.98)% (1/92)
Largest peak-to-valley drawdown: (16.62)% (1/92-5/92)
<TABLE>
<CAPTION>
==============================================================================
Monthly Performance 1996 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------
January 1.69% (3.23)% (3.33)% 0.42% (10.98)% (1.29)%
- ------------------------------------------------------------------------------
February (4.26) (4.39) (4.88) 15.99 (2.86) 4.84
- ------------------------------------------------------------------------------
March 0.28 8.60 0.09 5.86 0.53 2.32
- ------------------------------------------------------------------------------
April 10.16 1.45 (0.60) 7.38 (0.44) (2.80)
- ------------------------------------------------------------------------------
May (3.04) 6.84 9.06 0.40 (3.66) 0.27
- ------------------------------------------------------------------------------
June 3.26 0.88 7.02 0.98 6.52 (1.25)
- ------------------------------------------------------------------------------
July (7.14) (3.09) (1.70) 9.49 12.96 (1.75)
- ------------------------------------------------------------------------------
August 0.32* (2.66) (2.98) 5.88 3.16 (3.32)
- ------------------------------------------------------------------------------
September 0.20 3.49 (2.63) (6.78) 4.39
- ------------------------------------------------------------------------------
October (1.11) 1.97 (0.06) 5.21 4.21
- ------------------------------------------------------------------------------
November 1.76 4.83 1.03 2.27 (4.68)
- ------------------------------------------------------------------------------
December 9.18 2.86 5.77 (1.93) 12.08
- ------------------------------------------------------------------------------
Compound Annual 0.37*% 14.09% 15.87% 61.82% 1.81% 12.51%
Rate of Return (8 months)
==============================================================================
</TABLE>
* Estimate
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
SEE THE "NOTES TO THE PERFORMANCE SUMMARIES" ON PAGES 105 THROUGH 107.
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<TABLE>
<CAPTION>
OTHER CHESAPEAKE CAPITAL CORPORATION PROGRAMS*
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
----------------------------------------------------------------------------------------------------
NAME OF CTA: Chesapeake Capital Chesapeake Capital Chesapeake Capital Chesapeake Capital
Corporation Corporation Corporation Corporation
----------------------------------------------------------------------------------------------------
NAME OF PROGRAM: Financials and Metals Diversified 2XL Program Pacific Rim Program Foreign Financials
Program Program
----------------------------------------------------------------------------------------------------
INCEPTION OF CLIENT ACCOUNT February 1988 February 1988 February 1988 February 1988
TRADING BY CTA:
----------------------------------------------------------------------------------------------------
INCEPTION OF CLIENT ACCOUNT March 1992 April 1994 June 1994 June 1992
TRADING IN PROGRAM: ceased trading 8/95 ceased trading 6/94
----------------------------------------------------------------------------------------------------
NUMBER OF OPEN ACCOUNTS: 6 4 0 0
----------------------------------------------------------------------------------------------------
AGGREGATE ASSETS (EXCLUDING $753 million $753 million $753 million $753 million
"NOTIONAL" EQUITY) OVERALL:
----------------------------------------------------------------------------------------------------
AGGREGATE ASSETS (EXCLUDING $27 million $18 million N/A N/A
"NOTIONAL" EQUITY) IN PROGRAM:
----------------------------------------------------------------------------------------------------
AGGREGATE ASSETS (INCLUDIN G $923 million $923 million $923 million $923 million
"NOTIONAL" EQUITY) OVERALL :
----------------------------------------------------------------------------------------------------
AGGREGATE ASSETS (INCLUDING $31 million $18 million N/A N/A
"NOTIONAL" EQUITY) IN PROGRAM:
----------------------------------------------------------------------------------------------------
LARGEST MONTHLY DRAWDOWN: (7.86)% (7/96) (16.40)% (7/96) (3.30)% (7/95) (5.77)% (9/92)
----------------------------------------------------------------------------------------------------
LARGEST PEAK-TO-VALLEY (10.36)% (1/94-2/94) (17.59)% (5/96-7/96) (3.30)% (7/95) (5.77)% (9/92)
DRAWDOWN:
----------------------------------------------------------------------------------------------------
1996 COMPOUND RATE OF RETURN: (4.93)% (7 months) (8.3)% (7 months) N/A N/A
----------------------------------------------------------------------------------------------------
1995 COMPOUND RATE OF RETURN: 12.61% 18.77% 37.04% (8 months) N/A
----------------------------------------------------------------------------------------------------
1994 COMPOUND RATE OF RETURN: 3.22% 26.88% (9 months) (2.76)% (7 months) (1.77)% (6 months)
----------------------------------------------------------------------------------------------------
1993 COMPOUND RATE OF RETURN: 68.53% N/A N/A 21.90%
----------------------------------------------------------------------------------------------------
1992 COMPOUND RATE OF RETURN: 24.19% (10 months) N/A N/A 21.42% (7 months)
----------------------------------------------------------------------------------------------------
1991 COMPOUND RATE OF RETURN: N/A N/A N/A N/A
----------------------------------------------------------------------------------------------------
</TABLE>
* The performance information set forth above is current as of July
31, 1996.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
THE FUND'S ACCOUNT IS NOT TRADED PURSUANT TO THE FOREGOING PROGRAMS.
________________
SEE THE "NOTES TO THE PERFORMANCE SUMMARIES" ON PAGES 105 TRHROUGH 107
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JOHN W. HENRY & COMPANY, INC.
OCTOBER 1, 1996 ALLOCATION OF TRADED ASSETS: 38%
BACKGROUND
John W. Henry & Company began managing assets in 1981 as a sole
proprietorship and was later incorporated in the state of California as John W.
Henry & Company, Inc., to conduct business as a commodity trading advisor. JWH
trades numerous contracts on a 24-hour basis in the United States, Europe and
Asia, and has grown to be one of the largest advisors in the managed futures
industry, managing approximately $1.5 billion (excluding "notional" funds) in
customer capital. The sole shareholder of JWH is the John W. Henry Trust dated
July 27, 1990. The trustee and sole beneficiary of the Trust is John W. Henry.
JWH's registration as a CTA became effective in February 1982 and its
registration as a CPO became effective in July 1989. JWH is a member of the NFA
in these capacities.
Mr. John W. Henry is Chairman of the JWH Board of Directors and is
trustee and sole beneficiary of The John W. Henry Trust dated July 27, 1990. Mr.
Henry is also a member of the Investment Policy Committee of JWH. He currently
concentrates his activities at JWH on portfolio management, business issues and
frequent dialogue with trading supervisors. Mr. Henry is the exclusive owner of
certain trading systems licensed to Elysian Licensing Corporation, a corporation
wholly-owned by Mr. Henry, and sublicensed by Elysian Licensing Corporation to
JWH and utilized by JWH in managing client accounts. Over the last fifteen
years, Mr. Henry has developed many innovative investment programs.
Mr. Henry has served on the Board of Directors of the National
Association of Futures Trading Advisors ("NAFTA"), the Managed Futures Trade
Association ("MFTA") and has served on the nominating committee of the NFA. Mr.
Henry currently serves on the Board of Directors of the Futures Industry
Association ("FIA") and is chairman of the FIA Task Force on Derivatives for
Investment. He also currently serves on a panel created by the Chicago
Mercantile Exchange and the Chicago Board of Trade to study cooperative efforts
related to electronic trading, common clearing and the issues regarding a
potential merger. In 1989, Mr. Henry established residency in Florida and since
that time has performed services from that location as well as at the principal
offices of JWH. Mr. Henry is a principal of Westport Capital Management
Corporation, Global Capital Management Limited, JWH Investments, Inc., JWH Risk
Management Inc., and JWH Asset Management, Inc., all of which are affiliates of
JWH. Since the beginning of 1987, Mr. Henry has and will continue to devote
considerable time to business activities unrelated to JWH and its affiliates.
Mr. Mark H. Mitchell is Vice Chairman and a member of the JWH Board of
Directors. He is also Vice Chairman and a director of JWH Risk Management, Inc.,
director of JWH Asset Management, Inc., and Vice President of JWH Investments,
Inc. Prior to his employment at JWH commencing in January 1994, Mr. Mitchell was
a partner of Chapman and Cutler, a Chicago law firm, where he had headed its
futures law practice since August 1983. From August 1980 to March 1991, he
served as General Counsel of NAFTA and, from March 1991 to December 1993, he
served as General Counsel of the Managed Futures Association ("MFA"). Mr.
Mitchell is currently a member of the CPO/CTA Advisory Committee and the Special
Committee for the Review of the Multi-Tiered Regulatory Approach to NFA Rules,
both of the NFA. In addition, he has served as a member of the Government
Relations Committee of MFA and the Executive Committee of the Law and Compliance
Division of FIA. In 1985, he received the Richard P. Donchian Award for
Outstanding Contributions to the Field of Commodity Money Management. He has
been an editor of Futures International Law Letter and its predecessor
publication, Commodities Law Letter. He received an A.B. with honors from
Dartmouth College and a J.D. from the University of California at Los Angeles,
where he was named to the Order of the Coif, the national legal honorary
society.
Mr. David R. Bailin is an Executive Vice President and a member of the
Operating Committee of JWH. He is also President of JWH Investments, Inc.; JWH
Risk Management, Inc.; JWH Asset Management, Inc.; President and director of
Westport Capital Management Corporation and President and Chairman of the Board
of Directors of Global Capital Management Limited. He is responsible for the
development, implementation and management of JWH's sales and marketing
infrastructure. Prior to joining JWH in December 1995, Mr. Bailin was Managing
Director-Development since April 1994 for Global Asset Management ("GAM"), a
Bermuda-based investment management firm with over $7 billion in managed assets.
He was responsible for overseeing the international distribution of GAM's funds
as well as for establishing new distribution relationships and channels. Prior
to his employment with GAM, Mr. Bailin headed the real estate asset management
division of Geometry Asset Management beginning in July 1992. Prior to that
time, beginning in
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1988, he was President of Warner Financial, an investment advisory business in
Boston, Massachusetts. Mr. Bailin received a B.A. from Amherst College and an
M.B.A. from Harvard Business School.
Mr. Peter F. Karpen is a Managing Director of JWH. Mr. Karpen
announced his resignation from JWH on March 18, 1996 but will continue in his
present capacity through approximately the end of October 1996. Mr. Karpen
joined JWH in June 1995 from CS First Boston where he had been Director of
Futures and Options since 1988 and Vice President since 1981. Mr. Karpen has
been a member of the board of FIA since 1984 and a member of its executive
committee since 1988. Mr. Karpen was chairman of FIA in 1994 and 1995. In
addition, he is public director of the New York Cotton Exchange and serves on
the CFTC's Financial Products Advisory Committee. He has been a Trustee of the
Futures Industry Institute, a member of the CFTC's Regulatory Coordination
Advisory Committee and a member of several commodities and securities exchanges
in the United States. He received his B.A. from Boston University and M.B.A.
from Boston College.
Mr. James E. Johnson, Jr., is chief financial officer and chief
administrative officer for JWH. He also serves as a member of JWH's Operating
Committee. Mr. Johnson is also a principal of Westport Capital Management
Corporation, JWH Investments, Inc., JWH Risk Management, Inc. and JWH Asset
Management, Inc. Mr. Johnson joined JWH in May of 1995 from Bankers Trust
Company where he had been managing director and chief financial officer for
their institutional asset management division since January 1983. His areas of
responsibility included finance, operations, and technology. Prior to joining
Bankers Trust, Mr. Johnson was a product manager at American Express Company
responsible for research and market strategies for the Gold Card. He received a
B.A. with honors from Columbia University and an M.B.A. in Finance and Marketing
from New York University.
Ms. Elizabeth A.M. Kenton is a Senior Vice President, the Director of
Compliance and a member of the Operating Committee of JWH. Since joining JWH in
March 1989, Ms. Kenton has held positions of increasing responsibility in
Research and Development, Administration and Regulatory Compliance. Ms. Kenton
is also a Senior Vice President of JWH Risk Management, Inc., the Vice President
of JWH Asset Management, Inc., a director of Westport Capital Management
Corporation, the Executive Vice President of JWH Investments, Inc., and a
director of Global Capital Management Limited. Prior to her employment at JWH,
Ms. Kenton was Associate Manager of Finance and Trading Operations at Krieger
Investments, a currency and commodity trading firm. From July 1987 to September
1988, Ms. Kenton worked for Bankers Trust Company as a Product Specialist for
foreign exchange and Treasury options trading. She received a B.S. in Finance
from Ithaca College.
Ms. Mary Beth Hardy is Senior Vice President and Director of Trading
Administration and a member of the Operating and Investment Policy Committees of
JWH. Since joining JWH in September 1990, Ms. Hardy has held positions of
increasing responsibility in Research and Development and Trading. Prior to her
employment at JWH, beginning in 1989 Ms. Hardy held the position of Associate
Editor at Waters Information Services, a publishing company, where she wrote
weekly articles covering technological advances in the securities and futures
markets. Prior to joining Waters in 1989, Ms. Hardy was at Shearson Lehman
Brothers, Inc. where she held the position of assistant director of the Managed
Futures Trading Department. Prior to that, Ms. Hardy was an institutional
salesperson at Shearson in a group specializing in financial futures and
options. Previously, Ms. Hardy was an institutional salesperson for Donaldson,
Lufkin and Jenrette with a group which also specialized in financial futures and
options. Ms. Hardy serves on the Board of Directors of the Managed Futures
Association and chairs its Trading and Markets Committee. She received a B.B.A.
in Finance from Pace University.
Mr. David M. Kozak is Counsel to the firm, Vice President and
Secretary of JWH. He is also secretary of JWH Risk Management, Inc., JWH Asset
Management, Inc. and Assistant Secretary of Westport Capital Management
Corporation. Prior to joining JWH in September 1995, Mr. Kozak was employed at
the law firm of Chapman and Cutler, where he was an associate from September
1983 and a partner from 1989. Mr. Kozak has concentrated in commodity futures
law since 1981, with emphasis in the area of commodity money management. During
the time he was employed at Chapman and Cutler, he served as outside counsel to
NAFTA and the MFA. Mr. Kozak is currently a member of the Government Relations
Committee of the MFA, the NFA Special Committee on CPO/CTA Disclosure Issues and
the Visiting Committee of The University of Chicago Library. He received a B.A.
from Lake Forest College, an M.A. from The University of Chicago, and a J.D.
from Loyola University of Chicago.
Mr. Kevin S. Koshi is a Senior Vice President, Chief Trader and a
member of the Investment Policy Committee of JWH. Mr. Koshi is responsible for
the supervision and administration of all aspects of order execution
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<PAGE>
strategies and the implementation of trading policies and procedures. Mr. Koshi
joined JWH in August 1988 as a professional in the Finance Department, and since
1990 has held positions of increasing responsibility in the Trading Department.
He received a B.S. in Finance from California State University at Long Beach.
Mr. Barry S. Fox is the Director of Research and is a member of the
Investment Policy Committee of JWH. Mr. Fox is responsible for the design and
testing of new programs. He also supports and maintains proprietary
systems/models used to generate JWH trades. Mr. Fox joined JWH in March 1991,
and since that time he has held positions of increasing responsibility in the
Research and Product Development Departments. Prior to his employment at JWH,
Mr. Fox provided sales and financial analysis support since October 1990 for
Spreadsheet Solutions, a financial software development company. Prior to
joining Spreadsheet Solutions, Mr. Fox operated a trading company where he
traded his own proprietary capital. Before that, he was employed with Bankers
Trust as a product specialist for foreign exchange and treasury options trading.
He received a B.S. in Business Administration from the University of Buffalo.
Ms. Glenda G. Twist is a Director of JWH and has held that position
since August 1993. Ms. Twist joined JWH in September 1991 with responsibilities
for corporate liaison, and she continues her duties in that area. Her
responsibilities include assistance in the day-to-day administration of the
Florida office, and review and compilation of financial information for JWH. Ms.
Twist was President of J.W. Henry Enterprises Corp., for which she performed
financial, consulting and administrative services from January 1991 to August
1991. From 1988 to December 1990, Ms. Twist was Executive Director of Cities in
Schools, a program in Arkansas designed to prevent students from leaving school
before completing their high school education. She received her B.S. in
Education from Arkansas State University.
Mr. John A. F. Ford is the director of marketing at JWH and is
responsible for the development and implementation of strategic marketing and
communications programs. He joined JWH in May 1996 from J.P. Morgan where he had
been vice president and head of corporate communications for the firm's European
operations from February 1994 to October 1995. He was previously in a similar
position with J.P. Morgan at the Euroclear Operations Centre in Brussels from
January 1992 to February 1994. From October 1995 to May 1996 he undertook a
number of consultancy projects while relocating to the United States. Prior to
joining J.P. Morgan, Mr. Ford was managing director of the European headquarters
of Gavin Anderson & Co. (UK), an international corporate and investor relations
consultancy, from February 1987 to December 1991. Mr. Ford has also been
involved in advising the Chicago Mercantile Exchange on marketing its services
to European institutions and advising the International Petroleum Exchange in
London on similar issues. He also helped market Mercury Asset Management to
major institutions and pension funds.
Mr. Michael D. Gould is Director of Investor Services at JWH. He is
responsible for general business development and oversees the investor services
function. He joined JWH in April 1994 from Smith Barney Inc. where he served as
senior sales manager and vice president-futures for the Managed Futures
Department. He held the identical position with the predecessor firms of
Shearson Lehman Bros. and Lehman Bros. from October 1991. Prior to that time, he
was engaged in a proprietary trader development program at Tricon USA from
September 1990 to October 1991. He was a registered financial consultant with
Merrill Lynch from 1985 through August 1990. His professional career began in
1982 as an owner-operator of a nonferrous metals trading and export business
which he ran until September 1985.
Mr. Jack M. Ryng, C.P.A., joined JWH as the Controller in November
1991. Mr. Ryng is also Chief Financial Officer and Secretary of JWH Investments,
Inc. Prior to that time, he was a Senior Manager with Deloitte & Touche where he
held positions of increasing responsibility since September 1985 for commodities
and securities industry clients. Prior to his employment by the Financial
Services Center of Touche Ross & Co. (the predecessor firm of Deloitte &
Touche), he was a senior accountant for Leonard Rosen & Co. Mr. Ryng is a member
of AICPA and the New York C.P.A. Society, and is a member of the board of the
New York Operations Division of the FIA. He received a B.S. in Business
Administration from Duquesne University.
Mr. Michael J. Scoyni is a Managing Director of JWH and is a principal
of Westport Capital Management Corporation. Mr. Scoyni has been associated with
Mr. Henry since 1974 and with JWH since 1982. He was engaged in research and
development for John W. Henry & Company (JWH's predecessor) from November 1981
to December 1982 and subsequently has been employed in positions of increasing
responsibility. He received a B.A. in Anthropology from California State
University.
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Mr. Christopher E. Deakins is a Vice President of JWH. He is
responsible for general business development and investor services support.
Prior to joining JWH in August 1995, he was a vice president, national sales,
and a member of the Management Team for RXR Capital Management, Inc. His
responsibilities consisted of business development, institutional sales, and
broker dealer support. Prior to joining RXR in August 1986, he was engaged as an
account executive for Prudential-Bache Securities starting in February 1985.
Prior to that, Mr. Deakins was an account executive for Merrill Lynch. He
received a B.A. in Economics from Hartwick College.
Mr. Chris J. Lautenslager is a vice president of JWH. He is
responsible for general business development and investor services support.
Prior to joining JWH in April 1996, he was the vice president of institutional
sales for I/B/E/S International, Inc., a distributor of corporate earnings
estimate information. His responsibilities consisted of business development and
support of global money managers and investment bankers. Prior to his employment
with I/B/E/S, Mr. Lautenslager devoted time to personal activities from April
1994 to March 1995, following the closing of the Stamford, Connecticut office of
Gruntal & Co., where he had worked as a proprietary equity trader since November
1993. Before that, he held the same position at S.A.C. Capital Management
starting in February 1993. From October 1987 to December 1992, Mr. Lautenslager
was a partner and managing director of Limitless Option Partners, a registered
Chicago Mercantile Exchange trading and brokerage organization, where he traded
currency futures and options. He received a B.S. in Accounting from the
University of Colorado and a Masters in Management from Northwestern University.
Mr. Edwin B. Twist is a Director of JWH and has held that position
since August 1993. Mr. Twist is also a director of JWH Risk Management, Inc. and
JWH Asset Management, Inc. Mr. Twist joined JWH as Internal Projects Manager in
September 1991. Mr. Twist's responsibilities include assistance in the day-to-
day administration of JWH's Florida office and internal projects. Mr. Twist was
Secretary and Treasurer at J.W. Henry Enterprises Corp., a Florida corporation
engaged in administrative and financial consulting services, for which he
performed financial, consulting and administrative services from January 1991 to
August 1991. Prior to his employment at JWH, Mr. Twist was an owner and manager
for 16 years of a 2,500-acre commercial farm in eastern Arkansas.
Ms. Nancy O. Fox, C.P.A., is a Vice President and the director of
investment support of JWH. She is responsible for the day-to-day activities of
the Investment Support Department, including all aspects of operations and
performance reporting. Prior to joining JWH in January 1992, Ms. Fox was a
senior accountant at Deloitte & Touche, where she served commodities and
securities industry clients and held positions of increasing responsibility
since July 1987. Ms. Fox is a member of the AICPA and the New Jersey Society of
C.P.A.s. She received a B.S. in Accounting and Finance from Fairfield University
and an M.B.A. from the University of Connecticut..
Mr. Julius A. Staniewicz is the senior strategist in JWH's Product
Development Department. He will also be President of JWH Asset Management, Inc.
upon NFA registration. Prior to joining JWH in March of 1992, Mr. Staniewicz was
employed with Shearson Lehman Brothers as a financial consultant starting in
April 1991. Prior to that, beginning in 1990, Mr. Staniewiez was a vice
president of Phoenix Asset Management, a commodity pool operator and introducing
broker. From 1986 to 1989, Mr. Staniewicz worked in the managed futures
department at Prudential-Bache Securities, Inc., lastly as an assistant vice
president and co-director of managed futures. Mr. Staniewicz received a B.A. in
Economics from Cornell University.
Ms. Wendy B. Goodyear is director of the office of the chairman. She
is responsible for managing and coordinating projects involving Mr. Henry. Ms.
Goodyear joined JWH in October 1995 as director of marketing, responsible for
the development and implementation of strategic marketing and communications
programs. Prior to her employment at JWH, Ms. Goodyear was a vice president at
Citibank where she held several positions, including product development manager
for the depository receipt business and marketing manager for the pension
business. Prior to joining Citibank in May 1993, Ms. Goodyear was employed at
Bankers Trust Company from 1985 where she held positions of increasing
responsibility in both the private bank and pension businesses. Ms. Goodyear
received a B.A. in History from the University of Virginia and an M.B.A. from
the Stern School of Business at New York University.
THE INVESTMENT POLICY COMMITTEE
The Investment Policy Committee is one vehicle for decision-making at
JWH about the content and application of JWH trading programs. Composition of
the Investment Policy Committee, and participation in its discussions and
decisions by non-members, may vary over time.
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TRADING STRATEGY
JWH specializes in managing institutional and individual capital in
the global futures, interest rate and foreign exchange markets. Since 1981, JWH
has developed and implemented proprietary trend-following trading techniques
that focus on long-term rather than short-term, day-to-day trends. JWH currently
operates twelve trading programs. JWH implements the Financial and Metals
Portfolio for the Fund.
JWH's systematic investment process is designed to generate, over
market cycles, excellent risk-adjusted rates of return under favorable and
adverse market conditions. The JWH process capitalizes on emerging, long-term,
rising and falling price trends and ignores day-to-day price fluctuations. To
ensure disciplined implementation of its investment philosophy, JWH uses
mathemathical models to execute investment decisions in more than 50 global
markets encompassing currencies, commodities and financial securities. All JWH
investment programs follow the strict money management framework outlined below.
The first step in the JWH investment process is the identification of
a price trend. While there are many ways to identify trends, JWH uses a
methodology which identifies opportunities in order to attempt to capture a
majority of the significant price movements in a given market. The process
presumes that such price movements will often exceed the expectation of the
general marketplace. As such, the JWH discipline is to pare losing positions
relatively quickly while allowing profitable positions to mature. Positions held
for two to four months are not unusual, and certain positions have been held for
more than one year. Historically, only thirty to forty percent of all trades
made pursuant to the trading methods have been profitable. Large profits on a
few trades in positions that typically exist for several months have produced
favorable overall results. Generally, the majority of losing positions have been
liquidated within weeks. The maximum equity retracement JWH has experienced in
any single program was nearly sixty percent (60)%. Similar or greater drawdowns
are possible in the future. There can be no assurance that JWH will trade
profitably for the Fund or avoid losses of such magnitude.
JWH at its sole discretion may override computer-generated signals,
and may at times use discretion in the application of its quantitative models
which may affect performance positively or negatively. Subjective aspects of
JWH's quantitative models also include the determination of program leverage,
commencement of trading in an account, markets traded, contracts traded,
contract month selection, margin utilization and effective trade execution.
A Disciplined Investment Philosophy
- -----------------------------------
JWH's success is based on the following guiding principles:
Long-term Perspective. JWH's investment strategies rest on a long-term
perspective in the world's financial and commodities markets. Historical
performance demonstrates that, because trends often last longer than most market
participants expect, strong returns can be generated from positions held over
the long term.
Disciplined Investment Process. The disciplined investment process
utilized by JWH is designed to generate superior, risk-adjusted rates of return
throughout a market cycle. By consistently applying investment techniques in
financial and commodities markets worldwide, JWH is able to participate in
rising and falling markets without bias.
JWH's ongoing research has led to the development of analytical models
which suggest the appropriate content, weighting, exits and entries for each
investment position. Once established, these positions are monitored around the
clock. While many of these positions are closed out within a few days or weeks
at a profit or loss, others are retained where JWH's investment guidelines
indicate potential opportunity for exceptional returns.
Trend Identification. JWH's strategies are nonpredictive. Instead,
based on comprehensive research on historic pricing data, JWH seeks to recognize
the movement of capital from one market to another after trends have begun.
Global Diversification. For more than a decade, JWH has recognized the
importance of global trading. Financial markets around the world are
increasingly interrelated, with actions in one country's markets
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often influencing markets in other parts of the world. JWH investments are
positioned to provide access to the performance potential offered by the global
marketplace.
Comprehensive Risk Management. JWH's risk management strategies are
designed to decrease volatility and improve the risk/reward characteristics of
investments in futures and forwards by relying upon carefully formulated risk
management algorithms that define controlled loss parameters prior to
execution.
PROGRAM MODIFICATIONS
In an effort to maintain and improve performance, JWH has engaged, and
continues to engage, in extensive research. While the basic philosophy
underlying the firm's investment methodology has remained intact throughout its
history, the potential benefits of employing more than one investment
methodology, alternatively, or in varying combinations, is a subject of
continual testing, review and evaluation. Extensive research and analysis may
suggest substitution of alternative investment methodologies with respect to
particular contracts in light of relative differences in historical performance
achieved through testing different methodologies. In addition, risk management
research and analysis may suggest modifications regarding the relative weighting
among various contracts, the addition or deletion of particular contracts for a
program or a change in the degree of leverage employed.
As capital in each JWH trading program increases, additional emphasis
and weighting may be placed on certain markets which have historically
demonstrated the greatest liquidity and profitability. Furthermore, the
weighting of capital committed to various markets in the trading programs is
dynamic, and JWH may vary the weighting at its discretion as market conditions,
liquidity, position limit considerations and other factors warrant. MLIP will
generally not be informed of any such changes.
LEVERAGE
Leverage adjustments have been and continue to be an integral of JWH's
investment strategy. At its discretion, JWH may adjust leverage in certain
markets or entire programs. Factors which may affect the decision to adjust
leverage include: ongoing research; program volatility; current market
volatility; risk exposure; and subjective judgment and evaluation of these and
other general market conditions. Such decisions to change leverage may
positively or negatively affect performance, and will alter risk exposure for an
account. Leverage adjustments may lead to greater profits or losses, more
frequent and larger margin calls and greater brokerage expense. No assurance is
given that such leverage adjustments will be to the financial advantage of
investors in the Fund.
ADDITION, REDEMPTION AND REALLOCATION OF CAPITAL FOR COMMODITY POOL ACCOUNTS
JWH has developed procedures for trading pool accounts, such as the
Fund, that provide for the addition, redemption and/or reallocation of capital.
Investors who purchase or redeem units in a fund are most frequently permitted
to do so at a price equal to the net asset value per unit on the close of
business on the last business day of the month or quarter. In addition, funds
often may reallocate capital among advisors at the close of business on the last
business day of the month. In order to provide market exposure commensurate with
the equity in the account on the date of these transactions, JWH's practice is
to adjust positions as nearly as possible to the close of business on the last
trading date of the month. The intention is to provide for additions,
redemptions and reallocations at a net asset value per unit that will be the
same for each of these transactions and to eliminate possible variations in the
net asset value per unit that could occur as a result of inter-day price changes
when additions are calculated on the first day of the subsequent month.
Therefore JWH may, in its sole discretion, adjust its investment of the assets
associated with the addition, redemption and reallocation of capital as nearly
as possible to the close of business on the last trading day of the month to
reflect the amount then available for trading. Based on JWH's determination of
liquidity or other market conditions, JWH may decide to commence trading earlier
in the day on, or even before the last business day of the month. In the case of
an addition to a fund account, JWH may also, in its sole discretion, delay the
actual start of trading for those new assets. No assurance is given that JWH
will be able to achieve the objectives described above in connection with
funding level changes. The use of discretion by JWH in the application of this
procedure may affect performance positively or negatively.
JWH may from time to time trade in physical or cash commodities for
immediate or deferred delivery, including specifically gold bullion, as well as
futures, options, and forward contracts when JWH believes that cash markets
offer comparable or superior market liquidity or ability to execute transactions
at a single price. Cash transactions, as
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opposed to futures transactions, relate to the purchase and sale of specific
physical commodities. Whereas futures contracts are generally uniform except for
price and delivery time, cash contracts may differ from each other with respect
to such terms as quantity, grade, mode of shipment, terms of payment, penalties,
risk of loss and the like. There is no limitation on the daily price movements
of cash or forward contracts transacted through banks, brokerage firms or
government dealers, and those entities are not required to continue to make
markets in any commodity. In addition, the CFTC does not comprehensively
regulate cash transactions, which are subject to the risk of these entities'
failure, inability or refusal to perform with respect to such contracts.
The Financial and Metals Portfolio
Researched through 1983, a systematic method was first traded in a
format using solely financial and metals futures in August 1984. That program,
the Financial and Metals Portfolio, used by JWH in managing Fund assets, uses
quantitative, trend analysis models, participates in four major market sectors
- --interest rates, foreign exchange, stock indices and precious metals -- and
seeks to capitalize on sustained moves in global finanacial markets.
The Financial and Metals Portfolio may take long, short or neutral
positions within the four market sectors traded. Because assets are concentrated
in interest rates, currencies, stock indices and metals only, volatility can be
higher than in a more diversified portfolio.
Other JWH Programs
In addition to the Financial and Metals Portfolio, JWH currently
operates eleven other trading programs for U.S. and non-U.S. investors, none of
which are utilized by JWH for the Fund. Each program is operated separately and
independently. These programs emphasize intermediate and long-term,
quantitative, trend-analysis models designed with the objective of achieving
speculative rates of return.
The Original Investment Program, which began in 1981, uses long-term,
quantitative models. This program trades in seven different market sectors
trading 20 to 25 commodities on both U.S. and non-U.S. exchanges. The KT
Diversified Program began in 1983 and ceased trading in February 1994. This
program utilized a neutral phase, and thus did not maintain constant positions
in the markets. This program participated in eight market sectors and traded 19
to 24 commodities only on U.S. exchanges. The Global Diversified Portfolio
invests in futures and forward contracts in a number of different markets,
sectors, and countries and is JWH's most diversified trading program. This
program has been trading for investors since June 1988. The International
Foreign Exchange Program, begun in 1986, concentrates exclusively on trading
between 10 to 15 foreign currencies in outright and cross-rate positions,
primarily through forward contracts. Portfolios are dynamic and include from
time to time various matrices of futures positions. InterRate', which commenced
trading in November 1987, uses a portfolio of foreign currency contracts that
seeks to capture interest-rate differentials between countries. This program
utilizes leverage that is significantly lower than other JWH programs, reducing
risk as it seeks to generate returns significantly enhanced over the prevailing
91-day U.S. government securities rate.
The World Financial Perspective, which began in 1986, trades the
financial and energy sector markets from the perspective of the Japanese yen,
German mark, Swiss franc, British pound, Australian dollar, French franc,
Canadian dollar and the U.S. dollar. The pricing of key global markets in terms
of foreign currencies provides a level of diversification not generally found in
futures portfolios. In February 1991, JWH began trading a portfolio in which the
same techniques utilized in the International Foreign Exchange Program are
primarily applied to the currencies of the major industrial nations, known as
"the Group of Seven" and Switzerland. These currencies are the Japanese yen,
British pound, Canadian dollar, German mark, French franc, Italian lira, the
U.S. dollar and Swiss franc and are among the most liquid, actively traded
currencies in the world. The G-7 Currency Portfolio makes use of both outright
positions and cross-rate positions. Positions are primarily taken in the
interbank market and from time to time on U.S. futures exchanges. The Yen
Financial Portfolio began in August 1991 and uses the same quantitative models
used in the Financial and Metals Portfolio. The Yen Financial Portfolio trades
futures on the Japanese yen, the 10-year Japanese Government Bond, the Euroyen
and the Nikkei 225 stock index. The International Currency and Bond Portfolio,
begun in January 1993, combines the techniques employed in the G-7 Currency
Portfolio and the global bond sector of the Financial and Metals Portfolio to
trade a combined portfolio of currencies and international long-term bonds. In
June 1994, JWH began trading the Global Financial Portfolio, which utilizes the
same reversal approach as the Original Investment Program. The program trades in
four market sectors: interest rates, stock indices, currencies and energy. The
Dollar Program began trading client capital in June 1996. This program is
designed to capitalize on price movements in the U.S. Dollar utilizing
intermediate-term and long-term
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quantitative trend analysis models, and takes outright positions in the Japanese
yen, German mark, Swiss franc, and British pound versus the U.S. dollar.
The Worldwide Bond Program (WWB) began trading client capital in 1994.
WWB invests in the long-term portion of global interest rate markets, including
the U.S. 30-year bond, U.S. 10-year note, British long gilt, the French, German
and Italian bond, and Australian 10-year bond. Unlike most fixed income
investments, WWB is not limited to investments that have the potential to profit
in a stable or declining interest rate environment. Rather, WWB is designed to
capitalize on dominant trends, whether rising or falling, in worldwide bond
markets.
The Delevered Yen Denominated Financial and Metals Profile which began
trading in October 1995 seeks to capitalize on sustained moves in global
financial markets utilized intermediate-term and long-term quantitative trend
analysis models, some of which attempt to employ neutral stances during periods
of nontrending markets. This portfolio is traded at approximately one half of
the leverage of the traditional Financial and Metals portfolio and is traded
from the perspective of the Japanese yen.
PAST PERFORMANCE
The following information describes the composite actual performance
of all customer and proprietary accounts managed by JWH and JWH Investments Inc.
JWH trades its Financial and Metals Portfolio on behalf of the Fund. As of
August 31, 1996, JWH was managing approximately $1.5 billion (excluding
"notional" funds) of customer funds in the futures and forwards markets. All
performance information is current as of August 31, 1996.
Performance information is set forth for the most recent five full
years for each JWH and JWH Investments, Inc. program or, in the event that a
program has been trading for less than five years, performance information is
set forth from the inception of client account trading in such program.
Performance information prior to January 1, 1991 has been excluded in accordance
with CFTC regulations.
"Notes to the Performance Summaries" are set forth on pages 105
through 107.
An investor should note that in a presentation of past performance
data, different accounts, even though traded according to the same investment
program, can have varying performance results. The reasons for this include
numerous material differences among accounts including, but not limited to: (a)
procedures governing timing for the commencement of trading and means of moving
toward full portfolio commitment of new accounts; (b) the periods during which
accounts are active; (c) the investment program used (although all accounts may
be traded in accordance with the same approach, such approach may be modified
periodically as a result of ongoing research and development by JWH); (d)
leverage employed; (e) the size of the account, which can influence the size of
positions taken and restrict the account from participating in all markets
available to an investment program; (f) the amount of interest income earned by
an account, which will depend on the rates paid by a futures commission merchant
on equity deposits and/or on the portion of an account invested in interest-
bearing obligations such as U.S. Treasury bills; (g) the amount of management
and incentive fees paid to JWH and the amount of brokerage commissions paid; (h)
the timing of orders to open or close positions; (i) the market conditions which
in part determine the quality of trade executions; (j) trading
instructions/restrictions of the client; (k) variations in fill prices; and (l)
the timing of additions and withdrawals.
During the periods covered by the performance summaries, and
particularly since 1989, JWH increased and decreased leverage in certain markets
and entire trading programs, and also altered the composition of the markets and
contracts that it traded for certain programs. In general, before 1993 JWH
traded its programs with greater leverage than it does currently. In addition,
the subjective aspects of JWH's trading methods may have been utilized more
often in recent years and, therefore, have had a more pronounced effect on
performance results during recent periods. In reviewing the JWH performance
summaries, prospective investors should bear in mind the possible effects of
these, and other, variations on rates of return and in the application of JWH's
investment methods.
The composite rates of return indicated should not be taken as
representative of any rate of return actually achieved by any of the accounts
represented in the performance summaries. Investors are further cautioned that
the data set forth in the performance summaries is not indicative of any trading
results which may be attained by JWH in the future, since past performance is
not necessarily indicative of future results. On several occasions, JWH has
decreased leverage over the last five years, in certain markets as well as in
entire trading programs. These actions have reduced the volatility of certain
trading programs when compared to the volatility prior to the decreases in
leverage. While historical returns represent actual
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performance achieved, investors should be aware that the degree of leverage
currently utilized may be significantly different from that used during previous
time periods.
Prior to December 1991 for JWH, and July 1992 for JWH Investments,
Inc., performance summaries are presented on a cash basis except as otherwise
stated herein. The recording of items on a cash basis should not, for most
months, be materially different from presenting such rates of return on an
accrual basis. Any differences in the monthly rates of return between the two
methods would be immaterial to the overall performance presented.
Beginning with the change to the accrual basis of accounting for
incentive fees (in December 1991 for JWH and July 1992 for JWH Investments,
Inc.), the net effect on monthly net performance and the monthly rates of return
in the performance summaries of continuing to record interest income, management
fees, commissions and other expenses on a cash basis differs immaterially from
the results which would be obtained using accrual basis accounting.
Advisory fees vary from account to account managed pursuant to all
programs. Management fees vary from 0% to 6% of assets under management;
incentive fees vary from 0% to 25% of profits. Such variations in advisory fees
may have a material impact on the performance of an account from time to time.
The Notes to the Performance Summaries are an integral part of such
performance summaries, which are presented on a cash basis except as otherwise
described herein.
ADDITIONAL NOTE TO THE FINANCIAL AND METALS PORTFOLIO COMPOSITE PERFORMANCE
- ---------------------------------------------------------------------------
SUMMARY
- -------
In May 1992, 35 percent of the assets in the Financial and Metals
Portfolio was deleveraged 50 percent at the request of a client. The
deleveraging materially affected the rates of return achieved. The 1992 annual
rate of return for these deleveraged accounts was negative 24.3 percent. The
1992 annual rate of return for the Financial and Metals Portfolio performance
summary was negative 10.9 percent. If these accounts had been excluded from the
Financial and Metals Portfolio performance summary, the 1992 annual rate of
return would have been negative 3.9 percent. The effect of this deleveraging was
eliminated in September 1992.
Additionally, the Financial and Metals Portfolio composite performance
summary includes the performance of several accounts that do not participate in
global markets due to their smaller account equities which do not meet the
minimums established for this program. Accounts not meeting such minimums can
experience performance materially different than the performance of an account
which meets the minimum account size. The performance of such accounts has no
material effect on the overall Financial and Metals Portfolio performance
summary.
ADDITIONAL NOTE TO THE YEN FINANCIAL PORTFOLIO COMPOSITE PERFORMANCE
- --------------------------------------------------------------------
SUMMARIES
- ---------
The Yen Financial Portfolio is traded from the Japanese yen
perspective. Accounts may be opened with either U.S. dollar or Japanese yen
deposits. Accounts originally opened with U.S. dollars establish additional
interbank positions in Japanese yen in an effort to enable such accounts to
generate returns similar to returns generated by accounts with yen-denominated
balances. Over time, as profits and losses are recognized in yen-denominated
Japanese markets, accounts may hold varying levels of U.S. dollars and Japanese
yen. Additionally, the interbank positions are adjusted periodically to reflect
the actual portions of the account balances remaining in U.S. dollars. Because
performance may be affected by fluctuations in the dollar/yen conversion rate,
and investors may open accounts with either U.S. dollar or Japanese yen
deposits, performance records from the perspective of both denominations are
presented.
Accordingly, as the equity mix between U.S. dollars and Japanese yen
varies, performance from each perspective will also vary. Investors should be
aware that their individual account performance may differ from the composite
performance summaries presented in relation to the perspective of their base
currency. Such differences arise from exchange rate movements, percentage of
account balances held in yen, and fee arrangements.
This program began trading client capital in January 1992. In July
1996, one proprietary account commenced trading pursuant to an investment in a
fund. This proprietary account is traded in exactly the same manner that client
funds would be traded, and is subject to all of the same fees and expenses that
would be charged to a client investment in the fund; therefore, there is no
material impact on the rates of return presented.
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The performance of the Yen Financial Portfolio is presented on an
individual account basis due to material differences among accounts' historical
performance. Account performance has varied historically due to a number of
factors unique to this portfolio, including whether the portfolio is denominated
in dollars or yen, the event of hedging currency conversions, the amounts and
frequency of currency conversions, and account size. Several of these factors
that have materially influenced performance depend on clients' specific choices
that effectively result in customized client portfolios.
ADDITIONAL NOTE TO THE GLOBAL FINANCIAL PORTFOLIO COMPOSITE PERFORMANCE SUMMARY
- -------------------------------------------------------------------------------
Since the inception of the Global Financial Portfolio, the timing of
individual account openings has had a material impact on compound rates of
return. Based on the account startup methodology used by JWH, the performance of
individual accounts composing the Global Financial Portfolio composite
performance summary has varied. In 1994, the two accounts that were open
generated separate rates of return of negative 44 percent and negative 17
percent, respectively. For the period January 1995 through June 1995, the three
open accounts achieved separate rates of return of 101 percent, 75 percent and
67 percent, respectively. As of June 1995, these accounts now maintain mature
positions and are performing consistently with each other. Due to the six month
period in 1995 of varied performance, the three accounts therefore achieved
annual rates of return for 1995 of 122%, 92% and 78%, respectively.
This program began trading client capital in June 1994. In July 1995,
one proprietary account commenced trading pursuant to an investment in a fund.
This proprietary account is traded in exactly the same manner that client funds
would be traded, and is subject to all of the same fees and expenses that would
be charged a client investment in the fund; therefore, there is no material
impact on the rates of return presented.
ADDITIONAL NOTE TO THE ORIGINAL INVESTMENT PROGRAM COMPOSITE PERFORMANCE
- ------------------------------------------------------------------------
SUMMARY
- -------
This program began trading client capital in October 1982. In November
1994, one proprietary account commenced trading pursuant to an investment in a
fund. This proprietary account is traded in exactly the same manner that client
funds would be traded, and is subject to all of the same fees and expenses that
would be charged a client investment in the fund; therefore, there is no
material impact on the rates of return presented.
ADDITIONAL NOTE TO THE G-7 CURRENCY PORTFOLIO COMPOSITE PERFORMANCE
- -------------------------------------------------------------------
SUMMARY
- -------
G-7 began trading client capital in February 1991. From July 1995
through December 1995 one proprietary account was trading pursuant to an
investment in a fund, and in August 1996 an additional proprietary account began
trading pursuant to the same fund. These proprietary accounts have been traded
in exactly the same manner that client funds would be traded, and have been
subject to all of the same fees and expenses that would be charged a client
investment in the fund; therefore, there is no material impact on the rates of
return presented.
ADDITIONAL NOTE TO THE SUMMARIES PRESENTED WHICH UTILIZE THE FULLY-FUNDED
- -------------------------------------------------------------------------
SUBSET METHOD -- I.E., THE GLOBAL DIVERSIFIED PORTFOLIO AND JWH
- ---------------------------------------------------------------
INVESTMENTS, INC. INTERRATE' (TM) (THE "FULLY-FUNDED SUBSET SUMMARIES")
- ------------------------------------------------------------------
The level of actual funds in the accounts that comprise these two
performance summaries currently requires additional disclosure. Actual funds are
the amount of margin-qualifying assets on deposit. Nominal account size is a
dollar amount which clients have agreed to in writing and which determines the
level of trading in the account regardless of the amount of actual funds.
Notional funds are the amount by which the nominal account size exceeds the
amount of actual funds. The amount of notional equity in the accounts that
compose these summaries requires additional disclosure under current CFTC
policy. The Fully-Funded Subset Summaries include notional equity in excess of
the 10% disclosure threshold established by the CFTC and reflect the adoption of
a method of presenting rate-of-return and performance disclosure authorized by
the CFTC, referred to as the Fully-Funded Subset method. See "-- Chesapeake
Capital Corporation -- Past Performance," above. This method permits notional
and fully-funded accounts to be included in a single performance summary.
To qualify for the use of the Fully-Funded Subset method, the Fully-
Funded Subset Advisory requires that certain computations be made in order to
arrive at the Fully-Funded Subset and that the accounts for which performance is
so reported meet two tests which are designed to provide assurance that the
Fully-Funded Subset and the resultant rates of return are representative of the
programs.
-100-
<PAGE>
These computations have been performed for the Global Diversified
Portfolio from January 1, 1992 to its close and JWH Investments, Inc.'s
InterRate(TM) from inception to its close. They were designed to provide
assurance that the performance presented in the Fully-Funded Subset Summaries
and calculated on a Fully-Funded Subset basis would be representative of such
performance calculated on a basis which includes notional funds in beginning
equity. The rates of return in the Fully-Funded Subset Summaries are calculated
by dividing net performance by the sum of beginning equity plus additions minus
withdrawals. JWH and JWH Investments, Inc. believe that this method yields
substantially the same adjusted rates of return as would the Fully-Funded Subset
method were there any "fully-funded" accounts, and that the rates of return for
the Fully-Funded Subset Summaries are representative of the performance of the
programs for the periods presented.
The information presented has not been audited. However, JWH and JWH
Investments, Inc. believe that such information is accurate and fairly
presented.
INTERRATE(TM) IS QUALITATIVELY DIFFERENT FROM THE METHODS WHICH
PROGRAMS. THE PROGRAMS REPRESENTED IN THE COMPOSITE PERFORMANCE RECORD DIFFER
FROM INTERRATE(TM) WITH RESPECT TO: (a) FEES CHARGED; (b) LENGTH OF TIME FOR
WHICH POSITIONS ARE HELD; (c) POSITIONS TAKEN; (d) LEVERAGE USED; AND (e) RATE
OF RETURN OBJECTIVES.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
FURTHERMORE, THE RATES OF RETURN EARNED WHEN AN ADVISOR IS MANAGING A LIMITED
AMOUNT OF EQUITY MAY HAVE LITTLE RELATIONSHIP TO THE RATES OF RETURN WHICH SUCH
ADVISOR MAY BE ABLE TO ACHIEVE MANAGING LARGER AMOUNTS OF EQUITY.
A NUMBER OF THE ACCOUNTS INCLUDED IN THE FOLLOWING PERFORMANCE
SUMMARIES WERE TRADED IN A MANNER MATERIALLY DIFFERENT FROM THAT IN WHICH JWH
TRADES ON BEHALF OF THE FUND.
THE FOLLOWING PERFORMANCE SUMMARIES HAVE IN NO RESPECT BEEN ADJUSTED
TO REFLECT THE CHARGES TO THE FUND. CERTAIN OF THE ACCOUNTS INCLUDED IN THE
FOLLOWING PERFORMANCE SUMMARIES PAID FEES MATERIALLY DIFFERENT FROM, AND IN SOME
CASES MATERIALLY LOWER THAN, THOSE CHARGED THE FUND.
INVESTORS SHOULD NOTE THAT INTEREST INCOME MAY CONSTITUTE A
SIGNIFICANT PORTION OF A COMMODITY TRADING ADVISOR'S TOTAL INCOME AND, IN
CERTAIN INSTANCES, MAY GENERATE PROFITS WHERE THERE HAVE BEEN REALIZED OR
UNREALIZED LOSSES FROM COMMODITIES TRADING.
PAST PERFORMANCE IS NOT NECESSARILY
INDICATIVE OF FUTURE RESULTS.
See "Risk Factors -- (2) Past Performance Not Necessarily Indicative of Future
Results."
-101-
<PAGE>
JOHN W. HENRY & COMPANY, INC.
FINANCIAL AND METALS PORTFOLIO
JANUARY 1991 - AUGUST 1996
The following performance summary and chart reflect the composite
performance results from January 1991 through August 1996 of the Financial and
Metals Portfolio. JWH trades this program on behalf of the Fund. The program has
been utilized in trading for 359 accounts since its inception. As of August 31,
1996, 288 accounts had been closed and 71 accounts remained open. Of the closed
accounts, 251 were profitable and 37 were unprofitable at their closing. Of the
71 open accounts, 66 were profitable and 5 were unprofitable as of August 31,
1996.
Name of CTA: John W. Henry & Company, Inc.
Name of program: Financial and Metals Portfolio
Inception of client account trading by CTA: October 1982
Inception of client account trading in program: October 1984
Number of open accounts: 71
Aggregate assets (excluding "notional" equity) overall: $1.5 billion
Aggregate assets (excluding "notional" equity) in program: $912
million
Aggregate assets (including "notional" equity) overall: $1.5 billion
Aggregate assets (including "notional" equity) in program: $912
million
Largest monthly drawdown on a composite basis: (18.0)% (1/92)
Largest monthly drawdown on an individual account basis: (27.7)% (9/92)
Largest peak-to-valley drawdown: (39.5)% (12/91-5/92)
<TABLE>
<CAPTION>
================================================================================
Monthly Performance 1996 1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
January 6.0% (3.8)% (2.9)% 3.3% (18.0)% (2.3)%
- --------------------------------------------------------------------------------
February (5.5) 15.7 (0.6) 13.9 (13.5) 3.8
- --------------------------------------------------------------------------------
March 0.7 15.3 7.2 (0.3) 3.0 4.5
- --------------------------------------------------------------------------------
April 2.3 6.1 0.9 9.3 (12.2) (0.8)
- --------------------------------------------------------------------------------
May (1.7) 1.2 1.3 3.3 (5.7) (0.3)
- --------------------------------------------------------------------------------
June 2.2 (1.7) 4.5 0.1 21.9 (1.3)
- --------------------------------------------------------------------------------
July (1.1) (2.3) (6.1) 9.7 25.5 (13.4)
- --------------------------------------------------------------------------------
August (0.8) 2.1 (4.1) (0.8) 10.2 4.8
- --------------------------------------------------------------------------------
September (2.1) 1.5 0.2 (5.2) 25.8
- --------------------------------------------------------------------------------
October 0.3 1.7 (1.1) (4.5) (7.7)
- --------------------------------------------------------------------------------
November 2.6 (4.4) (0.3) (0.8) 6.6
- --------------------------------------------------------------------------------
December 1.7 (3.5) 2.9 (2.6) 39.4
Compound Annual 1.61% 38.53% (5.32)% 46.82% (10.89)% 61.88%
Rate of Return (8 months)
===============================================================================
</TABLE>
In May 1991, one proprietary account commenced trading and in March 1992 a
second proprietary account commenced trading. Both accounts appear in the
capsule performance from their inception until August 1995. The maximum
percentage of proprietary funds during this time period was less than
0.50%. These proprietary funds had no material effect on the rate of
return.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
SEE THE "NOTES TO THE PERFORMANCE SUMMARIES" ON PAGES 105 THROUGH 107.
-102-
<PAGE>
[PAGE LEFT INTENTIONALLY BLANK]
-103-
<PAGE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
OTHER JOHN W. HENRY & COMPANY, INC. PROGRAMS
-------------------------------------------------------------------------------------------------
NAME OF CTA: John W. Henry John W. Henry John W. Henry John W. Henry
& Company, & Company, & Company, & Company,
Inc. Inc. Inc. Inc.
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NAME OF PROGRAM: Original Global International The World
Investment Diversified Currency and Financial
Program Portfolio Bond Portfolio Perspective
-------------------------------------------------------------------------------------------------
INCEPTION OF CLIENT
ACCOUNT TRADING BY CTA: October 1982 October 1982 October 1982 October 1982
-------------------------------------------------------------------------------------------------
INCEPTION OF CLIENT
ACCOUNT TRADING IN PROGRAM: October 1982 June 1988 January 1993 April 1987
-------------------------------------------------------------------------------------------------
NUMBER OF OPEN ACCOUNTS: 27 17 1 5
-------------------------------------------------------------------------------------------------
AGGREGATE ASSETS
(EXCLUDING "NATIONAL" EQUITY)
OVERALL: $1.5 billion $1.5 billion $1.5 billion $1.5 billion
-------------------------------------------------------------------------------------------------
AGGREGATE ASSETS
(EXCLUDING "NATIONAL" EQUITY)
IN PROGRAM: $157 million $133 million $2 million $18 million
-------------------------------------------------------------------------------------------------
AGGREGATE ASSETS
(INCLUDING "NATIONAL"
EQUITY) OVERALL: $1.5 billion $1.5 billion $1.5 billion $1.5 billion
-------------------------------------------------------------------------------------------------
AGGREGATE ASSETS
(INCLUDING "NATIONAL"
EQUITY) IN PROGRAM: $157 million $133 million $2 million $18 million
-------------------------------------------------------------------------------------------------
LARGEST MONTHLY DRAWDOWN
ON A COMPOSITE BASIS: (14.1)% (10/94) (16.8)% (7/91) (6.7)% (7/94) (21.6)% (1/92)
-------------------------------------------------------------------------------------------------
LARGEST MONTHLY DRAWDOWN ON AN
INDIVIDUAL ACCOUNT BASIS: (18.1)% (2/92) (20.3)% (7/91) (7.8)% (7/94) (25.5)% (1/92)
-------------------------------------------------------------------------------------------------
LARGEST PEAK-TO-VALLEY
DRAWDOWN: (26.2)% (6/94-10/94) (29.1)% (12/91-5/92) (20.1)% (6/94-1/95) (32.0)% (12/91-10/92)
-------------------------------------------------------------------------------------------------
1996 COMPOUND RATE OF RETURN: (4)% (8 months) (5)% (8 months) (4)% (8 months) 10% (8 months)
-------------------------------------------------------------------------------------------------
1995 COMPOUND RATE OF RETURN: 53% 20% 37% 32%
-------------------------------------------------------------------------------------------------
1994 COMPOUND RATE OF RETURN: (6)% 10% (2)% (15)%
-------------------------------------------------------------------------------------------------
1993 COMPOUND RATE OF RETURN: 41% 60% 15% 14%
-------------------------------------------------------------------------------------------------
1992 COMPOUND RATE OF RETURN: 11% (13)% N/A (23)%
-------------------------------------------------------------------------------------------------
1991 COMPOUND RATE OF RETURN: 5% 40% N/A 15%
-------------------------------------------------------------------------------------------------
<CAPTION>
-------------------------------------------------------------------------------------------------
NAME OF CTA: John W. Henry JohnW. Henry John W. Henry
& Company, Inc. & Company, Inc & Company, Inc
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NAME OF PROGRAM: Global Financial Delevered International
Portfolio Yen Foreign
Denominated Exchange
Financial Program
and Metals
Profile
------------------------------------------------------------------------------------------------
INCEPTION OF CLIENT
ACCOUNT TRADING BY CTA: October 1982 October 1982 October 1982
------------------------------------------------------------------------------------------------
INCEPTION OF CLIENT
ACCOUNT TRADING IN
PROGRAM: June 1994 October 1995 August 1986
------------------------------------------------------------------------------------------------
NUMBER OF OPEN ACCOUNTS: 5 1 7
------------------------------------------------------------------------------------------------
AGGREGATE ASSETS
(EXCLUDING "NOTIONAL" EQUITY)
OVERALL: $1.3 billion $1.5 billion $1.5 billion
------------------------------------------------------------------------------------------------
AGGREGATE ASSETS
(EXCLUDING "NOTIONAL" EQUITY)
IN PROGRAM: $58 million (Yen)923 million $67 million
------------------------------------------------------------------------------------------------
AGGREGATE ASSETS
(INCLUDING "NOTIONAL" EQUITY)
OVERALL: $1.5 billion $1.5 billion $1.5 billion
------------------------------------------------------------------------------------------------
AGGREGATE ASSETS
(INCLUDING "NOTIONAL" EQUITY) IN
PROGRAM: $58 million (Yen)923 million $67 million
-----------------------------------------------------------------------------------------------
LARGEST MONTHLY DRAWDOWN
ON A COMPOSITE BASIS: (17.4)% (11/94) (3.2)% (2/96) (12.0)% (1/92)
-----------------------------------------------------------------------------------------------
LARGEST MONTHLY DRAWDOWN ON AN
INDIVIDUAL ACCOUNT BASIS: (19.5)% (11/94) (3.2)% (2/96) (13.6)% (1/92)
-----------------------------------------------------------------------------------------------
LARGEST PEAK-TO-VALLEY DRAWDOWN: (46.0)% (6/94-1/95) (5.1)% (1/96-8/96) (24.1)% (12/91-4/92)
-----------------------------------------------------------------------------------------------
1996 COMPOUND RATE OF RETURN: 5% (8 months) (3)% (8 months) (7)% (8 months)
-----------------------------------------------------------------------------------------------
1995 COMPOUND RATE OF RETURN: 86% 0.2% (3 months) 17%
-----------------------------------------------------------------------------------------------
1994 COMPOUND RATE OF RETURN: (38)% (7 months) N/A (6)%
-----------------------------------------------------------------------------------------------
1993 COMPOUND RATE OF RETURN: N/A N/A (5)%
-----------------------------------------------------------------------------------------------
1992 COMPOUND RATE OF RETURN: N/A N/A 5%
-----------------------------------------------------------------------------------------------
1991 COMPOUND RATE OF RETURN: N/A N/A 39%
-----------------------------------------------------------------------------------------------
</TABLE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
FUTURES TRADING IS SPECULATIVE AND INVOLVES A HIGH DEGREE OF RISK.
THE FUND'S ACCOUNT IS NOT TRADED PURSUANT TO THE FOREGOING PROGRAMS.
SEE "NOTES TO THE PERFORMANCE SUMMARIES" ON PAGES 105 THROUGH 107.
-104-
<PAGE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
OTHER JOHN W. HENRY & COMPANY, INC. PROGRAMS
-------------------------------------------------------------------------------------------------
NAME OF CTA: John W. Henry John W. Henry John W. Henry John W. Henry
& Company, & Company, & Company, Inc. & Company,
Inc. Inc. Inc.
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Worldwide Bond
NAME OF PROGRAM: G-7 Currency Portfolio Program Dollar Program InterRate(TM)
-------------------------------------------------------------------------------------------------
INCEPTION OF CLIENT
ACCOUNT TRADING BY CTA: October 1982 October 1982 October 1982 October 1982
-------------------------------------------------------------------------------------------------
INCEPTION OF CLIENT December 1988
ACCOUNT TRADING IN PROGRAM: February 1991 July 1996 July 1996 ceased trading 7/96
-------------------------------------------------------------------------------------------------
NUMBER OF OPEN ACCOUNTS: 9 2 2 0
-------------------------------------------------------------------------------------------------
AGGREGATE ASSETS
(EXCLUDING "NOTIONAL" EQUITY)
OVERALL: $1.5 billion $1.5 billion $1.5 billion $1.5 billion
-------------------------------------------------------------------------------------------------
AGGREGATE ASSETS
(EXCLUDING "NOTIONAL" EQUITY)
IN PROGRAM: $103 million $ 9 million $9 million N/A
-------------------------------------------------------------------------------------------------
AGGREGATE ASSETS
(INCLUDING "NOTIONAL"
EQUITY) OVERALL: $1.5 billion $1.5 billion $1.5 billion $1.5 billion
-------------------------------------------------------------------------------------------------
AGGREGATE ASSETS
(INCLUDING "NOTIONAL" EQUITY)
IN PROGRAM: $103 million $9 million $9 million N/A
-------------------------------------------------------------------------------------------------
LARGEST MONTHLY DRAWDOWN
ON A COMPOSITE BASIS: (10.7)% (1/92) None (2.3)% (8/96) (9.71)% (9/92)
-------------------------------------------------------------------------------------------------
LARGEST MONTHLY DRAWDOWN ON AN
INDIVIDUAL ACCOUNT BASIS: (12.3)% (1/92) None (2.3)% (8/96) (10.2)% (9/92)
-------------------------------------------------------------------------------------------------
LARGEST PEAK-TO-VALLEY
DRAWDOWN: (19.5)% (7/93-1/95) None (3.5)% (7/96-8/96) (17.8)% (8/92-2/94)
-------------------------------------------------------------------------------------------------
1996 COMPOUND RATE OF RETURN: (4)% (8 months) (3)% (2 mos) (4)% (2 mos) 6% (7 months)
-------------------------------------------------------------------------------------------------
1995 COMPOUND RATE OF RETURN: 32% N/A N/A 5%
-------------------------------------------------------------------------------------------------
1994 COMPOUND RATE OF RETURN: (5)% N/A N/A 3%
-------------------------------------------------------------------------------------------------
1993 COMPOUND RATE OF RETURN: (6)% N/A N/A (5)%
-------------------------------------------------------------------------------------------------
1992 COMPOUND RATE OF RETURN: 15% N/A N/A (1)%
-------------------------------------------------------------------------------------------------
1991 COMPOUND RATE OF RETURN: 49% (11 months) N/A N/A 9%
-------------------------------------------------------------------------------------------------
<CAPTION>
------------------------------------------------------------------------------------------------
NAME OF CTA: John W. Henry
& Company, Inc. JWH Investments, Inc. JWH Investments, Inc.
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Financial and Metals
NAME OF PROGRAM: KT Diversified Program Portfolio InterRate(TM)
-----------------------------------------------------------------------------------------------
NCEPTION OF CLIENT
ACCOUNT TRADING BY CTA: October 1982 September 1991 September 1991
-----------------------------------------------------------------------------------------------
INCEPTION OF CLIENT
ACCOUNT TRADING January 1984, September 1991, February 1992,
PROGRAM: ceased trading 2/94 ceased trading 7/95 ceased trading 11/93
-----------------------------------------------------------------------------------------------
NUMBER OF OPEN ACCOUNTS: 0 0 0
-----------------------------------------------------------------------------------------------
AGGREGATE ASSETS
(EXCLUDING "NOTIONAL" EQUITY)
OVERALL: $1.5 billion 0 0
-----------------------------------------------------------------------------------------------
AGGREGATE ASSETS
(EXCLUDING "NOTIONAL" EQUITY)
IN PROGRAM: N/A N/A N/A
-----------------------------------------------------------------------------------------------
AGGREGATE ASSETS
(INCLUDING "NOTIONAL" EQUITY)
OVERALL: $1.5 billion 0 0
-----------------------------------------------------------------------------------------------
AGGREGATE ASSETS
(INCLUDING "NOTIONAL" EQUITY) IN
PROGRAM: N/A N/A N/A
----------------------------------------------------------------------------------------------
LARGEST MONTHLY DRAWDOWN
ON A COMPOSITE BASIS: (19.2)% (7/91) (16.6)% (1/92) (9.3)% (9/92)
----------------------------------------------------------------------------------------------
LARGEST MONTHLY DRAWDOWN ON AN
INDIVIDUAL ACCOUNT BASIS: (28.6)% (1/92) (16.6)% (1/92) (9.3)% (9/92)
----------------------------------------------------------------------------------------------
LARGEST PEAK-TO-VALLEY DRAWDOWN: (40.6)% (1/91-3/92) (32.4)% (12/91-5/92) (20.6)% (8/92-11/93)
----------------------------------------------------------------------------------------------
1996 COMPOUND RATE OF RETURN: N/A N/A N/A
----------------------------------------------------------------------------------------------
1995 COMPOUND RATE OF RETURN: N/A 30% (7 months) N/A
----------------------------------------------------------------------------------------------
1994 COMPOUND RATE OF RETURN: (14)% (2 months) (1)% N/A
----------------------------------------------------------------------------------------------
1993 COMPOUND RATE OF RETURN: 21% 46% (10)% (11 months)
----------------------------------------------------------------------------------------------
1992 COMPOUND RATE OF RETURN: (12)% (4)% 3% (11 months)
----------------------------------------------------------------------------------------------
1991 COMPOUND RATE OF RETURN: (2)% 59% (4 months) N/A
---------------------------------------------------------------------------------------------
</TABLE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
FUTURES TRADING IS SPECULATIVE AND INVOLVES A HIGH DEGREE OF RISK.
THE FUND'S ACCOUNT IS NOT TRADED PURSUANT TO THE FOREGOING PROGRAMS.
SEE "NOTES TO THE PERFORMANCE SUMMARIES" ON PAGES 105 THROUGH 107.
-105-
<PAGE>
JOHN W. HENRY & COMPANY, INC, TRADING PROGRAMS
PERFORMANCE SUMMARIES
YEN FINANCIAL PORTFOLIO
NAME OF CTA: John W. Henry & Company, Inc.
Inception of client account trading: October 1982
Inception of client account trading in program: January 1992
Number of open accounts: 7
Aggregate assets (excluding "notional" equity) overall: $1.5 billion
Aggregate assets (excluding "notional equity) in program: $38 million
Aggregate assets (including "notional" equity) overall: $1.5 billion
Aggregate assets (including "notional" equity) in program: $38 million
See additional Note on p. 97.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
AGGREGATE LARGEST LARGEST
ACCOUNT NO. INCEPTION OF ASSETS COMPOUND RATE MONTHLY PEAK-TO-VALLEY
TRADING AUGUST 31, 1996 OF RETURN (%) DRAWDOWN % DRAWDOWN %
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 1/92 $5.9 million 1996: (15) (8 months) (14.4)-2/92 (30.5) - 4/95-7/96
1995: 21
1994: (13)
1993: 76
1992: 20
- ----------------------------------------------------------------------------------------------------------------------------------
2 1/93 $1.0 million 1996: (14) (8 months) (6.9) - 7/95 (29.0) - 4/95-7/96
1995: 21
1994: (9)
1993: 71
- ----------------------------------------------------------------------------------------------------------------------------------
3 1/94 $0.9 million 1996: (14) (8 months) (6.0) - 7/95 (26.6) - 4/95-7/96
1995: 22
1994: (8)
- ----------------------------------------------------------------------------------------------------------------------------------
4 6/94 $22.4 million 1996: (8) (8 months) (6.5) - 7/95 (22.3) - 4/95-7/96
1995: 24
1994: (2) (6 months)
- ----------------------------------------------------------------------------------------------------------------------------------
5 8/94 $4.4 million 1996: (12) (8 months) (7.1) - 7/95 (30.4) - 4/95-7/96
1995: 21
1994: (4) (5 months)
- ----------------------------------------------------------------------------------------------------------------------------------
6 1/95 $2.2 million 1996: (17) (8 months) (7.5) - 7/95 (35.5) - 5/96-7/96
1995: 13
- ----------------------------------------------------------------------------------------------------------------------------------
7 3/94 (Yen)179 million 1996: (6) (8 months) (6.7) - 7/96 (15.9) - 2/96-7/96
1995: 28
1994: (11) (10 months)
- ----------------------------------------------------------------------------------------------------------------------------------
8 4/92 closed - 9/93 1993: 63 (9 months) (11.7) - 5/92 (11.7) - 4/92-5/92
1992: 27
- ----------------------------------------------------------------------------------------------------------------------------------
9 2/92 closed - 12/92 1992: 33 (11 months) (11.5) - 2/92 (11.5) - 2/92
- ----------------------------------------------------------------------------------------------------------------------------------
10 3/94 closed - 12/94 1994: (7) (10 months) (5.4) - 5/94 (10.5) - 4/94-12/94
- ----------------------------------------------------------------------------------------------------------------------------------
11 11/93 closed - 8/95 1995: 20 (8 months) (9.0) - 8/95 (18.8) - 4/95-8/95
1994: (13)
1993: 5 (2 months)
- ----------------------------------------------------------------------------------------------------------------------------------
12 11/93 closed - 1/95 1995: (1) (1 month) (6.3) - 5/94 (16.5) - 4/94-1/95
1994: (15)
1993: 5 (2 months)
- ----------------------------------------------------------------------------------------------------------------------------------
13 12/92 closed - 3/96 1996: (4) (3 months) (4.9) - 7/95 (15.8) - 12/93-1/95
1995: 31
1994: (14)
1993: 69
1992: 0.1 (1 month)
- ----------------------------------------------------------------------------------------------------------------------------------
14 1/93 closed - 12/95 1995: (11) (6.2) - 6/95 (15.8) - 4/95-12/95
1994: (4)
1993: 43
- ----------------------------------------------------------------------------------------------------------------------------------
15 4/93 closed -9/94 1994: (19) (9 months) (5.8) - 5/94 (19.9) - 11/93-9/94
1993: 25 (9 months)
- ----------------------------------------------------------------------------------------------------------------------------------
16 1/94 closed - 8/94 1994: (7) (8 months) (5.5) - 5/94 (11.0) - 4/94-8/94
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
FUTURES TRADING IS SPECULATIVE AND INVOLVES A HIGH DEGREE OF RISK.
THE FUND'S ACCOUNT IS NOT TRADED PURSUANT TO THE FOREGOING PROGRAMS.
SEE"NOTES TO THE PERFORMANCE SUMMARIES" ON PAGES 105 THROUGH 107.
-106-
<PAGE>
JOHN W. HENRY & COMPANY, INC., TRADING PROGRAMS
PERFORMANCE SUMMARIES
YEN FINANCIAL PORTFOLIO
Name of CTA: John W. Henry & Company, Inc.
Inception of client account trading: October 1982
Inception of client account trading in program: January 1992
Number of open accounts: 7
Aggregate assets (excluding "national" equity) overall: $1.5 billion
Aggregate assets (excluding "national" equity) in program: $38 million
Aggregate assets (including "national" equity) overall: $1.5 billion
Aggregate assets (including "national" equity) in program: $38 million
See Additional Note on p.97.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Aggregate Largest Largest
Account No. Inception of Assets Compound Rate Monthly Peak-to-Valley
Trading August 31, 1996 of Return (%) Drawdown % Drawdown %
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
17 12/92 closed - 1/96 1996: 0.3 (1 month) (6.0) - 7/95 (12.4) - 4/95-10/95
1995: 27
1994: (5)
1993: 74
1992: (1) (1 month)
- ------------------------------------------------------------------------------------------------------------------------------------
18 3/94 closed - 4/96 1996: (6) (4 months) (6.2) - 7/95 (18.5) - 4/95-4/96
1995: 19
1994: (10) (10 months)
- ------------------------------------------------------------------------------------------------------------------------------------
19 12/94 closed 1996: (8) (4 months) (6.6) - 7/95 (21.1) - 4/95-4/96
1995: 18
1994: 0.2 (1 month)
- ------------------------------------------------------------------------------------------------------------------------------------
20 6/94 closed - 12/94 1994: (8) (7 months) (5.1) - 7/94 (10.4) - 6/94-11/94
- ------------------------------------------------------------------------------------------------------------------------------------
21 6/94 closed - 3/95 1995: 48 (3 months) (3.6) - 7/94 (9.9) - 6/94-1/95
1994: (7) (7 months)
- ------------------------------------------------------------------------------------------------------------------------------------
22 4/94 closed - 9/94 1994: (5) (6 months) (4.7) - 5/94 (7.0) - 4/94-9/94
- ------------------------------------------------------------------------------------------------------------------------------------
23 3/94 closed - 9/94 1994: (10) (7 months) (6.3) - 5/94 (11.0) - 4/94-9/94
- ------------------------------------------------------------------------------------------------------------------------------------
24 4/94 closed - 9/94 1994: (10) (6 months) (9.1) - 5/94 (12.9) - 4/94-9/94
- ------------------------------------------------------------------------------------------------------------------------------------
25 4/93 closed - 12/94 1994: (17) (6.1) - 5/94 (17.9) -11/93-12/94
1993: 27 (9 months)
- ------------------------------------------------------------------------------------------------------------------------------------
26 9/93 closed - 12/94 1994: (12) (6.0) - 5/94 (14.1) - 4/94-12/94
1993: 3 (4 months)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
FUTURES TRADING IS SPECULATIVE AND INVOLVES A HIGH DEGREE OF RISK.
THE FUND'S ACCOUNT IS NOT TRADED PURSUANT TO THE FOREGOING PROGRAMS.
SEE "NOTES TO THE PERFORMANCE SUMMARIES" ON PAGE 105 THROUGH 107.
-107-
<PAGE>
Chesapeake Capital Corporation, one of the three current "core" Advisors, will,
if requested, trade "notional" equity for clients -- i.e., trade such clients'
accounts as if more equity were committed to such accounts than is, in fact, the
case. The Fund's accounts do not include any notional equity.
NOTES TO THE PERFORMANCE SUMMARIES
1. Name of CTA is the name of the "core" Advisor which directed the accounts
included in the performance summary.
2. Name of program is the name of the trading program used by the "core"
Advisor in directing the accounts included in the performance summary.
3. Inception of client account trading by CTA is the date on which the
relevant "core" Advisor began directing client accounts.
4. Inception of client account trading in program is the date on which the
relevant "core" Advisor began directing client accounts pursuant to the
program shown in the performance summary.
5. Number of open accounts is the number of accounts directed by the relevant
"core" Advisor pursuant to the program shown in the performance summary, as
of the end of the period covered by the performance summary.
6. Aggregate assets (excluding "notional" equity) overall is the aggregate
amount of actual assets under the management of the relevant "core" Advisor
in all programs operated by such "core" Advisor, as of the end of the
period covered by the performance summary. With respect to ARA and
Chesapeake, these numbers include client funds only. With respect to JWH,
these numbers also include proprietary funds; however, all proprietary
funds are traded in the same manner and charged the same fees as client
funds, and the proprietary funds are, in any event, not material in terms
of the overall assets managed by JWH.
7. Aggregate assets (excluding "notional" equity) in program is the aggregate
amount of actual assets under the management of the relevant "core" Advisor
in the program shown in the performance summary, as of the end of the
period covered by the performance summary. With respect to ARA and
Chesapeake, these numbers include client funds only. With respect to JWH,
these numbers may also include proprietary funds (as described in the notes
to the performance summaries); however, all proprietary funds are traded in
the same manner and charged the same fees as client funds, and the
proprietary funds are, in any event, not material in terms of the overall
assets managed by JWH.
8. Aggregate assets (including "notional" equity) overall is the aggregate
amount of total equity, including "notional" equity, under the management
of the relevant "core" Advisor in all programs operated by such "core"
Advisor, as of the end of the period covered by the performance summary.
"Notional" equity represents the additional amount of equity which exceeds
the amount of equity actually committed to the "core" Advisor for
management. With respect to ARA and Chesapeake, these numbers include
client funds only. With respect to JWH, these numbers also include
proprietary funds (as described in the notes to the performance summaries);
however, all proprietary funds are traded in the same manner and charged
the same fees as client funds, and the proprietary funds are, in any event,
not material in terms of the overall assets managed by JWH.
9. Aggregate assets (including "notional" equity) in program is the aggregate
amount of total equity, including "notional" equity, under the management
of the relevant "core" Advisor in the program shown in the performance
summary, as of the end of the period covered by the performance summary.
"Notional" equity represents the additional amount of equity which exceeds
the amount of equity actually committed to the "core" Advisor for
management. With respect to ARA and Chesapeake, these numbers include
client funds only. With respect to JWH, these numbers may also include
proprietary funds (as described in the notes to the performance summaries);
however, all proprietary funds are traded in the same manner and charged
the same fees as client funds, and the proprietary funds are, in any event,
not material in terms of the overall assets managed by JWH.
-108-
<PAGE>
NOTES TO THE PERFORMANCE SUMMARIES
(CONT.)
10. Largest monthly drawdown, is the largest monthly loss experienced by the
relevant program on either a composite or individual account basis, unless
noted otherwise, in any calendar month covered by the performance summary
and includes the month and year of such drawdown.
With respect to ARA's Alpha Program, largest monthly drawdown is the
largest monthly loss experienced by the Alpha Fund. The CFTC has approved
use of the Alpha Fund for these purposes as it is representative of the
performance of many of the accounts traded pursuant to the Alpha
program.
With respect to Chesapeake's programs, largest monthly drawdown is the
largest monthly loss experienced by the program on a composite basis in any
calendar month expressed as a percentage of the total equity (including
notional equity) in the program. A small number of accounts managed by
Chesapeake have experienced monthly drawdowns which are materially larger
than the largest composite monthly drawdown. These variances result from
such factors as small account size, intra-month account opening or closing,
significant intra-month additions or withdrawals and investment
restrictions imposed by the client. Small account sizes refers to accounts
of $1,000,000 trading level or less, which is substantially below the
minimum account size currently required by Chesapeake for new
accounts.
With respect to JWH's programs, the largest monthly drawdown for an
individual account within a program was determined after identification of
the three largest monthly drawdowns on a composite basis for each
investment program. Within the three months in which the largest composite
monthly drawdowns occurred, individual accounts were reviewed for each
program. The individual account which experienced the largest loss in those
months is the account shown as having the largest individual monthly
drawdown for the investment program. Some individual accounts were excluded
from review if they were being phased in or out, opened or closed during
the month or if material intra-month additions or redemptions were
made.
Differences between the largest monthly drawdown for an individual account
and the largest monthly drawdown on a composite basis for a program are due
to, among other factors, the reasons noted on pages 96 and 97.
11. Largest peak-to-valley drawdown is the largest percentage decline (after
eliminating the effect of additions and withdrawals) during the period
covered by the performance summary from any month-end net asset value,
without such month-end net asset value being equalled or exceeded as of a
subsequent month-end. Largest peak-to-valley drawdown is calculated on the
basis of the loss experienced in the program either on an individual
account or a composite basis, unless noted otherwise, expressed as a
percentage of the total equity (including "notional" equity) in the
program. Individual accounts managed by a "core" Advisor may have
experienced larger peak-to-valley drawdowns. JWH calculates the period over
which the largest peak-to-valley drawdown of a program has occurred as
beginning with the last profitable month immediately preceding the
drawdown. Chesapeake calculates such period as beginning with the first
unprofitable month of the drawdown.
With respect to ARA's Alpha Program, largest peak-to-valley drawdown is the
largest percentage decline experienced by the Alpha Fund. The CFTC has
previously approved use of the Alpha Fund for these purposes as it is
representative of the performance of many of the accounts traded pursuant
to the Alpha program.
With respect to Chesapeake's programs, a small number of accounts managed
by Chesapeake have experienced peak-to-valley drawdowns which are
materially larger than the largest composite peak-to-valley drawdown. These
variances result from such factors as small account size, intra-month
account opening or closing, significant intra-month additions or
withdrawals and investment restrictions imposed by the client.
12. Monthly Rates of Return, in accordance with CFTC rules, are shown only for
the specific programs currently being traded by the "core" Advisors for the
Fund.
With respect to ARA's Gamma Program, the Monthly Rate of Return for each
month is calculated by dividing net performance by beginning equity, except
when there are significant additions or withdrawals
-109-
<PAGE>
NOTES TO THE PERFORMANCE SUMMARIES
(CONT.)
during a month. In such instances, beginning equity is adjusted to
reflect the pro rata participation of the capital available for
trading.
With respect to Chesapeake's Diversified Program, the Monthly Rate of
Return for each month beginning January 1994 is calculated by dividing the
net performance of the "Fully-Funded Subset" by the beginning equity of
the Fully-Funded Subset, except in periods of significant additions or
withdrawals to the accounts in the Fully-Funded Subset. In such
instances, the Fully-Funded Subset is adjusted to exclude accounts with
significant additions or withdrawals, whose inclusion would materially
distort the rate of return calculated pursuant to the Fully-Funded Subset
method.
The Monthly Rate of Return for each month prior to January 1992 is
calculated using the Only Accounts Traded (OAT) method (see "Chesapeake
Capital Corporation -- Past Performance"), which uses net performance
divided by beginning equity, subject to certain adjustments. In this
calculation, accounts are excluded from both net performance and beginning
equity if their inclusion would materially distort the Monthly Rate of
Return. The excluded accounts include (1) accounts for which there has been
a material addition or withdrawal during the month, (2) accounts which were
open for only part of the month or (3) accounts which had no open positions
during the month due to the intention to permanently close the account.
Such accounts were not charged with material nonrecurring costs during the
month.
The Monthly Rate of Return for the months from January 1992 through April
1994 was calculated using both the Fully-Funded Subset and OAT methods of
computation, as described herein. No material differences were noted
between the Monthly Rates of Return computed using each method.
With respect to JWH's Financial and Metals Portfolio, the Monthly Rate of
Return for each month is calculated by dividing net performance by the sum
of beginning equity plus additions and minus withdrawals. For such
purposes, all additions and withdrawals are effectively treated as if they
had been made on the first day of the month even if, in fact, they occurred
later, unless, beginning in December 1991, they are material to the
performance of the Financial and Metals Portfolio, in which case they are
time-weighted.
The Monthly Rates of Return for both of the current "core" Advisors are, in
certain cases, calculated on the basis of assets under management including
proprietary capital. However, both of the current "core" Advisors believe
that the inclusion of such capital has had no material effect on their
Monthly Rates of Return.
13. Compound Rate of Return is calculated by multiplying on a compound basis
each of the Monthly Rates of Return and not by adding or averaging such
Monthly Rates of Return. For periods of less than one year, the results are
year-to-date.
-110-
<PAGE>
PERFORMANCE OF THE
PUBLIC SINGLE-ADVISOR FUTURES FUNDS OPERATED BY MLIP
GENERAL
The following is summary performance information for the six single-
advisor funds which MLIP has dis tributed other than as part of its "Managed
Account Program" (which consists of private placements and "feeder funds" which
invest all of their assets directly into different managers' private
funds).
All summary performance information is current as of August 31, 1996.
Performance information is set forth for the most recent five full years of each
fund. Performance information prior to January 1, 1991 has not been included, in
accordance with CFTC regulations.
Four of the funds presented (The Futures Expansion Fund Limited
Partnership, World Currencies Limited, ML JWH Strategic Allocation Fund L.P. and
ML JWH Strategic Allocation Fund Ltd.) have fee structures and interest
arrangements generally comparable to that of the Fund (although these funds,
being single-advisor pools, pay profit shares only in respect of overall fund
performance, not on an advisor-by-advisor basis). The other funds, The Growth
and Guarantee Fund L.P. and InterRate(TM) Limited, were designed as "index" and
yield enhancement funds, respectively, and pay (paid, in the case of The Growth
and Guarantee Fund L.P. -- Series B and InterRate(TM) Limited, each of which has
dissolved) reduced fees.
THE FUNDS WHOSE PERFORMANCE IS SUMMARIZED IN THIS SECTION ARE
MATERIALLY DIFFERENT FROM THE FUND, AND THE PERFORMANCE SUMMARIES OF SUCH FUNDS
ARE NOT REPRESENTATIVE OF HOW THE FUND HAS PERFORMED TO DATE NOR INDICATIVE OF
HOW THE FUND WILL PERFORM IN THE FUTURE.
"MANAGED ACCOUNT PROGRAM" SINGLE-ADVISOR FUNDS NOT PRESENTED
MLIP currently has sponsored, and continues to operate, five single-
advisor funds, as well as several single-advisor "feeder funds," as part of
MLIP's Managed Account Program. These funds are in addition to the six single-
advisor funds the records of which are summarized herein. MLIP selects the
professional advisors for the funds in the Managed Account Program. However,
each client determines with which, if any, of such advisors the client will
invest. The Managed Account Program emphasizes single-advisor funds.
In its single-advisor funds, MLIP does not implement asset allocation
strategies which MLIP does for the Fund. Nor is MLIP's trading leverage analysis
of any relevance in the context of single-advisor funds. All the assets of such
funds are simply allocated to their respective advisors.
Managed Account Program funds are privately distributed with a minimum
investment of $100,000 (although MLIP has from time to time permitted
investments of $50,000).
Although MLIP's ability to select advisors for the Managed Account
Program might be regarded as a reflection on MLIP's ability to select advisors
for its multi-advisor funds, MLIP regards the Managed Account Program and MLIP's
multi-advisor funds as qualitatively different investments. Consequently, while
MLIP will furnish, without charge, full performance records of all MLIP single-
advisor funds upon the request of any existing or prospective investor in the
Fund, such records are not set forth herein.
The three worst performing of the single-advisor Managed Account
Program funds sponsored by MLIP had, as of August 31, 1996, cumulative rates of
return, since inception, of (53.27)% (18 months), (17.67)% (43 months) and
(6.20)% (27 months).
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS, AND
MATERIAL DIFFERENCES EXIST BETWEEN THE FUNDS SET FORTH HEREIN AND THE FUND. TO
DATE, THE FUND HAS NOT PERFORMED IN A MANNER COMPARABLE TO MANY OF THESE SINGLE-
ADVISOR MLIP-SPONSORED FUNDS, AND THERE IS NO REASON TO EXPECT THAT THE FUND
WILL PERFORM IN A MANNER COMPARABLE TO ANY OF SUCH FUNDS IN THE FUTURE.
INVESTORS SHOULD NOTE THAT INTEREST INCOME MAY CONSTITUTE A
SIGNIFICANT PORTION OF A COMMODITY POOL'S INCOME AND, IN CERTAIN INSTANCES, MAY
GENERATE PROFITS WHERE THERE HAVE BEEN REALIZED AND UNREALIZED LOSSES FROM
COMMODITY TRADING.
____________________________
-111-
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
MLIP PUBLIC SINGLE-ADVISOR FUNDS
AUGUST 31, 1996
- ------------------------------------------------------------------------------------------------------------------------------------
CUMULATIVE
RATE OF
RETURN
WORST JAN.1991 TO
WORST MONTHLY PEAK-IN-VALLEY AUG.,1995
TYPE OF INCEPTION OF AGGREGATE CURRENT DRAWDOWN DRAWDOWN (OR
NAME OF FUND OFFERING TRADING SUBSCRIPTION CAPITALIZATION PERIOD PERIOD DISSOLUTION)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
The Futures Public Jan. 1987 $ 56,741,035 $ 8,766,575 (10.92)% (2/96) (17.32)% (1/91-11/91) 34.22%
Expansion Fund
Limited Partnership
- ------------------------------------------------------------------------------------------------------------------------------------
The Growth Public Aug. 1987 $148,349,450 $ 8,612,566 (4.28)% (6/91) (6.93)% (2/94-6/94) 80.33%
& Guarantee
Fund L.P. -
Series A Units
- ------------------------------------------------------------------------------------------------------------------------------------
ML JWH Strategic Public July 1996 $110,773,125 $108,525,219 (1.02)% (1.11)% (7/96-8/96) (1.11)%
Allocation Fund (7/96)
L.P.
- ------------------------------------------------------------------------------------------------------------------------------------
ML JWH Strategic Private July 1996 $ 87,272,808 $ 85,729,688 (1.05)% (7/96) (1.35)% (7/96-8/96) (1.35)%
Allocation Fund Ltd.
- ------------------------------------------------------------------------------------------------------------------------------------
The Growth Public Sept. 1987 $ 84,282,707 dissolved as (3.65)% (6/91) (4.29)% (9/91-11/91) 11.77%
& Guarantee of 12/31/91
Fund L.P. -
Series B Units
- ------------------------------------------------------------------------------------------------------------------------------------
World Currencies Private Aug. 1987 $ 47,814,293 dissolved as (13.41)% (4/92) (35.81)% (9/92-1/95) 16.19%
Limited of 4/11/96
- ------------------------------------------------------------------------------------------------------------------------------------
InterRate(TM) Private Dec. 1988 $ 7,429,200 dissolved as (10.08)% (9/92) (13.49)% (9/92-1/93) 1.07%
Limited of 1/31/94
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ---------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991
COMPOUND COMPOUND COMPOUND COMPOUND COMPOUND COMPOUND
RATE OF RATE OF RATE OF RATE OF RATE OF RATE OF
NAME OF FUND RETURN RETURN RETURN RETURN RETURN RETURN
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
The Futures (5.96)% 21.95% 5.55% 3.36% 9.23% (1.79)%
Expansion Fund (8 months)
Limited Partnership
- --------------------------------------------------------------------------------------------------
The Growth 3.94% 32.01% (2.34)% 5.20% 3.75% 23.30%
& Guarantee (8 months)
Fund L.P. -
Series A Units
- --------------------------------------------------------------------------------------------------
ML JWH Strategic (1.11)%
Allocation Fund (2 mos.)
L.P.
- --------------------------------------------------------------------------------------------------
ML JWH Strategic (1.35)%
Allocation Fund Ltd . (2 mos.)
- --------------------------------------------------------------------------------------------------
The Growth N/A N/A N/A N/A N/A 11.77%
& Guarantee
Fund L.P. -
Series B Units
- --------------------------------------------------------------------------------------------------
World Currencies 1.20% 12.23% (12.84)% (10.46)% (3.10)% 35.28%
Limited (3 1/2 months)
- --------------------------------------------------------------------------------------------------
InterRate(TM) N/A N/A 0.55% (7.02)% (2.63)% 11.03%
Limited (1 month)
- --------------------------------------------------------------------------------------------------
</TABLE>
"WORST MONTHLY DRAWDOWN" AS USED HEREIN MEANS THE LARGEST
NEGATIVE MONTHLY RATE OF RETURN EXPERIENCED BY THE RELEVANT FUND DURING
THE PERIOD COVERED BY THE PERFORMANCE SUMMARY. A "DRAWDOWN" IS MEASURED ON
THE BASIS OF MONTH-END FIGURES ONLY, AND DOES NOT REFLECT INTRA-MONTH
PERFORMANCE.
"WORST PEAK-TO-VALLEY DRAWDOWN" AS USED HEREIN MEANS THE GREATEST
PERCENTAGE DECLINE, DURING THE PERIOD COVERED BY THE PERFORMANCE SUMMARY,
FROM A MONTH-END CUMULATIVE MONTHLY RATE OF RETURN WITHOUT SUCH CUMULATIVE
MONTHLY RATE OF RETURN BEING EQUALLED OR EXCEEDED AS OF A SUBSEQUENT
MONTH-END. FOR EXAMPLE, IF THE MONTHLY RATE OF RETURN OF A PARTICULAR
FUND WAS (1)% IN EACH OF JANUARY AND FEBRUARY, 1% IN MARCH AND (2)% IN
APRIL, A "PEAK-TO-VALLEY DRAWDOWN" ANALYSIS CONDUCTED AS OF THE END OF
APRIL WOULD CONSIDER THAT "DRAWDOWN" TO BE STILL CONTINUING AND TO BE
APPROXIMATELY (3)% IN AMOUNT, WHEREAS IF THE MONTHLY RATE OF RETURN HAD
BEEN APPROXIMATELY 3% IN MARCH, THE JANUARY-FEBRUARY DRAWDOWN WOULD HAVE
ENDED AS OF THE END OF FEBRUARY AT APPROXIMATELY THE (2)% LEVEL.
MONTHLY RATE OF RETURN IS THE NET PERFORMANCE OF THE FUND DURING
THE MONTH OF DETERMINATION (INCLUDING INTEREST INCOME AND AFTER ALL
EXPENSES ACCRUED OR PAID) DIVIDED BY THE TOTAL EQUITY OF THE FUND AS OF
THE BEGINNING OF SUCH MONTH.
PURCHASERS OF UNITS WILL ACQUIRE NO INTEREST IN THESE FUNDS. PAST
PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS, AND THESE
FUNDS ARE TRADED PURSUANT TO MATERIALLY DIFFERENT PROGRAMS AND WITH
MATERIALLY DIFFERENT OBJECTIVES THAN THE FUND.
-112-
<PAGE>
THE ROLE OF MANAGED FUTURES IN AN INVESTMENT PORTFOLIO
MANAGED FUTURES AS AN ELEMENT IN MODERN PORTFOLIOS
This section presents a general description of the possible role of a
managed futures investment in an overall portfolio. Prospective investors are
cautioned that what may be true of managed futures investments considered in
general may well not be true of the Fund. The Fund does not purport to offer the
full diversification and access to "global trading" which is reflected in the
investment opportunities available in the managed futures industry considered as
a whole. The following statements are qualified in their entirety by the
specific descriptions of the Fund, the Trading Advisors, their strategies and
the markets traded by the Fund set forth herein and elsewhere in this
Prospectus.
A global investment perspective may be appropriate in seeking
investment opportunity and increased portfolio diversification. The
globalization of the world's economy offers significant new opportunities.
However, world political and economic events have an influence -- often a
dramatic influence -- on its markets, creating increased risk and volatility.
The market volatility of recent years suggests that stable growth may be
becoming increasingly difficult to achieve.
Over the long term, portfolios are benefitted by having the ability to
adapt to changing social, political and economic trends. A well-diversified
asset allocation strategy enhances this ability and offers a flexible approach
to the objective of building and protecting wealth in today's economic
environment. Incorporating a managed futures investment into portfolios as part
of a well-diversified asset allocation strategy has the potential, if the
managed futures investment is successful, to increase profits while reducing
overall portfolio risk. The Fund's performance to date has been volatile
(volatility being one commonly accepted measure of risk). There can be no
assurance that the Fund will trade successfully, and if it does not do so an
investment in the Fund cannot provide beneficial diversification to a portfolio.
Furthermore, even if profitable, the Fund may not be a successful
diversification of an investor's stock and bond portfolio because the Fund's
performance may be correlated (i.e., experiencing generally similar returns
during similar periods) with these markets. The past performance of the Fund is
not necessarily indicative of its future results.
An asset allocation strategy diversifies a portfolio into a variety of
different components such as stocks, bonds and cash equivalents. Such a strategy
may also include, to a limited extent, non-traditional investments such as
managed futures (among a variety of alternatives). The goal is to achieve the
twin investment objectives of long-term total return combined with reduced
portfolio volatility and limited risk of major losses. An investment's
anticipated return, relative risk level and historical correlation with the
other components in the portfolio should be principal factors taken into account
in allocating a portfolio's assets. Different investment components are expected
to respond differently to changing economic conditions. Consequently, combining
a number of such components may add a potentially valuable element of
diversification to an overall portfolio. There can be no assurance that the Fund
will not respond to prevailing economic conditions in the same manner, as well
as incur losses at or about the same time, as the general debt and equity
markets.
PROFESSIONAL MANAGEMENT
Depending upon the fund and advisors selected, an investment in
managed futures has the potential to offer access to professionally managed
trading in a variety of commodity markets, including currencies, interest rates,
stock indices, energy, metals and agriculture. These markets may be traded
through futures, options on futures and forward contracts, and offer the ability
to trade either side of a market and at a wide range of different leverage
factors. The Fund does not trade in all, or even most, of the available markets,
and its positions may frequently be concentrated in particular markets and
sectors. There is, in many cases, substantial overlap among the markets traded
by the Advisors. The "concentrated" multi-advisor program implemented by the
Fund should, over time, result in the Fund's trading being less diversified than
in the case of many multi-advisor funds.
-113-
<PAGE>
[PIE CHARTS OF FUTURES VOLUME BY MARKET SECTOR APPEARS HERE]
The futures volume figures and market sector distributions
presented above include both speculative and hedging
transactions, as well as options on futures. Source:
Futures Industry Association. A significant portion of
currency trading is done in the forward rather than in the
futures markets, and, accordingly, is not reflected in the
foregoing chart.
The futures markets have expanded in recent years to include a wide
range of instruments representing major sectors of the world's economy.
Coinciding with the development of an increasingly broad range of markets has
been greatly increased liquidity. The expansion of futures trading on major
exchanges in Chicago, Frankfurt, London, New York, Paris, Singapore, Sydney and
Tokyo offers the possibility of access to international market sectors as well
as the potential for a global diversification of portfolios traditionally
concentrated in a single nation's economy and currency. Managed futures advisors
are often able quickly to deploy and redeploy capital across a wide range of
international markets. No representation is or could be made that the
diversification or internationalization of futures trading in general has been
or will be reflected in the trading of the Fund.
At the same time that the rapid geographical expansion of the
available markets and the introduction of an array of innovative products have,
in the case of certain managers, created new opportunities for both profit and
diversification, these developments have made trading very much more complex and
difficult for the individual investor. Managed futures investments offer the
investor the opportunity to participate in a range of different economic sectors
through the futures, options on futures and forward markets, utilizing
professional money managers. Managed futures investments have profit potential,
but also involve a high degree of risk. A managed futures investment is suitable
only for a limited portion of the risk segment of a portfolio.
SUBSTANTIAL INVESTOR PARTICIPATION
A large number of investors, both individuals and institutions
(although only a small percentage of the investing public), have committed a
limited portion of their assets to managed futures during the last 10 to 15
years. In 1980, client assets in the managed futures industry were estimated by
Managed Account Reports ("MAR"), a leading industry publication in the United
States, at approximately $0.3 billion. As of the end of 1995, the same
publication estimated such assets, which peaked at around an estimated $25
billion as of the end of 1993, at approximately $21.1 billion. Of this amount,
approximately $2.5 billion to $3.5 billion is invested in pools such as the
Fund, publicly distributed in the
-114-
<PAGE>
APPENDIX I
INCENTIVE OVERRIDE AND PROFIT SHARE CALCULATIONS IN AN OPEN-END FUND
SEE "CHARGES."
Because (i) the Fund is open-ended, both selling Units as of the
beginning, and permitting redemptions of Units as of the end, of each month, and
(ii) maintains a uniform Net Asset Value per Unit, the calculation of Incentive
Overrides and Profit Shares is significantly more complicated than in the case
of a closed-end fund. In order to maintain a uniform Net Asset Value per Unit
while selling Units at different times and, consequently, at different Net Asset
Values -- with the result that different Units will realize different amounts of
profit and loss, as well as generate different amounts of Net New Gain and New
Trading Profit -- it is necessary to adopt certain conventions regarding how
incentive compensation will be allocated equally (so as to maintain a uniform
Net Asset Value per Unit) among all outstanding and newly offered Units.
Selecting which of these conventions to employ is a matter of balancing
administrative feasibility and convenience with the economic treatment accorded
to MLIP, the Advisors and the investors. The following describes in detail the
manner in which the Fund calculates the Incentive Override and Profit Shares.
There are a number of other methods which the Fund might have elected to use
instead of the following, some of which would be more, and some less, favorable
to MLIP and the Advisors.
INCENTIVE OVERRIDES
FOR THE COMPONENTS INCLUDED IN NET NEW GAIN AND THE MEANING OF
"UNADJUSTED NAV," "ADJUSTED NAV" AND "HIGH WATER MARK NAV," SEE "CHARGES --
INCENTIVE OVERRIDES" AT PAGE 38.
Net New Gain, on the basis of which the Incentive Override is
calculated, is based on increases in the Unadjusted NAV over the applicable High
Water Mark NAV (or, in the year of purchase, the Adjusted NAV at which Units are
purchased, if higher). Such an increase might not, in years subsequent to the
year of purchase, represent an increase over the Adjusted NAV at which an
investor subscribed to the Fund. The Incentive Override equals 10% of the Net
New Gain outstanding as of each calendar year-end and a pro rata portion of 10%
of the Net New Gain outstanding at the time Units are redeemed.
As an example, assume ten Units are sold January 1, 1996, which
for purposes of this example will be assumed to be commencement of trading, at
an Adjusted NAV of $100, and as of January 31, 1996 the Unadjusted NAV equals
$110. Net New Gain would equal $100 ($10 per Unit). Consequently, an Incentive
Override of $10 would be accrued, and the Adjusted NAV would be $109. If five
Units were purchased as of February 1, 1996 (at $109 per Unit, the Unadjusted
NAV of $110 less the accrued Incentive Override of $1 per Unit), and the
Unadjusted NAV as of February 28, 1996 equalled $105, there would have been a
loss in February 1996 of $60 (i.e., a $4 loss on each of 15 Units), which would
be charged equally to the 15 Units outstanding at the end of February. This $60
negative Net New Gain would reduce the $100 of Net New Gain accrued in respect
of January, leaving cumulative Net New Gain of $40 ($2.67 per Unit) and an
accrued Incentive Override of $4 ($0.267 per Unit). The $6 of previously accrued
Incentive Override reversed as of the end of February would be included in the
February 28, 1996 Adjusted NAV, which would equal $105.40. The same calculation
is made for each month of the calendar year. As of the end of each month,
Unadjusted NAV is determined, and the aggregate difference, in respect of all
outstanding Units, between such Unadjusted NAV and the Adjusted NAV as of the
beginning of the month constitutes the incremental Net New Gain (positive or
negative) for such month, subject to possible adjustments to reflect the High
Water Mark NAV and the Adjusted NAV at which Units were purchased during the
year of determination.
Assume that Units are sold as of January 1, 1996, April 1, 1996
and July 1, 1996 at Adjusted NAVs of $100, $103 and $90, respectively. Also
assume that the Unadjusted NAV as of December 31, 1996 is $102. As of December
31, 1996 (and before adjustment for the Incentive Override accrual), the January
1, 1996 Units would have
APPI-1
<PAGE>
increased in value by $2, the April 1, 1996 Units would have declined in value
by $1 and the July 1, 1996 Units would have increased in value by $12. MLIP
would calculate -- as it would on a cumulative basis as of each month-end during
the year -- Net New Gain equal to $2, ($1) and $2, respectively, for each Unit
sold at these different dates. The Units sold at $90 would, in fact, have
appreciated in value by $12 per Unit (prior to accrual of the Incentive
Override), but would make only a $2 per Unit contribution to Net New Gain,
because Net New Gain would only be generated on such Units to the extent that
the Unadjusted NAV exceeded $100 (the High Water Mark NAV). The amount of
Incentive Override (if any) due as of December 31, 1996 would depend on the
number of Units sold on each of the respective dates. If 10, 5 and 5 Units were
sold as of January 1, 1996, April 1, 1996 and July 1, 1996, respectively, total
Net New Gain as of December 31, 1996 would equal $20 minus $5 plus $10, or $25,
resulting in an Incentive Override of $2.50 or $0.125 per Unit; if 5, 10 and 5
Units were sold on such dates, total Net New Gain as of December 31, 1996 would
equal $10 minus $10 plus $10, or $10, resulting in an Incentive Override of
$1.00 or $0.05 per Unit. Whatever the resulting Incentive Override, it would be
paid by the Fund as a whole and a uniform Net Asset Value per Unit maintained,
even though certain Units had incurred a loss. On the other hand, the Net Asset
Value of the Units sold at $90, which Units, considered on a stand-alone basis,
should pay an Incentive Override of $1.20 on their $12 increase in Unadjusted
NAV, would reflect the same reduction as a result of the Incentive Override
accrual as all other Units. In 1997, Net New Gain would be generated on all such
Units (including the Units sold at $103) to the extent that the Unadjusted NAV
exceeded $102, reduced by any Incentive Override paid on December 31, 1996
(i.e., the new High Water Mark NAV). Accordingly, if the Incentive Override for
1996 were $0.05 per Unit and the Unadjusted NAV as of December 31, 1997 were
$110, the Incentive Override for 1997 would equal 10% of the result of
subtracting from such $110 Unadjusted NAV the High Water Mark NAV of $101.95
(resulting in a total Net New Gain and Incentive Override per Unit of $8.05 and
$0.805, respectively).
Unadjusted NAVs, Adjusted NAVs and High Water Mark NAVs are, in
all cases, exclusive of interest income, which is not included in Net New Gain.
INCENTIVE OVERRIDE ACCRUALS
Assume that one Unit is purchased, at the commencement of
trading, for $100 as of January 1, 1996, a second Unit as of July 1, 1996 and
that only these two Units are outstanding through December 31, 1996. If at July
1, 1996 the Fund's single outstanding Unit had earned cumulative trading profits
of $10, and the Fund subsequently generates no net profits or losses through
December 31, 1996, the Fund as a whole will pay the $1 Incentive Override due as
of December 31, 1996. However, the investor who acquired his Unit as of July 1,
1996 would do so at an Adjusted NAV that reflects a reduction for the $1
Incentive Override accrued as of June 30, 1996. Consequently, although as of
June 30, 1996 there would be $110 per Unit (the single outstanding Unit) in cash
held in the Fund's account, the investor as of July 1, 1996 would subscribe at
$109 per Unit -- i.e., the cash value per Unit less the accrued Incentive
Override (the Adjusted NAV). The cash value of the Fund as of December 31, 1996
would, accordingly, equal (A) $110 (the $100 subscription price plus the $10 of
trading profit earned through June 30, 1996) plus (B) $109 (the $109
subscription price of the Unit sold July 1, 1996). By assumption, no incremental
Net New Gain would be recognized during the period July 1, 1996 -- December 31,
1996, as the Adjusted NAV as of December 31, 1996 (which is calculated after
reduction for the Incentive Override accrued as of July 1, 1996) would equal
$109 -- the same as the Adjusted NAV as of July 1, 1996. From the aggregate cash
value of the Fund, $219, a $1 Incentive Override (10% of the $10 of Net New Gain
accrued as of June 30, 1996 and retained through December 31, 1996) would be
paid by the Fund to MLIP, leaving a final Fund Net Asset Value of $218 which
would be shared equally among the two Units, resulting in an Adjusted NAV of
$109. The July 1, 1996 investor who bought into the Fund at $109 would have
experienced no gain or loss through December 31, 1996, at which time his Unit
would continue to have an Adjusted NAV of $109 after payment of the Incentive
override. Furthermore, the January 1, 1996 investor who realized $10 in Net New
Gain would also appropriately have a $109 Adjusted NAV after payment of the
Incentive Override. In the foregoing situation, the combination of having the
Fund as a whole pay the Incentive Override and permitting the second investor to
invest at the Adjusted NAV which is reduced by the accrued Incentive Override
effectively and equitably allocates to the first investor the Incentive Override
attributable to the Net New Gain generated by such first investor's Unit.
APPI-2
<PAGE>
INCENTIVE OVERRIDE REVERSALS
A comparably equitable distribution of the accrued Incentive
Override is not achieved in the case where an investor subscribes for Units at a
price reduced by an accrued Incentive Override, if such accrual is later
reversed due to a decline in Net New Gain. Using the example of the two Units
sold as of January 1, 1996 and July 1, 1996, if between July 1, 1996 and
December 31, 1996 the Fund incurred a loss of $19, the Unadjusted NAV as of
December 31, 1996 would equal (A) the $218 cash value of the Fund as of December
31, 1996 minus the $19 loss, divided by (B) the number of outstanding Units (2),
or $99.50. However, no Net New Gain would remain at year-end, so that the Fund's
Net Asset Value would increase by the reversal of the previously accrued $1
Incentive Override, and the Adjusted NAV would equal $100. This would mean that
in the period July 1, 1996 -- December 31, 1996, the cash value of the Unit sold
as of January 1, 1996 would have declined by $10, but the cash value of the Unit
sold as of July 1, 1996 by only $9. The misallocation results because the July
1, 1996 investor, who effectively received full "credit" for the Incentive
Override accrued as of his July 1, 1996 subscription date by having the sale
price of his Unit reduced by a full $1, shares in the Incentive Override
reversal in the July 1, 1996 -- December 31, 1996 period. On a cash basis, the
original Unit should have a capital account as of December 31, 1996 of $110 --
$9.50, or $100.50. Similarly, the second Unit should have a capital account of
$109 -- $9.50, or $99.50. However, although the second investor was permitted to
buy into the Fund at the Adjusted NAV which assumed that the $1 accrued
Incentive Override had been paid out of the Fund (which would have reduced the
first investor's cash value from $110 to $109), he, in fact, divides the benefit
of the reversal of this accrued Incentive Override equally with the first
investor. Both subscribers' capital accounts are reduced from $109 to $99.50 by
the trading losses and then both are increased to $100 by the $0.50 per Unit
Incentive Override reversal.
An entirely equitable allocation of Incentive Override reversals
would require MLIP, on an ongoing basis, either to issue fractional Units or to
make cash distributions to the appropriate Limited Partners in order to
compensate them for misallocations of these reversals. Either of these
alternatives would, MLIP believes, be infeasible in the context of operating a
large, open-end public investment fund such as the Fund. Alternatively, MLIP
could have elected to calculate and pay out Incentive Overrides on the same
timing cycle as the Fund permits investors to purchase Units, so that no
investors would subscribe at a time when the Adjusted NAV reflected a reduction
for accrued but unpaid Incentive Overrides which might subsequently be reversed.
However, MLIP believes that a one month Incentive Override calculation period
would be inconsistent with the Fund's medium to long-term trading approach.
THE YEAR OF PURCHASE
In their year of purchase, Units contribute negative Net New Gain
to the extent that the Unadjusted NAV is (i) less than their purchase price but
(ii) equal to or greater than the High Water Mark NAV. This does not mean that
the Fund as a whole might not pay an Incentive Override despite such Units
having declined in value. If in the example set forth under "-- INCENTIVE
OVERRIDE ACCRUALS," above, the Adjusted NAV had declined to $102 as of September
30, 1996, one more Unit was purchased as of October 1, 1996, and the Unadjusted
NAV as of December 31, 1996 was $106, Net New Gain would equal a total of $7,
i.e., $6 ($106-$100) minus $3 ($109-$106) plus $4 ($106-102), in respect of the
Units sold for $100, $109 and $102 as of January 1, 1996, July 1, 1996 and
October 1, 1996, respectively. Accordingly, the Fund as a whole would pay an
Incentive Override of 10% of $7 or $0.70, even though the Unit purchased for
$109 had generated negative Net New Gain.
PERIODS SUBSEQUENT TO THE YEAR OF PURCHASE
In the examples set forth in this Appendix I, it is assumed for
purposes of simplicity that Units are purchased January 1, 1996 at $100 per
Unit. In fact, of course, $100 was the initial purchase price of the Units at
the January 4, 1994 inception of trading. Because the Fund was profitable (not
including interest income) in 1994, the January 1, 1996 purchase price per Unit
not only exceeded $100 per Unit, but also replaced $100 as the new High Water
Mark NAV. In years subsequent to the year of purchase, Units acquired at an
Adjusted NAV in excess of the year-end Adjusted NAV which becomes the High Water
Mark NAV may generate Net New Gain on trading profits which only serve to
restore, in whole or in part, losses incurred by such Units in prior years. This
is because as of the beginning of the year following the year of purchase, the
current High Water Mark NAV is set at the highest Adjusted NAV (not including
interest income) as of any previous calendar year-end, irrespective of the
Adjusted NAV as of the date of any intra-year purchases.
APPI-3
<PAGE>
NET NEW GAIN COMPARED TO PER-UNIT AND CUMULATIVE TRADING PROFITS
Because Net New Gain is calculated by aggregating the positive
and negative changes between the Adjusted NAV and Unadjusted NAV in respect of
different tranches of Units, Net New Gain may differ substantially from what one
might have calculated on the basis of comparing the High Water Mark NAV (or the
purchase price of a particular Unit during the year of purchase, if higher) to
the Unadjusted NAV as of year-end and multiplying the result by the number of
outstanding Units. For example, assume: (A) the High Water Mark NAV is $100, ten
Units are purchased at such price and the Adjusted NAV subsequently rises to
$110 at which price 100 Units are purchased; if (B) the Unadjusted NAV
subsequently declines to $108 at which point all 100 Units purchased at $110
redeem; then (C) although the ten initial Units purchased for $100 would show a
substantial profit, no Incentive Override would be due, as the aggregate
negative Net New Gain generated when the Unadjusted NAV declined to $108 would
eliminate the aggregate positive Net New Gain generated (but on a much smaller
number of Units) on the increase in Adjusted NAV from $100 to $110. The reversal
of the Incentive Override accrued prior to the new investors' purchasing Units
would have little effect on the Adjusted NAV of the remaining Units, because the
reversal would have been shared by all Units.
Because Net New Gain is calculated on the basis of increases in
the Unadjusted NAV over the current High Water Mark NAV (or, during the year of
purchase, over the purchase price of a Unit if higher than the current High
Water Mark NAV), Net New Gain may differ significantly from cumulative trading
profits. For example, assume that ten Units are sold as of January 1, 1996 at
$100, 100 Units as of April 1, 1996 at $90 and the Unadjusted NAV as of December
31, 1996 equals $95. During 1996, the Fund as a whole would have generated
cumulative trading profits of ($50) plus $500, or $450. However, no Net New Gain
would be recognized. On the other hand, assume that ten Units are sold as of
January 1, 1996 at $100, 500 Units at $110 as of July 1, 1996, the December 31,
1996 Adjusted NAV equals $102 and as of December 31, 1997 the Unadjusted NAV is
$105. Net New Gain for 1997 would equal 510 times $3 ($105 -- $102; the
Unadjusted NAV at year-end minus the applicable High Water Mark NAV), or $1,530,
whereas there would be a cumulative trading loss of (500 times $5) plus $50 or
($2,450). Because of the ongoing purchases and redemptions of Units and the
"high water mark" method of calculating Net New Gain, cumulative trading profit
or loss has no direct relationship with Net New Gain, and neither has a direct
relationship with a Partner's investment experience in the Fund.
In all of the foregoing examples, Profit Shares, which are paid
on an Advisor-by-Advisor basis and, accordingly, have no direct relationship to
either the Adjusted NAV or the Unadjusted NAV, would also accrue and could
constitute a significant cost to the Fund. See "--Profit Shares," below.
PROFIT SHARES
The Advisors' Profit Shares are calculated, on a quarterly basis,
in the same manner that MLIP's Incentive Override is calculated on an annual
basis, except that: (i) the Profit Shares are calculated prior to reduction of
New Trading Profit by the Incentive Override (which is itself calculated after
all Profit Shares, fees and charges other than the Incentive Override itself);
(ii) each Advisor's Profit Share is calculated as if such Advisor were managing
a separate fund, rather than being based on Net New Gains generated by aggregate
changes in the overall Unadjusted NAV of all outstanding Units; and (iii) Profit
Shares are calculated quarterly based on increases in the Net Asset Value per
Unit attributable to a given Advisor over the highest attributable Net Asset
Value per Unit as of any previous calendar quarter-end (or at the time such
Advisor began managing an account for the Fund, if higher), not annually on the
basis of increases over the highest Adjusted NAV as of any previous calendar
year-end.
Prospective investors must recognize that because the Advisors'
Profit Shares are calculated on the basis of increases in the Net Asset Value
per Unit attributable to each individual Advisor's Fund account, the Profit
Shares have, irrespective of the method by which the New Trading Profit
generated by each Advisor is calculated, no direct correlation to the overall
Net Asset Value per Unit. Substantial Profit Shares may be paid even during
periods when the Fund is incurring significant losses.
APPI-4
<PAGE>
APPENDIX II
BLUE SKY GLOSSARY
SEE "INDEX OF DEFINED TERMS" FOR AN INDEX OF TERMS DIRECTLY RELATED TO THE FUND
The following definitions are included in this Appendix II in
compliance with the requirements of various state securities administrators who
review public futures fund offerings for compliance with the "Guidelines for the
Registration of Commodity Pool Programs" Statement of Policy promulgated by the
North American Securities Administrators Association, Inc. The following
definitions are reprinted verbatim from such Guidelines and may, accordingly,
not in all cases be relevant to an investment in the Fund.
DEFINITIONS -- As used in the Guidelines, the following terms
have the following meanings:
Administrator -- The official or agency administering the
security laws of a state.
Advisor -- Any person who for any consideration engages in the
business of advising others, either directly or indirectly, as to the value,
purchase, or sale of commodity contracts or commodity options.
Affiliate -- An Affiliate of a Person means: (a) any Person
directly or indirectly owning, controlling or holding with power to vote 10% or
more of the outstanding voting securities of such Person; (b) any Person 10% or
more of whose outstanding voting securities are directly or indirectly owned,
controlled or held with power to vote, by such Person; (c) any Person, directly
or indirectly, controlling, controlled by, or under common control of such
Person; (d) any officer, director or partner of such Person; or (e) if such
Person is an officer, director or partner, any Person for which such Person acts
in any such capacity.
Capital Contributions -- The total investment in a Program by a
Participant or by all Participants, as the case may be.
Commodity Broker -- Any Person who engages in the business of
effecting transactions in commodity contracts for the account of others or for
his own account.
Commodity Contract -- A contract or option thereon providing for
the delivery or receipt at a future date of a specified amount and grade of a
traded commodity at a specified price and delivery point.
Cross Reference Sheet -- A compilation of the Guideline sections,
referenced to the page of the prospectus, Program agreement, or other exhibits,
and justification of any deviation from the Guidelines.
Net Assets -- The total assets, less total liabilities, of the
Program determined on the basis of generally accepted accounting principles. Net
Assets shall include any unrealized profits or losses on open positions, and any
fee or expense including Net Asset fees accruing to the Program.
Net Asset Value Per Program Interest -- The Net Assets divided
by the number of Program Interests outstanding.
Net Worth -- The excess of total assets over total liabilities as
determined by generally accepted accounting principles. Net Worth shall be
determined exclusive of home, home furnishings and automobiles.
APPII-1
<PAGE>
New Trading Profits -- The excess, if any, of Net Assets at the
end of the period over Net Assets at the end of the highest previous period or
Net Assets at the date trading commences, whichever is higher, and as further
adjusted to eliminate the effect on Net Assets resulting from new Capital
Contributions, redemptions, or capital distributions, if any, made during the
period decreased by interest or other income, not directly related to trading
activity, earned on Program assets during the period, whether the assets are
held separately or in a margin account.
Organization and Offering Expenses -- All expenses incurred by
the Program in connection with and in preparing a Program for registration and
subsequently offering and distributing it to the public, including, but not
limited to, total underwriting and brokerage discounts and commissions
(including fees of the underwriter's attorneys), expenses for printing,
engraving, mailing, salaries of employees while engaged in sales activity,
charges of transfer agents, registrars, trustees, escrow holders, depositories,
experts, expenses of qualification of the sale of its Program Interest under
federal and state law, including taxes and fees, accountants' and attorneys'
fees.
Participant -- The holder of a Program Interest.
Person -- Any natural Person, partnership, corporation,
association or other legal entity.
Pit Brokerage Fee -- Pit Brokerage Fee shall include floor
brokerage, clearing fees, National Futures Association fees, and exchange fees.
Program -- A limited partnership, joint venture, corporation,
trust or other entity formed and operated for the purpose of investing in
Commodity Contracts.
Program Broker -- A Commodity Broker that effects trades in
Commodity Contracts for the account of a Program.
Program Interest -- A limited partnership interest or other
security representing ownership in a program.
Pyramiding -- A method of using all or a part of an unrealized
profit in a Commodity Contract position to provide margin for any additional
Commodity Contracts of the same or related commodities.
Sponsor -- Any Person directly or indirectly instrumental in
organizing a Program or any Person who will manage or participate in the
management of a Program, including a Commodity Broker who pays any portion of
the Organization Expenses of the Program, and the general partner(s) and any
other Person who regularly performs or selects the Persons who perform services
for the Program. Sponsor does not include wholly independent third parties such
as attorneys, accountants, and underwriters whose only compensation is for
professional services rendered in connection with the offering of the units. The
term "Sponsor" shall be deemed to include its Affiliates.
Valuation Date -- The date as of which the Net Assets of the
Program are determined.
Valuation Period -- A regular period of time between Valuation
Dates.
APPII-2
<PAGE>
EXHIBIT A
ML GLOBAL HORIZONS L.P.
FOURTH AMENDED AND RESTATED
LIMITED PARTNERSHIP AGREEMENT
DATED AS OF
SEPTEMBER 30, 1996
MERRILL LYNCH INVESTMENT PARTNERS INC.
GENERAL PARTNER
<PAGE>
ML GLOBAL HORIZONS L.P.
FOURTH AMENDED AND RESTATED
LIMITED PARTNERSHIP AGREEMENT
This Fourth Amended and Restated Limited Partnership Agreement (the
"Limited Partnership Agreement") is made as of September 30, 1996, by and among
MERRILL LYNCH INVESTMENT PARTNERS INC., a Delaware corporation, as general
partner (the "General Partner"), and each other party who becomes a party to
this Fourth Amended and Restated Limited Partnership Agreement as a limited
partner (individually, a "Limited Partner" and, collectively, the "Limited
Partners") (the General Partner and the Limited Partners being collectively
referred to herein as "Partners").
WITNESSETH:
1. Formation and Name.
The parties hereto do hereby form and continue a limited partnership under
the Delaware Revised Uniform Limited Partnership Act, as amended (the "Act").
The name of the limited partnership is ML GLOBAL HORIZONS L.P. (the
"Partnership").
2. Principal Office.
The address of the principal office of the Partnership shall be c/o the
General Partner, Merrill Lynch World Headquarters, 6th Floor, South Tower, World
Financial Center, New York, New York 10080-6106; telephone: (212) 236-4167. 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, and 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.
3. Business.
The Partnership's business and purpose is to trade, buy, sell or otherwise
acquire, hold or dispose of forward contracts, futures contracts for
commodities, financial instruments and currencies, any rights pertaining thereto
and any options thereon or on physical commodities, as well as securities and to
engage in all activities necessary, convenient or incidental thereto. The
Partnership may also engage in "hedge," arbitrage and cash trading of
commodities, futures, forwards and options. The objective of the Partnership's
business is appreciation of its assets through speculative trading.
4. Term, Dissolution, Fiscal Year and Net Asset Value.
(a) Term. The term of the Partnership commenced on the day on which the
Certificate of Limited Partnership was filed with the Secretary of State of the
State of Delaware pursuant to the provisions of the Act and shall end upon the
first to occur of the following: (1) December 31, 2023; (2) receipt by the
General Partner of an approval to dissolve the Partnership at a specified time
by Limited Partners owning units of limited partnership interest ("Units")
representing more than fifty percent (50%) in Net Asset Value of the outstanding
Units then owned by Limited Partners, notice of which is sent by certified mail
return receipt requested to the General Partner not less than 90 days prior to
the effective date of such dissolution; (3) withdrawal, insolvency or
dissolution of the General Partner or any other event that causes the General
Partner to cease to be a general partner unless (i) at the time of such event
there is at least one remaining general partner of the Partnership who carries
on the business of the Partnership (and each remaining general partner of the
Partnership is hereby authorized to carry on the business of the Partnership in
such an event), or (ii) within ninety days after such event all
LPA-1
<PAGE>
Partners agree in writing to continue the business of the Partnership and to the
appointment, effective as of the date of such event, of one or more general
partners of the Partnership; (4) a decline in the aggregate Net Assets of the
Partnership to less than $250,000; (5) dissolution of the Partnership pursuant
hereto; or (6) any other event which shall make it unlawful for the existence of
the Partnership to be continued or require termination of the Partnership.
(b) Dissolution. Upon the occurrence of an event causing the dissolution
of the Partnership, the Partnership shall be dissolved and terminated.
(c) Fiscal Year. The fiscal year of the Partnership shall begin on
January 1 of each year and end on the following December 31.
(d) Net Asset Value. Net Assets of the Partnership are its assets less
its liabilities determined in accordance with generally accepted accounting
principles. If a contract cannot be liquidated on the day with respect to which
Net Assets are being determined, the settlement price on the first subsequent
day on which the contract can be liquidated shall be the basis for determining
the liquidating value of such contract for such day, or such other value as the
General Partner may deem fair and reasonable. The liquidating value of a
commodity futures or option contract not traded on a United States commodity
exchange shall mean its liquidating value as determined by the General Partner
on a basis consistently applied for each different variety of contract. Accrued
Profit Shares and Incentive Overrides (as described in the Prospectus, as
defined in Section 8 hereof) shall reduce Net Asset Value, even though such
Profit Shares and Incentive Overrides may never, in fact, be paid. Accrued
Profit Shares and Incentive Overrides shall be calculated on a basis which
reflects the aggregate New Trading Profit (as defined) or Net New Gain (as
defined), as the case may be, accrued in respect of all outstanding Units.
5. Net Worth of General Partner.
The General Partner agrees that at all times so long as it remains general
partner of the Partnership, it will maintain its Net Worth at an amount not less
than 5% of the total contributions by all partners to the Partnership and all
other partnerships of which it is general partner. The General Partner will not
permit its net worth to decline below $10 million without the approving vote of
more than fifty percent (50%) in Net Asset Value of the outstanding Units then
owned by Limited Partners.
The requirements of the first sentence of the preceding paragraph may be
modified if the General Partner obtains an opinion of counsel for the
Partnership that a proposed modification will not adversely affect the
classification of the Partnership as a partnership for federal income tax
purposes and if such modification will reflect or exceed applicable state
securities and Blue Sky laws and qualify under any guidelines or statements of
policy promulgated by any body or agency constituted by the various state
securities administrators having jurisdiction in the premises.
6. Capital Contributions; Units.
The Partners' respective capital contributions to the Partnership shall be
as shown on the books and records of the Partnership. The General Partner, so
long as it is a general partner of the Partnership, or any substitute general
partner, shall invest in the Partnership, as a general partner interest,
sufficient capital so that the General Partner will have at all times a capital
account equal to 1% of the total capital accounts of the Partnership (including
the General Partner's). The General Partner may withdraw any interest it may
have as a general partner in excess of such requirement, and may redeem as of
any month-end any interest which it may acquire on the same terms as any Limited
Partner, provided that it must maintain the minimum interest described in the
preceding sentence.
The General Partner may, without the consent of any Partners of the
Partnership, admit to the Partnership purchasers of Units as limited partners of
the Partnership.
LPA-2
<PAGE>
Any Units acquired by the General Partner or any of its affiliates will be
non-voting, and will not be considered outstanding for purposes of determining
whether the majority approval of the outstanding Units has been obtained.
7. Allocation of Profits and Losses.
(a) Capital Accounts and Allocations. A capital account shall be
established for each Unit, and for the General Partner on a Unit-equivalent
basis. The balance of each Unit's capital account shall be the amount
contributed to the Partnership with respect to such Unit, which amount shall be
equal to the Net Asset Value per Unit on the date each Unit is purchased after
all accrued fees and expenses, including Incentive Override and Profit Share
accruals which may, in fact, never be paid. As of the close of business (as
determined by the General Partner) on the last day of each month, any increase
or decrease in the Partnership's Net Assets as compared to the last such
determination of Net Assets shall be credited or charged equally to the capital
accounts of all Units then outstanding; provided that for purposes of
maintaining such capital accounts, amounts paid or payable to the General
Partner for items such as Incentive Overrides and service fees and "exchange of
futures for physical" charges, shall be treated as if paid or payable to a third
party and shall not be credited to the capital account of the interest held by
the General Partner.
For purposes of this Section 7, unless specified to the contrary, Units
redeemed as of the end of any month shall be considered outstanding as of the
end of such month.
(b) Allocation of Profit and Loss for Federal Income Tax Purposes. As of
the end of each fiscal year, the Partnership's income and expense and capital
gain or loss shall be allocated among the Partners pursuant to the following
provisions of this Section 7(b) for federal income tax purposes. For purposes of
this Section 7(b), capital gain and capital loss shall be allocated separately
and not netted.
(1) First, items of ordinary income and expense (other than the Incentive
Override and Profit Shares which shall be allocated as set forth in Section
7(b)(2)) shall be allocated pro rata among the Units outstanding as of the end
of each month in which the items of ordinary income and expense accrue.
(2) Second, any Incentive Override or Profit Share paid to the General
Partner or the Advisors shall be allocated among the Units outstanding at any
time during the fiscal year based upon the ratio that each such Unit's Net
Incentive Override or Net Profit Share (the excess, if any, of the aggregate of
all Incentive Overrides or Profit Shares, as the case may be, allocated to the
capital account relating to such Unit over the aggregate of all "reversals" of
Incentive Overrides or Profit Shares, as the case may be, allocated to such
Unit) bears to the Net Incentive Override or Net Profit Share, as the case may
be, of all Units; provided that the General Partner may allocate Incentive
Overrides and Profit Shares first to Units whose Net Asset Value was reduced by
accrued Incentive Overrides and Profit Shares upon redemption, in an amount up
to the amount of such reduction.
(3) Third, capital gain or loss shall be allocated as follows:
(A) There shall be established a tax account with respect to each
outstanding Unit. The balance of each tax account shall be the amount paid to
the Partnership for each Unit. As of the end of each fiscal year:
(i) Each tax account shall be increased by the amount of income
allocated to each Unit pursuant to Sections 7(b)(1) and 7(b)(3)(C).
(ii) Each tax account shall be decreased by the amount of expense or
loss allocated to each Unit pursuant to Sections 7(b)(1), 7(b)(2) and
7(b)(3)(E) and by the amount of any distributions paid out with respect to
the Units other than upon redemption.
(iii) When a Unit is redeemed, the tax account attributable to such
Unit (determined after making all allocations described in this Section
7(b)) shall be eliminated.
LPA-3
<PAGE>
(B) Each Partner who redeems a Unit during a fiscal year (including Units
redeemed as of the end of the last day of such fiscal year) shall be allocated
Capital Gain, if any, up to the amount of the excess, if any, of the amount
received in respect of the Units so redeemed (before taking into account any
early redemption charges) over the sum of the tax accounts (determined after
making the allocation described in Sections 7(b)(1) and 7(b)(2), but prior to
making the allocations described in this Section 7(b)(3)(B) or Section
7(b)(3)(D)) allocable to such Units (an "Excess"). In the event the aggregate
amount of Capital Gain available to be allocated pursuant to this Section
7(b)(3)(B) is less than the aggregate amount of Capital Gain required to be so
allocated, the aggregate amount of available Capital Gain shall be allocated
among all such Partners in the ratio which each such Partner's Excess bears to
the aggregate Excess of all such Partners.
(C) Capital Gain remaining after the allocation described in Section
7(b)(3)(B) shall be allocated among all Partners who hold Units outstanding as
of the end of the applicable fiscal year (other than Units redeemed as of the
end of the last day of such fiscal year) whose capital accounts with respect
to such Units are in excess of their tax accounts (determined after making the
allocations described in Sections 7(b)(1) and 7(b)(2)) allocable to such Units
in the ratio that each such Partner's excess bears to the aggregate excess of
all such Partners. Capital Gain remaining after the allocation described in
the preceding sentence shall be allocated among all Partners described in said
sentence in proportion to their holdings of such Units.
(D) Each Partner who redeems a Unit during a fiscal year (including Units
redeemed as of the end of the last day of such fiscal year) shall be allocated
Capital Loss, if any, up to the amount of the sum of the excess of the tax
accounts (determined after making the allocations described in Sections
7(b)(1) and 7(b)(2), but prior to making the allocations described in this
Section 7(b)(3)(D) or Section 7(b)(3)(B)) allocable to the Units so redeemed
over the amount received in respect of such Units (before taking into account
any early redemption charges) (a "Negative Excess"). In the event the
aggregate amount of available Capital Loss required to be allocated pursuant
to this Section 7(b)(3)(D) is less than the aggregate amount required to be so
allocated, the aggregate amount of available Capital Loss shall be allocated
among all such Partners in the ratio that each such Partner's Negative Excess
bears to the aggregate Negative Excess of all such Partners.
(E) Capital Loss remaining after the allocation described in Section
7(b)(3)(D) shall be allocated among all Partners who hold Units outstanding as
of the end of the applicable fiscal year (other than Units redeemed as of the
end of the last day of such fiscal year) whose tax accounts with respect to
such Units are in excess of their capital accounts (determined after making
the allocations described in Sections 7(b)(1) and 7(b)(2)) with respect to
such Units in the ratio that each such Partner's negative excess bears to the
aggregate negative excess of all such Partners. Capital Loss remaining after
the allocation described in the preceding sentence shall be allocated among
all Partners described in such sentence in proportion to their holdings of
such Units.
(F) For purposes of this Section 7(b), "Capital Gain" or "Capital Loss"
shall mean gain or loss characterized as gain or loss from the sale or
exchange of a capital asset, by the Internal Revenue Code of 1986, as amended,
including, but not limited to, gain or loss required to be taken into account
pursuant to Section 1256 thereof.
(4) The allocation of profit and loss for federal income tax purposes set
forth herein is intended to allocate taxable profit and loss among Partners
generally in the ratio and to the extent that profit and loss are allocated to
such Partners so as to eliminate, to the extent possible, any disparity between
the Partner's capital account and his tax account, consistent with principles
set forth in Section 704 of the Internal Revenue Code of 1986, as amended,
including without limitation a "Qualified Income Offset."
(5) The allocations of profit and loss to the Partners in respect of the
Units shall not exceed the allocations permitted under Subchapter K of the
Internal Revenue Code of 1986, as amended, as determined by the General Partner,
whose determination shall be binding.
(c) Incentive Overrides; Profit Shares. Incentive Overrides shall be
payable to the General Partner as of the end of each calendar year and upon
redemption of Units.
LPA-4
<PAGE>
Incentive Overrides shall equal 10% of Net New Gain (if any) calculated as
of each fiscal year-end and upon redemption of Units. Net New Gain shall be
calculated (i) separately in respect of each tranche of Units sold as of the
beginning of different months during the fiscal year of determination and (ii)
in a uniform manner in respect of all Units sold prior to the fiscal year of
determination.
In respect of Units sold in fiscal years prior to the year of
determination, Net New Gain for any year will equal the amount (if any) by which
the Net Asset Value per Unit (excluding interest income) prior to reduction for
any accrued Incentive Override being calculated (the "Unadjusted NAV") for each
Unit outstanding as of the applicable December 31 exceeds the greater of (i)
$100 or (ii) the highest Net Asset Value per Unit (excluding interest income) as
of any previous calendar year-end, after reduction for the Incentive Override,
if any, then due (the "High Water Mark NAV"). Similar principles shall apply to
determine the Net New Gain for any month. No negative Net New Gain shall be
recorded in respect of losses incurred to the extent that such losses reduce the
Unadjusted NAV below the High Water Mark NAV, but no Net New Gain will be
recorded on any Units except to the extent that the Unadjusted NAV exceeds the
High Water Mark NAV.
In respect of a Unit sold during the fiscal year of determination, (i)
negative Net New Gain for such year shall be generated to the extent that the
Unadjusted NAV as of the date of determination is less than the purchase price
of such Unit but equal to or greater than the High Water Mark NAV, and (ii)
positive Net New Gain for such year shall be generated to the extent that the
Unadjusted NAV as of the date of determination exceeds the greater of the High
Water Mark NAV or the purchase price of such Unit. Similar principles shall
apply to determine the Net New Gain (positive or negative) for any month.
Incentive Overrides shall be paid by the Partnership as a whole,
irrespective of whether the Unadjusted NAV has declined below the purchase price
of a particular Unit. Accrued Incentive Overrides shall reduce the redemption
price of Units and shall be paid to the General Partner upon redemption. The
amount (if any) of the accrued Incentive Override that shall be paid to the
General Partner upon the redemption of any Unit shall be determined by dividing
the total Incentive Override as of such redemption date by the number of Units
then outstanding (including Units redeemed as of such date); the remainder of
the accrued Incentive Override shall be paid to the General Partner on December
31 of each year.
For capital account purposes, accrued Incentive Overrides shall, in all
cases, be reflected equally as a reduction in the Net Asset Value per Unit of
all Units outstanding at the time the Incentive Override accrued, and reversals
of accrued Incentive Overrides shall equally increase the Net Asset Value per
Unit of all Units outstanding at the time of the accrual of such reversal,
irrespective of whether a particular Unit was outstanding when a particular
Incentive Override was accrued.
Interest income shall not be included in the Net Asset Value per Unit for
purposes of calculating Net New Gain, and such Net Asset Value shall be net of
all Profit Shares, fees and expenses other than the Incentive Override being
determined.
Early redemption charges shall in no respect reduce Net New Gain.
The Profit Shares paid to the Advisors pursuant to the Advisory Agreements
among the General Partner, the Partnership and each such Advisor shall result in
deductions being allocated to the Partners. Such allocation shall apply the same
principles as the allocation of Incentive Override deductions described above.
Profit Shares with respect to any calendar quarter will be paid to an Advisor as
of the last day of such period, except that Profit Shares with respect to Units
redeemed as of the last day of any month that does not end a calendar quarter
shall be paid as of the day such Units are redeemed and Profit Shares with
respect to Units redeemed as of the end of any month that ends a calendar
quarter shall be paid to an Advisor in the same manner and at the same time as
if such Units had not been redeemed.
The General Partner may adjust the allocations set forth in this Section
7(c), in the General Partner's discretion, if the General Partner believes that
doing so will achieve more equitable allocations or allocations more consistent
with the Internal Revenue Code of 1986, as amended.
LPA-5
<PAGE>
(d) Expenses. The General Partner shall pay, but without reimbursement,
the selling and "trailing" commissions relating to the offering of the Units,
and the cost of the ongoing offering of the Units. The Partnership shall bear
all of any taxes applicable to it and any charges incidental to trading. The
General Partner shall bear all of the Partnership's routine legal, accounting,
and administrative expenses but, beginning October 1, 1996, will be paid an
Administrative Fee of 0.02083 of 1% monthly (0.25% annually) by the Partnership.
Any administrative expenses incurred by the General Partner in excess of the
Administrative Fee shall be borne by the General Partner, without reimbursement
from the Partnership. Any goods and services provided to the Partnership by the
General Partner shall be provided at rates and terms at least as favorable as
those which may be obtained from third parties in arm's-length negotiations. All
of the expenses which are for the Partnership's account shall be billed directly
to the Partnership. Appropriate reserves may be created, accrued, and charged
against Net Assets for contingent liabilities, if any, as of the date any such
contingent liability becomes know to the General Partner. Such reserves shall
reduce Net Asset Value for all purposes.
(e) Limited Liability of Limited Partners. Each Unit, when purchased in
accordance with this Limited Partnership Agreement, shall, except as otherwise
provided by law, be fully paid and nonassessable. Any provisions of this Limited
Partnership Agreement to the contrary notwithstanding, except as otherwise
provided by law, no Limited Partner shall be liable for Partnership obligations
in excess of the capital contributed by such Limited Partner, plus his share of
undistributed profits and assets.
(f) Return of Capital Contributions. No Partner or subsequent assignee
shall have any right to demand the return of his capital contribution or any
profits added thereto, except through redeeming Units or upon dissolution of the
Partnership, in each case as provided herein. In no event shall a Partner or
subsequent assignee be entitled to demand or receive property other than cash.
8. Management of the Partnership.
The General Partner, to the exclusion of all Limited Partners, shall
control, conduct and manage the business of the Partnership. The General Partner
shall have sole discretion in determining what distributions of profits and
income, if any, shall be made to the Partners (subject to the allocation
provisions hereof), shall execute various documents on behalf of the Partnership
and the Partners pursuant to powers of attorney and supervise the liquidation of
the Partnership if an event causing dissolution of the Partnership occurs.
The General Partner may in furtherance of the business of the Partnership
cause the Partnership to buy, sell, hold, or otherwise acquire or dispose of
commodities, futures contracts and options traded on exchanges or otherwise,
arbitrage positions, repurchase agreements, interest-bearing securities, deposit
accounts and similar instruments and other assets, and cause the Partnership's
trading to be limited to only certain of the foregoing instruments. The General
Partner is specifically authorized by each Limited Partner to enter into "offset
account" arrangements as described in the prospectus relating to the offering of
the Units in effect as of the time that such Limited Partner last purchased
Units while in receipt of a current prospectus (the "Prospectus"). The General
Partner may engage, and compensate on behalf of the Partnership from funds of
the Partnership, or agree to share profits and losses with, such persons, firms
or corporations, including (except as described in this Limited Partnership
Agreement) the General Partner and any affiliated person or entity, as the
General Partner in its sole judgment shall deem advisable for the conduct and
operation of the business of the Partnership, provided, that no such arrangement
shall allow brokerage commissions paid by the Partnership in excess of the
amount described in the Prospectus or as permitted under applicable North
American Securities Administrators Association, Inc. Guidelines for the
Registration of Commodity Pool Programs ("NASAA Guidelines") in effect as of the
date of the Prospectus (i.e., 80% of the published retail rate plus pit
brokerage fees, or 14% annually -- including pit brokerage and service fees --
of the Partnership's average Net Assets, excluding the assets not directly
related to trading activity), whichever is higher. The General Partner shall
reimburse the Partnership, on an annual basis, to the extent that the
Partnership's brokerage commissions paid to the Commodity Broker and the annual
Incentive Override, as described in the Prospectus, have exceeded 14% of the
Partnership's average Net Assets during the preceding year. The General Partner
is hereby specifically authorized to enter into, on behalf of the Partnership,
the Advisory Agreements and the Selling Agreement as described in the Prospectus
and to enter into the Customer Agreement and the Foreign Exchange Desk Service
Agreement and to engage in "exchange of futures for physical" currency
transactions on behalf of the Partnership, also as referred to in the
Prospectus. The General Partner shall not enter into an Advisory Agreement with
any trading advisor that does not satisfy the relevant experience (i.e.,
ordinarily a minimum of three years) requirements under the NASAA Guidelines.
The Partnership's brokerage commissions may not be increased (i) during any
period when redemption charges are in effect or (ii) without
LPA-6
<PAGE>
prior written notice to Limited Partners within sufficient time for the exercise
of their redemption rights prior to such increase becoming effective. Such
notification shall contain a description of Limited Partner's voting and
redemption rights and a description of any material effect of such increase.
In addition to any specific contract or agreements described herein, the
Partnership may enter into any other contracts or agreements specifically
described in or contemplated by the Prospectus without any further act, approval
or vote of the Limited Partners, notwithstanding any other provisions of this
Limited Partnership Agreement, the Act or any applicable law, rule or
regulations.
The General Partner shall be under a fiduciary duty to conduct the affairs
of the Partnership in the best interests of the Partnership. The Limited
Partners will under no circumstances be deemed to have contracted away the
fiduciary obligations owed them by the General Partner under the common law. The
General Partner's fiduciary duty includes, among other things, the safekeeping
of all Partnership funds and assets and the use thereof for the benefit of the
Partnership. The General Partner shall at all times act with integrity and good
faith and exercise due diligence in all activities relating to the conduct of
the business of the Partnership and in resolving conflicts of interest. The
Partnership's brokerage arrangements shall be non-exclusive, and the brokerage
commissions paid by the Partnership shall be competitive. The Partnership shall
seek the best price and services available for its commodity transactions.
The General Partner is hereby authorized to perform all other duties
imposed by Sections 6221 through 6232 of the Internal Revenue Code of 1986, as
amended, on the General Partner as the "tax matters partner" of the Partnership.
The Partnership shall make no loans to any party, and the funds of the
Partnership will not be commingled with the funds of any other person or entity
(deposit of funds with a commodity broker, clearinghouse or forward dealer or
entering into joint ventures or partnerships shall not be deemed to constitute
"commingling" for these purposes). The General Partner shall make no loans to
the Partnership unless approved by the Limited Partners in accordance with
Section 17(a) of this Limited Partnership Agreement. If the General Partner
makes a loan to the Partnership, the General Partner shall not receive interest
in excess of its interest costs, nor may the General Partner receive interest in
excess of the amounts which would be charged the Partnership (without reference
to the General Partner's financial resources or guarantees) by unrelated banks
on comparable loans for the same purpose. The General Partner shall not receive
"points" or other financing charges or fees regardless of the amount. The
Partnership shall not invest in any debt instruments other than Treasury
securities, short-term sovereign debt instruments and other investments
authorized by the Commodity Futures Trading Commission (the "CFTC") for the
investment of "customer funds," and shall not invest in any equity security
without prior notice to Limited Partners. Except in respect of the Incentive
Override, no person or entity may receive, directly or indirectly, any advisory,
management or incentive fees, or any profit-sharing allocation from joint
ventures, partnerships or similar arrangements in which the Partnership
participates, for investment advice or management who shares or participates in
any commodity brokerage commissions; no broker may pay, directly or indirectly,
rebates or give-ups to any trading advisor or manager or to the General Partner
or any of their respective affiliates; and such prohibitions may not be
circumvented by any reciprocal business arrangements. No trading advisor for the
Partnership shall be affiliated with the Partnership's commodity broker, the
General Partner or their affiliates. The maximum period covered by any contract
entered into by the Partnership, except for the various provisions of the
Selling Agreement which survive each closing of the sales of the Units, shall
not exceed one year. Any material change in the Partnership's basic investment
policies or structure shall require the approval of Limited Partners owning
Units representing more than fifty percent (50%) of all Units then owned by the
Limited Partners. Any agreements between the Partnership and the General Partner
or any affiliate of the General Partner shall be terminable by the Partnership
upon no more than 60 days' written notice. All sales of Units in the United
States will be conducted by registered brokers.
The Partnership is prohibited from employing the trading technique commonly
known as "pyramiding." A trading manager or advisor of the Partnership taking
into account the Partnership's open trade equity on existing positions in
determining generally whether to acquire additional commodity positions on
behalf of the Partnership will not be considered to be engaging in "pyramiding."
The General Partner may take such other actions on behalf of the
Partnership as the General Partner deems necessary or desirable to manage the
business of the Partnership.
LPA-7
<PAGE>
The General Partner shall reimburse the Partnership for any advisory fees
paid by the Partnership to any trading advisor over the course of any fiscal
year, to the extent that the fees paid during such year exceed the 6% annual
management fees and the 15% quarterly incentive fees (calculating New Trading
Profit, as defined in the Prospectus, after all expenses and without including
interest income) contemplated by the NASAA Guidelines. Any such reimbursement
shall be made on a present value basis, fully compensating the Partnership for
having made payments at any time during the year which would not otherwise have
been due from it. The General Partner shall disclose any such reimbursement in
the Annual Report delivered to Limited Partners.
The General Partner is engaged, and may in the future engage, in other
business activities and shall not be required to refrain from any other activity
nor forego any profits from any such activity, whether or not in competition
with the Partnership. Limited Partners may similarly engage in any such other
business activities. The General Partner shall devote to the Partnership such
time as the General Partner may deem advisable to conduct the Partnership's
business and affairs.
9. Audits and Reports to Limited Partners.
The Partnership books shall be audited annually by an independent certified
public accountant. The Partnership will use its best efforts to cause each
Limited Partner to receive (i) within 90, but in no event later than 120 days,
after the close of each fiscal year certified financial statements of the
Partnership for the fiscal year then ended, (ii) within 90 days of the end of
each fiscal year (but in no event later than March 15 of each year) such tax
information as is necessary for a Limited Partner to complete his federal income
tax return and (iii) such other annual and monthly information as the CFTC may
by regulation require. The General Partner shall include in the Annual Reports
sent to Limited Partners an approximate estimate (calculated as accurately as
may be reasonably practicable) of the round-turn equivalent brokerage commission
rate paid by the Partnership during the preceding year. Limited Partners or
their duly authorized representatives may inspect the Partnership books and
records during normal business hours upon reasonable written notice to the
General Partner and obtain copies of such records upon payment of reasonable
reproduction costs; provided, however, upon request by the General Partner, the
Limited Partner shall represent that the inspection and/or copies of such
records will not be for commercial purposes unrelated to such Limited Partner's
interest as a limited partner in the Partnership.
The General Partner shall calculate the approximate Net Asset Value per
Unit on a daily basis and furnish such information upon request to any Limited
Partner.
The General Partner will send written notice to each Limited Partner within
seven days of any decline in the Partnership's Net Asset Value or in the Net
Asset Value per Unit to 50% or less of such value as of the previous month-end.
Any such notice shall contain a description of Limited Partners' voting rights.
The General Partner shall maintain and preserve all Partnership records for
a period of not less than six (6) years.
The General Partner will, with the assistance of the Partnership's
commodity broker, make an annual review of the commodity brokerage arrangements
applicable to the Partnership. In connection with such review, the General
Partner will ascertain, to the extent practicable, the commodity brokerage rates
charged to other major commodity pools whose trading and operations are, in the
opinion of the General Partner, comparable to those of the Partnership in order
to assess whether the rates charged the Partnership are competitive in light of
the services it receives. If, as a result of such review, the General Partner
determines that such rates are not competitive in light of the services provided
to the Partnership, the General Partner will notify the Limited Partners,
setting forth the rates charged to the Partnership and several funds which are,
in the General Partner's opinion, comparable to the Partnership.
10. Assignability of Units.
Each Limited Partner expressly agrees that he will not assign, transfer or
dispose of, by gift or otherwise, any of his Units or any part or all of his
right, title and interest in the capital or profits of the Partnership in
violation of any applicable federal or state securities laws or without giving
written notice to the General Partner. No assignment, transfer or disposition by
an assignee of Units or of any part of his right, title and interest in the
capital or profits of the Partnership
LPA-8
<PAGE>
shall be effective against the Partnership or the General Partner until the
General Partner receives the written notice of the assignment; the General
Partner shall not be required to give any assignee any rights hereunder prior to
receipt of such notice. The General Partner may, in its sole discretion, waive
any such notice. No such assignee, except with the consent of the General
Partner, may become a substituted Limited Partner, nor will the estate or any
beneficiary of a deceased Limited Partner or assignee have any right to redeem
Units from the Partnership except by redemption as provided in Section 11
hereof. The General Partner's consent is required for the admission of a
substituted Limited Partner, and the General Partner intends to so consent,
provided the General Partner and the Partnership receive an opinion of counsel
to the General Partner that such admission will not adversely affect the
classification of the Partnership as a partnership for federal income tax
purposes. Each Limited Partner agrees that with the consent of the General
Partner any assignee may become a substituted Limited Partner without need of
the further act or approval of any Limited Partner. If the General Partner
withholds consent, an assignee shall not become a substituted Limited Partner,
and shall not have any of the rights of a Limited Partner, except that the
assignee shall be entitled to receive that share of capital and profits and
shall have that right of redemption to which his assignor would otherwise have
been entitled. No assignment, transfer or disposition of Units shall be
effective against the Partnership or the General Partner until the first day of
the month succeeding the month in which the General Partner receives notice of
such assignment, transfer or disposition.
11. Redemptions.
A Limited Partner, the General Partner or any assignee of Units of whom the
General Partner has received written notice as described above, may redeem all
or any of his Units (such redemption being herein referred to as a
"redemption"), effective as of the close of business (as determined by the
General Partner) on the last day of any month, provided, that (i) all
liabilities, contingent or otherwise, of the Partnership (including the
Partnership's allocable share of the liabilities, contingent or otherwise, of
any entities in which the Partnership invests), except any liability to Partners
on account of their capital contributions, have been paid or there remains
property of the Partnership sufficient to pay them and (ii) the General Partner
shall have timely received a request for redemption. Units redeemed on or before
the end of the twelfth full calendar month after the date as of which such Units
begin to participate in the profits and losses of the Partnership are subject to
early redemption charges of 3% of the Net Asset Value at which they are
redeemed. Such charges will be paid to the General Partner. In the event that a
Limited Partner acquires Units at more than one month-end, such Units will be
treated on a "first-in, first-out" basis for purposes of determining whether
early redemption charges apply. Requests for redemption must be received by the
General Partner at least ten calendar days, or such lesser period as shall be
acceptable to the General Partner, in advance of the requested effective date of
redemption. Such requests need not be in writing so long as the Limited Partner
has a Merrill Lynch customer securities account. The General Partner may declare
additional redemption dates upon notice to the Limited Partners as well as to
those assignees of whom the General Partner has received notice as described
above.
If at the close of business (as determined by the General Partner) on any
day, the Net Asset Value per Unit has decreased to $50 or less, after adding
back all distributions, the Partnership shall liquidate all open positions as
expeditiously as possible and suspend trading. Within ten business days after
the date of suspension of trading, the General Partner (and any other general
partners of the Partnership) shall declare a Special Redemption Date. Such
Special Redemption Date shall be a business day within 30 business days from the
date of suspension of trading by the Partnership, and the General Partner shall
mail notice of such date to each Limited Partner and assignee of Units of whom
it has received written notice as described above, by first-class mail, postage
prepaid, not later than ten business days prior to such Special Redemption Date,
together with instructions as to the procedure such Limited Partner or assignee
must follow to have his interest (only entire, not partial, interests may be so
redeemed unless otherwise determined by the General Partner) in the Partnership
redeemed on such date. Upon redemption pursuant to a Special Redemption Date, a
Partner or any other assignee of whom the General Partner has received written
notice as described above, shall receive from the Partnership an amount equal to
the Net Asset Value of his interest in the Partnership, determined as of the
close of business (as determined by the General Partner) on such Special
Redemption Date. No redemption charges shall be assessed on any such Special
Redemption Date. As in the case of a regular redemption, an assignee shall not
be entitled to redemption until the General Partner has received written notice
(as described above) of the assignment, transfer or disposition under which the
assignee claims an interest in the Units to be redeemed. If, after such Special
Redemption Date, the Net Assets of the Partnership are at least $250,000 and the
Net Asset Value of a Unit is in excess of $25, the Partnership may, in the
discretion of the General Partner, resume trading. The General Partner may at
any time and in its discretion declare a Special Redemption Date, should the
General Partner determine that it is in the best interests of the Partnership to
do so. If the General Partner declares a Special Redemption Date, the General
Partner need not again call a Special Redemption Date (whether or not a Special
Redemption Date would be required to be called as described above); and the
General Partner in its notice of a Special Redemption Date may, in its
discretion, establish the conditions, if any, under which other Special
Redemption Dates
LPA-9
<PAGE>
must be called, which conditions may be determined in the sole discretion of the
General Partner, irrespective of the provisions of this paragraph. The General
Partner may also, in its discretion, declare additional regular redemption dates
for Units and permit certain Limited Partners to redeem at other than month-end.
Redemption payments will be made within ten business days after the month-
end of redemption, except that under special circumstances, including, but not
limited to, inability to liquidate commodity positions as of a redemption date
or default or delay in payments due the Partnership from commodity brokers,
banks or other persons or entities, the Partnership may in turn delay payment to
Partners or assignees requesting redemption of their Units of the proportionate
part of the Net Asset Value of such Units equal to that proportionate part of
the Partnership's aggregate Net Asset Value represented by the sums which are
the subject of such default or delay.
Only whole Units may be redeemed, unless the General Partner specifically
otherwise consents.
The General Partner may require a Limited Partner to redeem all or a
portion of such Partner's Units if the General Partner considers doing so to be
desirable for the protection of the Partnership, and will use best efforts to do
so to the extent necessary to prevent the Partnership from being deemed to hold
"plan assets" under the provisions of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), or the Internal Revenue Code of 1986, as
amended (the "Code"), with respect to any "employee benefit plan" subject to
ERISA or with respect to any plan or account subject to Section 4975 of the
Code.
12. Offering of Units.
The General Partner on behalf of the Partnership shall (i) cause to be
filed a Registration Statement or Registration Statements, and such amendments
thereto as the General Partner deems advisable, with the Securities and Exchange
Commission for the registration and ongoing public offering of the Units, (ii)
use its best efforts to qualify and to keep qualified Units for sale under the
securities laws of such States of the United States or other jurisdictions as
the General Partner shall deem advisable and (iii) take such action with respect
to the matters described in (i) and (ii) as the General Partner shall deem
advisable or necessary.
The General Partner shall use its best efforts not to accept any
subscriptions for Units if doing so would cause the Partnership to hold "plan
assets" under ERISA or the Code with respect to any "employee benefit plan"
subject to ERISA or with respect to any plan or account subject to Section 4975
of the Code. If such a subscriber has its subscription reduced for such reason,
such subscriber shall be entitled to rescind its subscription in its entirety
even though subscriptions are otherwise irrevocable.
13. Additional Offerings.
The General Partner may, in its discretion, make additional public or
private offerings of Units, provided that the net proceeds to the Partnership of
any such sales shall in no event be less than the Net Asset Value per Unit (as
defined in Section 4(d) hereof) at the time of sale (unless the new Unit's
participation in the profits and losses of the Partnership is appropriately
adjusted). No Limited Partner shall have any preemptive, preferential or other
rights with respect to the issuance or sale of any additional Units, other than
as set forth in the preceding sentence.
The Partnership may offer different series or classes of Units having
different economic terms than previously offered series or classes of Units;
provided that the issuance of such a new series or class of Units shall in no
respect adversely affect the holders of outstanding Units; and provided further
that the assets attributable to each such series or class shall, to the maximum
extent permitted by law, be treated as legally separate and distinct pools of
assets, and the assets attributable to one such series or class be prevented
from being used in any respect to satisfy or discharge any debt or obligation of
any other such series or class.
LPA-10
<PAGE>
14. Special Power of Attorney.
Each Limited Partner by his execution of this Limited Partnership Agreement
does hereby irrevocably constitute and appoint the General Partner and each
officer of the General Partner, with power of substitution, as his true and
lawful attorney-in-fact, in his name, place and stead, to execute, acknowledge,
swear to (and deliver as may be appropriate) on his behalf and file and record
in the appropriate public offices and publish (as may in the reasonable judgment
of the General Partner be required by law): (i) this Limited Partnership
Agreement, including any amendments and/or restatements hereto duly adopted as
provided herein; (ii) certificates of limited partnership in various
jurisdictions, and amendments and/or restatements thereto, and of assumed name
or of doing business under a fictitious name with respect to the Partnership;
(iii) all conveyances and other instruments which the General Partner deems
appropriate to qualify or continue the Partnership in the State of Delaware and
the jurisdictions in which the Partnership may conduct business, or which may be
required to be filed by the Partnership or the Partners under the laws of any
jurisdiction or under any amendments or successor statutes to the Act, to
reflect the dissolution or termination of the Partnership or the Partnership
being governed by any amendments or successor statutes to the Act or to
reorganize or refile the Partnership in a different jurisdiction; and (iv) to
file, prosecute, defend, settle or compromise litigation, claims or arbitrations
on behalf of the Partnership. The Power of Attorney granted herein shall be
irrevocable and deemed to be a power coupled with an interest (including,
without limitation, the interest of the other Partners in the General Partner
being able to rely on the General Partner's authority to act as contemplated by
this Section 14) and shall survive and shall not be affected by the subsequent
incapacity, disability or death of a Limited Partner.
15. Withdrawal of a Partner.
The Partnership shall be dissolved upon the withdrawal, dissolution,
admitted or court-decreed insolvency or the removal of the General Partner, or
any other event that causes the General Partner to cease to be a general partner
under the Act, unless the Partnership is continued pursuant to the terms of
Section 4. In addition, the General Partner may withdraw from the Partnership,
without any breach of this Limited Partnership Agreement, at any time upon 120
days' written notice by first class mail, postage prepaid, to each Limited
Partner and assignee of whom the General Partner has notice. If the General
Partner withdraws as general partner and the Partnership's business is
continued, the withdrawing General Partner shall pay all expenses incurred as a
result of its withdrawal.
The General Partner may not assign its general partner interest or its
obligation to direct the trading of the Partnership assets without the consent
of each Limited Partner. The General Partner will notify all Limited Partners of
any change in the principals of the General Partner. No provision of this
Limited Partnership Agreement shall be deemed, nor does any such provision
purport, to waive compliance with the Investment Advisers Act of 1940, as
amended.
The death, incompetency, withdrawal, insolvency or dissolution of a Limited
Partner or any other event that causes a Limited Partner to cease to be a
limited partner of the Partnership shall not terminate or dissolve the
Partnership, and a Limited Partner, his estate, custodian or personal
representative shall have no right to redeem or value such Limited Partner's
interest in the Partnership except as provided in Section 11 hereof. Each
Limited Partner expressly agrees that in the event of his death, he waives on
behalf of himself and his estate, and directs the legal representatives of his
estate and any person interested therein to waive, the furnishing of any
inventory, accounting or appraisal of the assets of the Partnership and any
right to an audit or examination of the books of the Partnership. Nothing in
this Section 15 shall, however, waive any right given elsewhere in this Limited
Partnership Agreement for a Limited Partner to be informed of the Net Asset
Value of his Units, to receive periodic reports, audited financial statements
and other information from the General Partner or the Partnership or to redeem
or transfer Units.
16. Standard of Liability; Indemnification.
(a) Standard of Liability for the General Partner. The General Partner and
its Affiliates, as defined below, shall have no liability to the Partnership or
to any Partner for any loss suffered by the Partnership which arises out of any
action or inaction of the General Partner or its Affiliates if the General
Partner, in good faith, determined that such course of conduct was in the best
interests of the Partnership and such course of conduct did not constitute
negligence or misconduct of the General Partner or its Affiliates.
LPA-11
<PAGE>
(b) Indemnification of the General Partner by the Partnership. To the
fullest extent permitted by law, subject to this Section 16, the General Partner
and its Affiliates shall be indemnified by the Partnership against any losses,
judgments, liabilities, expenses and amounts paid in settlement of any claims
sustained by them in connection with the Partnership; provided that such claims
were not the result of negligence or misconduct on the part of the General
Partner or its Affiliates, and the General Partner, in good faith, determined
that such conduct was in the best interests of the Partnership; and provided
further that Affiliates of the General Partner shall be entitled to
indemnification only for losses incurred by such Affiliates in performing the
duties of the General Partner and acting wholly within the scope of the
authority of the General Partner.
Notwithstanding anything to the contrary contained in the preceding two
paragraphs, the General Partner and its Affiliates and any persons acting as
selling agent for the Units shall not be indemnified for any losses, liabilities
or expenses arising from or out of an alleged violation of federal or state
securities laws unless (1) there has been a successful adjudication on the
merits of each count involving alleged securities law violations as to the
particular indemnitee and the court approves indemnification of the litigation
costs, or (2) such claims have been dismissed with prejudice on the merits by a
court of competent jurisdiction as to the particular indemnitee and the court
approves indemnification of the litigation costs, or (3) a court of competent
jurisdiction approves a settlement of the claims against a particular indemnitee
and finds that indemnification of the settlement and related costs should be
made.
In any claim for indemnification for federal or state securities law
violations, the party seeking indemnification shall place before the court the
position of the Securities and Exchange Commission, the California Department of
Corporations, the Massachusetts Securities Division, the Pennsylvania Securities
Commission, the Tennessee Securities Division, the Texas Securities Board and
any other state or applicable regulatory authority with respect to the issue of
indemnification for securities law violations.
The Partnership shall not bear the cost of that portion of any insurance
which insures any party against any liability the indemnification of which is
herein prohibited.
For the purposes of this Section 16, the term "Affiliates" shall mean any
person acting on behalf of or performing services on behalf of the Partnership
who: (1) directly or indirectly controls, is controlled by, or is under common
control with the General Partner; or (2) owns or controls 10% or more of the
outstanding voting securities of the General Partner; or (3) is an officer or
director of the General Partner; or (4) if the General Partner is an officer,
director, partner or trustee, is any entity for which the General Partner acts
in any such capacity.
Advances from Partnership funds to the General Partner and its Affiliates
for legal expenses and other costs incurred as a result of any legal action
initiated against the General Partner by a Limited Partner are prohibited.
Advances from Partnership funds to the General Partner and its Affiliates
for legal expenses and other costs incurred as a result of a legal action will
be made only if the following three conditions are satisfied: (1) the legal
action relates to the performance of duties or services by the General Partner
or its Affiliates on behalf of the Partnership; (2) the legal action is
initiated by a third party who is not a Limited Partner; and (3) the General
Partner or its Affiliates undertake to repay the advanced funds, with interest
from the date of such advance, to the Partnership in cases in which they would
not be entitled to indemnification under the standard of liability set forth in
Section 16(a).
In no event shall any indemnity or exculpation provided for herein be more
favorable to the General Partner or any Affiliate than that contemplated by the
NASAA Guidelines as in effect on the date of this Limited Partnership Agreement.
In no event shall any indemnification permitted by this subsection (b) of
Section 16 be made by the Partnership unless all provisions of this Section for
the payment of indemnification have been complied with in all respects.
Furthermore, it shall be a precondition of any such indemnification that the
Partnership receive a determination of qualified independent legal counsel in a
written opinion that the party which seeks to be indemnified hereunder has met
the applicable standard of conduct set forth herein. Receipt of any such opinion
shall not, however, in itself, entitle any such party to indemnification unless
indemnification is otherwise proper hereunder. Any indemnification payable by
the Partnership hereunder shall be made only as provided in the specific case.
LPA-12
<PAGE>
In no event shall any indemnification obligations of the Partnership under
this subsection (b) of this Section 16 subject a Limited Partner to any
liability in excess of that contemplated by subsection (e) of Section 7 hereof.
(c) Indemnification of the Partnership by the Partners. In the event the
Partnership is made a party to any claim, dispute or litigation or otherwise
incurs any loss or expense as a result of or in connection with any Partner's
activities, obligations or liabilities unrelated to the Partnership's business,
such Partner shall indemnify and reimburse the Partnership for all loss and
expense incurred, including reasonable attorneys' fees.
17. Amendments; Meetings.
(a) Amendments with Consent of the General Partner. If at any time during
the term of the Partnership the General Partner shall deem it necessary or
desirable to amend this Limited Partnership Agreement, the General Partner may
proceed to do so, provided that such amendment shall be effective only if
embodied in an instrument approved by the General Partner and, subject to the
immediately following sentence, by the holders of Units representing a majority
of the outstanding Units. No meeting procedure or specified notice period is
required in the case of amendments made with the consent of the General Partner,
mere receipt of an adequate number of unrevoked written consents being
sufficient. The General Partner may amend this Limited Partnership Agreement
without the consent of the Limited Partners in order (i) to clarify any clerical
inaccuracy or ambiguity or reconcile any inconsistency (including any
inconsistency between this Limited Partnership Agreement and the Prospectus),
(ii) to effect the intent of the tax allocations proposed herein to the maximum
extent possible in the event of a change in the Code or the interpretations
thereof affecting such allocations, (iii) to attempt to ensure that the
Partnership is not treated as an association taxable as a corporation for
federal income tax purposes, (iv) to qualify or maintain the qualification of
the Partnership as a limited partnership in any jurisdiction, (v) to delete or
add any provision of or to this Limited Partnership Agreement required to be
deleted or added by the Staff of the Securities and Exchange Commission or any
other federal agency or any state "Blue Sky" official or similar official or in
order to opt to be governed by any amendment or successor statute to the Act,
(vi) to make any amendment to this Limited Partnership Agreement which the
General Partner deems advisable, including amendments that reflect the offering
and issuance of additional Units, whether or not issued through a series or
class, provided that such amendment is not adverse to the Limited Partners, or
that is required by law, and (vii) to make any amendment that is appropriate or
necessary, in the opinion of the General Partner, to prevent the Partnership or
the General Partner or its directors, officers or controlling persons from in
any manner being subjected to the provisions of the Investment Company Act of
1940, as amended, or to prevent the Partnership from holding "plan assets" under
ERISA or the Code with respect to any "employee benefit plan" subject to ERISA
or with respect to any plan or account subject to Section 4975 of the Code.
(b) Amendments and Actions without Consent of the General Partner. In any
vote called by the General Partner or pursuant to section (c) of this Section
17, upon the affirmative vote (which may be in person or by proxy) of more than
fifty percent (50%) of the Units then owned by Limited Partners, the following
actions may be taken, irrespective of whether the General Partner concurs: (i)
this Limited Partnership Agreement may be amended, provided, however, that
approval of all Limited Partners shall be required in the case of amendments
changing or altering this Section 17, extending the term of the Partnership, or
materially changing the Partnership's basic investment policies or structure; in
addition, reduction of the capital account of any Limited Partner or assignee or
modification of the percentage of profits, losses or distributions to which a
Limited Partner or an assignee is entitled hereunder shall not be effected by
any amendment or supplement to this Limited Partnership Agreement without such
Limited Partner's or assignee's written consent; (ii) the Partnership may be
dissolved; (iii) the General Partner may be removed and replaced; (iv) a new
general partner or general partners may be elected if the General Partner
withdraws from the Partnership; (v) the sale of all or substantially all of the
assets of the Partnership may be approved; and (vi) any contract with the
General Partner or any affiliate thereof may be disapproved of and, as a result,
terminated upon 60 days' notice.
(c) Meetings; Other Voting Matters. Any Limited Partner upon request
addressed to the General Partner shall be entitled to obtain from the General
Partner, upon payment in advance of reasonable reproduction and mailing costs, a
list of the names and addresses of record of all Limited Partners and the number
of Units held by each (which shall be mailed by the General Partner to the
Limited Partner within ten days of the receipt of the request); provided, that
the General Partner may require any Limited Partner requesting such information
to submit written confirmation that such information will not be used for
commercial purposes. Upon receipt of a written proposal, signed by Limited
Partners owning Units representing at least 10% of the Units then owned by
Limited Partners, that a meeting of the Partnership be called to vote upon any
matter upon which the Limited Partners may vote pursuant to this Limited
Partnership Agreement,
LPA-13
<PAGE>
the General Partner shall, by written notice to each Limited Partner of record
sent by certified mail within 15 days after such receipt, call a meeting of the
Partnership. Such meeting shall be held at least 30 but not more than 60 days
after the mailing of such notice, and such notice shall specify the date of, a
reasonable place and time for, and the purpose of such meeting.
The General Partner may not restrict the voting rights of Limited Partners
as set forth herein.
In the event that the General Partner or the Limited Partners vote to amend
this Limited Partnership Agreement in any material respect, the amendment will
not become effective prior to all Limited Partners having an opportunity to
redeem their Units.
18. Governing Law.
The validity and construction of this Limited Partnership Agreement shall
be determined and governed by the laws of the State of Delaware without regard
to principles of conflicts of law; provided, that the foregoing choice of law
shall not restrict the application of any state's securities laws to the sale of
Units to its residents or within such state.
19. Miscellaneous.
(a) Notices. All notices under this Limited Partnership Agreement shall be
in writing and shall be effective upon personal delivery, or if sent by first
class mail, postage prepaid, addressed to the last known address of the party to
whom such notice is to be given, upon the deposit of such notice in the United
States mail.
(b) Binding Effect. This Limited Partnership Agreement shall inure to and
be binding upon all of the parties, all parties indemnified under Section 16
hereof, and their respective successors and assigns, custodians, estates, heirs
and personal representatives. For purposes of determining the rights of any
Partner or assignee hereunder, the Partnership and the General Partner may rely
upon the Partnership records as to who are Partners and assignees, and all
Partners and assignees agree that their rights shall be determined and they
shall be bound thereby.
(c) Captions. Captions in no way define, limit, extend or describe the
scope of this Limited Partnership Agreement nor the effect of any of its
provisions. Any reference to "persons" in this Limited Partnership Agreement
shall also be deemed to include entities, unless the context otherwise requires.
20. Certain Definitions.
This Limited Partnership Agreement contains certain provisions required by
the NASAA Guidelines. The terms used in such provisions are defined as follows
(the following definitions are included verbatim from the NASAA Guidelines and,
accordingly, may not in all cases be relevant to this Limited Partnership
Agreement):
Administrator. The official or agency administering the securities laws
-------------
of a state.
Advisor. Any Person who for any consideration engages in the business of
-------
advising others, either directly or indirectly, as to the value, purchase,
or sale of Commodity Contracts or commodity options.
Affiliate. An Affiliate of a Person means: (a) any Person directly or
---------
indirectly owning, controlling or holding with power to vote 10% or more of
the outstanding voting securities of such Person; (b) any Person 10% or
more of whose outstanding voting securities are directly or indirectly
owned, controlled or held with power to vote, by such Person; (c) any
Person, directly or indirectly, controlling, controlled by, or under common
control with such Person; (d) any officer, director or partner of such
Person; or (e) if such Person is an officer, director or partner, any
Person for which such Person acts in any such capacity.
LPA-14
<PAGE>
Capital Contributions. The total investment in a Program by a
---------------------
Participant or by all Participants, as the case may be.
Commodity Broker. Any Person who engages in the business of effecting
----------------
transactions in Commodity Contracts for the account of others or for his
own account.
Commodity Contract. A contract or option thereon providing for the
------------------
delivery or receipt at a future date of a specified amount and grade of a
traded commodity at a specified price and delivery point.
Cross Reference Sheet. A compilation of the Guidelines sections,
---------------------
referenced to the page of the prospectus, Program agreement, or other
exhibits, and justification of any deviation from the Guidelines.
Net Assets. The total assets, less total liabilities, of the Program
----------
determined on the basis of generally accepted accounting principles. Net
Assets shall include any unrealized profits or losses on open posi tions,
and any fee or expense including Net Asset fees accruing to the Program.
Net Asset Value Per Program Interest. The Net Assets divided by the
------------------------------------
number of Program Interests outstanding.
Net Worth. The excess of total assets over total liabilities as
---------
determined by generally accepted accounting principles. Net Worth shall
be determined exclusive of home, home furnishings and automobiles.
New Trading Profits. The excess, if any, of Net Assets at the end of the
-------------------
period over Net Assets at the end of the highest previous period or Net
Assets at the date trading commences, whichever is higher, and as further
adjusted to eliminate the effect on Net Assets resulting from new Capital
Contributions, redemptions, or capital distributions, if any, made during
the period decreased by interest or other income, not directly related to
trading activity, earned on Program assets during the period, whether the
assets are held separately or in the margin account.
Organization and Offering Expenses. All expenses incurred by the Program in
----------------------------------
connection with and in preparing a Program for registration and
subsequently offering and distributing it to the public, including, but not
limited to, total underwriting and brokerage discounts and commissions
(including fees of the underwriters' attorneys), expenses for printing,
engraving, mailing, salaries of employees while engaged in sales activity,
charges of transfer agents, registrars, trustees, escrow holders,
depositories, experts, expenses of qualification of the sale of its Program
Interests under federal and state law including taxes and fees,
accountants' and attorneys' fees.
Participant. The holder of a Program Interest.
-----------
Person. Any natural Person, partnership, corporation, association or
------
other legal entity.
Pit Brokerage Fee. Pit Brokerage Fee shall include floor brokerage,
-----------------
clearing fees, National Futures Association fees, and exchange fees.
Program. A limited partnership, joint venture, corporation, trust or
-------
other entity formed and operated for the purpose of investing in Commodity
Contracts.
Program Broker. A Commodity Broker that effects trades in Commodity
--------------
Contracts for the account of a Program.
LPA-15
<PAGE>
Program Interest. A limited partnership interest or other security
----------------
representing ownership in a Program.
Pyramiding. A method of using all or a part of an unrealized profit in a
----------
Commodity Contract position to provide margin for any additional Commodity
Contracts of the same or related commodities.
Sponsor. Any Person directly or indirectly instrumental in organizing a
-------
Program or any Person who will manage or participate in the management of a
Program, including a Commodity Broker who pays any por tion of the
Organizational Expenses of the Program, and the general partner(s) and any
other Person who regularly performs or selects the Persons who perform
services for the Program. Sponsor does not include wholly independent third
parties such as attorneys, accountants, and underwriters whose only
compensation is for professional services rendered in connection with the
offering of the units. The term "Sponsor" shall be deemed to include its
Affiliates.
Valuation Date. The date as of which the Net Assets of the Program are
--------------
determined.
Valuation Period. A regular period of time between Valuation Dates.
----------------
IN WITNESS WHEREOF, the parties hereto have executed this Fourth Amended
and Restated Limited Partnership Agreement as of the day and year first above
written.
GENERAL PARTNER: LIMITED PARTNERS:
MERRILL LYNCH INVESTMENT All Limited Partners now and
PARTNERS INC. hereafter admitted as limited
partners of the Partnership
pursuant to Powers of Attorney
now or hereafter executed in
favor of, and delivered to, the
General Partner.
By /s/ JOHN R. FRAWLEY, JR.
------------------------
John R. Frawley, Jr.
President and MERRILL LYNCH INVESTMENT
Chief Executive Officer PARTNERS INC.
By /s/ JOHN R. FRAWLEY, JR.
--------------------------
John R. Frawley, Jr.
President and
Chief Executive Officer
LPA-16
<PAGE>
EXHIBIT B
ML GLOBAL HORIZONS L.P.
____________________
SUBSCRIPTION REQUIREMENTS
By executing a Subscription Agreement and Power of Attorney Signature
Page for Limited Partnership Units ("Units") of ML GLOBAL HORIZONS L.P. (the
"Fund"), each purchaser ("Purchaser") of Units irrevocably subscribes for Units
at Net Asset Value (97% of Net Asset Value in the case of officers and employees
of Merrill Lynch & Co., Inc. and its affiliates), as described in the Fund's
Prospectus dated October 23, 1996 (the "Prospectus"). EXCEPT AS SET FORTH BELOW
IN THE CASE OF MAINE AND MICHIGAN RESIDENTS, INVESTORS WHO ARE CURRENTLY LIMITED
PARTNERS IN THE FUND NEED NOT EXECUTE AN ADDITIONAL SUBSCRIPTION AGREEMENT AND
POWER OF ATTORNEY SIGNATURE PAGE IN ORDER TO PURCHASE ADDITIONAL UNITS.
HOWEVER, SUCH PERSONS MUST RECEIVE A CURRENT PROSPECTUS FOR THE FUND AND
CAREFULLY REVIEW THIS EXHIBIT B -- SUBSCRIPTION REQUIREMENTS AS WELL AS THE
SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY. SUCH PERSONS' FINANCIAL
CONSULTANTS WILL BE REQUIRED TO RECONFIRM THAT SUCH PERSONS CONTINUE TO MEET THE
SUITABILITY REQUIREMENTS SET FORTH BOTH HEREIN AND THEREIN IN ORDER FOR SUCH
PERSONS TO BE ABLE TO PURCHASE ADDITIONAL UNITS.
By executing a Subscription Agreement and Power of Attorney Signature
Page, Purchaser has thereby authorized Merrill Lynch, Pierce, Fenner & Smith
Incorporated or one of its affiliates (the "Selling Agent") to debit Purchaser's
customer securities account in the full amount of his subscription. If
Purchaser's Subscription Agreement and Power of Attorney Signature Page is
accepted, Purchaser agrees to contribute Purchaser's subscription to the Fund
and to be bound by the terms of the Fund's Limited Partnership Agreement, which
will be in substantially the form of the Fourth Amended and Restated Limited
Partnership Agreement included in the Prospectus as Exhibit A. Purchaser agrees
to reimburse the Fund and Merrill Lynch Investment Partners Inc. ("MLIP"), the
general partner of the Fund, for any expense or loss incurred by either as a
result of the cancellation of Purchaser's Units due to a failure of the
Purchaser to deliver good funds in the full amount of the subscription price of
the Units subscribed for by Purchaser.
Representations and Warranties
As an inducement to MLIP to accept this subscription, Purchaser, by
executing and delivering Purchaser's Subscription Agreement and Power of
Attorney Signature Page, represents and warrants to the Fund, MLIP, Merrill
Lynch Futures Inc., and the Selling Agent as follows:
(a) Purchaser is of legal age to execute the Subscription Agreement
and Power of Attorney Signature Page and is legally competent to do so.
Purchaser acknowledges that Purchaser has received (prior to any direct or
indirect solicitation of Purchaser's investment) a copy of the Prospectus--
together with a current Prospectus Supplement and summary financial
information relating to the Fund current within 60 calendar days -- dated
within nine months of the date as of which Purchaser subscribed to purchase
Units.
(b) All information that Purchaser has heretofore furnished to MLIP
or that is set forth in the Subscription Agreement and Power of Attorney
submitted by Purchaser is correct and complete as of the date of such
Subscription Agreement and Power of Attorney, and if there should be any
change in such information prior to acceptance of Purchaser's subscription,
Purchaser will immediately furnish such revised or corrected information to
MLIP.
(c) Unless (d) below is applicable, Purchaser's subscription is made
with Purchaser's funds for Purchaser's own account and not as trustee,
custodian or nominee for another.
SR-1
<PAGE>
(d) The subscription, if made as custodian for a minor, is a gift
Purchaser has made to such minor and is not made with such minor's funds
or, if not a gift, the representations as to net worth and annual income
set forth below apply only to such minor.
(e) If Purchaser is subscribing in a representative capacity,
Purchaser has full power and authority to purchase the Units and enter into
and be bound by the Subscription Agreement and Power of Attorney on behalf
of the entity for which he is purchasing the Units, and such entity has
full right and power to purchase such Units and enter into and be bound by
the Subscription Agreement and Power of Attorney and to become a Limited
Partner pursuant to the Limited Partnership Agreement.
(f) Purchaser either is not required to be registered with the
Commodity Futures Trading Commission ("CFTC") or to be a member of the
National Futures Association ("NFA"), or, if required to be so, is duly
registered with the CFTC and is a member in good standing of the NFA. It is
an NFA requirement that MLIP attempt to verify that any entity which seeks
to purchase Units be duly registered with the CFTC and a member of the NFA,
if required. Purchaser agrees to supply MLIP with such information as MLIP
may reasonably request in order to attempt such verification. Most entities
which acquire Units will, as a result, themselves become "commodity pools"
within the intent of applicable CFTC and NFA rules, and their sponsors,
accordingly, will be required to register as "commodity pool operators."
(g) If the undersigned is acting on behalf of an "employee benefit
plan," as defined in and subject to the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), or any "plan," as defined in Section
4975 of the Internal Revenue Code of 1986, as amended (the "Code") (each
such employee benefit plan and plan, a "Plan"), the individual signing this
Subscription Agreement and Power of Attorney on behalf of the undersigned,
in addition to the representations and warranties set forth above, hereby
further represents and warrants as, or on behalf of the fiduciary of the
Plan responsible for purchasing the Units (the "Plan Fiduciary") that: (a)
the Plan Fiduciary has considered an investment in the Fund for such Plan
in light of the risks relating to the Fund; (b) the Plan Fiduciary has
determined that an investment in the Fund for such Plan is consistent with
the Plan Fiduciary's responsibilities under ERISA; (c) the Plan's
investment in the Fund does not violate and is not otherwise inconsistent
with the terms of any legal document constituting the Plan or any trust
agreement thereunder; (d) the Plan's investment in the Fund has been duly
authorized and approved by all necessary parties; (e) none of MLIP, any
Advisor to the Fund, the Selling Agent, Merrill Lynch Futures Inc., Merrill
Lynch International Bank ("MLIB"), any of their respective affiliates or
any of their respective agents or employees (i) has investment discretion
with respect to the investment of assets of the Plan used to purchase
Units, (ii) has authority or responsibility to or regularly gives
investment advice with respect to the assets of the Plan used to purchase
Units for a fee and pursuant to an agreement or understanding that such
advice will serve as a primary basis for investment decisions with respect
to the Plan and that such advice will be based on the particular investment
needs of the Plan, or (iii) is an employer maintaining or contributing to
the Plan; and (f) the Plan Fiduciary (i) is authorized to make, and is
responsible for, the decision to invest in the Fund, including the
determination that such investment is consistent with the requirement
imposed by Section 404 of ERISA that Plan investments be diversified so as
to minimize the risk of large losses, (ii) is independent of MLIP, any
Advisor to the Fund, the Selling Agent, Merrill Lynch Futures Inc., MLIB
and any of their respective affiliates, and (iii) is qualified to make such
investment decision. The undersigned will, at the request of MLIP, furnish
MLIP with such information as MLIP may reasonably require to establish that
the purchase of Units by the Plan does not violate any provision of ERISA
or the Code, including, without limitation, those provisions relating to
"prohibited transactions" by "parties in interest" or "disqualified
persons," as defined therein.
The representations and statements set forth herein may be asserted in
the defense of the Fund, MLIP, the Advisors to the Fund, the Selling Agent,
Merrill Lynch Futures Inc. or others in any subsequent litigation or other
proceeding.
____________________
SR-2
<PAGE>
Investor Suitability
PURCHASER UNDERSTANDS THAT THE PURCHASE OF UNITS MAY BE MADE ONLY BY
PERSONS WHO, AT A MINIMUM, HAVE (I) A NET WORTH OF AT LEAST $150,000 (EXCLUSIVE
OF HOME, FURNISHINGS AND AUTOMOBILES) OR (II) AN ANNUAL GROSS INCOME OF AT LEAST
$45,000 AND A NET WORTH OF AT LEAST $45,000 (EXCLUSIVE OF HOME, FURNISHINGS AND
AUTOMOBILES). RESIDENTS OF THE FOLLOWING STATES MUST MEET THE REQUIREMENTS SET
FORTH BELOW ("NET WORTH" FOR SUCH PURPOSES IS IN ALL CASES EXCLUSIVE OF HOME,
FURNISHINGS AND AUTOMOBILES). IN ADDITION, PURCHASER MAY NOT INVEST MORE THAN
10% OF HIS OR HER READILY MARKETABLE ASSETS IN THE FUND.
1. Arizona -- Net worth of at least $225,000 or a net worth of at
least $60,000 and an annual income of at least $60,000.
2. California -- Net worth of at least $250,000 and an annual income
of at least $65,000 or, in the alternative, a net worth of at least $500,000.
3. Iowa -- Net worth of at least $225,000 or a net worth of at least
$60,000 and an annual taxable income of at least $60,000.
4. Maine -- Minimum subscription per investment, both initial and
subsequent, of $5,000; net worth of at least $200,000 or a net worth of at least
$50,000 and an annual income of at least $50,000. ALL MAINE RESIDENTS, INCLUDING
EXISTING LIMITED PARTNERS IN THE FUND SUBSCRIBING FOR ADDITIONAL UNITS, MUST
EXECUTE A SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY SIGNATURE PAGE. MAINE
RESIDENTS MUST SIGN A SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY SIGNATURE
PAGE SPECIFICALLY PREPARED FOR MAINE RESIDENTS, A COPY OF WHICH SHALL ACCOMPANY
THIS PROSPECTUS AS DELIVERED TO ALL MAINE RESIDENTS.
5. Massachusetts -- Net worth of at least $225,000 or a net worth of
at least $60,000 and an annual income of at least $60,000.
6. Michigan -- Net worth of at least $225,000 or a net worth of at
least $60,000 and taxable income in 1995 of at least $60,000. ALL MICHIGAN
RESIDENTS, INCLUDING EXISTING LIMITED PARTNERS IN THE FUND SUBSCRIBING FOR
ADDITIONAL UNITS, MUST EXECUTE A SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY
SIGNATURE PAGE.
7. Minnesota -- Net worth of at least $225,000 or a net worth of at
least $60,000 and an annual income of at least $60,000.
8. Mississippi -- Net worth of at least $225,000 or a net worth of
at least $60,000 and an annual income of at least $60,000.
9. Missouri -- Net worth of at least $225,000 or a net worth of at
least $60,000 and an annual income of at least $60,000.
10. New Hampshire -- Net worth of at least $250,000 or a net worth of
at least $125,000 and an annual income of at least $50,000.
11. North Carolina -- Net worth of at least $225,000 or a net worth
of at least $60,000 and an annual income of at least $60,000.
12. Oklahoma -- Net worth of at least $225,000 or a net worth of
$60,000 and an annual income of at least $60,000.
SR-3
<PAGE>
13. Oregon -- Net worth of at least $225,000 or a net worth of at
least $60,000 and an annual taxable income of at least $60,000.
14. Pennsylvania -- Net worth of a least $175,000 or a net worth of
at least $100,000 and an annual taxable income of at least $50,000.
15. South Carolina -- Net worth of at least $100,000 or a net income
in 1995 some portion of which was subject to maximum federal and state income
tax.
16. South Dakota -- Net worth of at least $225,000 or a net worth of
at least $60,000 and an annual income of at least $60,000.
17. Tennessee -- Net worth of at least $225,000 or a net worth of at
least $60,000 and an annual taxable income of at least $60,000.
18. Texas -- Net worth of at least $225,000 or a net worth of at
least $60,000 and an annual taxable income of at least $60,000.
SR-4
<PAGE>
EXHIBIT C
ML GLOBAL HORIZONS L.P.
____________________
SUBSCRIPTION INSTRUCTIONS
ANY PERSON CONSIDERING PURCHASING UNITS SHOULD CAREFULLY READ AND REVIEW
THE PROSPECTUS OF THE FUND DATED OCTOBER 23, 1996, TOGETHER WITH THE
SUMMARY FINANCIAL INFORMATION RELATING TO THE FUND CURRENT WITHIN 60
CALENDAR DAYS WHICH ACCOMPANIED THE PROSPECTUS.
The Units are speculative and involve a high degree of risk. No person
may invest more than 10% of his or her readily marketable assets in the Fund.
Foreign persons and entities not otherwise subject to U.S. federal
income tax may not invest in the Fund.
EXISTING LIMITED PARTNERS WHO ARE SUBSCRIBING FOR ADDITIONAL UNITS
(EXCEPT MAINE AND MICHIGAN RESIDENTS) NEED NOT COMPLETE AN ADDITIONAL
SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY SIGNATURE PAGE BUT MUST RECEIVE A
CURRENT PROSPECTUS FOR THE FUND AND CAREFULLY REVIEW THE SUBSCRIPTION AGREEMENT
AND POWER OF ATTORNEY AS WELL AS EXHIBIT B -- SUBSCRIPTION REQUIREMENTS. SUCH
LIMITED PARTNERS' FINANCIAL CONSULTANTS MUST RECONFIRM THAT SUCH LIMITED
PARTNERS CONTINUE TO MEET THE STANDARDS AND REQUIREMENTS SET FORTH HEREIN AND IN
EXHIBIT B -- SUBSCRIPTION REQUIREMENTS IN ORDER FOR SUCH LIMITED PARTNERS TO BE
ELIGIBLE TO PURCHASE ADDITIONAL UNITS.
____________________
FILL IN ALL OF THE BOXES ON PAGES SA-5 and SA-6; TYPE OR PRINT
USING BLACK INK ONLY AND ONE LETTER OR NUMBER PER BOX, AS FOLLOWS:
Item 1 - Financial Consultants must complete the information required.
Item 2 - Enter the number of Units to be purchased or check the appropriate
dollar amount of subscription.
Item 3 - Enter customer's Merrill Lynch Account Number.
Item 4 - Enter the Social Security Number or Taxpayer ID Number. In case of
joint ownership, either Social Security Number may be used.
The Signature Page is self-explanatory for most types of investors;
however, we have provided specific instructions for the following types of
investors:
Trust -- Enter the Trust name on line 7 and the trustee's name on line
8, followed by "Trustee." If applicable, use line 9 for the custodian's name,
followed by "Custodian." Be sure to furnish the Taxpayer ID Number of the Trust.
Custodian Under Uniform Gifts to Minors Act -- Complete line 5 with
the name of minor followed by "UGMA." On line 8 enter the custodian's name,
followed by "Custodian." Be sure to furnish the minor's Social Security Number.
SA-(i)
<PAGE>
Partnership or Corporation -- The Partnership or Corporation name is
required on line 7. Enter an officer's or partner's name on line 8. Be sure to
furnish the Taxpayer ID Number of the Partnership or Corporation.
Items 5, 6, 7 - Enter the exact name in which the Units are to be held.
Item 8 - Enter a Partner's or officer's name
Item 9 - Complete information as required.
Item 10 - The investor(s) (EXCEPT CURRENT LIMITED PARTNERS IN THE
FUND OTHER THAN RESIDENTS OF MAINE OR MICHIGAN) must
execute the Subscription Agreement and Power of Attorney
Signature Page (Item 10, Page SA-6) and review the
representation relating to backup withholding tax
underneath the signature and telephone number lines in Item
10.
Item 11 - Financial Consultants must complete the information
required.
THE SPECIMEN COPY OF THE SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY SIGNATURE
PAGE
(PAGES SA-3 AND SA-4) SHOULD NOT BE EXECUTED.
Instructions to Financial Consultants:
THE EXECUTED SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY SIGNATURE PAGE MUST
BE RETAINED IN THE BRANCH OFFICE.
RECONFIRMATIONS (I.E., SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY
SIGNATURE PAGES EXECUTED BY FINANCIAL CONSULTANTS) OR ANOTHER FORM OF WRITTEN
RECONFIRMATION APPROVED BY THE BRANCH OFFICE REGARDING THE CONTINUING
SUITABILITY OF EXISTING LIMITED PARTNERS SUBSCRIBING FOR ADDITIONAL UNITS MUST
ALSO BE RETAINED IN THE BRANCH OFFICE.
SA-(ii)
<PAGE>
ML GLOBAL HORIZONS L.P.
LIMITED PARTNERSHIP UNITS
____________________
BY EXECUTING THIS SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY
SUBSCRIBERS ARE NOT WAIVING ANY RIGHTS UNDER THE SECURITIES ACT
OF 1933 OR THE SECURITIES EXCHANGE ACT OF 1934
____________________
SUBSCRIPTION AGREEMENT AND
POWER OF ATTORNEY
ML GLOBAL HORIZONS L.P.
c/o Merrill Lynch Investment Partners Inc.
General Partner
Merrill Lynch World Headquarters
South Tower, 6th Floor
World Financial Center
New York, New York 10080-6106
Dear Sirs:
1. Subscription for Units. I hereby subscribe for the number
of limited partnership units ("Units") in ML GLOBAL HORIZONS L.P. (the "Fund")
set forth in the Subscription Agreement and Power of Attorney Signature Page
attached hereto; a minimum of 50 Units ($5,000, if less) must be purchased -- 20
Units ($2,000, if less) for both: (i) trustees or custodians of eligible
employee benefit plans and individual retirement accounts; and (ii) existing
Limited Partners (who are not, except in the case of Maine or Michigan
residents, required to submit a new Subscription Agreement and Power of Attorney
in order to acquire additional Units). Any greater number of whole Units may be
purchased in 1 Unit increments. The purchase price is the Net Asset Value per
Unit -- 97% of the Net Asset Value per Unit if I am an officer or employee of
Merrill Lynch & Co., Inc. or any of its affiliates. The terms of the offering of
the Units are described in the Prospectus of the Fund dated October 23, 1996
(the "Prospectus"), as the same may be from time to time supplemented and
amended. Units are offered as of the beginning of each calendar month (until
such time as the offering is discontinued). Concurrently with or prior to the
delivery of this Subscription Agreement and Power of Attorney, I have authorized
Merrill Lynch, Pierce, Fenner & Smith Incorporated (the "Selling Agent") to
debit my customer securities account in the amount of my subscription. I
acknowledge that I must have my subscription payment in such account on but not
before the settlement date for my purchase of Units. Such settlement date will
be not more than five business days after the purchase date of my Units, which
will occur as of the first day of the calendar month immediately following the
month during which my subscription is accepted. My Merrill Lynch Financial
Consultant will inform me of such settlement date, on which my account will be
debited and the amount so debited transmitted directly to the Fund, as described
in the Prospectus. MERRILL LYNCH INVESTMENT PARTNERS INC. ("MLIP"), the General
Partner of the Fund, may, in its sole and absolute discretion, accept or reject
this subscription in whole or in part, except that, if this subscription is to
be accepted in part only, it shall not be reduced to an amount less than 50
Units ($5,000, if less); 20 Units ($2,000, if less) in the case of persons
permitted to purchase such lesser minimum, as described above. All subscriptions
once submitted are irrevocable. All Units are offered subject to prior
sale.
2. Representations and Warranties of Subscriber. I have
received the Prospectus together with a current Prospectus Supplement and
summary financial information relating to the Fund current within 60 calendar
days. I understand that by submitting this Subscription Agreement and Power of
Attorney I am making the representations and warranties set forth in Exhibit B
- --Subscription Requirements in the Prospectus, including, without limitation,
those representations and warranties relating to my net worth (exclusive of
home, furnishings and automobiles) and annual income.
SA-1
<PAGE>
3. Power of Attorney. In connection with my subscription for
Units, I do hereby irrevocably constitute and appoint MLIP, and its successors
and assigns, as my true and lawful Attorney-in-Fact, with full power of
substitution, in my name, place and stead, to (i) file, prosecute, defend,
settle or compromise litigation, claims or arbitrations on behalf of the Fund
and (ii) make, execute, sign, acknowledge, swear to, deliver, record and file
any documents or instruments which may be considered necessary or desirable by
MLIP to carry out fully the provisions of the Limited Partnership Agreement of
the Fund, including, without limitation, by executing said Limited Partnership
Agreement itself, and by effecting all amendments permitted by the terms
thereof. I acknowledge that the other investors in the Fund are relying on
MLIP's authority to act pursuant to the Power of Attorney granted hereby. The
Power of Attorney granted hereby shall be deemed to be coupled with an interest
and shall be irrevocable and shall survive, and shall not be affected by, my
subsequent death, incapacity, disability, insolvency or dissolution or any
delivery by me of an assignment of the whole or any portion of my Units.
4. Irrevocability; Governing Law. I hereby acknowledge and
agree that I am not entitled to cancel, terminate or revoke this subscription or
any of my agreements hereunder after the Subscription Agreement and Power of
Attorney Signature Page attached hereto has been submitted (and not rejected),
and that this subscription and such agreements shall survive my death or
disability. This Subscription Agreement and Power of Attorney shall be governed
by and interpreted in accordance with the laws of the State of New York, without
regard to principles of conflicts of law.
SA-2
<PAGE>
<TABLE>
------------------------------------------------------------------------------
<S> <C> <C>
1 Financial Consultant [ ] [ ] [ ] [ ]
Name First M.I. Last Sub.Order Ref.#
Financial Consultant [ ]-[ ]-[ ] Financial Consultant Number [ ] Branch Wire Code [ ]
Phone Number
- --------------------------------------------------------------------------------
</TABLE>
ML GLOBAL HORIZONS L.P.
LIMITED PARTNERSHIP UNITS
SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY SIGNATURE PAGE.
PLEASE PRINT OR TYPE. USE BLACK INK ONLY AND ONLY ONE CHARACTER PER BOX.
The Investor named below, by execution and delivery of this Signature Page, by
payment of the purchase price for Limited Partnership Units ("Units") in ML
Global Horizons L.P. (the "Fund") and by authorizing Merrill Lynch, Pierce.
Fenner & Smith Incorporated to debit investor's customer securities account in
the amount set forth below, hereby subscribes for the purchase of Units at a
purchase price of Net Asset Value as of the first day of the month immediately
following receipt and acceptance of this Signature Page (or 97% of Net Asset
Value for officers and employees of Merrill Lynch & Co., Inc. and its
affiliates).
The named investor further acknowledges receipt of the Prospectus of the Fund
dated August _, 1996 including the Third Amended and Restated Limited
Partnership Agreement, the Subscription Requirements and the Subscription
Agreement and Power of Attorney set forth therein, the terms of which govern the
investment in the Units being subscribed for hereby, together with the summary
financial information relating to the Fund current within 60 calendar days.
If the subscriber is a participant in a Merrill Lynch sponsored IRA BASIC/TM/
or SEP account and is purchasing Units for such an account, the subscriber
hereby acknowledges that:
1. An amount at least equal to the purchase price for the Units is in an IRA,
BASIC/TM/ or SEP account at Merrill Lynch, Pierce, Fenner & Smith
Incorporated;
2. The minimum value of all securities and funds in such IRA, BASIC/TM/ or SEP
account is $20,000;
3. The minimum subscription is 20 Units (or $2,000 if less) and the amount of
this subscription is no more than 10% of the value of the IRA. BASIC/TM/ or
SEP account on the subscription date: and
4. Each separate IRA, BASIC/TM/ or SEP account of the subscriber seeking to
purchase Units meets the above eligibility requirements.
2 [ ] [ ] $5.000 [ ] $2.000 3 [ ]-[ ]
Enter number of Units or check appropriate box Merrill Lynch Account
(minimum 50 Units, or $5.000 if less, for
Taxable Investors; 20 Units, or $2.000 if less,
for Non-Taxable Investors and existing
Limited Partners subscribing for additional
Units: Incremental investments in one Unit multiples).
4 [ ]-[ ]-[ ] [ ]-[ ]
Social Security Number or Taxpayer ID Number
Limited Partner Name
5 [ ] [ ] [ ]
First Name M.I. Last Name
Joint Partner Name
6 [ ] [ ] [ ]
First Name M.I. Last Name
Partnership, Corporate or Trust Limited Partner Name
7 [ ]
Partner, Officer, Trustee, Beneficiary, Power of Attorney or Custodian under
UGMA/UTMA
8 [ ]
Additional Information
9 [ ]
Residence Address of Limited Partner (P.O. Box Numbers Are Not Acceptable For
Residence Address)
[ ] [ ] [ ]
Street Number Street Name Apt. Number
[ ] [ ] [ ] [ ]
Bldg. No. City State Zip Code
[ ]
Country (If Other Than U.S.A.)
Mailing Address of Limited Partner (If Other Than Residence Address)
[ ] [ ] [ ]
Street Number Street Number Apt. Number
[ ] [ ] [ ] [ ] [ ]
Bldg. No P.O. Box No. City State Zip Code
[ ]
Country (If Other Than U.S.A.)
[ ] Check box, if Merrill Lynch, Pierce, Fenner & Smith Incorporated
("Merrill Lynch") is custodian.
Name of Custodian. If Other Than Merrill Lynch
[ ]
Mailing Address of Custodian. If Other Than Merrill Lynch
[ ] [ ] [ ]
Street Number Street Number Apt. Number
[ ] [ ] [ ] [ ] [ ]
Bldg. No P.O. Box No. City State Zip Code
[ ]
Country (If Other Than U.S.A.)
SA-3
<PAGE>
________________________________________________________________________________
________________________________________________________________________________
ML GLOBAL HORIZONS L.P.
LIMITED PARTNERSHIP UNITS
SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY SIGNATURE PAGE (CONTINUED)
- -------------------------------------------------------------------------------
10 FOR USE BY INVESTOR
X _________________________________ X _____________________________________
Signature of Investor Date Signature of Joint Investor (if any Date
( ) -
_________________________________
Telephone Number of Investor
EXECUTING AND DELIVERING THIS SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY
SIGNATURE PAGE SHALL IN NO RESPECT BE DEEMED TO CONSTITUTE A WAIVER OF ANY
RIGHTS UNDER THE SECURITIES ACT OF 1933 OR UNDER THE SECURITIES EXCHANGE ACT OF
1934. I ACKNOWLEDGE THAT I HAVE RECEIVED, IN ADDITION TO THE PROSPECTUS DATED
AUGUST __. 1996, SUMMARY FINANCIAL INFORMATION RELATING TO THE FUND CURRENT
WITHIN 60 CALENDAR DAYS.
I have checked the following box if I am subject to backup withholding under the
provisions of Section 3406(a)(1)(C) of the Internal Revenue Code: [_]. Under the
penalties of perjury, by signature above I hereby certify that the Social
Security Number or Taxpayer ID Number shown on the front of this Subscription
Agreement and Power of Attorney Signature Page above my name is my true, correct
and complete Social Security Number or Taxpayer ID Number and that the
information given in the immediately preceding sentence is true, correct and
complete.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
11 FINANCIAL CONSULTANT MUST SIGN
I have reasonable grounds to believe, based on information obtained from the
investor concerning his/her investment objectives, other investments, financial
situation and needs and any other information known by me, that investment in
the Fund is suitable for such investor in light of his/her financial position,
net worth and other suitability characteristics. I have also informed the
investor of the unlikelihood of a public trading market developing for the
Units.
The Financial Consultant MUST sign below in order to substantiate compliance
with Appendix F to Article 3. Section 34 of the NASD's Rules of Fair Practice.
X _____________________________________________________________________________
Financial Consultant Signature Date
Office Manager approval of Merrill Lynch sponsored retirement account purchases.
X _____________________________________________________________________________
Office Manager Signature Date
- -------------------------------------------------------------------------------
===============================================================================
<TABLE>
<CAPTION>
DATE RECEIVED COUNTRY CODE ADDITIONAL ORDER CONTROL NUMBER
<S> <C> <C> <C> <C>
FOR OFFICE USE ONLY [______] [__] [__] [__] [_____}
</TABLE>
SA-4
<PAGE>
EXECUTION COPY
<TABLE>
------------------------------------------------------------------------------
<S> <C> <C>
1 Financial Consultant [ ] [ ] [ ] [ ]
Name First M.I. Last Sub.Order Ref.#
Financial Consultant [ ]-[ ]-[ ] Financial Consultant Number [ ] Branch Wire Code [ ]
Phone Number
- --------------------------------------------------------------------------------
</TABLE>
ML GLOBAL HORIZONS L.P.
LIMITED PARTNERSHIP UNITS
SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY SIGNATURE PAGE.
PLEASE PRINT OR TYPE. USE BLACK INK ONLY AND ONLY ONE CHARACTER PER BOX.
The Investor named below, by execution and delivery of this Signature Page, by
payment of the purchase price for Limited Partnership Units ("Units") in ML
Global Horizons L.P. (the "Fund") and by authorizing Merrill Lynch, Pierce.
Fenner & Smith Incorporated to debit investor's customer securities account in
the amount set forth below, hereby subscribes for the purchase of Units at a
purchase price of Net Asset Value as of the first day of the month immediately
following receipt and acceptance of this Signature Page (or 97% of Net Asset
Value for officers and employees of Merrill Lynch & Co., Inc. and its
affiliates).
The named investor further acknowledges receipt of the Prospectus of the Fund
dated August _, 1996 including the Third Amended and Restated Limited
Partnership Agreement, the Subscription Requirements and the Subscription
Agreement and Power of Attorney set forth therein, the terms of which govern the
investment in the Units being subscribed for hereby, together with the summary
financial information relating to the Fund current within 60 calendar days.
If the subscriber is a participant in a Merrill Lynch sponsored IRA BASIC/TM/
or SEP account and is purchasing Units for such an account, the subscriber
hereby acknowledges that:
1. An amount at least equal to the purchase price for the Units is in an IRA,
BASIC/TM/ or SEP account at Merrill Lynch, Pierce, Fenner & Smith
Incorporated;
2. The minimum value of all securities and funds in such IRA, BASIC/TM/ or SEP
account is $20,000;
3. The minimum subscription is 20 Units (or $2,000 if less) and the amount of
this subscription is no more than 10% of the value of the IRA. BASIC/TM/ or
SEP account on the subscription date: and
4. Each separate IRA, BASIC/TM/ or SEP account of the subscriber seeking to
purchase Units meets the above eligibility requirements.
2 [ ] [ ] $5.000 [ ] $2.000 3 [ ]-[ ]
Enter number of Units or check appropriate box Merrill Lynch Account
(minimum 50 Units, or $5.000 if less, for
Taxable Investors; 20 Units, or $2.000 if less,
for Non-Taxable Investors and existing
Limited Partners subscribing for additional
Units: Incremental investments in one Unit multiples).
4 [ ]-[ ]-[ ] [ ]-[ ]
Social Security Number or Taxpayer ID Number
Limited Partner Name
5 [ ] [ ] [ ]
First Name M.I. Last Name
Joint Partner Name
6 [ ] [ ] [ ]
First Name M.I. Last Name
Partnership, Corporate or Trust Limited Partner Name
7 [ ]
Partner, Officer, Trustee, Beneficiary, Power of Attorney or Custodian under
UGMA/UTMA
8 [ ]
Additional Information
9 [ ]
Residence Address of Limited Partner (P.O. Box Numbers Are Not Acceptable For
Residence Address)
[ ] [ ] [ ]
Street Number Street Name Apt. Number
[ ] [ ] [ ] [ ]
Bldg. No. City State Zip Code
[ ]
Country (If Other Than U.S.A.)
Mailing Address of Limited Partner (If Other Than Residence Address)
[ ] [ ] [ ]
Street Number Street Number Apt. Number
[ ] [ ] [ ] [ ] [ ]
Bldg. No P.O. Box No. City State Zip Code
[ ]
Country (If Other Than U.S.A.)
[ ] Check box, if Merrill Lynch, Pierce, Fenner & Smith Incorporated
("Merrill Lynch") is custodian.
Name of Custodian. If Other Than Merrill Lynch
[ ]
Mailing Address of Custodian. If Other Than Merrill Lynch
[ ] [ ] [ ]
Street Number Street Number Apt. Number
[ ] [ ] [ ] [ ] [ ]
Bldg. No P.O. Box No. City State Zip Code
[ ]
Country (If Other Than U.S.A.)
SA-5
<PAGE>
EXECUTION COPY
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ML GLOBAL HORIZONS L.P.
LIMITED PARTNERSHIP UNITS
SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY SIGNATURE PAGE (CONTINUED)
- --------------------------------------------------------------------------------
10 FOR USE BY INVESTOR
X _________________________________ X ____________________________________
Signature of Investor Date Signature of Investor(if any) Date
( ) __
---------------------------------
Telephone Number of Investor
Executing and delivering this Subscription Agreement and Power of Attorney
Signature Page shall in no respect be deemed to constitute a waiver of any
rights under the Securities Act of 1933 or under the Securities Exchange Act of
1934. I acknowledge that I have received, in addition to the Prospectus dated
August __, 1996, summary financial information relating to the Fund current
within 60 calendar days.
I have checked the following box if I am subject to backup withholding under the
provisions of Section 3406(a)(1)(C) of the Internal Revenue Code:[_]. Under the
penalties of perjury, by signature above I hereby certify that the Social
Security Number of Taxpayer ID Number shown on the front of this Subscription
Agreement and Power of Attorney Signature Page above my name is my true, correct
and complete Social Security Number or Taxpayer ID Number and that the
information given in the immediately preceding sentence is true, correct and
complete.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
11 FINANCIAL CONSULTANT MUST SIGN
I have reasonable grounds to believe, based on information obtained from the
investor concerning his/her investment objectives, other investments, financial
situation and needs and any other information known by me, that investment in
the Fund is suitable for such investor in light of his/her financial position,
net worth and other suitability characteristics. I have also informed the
investor of the unlikelihood of a public trading market developing for the
Units.
The Financial Consultant MUST sign below in order to substantiate compliance
with Appendix F to Article 3, Section 34 of the NASD's Rules of Fair Practice.
X ______________________________________________________________________________
Financial Consultant Signature Date
Office Manager approval of Merrill Lynch sponsored retirement account purchase.
X ______________________________________________________________________________
Office Manager Signature Date
- --------------------------------------------------------------------------------
================================================================================
<TABLE>
Date Received Country Code Additional Order Control Number
<S> <C> <C> <C> <C>
FOR OFFICE USE ONLY [__][__][__][__][__][__] [__][__] [__] [__][__][__][__][__]
</TABLE>
SA-6
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Merrill Lynch Investment Partners Inc. will pay, without
reimbursement from the Registrant, all of the following costs incurred in
connection with preparing and filing this Registration Statement. This
Registration Statement also constitutes Post-Effective Amendment No. 4 to the
Registrant's Registration Statement on Form S-1, No. 33-80202 (effective June
17, 1994) and Post-Effective Amendment No. 3 with respect to the Registrant's
Registration Statement on Form S-1, No. 33-88994 (effective March 1, 1995).
<TABLE>
<CAPTION>
Approximate
Amount
-----------
<S> <C>
Securities and Exchange Commission Registration Fee.......... $ 17,242
National Association of Securities Dealers, Inc. Filing Fee.. 5,500
Printing Expenses............................................ 75,000
Fees of Certified Public Accountants......................... 50,000
Blue Sky Expenses (Excluding Legal Fees)..................... 25,000
Fees of Counsel.............................................. 75,000
Miscellaneous Offering Costs................................. 63,779
--------
Total...................................................... $311,521
========
</TABLE>
____________________
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 16 of the Third Amended and Restated Limited Partnership
Agreement (attached as Exhibit A to the prospectus which forms a part of this
Registration Statement) provides for the indemnification of the General Partner
and certain of its affiliates by the Registrant. "Affiliates" shall mean any
person performing services on behalf of the Fund who: (1) directly or indirectly
controls, is controlled by, or is under common control with the General Partner;
or (2) owns or controls 10% or more of the outstanding voting securities of the
General Partner; or (3) is an officer or director of the General Partner; or (4)
if the General Partner is an officer, director, partner or trustee, is any
entity for which the General Partner acts in any such capacity. Indemnification
is to be provided for any loss suffered by the Registrant which arises out of
any action or inaction, if the party, in good faith, determined that such course
of conduct was in the best interest of the Registrant and such conduct did not
constitute negligence or misconduct. The General Partner and its affiliates will
only be entitled to indemnification for losses incurred by such affiliates in
performing the duties of the General Partner and acting wholly within the scope
of the authority of the General Partner.
In the Selling Agreement, the Trading Advisors have agreed to
indemnify each person who controls the General Partner within the meaning of
Section 15 of the Securities Act of 1933 and each person who signed this
Registration Statement or is a director of the General Partner against losses,
claims, damages, liabilities or expenses arising out of or based upon any untrue
statement or omission or alleged untrue statement or omission relating or with
respect to the Trading Advisors or any principal of the Trading Advisors or
their operations, trading systems, methods or performance, which was made in any
preliminary prospectus, this Registration Statement as declared effective, the
Prospectus included in this Registration Statement when declared effective, or
in any amendment or supplement thereto and furnished by or approved by the
Trading Advisors for inclusion therein. The Trading Advisors have also agreed to
contribute to the amounts paid by such controlling persons, signatees or
directors in respect of any such losses, claims, damages, liabilities or
expenses in the event that the foregoing indemnity is unavailable or
insufficient.
S-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
None.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
The following documents (unless otherwise indicated) are filed
herewith and made a part of this Registration Statement:
(a) Exhibits.
Exhibit
Number Description of Document
- ------ -----------------------
The following exhibits are filed herewith.
EX-3.02c Fourth Amended and Restated Limited Partnership
Agreement of the Registrant (included as Exhibit A to
the Prospectus).
EX-5.01 Opinion of Sidley & Austin relating to the legality of the
Units.
EX-8.01 Opinion of Sidley & Austin with respect to federal income
tax consequences.
EX-10.09 Subscription Agreement and Power of Attorney (included as
Exhibit C to the Prospectus).
EX-23.01 Consent of Sidley & Austin.
EX-23.02 Consent of Deloitte & Touche LLP.
____________________
The following exhibits are incorporated by reference herein
from the exhibits of the same description and number filed with Amendment No. 1
to the Registrant's Registration Statement on Form S-1 (Registration No. 33-
62998), filed with the Commission on September 10, 1993 (Amendment No. 2 to such
Registration Statement became effective October 4, 1993).
1.01 Selling Agreement among the Partnership, the General
(Amended) Partner, Merrill Lynch Futures, the Selling Agent and the
Trading Advisors.
10.01 Form of Advisory Agreement among the Partnership, the
(Amended) General Partner and each Trading Advisor.
10.02 Form of Consulting Agreement between Merrill Lynch Futures
(Amended) and each Trading Advisor.
S-2
<PAGE>
Exhibit
Number Description of Document
- ------ -----------------------
10.03 Form of Customer Agreement between the Partnership and
(Amended) Merrill Lynch Futures.
10.06 Foreign Exchange Desk Service Agreement.
The following exhibits are incorporated by reference herein
from the exhibits of the same description and number filed with the Registrant's
Registration Statement on Form S-1 (Registration No. 33-88994), which became
effective March 1, 1995.
1.01(b) Amendment No. 1 to the Selling Agreement among the
Partnership, the General Partner, Merrill Lynch Futures
Inc., the Selling Agent and ARA Portfolio Management
Company, L.L.C. (formerly, ARA Portfolio Management
Company).
The following exhibits are incorporated by reference herein
from the exhibits of the same description and number filed with the Registrant's
Post-Effective Amendment No. 1 to the Registration Statement on Form S-1
(Registration No. 33-88994) which became effective on December 6, 1995 (Post-
Effective Amendment No. 2 to such Registration Statement became effective April
8, 1996).
1.02 Form of Assignment of Selling Agreement.
3.01 Amended and Restated Certificate of Limited Partnership of
the Registrant.
10.07 Form of Assignment of Advisory Agreement.
10.08 Form of Assignment of Consulting Agreement.
The following exhibits are incorporated by reference herein
from the exhibits of the same description and number filed with the Registrant's
Registration Statement on Form S-1 (Registration No. 333-10749) which was filed
on August 23, 1996.
EX-1.01c Form of Amendment to the Selling Agreement among the
Partnership, the General Partner, Merrill Lynch Futures
Inc., the Selling Agent and the Trading Advisors.
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales
are being made, a post-effective amendment to this registration statement;
(i) To include any prospectus required by section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or
events arising after the effective date of the registration
statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent
a fundamental change in the
S-3
<PAGE>
information set forth in the registration statement. Notwithstanding
the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or
high end of the estimated maximum offering range may be reflected in
the form of prospectus filed with the Commission pursuant to Rule
424(b) ((S)230.424(b) of this chapter) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) Insofar as indemnification for liabilities under the Securities
Act of 1933 may be permitted to officers, directors or controlling persons of
the registrant pursuant to the provisions described in Item 14 above, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by an officer, director,
or controlling person of the registrant in the successful defense of any such
action, suit or proceeding) is asserted by such officer, director or controlling
person in connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
S-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
General Partner of the Registrant has duly caused this Registration Statement
Amendment to be signed on its behalf by the undersigned, thereunto duly
authorized, in The City of New York in the State of New York on the 22nd day of
October, 1996.
ML GLOBAL HORIZONS L.P.
By: Merrill Lynch Investment Partners Inc.
General Partner
By: /s/ JOHN R. FRAWLEY, JR.
-----------------------------------
John R. Frawley, Jr.
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement or Registration Statement Amendment has been signed below
by the following persons on behalf of the General Partner of the Registrant in
the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title With Registrant Date
--------- --------------------- ----
<S> <C> <C>
/s/ JOHN R. FRAWLEY, JR. President, Chief Executive October 22, 1996
- ------------------------------ Officer and Director
John R. Frawley, Jr.
/s/ JAMES M. BERNARD Chief Financial Officer and October 22, 1996
- ------------------------------ Senior Vice-President
James M. Bernard (Principal Financial and
Accounting Officer)
/s/ ALLEN N. JONES Director October 22, 1996
- ------------------------------
Allen N. Jones
</TABLE>
(Being principal executive officer, the principal financial and
accounting officer and a majority of the directors of Merrill Lynch Investment
Partners Inc.)
<TABLE>
<CAPTION>
Merrill Lynch Investment General Partner of Registrant
Partners Inc.
<S> <C> <C>
By: /s/ JOHN R. FRAWLEY, JR. October 22, 1996
- --------------------------------
John R. Frawley, Jr.
President and Chief Executive
Officer
</TABLE>
219681.02
S-5
<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 23, 1996
REGISTRATION NO. 333-10749
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
EXHIBITS
TO
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------
ML GLOBAL HORIZONS L.P.
================================================================================
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Document
- ------ -----------------------
The following exhibits are filed herewith.
EX-3.02c Fourth Amended and Restated Limited Partnership Agreement of the
Registrant (included as Exhibit A to the Prospectus).
EX-5.01 Opinion of Sidley & Austin relating to the legality of the Units.
EX-8.01 Opinion of Sidley & Austin with respect to federal income tax
consequences.
EX-10.09 Subscription Agreement and Power of Attorney (included as Exhibit C to
the Prospectus).
EX-23.01 Consent of Sidley & Austin.
EX-23.02 Consent of Deloitte & Touche LLP.
------------------------------------------
The following exhibits are incorporated by reference herein from the
exhibits of the same description and number filed with Amendment No. 1 to the
Registrant's Registration Statement on Form S-1 (Registration No. 33-62998),
filed with the Commission on September 10, 1993 (Amendment No. 2 to such
Registration Statement became effective October 4, 1993).
1.01 Selling Agreement among the Partnership, the General Partner,
(Amended) Merrill Lynch Futures, the Selling Agent and the Trading Advisors.
10.01 Form of Advisory Agreement among the Partnership, the General
(Amended) Partner and each Trading Advisor.
10.02 Form of Consulting Agreement between Merrill Lynch Futures and
(Amended) each Trading Advisor.
10.03 Form of Customer Agreement between the Partnership and Merrill
(Amended) Lynch Futures.
10.06 Foreign Exchange Desk Service Agreement.
The following exhibits are incorporated by reference herein from the
exhibits of the same description and number filed with the Registrant's
Registration Statement on Form S-1 (Registration No. 33-88994), which became
effective March 1, 1995.
1.01(b) Amendment No. 1 to the Selling Agreement among the Partnership, the
General Partner, Merrill Lynch Futures Inc., the Selling Agent and ARA
Portfolio Management Company, L.L.C. (formerly, ARA Portfolio
Management Company).
The following exhibits are incorporated by reference herein from the
exhibits of the same description and number filed with the Registrant's Post-
Effective Amendment No. 1 to the Registration Statement on Form S-1,
(Registration No. 33-88994), which became effective on December 6, 1995 (Post-
Effective Amendment No. 2 to such Registration Statement became effective April
8, 1996).
1.02 Form of Assignment of Selling Agreement.
3.01 Amended and Restated Certificate of Limited Partnership of the
Registrant.
10.07 Form of Assignment of Advisory Agreement.
10.08 Form of Assignment of Consulting Agreement.
<PAGE>
The following exhibits are incorporated by reference herein from the
exhibits of the same description and number filed with the Registrant's
Registration Statement on Form S-1, (Registration No. 333-10749), which was
filed on August 23, 1996.
EX-1.01c Form of Amendment to the Selling Agreement among the Partnership, the
General Partner, Merrill Lynch Futures Inc., the Selling Agent and the
Trading Advisors.
<PAGE>
EX.-5.01
--------
[LETTERHEAD OF SIDLEY & AUSTIN]
October 22, 1996
Merrill Lynch Investment Partners Inc.,
as general partner of ML Global Horizons L.P.
Merrill Lynch World Headquarters
South Tower, 6th Floor
World Financial Center
New York, New York 10080-6106
RE: ML GLOBAL HORIZONS L.P.
$115,000,000 OF UNITS OF
LIMITED PARTNERSHIP INTEREST (THE "UNITS")
------------------------------------------
Dear Sir or Madam:
We refer to the Amendment No. 1 to the Registration Statement on
Form S-1 (Registration No. 333-10749) (the "Registration Statement") filed by ML
Global Horizons L.P., a Delaware limited partnership (the "Partnership"), with
the Securities and Exchange Commission under the Securities Act of 1933, as
amended (the "Securities Act") relating to the registration of $50,000,000 of
Units of the Partnership. Pursuant to Rule 429 under the Securities Act, the
form of prospectus set forth in the Registration Statement (the "Prospectus")
also relates to an additional $65,000,000 of Units registered under the
Securities Act pursuant to a Registration Statement on Form S-1 declared
effective on June 17, 1994 (Registration No. 33-80202) and a Registration
Statement on Form S-1 declared effective on March 1, 1995 (Registration No. 33-
88994). Capitalized terms not defined herein have the meanings specified in the
Registration Statement.
We are familiar with the proceedings to date with respect to the
proposed issuance and sale of the Units pursuant to the Prospectus and have
examined such records, documents and questions of law, and satisfied ourselves
as to such matters of fact, as we have considered relevant and necessary as a
basis for this opinion.
For purposes of rendering this opinion, we have assumed the
genuineness of all signatures, the legal capacity of natural persons, the
authenticity of all documents submitted to us as originals, the conformity to
originals of all documents submitted to us as certified or photostatic copies,
and the authenticity of the originals of such copies.
Based on the foregoing, we are of the opinion that:
1. The Partnership has been duly formed and is validly existing
in good standing as a limited partnership under the Delaware Revised Uniform
Limited Partnership Act (the "Act").
2. The General Partner has taken all corporate action required to
be taken by it to authorize the issuance and sale of the Units to the Limited
Partners and to authorize the admission to the Partnership of the Limited
Partner as limited partners of the Partnership.
3. Assuming (i) the due authorization, execution and delivery to
the General Partner of a Subscription Agreement by each subscriber for Units
(the "Subscribers"), (ii) the due acceptance by the General Partner of each
Subscription Agreement and the due acceptance by the General Partner of the
admission of each of the Subscribers as a limited partner of the Partnership,
(iii) the payment by each Subscriber to the Partnership of the full
consideration due for
<PAGE>
Merrill Lynch Invesdtment Partners, Inc.
October 22, 1996
Page 2
the Units to which it subscribed, (iv) that the books and records of the
Partnership set forth all information required by the Limited Partnership
Agreement and the Act, including all information with respect to all persons and
entities to be admitted as Partners and their contributions to the Partnership,
(v) that the Subscribers, as limited partners of the Partnership, do not
participate in the control of the business of the Partnership within the meaning
of the Act, (vi) that the Units are offered and sold as described in the
Prospectus and the Limited Partnership Agreement and (vii) that the Subscribers
meet all of the applicable suitability standards set forth in the Prospectus and
that the representations and warranties of the Subscribers in their respective
Subscription Agreements are true and correct, the Units to be issued to the
Subscribers will represent valid and legally issued limited partner interests in
the Partnership and, subject to the qualifications set forth below, will be
fully paid and nonassessable limited partner interests in the Partnership, as to
which the Subscribers, as limited partners of the Partnership, will have no
liability in excess of their obligations to make contributions to the
Partnership, their obligations to make other payments provided for in the
Limited Partnership Agreement and their share of the Partnership's assets and
undistributed profits (subject to the obligation of a Limited Partner to repay
funds distributed to such Limited Partners by the Partnership in certain
circumstances).
4. There are no provisions in the Limited Partnership Agreement
the inclusion of which, subject to the terms and conditions set forth therein,
would cause the Limited Partners, as limited partners of the Partnership, to be
deemed to be participating in the control of the business of the Partnership
within the meaning of the Act.
This opinion is limited to the Act and the General Corporation
Law of the State of Delaware. We express no opinion as to the application of the
securities or blue sky laws of the various states (including the State of
Delaware) to the sale of the Units.
We hereby consent to the filing of this opinion as an Exhibit to
the Registration Statement and to all references to our firm included in or made
a part of the Registration Statement.
Very truly yours,
SIDLEY & AUSTIN
<PAGE>
EX.8.01
-------
[LETTERHEAD OF SIDLEY & AUSTIN]
October 22, 1996
Merrill Lynch Investment Partners Inc.
General Partner of
ML Global Horizons L.P.
Merrill Lynch World Headquarters
South Tower, 6th Floor
World Financial Center
New York, New York 10080-6106
Re: Amendment No. 1 to the Registration Statement on Form S-1
---------------------------------------------------------
Dear Sir or Madam:
We have acted as your counsel in connection with the preparation
and filing with the Securities and Exchange Commission (the "SEC") under the
Securities Act of 1933, as amended, of Amendment No. 1 to the Registration
Statement on Form S-1 (Registration No. 333-10749) to be filed with the SEC on
or about October 23, 1996, (the "Regis tration Statement"), relating to Units of
Limited Partnership Interest ("Units") of ML Global Horizons L.P. (the "Fund"),
a limited partnership organized under the Delaware Revised Uniform Limited
Partnership Act.
We have reviewed such data, documents, questions of law and fact
and other matters as we have deemed pertinent for the purpose of this opinion.
Based upon the foregoing, we hereby confirm our opinions expressed under the
caption "Federal Income Tax Consequences" in the Prospectus (the "Prospectus")
constituting a part of the Registration Statement that: (i) the Fund will be
taxed as a partnership for federal income tax purposes (assuming that Merrill
Lynch Investment Partners Inc. will, when the Fund's Units are sold to the
public, have a capitalization no less than that indicated in the audited
financial statements included in the Registration Statement and that Merrill
Lynch Investment Partners Inc. makes a capital contribution to the Fund in at
least the amount contemplated by the Prospectus); (ii) each Partner will be
required to report on his tax return his allocable share of the Fund's income,
gains, losses, and deductions; (iii) based upon the contemplated trading
activities of the Fund, the Fund should be treated as engaged in the conduct of
a trade or business for federal income tax purposes, and, as a result, the
ordinary and necessary business expenses incurred by the Fund in conducting its
commodity futures trading business should not be subject to limitation under
section 67 of the Internal Revenue Code of 1986, as amended (the "Code") or
under section 68 of the Code; and (iv) based on the contemplated trading
activities of the Fund, the income earned by the Fund will not constitute
"unrelated business taxable income" under section 511 of the Code to employee
benefit plans and other tax-exempt entities which purchase Units; provided that
such Units purchased by such plans and entities are not "debt-financed" within
the meaning of section 514 of the Code.
We also advise you that in our opinion the description set forth
under the caption "Federal Income Tax Consequences" in the Prospectus correctly
describes (subject to the uncertainties referred to therein) the material
aspects of the federal income tax treatment to United States individual
investors, as of the date hereof, of an investment in the Fund.
Very truly yours,
SIDLEY & AUSTIN
<PAGE>
EX.23.01
--------
[LETTERHEAD OF SIDLEY & AUSTIN]
October 22, 1996
CONSENT
OF
SIDLEY & AUSTIN
Sidley & Austin hereby consents to all references made to it in
the Registration Statement on Form S-1 of ML Global Horizons L.P. as filed with
the Securities and Exchange Commission on October 23, 1996.
Dated: October 22, 1996
SIDLEY & AUSTIN
<PAGE>
EX-23.02
--------
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of ML Global Horizons L.P.
(a Delaware limited partnership) on Form S-1 of our report dated January 26,
1996 relating to the financial statements of ML Global Horizons L.P. and of our
report dated January 26, 1996 relating to the balance sheet of Merrill Lynch
Investment Partners Inc. (formerly, ML Futures Investment Partners Inc.),
appearing in the Prospectus, which is a part of such Registration Statement, and
to the reference to us under the headings "Selected Financial Data" and
"Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
October 21, 1996
New York, New York
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from
Consolidated Statements of Financial Condition, Consolidated Statements of
Income and Consolidated Statements of Changes in Partners' Capital and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 88,096,133
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 88,096,133
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 88,096,133
<CURRENT-LIABILITIES> 7,019,022
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 81,077,111
<TOTAL-LIABILITY-AND-EQUITY> 88,096,133
<SALES> 0
<TOTAL-REVENUES> 8,375,255
<CGS> 0
<TOTAL-COSTS> 5,369,304
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,005,951
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,005,951
<EPS-PRIMARY> 4.17
<EPS-DILUTED> 4.17
</TABLE>
